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Bargain Hunter: three investment trust picks

Bargain Hunter: three out-of-form investment trusts with cheap price tags

Following the steep market falls two months ago there remain numerous examples of investment trusts trading on wider discounts than their 12-month average discount figure.

May 28, 2020 by Kyle Caldwell

Heavy stock market falls during a six-week period in February and March negatively impacted the majority of investment trusts.

Since then global markets have marched higher in response to increased investor confidence, which is pinned on hopes that a growing number of countries have a firm handle on the coronavirus pandemic…

However, following the steep market falls there remain numerous examples of investment trusts trading on wider discounts than their 12-month average discount figure – the criterion used by this column. Therefore, at such times the ‘z-score’ measure arguably becomes more useful as an aid to find the biggest bargains.

The z-score is a way to compare a trust’s current discount or premium to its historic level. A positive z-score shows the current value is higher than the historic mean, while a negative value indicates the opposite. As a rule of thumb, a score of minus 2 or lower suggests the trust is looking cheap, while a positive score of 2 or more suggests it looks expensive.

QuotedData, the analyst, screened the investment trust universe for 10 investment trusts with the highest z-scores, and picked out three that it believes offer the most compelling value opportunities for bargain hunters: The North American Income Trust, Polar Capital Global Financials Trust and Aberdeen Emerging Markets Investment Company.

James Carthew, head of investment company research at QuotedData, points out that all three are out of form, having seen their share price performance notably suffer during the sell-off. But in each case, in the context of how the underlying investments in each portfolio have fared (as measured by the net asset value performance), Carthew believes the high discounts seem unjustifiably cheap.

Read more here

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