3 deeply discounted investment trusts yielding more than the market
Investment trusts can be a great place to park your cash due to the quirks of their structure. Unlike standard open ended funds, investment trusts are closed ended with a limited number of shares in issue. This means their share prices can trade at a premium, or discount to the underlying net asset value, giving investors the opportunity to pick up a bargain.
Income on offer
The goal of the Shires Income(LSE: SHRS) trust is to "provide for shareholders a high level of income, together with growth of both income and capital," which management has been able to accomplish over the past five years. Indeed, over the previous five years, the net asset value of the trust has grown by 77.8%, compared to the UK Equity Income benchmark return of 68%.
However, Shire's share price has not kept up with NAV growth. The trust's shares have returned just 59.5% over the past five years. The good thing is that this sluggish performance now means that investors can buy into the trust at an 18.7% discount to NAV and pocket an annual dividend yield of 4.92%.
The annual management fee is 1.04%, and the fund owns a collection of top dividend stocks as well as a top 10 holding in the Aberdeen Smaller Companies Income fund, giving investors exposure to small company growth as well as large-cap income.
Many investors balk at the idea of investing overseas, but you can often find desirable investment opportunities in global markets. The Aberdeen Latin American Income Trust(LSE: ALAI) is a great example.
This is a fixed income and equity trust, with assets split roughly 50/50 across Latin American bonds and equities. Unfortunately, over the past few years, as Brazil has struggled with political and economic instability, the trust's returns have suffered. NAV has only expanded 11.7% over the previous five years. Still, this return is more than double that of its benchmark, which gained only 4.9% over the same period.
After this poor performance, the shares trade at a discount of 13.6% to published NAV, offering a deeply discounted play on Latin America's economic recovery. As well as the discount, shares in the trust also support a market-beating dividend yield of 4.5%. Management fees are a relatively high 2.01%.
Water water everywhere
Water is the world's most valuable resource, and as the world's population continues to expand, demand for this commodity is only going to grow.
The Premier Energy & Water Trust(LSE: PEW) is well placed to profit from this trend. The company's target is to invest the majority of its assets in water and other infrastructure assets to produce a desirable level of capital growth and income for investors. Assets are currently invested in companies around the world active in the water and energy sector with a focus on renewable markets, although UK utility giant SSE also features in the top 10 holdings.
Over the past five years, the focus on water and infrastructure has helped the fund produce a return for investors of 140%, outperforming its benchmark by 73%. Today, the trust's shares are trading at a discount to NAV of 6.7% and support a dividend yield of just under 6%.
I believe this could be one of the best value trust out there thanks to its high returns over the past few years, current dividend yield, and discount to NAV.
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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.