3 under-value investment trusts to retire on

These investment trusts look worth buying.

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Investment trusts are one of the oldest investment vehicles around. Despite their age, they’re still a great way for people to gain access to sectors or assets they wouldn’t usually be able to own.

As a result, investment trusts can add a degree of diversification to your portfolio and by devoting 10% of your assets to these instruments, you could help improve your long-term returns through diversification.

What’s more, unlike most funds on the market nowadays, investment trusts are ‘closed ended’, which means that they have a limited number of shares in issue. As shares in investment trusts trade just like any equity, with a limited number of shares in place, these trusts can trade at a discount or premium to their underlying assets, offering investors a chance to buy a portfolio of shares at less than cost.

Some investment trusts deserve to trade at a discount to their net asset value. Take the Macau Property Opportunities Fund for example, which currently trades at a discount of 41%. However, there are plenty of other trusts out there that seem to trade at an undeserved discount.

Cheap trusts 

The Aberdeen Smaller Companies Income Trust is one such example. Over the past five years this fund has produced a return of 121% for investors compared to its benchmark return of 94%. Fees charged are 1.5% per annum and the income trust supports a dividend yield of 3.2%.

Right now, the Aberdeen Smaller Companies Income Trust has a net asset value per share of 271p but trades at a price of 217p, indicating a discount of 19.8%. The fund’s top holdings are small cap growth and income champions XP Power, Dechra Pharmaceuticals and RPC.

The Schroder UK Mid Cap has clocked up a performance of 100% over the past five years compared to a return of 70.3% for its benchmark, the UK All Companies index. Despite these gains, the fund still trades at a 17.7% discount to estimated net asset value. The management fee is 0.8% per annum, the dividend yield on offer is 2.5% and all assets are devoted to UK mid-cap equities.

Market-beating

The last investment trust worth mentioning is the Henderson Opportunities Trust, which has more than doubled its benchmark return over the past five years. 

Compared to the UK All Companies index, which has returned 70.3% since the beginning of 2012, the Henderson Opportunities Trust has produced a return of 163% for its investors over the same period. Despite this return the fund is trading at a 15.9% discount to net asset value. The annual management charge is 1.13% and a dividend yield of 2% is offered.

The Bottom line

So overall, these investment trusts provide diversified exposure to different sectors and are trading at a deep discount to net asset value. They may not be suitable for every portfolio, but investment trusts are certainly worth considering if you’re looking to add some more diversification.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended RPC Group and XP Power. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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