We all know that to retire early, you need to invest wisely for the future. With this in mind, I’m looking at whether these three discounted investment trusts could help you to build wealth for early retirement.
Emerging markets
Templeton Emerging Markets (LSE: TEM) has had a great year thanks to the recovery in emerging market equities and the slump in the value of sterling. The trust’s shares are up 68% over the past 12-months, and even its discount to NAV has narrowed from a peak of above 20% to just 13%.
Today, valuations are not as cheap compared to a year ago, but emerging market equities still appear to be trading at a discount to developed markets. Commodity price volatility and Trump’s uncertain trade policy still pose big risks for emerging market investing. But the trust’s manager Carlos Hardenberg reckons developing economies are, in most cases, now more defensive and less vulnerable than they have been in the past.
Unquoted investments
Caledonia Investments (LSE: CLDN) has two interesting features. First, the trust is self managed, which means it employs an in-house investment fund manager, instead of hiring an external management company. This can allow it to take a long-term investment approach, which could give it an advantage over other investment companies.
Second, the trust invests a significant proportion of its portfolio value in unquoted companies — 42% at the end of January. This gives individual investors exposure to a sector which is generally difficult to get access to. The performance and valuations of unquoted companies tend to be less dependent on general stock market trends, which offers investors diversification benefits by reducing portfolio risk.
The trust has an impressive dividend track record, with 49 consecutive years of annual dividend increases under its belt. Shares in Caledonia Investments currently trade at a 16% discount to NAV and yield 1.9%, based on today’s share price of 2,770p.
Peer-to-peer lending
The Bank of England’s decision last August to reduce the base rate to 0.25% has piled even more downward pressure on returns offered by banks on cash balances. With interest rates so low, canny savers are having to look elsewhere to park their cash.
Investing in peer-to-peer lending can be a great way to boost your returns. But for investors who don’t want to go through the trouble of setting up their own account with a peer-to-peer lending platform, P2P Global Investments (LSE: P2P) offers an alternative route to gain access to the sector.
The investment trust, which focuses on buying peer-to-peer loans, offers investors exposure to the much larger US market, in addition to the UK, European and Australasian markets. This also adds diversification, which can help to reduce overall investment risk. In addition, the trust owns equity stakes in the lending platforms, which may offer investors potential capital gains on top of the steady income generated by its portfolio of loans.
Concerns about the lending practices of peer-to-peer platforms and their ability to withstand a more difficult economic environment have no doubt shaken confidence in the market. But with P2P Global Investments currently trading at a discount to NAV of 20%, I think these fears are overdone.
P2P Global Investments currently trades at a trailing dividend yield of 5.9%.