Bargain hunter: Star manager's trust at 20% discount

The more domestically-focused shares were the biggest losers in the first couple of trading sessions following last month's Brexit vote.

But over the past couple of weeks shares listed outside the big blue-chip FTSE 100 index have been quietly staging a recovery on the back of investor sentiment improving. This has partly been driven by companies so far reporting that it has been business as usual since the Brexit vote.

The FTSE 250 index, which fell 14% in the two trading days following Brexit, has nearly clawed back its losses.

For investors who missed out on the bounce there are plenty of laggards, with the challenger banks, for instance, deep in the red.

Henderson Opportunities Trust

Investment trusts specialising in the mid and small-cap space also catch the eye. Henderson Opportunities Trust, a Money Observer Rated Fund, stands out like a sore thumb.

The trust, managed by respected investor James Henderson, is offering a 20.9% discount, according to broker Winterflood. This is much wider than its one-year average, which stands at 11.7%.

A week prior to the vote the trust was trading close to the sum of its parts - a discount of -1% - but since the Brexit vote the discount has steadily widened.

Central to Henderson's approach is simply to buy businesses that he believes will be substantially bigger in a couple of years' time.

Small-cap bias

The manager can invest in large, medium and small companies, but he finds many of the best opportunities are companies listed on the Alternative Investment Market (AIM), which accounts for around one third of the portfolio.

Over the past month, due to its bias towards smaller-sized stocks, the trust's share price has dipped 3.5%. The average fund in the Investment Association's UK all companies sector is up 2.5%.

But over longer time periods the trust has managed to gain an edge of rivals. Over five years the trust is up 64%, versus its peer group average return of 40%.

The trust, however, is much smaller than Lowland, also run by Henderson. Henderson Opportunities Trust has total assets of £87 million versus Lowland's £422 million. Lowland's discount is 8.6% versus its one-year average of 1.7%.

How we find investment trust bargains

Each month Money Observer will be highlighting a couple of investment trust bargains, both online and in the monthly magazine.

We will also occasionally draw attention to investment trusts that are "too hot to handle" - those that are trading on big premiums.

Our ideas come from regular conversations with investment trust analysts, and we will try to provide a mixture of bargains, from "hidden gem" trusts with less than £200 million in assets to the more established names that typically trade on a smaller discount or premium.

For the sake of simplicity, rather than using technical measures such as the "Z score", in this column we will identify bargains by comparing current discounts with their 12-month averages.

Only those trusts with a wider discount than their average are considered. We will also look at the overall sector and the quality of the trust, and then take a view on whether the discount looks a good opportunity.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.