Black Friday bargains: fund and trust ideas

interactive investor experts highlight ideas for bargain-hunting investors.

The annual Black Friday/Cyber Monday sale events are upon us, and lockdown 2.0 means that it will be an entirely online affair for the first time, with retailers offering huge discounts to attract consumers to their cyber stores.

But for investors, bargain-hunting is not reserved for just a week or so of the year – particularly for those who are fans of investment trusts. And although share prices and valuations have begun to settle back into place, some good quality investments are still available on the cheap.

Our investment experts explore investment considerations and ideas for bargain-hunting investors.

Kyle Caldwell, Collectives specialist, interactive investor, says: “Due to their structure, investment trusts can potentially offer investors the chance to pick up a bargain, but it is not simply a case of just looking at the discount in isolation. Instead, assess the trust’s bargain credentials by comparing its current discount with its longer-term average – such as the past 12 months. If the discount is wider than the trust’s 12-month average – then this could arguably be a good entry point.

“But investors may need to be quick off the mark to take advantage of potential discount opportunities. For example,UK trust discounts have been narrowing since the positive Covid-19 vaccine development for markets. Fidelity Special Values, for example, was at the close of trading on 5 November (ahead of Pfizer's vaccine announcement) trading on a discount of 6.3%*. A week later, at the close of trading on 12 November, the discount had vanished and the trust was instead trading on a small premium of 1%.

“It was a similar story for the UK smaller company-focused Odyssean investment trust, which for the same dates saw its discount narrow from 6.4% to 2%. As at close of trading on 20 November, Fidelity Special Values remained on a small premium of 1.7%, while Odyssean investment trust was trading on a slightly wider discount of 4.4%.

“Nonetheless, while the market can move fast and some of the more tempting opportunities can often get snapped up quickly, plenty of UK trust discounts remain (at the time of writing), but it is important to make sure you are buying a trust because you like it – price is one of many, many considerations.”

Teodor Dilov, Fund Analyst, interactive investor says: “From a geographical perspective, UK equities have been under-appreciated by the market for a while now due to the uncertain post-Brexit trade relationship with the EU and, of course, the global pandemic ,which put further pressure on company valuations. However, this could be an excellent entry point for contrarian investors to buy high-quality businesses at a discount and start building long-term positions in companies with diversified revenue streams and strong management profiles.

“One fund that provides exposure to such companies is Man GLG Income Professional. It aims to achieve a level of income above the FTSE All-Share index together with some capital growth. The fund is run by Henry Dixon who focuses on dividend growth and runs a multi-cap portfolio with a distinct bias towards smaller UK dividend-payers. The manager takes a value-based investment approach that results in a relatively concentrated portfolio of 70 holdings. Currently, the strategy offers an attractive dividend yield, but as it does not own many of the typical names owned by larger income-focused funds, it could experience greater volatility of returns than its competitors. Therefore, this fund may be suitable to complement a core portfolio.

“We also like R&M UK Recovery, which has well-diversified portfolio of 290 stocks, with approximately one-third of its assets featuring in the largest constituents of the UK stock market. The fund, which has been run by Hugh Sergeant since its launch in 2008, invests in recovery stocks – good businesses that are currently experiencing below-normal profit levels – which are depressing their valuations. The team follows a very strict approach and to warrant inclusion in the portfolio, a company must have capabilities to help itself out of this predicament. This strategy offers the possibility of long-term capital gains, but its performance profile may deviate significantly from the benchmark FTSE All-Share index.

Tom Bailey, ETFs editor, interactive investor, says: “While home bias is prevalent among UK investors, there are a number of investment bargains waiting to be unearthed overseas. Two markets that at least look very cheap right now are Russia and Turkey.

“Both markets generally trade at low multiples partly due to the sort of stocks found in each market, as well as the inherent risk associated with both countries – namely geopolitical risk.

“ETFs are great investment vehicles to gain exposure to these regions but investors considering dipping their toes into these cheap markets should be well aware of the risks. These markets are cheap for a reason and investors' worst fears could well play out. On top of falling equity prices, any investor in the UK would also have to contend with the potential of currency devaluation, should the fortunes of either country worsen, which is a real possibility. That would exacerbate any loses.”