This investment trust looks like good value right now

This discounted investment trust could be worth your attention right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors holding shares in Aberdeen Asian Smaller Companies Investment Trust (LSE: AAS) have enjoyed a good run over the last couple of years. The shares are up almost 50% since the autumn of 2015.

Even now, with the share price around 1044p, the trust trades at a discount to diluted net asset value (NAV) running around 11% or so, suggesting that good value could be on offer to those taking the plunge. Trusts, and other types of investment fund, can trade either below, over, or at their net asset values, depending on their popularity with investors, which in turn often depends on what investors think about the outlook.

Rising net asset value

Of course, such value could prove to be elusive if the underlying investments held by the trust go on to perform badly, and that could happen if macroeconomic conditions deteriorate. Maybe that’s what investors are worried about. But there’s little sign of pessimism in the outlook within today’s annual financial report.

It reveals that the diluted NAV added 15.4% during 2017, indicating that the trust’s investee companies performed well. The great thing about closed-ended investment trusts is that they trade as companies on the stock market in their own right. That means we can buy and sell their shares with ease, without all the faffing about necessary to participate in open-ended funds. So, if we see good value, we can pounce quickly.

Renewed interest in smaller companies

UK-based investors holding AAS benefited because the weakness in sterling following the UK’s referendum to leave the European Union boosted investment returns. But the directors also think recent good share price performance has been driven by “investors’ renewed interest in smaller companies”. Indeed, many firms perceived as being cyclical saw a big dip in their share prices during the last couple of years when the economic outlook came into question. We’ve seen a lot of that unwinding reversed since then though.

Chairman Nigel Cayzer reckons the year was characterised by strong global economic news and an improved outlook for earnings driving asset prices across all markets. I think that’s an interesting view that should help to dispel any lingering doubts we might harbour about potential weaknesses in the macroeconomic environment. Cayzor says in the report: “The Company’s focus on smaller companies in Asia benefited the portfolio as many of these domestically-focused businesses are rooted within the region’s higher-growth economies.”

Ongoing opportunities

The trust sees good opportunities to invest in India, which is seeing an acceleration in economic growth and reforms that should simplify the tax regime, boost tax revenues and make it easier to do business in the country. Meanwhile, consumption in Asia is “another bright spot” seen as a long-term structural driver. Cayzer added: “The portfolio is well positioned in this aspect.”

Overall, the outlook sounds promising, and I’m encouraged by the discount to NAV to think about tucking away a few shares away in Aberdeen Asian Smaller Companies Investment Trust.  

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.

Kevin Godbold has no position in any of the shares 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.

More on Investing Articles

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

How I’m trying to make a million from passive income

Invest as much as possible, regularly, and use the passive income to plough back into more shares. Here's how millionaires…

Read more »

Investing Articles

I’d buy 30,434 shares of this UK dividend stock to target £175 a month in passive income

A top insider has spent over £1m buying this 9%-yielding passive income share over the last year. Roland Head explains…

Read more »

Growth Shares

Should I buy Rolls-Royce shares for 2025?

Edward Sheldon’s missed out on the huge gains that Rolls-Royce shares have generated this year. But should he buy the…

Read more »

Investing Articles

30,000 shares in this FTSE 250 REIT could earn me £559 a month in passive income

Real estate investment trusts can be great passive income investments. And Stephen Wright likes one from the FTSE 250 with…

Read more »

Investing Articles

Down 24% and yielding 9.18! Is L&G the best passive income stock on the FTSE?

Harvey Jones is the first to admit that the Legal & General share price has had a poor year. But…

Read more »

Investing Articles

Warren Buffett just bought these 2 stocks!

Warren Buffett just invested $700m in these stocks! What’s the strategy behind them, and should investors think about following in…

Read more »