Bargain hunter: Three ‘star’ managers trading on a discount

The eight-year long bull market has been described by commentators as the “one of the most unloved” in memory. 

Retail investors are certainly not getting carried away; in fact the opposite is playing out, as evidenced by the latest fund data from the Investment Association (IA).

For the last six months there has been more money exiting the IA’s UK All Companies and UK Equity Income sectors than entering them.

Instead, investors are turning to bonds – despite the fact that bonds of virtually all descriptions are carrying higher valuations than UK equities.

But, while there are uncertainties in the air, most notably uncertainties over how the Brexit negotiations will pan out, there is also a sound argument that UK equities could continue to enjoy their time in the sun a little longer, which could propel the FTSE 100 index (UKX) towards the 8,000 mark.

Firstly, over the past two years the FTSE 100 has underperformed various global stockmarkets. The fact that UK equity valuations look rational rather than ridiculous is another reason to perhaps not be fearful of a stockmarket correction, which various experts are preparing for.

One of the main reasons why the UK market does not carry an expensive price tag is the fact that since the Brexit vote in June 2016, domestically focused UK businesses have been left in the cold, and as a result their valuations have fallen. Heading into the start of 2018, various fund managers, including Neil Woodford and Mark Barnett, share the belief that domestic stocks have been unjustifiably penalised.

Private investors who share the same view can pick up Woodford's Patient Capital Trust (WPCT) on a 9.4% discount, while Edinburgh IT (EDIN) , headed up by Barnett, is trading on a discount of 7.1%. Both discount figures are notably wider than their 12-month averages; -4.8% and -5.7% respectively.

Arguably, however, a bigger bargain lies elsewhere. James Henderson, the respected small-cap manager, also has a bias towards domestic stocks. Henderson Opportunities Trust (HOT) is offering a discount of 14.2%. Over the past year the trust has typically traded on a discount of 16.3%, so there have been cheaper times to buy, but within the past year the discount has been as tight as -9.6%, so there could be some scope for further narrowing from its current level.

In an interview with Money Observer earlier this year, Henderson explained why he is confident the smaller company names he favours will ‘find a way forward’ when Britain leaves the European Union in March 2019.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

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.

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