Bargain hunter: Brexit drops prized 'safe haven' to 5% discount

RIT Capital Partners, a multi-asset trust and Money Observer Rated Fund that is described as wealth preservation fund because it invests in an extremely cautious manner, has seen its discount widen considerably over the past couple of days.

On 23 June - the day of the European Union referendum vote - the trust was trading on a small premium. This was in line with its one-year average, which is 3.2%.

But a day later, when the outcome of the vote resulted in a victory for the 'Leave' campaign, the trust slipped onto a discount. It widened as far as 7%; at the time of writing on 29 June it stood at 5.4%.

RIT Capital Partners, which launched in 1988, is chaired by Lord Rothschild. The trust aims to generate long-term capital growth while preserving its shareholders' capital.

It invests in a wide range of assets, including shares, hedge funds, credit and private equity.

Maike Currie, investment director for personal investing at Fidelity International, comments: "In uncertain times, wealth preservation is key. And there are few investors who have been better at preserving wealth than the Rothschild family. The RIT Capital Partners investment trust counts the Rothschild family as a 21% shareholder.

"In an environment which is likely to continue to be punctuated by market and political uncertainty, your best defence is to diversify. An effective way to achieve this is via a multi-asset fund, which aims to smooth returns by combining a range of different assets."

Other trusts, most notably those that invest in UK mid-caps or smaller companies, have seen their discounts widen considerably over the past couple of days. But given the continuing uncertainty over the longer-term economic impact of the Brexit vote, it would take a brave investor to buy today.

However Iain Scouller, an investment trust analyst at Stifel, says some interesting opportunities have opened up. He has Aberforth Smaller Companies trust - another Money Observer Rated Fund, currently offering a 16% discount versus its one-year average of 10% - down as a 'buy'. The trust's share price has fallen 17% since 23 June.

"As expected, many of the UK equity funds with significant overseas investments have actually seen share price rises in recent days, with sterling weakness being helpful to net asset values," says Scouller.

"In contrast, funds which have assets that are UK-focused, such as UK mid and small cap specialists and real estate funds, have seen sharp price falls. Whilst in some of the gloomy scenarios these sectors could be under pressure for some time, we do suspect some of this has been overdone in the knee-jerk reaction."

How we find investment trust bargains

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 was originally published by our sister magazineMoney Observer here.

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