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Beaten-up trusts bounce back as investors hunt bargains

Shares in top-performing Scottish Mortgage, and other investment trusts hit by market jitters, surge as investors judge sell-off overdone.

 
Beaten-up trusts bounce back as investors hunt bargains

Update: Shares in top-performing Scottish Mortgage (SMT ) and other investment trusts hit by the market jitters have surged as investors judge the sell-off overdone.

After shares in the global investment trust yesterday fell to their first discount in nearly two years, the response from investors has been swift, sending them 5.5% higher to 248.5p.

Despite today's rally, the shares remain nearly 10% down since the turn of the year, as the market sell-off has punished growth investments like those favoured by the trust's managers, James Anderson and Tom Slater.

Biotechnology stocks have also been hard hit, with the sector perceived as having a higher 'beta'. This label is handed to stocks with more of their earnings in the future, which are deemed more susceptible to wider market moves than more mature businesses distributing their current earnings as dividends.

Trusts investing in the sector staged an impressive comeback today. Shares in International Biotechnology (IBT ) were up 6.5% at 452.5p while Biotech Growth (BIOG ) rose 3.2% to 628p.

Commodities-focused investment trusts have unsurprisingly been among the year's worst performers, but also recovered some of those losses today. BlackRock Commodities Income (BRCI ) jumped 6.4% to 46p and City Natural Resources High Yield (CYN ) was up 2.7% at 68.3p.

Scottish Mortgage falls to discount

(10:24) Shares in Scottish Mortgage (SMT ), one of the best performing global investment trusts, have fallen to their first discount in nearly two years as a result of the stock market turmoil.

SMT shares closed yesterday at 235.6p, having tumbled 15% so far this year, the biggest decline of any global growth trust, according to Numis Securities data.

The sell-off has left the share price standing 2% below the trust’s net asset value, the first time it has been at a discount since June 2014.

Under managers James Anderson and Tom Slater, SMT has steadily re-rated as investors have backed their policy of buying into high growth internet and biotechnology businesses, both on and off the stock market.

That stance has left the fund exposed in the risk-averse bear market that has gripped share prices worldwide. However, it represents a rare buying opportunity for long-term investors who think markets will pull through this difficult period.

Numis Securities has published a note highlighting potential buying opportunities among investment trusts.

Analyst Ewan Lovett-Turner said: ‘We believe that there is now an opportunity to pick up well managed funds at attractive levels, provided you are comfortable with the potential for further volatility.

‘In our view, it may still be early to venture back into emerging markets/commodities, although we believe that Fidelity China Special Situations [FCSS] is an attractive contrarian play on a 20% discount. Stocks such as Aberforth Smaller Companies [ASL ], JP Morgan Mid Cap [JMF ], Scottish Mortgage and Edinburgh Worldwide [EWI ] are also worth considering, in our view.’

Tomorrow's Investment Trust Watch column will have more on the potential opportunities in investment trust shares

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