UK shares may have been rising lately, but there’s still great value to be found, especially in the mid-cap FTSE 250. One area is investment trusts. Most are still trading at big discounts to net asset value (NAV).
Here, I’ll consider two FTSE 250 trusts that look like smart buys for my portfolio right now.
Scottish American Investment Company
First up, we have Scottish American Investment Company (LSE: SAIN). This is run by Baillie Gifford and aims to provide both income and capital growth.
Launched in 1873, Saints (as it’s known) currently has 62 shares in its portfolio, as well as bonds and property. The emphasis is on steady earnings growth and dependability.
The dividend yield is fairly low at 2.8%. However, over the last 10 years, the dividend’s increased at a rate of 3.3% a year, above the rate of inflation (2.9% a year).
The top two holdings are Novo Nordisk, which is profiting handsomely from its obesity and diabetes drugs Wegovy and Ozempic, and Microsoft, the part-owner of ChatGPT parent OpenAI.
These are world-class companies with strong balance sheets, so I’d expect both to pay rising dividends for a long time.
Now, one issue here is the trust’s share price returns have lagged the FTSE All-World Index (its benchmark) for a number of years. Property hasn’t kept pace with equities while Saints hasn’t owned the likes of Amazon, Alphabet and Tesla. None pay dividends.
Further underperformance can’t be ruled out. That said, the £1bn trust has raised its dividend for 50 consecutive years and hasn’t cut it since the Second World War. Meanwhile, the shares are trading at a 10.1% discount.
Vietnam Enterprise Investments
Next is Vietnam Enterprise Investments (LSE: VEIL). Managed by Dragon Capital Management, this £1.4bn trust is more of a high-risk, high-reward investment as it’s focused entirely on long-term opportunities in Vietnam.
If anything goes wrong with its political system or economy, the shares could get punished.
Nevertheless, I’m optimistic about the country’s future. Foreign investment’s flooding in as companies relocate manufacturing away from China to Vietnam.
According to Statista, the nation’s gross domestic product (GDP) amounted to around $406bn in 2022, and is expected to increase to $657bn by 2028.
The demographics are also favourable, with a large, skilled labour force supported by a young and growing population. And the thriving economy is creating an expanding consumer base.
Vietnam Enterprise’s share price is up 37% over the last five years, but is down 22% since late 2021.
The top holdings aren’t well known, but that’s the point. I’d be investing to get exposure to economic growth via this portfolio.
Top 5 holdings (as of 14 March)
Sector
Weighting
Hoa Phat Group
Materials
9.9%
Asia Commercial Bank
Banking
9.0%
Vietnam Prosperity Bank
Banking
8.8%
Vietcombank
Banking
7.3%
FPT Corporation
Software
6.4%
One gripe I have here is the 1.9% ongoing charge, which is quite high. However, the shares are trading at a 17.3% discount to NAV, so I think this one still looks very attractive.
Foolish takeaway
Finally, NAV discounts (or premiums) simply reflect prevailing market sentiment and investor demand. And this has been improving lately, meaning these sizeable discounts might not last for too much longer.
Therefore, I plan to top up my Saints holding and invest in Vietnam Enterprise with spare cash in April.
The post 2 top FTSE 250 investment trusts trading at attractive discounts! appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Alphabet, Scottish American Investment Company P.l.c., and Tesla. The Motley Fool UK has recommended Alphabet, Amazon, Microsoft, Novo Nordisk, and Tesla. 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.
