Montanaro UK Smaller Companies
This trust is trading at a discount because of poor performance in recent years. The trust, which invests in small, more domestically focused British companies, has attempted to turn itself around by appointing a new management team.
Charles Montanaro, who founded the eponymous asset management firm, is now focusing on the investment side of his business in an attempt to reverse the trust’s fortunes.
However, another reason for the discount to narrow is a vote due to take place next year in which shareholders could decide to wind up the trust.
The discount is currently more than 15pc, although it has been higher – it was about 22pc when Questor tipped the trust last month, for example.
If the discount does not narrow before the vote, shareholders, eyeing an instant profit, are likely to vote to wind it up, and the trust’s assets would then be sold much closer to their actual asset value – which would be considerably more than shareholders had paid for them.
If, on the other hand, the discount narrows before the vote, shareholders will also have gained, as they will have enjoyed a rise in the share price. It looks like a win-win.
Mr Montanaro’s appointment as investment manager could boost the performance of the trust in any event. It has an “ongoing” charge of 1.24pc a year.
British Empire
This trust offers not one but two discounts for investors.
The portfolio, which holds a large number of overseas companies, is currently trading at a “headline” discount of more than 9.5pc. However, the “double discount” occurs because the assets in which it invests also trade at a discount. The total discount was estimated to be in the high 30s per cent at the time of our tip.