Against a backdrop of scepticism towards the UK equity market, several UK focused investment trusts are significantly outperforming the FTSE All Share Index and appear to be overlooked, said analysts at Stifel
Highlighted trusts include Fidelity Special Values PLC (LSE:FSV), with its contrarian strategy focused on undervalued companies; Temple Bar Investment Trust (LSE:TMPL) and its traditional value investing approach; Edinburgh Investment Trust (LSE:EDIN) meanwhile distinguishes itself with a varied portfolio across recovery, growth and value stocks; while Mercantile Investment Trust PLC (LSE:MRC) takes a different path by concentrating on smaller and mid-sized companies not listed in the FTSE 100; and Law Debenture Corporation (LSE:LWDB) combines its professional services offering with investments in out-of-favour equities and businesses that have strong competitive edges.
These trusts have not only surpassed the All Share Index's performance over the past six months to a year but also offer appealing financial metrics, analyst Ian Scouller said in a note to clients.
Most are trading on sizeable discounts to NAV, which he said was another attraction, such as Mercantile's 13% discount, Edinburgh at 11%, Fidelity Special Values at 9%.
Two-thirds of them also have dividend yields above the 3.8% yield on the FTSE All Share and dividend growth has also been "meaningful" with many trusts delivering at least 3% dividend growth per annum over the past five years.
"With the FTSE All Share Index on a P/E of 11.5x, the UK stock market and UK Equity Trusts may confound the gloomsters again this year," Scouller said.
The historical P/E multiple compares to 25.8x on the S&P 500, where the 'Magnificent Seven' account for circa 30% of the index following their strong re-rating.
"Our contrarian view is that with UK equities unloved on a low multiple and investment trusts on wide discounts and with high yields, the sector looks attractive at a time when investors are piling in to highly-rated US equities."
Investors reportedly withdrew £823 million from UK equity funds in March and around £2.5 billionn over the past four months, according to a recent report in the Times.
In contrast, £6.7 billion has been invested in US equity funds by UK investors over the same period.
"This is probably one factor behind widening discounts on investment trusts specialising in the UK. We think this offers an opportunity and UK returns may confound the gloomsters again this year."