Small can be beautifully cheap, too

SMALLER investment trusts, which are stock market-listed funds, can also present opportunities.

Mick Gilligan, of Killik & Co, cites ScotGems as an interesting option. Managed by Tom Prew, the trust has a £40 million market capitalisation and invests in small emerging market companies.

‘It has struggled since launch in June 2017, as it took a long time to invest its capital and was then hit by the pandemic. However, it has a very capable management team at Stewart Investors, a strong board that is heavily personally invested and the latest annual report makes encouraging reading,’ he says.

Over the past 12 months, the trust has turned a £1,000 investment into £1,300. Another attraction is its share price, which currently trades at a 19 per cent discount to the value of the assets in the portfolio, at 75.5p.

Investors in smaller trusts need to be particularly careful about costs. First, ongoing charges tend to be higher than for larger peers and discounts are not always available.

Second, share prices are quoted with an ‘offer’ or buy price and the ‘bid’ or sell price. The difference between the two, known as the ‘bidoffer spread’, can be large for smaller investment trusts (with the buy price much higher).

If there is a large bid-offer spread, you may need to hold the investment for longer to justify the entry cost.