Numis Securities has added Scottish Mortgage to its equity investment companies recommended list as a 'core buy’, replacing stablemate Monks, after strong 2020 performance.
One other addition to the broker's list in July was AVI Global as a 'trading buy' due to the trust offering "an attractive risk/return potential given the double-digit discount and the 37% discount on the underlying portfolio".
Elsewhere, Law Debenture and India Capital Growth were removed as 'trading buys' on discount narrowing and a change in outlook respectively, with J.P. Morgan Global Real Assets (JARA) added as a 'trading sell' on its 16% premium looking "excessive".
While "wary of chasing strong performance", the Numis analysts said Scottish Mortgage "demands a place in investors' portfolios due to its unique strategy focusing on the world's best high-growth companies".
The trust, run by James Anderson and Tom Slater, has returned 53.3% year-to-date, led by strong performance from top holdings including Tesla, Amazon and Tencent.
Numis's analysts noted the managers had "successfully identified and capitalised on a number of key investment trends" during their tenure, including the increasing influence of technology and the internet on all parts of life, as well as the shift in the geographic centre of the economy towards Asia.
In addition, the fund's exposure to unlisted companies, alongside its portfolio of listed firms originally invested in while unlisted, has "the potential to provide long-term drivers of returns".
The analysts added that Scottish Mortgage also "benefits from one of the lowest ongoing charges ratio in the [AIC Global] sector at 0.36%". "The volatility of the discount is limited by a willingness to repurchase shares at modest discounts and issue on a premium."
In contrast, while believing Monks is "an attractive way to gain diversified exposure to the best ideas of Baillie Gifford's growth investment ideas", it has been removed in favour of Scottish Mortgage, as well as on account of its 4% premium.
Double discount potential
Elsewhere, the analysts think it is "an interesting time to invest in AVI Global", given its 11% discount plus the 37% discount of its underlying portfolio, which is made up largely of other investment companies.
"The portfolio discount has narrowed from extreme levels of over 40% in March, but remains wide by historic standards and provides a good basis for returns going forward, as well as offering downside protection," Numis said.
"In the period since 2006, when the portfolio discount is wider than 35%, the average three-year NAV total return has been 36%. As a result, we believe the shares offer an attractive risk/return profile."
The £751m AVI Global Trust focuses on overlooked and under-researched stocks that offer attractive value with a potential catalyst to narrow the discount, and works actively to improve corporate governance to unlock value.
Numis also believes the mandate "may be well placed to benefit from an increased focus on corporate governance and shareholder engagement in the investment companies sector".