Value investing involves a focus on identifying undervalued stocks which boast strong fundamentals, yet are underrated by the market for various reasons and trade below their intrinsic value.
There is evidence in the UK and other stock markets around the world that a value investing approach can generate superior returns. The London Business School (LBS) calculates that as at 31 December 2025, value stocks in the Deutsche Numis Smaller Companies Index (excluding Investment Companies) had beaten growth stocks by 3.6% per annum since 1955 in total return terms.
The LBS defines value stocks as those with low price-to-book ratios. However, value investors also screen for stocks trading on low price-to-earnings ratios as well as high dividend and free cash flow yields.
Margin of safety
Value investing is generally seen as being the opposite of growth investing. It is often assumed that value investors don’t invest in growing businesses. More accurately, value investors do want growth, but they are typically unwilling to extrapolate high growth rates into the distant future.
Buying companies on low multiples creates a margin of safety. In turn, this helps to limit downside when growth rates disappoint and share prices de-rate as a result.
UK investors seeking actively-managed exposure to successful value strategies are in luck. Because a select band of London-listed investment trusts provide exposure to portfolios of stocks trading on discounted valuations and with scope to re-rate.
In this article, we shine a spotlight on UK-listed trusts with a value bias. And we highlight some of the cheap shares these bargain-hunting funds have been buying in recent months.
Trusts with a value tilt
At bottom, value-oriented investment trusts seek to buy undervalued companies trading below their intrinsic worth. Typically, these funds offer investors exposure to unloved stocks and sectors.
Two of the most popular trusts pursuing a value approach are Fidelity Special Values (LON:FSV) and Temple Bar (LON:TMPL), whose strong long-run records are reflected in modest share price premiums to net asset value (NAV).
| AIC UK All Companies Sector | 5-year share price total return | 10-year share price total return |
| Fidelity Special Values | 80.3% | 213.7% |
| Schroder UK Mid Cap | 19.9% | 137.7% |
| Mercantile | 18.1% | 131% |
| Aurora UK Alpha | 23.9% | 80.8% |
| Baillie Gifford UK Growth | 3.6% | 80.3% |
Source: The AIC/Morningstar
The former is managed by Alex Wright and Jonathan Winton, who focus on undervalued and overlooked companies with the potential to turn their fortunes around. Fidelity Special Values long-term outperformance of the FTSE All-Share Index is testament to the effectiveness of this contrarian strategy.
The trust is the best one, five and 10-year share price total return performer in the AIC UK All Companies sector. ‘Within the UK, we continue to see particularly compelling opportunities among mid and smaller companies, where share prices continue to imply attractive valuations,’ says Wright.
Classic value approach
The latter is the best five-year performer in the AIC UK Equity Income sector. Managed by Redwheel’s Ian Lance and Nick Purves, Temple Bar pursues a classic value investing approach. The managers aim to rotate the portfolio into companies which they believe are available at a significant discount to intrinsic value.
Purves and Lance observe empirical evidence to show that value strategies have delivered excess returns over the longer term. ‘Of course, some companies are cheap for a good reason, but we believe investments in good quality, yet undervalued companies with strong cash flows and robust balance sheets offer the best potential for attractive long-term investment returns,’ they insist.
Value trust with a twist
UK equity income trusts with a value bent include Law Debenture (LON:LWDB). This unique trust has two distinct-yet-complementary components; a UK equity income portfolio managed with a ‘moderately contrarian’ approach and an Independent Professional Services (IPS) business.
H1 of 2026 marked another period of outperformance from Law Debenture. The trust delivered an NAV total return of 11.4% and a share price total return of 16.2%, comfortably ahead of the FTSE All-Share’s 7.2% haul. The board increased the first interim dividend by 6% to 8.875p, leaving Law Debenture on track to build on its’ 47 years of increasing or maintaining the shareholder reward.
Dividend-paying stalwart
Another UK equity income stalwart pursuing a value style is Merchants (LON:MRCH), which has a long history of delivering consistent income and capital growth for shareholders. Long-serving manager Simon Gergel focuses on total return, which means delivering a high and rising income, together with capital growth.
Small cap bargain-seekers
Small cap specialists following a value investment philosophy include Aberforth Smaller Companies (LON:ASL). Its rigorous value approach has been a tailwind to performance over the past five years, during which the trust has comfortably outperformed the benchmark Deutsche Numis Smaller Companies Index.
The managers buy shares in companies that they calculate to be selling below their intrinsic value. This is determined through detailed financial and industrial analysis, combined with a valuation approach that focuses on both stock market and corporate worth.
Cash-flow focus
Sharesify is a big fan of the best five and 10-year share price total return performer in the AIC UK Smaller Companies sector, namely Rockwood Strategic (LON:RKW). Managed by small cap guru Richard Staveley, Rockwood has a ‘value’ investor mindset and Staveley is cash-flow focused.
The manager seeks out proven businesses and opportunities for strategic, operational or management change to unlock shareholder value. He looks for investments capable of delivering 15% IRRs (Internal Rates of Return) over a three to five year time horizon. And his tried-and-tested strategy targets five to eight ‘core’ positions, with the top 10 representing the majority of NAV and a further 10 to 25 more liquid, smaller investments.
| AIC UK Smaller Companies Sector | 5-year share price total return | 10-year share price total return |
| Rockwood Strategic | 143.7% | 403.2% |
| JPMorgan UK Small Cap Growth & Income | 0.1% | 216.2% |
| Aberforth Smaller Companies | 30.9% | 133% |
| River UK Micro Cap | (21.5%) | 114% |
| Oryx International Growth | (30.9%) | 107.8% |
Source: The AIC/Morningstar
Stellar performance and share issuance to sate investor demand have swelled the size of Rockwood Strategic, one of two small cap trusts trading on a premium to NAV. Staveley has recycled the proceeds from the sale of high-flying RF communications specialist Filtronic (LON: FTC) into existing holdings including audio products firm Focusrite (LON:TUNE).
Radiating optimism
The Filtronic proceeds have also been used to buy three new housing-related stocks with recovery potential. Stelrad (LON:SRAD) is the UK’s leading radiator manufacturer. Staveley says the firm is ‘well run by an established, aligned management team, end markets are cyclically depressed. Yet underlying profitability has been improving and the operationally geared recovery opportunity is significant.’
He has also bought building products maker Marshalls (MSLH). The landscaping and roofing business is undervalued on a single digit price-to-earnings ratio with a 5% yield. The third housing-related purchase is LSL Property Services (LON:LSL), the lowly-rated residential property services platform.
Inspired by the greats
Two other value-oriented trusts meriting mention are AVI Global (LON:AGT) and Aurora UK Alpha (LON:ARR). Managed by Asset Value Investors’ Joe Bauernfreund and Phoenix Asset Management’s Gary Channon respectively, the underlying holdings of both trusts are undervalued. And the trusts themselves trade at discounts to NAV, giving investors exposure to a ‘double discount’.
Aurora UK Alpha seeks to achieve long-term returns through a value-based philosophy inspired by the teachings of Warren Buffett, Charlie Munger, Benjamin Graham and Phillip Fisher.
‘Our approach, combined with thorough research, invests in high-quality businesses run by honest and competent management purchased at prices that, even with low expectations, aim to deliver excellent returns,’ says Aurora UK Alpha. The concentrated fund’s top holdings include retail conglomerate Frasers (LON:FRAS), housebuilder Barratt Redrow (LON:BTRW) and budget airline Ryanair (NASDAQ:RYAAY).
A unique philosophy
AVI Global pursues a unique investment philosophy that invests in companies with complicated structures that are trading well below their intrinsic value. In the main, this means closed-ended funds, family-controlled holding companies and asset-backed special situations in Japan.
Often, Bauernfreund and his team take an activist approach to unlocking the value in their investments. This can involve rationalisation of company structures, divestment of assets or the return of cash to shareholders.
Three value trusts to buy now
Temple Bar (LON:TMPL)
Specialist value-seeker Temple Bar lagged the FTSE All-Share Index in the six months to June 2026. The fund delivered an NAV total return of 5.4% compared with the benchmark’s total return of 7.2%. However, this marginal underperformance must be viewed in the context of the stellar returns delivered in recent years. And Temple Bar has resumed its outperformance of the benchmark since the half-year end.
The key factor behind the relative underperformance in H1 was the fact Temple Bar did not hold high-fliers HSBC (LON:HSBA) and Rolls-Royce (LON:RR). Within the portfolio, oil stocks BP (LON:BP), Shell (LON:SHEL) and Total Energies (EPA:TTE) performed strongly in response to the sharp increase in Brent crude prices following the Strait of Hormuz crisis. Several financials also outperformed, notably Aberdeen (LON:ABDN), Standard Chartered (LON:STAN) and NN Group (AMS:NN).
| Share price: 422.5p | Premium to NAV: 1.1% |
| Market cap: £1.3bn | Dividend yield: 3.7% |
Source: The AIC/Morningstar
There is still plenty of re-rating potential in Temple Bar’s portfolio, which is valued at around 11 times earnings. That is ‘a meaningful discount to the wider UK market, and around half the valuation accorded to the wider global equity indices,’ according to Lance and Purves.
During H1, Temple Bar initiated seven new positions. These included commercial property developer Land Securities (LON:LAND), US food colossus Kraft Heinz (NASDAQ:KHC) and discount retailer B&M (LON:BME). The other four new buys were French pharma group Sanofi (EPA:SAN), Asian conglomerate Swire Pacific (FRA:SWI), media group Comcast (NASDAQ:CMCSA) and US consumer foods company JM Smucker (NYSE:SJM).
The Merchants Trust (LON:MRCH)
Sharesify has long admired Merchants for its impressive performance and dividend growth records. The £1 billion market cap trust is among the UK Equity Income sector’s top one and 10-year share price total return performers.
While Merchants’ shares are at all-time highs, they still trade on a narrow NAV discount. Merchants is an AIC ‘Dividend hero’, having increased the annual dividend for 44 successive years. And the quarterly dividend-paying trust offers a competitive yield approaching 4.5%.
Disciplined value approach
Merchants’ objective is to provide shareholders with a high, progressively growing income stream, alongside capital growth. To achieve this, Allianz Global Investors’ Gergel employs a disciplined value approach. He selectively targets undervalued companies trading significantly below their fair or intrinsic values.
| Share price: 686p | Discount to NAV: 4.6% |
| Market cap: £1bn | Dividend yield: 4.4% |
Source: The AIC/Morningstar
The top 10 includes large, well-known UK companies such as oil major BP (LON:BP), banking group Lloyds (LON:LLOY) and drugs giant GSK (LON:GSK).
In the July factsheet, Gergel said he had added to positions in several companies where he sees good value. These include luxury goods business Burberry (LON:BRBY), student accommodation provider Unite (LON:UTG) and oil and gas firm Harbour Energy (LON:HBR).
Positions in outsourcer Serco (LON:SRP) and enterprise software firm Sage (LON:SGE) were also topped up. ‘The volatility in equity markets, and particularly between different sectors, is continuing to create opportunities to buy into strong businesses at attractive valuations,’ enthused Gergel. He remains ‘positive on the outlook for capital growth and dividend income from the investment portfolio.’
AVI Global Trust (LON:AGT)
A 7.1% NAV discount on AVI Global presents an opportunity for investors to access a unique value-based strategy. While H1’s NAV total return of -5% versus the benchmark’s 2.1% total return was disappointing, the trust’s robust long-term track record remains intact. And continued strong performance and share buybacks could bring the discount in over time.
Manager Joe Bauernfreund seeks quality assets trading at a discount to their intrinsic value, yet which have an identifiable catalyst to enable value to be realised. He is finding opportunities across asset classes ranging from holding companies and closed-ended funds to asset-backed special situations.
| Share price: 264p | Discount to NAV: 7.1% |
| Market cap: £1bn | Dividend yield: 1.7% |
Source: The AIC/Morningstar
AVI Global is flush with hidden value. The underlying portfolio trades at around a 40% discount to NAV, which is towards the wider end of the historical range. The trust offers exposure to the likes of News Corp (NASDAQ:NWSA), Universal Music (AMS:UMG) and private equity trusts including Oakley Capital Investments (LON:OCI).
Investors are also buying exposure to Korean value and holding company names. These are largely detached from the AI and memory trade and held up better than the market’s AI darlings during a recent AI and memory stock sell-off.
Playing the Korea discount
Bauernfreuend says discounts across AVI Global’s Korean holdings sit ‘at some of the widest levels we have seen. We have been adding to these positions in a measured way and remain excited by the opportunity set and the prospect of further corporate governance reform,’ he enthuses. ‘Korea stands at a 19% weight in the portfolio, reflecting our high level of conviction in the theme.’
A recent Japanese addition to the portfolio is Rohm (TYO:6963), where the manager sees multiple ways to unlock shareholder value. Originally, Rohm was a resistor company. Today, it is a power operating company whose products are used in data centres for safety and efficiency applications.
Disclaimer: The author James Crux owns shares in The Merchants Trust, Fidelity Special Values and Rockwood Strategic.
