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Investment Trust Watch: bruised Barnett's 'bargains'

Investment Trust Watch: bruised Barnett's 'bargains'

Mark Barnett's investment trusts continue to offer a buying opportunity, with both Edinburgh (EDIN) and Perpetual Income & Growth (PLI) remaining in the 'cheap' list of investment trusts compiled by Numis Securities.

Barnett's flagship Edinburgh trust trades on a discount of 6.5%, below its 2.6% average over the last 12 months, giving it a Z-score of -2.2. The discount on his smaller Perpetual Income & Growth is even bigger, at -10.3, although as the shares haven't traditionally been rated as highly, with a 12-month average discount of -6.4%, the Z-score is lower at 2.

Just to recap, a Z-score is a measure used by analysts to tell if an investment trust share is trading beyond its normal one-year range. Broadly, a Z-score of -2 or below is considered cheap, while a score of 2 or more is viewed as getting expensive.

'Cheap' trusts Share price premium (-discount) to net asset value % 12-month average premium (-discount) % Z-score
Drum Income Plus REIT (DRIP) 0.7 10.9 -3.3
-6.5 -2.6 -2.2
F&C High Income - B Shares (FHIB) -8.6 -7.3 -2.1
Qannas Investments (QIL) -4.5 -0.4 -2.0
NB Distressed Debt - Extended Life (NBDX) -8.3 -5.7 -2.0
F&C High Income- Units (FHIU) -10.4 -8.3 -2.0
-10.3 -6.4 -2.0
Terra Capital (TCA) -18.9 -14.6 -1.9
JPMorgan Elect - Managed Growth (JPE) -3.8 -2.4 -1.9
F&C Capital & Income (FCI) -1.8 0.5 -1.9
Invesco Asia (IAT) -14.1 -12.2 -1.9
BB Healthcare (BBH) -1.2 2.2 -1.8
Troy Income & Growth (TIGT) -0.3 0.9 -1.7
ICG Longbow Senior Secured UK Property Debt Investments (LBOW) -1.3 1.4 -1.7
Sanditon Investment (SIT) -1.1 1.9 -1.6

Source: Numis Securities 02/3/17

Both trusts endured a difficult 2016, with shares in the Edinburgh trust delivering just a 8.6% total return over the last 12 months and Perpetual Income & Growth flat-lining.

Like Neil Woodford, who Barnett replaced as manager of the Invesco Perpetual Income and High Income fund, he saw some of his UK domestic-focused stocks hit hard by the Brexit vote.

This was followed by the market's shift towards 'cyclical' stocks more sensitive to economic growth, and away from the 'defensive' sectors Barnett tends to favour, in the second half of the year, a move accelerated by Donald Trump's election as US president. A profit warning from Capita, a holding in both trusts, last September also didn't help.

And the new year hasn't yet brought an upturn in fortunes. The two trusts continue to lag almost all others in the UK Equity Income sector, hurt by worsening problems at Capita (CPI) leading to the resignation of its chief executive this week and an accounting scandal at BT (BT), a top 10 holding in Perpetual Income and a holding in Edinburgh.

'Expensive' trusts Share price premium (-discount) to net asset value % 12-month average premium (-discount) % Z-score
Symphony International Holding (SIHL) -24.1 -40.7 3.3
Prospect Japan (PJF) -1.4 -25.2 3.1
Honeycomb IT (HONY) 7.7 2.1 3.0
Industrial Multi Property Trust 3.0 -29.9 2.9
Syncona 11.2 2.9 2.6
NB Private Equity -14.5 -23.7 2.6
Aurelius Equity Opportunities 52.9 35.7 2.5
Chenavari Capital Solutions -2.2 -8.9 2.5
Better Capital 2012 -44.1 -63.8 2.5
CVC Credit Partners Euro Opps - £ 1.1 -3.1 2.4
Cambium Global Timberland -61.4 -69.8 2.4
Custodian REIT 10.6 5.3 2.4
Eurocastle Investment 7.8 -12.0 2.3
Macau Property Opportunities -35.0 -45.5 2.3
Temple Bar -2.9 -7.1 2.3

Source: Numis Securities 02/3/17

Sanditon struggles

Barnett's trusts have been joined in the 'cheap' list this week by Sanditon (), as the investment trust continues to lag rivals in the UK All Companies sector, with the shares down 1.8% over the last 12 months.

Managers Timothy Russell and Chris Rice are able to 'short' companies, or bet on their shares falling, and it is this aspect of the trust which weighed on performance in the latter half of 2016.

Writing in the trust's half-year results released this morning, Russell and Rice pointed to their short position on industrial companies.

'We have been short industrials since the start of the company's life which was largely beneficial to performance up to the Brexit vote,' they said.

However, the sharp fall in sterling post the referendum vote was beneficial to most industrials who generally make a large percentage of their profits overseas and shorts in this area cost us 3% in the second half, having been a small positive in the first half.'

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