Can an investment trust really be 'cheap' if its shares trade at a 23% premium above net asset value? On the face of it, the Lindsell Train (LTI) investment trust is still exorbitantly expensive, with a premium that still ranks among the 10 biggest of all closed-ended funds.
But it makes it into Numis Securities' list of 'cheap' investment trust this week, after the unwinding of a premium that has stood as high as 76% in the last 12 months.
After starting the year with a premium near the 70% mark, the shares went into freefall during January, catching the eye of this column before going on to lose a quarter of their value, ending the month with a premium of around 25%.
The next 10 days brought a swift recovery, with the shares rallying 20% and the premium rising to 50%, only for the bears to reassert themselves. Down 16% over the last month to yesterday, the shares are now back on a 23.2% premium, giving them a Z-score of -1.6.
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|
|TOC Backed Lending (PBLT)||5.4||5.6||-3.9|
|Drum Income Plus REIT (DRIP)||2.8||10.7||-2.4|
|Keystone IT (KIT)||-12.3||-9.8||-2.3|
|Edinburgh IT (EDIN)||-6.7||-2.7||-2.2|
|Genesis Emerging Markets (GSS)||-14.5||-12.4||-2.2|
|NB Distressed Debt - Extended Life (NBDX)||-8.5||-5.8||-2.0|
|Terra Capital (TCA)||-18.6||-14.8||-1.8|
|CATCo Reinsurance Opportunities C (CATC)||-5.6||-0.4||-1.8|
|ICG Longbow Sennior Secured UK Property Debt Investments (LBOW)||-1.6||1.3||-1.7|
|Qannas Investments (QIL)||-3.8||-0.6||-1.6|
|Lindsell Train IT (LTI)||23.2||45.2||-1.6|
|Schroder European Real Estate (SERE)||-7.1||3.4||-1.5|
|Premier Energy & Water - Ords (PEW)||-10.6||-5.8||-1.5|
|Perpetual Income & Growth (PLI)||-9.5||-6.6||-1.5|
|Ranger Direct Lending (RDL)||-15.5||-10.6||-1.5|
Source: Numis Securities 9/3/17
Today's trading has meanwhile brought a 3.1% jump in the shares, sending them towards the top of the FTSE Small Cap index, suggesting another recovery could be underway.
But investors willing to bet on that will need nerves of steel. The shares, long buoyed by the trust's holding in the fund group which runs it and a policy of not issuing more stock, have now decoupled from underlying performance in a more volatile way that at any point since its launch in 2001.
While the trust's stock market holdings have delivered their fair share of drama this year, with Pearson's (PSON) profit warning offset by the aborted bid to buy Unilever (ULVR), the trust's net asset value has risen a relatively serene 6.4% in 2017.
Elsewhere in the 'cheap' list, Mark Barnett's trusts continue to languish, with his Edinburgh (EDIN) and Perpetual Income & Growth (PLI) trusts now joined by Keystone (KIT) on a discount of -12.3%, giving them a Z-score of -2.3.
See below for 'expensive' trusts.
|'Expensive' trusts||Share price premium (-discount) to net asset value %||12-month average premium (-discount) %||Z-score|
|Honeycomb IT (HONY)||9.8||2.2||3.7|
|Chenavari Capital Solutions (CCSL)||-0.4||-8.9||3.1|
|Symphony International Holding (SIHL)||-23.8||-40.3||3.0|
|Prospect Japan (PJF)||-2.1||-24.8||2.8|
|Aurelius Equity Opportunities (AR4)||55.8||36.3||2.8|
|JPMorgan Claverhouse (JCH)||-5.3||-9.5||2.8|
|Industrial Multi Property Trust (IMPT)||3.0||-29.0||2.7|
|Custodian REIT (CREI)||11.7||5.4||2.6|
|Altamir Amboise (LTA)||-25.8||-39.2||2.6|
|Manchester & London (MNL)||-13.9||-20.9||2.5|
|NB Private Equity (NBPE)||-14.1||-23.5||2.5|
|Better Capital 2012 (BC12)||-44.1||-63.4||2.3|
|F&C High Income - A Shares (FHI)||-5.0||-7.2||2.3|
Source: Numis Securities 9/3/17
Incidentally, Numis has tended to exclude the trust from its 'cheap' and 'expensive' lists as a more niche offering, but it has decided to include it from now on.
It enters this week with a Z-score of 2.5, with the discount having shrunk to -13.9% from a 12-month average of -20.9%, after Questor flagged the small £74 million trust as an opportunity to secure exposure to US technology giants at a discount, leading to some celebrations on our Forums.
The trust has had a solid year, with the net asset value up 35.6% over the last 12 months thanks to a weighting to the rallying US stock market that is among the highest in the global sector.
Long-term performance is lacklustre, however, with the shares, even accounting for this month's rally, up just 23.9% over five years and 34% over 10.
It's not the first global investment trust to gain a fillip from a mention in Questor this year. The discount on shares in Bankers (BNKR) narrowed to less than 2% after a Telegraph tip last month, and while it has now drifted back to 4.4%, that's still below the 6.8% level at which it has on average traded over the last 12 months.