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Investment Trust Watch: tender frenzy shakes up shares

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Investment Trust Watch: tender frenzy shakes up shares

It's been an expensive few weeks for the boards of Invesco Perpetual-run investment trusts.

Just two weeks after the board of  Invesco Perpetual UK Smaller Companies (IPU) spent nearly £100 million buying up 40% of the trust's shares in a huge tender, their counterparts at Invesco Asia (IAT) have this morning shelled out £39.2 million in a similar move.

Invesco Asia appears towards the top of this week's list of 'expensive' investment trusts compiled by Numis Securities, and given today's tender, it's not hard to see why.

The board paid 312.9p for each of their 12,514,241 shares, or 17.6% of the share capital, in line with its pledge to buy back at a 2% discount to net asset value (NAV), plus the costs of the transaction.

That represents a big uplift on the 12% discount to NAV at which the shares have tended to trade over the last 12 months, and explains the huge popularity of the offer, which was almost four times over-subscribed.

The shares rallied in the run-up to today's tender, and were yesterday trading at an 8.8% discount, its highest rating of the last 12 months, giving the shares a Z-score of 3.4

Just to recap, a Z-score is a measure used by analysts to put an investment trust share price in some historical context. Roughly speaking, a Z-score of -2 or below is considered significantly cheaper than normal, while a score of 2 or more is viewed as ‘expensive’.

'Expensive' trusts Share price premium (- discount) to NAV % 12-month average premium (- discount) % Z-score
Shires Income (SHRS) -5.9 -11.4 4.3
British & American (BAF) 135.4 64.1 4.3
ICG Longbow Senior Secured UK Property Debt (LBOW) 8.6 0.9 3.8
Invesco Asia (IAT) -8.8 -12.0 3.4
Edinburgh Worldwide (EWI) -2.8 -9.5 2.9
River & Mercantile UK Micro Cap (RMMC) 5.9 -5.0 2.8
Herald (HRI) -14.9 -19.6 2.8
JPMorgan Chinese (JMC) -10.9 -14.6 2.7
Primary Health Properties (PHP) 29.5 23.9 2.6
CQS New City High Yield (NCYF) 8.8 4.9 2.5
Schroder Income Growth (SCF) -4.8 -8.6 2.4
Syncona (SYNC) 26.4 6.8 2.4
TR Property (TRY) -5.8 -11.7 2.3
Jupiter US Smaller Companies (JUS) -4.5 -10.1 2.3
Funding Circle SME Income C (FCIC) 2.8 1.7 2.3

Source: Numis 10/8/17

Even with this rally, those shareholders who did sell into the tender could replenish their holdings today at a tidy profit. But if the experience of stablemate Invesco Perpetual UK Smaller Companies is anything to go by, it may pay even more to wait.

Shares in that trust enjoyed a similar rally in the run-up to their even bigger tender, and were trading at par just before the board bought back the shares at the end of last month.

But after a fleeting appearance at the top of Numis' 'expensive' list, the discount has been reinstated, with the current level of 4.3% not far off the 12-month average of 5.2%.

While the upcoming tender has played the major role in Invesco Asia's rerating, investment performance has also played some part.

The trust's NAV is up 24.5% so far this year, thanks to the strong performance of stock markets in the region. That's reflected in the rating of shares across the sector, with the average discount for Asia Pacific ex-Japan trusts having fallen to 8.9%, below their double-digit average over the last 12 months.

Schroder Asian Total Return (ATR) is another trust whose rerating stands out: the shares' discount have been squeezed to just 1%, down from a 12-month average of 4.7%. That gives the trust a Z-score of 2.1, sitting just outside the 'expensive' list.

Stablemate Schroder Income Growth (SCF) does make it into the list, as the latest trust to receive a boost from the Telegraph's Questor column.  

The paper last week highlighted what it argued was an 'illogical' discount, averaging 8.6% over the last 12 months, given its strong long-term performance. That tip has seen the discount close to 4.8%, placing the shares on a Z-score of 2.4.

'Cheap' trusts Share price premium (- discount) to NAV % 12-month average premium (- discount) % Z-score
Axiom European Financial Debt (AXI) -6.8 -0.9 -2.7
Investor AB (INVEB) -22.1 -8.1 -2.3
TwentyFour Income (TFIF) -0.3 2.9 -2.3
Masawara (MASA) -36.4 -32.4 -2.3
SQN Asset Finance Income (SQN) 2.9 12.0 -2.1
Draper Esprit (GROW) -12.0 0.8 -2.0
Invesco Perpetual Select - Balanced Risk (IVPB) -2.5 -1.0 -2.0
NB Distressed Debt - Extended Life (NBDX) -14.0 -8.7 -2.0
Ashmore Global Opportunities - £ (AGOL) -30.3 -23.8 -2.0
Supermarket Income REIT (SUPR) 0.5 2.3 -1.9
SQN Asset Finance Income C (SQNX) 1.0 5.6 -1.9
Juridica Investments (JIL) -61.1 -31.3 -1.8
Pershing Square Holdings (PSH) -21.3 -17.2 -1.8
Ranger Direct Lending (RDL) -27.0 -14.7 -1.7
Pershing Square Holdings £ (PSH £) -21.6 -17.3 -1.5

Source: Numis 10/8/17

Renowned activist hedge fund investor Bill Ackman's latest high-profile spat has done little to lift sentiment towards his Pershing Square Holdings (PSH) fund, which has endured an inauspicious start to life on the London stock exchange.

We highlighted the fund's widening discount last month, and shares in both the London shares, which listed in May, and the longer standing Guernsey shares, makes this week's cheap list.

Investors buying into the fund's London listing on hopes of a turnaround in performance have been left disappointed, with the shares down 11% since May.

The Guernsey shares are meanwhile down 38% in dollar terms since October 2014, a period that captures of some of the fund's high-profile mistakes, like the big investment in pharmaceutical stock Valeant (VRX.N), whose shares collapsed and have since been dumped from the portfolio.

Ackman's latest target is human resources outsourcing company Automatic Data Processing (ADP.O). Shares in the company spiked last month after Ackman invested, and the manager is now pushing to have his candidates, including himself, placed on the board, but has met stiff resistance.

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