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Trust Watch: Aberforth v Henderson in small-cap tussle

Smaller company investment trusts are to the fore in this week's look at the buying opportunities and share price moves in closed-ended funds.

Startling small-caps

There’s a distinct smaller companies theme in this slightly earlier-than-usual weekly look at the big movers in the investment trust sector.

This report highlights which trusts and investment companies looked cheap and which expensive using ‘Z-score’ data from Numis Securities at yesterday’s market close.

Just to recap, Z-scores are a measure used by analysts to put investment trust discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context. Roughly speaking a Z-score of -2 or below shows a trust is getting inexpensive and may provide a buying opportunity. By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits.

For more information about the trusts in our tables, please click on the links to their fact sheets below this article.

Next: Superlatives and tips

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Startling small-caps

There’s a distinct smaller companies theme in this slightly earlier-than-usual weekly look at the big movers in the investment trust sector.

This report highlights which trusts and investment companies looked cheap and which expensive using ‘Z-score’ data from Numis Securities at yesterday’s market close.

Just to recap, Z-scores are a measure used by analysts to put investment trust discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context. Roughly speaking a Z-score of -2 or below shows a trust is getting inexpensive and may provide a buying opportunity. By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits.

For more information about the trusts in our tables, please click on the links to their fact sheets below this article.

Next: Superlatives and tips

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Week's top risers Wednesday's closing price (p) Previous week (p) Change  
Manchester & London (MNL)  488.00 461.00 5.9%  
BlackRock World Mining (BRWM)  417.50 395.00 5.7%  
Rights & Issues (RII)  2145.00 2030.00 5.7%  
JPMorgan Chinese (JMC)`  318.00 301.00 5.6%  
BB Healthcare (BBH)  118.00 112.00 5.4%  
EF Realisation Company (EFR)  42.00 40.00 5.0%  
NB Distressed Debt - Global (NBDG)  85.00 81.00 4.9%  
Urban Logistics REIT (SHED)  127.50 121.50 4.9%  
Biotech Growth Trust (BIOG)  734.00 700.00 4.9%  
Crystal Amber (CRS)  223.00 213.00 4.7%  
BlackRock Greater Europe (BRGE)  348.00 332.50 4.7%  
International Biotechnology (IBT)  590.00 564.00 4.6%  
Montanaro European Smaller Companies (MTE)  865.00 827.50 4.5%  
JPMorgan Russian (JRS)  516.00 494.00 4.5%  
BlackRock Smaller Companies (BRSC)  1490.00 1430.00 4.2%  

Source: Numis Securities 16/5/18

Superlatives and tips

Kicking off our small-cap theme is Rights & Issues (RIII), the top-performing UK smaller companies trust managed by veteran stock picker Simon Knott, which rose 5.7% in the week to yesterday’s close to place it third in the list of our biggest risers.

Knott’s £175 million fund receives no marketing which is why despite a 294% total shareholder return over 10 year its shares trade on an 11% discount, in line with the average of the past year and so giving it a nil Z-score.

Propping up the bottom of the table is BlackRock Smaller Companies (BRSC), up over 4% this week, with the Mike Prentis run trust still basking in the glow of corporate broker Canaccord Genuity’s recent praise.

After last month’s annual results, Canaccord’s Alan Brierley commented he was ‘running out of superlatives’ to describe the 12-month 20.8% increase in net asset value. This left the portfolio with an annualised total return of 19%, way ahead of its benchmark’s 10.8% record.

Its discount has recently narrowed below its on-year average to 7.4%, giving it a Z-score of 2.6, which leaves it with a Z-score of 2.6 that once again puts it in our table of ‘expensive’ trusts on page five.

Montanaro European Smaller Companies (MTE) gained 4.5% after a tip in the Telegraph’s Questor column. If you’re not put off by signs of a slowdown in Europe and believe founder Charles Montanaro is returning the trust to its former winning ways, then its 11% discount, in line with the 12-month average, looks attractive.

Top of the table is Scottish Mortgage look-a-like Manchester & London (MNL), whose shares rose nearly 6% to stand just 2.5% short of their net asset value (NAV) to give it an inconsequential Z-score of 1.

Next: Casualties slip

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Week's big fallers Wednesday's closing price (p) Previous week (p) Change  
CATCo Reinsurance Opportunities Fund (CAT)  0.50 0.54 -6.0%  
Myanmar Strategic Holdings (SHWE)  27.00 28.50 -5.3%  
Symphony International Holding (SIHL)  0.73 0.76 -4.3%  
India Capital Growth (IGC)  97.10 101.50 -4.3%  
LXB Retail Properties (LXB)  22.20 23.05 -3.7%  
CIP Merchant Capital (CIP)  92.50 95.50 -3.1%  
Vietnam Enterprise Investments (VEIL)  459.00 473.00 -3.0%  
Ranger Direct Lending (RDL)  754.00 776.00 -2.8%  
NewRiver Retail (NRR)  276.00 284.00 -2.8%  
Draper Esprit (GROW)  437.00 448.00 -2.5%  
Scottish Oriental Smaller Cos (SST)  1000.00 1025.00 -2.4%  
Investor AB (INVEB)  376.70 386.00 -2.4%  
JPMorgan Indian (JII)  701.00 718.00 -2.4%  
SQN Asset Finance Income C (SQNX)  91.80 94.00 -2.3%  
HgCapital Trust (HGT)  1890.00 1935.00 -2.3%  
         

Source: Numis Securities 16/5/18

Casualties slip

It was another poor week for CatCo Reinsurance Opportunities (CAT), slipping another 6% after the recent hike in reserves against last year’s spate of natural disasters.

The ordinary shares of this capital provider to the insurance industry have lost over 60% in the past year and stand on a 27% discount to net asset value with a Z-socre of -2.6 that places it in our list of ‘cheap’ trusts on page four.

India Capital Growth (IGC) has a much more successful track record but after storming ahead last year has slipped back 17% this year, down xx this week. Trading 15% below NAV, compared to their one-year average discount of 14%, the shares have a negligible Z-score of -0.4.

A battle royal is developing at Ranger Direct Lending (RDL) between the board of the peer-to-peer loan fund and rebel shareholders Oaktree and LIM Advisors ahead of next month’s general meeting and the shares slipped 2.8%.

Next: Stuart overshadows Strategic

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Cheap' trusts Share prrice premium (- discount) to net asset value % Average 12-month premium (- discount) % Z-score  
CATCo Reinsurance Opportunities Fund C (CATC) -1.2 3.7 -3.6  
Sherborne Investors (Guernsey) C (SIGC) -1.2 6.7 -3.4  
CATCo Reinsurance Opportunities Fund C (CAT) -26.8 -6.4 -2.5  
Strategic Equity Capital (SEC) -15.9 -13.6 -2.5  
Leaf Clean Energy (LEAF) -65.4 -43.8 -2.4  
Henderson European Focus (HEFT) -5.2 -0.3 -2.4  
Phoenix Spree Deutschland (PSDL) 0.0 19.4 -2.4  
BBGI (BBGI) -1.1 9.5 -2.4  
CIP Merchant Capital (CIP) -2.1 2.4 -2.3  
Myanmar Investments (MIL) 20.8 40.8 -2.2  
North Atlantic Smaller (NAS) -24.7 -20.1 -2.2  
AXA Property (APT) -35.0 -15.4 -2.1  
Invesco Perpetual Enhanced Income (IPE) 0.8 4.7 -2.1  
Global Resources (GRIT) -52.7 -42.1 -2.1  
Summit Germany (SMTG) -5.3 12.2 -2.1  

Source: Numis Securities 16/5/18

Stuart overshadows Strategic

Stuart Widdowson’s launch of Odyssean (OIT) is eroding support for his old fund, Strategic Equity Capital (SEC), whose discount has widened to nearly 16%. This places it third in our list of ‘cheap’ trusts with a -2.5 Z-score and follows an increase of just 3.2% in the portfolio’s net asset value in the past year since Jeff Harris and Adam Khanbhai have been in charge of the £147 million trust.

CIP Merchant Capital (CIP), a small debutant smaller companies trust from last year, has slipped to a 2% discount and a -2.3 Z-score after an inauspicious start that has seen the shares fall nearly 9% this year.

North Atlantic Smaller (NAS), one of two smaller company trusts run by Widdowson backer Chris Mills, has seen its habitual discount widen to above average 25% to give it a Z-score of -2.2.

Next: Aberforth v Henderson

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Expensive' trusts Share prrice premium (- discount) to net asset value % Average 12-month premium (- discount) % Z-score  
         
LondonMetric Property (LMP)  28.4 15.1 3.6  
HBM Healthcare Investments (HBMN)  -3.8 -16.7 2.9  
Ashmore Global Opportunities - US$ (AGOU)  -28.5 -34.9 2.9  
Pacific Horizon (PHI)  3.5 -6.8 2.8  
Schroder UK Growth (SDU)  -8.5 -12.0 2.7  
BlackRock Smaller Companies (BRSC)  -7.4 -11.9 2.6  
NB Distressed Debt - Global (NBDG)  -10.8 -15.3 2.6  
Kubera Cross-Border (KUBC)  -11.7 -26.0 2.6  
Aurelius Equity Opportunities (AR4) 31.7 14.9 2.5  
Schroder UK Mid Cap (SCP)  -13.4 -16.0 2.4  
Altamir Amboise (LTA)  -18.1 -27.8 2.4  
British Empire (BTEM)  -9.1 -10.3 2.3  
EJF Investments (EJFI)  7.0 2.1 2.3  
Impax Environmental Markets (IEM)  -2.3 -8.6 2.3  
         

Source: Numis Securities 16/5/18

Aberforth v Henderson

Maintaining the small-cap theme and turning to our ‘expensive’ table, it seems appropriate to highlight a note from Stifel Funds today contrasting the ‘value’-driven Aberforth Smaller Companies (ASL) with the growth-focused Henderson Smaller Companies (HSL).

‘At times this results in a significant divergence in NAV performance, although more recently the returns have been similar, possibly reflecting conditions becoming more challenging for 'growth' stocks vs 'value'. Aberforth remains on a wide 12% discount, whilst Henderson Smaller has narrowed to 8%. Investors who believe prospects for 'value' are better than for 'growth' should use this as a switching opportunity, in our view,’ said Stifel’s Iain Scouller.

 

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