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Trust Watch: Russia rout and Woodford revival

The big sell-off in Russian stocks was the big mover in markets this week, while a flurry of funds enjoyed a much-needed revival.

Russia’s stock market plunge on US sanctions was the big market mover this week, with a number of investment trusts affected. But there has been good news too in the form of a number of turnarounds, through both investment performance and boardroom action.

This report highlights the big risers and fallers among investment trusts and considers which look cheap and which expensive using ‘Z-scores’ from Numis Securities.

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.

Next: Russia rout

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Week's biggest fallers Thursday's closing price (p) Previous week (p) Change
Tiso BlackStar Group (TBGR) 23.50 32.00 -26.6%
Juridica Investments (JIL) 8.50 11.30 -24.8%
Alternative Liquidity (ALF) 0.21 0.24 -13.5%
JPMorgan Russian (JRS) 465.00 516.00 -9.9%
BlackRock Emerging Europe (BEEP) 320.50 353.50 -9.3%
Baring Emerging Europe (BEE) 734.00 778.00 -5.7%
AXA Property (APT) 40.30 42.50 -5.2%
NAXS Nordic Access Buyout (NAXS) 48.80 50.60 -3.6%
Baker Steel Resources (BSRT) 44.50 46.00 -3.3%
JPMorgan Multi-Asset (MATE) 94.50 97.50 -3.1%
Templeton Emerging Markets (TEM) 723.00 745.00 -3.0%
Pershing Square Holdings £ (PSH) 880.00 905.00 -2.8%
3i Infrastructure (3IN) 208.50 214.40 -2.8%
Baillie Gifford Japan (BGFD) 802.00 824.00 -2.7%
Rights & Issues IT (RIII) 2030.00 2085.00 -2.6%

Source: Numis 13/4/18

Russia rout

Investment trusts with exposure to Russia dominate the list of fallers this week, after the US slapped sanctions on seven oligarchs and the companies they run.

The Russian stock market is down 13.1% in pound terms this week, and shares in the only Russian equities-focused investment trusts, JPMorgan Russian (JRS), haven’t fared much better, falling nearly 10%.

Only one of its 33 holdings is directly affected by the sanctions, the trust said in a statement this morning. Rusal (0486.HK), controlled by Oleg Deripaska, the billionaire aluminium magnate among the seven targeted by the sanctions, made up approximately 1% of the portfolio at the end of February. Its shares have lost more than half their value over the last week.

But the impact of the US move was felt much more widely across all Russian assets. Shares in state-owned bank Sberbank (SBER.MM), the trust’s largest holding, are down 18% over the last week.

The two investment trusts focused on emerging European shares were also hit. BlackRock Emerging Europe (BEEP), which holds 56% of its portfolio in Russia, was down 9.3%, while Baring Emerging Europe (BEE), with a 56% exposure, dropped 5.7%.

Among broader emerging markets trusts, Templeton Emerging Markets’ (TEM) 9.3% position in Russian stocks weighed, with the shares down 3%.

Next: Artemis awakens

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Week's top risers Thursday's closing price (p) Previous week (p) Change
Myanmar Strategic Holdings (SHWE) 24.50 22.50 8.9%
Artemis Alpha (ATS) 320.00 296.00 8.1%
SQN Asset Finance Income (SQN) 94.10 88.20 6.7%
Crystal Amber (CRS) 210.00 197.00 6.6%
Ecofin Global Utilities & Infrastructure (EGL) 118.25 112.00 5.6%
City Merchants High Yield (CMHY) 189.75 180.50 5.1%
Blue Capital Alternative Income (BCAI) 0.64 0.61 5.0%
Ranger Direct Lending (RDL) 745.00 710.00 4.9%
Yatra Capital (YATRA) 5.40 5.15 4.9%
SQN Asset Finance Income C (SQNX) 90.80 87.00 4.4%
Aurelius Equity Opportunities (AR4) 60.05 57.60 4.3%
Civitas Social Housing (CSH) 102.00 98.00 4.1%
Secure Income REIT (SIR) 385.00 370.00 4.1%
Residential Secure Income (RESI) 90.40 86.90 4.0%
F&C UK Real Estate Investments (FCRE) 105.50 101.50 3.9%

Source: Numis 13/4/18

Artemis awakens

The 8.1% rally in Artemis Alpha (ATS) shares over the last week is evidence of investors’ approval of boardroom plans to inject new life into the esoteric UK investment trust, after years of lacklustre returns.

The shares’ climb has helped lift the trust from the lowest rating in the UK All Companies sector, although with the shares trading at 17% below net asset value, they are still deeply discounted.

That is at least better than the 20.7% discount at which they were trading before Wednesday’s news of the revamp, and a narrower discount than the 17.5% on shares in Henderson Opportunities (HOT).

Artemis Alpha’s discount stems from years of poor performance, with the shares up just 18.4% over the last five years, as exposure to junior oil stocks during the oil price cash weighed, while unquoted holdings have offered dull returns.

The board is now limiting exposure to unquoted stocks, which currently make up a quarter of the portfolio, to 10%. The managers will also have more flexibility to invest outside the UK, and shareholders will be able to tender up to 25% of the shares every three years.

Manager Adrian Paterson, who has run the trust alongside John Dodd since July 2009, will meanwhile step down as he plans to retire at the end of this year.

Next: Woodford revival

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'Expensive' trusts Share price premium (-discount) to NAV % 12-month average premium (-discount) % Z-score
Merchants (MRCH) -1.7 -5.3 3.4
BlackRock Throgmorton Trust (THRG) -9.0 -15.3 3.2
Lindsell Train IT (LTI) 40.2 20.9 3.0
Mithras IT (MTH) 2.8 -4.0 2.9
CC Japan Income & Growth (CCJI) 7.3 2.5 2.8
Pacific Horizon (PHI) -1.6 -8.0 2.6
Myanmar Strategic Holdings (SHWE) 150.0 37.4 2.5
JPEL Private Equity (JPEL) -12.8 -19.3 2.5
Juridica Investments (JIL) -26.3 -46.2 2.4
Baillie Gifford Shin Nippon (BGS) 13.8 6.8 2.4
City of London (CTY) 2.7 1.8 2.4
JPMorgan Japanese (JFJ) -5.8 -10.3 2.3
Invesco Perpetual Enhanced Income (IPE) 8.7 4.7 2.3
Kubera Cross-Border (KUBC) -16.4 -28.2 2.1
Allianz Technology (ATT) 0.8 -3.4 2.1

Source: Numis 13/4/18

Woodford revival

‘How low can Woodford go?’ this column asked less than two months ago. At the time shares in Woodford Patient Capital (WPCT) had fallen below 75p, at a discount to net asset value (NAV) of more than 13%.

A few weeks on, and the answer appears to be: not that much lower. The bearish sentiment surrounding the trust, which has performed poorly since launch three years ago, pushed the shares down to 72p, and the discount to a high of 14.3%, in the following weeks.

But since reaching that low, shares in the trust have been on a tear, up 8.8%, a return bettered by only four other trusts over that period.

The catalyst for this revival was major holding Prothena’s (PRTA.O) tie-up with biotech giant Celgene (CELG.O) in a deal that could be worth as much as $2.2 billion (£1.6 billion).

And more good news has followed. This week, Proton Partners International, the unquoted biotech company that makes up 4.8% of the portfolio, successfully trialled a groundbreaking radiotherapy treatment for cancer patients.

The shares are now looking ‘dear’ relative to their rating over the last 13 weeks, with a 3.6% discount well down on their 9.9% average over that period.

The shares’ rally isn’t yet enough to trouble Numis’ ‘dear’ list over one year, however. The current discount compares to a 6.7% average over the last 12 months, during which time they have peaked at a premium of 2.1%.

The influence of the Telegraph’s Questor portfolio meanwhile looms over two trusts that have made the list, with City of London (CTY) and JPEL Private Equity (JPEL) both tipped in recent weeks. Yesterday’s flagging of Fidelity Japanese Values (FJV) hasn’t yet had the same impact however, with the shares trading at a 9.7% discount.

Next: Cheap MATE

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'Cheap' trusts Share price premium (-discount) to NAV % 12-month average premium (-discount) % Z-score
AXA Property (APT) -38.7 -13.6 -3.9
Marble Point Loan Financing (MPLF) 3.0 4.0 -3.9
GCP Asset Backed Income C (GABC) -1.7 3.2 -3.3
Summit Germany (SMTG) -4.5 13.8 -2.8
Polar Capital Global Healthcare (PCGH) -8.4 -1.9 -2.8
Raven Russia (RUS) -24.8 -15.3 -2.7
PRS REIT (PRSR) -0.5 5.5 -2.7
Tiso BlackStar Group (TBGR) -74.7 -42.8 -2.6
Perpetual Income & Growth (PLI) -10.4 -8.5 -2.6
JPMorgan Multi-Asset (MATE) -5.9 -2.6 -2.6
BBGI (BBGI) 2.0 10.8 -2.6
Fidelity European Values (FEV) -10.8 -8.6 -2.6
Altamir Amboise (LTA) -36.4 -27.8 -2.6
Primary Health Properties (PHP) 8.6 21.3 -2.5
Premier Global Infrastructure (PGIT) -14.8 -5.6 -2.5

Source: Numis 13/4/18

Cheap MATE

JPMorgan Multi-Asset’s (MATE) inauspicious start to life has seen the investment trust fall into the ‘cheap’ list just over a month after its launch.

Even before floating in early March, the trust was hit by the departure of one of its intended managers. Talib Sheikh’s exit from JPMorgan to join Jupiter was followed by a lacklustre fundraise, with just £12 million of fresh money pledged to the trust, alongside £81 million switched from the JPMorgan Income & Capital trust.

Since then, the shares have continued to drift from their 100p issue price, and have now fallen to a ‘cheap’ level versus their very short history.

Underlining how quickly investors can pounce on ‘bargains’, shares in Raven Russia (RUS), the Russian commercial property trust, no longer look so ‘cheap’, with a 5% jump in the shares this morning.

It’s a similar story for Schroder UK Growth (SDU), which closed at a 13.1% discount to NAV yesterday, placing the trust in Numis’ 13-week ‘cheap’ list. But that was before this morning’s news of Schroders’ sacking as manager, and its replacement with Baillie Gifford, sent the shares soaring 5.8%.

Another trust looking ‘cheap’ on a short-term basis is Acorn Income (AIF). Having traded nearly at par a month ago, the shares have fallen to a 6.7% discount, a slide that has roughly coincided with the suspension of the shares in former top 10 holding Conviviality Retail (CVRC), followed by the company’s collapse into administration.

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