Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a834213

Investment Trust Watch: Black Monday bargains

(Update) Investment trust bargain hunters move in after yesterday's rout with funds of star Asia manager Hugh Young in focus.

 
Investment Trust Watch: Black Monday bargains

(Updated with analyst and fund manager comment)

Duncan Baxter, the senior non-executive director of Hugh Young's Aberdeen Asian Income Fund (AAIF ), took advantage of 'Black Monday' to increase his stake in the investment trust.

Baxter, a retired banker from Jersey who has served on AAIF's board for a decade, swooped on 20,000 shares at 146.5p as the trust sank to a three-year low as world markets followed China south.

His move came as many investment trusts' shares dived and then rallied today as markets recovered some of yesterday's losses.

The turmoil has opened potential buying opportunities in several investment trusts, which is why we are including below an update of Numis Securities’ list of ‘cheap’ trusts, normally published on Friday (see below).

On the watch list

The purchase lifts Baxter’s holding to 50,714 shares, or 0.026% of the £288 million fund which I highlighted in last Friday’s Investment Trust Watch. This leaves him with more than Peter Arthur, chairman of the trust and also the Association of Investment Companies, who owns 45,283 shares.

Shares in AAIF closed yesterday 6.4% below their net asset value (NAV), compared to their average discount of 0.8% in the past year. This morning they have shot up 5.3% or 8p to 155.6p.

Although AAIF is the worst performing of the three Asia Pacific equity income trusts, it yields 5.7% which makes it attractive to some income investors. It is managed by a team lead by Hugh Young, a highly experienced fund manager based in Singapore.

Discounts widen on Young's other trusts

Edinburgh Dragon (EFM ), a £415 million Asia Pacific growth fund run by Young’s team, which includes Flavia Cheong and Chou Chong, saw its discount widen yesterday to more than 15% from its 10.7% average.

This gave it a Z-score of -5.4, well below the -2 level that indicates whether a discount is significant. Like AAIF, EFM has also struggled, with the shares down 21% this year and off 9% over three years. Its shares are up 4% or 8.5p to 222.5p this morning.

Similarly, Young’s Aberdeen New Dawn (ABD ), entered the cheap list with its shares trading 16.6% below NAV at yesterday's close, compared to their one-year average discount of 10.9%. The average discount in the Asia Pacific sector is 12.5%, according to Numis.

ABD shares have also bounced back 9p or 6.6% to 146p as markets have rallied after yesterday's losses. 

The Young bubble

Peter Walls, manager of Unicorn Mastertrust , a fund that invests in investment trusts, said Young remained a good manager. However, he said the high quality Asia stocks Young liked to buy had become expensive a few years ago while his funds had suffered from investors withdrawing their money when the region hit the downturn from the slowdown in China.

'I think the style got over valued and redemptions haven't helped,' Walls commented on why so many of Young's funds trade on wide discounts.

Walls said he had added to a small holding in Aberdeen New Dawn last week. He also had a position in Edinburgh Dragon which he opened last year after recycling profits from Pacific Assets (PAC ), which he had bought on a wide discount when invested in emerging markets for the first time in three years.

Walls was taking a cautious approach to the turbulence from China, believing it was a 'correction' rather than a fundamental game changer. 'I don't think that are any new risks. Nothing has been added to the mix,' he said.

Poor liquidity

Although the manager was considering adding to more emerging markets funds on the basis that the underlying holdings were attractively valued, Walls was wary of making too many changes to his portfolio. He said liquidity (the ability to buy and sell) in the shares of many investment trusts he liked was currently poor, making it difficult to switch large sums of money. 

Nick Greenwood, manager of the Miton Worldwide Growth (MWGT ) trust, which also invests in investment trusts, agreed. He believed a move by regulators requiring brokers to charge separately for their research and their share dealing services may have discouraged specialist brokers from offering a full service in the investment trust sector. As a result, it was increasingly difficult to buy shares in smaller investment trusts in the secondary market.

Despite the odds, Greeenwood today bought £40,000 more shares in India Capital Growth (IGC ), his fund's top holding, after it, and other India trusts, were dumped in the panic to sell emerging markets funds. This pushed its share price below the 61p strike price for its warrants, which carry a right to buy more shares. With the warrants under water, Greenwood said the correct way to value the trust was on an undiluted basis, rather than the fully diluted basis on which it was previously valued. This enhanced its net asset value by 6p per share, encouraging the manager to buy more.

Bargain hunters, take care

The valuation of IGC underlines the technical issues that investors in investment trusts sometimes have to grasp. 

Charles Murphy, investment funds analyst at Panmure Gordon, also struck a cautionary note warning investors that with markets in turmoil the gap between investment trust share prices and their net asset values was not always clear to see.

'Mind your eye and check your valuations very carefully,' he said.

For example, not all trusts publish daily NAVs which means the apparent discount or premium on their share price can become stale. For example, RIT Capital Partners (RCP ), the popular global fund chaired by Lord Rothschild, stands on a discount of 5%, according to Numis Securities data, although that is based on a NAV published at the end of last month, before the trouble from China erupted. As its NAV could be very different by the end of this month investors have no way of knowing if the share price is below or above the portfolio's underlying value.

'Bargains' galore

With that caution ringing in our ears, it is nonetheless interesting to go through the trusts on Numis' 'cheap' list.

'Cheap' trusts Premium (- discount) to NAV % Average Z-score
Edinburgh Dragon (EFM) -15.3 -10.7 -5.4
Schroder Oriental Income (SOI) -5.9 0.2 -5.2
Henderson Far East Income (HFEL) -4.2 1.3 -4.7
Aberdeen New Dawn (ABD) -16.6 -10.9 -4.6
Apax Global Alpha (APAX) -9.1 -3.5 -4.4
Gabelli Value Plus (GVP) -0.4 5.3 -4.1
Fundsmith Emerging Equities (FEET) -6.0 6.4 -4.1
BlackRock Latin American (BRLA) -17.0 -11.1 -4.1
Utilico Emerging Markets (UEM) -16.0 -7.8 -4.0
Standard Life Euro Private Equity (SEP) -26.5 -16.6 -3.8
New India (NII) -18.3 -9.6 -3.7
Martin Currie Global Portfolio (MNP) -2.4 -0.4 -3.6
Pershing Square Holdings (PSH) -14.2 -4.7 -3.5
Henderson Diversified Income (HDIV) -1.0 2.9 -3.5
Baillie Gifford Shin Nippon (BGS) -12.7 -0.5 -3.4

Source: Numis Securities. Z-score under -2 shows a trust's shares are trading significantly below its normal range.

AAIF’s rivals, Schroder Oriental Income (SOI ) and Henderson Far East Income (HFEL ), remained on attractive discounts since we highlighted them last week but have shot up 5.5% and 4.2% today.

Baillie Gifford Shin Nippon (BGS ), a top performing Japan smaller companies trust, returned to the bargain list following the plunge in Tokyo share prices yesterday. Its shares have soared 31.5p or 9.9% today.

Fidelity Japanese Values (FJV ), however has regained just 2.5% after tumbling 7.5% yesterday. It finished Monday on an 18% discount to NAV, much wider than its 12% average, giving it a Z score of -3.2, which left it just outside our table.

Elsewhere in emerging markets, New India (NII ) now nestles alongside Fundsmith Emerging Equities (FEET ) and Utilico Emerging Markets (UEM ) as trusts trading at low valuations. Whether that lasts remains to be seen as NII shares have leaped 9% today. Rival JPMorgan Indian (JII ), which is not in our table, has recouped most of 9.3% slide yesterday with a 7.8% gain today. It closed yesterday on a wider than normal discount of nearly 15%.

The retreat by investors opened up opportunities in other asset classes. Apax Global Alpha (APAX ), a recently launched private equity fund now trades 9% below NAV, while Standard Life European Private Equity (SEP ), has seen its hefty discount widen further to 26.5%. APAX has fallen again today although SEP has gained 2.9%.

Gabelli Value Plus (GVP ), a fund specialising in US recovery stocks, has fallen to a small discount for the first time since its launch last year. Its shares have shed 2.8% today.

Pershing Square (PSH ), the giant US hedge fund run by activist Bill Ackman, is also available at a cheap price if you don’t mind holding a dollar-denominated, Euronext listed fund in your portfolio. Shares in PSH closed at 14% below NAV yesterday, compared to their average one-year discount of 4.7%. Their price has fallen 10% in the past month leaving a modest gain of 1.3% for the year to date. They are up 3.7% today.

Henderson Diversified Income (HDIV ), a £142 million debt and loan fund that pays quarterly dividends and yields 5.8%, has moved to its first discount in two years and is up a small amount this morning.

Collins tops up Finsbury

The other noteworthy deal yesterday saw the wife of Neil Collins, the former City editor of the Daily Telegraph and non-executive of Finsbury Growth & Income (FGT ), buy 1,857 shares in the top-performing UK equity income fund run by Nick Train. 

Julia Collins bought at 535p lifting her stake to 48,842 shares, or 0.04%. Shares in the trust have fallen 9% in the past month, wiping out most of this year’s gains but over three, five and ten years it has one of the strongest records in the its sector. The shares trade at a small premium above their net asset value and are up 1.7% to 545.8p.

4 comments so far. Why not have your say?

dlp6666

Aug 25, 2015 at 15:04

Thanks for this timely update - really useful to be able to use Z-scores to compare what's 'cheap' and what's REALLY cheap!

report this

Danny Lovey

Aug 25, 2015 at 18:09

One of the problems in this market for valuing Investment Trusts is that with such day to day volatility assessing their real discount is not an exact science as the net assets are only calculated once a day and can be trailing the real market upwards or downwards.

report this

Law Man

Aug 25, 2015 at 19:53

Good luck to those who bought this morning.

I was not brave enough to do so, with finger hovering over the 'Buy' button. How could we say, this morning, that it was the end of the falls? It could be a minor rally with more falls tomorrow.

I consoled myself by saying. At least I was not daft enough to sell anything (famous last words if FT, S&P and DAX fall another 20%).

report this

patchy

Aug 25, 2015 at 22:04

Law man, The old finger hoovering above the buy button; Ive been there too.

The "good news", if you like, is that it looks like you will have another chance very soon, even tomorrow, given rally fading in USA.

Possibly only half way through the correction, but its anyone's guess.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • Unicorn Mastertrust B Income
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Aberdeen Asian Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Edinburgh Dragon (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Aberdeen New Dawn (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Schroder Oriental Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Henderson Far East Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Baillie Gifford Shin Nippon (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • New India (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Fundsmith Emerging Equities (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Utilico Emerging Markets (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Apax Global Alpha (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Standard Life Euro Private Eq (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Gabelli Value Plus+ Trust (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Pershing Square Holdings (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Henderson Diversified Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Finsbury Growth & Income (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • BlackRock Latin American (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Martin Currie Global Portfolio (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • JPMorgan Indian (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Fidelity Japanese Values (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Pacific Assets (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Miton Worldwide Growth (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • India Capital Growth (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • RIT Capital Partners (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Peter Walls
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

The Accumulator: Santa rally still on the cards

by Daniel Grote on Dec 15, 2017 at 15:50

Sorry, this link is not
quite ready yet