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Investment Trust Watch: City of London swings low
Volatile stock markets continue to produce chances for the swift investment trust investor with City of London moving to a rare discount.
(Correction: performance figures for City of London in fourth paragraph have been replaced. The previous figures were for January not year to date.)
Volatile stock markets continue to produce opportunities for the swift investment trust investor.
This week City of London (CTY ) shares slipped below their net asset value for the first time in nearly six years. Admittedly, it’s a very small discount: as our first table shows by yesterday’s close the share price stood 0.7% below its NAV.
Nevertheless, it represents a potentially good entry point into the popular UK Equity Income trust that has been managed by Job Curtis for a quarter of a century and is set to notch up its 50th year of consecutive dividend growth in 2016.
City of London largely invests in large FTSE 100 stocks. Its shares have slipped 7.6% this year which is worse than its benchmark, the FTSE All Share, which has declined 4.5%. According to figures from Morningstar, however, its share price returns have beaten the index in eight of the past 10 years and Numis data shows it has produced a total shareholder returns of 106% over that time, nearly double the All Share. It yields 4.4%.
In the past year the shares have traded at an average premium of 1.6% above NAV, enabling it to continue to steadily issue new shares. Although the latest discount is small, because it is unusual it produces a Z-score of -3.4, which puts it firmly in the ‘cheap’ category.
Just to recap, a Z-score is a measure used by analysts to tell if an investment is trading significantly outside its normal 12-month range. Broadly, a score of -2 or below is considered inexpensive and could signal a buying opportunigy, while 2 or above is viewed as dear and could prompt a sale or some profit taking.
|'Cheap' trusts||Share price premium (- discount) to NAV %||12-month average||Z-score|
|NB Global Floating Rate Income - £ (NBLS)||-7.1||-2.3||-4.5|
|JPMorgan Overseas (JMO)||-12.7||-7.8||-4.3|
|Witan IT (WTAN)||-5.1||-0.1||-4.1|
|Foresight Solar (FSFL)||-7.3||1.7||-4.1|
|F&C Global Smaller Cos (FCS)||-2.7||0.9||-3.8|
|Renewables Infrastructure Group (TRIG)||-4.7||3.3||-3.6|
|Henderson Far East Income (HFEL)||-5.4||0.7||-3.6|
|Fair Oaks Income (FAIR)||-7.2||4.9||-3.5|
|Advance Developing Markets (ADMF)||-15.4||-11.3||-3.5|
|City of London (CTY)||-0.7||1.6||-3.4|
|AEW UK REIT (AEWU)||-2.0||4.3||-3.4|
|Third Point Offshore Investors - £ (TPOG)||-15.8||-4.8||-3.4|
|P2P Global Investment C (P2P2)||-16.7||-1.6||-3.3|
|Henderson International Income (HINT)||-6.5||0.4||-3.2|
|Blackstone GSO Loan Financing (BGLF)||-6.2||0.2||-3.2|
Source: Numis Securities. Data at market close 18/2/16.
Global trusts go begging
In this month’s issue of Investment Trust Insider I highlight five ‘top’ Global trusts based on their performance, reasonable charges and lack of performance fees. Fans of the sector will be interested to see two other Global funds are trading below their normal valuation.
Witan (WTAN ), which has successfully reinvented itself as a ‘manager of managers’ in the past decade, has had a difficult start to the year with its shares falling 10% compared to the 4.5% drop in the MSCI World index. It moved to a discount last month and the gap to net asset value this week widened to 5%, giving it a Z-score of -4.1, making it the third ‘cheapest’ trust in our table from Numis.
Rival JPMorgan Overseas (JMO ) has fared worse, its shares sliding 15% this year, leaving five-year total returns of just 8%. Managed by Jeroen Huysinga, the trust's discount has hit a five-year low of nearly 13% giving it a Z-score of -4.3.
The list of cheap trusts point to a couple of important trends highlighted by analysts at Stifel this week.
Rough for renewables
The first is the de-rating of high yielding renewable energy funds this year in response to the fall in energy price forecasts as a result of lower oil prices. That has hit net asset values across the sectors with share prices falling faster. That’s left Foresight Solar (FSFL ) and Renewables Infrastructure Group (TRIG ) sitting on unaccustomed discounts and Z-scores of -4.1 and -3.6 respectively.
Small caps swept aside
Smaller company trusts have inevitably suffered as a mood of risk-aversion has swept the market. F&C Global Smaller Companies (FCS ), whose shares are 10% down year to date, trades 2.7% below NAV on a Z-score of -3.8.
Rival Edinburgh Worldwide (EWI ) has fallen 18% this year and stands on a 9% discount and Z-score of -1.1.
It’s notable that their UK counterparts are not present in the list of cheap trusts, despite being hammered in the sell-off. That’s just a sign of the extent of the potential bargains out there, as I discuss in my Top Trusts video today. Trusts like Henderson Smaller Companies (HSL ) and BlackRock Throgmorton (THRG ), whose manager Mike Prentis spoke to me on Monday, have tumbled 15% this year, which is more than double the declines in their net asset value. Although that’s widened their discounts to 13% and 15% their respective Z-scores are insignificant at -1 and -0.3.
BlackRock World Mining
Also not evident in our tables, but definitely worth highlighting, are some remarkable rises in investment share prices as markets have rallied after the atrocious start in January.
BlackRock World Mining (BRWM ) jumped nearly 15% in the week to Thursday’s close as some investors piled in on hopes that the mining sector is coming off 12-year lows. Although the shares have lost nearly three quarters of their value in the five-year bear market in commodities, a 6% rise in the share price since the start of the year (and a near 10% rise in net asset value in the past week) begs the question of whether the worst is now over?
In their monthly update last week managers of the trust, Evy Hambro and Olivia Markham, were cautious, indicated that an upturn in response to miners cutting back capacity and shoring up metal prices was still a few months off.
With an 11% yield, the dividend is likely to be cut in the future but on a discount of 16% and Z-score of -1.8 the shares look attractive to some long-term investors. Next month’s annual results will hopefully provide more clarity on the outlook.
Strategic review at GLI Finance
Also rising this week was GLI Finance (GLIF ), up nearly 13%, after the investor in peer-to-peer lending platforms and manager of the GLI Alternative Finance (GLAF ) trust, launched a strategic review following the shock departure of chief execuive Geoff Miller before Christmas.
The shares are down 15% this year and trade on a 37% discount which is symptomatic of the cloud over P2P trusts all of which are on discounts. For example, P2P Global Investments C-share is in our first table on a 17% discount and Z-score of -3.3.
3i's discount disappears
Private equity giant 3i didn’t stay on the 9% discount we highlighted last week for long. The shares rebounded 8.6% leaving the trust close to par and raising its Z-score slightly to -2.3.
The private sector remains depressed, with already double-digit discounts widening further. Charles Murphy of Panmure commented today that investors were looking beyond recent improvements in net asset valuations and fearing the worst for the rest of the year if the economic gloom proves justified.
Scottish Mortgage bounces back
Scottish Mortgage (SMT ) was another big gainer. Having tumbled 20% since the start of the year shares in the ultra-global growth trust, which is highlighted in this month’s Investment Trust Insider, notched up 8% this week, leaving their year to date decline at 14%
Winterflood ‘buys’ Picton Property
‘Brexit’ fears and concerns over economic growth continue to depress shares in many commercial property trusts. Winterflood Securites responded this week by adding Picton Property Income (PCTN ) to its model portfolio of trusts while reducing Standard Life Investments Property Income (SLI ), a corporate broking client.
‘The latter’s share price has held up very well since the start of the year. However, with its Property Direct – UK peers having been significantly de-rated, it is now looking expensive on a relative basis,’ said analyst Innes Urquhart.
Winterflood said it sold half the SLI holding at Friday’s closing bid price of 84.75p (a 3.1% premium to NAV) and reinvested into PCTN at its closing offer price of 65p (13.2% discount to NAV).
|'Expensive' trusts||Share price premium (- discount) to NAV %||12-month average||Z-score|
|Ecofin Water & Power Opportunities (ECWO)||-12.3||-19.3||2.8|
|BB Biotech (BION)||-5.9||-16.7||2.6|
|Axiom European Financial Debt (AXI)||12.2||5.3||2.6|
|India Capital Growth (IGC)||-12.8||-17.6||2.3|
|AXA Property (APT)||-7.5||-17.3||2.1|
|Aurora Russia (AURR)||-0.4||-40.4||2.1|
|British & American (BAF)||64.2||25.6||2.0|
|Phaunos Timber (PTF)||-29.4||-36.6||2.0|
|North Atlantic Smaller (NAS)||-15.9||-19.4||1.8|
|European Real Estate (ERET)||-17.4||-37.0||1.7|
|Burford Capital (BUR)||71.4||42.0||1.7|
|Reconstruction Capital II (RC2)||-25.8||-43.7||1.7|
|Independent IT (IIT)||1.4||-4.8||1.6|
|Alpha Real Trust (ARTL)||-30.2||-37.4||1.5|
|Better Capital 2009 (BCAP)||-28.0||-33.2||1.4|
Source: Numis Securities. Data at market close 18/2/16.
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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.
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Look up the investment trusts
- JPMorgan Overseas (Ordinary Share)
- Witan (Ordinary Share)
- Foresight Solar (Ordinary Share)
- F&C Global Smaller Companies (Ordinary Share)
- Henderson Far East Income (Ordinary Share)
- Fair Oaks Income Fund (Ordinary Share)
- Advance Developing Markets (Ordinary Share)
- City of London (Ordinary Share)
- AEW UK REIT (Ordinary Share)
- P2P Global Investments C (Ordinary Share)
- Henderson International Income (Ordinary Share)
- Blackstone/GSO Loan Financing (Ordinary Share)
- India Capital Growth (Ordinary Share)
- AXA Property (Ordinary Share)
- Aurora Russia (Ordinary Share)
- British & American (Ordinary Share)
- Phaunos Timber (Ordinary Share)
- North Atlantic Smaller Cos (Ordinary Share)
- European Real Estate IT (Ordinary Share)
- Independent (Ordinary Share)
- Better Capital PCC 2009 (Ordinary Share)
- Renewables Infrastructure Grp (Ordinary Share)
- Edinburgh Worldwide (Ordinary Share)
- Henderson Smaller Companies (Ordinary Share)
- BlackRock Throgmorton Trust (Ordinary Share)
- BlackRock World Mining Trust (Ordinary Share)
- GLI Finance (Ordinary Share)
- Scottish Mortgage (Ordinary Share)
- Picton Property Income (Ordinary Share)
- Standard Life Inv. Prop. Inc. (Ordinary Share)
- GLI Alternative Finance (Ordinary Share)
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by Gavin Lumsden on Feb 19, 2017 at 03:45