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Investment Trust Watch: mining rally going 'cheap'
If the strong rally in miners is more than a flash in the pan, BlackRock World Mining could be a 'cheap' way to take part.
If the strong rally in mining companies seen over the last week is more than just a flash in the pan, BlackRock World Mining (BRWM ) could be a 'cheap' way to take part in a commodities recovery.
The rally was initially sparked by a slump in the dollar, as fears over the strength over the world's largest economy led investors to doubt the Federal Reserve would implement further interest rate rises this year at the pace they had intended.
That sent metals jumping, helped by weakness in the currency in which they are priced. The impact on the mining sector has been pronounced, with investors betting they have now reached the bottom, and that fears over weaker markets due to the slowing growth of top metals consumer China are now firmly priced in.
Of course, we've been here before. Miners surged as markets emerged from last year's torrid summer, with analysts at Morgan Stanley then leading the chorus of those arguing it was time to buy back in to the beaten-up sector.
Anyone who had piled in to the hottest stock then, as now, Anglo American, would now be sitting on a 40% loss, even with the rally of the last three days.
But those brave enough to call the bottom of mining might be attracted to BlackRock World Mining, especially as, like the miners it invests in, it looks, on the face of it, 'cheap'.
Just to recap, the Z-score is a measure used by analysts to tell if an investment trust is trading outside its historical range. Z-scores are useful because they can prevent investors from simply buying a trust because the shares are on a discount below their net asset value. A big discount does not necessarily mean cheap if the shares are habitually undervalued. Roughly speaking a Z-score of -2 or below is considered ‘cheap’ while a score of 2 or above is ‘expensive’.
|'Cheap' trusts||Share price premium (- discount) to NAV %||12-month average %||Z-score|
|Fair Oaks Income (FAIR )||-3.5||5.4||-3.5|
|Henderson International Income (HINT )||-5.1||0.7||-3.3|
|Hansa Trust A (HANA )||-32.4||-28.5||-3.2|
|Sequoia Economic Infrastructure C (SEQC )||0.5||3.3||-3.2|
|John Laing Environmental Assets (JLEN )||-3.8||4.9||-3.2|
|Foresight Solar (FSFL )||-3.2||2.0||-3.1|
|Caledonia Investments (CLDN )||-22.5||-16.7||-3.1|
|AEW UK REIT (AEWU )||0.2||4.5||-3.0|
|Gabelli Value Plus (GVP )||-10.1||2.1||-3.0|
|Henderson European Focus (HEFT )||-3.4||1.2||-2.9|
|Ranger Direct Lending (RDL )||-6.3||5.3||-2.9|
|Ratos AB B (RATOb.ST)||12.3||44.1||-2.7|
|3i Group (III )||0.5||28.3||-2.7|
|BlackRock World Mining (BRWM )||-16.9||-10.7||-2.7|
|Pantheon International (PIN )||-26.6||-17.2||-2.7|
BRWM is the biggest and most high-profile mining trust, and although its 16.9% discount to net asset value is not as high as the eye-watering discounts on rival trusts, such as the 83.9% on the tiny Global Resources (GRIT ), it is the 'cheapest' it has been at any time in the last 12 months.
The yield on the trust has now stretched to nearly 12% with the shares around the 180p mark, with the trust set to announce in March whether it holds its final dividend at 14p, after an interim payment of 7p in September last year.
In its half-year results for the six months to the end of June last year, the trust said it was prepared to use some of its revenue reserves to maintain the final dividend at the 14p level. 'Future use of reserves will depend on the board's confidence in returning to a fully covered position in the near term,' it said then. At the end of December 2014, revenue reserves stood at 0.39 times the annual dividend payments, according to Numis.
Henderson European Focus (HEFT ) has also crept into the 'cheap' list, as shares in the trust continue to trade on a discount, a relatively rare occurrence over the last year. But investors ready to pile in might heed the words of its bearish fund manager John Bennett, who said this week he didn't expect to make investors money this year.
It's not the only Henderson fund looking cheap. Henderson International Income (HINT ) has fallen to a 5.1% discount, giving it a Z-score of -3.3, on the news it would be taking on the share holders of stable mate Henderson Global Trust (HGL ) as the small, poorly performing fund winds up.
Investors in Henderson Global welcomed the news, narrowing the discount on its shares to 6.1% and making it the most 'expensive' trust this week.
|'Expensive' trusts||Share price premium (- discount) to NAV %||12-month average %||Z-score|
|Henderson Global (HGL )||-6.1||-10.9||3.6|
|SQN Asset Finance Income C (SQNC )||8.8||4.9||3.4|
|Axiom European Financial Debt (AXI)||9.5||4.5||3.2|
|Burford Capital (BUR)||85.2||40.3||2.8|
|BB Biotech (BION.S)||-6.9||-17.1||2.8|
|Aurora Russia (AURR )||1.8||-42.2||2.6|
|Independent (IIT )||2.3||-5.4||2.1|
|BlackRock Greater Europe (BRGE )||-0.6||-3.4||2.1|
|Polar Capital Global Healthcare (PCGH )||-1.0||-6.0||2.1|
|British & American (BAF )||56.6||23.5||2.0|
|BH Global USD (BHGG )||-3.4||-6.1||2.0|
|Alliance Trust (ATST )||-8.1||-11.6||2.0|
|Lindsell Train (LTI )||33.3||20.4||2.0|
|European Real Estate (ERET )||-16.5||-38.3||1.9|
|Invesco Perpetual Select - Global (IVPG )||4.6||0.7||1.9|
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Look up the investment trusts
- Fair Oaks Income Fund (Ordinary Share)
- Henderson International Income (Ordinary Share)
- Hansa Trust A (Class A Ordinary)
- Sequoia Econ Infra Income C (Ordinary Share)
- John Laing Environmental Asset (Ordinary Share)
- Foresight Solar (Ordinary Share)
- Caledonia Investments (Ordinary Share)
- AEW UK REIT (Ordinary Share)
- Gabelli Value Plus+ Trust (Ordinary Share)
- Henderson European Focus Trust (Ordinary Share)
- Ranger Direct Lending Fund (Ordinary Share)
- 3i (Ordinary Share)
- BlackRock World Mining Trust (Ordinary Share)
- Pantheon International (Ordinary Share)
- Henderson Global Trust (Ordinary Share)
- SQN Asset Finance Income C (Ordinary Share)
- Aurora Russia (Ordinary Share)
- Independent (Ordinary Share)
- BlackRock Greater Europe (Ordinary Share)
- Polar Capital Glb Healthcare (Ordinary Share)
- British & American (Ordinary Share)
- BH Global USD (Ordinary Share)
- Alliance Trust (Ordinary Share)
- Lindsell Train (Ordinary Share)
- European Real Estate IT (Ordinary Share)
- Invesco Perp Select Glo Eq Inc (Ordinary Share)
- Global Resources (Ordinary Share)
Look up the fund managers
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- Commodities lead FTSE as Morgan Stanley says 'buy'
- World Mining shares could rise 30% if dividend held
- Henderson's Bennett: I won't make money this year
- Investment Trust Watch: Bennett's chilling warning
- Henderson Global takes the HINT and gives up
- Banks sell-off reignites to drag down FTSE
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by Gavin Lumsden on Sep 01, 2016 at 00:01