View the article online at http://citywire.co.uk/money/article/a873899
Investment Trust Watch: New Year opportunities
The stock market turmoil has generated lots of interesting openings in investment trust shares this week.
Welcome to the first Investment Trust Watch of 2016! It’s not been a happy start to the year, but the silver lining from the stock market turmoil is the interesting opportunities it throws up in investment trusts.
The tables from Numis Securities below show the ‘cheapest’ and most ‘expensive’ trusts as ranked by their ‘Z-score’, which is a measure analysts use to tell whether an investment is trading below or above its usual price range. Roughly speaking, a trust with a Z-score of -2 or below is inexpensive but 2 or above is getting dear.
The global sell-off sparked by renewed concerns about China and the falling oil price has hit a wide range of trusts. Our top two ‘cheapies’ are pretty esoteric, however. Fondul Proprietatea (FPq) is a Romanian fund that obtained a secondary that listed on the London Stock Exchange last year. It’s managed by Franklin Templeton, the investment group best known for Templeton Emerging Markets. The share price has slid 11% this year, widening the discount – or gap – to net asset value to 39% and giving it a Z-score of -4.
The woes of the US high yield or ‘junk’ bond market have knocked a number of loan funds, in particular Volta Finance (VTA), a Guernsey-based fund run by AXA Investment Management which invests in bundles of loans known as collateralised loan obligations. Its shares are down 7.5% this year and yield over 10%.
Whether you think its 29% discount and a -3.6 Z-score is a bargain or not will depend on whether you agree with AXA’s view that the bond market turbulence has mainly reflected distress in the oil and gas sector rather than a more profound upheaval caused by the US interest rate rise in December.
Other debt funds with low Z-scores are CQS New City High Yield, Chenavari Capital Solutions and Funding Circle SME Income, which is the latest peer-to-peer lending trust to launch. It’s worth noting that despite the negative Z-score its shares still stand at a small premium above NAV.
Unloved private equity
Private equity trusts have also been casualties of the ‘risk-off’ mood that has gripped markets. Their discounts have widened over fears that falling corporate profits will hurt the private, unlisted companies in which they invest. That’s interesting because their discounts were already huge and attracting lots of analyst attention as a source of value in an otherwise expensive-looking investment trust sector.
Pantheon International (PIN), for example, has seen its share price slip 25% below Numis’ estimate of its net asset value, way beyond the 16.5% average of the past year and giving it a Z-score of -3.6. It’s a 'fund of funds' that invests in private equity partnerships, rather than in companies directly. I gave it a punt this week in our Citywire writers' picks for 2016 after analysts at Panmure and Stifel included it in their recommendations. To be honest it feels like an optimistic move. While I’m confident private equity discounts will narrow one day, this may not be the year they do it! Still if the bearish mood lifts, they may yet do well.
|'Cheap' trusts||Share price premium (- discount) to NAV %||12-month average %||Z-score|
|Fondul Proprietatea (FPq)||-38.9||-31.6||-4.0|
|Volta Finance (VTA )||-28.7||-13.9||-3.6|
|Pantheon International (PIN )||-25.3||-16.5||-3.6|
|Graphite Enterprise (GPE )||-23.2||-15.4||-3.5|
|Ediston Property (EPIC )||-3.6||4.5||-3.2|
|Hansa Trust A (HANA )||-32.4||-28.4||-3.2|
|CVC Credit Partners Euro Opps - £ (CCPG )||-3.7||0.5||-2.9|
|Menhaden Capital (MHN )||-14.9||5.8||-2.9|
|Funding Circle SME Income (FCIF )||2.4||3.6||-2.8|
|Dexion Absolute - £ (DAB )||-9.1||-5.1||-2.8|
|Africa Opportunity (AOF)||-27.6||-13.5||-2.7|
|Chenavari Capital Solutions (CCSL)||-11.2||0.9||-2.7|
|LMS Capital (LMS )||-29.1||-20.0||-2.7|
|CQS New City High Yield (NCYF )||-3.9||3.1||-2.6|
|Schroder Oriental Income (SOI )||-4.1||-0.1||-2.6|
Other eye-catchers include Hansa Trust, the global fund backed by the Solomon banking family, which has been hurt by its big holdings in Brazil. As with all funds exposed to emerging markets, having suffered badly in the downturn, the big question for investors is when to get back in? The A-shares in Hansa (HANA ) now stand 32% below NAV which is a big discount by any measure. Interestingly, chairman Alex Hammond-Chambers this week bought 2,500 of the trust’s ordinary shares (HAN ) at a 28% discount this week.
Ediston Property (EPIC) has slipped to a discount which may also provide an opportunity if you think its focus on revamping smaller properties in the ‘secondary’ markets outside London and the South East can do well when core markets in the capital are likely to be more subdued after two strong years.
|'Expensive' trusts||Share price premium (- discount) to NAV %||12-month average %||Z-score|
|Aurora Russia (AURR )||-1.7||-45.3||3.3|
|Burford Capital (BURF)||75.2||36.9||2.8|
|Phaunos Timber (PTOP )||-29.4||-37.4||2.7|
|Jupiter European Opportunities (JEO )||4.8||1.6||2.5|
|European Real Estate (ERET )||-14.5||-40.2||2.5|
|Axiom European Financial Debt (AXI)||4.9||3.8||2.5|
|Mercantile (MRC )||-7.4||-10.6||2.3|
|Independent IT (IIT )||1.0||-6.0||2.1|
|SQN Asset Finance Income C (SQNC )||5.8||4.4||2.1|
|Schroder Global Real Estate (SGRE )||-3.5||-7.7||2.0|
|AXA Property (APT )||-10.2||-18.5||2.0|
|Lindsell Train (LTI )||33.3||19.6||2.0|
|Jupiter Global (JPG )||0.4||-1.5||1.9|
|North Atlantic Smaller (NAS )||-16.3||-19.6||1.8|
|Alliance Trust (ATST )||-8.9||-11.8||1.8|
Source: Numis Securities 14/1/15. NAV is net asset value
Looking quickly at the second table of ‘expensive’ trusts, the other big question facing investors is whether to take profits in trusts that have done well?
Europe remains in vogue as a better value market than the US but should you stick with Jupiter European Opportunities (JEO), one of last year’s winners, now its shares trade at a near 5% premium to NAV? That’s a tough call as the portfolio has outpaced its peers by a mile.
Similarly, Max Ward’s Independent (IIT) investment trust was a top performer in the Global sector last year. Demand for the shares has pushed them to its first, admittedly small, premium in almost nine years.
However, arguably nothing is as expensive as Lindsell Train (LTI), the best performing Global fund boosted last year by a 40% uplift in the valuation of its fund management company in which it invests. Its shares stand at a huge 33% premium above NAV. Yet, because this is a habitual state of affairs, it registers a Z-score of only 2.
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Look up the shares
- Fondul Proprietatea SA
- Africa Opportunity Fund Ltd
- Chenavari Capital Solutions Ltd
- Burford Capital Ltd
- Axiom European Financial Debt Ltd
Look up the investment trusts
- Volta Finance (Ordinary Share)
- Pantheon International (Ordinary Share)
- Graphite Enterprise Trust (Ordinary Share)
- Ediston Property Invt Company (Ordinary Share)
- Hansa Trust A (Class A Ordinary)
- CVC Credit Partners GBP (Ordinary Share)
- Menhaden Capital (Ordinary Share)
- Funding Circle SME Income Fund (Ordinary Share)
- Dexion Absolute GBP (Ordinary Share)
- LMS Capital (Ordinary Share)
- CQS New City High Yield (Ordinary Share)
- Schroder Oriental Income (Ordinary Share)
- Aurora Russia (Ordinary Share)
- Phaunos Timber (Ordinary Share)
- Jupiter European Opportunities (Ordinary Share)
- European Real Estate IT (Ordinary Share)
- Mercantile (Ordinary Share)
- Independent (Ordinary Share)
- SQN Asset Finance Income C (Ordinary Share)
- Schroder Global Real Estate (Ordinary Share)
- AXA Property (Ordinary Share)
- Lindsell Train (Ordinary Share)
- Jupiter Global (Ordinary Share)
- North Atlantic Smaller Cos (Ordinary Share)
- Alliance Trust (Ordinary Share)
- Hansa Trust (Ordinary Share)
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by David Kempton on Jun 27, 2016 at 10:01