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Investment Trust Watch: Nimmo hero, property zero
Harry Nimmo's pledge to stay at Standard Life UK Smaller Companies lifted its shares. Plus all the week's winners and losers.
We reverse our usual order with a look first at the most ‘expensive’ investment trusts this week ranked by Numis Securities (see first table below).
News that star fund manager Harry Nimmo was looking to do another seven-year stretch on Standard Life UK Smaller Companies (SLS ) before retiring pleased investors and resulted in the discount – or gap between the share price and its net asset value (NAV) – shrinking to a 10-year low of 1.4%. The shares closed yesterday at 371p, up 4.6% over the previous week. That pushed the sector-leading trust’s Z-score to 3.7 making it this week’s most pricey fund.
Just to recap, Z-scores are a measure analysts use to put a share price in some historical context. Roughly speaking, a Z-score of 2 or more shows a stock is significantly above its normal trading range and is therefore ‘expensive’. Conversely, a score of -2 or below shows a stock is significantly below its normal trading range and is therefore ‘cheap’ (see second table).
Henderson Smaller Companies (HSL ) appeared to benefit from the positive vibe from Nimmo’s decision. Shares in the fund, managed by veteran Neil Hermon, also added 4% over the week, with the discount narrowing to 5.9%, another 10-year low, according to Morningstar data.
|'Expensive' trusts||Share price premium (- discount) to NAV %||Average 1-yr premium (- discount) %||Z-score|
|Standard Life UK Smaller (SLS)||-1.4||-8.0||3.7|
|Qatar Investment Fund (QIF)||-3.0||-13.7||2.9|
|RAB Special Situations (RSS)||8.3||-20.6||2.9|
|JPMorgan European - Income (JETI)||1.5||-3.7||2.6|
|Sequoia Economic Infrastructure Income (SEQI)||9.5||6.9||2.5|
|Empiric Student Property (ESP)||9.3||4.1||2.4|
|Aberdeen UK Tracker (AUKT)||-2.7||-4.9||2.4|
|Alliance Trust (ATST)||-9.8||-12.3||2.3|
|European Real Estate (ERET)||-17.1||-37.5||2.3|
|Polar Capital Global Healthcare G & I (PCGH)||-1.2||-6.2||2.2|
|Duke Royalty (DUKE)||1.3||-22.7||2.2|
|City Natural Resources High Yield (CYN)||-11.9||-20.1||2.0|
|Henderson Smaller Companies (HSL)||-5.9||-11.0||2.0|
|Lindsell Train IT (LTI)||33.3||18.2||2.0|
Source: Numis Securities
European tail wind
A couple of European funds have been motoring of late. JPMorgan European – Income (JETI ) closed last night at a small 1.5% premium, the first time in a long time the shares have stood above NAV. Managed by Stephen Macklow-Smith, the trust has steadily re-rated from a 10% discount over two years ago. Exaggerated hopes of another bazooka-blast of QE (quantitative easing) from the European Central Bank may have helped banish the discount, the disappearance of which has seen the shares advance 11% this year ahead of the 5.7% growth in the portfolio.
Also benefiting from a tail wind is European Real Estate (ERET ), a small trust that Tony Smedley at Schroders is helping to wind down. Its shares gained 7.8% this weak, narrowing the discount by 6% to 17%, as Schroders announced it had raised £107 million for the new Schroder European Real Estate Trust (SERE) trust that Smedley will also run.
Alliance Trust (ATST ) keeps buying back its shares and has finally been rewarded with the discount dipping just below its target of 10%. Is it expensive? A Z-score of 2.3 suggests it may be, unless you think its largest shareholder, hedge fund Elliott Capital, can squeeze further changes at the company, or if the fund managers can improve underlying investment returns.
No boost for Better Capital
Turning to our second table of 'cheap' trusts (see below), Jon Moulton’s Better Capital 2009 (BCAP ) venture capital fund remains in distressed territory after the recent profits warning. There was good news this week as the fund announced it would bag close to £40 million from the sale of one of its investments, Santia, and would return £4 million to shareholders.
As our second table below shows the trust remains stuck on a 26% discount to NAV, although once the pay-out is accounted for this increases to 30.8%, a level that Numis says ‘offers value’. However, the broker notes that the fund’s fortunes are increasingly tied to Gardner, the aerospace supplier, that will account for 80% of NAV once the Santia sale goes through.
Fund raising hits GLI Finance
News of a fund raising by GLI Finance (GLIF ) has knocked shares in the investor in direct lending and peer-to-peer platforms. The stock closed last night down 7.3% over the week at a near 17% discount to net asset value to give it a Z-score of -2.8 in our table. However, today the shares have plunged 7p, or 17%, to 34.3p in response to the plans to raise £40 million with a new issue of zero dividend preference shares. It is also considering an issue of convertible unsecured bonds to repay a £30 million loan facility.
Property sell-off continues
Investors continue to run scared of UK property trusts despite the recent reassurance from TR Property (TRY ) whose manager, Marcus Phayre-Mudge, last month told us in a video interview that higher interest rates would not impact the sector.
Shares in F&C Commercial Property (FCPT ) have now lost almost all the 21% premium with which they began the year, leaving the trust on a Z-score of -2.7. The trust briefly went to a small discount in 2011 but you have to go to back to the financial crisis in 2008 when it plunged to a 35% deficit to NAV. At this level the trust yields 4.2% and pays a monthly dividend.
It’s a similar story with UK Commercial Property (UKCM ) which has fallen to a 6% discount from a 12% premium in January. It yields 4.5% and pays a quarterly dividend.
|'Cheap' trusts||Share price premium (- discount) to NAV %||Average 1-yr premium (- discount) %||Z-score|
|Better Capital 2009 (BCAP)||-26.2||-17.5||-3.1|
|GLI Finance (GLIF)||-16.8||14.3||-2.8|
|F&C Commercial Property (FCPT)||0.9||12.3||-2.7|
|Duet Real Estate Finance (DREF)||-27.0||-8.4||-2.7|
|Juridica Investments (JIL)||-49.2||-5.8||-2.7|
|Cambium Global Timberland (TREE)||-61.9||-37.4||-2.7|
|Qannas Investments (QIL)||-8.9||2.8||-2.6|
|UK Commercial Property (UKCM)||-6.0||5.0||-2.6|
|Blackstone GSO Loan Financing (BGLF)||-4.0||0.5||-2.6|
|TwentyFour Income (TFIF)||0.9||5.8||-2.6|
|Alcentra European Floating Rate Income (AEFS)||-5.3||0.7||-2.5|
|Hansa Trust A (HANA)||-32.4||-27.9||-2.3|
|Graphite Enterprise (GPE)||-19.5||-15.2||-2.3|
|Aberdeen Asian Income (AAIF)||-8.4||-2.4||-2.3|
|VPC Specialty Lending (VSL)||-3.6||2.2||-2.3|
Source: Numis Securities
Hansa hits new low
Hansa Trust (HANA ) looks to have hit an all-time high discount of over 32% below NAV. The global fund is an unusual beast in several ways. As the repository of the wealth of the Salomon banking family, it is similar to the Rothschilds' RIT Capital Partners (RCP ).
However, unlike RCP and most other global funds, HANA has not benefited from the trend for narrowing discounts since the financial crisis. Its discount has steadily widened as a result of its having 17% its assets invested in Brazil through a holding in the Ocean Wilsons investment company. The country’s deepening recession and fraught politics – which this week saw impeachment proceedings started against president Dilma Roussef – are taking their toll on demand for the trust which had sought to encourage private investors a few years ago.
However, if you think the new manager of Templeton Emerging Markets is right to buy bargains in Brazil today (see last week's column), then there may be reason to look at Hansa too.
Seneca adds Aberdeen Asian Income
Aberdeen Asian Income (AAIF ) looks attractive if you think manager Hugh Young and the region will make a comeback. Alan Borrows, lead manager of the Seneca Global Income & Growth Trust (SIGT ), has told me the trust recently bought AAIF when it was on a 10% discount. The gap to AAIF's NAV has since narrowed to just over 8% but a Z-score of -2.3 indicates that still represents value. The share price has fallen 18% this year, with the portfolio down 11.3%. It yields 5.4%.
Woodford and other big movers
Other big movers this week which didn't make the Numis tables included LMS Capital (LMS ). Shares in the private equity trusts rose 9.9% to 78.9p after it announced plans to tender (offer to buy) £40 million of its shares. This rewards shareholders upset by the board's attempt to turn into a investor in bombed out oil companies under a team including former BP boss Tony Hayward. Its discount narrowed 7.4% to 17.3%.
In recent years shares in private equity giant 3i (III ) have been so highly rated that the Association of Investment Companies has had to exclude it from standard calculations of the sector. In the past month, though, the premium has softened, shedding 9.5%, although with the share price 19.6% above NAV it still stands out among the huge discounts on rival funds.
The Paris climate change talks aren't providing a favourable backdrop to Menhaden Capital (MHN ), a 'green' fund launched this summer by Ben Goldsmith, brother of Tory politician, environmentalist and London Mayor candidate, Zac Goldsmith. Its shares fell 9% this week to close at 87.5p yesterday, although that is still a 4% premium above their net asset value at the end of October.
Shares in Woodford Patient Capital (WPCT ), the biggest investment trust launch of the year, slipped 3.9% to 100.4p over the week. At yesterday's close they stood a smidgeon above the price they first listed at in April, despite a little boost from the impending flotation of online estate agent Purplebricks. The £830 million fund retains its premium, however, with the share price 5% above Numis' estimate of net asset value of 95.6p per share.
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Look up the investment trusts
- Better Capital PCC 2009 (Ordinary Share)
- GLI Finance (Ordinary Share)
- F&C Commercial Property (Ordinary Share)
- Duet Real Estate Finance (Ordinary Share)
- Juridica Investments (Ordinary Share)
- Cambium Global Timberland (Ordinary Share)
- Qannas Investments (Ordinary Share)
- UK Commercial Property (Ordinary Share)
- Blackstone/GSO Loan Financing (Ordinary Share)
- TwentyFour Income (Ordinary Share)
- Alcentra Eur Floating Rate Inc (Ordinary Share)
- Hansa Trust A (Class A Ordinary)
- Graphite Enterprise Trust (Ordinary Share)
- Aberdeen Asian Income (Ordinary Share)
- VPC Specialty Lending Invest (Ordinary Share)
- Standard Life UK Smaller Co. (Ordinary Share)
- Qatar Investment Fund (Ordinary Share)
- JPMorgan European Income Pool (Ordinary Share)
- Sequoia Economic Infra Income (Ordinary Share)
- Empiric Student Property (Ordinary Share)
- Aberdeen UK Tracker (Ordinary Share)
- Alliance Trust (Ordinary Share)
- European Real Estate IT (Ordinary Share)
- Polar Capital Glb Healthcare (Ordinary Share)
- Vinaland (Ordinary Share)
- City Natural Resources (Ordinary Share)
- Henderson Smaller Companies (Ordinary Share)
- Lindsell Train (Ordinary Share)
- TR Property (Ordinary Share)
- RIT Capital Partners (Ordinary Share)
- Seneca Global Income & Growth (Ordinary Share)
- LMS Capital (Ordinary Share)
- 3i (Ordinary Share)
- Menhaden Capital (Ordinary Share)
- Woodford Patient Capital Trust (Ordinary Share)
Look up the fund managers
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