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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.

 
Investment Trust Watch: Nimmo hero, property zero

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
Vinaland (VNL) -31.9 -38.7 2.1
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.

8 comments so far. Why not have your say?

CUEBALL

Dec 04, 2015 at 16:16

woodford.. oh dear will they ever learn ...no because 'they' are born every minute....or is it second?...Al 'l' know

report this

James Wood

Dec 05, 2015 at 09:17

Hi could Cueball please expand he's thoughts.

I can see from he's comments he probably has in

past but I'm not sure of his position on alternatives

to Woodford type funds.

Jim.

report this

CUEBALL

Dec 05, 2015 at 14:11

Hi Jim ...Naive small investors a lot of them first timers are canon fodder for commission chasing brokers/advisors which drives the price to a premium the smart money then exits alongside panicking small investors creating a geared effect on the downside realism kicks in and usually the fund falls to a discount where again the smart money joins..However all is not lost as in the long term whether you paid £1 or £1.20 pails in comparison to the overall gains you will have made (see John lee's column in todays ft) ...Good Luck and if you are a first timer believe me you will be ok

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martin hargan

Dec 05, 2015 at 14:42

Ah but fundsmith

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CUEBALL

Dec 05, 2015 at 16:30

oh not again!!! ...Jimmy go to forums... investment trusts ...how to evaluate IT's where you will see a quite lively debate which will give you invaluable advice from some expert commentators ...totally free of charge...the very best of luck

report this

James Wood

Dec 05, 2015 at 16:59

Thank you Cueball.

report this

Hilary hames

Dec 06, 2015 at 21:22

Cueball can you link to the investment trusts forum you mention?

Also, although I understand premium/discount I cannot see that its much more than a guide. I bought Woodfords Patient Capital at launch so if I sold today I would have no profit at all regardless of the still fairly healthy premium. Will have to hope that his dodgy pharm company sorts itsself out as a lot more money invested in that than his successful Purplebricks investment

report this

CUEBALL

Dec 07, 2015 at 17:45

click on forums then under the heading 'investing' click on investment trusts ..third down " how to evaluate investment trusts " should tell you all you need to know despite it being like prime ministers question time! ...we all love each other really all the very best.

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