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Investment Trust Watch: watch out for RIT Capital
Shares in RIT Capital Partners, the popular global investment trust set up by the Rothschild banking dynasty, have slipped to a discount.
It’s not in our list of ‘cheap’ trusts yet (see first table) but Numis Securities figures show the shares in the £2.4 billion fund have just fallen to their first discount below their net asset value (NAV) since last June.
That’s not a long time but the point is a lengthy period of re-rating appears to have halted. The shares peaked at a 7% premium last month having steadily gained ground since June 2013 when they traded 12% below NAV
At yesterday's close the share price stood 2.3% below Numis' estimated NAV per share of £15.68. The NAV is officially calculated by the company once a month and at the end of January the NAV was £15.32.
Changes to the investment team a few years ago were judged by analysts to have sharpened performance with three three-year shareholder return of 38.4% beating the 20% average of global trusts and the 28.4% from the MSCI World index. However, it is behind rivals such as Caledonia (CLDN ) and Foreign & Colonial (FRCL ) after a 9% slide in the shares this year.
We shall have to see if the small discount represents a buying opportunity or will the gap to NAV widen? Currently it only gives a Z-score of -1.2 so we will have to see how things develop.
Just to recap, a Z-score is a measure used by analysts to tell whether an investment is trading significantly beyond its usual range, in this case over 12 months. It’s useful because it can indicate whether a trust on a discount below NAV is cheap or conversely whether a trust on a premium is expensive. As a rule of thumb, a Z-score of -2 or below is considered inexpensive and 2 or above is viewed as dear.
|'Cheap' trusts||Share price premium (- discount) to net asset value %||12-month average premium (- discount) %||Z-score|
|F&C Global Smaller Cos (FCS)||-5.8||0.8||-5.7|
|Blackstone GSO Loan Financing (BGLF)||-12.2||0.0||-5.2|
|City of London (CTY)||-2.0||1.6||-4.5|
|NB Global Floating Rate Income - £ (NBLS)||-7.7||-2.4||-4.1|
|Temple Bar (TMPL)||-9.4||-4.4||-3.7|
|Henderson International Income (HINT)||-8.2||0.2||-3.5|
|Henderson Eurotrust (HNE)||-4.7||0.7||-3.5|
|AEW UK REIT (AEWU)||-3.3||4.1||-3.5|
|Foresight Solar (FSFL)||-7.2||1.5||-3.4|
|BH Global - £ (BHGG)||-10.7||-6.1||-3.3|
|BlackRock Latin American (BRLA)||-17.0||-11.6||-3.2|
|Pantheon International (PIN)||-32.4||-18.1||-3.1|
Source: Numis Securities
Once again our first table from Numis shows all a lot of trusts trading well below their normal valuations. The discount on F&C Global Smaller Companies (FCS ) has widened from 2.7% last week to 5.8%, lowering its Z-score to -5.7.
Having moved to its first discount in nearly six years last week City of London (CTY ) also saw its discount widen from 0.7% to 2% giving it a Z-score of -4.5. Witan (WTAN ) also widened slightly to 5.9% below NAV and a -4 Z-score.
I highlighted Temple Bar (TMPL ) earlier this month in my Top Trusts video. The UK income and growth trust run by contrarian, value fund manager Alastair Mundy has got cheaper since then with a discount of 9.4% at yesterday’s close and a Z-score of -3.7%.
As previously noted, renewable energy funds have been under pressure from falling power prices, which have knocked their valuations. Foresight Solar (FSFL ) fell to a discount a month ago and is 7.2% below NAV compared to a 7% premium last July, giving it a Z-score of -3.4. The £261 million fund yields 6.5%.
The market continues to be underwhelmed by BH Global (BHGG ), the Guernsey-based investment company that offers access to the hedge funds of Brevan Howard. The discount has widened to over 10%, back to the level at the start of last year, giving it a Z-score of -3.3
The entertaining and informative annual report from Herald (HRI ) this month may not have had the desired effect for the UK technology trust run by Katie Potts. Her plans to open a research office in New York because of a lack of brokers representing US tech companies in London may have highlighted the lack of resources at her disposal. The discount this week widened from 20% to nearly 23%, giving it a Z-score of -3.1.
|'Expensive' trusts||Share price premium (- discount) to net asset value %||12-month average premium (- discount) %||Z-score|
|Axiom European Financial Debt (AXI)||13.8||5.8||2.5|
|BB Biotech (BION)||-5.4||-16.5||2.5|
|AXA Property (APT)||-5.3||-16.9||2.5|
|British & American (BAF)||74.0||26.5||2.4|
|SQN Asset Finance Income (SQN)||11.1||8.9||2.0|
|Vietnam Infrastructure Listed (VNIL)||-6.5||-15.5||2.0|
|Phaunos Timber (PTF)||-29.4||-36.4||1.9|
|Aurora Russia (AURR)||-2.5||-39.5||1.9|
|JPMorgan Senior Secured Loan (JPSL)||-2.6||-4.5||1.7|
|Standard Life UK Smaller (SLS)||-1.3||-6.7||1.7|
|BlackRock Greater Europe (BRGE)||-1.0||-3.2||1.7|
|Alpha Real Trust (ARTL)||-29.1||-37.0||1.7|
|BlackRock Frontiers (BRFI)||0.6||-3.4||1.7|
|North Atlantic Smaller (NAS)||-16.0||-19.3||1.6|
Source: Numis Securities
Tighter discounts and premiums
Highlights from our second table include Vietnam Infrastructure (VNIL ) which has narrowed its discount to 6.5% after buying back nearly 39% of its shares this month in a tender offer priced at 2% below NAV. That gives it a Z-score of 2.
Independent Investment Trust (IIT ) also registers a 2 on the Z-score scale as the shares continues to trade at a small premium after last year’s strong performance caught the attention of investors. The shares stood 15% below NAV in 2012 but have re-rated to trade at an average discount of 4.6% in the past year.
Harry Nimmo’s Standard Life UK Smaller Companies Trust (SLS ) could be heading back to premium territory after the discount narrowed from 6% to 1.3% this week to give it a Z-socre of 1.7.
It’s been an eventful few weeks for BlackRock Frontiers (BRFI ), which under managers Sam Vecht and Emily Fletcher invests in countries below emerging market status. There was disappointment for the company yesterday when it announced it had raised just £15 million from a C-share offer out of a maximum £65 million. It’s been a difficult market to raise money for anything as risky as frontier markets and it’s likely that most, if not all, of the money raised may have come internally from another BlackRock fund, rather than from outside shareholders.
Still the £161 million trust can take comfort that only 4.5% of shareholders chose to sell their shares in a 100% tender offer last month that could in theory have brought it to an end. The trust has had a tough first five years but has generated total shareholder returns of 25.5% which compares very well to a 23% decline in emerging markets over that time. With the share price close to par, or NAV, it has a Z-score of 1.7.
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Look up the investment trusts
- F&C Global Smaller Companies (Ordinary Share)
- Blackstone/GSO Loan Financing (Ordinary Share)
- City of London (Ordinary Share)
- Witan (Ordinary Share)
- Temple Bar (Ordinary Share)
- Henderson International Income (Ordinary Share)
- Henderson EuroTrust (Ordinary Share)
- AEW UK REIT (Ordinary Share)
- Foresight Solar (Ordinary Share)
- BH Global GBP (Ordinary Share)
- BlackRock Latin American (Ordinary Share)
- Herald (Ordinary Share)
- Pantheon International (Ordinary Share)
- AXA Property (Ordinary Share)
- British & American (Ordinary Share)
- SQN Asset Finance Income (Ordinary Share)
- Independent (Ordinary Share)
- Vietnam Infrastructure Listed (Ordinary Share)
- Phaunos Timber (Ordinary Share)
- Aurora Russia (Ordinary Share)
- JPMorgan Senior Secured Loan (Ordinary Share)
- Standard Life UK Smaller Co. (Ordinary Share)
- BlackRock Greater Europe (Ordinary Share)
- BlackRock Frontiers (Ordinary Share)
- North Atlantic Smaller Cos (Ordinary Share)
- RIT Capital Partners (Ordinary Share)
- Caledonia Investments (Ordinary Share)
- Foreign & Colonial Investment Trust (Ordinary Share)
Look up the fund managers
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by David Kempton on May 24, 2016 at 17:15