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Investment Trust Watch: what Donald did for discounts

Donald Trump's stunning victory generated lots of buying and selling of investment trusts shares. But which are the bargains?

 
Investment Trust Watch: what Donald did for discounts

We start with the biggest riser of the week, which had nothing to do with Trump or the US.

Shares in Cambiuim Global Timberland (TREE ), a £6 million timber minnow that is being wound up, shot up 24% in the week ending Thursday after finding a pulp and paper company to buy most of its standing timber in its plantation in Tocantins state, Brazil.

That aside, all of the main action in trusts – and stock markets – this week was bound up in the stunning victory of Donald Trump in the US presidential race.

Biotech party

Hillary Clinton’s failure to clinch the White House was a shot in the arm of biotech and healthcare funds as investors piled into their shares, celebrating the passing of her threat to tackle excessive drug prices if she had gained power.

BB Biotech (BION), the sector’s Swiss giant launching a London-listed sibling next month, soared nearly 17%, while rivals Biotech Growth (BIOG ), International Biotechnology (IBT ) and Worldwide Healthcare (WWH ) rallied between 14.6% and 9.9%.

As a result none of them are bargains, although if you believe Sven Borho, one of the Orbimed managers behind Biotech Growth and Worldwide Healthcare who we interviewed recently, now is still a good long-term entry point.

According to Numis Securities data, at Thursday’s close Biotech Growth was the cheapest, with shares 7.2% below net asset value (NAV). That discount is slightly wider than the one year average so gives it’s a Z-score of -0.4.

Just to recap, Z-scores are a measure used by analysts to tell if an asset is trading significantly beyond its one-year range. Broadly speaking a Z-score of -2 or below is inexpensive (see first table below) while a score of 2 or more is viewed as dear (second table).

'Cheap' trustsShare price premium (- discount) to net asset value %12-month average premium (- discount) %Z-score
Investment Company (INV) -9.1-0.5-4.3
Blue Capital Global Reinsurance (BCGR)-14.5-9.1-2.7
Schroder European Real Estate (SERE) -0.18.2-2.6
BH Global - £ (BHGG) -12.9-8.0-2.6
Gresham House Strategic (GHSS) -28.7-20.6-2.5
Templeton Emerging Markets (TEM) -15.7-13.1-2.5
Honeycomb IT (HONY) -1.62.0-2.3
Edinburgh Dragon (EFM) -15.2-12.7-2.3
Nimrod Sea Assets (NSA)-88.8-71.2-2.2
Dunedin Smaller Companies (DNDL) -20.9-16.8-2.1
Independent IT (IIT) -8.1-0.3-2.1
Drum Income Plus REIT (DRIP) 10.112.8-2.0
VPC Specialty Lending (VSL) -25.4-12.9-1.9
Majedie (MAJE) -15.6-5.3-1.9
River & Mercantile UK Micro Cap (RMMC) -10.7-1.8-1.9

Source: Numis Securities 10/11/16

Woodford sheds discount

Continuing with our look at the top movers that are not in either of our tables, it was a better week for shareholders in Woodford Patient Capital (WP CT) too as its shares lifted 6.4% and traded just above par and with no discount for the first time in over a month. The shares are still down 6% this year though and at 94.5p, below the 100p price they were launched at in April last year.

Rebuilding miners

Trump’s pledge to rebuild America caused equal merriment in the commodities sector, where metals such as copper and nickel surged in anticipation of a US infrastructure boom.

BlackRock World Mining (BRWM ), the mining fund in the portfolio of Citywire columnist David Kempton, gained 4.7%, extending its incredible turnaround which has seen the shares almost double in value this year. Long-term shareholder are still sitting on a 33% loss over five years, however.

Sister fund BlackRock Commodities Income (BRCI ) did better with a 6.2% gain. Its shares trade at a small premium and a Z-score of 0.5 which makes BRWM better for bargain hunters as it stood on a near 18% discount and a -1.4% Z-score.

Anticipation that Trump will repeal the Dodd-Frank act as part of a de-regulation drive thrilled bankers, who lobbied fiercely against president Obama’s post-crisis effort to make the sector safe for taxpayers.  The pay-off for Polar Capital Global Financials (PCFT ) was a 5.2% rise in the share price

Emerging market pain

It’s not been one-way traffic, however. Emerging markets trusts, particularly those focused on Latin America had a bad week and tumbled again today.

Worst affected in the week to yesterday’s close was Aberdeen Latin American Income (ALAI ), down 8.4% and BlackRock Latin American (BRLA ) and JPMorgan Brazil (JPB ) which both fell over 7%. ALAI was the cheapest with its 15% discount generating a -1.6 Z-score. Generalists JPMorgan Global Emerging Markets (JEMI ) and JPMorgan Emerging Markets (JMG ) slipped 6% and 5% respectively but had only fractionally negative Z-scores.

Several commentators, including Andrew Bell of Witan (WTAN ), have explained how Trump’s drive to reflate America and pump prime it with tax cuts and an infrastructure frenzy – rather than printing dodgy dollars at the Fed – is double edged. It risks over heating the economy and provoking faster interest rate rises that could burst the bond bubble and possibly send expensive defensive stocks through the floor. 

Equity  income risers

With this in mind it’s interesting to see that some equity income funds joined in the party, even though rising treasury and gilt yields could spell trouble for the dividend stalwarts they like to hold in the tobacco, pharmaceuticals and utility sectors.

Temple Bar (TMPL ) and Standard Life Equity Income (SLET ), both previous entries in the Numis cheap table (above), rose over 4%. The discount on Alastair Mundy’s Temple Bar has narrowed to 6.4% so gets a positive 0.5 Z-score. Thomas Moore’s SLET looks potentially better value on a 7% discount but a -1.7 Z-score.

'Expensive' trustsShare price premium (- discount) to net asset value %12-month average premium (- discount) %Z-score
Invesco Perpetual Enhanced Income (IPE) 6.32.93.2
Miton Global Opportunities (MIGO) -5.0-9.23.0
Tiso BlackStar Group (TBGR)-35.4-49.12.8
Damille Investments II (DIL2) -7.6-16.42.7
Ruffer Investment (RICA) 3.7-0.52.6
Aberdeen Private Equity (APEF) -24.2-31.72.5
Middlefield Canadian Income (MCT) -8.0-13.42.4
JPMorgan Russian Securities (JRS) -12.6-16.32.4
Vinaland (VNL) -19.6-30.42.3
Global Resources (GRIT) -64.0-78.72.1
F&C Private Equity (FPEO) -7.4-17.42.1
Phoenix Spree Deutschland (PSDL) 13.72.72.0
City Merchants High Yield (CMHY) 2.91.42.0
Boussard & Gavaudan - £ (BGHS)-17.3-21.92.0
Doric Nimrod Air Two (DNA2)37.528.22.0

Source: Numis Securities 10/11/16

Bye Edinburgh, hello Edinburgh Dragon

Sticking with UK equity income and turning to our first table, the first thing to notice is that Mark Barnett’s Edinburgh (EDIN ), which we’ve highlighted in recent weeks, no longer features. Its discount has narrowed to 3.6% lowering its Z-score to -1. Perpetual Income & Growth (PLI), his other fund in the sector, stands on a 7% discount and also a -1 Z-score.

Edinburgh has gone but Edinburgh Dragon (EFM), an Asia Pacific fund run by Adrian Lim at Aberdeen Asset Management, has taken its place with a wider than average discount of just over 15% and a Z-score of -2.3.

Templeton Emerging Markets (TEM) returns as the main bargain of the global emerging markets sector. The biggest and oldest emerging markets trust is up 43% this year, the best in its peer group as it recovers after a lengthy period in the doldrums with new  manager Carlos Hardenberg. Investors may not have entirely forgotten that as the shares trade on a near 16% discount and a genuinely ‘cheap’ Z-score of -2.5.

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