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Investment trusts: where to play discounts right now
Oriel Securities has put out a list of ten investment trusts the broker believes look technically 'expensive' and another ten that emerge as 'cheap'.
As global markets pause for breath after one of the best first quarters in recent memory, Oriel Securities has put out a list of ten investment trusts the broker believes look technically ‘expensive’, and another ten that appear ‘cheap’.
Here’s Oriel’s list, published last week and based on the level of discounts or premiums the trusts' shares are trading at compared to the value of their investment portfolio.
A discount is where a trust's share price is lower than the net asset value per share of its investment portfolio. A discount at the upper end of its normal range can indicate a buying opportunity as investors can access the portfolio for less than it is worth.
A premium is where a trust's share price is higher than the net asset value per share of its investment portfolio. A premium at the upper end of its historic range can indicate a good selling opportunity as new investors are effectively overpaying for the trust's assets. A premium shows the trust's shares are in demand with investors.
Click on the links in the table to see a Citywire Money fact sheet on each of the investment trusts. These show how the trusts have performed in recent years.
|‘Cheap’ investment trusts|
|Name||Discount (-) / premium (+)||6-month discount / premium range|
|Invesco Asia Trust||-9%||11% to 5%|
|Fidelity European Values||-14%||15% to 10%|
|Alliance Trust||-15.4%||16% to 13%|
|Fidelity China Special Situations||-4%||6% to 5% prem.|
|British Empire Securities||-10%||10% to 1%|
|Fidelity Asian Values||-8%||12% to 3%|
|RCM Technology Trust||-14%||5% to %2 prem.|
|Merchants Trust||+4%||1% prem. to 12% prem.|
|TR Property Investment Trust||-13%||14% to 1%|
|Artemis Alpha||-8%||11% to 4%|
|‘Expensive' investment trusts|
|Name||Discount (-) / premium (+)||6-month discount / premium range (%)|
|Blackrock Commodities Income||+5% prem.||6% to 4% prem.|
|European Investment Trust||-12%||18% to 12%|
|Scottish Oriental Smaller Cos||+1.5%||11% to 1% prem.|
|F&C Global Smaller Cos||+2.5%||4% to 5% prem.|
|Schroder Japan Growth||-10%||16% to 9%|
|BlackRock Smaller Cos||-14%||19% to 13%|
|Shires Income||+4%||5% to 6% prem.|
|JPMorgan Smaller Cos||-18%||23% to 16%|
|World Trust Fund||-8%||13% to 7%|
|Aberdeen All Asia||-10%||17% to 10%|
Source Oriel Securities
(continued) Alliance Trust is one of the most prominent names on the list, after its repeated tussles with activist investor Laxey Partners over the gap between its share price and NAV.
Tom Tuite Dalton, analyst at Oriel, pointed out in the note that the £2.2 billion trust continues to shrink as buybacks continue apace, pushing up its costs but failing to narrow the discount, which is close to its widest in six months. But he stressed that this did not make the trust – on which Oriel has a ‘negative’ rating – a buying opportunity.
He also noted that Scottish Oriental Smaller Companies, a Citywire Selection pick, has moved to a premium on the back of strong NAV performance and growing retail demand. Indeed, in the past three months, the trust’s NAV and shares have added 15.9% and 26% respectively, beating an 11.5% gain by its benchmark stock index, the MSCI Asia Pacific Ex Japan.
Simon Moore, analyst at BestInvest, said these returns do not necessarily make the trust expensive. ‘Is it expensive or will it be getting more expensive?’ he asks. ‘I think people still want to have exposure to Asia, so I certainly wouldn’t be advising clients to sell that one.’
He said Invesco Asia does appear undervalued at an 11% discount, noting that if investors seek exposure to Asia, Invesco is well placed to provide it due to its experience in the region. ‘Buy now when it’s almost as cheap as it’s been for the whole year,’ he said.
The analyst said he would add Worldwide Healthcare Trust to the list of cheap trusts, pointing to its discount of 8.4%, somewhat wider than its average level of 7.2%. He noted that the trust’s management had a strong team that ‘live and breathe’ pharmaceutical research.
‘They don’t have advance, inside knowledge about which drugs are about to get approved, but they speak to the drug trialists, and they, “well, this one’s going really well,’ Moore said. ‘So I think they’re going to be ahead of the curve in finding stocks that do well.’
He added that by playing discounts, investors could add extra value to their portfolios. ‘If you want to have exposure to say, Japan, you can go and buy a tracker; you can buy unit trusts; or you can buy an investment trust at a discount, Moore said. ‘You should get the double whammy – if you believe Japan will perform – of the performance of the underlying fund, plus the discount narrowing.’
More about this:
Look up the investment trusts
- Invesco Asia (Ordinary Share)
- Fidelity European Values (Ordinary Share)
- Alliance Trust (Ordinary Share)
- Fidelity China Special (Ordinary Share)
- British Empire Securities (Ordinary Share)
- Fidelity Asian Values (Ordinary Share)
- RCM Technology Trust (Ordinary Share)
- Merchants Trust (Ordinary Share)
- TR Property SIGMA (Ordinary Share)
- Artemis Alpha Trust (Ordinary Share)
- BlackRock Commodities Income (Ordinary Share)
- European Investment (Ordinary Share)
- Scottish Oriental Smaller Cos (Ordinary Share)
- F&C Global Smaller Companies (Ordinary Share)
- Schroder Japan Growth (Ordinary Share)
- BlackRock Smaller Companies (Ordinary Share)
- Shires Income (Ordinary Share)
- JPMorgan Japan Smaller Cos (Ordinary Share)
- World Trust Fund (Ordinary Share)
- Aberdeen All Asia (Ordinary Share)
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