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Investment trusts: who's up and who's down in FTSE reshuffle

Infrastructure and emerging market trusts among the winners from the FTSE’s latest shuffle.

 

Jupiter Second Split  trust also returns to the FTSE Small Cap index having satisfied liquidity requirements, while Real Estate Credit Investments has been added to the Fledgling index.

The Jupiter Second Split trust is managed by Philip Gibbs, who also manages the Citywire Selection Jupiter Absolute Return fund , which launched to great fanfare, attracting £250 million in its first two weeks. Gibbs also oversaw the Hyde Park Hedge Fund and employed similar hedging strategies in the fund.

The trust has top holdings in the S&P 500 Financial Selector SPDR ETF and bonds in the Altira Group. Its zero dividend shares have a wind-up date of October 2014.

Who’s moving down

The Cazenove Absolute Equity trust dropped off the FTSE Small Cap to be listed on the FTSE Fledgling index and is expected to be wound up at its upcoming AGM as it has continued to trade at what the board is calling an ‘unacceptable discount’.

Kieran Drake, research analyst at Winterflood, comments: ‘Discounts have widened out since 2008 and they have taken measures to reign the discount back in. Probably the reason for the relegation is they’ve bought back a lot of shares through tenders, which reduced the size of the fund and now shareholders are happy to take their investments back.

‘There may well have been conversations behind the scenes as investors have been active in pushing for the wind down of the fund but what’s different from the approach that Laxey have taken with Alliance trust is that they haven’t made anything public and it’s probably because this is a much smaller fund.’

JPMorgan Russian Securities  has also been relegated from the FTSE 250 to the Small Cap Index. The trust is currently trading at a 8.7% discount with shares priced at 475p compared with their NAV of 520p. It has given NAV total returns of 40% over the past three years and shed 9% over the past five years.

The Hansa trust has also lost its listing on the FTSE All Share index as a change in rules mean its A-class or non-voting shares no longer warrant a premium listing, though the ordinary share class remains in the FTSE.

James Brown, research analyst at Winterflood, comments: ‘The LSE changed its rules a little while ago so some companies with share classes without voting rights would not be eligible for a premium listing.

‘The Hansa trust is effectively a family office and has two classes of shares. The A shares don’t have any voting rights and the ordinary shares are 52% controlled by William Salomon and his family, so effectively they retain control of the entire trust.’

Ashmore Global Opportunities ($) is another trust that has been ruled out of the FTSE Small Cap and All Share indexes and is trading at a 40.8% discount to its NAV. The trust invests in emerging market special situations. Shareholders rejected a proposed wind up the trust this month.

The exclusion of a trust means it’s still tradeable for investors, but will no longer be included in funds tracking the index.

Aberforth Geared Income  and Duet Real Estate Finance have also been excluded from the FTSE Fledgling index, which means they will remain as listed trusts but will no longer make up part of an index.

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12 comments so far. Why not have your say?

Maverick

Jun 12, 2012 at 13:20

Caelainn - You can't buy the new asset value of an investment trust -all you can buy is a share, at whatever price it is at the time. The NAV, and the discount, is purely of academic interest.

You should have quoted the 3-year and 5-year share price figures, which were 58% and 31% - still very good.

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David West

Jun 12, 2012 at 17:25

I think it's worth mentioning that if you buy at a considerable premium, you are effectively paying more than the underlying assets of the trust. That may be OK if you consider the premium a worthwhile amount to gain exposure to a well run trust but neverless you are still paying over the odds for that privledge and the underlying shares held in the turst. There are many well run trusts out there with small to medium discounts which may be worth considreing before buying one with a premium. It's "academic" perhaps but nontheless paying a premium today for a trust that is considered by the market as desirable could well turn into you owning one with a discount tomorrow since all trusts have their good times and bad including ones currently trading at a premium.

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Maverick

Jun 14, 2012 at 00:02

David West - So do you think that when you buy (say) BP shares you're buying the net asset value of BP? You're actually buying about half its net asset value.

So does that stop punters buying BP shares?

What a unit trust calls its net asset value is actually the aggregate value, at market prices, of the shares it holds. It is not the underlying net asset values of the companies in its portfolio. So it is just as much an academic figure as an investment trust's "discount".

Even if you wanted to, you could not buy an investment trust's net asset value. You have to buy its shares at the price the market thinks they are worth. Just like the share of any other company.

Look at the share price performance. That is what matters.

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David West

Jun 14, 2012 at 10:12

Hi Maverick

I would not dispute that when one buys a company like BP that the underlying assets of that company may be worth more or less than the actual share price at any one given point in time. Some companies are fully or over valued in their share price and some are actually undervalued - hence value orientated investment trusts. However, if a company share is over valued why compound this by buying into an investment trust that is also over valued in it's share price when compared to the underlying investments? Would also be interested to know how you calculate that when buying BP shares one is actually over paying by 50% compared to its net asset value. If you are correct it seems that the market is not as efficient in FTSE 100 stocks as we are lead to believe.

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Maverick

Jun 14, 2012 at 13:36

David West - Whoever said the market was efficient? If it was, we'd all be millionaires.

The remaining 50% of a large FTSE100 company's share price is brand value, goodwill and other intangibles - which is why BP's share price dropped after the Deepwater Horizon disaster.

What you're buying in an investment trust is the management team's expertise in finding companies that will outperform in future. And some management teams are clearly better than others.

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David West

Jun 14, 2012 at 14:48

Guess it's obviously how you look at it. It's precisely because the market in FTSE 100 stocks is assumed to be efficient that we are NOT all millionaires. If one could identify stocks that were undervalued by the market and buy them, over time we might become millionaires - but we can't because their value is already reconised by the market - so we're not.

Brand value and goodwill are worth something, along with a company's fixed assets and so it is incorrect to say that you are paying over the NAV if these are priced into the shares. Your example of the Deepwater Horizon disaster makes this point rather well. Some managers of investment trusts are indeed better than others but my original point still stands. If you can find a well run trust trading at a small discount or at no discount at all, why buy an equivalent trading at a premium?

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Maverick

Jun 14, 2012 at 16:38

Because a premium indicates that the market likes what the management team are doing. Tell you what - I'll buy shares the market likes, and you buy shares with a discount, and we'll see who has done better in a couple of years' time.

You are ignoring the fact that discounts and premiums are there for a reason, and that reason has everything to do with how the market sees that share. Have you noticed how the shares with the highest discounts are the private equity trusts and smaller company trusts? In other words, the risky ones.

There ain't no free lunch . . . .

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David West

Jun 15, 2012 at 10:16

So, if the market likes shares it must be OK then. The market liked shares in the FTSE 100 so much that it drove it to 6,700 prior to 2008. It's now 5,500 as of today but please don't let me stop you buying shares the market likes. By your own admission you don't think the market is efficient since if it was we'd all be millionaires! But anyway - good luck.

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Mark C Digby

Jun 17, 2012 at 11:01

Just love your arguments, thank you!! Keep at it you are probably both right, some of the time.

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AA

Jun 17, 2012 at 11:23

You can perfectly easily buy say top 10-20 shareholdings of a given investment trust at market value of those shares, without paying the premium of the IT share price. Premiuim in some high yield investment trusts is not worth paying the extra, better of buying the plum shares usually the core 10.

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Maverick

Jun 17, 2012 at 15:02

AA - You're right, I certainly wouldn't buy an investment trust where I was happy to buy the plum shares.

What I use investment trusts for is to buy shares in markets where I can't do the research or where the research is very difficult - e.g. Scottish Oriental Smaller Companies and Aberdeen Asian Smaller Companies and Aberdeen New Thai.

Using investment trusts which are closet FTSE100 trackers seems a complete waste of money - and they tend to under-perform the relevant index, too. That also applies to physical ETFs.

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AA

Jun 17, 2012 at 21:51

Maverick - Agreed.

Another scenario I have in mind is that 15% sometimes 25-30% discounts of some investment trusts look overdone and unjustifiable. If market turned bullish upon Eurozone resolving current fiasco, these discounts will disappear.

I await tomorrow to find out who was the multi million buyer of shares in RCP on Friday to cause 5% jump!

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