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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.
Markets
As part of the latest FTSE index review a number of investment trusts will be be moved up or down on June 18. Although the moves are by no means a failsafe guide to a trust’s performance, they do highlight some of the closed-ended funds with liquidity issues, those with growing market caps and some newly launched portfolios that have won admirers.
Who’s moving up
Emerging market focused trusts have taken the lead among the new listings on the FTSE 250 index. Utilico Emerging Markets joins the ranks, with investments in infrastructure and utilities in the Philippines, Brazil, Thailand and India. The trust has given a net asset value (NAV) total return of 52% over the past three years and 35% over the past five years, and is trading at 167p – an average 3.3% discount to its NAV of 172.6p.
A trust’s NAV total return reflects the increase in the NAV of the shares with any dividend income reinvested at the time dividends were paid.
Raven Russia also moves up from the small cap index to the FTSE 250. The trust invests in Russian commercial real estate. Its NAV has slumped 22.5% over the past five years and its currently trading at 60p, a discount of 13.1% to its NAV of 69p.
Schroder Asia Pacific moves to the reserve list for the 250 index, along with Worldwide Healthcare and Advance Developing Markets .
The Schroder Asia Pacific trust is managed by Matthew Dobbs and has given a NAV total return of 63% over the past three years and 44% over the past five years.
Advance Developing Markets invests in a range of emerging market investment trusts and has given a 23% NAV total return over the past three years and 5% over the past five years.
Worldwide Healthcare invests in drug and biotechnology companies with top holdings in Pfizer, Roche and Novartis with a NAV total return of 59% over the past three years and 70% over the past five years.
The FTSE Fledgling index also welcomed the BlueCrest Blue Trend trust, a feeder for the firm’s hedge fund of the same name, along with sector GCP Infrastructure . Both had been listed before but were not members of any indices.
Ewan Lovett-Turner, associate director of Investment Companies Research at Numis Securities, said: ‘GCP Infrastructure raised some cash recently so that’s the reason it has come into the All Share and it’s certainly a popular asset class as you’ve got other funds looking to raise money at the moment like INPP, which is already a lot bigger.
‘GCP has also said it’s looking to a tap issue so it’s looking to raise a bit more capital so there certainly strong demand for that sector and the fund is trading on a premium.’
A tap issue allows the trust to issue more shares at a discount to share price when trading at a premium. It helps the trust rein in a high premium and increase liquidity. However, unlike HICL and INPP, which own concessions in infrastructure projects, GCP invests in debt.
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Look up the investment trusts
- Utilico Emerging Markets (Ordinary Share)
- Raven Russia (Ordinary Share)
- Schroder Asia Pacific (Ordinary Share)
- Worldwide Healthcare (Ordinary Share)
- Advance Developing Markets (Ordinary Share)
- BlueCrest BlueTrend GBP (Ordinary Share)
- GCP Infrastructure Invs. (Ordinary Share)
- Jupiter Second Split (Geared Ordinary)
- Real Estate Credit Investments (Ordinary Share)
- JPMorgan Russian Securities (Ordinary Share)
- Hansa Trust (Ordinary Share)
- Hansa Trust 'A' (Class A Ordinary)
- Ashmore Global Opp USD (Ordinary Share)
- Aberforth Geared Income (Ord Income)
- Duet Real Estate Finance (Ordinary Share)
- HICL Infrastructure Company (Ordinary Share)
Look up the fund managers
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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.
report thisDavid 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.
report thisMaverick
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.
report thisDavid 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.
report thisMaverick
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.
report thisDavid 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?
report thisMaverick
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 . . . .
report thisDavid 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.
report thisMark 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.
report thisAA
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.
report thisMaverick
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.
report thisAA
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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