Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a595550

Is the sun setting on the British Empire investment trust?

Or, now that the discount has widened to more than 11%, is it time to give the trust another look?

 
Is the sun setting on the British Empire investment trust?

One investment trust that seems to have suffered a dramatic reversal of fortune recently is British Empire . For some time it was among the best performing trusts in the global growth sector, and consequently it attracted a substantial retail fan base. This had the effect of driving up the fund’s rating excessively.

Poor performance over the past few years has eroded confidence, and the fund now sits on a discount of more than 11% – enough, I fear, to start to attract the attention of the arbitrageurs – investors seeking to profit from market inefficiencies – once again. British Empire was targeted by Millennium Partners back in 2001 when the discount was around this level.

However, the trust has a record of delivering bursts of outperformance – might it be worth a closer look?

Bargain hunting

British Empire is all about exploiting discounts – it holds a portfolio of investments it believes are valued at less than the sum of their parts. In the past this has included many investments in closed-end funds and, as I appreciated back in the days of managing Advance UK, it is hard to have a go at other funds for trading on wide discounts unless your own house is in order.

Nowadays, though, British Empire’s portfolio has few traditional closed-end funds within it.

Instead, as has been the case for many years, it is dominated by holdings in conglomerates, especially family-controlled investment vehicles, and it is more of a passive investor in these companies.

Track record maintains ranking

The £630 million market capitalisation fund has been managed by John Pennink of Asset Value Investors since the end of 2002 and over the past decade, even after the disappointing returns of the past few years, the fund ranks as the fourth best performing global growth fund (behind RIT, Capital Gearing and Establishment).

There is not much gearing on the fund. There is a £15 million 81/8% debenture (unsecured loan) that matures in 2023 and a small amount of equity index linked loan stock (an unusual instrument) that will go next year. The board has said it is not looking to introduce any more long-term borrowing into the structure and I think this is good news.

Management fees are relatively low at 0.6% of net assets. There is a performance fee set at a fairly modest rate of 4% of the excess return over the Morningstar IT Global Growth Funds Index and capped so that overall fees cannot exceed 1% of net assets in any one year.

Bias towards Europe

There is a distinct bias to Europe within the portfolio. This is in marked contrast to every other global growth fund and, given how out of favour Europe is, this may account for some of the recent poor performance. The largest holding is a stake in Vivendi Universal, which accounts for just under 9% of the portfolio.

It believes this media and telecoms giant trades at more than a 40% discount, and it might be reasonable to hope that someone will seek to unlock this value.

The rest of the top 10 includes Norwegian conglomerate Orkla, the Keswick family vehicles Jardine Strategic and Jardine Matheson, Swedish industrial holding company Investor AB, another Norwegian company Aker, which is heavily into the oil and gas sector, a couple of Belgian holding companies – Sofina and Albert Frere’s Groupe Bruxelles Lambert  – and two Hong Kong listed conglomerates, Shun Tak and Wheelock.

Sign in / register to view full article on one page

3 comments so far. Why not have your say?

Bob M

Jun 15, 2012 at 17:06

So having posed the question "Is the sun setting...." what is your answer?

report this

little jack

Jun 20, 2012 at 18:38

They have lost some £30 million on their largest investment in vivendi over 30Per cent? They look for undervalued companies. They can be undervalued for a number of reasons the most important is the management yet this is not one of their main criteria. Whoevever put them into Vivendi and continued investing neds to look for another job

report this

little jack

Jun 26, 2012 at 11:33

Calednia have sold down its holding and now only hold just over 7%

The answer to the question " is the sun setting" emphatically yes

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Henderson Global Investors: 2014 looks set to be another strong year for UK commercial property


Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.

More about this:

Look up the investment trusts

  • British Empire Securities (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • John Pennink
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet