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IT Focus: 'buying oppportunity' in JPMorgan Emerging Markets

Analysts at Winterfloods spot a buying opportunity in JPMorgan Emerging Markets, while other brokers comment on Henderson International Income, 3i Infrastructure, BlackRock Greater Europe and highly geared investment trusts.

by Caelainn Barr on Nov 23, 2012 at 12:27

Discount a buying opportunity for JPMorgan’s Emerging Markets trust

The JPMorgan Emerging Markets (JMG) investment trust has beaten its benchmark over the past year, driven by returns from its investments in consumer and financial sectors in Brazil and Taiwan. However, its exposure to India, Korea and Thailand dragged on performance.

New holdings in the trust include South African insurance group Discovery Holdings and Taiwanese manufacturer Delta Electronics.

The trust has delivered a 12% total return to shareholders in the past year, and 33% over the past three years, which beats its benchmark, the MSCI Emerging Markets index, which generated total returns of 9% and 20% respectively. The trust's shares currently trade at 549p, a 10.5% discount to its NAV per share of 613p.

James Brown, analyst at Winterflood investment trust research, commented: ‘The portfolio’s emphasis on the growth in domestic consumption seems attractive given the uncertainty over developed economies and their demand for exports.

‘Furthermore we believe that the current discount of 11% represents a buying opportunity. In our opinion, any further widening of the discount is unlikely given the share buyback policy protects a 10% discount.’

BlackRock Greater Europe buy-back undersubscribed

The BlackRock Greater Europe (BRGE) investment trust has a tender to buy-back shares of up to 20% of its share capital every six months, at a 2% discount to its net asset value (NAV), which is often undersubscribed.

In the latest tender to buy-back shares 3.85% of shareholders took up the offer, a slightly higher number than in previous rounds. However, the discount control mechanism has worked to date and the trust trades at 181p, a 5% discount to its NAV per share of 191p, which is lower than the average 8.9% discount in its sector.

George Crowe, analyst, at Numis Securities, said: ‘They have regular tenders to control the discount but they’re generally undersubscribed but in part that’s because people know there are always regular tenders so they know they can get out regularly.

‘Sam Vecht has an allocation of the portfolio in emerging Europe, though most of it is managed by Vincent Devlin, and this is what differentiates it from some of the other European trusts.’

However, the trust's shares have underperformed over the past year, generating total returns of 14% compared to the sector average of 25%.

3i Infrastructure, an ‘exciting’ infrastructure trust

3i Infrastructure (3IN) trust released its half-year results earlier this month, in what was a quiet period for the trust with only a £4.9 million investment in its 3i India Infrastructure holding.

The trust showed a strong performance from its European holdings whilst its investment in the 3i India Infrastructure Fund weighed on performance.

Louisa Symington-Mills, analyst at Jeffries, commented: ‘3IN continues to be the ‘exciting’ choice for prospective investors looking at the range of LSE-listed core infrastructure funds on offer.

‘Of the peer group of six, four funds – Bilfinger Berger Global Infrastructure, John Laing Infrastructure Fund, HICL Infrastructure, International Public Partnerships – focus on investing in equity stakes in government-backed PFI concessions in the UK and overseas; one company, GCP Infrastructure Fund, also invests in UK PFI concessions but through debt rather than equity; whilst 3i Infrastructure takes a more opportunistic approach to infrastructure, offering a blended portfolio containing some PFI concessions as well as utilities and emerging market investments.’

The trust has given share price total returns of 42% over the past three years and 11% over the past year, compared to the sector average of 33% and 11% in the same time periods. The trust is the biggest in the infrastructure sector with a market value of £1.1 billion.

Beware of highly geared trusts

Gearing, or borrowing or leverage, can boost or eat into an investment trust’s total returns, and in volatile markets the impact can be even more marked.

Iain Scouller, analyst at Oriel Securities, commented: ‘Given that the ability to leverage (or borrow) is potentially a key 'advantage' for investment trusts and the size of the trust universe, it appears that most boards and managers are currently using leverage fairly cautiously. We calculate that only 14 equity specialist trusts have equity leverage of 15% or higher (as % NAV).’

Analysts at Oriel Securities have looked at the highest geared trusts to find UK equity income trusts Merchants and Edinburgh are the two portfolios with the highest levels of borrowing, with gearing of more than 20%, closely followed by Perpetual Income & Growth which has 15%.

Merchants Trust (MRCH), managed by Simon Gergel, and Edinburgh investment trust (EDIN), managed by Neil Woodford, both have expensive long-term debt. However, Perpetual Income & Growth (PLI), managed by Mark Barnett, has reduced its gearing from 21% at the end of June to 15% at the end of October.

All of the trusts are in the UK income growth sector. Edinburgh and Perpetual Income & Growth have given share price total returns of 45% and 44% over the past five years to beat the FTSE All Share total returns of 16%. However, Merchants has given 15% total returns in the same period as it was impacted by it gearing and the high cost of its debt.

Too high a premium on Henderson International Income

Popularity doesn’t always swing in your favour or so it seems for the Henderson International Income (HINT). With the rush to income investments the relatively young trust is trading at 103p, a 6.3% premium above its net asset value (NAV) per share of 97p and is viewed as ‘expensive’ by analysts at Killik & Co.

The trust is managed by Ben Lofthouse and invests in non-UK listed companies, aiming to give investors exposure to foreign dividend paying stocks.

Mick Gilligan, head of research, at Killik & Co, says: ‘This fund aims to provide a rising level of income, along with capital growth from a focused and internationally diversified portfolio of non-UK stocks. HINT is now the most highly-rated fund in the global income growth sector.

‘This is despite the fund having less than two years performance history. The low levels of liquidity [it has a market value of just £48 million] may be contributing to inefficient pricing. The shares are now at a premium to Murray International, the long-term star-performer in the sector.’

Shareholders in the trust have enjoyed a total return of 19% over the past year, ahead of its sector average of 16%, and it yields 4.1% in income. However, Murray International (MYI) has given share price total returns of 21% in the past year and 82% over the past five years. It has a lower yield of 3.9% and a market cap of £1.2 billion.

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