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View the article online at http://citywire.co.uk/wealth-manager/article/a743144

Have buy lists killed trust discount plays?

by Robert St George on Apr 02, 2014 at 13:07

And are they generally managed well? Tucker fears they are not, and cites the UK equity income sector as a case in point. Closed-end funds in this space hold £9.1 billion of assets, dwarfed by the £69.1 billion in their open-ended rivals.

The latter have returned an average of 13.4% over the past year, and the former 19.8%. Among those investment trusts, stars such as AAA-rated Mark Barnett’s Edinburgh trust can be bought on a 2.5% discount, the victim of a Woodford-induced derating.

Looking at the gulf in assets between the open and closed-end products, Tucker asked: ‘Does that mean investment trusts are not getting the penetration they should? I think you would have to say yes.’

So what else are those constrained by buy lists missing out on at the moment?

Cade suggests that emerging market trusts are one area where wealth managers could profit from switching out of open-ended vehicles and into their closed-end equivalents to exploit the sell-off. Aberdeen New Dawn is available on a 10.3% discount, for example, compared with a 12-month average of 8.3%.

First State’s Pacific Assets trust – managed by Citywire AA-rated David Gait – trades at 7% below its net asset value, versus an average of 5.3% over the past year.

‘It used to be a relatively easy way to make some money for clients, but that’s not the case any more,’ said Cade.

An alternative buy list model that could grant the licence to exploit such opportunities would focus on managers rather than their specific vehicles.

‘If buy lists were put together in the right way, the open-ended funds that are contrarian choices would also be available as the investment trusts that operate in the same way,’ said Tucker. ‘I guess the shame is when buy lists are constructed according to what has done well in the past.’

What have the opportunistic been buying?

The activist City of London Investment Management has snapped up another 100,000 shares – worth almost £600,000 – in the Baring Emerging Europe trust, after its discount widened from 6.7% to 10.5% through March amid the turmoil in Ukraine.

The BNP Paribas Arbitrage team has been busily building a stake in Acencia Debt Strategies , which faces a wind-up vote before the end of the year and trades on a 6.5% discount. BNP Paribas most recently bought another slug worth almost £700,000.

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Look up the investment trusts

  • Pacific Assets (Ordinary Share)
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  • Edinburgh Investment (Ordinary Share)
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  • Aberdeen New Dawn (Ordinary Share)
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  • Baring Emerging Europe (Ordinary Share)
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  • AcenciA Debt Strategies (Ordinary Share)
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  • Oliver Tucker
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  • David Gait
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  • Mark Barnett
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  • Neil Woodford
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