Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at http://citywire.co.uk/wealth-manager/article/a753399

Trust Insider: thin pickings in deep discounts

by James Carthew on Jun 03, 2014 at 00:01

Eastern Europe is out of favour at the moment – partly owing to events in Ukraine, and partly because of the political situation in Turkey – and I may have a look at some of these funds over the next couple of weeks. JP Morgan Russian falls into this group; it has fallen by 18% so far this year, but I think we are some time away from investors piling back into Russia.

Another way of identifying cheap funds is to look at discount z scores – measures of how cheap a fund is in discount terms relative to its average discount. On that basis, Ground Rents Income looks attractive – but it has just moved from a high premium (over 10%) to a lower one (around 1.5%) so I do not think that justifies piling in.

Better Capital 2012 has moved to a small discount (4%) from trading at a premium. I have talked about the Better Capital funds in the past. Better Capital 2009 and Better Capital 2012 were the darlings of the private equity sector and traded at significant premiums to asset value. In April 2012, the last time I wrote about them, I questioned the rating on the two funds but conceded that at that point the performance looked good.

Somehow, the 2009 pool had seemed to have dodged the J curve associated with most private equity funds. It turned out, though, that there were a couple of bad apples in the portfolio after all. The net asset values as at end March 2014 should be released within a couple of weeks. At the moment, I am not convinced these funds are cheap enough to buy.

Looking at wide discounts, most seem to be associated with excessive leverage. Invesco Property Income still has a negative net asset value, Asian Growth Properties superficially looks very attractive, because it is trading on an 85% discount with little leverage, but has almost no free float – making it uninvestable. Infrastructure India I have mentioned above (notionally it is on an 84% discount but the net asset value dates from September 2013).

Invista European Real Estate (82% discount) falls squarely into the excessive leverage category but it is interesting because, after much angst, it has managed to renegotiate its debt; borrowing €220 million for three years from an affiliate of Blackstone.

The new terms are not especially attractive for shareholders; the interest rate is 770 basis points over Libor, which will mean the lender gets most of the fund’s returns for now. However, Invista European is selling off its property – it says it has €50 million under offer. If it can get its outstanding balance down to €135 million and the loan to value falls below 70%, the interest rate will fall to 470 basis points over Libor and, in theory, Invista European might be in a position to start paying dividends again.

So, in conclusion, nothing much stood out as a must buy on these measures but I think it might be worth having a closer look at Eastern Europe.

James Carthew is a director at Marten & Co

Sign in / register to view full article on one page

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:

Sponsored Video: Bringing it all back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

The Citywire guide to investment trusts

Investment trusts have proved to be a highly effective way to invest in the market. Citywire has interviewed the experts to find out more.

Investing for income in a changing environment


With talk on interest rates on the horizon, our latest roundtable debate covers income investing against a changing backdrop

More about this:

Look up the shares

  • Reconstruction Capital II Limited
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Ground Rents Income Fund PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Asian Growth Properties Ltd
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • International Oil & Gas Techno (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Infrastructure India (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Better Capital PCC 2009 (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Better Capital PCC 2012 (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Invista European Real Estate (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Archive

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet