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Investment Trust Watch: correction opportunities

Investment Trust Watch: correction opportunities

(Update) UK shares have not followed global markets in their overnight retreat, although there are plenty of investment trust fallers this morning, particularly in emerging markets. 

Around 9am the 10 biggest decliners are:

* JPMorgan Chinese (JMC) down 6.1% or 18.5p to 285p

* JPMorgan Russian Securities (JRS) down 3.6% or 19p to 502p

* Schroder Japan Growth (SJG) down 3.2% or 7p to 211

* Templeton Emerging Markets (TEM) down 3% or 23p to 726

* F&C Global Smaller Companies (FCS) down 3% or 40p to £12.80

* Fidelity China Special Situations (FCSS) down 2.4% or 5.5p to 223p

* Vietnam Enterprise Investments (VEIL) down 2.4% or 11p to 455p

* Scottish Mortgage (SMT) down 2.2% or 9.6p to 423.8p

* 3i Group (III) down 2% or 18p to 895p

* Pershing Square Holdings (PSH) down 2% or 20p at 835

Stock markets renewed their retreat overnight with the S&P 500 index tumbling another 3.8% over fears of rising inflation and interest rates.

The US stock market decline can now formally be called a 'correction' with the S&P index having fallen 10% since the release of strong US jobs data last Friday.

Asia followed suit with China's domestic share market, as measured by the CSI 300, sliding 5.6%. Hong Kong’s Hang Seng index shed 3.4%, Japan’s Topix slid 1.9% and South Korea’s Kospi fell 1.8%.

The FTSE 100 comparatively steady - after its 1.5% fall yesterday after hawkish comments from the Bank of England - trading 22 ponts or 0.3% lower at 7,148. In Europe markets fell over 2%.

Investment trust ‘bargains’

Four new entrants have joined Numis Securities’ list of ‘cheap’ trusts since my last update on Tuesday and could present a buying opportunity.

Just to recap, the investment trusts in the following two tables are ranked by their ‘Z-score’ at yesterday’s close. The Z-score is a measure used by analysts to put an investment trust share price – and any discount or premium to net asset value it trades at – in historical context. Roughly speaking, a Z-score of -2 or below is considered ‘cheap’ (see first table) while a Z-score of 2 more is getting ‘expensive’ (second table).

While attention of late has focused on the problems facing social infrastructure funds, particularly HICL (HICL), the share prices of their counterparts investing in wind and solar power production have also weakened.

The Renewables Infrastructure Group (TRIG) is close to trading on its first discount in 20 months after shedding a premium that has averaged around 7% in the past year. This gave the 6% yielding shares a ‘cheap’ Z-score of -3.1 at the end of Thursday.

Nine months after launch, the rating of growth fund Downing Strategic Micro-Cap (DSM), run by star smaller company manager Judith Mackenzie, is also under pressure with the shares trading on their first discount of 1.5% below net asset value at yesterday’s close.

Chenavari Capital Solutions (CCSL), a specialist debt fund in the process of winding up, has resumed trading at a discount this year and stood nearly 8% below NAV and a -2.9 Z-score at yesterday's close. The £88 million Guernsey investment company yields over 8%.

Since publishing strong fourth quarter figures at the end of last month, Picton Property Income (PCTN) has drifted to a 6% discount, significantly lower than its 0.5% average premium of the past year, but significantly higher than the 16% discount it fell to after the EU referendum in 2016. The 4% yielder won one of the first Citywire Investment Trust Performance Awards in November.

On a Z-score of -3.6 Newriver Retail (NRR) is the cheapest trust. Having entered the table earlier this week, the 7% yielding real estate investment trust saw its discount widen slightly to 4.9% after its founder David Lockhart announced he would step down as chief executive having recovered from a period of ill health and become deputy chairman. His son Allan succeeds him.

(continues below) 

'Cheap' trusts Share price premium (- discount) to net asset value % 12-month average premium (- discount) % Z-score
NewRiver Retail (NRR) -4.9 15.1 -3.6
F&C UK Real Estate Investments (FCRE)  -5.1 3.7 -3.4
Tritax Big Box REIT (BBOX)  -1.0 9.2 -3.3
Schroder European Real Estate (SERE)  -17.2 -5.4 -3.3
City Merchants High Yield (CMHY)  -2.0 1.4 -3.2
Hadrians Wall Secured Investments (HWSL) -0.1 7.8 -3.1
Renewables Infrastructure Group (TRIG)  0.2 7.1 -3.1
Downing Strategic Micro-Cap (DSM)  -1.5 4.2 -3.0
Ratos AB B (RATOB)  -6.6 32.6 -2.9
Masawara (MASA)  -62.7 -38.4 -2.9
Chenavari Capital Solutions (CCSL)  -7.8 0.5 -2.9
Carador Income Fund (CIFU)  -14.2 -3.9 -2.8
Tiso BlackStar Group (TBGR) -60.1 -34.7 -2.8
3i Infrastructure (3IN)  -0.8 13.7 -2.8
Picton Property Income (PCTN)  -6.4 0.5 -2.7

Source: Numis Securities 8/2/18

Dear trusts

Despite the sell-off this week, our second table shows there are many trusts and investment companies trading above their normal ranges.

Topping the list is a special situation in Vietnamese real estate fund Vinaland (VNL). Its previously wide discount has narrowed considerably to just 4.5% as it continues to dispose assets and return cash to shareholders.

Otherwise, Alliance Trust (ATST) stands out. The £2.2 billion global trust has not shot out the lights out since its conversion into a multi-manager fund under Willis Towers Watson last April. A 10.4% total shareholder return over one year lags the 17.4% average of trusts in the AIC Global sector, although it does beat the 4.5% and 3.5% from the FTSE All-Share and MSCI World indices. What’s remarkable is the way a massive buy-back programme has tightened the discount to just 4%, giving it a Z-score of 3. It’s come a long way from 2015-16 when it was embroiled in a fight with Elliott Associates and the share stood at a discount of 12-14% below NAV.

Similarly, Artemis Alpha (ATS), the tarnished ‘best ideas’ fund run by John Dodd and Adrian Paterson, continues to re-rate ahead of a shareholder continuation vote in September. Buying in by bargain hunters has narrowed the discount from 20% to 14% in 2018 and lifted its Z-score to 3.1.

'Expensive' trusts Share price premium (- discount) to net asset value % 12-month average premium (- discount) % Z-score
Vinaland (VNL)  -4.5 -45.6 5.5
Pacific Alliance China Land (PACL) -12.2 -19.7 3.7
F&C UK High Income- Units (FHIU)  -2.6 -7.6 3.5
North American Income (NAIT)  -2.4 -8.1 3.4
JPMorgan Elect - Managed Growth (JPE) -0.1 -2.4 3.3
JPEL Private Equity (JPEL)  -13.8 -20.0 3.1
Artemis Alpha (ATS)  -14.4 -19.6 3.1
Alliance Trust (ATST)  -4.1 -5.4 3.0
Invesco Perpetual Select - Global (IVPG)  1.2 -1.4 3.0
Pacific Horizon (PHI)  -3.7 -9.4 2.9
BB Biotech (BION)  8.1 -1.6 2.9
Impax Environmental Markets (IEM) Impax Environmental Markets (Ordinary Share) -4.5 -10.3 2.8
BlackRock North American Income (BRNA)  -2.6 -6.6 2.7
Weiss Korea Opportunity (WKOF)  0.3 -4.3 2.7
JPMorgan Smaller Companies (JMI)  -11.4 -18.6 2.7

Source: Numis Securities 8/2/18

 

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