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Investment Trust Watch: Questor shakes up shares

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Investment Trust Watch: Questor shakes up shares

The Telegraph's Questor column has sparked a buying spree for a number of investment trusts in recent weeks, sending their shares to 'expensive' levels.

Look through the list of 'dear' trusts compiled by analysts at Numis Securities, and four of the 15 have been tipped by the paper in the last two months.

The latest to get the Questor seal of approval is Brunner (BUT), with the column pointing to the £294 million trust's move to a more global approach, and the runoff of £18 million of costly debt this year.

Yesterday's tip sparked a jump in the shares, narrowing the discount to 9.8% below net asset value (NAV), well below their 12-month average of 16.1%, placing them on a Z-score of 2.8.

Just to recap a Z-score is a measure used by analysts to indicate whether a trust’s valuation is outside its normal range. Roughly speaking a Z-score of 2 or more is considered ‘dear’ while a score of -2 or below is getting cheap.

'Expensive' trusts Share price premium (-discount) to net asset value 12-month average premium (-discount) % Z-score
Middlefield Canadian Income (MCT) -5.7 -13.3 3.4
Dunedin Enterprise (DNE) -26.0 -33.5 3.4
Martin Currie Asia Unconstrained (MCP) -10.7 -15.6 3.3
Threadneedle UK Select (UKT) -1.5 -11.9 3.1
Witan IT (WTAN) -1.1 -6.0 3.0
JPMorgan Claverhouse (JCH) -4.2 -9.3 2.9
Brunner (BUT) -9.8 -16.1 2.8
Manchester & London (MNL) -8.5 -19.5 2.7
Globalworth Real Estate (GWI) -12.5 -36.0 2.6
TwentyFour Select Monthly Income (SMIF) 6.0 1.6 2.6
Honeycomb IT (HONY) 11.5 3.0 2.6
JPMorgan Asian (JAI) -9.6 -12.9 2.6
JZ Capital Partners (JZCP) -27.5 -38.3 2.5
DeA Capital (DEA) -26.9 -41.7 2.4
3i Group (III) 43.5 21.0 2.4

Source: Numis 20/4/17

Alerting a national newspaper readership to an investment trust can have an even more significant impact when the fund in question is a smaller one, as the example of Middlefield Canadian Income (MCT) shows. Last week Questor tipped the £114 million trust under the headline: The share that taps into high yields from North America, at a 13% discount.

Not any more! That double-digit discount has now evaporated, with the shares now trading 5.7% below NAV. With a Z-score of 3.4, the trust is now the most 'expensive' in the land.

Shares in Manchester & London (MNL) are meanwhile continuing to hold at a single-figure discount, well below the 19.5% average at which they traded before Questor's tip last month.

Another 'expensive' trust, 3i (III) has also been the subject of a favourable Telegraph write-up, although even the might of the newspaper's readership is likely to have only a limited impact on the rating of this £7.5 billion private equity vehicle.

'Cheap' trusts Share price premium (-discount) to net asset value 12-month average premium (-discount) % Z-score
Aurelius Equity Opportunities (AR4) -5.5 34.5 -3.1
Juridica Investments (JIL) -44.3 -22.6 -2.3
SQN Asset Finance Income C (SQNX) 5.4 7.4 -2.0
NB Distressed Debt - Extended Life (NBDX) -9.0 -6.3 -1.9
Strategic Equity Capital (SEC) -16.2 -9.0 -1.8
Drum Income Plus REIT (DRIP) 2.4 9.5 -1.8
Oryx International Growth (OIG) -21.3 -15.9 -1.6
Qannas Investments (QIL) -4.2 -1.3 -1.5
ICG Longbow Sennior Secured UK Property Debt Investments (LBOW) -1.7 0.8 -1.5
TOC Property Backed Lending 5.3 5.5 -1.5
Jupiter UK Growth (JUKG) -3.3 -1.7 -1.5
Myanmar Investments (MIL) 43.3 53.1 -1.4
Vietnam Infrastructure (VNI) -39.2 -19.4 -1.4
Reconstruction Capital II (RC2) -43.8 -34.1 -1.4
Lindsell Train IT (LTI) 28.9 46.1 -1.4

Source: Numis 20/4/17

Turning to 'cheap' trusts, and the figure of Chris Mills looms large. His Oryx International Growth (OIG) investment trust is languishing on a discount of 21.3%, as a glum 2016 for the shares has carried into the new year.

Oddly-placed in the Global Smaller Companies sector, 95% of the trust's assets are in the UK. With the pound's heavy fall following the Brexit vote having boosted the value of overseas assets, that has seen the trust lose ground to more genuinely international smaller company funds like Edinburgh Worldwide (EWI) and F&C Global Smaller Companies (FCS).

Even 'cheaper' is Strategic Equity Capital (SEC), whose board is resisting pressure for a share buyback from Mills' Harwood Capital.

Harwood and business partner Ian Armitage, who own 5% of SEC, want the board to offer to buy back shares at a discount of no more than 5%, much narrower than the 16.2% discount at which they currently trade.

Their argument is that investors who bought into the trust to gain access to manager Stewart Widdowson, who has now left to set up a new business with Harwood and Armitage, should be offered an exit at a fair price.

After rallying on news of that intervention, the shares have since drifted after SEC's board rejected the request.

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