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Trust Watch: Wirecard worries bring Darwall discount; Train tests ‘eye-watering’ premium

Rating of Alexander Darwall’s top-performing Jupiter European Opportunities comes under pressure, Lindsell Train looks worrying expensive plus all the other cheap and dear investment trusts.

Jolt for Jupiter European Opportunities

There’s no hesitation where to start this week. The rating of top-performing Jupiter European Opportunities (JEO) has come under pressure after a series of negative reports by the Financial Times about Wirecard (WDIG.DE), the German payments processor that is its biggest holding.

Events took a dramatic turn today with the FT reporting a raid by Singapore police on Wirecard’s office in response to the paper’s unveiling a company probe into accounting regularities. Wirecard shares have tumbled nearly 16%, capping a painful month for the stock, which made up nearly 16% of the portfolio overseen by star stock picker Alexander Darwall at the end of December.

At Thursday’s close the shares stood nearly 5% below net asset value (NAV), a relatively wide discount given the stock has on average traded close to par in the past year. That makes it look cheap with a -2.4 Z-score that places it seventh in our first table (see next page).

Just to recap, our first two tables rank investment trusts and investment companies by their ‘Z-scores’, which is a measure used by analysts to put their discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context.

Roughly speaking a Z-score of -2 or below shows a trust is getting cheap compared to its own trading history and may provide a buying opportunity (first table). By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits (second table)

Next: JEO dilemma and other opportunities

If you want to see all the slides in this gallery on page click here.

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Jolt for Jupiter European Opportunities

There’s no hesitation where to start this week. The rating of top-performing Jupiter European Opportunities (JEO) has come under pressure after a series of negative reports by the Financial Times about Wirecard (WDIG.DE), the German payments processor that is its biggest holding.

Events took a dramatic turn today with the FT reporting a raid by Singapore police on Wirecard’s office in response to the paper’s unveiling a company probe into accounting regularities. Wirecard shares have tumbled nearly 16%, capping a painful month for the stock, which made up nearly 16% of the portfolio overseen by star stock picker Alexander Darwall at the end of December.

At Thursday’s close the shares stood nearly 5% below net asset value (NAV), a relatively wide discount given the stock has on average traded close to par in the past year. That makes it look cheap with a -2.4 Z-score that places it seventh in our first table (see next page).

Just to recap, our first two tables rank investment trusts and investment companies by their ‘Z-scores’, which is a measure used by analysts to put their discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context.

Roughly speaking a Z-score of -2 or below shows a trust is getting cheap compared to its own trading history and may provide a buying opportunity (first table). By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits (second table)

Next: JEO dilemma and other opportunities

If you want to see all the slides in this gallery on page click here.

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'Cheap' trusts Share price premium (- discount) to net asset value % Z-score
Fondul Proprietatea GDR (FP/) -31.3 -3.1
Macau Property Opportunities (MPO) -30.0 -2.7
Highbridge Multi Strategy (HMSF) -0.3 -2.5
Witan (WTAN) -1.5 -2.5
Greencoat Renewables (GRP) 8.8 -2.5
Ruffer Investment (RICA) 0.8 -2.5
Jupiter European Opportunities (JEO) -0.6 -2.4
CATCo Reinsurance Opportunities Fund C (CATC) -9.4 -2.4
Miton Global Opportunities (MIGO) 0.2 -2.3
Aberdeen Frontier Markets (AFMC) -11.3 -2.2
Tetragon Financial (TFG) -42.0 -2.1
AVI Japan Opportunity (AJOT) 6.2 -2.1
Invesco Perpetual Select - Balanced Risk (IVPB) -0.5 -2.0
Sherborne Investors (Guernsey) C (SIGC) 4.1 -2.0
CIP Merchant Capital (CIP) -5.4 -2.0

Source: Numis Securities 7/2/19

Darwall dilemma

As I reported this week, the FT’s coverage of Wirecard leaves investors with a tricky choice on Jupiter European Opportunities. Do they back a gifted, long-term, but publicity-shy fund manager in his conviction trade on a high-growth digital stock, or do they consider there is no smoke without fire regarding Wirecard, despite the company’s denial of wrongdoing on Monday, and take profits on a successful investment trust holding?

Last September our columnist James Carthew grew uncomfortable with Darwall’s large position in Wirecard and reduced his personal investment in the trust. However, this week we heard from BMO investment trust picker, Peter Hewitt, who put his faith in the fund manager and said he would hold on.

JEO’s 5% discount is wider than normal but still short of the 8% low it reached in 2016 when Brexit and Wirecard concerns saw the shares shed 7%. Last year they declined nearly 5%. Nevertheless, it remains the best performing European trust with a total shareholder return of 66% over five years and 557% over 10 years.

Next: whither Witan

 

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Whither Witan?

Witan (WTAN), the £1.8 billion global multi manager trust, has seen its discount double from its one-year average and while a 3% deficit to net asset value (NAV) at Thursday’s close was not wide, it was enough to give it a -2.5 ‘Z-score’ and fourth place in our ‘cheap’ list.

Chief executive Andrew Bell – who is assisted by James Hart in picking managers to run different mandates for the portfolio –  will hope its buying back of shares will prevent the discount reaching the 9% low it struck around the European Union referendum in 2016.

A 4% New Year rally after an 8% decline last year has left the shares flat over one year. Five-year returns are better reflecting the re-rating of the shares with a total return of 71.3% that is ahead of the 64.2% growth in NAV. Witan is no longer unique after the conversion of Alliance Trust (ATST) to the multi-manager approach last year, but nevertheless this looks a good point to get involved if you like the fund’s strategy and track record.

Miton Global Opportunities (MIGO) is also going through a weak patch. The Nick Greenwood (pictured above) managed investment trust invests in the undervalued shares of other trusts and investment companies. Its own shares have started to offer value. Having stuck close to par, or NAV, since the end of 2017, the stock has slipped to a 3% discount and a -2.3 Z-score.

Newbie AVI Japan Opportunity (AJOT) only launched in October. After a strong start that saw shares in the trust briefly hit a 12% premium, the rating has subsided to just 1% above NAV to give it a -2.1 Z-score. If you missed out buying shares in the flotation and like the idea of an activist approach to ultra-cheap Japanese smaller companies in the hands of the managers who run British Empire (BTEM), then now could be a good moment to dip in.  

Next: Lindsell Train’s staggering valuation

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'Expensive' trusts Share price premium (- discount) to net asset value % Z-score
Terra Capital (TCA) -47.2 3.8
Hansa Trust (HAN) -26.1 3.7
Carador Income Fund Redeemable (CIFR) -7.5 3.4
Drum Income Plus Reit (DRIP) 1.3 2.9
Alpha Real Trust (ARTL) -22.0 2.8
Renewables Infrastructure Group (TRIG) 4.1 2.8
Caledonia Investments (CLDN) -18.1 2.8
Lindsell Train (LTI) 38.4 2.5
Target Healthcare Reit (THRL) 5.1 2.5
Hipgnosis Songs (SONG) 9.4 2.4
Hansa Trust A (HANA) -29.1 2.4
Carador Income Fund (CIFU) -8.9 2.4
MedicX Fund (MXF) 0.2 2.3
Alternative Liquidity (ALF) -63.9 2.3
Bluefield Solar Income (BSIF) 5.6 2.3

Source: Numis Securities 7/2/19

Lindsell Train’s eye-watering valuation

Investor excitement at the big holding of Lindsell Train (LTI) in the unlisted fund management company of star fund manager Nick Train and Michael Lindsell is building up a head of steam again. Shares are up 17% so far this year on the back of a mere 3% rise in net asset value, pushing the stock 65% above its portfolio value. That’s a staggering premium but because of the trust’s chronically high valuation (it reached a record 80% premium in September 2016), it merits only a 2.5 Z-score and eighth position in our second table (see above).

A timely caution then from Anthony Leatham at Peel Hunt who points out that LTI’s share price premium ‘implies an eye-watering valuation of 5.1% of funds under management for LTL [Lindsell Train the asset management business].’ He said a more modest valuation of 3.5% of LTL’s assets would knock around 22% off the current LTI share price. A sobering thought if stock markets continue to challenge investors like last year.

Elsewhere, two defensive multi-asset trusts have enjoyed something of a re-rating although their discounts remain wide. The non-voting A-shares in Hansa Trust (HANA) have moved to a 26% discount and a 2.4 Z-score, while Caledonia Investments (CLDN), home to the wealth of the Cazyer shipping family, stands on a near 14% discount, which surprisingly is enough to give it a pricey looking 2.8 Z-score.

Launched last July, music royalty fund Hipgnosis Songs (SONG) continues to sound sweet to the seekers of alternative assets with its shares hitting a 12% premium and 2.4 Z-score.

Next: The week’s big risers

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Biggest risers of week Thursday's closing price (p) Previous wek (p) Change
Vinaland (VNL) 0.01 0.01 133.3%
Terra Capital (TCA) 1.00 0.64 56.3%
Athelney Trust (ATY) 225.00 205.00 9.8%
Princess Private Equity £ (PEYS) 872.00 800.00 9.0%
Dunedin Enterprise (DNE) 365.00 336.00 8.6%
JPMorgan Chinese (JMC) 262.00 242.00 8.3%
Hansa Trust (HAN) 1140.00 1060.00 7.5%
3i Group (III) 908.20 849.60 6.9%
Lindsell Train (LTI) 142000.00 134000.00 6.0%
Tufton Oceanic Assets C (SHPC) 1.10 1.04 5.3%
Princess Private Equity (PEY) 9.72 9.24 5.2%
Hansa Trust A (HANA) 1030.00 982.50 4.8%
Gabelli Value Plus (GVP) 123.50 118.00 4.7%
JPMorgan US Smaller Cos (JUSC) 295.00 282.00 4.6%
Brunner (BUT) 740.00 710.00 4.2%

Source: Numis Securites 7/2/19

Next: Biggest fallers of the week 

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Biggest fallers of week Thursday's closing price (p) Previous wek (p) Change
CATCo Reinsurance Opportunities Fund (CAT) 0.18 0.22 -16.3%
CATCo Reinsurance Opportunities Fund C (CATC) 0.36 0.42 -13.3%
Origo Partners (OPP) 0.18 0.20 -12.5%
HBM Healthcare Investments (HBMN) 158.00 168.60 -6.3%
Ratos AB B (RATOB) 24.54 25.96 -5.5%
LXB Retail Properties (LXB) 5.45 5.73 -4.9%
India Capital Growth (IGC) 80.20 84.10 -4.6%
NAXS Nordic Access Buyout (NAXS) 47.70 49.50 -3.6%
Spice Private Equity (SPCE) 21.40 22.20 -3.6%
Blackstone GSO Loan Financing C (BGLC) 0.48 0.50 -3.5%
Jupiter European Opportunities (JEO) 698.00 723.00 -3.5%
Greencoat UK Wind (UKW) 129.20 133.80 -3.4%
North Atlantic Smaller (NAS) 2810.00 2910.00 -3.4%
Aurelius Equity Opportunities (AR4) 36.60 37.84 -3.3%
Ranger Direct Lending (RDL) 514.00 530.00 -3.0%

Source: Numis Securities 7/2/19

 

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