Walls has warned FE Trustnet on a number of occasions that finding discount value in the investment trust sectors is becoming increasingly difficult and, as a result, he now holds 19 per cent of his Unicorn Mastertrust fund in cash.
However, unlike a number of managers who are keeping a large proportion of their assets un-invested, Walls isn’t necessarily concerned about an imminent correction in the market, he just prefers to buy investment trusts that are trading on wider discounts than they have done in the past.
“It [the cash weighting] has probably never been higher, but that is more down to a lack of inspiration more than anything else,” Walls (pictured) said.“I don’t want people to think I’m making a big macro call on the state of the market, but I want to keep my powder relatively dry over the summer months so that I can take advantage of any value opportunities that may occur.”
He added: “It’s one of those situations where, like Ian Rushbrook once said, ‘if there’s nothing worth doing, it’s worth doing nothing’, as most of the brokers I speak to seem to be pretty bereft of ideas. However, opportunities always appear and that is purely because ratings start to slip away.”
Walls says there are a couple of trusts he is waiting to pounce on, one of which is Darwall’s Jupiter European Opportunities trust which he has held in the past.
Data from the AIC shows it is currently trading on a 3 per cent discount to NAV, which is wider than its one and three year averages. It has also traded at a 5 per cent premium at points over the last 12 months.
“One that is looking interesting is dear old Jupiter European Opps, if that discount continues to widen, it’s one that I would be looking to revisit,” Walls explained.
Darwall launched the five-crown rated trust in November 2000.
According to FE Analytics, it has been the best performing portfolio in the IT Europe sector over that time with returns of 338.56 per cent, beating its benchmark – the FTSE World Europe ex UK index – by close to 250 percentage points in the process.
Performance of trust vs sector and index since Nov 2000
Source: FE Analytics
It has also comfortably outperformed both the sector and index over three, five, seven and 10-year periods, but it is down 0.74 per cent over 12 months while its benchmark has returned 6 per cent.
The trust’s NAV has returned more than 4 per cent over that time but, as the graph below shows, its discount has fallen away quite significantly over recent months.
Price and NAV of trust over 1yr
Source: FE Analytics
Darwall tends to focus on high-quality, cash generative companies and has a high exposure to northern Europe, with peripheral markets making up a relatively low weighting.
He runs a concentrated portfolio with his top 10 holdings making up more than two-thirds of the overall portfolio. Also, unlike most other managers in the sector, Darwall has a decent weighting to the UK with FTSE-listed stocks making up 23 per cent of his trust; making it his largest regional position.
Jupiter European Opps has gearing of 8 per cent and has ongoing charges of 1.13 per cent.
One of the last times we spoke to Walls, he had been upping his exposure to emerging market trusts such as Pacific Assets, Templeton Emerging Markets and Fidelity Asian Values on valuation grounds.
As FE Trustnet recently highlighted, it is a call that has paid off as emerging market and Asian equities have spiked over recent months. However, like a number of industry experts, Walls says investors should tread carefully if they were to buy now.
“I think that what we have seen so far is a bit of mean reversion because they had underperformed so much,” Walls said.
“The question is, will that continue? I’ve read a few articles which say that emerging markets are now the great contrarian play, but they have actually bounced back quite a lot already when the UK has been flat on balance.”
He added: “The long-term fundamentals are still relatively attractive, but I think we are all wondering what is going on in most asset class. The problem with me is, the more things go-up, the less bullish I am.”
Walls has managed his four crown-rated Unicorn Mastertrust since its launch in December 2001.
Our data shows it has been the second best performing portfolio in the IMA Flexible Investment sector over that time with returns of 210.95 per cent. The sector average has returned 87.11 per cent over the period.
Performance of fund vs sector since Dec 2001
Source: FE Analytics
His list of top 10 holdings includes Foreign & Colonial Investment Trust, TR Property Investment Trust, Caledonia Investments and Fidelity Special Values.
Its ongoing charges figure (OCF) is 1.16 per cent.
