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Five FE Alpha Managers trading on double-digit discounts

07 January 2015

FE Trustnet reveals five investment trusts currently trading on a discount of more than 10 per cent that are also run by an FE Alpha Manager.

By Daniel Lanyon,

Reporter, FE Trustnet

Investment trusts have one major advantage that open-ended funds cannot compete with – they don’t close to new investors after a speedy period that sees their popularity soar.

It can be frustrating to eye up a fund that looks set to outperform only to learn that it is either completely closed or has taken steps to stem inflows, such as asking for an initial charge or requiring the type of stakes unavailable to the vast majority.

However, top-rated managers often run similar strategies or utilise similar resources in an investment trust, which also have the added attraction of being able to trade on a discount thus adding another potential gear to make returns.

Here we take a look at five investment trusts run by FE Alpha Managers that are trading on a discount of more than 10 per cent.
 

Edinburgh Worldwide

This £231m trust is headed up by FE Alpha Manager Douglas Brodie, head of Baillie Gifford's Global Discovery team, with John MacDougall as his deputy. The pair took over the fund in January 2014, making their track record on the portfolio just under a year long.

The trust – like its £3bn Scottish Mortgage stablemate – has ‘disruptive technology’ as a main theme in the portfolio as well as a mandate for up to 5 per cent to be invested in unlisted companies. 

Since Brodie and MacDougall took over the trust is down almost 5 per cent – unlike Scottish Mortgage which made 20 per cent.

Performance of trusts and sector since 27 January 2014

    
Source: FE Analytics

However, investors shouldn’t worry as to the relatively short period of management or its recent fall, according to Ewan Lovett-Turner, analyst at Numis Securities.

“Small caps took a little bit of a hit shortly after the new mandate began, which probably explains its performance. Over the long term it is the type of strategy that could be very interesting but you should expect it to be fairly volatile along the way,” he said.

The trust is currently trading on a discount of 11 per cent and has a clean OCF of 0.92 per cent. It is 9 per cent geared.


BlackRock Throgmorton Trust

This trust was also hit by the small cap sell-off last year but has been on a double-digit discount since the summer and is currently trading on a discount of 16.4 per cent.

While FE Alpha Manager Richard Plackett is taking a more backseat role, he is still listed on the fund with Mike Prentis and Ralph Cox co-managing since 2008.

It has been one of the best-performing IT UK Smaller Companies trusts since Prentis took it over in July 2008, with returns of almost 143.33 per cent. This compares to 68.81 per cent from the sector average.


Performance of trust, sector and index since July 2008



Source: FE Analytics

Lovett-Turner rates the management and expects the trust to do well over the longer term. But he notes that its focus toward smaller companies will mean periods where it is susceptible to the weakness of the broader smaller cap market.

“The trust has a very good longer-term track record and is currently on an attractive discount,” he said.

It has a clean OCF of 1.11 per cent but also has a performance fee that at current rates is brings total charges to 3 per cent. It is 27 per cent geared.
 

Fidelity Asian Values

Lovett-Turner says this trust’s current discount of 11.6 per cent is somewhat representative of the broader IT Asia Pacific excluding Japan Equities sector but says investors could expect it to narrow over the next few years.

Headed up by FE Alpha Manager Jon Lo, it is marginally behind its sector over three years having returned 40.18 per cent compared to 40.65 per cent. However it has stayed ahead of its index by than 10 percentage points over this period.

Performance of trust, sector and index over 3yrs



Source: FE Analytics

It is also ahead of the index over five and 10 years.

Top holdings include Tencent, Taiwan Semiconductor, Samsung and China Mobile.

It has a clean OCF of 1.5 per cent and is 13 per cent geared.

 

Artemis Alpha Trust

This £156m trust is co-managed by FE Alpha Manager John Dodd and Adrian Paterson and sits in the IT UK All Companies sector. It invests almost exclusively in small caps, mid-caps and unquoted companies.

This is exemplified by its largest holdings, which range from big data marketing company Starcount to several asset management firms such as Polar Capital and Liontrust.

Its discount has widened considerably in the past year from about 4 per cent and is currently trading at 13.7 per cent. This came about as it failed to keep up with the 1.18 per cent gain in the FTSE All Share in 2014 by losing 0.74 per cent.

Over three years its performance is worse, being down 2.89 per cent in what has been a broadly positive time for UK equities.

Performance of trust, sector and index over 3yrs



Source: FE Analytics

However, it has done very well compared to the market in other years. For example in 2010 it made 27 per cent when the FTSE All Share gained 14 per cent and in 2009 it made 67 per cent while the index gained 30 per cent. It also held up slightly better than the market and sector in the down year of 2008.

It has a clean OCF of 0.99 per cent and is 8 per cent geared.
 

Henderson Opportunities

At just £30m this fund is more susceptible to larger movements in its discount, Lovett-Turner says.

However, he says with FE Alpha Manager James Henderson at the helm it has one of the most experienced small cap managers overseeing the portfolio.

“The discount can move around quite a bit and it was only a few years ago that it was mid-20s. You’re not likely to get buybacks either as Henderson likes to have fixed pool of cash. It might be reasonably volatile but the manager has a very strong record,” he said.

The trust is currently trading on a discount of 12.6 per cent and has a clean OCF of 1.04 per cent. It is 12 per cent geared.

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.