The likes of Scottish Oriental Smaller Companies, Henderson Opportunities and Schroder Asian Total Return are among the investment trusts currently sitting on double-digit discounts following the January sell-off, according to data from the Association of Investment Companies, who are also headed by an FE Alpha Manager.
A discounted investment trust means in the event of the underlying value of its holdings going up, there is potential to be an added return from the discount narrowing or even moving to a premium as demand for the shares increases.
In this article we take a look at five investments trusts that are currently sitting on wide discounts of 10 per cent thanks to the recent market rout.
Scottish Oriental Smaller Companies – 13.3%
This portfolio, co-managed by FE Alpha Manager Martin Lau and Wee Li Hee, is trading on a double digit-discount for two apparent reasons, according to Numis Securities head of investment company research, Charles Cade.
It is now at its widest discount for at least five years.
“Firstly the fact that its broader space is heavily out of favour and secondly because of the departure of veteran manager Angus Tulloch back in May last year,” he said.
“Historically it is a very highly regarded but it is combination of group and fund change at time people have become less keen on the region. There is a bit of vacuum of people understanding the manager responsibilities.”
Performance of fund, sector and index over 10yrs
Source: FE Analytics
The trust has an ongoing charges figure [OCF] of 1.01 per cent and a performance fee. It has no gearing.
Henderson Opportunities – 13.2%
Next up is FE Alpha Manager James Henderson’s Henderson Opportunities Trust, a multi-cap portfolio of UK equities but the current top 10 largest positions only contains one FTSE 100 firm – HSBC – with the rest a mixture of small and mid-caps.
Volatility has been higher than the sector average as well as the FTSE All Share over the past five years but is ahead of both for total return over one, three and five years but is behind since its launch in February 2007 due to recent sharp falls.
Performance of trust versus sector and index since launch
Source: FE Analytics
Cade is a fan of the manager’s process but says the small cap exposure can effect both performance and the discount and this is evident in its lacklustre returns over the past six months.
“It is a very interesting vehicle but it is very volatile and is pretty much unconstrained. It has had a difficult year but it is definitely a good time to look at it.”
The trust has an OCF of 1.003 per cent and a performance fee. It has 18 per cent gearing.
Monks – 11.1%
An overhaul of this investment trust took place in March 2015 with management, strategy and the underlying portfolio refreshed. Charles Plowden is now lead portfolio manager, supported by FE Alpha Manager Spencer Adair and Malcolm MacColl who are deputy portfolio managers.
Since then the trust has lost 13.01 per cent compared to an IT Global sector average loss of 9.02 per cent and a fall in the FTSE World index of 8.09 per cent
Performance of trust, sector and index since March 2015
Source: FE Analytics
Hawksmoor’s Ben Conway is a fan of the new proposition which allows investors to access Baillie Gifford’s Global Alpha team.
“If you are prepared to ride out the volatility it is a good vehicle for 10 or even 15-year time horizons if you are looking for long term growth and are not to wary of valuations,” he said.
“More broadly Baillie Gifford have an excellent long term track of growth equity investing. Monks has recently been taken over by the team who run their extremely successful Global Alpha franchise which is closed so it is a good way to access that team who run billions of pounds of institutional money.”
“Not many in the market yet realise what this means and what it means to start at a discount on this type of trust. You have a really good entry point because the market has fallen a bit recently and it is on a decent discount that should close.”
The trust has a clean ongoing charges figure [OCF] of 1.42 per cent. It is on a discount of 0.58 per cent and 2 per cent gearing.
Schroder UK Mid Cap – 10.4%
Next we have the Schroder UK Mid Cap Investment Trust which is headed up by the FE Alpha Manager duo of Andy Brough and Rosemary Banyard who have run it since 2003, though the latter is set to leave in March.
According to FE Analytics, the fund has beaten its peer average and its benchmark – the FTSE 250 ex IT index – over one, three, five and 10 year periods. It is the best performer over the latter period in the IT UK All Companies sector.
Cade said: “Part of the reason for the discount is Rosemary Banyard leaving Schroders as she was very closely associated with the portfolio over Andy Brough. Also you have seen some of its peers outperform in recent months.”
The trust has an OCF of 0.95 per cent and no gearing.
Schroder Asian Total Return – 9.3%
This trust is co-managed by King Fuei-Lee and FE Alpha Manager Robin Parbrook. They have run a mirror open-ended fund since November 2007 but they only took charge of this trust in March 2013.
At a few occasions, the trust has seen wider discount over the past five years but only up to 14.07 per cent. However, following that, the discount quickly narrowed and eventually move to a premium.
The trust is up 2.63 per cent since the pair took over compared to an IT Asia Pacific ex Japan sector average loss of 8.83 per cent and a fall of 2.83 per cent in the MSCI AC Asia ex Japan index.
Performance of trust, sector and index since March 2013
Source: FE Analytics
Cade rates the management team but says it is not a recovery style fund and so could lag in a rally in Asian stocks.
“They protect the discount not far off its current level and the team are very good, but it is an absolute return mandate and hedges. While it has protected capital better than other Asia funds it is not for people wanting to allocate to Asia on a recovery it is for people who are a bit more nervous,” he said.
The trust has an OCF of 1.05 per cent and is 2 per cent geared.