Over the last year discounts narrowed significantly across the entire investment trust industry, making bargains ever more difficult to come by, although in the sell-off of the last couple of months more value has opened up.
Ewan Lovett-Turner, investment trust analyst at Numis Securities, says you still need to search for the bargains and highlights that even battered sectors like mining are trading on relatively narrow discounts.
However, there are a few trusts that are reasonable value, he says, and are trading on wider discounts than their peers.
Private Equity
The IT Private Equity sector as a whole is trading on a discount, but Lovett-Turner says even this has narrowed in the last year.
“It’s the only sector where you’re seeing absolute value. It has the largest absolute discounts,” he said.
However, he thinks investors could do well buying into the Princess Private Equity trust, which is trading on a discount of 23.85 per cent. The sector is trading on an average discount of 19 per cent, according to Lovett-Turner.
“It’s currently going through a change in strategy to go from a fund of funds to more direct investments. It’s on a relatively wide discount compared to peers and one of the widest all around,” he said.
The analyst adds that Princess Private Equity has an attractive dividend yield of 8.3 per cent, making it a good choice for income-seeking investors.
The trust has been fairly lacklustre over the shorter term, underperforming the IT Private Equity sector over the last one and three years. However, over five years, the trust made 165.15 per cent while the sector gained 104.68 per cent.
Performance of trust vs sector over 5 yrs
Source: FE Analytics
The trust has ongoing charges of 2.69 per cent, including a performance fee.
Global Emerging Markets
Emerging markets stocks have had a tough time since they plummeted last summer, driving leading trusts in the sector into wider than usual discounts.
Lovett-Turner says now is a good time to think about buying into the JP Morgan Emerging Markets trust and the Templeton Emerging Markets Trust, both of which are trading at the bottom end of their discount range, he says.
The Templeton trust, managed by emerging markets legend Mark Mobius, is trading on a discount of 10.67 per cent while the JP Morgan trust, run by Austin Forey and Richard Titherington, is on an even wider discount of 11.22 per cent.
“They both have managers with good long term track records,” Lovett-Turner said. “A 10 per cent discount tends to be the bottom of the range for discounts. That’s when they start to look attractive because the tends to be the floor of things.”
Both trusts have delivered strong long term numbers, beating the MSCI Emerging Markets index over 10 years. Over the period, the Templeton trust gained 339.59 per cent while the JP Morgan trust made 299.49 per cent.
Performance of trusts vs index over 10 yrs
Source: FE Analytics
However, both trusts were hard hit by the market correction and ongoing poor performance from emerging markets, shedding more than 13 per cent over the last 12 months.
JP Morgan Emerging Markets IT has ongoing charges of 1.55 per cent, including a performance fee, while Templeton Emerging Markets IT has ongoing charges of 1.31 per cent.
Global
Value buys are especially hard to come by in the global sector, Lovett-Turner says, but one trust that could benefit shareholders is the Monks Investment Trust.
The trust is trading on a discount of 13.72 per cent owing to lagging performance over the last few years.
“The manager has a good long-term track record, but performance has been fairly dull for the last few years. We could see the narrowing of the discount if performance improves,” he said.
Manager Gerald Smith of Baillie Gifford has been managing the trust since May 2006. He was joined by deputy manager Tom Walsh in September last year.
Since Smith took the helm, the trust has made 39.09 per cent, lagging both the IT Global sector and the FTSE World index.
Performance of trust vs sector and index since 2006
Source: FE Analytics
However, over the longer term, Smith has trounced his peers, returning 187.9 per cent over the last decade – more than 100 percentage points more than his composite peer group.
The trust is invested primarily in North America and the UK, though it also has exposure to Asia through companies like Taiwan Semiconductor Manufacturing.
The Monks IT has ongoing charges of just 0.59 per cent and a small dividend yield of 1.1 per cent.