Lindsell Train, BlackRock Greater Europe, and The Schiehallion Fund are among the investment trusts that have been bid up this year but could be enticing buying opportunities if their premiums came down, according to experts.
Buying an investment trust on a discount to its net asset value (NAV) can be a good way to make a quick profit, but for long-term investors this approach is risky. It is better to pay a reasonable price for a portfolio that can grind out strong gains.
Yet the share prices of some investment trusts can be pushed ever-higher to premiums, where investors are paying more than the total value of the underlying assets.
This is rarely a good choice, as investors that buy for the short-term can lose immediately on share price falls, while long-term investors could miss out over several years by failing to buy the cheaper options with the potential to rebound.
After a storming year so far, some investment trusts have been pushed to premiums, making them unattractive to investors. However, experts believe if their prices reduce they would be worth snapping up.
Lindsell Train
Founder Michael Lindsell and Nick Train are heavyweights in the investment world and their investment trust is often much sought-after by investors.
It invests using the managers’ buy-and-hold approach, but it’s largest holding is Lindsell Train Limited, the asset management firm, which makes up 46% of the portfolio.
The phenomenal success of the firm’s funds over the past decade has propelled the £345m trust to second place among its IT Global peers over the past 10 years, returning 835.4% to investors.
Total return of Lindsell Train versus the IT Global sector over 10 years
Source: FE Analytics
At present, the trust’s shares trade at a 33.5% premium to its NAV, although over the past year this has averaged around a 14% premium.
John Moore, investment manager at wealth manager Brewin Dolphin, said he would snap at the chance to buy the trust if the price fell.
“The asset management aspect makes for a volatile ride but if you are comfortable with markets and the investment style it should offer valuable exposure to this,” he said.
“One point of note, if you backed the launch 20 years ago, the dividend on the trust represents a yield of 50% of the original capital that you invested.”
The trust currently has a yield of 2.89% and costs investors a 0.75% ongoing charges figure (OCF), with a 10% performance fee for returns above its benchmark.
BlackRock Greater Europe
Europe may arguably be on the cusp of a renaissance, having long lagged its trans-Atlantic peer, thanks to an effective vaccine rollout, supportive central bank, and generous fiscal stimulus.
This has certainly aided the BlackRock Greater Europe trust over the past year, which has bucked the trend in its sector to trade on a 2.8% premium, while the rest of its peers are on a discount.
David Johnson, analyst at Kepler Trust Intelligence, said: “The team have been able to deliver sector-leading performance through its long-term approach to effective stock picking, and at the beginning of 2021 escaped the discount-trap that still grips its peers.”
Indeed, the £634m trust has returned 374.8% while its average peer has made 287.9% over the past decade – tops in its sector.
Total return of BlackRock Greater Europe versus the IT Europe sector and its FTSE World Europe ex UK benchmark over 10 years
Source: FE Analytics
“Although its premium reflects the skill of the managers, it means that the trust no longer offers the same attractive entry point of its peers, given the sector’s average discount of 7%,” Johnson said, but added that if this were to reduce the trust would be an excellent addition to portfolios requiring exposure to Europe.
The trust is 3% geared and has an ongoing charge of 1.01%.
The Schiehallion Fund
The £811m Baillie Gifford-managed trust is another that has rocketed to a large premium over the course of 2021, but one that would be attractive if this came down. At 23.5%, its premium is 8.5 percentage points higher than its one-year average of 15%.
Moore said: “The trust invests in private assets with the aim of capital growth but the remit is flexible and taps in to the experience and network that Baillie Gifford has built up in leading-edge, exciting private companies that are often in the business disruption sweet spot.”
Since its launch in April 2019, the trust has made 71.9% for investors, while the average IT Growth Capital trust has lost 2.3%.
Total return of the The Schiehallion Fund versus the IT Growth sector since launch
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Source: FE Analytics
“As is the case with private investment, it will take time for these assets and their business plans to develop and there may be long periods of no NAV movement until there is an event, so potential investors should be more patient and long-term focused than average,” said Moore.
The trust has no yield, no gearing and charges investors a 0.77% OCF.
Tritax Big Box Reit and The Renewables Infrastructure Group
Laith Khalaf, financial analyst at AJ Bell, said most investment trusts were trading at discounts after a difficult year in 2020, but that infrastructure and property trusts were two areas that could be attractive if the premiums came down.
“You could be forgiven for thinking the commercial property sector is moribund after the pandemic dealt a hefty blow to retail and office space, but not all property trusts are created equal,” he said.
Tritax BigBox REIT invests only in logistics warehouses, where demand for space has been driven higher by the relentless march of e-commerce, which has increased during the pandemic.
The trust currently trades on a 16% premium, up from an average of 9% over the last year, which has reduced its yield to 2.94%.
Chris Salih, investment trust analyst at FundCalibre, said: “We’d like to see the share price come down a bit to compress the premium and garner a more attractive yield, which seems quite compressed at present.”
The trust has returned 94.6% to investors over the past five years, slightly behind the 107% made by the Urban Logistics REIT – the only other in the IT Property-UK Logistics sector. The £4.5bn trust costs 0.82%.
Khalaf said: “A similar area where premiums have been driven higher by loose monetary policy and a new drive towards green projects is the infrastructure sector.”
The Renewables Infrastructure Group is a portfolio made up of more than 70 wind and solar funds in the UK and Europe, placing it squarely as a favourite of ethical investors
“It ticks the environmental, social and governance box nicely, and with a yield of 5.14% offers a healthy income to boot. That yield would be even more appetising though if it wasn’t trading at a 14.4% premium, which is in line with its 12 month average,” said Khalaf.
The £2.4bn trust has returned 105.9% since its launch in 2013, the best of three qualifying trusts in the IT Renewable Energy Infrastructure sector. It charges 0.91%.