The £53.4m Midas Income & Growth trust is on a 5.96 per cent discount despite strong NAV returns over the past year and is yielding 4 per cent. The latter is higher than that on offer from all but one of its peers. The fund has traded on an average discount of 10.19 per cent over the past three years but Tepes (pictured) says that there is scope for this to narrow even further.
"Midas Income & Growth has made very strong progress nearly two years into its revised investment mandate," she said.
"Through its multi-asset portfolio, it has posted an equity market-beating NAV total return, while recording significantly lower volatility and delivering a higher yield."
"Provided the good performance continues and given the asset-diversified nature of its yield, we would expect the shares to continue to re-rate and allow the fund to grow."
Data from FE Analytics shows that the trust has made 20.5 per cent in NAV terms over the past year while the MSCI AC World index has made 23.56 per cent.
In share price terms, the trust has risen 26.74 per cent while the average Global Growth & Income trust has made 27.85 per cent.
Performance of trust vs sector and index over 1yr
Source: FE Analytics
The trust’s yield is bettered only by British Assets, which pays out 4.4 per cent and sits on a 2.93 per cent discount.
Midas Income & Growth saw a change to its mandate in January 2012, although manager Alan Borrows retained control of the portfolio.
The trust raised its allocation to overseas equities from 15 to 25 per cent and reduced its allocation to bonds from 25 to 15 per cent.
Fees were also reduced and the benchmark was changed from 8 per cent per annum to LIBOR + 300 basis points.
NAV performance is marginally ahead of the benchmark since the changes came into force, which Tepes says suggests they have been successful.
In share price terms, the trust has made 40.57 per cent while the index has made just 27.85 per cent, according to our data.
Performance of trust vs sector and index since Jan 2012
Source: FE Analytics
She notes that although the trust has only marginally outperformed, it has done so with exceptionally low volatility – just 6.9 per cent, the lowest in the sector, compared with 10.5 per cent for the index.
With markets having risen strongly over the past couple of years, the performance for a multi-asset fund is even more impressive, she says.
The trust holds roughly 60 per cent in equities, 15 per cent in bonds, 15 per cent in alternatives and 10 per cent in property, although the weightings can vary.
The intention is to provide a yield comparable to mainstream equity funds but with a low level of volatility and low correlation to the markets.
The portfolio holds 50 to 70 names, with no individual position making up more than 5 per cent of the fund.
The largest holding is AJ Bell, an unlisted provider of SIPP administration with £17.5bn under management. It is the only unquoted investment in the trust.
The biggest fund positions are Lindsell Train Japanese Equity, Newton Asian Income and Somerset Emerging Markets Dividend Growth.
The largest directly held equity positions are Kier Group, Standard Chartered and Phoenix Group.
The three largest contributors to income are AJ Bell, Royal London Short Duration Global High Yield and Duet Real Estate Finance.
The majority of the trusts in the Global Growth & Income sector are sitting on premiums, reflecting the strong demand for anything with a yield.
Source: FE Analytics
After Midas, the £410m British Assets Trust is the next cheapest trust out there, trading on a discount of 2.93 per cent.
British Assets is re-organising in an attempt to turn around sluggish performance. The trust was previously run with separate portfolios for UK equities, global high yield equities, emerging market equities and corporate bonds, but is now being merged into a single portfolio under manager Phil Doel.
The trust has been more volatile than its bespoke benchmark, 80 per cent weighted to the FTSE All Share and 20 per cent to the FTSE All World ex UK index.
Over the past year it is marginally ahead in share price terms, according to data from FE Analytics.
Its one- and three-year NAV returns are below those of the Midas Income & Growth trust.
"British Assets has been a dull long-term performer and this has continued under the management of Phil Doel, since October 2011," said Numis analyst Charles Cade.
"As a result, we welcome the changes by the board/manager to reinvigorate performance. However, it is now up to the manager to turn around performance."
Midas Income & Growth has ongoing charges of 1.49 per cent while the British Assets Trust charges 0.74 per cent.