Ashmore Global Opportunities trust is trading at the widest discount relative to its history in the IT Global Emerging Markets sector, according to the latest study from FE Trustnet
Meanwhile, in the IT Asia Pacific ex Japan sector, Pacific Assets Trust is currently trading on the biggest premium relative to its history.
In the continuation of our ongoing series we look at the trusts in the global emerging markets and Asia ex Japan sectors on the widest or tightest discounts/premiums relative to their own history.
Discounts are important for investors and can offer a view on how the market is pricing an investment company particularly when its current level is compared to its long-term average.
Previously we tackled the IT UK All Companies, Smaller Companies and Equity Income sectors as well as the Global sector. In an upcoming article we will look at the developed regional sectors – Europe, North America and Japan.
As with the previous studies in the series we have compared the current premium or discount to a trust’s 20 year average. Where a trust does not have a long enough track record we have compared it since launch.
Turning to the global emerging markets sector first, the trust on the tightest discount relative to its long-term average is the Aberdeen Frontier Markets trust.
The £60.6m company is on a current discount of 4.45 per cent, half its long-term average of 8.91 per cent and 4.12 percentage points ahead of its five-year average.
This is despite a difficult period for the trust, which has been a bottom quartile performer over one, three and 10 years.
Over five years however it is a top quartile performer and in March this year shareholders voted in favour of moving the trust from a fund of funds mandate to direct investing.
Performance of trust vs sector and benchmark over 10yrs
Source: FE Analytics
This coincided with a change of manager, with Devan Kaloo and Joanne Irvine added as lead managers. It had previously been run by Andy Lister and Bernard Moody.
It also revised its discount control mechanism, with up to 15 per cent of the capital allowed to be bought back if the shares trade at an average discount to net asset value (NAV) of 10 per cent.
The trust’s board acquired 97 million shares in a tender offer at the time, around 57 per cent of the companies over, with some resold to shareholders and the remainder held in treasury.
Conversely, Ashmore Global Opportunities is on the widest discount (32.61 per cent) relative to its long-term average (22.93 per cent).
The £13.3m trust is also 6.13 percentage points wider than its five-year average discount of 26.4 per cent.
It was launched in 2007, since which time it has been the worst performer in the IT Global Emerging Market sector of six eligible funds having lost 21.67 per cent versus a 72 per cent gain for its average peer.
The trust has been the worst performer over five years, returning just 18.31 per cent, it has also lost 3.34 per cent over the past 12 months.
Table of IT Global Emerging Markets trusts discounts/premiums vs their history
Source: Kepler Trust Intelligence
Also of note in the sector is the four FE Crown-rated, £1.2bn JP Morgan Emerging Markets Investment Trust run by Austin Forey.
The trust is on a 12.71 per cent discount, though this is just 24 basis points wider than its 20-year average of 12.47 per cent and 1.99 percentage points wider than its more recent five-year average.
Analysts at Kepler Trust Intelligence noted: “It has traded at a double digit discount for many years and so, whilst we do not see huge value in the discount per se, we believe the trust should appeal to those who seek a broadly diversified exposure to the main global emerging markets, and we rate the manager and his approach highly.”
Its discount remains wider despite the board taking a proactive approach to keeping the discount in check, buying back shares regularly in the past three years.
“Should the recovery in emerging markets continue we would expect this to narrow, but not by much if past experience is any guide (which of course it isn’t, or so we are told),” Kepler analysts added.
Moving to the Asia Pacific ex Japan sector, the trust on the widest discount to its long-term history is Aberdeen Asian Income.
The trust is on a discount of 7.21 per cent compared to its average of 0.08 per cent, though analysts at Kepler suggested this could present a buying opportunity for investors.
Aberdeen Asian Income has struggled in recent years and is the worst performer in the sector over the five years, returning 33.14 per cent.
The MSCI AM Asia Pacific ex Japan benchmark and IT Asia Pacific ex Japan sector have returned 72.51 and 84.2 per cent over this period.
“The discount continues to indicate that sentiment is negative on the trust, which we do not share. It remains a part of our Bulletproof Income portfolio for its 4.3 per cent dividend yield and the diversification it offers,” Kepler noted.
“Having had a relatively stable rating since launch, mostly at a premium to NAV, the trust de-rated significantly during 2015 – at one time standing on a discount well into the teens.”
This is compared to 2012 when the trust traded at a premium of more than 10 per cent – showing the market’s shift in sentiment over recent years.
Kepler’s analysts added: “The board knows how to give and take, and the board also buy shares back – which they have done so since mid- 2015 – most recently at a discount around 6 per cent, to try to protect the discount from slipping out too far.
“This has been broadly successful, although the discount has occasionally approached 10 per cent at times despite buybacks.”
Table of IT Asia Pacific excluding Japan Equities trusts discounts/premiums vs their history
Source: Kepler Trust Intelligence
At the other end of the spectrum, the £307m Pacific Assets Trust is on a 0.45 per cent premium while it has historically traded on an average discount of 10.11 per cent.
The trust has swung between a premium and a discount in recent years, with its five-year average much narrower at a discount of 2.8 per cent.
It is popular among both private and professional investors alike with the managers renowned for a proven track record of protecting capital during volatile markets.
Over the last five years it has the best maximum drawdown figure of 15.83 per cent, compared to the index’s 21.08 and sector’s 19.12 per cent fall.
Over the period it has been a top quartile performer, returning 114.31 per cent – 30.11 and 35.63 percentage points ahead of the sector and benchmark respectively.
Stewart Investors, which has been the trust’s investment manager since 2010, adopts a sustainable investment strategy and looks to hold companies for long periods of time.