Baillie Gifford Japan is trading on one of the widest premiums relative to its long-tern history while North American Income Trust is on one of the widest discounts, according to the latest data from Kepler Partners.
In the last of our series we look at the trusts in the North America, Europe and Japan equities sectors on the widest or tightest discounts/premiums relative to their own history.
Previously we tackled the IT UK All Companies, Smaller Companies and Equity Income sectors as well as the Global sector, the emerging markets sector and trusts in Asia.
As with 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.
We begin with the North American sector which has one of the tightest bands of trusts among any of the sectors we have studied.
Indeed, the JP Morgan American trust is on the tightest discount relative to its 20-year average, though this is just 76 basis points higher.
The £1bn trust, which is on a discount of 4.83 per cent versus its long-term average of 5.59 per cent, has been run by Garrett Fish since 2003 with Eytan Shapiro joining him in 2005.
More recently, the trust has been on an average discount of 1.7 per cent over the last five years, meaning it is on a wider discount relative to recent years.
It has been the best performer over the longer term, returning 239.07 per cent over the last decade. The trust also outperformed the S&P 500 index by 2.22 percentage points last year, although it failed to beat the sector average.
IT North American trusts discounts/premiums vs their history
Source: Kepler Trust Intelligence
Conversely, the five crown-rated North American Income Trust, run by Aberdeen, is on the widest discount relative to its 20-year average.
The £415m trust was the best performing fund in the sector last year, returning 56.05 per cent and has been the second best out of the five eligible funds over three years.
However, the trust has struggled this year, losing 2.4 per cent and is the worst performer in the sector over 12 months.
Run by Ralph Bassett and Fran Radano, the trust is trading on a discount of 9.04 per cent, 4.46 percentage points wider than its long-term average and 4.04 percentage points wider than its five-year average.
Moving to Europe, Henderson European Focus Trust is on a 1.09 per cent premium having averaged a 5 per cent discount over the past 20 years.
The trust, run by John Bennett since 2010, has been on a much narrower average discount over five years (2.22 per cent).
The £322m investment company has been the best performer in the sector over one, three and five years and the second best over the last decade.
At the other end of the spectrum, the £442m European Investment Trust run by Edinburgh Partners’ Craig Armour is on the widest discount relative to its history.
The fund has struggled to consistently make gains for investors and is the worst performer over the last three and 10 years. Over five years it is the second worst performer.
Armour took over the fund in August 2016 from Edinburgh Partners’ Dale Robertson, who had managed the trust from 2010.
His value-driven approach had not fared as well as hoped, registering just 12.3 per cent growth in net asset value during his final three years.
Over the last 12 months the trust has beaten the sector average and the benchmark but remains on a 12 per cent discount – 2.06 percentage points wider than its long-term average.
IT Europe trusts discounts/premiums vs their history
Source: Kepler Trust Intelligence
Another trust of note is the four crown-rated Jupiter European Opportunities run by FE Alpha Manager Alexander Darwall.
The £803m fund is on the second narrowest discount (3.07 percentage points) relative to its average since launch of 5.49 per cent.
Analysts at Kepler Intelligence Trust noted: “European investment trusts across the board have recovered much of the ground lost in discount terms since the low point in the months following the referendum and Jupiter European Opportunities [JEO] is no exception, having come back from a low point of nearly 14 per cent to its current level of around 2 per cent, behind only Henderson Eurotrust which is now trading on a small premium.
“In the immediate future it looks likely that European equities will motor ahead, which leaves room for JEO to move back to the premium it has in the past been more familiar with.
“Longer term, however, it seems to us that the myriad challenges that Europe faces are likely to throw up further 'flights for safety' which will see European investment trusts shares weaken, and we would see any significant discount in the future as a good opportunity,” they added.
“It is also worth bearing in mind that a discount control policy is in place and the board has shown itself willing to buy back shares in the past, last doing so in 2011 when the trust was trading on a discount of around 11 per cent.”
The final area in the study is Japan, where Baillie Gifford Japan trades on the widest premium relative to its history of any trust in the three sectors mentioned in this article.
The £656m trust, run by Japanese equities veteran Sarah Whitley, has been on a very strong run and is the top performer in the IT Japan Equities sector over one, three, five and 10 years.
As such, the trust is trading on a 3.39 per cent premium, compared to its 20-year average discount of 7.61 per cent. Over the last five years the trust has averaged a discount of 0.6 per cent.
Earlier this year, Whitley told FE Trustnet that UK investors should consider changing their underweight positions in Japanese equities to neutral.
“I think we are at a really interesting time in Japan at the moment and though everybody knows that Japan is not an economy that is going to grow particularly fast, there are a lot of things forcing Japan to change at the moment,” she noted.
Conversely, CC Japan Income & Growth is on the widest discount relative to its history despite being on a 1.92 per cent premium – the only other trust trading at a premium in the sector.
However, the £144m trust was only launched in 2015 and therefore has a relatively short history. Since inception it has traded on an average premium of 3.05 per cent.
IT Japan equities trusts discounts/premiums vs their history
Source: Kepler Trust Intelligence
Another trust of note is the £321m Schroder Japan Growth investment trust, which despite sitting on a 10.44 per cent discount is just 6 basis points away from its 20-year average of 10.38 per cent.
Run by Andrew Rose since 2007, the discount widened significantly to around 16 per cent in 2016 as sentiment toward Japanese equities turned negative in the face of what some perceived as the failure of 'Abenomics'.
The board has the ability to buy back shares to control the discount and issue new shares at a premium should the opportunity arise, but it has not done so in recent years.
Analysts at Kepler Intelligence trust noted: “Schroder Japan Growth is a Japanese equities trust which, in spite of its name, has a value bias – a clear differentiator in this sector where growth funds dominate, with funds like Baillie Gifford Japan and Shin Nippon among the best known examples.”