Edinburgh Investment Trust, BlackRock World Mining Trust and Baring Emerging Europe are among a number of investment trusts trading at significant discounts to NAV that offer chunky yields, according to Kepler Trust Intelligence.
With investors clamouring for income, the unique feature of investment trusts’ ability to boost pay-outs by allocating a proportion of capital profits make them an attractive addition to portfolios.
Trading on the secondary market, trusts can also trade at a discount to net asset value (NAV) meaning that investors can often pick them up more cheaply.
Research by Kepler Trust Intelligence revealed a subtle correlation between discount and yield, with higher yielding trusts tending to trade at a premium to NAV. However, this is not always the case.
Indeed a number of high-yielding trusts can be picked up at a significant discount to NAV, according to Kepler’s marketing and communications director Pascal Dowling.
ITs yielding more than the FTSE All-Share trading at a discount
Source: Kepler Trust Intelligence
In the below article, FE Trustnet takes a closer look at the five trusts with a higher yield than the FTSE All Share’s 3.7 per cent trading at the widest discount.
For this article we have excluded Marwyn Value Investors, which Kepler notes has a very concentrated shareholder register consisting of a small group of institutional investors, which has implications for the discount.
Aberdeen Latin America Income
First up on the list is Aberdeen Latin American Income, which launched in 2010 and is overseen by Aberdeen’s global emerging markets equity team.
Kepler research showed the trust had a yield of 4.8 per cent and was trading at a discount of 12.6 per cent at month, although this has since widened to 14.3 per cent, according to data from the Association of Investment Companies (AIC).
The trust largest country allocation is to Brazil with a 48.8 per cent, followed by Mexico (22.2 per cent), and includes large positions in banks Itau Unibanco and Banco Bradesco.
Since launch, the fund has delivered a loss of 0.24 per cent compared with a loss of 8.63 per cent for the average IT Latin America sector trust and a 7.75 per cent gain for the MSCI Emerging Markets Latin America index.
It has ongoing charges of 1.99 per cent and is 11 per cent geared, data from the AIC show.
Baring Emerging Europe
Next up is five FE Crown-rated Baring Emerging Europe, overseen by lead manager Matthias Siller along with Adnan El-Araby and Maria Szczesna.
The £107.2m trust offers a yield of 4.1 per cent and was trading at a discount of 10.5 per cent although this has since widened to 14.6 per cent, according to AIC data.
The managers aim to deliver long-term capital growth through investing in a portfolio of emerging European equities.
“The trust offers an unusual combination of high alpha stock picking, a portfolio exhibiting strong growth credentials and a decent dividend income,” said Kepler’s Dowling.
“In terms of yield, the board have supplemented the dividend with revenue reserves, but manager Matthias Siller is positive on underlying dividend growth given Russia’s very low pay-out ratios.”
Performance of fund under Siller
Source: FE Analytics
Since Siller took over the trust in 2009 it has delivered a 137.88 per cent total return, compared with a gain of 157.87 for the average IT European Emerging Markets trust sector and a gain of 97.55 for the MSCI Emerging Markets Europe index.
It has ongoing charges of 1.42 per cent and is 6 per cent geared.
Middlefield Canadian Income
Next on the list is Middlefield Canadian Income, which is overseen by Dean Orrico and Rob Lauzon and invests in Canadian and US-listed income stocks.
The closed-end fund has a yield of 5.7 per cent and is currently trading at a discount of 15.4 per cent to NAV, according to the AIC.
The fund is significantly overweight industrials with a 12.2 per cent allocation compared with its benchmark 1.5 per cent allocation. It is also overweight real estate, healthcare and energy sectors.
Its largest portfolio holdings include financial firms such as The Blackstone Group, National Bank of Canada, JP Morgan Chase & Co and Bank of Nova Scotia.
Latest additions to the portfolio include property developer Pure Multi-Family REIT, Blackstone Property Partners and Canadian telecommunications company Bell Canada Enterprises – the latter position was entered into as management took advantage of recent market volatility having previously been underweight the Canadian telecommunications sector.
Over ten years, the fund has delivered a return of 110.60 per cent compared with a gain of 193.68 for the average investment trust in the IT North America sector.
The trust has ongoing charges of 1.26 per cent and is not geared. It yields 5.7 per cent.
BlackRock World Mining Trust
The five FE Crown-rated BlackRock World Mining, managed by Evy Hambro and Olivia Markham, is next on the list, which is trading at a 11.9 per cent discount to its NAV and yields 4.2 per cent.
“2017 represented a return to outperformance for the managers, as well as marking another very strong performance in absolute terms, and they remain positive on the outlook,” said Dowling.
“Despite these improving prospects, the trust’s discount has remained resolutely wider than the 10 per cent level in recent months.”
The trust has been a top quartile performer over one, three and five years, and since Hambro took over the strategy in May 2009 it has delivered a total return of 38.79 per cent, compared with a gain of 31.58 per cent for the EMIX Global Mining index benchmark.
Performance of trust under Hambro
Source: FE Analytics
It has an ongoing charge of 1 per cent and is 18 per cent geared.
Edinburgh Investment Trust
The final trust on our list trading at a discount offering a higher yield than the FTSE All-Share is FE Alpha Manager Mark Barnett’s Edinburgh Investment Trust.
As Dowling noted, both of Barnett’s equity income trusts – Edinburgh Investment Trust and Perpetual Income & Growth – are trading at discounts after a period where the manager has seen “some holdings explode underneath him”.
Edinburgh Investment Trust is trading at a 9 per cent discount to its NAV and yields 4.1 per cent.
Dowling highlighted the trust offers exposure at a high discount to a manager “who has in the past delivered strong returns”.
He added: “While that may not tell us much about the future - it is clear that he is suffering at the moment as his conservative approach continues to go against the grain in the current rally.”
Edinburgh has an ongoing charge of 0.6 per cent and is 8 per cent geared, data from the AIC shows.