The premium or discount an investment trust is on relative to its net asset value (NAV) can be a key factor in whether or not investors should buy it or not.
But while these figures are useful, they need to be contextualised relative to history; for example an investment company on a wide discount may not represent a buying opportunity if it has always been so.
Meanwhile a trust on a big premium may not necessarily be a ‘sell’ if it naturally trades at that level for a number of reasons.
In this study, FE Trustnet has already looked at the sectors that are on a wider discount or premium relative to their five-year history.
Below, we take it to the individual trust level, starting with those that currently sit on a tighter premium or wider discount relative to their peak over the last five years. *Please note all discount/premium figures have been provided by the Association of Investment Companies (AIC) and are to the month-end.
In an upcoming article we will also look at those that have risen from their trough.
The investment company that has seen its premium slip furthest from its five-year high is the £3.2m Chelverton Growth Trust.
Run by David Horner since 1998 with co-manager David Taylor joining him in 2006, the size of the fund is clearly a factor in its wide range of premiums and discounts.
The portfolio has, on average, traded at a discount to its NAV over the past five years of 9.34 per cent, apart from for six months in 2016, when it rocketed out to a peak of 98.02 per cent.
Performance of trust vs sector and benchmark over 5yrs
Source: FE Analytics
This was prompted in early 2016 by a website in the US pointing out that the trust was illiquid, which caused the premium to jump. In the October Chelverton responded, releasing its current NAV and highlighting that the portfolio was on a large premium.
At the time, chairman Kevin Allen said: “I see no fundamental reason for the current premium to the NAV to be maintained.”
Focusing on companies listed on the Alternative Investment Market (AIM) with a market capitalisation of up to £50m, the trust has underperformed over the past five years.
Indeed, while it is 26.89 percentage points ahead of its FTSE All Share benchmark it is 58.59 percentage points behind the IT UK Smaller Companies average peer.
It is one of five IT UK Smaller Companies trusts on the list, including River and Mercantile UK Micro Cap, which took a tumble following the sacking of former manager Philip Rodrigs.
The star smaller companies manager left the firm after an internal investigation concluded that his conduct did not meet the company’s standards.
Since his departure, the £112m investment company dropped from a 14.74 per cent premium in January to a 12.83 per cent discount by May. It has come back in a little since then, sitting on a 7.37 per cent discount at the end of June.
Over the past five years it has averaged a 1.56 per cent discount with its peak and trough (mentioned above) both occurring this year.
High profile investment company Lindsell Train IT also makes the list. While it is currently on a 19.06 per cent premium this is some way off its 66.27 per cent premium reached in December 2016.
The trust has been the top performer in the IT Global sector over five and 10 years and is the second-best performer in the 21-strong sector over the past three years.
Performance of trust vs sector over 5yrs
Source: FE Analytics
Its quality growth style has been en vogue over the past decade and FE Alpha Manager Nick Train has noted in the past that his style will come into periods of underperformance.
The trust has averaged a healthy premium of 22.38 per cent over the past five years, meaning its current level is 3.32 percentage points off its five-year norm.
Law Debenture Corporation and Majedie Investments are the other two trusts from the IT Global sector to make the list.
Conversely, in the IT UK All Companies, FE Alpha Manager Neil Woodford’s Woodford Patient Capital also cracks the top 15.
After much hype (and an oversubscribed initial public offering) the trust soon moved to a premium of 11.34 per cent within its first three months of trading.
The investment company has underperformed however, losing 18.46 per cent on a total return basis and 9.48 per cent on a NAV return.
As such, the portfolio has fallen to a discount of 9.72 per cent at the end of June 2018 a fall of 21.15 percentage points since its peak.
Over the period, the trust has averaged a 1.38 per cent discount, meaning it is currently 8.34 percentage points wider than this. Its lowest discount of 13.31 per cent occurred in February this year.
The investment company has come under scrutiny in recent months with analysts mixed on its prospects. Some believe investors should keep the faith while Hawksmoor Investment Management’s multi-manager team announced it has exited its position in the trust.
Table of trusts whose current discount/premium is furthest from their 5yr peak
Source: AIC
Crystal Amber is the only other trust in the IT UK All Companies sector to crack the list while British & American, which sits in the IT UK Equity Income sector, also makes it.
Country specialists Africa Opportunity and Middlefield Canadian Income, as well as global smaller companies trust Marwyn Value Investors, round out the top 15.