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Investment Trust Watch: Scottish Mortgage substitute seeks growth spurt

Our weekly look at investment trust share prices highlights Manchester & London, Phoenix Spree Deutschland and Baillie Gifford Japan among others.

Tracking the Z-scores

In this weekly report we highlight the big risers and fallers in the investment trust sector and consider which look cheap and which expensive using ‘Z-score’ data from Numis Securities on Thursday 3 May.

Just to recap, Z-scores are a measure used by analysts to put investment trust discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context. Roughly speaking a Z-score of -2 or below shows a trust is getting inexpensive and may provide a buying opportunity. By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits.

For more information about the trusts in our tables, please click on the links to their fact sheets below this article.

Next: Manchester, Scottish & Amazon

 

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Tracking the Z-scores

In this weekly report we highlight the big risers and fallers in the investment trust sector and consider which look cheap and which expensive using ‘Z-score’ data from Numis Securities on Thursday 3 May.

Just to recap, Z-scores are a measure used by analysts to put investment trust discounts – shares trading below net asset value (NAV) – or premiums – when shares stand above NAV – into historical context. Roughly speaking a Z-score of -2 or below shows a trust is getting inexpensive and may provide a buying opportunity. By contrast, a Z-score of 2 or more is getting dear and may signal an opportunity to take profits.

For more information about the trusts in our tables, please click on the links to their fact sheets below this article.

Next: Manchester, Scottish & Amazon

 

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Week's top risers Thursday's closing price (p) Previous week (p) Change
Myanmar Strategic Holdings (SHWE)  28.50 24.50 16.3%
British & American (BAF)  75.00 65.00 15.4%
Symphony International Holding (SIHL)  0.86 0.81 7.2%
Geiger Counter (GCL)  19.35 18.25 6.0%
Weiss Korea Opportunity (WKOF)  176.50 167.00 5.7%
Premier Global Infrastructure (PGIT)  131.50 125.50 4.8%
Artemis Alpha (ATS)  335.00 320.00 4.7%
Scottish Mortgage (SMT)  481.80 461.00 4.5%
Manchester & London (MNL)  466.00 446.00 4.5%
Raven Russia (RUS)  45.00 43.10 4.4%
Schroder Asian Total Return (ATR)  359.00 344.00 4.4%
Shires Income (SHRS)  280.00 268.50 4.3%
Acorn Income (AIF)  455.00 437.50 4.0%
JPMorgan Japanese (JFJ)  447.00 430.00 4.0%
EF Realisation Company (EFR(  40.00 38.50 3.9%

Source: Numis Securities 3/5/18

Manchester, Scottish & Amazon

Impressive results from Amazon in the previous week helped lift not only Scottish Mortgage (SMT), as we highlighted, but also its much smaller near-substitute Manchester & London (MNL). Both trusts notched up gains of 4.5% in the week to Thursday’s close which isn’t a surprise given they share a passion for the US e-commerce colossus, a top holding in their portfolios at nearly 12% for MNL and 11% for SMT, as well as China tech platforms Tencent and Alibaba.

MNL, which is self-managed by Mark Sheppard, shot to shot to prominence last year as a cheap alternative to Baillie Gifford’s flagship £7 billion fund when its shares traded over 17% below net asset value. A successful tip in the Telegraph prompted investors to buy the previously overlooked shares, removing most of the discount and turning a good year into a stellar one for performance with the shares soaring 70%.

At its annual general meeting last week the company received shareholder approval to issue 10% more shares as it looks to exploit its improved rating and eventually double in size. I will publish a more detailed article on the company next week.

British & American (BAF), another investment trust oddity, had a good week, jumping 15% to 75p after annual results from the volatile UK equity income fund restored investors’ confidence in its huge holding in Geron Corporation, an early-stage US biotech that accounts for 60% of its net assets of £11 million.

Myanmar Strategic Holdings (SHWE), a self-managed investment company developing consumer businesses in Myanmar, was the week’s biggest gainer, advancing 16% up to Thursday’s close. The company, which is currently backing English language schools in the Asian country, is a relative newcomer to the London Stock Exchange, having floated last August.

Next: European Assets does the splits

 

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Week's biggest fallers Thursday's closing price (p) Previous week (p) Change
European Assets (EAT)  123.00 266.85 -53.9%
Ratos AB B (RATOB)  31.50 34.34 -8.3%
Ashmore Global Opportunities - £ (AGOL)  361.00 379.00 -4.7%
VietNam Holding (VNH) 2.79 2.92 -4.5%
Myanmar Investments (MIL)  1.17 1.22 -4.1%
Yatra Capital (YATRA)  5.00 5.20 -3.8%
Baker Steel Resources (BSRT)  44.00 45.60 -3.5%
Woodford Patient Capital (WPCT)  74.00 76.50 -3.3%
Macau Property Opportunities (MPO)  190.00 196.00 -3.1%
CATCo Reinsurance Opportunities Fund (CAT)  0.72 0.75 -3.0%
Ranger Direct Lending (RDL)  782.00 806.00 -3.0%
Blackstone GSO Loan Financing (BGLF)  0.92 0.94 -2.7%
Africa Opportunity (AOF)  0.81 0.83 -2.4%
Chenavari Toro Income (TORO)  0.81 0.83 -2.4%
Fondul Proprietatea GDR (FP/)  12.30 12.60 -2.4%

Source: Numis Securities 3/5/18

European Assets does the splits

The apparent 54% plunge in the share price of European Assets (EAT) briefly horrified some investors in the Dutch, high-yielding, small-cap investment company. Fortunately, this was not the result of a shocking disclosure but a technical illusion caused by the fund performing a 10-for-one split in its shares to make them easier to trade.

Ranger Direct Lending (RDL) sacked its fund manager during the week over the fall-out from its disastrous investment in the Princeton Alternative Income fund, however, the uncertainty of its proposal to switch to a portfolio of secured loans under Ares Credit Group didn’t convince all investors and the shares fell 3%. Oaktree Capital Management, its second largest shareholder, has repeated its call for RDL to wind up. The shares trail nearly 13% below their net asset value (NAV), an improvement on the average 25% discount of the past year.

Beleagured Woodford Patient Capital Trust (WPCT) slipped over 3% to 74p, just over a penny above its all-time low in March and a 9% discount to NAV.

Next: vanishing premiums

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'Cheap' trusts Share price premium (- discount) to net asset value % 12-month average premium (- discount) % Z-score
Phoenix Spree Deutschland (PSDL)  -2.0 20.0 -3.1
Leaf Clean Energy (LEAF)  -66.1 -42.9 -2.9
JPMorgan Elect - Managed Growth (JPE)  -4.0 -2.0 -2.7
BlackRock Income & Growth (BRIG)  -5.5 -2.6 -2.7
Baillie Gifford Japan (BGFD)  0.6 5.2 -2.7
AXA Property (APT)  -36.6 -14.8 -2.6
Fidelity European Values (FEV)  -11.4 -8.7 -2.5
Henderson European Focus (HEFT)  -4.8 -0.1 -2.5
JPMorgan American (JAM)  -7.0 -5.0 -2.4
BBGI (BBGI)  0.2 10.0 -2.4
ScotGems (SGEM)  -9.4 -0.7 -2.4
JPMorgan Indian (JII)  -14.1 -11.4 -2.4
Myanmar Investments (MIL) 22.4 41.4 -2.3
Summit Germany (SMTG) -5.3 12.9 -2.3
Montanaro European Smaller Companies (MTE) -15.0 -11.2 -2.3

Source: Numis Securities 3/5/18

 

Vanishing premiums

Two weeks ago I highlighted Phoenix Spree Deutschland (PSDL) when shares in the strong performing Berlin residential property company rose ahead of its annual results but appeared to stand on a 25% premium above net asset value. With its end of 2017 NAV now formally updated to €4.11 per share (360p) the shares at 354p are now listed on a 2% discount giving them a Z-score of -3.1 that puts them at the top of Numis’ ‘cheap’ list.

Conor Finn, analyst at Librium, PSDL’s corporate broker, maintained a ‘buy’ rating and a 430p price target after the results, saying the shares stood 11% below his forecast NAV. ‘We believe the company will continue to deliver double-digit NAV returns as the outlook for long-term rental growth remains robust. Future growth is supported by high employment growth, strong levels of demand and limited supply,’ he said.

Similarly rival Summit Germany (SMTG), which recently reported a 22.9% rise in NAV for last year, now stand on a 5% discount to its updated valuation. The contrast with the 13% premium of the past 12 months gave it a -2.3 Z-score.

The other most notable rating change is at Baillie Gifford Japan (BGFD) where the retirement of Sarah Whitley appears to have paused investor support for the top-performing fund, with its premium virtually disappearing. If you think Whitley’s former deputy, Matthew Brett, now in charge of the portfolio with support from Praveen Kumar, can maintain her record, then this looks a reasonable buying opportunity.

Elsewhere, several trusts offered value with modestly wide discounts.

JPMorgan Elect - Managed Growth (JPE), a £257 million global ’fund of funds’ run by Katy Thorneycroft, briefly stood on an above average discount of 4% to put it in second place in our table with a Z-score of -2.9.

BlackRock Income & Growth (BRIG), a small UK equity income trust managed by Adam Avigdori and David Goldman, traded over 5% below NAV with a -2.7 Z-score.

JPMorgan American (JAM), the only US larger companies trust to give the S&P 500 index a run for its money in recent years, closed 7% below NAV, compared to its average 5% discount of the past year.

Profit taking amid signs of a slowdown in Europe left three trusts in the region on cheap Z-scores below -2: Fidelity European Values (FEV), 11% below NAV; Henderson European Focus (HEFT), 5% below NAV; and Montanaro European Smaller Companies (MTE), 15% below NAV.

A similar trend has seen the discount on JPMorgan Indian (JII) widen to 14%, giving the £751 million fund a Z-score of 2.4.

Disappointment at the slow start by ScotGems (SGEM), the £48 million global smaller companies trust launched by Stewart Investors last year, has seen its shares drift nearly 10% below NAV.

Next: Premiums revived

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Expensive' trusts Share price premium (- discount) to net asset value % 12-month average premium (- discount) % Z-score
European Assets (EAT)  1.4 -76.4 5.2
Schroder UK Growth (SDU)  -8.9 -12.2 3.2
Ashmore Global Opportunities - US$ (AGOU)  -28.9 -34.9 3.0
Pacific Horizon (PHI)  2.2 -7.3 2.9
BlackRock Throgmorton Trust (THRG)  -8.8 -14.7 2.7
Myanmar Strategic Holdings (SHWE) 190.8 47.4 2.6
Juridica Investments (JIL)  -19.5 -44.9 2.5
F&C Private Equity (FPEO) 8.3 -1.8 2.5
Kubera Cross-Border (KUBC) -14.2 -26.6 2.4
JPEL Private Equity (JPEL)  -10.6 -18.1 2.4
BB Biotech (BION) 12.9 1.0 2.4
Pacific Alliance China Land (PACL) -7.6 -17.2 2.3
Impax Environmental Markets (IEM)  -2.9 -8.9 2.3
DeA Capital (DEA) -20.0 -30.9 2.1
HgCapital Trust (HGT)  -0.4 -5.2 2.1

Source: Numis Securities 3/5/18

Premiums revived

The rally in private equity trusts continues with HgCapital Trust (HGT) now trading close to ‘par’ or NAV having seen its average 5% discount of the past year disappear to give it a slightly dear 2.1 Z-score at the bottom of our list of ‘expensive’ trusts.

It joins F&C Private Equity (FPEO), one of the previous week’s big gainers, whose re-rating has left it at an 8% premium above NAV and a dearer 2.5 Z-score.

Elsewhere, the discount at Impax Environmental Markets (IEM) has continued to narrow to just 2.9% below NAV while Switzerland-based BB Biotech (BION), Europe’s biggest listed healthcare fund, has returned to a near 13% premium over NAV.

 


 

 

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