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Trust Watch: here’s a cheap alternative to rocky markets

Trust Watch: here’s a cheap alternative to rocky markets

Henderson Alternative Strategies Trust (HAST) could make an attractive bolthole from volatile stock markets after surviving a shareholder continuation vote last month.

The removal of a wind-up threat at the annual shareholder meeting on 26 January combined with the market sell-off at the start of this month has seen the shares de-rate with the discount – or gap between the share price and its net asset value (NAV) – doubling from 10% to 20%.

That compares with a 12-month average discount of nearly 15% and gives HAST a lowly ‘Z-score’ of -2.8, easily enough to put it in this week’s ‘cheap’ list from Numis Securities.

Just to recap, the Z-score is a measure used by analysts to put an investment trust share price – and any discount or premium to net asset value it trades at – in historical context. Roughly speaking, a Z-score of -2 or below is considered ‘cheap’ (see first table) while a Z-score of 2 more is getting ‘expensive’ (second table).

HAST is a ‘fund of funds’, with a £132 million portfolio invested in around 40 specialist funds that ordinary investors would find hard to reach. That might sound too esoteric for cautious investors but in fact HAST managers Ian Barrass and James de Bunsen often pick funds investing in areas such as private equity, healthcare and property because they are unlikely to behave in line with mainstream equity and bond markets.

Having taken a long time to turn round performance of HAST after its disastrous run with previous manager SVM, the managers are giving more well-known defensive funds a run for their money.

In terms of share price volatility, data from Numis Securities shows that the stock has jumped and down far less than other global growth trusts in the past three years and is broadly in line with the likes of Capital Gearing (CGT), another defensive fund of funds; as well as Ruffer Investment Company (RICA), famed for making money in the 2008 crisis; and RIT Capital Partners (RCP), the Rothschild-backed fund that likes to boast its ability to capture more market gains than losses.

In the past month – when markets peaked and crashed – HAST’s net asset value has been virtually static, up 0.6%, while its shares tumbled 9% to yesterday’s close. By comparison a fund explicityly focused on capital preservation like Personal Asset (PNL) saw its NAV and share price shed 2.6%.

A month is a short period and the comparison is complicated by the fact that HAST and some of these multi-asset funds publish their NAVs weekly or monthly rather than daily like more conventional equity trusts.

Nevertheless, on a 20% discount HAST was cheap compared to the other defensive funds I have mentioned, which mostly trade on small premiums of 1-4% above NAV.

However, others have spotted the opportunity and the shares are up 2.5% today.


'Cheap' trusts Share price premium (- discount) to net asset value 12-month average premium (- discount) to net asset value Z-score
City Merchants High Yield (CMHY)  -2.7 1.3 -3.3
Tritax Big Box REIT (BBOX)  -2.0 9.0 -3.2
JPMorgan American (JAM)  -7.0 -4.9 -3.2
Renewables Infrastructure Group (TRIG)  -0.8 6.9 -3.1
Civitas Social Housing (CSH)  -3.8 6.6 -3.0
Henderson Alternative Strategies (HAST)  -20.1 -14.7 -2.9
Hadrians Wall Secured Investments (HWSL)  -0.1 7.7 -2.8
Schroder European Real Estate (SERE)  -16.3 -5.7 -2.8
GCP Asset Backed Income (GABI)  1.7 7.2 -2.7
3i Infrastructure (3IN) -1.6 13.4 -2.7
NewRiver Retail (NRR)  -1.0 14.9 -2.7
Carador Income Fund (CIFU)  -14.1 -4.2 -2.7
F&C UK Real Estate Investments (FCRE)  -3.8 3.6 -2.6
Chenavari Capital Solutions (CCSL)  -7.5 0.3 -2.6
Ratos AB B (RATOB)  -2.4 31.2 -2.5

Source: Numis Securities 15/2/18

Another entrant to the ‘cheap’ list is worth highlighting. JPMorgan American (JAM) is the best performing trust for the mainstream US market. That may not mean so much given the handful of trusts have often failed to beat the S&P 500 index. However, on a 7% discount and -3.2 Z-score yesterday, it may provide an entry point for anyone confident about the prospects for US equities.

Lastly, a quick look at our ‘expensive’ list (second table below) shows a remarkable improvement in the rating of Japan investment trusts. At the start of the year the consensus opinion was that Japan was the only good value developed market left. The same can’t be said of the trusts’ shares now with top performers Baillie Gifford Japan (BGFD) and Baillie Gifford Shin Nippon (BGS) extending their premiums above NAV to 9% and 12.5% respectively. Schroder Japan Growth (SJG) has seen its discount narrow to just 2.6%.

More remarkably, the former struggling minnow Atlantis Japan Growth (AJG) has eradicated its discount to stand close to NAV. That’s such a contrast to the 9% discount we highlighted in December, that it registers a distinctly dear Z-score of 4.3.

'Expensive' trusts Share price premium (- discount) to net asset value 12-month average premium (- discount) to net asset value Z-score
Atlantis Japan Growth (AJG)  -0.7 -8.8 4.3
Vinaland (VNL) -6.0 -44.7 4.2
Lowland (LWI)  -2.0 -6.2 3.5
Pacific Alliance China Land (PACL)  -11.9 -19.5 3.4
Invesco Perpetual Select - Balanced Risk (IVPB)  2.5 -1.4 3.3
Draper Esprit (GROW)  21.5 -1.9 2.8
Invesco Perpetual Select - Global (IVPG)  1.2 -1.4 2.7
Schroder Japan Growth (SJG)  -2.6 -7.5 2.6
JPMorgan Smaller Companies (JMI)  -11.3 -18.4 2.5
F&C UK High Income- Units (FHIU)  -3.3 -7.5 2.5
EJF Investments (EJFI)  6.2 1.9 2.5
BB Biotech (BION)  7.3 -1.5 2.5
Baillie Gifford Shin Nippon (BGS)  12.5 6.2 2.4
Baillie Gifford Japan (BGFD)  9.1 5.0 2.4
Standard Life Equity Income (SLET)  0.2 -4.7 2.3

Source: Numis Securities 15/2/18




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