Six Investment Trusts on Juicy Discounts
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Last week we heard from the managers of six investment trusts at our annual discount focussed event, all of whom believe their strategy is in a good position to perform…
Last week we were joined by around two hundred investors for our online event focussed on discounts – specifically trusts which are trading on discounts which, in our view, do not reflect their potential.
Discounts are of great interest to Kepler Trust Intelligence’s audience and, since the website was launched in 2015, studies focussed on discount opportunities have consistently been among the most popular articles ever published on our website.
Last week’s event – which ran on similar lines to our first ever ‘Now that’s what I call a discount’ event in November last year – saw the managers of six trusts describe the opportunities they see for their investment strategies and the drivers they see behind a tighter discount in the future.
Aberdeen Asian Income | Slides & Audio
Our first speaker, Yoojeong Oh, joined us from Singapore to talk about Aberdeen Asian Income (AAIF) – which aims to generate a high and growing income via a portfolio of high quality cash generative businesses which pay dividends, broadly spread across Asia and Australasia.
Trading on a discount of 12.6%1 the trust – which yields 4.2% – has rarely been available at this wide a mark in the last 12 months, having fallen from a high point 6.8% below NAV during this period.
Yoojeong is positive on the outlook for the region and her strategy. Having had to dip into reserves last year the trust’s dividend record remains unblemished over many years, and dividends in Asia are now already back to pre-COVID levels, underpinning the trust’s ability to deliver a solid income in the years ahead.
BlackRock Energy & Resources Income | Slides & Audio
Tom Holl and Mark Hume joined us next from BlackRock Energy & Resources Income (BERI). The trust has been radically reshaped in recent years to accommodate changes in the way the world approaches energy, shifting to a broader remit beyond simply oil and gas.
Energy ‘transition’ products have increased dramatically, alongside exposure to clean utilities, transport and renewable energy, and the trust’s once significant holding in gold has been reduced dramatically.
Our analysts believe this transformation equips the trust well and creates a new compatibility for it with investors, amongst whom these issues are of primary concern.
Performance has been good, too, and the trust – which yields 4.3% – has delivered NAV returns of 49% in the last year. Despite this, the discount has widened out dramatically to reach 7.2%, having at times traded on a premium of 5.8% in the last year.
Henderson EuroTrust | Slides & Audio
At noon we heard from Jamie Ross, manager of Henderson EuroTrust (HNE). The trust, which invests in European equities with a view to generating the maximum possible total return over the long term, performed very well last year as the manager moved rapidly and decisively to shift the portfolio at different points; notably selling out of COVID-19 ‘beneficiaries’ at the right time and rotating the portfolio into names which could benefit from the recovery.
When we last reviewed the portfolio in March this year it had delivered three times the benchmark return over 12 months, and double the average return of its peers. Performance has cooled off since then and the trust has delivered 19.8% over 12 months versus 23.6% from the average trust in its peer group (AIC Europe). The discount has drifted out to 9.7%, well beyond the average discount in the sector (6.2%) despite the trust’s clear track record as a strong performer over the medium to long term.
Invesco Asia | Slides & Audio
Next, Ian Hargreaves joined us from Invesco Asia (IAT), which aims to grow capital by investing in Asian equities with a valuation sensitive approach and pays a dividend of 2% of NAV each half year, primarily from portfolio income but with the ability to use capital where needs be.
Ian has a consistently solid track record of outperformance, and did particularly well in the last half of 2020 and the first half of 2021, as his shift into cyclicals on valuation grounds was rewarded.
Our analysts view Invesco Asia as an excellent core holding with a good track record of stockpicking in both value and growth sectors and a broadly diversified regional balance. Despite these attractions the trust is trading on a discount of 10.7% – almost twice the average discount in the AIC Asia Pacific sector – and despite having traded on a discount less than half that wide at times in the last 12 months.
ICG Enterprise | Slides & Audio
ICG’s Oliver Gardey and Colm Walsh tuned in for our next afternoon session, ICG Enterprise (ICGT), a private equity investment trust which combines direct exposure via ICG’s funds or co-investments along with investments with third party managers.
The managers aim to deliver a strategy which optimises the balance between risk and return, with a focus on cash generative, mature companies in established markets, and the trust has produced strong and consistent NAV returns. The trust has achieved 12 years of double-digit NAV growth with this year following the same pattern, and as we’ve discussed recently private equity appears to be in a sweet spot at the moment, yet ICG remains on a stubbornly wide (and very wide, too) discount of 24.1%.
Brown Advisory US Smaller Companies | Slides & Audio
Our final speaker was Chris Berrier, manager of Brown Advisory US Smaller Companies (BASC) since the mandate was taken over six months ago, who joined us from the United States to outline his view on the outlook for US equities.
Small cap US stocks have done well in the post-pandemic rebound, having suffered during the worst of the crisis, and the team see plenty of opportunity ahead – but warn that a flood of new issuances, and hot money mean a clear focus on risk is required to avoid the duds. Chris said the strategy would focus on quality companies in the coming months as these are likely to perform better as the recovery gathers pace.
Our analysts see a potentially interesting opportunity in BASC’s shares which, on a discount of 8.7%, are trading wider than all bar one (and that one totally incomparable) of its peers in AIC North American Smaller Companies and wider North America sectors, despite the track record of the Brown Advisory US Small Cap Growth strategy which BASC will mirror.
|TRUST||SLIDES & AUDIO|
|Aberdeen Asian Income||Link|
|BlackRock Energy and Resources Income||Link|
|Brown Advisory US Smaller Companies||Link|
Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that Independent financial advice should be taken before entering into any financial transaction.
The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.
The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.
This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.
Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.
PLEASE SEE ALSO OUR TERMS AND CONDITIONS
Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.