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.
Join the team at Kepler Trust Intelligence on 30th September as we look at investment trusts operating on discounts which our analysts believe do not reflect their true potential.
We will hear from six investment trust managers who will put forward their case for their trusts and outline the reasons they believe the discounts upon which they trade are unwarranted.
The event will be held via Webex, and each manager will be taking questions from the audience toward the end of their presentation.
Chris Berrier, Brown Advisory US Smaller Companies
Brown Advisory US Smaller Companies (BASC) is run by Chris Berrier whose strategy since 2006 has outperformed the notoriously efficient, and therefore hard to beat, small cap Russell 2000 index. In spite of the managers’ performance and the resources he has at hand via US giant Brown Advisory, the trust continues to trade at what our analysts believe is an anomalous discount versus peers.
Kepler’s Thomas McMahon says: “We think some unfamiliarity with the new manager, some delayed impact of the poor performance of the old manager, and the news of the manager change not spreading has led to this disparity.”
Oliver Gardey & Colm Walsh, ICG Enterprise
ICG Enterprise Trust (ICGT) celebrates its 40th birthday this year, and five years since the move to ICG. In other ways too, 2021 is shaping up to be a banner year. Realisation activity is running at record levels, with £100m of cash received by the trust during Q1. Realisations have come at a 42% uplift to carrying value (35% average for past five years) and puts ICGT on track to deliver its 13th consecutive financial year of double-digit portfolio growth (net of management fees, but not including the effects of cash drag or FX changes).
Kepler’s William Heathcoat Amory says: “We continue to believe that private equity-backed companies are in a better position than many of their listed comparators to deal with the aftermath of the pandemic and therefore justify a place in investment portfolios. ICGT offers a differentiated proposition which over time could lead to the discount narrowing and justify a premium relative to peers.”
Tom Holl & Mark Hume, BlackRock Energy and Resources Income
BlackRock Energy and Resources Income (BERI) has seen a significant shift in emphasis. Instead of solely investing in mining and energy companies, BERI invests in companies helping the transition to a low-carbon economy, thus diversifying its portfolio. In our view this has improved its NAV and has made the trust more relevant to today’s investor. With a yield of 4.2% showing strong performance in both relative and absolute terms, our analysts believe BERI is an interesting proposition to both long-term income and total-return investors.
Jamie Ross, Henderson EuroTrust
Henderson EuroTrust (HNE) seeks to generate the maximum possible return over the medium to long-term. HNE’s manager, Jamie Ross, has consistently outperformed his benchmark providing investors with high alpha and low beta of 0.7. Ross is not afraid to reposition the trust depending on global circumstances and has been successful in doing this, generating five-year returns well in excess of the benchmark.
Kepler’s William Heathcoat Amory says: “The discount at which it trades seems incongruous. While Jamie does not have the long track record many investors demand of a manager, his recent performance has surpassed many of his longer-tenured peers. Jamie has demonstrated his ability to generate returns through rapidly changing circumstances thanks to the ‘trial by fire’ he has faced over the last two years, and leaves us optimistic that he can continue to generate significant alpha.”
Ian Hargreaves, Invesco Asia
Invesco Asia Trust (IAT) has had an exceptional 12 months, building on its record of outperformance. Our analysts believe IAT’s discount of 13.6% to be mismatched given IAT’s manager’s track record of adding value through stock-picking in both growth and value sectors, and the trust’s attractive income credentials.
Kepler’s Thomas McMahon says: “In our view IAT could serve as an excellent core Asia exposure. In our view there is no good reason for the discount to be so wide relative to peers, and we note that at times it has been significantly narrower in recent months.”
Yoojeong Oh, Aberdeen Asian Income
Aberdeen Asian Income (AAIF) offers welcome diversification for equity income investors seeking a decent yield as well as capital growth, many of whom are reliant on UK companies for their dividend income. The trust has a solid track record under fund manager Yoojeong Oh, who took the reins from Hugh Young, now chairman of Aberdeen’s Asian business and still a key member of the investment team. Trading on a discount of -12.9%, the trust is significantly wider in discount terms than any of its peers in the AIC Pacific Income sector, despite being ranked 1st over one year and second over three and five in NAV performance terms.
Kepler’s Thomas McMahon says, “Aberdeen Asian Income has suffered in recent years due to income discipline which has led it to have low exposure to the high growth companies which have led Asian markets. However, the focus on quality and value could be more conducive to the post-crisis period.”
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