Eight out of 10 Moneywise investment trust picks discounted – does that make them cheap?

16 September 2019

Of Moneywise’s First 50 Fund investment trust picks, eight out of 10 are now available to buy for a discount. But is that a signal to buy more?

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The BMO Commercial Property Trust is currently at the biggest discount of -17.39%.

What this means is the share price of the trust, which can be bought like any other companies’ shares on the stock market, is 17.39% below the market value of the investments the company holds.  

Henderson Smaller Companies is currently at a discount of -9.85%, and Picton Property Income currently -6.45%.

These three trusts are all trading at the biggest discounts of the Moneywise 10 picks. They all have one theme in common – all are UK-focused trusts.

But they are not the only UK-focused trusts in our list.

When you look at the discounts on our top 10 picks and compare them against their relative sector average discounts a different picture appears.

The table below is arranged with those performing best against the sector averages at the top.

Investment trust Sector Premium
/discount (i)
Sector average as
of 30 August 2019 (ii)
Difference
The City of London Investment Trust (CTY) UK Equity Income 2.69 -5.33 8.02
Finsbury Growth & Income Trust (FGT) UK Equity Income 1.83 -5.33 7.16
Jupiter European Opportunities (JEO) European -2.24 -9.12 6.88
Scottish Mortgage Investment Trust (SMT) Global -0.44 -3.45 3.01
BMO Global Smaller Companies (BGSC) Global Smaller Companies -5.75 -8.49 2.74
Henderson Smaller Companies (HSL) UK Smaller Companies -9.85 -11.96 2.11
Picton Property Income (PCTN) UK Commercial Property -6.45 -7.71 1.26
Witan Investment Trust (WTAN) Global -2.57 -3.45 0.88
Murray International Trust (MYI) Global Equity Income -0.11 -0.77 0.66
BMO Commercial Property (FCPT) UK Commercial Property -17.39 -7.71 -9.68

Source: (i) FE Analytics, 13 September 2019. (ii) AIC, 13 September 2019.

The table shows that trusts like City of London investment trust, Finsbury Growth & Income and Jupiter European Opportunities are all performing at a higher premium than the average for their respective investment sectors.

This would suggest they are popular trusts, and investors are willing to pay more to buy shares than the average trust in their sectors.

Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC), says that despite a series of global issues playing on investors’ minds, discounts have remained fairly steady on the whole.

“From the US-China trade war to anxiety about global growth, the average investment company discount has remained fairly stable over the past year, ranging from 7.8% to 5.2%,” she says.  

The table demonstrates that of the Moneywise picks, only one trust, BMO Commercial Property, is trading at a significant relative discount compared to its sector. The other nine picks are all trading at lower discounts (or a premium in two cases) than the sector averages.

Dzmitry Lipski, investment analyst at interactive investor (Moneywise’s parent company) believes this does indeed present a potential opportunity for investors.

“The BMO trust has been affected by poor sentiment due to Brexit and uncertainty over property. But it is managed by a top manager, the trust has produced consistent returns since inception and its yield is attractive for income investors,” he says.

“The low correlation between property and more conventional assets such as equities and bonds mean that the inclusion of a property fund within a portfolio can bring significant diversification benefits.”

Mrs Brodie-Smith adds: “Looking at the discounts and premiums and at an individual investment company sector level, discounts for equity investment companies generally have widened slightly reflecting more volatile markets.

“On the other hand, it’s clear that income-generating alternative assets like Infrastructure and Renewable Energy are still very much in demand. Investment companies are a natural home for these types of assets which are hard to buy and sell.

"Investment company managers don’t have to worry about inflows and outflows and can focus purely on performance.”

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