Oliver Haill
16:04 Thu 08 Dec 2022
Investor deep dive
Amati Global Investors chief on his musical roots and how his collaborative approach has bred success
read more > viewLindsell Train Investment Trust PLC(LSE:LTI) Finsbury and Lindsell Train woes not the only ones – but highlights big discounts in investment trusts 
This week star fund management outfit Lindsell Train posted further sets of disappointing results from its two much-followed investment trusts, the Lindsell Train Investment Trust PLC (LSE:LTI) and the Finsbury Growth & Income Trust PLC (LSE:FGT) – with negative returns for both.
The results show respective net asset value (NAV) declines of 3.2% and 7.6% in the two investment companies, as the portfolios shrank by £81mln and £234mln respectively.
Nick Train was far from the only star fund manager who has presided over multi-million-pound decreases in their shareholders investments this year, with the upshot being that for investors who still believe in the managers’ investment approach there are some sizeable discount available.
After the Lindsell Train trust’s shares decline 22% over the past year to £1,030 per share they now offer an 2% discount to estimated NAV per share (which was £1,029.42 at the end of September), while shares in the Finsbury trust are down 7%, with an estimated discount of 5.8%.
Among the £1bn-plus trusts, the largest share price declines have been seen among one of the largest of them all, the much celebrated Scottish Mortgage Investment Trust PLC (LSE:SMT), manged by Baillie Gifford, has plunged over 40% this year.
Many real estate investment trusts have also been hard hit, with £10bn Segro PLC and near-£4mln Tritax Big Box REIT PLC (LSE:BBOX) having also fallen more than 40%, while FTSE 250-listed British Land Co PLC, Land Securities Group PLC (LSE:LAND), Unite Group PLC (LSE:UTG) have tumbled 25%, 20% and 17% respectively.
Much followed Monks Investment Trust PLC (LSE:MNKS) and Polar Capital Technology Trust PLC (LSE:PCT) fell either side of 30%,
The biggest share price decline by an investment trust this year, down 89%, has been by the former JPMorgan Russian Securities, for obvious reasons, which has for equally obvious reasons, changed its name to the unwieldy JPMorgan Emerging Europe, Middle East & Africa Securities PLC.
Its shares, according to data on Sharepad, trade at a 72% premium to the value of its assets.
Share price falls of over 60% have also been seen at Chrysalis Investment Ltd, over 50% at The Schiehallion Fund (LSE:MNTN) and Home Reit PLC, and over 40% at Baillie Gifford US Growth Trust PLC and Workspace Group PLC (LSE:WKP), another REIT.
Most of these large declines have roughly mirrored falls in NAV, but many have overshot.
The biggest discounts on trusts worth mover than £100mln, include Macau Property Opportunities Fund Ltd, of 69% according to AIC data; JZ Capital Partners Ltd, of 63%; Amedeo Air Four Plus Ltd (LSE:AA4), of 59%; Home Reit PLC (which is being targeted by short-sellers), of 57%; and Seraphim Space Investment Trust PLC (LSE:SSIT), also at 57%.
Among the £1bn-plus cohort, the largest discounts are at private equity focused players such as Petershill Partners PLC (LSE:PHLL), of 50%; Harbourvest Global Private Equity Ltd, of 47%; Pantheon International PLC (LSE:PIN), at 44%.
Myrto Charamis investment company analyst at Berenberg said: "For investors who are mainly looking for long-term capital appreciation I believe listed private equity is very cheap trading at an average discount to NAV of 30%.
“The sector, in my view, provides a lot of headroom for investors who believe valuations are too high."
Charamis’s comment was highlighted in recent research from the AIC that noted that 37 of 38 investment company sectors were on discounts, with the average discount standing above 14% as of mid-November, up from less than 4% at the end of last year.
The most deeply discounted equity sector is North America, on a 26.5% discount, followed by India on a 14.9% discount and global emerging markets on 12.4%.
Discounts for alternatives sectors can be misleading, the AIC warned, as they are based on current share prices and the most recently reported net asset values, which can be out of date, though at the time the most deeply discounted alternatives sector is growth capital on a 43.4% discount, followed by European property at 42.8%.
Anthony Leatham, analyst at Peel Hunt, said discounts were volatile and evolving on a week-by-week basis.
He highlighted China, though acknowledged it was a ‘marmite’ choice that would divide opinion.
“We would highlight Fidelity China Special Situations trading on an 11% discount. A recent update from the manager – Dale Nicholls – points to some of the cheapest valuations across the underlying portfolio companies that he has seen in a long time. Investors are looking for a shift in policy focus to support growth and any positive action could act as a catalyst for a re-rating.”
Leatham also said he saw value “across renewables”, highlighting Octopus Renewables Infrastructure Trust PLC (LSE:ORIT), as well as other real-asset strategies including the shipping trusts – Tufton Oceanic Assets and Taylor Maritime Investments.
Priyesh Parmar at Numis, drew attention to Vietnam-focused trusts, noting that the economy is performing strongly and inflation remains below the central bank’s 4% target.
“The reasons for the sell-off appear concentrated in an area of the market to which the listed funds have no direct exposure. Therefore, we believe this presents a strong buying opportunity.
“As Vietnam appears on the radar of more generalist investors this should provide a positive backdrop for the country and we believe there is potential for a tighter discount on the listed funds to be more sustainable in future. Furthermore, investors have the potential future catalyst of MSCI Emerging Markets inclusion, albeit this is at least a few years away.”
FTSE 250-listed Vietnam Enterprise Investments (LSE:VEIL) Ltd, along with Vietnam Holding Ltd, and VinaCapital Vietnam Opportunity Fund Ltd are all listed in London.
Stifel’s Iain Scouller was also a fan of private equity funds.
“Whilst some haircuts to NAVs are to be expected in this environment, we think discounts are excessive. Even on a ‘worst-case’ view we do not anticipate writedowns in excess of -15% to -20%, which suggests discounts in a worst case are still 20% to 30% post any writedown.
“In an alternative scenario, where we see rising equity markets going into the 31/12/22 valuation point, we may actually see NAV increases on the funds over the second half of 2022. We also suspect the likelihood of corporate activity in the sector, such as takeover approaches is increasing, and if this materialises, we would expect a substantial positive sector re-rating.”
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