Anyone who uses investment trusts can benefit from a double discount: while emerging markets shares are cheap, a number of top-performing trusts are also trading on a discount to NAV wider than their history, offering the chance to boost returns.
FE Trustnet looked at some of the opportunities on offer in Asia in an article last month, but here we focus on the emerging markets trusts that look like a bargain.
Genesis Emerging Market
The £650m Genesis Emerging Market trust is trading on a discount of 8.5 per cent, according to data from Numis, compared with a 12-month average of 6.8 per cent. Analysts at Winterflood have added it to their buy-list partly as a result.
“Genesis Emerging Market has a very strong long-term track record that has been generated from a specialist and experienced team,” they said.
The trust has significantly outperformed its peer group over the past five years in NAV terms, according to Winterflood data, and it is also well ahead in share price terms.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
The fund has a lower profile than some of its peers and has a largely institutional shareholder base.
“We believe that the fund offers value at its current discount of 8 per cent, which is wider than its average over the last 12 months and is also wider than the peer group average,” Winterflood said.
“The current discount is particularly attractive given that the fund’s open-ended equivalents are soft-closed.”
The trust has ongoing charges of 1.68 per cent, according to the AIC.
Templeton Emerging Markets
One of the more famous emerging markets trusts, the £1.62bn Templeton Emerging Markets, is also looking cheap. It is trading on a 10.7 per cent discount compared with its one-year average of 9.3 per cent.
The trust has gained 105 per cent in NAV terms over five years, well ahead of the 74.1 per cent of the MSCI Emerging Markets index. In share price terms it is up 97.6 per cent over that time.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
Recent performance has been sluggish – the fund has lost more than its index over one and three years.
Analysts at Cantor say that along with Genesis Emerging Market and JP Morgan Emerging Markets, it is one of the ones they would expect to do the best in a rising market.
Ongoing charges are 1.31 per cent.
JPM Chinese
A more specialised pick is JP Morgan Chinese, which Simon Elliott, analyst at Winterflood, says represents value on an 11 per cent discount. However, this is close to its one-year average of 11.9 per cent.
“[The trust] has generated a consistently strong performance record over many years and we believe it benefits from JPM’s well-resourced team based in the region,” he said.
The other specialist Chinese trust is Anthony Bolton’s Fidelity China Special Situations, and Elliott says that the main difference with that fund is that it has a broader exposure with more large cap companies.
“JP Morgan Chinese has delivered a similar performance to the Fidelity fund since its launch but, unsurprisingly, has proved less volatile,” he said.
Performance of trusts vs index since Apr 2010
Source: FE Analytics
Ongoing charges are 1.31 per cent plus a performance fee, according to the AIC.
Fidelity China Special Situations
Bolton’s trust also looks like a bargain, and is currently trading on a wide discount: 8.8 per cent compared with a one-year average of 7.2 per cent.
The trust underperformed its benchmark at the start of its life as the manager was hit by fraud at some of his holdings and the volatility of smaller firms. However, it is now ahead of its benchmark since launch.
Bolton will leave management of the trust to Dale Nicholls in April, but he remains bullish on the future for China, as he explained to FE Trustnet in a recent interview.
Ongoing charges on the trust are 1.7 per cent.
Aberdeen Latin American Income
Latin America was hit particularly hard by the market crash in January, according to FE Analytics data.
Performance of indices in 2014
Source: FE Analytics
The £46m Aberdeen Latin American Income trust has been one of those affected, slipping on to an 8.9 per cent discount from a 2.4 per cent average over the past 12 months. At current prices the trust is yielding a healthy 6.1 per cent.
The portfolio is a mixture of equities and bonds, with 42 per cent in fixed interest. The equity part of the portfolio is weighted towards Brazil, at 37 per cent of AUM, and Mexico, at 11 per cent.
We highlighted it back in October, at which time it was sitting on a 6 per cent discount. The discount then narrowed but has blown out again following the market sell-off.
Share price and NAV of trust over 6 months
Source: FE Analytics
Ongoing charges are 1.82 per cent.
