The Numis analyst does not think that investors should automatically dismiss trusts on a premium, but says those that are trading higher than their one-year average are susceptible to a correction.
He points to the Murray International IT, which is headed up by Aberdeen’s Bruce Stout, and the Lindsell Train IT, which is headed up by FE Alpha Manager Nick Train, as good examples.
These are among the top performing – and most consistent – trusts in the two global equity sectors.
"The Murray International IT is on a premium of 10 per cent, which is pretty high compared with what it’s been in the past," Cade said.
"Aberdeen has been very active in issuing new shares [to keep the premium down], but in this instance they haven’t acted yet."
"It’s not a massive cause for concern, but these levels are unsustainable. If the premium closes, this has an impact on performance."
With regard to the Lindsell Train IT, he said: "Even the manager himself said it wasn’t a good time to buy the trust, so that tells you a lot."
"Lindsell Train has a strict policy of not issuing new shares."
Train’s trust is currently trading on a premium of 11.4 per cent, according to data from the Association of Investment Companies (AIC).
The premium has come down quite significantly since the start of the year, which has coincided with its underperformance versus its peer group.
For anyone who is wary of these premiums and wants to look elsewhere, here are three highly rated global trusts that are currently on a discount to NAV.
Witan IT
The £1.4bn trust is on a discount of 8.4 per cent, AIC data shows.
It adopts a multi-manager approach, meaning that it gives investors exposure to regional areas of the markets through external managers. For example, it uses Nick Train for its UK exposure and Veritas for its core global exposure.
The trust has traditionally been one of the most popular options for retail investors, but suffered a bout of average performance in the mid-2000s, which had a knock-on effect on demand for the trust.
Performance of trust vs sector and benchmark over 1yr
Source: FE Analytics
However, the appointment of Andrew Bell (pictured) as lead manager in April 2010 has seen an improvement in the numbers – particularly year-to-date – and many commentators have also lauded the changes he has made to the strategy.
Winterflood’s Simon Elliott says he has been impressed by the performance of the Witan IT under Bell, and likes the fact that he has increased the number of active managers it uses.
"Before he came in there was a high proportion of assets in enhanced trackers," he explained. "Performance wasn’t terrible but was very in-line with the benchmark."
"He’s increased the active risk in there now, and you’re starting to see that come through in the performance."
Witan uses a composite benchmark, split between various global indices including the FTSE All Share and FTSE World Asia Pacific.
Elliott does not think the trust is a pure value play because it uses a discount control mechanism, but says the discount could come in in the near future.
"Does it have scope to come in? I think so," he said. "When people realise the changes Bell has made, you could see more demand."
The Witan IT has an ongoing changes figure (OCF) of 0.79 per cent, exclusive of performance fee. It is 8 per cent geared and is currently yielding 2.19 per cent.
Jupiter Primadona Growth IT
The little-known Jupiter Primadona Growth IT has just £63m in AUM, but packs quite a punch for its small size.
The trust has beaten its IT Global Growth sector average and composite benchmark – split 75/25 between the FTSE All Share and FTSE World ex UK – over three, five and 10 years, but falls slightly short over one.
Performance of trust vs sector and benchmark over 10yrs
| Name | 1yr (%) | 3yr (%) | 5yr (%) | 10yr (%) |
|---|---|---|---|---|
| Jupiter Primadona Growth IT | 17.82 | 45.01 | 40.57 | 326.93 |
| Benchmark | 23.99 | 37.32 | 24.82 | 152.71 |
| IT Global Growth | 20.19 | 33.4 | 30.89 | 194.83 |
Source: FE Analytics
It also has a very attractive yield, at 3.31 per cent. This is only a touch lower than the yield investors are currently getting on the Murray International Trust, even though the Jupiter trust sits in the IT Global Growth sector.
The trust is on a steep discount, at 9.6 per cent, which arguably makes it one of the standout bargains in the sector.
Manager Richard Curling, who took over in September 2008, invests in a mixture of stocks and collective vehicles.
Top-10 holdings include the Findlay Park American fund, the Jupiter European Opportunities fund, Vodafone and Shell.
The trust is invested predominantly in the UK, with total exposure at 70 per cent. Asia Pacific ex Japan, Europe and the US also have significant weightings.
Although it is on an attractive discount, the trust is expensive, with an OCF of 1.49 per cent.
British Assets Trust
This is one of the very few vehicles in the IT Global Growth & Income sector that is on a significant discount to NAV – 6.4 per cent, according to the AIC.
The trust had a very poor period between 2006 and 2009, which has contributed to its underperformance versus its composite benchmark and sector over 10 years.
However, its shorter term record is much better, and its attractive yield – currently at 4.6 per cent – and significant discount mean it is a potential bargain play in the sector.
Performance of trust vs benchmark over 5yrs
Source: FE Analytics
It is very volatile for a global equity income trust, in part down to its overweight in emerging markets and high level of gearing.
However, it looks to offset this volatility through its exposure to bonds, which also help prop up the yield.
Corporate bonds currently have an 11 per cent weighting, while high yield bonds have a 15 per cent weighting.
The British Assets Trust has been headed up by Phil Doel since 2011. It has an OCF of 0.74 per cent and is 19 per cent geared.