Perpetual Income and Growth, Woodford Patient Capital and BlackRock World Mining are among investment trusts trading at a double-digit discount and overseen by an FE Alpha Manager.
As investment trust shares are traded on the stock market they can sometimes trade at a discount to the net asset value (NAV) per share of the closed-ended fund’s underlying portfolio when its strategy, asset class or manager is out of favour.
This can present a buying opportunity for investors if they believe the share price will rises closer to the trust’s NAV, although it can also widen further and result in losses.
As a result, there are a number of top-performing managers that can be accessed at attractive discounts.
Below FE Trustnet takes a closer look at the investment trusts headed by an FE Alpha Manager – the top 10 per cent of UK retail-facing managers with long-term track records of outperformance – trading at double-digit discounts to NAV.
BlackRock World Mining IT
The five FE Crown-rated BlackRock World Mining Trust is first on our list and is overseen by FE Alpha Manager Olivia Markham and colleague Evy Hambro, chief investment officer of BlackRock’s natural resources equity team.
The £883.9m trust is currently trading at a discount of 13.9 per cent to NAV, according to data from the Association of Investment Companies, slightly wider than its three-year average of 12.81 per cent.
The BlackRock managers invest in a global portfolio of mining and metal assets. The largest sector allocation is to diversified miners, such as top holdings BHP and Rio Tinto. However, it also has significant exposure to copper and gold mining companies and – to a lesser extent – industrial metals, silver and diamonds.
Performance of trust vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, the BlackRock World Mining Trust has made a total return of 101.58 per cent compared with a 99.85 per cent gain for the EMIX Global Mining index. Its average IT Commodities & Natural Resources peer, meanwhile, has made a 47.51 per cent return.
Markham and Hambro wrote recently that supply and demand remains tight in most mined commodity markets – given the cuts in spending in the mining sector since 2012 – and is expected to remain so: a positive sign for the asset class.
“Our base case is therefore, barring an economic slowdown, mined commodity prices to be stable to rising through 2019,” they noted. “Meanwhile, we believe the shares are pricing in a materially worse commodity price environment.”
BlackRock World Mining Trust has a yield of 4.8 per cent, is 14 per cent geared and has ongoing charges of 0.93 per cent.
Perpetual Income and Growth Investment Trust
The second trust on our list is Invesco’s Perpetual Income and Growth Investment Trust whose lead manager is Mark Barnett. The FE Alpha Manager has been involved in the management of the trust since August 1999 and was joined by deputy Martin Walker in mid-2016.
As the name suggests, the £776.2m Perpetual Income and Growth Investment Trust targets capital growth and real income over the medium-to-longer term through investment in UK equities.
During the past three years, the manager has lagged the index and his peers, making a loss of 3 per cent while the FTSE All Share benchmark has returned 33.93 per cent and the IT UK Equity Income sector 26.39 per cent.
Performance of trust vs sector & benchmark over 3yrs
Source: FE Analytics
The trust’s exposure to domestic-facing companies has dragged on performance, but Barnett – who is head of UK equities at Invesco – believes that the negative sentiment towards sterling and domestic companies will turn once there is greater clarity over Brexit.
Perpetual Income and Growth is currently trading at a discount to NAV of 12.54 per cent, significantly wider than the 8.88 per cent three-year average. It is 16 per cent geared, has a yield of 4.5 per cent and ongoing charges of 0.7 per cent.
Schroder UK Mid Cap
The next trust on our list is Schroder UK Mid Cap, managed by FE Alpha Manager Andrew Brough along with co-manager Jean Roche.
Brough, who has been a manager on the £214.9m trust since 2003, selects stocks from the UK mid-cap space and targets a total return in excess of the FTSE Mid 250 (ex-investment companies) index.
At a discount to NAV of 12.18 per cent, it is currently trading at a narrower discount than its three-year average (16.23 per cent).
Over three years Schroder UK Mid Cap has made a total return of 31.02 per cent against a 22.48 per cent rise for the FTSE 250 (ex-investment trusts) benchmark. Its average peer in the IT UK All Companies sector has made a gain of 27.08 per cent over the same period.
“UK equities delivered a mixed performance over the period in line with global equities,” the managers wrote in March. “Many domestically focused areas outperformed amid growing hopes the UK would avoid a disorderly Brexit.”
Schroder UK Mid Cap is 4 per cent geared, has a yield of 3 per cent and ongoing charges of 0.91 per cent.
Woodford Patient Capital Trust
Last on our list is one of the investment industry’s best-known fund managers: Neil Woodford and his Woodford Patient Capital Trust.
FE Alpha Manager Woodford launched the trust in 2015, marking his return to the closed-ended space after leaving Invesco to set up his own boutique asset management firm.
Woodford Patient Capital invests in disruptive early-stage and early-growth UK companies, both listed and unlisted. The FE Alpha Manager takes stakes in businesses with outstanding intellectual property to help them fulfil their growth potential with long-term patient capital.
Despite having been one of the largest-ever trust launches, Woodford Patient Capital Trust has fallen from favour with investors having lost 14.39 per cent over three years.
Performance of trust vs sector & benchmark over 3yrs
Source: FE Analytics
It is trading at a discount to NAV of 15.29 per cent, much higher than its three-year average (6.63 per cent).
Woodford Patient Capital is 18 per cent geared and has ongoing charges of 0.17 per cent.