Headline discounts and premiums give a good gauge for investors on how the market is valuing an investment company, but for many it is whether a trust is cheap or expensive relative to its own history that is important.
However, finding this historic data can be easier said than done and as such in this series FE Trustnet has been looking at which trusts are on the widest or tightest discount/premium to net asset value (NAV) relative to their 20-year history.
Previously we tackled the IT UK All Companies and Smaller Companies sectors and in an upcoming article we will look at the IT UK Equity Income sector.
Trusts in the IT Global and Global Equity Income sectors have been poor, on average, over the last decade when compared to the MSCI World index, as the below shows.
Performance of sectors vs index
Source: FE Analytics
Over 10 years, the benchmark has returned 142.97 per cent while the average IT Global Equity Income trust has made a 129.75 per cent total return and the IT Global just 122.70 per cent.
This has largely been due to the underweight positions of many members to the S&P 500 and US markets in general, which has been the fastest growing global region over the period.
However, so far this year the US market has underwhelmed, returning just 3.83 per cent versus the MSCI World’s 6.72 per cent while both global sectors have made returns significantly ahead of both.
Despite the average trust underperforming over the longer term some have significantly outperformed and as such there is quite a large dispersion between trusts’ premiums/discounts relative to their history in the global sectors.
In this study we have compared the current premium or discount to a trust’s 20-year average. Where a trust does not have a long enough track record we have compared it since launch.
The trust on the largest premium relative to its history in the IT Global sector is the five crown-rated Lindsell Train IT run by FE Alpha Manager Nick Train, according to data from Kepler Trust Intelligence.
The £168m trust has been the best performer over the last 10 years, with top performances in both 2015 and 2016. The trust is the worst performer so far this year, however, having lost 7.78 per cent so far in 2017.
The trust, which was launched in 2001, is on a 25.78 per cent premium to its NAV, 18.15 percentage points above its average premium since inception of 7.63 per cent.
This is consistent with its premium in recent years, with the trust on an average premium of 23.1 per cent over the last five years.
Some have called into question the forecast returns of the consumer staples – a majority position of the trust – with many on high price-to-earnings ratios.
“It is a matter of judgement whether these prices and valuations are ‘too high;,” Train said in the latest factsheet.
“In the end, we'd say the most important thing is that our clients have partial ownership of some of the most resonant consumer brands on the planet. I have no doubt that over time they will be happy about this!”
The trust on the second widest premium relative to its history is the £5.8bn Scottish Mortgage Investment Trust run by James Anderson.
The five crown-rated fund is on a 2.12 per cent premium but has been on a 20-year average discount of 11.22 per cent. Due to its strong recent performance however, the company has traded on a narrower discount on average over the last five years of 1.5 per cent.
This was boosted more recently by its inclusion into the FTSE 100, as it is now an option for a greater number of passive strategies (such as tracker funds, ETFs and quasi-trackers).
It has been active in issuing shares over the past 12 months to keep the trust’s shares trading close to NAV, issuing more than 30m worth of shares in 2017 alone.
List of IT Global trusts’ discount/premium vs their history
Source: Kepler Trust Intelligence
At the other end of the spectrum is the £206m Hansa Trust, which has been the worst performing trust in the sector over three, five and 10 years.
In 2014 the trust went through a shake-up in an attempt to improve performance, with a focus on investing in third-party funds rather than direct securities.
It also split its investment criteria into four key areas: strategic, global equities, eclectic & diversifying assets and core regional funds.
The fund has been run by Alec Letchfield since 2014, who was managing the fund alongside John Alexander until the latter stepped back in March this year.
The trust, which has been on an average discount of 13.92 per cent over the last 20 years, is on a discount of 27.1 per cent. This is just 96 basis points wider than its five-year average however.
Moving to the IT Global Equity Income sector, very few funds look particularly cheap relative to their longer-term history.
Indeed, the trust on the narrowest premium relative to its history is the four crown-rated Henderson International Income.
The trust, has been run by Ben Lofthouse since its launch in 2011 and is on a premium of 0.03 per cent. Since inception it has been on an average premium of 1.97 per cent.
At the other end of the spectrum, the £480m Scottish American Investment Company, which has historically sat on a double-digit discount over the last 20 years.
The trust has been on a strong run in recent years, ahead of the sector average in each of the last three years (including 2017 so far) and was the best performing fund in 2015.
It has moved therefore to a premium of 4.89 per cent, 15.07 percentage points ahead of its 20-year average and 6.92 percentage points ahead of its five-year average.
Analysts at Kepler Trust Intelligence noted: “The trust has a solid retail following, and so whilst it has occasionally traded at a small discount, it has usually come back to a premium quite quickly. We would view any discount opening up as an opportunity.”
List of IT Global Equity Income trusts’ discount/premium vs their history
Source: Kepler Trust Intelligence
Another interesting trust is the Blue Planet Investment Trust, which from a headline yield perspective looks particularly attractive compared to the rest of the sector.
However, while the £22m trust is on a 21.04 per cent discount, it has averaged a 22.33 per cent discount since its launch in 1999, meaning it is actually on a narrower discount relative to its history.
This is also 3.39 percentage points narrower than its five-year average of 24.9 per cent.