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The FE Alpha Managers you can pick up on a double-digit discount

05 March 2018

FE Trustnet reveals the top-rated managers whose investment trusts are trading at double-digit discounts to net asset value.

By Rob Langston,

News editor, FE Trustnet

Woodford Patient Capital, Schroder UK Mid Cap and BlackRock Latin American are among the investment trusts that are trading at a double-digit discount while being headed up by FE Alpha Managers, according to research by FE Trustnet.

Trading on the secondary market means investment trusts can sometimes trade at a discount to the underlying value of their holdings depending on sentiment towards the trust.

Investors who buy at a discount can benefit if it later narrows when the share price rises, although it can also widen further if its share fall.

Below FE Trustnet takes a closer look at the investment trusts that are headed by an FE Alpha Manager but trading at double-digit discounts to their net asset value (NAV).

 

Schroder UK Mid Cap

Trading at a discount of 14.3 per cent is the £188.6m Schroder UK Mid Cap trust, which is managed by Andrew Brough, the asset manager’s co-head of pan-European small- and mid-cap team.

Brough, who co-manages the trust alongside Jean Roche, invests in a portfolio of UK mid-cap companies with an aim of outperforming the FTSE 250 index.

Since Brough joined the Schroder UK Mid Cap trust in April 2003, it has delivered a total return of 892.23 per cent compared with a return of 603.86 per cent for the FTSE 250 (ex investment trusts) and a gain of 322.56 per cent for the average IT UK All Companies trust.

Performance of trust vs sector & benchmark under Brough

 

Source: FE Analytics

The trust performed strongly last year with a gain of 28.64 per cent compared with a rise of 18.24 per cent for the benchmark.

So far this year, Schroder UK Mid Cap id down by 4.04 per cent compared with a 5.96 per cent drop in the index. The managers noted that a sharp recovery in sterling amid more positive Brexit news had weighed heavily on the UK equity market, while stock-specific issues have negatively impacted mid-caps.

Schroder UK Mid Cap has ongoing charges of 0.93 per cent, is not geared and has a yield of 2.5 per cent.

 


 

BlackRock Latin American Investment Trust

Next on our list is the BlackRock Latin American Investment Trust, managed by Will Landers since 2006.

As the name suggests, the £238.4m trust invests in Latin American equities with Brazilian and Mexican names dominating the portfolio, representing weighting of 67.8 per cent and 23.6 per cent respectively.

Analysts at Winterflood Investment Trusts noted the manager’s experience and well-resourced team and the fact that downside discount risk is limited by a discount control mechanism.

Performance of the trust vs benchmark under Landers

 

Source: FE Analytics

Under Landers, the BlackRock Latin American Investment Trust has generated a total return of 88.36 per cent compared with a gain of 116.13 per cent for the MSCI EM Latin America index.

The trust has ongoing charges of 1.19 per cent, is 7 per cent geared and is trading at a discount to NAV of 14.7 per cent.

 

SVM UK Emerging

The SVM UK Emerging investment trust is the highest rated trust on our list with a four FE Crown rating and is managed by FE Alpha Manager Margaret Lawson with support from Colin McLean, chief investment officer at SVM Asset Management.

SVM UK Emerging invests in a portfolio of small- and medium-sized companies with a focus on scalable growth and aims to outperform the open-ended IA UK All Companies sector average.


 

Since Lawson joined the trust in October 2012 it has recorded a total return of 123.75 per cent, underperforming the IT UK Smaller Companies sector average return of 123.75 per cent but ahead of the average IA UK All Companies fund’s 66.10 per cent gain.

SVM UK Emerging has portfolio transaction costs of 0.13 per cent and other ongoing costs of 1.51 per cent, is not geared and is currently trading at a discount of 20.8 per cent, the widest of the trusts under review.

 

Woodford Patient Capital

Woodford Patient Capital Trust is the last trust on our list, which invests in a portfolio of listed and unlisted UK companies with the target of delivering a return of 10 per cent per annum over the long term.

Neil Woodford's trust has faced increasing criticism in recent months over losses since the fund launched, forcing the FE Alpha Manager to respond.

“Lots of people would claim to understand the long-term nature of the fund, and certainly would argue they are aligned with it, indeed they are not,” he told investors in January.

“The reality is that our industry is crippled with short-termism still and the media who commentate on what I’m doing are equally obsessed with the short term.”

Since launch, the £624.4m Woodford Patient Capital Trust has recorded a loss of 24.37 per cent compared with a 23.18 per cent total return for the average IT UK All Companies trust.

Performance of trust vs sector & benchmark since launch

 

Source: FE Analytics

Analysts at Winterflood Investment Trusts continue to back the veteran investor’s closed-end offering as one of its top picks for 2018.

“The fund is not a mainstream play on UK equities and performance has been very different from that of the FTSE All Share, with substantial gearing another differentiator, however, we believe that it offers attractive exposure to secular growth,” they noted.

Woodford Patient Capital is trading at a discount of 12.3 per cent, it has gearing of 21 per cent and ongoing charges of just 0.18 per cent due to not carrying a management fee. It does, however, charge a performance fee of 15 per cent outperformance of any excess returns above a 10 per cent hurdle rate.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.