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Major Price Changes Over One Month
December in brief
| The Biotech Growth Trust | +18.39% |
| Oryx International Growth | +15.79% |
| Worldwide Healthcare | +15.41% |
| JPMorgan Smaller Companies | +15.21% |
| SQN Asset Finance Income | +14.75% |
| Montanaro UK Smaller Companies xxxxx | +12.61% |
| Aberdeen Smaller Companies | +12.30% |
| Edinburgh Worldwide | +12.10% |
| UK Mortgages | +11.83% |
| Standard Life UK Smaller | +11.38% |
| x | x |
| JZ Capital Partners | -25.89% |
| Woodford Patient Capital Trust | -19.53% |
| Hadrian’s Wall | -13.71% |
| Marwyn Value Investors | -10.70% |
| Fair Oaks Income | -10.50% |
Major Price Changes Over One Year
| JPMorgan Russian Securities | +49.55% |
| UIL Limited | +45.86% |
| BlackRock Throgmorton Trust xxx | +38.68% |
| Apax Global Alpha | +37.99% |
| Alpha Real Trust | +37.81% |
| Gresham House Strategic | +37.71% |
| HgCapital Trust | +36.48% |
| JPMorgan Chinese | +35.86% |
| Green REIT | +35.66% |
| Menhaden | +35.24% |
| x | x |
| Woodford Patient Capital Trust | -66.30% |
| Riverstone Energy | -61.61% |
| CATCo Reinsurance Opportunities | -39.82% |
| Hadrian’s Wall | -34.72% |
| Macau Property Opportunities | -33.80% |
£25m market capitalisation filter applied. Source: Morningstar.
There are two sectors that provided most of the winners in November. Starting with healthcare and the large gains for The Biotech Growth Trust (BIOG, 825p) and Worldwide Healthcare (WWH, 2990p), the Nasdaq Biotechnology Index has jumped by 10.6% in the US, seemingly on a mix of good results, M&A activity, trial results, and favourable thoughts on regulation.
UK smaller companies trusts have also been making good headway, with JPMorgan Smaller Companies (JMI, 260.5p) gaining more than 15% over the month, and BlackRock Throgmorton (THRG, 648p) breaking into the top performers over the last year, up by 38% over twelve months. We think pre-election optimism has been the main driver here, a hope that a clear Conservative victory might clear the political logjam and pave the way for domestic firms to get back to business with greater certainty.
On the way down, both JZ Capital Partners (JZCP, 352p) and Woodford Patient Capital Trust (WPCT, 29.2p) have written down the value of holdings; and Hadrian’s Wall Secured Investments (HWSL, 59.5p) is the latest debt provider to run into problems and be severely punished by the market. High-yielding alternative asset trusts such as this one offered investors the prospect of relatively safe and unexciting income returns that were meant to be solid and reliable.
ADVFN Fund of the Month
Content provided by Investment Trust Newsletter
GCP ASSET-BACKED INVESTMENTS (GABI, 108.75p)
We tuned in to an update from David Conlon, the manager of GABI, which has been a very solid trust since its launch in October 2015 and still looks attractive with a yield of 5.9%.
Managed by Gravis Capital Partners, this trust aims to generate attractive risk-adjusted returns through regular, growing distributions and modest capital appreciation over the long- term by investing in a diversified portfolio of investments that are secured against or comprise assets which will generate a predictable medium to long-term income flow. What that means is that the trust lends money, secured against property and other assets, generating cashflows that are largely paid out as dividends. It has been successful in its first four years, and David says the trust has “exceeded every target we have set.” That includes the well-covered dividend, intended to be 6.2p per share this year, but coming in at 6.45p with a special dividend that was announced in October.
JPMORGAN EUROPEAN INVESTMENT TRUST (JETI, 157.25p; JETG, 292p)
This is actually a pair of two separate portfolios, the income class and the growth class, that are managed independently by the same team, with different objectives. They are linked, with a special switching opportunity once a year, but this seems little- used and forms a structure that we think is looking outdated.
Perhaps it is best to start with that odd structure. The idea was that investors could make tactical switches between the share classes, depending on their outlook, without incurring a capital gains tax liability, and it used to be on offer twice a year. Now it is once a year – in March – and does not attract huge interest. This year there were elections by 1.2% of the income shares and just 0.45% of the growth shares. If you are of the mindset that you want to manage your investments actively, then once a year is not enough in this information-rich world; and in any event the majority of retail investors are using some sort of tax-efficient wrapper now to minimise the tax implications. Trading costs have fallen too, so for various reasons we think this costly mechanism may be past its sell-by date. The additional complexity may actually be off-putting for investors who might otherwise be attracted to the broad diversification on offer.
HENDERSON INTERNATIONAL INCOME TRUST PLC (HINT, 171.25p)
As a core savings product from one of the largest management groups in the sector, and one that has picked up assets from other trusts in the past, we imagine HINT will have found a home in many portfolios. Three years since our last write-up, when the shares were 145.625p, manager Ben Lofthouse gave us a first-hand update.
Often used alongside UK equity income trusts, HINT aims for a growing annual dividend plus capital appreciation from a portfolio of international stocks, as the name suggests. It has done this pretty effectively since launch in 2011, but its performance has tailed off significantly over the last year, which might be posing some question marks for holders.
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Downing Strategic Micro-Cap (LSE:DSM)
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Market round up
The latest market update from Civitas Social Housing (CSH, 87.65p) may have served to reassure investors to some degree that nothing is too fundamentally broken with its business model. CSH in particular has fallen to an 18.3% discount to its net asset value, which was 107.23p at the end of September, but it has been buying back shares at a discount and is acutely aware of the disquiet this period has brought. The trust says its discount “emerged following the publication by the Regulator of Social Housing (RSH) of a risk update in April 2019 that raised a number of concerns over lease-based Housing Associations, many of which have now been resolved.
There have been two items of news from Hipgnosis Songs Fund (SONG, 108.5p), which has ticked up a penny over the month. First of all, the shares have moved from the Specialist Fund Segment of the London market to the Premium Segment. This carries a more onerous set of rules, but SONG was already voluntarily compliant with those, so the main difference is that it will become eligible for inclusion in the FTSE UK indices, which could win it a few more fans (it is likely to join the FTSE 250 Index and the FTSE All-Share). Separately, the trust released a new NAV following a semi-annual valuation of its portfolio, up by 5% to 108.5p per share.
Interim results from Scottish Mortgage Trust (SMT, 533p), released on 8th November, proved that even the best and most highly-regarded trusts have spells of underperformance. In the six months to the end of September the trust’s NAV rose only 3.2% against 9.9% for the FTSE All-World Index, but of course the proper context here is that over ten years the assets are up by 415.1% against the index up 204.4%.
Broker buzz
Stifel rate Tritax Big Box REIT (BBOX, 149.5p) a sell with a target price of 125p. The broker says that with significantly reduced investment but rising speculative supply (particularly for larger boxes), Tritax’s operating environment would seem to offer little in the way of capital growth in the medium term.
On 6th November, JPMorgan Cazenove downgraded BlackRock Smaller Companies (BRSC, 1585p) from overweight to neutral on valuation grounds. The broker said the trust has seen a steady re-rating since late 2016, when its discount was closer to 20%.
Edinburgh Dragon Trust has changed its name to Asia Dragon Trust* (DGN, 401.75p), and Winterflood issued a research note on the trust on 20th November. The investment team invests on the basis of fundamental research, with a bottom up approach. The emphasis is on high quality companies, with strong balance sheets, that are cash generative.
Liberum commented on BMO Private Equity Trust (BPET, 366p) after its third quarter NAV showed a 1.7% rise, taking the return from the first three-quarters of the year to 4.1%. Realisations in the last quarter were £6.4m, while total drawdowns and co-investments amounted to £11.2m, including a follow-on investment in oil services company Ashtead Technology.
Liberum say ’the manager remains confident in the trading performance of the portfolio but we believe the shares are fully valued at the current 6.3% discount in comparison to the peer group average of -17.4%.’
* asterisks in this section indicate the trust is a client of the stockbroking firm providing the research
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Andrew McHattie of Investment Trust Newsletter – Click Here to get further insight
These are truncated extracts from the original newsletter, and you should read the complete text to obtain his full opinions and advice.
Warning: The value of all shares and the income from them can fall as well as rise. You should not buy securities with money you cannot afford to lose, or rely on dividend income for non-discretionary living expenses. Investment trusts may use or propose to use the borrowing of money to increase holdings of investments or invest in other securities with a similar strategy and as a result movements in the price of the securities may be more volatile than the movements in the price of underlying investments. Your investment may be subject to sudden and large falls in value and you may get back nothing at all.
Investment trust share prices can also fall in response to changes in discount or premium ratings that are separate from changes in the asset value. You run an extra risk of losing money when you buy shares in certain smaller investment trusts which have the characteristics of ‘penny shares.’ There is a big difference between the buying price and the selling price of these shares. If you have to sell them immediately, you may get back much less than you paid for them. The price may change quickly, it may go down as well as up, and you may not get back the full amount invested. For many investment trusts, especially those denominated in another currency, changes in rates of exchange may have an adverse effect on the value or price of your investments in sterling terms.
As with other investments, transactions in investment trust securities may also have tax consequences and on these you should consult your tax adviser. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material respects. Figures for net asset values and historical track records supplied by Morningstar, the AIC, JPMorgan Cazenove, or by the trusts themselves. Investors should seek appropriate professional advice if any points are unclear. This newsletter is intended to give general advice only, and the investments mentioned are not necessarily suitable for any individual. It is possible that the officers of the McHattie Group may have a beneficial holding in any of the shares or warrants mentioned in this newsletter.
Andrew McHattie, the editor of Investment Trust Newsletter, is responsible for the preparation of the research recommendations contained within. Originally published by The McHattie Group, St Brandon’s House, 29 Great George Street, Bristol, BS1 5QT. Tel: 0117 407 0225. E-Mail: enquiries@mchattie.co.uk. Web Site: http://www.tipsheets.co.uk
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photographic, or otherwise without the prior permission of the copyright holder. ©2019. The McHattie Group offers restricted advice on certain types of investment only. Authorised and regulated by the Financial Conduct Authority.
