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Questor: a quick, low-risk way to make a double-digit return on a slice of your Isa or Sipp
Questor investment trust bargain: Dunedin Enterprise is selling its assets and returning the proceeds at net asset value – so the current discount seems ‘bizarre’
Occasionally investment trust discounts can simply be bizarre.
So says one professional investor in the case of Dunedin Enterprise, whose current discount of 11.5pc may not seem extreme until one realises that it is in the process of winding itself up by selling its assets and returning the money to shareholders – at par value.
Better still, it may get higher prices for its assets than its current stated net asset value (NAV) suggests, which would make for even bigger returns for shareholders.
Dunedin Enterprise invests in private equity assets – unquoted businesses – either through funds run by the trust’s own management group, also called Dunedin, or directly.
As a result, liquidating the portfolio is not just a matter of making a call to the trust’s stockbroker: in some cases the best price will be obtained by waiting for a holding to float or to mature in some other way.
We must also admit that the value of private equity investments is often a matter for negotiation between buyer and seller and we cannot be sure how much the trust will receive for them in the end.
But Nick Greenwood, in whose Miton Global Opportunities investment trust Dunedin Enterprise is a top-10 holding, has estimated that the amount eventually realised could be as much as 500p a share. If so, the current share price of 365p represents a discount of 27pc.
“Given that the proceeds of the trust’s realisations will paid out to shareholders at par value, and that some of its assets are excellent businesses, the current discount appears bizarre,” Greenwood said.
He explained how the current situation had come about: “A commitment some years ago to hand back a proportion of the proceeds of any realisations sentenced Dunedin Enterprise to death by a thousand cuts. Steady shrinkage made the trust unviable and in May 2016 shareholders voted to move into orderly realisation.
“Despite the commitment that cash would be steadily returned, the shares continued to trade on a wide discount. This allowed us to build a material position.”
He added that the trust’s manager had made a number of successful exits from investments that had triggered useful uplifts in the portfolio’s NAV. “These allowed the board to make initial distributions to shareholders of 200p a share during the past year or so,” Greenwood said. “Within the portfolio there remain a number of successful investments awaiting disposal that have the potential to boost future returns closer to 500p a share.”
Two directors have bought shares this month; one, Brian Finlayson, spent £76,736 to buy 22,000 shares at 348.8p.
This feels like a low-risk way to make a fairly quick double-digit return on a slice of your Isa or pension.
Questor says: buy
Ticker: DNE
Share price at close: 365p
Update: India Capital Growth
We tipped this trust in March 2017, also on the strength of its place in Nick Greenwood’s Miton Global Opportunities fund. It remains one of his largest holdings.
“India Capital Growth is a classic example of when a discount reflects the historic track record of the trust rather than that of the current managers,” Greenwood said.
“We remain positive about India’s medium to long-term prospects. It has a more developed equity culture than most emerging markets. This allows genuine stock-picking funds such as India Capital Growth to prosper. The benefits of a market-friendly government focused on removing inefficiencies are feeding through into company profits, a trend that will run for years rather than months.”
Questor says: hold
Ticker: IGC
Share price at close: 80.1p
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Investment trust news
Troy Income & Growth, tipped here in November 2017, has negotiated a cut in its management fee. It now pays its manager 0.65pc of net assets; previously it paid 0.75pc up to £175m and 0.65pc thereafter. Current net assets are £215m.
Andrew Rose is to retire from the Schroder Japan Growth Fund.
Witan Pacific is to offer a full cash exit to investors at close to NAV if the fund’s NAV total return does not exceed its benchmark from Jan 31 2019 to Jan 31 2021.
- Questor archive: telegraph.co.uk/questor