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Questor: the 28pc fall in this trust’s share price is not all that it seems, so hold on
Questor investment trust bargain: Symphony International is certainly risky but special dividends and the huge discount offer hope for investors
Our suggestion in June 2017 that readers buy Symphony International, the Asia-focused trust, has not so far borne fruit: the shares, denominated in dollars, have since lost 29pc of their value.
Our rationale that the managers had a strong incentive to narrow the discount, then 32pc, quickly – their possession of “options” that would pay out handsomely if the share price rose but would expire in August 2018 – came to nothing.
Where does that leave shareholders now?
Symphony is not an easy trust to research: its managers are based in Singapore and have not so far responded to Questor’s attempts to make contact. We also could not find any recent research from stockbroking firms.
However, one seasoned observer of the investment trust landscape who does take an interest in Symphony is Andrew McHattie, a researcher and former fund manager who runs Investment Trust Newsletter.
Mr McHattie said the poor performance of the shares “masks the true return to shareholders” because the trust had paid some big special dividends. These payments added up to 25.5 cents in 2017 and 2018 and the company paid 3.5 cents at the end of May this year.
“This is the ongoing policy, to reward shareholders from the gains made from partial exits [from its holdings] and distributions from its investments,” he said.
The portfolio has 60pc in quoted stocks; the remainder are unlisted. The former are dominated by Minor International, a hotels and food group. At the end of March, Minor accounted for just over half of the trust’s assets and its share price has risen since then, while the 27pc rise in its shares so far this year far outstrips the 2.5pc gain in Symphony’s own share price.
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Mr McHattie said: “In March the net asset value was $1.05 per share [unchanged in April], and we think it may have risen since, based on Minor’s share price. But even at the March figure the discount is now 42.4pc [now 45pc], which seems very wide to us.
“The gap between the performance of Minor and Symphony suggests there may be a buying opportunity here for the brave, although we recognise the relatively high risks.” Those risks include the high exposure to Minor and to foreign currencies. In light of the balance between risks and potential rewards, our rating is hold.
Questor says: hold
Ticker: SIHL
Share price at close: $0.58
Update: Polar Capital Technology
When we tipped this technology trust in November last year we pointed out that the shares had fallen by 18pc from their peak just a couple of months previously and that there was consequently a buying opportunity.
So events proved and the shares have in recent days surpassed for the first time their earlier peak. Thanks to the asymmetrical way percentage gains and losses work, we have made a profit of 23pc since our tip. The intriguing thing is what has happened to the trust’s discount.
At the time of last year’s article it stood at what we called an “uncharacteristically wide” 6pc but it has actually grown slightly to 7.3pc. This is despite the recovery in the trust’s shares and in sentiment towards the stock market, and tech companies in particular, in the intervening months.
Analysts at Numis, the stockbroker, said the portfolio had benefited from its “significant exposure” to “software-as-a-service” companies such as Twilio, also tipped by Questor in November last year.
Investec, meanwhile, cited the finding of Inalytics, a research house, that key drivers of the trust’s performance included “the ability to run winners, and, more unusually for the fund management industry, to sell stocks before they subsequently underperform”.
The broker also pointed out that the trust’s annualised total returns over the past 10 years had beaten its benchmark index by 3.3 percentage points.
The trust has become cheaper since we tipped it, thanks to changes to the tiered structure for the basic fee and a cut in the performance fee. Brooks Macdonald, the wealth manager whose holding in the trust prompted our original tip, retains its stake.
This is a large, liquid, well managed trust and the persistence of the discount means that the buying opportunity remains.
Questor says: buy
Ticker: PCT
Share price at close: £13.96
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