Questor: seven trusts that have been unduly punished – buy on the market’s bad days

Questor investment trust bargains: certain listed funds in property and healthcare look like bargains after spectacular share price falls

Richard Evans 26 March 2020 • 6:00am

Alton Towers Wicker Man rollercoaster — Secure Income Reit’s tenants include Merlin Entertainments, owner of the Alton Towers theme park Credit: Kyle Lambert/PA

One problem with writing share tips at present, when the market is routinely moving by 5pc or even 10pc in a day, is that our advice can quickly become out of date.

So for most of today’s recommendations – all of them investment trusts that we think have fallen too far – we will qualify our advice by saying they are ones to buy “on the market’s bad days”, of which we fear we have not seen the last.

We have looked down our list of tips for any trusts that seem to have been punished excessively in the coronavirus sell-off. Two themes stand out.

Property trusts have felt the effects of the suspension of many of their “open-ended” counterparts. Across the market as a whole, many investors want to reduce exposure to property – and, because shares in trusts can still be sold, they are suffering from a disproportionate amount of selling and their prices have been pushed down.

Of course we don’t yet know the effects of the virus crisis on the viability of the tenants that ultimately provide property trusts’ income, or the extent of any “rental holidays” or similar concessions that may have to be granted to tenants. But some trusts look better placed in this respect than others.

Secure Income Reit’s tenants include private hospitals, the Travelodge hotels business and Merlin Entertainments, the theme park owner. The latter two are obviously under pressure at present but we suspect that the market is pricing in too much damage to future rents, as the shares are about 38pc below their pre-coronavirus levels.

But they have been as much as 59pc below and readers may want to watch for any return to such lows for a chance to buy.

Online delivery is one of the beneficiaries of the virus crisis but shares in Urban Logistics Reit, whose tenants operate in this sector, have still been punished by a 29pc fall from February’s levels.

Strangely, whereas Secure Income has rallied dramatically in recent days as markets have responded to America’s massive stimulus programme, Urban Logistics has barely moved. If you can still buy close to last night’s closing price of 105p we suggest that you do so.

Triple Point Social Housing Reit has in our view one of the securest income streams around: its tenants are housing associations that cater to people with special needs and the rents are ultimately backed by the Government.

Its shares have been as much as 32pc below pre-crisis levels but have bounced very strongly over the past week or so, no doubt as investors recognised the opportunity. Even after their recovery they yield 5.8pc at a time when interest rates are practically zero. Any renewed fall is a buying opportunity.

Another route into property is Real Estate Credit Investments, which lends to property firms. Its managers are highly astute and control risk tightly; property owners bear losses long before this trust. But the shares are 32pc below pre-crisis levels. Buy.

Heathcare is another promising sector. After this pandemic we can expect spending on research and medical care to increase even faster than was already likely thanks to ageing populations.

Two of our previous picks, Worldwide Healthcare and Syncona, are run by experts in the field and should prosper in the long term. Worldwide Healthcare’s shares have lost 16pc since mid-February and are back at levels first seen in July 2018. They recovered strongly yesterday, however.

It’s a similar story for Syncona, which is 27pc lower over the same period, although the shares did climb very rapidly in early February. Both trusts are a buy at or below current levels.

BioPharma Credit takes a different approach to investing in healthcare: it lends to companies in the sector. Its managers are highly capable and have an excellent record but the shares, denominated in dollars, have lost 12pc since the middle of last month. The trust would complement Worldwide Healthcare and Syncona nicely. Buy