UK Edition
Questor: three conservative trusts whose share prices have fallen in the market sell-off
Yesterday Questor looked for stocks that appeared to have been unjustifiably punished in this week’s stock market sell-off and had therefore become available at bargain prices. Today we’ll do the same for investment trusts.
When we tipped Aberforth Smaller Companies Trust last month we said it looked well placed to cope with a downturn, thanks to its approach of “pure, unadulterated value investing”. That remains the case – for one thing, its holdings are valued much more cheaply than the market as a whole, suggesting that they should have less far to fall if the correction continues – but the shares have still slipped by 6.4pc since our tip.
The discount stood then at 13.9pc and has actually narrowed slightly to 13pc, according to Morningstar, the investment analyst, which shows that the share price fall is down to declines in its underlying holdings.
Peter Walls, who holds the fund in his Unicorn Mastertrust, said: “This portfolio is not going to go disastrously wrong. In a stressed market it is likely to perform better than other types of fund.” Buy.
Another conservatively managed trust is Troy Income & Growth, which we described in November last year as “the trust to buy if you are worried that markets have become complacent”.
One of the attributes we highlighted was the trust’s mechanism to limit its discount (or premium). This can be reassuring to existing investors in times of market dislocation because they can be reasonably sure that the discount will not widen significantly, which could undermine solid performance from the portfolio itself.
We tipped the trust at 79.6p and a discount of 0.3pc; last night its shares closed 5.8pc lower at 75p and at an almost unchanged discount of 0.5pc. Buy.
Caledonia takes a different approach to protecting investors’ capital. The trust, which was established to manage the money of the Cayzer family, who remain represented on the board, believes in diversification and therefore divides its holdings into four “pools”: quoted assets, income investments (which include some quoted stocks), unquoted assets and funds.
Our tip quoted the view of Winterflood, the trust’s house broker: “We have sometimes described Caledonia Investments as a ‘bottom drawer’ investment – one to hold and not worry about over the short term. We retain this view.”
Caledonia also belongs to the small club of investment trusts that have increased their dividend every year for five decades.
In light of its conservatism and dividend record, it seemed surprising to us that the trust was trading at a discount of 18.1pc at the time of our tip, which was published when the share price was £28.81. The discount has now widened slightly to 19pc and the shares have fallen by 6.5pc to £26.95. Buy.
Update: Macau Property Opportunities
The Macau Property Opportunities trust, tipped here last month, has conditionally agreed to sell one of its properties for about $102m (£73m), a premium of about 14pc to the property’s valuation of $90m at the end of last year.
Nick Greenwood, who owns the £147m trust in his Miton Worldwide Opportunities fund, described the deal as “very good news”. The trust’s shares have gained 3.8pc since we tipped them last month. Shareholders will be asked to approve the transaction.
Investment trust news
Philip Rodrigs, the highly regarded manager of River & Mercantile UK Micro Cap trust, has been replaced by George Ensor “following an investigation into a professional conduct issue”. Templeton Emerging Markets investment trust has appointed Chetan Sehgal as lead manager, replacing Carlos Hardenberg.
Bill Ackman, manager of Pershing Square, has restructured the trust’s management company to allow him to devote more time to investment. The Investment Company is changing its investment manager from Miton Asset Management to Fiske. AEW UK Long Lease Reit aims to raise up to £35m in an issue of new shares in order to grow its portfolio.