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Questor: we’ve had panic selling – now it’s time for some calm and careful buying
Questor investment trust bargains: we may seem spoilt for choice after trusts’ share prices slumped but not every one has become a bargain
We continue our search today for investment trusts that have been excessively punished in the often indiscriminate selling that the coronavirus crisis has brought about – and we believe we have found two.
They come courtesy of John Husselbee, a fund manager at Liontrust, and the fact that he suggested just two trusts from among the very large number whose share price has fallen steeply hints at his belief that, even if sellers have been indiscriminate, buyers should not be.
“In these markets it may appear that you are spoilt for choice but you don’t want to rush in,” he said. “Before you actually buy anything you have the time to decide if the things that look cheap really are cheap.”
Two that make the grade in his view are Schroder UK Mid Cap and BlackRock Throgmorton – “two examples of funds with experienced managers undergoing both a decline in share price and wider discounts at the moment”.
Schroder UK Mid Cap first. Mr Husselbee said one of the trust’s attractions was “the management team of the highly experienced Andy Brough and Jean Roche, his deputy since 2016, with the backing of Schroders’ investment resource”.
He added: “This fund is for those who believe in the long-term outperformance of UK mid-cap stocks, the so-called ‘Footsie stocks of the future’. This is a stock-picking fund, managed by blending a core number of long-term growth holdings with shorter-term and more opportunistic cyclical trades.”
He said the trust had historically generated outperformance over the long term, although “it relies on positive sentiment towards the British economy”. That may be in short supply for now at least, something reflected in the fall in the trust’s share price since the pandemic took hold.
“The indiscriminate selling that followed the evidence of the global spread of Covid-19 and the spat between Opec and Russia has hit the fund’s net asset value,” Mr Husselbee said. Once the virus crisis is over, however, a return of more positive sentiment about the economy could see the shares respond strongly.
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Now for BlackRock Throgmorton. This fund also invests in medium-sized British firms, along with smaller ones. It looks for “quality” growth stocks. More unusually, it uses “derivative” financial instruments called contracts for difference both as a means to borrow or “gear” the trust and as a way to “short-sell” stocks that it believes to be overpriced.
“This allows the manager greater flexibility than others over its market exposure, giving him the ability to generate outperformance in both rising and falling markets,” Mr Husselbee said. The manager is Dan Whitestone, who previously ran only the derivatives part of the trust before its structure was simplified and it was brought under his sole control two years ago.
As we mentioned a few weeks ago in connection with Merchants, a geared trust is a good way to get exposure to the stock market at present if you think we are close to the bottom. This is because the money the trust has borrowed will amplify any gains for shareholders.
Questor says: buy
Tickers: SCP, THRG
Share prices at close: 440p, 490p
Investment trust news
City of London, a long-standing Questor pick, has reassured investors about its dividend.
Last week, its chairman said: “A number of companies in which we are invested have cancelled their dividends. Over the last 10 years, we have set aside over £30m into revenue reserves to underpin future dividends in circumstances such as we face now.
“Those reserves stood at £58.3m at June 30 2019. If in July we need to draw on those reserves to maintain our unique record of annual dividend growth, then it is our intention to do so.”
Perpetual Income & Growth has sacked Invesco’s Mark Barnett as its manager and has begun a search for a replacement.
Keystone, tipped here in September 2018, split its shares in February on a five-for-one basis.
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