Bargain Hunter: Top trust slips to 12% discount

There’s a shortage of bargains at the moment, but this trust’s discount has become unduly wide.

June 27, 2018

Two years on from the Brexit vote, one trend that continues to play out is investors’ preference for boosting their overseas exposure at the expense of their own home market.

 Uncertainty over how the Brexit negotiations will pan out has deterred many investors from investing in UK equities, and until clarity emerges sentiment is unlikely to improve. Yet despite investors’ pessimism, UK stock market indices have put in a respectable showing, while on the corporate front in the first three months of the year UK-listed companies saw their profits hit new highs.

The preference among investors for looking beyond the UK has led to discount opportunities drying up among global-focused investment trusts. According to Winterflood, the broker, the average global investment trust is trading on a discount of just 3 per cent.

The majority of global trusts are looking pricey, most notably Independent Investment Trust, which on the back of strong performance over the past couple of years has seen its premium balloon to 20 per cent. Mid Wynd International and Monks are also looking expensive, with their premiums of 5.1 per cent and 4.1 per cent both above their 12-month averages.

Discount opportunities are few and far between in the global sector, but one trust that has bargain credentials is Law Debenture, which has seen its discount widen from 7 per cent at the start of 2018 to 12 per cent today. Law Debenture – which is one of the oldest investment companies, dating back to 1889 – combines a mainstream equity portfolio with an independent fiduciary services business that provides a substantial second source of income.

The equity portfolio is managed by respected stock-picker James Henderson. Although the majority (over 70 per cent) of its holdings are currently UK-quoted, they are international in terms of where their revenues and profits arise.

Killik, the wealth manager, has labelled the current discount ‘attractive’. ‘We believe there are a number of attractions to the trust. The trust has a long record of dividend progression and the shares yield an attractive 3 per cent, which is well covered both by the revenue return and also extensive revenue reserves.’

Killik adds that the trust’s ongoing charge figure is low, at 0.43 per cent.

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