Bargain Hunter: Strong performer since launch, but on a double-digit discount

This investment trust is approaching its third birthday and has been a strong performer, but is sitting on a 12% discount.

Funds and Investment Trusts September 16, 2019 by Kyle Caldwell

A specialist investment trust with an attractive yield and strong performance since launch nearly three years ago is available on a discount of 12.3%.

Since launch, on 26 September 2016, Ecofin Global Utilities and Infrastructure Trust (EGL) has typically traded on a discount ranging from 10% to 15%. The trust focuses solely on listed utilities and infrastructure investments, paying a quarterly dividend. The current yield is 4.3% and performance has impressed.

According to Matthew Read, a senior research analyst at QuotedData, the discount is “something of a conundrum.” He says: "When trusts perform well from launch, they tend to trade at premiums. This is particularly true, in the current low interest rate environment, if there’s a nice yield thrown into the bargain.  

“From its launch to the end of August 2019, EGL has provided cumulative total returns of 39.9% and 53.3% for its net asset value (NAV) and share price respectively. These are ahead of what was available from global utilities as a whole, which was 36% for the MSCI World Utilities index.”  

Despite solid performance and reliable income, EGL’s discount has remained stubbornly wide. Read pinpoints three reasons why this may be the case; one simply being that infrastructure investments are not particularly fashionable at the moment. This has not been helped by a couple of high-profile failures in the sector, which EGL has managed to avoid.

Read adds that another reason why the trust’s bargain credentials may be overlooked is the fact of “markets appearing to be very macro-driven at present, with investors frequently overlooking the micro”.

Third, Read says the political risk of the prospect of a Jeremy Corbyn-led Labour government may also be negatively impacting sentiment for the assets the trust invests in.

Read believes the negative sentiment is overstated, however. He adds: “There is much to suggest that the global economy is late cycle and EGL’s portfolio may come into its own if the cycle rolls over and investors are once again seeking investments with defensive characteristics.”

Read is not the only commentator who views EGL as a potential bargain opportunity. Vincent Roper, co-manager of the TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income funds, holds EGL in both of his funds.

Investment trusts that hold alternative assets provide a good source of diversification. In many cases, they satisfy investor demand for income, while having relatively little correlation to equity and bond markets. 

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An OCF of 2.01% probably doesn't help.

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