Investment trust bargain hunter: a solid long-term performer, but only suitable for those with a good appetite for risk.
While the consensus call from analysts is that UK investors do not need to look too far to find value, plenty of opportunities to pick up an investment trust bargain also remain overseas.
The emerging markets sector is a case in point, with some eye-catching trust discounts following a spell of underperformance for the region. Two key background risks – a strong dollar and the US/China trade war – have for over a year now been dampening investor sentiment.
Whether these risks will recede and prompt a flood of money back into the region in 2019 is anyone’s guess, but from a valuation standpoint emerging market shares have become cheaper than long-run historical averages; and their attractions, in the shape of young and vibrant economies, still hold true.
The BlackRock Frontiers investment trust (BRFI) has for several years been one of Money Observer’s favourite routes for adventurous investors to play these trends. While not for the faint-hearted, due to its focus on companies located in countries such as Thailand, Indonesia and Vietnam, the trust is popular among private investors, which is why it tends to trade on a small premium.
But, as things stand today (18 March), BRFI has slipped to a 2.7% discount, which gives investors the chance to buy assets that are already cheap at an even cheaper price. This has prompted Killik, the wealth manager, to place a ‘buy’ recommendation on the trust.
It says: "BlackRock Frontiers has rarely traded on a discount over the last three years. Therefore, on this basis, and with the shares also offering a 4.4% historic yield, the current rating looks a potentially attractive entry point into the strategy. We believe the well-resourced BlackRock team and the fixed capital structure of a listed fund provide an attractive opportunity to gain access to these fast-growing regions of the world.”
Sam Vecht and Emily Fletcher co-manage the trust and are well-respected. Since launch (December 2010), BRFI has beaten the MSI Frontiers Market index in five out of eight full calendar years, notes broker Winterflood. The trust’s share price declined 12.5% last year, but on a five year view is up 49%, which highlights the importance of having a long-term view with this sort of investment.
In an interview with Money Observer last year, Vecht explained that most people investing in emerging markets are actually buying just eight countries, whereas he focuses on the ‘forgotten 40’. He adds that unlike “everyone’s eight”, the correlations between them are very low. “When Nigeria goes up, Bangladesh might go down [or it might not], and this lack of correlation is really, really important for us,” he says.