Black Friday: three investment trust bargains not to be missed

Ahead of Black Friday (on 23 November), we pick out three investment trusts that can be snapped up on the cheap.

On Black Friday (23 November) billions of pounds will be spent by UK householders taking advantage of the cut-price deals being offered by retailers. 

But as far as investors are concerned, the opportunity to bag a bargain is a year-round event, particularly for those who are investment trust fans.

For the sake of simplicity, rather than using technical measures such as the "Z score", our investment trust bargain hunter column identifies bargains by comparing current discounts with longer-term averages.

We also look at the overall sector and the quality of the trust, and then take a view on whether the discount looks like a good opportunity.

Below, with help from Adrian Lowcock, head of personal investing at Willis Owen, we run through three investment trusts that currently offer a good potential entry point for investors.

F&C UK Real Estate Investments

The prospect of the UK government walking away from the European Union negotiation table without a deal has dented investor sentiment for property.

The current apathy towards property was last month brought to light by research from property investment company IP Global, which found that seven in 10 UK investors have no plans to invest in the asset class over the next 12 months

But, for those contrarian-minded investors who believe the bad news is now in the price, this could be a good time to take a look at property-focused investment trusts, as discounts have widened across the sector.

F&C UK Real Estate Investments has seen its discount move the most. The discount currently stands at 17.4%, much higher than its one-year average discount figure of 5.4%. On a three-year view, the discount has typically traded around par. 

“The discount move is significant when you consider that its three-year average discount figure is 0.91%,” says Lowcock.

He adds: “Unlike unit trusts, this closed-ended fund is unlikely to be forced seller of any properties, so patient investors can tough out the volatile journey while new investors willing to take a risk could access the trust at a large discount and an attractive yield of 5.67%.”

Tritax Big Box

This investment trust, which specialises in the big warehouses needed by online companies to fulfil their orders, has traded at a premium for several years. This is not much of a surprise, given the steady, inflation-linked income that is on offer.

The recent October sell-off, though, has led to a rare situation where the trust now trades at a discount of 4.39% to its net asset value. This compares to an average premium of 7.78% over the past three years.

Another plus point is a dividend yield of 4.65%, which is well covered. 

Lowcock points out the trust benefits from long leases and lease renewal as the companies leasing them need consistent and reliable locations to meet their needs. 

He adds: “Investors looking to diversify their income stream are likely to continue to find this sort of investment attractive. It’s awkward and expensive for tenants to switch sites. This plays into Tritax’s hands when rent negotiation time comes around. Upwards-only rent reviews are a regular feature of agreements.”  

Woodford Patient Capital

Woodford Patient Capital launched to plenty of fanfare in April 2015, but has so far disappointed. It focuses purely on disruptive early stage and early growth companies (mainly in the UK) that star fund manager Neil Woodford believes have strong growth potential over the longer term.

As with the open-ended LF Woodford Equity Income fund, the trust’s performance has been severely hit by setbacks involving Northwest Biotherapeutics and Prothena, among others, combined with relatively poor sentiment towards UK smaller companies because of Brexit uncertainty. Those who invested on day one (to 19 November) have been left nursing paper losses of 12.4%.

Shortly after lunch, in the midst of all the excitement, Woodford Patient Capital soared to a premium of 15%, but today is trading on a discount of 11.6%, which is slightly higher than its one-year discount average figure of 10.6%. 

Thus, given the poor start and wide discount, investors sizing up the trust today have the opportunity to benefit twice: from an improved net asset value and a narrowing of the discount. This, of course, hinges on performance improving. According to Lowcock, although these are early days, there are signs that performance is started to pick up.

He adds: “As things stand, the trust is one of the most unloved in the market today. This is a reflection of the past performance – but investors should remember that investing in unlisted equities is risky, with the bad news nearly always coming at the start of the journey.  

“However, things are starting to turn around and the net asset value of the trust is starting to grow as those patient investments are starting to deliver some positive news. However, investors are still sceptical and, as a result, the discount to the net asset value has widened.

“If Woodford’s approach is proved right, there is a fair bit of upside potential in terms of Woodford Patient Capital Trust’s net asset value, and should performance continue to improve, the discount could well come in. Given the make-up of this trust, it is only for those who are long-term investors and willing to take the risks of investing in early stage businesses.”

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two not to be missed...

two not to be missed...

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