Each week, a professional investor tells us where he’d put his money. This week: Nick Greenwood of Miton Global Opportunities selects three investment trusts trading at a discount.
The general malaise affecting emerging markets has created fantastic opportunities for investors to buy investment trusts that have fallen in price as a result of deteriorating sentiment among investors. India Capital Growth Fund (LSE: IGC), an India-focused trust that specialises in medium-sized companies, is one such opportunity. Investors often trade emerging markets as a block, failing to differentiate between the fundamentals within individual markets.
As a result, the trust has fallen, even though India is at an exciting point in its development. For historical reasons, India has a long-established equity culture. As a result, there are thousands of companies listed on the market, which means there are far more opportunities for a good manager to stock pick than in many other emerging markets. India has also entered a period of structural, long-term change, reducing the endemic bureaucracy and corruption that has blighted the economy.
The India Capital Growth Fund’s discount (where the market price of the trust is below the value of its underlying portfolio) has widened from 6% in January to 18% towards the end of July. This is a good buying opportunity.
Berlin leads in property
We also remain very positive about the outlook for residential property in Berlin. The Berlin property market is without parallel – it’s gone from being an urban wilderness to becoming a capital city within a generation. Despite rapid growth in recent years (Berlin residential prices jumped by 20.5% in 2017, while London saw a 2% gain, according to property consultancy Knight Frank), flats remain cheap compared with most big European cities. The population is also growing at a time when new supply is muted. A new build is still worth less than its construction cost, meaning a shortage of available houses will continue to underpin the market.
Phoenix Spree Deutschland Ltd (LSE: PSDL) is the purest London-listed Berlin play. Despite bull-market conditions, its shares have been weak this year, recently touching 329p from a peak of 396p. This equates to around a 20% discount compared with market forecasts for the 2018 year-end. A significant factor behind the drop is probably heavy selling by a large institution that as recently as early June owned over 19% of the trust, but now no longer has a notifiable holding.
An attractive yield
Another property trust where the share price languishes due to legacy shareholder selling is Real Estate Investors (LSE: RLE). Sentiment towards the sector is poor due to weakness in the London market, even though fundamentals outside the capital are generally brighter and RLE is focused on the West Midlands. Shares in the trust, which owns 1.5 million square feet of commercial property, trade at 53p compared with market forecasts for a net asset value (NAV – the underlying portfolio’s value) of 75p at the end of 2018. It’s also expected to pay a dividend of 3.6p.
In a recent update, management noted scope for further gains by converting some of its shops and offices into houses, exploiting buoyant conditions in the local housing market. A yield of around 6% allows investors to be paid royally while they wait for the share overhang to clear.