When assessing investment trusts’ holdings it is important to understand the fundamentals underpinning the net asset value (NAV), the value of the fund’s portfolio, while also keeping in mind that sentiment affects prices and determines whether the trust trades at a premium or a discount to its NAV.
Not all premiums and discounts are warranted, however. Investors can achieve powerful returns when they inspect the trust’s assets closely and come to appreciate that there is value in the portfolio mispriced or misunderstood by the wider market. Three examples can illustrate this situation.
Retail parks are a bargain
Retail property is a busted flush, right? Not so fast. Retail parks have performed well in terms of footfall and their tenants (such as Aldi, M&S Food, Halfords, Pets at Home, B&Q, Costa) have remained open as they are deemed to be essential services. Ease of parking, open spaces and low rents (less than £15 per square foot) combine to offer customers and tenants an attractive place to shop.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That makes Ediston Property Investment Company (LSE: EPIC) worth a look. This real-estate investment trust (Reit) boasts solid rent collection and an efficient record of replacing struggling tenants with a company voluntary arrangement (CVA), whereby at least some of the debt is paid back.
Ediston’s impressive performance has underpinned a dividend, which will need to be increased from the current 4p a year in order to protect its status as a Reit. A discount to NAV of 23%, despite a bounce in the share price after vaccines were discovered, still looks excessive given the strength of the company’s management.
An undervalued turnaround specialist
AEW UK Reit (LSE: AEWU) has demonstrated an excellent asset turnaround strategy in the first five years of its life and offers a high dividend yield of 8% based on the share price at its initial public offering (IPO). Yet the shares are on a discount to NAV of 14%, which looks too high.
The management pursue a deep-value strategy when purchasing property assets that are often overlooked by institutional investors. They focus on possible alternative uses, agree new leases with new or existing tenants, and potentially sell at a substantial profit.
The most recent example was the sale of Sandford House, a government-occupied office in Solihull, for £10.5m compared with a purchase price of £5.4m. This was in addition to receiving an income yield of 9.6% during the period of ownership.
Profiting from private companies
Chrysalis Investments (LSE: CHRY) offers a concentrated portfolio of owner-managed, fast-growing private firms. It has been able to make a profitable part-sale of Transferwise, the online money-transfer service.
It has also seen one of its largest positions, e-commerce platform The Hut Group, successfully list on the London Stock Exchange, with the shares surging from their 500p listing price. Investors have been impressed by the substantial growth of its online delivery platform and several bolt-on acquisitions.
Estimates of the trust’s NAV place it above 170p. The shares currently sit on a premium at around 190p. However, given the momentum in a number of the underlying firms, such as Starling Bank and Graphcore, it looks well-deserved.
-
Ben Cohen: The Ben & Jerry’s co-founder who wants to break away from UnileverBen Cohen of Ben & Jerry’s ice cream is seeking to break away from Unilever, the conglomerate he sold out to in 2000. It’s a battle for the soul of the brand synonymous with corporate do-gooding.
-
Trump wants to colonise Mars – will it happen?Donald Trump wants to plant the US flag on Mars. Could humans really live there?
-
Two top Asia-focused investment trustsPacific Assets and Scottish Oriental are both trusts that focus on high-quality companies controlled by trustworthy families or founders
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
-
Best of British bargains: cash in on undervalued companies in the UK stock marketOpinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
-
Building firm Keller presents low debt and ample scope for growthGeotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
-
PZ Cussons share price down 75% in last decade – why it's one to watchOpinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
-
Cash in on the biotech sector with specialist trust BioPharmaOpinion BioPharma has an attractive niche in lending to asset-rich biotechnology companies
-
India's stock market decline wipes out $1.3 trillion in market value – can investors stay optimistic?More than $1 trillion has been wiped off from India's stock market after investors turn to China. Has the emerging-market darling hit rock bottom?
