Interactive Investor

Bargain Hunter: 10 trusts that have moved from premiums to discounts

These trusts have seen their premiums vanish since the start of the year as growth shares lost ground.

17th February 2022 11:46

Kyle Caldwell from interactive investor

These trusts have seen their premiums vanish since the start of the year as growth shares lost ground. 

Given all the volatility in the first six weeks of 2022, a surprising statistic is that the number of equity investment trusts trading on a premium to their net asset value (NAV) is virtually unchanged.

QuotedData, the investment trust analyst, supplied discount and premium data to interactive investor that shows there were 36 equity trusts trading on a premium on 11 February. At the start of the year, there were 38 out of a total of 178.

That’s not to say that there has been a lack of movement in discount and premium changes. Over the past couple of weeks, investment strategies that are expected to perform well or protect capital in a high inflation and rising interest rate environment have seen an uptick in investor demand, which has helped their discounts to narrow and some have moved to premiums. Examples include BlackRock World Mining Trust (LSE:BRWM), Temple Bar (LSE:TMPL), City of London (LSE:CTY) and Utilico Emerging Markets (LSE:UEM).

BlackRock World Mining was trading on a discount of 5.5% at the start of the year, but on 11 February was on a small premium of 0.3%. James Carthew, head of research at QuotedData, says: “Stronger commodity prices are helping mining funds, and there is also a sense that the value of the commodities rises in line with inflation. Over the long term, this may work, but it isn’t guaranteed.”

Value-focused Temple Bar is overtly benefiting from the market rotation. Its discount has reduced from 7.7% to 3.1%. Temple Bar has plenty of exposure to resource stocks and banks. For both sectors, high inflation and interest rates rises are a tailwind.

City of London, which features in interactive investor’s Super 60 list, has moved from a 1.7% discount to a 2.1% premium. The trust has plenty of pricing power in its top 10 holdings, including Diageo (LSE:DGE), British American Tobacco (LSE:BATS), Tesco (LSE:TSCO) and Unilever (LSE:ULVR)Companies that possess pricing power have the ability to pass on increases.

Utilico Emerging Markets, also a member of interactive investor’s Super 60 list, has seen its discount fall from 12.7% to 9.4%. The trust’s investment universe is made up of companies and sectors displaying the characteristics of essential services or monopolies, such as utilities, transport and infrastructure. This gives the investment trust considerable defensive qualities.

At the other side of the trade, growth-focused trusts have seen their premiums reduce or discounts widen. Two big discount movers among UK equity trusts are Montanaro UK Smaller Companies (LSE:MTU) and Chelverton Growth Trust (LSE:CGW). The former has gone from a discount of 1.4% to 7.6%, while the latter has moved from a discount of 21.3% to 27.2%. In the global smaller companies trust sector, Herald (LSE:HRI) has seen its discount widen from 7.9% to 14.4%, while North Atlantic Smaller Companies (LSE:NAS) discount has changed from 23.5% to 29%.

Unsurprisingly, given its focus on high-growth stocks and technology, most Baillie Gifford trusts have become cheaper. An exception to the rule is Scottish Mortgage (LSE:SMT), which is trading on a small premium, despite its rocky start to 2022, with its share price down 18% year-to-date.

Overall, 10 trusts that were trading on premiums at the start of the year are now trading on discounts. Four of the 10 are managed by Baillie Gifford. JPMorgan are also well represented, with three trusts. The 10 trusts are: RTW Venture (LSE:RTW), Syncona (LSE:SYNC), Allianz Technology Trust (LSE:ATT), JPMorgan US Smaller Companies (LSE:JUSC), Baillie Gifford US Growth (LSE:USA), Edinburgh Worldwide (LSE:EWI), Baillie Gifford Japan (LSE:BGFD), Baillie Gifford Shin Nippon (LSE:BGS), JPMorgan Asia Growth & Income (LSE:JAGI) and JPMorgan Claverhouse (LSE:JCH).

As ever, when sizing up a potential investment trust bargain, investors need to consider the outlook for the trust; including how it invests (such as the investment style) and sentiment towards the region or asset class it invests in. If there’s a lack of appetite for its shares, the discount may widen further.

Trust

Premium (%) at start of 2022

Discount (%) on 11 February 2022

RTW Venture (LSE:RTW)

                                                  4.1

                                              -16.1

Syncona (LSE:SYNC)

                                                  6.4

                                                  -6

Allianz Technology Trust (LSE:ATT)

                                                  1.3

                                                  -3

JPMorgan US Smaller Companies (LSE:JUSC)

                                                  1.1

                                                 -2.5

Baillie Gifford US Growth (LSE:USA)

                                                  0.8

                                                 -2.7

Edinburgh Worldwide (LSE:EWI)

                                                  0.6

                                                 -2.8

Baillie Gifford Japan (LSE:BGFD)

                                                  1.9

                                                 -1.1

Baillie Gifford Shin Nippon (LSE:BGS)

                                                  1.1

                                                 -0.6

JPMorgan Asia Growth & Income (LSE:JAGI)

                                                  1.2

                                                 -0.2

JPMorgan Claverhouse (LSE:JCH)

                                                  0.2

                                                 -0.9

Source: QuotedData. Discount data to 11 February 2022.  

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