Interactive Investor

Bargain Hunter: A great trust on a double-digit discount

Approaching its third birthday, this trust has been a strong performer, but sits on a 12% discount.

18th September 2019 10:38

Kyle Caldwell from interactive investor

Approaching its third birthday, this trust has been a strong performer, but sits on a 12% discount. 

A specialist investment trust with an attractive yield and strong performance since launch nearly three years ago is available on a discount of 12.3%.

Since launch, on 26 September 2016, Ecofin Global Utilities & Infrastructure Trust (LSE:EGL) has typically traded on a discount ranging from 10% to 15%. The trust focuses solely on listed utilities and infrastructure investments, paying a quarterly dividend. The current yield is 4.3% and performance has impressed.

According to Matthew Read, a senior research analyst at QuotedData, the discount is "something of a conundrum." He says: "When trusts perform well from launch, they tend to trade at premiums. This is particularly true, in the current low interest rate environment, if there's a nice yield thrown into the bargain.  

"From its launch to the end of August 2019, EGL has provided cumulative total returns of 39.9% and 53.3% for its net asset value (NAV) and share price respectively. These are ahead of what was available from global utilities as a whole, which was 36% for the MSCI World Utilities index."  

Despite solid performance and reliable income, EGL's discount has remained stubbornly wide. Read pinpoints three reasons why this may be the case; one simply being that infrastructure investments are not particularly fashionable at the moment. This has not been helped by a couple of high-profile failures in the sector, which EGL has managed to avoid.

Read adds that another reason why the trust's bargain credentials may be overlooked is the fact of "markets appearing to be very macro-driven at present, with investors frequently overlooking the micro".

Third, Read says the political risk of the prospect of a Jeremy Corbyn-led Labour government may also be negatively impacting sentiment for the assets the trust invests in.

Read believes the negative sentiment is overstated, however. He adds:

"There is much to suggest that the global economy is late cycle and EGL's portfolio may come into its own if the cycle rolls over and investors are once again seeking investments with defensive characteristics."

Read is not the only commentator who views EGL as a potential bargain opportunity. Vincent Roper, co-manager of the TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income funds, holds EGL in both of his funds.

Investment trusts that hold alternative assets provide a good source of diversification. In many cases, they satisfy investor demand for income, while having relatively little correlation to equity and bond markets.

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.