Three high-yielding funds trading at a discount
13th December 2013 12:29
by Esther Armstrong from interactive investor
In a world where yield is highly sought after, high-yielding investment trusts are most likely to trade around their net asset value, or on a premium.But there is still the occasional bargain when it comes to buying income, and Oriel Securities has highlighted three funds with high yields currently holding onto relatively wide discounts.
This investment trust has an estimated discount of 28% and is yielding 4.5%. Oriel Securities analysts Iain Scouller and Alex Cass, said the trust is making good progress with its higher yield strategy by increasing exposure to debt investments. Historically the fund has invested in funds but it has started holding more in direct investments in both private equity and private debt.
"As a result the annual dividend of $0.41 (4.5% yield) is expected by management to be fully covered by revenue earnings per share per early 2014," Scouller and Cass added.
The discount, which is substantially wider than the majority of private equity funds is viewed as a significant anomaly and has scope for re-rating as investor demand for specialist funds increases.
NBPE is managed by Neuberger Berman's alternatives team, which manages $19 billion of commitments and has investments with over 200 private equity firms.
Next up, the Evy Hambro run is also highlighted by Oriel following a tough couple of years and a particularly "traumatic" first half of 2013 in the mining sector.
"BlackRock World Mining has seen its NAV fall 275 over the past year on a total return basis, and is currently on a 10% discount to cum income NAV. As a result of the falling price and a higher dividend policy, the yield has doubled from 2.4% a year ago to 4.8% today.
The increased dividend payment has been boosted by investments in two mining royalties, which provide the fund with a direct share in profits from two mines. We would expect the trust to continue with its higher dividend policy on the assumption mining companies do not cut dividends," Scouller and Cass say.
The BlackRock World Mining Trust, has significantly outperformed the sector (136%) and its benchmark (123%), the S&P Global Natural Resources, over five years, with returns of 218.81%. Over three years it has lagged, however, returning 60.75% compared with 86.81% from the benchmark and 65.5% from the sector.
Finally, the has been pointed out by Oriel, which has an estimated discount of 22% and a yield of 5.2%.
"This fund invests in listed utilities, infrastructure and energy stocks. Its largest investment Lonestar Resources (18% of NAV) was a company established by ECWO specifically to exploit US shale gas resources. The capital structure should become simpler and leverage lower in the next two to three years and we think the fund should see a significant narrowing of the discount," Scouller and Cass say.
ECWO's second largest holding is National Grid, and third is General Electric. It was launched in 2002 and has returned 81% on its shares since then, substantially lower than the 110% from the MSCI World. Both its NAV and share price returns significantly lag the MSCI world over one, three and five years too.