Investors went bargain hunting in September following an increase in discounts.
Some investors have been moving to take advantage of investment trust discounts, which have risen across the closed-ended fund universe in recent weeks.
Two of the four new entries to our most-bought investment trust table for September are trading on deep discounts: Tritax Big Box REIT (LSE:BBOX) and Chrysalis Investments Limited Ord (LSE:CHRY). The duo have been among the biggest laggards so far in 2022, down 46.2% and 75.7% in share price terms. The respective discounts are 43.7% and 62.3%.
Rising interest rates and fears of a recession have negatively impacted investment sentiment towards property-focused investments, which Tritax Big Box REIT has not been immune from. As a logistical-focused property trust it has had another headwind to contend with; at the end of April Amazon announced it was scaling back investment in its delivery network. This unnerved investors and lead some to review the sector following the return to offices and rise in the cost of living, which is causing companies to cut warehouse space.
Chrysalis Investments has also suffered from rising interest rates. It buys fledgling companies that might make it big, such as buy now pay later firm Klarna and digital bank Starling. Its shares rose from around £1.20 at the start of 2020 to a peak of £2.70 (3 September 2021), as investors rushed to own a slice of the future. However, with interest rates rising rapidly, its share price has plummeted to 60.6p, a drop of 77.6% from its peak.
Figures from Winterflood, the investment trust analyst, show the average discount now stands at 16.5%. At the start of September, the average discount was 10.2%, so it has been a notable increase.
A trust trading in line with the average discount, which has seen an increase in popularity over the past month is RIT Capital Partners (LSE:RCP). The wealth preservation trust is trading on a discount of 14.8%, notably higher than its 12-month average discount figure of 5.8%. It is a new entry to our top 10 table, interestingly at the same time as the other three wealth preservation trusts exiting: Personal Assets (LSE:PNL), Capital Gearing (LSE:CGT) and Ruffer Investment Company (LSE:RICA).
The trio have regularly featured in our most-bought league table over the past year, as investors turned more cautious on the outlook for stock markets. Unlike RIT Capital Partners, the trio trade close to the value of their underlying investments, the net asset value (NAV). The other trust to make way is Ecofin Global Utilities & Infrastructure (LSE:EGL), which was a new entry in August.
The other new entry is one of a small percentage of trusts that are trading on a premium – Merchants Trust (LSE:MRCH). The trust, managed by Simon Gergel, mainly invests in higher yielding large UK companies. Its dividend yield is 5.5%. Over the past year it has held up better than peers, down 2.7% versus 7.1% for the average UK equity income sector.
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As ever, keeping its place at the top of the leaderboard as the most-bought trust in September is Scottish Mortgage (LSE:SMT) The global growth trust has seen its short-term performance turn sour, due to its investments being negatively impacted by rising interest rates. The trust invests in disruptive growth businesses, many of which are not yet profitable. Such shares have their valuations based on their future cash flows. When interest rates rise those cash flows are devalued, which causes share prices to fall. Year-to-date Scottish Mortgage shares are down 41.7%. Over three and five years it is ahead of the average global trust, up 57.2% and 89.8%, versus 31% and 55.4%.
City of London (LSE:CTY), managed by Job Curtis, remains in second place. The trust’s focus on Britain’s biggest businesses has boosted its short-term returns. Over one year it has returned 2.2%. In a recent video interview with interactive investor Curtis explained that the trust’s conservative approach means it is likely to lag when markets are strong. He said: “If it’s a race between a tortoise and the hare, we are more of a tortoise than a hare.” The trust’s dividend yield is 5.3%, and it has raised its dividends for 56 consecutive years.
In third place is Greencoat UK Wind (LSE:UKW). This specialist real asset fund owns wind farms throughout the UK. Given the nature of its income stream, the board said that it intends to continue increasing its dividend in line with retail price index (RPI) inflation.
Climbing up to fourth place, from eighth last time round, is The Renewables Infrastructure Group (LSE:TRIG). It invests in offshore wind, battery storage and solar electricity panels.
In sixth is F&C Investment Trust (LSE:FCIT). The trust, a member of interactive investor’s Super 60 investment ideas, offers a one-stop shop for investing. It is managed in a conservative manner, reflected in the portfolio being highly diversified, with around 400 holdings. This diversification, and the fact that it is a consistent income payer, having increased dividends for 51 consecutive years, makes the trust a potential core holding for investors. Last month it won promotion to the FTSE 100 index.
Commodities are another example of a real asset that’s been proving popular among investors, reflected by BlackRock World Mining Trust (LSE:BRWM) occupying seventh place in our table. The trust invests in a worldwide portfolio of mining and metal securities.
Year-to-date it has been a tough year for the majority of strategies, with the average investment trust down over 20%. The ability that investment trusts have to gear (borrow to invest) has magnified losses as markets have fallen. This has had a big bearing on why most investment trust sectors have fared worse than equivalent fund sectors.
Top 10 most-popular trusts in September 2022
|Rank||Trust||Change from July||One-year performance to 30 September 2022 (%)||Three-year performance to 30 September 2022 (%)|
|1||Scottish Mortgage||No change||-45||57.2|
|2||City of London||No change||-18.3||17.9|
|3||Greencoat UK Wind||No change||22.1||22.2|
|4||The Renewables Infrastructure Group||Up four||8.3||17.9|
|5||Tritax Big Box REIT||New entry||-34.5||0.1|
|6||F&C Investment Trust||Up one||6.3||33.5|
|7||BlackRock World Mining||Down three||15.8||90.3|
|8||Chrysalis Investments Limited||New entry||-76.9||-50.2|
|10||RIT Capital Partners||New entry||-18||2.1|
Source for performance figures Fe FundInfo, 30 September 2022. Note: the top 10 from interactive investor is based on the number of “buys” during the month of September.
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