We have looked at the discount at which all investment trusts currently rated Gold by Morningstar analysts currently trade and have identified three opportunities that look cheap on this basis—at the time of writing—relative to their long-term discount (or premium) levels.
The first is Jupiter European Opportunities (JEO). Managed by Alexander Darwell since its launch in 2000, as at February 20th this fund is trading at a discount of more than 2.5% to its net asset value. That may not sound like much, but for the last 18 months, the fund has more usually traded at a modest premium to NAV. It’s important to note that this fund is not a direct mirror of Darwell’s open-ended Jupiter European fund (also rated Gold). The investment trust has nearly one third of assets invested in the UK; it also has a bigger proportion of its assets in mid-cap names, and much less in giant-caps than the open-ended fund.
Darwell has established a strong track record in the management of European equities. At the trust, he has produced just shy of 13% annualised performance since the end of 2000, yet turnover has generally been at the low end of the spectrum and risk has been kept well in check. While the UK weight may not suit all investors’ portfolios, there’s no doubt in our minds that Darwell is an excellent stock picker and that for European equity exposure, he’s one of the best in class.
The second is Aberdeen New Dawn (ABD). This fund falls under Hugh Young’s Aberdeen Asian equity stable. It’s no secret that Aberdeen’s investment process had a very tough year last year and performance struggled across their entire fund range. At this fund, the three-year average discount has been around 8.5%: at the time of writing, that discount has widened to more than 11%. With ongoing charges of little more than 1%, this is one of the cheaper ways to access the expertise of Young’s team. There is also the added benefit that the team doesn’t have to deal with inflows and outflows here, so it tends to hold up better as a result—that was certainly the case in 2013 where the underperformance was less than at the SICAV equivalent.
The third is Personal Assets (PNL). This fund tends to trade at around NAV as the board has been very clear in its directive that it will aim to minimise discount volatility—be that through the issuance of shares when at a premium or through buybacks when at a discount. Indeed, the board has held true to this and we have seen it switch from regular issuance throughout most of 2013 to repurchases since November.
PNL is now trading at a very modest discount to NAV and hence we think it makes for an interesting opportunity. For sure, 2013 was not a great year for investors in this fund—it lost a little over 2%, despite the board and manager’s focus on capital preservation. But their stance hasn’t changed, nor has their investment process, and one weak year doesn’t mean it’s broken. Robin Angus’ recent quarterly report, issued in February, reaffirms this and so an investor here knows exactly what to expect from their manager. At Morningstar, we like this open and honest approach and find it reassuring that the neither the board nor the fund’s managers are deviating, simply to chase returns. That’s exactly what an investor wants and needs over the long term.
