Top Rated Investment Trusts Now at a Discount

Recent stock market volatility has thrown up opportunities in many areas, including two investment trusts that are highly rated by our analysts

David Brenchley 17 October, 2018 | 1:50PM

Stock markets, China Stock Market, volatility, correction

Last week’s stock market correction spooked investors, with many parts of the market that had previously seemed immune to any trouble leading the way lower.

October is a notoriously volatile month, and this year was no exception. All major indices are in negative territory in the month to 17 October.

Unsurprisingly, Asian markets, which have been depressed by US-China trade wars and a stronger US dollar, have been hit hardest. The Morningstar Hong Kong and China indices are down 8.4% and 9.2% respectively.

Still, most markets have recovered some of their poise since Friday and the advice from market commentators seems to be not to panic. In fact, many see it as having thrown up opportunities.

“While the current market mood swing may have investors worried, it’s worth remembering that volatility is the price you pay for the long-term outperformance of equities over other asset classes,” says Tom Stevenson, investment director for personal investing at Fidelity.

“Corrections often provide investors with an opportunity to add to their portfolios at attractive prices,” he adds.

That works for retail investors in collective investment vehicles, too. Investment trusts can trade at both premiums and discounts to their net asset values, meaning they can often be picked up at bargain – of expensive – prices.

Below, we highlight two Morningstar medallist closed-end funds that have slipped from a premium to a discount recently, potentially offering an attractive entry point.

Schroder Asian Total Return (ATR)

The Morningstar Gold Rated £290 million Schroder Asian Total Return Investment Company has an impressive long-term record and would have turned a £10,000 lump sum investment at inception in 1987 into almost £250,000.

Schroders took over the mandate in March 2013 and appointed current managers Robin Parbrook and King Fuei Lee. In that time, has returned a healthy 66%, well ahead of its Morningstar benchmark’s gain of 19%.

It’s down almost 10% in the year-to-date, though that compares favourably with its benchmark’s -13.3%.

Still, the trust has slipped to a narrow discount of -0.87%. Its 12-month average premium is 2.23%, and as recently as 3 October it was trading at a 3% premium and had been as wide as 5% earlier in the year.

Morningstar analyst Germaine Share notes that the trust offers “unique downside resilience”, which is a good trait to have in times of market stress. As the name suggests it is run with an absolute return focus and is not constrained by any benchmark.

The managers, supported by a team of 36 analysts, pick stocks through a rigorous, quality-growth-focused process. They will also short stocks with upside but negative country returns, says Share.

Top holdings as at end-September include South Korea’s Samsung Electronics (005930), Chinese conglomerate Tencent (00700) and Indian bank HDFC (500180).

Murray International (MYI)

In the first half of 2018, Murray International was the worst performing Morningstar top-rated investment trust, shedding 8.4% in the first six months of the year. However, it’s had a renaissance of sorts since, returning 2.57% in the third quarter.

Bruce Stout, manager of the £1.4 billion offering, mainly invests in equities, with a bias towards Asia and emerging markets, which, as at 31 August, accounted for 41% of assets. However, he can also allocate to fixed interest, which accounts for around 15% in the last factsheet.

Clearly, then, the sell-off in the Far East has impacted returns. With 7% in Mexico and 5% in Brazil, political worries haven’t helped, either.

As a result, the trust has slipped to a discount, currently of -2.08% having hit -3.5% a week ago. Still, this compares with a 12-month average premium of 1.38%. In March the trust was trading at a 5.3% premium.

Morningstar analyst David Holder recently downgraded the trust from Gold to Silver, but that was due to changes in the team and investment dynamics across Standard Life Aberdeen denting his conviction slightly.

But, Holder adds: “Our positive assessment of this fund is based, in large part, on Stout's experience and distinct signature on the portfolio, which differs significantly from other global portfolios managed by the heritage Aberdeen team.”

Despite its bias, the top holding is US-listed software firm Asure (ASUR). Its top five includes Taiwan Semiconductor (2330) and Taiwan Mobile (3045), as well as Chilean miner Sociedad Quimica y Minera (SQM).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
HDFC Bank Ltd2,019.55 INR-0.02-
Murray International Ord1,083.56 GBX1.65
Samsung Electronics Co Ltd42,100.00 KRW0.00
Schroder Asian Total Return Inv. Company333.36 GBX1.79
Sociedad Quimica Y Minera De Chile SA ADR42.96 USD2.53
Taiwan Mobile Co Ltd109.50 TWD-0.45-
Taiwan Semiconductor Manufacturing Co Ltd219.00 TWD-3.10
Tencent Holdings Ltd289.60 HKD2.84

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk