3 Discounted Investment Trusts

Ask the Expert: Investment trusts are looking fairly valued at the moment, but within the more beleaguered sectors such as emerging markets there are some opportunities

Emma Wall 15 January, 2014 | 7:31AM
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Emma Wall: Hello, and welcome to the Morningstar series, Ask the Expert. I'm Emma Wall, and here with me today is Morningstar analyst, Szymon Idzikowski.

Hello, Szymon.

Szymon Idzikowski: Hi, Emma.

Wall: So, we're here today to talk about investment trusts trading on a discount. I understand that the market itself is pretty fairly valued at the moment, but within that there are opportunities?

Idzikowski: Absolutely. I mean, as you pointed out, the average fund trades at quite a low discount by historical standards, but they're definitely some pockets of value.

Wall: So looking then for our readers, what is the first investment trust that's trading on a discount today?

Idzikowski: So, one of the funds that trades at quite a wide discount is JPMorgan Indian (JII). It trades at the moment at around 15% discount, which is quite an attractive entry point compared to its six month average and longer three years average.

Wall: And that investment house has a long history with that particular trust; doesn't it? I used to sit next to somebody who held the trust for 15 years in the run up to the credit crisis, but then it has been volatile since then?

Idzikowski: That's a function of emerging markets. The Indian market is definitely volatile and that's probably to some extent the explanation as to why the discount is at this level. Last year it was very volatile. The MSCI India index actually lost money last year. There is probably lot of sentiment currently against Indian and broader emerging markets, and that's what creates the opportunity.

Wall: But perhaps one to buy and hold then?

Idzikowski: Absolutely. Especially given it’s a single country fund, we would usually recommend investors hold this as a part of broader portfolio.

Wall: Okay. And what's your second investment trust?

Idzikowski: So, another fund that trade perhaps at little lower discount is Aberdeen Asian Smaller Companies (AAS), but again if you look on the history of the fund over the last six months, it has been actually trading at a premium, while over the last few years it's been trading around NAV.

Wall: Well, Aberdeen is a fantastic house for emerging market, isn't it? So, is an opportunity there?

Idzikowski: Absolutely.

Wall: And risky though with smaller companies and emerging markets?

Idzikowski: To some extent, it's probably again similar to my previous example where the combination of those two you have pointed out means it should only be used as a niche player within a broader portfolio.

Wall: What's your third investment trust?

Idzikowski: So, another fund that trades at their lowest discounts from those three, its Personal Assets (PNL). It trades currently around 2% discount, but given it's been trading actually around at a premium over the last six years, it's quite an attractive entry point.

Wall: He is a fantastic manager, Sebastian Lyon, but he did take some pretty punchy plays last year that didn't pay off. I mean, he lost money because he was investing in gold and in cash, the two worst performing assets of 2013 apart from maybe other commodities. Can we have faith that he is getting it right this year?

Idzikowski: Yes, I think we can have faith. Absolutely. One thing investors should remember is this fund is not trying to beat neither its index nor category peers. This fund is about long-term wealth preservation and from this point of view we think Sebastian Lyon has actually shown in his open-end Troy Trojan fund that he can deliver on this promise. And actually those two positions you have pointed, they were taken with the idea of preserving wealth over longer term.

Wall: And he is going to keep them?

Idzikowski: Well, that is the future, so that's something we will have to wait to see.

Wall: Szymon, thank you very much.

Idzikowski: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
abrdn Asia Focus plc279.00 GBX0.00Rating
JPMorgan Indian Ord968.00 GBX0.41Rating
Personal Assets Ord487.50 GBX0.52Rating
Trojan I Acc374.84 GBP0.41Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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