3 Top Rated Trusts Trading on a Premium

Thanks to global stock markets rallying in recent years, these top closed-end funds are trading on a premium. Is it time to take some profits?

David Brenchley 29 March, 2018 | 1:33PM
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Rio de Janeiro, Brazil one of the BRIC nations which make an appearance in global equity funds

Global stock markets have been on flying form in recent years and, despite a pull back early this year, look likely to continue to make gains in the months ahead. As a result, investors have been snapping up globally diversified equity funds in a bid to profit from the rally.

Funds in the Investment Association’s Global sector have seen £9 billion of inflows in the past 18 months, according to data from Morningstar Direct. That reversed the previous seven quarters of net outflows.

Furthermore, this surge in popularity has led to a number of investment trusts in the Association of Investment Companies’ Global sector trading on premiums to their net asset value.

Extolling the virtues of global funds, Simon Edelsten, manager of the Morningstar Silver Rated Mid Wynd International (MWY), notes there tend to be less constraints than a UK smaller companies or equity income vehicle.

“What a global equity fund can do that most regionally specific equity funds struggle to do is we can always go looking for growth. The world’s a big place, and even if the world economy isn’t growing, there’s normally bits of it that are,” he says.

“And even if the stock market in general is pretty well hunted down and greed is running pretty high, there are normally bits of the world that for some reason everybody hates, often to a rather extraordinary extent.”

Some trusts focused on investing globally, as noted, are running on premiums. And a few of these are even more expensive relative to their historical figures.

Edinburgh Worldwide (EWI)

Morningstar Bronze Rated Edinburgh Worldwide has shot to a premium in recent months owing to strong performance in 2017 after a couple of years of underperformance. It’s currently trading on a 6.66% premium, which compares to its 52-week average of a 3.88% discount and 10-year average of a 19.95% discount.

Run by Baillie Gifford’s Douglas Brodie, Edinburgh Worldwide looks to identify immature companies with ambition. These firms will likely be looking to scale up their operations on a global level. As a result, many holdings will not yet be profit-making. This fits in with Baillie Gifford’s search for high-growth firms, as exemplified by stable companion Scottish Mortgage.

While it’s global in its remit, the trust currently has a fifth invested in the UK, with Ocado (OCDO) a top 10 holding. It also has more than a quarter invested in healthcare and biotech firms, including its second top holding, Alnylam Pharmaceuticals.

Morningstar analyst David Holder cautions the trust’s focus on nascent companies in volatile sectors means investors are in for a rough ride from time to time. However, he notes Baillie Gifford is the ideal house to pursue this style and thinks it is an interesting option for long-term investment of capital.

Mid Wynd International

The Artemis managed Mid Wynd currently trades on a 3.65% premium, slightly higher than its 12-month figure of 1.26%.

Edelsten runs a growth-oriented portfolio with a valuation-sensitive bent, which led him to dump the expensive-looking US giant Amazon (AMZN) late last year. He recycled the proceeds into three Japanese robotics firms.

Co-managed by Alex Illingworth and Rosanna Burcheri, they take a thematic view of the world and look to identify quality firms trading at attractive valuations that are poised to benefit from long-term secular growth trends. Currently, the largest themes are automation and the emerging market consumer.

Its US allocation is lower than many global mandates and has 17% of the fund in Japan. France is the third largest country weighting, while it has just over 3% in UK companies.

As at end February, the largest company holding was 2.6% in European luxury goods conglomerate LVMH (MC), followed by packaging firm Avery Dennison (AVY) and medical device maker Boston Scientific (BSX).

Morningstar analyst Fatima Khizou upgraded the trust from Bronze to Silver at the beginning of March “to reflect our increased confidence in the strategy”. “We believe the fund’s seasoned investment team and consistent effective execution of process are reasons to expect the fund to continue to outperform across a market cycle,” she adds.

Monks (MNKS)

Another Baillie Gifford run mandate, Monks is now on a 3.5% premium, compared to a 52-week average of 0.72% and 10-year average discount of 10.62%. Performance has stormed ahead of the MSCI World Growth Index since the back end of 2016.

The management team is three-pronged and comprises Malcolm MacColl, Spencer Adair and Charles Plowden. They look to find companies that generate above-average earnings growth, and those that have competitive advantages and superior business models.

The stocks in the portfolio fall under one of four buckets: rapid growth, latent growth, cyclical growth and growth stalwarts. As of October 2017, rapid growth was the largest of these buckets at 38%, followed by cyclical growth at 26%.

While many of its top 10 holdings are tech names, including Amazon, Naspers, Taiwan Semiconductor and Alibaba, its largest sector weight is to financials. Firms like insurers Prudential, Anthem and AIA and credit ratings agency Moody’s sit in the top holdings.

Results under the new management, who were appointed in 2015, have considerably improved, says Khizou. “We believe the trend is likely to continue and investors who stay for the long haul should be well rewarded,” she adds.

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
Amazon.com Inc3,178.35 USD-1.99Rating
Avery Dennison Corp206.87 USD-1.06Rating
Boston Scientific Corp44.22 USD-1.43Rating
Edinburgh Worldwide Ord232.50 GBX-3.53Rating
LVMH Moet Hennessy Louis Vuitton SE673.00 EUR-1.95Rating
Mid Wynd International Inv Tr Ord800.00 GBX-1.48Rating
Monks Ord1,184.00 GBX-2.95Rating

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk