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Robin Stone
Posted: 09 April 2018 19:25:46(UTC)
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One thing I like with investment trusts is using the z scores and discounts/premia to select what looks good value to buy and occasionally as I hate premiums or high z scores to sell out. For the big well covered trusts With published holdings it seems to work ok for me. However looking at this weeks investment trust watch I see a couple companies apt, pgit and
Lta which have big discounts , are cheap on z scores but I don’t know any of them, they don’t seem to have much coverage here or in the IC.

Can I trust the nav or are these things value traps and stick with what you know?

I investigated apt and it looks like it is winding down but has a cinema lease it can’t clear so it either keeps operating and thus has overheads due to one deal it can’t clear or it sells at a loss(or another it or hedge fund swallows it up) so I can see why a discount exists it just looks steep.

Does anyone else shop like this Successfully and any tips or am I just looking at cheap tat/value traps and I should stick to quality?
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Sara G
Posted: 09 April 2018 19:48:33(UTC)
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Valuation frequency is one thing to look out for - it the NAV is revalued on a daily basis then it should be about right but very often it is less frequent and so I would not necessarily rely on it.

If I'm bargain hunting for ITs I tend to go to the AIC website and sort by the discount column. I tend to ignore anything too obscure though. Ideally I think it's better to have a watchlist of ITs that would fit with the rest of your pf and then aim to buy in when the Z score indicates that the discount is wider than usual.

Even then it can be a blunt instrument... for example you may find that if there is a significant correction, some ITs may stay on the same discount (or even go to a premium if they are popular), but it still may be a good time to buy if the price is likely to rise in the longer term.
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9 users thanked Sara G for this post.
Robin Stone on 09/04/2018(UTC), Tim D on 09/04/2018(UTC), dlp6666 on 10/04/2018(UTC), Aidan MacGinley on 11/04/2018(UTC), c brown on 12/04/2018(UTC), Tyrion Lannister on 13/04/2018(UTC), mcminvest on 15/04/2018(UTC), Richard_L on 15/04/2018(UTC), jvl on 17/04/2018(UTC)
Tom Bards
Posted: 09 April 2018 20:17:55(UTC)
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Obviously discount to NAV is a reasonable indicator of value but keep in mind the share price can continue to be at a discount for years at a time because they is no actual reason why it should necessarily match up with the NAV.
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Robin Stone on 10/04/2018(UTC), Richard_L on 15/04/2018(UTC)
Keith Cobby
Posted: 09 April 2018 20:33:39(UTC)
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I ignore discounts and Zs. I look at total return over different periods for the sectors I prefer.
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william barnes on 12/04/2018(UTC), Tyrion Lannister on 13/04/2018(UTC), mcminvest on 15/04/2018(UTC)
Freefall Junkie
Posted: 10 April 2018 13:31:25(UTC)
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One thing I am not clear about is how the NAV is calculated for trusts which have sizable holdings in unlisted companies. The most obvious example would be SMT which I think has around 15% in unlisted shares, but there must be micro cap or private equity trusts where the proportion is far higher. Can anyone enlighten me?
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Tim D on 10/04/2018(UTC)
Jim S
Posted: 10 April 2018 16:19:50(UTC)
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Freefall, I think ITs have some standard ways to value non publicly traded companies based on several metrics. Check out your IT's last annual report, its valuation methodology shd be in there.
I know what you mean though, there is one Indian infrastructure IT (not IGC!) where their high NAV estimate seems in fantasyland.

Robin, I have a similar approach to yours but its important to look at trends in discounts (say over last 5 years) as well as NAV change over time and current discount.
For PGIT, I'm not sure its 17.8% discount justifies its woeful 5 year NAV performance. FCSS, JPM Chinese, and IGC have almost as much discount but with much better track records. Likewise some well run Private Equity ITs are still around 15-20% discount. SVM has a good spread of UK smaller companies, that's still at 19% discount.
If you want to take a very speculative punt, have a look into GHS, 30% discount, and its biggest holding (35%) is in IMIMobile which was tipped in the Mail on Sunday last weekend. Don't blame me if it goes down like a stone though!

Good luck whatever you go for
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Robin Stone on 10/04/2018(UTC), Freefall Junkie on 11/04/2018(UTC)
Big boy
Posted: 10 April 2018 22:00:37(UTC)
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Wilson and Son Brazil up 9% to-day so I will be topping up Hansa Trust on 30% discount...NAV quoted daily. Buy which ever cheapest Ordy or A.. For PE check out Oakley IT on 30% discount......no daily NAV.
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Jim S on 11/04/2018(UTC), Robin Stone on 11/04/2018(UTC)
Jim S
Posted: 11 April 2018 10:16:02(UTC)
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Big boy;60453 wrote:
Wilson and Son Brazil up 9% to-day so I will be topping up Hansa Trust on 30% discount...NAV quoted daily. Buy which ever cheapest Ordy or A.. For PE check out Oakley IT on 30% discount......no daily NAV.



Yeah, I've been pondering Oakley the last few weeks, but the underlying holdings are a bit opaque, you have to go into the annual report to dig up what Fund I, Fund II etc actually are, and I didnt recognise many of them. Also the NAV valuations seem to be 3 monthly-ish. They seem to be around the magic 30% discount and I've had it on watchlist since you mentioned it before.

I've gone for ESO and GSO recently, the ESO bid-offer spread was horrible.
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Jim S
Posted: 11 April 2018 10:17:26(UTC)
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Jim S;60462 wrote:
Big boy;60453 wrote:
Wilson and Son Brazil up 9% to-day so I will be topping up Hansa Trust on 30% discount...NAV quoted daily. Buy which ever cheapest Ordy or A.. For PE check out Oakley IT on 30% discount......no daily NAV.



Yeah, I've been pondering Oakley the last few weeks, but the underlying holdings are a bit opaque, you have to go into the annual report to dig up what Fund I, Fund II etc actually are, and I didnt recognise many of them. Also the NAV valuations seem to be 3 monthly-ish. They seem to be around the magic 30% discount and I've had it on watchlist since you mentioned it before.

I've gone for ESO and GSO recently, the ESO bid-offer spread was horrible.


Sorry, meant GHS not GSO
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Robin Stone
Posted: 11 April 2018 19:12:08(UTC)
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Thanks all. I have ghs already, not done much since but nav is good so I am happy to be patient.
Bought some Oakley yesterday as I have looked at it previously, read up on the holdings and the 30% lured me in although I think private equity is a perfect example of where the nav could easily take big impairments so nav trusting is hard

IC alpha trial period had a trust screen and flagged a few more trusts VEIL looked interesting but iWeb surprisingly couldn’t find it and costs looked big so am thinking AEFS, SDP,EFM OR NAS.

I do like nas and hold some already but prefer to hold it outside an isa. ATS was in the list but looked like the perfect example of a fund of funds multiple costs impairing performance ie it drops when the market goes sideways(I hold witan and I still am surprised how well it does).

Hence any thoughts on sdp(Schroder Asia Pacific) ,AEFS alcentra euro floating rate or EFM(Edinburgh dragon)
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Mr Helpful on 12/04/2018(UTC)
Jim S
Posted: 11 April 2018 22:40:53(UTC)
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Maybe step back & think about your goals?

Are you looking for something in a particular sector, or to cover an area which your portfolio doesnt cover at the moment? If not, are you open to investing anywhere? Or is your goal is mainly to get an IT at a high discount which is likely to outperform and you don't care in what sector?
Does it have to be an investment trust rather than a fund?
I don't think there are many cheap good ITs for Asia Pacific or EM. PHI isnt cheap, but its probably what I would go for. FCSS & IGC are country specific which you may not want.

HVPE is 20% discount if you like P/E. Also IBT and BIOG feel undervalued to me at the moment, although more because of a current slump in biotech than a big discount.


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Mike L on 12/04/2018(UTC)
Robin Stone
Posted: 12 April 2018 07:00:58(UTC)
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Jim S;60499 wrote:
Maybe step back & think about your goals?

Are you looking for something in a particular sector, or to cover an area which your portfolio doesnt cover at the moment? If not, are you open to investing anywhere? Or is your goal is mainly to get an IT at a high discount which is likely to outperform and you don't care in what sector?
Does it have to be an investment trust rather than a fund?
I don't think there are many cheap good ITs for Asia Pacific or EM. PHI isnt cheap, but its probably what I would go for. FCSS & IGC are country specific which you may not want.

HVPE is 20% discount if you like P/E. Also IBT and BIOG feel undervalued to me at the moment, although more because of a current slump in biotech than a big discount.




My goal is to drive absolute returns over a 5-10 year period, I have a big chunk of pension in passive and a high risk tolerance(I have given up betting as shares as a hobby see it a bit like fantasy football) so this is for my isa early retirement/financial freedom fund. I basically am shopping each month for a good share to add. I tend to cull shares that arent useful, intention is once I have enough learnings I will concentrate a bit more.

With high discount its there is an opportunity for them to use their cash to buy shares or for a third party activist to do the same , or even a wind down. it also reduces downside risk from discount widening further because that would make early options more appealing. In terms of sector I filter later eg avoiding commercial non industrial property due to retail looking awful but I may swap out a premium it for a similar with a wide discount(eg smt to pct), ie if I like something I then check how it fits and alternatives.

The strategy has been working better than one of my other approaches (eg my “safe” carillon/interserve shares immune from fluctuations due to long term contracts sigh ) with buying big negative z scores selling if they go in the “expensive” list but applying the I know that trust means the pickings are slim hence I want to widen the net where I am sure there is more value but also more traps.

I bought biog just before the slump so have that exposure, will have a look at hvpe. Thanks
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raybd
Posted: 12 April 2018 08:20:08(UTC)
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The first rule is don't invest in anything you dont' understand.
This what I do. You don't have to do the same.
I use ITs to avoid stock-specific risk; BP, Volkswagen, banks, Carrillion ... I generally avoid ITs with high premiums. The premium for Lindsell Train makes it act partly like a single stock. I avoid. I hold SMT but any IT with unlisted holdings above ca15% I avoid. eg 3i, Syncona.
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Robin Stone on 12/04/2018(UTC), Mr Helpful on 12/04/2018(UTC)
Big boy
Posted: 12 April 2018 08:29:45(UTC)
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Always buy the highest discounts where you see daily NAVs. Any others you need Professional Research..
You will tend to outperform by buying in the 20-30% .(based on offer price) range (daily NAVs) Selling when bid price is 15% discount.......
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Robin Stone on 12/04/2018(UTC)
Pensioner
Posted: 12 April 2018 09:39:04(UTC)
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From my experience stick to quality which most successful investors do. That is good fund managers and investment trusts or OEIC's which are, or should be well covered by the press.
For example Inv.Trusts: SMT,FRCL,MNL to name a few. For unit trusts or OEIC's: Fundsmith, Marlborough Special Situations "P Acc", Rathborne Global Opportunities "I Acc", again well managed. With Fundsmith I find the best way to invest is ISA/monthly or small lump sums from time to time. Good Luck.
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Robin Stone on 12/04/2018(UTC), jvl on 17/04/2018(UTC)
geoffrey Walton
Posted: 16 April 2018 16:09:10(UTC)
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Robin Stone;60495 wrote:


I do like nas and hold some already but prefer to hold it outside an isa. ATS was in the list but looked like the perfect example of a fund of funds multiple costs impairing performance ie it drops when the market goes sideways(I hold witan and I still am surprised how well it does).



Can you elaborate a little Robin please?.
I have held Witan for two years. It is my largest holding, and I am wondering if I should sell
. The performance recently has been bad despite a small correction, it's price is almost what it was last May!! I have tripled my holding during the last 6 months of last year, which of course distorts my % gains, but am only just in profit showing 3.9% Not a lot for two years plus.

Thanks
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mark spurrier
Posted: 16 April 2018 17:24:33(UTC)
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I use Morningstar

What matters to me is the portfolio. How concentrated it is and what the active share is.
Some trust have too many holdings and you might as well be buying an ETF

If you are going to pay 0.5==>1.25% then you might as well get some value out of it.

I look at the portfolios and apply what I think. I like Japan but don't want to be in the heavy end of their industries. Some trusts are in "old" world stocks others are in newer things. I decide japan and its weighting then I look for what I think is most likely to be a good performer lookimg at Long term record and how the portfolios are allocated. If the premium is too big, I will look for an OIEC eg baillie Gifford japanese Smaller rather than Shin Nippon.

Some trusts are pretty limp and have been for years. They may have a decent yield but they plod along and don't perform too well over the longer term

I like CTY....decent yield but it also has an intelligent, well balanced portfolio..... slightly on the defensive side but still with some good growth elements.

I have a lot of Finsbury - it is relatively volatile but it has some cracking companies in the portfolio
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Hank Elvis Dobbs (texan)
Posted: 16 April 2018 18:59:10(UTC)
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..Bought some more Nas today ..cos someone (forgot who) said it's better to buy low than high...

...we'll see
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Robin Stone
Posted: 16 April 2018 19:26:07(UTC)
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geoffrey Walton;60723 wrote:
Robin Stone;60495 wrote:


I do like nas and hold some already but prefer to hold it outside an isa. ATS was in the list but looked like the perfect example of a fund of funds multiple costs impairing performance ie it drops when the market goes sideways(I hold witan and I still am surprised how well it does).



Can you elaborate a little Robin please?.
I have held Witan for two years. It is my largest holding, and I am wondering if I should sell
. The performance recently has been bad despite a small correction, it's price is almost what it was last May!! I have tripled my holding during the last 6 months of last year, which of course distorts my % gains, but am only just in profit showing 3.9% Not a lot for two years plus.

Thanks


Hi, not sure which bit you wanted me to elaborate on. I bough witan may 2016 and I reinvest divs so I am 1/3 up so very pleased. As you flag these gains were made in the first year so less exciting but the FTSE hasn’t been great either. In my strategy buy cheap sell high the discount is only 2 percent whereas it typically is -4.5% and has traded close to 10% hence not a loud sell but I would be selling rather than buying (note my strategy isn’t necessarily a good one just works for me up to now).

In terms of the fund of funds You may get 2 lots of 0.8% vs a tracker at 0.2%, if the market moves sideways for a couple years(like last year) this could add up. Similarly in this situation the discount may rise as people jump ship. I think their strategy works best in a growing(possibly falling) market vs a flat market.

In terms of a concentrated single holding I would diversify (as mentioned before I over diversify). If I had one holding default is take a tracker and then justify to yourself why not, but a lot of people rightly push fundsmith although this hasn’t done much since June last year either (my contrarian character makes me rail against his heavy US focus and Facebook judgement but I would have done better if I had put all my money in fundsmith a few years ago - but Woodford was awesome a while back too...). CTY is another good core investment trust but I sold some today due to premium to nav.

Hope that helps as always with me I would sell some to hedge against it suddenly doing great and to insure against it widening(although this exaggerated my over diversification even more...)
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geoffrey Walton on 16/04/2018(UTC)
Robin Stone
Posted: 16 April 2018 19:51:16(UTC)
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Hank Elvis Dobbs (texan);60732 wrote:
..Bought some more Nas today ..cos someone (forgot who) said it's better to buy low than high...

...we'll see


Ha, this is my biggest holding (outside my pension) but this is more as a non dividend stock for holding outside an isa, tempted to top up at that discount!
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