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Numis Z Scores
Jim S
Posted: 22 January 2018 17:19:53(UTC)
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I sometimes read about the Numis z score of 'cheap' and expensive' ITs (eg Gavin Lumsden article last Friday). But I must admit to not understanding what it means!

Eg Doric Nimrod Air 2 has average 12 month permium of 55.8, whereas right now its 18.6. That is a lot cheaper, yet it has Z score of -2.8.

Meanwhile Carador Income Fund has average 12 month disc of -2.3, whereas now its -4.7. That is only a bit cheaper, yet it has a Z score of -3.4.

If Z score a measure of cheapness compared to the 'normal', I don't understand why Carador has the cheaper Z score. '

I tried googling Z score as a generic thing, it seems to be widely used in statistics and maybe have something to do with Standard deviations, but it all went a bit over my head. Or maybe Numis are using other data as well for their Z score.

Can anyone explain to us non experts how Numis Z scores indicating cheap and expensive investment trusts are calculated please?

Mickey
Posted: 22 January 2018 18:44:51(UTC)
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The z-score is not unique to Numis, and beware, there are different z-scores for different time periods. A good explanation may be http://www.morningstar.co.uk/uk/investmenttrust/itsolutions.aspx?docid=357229

In a nutshell, A positive z-score indicates expensive, a negative means cheap in comparison. The Morningstar sheets show 1, 3, 5, 7 and 10 year z-scores!
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Jim S on 22/01/2018(UTC)
Alan Selwood
Posted: 22 January 2018 18:47:48(UTC)
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In Gavin's regular column, Z score is calculated by looking at the current discount or premium to assets of each investment trust compared with the past average of the discount or premium for the same investment trust. I'm not sure what the period chosen is for the average, but the main point is that the figures match the same trust against its history.

If the discount is very big, it usually suggests that that trust is really unloved by potential buyers, or in a sector that is unloved. If the premium is very high, it hints that people are getting carried away with their enthusiasm to buy, without looking at the value-for-money aspect.

So in a sense the Z-score compares how enthusiastic the buyers are/are not against the past history of their buying.

When the assets are growing strongly but the IT price is languishing, a big negative Z-score may suggest that it's available on the cheap and worth buying.

The converse is also true.
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Tim D on 22/01/2018(UTC), Jim S on 22/01/2018(UTC)
Jim S
Posted: 22 January 2018 19:59:40(UTC)
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Mickey;55773 wrote:
The z-score is not unique to Numis, and beware, there are different z-scores for different time periods. A good explanation may be http://www.morningstar.co.uk/uk/investmenttrust/itsolutions.aspx?docid=357229

In a nutshell, A positive z-score indicates expensive, a negative means cheap in comparison. The Morningstar sheets show 1, 3, 5, 7 and 10 year z-scores!


eek, so it is also closely related to standard deviation then, ie. how much actual fluctuation in discount/premium there has been over 12 months, as well as how different it is now from the 12 month mean. So in the example I guess in the past DNA2 must have fluctuated much more than CIF, thus lowering its Z score.

I think I will need to read your link a few more times to get my head around it

Thanks!
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Mickey on 22/01/2018(UTC)
martin turner
Posted: 28 January 2018 09:46:17(UTC)
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Many Investment Trusts have quite large borrowings. Are these taken into account when calculating NAV? Some borrowing is more expensive than other borrowing, of course. Is that also taken into account?
Big Boy and others may have a simple answer?
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Guest on 28/01/2018(UTC)
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