By Annabel Brodie-Smith
The clocks have gone back and the storms have arrived… It was lovely to see so many of you at our private investor event in October despite Storm Babet’s rage.
Our barn is surrounded by a lake but thank goodness they built it on a platform when it was converted. Sherlock, our dog loves paddling in his personal water supply and refuses to drink anything else.
A perfect storm of higher inflation and interest rates as well as unhelpful regulation and conflict in the Middle East have caused investment company discounts to widen. The average investment company traded at a discount of 16.9% on 31 October – the widest discount for a month-end since December 2008 when the world was in the depths of the global financial crisis.
“The average investment company traded at a discount of 16.9% on 31 October – the widest discount for a month-end since December 2008 when the world was in the depths of the global financial crisis.”
The average discount started to widen at the beginning of 2022, when inflation and interest rates began to climb and war broke out in Ukraine. By the end of 2022 it had hit 12.5%.
But the presence of activist investors on investment company share registers shows that some recognise the value in the sector. Of course, none of us know what will happen next but history tells us that current discounts could represent a buying opportunity. On the last day of December 2008, the average investment company discount was 17.7%. The financial crisis roared but over the next year the average investment company returned 39% and 119% over the next five years.
“On the last day of December 2008, the average investment company discount was 17.7%. The financial crisis roared but over the next year the average investment company returned 39% and 119% over the next five years.”
Of course, average industry discounts have to be interpreted with caution, as some hard-to-sell assets of investment companies are valued less frequently. This means that the discount for the end of October is likely to be revised in future, as new valuations become available.
Talking about discounts, we looked at the best performing investment companies over ten years on a double-digit discount on 20 October. Of course, discounts have moved since then, but there are some interesting trends with the technology trusts Allianz Technology and Polar Capital Technology featuring in the top three performers. And the Private Equity sector featured most prominently, accounting for eight of the top twenty trusts.
This month we are examining sectors where discounts are particularly wide. Looking first at property, this week I spoke to Bjorn Hobart at Tritax Big Box REIT and Richard Shepherd-Cross at Custodian Property Income REIT. You must watch the video where Richard explains it’s an opportune time to invest in UK Commercial Property investment companies with 6-7% yields and fully covered dividends, in an environment where underlying rents are growing and occupation is strong. And Bjorn talks about the UK Logistics sector where his company, Tritax Big Box is proud of their portfolio which is resilient in uncertain economic conditions. This is due to their large, modern well-located buildings which are let to companies on long leases like Amazon and Ocado. They have a 100% record of rent collection over the last ten years. Also read the release where we talk to these managers and abrdn Property Income Trust, UK Commercial Property, AEW UK REIT and Schroder Real Estate Investment Trust.
With COP 28 starting in the UAE at the end of November, it seems an appropriate time for freelance journalist Cherry Reynard to examine the Renewable Energy Infrastructure investment company sector which has been out of favour with “extreme” discounts. However, with interest rates looking like they are peaking, these discounts could well provide “some contrarian opportunities.” James Carthew, head of investment companies at QuotedData highlights Gore Street Energy Storage Fund and NextEnergy Solar Fund. Whereas Gavin Haynes, investment consultant at Fairview Investing favours Impax Environmental Markets and the Renewables Investment Group.
Finally, in Compass we spend lots of time looking at the right time to buy but what about the right time to sell? Ian Cowie has written an intriguing article on “when should we turn paper profits into real ones?” Ian explores three reasons why he has sold, firstly, to meet his individual investment objectives, secondly, to take some profits on a regular basis, and finally, when things do not have a happy ending.
“In Compass we spend lots of time looking at the right time to buy but what about the right time to sell?”
Also Asset TV are running a virtual conference, Future Trends in Investment Trusts, on 15 November at 9.30am. Speakers include James Hart of Witan, Emma Bird from Winterflood and I’m interviewing Mike Seidenberg from Allianz Technology Trust. You can register for the event here.
I’d like to wish you a good month. Happy discount hunting and let’s hope the storms subside!
Kind regards
Annabel Brodie-SmithCommunications Director, AIC
