Investment Trusts – how many do you have?

So, if I told you there was a fully quoted, multi-billion, diversified investment fund out there paying a dividend of over 4%pa yet where you could have bought its shares at a 60% discount to the underlying asset value of the whole portfolio, would you believe me?

Our clients believe us, as we hold it and have been nibbling-away for a little while now. It’s an eclectic bag of assets and maybe there are some things in there where it would be difficult or impossible to realise that full value but there’s plenty of protection in there for that and some worth more on sale too. To be frank, it is a surprise that the managers haven’t decided that it is time to take it private and keep all the spoils for themselves. If it was priced at 100% of the assets, in today’s market that may be a bit rich and I guess we’d have moved-on already but the joy with this type of investment is that regardless of whether its assets go up or down in price, there is a technical trading opportunity in there for ‘free’. If that discount narrows to say 30% because there are more buyers than sellers (and the Fund has been buying-in and cancelling it’s owns shares as that’s a great investment return for it anyway!) then that means all our investors have had an uplift, a return from the ‘worst’ discount, of 75% (yes 75%!) just because of that opportunity – can you imagine that? If it doesn’t happen, does it matter? Not really, for our 40p we have been enjoying the returns on £1’s worth of underlying assets and as sure as eggs is eggs, if the market doesn’t correct this vast anomaly, then some corporate activity will do it as it is too attractive to a ‘raider’ to stay this way for ever.

Or what about another Investment Trust where the shares are for sale at a 31% discount to the underlying asset value (so at 69p you buy £1’s worth of assets – all listed companies and bonds) and where a potential name change could elevate it up into the ‘popular’ stakes (and a premium to that asset value instead)? Since 5 November, simply through its stock selection, the underlying asset value has risen a remarkable 49% and as soon as private investors see this short-term result they will start to buy and push the price up further. We already have baskets full of the stuff… I bought some more last week!