Interactive Investor

Bargain hunter: Eight post-Brexit trust buys

15th July 2016 15:19

Kyle Caldwell from interactive investor

Investment trust enthusiasts searching for bargains are spoilt for choice, according to broker Winterflood, which has made no fewer than eight changes to its investment trust recommendation list in response to last month's historic Brexit vote.

Prior to the referendum, analysts at Winterflood had predicted that a negative reaction from equity markets and a sell-off in sterling would play out in the event of a victory for the 'leave' campaign. The call was spot on. Both sterling and global equity markets plummeted.

Over two weeks since the vote took place, the pound is still down over 10% against the US dollar, although it has slightly recovered over the past couple of days.

Stockmarkets, on the other hand, have been volatile, although some have regained their poise; earlier this week the FTSE 100 index of blue-chip stocks entered bull market territory.

Volatility brings opportunities

Investment trust share prices, like those of other equities, have been volatile. But, as more experienced investors can testify, this simply opens up more opportunities for brave investors to buy assets at a cheaper price.

Winterflood notes the current discount volatility presents 'attractive value opportunities' and has therefore moved to give its recommendation list a shake-up.

Three of the new entrants to list have in recent weeks been flagged by Money Observer's investment trust bargain hunter as attractive opportunities - Perpetual Income & Growth (7% discount), JPMorgan Japanese (15% discount) and RIT Capital Partners (0.4% discount).

Simon Elliott, research analyst at Winterflood, said Perpetual Income & Growth had replaced Edinburgh Investment Trust (3% discount), while JPMorgan Japanese had been picked in favour of Baillie Gifford Japan (4% discount). RIT Capital Partners was simply added to its recommendation list.

Elsewhere, Winterflood has made a switch from Gabelli Value Plus to North American Income Trust (12% discount and 3.3% yield), while in Europe Jupiter European Opportunities and TR European Growth have been replaced by Fidelity European Values (14% discount) and Henderson European Focus (15% discount).

Another change has resulted in BlackRock Frontiers being swapped for Templeton Emerging Markets (12% discount).

Defensively positioned trusts

Finally, Winterflood has switched its property recommendations from Standard Life Investments Property Income and Picton Property Income to F&C Commercial Property.

"We believe F&C Commercial Property benefits from a high-quality portfolio, which offers reasonable value at a 20% discount in the uncertain times ahead," notes Elliott.

The broker adds that the main driver behind all of the switches has been down to "valuation grounds" - in other words the wider discount.

But there was another factor behind the European trust changes. Elliott says that, given the uncertainties over how the Brexit vote will impact Europe, he prefers trusts that are more defensively positioned.

He adds: "Both funds offer more defensive exposure, with Fidelity European Values offering mainstream European equity exposure, with a focus on quality, at an attractive discount to net asset value, while Henderson European Focus's mean reversion approach gives it greater exposure to value stocks. This, combined with its healthcare exposure, should prove defensive in volatile markets."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.