Six investment trusts to consider selling

Seasoned investors might recall the old adage 'Sell in May and go away, don't come back till St. Leger Day' which advocates selling out of the stockmarket for the slower summer months and returning to the market in the autumn. But should investors pay heed to this old maxim?

Over three decades, markets have risen 65% of the time during the summer and any low 'average' return during the summer months will be distorted by a handful of major crashes, a few which have occurred in the month of September rather than the early or mid-summer months.

It is also true that the summer months have seen seven steep sell-offs over the last 31 years, these being 1992 (-11.6%), 1998 (-12.6%), 2001 (-18.4%), 2002 (-21.2%), 2008 (-13%), 2011 (-10.9%) and 2015 (-9.6%).

Adrian Lowcock, investment director at Architas, says that last year is a reminder the sell in May adage is not guaranteed as markets rallied in the summer months following a short sharp sell-off after the Brexit vote.

However, if you are committed to selling in May, these are the investment trusts you want to offload because they're trading on expensive premiums or because their tailwinds - such as the commodity price recovery - have eased off.

1. BH Macro

This is a Guernsey-based hedge fund that was launched in March 2007 and feeds into Brevan Howard's flagship Master Fund, incorporated in the Cayman Islands.

It has however, struggled in recent times, and as a result during the first quarter 48% of share capital elected to exit at a 4% discount.

Patrick Thomas, investment manager at Canaccord Genuity Wealth Management, says now might be time to join the crowd who have hit the sell button. He makes the point that BH Macro, which also feeds into Brevan Howard's flagship Master Fund, is a more consistent performer and has a wider discount at 9.2% versus BH Macro's 5.2% discount.

"We had expected a high level of redemptions at the full exit, given the persistently wide discount and dull NAV performance. We are still wary of where the fund might trade post tender, given the lack of discount control," says Thomas.

Discount: 5.2% versus a 12 month average discount figure of 8.1%.

2. BlackRock World Mining (BRWM)

This is the first of three trusts that have done very well which investors who might now want to take profits on before the summer, recommended by Ben Willis of wealth manager Whitechurch.

He points out that BlackRock World Mining Trust has significantly benefited from the recovery in commodity prices in 2016 and the weakening of sterling following the EU referendum, as it focuses predominantly on large cap UK miners that generate earnings in dollars. "Now that the commodity price recovery looks like it has run out of steam (for the meantime), and with sterling looking relatively stable, now could be a good time to sell the position and bank some profits."

Discount: 12.8% versus 12 month average discount figure of 13.7%.

3. Tritax Big Box REIT

This is the other trust Thomas would sell, on the grounds of its impressive performance since launch in 2013. Its share price is up around 40% since listing onto the main market, but Thomas is worried the hot streak may nearing towards an end, which is why he thinks it is prudent to take some profits.

Tritax Big Box REIT is the first quoted specialist provider of Big Boxes, which are very large, highly efficient distribution and logistic hubs, positioned in prime geographic positions for supply and downstream distribution. The 4.9% dividend yield has caught the eye of income investors, but those it comes at a big price - a premium of 9%.

"We see less scope for further yield compression from here, and on the current premium the shares look at best fully valued. Accordingly, we now expect dividends to become a much greater component of total returns; although with interest rates looking likely to rise over the next few years, a yield of 4% is less attractive," adds Thomas.

"In addition to the obvious risk of a Brexit inspired slowdown in the UK economy, we also wonder aloud about the obsolescence risk over the medium to long term."

Premium: 9.4% versus 12 month average premium figure of 9.4%.

4. 3i Infrastructure (3IN)

"You could pick any number of infrastructure trusts to be honest as many of them are trading on eye-watering premiums," says Willis. The 3i Infrastructure trust is no different trading on a premium in excess of 18%. Infrastructure has been a beneficiary of the low growth, low inflation 'bond proxy' environment but remains in demand due to its yield (3i still offers just under 4%) and because of the inflation linked qualities of the asset class. However, investor demand and recent performance have made these expensive assets.

Premium: 18.8% versus 12 month average premium figure of 16.5%.

5. Standard Life Investments Property Income (SLI)

This is another asset class that fell afoul of the EU referendum vote, when many of these trusts moved to significant discounts. "However, the sustained sell-off just did not materialise and with sterling weakness enticing foreign investors and the UK economy proving robust, recovery in the sector has been rapid," says Willis.

The Standard Life Investment Property Income Trust has recovered strongly and is now trading on a premium of over 10%, no doubt part of the investor demand being driven by the trusts 5% yield. But with property values still under pressure, it may be time to move out.

Premium: 12.6% versus 12 month average premium figure of 3.8%.

6. Fundsmith Emerging Market Equities (FEET)

The Fundsmith Emerging Market Equities fund in June 2014 attracted a huge amount of interest, and the shares continue to trade at a lofty premium, relative to a peer group generally offered at a reasonable discount, despite marked underperformance of both benchmarks and peers.

Smith's investment strategy has worked superbly in his Fundsmith Equity Fund, says Willis, "but it remains to be seen whether it will succeed in these more challenging markets".

He adds: "The massive overweighting in favour of the consumer is a significant risk, especially as the fund's portfolio is trading on significantly elevated multiples relative to the MSCI emerging market benchmark. We prefer peers trading at more attractive discounts with longer track records in what is a volatile asset class."

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.