Bargain hunter: A big discount on this top investor's Asia Pacific trust
25th August 2017 13:39
by Kyle Caldwell from interactive investor
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Income investments of all descriptions continue to be highly prized in the continuing record low-interest rate environment.
As a result it has become tougher to find income-focused investment trust bargains - particularly in the case of alternatives, with various infrastructure closed-ended funds trading on premiums in excess of 10%.
The hunt for yield has also resulted in some sister investment trusts - pairs of trusts with the same fund manager at the helm - to trade on remarkably different valuations.
Take and , for example, both managed by Matthew Dobbs. The income trust, with its dividend yield of 3.4%, is currently trading on a small premium of 0.2%, which can hardly be deemed expensive. But in contrast, the growth-focused SDP is available on an 11% discount, so in this context investors can access the same manager at a much cheaper price.
Neil Jones, an investment manager at wealth manager Hargreave Hale, thinks the discount gap between the two trusts is too big to ignore. "You're getting the same manager, but two different styles," he says.
"For me the 11% discount outweighs the higher dividend yield on offer (SDP is yielding around 1.1%, so the difference in yield is 2.3%). The 11% discount is completely out of kilter with the underlying value of the trust's assets."
SDP's current discount of 11.3% is just shy of its 12-month average discount figure, which stands at 12%. At the time of writing (23 August) only one Asia Pacific ex Japan trust was offering a higher discount of 12% - .
SDP is one of Money Observer'sadventurous investment trust tips for 2017/18. In the case of both SDP and SOI, Dobbs looks for quality companies with strong balance sheets, good cash flows and sound corporate governance that he can buy at attractive valuations.
Inevitably there will be some overlap between the two trusts, but just two stocks feature in the top 10 holdings of both portfolios - Taiwan Semiconductor Manufacturing and Samsung.
In addition, the country weightings differ markedly. Hong Kong comprises 25% of SOI's portfolio, while China accounts for 13%. In contrast, China makes up 29% of SDP and the weighting to Hong Kong is 19%.
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.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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