Trusts, ETFs & Funds

Trusts, ETFs & Funds equity research

Explore the latest equity research for companies within the Trusts, ETFs & Funds sector. Funds in this sector provide investment opportunities via equity and non-equity investment trusts, as well as exchange-traded funds.

Trusts, ETFs & Funds equity research

21 Oct 19

Quarterly Research Outlook Autumn 2019

Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.

Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN DTG DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP REDD RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF

04 Nov 19

THE MONTHLY November 2019

The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.

Companies: AVO AJB AGY ARBB BUR CLIG DNL DPP FLTA GTLY GDR MCL MUR NSF PCA PIN SRE PHP RE/ RECI RMDL STX SCE TON SHED VTA W7L

14 Nov 19

Active management drives +5% EPRA NAV growth

Urban Logistics REIT (“ULR”) has reported in line interim results. Rental growth continues, which in turn drives valuations and the underlying EPRA NAV: +5% in H1 to 145.2p. ULR’s brand of active asset management continues to yield results, with logical capital recycling into higher yield assets and +£0.6m rent uplifts achieved on reviews. We do not make material changes to our forecasts. We believe that the valuation remains attractive – 6%+ prospective dividend yield, trading at a 10% discount to NAV – in light of sustained value creation, clear quality of income (6.1yr WAULT) and further opportunity from a space in structural growth with strong demand.

Companies: Urban Logistics REIT

09 Oct 19

Bond proxy?

Bonds have traditionally been a core part of private client portfolios. Harry Markowitz is generally credited with developing and popularising the modern approach to investment diversification, as part of his doctoral thesis in 1952. Markowitz’s 60/40 equity/bond portfolio quickly became a staple of retail investor portfolios, and for many years equity and bond portfolios built around this basic concept have been highly successful for investors. The attractions were clear: aside from the solid income that bonds offer investors as a portfolio component portfolio, they also provided something of a hedge to equity exposure.

Companies: UKW TRIG HICL SONG

11 Nov 19

Fidelity China Special Situations - Domestic opportunities offer exciting prospects

Fidelity China Special Situations (FCSS) offers investors direct exposure to China for a portion of their portfolio, aiming to deliver long-term capital growth from investing in companies listed in China, and Chinese companies listed elsewhere. Since the trust’s inception in April 2010, FCSS’s NAV total return has increased by nearly 11% pa. The portfolio has a bias towards mid- and small-cap companies, which tend to be less well researched and potentially mispriced. The manager, Dale Nicholls, is focused on opportunities related to rising domestic consumption, which in his view is unlikely to be disrupted by the ongoing US-China trade dispute.

Companies: Fidelity China Special Situations

12 Nov 19

Portfolio update reiterates progress

Tern has issued an update on the activities of its portfolio companies so far in the second half of 2019. It follows recent fundraises both for Tern itself (of £1.75 million) and one of its investee companies – see our note “Dual fundraises endorse Tern’s strategy”. The Group confirms that it has invested £1.1 million in its portfolio companies since the end of June 2019, mainly in the form of convertible debt. It also says that turnover of Tern’s four principal portfolio companies for the nine months ended 30 September 2019 was ahead of last year. If the four businesses conclude certain outstanding opportunities, their turnover should meet Tern’s expectations of a 50% increase for the full year. Tern is in the earlier stages of discussions regarding several potential new investments. We note the recognition of the investee companies by investors and clients which is reflected in the fundraisings, contract wins and participation in projects by the businesses.

Companies: Tern

03 Sep 19

LIBERUM: Burford Capital* - Fundamentally unchanged view

Following the recent short attack and share price fall, we outline our continued confidence in Burford. The bearish commentary has raised a number of questions, but these have been sufficiently answered by the company, in our view.

Companies: Burford Capital

14 Nov 19

BioPharma Credit - Invests in Epizyme and Akebia

BioPharma Credit (BPCR) has announced it has entered (alongside the BioPharma V fund) two five-year senior secured loan agreements with a total commitment of US$85m over the next 12 months (of which US$52.5m will be drawn initially). The terms of both loans are broadly in line with previous deals with a high single-digit floating interest rate, a 2% upfront fee and certain make-whole/prepayment fees. We estimate that BPCR still has at least US$344m in uncommitted cash (after excluding the recently declared dividend of US$0.0175 per share), which it aims to deploy before the end of the year.

Companies: Biopharma Credit

08 Jan 19

All rise!

The UK legal service sector looks intrinsically attractive to investors, with its inherent high added-value, resilient growth through all but the very worst of economic times and fragmented nature. Five companies representing about 1% of the huge UK legal sector are all we have seen so far on the UK stock market and this is clearly going to grow, as listed law firms drive home their advantages and expand. Their UK domestic focus has brought share prices under pressure which looks wrong given the outlook, offering a good buying opportunity. We take this opportunity to initiate coverage of Gateley (Corporate) which has achieved great success since IPO but paradoxically trades at an anomalous discount to its peers.

Companies: GTLY BUR DRV MUR INCE KEYS RBGP

13 Dec 18

Efficiency is everything

Over the last few years, fees and costs have become a lightning rod in the investment world, attracting the scrutiny of regulators, the media and the public alike. Investment trusts, with their independent boards acting partly on the views of shareholders, have been quick to respond. We review the changing fee landscape among investment trusts in 2018 through proprietary analysis, and discuss those which boards have done most to reduce costs for investors.

Companies: PCT SMT HSL CTY JAM IPU MWY LWI

09 Mar 18

Keep calm and carry on...

Investment trusts are often the structure of choice during booming markets. The ability to gear, plus the investment freedom of a closed-ended structure allow skilled managers to capitalise on rising share prices. However, the same has not necessarily been true on the way down, as leverage exaggerates losses and discounts widen. This has often been a time to buy, with market volatility providing a chance to buy into good trusts at knockdown rates. Cherry Reynard asks, has the market rout since the start of the year produced any opportunities for value-hunters? There are 28 trusts that have seen their discounts widen by more than 5%* since the start of the year. This appears a mild reaction to the market sell-off. The FTSE 100 was down 7.5% over the same period. Peter Walls, manager of the Unicorn Mastertrust (a fund of investment trusts), said this first bout of volatility, triggered by expectations of higher interest rates in the US, passed much of the sector by unnoticed: “There was some intra-day volatility in some of the more highly geared, specialist funds. Some of the trusts that had enjoyed strong demand from self-directed investors also proved volatile – Fidelity China, Scottish Mortgage and F&C Global Smaller Companies. However, those hoping to pick up cheap opportunities were disappointed.” There were a number of reasons why investment trusts didn’t exhibit panic selling. Notably, companies proved active in buying back shares. Scottish Mortgage, for example, bought back 3,000,000 ordinary shares at a price of 449.34p at the start of March. Walls added: “The boards are aware that discount volatility is not great for shareholders and did their best to manage discounts through this time.” However, while the rout itself did not throw up any conspicuous bargains, it did exaggerate some existing trends among some familiar investment trusts. The first is the weakness of the infrastructure trusts. There were seven infrastructure trusts among those trusts that saw the greatest discount widening over the period. In some cases, the moves were extreme - GCP Infrastructure saw a 9.4% move, while HICL saw an 8.0% move. 3i Infrastructure and John Laing Infrastructure moved from a long-standing premium to a small discount. Infrastructure trusts have long been seen as a ‘bond proxy’ investment and as such, might be expected to suffer on the prospect of rising rates. However, as Walls points out, there were also other factors at work. Concerns over the collapse of Carillion and an increasingly aggressive stance from the Labour Party on PFI have weighed heavily on investors. This has unquestionably led to better value, with discounts at multi-year highs. The question for investors is whether the rising interest rate environment is reflected in current prices, or whether any further inflation shocks could send prices lower still. Simon Moore, senior investment manager at Seven Investment Management (7IM) believes a more fertile ground may be the UK Equity income sector, where sentiment has been dented by Brexit concerns. He says: “There are three investment trusts which stick out where their price has fallen significantly over the last three months. All of these have Neil Woodford/ Mark Barnett connections (make of that what you will): Edinburgh Investment Trust, Perpetual Income & Growth and Woodford Patient Capital. “These have a few UK small caps that have been in trouble, arguably nothing to do with the market sell-off, but each manager have been vocal supporters of UK listed companies despite obvious global pessimism on UK equities post-Brexit referendum. If they are right - and their judgement calls have often been right in the past - then these funds could be rerated.” Moore points out that both managers have styles that will go in and out of favour. Certainly, all three trusts have moved down a long way. Patient Capital has seen its share price total return dip 10.7% and its discount widen 5.4%. Edinburgh Investment Trust hasn’t seen a significant change in its discount, which is hovering around 9%, but its shares are down 8.6%. It is a similar situation with Perpetual Income & Growth, where the shares are down 7.7%, but the discount remains at around 9.5%. Moore says: “It is worth remembering that Patient Capital is a very different fund to either Edinburgh Investment Trust or Perpetual Income and Growth and is not for the faint hearted. Given the nature of some of the companies it invests in, there may well be more ups and downs to come. But the clue is in the name - investors who can afford to be patient may well be rewarded over the long-term." Walls sounds a note of caution, saying that some of the classic equity income type stocks favoured by these two managers are still seeing a difficult time. Some of the outsourcing groups, for example, remain out of favour with investors. Much will depend on whether investors come to believe in the ‘value’ trade, where this type of stock will revert to more normal valuations. The other sector to see some change in ratings among the recent volatility has been the technology and media sector. Of course, this comes after a lengthy expansion in the technology sector, with companies such as Facebook, Amazon and Netflix leading markets higher for much of 2017. Walls says: “A couple of the technology trusts, such as Polar Technology Trust and the Allianz Technology Trust have moved to a small discount. I wouldn’t say they look like bargains.” Walls suggests that some sectors where there should have been bargains – such as UK smaller companies – have not seen any real movement in aggregate and are certainly ‘not exciting for value-minded investors’. That said, some are certainly cheaper than they were: Chelverton Growth trust has taken a hit, for example. The other weak trust has been the River & Mercantile UK Micro Cap, though this dropped following the departure of manager Philip Rodrigs over a ‘conduct issue’. Overall, most trusts have held up well since the start of the year. This reflects well on the sector, which appears to have grown better at managing market downturns. There are opportunities, but these have arisen from issues idiosyncratic to each sector rather than market volatility as a whole

Companies: SMT EDIN PLI WPCT PCT ATT RMMC

30 May 19

Positive Teinver annulment dismissal

The Group has announced the dismissal of an annulment application against the Teinver case by the World Bank arbitration panel, meaning the put option on this case has now expired and it can recognise the full income for the 2018 sale. Not only does this remove the risk of reversal of previous income, further details in the announcement shows the conservatism in the FV marking of this case. We re-iterate our Buy rating.

Companies: Burford Capital

04 Jul 19

Small Cap Feast

ReAssure Group plc - The Group is a leading closed book life insurance consolidator in the United Kingdom with 4.3m policies, £68.7 billionof assets under administration on a Post-L&G Illustrative Basis. It is considering a premium listing segment of the main market. Voyager AIR The Company will focus on the acquisition, leasing and management of primarily widebody aircraft, with asset management services to be provided by Amedeo Limited he IPO will comprise a Placing and Offer for Subscription of Shares to raise up to approximately US$200m· IMC Exploration Group (NEX: IMCP), focused on acquiring and exploring prospecting licence areas which have high potential for natural resource, is looking to admit its shares to the standard list and will withdraw for the NEX Exchange. TBC Uniphar, a diversified healthcare services business with a workforce of over 2,000, is looking to join AIM. Raise TBC, expected mid-July 2019

Companies: FOX ARCM ABDP IGAS MTW CMB CNIC EMR DCTA

28 Feb 19

Greencoat UK Wind - Overview

Greencoat UK Wind’s (UKW) aim is to provide investors with an annual dividend that increases in line with RPI inflation (target of 6.94p for 2019, a yield of 5.1%) while preserving the real value of the NAV in the long term through reinvestment of excess cashflow and the use of portfolio gearing. So far it has delivered on all of its promises since launch in 2013. UKW is now the largest listed renewable infrastructure fund, with net assets of in excess of £1.7bn (after the recent placing). Investment activity this year has continued apace, with £452m invested so far in 2019. This will bring the total portfolio to c. £2.3bn in size by the end of March. The managers expect to be able to benefit from scale, both in operational terms, but also in terms of acquisitions and financing. The OCF last year fell to 1.13% (from 2017’s 1.24% and 1.46% at listing) and is forecast to be 1.08% after the recent placing. The portfolio will shortly constitute investments (in whole or in part) in 34 operating UK wind farms around the country. These assets represent a net generating capacity of 950MW, enough to power c.900,000 homes. As such, the portfolio has geographic diversification around the UK, not to mention diversification by turbine manufacturer and by units – the company will own (or has interests in) a total of 715 turbines by the end of March. UKW buys only operating wind farms in the UK. UKW has unequivocally been a strong performer since it launched. The NAV total return (i.e. with dividends reinvested) since launch has been 8.3% pa. Despite the considerably lower volatility that the company exhibits, on a NAV total return basis UKW has outperformed both the FTSE All Share Index total return since launch, and peers in the listed renewable infrastructure sector. Around 50% of the company’s cashflows are directly index-linked, with the remainder being exposed to electricity prices. As such, electricity prices, which are assumed to have a correlation to inflation, affect UKW’s ability to grow NAV by RPI in the long term. Given the high dividend cover of 1.7x on average, the company expects to grow the dividend by RPI on an annual basis over the long term. Currently the trust has £400m of longer-term fixed rate borrowing, with a weighted average cost of 3.08% and remaining term of 5.6 years. The trust has an additional £394m of shorter-term gearing drawn down, equivalent to 34% of gross assets. Together the average interest cost is 2.76%. Over the medium term, the team expects total gearing to be between 20% and 30% of total assets. Many of the listed 'alternative income' funds continue to trade at significant premiums – and Greencoat is no exception on a current premium to NAV of 13%.

Companies: Greencoat UK Wind

18 Jul 19

UK Renewable Energy Infrastructure Funds – For all the fans

Over the past two decades, onshore wind power has prospered and now exceeds 12 GW in the UK. The termination of subsidies for new plants from 2017 onwards has cut investment. Instead, offshore wind power is the new ‘goto’ investment sector, as there has been a sea-change in costs. The key event was the 2017 auction for the development of the Hornsea Project Two and the Moray East fields, when 15-year contract for differences (CfDs) were awarded, at just £57.50p per MWh; this compares with the 2018 £100 per MWh target that had been set previously by the Government. In recent years, solar power has come of age. Total UK solar capacity now exceeds 12 GW. Inevitably, most solar farms are based in the Midlands or in the South, where irradiation levels exceed the UK average. A typical solar farm portfolio might include 50 sites with 8 MW of capacity per site. Despite the removal of subsidies for new solar plants, the prospects remain bright for new build, since costs have fallen appreciably in recent years. The levelised cost (LCOE) of solar power should fall below £70 per MWh. The UK’s first subsidy-free solar farm has been commissioned at Clay Hill in Milton Keynes. For many investors, REIFs offer an attractive means of securing exposure to the benefits of rising UK investment in these sectors, much of which is backed by long-term contracts delivering generally solid and secure returns. Our sector research focuses on 11 quoted REIFs, which mirror those selected by members of the Association of Investment Companies (AIC). The recently floated Aquila European Renewables fund is included, despite its declared policy not to invest in UK generation. Since May 2014, REIF returns have been solid, with total returns approaching 10% per year. As a group, their combined market capitalisation is ca.£7bn; the most valuable quoted funds are Greencoat UK Wind (£2.1bn) and The Renewables Infrastructure Group (£1.8bn). The sector premia over net asset valuations (NAVs) for most REIFs now lie in the 9%-19% range. The premium for Greencoat UK Wind, following its £375m gross fundraise, is ca.14%; The Renewables Infrastructure Group premium is similar. Targeted real dividend increases underpin the attractions, in particular, of wind and solar investments; major earnings shortfalls are low-risk, with little likelihood of a dividend cut. Prospective dividend yields for most REIFs currently lie in the range of 5.0%-6.0%. In terms of risk, future movements of interest rates could have a material impact on NAVs and, consequently, upon share price ratings. The precise effect will depend on the degree to which the discount rates moves relative to the riskfree rate. Regulatory amendments, subsidy changes and possible tax adjustments are also key risk factors with one company commenting that movements in long term power price forecasts are the most significant risk.

Companies: TRIG UKW NESF FSFL AERI GSF GRP SEIT USFP

10 Oct 19

Augmentum Fintech giving investors 'rare exposure to this red hot asset class'

13 Nov 19

KRM22 expands product offerings with deltaconX partnership, raises £1mln

31 Oct 17

Angus Energy - Update

13 Nov 19

Zoetic International's Nick Tulloch updates as it begins trading on the OTC

22 Oct 19

S4 Capital's Sir Martin Sorrell on the power of its 'faster, better, cheaper' digital-only model

02 Aug 19

Bitesize briefing - Volta Finance

02 Apr 19

Emmerson Potash Mining

01 Aug 19

Bitesize briefing - HgCapital Trust

19 Jun 19

JLEN Financial Results

26 Jul 19

Tern PLC Strategy Highlights & Investee Overview

04 Nov 19

Emmerson PLC reports CAPEX reduction for Khemisset project by using Port of Casablanca

25 Jul 19

Highlands Natural Resources - Company Overview

18 Oct 19

Supermarket Income REIT expands fundraise and portfolio with new Sainsbury’s in Cheltenham

04 Jul 19

Executive interview - Acorn Income Fund

22 Oct 19

Polar Capital Global Healthcare's Daniel Mahony talks key sector developments

Latest Content

Urban Logistics REIT

Active management drives +5% EPRA NAV growth

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14 Nov 19
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Biopharma Credit

BioPharma Credit - Invests in Epizyme and Akebia

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14 Nov 19
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Urban Logistics REIT

Active management drives +5% EPRA NAV growth

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14 Nov 19
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KRM22

KRM22 expands product offerings with deltaconX partnership, raises £1mln

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13 Nov 19

Zoetic International

Zoetic International's Nick Tulloch updates as it begins trading on the OTC

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13 Nov 19

EVRH TEK IMMO TERN TRAK CPX SEE TCM TCM TRCS QTX

Smartglasses are coming; Chinese auto startup raises US$400m

Big Tech is working on some form of smart glasses or headset that will change how we view the world around us. If glasses replace common gadgets like our phones or computer screens, it will mean big business to the company that comes out on top. We agree – we are enthused by the take-up of AR/VR over the long-term.

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13 Nov 19
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Brunner Investment Trust

The Brunner Investment Trust - A portfolio ‘for all seasons’

The Brunner Investment Trust (BUT) is managed by Lucy Macdonald at Allianz Global investors (AllianzGI). Important developments for the trust in recent years include a move to a single global rather than discrete UK and overseas portfolios; a more global benchmark; better investment performance; an improved capital structure; and a more diversified share register. The manager believes that versus its peers, BUT’s relative headwinds (due to having less exposure to the most highly valued tech stocks and more to the UK) are dissipating. She says that having both an income and capital growth objective in a more volatile, lower-return environment ‘is probably not a bad thing’. Macdonald argues that BUT offers a more balanced style at a time when growth looks very expensive versus value; she describes the trust as a portfolio ‘for all seasons’.

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12 Nov 19
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Tern

Portfolio update reiterates progress

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12 Nov 19
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Aberdeen New Thai Investment Trust

Aberdeen New Thai Investment Trust - Fast-growing region supports growth prospects

Aberdeen New Thai Investment Trust (ANW) is the only London-listed investment trust specialising in Thai equities. It aims to deliver a high level of long-term capital growth, employing a bottom-up approach to invest in a relatively concentrated portfolio of around 40 stocks, representing the manager’s highest-conviction ideas. The trust has delivered strong absolute returns over the past 10 years, with an annualised NAV total return of 15.4%. Thai companies are well-placed to benefit from the rapid growth of its less-developed neighbours of Cambodia, Laos, Myanmar and Vietnam (CLMV), which offer a large and significantly underpenetrated market for goods and services.

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