Two Gems from London's Bargain Bin
04/27/2011 1:01 pm EST
These promising, well-managed trusts are selling at steep discounts to net asset value, writes Andrew McHattie in the Investment Trust Newsletter.
Westhouse Securities recently examined the European Investment Trust (London: EUT), a little over a year after Edinburgh Partners took over the management.
According to the broker, “Since then, despite the new manager’s impressive track record, the shares have mostly been trading around a 15% discount, which is also at the wider end of the sector. We believe this is a clear mispricing, both in absolute and relative terms.
“And [we] can only attribute it to investors not appreciating that EUT’s (poor) long-term track record is not attributable to the current manager, and/or not having the relevant track record readily available when reviewing the sector and the fund.” [The discount to net asset value was 13.2% as of April 21—Editor.]
The manager of the trust is Dale Robertson, who has a good seven-year track record with an open-ended investment company run in the same manner. Westhouse concluded, “We not only expect the manager to continue to outperform the benchmark over the longer term, but also for the shares to re-rate materially.”
Meanwhile, Winterflood issued a note on Henderson TR Pacific (London: HPI), managed by Andrew Beal, a growth-oriented investor who runs a conviction-based portfolio of just 45 holdings.
Stock selection is on a bottom-up basis, with country and sector weights secondary considerations. The portfolio currently contains a number of investment themes, including growth in Asian leisure and travel, growth in the auto sector, growth of the Internet in China, and the development of the Asian financial services sector.
Despite being reduced over the last year, China remains the fund’s largest active country position. Including Hong Kong, the fund has some 41% of assets invested there. This has been driven by stock selection, and the portfolio has a bias to high-growth, domestic areas of the Chinese economy.
In the last few years, the fund has performed broadly in line with the benchmark, with positive stock selection compensating for the relative underperformance of China, according to Winterflood. Over the last three years, the fund’s net asset value is up 57%, compared with 44% for the benchmark, the MSCI All-Country Asia ex Japan index.
The broker concludes: “The portfolio is, in our view, well positioned at present, with its emphasis on the Asian consumption story, particularly the rise of consumerism in China. As such, we believe that the fund is an attractive way to gain exposure to Asia, especially on its current discount.” [The discount to net asset value was 8.8% as of Monday—Editor.]