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Articles > Financial

Financial

Expat Investment Trust Opportunities After The Brexit Vote

  Published Wednesday December 21, 2016 (15:19:10)   (4869 Reads)

Investment trusts

The papers have been full this year of Brexit and like many others I confess I was somewhat shocked on the morning of 24th of June to read that the UK had actually voted for Brexit. When I had gone to bed Nigel Farage was quoted as saying “I think Remain has just edged it”, and I thought so too. I had to read the BBC website headlines three times when I logged on it the morning just to take it in.

So markets initially plummeted but now most of the doom and gloom that was forecast has not actually come to pass at all. Sterling took a dip and that only spurred British companies stock prices higher due to higher overseas earnings to be repatriated in GBP. What it also did for us though is throw up a number of opportunities in the investment trust field.

Most funds you will be offered as fellow expats are open-ended and are linked to products usually marketed by life companies. My views on that are already published on this website here but what I wanted to tell you today was that the other side of this is the investment trust industry and many of these investment trusts look very attractive at present.

With an open-ended traditional fund, “OEIC” or “unit trust” as these used to be known, the share price each day is reached on a calculation of the value of the underlying assets owned by the investors and the value is divided by the number of shares in issue to reach the price per share. However with an Investment Trust it is also what is known as a closed-ended company and the shares of these are listed on the stock market like any other company. As a result when they get redemptions the managers do not need to sell any underlying assets in order to meet the proceeds of the sale because these are listed on the market and sold into the market on a “willing seller, willing buyer” basis and the shares change hands without affecting the actual investments held. “So what?” you might ask, but the point is that this process keeps things more stable and the investment trust prices vary depending on supply and demand so they can trade at either a discount or premium to the value of the underlying investments, which is known as the “NAV” or Net Asset Value.

Some of the investment trusts actually keep a fairly tight rein on these discounts or premiums by either buying back in their own shares at the end of each day or selling shares they own themselves back into the market. This keeps these within a percent or so either side of NAV. However many don’t and this is what I thought I would bring your attention to as it makes a change from the usual QROPS or suchlike article.

A lot of these investment trusts have been around for very many years, are stable and are ideal as long term pension investments. I cannot make specific recommendations here as to their particular suitability for an individual but I can tell you that at the time of writing 14th Dec 2016 that many offer some very attractive discounts to NAV. What this means to me is that as a patient investor with a long term pension pot to invest in, and let’s be straight in our thinking here that even when we retire we still need to remain invested as we don’t simply require a big wallet full of cash on the day we retire, then we need to look at where we might see good value. Being able to essentially buy a Pound’s worth of assets for perhaps 5-10% or more discount looks pretty attractive to me if I like the underlying picture and believe the asset price will also grow over time.

Purely as an example I see value in such places as TR Property which is very well managed by Marcus Phayre-Mudge whom I have known for many years and whose abilities I have much respect for. TR Property until this year often traded at a premium to NAV such was the demand for it. Immediately post-Brexit it fell to -23% discount to NAV and I thought I’d buy a bit more for myself and so did a few clients. My thinking was I believe long term that UK commercial property will continue to be an attractive place to invest and for a patient investor, apart from an expected rise in the value of the underlying property over the years, I would expect sentiment to improve and we’d get a narrowing on the discount too. Today that discount is still 12% but since 24th of June the value has risen over 7% as of today.

Foreign and Colonial Investment Trust is the world’s oldest investment trust and dates back to 1868. It has increased its dividends consistently and invests globally in major companies. It has over £3bn in assets invested around the world and at the time of writing has a discount to NAV of 8.79%. I believe we are finally in a recovery mode since the 2008 bust and I am confident this is a well-diversified fund which isn’t going to disappear overnight, so I see an opportunity here to buy a Pound of assets for just over 92 pence. Apart from that the fund’s long term record is excellent and even with a change of manager in recent years it continues to look pretty solid to me. As we say in this business “past performance is no guarantee of future returns” but a long term investor here is not likely to have been disappointed and my point in the article is not to recommend F&C but to point out that there are a wide range of investment trusts and you may not have been told about them before.

A good number of them presently offer some decent discounts to the underlying values so who says Christmas only happens once a year?


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