Investment trust insider on emerging markets

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on emerging markets – James Carthew: there’s value in emerging markets as investors rush to take cover

In uncertain times, it makes sense that investors turn to sectors with defensive earnings, such as utilities and infrastructure. Ecofin Global Utilities and Infrastructure (EGL), which I hold, is trading at asset value and issuing shares. It offers an attractive yield, which is useful when all around companies are passing their dividends, and it also has much more of an earnings growth story than you might expect, as companies shift their generation mix to renewables.

Sectors that offer the prospect of better-than-average growth are in demand too. Polar Capital Technology (PCT) and Allianz Technology (ATT) both trade at premiums. PCT’s shares are up by a quarter over the past three months. Scottish Mortgage (SMT) has been positively booming over the last few months, having smashed through the £10bn market cap level and now heading rapidly towards £11bn.

Normally I’d be directing you to look for bargains. For example, using the ‘Z-score’, which readers of this website’s weekly Trust Watch will know is a measure of how far a trust has moved outside its normal range, in the Global Emerging Markets sector, BlackRock Frontier Markets (BRFI) looks cheap-ish on a score of -1.6 and its shares trading nearly 7% below net asset value (NAV). [NB this was rewritten by Citywire as BRFI’s discount narrowed after I wrote this – defeating the point really – this paragraph originally read “But normally I’d be directing you to look for bargains. Here, according to Morningstar, top of the list on a Z score basis (which is a measure of how far something has moved outside its normal range) is BlackRock Frontier Markets (BRFI). Its NAV has been climbing steadily from the lows of late March but, over the past few weeks, the share price has been going nowhere, leaving it on a discount of just over 10%.”]

The trust’s NAV has climbed steadily from the lows of late March, but, over the past few weeks the share price has gone nowhere with the result the discount has widened beyond its one-year average of 1.9%. When I started writing this article the discount had reached 10% which shows you how quickly these things can change.

Actually, on an absolute basis, BRFI is now on one of the tightest discounts in its sector where the average trust trails nearly 12% below NAV, a sign that these trusts are unloved.

Scotgems (SGEM) has the widest discount at over 24% and, ahead of its redemption or exit facility next month, Jupiter Emerging & Frontier Income (JEFI) has the narrowest at 5.4%, according to Morningstar data. [Originally, this paragraph read – “Only JP Morgan Emerging (JMG) and Jupiter Emerging & Frontier income (JEFI), which both have much better performance than BRFI over the past 12 months, are trading on tighter discounts. The sector is unloved and frontier markets have lagged emerging markets“.]

The rest of the article can be read here