Every week, a professional investor tells MoneyWeek where he’d put his money now. This week: Richard Scott, manager of the iimia Growth & Income Fund.
It is easy to be put off investing when the graph of the FTSE 100 index resembles the vital signs of a hospital patient having a cardiac arrest. But such times are often the very best ones in which to seek out bargains in the closed-ended fund (such as investment trusts) sector. This is because closed-end prices often react disproportionately to movements in the value of the things they are invested in. The following are three examples of opportunities to buy shares in good funds at attractive discounts.
Over the past year it has been impossible to miss the huge advertising blitz for UK commercial property funds. But anyone looking for exposure to UK commercial property should think twice before paying a premium to invest in an open-ended fund (such as a unit trust). Investors in some of these funds have had a nasty shock as sentiment suddenly turned cautious and some firms changed the pricing basis of the funds, causing sharp falls in their prices. Negative sentiment has also hit the prices of closed-ended property funds, resulting in some astonishing price falls. One of the best, Invista Foundation Property (IFD), has seen the underlying value of its portfolio per share (net asset value) rise 23% over the year to 23 August, and yet its share price has dropped by 7%. At this level the shares yield 5.7%. So rather than buy a unit trust, take advantage of bargains like this one in the closed-ended fund market.
Hedge funds have had a bad press recently amid spectacular losses recorded by some high-profile funds managed by leading institutions such as Bear Stearns. It would be a shame if this blinded investors to the merits of all hedge-fund products. One interesting fund is the New Star Absolute Return Fund (NSAR). This fund gives actively managed exposure to nine sub-portfolios managed by some of New Star’s leading lights, such as Richard Pease and Tim Steer. The aim is to deliver decent returns with a fairly low level of risk. Investors can either buy income shares, which aim to yield 5%, or growth shares with the same total return but a nil yield. The fund’s shares have recently fallen back below the price at which they were issued around a year ago and are trading at a discount to their net asset value. This is a good opportunity for those seeking a diversified hedge fund run by the best managers of one of the UK’s leading fund management groups.
Most investors are still negative about technology funds, remembering the horrors of the collapse in the ‘TMT’ boom in 2000. Lack of interest in the sector is such that a steady stream of technology specialist funds are closing down, as their size has dwindled to uneconomic levels due to redemptions. The irony is that many investors are giving up on the sector just as its fortunes are looking up.
The earnings growth and valuation of technology firms’ shares look increasingly good relative to that of the overall market. The tech sector held up well compared to the falls in major stockmarket indices in recent weeks – and after seven years in the doldrums, a revival in the sector’s fortunes seems to be a case of when, rather than if. The managers of Polar Capital Technology (PCT), led by Ben Rogoff, have a good track record, and the trust’s shares have recently been trading at an enticing 8% discount or thereabouts to their net asset value.
The stocks Richard Scott likes
Stock, 12mth high, 12mth low, Now
Invista Foundation Property, 144p, 115.5p, 121.3p
New Star Absolute Return, 107.5p, 93.5p, 95p
Polar Capital Technology, 256p, 210p, 225p