ITs at a premium

[Adamski]

Noticed BG China Growth now at 17.6% premium and Pacific HI at 15.6%.

Do you think these kind of premiums are short term or will last? Is it driven by recent popularity of investing in China / Pacific region? Will BG have to issue shares to get the premiums down, or leave it to the market? Is this an example of IT gearing increasing returns on way up, and magnifying on way down?

[Adamski]

Got no replies yesterday, but since spotted same issue discussed on Citywire, which I read but am not on. One poster suggested buying the oeic which is priced per the market, BG are active at managing premiums, so when premium narrows then but the IT equivalent. Think that's good advice, and highlighting an instance where buying the Oeic makes sense over an IT, a least in the short term.

[scrumpyjack]

I know nothing of these trusts but there can be reasons why the published NAV may be misleading, for example if they have substantial unquoted investments that the market thinks are worth a lot more than their book value.

[DavidM13]

I know nothing of these trusts but there can be reasons why the published NAV may be misleading, for example if they have substantial unquoted investments that the market thinks are worth a lot more than their book value.

It is a fair question. However, Pacific Horizon = 1.1% unlisted, not sure about the other one.

I struggle to purchase on a premium, no matter how good they are, and would rather give my money to Woodford than pay 17%!

[77ss]

I know nothing of these trusts but there can be reasons why the published NAV may be misleading, for example if they have substantial unquoted investments that the market thinks are worth a lot more than their book value.

It is a fair question. However, Pacific Horizon = 1.1% unlisted, not sure about the other one.

I struggle to purchase on a premium, no matter how good they are, and would rather give my money to Woodford than pay 17%!

I bought PHI just under a month ago, when the premium was about 7.5% (I don't have a problem with that size premium).

Share price up by 17% in less than a month, a lot of which will be down to the increasing premium. Obvious temptaton to cut and run at some stage.

I took a closer look at its major holdings. Nearly 10% in Sea Ltd. Interesting company. IT bubble territory or the next Asian behemoth? I suspect the market may be betting on the behemoth ending.

PHI has run out of share-issuance permission which probably increases the premium, however:

https://www.investegate.co.uk/pacific-h ... 01404314E/

[Adamski]

@77ss, you may be better off selling PHI, buying the BG Pacific fund equivalent, then buying back in, once shares issued and closer to NAV.

[shetland]

I hold BGCG, which I only bought 2/3 weeks ago, and wanted to top up on Thursday last week but didn’t fancy the premium so I bought the fund. I am tempted to sell the trust and buy the fund tomorrow.

[msantiago]

I've had both of these on my watchlist for some time but didn't like the premiums at 7-8% and certainly don't when they are approaching 20%! The BGCG share price is up a further 8% today. I suspect some bullish sentiment wrt to China given Biden is expected to pursue a less confrontational policy is part of the driver but I really struggle to see why an investor would be buying at these levels...

[joey]

I bought a small amount not long after the switch to Baillie Gifford. I'd hoped to build up the position over the next six months but with the premium having gone to 20%-ish I'm a bit put off now. Obviously the pre-BG data isn't going to be an accurate guide for what a suitable premium/discount is. It will be interesting to see how the portfolio changes now it's under new management.

[Largsviking]

Been reading the chat.....my humble views...

I got in @4.37 a few weeks ago I view current growth as froth..( premium expansion)..so lets see what its like in 2 years. I noted today there was someone buying a 100k wedge of BGCG ( two dollops )

I like Baillie Gifford....I think they do good work and I like what I see in my current stake in SMT. I have watching BGEU as well, but there is seems to be more tech in it than I would like. I’m wanting something more than yet another fund with tech.

I wanted something of China, I did not have that much exposure to an economy which is growing. Of course there are still Japan holdings in there.

Many have been slain on the mountain of trying to make sense of Chinese business process and culture....Anthony Bolton being one, this is not a live or die bet for me but the old adage one has to take some risks to accumulate, this is the vehicle I chose.

So far so good but these are not normal times.......LV

PS thanks to all who write on these boards.....I find it very useful and a goto source before I would ever buy anything....ever !!!!!!!!

[Adamski]

BGCG down 7.6% today. Premium at 31.5%. Due to drop in China tech c4% (regulator threats been down today and yesterday). Plus issued equity 5pm today. Would expect continued downward fall on prices as BG issuing equity at increasing amounts. Guess they'll want premium down to reasonable levels. Re China tech pullback would have thought this is "noise" as China govt likes its industry to toe the line (like the pull back in Sep).

[joey]

BGCG has been up and down this past week. I was hoping to use the Halifax cheap dealing day on Wednesday to ditch some of my other funds and move the proceeds into BGCG. But the yo-yo’ing is rather off putting.
I noticed on the BG site that they are trying to issue more shares to help control the premium. (At least that’s my understanding). I’m wondering if I should wait to see those issued first.

[joey]

BGCG and Pacific Horizon Investment Trust (PHI) have finished today at ~5% premium. Down from sky-high 20% premiums! I guess the issuance of equity has started to do its job.

[Dod101]

As I said on another thread, BG has been issuing new equity almost on a daily basis since they took over. The new shares have been held in Treasury and they comprise the shares that they bought back by tender when the mandate changed and they are making a useful turn on them. Obviously issuing new shares dilutes existing shareholders but it is to me at least less of a concern with a growth trust than it would be with an income one. It is good to get the premium down a bit and hopefully it will stabilise in due course.

Dod

[Lootman]

Obviously issuing new shares dilutes existing shareholders

Does it? If an IT issues shares at a premium to net asset value and sells them at the market price, doesn't that benefit existing shareholders? There are more shares at issue of course, and so your percentage ownership declines slightly. But the asset value is increased by the proceeds from the sale of those shares, so you have a smaller share of a bigger pot.

I can see the dilution if they sell at a discount to the market, but not otherwise. Although I admit I cannot quite get my head around all the possible permutations.

[Dod101]

I agree and in this case, the IT is I think doing well from its issue of new shares. I think they acquired them at 90% of NAV at the tender offer and are issuing them at about 1% over NAV so they are benefiting everyone. My point about dilution though is that existing shareholders are seeing their share of the entire trust fall slightly(very slightly in most cases) but are unlikely to notice especially with a growth trust. If it is an income trust, the extra shares that are being issued can sometimes reduce the growth in the dividend because of more mouths to fee, although in the longer run, the additional assets should produce the additional income required, but an existing shareholder is definitely being diluted.

Just work it out on the back of an envelope, taking say a Trust with 100 shares in issue. If they issue 20% more shares and I own 10, then I start out owning 10% of the trust and end up owning 10 out of 120 rather than 10 out of 100, which reduces my ownership to 8.3%.

Dod

[scrumpyjack]

Generally trusts can only issue shares at a premium or buy back shares at a discount, both of which should benefit existing shareholders other things being equal. If they issue more shares, they will probably invest that cash in further shares of their existing holdings so there is no dilution.

In BG's case the increasing size of the investment trust, whether from issuing new shares or from increasing asset value, has enabled them to reduce charges, again to the benefit of shareholders.