Is it time to bag an investment trust bargain?

[moorfield]

From the Times, paywalled, may be of interest to those who can access.

https://www.thetimes.co.uk/article/inve ... -8d3c9fn5s


Last year I started selling my lower yield holdings and buying higher yield income ITs. Here's hoping I've been buying at opportune times.


TSCO, SVT, BP, SSE, ULVR, NG, RDSB, SMDS....? The list goes on, no thanks, no more!

[Itsallaguess]

From the Times, paywalled, may be of interest to those who can access.

https://www.thetimes.co.uk/article/inve ... -8d3c9fn5s

Last year I started selling my lower yield holdings and buying higher yield income ITs. Here's hoping I've been buying at opportune times.

TSCO, SVT, BP, SSE, ULVR, NG, RDSB, SMDS....? The list goes on, no thanks, no more!

Full article here -

https://archive.ph/lR5IE

Cheers,

Itsallaguess

[Jam2Day]

I am glad the journo added the usual disclaimer at the foot of his article about doing one's own research . The first thing that springs to mind is the old cliche 'cheap or cheaper' and the second thing is that there are is always a reason even if it is not a good one. So it boils down to that old chestnut, have the IT investing community got it wrong or are the markets simply overvalued ?

[Dod101]

I am glad the journo added the usual disclaimer at the foot of his article about doing one's own research . The first thing that springs to mind is the old cliche 'cheap or cheaper' and the second thing is that there are is always a reason even if it is not a good one. So it boils down to that old chestnut, have the IT investing community got it wrong or are the markets simply overvalued ?

I find it difficult to believe that the markets are over valued. Some of the ITs at least have assets that are difficult to value and I suspect that there is feeling that some assets in the portfolios are on valuations that are out of date by some months and are overvalued.
Whether or not they are is of course where values lies or not as the case may be.
Dod

[Itsallaguess]

So it boils down to that old chestnut, have the IT investing community got it wrong or are the markets simply overvalued ?

It wasn't so long ago that a few of the AIC sector IT's mentioned in the article were trading on chunky premiums to their underlying assets, as we can see in the example chart below for Greencoat UK Wind (UKW) -




Source - https://www.trustnet.com/factsheets/T/j6yi/greencoat-uk-wind-plc/


Whilst it's always pertinent to be asking ourselves if market pricing of any potential investment is being valued correctly, as an income-IT investor I tend to concern myself with that question with much more focus when things are being over-priced to their underlying NAV's, rather than when they're being under-priced, because at least in a discount situation like we see in many cases today, and as covered by the moorfield's linked article, you're not fighting against a clear over-valuation headwind to start with...

In addition to the above, and in relation to your 'have the IT investing community got it wrong' question, I think it's worth reminding ourselves that many investors in IT's do so as part of a long-term income-investment strategy, and the recent rapid rise of interest-rates has not only led to a valuation adjustment in underlying assets by many of these IT's (as explained in this separate AIC article - https://www.theaic.co.uk/aic/news/cityw ... ds-falling), but it's also opened up what some income-investors might see as 'reduced risk' alternatives for some capital allocation, away from market-facing investments and into improved cash-based returns.

Taking all of the above into account, I'm of the view that there's always valuation-risk questions that we need to ask ourselves, but I'm normally happier to take on that risk in IT-based discount situations much more readily than I am in IT-based premium situations, and so for me, the more important time to be concerned was during the previous couple of years for many of these IT's that have seen a comparable swing from premiums to discounts, and where that underlying valuation headwind has, at least for now, turned in our favour...

Cheers,

Itsallaguess

[Jam2Day]

I find it difficult to believe that the markets are over valued. Some of the ITs at least have assets that are difficult to value and I suspect that there is feeling that some assets in the portfolios are on valuations that are out of date by some months and are overvalued.
Whether or not they are is of course where values lies or not as the case may be.
Dod

It seems to me there are pockets of value and then there are some downright dogs propped up by a few big hitters, notably in the US, one reason why I prefer IT's over ETF's assuming the management are up to it of course. But then that is all too often a how long is a piece of string at the leading edge. On the unlisted investments, I think that has always been the case (RIT,LTI,SMT etc) but there is nothing like a bit of uncertainty to highlight the 'glass half empty/half full' sentiment .

Whilst it's always pertinent to be asking ourselves if market pricing of any potential investment is being valued correctly, as an income-IT investor I tend to concern myself with that question with much more focus when things are being over-priced to their underlying NAV's, rather than when they're being under-priced, because at least in a discount situation like we see in many cases today, and as covered by the moorfield's linked article, you're not fighting against a clear over-valuation headwind to start with...

Yes. If one takes the view that an IT's job description and therefore 'divi' policy is relatively watertight, all things considered, it should make our lives a little easier when it comes to weighing up the nuts and bolts.

In addition to the above, and in relation to your 'have the IT investing community got it wrong' question, I think it's worth reminding ourselves that many investors in IT's do so as part of a long-term income-investment strategy, and the recent rapid rise of interest-rates has not only led to a valuation adjustment in underlying assets by many of these IT's (as explained in this separate AIC article - https://www.theaic.co.uk/aic/news/cityw ... ds-falling), but it's also opened up what some income-investors might see as 'reduced risk' alternatives for some capital allocation, away from market-facing investments and into improved cash-based returns.

Understood. Interest rates should and do play a key role in cyclical cash allocation. The pound cost averagers carry on their way, regardless. However, I think it is fair to say we would all prefer moves with a well timed standing start at a knock down price with a fair wind behind us. Not always achievable despite best laid plans .

Taking all of the above into account, I'm of the view that there's always valuation-risk questions that we need to ask ourselves, but I'm normally happier to take on that risk in IT-based discount situations much more readily than I am in IT-based premium situations, and so for me, the more important time to be concerned was during the previous couple of years for many of these IT's that have seen a comparable swing from premiums to discounts, and where that underlying valuation headwind has, at least for now, turned in our favour...

I think the last couple of years have bordered on the bizarre while life has done its best to carry on as usual. That said, I feel there are too many gremlins in the system for comfort. Yes, there are always demons to slay, it goes with the terraine of risk capital but I feel that is precisely the 'oxymoronic' scenario we face largely as a result of self interested government and central bank tinkering. As my old gym master used to say, 'No gain without pain'.