UK listed trusts have good year
The UK listed investment trust sector had a good year in 2006 and First New Zealand Capital are expecting the next 12 months to be good too.
Tuesday, January 23rd 2007, 7:34AM
First New Zealand Capital investment trust specialist Peter Irwin says the best performing ones (which FNZC follow) were TR Property Trust (+75%), The Independent ITC (+61%), Merrill Lynch World Mining (+38%) and Henderson TR Pacific (+37%).
However not all trusts did well. Those exposed to Japan, life sciences and technology were the laggards. One of the key features of the sector las year is that the average sector discount shares trade at relative to net asset backiing has remained at historically low levels.
The average discount was 6.9% at the end of the year, far better than the trough of 13.5% reached in August 2004 when retail demand for equity ITCs turned negative and there was an overhang of stock in the investment trust sector from a number of institutions.
"Discounts are now at their tightest level since the early 1990s," Irwin says.
The average discount for the sector since 1990 is 10.7%, but he says there are a number of reasons for current discounts to be lower than this long run average.
Firstly buybacks have only been tax efficient since April 1999, also boards are becoming increasingly proactive in introducing discount controls and numerous arbitrageurs are now active in the sector.
The third reason is that market conditions remain favourable for equity funds.
"Looking forward, we do not expect a major shift in discounts during 2007," Irwin says.
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