This unique investment trust trades on a wide discount despite dividend growth and defensive attractions
Thursday 21 Mar 2019 Author: James Crux

There is a rare chance to pick up an unusual but very attractive investment trust trading on a wider than normal discount to its net asset value (NAV) at 13.2% versus a 12-month average of 11.8%. You also get a dividend currently yielding 3.3%.

Law Debenture (LWDB) is an investment trust with a twist – in addition to a portfolio of stocks it also provides services to corporate trust and pension trustees. This provides an added element of diversification for investors that ensures the performance of the trust isn’t solely reliant on the direction of the stock market.

A period of lacklustre performance, partly explained by a high UK weighting relative to global peers, has impacted sentiment towards Law Debenture, but that could change as Brexit uncertainty recedes and the performance of the professional services business improves. A low ongoing charges figure of 0.43% only adds to the trust’s competitive allure.

Law Debenture seeks to achieve long term capital growth in real terms and steadily increasing income – aiming to generate a higher rate of total return than the FTSE All-Share – via a diverse portfolio of investments spread both geographically and by sector.

Its portfolio is managed by James Henderson and Laura Foll at asset manager Janus Henderson. The professional services arm provides an important revenue stream that supports the payment of a higher dividend without constraining the manager to focus exclusively on higher-yielding stocks.

Encouragingly, the professional services arm performed strongly in its first full year under the new management team of Denis Jackson (CEO) and Katie Thorpe (CFO), a pair seeking to increase the growth of the business.

Law Debenture’s 2018 NAV total return was -5.8%, negative in absolute terms, but comfortably ahead of the FTSE All-Share’s total return of -9.5% as the low beta, defensive nature of the portfolio protected investors from the worst of the market decline.

Crucially, the trust has performed well in absolute terms over the three, five and 10 years to January 2019 and the total dividend was increased 9.2%
to 18.9p in 2018, meaning the trust has a 44-year record of maintaining or increasing the shareholder reward.

While Law Debenture invests globally, the main focus is on quality UK companies trading at depressed valuations. As such, Shares sees scope for the portfolio to produce strong returns once Brexit uncertainty dissipates.

Towards the end of 2018, Henderson and Foll took advantage of market weakness to add to existing holdings including life insurance giant Prudential (PRU), cruise operator Carnival (CCL) and homewares retailer Dunelm (DNLM).

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