Identifying some of the trends and opportunities which have resulted from Covid-19

Like all parts of the market the investment trusts space has been shaken up by coronavirus. As share prices and valuations have begun to settle back into place, many trusts have been left at wider and narrower than usual premiums and discounts to net asset value (NAV).

In this article Shares has used data from Winterflood Securities to identify trusts which have diverged significantly from their 12-month average discount or premium to NAV.

The NAV is calculated with any debt held by the trusts at book value, which is how much it will cost to repay the lender when the loan is due, rather than fair value, which is how much the debt is worth now.


Some trusts are trading at a much higher premium to NAV than their 12-month average, meaning investors are paying even more than the assets are worth. This can happen when a sector is in fashion, such as we’ve seen with life sciences this year.

A good example is Syncona (SYNC) whose strategy of investing in life science businesses is in tune with the current response to the global pandemic. It is now trading on a 39.2% premium to NAV versus a 12-month average of 15.2%.

Other trusts which have move onto greater premiums include Civitas Social Housing (CSH) and Triple Point Social Housing (SOHO). This reflects demand for secure income at a time when the dividends available from equities have been drying up, as well as improved sentiment towards the social housing sector.

The trusts had previously been out of favour thanks to concerns over the financial health of the housing associations which rent the specialist properties. This issue is now less of a concern.


In the real estate market, the likes of Tritax Big Box REIT (BBOX) and Urban Logistics REIT (SHED) are trading at new-found premiums.

Investors have been attracted to the logistics space because of the acceleration of the online shopping trend in lockdown with greater demand for warehousing space to enable the sorting and distribution of goods.

This has been particularly pronounced in the groceries sector – supporting specialist Supermarket Income REIT (SUPR) which invests in supermarkets and fulfilment centres.

On the other side of the ledger, most office block and shopping centre real estate trusts have been badly bashed up by the crisis, trading at substantial discounts which reflect market scepticism about the true value of their assets.

Office landlords have been particularly hard hit as people expect a shift towards working from home to permanently impact demand for office space from businesses, with Regional REIT (RGL) moving from an average 12-month discount of 11.2% to trade a third below its NAV.



Student accommodation trusts have also slipped to big discounts as concerns have grown about the impact of coronavirus and travel restrictions on the sector as fewer students come from overseas and with potential limits on domestic students resuming in-person studying.

Elsewhere, equity income trusts have suffered amid widespread dividend cuts, while smaller company specialists have also been hit as investors become more wary about taking on the risks associated with small caps in a more uncertain environment.

The weak performance of value orientated collectives, such as Fidelity Special Values (FSV), shows the investment style continues to remain out of favour as investors prefer to chase growth in areas like the technology sector.


Two trusts to buy

RIT Capital (RIT) £18

Discount to NAV: 5.4%

12-month average premium to NAV: 3.5%

This well-regarded multi-asset trust has traded at a premium to net asset value
for a long time, so investors should take advantage of an opportunity to now buy at an appreciable discount.

A focus on capital preservation should be a winning attribute at a time when the outlook for the economy and markets is uncertain. The trust invests in a diversified and international portfolio across a range of asset classes, both quoted and unquoted. This includes private investments, credit, macro strategies and real assets.

Tritax Eurobox (EBOX) 92p

Discount to NAV: 20%

12-month average discount to NAV: 11.6%

The big discount at Tritax Eurobox (EBOX) is at odds with its counterparts, including lookalike trust Aberdeen Standard European Logistics Income (ASLI), and that seems unjustified despite a more limited track record and higher loan-to-value ratio.

It should be a direct beneficiary of the way Covid-19 has accelerated trends in online shopping.

Rental income is diversified across more than 20 tenants comprising retailers, manufacturers, third party logistics providers, pharmaceutical, food and drink, and packaging companies.


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