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Willis Owen shares three investment trusts on big discounts for Black Friday

Posted by Adrian Lowcock in Press releases category on 23 Nov 18

F&C UK Real Estate Investments

Real Estate has been one of the hardest hit following Westminster’s damning response to Theresa May’s Brexit agreement. The risk for real estate is that the UK ends up with a hard and uncertain Brexit. If the UK enters recession or if some companies choose to relocate that could result in empty properties with no rental income. In that situation, owners such as F&C UK Real Estate may have to drop rents and revalue their properties accordingly. The most sensitive area for property investing this year has been the high street.  This fund has around 17% in retail which rises to 38% including out of town retailers. A hard Brexit is unlikely to be good news for retailers as consumers would probably adopt a ‘wait and see’ approach before making big purchases. 

Consequently, the discount on this fund has widened to 18.55%, which is the largest discount of the year and is the most significant in the context of the 3 year average of  just -1.01%. However, unlike unit trusts, this closed ended fund is unlikely to be forced into selling any properties so patient investors can stick out the short term volatility whilst new investors willing to take a risk could access the trust at a large discount and attractive yield of 5.34%

Tritax Big Box 

This fund invests in the big warehouses needed by online companies to fulfil their orders.  This sort of asset also benefits from long leases and lease renewal as the companies leasing them need consistent, cost effective and reliable locations to meet their needs.  As tenants prefer to avoid the hassle of relocating, this plays into Tritax’s hands when rent negotiation time comes around. Upwards-only rent reviews are a regular feature of these agreements which is why investors looking to diversify their income will continue to find this sort of investment attractive.

The trust has traded at a premium for several years as investors have sought the steady, inflation linked income the asset class has to offer. The recent sell off in the fund has led to a rare situation where the trust now trades at a discount of 3.34% to the NAV. This compares to an average premium of 7.71% over the past three years. The trust offers a yield of 4.674%, which is well covered. The trust has good quality tenants and repeatable earnings. 

Woodford Patient Capital Investment Trust

Plenty of hype surrounded the launch of this trust as it combines Neal Woodford’s track record with private equity investing offering exciting potential for growth. While the initial reaction was positive, investors quickly lost patience as Woodford faced a series of disappointing results.  In today’s market, the trust is one of the most unloved and trades on a discount of around 15.6%.This is a reflection of the past performance and investors should remember that investing in unlisted equities is risky with bad news nearly always coming at the start of the journey.  

However, the fate of the trust is turning as those patient investments are starting to deliver some positive news. This includes the listing of Autolus Therapeutics and an investment in Oxford Nanopore by Amgen , a large US biotechnology company. That said, many investors are still sceptical and as a result the discount to the NAV has widened.

If Woodford’s approach eventually pays off, there is a fair bit of upside potential for this trust, and should performance continue to improve the discount is likely to reduce. However, given the DNA of this trust makes it only suitable only for long term investors who are willing to take the considerable risk of investing in early stage businesses.