Stock-market-listed investment trusts, unlike unlisted funds, can trade at a premium or discount to their underlying assets. And when the share price trades at a discount to the assets this can provide an opportunity to buy the trust at a bargain price - but it is important to ensure that this is an anomaly that's likely to correct as in many cases the shares are trading on a discount for a reason, such as poor performance.
- Discount has widened
- Good performance
- New manager has performed well
- Performance fee scrapped
- Ongoing charge has risen
- Manager leaving
- Discount may not tighten
Trading on a discount to net asset value (NAV) of more than 12 per cent, JPMorgan Mid-Cap Investment Trust (JMF) appears to offer just such an anomaly. This discount is wider than its 12-month average of 9.86 per cent - and one of the widest levels it has traded at in around a year. This is despite the trust performing well. According to analysts at Oriel Securities, the discount is a reflection of the correction in the FTSE 250 in recent months.
In its annual results to 30 June 2014 the trust reported a NAV return of 18.3 per cent and share price return of 23.2 per cent, against 17.8 per cent for the FTSE 250 (ex investment trust) Index. JPMorgan Mid-Cap has also outperformed its benchmark over one, three and five years, and over the past year has beaten two of its mid-cap-focused peers, Schroder UK Mid Cap (SCP) and Mercantile Investment Trust (MRC).
If JPMorgan Mid-Cap continues to perform well the discount to NAV could tighten.
The trust has done particularly well ever since Georgina Brittain joined the management team in April 2012. Between that time and late September 2014, the trust's NAV returned 66.5 per cent versus 47.7 per cent for the benchmark, according to broker Numis Securities. Ms Brittain chooses holdings on the basis of their individual attributes rather than sector considerations, with a growth bias and an emphasis on companies with strong balance sheets.
"Ms Brittain has an impressive track record as a small-cap manager, which she has successfully translated into the mid-cap space," say analysts at Numis. "The fund offers value on a 12 per cent discount and it pays an attractive yield which is fully covered by earnings."
The trust is also maintaining its full-year dividend at 18p.
IC TIP RATING | |
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Tip style: | GROWTH |
Risk rating: | HIGH |
Timescale: | LONG TERM |
JPMorgan Mid-Cap's management team is set to change, with William Meadon, who has been joint manager since May 2009, stepping down at the end of October 2014. However, Ms Brittain has managed the portfolio on a day-to-day basis since April 2012 (from which time there has been an improvement in performance), with Mr Meadon overseeing strategy and gearing. Ms Brittain will also be assisted by Katen Patel who has been on the trust's investment team since April 2013. Before joining JPMorgan he specialised in small and mid-cap equities at HSBC for seven years.
JPMorgan Mid-Cap's ongoing charge has risen from 0.66 per cent to 0.97 per cent as its management fee was increased from 0.4 per cent to 0.65 per cent a year on 1 July 2013. However, the investment trust has also scrapped its performance fee, giving investors more certainty on future charges. And if the trust's total assets of £214m increase to more than £250m, the management fee will fall to 0.6 per cent, which could mean a fall in the ongoing charge.
So if you have a long time horizon and can tolerate the relatively higher volatility of mid-caps relative to large-caps, then this trust could be a good way to exploit a discount anomaly and a turnaround situation. Buy.
JPMORGAN MID CAP INVESTMENT TRUST (JMF) | |||
---|---|---|---|
PRICE | 712.5p | GEARING | 7% |
AIC SECTOR | UK All Companies | NAV | 802.8p |
FUND TYPE | Investment trust | PRICE DISCOUNT TO NAV | 12.65% |
MARKET CAP | £171m | 12 MONTH AVERAGE DISCOUNT TO NAV | 9.86% |
ONGOING CHARGE | 0.97%* | YIELD | 2.53% |
SET-UP DATE | 30-Jun-72 | MORE DETAILS | www.jpmorgan.co.uk/investment-trusts |
Source: Morningstar, *JPMorgan.
Performance history
Investment trust or index | 1-year share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) |
---|---|---|---|
JPMorgan Mid Cap Ord | 7.9 | 110.1 | 133.0 |
Schroder UK Mid Cap Ord | 3.9 | 113.7 | 158.0 |
Mercantile Ord | 2.5 | 68.8 | 85.8 |
FTSE 250 Ex Investment Trust TR GBP | 2.8 | 71.4 | 99.4 |
AIC UK All Companies sector average | 12.6 | 48.0 | 61.4 |
Source: Morningstar as at 2 October 2014
Top 10 holdings (as at 31 August 2014)
Holding | % |
---|---|
Ashtead | 4.8 |
Howden Joinery | 3.3 |
Dixons Carphone | 3 |
Micro Focus International | 2.9 |
Thomas Cook | 2.6 |
Talk Talk Telecom | 2.5 |
Taylor Wimpey | 2.4 |
Interserve | 2.1 |
CSR | 2.1 |
Berkeley Group | 1.9 |
Sector breakdown (as at 31 August 2014)
Sector | % |
---|---|
Financials | 24.4 |
Industrials | 22.3 |
Consumer services | 20 |
Consumer goods | 7.3 |
Telecommunications | 6 |
Technology | 5.8 |
Oil & Gas | 4.2 |
Basic materials | 2 |
Healthcare | 1.8 |
Cash | 6.2 |