As markets continue to rise we look in to research on what’s cheap now
New research from broker Liberum Capital has identified investment trusts that might just be due for a re-rating in the so called ‘Alternative’ funds area.
Alternative funds primarily cover trusts that invest in private equity, debt/loans, property, infrastructure and trusts covering specialist sectors.
Liberum notes that the average share price return over the past year for alternative funds +18.4%, with several sectors now trading on a premium to NAV (net asset value), largely driven by investor appetite for income.
In their research Liberum screened for trust trading at more than two standard deviations below their 1 year historic average premium / discount and pick out opportunities with near-term re-rating potential (Standard Deviation is a common measurement of volatility which measures by how much an investment deviates from its historic norm or mean).
Polo Resources (LON:POL) trades on a 48% discount to NAV (60% discount including the value of cash and listed investments at par). The stock has suffered on the back of weakness in the mining sector but the current rating represents an attractive opportunity given the potential for positive newsflow in H2 2013 on its two largest investments (Signet – oil & gas; Nimini – gold) which could act as a catalyst for the shares. Liberum rate this a buy.
Carador Income Fund (LON:CIFU) – CIFU is one of several investment company businesses that are benefiting from the shortage of lending to businesses. It invests in a type of debt issued to companies, called a CLO (Collateralised Loan Obligation) that tends to be secured against physical assets and that is issued with an interest rate that rises as LIBOR does, so it has some inflationary protection too.
The share price has fallen 8.4% year to date as the company has delivered anaemic NAV growth in 2013 (+1.8%) following a period of stellar performance. Liberum think the shares offer value given the 14% dividend yield, although they expect this to reduce as return on their secondary CLO equity investments decline as investment periods end over the next few years. It is rated a Buy.
Infrastructure funds appear (relatively) expensive trading on an average 15% premium to NAV.