Premier’s Nigel Sidebottom believes investment company NAVs are still trading outside their normal discount range despite significant narrowing last year.
The £21m Enterprise fund manager says for the majority of the past 10 years, investment companies have traded at a discount of between 4% and 13%. However, the Lehman Brothers bankruptcy saw the average NAV discount spike at 24% before beginning to tighten.
“Discounts went wide because of risk aversion. Although they have come in, they are still at the bottom end of their normal discount range,” he says.
“Everybody is looking for alpha and investment trusts are an easy way to find that outperformance.
“Investment trusts are a very imperfect market. They are less efficient than large-cap equities, so it takes the market a longer time to spot opportunities.”
Sidebottom’s fund of investment trusts has returned 55.2% over 12 months to 15 February, compared to an IMA Active Managed sector average of 25.1%.
“Each time discounts are narrowing, the fund has been first quartile,” he says.
The manager’s biggest asset allocations are 21.33% property, 22.26% emerging markets and 15.5% hedge fund trusts.
“We used the collapse of investor confidence last year to build up holdings in certain stocks with disproportionate upside potential – mainly in private equity, property and alternative assets such as hedge funds,” he says.
“We expected some of these to double or triple in two years – it happened in six months.
“In emerging markets I particularly like China. I think the Government has shown themselves to be particularly sophisticated in managing the economy. In 10 years’ time, China will be 50% bigger than it is now.”
