Can our dire Fantasy Fund Manager performance be rescued by this ‘value’ fund?
Aberforth Split Level Income has not so far joined in the recovery of shares generally and of its investment trust peers
QUESTOR’S decision to pin its hopes of winning The Daily Telegraph’s Fantasy Fund Manager game on technology investment trusts now looks very poorly timed.
We added Scottish Mortgage, Polar Capital Technology and Allianz Technology to this column’s entry in the contest last week but early this week investors turned against tech stocks and these trusts’ shares have suffered as a result.
Such falls make barely a dent in the portfolios’ stellar long-term performance records but even a brief shunning of technology on the part of the market could scupper our chances in the competition. Perhaps, then, we should adapt our tactics a little and, if there really is to be a switch from “growth” stocks, epitomised by technology, towards “value”, perhaps we can find a trust nicely poised to soar. In fact, we feel confident that we have found one.
On almost the very day that the investment trust sector as a whole recovered all the losses it had suffered so far this year, there is one well-managed trust whose shares have barely budged from the lows they fell to in the worst days of the coronavirus panic.
That trust is Aberforth Split Level Income – perhaps Britain’s most extreme exemplar of the value style of investing and a fund that has, moreover, not shied away from adopting the “split-capital” structure that still puts some investors off more than a decade after it attracted such opprobrium.
Shares in Aberforth Split Level Income stood at 93.5p at the end of last year but fell to 38.6p – a decline of almost 60pc – on March 18. While stock market indices almost everywhere on earth, including London’s FTSE 100, have recovered strongly from their Covid-19 lows, shares in this trust have not: the price is now 46.75p, exactly 50pc below what it was at the end of last year.
We have listed the strengths of this fund, and of its sister portfolio,
Aberforth Smaller Companies, which is similar but lacks a split-capital structure, several times in the past. They include that unabashed devotion to the value style, put into practice by a team of committed, experienced managers who have their own money invested alongside that of their clients. If anyone is able to exploit fully any return to fashion of value investing it is this team, Questor believes.
As is often the case, a share price stuck in the doldrums goes hand in hand with a high yield, in this case 9.3pc. This attractive figure does have to come with a proviso, however: it is the “historic” yield, which, as we explained in yesterday’s column, is based on dividends paid in the past year and is distinct from the “prospective” or forecast yield calculated on the basis of expected future divis. We will find out what dividend the trust intends to pay for the financial year that ended in June when it announces its annual results at the end of this month. However, in the current climate we must be at least prepared for a cut.
Yesterday’s discount of about 10pc does add to the appeal of the trust’s shares but does not strike us as particularly wide in the circumstances. Perhaps it is more the case that a discount is implied in the share prices of the trust’s holdings in the sense that they have been unduly punished by the market’s persistent aversion to anything seen as a value stock.
Questor sees the two Aberforth trusts as sensible long-term holds for anyone who wants a diversity of investment styles in their portfolio. Readers who currently have no holding in the trusts should consider buying now while the share prices are so depressed.
For the purposes of our competition, we will add the split-capital trust to our entry in the belief that the share price offers the scope for rapid recovery – perhaps even enough to wipe out the damage done by our technology holdings.
Questor says: buy
Tickers: ASIT (split cap), ASL (smallers)
Share prices at close: 46.75p