A study by a retail stockbroker found that of those freed to invest their pensions directly for the first time, four fifths put their money into trusts and funds rather than choosing individual equities. It is the safest course, even if the upside may be limited, and part of this column will be devoted each week to this often-overlooked area.
Investment trusts that stand out as offering good long-term value will be highlighted. Don’t expect fireworks, but the ability to spread money across several investments has understandable attractions.
The first is Invesco Perpetual’s Perpetual Income and Growth Investment Trust — Pigit to its friends — which a decade ago unsuccessfully launched one of the few hostile takeovers in the investment fund sector, for Securities Trust of Scotland. As its name suggests, it aims to provide good and reliable income and most of its investments are high-yielders such as BP, AstraZeneca, the tobacco stocks British American Tobacco and Imperial Brands and, its biggest investment, Reynolds American.
It must be left to individual consciences whether these are appropriate investments. Pigit, at 366p a share, off 3p yesterday, is trading at about 10 per cent below its net asset value.
This is odd, because, as an income provider with a 4 per cent yield, it should suit today’s investors. The explanation is probably that NAV growth this year has lagged the admittedly extraordinary performance of the stock market.
There have been a couple of disappointments among UK-focused stocks (it has a holding in Capita, the outsourcer that made a profit warning last month), while the trust has eschewed the mining groups and therefore lost out on their sharp rebound since the start of the year.
The trust also has decent holdings in AstraZeneca rather than its rival GlaxoSmithKline and in BP rather than Royal Dutch Shell. All these are high-income stocks and that weighting, given Astra’s and BP’s better prospects, is appropriate.
Pigit is not the only trust to trade at well below asset value. This column will return to others. It looks like a good punt on that discount narrowing, though, while the income stream is useful.
My advice Buy
Why There are a number of investment trusts offering a good income and trading at below net asset value, and Pigit is one of them
Robert Walters
Sometimes you make your own luck. Robert Walters decided a while back to build up its Resource Solutions business in the UK. This allows companies to outsource their human resources and hiring. Walters won two big contracts at the end of last year and this lifted fee income by 9 per cent in the third quarter.
Without this, the recruitment specialist probably would have followed the much larger PageGroup the other day in reporting a decline in business as employers took fright and hauled back on hirings.
This would have hit Walters more than its peers because the company is at the higher end of the market. As it was, in recruitment generally the company was affected by the general uncertainty. Its financial services business, finding middle-ranking bankers, enjoyed some improvement in September, although not too much emphasis should be made of this.
The decline in the value of the pound, though, was a clear benefit, with 68 per cent of income coming from outside the UK. Total income was up by 8 per cent in real terms, or 23 per cent if you take in those sterling benefits. In terms of individual markets, France and
Hong Kong look weak but Germany is moving ahead.
The shares, up 5p at 347p, sell on 15 times’ this year’s earnings. Walters remains among the better positioned in the recruitment sector, but the next few months are more likely to favour those at the lower end of the market and that multiple does not suggest much upside to go for.
My advice Avoid
Why The shares are fully rated for now
Pearson
It is a measure of how much the market distrusts Pearson that the shares should have fallen by 70p to 762½p after a trading statement that confirms expectations for the current year and for 2018. There is not a lot said for 2017, though, and trading in its North American higher education unit, a core business and a short third of sales, is not good.
It will take until next summer to prove whether this is a temporary blip or an underlying problem. Pearson has had a huge benefit from the fall in the value of sterling against the dollar, but take this out and sales are still down by 10 per cent at this business. That sterling gain has probably put paid to concerns over the dividend, which on the present guidance is just about covered, which is fortunate.
This is about all that is holding up the share price, given the market mistrust and the uncertainties ahead. The shares now yield almost 7 per cent and sell on 13 times’ earnings.
By any measure this is historically cheap and the braver investor might consider the share price weakness a buying opportunity. I would be cautious, though, about climbing back on board, given the potential for further shocks.
My advice Avoid
Why That yield gives support, but caution seems advised
And finally...
Self-storage is one of the better-performing sectors of the property market. Companies such as Big Yellow and Safestore have been benefiting from our tendency to have too much stuff and not enough space to store it. The main constraint on growth has been the difficulty of finding new sites to build on, given the demands from the housebuilders and others. The above two trade on a significant premium to asset value; the smaller Lok’nStore, which has just published its latest NAV figure, trades on or about it.
