high beta and geared portfolios benefit as markets and investor sentiment begin to pick up
High beta and geared portfolios are providing the best performance within the investment trust sector so far in 2003.
As markets and sentiment improve, these vehicles have produced the highest share price and NAV returns and have seen their discounts narrow the most, according to Close Wins.
In contrast, the more cautiously managed vehicles, such as those investing in traded endowments, have fallen behind.
In the eight months to the end of August, Prelude Trust, which invests in unquoted high growth and technology businesses, saw its share price rise 94.9%, while Aberdeen New Thai and Aurora, an equities and fixed interest vehicle, both had strong growth of 84% and 73.9% respectively.
Close Finsbury Eurotech led the way, on a diluted NAV basis, over the same period up 69.5%, while Invesco Leveraged High Yield rose 64.1%. Aberdeen New Thai was again among the top performers during 2003, in NAV terms, rising 63.9%.
The Dresdner RCM Endowment 2006 trust in comparison saw its share price drop 12.2% during the period, while its NAV declined by 9.8%.
Charles Cade, investment trust analyst at Close Wins, noted that discounts on the investment trust industry generally are narrowing as the FTSE 100 rises.
His research suggests that the average sector discount has narrowed from 10.9% to 10.2% since the start of August, and by more than 3% since mid-March. However, he pointed out that discount levels still depend to a great extent on sector and mandate.
Cade said: 'Discounts remain wide in Europe, which is firmly out of favour with retail investors and UK Smaller Companies, where there are many small illiquid funds hampered by expensive debt and an overhang from institutional shareholders.
'Significantly, Japan and Far East ex-Japan funds are now trading on single figure discounts, having been in the high teens a few months ago.'
The average weighted discount over the 12 months to 8 September in the general Japan sector was -15.9%, according to Close Wins. But on 8 September the average stood at 8.9%. Simultaneously, the average Far East ex-Japan-weighted average discount was -9.3% on 8 September, while the 12-month period average was -13.1%.
'Since August, discounts on most trusts have narrowed, with the Far East and Japan leading the way. The notable exception was the Life Sciences sector, which saw a modest widening of discounts during the month, primarily because Finsbury Worldwide Pharmaceuticals moved from a 3% to a 7% discount,' added Cade.
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