Weekly wrap: JPMorgan Japan, Smithson and more

We continue our updates on investment trusts with news on discount trends and from JPMorgan Japan, Finsbury Growth & Income, Smithson and Tritax EuroBox.

Income trusts are ‘back in demand’

Investors are waking up to the ‘undervaluation’ of British shares by comparison with some other markets, the broker Stifel has said in a report on discounts on trusts in various sectors.

‘Investors have been buying UK income trusts and also UK mid and small-cap specialists, with discounts typically halving from recent highs,’ the broker said. ‘Conversely, discounts have widened out on a number of the Japanese and emerging specialists, with a number of trusts trading at around their six-month discount highs.’

Stifel said City of London, a popular income trust, had reverted to a 1% premium whereas as recently as 1 July it had been buying back shares at a discount of about 2%. The broker said a number of trusts focused on emerging markets and Asia were on relatively wide discounts compared with six-month ranges. Three Japan trusts made the broker’s ‘cheap’ list on this basis: JPMorgan Japan Small Cap Growth & Income at a 13% discount, JPMorgan Japanese at 10% and Fidelity Japan at 12%. The two JPMorgan Japan trusts are to merge (see next item).

The firm also highlighted Fidelity China Special Situations on a 10% discount compared with a six-month range of 11% to 5%, while BlackRock Frontiers and India Capital Growth were on discounts of 8% (six-month range 10% to 3%) and 9% (six-month range 15% to 4% premium) respectively. All figures are as of 23 July.

JPMorgan Japan trust merger

JPMorgan Japan Small Cap Growth & Income is to join forces with JPMorgan Japanese. The latter will absorb the former’s assets. Shareholders in JPM Small Cap Growth & Income will be entitled to swap up to 25% of their holding for cash at a 2% discount to the per-share value of its assets. The predicted ongoing annual charge of the merged fund is 0.63%, which would make it cheaper than both existing trusts. The combined fund is expected to have net assets of about £1bn.

Finsbury Growth & Income prepares for more buybacks

Finsbury Growth & Income, managed by the veteran investor Nick Train, is to seek shareholders’ approval for a further programme of share repurchases, to be implemented at a discount of 5% or more (currently 8.2%). The trust said the buyback programme currently authorised was at risk of being fully utilised before the next annual meeting, when shareholder votes are normally held. Accordingly a special meeting is to be held next month. The trust said it had spent £175m buying back its shares since the most recent annual meeting. This compares with its current market value of £1.5bn. Share buybacks are explained here.

Witan boss to step down

The chief executive of Witan, Andrew Bell, is to retire just before the completion of its merger with Alliance Trust, which is currently expected to take place in early October, subject to shareholder approval.

Smithson bemoans ‘frustrating’ first half

The manager of Smithson, the smaller companies trust from Terry Smith’s Fundsmith stable, has expressed frustration over the market’s domination by a small group of tech stocks and the consequent lacklustre performance of other assets such as his own. The trust’s net asset value fell by 1.8% in the first half of the year.

Simon Barnard wrote in the trust’s interim results announcement: ‘Our performance so far this year has been like watching paint dry and … we are finding it as frustrating as you are. While we have had a couple of stock-specific issues in the portfolio … there is no doubt that this is a tough time in the market for smaller companies.’ He said ‘large and glamourous’ stocks had outperformed strongly this year, while small and medium-sized companies had struggled.

He told shareholders: ‘We recognise that you have many options when allocating your capital, many of which have performed better than Smithson in the first half of this year. We greatly appreciate your continued support.’

Tritax EuroBox bid story rolls on

Tritax EuroBox, which owns warehouses in Europe, has agreed to an extension of the deadline by which a suitor, Brookfield Asset Management, must announce a firm intention to make an offer or walk away. The so-called ‘put up or shut up’ or PUSU deadline is now 26 Aug.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing, please read the relevant key information document which contains important information about each investment trust. The shares in these investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.