InvestmentsSep 22 2014

Sterling wobble ‘an opportunity’ to buy US trusts

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The widening of discounts on US-focused investment trusts has presented a buying opportunity, claims Oriel Securities.

The average discount on trusts in the AIC North America sector has widened from 0.9 per cent in June to 2.3 per cent in mid-September, while smaller companies’ trust discounts have moved from 10.3 per cent to 14.6 per cent.

Iain Scouller, analyst at Oriel, said the weakness of sterling against the dollar since July has been a major factor.

Sterling had been strengthening against the dollar through the first half of 2014, but that trend has swiftly reversed in recent months as the prospects for a US rate rise increased and it remained weak in spite of the Scottish ‘No’ vote.

He said: “For those trusts with dollar-denominated assets, this market move has obviously been directly transmitted through to net asset values on a daily basis. Given the size of the forex move over a short period of time, it appears that share prices have lagged behind some of the sharp rises in net asset values.”

The North American Income investment trusts from BlackRock and Aberdeen have been particularly affected. Both were trading at a premium to their net asset value at the end of 2013 but now both have discounts of more than 6 per cent, according to data from the AIC.

Mr Scouller said this widening of discounts “may present some opportunities for value investors”. However, he warned that currency movements were likely to continue to have a big impact in the next year, what with the fallout post the Scottish referendum, potential interest rate changes and the UK general election next May.