..or part three of the IT's a Christmas Carol Tale. So here it is Merry Christmas everybody's having fun, here's to the future now it's only just begun! The party is in full swing and the revellers are enjoying themselves but to recap the investment trust I mentioned in the last couple of posts continues to languish on a 20% or so discount. This is despite a decent long term track record, a 4%+ yield which I forgot to mention has increased for 29 years in a row too. Come on what is it I hear you cry - well we will get to that.

First lets look at the issue of performance which I also mentioned in the bear points yesterday. In terms of performance if we take the last three or five years and the underlying Net Asset Value Performance (NAV), this has been slightly ahead of the FTSE All Share, which is good, but toward the lower end of the sector performance, which is not so good. We also saw yesterday in share price terms that holders had underperformed the index over the last 10 year which is disappointing. Now some of this may be explained by discount movements and the drag of the expensive debt which I also mentioned yesterday and will come on to again in a moment.

Before that lets take a look at the Asset Allocation which I mentioned in the bear points as being unusual for its sector, the UK Equity Income Sector. In addition to the UK equities that they hold which are split 50/50 between FTSE and Mid / Smaller Companies they also hold around 30% of the fund in UK Property. Now this may or may not appeal, but personally I quite like exposure to equities and property as a way of growing and protecting my capital and income from the ravages of inflation. Now may be you are wary of property right now and that might put you off, but I'm not going to debate that here I'll just let their track record in this area (shown below) speak for itself.

That track record equates to an annualised total return of 13% according to the managers in the Annual report and accounts. This compares to an all in cost of the expensive debt that I mentioned (which they used to finance the properties) of around 9%. This figure is arrived at because apparently the two debentures which carry coupons of 9 3/8% & 11% were issued at a premium. Now of course if they wanted to repay these or refinance these in the short term the would also have to pay a premium which in last years reports and accounts was put at around £12m over te £40m book or par value. This is why the discount which is often stated with debt at par can be lower if you adjust the debt to market value.

Any way that is all a bit complicated and technical, but in this case it is not something you should have to worry about if you are prepared to buy and hold this one for the next 10 to 11 years or so. This is because in last years annual results the Chairman set out their plans to address the discount. Subsequently the AGM approved an ordinary resolution which requires the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for any Shareholder to realise their investment in full at NAV, less costs, by 31 March 2027 at the latest. So with this in place you know you can look forward to the discount of 20% being closed over the next ten year which will give your returns around a 2% per annum tail wind. In addition as the debentures roll off in 2021 & 2026 any potential dilution from paying a premium to refinance them should have disappeared. Thus unlike most active funds which start off 1 to 2% behind due to costs this one in share price terms should at least be about 1% ahead if the discount reduced in a straight line, which odf course it probably won't.

Also Worth noting that to take advantage of the low rates for long term money, they have also borrowed £15 million from Santander UK plc for ten years at a rate of 4.5% p.a. including all costs. The money is being invested in properties with yields well above this, and it replaces the original £5 million loan arranged in February 2015. It enables them to look forward to their dividend prospects in the current
year with some confidence, although at the moment they said it was too early to make a forecast.

Summary & Conclusion
Sorry if that was all a bit boring and dull, but then it is a bit of a boring and dull idea and as I said before not one for Tiny Tim traders as it is unlikely to provide much excitement in the short term apart from the latest dividend of 2.6p which is due to go XD on 29/12/16. However, if you want some good Value & Income (VIN) from UK Equity & Property holdings then this could be a good one to lock away for the next tern years. In the meantime you should then be able to enjoy a 4% and likely growing yield which is now being paid out quarterly. If that has tempted you to join me as a shareholder in this one then I suggest you take a look at their website here and you should certainly take a look at the report and accounts which I attach below. Finally all that leaves is for me to wish you all a very Merry Christmas and a Happy and Prosperous New Year.

...or Part 2 of IT's a Christmas Carol. I left you yesterday with a look at the long term track record of this UK Investment Trust. Despite this track record and the shares currently yielding over 4% Mr. Market or Scrooge has seen fit to offer this one on a discount of a little over 20%. This may help to explain some of the share price underperformance in the last 10 years which is shown above and like yesterdays graph, is extracted from their report and accounts.

Currently there are a number of potential explanations for this discount which I'll mention in passing today before we take a look into the future with the final part of this trilogy. As I want to keep this brief I'll cover some of the bear points in bullet point form as follows:

• The performance has been a little lack lustre in recent years
  
• Hurt this year by a bias towards Mid Cap & Smaller stocks, although this helped in previous years
  
• They have some expensive fixed debt which reduces the discount if marked to market
  
• It appears quite highly geared as a result
  
• It is quite a small (£100m or so) self managed trust
  
• It has an unusual asset allocation for it's sector, I'll have more on that in the final part.
  

Against that I think their Investment Philosophy seems quite sensible to me:

Our investment approach is shaped by six core beliefs. By following these principles we aim to maximise clients' portfolio returns while minimising their investment risk:

• Value - we prefer low valuations. We invest where the price does not reflect fair value.
• Size - smaller companies (on average) offer greater growth potential.
• Fundamental - analysis is needed to appraise the quality of earnings and estimate fair value.
• Independent - we ignore market noise and current fashions. We diverge significantly from the index.
• Patient - we wait for the right investment opportunities before investing.
• Long term - frequent trading increases costs and is not the same as good investing.

While on Portfolio construction they say:

"We like our portfolios to reflect the conviction behind our best investment ideas. Hence within UK equities we concentrate the holdings on between 30 and 40 stocks. Around 50% will be invested in small and mid cap stocks and 50% in FTSE 100 stocks. Our portfolios tend to have a higher than average yield compared to the overall index. Individual sector weightings reflect our stock selection process. However we do tilt sector positions in accordance with our macroeconomic views. Each portfolio is regularly reviewed by the investment team."

I also note that the two main investment managers between them own around £15m of stock, while the Chairman has around £1.9m so their interests should be aligned with shareholders. I'll ave more to say on that in the final part when we look into the future.

So there is a brief update on the current position, with a lot to like but equally, quite a few issues that help to perhaps explain why this one is a little unloved by Scrooge, despite their best efforts, a bit like Bob Cratchit in a Christmas Carol. Now if that has not put you off do check back for the third and final instalment when I'll take a look into the future and how this might resolve in a profitable fashion. However, be warned if you are a Tiny Tim trader don't come back expecting to find short term gains this is very much a long term buy and hold story which will hopefully stand the test of time like the original Christmas Carol.

...about an Investment Trust based on the Dicken's story which is popular at this time of year. So without further ado here is the first part teaser of the ghost of Christmas past as it were. So as it is the festive season and as they say a picture paints a thousand words - I'll leave you today with a picture of the past of this Trust. Hopefully see you back here later this week for the present and the future installments if this has whetted your appetite?

With the fall in Sterling this year investing Overseas has been a profitable strateguy this year. However, with the rapid rise in the US$ and the general view that US Equities look expensive I wouldn't personally be chasing US equities or looking to add US exposure just now.















Personally I'm still more tempted by some of the value on offer in Emerging Markets given the falls in some of their currencies and the valuations on offer. I wrote some pieces on this last year which you can access here and indeed the JP Morgan Global Emerging Markets Income Trust (JEMI) has worked nicely for me this year.

Looking at the performance of Emerging markets this year you might think you have missed it. I did however read another interesting piece the other day from Research Associates talking about this called - The Emerging Markets Hat Trick: Time to Throw Your Hat In?

So there you go some food for thought on potential asset allocatio decisions. In the meantime as it's approaching Christmas and the market is getting quiet and I'm feeling generous I might see if I can do a few investment trust specials again next week which could provide a few more Christmas Crackers for you. So don't forget to check back next week in between all your parties etc. - cheers.

Regular readers may recall the Back to the Future series of posts I did which included as part of it a look at ways of investing around the world via investment trusts. In addition in another of the posts we saw that valuations were low in emerging markets and therefore potential future returns may turn out to be attractive once the current worries subside perhaps.

At the time I mentioned the JP Morgan Global Emerging Markets Income Trust (JEMI) which invests in those markets with the aim of achieving a decent income. At the time it had for the first time moved to a small 1% or so discount. Well this had now widened out to around 6 to 7% at the time of writing which is as cheap (in discount terms) as it has ever been, although obviously it could still go wider.

Nevertheless as a contrarian idea it has its attractions at these levels and offers a likely yield of around 5.75% at the current price of 85p. This is paid quarterly with the latest payment of 1p worth 1.2%, due to go ex on the 17th December. If that is of interest you can read more about it at the trusts dedicated website.