Balanced View: Intelligent Discussion of Market Trends

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You have to ask yourself WHY many of these ITs are trading at large discounts - AOT for instance. Is the market daft? No. The story is more complex. Back in the good old days of the bull market, many of these trusts took on high gearing at high fixed rates. AOT, for instance, is 30% geared at 8.75%. The asset performance has been poor, with the managers admitting that they have underperformed in every area except the UK. So we have a highly geared trust, with expensive debt and poor asset performance. But on the face of it - Anglo and Overseas, one of the largest trusts, managed by a well known house (henderson), trading on a 23% discount to assets. But if you strip out the gearing and repay the debt with severence charges, the discount is a less atractive 9% or so (rough numbers). So you have poor asset performance at a 9% discount. Cheap? No. Expensive? Yes. I could say the same for many of the largest trusts. The whole sector has become more complex, and face value discounts are not what they seem.......