Top Voted Idea by Readers – so it joins the picks for 26
The Oak BlokeDec 23
NB – these are best guess estimates based on newsflow.
Dear reader
I previously wrote “Sometimes a share moves (back) to a tempting level.”
Well 99.8p a share is tempting for sure here.
So much so that CEO Mr Inglis has bought £100k more shares in the past 3 months, and a new NED at RGL bought £10k too. Shallower pockets maybe.
At a 52.7% discount to the book value of its assets and a fully covered and growing 10% yield is this a tempting level?
Based on a recent further sale of a £13m property sold for 1% above book (not 52.7% below), that was leased for ~£0.6m per year at 65% occupancy that’s yet another great result.
RGL gets you an estimated £3.43 worth of property (at book value) for a net -£1.30 of debt to give you just over £2.10 of “stuff” for just a pound.
“Stuff” that delivers 5p today of rental income, and prospectively 13p in the future.
The above estimate is based on disposals but also execution of its renovation strategy to get more of its offices into a better grade of Energy Performance but also modernised and tarted up.
No more Tea around the Tea Urn, we are talking Barista Coffee makers, and no more open office we are talking aesthetic glass pods and collaboration spaces.
No more smoke stack view of the city, we are talking Costa Rican jungle paradise backdrops. Oh wait, maybe I’m exaggerating on that one – but you get the idea. Aesthetics matter.
(RGL year end is 31st December)
Disposals
I will admit to scepticism as to the speed of disposals. In the past it had been slow. Yet in 2025 I was wrong. RGL have been successful (as at 23rd December 2025) in exceeding their target and disposing of over £51m of property during FY25 at slightly above book value (before sale costs).
So it’s achieved success in selling 40% of its dustbin “Sales” segment of a £93.2m valuation at slightly above that valuation and driving up its occupation levels. That’s really, really, encouraging.
If the dustbin is being sold slightly above book that implies the Core and Capex to Core (once it becomes Core) could be worth quite a bit more than book value.
Disposals (net of costs) were £28.6m in 2024 (at a -£3m loss) and £25m in 2023 (at a -£1m loss) so the 2025 result is well ahead of previous years suggesting a strengthening market particularly the fact that the sales price is ahead of book value (albeit only by small amounts). Post costs RGL will at best break even to that gain or up to a -£1m net loss on disposal – net of selling costs.
But disposals are not being discounted by 53% as the REIT currently is.
RGL’s “Core” segment are now at a 86.5% level. It is true it fell slightly in 3Q25 ahead of Rachel’s budget. Boo.
It was not just RGL that suffered falling occupancy levels in 3Q25. The whole sector Trinity Capital, Schroders, Picton Property, Apex Capital all reported a similar issue of uncertainty ahead of the budget as well as Rachel’s prior Employers NI tax of +2%.
But Rachel’s new taxes in the 2025 budget largely did not materialise. No horrors in that budget for Offices and REITs. Well one actually – but one that benefits RGL. The government have introduced a tier of above and below £500k rateable value which will hit London offices with a higher multiplier and drive demand to cities outside the Big Smoke (more typically rateable below £500k which will henceforth enjoy lower mutlipiers.
Outside London Grade A availability of offices is tightening, and the word shortages of prime stock is now being spoken of. That word hasn’t been spoken of for a long while.
Just like Rachel’s pal Kier there are two tiers emerging where low quality offices in low quality locations remain unloved and low value. But ESG-compliant offices in key cities outside London are seeing a definite uptick. RGL’s strategic of refurbishment and upgrade to achieve higher EPC and improve aesthetics is well situated for this “K curve” dynamic to offices – and the market hasn’t woken up to this – yet.
Capex To Core
RGL’s “Capex to Core” segment are the properties that shall be upgraded and therefore become core and enjoy a higher per square foot rental. £9m has been spent on capex during 2025. I’m assuming post conversion (as has thus far proved) a 25% increase in rate can be achieved and that the occupancy moves from 77.6% to 88.1%.
The third type “Value Add” are all about adding value and doing stuff to achieve a higher disposal value than its current book value. This will typically be a change of use and potentially involve obtaining planning permission. RGL speak of “greater potential” and quote examples with strong upside.
I’d assumed the “Sales” segment meanwhile would lose about 20% of their value i.e. they get realised for 80% of their valuation – so far that’s far from the case.
If the Value Add and Sales can be sold at book value only (i.e. Value Add adds no value ironic huh?) then here’s the result:
Based on 30/06/25 position
£150m of disposals (from Value Add and Sales) means a -£150m reduction in debt. That would leave net debt below -£100m once that sales programme is complete.
The Capex to Core is assumed to rent at 25% above current levels and the 5.2% increase already seen in 2025 is used to model the “future rental” based on current occupancy. Even after disposal (to nearly no debt) the rent roll pays nearly £50m a year.
If we then consider the ERV at 100% occupancy then we actually get to a £65m rent roll – or £90m if the value add and sales segments were not fully disposed and instead fully occupied at the ERV price point.
None of that potential income increase is anywhere in the price today.
Of course that model assumes a single increase of 5.2%. What if actual increases are accumulating at up to 3% per year – as MSCI tell us is currently the case?
There is a substantial slow down meanwhile in the supply of new office space. What does rising demand and declining supply mean for the price of UK regional Offices do you think?
Covenants and Debt
With gross debt now at an estimated -£282m (net -£221m est.) and LTV at just under 40% (est) it is true that only 8 months remain until the 1st tranche of debt needs to be rolled. 2.4% + SONIA is 6.7% so it is likely that interest costs will remain static in 2026 with a potential -£2m to -£3m of additional costs in 2027 as the 3.28% fixed gets renewed. Less repayments through disposals between now and then.
If RGL can dispose another £40m-£50m in 2026 then its net debt might be an estimated circa -£160m in 12 months.
Under a sub £100m debt model then there is over 3 years until the Scottish Widows £32.5m debt needs to be renewed.
This kind of freedom and indeed achieving sub 40% LTV is something unrecognisable to a RGL-er from a few years ago where “Covenant Breach” was a constant concern. An acute concern.
Circumstances might determine that minimising debt is not the way RGL needs to go.
Despite Andrew Bailey’s hesitancy there is every chance that interest costs will continue to fall. Evidence for a UK recession is growing. Will inflation remain sticky or will we see that fall further in 2026? Unemployment hit 5% recently, GDP growth is decelerating, most forecasters see today’s UK 3.75% BoE rate falling to 3% by 2027.
At 3.75% plus 2.2% that’s debt costing sub 6%. Such leverage should be inherently profitable in a robust rental market.
Rents
Evidence exists meanwhile that the ERV (Estimated Rental Value – the value of the current market rent) is growing fast. New leases were 8.3% above ERV, and have been consistently above ERV by 5.1% in 2025, including on renewals.
Remember ERV is the theoretical market value – not RGL’s current rate – think of it as the potential upside. So “above ERV” think upside to the upside.
Consider the gap between the £56.7m actual gross rent in 1H25 vs the £82.9m ERV.
If that 5.1% above ERV is the “true ERV” then that means the ERV is approximately £87.2m; and that would mean up to a £30.5m per year difference to future rents….
…..that’s a potential 53.8% uplift to rental income!
If we consider the expiry profile let’s see what that means for income.
Assuming It would increase the ERV by the 5.1% YTD with the 8% achieved in 3Q25 being the 2026 value, and a further 2% per year after that.
Nearly £6m is added to the ERV of the annual rent potential by 2035, even at a modest 2% rise.
This analyses the rising ERV value + £5.8m over 10 years (at an assumed +2% per annum)
But this is based on the rent already being at ERV. But it’s not.
If RGL can achieve the same 5.1% uplift PLUS grow occupancy/rents to its ERV levels then the increase in rental income is dramatic.
Plus £32.3m pre tax income per year.
This analyses the rent roll uplift at ERV + 5.1% compared with current rents – assumes current occupancy.
A +£32.3m per annum difference over the medium-long term (i.e. 10 years) and +£9m per annum difference in the near term – as shown below – i.e. based on disposing of the “Value Add” and “Sales” segments of property.
A risked model.
If we take the £65m future ERV less 10% (i.e. based on 90% occupancy) and assume disposals are complete then we see a more than doubling of profit from today.
This assumes no gains (or losses) from the portfolio and ignores pass through costs. It assumes property costs at a much higher rate than today (i.e. -£21m on a much smaller footprint post disposals).
The below model is based on an interest bill of 6% on £90m of borrowings, and assuming only a 90% lettings rate (i.e. not 100%)
£21m on £100m market cap is a 21% yield remember!
Is Zero Gains and Perpetual Losses to Commercial Property Capital Values Realistic?
RGL-ers have become so used to property portfolio capital losses the idea of this reversing one day is anaethema. However it shall revert. It always does.
Demand and supply eventually dictate that it shall. Is “eventually” now?
The replacement cost of commercial property and the rewards for improving property clearly show that upside can be obtained. With rising rental prices it makes no sense for capital costs to continue to fall. Yield percentages would grow at a double speed until they do stop falling.
Even a 5% per annum capital gain on a ~£500m portfolio is worth an additional £25m or ~15p per share per year to each RGL-er.
What if RGL throws the dice on its “Value Add”?
Another view of reduced debt (and assumed it is refinanced with the same levels of headroom) is that RGL gets £200m+ of headroom “to do something”.
Perhaps RGL might directly develop one or more of its assets under the “value add” category – although there’s no evidence yet that they shall.
But if they did using existing debt headroom and cash to fund one or two potential GDVs of gross development values of £100m+ and £200m+ on properties that today are valued circa £10m, that leaves potential for RGL plus a developer to make a mutual return. OB idea Watkin Jones is one such example of a potential partner.
Valuation
RGL has always been a good dividend payer and its recent news to increase the dividend to 2.5p per quarter means 10p a year and that’s a 10% yield at today’s prices.
But then you must compound the expectations that a ~£500m property portfolio of mainly freehold offices can expect to appreciate in value too. By 5% a year? That’s a £25m gain on top.
10% yield becomes a 25% ROE. Now we’re talking.
The ~£500m of property are valued at £106.1m per square foot. That’s £1,141 per square metre. That’s about 60% BELOW the replacement cost of building an office. These construction cost numbers are from 2023 so are proably higher in 2025 too.
Conclusion
The fall in share price for RGL despite the turning of the tide we are beginning to see, makes this an interesting idea to include in the picks for 26 despite being much unloved.
Rents outside London are growing at 3%. We have seen repeated evidence in RGL’s lease renegotiations with tenants that the market is recovering.
RGL was so unloved it was the also most voted for. Hence here it is. Either the contrarian in me is also the contrarian in my readers – or my substack is full of wind up merchants who voted for this. Should you believe in the wisdom of crowds? You decide.
Regards
The Oak Bloke
Disclaimers:
This is not advice – you make your own investment decisions.
Micro cap and Nano cap holdings including REITs might have a higher risk and higher volatility than companies that are traditionally defined as “blue chip”.
This is a non-independent marketing communication commissioned by Aberdeen. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Kepler
Invests in high-quality UK companies, overlayed with a sustainability framework.
Overview
The most significant development for Dunedin Income Growth (DIG) this year has been the board’s introduction of an enhanced Dividend policy. Dividends will now be funded from both income and realised capital, rather than being tied predominantly to the portfolio’s natural income generation. The board has committed to a minimum dividend of 6.0% of NAV (based on the NAV as at 31/07/2025) for the financial year ending 31/01/2026, equivalent to at least 19.1p per share, a 34.5% increase year-on-year, implying a yield of around 6.4% based on the current share price. Annual income and realised gains will provide the primary funding source, alongside revenue and capital reserves of £298m, underpinning the distribution for the long-term. Additionally, funding from both income and capital gives the managers greater flexibility to focus on total-return generation.
Despite this, the investment process remains unchanged. Managers Ben Ritchie and Rebecca Maclean continue to target high-quality companies with durable cash flows, strong balance sheets and supportive long-term growth characteristics. Combined with the trust’s sustainability framework (see ESG), which blends exclusions, positive allocation and active engagement, this keeps the portfolio anchored in fundamentals whilst maintaining responsible positioning.
Portfolio activity over the past year has reflected the opportunities emerging in a historically undervalued UK market. The managers have added to areas where valuations appear to underappreciate cash-flow durability and long-term compounding potential, particularly across smaller companies, with new positions including Kainos and XPS Pensions Group.
Performance over the 12 months to 15/12/2025 was mixed. A positive NAV total return of 9.7%, was supported by strong contributions from Prudential and Chesnara, though in relative terms, DIG lagged the FTSE All-Share Index’s 19.9% return, reflecting style headwinds and lack of exposure to stocks outside its quality and sustainability criteria.
At the time of writing, DIG trades at an 7.6% Discount, wider than the five-year average of 5.9%.
Analyst’s View
We believe DIG offers a compelling route into the UK equity market, particularly for income-focussed investors, with the enhanced dividend policy the most notable development this year. Committing to a minimum 6% of NAV and drawing from both income and realised capital provides a materially higher yield, whilst giving the managers greater freedom to target total-return opportunities. This shift may broaden the trust’s appeal, and as sentiment improves or awareness of the new policy grows, we see scope for the discount to narrow.
The managers’ investment strategy remains unchanged, centred on a concentrated portfolio of high-quality companies with robust financials operating in structurally growing markets. The trust is overweight smaller companies, reflecting conviction in the long-term opportunities available in this segment of the UK market. This positioning aims to capture undervalued growth and improve returns, whilst maintaining downside resilience through strong balance sheets and cash generation. Meanwhile, the valuation premium of DIG’s quality income holdings versus the wider UK market has compressed to levels not seen for many years, signalling a potentially compelling valuation opportunity.
That said, this same positioning has weighed on performance over the past five years. DIG’s quality-growth, sustainability-aligned approach has struggled in periods where large-cap value and cyclical sectors, such as banks and defence, have dominated market returns. Nevertheless, these characteristics have historically provided downside resilience, and the focus on high-quality, cash-generative businesses positions the trust well for any future shift in leadership or increased focus on ESG considerations.
Overall, we think DIG’s investment process sets it apart from its peers in the UK Equity Income sector, and its enhanced dividend policy further helps position it as a genuinely differentiated option for investors seeking exposure to the UK’s long-term potential.
Bull
Highly differentiated approach, with a focus on quality and sustainable income, to both the peer group and index
Well-diversified list of UK businesses that also derive revenues overseas
Use of option writing gives managers greater flexibility to invest across the market-cap spectrum
Bear
ESG exclusions will result in underperformance if stocks and sectors associated with higher ESG risks rally
Exposure to mid-cap companies may bring more sensitivity to the UK economy
Balanced-investment approach may lag a value style-driven market
Forget the Fear: These 3 Dividends (Up to 17.9%) Are Built for 2026
Michael Foster, Investment Strategist Updated: December 22, 2025
Stocks are about to do something almost totally unheard of: chalk up three winning years in a row.
And no one is celebrating.
Instead, worry is everywhere: about an AI bubble. Sticky inflation. Or the Fed—everything from the bank’s next chair to its independence and the direction of rates.
This combo—a strong market tempered with a big dose of anxiety—has set up a rare setup in our favorite high-income plays: 8%+ yielding closed-end funds (CEFs). It comes in the form of a pattern I don’t see often, but when I do, it’s almost always a buying opportunity.
That pattern is the following: A drop in a CEF’s market price (driven by investor sentiment), while its underlying portfolio (driven by management’s talents) keeps on growing.
This can only happen with CEFs: Since they have a roughly fixed number of shares, these funds can (and often do) trade at prices higher or lower than their portfolio value (the net asset value, or NAV, in CEF-speak). If the market price is higher than NAV, it’s a premium. Lower, a discount.
And right now, plenty of CEFs are showing just this kind of setup: Their market prices are dropping while their portfolios keep rolling higher. We’ll look at three examples yielding up to 17.9% (not a typo!) in a moment.
But before we do, I have to tell you something else working in our favor with these high payers: market history.
You see, in most cases when investors fear a downturn, that’s when a downturn is least likely. Few called, or even expected, the 2008 recession, for instance. That’s partly why it was so painful.
It was only when Wall Street “wisdom” was to sell that stocks began to recover in 2009. And, of course, they kept soaring for the next decade and a half.
Which leads us to today, where we have a kind of ambient worry that makes contrarian bullishness more likely to pay off in the coming years. We can also see this weird meeting of paranoia and profits in those three CEFs, which we’ll get into now. All of them are underpriced as a result.
Bargain CEF #1: Portfolio Up, Price Way (Way) Down
The first is the Guggenheim Strategic Opportunities Fund (GOF), which sports that crazy 17.9% yield.
Let me be clear: That yield is unsustainable, but that’s fine by us. Even if it were cut in half, it would still be around 9%, or more than the CEF average. So there’s room for that dividend to move around, and for the fund to still be a strong income provider. Plus there’s this:
Portfolio Gains, Share Price Tanks
Even though its portfolio is performing well (the orange line above), GOF’s market price-based return (in purple) took two big dips in 2025 and is now way behind.
This fund’s portfolio gains stem from its focus on relatively low duration debts (a 2.7-year weighted average, which cuts its interest-rate sensitivity). GOF also holds a range of credit, including bank loans, corporate bonds and mortgage-backed assets.
But that hasn’t been enough to keep investors onside.
Before we move to our next CEF, one thing to note here is that the drop in the fund’s market price doesn’t make it a buy just yet, as it still sports a 6.7% premium. But it does make GOF worth watching, as that premium has been fading, due to the fund’s sinking share price, and could turn into a discount. If it does, that’ll be the time to pounce.
Bargain CEF #2: A Dip Even a Patriotic Ticker Couldn’t Stop
Next up is one of my personal favorites: the Liberty All-Star Equity Fund (USA). Not only does this all-stock CEF have the best ticker on the market, it’s also got one of the best portfolios, including NVIDIA (NVDA), Microsoft (MSFT), Visa (V) and many other American mega-caps.
Another Strong, but Unloved, Portfolio
The profits from those holdings are why the fund’s NAV return (in orange) has risen in 2025. But look at its price return (in purple): It’s actually gone negative! That’s very odd, and it’s why USA’s pricing has tanked.
A Rare Buying Opportunity
With a 9.4% discount, USA is cheaper than it’s been at any point in the last five years. That alone makes this fund a smart pickup if you’re looking to bolster your stock holdings. The dividend is another: an 11% yield that looks sustainable.
Bargain CEF # 3: An 11% Payer Built for an Uncertain Fed
Another high-yielding credit CEF that’s fallen into the bargain bin is the Calamos Dynamic Convertible & Income Fund (CCD). Its 11% yield is sustained by a mix of convertible bonds and high-yield corporate bonds. CCD’s weighted average duration of just two years also lowers its rate sensitivity.
That’s why CCD’s portfolio value has soared in 2025, as the Fed’s slower-than-expected rate cutting helped grow the fund’s portfolio (in orange below).
Big Profits, Falling Prices
Investors didn’t see it that way, though, which is why CCD’s price return (in purple) is down for 2025. That sort of disconnect doesn’t tend to last, so expect CCD’s price to gain in the future.
Now there is a catch with CCD: It still trades at a 1.9% premium. That’s small, but we could see it flip to a discount before it reverses course. But that’s no guarantee, so one approach would be to add a bit now, wait for the discount to appear, then buy more. And all the while, hold on to USA and keep an eye on GOF.
There are plenty of interesting opportunities available to investors in UK stocks in 2026, argue City analysts. Graeme Evans explains why and where to find them.
22nd December 2025
by Graeme Evans from interactive investor
An attractively valued FTSE 250 index has the chance to shine in 2026 as mid-cap stocks benefit from tailwinds including lower interest rates and an improved earnings outlook.
The optimism, which follows a long period when UK equities have been low down on the global shopping list, comes amid hopes that the chancellor has done enough to break the country’s so-called gilt doom loop.
The Budget’s largely disinflationary policies provided some reassurance to financial markets and appear to have opened up a pathway for more interest rate cuts by the Bank of England, fuelling hopes that long-term gilt yields will stop rising after five years.
Broker Panmure Liberum said that this should help lower discount rates for future cash flows and reduce the cost of capital: “The result should be a further re-rating of UK stocks, but growth stocks should benefit more than value stocks. Switch to stocks with faster earnings growth.”
The FTSE 250 delivered robust growth in excess of 6% in the year but remains some way short of the all-time high of 24,250 set in September 2021.
Its performance has been in contrast to the best year since 2009 for the FTSE 100 index, fuelled by strong demand for lenders, defence and commodities-focused stocks.
Panmure Liberum noted recently that the FTSE 250 is valued at about 12.4 times forward earnings, whereas the FTSE 100 is on 13.1 times and the S&P 500 index on 22.4 times after the blue-chip benchmarks set record highs during 2025.
It adds that the dividend yield in the FTSE 250 is 4.3%, which on this metric alone means the mid-cap index looks the cheapest in 23 years compared to the FTSE 100 at about 3.5%.
The UK-focused benchmark often flies under the radar for income investors, including the fact that the spread of top payers is much broader than in the top flight.
As Octopus Investments points out, the top 10 dividend payers account for more than half of the FTSE 100’s total dividend payout compared to 28% for the FTSE 250.
Rathbone UK Opportunities Fund I Acc fund expects to see small and mid-caps’ discounts close sharply in 2026, particularly as global investors may look to diversify away from US mega-cap concentration.
It adds that FTSE 250 has an abundance of high-quality businesses that investors most favour.
Fund manager Alexandra Jackson added in a recent report to clients: “UK equities are cheap compared to history and compared to their global peers. UK mid-caps are cheaper still (despite typically commanding a premium).”
She pointed out that falling borrowing costs tended to be very supportive of the performance of mid-cap stocks over larger ones.
For Sanford DeLand’s TM SDL UK Buffettology General Acc Fund, the kind of long duration quality equities in its portfolio has seen a substantial de-rating due in no small part by the rise in the UK’s long-dated gilt yield since 2021.
It told investors following the Budget: “Our firm belief is that this headwind has now run its course and going forwards it is more likely to be a tailwind for our way of investing.”
However, RBC Wealth Management has flagged the risk that an increasingly unpopular Labour government abandons fiscal discipline.
Frédérique Carrier, its head of investment strategy, said: “If the government loosens its fiscal stance to spur growth — and its approval rating — financial markets would likely turn jittery, in our view, especially as the UK relies heavily on foreign investors to finance its debt.”
Capital Economics also warns that the risks to its interest rate and gilt yield forecasts are skewed to the upside, particularly if Keir Starmer and Rachel Reeves are ousted from their jobs.
The consultancy added: “There are question marks over whether the chancellor’s plans to hike taxes and to reduce real terms day-to-day spending growth to zero in the 2029-30 election year materialise. And party politics may force the chancellor to raise public borrowing.”
A backdrop of weak economic growth and higher-for-longer interest rates failed to stop 2025’s strong performance by UK equities, although idiosyncratic drivers at a stock level were behind much of the UK market’s return.
UBS expects returns to broaden out as the economic outlook improves, although these gains are likely to lag the pace of earnings given the strong valuation re-rating that’s already taken place.
The bank said: “While we see UK equities as well supported and expect the economy and earnings to accelerate over the next 12 months, we favour opportunities in the region with higher exposure to structural growth trends or those more cyclically exposed to a pickup in economic activity, especially in goods/manufacturing.”
Earnings have fallen around 15% over the past two years, but UBS is backing growth to improve in 2026 as US policy clarity, lower interest rates and an expected drop in energy prices begin to support end-demand.
It forecasts profits growth of 5% in 2026 and around 15% in 2027.
The bank holds a Neutral stance on UK equities, with a base case for the FTSE 100 index of 10,000 by the end of 2026. Its upside scenario highlights a year-end 10,800, dropping 7,200 under its most pessimistic forecast.
The outcome is likely to depend on continued confidence in richly-valued US equities and on commodity price trends given that this sector contributes around 25% of FTSE 100 earnings.
A reversal of recent pound strength could also support higher local currency returns, with 75-80% of FTSE 100 revenues generated outside the UK.
The bank added: “We favour structural and cyclical beneficiaries in the region. We continue to like the banking, industrials, IT, real estate and utilities sectors as beneficiaries of a combination of global secular changes, an improving cyclical outlook and supportive policy.”
Invesco believes lower interest rates should help encourage reluctant households to start spending again, adding that UK households are sitting on savings equivalent to 14% of GDP and which could be deployed as they become more confident.
It said: “We see interesting opportunities in utilities and internationally orientated consumer staples, many of which are at attractive valuations compared to their overseas counterparts.
“Healthcare remains out of favour for many, so it’s an opportunity we want to take advantage of. While already performing strongly, domestic UK banks are still well placed to deliver strong returns.”
A reckoning is coming for unnecessary investment trusts
Investment trusts that don’t use their structural advantages will find it increasingly hard to survive, says Rupert Hargreaves
By Rupert Hargreaves
(Image credit: Getty Images)Share
Investment trusts are one of the best vehicles for creating wealth over the long term. Yet many of today’s trusts should not exist. Some are too small to make a difference and lack economies of scale. Others are not making the most of the benefits that the investment company structure offers.
An investment trust is set up as a public limited company, which has several advantages over other collective investment vehicles. Their closed-ended structure with fixed capital means that they don’t have to worry about money flowing in and out. That’s perfect for holding illiquid assets and also for borrowing money to improve returns. Meanwhile, the oversight provided by the board of directors should hold the investment manager accountable if the trust underperforms for too long.
However, this structure has two obvious drawbacks. One is overheads. Having an independent board of directors is expensive. Valuing and managing illiquid assets can also be costly and time-consuming. Paying for active investment managers has never been cheap, and it’s even more dear if the trust has an in-house management team, rather than sharing a manager who works across several funds. The combined impact of these costs means that many smaller trusts look expensive to their larger peers or open-ended funds with comparable strategies.
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The other is that the share price can – and usually does – deviate from net asset value (NAV). So shareholders cannot be sure if they will be able to sell at close to the value of the assets. In contrast, open-ended funds and exchange-traded funds (ETFs) trade at NAV.
Investment trusts need to start taking their advantages
So trusts need to employ their advantages to justify the disadvantages. Take leverage, which is one reason why trusts have tended to outperform similar open-ended funds over the long term. Trusts can usually borrow at highly attractive rates for long periods. The Scottish American Investment Company (LSE: SAIN), for example, issued three lots of loan notes several years ago, with maturities extending out to 2049 at rates of 2.23% to 3.12%. Yet most trusts just don’t make the most of this opportunity.
Nick Train’s Finsbury Growth and Income (LSE: FGT) has gearing of just 2.4% despite its scale and the manager’s conviction. So investors, managers and boards need to ask if the strategy would work as well in an open-ended structure. For an equity strategy that uses no leverage and invests in liquid stocks, the answer is likely to be yes. If so, there’s no need to operate with the added costs of the investment trust structure. The news that SmithsonInvestment Trust (LSE: SSON)will convert into an open-ended fund is a good example of this lesson being accepted.
Investment trusts must act soon
The market is slowly getting to grips with these realities. There were five mergers of similar trusts in 2025, with one more planned for early 2026, according to the Association of Investment Companies. Seven trusts and real estate investment trusts (Reits) were privatised – although long-term investors were not happy to see some of them go (eg, BBGI Global Infrastructure). There were 14 liquidations in 2025, the highest number since 2016; one of these, Middlefield Canadian Income, was a conversion to an exchange-traded fund (ETF).
To their credit, some trusts are making changes. There were 40 examples of trusts reducing their fees this year, compared with 32 in 2024 and 26 in 2023. There is more focus on closing discounts, albeit with mixed results. But many need to do more while they still have the chance.
Investors should consider if the trusts they own are worth their place on the market. If they’re not, it may be time to find something better – unless there is a realistic chance of activists forcing a restructuring that could bring windfall gains.
Hey terrific blog! Does running a blog similar to this take a massive amount work? I have very little understanding of coding however I was hoping to start my own blog soon. Anyhow, should you have any ideas or techniques for new blog owners please share.I know this is off topic however I just needed to ask. Thanks!
There needs to be some time spent researching topics for the blog and blog maintenance moderating comments. No coding needed, if you can copy and paste you are good to go. GL
Tech volatility has surged in Q4, hammering AI and data center names, creating pockets of opportunity for buyers.
Data centers sit at the heart of AI infrastructure, with the market forecast to grow about 25.6% annually through 2034.
SA Quant has identified four key data center infrastructure stocks with Quant “Strong Buy” ratings and excellent factor grades that have fallen off their 52-week highs.
I am Steven Cress, Head of Quantitative Strategies at Seeking Alpha. I manage the quant ratings and factor grades on stocks and ETFs in Seeking Alpha Premium. I also lead Alpha Picks, which selects the two most attractive stocks to buy each month, and also determines when to sell them.
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AI Rally Stalls on Bubble Fears
Tech sector volatility has surged in Q4 of 2025, as discussed in my recent piece, impacting AI names that have had incredible run-ups year-to-date. Information technology has been one of the worst-performing sectors on a trailing one-month basis, as profit-taking in mega-cap leaders and uncertainty over Fed rate cuts caused a rise in index volatility. Tech stocks experienced strong sell-offs despite solid fundamentals, as investors questioned whether the current levels of AI capex would translate into earnings.
Tech has been the second-worst-performing sector on a trailing one-month basis.
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Seeking Alpha: As of 12/18/2025.
The Nasdaq slid as much as 2% on Dec. 12, weighed down by Broadcom’s (AVGO) margin warning and a delayed Oracle–OpenAI (ORCL) data center timeline. Companies supporting data centers have suffered in tandem, with recent sessions marked by declines. Even as many suppliers and operators remain long-term beneficiaries of the AI boom, their shares have faced short-term pressure, creating opportunities in a notoriously stretched sector.
Data Centers: The 21st Century Gold Rush
Back in October, I highlighted three stocks driving the next wave of data center expansion. Data centers are the backbone of the AI ecosystem, housing the servers, GPUs, and other infrastructure required to power its massive computational workloads. The global AI data center market is projected to grow at a 25.6% CAGR through 2034, and McKinsey forecasts that AI workloads will account for roughly 70% of total data center demand by 2030.
There’s an old saying: “During a gold rush, sell shovels,” with the idea being that it’s often more profitable to supply the tools and services rather than chase the opportunity itself. In the current AI boom, that means focusing on data center component providers instead of downstream hyperscalers. This approach has paid off in the Alpha Picks portfolio, where one of the biggest winners, Celestica (CLS), a key supplier of data centers, has returned more than 900% to the portfolio. The data center market is vast, supported by a broad ecosystem of vendors that ensure operations run smoothly. Below, I’ll highlight four top Quant-rated data center stocks that have recently pulled back amid market volatility.
How I Chose My Top Data Center Infrastructure Stocks
The data center stock universe is drawn directly from the largest data center ETFs, which are built by professional portfolio managers and analysts whose role is to identify leading companies in the space. I aggregated all the securities in those ETFs and loaded them into the Seeking Alpha Quant Screener, which ranked the stocks using our quant metrics and emphasizing names that score well across factor grades. Finally, using the Seeking Alpha Stock Screener, I evaluated stocks trading off their 52-week range to pinpoint Strong Buys that have recently pulled back amid the latest bout of volatility.
Quant Sector Ranking (as of 12/19/2025): 18 out of 537
Quant Industry Ranking (as of 12/19/2025): 5 out of 68
Market Capitalization: $327.33B
Quant Rating: Strong Buy
AMD sells high‑performance CPUs, GPUs, and networking chips for cloud, enterprise, and AI data centers. As a core upstream hardware supplier, AMD provides the compute that sits at the heart of data center infrastructure, enabling processing and data movement. In its Q3 earnings call, management emphasized that data centers are a main growth area:
“Our record third quarter performance marks a clear step up in our growth trajectory as the combination of our expanding compute franchise and rapidly scaling data center AI business drives significant revenue and earnings growth.”
The stock has suffered amid broader sector volatility, declining nearly 8% in the last month. However, this has only added to AMD’s value story. Its grade has improved from a D three months ago to a C, supported by a forward PEG of just 1.2x (a 30% discount to the sector median).
AMD’s remaining fundamentals are sound, with an EBITDA margin that is 83% above the sector median and ‘A’ range grades across nearly every growth category. Notably, the EPS FWD long-term growth (3-5Y CAGR) is 166% above the sector median, demonstrating confidence in the company’s long-term trajectory.
AMD Growth Grade
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AMD is a strong data center growth play, supported by robust profitability and an improving value profile that together underscore the company’s quality.
Quant Sector Ranking (as of 12/19/2025): 14 out of 537
Quant Industry Ranking (as of 12/19/2025): 1 out of 22
Market Capitalization: $6.83B
Quant Rating: Strong Buy
APLD operates data centers built to house infrastructure for both AI and blockchain workloads. Despite the stock’s recent pullback, the company has delivered a remarkable 172% return over the last year. APLD recently entered a credit facility to fund early-stage planning and construction of new AI-focused data center campuses, which will directly support its growth. From a Quant perspective, the company delivers 129% forward EBITDA growth compared with 12.32% for the sector. While Applied Digital’s earnings remain negative, the company’s financial trajectory is improving as major data center contracts begin to ramp up.
“With the CoreWeave lease supporting roughly half a billion in annual net operating income and Polaris Forge 2 poised to significantly increase that figure, we are laying the foundation to reach our stated goal of $1 billion of NOI run rate within five years. And this is just the beginning,” said APLD CEO West Cummins.
Despite robust momentum, the company’s valuation grade improved from an ‘F’ three months ago to a ‘D’ today. In addition to improving fundamentals, the company showcases analyst enthusiasm, with five FY1 Up Revisions in the last 90 days vs. two downward.
APLD Earnings Revisions Grade
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Applied Digital’s strategic presence in North Dakota positions the company to capitalize on the region’s low construction and operational costs, abundant energy, and a favorable climate that keeps its data centers cool. These factors, combined with the company’s excellent fundamentals and recent pullback, make APLD a solid data center stock.
Quant Sector Ranking (as of 12/19/2025): 28 out of 538
Quant Industry Ranking (as of 12/19/2025): 4 out of 19
Market Capitalization: $16.21B
Quant Rating: Strong Buy
Fabrinet is an upstream hardware player in the data center market, providing advanced manufacturing and packaging services for complex optical and electronic components. In addition to a strong foothold in the data centers, the company also serves a diverse set of industrial markets, including automotive applications and advanced medical equipment.
The company delivered a record Q1 FY26, with revenue up 22% year-over-year to $978 million, driven by strong telecom demand and its high-performance computing category, which management expects to scale rapidly in Q2. This growth has translated to exceptional profitability. FN offers an ROE that is 188% above the sector median while boasting an incredible $8.51 in cash per share.
FN Profitability Grade
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The stock’s ‘A’ grade momentum has been a steady march forward, returning 77% in the last six months alone. Despite the gains, the stock still trades in line with the sector. Although Fabrinet is broadly higher over the past month, its more recent dip offers a more attractive entry point for those looking to initiate a position.
Quant Sector Ranking (as of 12/19/2025): 43 out of 615
Quant Industry Ranking (as of 12/19/2025): 1 out of 40
Market Capitalization: $71.96B
Quant Rating: Strong Buy
JCI’s cooling and controls solutions are critical for managing the energy use of high‑performance AI workloads, helping operators cut power and water consumption while maintaining uptime. In its Q4 earnings call, management cited data centers as one of the fastest‑growing verticals in its record backlog, contributing to 9% growth in the Americas segment in Q4.
The company delivered strong profitability, with segment margins expanding and adjusted EPS growing double-digits above guidance. From a Quant perspective, highlights include an incredible $2.55B in cash from operations vs. the sector’s $390 million and a net income margin that is 116% above the sector.
JCI Profitability Grade
JCI Profitability Grade
The company boasts a record backlog of $15B and improved free cash flow, suggesting solid forward growth potential. While JCI still screens as somewhat stretched on several traditional valuation metrics, it currently trades at a 16% discount on a forward PEG basis, suggesting the shares may have further room to run. Underpinned by solid fundamentals and a robust pipeline, JCI offers investors focused exposure to the fast‑growing data center service and maintenance market.
Concluding Summary
Tech has come under pressure in Q4 2025, as profit‑taking and Fed uncertainty have fueled volatility. AI leaders and data center names have sold off sharply despite solid fundamentals, creating an opportunity in a segment with notoriously stretched valuations. SA Quant has identified four top Quant-ranked data center stocks that have fallen off their 52-week highs. Advanced Micro Devices, Inc., Applied Digital Corporation, Fabrinet, and Johnson Controls International plc offer a mix of strong profitability, value, growth, momentum, and earnings revisions for investors looking for exposure to the data center ecosystem in the recent pullback.
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