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Discount Watch
We estimate the number of funds trading at year-high discounts to net assets fell by 2 to 12 last week. Alternatives still dominate the list with nine names as high bond yields continue to weigh on sentiment and share prices. But which alternative fund, seemingly a permanent fixture on the list, is no longer among the 52-week high discounters?
By Frank Buhagiar
We estimate 12 investment companies saw their share prices trade at 52-week high discounts to net assets over the course of the week ended Friday 07 February 2025 – two less than the previous week’s 14.
Headline number of 52-week high discounters may be falling, but the number of alternatives remains stuck on nine: five renewables, one infrastructure, one leasing, two from private equity/growth capital. Concerns over higher bond yields, leading to higher discount rates and lower asset valuations continuing to weigh on sentiment.
Noticeno property company among the alternatives this week. Not even the up-until-now ever-present Ceiba Investments (CBA). For weeks the Cuban-focused property company has topped the list with a discount of around 75%. Not anymore. CBA’s discount ended the week at -73%ish. Okay not a big improvement, but an improvement, nonetheless. The reason, the Company’s press release of 3 February 2025 confirming that 85% of holders of its €25m 10% senior unsecured convertible bonds due 2026 agreed to amend the payment schedule of the bond from a single €25m bullet payment due on 31 March 2026 to five equal annual instalments of €5m starting in June 2025. The new maturity date is 31 March 2029. The previously looming deadline had been weighing on the share price hence the year-high discount. Question is, can the share price kick on from here or will CBA return to the Discount Watch in the not-too-distant future?
Top five
Fund Discount Sector
Digital 9 Infrastructure DGI9-80.70%Renewables#
Ecofin US Renewables RNEW-54.90%Renewables
VH Global Energy Infrastructure ENRG-54.01%Renewables
Syncona SYNC-49.72%Healthcare
Aquila Energy Efficiency AEET-47.41%Renewables
The full list
| Fund | Discount | Sector |
|---|---|---|
| Utilico Emerging Markets UEM | -22.39% | Emerging Markets |
| Schroders British Opportunities SBO | -38.63% | Growth Capital |
| Syncona SYNC | -49.72% | Healthcare |
| Digital 9 Infrastructure DGI9 | -80.70% | Infrastructure |
| Tufton Assets SHIP | -27.01% | Leasing |
| Partners Group Private Equity PEY | -33.13% | Private Equity |
| Bluefield Solar Income BSIF | -36.02% | Renewables |
| Foresight Environmental Infrastructure FGEN | -40.59% | Renewables |
| Aquila Energy Efficiency AEET | -47.41% | Renewables |
| Ecofin US Renewables RNEW | -54.90% | Renewables |
| VH Global Energy Infrastructure ENRG | -54.01% | Renewables |
| Merchants MRCH | -5.75% | UK Equity Income |
Funds mentioned in this article:
RBC
CUTS BLUEFIELD SOLAR INCOME FUND TARGET TO 115 (120) PENCE – ‘SECTOR PERF.’
CUTS GREENCOAT UK WIND PRICE TARGET TO 165 (170) PENCE – ‘OUTPERFORM’
CUTS GRESHAM HOUSE ENERGY STORAGE FUND TARGET TO 65 (70) P.; ‘SECTOR PERF.’
CUTS THE RENEWABLES INFRASTRUCTURE GROUP TARGET TO 115 (120) P.; ‘OUTPERFORM.’
£££££££££££
But as always best to DYOR research to decide which Trusts are suitable for inclusion in your plan.
The Tip Sheet
The Telegraph thinks the market has got it wrong when it comes to 3I Infrastructure (3IN) and believes the sell-off in the shares has been overdone; while The Times believes a radical overhaul at HarbourVest Global Private Equity (HVPE), which includes capital being returned to shareholders and a more simplified structure adopted, make the shares a hold.
By Frank Buhagiar
Questor – There’s a bargain to be had while markets misjudge this infrastructure trust
Sometimes share prices are weak for good reason. Other times, the weakness may be down to shares simply falling out of favour. Figuring out which applies, that’s the hard bit. Not enough to stop The Telegraph’s Questor from trying though. For the tipster “sees an investment trust trading at an unusually wide discount to net asset value (Nav) and wonders whether there is a bargain to be had – 3i Infrastructure (3IN) might fit that description.” Particularly as 3IN doesn’t follow the typical infrastructure fund model: take on debt; acquire/develop assets that provide essential services; generate “long-term and reasonably predictable income”. Instead, 3IN focuses on “core infrastructure businesses that could deliver a combination of capital growth and income, rather than just a predictable income stream. It is this that differentiates 3i Infrastructure from most other listed infrastructure trusts, which tend to offer higher dividend yields but lower overall total returns.”
It’s a model that has served 3IN well. Adjusting for the payment of a large special dividend in 2018, the average annual NAV total return over the last 10 years stands at around 14%, while the dividend has risen from 7p to 12.65p. Those numbers helped by the fund selling well: over the last 10 years, assets have been sold at prices that have generated an average 37% uplift to the values held on its books. That’s a track record deserving of a share price premium to net assets and for most of 3IN’s life that has been the case. This all changed in September 2022, however, so that today the shares trade at a 15%ish discount to NAV while “the share price has made little to no headway over the past three years.”
Questor puts that discount down to the higher interest rate environment, but points out that “in this respect, economic conditions today are much closer to those prevailing at the time when 3i Infrastructure was launched.” It’s not as if the fund has not been here before. What’s more “In its latest update, the 3i team indicates that the majority of the portfolio is performing ahead or in line with expectations. Questor believes the selloff in 3i Infrastructure’s shares is overdone.”
Tempus – Is it time to sell shares in HarbourVest Global Private Equity?
The Times’ Tempus thinks HarbourVest Global Private Equity (HVPE) “has often gone unnoticed by most DIY investors” because of the “seemingly perennial discount on the shares and a mistrust of private assets”. But this could be about to change thanks to “a radical overhaul at the trust”. Trigger for the overhaul, pressure from activist investor Metage Capital, that persistent discount to net assets and disappointing share price performance.
Among the changes being wrought: doubling the amount of cash being set aside for share buybacks; proposing a continuation vote at its annual meeting next year; and agreeing a more simplified investment structure with its manager, HarbourVest Partners, which will see the trust’s funds being put into a separate vehicle, thereby creating a more direct relationship between HVPE shareholders and its private holdings – previously these were “co-mingled” with other funds. It’s hoped this last change will go some way to making it easier for investors to understand the fund – HVPE invests in other funds, which in turn invest their assets into a wide range of private companies. Also, HVPE invests alongside other HarbourVest managed funds that focus on primary fund commitments, secondary investments and direct co-investments in operating companies. The fund invests in private credit too. In all, HVPE is exposed to over 1,000 different businesses. Easy to see why, the Board felt the need to simplify things.
Exposure to 1,000 companies does mean the fund is well diversified. Arguably a “one-stop-shop for a basket of privately owned assets” that has historically performed well: a +13% annualised NAV per share return between 2014 and 2024 compares favourably to the FTSE All World’s +10%. That long-term track record, those changes in the pipeline, including plans to return what Numis estimates could amount to US$235m to shareholders via buybacks, and “encouraging initiatives by the board to simplify a complex investment”, leads Tempus to think that now is not the time to sell the stock. Rather hold on and hopefully enjoy the ride.
ieves the sell-off in the shares has been overdone; while The Times believes a radical overhaul at HarbourVest Global Private Equity (HVPE), which includes capital being returned to shareholders and a more simplified structure adopted, make the shares a hold.
By Frank Buhagiar
The Telegraph thinks the market has got it wrong when it comes to 3I Infrastructure (3IN) and believes the sell-off in the shares has been overdone; while The Times believes a radical overhaul at HarbourVest Global Private Equity (HVPE), which includes capital being returned to shareholders and a more simplified structure adopted, make the shares a hold.
Questor – There’s a bargain to be had while markets misjudge this infrastructure trust.
Sometimes share prices are weak for good reason. Other times, the weakness may be down to shares simply falling out of favour. Figuring out which applies, that’s the hard bit. Not enough to stop The Telegraph’s Questor from trying though. For the tipster “sees an investment trust trading at an unusually wide discount to net asset value (Nav) and wonders whether there is a bargain to be had – 3i Infrastructure (3IN) might fit that description.” Particularly as 3IN doesn’t follow the typical infrastructure fund model: take on debt; acquire/develop assets that provide essential services; generate “long-term and reasonably predictable income”. Instead, 3IN focuses on “core infrastructure businesses that could deliver a combination of capital growth and income, rather than just a predictable income stream. It is this that differentiates 3i Infrastructure from most other listed infrastructure trusts, which tend to offer higher dividend yields but lower overall total returns.”
It’s a model that has served 3IN well. Adjusting for the payment of a large special dividend in 2018, the average annual NAV total return over the last 10 years stands at around 14%, while the dividend has risen from 7p to 12.65p. Those numbers helped by the fund selling well: over the last 10 years, assets have been sold at prices that have generated an average 37% uplift to the values held on its books. That’s a track record deserving of a share price premium to net assets and for most of 3IN’s life that has been the case. This all changed in September 2022, however, so that today the shares trade at a 15%ish discount to NAV while “the share price has made little to no headway over the past three years.”
Questor puts that discount down to the higher interest rate environment, but points out that “in this respect, economic conditions today are much closer to those prevailing at the time when 3i Infrastructure was launched.” It’s not as if the fund has not been here before. What’s more “In its latest update, the 3i team indicates that the majority of the portfolio is performing ahead or in line with expectations. Questor believes the selloff in 3i Infrastructure’s shares is overdone.”
Tempus – Is it time to sell shares in HarbourVest Global Private Equity ?
The Times’ Tempus thinks HarbourVest Global Private Equity (HVPE) “has often gone unnoticed by most DIY investors” because of the “seemingly perennial discount on the shares and a mistrust of private assets”. But this could be about to change thanks to “a radical overhaul at the trust”. Trigger for the overhaul, pressure from activist investor Metage Capital, that persistent discount to net assets and disappointing share price performance.
Among the changes being wrought: doubling the amount of cash being set aside for share buybacks; proposing a continuation vote at its annual meeting next year; and agreeing a more simplified investment structure with its manager, HarbourVest Partners, which will see the trust’s funds being put into a separate vehicle, thereby creating a more direct relationship between HVPE shareholders and its private holdings – previously these were “co-mingled” with other funds. It’s hoped this last change will go some way to making it easier for investors to understand the fund – HVPE invests in other funds, which in turn invest their assets into a wide range of private companies. Also, HVPE invests alongside other HarbourVest managed funds that focus on primary fund commitments, secondary investments and direct co-investments in operating companies. The fund invests in private credit too. In all, HVPE is exposed to over 1,000 different businesses. Easy to see why, the Board felt the need to simplify things.
Exposure to 1,000 companies does mean the fund is well diversified. Arguably a “one-stop-shop for a basket of privately owned assets” that has historically performed well: a +13% annualised NAV per share return between 2014 and 2024 compares favourably to the FTSE All World’s +10%. That long-term track record, those changes in the pipeline, including plans to return what Numis estimates could amount to US$235m to shareholders via buybacks, and “encouraging initiatives by the board to simplify a complex investment”, leads Tempus to think that now is not the time to sell the stock. Rather hold on and hopefully enjoy the ride.
The Tip Sheet
The Telegraph thinks the market has got it wrong when it comes to 3I Infrastructure (3IN) and believes the sell-off in the shares has been overdone; while The Times believes a radical overhaul at HarbourVest Global Private Equity (HVPE), which includes capital being returned to shareholders and a more simplified structure adopted, make the shares a hold.
By Frank Buhagiar
The Telegraph thinks the market has got it wrong when it comes to 3I Infrastructure (3IN) and believes the sell-off in the shares has been overdone; while The Times believes a radical overhaul at HarbourVest Global Private Equity (HVPE), which includes capital being returned to shareholders and a more simplified structure adopted, make the shares a hold.
Questor – There’s a bargain to be had while markets misjudge this infrastructure trust.
Sometimes share prices are weak for good reason. Other times, the weakness may be down to shares simply falling out of favour. Figuring out which applies, that’s the hard bit. Not enough to stop The Telegraph’s Questor from trying though. For the tipster “sees an investment trust trading at an unusually wide discount to net asset value (Nav) and wonders whether there is a bargain to be had – 3i Infrastructure (3IN) might fit that description.” Particularly as 3IN doesn’t follow the typical infrastructure fund model: take on debt; acquire/develop assets that provide essential services; generate “long-term and reasonably predictable income”. Instead, 3IN focuses on “core infrastructure businesses that could deliver a combination of capital growth and income, rather than just a predictable income stream. It is this that differentiates 3i Infrastructure from most other listed infrastructure trusts, which tend to offer higher dividend yields but lower overall total returns.”
It’s a model that has served 3IN well. Adjusting for the payment of a large special dividend in 2018, the average annual NAV total return over the last 10 years stands at around 14%, while the dividend has risen from 7p to 12.65p. Those numbers helped by the fund selling well: over the last 10 years, assets have been sold at prices that have generated an average 37% uplift to the values held on its books. That’s a track record deserving of a share price premium to net assets and for most of 3IN’s life that has been the case. This all changed in September 2022, however, so that today the shares trade at a 15%ish discount to NAV while “the share price has made little to no headway over the past three years.”
Questor puts that discount down to the higher interest rate environment, but points out that “in this respect, economic conditions today are much closer to those prevailing at the time when 3i Infrastructure was launched.” It’s not as if the fund has not been here before. What’s more “In its latest update, the 3i team indicates that the majority of the portfolio is performing ahead or in line with expectations. Questor believes the selloff in 3i Infrastructure’s shares is overdone.”
Tempus – Is it time to sell shares in HarbourVest Global Private Equity ?
The Times’ Tempus thinks HarbourVest Global Private Equity (HVPE) “has often gone unnoticed by most DIY investors” because of the “seemingly perennial discount on the shares and a mistrust of private assets”. But this could be about to change thanks to “a radical overhaul at the trust”. Trigger for the overhaul, pressure from activist investor Metage Capital, that persistent discount to net assets and disappointing share price performance.
Among the changes being wrought: doubling the amount of cash being set aside for share buybacks; proposing a continuation vote at its annual meeting next year; and agreeing a more simplified investment structure with its manager, HarbourVest Partners, which will see the trust’s funds being put into a separate vehicle, thereby creating a more direct relationship between HVPE shareholders and its private holdings – previously these were “co-mingled” with other funds. It’s hoped this last change will go some way to making it easier for investors to understand the fund – HVPE invests in other funds, which in turn invest their assets into a wide range of private companies. Also, HVPE invests alongside other HarbourVest managed funds that focus on primary fund commitments, secondary investments and direct co-investments in operating companies. The fund invests in private credit too. In all, HVPE is exposed to over 1,000 different businesses. Easy to see why, the Board felt the need to simplify things.
Exposure to 1,000 companies does mean the fund is well diversified. Arguably a “one-stop-shop for a basket of privately owned assets” that has historically performed well: a +13% annualised NAV per share return between 2014 and 2024 compares favourably to the FTSE All World’s +10%. That long-term track record, those changes in the pipeline, including plans to return what Numis estimates could amount to US$235m to shareholders via buybacks, and “encouraging initiatives by the board to simplify a complex investment”, leads Tempus to think that now is not the time to sell the stock. Rather hold on and hopefully enjoy the ride.
Note: The four years, even including dividends, you made zero, zilch, nothing.
If you knew that falling markets were a plus as you get more shares for your money and you simply stick to your task and re-invest the dividends back into the share, the outcome will always be favourable, that is with a tracker or quasi tracker, if you can choose the time when to sell.
10 February 2025
- QuotedData
- Richard Williams
Winners and losers in January 2025
| Best performing funds in price terms | (%) |
|---|---|
| Ground Rents Income Fund | 46.4 |
| Tritax Big Box REIT | 10.1 |
| IWG | 8.2 |
| Urban Logistics REIT | 7.0 |
| Unite Group | 6.3 |
| Macau Property Opportunities | 6.0 |
| Care REIT | 5.2 |
| British Land | 4.7 |
| Helical | 4.3 |
| NewRiver REIT | 4.2 |
Source: Bloomberg, Marten & Co
| Worst performing funds in price terms | (%) |
|---|---|
| Henry Boot | (10.9) |
| Life Science REIT | (10.5) |
| Schroder REIT | (8.7) |
| Conygar Investment Company | (7.2) |
| CLS Holdings | (7.1) |
| Grainger | (5.3) |
| First Property Group | (5.2) |
| Alternative Income REIT | (5.1) |
| Phoenix Spree Deutschland | (4.9) |
| Residential Secure Income | (4.8) |
Source: Bloomberg, Marten & Co
The year has started on a somewhat more positive footing than 2024 ended, with the median average share price across the real estate sector marginally up. The outlier was Ground Rents Income Fund, which has received several proposals for the company that have so far been rejected by the board (see page 3 for details). A potentially groundbreaking deal by Tritax Big Box REIT, which would see it become the largest data centre player in the UK, saw its share price rise by just over 10% in the month. It was also a positive month for fellow logistics specialist Urban Logistics REIT, which had seen its discount to NAV widen to 35% at the end of 2024. It still trades on an unjustifiably wide 30% discount. A positive quarterly trading update from Unite Group saw an in-kind positive reaction in its share price, with the student sector continuing to display compelling supply and demand characteristics and rental growth prospects. Assured inflation-linked rental growth within its care home portfolio saw Care REIT up its dividend target. Meanwhile, British Land went into partnership with an Abu Dhabi investor to unlock the development of a major City of London office scheme.
Caution remains the catchword in real estate stocks, and several continue to lose substantial value, especially for those operating in perceived troubled sub-sectors. Stale house prices and concerns around the strength of the economy weighed on housing developer Henry Boot. Meanwhile, Life Science REIT continues to struggle with a further double-digit fall in its share price. Over 12 months it has lost 40.8% in value and now trades on an astonishingly wide 55% discount to NAV. Coming off a strong 2024, in which its share price rose 14.2%, diversified specialist Schroder REIT had a bumpy start to 2025. It was a similar story for long income specialist Alternative Income REIT and its discount to NAV has now widened to almost 16%. Shareholders seem to have become wary of Phoenix Spree Deutschland’s realisation programme, with the already depressed shares falling another 4.9%. Residential Secure Income is another company undertaking a sell-off of its portfolio. The almost 5% drop in its share price in January may be down to pessimism over how much it would receive for its portfolio of retirement and shared ownership homes after it reported a 5.6% write-down in their value.
Valuation moves
| Company | Sector | NAV move (%) | Period | Comments |
|---|---|---|---|---|
| Picton Property | Diversified | 2.3 | Quarter to 31 Dec 24 | Like-for-like portfolio valuation increase of 2.2% over the quarter to £737.4m |
| AEW UK REIT | Diversified | 0.9 | Quarter to 31 Dec 24 | 1.2% like-for-like valuation increase for the quarter to £192.0m |
| Safestore | Self-storage | 14.6 | Full year to 31 Oct 24 | 13.6% increase in property value to £3,284.1m |
| Residential Secure Income | Residential | (8.8) | Full year to 30 Sept 24 | Portfolio value fell 5.6% to £325.7m |
| Ground Rents Income Fund | Residential | (34.5) | Full year to 30 Sept 24 | Like-for-like reduction in value of portfolio of 30.5%, to £71.5m, over the financial year |
Source: Marten & Co
With the cost-of-living crisis increasing pressure on households, the importance of earning a second income’s rising rapidly. Luckily, dividend shares offer a potential solution to this problem, allowing focused investors to earn impressive long-term passive income.
So how does investing in dividend shares work? What are the risks? And which dividend stocks should investors consider buying in 2025?
Dividends explained
Not all businesses are high-flying enterprises. The London Stock Exchange is home to many mature businesses whose explosive growth days are now in the rear-view mirror. However, with the strong demand for their products and services, their cash flows remain robust. As such, with no other use of capital internally, management teams are returning a large chunk of this cash back to shareholders – the owners.
Typically, dividend payments come every quarter, although this frequency can be different depending on the business and its cash flow timings. However, most companies like to keep payment timing relatively consistent. And investors can leverage that to establish a reliable and predictable income stream.
Due to their maturity, investing in dividend shares is often considered to be a relatively low-risk strategy. And historically, that’s certainly proven to be true in terms of lower share price volatility. However, even the biggest and most stable enterprises have their fair share of threats to contend with.
If cash flows become disrupted, dividends can often find themselves under pressure. And if market conditions become too adverse, shareholders may see their payouts get cut or even outright cancelled. As such, the second income generated by an investment portfolio can take a hit on relatively short notice.
Luckily, such risks can be managed with prudent market monitoring and portfolio diversification.
Best income stocks to buy now?
There are a lot of UK dividend shares to pick from. However, not all of them offer the best value or long-term income potential. And depending on the risk tolerance and time horizon of an investor, the best dividend shares to buy can vary, depending on the individual.
That said, there continues to be some interesting opportunities within the real estate sector right now. LondonMetric Property‘s (LSE:LMP) one such business. It’s currently digesting its recent large acquisition of LXi. However, despite generating impressive free cash flow and offering a 6% yield, shares continue to trade at a discounted valuation.
Higher interest rates have wreaked havoc on property prices, even in the commercial sector where LondonMetric operates. And with the book value of its assets marked down, shares are still trading at a forward price-to-earnings ratio of 13.9.
To be fair, weakened asset prices can be problematic. Suppose management suddenly needs to sell properties to raise capital. In that case, it will likely have to do it at a discount, given the weakness in the commercial real estate market. And the group’s £2.2bn of debt does add pressure to the bottom line, due to higher interest rates.
However, despite these handicaps, demand from tenants and occupancy remains strong, as do cash flows. That’s why LondonMetric Property’s already in my income portfolio, and I feel other investors may want to consider it for theirs.
The post Here’s how to start earning a second income with dividend shares appeared first on The Motley Fool UK.
Zaven Boyrazian has positions in LondonMetric Property Plc. The Motley Fool UK has recommended LondonMetric Property Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
If u buy a Trust just before it’s xd date, u can receive the right to five dividends in just over a year.
The working example being NESF but as always not a recommendation to buy, DYOR.
NESF declared dividend 2.11p x 5 = 10.55p
Current share price 70p a yield of 15%, if u think the dividend is secure.