The Trusts That Have Benefitted From Peak Rate Expectations

Anyone who follows the markets will have noticed the seismic shift in sentiment that has taken place in the last couple of months. At the end of October investors began to take the view that interest rates had peaked and the belief spread until it was more or less confirmed by the Fed in mid-December.

The prospect of lower interest rates is positive for most risk assets and has helped many of the world’s major indices to achieve double digit returns. In the US, the Nasdaq 100 is up almost 20% and the S&P 500 15%, while the FTSE 100 has risen 12%.

After two months of strong gains it is interesting to look back at the biggest beneficiaries and to see whether there are any remaining pockets of value as measured by the discounts. Unless otherwise stated, all the figures represent the total return since the close on October 27 and are sourced from Sharepad, along with the discounts.

Resurgent REITs

A quick glance at the list of major beneficiaries reveals the high number of property trusts that have enjoyed gains of 30% or more. Funds like this are obviously highly sensitive to the level of interest rates, but they are also tied in to the health of the economy and could be vulnerable if the UK experiences a recession later in the year.

The biggest winners include the likes of: British Land (LON: BLND), Tritax Eurobox (LON: EBOX), Shaftesbury (LON: SHC), Hammerson (LON: HMSO) and the Warehouse REIT (LON: WHR). Despite the significant recovery, EBOX and WHR are both still trading at around 25% below NAV.

There are also plenty of other trusts from the sector that are up between 20% and 30% with examples such as Tritax Big Box (LON: BBOX), Urban Logistics (LON: SHED) and Bellevue Healthcare (LON: BBH). Of these, only the latter isn’t available at a double digit discount, presumably because of the resilient nature of its income stream.

Baillie Gifford Rebounds

It has been a miserable few years for many of the growth trusts whose ‘high duration’ stocks have sold off sharply in the face of higher interest rates, so it is no surprise to see some of these names rebound strongly. The firm most synonymous with this area is Baillie Gifford, which has had a good couple of months.

Investors who have kept faith with their BG holdings will be pleased to see that Baillie Gifford US Growth (LON: USA) and Scottish Mortgage (LON: SMT) have both come back strongly with gains of 33% and 24% respectively. The discounts have narrowed as a result and now stand at 14% and seven percent.

It is interesting to see that their global best ideas fund Monks (LON: MNKS), which I wrote about just before Christmas, hasn’t recovered to the same extent. Its total return since the end of October is 18% and the discount is currently 10%.

Other Winners And Losers

Another area that has done well are the small cap trusts. The standouts in the sector are: Henderson Smaller Companies (LON: HSL) and JPMorgan UK Smaller Companies (LON: JMI) with gains of 31% and 28%. Both are available at discounts of around 10%.

Some of the niche private equity funds have also had a fantastic couple of months, but remain heavily discounted. For example, Schiehallion (LON: MNTN), Chrysalis (LON: CHRY) and Augmentum Fintech (LON: AUGM) are up 54%, 46% and 43% respectively, yet trade more than 30% below their NAV.

One of the key markets that hasn’t benefitted is China, with many of the trusts that invest in the country having a dreadful year. Despite the general improvement in sentiment, funds like JPMorgan China Growth and Income (LON: JCGI) and Baillie Gifford China Growth (LON: BGCG) have continued to give up ground in the last two months.