7th December 2021 by Kyle Caldwell from interactive investor
There are various tools a board can use in an attempt to boost demand for shares. Here are some examples.
When an investment trust is persistently out of favour, its board can spring into action in an attempt to tackle its discount…
Change at the top
In a bid to improve performance, a recent management group change saw Genesis Emerging Markets turn into Fidelity Emerging Markets Ord. Shareholders gave the trust the green light to change fund firm and how the trust invests. The trust can now short shares (profiting if a share price falls) and invest some of the portfolio in unlisted companies.
Nick Price, who has been lead manager of open-ended Fidelity Emerging Markets for more than a decade, is the new manager of the trust. Across both short and long time periods, the fund has outperformed sector rivals. Over three and five years, it has returned 50.2% and 82.2% compared to 26.6% and 51.6% for the Investment Association’s (IA) global emerging markets sector, figures from FE Analytics show…
The trust’s discount stands at -12.5%, which is higher than its 12-month average of -7.8%. In addition, it is the biggest discount in the emerging market trust sector, with the average discount being -7.6%. All discount figures, sourced from Winterflood, are to the end of trading yesterday.
James Carthew, head of investment companies at QuotedData, points out that there’s a potential opportunity for investors to profit from the current discount.
He says: “We were surprised to see just how much of Fidelity Emerging Markets’ share register would have been prepared to sell out of the trust had the tender not been capped at 25% of the company. There is a clear implication that there is a substantial overhang of shares. Notwithstanding that, most of these investors seek to add value by trading discounts. They might be prepared to buy more shares in the trust at a wide discount with the intention of trading them out at a narrower discount in time. That should cap the downside.”
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