Numis Securities has assigned Neil Woodford’s Edinburgh Investment Trust a “sell” rating in its latest update of the sector, accenting that its premium to net asset value is far too high.
Woodford’s £903m trust joins Richard Kirby’s F&C commercial property trust, which was also recently been labelled a “sell”.
Numis, which aims to highlight opportunities within the listed fund sector, rather than create a model portfolio, categorises investment trusts as either core recommendations or trading opportunities.
Such trading opportunities are typically based on a shorter time frame of three-to-six months and Numis adds its views may change in a relatively short space of time depending on movements in the premium or discount to NAV.
The Edinburgh Investment Trust, as well as FCPT Trust, is currently classified as such a trading opportunity.
“We have frequently highlighted that UK growth & income funds look expensive, with several trading on premiums of 5 per cent or more,” says Charles Cade, the head of investment companies research at Numis.
“We regard Neil Woodford highly and his performance has picked up this year after a period of relative underperformance. Nevertheless, we feel it is worth considering a switch into the equivalent open-ended fund [or a different investment trust].”
Cade says the Edinburgh Investment Trust’s premium of 6-7 per cent to NAV is now “too high” and has therefore become “less compelling”.
FCPT is also likely to remain one of the better performers, Cade says. The team at Numis expects the trust to do well given its London and south-east bias and exposure to the strongest performing sub-sectors.
“As capital value and therefore net asset value growth is likely to remain muted in the coming months, we believe this premium rating may not be sustainable,” Cade says. “In our view, the outlook for the asset class remains difficult and we are wary of paying significant premiums for funds such as F&C commercial property.”