Considering risky investments - Russia/Oil/Commodities?


#1

It’s a new year and I have a little bit of cash looking for a home. most of my money is invested in a mixture of large income/global trusts/funds and in Bonds but I like a little bit of fun too and to take a contrarian position with a little bit of my wealth.

I’m thinking about trusts on deep discounts, investing in Russia, or oil/commodities exposed trusts of funds - all whilst they are cheap.

One trust Henderson Value Trust covers two of the above at least. It invests in other funds and investment trusts with considerable exposure to Russia. It’s just come through a continuation vote, lost one of its two managers and is sitting on a reasonable discount.

I’m also looking at JP Morgan Russian Securities, BlackRock World Mining or Commodities Income.

I just wondered if anyone else has any thoughts on these or other contrarian plays on a reasonable discount?


#2

Well. With the way that markets have performed today (today, when I started the post, but it is now yesterday - reminds me of Philip K Dick somehow…) then I’m tempted to suggest golding on for a bit and then topping up the existing holdings!

 

Of the three ITs mentioned, I’d plum for BRCI by a process of elimination.

Whilst the Russian market might be cheap on some measures it is dominated by Oils and Banks, and the companies tend to have major (even majority) shareholders, and some of these will have ties to the State. If the problems were purely economic then these factors would be less of an issue. Even political problems might present an oportunity - but only if the politics can be thought of as rational, and I don’t think that this is the case right now, nor for the forseeable future. So unless you’re after a über-contrarian suggestion then I’d eliminate JRS.

BRWM I’m eliminating simply because it concentrates on more on the basic resources side of things, i.e. mining and the like. Because much of the current market travails are to do with the oil price then I do think that a recovery here will bring a major benefit to BRWM. The London Mining incident is irrelevant to this thinking too.

So BRCI would be my choice because it covers both mining and oil.

 

As it is, I went for NCE and CMHY, so potentially closer to the sharper end of things! There is some overlap in the portfolios but this doesn’t bother me because the holdings are just small speculative punts.

If you did want to look at another trust that is on a discount, but not really a contrarian play, then Hansa Trust. It has recently changed its investment methodology, so the jury might still be out on whether this is a good or a bad thing (I have a holding from before this change was introduced). Still holds some oil service companies and majors; Brazil shipping; esoteric fund holdings (some indirectly held); dual share structure; vested interests control the company with just over 50% of the voting shares, therefore with only 17% of the company’s capital; no discount control (something that makes a pleasurable change in my view!). Might be worth a peruse.

 


#3

In another forum on this site we’re discussing P2P Global investments, might that fit in to your risky investment category @JKStowe ?

Henderson Value or HVTR has gone through boardroom shenanigans recently, but it survived a continuation vote. It certainly fits in to your high risk category but I’d want to find out more about the strategy there before investing. Maybe @dicem could help you there?

Otherwise I’d agree with@ArkWelder that Blackrock Commodities Income or BRCI is best because its focus on income for a diverse range of commodities has a better chance of outperforming than BRWM.

I’ve never hears of NCE though Google tells me it’s New City Energy @ArkWelder, I’m a fan of Hansa though because I think Oceans Wilson is a good way to invest in Brazil because it ports/infrastructure focus.

 


#4

@jonno and @JKStowe I’m meeting Henderson Value Trust’s joint manager’s Ian Barrass and James de Bunsen in mid February for an update. I’ll publish a not in here shortly after.

If you have any particular queries please let me know.

 


#5

Another possible contrarian play is Ecofin Water & Power (ECWO) - its largest investment is a shale driller in the US (Lonestar) - so the share price and NAV have been very volatile recently. The Trust claims that Lonestar is a lower cost driller than most shale operators and has funding for the next few years. Potentially worth considering as it pay ~5% dividend like BRCI/BRWM.

I also like some of the private equity trusts on big discounts - Dunedin Enterprise (DNE) has had a widened discount on new real news. At the more specialised end JZ Equity (JZCP) is on a stubborn discount and a good yield, I also like Symphony International (SIHL) as a play on the far east consumer.


#6

Apologies, the use of ticker codes isn’t always best practice! And I’ve still got one wrong: not CMHY, but CYN.

 

Yes, NCE is New City Energy. CYN is City Natural Resources, whereas CMHY is quite a different animal, being City Merchants High Yield. I do hold all three but the last one concentrates on high-yield bonds across all sectors and not just Resources; it also holds some floating-rate notes and convertibles - so not really a contender for this thread!

NCE holds equity and bonds (mainly of the high-yield variety) of Oil & Gas conmpanies but at the smaller end of the capitalisation scale - more towards the upstream end of events than might be found in holding the majors, such as Shell and BP.

CYN is more diversified in that it also covers the mining sector and also has a few holdings in alternative energy generators. Again, though, these tend to be towards the smaller-cap end of the market.

 

Both these trusts have higher levels of gearing than either BRWM and BRCI, so combined with the types of holdings then I see them as being more of a risk than those two - why I see them as more of a punt. The level of income and its sustainability wasn’t a major factor here, otherwise I would probably have erred more towards the Blackrock offerings.

 

@JKStowe, @jonno


#7

Thanks, there are a lot of very interesting suggestions here for me to look in to. Unfortunately, I’ve been without power for several days because of the weather. Now it’s restored I will have a look in to these further.

City Natural Resources, Ecofin and P2P Global investments all look interesting and worthy of further investigation.

Thank you to @scjim @Arkwelder @jonno for your suggestions.


#8

Rights and Issues Capital shares may interest you too (RIIC) @25% discount following latest smaller cos rout and the fact that it is a split capital trust by name (but not really by nature). I think that there could be an announcement soon that would change the capital structure…


#9

Cor blimey! I think me fund uz fell down one of its own well holes!


#10

Update: RIIC’s capital structure change may be in 2020!


#11

How might it change @jamespigott ? Merge the share classes together?


#12

I believe that could be a possibility. The fund manager is conscious of the long-standing discount and I am fairly sure merging the classes would be a simple and effective way to reduce “market concern” for what I see as a top class act. However, a further factor for the wide discount could be continuity of management. Although he has no one waiting in the wings to take over should the worst happen, the holdings hardly change and, according to Simon, 6 months could pass before something may need to be done.


#13

Wow, New City Energy is on a 10% yield. Not sustainable surely @arkwelder? Is this the one that had fallen down the hole perhaps?

Even City Natural Resources is on a decent yield and a rather large discount.

Rotten performance history for both but that would reflect the underlying assets owned.

 


#14

New City Energy - That’s the one, @AndreaCz!

The dividend was actually raised by 7% in the last financial year even though the payout was not covered by earnings, so topped up from the revenue reserve. And the revenue reserve itself is a figure of interest: it amounts to just over three times the dividends paid in the year, so there is scope to top up future payouts too. But this does assume that the assets in which the reserve is invested won’t themselves disappear!

The income received was lower than the previous year. The shortfall was mainly due to lower income received from the high-yield bond allocation in the portfolio; the income from equities actually increased. So the question is whether this equity income can contiune to increase, and at such a rate that it catches up enough to cover the dividend again. I’m assuming that the income from bonds won’t be increasing anytime soon, not unless a greater proportion is invested in higher-yielding bonds and away from (presumably) lower-yielding equities, but doing so wouldn’t suggest the kind of long-term income growth required for sustainable dividend growth in the future.

However, my primary interest in NCE is as a recovery play, so the current payout is more of a shock absorber rather than a necessity. Time will tell how much of a shock I get…!