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UK investment trusts at steepest discounts since financial crisis – Financial Times

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Share prices of UK investment trusts have fallen to their steepest discount to underlying asset values since the financial crisis after a bruising market sell off.

Investment trusts — close-ended funds that are publicly traded — fell an average of 22 per cent below the value of their underlying assets on March 19, compared with a typical discount of just 1.1 per cent at the start of this year.

The average share price of the trusts has fallen 16 per cent over the past seven trading days, while the FTSE All Share fell 7 per cent.

“It’s a difficult marketplace and that’s when the investment trust sector starts performing very differently from the wider market,” said Simon Elliott, an analyst at Winterflood. 

Investment trusts were performing in line with the market during the beginning of March.

But on March 13, the discounts between the share price of the trusts and the value of their underlying investments “started widening considerably” said Mr Elliott. “It’s been driven by retail selling. Investors decided they wanted to get out of this market.”

Line chart of Year to March 23 2020 (%) showing Investment trust sector average discount

When the value of a trust’s underlying asset becomes uncertain, discounts widen as investors speculate about drops in asset values. Unlike equities, “many of these investment companies are not shares you can value every minute of every day,” said Mr Elliott. 

Scottish Mortgage Investment Trust, the UK’s largest investment trust run by Baillie Gifford, is trading at a 13 per cent discount, which analysts said was because of heavy exposure to unquoted, and therefore difficult to value, companies.

“Investors are effectively acting ahead of the valuation,” said Ryan Hughes, head of active portfolios at AJ Bell. “The same thing happened in the financial crisis. Investors began to question what is this investment company actually worth?”

Property funds holding leisure, student accommodation and retail assets were hardest hit, as investors anticipated a big hit to the sector, according to Monica Tepes, an analyst for FinnCap. Other poor performers included trusts invested in private equity and private debt.

UK small-cap has also underperformed, and some invested trusts have lost half their value since the start of the year. The FTSE small-cap is down less, at 41 per cent over the same period. 

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Trusts invested in blue-chip UK equities have held up better and are trading close to the market value of their assets.

Investment trusts are popular with income investors because of a reputation for high dividend payments.

They hold significant cash reserves, which enable them to maintain dividend payments when underlying companies stumble. However, the scale of the dividend cuts could soon outstrip the trusts’ ability to pay out. 

“The risk is that they exhaust that reserve very quickly and it will become difficult for them to maintain or increase their dividend,” said Mr Hughes. 

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AG Mortgage Investment Trust, Inc. Provides Updates as of April 8, 2020 – Business Wire

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NEW YORK–(BUSINESS WIRE)–AG Mortgage Investment Trust, Inc. (NYSE: MITT) (the “Company”) announced today that it is providing updates on several matters pertaining to the Company.

Update Regarding Discussions with Financing Counterparties

The Company continues to engage in discussions with its financing counterparties with regard to entering into a forbearance agreement pursuant to which each participating counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period. The Company has made significant progress with certain of its largest counterparties in these negotiations and believes it has reached substantive agreement with these counterparties with respect to the terms and form of a forbearance agreement. The Company has received in escrow signature pages for the forbearance agreement and ancillary documents from two of its larger financing counterparties and expects to receive signature pages from additional counterparties. The Company understands that certain additional counterparties are reviewing the terms and form of the forbearance agreement to determine whether to participate. Nevertheless, the Company cannot predict whether certain or any of its financing counterparties will enter into a forbearance agreement, the timing of any such agreement, or the terms thereof.

Update on Financing Arrangements

Since March 23, 2020, the Company and several of its subsidiaries have received from several of its financing counterparties margin call notices, notifications of alleged events of default and deficiency notices. Subject to the terms of the applicable financing arrangements, if the Company fails to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may be able to demand immediate payment by the Company of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations are not paid, may be permitted to sell the financed assets and apply the proceeds to the Company’s financing obligations and/or take ownership of the assets securing the Company’s financing obligations. The Company may also be liable for a shortfall if the proceeds from such sale or value of such assets is less than the relevant financing obligation. In the event of a default under one or more of those agreements, financial and other obligations under such agreements, and in some cases the Company’s obligations as a guarantor, may be accelerated and the counterparties may be able to take ownership of the assets pledged to secure the financing obligations by the Company or its subsidiaries. The Company and its subsidiaries also may be subject to penalties under those agreements and may suffer cross-default claims from its other lenders.

Through April 7, 2020, the Company has received an aggregate of approximately $145 million of margin calls due to mark to market declines and haircut changes, which it has not honored or otherwise met through the satisfaction of financing liabilities. Additionally, through April 2, 2020, either the Company has sold, or lenders have notified the Company that they have sold or taken ownership of, assets subject to $425 million of certain financing obligations. In connection therewith, the Company has also received deficiency and close-out notices from certain counterparties alleging deficiencies aggregating approximately $34.2 million under these financing agreements. Approximately $29.6 million of such deficiencies were alleged by certain affiliates of Royal Bank of Canada (“RBC”) by notice to the Company on April 2, 2020. As previously disclosed, the Company disputes RBC’s notices of events of default and deficiency amounts and filed a suit in federal district court in New York describing the wrongful conduct by RBC and seeking damages. The Company is unable to identify the ultimate acquirers of all such assets because certain of the transactions were completed by various financing counterparties through dealers. Additional counterparties may sell in the future assets pledged to secure financing obligations and the Company cannot predict if such sales will result in positive or negative net cash proceeds.

Update on Company Portfolio

As previously reported, on March 23, 2020, the Company, in an effort to prudently manage its portfolio through unprecedented market volatility and to preserve long-term stockholder value, completed the sale of the Company’s portfolio of residential mortgage-backed securities issued or guaranteed by a U.S. government-sponsored entity (the “Agency Portfolio”). After satisfaction of an aggregate of approximately $880 million of repurchase financing obligations with respect to the Agency Portfolio, the transaction netted the Company approximately $38 million of cash proceeds. The Company expects its cash and unencumbered assets to be pledged as collateral for the benefit of its participating financing counterparties upon the execution of the forbearance agreement described.

ABOUT AG MORTGAGE INVESTMENT TRUST, INC.

AG Mortgage Investment Trust, Inc. is a hybrid mortgage REIT that opportunistically invests in and manages a diversified risk-adjusted portfolio of Agency RMBS and Credit Investments, which include Residential Investments and Commercial Investments. AG Mortgage Investment Trust, Inc. is externally managed and advised by AG REIT Management, LLC, a subsidiary of Angelo, Gordon & Co., L.P., an SEC-registered investment adviser that specializes in alternative investment activities.

FORWARD LOOKING STATEMENTS

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 related to the Company’s outstanding indebtedness and the status of our ongoing discussions with our repurchase counterparties, among others. Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties in predicting future results and conditions. Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation, changes in interest rates, changes in default rates, changes in the yield curve, changes in prepayment rates, the availability and terms of financing, changes in the market value of our assets, general economic conditions, conditions in the market for Agency RMBS, Non-Agency RMBS, ABS and CMBS securities, Excess MSRs and loans, our ability to predict and control costs, conditions in the real estate market, legislative and regulatory changes that could adversely affect the business of the Company and the ongoing spread and economic effects of the novel coronavirus (COVID-19). Additional information concerning these and other risk factors are contained in the Company’s filings with the SEC, including its most recent Annual Report on Form 10-K and subsequent filings. Copies are available free of charge on the SEC’s website, http://www.sec.gov/. All information in this press release is as of April 8, 2020. The Company undertakes no duty to update any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

Source: AG Mortgage Investment Trust, Inc.

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17 tips for more successful investing – MoneySense

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Photo by Wes Hicks on Unsplash

What is the most important thing to keep in mind as an investor? This is a question one of my students asked the late Walter Schloss, a legendary value investor, a few years ago when he talked to my value-investing students at the Ivey Business School. His reply was “do not lose money.”

Schloss argued that once you lose money it might be difficult to recover. For example, if you go down by 50%, you must then go up by 100% to break even.

Unlike other investors, value investors place a greater emphasis in avoiding losses than making money. In the words of Aristotle, “the aim of the wise is not to secure pleasure, but avoid pain.” 

The following checklist, adapted from Walter Schloss’ writings, helps investors avoid losing money, and will go a long way towards achieving financial success.

  1. Before investing, try to determine the value of a stock. A share of a stock represents part of a business; it is not just a piece of paper. Since buying a stock is tantamount to buying a piece of the company, one therefore needs to understand a lot about the company.
  2. Compare price to value. How far below value is the stock trading at? That is, is there a margin of safety?
  3. Examine the quality of the balance sheet. Be sure that the company is not over-leveraged in relation to the norm in the industry. If it is, you may risk permanent loss of capital.
  4. Have patience and a long-term perspective.
  5. Do not buy on tips and never make impulsive decisions. Do your own homework first and be independent; everyone has a conflict. It is your job to watch your back, no one else’s.  
  6. Do not sell on bad news as this information tends to be already reflected in the price and, especially, because markets tend to overreact on the downside (also on the upside).
  7. Do not be afraid to be a loner and a contrarian, but always look for weaknesses in your thinking. 
  8. Have confidence in your judgment, especially in the face of resistance and criticism, once you have made a decision.
  9. Have an investing philosophy and an analytical process of when to buy and when to sell a stock, and try to follow it with patience and discipline.
  10. Before selling, try to re-evaluate the company given current information. The level of the stock market, the direction of interest rates, changes in P/E ratios and pessimism or exuberance by market participants should be factored into your analysis.
  11. When buying a deep value stock, try to buy at the low of the past few years. This is because a stock may go to $100 and then decline to $50, which one may find attractive as an entry point. But what if, a few years ago, the stock changed hands for $10? This shows that there is some vulnerability in a decision to buy at $50.
  12. Better to buy assets at a discount than to buy earnings. It is easier to find deep value stocks and identify/expect a catalyst than to understand whether the company has a franchise and whether the franchise is sustainable. Besides, earnings can change dramatically in the short run, whereas assets change slowly. One has to know a lot more about the company if one buys based on earnings.
  13. Listen to advice from people you respect, and examine what they do. This doesn’t mean you have to accept their advice or do what they do. While you need collateral evidence to support your own thinking, listening to people you respect helps solidify your thinking.
  14. Do not to let your emotions affect your decisions. The worst enemy in investing is usually within yourself. Fear, greed, impatience and lack of discipline are weaknesses of human nature and emotions that work against success in investing.
  15. Stay invested to take advantage of compounding. If you make 12% a year and stay invested, you’ll double your money in six years. 
  16. Stocks are better compounders than bonds. Bonds have limited upside; inflation erodes the value of bonds and reduces your purchasing power.
  17. Beware of leverage. Risk is not volatility, but the probability of permanent loss of capital. Investing using leverage may result in a permanent loss of capital as you may be forced to sell at a time you did not wish to do so.

These rules worked marvels for Walter Schloss. Over a 49-year period of managing money, there were only two years during which he lost money, and he beat the market by 5%. The rules can work for you, too—but are you disciplined enough to follow this checklist? The answer to this question will determine how successful an investor you will end up being.

George Athanassakos is a professor of finance and holds the Ben Graham Chair in Value Investing at the Richard Ivey School of Business, Western University in London, Ont. Also director of the university’s Ben Graham Centre for Value Investing, Dr. Athanassakos is offering a highly sought-after five-day seminar on Value Investing and the Search for Value, in Toronto, July 27–31, 2020. For more information, visit https://www.ivey.uwo.ca/bengrahaminvesting/events/seminars/.

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Tavistock Investment applauds "outstanding" performance of its two protected funds – Proactive Investors USA & Canada

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Tavistock Investment PLC (LON:TAVI) CEO Brian Raven tells Proactive its two protected unit trusts have proved themselves during the current market volatility caused by the coronavirus pandemic.

Raven says trading results for the year to March will be in line with market expectations, highlighting the performance of the two ACUMEN protected funds.

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