British Empire is an investment trust that aims to achieve capital growth via a portfolio of undervalued assets. In doing so, it is split into three silos: listed holding companies; other closed-ended funds; and asset-backed securities. To be eligible for inclusion, investments must be trading at attractive discounts to the value of their assets (NAV) and have either a specific catalyst for these discounts to narrow or the ability to grow NAV.
British Empire has had a prolonged period of underperformance relative to its peers. Indeed, this has been a particularly difficult environment for British Empire to operate in. First, its deep value style of investing has been out of favour with investors for an unusually long period. Second, its natural aversion to the US – where businesses trading at attractive discounts are few and far between – has been costly during a period of strong US equity outperformance. Third, the relative strength of sterling against the underlying currency exposure of its portfolio has been a headwind.
Consequently, British Empire’s shares are trading at a relatively wide discount to NAV of 14%. Of perhaps greater interest is the fact that its look-through discount, which additionally reflects the discounts at which its underlying investments trade, is at an all-time high of 45%.
Looking forward, British Empire should eventually benefit from a reversal of the trends that have dragged on performance as well as a narrowing of the look-through discount. However, the timing of any such reversals is difficult to predict.
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