Ian Cowie: I’ve paid nearly half price for 6.6% dividend income

Our columnist has bought an investment trust on a whopping discount that is tapping into a trend that remains intact.

Now, be honest, did your Christmas arrive in a series of cardboard boxes last year? Here and now, is that how most of the goods you buy - at least by value - arrive in your home?

If you are like me, and many other people, you will answer ‘yes’ to both questions. So it makes sense to consider obtaining some investment exposure to the phenomenon variously known as ‘internet shopping’ or ‘online retail’.

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To do so, you will need to bet against enormous vested interests, including most pension funds, which remain heavily invested in bricks and mortar shopping centres, high street retailers and the like. The emptier those venues become, the louder the propaganda trying to drum up trade and prop up valuations that remain based on the way we lived in a bygone age.

While I feel sympathy for the folk whose livelihoods look set to go the way of the blacksmith, farrier and ostler - all of which were widespread occupations in the days when everything travelled by horse and cart - I don’t feel sorry enough to crash my pension for them. That’s why I have bought shares in a €1.5 billion (£1.3 billion) investment trust, focused on the logistics of online retail, which is yielding over 6.6% dividend income but remains priced at an eye-stretching 43% discount to its net asset value (NAV).

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This whopping discount will be a red flag for cautious souls but is also a bit of a tease for contrarian investors, like me, so let’s deal with that factor first.

Tritax EuroBox (LSE:BOXE) (stock market tickers: BOXE for the Euro-denominated equity; EBOX for sterling shares, which I’ve bought) has the dubious distinction of being bottom of the Association of Investment Companies (AIC) ‘Property-Europe’ sector, with an eye-watering 37% loss over the last year.

That reflects how those ‘big box’ warehouses, necessary to store and deliver much of the stuff we buy online, have fallen out of financial fashion over the last year or so. Fears of economic recession and rising ‘risk-free’ returns on government bonds made Mr Market worry about a massive over-supply of this type of property. Even in e-commerce, yesterday’s glut can herald tomorrow’s famine.

Last spring’s statement by Brian Olsavsky, chief financial officer at Amazon (NASDAQ:AMZN), admitting that the internet retailer had overextended, with too many warehouses, added to the gloom. Last summer, market chatter focused on what one paper called: “The end of the warehouse bubble”.

Never mind the short-term noise, this long-term investor believes the investment case for online retail - and the logistics to support it - remains intact. It is just that EBOX has got a lot cheaper than it was a year ago.

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So, instead of paying a premium to NAV, I bought at a discount so big at 44% that it almost amounted to a BOGOF deal (buy one, get one free) last month, paying 66p for 118p of assets, according to independent statisticians Morningstar. But it is dangerous to try to catch a falling knife and the share price continued to fall until EBOX briefly entered that hall of shame, called ‘Cowie’s Clangers’; or stocks that slumped by 10% or more after I bought them.

Since then, the discount has narrowed slightly as the price recovered to 67p this week or, if you prefer euros, 75 cents for €1.32 NAV. On that point, I should explain that when betting against the consensus expectation of a retail recession - or, more precisely, believing that even if the short-term outlook is dire, this might be a good time to acquire long-term assets. I feel more comfortable in a big market, such as the European Union, than Little England.

The reason is much the same as my preference for blue chip businesses over smaller start-ups. The latter are less likely to be diversified over many different activities and more likely to live or die, depending on a small number of specific factors.

When comparing British assets with similar stuff in the EU, relevant considerations might include whether the touted ‘Brexit dividends’ will ever become anything more substantial than politicians’ promises. Or if leaving the largest free trade zone in the world might turn out to be bad for trade.

Without wishing to sound depressed, I can’t remember feeling less confidence in the UK government than I do now. Well, not since the last time the other lot were in charge.

On a brighter note, it was encouraging to hear Olaf Scholz, the German chancellor, say this week that Europe’s largest economy is no longer expected to shrink this year. Instead, he claimed, it  should deliver modest growth.

We shall see. Here and now, the convenience of internet shopping is compelling. Buying online is so much less bother than schlepping around the shops and it is often cheaper, too.

That’s the long-term case for EBOX to grow. In the meantime, I have the comfort of having paid not much more than half price for the underlying NAV with decent dividends paying me to be patient.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Tritax Eurobox (EBOX) as part of a globally diversified portfolio of investment trusts and other shares.