Hipgnosis Songs Fund (SONG:AIM) 113.4P

Loss to date:  -1.8%

We originally recommended buying investment trust Hipgnosis Songs Fund (SONG:AIM) on 18 June 2020 at a price of 115.5p.

We believed the trust would benefit from the growth in music consumption facilitated by streaming services like Spotify and Apple Music. In addition we liked the potential for growth via the acquisition of additional music catalogues.

The trust generates income through royalties every time a song from its catalogue which includes Ed Sheeran, Bon Jovi, Stevie Wonder and Beyonce is digitally downloaded, played on the radio, or feature in a film, TV show, advert or video game.

WHAT HAPPENED SINCE WE SAID TO BUY?

The shares are down marginally on the 115p price at which we recommended them.

However the share price fails to reflect a number of encouraging developments, including a positive regulatory ruling, and it is also worth remembering the stream of dividends paid in the interim (a key reason for holding the shares).

In January 2018 the Copyright Royalty Board decided that the amount the streaming services should pay for songwriter rates should increase from 10.5% to 15.1% between 2018 and 2022.

Several streaming companies appealed this ruling in March 2019, but in July 2022 they lost their appeal resulting in the implementation of the higher 15.1% rate.

WHAT INVESTORS SHOULD DO NEXT?

Investors should keep buying.

The trust has fallen 8% this year and trades at a 9% discount to net asset value (NAV), it currently yields 4.7%.

The financial appeal of music rights was highlighted in private equity firm Blackstone’s decision in October 2021 to invest $1 billion to acquire music rights via a new private fund.

This followed a decision in early 2021 by its counterpart Kravis Roberts and Co (KKR) which acquired a majority stake in the catalogues of American band One Republic.

More recently Blackstone has been attempting to acquire Pink Floyd’s back catalogue, further validating the insatiable investor appetite for music rights.

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