With many investment trusts trading at deep discounts to NAV (net asset value), a great way to exploit the potential for discounts to narrow is by investing in specialist closed-end fund investor MIGO Opportunities Trust (MIGO).
The company has a unique mandate within the sector aimed at exploiting pricing inefficiencies at trusts which may have dropped off the radar of other investors. The trust also invests in specialist asset classes with a low correlation to equity indices.
Co-managers Nick Greenwood and Charlotte Cuthbertson argue the investment companies sector is ‘wildly dislocated from fundamental value’ with the potential for increasing corporate action to act as a catalyst to crystalise value.
The managers believe the returns outlook for the trust is ‘one of the best’ they have seen in the history of MIGO, resulting in the utilisation of gearing (around 8%) for the first time since 2020.
Company boards are engaging in high levels of corporate activity as highlighted by the 12 announced or completed investment company mergers in 2024.
This means the managers are finding many attractive opportunities with the average discount across the portfolio’s top 10 holdings sitting close to 30%.
MIGO has delivered a 10-year share price total return of 130.3% and NAV total return of 110.9%, outperforming the Numis All-Share index return of 78.2%.
WHAT IS THE INVESTMENT PROCESS?
The managers narrow down the investment trust universe into a shortlist comprising of trusts trading at a discount to NAV, which look credible, are not over-leveraged, operate in an asset class the managers like and where catalysts can be identified.
They are essentially looking for unloved and overlooked stocks with hidden ‘gems’ which can be discovered through their in-depth analysis and company meetings.
The shortlist undergoes due diligence and further research in order the nail down the best ideas for the portfolio. Positions are continually monitored, and every six months the team perform a ‘deep dive’.
MIGO creates a diversified portfolio of 45 to 55 positions while ensuring each is sufficiently large enough to contribute to performance.
Individual trusts rarely exceed 6% of NAV and a theme is capped at 8%. The managers think about the investment opportunity as a two-way bet. Firstly, an unloved trust can turn itself around with investors benefiting from the powerful dynamic of an increasing NAV and narrowing discount.
Conversely, a trust can continue to disappoint with shareholders taking control and expediting a vote for a windup, crystalising value.
It is worth illustrating the powerful effect of even a modest narrowing of a discount to NAV. For example, if NAV increases by 20% and the discount to NAV narrows from 40% to 30%, that equates to a 40% share price return.
Nick Greenwood has more than 25 years investment experience and has managed MIGO since 2004, when it was launched under a different name. Charlotte Cuthbertson has nine years finance experience with the last seven spent specialising in investment trusts at MIGO.
The co-managers also work together on the AVI (Asset Value Investors) Opportunities Fund, an open-ended version of MIGO.
AVI is an established fund manager with over £1.4 billion of assets under management and 40 years of managing investment trusts. The MIGO team benefit from AVI’s sector expertise and access to their 12 investment analysts.
WHERE IS THE TRUST INVESTED?
Around 40% of the assets are invested in equities including key themes such as biotechnology and uranium, with the remaining exposure spread across Property, Alternatives, Private Equity, Mining, and Leasing.
Listed private equity exposure is spread across traditional buyout funds such as Oakley Capital Investments (OCI), the third largest position in the fund at 4.5%, and NB Private Equity (NBPE).
The fund is also invested in growth-oriented private equity such as the Baillie Gifford-managed Schiehallion (MNTN), Augmentum Fintech [AUGM) and Seraphim Space (SSIT).
Unloved emerging markets also feature in the fund, including Vietnam-focused VinaCapital Vietnam Opportunity (VOF) which is the second-largest holding at 4.6% of the portfolio.
Taking advantage of the benefits of Georgia’s geographical position at the crossroads of Europe and Asia, the fund is invested in Georgia Capital (GGEO).
The fund’s largest holding is in Baker Steel Resources (BSRT), which acquires promising mineral deposits and either develops the mine itself or sells it to a multinational to move the mine into production.
CONTROLLING THE DISCOUNT
The MIGO board proactively buys back shares to control the discount to NAV and in 2024 purchased £5.5 million shares. The trust operates a shareholder redemption policy every three years with the next liquidity opportunity in 2027.
In 2024, investors representing 5.3% of the trust’s capital elected to redeem and the shares were subsequently repurchased.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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