Miton Global Opportunities reports upbeat results as liquidity opportunity looms – Miton Global Opportunities has reported a total return on net assets of 11.1% for the year ended 30 April 2018. the return to shareholders was a bit better at 12.7%, reflecting a narrowing of its discount to 1.2%. The fund compares itself to a benchmark of Sterling 3-month Libor +2% – the benchmark returned 2.4%. There is no dividend.
1.925m new shares were issued during the year. In accordance with proposals approved by shareholders in 2015, the board will shortly be publishing a circular to enable shareholders to realise their shares should they so wish. A further announcement will be made in due course. We aren’t sure how this will work in practice.
Nick Greenwood’s manager’s report attributes the fund’s NAV growth to “Berlin residential property, listed private equity and India:
Berlin Property
In Berlin, there was a sharp rise in the stated net asset values of our core positions; Taliesin and Phoenix Spree. This was the result of a belated recognition by local surveyors that there was value in permissions granted to split rented apartment blocks into individual units saleable into the private market. Such permissions are now almost impossible to obtain given the increasing backlash against the gentrification of Germany’s capital city. Once a property has been removed from the dead hand of regulation, it commands a substantial valuation premium to a similar apartment bound by stringent tenant protections. In December, Taliesin our principal holding succumbed to a cash bid of 51 euros per share from Blackstone. This fund has proved to be an extraordinarily successful investment for us. We initiated our position in February 2011 at 9.20 euros per share.
Private Equity
Within Private Equity, capital which has been committed but yet to be invested remains north of a trillion dollars globally. This leaves many specialist houses with cash burning a hole in their pocket. A sellers’ market has developed in mature private companies ripe for sale. Dunedin Enterprise proved to be the stellar performer achieving five key realisations and returning a significant proportion of the proceeds to shareholders. Its shares generated a return of nearly 52% during the year. This trust moved into realisation in 2016 removing the pressure to reinvest. Dunedin is a case study highlighting how monitoring out of favour and overlooked investment trusts can be such a profitable activity. Elsewhere within the sector, Pantheon streamlined its antiquated capital structure. This led to a rapid rerating of its redeemable shares. These were highly illiquid and we acquired a holding at a time when they languished at an extreme discount. The merger of the two share classes into simple ordinary shares has created a market capitalisation in excess of a billion pounds. This allowed entry to the FTSE 250 index and forced passive investors to buy. Nevertheless, our exposure to private equity continues to decline. It is difficult to see how the proceeds of successful disposals can be reinvested profitably at this point in the cycle. Widespread concern about this issue has led to many of the sector’s trusts returning to wide discounts. This is unlikely to change any time soon. We believe that rising net asset values will now prove to be the sole driver for any further progress in listed private equity share prices.
India
Around the turn of the calendar year, we reduced our exposure to India. This was partially a natural top slicing of a successful position that had become too dominant. It also reflected our concerns about the rising oil price and the local political cycle. Crucial elections are due to be held by spring 2019. Given that they are now less than eighteen months away, these now fall firmly within investors time horizons. There are a number of regional elections beforehand and it seems likely that sentiment will swing wildly as these take place. India produces little oil of its own leaving it vulnerable to rising crude prices. Towards the end of our reporting period, sentiment towards emerging markets deteriorated sharply. Whilst India is less exposed fundamentally than most to global trade flows, this offers little short-term protection. US investors tend to trade in emerging markets as a block mainly via exchange-traded funds. When money is pulled from these passive funds, Indian equites will be sold systematically. Inevitably, this process will create an opportunity to rebuild our exposure. Opinions remain widely split on Prime Minister Modi. We are firmly in the camp that believes that he is a talented administrator who strives to make the existing system work more efficiently. This will advantage the formal economy over the informal one and allow listed companies to gain a greater slice of the cake. Therefore, their earnings growth will be robust.
We retain mid cap specialist India Capital Growth as our core position. Many emerging markets offer a limited range of equities to trade. Conversely, India has thousands of stocks to choose from offering fertile ground for a genuine stock picker.”
[QD comment: It is good to see this fund growing and demonstrating that there is a role for funds of funds within the sector. If you’d like to know more about Nick’s favourite Indian stock – India Capital Growth – please read our note.]
MIGO : Miton Global Opportunities reports upbeat results as liquidity opportunity looms