One of the bigger news stories of the week in investment companies was Perpetual Income & Growth’s decision to remove Mark Barnett as manager and invite offers for the management contract. Interested parties have until 5pm on 17 April to throw their hat into the ring. One of the more bizarre reactions to this was a soaring in Majedie Investment Trust’s share price. As we explained on the morning of 7 April, the move (based on a theory that Majedie Asset Management would win the contract, having secured the management contract for Edinburgh Investment Trust last December) was unjustified. Majedie’s shares have moved back to trading at a small discount but still look expensive relative to recent history, especially given its dire long-term performance record.
Shareholders were not given the chance to cash in their stake in Edinburgh at asset value (which might have been reasonable) but its discount has at least narrowed. Perpetual Income & Growth’s share price jumped on the news, but it is still trading at a double-digit discount.
We don’t know what James Uphaugh, Edinburgh’s new manager, has done with the portfolio as it is yet to publish a fact sheet. It has fared a lot better than Perpetual Income & Growth so far in 2020, however. Over three months, Edinburgh’s NAV has dropped by 24.3% while Perpetual Income & Growth’s has fallen by 32.6%. The latter had more exposure to small and mid-cap companies when Mark managed it. It also had to take a hit to the valuation of its unquoted positions when Invesco decided to write these down by 60%, although this was said to be less than 1% of NAV.
There are 25 companies in the AIC’s UK equity income sector. Seven of those have a market cap less than £100m (not that being small is always a bad thing). Nevertheless, the preferable outcome to this process in my view would be a merger with another trust. Discounting Finsbury Growth and Income (because it would require investors to take a substantial dividend cut and it would be hard to make the deal accretive to Finsbury Growth and Income’s existing shareholders), the top three best-performing trusts over ten years are Troy Income & Growth, Lowland and Shires Income – that looks like a pretty good shortlist to me.