At QuotedData, we don’t tend to make too much of a fuss about interim reports from investment companies. However, with the summer lull upon us, we have had a closer look than we might otherwise have at some interim statements this week and some interesting things have emerged.
Good returns from growth-focused private equity
Part of this week’s news show was given over to looking at Apax Global Alpha’s half-year numbers. Last year, COVID put a dampener on private equity markets but, so far in 2021, things are looking up again. In fact, Apax Global Alpha saw record distributions from the private equity funds that it invests in. It helped that the IPO market has been quite busy. A couple of recent IPOs within its portfolio – Paycor and Global-e – have performed incredibly well since they were listed. Now its largest underlying investment – Thoughtworks – says it is looking at listing its shares. This could be good news for Apax’s NAV. On average, over the six months ended 30 June 2021, the exits it achieved were struck at more than a 25% premium to NAV. We think Apax Global Alpha’s shares are trading on about a 10% discount currently.
Apax Global Alpha is a growth-style investor. It backs companies in growing sectors and helps them expand. However, since early November 2020, value-style investing has had a much better run. This has been good news for Temple Bar.
Good returns from value stocks
Over the first half of 2021, Temple Bar generated a total return on NAV of 19.3%, 8.2% more than the UK market as a whole. This represents a significant change in the fortunes of this trust. This has been achieved under new management too. RWC’s Ian Lance and Nick Purves assumed responsibility for managing Temple Bar’s portfolio on 1 November 2020 and made some wholesale changes to it.
At the end of June, around half of Temple Bar’s portfolio was invested in its 10-largest positions. Top of the list is Royal Mail Group whose share price rose by almost 70% over the six months ended 30 June 2021. That is on top of a doubling of the share price over 2020. As we described in our note on Temple Bar – Just getting started – published on 23 April, the managers are excited about the prospects for Royal Mail’s European parcel delivery business and point out that it trades on less than 10x earnings.
One significant feature of Temple Bar’s portfolio is its exposure to the oil and gas sector – BP, Shell and Total all feature in the top-10. Many other investment managers have eliminated or much reduced their holdings in the sector as its outlook is challenged by the need to tackle climate change. Temple Bar’s managers are not ignoring this. In fact, they point out that they voted against the approval of the Shell Energy Transition Strategy because they didn’t believe that it went far enough. However, they are attracted by cash earnings yields in excess of 15% for these companies and feel that “engagement is better than divestment as it will more likely lead to better practices over time”.
Ian and Nick will be on our weekly show on 3 September 2021. Please do listen in.
EP Global considering its future
Lastly, we have also seen interim results from EP Global Opportunities (EPG). In contrast to the other two funds, EPG’s numbers for the first half of 2021 were pretty dire – an NAV return of just 2.0%. EPG has a policy of trying to time markets – holding a significant portion of its assets in debt instruments, cash or cash equivalents when the manager thinks markets are looking expensive and gearing up to 25% of total assets when it thinks markets are cheap.
Going into 2021, the manager felt markets were overvalued. However, as we know, the prospect of economic recovery coupled with significant government stimulus helped drive shares higher. The £105m market cap trust is trading on a 9.6% discount. The new chairman is out talking to shareholders about the future of the fund. He says that “the newly constituted board now considers that it has an excellent opportunity to consider the strategic direction of the company for the benefit of shareholders”. We note that, at 31 July 2021, EP Global Opportunities had 9.6% of its portfolio in fixed income and 26.7% in cash.
Many managers will tell you that attempting to time markets is a mug’s game. It may be that this particular fund is nearing the end of this chapter of its life.