June 2024

Monthly | Investment companies 

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Winners and losers in May 2024

May has been a story of market rebounds, with some of 2024’s worst-performing sectors having become the best-performing. Infrastructure securities was the top performing sector over the month. Listed infrastructure was supported by a fall in interest rate expectations in Europe and the UK, as well as an increasingly positive outlook on global GDP growth.

Much like the UK, Europe also benefited from the tailwinds of declining inflation and higher growth, with the Swedish central bank cutting interest rates (heralding June’s 0.25% rate cut by the European Central Bank). Europe’s smaller companies benefited most from the changing macroeconomic environment, given that they are more sensitive to the domestic economy. Rate cuts are also good news for growth stocks and the European small cap sector is biased towards such companies.

Best performing sectors in May 2024 by total price return

In terms of the worst performers, the property – rest of world sector was this month’s laggard. The sector is exposed to three diverse strategies, and its fall was driven by the 7.6% fall in the value of Macau Properties and the 5.7% fall in Aseana Properties. Both of these are small, thinly traded strategies and these losses reflect their own unique issues as much as the global demand for East Asian property.

The falls for other sectors are fairly meagre. Insurance strategies has just two constituents, and its share price return was driven by a widening discount at Life Settlement Assets.

We note that the majority of the debt direct lending sector is currently being wound up, which may mean that the fall in their share prices reflects investors selling out of an effectively amortising asset in favour of trusts with higher capital growth potential.  

Worst performing sectors in May 2024 by total price return

Looking now at the best performing companies in terms of NAV growth, Manchester & London leads the way. This isn’t surprising given a third of the fund is invested in Nvidia, and a quarter in Microsoft, some of the biggest winners of the AI rally. These two companies were up 32% and 5% respectively over May.

The rest of the top 10 NAV performers were either infrastructure securities or UK funds, which outperformed on the back of the tailwinds that we highlighted earlier. The Premier Miton fund benefited from the gearing provided by its zero dividend preference shares.

In share price terms, the top performer, Foresight Sustainable Forestry, saw its share price surge on 29 May after it announced that it was to be acquired by Averon Park at 97p per share (a 32.9% premium to its close).

Around half of the best performers are also UK and infrastructure securities trusts.

Livermore Investments saw its share price rally on the back of its full year results, which saw a reversal of the losses it made in the prior year. Given its portfolio of fixed income assets, a fall in rate expectations would have also supported the trust. We note that the trust also has low trading volumes, which may have led it to increased sensitivity to positive news flow.

HydrogenOne Capital Growth released a positive results announcement for the first quarter of 2024, which included increased profitability for its underlying companies, up 103% on average year-on-year.

JPMorgan Emerging Europe, Middle East & Africa Securities saw its share price rally after being sold off aggressively in April when it was named as a defendant in Russian civil proceedings. In May it provided an update stating that its assets are in fact not subject to the previously announced freezing order with the civil proceedings being brought by VTB.

There was not much news surrounding Amedeo Air Four Plus, though its shares may have rallied on the back of improving interest rate expectations, given its high yield.

Best performing funds in total NAV (LHS) and share price (RHS) terms over May 2024

Worst performing

The worst performing trusts, in NAV terms, were dominated by global emerging market strategies. However, these funds are not all global mandates, as the list includes regional trusts. The worst of these was the Gulf investment Fund. May marked an usual period of poor performance for the trust, with its NAV hit hardest in the last week of May, as the region’s markets were likely impacted by the ongoing military action in the Middle East and weakening oil price.

Ballie Gifford Shin Nippon dramatically underperformed its peers, which will come down to poor stock selection. Using data as at end May, the trust trails its benchmark by 27.6 percentage points over 12 months, 51 percentage points over three years and 47.1 percentage points over five years. The region took a risk off approach over the month, as the Bank of Japan indicated that it does not intend to intervene to stop the yen’s decline or lower the cost of borrowing. Gulf and Shin Nippon were the only two trusts to report NAV losses greater than 5%.

Blackrock Latin America’s returns are a close approximation to the wider losses of the Latin American market, which was down 4.7% over the month in sterling terms.

India Capital Growth’s returns were affected by the volatility associated with the election result, but also appear to have been hit quite hard in recent months by the Securities and Exchange Board of India’s crackdown on speculative and fraudulent activity in the small and mid-cap sector.

UIL’s concentrated portfolio suffered over the month, with its two largest holdings (which make up 60% of its portfolio) down over the month.

Worst performing funds in total NAV (LHS) and share price (RHS) terms over May 2024

In terms of the share price performance list, property trusts were amongst the biggest losers. While higher quality UK-property assets (such as healthcare and logistics) rallied over the month, several other trusts continued their ongoing trend of widening discounts. Life Science REIT was the worst example of this, as there was no negative news released over the period, with its investment advisers actually purchasing shares in May to take advantage of the discount. This was also the case for Residential Secure Income REIT, which also had no negative announcements made over the period. ICG-Longbow Senior Secured UK Property Debt is currently being wound up, with its fall in NAV reflecting issues associated with the three loans that make up its portfolio. We covered Macau Properties earlier.

There was no negative news around Syncona over May, rather it released a positive announcement regarding the clinical trials of one of its holdings. Syncona’s negative share price returns likely reflect the large volume of trading made over the third week of May, which could be a large shareholder reducing its stake.

Asian Energy Impact Trust suspended its shares at the start of May and relisted them on the 14^th, as the board required additional time to publish its annual report. The report outlined not only the fall in assets, but also the board’s intention to wind up the trust. The shares were sold off as a result.

Symphony International Holdings and VPC Specialty Lending Investments are currently being wound up. No material news was released by either company over the month, implying their negative share price returns reflected trading activities of the market rather than company-specific issues.

Aquila Energy Efficiency Trust is also in the midst of a windup, however its discount widened immediately following the completion of a tender offer on 13 May (as part of the windup).

Moves in discounts and premiums

More expensive (LHS) and cheaper (RHS) relative to NAV over May 2024

Each of the companies featured in this list has already been discussed. On the plus side there are Foresight’s bid, JMEA’s bounce on its assets being excluded from VTB’s actions against JPMorgan, and Oryx on the UK bounce. On the negative, there is no good reason for Syncona and Life Science REIT’s discount widening.

Money raised and returned

Money raised (LHS) and returned (RHS) over May 2024 in £m

JPMorgan Global Growth & Income once again tops the list of money raised, issuing shares on the back of the premium it traded on over May. Ashoka India Equity Investment bucked the trend of the Indian equity selloff, issuing shares on the back of its premium rating and superior medium-term performance. Geiger Counter completed the issuance of its subscription shares in May, issuing 12m new shares. TwentyFour Select Monthly Income and CQS New City High Yield both issued shares on the back of their premiums.

In terms of money being returned to investors, the usual suspects have made a repeat appearance with all but one present last month; continually repurchasing shares in an attempt to control their discounts. Worldwide Healthcare made a return to the list.

Upcoming events

Here is a selection of what is coming up. Please refer to the Events section of our website for updates between now and when they are scheduled:

Major news stories and QuotedData views over May 2024

Visit www.quoteddata.com for more on these and other stories plus in-depth analysis on some funds, the tools to compare similar funds and basic information, key documents and regulatory news announcements on every investment company quoted in London

Interviews

Have you been listening to our weekly news round-up shows? Every Friday at 11 am, we run through the more interesting bits of the week’s news, and we usually have a special guest or two answering questions about a particular investment company.

Research

Charles Montanaro, the manager of Montanaro UK Smaller Companies Investment Trust (MTU), has remained stalwart in the face of investor aversion to the UK equity market. His bullishness is based on the increasingly attractive valuations being assigned to UK equities, as many of MTU’s holdings continue to generate decent earnings based on their historic performance, with several reporting their highest ever annual revenues. There may also be catalysts ahead that could precipitate a positive shift in investor sentiment, thanks to declining UK inflation (which could soon lead to lower interest rates), higher than expected GDP growth and generally robust UK businesses and consumers. Improving sentiment could be a powerful boost to MTU shareholders’ returns, not only as its net asset value rebounds but also as its wide discount to NAV narrows.

Polar Capital Global Financials Trust (PCFT) has had a good six months both in net asset value (NAV) terms, where returns have been ahead of both its MSCI All-Countries World Financials Index performance benchmark and the global MSCI All Countries World Index, and in share price terms, as the share price discount to NAV has narrowed. Next year’s liquidity opportunity (see page 12) ought to help the discount narrow further. It is early days, but the team reviewed the investment process with the recent hiring of new co-manager Tom Dorner (see page 14). Active share has increased, and the trust has reduced its exposure to banks (which has been a headwind to performance historically). The managers are cautiously optimistic.

After a challenging 18-month period, things are beginning to look a lot brighter for the Ecofin Global Utilities and Infrastructure Trust (EGL). Since the middle of February, strong earnings, artificial intelligence (AI) related momentum behind growing electricity demand, and a shifting macroeconomic outlook have contributed to a 23% bounce in the company’s shares. The recent rally reflects the company’s NAV performance and the considerable opportunity which exists across the utilities and infrastructure sectors as the energy transition gathers steam. In our view, the structural upside of the EGL portfolio remains dramatically underappreciated by the market, and with shares still trading at a double-digit discount, investors have an opportunity to invest in a long-term market leader at a very attractive price.

Vietnam Holding (VNH) has provided strong absolute and relative returns during the last 12 months, expanding its record of outperformance of both peers and relevant benchmarks. The introduction of a share redemption opportunity at net asset value (NAV) less associated costs (the first of which is on 30 September this year – see page 21) has significantly narrowed VNH’s share price discount to NAV so that a 25.7% NAV return translated into a 48.2% share price return over the 12 month period ended 31 May 2024. However, with strong growth drivers still in place (see page 5) and attractive valuations, there could be lots more to come. We think that as current headwinds abate and become supportive tailwinds, VNH could shift to trade at a premium to NAV and be in a position to issue stock.

Dan Whitestone, BlackRock Throgmorton’s (THRG’s) manager, believes that the historic selloff of UK equities, with investors taking their money out of UK equities in record numbers, is a behaviour that represents both a disconnect to the strong earnings reported by UK companies, and an attractive valuation opportunity based on the current price of UK equities relative to said earnings. UK companies remain more than competitive compared to international peers based on predicted their predicted earnings growth and valuations, and overseas companies are taking advantage of the situation to snap up UK peers at rock-bottom prices. Investors also seem to overlook the UK economy’s improving fundamentals, with business confidence turning positive, the UK consumer remaining robust, and inflation falling to low single digits.

The AVI Global Trust (AGT) has gone from strength to strength as its managers identify a wealth of opportunities. A share price total return of over 30% in the past year highlights the value of the company’s strategy of targeting high-quality companies whose shares are trading at a discount to their intrinsic value. Against a backdrop of markets adjusting to structurally higher interest rates, especially in the US, we expect this momentum to continue, and the value of less correlated market returns (in other words returns not tied to the performance of broader market indices), such as those provided by AGT, to increase.
Despite its strong performance, the company continues to trade on a share price discount to net asset value (NAV) of 7.4%. Given AGT’s performance track record and increasingly optimistic outlook, we believe this is an attractive entry point for investors, particularly for those looking to manage exposure to increasingly concentrated and expensive market indexes.

Appendix 1 – median performance by sector, ranked by 2024 year to date price total return

Guide

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