September 2024

Monthly | Investment companies 

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Winners and losers in August 2024

Interest rates were the driving force behind markets in August, with the Bank of England finally making its first interest rate cut since it began its hiking cycle in January 2022. In their August meeting, the Bank of England elected to cut rates by 0.25% to 5.0%. And while the US is yet to cut interest rates, Jerome Powell made a formal comment that interest rate cuts were ‘on the cards’. Though the move may be relatively small, it represents a clear shift in direction with interest rate-sensitive assets rallying in response. August also saw the AI story finally begin to lose some of its steam, given the market’s cool response to Nvidia’s strong earnings, which sent ripples through the US and wider technology sector.

In terms of the best performing sectors, the UK property market dominated, given how sensitive the asset class is to interest rates. UK residential property moved the most, likely a reflection of how wide the sector’s discount was going into the month, amplifying its sensitivity to positive news. The rate cuts also had similar effects on the UK healthcare and UK commercial property sectors; though these were also likely supported by an improving outlook for the UK economy as well as the political stability provided by the new Labour government.

Best performing sectors in August 2024 by total price return

Source: Morningstar, Marten & Co. Note: inclusive of sectors with at least two companies. Note: many alternative asset sector funds release NAV performance on a quarterly basis

On the downside, US smaller companies led the way. Their selloff was a result of a conflux of factors increasing the risks associated with the asset class: a rise in US unemployment, the political upheaval that came as a result of Joe Biden’s resignation, as well as the fallout from the stalling AI-stock rally. The poor performance of the Global Smaller companies sector was also a result of the US selloff, given how large a component of the universe US companies are.

US technology stocks sold off as a result of investors taking profits on the previous ‘AI winners’. Nvidia’s earnings had the largest impact on the sector’s performance, failing to impress analysts despite their positive growth, with Super Micro Computer also selling off after being accused of fraud.

Private equity was a mixed bag of performance, a blend of strong positive and negative share price performance over the month, though ultimately outweighed by the latter. We would have expected that an improving interest rate outlook would have been a net positive for the sector, but it seems that the market is seeking greater clarity before re-rating the sector as a whole.

Worst performing sectors in August 2024 by total price return

Source: Morningstar, Marten & Co. Note: inclusive of sectors with at least two companies. Note: many alternative asset sector funds release NAV performance on a quarterly basis

Best performing

Lindsell Train made a notable reversal of the previous underperformance this month, capitalising on the rally in UK equities. The high-quality UK equities in its portfolio, and by extension its holding in its own management company, are primed to benefit from falling UK interest rates.

Golden Prospect’s Precious Metal’s performance was a reflection of the rally in the price of gold, which broke $2,500 an ounce for the first time in August.

Manchester & London was a rare winner amongst the technology sector. More than 50% of its portfolio is held in Nvidia and Microsoft, both of which were up over the month. The selloff in Nvidia in the latter days of August was insufficient to offset the gains it made at the start of the month.

Hansa Investment Company’s performance was a reflection of its largest holding, Ocean Wilsons Holdings, which makes up a quarter of its portfolio. Ocean Wilsons Holdings rallied c.12% after it announced it was in discussions to sell one of its companies.

Middlefield Canadian Income is benefiting from lower interest rates, its portfolio has substantial exposure to real estate.

Montanaro European Smaller Companies NAV moves can be attributed to the positive share price performance from its largest holding, MTU Aero Engines, and some other sizeable positions.

We covered the debt – structured finance sector above.

In terms of the share price moves, PRS REIT is facing a shareholder rebellion aimed at narrowing its discount and improving corporate governance.

With respect to the Doric Nimrod Air Three and Air Two fund, both of these funds rallied after Emirates announced that it would purchase five Airbus A380 aircraft from Air Two for $40m each. The upward valuation of the aircraft seems to have also been reflected in Air Three’s NAV. Note that after the sales of these Aircraft, Air Two will be put into liquidation.

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

Source: Morningstar, Marten & Co. Note: excludes trusts with market caps below £15m at 31/08/24

JPMorgan Global Core Real Assets may have been seen as a beneficiary of lowering rates; as real assets, like infrastructure, tend to have predictable revenues and thus bond-like return characteristics. Which by extension makes them more attractive when interest rates are lowered. However, we note that, since the end of August, it has lost its continuation vote and it may just be that investors were expecting this result.

Worst performing

Geiger Counter continues to suffer from the fall in the price of uranium, having been amongst the worst performing trusts in our last monthly roundup.

NB Distressed Debt Extended Life is in wind down mode. In its interim report, published towards the end of the month, the board cautioned that realisations were taking longer than it had hoped.

Third Point Investors’s performance reflects big positions in Alphabet and Amazon, which were weak in August.

We have covered the trends impacting JPMorgan China’s performance previously.

Weiss Korea’s performance reflected the wide Korean equity market, which was down 2.0% over August. Its performance reflected the wider weakness in the technology sector over the month, with Korea being a key country in the industry’s supply chain.

BlackRock World Mining’s performance reflects the ongoing weakness of the broader commodity market, with many commodities prices down over the month of August.

Aberforth Geared Value & Income and Rights & Issues Investment Trust were the worst performers of the UK small cap sector, both on stock specific factors.

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

Source: Morningstar, Marten & Co. Note: excludes trusts with market caps below £15m at 31/08/24

With respect to the largest share prices losses over the month, JPMorgan Emerging Europe, Middle East, and Africa lead the pack. Its losses likely reflect its legacy Russian holdings, which are not included in its NAV valuations, with the escalation of the Ukrainian conflict likely dragging on the trust.

The turbulence in markets in the early part of the month seems to have led investors to become more risk averse. Many of these funds including Schiehallion and its sister fund Edinburgh Worldwide may have been caught by this. Symphony International Holdings share price decline was likely a result of its negative NAV returns over the month.

The selloff in RTW Biotech Opportunities was a reflection of the selloff in US small cap equities, given 70% of its portfolio is invested in North America.

JZ Capital Partners and Digital 9 Infrastructure are in the process of being wound up and their share price losses likely reflect investors’ frustrations with the pace of asset sales (although Digital 9 has since published a savage cut to its NAV).

There was no negative news from ICG Enterprise Trust, though with 42% of its portfolio invested in US companies, it may have also been a casualty of the US small-cap selloff.

Moves in discounts and premiums

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

Source: Morningstar, Marten & Co

Most of these trusts have been discussed already. Geiger Counter’s discount has run contrary to its NAV performance, which may reflect investor expectations around future price movements in uranium. Life Settlement Assets’ discount narrowed after receiving the first tranche of income from one of its policies, with investors likely front running the forthcoming NAV increase.

Manchester & London’s discount also ran contrary to its positive NAV performance, as investors are likely discounting the trust in light of the increasing apprehension to Nvidia and the AI ‘winners’ as a whole, with Nvidia’s share price declining towards the end of August. The trust recently announced that it had adopted a new management fee, which should ultimately benefit its rating.

Money raised and returned

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

Source: Morningstar, Marten & Co. Note: excludes trusts with market caps below £15m at 31/08/24. Note: based on the approximate value of shares at 31/08/24

In terms of money raised, all of these trusts were able to issue money on the back of the premium rating, with these trusts being regular members of the list.

Likewise, it was largely the usual cohort for money being returned, as they continue to buy back shares in an attempt to tackle wide discounts.

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 August 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

Property News

QD views

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

The supply-demand dynamics that exist in the uranium sector, in which Geiger Counter (GCL) invests, are as strong today as they have ever been. Having been made a keystone of global efforts to decarbonise the global electricity supply, nuclear energy is now benefitting from favourable government policy and vast investment. To meet an international agreement to triple nuclear capacity by 2050, which was reached at COP28, trillions in investment is needed in infrastructure spend, while demand for uranium to meet the growth in capacity is set to soar. Supply-side constraints, including a downgrade in production guidance from the world’s largest uranium producer and a pact by many established western nuclear markets to wean themselves off dependence on Russian enrichment, means that further appreciation in the uranium spot price should follow. Sitting on a 13.5% discount makes GCL’s share price an attractive entry point.

With its dedication to high-quality, high-growth companies, Montanaro European Smaller Companies (MTE) has fallen awry of recent market trends. MTE’s manager, George Cooke, notes that the market is currently favouring low-quality, low-value companies (such as smaller southern-European banks). This may be due either to improving sentiment around Europe’s economy (having seemingly dodged a recession) or the initial effect of falling interest rates, which are typically positive for riskier assets like equities. These are macroeconomic-level events that effect the wider European economy, however, and George is more focused on picking stocks than making bets on the economic outlook. He believes such short-term volatility can create opportunities to pick up positions at attractive valuations. We believe that this not only applies to MTE’s underlying holdings, but also to the trust itself. Whilst nerves have settled a little, the current 13.0% discount remains wide relative to history and offers an attractive potential upside. Irrespective of the short-term picture, MTE’s NAV returns have still outperformed its peers and benchmark over the long term, and its holdings have shown few signs of diminishing quality or revenue growth in aggregate.

After a challenging year in 2023, the outlook for the Rights and Issues Investment Trust (RIII) appears much brighter now, as economic conditions improve, and the portfolio takes shape under the management of Jupiter’s UK Small and Midcap (SMID) investment team. This positivity is reflected in the recent performance of the trust, which is up 33% over the past 12 months thanks to strong growth across the portfolio, the expectation of falling interest rates, and refreshed optimism around the UK’s political stability.

Against this backdrop, the retirement of co-manager Dan Nickols was announced. At the beginning of July, co-manager Matt Cable took on a lead manager role, supported by Tim Service (head of Jupiter’s SMID team). The decision was made with continuity front and centre and reflects the more stable environment that the trust now finds itself in, having successfully navigated the challenges of the past few years. Reflecting the return to form, RIII investors should be increasingly optimistic about the trajectory of the fund going forward.

The manager of Seraphim Space Investment Trust (SSIT) says that the recent boom in the space economy has been driven by significantly lower costs to launch, smaller, cheaper components to build satellites and other spacecraft, and the growth of private space companies. Companies that once had to pay hundreds of thousands of dollars to put a satellite into orbit can now do the same for a fraction of that price.

With this dramatically expanding access to space and the growing requirements and use cases for space technologies in virtually every industry on our planet, the space sector is projected to grow into a trillion-dollar market opportunity.There are many companies with rapidly expanding revenues and profits derived from this sector, however most of these are currently unlisted. SSIT provides a unique way for ordinary investors to access these potential world changing opportunities.

Baillie Gifford UK Growth Trust (BGUK) has had a challenging three years, but with interest rates falling, this heavily growth-focused trust could be set for a significant period of outperformance (an environment of higher interest rates tends to be negative for most equities but particularly growth investments which tend to have a higher proportion of their value discounted back from some point in the future – a reversal of this could drive a rerating of growth stocks). The scale of the opportunity and the board’s conviction in the managers to deliver on this is such that, if shareholders approve continuation at this year’s annual general meeting (AGM), the board is proposing that if performance does not turn around, it will offer shareholders an opportunity to realise their investment in full at a price close to NAV in 2029. In addition, they are saying that they will hold an extra continuation vote in 2027.

GInfrastructure Investments Ltd (GCP) had a difficult 2023, as the infrastructure sector dealt with rising interest rates and stubborn inflation. However, 2024 brought an improving economic outlook, the prospect of a reversal in interest rate policy, and – for GCP’s shareholders – a highly attractive dividend yield, solid portfolio execution, and the introduction of a capital recycling programme (where the adviser looks to realise existing assets to fund capital returns and new investment).

So far, this programme has allowed the company to significantly reduce leverage and begin returning capital to shareholders. It has also enabled GCP to start the process of restructuring the portfolio to take advantage of an increasingly attractive investment environment, reduce its exposure to merchant power prices (electricity sold into wholesale markets rather than at fixed prices), and exit some of its legacy positions. GCP remains well positioned to capitalise on this opportunity thanks to the ongoing resilience of its cash flows over the last few years. This has provided the foundation for the current capital programme and leaves the adviser in a strong position to rebalance the portfolio.

The scale of the outperformance delivered by AVI Japan Opportunity Trust (AJOT) versus its MSCI Japan Small Cap benchmark is impressive (38 percentage points since launch) and demonstrates the success of its efforts to promote good corporate governance within the stocks in its portfolio. The manager says that Japanese corporates have become less resistant to change, but there is still a lot to do. It is important to note that AJOT’s success has come despite a weak currency, small-cap underperformance (small caps are AJOT’s hunting ground), and foreign investors still having a substantial underweight exposure to Japanese equities. These factors could swing in AJOT’s favour, but the manager believes that AJOT can thrive regardless. We feel that AJOT’s performance and prospects are such that its shares should be trading at asset value and expanding. Currently it trades on a discount of 4.8%.

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

Source: Morningstar, Marten & Co. Note 1) BlackRock Latin America is the only remaining trust in the Latin America Sector.

Guide

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