Investment Companies Quarterly Roundup
£2.9bn of net new capital raised
It felt as though the rotation from ‘growth’ to ‘value’ that began last November picked up momentum towards the end of the first quarter. UK equity and property assets had a strong start to the year. Some of last year’s winning sectors, like technology, China equity funds, Japan equity funds, and healthcare, largely took a backseat.
Discounts widened slightly over the first quarter, though a median level of 7.2% at 31 March was significantly narrower than the 12.5% discount level last September. Several UK-focused sectors narrowed, as did private equity.
Discounts have narrowed considerably across the UK smaller companies sector in the wake of the UK’s strong vaccine rollout and the Brexit deal.
In this issue
Performance data – UK assets (including the pound) benefitted from the fast-paced vaccine rollout and a final decision on Brexit. Elsewhere, a weaker dollar and resurgent Chinese demand for raw materials pushed up commodity prices. Technology gave back some of its gains while Chinese stocks also slipped as the government dialled back stimulus.
Major news stories – Cordiant Digital Infrastructure and Digital 9 Infrastructure’s IPOs raised a combined £670m. It was announced that Scottish Mortgage’s manager James Anderson was retiring. JLEN Environmental expanded its remit. Strategic Equity Capital scored a comfortable win in its continuation vote. HgCapital Trust had a bumper year. BlackRock World Mining had a great 2020.
Money in and out – The 325 investment companies raised £2.9bn of net new capital over the first quarter, with the IPOs of Cordiant Digital Infrastructure, Digital 9 Infrastructure, and VH Global Sustainable Energy Opportunities bringing in a combined £917m.
Research published over Q1 2021
Over the quarter, we published notes on Aberdeen New Dawn, Vietnam Holding, Jupiter US Smaller Companies, North American Income Trust, Weiss Korea Opportunity Fund, Aberdeen Emerging Markets, Polar Capital Global Financials Trust, JLEN Environmental Assets, BB Biotech, Grit Real Estate Income Group, Shires Income, Strategic Equity Capital, and Pacific Horizon. Aberdeen Emerging Markets Investment Company – Cautiously optimistic
Out of a total of 325 investment companies (we excluded funds with market caps below £15m), the median total NAV return over the first quarter of 2021 was 2.1% (the median total share price return was 3.0%). We note that the Association of Investment Companies (AIC) made some changes to its sector classifications during the quarter, headlined by the introduction of China/Greater China, India and Property – UK Logistics as separate sectors.
Best and worst performing sectors over Q1 2021
UK assets (including the pound) benefitted from the fast-paced vaccine rollout and a final decision on Brexit. Elsewhere, a weaker dollar and resurgent Chinese demand for raw materials pushed up commodity prices. The North American smaller companies sector fared well too, with cyclical sectors such as financials coming back strongly as attention turned to the looming recovery.
Coming off a stellar 2020, technology gave back some of its gains while Chinese stocks also slipped as the government dialled back stimulus. Japanese Smaller Companies, which was second only to technology last year, led declines. Overall, it was a quarter where cyclical sectors perceived to be undervalued performed best.
Top 10 performers by fund:
Following on from a strong 2020, Geiger Counter‘s performance reflected the trends in uranium pricing. Shares in uranium miners increased considerably, with key catalysts including supply constraints and greater demand from China especially, as it looks to nuclear to play an important role in its clean energy policy. The gearing built into the split capital structures operated by Aberforth Split Level Income and Chelverton UK Dividend allowed them to particularly benefit from the ongoing rally in UK equities. Miton UK Microcap, Oryx International Growth, Temple Bar, and Aberforth Smaller Companies all came back strongly as the UK smaller companies and UK equity income sectors, both of which were particularly hard hit over 2020, rallied. Drum Income Plus REIT’s shares were up sharply following its announcement of a strategic review that could lead to it selling all its assets and returning the proceeds to shareholders. It has been unable to shake off a persistent discount since launching in 2015. The move in KKV Secured Loan’s shares following a major repayment by one of its creditors of a loan that the fund had written off, clearing a path for a capital return to its shareholders.
Bottom 10 performers by fund:
It was generally a period of pause for funds within the newly separated China/Greater China sector classification. Baillie Gifford China Growth led share price declines, though Fidelity China Special Situations bucked the trend. As shown in the Appendix section, in share price terms, China/Greater China has been the third-worst performing sector this year. Golden Prospect, one of the best performers last year, was hit by the fall in the gold price. The presence of Aberdeen Latin American Income and BlackRock Latin American largely reflects the region’s (especially Brazil’s) ongoing struggle with COVID-19. It remains a challenging backdrop for aircraft leasing companies like Amedeo Air Four Plus. Owning a fleet of widebody aircraft, in particular, has been especially challenging through the pandemic. The fund severed ties with its manager over the quarter, over fee disagreements. Shares in Biotech Growth and International Biotechnology were down, following a strong 2020 for healthcare-focused assets.
Significant rating changes by fund
Across all of the 322 investment companies with market caps greater than £15m at the end of 2020, the median level of discount increased by (0.8%) to (6.9%). This is still significantly narrower than the double-digit median discounts before the vaccine developments last November.
Getting more expensive:
The first quarter saw discounts narrow across much of the private equity sector. The pandemic’s impact on distributions by the underlying funds has been much less severe than initially feared. BMO Private Equity and Electra Private Equity led the narrowing in discounts. Augmentum Fintech’s collection of ‘disruptive technologies’ remained popular, with the adoption of many of these speeding up as a result of the pandemic. The fund bucked the trend of tech-focused strategies taking a backseat. An increase in BMO Real Estate’s NAV calmed investors. Riverstone Credit Opportunities Income, which makes loans to the energy sector, also benefited from much-improved sentiment within energy markets.
Premiums in Baillie Gifford China Growth and Pacific Horizon (it has significant exposure to China) narrowed as China dialled down its stimulus, as discussed earlier. Globalworth Real Estate is a major office-space investor in Poland and Romania, where commercial office letting remains strained. Herald and Manchester & London are major investors in technology. Aberforth Split Level Income’s price action did not keep up with the increase in the NAV, leading to a widening in its discount over the quarter.
Money in and out
The 325 investment companies raised £2.9bn of net new capital over the first quarter, with the IPOs of Cordiant Digital Infrastructure, Digital 9 Infrastructure, and VH Global Sustainable Energy Opportunities bringing in a combined £917m.
Money coming in:
There were three major IPOs over the first quarter. Cordiant Digital Infrastructure and VH Global Sustainable Energy Opportunities launched in February. Cordiant Digital Infrastructure will make investments in digital infrastructure assets, with a focus on data centres, mobile telecommunications/broadcast towers and fibre-optic network assets. VH Global Sustainable Energy Opportunities’s will focus on energy infrastructure assets, mainly in countries that are members of the EU and part of the OECD. Triple Point’s Digital 9 Infrastructure launched with a £300m over March, which although below its £400m target, was still a very good result. It will pursue opportunities in digital infrastructure assets, which deliver a reliable internet including (but not limited to) subsea fibre, data centres, terrestrial fibre, tower infrastructure and small cell networks (including 5G). The growth capital fund, Chrysalis Investments, brought in £300m in an upscaled placing. The fund has some momentum behind it after some good realisations over 2020, notably in TransferWise. Tritax EuroBox brought in €230m, as the logistics sector has taken off since the pandemic with online retailing growing exponentially. Greencoat UK Wind had spent almost £100m on investments in two wind farms within days of its raise. Elsewhere, SDCL Energy Efficiency Income, Smithson, Supermarket Income REIT, and LXI REIT, raised over £100m.
Money going out:
Returns of capital were led by Scottish Mortgage, Alliance Trust, and Gulf Investment. Scottish Mortgage has been actively buying back shares. Gulf Investments shrank as 44% of shareholders opted for the exit in a tender held in December.
Major news stories over Q1 2021
- SDCL Energy Efficiency Income sealed a deal with the UK’s largest operator of public electric vehicle charging points
- HgCapital Trust had a bumper year
- RTW Venture participated in financing rounds held by Ventyx Biosciences and Visus Therapeutics
- BlackRock World Mining had a great 2020
- India Capital Growth began to reap the rewards of an improved process
- Polar Capital Global Financials matched its benchmark in a transformational year
- JLEN Environmental expanded its remit
- Round Hill Music proceeded with its pipeline purchase
- We had inaugural results from Octopus Renewables Infrastructure
- It was a tough year for BlackRock Latin American
- Apax Global Alpha had a great year
- TRIG’s diversity in technology and geography was a source of strength over 2020
- BlackRock Throgmorton had an excellent year
- Ruffer discussed its decision to invest in bitcoin
- Standard Life Private Equity delivered impressive results
- Cordiant Digital’s IPO raised £370m
- Digital 9 Infrastructure’s IPO raised £300m
- NextEnergy Renewables published its prospectus
- Strategic Equity Capital scored a comfortable win in its continuation vote
- Drum Income Plus REIT is to undertake a strategic review
- Fundsmith Emerging Equities proposed an amendment to its investment objective and policy
- Fair Oaks Income published a prospectus on its reorganisation and placing programme proposals
- There was a shakeup at JPMorgan Multi Asset. It is changing its name to JPMorgan Multi-Asset Growth & Income
- Chrysalis Investments is looking to grow to fund its active pipeline of around £1bn
- KKV Secured Loan secured an exit and an NAV uplift
- Jupiter UK Growth published its reconstruction and wind up proposals
- ICG Longbow’s wind-down was approved
Managers and fees
- Scottish Mortgage’s manager James Anderson is to retire
- Troy’s Francis Brooke secured a promotion
- Shareholders voted on BH Global’s fees
- Martin Currie Global Portfolio cut its fee
- Charlie Thomas, manager of Jupiter Green, is leaving Jupiter
- Civitas Social Housing achieved an investment-grade credit rating
- We also had a response from Civitas and Triple Point Social Housing to a regulator update
- Tritax EuroBox was assigned investment grade credit rating by Fitch. It also raised €230m in oversubscribed placing
- RDI REIT was the subject of a £467.9m takeover approach
- Residential Secure Income lived up to name with 99% rent collection
- Tritax Big Box collected 99% of its rent in 2020
- There’s more to emerging markets than China – 26 March
- Will Rishi’s call for return to office impact sector? – 26 March
- Retiring gracefully – 19 March
- Property one year on from lockdown – 19 March
- Keeping the dividends flowing – 12 March
- Too late to save property’s problem child? – 12 March
- Inflation fears making waves – 5 March
- Student digs top of the class for COVID rebound? – 5 March
- More REIT M&A to come? – 26 February
- The rewards of truly patient capital – 26 February
- EuroBox raise hits the sweet spot – 19 February
- Resurgent emergence – 19 February
- From infectious enthusiasm to IPO fever? – 12 February
- Cheers to the property dividend hikes – 12 February
- Property tinkermen worth their weight in gold – 5 February
- Something new to get your digits on – 5 February
- The next big thing – 29 January
- Timing just right for Big Box – 29 January
- Reasons to be cheerful – 22 January
- Can Upton regenerate U and I Group’s future? – 22 January
- Don’t discount the property generalists – 15 January
- The dangers of political risk – 15 January
- Watch property go in 2021 – 8 January
- Nothin’ but blue skies from now on… – 8 January
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:
- Herald AGM 2021, 20 April
- CVC Credit Partners European Opportunities AGM 2021, 22 April
- The London Investor Show, 23 April
- JPMorgan US Smaller AGM 2021, 26 April
- Fidelity Japan presentation 2021, 26 April
- Aberdeen Asian Income manager presentation 2021, 27 April
- JPMorgan American manager presentation 2021, 28 April
- Aberdeen Smaller Companies Income AGM 2021, 28 April
- Pershing Square AGM 2021, 28 April
- Greencoat UK Wind AGM 2021, 28 April
- Witan AGM 2021, 28 April
- BBGI Global Infrastructure AGM 2021, 30 April
- Apax Global Alpha AGM 2021, 4 May
- The Renewables Infrastructure Group AGM 2021,5 May
- Schroder Asian Total Return AGM 2021, 7 May
- Aberdeen Asian Income AGM 2021, 12 May
- Nippon Active Value Fund AGM 2021, 12 May
- Temple Bar AGM 2021, 13 May
- JPMorgan American AGM 2021, 14 May
- Baillie Gifford Shin Nippon AGM 2021, 14 May
- Fidelity Japan AGM 2021, 18 May
- Riverstone Credit Opportunities Income AGM 2021,
- Henderson High Income AGM 2021, 24 May
- Sustainable & Social Investing Conference,
- Axiom European Financial Debt AGM 2021, 19 July
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.
Our Independent Guide to quoted investment companies is an invaluable tool for anyone who wants to brush up on their knowledge of the investment companies’ sector.
Appendix – Q1 2021 median performance by sector
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