Investment Companies Quarterly Roundup

Kindly sponsored by Baillie Gifford and Aberdeen Standard Investments

From COVID to conflict

23 March 2022 marked two years since the UK’s nationwide lockdown was implemented in response to the outbreak of COVID-19. While cases and lockdowns are still occurring across the globe to varying degrees, it appears we are over the worst of it. However, it was out of the frying pan and into the fire for the first quarter of 2022 as Russia launched an attack on Ukraine at the end of February and the war sadly remains ongoing. In addition to uncertainty and volatility in markets, this has had a significant impact on energy, metals, and wheat prices, Meanwhile, interest rate rises have been the flavour of the month since the turn of the year and fears of rising inflation have been compounded, keeping everyone firmly on their toes.

In this issue

Performance data – In response to the Russo-Ukrainian conflict, Latin America and commodities & natural resources have been the best-performing sector over Q1 2022. Meanwhile, growth capital trusts have suffered as the direction of inflation and interest rates caused a sharp rotation from growth-style investing.

Major news stories – Strategic Equity Capital shared a corporate update as it declined Odyssean’s combination offer, JPMorgan Russian Securities and Barings Emerging EMEA Opportunities suffered from sanctions and Jupiter Emerging & Frontier Income announced the end.

Money in and out – Just over £1.2bn of net new capital was raised over the first quarter of 2022, led by fundraises from the Renewables Infrastructure Group, LXi REIT and Cordiant Digital Infrastructure.

Research published over Q1 2022

Over the quarter, we published notes on JLEN Environmental Assets, Ecofin US Renewables Infrastructure, Montanaro European Smaller Companies, Strategic Equity Capital, Henderson Diversified Income, abrdn European Logistics Income, Tritax EuroBox, AVI Japan Opportunity, NextEnergy Solar, Herald, Urban Logistics REIT, GCP Infrastructure and Edinburgh Worldwide. You can read all of these notes by clicking on the links above or by visiting our website.

Winners and losers

Out of a total of 353 investment companies that we follow, the median total NAV return over the first quarter of 2022 was -0.4% (the median total share price return was -3.8%).

By sector

Latin America was the best-performing sector over Q1 2022, a reversal from being one of the worst over the previous two years. The commodity exporting region has benefited from the Russo-Ukrainian conflict, which has driven up prices. As expected, commodities & natural resources also made the top performers list, with many of its members among the best performing trusts every month since January. The UK commercial property sector also fared well. In its annual UK Real Estate Outlook, CBRE said 2022 could be a year of recovery for the commercial property market with a renewed sense of optimism and growing economy.

In another reversal of fortune, growth stocks took a beating at the start of the year as the direction of inflation and interest rates caused a sharp rotation from growth-style investing. Accordingly, the growth capital sector was the worst performing for the quarter, and the biotech sector took another hit. Meanwhile, Russia’s invasion of Ukraine has not helped sentiment on a global basis. Investors sought the perceived relative safety of larger companies. China/Greater China was the worst performing sector in March as coronavirus cases remain high in parts of the country and restrictions are still well in place. Meanwhile, President Xi Jinping set China’s growth target for 2022 at 5.5% – the lowest in three decades.

By fund

There were some pretty clear winners over the first quarter of 2022, with Latin American and commodities & natural resources funds monopolising the top of the best-performing tables in both NAV and share price return terms, for reasons already discussed. BlackRock Latin American received the quarter’s crown, with an NAV return of 31% and share price return of 32%. Other winners in NAV terms included abrdn Latin American Income and the uranium-focused Geiger Counter, which was one of the best performing trusts over 2021. This success looks likely to continue as investors have reasoned that in Europe, nuclear power would be favoured over natural gas.

Fellow commodities & natural resources names BlackRock World Mining, CQS Natural Resources Growth & Income and BlackRock Energy & Resources Income all had strong quarters while a higher oil price was also good news for oil producers outside Russia, benefiting Gulf Investment and Middlefield Canadian. Meanwhile, Livermore Investments announced a hefty dividend while UK Commercial Property REIT featured in the list as the sector appears to be bouncing back.

On the negative side, JPMorgan Russian Securities and Barings Emerging EMEA Opportunities have – unsurprisingly – suffered in the face of the current conflict. The former, which is purely invested in Russia, is down by a huge 94% in NAV and 80% in share price terms, as sanctions have been placed on the country. Investments listed on the Moscow Exchange have been valued at zero, until such a time as the market begins to function in a way deemed appropriate. All four members of the China / Greater China sector suffered in March but JPMorgan China Growth & Income saw the worst of it, down by 23% over the quarter.

Schiehallion (2021’s top performer), Scottish Mortgage, Baillie Gifford US Growth, and Baillie Gifford European Growth – all of which are managed by famously growth-style investors Baillie Gifford, also suffered as the prospect of rising interest rates continued to dent valuations of high growth companies. Similarly affected were quality growth small cap funds Montanaro European Smaller, Montanaro UK Smaller and BlackRock Throgmorton, growth capital and private equity names such as Chrysalis, Schroder UK Public Private and EPE Special Opportunities, and Fidelity Japan (Japan also suffers from being a big importer of oil and coal).

Significant rating changes by fund

Getting more expensive

JPMorgan Russian Securities’ premium soared to a ridiculous 228% by the end of March as, rather distastefully, some investors try to profit from the war in Ukraine, by betting that sanctions will be lifted. Riverstone Energy is a beneficiary of a rising oil price, though remains on a wide discount of 29.5%. Meanwhile UK Commercial Property REIT has also become more expensive having acquired a COVID-19 lab in a £94m deal at the tail-end of December. Renewable energy infrastructure names ThomasLloyd Energy Impact and Foresight Solar also feature on the list perhaps as the importance of renewable energy alternatives is growing stronger. A lack of liquidity in the ThomasLloyd vehicle has pushed its premium to precariously high levels. CIP Merchant Capital was bid for and CatCo Reinsurance made progress with its wind-up.

Getting cheaper

Schiehallion’s premium appears to be coming back down to reality after trading on a 59.3% premium by the end of 2021, though it remains fairly high. Fellow growth capital peers, Seraphim Space and Chrysalis which have enjoyed premiums for some time are now trading at or close to a discount as the sector took a hit during the first quarter of 2022. Biotech name Syncona also saw its premium rerate to a discount. Leasing fund in wind-up mode SLF Realisation Fund saw its discount widen following a capital distribution. Aquila Energy Efficiency has disappointed on the pace of the deployment of its IPO proceeds – two directors resigned in protest. Jupiter Green’s savage de-rating has reversed a little since the quarter-end.

Money raised and returned

Out of the 353 investment companies we follow, just over £1.2bn of net new capital was raised over the first quarter of 2022.

Though there were no IPOs (GCP Co-Living REIT and Cordiant Global Agricultural Income had to pause theirs in light of recent events) there was a good amount of fundraising from a number of trusts, with some more on the way following recent placing announcements.

Money coming in

The biggest fundraising came from Renewables Infrastructure Group, which raised over £270m in March. The trust issued shares to professional investors via a bookbuild – where investors bid to buy shares through the company’s brokers at a strike price (in this case no less than 130p). The proceeds were raised to acquire a 7.8% equity interest in the Hornsea One offshore wind farm in the UK from Global Infrastructure Partners. Fellow renewable energy infrastructure peer group member SDCL Energy Efficiency raised £100m in an oversubscribed placing to fund new investment opportunities identified in its wider pipeline worth over £250m. LXi REIT raised £250m in an oversubscribed fundraise, having initially targeted £125m as announced in January while JLEN Environmental Assets also enjoyed an oversubscribed issue of £60m through a placing and offer for subscription.

Having only launched in 2021 and still manged to raise more funds since then, infrastructure names Cordiant Digital Infrastructure and Digital 9 Infrastructure were the gifts that keep on giving. Meanwhile Polar Capital Global Financials also completed a fundraise shortly after it reported strong outperformance and an increase in demand for financials. You can read more about why in our latest research note on the trust. Ruffer, Capital Gering and JLEN Environmental Assets also issued new shares.

Money going out

Share buybacks were also led by F&C, Alliance Trust and Polar Capital Technology.

Major news stories over Q1 2022

Portfolio developments:

Corporate news:

Managers and fees:

Property news:

QuotedData views:

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:

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.

Friday The news show Special Guest Topic
1 October AIE, CAT, IGC, VNH Tim Creed Schroder UK Public Private
8 October FEML, GRP Steven Tredget Oakley Capital
15 October ATS, CGL, GHS Nicholas Yeo abrdn China
22 October FEML, SCIN Claire Shaw Scottish Mortgage
29 October EPG, SHED Richard Pindar Literacy Capital
5 November UKW, GHS, ACIC Rory Bateman Schroder British Opportunities
12 November PINT, SMT, GSEO Helen Steers Pantheon
19 November TIGT, ROOF Iain McCombie Baillie Gifford UK Growth
26 November MTU, JLEN, GRIT, CORD David Cornell India Capital Growth
3 December AAS, TEEC Rob Crayfourd CQS Natural Resources Growth & Income
10 December EWI, TLEI Nicholas Ware Henderson Diversified Income
7 January QuotedData Andrew McHattie 2021 roundup
14 January ELTA, JLEN, HGEN, ASLI Jason Baggaley Standard Life Investments Property Income
21 January BSIF, RICA Keith Watson Geiger Counter
28 January FSF, CIP, SLPE Jonathan Maxwell SDCL Energy Efficiency
4 February AEET, TEEC Sebastian Lyon Personal Assets
11 February THRG, SEC, TFIF, UKML Richard Aston CC Japan Income & Growth
18 February CSH, HONY, NESF, TRIG Carlos Hardenberg Mobius
25 February BSIF, CRS, DGI9, JEFI Ian Francis New City High Yield
4 March JRS, MCKS Thomas Moore abrdn Equity Income
11 March ATT, JEFI, SGEM James Harries Securities Trust of Scotland
18 March FEET, RAV, TRIG Tom Moore & Henrik Dahlström Downing Renewables & Infrastructure
25 March GRP, ANII, IGC, RKW Blake Hutchins Troy Income & Growth
1 April FJV, ORIT, PSH Ian Lance Temple Bar
8 April HGEN, SUPR, INPP, GRID Yoojeong Oh abrdn Asian Income
    Coming up  
22 April ALAI Viktor Szabó abrdn Latin American Income
29 April FSF Richard Kelly & Robert Guest Foresight Sustainable Forestry

Guide

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 2022 median performance by sector

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