Investment Companies Roundup

Kindly sponsored by Baillie Gifford and Aberdeen Standard Investments

 Table of contents 

• New research
• Performance data
• Discounts and premiums
• Money in and out
• Major news stories
• Income
• Events
• Guide
• Appendix – Performance by sector full list

 New research

Here is a list of research we published over July:

Seneca Global Income & Growth – On the rebound

“Seneca Global Income & Growth Trust’s (SIGT’s) UK-biased value style and mid-cap exposure suffered heavily during the first quarter of 2020 as markets collapsed. However, the manager used the rout to take advantage of deep value opportunities and SIGT has benefitted as markets have rebounded. The manager believes there is much more to come.”

Shires Income – Preference shares paying dividends

“Shires Income (SHRS) has been weathering the storm of dividend cuts better than many of its peers. Holding a portfolio of preference shares, which contribute over 30% to income generation – and, crucially, have not been affected by regulatory restrictions on dividends – has proved to be a major competitive advantage.”

Henderson Diversified Income Trust – Favourable style and structure

“Henderson Diversified Income (HDIV) is managed with a distinct investment style which favours businesses with sustainable cash flows. The managers took advantage of HDIV’s closed-end structure to make some opportunistic investments and increase gearing close to the bottom of markets. These transactions help lay the foundations for future outperformance and underpin HDIV’s dividends.”

Standard Life Private Equity Trust – Share price out of sync?

“Annualised returns over the past five years have been in the double- digits, while nearly half of SLPE’s portfolio is in the more resilient consumer staples, technology, and healthcare sectors. SLPE provides underlying company exposure to European success stories such as Action (non-food discounter) and TeamViewer (remote support software).”

Grit Real Estate Income Group – Africa, substantially de-risked

“Grit Real Estate Income Group (GR1T) is flying the flag for African real estate investment. The significant growth potential of the continent’s emerging economies has always come with some degree of risk attached to it. However, Grit’s investment strategy enables it to retain exposure to that growth potential, while substantially de-risking it by leasing property to blue-chip multinational corporations, including government embassies, on US dollar and euro-denominated leases.”

 Performance data

July’s median total share price return from investment companies was 0% (the average was +0.3%), which compares with +2.8% last month. Over the year-to-date, median returns are down by (11.6%). Commodities and natural resources had the best month, led by the funds that invest in gold. The merits of infrastructure-based investments continue to look strong given the relative scarcity of equity income funds that have not been hit hard by the pandemic. Japanese stocks had a tougher month after cases of COVID-19 rose sharply. Japan had otherwise not been overly affected.

Best performing sectors over July:

Please refer to the ‘appendix’ section for a comprehensive list of sector-specific performance. Readers interested in the most recent briefings from the industry can click here to access our economic and political roundup.

Worst performing sectors over July:

July’s biggest movers in NAV and price terms are shown in the charts below:

On the positive side:

• Shares in CQS Natural Resources Growth and Income and Golden Prospect Precious Metals had another strong month, with gold in particular riding on a crest of wave. The gold price is up over 30% this year
• Geiger Counter is benefitting from a fall in global uranium production as a result of the pandemic
• Shares in the debt fund, HWSI Realisation, nearly doubled after it was subject to a cash offer from Cubitt Trade Holdings. The bid swiftly followed news that M&G had made several proposals to acquire UK Mortgages. Interest in the sector raises the spectre that investors have mispriced these debt funds
• Augmentum Fintech has featured regularly in the ‘winners’ section since April, with digitisation take-up being propelled by the pandemic
• Property funds have been suffering the brunt of the economic fallout, so there was some welcome respite for UK Commercial Property REIT and Schroder Real Estate, as the UK began to re-open its retail and on-trade sectors
• JPMorgan Brazil’s board are recommending the fund be wound up, with the recent revival in its performance coming too late. With a market capitalisation below £25m, the fund has struggled to grow, having been hampered in this respect by historically poor performance against its benchmark
• Price rises in Fidelity China Special Situations and JPMorgan China Growth and Income came as the Chinese market had a very strong month, with a significant pickup in foreign capital and renewed interest in stocks by Chinese retail investors, with new trading account numbers up considerably

On the negative side:

• NAVs in VietNam Holding, Vietnam Enterprise, and VinaCapital Vietnam Opportunity declined in response to the country’s first outbreak of COVID-19
•  It was a similar story in Japan, which like Vietnam had previously not been overly impacted. Over July, daily new cases in Japan climbed above a thousand for the first time, hitting the NAVs of Schroder Japan Growth, Aberdeen Japan, and Baillie Gifford Shin Nippon
• Already down by about 20% by mid-July, Riverstone Energy’s shares fell further after its manager (Riverstone Holdings) completed a $1.1bn recapitalisation in Enviva, the world’s largest supplier of utility-grade renewable biomass fuel in the form of wood pellets
• DP Aircraft 1 is trading at a near 90% discount. Over July, shareholders granted it permission to issue new shares at a discount to NAV, which though unusual for investment companies, reflects the unique challenges facing aircraft leasing companies. Most of the increases in flight volumes around the world have been driven by cargo rather than commercial
• Aurora has a lot of exposure to sectors that have been particularly hard hit, through holdings that include EasyJet, Ryanair, Barratt Developments, and Frasers Group (formerly Sports Direct International)

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 Discounts and premiums

The tables below shows the top five movers in either direction (more or less expensive relative to NAV):

More expensive relative to NAV:

• The widening in Merian Chrysalis’s premium was share price led following the announcement that it had generated a significant return by partially realising its stake in TransferWise. The sale was the fund’s first since launching in late 2018
• AEW UK REIT has been faring better than most of its peers in the UK commercial property sector. Over July, it reported an increase in its quarterly NAV while announcing that its dividend would be maintained
• The other funds listed were discussed in the ‘winners and losers’ section above

Cheaper relative to NAV:

• Chelverton UK Dividend’s shares are down by over 40% so far this year. It runs a split capital structure and has a heavy bias to smaller companies
• Hedge fund sector company, Gabelli Merger Plus+’s shares were down 17.1%. It has been a tough year for its US-focused catalyst style
• BH Macro USD, which invests in the Brevan Howard Master Fund, has otherwise had a very good year, with its USD and GBP share classes among the top 15 best-performing investment companies so far this year, in price terms

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 Money in and out

Fundraising highlights from the month:

Money coming in:

• HICL Infrastructure raised £120m, with £75m to be used to pay down its revolving credit facility and the rest used for growth. The issue was heavily oversubscribed with alternative asset classes like infrastructure able to provide a better outlook for dividends than equity funds
• Elsewhere, Scottish Mortgage continued to issue stock, while Edinburgh Worldwide, Personal Assets, and Worldwide Healthcare also raised more than £20m

Money going out:

• Alcentra European Floating Rate Income led share buybacks, followed by Pershing Square, Witan, SME Credit Realisation, and Alliance Trust

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 Major news stories

Portfolio developments:

• Octopus Renewables Infrastructure bought some French solar assets
• Henderson Smaller Companies significantly outperformed and maintained its final dividend
• Merian Chrysalis revealed a partial realisation from its TransferWise
• Hipgnosis signed a deal with Rodney Jerkins. Earlier in the month, it also launched its latest fundraise
• RTW Venture’s iTeos holding IPOed at a 1.8x multiple to the fund’s investment
• TwentyFour Income provided an outlook for the CLO market
• Gore Street Energy Storage expects to benefit from a legislation change that could see grid projects triple
• Personal Assets bucked the trend
• Augmentum is proving resilient
• Polar Capital Technology beat its benchmark in a wild year
• Aberdeen Emerging Markets has been backing the right funds
• Atlantis Japan’s discount widened despite a dividend hike
• Hg invested in F24, a pan-European sector leader for emergency notification
• Invesco Asia has been caught out by COVID-19

Corporate news:

• Perpetual Income and Growth and Murray Income are set to merge
• Witan Pacific is moving to Baillie Gifford, where it will become a fund focused on China
• Gabelli Value Plus+ failed its continuation vote
• JPMorgan Brazil’s board advised shareholders to vote in favour of winding up the fund
• Aberdeen Frontier Markets is to be wound up after failing to beat its benchmark over the two years to 30 June 2020
• Cubitt Trade Holdings made a cash offer for HWSI Realisation
• M&G said that it had made several approaches to the board of UK Mortgages
• Fair Oaks Income is bringing its dividend back
• HICL has been fundraising
• JZ Capital Partners will hold an EGM in August after proposing to amend its investment policy

Managers and fees:

• Princess Private Equity agreed a fee cut with its manager
• City Merchants High Yield appointed Rhys Davies as named lead manager

Property:

• Supermarket Income REIT added a Tesco site as well as signing a new £60m RCF
• SEGRO announced a debt redemption and new debt finance
• AEW UK REIT has been holding up well
• Schroder REIT reinstated its dividend at 50% of previous level
• Great Portland Estates tapped into deposits to collect 69% of rents
• Primary Health Properties reported a 7.1% jump in earnings
• Residential Secure Income agreed a new £300m debt facility
• Solid results from Civitas set the stage for growth
• ASLI reaffirmed dividend after better than expected rent collection

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 Dividends

The following funds announced their full-year results (and accompanying dividends) over July (please refer to the attached PDF document for a list of the notes around the numbers):

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 Events

Here is a selection of upcoming events:

• Aberdeen New Dawn AGM 2020, 2 September 2020
• Polar Capital Technology AGM 2020, 2 September 2020
• Atlantis Japan AGM 2020, 10 September 2020
• UK Investor Show, 26 September 2020
• The London Investor Show, 30 October
• Sustainable & Social Investing Conference, 3 December

Master Investor – the UKs largest private investor show – 5 December 2020

 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 – July performance by sector

 The legal bit

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August 2020 Investment Companies Roundup