Monthly roundup | Investment companies
Winners and losers in January 2023
In a month where winners far outweighed losers, once again Chinese funds feature amongst the best-performing investment companies over the month, taking many of the top slots. China has barrelled ahead with the reopening of its economy following the lifting of COVID-related restrictions. The best-performing trust in that sector – JPMorgan China Growth and Income – was up over 45% in NAV terms over the three months ended 31 January 2023. Vietnamese funds rebounded too, lifting the performance of the country specialist sector, although Weiss Korea Opportunity had a good month as well. Unsurprisingly, this spelled good news for Asia Pacific focused funds. In the UK, signs of easing inflation underpinned markets, but stock-specific moves were behind the good performance of the UK all companies sector.
The Indian market lost ground over the month as a short seller attacked one of its largest conglomerates. While Chrysalis continued to recover some of the ground that it lost last year, other constituents of the growth capital sector experienced further discount widening. In the property – UK residential sector, problems with rent collection from a couple of tenants of the specialist supported housing sector weighed on share prices.
Aurora’s impressive NAV uplift was driven by big jumps in the share prices of its holdings in easyJet, Ryanair and Hotel Chocolat, as well as a modest rebound in the share price of its largest position Frasers Group. Artemis Alpha holds easyJet and Ryanair as well, and has Frasers as its largest holding too, but also benefitted as Aurora’s sister trust – Castlenau – bid for Dignity. An uplift in the Uranium price helped Geiger Counter. Baillie Gifford European holds Ryanair, it also benefitted from an uplift in the share price of Norwegian media business Schibsted (which is also a fairly recent addition to AVI Global’s portfolio). Positive trading updates for a couple of Strategic Equity Capital’s holdings, Medica and Hostelworld, drove its NAV higher. The resurgent Chinese stock market is evident in the presence of Fidelity China Special Situations and Baillie Gifford China Growth in these tables.
Livermore is on a wide discount and trading in the stock is thin. There was no news that we could spot that would have triggered its discount narrowing over the month. The better sentiment towards the UK, coupled with share buybacks, helped Henderson Opportunities to narrow its discount. Caledonia Mining’s acquisition of Zimbabwean gold miner Bilboes Gold was the main bit of good news in Baker Steel Resources’ portfolio. Its discount was perhaps overwide at the start of the month. Nippon Active Value launched a tender offer for shares in T&K Toka.
The deteriorating sentiment in the Indian market is obvious in the table, where all three of the worst-performing funds fall into that sector.
In an environment where most markets were moving higher, a weaker US dollar accounts for all of the NAV declines over the bottom part of the table.
The share price moves follow a different pattern. Eastern European property fund Globalworth Real Estate experienced a significant widening of its discount over the month. There was no stock-specific news associated with the move – although ECB interest rate hikes are the most likely culprit, but the free float is limited and so any selling pressure is amplified.
Triple Point Social Housing and Civitas Social Housing have been experiencing problems with some tenants. One – My Space Housing – is the subject of enforcement action by the Regulator of Social Housing and has not been paying rent. It seems likely that both funds will look to move properties from My Space to alternative tenants. Triple Point Social Housing also has a problem with Parasol Homes, which is also in rent arrears.
Augmentum Fintech’s discount, which had held up reasonably well relative to funds in the growth capital sector (which it has a lot of similarities to) widened at the start of January. Share buy backs since appear to have helped the share price rebound in February.
Weaker commodity and power prices may have contributed to the discount widening that occurred for Riverstone Energy (oil price) and Downing Renewables and Infrastructure (Swedish power prices). In both cases, the reaction may be overdone. There was no new news on Triple Point Energy Transition, but the fund is subscale in a crowded sector and its dividends since launch have not been covered by earnings.
JZ Capital Partners reported at the start of the month that two separate claims, alleging criminal complaints in connection with fraud claims made last March, have been filed in the Spanish courts. The allegations relate to two individuals who were members of the management team that manages JZCP’s investments in European micro-cap companies.
Moves in discounts and premiums
The discount widening stories have all been covered above. On the discount tightening/higher premium side of the equation, JPMorgan Emerging Europe, Middle East and Africa saw its premium climb. Unfortunately, there seems to be no sign of an end to hostilities in Ukraine, so we are not sure what is driving this move.
For the plane leasing funds, the story continues to be about the prospects for these funds being able to sell or re-lease their aircraft fleets at the end of the initial lease periods. Moves in the sterling/dollar rate have an impact too.
Livermore was mentioned above. Market participants views about the outlook for the CLO market (which accounts for a substantial proportion of the portfolio) are mixed. Some commentators are concerned about the prospect of debt defaults, which would impact both the income from the CLOs and their capital value. By contrast, if central banks can engineer a soft landing for the economy, the outlook for these investments would be brighter.
Oryx International Growth’s discount has been on a narrowing trend since November 2022 (when it was in the 30s). North Atlantic Smaller Companies raised its stake in the trust once again in January. It holds over 52% of Oryx’s share capital.
Money raised and returned
There was a net outflow of funds from the investment companies sector over the course of January 2023. Conviction Life Sciences abandoned its fundraise in January, but AT85 Global Mid Market Infrastructure published a prospectus. Harmony Energy Income merged its C shares into its ordinary shares during the month.
For the most part, the funds raising and returning cash – via tap issues and share buy backs – are the usual suspects. Debt funds are becoming more popular as bond yields are higher, helping attract funds to the two TwentyFour funds and CQS New City High Yield, which ranked number six on the list. However, on the returning capital side, Pershing Square and Fidelity China are both absent. Pershing Square’s buyback activity is on pause. Fidelity China is one of the best-performing funds of the past three months. The surprise(?) entry at number one is Finsbury Growth and Income. We have long argued that the trust does not offer a sufficiently attractive yield to be considered an income fund, were it to relocate to the UK all companies sector, its performance would not look too bad relative to its new peer group.
Major news stories and QuotedData views over January 2023
|Portfolio developments||Corporate news|
|· Chrysalis reports on a tough year||· Aquila Energy Efficiency commitments surpass IPO proceeds|
|Property news||Manager news|
|· Urban Logistics acquires five assets for £48m||· Former Henderson EuroTrust analyst charged with insider dealing|
|· In defence of growth – 27 January 2023||· Unloved Japan worth a look – 13 January 2023
· REIT consolidation on the cards in 2023 – 6 January
|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.|
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:
|· Blackstone Loan Financing investor call – 14 Feb
· Bankers AGM 2023 – 23 Feb
|· Edinburgh Worldwide AGM – 7 Mar|
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|
|4 November||ROOF, CYN, PEY||Jason Baggaley||abrdn Property Income|
|11 November||MAJE, TLEI, CRS||James de Uphaugh||Edinburgh Investment Trust|
|18 November||Long Term Assets, Renewables||Jeff O’Dwyer||Schroder European Real Estate|
|25 November||Renewables, DGI9, NBMI, HOME||Bruce Stout||Murray International|
|2 December||CHRY, SYNC||Rhys Davies||Invesco Bond Income Plus|
|9 December||VSL, RTW, SYNC||Stuart Widdowson||Odyssean|
|16 December||HOME, API, FSF||Richard Aston||CC Japan Income and Growth|
|6 January||2022 review||Andrew McHattie||Review of 2022|
|13 January||DGI9, AT85||Thao Ngo||Vietnam Enterprise|
|20 January||RICA, ORIT||Stephanie Sirota||RTW Venture Fund|
|27 January||JLEN, HGEN, USF, HNE||Eileen Fargis||Ecofin US Renewables|
|3 February||SOHO, AERI||Will Fulton||UK Commercial Property REIT|
|10 February||Colm Walsh||ICG Enterprise|
|24 February||Jean-Hugues de Lamaze||Ecofin Global Utilities & Infrastructure|
|3 March||David Bird||Octopus Renewables|
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. Please register on www.quoteddata.com if you would like it emailed to you directly
While Herald Investment Trust (HRI), like many other technology and growth-focused strategies, has been caught up in the grips of 2022’s market selloff, the fundamentals of many of the companies in its portfolio have remained largely unscathed. In fact, HRI’s management team believes that today’s market represents an opportunity, as falling prices and earnings strength push valuations to attractive levels
As we describe in this note, there are a lot of moving parts that go into making Bluefield Solar Income Fund (BSIF) run smoothly. However, the net result should be a fund that offers investors attractive, relatively predictable and largely inflation-linked levels of income, plus the prospect of capital growth.
In recent months, the actions of successive UK governments and sharp increases in bond yields have unnerved investors in the sector. This has created some discount volatility for BSIF and its peers.
However, we think that this is a short-term problem.
High interest rates have hit the share prices of real estate companies, with those in sectors with low investment yields, such as logistics, particularly impacted. abrdn European Logistics Income (ASLI) is no different and the market turmoil has seen its share price discount to net asset value (NAV) widen to 34.0% – in line with its UK peers. This is despite the fact that the spread between property yields and the cost of debt is far wider in Europe (property yields were higher in Europe than the UK and cost of debt lower meaning rising interest rates would put less pressure on property yields in Europe in comparison to the UK and suggesting values will be less impacted).
Ecofin US Renewables Infrastructure Trust’s (RNEW’s) share price moved from a premium to net asset value (NAV) to a discount in July 2022 as the original fund management team resigned. The portfolio assembled is solid, performing well and delivering on expectations. A new fund management team, led by Eileen Fargis, is now in place and the opportunity available to RNEW is considerable.
GCP Infrastructure (GCP) has seen a dramatic improvement in the tailwinds supporting its investment approach. The rise in UK inflation and power prices has driven a substantial, positive uplift in its net asset value (NAV). This uplift has more than made up for the negative impact of the UK government’s new levy (windfall tax) on energy producers. GCP has also made major strides in the quality of its ESG disclosures.
However, the company’s shares have moved to trade on a historically wide discount to NAV, currently 14.7%. As we explain in this note, this may be a reflection of the wider pressure on bond yields that has been felt globally, although as a result, GCP now offers an attractive dividend yield of 7.2%, one of the highest yields of its peer group.
Appendix 1 – median performance by sector, ranked by 2022 year to date price total return
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