Investment Companies Monthly Roundup

Kindly sponsored by Baillie Gifford and abrdn

Performance

Economies around the world are still very much engulfed in rising inflation fears, supply chain woes and the ongoing conflict in Ukraine but fortunes appear to have hit a turning point halfway through the year for certain sectors. China/Greater China was the best performing sector in June after months of misery, with a strong pickup in services and construction as COVID-19 outbreaks and restrictions eased. Meanwhile, the aircraft part of the leasing sector has benefited from a surge in travel as consumers feel safe enough to fly again. The insurance & reinsurance strategies, hedge funds and property – debt sectors were also among the top performers in June. On the other hand, the commodities & natural resources sector – which has dominated performance tables almost every month so far this year – was the worst performer in June on fears of recession, with almost all its constituents among the worst performing funds (see overleaf). Unsurprisingly, Latin America followed suit due to its high correlation with commodities. European smaller companies were hit after more grim statistics of inflation on the continent reaching a record high of 8.6% in June, cementing the ECB’s commitment to a rate rise in July. Technology & media funds continued to suffer though some commentators expect this to turnaround in the second half of the year (see Appendix 1 for a breakdown of how all the sectors have performed so far this year).

June’s median total share price return was -5.1% (the average was -4.2%) which compares with a median of -2.3% in May. Readers interested in recent briefings from the industry can click here to access our economic and political roundup.

Best performing sectors over June

Worst performing sectors over June

On the positive side

The best and worst performing trust tables in June showed much clearer sector-specific trends than in recent months with China and biotechnology & healthcare as obvious winners and commodities & natural resources and UK smaller companies on the other side. Every Chinese trust (Baillie Gifford China Growth, Fidelity China Special Situations, abrdn China and JPMorgan China Growth & Income) enjoyed both NAV and share price increases as the country’s restrictions to contain COVID outbreaks gradually eased over June. June’s survey of Chinese purchasing managers showed some 19 of 21 service sectors returned to expansion last month, up from just six in the previous month while demand for services warmed up as the impact of the outbreak waned and company sentiment improved. Similarly biotechnology & healthcare names International Biotechnology, Biotech Growth and Worldwide Healthcare saw a complete reversal in their fortunes after what many suggested was a biotech bear market. The top performer in NAV terms however was Urban Logistics REIT which released exceptional results during the month detailing a ‘transformational year’ which saw it double in size. The top performer in share price terms was JZ Capital Partners which recently benefited from the sale of a holding in the JZHL Secondary Fund, in which it has an interest.

On the negative side

On the negative side, as already mentioned, commodities & natural resources funds had a torrid month. Golden Prospect Precious Metals, BlackRock World Mining, CQS Natural Resources Growth & Income, BlackRock Energy & Resources Income and Geiger Counter were all down in NAV terms and the majority also down in share price terms. Oil prices have been volatile in recent weeks as recession worries have grown. The laggards were joined by BlackRock Latin American for similar reasons. The threat of recession facing the UK may be more severe than most. UK Smaller Companies names JPMorgan UK Smaller Companies, BlackRock Smaller Companies and abrdn UK Smaller Companies Growth were also among the worst performers for the month. The biggest loser in share terms was Seraphim Space which has suffered for some time now due to a lack of investor appetite for growth stocks, which is also reflected in the fall in Chrysalis’s share price.

Discounts and premiums

More expensive and cheaper relative to NAV

After seeing its 71% discount narrow to 55% in May, JZ Capital Partners saw a further narrowing to 48% in June after it announced it was set to benefit from the sale of a portfolio holding from the JZHL Secondary Fund, in which it has an interest. Odyssean also became more expensive with its 8% discount swinging to a 1.6% premium. Golden Prospect Precious Metals saw its 20% discount narrow slightly in June which also saw all resolutions passed at its AGM.

Having increased to ludicrous levels at the start of the year, JPMorgan Russian Securities’ premium fell sharply in April and May and continued into June, finally swinging from three digits though to a still bizarre 50%. Seraphim Space also stayed in the ‘getting cheaper’ list with its 24% discount widening to 50%. Meanwhile Urban Logistics REIT moved to a discount in June while RTW Venture saw its 6% discount almost quadruple to 21%.

Money in and out

Money coming in and going out

Only £230m of net new money was raised in June, led by a £150m fundraise from Bluefield Solar Income. Proceeds will be used to pay down the trust’s revolving credit facility. Ruffer and Downing Renewables & Infrastructure raised just over £50m each, with the latter also planning to use net proceeds to repay amounts drawn down under its RCF and to pursue the manager’s pipeline of investment opportunities. Towards the end of the month, Foresight Sustainable Forestry raised £45m after only launching in November last year. The chair said this represented ‘a significant milestone for the fund’.

Share buybacks were led by Pershing Square, Scottish Mortgage, Polar Capital Technology and F&C.

Major news stories over June

Portfolio developments

Corporate news

Managers and fees

Property news

QuotedData views

Recently published research notes

abrdn New Dawn

It has been another tough six months for abrdn New Dawn (ABD) as the Asia Pacific region has had to face new challenges from the Russo-Ukrainian conflict to China’s deadliest COVID-19 wave yet (the economic impacts of which have been made worse by Xi Jinping’s zero-COVID policy). This has only exacerbated headwinds already in place such as rising inflation. Manager James Thom believes the worst is behind us, but uncertainty and volatility remain. The trust itself has underperformed in the short-term but still boasts strong long-term numbers and, if a new dawn is indeed rising over the region, with India finally enjoying its reformation and the vaccine rollout (mostly) underway, now could be an attractive entry point. The trust is also trading on a 12.4% discount.

Montanaro UK Smaller Companies

Shares in the good-quality growing businesses favoured by Montanaro UK Smaller Companies (MTU) have experienced a sharp selloff since the beginning of 2022, when interest rates began to rise in response to rampant inflation. Manager Charles Montanaro is focused on picking stocks for the long term rather than trying to second-guess macroeconomic trends. He and his extensive team have a strong dialogue with the management of these companies. He observes that high-quality, well-managed small businesses with strong market positions and pricing power have been able to pass on additional costs and are better able to cope with supply chain disruptions. Charles believes that following the selloff, valuations are now the most attractive that they have been in many years. This could be a great opportunity for long-term investors.

GRIT Real Estate Income Group

African property company Grit Real Estate Income Group (Grit) has cleared a path for increased dividend distributions and net asset value (NAV) growth following a decisive piece of corporate action in the form of a heavily NAV dilutive capital raise. It has used the proceeds to bring its loan to value (LTV – borrowings plus cash as a percentage of portfolio valuation) under control and to expand its core business with the acquisition of a developer and asset manager.

The developer – Gateway Real Estate Africa (GREA) – has an attractive pipeline of NAV accretive development projects, most notably diplomatic residences across the continent let to the US government and data centres (see page 5 for an in-depth look at the development pipeline). Meanwhile, within its current portfolio, its hospitality assets are rebounding with the return of international travel, and retail valuations seem to have bottomed out – suggesting valuation growth in these sectors. Grit also has plans to ramp up exposure to the industrial sector, which is chronically undersupplied across Africa.

JPMorgan Japanese

A sharp selloff in the share prices of the types of high-quality, growing companies favoured by JPMorgan Japanese Investment Trust (JFJ) has meant that the trust has given back much of its recent outperformance. The selloff mimics those of other countries such as the US and UK, but Japan is not afflicted by the high inflation or the threat of rising interest rates that triggered the stock market falls in other countries.

JFJ’s managers are seeing opportunities to buy stocks that they favour on attractive valuations. They are also encouraged by the increasingly shareholder-friendly environment in the country; share buy backs and dividends are at record levels.

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
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, SUPR Carlos Hardenberg Mobius
25 February BSIF, CRS, DGI9, JEFI Ian Francis New City High Yield
4 March JRS, MCKS Thomas Moore Aberdeen Standard 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 GRID, HGEN, INPP, SUPR Yoojeong Oh abrdn Asian Income
22 April AEET, NESF, PHLL Viktor Szabó abrdn Latin American Income
29 April NBPE, VEIL Robert Guest Foresight Sustainable Forestry
6 May APAX, EPG, UKW, WKOF, WTAN, ACIC Gary Moglione Momentum Multi-Asset Value Trust
13 May BSIF, CAPC, RNEW, JLEN, LXI, SIR, SHB Richard Sem Pantheon Infrastructure
20 May HGEN, SMT James Thom Aberdeen New Dawn
27 May BSIF, UKW, GRID, HOME Paul Bridge Civitas Social Housing
10 June CHI, RII Craig Martin Vietnam Holding
17 June https://quoteddata.com/company/f00000vs8e/ BGHS, LTI, MTU Laura Elkin AEW UK REIT
24 June TI1, TEEC, SHED Pedro Gonzalez de Cosio BioPharma Credit
1 July AIE, CHRY Andrew Beal Schroder BSC Social Impact
Coming up
8 July GABI David Conlon GCP Asset-Backed Income
22 July GCP Philip Kent GCP Infrastructure
29 July IAT TBC Invesco Asia

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 – June 2022 median performance by sector

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