Investment Companies Roundup

Kindly sponsored by Baillie Gifford and Aberdeen Standard Investments

 Table of contents 

• New research
• In this issue
• 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 May:

GCP Infrastructure – Rebased dividend

“GCP Infrastructure will be 10 years old in a few weeks. The yield premium that GCP delivers relative to UK government debt securities has increased significantly over the past decade.”

India Capital Growth – Needs more Time

“India Capital Growth’s (IGC’s) board is asking investors to back a continuation vote scheduled for 12 June 2020 and it is important that shareholders make their vote count. We explain why the fund needs more time. When small and midcap valuations return to trading at long-term average valuations, IGC’s share price could improve meaningfully.”

Henderson High Income – Able to commit to the Dividend

“Recent market falls have left Henderson High Income Trust (HHI) trading on a 7.3% dividend yield. This is a significant premium to the yield on the UK market, which has been hit by a swathe of dividend cuts. We explain why HHI can maintain its quarterly dividend at 2.475p for the remainder of the year.”

JLEN Environmental Assets – Reliable source of income“

“For investors reliant on income, the renewable infrastructure sector offers some sense of security. JLEN Environmental Assets Group’s (JLEN’s) diverse portfolio and predictable long-term revenue stream provides some additional reassurance.”

Polar Capital Technology Trust – confidence building 

“After a brief period of extreme volatility in stock markets related to the coronavirus COVID-19 outbreak,confidence is returning in the technology sector. Polar Capital Technology Trust (PCT), buoyed by its strong track record, is attracting the attention it deserves. It has seen its discount eliminated.”

Vietnam Holding Limited – Early mover advantage

“Vietnam, which was quick and tenacious in its response to the outbreak of the virus, is a bright spot in these otherwise difficult times. With very supportive long-term structural growth drivers, now may be a good entry point.”

Aberdeen Standard European Logistics Income – Resilient to covid-19

“The logistics sector, in which Aberdeen Standard European Logistics Income (ASLI) invests, would appear to be one of the few property sectors that could see occupier demand increase in the long term  as a result of the coronavirus pandemic. With some form of a lockdown enforced in most European countries,  there has been a spike in ecommerce orders. A whole new group of people have been introduced to online retailing, which is expected to speed up penetration rates across Europe and reinforce long-term systemic changes in the logistics sector.”

 Performance data

The ongoing impact of stimulus and the easing in lockdowns reinforced the rally over May. Cyclical sectors that had been battered, particularly energy, catapulted back from historic lows. The median total share price return from investment companies was 3.1% (it was 8.5% in April) – year-to-date they are still down (14.5%).

We have included sector specific performance this month, shown in the tables below. Please refer to the ‘appendix‘ section for a comprehensive list.

Best performing sectors over May:

The growth capital sector has been the fourth-best performer this year, in share price terms (see ‘Appendix 1’). It provides access to unlisted, early, through to late-stage, technology and biotech companies. Japan’s relative success in navigating through the pandemic, and the significantly higher levels of cash held by corporates, has caught the eye of foreign investors. At the other end of the scale, there was no let-up for aircraft leasers, while private equity has not been participating in the rally (we discuss why in the following section).

Worst performing sectors over May:

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

On the positive side:

• Adoption of many of the ‘disruptive’ technologies Augmentum Fintech invests in, could speed-up as a result of the pandemic;
• Golden Prospect Precious Metals had another strong month, with increasing demand for gold;
• Biotech Growth’s shares are up over 50% since April – investors are hopeful its portfolio contains the company that will develop the vaccine, find the cure and/or alleviate the symptoms of COVID-19. The fact that Bernie Sanders will not be the next US President has lifted sentiment too. European stocks joined the party over May, delivering their best May returns since 2009;
• The restarting of economies and stimulus measures benefitted growth-focused funds like Montanaro European Smaller Companies and Baillie Gifford European Growth, in particular;
• The price of Brent Crude oil increased by over 80%, which was very good news for the two Riverstone funds (Riverstone Energy and Riverstone Credit Opportunities Income);
• Over half of Edinburgh Worldwide’s portfolio is invested in healthcare and technology, two of the most Covid-19 friendly sectors;
• Leasing fund, SQN Asset Finance Income, has been one of the worst performers since March, with many of its counterparties heavily impacted. Turning sentiment created a value opportunity, pushing the shares up nearly 50%; and
• The direct lender, VPC Specialty Lending, has been coping well – most of its lending is to US consumers. It says that requests for payment relief have been tailing-off.

On the negative side:

• NB Distressed wrote down its Exide Technologies investment;
• DP Aircraft 1 was forced to take equity in Norwegian Air Shuttle in place of its leases. The leasing sector has had by far the worst year so far (see ‘Appendix 1’). So long as aircraft remain grounded, the airlines will require ongoing state-support;
• The prospect of social distancing at universities next year will do little to entice new international students, hurting sentiment towards GCP Student Living and Empiric Student Property;
• May saw a 93% y-o-y decline in gaming revenues in Macau, pulling down Macau Property Opportunities’s NAV;
• Elsewhere, private equity funds have not been participating in the rally – the median total market return of the sector over the year-to-date to end-May was (23.7%), BMO Private Equity had the worst month. The pandemic will delay exits, with return expectations materially re-adjusted. Many PE-backed companies in Europe have not been able to access state support, as a result of their heavily geared capital structures. Crystal Amber’s discount widened;
• Majedie’s relatively higher weight in energy, compared to some of its global peers, has weighed on its performance; and
• JPMorgan Indian’s NAV and shares declined over May. India implemented one of the most stringent lockdowns and the economic legacy in India will be severe. Furthermore, the stimulus announced in May appears to be less helpful in boosting aggregate demand than had initially been hoped.

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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:

• Electra Private Equity’s shares increased by 43% over May – by far the sector’s best return, though it remains one of the worst performers over the year. The re-opening of TGI Fridays restaurants over the coming weeks, one of its two-main holdings, attracted buyers;
• CVC Credit Partners European Opportunities has not suspended dividends, like other debt funds;
• Growth Capital-sector fund, Merian Chrysalis, holds a number of tech-focused ‘disrupters;’ and
• Schroder UK Public Private has also been recovering ground of late, helped by its healthcare tilt and the placing of the stock held by Woodford’s open-ended funds.

Cheaper relative to NAV:

• Commercial property-focused Drum Income Plus REIT is  having a tough time – it reported a huge NAV decline for the first quarter;
• Henderson Euro’s discount spiked out briefly and has narrowed again in June;
• Brunner lost its well-liked manager;
• Somewhat peculiarly, North American Income’s discount widened to a post-pandemic period peak over May, before narrowing again. The fund’s dividend is fully covered and US equity income funds have not been hit to the same extent, as UK equivalents, by companies halting distributions; and
• Middlefield Canadian Income’s relatively high exposure to energy and real estate is largely behind its widening discount.

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 Money in and out

Fundraising highlights from the month:

Money coming in:

• Over £290m of net new money was raised, with Renewables Infrastructure Group’s £120m share issue, leading the way. This was another show of confidence towards renewables and the relative certainty of income the sector provides;
• Elsewhere, the money is going where the performance is. Scottish Mortgage’s soaring NAV attracted new investors;
• Worldwide Healthcare raised £70.9m through a series of issuances, with its diversified healthcare strategy (by sub-sector and geography) finding favour at a time where the sector is very much in favour; and
• A further seven funds raised £10m or more, led by  Polar Capital Technology and Edinburgh Worldwide.

Money going out:

• Pershing Square continues to make significant commitments to narrow its discount through buybacks; and
• Elsewhere, buybacks were led by Riverstone Energy, Fidelity China Special Situations, CVC Credit Partners European Opportunities and Alcentra European Floating Rate Income.

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 Major news stories

Portfolio developments:

• BMO UK High Income reflected on the challenges facing the UK equity income sector
• US Solar made its fifth purchase
• Merian Chrysalis has been coping well through its tech-enabled disrupter focus
• VPC Specialty Lending seemed to be coping fairly well
• We had final results from HICL Infrastructure with long-term demand for infrastructure likely to remain robust
• Schroder AsiaPacific sees anti-globalisation tide drawing strength from the pandemic
• BlackRock World Mining benefits as gold equities ‘caught-up’
• Scottish Mortgage continued to provide an effective shelter
• Aberdeen Asian Income benefitted from tech and Chinese consumption
• There was an update from DP Aircraft 1 following a conditional equity swap agreement with Norwegian Air Shuttle
• Polar Capital Global Financials said it would maintain an equivalent level dividend this year

Corporate news:

• India Capital Growth continuation vote – urgent video from the board to its shareholders. Also see: India Capital Growth wants time to recover
• SQN Secured Income board said vote against continuation
• Ecofin is growing again

Managers and fees:

• Marwyn Value Investors’ announced manager payday as discount languished
• RM Secured Lending cut its management fee
• Aberdeen New Thai’s board got tough after poor year

Property:

• Is a central London powerhouse REIT on the cards?
• British Land’s portfolio valuation plummeted 10.1%
• We looked at what was next for landlords in the battle with Travelodge
• Phoenix Spree Deutschland collected 98% of April rent as Germany eases restrictions
• Civitas Social Housing collected 99% of rent over March-end quarter

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 Income

The following funds announced their full year dividends in May (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:

• After the virus: Investing for the new normal – webinar – 9 June 2020
• Aberdeen New Thai AGM 2020, 23 June 2020
• NB Distressed Debt AGM 2020, 25 June 2020
• Dunedin Income Growth AGM 2020, 16 July 2020
• Polar Capital Technology AGM 2020, 2 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 – May performance by sector

 The legal bit

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June 2020 Investment Companies Roundup