Investment Companies Monthly Roundup
Kindly sponsored by Baillie Gifford and Aberdeen Standard Investments
Research published over February
Polar Capital Global Financials Trust – The tide has turned
Having played a supporting role in the initial phase of the stock market recovery – breaking historical precedent in the process – the share prices of financial stocks, and banks in particular, have come back sharply since November. Demand for its shares meant that Polar Capital Global Financials Trust’s (PCFT’s) premium rating was recently at its highest level in more than five years, paving the way for share issuances. Banks were well-capitalised going into the pandemic, so the much-milder-than-expected impact on loan defaults to date, coupled with the prospect of economies gradually re-opening, is shifting the discussion forward to the potential impact of pandemic stimulus on inflation, and ultimately increases in interest rates.
JLEN Environmental Assets – Increasingly diversified as green-led recovery looms
JLEN Environmental Assets (JLEN) holds the most diversified portfolio within its peer group. Today, it is asking shareholders to approve a broader definition of environmental assets as well as increased exposure to construction-stage investments. We think that JLEN’s premium, which is one of the highest within its group of competing funds, reflects the breadth of its asset mix and the accompanying high proportions of income from government-backed subsidies, which makes its income more predictable.
BB Biotech – Bold Brilliant biotech investor
Swiss-listed BB Biotech is the oldest-established, the largest and, over the longer term, one of the best-performing of the small group of closed-end funds that specialise in the biotech sector. It offers investors a vehicle to gain exposure to a focused portfolio of predominantly-US small-to-mid-cap biotech companies developing therapeutic products, with a strong bias towards cell, gene and particularly RNA-based technologies.
Grit Real Estate Income Group – On the path to recovery
Despite significant headwinds caused by the COVID-19 pandemic, Grit Real Estate Income Group (Grit)’s diverse portfolio has proved resilient, with rent collection rates of 91.4% and a slight recovery in property valuations. Buoyed by the performance of its offices (the group’s largest sector exposure), corporate accommodation and industrial portfolios, plus its consistently strong rent receipts, the group has reinstated its dividend (after suspending it at the height of the pandemic), albeit at a lower level.
Performance
Several commodity funds have started the year very strongly, with the sector leading total price returns over 2021 to date (see Appendix 1). A weaker dollar and Chinese demand for raw materials have been catalysts for this.
Rising long-term interest rates coupled with fears of inflation have dented the valuations of high-growth stocks. February saw technology-focused companies sell-off, for example. Gold, which ought to be an inflation hedge, seems to have been hit by rising rates (gold is hampered by not generating an income). UK assets (and the pound) continued to benefit from the positive sentiment effect of the strong vaccine rollout.
On balance, it was a good month for investment companies, February’s median total share price return was 0.7% (the average was 1.1%) which compares with a fall of 0.2% in January.
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.
Best performing sectors over February
Worst performing sectors over February
On the positive side
Golden Prospect was hit by the fall in the gold price. Scottish Mortgage was caught up in the technology sell-off. This affected some of the Japanese trusts too but the main problem seems to have been the strength of the pound. The yen tends to move in the opposite direction to long-dated US bond yields, which have been rising. A strong oil price meant that energy-focused resource strategies, headed by BlackRock Energy and Resources Income and CQS Natural Resources Growth and Income, continued their strong start to the year. There has been talk of a new commodity super-cycle taking shape, with a weaker dollar and rampant Chinese demand driving prices over February. Geiger Counter is a play on the uranium price. UK-focused companies are expected to benefit as a successful vaccine rollout quickens the pace of the economy re-opening. Aberforth Smaller Companies and Miton UK Microcap were among the main beneficiaries of flows into the sector over February.
Polar Capital Global Financials has been a major beneficiary from much-improved sentiment towards banking stocks, helped by rising long-term interest rates. Credit performance has held up much better than expected and it is now expected that banks across Western Europe and the US will move to re-instate dividend distributions over the coming weeks and months. Unlike in other sectors, the suspension of dividends was regulatory driven. KKV Secured Loan’s shares jumped following a major repayment by one of its borrowers of a loan that the fund had written off, paving the way for a capital return to its shareholders.
On the negative side
Discounts and premiums
More expensive and cheaper relative to NAV
FastForward Innovations’s shares surged following an announcement by one of its portfolio companies, Little Green Pharma, a supplier of medical cannabis oil. The catalysts behind the moves in BlackRock Energy and Resources Income and KKV Secured Loan were discussed in the ‘winners and losers’ section above, while Riverstone Credit Opportunities Income has also benefited from much-improved sentiment within energy markets. It makes loans to the energy sector.
Elsewhere, while Vietnam had a good month, VinaCapital Vietnam Opportunity’s discount widened as its shares did not match its NAV rise. Aurora’s discount is quite volatile. Mobius’s performance has improved recently but it is not too liquid and so relatively small trades can make its discount swing around. CIP Merchant Capital had been the subject of bid talk but this was withdrawn in February. The fund’s board had rejected an approach.
Money in and out
Money coming in and going out
There were two major IPOs over February, with Cordiant Digital Infrastructure and VH Global Sustainable Energy Opportunities raising over £600m between them. Cordiant Digital Infrastructure will make investments in digital infrastructure assets, with a predominant focus on data centres, mobile telecommunications/broadcast towers and fibre-optic network assets while VH Global Sustainable Energy Opportunities’s focus will be on energy infrastructure assets predominantly in countries that are members of the EU and part of the OECD.
Greencoat UK Wind’s £198m raise was used to reduce its gearing, but within days it had spent almost £100m on investments in two wind farms. SDCL Energy Efficiency Income has a number of projects in mind – its placing was scaled up from £100m to £160m. Hipgnosis Songs raised another £75m, though dollar weakness is weighing on its NAV and this may curtail its further fundraising ambitions for a while.
Returns of capital were led by CVC Credit Partners European Opportunities, Scottish Mortgage, Alliance Trust, Scottish Investment Trust, and Witan.
Major news stories over February
Portfolio developments
- There were strong returns for Mobius in its second year of operations
- Polar Capital Global Financials matched its benchmark in a transformational year
- JLEN Environmental expanded its remit
- Gresham House Energy Storage’s latest acquisition took its operational portfolio to 395MW
- Round Hill Music proceeded with its pipeline purchase
- BlackRock Throgmorton had an excellent year
- Syncona backed Quell financing
- TRIG’s diversity in technology and geography was a source of strength over 2020
- Riverstone Credit bucked the poor energy market over 2020
- Aberdeen Emerging Markets benefitted from strong fund selection
Corporate news
- Cordiant Digital raised £370m
- NextEnergy Renewables published its prospectus
- Greencoat UK Wind launched a £198m institutional placing
- KKV Secured Loan secured an exit and an NAV uplift
- Jupiter UK Growth published its reconstruction and wind up proposals
- Blackrock Frontiers is set to shrink
Managers and fees
Property news
- RDI REIT was the subject of a £467.9m takeover approach
- West End landlord Shaftesbury reported grim rent collection rates
- Civitas Social Housing agreed a new debt facility
- Urban Logistics REIT announced six logistics acquisitions for £28m
- Tritax EuroBox looked to raise €200m
QuotedData views
- More REIT M&A to come? – 26 February
- The rewards of truly patient capital – 26 February
- EuroBox raise hits the sweet spot – 19 February
- Resurgent emergence – 19 February
- From infectious enthusiasm to IPO fever? – 12 February
- Cheers to the property dividend hikes – 12 February
- Property tinkermen worth their weight in gold – 5 February
- Something new to get your digits on – 5 February
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:
- Ecofin Global Utilities and Infrastructure AGM 2021, 9 March
- Standard Life Private Equity AGM 2021, 23 March
- Strategic Equity Capital EGM 2021, 30 March
- Brunner AGM 2021, 30 March
- Herald AGM 2021, 20 April
- Greencoat UK Wind AGM 2021, 28 April
- Apax Global Alpha AGM 2021, 4 May
- The London Investor Show, 23 April
- Sustainable & Social Investing Conference, 21 May
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.
6 November | RSE, LBOW, SONG, VIN | Michael Bonte-Friedheim | NextEnergy Solar |
13 November | RHM, VGEO, SHED, RDI | Roger Clarke | IPSX Group |
20 November | THRG, MTE, UKML | Fran Radano | North American Income Trust |
27 November | SBO, NAVF, CCJI | Nicholas Weindling | JPMorgan Japanese |
4 December | PCFT, IVI, GPM | Denis Jackson & James Henderson | Law Debenture |
11 December | KIT, JUS, RTW | Steve Cook | Sequoia Economic Infrastructure |
8 January | Review of 2020 | Andrew McHattie | Review of 2020 |
15 January | GVP, SUPP, SBO | James Robson | RM Secured Lending |
22 January | SONG, JGC, RMMC | Adam Khanbhai | Strategic Equity Capital |
29 January | SLPE, FSFL, RSE | Philip Kent | GCP Infrastructure |
5 February | RHM, IPOs | Dean Orrico | Middlefield Canadian Income |
12 February | RTW, UKW, SEC, GVP | Alan Gauld | Standard Life Private Equity Trust |
19 February | JLEN, KKV, BH Global, EBOX/BOXE | Matthew Tillett | The Brunner Investment Trust |
26 February | LWDB, TIGT, BRFI, RDI | Nalaka De Silva | Aberdeen Diversified Inc. & Growth |
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 – February median performance by sector
The legal bit
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