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Investment Companies Quarterly Roundup

Kindly sponsored by Baillie Gifford

 New research

Over the third quarter, we published notes on India Capital Growth, Jupiter Emerging & Frontier Income, Montanaro European Smaller Companies, JLEN Environmental Assets, Civitas Social Housing, JPMorgan Russian Securities, International Biotechnology Trust, Aberdeen Emerging Markets, Seneca Global Income & Growth, Standard Life Investments Property Income and Strategic Equity Capital. We also launched a monthly roundup on the real estate sector. You can read all these notes by clicking on the links above or by visiting www.quoteddata.com.

 In this issue

  • Performance data – There was palpable shift in sentiment over the third quarter with the cautionary undertone perhaps best reflected by gold’s resurgence. Ongoing trade jockeying between the US and China did not help the mood and neither did the Argentine debt default in August. At the real economy level, manufacturing output has been trending lower across some of the major global economies. Demand for safe-haven exposure drove up the price of gold, which benefitted Golden Prospect Precious Metals and UIL;
  • Money in and out – Fundraising over the summer period was quiet. There was one new issue with JPMorgan launching Global Core Real Assets, raising £148.9m;
  • Discounts/premiums – Doric Nimrod Air Three’s share price was quite volatile over August and September, much more so than its sister funds. It might be that a large shareholder is looking to exit;
  • Major news stories – Woodford Patient Capital reported results. Earlier in the quarter, WPCT slashed its NAV on write downs. Elsewhere, We had inaugural results from Ashoka India Equity and US Solar.

 Performance data

Q3’s biggest movers in price and NAV terms are shown in the charts below.

 Looking first at the positive moves

  • CATCo Reinsurance Opportunities was the standout, delivering a 54.9% cumulative price return. It has been returning capital to shareholders as part of a wind down of the fund, following extreme hurricane claims.
  • Gold found a new lease of life over recent months as a safe haven. This helped Golden Prospect’s NAV and share price. UIL similarly benefitted with gold-related investments accounting for close to 20% of its portfolio.
  • Triple Point Social Housing’s share increase reflected a tempering in concerns over the Regulator of Social Housing’s take on the lease-based business model.
  • The Doric Nimrod aircraft leasing funds NAVs were all up. The dust has settled somewhat after Airbus announced plans earlier this year to cull production of A380s.
  • Bill Ackman’s Pershing Square has benefitted from the ongoing strength of its second largest holding, the fast-casual restaurant company Chipotle Mexican Grill. Chipotle’s shares are up by over 80% over the past year.
  • Ecofin Global Utilities & Infrastructure had another good quarter. Since its launch nearly three years ago, Ecofin’s discount has remained stubbornly high (in the 10-15% range) despite solid performance and reliable income.
  • VietNam Holding’s NAV increased by 11.7% over Q3. The Vietnamese stock market has performed strongly over the year-to-date and it is worth noting that in the wake of the US / China trade war, Vietnamese exports to the US are up substantially.

 On the negative side

The crisis continued at Woodford Investment Management over the third quarter; elsewhere cyclical sectors, notably commodities, struggled.

  • Woodford Patient Capital’s (WPCT) NAV was down after it wrote down values of some of its holdings, while the shares continued to fall. In its half-year results release, WPCT’s board said it was continuing to evaluate the position of the manager and remains in dialogue with other potential managers.
  • Adamas Finance Asia’s sharp price saw its discount widen to 65.9% – making it the second cheapest company behind Dolphin Capital in the sector (counting market caps above £15m). Some of the reasons behind this are thought to include relatively low transparency from the fund, its track record, an overly concentrated portfolio and the presence of a dominant shareholder (reducing liquidity in the shares).
  • Riverstone Energy announced a 26% drop in its NAV over August and its shares moved to trading on a 35% discount.
  • Lindsell Train shed nearly 29% in price terms, as its premium to NAV continued to narrow after its warning on the risks of buying at rich premiums. The re-pricing followed manager Nick Train’s warning in the June annual report, over the risk of buying the fund at the more than 90% premium it previously traded at.
  • Macau Property Opportunities’s discount has widened as sentiment towards the VIP gaming market, which is closely linked to high-end property, has soured. Property speculation cooling measures and tighter capital controls have significantly impinged on high-end transaction volumes.
  • After performing well over the first two quarters, Latin American funds struggled in August, with Brazil’s fires and an Argentine default weighing on BlackRock Latin American.
  • Hadrian’s Wall Secured, which specialises in commercial loans to small and medium-sized businesses, saw its price fall by 15.1% despite a 1.4% increase in the NAV. was down 13.7% in price terms. The reaction is thought to have been a knock-on from provisions the fund made in May (the provision then was 1.9% of NAV) against two loans to companies producing wood pellets. Some of the reaction can also be ascribed to nervousness around the sector, following Funding Circle’s decision to wind up earlier in the year.

 Discounts and premiums

Discounts widened over the third quarter as the market removed capital from riskier asset classes. They have widened over a 12 month horizon too. The table below shows the top 10 movers in either direction over quarter (more or less expensive relative to NAV), in order of most expensive to least expensive.

 Getting more expensive

  • CATCo’s discount narrowed after peaking at around 50% – the shares traded at a 20+% premium as recently as December 2017.
  • We touched on UIL and Triple Point Social Housing in the performance section. UIL is one of the last remaining split-capital trusts.
  • Globalworth Real Estate describes itself as a leading office investor in Central and Eastern Europe. The company has been actively expanding, notably completing acquisitions for two buildings in Poland worth €113.2m in July.

 Getting cheaper

 Money flows

 Money in

  • JPMorgan Global Core Real Assets is targeting the infrastructure, transport and real estate sectors, and is aiming for total annual returns in the 7-9% range.
  • Elsewhere, Merian Chrysalis led the way with a £175m placing. Sequoia Economic Infrastructure, raised £138.8m through a placing of its own, lifting the shares on the back of some of the firmest trading volumes the shares have seen. Target Healthcare REIT also came to market with a placing, raising £80m.
  • The largest raise in August was Hipgnosis Songs’s £51.1m placing (the original target was £72m), reflecting the holiday period pause.

 Money out

  • NB Global Floating Rate Income is a regular feature in the table. Elsewhere, Edinburgh Investment continued to buyback, leading to its discount narrowing. The discount had earlier been widening since April, despite buybacks.
  • Pershing Square has embarked on a major buyback programme. Leaf Clean Energy was the other company to return more than £50m.

 Major news stories over Q3

Portfolio developments: 

Corporate news: 

Property news: 

Managers and fees: 


Have you checked out the Events section of our website? Here is a selection of what’s coming up.

 The legal bit

This note was prepared by Marten & Co (which is authorised and regulated by the Financial Conduct Authority).

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