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

 New research

Here is a list of research we published over February:

An initiation note on Montanaro UK Smaller Companies Trust (MTU)

“Following the return of Charles Montanaro as manager in 2016, Montanaro UK Smaller Companies Trust (MTU) has rebuilt its long-term record of outperformance of its benchmark over the last three and a half years. Click here to read our initiation note.”

An annual overview note on Aberdeen Emerging Markets (AEMC)

“In our annual overview note on Aberdeen Emerging Markets (AEMC), we explore the driving forces behind strong performance in 2019 and how the fund has managed to deliver a much lower volatility of returns compared to its peers and its benchmark.”

An update note on Polar Capital Global Financials

“From launch to end December 2019, PCFT has delivered strong risk-adjusted returns, well ahead of UK-listed banks. As it moves to extend the life of the trust, the board has thought about how it can improve on the original structure and made a number of changes, including a five-yearly tender offer. We explore these themes in our latest note.”

An annual overview note on Aberdeen New Dawn

“Aberdeen New Dawn (ABD) provided peer-group beating performance during 2019 (an NAV total return of 18.4% versus a peer group average of 15.2%). Despite this, and also despite offering one of the lowest ongoing charges ratios amongst its peers, its discount remains peculiarly, one of the widest in the Asia Pacific sector.”

 In this issue

• Performance – If the market’s initial reaction to the outbreak of Coronavirus (Covid-19) was somewhat indifferent, the virus’s passage beyond China (and its rapid spread in Italy and Iran specifically) facilitated some of the biggest negative moves in risk assets since the global financial crisis. Over February, this was predominantly driven by sentiment, with median share prices (7.8%) declining more than median total return NAVs (1.3%). Japanese smaller companies, led by Baillie Gifford Shin Nippon, Atlantis Japan Growth and CC Japan Income & Growth were among the worst performers. With industrial activity in China grinding to a halt, money was taken out of commodity funds, led by Riverstone Energy and CQS Natural Resources G&I. Split-capital trusts such as Acorn Income, Aberforth Split Level Income and Chelverton UK Dividend were hit by the change sentiment, as was the UK smaller companies sector;
• Discounts/premiums – Syncona is back to a premium above 20%. Hadrian’s Wall Secured’s board recommended a managed wind-down while Chenavari Capital Solutions continues the process of realising its portfolio. Bluefield Solar’s shares led performance in the renewable energy sector while Lindsell Train fell to a discount for the first time in 10 years. Standard Life Private Equity’s and Dunedin Enterprise’s discount widening were share price led, reflecting wider views on private equity.
• Money in and out – We welcomed Nippon Active Value, which got off the ground with a £103m launch (it was targeting £200m). About £580m of net new money was raised, the bulk of which came from Sequoia Economic Infrastructure’s oversubscribed share issuance (it was targeting £250m). The issuance likely benefitted from the reversal in sentiment, attracting the flow of capital to an established yield-focused strategy.
• Major news stories – Pollen Street Secured Lending was the subject of a £675m takeover bid and fell out with its manager while Bluefield Solar said the impact of lower power prices was cushioned by fixed prices locked in 2018. Elsewhere, Amedeo Air Four Plus completed the sale of two A380s to Etihad for a net £130.9m.

 Performance data

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

On the negative side:

• An 11.2% increase in Weiss Korea Opportunity’s NAV made no difference to the share price move (down (9.8%);
• Within Asia, South Korea has the most infections after China. Japanese smaller companies, led by Baillie Gifford Shin Nippon, Atlantis Japan Growth and CC Japan Income & Growth were among the worst performers;
• With industrial activity in China grinding to a halt, money was taken out of commodity funds, led by Riverstone Energy and CQS Natural Resources G&I; and
• Away from Asia and energy, split-capital trusts such as Acorn Income, Aberforth Split Level Income and Chelverton UK Dividend were hit by the change sentiment, as was the UK smaller companies sector, where the median total NAV return was (9.1%).

On the positive side:

• Paradoxically, China-specialists JPMorgan China Growth and Income and Fidelity China Special Situations had relatively good months;
• Away from the melee, a handful of companies performed well. In healthcare and biotech, Syncona’s Freeline investment reported some promising trial results while recently launched RTW Venture had its second successive solid month; and
• Elsewhere, the late-stage private company investor Schiehallion benefitted from some positive sentiment and Pershing Square’s concentrated portfolio of US equities had good months (though the market did not respond in kind).

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 Discounts and premiums

The table below shows the top five movers in either direction (more or less expensive relative to NAV):

More expensive relative to NAV:

• Syncona is back to a premium above 20%. Over the past year the shares have not performed well for reasons that include the forced selling by former Woodford fund’s forced selling of Autolus (Syncona’s largest holding). Syncona is siting on a very large cash pile it can funnel to its existing portfolio and new life sciences investments;
• Hadrian’s Wall Secured’s board recommended a managed wind-down while Chenavari Capital Solutions continues the process of realising its portfolio; and
• Bluefield Solar’s shares led performance in the renewable energy sector, pushing up its premium back up. The company’s annual results were well received, allaying concerns arising from a broker report in January on the long-term outlook for power prices in the UK.

Cheaper relative to NAV:

• Lindsell Train fell to a discount for the first time in 10 years. This is mainly thought to reflect idiosyncratic concerns regarding its stake in the business of its manager, Lindsell Train Limited, which accounts for about half of the trust’s assets;
• Standard Life Private Equity’s and Dunedin Enterprise’s discount widening were share price led, reflecting wider views on private equity; and
• We discussed Weiss Korea Opportunity in the ‘winners and losers’ section while Gresham House Strategic’s shares fell in line with the UK smaller companies sector, though the trust fared better in relative NAV terms. Poorer market sentiment may have reflected the private equity approach it adopts.

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 Money in and out

Fundraising highlights from the month:

Money coming in:

• We welcomed Nippon Active Value, which got off the ground with a £103m launch (it was targeting £200m);
• About £580m of net new money was raised, the bulk of which came from Sequoia Economic Infrastructure’s oversubscribed share issuance (it was targeting £250m). The issuance likely benefitted from the reversal in sentiment, attracting the flow of capital to an established yield-focused strategy;
• Global Sustainable Farmland Income delayed its IPO due to the volatility in markets; and
• Elsewhere, Bankers, Smithson and Personal Assets took advantage of their premium to NAV valuations to grow the funds.

Money going out:

• CVC Credit Partners European Opportunities tendered shares, returning £80.1m;
• Baillie Gifford European Growth also tendered shares representing up to 10% of its share capital;
• Scottish Mortgage has been buying back shares as part of its policy of keeping the NAV and share price as close together as they can; and
• Pershing Square and NB Global Floating Rate Income GBP regularly feature in this section.

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 Major news stories

Portfolio developments:

• Greencoat UK Wind said says power generation was behind budget in 2019 while earnings were also impacted by falling power prices. Greencoat UK Wind also bought Slieve Divena II wind farm
• Bluefield Solar said the impact of lower power prices was cushioned by fixed prices locked in 2018
• Renewables Infrastructure Group said its portfolio generating capacity increased 50% to 1,664MW over 2019
• Amedeo Air Four Plus completed the sale of two A380s to Etihad for a net £130.9m
• JZ Capital Partners updated on its real estate write-downs
• BB Healthcare is expanding rapidly with its shares in issue expanding by the shares in issue increased by 36% over its year to November 2019
• Syncona’s Freeline trials showed encouragement
• AVI Japan Opportunity had a good 2019, its first full year
• There was strong demand for BlackRock North American in another strong year for US equities
• Scottish American extended its good run
• EPE Special Opportunities delivered excellent results in what was a recovery year for the private equity company
• Hg Capital invested in smartTrade Technologies
• Aberdeen Emerging had a good year, led by Asia

Corporate news:

• Nippon Active Value IPOed with a £103m raise
• DRI Healthcare said it was seeking to raise US$350m for healthcare royalties investment. The IPO has been delayed due as a result of volatile markets
• JPMorgan American shook up its gearing
• BlackRock World Mining dropped coal from its remit
• Global Sustainable Farmland Income extended its IPO timetable as covid-19 hit broader sentiment. We covered the company in more detail (click here) earlier in the month as well
• Pollen Street Secured Lending was the subject of a £675m takeover bid and fell out with its manager
• Hadrian’s Wall Secured Investments’s board recommended a managed wind-down
• Sequoia Economic Infrastructure Income said it was targeting £250m in an equity raise. It ultimately raised £300m
• Hipgnosis merged its C shares
• Following meetings with major shareholders, Polar Capital Global Financials said a majority expressed a desire for the company to continue beyond its seven-year fixed life in May 2020
• There was a surprise oversubscribe for Baillie Gifford’s European tender, as part of the process of it taking on the management contract of European  Investment

Managers and fees:

• JLEN Environmental Assets announced a restructuring in its management arrangement and a placing proposal
• Jupiter UK Growth announced Merian’s Richard Buxton as lead manager

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 Income

The following funds announced their full year dividends in February (please refer to the attached PDF document for a list of the notes around the numbers):

 Events

Here is a selection of upcoming events:

• CC Japan Income & Growth AGM 2020, 10 March 2020
• Blackrock Energy And Resources Income AGM 2020, 17 March 2020
• Henderson Opportunities AGM 2020, 19 March 2020
• BlackRock North American AGM 2020, 20 March 2020
• BB Healthcare AGM 2020, 23 March 2020
• BlackRock Throgmorton AGM 2020, 25 March 2020
• Independent Investment Trust AGM 2020, 26 March 2020
• AVI Japan Opportunity AGM 2020, 26 March 2020
• Master Investor – the UKs largest private investor show, 28 March 2020
• Smithson AGM 2020, 30 March 2020
• Temple Bar AGM 2020, 30 March 2020
• Brunner AGM 2020, 1 April 2020
• Scottish American AGM 2020, 2 April 2020
• Aberdeen Emerging AGM 2020. 21 April 2020
• Premier Global Infrastructure AGM 2020, 22 April 2020
• Mobius AGM 2020, 23 April 2020
• UK Investor Show, 25 April 2020
• Greencoat UK Wind AGM 2020, 30 April 2020
• BlackRock World Mining AGM 2020, 30 April 2020
• Riverstone Credit Opportunities Income AGM 2020, 21 May 2020
• Polar Capital Technology AGM 2020, 2 September 2020

Master Investor – the UKs largest private investor show – 28 March 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.

 The legal bit

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

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