Investment Trusts-some thoughts

3rd Nov '23 by Charles Mitchell

299 comments 11247 reads

I am just about over the terrible deal the board of Arix Bioscience (LON:ARIX) did with RTW Biotech Opportunities (LON:RTW) . Shareholders were not given a great deal- one shareholder got cash and all because it was an asset sale not a takeover. To be fair despite being less than happy about the outcome of the strategic review I see the Chairman of Arix has been buying shares- 100,000 over the last couple of days. If you want to invest in Biotech, buying Arix is a cheap way in to RTW Bio. And I read corporate broker Peel Hunt has stated the deal is not great for Arix shareholders maybe there could be ...

Lesson is beware an activist fund who bought from a distressed seller and was not really interested in biotech.

India Capital Growth Fund (LON:IGC) had a good week. Had a great performance and although India seems to look expensive, it always does. Huge market and as a holder fairly sure it will continue do well. they have underpinned this with a share buy back up until the end of the year so the discount should remain tight.

VietNam Holding (LON:VNH) in contrast has had a tough week or so. I dis sell a few as signs were the market was going to have a correction, but still one of my larger holdings. Once the status of the stock market changes to enable more investment firms to buy shares in Vietnamese companies - it hopes to be in the emerging market classification in 2025 (currently frontier) I am hoping to see a significant re-rating. As it is the economy is growing- it is just one of those markets where the index will swing around as there is a largish retail investor base. There are issues with governance and control in the economy, but signs are these are being sorted.

TR Property Investment Trust (LON:TRY) . I have known about this fund for 40 years. Started buying for my wife's Isa on a monthly investment plan. The managers know what they are doing and in my opinion a relatively risk free way to get exposure to a broad range of property assets in the Uk and abroad.

Watched a presentation byMerchants Trust (LON:MRCH) . Another fund been around for a long time. In my opinion…

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ken mitchell

29th Jan

It wasn’t about using profits to repurchase shares but the measuring of net realised gains against historical cost price and not NAV. I’m probably being a bit dim but can’t work out whether “against the cost price rather than NAV” is advantageous for shareholders or not.

The buybacks are a separate point I wasn’t asking about.

donald pond

I think it is advantageous. Because in most cases the current NAV is ahead of the initial purchase price. So if they bought for 100, now value it at 150 and sell for 170, there is a net realised gain of 70, rather than 20, available for returning to shareholders. Whether buybacks is the best way to do it is another thing.

M48

Linking this thread up with the SCVR, there's something interesting happening I think at Oryx International Growth Fund (LON:OIG. If my facts are right, it's the IT with the best 10 year total return record in the UK smaller company space - yet, it trades at one of the biggest discounts close to 30%. Spread is horrible, and I'm not a diehard fan of Christopher Mills when it comes to the governance of some of Harwood's ITs (they seem to be run for him rather than the shareholder group as a whole). There seem to be some big sell trades going through. What I can't figure is why the price isn't falling further, so my hunch is a position is being filled for a buyer - possibly North Atlantic Smaller Companies Investment Trust (LON:NAS). Who knows. When the selling stops, if it stops, I think it could rerate because the discounts on other UK small cap IT's seem to have narrowed somewhat. Interested in others thoughts.

Lincs

CHRY vs Revolution Beauty - legal challenge to recoup some of 90% loss, muddying the waters a little

http://tinyurl.com/muf348wr

Charles Mitchell

M48 Not really looked at it- Harwood own 52% . I see NAS is on a pretty large discount. Why do you think NAS are buying ?

Partly because as you say North Atlantic Smaller Companies Investment Trust (LON:NAS) already hold a chunk, they know best what they are buying (there's a small amount of unlisted stuff in there), and they're supposedly getting the underlying assets at discount. Partly because I can't think who else would want a biggish position in something controlled by someone else. And partly because I think Christopher Mills himself manages both trusts, one is smaller than the other, they seem to do similar stuff (a fair bit of life science) so maybe there's a natural fit. All conjecture on my part, I'm just trying to figure why the price is not dropping further with all the apparent selling.

30th Jan

Could be, neither trusts interest me though.

KevinS1

31st Jan

I did a bit of work across Rockwood Strategic (LON:RKW) Strategic Equity Capital (LON:SEC) Odyssean Investment Trust (LON:OIT) & North Atlantic Smaller Companies Investment Trust (LON:NAS) over the weekend looking to see if any of them were a potential buy or top-up into a more meaningful holding.

They are all from the Harwood stable (with the exception of SEC) and all seem to follow a pretty concentrated approach, with direct action/influence with the boards of the companies they hold - often taking board positions to influence the companies recovery/direction.

Interestingly there is little (if any) crossover between holdings, and all have very concentrated PF with 88%/73%/59%/62% of the PF in the top-10 holdings.

Their discounts/premiums are also similar although North Atlantic Smaller Companies Investment Trust (LON:NAS) is on a 30% discount vs +1%/-6%/+1% for the others.

North Atlantic Smaller Companies Investment Trust (LON:NAS) also has holdings in Oryx International Growth Fund (LON:OIG) and Odyssean Investment Trust (LON:OIT) which is interesting and is obviously a play across the Harwood stable. Also 15% of it is in US Treasury Bills (largest holding) and also a holding in Harwood Capital itself.

Rockwood Strategic (LON:RKW) has had an excellent 12mths with a number of offers for its key holdings which has helped its performance, so now might not be the time to buy into it as it looks to start some newer holdings - but equally it might have further offers across its PF. There are though a couple of holdings that continue to produce poor results and are showing little signs off turnaround.

Odyssean Investment Trust (LON:OIT) had a great couple of years through until early-2023 and if I remember correctly may have been one of the top performing IT's recently.

I need to do some more work to understand why North Atlantic Smaller Companies Investment Trust (LON:NAS) discount is so out of kilter with the others, but this could prove to be a good time to buy. There are some community favourites in there; EKF Diagnostics Holdings (LON:EKF) Hargreaves Services (LON:HSP) Polar Capital Holdings (LON:POLR) MJ GLEESON (LON:GLE) etc.

I would welcome other peoples thoughts & views.

For completeness I already hold very small positions in Strategic Equity Capital (LON:SEC) Odyssean Investment Trust (LON:OIT) North Atlantic Smaller Companies Investment Trust (LON:NAS)

This weekends Money Makers had an interview with the Rockwood Strategic (LON:RKW) Manager, Richard Staveley which I wasn't aware of until after I had ben looking at all of the above.

I think one reason for the North Atlantic Smaller Companies Investment Trust (LON:NAS) discount is it has some unlisted private equity type holdings and even much bigger ITs with unlisted’s been hit in the recent past. Although if you listen to Christopher Mills on interviews, he’s argued they are not in high valuation high tech companies, they are in more boring defensive businesses - I’ve never followed through to prove what he’s said mind. In past interviews (I recollect one with PIWorld 18 months or so ago) he also said he thought the discount was not helped by long term holders selling to take some gains off the table. Worth a google search for recent interviews to see what you think maybe.

The variation in the premium/discount in the small cap IT space is quite stark. Beyond the Harwood crowd, you also have the Downing, River & Mercantile and Miton ones and I’ve watched those discounts move a lot over the last couple of years. Have to tread carefully I think.

The longer I do this, the more I realise that the only thing that really matters is supply and demand. For whatever reason, there is and never has been (since I've been watching at least) any "buzz" about North Atlantic Smaller Companies Investment Trust (LON:NAS) . The combination of a huge discount, a drop of 30% since peak, a notionally very wide spread and a lack of liquidity really puts off a large sector of the investing market. A number of the investments it has held, such as EKF Diagnostics Holdings (LON:EKF) and Renalytix (LON:RENX) have also proved to be poor, and when you run a concentrated fund something like RENX that is down 99% from its peak can cause a lot of damage, to both NAV and reputation. Also, holding a big chunk of Oryx International Growth Fund (LON:OIG) isn't a great look, it does create a risk of double fees for brand Mills. All of which must drive away a lot of institutions or IFAs, who would prefer a simple, no questions asked smaller company fund run by an established house.

c038644

Ken, Thanks from me as well. I have been playing with individual UK shares for a long time, but now I need something less risky as I am starting junior ISA's for my children. I currently don't know a lot about investment trust so will follow your AIC link with great interest.

Agree 100%. But to get something from an established house, you’re probably more looking to the mid cap space, or something that straddles the small/mid cap I think.

Very true, and many "small cap" funds are focussed on stuff that feels more "mid cap" to me. Henderson Smaller Companies Investment Trust (LON:HSL) for example is mainly in stocks in the £1-5bn area. Presumably that is driven by liquidity requirements, but if you are focussed on UK companies I'm not sure Bellway (LON:BWY) or Balfour Beatty (LON:BBY) are likely to offer the sort of high growth potential people hope to be getting from small cap exposure

New article from the manager of BlackRock Frontiers Investment Trust (LON:BRFI) https://www.blackrock.com/uk/s...

OldSchool05

Hi Donald,

I've been trying to research where to find the look through proportion that Chrysalis Investments (LON:CHRY) owns in each of the investments. E.g. it now carries Klarna at £93.2 million on its books, but do we know what proportion of Klarna it owns? I assume that's the sort of guesswork that we have to do ourselves as each shareholder will be taking their own view (short of a disclosed fund raising round or IPO etc)?

You would need to do some sums. When the valuation of Klarna was reduced to $15bn it was said by CityWire it would reduce NAV by 9.5%

"Chrysalis Investments (CHRY) faces another 9.5% knock to its asset value and further calls to reform its excessive performance fee after reports that Klarna, the Swedish credit company that is its second biggest holding, was raising money at a third of the valuation of its previous funding round a year ago."

I must be one of the few who is not totally convinced by Klarna.

I think Affirm Holdings (NSQ:AFRM) is the closest comparison to Klarna and it has been doing very well in the US recently. But I'd like to see Klarna off the books while the markets are buoyant.

New Discussion Feb 2024 just published https://www.stockopedia.com/co...

Includes Top 10 / Bottom 10 performances and Links to certain sites. Any errors/Ideas please let me know.

For you or anyone else unfamiliar with Investment Trusts here’s a bit of info and suggestions which might help get you started.

1. The AIC website (it’s the trade body for Investment Trusts) is excellent. This link takes you to a very useful page there:-

https://www.theaic.co.uk/aic/f...

Click on the arrow on the “AIC sectors” heading to bring up every sector in alphabetical order.

New investors could perhaps start with a small portfolio of, say, 5 Investment Trusts from these 5 easy to get to grips with sectors:-

1. COUNTRY SPECIALIST.

https://www.theaic.co.uk/aic/f...This link takes you to the Country Specialist Trusts.

Either VinaCapital Vietnam Opportunity Fund (LON:VOF) on 19% discount to NAV at 455p compared with NAV of 562p or VietNam Holding (LON:VNH) 337p on a smaller 7% discount. I prefer VinaCapital Vietnam Opportunity Fund (LON:VOF) despite recent underperformance compared with VietNam Holding (LON:VNH) but hold both.

Look no further than the monthly reports from the Managers like this one from VinaCapital Vietnam Opportunity Fund (LON:VOF) on 17th Jan for why and others are so keen on Vietnam. Here it is:-

https://www.theaic.co.uk/compa...this link brings up this latest monthly report.

2. GLOBAL.

https://www.theaic.co.uk/aic/f...for all the GLOBAL Trusts.

Perhaps Monks Investment Trust (LON:MNKS) £10.58 and 12% discount or Scottish Mortgage Investment Trust (LON:SMT) £7.84 and 10% discount. It used to trade at a big premium to NAV.

When selecting choices check out performance figures and Results statements ,any research comment etc and also top 10 holdings.. I prefer Trusts with more concentrated portfolios.

3. GLOBAL EMERGING MARKETS.

https://www.theaic.co.uk/aic/f...for all the Global Emerging Trusts.

Emerging Markets have had a long spell of underperformance. That could change soon.

e.g BlackRock Frontiers Investment Trust (LON:BRFI) £1.46 and 6% discount or JPmorgan Emerging Markets Investment Trust (LON:JMG) £1.07 and 10% discount or Utilico Emerging Markets Trust (LON:UEM) £2.29 and 14% discount. UEM invest mainly in utilities and infrastructure.

4. UK ALL COMPANIES.

https://www.theaic.co.uk/aic/f...plenty in this sector too!

e.g JPMorgan Mid Cap Investment Trust (LON:JMF) £9.40 and 13% discount. Plenty of alternatives!

5. UK EQUITY INCOME.

https://www.theaic.co.uk/aic/f...Plenty in this sector too. Ditto UK SMALLER COMPANIES SECTOR if that tempts or as an alternative to EQUITY INCOME.

e.g BlackRock Frontiers Investment Trust (LON:BRFI) £1.86 and 12% discount ….and again plenty of alternatives too.

jmallin1972

unbelievable helpful post and links. Thanks Charles

Investment Trusts-some thoughts

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Charles Mitchell

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