Attractive entry level for specialist litigation fund Juridica Investments

The market often overreacts to bad news and where this is the case it can create a decent buying opportunity for long-term investors. A good example is the specialist litigation fund, Juridica Investments, which trades on the London Stock Exchange under the ticker JIL.

My colleague, Filipe R Costa, looked at the diversification benefits of litigation finance investments earlier in the year, but a recent fall in the share price of JIL has provided an opportunity to buy into this unique and uncorrelated type of exposure.

Juridica Investments is a closed ended investment company registered in Guernsey and listed on AIM. Its objective is to generate income and capital growth through direct investment in litigation and arbitration cases, claims and disputes.

The fund is managed by Juridica Capital Management, which employs a team of experienced lawyers whose main expertise is in business to business cases brought in America in areas such as intellectual property, contract disputes, antitrust, insurance, and shareholder disputes.

Juridica provides third-party funding to allow these cases to be resolved, but will only do so where there is a clear economic benefit that is likely to be settled in an acceptable timeframe. It leaves the management of the claims and the settlement decisions to the claim holders and their lawyers.

JIL was admitted to AIM in December 2007 and by the end of June 2015 it had generated net cash proceeds from settled claims of $222.5m from an initial investment of $167.7m. This represents a net return after tax of 33%. Total dividends paid to date amount to $98.8m, which is equivalent to 59p per share.

At the end of June the fair value of the remaining unsettled cases was $101m and there was a further $46.3m in cash and receivables. Added together these were equivalent to a net asset value (NAV) of 86 pence per share.

The Directors are confident that the portfolio will generate healthy returns for shareholders and has the potential to outperform its NAV. Despite this the shares currently trade at 68.5 pence, which represents a discount of 20%.

It is one poor result that has created the negative sentiment. A case that had generated gross proceeds of $89.7m on an investment of $26m lost a damages appeal and was refused the right to a review by the US Supreme Court. This resulted in a write-down of $29.7m in the value of the remaining portfolio when the half-year accounts were released on 19^th August.

The JIL share price will depend almost entirely on the outcome of the remaining cases and this makes Juridica one of the most uncorrelated investments that you can imagine. There is more information available on the fund’s website.