Miton Global Opportunities (LON:MIGO) is a highly unusual fund that aims to profit from pricing inefficiencies by buying investment trusts that are trading on wide discounts where there is a clear catalyst for them to narrow. It had a fantastic 2017 by investing in four of the ten best performing trusts in the market and has some interesting holdings that could generate significant upside in 2018.
Manager Nick Greenwood believes that the growth in the number of investment trusts that provide exposure to alternative assets has created additional opportunities for him to exploit. These sorts of assets are often harder to value with less frequently published net asset value (NAV) data, which creates the scope for mispricings, although there would need to be a catalyst for the discounts to narrow before he would invest.
Greenwood also thinks that the market for smaller investment trusts has become more illiquid as the consolidation of wealth managers has resulted in the more widespread adoption of minimum size restrictions. This lack of liquidity creates the ideal conditions for the sort of ‘special situations’ that he looks for.
2017 was a fantastic year for Greenwood as four of his largest holdings were among the ten top performing investment trusts on the market over the course of the twelve months. The funds in question were: Dunedin Enterprise (LON:DNE), a private equity fund that is in orderly liquidation; Phoenix Spree Deutschland (LON:PSDL), which provides exposure to residential property in Berlin; Baker Steel Resources (LON:BSRT), which invests in mining companies; and India Capital Growth (LON:IGC), which enables the fund to benefit from the growth prospects of the Indian stock market.
Baker Steel Resources is an interesting holding that highlights the sort of opportunities that Greenwood looks for. Its largest investment at just over a third of the £55 million fund is Polar Acquisition, a Siberian silver mine that could become one of the largest producers in the world, in which case it would dwarf the valuation of the whole Baker Steel fund.
Another significant investment is the position in the Alpha Real Trust (LON:ARTL). This real estate company has delivered strong returns, yet despite this its shares trade at a wide discount to NAV.
One of the more volatile holdings is the uranium focused investment trust, Geiger Counter (LON:GCL). Greenwood says that the uranium market has been in a perceived state of over supply since the nuclear accident at Fukushima in Japan in 2011, but recent cuts in production have prompted a sharp rise in the share prices of many uranium miners.
Macau Property Opportunities (LON:MPO) is equally obscure. It invests in the Macanese residential property market, which has massive potential, as the autonomous region is a huge entertainment centre that caters for the rest of China and beyond. Its shares rose 52% in 2017 but they are still available on a 26% discount to NAV.
MIGO shares are up 37% over 12 months and are trading on a small premium to NAV. If the benign market conditions continue the fund could deliver further strong returns.