At the height of the crisis many investment trusts were marked down indiscriminately thereby creating the perfect hunting ground for funds like Miton Global Opportunities.
Miton Global Opportunities (LON:MIGO) aims to exploit the pricing of investment trusts by buying when they are overlooked or out of favour and trading at an unjustifiably wide discount. Where there is a catalyst for change the fund can then benefit from a pickup in performance and a narrowing of the discount.
MIGO has built up a diversified portfolio that tends to generate relatively uncorrelated returns compared to the mainstream indices, yet it was badly affected during the market crash, with the NAV falling 27% in the first quarter. This was due to the fact that the investment trusts in which it invests suffered the double whammy of lower NAVs and widening discounts.
Part of the loss has since been clawed back, but the shares are still down around 17% year-to-date with many of the underlying holdings trading on wide discounts. These sorts of market dislocations don’t normally last for long and when they unwind they can result in strong returns, as was the case for the fund in 2009.
Opportunities in alternative asset classes
Managers Nick Greenwood and Charlotte Cuthbertson recently provided an update to the investment trust analysts at Winterflood, during which they said that they are currently seeing opportunities in alternative asset classes.
A good example is Tufton Oceanic Assets (LON:SHIP), which owns a fleet of ships that are leased for an average term of three years and should be able to weather the crisis, as well as several tankers which have increased in value due to the scarcity of oil storage facilities. The shares are yielding almost eight percent with the dividends covered by free cash flow.
Another purchase is Ground Rents Income (LON:GRIO), which has been caught up in the general property sell-off, yet is unlikely to struggle with the rent collection as ground rents are such a small proportion of overall property costs. There is also River & Mercantile UK Micro Cap (LON:RMMC), which is trading on a wide discount of 25%.
A good time to buy
At the end April the portfolio held 56 stocks and the average discount of the top 12 was 28.3%. These are historically wide levels and MIGO’s managers will be actively encouraging the boards to take steps to narrow them.
Lead manager Nick Greenwood has nearly 40 years of industry experience and has extensive knowledge of the investment trust sector. This means that he is well-placed to spot interesting value opportunities that the market volatility is likely to create.
MIGO itself is currently trading on a wider than normal discount of three percent and many of the underlying holdings are on historically wide discounts. If Greenwood and Cuthbertson are successful in their activist approach it could result in some favourable re-ratings.
This looks to be the ideal time to buy the fund. If the current positive market sentiment is maintained it could generate strong returns over the next few years.