Month: February 2024 (Page 10 of 16)

Funds on the Watch List this week include: SMT, SSIT, FSF,BSRT, GCL, SHIP, BIPS, DGI9, REI, GRID, HEIT, HSL, HOT, BRF

Welcome to this week’s Watch List where you’ll find golden nuggets on trust discounts, dividends, tips and lots more…

ByFrank Buhagiar•05 Feb, 2024

BARGAIN BASEMENT

Discount Watch:

Our estimate of the number of investment companies whose discounts hit 12-month highs (or lows depending on how you look at them) over the course of the week ended Friday 02 February 2024 – six more than the previous week’s eleven.

Nine of the 17 were on the list last week: SDCL Energy Efficiency Income (SEIT), Gresham House Energy Storage (GRID) and Harmony Energy Income (HEIT) from renewable energy infrastructure; Baillie Gifford Japan (BGFD) and Baillie Gifford Shin Nippon (BGS) from Japan; BlackRock Sustainable American Inc (BRSA) from North America equity income; Finsbury Growth & Income (FGT) from UK equity income; NB Distressed Debt (NBDD) from debt; and Custodian Property Income REIT (CREI) from property.

That leaves eight newbies: Martin Currie Global Portfolio (MNP) and Monks (MNKS) from global; Life Science REIT (LABS) and Residential Secure Income (RESI) from property; LMS Capital (LMS) from private equity; NB Monthly Income (NBMI) and VPC Specialty Lending Investments (VSL) from debt; and finally, VH Global Sustainable Opps (GSEO) from renewable energy infrastructure.

ON THE MOVE

Monthly Mover Watch: no change

At the top of Winterflood’s list of top-five monthly movers in the investment company space. Seraphim Space (SSIT) still sitting pretty in first place, although at +45.3% the monthly gain is marginally lower having been up +48.1% the previous week. Still no news out since the December shareholder letter. Soon be time for January’s missive…

No change either for second-placed Foresight Sustainable Forestry (FSF) – shares up 22.8% on the month. As with SSIT, still not much in the way of news…

In third, Geiger Counter (GCL) makes a reappearance after a short sabbatical. The company did recently publish its factsheet for December which showed that the fund is up 44% for the year on an NAV basis – seems that has been enough, along with buoyant uranium markets, to propel the uranium investor’s share price +15.9% higher.

Baker Steel Resources (BSRT) retains its top-five spot despite slipping one place to fourth. Shares did increase their gain on the month to +13.9% though -previously they were up +12.8%. Last week, the co. reported a +16.3% uplift in NAV per share for December.

Finally, a newbie in fifth – Tufton Oceanic Assets (SHIP) courtesy of a 10.2% share price gain. The company’s recent Q4 factsheet reported a 6.7% NAV total return for the quarter, while an investor call outlined plans to narrow the discount to net assets at which the shares are trading at. This includes realising its portfolio of assets from 2028, upping the 2024 target dividend by 17.6%, possibly a one-off capital return in Q2 equivalent to 5% and 10% of NAV, as well as ongoing buybacks.

Scottish Mortgage Watch:

The monthly share price performance at Scottish Mortgage (SMT) as at close of play on Friday 02 February 2024 – an improvement on last week’s -0.6% monthly deficit. NAV also improved, closing up +1.8% on the month having been flat the previous week. Finally, the wider global IT sector finished the week up +2.5%, an improvement on the +1.5% gain seven days earlier.

THE CORPORATE BOX

Wind-down Watch #1: Digital 9 Infrastructure (DGI9)

Announced news the market had arguably been expecting for some time: “Following careful consideration of the options available to the Company and after consultation with its financial advisers, as well as taking into account feedback received from a large number of shareholders and institutional investors, the Board has determined that it would be in the best interests of shareholders as a whole to put forward a proposal for a managed wind-down of the Company.”

Liberum is not surprised: “A managed wind-down has been widely expected for some months, particularly after it was announced in October 2023 that DGI9 would pursue the outright sale of Verne Global. The lack of clarity around the terms of the earn-out associated with the Verne deal has been the biggest hinderance to the market’s perception of it.”

Wind-down Watch #2: Real Estate Investors (REI)

Reminded investors that “The Board has previously stated an intention to accelerate its sales programme, through the sale of assets either on an individual or collective basis, on terms that represent value for shareholders. Given the ongoing substantial discount between the share price and NAV, combined with a lack of liquidity in its shares, the Board has concluded that it will conduct an orderly strategic sale of the Company’s portfolio over the next 3 years with the objective of maximising the return of capital to shareholders.”

Capital Allocation Watch #1: Gresham House Energy Storage (GRID)

Announced a new set of capital allocation priorities at the company. Summary from Winterflood: “Capital allocation focus: (i) CapEx, whereby managers will solely focus on the completion of the 2023 pipeline, together with duration extensions, financed mainly by cash on hand (>£40m as at 31 December); (ii) no dividend declared for Q4 in light of weak revenue environment, and intention to ‘recalibrate’ dividend target for 2024, as well as the policy on an ongoing basis to reflect predominantly merchant nature of its revenues; (iii) intention to commence a share buyback program, with initial buybacks not expected to exceed any reduction in the dividend…; and (iv) amendments to optimise debt facility (£335m, £110m drawn), including possible reduction in facility size, to reduce overall cost of funding. Disposal of subset of portfolio also ongoing.”

Capital Allocation Watch #2: Harmony Energy Income (HEIT)

Unveiled its own plans for capital allocation too. Broker Liberum has the details: “The first quarterly dividend in relation to FY 24 (2p per share) was expected to be declared later this month…However the Board has decided to postpone this declaration. While the reasons for the recent low revenue environment are understood, and the market conditions are expected to improve, the short-term outlook remains uncertain…HEIT will also look to restructure its existing debt facilities (£130m of senior debt facilities) to reflect that 70% of the portfolio’s MW capacity is now operational, coupled with one or more asset sales. Any cash proceeds from such sales would be used, in priority, to reduce gearing and then to fund future dividend distributions for FY 24 and FY 25. The ambition of the Company remains the payment of 8 pence per share per annum. Any funds available after the payment of dividends could be used to repurchase shares.”

Dividend Watch: 7.5p

Henderson Smaller Companies’ (HSL) interim dividend: “Reflecting our confidence in the underlying portfolio and underpinned by performance since the period end, your Board has decided to pay a higher interim dividend of 7.5p per ordinary share (30 November 2022: 7.0p) due to strong income growth, and with a view to balancing interim and final dividends.”

35.5p – Henderson Opportunities’ (HOT) total dividends for the year: “We have declared a final dividend of 13.0p per share for the year ended 31 October 2023. This brings total dividends for the year to 35.5p and represents an increase of 4.4% over last year’s total dividend payment for the year of 34.0p. At the current share price of 1,002.5p (as at 30 January 2024) this represents a yield of 3.5%.”

MEDIA CITY

Tip Watch #1: This bond fund should make almost 10pc a year and you can buy it now without stamp duty

The bond fund in question? Invesco Bond Income Plus (BIPS). The prompt for the above Questor article? As The Telegraph’s tipster explains: “Invesco Bond Income Plus is offering new shares at a little below market price.” What’s the big deal? Not many trusts are issuing shares. According to Questor: “Investment trusts gave up selling new shares to investors last year during the stock market funk over rising interest rates and inflation, so the offer…of £15m of new shares by Invesco Bond Income Plus…has drawn attention to the listed bond fund.”

The article goes on to provide a fund overview: “With an aim of generating a high dividend yield, currently 6.8pc, and capital growth, BIPS holds nearly three quarters of its assets in high-yield bonds issued by companies with chequered credit histories, or from banks that shore up reserves of capital to use in a crisis. The remaining 28pc of the fund’s money goes into lower-yielding, but safer, ‘investment-grade’ bonds, mostly rated ‘BBB’.” Before pointing out that with “…the Bank Rate…at 5.25%…the fund’s lead manager, Rhys Davies, doesn’t have to take too much risk to generate the income for BIPS’ 11.5p per share dividend target this year.” And while, “Unlike many of the trusts tipped here, BIPS shares don’t trade at a discount…Davies says there is an investment opportunity because the prices of BIPS’ high yield-bonds have been depressed by interest rate rises.” That means “…the bonds will benefit from a ‘pull to par’ effect that should see their price gradually revert to £100 as the bonds’ maturity dates approach…”

As for that share issue, “…the first by an investment trust this year”, this has been “timed to attract former shareholders in the Henderson Diversified Income trust, who are receiving £54m from its merger with Henderson High Income. Other investors can also apply for the shares, which can be bought free of the usual 0.5pc stamp duty…The new shares will be priced 0.75pc above their net asset value…This makes them slightly cheaper than BIPS existing shares which stood at a 2pc premium to NAV when the issue was announced…”

Tip Watch #2: BlackRock Frontiers (BRFI)

Tipped by the Investors’ Chronicle. In An intrepid trust that could defy dollar weakness, the Chronicle first points out that “…BlackRock Frontiers Investment Trust (BRFI), which boasts a sector-leading dividend yield of 4.4 per cent, is trading on a discount of more than 7 per cent.” This, the tipster believes, seems “…out of step with the fact that emerging economies expanded last year, amid stalling developed world output.” Furthermore, “…the mere whiff of a weakening US dollar – now the more likely scenario in the coming year, as the Federal Reserve embarks on a rate-cutting cycle – tends to turn investors bullish on emerging markets. This is because a more fragile greenback creates an incentive to invest in less-developed countries (thanks to a combination of lower import costs, inflation and indebtedness).”

Step up BRFI: “As its name suggests, the trust invests in ‘frontier’ economies, which are not among the eight largest in the MSCI Emerging Markets index by market cap. This rules out not only China, but also India, Taiwan, Korea and Brazil.” As for the risks associated with emerging/frontier markets, the IC points out that “…many of the risks that are seen as inherent in emerging markets are present elsewhere. For instance…Monetary tightening in frontier economies has already outpaced developed markets, which BRFI’s managers said is beneficial, as ‘domestic economies should see a cyclical pick-up’.”

In terms of track record, according to the IC, this is “…strong. Over five years, BRFI’s NAV total return of 49 per cent is significantly ahead of the MSCI Emerging Markets Index’s 20 per cent. In 2023 alone, its NAV total return was 14.3 per cent in sterling, while the index was up just 2.2 per cent. Although its discount has narrowed in recent months, we’d argue that this prior history of outperformance means BlackRock Frontiers remains undervalued. Whether the trust is truly untethered from the fates of the world’s major economies remains to be seen. But it could certainly provide equity investors with a sought-after element of diversification.”

360 view of the latest results from BRSA, THRG, IVPB, HGT

Want to know which market Ruffer thinks “…seems to be pricing in despair”? Ruffer’s Monthly Investment Report for January 2024 has the answer and so does the latest Weekly 360 round-up…

ByFrank Buhagiar•

Unanimity of the week

“Global asset markets started the year almost unanimously priced for a perfect soft landing…” Ruffer (RICA) Monthly Investment Report for January 2024 during which NAV declined 1.9%.

Greater rewards

Full-year results from BlackRock Sustainable American Income (BRSA). As Chair Alice Ryder explains NAV performance largely tracked the index: “…NAV…returned -5.6%…and the share price returned -8.1%…This compares with a fall of 5.0%…in the Russell 1000 Value Index, the Company’s reference index.” By contrast “…the S&P 500 Index was up by 4.5%…as a handful of mega-capitalisation technology stocks (most of which do not pay a dividend) enjoyed a boom from new artificial intelligence technologies and exceptionally strong performance.” In terms of performance drivers, the Chair adds that a “key driver for the underperformance was not owning Meta Platforms (Meta) which briefly entered the reference index. We did not hold a position in Meta because historically it did not meet our portfolio managers’ criteria of paying a dividend and also scores poorly from an ESG perspective. There were also headwinds for value stocks, our Investment Manager’s favoured style of investing…” The Chair points out though that “Alongside our investment objective of maximising long-term capital growth and income, we are investing across the breadth of the market in companies that capture sustainable shifts and are responsible businesses within their industry.”

And speaking of ESG: “…the Company has delivered a superior ESG score versus its reference index, as measured by MSCI, with an overall rating of AA. The Company has also delivered on its commitment to achieve a lower carbon emissions intensity than the reference index…” As for NAV performance, encouragingly this has picked up since year end: “…up to close of business on 31 January 2024, the Company’s NAV had increased by 9.2% compared with a rise of 8.3% in the reference index (both with dividends reinvested).” Looking ahead, the Chair had this to say: “Against a background of macroeconomic uncertainty and market volatility, our portfolio managers are of the view that an active approach to investing is likely to carry greater rewards. Additionally, our portfolio managers believe quality stocks with higher profitability, stronger balance sheets and stable earnings growth should outperform in an environment of persistent investor concerns over a mild recession in the US and other major developed economies. These are the fundamentals that our portfolio managers continue to favour within your Company’s portfolio.”

Winterflood notes: “Underperformance attributed to negative investor sentiment towards ESG funds and headwinds for value stocks. Biggest stock detractor was not owning Meta Platforms, which briefly entered the reference index, followed by overweight holdings in Baxter International and Fidelity National Information Services. Largest contributors were off-benchmark holdings in Microsoft, Shell and Novo Nordisk. Revenue return per share 3.67p, -4.4% YoY (FY22: 3.84p). DPS 8.0p (FY22: 8.0p), with the dividend partially paid from capital reserves.”

Truism of the week

“…in any given year there will be disappointments, and this year is no exception…” BlackRock Throgmorton Trust (THRG) Investment Manager’s Report.

Compelling value

BlackRock Throgmorton Trust (THRG) outperformed over the full year. Chairman Christopher Samuel has the numbers: “…the Company outperformed our benchmark index by 3.7% during the twelve months to 30 November 2023. Although it is disappointing that in absolute terms our Net Asset Value fell by 2.3% for the year under review, over the longer term, performance remains strong, with the Company’s NAV return outperforming the benchmark index by 17.0% over five years and by 72.4% over ten years. At the share price level, the outperformance was 29.0% and 95.8% over the same periods.” Unsurprising then that “Our Investment Manager’s fundamental philosophy remains unchanged, with a continued focus on financially strong companies with innovative business models and differentiated offerings which are capable of delivering sustained growth over time.”

Over to the investment manager for the outlook: “Looking ahead to 2024…the picture we see is one of a gradual recovery, and in our view this is not reflected in valuations of UK small and medium sized companies which we think offer compelling value in both absolute and relative terms. Indeed, the Company now possesses many companies on single digit price to earnings ratios, with double digit Free Cash Flow yields, but unlike so many archetypical ‘value’ sectors, have far superior growth prospects. As a result, the net market exposure of the Company is slowly increasing and is now around 106%, while the gross is c.114%.”

Note from Winterflood: “Share price TR -0.8%, as discount narrowed from 5.0% to 3.6%; 5.3m shares repurchased over FY for £29.8m. Revenue EPS 16.56p (FY22: 12.95p). DPS 14.75p (FY22: 11.1p). Net gearing 7.6% (FY22: 4.3%). Performance fee accrued of £2m…Short positions contributed in general, with short exposure representing 3.6% of market cap at year-end.”

JPMorgan is neutral: “In performance terms, THRG had a strong run of relative NAV outperformance in 2019-21 but had a weaker 2022. On a rolling five years basis THRG is still one of the better performers in the peer group in NAV TR terms and its strategy using a long/short book is a differentiating factor vs peers. This can add significant value, as seen with the software position in the prior financial year, but also gives THRG a different risk profile than the long only funds, but we think the manager has a track record of controlling the risks well. Overall we remain Neutral noting there are many other funds with good performance track records and also of a similar or larger size in market cap terms that trade on significantly wider discounts to NAV.”

Unwanted stat of the week

“The second consecutive year of losses for our benchmark reflects the significant negative sentiment that clouds UK and small and medium sized companies in particular. This is reflected in the fund flow data which shows November 2023 marked the 28th consecutive month of outflows in UK small and mid-caps. It is my view that this pervasive selling pressure has resulted in a significant mispricing within UK small and mid-caps.” BlackRock Throgmorton Trust (THRG) Investment Manager’s Report.

Award-winning

Half-year Report from Invesco Select Trust Balanced Risk Alloc Shs (IVPB). With four different share classes to report, it’s over to Chair Victoria Muir for a quick run through: “In net asset value (NAV) total return terms, with dividends reinvested, the UK Equity Share Portfolio returned +3.2%… compared with its benchmark, the FTSE All-Share Index total return of +1.6%. The top contributor to the NAV outperformance was strong stock selection in the consumer discretionary and consumer staples sectors…The Global Equity Income Share Portfolio returned +8.4% in NAV terms…compared with its benchmark, the MSCI World Index (£) total return over the period of +6.4%. The biggest stock contributors to the portfolio’s outperformance were Rolls-Royce, KKR & Co and Aker BP…The Balanced Risk Allocation Share Portfolio returned +2.7% in NAV terms…The portfolio’s benchmark, the Composite Benchmark Index returned +5.2%. Commodities especially, as well as equities, contributed positively to the portfolio’s performance, however, the government bond allocation negatively affected the overall performance of the portfolio, as interest rates were raised across the globe. The Managed Liquidity Share Portfolio had a total return of +2.5% based on NAV…The higher interest rate environment contributed positively to the portfolio’s income yield, although returns were tempered by the effect of increased yields on capital gains.”

As the Chair explains, going forward there may well be just one share class to report on if shareholders approve the Board’s restructuring plan: “…with demand from investors for larger, more liquid investment vehicles, your Board believes it could be increasingly challenging to market separately the Global Share Class and the UK Share Class in their current forms, with the structure potentially presenting an additional hurdle for those looking to invest. Your Board believes that the Global universe offers the broadest set of investment opportunities for equity investors whilst also providing diversification benefits for UK investors. Additionally, your Board has confidence in its award-winning Global Equity Income fund manager, Stephen Anness…Your Board believes his approach to be rigorous, differentiated and balanced. Under Stephen’s stewardship the Global Equity Income Share Portfolio has delivered strong, sector-leading NAV total return performance over both one- and three-year periods… Accordingly, your Board has concluded that it would be in the best interests of Shareholders as a whole to consolidate the UK Equity, Balanced Risk Allocation and Managed Liquidity share classes into the Global Share Class.”

Winterflood notes: “As announced on 14 December 2023, the fund has put forward restructuring proposals, with all share classes to be consolidated into IVPG plus introduction of enhanced dividend policy. IVPB and IVPM offered full cash exit and IVPU offered 15% tender offer. Circular and notice of GMs expected to be published imminently.”

Outlook of the week

“…the outlook for our asset class may be brighter than many recognise.” BlackRock Throgmorton Trust (THRG) Chairman statement.

High levels of recurring revenues

HgCapital (HGT) gave the market a sneak preview of its full-year numbers in a Q4 trading update. Broker Winterflood provides the following summary: “Estimated NAV per share 498.6p (net assets £2.3bn), +0.93% from 30 September; NAV TR +10.7% over year. Top 20 companies (77% of portfolio) saw LTM revenue and EBITDA growth of +25% and +28% respectively. Realisations of £343m for the year, including secondary sales from Hg Genesis 8 and Hg Saturn 3, and full exits of Transporeon and Commify; full and partial exits represented +25% uplift to carrying values at 31 December 2022. Investments of £71m made, including GTreasury, Nomadia, JTL, P&I and Howden. Allowing for transactions announced and not completed at end of 2023, outstanding commitments £808m (£1.0bn otherwise) vs £735m (£625m) available liquid resources, including £350m undrawn debt facility.”

Numis is a fan: “The NAV of 498.6p at December leads to a 10.7% total return over the year, up c.1% in the final quarter and 5.4% in H2. This reflects strong trading performance with revenue and EBITDA growth of 25% and 28%, respectively, as well as meaningful realisation activity which was in part offset by currency movements. We believe the realisation activity should be reassuring to investors, being both supportive to valuations and generating significant proceeds, with c.£295m expected once the recent transactions close in 2024. We believe it is impressive that c.50% of the portfolio (by proceeds) has been subject to transaction activity over the last two years, while there were 13 liquidity events since the start of 2023 which points to the quality of the portfolio. HgCapital Trust remains one of our favoured Investment Companies based on the strength of its track record, and the nature of the underlying portfolio companies which is focused on ‘dull’ technology in the Software-as-a-Service sector which benefits from high levels of recurring revenues, which we believe are attractive in an uncertain macro environment…”

So too is JPMorgan: “Although narrower than many of the peers, HGT has a portfolio invested in a sector that has delivered high earnings growth principally from software businesses with a high level of subscription based recurring revenues. HGT has also been consistently able to sell assets at premiums to NAV carrying values, including its most recently announced disposal of Argus Media in January 2024 and this gives us confidence in its valuations. We are Overweight.”

Liberum notes: “Underlying performance continues to be strong, reflected by the organic growth, while the high frequency of realisations (four between December 2023 and January 2024 and 13 since the beginning of 2023) in the face of a much tougher exit environment helped drive a c.11% narrowing in the discount in 2023. This was the main source of the 26% total share price return. The components of the share price return were 15% of discount narrowing, 9% from the NAV uplift at the year-end 2022 discount, and the 2% dividend yield. Given the tentatively improving macro backdrop and exit environment for PE, we think the sector’s prospects look broadly positive this year.”

Despair of the week

“For us, the UK appears anomalously undervalued while China now seems to be pricing in despair.” Ruffer (RICA) Monthly Investment Report for January 2024.

In the absence of unforeseen circumstances, it is the current intention of the Board that the Company will pay an interim dividend around the end of March 2024, the Initial Return of Capital (subject to all the required Shareholder and Court approvals being received as noted above) around the end of June 2024 and a further interim dividend around the middle of October 2024. Thereafter, it is likely that dividends will be paid in smaller, less regular amounts principally for the purpose of maintaining the Company’s investment trust status and capital will be returned progressively to Shareholders in larger, less regular amounts by the most efficient mechanism available. The Board will therefore be taking into account the UK tax consequences for Shareholders in determining the most efficient means of returning realised cash during the Managed Wind-Down process.

The emotional benefits of dividend re-investment.
In fact, with this investment strategy you can

actually welcome falling share prices.

Stick to your task thru thick and thin, there is plenty of

thin at present, I guess if u own any of the above

the emotional benefit is not uppermost in your

thoughts.

Plus council tax.

abrdn Diversfd. I&G – Net Asset Value(s)

abrdn Holdings Limited announces the unaudited net asset values (NAVs)

of ADIG . Unless otherwise disclosed, the NAVs have been calculated in accordance with the recommendations of the Association of Investment Companies.  In particular: (1) financial assets have been valued on a fair value basis using bid prices, or, if more appropriate, a last trade basis; (2) debt is valued at par and, where applicable, debt is also separately valued at market value (3) diluted NAVs are disclosed where applicable (for this purpose, treasury shares are excluded for the purposes of calculation); and (4) provisions for performance fees are included where applicable.

abrdn Diversified Income and Growth plc Undiluted	Excluding Income	108.10p	Ordinary
abrdn Diversified Income and Growth plc Undiluted	Including Income	109.66p	Ordinary
abrdn Diversified Income and Growth plc with Debt at Fair Value	Excluding Income	107.88p	Ordinary
abrdn Diversified Income and Growth plc with Debt at Fair Value	Including Income	109.44p	Ordinary

Difficult to trade the bounce but a couple of buys went thru at 57.75p

Maybe there are better days ahead but as usual the only way I know

is to keep waiting and watching.

abdrn Diversified has 301m shares issued.

They intend in the first tranche to buyback £115m of shares

at NAV.

The current NAV is 109p and the current share price is 78p

The NAV has been fairly stable, so the current intention is to buyback

around a third of the issued shares.

Market cap £234 mill

current NAV 109p

115 mill to be returned at NAV

To simplify matters less say half of the shares, although

the final figure will be different.

Very roughly 5,000 portfolio shares to be bought back

at current NAV 109P for around 5k a profit on the first

chance of around 1k.