Are investment company insiders calling the bottom for one sector?

Of the 14 transactions that made it onto broker Liberum’s list of investment company insider buys for May, half were for funds that came from the same sector. What might we be able to learn from them?

By Frank Buhagiar

Are investment company insiders calling the bottom for one sector?
Of the 14 transactions that made it onto broker Liberum’s list of investment company insider buys for May, half were for funds that came from the same sector. What might we be able to learn from them ?

By
Frank Buhagiar

News of insiders snapping up shares in their own funds can serve as a useful (and comforting) measure of the confidence that the individuals concerned have in a fund’s prospects and the value of the underlying portfolio. For insiders, read directors and management / advisory teams of the investment companies . Arguably, when insiders buy shares in the companies they manage or oversee, a more powerful message is sent to the market compared to a paragraph or two in a results statement from the Chair.

Liberum regularly follows insider share purchase announcements released by London’s investment companies. The broker compiles and publishes a list of insider buys of over £10,000 that have taken place over the course of each calendar month. Sometimes, the list includes funds from a diverse range of sectors. Other times, the list can contain several funds that herald from the same sector, so many that there’s enough of a hint of a pattern to prompt further investigation. And that’s precisely what happened with Liberum’s list of insider buys for the month of May (see below). As can be seen, one sector stands out:

Out of the 14 funds in the table, half come from the property sector, an area of the market that has been among the hardest hit these past few years. Interest rates at multi-decade highs and an uncertain macroeconomic environment have both weighed heavily on sentiment, leading to concerns over valuations, share price weakness and hefty discounts to net assets.

But with directors and investment managers acquiring shares in seven different property companies during May, perhaps the insiders are collectively sending out a message that a bottom in the cycle is in sight. Certainly, based on the M&A activity seen in the sector in recent months as well as the Special Opportunities REIT IPO (even though it was eventually pulled in June), a case can be made that trade buyers, if not investors, are calling the bottom. So, do the actions of the insiders point to the same conclusion? A host of insiders taking advantage of discounts to buy shares would suggest they too are seeing light at the end of the tunnel. But is all as it seems?

Not all insider buys are equal

Some share acquisitions are linked to investment manager remuneration. That was the case with Primary Health Properties’ (PHP) 886,824 insider buy of 9 May 2024. According to the company’s announcement, these were awarded as nil-cost options under PHP’s 2021 Long-term Incentive Plan to a Person Discharging Managerial Responsibilities (PDMR). That person is CEO, Mark Davies. While the award does show that Mr Davies has skin in the game, it’s not quite the same as an insider dipping into their own pockets to acquire shares in their fund.

Tritax EuroBox’s (BOXE) 118,832 insider purchase relates to an issue of equity that falls under the fund’s investment management fee arrangements. As announced on 16 May 2024, BOXE acquired the shares in the market ‘in accordance with the terms of the Investment Management Agreement between the Company and Tritax Management LLP dated 14 June 2018 (as amended), pursuant to which 10 per cent. of the management fee (net of any applicable tax) shall be applied to subscribing for or acquiring ordinary shares of the Company.’ Investment managers being issued with equity in lieu of fees not to be scoffed at but, as with PHP, not wholly relevant to this exercise which is looking to identify insiders taking advantage of discounts on offer.

On 22 May 2024, the property development and investment group Conygar Investments (CIC) announced that Non-executive Chairman, Nigel Hamway, and CEO, Robert Ware, purchased 20,000 and 29,050 ordinary shares respectively at 79.7p per share. The day before, CIC announced that Mr Ware had acquired 10,000 shares at 80p a share on 17 May 2024. The latest purchases bring Mr Hamway’s holding up to 1,276,700 ordinary shares or 2.14% of the issued share capital of the company and Mr Ware’s up to 4,856,050 or 8.14% of the company.

In CIC’s latest interims that were published on 16 May 2024, net asset value per share stood at 153p as at 31 March 2024. Those insider buys executed at a near 50% discount to net assets. Looks like we have our first bargain hunters. It’s a similar story with abrdn Property Income (API). The Board recently secured shareholder approval to wind the company down but, on 15 May 2024, Non-executive Director, Mike Balfour, purchased 125,000 shares at 52.57p a pop. 31 May 2024 fellow Director, Michael Bane, bought 66,700 shares at 53p a share. At the time the shares were trading at a 30% discount to net assets, a level they currently trade at today. Another one for the insider bargain-buy camp.

Meanwhile, GP surgery landlord Assura’s NAV per share stood at 49.3p as at the 31 March 2024, the company’s year end. That’s comfortably higher than the 43p per share CEO, Jonathan Murphy, paid for the 198,975 shares he acquired on 21 May 2024 and the 42.5p per share CFO, Jayne Cottam, paid for the 58,800 shares she bought on the same day. Cottam didn’t stop there, acquiring a further 54,700 shares at 40.23p each on 29 May 2024. Assura, another bargain buy.

What’s the story with Supermarket Income Reit (SUPR)? On 20 May 2024, the company announced investment adviser, Benedict Green, and persons closely connected to him acquired between them a total of 330,179 SUPR shares for a total consideration of £250,010.69 on 16 May 2024. By close of play on 16 May, the shares were trading at a 15% discount to net assets. Enough of a discount there to count as a bargain buy.

That leaves Tritax Big Box (BBOX). 20 May 2024, BBOX announced a host of directors and other insiders between them bought a total of 333,458 shares in the company at around £1.67 a share. In terms of discounts, the transactions took place on 17 May 2024, when the share price closed at a 9.18% discount to net assets. Another set of directors picking up shares in their fund at a discount to net assets.

Not all about the discounts

Of course, there are a host of reasons why an insider chooses to acquire shares in the fund they are connected to at a specific point in time. The company may have, for example, been in a closed period either because results were due, as in the case of Assura, or a transaction was live such as BBOX’s acquisition of UK Commercial Property. The insider would therefore not have been able to acquire shares until the closed period was over.

Even so, surely it’s not a stretch to believe that, like the rest of us, insiders like to bag a bargain or two? And with shares trading at what are still wide discounts to net assets and with the next move in interest rates (arguably the main culprit behind those wide discounts) expected to be a cut, perhaps the insiders are indeed calling the bottom of the real estate cycle. Or at the very least, the bottom is close enough to tempt them to dip into their pockets and buy shares in their respective funds.

The Week’s Investment Trust Results
In this week’s results round-up, one Chairman appears to have caught a bout of football fever (who can blame him ?), while one of London’s newest funds bags an award after an impressive first year.

By
Frank Buhagiar
12 Jul, 2024

Schroder British Opportunities (SBO) believes in patience
SBO reported a +2.5% increase in NAV per share for the latest full year. That compares to the previous year’s +3.1% gain. Chairman, Neil England, points out that ‘the current portfolio of innovative, predominantly UK companies are growing strongly, the majority in line or ahead of expectations.’ Because of this, ‘the patient investor that can look beyond the recent market environment should be well rewarded.’ The reason why patience is needed is because at present ‘The market appears not to discriminate effectively between companies that need cash and those that don’t.’ Helpfully, ‘The majority of the companies in your Company’s private portfolio are already profitable with positive operating cash flows or are funded through to that point.’

And while the patient investor waits for their reward, the company is looking to grow in other ways. As England points out, the fund first came to market in 2020. No mean feat for the IPO market was very challenging which did impact the amount of funds raised. Four years on and the Board is looking to do something about the trust’s size and is considering several options to increase the size of the Company, to increase its appeal to wealth managers and to improve its liquidity.

Winterflood: ‘NAV growth driven by fair value gains in PE portfolio (+3.8% NAV contribution), while listed holdings detracted (-0.8% NAV contribution). Share price TR +16.1%, as discount narrowed to 27.8% from 36.2%. Board continues to actively consider buybacks.’

TwentyFour Income Fund (TFIF), working the ABS
TFIF chalked up an +18.1% NAV total return per share for the year, quite some turnaround from the previous year’s -3.74%. Stripping out the record dividend payment of 9.96p per share, which was above the 8p per annum target, NAV per share increased +7.7% to 108.97p. Chair, Bronwyn Curtis OBE, puts the strong outcome down to the strategy of investing in higher yielding floating rate ABS (asset-backed securities) in a higher interest rate environment which has enabled the Company to produce a record dividend for the year for investors, equivalent to a 10% yield on the share price, alongside a strong return on the portfolio.

As for the outlook, sounds like the portfolio managers are preparing to take advantage of any market volatility ‘the Board is supportive of the Portfolio Manager’s focus on Western European secured assets with short maturities, keeping one eye on market volatility whilst also offering the potential to benefit from potential market dislocations.’

Numis: ‘TFIF has exceeded its dividend target in every year since launch and has increased the target from 6p to 8p in recent years. We believe it is well-placed to beat it again given a purchase yield of 11.5% on the portfolio and the continued high-rate environment.’

Winterflood: ‘Managers expect fundamental performance to deteriorate (given increasing consumer arrears and corporate defaults in the market) and therefore continue to prefer instruments with short spread duration, sufficient liquidity and low gearing, and particularly with secured collateral such as mortgages, senior secured corporate loans and auto loans.’

Onward Opportunities (ONWD) crowns first year with award
ONWD posted a +9.2% increase in NAV per share total return for the six-month period to 30 June 2024. That brings the 12-month NAV return to 30 June 2024 up to +20.6%. By contrast, the AIM All share could only muster a pedestrian-looking +3.1%. Thanks to numbers like that, ONWD finds itself in the top quartile in terms of performance amongst its peers over 12-months – the fund, which only came to market in 2023, ranks fourth out of 26 in the AIC UK Smaller Companies sector. No surprise then that ONWD was named ‘IPO of the Year’ at the Small Cap Awards.

Fund Manager, Laurence Hulse, points out that since the fund’s IPO 15 months ago, NAV is now up +21.6%. A tick in the box for the strategy centred around ‘truly active management’.

Winterflood: ‘Performance contributions from both core and nursery holdings; top contributors included MPAC Group, Vianet Group, Team17, Northcoders and Transense Technologies. Income stream expected to offset majority of total expense ratio in forthcoming year.’

Miton UK Microcap’s (MINI) year of two halves
MINI Chairman, Ashe Windham, has caught the football bug, if his full-year statement is anything to go by ‘The report covers the full year to 30 April 2024, a period which was, in football parlance, a game of two halves.’ Easy to see why. NAV fell -15.5% in the first half before a tentative recovery took hold in the second half that saw NAV increase by +3.1%. Overall, full-year NAV was down -12.9% compared to a +7.2% rise in the Deutsche Numis Smaller Companies 1000 Index. On performance, Windham highlights how, because of the the dearth of buying interest in UK microcaps over the last three years, marginal sellers have dominated the direction of share prices.

As for why the lack of buyers, ‘Every excuse in the book has been rolled out for why institutions and individuals should not buy UK equities’. Windham cites the Scottish referendum, Brexit, high turnover of Prime Ministers, the UK’s lack of technology stocks, stamp duty on the purchase of equities, tax on North Sea oil producers and geopolitical conflict.’ To add insult to injury, the investment trust sector has been discriminated against by the iniquitous double counting of fees such that wealth managers find real difficulties explaining why they should be buying closed end vehicles for their clients. The last three years have been incredibly frustrating. Whilst this is disappointing, the Trust was set up because quoted microcaps possess extraordinary upside potential. When microcaps succeed, sometimes their share prices can appreciate very dramatically.’

Winterflood: ‘Share price -15.1% as discount widened from 7.3% to 9.5%. The yearly share redemption to be offered to shareholders again this year with 1 October 2024 the latest date for redemption requests and redemption point on 5 November 2024.’

The world’s your onion. GL

£1.00 compounded at 7% doubles in ten years, better if your blended yield is higher even by one percent.

Whilst it may not be possible to re-invest your earned dividends back into your current Trusts at a yield of 7%, there is normally several unloved Trusts where their sector is out of favour u should be able to re-invest in.

A once-in-a-decade chance to buy FTSE shares for passive income.

Even with the market rally, many FTSE shares are trading at dirt cheap valuations, creating a rare opportunity to lock in higher dividends.

Zaven Boyrazian, MSc

Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

FTSE shares have a solid reputation for helping investors generate significant income. With so many industry titans making the London Stock Exchange their home, dividend yields have always been generally higher in the UK compared to Europe or the US.

Even after the recent market rally, the FTSE 100 still offers a generous yield of 3.6% compared to the S&P 500’s 1.35% or the Euro Stoxx 50’s 2.9%. Digging a bit deeper reveals even better FTSE income opportunities for prudent investors to capitalise on. That’s because there are still plenty of dividend shares trading at discounted valuations, pushing yields even higher, especially in sectors like real estate.

A rare chance

Severe stock market corrections and crashes are memorable. But despite popular belief, these events are actually pretty rare.

Excluding the Covid crash in 2020, which reversed in a few months, it’s been over a decade since investors experienced a sharp downturn like 2022. And just like every correction before it, the overall stock market has bounced back aggressively. In fact, since October 2023, the FTSE 250 is up by just shy of 25%.

However, as previously mentioned, not every stock has been enjoying this rally. Some busineseses are still in recovery mode, awaiting promised interest cuts from the Bank of England.

Now that inflation is almost back on track, an interest rate cut seems to be just around the corner. And current forecasts suggest they could fall to 3.5% by the end of next year, versus 5.25% today.

What does this all mean? For real estate investment trusts (REITs) like Warehouse REIT (LSE:WHR), a slide in interest rates will improve margins, reduce balance sheet pressure, and even spark new growth. So when looking at its current share price, it begs the question of whether a buying opportunity that we may not see again for another decade has emerged.

Real estate investments in 2024

Directly investing in real estate comes with a lot of headaches. Apart from requiring a lot of initial capital to buy property, landlords need to find tenants, collect rent, and perform maintenance.

That’s where REITs have the upper hand. These companies are traded just like any other FTSE share. And they represent a portfolio of rent-generating properties managed by a team of professionals. In the case of Warehouse REIT, the firm specialises in smaller urban warehouses, often used for last-mile delivery of online orders.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

With a lot of debt on its books, the firm felt the pressure of aggressive rate hikes. And it was even forced to sell some of its locations in unfavourable market conditions to shore up the balance sheet. With that in mind, it’s not too surprising the stock price took a significant hit.

However, a total of £165m has been raised from disposals. This has already been put to work, reducing the interest burden. And based on its latest results, rental income’s back on the rise as demand for well-positioned warehouses ramps up while supply remains constrained.

That’s why I think a buying opportunity may have emerged for this enterprise. There are still financial pressures on its bottom line that may compromise dividends if economic conditions suddenly worsen. But assuming that interest rate cuts materialise in the near future, Warehouse’s downward slide may soon be over, I feel.

At the safer end of dividend paying Trusts. Current price to buy 104p

dividend fcast 6.87p a yield of 6.6%.

One to consider, for the ‘safer’ dividend if u are nearer to the de-accumulation stage of your plan.

How I’m targeting a £10,000 second income from dividend shares

by Stephen Wright
The Motley Fool
For me, the point of investing is to earn extra income in retirement. And both growth stocks and dividend shares can be part of that project.

I own a number of stocks that don’t pay dividends, including Amazon and JD Wetherspoon. But they’re a key part of my plan to earn £10,000 a year in passive income.

If I were getting ready to retire today, I’d want to be in a position to earn as much income as possible. And sometimes, investing in growth stocks can be the best way to get to that position.

If I’d invested £1,000 in Unilever shares five years ago, I’d have an investment worth £882, plus £138 in dividends. Investing the same amount in Bunzl would have returned £1,491 in market value alone.

If I’d bought Bunzl shares five years ago, I could sell them and buy more Unilever shares today than I’d have if I’d invested in the company half a decade ago. Crucially, I’d receive more income as a result.
Of course, I could have reinvested my dividends to compound my returns. But while that narrows the gap, it doesn’t change the fact I’d be in a better position if I’d bought the growth stock five years ago.

An alternative
My long-term aim is passive income, but I’m not ruling out growth stocks as a means for getting there. But I’m also open to buying dividend shares that I think can perform well.

Take British American Tobacco, for example. The stock currently has a 9.43% dividend yield, but the company’s share price has been falling fairly sharply since 2017.
To some extent, this might not matter. If – and it might be a big ‘if’ – the dividend is secure for the long term, a 9.43% yield’s a golden opportunity.

A £1,000 investment compounded at 9.43% a year returns £135 after five years, £212 after 10 years, and £522 after 20 years. With that kind of dividend income, I probably won’t care what the stock does.

A stock I’m buying
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

One stock I’ve been buying is Primary Health Properties (LSE:PHP). The company’s a FTSE 250 real estate investment trust (REIT) that leases a portfolio of GP surgeries – mostly to the NHS.

The steady trend of increasing life expectancy in the UK should mean strong demand for its buildings in future. However, as is always the case with investing, there are risks for investors to think about.

Primary Health Properties has a record of increasing its dividend each year for over 25 years. But the amount of debt on its balance sheet might make maintaining this impossible in the future.

From an income perspective, any disruption to the dividend (which currently amounts to a 6% yield) would be unwelcome. But the company’s improving its financial position and could be a good long-term pick.

Aiming for £10,000
At an average dividend yield of 4%, I’ll need around £250,000 invested to earn £10,000 a year in passive income. I think that’s achievable, over time.

In terms of where to invest, my plan for the time being is simple. I’m aiming to buy whatever will generate the best return over time – whether that’s growth stocks or dividend share

SEQI offers a high yield from a diversified portfolio of infrastructure loans…

Overview

Infrastructure is essential to an economy and society, and from an investment point of view has many stable qualities. Sequoia Economic Infrastructure Income Fund (SEQI) offers investors a way to generate an exceptionally high yield by lending against infrastructure projects and assets. Unlike some more specialised peers, the trust owns a highly diversified portfolio of loans invested across multiple sectors, from new economy areas like digitalisation and the energy transition to the more long-standing asset types such as railways and ports.

SEQI invests in private debt, which means it typically acts on its own or with a small group of other specialised lenders to supply funding to projects which for a variety of reasons don’t easily fit within a public bond structure. This requires a high degree of expertise when it comes to origination and risk assessment, and this along with the illiquidity of the loans means that highly attractive yields can be earned. SEQI yields 8.8% on an annualised basis at the time of writing, which partly reflects the Discount. However, the portfolio itself yields around 10% in cash terms (i.e. the yield earned on the current market value).

This high yield is generated from a portfolio with a high degree of defensiveness. Gearing  not a part of the model, while investments are generally held to maturity. The extra yield comes from a portfolio typically invested in BB/B credit quality investments, at the top end of the high-yield market. Head of portfolio management Steve Cook and team are defensive in sector and security selection, with very little exposure to construction risk, and highly flexible in their ability to allocate across a broad variety of industries. The publication of monthly external NAV valuations brings a high degree of transparency.

The shares trade on a discount of 15.7% at the time of writing (at the tighter end of the discount range for listed infrastructure and credit trusts, reflecting the largest buyback programme in the alternatives space since July 2022, which continues .

Analyst’s View

Many of the themes supporting the cash flows to SEQI are some of the most well-established secular growth themes in the world economy: digitalisation, the expansion and “greening” of the power grid, and building out renewable energy, for example. Additionally, there is widespread recognition across the US and Europe that its core infrastructure is in desperate need of renewal. There has been a huge wave of investment in the equity of infrastructure as a result, with global assets at over $1trn. This is creating an attractive opportunity for debt investors: currently the yield-to-maturity of SEQI’s portfolio, which can be thought of as the portfolio’s internal rate of return (IRR) is around 10%, unlevered. This means that the trust offers a way to generate an equity-like return by investing in debt in some highly attractive growth themes, but with much more stability and defensiveness than is available in equities.

This is an asset class that has historically been the preserve of banks and institutional investors, but SEQI makes it available to the mass market. The team is highly experienced, bringing with them a wealth of knowledge from their time originating and managing these investments for investment banks before launching the fund in 2015. We think that the trust could be a good ‘one-stop shop’ for investors seeking to get the diversifying and defensive qualities of infrastructure into their portfolios.

Bull

• A high dividend yield from a portfolio with relatively low credit risk
• Highly diversified exposure to a specialist asset class via an experienced team
• Significant buyback programme offers source of return and demonstrates conviction in portfolio

Bear

• Complex asset class
• Yield on proportion of portfolio may fall with interest rates
• Currency hedging may be expensive in future