The Results Round-Up – The Week’s Investment Trust Results
ICG Enterprise delivered +2.8% NAV growth for the latest half year, with share price total returns outperforming at +10.3%. Other trusts also had notable performances: FEML saw an 18.7% return, PAC achieved a +10.8% gain, and ESCT delivered a +19.5% share price return.
By Frank Buhagiar
ICG Enterprise’s (ICGT) Engine of Growth
ICGT posted a +2.8% NAV per share total return for the latest half year. Share price fared even better with a +10.3% total return. Chair, Jane Tufnell, says the “solid NAV per Share growth” during a period of “continued economic and political headwinds” is down to “robust underlying earnings growth (LTM EBITDA growth: 14%), an active capital allocation policy and prudent balance sheet management.” The long-term track record stacks up well too. Over the five years to 31 July 2024, the fund’s investment strategy has delivered annualised NAV per share and share price total returns of +12.5% and +11.7% respectively. The Chair believes there’s more to come. That’s because “the Board maintains its positive outlook that private equity remains a strong engine of growth to outperform public markets.” The market seemed to agree, marking the shares up 10p to 1194p on the day.
Jefferies: “ICGT’s NAV continues to make some modest headway despite challenging market conditions and a FX headwind.”
Numis: “It is positive to see exits at continued uplifts to carrying values, with an average uplift of 26% on full exits during the period. We believe that the 39% discount is too wide for a high-quality manager and that the opportunistic buyback programme, alongside regular buybacks, should help to narrow the discount over time.”
JPMorgan: “we remain Overweight on account of the favourable portfolio metrics (14% LTM EBITDA growth,14.9x valuation, 4.4x debt) and disciplined capital allocation, with the buybacks and dividends.”
Fidelity Emerging Markets (FEML) Firing on All Cylinders
FEML’s +18.7% full-year NAV return comfortably ahead of the MSCI Emerging Markets Total Return Index’s +13.2%. That’s some second-half turnaround – in the first half, FEML’s +3.2% total return fell short of the index’s +4.4%. Chair, Heather Manners, believes this shows “the investment process is now firing again on all cylinders and driving strong NAV performance.” Stock selection, the main driver of outperformance during the year. But the Portfolio Managers also point out that “The Company’s extensive ‘toolkit’ added significant value over the year.” For toolkit, read gearing, mid-cap exposure, financial derivatives. The Managers believe this toolkit and the flexibility it delivers will prove its worth in today’s uncertain environment, “we will continue to use this flexibility to closely manage risk, all the while exploiting the most exciting opportunities throughout the emerging market universe.” Not much excitement around the share price which closed largely flat.
Numis: “FEML has a performance triggered tender offer, for 25% of share capital at a 2% discount to NAV, should the NAV underperform the MSCI EM in the five years to 30 September 2026. Performance has been disappointing within this period to date, with FEML producing NAV total returns of -13.4%, lagging the +3.9% from the MSCI EM index despite recent improved performance. Underperformance has predominantly been driven by overweight exposure to Russia prior to the invasion of Ukraine”.
JPMorgan: “the past financial year has seen an improvement in relative performance and shows some of the benefits of the strategy the managers follow. The use of short positions and what the managers describe as a toolkit, meaning use of financial derivatives, has added significant value despite the risk limits imposed. This is a differentiating feature of FEML vs its AIC Global EM peers. We are Neutral.”
Pacific Assets’ (PAC) Step-Up
PAC’s+10.8% NAV total return for the half year, a major step-up from last year’s +0.3%, although not quite enough to match the peer group average of +12.9% and the MSCI All Country Asia Pacific ex Japan Index’s (sterling) +14.9%. The main culprits behind the shortfall, Chinese and Hong Kong exposure.
Over longer timeframes, performance is assessed against UK CPI plus 6%. As Chairman Andrew Impey explains, that’s because “we believe that our largely UK-based investors are seeking to protect and grow their capital in real terms by extracting a premium over their home markets from the faster growing Asian economies.” Over the last five years, the trust has generated a +7.7% annualised return, a little behind the annualised CPI plus 6% figure of 10.8%. Impey puts this down to “unusually high inflation experienced in the UK and globally in recent years.” That means with inflation back around the 2% target level “the challenge presented by our performance objective of exceeding UK CPI plus 6% will become more achievable.” Market adopted a wait-and-see approach, shares ended the day unchanged.
Winterflood: “High exposure to India helped performance, with 5 of top 10 stock contributors being Indian companies. Top detractors were mainly Chinese/Hong Kong stocks.”
European Smaller Companies’ (ESCT) Picks and Shovels
ESCT outperformed the benchmark by +1.9% over the full year thanks to a +12% NAV total return. The share price topped the lot with a +19.5% total return. The latest numbers add to ESCT’s longer-term track record of outperformance: over five years, NAV total return stands at +73.3% almost double the benchmark’s +37.2%.
Chairman, Christopher Casey, gives three reasons why he thinks the outlook for European small-caps is positive: “very low valuations”, the falling cost of capital and “improving economic optimism”. But what seems to excite the Chairman most is that “Europe is fortunate to be the provider of the ‘picks and shovels’ of the big structural growth trends such as Artificial Intelligence, the ‘Green Transition’ and industrial automation. It is an exciting time for the European smaller company space.” Based on the muted share price reaction, seems investors are keeping a lid on their excitement for now.
Numis: “We regard ESCT as an attractive vehicle for investors looking for exposure to small/mid cap growth companies in Europe. It is currently trading at a 10.7% discount to NAV, and we note that Saba has been increasing its position, currently 13% as at 8 October, which may be a catalyst for corporate action.”
Winterflood: “the current valuation does not offer extraordinary value, although we would highlight that the Board has notably increased the level of buybacks this year, which should limit downside discount risk to an extent. In addition, we think there is scope for a re-rating should the fund’s strong absolute and relative performance record be sustained, potentially supported by economic improvement in Europe benefitting small caps.”
Fidelity Asian Values (FAS), the Contrarian
FAS’ +3.2% NAV total return for the year couldn’t match the MSCI All Countries Asia ex Japan Small Cap Index’s +13.7% in sterling terms. Chair, Clare Brady, puts the underperformance down to the portfolio managers’ investment style which is “bottom-up, contrarian and value-focused. While this style has historically delivered differentiated investment returns, it can also lead to periods of underperformance when extreme momentum is driven by investors focusing on a narrow range of areas, as has been the case recently in countries, sectors and themes such as India, technology and artificial intelligence (AI).”
One positive “With much of the investing world continuing to be in thrall to all things AI, your Portfolio Managers’ positioning in unloved and overlooked areas arguably carries limited downside potential, compared to other areas of the market, with the possibility of significant upside.” Nothing in the results to stop the shares’ recent strong run in its tracks. That’s likely down to the fund’s significant overweighting to China which has benefited from the series of measures unleashed by the authorities to stimulate the economy and market – shares are up almost 10% over the past month alone.
Winterflood: “Underperformance attributed to country allocation, especially notable overweight to China/Hong Kong (portfolio average weighting of 41% vs index 13%). Allocation to China/Hong Kong close to historical high due to process of taking contrarian positions in undervalued businesses. Underweight to India (19% vs 31%) also detracted.
