The Results Round-Up – The Week’s Investment Trust Results

Mid Wynd looks forward to a more normalised market environment; Schroder Asian Total Return goes defensive; VH Global Sustainable Energy likes being different; Oakley Capital flies the private equity flag; India Capital Growth thinks execution is key; RTW Biotech expects to be busy; while Schiehallion sees sentiment improving.

Frank Buhagiar

Mid Wynd International (MWY) and the Compounders

MWY +17.1% share price total return for the year, a tad short of the MSCI All Country World’s +20.1%. NAV per share, a little further behind at +13.9%. Chairman, Russell Napier, puts this down to the concentration of market returns in a handful of US megatechs, aka the Magnificent 7. Nevertheless, positive start for new investment managers Lazard Asset Management. The new team promptly set about rebalancing the portfolio (35 stocks were added, another 35 sold) to bring it into line with their Global Quality Growth strategy. This focuses on “Compounders”, companies “capable of generating consistently high returns on capital and reinvesting in its business to drive future growth.”

In the meantime, the investment managers “are comfortable with the Company’s performance in a short-term market environment that is unusually ‘narrow’ – where a small number of stocks have generated a disproportionate amount of the overall market return.” As for what a “small number of stocks” looks like, less than a quarter of the S&P 500’s constituents beat the MSCI ACWI in H1 2024, the lowest figure since at least 1980. The managers “believe equity markets will broaden. A strategy such as ours, which is focused on financial productivity, should benefit in a more normalised market environment.” Share price added 7p on the day to close at 777p. Market expecting a “more normalised environment” sooner rather than later?

JPMorgan: “In common with every fund invested in global equities that compares its performance to a global market cap weighted index, the impact of Nvidia has been the most material component of relative performance. MWY has no holding in Nvidia. With that context in mind it is perhaps not too surprising to see the start of Lazard’s tenure as manager of MWY as a period of relative NAV underperformance but in our view it is too early to judge the success of the approach within MWY and the manager’s global equity quality growth strategy has a long history of good returns in other funds.”

Schroder Asian Total Return (ATR) Goes Defensive

ATR outperformed over the half year: a +10.1% NAV total return comfortably ahead of the MSCI AC Asia Pacific ex-Japan Index’s +9.5%. The fund’s technology holdings and use of gearing both mentioned in despatches. The strong performance means, on an NAV basis, ATR has beaten the Index over the one, three, five and ten-year periods. A full house!

Sounds like the investment managers are looking to protect that track record. A defensive position has been adopted because “current indicators are now decidedly neutral to cautious with limited scope for material short term positive returns based on historic trading patterns. What does this mean in practice? We have reduced gearing down to 5% and we are now in a modest way adding to capital preservation strategies.” Some of the fund’s technology positions in Taiwan have also been trimmed. “All of this should mean the Company is positioned a little more defensively.” Market liked what it heard – shares tacked on 3p on the day to close at 451p.

Winterflood: “Managers observed that Taiwan market has become ‘frothy’, driven by AI theme, with MSCI Taiwan +30% over H1 2024. Portfolio remains significantly underweight China/Hong Kong (c.17% exposure vs. c.27% benchmark).”

VH Global Sustainable Energy Opportunities’ (GSEO) Differentiated Portfolio

GSEO’s -5% NAV per share decline for the latest half year may have been down to adverse foreign exchange movements, but the longer-term track record remains robust: 8% total annualised NAV return since IPO to June 2024. Dividend looks robust too with the payout fully covered by cash. Chair, Bernard Bulkin, believes “This reflects the Company’s differentiated portfolio, which continues to generate predictable and healthy income to support GSEO’s attractive dividends.” Only half time in terms of the year and in the second half, “focus will be on enhancing the portfolio’s value by completing the construction of existing assets and continuing to create additional value through active management of the operational assets.” Shares ticked a little higher to close at 78p.

Numis: “We recently published a detailed note highlighting potential for attractive total returns from GSEO’s differentiated portfolio, as construction assets complete and asset optimisation strategies are executed”.

Jefferies: “the highly contracted revenue position remains GSEO’s key source of strength, supporting dividend cover and a projected increase in gearing.”

Oakley Capital Investments (OCI) Flies the Private Equity Flag

OCI’s +4% total NAV return per share for the half year would have been 6% had it not been for adverse forex movements. These aside, the underlying strength of the portfolio holdings there for all to see: average year-on-year organic EBITDA growth at the portfolio company level came in at 14%. According to Chair Caroline Foulger, NAV growth has been “driven by higher earnings across a portfolio of tech-enabled, disruptive businesses that have demonstrated an ability to perform regardless of the economic backdrop.” And the Chair believes this “underlines the attractive nature of Private Equity and the outcomes achievable through investing longer-term capital in high-growth, high-potential private businesses, coupled with hands-on management that influences the investment outcome.” All that private equity flag-waving good for a 4p increase in the share price to 503p.

Jefferies “A number of the aggregate portfolio metrics were surprisingly static, but importantly earnings growth remains strong.”

Numis “We think that the future looks bright for OCI and that an estimated discount of c.29% (adjusting for currency), offers an attractive entry point for a high-quality fund.”

India Capital Growth’s (IGC) Double-Digit Return

IGC’s +10.6% NAV total return for the half year, largely in line with the BSE Sensex’s +10.9% but some way off the BSE Midcap’s +26.7%. Despite this, since 2011, the fund has achieved a compound annual growth rate of +15.2%. In their outlook, the investment managers highlight concerns that the valuations for many companies are above historical averages and that the 20%+ annual earnings growth delivered by the corporate sector over the past three years will be hard to repeat given the high earnings base. That said, “the Indian economy is well positioned, with political stability, policy continuity and a favourable macroeconomic environment. Looking ahead, execution is critical.” If the 1.5p results day share price rise to 187p is anything to go by, the market has faith in IGC’s ability to execute.

Winterflood: “Primary detractor was zero weight in state-owned enterprises. Key sector detractor was Financials, while Healthcare and Communication Services contributed.”

RTW Biotech’s (RTW) Busy Half

RTW’s +3% NAV per share return for the half year brings the total gain since the fund’s 2019 admission to +87.7%. By comparison the Russell 2000 Biotech and Nasdaq Biotech are up +1.7% and +4.0% over the half year and +6.5% and +34.6% over the longer time frame. MD, Richard Wong, notes “an intense period of activity for the group, with 14 new core positions initiated, an IPO and a reverse merger.” Sounds like it is only going to get busier, as “The market environment for the biotech sector is improving and the opportunity set for stock picking is encouraging. As we look out to the second half of 2024, we are excited by prospects for the biotech sector and opportunities that the Group’s scale, post-Arix acquisition, presents.” Market containing its excitement for now – shares largely unchanged following the results.

Numis: “In our view, the fund offers an attractive way to access a sector that benefits from numerous tailwinds.”

Schiehallion (MNTN) Sees Sentiment Improving

MNTN’s NAV and share price moved in opposite directions over the half year: NAV down -3.2%, share price up +44.1%. Same goes for NAV and the operating performance of the portfolio companies: portfolio-weighted revenue growth was +41%. Encouraging news on the valuation front. According to the Interim Management Report, “The gradual uptick in private markets activity over the past twelve months have given us opportunities to compare our carrying valuations with external price discovery moments.” Out of 11 price discovery events, MNTN had to revalue its holdings upwards on nine occasions, with a median revaluation of +18%. The two occasions holdings were revalued down, the median revaluation was -2%.

The investment managers “believe the share price appreciation over the last six months hints at an improved sentiment in general towards growth equity in the markets. If so, it is a sentiment we share.” Not much of a surprise to see the shares a smidgeon lower on the back of the results, that 44% share price rise perhaps enough to tempt shareholders to take profits.

Numis: “We believe Schiehallion has an interesting approach and is run by Baillie Gifford who is a well-respected long-term growth investor.”