Doceo Results Round-Up

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

Six investment companies in this week’s results round-up – Schroder Oriental Income, VinaCapital Vietnam Opportunity, CQS Natural Resources Growth & Income, abrdn Asia Focus, HarbourVest Global Private Equity and BlackRock Smaller Cos – all posting positive returns, but which fund clocked up an +18.2% NAV per share total return for the full year?

By Frank Buhagiar

Schroder Oriental Income’s (SOI) 500%+ return

SOI’s +18.2% NAV per share total return for the full year, more than double the MSCI AC Pacific ex Japan Index’s +8.6% (sterling). SOI’s significant underweight allocation to China differentiates it from the benchmark. The outperformance is no one-off. According to Chairman, Paul Meader, £1 invested in the fund at the time of launch in 2005 would today be worth £6.38 assuming all dividends reinvested. The equivalent figure for the benchmark is £4.14. As for the FTSE 100, the figure stands at just £3.27.

That is of course the past. Can the fund keep up the strong performance? Meader sees “no reason why not. Asia remains a vibrant and growing region, largely unfettered by the headwinds, such as huge government debts and weak productivity growth, faced by Europe and North America. And issues that have troubled Asia in the past, like large current account deficits or poor corporate governance, are generally diminishing.” The numbers good for a penny and a half increase in the share price to 271.5p.

Numis: “The focus on income means the portfolio has significant sector overweights, in Financials (+10.4% at 30 September, excluding cash), while the fund is overweight Technology (+4.3%). It also has geographical biases (overweight in Singapore, whilst Hong Kong is favoured over China). We believe that the fund benefits from an experienced fund manager, Richard Sennitt, who has run open-ended Asian Income mandates at Schroders for over 20 years”.

VinaCapital Vietnam Opportunity (VOF) outperforms

VOF outperformed over the full year: NAV total return of +7.8% (USD terms) compared to the VN-Index’s +4.9%. Share price topped the lot, rising +17.6%. The strong performance though overshadowed by the passing of lead portfolio manager, Andy Ho, in June. VinaCapital CEO, Brook Taylor, has taken on the role of interim lead of the fund, while Andy Ho’s long-serving deputies, Khanh Vu and Dieu Phuong Nguyen, continue as co-lead managers. The two lead managers expressed their “sincere thanks to our diligent and dedicated investment team who have worked tirelessly through this recent period of volatility and personnel challenges”. Shares closed down 4p at 456p on the day of the results.

Numis: “We remain positive on the outlook for Vietnam, which has benefited from diversification away from China. The outlook is supported by a strong and balanced economy, a young, educated population of c.100m and competitive labour costs, with a growing middle class which is driving growth in domestic demand for goods and services. We believe that the shares look attractive on a c.21% discount, supportive by substantial buybacks.”

CQS Natural Resources Growth & Income’s (CYN) capital performance

CYN’s +7.2% NAV per share total return for the year pretty much in line with the MSCI World Metals and Mining Index’s (sterling adjusted) +7.3%, although some way off the +17.4% return of the MSCI World Energy Index (sterling adjusted). Tables reversed over the longer term: over five years, NAV per share has returned +118.7% compared to +73% for the MSCI World Metals and Mining Index and 64% for the MSCI World Energy Index. The investment managers used capital letters to highlight the year’s main drivers “A FOCUS ON ENERGY, GOLD, SHIPPING AND URANIUM HAS DELIVERED IMPROVED TOTAL RETURN”. Encouragingly, as Chair, Helen Green, notes, the new year has got off to a good start “Against a backdrop of global tensions, the Company has continued to perform well since the Company’s year end and remains strongly positioned to benefit from demand in resources, energy, and shipping.” Shares closed down 3p at 190.75p, investors adopting the wait-and-see approach.

Winterfloo:d “Exploration & production, crude shipping and coal represent c.30% of NAV; industrial metals 9%; precious metals >30%; energy transition c.17% (primarily uranium).”

abrdn Asia Focus’ (AAS) sees potential in Asian smaller companies

AAS’ full year NAV and share price rose +7.9% and +8.8% respectively. That compares to the MSCI AC Asia ex Japan Small Cap Index’s +14.1% (sterling) total return and the MSCI AC Asia ex Japan Index’s +7.6%. Chair, Krishna Shanmuganathan, notes the “absolute returns have been reasonable relative to a broader peer group of Asian funds, and your Manager maintains a preference for more diversified exposure to the region versus the small cap index which has become increasingly concentrated across fewer markets.”

It’s an approach that has served the fund well in the past. As the Chair points out over the long term, the NAV has averaged annual growth of +11.9% since inception, “an outstanding level of sustained performance, and reflective of your Manager’s ability to invest in hand-picked smaller companies in Asia that are difficult to access for UK investors.” What’s more, the portfolio managers sound confident for the future “we see much potential in Asian smaller companies, and our portfolio of well-researched Asian small caps offers a unique investing opportunity.” Investors liked what they heard, shares added 3p to close at 283p on the day.

Winterflood: “Asian smaller companies are forecast to generate earnings growth of c.41% in 2024, while trading at a c.24% discount to US small caps.”

HarbourVest Global Private Equity’s (HVPE) share price disconnect

HVPE’s +3% NAV per share growth for the half year, some way behind the FTSE All-World Total Return (FTSE AW TR) Index’s +12.6%. Not enough to dent the fund’s clear outperformance over ten years: NAV per share is up +239% while the FTSE AW TR has only managed +144% (USD). All good stuff then, at least in terms of NAV.

The share price rose +12.7% over the half year to £26.10 after the discount to NAV narrowed from 42% to 34%. But since period end, the share price has fallen back to £23.20. Chair, Ed Warner, thinks the share price has got it wrong “HVPE’s portfolio investments have proven remarkably resilient over the past few challenging years, which speaks to their quality. We view the future for HVPE with confidence and believe that the share price in no way reflects the performance by the Company over many years and the opportunities that we believe lie ahead.” Market is a believer too, marking the shares +1.5% higher by close of play.

Jefferies: “The fund’s prospects remain intrinsically linked to exit activity, not least because of how the ultimate size of the 2024/2025 distribution pool balance is contingent on near-term realisations.”

Numis: “HVPE’s shares trade on a c.44% discount, which we believe is too wide for a high quality manager”.

Winterflood: “In our view, HVPE’s current discount of 41% implies a level of valuation scepticism that does not align with uplifts of +29% across 86% of transaction value during the period.”

BlackRock Smaller Companies’ (BRSC) ahead of the wider market

BRSC’s Half-year Report showed just how well UK small caps fared in the six months to 31 August: NAV up +13.9%, share price up +17.0%, Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index up +13.2%. All comfortably ahead of the wider market: the FTSE 100 Index was up +12.5% while the FTSE 250 Index rose by +12.6%. The opening paragraph of the Investment Manager’s Report, however, suggests it was not all plain sailing “The first six months of this financial year have offered so much that it is even more challenging than normal to find a pithy introduction.” Easy to see why given the macroeconomic/geopolitical challenges faced.

The investment managers don’t appear to be fans of the new Labour Government either “Sadly, their early statements have generated increased uncertainty as the market tries to understand how the government will shape policy to fill the ‘£22 billion black hole’.” Better news elsewhere though “On a global basis the more recent economic data suggests a soft landing is still the likely outcome.” And then there is always valuations to fall back on “the valuation of UK small and mid-cap companies is attractive on an historic basis. As we move through this near-term noise, the opportunity presented by the UK small and mid-cap market should be revealed”. Shares tacked on +1.8% on the day – market not too concerned by what the Labour Government has in store, it seems.

Winterflood: “During HY, the managers added to Leisure names in anticipation of increased spending as a result of rising consumer confidence, as well as companies in the housebuilding and related sectors in light of lower interest rate expectations and the new government’s housing policies.”