Doceo’s Weekly 360 – the week’s Investment Trust results

ATR outperforms expectations, strategic plans at FSFL provide cause for optimism and HGT’s Annual Results include a 26.2% share price total return.

Frank Buhagiar
15 Mar, 2024

Doceo’s Weekly 360 – the week’s Investment Trust results
A bumper week this week, so let’s get straight into it.

Ashoka India Equity (AIE) believes India is at the cusp of realizing its true economic potential

Inline half-year performance from AIE thanks to share price/NAV total returns of 16.3% and 15.7% respectively (sterling terms) – the benchmark index clocked up 16.4%. Chairman Andrew Watkins believes there’s more to come “India is at the cusp of realizing its true economic potential while benefitting from several secular tailwinds, the most important being its favourable demographics and rising income levels”.

Numis rates Ashoka India highly “Since listing in July 2018 Ashoka India has been an exceptional performer, producing NAV total returns of 155% (17.9% pa) compared to 86% (11.5% pa) for the index. It is interesting to see comments from the Board that the company is exploring consolidation opportunities. We rate Ashoka India highly, based on the strength of its track record and its clearly defined and differentiated investment approach”.

HgCapital (HGT) successfully navigating challenging market conditions

Highlights of HGT’s Annual Results include a 26.2% share price total return and 11.1% NAV total return. Chairman Jim Strang said “HgT delivered a resilient performance in 2023, successfully navigating challenging market conditions. The portfolio maintained strong underlying performance over the year with sales and EBITDA across the top 20 investments (76% of the portfolio) growing at 25% and 30% respectively”.

Winterflood “We retained HGT in our 2024 Recommendations, and these results offer little to dissuade us from this decision. We note that while some may feel that the 26.1x valuation multiple is on the expensive side, this is roughly in line with SAP, HGT’s closest listed comparable, which has significantly lower revenue growth”.

Numis “We continue to believe that HgT’s portfolio is of exceptional quality and is well placed to continue to deliver strong earnings growth which will drive value creation. HgT remains one of our favoured Investments”.

JPMorgan “At the current price of 457.5pps the shares are trading on a headline discount of 8.5%, with the implied discount at a similar level. This is narrow relative to peers, but we believe is justified on account of HGT’s track record of capturing material uplifts to carrying value, and the differentiated company exposure an investment in the shares provides”.

Liberum “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”.

Foresight Solar Fund’s (FSFL) strategic plans are cause for optimism

Chairman Alexander Ohlsson describes FSFL full-year performance as “resilient against a challenging market backdrop. Our operational strength, the powerhouse behind our progressive dividend, enabled us to comfortably meet our dividend target of 7.55p per share for 2023 and allows us to propose an above inflation increase of 6.0% for the 2024 target dividend of 8.0p per share”.

And Ohlsson is confident for future “After a challenging year for markets, we believe there are reasons for optimism. Industry fundamentals remain attractive and solar generation continues to be one of the cheapest and most reliable sources of electricity available. This promising outlook, coupled with Foresight Solar’s improved financial position and clear strategy to deliver income and growth, positions the fund well to capitalise on the opportunities ahead”.

Jefferies “FSFL had pre-announced a NAV per share of 118.4p at 31/12/23, resulting in a total return of 1.9% for Q4, and -0.4% for the year. Given the shares traded at wider than a 10% average discount over calendar 2023, the fund has triggered a discontinuation resolution (structured as a special resolution) to be held at the forthcoming AGM”.

Liberum “Based on the buyback yield in 2023 (c.2.7% –total repurchases/beginning of year market cap) and the current dividend yield, an implied total distribution of nearly 11% is within the top 20 of all alternative funds”.

Numis “Given the ongoing buyback, 200MW disposal programme which has shown some notable success to date, and a well-covered dividend, we believe the current discount of 23% remains too wide”.

Fidelity Emerging Markets’ (FEML) unique investment process

FEML posted a 3.2% NAV total return for the half year, a little short of the MSCI Emerging Markets’ 4.4%. The managers note “While the long book detracted overall, the short book performed well, and added over 100bps to relative returns over the six-month period.” According to Chair, Heather Manners “The managers’ ability to hold short as well as long positions – investing in well financed, well managed businesses that can drive growth, while also making money from identifying those at risk of disruption – is a key differentiating factor that is increasingly feeding into positive performance for the Company”.

Winterflood “Underperformance largely attributed to weakness in Consumer names held in China. Short positions contributed over 1% to relative performance. China allocation remains underweight. Latin American allocation increased over period, with managers seeing opportunities in Mexico and Brazil”.

Finsbury Growth & Income’s (FGT) Magnificent Five drive portfolio outperformance “Four of our magnificent five outperformed the FTSE All-Share last month; not that that was too much of a challenge because the index itself was effectively unchanged. Those five are the holdings in your portfolio of more than 10% of NAV and are ‘magnificent’ in the sense they are world-class and substantive businesses, each with a clear secular growth opportunity…we hope they will be drivers of value for our investors for years to come.” FGT factsheet for February 2024 during which NAV was “up 1.7% on a total return basis and the share price up 2.3%, on a total return basis, while the index was up 0.2%”.

Cautious optimism at Seraphim Space (SSIT)

1.8% increase in NAV per share at SSIT at the half-year mark. Chair Will Whitehorn said “Private companies continue to account for the majority of the portfolio (88.2% by number and 97.5% by fair value). The fair value of the private portfolio increased over the Period, reaching 121.5% vs. cost (121.4% excluding FX impact) at the Period end. The listed element of the portfolio remained depressed (13.2% fair value vs. cost)”.

Whitehorn said he is cautiously optimistic “Indications of inflation being tamed and interest rates having peaked has resulted in some evidence of improved sentiment in both the private and public markets. We continue to believe that SSIT’s current cash reserves are sufficient to meet the near-term capital needs of the portfolio”.

Liberum “Looking towards what might provide a further catalyst to the shares, a portfolio sale and higher magnitude share repurchase combination probably stands out”.

Numis “The portfolio comprises interesting companies, many of which benefit from first mover advantage which help to cement their place in a growing sector, helping to fuel a rerating. The shares are up c.50% in 2024 ytd, but we believe they remain cheap on a c.42% discount”.

Winterflood “We do not think that a 40%+ discount will be appropriate if 2024 indeed sees more widespread cash generation across the portfolio and further evidence of operational execution is provided, particularly once portfolio companies put the funds raised to work”.

Schroder Asian Total Return (ATR) Investment Managers on a possible cure for insomnia

“We will keep our strategy review mercifully short this year. For professional clients that would like a more comprehensive run down we would recommend they ask their Schroder contact for our 60-page Year of the Dragon report, a perfect cure for insomnia”.

ATR outperforms with room to spare

ATR’s 8.8% NAV total return for the full year comfortably above the benchmark’s 1.3%. Chair Sarah MacAulay says the “key to performance is our continued focus on long-term fundamentals when selecting stocks. In the case of China and Taiwan our outperformance was often as much about the stocks we avoided rather than the ones we held”.

Following a trip to Asia, the investment managers are feeling “a little more upbeat on prospective Asian stock market returns. We think inflation is likely to be less of a headwind and outside of China the economic picture in Asia looks reasonable. Company balance sheets are generally in good shape and whilst the earnings outlook is uncertain, valuations and market sentiment in the main reflect this in your Portfolio Managers’ view”.

Winterflood “The portfolio outperformed the index in 10 out of 12 Asia Pacific markets. The managers note that ageing demographics in Asia are likely deflationary”.

AVI Japan Opportunity Trust’s (AJOT) deep relationships pay off

Chairman Norman Crighton said that AJOT’s 15.8% return for the year means “Since its inception, AJOT has delivered returns of +40.5% versus +16.2% for the benchmark. In JPY terms, since inception, returns are significantly higher, at +73.7% vs +43.6% for the benchmark.” The Chairman puts this down to relationships “AVI’s investment team builds deep relationships with the management of every portfolio company. This approach has led to numerous shareholder-friendly measures being introduced across multiple companies which has delivered strong results for our investors”.

Numis “We think that AVI Japan Opportunity is an attractive way to access the Japanese market, through an activist approach seeking to unlock value from companies that the manager believes suffer from weak corporate governance and capital misallocation”.

Oakley Capital Investments (OCI) shows resilience

4% NAV per share total return and 18% total shareholder return at OCI for the full year. Chair Caroline Foulger believes the results are “testament to the resilience of the underlying portfolio and Oakley’s active management that, in spite of the unsettled nature of the global economy, the Company continued to deliver. Most importantly, total shareholder return was 18%, taking the annualised five-year total shareholder return to 24%. OCI continues to offer one of the most accessible ways to gain exposure to pan-European private equity through one of the industry’s best performing managers”.

Jefferies: “NAV performance has been relatively pedestrian of late, likely reflecting a cautious approach applied to future earnings and a lack of exit uplifts. However, this arguably sets OCI up for a strong recovery”.

Numis “The shares are trading at a 31% discount to NAV, which we believe offers exceptional value for exposure to a high-quality private equity manager, with a very strong track record”

Liberum “The underlying portfolio is growing well, benefitting from a focus on digital disruptors exposed to megatrends”.

Pacific Horizon (PHI) says east is the way to go

PHI outperformed over the half year courtesy of not falling by as much as the benchmark – NAV off 4.8% compared to 7.3% for the index in sterling terms. The Interim Management Report notes “a significant dispersion of geographic returns across the region, with the worst performing market indices, China and Hong Kong, both falling approximately 20%, while the best performing markets, India and Taiwan, rose approximately 16% and 8% respectively. The portfolio was generally well positioned in this environment, with India our largest country position. By contrast, China and Hong Kong were among our most substantial underweights”.

The investment managers “remain extremely positive on the long-term outlook. Asia has already taken up the baton of global demand growth. Asia is now better positioned financially than much of the developed world and, with a renewed investment cycle unfolding, Asian growth is likely to significantly outperform over the coming years. We believe looking east remains firmly the right course of action”.

Winterflood “Unlisted holdings 8.4% of NAV. Largest sector exposure remains India Real estate (10% of NAV), which was top contributor over period”.

Strategic Equity Capital (SEC) focusing on high quality

SEC’s 1.7% NAV total return for the half year was a little way off the FTSE Small Cap (ex Investment Trusts) Index’s 9.6%. According to the investment managers “This reflected the relatively defensive positioning of the portfolio compared to the wider market” That’s because the focus is “on high quality businesses in less cyclical parts of the market and with resilient business models and robust balance sheets”. Typically, these businesses are “exposed to structural growth, key competitive advantages or self-help opportunities”.

Winterflood “Underperformance largely reflective of defensive positioning of portfolio, e.g. being underweight cyclical sectors, such as Consumer Discretionary, which contributed strongly to index performance”.

Manchester & London’s (MNL) favoured themes gaining momentum

Tech-heavy MNL posted a 23.3% jump in NAV per Ordinary Share for the half year. Chairman Daniel Wright said “It is becoming ever more evident that corporate digitalisation and automation of the labour force command increasing significance, and the Manager’s three favourite secular growth themes of Cloud Computing, Artificial Intelligence and Semiconductor Use gather further momentum. In summary, the portfolio remains focused on larger capitalisation, liquid, listed stocks with profitable and cash generative business models that are aligned with some of the most exciting forward-looking themes of the day”.

Winterflood “Key stock contributors included Nvidia (22% of NAV), Microsoft (29%), AMD, Arista, Cadence, ASML and Synopsys. The managers expect secular growth in Electric Vehicles, Artificial Intelligence, Cloud Computing, IoT, Digitalisation and Automation driving the Semiconductor market to double over the next decade”