A 360 view of the latest results from USA, JEMA, TIGT, IAT, CCJI
Find out which investment company was created over a drink in a Wiltshire pub back in 2015 in the latest Weekly 360 round-up of results and commentary from the investment company space…

By
Frank Buhagiar

Doceo

Tribute of the week
“‘The big money is not in the buying and the selling, but in the waiting’, Charlie Munger. It feels only fitting to begin this Interim Report with a Mungerism. In part to mark the passing of a legendary investor but also to highlight its timeless relevance. The waiting, or a willingness to be patient, is an underappreciated skill set in investing.” Baillie Gifford US Growth (USA) Interim Management Statement.

Feels like a dream opportunity
Share price outperformance for Baillie Gifford US Growth (USA) over the latest six-month reporting period. According to the Interim Management Statement: “…the Company’s share price and NAV (after deducting borrowings at fair value) returned 12.3% and 4.1% respectively. This compares with a total return of 7.9% for the S&P 500 Index…(in sterling terms).” The statement goes on to remind readers that “We have a long-term approach and would ask shareholders to judge performance over periods of five years or more.” The investment managers add: “While share prices have shown strength over the past year, we continue to see opportunity in the dislocations between stock prices and the underlying valuations of companies. Future cash flows and earnings drive value, and a fundamental pillar of our investment philosophy is that price reflects value in the long run. However, price is driven by mood, momentum and broader sentiment in the short term, creating opportunity.”

The outlook kicks off with an admission: “When fundamentals will be better reflected in share prices is nigh on impossible to predict. Trying to predict the mood of the multitude of market participants is a fool’s game for the long-term stock picker. Instead, we must double down on what differentiates us – long-term, active, growth, bottom-up stock pickers focused on fundamentals. British physicist David Deutsch said, ‘We have a duty to be optimistic. Because the future is open, not predetermined and therefore cannot just be accepted: we are all responsible for what it holds’. We take that responsibility seriously. US Growth holds companies which are determining that future. But it will take time. Navigating storms is part of the process. We believe the portfolio is well-positioned to navigate and realise its potential. That feels like a dream opportunity.”

Numis notes: “Performance has improved in recent months, and although NAV total returns lagged the benchmark during the six months to November, it has outperformed post-period end. This is partly due to increased expectations of a Fed pivot…The fund has produced NAV total returns of 112% (13.7% pa), compared with 125% (14.9% pa) for the S&P 500 since its inception…Baillie Gifford US Growth is differentiated from its peers by a focus on disruptive growth stocks and the ability to invest up to 50% of the portfolio in unquoted securities, (31% of total assets at 31 December). The focus on high growth companies, in line with Baillie Gifford’s typical approach, means that the portfolio looks very different to any index. As a result, we would expect periods of significant out and underperformance versus the benchmark, which has been demonstrated since launch, and as the managers’ stress, investors need a long-term time investment horizon.”

Weather forecast of the week
“It has been a better year. The storm is easing. We know we cannot assume that the sun will always shine, but we take comfort from the fact that the companies held in your portfolio are executing, and executing well.” Baillie Gifford US Growth (USA) Interim Management Statement.

A tilt towards value and income
First set of Finals from JPMorgan Emerging Europe, Middle East & Africa (JEMA) (formerly JPMorgan Russian Securities) since the investment objective (and name) change. As Chairman Eric Sanderson explains: “The operations, control structures and trading of securities under the new investment objective and using the Company’s new name were completed and commenced in the first half of this reporting period. The…completion of this process allowed the Company to commence measurement of the performance of its portfolio against its new reference index, the S&P Emerging Europe, Middle East & Africa BMI Net Return in GBP on 1st March 2023.” So, how has the fund performed? “…in the eight months…to 31st October 2023 the Company’s net asset value increased by 2.2%, an out-performance of 1.9% against the reference index…On a share price total return basis, the Company returned 10.0%…”

As for what’s in the new portfolio: “The Company’s new investments acquired in this reporting period are considered to be in high quality companies, with a tilt towards value and income and a focus on maximising total return for shareholders. The new investments have also changed the portfolio’s geographical focus with Saudi Arabia, South Africa and UAE representing 31.7%, 23.8% and 14.2% of the portfolio respectively…With little prospect of Russia’s invasion of Ukraine being resolved in the foreseeable future or limiting of the existing strict economic sanctions, the Company’s new investment objective at least helps the Company steer through this very difficult period. Although cognisant of the Company’s continuing holdings in Russian companies, the challenge for the Board is to use the new investment objective to grow the Company’s assets in a way that promotes the success of the Company for the benefit of the members as a whole.”

Winterflood writes: “JEMA will continue to participate in corporate actions regarding its Russian holdings…The Board noted that some institutions have identified sanction-compliant methods to sell Russian holdings at a substantial discount and will consider such actions where permissible and beneficial for shareholders.”

Numis adds: “…it is positive to see a period of outperformance, however we suspect that investors will be more focussed on the status of the Russian holdings, which are currently being valued at a nominal value. We note that Baring Emerging EMEA Opportunities, which also had Russian exposure prior to its invasion of Ukraine, has recently realised two of its Russian holdings which were held through global depositary receipts and is considering possible structures to enable it to separate Russian assets. The board of JEMA notes that the manager is considering its options with respect to its Russian holdings…There is currently c.£24m derived from dividend/tender proceeds held within the custody ‘S’ account…and an easing of sanctions/restrictions may unlock this value but ultimately it is extremely difficult to determine if or when this may occur.”

FAQ of the week
“We are often asked what the catalyst might be for a reversal of fortunes for UK equity valuations. We do not claim to have a good answer to this. That being said, and heading into a UK election year in 2024, we are hopeful that better long-term political thinking and prioritisation towards our home equity market will emerge.” Troy Income & Growth Trust (TIGT) investment managers.

UK equity valuations are compelling
Could this be the final set of Finals from Troy Income & Growth Trust (TIGT)? Will be if the proposed merger with STS Global Income & Growth Trust (STS) gets the green light from shareholders. In the meantime, according to Chair Bridget Guerin: “The Company delivered a…NAV…per share total return of +6.6% and a share price total return of +6.3% over the year to 30 September 2023. Over the same period, the FTSE All-Share Index produced a total return of +13.8%…The two most significant drags on performance were some of the Company’s holdings in large, low cyclicality Consumer Staples companies and the two holdings in the Materials sector. Sterling’s strong appreciation against the dollar was also a headwind, impacting the Company’s small number of US-listed holdings as well as the predominantly overseas earnings of the portfolio as a whole.”

Looking ahead, the Chair writes: “In the coming year, the UK market is likely to continue focusing on the path of interest rates, inflation, and the related impacts on corporate and consumer health. The Managers expect continued pressure on earnings, which resulted in a decline in aggregate UK dividends in 2023. In this environment, the Board sees clear virtues in an emphasis on quality, low cyclicality business models that can fund growing, comfortably covered dividends and we remain optimistic about this investment style for the future.” The investment managers point out that: “Despite our caution on near-term earnings, we believe that UK equity valuations are compelling. The UK is home to various world-class businesses and over the past year we have found exciting valuation opportunities on offer. These have been across a range of sectors and has resulted in six new holdings. We believe the Company has a strong portfolio and a high-quality list of potential stocks – we are well placed to take advantage as further opportunities arise.”

Winterflood writes: “TIGT has agreed terms for a proposed combination with STS Global Income & Growth (STS). If approved by each fund’s shareholders, this will result in the voluntary liquidation of TIGT and the rollover of its assets into STS in exchange for the issue of new shares of STS (on a FAV for FAV basis). Underperformance was a result of specific stock price movements, as well as the fund’s quality-orientated investment style, which faced headwinds compared to more value-orientated styles. Sterling’s appreciation against the dollar was also a headwind.”

Description of the week
“The investment backdrop during the past 12 months can be well summarised as ‘unsettled’.” Troy Income & Growth Trust (TIGT) full-year Manager’s Review.

Paid to wait
Half-year Report from Invesco Asia Trust (IAT). Chairman Neil Rogan has the numbers: “After a strong run of outperformance the Company’s NAV total return over the six months to 31 October 2023 of –5.9% was below our benchmark (MSCI AC Asia ex Japan Index) total return of –2.9%. The share price total return was –7.8% with the discount widening from 12.4% to 14.2% over the period.” But, “Despite the short-term underperformance, the NAV and share price performance remains superior to that of the benchmark index over one year, three years, five years and ten years…” And as the Chairman explains, the fund is currently something of an income play too: “A half-yearly dividend of 7.20p was paid on 23 November 2023 in accordance with our policy of paying two dividends over a year amounting to approximately 4.0% of NAV. This puts the annual dividend yield on the share price at 5.0%, based on the share price of 296.00p at 31 October 2023.”

In terms of outlook, it’s all about winds. Firstly, “Headwinds remain: China’s recovery is being hampered most notably by property oversupply and bad debts. Persistent inflation in the United States has led to American interest rates being higher for longer, which puts pressure on Asian currencies. Monetary tightening in the US and Europe will…further negatively reduce demand for Asian exports…” Then tailwinds, “The surprising thing is that favourable tailwinds have not yet appeared. There is the possibility of a rapprochement between the US and China…Dollar interest rates and US bond yields are close to peaking…Asian corporate governance is much stronger these days, so many companies can prosper even through harsh times. Asian economies are more resilient than in previous cycles…” And what if there is no wind at all? “If we are becalmed for a time, the dilemma becomes should you invest now or buy after things improve? If invested in Invesco Asia Trust, we would argue that you are paid to wait. Not only are the valuations of the underlying investments at unusually attractive levels but you have the double discount of the share price relative to the net asset value. On top of this comes a 5% annual dividend yield…”

Winterflood points out: “Exposure to China/Hong Kong was key detractor, alongside India underweight (now -7%). Stock selection elsewhere contributed, particularly in Korea and Taiwan. The managers believe that ‘the upside risk is now greater than the downside risk’ for Chinese equities. Lead manager Ian Hargreaves and deputy manager Fiona Yang will swap roles from 1 May 2024.”

Summer memory of the week
“One summer’s day back in 2015, conversations with Richard Cardiff in a Wiltshire pub, led to the creation of the Company.” CC Japan Income & Growth (CCJI) Chairman Statement.

Strong
That’s how Chairman Harry Wells described CC Japan Income & Growth’s (CCJI) full-year performance: “I am delighted to report a year of strong performance to 31 October 2023…NAV…total return of the Company which includes income, increased by 18.9% in sterling terms. The Share price, again measured by total return, rose 20.9%. This represents significant outperformance against the TOPIX Total Return Index, which rose 12.0% in sterling terms during the year.” And the outperformance is no one-off: “Since launch in December 2015 until the recent financial year end, the Company’s NAV total return, including dividend distributions, recorded a 117.4% increase, continuing to outperform the sterling adjusted TOPIX total return index, which rose 77.0%.”

And the Chairman believes there more to come: “Despite decent returns over the last decade, the Japanese equity market remains undervalued. The earnings yield dwarfs the negative return from cash. The Government and The Tokyo Stock Exchange are committed to cleaning up capital inefficiencies and boosting returns on equity. Companies are being forced to change their behaviour. TOPIX listed companies are still sitting on considerable amounts of cash estimated at the yen equivalent of over US $1 trillion. This should steadily be reduced through increasing shareholder distributions, share buy backs, management buyouts…and private equity deals…For now, BOJ monetary policy remains uniquely accommodating compared to other major Central Banks…Forecasts for corporate earnings growth are healthy…” And if that’s not enough, while “World equity markets tend to take a lead from the policy actions of the US Federal Reserve…Japanese equities now stand out on their own merits.” The result? “Our mandate is well placed to continue to provide solid total returns…”

Comment from Winterflood: “The Board ‘remains alert to any opportunities that could arise which could be incremental to our market capitalisation’, noting the ‘increased trend of consolidation within the investment trust industry not least the Japanese sectors’.”