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

Global Opportunities remains conservatively positioned, while International Public Partnerships delivers another solid performance. abrdn UK Smaller Companies Growth continues to outperform, and it’s onwards and upwards for Onward Opportunities.

Frank Buhagiar•06 Sep, 2024

Global Opportunities (GOT) staying conservatively positioned

GOT’s objective is to generate real long-term total returns by investing in undervalued assets. Because of this, the fund does not follow a particular benchmark. But not to worry. For Chairman Cahal Dowds dishes out a couple of indices with which to compare the fund’s +3.1% NAV total return for the latest half year -the FTSE All-World Index, up +12.2% on a total return basis, and the Bloomberg Global Aggregate Bond Index, off -2%. The fund’s +3.1% total return down to what Executive Director Dr Sandy Nairn describes as a “conservatively positioned” portfolio. And that in turn is down to operating in “an environment with elevated valuations and meaningful government debt overhangs.”

No plans to change the cautious stance anytime soon, it seems “We anticipate that the stark economic choices facing the major economies will prove increasingly difficult to ignore and will become ever more evident in company results/forecasts. Combining this with an unfolding election season and the global geopolitical tensions suggests that the seemingly unshakeable optimism of equity markets will be severely tested.” The conservative positioning, focus on identifying attractive investments and avoidance of any meaningful broad equity market risk have worked wonders for the portfolio’s volatility – the portfolio has had a volatility level around one third of equity markets. Dr Nairn however believes “There will come a time when it is appropriate to take a more sanguine view of risk and we are prepared to do this when the potential returns justify.” Just not now. Market keeping its powder dry too it seems – GOT shares closed 2p lower on the day at 294p.

Winterflood: “Portfolio remains conservatively positioned in light of manager’s concerns over equity market valuations remaining at historically high levels implying substantial risk. As at 30 June, cash and equivalents accounted for 33.8% of portfolio value, with 44.0% in equities, 14.9% in long-short fund and 7.3% in Private Equity fund.”

International Public Partnerships (INPP), solid

INPP Chair Mike Gerrard described his fund’s half-year performance as “solid”despite a slight decline in NAV to £2.8 billion (3 December 2023: £2.9 billion). That followed a c.30bps increase in the weighted average of the discount rates used to value the underlying investments. As the half-year report notes, the increase in the discount rate “is designed to reflect perceived changes in the rates of return currently required by investors and, ultimately, ensure that these point-in time valuations reflect prevailing market conditions.” Back to the solidity Gerrard refers to. According to the Chairman, this is based on “the resilience of its diversified, low-risk portfolio and fundamentals of the investment case.” All of which has enabled the infrastructure fund to deliver on its progressive dividend policy every year since its 2006 IPO. “Moreover, the strength of the portfolio is such that no further investments are needed to continue this policy for at least the next 20 years.” All sounds, well, solid.

And yet, as Gerrard notes, the shares trade at a discount to net assets. The Board thinks this materially undervalues the fund. No need to take their word for it. For having raised c.£235 million through disposals in the last 18 months, the “realisation proceeds achieved were in line with the last published valuations.” What’s more, “The Company expects further divestment activity and, as a consequence, also expects to extend its existing share buyback programme, increasing the programme to up to £60 million. This demonstrates our confidence in the Company’s valuation.” Investors happy to pay up for a solid company – shares tacked on 3.2p to close at 130.8p.

Liberum: “The H1 results were largely uneventful at the portfolio level, which is a good thing.”

Investec: “INPP continues to trade at a material discount to NAV and we estimate that the implied returns at the current share price are c.9.3%. We remain comfortable with our Buy recommendation.”

abrdn UK Smaller Companies Growth (AUSC), a believer in the Matrix

for the year, almost double the 10% posted by the Deutsche Numis Smaller Companies plus AIM (ex-investment companies) Index. Share price total return fared even better up +21.0%. The investment managers are particularly pleased with “the consistency of outperformance” after the fund beat the index in nine of the 12 months. That outperformance “has predominantly been driven by stock specifics, companies reporting strong trading and earnings upgrades, with share prices responding appropriately, which is a distinct improvement on the situation over the last couple of years.”

As Chair Liz Airey notes, “The focus remains on the resilience of the companies in which the portfolio is invested and the experience and flexibility of the management teams to adapt their companies to the changes to the economic environment that are occurring.” Picking the right stocks has and continues to be key. Here the investment managers are helped by The Matrix, a screening tool that identifies companies it believes are displaying Quality, Growth and Momentum dynamics. According to the investment managers, “The Matrix will continue to be valuable as we move through economic cycles.” Anyone else feeling the urge to watch the 1999 Hollywood blockbuster – The Matrix? Perhaps enough investors did just that on the day of the results, as the share price closed unchanged.

Winterflood: “Both stock selection and sector allocation contributed to relative performance. Style headwinds have diminished and returns have been predominantly driven by company trading results and earnings upgrades. Managers observe ‘fairly smooth positive return pathway’ since October 2023. UK fund outflows are thought to have stabilised and ‘showing tentative signs of reversal’.”

Onward Opportunities (ONWD) marches onwards

ONWD maintained its good start to life as a public company: a +9.2% NAV total return for the latest half year brings the 12-month tally up to +20.6%. That trumps the UK AIM All Share’s +3.1% with room to spare. As for where that ranks the fund in terms of its peers, fourth out of the 26 trusts in the AIC UK Smaller Companies sector. The strong performance enabled the company to raise a further £4.7m by issuing new equity, thereby increasing the capital base by a quarter. Small wonder ONWD was named ‘IPO of the Year’ at the Small Cap Awards. And as Chair Andrew Henton points out, “the important point to observe over the 18-month trading period since inception of ONWD is the strong, positive NAV growth within the portfolio – and this notwithstanding the vagaries of macro events.”

Henton believes there’s more to come “It remains the view of the Board that there is more upside opportunity in smaller company valuations than downside risk, and any market rerating which does take place will represent a fillip.” Continued strong performance will help continue to grow the size of the fund (currently total assets stand at £20 million). And as the fund grows in size this “will allow the Company to be marketed to a wider range of prospective institutional investors, many of whom are presently excluded from buying shares due to a combination of technical thresholds including minimum ticket sizes and maximum ownership stake.” Shares were unchanged on the back of the results, no doubt taking a well-deserved breather before resuming their onwards and upwards trajectory.

No broker commentary on the latest results at the time of going to press, but below is an extract from ONWD’s IPO of the Year Award back in June 2024:

“Onward Opportunities Ltd was set up by Dowgate Capital to invest in undervalued smaller companies – generally under £100m market capitalisation. It was seeking companies with qualities such as asset backing, cash flow, growth potential and strong management. On 30 March 2023, the company raised £12.75m at 100p/share. A portfolio of predominantly AIM companies has been built up. In a time of tough markets, the NAV has grown to 120.14p/share by the end of May 2024. That makes it one of the top performing smaller company-focused investment companies.”