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


Which fund would have turned a £1,000 investment made on 31 January 2019 into £1,698 today? And which fund has either met or beaten its annual target return of 8-10% for 10 years in a row?

By
Frank Buhagiar

Doceo

3i Infrastructure (3IN) hits the target again
3IN clocked up an +11.4% NAV total return for the year which, according to Chair Richard Laing, means the infrastructure investor has now either met or beaten its annual target return of 8-10% for 10 years in a row. Laing describes the year as “another year of outperformance from our unique portfolio.” What’s unique is the fund’s underlying businesses being aligned with long-term megatrends. The full-year report lists a number of these including renewable energy, electrification, automation/digital operations, demand for healthcare, smart cities and urbanisation. And because of the exposure to these megatrends, the portfolio managers believe the fund can continue to deliver across the economic cycle. A fund for all seasons.

Investec: “The portfolio continues to perform strongly and we think the company remains well-placed to provide investors with a respectable yield and attractive total returns. We reiterate our Buy recommendation.”

Liberum: “We continue to view 3IN as one of the best-placed funds to deliver attractive NAV returns in a capital-constrained environment due to its active management of Core-plus companies”.

JPMorgan: “A headline discount of around 8%, which although narrow relative to peers is justified in our view by higher net returns given active management, relatively low financing costs, a materially higher discount rate than most peers and a proven ability to capture uplifts on exit. We thus see no reason to change our Overweight recommendation.”

Jefferies: “The portfolio’s underlying earnings growth and the potential for realisations continue to position it well going forward.”

Numis: “We would add to holdings for exposure to a well themed portfolio and strong management team.”

ICG Enterprise Trust (ICGT) refreshes the parts other funds can’t reach
ICGT reported a +2.1% NAV per share total return for the year. According to Chair Jane Tufnell, that brings the annualised NAV per share total return generated over the last five years to +14.6% and an annualised Share Price Total Return of +11.2%. In hard cash terms, £1,000 invested in the private equity investor on 31 January 2019 would now be worth around £1,698 (assuming reinvestment of dividends). Portfolio manager Oliver Gardey, puts the positive performance down to the fund’s focus on investing in companies with defensive growth qualities.

Looking ahead, the Tufnell believes ICGT is more relevant than ever. That’s because private ownership of companies is expected to keep on growing in the years ahead, which is handy as ICGT’s purpose is “to make the private available to the public”. As Tufnell writes, “we enable you to invest in parts of the economy that you cannot directly access through public markets.” Anyone else reminded of that famous 20th century advertising campaign for a Dutch beer beginning with the letter H?

Numis :“We believe ICG Enterprise’s NAV is a good result in a difficult market backdrop”.

Jefferies: “The introduction of a supplemental share buyback programme highlights the current wide discount in absolute terms and versus peers.”

JPMorgan: “A key part of private equity investment company disclosure is measures of average EBITDA growth, valuations and debt levels. ICGT has listened to market feedback and increased the size of the sample of companies it covers such that it now represents circa two-thirds of the total up from circa one-third previously. In our view this makes the numbers more representative and is a very welcome change. We are Overweight.”

International Biotechnology’s (IBT) ‘quoteds’ steal the show
IBT comfortably outperformed over the latest half year courtesy of an +11.2% NAV total return per share – the Reference Index could ‘only’ manage an +8.2% gain. The star of the show was the fund’s quoted portfolio which generated a +13.1% NAV per share total return – the unquoteds put in a more in line +7.9%. A thumbs up then for the investment strategy which looks to identify companies with innovative technologies, robust intellectual property and strong growth potential.

And the portfolio managers think the combination of reasonable valuations, the increasing pace of innovation, the improved competitiveness of companies and the relatively high number of new drugs being approved all bode well for biotech in 2024. A case of more of the same then?

Numis: “The long-term track record remains strong, with the fund outperforming the index over five and ten years and we believe that the fund, through its risk-aware approach, is well placed to continue this outperformance over the long term. IBT’s shares currently trade on a c.10% discount to NAV, which we believe offers an attractive entry point.”

3i Group’s (III) positive Action
III’s total return for the year ended 31 March 2024 came in at +23%. Chief performance driver once again was European discount retailer Action, which posted a +33% gross investment return. In his comment, CEO Simon Burrows, puts the strong performance down to investment decisions taken over a decade ago. One of these was Action in which 3i first invested back in 2011. Today, it owns 54.8% of the fastest growing non-food discount retailer in Europe and our largest portfolio company according to 3i.

Just how fast is Action growing? Net sales were up 28% to €11,324 million while operating EBITDA grew 34% to €1,615 million in 2023. And 3i has no plans to get rid of its stake any time soon. As Burrows writes in his full-year review “We have been clear for some time that we are going to hold Action for the long term, enabling us to benefit from its compounding growth and returns.” Can’t put it any clearer than that.

JPMorgan: “Overall, this is a strong set of numbers, though the premium to NAV has run up strongly ahead of the results to ~38% (LT average 15%), and we would not be surprised to see this contract at some point. But we have high conviction that the RoE (Return on Equity) over next two years will comfortably exceed 20% and, thus, prospective total returns still remain attractive. We remain Overweight.”

Liberum: “Overall, this is a mixed set of results, in our view, with Action’s performance holding up very well given the circumstances, but the company generally experiencing a sharper slowdown in growth and profits than expected. We wouldn’t be surprised to see some profit taking in the shares, any weakness in the share price should be short-lived and considered an opportunity to add stocks to a portfolio”.

North Atlantic Smaller Companies (NAS) keeps its powder dry
NAS posted a +3% NAV per share return for the full year, some way off the S&P’s +15.2% (in sterling terms), but comfortably ahead of the Russell 2000’s -2.3% (in sterling terms). One reason for the relatively stable performance is what Chairman Sir Charles Wake describes as NAS’ “conservative investment strategy” – as at end of January the fund held £70 million, or more than 10% of the market cap, in cash and US treasury bills. That means the investment managers have plenty of funds to hand to take advantage of any attractive opportunities they come across.

Winterflood: “Share price -5.4%, as discount widened to 28.0% from 23.5%. Repurchased 140k shares. Portfolio comprised 8.3% US exposure, 81.8% UK exposure and 9.9% US Treasuries.”