Funds on the Watch List this week include: SMT, SEIT, GRID, GSEO, DGI9, TENT, FGT, FCIT, AAIF, MUT, ATST, SONG Welcome to this week’s Watch List where you’ll find golden nuggets on trust discounts, dividends, tips and lots more…

By Frank Buhagiar 11 Mar

Min Read BARGAIN BASEMENT Discount Watch: 25 Our estimate of the number of investment companies whose discounts hit 12-month highs (or lows depending on how you look at them) over the course of the week ended Friday 08 March 2024 – five more than the previous week’s 20. 11 of the 25 were on the list last week:

Aquila Energy Efficiency (AEET) and Downing Renewables & Infrastructure (DORE) from renewable energy infrastructure;

LMS Capital (LMS) from private equity;

BlackRock Sustainable American Income (BRSA) from North America equity income;

Jupiter Green (JGC) from environmental;

Pacific Assets (PAC) from Asia Pacific;

Templeton Emerging Markets (TEM) from emerging markets;

City of London (CTY) and Shires Income (SHRS) from UK equity income;

Schroder European Real Estate (SERE) from property; and Hipgnosis Songs (SONG) from music royalties.

That leaves 14 new names: Schroder Income Growth (SCF), Merchants (MRCH), abrdn Equity Income (AEI) and Murray Income (MUT) from UK equity income; Global Opportunities Trust (GOT) from flexible;

BH Macro (BHMG) from hedge funds;

Utilico Emerging Markets (UEM) from emerging markets; BlackRock Throgmorton (THRG) and Montanaro UK Smallers (MTU) from UK smaller cos.; Asian Energy Impact (AEIT) from renewable energy infrastructure;

BlackRock World Mining (BRWM) and CQS Natural Resources Growth and Income (CYN) from natural resources & commodities; and Ceiba Investments (CBA) and Regional REIT (RGL) from property.

ON THE MOVE Monthly Mover Watch: Finally… A good week for Digital 9 Infrastructure (DGI9) – the share price stormed to the summit of Winterflood’s list of top-five monthly movers in the investment company space. Shares in the digital infrastructure investor are up 28.2% on the month on the back of the company’s 6 March announcement that “all closing conditions related to the Verne Transaction (the sale of the Verne Global asset) have now been satisfied…Closing of the Verne Transaction is now expected to take place before the end of Q1 2024.” Gresham House Energy Storage (GRID) held on to second spot after extending its monthly gain to 25.7% compared to +22.3% seven days earlier. Shares in the renewable energy infrastructure fund still benefiting from a series of director purchases and buybacks over the last month or so. In third, VH Global Sustainable Energy Opportunities (GSEO) courtesy of a 21% gain on the month. GSEO, another renewbie benefiting from share buybacks and director purchases – a whiff of a theme here. Yet another renewable in fourth, last-week’s top performer SDCL Energy Efficiency Income Trust (SEIT) – that 5 February update confirming the renewal of a long-term energy supply contract, in line cashflows and receipt of “a number of credible proposals” that could lead to the sale of some of the company’s assets still working its magic. That makes it one infrastructure fund and three renewables infrastructure companies in the top-four. Question is, could infrastructure names make it a full house? Step up Triple Point Energy Transition (TENT) to complete the clean sweep. Shares up 17.9% after the company published “a shareholder circular… regarding the proposed managed wind-down of the Company.”

Scottish Mortgage Watch: -0.3% How much Scottish Mortgage’s (SMT) share price is down on the month – some way off last week’s +5.9% monthly gain. NAV lost ground too – a +6.4% gain on the month shrunk to +2.8%. The wider global IT sector meanwhile finished the week up +2.8% compared to +4.8% seven days earlier.

CORPORATE BOX Insider Watch: 25,000 The number of Finsbury Growth & Income (FGT) shares acquired by fund manager Nick Train. According to the Company’s 5 March press release: “…Nick Train purchased 25,000 Ordinary Shares of £0.25 each in the Company (‘Ordinary Shares’) at an average price of 861.50 pence per share. As a result of the transaction, Mr Train now holds interests in a total of 5,362,243 Ordinary Shares, representing an aggregate 2.8% of the Company’s issued share capital.”

Fee Watch #1: 0.49% The ongoing charges ratio at F&C Investment Trust (FCIT): “Our Ongoing Charges figure declined to 0.49%, down from 0.54% in 2022. Management fees declined by 9.5%, reflecting the benefits of firstly our revised fee arrangement with Columbia Threadneedle Investments (0.3% on our market capitalisation up to £4 billion and at 0.25% thereafter), secondly a lower level of equity assets managed by third party managers and thirdly a lower fee arrangement with JPMorgan, our newly appointed US large cap growth manager.” (F&C Investment Trust Annual Report.)

Fee Watch #2: 17% The estimated reduction in abrdn Asian Income’s (AAIF) overall ongoing charges for 2024. As the Company’s press release of 05 March 2024 states: “The Company’s Board of Directors is delighted to announce…a reduction of the management fee the Company pays to abrdn…The new fee structure will be determined by the lower of the Company’s market capitalisation or net asset value, a change aimed at better aligning the fee with shareholders’ interests. The fee will be calculated monthly at a rate of 0.75% per annum on market capitalisation (or net assets, whichever is lower) up to £300 million, and 0.60% for amounts exceeding this threshold. This adjustment is anticipated to decrease the Company’s overall ongoing charges for the financial year ending December 31, 2024, by approximately 17% compared to the previous year.” Investment Manager Buy Watch: abrdn Asian Income (AAIF) Also announced on 05 March 2023 that “…abrdn has initiated its reinvestment of management fees program by subscribing to 190,000 shares of the Company as of today’s date, equivalent to approximately three months’ worth of management fees.” Chairman Ian Cadby had this to say: “We…commend our manager for demonstrating its support for the Company through the reinvestment of management fees program, reaffirming its commitment to reinvest a portion of the fees back into the Company.”

Dividend Watch: 4.5% Murray Income’s (MUT) year-end yield: “The dividend for the year ended 30 June 2023 was increased by 4.2% to 37.5p per share, giving a year-end historic yield for the Company of 4.5%.” As for the current year, “…the first three dividend payments for the year ended 30 June 2024 are 9.5p per share (previously 8.25p per share)…the fourth interim dividend will be lower than that for last year but it is anticipated to be not less than 9.5p per share, giving an expected total for the year of a minimum of 38.0p per share.” (Murray Income Half-year Report). 57 – the number of consecutive years Alliance Trust (ATST) has upped its payout: “The Board declared a fourth interim dividend of 6.34p on 20 February 2024. As a result, the dividend for the full year increased by 5.0% from the prior year to 25.2p per share (2023: 24.0p). This year’s dividend increase marks the 57th consecutive annual increase, a track record which is one of the longest in the investment trust industry, and one the Board is confident can be extended well into the future.” (Alliance Trust Final Results). 53 – how many years in a row F&C Investment Trust (FCIT) will have increased its dividend: “Subject to approval at the…AGM…shareholders will receive a final dividend of 4.5 pence per share…bringing the total dividend for 2023 to 14.7 pence: an increase of 8.9% over that of 2022. The increase compares to the 4.0% rate of inflation and means that the growth in our total dividend has exceeded the UK inflation rate over three, five and ten years. Indeed, the growth in our dividends over the past decade, at 63.3%, is almost double that of UK inflation over the equivalent period. Furthermore, as well as being our fifty-third consecutive rise in annual dividends, our full year 2023 dividend is our one hundred and fifty-sixth annual dividend payment.” (F&C Investment Trust Annual Report).

MEDIA CITY Tip Watch #1: Hold on tight to this music rights fund despite downbeat developments That’s the title of a piece on Hipgnosis Songs (SONG) by The Telegraph’s Questor Column. Brave move writing about SONG these days. Why brave? Because not a day (ok maybe a week) goes by without the music royalty investor providing an update on the fallout with its investment manager, the valuation of its portfolio or litigation worries. With developments moving so fast, articles can quickly become out of date. Hence Questor’s brave move to put the proverbial head above the parapet and pen a piece on the fund. The trigger for the article? SONG’s announcement that it would be cutting the value of its 65,000-song portfolio by 26% following the completion of an independent valuation. And once currency moves and borrowings are taken into account, NAV per share for sterling investors is down an even bigger 35% to 92.08p. If that wasn’t enough, the company’s $674m borrowings exceed the 30% of assets limit stipulated in its lending agreement. That means SONG won’t be paying out any dividends to shareholders anytime soon, as paying down debt is being prioritised. Not the best of news then. But there are crumbs of comfort to cling to. As Questor writes: “Investors may despair at developments but can take some reassurance that the valuation is now much more robust.” The Column also takes comfort from the fact that even after the one-third valuation drop, the shares are still trading at a sizeable 30%+ discount to the new NAV. Furthermore, Chairman Robert Naylor recently joined SONG fresh from selling peer Round Hill Music Royalty at an 11pc discount to net assets. Enough there then for Questor to advise investors “…to hold on in the belief, expressed by 5pc activist shareholder AVI, that a ‘bright future’ awaits the company.”

Tip Watch #2: Is Scottish Mortgage the next big success story? Asks MoneyWeek. The above titled-article kicks off with a brief recap of SMT’s share price performance in recent years. Volatile springs to mind, just like the high growth stocks the fund invests in – think Nvidia, Telsa and Moderna. How volatile? In the two years to 2021, SMT’s shares tripled to £15 a pop before plunging to £6 in the space of 18 months. The shares have since rallied to the £8 level. Question is, where do the shares go from here? MoneyWeek enlists the help of Winterflood. The broker included SMT among its tips for 2024 – a not-so subtle hint as to where they think the shares will be going. The article quotes Winterflood’s Shavar Halberstadt: “The managers have displayed a sensible focus on a range of structural growth trends…Moreover, the private-equity allocation has been used to good effect in gaining access to positions that competing funds simply cannot offer…” – think private companies such as Space X. And MoneyWeek makes the point that, despite SMT’s rollercoaster share price ride, the majority of the fund’s portfolio companies haven’t stood still over the last two years in terms of either growing revenues or making progress towards commercialisation. All of which leads, MoneyWeek to conclude that “Investors’ sentiment may have gone from starry-eyed optimism to extreme scepticism, but none of the major holdings are short of capital. Their growing success should prove highly profitable for SMT’s shareholders.” Funds mentioned in this article: