Each week, a professional investor tells us where he’d put his money. This week: Nick Greenwood of Miton Global Opportunities.
Investment trusts were traditionally the preserve of private client stockbrokers. These have now largely been absorbed by major wealth-management chains, who manage greater sums of money. Large wealth managers can only invest in the very biggest investment trusts, where they can find enough shares to satisfy all their clients. Smaller and medium-sized funds now have fewer natural buyers, so share prices can fall even though underlying assets are performing well. The shares of investment trusts can therefore languish on a wide discount to net asset value (NAV), creating opportunities for investors who can accept the associated liquidity risk. We seek such unloved trusts where we can identify a catalyst for change.
Even though locally listed Macanese casino stocks have been moving sharply higher, Macau Property Opportunities (LSE: MPO) remains overlooked. Its latest stated NAV was 245p, yet the shares trade at a mere 161p. The problem isn’t a concern about the future direction of this trust’s properties, but that MPO has a total market capitalisation of just £100m, which means that few in the UK market are able to buy it. MPO has begun attempting to realise the value of its assets. Should it sell its holdings for 245p and return the proceeds to shareholders over the next two years, that would generate a 65% uplift in the share price without any movement in the underlying value of its portfolio.
Another example is Alpha Real Trust (LSE: ARTL), where management took advantage of extreme undervaluation by acquiring 25% of the trust, and has since bought in for cancellation sufficient stock to increase its holding to around half of the equity. The portfolio comprises an esoteric mix of property-related assets such as ground rents, a Spanish shopping centre, well-covered debt and private rental developments. A fifth of the portfolio is invested in a ground-rents fund that offers monthly liquidity. Despite the latest NAV standing at 154p, the shares stand at 115p.
Around 20% of Artemis Alpha Trust (LSE: ATS) is owned by the fund managers who run it. The trust is out of favour, having lagged indices for five years. Performance has been hampered by some unsuccessful unlisted investments, making the market doubt the team’s ability. This triggered a widening of the discount, which has taken the market capitalisation down to around £100m – well below the threshold at which most wealth-management firms could consider the fund. The trust also suffers from still being perceived as an oil and gas specialist, when only 7% of the portfolio is now exposed to that sector. There will either be a return to form, allowing shareholders to enjoy the powerful combination of a rising NAV and a narrowing discount, or Artemis will find an internal solution, which will be triggered by next year’s scheduled vote to continue or wind up the trust.