Miton Global Opportunities seeks to find pricing anomalies and special situations within the investment trust market. We hope to buy good assets for as little as seventy pence in the pound. Investment trust shares are openly traded on the stockmarket and change hands at a level decided by the balance of supply and demand, not by the official valuation of the underlying portfolio, the net asset value (NAV).
Recent market turmoil has caused some investment trust discounts to NAV to widen to an extent not seen since the financial crisis of 2008. The wheat has yet to be sorted from the chaff following the sell-off and this has created some excellent deep-value opportunities. We often say we can buy a pound’s worth of assets for as little as seventy pence; in recent weeks we have had opportunities to buy into trusts on even bigger discounts to NAV.
Climb on board Tufton Oceanic
A recent purchase has been Tufton Oceanic Assets (LSE: SHIP), whose share price was hit during the general market malaise. Tufton owns a fleet of ships, many of which were originally ordered before the global financial crisis, when there was a supply glut; the trust picked up these ships at an attractive price. Investors perceive shipping to be viciously cyclical and as a result Tufton’s shares have fallen sharply. We have been able to buy shares at not far above our estimate of scrap value for the ships.
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Furthermore, the recent plunge in oil prices has increased the value of its tankers. When short-term oil prices are low, storage facilities are overrun and tankers are needed to store oil. While we wait for Tufton’s attractions to be recognised, we will collect dividends generated by the fleet’s long-term contracts. The historic yield is 8.4% and well covered by cash flow from the charters.
A bright future for Vietnam
Although there are short-term issues caused by the pandemic, Vietnam should ultimately be a beneficiary from the virus. Multinationals, which were already moving their manufacturing out of China as costs there have risen, now have an even greater incentive to diversify their manufacturing hubs and supply chains. Vietnam has a young population and is accordingly less affected by the virus than Western countries. VinaCapital Vietnam Opportunity Fund (LSE: VOF) is our favoured play on Vietnamese equities.
A hedge against inflation
Authorities seem tempted to adopt Modern Monetary Theory in order to combat Covid-19: put simply, printing money to pay the bills. This raises the possibility that inflation will develop given the vast stimulus offered by central banks and governments. In this environment precious metals are attractive.
Baker Steel Resources Trust (LSE: BSRT), a mining specialist, has 40% of its NAV exposed to gold and silver. The trust focuses on finding interesting deposits and obtaining the necessary permits needed to convert these into working mines. Once this process is complete, Baker Steel usually sells to a multinational, which will build the mine. Often this includes a royalty where the trust receives a percentage of the mine’s output during its lifetime. The market is poor at valuing these and we think the trust is trading at a wider discount than the official figure suggests.
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