Investors should consider this top-performing investment trust
The team at Miton Global Opportunities Trust is expert at sifting through discounted trusts. Max King tells us why.
The average discount to net asset value (NAV) in the investment trust sector has fallen from 10% at the end of June to 6.8%, but there is still no shortage of trusts trading on far higher discounts. Some of these will prove to be bargains, producing compound returns through the combination of strong underlying performance and narrowing discounts. Others will prove to be lame ducks, justifying the high discount. It takes experience, deep knowledge and a great deal of due diligence to sift the gems from the dross, and even then mistakes are inevitable.
It’s tempting to buy a selection of high-discount trusts in the expectation that the bargains will counterbalance the lame ducks. But most investors will be wary of having too many holdings and prefer to focus on mainstream trusts rather than the specialist, esoteric or problematic trusts trading on large discounts.
Fortunately, there is an answer: Miton Global Opportunities Trust (LSE: MIGO), the £85m trust managed by Nick Greenwood and Charlotte Cuthbertson. “We seek to buy trusts at significant discounts to their intrinsic value – 17 of our 33 positions were recently trading at a discount of over 30% and some were trading at over 40%,” says Cuthbertson. The average discount is 25%, says Greenwood. “It used to be just basket cases that traded on high discounts but many quality trusts now do so.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The trusts MIGO invests in cover not just listed equities but also private equity, debt, commodities and property. A rigorous process screens out those in unattractive areas of the market with too much debt or doubtful asset valuations, and looks for a catalyst for change. This creates a shortlist from which investments are chosen. “We look for the underlying portfolio to be performing well so that the NAV will increase,” says Cuthbertson. “We are trying to buy £1 of assets for as little as 70p.” Holdings are sold when the discount falls to modest levels, or when the trust is wound up or taken over.
Keeping up with trends
The enormous range offered by the sector means that MIGO’s portfolio is well diversified, with 20 different sub-sectors. MIGO seeks to switch between specialist areas as they move in and out of favour. For example, trusts invested in shipping were recently sold as the world moved out of lockdown, trade increased, shipping rates rocketed and the trusts’ shares re-rated. More recently, MIGO has been buying biotech trusts, which have fallen out of favour, says Cuthbertson.
“Uranium has also become one of our largest themes as the new nuclear reactors being built increase demand. The price of uranium has been too low following the Fukushima accident.” The largest holding at 5.8% of the total is the Vietnam Opportunity Fund, trading on a 20% discount. Its managers point to the divergence between a strong economy (annualised growth of 7.7% in the second quarter) and a weak stockmarket, down 17% in the first seven months. Private-equity trusts in the top ten holdings include Dunedin Enterprise, which is being wound up, and Oakley Capital.
Other holdings include Phoenix Spree Deutschland, which owns residential rental properties in Berlin that are being sold at large premiums to valuation, and Georgia Capital, which invests in this prosperous region of the Caucasus at the crossroads of Asia, Europe and the Middle East.
Given the obvious popular appeal of its strategy and the exceptional value in its portfolio, it is surprising that MIGO is not a much larger trust. Shares trade at a discount of just 2.5% to NAV so it shouldn’t be long before it can expand through share issuance, improving liquidity and reducing already-reasonable costs. The trust’s alreadyrespectable record (22% investment return in three years) looks set to accelerate.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.
After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.
-
The top stocks in the FTSE 100
After a year of strong returns for the UK’s flagship index, which FTSE 100 stocks have posted the best performance in 2024?
By Dan McEvoy Published
-
A junior ISA could turn your child’s pocket money into thousands of pounds
Persuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
By Katie Williams Published
-
Warren Buffet invests in Domino’s – should you buy?
What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
By Dr Matthew Partridge Published
-
Should you buy JPMorgan's top emerging market trust?
The JPMorgan Emerging Markets Trust fund has outperformed its benchmark over the long term and offers good value
By Max King Published
-
4Imprint makes a strong impression – should you buy?
4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
By Dr Mike Tubbs Published
-
Invest in Glencore: a cheap play on global growth
Glencore looks historically cheap, yet the group’s prospects remain encouraging
By Rupert Hargreaves Published
-
Should you invest in Trainline?
Ticket seller Trainline offers a useful service – and good prospects for investors
By Dr Matthew Partridge Published
-
Two investment trusts riding the AI boom
Remain invested in investment trusts despite high valuations, as computing breakthroughs are likely to change the world
By Max King Published
-
Key takeaways from the MoneyWeek Summit 2024: Investing in a dangerous world
If you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
By MoneyWeek Published
-
DCC: a top-notch company going cheap
DCC has a stellar long-term record and promising prospects. It has been unfairly marked down
By Jamie Ward Published