As we approach the end of the year, it’s worth looking at what worked and what went wrong for listed funds – notably investment trusts – in 2022.
Energy-focused funds and those exposed to resource-rich regions have continued to push ahead.
Riverstone Energy (LSE: RSE), a private-equity firm that invests in unconventional oil and gas in North America, is up 53% year to date (YTD) and 13% over the last month. I wouldn’t be surprised if this continues in 2023. BlackRock Energy and Resources (LSE: BERI) and Gulf Investment Fund (LSE: GIF) also look well positioned.
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BH Macro (LSE: BHMG) continued to be the standout defensive star (up 23% YTD), although it had a sluggish end to the year with share-price returns of -1% in the last three months.
If volatility picks up in 2023 then it should be well positioned. Ecofin Global Utilities (LSE: EGL) was up 9% YTD and 5.3% over the last month. It has again proved a very sensible, defensive global equities investment trust for troubled times.
The best-performing investment trusts
Many renewables funds had a great 2022. Foresight Solar (LSE: FSFL) led the pack with a slew of peers not far behind. They had a sticky summer with talk of windfall taxes, but the last month has seen a strong rebound.
That’s also true for battery storage funds led by Gresham House Energy Storage (LSE: GRID) and Harmony Energy Income (LSE: HEIT), which were up just under 35% and 25% respectively (I’m a non-executive director at GRID).
International equity investment trusts push ahead
Among mainstream equity investment trusts North American Income (LSE: NAIT) is an Abdrn vehicle that invests in equity income stocks in the US market. It yields 3.2% on a discount to net asset value (NAV) of 6.7%. Middlefield Canadian Income (LSE: MCT) applies the same income approach to the Canadian market with its heavy emphasis on energy stocks and real estate investment trusts.
Bruce Stout at Murray International (LSE: MYI) has also proved his worth with a 20.7% return YTD and 9.2% in the last three months. After a few years where some doubted the fund’s rationale, recent conditions have shown the value of his dividend-focused defensive strategy.
2 cheap investment trusts to buy
Digital infrastructure funds Cordiant (LSE: CORD) and Digital 9 (LSE: DGI9) had a cracking first half of 2022, but then hit the wall. They got caught up in the general infrastructure sell-off prompted by worries about rising interest rates, both had been trading at fairly eye-watering premiums and there were also specific factors at work.
Investors started worrying about whether Cordiant would complete a big East European deal (this has now gone through).
Digital 9 pushed through the takeover of UK broadcast infrastructure firm Arqiva with a large helping of debt and a modest equity raise, and some analysts worried about debt levels after the deal. Then just a few weeks later, its lead manager, who had been with the fund since the initial public offering (IPO), decided to leave.
Cordiant at one point moved from a premium to NAV to a discount of over 25% (it’s now back at 14%). Digital 9 is trading at almost 20%.
I own both funds and I was buying Cordiant when its discount widened out to 25%. I’d be a buyer at Digital 9 if its discount moved above 20%. There are some headwinds – not least rising energy costs, which could hit margins – but all the drivers that once justified the premiums are still in place, notably the consistent increase in data usage and the need to upgrade digital infrastructure.
Only a few weeks ago, a controlling stake in Vodafone’s mobile-tower mast business was snapped up in a deal involving KKR and Global Infrastructure Partners.
Both these funds will probably now focus on bedding down their acquisitions. If they can make a go of kicking out generous cash flows, I have no doubt that they’ll be the subject of mergers and acquisitions activity once confidence returns.
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