Where to find deep value in investment trusts

The Miton Global Opportunities trust (LSE: MIGO) seeks to find deep value and special situations (unusual stock-specific circumstances that could lead to a rerating) in the investment trust market. In the most basic terms, we look to buy good assets for as little as 70p in the £1. Because the trust can invest in any asset class providing it is available within a closed-ended structure, MIGO’s portfolio enjoys enormous diversification. Below are three interesting opportunities that provide an insight into the wide range of situations that we can exploit.

Thriving after a near-death experience

Private-equity trusts are still languishing on large discounts to net asset value (NAV)following the global market turmoil we saw in March. We believe that investors remain nervous about the level of debt in some of these vehicles and are still haunted by the near-death experience this sector suffered in the Great Financial Crisis of 2008. 

Fortunately, the sector does not face the same problems today. Our exposure to private equity is through trusts such as Oakley Capital Investments (LSE: OCI), where we have good visibility regarding the companies it is invested in and the level of gearing employed. 

Oakley has invested in many companies that should do well in the post-pandemic environment, such as online learning. The trust currently has plenty of cash, following some profitable sales, and is in a good position to exploit current opportunities. 

Access to a famous hedge fund

Third Point Investors (LSE: TPOS) is a feeder fund that invests in the famous US hedge fund Third Point Offshore fund, run by Daniel Loeb. (Feeder funds collect money and then put it in a master fund; this structure is popular with US hedge funds as it tends to be tax-efficient and offers economies of scale.) 

Hedge funds are secretive about their investments, but the greater disclosure required in the UK means updates for the London-listed vehicle generate lots of interest on Wall Street as the lid is lifted on what’s going on in the main hedge fund. Should the discount to NAV remain wide then Loeb may tire of the scrutiny and wind it up, generating a useful uplift for shareholders. Hedge fund manager Brevan Howard recently demanded higher fees from its feeder trust and threatened to pull the plug if they are not forthcoming.

UK micro caps remain a bargain

Finally, we have some specialist UK equity exposure in the form of the River and Mercantile UK Micro Cap Trust (LSE: RMMC). We bought into this sector when it was very lowly rated. Since then the trust, which specialises in growth companies in the smallest area of the market, has performed strongly.

We think that the trust should continue to rerate as it is still on a larger discount to NAV than many of its peers. In order to keep the trust manageable in a sector where there is not much liquidity, it routinely hands back cash to shareholders at around NAV in order to cap the size of the portfolio at £100m. The latest redemption will be made at 253p, a useful premium to the price of 218p on the day just before this tender was announced.