We have two portfolios: one focusing on capital growth and one on income generation with potential for capital growth. For investors focused on the former portfolio, The Schiehallion Fund (LSE: MNTN) is a late-stage private-equity investment company managed by Baillie Gifford.
The group has had a tricky few years as late-stage growth investing moved sharply out of favour. However, we now see clear “winners” of its investment approach, with some of its largest holdings, namely Elon Musk’s SpaceX (which comprises 14% of the portfolio) and digital acquisition-focused Bending Spoons (15%), achieving valuation levels rarely found in private equity. With the listings market potentially warming up once again, The Schiehallion Fund contains valuable assets that may potentially be revalued further into a listing on the public market. Meanwhile, investors can access Schiehallion shares at a 17% discount to the sum-of-the-parts valuation.
Income generation with potential for capital growth
For investors concentrating on income generation with potential for capital growth, 3i Infrastructure (LSE: 3IN) is a company that invests in private European infrastructure businesses. Its long-term record is exceptional, with an annualised total return of 13% since 2015. The group’s approach to investing in infrastructure gives it significant influence over its portfolio companies, many of which enjoy highly contracted cash flows supporting predictable returns for investors.
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The trust’s jewel in the crown is TCR, the largest independent lessor of airport ground-support equipment, operating in 230 airports across more than 20 countries. TCR is now confirmed for sale, which has the potential to be beneficial for performance if an uplift versus carrying value can be achieved.
Meanwhile, 3IN’s current dividend yield is 3.5%, and the company has grown its dividend ahead of inflation over the past five years – a difficult feat in the high-inflation environment investors have experienced in recent times. Investors can access 3i Infrastructure’s shares at a discount of around 7% to the sum-of-the-parts valuation.
For investors focused on a blend of capital growth, income generation and diversification from exposure to developed markets, Invesco Asia Dragon Trust (LSE: IAD) is an investment trust concentrating on Asian equities. Asian and emerging-market equities have suffered a lost decade. While economies have grown, corporate earnings growth has stalled: earnings per share (EPS), measured in US dollars, are close to the same level as in 2015.
We believe Chinese technology companies remain some of the world’s most innovative businesses, and are now showing meaningful signs of being friendlier to shareholders, such as embarking on large share buybacks and introducing dividends.
IAD’s managers, Fiona Yang and Ian Hargreaves, have demonstrated a strong ability to generate performance in different market environments, using a highly stock-specific investment approach. Furthermore, the trust pays shareholders an aggregate dividend equivalent to 4% of its prior financial year-end net asset value (NAV) in four equal instalments, providing a balance of income to investors as well as exposure to Asian equities with strong growth potential.
The extra income is achieved by using the company’s reserves – a defining feature of an investment trust versus an open-ended fund – to top up the natural income generated, allowing the managers to invest freely rather than target solely high-yielding stocks.
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