For my last article of 2016, I want to highlight a small UK-listed fund that acts as a constant source of ideas for bargain hunters and lovers of everything that is exotic within investment. The fund concerned, Miton Global Opportunities, isn’t especially high profile – it is relatively small, with a market cap of just £53m. But its manager, Nick Greenwood, has a reputation among investment trust aficionados as being the experts’ expert.
In the technical language of fund investing, Greenwood is engaged in exploiting pricing inefficiencies among closed-end funds, especially those where the fund is trading at a big discount to net asset value (NAV). That means patiently researching the fund’s holdings, meeting the managers and then examining the fund’s trading record to see if the gap to NAV might close.
Crucially, Greenwood is willing to be adventurous at times, looking into alternative areas that virtually everyone has given up on. A good example of this is his fifth-biggest holding, Alternative Asset Opportunities, which invests in traded life policies. These “death bonds” are now about as popular as an asset class as North Korean dictator Kim Jong-Un, but Greenwood has spent many years tracking the methodical realisation process within this fund and worked out that there was still value to be had in its portfolio of second-hand American life-assurance policies.
Another example of this contrarian approach is the ninth largest holding, Phaunos Timber, which has been something of an investment disaster, despite being in a great alternative niche, commercial forestry. Greenwood has patiently worked with new managers to bring the fund back into some semblance of order and the holding is up 36% year-to-date.
Greenwood also picks the odd growth-orientated winner, such as the India Capital Growth Fund, managed by David Cornell of Ocean Dial. This is my preferred way of buying into Indian equities. It’s not a fund for deep-value investors, as Indian stocks are always pricey compared with emerging market peers, but if the country picks up the pieces after its demonetisation fiasco, this fund could be ideally positioned.
This very active approach is now starting to pay dividends. The last year has been a bumper one for Greenwood, with the fund’s share price up 33.2% so far, partly as a result of the discount narrowing to 5%. It’s also worth noting that of the top ten holdings in the fund (representing over half the portfolio), every single one has increased in value this year by more than 20%. I should also add that corporate actions are common in the fund’s underlying holdings, and one-third of the portfolio is in realisation mode (for example, Dunedin Enterprise and Alternative Asset Opportunities).
It is important to balance this optimism with a hard dose of realism. The fund hasn’t always been so successful and it would be remiss of me if I didn’t note that investing in London’s closed-end funds requires an iron constitution and lots of patience. SVM Asset Management also ran a similar fund for several years before effectively throwing in the towel a few years back.
Miton Global has had to rethink its offer a bit as a result, cutting down on fees and allowing investors the chance to realise their holdings at three-year intervals. But the changes seem to have worked, the discount has tightened and I think the fund is well positioned for 2017. And if you do nothing else, keep an eye on Greenwood’s top five holdings if you’re looking for some smart contrarian ideas.
• Merryn Somerset Webb recently interviewed Nick Greenwood – watch the video here.
In the news this week…
• Funds investing in UK companies have suffered their “worst year since the start of the financial crisis”, with just 21% outperforming the market in the year to the end of November, says Attracta Mooney in the Financial Times. By contrast, 72% of fund managers managed to beat the market over the same period last year, according to figures compiled by data provider Morningstar.
Stockpickers were “caught off guard” this year by global market turmoil and June’s Brexit vote, says Mooney. The worst-performing fund was Jupiter’s UK Growth fund, which is down more than 22% compared with its benchmark. The best-performing fund was the UBS Equity Income fund, which returned more than 17% this year.
• Alliance Trust, one of the UK’s oldest investment trusts, has sold its in-house investment manager and will outsource the management of its portfolio in response to years of pressure from investors to change its strategy, says Marion Dakers in The Daily Telegraph. The Dundee-based financial services group said it should get up to £30m from selling Alliance Trust Investments, which runs £2.3bn of assets for third parties, to Liontrust. The trust will now focus on its own £3.6bn portfolio, which will be run by eight other advisers selected by consultancy Willis Towers Watson.
The overhaul comes after a long-running campaign by activist hedge fund Elliott Advisors, which in April 2015 successfully forced Alliance Trust to appoint two new non-executive directors of Elliott’s choosing. Elliott remains the largest shareholder.