Until 1999, Macao was a sleepy Portuguese enclave on the coast of China and a pleasant day trip by boat for tourists from Hong Kong. The return to Chinese rule favoured the growth of its only other industry, gambling, and it now surpasses Las Vegas as the world’s top casino market. Growth has been rapid, with land reclaimed from the sea and property values soaring. The imminent opening of a bridge to Hong Kong ensures further growth, to the benefit of the Macau Property Opportunities Fund.
This was launched in 2006 at £1 and has since doubled, though it peaked at 240p in 2014. But is it really worth buying despite its 24% discount to asset value? By itself, it looks attractive, but populating a portfolio with esoteric funds such as this is a distraction from mainstream markets: fine for those with the wealth and interest to put 1% of their money into ten different off-piste adventures, but not for everyone else.
Exploiting opportunities
This is the gap that Nick Greenwood, manager of the £76m Miton Global Opportunities trust (LSE: MIGO), seeks to exploit. Having launched the fund in 2004 as a conventional fund-of-funds, he has evolved it into one investing in deep-value opportunities and special situations within the 420 London-listed funds. These are the funds that few private investors would or should invest in directly, but putting them together in a diversified portfolio reduces the individual riskiness and creates a fund of broad appeal.
The result has been five- and three-year investment returns of 79% and 56%, the best in the “flexible investment” sector, which includes fellow investment trust RIT Capital Partners. The narrowing of the discount has increased shareholder returns to 78% and 104%, well ahead of global indices, and enabled the trust to issue new shares, though it deserves to be a lot larger. That would reduce the cost ratio, which is always an issue for a fund-of-funds, although a management charge of 0.65% is reasonable.
Buying at the right time
Macau Property, at 6%, is the trust’s largest holding in a portfolio of 58, though with the top ten holdings accounting for nearly half the total, many of the holdings are small. Eighteen of the holdings are in companies currently in liquidation or managed wind-down, which will release capital for new ideas or increased holdings.
These include Phoenix Spree Deutschland, which owns residential property in Berlin. The opportunity to invest arose when fund manager Neil Woodford had to sell his 21% holding in a hurry, forcing the shares onto a 19% discount.
Emerging markets are also an area of increasing interest. “People have been taking money out simply because the dollar has been going up,” says Greenwood. This has driven the Vietnam Opportunities Fund and India Capital Growth, two other big holdings, to discounts of 20%, though underlying assets are doing well.
Other areas of opportunity include funds moving their listing to London, such as GR1T, the African real estate group yielding 8.5%; this usually results in a lower discount. Greenwood is not afraid to be active, encouraging funds to change managers, improve marketing or help force a winding up: “Sometimes you just have to put funds out of their misery”.
Six months ago, the trust was riding high, but Greenwood believed that “a lot of ideas had largely played out”. Now, after a dull six months, “there are a fair few positions whose share prices look daft and I can see what will drive the asset value higher”. For cautious investors without the inclination to dig around in the far corners of the market, this is an ideal way to capture the many opportunities.
Activist watch
City of London Investment Management is taking the board of the Lazard World Trust Fund to task over its plan to buy back shares, says Michelle McGagh on CityWire’s Investment Trust Insider. In an open letter to Lazard World, the activist investor questioned the board’s ability to use the buyback facility effectively as a discount-control method.
City of London also criticised the trust for scheduling a 30 August emergency general meeting for a shareholder vote on the buyback so close to the upcoming AGM, owing to the costs it will incur for shareholders. As the AGM will include a vote on whether the trust should continue, City of London reiterated its suggestion that the board bring forward proposals to liquidate it.
Short positions… the funds in the dog house
• Invesco Perpetual has topped a list of “dog” funds put together by online stockbroker Bestinvest in its bi-annual appraisal of underperforming investments, says Selin Bucak on CityWire. To make the list, a fund must have underperformed its benchmark over three consecutive 12-month periods, and by more than 5% over three years. The number of dog funds now stands at 58, accounting for £33.6bn of assets, up from 26 six months ago.
Despite not having featured on the previous list at all, Invesco is now the provider with the most money in such funds – £15.1bn across five funds. The majority of those assets is accounted for by manager Mark Barnett’s £9.2bn Invesco Perpetual High Income and £4.2bn Income funds. Aberdeen Standard Investments and HSBC Investment also both had five funds each on the list.
• Two BlackRock small-cap trusts have topped broker AJ Bell’s list of “dividend heroes”, trusts that have increased their dividend every year for at least ten consecutive years, says Jayna Rana in Investment Week. The £790m Smaller Companies and £450m Throgmorton investment trusts, both of which sit in the Association of Investment Companies’ Smaller Companies sector, produced a total return of 481% and 479% respectively over ten years, putting them at the top of the list in terms of performance. Close behind is the highly regarded £7.8bn Scottish Mortgage investment trust, with a total return of 439%.