MIGO OPPORTUNITIES CONFIDENCE: Specialist seeks opportunities… by investing in other funds
Although the name is not a complete indication of what it does, investment fund MIGO Opportunities tries to make money by investing in other funds.
It’s a somewhat specialized vehicle run by someone – Nick Greenwood of asset manager Premier Miton Investors – who knows the mutual fund universe inside out. In a nutshell, he wants to invest in trusts that are currently out of favor (undervalued) but whose fortunes could improve over time.
It’s an approach that requires a lot of research and a lot of patience, but can produce excellent results under the right market conditions. Greenwood admits that the trust’s performance has been “lumpy” and that is reflected in the numbers. Over the past three years, it has generated a total return of 42 percent, better than five years’ gain of 13 percent.
Investment trusts, Greenwood’s investment universe, are companies listed on the UK stock market and their shares are bought and sold by a mix of private investors, asset managers and large financial institutions such as insurers and pension funds.
However, the shares of these mutual funds do not always reflect the value of their underlying assets. This is usually the result of trusts falling out of favor with investors – perhaps due to poor performance or a result of their particular investment theme proving unpopular. When this happens, the stock usually trades at a discount to its net asset value because more investors want to get out than in.
As a manager of MIGO Opportunities, Greenwood tries to identify those undervalued trusts that are at deep discounts that he believes will one day turn out well. When and if this happens, there is a double performance boost for shareholders as the trust benefits from an investment whose share price rises while also benefiting from the discount closing.
Currently, the £78 million trust is treading water as a result of double-digit share price discounts across the investment trust universe. “There is an oversupply of funds,” says Greenwood, “and there is not enough demand for them.”
Higher interest rates, he says, have made many income funds less attractive, with even some of the largest heavyweight funds sitting at deep discounts. The consolidation of the asset management industry has also led some managers to withdraw from recommending trusts. “The performance was boring,” admits Greenwood.
Increasing discounts are reflected in MIGO’s portfolio, which is built around 35 key holdings. Greenwood says shares in the top dozen holdings trade on average at a discount of more than 30 percent — the “highest in many years.” Still, he adds: “In the past, when discounts on our confidence became so great, they appeared to presage the next explosion in the value of the fund’s portfolio.”
The trust offers exposure to a wide range of assets, including commodities, real estate and private equity, making it a good diversification for investors. It also owns funds such as JP Morgan India and VinaCapital Vietnam Opportunity, which invest in some of the world’s fastest growing economies. Rapid economic growth isn’t always reflected in buoyant stock market returns, but Greenwood says both trusts are attractively priced and could benefit if market sentiment improves in India and Vietnam.
Over the past year, the biggest positive contributors to trust returns were holdings in Georgia Capital and Dunedin Enterprise — funds that invested in Georgian companies and private equity, respectively. The trust exchange ID code is 3436594 and ticker MIGO. The annual costs are 1.3 percent.