Miton Global Opportunities

Investing in a diverse array of other trusts, MIGO seeks to build a portfolio with significant embedded value...

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Miton Global Opportunities. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Miton Global Opportunities

Miton Global Opportunities (MIGO) offers exposure to a diversified pool of closed-ended investment companies, often operating in highly specialised areas and trading on substantial discounts to their intrinsic value and where MIGO’s managers believe there is a catalyst for a re-rating. Aiming to beat cash (three-month SONIA plus 2%), the trust is relatively unconstrained in asset allocation.

MIGO’s managers believe we are likely seeing structural changes to the investment trust universe which are opening up opportunities. This includes broader use of the investment trust structure for alternative asset classes, consolidation in the investment trust market in other asset classes (where the persistence discounts are likely in the managers’ view to attract merger activity or similar), and greater retail utilisation of investment trusts.

Furthermore, as discussed under Portfolio, MIGO’s managers believe we may ultimately witness a change in market and economic environment towards a more inflationary backdrop. That could catalyse opportunities to narrow discounts across a broad range of assets, which could be a strong tailwind to MIGO’s returns if it were to occur.

As noted under Performance, typically MIGO has consistently displayed a lower correlation to global equities than the wider Morningstar Flexible Investment peer group whilst delivering returns over twice those seen by the FTSE All-Share over the previous five years. An inflationary environment (which the managers anticipate materialising) could serve as a tailwind to absolute returns.

Whilst MIGO trades on a share price discount of c. 4.7% (as at 20/11/2020), the underlying holdings themselves trade at sizeable discounts to what the managers deem to be their fair-value NAVs. There is therefore a greater look-through double discount, as discussed under Discount.

Kepler View

MIGO presently tilts towards ‘vaccine beneficiaries’ on an output basis, yet the managers have also taken care to ensure that the positions they hold are typically operationally and financially robust. As and when economic normalisation occurs, we think there may be broad-based valuation opportunities across swathes of financial markets, perhaps in areas deemed to be illiquid by many investors looking to tactically allocate. We think the trust structure of MIGO and the focus on the trust itself identifying other trusts to invest in should stand it in good stead to identify opportunities which retain ‘catch-up’ potential.

Given MIGO’s focus on identifying poorly researched trusts where share prices do not reflect their potential, such an environment as we have experienced over much of 2020 should have presented a highly attractive hunting ground for the managers. As well as opening up the possibility of initiating positions in high-quality trusts previously deemed too pricey by the managers (such as Tufton Oceanic Assets) at more attractive valuations, the generalised sell-off of Q1 also afforded the managers the chance to top up positions in trusts with tangible routes to value realisation (such as Dunedin Enterprise Investment Trust).

The resultant portfolio looks to us to have some attractive optionality to a higher inflationary environment, whilst retaining fundamental look-through value should this scenario not materialise. Typically low correlations to broader equity markets make this a potentially attractive portfolio diversifier, particularly for investors whose equity exposure is currently tilted towards growth strategies.

BULL BEAR
Returns have been lowly correlated to wider equity markets in ordinary market conditions
Illiquid nature of many closed-ended holdings makes discounts vulnerable to market reversals
Any rise in inflationary pressures could prove a tailwind
Gearing can exacerbate downside (as well as amplify upside)
Exposure to an array of otherwise hard-to-access, relatively illiquid opportunities
Will not suit investors who want to control their asset allocation
Callum Stokeld
Callum joined Kepler as an investment trust analyst in July 2019. Prior to this he worked as a senior investment analyst on a range of multi-manager, multi-asset portfolios, having previously worked at IFA firms in roles focused on oversight of fund selection and asset allocation. He graduated from the University of Glasgow with an honours degree in Law.

Fund History

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