Fund Profile


Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Hipgnosis Songs. 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.

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Hipgnosis Songs Fund (SONG) currently has net assets of c. £1.2bn, and aims to achieve income and capital growth by owning songwriters’ music royalties. In total, SONG’s portfolio currently comprises over 61,000 songs, of which over 3,100 have been number one hits.

As the portfolio has been built up, the exposure to older hits has increased significantly and is now close to 50%. Evergreen hits are more predictable, and should provide a stream of royalties to the fund for the long term. At the same time, younger songs provide exposure to the potential evergreen hits of the future, as well as those which have higher immediate potential for streaming income.

A recently announced performance metric shows the portfolio is making good progress against expectations, ahead 0.4% over the six-month period to 30/09/2020. Streaming constitutes the largest proportion of SONG’s revenues (36% as at 30/09/2020), as well as leading the growth of revenues in the music industry. According to the recent IFPI release, revenues across the global music industry reached its highest level in 2020 since 2002. With the rise of subscription models, music has moved from being a discretionary purchase to more of a utility.

Over the past financial year, the portfolio’s earnings covered the 5p dividend two times over. More recently, the managers have provided an additional metric (pro-forma annual revenue or PFAR), which shows the annual run rate of revenues (before expenses) for 2019 was 11.04 cents per share (or c. 8p per share). The board is targeting a dividend of 5.25p for the current financial year, a prospective yield of 4.3%.

Analyst's View

We continue to believe that the uncorrelated nature of SONG’s NAV and the high income the portfolio provides are attractions. As recent statistics provided by the IFPI highlight, the music industry is experiencing a resurgence. SONG is in a good position to benefit from these tailwinds. It offers a prospective dividend yield of 4.3%, as well as the potential for capital growth.

Aside from an improving background to earnings, the way that music is consumed could also lead to important changes to the way that revenues are valued. With the music industry moving towards a subscription model, this improves the predictability of revenues, and (as one influential academic has already suggested) potentially means that discount rates should move lower. SONG’s independent valuer has so far moved the discount rate in to 8.5%, from the 9% used at launch.

The newly announced portfolio metrics provide a good way for investors to understand the performance of SONG’s portfolio against expectations. They are a good step towards what we expect will be further and enhanced disclosure on the portfolio in time.

Although this is a relatively new area for alternative income investors, and therefore arguably bears higher risks, should the managers achieve their objectives the potential long-term total returns look higher than those currently on offer in other alternative income sectors. Over the short term, the discount rate used to value the portfolio has the potential to fall further, which, if it occurred, would boost the NAV.

Attractive yield, with prospect of income and capital growth
Unfamiliar and illiquid asset class, means the portfolio is difficult to analyse, even as disclosure improves
NAV returns likely to be uncorrelated with equity and bond markets
Gearing (currently in low double digits as % of NAV) can exacerbate downside
Opportunity for capital growth from industry trends as well as active management
Possibility that the current trend of rising royalty payments will reverse
Continue to Portfolio

Fund History

19 Apr 2024 SONG announcement on recommended cash offer
The board of Hipgnosis Songs Fund agrees sale of whole portfolio…
07 Mar 2024 Flash update: Hipgnosis Songs
Update following most recent announcement...
03 Jan 2024 Probably better asking an octopus
Our investment trust experts uncurl a tentacle each and choose their ‘top picks’ for 2024…
25 Oct 2023 We’re going to need a bigger boat...
We argue corporate activity is picking up, making the investment trust sector an exciting place to invest…
23 Aug 2023 Halfway there…investing on a prayer
We provide an update on our picks for 2023 and see which analysts' prayers are being answered…
03 May 2023 Alt-right or alt-wrong?
Infrastructure and renewables have moved from alternative to mainstream assets - what could be next..?
23 Feb 2023 The real book
SONG’s share price remains at a price that we think is an overreaction to legitimate worries…
04 Jan 2023 Here we go again
We review our ‘top picks’ for what was a wild year and place our bets for the year ahead – which doesn’t look much calmer…
30 Nov 2022 Cry havoc!
Lessons from a year in which an already troubled world was savaged by the dogs of war...
27 Oct 2022 Fund Analysis
The SONG portfolio’s significance is not reflected by its wide discount to NAV…
25 Aug 2022 O Brave New World
We ask whether private assets remain attractive as interest rates rise…
13 Jul 2022 Ready player one
We wonder where, if anywhere, should investors look for returns after a tumultuous first half of the year…
06 Jul 2022 A game of two halves
In the second article of our series on the AIC Flexible Investment sector we see how performance has stacked up during two years when markets were poles apart...
18 Feb 2022 Fund Analysis
SONG has continued to deliver, yet now trades at an attractive discount...
12 Jan 2022 Bargain hunt
We survey the discount opportunities in the market and update on the performance of our Discounted Opportunities Portfolio…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
21 Jul 2021 Every which way but loose
We break down the AIC Flexible sector into more useful segments…
20 Jul 2021 Fund Analysis
2020 has proven SONG’s resilience, with potential for a re-rating…
19 May 2021 The complexity premium
We examine the idea that extra returns can be obtained from buying investments which are perceived to be more complex by most investors...
31 Mar 2021 Fund Analysis
With additional portfolio disclosures recently made, SONG looks set to benefit from tailwinds in the music industry…
24 Feb 2021 Dire Straits or Money for Nothing?
As discounts reach historically narrow levels across the board – our analysts debate whether a premium is a price worth paying…
30 Nov 2020 Flash update: Hipgnosis Songs Fund
SONG NAV moves up, and continues to offer potential income and capital growth…
25 Jun 2020 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
25 Sep 2019 One-stop shop: how multi-asset trusts offer superior diversification
Investment trusts are particular suited to this mode of investing. We examine their advantages over open-ended funds and highlight the trusts which do it well…
19 Sep 2019 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
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