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Fund Profile

Disclaimer

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.

Overview
The SONG portfolio’s significance is not reflected by its wide discount to NAV…
Overview

Hipgnosis Songs Fund (LON:SONG) came to the market four years ago at an inflection point for the music industry. After more than a decade of recorded music revenues declining, the streaming model was beginning to show that there was a new revenue model that could potentially lead the way to a significant re-rating of the value of music royalties. Around the time of SONG’s IPO the streaming industry had a subscriber base of around 35 million, whereas today this figure is over 500 million. Therefore, what now seems like an obvious opportunity was much less obvious to many investors and owners of royalties at the time of SONG’s launch.

Against that backdrop SONG was able to acquire a world-class catalogue of songs at prices the manager believes did not factor in the extraordinary growth of streaming. SONG is, however, more than just a financial investor, and has positioned itself as a careful steward of each of its songwriters’ creations (see ESG).

Although the manager believes that there are very strong tailwinds for revenues, SONG’s discount has widened significantly in 2022 against a backdrop of rising interest rates. One of the market’s concerns may have been the rising expense of the floating rate debt of the trust, but SONG has recently completed a refinancing package that hedges most interest rate exposure and gives much greater certainty over interest costs (see Gearing). It has also initiated a share buyback programme designed to address the discount.

Analyst's View

SONG has come a long way in the four years since its launch, assembling a unique portfolio of songs with an impressive list of awards and achievements. There are strong tailwinds behind revenues and the industry has gone a long way towards transforming itself from a pure consumer discretionary business to a subscription model. Evidence is also emerging that the songwriters’ share of revenues is improving, which will directly benefit SONG (see the Performance section). We think more predictable and growing revenues should attract a higher rating but SONG, in common with other alternative asset funds, has seen a significant share price de-rating as investors worry about the potential for valuations to fall in a rising interest rate environment.

Longer term, we believe that SONG has assembled a portfolio with strategic importance that could be of interest to other players in the private equity and music industries. We therefore think it unlikely that the disparity between its share price and net asset value will permanently persist. Additionally, we believe the refinancing has reduced a major source of near-term uncertainty, which together with the buyback facility may provide some protection against the discount widening further – although dire general market sentiment is likely to play a role in the short term too.

The next scheduled event is due to occur in mid-December and will be the announcement of the September NAV and half-year results, and there will also be an accompanying capital markets day for SONG investors.

Bull

  • Positive industry tailwinds for revenues
  • Active management and administration efficiencies are beginning to make a significant impact on the portfolio
  • Share price rating is attractive and SONG has begun a share buyback programme in recognition of this

Bear

  • Rising risk-free rates could put pressure on discount rates and hence the net asset value
  • Gearing can exacerbate falls in asset value
  • A new asset class that is less well understood by many investors
Continue to Portfolio

Fund History

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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