MIGO Opportunities 27 September 2022
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by MIGO 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.
MIGO Opportunities Trust (MIGO) is a distinctive trust that aims, like many retail investors who find themselves drawn to the investment trust universe, to benefit from inefficiencies in the UK-listed funds’ market. MIGO aims to invest widely, spreading risk across many different managers, asset classes and special situations, with the aim of adding diversification to existing investor portfolios and generating a differentiated source of returns.
As discussed in the Portfolio section, whilst a discount is not the primary reason for investing, a potential medium-term, i.e. 18 months or longer, catalyst for the discount to narrow is. Managers Nick Greenwood and Charlotte Cuthbertson aim to provide exposure across opportunities which they believe are capable individually not only of generating strong total returns, but also of having a potential accelerant from the share price discount narrowing. Running a closed-end fund allows the team to have more patience than ‘the market’ and invest in opportunities that are less liquid.
As noted in the Gearing section, the team tend to run with cash on the balance sheet, but the current high level of cash, standing at 15% as at 31/07/2022, is representative of Nick’s desire to be able to invest in distressed opportunities as they present themselves.
Nick monitors the average discount of the top 12 holdings over time, which tends to sit between 15% and 25%. Currently, the discount is 28% having widened dramatically so far this year, which Nick believes suggests that, from a historical perspective, this could be an attractive time to consider the trust. As regards MIGO’s own discount, the price has tracked the NAV relatively closely.
Manager Nick Greenwood has over 40 years’ experience as an investment trust buyer. With co-manager Charlotte Cuthbertson, their expertise in what is often a relatively overlooked area of the stock market is a key attraction, in our view.
Overall, the portfolio reflects a classic contrarian approach applied to the listed-fund universe. Nick has shown that taking positions in unfavoured assets can offer, potentially, asymmetric upside through improvements in sentiment. Given his long years of experience and the advantages offered by MIGO’s closed-ended structure, Nick can fearlessly tread in areas of the market that might put off more fearful investors. As such and in our view, MIGO likely adds diversification to existing portfolios and an uncorrelated source of returns.
2021 saw MIGO deliver a very strong Performance, driven by diverse exposures such as private equity, mining, Vietnam and UK Microcap investment trusts. This year, discounts widening across the board have led to MIGO’s NAV underperforming world equities. We believe that MIGO offers an elegant one-stop-shop, offering exposure to special situations in the UK-listed funds’ market, backed by an investment process which has outperformed wider equity markets periodically. Given that periods of MIGO’s strongest outperformance of markets have, typically, followed times when discounts across the portfolio have been widest, this may be an interesting time to consider investing.
Bull
- Diverse exposure to an array of otherwise hard-to-access, relatively illiquid opportunities
- Expert management in a specialist field
- Look through discount of portfolio at widest end of historic range
Bear
- Illiquid nature of many closed-ended holdings makes discounts vulnerable to market reversals
- Trust-of-trusts structure involves a double layer of fees
- Opaque nature of some alternative asset trusts may mean that discounts persist