MIGO Opportunities 11 August 2021

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

With MIGO having generated the strongest NAV total returns in the AIC Flexible Investment sector over the 12 months to 12/07/2021, the rotation in market leadership seen in 2020 seems to have benefitted the contrarian stance MIGO’s managers typically adopt. As we discuss under Performance, periods of rotation of equity market leadership have tended to coincide with stronger absolute returns for MIGO.

MIGO’s managers adopt an approach to investment where the output leads them to contrarian positions, seeking out unappreciated assets with strong intrinsic value unrecognised by the wider market. This approach also incorporates broader thematic considerations around industry trends, looking to identify where this may create valuation opportunities (as discussed under Portfolio).

As we discuss under Performance, returns have in recent years been strong, yet have also typically displayed relatively low correlation to wider equity markets. MIGO’s shares trade on a discount to NAV of c. 1.1% (as at 12/07/2021), but this does not include any discount on the underlying holdings.

Having enjoyed gains from long-standing positions in UK small- and micro-cap equities as market sentiment has improved, MIGO’s managers have reduced exposure to this area as discounts have narrowed. This has reduced the effective gearing rate.

The world is an endlessly complex and evolving landscape, but buying £1 for 80p seems likely to us to be an approach with a basic rationale likely to appeal to many investors, whatever the environment. That said, a more volatile environment seems quite likely to continue in the near term, given the disparate and changing market views on the likely structure of inflation dynamics going forward. Such a volatile market, with rotation between stylistic leadership, should play into the hands of contrarian managers such as those in charge of MIGO. This is borne out by historical returns, as we discuss in the Performance section.

Furthermore, increased investor crowding via tacit or explicit indexing strategies should, in our view, offer closed-ended capital structures such as MIGO attractive entry points into structurally necessary businesses. A fixed capital base enables MIGO’s managers to look through short-termism for attractive total return opportunities. We suspect the low demonstrated correlation to both broader equity markets and a 60/40 equity/bond portfolio is a reflection of this contrarian approach and a reminder that diversification is not about the number of holdings, but about holding different assets which perform well in different environments.