MIGO Opportunities 17 December 2020

Miton Global Opportunities (MIGO) is a trust of trusts specialising in deep value opportunities and special situations. MIGO offers exposure to a diversified pool of trusts, often trading on substantial discounts to their intrinsic value and where MIGO’s managers believe there is a catalyst for a re-rating. The trust is relatively unconstrained in asset allocation.

MIGO’s managers believe we are 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 persistent 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.

MIGO's portfolio is tilted towards ‘vaccine beneficiaries’ , 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.