MIGO Opportunities 09 July 2020

Miton Global Opportunities (MIGO) offers exposure to a diversified pool of closed-ended investment companies, often operating in highly specialised areas and trading on substantial discounts to their intrinsic value where the managers believe there is a catalyst for a re-rating. Aiming to deliver cash (SONIA 3 month) plus 2%, the trust is relatively unconstrained in asset allocation.

The managers are focussed on identifying ‘special situations’ and/or deep value opportunities in investment trusts where market conditions for the share price are likely to change in the foreseeable future. MIGO therefore holds an array of idiosyncratic and diversified holdings in a variety of geographies, asset classes and sectors.

With an extensive background in investment-trust investing, the managers, Nick Greenwood and Charlotte Cuthbertson, believe we are likely seeing structural changes to the investment-trust universe, which is opening up opportunities for their approach. Furthermore, as we discuss under Portfolio, they believe we may witness a change in market and economic environment that could catalyse opportunities to narrow discounts across a broad range of assets.

As we discuss under Performance, typically MIGO has displayed resilience in periods of market drawdown. However, the indiscriminate nature of the recent sell-off has impacted returns but created numerous attractive buying opportunities for the managers. Longer-term returns have typically displayed low correlation to those of wider equity markets.

Whilst MIGO trades on an optical discount of c. 2% (as at 18/06/2020), the underlying holdings themselves trade at sizeable discounts to what the managers deem to be their fair-value NAVs based on conservative estimates. There is thus a much greater look-through double discount on the portfolio, as we discuss under Discount.

This most recent bout of market volatility gave rise to significant buying opportunities to the managers, enabling them to both add new positions at highly attractive valuations and top up existing holdings at very significant discounts. In keeping with the strategy, further significant drawdowns could create more buying opportunities. Having not yet deployed gearing, MIGO might be in a strong position to again pick up assets at attractive valuations if the market falls, whilst we can see potential for value realization from wide discounts in a significant proportion of MIGO’s assets if markets hold their poise.

In any event, the sizeable double discount on the largest positions looks like an attractive entry point for long-term investment, whilst board intervention in managing the headline discount has been accretive for shareholders. Recent events, such as a significant downwards shift in inflation expectations, low stock dispersion and concerns over market liquidity, have been challenging to MIGO’s investment strategy. Over the long term, MIGO has generated superior returns to the UK equity market with a relatively lowly correlated return profile, for the most part due to its diversified book of assets and often idiosyncratic drivers of value realisation. Should we see an uptick in inflationary pressures, and/or investment-trust returns starting to be driven more by their own assets as opposed to wider market forces, MIGO could be well placed to benefit.