Q: Which asset classes, sectors or strategies are attracting your attention and why?
Migo is a one-stop shop for opportunities in the closed-ended sector, and investment trust discounts have never been wider. But not every discount signals a true opportunity. For an investment to make it into our portfolio, there must be a clear catalyst driving that discount to narrow.
Two examples are the renewables and growth equity sectors. Our value-oriented approach means we previously avoided these areas due to the prevailing sky-high valuations. However, as these sectors sold off amid rising interest rates, opportunities have emerged.
Renewables have been heavily discounted since interest rates climbed in 2022. But the market overlooked the strength of the assets within many trusts and we saw a chance to acquire quality underlying assets at substantial discounts.
With increasing engagement from investors, boards are accelerating action to return capital to shareholders.
Whether via asset sales, merging with other trusts, or even full portfolio disposals to institutional investors, these are the sorts of catalysts we look for. For example, VH Global has a shareholder vote next year that could result in a wind-down. Aquila European Renewables shareholders similarly voted to return capital, and Atrato Onsite Energy’s board has just sold all of the trust’s assets to a Brookfield consortium, for much more than the prevailing share price.
Similarly, as interest rates rose, many of the growth equity trusts became labelled as ‘speculative’ or ‘risky’, despite their deep involvement in rapidly maturing industries. We believe trusts like these are well-positioned to benefit further from a more favourable environment, potentially lifting valuations and reviving the IPO market.
This activity marks a shift from previous cycles. Today, our strategy goes beyond the price – it is about identifying the events and trends that will deliver value from the underlying assets back to shareholders. Being an investment trust, Migo is also doing that, returning capital by buying back shares where appropriate.
Q: How do you see sustainable and ESG-oriented investing evolving from here?
The ESG conversation has thankfully moved beyond the buzzword phase we saw in 2020. Migo isn’t an ESG fund, but we’re still serious about engagement with investment trust boards – even more since our move to Asset Value Investors, one of the industry’s strongest advocates for responsible governance.
The pressure on boards to act in the best interests of shareholders has never been greater. This is indicative of where we are in the cycle, underscoring that robust governance and shareholder protection are essential.
Read the rest of this article in the December issue of Portfolio Adviser magazine
