This update should not be taken as advice. If you are unsure about any of the content please contact your financial adviser. Please remember that the value of stock market investments will fluctuate and investors may not get back the original amount invested. To assist, where appropriate, a glossary explaining some of the terms used has been provided at the end of this update.
At the end of last year, the board of Miton Global Opportunities made the decision to change the Trust’s name to MIGO Opportunities Trust plc. The reason for this was that the trust was already known throughout the market as MIGO and so the time felt right to make it official. Nothing else has changed – same team, same mandate – but the aim was to make it more easily recognisable to our investors.
A look back at 2021…
It has been a tumultuous couple of years and 2021 was no exception. We started the year on a more positive note. Despite being in lockdown, the first vaccines were being rolled out and there was a pathway towards life and economies getting back to normal. As the year went on, however, markets became troubled with disruption to supply chains, rising inflation and increasing concerns over instability in the Chinese economy. In the final months of 2021, all eyes were on inflation reporting and central bank responses, a theme which has continued into 2022 which we cover more below.
Dunedin Enterprise was one of our best performers in 2021. The trust is a private equity trust which is an alternative investment class and consists of companies that are not listed on a public exchange. The trust is in wind-down, meaning that its managers are selling its holdings and handing the proceeds back to shareholders. During the year they sold two of their companies at a price above that which they were valued in the trust. Dunedin Enterprise still trades at a discount but we get the sale proceeds back at Net Asset Value (“NAV”) which creates a positive return for MIGO.
Our holding in Geiger Counter Ltd, which owns uranium mining companies, performed especially well during the year. A growing global focus on clean energy and ambitious carbon targets has meant that nuclear energy is being accepted as an integral part of the energy transition process for many countries. We are seeing an increasing number of new nuclear reactors being built across the world which will increase demand for uranium going forward. On the supply side, however, following the nuclear accident in Fukushima in 2011, there has been less and less mined with the price of uranium so low, making it uneconomical for mines to remain operational. So, despite Geiger Counter’s great performance last year, we believe there could be further recovery to come from this stock.
Our biggest faller was Macau Property Opportunities which owns high end flats in Macau. The city struggled through Covid with fewer visitors from the Chinese mainland due to lockdowns, and in the second half of the year a crackdown by the Chinese government on the casino companies there caused further problems. The trust trades at a 69% discount as at 4th April, so we believe the bad news is probably already factored into the share price.
In the investment trust world, the year was one of large scale money raising for the sector. There were 16 initial public offerings, “IPOs” for short, and £15bn of new money was raised, surpassing the last record set in 2014. Renewable energy and growth capital dominated the new money raised and the renewable energy sector is now a huge part of the investment trust world. When an area or geographic sector of the market becomes increasingly popular to investors, raising a lot of money and offering investors opportunities to buy more and more shares, a bubble can emerge which inevitably bursts. We saw an extreme example of this in 2008 when many of the world’s stock exchanges experienced the worst declines in their history to that date. The amount of issuance and some of the high prices sought for trusts that are in favour with investors does remind us of this time and we are anticipating there could be opportunities if and when these trusts and sectors fall out of favour.
…and a look forward to 2022
Sadly, we do not have crystal balls and if the past 2 years have taught us anything it is that it is folly to try and predict too precisely what is coming down the path. Instead, we are looking at several themes which we believe should drive markets for better or worse. One of the most important is Central Bank policy in respect of interest rates. You will have seen inflation statistics in the press and may be experiencing it first-hand with energy bills and supermarket shopping becoming more expensive. If inflation remains high, central banks increase interest rates which will provide a very different background for markets than the one which we have all been experiencing over the past few years. High interest rates tend to undermine expensive growth companies such as technology companies, whose share prices today reflect expectations of high future profits, and as a result we have seen a reversal in the markets with “value” stocks – those that appear undervalued now – becoming more popular with investors. If inflation is high, then it’s good to be invested in real assets such as commodities, for example gold, copper or oil, the prices for which tend to move up with inflation, and mining therefore remains a core sector in MIGO’s portfolio. We also have very little exposure within the trust to expensive growth stocks.
Geopolitical tensions are also on the rise. Russia has invaded Ukraine and it feels to us there is now a new world order. We expect to write more about our thoughts on this and how it affects markets and the portfolio in the future. For now it is sufficient to say that the repercussions will be far reaching and have the potential to dramatically alter how countries and economies behave in the future. There are also several important elections this year including the French presidential election and the US Congress. With a highly diversified portfolio we take care not to become over-exposed to a specific country and remain aware of the risks and opportunities that political problems can cause.
MIGO has had a good beginning of the year, raising just under £2m of new capital by issuing shares in response to demand from our investors. As a result, we have plenty of cash which we expect to invest as markets continue to wobble. Although markets that are on the rise, known as bull markets, are comforting to most investors, we are happy for some volatility in markets as this often creates opportunities. We saw this in 2020 during the Covid crash where some investment trust share prices became completely out of line with the value of the underlying portfolio. These mispricings tend to occur during times of market uncertainty which we can take advantage of. The invasion of Ukraine brought our prediction of tumultuous markets to fruition rather quicker than we had anticipated. It has been a tough time for the trust market, with falling NAVs and widening discounts.