Miton Global Opportunities plc ADVERTORIAL


Miton Global Opportunities: Bargain hunting in the investment trust sector


I


n order to generate returns, we believe investors will increasingly need to look for alternative investments, away from funds, which invest in company shares and bonds1


.


One such area is the investment trust sector, where there are an increasing number of investment opportunities following a series of significant structural changes.


For the moment, we remain in an environment where very low interest rates are triggering rising asset prices through a lack of alternative options. We believe the high valuations on which global company shares currently trade is a direct result of the very low returns available from bonds. Should bond yields2


BE AWARE OF THE RISKS


The value of investments may fluctuate which


rise,


stockmarkets would be undermined. Moving on from a period of unconventional monetary policy would be healthy in the long term, however, share prices are likely to undergo a period of turmoil whilst investors adapt to the new reality. Under such a scenario, investors would be able to obtain measurable income from conventional sources such as bonds. They would be less inclined to own “income manufacturing” trusts which invest in aircraft leasing or infrastructure funds. The damage to the share prices would come from a change in demand patterns rather than from significant damage at a portfolio level.


Since 2000, those investment companies that traditionally bought investment trusts have undergone a process of consolidation. Consequently, many companies have merged to form vast wealth management chains. The impact of this consolidation has meant that a large proportion of the investment trust sector has become effectively off limits to such firms as they are unable to cope with the huge capacity and liquidity levels required by these new mega-chains whose assets under management number in the billions.


This dynamic has in effect served to ‘orphan’ hundreds of investment trusts, many of whom are now under-researched and increasingly illiquid as demand has naturally slowed, despite there being no critical issue with the trusts, assets or their overall strategies. Without demand, the share prices of these investment trusts have slowly drifted lower than the value of their underlying assets creating a significant opportunity for the diligent and specialist investor to buy.


Miton Global Opportunities Trust plc (MIGO) is, we believe, a unique investment proposition that specifically seeks to exploit opportunities in this part of the investment trust sector. MIGO’s patient investment approach allows it to extract the embedded value in those investment trusts that are trading at a lower price to the value of the underlying assets in order to realise gains over the medium to long term. The key driver is the fact that in the current climate, investors are being paid royally


will cause fund prices to fall as well as rise and investors may not get back the original amount invested. Miton does not give investment advice, if you are unsure of the suitability of this investment you should speak to a financial adviser. Investment


Trust Companies such as MIGO and those in which it invests may borrow money, which can then be used to make further investments (gearing). In a rising market, this ‘gearing’ can enhance


returns to shareholders. However, if the market falls, losses will be multiplied.


DEFINITIONS 1Bond – A loan in the


form of a security, either issued by a UK or overseas government (government bonds) or company (corporate bonds), which pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid.


Bond yield – The interest received from a fixed income security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.


2 3Liquidy risk – The risk


stemming from the lack of marketability of an


investment that cannot be bought or sold quickly enough to prevent or minimize a loss.


Seeking embedded value in alternative areas


for accepting liquidity risk3 . The fact that we enjoy closed ended


protection (investment trusts have a fixed number of shares) is crucial in allowing us to fish away from the crowds. It allows us to take patient decisions knowing that there is no risk of having to meet short term redemption requests.


To provide an idea of the scale of MIGO’s investment universe, there are currently over 400 investment trusts listed on the London Stock Exchange with an aggregate value of over £100 billion. Over 280 of these investment trusts are currently less than £250 million in size, and offer exposure to a broad range of alternative asset classes from the likes of property to natural resources. MIGO is therefore able to offer significant diversification across this pool of potential opportunities.


We expect the continued consolidation of the wider investment community to precipitate further structural change for investment trusts under £250 million in size. Furthermore, there appears to be no let-up in the growth of alternative asset classes creating future opportunities, many with an income bias. This development should lead to an increasing supply of future opportunities going forward.


In summary, we are focused on extracting embedded value, which already exists, not trying to generate returns from trying to second guess unpredictable future share price or market movements. As MIGO is on a discount to its underlying assets combined with the discounts that exist within the Trust we believe there is good scope for this latent value to be realised. We are excited by the opportunities and believe MIGO’s research-led approach has the ability to make gains over the long-term, in a significant but under exploited segment of the UK market.


In addition to the natural defensive buffer created by owning deeply discounted assets, owning shares in MIGO offers useful diversification given some of the current themes. Specific opportunities in the Indian stockmarket, residential property in Berlin and Forestry all feature prominently in the portfolio.


The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. Miton does not give investment advice, if you are unsure of the suitability of this investment you should speak to a financial adviser. Investment Trust Companies such as MIGO and those in which it invests may borrow money, which can then be used to make further investments (gearing). In a rising market, this ‘gearing’ can enhance returns to shareholders. However, if the market falls, losses will be multiplied.


IMPORTANT INFORMATION The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.


Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee.


Investors should read the Trust’s product documentation before investing including, the latest Annual Report and Accounts and the Alternative Investment Fund Managers Directive (AIFMD) Disclosure Document as they contain important information regarding the trust, including charges, tax and specific risk warnings and will form the basis of any investment.


This financial promotion is issued by Miton, a trading name of Miton Trust Managers Limited. Miton Trust Managers Limited is authorised and regulated by the Financial Conduct Authority and is registered in England No. 220241 with its registered office at 6th Floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB.


MFP 17/182.


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