Profit from the potential of public and private markets with investment trusts
Two professional investors tell us where they’d put their money. This week: Charlotte Cuthbertson and Nick Greenwood, managers of MIGO Opportunities Trust
Investment trusts, established in the 1860s, have weathered numerous economic storms, including the Great Depression, two world wars, and the 2008 financial crisis. Yet they now face some of their most challenging conditions on record. Recent economic difficulties, such as rising interest rates and inflation, have hit share prices and dented investors’ confidence.
A key problem lies in the perceived high costs of investment trusts, particularly the ongoing charge figures (OCFs), which may appear higher than those for open-ended funds, deterring some investors. However, the government has indicated potential regulatory adjustments to address this misconception.
Despite these challenges, opportunities abound. The sector is experiencing historically significant discounts to net asset value (NAV): many investment trusts are undervalued relative to the fundamental value of the underlying portfolio. This discrepancy can offer savvy investors the chance to capitalise on highperforming trusts at lower prices.
Full steam ahead
Tufton Oceanic Assets (LSE: SHIP) leases ships to multinational corporations. The supply and demand dynamics in the market are very supportive. Challenges include a shortage of new capacity owing to limited yard space and environmental regulations demanding slower speeds, so more vessels to transport the same amount of freight are required. Moreover, disruptions to trade, such as the blockage in the Red Sea and the accident in Baltimore, increase demand for shipping.
Tufton has navigated these challenges by shifting its focus from the oversupplied containership market to sectors such as bulkers, tankers, and chemical carriers, which are enjoying robust demand. The trust’s proactive strategy also includes selling some ships; considering returning between 5% and 10% of the trust’s capital to shareholders; and realising assets at the beginning of 2028, capitalising on the demand for fuelefficient second-hand vessels.
Georgia Capital (LSE: CGEO) leverages Georgia’s economic upturn and growing middle class. Its portfolio, concentrated in insurance, healthcare, and education, aligns perfectly with the country’s developmental trajectory. The management team are now in a streamlining phase, divesting subscale firms such as wine and motor insurance to prioritise sectors with high growth potential, notably education. Despite regional tensions, Georgia’s strategic position as a bridge between Eastern Europe and Western Asia, akin to Singapore’s role in Asia, combined with the influx of skilled IT professionals from Russia, is energising the economy. On a 50% discount to its NAV the trust is clearly mispriced, giving investors access to a thriving economy at a huge discount.
A top pick in private equity
Oakley Capital Investments (LSE: OCI) holds a diverse portfolio of nearly 30 stocks, mostly in Europe. It focuses on mid-market, technology-enabled firms (such as the online-education group IU) showcasing substantial growth. Even though it is one of the bestperforming investment trusts over the last five years, OCI trades at a 33% discount to NAV. This stems from a general mistrust of private-equity valuations and the industry’s struggle with cost-disclosure rules.
Despite these challenges, the portfolio is poised for profitable exits, with most of the investments around five years old and nearing maturity. Oakley offers liquid access to the attractive private-equity market, with the underlying portfolio achieving another year of doubledigit earnings growth in 2023.
“Oakley offers liquid access to the attractive privateequity market”