Favourites

by James Carthew on Jan 14, 2015 at 16:05

This week I thought I would take a look at some of the standout winners in the investment companies sector in 2014.

In the Global sector, the funds that stand out are Caledonia (CLDN ) and Majedie Investments  (MAJE ), in part on a marked narrowing of their discounts. Both are family investment vehicles but with very different approaches and histories.

The last 12 months seems to have been a difficult period for the sector; only Caledonia, Scottish Mortgage (SMT ), Lindsell Train (LTI ), North Atlantic Smaller Companies (NAS ), its sister company Oryx International Growth  (OIG ) and Terra Capital (TCA ) beat the MSCI World Index over the year in net asset value (NAV) terms.

North Atlantic Smaller Companies, which I wrote about in September, topped the Global Smaller Companies sub-sector, delivering the highest net asset value growth of all Global funds during 2014 but its discount stayed around the 20% mark.

Caledonia benefited from an improved environment for private equity exits. Among a slew of deals, it sold Oval, the insurance company, from its own portfolio and benefited from the Nasdaq listing of JD.com (JD.O)  in one of its fund investments.

Majedie’s underlying portfolio largely disappointed over the year but an uplift in the value of its stake in Majedie Asset Management more than offset this. Lindsell Train also benefited from an increase in the value of its management company. Terra Capital’s portfolio is largely exposed to frontier markets. Its 2014 performance was well ahead of other funds specialising in that area. I might write more about this fund in a few weeks.

Small cap successes

Across the UK sector the obvious winner for 2014 was Strategic Equity Capital (SEC ). In an environment where smaller company stocks, especially AIM stocks, underperformed and the UK market fell in value, this small cap investor made more than 30% for its shareholders. Again discount narrowing played its part in this, and SEC now trades on a well-deserved small premium to asset value. SEC also delivered NAV growth around 3% ahead of its nearest rival, Marwyn Value Investments (MVI ).

Large company European trusts delivered solid market-beating performance in 2014 but European markets as a whole were barely changed on the year.

A similar story played out in the Japanese sector. By contrast, the US market did especially well. The sector’s flagship fund, JPMorgan American (JAM ), was the top performer but seems to have just lagged the S&P 500 index over the year. It still made investors more than 20% however.

Asian stars

Given the ongoing worries about the pace of Chinese growth, Asian investment companies did remarkably well. Top of the leader board of pan Asian funds is Pacific Assets (PAC ) with an NAV return almost twice that of the MSCI Asia ex-Japan Index. Its discount also narrowed a little and is approaching par – I think it would be great if this fund managed to expand in 2015.

At the individual country level Fidelity China Special Situations (FCSS ) had a great year, driven in part by the IPO of Alibaba (it took a stake in this before it listed and quadrupled its money).

Indian funds had a superb year as investors embraced the election of Nahendra Modi. All the Indian funds performed ahead of their benchmarks but the clear winner was India Capital Growth (IGC ), which I wrote about in 2013. Aberdeen New Thai (ANW ) had a good year in absolute terms but seems only to have matched its benchmark.

Investors have favoured biotechnology for a while now and, despite a wobble earlier in the year, 2014 proved to be another bumper year for investors in biotech and healthcare funds.

International Biotechnology (IBT ) was the winner of the London-listed funds specialising in the area. Another sector specialist that deserves applause is Premier Energy & Water (PEWT ), which saw almost a 30% increase in NAV over the year.

Infrastructure love affair

Investors’ love affair with the infrastructure and renewable infrastructure sectors was still going strong at the end of 2014. This area has been one of the fastest expanding parts of the investment company industry in recent years. Demand for these funds and the assets they invest in is driving up NAV in a virtuous circle and, as long as long-term rates stay low, this could continue.

The property sector was another beneficiary of lower for longer interest rates, with a number of funds seeing 20%+ rises in their share price.

Terra Catalyst (TCFD ) led the sector after writing up the value of its Italian investments and Sirius Real Estate benefited from a substantial narrowing of its discount despite a fall in NAV but TR Property (TRY ) deserves an honourable mention.

A few private equity funds had a very good 2014, notably NB Private Equity (NBPE ), Harbourvest Global Private Equity (HVPE ), Northern Investors (NRI ) and Electra Private Equity (ELTA ), which was boosted by stake building by Sherborne Investors.

Sherborne does not seem to be backing away despite quite a convincing defeat when it tried to impose its own set of directors on Electra. It will be interesting to see how this situation develops – could Sherborne be mulling a bid?

Next week, I’ll have a look at the funds that disappointed in 2014 and the outlook for 2015.

James Carthew is a director at Marten & Co