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Making the grade: Kepler's rated trusts report strong performance in 2019

In January 2019 we unveiled our new quant rating system for investment trusts, identifying both the top 20 trusts for capital growth and the top 20 trusts for income by using a quant screening system. We believe this is the first quant rating system for closed-ended funds to be based on NAV returns, which reflects the performance of the manager much more purely than the share price, which is a far noisier signal. We aimed to reward consistent long-term outperformers within the metrics we chose and the five-year time period over which we assessed them. In the New Year we will be rerunning our screens and rebalancing our ratings, but for now we are pleased to be able to report that in the first ten months since we revealed our selection, subsequent performance has been strong across both lists.

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  • 20 Nov 19
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Oakley Capital Investments

Oakley Capital Investments - Overview

Oakley Capital Investments (OCI) has seen strong performance so far in 2019, with a NAV total return of 14% over the six months to 30 June. This has been driven by the rise in value of two investments in particular (Inspired and Time Out), but also by the average 31% EBITDA growth of the portfolio companies. The portfolio is currently constituted of 15 investments. Oakley Capital (Oakley), the investment adviser, has expressed near-term optimism for much of the portfolio, but highlighted two companies with significant momentum: Career Partner Group (7% of NAV) and WebPros (8.8% of NAV). If their rapid growth metrics are maintained, these investments might be material contributors to OCI’s continued NAV growth. Alongside the strong portfolio performance, Oakley has reported an uptick in investment activity. Over the six months, the Oakley Funds have made five investments, amounting to OCI capital deployment of £85m. These investments were all within Oakley’s favoured sectors (consumer, education and TMT) and types of company (mid-market, European, founder-led and market leaders). Also, the investments were acquired outside of auction processes, via complex transactions and often carve-outs. In harnessing their network of proven business founders and entrepreneurs, the managers have been able to buy these businesses at attractive prices – with an average valuation multiple of 11.2x on an EV/EBITDA basis, compared to the peer group average of 13.4x (Source: Oakley Capital). Whilst the adviser and OCI board are positive on prospects, OCI’s share price discount to its NAV remains wide. Many of the corporate governance measures undertaken by the board to enhance shareholder value have been well received and may have contributed to the discount narrowing in the first half of 2019. However, the share price has lagged subsequent strong NAV growth and the discount has widened again. At 29%, OCI’s discount (to the 30 June 2019 NAV) remains wide relative to its history and its peers.

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  • 14 Nov 19
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NB Private Equity Partners

NB Private Equity Partners - Overview

NB Private Equity Partners (NBPE) is unique in the listed private equity (LPE) sector, given that the portfolio consists primarily of co-investments. It is now almost entirely invested in the equity of private companies. Given the range and quality of managers that NBPE invests with, the portfolio can be seen as a good representation of the top tier of US and global private equity deals. NBPE is currently invested in a total of 120 companies, accessed through over 55 different third party private equity sponsors. The team hopes to increasingly focus its investments, making fewer but somewhat larger investments. At the current stage, the portfolio’s top ten equity holdings represent 26% of the total portfolio – not dissimilar to a traditional (quoted) equity fund. With so many companies and ‘sponsors’, it is unlikely that investors are exposed to significant specific or key man risk. Whilst being diversified, NBPE offers exposure to a number of key industries: including technology, media and telecoms [TMT] (27%), healthcare (16%), industrials (14%) and consumer (16%). NB focuses on partnering with high quality sponsors, looking for specialist and deep industry knowledge from its partners, and an ability to source differentiated investments as well as deliver operational ‘value-add’ to investments. With a high deal-flow of potential deals, and no obligation to invest in any of them, NB should be able to better maintain a fully-invested position for the trust, thereby reducing cash drag with, importantly, no pressure to commit to deals in the future. This is reflected in the numbers: NBPE remains the most fully invested LPE trust in the peer group. In September 2018, the company announced a clarified dividend pay-out policy of 3% per annum, or greater dividend yield on NAV. At the 30 September 2019 share price, NBPE’s dividend yield was 4.2%, which compares with a 3.8% weighted average dividend yield for the AIC Global Equity Income and 3.9% for the AIC UK Equity Income sectors.

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  • 13 Nov 19
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ICGT OCI NBPU

The parallel worlds of listed private equity

De-equitisation refers to the shrinking of the amount of public market equities in issue through share buybacks and M&A. It’s a trend which means many investors are looking to find ways to invest in the parallel world of private investments. Among other things, investors are attracted by two features of private investments: the very different types of companies that have not yet made it to public markets; and the potentially strong returns that have been captured by the early backers of some well publicised unicorns. But accessing private markets is rather harder than investing in public equity funds. As a result, those investment trusts that do offer exposure to private market investments are in hot demand, and currently rank amongst the highest rated investment trusts in that universe. The selections below all have a significant proportion of their assets in growth equities and have an average premium to NAV of 17.6%.

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  • 13 Nov 19
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Lindsell Train Investment Trust Plc, The

Lindsell Train Update - Overview

Lindsell Train (LTI) offers investors a highly concentrated portfolio, with just 15 holdings comprised predominantly of UK companies. The trust has been one of the strongest performers in the investment trust universe for many years. No peers in the Global sector can compare in terms of long-term performance, as we discuss in more detail here. The trust's outperformance does not come without a price, as the trust trades on a substantial premium of more than 40%. For more detail on the trust's discount, click here. Fund manager Nick Train is benchmark agnostic and long-term in his approach. In other words, Nick looks for companies that will perform well regardless of their index weighting or the stage of the business cycle. Often these are high-quality, cash-generative companies with strong franchises. Finding these companies is no mean feat, however, and when Nick finds one he intends to hold it for decades (unless the key thesis for the company changes). The company also has around a 25% stake in the management company Lindsell Train Limited (LTL), equating to almost half of the NAV of the trust.

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  • 06 Nov 19
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GVP ASL BEE MIGO TMPL

Times are a changin'? The case for a value resurgence

“Is life always this hard, or just when you’re a kid?” “Always like this” (Leon: The Professional) In the post-financial crisis world, value investors have found themselves facing a period of structural underperformance relative to growth investors which has been unusual relative to history. In fact, this is the longest period of underperformance since at least the 1920s. This raises the question; what, if anything, could cause this to change?

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  • 06 Nov 19
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