By Annabel Brodie-Smith
The summer has finally arrived and the roses in my garden are beginning to bloom. It’s a beautiful time of the year when the countryside is still green and looks its best. However, due to the dreaded GCSEs and my mother breaking four ribs in a fall we haven’t been able to make the most of the season. I’m taking comfort in the fact that the end is in sight for exams and my mother will hopefully be home in a couple of weeks.
“This week I’ve really enjoyed talking to private equity investment company managers…the sector has delivered an impressive average return of 409% compared to 156% for all investment companies over ten years.”
This week I’ve really enjoyed talking to private equity investment company managers. The Private Equity sector has delivered an impressive average return of 409% compared to 156% for all investment companies over ten years. Yet despite this strong long-term performance and the sector generally performing well this year, it remains out of favour, with 14 out of 17 companies trading on double-digit discounts.
Do watch my video where our private equity managers address the recent criticisms of the sector on valuations, fees and whether private equity companies should be buying back their shares. Helen Steers, who manages Pantheon International, Richard Pindar of Literacy Capital and Colm Walsh of ICG Enterprise also feature in our press release on this topic, along with other managers from the sector.
We also looked at the opportunities in their portfolios, their approach to ESG and whether private equity can be a force for good. It was really interesting to hear that Literacy Capital contributes 0.9% of its NAV to literacy charities in the UK, amounting to more than £6 million since it was founded.
This month Ian Cowie is exploring opportunities in the US after the market surged to a nine-month high on the news that the Senate had passed a bill to suspend the ‘debt ceiling’ on government spending. Ian analyses the best performers in the North America investment company sector, explaining that Pershing Square Holdings’ manager Bill Ackman “could be forgiven for humming ‘we are the champions’ over the short and medium terms.” But it’s JPMorgan American that leads the way over ten years, with a total return of 287%. Despite some strong long-term performance the North America sector remains on a 27% discount.
Ian also mentions his holding, Canadian General Investments, which ranks second in the North America sector over ten years and has benefited from the performance of Nvidia, the micro-chip maker which dominates generative AI programmes. For those of you interested in AI (which Ian covered in Compass last month) take a look at our release covering managers’ views on the opportunities and potential impact on society of AI. And with Winterflood’s help, we have put together a list of 20 investment companies with exposure to 18 underlying companies set to benefit. I emphasise that this list is indicative and definitely not comprehensive.
"With Winterflood’s help, we have put together a list of 20 investment companies with exposure to 18 underlying companies set to benefit from AI."
Meanwhile, with inflation remaining stubbornly high, Faith Glasgow examines how UK managers are dealing with the risks and impact of inflation on the companies in their portfolios. Some managers are tackling this by looking for companies which are improving their customer propositions and therefore increasing market share. Guy Anderson, manager of Mercantile Investment Trust, gives the example of Dunelm which is improving its customer proposition and Watches of Switzerland which is increasing its market share internationally.
Job Curtis, manager of City of London Investment Trust, is focusing on consumer staples that are difficult to do without. He gives the example of Unilever due to the “strength of its brands” and its “experience in dealing with inflation in emerging markets”.
James Henderson of Lowland Investment Company expects inflation to stay higher for longer and expects food prices to stay high, which is tough for consumers but can benefit food retailers: “Tesco was a very good stock to own the last time inflation was relatively high in the 1980s, and it is performing well at the moment too.”
Meanwhile investors in Japan finally have something to smile about with the Topix index hitting a 33-year high recently, and the average Japanese investment trust up 9% over the last 12 months. We gathered managers’ views to understand the reasons why Japan has performed well recently, the risks, and their outlook. Joe Bauernfreund, Manager of AVI Japan Opportunity, says: “The outlook is bright. There have been some very positive structural changes on the back of the corporate governance and stewardship code that mean that companies are now working far harder to deliver shareholder returns than they ever have been.”
Finally, in our regular ‘Focus on…’ feature we are highlighting our ‘Upcoming meetings’ resource which helps you engage with your companies by providing a handy list of upcoming AGMs, shareholder presentations and other investment company meetings and calls. This series of articles aims to help you get the most out of our website, theaic.co.uk, when researching or monitoring investment companies.
I’d like to wish you a good month. Let’s hope the sunshine stays so we can enjoy the great outdoors. It’s time for summer drinks parties and barbecues...
Annabel Brodie-SmithCommunications Director, AIC
