Completely different and strikingly cheap

MIGO’s portfolio looks completely different and strikingly cheap…by Thomas McMahon

Overview

In June, the board of MIGO Opportunities (MIGO) announced a revised approach to managing the trust, which has seen its portfolio revamped since. MIGO 2.0 is much more concentrated in the managers’ higher conviction positions and focussed on the areas of the closed-ended funds sector with the widest discounts and the potential for shareholder engagement to drive value and take advantage of what the team call a ‘generational opportunity’.

Managers Charlotte Cuthbertson and Tom Treanor, who was appointed co-manager in the wake of Nick Greenwood’s retirement, have essentially completed the transition process and built a Portfolio concentrated in deeply discounted investment trusts in predominantly the alternative assets sectors, in particular in renewable infrastructure (encompassing traditional renewables, battery storage, and energy transition). On a selective basis across the sector, they see examples of companies where these discounts are more technical in nature and arguably more to do with the investor base for the structure rather than attributable to fundamental issues.

Engagement should play a larger role in value realisation than it has in the past, with the managers working with boards to implement discount narrowing strategies. MIGO has an open-ended sister fund as well as a segregated mandate run in the same strategy, which should give the managers more influence as the funds have similar holdings. The small number of overlapping holdings with AVI Global further increases this in some instances.

Along with the change of strategy, the management fee has been slashed and a performance fee introduced, aligning the interests of manager and shareholders more closely and indicating the team’s confidence in the strategy. MIGO 2.0 will be capped at £150m of net assets, with excess funds returned to shareholders, in order to facilitate its high conviction approach and ability to invest across the market-cap spectrum in sector, as well as adding another liquidity opportunity to investors on top of the triennial continuation vote and liberal use of buybacks (see Discount).

Analyst’s View

While equity trusts have seen their discounts narrow significantly from the late 2023 wides, alternative asset sectors remain full of extreme discounts, which represent exceptional opportunities if anything close to the reported NAVs can be achieved via corporate activity. MIGO offers a way for investors to take advantage of this situation, implemented by a specialist team who have the resources and experience to distinguish between the high-quality assets and the value traps. We think its new strategy is clearer, cleaner, and more focussed, and both the engagement-heavy approach and the commitment to cap the NAV at £150m make the route to value realisation more visible and immediate.

A more concentrated approach brings more single-stock risk, which has to be borne in mind, but also holds out the potential for major uplifts to NAV if and when the largest positions come good. These gains should be relatively uncorrelated to equity markets, ironically fulfilling one of the features that alternative assets always offered.

Charlotte and Tom have maintained a Geared position at the trust level, which demonstrates their conviction in the current opportunity set. This is further demonstrated by the charging structure agreed, which leans on performance fees (with a cap) and a commitment to reinvest 25% of any such fee in MIGO’s shares.

Bull

• Exceptionally wide discounts have created a rare opportunity
• Specialist team devoted to the sector, with experience in engagement and activism
• Multiple liquidity opportunities are expected

Bear

• Concentrated portfolio brings single-stock risk
• Corporate activity is unpredictable and may disappoint in significant individual positions
• Politics and policy in renewables create risks for some holdings in some key jurisdictions

See the full research on MIGO Opportunities Trust here >
 

 
_{Disclosure – Non-Independent Marketing Communication
 
This is a non-independent marketing communication commissioned by MIGO Opportunities. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}

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