Set to benefit from the fallout of Saba’s campaign: MIGO Opportunities

MIGO looks set to benefit from the fallout of Saba’s campaign…by Thomas McMahon

Overview

MIGO Opportunities (MIGO) offers a way to exploit the wide discounts on offer in the investment trust sector, particularly in the specialist areas, that the average investor might struggle to understand. Managers Nick Greenwood and Charlotte Cuthbertson invest in closed-ended funds trading on significant discounts to NAV, looking for those where they think there is a positive story for the underlying assets and where there is at least one potential catalyst that could see the discount close.

The sector has been under pressure for the past three years, with higher interest rates and some technical factors to do with fees and wealth manager consolidation taking a toll. This has created an environment of opportunity for MIGO, with Nick and Charlotte particularly excited about the opportunities in the alternative assets space, real estate, and rate-sensitive sectors. The high-profile activist campaign by Saba should, they argue, lead to other investors looking to exploit wide discounts across the sector, which should lead to shareholder-friendly corporate activity that could finally unlock some persistent discounts. Additionally, looming reforms to how costs are presented by trusts, could lead to institutional investors returning to the markets. The prospect of rate cuts is yet another factor that could see discounts close across many trusts in 2025.

MIGO’s board has taken a robust approach to the trust’s own Discount, and significant buybacks have been employed in recent years, while there is also a triennial redemption opportunity offered. The trust’s discount is just 3% at the time of writing, but this is on top of a deeply discounted Portfolio. The top ten holdings trade on an average discount of 30%, near the widest levels it has ever been.

Analyst’s View

We think this is a good time to be considering MIGO, given the outlook for investment trust discounts. The activism of Saba has brought attention to the potential for big gains to be made in the sector, thanks to the wide discounts and discontent from some investors. Nick and Charlotte argue that strategic investors are likely to take more of an interest in the portfolios of assets in the real estate and alternative sectors over the coming months and years, and boards are likely to be keen to get ahead of the game and pre-emptively unlock value for shareholders. The lightening of cost disclosure rules for investment trusts should also lead to greater demand for shares in the sector, although currently, there is something of a standoff with some platforms refusing to list trusts which present costs in a certain way.

Falling interest rates would also be positive for discounts. The outlook for this is admittedly muddy at the moment, with the potential for rate cuts to be pushed back again. Moreover, if rates are cut because the economy is weak, this could mean there is less money going into risky assets like investment trust shares. Nonetheless, we think discounts have bottomed sector-wide, and the coming months and years should see lots of action at individual trusts, which should see the widest discounts close. MIGO is a good way for investors to try to take advantage of this via a diversified portfolio with a specialist team in charge.

Bull

• Exceptionally wide discounts across the sector have created a rare opportunity
• Specialist team devoted to the sector, now with more resources behind them at AVI
• Eclectic portfolio offering access to specialist areas to which many investors won’t have exposure

Bear

• Structurally higher interest rates could lead to discounts remaining persistent in many areas
• Corporate activity is unpredictable and may disappoint in significant individual positions
• Low market cap may mean liquidity is limited

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.}