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Miton Global: so long Libor we want Sonia!

14 September 2018

Investment trust bargain hunter Miton Global Opportunities set to become first London-listed fund to drop scandal-ridden Libor interest rate benchmark and use Sonia, the Bank of England's preferred alternative.

Investment trust bargain hunter Miton Global Opportunities (MIGO) is set to become the first London-listed fund to drop the scandal-ridden Libor interest rate benchmark and use Sonia, the Bank of England's preferred alternative.

In common with a handful of other closed-end funds, the £80 million investment trust managed by Nick Greenwood currently aims to beat the sterling three-month London Interbank Offered Rate (Libor) by 2% a year.

In a note to shareholders this week the fund, which invests in undervalued investment trusts and companies, proposed changing its minimum  investment objective to beating the three-month Sterling Overnight Index Average (Sonia) by 2% instead.

Both are used to determine the official average interest rate at which global banks loan to each other.

MIGO’s board said the proposal - which shareholders will vote on at their annual general meeting on 5 October - was ‘based on the change in the Bank of England’s preference and the fact that Sonia is more cost efficient to the company’.

The Bank of England started to implement the use of Sonia in April last year, in response to the huge Libor fixing scandal of 2012. This revealed that banks around the world had for years systematically submitted false lending rates to the Libor rate setting committee in order to boost their financial positions, potentially to the detriment of millions of investors and borrowers with contracts linked to the benchmark. 

In the ensuring furore and Parliamentary inquiry, Barclays and Royal Bank of Scotland were both heavily fined by regulators and Bob Diamond, the former bank's then chief executive, resigned.  

Libor had been administered by the British Bankers Association but City watchdog, the Financial Conduct Authority (FCA), passed its supervision to the Intercontinental Exchange Benchmark Association (IBA) in 2014.

In a speech earlier this year, FCA boss Andrew Bailey emphasised the need for firms to end their reliance on Libor by 2021 – the deadline for which he urged companies to transition away from the benchmark.

He also stated that ‘overnight risk-free rates’ were the right foundation for interest rate markets.

Bailey said: ‘Investment advisors and portfolio managers may need to be able to show that they have considered whether such investments remain suitable for a particular client or portfolio if there is no clear and appropriate plan on what will happen in the event of [Libor's] discontinuation.’

MIGO declined to comment further on the changes. Its broker Numis Securities said the adoption of Sonia would have little practical impact as beating the benchmark did not generate a performance fee for Miton Asset Management, its fund manager.  

According to Numis data, the remaining investment companies still using Libor are: Aberdeen Diversified Income & Growth (ADIG), Invesco Perpetual Select Balanced Risk (IVPB), Tetragon Financial (TFG), CatCo Reinsurance Opportunities (CAT), Henderson Diversified Income (HDIV) and Invesco Perpetual Enhanced Income (IPE).

In a further change, MIGO’s board has proposed an amendment to the exit opportunity it promised to offer shareholders nearly three years ago. Rather than put exiting investors in a separate, costly realisation pool, it will simply offer them cash at a 1.6% discount to the net asset value (NAV) of their shares. With the shares standing on a 2% premium over NAV there is not expected to be much demand for the exit, said Numis. 

In the past three years the trust has re-rated, moving from a wide discount of 10% as improved marketing and performance have encouraged private investors to buy the shares. Over five years MIGO stands at the top of the AIC Flexible Investment sector with a 92% total return compared to the peer group's average 61% gain.

Investment company news brought to you by Citywire Financial Publishers Limited.

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