A smaller trust with bigger clout: MIGO sets out activist ambitions

MIGO Opportunities is undertaking a huge overhaul of both management and its strategy, as it plans to cap its size but not its influence.

In a sector brimming with consolidation and a race to move up the market-cap, MIGO Opportunities (MIGO ) is bucking the trend with a left-field decision to limit its portfolio value. 

The fund-of-funds trust, which currently sits at a net asset value (NAV) of £72m and a market cap of £69m, is undergoing substantial change. 

Long-standing manager Nick Greenwood is standing down after 20 years and handing the day-to-day running of the fund over to Charlotte Cuthbertson and Tom Treanor, a director at Asset Value Investors (AVI).

It is not just the management that will change, as MIGO has introduced a new performance-driven fee alongside a change in portfolio approach that will see the portfolio’s holdings slashed from 40 to between 10 and 15 over the next year. 

However, the most surprising part of the changes is the implementation of a capital return mechanism that will limit the NAV from rising above £150m, which the board said would keep the trust ‘nimble’.

More clout

Providing shareholders with more clarity on the strategy changes in a webinar this week, new manager Treanor acknowledged the move seems at odds with the trajectory of the wider sector. 

There’s been ‘seemingly relentless consolidation in the wealth manager industry’, he explained.

‘Wealth managers being for a long time the natural buyer of the London-listed investment fund. 

‘The problem the sector now faces, is the larger wealth managers get, the larger their minimum tickets become, and the more funds are off-limits to them. What we’ve seen as a result, is more and more demand for larger vehicles,’ he said.

‘But smaller, specialist funds have a reason to exist.’

The managers explained that the cap on MIGO’s size will benefit the revamped strategy, which includes plans for more activist engagement. This will mean more focus on event-driven investments, such as upcoming votes or asset sales and is an area to which Treanor will draw expertise from his 14-year career at AVI, where he has been responsible for all investments in closed-end funds. 

‘The intention is to be more engaged and activist in the portfolio,’ Treanor explained.

‘A smaller number of holdings means a larger percentage space in each, and a bit more clout when you’re dealing with boards.’

Treanor also specified that staying small will give the trust easy access to ‘the full opportunity set’ of heavily discounted trusts – often subscale themselves. 

The managers also specified that the new approach will also involve a shift away from equity trusts to more alternative investments, such as property, renewables and private equity, driven by greater discounts in the area.

On this, Cuthbertson explained the market is ‘particularly inefficient’, there being ‘simply far too many funds in the market’ after a 15-year issuance boom. 

The focus on alternatives mirrors that of newly launched trust Achillies (AIC ), which joined the market under the stewardship of veteran investors Chris Mills and Robert Naylor - who negotiated a successful exit for Hipgnosis Songs investors. 

They too are targeting poorly performing alternative trusts, investing in up to five trusts across renewables,infrastructure and property at any one time.

Deutsche Numis analyst Ewan Lovett-Turner was positive on the news last week, saying ‘the capital return policy will mean [MIGO] will remain a niche offering but also enable [it] to focus on areas of the market that are overlooked and where it can have influence’. 

Winterflood’s Emma Bird was of a similar opinion, stating ‘we view the move to a more concentrated portfolio as positive, enabling more in-depth engagement with boards and managers, drawing on Treanor’s experience at AVI’. 

‘We also commend the board for recognising that a concentrated portfolio of often small investment trusts requires a capacity constraint; the introduction of a capital return mechanism to limit net assets to £150m, combined with a performance fee, ensures this is achieved while retaining positive incentives for the managers,’ she said.

Shares in the trust are currently trading at a 6% discount. 

MIGO has lagged the SONIA, which benchmarks short-term sterling interest rates over three years, but is up fiscal year to date. According to the latest fact sheet, its share price is 3.7% versus 0.5% for the SONIA.