Ramped up levels of corporate deals and new company listings have driven the British Empire Securities and General Trust’s portfolio turnover up to 60 per cent.
The £842m trust, run by Asset Value Investors’ John Pennink and Joe Bauernfreund, said merger and acquisition deals, spin-offs, disposals and initial public offerings (IPOs) – where companies list their shares publicly for the first time – had been in “abundance”, reflecting the “high level of cash on corporate balance sheets”.
“After several years in which corporate activity has been muted and discounts [which represent the share price level compared with the net value of a company] have remained wide, it is encouraging to see that these have started to narrow in several cases and this has been a contributing factor to the trust’s outperformance,” the managers said.
“As a consequence of increased activity and narrowing discounts, we have seen the portfolio turnover increase in the past year. The turnover level has historically been in the region of 40 per cent, whereas during the past 12 months it has been closer to 60 per cent.”
The managers said they had sold out of holdings whose share prices now more closely reflected the value of the assets held by each company, meaning there was a greater chance the shares would now fall in value rather than rise.
“Encouragingly, however, the narrowing of discounts has not been a universal trend as it was in 2006,” they said. This has meant, as we have taken profits on some holdings, we have been able to recycle capital into other opportunities still trading on wide discounts.
“Although seven holdings [making up 12 per cent of the portfolio] were sold during the year on single-digit discounts to net asset value, we have invested in 19 new holdings on far wider discounts.”
The duo said they saw this as an “indicator of the store of value” in the portfolio.
The managers said further activity by companies it holds in its portfolio were also expected.
They said French investment company Eurazeo had recently announced plans to sell part of its business, while German multinational travel company Tui AG is also attempting to merge with Tui Travel.
The British Empire Securities and General Trust saw its share price rise 8.9 per cent in the year to the end of September, outperforming the MSCI All Country World ex US index, which increased 5.1 per cent, according to the annual results.
This performance also means the trust’s shares now trade at a 10.3 per cent discount to the value of its assets – an improvement from 11.8 per cent at the end of September 2013.
Compared with its peers, the trust was narrowly behind, with the Morningstar Investment Trust Global peer group returning an average of 9.2 per cent. The managers said this was largely down to the strong performance of the US, a market it had “limited exposure” to.
Elsewhere, the duo recently established a 1 per cent position in Fondul Proprietatea, a Franklin Templeton-managed, Romania-listed, closed-end fund, which was “set up to compensate individuals whose property was expropriated by the Communist government”.
The managers said they bought the trust on a “near-30 per cent discount”.
“Fondul was formed in 2005 [listed since 2011] and stakes in state-owned companies were transferred to it by the government, with shares in the fund then handed out as compensation to those who had sustained losses from confiscation,” they said.
