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Miton Global Opportunities plc

We believe there are signs that making money will get tougher for investors. Many leading economic indicators suggest that the world has moved into uncharted territory and it will be challenging for the drift up in equity markets to continue.

In order to generate returns, we believe investors will increasingly need to look for alternative investments, away from equity and bond funds. One such area is the investment trust sector, where there are an increasing number of investment opportunities following a series of significant structural changes.

Since 2000, those companies that traditionally bought investment trusts have undergone a process of consolidation. Consequently, many companies have merged to form vast wealth management chains. The impact of this consolidation has meant that a large proportion of the investment trust sector has become effectively off limits, unable to cope with the huge capacity and liquidity levels required by these new mega-chains whose assets under management number in the billions.

This dynamic has in effect served to ‘orphan’ hundreds of investment trusts, many of whom are now under-researched and increasingly illiquid as demand has naturally slowed, despite there being no critical issue with the trusts, assets or their overall strategies.

Without demand, the share prices of these investment trusts have slowly drifted lower than the value of their underlying assets creating a significant opportunity for the diligent and specialist investor to buy.

Miton Global Opportunities Trust plc (MIGO) is, we believe, a unique investment proposition that specifically seeks to exploit opportunities in this part of the investment trust sector. MIGO’s patient investment approach allows it to extract the embedded value in those investment trusts that are trading at a lower price to the value of the underlying assets in order to realise gains over the medium to long term.

To provide an idea of the scale of MIGO’s investment universe, there are currently over 400 investment trusts listed on the London Stock Exchange with an aggregate value of over £100 billion. Over 300 of these investment trusts are currently less than £250 million in size, and offer exposure to a broad range of alternative asset classes from the likes of property to natural resources. MIGO is therefore able to offer significant diversification across this pool of potential opportunities

The MIGO portfolio comprises of three broad investment categories:

  1. identifying special situations,
  2. identifying and backing strong managers, and
  3. investment trusts in realisation (the process of an orderly wind-down returning the assets back to investors)

A special situation typically involves a scenario where a series of specific circumstances or factors has led to a dislocation between the market’s perceptions of an investment trust versus reality. In simple terms, where the market understates or simply fails to identify the true value, MIGO looks to buy these assets at a discount to the value of the underlying assets with the aim of making up this value-gap over time.

The second category involves the identification and backing of strong investment management teams, who have often fallen victim to the same structural changes mentioned previously. Although they may have demonstrated exceptional performance, some investment managers have found themselves left without any natural demand on account of the small size of the investment trust they manage. MIGO looks to exploit this opportunity by accessing these specialist, high quality investment management teams at a discount with a view to generating gains over time.

The third category involves realisations. In some circumstances, shareholders can influence a trust's behaviour by exercising their rights as owners and may opt to vote to attempt to force an investment trust into realisation or liquidation, in order to realise the full value of their investment sooner. Clearly, if the shares have been bought at a significant discount to the value of the underlying assets, then this often proves to be a profitable exercise.

We expect the continued consolidation of the wider investment community to precipitate further structural change for investment trusts under £250 million in size. Furthermore, there appears to be no let-up in the growth of alternative asset classes creating future opportunities, many with an income bias. This development should lead to an increasing supply of future opportunities going forward.

In summary, we are focused on extracting embedded value which already exists, not trying to generate returns from trying to second guess unpredictable future share price or market movements. As MIGO is on a discount to its underlying assets combined with the discounts that exist within the Trust we believe there is good scope for this latent value to be realised. We are excited by the opportunities and believe MIGO’s research-led approach has the ability to make gains over the long-term, in a significant but under exploited segment of the UK market.

Risk Warning

The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. Past performance is not a guide to future returns. Investment Trust Companies such as MIGO and those in which it invests may borrow money which can then be used to make further investments (gearing). In a rising market, this 'gearing' can enhance returns to shareholders. However, if the market falls, losses will be multiplied.

Important Information

The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.

Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee.

Investors should read the Trust's product documentation before investing including, the latest Annual Report and Accounts and the Alternative Investment Fund Managers Directive (AIFMD) Disclosure Document as they contain important information regarding the trust, including charges, tax and specific risk warnings and will form the basis of any investment.

This financial promotion is issued by Miton, a trading name of Miton Trust Managers Limited. Miton Trust Managers Limited is authorised and regulated by the Financial Conduct Authority and is registered in England No. 220241 with its registered office at 6th Floor, Paternoster House, 65 St Paul's Churchyard, London, EC4M 8AB.

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Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.