Eye for detail

Nervousness over technology valuations is generating buying opportunities for long-term investors in investment trusts, I believe. I’m encouraged by my recent short-term success in tipping Scottish Mortgage (SMT) after its shares dropped 30% from February highs, but subsequently clawed about half of this back despite a wobble at the news of the planned retirement next year of joint fund manager James Anderson.

Following this, I wonder if there is an opening in private equity trust HgCapital (HGT)? As I write this, its shares are trading closer to ‘par’, or underlying asset value, for the first time in a while after annual results this month precipitated a bout of profit taking in the long-term strong performer that removed the premium investors had been paying on the share price.

I was reminded of this reading Jeremy Gordon’s excellent overview of the private equity investment company sector, which is split between two camps. On the one hand is a new breed of growth capital funds, such as Chrysalis (CHRY), Schiehallion (MTE) and Augmentum Fintech (AUGM), whose shares trade on big premiums reflecting investors’ excitement at the hot unquoted fintech businesses they back.

On the other hand, is the old guard of private investment trusts, whose shares still languish on wide discounts demonstrating lingering investor resentment at their dire performance in the 2008 financial crisis. This legacy looks unfair given the portfolios of unlisted stocks stood up well in the pandemic crash, and have generated good long-term returns since the credit crunch, often based on greater exposure to tech-enabled businesses than many investors realise.

It’s an interesting situation because if the old guard of private equity trusts are not as bad as they may appear, the new guard may not be as expensive as they first look. For example, the previously hefty premium on Chrysalis’ new share offer disappeared in light of the revaluation of two of its holdings, Klarna and Starling banks.

Investors need a similar eye for detail with ‘ESG’. Investing with the environment, society and good corporate governance in mind is currently all the rage. Of eight investment companies floated on the London Stock Exchange in the past six months, seven placed an emphasis on ESG, while Keystone, formerly a UK equity trust at Invesco, has relaunched with a global ‘positive change’ mandate under Baillie Gifford that has ESG written all over it.

As Jennifer Hill discovers in her feature on eight good trusts for ESG, although labels, such as the London Stock Exchange’s Green Economy Mark, can be useful, investors need to be cautious about the tick-boxing, simplistic data-driven approach to the ESG scores given to some investment trusts.

‘A number of investment companies appear to be marked down for not having policies about executive pay despite not having any executives,’ Numis Securities’ Ewan Lovett-Turner wryly observes.

Talking of engagement, I’m increasingly persuaded of the value of investors sticking with companies in the mining and energy sectors and pressing them to respond to the challenge of climate change, rather than just dumping their stocks. That’s why I also read with great interest David Stevenson’s guide to commodities trends, which includes an endorsement of BlackRock World Mining (BRWM). It’s difficult work but someone has to do it.