Page 27 - DIY Investor Magazine | Issue 31

‘TRUSTS WHERE WE THINK STRONG NAV GAINS COULD BE ACCOMPANIED BY A DISCOUNT NARROWING, CREATING EXCELLENT RETURN POTENTIAL’ PORTFOLIO REVIEW Our discounted opportunities portfolio contains trusts we think trade on wide discounts, which represent an opportunity. However, they are trusts which we think have strong NAV potential; investing in trusts on discount potential alone is a risky business, given the potential for non-investment events to drive discounts – corporate action, illiquid shareholder registers etc. Our portfolio contains trusts where we think strong NAV gains could be accompanied by a discount narrowing, creating excellent return potential; however, there is no guarantee that our instincts will be proven correct! That said, the portfolio has performed extremely well on a NAV total return basis, averaging 4.7% since our last report - substantially higher than both UK and global indices during the period. Share price returns were even better, with an average gain of 9%; the median gain was 6.9%, so they have not been equally shared. Standout performer in share price terms was Riverstone Energy (RSE) whose discount came in from 50.5% to 34% over the period. RSE’s NAV has not been revalued, but the shares rallied over 30% as the company published semi-annual results for the period ending 30 June, including commentary which may have increased demand for the shares. This included the announcement of new investment in battery assets, increasing the exposure to the energy transition which is at the core of our long thesis on the discount. RSE now has 28% of its portfolio in clean energy investments, with 44% in the legacy energy and petroleum investments. In our view, the decarbonisation theme is so important, and investment opportunities are so sought after that there is a good chance of a significant re-rating close to par. In the meantime, there is a potential realisation opportunity by the end of 2022 if investors are not satisfied with the new strategy. KEPLER DISCOUNTED OPPORTUNITIES PORTFOLIO PERFORMANCE Discount (%) (Cum Fair) 14/07/2021 -50.5 -27.4 -16.3 -12.8 -27.6 -13.6 -12.4 -14.8 -19.4 -10.3 Discount (%) (Cum Fair) 08/09/2021 -32.7 -20.4 -12.6 -12.3 -27.5 -13.7 -13.1 -16.1 -21.0 -12.2 -18.2 Discount Narrowing (Pp) Share Price Total Return (%) (Cum) 34.3 9.3 13.8 6.6 6.5 3.8 3.9 7.5 -2.8 7.1 9.0 6.9 Nav Total Return (%) (Cum) 0.0 2.1 7.7 6.8 6.2 3.6 3.6 8.4 0.0 8.3 4.7 4.9 Excess Return (%) (Cum) 8.2 -1.3 3.0 0.2 3.5 1.9 3.1 7.1 -1.8 1.7 2.6 2.4 Riverstone Energy NB Private Equity Partners Aberdeen Smaller Companies Income Schroder Japan Growth Menhaden Resource Efficiency Scottish Oriental Smaller Cos Aberdeen Standard Asia Focus Downing Strategic Micro-Cap Inv Oakley Capital Investments CC Japan Income & Growth 17.9 7.0 3.7 0.5 0.1 -0.2 -0.7 -1.3 -1.7 -1.9 2.3 0.0 Average -20.5 Median -15.5 Source: Morningstar Past performance is not a reliable indicator of future results -14.9 27 Diy Investor Magazine · Nov 2021