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Investment Trust Insider's review of 2012

Investment Trust Insider's review of 2012

Christmas Party season is in full swing and 2013 is approaching fast so it is time to look back at 2012 and I thought it might be worth having a look at some of the articles I wrote during the year.

The first welcomed the launch of Alcentra European Floating Rate Income Fund.

With a market cap of £84 million, this fund is a bit smaller than I had hoped for but it is paying out a 5.3% yield, the net asset value (NAV) has risen since launch and the shares are trading at a modest premium so unsurprisingly they are trying for a C share.

It has been a difficult year for fundraising for any strategy and numerous funds did not make it to the market.  An announcement on the success or otherwise of Alcentra’s issue will have been made by the time you read this.

Diverse Income, which I wrote about in February, has managed to get two £30m C share issues away this year. This is great news. 

Caledonia, the subject of another article in January, has had an OK year, lagging its benchmark by just over 1%. Its discount has narrowed a little as they have continued to buy back shares.

However, they have made great strides in restructuring their portfolio. The holding in British Empire has been sold and the stake in Close Brothers has been cut substantially – freeing up cash to redeploy into new investments.

Part of their new strategy is to increase their dividend yield and they have been true to their word with an increase of almost 17% this year. It will be interesting to see if the new strategy bears fruit in 2013.

British Empire was the subject of another article in May. In it I questioned why they had not been buying back their stock despite their widening discount and it was pleasing to see buy backs commence in June – the discount has narrowed since then. British Empire’s NAV performance has been much better over the past six months and hopefully this will continue.

I got rather over enthusiastic about Baker Steel back in February. I think this fund, which focuses on unlisted and listed resources companies, is doing a good job but 2012 will go down as the year when commodity prices cracked and this had a knock-on effect on the mining sector.

I am hanging onto my holding however – with the shares now on a 24% discount, the listing of Ivanplats (its largest holding) complete (albeit at a lower valuation than I had hoped for) and some signs of a stabilisation in China’s growth rate, 2013 may be a better year.

I mentioned a few times over the year my belief that using the newly approved ability to distribute capital would not be a panacea for funds on wide discounts (and I haven’t changed my view).

It is interesting to see a few funds announce that they intend to ask shareholders for the powers to do this however.

It looks to me as though a few income funds may go down this route on a one-off basis if, for some unforeseen reason, they find themselves with the choice between cutting their dividend or paying out capital. In these cases I am in favour.

Income funds have been in vogue for most of 2012 and in most markets income stocks have been outperforming – I am already making a decent profit on the Perpetual Income & Growth shares I bought in June.

It was good to see the North American sector expand with the launch of BlackRock North American Income and the conversion of Edinburgh US Tracker into (had it not converted I think this fund would have disappeared before long).

BlackRock’s fund was smaller than they wanted but I am glad they succeeded in launching a fund after the failure of F&C’s attempt to raise money, in conjunction with Barrow Hanley Mewhinny & Strauss, to invest in US value stocks.

In May I had a look at Cambium Global Timberland and concluded that I just couldn’t fathom how they were ever going to make the returns they were aiming for when they launched and suggested shareholders should ask for their money back.

After reviewing the situation and talking to shareholders the Cambium Board came to the same conclusion. The portfolio will be sold and the proceeds returned over the next couple of years. They estimate shareholders will get back 57 pence per share – not great, some way south of the July NAV (65p), but better than the 44p share price when I wrote the article.

I had a look at JRIC (Japanese Residential Investment Company) late in July and decided that it seemed to be back on track (after poor performance in the credit crisis).

In November the board announced it had now had approaches from two different parties who are looking to buy the whole portfolio. The shares are about 10% higher than they were when I wrote the article but are still some way off the NAV. It will be interesting to see of the talks come to anything.

Overall 2012 seems to have been a much better year than many had feared and some of my favourite stocks have made investors quite a bit of money in spite of the generally gloomy macro environment.  Jupiter European Opportunities share price is up 53% year to date – definitely not the end of the world.

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