Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I'm joined today by Nick Greenwood, Manager of the Miton Global Opportunities Fund (MIGO), to give his three stock picks.
Hello, Nick.
Nick Greenwood: Good morning.
Wall: So, it's called three stock picks, but it's not actually going to be three stocks, is it, because your trust can invest in a very diverse range of assets. So, the first one is a property play, isn't it?
Greenwood: Taliesin, Berlin Property, I think I'd take rather longer than three minutes to explain why I'm bullish but it's almost without parallel; the city has gone from an urban wilderness to a major European capital since 1992. So, I think there is a lot more movement to go. But the real arbitrage is the fact that in Germany most people rent, therefore renters are voters.
There's a lot of landlord unfriendly policies and Taliesin is in the process of splitting up its apartment blocks and selling more what we understand as leasehold away from the dead hand of regulation. At the moment, you'd get about €4,000 a square meter for a flat. They are valuing them in the stated NAV as rental properties, i.e., highly regulated at around €1,900 a square meter.
Wall: So, a real sort of uptick then in what they're worth. And you were saying beforehand before we started rolling that you could rent in Berlin a sort of two bedroom equivalent of zone 1 in London for £300 or £400. Now, for those who don't know, London property, you can sort of rent an equivalent in London for arguably 7, 8, 9, 10 times that.
Greenwood: Probably not zone 1 but the nicer parts of zone 2. So, these bits would probably be more like Shoreditch rather than Kensington or Mayfair. But generally speaking, prices in Berlin are about 7 for those in London about half in Munich.
Wall: So, those restrictions don't exist and that's only for the rental market whereas what you're talking about is that…
Greenwood: Yes, exactly. When you take the property out of the – away from the dead hand of regulation and it's on the open market then it is worth a lot more. There's a lot of regulations that restrict the rents you can charge you tenants, et cetera.
Wall: So, what's the second thing you'd like to highlight today?
Greenwood: Well, secondhand life policies in the states. It's a subject that can be a little bit controversial. There have been one or two disasters in the open-ended world because the underlying assets are completely illiquid. But again, this is a situation where the methodology working out what a secondhand life policy, in this particular case, massively understates the proceeds the investment trust would get when policies mature.
Wall: This is, of course, another sort of key theme in the investment trust world as a whole, isn't it? Investment trusts originally if you look at one of the first ones ever set up, Foreign and Colonial, invest in large liquid equities and now, of course, what investment trusts are really good at is investing in these securities, these assets which are less liquid, the sort of things that you couldn't into an open-ended fund but the investment trusts do very well because of their structure, property, life endowments, et cetera?
Greenwood: Yeah. I mean, the strength is they protect the fund managers from the inflows and therefore, a fund manager can take more conviction, they can take a strong view, they know they can sit around on the investments and when you get into alternative assets, the underlying assets can be incredibly liquid.
So, property, if you're getting redemptions in open-ended funds, you're sent in to the market try and sell buildings, whereas with an investment trust the share price might take a hit but you can get out at a price, but there is no destruction of capital at the portfolio level where the fund manager is sent into try and sell an asset which might take you months to sell in a fund that's giving its investors daily liquidity. You get this fatal mismatch in an open-ended fund between the liquidity available to the fund manager and that that's available to the customer.
Wall: What's the third holding that you'd like to highlight?
Greenwood: Pantheon (PIN), which is a private equity trust. There's a lot of un-invested money looking for a home in private equity at the moment. I think The Financial Times came out with a figure of $1.2 trillion. That money will get spent, which means if you actually own the assets that the private equity buyers are looking for, i.e., unlisted companies, it is one hell of a sellers' market at the moment.
And the redeemable shares of Pantheon currently trade on a 34% discount, yet I think as they sell their mature assets, I expect their NAV to rise. So, deeply unloved at the moment, maybe it's because people have memories of what happened in 2008 and the number of these trusts nearly went bust. But that was a certain set of circumstances and these shares just look too cheap.
Wall: You've got three very diverse assets there, arguably three that hold their own unique risks, but together that diversity helps to counter the individual risks to those assets…
Greenwood: Yeah. I mean, you look at Martin Global Portfolio, you've got a very lowly correlated portfolio. The main themes, as I said, are residential property in Berlin, secondhand endowment policies, private equity. I'm not particularly bullish on mainstream equity markets and therefore, we have very little exposure to them at the moment.
Wall: Nick, thank you very much.
Greenwood: Not at all.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
