A welcome piece of good news on the last trading day of 2023 – Lonfin, a long-term holding of ours (albeit small overall), has announced that its key connected party, Western Selection, is making a significant cash repayment to shareholders, including Lonfin.
This is our 16th piece of positive corporate news in 2023 affecting closed-ended funds – though technically Lonfin isn’t one (it is a trading company not an ‘Investment Trust’) but all it does is hold investments including a few strategic positions. However, regardless it added over £200,000 to aggregate values for our holders, a 29% jump on the day. It has since gone on to rise more, up from 35p to 55p to buy at time of writing (up 57%).
So to remind… all you have to do is hold shares in such a beast where the underlying asset values are significantly more than the present share price and perhaps, yes, some corporate action will arise which results in a welcome bonus on top of the returns you are enjoying from the investments held in their pot whilst you wait (hopefully, like this one, fair performance of the underlying assets the Company holds anyway). Effectively we have been ‘in the market’ with it but enjoying the income on a much bigger pot (100% of assets) than our Pound would have bought had we been in a typical open-ended fund, as most investors are sold (passive or otherwise). If such corporate ‘actions’ don’t arise, it doesn’t matter but when they do, they are extra bonuses for ‘nothing’ and very welcome of course.
We’ve been waiting a long time and for bored investors who sold-out the day before… well, it shows the value of patient investing. Thank you, clients for demonstrating that during 2023 when patience was needed in bucketfuls! What I shall say with absolute confidence however, is that 2024 will bring yet more pieces of positive news across the closed-ended funds’ ‘sector’ and we shall trust we enjoy yet more benefits for our investors. Those investing in open-ended funds will never see such ‘extra’ outcome because the opportunity cannot exist. It could also be said, of course, that buying £1’s worth of assets for say 75p is lower risk than buying 98p’s worth of open-ended fund (which could be the same assets!) for the same £1; there are other factors and of course it is not always plain sailing!
Investment professional
Well, I am not planning on hanging-up my coat as Chief Investment Officer just yet but there could be opportunity for an experienced and qualified investment professional to join our Team here in Barnstaple, requiring a relocation to beautiful North Devon of course.
Expertise in ‘alternative investments’ would be valuable and alongside some direct equity engagement. We are ‘value’ investors too (and those go very much hand-in-hand at the moment). The role could suit someone part-time as well, perhaps and create a great opportunity for a semi-retired opening. We are not looking for the individual to need to ‘bring funds’ but clearly such a possibility can enhance their reward potential.
If you may be interested or know someone who might, then please write in confidence!
Gore Street Energy Fund – opportunities for some
No, I am not recommending the Fund to buy or sell. However, I am sharing a tale which shows what can happen and the opportunity for the astute investor. I have written generically before about what happened to this one in October.
So the Company itself and its joint brokers could not ascertain who was selling and thus why the price plummeted. No-one had announced anything. The average monthly trading was 18.5million shares and this spiked at 40.2million. Only by examining the share register at the month-end could they see that a small institutional manager of open-ended funds had dumped its holding of just over five million shares – not a great amount, but when done clumsily and in a challenging market, enough to cause havoc to the share price and to flush-out other investors worried to see the slumping price.
The selling was done as quietly as possible – using various legitimate techniques to try to avoid alerting the market – dark pools and third-party brokers for example. What does this show me? That even the big boys are not very good when it comes to exercising their decisions sometimes, nor indeed in ‘how to do it’ even after they have decided it is time to move-on (sometimes for us, the price changes the decision on the underlying investment, either to not sell or buy if the price reflects the new sentiment already).
To me it shows the stupidity of holders sometimes. The stake was not significant in market cap terms but in view of what was happening to the Market at the time, five million is a chunky amount with few buyers. However, had they contacted the brokers/company, etc and to say they were considering a sale and for that to be orchestrated over a period, price allowing and guess what could have happened instead. I also believe that these ‘sorts’ of selling pressures can be created by regulations. The directors of trusts, the trustees or whoever, the managers, the advisers, have pressure upon them under blunt but well-intended regulations (including ‘fair value assessments’ on costs), to dump stuff which is considered controversial, etc. If they make a decision, the committee agrees it, then it goes to dealers and regardless of price – how unwise is that.
We are only ‘small’ and spread capital very widely but before the rout, we had 700,000 shares. We have doubled that since – wish we’d had space for some more. So I guess our buying at least helped push the price to 92p… that’s a ‘mere’ 51% from the 61p trough and income on top.
Buy-backs
The FTSE100 managed a mere 3.8% gain last year – positive but not matching the explosive US. As you will know, however, the UK is in our view significantly safer as well presently. A large buyer of UK stocks emerged last year too, unnoticed by many – companies themselves purchasing £57billion of their own shares to cancel. That is a good, consistent demand and it (when prices are low) improves the returns for all the remaining shareholders as they share all the trading profits between a smaller number of holders.
Indeed, a large number of less popular companies like tobaccos (which are seen as being toxic and unethical, so not held by many investors), which are generating colossal free cashflow, can keep doing this and ultimately there could be very few shares left… however, short-term it is another reason to favour the UK over the US.
My best wishes
Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth Manager
Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers
