Top 100 Funds: Alternative assets (7 Funds)

FUND DROPPED: Syncona (SYNC)

Syncona invests in eight mainly unlisted life sciences companies that do research in areas such as gene and cell therapy, and it has made double-digit NAV returns over one, three and five years. It aims to eventually hold up to 15 to 20 life science companies. It is a high-risk venture capital fund focused on one sector, but if its investee companies’ products succeed they could make very strong returns going forward.

The problem is that the trust has been trading on a double-digit premium to NAV that seems to be growing. At the time we put together the IC Top 100 Funds list in 2017, this was around 20 per cent, and by early September this year it was around 41 per cent.

The trust has great potential but, because it is on such a high premium, we feel we cannot suggest investors put new money into it at this stage. However, just because we have removed it from the list is by no means a prompt to existing holders to sell it. 

First State Global Listed Infrastructure (GB00B24HK556)

First State Global Listed Infrastructure invests in the shares of companies in areas including water and electric utilities, highways and railways, and oil and gas storage and transportation. Unlike many of the listed broad infrastructure funds, it is not focused on the UK, where only about 6 per cent of its assets by value are listed. This means it is far less vulnerable to UK political risk than some of the listed infrastructure funds.

Over half its assets are listed in the US, with about 10.6 per cent in Canada and 7.5 per cent in Japan. Most of the rest are in developed economies.

The fund has a good record of beating its benchmark, FTSE Global Core Infrastructure 50/50 Index, especially over longer time periods.

Because its underlying investments are listed shares rather than infrastructure projects, its returns are more likely to move in line with equity markets. But because it is an unlisted fund it will always reflect the value of these, and not swing to discounts and premiums to NAV like listed infrastructure funds.

Its yield of just over 3 per cent is lower than that of the listed broad infrastructure funds, but its ongoing charge of 0.81 per cent is a good deal lower. 

HICL Infrastructure Company (HICL)

When shadow chancellor John McDonnell pledged to “bring existing private finance initiative contracts back in-house” at the Labour party conference last year it caused a sharp de-rating of infrastructure investment trusts such as HICL. It fell from a double-digit premium to one of around 3 per cent. It fell further when Carillion, which had provided facilities management to 10 of its projects, went into liquidation in January this year.

However, there is no guarantee as to which party will win the next election, which may not be until 2022, and what it will actually do when it is in power. So many analysts feel that the political risks to infrastructure investment trusts are overstated.

With regards to the projects where Carillion provided facilities management, HICL has a long-term replacement for one of these, and commercial terms have been agreed with contractors on a further six projects. Negotiations with replacements on a further three projects are progressing.

Although HICL is perhaps a higher-risk option than it used to be, many of its attractions remain. “HICL provides investors with a low-cost, well-managed and diversified exposure to the infrastructure asset class,” comment analysts at Canaccord Genuity. “Attractive, sustainable and cash-covered dividends are underpinned by long-term cash flows, while there is a high degree of inflation correlation.”

HICL continues to target a dividend of 8.05p per share for its year to 31 March 2019, and 8.25p for the year to 31 March 2020, up from the 7.85p it paid in respect of its last financial year.

As a result of the past year’s problems, at the end of August the trust was trading on a premium to NAV of around 5.5 per cent, rather than the double-digit levels it was often at before.

Renewables Infrastructure Group (TRIG)

Renewables Infrastructure Group has 61 investments in a range of renewable energy infrastructure assets, including wind farms and solar parks. This means it does not rely on the fortunes of one particular type of energy. This was beneficial earlier this year when wind didn’t do so well but solar did, mitigating the low wind resource. 

Although the trust is UK focused, 18 per cent of its assets by value are in the Republic of Ireland and France, and it is considering making investments in Northern Europe.

Earlier this year its board decided to no longer link its dividend growth to inflation, given successive falls in long-term forecast power prices, which had reduced by around 30 per cent since the trust’s launch in 2013. However, it is still aiming to have a progressive dividend policy and plans to increase its 2018 dividend to 6.5p, up 1.6 per cent from 6.4p last year. The trust has an attractive yield of around 5.8 per cent.

John Laing Environmental Assets (JLEN)

John Laing Environmental Assets has 24 investments in onshore wind, solar, waste and anaerobic digestion plants in the UK and France. Its wind and solar projects are supported by the UK and France’s commitments to support low‑carbon electricity targets, and the waste and wastewater projects have long‑term contracts backed by the UK government.

Although it had to write down its Dumfries and Galloway waste project in its last financial year, which had a 2 per cent negative impact on its NAV, the impact was partially offset by a revaluation of its wind assets and value enhancements made during the period.

The trust looks to preserve the capital value of its portfolio on a real basis over the long term through the reinvestment of cash flows not required for the payment of dividends.

It aims to pay a sustainable dividend every quarter that increases progressively in line with inflation. It paid a dividend of 6.31p a share in its last financial year, an increase on the 6.14p it paid the year before, and it has an attractive yield of about 6 per cent. It is targeting a dividend of 6.51p a share for its current financial year, a 3.2 per cent increase.

Standard Life Private Equity Trust (SLPE)

Standard Life Private Equity Trust takes a fund-of-funds approach, buying private equity funds rather than direct investments. It invests in over 50 of these and aims to have exposure to around 450 private companies. But a fund of funds won’t benefit as much from the uplift of a single realisation as a directly investing private equity fund, although Standard Life Private Equity is more concentrated than some of its fund-of-funds peers. But the wider diversification a fund of funds offers means it is a lower-risk way to get exposure to the asset class than a directly investing fund.

Standard Life Private Equity Trust mainly invests in Europe, although has 15 per cent of its assets in North America. It has a focus on buyout funds.

Unlike some private equity funds it pays a dividend and has a yield of about 3.7 per cent. It is targeting a dividend of 12.4p a share for its current financial year, up from the 12p it paid last year. It has also moved from paying dividends twice a year to four times a year.

Pantheon International (PIN)

Pantheon International is one of the better performing listed private equity fund of funds. It invests in different investment stages and vintages by investing in funds operating in different regions of the world. Over half its assets are in the US, and around a quarter in Europe.

Around two-thirds of its assets are in buyouts, and it also invests in growth, special situations and venture capital.

Earlier this year the trust consolidated its two share classes and as a result of its enlarged market capitalisation entered the FTSE 250 index. It also issued a £200m asset-linked note (a type of debt) to an institutional investor, for which the repayments come from some of the trust’s oldest private equity funds, in particular from 2006 and earlier. This reduced the trust’s portfolio’s weighted average age from 6.7 years to 5.7 years. The trust’s emphasis has been shifted towards younger funds, which its board believes will perform better.

HarbourVest Global Private Equity (HVPE)

HarbourVest Global Private Equity is the best-performing private equity fund of funds in terms of NAV returns over three and five years. Over three-quarters of its assets are invested in about 40 funds run by its investment manager, HarbourVest Partners, and around 23 per cent of its assets are in direct investments. At the end of its last financial year on 31 January, it had exposure to 7,732 companies and the 100 largest positions accounted for 36 per cent of the trust’s portfolio.

At the end of July over half of HarbourVest Global Private Equity’s assets were invested in the US, with around a fifth in Europe: 59 per cent of its assets were in buyout deals, 32 per cent in venture and growth equity, and 9 per cent in mezzanine and real assets.

A downside to the trust is its high ongoing charge, but for an esoteric asset such as private equity you can expect to pay more, and its returns have more than compensated investors.