With Nvidia (US:NVDA) shares continuing to soar, the rewards of backing AI plays have started to show in the funds space. Microsoft (US:MSFT) and Nvidia backer Manchester & London (MNL) is already sitting on some impressive returns so far in 2024, even if its bets seem a tad punchy.
But it's not MNL or one of the technology funds topping the charts when it comes to recent performance. MNL shareholders are up to the tune of around 20 per cent so far this year, but that's eclipsed by Seraphim Space (SSIT). Shareholders are sitting on an enormous 80.2 per cent total return for 2024 as of 18 March. If we look at returns generated since the shares hit their last low point on 17 November, the gains come to more than 110 per cent.
What's going on? Seraphim, which is predominantly invested in private 'spacetech' companies, has certainly been a beneficiary of the rally that has lifted growth investments. For context, shareholders took a bath to the tune of 64 per cent in 2022, and would still be down by around 40 per cent had they invested at the trust's initial public offering (IPO) in the summer of 2021.
But the portfolio has enjoyed some progress. Its recent half-year results notes that ICEYE, a Finnish microsatellite manufacturer and the trust's biggest holding, has become profitable on an Ebitda level at least. Elsewhere, D-Orbit, a space logistics and transportation specialist and the fund's second-biggest holding, saw its fair value rise by a fifth after a €100mn funding round.
Beyond that, the trust has highlighted the fact that companies representing some 60 per cent of the portfolio by fair value have indicated they expect to have sufficient cash to reach profitability. There has also been an emphasis on the 'judicious' selection of companies that warrant additional capital, given that the trust has limited cash reserves.
Like other trusts with a preference for early-stage companies, such as Chrysalis (CHRY) and even Scottish Mortgage (SMT), the hope for Seraphim is that portfolio companies see their fundamentals improve but also benefit from a less savage interest rate environment. There's also an argument that the trust's shares still look cheap, trading as they are on a discount of around 35 per cent to portfolio NAV.
Having said that, I would extend some scepticism when shares rise so aggressively in such a short time, and Stifel analysts did downgrade the trust to a neutral rating earlier this year after its 'rocketing' returns.
The discount, for one, has almost halved from around 60 per cent at the turn of the year, and some might worry about whether the heavy momentum behind the shares might falter or turn. It's also worth noting that discounts can reflect plenty of problems, be it questions about the reliability of valuations on illiquid assets or the specialist nature of a trust's sector of focus.
Like some of its peers the trust also has some chunky position sizes, with 20.2 per cent in ICEYE, 14.4 per cent in D-Orbit and 10.7 per cent in All.space, which aims to develop an antenna capable of connecting to any other satellite. That brings risks, and reminds us caution is warranted as the shares go stratospheric.
