For better or worse, activist investors have been busy swooping down on the beleaguered investment trust sector. Saba Capital has been pretty busy in the space in the last year, most notably via a battle with the European Opportunities Trust (EOT).
Elliott Investment Management, known for its spat with Alliance Trust (ATST), has raised eyebrows by building a stake in Scottish Mortgage (SMT) in recent weeks. Now, it has come to light that Asset Value Investors, which runs the AVI Global Trust (AGT), has built a stake in the embattled "growth capital" fund Chrysalis (CHRY).
With interest rates presumably having peaked and markets looking healthier, it's not hard to make a recovery narrative in the investment trust space. Plenty of discounts remain wide, something that should explain the emergence of so many activists in recent months. But the sector is still prone to disruption, and there are valid questions about whether investors can really recoup the deep losses they have already sustained.
That's certainly the case for growth capital names such as Chrysalis, which have taken a good deal of punishment in recent times. The AIC's Growth Capital sector is one of the worst-performing groups over a five-year period, sitting on a share price loss of nearly 50 per cent.
Concerns about liquidity and a distrust of the valuations applied to private assets that may have been bought at frothy prices earlier on might explain big discounts that range from nearly 70 per cent on Molten Ventures (GROW) to 27.7 per cent on Schroder British Opportunities (SBO).
Such discounts might seem appealing to the adventurous investor thinking of taking a stake in something "cheap", but those investors who got in earlier should carefully monitor such portfolios for signs of progress.
We've previously noted that a revival of the initial public offering (IPO) market could provide the trusts with fresh sources of liquidity if names such as Chrysalis holding Klarna were to float, much as this should be a small positive development rather than a silver bullet.
The extent to which such portfolios actually become profitable matters more now in an era of higher interest rates, and Seraphim Space (SSIT) is one name that is showing some signs of progress on that front.
An ongoing problem with such funds is just how concentrated and top-heavy they tend to be: "insurtech" name Wefox made up a startling 22 per cent of the Chrysalis portfolio at the turn of the year, with Starling making up 20 per cent. ICEYE made up a fifth of the Seraphim Space portfolio at that point, while Oxford Nanopore (ONT) made up roughly the same proportion of Schroders Global Capital Innovation (INOV).
On that subject, it's notable that the IPO of Oxford Nanopore in 2021 was seen as something of a boost for the Schroders trust, given it lifted returns and boosted liquidity.
The holding has become something of a thorn in the trust's side, however, because volatility in the stock market has hurt its returns.
The investment team noted in the trust's latest financial results that they had sold down some of the position, which has performed poorly over a year. The size of the position means it will continue to have a big influence on performance, however.
With progress occurring in many forms, there's plenty for shareholders to keep an eye on. But a recovery from previous highs could still be some way off.
