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Questor: Artemis Alpha is in the ‘last chance saloon’ – and either way the discount should go
It looks like a discount that can’t last. Shares in Artemis Alpha, the eponymous asset manager’s “best ideas” fund, trade about 15pc below the value of its assets but we can expect that discount to narrow sharply – whether it now performs well or badly.
It is natural for a discount to shrink if a trust starts to outperform – Artemis Alpha has had a tough time recently, which accounts for its current low valuation – but why should the same thing happen in the event of continued poor performance?
The answer lies in its announcement earlier this year that shareholders will be able to swap a quarter of their holding for cash in three years’ time at close to net asset value (NAV). In other words, investors will be able to sell some of their shares as if there were no discount.
What is more, should shareholders take up that opportunity, the trust would shrink to the point of unviability, meaning that it would have to be wound up and the rest of the assets returned to investors. After allowing for costs, that would also amount to giving them back close to NAV.
An improvement in performance is perhaps equally likely. “The trust is now in the last chance saloon so it has taken steps to improve returns,” said Nick Greenwood, who holds it in his Miton Global Opportunities portfolio.
He said Artemis Alpha had been “relaunched” with a new management team: veteran investor John Dodd, one of the fund group’s founders, has been joined by Kartik Kumar, a much younger manager. “Kumar’s energy and Dodd’s experience should make a good combination,” said Greenwood.
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Adrian Paterson, the third co-manager, is to retire at the end of the year. Another important change will be a gradual winding down in the trust’s holdings of unquoted assets, which Greenwood described as “a significant drag on performance”. The board has a target of reducing unlisted holdings to 10pc of the portfolio.
“We think these proposals are sensible and they have found favour with the markets, allowing the discount to narrow already,” the Miton manager concluded. “Should the refreshed team continue to perform, there is scope for further improvement.”
Questor says: buy
Ticker: ATS
Share price at close: 342.5p
Update: Phoenix Spree Deutschland
This trust, which invests in residential property in Berlin and was tipped here in July last year, is also part of Greenwood’s portfolio.
He told Questor he had topped up his holding recently when stock became available at attractive prices as a result of the sale by Neil Woodford of almost all of his holding in Phoenix Spree.
When we tipped the trust last year, it was officially at a premium of 18pc. But that was based on a historic figure for the NAV and given the rapid rise in Berlin property prices, was probably an overstatement.
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Now the shares, at 342p, stand at a discount even to the last reported NAV of 365p and at an even larger one to the 411p estimate for December by the trust’s house broker, Liberum.
Hence, even though the shares have gained 17.9pc since our tip, they now look more undervalued than they were then and we therefore rate them a buy.
- Questor archive: telegraph.co.uk/questor
Update: Templeton Emerging Markets
There has been another change to the management team of this trust, first tipped here in November 2016. Andrew Ness will join next month and “will work closely alongside” Chetan Sehgal, the existing lead manager.
Sehgal had taken over only in February on the departure of Carlos Hardenberg, who in turn had been in the post only since 2015.
Stifel, the broker, advised investors to be “wary of the manager merry-go-round” and said it preferred JP Morgan Emerging Markets, “which has had the same manager for over 20 years, has the strongest track record of all the emerging markets trusts over one, three and five years, and trades on an attractive 12.8pc discount”.
Questor maintains its hold rating for now on Templeton Emerging Markets, which benefits from a very large team in support of the managers, but will keep a close eye on progress.