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When Questor first tipped shares in Artemis Alpha, the eponymous asset manager’s “best ideas” fund, it seemed a sure‑fire bet.
In August 2018 the shares were trading 15pc below the value of its assets but there was a clear path to that discount narrowing. Either an improvement in performance would help close the gap with the trust’s net asset value, Questor reasoned, or a long-standing offer by the board to buy back shares would do the trick.
This column is happy to report that performance has improved markedly. When we first tipped the trust, only one other that invested across the London stock market had delivered a lower five-year return than Artemis Alpha’s 32pc. Since then, the trust has been transformed under Kartik Kumar, appointed co-manager in 2018.
A return since then of 32pc, including dividends, is nearly three times the FTSE All-Share’s 11pc, but even this tells only part of the story. The turnaround has accelerated over the past year, when the shares have returned 50pc. That has helped to remove the double-digit discount: Artemis Alpha’s shares now trade 5.1pc below the value of its assets.
However, the second flank of our rationale for a narrowing of the discount now looks on shakier ground. That’s because the trust proposes to cancel an offer to buy back up to a quarter of investors’ shares at a 3pc discount to NAV.
That “tender offer” had been due to take place this month but the board last week announced that, subject to shareholders’ approval, it would instead focus on narrowing the discount through a continuous programme of share buy-backs. A tender offer for 25pc of the shares is still on the cards for 2024, as part of its commitment in 2018 to offer them every three years, but last week’s announcement nevertheless represents a significant departure.
There is sound reasoning behind it, however. Duncan Budge, the trust’s chairman, says the board canvassed the views of its largest shareholders and found that they were not keen to take up the offer. “Many are happy with the performance and the changes the manager has made,” he says.
That would leave a relatively small pool of investors who would potentially sell their shares in the offer, meaning they would bear the brunt of its costs.
“A tender offer can cost a couple of hundred thousand pounds,” says Budge. “If there is a low take-up, the costs can be punitive – to the point that shareholders who wanted to sell might find themselves getting a better price in the market than from the tender.”
The trust’s board has estimated that the costs of a tender offer would result in participating shareholders receiving proceeds at a 4pc to 5pc discount to NAV, close to the level at which the shares currently trade. Its plan for continuous share buy-backs would target the same 25pc of the trust’s shares as the tender offer over the next three years and would broadly aim to keep the discount below 5pc.
Dan Cartridge, who owns Alpha Artemis in the Hawksmoor Vanbrugh and Global Opportunities funds, says the narrowing of the trust’s discount has rendered the tender offer obsolete. “Tender offers are useful to close wide discounts when there is no clear avenue to do so,” he says. “With the discount where it is, there is no need for one. Investors should back this change as a planned buy-back programme will keep the discount from widening too much.”
Nick Greenwood, another shareholder, agrees. Greenwood, manager of the Miton Global Opportunities trust, shortly to be renamed Migo Opportunities, agrees that a continuous buy-back of shares is likely to be effective in reining in the discount.
“Any unhappy shareholders can always sell at the market price, which today is likely to be around the same terms as the tender would be,” he says.
Questor agrees and supports the board’s proposals. That the need for a tender offer has been made redundant by the transformation of the trust and turnaround of its performance is no bad thing. This column is happy to hold on to the shares with the impressive Kumar, who has definitively stamped his mark on the portfolio, at the helm.
Questor says: hold
Tickers: ATS
Share prices at close: 430.5p
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