The fund has been focusing on emerging markets due to their higher growth potential relative to that of developed markets, but it also holds investment trusts trading on discounts to net asset value that SVM views as unjustifiably wide.
These discounts came about during the financial crisis, when assets were indiscriminately marked down in price. This enabled investors such as SVM to pick up good quality trusts at attractive prices.
SVM says the average discount across its portfolio is 25.4 per cent, more than double the 10 per cent average across the investment trust sector, Many of the investment trusts in the portfolio have discounts of over 50 per cent and SVM believes these have the potential to narrow substantially through increased investor interest or corporate restructurings.
Restructuring has affected a number of investment trust holdings in the SVM global opportunities fund in recent weeks. FRM credit alpha failed its continuation vote and is likely to follow a phased wind up, Trading Emissions has received a bid for its private equity portfolio and Value Catalyst Fund’s biggest investment was sold for cash, while its discount has started to narrow ahead of its continuation vote.
SVM co-fund manager Donald Robertson says: “The average portfolio discount has been gradually decreasing through the year and has accelerated over the last month as investor confidence has improved and trust restructurings continue apace. It should be remembered that a discount that moves from 50 per cent to the sector average of 10 per cent generates an 80 per cent return for shareholders.”