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SVM drives performance with Quorum convertibles

SVM’s balanced managed fund is up 19 per cent over the first half of the year compared to the IMA balanced managed sector average of 1.2 per cent.

The fund continues to benefit from narrowing discounts in the investment trust market. It has a 5.3 per cent holding in the quorum oil & gas technology fund, which is trading on a discount of 15 per cent.

Quorum is a play on the need for improved efficiency of production and exploration within the oil and gas sector, following years of under investment.
It is managed by the Canadian-based Quorum Group, which has a track record of producing strong returns without gearing.

The Quorum fund comprises eight investments and pays a dividend equivalent to a 5 per cent yield. Its hands-on approach to the companies in the portfolio mean its managers typically take at least one seat on the board. They use their industry expertise and contacts to provide support to help the companies grow.
SVM holds convertibles in this fund, which are bonds that can be converted into equities if the fund is successful.

Fund manager Donald Robertson says: “Quorum is a safe-ish way of playing private equity in oil, gas and technology as we are not investing in equities. A convertible is debt, which means it is a bond paying a yield that can be converted into ordinary shares. It is a bond which has the uplift of equities.

“If it is not converted, we will get our money back after five years and will have been paid 5, 6 or 7 per cent a year for the privilege.”

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