“CF Miton Select Assets Fund enjoyed a solid month in January generating a return of approaching 2% whilst the mainstream indices ended modestly lower. The newest theme within the portfolio is that the closed ended funds of hedge funds are vulnerable to corporate activity. Most of these were floated during the new issue boom which the sector enjoyed in the mid naughties. The portfolios they invest in are designed to achieve modest returns whilst accepting low levels of risk; however the majority charge 2% plus a share of the profits per annum. In addition the closed end fund itself typically levies a 1% fee. Given the attrition caused by the two levels of charging combined with the fact that most of their share prices have drifted onto discounts, it’s not surprising that investors are having an “emperor’s clothes moment” in relation to this sector.
One of our earliest holdings, Castle Asia was launched in 2006 and has seen its share price appreciate from 100p at issue to 102p currently despite being an Asian specialist during a period when the Hang Seng Index has almost doubled in total return terms. US based activist Weiss has taken a substantial stake in Castle and it seems likely that shareholders will vote for closure when they get the opportunity in April. Our other positions in this area such as BlackRock Absolute, Absolute Return and Cazenove Absolute Equity all rose during January as the market started anticipated the commencement of hostilities.
Two other sectors rose sharply during the month these were Resources and funds of Collateralised Debt Obligations. Notable features included our Uranium play, Geiger Counter as well as New City Energy, Greenwich Loan Income and Tetragon.
Looking forward, two trusts where we have already put a toe in the water, continued to see their share prices slide. Vision Opportunity has suffered because the Securities and Exchange Commission is investigating the practice of reversing Chinese companies into US listings. It appears that the focus of their attention is the brokers which sponsored these transactions rather than investors such as Vision. The other drifter is India Capital Growth which has suffered from a general rotation out of emerging markets combined with a fear that local policy must tighten in the face of rising inflation. In both cases we have fingers poised on the trigger should these stocks fall further.”
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