MIGO Opportunities Trust plc - Annual Financial Report

Financial Highlights

*  Alternative Performance Measure (“APM”), see Glossary.

For commentary in respect of the above figures and the Company’s performance during the year please see the Chairman’s Statement, the Investment Manager’s Report and the overview of the key performance indicators.

Total Return Performance to 30 April 2024

*  Alternative Performance Measure, see Glossary.

**  6 April 2004.

Source: Morningstar.

Chairman’s Statement

Introduction

I am pleased to present the Annual Report for MIGO Opportunities Trust plc (“MIGO” or the “Company”) covering the year ended 30 April 2024 – a year which includes the Company’s twentieth anniversary. MIGO’s purpose remains the same as throughout that 20 year period – in the broadest terms, to identify undervalued attractive themes in the investment trust sector trading at a discount. We continue to believe that the return potential from this approach is significant. Over the 20 years since its launch on 6 April 2004, MIGO’s net asset value per share has risen by 257.1% and the share price by 259.1% (both total return figures). Comparative returns for SONIA plus 2% and the Numis All Share index have been 112.5% and 291.8% respectively. With the current difficulties in the investment trust market, our Managers believe the return outlook is one of the best that they have seen in the history of MIGO.

Throughout the past year, financial markets have been impacted, both up and down, by ongoing efforts to curb inflation and speculation about the direction of interest rates. However, aside from the macro-economic considerations, the investment trust sector has taken a hammering from all sides, which has led to an expansion in discounts to NAV to near all-time extremes. The issues facing the sector have included over regulation, competition from passive investment vehicles, disinvestment from the UK market and consolidation in the wealth management sector. While it is worrying to consider the future of parts of the sector, market conditions certainly favour our Investment Manager’s style of searching for future themes at current discounts in the investment trust universe. That is to some degree a silver lining to this particular cloud.

New Investment Manager, Registered Office, Depositary and Custodian

In addition to reaching MIGO’s twentieth anniversary, 2023 was significant for the Company with our switch to a new AIFM and Investment Manager.

After a full manager review and rigorous selection process, the Board took the unanimous decision to appoint Asset Value Investors Limited (“AVI”) as the Company’s new AIFM and Investment Manager, as announced on 27 July 2023. Then, on 16 October, the Board was able to announce that Nick Greenwood would join AVI to co-manage MIGO along with Charlotte Cuthbertson, both of whom are well known to our longer-term investors as the Company’s lead portfolio managers for a number of years.

AVI’s appointment commenced from close of business on Friday 15 December, concurrent with Premier Miton concluding its role as investment manager. Nick Greenwood joined AVI the following business day, Monday 18 December. Also, with effect from 18 December 2023, the registered office moved to the offices of Frostrow Capital LLP, our Company Secretary, Marketing and Administration Manager. The new address can be found at the end full annual report. The Board would like to thank Premier Miton again for their hard work and support over the years.

Working with AVI, an experienced manager of investment trusts and of funds investing in the investment trust sector, is off to a good start and the Board expects MIGO to benefit from AVI’s sector expertise and supportive analyst resources as well as its distribution and marketing channels. Further information on AVI can be found at: www.assetvalueinvestors.com.

Together with a new AIFM and Investment Manager, MIGO also has a new Depositary and Custodian, JP Morgan Europe Limited and JP Morgan Chase Bank respectively. We thank the Depositary and Custody teams at The Bank of New York Mellon (International) Limited for their support over the years and for their help in transitioning the Company’s business over to JP Morgan, which has an excellent team and well established working relationships with AVI.

As already noted in the interim report, it has been encouraging to see shareholders stand by MIGO during the uncertainty and upheaval over the past year. Accordingly, supported in part by the Board’s proactive approach to buybacks, our share price and discount have held at reasonably steady levels. I thank everyone for their patience.

There will be no change to MIGO’s discount management policy or fee structure.

Performance

During the year under review, your Company’s net asset value (“NAV”) per share rose to 362.6p (2023: 328.6p), a total return of +11.3% (2023: -9.3%). The Company’s share price ended the year at 346.0p (2023: 318.5p), giving a total share price return of +9.6% (2023: -10.3%). The total return performance chart gives a longer-term picture, showing the NAV return per share over 5 years as +32.8% and the share price return over the same period as +26.4%. At the end of the year under review, the Company traded at a discount of 4.6% to NAV per share (2023: 3.1%).

We believe the strategy of the Company is best measured against a “cash plus” benchmark, and accordingly the Company does not have a formal equity benchmark against which the Board reviews long-term performance and our Investment Manager does not invest by reference to an index. Over the year, the Company’s formal cash benchmark, SONIA plus 2%, rose by 6.9% (2023: +4.6%) and over five years by 19.7%.

A comprehensive appraisal of the performance of, and developments within, your portfolio during the year under review and since 30 April 2024 is provided in the Investment Manager’s Report. During the year, the principal drivers of positive performance were holdings in Georgia Capital, India Capital Growth, uranium trusts and Biotech Growth. The main detractors were property trusts and Aquila European Renewables.

Dividend

The results attributable to shareholders for the year ended 30 April 2024 are shown in the Financial Statements. In the year, the Company made a revenue account profit and, as a result, under investment trust rules regarding distributable income, a final dividend must be paid to comply with those rules.

Subject to shareholders’ approval at the forthcoming Annual General Meeting (“AGM”), a final dividend of 0.6p per share will be paid on 4 October 2024 to shareholders on the register as of 6 September 2024. The associated ex-dividend date will be 5 September 2024.

This is only the third dividend to be paid in the history of the Company, but MIGO’s principal objective remains to provide shareholder returns through capital growth in its investments and outperforming SONIA plus 2% over the longer term. Therefore, the Board is maintaining its current policy to pay only those dividends necessary to maintain UK investment trust status and shareholders should not, therefore, expect the dividend to necessarily continue at current levels nor make up a significant proportion of the total return generated by your Company. Subject to the investment trust rules, any dividends and distributions will continue to be at the discretion of the Board.

Board Changes

As previously reported, the appointment of AVI as our new AIFM and Investment Manager meant that Katya Thomson could no longer be considered independent under the AIC’s Code of Corporate Governance, as she also sits on the board of another AVI investment trust. She therefore took the decision to step down from her role as non-executive director and Chairman of the Audit Committee once a replacement could be found.

With the help of an independent consultancy, the Board undertook a search for a new independent, non-executive Director with the necessary qualifications to take over from Katya as Chairman of the Audit Committee. As announced on 12 December 2023, the Board was delighted to appoint Caroline Gulliver as our new Chairman of the Audit Committee with effect from the close of business on 29 December 2023. Katya stepped down from her role on the same day. Caroline’s short biography can be found in the Directors’ Report, and she will stand for election by shareholders at the forthcoming AGM.

There is one more farewell, as Hugh van Cutsem retired from the Board of MIGO on 10 July 2024. This was announced on 14 March and followed 14 years of service to MIGO, during which he proved to be a great advocate of the Company and added his considerable experience and sage advice to the Board’s decision making.

The Board warmly welcomes Caroline, who has already had great input in the drafting of this annual report. At the same time, we will miss Katya’s and Hugh’s insights and wish them well for the future.

In line with best Corporate Governance practice, an annual review of the effectiveness of the whole Board and its Committees was again performed, also taking into account the performance of our new Director. The Board is satisfied that each Director is fully engaged with the Company’s business and that all Directors are working together as an effective team. In accordance with our policy of all Directors standing for re-election annually, you will find the appropriate resolutions in the Notice of the AGM.

2024 Realisation Opportunity

The Articles of Association (the “Articles”) give shareholders the right to elect to realise all or part of their holdings of Ordinary shares at three yearly intervals. As the last realisation opportunity occurred in 2021, the next realisation opportunity is due this year (the “2024 Realisation Opportunity”). This year, to reduce the costs for the Company and to make the process more streamlined, no circular will be mailed to shareholders. Instead, those shareholders who would like to realise some or all of their holdings are invited to download the necessary documents from MIGO’s website. To facilitate the 2024 Realisation Opportunity, two special resolutions will be put to shareholders at the forthcoming AGM (the “Realisation Opportunity Resolutions”). For details of the Realisation Opportunity Resolutions, please refer to the Explanatory Notes of this Annual Report. Shareholders should also refer to the “2024 Realisation Opportunity” document which is available on the Company’s website: www.migoplc.co.uk (the “2024 Realisation Opportunity Document”).

Share Issues and Share Buybacks

At the year-end, the Company’s shares traded at a discount of 4.6% to net asset value per share, having traded at a discount of 3.1% at the 2023 year-end. In comparison, the unweighted average discount across the whole investment companies universe* has expanded from 11.03% to 19.98% over the same period.

During the year ended 30 April 2024, no new shares were issued. A total of 1,760,000 shares was repurchased in order to restrict any undue widening in the Company’s share price discount to NAV per share. While the Company does not target any particular share price or discount level for buybacks, the buybacks conducted during the year were at discounts ranging from 2.0% to 5.7%. As at the date of this report, the discount stands at 1.1% and 75,000 further shares have been repurchased since the year-end. The Board is unanimous in its support of the buyback policy to keep any discount volatility to a minimum and is firmly of the view that buying in at a double discount (MIGO shares’ discount to NAV and the unweighted average discount to NAV of the underlying holdings, 30.7% as at 22 July 2024, being the latest practical date prior to the publication of this report) is accretive to shareholders.

* The full investment companies universe as defined by Numis Securities Research including both equities and alternative asset investment companies.

Sector Cost and Regulation Issues

I already commented in the interim report about the ongoing charges figure (“OCF”) which is the charge paid over a year quoted on the ‘Key Investor Information’ (“KID”) document and which the Board, alongside many investment trust specialists, considered misleading. Whether actual and underlying costs are presented in one single figure or in a layered approach, many platforms and readers will add them up, and in an industry where low fee levels are sometimes misunderstood as the simplest way to evaluate value, this can become a problem.

Having lobbied the Association of Investment Companies and HM Treasury to intervene to confirm that costs associated with listed investment companies should be excluded from the ‘single figure’ OCF across all retail product and service categories, the Board of MIGO now awaits further developments and amended legislation in due course. The AIC has made a submission to the FCA, recommending the exclusion of investment companies from the current regime as the easiest solution to prevent cost disclosures undermining demand for investment companies. Sadly, the recent general election in the UK may stand in the way of an early resolution of this issue.

Annual General Meeting

The AGM of the Company this year will be held on Wednesday, 18 September 2024 at 12 noon at 25 Southampton Buildings, London WC2A 1AL. The notice convening the AGM can be found at the back of this document, together with an explanation of all resolutions. The Directors look forward to meeting shareholders.

Outlook

With a new AIFM and Investment Manager having been appointed, MIGO and its shareholders have a lot to look forward to.

Our investment universe currently offers some incredibly appealing opportunities given the material widening of discounts unrelated to fundamental prospects in many cases. In addition, a peak in interest rates may force a more positive reassessment of sectors trading at significant discounts but which had previously traded at premiums.

The Company is in a good position and your Board remains optimistic and thanks shareholders for their continued support throughout the last 12 months and going forward.

Richard Davidson

Chairman

24 July 2024

About Asset Value Investors

The Company has appointed Asset Value Investors Limited (“AVI”) as its Alternative Investment Fund Manager.

AVI was established in 1985 to take over the management of one of the oldest listed investment companies in London. AVI has a long history of running investment trusts and investing in them.

AVI’s strategy is to seek out-of-favour companies whose assets are misunderstood by the market or under-researched and which trade significantly below the estimated value of the underlying assets. This specialist research-driven approach is still a unique combination nearly 40 years later. Visit the website at: www.assetvalueinvestors.com

Q&A with our Portfolio Managers

It has been 20 years since Nick Greenwood launched MIGO Opportunities Trust plc (“MIGO”). Much can happen over two decades but the constant has been the search for the best opportunities in the investment trust sector. The biggest change this year will have been the move to Asset Value Investors. As MIGO celebrates its 20th anniversary, we chat to Fund Managers, Nick and Charlotte, about the journey the Company has been on in those two decades, challenges faced and how things have changed.

Q    What an exciting milestone to be celebrating. Take me back to the beginning of the MIGO story – where did it all begin?

A     Two decades ago, the fund management world was a very different place. Straying too far from a benchmark was deemed a serious career risk, and tracking error was a metric closely monitored. This created a dysfunctional environment detached from the real world. In the early noughties if you had asked a range of UK fund managers which FTSE stock they liked the least, the majority would correctly respond with Vodafone which had recently bought Mannesmann in a blockbuster deal. They would reflect their bearishness by taking an underweight position perhaps 10% in comparison to Vodafone’s 14% in the index, meaning that it remained a significant investment. Just imagine thanking a client for being entrusted with their life savings and then telling them that the first thing you had was to put a tenth of that sum into the shares that you think are going to fall the furthest. It was clear that common sense needed to be introduced into portfolio management, buying only investments that would make actual money. MIGO was our response and explains our use of a cash benchmark.

Q    20 years is a long time – what are some of the biggest challenges that MIGO has had to face in that time?

A     Given that MIGO was launched post the splits crisis, the greatest challenges are those that the trust world is facing today. Firstly, the rapid consolidation of the wealth management industry into a handful of extraordinarily large companies. The assets under management are such that it makes it very difficult for them to use investment trusts at all as they just can’t buy enough shares to move the needle. Greater damage is being caused by flawed regulation concerning cost disclosures. Whilst this problem will eventually be resolved it is impossible to quantify how much damage will be inflicted in the meantime. The positive side is that these challenges have meant discounts are at their widest since the Great Financial Crisis in 2008. A fantastic opportunity to build a portfolio of trusts trading far below their intrinsic value. Either we will see buying returning to trusts or if the stock market cannot value an asset properly then eventually the real world will buy the underlying portfolio eliminating the discount and providing a profitable exit for shareholders. MIGO is well positioned to benefit from this phenomenon.

Q    What do you think potential investors are attracted to about MIGO?

A     MIGO’s flexible approach which allows it to go anywhere, meaning that it is lowly correlated with mainstream indices and can exploit an inefficient market. We can invest in any geography or asset class as long as it is held in a closed-end structure. Many of our Investors understand the market opportunity but rather than pick individual trusts effectively sub-contract selection by owning shares in MIGO.

Q    Which sectors do you find particularly interesting now and why?

A     Interesting sectors include; UK Microcaps, biotech and more recently growth private equity. Microcaps suffer from the same problem as investment trusts in that they are too small for many institutions to own and will be acquired by the real world at a premium. Biotech has been treated harshly as it has been lumped in with other pre profitable sectors. Big pharmaceutical companies will need to replace products which are reaching patent expiry. This will be achieved through acquiring biotech companies at a time when the FDA is approving a record number of new drugs. Growth private equity is a classic arbitrage between perception and reality. A trust like Seraphim Space seems an exotic asset class at first glance but in practice the industry is maturing. Communications systems have long employed satellite, furthermore the industry is heavily exposed to defence where budgets are only going one way.

Q  You have employed gearing this year, why is that?

A   Discounts have become extremely wide as the result of the challenges discussed earlier; corporate activity will increase making it a profitable time to own trusts. We would expect that our gearing could become higher going forward within the limits of our investment policy and our loan facility.

Q  Have there been any synergies with the move to Asset Value Investors?

A   Asset Value Investors has a long history of owning and running investment trusts which makes it a perfect home for MIGO. Although we have very few common holdings with AVI Global, we have a similar patient, value approach and have been able to discuss ideas and themes with the wider team.

Q  Looking to the future, where do you think MIGO might be in another 20 years?

A   This may be more relevant to Charlotte than Nick. We think the important point is that the investment trust movement has constantly evolved as the environment has changed. We expect this to continue into the future and MIGO will evolve with it. Although the sector has had a particularly tough period we are optimistic for the future.

Our Top 10 Holdings

Focus on small and mid-cap opportunities

The top ten equity investments make up 40.6% of the portfolio*, with operating businesses spread across a range of sectors.

*          For definitions, see Glossary.

1. VINACAPITAL VIETNAM OPPORTUNITIES

6.1% of portfolio (2023: 6.6%)

17.7% discount

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