In this blog earlier this week – and online at my Citywire column HERE – I mentioned that defensive investors looking for a simple, easy way to buy across the infrastructure space was to buy into one of the growing number of funds of funds in this space.

Chief amongst them, and one’s I name checked, were Gravis Infra and Foresight UK Infrastructure Income. I accept that many investors don’t like fund of funds, with the layering of charges, but equally my sense is that investors also want a nice, simple, easy to trade vehicle – potentially regardless of costs.

Interestingly though I received the following email from a respected fund manager closely involved in this space with the following caution about these fund of funds, which I include in full. This fund manager notes that there is…..

“ a huge amount of overlap between the two: HICL, GCP Infra, SEQI, Foresight Solar, JLEN, NextEnergy, and TRIG are all in each funds’ top 10. Combined they run over £1bn. The investment trust market is not that liquid even at the best of times and I have long noticed how, in the run up to February, the premia at the trusts held by these funds correlated with the growth in their assets. These are daily dealing funds holding an awful lot of these trusts’ shares. They are forced buyers of their trusts when they receive subscriptions and they might be setting the price for these trusts. I do not think this dynamic is healthy (it can unwind) and I rather feel that both vehicles are clever marketing gimmicks aimed at filling the alternative income buckets of lazy IFAs and discretionary managers (also I think Gravis might earn AMCs twice: once on the fund, and again on their own trusts). I don’t think the open-ended structure is being used well here, and they are becoming rather too important on the registers of these trusts. Finally, a really unpopular opinion I hold about the trusts investing in renewable energy: why on earth would you invest in anything where the marginal cost of production is zero. Pressure on pricing will always be downwards. Dividend cover is very skinny with these trusts (except at the admittedly superb operators at Greencoat Wind), and I think dividends will eventually come under pressure as pricing for power inevitably comes down.”

Punchy stuff ! and I’ll be asking the funds for their come back next week. And clearly all the usual caveats apply ( you can always rely on fund managers to complain about each other in private) but I do sense that a combined AuM of over £1 billion between the two (very successful) funds is clearly a source of material market power, plus I suppose the  potential for liquidity challenges.

Over in the world of fintech I was watching the superb AltFi Digital Summit hosted by the inestimable Daniel Lanyon and Oliver Smith. The second session of this excellent summit is on later this afternoon HERE –

Anyway, what was really interesting was listening to Adam Dodds from Freetrade. For full disclosure I have a Freetrade account which I think is cracking but is in a very competitive landscape with impressive rivals such as Stake (proper, full US equity trading access) and IG (which has cut the price of its US dealing to zero and made its shares ISA also free). Adam is clearly on a roll as his Crowdcube fund raise smashes through its £4.5m target.

Listening to Adam though a number of fascinating factoids emerged. Some of them were probably predictable such as

  • The average client is probably around 30, male, London based and professional
  • The average account size is around £2000

But two factoids did jump out at me. They were

  • Cash balances have shot up and 25% of total AuM is in cash. Most interestingly, Adam reckons the average cash holdings in his accounts are now probably bigger than some challenger bank balances.
  • Looking at March customer numbers versus the previous six months, he’s noticed a 10x increase with numbers continuing to increase through the Covid 19 crisis.

Last but by no means least, back to my subject of unloved investment trusts. Earlier on this week I received a few notes from Nick Greenwood who spends ALL his time delving around in the most unloved parts of the investment trust market for closed  end fund Miton Global Opps. Like me, he’s a fan of Phoenix Spree and Stenprop and I thought I’d share with readers his analysis:

Phoenix Spree nav 402p – Share Price 265.5p – Discount 34% : Rent collection on residential portfolio coming in post Covid at 97% , a rate that their UK Peers can only dream about. A factor is that unemployment benefits in Germany are high and the managers insist that tenants rent is less than 30% of household income when applying. There are some commercial units (6% of units) in the portfolio typically shops and cafes on the ground floor of residential buildings. The majority of these will have closed during lockdown so we are taking a 5% (6.5% post leverage) provision from the last stated nav which already reflected the implications of the Berlin rent freeze

Stenprop nav 130p – Share Price 93.5p – Discount 28.1%: Stenprop is transitioning from global generalist property fund into a pure play owner of Mixed Light Industrial (MLI) units in the UK. It has been fortunate in that it sold a Hamburg shopping centre which represented around 20% of the portfolio just before the outbreak of Covid. Cash in hand and possibly softer vendor expectations should speed Stenprop’s task in becoming a pure play. Its MLI assets currently represent 47% of the portfolio. Until this achieved the shares will probably languish on a discount albeit probably narrower than where they trade now. The shares represent a play on the growth in the internet as companies can now operate from smaller , less central and more flexible premises. Whilst we are bullish on the long term outlook for MLI , a little over 20% of the tenant base is suffering as a result of the pandemic. The legacy portfolio will also suffer. This will lead to softness in the market. Our nav assumes a 7% (plus leverage) top slice from the latest official nav of 144p”.