Monthly Listed Investment Trust Report – Jul 2023

This story features VGI PARTNERS GLOBAL INVESTMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: VG1

Download related file: IIR-Monthly-LMI-Update_3-July-2023

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market.

Note: For comprehensive comparative data tables for LICs and ETFs please see attached.

LMI Market News

VG1 – Rob Luciano Taking a Break
On 8 June 2023, VGI Partners Global Investments Limited ((VG1)) announced that the Portfolio Manager, Rob Luciano, will be taking a 3 month sabbatical. Marco Anselmi and Simon Birrell will maintain the day-to-day responsibilities of the portfolio in Rob’s absence, with oversight from the CIO of Regal Funds Managements, Philip King. The sabbatical comes after the completion of the merger between VGI Partners and Regal Funds Management and Rob feeling comfortable with the operational and investment support provided by the Regal team.

The VG1 portfolio has performed better in CY’23 thus far with the NTA (including dividends) increasing 18.1% over the five months to 31 May 2023, however the performance of the portfolio has been disappointing since the Company listed with the NTA at May-end below the NTA at listing.

PGG Delisting Approved by ASX
As we detailed in our last monthly update, Partners Group Global Income Fund ((PGG)) is seeking to delist from the ASX and continue to operate the fund as an unlisted unit trust. During the month, PGG received formal approval from the ASX for the trust to delist, subject to unitholder approval. An Extraordinary General Meeting is scheduled for 2 August 2023, with the last day of
trading expected to be 17 November 2023 in the event the proposal is approved.

PGG is providing unitholders plenty of time to exit their investment in the event they do not wish to remain a unitholder in the unlisted structure.

MEC Exploring Options to Narrow Discount
On 28 June 2023, Morphic Ethical Equities Fund Limited ((MEC)) stipulated in a letter to shareholders that “the Board is monitoring the discount to NTA and is exploring a range of other options that could potentially deliver a return that is closer to NTA.”

The statement comes in response to feedback from shareholders regarding the discount and portfolio performance. To date, MEC has sought to address the discount through the following initiatives:

-Increasing the size and frequency of dividends with a DRP. MEC increased the frequency of dividends from semi-annual to quarterly commencing in 1Q’CY22;

-Increasing the marketing and reporting of the performance of the portfolio in order to grow the Company and keep shareholders informed; and

-Implementing a share buy-back. MEC has bought back 645,573 shares.

The Company intends to provide regular updates to the market regarding its strategy to manage the discount as the process unfolds.

KKC Announces Substantial Increase to Target Distribution
On 27 June 2023, KKR Credit Income Fund ((KKC)) announced a target distribution for the FY24 period of 1.67 cents per unit per month (a total of 20 cents per unit). The target distribution represents a 52% increase from the current monthly distribution of 1.09 cents per unit. The increased target distribution reflects the increased yields and credit spreads in global credit markets expected by the Manager combined with the cessation of the buyback program and the redistribution of income to unitholders.

The uplift in the distribution represents an attractive distribution yield of 10.7% based on the unit price as at 27 June 2023. After buying back over $100m in KKC units, IIR views the reallocation of this income as distributions to unitholders as a significant positive for investors.

BTI Benefits from Investment Company Acquisitions
Bailador Technology Investments Limited ((BTI)) announced the acquisition of two of the companies in the portfolio in June.

1) Rezdy entered into an agreement to sell the business to a US Private Equity Fund. The transaction was completed in June and resulted in a 46% uplift in the valuation of the company. BTI elected to roll 100% of its investment into the acquisition vehicle and has invested an additional $2.5 million in the vehicle.

BTI first invested $2.5 million in Rezdy in October 2015, with a total of $12.6 million invested including the latest follow on investment of $2.5 million.

2) The Company exited its investment in InstantScripts after shareholders accepted the sale of the company to Australian Pharmaceutical Industries Pty Ltd, a wholly owned subsidiary of Wesfarmers Limited. The transaction has resulted in BTI expected to realise $52 million cash from the transaction. The sale price represented a 25% increase in the carrying value of the investment.

The sale is subject to final completion adjustments and is anticipated to be completed in early July.

EAFZ Commences Trading
During the month, the Ellerston Asian Growth Fund (Hedge Fund) ((EAZF)), commenced trading with 18.05 million units on issue.

EAFZ was created to address the lack of liquidity and other structural issues experienced by Ellerston Asia Investments Limited ((EAI)) with the conversion of EAI into an ETMF structure providing investors a structure that trades closer to the value of the portfolio and that is capable of growing given the open-ended structure of an ETMF. 14,998,520 EAFZ securities were issued to EAI shareholders.

FOR Advises Indicative Semi-Annual Distribution of 3 Cents Per Unit
On 14 June 2023, Forager Australian Shares Fund (ASX: FOR) advised it estimates a distribution of 3 cents per unit for the half-year period ending 30 June 2023. The distribution is an estimate only, the actual distribution amount may differ. Given FOR is trading at a discount to NAV, the Fund has suspended the operation of the DRP until further notice.

RF1 to Pay a Semi-Annual Distribution
On 26 June 2023, Regal Investment Fund (ASX: RF1) advised that the Fund will pay a distribution for the half-year ended 30 June 2023. The distribution is estimated to be 6 cents per unit, however the actual distribution amount may differ to the estimated amount. The DRP will be available to unitholders. Units issued under the DRP are issued at the lower of the market price or NAV.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

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Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.

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This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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