Further to some of the content of my recent OMG post, this set me thinking about trying to reduce risk in my portfolio. This led me onto one of my Investment Trust holdings SMT which having been bought on a double digit discount a few years ago has done very well for me. I bought it as they are focussed growth investors and a good counter balance to my own value / yield style.
However, since GMO seems to reckon US equities are richly priced and this is their largest exposure and it is 17% or so geared and Amazon on 500x this years earnings is their biggest holding at 9.23% it made me think especially as the shares had now re-rated to around NAV. What pushed me over the edge to sell was when I felt they may be displaying hubris when I read this acrticle. Now many people like focussed portfolio's and at least this one is taking some big positions. So if you want exposure to the global tech theme in a low cost global portfolio i wouldn't put you off - just getting a bit rich for my liking.
So what did I do with the proceeds? Well this is where the contrarian value bit comes in and it also relates to the GMO post which suggested that emerging equities looked more promising in terms of valuations. It also happens to be another conviction portfolio, although in this case with an even more extreme exposure to one stock which makes up 34.4% of the portfolio! So what it is is and what it does is probably best explained by their recent interim results.
The contrarian bit with this one is that it gives a slug of emerging exposure (Brazil) through its biggest holding and this has been poor in recent years. The value bit comes in with what they describe as the 35% double discount proposition as follows:
The market value of Hansa Trust’s Ord + A Shares =£187.9m
Ocean Wilsons Holdings sells at a 25.6% discount to the market value of its two parts totalling £454.9m.
Hansa Trust’s 26.45% holding in the above is valued at £120.3m. Adding £120.3m to the market value of the rest of the portfolio gives a “look through NAV” total of £289.9m for Hansa Trust.The market value of the two classes of shares of £187.9m stands at a 35.2% discount to the “look through NAV” of £289.9m.
So this one looks a bit better value to me, has no gearing and I also feel more comfortable with the portfolio elements. Obviously the single stock risk may not be to every ones taste and probably means it will generally trade on a discount, although it has certainly been a lot smaller in the past (single digits) than the the current level of 25%+. It is also however another example of an interesting concentrated portfolio mix beyond the single holding which is easier for managers to pursue in a closed end environment.