Interactive Investor

Ian Cowie: this ‘clanger’ has fallen so much, but I’m hanging on

Our columnist invested in this investment trust on a 10-year view, and with two years left to go he is nursing big paper losses. Here, he explains why at this point it makes more sense to hang on in the hope of better times.

7th December 2023 10:59

by Ian Cowie from interactive investor

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Next Wednesday, 13 December, about 300,000 investors in Neil Woodford’s woeful unit trusts will be able to vote on a £230 million compensation offer. But there will be no such luck for shareholders in the so-called star fund manager’s failed investment trust.

Sad to say, this demonstrates how open-ended funds, or unit trusts, can provide more comfort in extremis than closed-end funds, or investment trusts. There are no safety nets on the stock exchange. Never mind the nerdy details, the question now is: should we stay or should we go?

My first thought, as one of the twits who paid £1 per share in the flotation of Woodford Patient Capital in April 2015, was to contact the current fund managers at what is now called Schroders Capital Global Innovation Trust (LSE:INOV) and trades just above 15p. Ouch!

I thought I could start by asking them if there are any reasons to hope for a happy ending, more than eight years after we put our trust in British bioscience and new technology start-ups. Just like Chancellor Jeremy Hunt recently said he wants company pension funds to do with 5% of their members’ life savings.

Shadow chancellor Rachel Reeves says she would push company pensions even further into the exciting world of unlisted private equity. What could possibly go wrong?

Unfortunately, that line of inquiry with Schroders led straight to another disappointment in this saga of dashed hopes, as I didn’t receive a response to my request for comment.

But INOV’s current fund managers, Tim Creed and Harry Raikes, have good reason to be depressed by the wreckage Woodford left behind. Nor is there much evidence of optimism among the board of directors of this disaster. Despite one of them serving since 2015 and their annual fees ranging between £31,000 and £48,000, only two out of five have more invested in INOV than their annual fee, according to the stockbroker Investec.

Looking under the bonnet, to see how INOV’s remaining money is currently invested, is not for the faint-hearted. Page 13 of the most-recent interim report to last June, lists no fewer than 12 holdings, which Schroders reckon are of negligible value.

A footnote explains: “These are Legacy Assets, being assets acquired by the company prior to Schroder Investment Management taking over management responsibilities in December 2019.”

There’s not much point in listing these “dirty dozen” duds because only the sad collapse of Rutherford Health is likely to ring any bells. It is always a tricky business trying to value “unquoted” companies, whose shares are not traded on the market, because their worth is more a matter of opinion than a factual report of what their shares fetch when sold.

For example, Benevolent AI (EURONEXT:BAI) is shown as worth £3.6 million or 1.9% of total assets and another footnote adds: “BenevolentAI is quoted, but the market is inactive. Thus its valuation has been determined in accordance with the process followed for unquoted assets.”

More positively, the newish managers have succeeded in allocating nearly a quarter of INOV’s assets overseas, which might reduce the risk of being focused on a single country, as this trust used to be. For example, the interim report cites INOV’s first transaction in Asia with an $8.0 million (£6.6 million) investment in AgroStar, an Indian agricultural technology start-up.

Founded in 2013, AgroStar helps Indian farmers access “agricultural inputs” - presumably fertilisers and pesticides - and digital access to global markets to sell their produce.

It’s now INOV’s ninth-biggest holding, representing 3.3% of investments.

Creed and Raikes say: “The company serves millions of farmers across multiple Indian states via the AgroStar app, with over 7.5 million users, and a rapidly expanding retail network of over 5,000 stores.

“Through the recent acquisition of INI Farms, India’s largest exporter of fruits and vegetables, AgroStar is quickly scaling its business into the domestic and international food supply chains.”

As an optimist about the world’s fifth-largest economy, who is also a shareholder in India Capital Growth (LSE:IGC) and JPMorgan Indian Ord (LSE:JII), that sounds good to me. However, with INOV having plunged by 85% in value, I am unlikely to see that money again.

The only wise thing I did with INOV was to limit my investment to 1% of my life savings. So, as a small part of a globally diversified portfolio, I intend to hang on.

Having invested on a 10-year view, I might as well stay onboard for the final fifth. But only the very brave - or foolish - would try to catch this falling knife.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in India Capital Growth (ICG), JPMorgan Indian (JII) and Schroders Capital Growth Innovation (INOV).

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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