Should you have a spare $10 million to hand, you could always invest in Dan Loeb’s $18 billion Third Point fund — except that it is closed to new investors. As and when it reopens to new funds, that is the minimum investment accepted.
Alternatively, you could buy shares quoted in London in Third Point Offshore Investors and gain direct access to the master fund, which is run by Mr Loeb and his associates. This has been in the news after last week announcing that it had spent $3.5 billion on a stake in Nestlé and calling for bold action to address the “staid culture” at the Swiss food producer and the consequent “long-term underperformance” of the shares.
Many think this criticism is justified and Nestlé shares rose more than 4 per cent. It is typical of Third Point’s activist and at times contrarian approach. It has taken stakes in Yahoo and Sotheby’s and has indicated in the latest letter to investors that it is agitating for change at two big investments. One is Honeywell International, where Mr Loeb wants the underperforming aerospace division to be sold to allow the discount to its peers the shares trade on to narrow.
This year Third Point invested in Eon, the German energy company, after an 80 per cent fall in its market worth during the past decade. Again, the fund wants non-core assets to be sold to boost the strained balance sheet and allow dividends to be increased. Third Point has taken a brave punt on Unicredit, the Italian bank, believing that this year represents a turning point for European financial stocks, and has participated both in an earlier rights issue in 2012 and in a more recent €13 billion fundraising in March.
Offshore Investors’ shares can be bought in dollars and sterling. In dollar terms, the shares trade on a high discount approaching 20 per cent to the latest published net asset value of $18.72. The fund’s performance was mixed during the financial crisis, but the latest figures suggest a 10.7 per cent return in the year to date. This is significant, because dividends are dependent on progress in the net asset value and so are variable, but this year should see another payment. Last year’s suggests a trailing yield of a bit more than 4 per cent.
MY ADVICE Buy
WHY The shares offer ordinary investors a way into one of the most activist US funds, even if dividend income may vary from year to year
Mercia Technologies
Mercia Technologies is a potentially fascinating investment, but since the start of the year, it must be admitted, not a terribly good one. The company manages funds that take investments in small technology start-ups spun out of universities in the north, Midlands and Scotland and in due course invests directly in these.
The year to the end of March was a highly successful one. One Aim flotation, of Concepta, which makes fertility diagnostic tools, and a £4.3 million rise in the fair value of some of its 24 direct investments meant that Mercia actually turned a small profit for the year, of £1 million after minimal tax, against a £1.7 million loss last time.
Another investment was sold at a substantial profit to Arm, the chip designer, in December. Mercia raised £40 million by means of a placing in February and has plenty of cash to invest. The total value of its portfolio grew by £13.9 million to £52 million, including new investments made. Those funds under management rose from £220 million to £336.5 million as new business was acquired.
The net asset value per share grew from 37.5p to 40.4p. Mercia had acquired Enterprise Ventures, a similar business operating in the north of England, in March last year. There are a number of other companies well advanced in areas such as biotech, and virtual reality.
Yet the shares, up 1½p at 34p, have dropped from about 50p at the start of the year, infected by the fallout from the woes of Allied Minds. Impossible to value, but sentiment will turn again one day.
MY ADVICE Buy
WHY This is a promising if very long-term investment
Greencoat UK Wind
The advisers to Greencoat UK Wind reckon that they have not been as busy looking at further investment opportunities since the fund floated in March 2013. There had been fears that supplies of new assets in the secondary market, where they are traded on by their initial builders, might dry up given how many such funds there are fishing in the same waters.
Greencoat raised £147 million of fresh funds in November and has since bought two assets, the latest yesterday being a wind
farm near Grimsby, Lincolnshire, for £47 million. It has borrowings of £175 million, or a comfortable 18 per cent of its net asset value; once this crosses 25 per cent, the fund will go back to the market again, but this is not likely until the autumn, at the earliest.
The attraction for investors is that dividends are guaranteed to grow at the rate of inflation, giving a secure income that will not erode. Since the float, the net asset value has grown by more than the rate of inflation and at 109.8p is at a significant discount to the share price, off ½p at 120¾p. The indicative dividend for this year suggests a yield of 5.4 per cent, which is worth having.
MY ADVICE Buy
WHY An attractive and reliable dividend yield
And finally . . .
Investing in Britain’s digital infrastructure and fibre-optic broadband network looks right up International Public Partnerships’ street, so to speak. The infrastructure fund has interests in gas and electricity distribution, such as being part of the group that bought a majority stake in the gas network from National Grid. It is putting up to £45 million into a vehicle with the government, which is adding up to £150 million, that is seeking investment opportunities and to build fibre-based networks.