By Nick Greenwood
The move towards alternative assets and away from conventional portfolios managed around an equity index triggered a tidal wave of new closed-ended launches during 2006 and 2007, although many issues were of questionable quality. The subsequent bear market has left hundreds of funds struggling to attract a following; furthermore, many of the hedge funds which were supporters at the issue have been turned into forced sellers driving down share prices far faster than the underlying assets. Inevitably there is a lot of dross to wade through but the exercise is well worthwhile as there are some pockets of value waiting to be uncovered. One useful screening tool is to look for closed-ended funds where connections have been buying shares themselves; a good example is Macau Property Opportunities where the two fund managers have personally accumulated around 3% of the trust in recent months.
Current sentiment towards Macau is dreadful; the gaming sector is faring little better while global property is friendless. Therefore it is not too surprising that Macau Property Opportunities trades at an enormous discount to the latest valuation of the company's assets. Macau is a former Portuguese Colony that reverted back to China in 1999 and is governed under the "one country, two systems" principle which leaves it with a large degree of autonomy. It is the only place in China where it is legal to gamble. However, Macau is tiny with over half a million residents crammed into nine square miles, leaving it one of the most densely populated places in the world even before visitors are taken into account. Given the growth, tourism increased by 12% last year despite the mainland imposing restriction on visas, the dynamics of the local property market are different from anywhere else on the planet.
The team are well regarded and Neil Woodford of Invesco Perpetual owns over 29% of the shares. However, given they trade around 50p compared to the 150p value of assets, the future returns for shareholders jumping aboard will be generated as much from buying in shares for cancellation and narrowing the discount rather than development profits.
Nick Greenwood is manager of the iimia Investment trust and the CF iimia Accelerated fund.