Mello Trusts And Funds: 4 Companies I’m Watching

Last week, I ventured out from the safety of my laptop and travelled into London for the inaugural Mello Trusts and Funds event in Chiswick. My brain is still hurting — there was so much to absorb — but it was definitely a worthwhile trip.

Mello started as relatively informal monthly gatherings in a South London restaurant of the same name, mainly for posters using the old Motley Fool discussion boards.

Often there were presentations from CEOs or FDs of small-cap companies, or other investment speakers such as fund managers or Lord Lee.

The restaurant changed its name to Sea Salt a long time ago, but the Mello moniker has lived on. The reputation of these events grew and grew, as they focused on higher-quality companies rather the oil, mining and blue-sky firms that usually tend to infest such gatherings.

Mello Events now puts on shows for several hundred investors at a time. They are mostly held in London, although they did an event in Derby in 2018.

Last week was a three-day jamboree, with Wednesday dedicated to funds (mostly investment trusts) and Thursday/Friday for small-cap companies.

The set-up

The event was held at the Clayton Conference centre in Chiswick, close to Gunnersbury tube station. It’s not the easiest place to get to, as anyone who has had the misfortune to use the District Line will know.

The venue itself was ideal, though, and everything was impressively organised. A few presentations ran over as the day progressed, but you could see the effort being made to keep everything running to the timetable wherever possible.

There was a theatre for the main presentations and five other rooms of varying sizes, plus an exhibition area as well.

With six separate talks on offer pretty much throughout the day from 9 am to 6 pm there was plenty to choose from.

Most speakers seemed to be on two or three times, giving you a few opportunities to listen to them. There was plenty of time for questions after each talk, plus the opportunity to grab the speakers at the stands if something occurred to you later on.

Always have a plan!

I picked out a few sessions I wanted to see beforehand but probably should have planned things a little better.

The main theatre and one of the rooms were filmed by PI World and these videos should be made available to ticket holders at a later date, so I probably should have concentrated a little more on the speakers elsewhere.

I went in armed with a pristine notebook and good intentions, but I must admit I failed miserably when it came to jotting things down, being overwhelmed with information in most cases. Now it’s had time to sink in a little, I’ve fleshed out some of the highlights later on in this article.

Who was there?

There seemed to be a good mix of investment trusts in attendance, from biotech to technology and renewables to property. There were a number of regional specialists and generalists as well.

I think there were about 30 funds presenting in total, the best known being Polar Technology, International Biotechnology and Pantheon. Stephen Yiu from Blue Whale Growth Fund, touted in some circles as potentially the next Fundsmith/Lindsell Train, apparently went down well. That’s one of the presentations I hope to watch on video later (this video is now on YouTube).

A large number of the great and good of the investment trust world were on hand, too. John Baron and Jonathan Davis did talks and/or hosted panel discussions. And on the research side, there were many folks from the AIC, Edison, Quoted Data and Kepler.

Andrew Latto from the new site called Fund Hunter was in attendance, as was an old friend of mine Ed Bowsher from ETF Stream. There were also respected trust analysts like Alan Brierley from Canaccord and Kieran Drake from Winterflood.

It was good to see all the industry experts call a spade a spade. They couldn’t give individual recommendations, of course, but they weren’t shy about calling out trends and situations to be wary of. For example, they highlighted the fact that premiums on alternative asset funds could unwind, albeit slowly, if we progressed to a more normal interest rate environment.

On to the company presentations…

Gresham House Energy Storage

I bought a small stake in this relatively recently so it was good to get a little refresher on the investment case here. It’s very much a nascent market although operationally things seem to have got off to a good start.

It makes money by taking excess power produced by the renewable energy sector and storing it in lithium-ion batteries. This is then sold back when prices are more favourable.

The exact mechanics of this process and the labyrinthine nature of power contracts still makes this something of a black box investment for me, so I can’t see it ever being a significant position size in my portfolio.

But I can see parallels with the likes of Bluefield Solar in terms of focusing on the best quality equipment and the expertise needed to operate it to its full potential day in and day out.

The nationalisation of National Grid (essentially the company’s only customer) if Labour wins the next election is an issue, of course, albeit one that’s pretty much impossible to call.

This fund is currently raising more money to buy the pipeline projects outlined its flotation prospectus last year. Hopefully, it will prove to have the cost discipline that Bluefield is renowned for.

The core investment team are apparently all heavily invested in this fund so it will be interesting to see how things develop.

International Biotechnology Trust

These guys were out in force with both lead manager Carl Harald Janson and portfolio manager Marek Poszepczynski presenting plus other members of their team in support.

While it’s the smallest fund in its sector right now, with £235m in assets, it has the best five-year track record. Nearly 90% of its assets are based in the US, but it’s well diversified by company size (with some private investments, too) and by treatment area (where it seeks out areas that have a high unmet medical need).

One thing I hadn’t appreciated previously was the high level of portfolio turnover this fund has (I think Janson said it was 150%-200%). The rationale here is that they often try to avoid holding positions when a binary event is due. In the case of a biotech company, this is usually an FDA ruling, where approval could send the price soaring but rejection could be devastating.

Many drug firms have a couple of these events each year and it’s reckoned that private investor interest right beforehand means that share prices get bid up too high, considering the likelihood of either outcome. Therefore, it’s often a good idea to sit them out and pick up the pieces later.

Biotech is one sector I’m thinking about taking a larger position in and I can see myself investing in this fund.

It’s another company that has adopted a dividend policy fixed to a set level of its net asset value (4% in this instance) rather than one based on its underlying earnings. This has narrowed its discount since it was introduced in 2016 but could mean the dividend is volatile from year to year.

Menhaden

This was a presentation that only I decided to attend at the last minute but I was glad I did.

It’s run by Ben Goldsmith, the younger brother of Zac, not that I knew that beforehand. I had seen this fund lurking in the environmental sector but largely ignored it because of its short and uninspiring track record.

Things did not start well. In fact, they started ten minutes late as Goldsmith got stuck in traffic. He had decided to visit a local company he was invested in between his two presentations that day.

The room was getting tetchy by the time he arrived, but he certainly won us over. The first comment made afterwards when the Q&A session began was “thank you for perhaps the most honest presentation I have ever seen”.

Menhaden was launched in 2015 but before a proper investment team was put in place. Legacy holdings rolled in from Goldsmith’s other ventures dragged down the asset value in the first year and the share price almost halved from its 100p launch price.

The net asset value has got back to where it started but a 25% discount persisted for a long time. It has just started to narrow, now that Goldsmith has begun to market the fund a bit more (he said he was too embarrassed by its performance beforehand and was essentially in lockdown mode). The small size of the fund, just £80m in assets, means that buybacks to reduce the discount are hard to justify.

There is a continuation vote next year, which Goldsmith sees as very much in the balance but winnable if the recent positive performance persists. Looking beyond that, he has ambitions to make Menhaden a generational family trust similar to RIT Capital Partners or Caledonia.

The Menhaden name has a cute backstory. Goldsmith asked his daughter to find a bird name that didn’t have a website. When that didn’t work out, they tried fish names instead and eventually came upon the menhaden. Discovering that its stocks have been heavily depleted due to overfishing, Goldsmith has become a key financial contributor in efforts to help save the species.

Menhaden’s portfolio is as quirky as everything else about this fund. While it’s in the environmental sector, many investments are made because a company makes more of an effort than its competitors rather than being green per se.

Alphabet, whose servers are 100% powered by renewable energy, is a big holding. Airbus is another, on the basis that bigger emission reductions have been made for aeroplanes than cars. Goldsmith is the first to admit that the reasoning for many of his positions is pretty fluffy.

The largest holding (19%) is X-ELIO, a Spanish solar farm manufacturer. Here Menhaden has ridden on the coattails of its connections with the giant VC firm KKR. X-ELIO is currently on the block, but Goldsmith has asked not to be made an insider with respect to the ongoing sale talks.

Goldsmith’s connections have got the firm into many other investments, often without paying the fees that would usually be levied.

I’ve said before that I can be a sucker for a good story and Menhaden could be a classic example of this. I could see it being an interesting side bet, but I’m not sure it would fit neatly in my portfolio as a long-term holding.

Goldsmith, at just 38 years of age, certainly has time on his side.

Polar Capital Technology

Ben Rogoff of Polar Capital Technology Trust is well worth catching if you ever get the opportunity. He was presenting on the past, present, and future of technology, rather than specifically on his fund.

If anything, his talk highlighted the dangers inherent in non-technology stocks, showing just how disruptive innovation can be. It was also interesting to see him mention the S curve and how Polar tries not to invest in high-risk early stage (i.e. unprofitable) companies and also looks to sell out before the technology goes mainstream and get commoditised.

He is also looking for big game-changing opportunities so is happy to have a small stake in the likes of Uber despite its many problems. Netflix was another company he put in that bracket.

On the subject of the lack of UK investments in his portfolio, he said he echoed the views of Katie Potts at Herald that the main reason was that such companies often get bought out before they hit the big time.

I think he said Ocado and First Derivatives were pretty much his sole direct UK holdings. He also finds the market in UK stocks very thin, making it hard to build sizeable positions even if he wants to.

Amusingly, he also said that when one of his competitors (which must be Allianz Technology) outlines in their literature that they are based in California, right up close to the action, that’s a message for him in his London office, rather than for us private investors.

Rogoff says he likes the distance he maintains, as it gives him a better perspective. He reckons he attends four conferences a year in the US rather than rushing from one event to the next.

I’m still deliberating on whether to add some direct technology exposure to my portfolio. Polar is in the mix for that.

Just mellow

I reckon there were about 400 investors in total at this event, so it wasn’t full by any means. Hopefully, that was down to it being the first event like this rather than a general lack of interest.

It certainly wasn’t expensive. I think the full price was £49 but discount codes were posted on Twitter and in a few other places. I think I spent as much on coffee and a sandwich as I did to gain entry. And the train fare cost more than my entry and sustenance combined!

Here’s hoping there’s a similar event in 2020 — my brain should have cooled down by then.

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Disclaimer

Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.

Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!

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