Invesco Perpetual Select Trust plc
LEI: 549300JZQ39WJPD7U596
HALF-YEARLY FINANCIAL REPORT
SIX MONTHS ENDED 30 NOVEMBER
2019
.
FINANCIAL PERFORMANCE
CUMULATIVE TOTAL RETURNS(1)(2) TO 30 NOVEMBER 2019
UK Equity Shares |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
6.4% |
15.0% |
19.4% |
35.5% |
Share Price |
4.4% |
12.8% |
19.1% |
34.2% |
FTSE All-Share Index |
5.8% |
11.0% |
24.0% |
37.0% |
|
|
|
|
|
Global Equity Income Shares |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
9.1% |
10.8% |
27.7% |
61.3% |
Share Price |
8.8% |
11.0% |
26.3% |
61.1% |
MSCI World Index (£) |
10.1% |
13.0% |
37.0% |
75.8% |
|
|
|
|
|
Balanced Risk Allocation Shares |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
4.6% |
9.9% |
13.7% |
20.9% |
Share Price |
4.0% |
9.1% |
12.9% |
24.1% |
Merrill Lynch 3 month LIBOR plus 5%
per annum |
2.9% |
5.9% |
16.8% |
28.0% |
|
|
|
|
|
Managed Liquidity Shares |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
1.1% |
2.2% |
2.8% |
2.6% |
Share Price |
1.3% |
1.3% |
1.5% |
1.2% |
PERIOD END NET ASSET
VALUE, SHARE PRICE AND DISCOUNT |
|
|
|
SHARE CLASS |
NET
ASSET
VALUE
(PENCE) |
SHARE
PRICE
(PENCE) |
DISCOUNT |
UK Equity |
181.1 |
178.0 |
(1.7)% |
Global Equity Income |
212.4 |
209.0 |
(1.6)% |
Balanced Risk Allocation |
145.9 |
144.0 |
(1.3)% |
Managed Liquidity |
105.3 |
102.0 |
(3.1)% |
|
|
|
|
|
|
(1) Alternative Performance Measures (APM) see pages 40 to
42 for the explanation and calculation of APMs. Further details are
provided in the Glossary of Terms and Alternative Performance
Measures in the 2019 annual financial report.
(2) Source: Refinitiv.
.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S
STATEMENT
CHAIRMAN’S STATEMENT
This is my first statement since taking over the chairmanship of
the Company and I would like to start by thanking my predecessor,
Patrick Gifford, for his excellent
chairmanship of the Company for much of its history. Patrick was
chairman from 2008 until the Company’s last AGM on 3 October 2019, when he retired and I took over.
I shall endeavour to emulate his drive, innovation and concern for
shareholders’ interests during my tenure.
Investment Objective and Policy
The Company’s investment objective is to provide shareholders
with a choice of investment strategies and policies, each intended
to generate attractive risk-adjusted returns.
The Company’s share capital comprises four share classes: UK
Equity Shares, Global Equity Income Shares, Balanced Risk
Allocation Shares and Managed Liquidity Shares, each of which has
its own separate portfolio of assets and attributable
liabilities.
The Company enables shareholders to alter their asset allocation
to reflect their views of prevailing market conditions.
Shareholders have the opportunity, every three months, to convert
between share classes, free of capital gains tax and free of
charges.
Performance
In net asset value (NAV) terms, with dividends reinvested, the
UK Equity Share Portfolio returned +6.4% over the six months to the
end of November 2019, compared with
its benchmark, the FTSE All-Share Index total return of +5.8%. The
share price total return was +4.4%.
The Global Equity Income Share Portfolio returned +9.1% in NAV
terms, and +8.8% on the share price, compared with its benchmark,
the MSCI World Index total return over the period of +10.1%.
The Balanced Risk Allocation Share Portfolio returned +4.6% in
NAV terms, and +4.0% on the share price. The Portfolio’s benchmark,
Merrill Lynch 3 month LIBOR plus 5% per annum, returned +2.9%.
The Managed Liquidity Share Portfolio had a return of +1.1%
based on NAV and +1.3% based on the share price.
This was a very good period for most markets in risk assets, and
it is pleasing to report the continued improvement in the Company’s
relative performance. Both the UK Equity Share Portfolio and the
Balanced Risk Allocation Share Portfolio outperformed their
respective benchmarks, and although the Global Equity Income Share
Portfolio continued to lag its benchmark the performance ranked
second for the period amongst its peers in the AIC Global Equity
Income sector. The Balanced Risk Allocation Share Portfolio
benefitted from the rise in both equity and bond markets, although
fears over global growth impacted the return from commodities. As
was stated in the Annual Report, the UK Portfolio is somewhat
contrarian, with an emphasis on stocks with low valuations and
exposure to the UK economy. During the period the Portfolio
benefitted from a degree of rotation in style towards value. This
outperformance continued after the period end, with the
Conservatives’ election victory prompting a significant rise in the
equity market and in some domestically orientated stocks in
particular.
The Global Equity Income Portfolio also benefitted from the
rotation in investment style, but it still underperformed the
benchmark over the period. The portfolio was negatively impacted by
the underweight position in the US market, which continued to
outperform markets in the UK and Europe. Furthermore, the Portfolio was
overweight in energy stocks, which lagged the market on investor
concerns about potential oversupply of oil and gas.
Performance of the Managed Liquidity Portfolio, although modest,
was encouraging, given the continued low interest rate environment.
It should be noted that with the adjustment of the investment
policy and change in principal investment in January 2019 the risk profile marginally
increased. The Directors would like to remind shareholders that the
Managed Liquidity Share Portfolio is not designed to replicate the
returns or other characteristics of a bank or building society
deposit or money market fund. Accordingly, the NAV of the shares
can both increase and decrease, albeit the risk of a significant
loss of value is considered to be quite small.
Global Equity Income Share Portfolio Management Arrangements
The Board announced on 8 January
2020 that Stephen Anness has
taken over responsibility for the management for the Company’s
Global Equity Income Share Portfolio. Based in Henley, Stephen
joined Invesco in 2002 to work in the UK equities team and moved on
to manage global equity portfolios in 2012. Stephen now leads the
dedicated Global Equity team, which takes responsibility for
research, portfolio construction and communications. Additional
idea generation and market insights are provided by regional equity
market specialists in the Henley Investment Centre. There is no
change to the investment objective and policy of the Portfolio.
As announced by Invesco in October, Nick
Mustoe stepped down at the end of 2019 from his roles as
Chief Investment Officer and lead manager of the global equity
portfolios managed in Henley. The Directors wish to record their
thanks to Nick for his support of the Company over the years.
Dividends
The Board has declared equal first, second and third quarterly
dividends for the current year for each of the equity share
classes. For the UK Equity shares each of these dividends was 1.5p,
making 4.5p declared to date. For the Global Equity Income shares
each of these dividends was 1.55p, making 4.65p declared to
date.
We continue to target annual dividends of at least 6.6p for the
UK Equity shares and at least 6.9p for the Global Equity Income
shares, these being the levels declared last year. Achieving these
targets may require a contribution from capital, as has been true
in recent years.
It continues to be the case that in order to maximise the
capital return on the Balanced Risk Allocation Shares, the
Directors only intend to declare dividends on the Balanced Risk
Allocation Shares to the extent required, having taken into account
the dividends paid on the other Share classes, to maintain the
Company’s status as an investment trust. None have been declared to
date.
No dividends have been declared in respect of the current
financial year on the Managed Liquidity Shares. With continued very
low interest rates net revenue of the Managed Liquidity Portfolio
has been minimal for some time, although it has seen improvement,
and a dividend was paid in respect of the last financial year, the
first since 2012. As stated in the last annual financial report it
remains the Directors’ intention to distribute substantially all
net revenues earned by the Portfolio going forward. However, given
the quantum involved, it is unlikely that such payments will be
more frequent than annual and may indeed be less so.
Discount and Share Buy Backs
The Company has continued to operate a discount control policy
for all four share classes through the period and the discounts
have remained within a tight range throughout.
During the period the Company bought back 719,772 UK Equity
shares at an average price of 172.9p, 1,411,136 Global Equity
Income shares at an average price of 203.7p, 97,000 Balanced Risk
Allocation shares at an average price of 141.0p and 763,893 Managed
Liquidity shares at an average price of 101.1p.
Outlook
Since the period end, equity markets have continued to rise,
with both the US S&P and NASDAQ indices reaching all-time
highs. Confidence in equity markets was boosted by the announcement
in December that the US and China
had reached a phase one trade agreement, now signed. European
markets, and the UK in particular, have rallied following the UK
general election. Investors had been concerned by the radical
economic policy proposed by the Labour Party, as well as by the
prospect of prolonged political deadlock in the event of a hung
parliament. The decisive Conservative victory has removed this
uncertainty, and there are hopes that business and consumer
confidence will recover.
There are good reasons why markets have risen over recent
months, and although valuations are not stretched by historical
standards relative to bond and cash yields, a period of
consolidation seems likely. Geopolitical tensions remain high, with
the US and China clashing over a
number of issues including the situation in Hong Kong. Furthermore, at the time of writing
the outbreak of the coronavirus has prompted a classic flight to
safety, but it appears it is being well contained and, from a
market perspective, will likely not have a long term impact and,
conversely, may provide short term opportunities for investment.
Attention will also shift to the US presidential election, and the
outcome of any impeachment proceedings against President Trump. In
the rest of the world economic growth remains subdued, most notably
in Europe, where conventional
monetary policy may have reached its limit. In the UK the political
deadlock over leaving the EU has been removed, but considerable
uncertainty remains over the exact nature of any future trade
agreement with the EU. After a year, and a decade, of very positive
returns from markets, a more cautious outlook seems appropriate.
Against this background our portfolio managers continue to
emphasise valuation, holding relatively cheap assets which mitigate
some of the wider risks in the equity market.
We remain convinced that the Company offers an attractive and
unique mix of strategies, and its structure, with opportunities to
convert between share classes, makes it an ideal vehicle for DIY
investors who want enhanced control of their investments.
Graham Kitchen
Chairman
4 February 2020
.
Related Party Transactions
Under United Kingdom Generally Accepted Accounting Practice (UK
Accounting Standards and applicable law), the Company has
identified the Directors as related parties. No other related
parties have been identified during the period. No transactions
with related parties have taken place which have materially
affected the financial position or the performance of the
Company.
Principal Risks and Uncertainties
Explanations of the Company’s principal risks and uncertainties
are set out on pages 36 to 39 of the 2019 annual financial report,
which is available on the Manager’s website.
These are summarised as follows:
• Investment Objectives – the investment
policies may not achieve the published investment objectives;
• Market Movements and Portfolio Performance –
falls in stock markets will affect the performance of the
individual Portfolios and securities held within the
Portfolios;
• Risks Applicable to the Company’s shares –
the prices of shares in the Company may not appreciate and the
level of dividends may fluctuate;
• Viability and Compulsory Conversion of a
Class of Share – lack of demand for one of the Company’s share
classes could result in the relevant portfolio becoming too small
to be viable. If ownership of a class of shares becomes too
concentrated the Directors may serve notice on holders of the
affected class requiring them to convert to another class;
• Liability of a Portfolio for the Liabilities
of Another Portfolio – in the event that any Portfolio was unable
to meet its liabilities, the shortfall would become a liability of
the other Portfolios;
• Gearing – borrowing will amplify the effect
on shareholders’ funds of gains and losses on the underlying
securities;
• Hedging – where hedging is used there is a
risk that the hedge will not be effective;
• Regulatory and Tax Related – whilst
compliance with rules and regulations is closely monitored,
breaches could affect returns to shareholders;
• Additional Risks Applicable to Balanced Risk
Allocation Shares – the use of financial derivative instruments, in
particular futures, forms part of the investment policy and
strategy of the Balanced Risk Allocation Portfolio. The degree of
leverage inherent in futures trading potentially means that a
relatively small price movement in a futures contract may result in
an immediate and substantial loss to the Portfolio; and
• Reliance on Third Party Service Providers –
the Company has no employees, so is reliant upon the performance of
third party service providers, particularly the Manager, for it to
function.
In the view of the Board these principal risks and uncertainties
are as equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Going Concern
The financial statements have been prepared on a going concern
basis. The Directors consider this to be appropriate as the Company
has adequate resources to continue in operational existence for the
foreseeable future, being 12 months after approval of the financial
statements. In reaching this conclusion, the Directors took into
account the value of net assets; the Company’s Investment Policy;
its risk management policies; the diversified portfolio of readily
realisable securities which can be used to meet funding
commitments; the credit facility and the overdraft which can be
used for short-term funding requirements; the liquidity of the
investments which could be used to repay the credit facility in the
event that the facility could not be renewed or replaced; its
revenue; and the ability of the Company in the light of these
factors to meet all its liabilities and ongoing expenses.
.
MARKET AND ECONOMIC BACKGROUND
Global equity market sentiment swung from overly pessimistic to
cautious optimism over the six months to 30
November 2019, as the prevailing economic outlook
evolved.
The spring and summer of 2019 was characterised by a modest
global economic slowdown, most especially in manufacturing sectors,
and markets reacted with a move towards perceived ‘safe-haven’
assets such as gold and government bonds.
By July, a significant portion of the global government bond
market was offering negative yields, reinforcing equity market
investors’ preference for stocks with earnings not strongly
correlated to the economic cycle, sometimes seemingly regardless of
valuation.
In the UK, having risen steadily through June and July, the
equity market sold off sharply at the beginning of August, amid
concerns about the inversion of the US and UK yield curves and the
reignition of US-China trade tensions. Meanwhile domestic politics
dominated headlines. Boris Johnson
was confirmed as the UK’s new Prime Minister and Parliament
prorogued, further elevating fears of a ‘no-deal Brexit’.
Sterling depreciated against international currencies throughout
June and July and fell below US$1.21
during August. The Bank of England’s Monetary Policy Committee
voted to hold the base rate at 0.75% during its June and August
meetings.
The US Federal Reserve’s (the Fed) cuts to interest rates in
July and September were widely anticipated by markets and, together
with more dovish commentary from both the Fed and the European
Central Bank (ECB), provided a positive inflection in the tone for
the latter half of the period under review. The US interest rate
cuts were aimed at keeping the record-long US economic expansion
going into 2020, helping to underpin confidence in continued global
economic growth into the year ahead. Expectations of some detente
in the ongoing China/US trade
dispute further helped to improve investor confidence. The late
summer/autumn period witnessed not only gains for global markets at
an overall index level, but also a sharp intra-market rotation.
Sentiment had started to shift towards previously unloved, and
relatively cheap sectors such as financials and industrial
companies, and away from hitherto favoured areas such as consumer
staples, utilities and software companies.
In the UK, the equity market rose steadily throughout September
to recover losses from a volatile August, but suffered sharp falls
at the beginning of October, with the FTSE 100 Index posting its
worst single day return in more than three years on very weak UK
and EU manufacturing data and poor US jobs figures. This was
compounded by a World Trade Organisation ruling that cleared the
way for the US to impose tariffs on US$7.5
billion of EU imports.
Political factors continued to dominate in the UK. In
mid-October the UK Government announced that it had negotiated a
revised Withdrawal Agreement with the European Union. The UK equity
market took comfort from the decreased likelihood of a no-deal exit
on 31 October 2019 and there was an
immediate rally in Sterling, which peaked at US$1.30. Towards the end of October the
Government agreed an extension to Article 50 and succeeded in
calling an early general election.
On the UK economic front, there was a surprise contraction in
the UK Service Sector Purchasing Manager’s Index data for
September. Employment data was slightly softer, as the number of
people in work fell in the third quarter. However, the UK economy
avoided a technical recession following an increase in real GDP
over the third quarter.
.
UK EQUITY SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return |
|
|
|
|
|
|
SIX MONTHS
TO 30 NOV
2019 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
YEAR TO
31 MAY
2016 |
Net Asset Value |
6.4% |
–4.9% |
1.1% |
22.0% |
–1.4% |
Share Price |
4.4% |
–3.1% |
0.3% |
22.5% |
–2.2% |
FTSE All-Share Index |
5.8% |
–3.2% |
6.5% |
24.5% |
–6.3% |
Source: Refinitiv. |
|
|
|
|
|
Revenue return per share |
2.42p |
5.73p |
5.49p |
5.38p |
5.81p |
Dividends paid |
3.00p |
6.60p |
6.45p |
6.25p |
6.15p |
.
UK EQUITY SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the UK Equity Portfolio is to
provide shareholders with an attractive real long-term total return
by investing primarily in UK quoted equities.
Portfolio Strategy and Review
The Portfolio’s net asset value, including reinvested dividends,
returned +6.4% over the six months to 30
November 2019 compared with a return of +5.8% by the FTSE
All-Share Index. The positive performance over this review period
was driven principally by the holdings in UK domestically focused
companies such as Babcock International, CVS, JD Sports Fashion,
easyJet, Barclays and Next. These stocks were the main
beneficiaries as the market reappraised the outlook for domestic
equities against a clearer political backdrop. The Portfolio’s gold
mining shares also performed well, led by Acacia Mining, which was
acquired in September by Barrick
Gold. Barrick Gold and Agnico
Eagle Mines also performed very strongly, helped by a significant
increase in the price of gold itself.
Babcock International was the single largest contributor to
performance over the period. The company released results for the
first half of the year that contained no real surprises, which,
after a somewhat turbulent 12 months of trading, was reassuring.
This allowed the market to focus on the strong order book and
pipeline, which support the Group’s future revenue prospects, and
the shares re-rated.
Barclays released third-quarter results during the period and
cited the “resilient delivery” on management targets year-to-date.
Meanwhile JD Sports Fashion also benefitted from strong half-year
results as significant improvements in performance were delivered
by the recently acquired Finish Line business in the US.
Elsewhere in the Portfolio, Future continued to perform well.
Over the period the company released a strong full-year
trading update and announced the acquisition of TI Media. This
acquisition is significantly earnings enhancing and was funded
partly via an equity placing, in which the Portfolio
participated.
EasyJet performed well on the back of continued reductions in
capacity growth forecasts and improved management of ticket
pricing. On the Beach also released a full-year trading update that
confirmed management’s previous trading guidance despite the
challenge faced from pronounced weakness in Sterling and the
disruption from the failure of Thomas
Cook.
Having not previously held shares in Burford Capital, an
investment was made following the large negative share price
reaction to the publication of a short seller’s report. The shares
were trading below their net asset value, which seemed a
significant overreaction to a company that I have followed for some
time and know well. Once the company published their response to
the points raised by the short seller, the shares recovered
strongly, generating a positive return for the Portfolio.
Conversely, the Portfolio’s holding in AJ Bell detracted from
performance over the period, giving up some of the stellar gains
made post the December 2018 IPO. The
company’s share price weakened on some selling activity during
September and one analyst also downgraded the stock at the
beginning of October. However, AJ Bell released an encouraging full
year trading update later in October, which cited “the resilience
of our business model”. The business added an additional 34,000
customers over the year, an increase of 17%, and profits grew at
twice that rate.
Certain of the Portfolio’s holdings that have performed
extremely well since purchase and have a strong investment
case, detracted from performance over the period under review.
These included Bushveld Minerals, Victoria, Coats and Sigma Capital. Specific
issues impacted two of these companies, Bushveld Minerals, the
vanadium mining company, has been under pressure as the price of
vanadium has fallen over the last twelve months, and Victoria fell sharply at the end of 2018
following the release of an unexpected trading update, but has
since seen performance stabilise.
Outlook
Since the end of the period under review the UK has found itself
in a much more stable position as a result of the significant
Conservative majority gained in the General Election held on
12 December 2019. The result removes
the threat of a far-left socialist government, but after two and a
half years of parliamentary deadlock it also restores the
Government’s ability to pass legislation and set the policy agenda.
It therefore holds out the prospect of strengthening the UK’s
negotiating position with the EU who can now rely on whatever may
be negotiated passing through parliament. If the government are to
avoid requesting an extension to the transition phase beyond
January 2021, a trade deal will need
to have been agreed by July and that timetable looks tight to say
the least. Judging by the subdued performance of sterling since the
election, this continued uncertainty appears to be weighing on
international investors’ minds.
Nevertheless, the very early signs from housing indices, PMI
surveys and employment series are that the Conservative majority
has had an immediate positive impact on businesses and consumers.
It is still too early to be definitive, but if the sharp
improvement in some of these soft datapoints is reflected in
activity levels in the real economy, the recent comments from the
Bank of England’s Monetary Policy Committee will be seen as too
dovish and interest rate and currency markets will have to
readjust. Sterling has for some time looked very undervalued on a
purchasing power parity basis against a basket of international
currencies. If GDP and domestic corporate earnings are set to
strengthen, this undervaluation should close, and this would have a
significant impact on the equity market with the scope for a major
rotation away from international earners towards domestic
earners.
Further afield, China remains
of significant concern. There is no sign of a much-needed boost to
growth from the recent fiscal and monetary stimulus and the
weakness in the exchange rate. With GDP and corporate profits
stagnating, the foundations of China’s rapidly assembled debt
mountain look more unsustainable than ever and corporate defaults
are rising. The recently announced phase one trade deal appears to
lack a decisive solution to the critical issues of intellectual
property and Huawei, and is therefore little more than a fig leaf
in the long-running trade dispute with the US. Meanwhile violent
protests in Hong Kong continue and
the rhetoric from the mainland suggests that patience is almost
exhausted. US politicians disagree on most things, but both sides
seem united in their concern over Hong
Kong and in the view that China poses a long-term threat to US interests
that needs to be contained. The risk of a more serious US-China
disagreement at some point is therefore high.
US growth has likewise been damaged by the trade war, but there
are also signs that the domestic engine is misfiring, with a
flattening labour market and subdued housing demand. Whilst very
recent leading indicators point to some tentative improvement, this
is against the backdrop of a US fiscal position that looks
unsustainable. Having conceded that interest rates have peaked, the
US Federal Reserve (the Fed) have now embarked on another round of
monetary easing. Ostensibly to deal with a severe liquidity issue
that arose in mid-September in the critically important repo
market, the Fed has so far committed to provide almost US$0.5 trillion of liquidity. Markets have not
yet made a connection between the fiscal deficit and this recent
change to monetary policy, but I believe this is the next step as
the US continues to live beyond its means. China has reduced its treasury holdings
further and domestic buyers now appear to be saturated too, so
notwithstanding a recent increase in Japan’s holding, the US
government risks running out of buyers to fund this overspend. That
would leave the Fed as buyer of last resort and threatens to take
US monetary policy into a new realm with direct monetisation of
government spending. This threatens the US dollar, both its value
and also its status as the world’s reserve currency.
Gold has responded well to recent events, but if a weaker US
dollar and yet more unconventional monetary and fiscal policy do
lie ahead, our holdings in gold shares should continue to offer
protection and diversification to the Portfolio. Critically, an
increase in the gold price is not required to justify holding the
shares: all five of the companies held generate enough cash flow at
spot gold prices for their valuations to be attractive. Any further
upside in the price of the metal will make them more attractive
still.
Whilst Brexit has dominated the headlines, the UK stock market
has been affected in recent years by a far broader, global
phenomenon that has seen ‘Value’ de-rated very sharply relative to
all other styles and factors. Predictability of revenues and
earnings has always merited a premium rating and a lack of
visibility has always attracted a discount. However, the current
climate has produced a divergence in valuations that is extreme,
levels only seen twice in the last thirty years in the teeth of
stock market crashes in 2001 and 2008/9. At the top-end I believe
we are now at the limits of the re-rating that has driven share
price performance in recent years. The reciprocal of these high
multiples is such low earnings yields that even if growth
expectations are met, investing in these companies is unlikely to
deliver an attractive total return. At the bottom end, earnings
yields are so high that they alone deliver a compelling total
return. Should these companies grow earnings in the way I believe
possible or ever be considered worthy of a re-rating by the market,
the total return from this point will be significant. This is not
what the market expects. It is an increasingly contrarian approach
that has seen underperformance in recent periods. Regardless, now
is not the time to compromise on my conviction that valuation does
matter and in fact in recent weeks we have observed some evidence
of a re-rating.
James Goldstone
Portfolio Manager
4 February 2020
.
UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2019
Ordinary shares listed in the UK
unless stated otherwise
COMPANY |
SECTOR† |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
Barclays |
Banks |
3,118 |
5.3 |
BP |
Oil & Gas Producers |
2,886 |
4.9 |
British American Tobacco |
Tobacco |
2,378 |
4.0 |
JD Sports Fashion |
General Retailers |
2,100 |
3.6 |
Tesco |
Food & Drug Retailers |
2,091 |
3.5 |
Coats |
General Industrials |
1,954 |
3.3 |
Next |
General Retailers |
1,948 |
3.3 |
Barrick Gold – Canadian
Listed |
Mining |
1,042 |
|
3.2 |
Barrick Gold – UK Listed |
|
847 |
Babcock International |
Aerospace & Defence |
1,887 |
3.2 |
Royal Dutch Shell – B shares |
Oil & Gas Producers |
1,874 |
3.2 |
AJ Bell |
Financial Services |
1,554 |
2.6 |
Legal & General |
Life Insurance |
1,265 |
2.1 |
Johnson ServiceAIM |
Support Services |
1,232 |
2.1 |
Royal Bank of Scotland |
Banks |
1,179 |
2.0 |
easyJet |
Travel & Leisure |
1,143 |
1.9 |
Future |
Media |
1,128 |
1.9 |
Agnico Eagle Mines – Canadian
Listed |
Mining |
1,046 |
1.8 |
Melrose Industries |
Construction & Materials |
1,011 |
1.7 |
Endeavour Mining – Canadian
Listed |
Mining |
987 |
1.7 |
On the Beach |
Travel & Leisure |
977 |
1.7 |
Ultra Electronics |
Aerospace & Defence |
968 |
1.6 |
RELX |
Media |
966 |
1.6 |
CVSAIM |
General Retailers |
962 |
1.6 |
Hollywood Bowl |
Travel & Leisure |
957 |
1.6 |
Phoenix Spree Deutschland |
Real Estate Investment &
Services |
952 |
1.6 |
Secure Trust Bank |
Banks |
945 |
1.6 |
International Airlines Group |
Travel & Leisure |
922 |
1.6 |
Ashtead |
Support Services |
906 |
1.5 |
VictoriaAIM |
Household Goods & Home
Construction |
892 |
1.5 |
XPS Pensions |
Financial Services |
875 |
1.5 |
MJ Gleeson |
Household Goods & Home
Construction |
868 |
1.5 |
Sigma CapitalAIM |
Financial Services |
799 |
1.4 |
PRS REIT |
Real Estate Investment Trusts |
799 |
1.4 |
Bushveld MineralsAIM |
Mining |
796 |
1.3 |
Newmont Goldcorp – US Listed |
Mining |
790 |
1.3 |
DS Smith |
General Industrials |
778 |
1.3 |
Chesnara |
Life Insurance |
742 |
1.3 |
Essentra |
Support Services |
732 |
1.2 |
IWG |
Support Services |
717 |
1.2 |
McBride |
Household Goods & Home
Construction |
681 |
1.2 |
Harworth |
Real Estate Investment &
Services |
661 |
1.1 |
Fevertree DrinksAIM |
Beverages |
658 |
1.1 |
Wheaton Precious Metals |
Mining |
648 |
1.1 |
HomeServe |
Support Services |
633 |
1.1 |
BT |
Fixed Line Telecommunications |
624 |
1.1 |
N Brown |
General Retailers |
549 |
0.9 |
Burford CapitalAIM |
Financial Services |
502 |
0.8 |
Cairn Homes |
Household Goods & Home
Construction |
456 |
0.8 |
Pearson |
Media |
443 |
0.7 |
Countryside |
Household Goods & Home
Construction |
425 |
0.7 |
Sherborne Investors (Guernsey)
C |
Financial Services |
418 |
0.7 |
Distribution Finance CapitalAIM |
Financial Services |
333 |
0.6 |
Summit PropertiesAIM |
Real Estate Investment &
Services |
332 |
0.6 |
Alfa Financial Software |
Software & Computer
Services |
319 |
0.5 |
Zegona Communications |
Non-Equity Investment
Instruments |
313 |
0.5 |
Hadrian’s Wall Secured
Investments |
Equity Investment Instruments |
300 |
0.5 |
TungstenAIM |
Financial Services |
290 |
0.5 |
Safestyle UKAIM |
General Retailers |
262 |
0.4 |
Amigo |
Financial Services |
163 |
0.3 |
TruFinAIM |
Financial Services |
55 |
0.1 |
DFS Furniture |
General Retailers |
35 |
0.1 |
Rolls-Royce – C shares |
Aerospace & Defence |
4 |
– |
|
|
|
|
Total Holdings (63) |
|
59,117 |
100.0 |
†FTSE Industry Classification Benchmark.
AIM Investments quoted on AIM.
.
UK EQUITY SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
SIX
MONTHS ENDED
30 NOVEMBER 2018 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Gains/(losses) on investments held
at fair value |
– |
2,855 |
2,855 |
– |
(8,630) |
(8,630) |
Income |
959 |
48 |
1,007 |
1,169 |
5 |
1,174 |
Investment management fees – note
2 |
(47) |
(110) |
(157) |
(50) |
(116) |
(166) |
Other expenses |
(102) |
(2) |
(104) |
(100) |
– |
(100) |
Net return before finance costs and
taxation |
810 |
2,791 |
3,601 |
1,019 |
(8,741) |
(7,722) |
Finance costs – note 2 |
(9) |
(21) |
(30) |
(31) |
(72) |
(103) |
Return before taxation |
801 |
2,770 |
3,571 |
988 |
(8,813) |
(7,825) |
Tax – note 3 |
(7) |
– |
(7) |
(6) |
– |
(6) |
Return after taxation for the
financial period |
794 |
2,770 |
3,564 |
982 |
(8,813) |
(7,831) |
Basic return per ordinary share
– note 4 |
2.42p |
8.46p |
10.88p |
2.79p |
(25.05)p |
(22.26)p |
SUMMARY OF NET ASSETS |
|
|
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Fixed assets |
59,117 |
61,250 |
Current assets |
376 |
4,056 |
Creditors falling due within one
year, excluding borrowings |
(666) |
(670) |
Bank loan |
(100) |
(7,350) |
Net assets |
58,727 |
57,286 |
Net asset value per ordinary share –
note 5 |
181.1p |
173.1p |
Gearing: |
|
|
– gross |
0.2% |
12.8% |
– net |
0.2% |
12.0% |
SUMMARY OF CHANGES IN NET
ASSETS |
|
|
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Net assets brought forward |
57,286 |
68,008 |
Shares bought back and held in
treasury |
(1,253) |
(4,056) |
Share conversions |
114 |
(1,062) |
Return after taxation for the
financial period/year |
3,564 |
(3,325) |
Dividends paid – note 9 |
(984) |
(2,279) |
Net assets |
58,727 |
57,286 |
.
GLOBAL EQUITY INCOME SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return |
|
|
|
|
|
|
SIX MONTHS
TO 30 NOV
2019 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
YEAR TO
31 MAY
2016 |
Net Asset Value |
9.1% |
–1.3% |
7.8% |
29.2% |
–0.2% |
Share Price |
8.8% |
–0.1% |
5.7% |
31.1% |
–2.8% |
MSCI World Index (£) |
10.1% |
5.3% |
8.2% |
31.3% |
0.7% |
Source: Refinitiv. |
|
|
|
|
|
|
|
|
|
|
|
Revenue return per share |
2.56p |
6.90p |
6.50p |
5.62p |
5.51p |
Dividends paid |
3.10p |
6.90p |
6.70p |
6.40p |
6.00p |
.
GLOBAL EQUITY INCOME SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Global Equity Income Share
Portfolio is to provide an attractive and growing level of income
return and capital appreciation over the long term, predominantly
through investment in a diversified portfolio of equities
worldwide.
Portfolio Strategy and Review
On a total return basis, the Portfolio’s net asset value rose by
9.1% over the six months to the end of November 2019, compared to a rise of 10.1% in the
MSCI World index (£, total return, net of withholding tax).
The Portfolio underperformed the reference index over the six
months. Our investment process focusses on stocks that are
attractively valued versus their history and the market, but which
also pay attractive and growing dividends. Against a more
supportive market and macro backdrop from September onwards, the
Portfolio benefitted from style rotation away from ‘defensive’
parts of the market and into more ‘cyclical’ and
economically-sensitive equities, including financial stocks that
have underperformed the broader market in recent years. However,
the Portfolio’s smaller weighting of US and larger weighting of
energy stocks than the benchmark index compromised the overall
return.
Many financial stocks benefitted from stronger-than-expected
company earnings growth amid signs of better cost management and
lending discipline. As such, the Portfolio’s financials exposure
was particularly strong with Citigroup, JP Morgan Chase, Intesa
Sanpaolo and BNP Paribas all among the strongest individual stocks.
Positive performance also came from a range of consumer
discretionary stocks. Next, the UK fashion retailer, continues to
benefit from solid execution on its strategy and a modest
valuation. Williams-Sonoma, the US homewares company, has gained
more directly from hopes of resolution to US/China trade issues. The UK market was weak
relative to other global markets overall, however, it had begun to
recover in October and November on expectations of
some resolution to the Brexit issue following the general
election, which benefitted holdings such as BAE Systems and
easyJet. The improvement in sentiment towards the global economy
also boosted technology hardware companies, notably semiconductors.
The uniquely strong position of Taiwan Semiconductor, both in terms
of scale and its cutting-edge technology, meant it was a leading
performer for the Portfolio over the period.
The energy sector remained the laggard, however, and our
overweight relative to benchmark exposure was a negative. Energy
stocks were adversely affected by continued concerns around the
long-term risk of oversupply of both of oil and gas. Nonetheless,
we continue to be positive on the energy sector where we see demand
growth outpacing supply growth, depleting inventories, and
companies with attractive valuations. We also remain encouraged
with the speed and size of cuts in operating costs of the oil and
gas companies in the Portfolio, which has positive implications for
dividend growth and share buybacks.
Energy company valuations have rarely been lower, and we feel
the sector is going through positive fundamental changes with a
growing focus on returns and cash flows following years of capital
destruction. We are confident that this thesis is playing out, but
clearly it is taking longer than originally thought for these
companies to rebuild investor trust and interest. When that happens
equity returns could be significant. We continue to believe the
sector offers an outstanding valuation opportunity as well as a
high level of dividends. With regards to the broader environmental
challenges posed by the sector we believe it appropriate for us to
own and engage with these companies with the aim of shifting their
emphasis over time to less carbon intensive energy exposures and to
mitigate their carbon footprint today. As much as we may wish
fossil fuels away, they will remain an important component of our
economic well-being for some decades to come.
In terms of the Portfolio’s regional exposure, its focus on
attractive valuations and growing dividend streams has meant that
we continued to be underweight the US market, where valuations
remained most stretched, in our view, and dividends are relatively
low. While our stock selection in the US was positive for
performance, our underweight exposure overall detracted from
returns given that the US was the strongest performing market over
the six months. We were overweight markets such as Asia, the UK and Europe where we see companies which we
believed to be more attractively valued.
Boris Johnson’s announcement in mid-October of a new deal with
the European Union to deliver on Brexit saw a sharp rise in the
value of Sterling and a marked change in the composition of the
stock and sector leadership within the UK equity market. This
rotation from international towards more domestically exposed
companies favoured the UK stocks held within the Portfolio.
The Asian stocks held within the Portfolio performed well
despite the outbreak of civil unrest in Hong Kong since the summer and their greater
exposure to US-China trade pressures. Asian equity markets, in
general, are sensitive to global trade flows, with export growth
and US dollar strength still having a significant impact on
the outlook for overall corporate earnings growth.
Over the period we introduced three new positions: in
Bristol-Myers Squibb, Nintendo, and Texas Instruments.
Bristol-Myers Squibb is a US
pharmaceutical company with leading market drugs, especially for
cancer treatment. It has recently acquired Celgene, another large
US pharmaceutical company. We are optimistic on the prospects of
the combined entity, believing that the consensus underestimated
the potential both to reduce costs but also the potential from new
product launches, and we consider the stock to be attractively
valued; Nintendo is a gaming company which we feel is less exposed
to increased regulation as its games tend to be more
family-orientated, its balance sheet is extremely strong, with
close to 20% of its market value being net cash on its balance
sheet. It is paying a solid and growing dividend with scope for
profit growth to accelerate due to changes in the structure of the
gaming market; and Texas Instruments is the market leader in
analogue and embedded chips. Analogue chips turn real world
signals/data (e.g. temperature, airflow, light, sound) into
digital signals, while embedded chips use that data to operate
other functions. This is a long-term growth market as the number of
applications and usage for such chips expands. We view Texas
Instruments as a very high-quality business. It is highly cash
generative, with most of the cash being returned to shareholders
either as dividends or share buybacks.
Meanwhile, we sold our positions in Telefonica Brasil following
strong share price performance; Pfizer and Legal & General as
we saw much better value elsewhere; likewise, Kangwon Land, the Korean casino operator.
Nick Mustoe
Portfolio Manager (until 31 December
2019)
Stephen Anness took on
responsibility for the management of the Company’s Global Equity
Income Portfolio from 1 January 2020,
when Nick Mustoe stepped down from
the role.
Outlook
Looking ahead our central case from a macroeconomic perspective
is for a continuation of slow but steady economic growth,
punctuated by periods of over optimism or pessimism. Inflation
remains low, and central bank policy accommodative in most regions.
Whilst valuations are high by historic standards, particularly in
the US, this is justifiable with bond yields at record low levels.
Absent a material decline in corporate earnings we would expect
equity markets to move modestly higher this year. Whilst
recognising the short term impact of the coronavirus, past
outbreaks, such as SARs and bird flu, have proven to be transitory
and, in hindsight, provided opportunities for investment.
As we enter 2020 some of the uncertainty and large dispersion in
sector valuations that was present in equity markets through the
early part of 2019 has been resolved. Many financial stocks and
industrials have seen decent recovery in their share prices and no
longer look ‘standout’ cheap. The extreme bifurcation of valuations
within the market we witnessed has narrowed. Whilst we still see
opportunities in a number of financials, especially in the US, and
the energy sector, which has continued to be a disappointing
performer, we believe it appropriate to reduce our significant
overweight exposure to these hitherto unloved sectors. We continue
to believe the market is paying too high a premium for ‘stable
earnings’ stocks, such as utilities and consumer staple companies,
and also many supposedly high growth companies where rapid growth
is projected far into the future, rather than being faded as is
normal in the real world.
Our preference is therefore toward focussing on individual stock
positions rather than taking large valuation calls on sectors. We
prefer those companies where we see some long term growth
opportunity but where the consensus overly frets about the short
term earnings fluctuations. If we are patient such companies can
often be bought at a discount price.
In the short term, a certain amount of realignment has taken
place since taking over the portfolio. Whilst a majority of the
stocks in the Portfolio at 30 November
2019 continue to be held, the weightings have been changed,
a number have been sold, and a number of new names have been
introduced, including American Express, Analog Devices, Baker
Hughes, Bayer, Colgate-Palmolive, Delta Airlines, Sony, Standard
Chartered, Tencent, Unibanco and
Volkswagen. This has resulted in a Portfolio with a higher, though
still underweight, exposure to the US market than previously and
less correlation to macro-economic events, such as changes in the
oil price and interest rates.
Stephen Anness
Portfolio Manager
4 February 2020
.
GLOBAL EQUITY INCOME SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2019
Ordinary shares unless stated
otherwise
COMPANY |
INDUSTRY GROUP† |
COUNTRY |
MARKET
VALUE
£’000 |
% OF
PORFOLIO |
Chevron |
Energy |
United States |
2,155 |
3.1 |
Bristol-Myers Squibb |
Pharmaceuticals, Biotechnology &
Life Sciences |
United States |
2,015 |
2.9 |
Taiwan Semiconductor
Manufacturing |
Semiconductors & Semiconductor
Equipment |
Taiwan |
1,962 |
2.8 |
Sanofi |
Pharmaceuticals, Biotechnology &
Life Sciences |
France |
1,959 |
2.8 |
Royal Dutch Shell – A shares |
Energy |
Netherlands |
1,888 |
2.7 |
Orange |
Telecommunication Services |
France |
1,877 |
2.7 |
Aon – A shares |
Insurance |
United States |
1,862 |
2.7 |
Citigroup |
Banks |
United States |
1,822 |
2.6 |
BP |
Energy |
United Kingdom |
1,815 |
2.6 |
Nasdaq |
Diversified Financials |
United States |
1,802 |
2.6 |
Total |
Energy |
France |
1,795 |
2.6 |
Roche |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
1,758 |
2.6 |
Next |
Retailing |
United Kingdom |
1,639 |
2.4 |
Toyota Motor |
Automobiles & Components |
Japan |
1,612 |
2.3 |
Verizon Communications |
Telecommunication Services |
United States |
1,553 |
2.3 |
Las Vegas Sands |
Consumer Services |
United States |
1,515 |
2.2 |
JPMorgan Chase |
Banks |
United States |
1,490 |
2.2 |
Microsoft |
Software & Services |
United States |
1,459 |
2.1 |
Novartis |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
1,411 |
2.0 |
Broadcom |
Semiconductors & Semiconductor
Equipment |
United States |
1,384 |
2.0 |
ING |
Banks |
Netherlands |
1,379 |
2.0 |
Amcor |
Materials |
Australia |
1,379 |
2.0 |
Texas Instruments |
Semiconductors & Semiconductor
Equipment |
United States |
1,374 |
2.0 |
Tesco |
Food & Staples Retailing |
United Kingdom |
1,365 |
2.0 |
TE Connectivity |
Technology Hardware &
Equipment |
Switzerland |
1,358 |
2.0 |
Nintendo |
Media & Entertainment |
Japan |
1,345 |
2.0 |
Gilead Sciences |
Pharmaceuticals, Biotechnology &
Life Sciences |
United States |
1,333 |
1.9 |
Deutsche Post |
Transportation |
Germany |
1,329 |
1.9 |
Allianz |
Insurance |
Germany |
1,310 |
1.9 |
Rolls-Royce |
Capital Goods |
United Kingdom |
1,279 |
|
1.9 |
– C shares |
|
|
7 |
Carrefour |
Food & Staples Retailing |
France |
1,271 |
1.8 |
BNP Paribas |
Banks |
France |
1,195 |
1.7 |
United Technologies |
Capital Goods |
United States |
1,192 |
1.7 |
Samsung Electronics – preference
shares |
Technology Hardware &
Equipment |
South Korea |
1,179 |
1.7 |
Wells Fargo |
Banks |
United States |
1,160 |
1.7 |
Koninklijke Ahold Delhaize |
Food & Staples Retailing |
Netherlands |
1,125 |
1.6 |
Adecco |
Commercial & Professional
Services |
Switzerland |
1,112 |
1.6 |
easyJet |
Transportation |
United Kingdom |
1,106 |
1.6 |
CRH |
Materials |
Ireland |
1,087 |
1.6 |
Intesa Sanpaolo |
Banks |
Italy |
1,078 |
1.6 |
BAE Systems |
Capital Goods |
United Kingdom |
1,074 |
1.6 |
Williams-Sonoma |
Retailing |
United States |
1,052 |
1.5 |
Sumitomo Mitsui Financial |
Banks |
Japan |
1,019 |
1.5 |
Royal Bank of Scotland |
Banks |
United Kingdom |
1,018 |
1.5 |
British American Tobacco |
Food, Beverage & Tobacco |
United Kingdom |
1,005 |
1.5 |
BASF |
Materials |
Germany |
1,004 |
1.5 |
Equinor |
Energy |
Norway |
857 |
1.3 |
Caixabank |
Banks |
Spain |
835 |
1.2 |
Canadian Natural Resources |
Energy |
Canada |
741 |
1.1 |
Hyundai Motor – preference
shares |
Automobiles & Components |
South Korea |
584 |
0.9 |
Total Holdings (50) |
|
|
68,925 |
100.0 |
†MSCI and Standard & Poor’s Global Industry Classification
Standard.
.
GLOBAL EQUITY INCOME SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
SIX
MONTHS ENDED
30 NOVEMBER 2018 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Gains/(losses) on investments held
at fair value |
– |
4,869 |
4,869 |
– |
(2,538) |
(2,538) |
Losses on foreign exchange |
– |
(6) |
(6) |
– |
(4) |
(4) |
Income |
1,079 |
32 |
1,111 |
1,054 |
– |
1,054 |
Investment management fees – note
2 |
(53) |
(123) |
(176) |
(55) |
(128) |
(183) |
Other expenses |
(113) |
(2) |
(115) |
(106) |
(1) |
(107) |
Net return before finance costs and
taxation |
913 |
4,770 |
5,683 |
893 |
(2,671) |
(1,778) |
Finance costs – note 2 |
(10) |
(22) |
(32) |
(11) |
(26) |
(37) |
Return before taxation |
903 |
4,748 |
5,651 |
882 |
(2,697) |
(1,815) |
Tax – note 3 |
(105) |
– |
(105) |
(106) |
– |
(106) |
Return after taxation for the
financial period |
798 |
4,748 |
5,546 |
776 |
(2,697) |
(1,921) |
Basic return per ordinary share –
note 4 |
2.56p |
15.21p |
17.77p |
2.38p |
(8.27)p |
(5.89)p |
SUMMARY OF NET ASSETS |
|
|
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Fixed assets |
68,925 |
67,040 |
Current assets |
555 |
763 |
Creditors falling due within one
year, excluding borrowings |
(159) |
(334) |
Bank loan |
(5,180) |
(4,880) |
Net assets |
64,141 |
62,589 |
Net asset value per ordinary share –
note 5 |
212.4p |
197.6p |
Gearing: |
|
|
– gross |
8.1% |
7.8% |
– net |
7.9% |
7.4% |
SUMMARY OF CHANGES IN NET ASSETS
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Net assets brought forward |
62,589 |
69,057 |
Shares bought back and held in
treasury |
(2,895) |
(4,865) |
Share conversions |
(128) |
1,576 |
Return after taxation for the
financial period/year |
5,546 |
(947) |
Dividends paid – note 9 |
(971) |
(2,232) |
Net assets |
64,141 |
62,589 |
.
BALANCED RISK ALLOCATION SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return |
|
|
|
|
|
|
SIX
MONTHS
TO 30 NOV
2019 |
YEAR
TO
31 MAY
2019 |
YEAR
TO
31 MAY
2018 |
YEAR
TO
31 MAY
2017 |
YEAR
TO
31 MAY
2016 |
Net Asset Value |
4.6% |
–2.7% |
6.4% |
9.8% |
–0.3% |
Share Price |
4.0% |
–0.7% |
4.5% |
11.9% |
–2.1% |
3 month LIBOR plus 5%
per annum |
2.9% |
5.8% |
5.4% |
5.5% |
5.6% |
Source:
Refinitiv. |
|
.
BALANCED RISK ALLOCATION SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Balanced Risk Allocation
Portfolio is to provide shareholders with an attractive total
return in differing economic and inflationary environments, and
with low correlation to equity and bond market indices by gaining
exposure to three asset classes: debt securities, equities and
commodities.
Portfolio Strategy and Review
For the half year to 30 November
2019 the Balanced Risk Allocation Portfolio posted a return
of +4.6%. All three asset classes in which the Portfolio
invests generated positive results, with equities outpacing bonds
and commodities, where performance was mixed.
Strategic exposure to equities was the top contributor for the
period as five of the six markets in which the Portfolio invests
saw index levels rise. Japanese equities provided the greatest
contribution to results as investors cheered the Bank of
Japan (BOJ) policy announcement
suggesting future rate cuts were possible to support growth.
European equities also had a meaningful contribution to results,
rising in response to the European Central Bank (ECB) restarting
quantitative easing (QE) in the form of €20 billion in bond
purchases per month. US large and small-cap equities also rose as
the US Federal Reserve (the Fed) cut rates three times
(August, September and October) and as US-China trade negotiations
showed progress. The sole detractor from results for the period
came from Hong Kong, which
continued to deal with civil unrest.
Strategic exposure to government bonds bolstered results as
yields fell across most markets in which the Portfolio was
invested. A combination of accommodative central bank policy in
light of uncertainty about global economic activity, geopolitical
events and potential for a hard Brexit left investors nervous about
risk assets and fuelled demand for safe haven assets. Results in
the asset class were led by Australia, followed by the US and the UK.
Germany and Japan were absent from the Portfolio during
the period due to a combination of negative yields and impaired
credit quality.
Strategic exposure to commodities delivered more muted positive
performance for the period due to mixed results across the four
sub-complexes in which the Portfolio was invested. Precious metals
were the top contributor as both gold and silver prices rose amid
accommodative actions from central banks and increased safe haven
demand. Energy prices also rose in aggregate on geopolitical risk
and signs of reduced output in the US and OPEC. Agriculture and
industrial metals both struggled amid signs of slowing global
growth and ongoing US-China trade tensions.
Tactical positioning delivered further gains as overweights to
equities and underweights to select commodities (e.g. natural gas,
aluminium, sugar, cotton, soybean meal) proved timely.
Outlook
We see several challenges to getting global growth on track such
as a stagnant economy in Europe
and uncertainty surrounding the outcome of trade negotiations
between the US and China. Having
said that, some bright spots are developing which may give rise to
optimism. One of these areas is the November reading for global
Purchasing Managers’ Index (PMI) manufacturing data, which
indicates that industrial activity strengthened across most regions
and that the worst of the slowdown may be behind us. Additionally,
while rates have most likely hit the low in the US for this cycle,
other central banks clearly stand willing to make use of
unconventional monetary policy in an effort to try to spur growth.
Signs that growth is returning could help to extend the record
performance of equities and could cause a powerful rebound in
economically sensitive commodity prices. However, the markets are
not without risk, and adverse outcomes on the trade front or signs
that exceptional policy is not having the intended impact could
spur a new bout of risk-off behaviour. Given the wide range of
potential outcomes, we continue to argue for a balanced risk
approach.
Scott Wolle
Portfolio Manager
4 February 2020
.
BALANCED RISK ALLOCATION SHARE PORTFOLIO
MANAGER’S REPORT
TARGET ANNUALISED RISK
The targeted annualised risk (volatility of monthly returns) for
the Portfolio as listed above is analysed as follows:
ASSET CLASS |
RISK |
CONTRIBUTION |
Equities |
4.6% |
49.9% |
Bonds |
2.4% |
26.3% |
Commodities |
2.2% |
23.8% |
|
9.2% |
100.0% |
Derivative instruments held in the Balanced Risk Allocation
Share Portfolio are shown on the next page. At the period end all
derivative instruments held in this Portfolio were exchange traded
futures contracts. Holdings in futures contracts that are not
exchange traded are permitted as explained in the investment policy
which is disclosed in full on page 31 of the 2019 annual financial
report.
BALANCED RISK ALLOCATION SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2019
|
YIELD
% |
MARKET
VALUE
£’000 |
%
OF
PORTFOLIO |
Short Term Investments |
|
|
|
Short-Term Investments Company
(Global Series) plc |
0.79 |
1,805 |
24.2 |
UK Treasury Bill 17 Feb 2020 |
0.72 |
1,388 |
18.6 |
UK Treasury Bill 3 Feb 2020 |
0.70 |
949 |
12.8 |
UK Treasury Bill 4 May 2020 |
0.76 |
797 |
10.7 |
UK Treasury Bill 11 May 2020 |
0.73 |
747 |
10.0 |
UK Treasury Bill 18 May 2020 |
0.75 |
598 |
8.0 |
UK Treasury Bill 9 Mar 2020 |
0.72 |
549 |
7.4 |
UK Treasury Bill 6 Jan 2020 |
0.69 |
450 |
6.1 |
UK Treasury Bill 27 Apr 2020 |
0.74 |
149 |
2.0 |
Total Short Term Investments |
|
7,432 |
99.8 |
Hedge Funds(1) |
|
|
|
Harbinger Class PE Holdings |
|
14 |
0.2 |
Harbinger Class L Holdings |
|
2 |
– |
Total Hedge Funds |
|
16 |
0.2 |
Total Fixed Asset Investments |
|
7,448 |
100.0 |
(1) The hedge fund investments are residual holdings of the
previous investment strategy, which are awaiting realisation of
underlying investments.
.
LIST OF DERIVATIVE INSTRUMENTS
AT 30 NOVEMBER 2019
|
NOTIONAL
EXPOSURE
£’000 |
NOTIONAL
EXPOSURE
AS % OF
NET ASSETS |
Government Bond Futures: |
|
|
Australia |
1,921 |
23.8 |
Canada |
1,789 |
22.2 |
US |
738 |
9.1 |
UK |
265 |
3.3 |
Total Bond Futures (4) |
4,713 |
58.4 |
Equity Futures: |
|
|
Japan |
839 |
10.4 |
UK |
661 |
8.2 |
Europe |
598 |
7.4 |
US small cap |
568 |
7.0 |
Hong Kong |
520 |
6.4 |
US large cap |
486 |
6.0 |
Total Equity Futures (6) |
3,672 |
45.4 |
Commodity Futures: |
|
|
Agriculture |
|
|
Sugar |
191 |
2.4 |
Soybean |
178 |
2.2 |
Cotton |
176 |
2.2 |
Soybean meal |
159 |
2.0 |
Coffee |
69 |
0.9 |
Wheat |
63 |
0.8 |
Corn |
45 |
0.6 |
Soybean oil |
43 |
0.6 |
Live cattle |
39 |
0.5 |
Energy |
|
|
Gasoline |
209 |
2.6 |
Brent crude |
186 |
2.3 |
Low sulphur gasoil |
88 |
1.1 |
WTI crude |
84 |
1.0 |
New York Harbor ultra-low sulphur
diesel |
60 |
0.7 |
Natural gas |
20 |
0.3 |
Industrial Metals |
|
|
Copper |
343 |
4.2 |
Aluminium |
202 |
2.5 |
Precious Metals |
|
|
Gold |
341 |
4.2 |
Silver |
198 |
2.5 |
Total Commodity Futures (19) |
2,694 |
33.6 |
Total Derivative Instruments
(29) |
11,079 |
137.4 |
.
BALANCED RISK ALLOCATION SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
SIX
MONTHS ENDED
30 NOVEMBER 2018 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Losses on investments held at fair
value |
– |
(7) |
(7) |
– |
(3) |
(3) |
Gains/(losses) on derivative
instruments |
(3) |
400 |
397 |
22 |
(670) |
(648) |
(Losses)/gains on foreign
exchange |
– |
(11) |
(11) |
– |
18 |
18 |
Income |
30 |
– |
30 |
24 |
– |
24 |
Investment management fees - note
2 |
(9) |
(21) |
(30) |
(9) |
(21) |
(30) |
Other expenses |
(21) |
– |
(21) |
(20) |
– |
(20) |
Return before taxation |
(3) |
361 |
358 |
17 |
(676) |
(659) |
Tax |
– |
– |
– |
– |
– |
– |
Return after taxation for the
financial period |
(3) |
361 |
358 |
17 |
(676) |
(659) |
Basic return per ordinary share –
note 4 |
(0.05)p |
6.47p |
6.42p |
0.28p |
(11.05)p |
(10.77)p |
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Fixed assets |
7,448 |
7,385 |
Derivative assets held at fair value
through profit or loss |
188 |
175 |
Current assets |
512 |
565 |
Derivative liabilities held at fair
value through profit or loss |
(57) |
(223) |
Creditors falling due within one
year, excluding borrowings |
(26) |
(65) |
Net assets |
8,065 |
7,837 |
Net asset value per ordinary share –
note 5 |
145.9p |
139.5p |
Notional exposure of derivative
instruments as % of net assets |
137.4% |
158.2% |
SUMMARY OF CHANGES IN NET ASSETS
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Net assets brought forward |
7,837 |
9,287 |
Shares bought back and held in
treasury |
(138) |
(522) |
Share conversions |
8 |
(663) |
Return after taxation for the
financial period/year |
358 |
(265) |
Net assets |
8,065 |
7,837 |
.
MANAGED LIQUIDITY SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return
|
SIX MONTHS
TO 30 NOV
2019 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
YEAR TO
31 MAY
2016 |
Net Asset Value |
1.1% |
1.3% |
0.3% |
0.0% |
–0.1% |
Share Price |
1.3% |
–0.5% |
0.5% |
0.5% |
–0.9% |
Source: Refinitiv.
Revenue return per share |
0.36p |
0.59p |
0.24p |
(0.04)p |
(0.14)p |
Dividend |
nil |
0.80p |
nil |
nil |
nil |
.
MANAGED LIQUIDITY SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Managed Liquidity Share
Portfolio is to produce an appropriate level of income return
combined with a high degree of security.
Portfolio Strategy and Review
From 18 January 2019 the
investment strategy followed for this Portfolio has been to invest
principally in the PIMCO Sterling Short Maturity Source UCITS ETF,
which is managed by PIMCO with Invesco acting as co-promoter, and
also in the Sterling Liquidity Portfolio of Short-Term Investments
Company (Global Series) plc, which is a money market fund managed
by Invesco. Shareholders should note that, with the change of the
principal investment of the Portfolio at the beginning of 2019, the
risk profile also changed, albeit marginally, and consequently the
Shares carry a slightly higher risk than previously that their net
asset value could fall, as well as rise.
The PIMCO Sterling Short Maturity Source UCITS ETF seeks to
maximise current income consistent with the preservation of capital
and a high degree of liquidity. The ETF is actively managed by
PIMCO and invests in a diversified portfolio of government,
corporate and asset-backed bonds, denominated in, or hedged back
to, Sterling. To limit the exposure to interest rate risk and
credit risk (the likelihood of an issuer defaulting), these bonds
are both short dated and of high quality. At 30 November 2019, 85% of the ETF’s portfolio was
rated A or above (S&P, Moody’s or Fitch, source: PIMCO). The
portfolio manager at PIMCO is Andrew
Bosomworth.
The Sterling Liquidity Portfolio of the Short-Term Investments
Company (Global Series) plc is managed by Invesco in a laddered
maturity structure, investing in repurchase agreements, time
deposits, commercial paper, certificates of deposit, medium-term
notes and floating rate notes rated A–1/P–1 or better. At
30 November 2019, the Sterling
Liquidity Portfolio was rated AAAm by Standard and Poor's and
AAAmmf by Fitch Ratings.
Outlook
The PIMCO Sterling Short Maturity Source UCITS ETF is actively
managed by PIMCO, with the flexibility to navigate changes in the
macroeconomic outlook. PIMCO’s baseline outlook is for a window of
weakness in the global economy as trade tensions and political
uncertainty act as a drag on global trade. For the UK, the
conclusive election result has reduced, but not eliminated,
uncertainty around Brexit. While PIMCO see the probability of the
UK ending the transition period with no deal as low, there will be
limited upside for UK growth in the near term. Updates around the
trade negotiations are likely to cause some volatility in financial
markets which will create relative value opportunities in UK risk
assets.
Invesco
4 February 2020
.
MANAGED LIQUIDITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AS AT 30 NOVEMBER 2019
|
MARKET
VALUE
£’000 |
%
OF
PORTFOLIO |
PIMCO Sterling Short Maturity Source
UCITS ETF |
3,752 |
100.0 |
|
3,752 |
100.0 |
As of 30 November 2019, there was
no holding in the Short-Term Investments Company (Global Series)
plc.
MANAGED LIQUIDITY SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
SIX
MONTHS ENDED
30 NOVEMBER 2018 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Gains on investments held at fair
value |
– |
11 |
11 |
– |
– |
– |
Income |
23 |
– |
23 |
19 |
– |
19 |
Investment management fees - note
2 |
(2) |
– |
(2) |
(3) |
– |
(3) |
Other expenses |
(6) |
– |
(6) |
(7) |
– |
(7) |
Return before taxation |
15 |
11 |
26 |
9 |
– |
9 |
Tax |
– |
– |
– |
– |
– |
– |
Return after taxation for the
financial period |
15 |
11 |
26 |
9 |
– |
9 |
Basic return per ordinary share –
note 4 |
0.36p |
0.26p |
0.62p |
0.19p |
– |
0.19p |
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Fixed assets |
3,752 |
4,710 |
Current assets |
195 |
16 |
Creditors falling due within one
year, excluding borrowings |
(144) |
(143) |
Net assets |
3,803 |
4,583 |
Net asset value per ordinary share –
note 5 |
105.3p |
104.9p |
SUMMARY OF CHANGES IN NET ASSETS
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
Net assets brought forward |
4,583 |
4,864 |
Shares bought back and held in
treasury |
(777) |
(482) |
Share conversions |
6 |
149 |
Return after taxation for the
financial period/year |
26 |
52 |
Dividend paid – note 9 |
(35) |
– |
Net assets |
3,803 |
4,583 |
.
CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER
|
2019 |
2018 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Gains/(losses) on investments held
at fair value |
– |
7,728 |
7,728 |
– |
(11,171) |
(11,171) |
Gains/(losses) on derivative
instruments |
(3) |
400 |
397 |
22 |
(670) |
(648) |
(Losses)/gains on foreign
exchange |
– |
(17) |
(17) |
– |
14 |
14 |
Income |
2,091 |
80 |
2,171 |
2,266 |
5 |
2,271 |
Investment management fees – note
2 |
(111) |
(254) |
(365) |
(117) |
(265) |
(382) |
Other expenses |
(242) |
(4) |
(246) |
(233) |
(1) |
(234) |
Net return before finance costs and
taxation |
1,735 |
7,933 |
9,668 |
1,938 |
(12,088) |
(10,150) |
Finance costs – note 2 |
(19) |
(43) |
(62) |
(42) |
(98) |
(140) |
Return before taxation |
1,716 |
7,890 |
9,606 |
1,896 |
(12,186) |
(10,290) |
Tax – note 3 |
(112) |
– |
(112) |
(112) |
– |
(112) |
Return after taxation for the
financial period |
1,604 |
7,890 |
9,494 |
1,784 |
(12,186) |
(10,402) |
Basic return per ordinary share –
note 4 |
|
|
|
|
|
|
UK Equity Share
Portfolio |
2.42p |
8.46p |
10.88p |
2.79p |
(25.05)p |
(22.26)p |
Global Equity Income
Share Portfolio |
2.56p |
15.21p |
17.77p |
2.38p |
(8.27)p |
(5.89)p |
|
|
|
|
|
|
|
Balanced Risk Allocation
Share Portfolio |
(0.05)p |
6.47p |
6.42p |
0.28p |
(11.05)p |
(10.77)p |
Managed Liquidity Share
Portfolio |
0.36p |
0.26p |
0.62p |
0.19p |
– |
0.19p |
The total column of this statement represents the Company’s
profit and loss account, prepared in accordance with UK Accounting
Standards. The return after taxation is the total comprehensive
income and therefore no additional statement of other comprehensive
income is presented. The supplementary revenue and capital columns
are presented for information purposes in accordance with the
Statement of Recommended Practice issued by the Association of
Investment Companies. All items in the above statement derive from
continuing operations of the Company. No operations were acquired
or discontinued in the period. Income Statements for the different
Share classes are shown on pages 13, 19, 24 and 27 for the UK
Equity, Global Equity Income, Balanced Risk Allocation and Managed
Liquidity Share Portfolios respectively.
.
CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 NOVEMBER
|
SHARE
CAPITAL
£’000 |
SHARE
PREMIUM
£’000 |
SPECIAL
RESERVE
£’000 |
CAPITAL
REDEMPTION
RESERVE
£’000 |
CAPITAL
RESERVE
£’000 |
REVENUE
RESERVE
£’000 |
TOTAL
£’000 |
At 31 May 2019 |
1,055 |
1,290 |
66,372 |
353 |
62,871 |
354 |
132,295 |
Shares bought back and held in
treasury |
– |
– |
(5,063) |
– |
– |
– |
(5,063) |
Return after taxation |
– |
– |
– |
– |
7,890 |
1,604 |
9,494 |
Dividends paid - note 9 |
– |
– |
(190) |
– |
– |
(1,800) |
(1,990) |
At 30 November 2019 |
1,055 |
1,290 |
61,119 |
353 |
70,761 |
158 |
134,736 |
|
|
|
|
|
|
|
|
At 31 May 2018 |
1,057 |
1,290 |
76,594 |
351 |
71,624 |
300 |
151,216 |
Cancellation of deferred shares |
– |
– |
(2) |
2 |
– |
– |
– |
Shares bought back and held in
treasury |
– |
– |
(4,629) |
– |
– |
– |
(4,629) |
Share conversions |
(2) |
– |
2 |
– |
– |
– |
– |
Return after taxation |
– |
– |
– |
– |
(12,186) |
1,784 |
(10,402) |
Dividends paid – note 9 |
– |
– |
(72) |
– |
– |
(1,960) |
(2,032) |
At 30 November 2018 |
1,055 |
1,290 |
71,893 |
353 |
59,438 |
124 |
134,153 |
CONDENSED BALANCE SHEET
AS AT 31 MAY 2019
Registered number 5916642
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
TOTAL
£’000 |
Fixed assets |
|
|
|
|
|
Investments held at fair value
through profit or loss |
59,117 |
68,925 |
7,448 |
3,752 |
139,242 |
Current assets |
|
|
|
|
|
Derivative assets held at fair value
through profit or loss |
– |
– |
188 |
– |
188 |
Debtors |
366 |
418 |
209 |
10 |
1,003 |
Cash and cash equivalents |
10 |
137 |
303 |
185 |
635 |
|
376 |
555 |
700 |
195 |
1,826 |
Creditors: amounts falling due
within one year |
|
|
|
|
|
Derivative liabilities held at fair
value through profit or loss |
– |
– |
(57) |
– |
(57) |
Other creditors |
(666) |
(159) |
(26) |
(144) |
(995) |
Bank loan |
(100) |
(5,180) |
– |
– |
(5,280) |
|
(766) |
(5,339) |
(83) |
(144) |
(6,332) |
Net current
(liabilities)/assets |
(390) |
(4,784) |
617 |
51 |
(4,506) |
Net assets |
58,727 |
64,141 |
8,065 |
3,803 |
134,736 |
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
Share capital |
437 |
388 |
108 |
122 |
1,055 |
Share premium |
– |
– |
1,290 |
– |
1,290 |
Special reserve |
27,221 |
27,712 |
2,976 |
3,210 |
61,119 |
Capital redemption reserve |
74 |
78 |
26 |
175 |
353 |
Capital reserve |
30,995 |
35,763 |
3,724 |
279 |
70,761 |
Revenue reserve |
– |
200 |
(59) |
17 |
158 |
Shareholders’ funds |
58,727 |
64,141 |
8,065 |
3,803 |
134,736 |
|
|
|
|
|
|
Net asset value per ordinary
share |
|
|
|
|
|
Basic – note 5 |
181.1p |
212.4p |
145.9p |
105.3p |
|
CONDENSED BALANCE SHEET
AS AT 31 MAY 2019
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
TOTAL
£’000 |
Fixed assets |
|
|
|
|
|
Investments held at fair value
through profit or loss |
61,250 |
67,040 |
7,385 |
4,710 |
140,385 |
Current assets |
|
|
|
|
|
Derivative assets held at fair value
through profit or loss |
– |
– |
175 |
– |
175 |
Debtors |
3,580 |
518 |
412 |
6 |
4,516 |
Cash and cash equivalents |
476 |
245 |
153 |
10 |
884 |
|
4,056 |
763 |
740 |
16 |
5,575 |
Creditors: amounts falling due
within one year |
|
|
|
|
|
Derivative liabilities held at fair
value through profit or loss |
– |
– |
(223) |
– |
(223) |
Other creditors |
(670) |
(334) |
(65) |
(143) |
(1,212) |
Bank loan |
(7,350) |
(4,880) |
– |
– |
(12,230) |
|
(8,020) |
(5,214) |
(288) |
(143) |
(13,665) |
Net current
(liabilities)/assets |
(3,964) |
(4,451) |
452 |
(127) |
(8,090) |
Net assets |
57,286 |
62,589 |
7,837 |
4,583 |
132,295 |
Capital and reserves |
|
|
|
|
|
Share capital |
436 |
389 |
108 |
122 |
1,055 |
Share premium |
– |
– |
1,290 |
– |
1,290 |
Special reserve |
28,551 |
30,734 |
3,106 |
3,981 |
66,372 |
Capital redemption reserve |
74 |
78 |
26 |
175 |
353 |
Capital reserve |
28,225 |
31,015 |
3,363 |
268 |
62,871 |
Revenue reserve |
– |
373 |
(56) |
37 |
354 |
Shareholders' funds |
57,286 |
62,589 |
7,837 |
4,583 |
132,295 |
Net asset value per ordinary
share |
|
|
|
|
|
Basic – note 5 |
173.1p |
197.6p |
139.5p |
104.9p |
|
.
CONDENSED CASH FLOW STATEMENT
|
SIX MONTHS
ENDED
30 NOVEMBER
2019
£’000 |
SIX MONTHS
ENDED
30 NOVEMBER
2018
£’000 |
Cash flow from operating
activities |
|
|
Net return before finance costs and
taxation |
9,668 |
(10,150) |
Tax on overseas income |
(112) |
(114) |
Adjustments for: |
|
|
Purchase of
investments |
(21,408) |
(29,076) |
Sale of investments |
33,393 |
35,957 |
Sale of futures |
208 |
(240) |
|
|
|
|
12,193 |
6,641 |
Scrip dividends |
(26) |
(30) |
(Gains)/losses on
investments |
(7,728) |
11,171 |
(Gains)/losses on
derivatives |
(397) |
648 |
Decrease in debtors |
443 |
26 |
Decrease in creditors |
(59) |
(70) |
Net cash inflow from operating
activities |
13,982 |
8,122 |
|
|
|
Cash flow from financing
activities |
|
|
Interest paid on bank
borrowings |
(63) |
(140) |
Decrease in bank loan |
(6,950) |
(750) |
Share buy back costs |
(5,228) |
(4,629) |
Equity dividends paid – note 9 |
(1,990) |
(2,032) |
|
|
|
Net cash outflow from financing
activities |
(14,231) |
(7,551) |
Net (decrease)/increase in cash and
cash equivalents |
(249) |
571 |
Cash and cash equivalents at the
start of the period |
884 |
732 |
Cash and cash equivalents at the end
of the period |
635 |
1,303 |
|
|
|
Reconciliation of cash and cash
equivalents to the Balance Sheet is as follows: |
|
|
Cash held at custodian |
635 |
1,303 |
|
|
|
Cash flow from operating activities
includes: |
|
|
Dividends received |
2,220 |
2,351 |
Interest received |
23 |
46 |
Changes in liabilities arising from
financing activities: |
|
|
Opening bank loan as at 31 May |
12,230 |
16,350 |
Decrease in bank loan |
(6,950) |
(750) |
Closing bank loan as at 30
November |
5,280 |
15,600 |
.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
The condensed financial statements have been prepared in
accordance with applicable United Kingdom Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice),
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of
Ireland, FRS 104 Interim Financial Reporting and
the Statement of Recommended Practice Financial Statements of
Investment Trust Companies and Venture Capital Trusts, issued
by the Association of Investment Companies in October 2019. The financial statements are issued
on a going concern basis.
The accounting policies applied to these condensed financial
statements are consistent with those applied in the financial
statements for the year ended 31 May
2019.
2. Management Fees and Finance Costs
Investment management fees and finance costs are charged to the
applicable Portfolio as follows, in accordance with the Board’s
expected split of long-term income and capital returns:
PORTFOLIO |
REVENUE
RESERVE |
CAPITAL
RESERVE |
UK Equity |
30% |
70% |
Global Equity Income |
30% |
70% |
Balanced Risk Allocation |
30% |
70% |
Managed Liquidity |
100% |
– |
Any entitlement to the investment performance fee which is
attributable to the UK Equity and/or the Global Equity Income
Portfolio is allocated 100% to capital as it is principally
attributable to the capital performance of the investments in that
Portfolio.
The Manager is entitled to a basic fee which is calculated and
payable quarterly. The fee is based on the net assets of each
Portfolio, at the following percentages:
– 0.55% per annum in the case of
the UK Equity and Global Equity Income Portfolios;
– 0.75% per annum for the Balanced
Risk Allocation Portfolio; and
– 0.12% per annum for the Managed
Liquidity Portfolio.
The Manager is also entitled to receive performance fees in
respect of the UK Equity and Global Equity Income Portfolios of
12.5% of the increase in net assets per relevant Share in excess of
a hurdle of the relevant benchmark plus 1% per annum. The amount of
the performance fee that can be paid in any one year has been
capped at 0.55% of the net assets of the relevant Portfolio and
payment is subject to a high water mark. Any underperformance of
the benchmark, or performance above the cap, is carried forward to
subsequent periods and any underperformance must be offset by
future overperformance before any performance fee can be paid.
No performance fee was earned by the UK Equity Portfolio during
the six months (30 November 2018:
£nil). The performance fee accrued for past periods is £531,000
and, as it cannot be reduced by future underperformance, remains an
obligation of the Company. No performance fee was earned for the
Global Equity Portfolio during the six months (30 November 2018: £nil).
Underperformance movements in the six months to 30 November 2019 are shown below:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
Underperformance brought
forward |
(768) |
(1,491) |
Underperformance in the period |
(34) |
(137) |
Underperformance carried
forward |
(802) |
(1,628) |
3. Investment Trust Status and Tax
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions for approval as an
investment trust company. Any company so approved is not liable for
taxation on capital gains.
The tax charge represents withholding tax suffered on overseas
income for the period.
4. Basic Return per Ordinary Share
Basic revenue, capital and total return per ordinary share is
based on each of the returns on ordinary activities after taxation
as shown by the income statement for the applicable Share class and
on the following number of shares being the weighted average number
of shares in issue throughout the period for each applicable Share
class:
|
WEIGHTED
AVERAGE
NUMBER OF SHARES |
|
SIX MONTHS
ENDED
30 NOVEMBER
2019 |
SIX MONTHS
ENDED
30 NOVEMBER
2018 |
UK Equity |
32,758,348 |
35,172,933 |
Global Equity Income |
31,216,223 |
32,601,022 |
Balanced Risk Allocation |
5,580,509 |
6,117,689 |
Managed Liquidity |
4,189,561 |
4,703,864 |
5. Net Asset Values per Ordinary
Share
The net asset values per ordinary share were based on the
following Shareholders' funds and shares (excluding treasury
shares) in issue at the period end:
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
PORTFOLIO SHAREHOLDERS’ FUNDS |
|
|
UK Equity |
58,727 |
57,286 |
Global Equity Income |
64,141 |
62,589 |
Balanced Risk Allocation |
8,065 |
7,837 |
Managed Liquidity |
3,803 |
4,583 |
|
NUMBER OF
SHARES |
|
AT
30 NOVEMBER
2019
£’000 |
AT
31 MAY
2019
£’000 |
PORTFOLIO SHARES IN ISSUE |
|
|
UK Equity |
32,432,465 |
33,088,595 |
Global Equity Income |
30,195,843 |
31,668,234 |
Balanced Risk Allocation |
5,526,917 |
5,618,428 |
Managed Liquidity |
3,612,466 |
4,370,361 |
6. Classification Under Fair Value
Hierarchy
FRS 102 as amended for fair value hierarchy disclosures
(March 2016) sets out three fair
value levels. These are:
Level 1 The unadjusted quoted price in an active market
for identical assets or liabilities that the entity can access at
the measurement date.
Level 2 Inputs other than quoted prices included within
Level 1 that are observable (i.e. developed using market data) for
the asset or liability, either directly or indirectly.
Level 3 Inputs are unobservable (i.e. for which market
data is unavailable) for the asset or liability.
The fair value hierarchy analysis for investments held at fair
value at the period end is as follows:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
AT 30 NOVEMBER 2019 |
|
|
|
|
Financial assets at fair value |
|
|
|
|
through profit or
loss: |
|
|
|
|
Level 1 |
59,117 |
68,925 |
7,432 |
3,752 |
Level 2 |
– |
– |
188 |
– |
Level 3 |
– |
– |
16 |
– |
Total financial assets |
59,117 |
68,925 |
7,636 |
3,752 |
Financial liabilities: |
|
|
|
|
Level 2 – Derivative
instruments |
– |
– |
57 |
– |
AT 31 MAY 2019 |
|
|
|
|
Financial assets at fair value |
|
|
|
|
through profit or
loss: |
|
|
|
|
Level 1 |
61,250 |
67,040 |
5,635 |
4,490 |
Level 2 |
– |
– |
1,910 |
220 |
Level 3 |
– |
– |
15 |
– |
Total financial assets |
61,250 |
67,040 |
7,560 |
4,710 |
Financial liabilities: |
|
|
|
|
Level 2 – Derivative
instruments |
– |
– |
223 |
– |
Level 1 This is the majority of the Company’s investments and
comprises all quoted investments and Treasury bills.
Level 2 This includes liquidity funds held in the Balanced Risk
Allocation and Managed Liquidity Portfolios, and any derivative
instruments.
Level 3 This includes hedge fund investments of the Balanced
Risk Allocation Portfolio.
7. Movements in Share Capital and Share
Class Conversions
IN THE SIX MONTHS ENDED 30 NOVEMBER
2019
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
Ordinary 1p shares (number) |
|
|
|
|
At 31 May 2019 |
33,088,595 |
31,668,234 |
5,618,428 |
4,370,361 |
Shares bought back into
treasury |
(719,772) |
(1,411,136) |
(97,000) |
(763,893) |
Arising on share conversion: |
|
|
|
|
– August 2019 |
886 |
(234) |
(578) |
(240) |
– November
2019 |
62,756 |
(61,021) |
6,067 |
6,238 |
At 30 November 2019 |
32,432,465 |
30,195,843 |
5,526,917 |
3,612,466 |
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
Treasury Shares (number) |
|
|
|
|
At 31 May 2019 |
10,517,040 |
7,301,023 |
5,157,218 |
7,805,785 |
Shares bought back into
treasury |
719,772 |
1,411,136 |
97,000 |
763,893 |
At 30 November 2019 |
11,236,812 |
8,712,159 |
5,254,218 |
8,569,678 |
Total shares in issue at 30 November
2019 |
43,669,277 |
38,908,002 |
10,781,135 |
12,182,144 |
Average buy back price |
172.9p |
203.7p |
141.0p |
101.1p |
As part of the conversion process, 16,109 deferred shares of 1p
each were created. All deferred shares are cancelled before the
period end and so no deferred shares are in issue at the start or
end of the period.
8. Share Prices
PERIOD END |
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
30 November 2018 |
164.0p |
195.0p |
132.0p |
101.5p |
31 May 2019 |
173.5p |
195.0p |
138.5p |
101.5p |
30 November 2019 |
178.0p |
209.0p |
144.0p |
102.0p |
9. Dividends on Ordinary Shares
First interim dividends for UK Equity and Global Equity Income
together with a prior year dividend for Managed Liquidity were paid
on 16 August 2019. Second interim
dividends for UK Equity and Global Equity Income were paid on
15 November 2019:
PORTFOLIO |
NUMBER
OF SHARES |
DIVIDEND
RATE |
TOTAL
£’000 |
UK Equity |
|
|
|
First interim |
33,048,823 |
1.50p |
496 |
Second interim |
32,549,709 |
1.50p |
488 |
|
|
3.00p |
984 |
|
|
|
|
Global Equity Income |
|
|
|
First interim |
31,466,468 |
1.55p |
488 |
Second interim |
31,189,234 |
1.55p |
483 |
|
|
3.10p |
971 |
|
|
|
|
Managed Liquidity |
|
|
|
Prior year dividend |
4,370,361 |
0.80p |
35 |
|
|
0.80p |
35 |
Dividends paid for the six months to 30
November 2019 totalled £1,955,000 (six months to
30 November 2018: £2,032,000). In addition, a dividend of
£35,000 was paid in the period to the holders of Managed Liquidity
shares in respect of the year ended 31 May 2019, (six months
to 30 November 2018: £nil).
10. The financial information contained in this
half-yearly financial report, which has not been reviewed or
audited by the independent auditor, does not constitute statutory
accounts within the meaning of section 434 of the Companies Act
2006. The financial information for the half years ended
30 November 2019 and 30 November 2018 has not been audited. The
figures and financial information for the year ended 31 May 2019 are extracted and abridged from the
latest audited accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the
Registrar of Companies and include the Independent Auditor’s
Report, which was unqualified and did not include a statement under
section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
4 February 2020
.
STATEMENT OF DIRECTORS’ RESPONSIBILITY
in respect of the preparation of the half-yearly financial
report
The Directors are responsible for preparing the half-yearly
financial report using accounting policies consistent with
applicable law and UK Accounting Standards.
The Directors confirm that, to the best of their knowledge:
– the condensed set of financial statements contained within the
half-yearly financial report has been prepared in accordance with
the FRC’s FRS 104 Interim Financial Reporting;
– the interim management report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R of the FCA’s
Disclosure Guidance and Transparency Rules; and
– the interim management report includes a fair review of the
information required on related party transactions.
The half-yearly financial report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Graham Kitchen
Chairman
4 February 2020