Invesco Perpetual Select Trust plc
Annual Financial Report Announcement
Year Ended 31 May 2020
.
FINANCIAL PERFORMANCE
CUMULATIVE TOTAL
RETURNS(1)(2) TO 31 MAY
2020
UK Equity Share Portfolio
|
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
–12.4% |
–15.7% |
1.4% |
Share Price |
–16.2% |
–18.6% |
–2.5% |
FTSE All–Share Index |
–11.2% |
–8.4% |
6.9% |
Global Equity Income Share
Portfolio
|
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
–6.4% |
–0.4% |
28.3% |
Share Price |
–6.1% |
–0.8% |
26.3% |
MSCI World Index (£) |
8.9% |
24.1% |
64.0% |
Balanced Risk Allocation Share
Portfolio
|
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
–3.1% |
0.3% |
9.7% |
Share Price |
–6.9% |
–3.4% |
6.0% |
Merrill Lynch 3 month LIBOR plus 5%
per annum |
5.9% |
17.1% |
28.2% |
Managed Liquidity Share Portfolio
|
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
Net Asset Value |
1.1% |
2.7% |
2.7% |
Share Price |
1.6% |
1.6% |
1.2% |
YEAR END NET ASSET VALUE, SHARE PRICE
AND DISCOUNT
SHARE CLASS |
NET ASSET
VALUE
(PENCE) |
SHARE
PRICE
(PENCE) |
DISCOUNT |
UK Equity |
145.8 |
139.5 |
(4.3)% |
Global Equity Income |
178.5 |
176.5 |
(1.1)% |
Balanced Risk Allocation |
135.1 |
129.0 |
(4.5)% |
Managed Liquidity |
104.4 |
101.5 |
(2.8)% |
(1) Alternative Performance Measure (APM). See
Glossary of Terms and Alternative Performance Measures on pages 111
to 114 of the financial report for details of the explanation and
reconciliations of APMs.
(2) Source: Refinitiv.
.
CHAIRMAN’S STATEMENT
The Company
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 investment objectives and policies of all of the Portfolios
are set out on pages 32 to 35.
The Company enables shareholders to adjust their asset
allocation to reflect their views of prevailing market conditions.
As set out on the inside of the front cover, shareholders have the
opportunity to convert between Share classes, free of UK capital
gains tax, every three months.
Performance
The NAV total return of the UK Equity Share Portfolio over the
year was –12.4%, which compares with the total return from its
benchmark, the FTSE All-Share Index, of –11.2%. The share price
total return was –16.2%.
The NAV total return of the Global Equity Income Share Portfolio
over the year was –6.4%, which compares with the total return from
its benchmark, the MSCI World Index (£), of +8.9%. The share price
total return was –6.1%.
The NAV total return of the Balanced Risk Allocation Share
Portfolio was –3.1%, which compares with its benchmark, Merrill
Lynch 3 months LIBOR plus 5%, return of +5.9%. The share price
total return was –6.9%.
The NAV total return of the Managed Liquidity Share Portfolio
was +1.1%. The share price total return was +1.6%.
It is extremely disappointing, both for the Board and for
shareholders, to report on another year in which all three
Portfolios based on risk assets underperformed their benchmarks.
The Board is very aware that performance has been decidedly
unsatisfactory over an extended period. Our Manager has taken steps
to address the situation with some personnel changes and other
initiatives and we will be closely monitoring the outcomes.
At the half year the UK Equity Portfolio was performing well,
but this trend reversed in the second half of the financial year as
equity markets fell in response to the Covid-19 pandemic. The
sell-off impacted almost every stock, but domestically orientated
companies, in which the Portfolio was overweight, were hit
particularly hard. The negative returns were exacerbated by the
gearing employed during this period.
The Global Equity Income Portfolio was also impacted by the
level of gearing during the sell-off. The Portfolio was
particularly affected by the underweight exposure, relative to the
benchmark MSCI World Index, to the US market, which continued to
outperform markets in the UK, Europe and Asia. As I reported in my interim statement,
investment management responsibility for the Global Equity Income
Portfolio moved to Stephen Anness in
January of this year. Although the underweight position in the US
is now less pronounced, it has still impacted returns.
The lockdowns across the world in response to the Covid-19
pandemic led to a significant decline in economic activity. As a
result demand for oil and other commodities fell sharply, and
prices dropped. The decline in commodity prices, along with the
collapse in equity markets, resulted in a negative return from the
Balanced Risk Allocation Portfolio. These declines in equities and
commodities were only partially offset by the strong return from
government bonds during the period.
Performance of the Managed Liquidity Portfolio was positive,
despite the low interest rate environment. The underlying portfolio
of the principal investment is primarily invested in short dated
bonds and, therefore, this Share class has a lower risk profile
than the Company’s other three Share classes. Nevertheless, this is
not a cash fund, and as such is not without risk to capital.
Outlook
In my interim statement I suggested we should expect a period of
consolidation in equity and bond markets following a decade of
stellar returns. At the time, I also noted that the Covid-19
outbreak seemed to have been contained in Asia. Little did I anticipate that the virus
would spread rapidly throughout the world, resulting in an
unprecedented collapse in economic activity, and equity markets.
Although there has been some recovery in equity prices, most
markets are still somewhat below the highs reached earlier this
year.
Markets have moved up in response to government stimulus
packages and in anticipation of economies recovering as lockdown
conditions ease in Europe and
North America. Nevertheless,
considerable uncertainty remains as to how quickly GDP will return
to pre-Covid-19 levels. Likewise, some areas of the global economy,
such as travel, leisure and hospitality, could be impacted for a
significant period of time. The ways people work, shop and enjoy
leisure time are likely to change, even when the pandemic has
passed.
In such periods of social and economic dislocation, there will
be ‘winners’ and ‘losers’ and business models will have to adapt
rapidly. It is incumbent on our portfolio managers to analyse these
trends and construct portfolios which will outperform in these
changed circumstances. Since the inception of the Company, the
various Portfolios have produced positive returns. However, in
recent years the portfolios investing in risk assets have all
underperformed their respective benchmarks over the industry
standard reporting periods of one, three and five years. To some
extent this outcome reflects the continued outperformance of growth
stocks over the value stocks which our equity portfolio managers
have favoured. Although the impact of this investment style on
performance is understandable, the Board remains concerned about
the returns being generated. Invesco has recently restructured its
Henley investment centre and the Board will be monitoring the
impact of these changes on the management of the Portfolios. It is
important to see an improvement in performance and the Board will
update shareholders in due course.
The impact of the Covid-19 pandemic has been profound in many
ways and the implications for societies, economies and markets are
very uncertain. It would be foolhardy to make bold predictions as
to what changes will happen as a result of this dislocation.
Nevertheless, societies and economies will adjust, GDP growth will
resume and, in the longer term, markets will recover. The Company
offers a unique mix of strategies and its structure, with
opportunities to switch between Share classes, makes it ideal for
investors who want enhanced control of their investments.
The Board
We attempted to recruit a new non-executive director last year,
but although we identified a very strong candidate she was
ultimately unable to accept the position. Resumption of the
recruitment process has been postponed for the time being because
of the difficulty of conducting interviews in lockdown conditions.
However, we intend for the process to resume later this year. In
the meantime, Alan Clifton, who will
be the next Director to retire, has agreed to remain on the Board
until a new Director is appointed.
Dividends
We have continued to apply the dividend policy adopted five
years ago, and supported by shareholder advisory votes, whereby for
both UK Equity and Global Equity Income Shares, dividends are paid
by way of three equal interim dividends declared in July, October
and January with a ‘wrap-up’ fourth interim declared in April. For
the year under review the first three dividends declared for the UK
Equity Shares were each 1.5p per share and for the Global Equity
Income Shares 1.55p per share. The fourth dividends were 2.1p per
share for the UK Equity Shares, bringing the total to 6.6p per
share for the year, and 2.4p per share for the Global Equity Income
Shares, bringing that total to 7.05p per share for the year.
There were a number of dividend cuts in the last quarter of the
Company’s financial year, because of Covid-19, meaning a greater
contribution from capital was required for the Company’s dividends
this year to meet the Board’s target level. For the Global Equity
Income Shares a contribution from capital of approximately 0.4p per
share was required to achieve the dividend level (2019: nil), with
another 1.2p per share coming from brought forward revenue reserve,
and for the UK Equity Shares a contribution from capital of
approximately 2.5p per share was required (2019: 0.9p).
We intend to continue with the current policy and investors are
again being given advisory votes on it. However, whereas in recent
years we have set a target of at least maintaining the dividend
level from year to year for each of the equity Portfolios, with the
current uncertainty of future income flows because of Covid-19 the
Directors have not set dividend targets for the year to 31 May
2021.
The first interim dividends declared in respect of the year to
May 2021, which will be paid on
17 August 2020 to shareholders on the register on 24 July 2020, were 1.50p per share for UK Equity
and 1.55p per share for Global Equity Income.
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 them 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. No dividends have been paid on the Balanced Risk Allocation
Shares.
I am pleased to report that notwithstanding the continued low
interest rate environment the Managed Liquidity Portfolio generated
sufficient net revenue in the past year for the Board to declare a
dividend of 0.8p per Managed Liquidity Share, which was paid on
15 May 2020. It remains the
Directors’ intention to distribute substantially all net revenues
earned by the Portfolio going forward. Given the quantum involved
it is unlikely that such payments will be more frequent than
annually and may indeed be less frequent.
Discount Policy
The Company adopted a discount control policy for all four Share
classes in January 2013, whereby the
Company offers to issue or buy back Shares of all classes with a
view to maintaining the prices of the Shares at close to their
respective net asset values. The policy has been successful to
date. The continued implementation of this policy is dependent upon
the Company’s authority to buy back Shares and the Directors’
authority to issue Shares for cash on a non-preemptive basis being
renewed at general meetings of the Company.
Share Capital Movements
During the year to 31 May 2020,
the Company bought back and placed in treasury 1,460,772 UK Equity
Shares, 3,213,136 Global Equity Income Shares, 164,000 Balanced
Risk Allocation Shares and 875,893 Managed Liquidity Shares. Other
than as an artefact of the share conversion process, no Shares were
issued or sold from treasury and no treasury shares were cancelled.
Since the year end a further 1,698,000 UK Equity Shares and
1,311,000 Global Equity Income Shares have been bought back into
treasury. The Board intends to use the Company’s buy back and
issuance authorities when this will benefit existing shareholders
as a whole and to operate the discount control policy mentioned
above, and will ask shareholders to renew the authorities as and
when appropriate.
Share Class Conversions
The Company enables shareholders to adjust their asset
allocation to reflect their views of prevailing market conditions.
Shareholders have the opportunity to convert their holdings of
Shares into any other class of Share without incurring any tax
charge (under current legislation). The conversion dates for the
forthcoming year are as follows: 3 August
2020; 2 November 2020;
1 February 2021; and 4 May 2021.
Should you wish to convert Shares at any of these dates, conversion
forms, which are available on the Manager’s website at
www.invesco.co.uk/investmenttrusts, or CREST instructions must be
received at least 10 days before the relevant conversion date.
Annual General Meeting (‘AGM’)
The business of the AGM is summarised in the Directors’ Report
on pages 59 to 61. The AGM will be held at 43-45 Portman Square,
London W1H 6LY at 11.30 am on 6 October
2020. It is hoped that by that date restrictions due to
Covid-19 will have eased sufficiently for the AGM to be held in the
usual way and, if so, shareholders are encouraged to attend.
However, should this not be the case the AGM may have to be held as
a closed meeting. In this eventuality, or if shareholders are
reticent about using public transport to reach the meeting venue,
it is recommended that shareholders exercise their votes by means
of registering them with the Company’s registrar ahead of the
meeting, online or by completing paper proxy forms, and appoint the
Chairman of the meeting as their proxy. Recognising the potential
for shareholders to be unable to attend and ask questions, the
Board invites anyone with questions on the business of the meeting,
or otherwise, to address them to the Company Secretary, by email to
investmenttrusts@invesco.com or, by letter, to 43-45 Portman
Square, London W1H 6LY. Questions
will be relayed to the Board and responses provided. The Board
recommends that shareholders vote in favour of all resolutions as
each of the Directors intends to do in respect of their own
shares.
Graham Kitchen
Chairman
31 July 2020
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STRATEGIC REPORT
MARKET AND ECONOMIC BACKGROUND
Global equity markets have been impacted by a range of issues
over the last twelve months, from political issues, to fears of
recession and trade wars, but these were all surpassed by Covid-19.
This challenge has been unique in our lifetimes and it is perhaps a
surprise that global equity markets have been so resilient.
The period started on a cautious note. Through the summer of
2019 markets were weak as the global economy showed signs of a
modest slowdown, especially in manufacturing sectors. This was
reflected in a further decline in bond yields in many markets and
yield curve inversion in the US and UK, a sign to many market
participants of impending recession. In the late summer central
banks, in particular the US Federal Reserve, once again stepped in
with interest rate cuts and measures to improve liquidity in order
to ensure the record-breaking global expansion would continue into
2020. These measures, together with signs of a modest rapprochement
between the US and China on trade
and a Brexit deal that promised to avoid a UK exit from the
European Union on World Trade Organisation terms, further
encouraged optimism for corporate earnings in the year ahead.
Common to all global equity markets was the persistent theme of
stocks offering secular growth, or positive correlation to bond
markets, performing well, whilst stocks and sectors more sensitive
to the global economy or with more volatile earnings streams
generally underperformed, almost regardless of valuation.
And so to 2020. While US-China trade relations, Brexit and
domestic politics were known uncertainties in 2019, 2020 has
delivered the market shock that no one could have foreseen. Global
markets made new highs in February, despite news of a highly
infectious virus in China and the
severe lockdown imposed in some regions of the country. We had all
lived through SARS in 2004, H1N1 in 2010 and MERS in 2012, none of
which had a material impact on markets outside Asia. This time it was different. Markets were
affected globally as news of the extent of the spread of Covid-19
to Europe and the resulting
lockdowns and travel restrictions were absorbed. The eruption of an
oil price war between Saudi Arabia
and Russia was also unhelpful for
markets.
The UK equity market fell by over 25% in the quarter to
31 March 2020, posting its biggest
quarterly drop for more than three decades as the global economic
costs of the Covid-19 pandemic continued to mount. Between
23 January 2020, the date that the
World Health Organisation first met in Geneva to discuss the gathering crisis, and
the low point on 23 March, the FTSE All-Share Index fell by 34.1%.
Extreme levels of volatility were witnessed with large swings in
prices on an intraday basis.
This was reflected globally. Equity markets fell 35% in the four
weeks to mid-March. The impact was especially acute in those
sectors most exposed, such as travel and leisure, banks and energy.
Although, in contrast, a range of e-commerce and certain healthcare
stocks were bolstered by the perception that they would benefit
from the lockdown and increased healthcare spending.
In April and May, equity markets staged something of a recovery,
on fresh stimulus measures and hopes that economies were on the
mend as lockdowns eased. In June, the UK market was within around
16% of its level in February before the Covid-19 correction and the
MSCI World Index, in sterling terms, was all the way back to that
level. In large part this can be attributed to the expected impact
of a dramatic easing of fiscal and monetary policies in all the
major economies.
Investors seem to have pinned their hopes on a swift economic
rebound, but some have been left wondering if this market rally has
come too far, too fast. Investors have seemingly shrugged off the
economic cost of the pandemic, which is likely to be significant.
The UK is expected to face a severe recession and gross domestic
product (GDP) is estimated to fall by around 16% in the second
quarter, and by 8% for the year (Bloomberg consensus as at
29 May 2020).
However, the strength and depth of the measures announced in the
UK by the Chancellor and the Bank of England should provide material support to
employment, income and bank lending to the real economy, that will
be of great benefit in enabling many businesses to navigate through
to the recovery phase.
Overall, the financial response from central banks and
governments around the world was well coordinated and powerful,
unique in our opinion outside of wartime. Through late March, April
and May investors were reassured of both the stability of the
financial system and the path to eventual economic recovery. Share
prices recovered sharply, recovering much lost ground, particularly
in the US, Japan and Asia. However, many stocks and sectors within
retail and travel and leisure, whose prospects are seen to be
permanently impaired or their survival threatened, still trade at
less than half the value they did but four short months ago.
.
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 Review
The Portfolio modestly underperformed its benchmark over the
year to 31 May 2020, with a net asset
value total return of –12.4% compared with –11.2% for the FTSE
All-Share Index, having been ahead by a similar margin before the
Covid-19 related market disruption.
At the sector level, the largest source of positive performance
was the Portfolio’s exposure to the basic materials sector. The
Portfolio has a large overweight exposure to basic materials
(relative to the FTSE All-Share Index), almost entirely represented
by holdings in four North American gold mining companies, namely
Barrick Gold, Newmont, Wheaton
Precious Metals and Agnico Eagle Mines.
In times of crisis, equities tend to fall, and gold goes up, and
this pattern has been borne out in recent months. As a perceived
‘safe-haven’ asset class, gold mining companies are a good
portfolio diversifier in that they are inversely correlated with
the broader market. The shock to global economies resulting from
the global pandemic has served to accelerate the conditions
favouring gold and, since gold miners are geared to the gold price,
their share prices have performed very strongly. Each of these
companies is at the low end of the cost curve, has a conservative
balance sheet, a strong management team and a very clear capital
allocation framework.
Media group Future and veterinary services firm CVS were also
strong performers. Future has continued to grow both organically
and via acquisition, with its full year results in November showing
a near trebling of profits. More recently the company has seen
an acceleration of audience growth as a result of Covid-19,
which has helped offset the significant slowdown in magazine sales
as high-street and travel-hub retailers have been closed. The
recently completed acquisition of TI Media should deliver
significant synergies and help to underpin the outlook for
earnings. The performance of veterinary business CVS improved
markedly under new management, resulting in a strong year for the
shares, but the impact of Covid-19 lead to a reduction in both
small animal billable visits and revenue. As a result, the decision
was taken to temporarily close half of their small animal practices
during the lockdown and cash management became the priority. More
recently restrictions on vet appointments have been eased and
trading is beginning to normalise. The company should emerge from
the crisis relatively unscathed.
Other notable contributors to performance included retailers
JD Sports Fashion and Tesco. JD Sports Fashion has benefited
from the casualisation of fashion and the growth in ‘athleisure’
clothing in recent years. Since the advent of Covid-19, with its
stores closed, the company took swift action to control its cost
base and to maintain its capability to fulfil online orders, which
have been extremely strong. There appears to be significant
opportunity for the company to leverage its relationships with key
brand partners and take market share in both online and offline
sales. Meanwhile, Tesco reported a boost in sales on the back of
panic buying in the early days of the pandemic and has benefited
from its strong online presence, but the impact of additional
payroll costs as a result of recruitment to replace self-isolating
employees, distribution costs and store expenses is not
insignificant. The company believes that if customer behaviour
returns to normal by August it is likely that the additional cost
headwinds will largely be offset by the benefits of food volume
increases and business rates relief. Their dividend was
maintained.
Fevertree Drinks, which produces soft drinks and mixers, was
another strong performer. Against the challenging backdrop of
recent months, sales benefited from the initial buying ahead of
lockdown and subsequent ‘at-home’ consumption has remained robust,
mitigating lost sales from shuttered pubs, bars and restaurants.
The firm appears to be well positioned to manage its way through
the current situation. It is a global business with revenue
diversified across regions, channels and customers and has a strong
cash position. The long-term trend towards premium spirits and
premium long mixed drinks continues and the Group will be well
placed when the disruption and uncertainty abate.
Conversely, the Portfolio’s holding in floorings manufacturer
Victoria proved to be disappointing over the twelve months. Whilst
short term trading has been affected by the impact of Covid-19, the
long-term outlook appears positive. The wide geographic spread of
both its manufacturing operations and its customers means that the
virus's impact on Group revenue (and its subsequent recovery) is
likely to occur at varying times and not simultaneously. In the
meantime, Victoria enjoys comparatively low operational gearing
across its business and, whilst the balance sheet does carry debt,
it has sufficient cash on hand to support the business and
management is taking every precaution to protect the liquidity of
the Group.
Bushveld Minerals, which mines and processes vanadium, detracted
from performance over the period. The share price weakened during
2019, in tandem with the price of vanadium, and then fell sharply
as the company shut down production in accordance with the South
African Government’s lockdown instructions. The company is well
capitalised, operates at the low end of the cost curve and is now
ramping production back up to normal levels. Demand for and the
price of vanadium should be underpinned as end-markets for steel
recover and may benefit in coming years if the nascent market in
grid-scale vanadium redox flow batteries develops further.
Coats, which manufactures thread, zips and trim, was also among
the larger detractors from performance. For the period from
1 January 2020 to 30 April 2020,
sales declined 17% year-on-year, with the month of April down
around 50% due to demand and supply impacts from the pandemic. The
company had 15 manufacturing sites under enforced government
closure. All but one of these have now reopened and cost mitigating
actions taken by management should help in the months ahead.
Importantly, the company’s balance sheet remains strong with
comfortable levels of liquidity and from its starting position as
clear global leader it looks set to take further market share.
In terms of sector exposure, the Portfolio’s holdings of banks
(Barclays, Secure Trust Bank, Royal Bank of Scotland) were negative for performance over
the twelve months, mitigated in relative terms by not holding HSBC
or Lloyds. The portfolio’s limited exposure to health care
(specifically not holding AstraZeneca or GlaxoSmithKline) was also
a detractor to relative performance given that health care was the
strongest performing sector over the twelve month period.
At the beginning of 2020 gearing was around 6% and edged upwards
slightly towards 8% as Covid-19 disruption gradually unfolded. As
the extent of the threat from Covid-19 became apparent exposure to
some of the stocks and sectors that looked likely to be most
heavily impacted was reduced, with that capital deployed into
businesses that looked more resilient. As the UK market recovered
gearing was increased, ending the period at around 10%. Looking at
the period overall the deployment of the gearing was not helpful to
performance, but in more recent months, as the FTSE All-Share has
recovered and performance has improved, gearing has made a positive
contribution.
Outlook
Economies and markets remain in the grip of perhaps the greatest
global crisis since the late 1920s. In the face of human tragedy
from Covid-19, the response from governments around the world was
to shut down swathes of the global economy. With the gradual easing
of these restrictions now underway, we await the evidence from
lagged economic data (expected to include millions of job losses
and many thousands of insolvencies) as well as company earnings to
judge the full impact. Meanwhile, equity markets have made up much
of the lost ground and implicitly are relying on a sharp
recovery.
Estimates of second quarter UK GDP range from around -20% to
-40% and economists are sparring over whether forthcoming quarters
will resemble a V, a U, a back-to-front tick or an L, as well as
the timing. There is risk on all sides; risk of further downside
should this evolve into a multi-year rolling lockdown, but also
upside risk if government priorities shift to restarting the
economy or should a medical breakthrough appear.
Whilst my approach is centred around traditional, bottom up
‘stock picking’ and would therefore normally place less emphasis on
the macro outlook, there are from time to time major turning points
at which macro events take on greater significance and lead to
meaningful changes in the investment environment. Covid-19 is
clearly one of these turning points.
With no reliable insight into public policy or medical
innovations, I have positioned the portfolio as best I can for the
various possible scenarios. The changes made since February have
de-risked the portfolio by reducing direct exposure to the worst
affected sectors of the economy in favour of those that should
prove resilient, but not to such an extent that the Portfolio would
be left behind on the emergence of better news. In making these
changes I have stuck rigidly to my valuation-based philosophy and
only sold riskier shares at attractive relative prices and
purchased their more defensive replacements at appealing absolute
valuations. This will not change.
In the midst of all this uncertainty, there is one issue on
which I have strong conviction. The fiscal and monetary response
has been emphatic and has represented an intervention by the
authorities on an historic scale. However, this support comes at a
cost. Both in the UK and elsewhere, these programmes have been
funded by an expansion of central banks’ balance sheets on a
hitherto unprecedented scale. In the US in particular, the pace of
expansion (from below US$4 trillion
to almost US$7 trillion) and the
broadening of the assets that qualify for purchase has been
breath-taking. As we await deteriorating economic data,
governments’ tax bases have been dramatically reduced whilst their
spending commitments have significantly increased. I believe that
announcements of further stimulus are therefore inevitable. There
will be more of the same, but we should also be prepared for
various flavours of Modern Monetary Theory, be that something akin
to Ben Bernanke’s famous helicopter money or direct monetisation of
ballooning fiscal deficits on an ever-larger scale.
The banks enter this crisis in a far stronger position to absorb
the coming losses and are therefore more likely to lend to the real
economy as it recovers. The US monetary base is already growing at
twice the pace it did in 2009-2011 and four times the pace Japan’s
has done during three decades of monetary experiment. There is no
doubt that the environment today is deflationary and that is the
direction for economic data in the near-term. But the
‘whatever-it-takes response’ has sown the seeds for that impending
deflation to turn to inflation that will be very difficult to
control at a desirable level. We have been used to monetary policy
that has resembled fine tuning. This is closer to filling a hole in
the ground by tipping soil from a 20 tonne truck: the hole will get
filled but it will be impossible not to leave a large mound of soil
where the hole used to be.
I have long believed the US fiscal position, and therefore the
dollar’s reserve currency status, to be unsustainable. The economic
impact of the virus has brought forward the inevitable and
condensed what might have taken several years into what is likely
to be several quarters. We have just witnessed the effective
unification of the US Treasury and the US Federal Reserve into a
single force to fight deflation, to monetise government deficits
and to lay the ground for recovery. It may very well succeed, but
will in my view prove to be inflationary. Inflationary forces that
were already in play from tariffs and the rolling back of
globalisation will also remain once economies stabilise and
recover. Real interest rates can be expected to be in significantly
negative territory for an extended period as all this new debt is
inflated away.
The one currency that cannot be diluted in this way is gold. The
portfolio’s four North American gold mining company holdings have
performed their protective role admirably during this market rout
and now represent around 15% of the portfolio. At the current gold
price their valuations remain extremely attractive and if things
develop as I anticipate, gold has further gains to make. These
stocks continue to play a critical role and I intend to maintain
the position at or around its current weighting for the foreseeable
future.
As the recovery has continued, I have maintained gearing at
around 10%. This is in part a reflection of my view that equity
markets will be buoyed in the near term by the fiscal and monetary
stimulus that has been unleashed. It also reflects my confidence in
the positioning of the portfolio and the prospects of the companies
held.
The outcome I expect will also be good for equities in general,
certainly relative to (non-index-linked) bonds and cash. Within
equities, inflation and negative real interest rates should prove
helpful to the Value style relative to other investment styles. In
the meantime, the recent changes I have made to increase the
defensive allocation should offer protection as we face the
potential of a deflationary shock. As the full impact of fiscal and
monetary policy is felt in the coming years, changes may be
required, but at this stage I believe that the portfolio is well
balanced to mitigate risk and to generate attractive returns in
such uncertain times.
James Goldstone
Portfolio Manager
31 July 2020
.
UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2020
Ordinary shares listed in the UK
unless stated otherwise
COMPANY |
SECTOR† |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
Barrick Gold – Canadian
Listed |
Mining |
2,852 |
5.5 |
British American Tobacco |
Tobacco |
2,478 |
4.8 |
Barclays |
Banks |
2,131 |
4.1 |
Tesco |
Food & Drug Retailers |
2,080 |
4.0 |
SSE |
Electricity |
1,857 |
3.6 |
BP |
Oil & Gas Producers |
1,837 |
3.5 |
Newmont – US Listed |
Mining |
1,814 |
3.5 |
Babcock International |
Aerospace & Defence |
1,571 |
3.0 |
JD Sports Fashion |
General Retailers |
1,542 |
3.0 |
Next |
General Retailers |
1,536 |
2.9 |
Agnico Eagle Mines – Canadian
Listed |
Mining |
1,389 |
2.7 |
Future |
Media |
1,296 |
2.5 |
Wheaton Precious Metals –
Canadian Listed |
Mining |
1,251 |
2.4 |
Royal Dutch Shell – B
shares |
Oil & Gas Producers |
987 |
1.9 |
Ultra Electronics |
Aerospace & Defence |
985 |
1.9 |
Compass |
Travel & Leisure |
984 |
1.9 |
Fevertree DrinksAIM |
Beverages |
971 |
1.9 |
RELX |
Media |
967 |
1.8 |
PureTech Health |
Pharmaceuticals &
Biotechnology |
884 |
1.7 |
CVSAIM |
General Retailers |
856 |
1.6 |
Ashtead |
Support Services |
853 |
1.6 |
Coats |
General Industrials |
828 |
1.6 |
Johnson ServiceAIM |
Support Services |
818 |
1.6 |
Phoenix Spree Deutschland |
Real Estate Investment &
Services |
814 |
1.6 |
Sigma CapitalAIM |
Financial Services |
799 |
1.5 |
Chesnara |
Life Insurance |
785 |
1.5 |
XPS Pensions |
Financial Services |
772 |
1.5 |
MJ Gleeson |
Household Goods & Home
Construction |
747 |
1.4 |
National Grid |
Gas, Water & Multiutilities |
725 |
1.4 |
Vodafone |
Mobile Telecommunications |
712 |
1.4 |
PRS REIT |
Real Estate Investment Trusts |
702 |
1.3 |
HomeServe |
General Retailers |
681 |
1.3 |
Barratt Developments |
Household Goods & Home
Construction |
656 |
1.2 |
Bushveld MineralsAIM |
Mining |
585 |
1.1 |
Pennon |
Gas, Water & Multiutilities |
583 |
1.1 |
Royal Bank of Scotland |
Banks |
575 |
1.1 |
Secure Trust Bank |
Banks |
574 |
1.1 |
easyJet |
Travel & Leisure |
529 |
1.0 |
DS Smith |
General Industrials |
523 |
1.0 |
Essentra |
Support Services |
506 |
1.0 |
Harworth |
Real Estate Investment &
Services |
498 |
1.0 |
Experian |
Support Services |
485 |
0.9 |
Urban Logistics REIT |
Real Estate Investment Trusts |
482 |
0.9 |
Burford CapitalAIM |
Financial Services |
481 |
0.9 |
United Utilities |
Gas, Water & Multiutilities |
475 |
0.9 |
McBride |
Household Goods & Home
Construction |
473 |
0.9 |
VictoriaAIM |
Household Goods & Home
Construction |
458 |
0.9 |
Legal & General |
Life Insurance |
454 |
0.9 |
Countryside |
Household Goods & Home
Construction |
447 |
0.8 |
Sirius Real Estate |
Real Estate Investment &
Services |
438 |
0.8 |
Hays |
Support Services |
412 |
0.8 |
DFS Furniture |
General Retailers |
409 |
0.8 |
On the Beach |
Travel & Leisure |
343 |
0.7 |
Pearson |
Media |
317 |
0.6 |
Elementis |
Chemicals |
288 |
0.6 |
IAG |
Travel & Leisure |
264 |
0.5 |
TungstenAIM |
Financial Services |
253 |
0.5 |
Sherborne Investors (Guernsey)
C |
Financial Services |
252 |
0.5 |
Safestyle UKAIM |
General Retailers |
252 |
0.5 |
Alfa Financial Software |
Software & Computer
Services |
234 |
0.4 |
Hadrian's Wall Secured
Investments |
Equity Investment Instruments |
146 |
0.3 |
Distribution Finance
CapitalAIM |
Financial Services |
141 |
0.3 |
Amigo |
Financial Services |
49 |
0.1 |
N Brown |
General Retailers |
20 |
– |
TruFinAIM |
Financial Services |
15 |
– |
Total Holdings 65 (2019: 63) |
|
52,121 |
100.0 |
AIM Investments quoted on AIM
† FTSE Industry Classification
Benchmark.
.
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 Manager Change
As announced by the Board in January, from the beginning of 2020
Stephen Anness became the designated manager of the Global Equity
Income Portfolio, taking over from the global equity income group,
which was chaired by Nick Mustoe.
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.
Portfolio Review
The portfolio underperformed its reference benchmark in the
twelve months to the end of May 2020.
On a total return basis, the Portfolio’s net asset value fell by
6.4% over the twelve months to the end of May 2020 compared to a rise of 8.9% in the MSCI
World Index (£, total return, net of withholding tax).
Our investment process focusses on stocks that are attractively
valued versus their history and the market, but which also pay
attractive and growing dividends. Our valuation driven approach has
been out of favour with the consensus for several years, but the
last few months have been especially difficult.
The early part of the period, through the summer of 2019, was
dominated by concerns of a new global recession and an end to
globalisation due to US-Sino trade conflicts. The collapse in bond
yields around the world and yield curve inversions in the US and UK
were additional harbingers of gloom and encouraged a further
stampede into equities perceived to have low volatility of earnings
and secular, bond-like characteristics, almost regardless of
valuation. By the end of August, global equity markets were at
record levels of bifurcation in terms of valuation spread between
the most expensive and the cheapest stocks in the market.
Our relative performance recovered somewhat through the autumn
as evidence emerged of a stabilising global economy and renewed
support from central banks. Several of our holdings in the banking
sector, hitherto very much at the lower end of the valuation
spectrum, such as BNP Paribas, JPMorgan Chase and Citigroup,
performed strongly as financial results generally beat expectations
and economic optimism improved. Other more economically sensitive
stocks in the portfolio, unloved by consensus, such as Williams Sonoma, a US retailer, and Next in the
UK, performed well, though the latter was also supported by some
(temporary) resolution to the Brexit issue and a decisive election
result in December 2019.
We have, for a number of years, been overweight in the energy
sector due to the relatively low valuation upon which the sector
has traded and the high level of dividends it offered. We felt the
scope for cost cutting had been underestimated and the market was
overly pessimistic about the long term trajectory for oil and gas
demand. Whilst we feel vindicated on the cost cutting and valuation
issue, we must acknowledge that the supply of oil and gas has
exceeded our expectations and this, together with ongoing
reluctance of many investors to engage with the industry due to
environmental concerns, has meant the sector has performed poorly.
In January we made the decision to materially reduce our exposure
as we did not see an attractive risk reward profile in the medium
term to justify such a large overweight position. We disposed of
our holdings in Chevron, Royal Dutch
Shell and Equinor. We still have exposure to the sector
through BP, Total and Lundin Energy, a low cost medium sized
Swedish oil producer. As 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.
As we entered 2020, we undertook a full portfolio review and
decided to make some material changes in order to reduce risks that
had dominated portfolio performance in previous years, such as over
sensitivity to the oil price and interest rates. Whilst we
acknowledge that the US market looks expensive in aggregate, we
feel it contains many high quality cash generative businesses, not
all of which are overvalued, and we have reduced the underweight to
this market. Overall, we have sought to increase stock specific
risks rather than exposure to global macro economic and
geopolitical factors. As already discussed, we reduced exposure to
the energy sector, also to European banks, which after strong
performance in late 2019 no longer looked particularly attractively
valued.
We added a range of new holdings to the portfolio through
January and February. In Asia, we
added NetEase, a Chinese computer gaming company listed in the US.
Our colleagues in the Asian team have known this business for many
years and, in our view, it has a great roster of gaming titles, is
well managed, has a very strong balance sheet and plays to what is
still a secular growth trend, with ever more time spent on
computers and mobile phones. Purchases of Tencent, perhaps best thought of as a ‘Chinese
WhatsApp’, Facebook, Amazon and Activision Blizzard also play to
that theme. Purchases in the US included Home Depot, the leading
home improvement retailer, and Analog Devices, the semiconductor
chip manufacturer, and exposure was increased to companies such as
Microsoft and Texas Instruments. We also saw attractive risk reward
situations in some older, more cyclical, industries such as
Ashtead, a UK listed plant and equipment hire company with very
substantial US interests, Volkswagen and Delta Airlines.
Global equity markets performed well in the early part of 2020,
the MSCI World Index making new all-time highs in mid-February as
optimism around the outlook for economic growth, and hence
corporate earnings, continued to improve. A new virus in a remote
part of China was not seen as a
problem. Previous outbreaks such as H1N1, SARS and MERS over the
past two decades barely caused a ripple in equity markets outside
Asia. However, all that changed
towards the end of February as lockdowns and travel restrictions
started to be implemented across Europe and the global scale of the pandemic
became evident. Global equity markets fell 35% in five weeks, the
most rapid decline in history.
The portfolio underperformed the benchmark index during this
turmoil. The level of gearing in place was modest, at around 7%;
nevertheless it magnified the extent of the underperformance
somewhat. Whilst many of the newer holdings and the large
healthcare holdings, such as Roche and Bristol-Myers Squibb,
performed well, they were insufficient to offset underperformance
in a few specific areas; foremost, travel and leisure. We had two
relatively small positions in Delta Airlines and easyJet, and a
larger position in Rolls-Royce, the civil aerospace engine
manufacturer. With the collapse in air travel, these companies
underperformed substantially. Holdings in other economically
sensitive sectors such as banks (JPMorgan Chase, Wells Fargo and
Erste) and automotive (Volkswagen) also underperformed. Our
holdings in the energy sector (BP, Lundin Energy and Total)
were also negative contributors, given concurrent geopolitical
issues involving OPEC and Russia
and the subsequent fall in the oil price.
Markets began to stabilise in late March
2020 as central banks around the world began to aggressively
intervene to provide liquidity and to finance the huge increase in
government spending needed to support the global economy. The
recovery in equity markets through April and May was remarkable;
although concentrated in those stocks and sectors that had already
been resilient in the downturn. Confidence in a broad based
economic recovery is elusive. We took opportunities where we saw
them to improve the quality of the portfolio, buying good
businesses when they were on sale, for example, Amadeus, the
Spanish listed airline passenger management software company, and
increasing our holding in Ashtead. We sold out of positions such as
Delta Airlines where we saw risk of equity dilution and a slow
recovery from the crisis. We expect the portfolio gearing being
employed, which had a detrimental impact as the market fell sharply
in March, will benefit the portfolio as confidence, earnings and
dividends become more assured.
Outlook
It seems that in many parts of the world life is starting to
normalise and economies to open for business once more. We would
caution that the pace of recovery may be slower than we would like,
given stubbornly high infection rates in the US and many emerging
markets and potential changes in consumer behaviour. Government
schemes in many geographies to minimise unemployment and preserve
consumer spending power will be withdrawn in coming months. That
notwithstanding, we expect a significant increase in economic
activity in the second half of 2020. There is material pent up
demand from consumers and we feel certain that governments will
continue to spend on a range of infrastructure projects designed to
stimulate economic activity – they can borrow at virtually zero
interest rates.
Given the rapid recovery of markets from the March lows, and
with the continued uncertainties around a potential second
wave of infections, we believe the balance of risk and reward
potential in a range of stocks we have recently analysed is more
even. Consequently, we wish to maintain a degree of balance in the
portfolio between companies with some defensive predictable
earnings, for example in the Healthcare sector, and companies with
more substantial upside if economies were to normalise more
rapidly, for example Inditex and Rolls-Royce.
One area where we see substantial valuation asymmetry is the
financial sector, where we continue to be overweight. This
incorporates our positions in banks and insurance businesses. We
believe that the market has discounted both sectors based on an
outlook that is too pessimistic; indeed, in terms of insurance, we
believe we are beginning to see early evidence of a hardening rate
cycle (improving prices), while we believe banks will demonstrate a
greater level of resilience than many believe. They are trading at
extremely low relative valuations compared to the broader
market.
Since the beginning of the Covid-19 crisis we have suffered a
number of dividend cuts in the portfolio. These were principally in
the most affected areas we described earlier, such as travel, and
also certain industrials, including Rolls-Royce and Melrose
Industries. Our US banks have continued to pay dividends. However,
Standard Chartered has been asked (along with all other UK
domiciled banks) to suspend their dividends until further clarity
emerges later this year as to the likely scale of disruption caused
by Covid-19. We are disappointed in some businesses such as
Inditex, the owner of brands such as Zara, which deferred
a dividend it can clearly afford to pay. We continue to expect
dividend cuts globally for 2020 of around 25% to 30%, with
restoration of many of those dividends in 2021.
Our overriding sense, however, is that Covid-19 has accelerated
trends already present in economics and politics around the world;
the support for austerity by policy makers around the world is zero
and we may well have entered a new policy regime with far greater
emphasis on fiscal policy and redistribution. Implications of this
could be profound within global equity markets in the years to
come.
Stephen Anness
Portfolio Manager
31 July 2020
.
GLOBAL EQUITY INCOME SHARE
PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2020
Ordinary shares unless stated
otherwise.
COMPANY |
INDUSTRY GROUP† |
COUNTRY |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
Texas Instruments |
Semiconductors & Semiconductor
Equipment |
United States |
2,761 |
4.9 |
Microsoft |
Software & Services |
United States |
2,735 |
4.9 |
Taiwan Semiconductor
Manufacturing |
Semiconductors & Semiconductor
Equipment |
Taiwan |
2,372 |
4.3 |
Ashtead |
Capital Goods |
United Kingdom |
2,149 |
3.9 |
JPMorgan Chase |
Banks |
United States |
2,013 |
3.7 |
Analog Devices |
Semiconductors & Semiconductor
Equipment |
United States |
1,952 |
3.5 |
Samsung Electronics – preference
shares |
Technology Hardware &
Equipment |
South Korea |
1,911 |
3.4 |
Novartis |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
1,826 |
3.3 |
Zurich |
Insurance |
Switzerland |
1,777 |
3.2 |
Alphabet |
Media & Entertainment |
United States |
1,661 |
3.0 |
Home Depot |
Retailing |
United States |
1,618 |
2.9 |
Bayer |
Pharmaceuticals, Biotechnology &
Life Sciences |
Germany |
1,559 |
2.8 |
Wells Fargo |
Banks |
United States |
1,549 |
2.8 |
American Express |
Diversified Financials |
United States |
1,525 |
2.7 |
Bristol-Myers Squibb |
Pharmaceuticals, Biotechnology &
Life Sciences |
United States |
1,468 |
2.6 |
Roche |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
1,463 |
2.6 |
Automatic Data Processing |
Software & Services |
United States |
1,418 |
2.5 |
Amadeus |
Software & Services |
Spain |
1,409 |
2.5 |
Lundin Energy |
Energy |
Sweden |
1,395 |
2.5 |
Inditex |
Retailing |
Spain |
1,157 |
2.1 |
Berkeley |
Consumer Durables & Apparel |
United Kingdom |
1,157 |
2.1 |
Mastercard |
Software & Services |
United States |
1,150 |
2.1 |
TencentR |
Media & Entertainment |
China |
1,126 |
2.0 |
Allianz |
Insurance |
Germany |
1,125 |
2.0 |
Colgate-Palmolive |
Household & Personal
Products |
United States |
1,066 |
1.9 |
NetEase – ADR |
Media & Entertainment |
China |
1,050 |
1.9 |
Volkswagen – preference
shares |
Automobiles & Components |
Germany |
996 |
1.8 |
Next |
Retailing |
United Kingdom |
960 |
1.7 |
Rolls-Royce |
Capital Goods |
United Kingdom |
953 |
1.7 |
Sony |
Consumer Durables & Apparel |
Japan |
952 |
1.7 |
Citigroup |
Banks |
United States |
923 |
1.7 |
Standard Chartered |
Banks |
United Kingdom |
902 |
1.6 |
Sberbank – ADR |
Banks |
Russia |
888 |
1.6 |
Melrose Industries |
Capital Goods |
United Kingdom |
862 |
1.5 |
Total |
Energy |
France |
825 |
1.5 |
BP |
Energy |
United Kingdom |
750 |
1.3 |
easyJet |
Transportation |
United Kingdom |
709 |
1.3 |
Pepsico |
Food, Beverage & Tobacco |
United States |
667 |
1.2 |
Activision Blizzard |
Media & Entertainment |
United States |
610 |
1.1 |
Diageo |
Food, Beverage & Tobacco |
United Kingdom |
601 |
1.1 |
AIA |
Insurance |
Hong Kong |
524 |
0.9 |
Accenture – A Shares |
Software & Services |
United States |
523 |
0.9 |
Reckitt Benckiser |
Household & Personal
Products |
United Kingdom |
302 |
0.5 |
Las Vegas Sands |
Consumer Services |
United States |
286 |
0.5 |
Cummins |
Capital Goods |
United States |
153 |
0.3 |
Total Holdings 45 (2019: 52) |
|
|
55,778 |
100.0 |
† MSCI and Standard & Poor’s Global
Industry Classification Standard.
ADR American Depositary Receipts – are certificates
that represent shares in the relevant stock and are issued by a US
bank. They are denominated and pay dividends in US dollars.
R Red Chip Holdings – holdings in companies
incorporated outside the PRC, listed on the Hong Kong Stock
Exchange, and controlled by PRC entities by way of direct or
indirect shareholding and/or representation on the board.
.
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 Review
The Balanced Risk Allocation Portfolio NAV total return posted a
negative return for the year of -3.1% in the year under review.
The Balanced Risk Allocation strategy seeks to achieve returns
through balancing risk exposure between three asset classes:
developed market equities, global government bonds and commodities.
The asset class weightings are determined using a proprietary
investment process, with assets being selected according to three
key criteria: a correlation matrix to ensure diversification; the
ability to generate excess returns relative to cash; and specific
liquidity and transparency criteria. Exposure to the asset classes
is principally obtained through highly liquid and transparently
priced exchange-traded futures contracts, with cash and cash
equivalents being held as collateral.
For the year to 31 May 2020
strategic exposure to bonds was a positive contributor to
performance, whereas strategic exposure to both equities and
commodities detracted from performance.
Strategic exposure to government bond markets aided results for
the fiscal year, as yields fell across all four markets in which
the strategy was invested. Bond markets started the period in
positive territory. A combination of accommodative central bank
policy, uncertainty about global economic activity and trade
tensions helped push bond prices higher early in the period. Prices
temporarily retreated later in 2019 as the apparent thawing of
trade tensions between the US and China dampened enthusiasm for bonds. However,
a flight-to-safety was quickly ignited in the first quarter of
2020, with uncertainty and fear about the Covid-19 health crisis
fuelling a sharp sell-off in risk assets and bolstering safe-haven
returns. While returns were positive through the sharp downturn in
risk assets, the path there was anything but. During the height of
the cash crunch in March, bonds became a source of liquidity,
sending prices lower and volatility higher. Massive intervention by
central banks in March to thaw frozen credit markets and exhaustion
of selling pressure combined to buoy bond prices back up. Results
in the asset class were led by the US, followed by Canada, Australia and finally the UK.
Strategic exposure to equities detracted from performance as the
asset class suffered serious setbacks during the fiscal year.
Equity results were generally positive in the earlier half of the
period with many markets in which the strategy invests benefiting
from accommodative central bank policy and trade deal optimism.
However, in the first quarter of 2020 equity markets almost
universally entered bear market territory with prices dropping off
sharply. The main issue pushing prices lower was fear over the
global spread of Covid-19 and concerns over the impact of
containment efforts on manufacturing activity and global supply
chains. Equity markets managed to snap back in the final two months
of the period, on hopes that central bank intervention and the
reopening of economies would lead to a rapid recovery. Hong Kong equities were the top detractor over
the period followed by the UK. Hong
Kong equities suffered declines as they were doubly hit by
local unrest during the period. UK equities struggled with
unpredictability around Brexit and were also hit hard in the late
period sell-off, partially due to the UK index’s high energy
weight.
Strategic exposure to commodities represented the largest drag
on results during the fiscal year, with the energy complex being by
far the hardest hit. Energy commodities were generally positive in
the earlier parts of the period, but suffered a large setback in
the first quarter of 2020 on demand fears created by efforts to
contain the spread of Covid-19 and a supply shock in early March
coming from the eruption of an oil price war between Saudi Arabia and Russia. Industrial metals also detracted from
performance as prices for aluminium and copper fell on demand fears
from the economic shutdown and the ensuing drop in global
manufacturing activity. Agricultural prices declined in aggregate,
with all but wheat and cocoa posting negative results for the
period. Precious metals was the only positive contributor from a
commodity complex perspective, benefiting from the low-rate
environment and as nervous investors sought safe havens amid
volatility in risk assets. Prices for both gold and silver
jumped-up late in the period as investors assessed the potential
for future inflation and potential currency debasement as global
central banks massively expanded their balance sheets.
Tactical shifts helped results during the period, as gains from
defensive positioning in commodities outweighed losses from
overweight positioning in equities. The overall impact of tactical
positioning in bonds was flat for the period.
Outlook
Up to this point, the recovery from the economic damage caused
by Covid-19 containment efforts has gone about as well as anyone
could expect. Economic activity across several fronts is
approaching levels seen just prior to the lockdowns. However, the
easy part of the recovery is likely behind us. The continued
recovery from here is apt to be lumpy as pockets of infections
resurge, which could cause a rollback of earlier containment
efforts. Additionally, several prognosticators are suggesting that
a full recapture of pre-Covid-19 economic activity levels won’t be
seen until 2022 at the earliest. With this in mind, investors may
be best served by taking a balanced approach to a broader set of
economic outcomes that allow for fits and starts along the road to
recovery.
Tactical positioning for June was overweight all equity markets,
except for Hong Kong, which was
carried at neutral. In fixed income, the strategy overweighted
Australia, Canada, the UK and US, while Germany and Japan were excluded. Positioning in
commodities was underweight agriculture, overweight metals and
overweight energy, except for natural gas and gas oil (diesel),
which were underweight.
For July all equity markets have been overweighted. In fixed
income Australia, Canada and the US continue to be overweighted,
with both Germany and the UK being
excluded. Across commodities, the strategy continues to underweight
most agricultural exposures, except for cocoa, lean hogs and live
cattle, which are carried at neutral. Exposure to energy is neutral
crudes and unleaded petrol, but underweight gas oil, natural gas
and heating oil. Within metals, the strategy is overweight gold,
silver and copper, but underweight aluminium.
Scott Wolle
Portfolio Manager
31 July 2020
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
LIST OF DERIVATIVE INSTRUMENTS
AT 31 May 2020
|
NOTIONAL
EXPOSURE
£’000 |
NOTIONAL
EXPOSURE
AS % OF
NET ASSETS |
Government Bond Futures: |
|
|
Australia |
2,410 |
34.1 |
US |
867 |
12.3 |
Canada |
814 |
11.5 |
UK |
412 |
5.8 |
Total Bond Futures
(4) |
4,503 |
63.7 |
Equity Futures: |
|
|
Japan |
470 |
6.6 |
US small cap |
448 |
6.3 |
UK |
363 |
5.1 |
Europe |
362 |
5.1 |
Hong Kong |
358 |
5.1 |
US large cap |
245 |
3.5 |
Total Equity Futures
(6) |
2,246 |
31.7 |
Commodity Futures: |
|
|
Agriculture |
|
|
Cotton |
161 |
2.3 |
Soybean meal |
138 |
2.0 |
Soybean |
137 |
1.9 |
Sugar |
84 |
1.2 |
Wheat |
42 |
0.6 |
Soybean oil |
40 |
0.6 |
Corn |
39 |
0.6 |
Coffee |
29 |
0.4 |
Precious Metals |
|
|
Gold |
427 |
6.0 |
Silver |
150 |
2.1 |
Energy |
|
|
Gasoline |
210 |
3.0 |
Brent crude |
183 |
2.6 |
WTI crude |
57 |
0.8 |
Low sulphur
gasoline |
53 |
0.7 |
New York Harbor
ultra-low sulphur diesel |
38 |
0.5 |
Natural gas |
22 |
0.3 |
Industrial Metals |
|
|
Copper |
217 |
3.1 |
Aluminium |
94 |
1.3 |
Total Commodity Futures
(18) |
2,121 |
30.0 |
Total Derivative Instruments
(28) |
8,870 |
125.4 |
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 |
3.8% |
42.2% |
Fixed Income |
3.5% |
38.3% |
Commodities |
1.8% |
19.5% |
|
9.1% |
100.0% |
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
LIST OF INVESTMENTS
AT 31 MAY 2020
|
YIELD
% |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
Short Term Investments |
|
|
|
Invesco Liquidity Funds
plc - Sterling |
0.35 |
2,330 |
36.7 |
UK Treasury Bill 0% 16
Nov 2020 |
0.13 |
1,517 |
23.9 |
UK Treasury Bill 0% 09
Nov 2020 |
0.14 |
750 |
11.8 |
UK Treasury Bill 0% 03
Aug 2020 |
0.68 |
550 |
8.7 |
UK Treasury Bill 0% 06
Jul 2020 |
0.74 |
450 |
7.1 |
UK Treasury Bill 0% 02
Nov 2020 |
0.19 |
300 |
4.7 |
UK Treasury Bill 0% 17
Aug 2020 |
0.12 |
282 |
4.5 |
UK Treasury Bill 0% 26
Oct 2020 |
0.15 |
150 |
2.4 |
Total Short Term
Investments |
|
6,329 |
99.8 |
Hedge
Funds(1) |
|
|
|
Harbinger Class PE
Holdings |
|
15 |
0.2 |
Harbinger Class L
Holdings |
|
3 |
– |
Total Hedge Funds |
|
18 |
0.2 |
Total Fixed Asset
Investments |
|
6,347 |
100.0 |
(1) The hedge fund investments are
residual holdings of the previous investment strategy, which are
awaiting realisation of underlying investments.
Derivative instruments held in the Balanced Risk Allocation
Share Portfolio are shown on the previous page. At the year end all
the derivative instruments held in the Balanced Risk Allocation
Share Portfolio were exchange traded futures contracts. Holdings in
futures contracts that are not exchange traded are permitted as
explained in the investment policy on page 34.
.
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 Review
The Managed Liquidity Portfolio NAV total return for the year
ended 31 May 2020 was 1.1%.
This Portfolio is invested principally in the PIMCO Sterling
Short Maturity Source UCITS ETF, which is managed by PIMCO. In
addition, since from time to time it is necessary to be able to
realise assets quickly to meet short term payment obligations, a
small proportion of the Portfolio's assets is invested in the
Sterling Liquidity Portfolio of Invesco Liquidity Funds plc
(formerly Short-Term Investments Company (Global Series) plc),
which is a money market fund managed by Invesco. The underlying
investments of the ETF carry greater risks than is typical for a
money market fund and accordingly the Portfolio value may rise or
fall.
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 Fund is actively managed by
PIMCO and has a diversified portfolio of UK sterling-denominated
fixed income securities, including government bonds, corporate debt
securities and unleveraged mortgage or other asset-backed
securities. The Fund’s weighted average maturity is not expected to
exceed three years and its average portfolio duration will be up to
one year, based on PIMCO’s forecast for interest rates. The Fund
invests only in investment grade securities that are rated at least
Baa3 by Moody’s or BBB- by S&P or equivalently rated by Fitch
(or, if unrated, determined by PIMCO to be of comparable
quality).
The Sterling Liquidity Portfolio of Invesco Liquidity Funds plc
is a sterling denominated, short-term low volatility net asset
value money market fund. It invests 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
31 May 2020 the Sterling Liquidity
Portfolio was rated AAAm by Standard and Poor's and AAAmmf by Fitch
Ratings.
As reported at in the Company’s half year report, although the
UK election had removed much of the near-term Brexit uncertainty,
PIMCO expected weakness in the global economy because of trade
tensions and political uncertainty. In the second half of the
Company’s year, financial securities markets suffered significant
falls due primarily to concerns around the impact of Covid-19 on
the global economy. Both of the abovementioned funds were affected,
albeit not to a scale comparable with equities.
During a special meeting on 10 March
2020, the Bank of England
(BoE) Monetary Policy Committee decided to cut the Bank interest
rate down from 0.75% to 0.25% to counter the economic shock
resulting from the Covid-19 outbreak and also introduced a new Term
Funding Scheme. Then, on 19 March, the BoE followed in the
footsteps of other central banks by announcing a further rate cut,
to bring the Bank rate down to 0.10%, and a new round of QE worth
£200 billion, which reduced stress in money markets.
Outlook
PIMCO expect the UK to have a deep but relatively short
recession due to the Covid-19 pandemic, although the subsequent
recovery is expected to be slow with activity remaining below
pre-Covid-19 levels through 2021. The UK policy response has been
prompt and coordinated, softening the fall and likely preventing
the shock from creating lasting damage to the supply side of the
economy. It appears that the Bank of England should remain a credible backstop for
the sovereign balance sheet, keeping its policy rate at 0.1%,
adding to existing asset purchases to broadly match the size of the
fiscal deficit, and directly lending to the Treasury where
appropriate.
Invesco
31 July 2020
.
MANAGED LIQUIDITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AS AT 31 MAY
|
2020 |
2019 |
|
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
PIMCO Sterling Short Maturity Source
UCITS ETF |
2,642 |
98.5 |
4,490 |
95.3 |
Invesco Liquidity Funds plc –
Sterling (formerly Short Term Investment Companies (Global Series)
plc) |
40 |
1.5 |
220 |
4.7 |
|
2,682 |
100.0 |
4,710 |
100.0 |
.
BUSINESS REVIEW
Invesco Perpetual Select Trust plc is a UK investment company
with four Share classes, each of which has separate investment
objectives, as set out below, and is represented by a separate
Portfolio. The Company’s purpose is to generate sustainable returns
for its shareholders by providing a choice of investment strategies
and the ability to switch between them, free of cost, according to
their needs. The underlying strategies are each targeted at
achieving returns corresponding with specified objectives through a
disciplined investment process. The strategy the Board follows to
achieve its overall objective and those of each Share class is to
set investment policy and risk guidelines, together with investment
limits, and to monitor how they are applied. These are also set out
below.
The business model the Company has adopted to achieve its
objective has been to contract investment management and
administration to appropriate external service providers. The Board
has oversight of the Company’s service providers, and monitors them
on a formal and regular basis. The Board has a collegiate culture
and pursues its fiduciary responsibilities with independence,
integrity and diligence, taking advice and outside views as
appropriate and constructively challenging and interacting with
service providers, including the Manager.
The principal service provider is Invesco Fund Managers Limited
(‘IFML’ or the ‘Manager’). In addition to managing the Portfolios
in accordance with the Board’s strategy and under its oversight,
the Manager is also responsible for providing company secretarial,
marketing, accounting and general administration services. In
practice, many of these services are performed under delegated
authority by Invesco Asset Management Limited (IAML), a company
related to IFML. References to the Manager in this annual financial
report should consequently be considered to include both
entities.
All administrative support is provided by third parties under
the oversight of the Board. In addition to the management and
administrative functions of the Manager, the Company has
contractual arrangements with Link Asset Services to act as
registrar and The Bank of New York Mellon (International) Limited
(BNYMIL) as depositary and custodian.
Investment Policy
The Company’s and respective Share classes’ investment
objectives, investment policies and risk and investment limits
combine to form the ‘Investment Policy’ of the Company.
The Company
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 investment objectives, policies and risks and limits of the
Portfolios for these Share classes follow. With the exception of
borrowings, the limits for the Company and the four Share classes
are measured at the point of acquisition of investments, unless
otherwise stated.
Investment Limits of the Company
The Board has prescribed limits on the Investment Policy of the
Company, which include the following:
– no more than 15% of the gross
assets of the Company may be invested in a single investment;
and
– no more than 10% of the gross
assets of the Company may be invested in other listed investment
companies (excluding property companies structured as REITs).
UK Equity Share Portfolio
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.
Investment Policy and Risk
The UK Equity Portfolio is invested primarily in UK equities and
equity-related securities of UK companies across all market
sectors. The Portfolio will not invest in companies which are not
listed, quoted or traded at the time of investment, although it may
have exposure to such companies where, following investment, the
relevant securities cease to be listed, quoted or traded.
The Manager invests the UK Equity Portfolio so as to maximise
exposure to the most attractive sectors and securities, within a
portfolio structure that reflects the Manager’s view of the
macroeconomic environment. The Manager does not set out to manage
the risk characteristics of the UK Equity Portfolio relative to the
FTSE All-Share Index (the ‘benchmark index’) and the investment
process may result in potentially very significant over or
underweight positions in individual sectors versus the benchmark.
The size of weightings will reflect the Manager’s view of the
attractiveness of a security and the degree of conviction held. If
a security is not considered to be a good investment, it will not
be held in the UK Equity Portfolio, irrespective of its weight in
the benchmark index.
The Manager controls the stock-specific risk of individual
securities by ensuring that the UK Equity Portfolio is always
diversified across market sectors. In-depth and continual analysis
of the fundamentals of investee companies allows the Manager to
assess the financial risks associated with any particular
security.
It is expected that, typically, the Portfolio will hold between
45 and 80 securities.
The Directors believe that the use of borrowings can enhance
returns to shareholders and the UK Equity Portfolio will generally
use borrowings in pursuing its investment objective.
Investment Limits
The Board has prescribed limits on the investment policy of the
UK Equity Portfolio, which include the following:
– no more than 12% of the gross
assets of the UK Equity Portfolio may be held in a single
investment;
– no more than 10% of the gross
assets of the UK Equity Portfolio may be held in other listed
investment companies (excluding REITs);
– no more than 20% of the gross
assets of the UK Equity Portfolio may be held in overseas assets;
and
– borrowings may be used to raise
equity exposure up to a maximum of 25% of the net assets of the UK
Equity Portfolio when it is considered appropriate.
Global Equity Income Share
Portfolio
Investment Objective
The investment objective of the Global Equity Income 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.
Investment Policy and Risk
The Portfolio will be invested predominantly in a portfolio of
listed, quoted or traded equities worldwide, but may also hold
other securities from time to time including, inter alia,
fixed interest securities, preference shares, convertible
securities and depositary receipts. Investment may also be made in
regulated or authorised collective investment schemes. The
Portfolio will not invest in companies which are not listed, quoted
or traded at the time of investment, although it may have exposure
to such companies where, following investment, the relevant
securities cease to be listed, quoted or traded. The Manager will
at all times invest and manage the Portfolio’s assets in a manner
that is consistent with spreading investment risk, but there will
be no rigid industry, sector, region or country restrictions.
The Portfolio may utilise derivative instruments including
index-linked notes, contracts for differences, covered options and
other equity-related derivative instruments for efficient portfolio
management and investment purposes. Any use of derivatives for
investment purposes will be made on the basis of the same
principles of risk spreading and diversification that apply to the
Portfolio’s direct investments, as described above.
It is expected that, typically, the Portfolio will hold between
40 and 55 securities (this guidance was changed by the Board, and
announced to the market, on 20 April
2020. The previous guidance as to the typical range was 45
to 80 stocks).
The Directors believe that the use of borrowings can enhance
returns to shareholders, and the Global Equity Income Portfolio may
use borrowings in pursuing its investment objective.
The Company’s foreign currency investments will not be hedged to
sterling as a matter of general policy. However, the Manager may
employ currency hedging, either back to sterling or between
currencies (i.e. cross hedging of portfolio investments).
Investment Limits
The Board has prescribed the following limits on the investment
policy of the Global Equity Income Portfolio:
– no more than 20% of the gross
assets of the Global Equity Income Portfolio may be invested in
fixed interest securities;
– no more than 10% of the gross
assets of the Global Equity Income Portfolio may be held in a
single investment;
– no more than 10% of the gross
assets of the Global Equity Income Portfolio may be held in other
listed investment companies (excluding REITs); and
– borrowings may be used to raise
equity exposure up to a maximum of 20% of the net assets of the
Global Equity Income Portfolio, when it is considered
appropriate.
Balanced Risk Allocation Share
Portfolio
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.
Investment Policy and Risk
The Portfolio utilises two main strategies: the first seeks to
balance the risk contribution from each of three asset classes
(equities, bonds and commodities), with the aim of reducing the
probability, magnitude and duration of capital losses, and the
second seeks to shift tactically the allocation among the assets
with the aim of improving expected returns.
The Portfolio is constructed so as to achieve appropriate
diversity and to balance risk by asset class (bonds, equities and
commodities) and by asset within each asset class. Neutral risk
weighting is achieved when each asset class contributes an equal
proportion of the total Portfolio risk and each asset contributes
an equal proportion of the total risk for its respective asset
class. The Manager is permitted to actively vary asset class
weightings, subject to a maximum of 150% and a minimum of 50% of
each asset class’s neutral weight. The Manager is also permitted to
actively vary individual asset weightings, provided the asset class
guidelines are not violated. Asset weights may not be less than
zero (short) and will not exceed twice the neutral weight. For the
purposes of the maximum weighting only, commodity exposures are
aggregated and measured by commodity complex rather than by
individual assets.
The Portfolio will be mainly invested directly in highly liquid
and transparently priced exchange-traded futures contracts, with
cash and cash equivalents being held as collateral. However, the
Portfolio may also be invested in equities, equity-related
securities and debt securities (including floating rate notes).
Financial derivative instruments (including but not limited to
futures and total return swaps) are used only to achieve long
exposure to the three asset classes. The Portfolio may also use
financial derivative instruments, including currency futures and
forwards, for efficient portfolio management, hedging and
investment purposes. Financial derivative instruments will not be
used to create net short positions in any asset class. The
derivatives portfolio will typically comprise between 20 and 33
investment positions.
It is expected that the Portfolio’s investments will mainly be
denominated in sterling. Any non-sterling derivative investments
may be hedged back into sterling at the discretion of the Manager
when it is economic to do so.
Investment Limit
The Board has prescribed the following limits on the investment
policy of the Balanced Risk Allocation Portfolio:
– the aggregate notional amount of
financial derivative instruments positions may not exceed 250% of
the net assets of the Balanced Risk Allocation Portfolio; and
– no more than 10% of the gross
assets of the Balanced Risk Allocation Portfolio may be held in
other listed investment companies.
Managed Liquidity Share Portfolio
Investment Objective
The investment objective of the Managed Liquidity Portfolio is
to produce an appropriate level of income return combined with a
high degree of security.
Investment Policy and Risk
The Managed Liquidity Portfolio invests mainly in a range of
sterling-based or related high quality debt securities and similar
assets (which may include transferable securities, money market
instruments, warrants, collective investment schemes and deposits),
either directly or indirectly through authorised funds investing in
such instruments, including funds managed by Invesco.
The Managed Liquidity Portfolio generally invests in funds
authorised as UCITS schemes (Undertakings for Collective
Investments in Transferable Securities, being open ended retail
investment funds in the EU), which are required under governing
regulations to provide a prudent spread of risk. In the event that
the Managed Liquidity Portfolio is invested directly in securities
and instruments, the Manager will observe investment restrictions
and risk diversification policies that are consistent with UCITS
regulations.
Investment Limits
The Board has prescribed limits on the investment policy of the
Managed Liquidity Portfolio, which include the following:
– no more than 10% of the gross
assets of the Managed Liquidity Portfolio may be held in a single
investment, other than authorised funds or high quality sovereign
debt securities; and
– no more than 5% of the gross
assets of the Managed Liquidity Portfolio may be held in unquoted
investments, other than authorised funds.
Investors should note that the Managed Liquidity Shares are not
designed to replicate the returns or other characteristics of a
bank or building society deposit or money market fund. In
particular, the Portfolio will typically contain some assets with a
greater residual maturity, and as a whole will have greater
weighted average maturity, than is prescribed by regulation
governing money market funds.
Key Performance Indicators
The Board reviews the performance of the Company by reference to
a number of Key Performance Indicators, at either a Company or
Portfolio level, which include the following:
• Investment Performance
• Revenue and Dividends
• Discount/Premium
• Ongoing Charges
Investment Performance
To assess investment performance the Board monitors the net
asset value (NAV) performance of the individual Share classes
relative to that of benchmark indices it considers to be
appropriate. However, given the requirements and constraints of the
investment objectives and policies followed, no index can be
expected to fully represent the performance that might reasonably
be expected from any one or all of the Company’s Share classes.
The NAV total return performance of each of the Portfolios over
the year to 31 May 2020 and of
relevant benchmark indices were as follows:
UK Equity Portfolio |
–12.4% |
FTSE All-Share Index |
–11.2% |
|
|
Global Equity Income Portfolio |
–6.4% |
MSCI World Index (£) |
8.9% |
|
|
Balanced Risk Allocation
Portfolio |
–3.1% |
Merrill Lynch 3 month LIBOR plus 5%
per annum |
5.9% |
|
|
Managed Liquidity Portfolio |
1.1% |
Source: Refinitiv.
Other performance periods, together with share price total
returns, are shown on pages 7, 14, 21 and 28.
Revenue and Dividends
The Directors review revenue estimates and prospective dividend
levels at each Board meeting. For the equity Share classes the
Directors have become more focused on total return since
sanctioning contributions to dividends from capital, but dividends
paid continue to be mostly constituted from revenue and revenue is
an important element of overall Portfolio returns.
UK Equity Shares
Revenue earnings per Share for the UK Equity Share Portfolio was
4.12p (2019: 5.73p), based on net revenue for the year of
£1,340,000 (2019: £1,982,000), which included receipts of £61,000
(2019: £96,000) of non-recurring special dividends, equivalent to
0.19p (2019: 0.28p).
Dividend Policy:
It is the Board’s policy that the Directors will declare four
dividends in respect of each accounting year (with payment in the
month following) comprising of three equal interim dividends,
declared in July, October and January, and a ‘wrap-up’ fourth
interim dividend, declared in April. Depending on the level of
income received in each quarter, and in the year, these four
dividends may be enhanced with contributions from capital profits
to achieve the Board’s target level. In recent years the Directors
have set a target of at least maintaining, in the absence of
unforeseen circumstances, the level of annual UK Equity dividends
per share from year to year. The impact of Covid-19 constitutes
unforeseen circumstances in this context and, given the current
uncertainty of future income flows, the Directors have not set
dividend targets for the year to 31 May
2021.
Dividends Declared:
The Directors have declared and paid four interim dividends for
the year ended 31 May 2020 totalling
6.60p per UK Equity Share (2019: 6.60p) of which 4.12p was met from
revenue earned in the year. The aggregate of dividends paid in
respect of the year was £2,145,000 (2019: £2,279,000) – the
decrease reflects the reduction of shares in issue following
conversions and buybacks in the year.
A first interim dividend for the year to 31 May 2021 of 1.50p was declared on 16 July 2020. In the absence of unforeseen
circumstances, and in accordance with the dividend policy set out
above, the Board intends for this to set the level for the next two
quarterly dividends.
Global Equity Income Shares
Revenue earnings per Share for the Global Equity Income Share
Portfolio was 5.39p (2019: 6.90p), based on net revenue for the
year of £1,639,000 (2019: £2,234,000), which included £49,000
(2019: £38,000) of special dividends.
Dividend Policy:
It is the Board’s policy that the Directors will declare four
dividends in respect of each accounting year (with payment in the
month following) comprising of three equal interim dividends,
declared in July, October and January, and a ‘wrap-up’ fourth
interim dividend, declared in April. Depending on the level of
income received in each quarter, and in the year, these four
dividends may be enhanced with contributions from capital profits
to achieve the Board’s target level. In recent years the Directors
have set a target of at least maintaining, in the absence of
unforeseen circumstances, the level of annual UK Equity dividends
per share from year to year. The impact of Covid-19 constitutes
unforeseen circumstances in this context and, given the current
uncertainty of future income flows, the Directors have not set
dividend targets for the year to 31 May
2021.
Dividends Declared:
The Directors have declared and paid four interim dividends for
the year ended 31 May 2020 totalling
7.05p (2019: 6.90p) per Global Equity Income Share, of which 5.39p
was met from revenue earned in the year. The aggregate of dividends
paid in respect of the year was £2,138,000 (2019: £2,232,000) – the
decrease reflects the reduction of shares in issue following
conversions and buybacks in the year.
A first interim dividend for the year to 31 May 2021 of 1.55p was declared on 16 July 2020. In the absence of unforeseen
circumstances, and in accordance with the dividend policy set out
above, the Board intends for this to set the level for the next two
quarterly dividends.
Balanced Risk Allocation Shares
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
under section 1158 of the Corporation Tax Act 2010. The Portfolio
recorded a net revenue loss of £1,000 in the year (2019: £25,000
net profit).
No dividends are required to be declared or paid for the year to
retain investment trust status.
Managed Liquidity Shares
The Board intends to declare dividends on the Managed Liquidity
Share Portfolio when the level of income available allows. The
Managed Liquidity Portfolio recorded a net revenue profit for the
year of £23,000 (2019: £27,000). An interim dividend of 0.8p per
Managed Liquidity Share was declared on 15
April 2020 in respect of the year ended 31 May 2020 (2019: 0.8p), of which 0.65p was met
from revenue earned in the year. It currently appears unlikely,
given the quantum of revenue being earned, that future dividends
will be more frequent than annual and they could be less
frequent.
Discount/(Premium)
The Company has a discount control policy in place for all four
Share classes, whereby the Company offers to issue or buy back
Shares of all classes with a view to maintaining the market price
of the shares at close to their respective net asset values and, by
so doing, avoid significant overhangs or shortages in the market.
It is the Board’s policy to buy back shares and to sell shares from
treasury on terms that do not dilute the net asset value
attributable to existing shareholders at the time of the
transaction.
The operation of this policy is dependent upon the authorities
to buy back and issue shares being renewed by shareholders.
Notwithstanding the intended effect of this policy, there can be no
guarantee that the Company’s shares will trade at close to their
respective net asset values. Shareholders should also be aware that
there is a risk that this discount policy may lead to
a reduction in the size of the Company over time.
The Board and the Manager closely monitor movements in the
Company’s share prices and dealings in the Company’s shares. Share
movements in the year are summarised on page 39. At 31 May 2020, the share prices, net asset values
(NAV) and the discounts of the four Share classes were as
follows:
|
2020 |
2019 |
SHARE CLASS |
NET ASSET
VALUE
(PENCE) |
SHARE
PRICE
(PENCE) |
DISCOUNT |
NET ASSET
VALUE
(PENCE) |
SHARE
PRICE
(PENCE) |
DISCOUNT |
UK Equity |
145.8 |
139.5 |
(4.3)% |
173.1 |
173.5 |
0.2% |
Global Equity Income |
178.5 |
176.5 |
(1.1)% |
197.6 |
195.0 |
(1.3)% |
Balanced Risk Allocation |
135.1 |
129.0 |
(4.5)% |
139.5 |
138.5 |
(0.7)% |
Managed Liquidity |
104.4 |
101.5 |
(2.8)% |
104.9 |
101.5 |
(3.2)% |
The Shares of all four Portfolios generally traded in a range of
0% to 4% discount, but with the severity and speed of market moves
during the height of the Covid-19 volatility prices became
dislocated from NAVs and extreme levels of premium and discount
were seen, particularly for the UK Equity and Global Equity Income
Shares.
Ongoing Charges
The expenses of managing the Company are reviewed by the Board
at every meeting. The Board aims to minimise the ongoing charges
figure which provides a guide to the effect on performance of all
annual operating costs of the Company. The ongoing charges figure
is calculated by dividing the annualised ongoing charges, including
those charged to capital, by the average daily net asset value
during the year, expressed as a percentage.
At the year end the ongoing charges figure of the Company and
that for the different Share classes were as follows:
|
COMPANY |
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
2020 |
0.90% |
0.89% |
0.88% |
1.25% |
0.35% |
2019 |
0.87% |
0.86% |
0.86% |
1.21% |
0.38% |
The above excludes rebates received by the Managed Liquidity
Portfolio and, since neither the UK Equity nor Global Equity Income
Portfolios outperformed their benchmarks over the past two years,
there is no performance fee impact. In addition to
inflationary effects, shrinkage from buybacks in connection with
the discount control policy will tend to cause the ongoing charge
percentages to gradually increase.
Financial Position
Assets and Liabilities
The Company’s balance sheet on page 76 shows the assets and
liabilities at the year end. Details of the Company’s borrowing
facility are shown in note 12(b) of the financial statements on
page 90, with interest paid (finance costs) in note 5.
Owing to the readily realisable nature of the Company’s assets,
cash flow does not have the same significance as for an industrial
or commercial company. The Company’s principal cash flows arise
from the purchases and sales of investments and the income from
investments against which must be set the costs of borrowing and
management expenses.
Borrowing Policy
Borrowing policy is under the control of the Board, which has
established effective parameters for the Portfolios. Borrowing
levels are regularly reviewed. As part of the Company’s Investment
Policy, the approved borrowing limits are 25% of the net assets of
the UK Equity Portfolio and 20% of net assets of the Global Equity
Income Portfolio. The Balanced Risk Allocation Portfolio does not
use borrowings, but is geared by means of the derivative
instruments used to implement its investment policy. The Managed
Liquidity Portfolio does not use borrowings.
Issued Share Capital
All Share classes have a nominal value of 1 penny per Share.
The following table summarises the Company’s share capital at
the year end and movements during the year.
NUMBER OF SHARES |
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
Shares in issue at the year
end: |
|
|
|
|
– excluding
treasury |
31,977,941 |
28,786,800 |
5,236,886 |
2,497,032 |
– held in
treasury |
11,977,812 |
10,514,159 |
5,321,218 |
8,681,678 |
Movements during the year: |
|
|
|
|
Increase/(decrease)
arising from conversions |
350,118 |
331,702 |
(217,542) |
(997,436) |
Shares bought back into
treasury |
(1,460,772) |
(3,213,136) |
(164,000) |
(875,893) |
Average price
thereon |
167.4p |
197.8p |
138.2p |
101.3p |
Since the year end another 1,698,000 UK Equity Shares and
1,311,000 Global Equity Income Shares have been bought into
treasury at average prices of 141.2p and 178.0p, respectively.
Further details on net changes in issued share capital are set
out in note 13 to the financial statements on pages 90 and 91. No
treasury shares were cancelled during the year.
Current and Future Developments
As part of the Company’s overall strategy, the Company seeks to
manage its affairs so as to maximise returns for shareholders. The
Board also has a longer-term objective to increase the size of the
Company in the belief that increasing the assets of the Company in
this way will make the Company’s Shares more attractive to
investors and improve the liquidity of the Shares.
Details of trends and factors likely to affect the future
development, performance and position of the Company’s business can
be found in the Chairman’s Statement and the portfolio managers’
reports. Further details as to the risks affecting the Company are
set out under ‘Principal Risks and Uncertainties’ below.
Principal Risks and Uncertainties
The Audit Committee regularly undertakes a robust assessment of
the risks the Company faces, including those that would threaten
its business model, future performance, solvency, reputation or
liquidity and emerging risks, on behalf of the Board (see Audit
Committee Report on pages 49 to 51).
The following are considered to be the most significant risks to
the Company and to shareholders in relation to their investments in
the Company. Further details of risks and risk management policies
as they relate to the financial assets and liabilities of the
Company are detailed in note 16 to the financial statements.
Investment Objectives and
Attractiveness to Investors
There is no guarantee that the Investment Policy of the Company
and of each Portfolio will provide the returns sought by the
Company. There can be no guarantee, therefore, that the Company
will achieve its investment objectives or that the Shares will
continue to meet investors’ needs.
The Board monitors the share registers and the performance of
the Company and each Portfolio. It has established a structure
offering a range of options for investors and has set guidelines to
ensure that the Investment Policy of the Company and each Portfolio
is pursued by the Manager.
Market Movements and Portfolio
Performance
Individual Portfolio performance is substantially dependent on
the performance of the securities (including derivative
instruments) held within the Portfolio. The prices of these
securities are influenced by many factors including the general
health of regional and worldwide economies; interest rates;
inflation; government policies; industry conditions; political and
diplomatic events; tax laws; environmental laws; and by the demand
from investors. The Manager strives to maximise the total return
from Portfolios, but the investments held are influenced by market
conditions and the Board acknowledges the external influences on
the performance of each Portfolio. Further risks specifically
applicable to the Balanced Risk Allocation Shares are set out on
page 42.
The extreme market volatility experienced in February and
March 2020 from the market reaction
to Covid-19, and the continuing effects, exemplify the risks from
external influences. All of the Company’s Portfolios, except for
Managed Liquidity, were, and are still being, considerably
affected. There is an ongoing risk to global economies from the
measures taken in response to Covid-19, many companies are at risk
from the effects of the imposed lockdowns on their production and
revenues and this has a consequential effect on the availability of
investment income.
The performance of the Manager is carefully monitored by the
Board and the Chairman has brought attention to the Board’s
concerns about recent performance on page 3. The continuation of
the Manager’s mandates is reviewed each year. The Board has
established guidelines to ensure that the investment policies of
each class of Share are pursued by the Manager.
For a fuller discussion of the economic and market conditions
facing the Company and the current and future performance of the
different Portfolios of the Company, please see both the Chairman’s
Statement on pages 3 to 5 and the portfolio managers’ reports
starting on page 8.
Risks Applicable to the Company’s
Shares
Shares in the Company are designed to be held over the long-term
and may not be suitable as short-term investments. There can be no
guarantee that any appreciation in the value of the Company’s
Shares will occur and investors may not get back the full value of
their investments. Owing to the potential difference between the
mid-market price of the Shares and the prices at which they are
sold, there is no guarantee that their realisable value will
reflect their mid-market price.
The market value of a Share, as well as being affected by its
net asset value (NAV), is also influenced by investor demand, its
dividend yield, where applicable, and prevailing interest rates,
amongst other factors. As such, the market value of a Share can
fluctuate and may not reflect its underlying NAV. Shares may
therefore trade at discounts to their NAVs. However, the Board has
adopted a discount control policy that applies to all Share classes
and the Board and the Manager monitor the market rating of each
Share class.
Past performance of the Company’s Shares is not necessarily
indicative of future performance.
While it is the intention of the Directors to pay dividends to
holders of the UK Equity, Global Equity Income and Managed
Liquidity Shares, this will be affected by the returns achieved by
the respective Portfolios and the dividend policy adopted by the
Board. Accordingly, the amount of dividends paid to shareholders
may fluctuate. Any change in the tax or accounting treatment of
dividends received or other returns may also affect the level of
dividend paid on the Shares in future years. The Directors have
resolved, in the absence of unforeseen circumstances, to supplement
revenue with capital profits in order to pay equity Portfolio
dividends at target levels set by the Board (see page 36).
Viability and Compulsory Conversion of
a Class of Share
It is possible that through poor performance, market sentiment,
or otherwise, lack of demand for one of the Company’s Share classes
could result in the relevant Portfolio becoming too small to be
viable. The Board monitors share conversions and Portfolio sizes
and liaises with the Manager on the continued viability of each
Share class. The Board has received assurances from the Manager
that the size of the portfolios is not critical to the Manager
being able to continue to offer its investment management services
in respect of any of the Company’s four portfolio strategies.
The continued listing on the Official List of each class of
Share is dependent on at least 25% of the Shares in that class
being held in public hands. This means that if more than 75% of the
Shares of any class were held by, inter alia, the Directors,
persons connected with Directors or persons interested in 5% or
more of the relevant Shares, the listing of that class of Share
might be suspended or cancelled. The Listing Rules state that the
FCA may allow a reasonable period of time for the Company to
restore the appropriate percentage if this rule is breached, but in
the event that the listing of any class of Shares were cancelled
the Company would lose its investment trust status.
Accordingly, if at any time the Board considers that the listing
of any class of Share on the Official List is likely to be
cancelled and the loss of such listing would mean that the Company
would no longer be able to qualify for approval as an investment
trust under section 1158 of the Corporation Tax Act 2010, the
Board may serve written notice on the holders of the relevant
Shares requiring them to convert their Shares into another Share
class.
Liability of a Portfolio for the
Liabilities of Another Portfolio
The Directors intend that, in the absence of unforeseen
circumstances, each Portfolio will effectively operate as if it
were a stand-alone company. However, investors should be aware of
the following factors:
• As a matter of law, the Company
is a single entity. Therefore, in the event that any of the
Portfolios has insufficient funds or assets to meet all of its
liabilities, on a winding-up or otherwise, such a shortfall would
become a liability of the other Portfolios and would be payable out
of the assets of the other Portfolios in such proportions as the
Board may determine; and
• The Companies Act 2006 prohibits the
Directors from declaring dividends in circumstances where,
following the distribution, the Company’s assets would represent
less than one and a half times the aggregate of its liabilities or
the amount of net assets would be less than the aggregate of its
share capital and undistributable reserves. If the Company were to
incur material liabilities in the future, a significant fall
in the value of the Company’s assets as a whole may affect the
Company’s ability to pay dividends on a particular class of
Share, even though there are distributable profits attributable to
the relevant Portfolio.
Gearing
Performance may be geared by use of the £20 million 364 day
multicurrency revolving credit facility. The Company also has an
uncommitted overdraft facility of up to 10% of net assets. There is
no guarantee that these facilities will be renewed at maturity or
on terms acceptable to the Company. If it were not possible to
renew these facilities or replace them with one from another
lender, the amounts owing by the Company would need to be funded by
the sale of securities. This facility stood at £25 million over
most of the financial year and, although the covenant attached to
the facility was not in danger of being breached during the height
of the Covid-19 market volatility, this risk was further mitigated
by reducing the facility, together with the covenant, at its
renewal in May this year.
The Balanced Risk Allocation Portfolio may also be geared (by up
to 250%, according to the investment policy set out on page 34) by
means of the derivative instruments in which it invests. This is
discussed separately below, under the heading: Additional Risks
Applicable to Balanced Risk Allocation Shares.
Gearing levels of the different Portfolios will change from time
to time in accordance with the respective portfolio managers’
assessments of risk and reward. Where market exposure is geared,
any reduction in the value of the geared Portfolio’s investments
may lead to a correspondingly greater percentage reduction in its
NAV (which is likely to affect Share prices adversely). Any
reduction in the number of Shares in issue (for example, as a
result of buy backs) will, in the absence of a corresponding
reduction in borrowings, result in an increase in a Portfolio’s
gearing.
Whilst the use of borrowings by the Company should enhance the
total return on a particular class of Share where the return on the
underlying securities is rising and exceeds the cost of borrowing,
it will have the opposite effect where the underlying return is
falling, further reducing the total return on that Share class.
Similarly, the use of gearing by investment companies or funds in
which the Company invests increases the volatility of those
investments.
Hedging
The Company may use derivatives to hedge its exposure to
currency or other risks and for the purpose of efficient portfolio
management. There may be a correlation between price movements in
the underlying securities, currency or index, on the one hand, and
price movements in the investments, which are the subject of the
hedge, on the other hand. In addition, an active market may not
exist for a particular hedging derivative instrument at any
particular time.
Regulatory and Tax Related
The Company is subject to various laws and regulations by virtue
of its status as a public limited investment company registered
under the Companies Act 2006, its status as an investment trust and
its listing on the London Stock Exchange. Loss of investment trust
status could lead to the Company being subject to UK Capital Gains
Tax on the sale of its investments. A serious breach of other
regulatory rules could lead to suspension from the London Stock
Exchange, a fine or a qualified Audit Report. Other control
failures, either by the Manager or any other of the Company’s
service providers, could result in operational or reputational
problems, erroneous disclosures or loss of assets through fraud, as
well as breaches of regulations.
The Manager reviews the level of compliance with the Corporation
Tax Act 2010 and other financial regulatory requirements on a daily
basis. All transactions, income and expenditure are reported to the
Board. The Board regularly considers the risks to which the Company
is exposed, the measures in place to control them and the potential
for other risks to arise. The Board ensures that satisfactory
assurances are received from service providers. The depositary and
the Manager’s compliance and internal audit officers report
regularly to the Company’s Audit Committee.
The risks and risk management policies and procedures as they
relate to the financial assets and liabilities of the Company are
also detailed in note 16 to the financial statements.
Additional Risks Applicable to
Balanced Risk Allocation Shares
The use of financial derivative instruments forms part of the
investment policy and strategy of the Balanced Risk Allocation
Portfolio. The Portfolio’s ability to use these instruments may be
limited by market conditions, regulatory limits and tax
considerations. The absence of a liquid market for any particular
instrument at any particular time may inhibit the ability of the
Manager to liquidate a financial derivative instrument at an
advantageous price. However, the Manager actively seeks the most
liquid means of obtaining the required exposures. The financial
derivative instruments used for the strategy are geared instruments
and the aggregate notional exposure will usually exceed the net
asset value of the Portfolio. Whilst this could result in greater
fluctuations in the net asset value, and consequently the share
price, the use of leverage is normally necessary to achieve the
target volatility required to meet the return objective. 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 and it would be necessary to
increase the collateral held at the clearing broker to cover such
loss. This is mitigated by the Company not using financial
derivative instruments to create net short positions in any asset
class combined with holding cash balances sufficient to meet
collateral requirements.
Reliance on Third Party Service
Providers
The Company has no employees and the Directors have all been
appointed on a non-executive basis. The Company is therefore
reliant upon the performance of third party service providers for
its executive function. In particular, the Manager performs
services that are integral to the operation of the Company and the
custodian appointed by the depositary holds assets on its behalf.
Failure by any service provider to carry out its obligations to the
Company in accordance with the terms of its appointment could have
a materially detrimental impact on the operation of the Company and
could affect the ability of the Company to successfully pursue its
Investment Policy.
The Manager may be exposed to reputational risks. In particular,
the Manager may be exposed to the risk that litigation, misconduct,
operational failures, negative publicity and press speculation,
whether or not it is valid, will harm its reputation. Any damage to
the reputation of the Manager could result in potential
counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse
impact on the ability of the Company to successfully pursue its
Investment Policy.
The Directors continue to monitor the Covid-19 situation
closely, together with the Manager and third-party service
providers. A range of actions have been implemented to ensure that
the Company and its service providers are able to continue to
operate as normal, even in the event of prolonged disruption. The
Manager’s business continuity plans are reviewed on an ongoing
basis and the Directors are satisfied that the Manager has in place
robust plans and infrastructure to minimise the impact on its
operations so that the Company can continue to trade, meet
regulatory obligations, report and meet shareholder
requirements.
The Manager has mandated work from home arrangements and split
team working will be implemented when business premises reopen. Any
meetings are being held virtually or via conference calls.
The Company’s other service providers have similar working
arrangements in place.
Viability Statement
The Company is an investment company which operates as a
collective investment vehicle, designed and managed for long term
investment. The Board considers long term for this purpose to be at
least three years and so has assessed the Company’s viability over
this period. However, the life of the Company is not intended to be
limited to that or any other period.
In assessing the viability of the Company the Board considered
the principal risks to which it is exposed, as set out on pages 39
to 42, together with mitigating factors. The risks of failure to
meet the Company’s and the Portfolios’ investment objectives,
contributory market and investment risks and the challenges of lack
of scale were considered to be of particular importance. The Board
also took into account the capabilities of the Manager and the
varying market conditions already experienced by the Company since
its launch in 2006, including from Covid-19 this year. Despite the
disruption to markets from Covid-19 and the impact on global
economies, the Directors remain confident that the Company's
investment strategies will continue to serve shareholders well over
the longer term. On the question of scale, the Board has concluded
that if an individual Portfolio became too small it should not
cause the Company itself to be unviable.
In terms of financial risks to viability, materially all of the
investments comprising the portfolios are readily realisable. The
equity portfolios also produce a stream of dividend income, which
may fluctuate but which the Board expects to continue. The Company
has no long term liabilities and the total value of the portfolios
is a multiple of the value of the Company’s short term liabilities
and annual operating costs. Consequently, there appears little to
no prospect of the Company not being able to meet its financial
obligations as they fall due in the next three years.
Based on the above, the Board has a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment.
Audit Committee Report
The extended audit committee report required by the UK Corporate
Governance Code is set out on pages 49 to 51. There are no areas of
concern in relation to the financial statements to bring to the
attention of shareholders.
Board’s Duty to Promote the Success of
the Company
As set out in the Directors’ Report on page 52 the Directors
have a statutory duty to promote the success of the Company, whilst
also having regard to certain broader matters, including the need
to engage with employees, suppliers, customers and others, and to
have regard to their interests (s172 Companies Act 2006). However,
the Company has no employees and no customers in the traditional
sense.
In fulfilling these duties, and in accordance with the Company’s
nature as an investment trust, the Board’s principal concern has
been, and continues to be, the interests of the Company’s
shareholders taken as a whole. Notwithstanding this, the Board has
a responsible governance culture and also has due regard for
broader matters so far as they apply. In particular, the Board
engages with the Manager at every Board meeting and reviews the
Company’s relationships with other service providers, such as the
registrar, depositary and custodian, at least annually. During the
year the most significant engagement was with the Manager and, in
particular the individual portfolio managers. Matters engaged upon
included the change in the designated manager of the Global Equity
Income Portfolio and the guidance on the number of holdings
typically held in that portfolio, both of which were announced to
the market and are covered elsewhere in this report. As would be
expected, there was also engagement with service providers
generally in connection with the lockdown conditions due to
Covid-19, all of which were able to report business as usual
capability.
The Board is committed to maintaining high standards of
Corporate Governance. The Corporate Governance Statement required
by the UKLA Listing Rules is set out on page 48.
Environment, Social and Governance considerations are dealt with
in a separate section of this Strategic Report on pages 44 and
45.
Shareholder relations are given high priority by the Board and
the Manager. The prime means by which the Company communicates with
shareholders are the annual and half-yearly financial reports,
which aim to provide shareholders with a full understanding of the
Company’s activities and its results. This information is
supplemented by daily publication of the NAVs of the Company’s
shares via the London Stock Exchange, ad hoc regulatory
announcements, monthly factsheets and other information on the
Manager’s website, including pre-investment information, key
information document (KID), shareholder circulars, Portfolio
disclosures, conversion forms and instructions, Stock Exchange
announcements, schedule of matters reserved for the Board, terms of
reference of Board Committees, Directors’ letters of appointment,
the Company’s share price and proxy voting results.
The Chairman and Directors welcome contact with shareholders,
although this has been difficult recently with the Covid-19
situation. There is a regular dialogue between the Manager and
individual major shareholders to discuss aspects of investment
performance, governance and strategy and to listen to shareholder
views in order to help develop a balanced understanding of their
issues and concerns. The Company’s corporate broker, Investec Bank
plc, is also consulted. General presentations to institutional
shareholders and analysts take place throughout the year. All
meetings between the Manager and institutional shareholders are
reported to the Board.
It is the intention of the Board that the annual financial
report and the notice of the AGM be issued to shareholders so as to
provide at least twenty working days’ notice of the AGM.
Shareholders wishing to lodge questions in advance of the AGM are
invited to do so, either on the reverse of the proxy card or in
writing to the Company Secretary at the address given on page
109.
There is a clear channel of communication between the Board and
the Company’s shareholders via the Company Secretary. The Company
Secretary has no express authority to respond to enquiries
addressed to the Board and all such communication, other than junk
mail, is redirected to the Chairman or Senior Independent Director
as appropriate.
Shareholders normally have the opportunity to communicate
directly with the Directors at the AGM. It is hoped that by the
date of this year’s AGM on 6 October
2020 restrictions due to Covid-19 will have eased and, if
so, shareholders are encouraged to attend the AGM. However, should
this not be the case the AGM may have to be held as a closed
meeting. In this eventuality it is recommended that shareholders
exercise their votes by means of registering them with the
Company's registrar ahead of the meeting, online or by completing
paper proxy forms, and appoint the Chairman of the meeting as their
proxy. Questions, on the business of the meeting or otherwise, may
be addressed to the Company Secretary, by email to
investmenttrusts@invesco.com or, by letter, to 43-45 Portman
Square, London W1H 6LY.
Board Diversity
The Company’s policy on diversity is set out on page 55. At the
year end the Board comprised three male and one female
non-executive Directors resulting in female representation of 25%.
A recruitment process last year was ultimately unsuccessful, as
described on page 54, and its resumption has been postponed because
of the difficulty of conducting it in lockdown conditions. The
Board has reaffirmed that when the recruitment process for a new
Director recommences later this year, it has a strong preference
for the appointee to be female. If an appropriate female appointee
is identified, female representation on the Board will become 40%,
or 50% on the presumption that Alan
Clifton would retire from the Board shortly thereafter (see
page 54). Summary biographical details of all the current
Directors are set out on page 46. The Company has no
employees.
Environment, Social and Governance
(ESG) Matters
As an investment company with no employees, property or
activities outside investment, environmental policy has limited
application. A greenhouse gas emissions statement is included in
the Directors’ Report on page 57. In relation to the portfolios,
the Company has delegated the management of the Company’s
investments to the Manager, who has an ESG Guiding Framework which
sets out a number of principles that are intended to be considered
in the context of its responsibility to manage investments in the
financial interests of shareholders.
The Manager is committed to being a responsible investor and
applies, and is a signatory to, the United Nations Principles for
Responsible Investment, which demonstrates its extensive efforts in
terms of ESG integration, active ownership, investor collaboration
and transparency. The Manager is also a signatory to the FRC
Stewardship Code 2012, which seeks to improve the quality of
engagement between institutional investors and companies to help
improve long-term returns to shareholders and the efficient
exercise of governance responsibilities.
The equity investment teams incorporate ESG considerations in
their investment processes as part of the evaluation of new
opportunities, with identified ESG concerns feeding into the final
investment decision and assessment of relative value. The portfolio
managers make their own conclusions about the ESG characteristics
of each investment held and about the overall ESG characteristics
of the portfolio, although third party ESG ratings may inform their
view. Additionally, the Manager’s ESG team provides formalised ESG
portfolio monitoring. This is a rigorous semi-annual process where
the portfolios are reviewed from an ESG perspective.
Regarding stewardship, the Board considers that the Company has
a responsibility as a shareholder towards ensuring that high
standards of corporate governance are maintained in the companies
in which it invests. To achieve this, the Board does not seek to
intervene in daily management decisions, but aims to support high
standards of governance and, where necessary, will take the
initiative to ensure those standards are met. The principal means
of putting shareholder responsibility into practice is through the
exercise of voting rights. The Company’s voting rights are
exercised on an informed and independent basis.
The Company’s stewardship functions have been delegated to the
Manager, which has adopted a clear and considered policy towards
its responsibility as a shareholder on behalf of the Company. As
part of this policy, the Manager takes steps to satisfy itself
about the extent to which the companies in which it invests look
after shareholders’ value and comply with local recommendations and
practices, such as the UK Corporate Governance Code. A copy of the
current Manager’s Stewardship Policy, which is updated annually,
can be found at www.invesco.co.uk/investmenttrusts.
As an investment vehicle the Company does not provide goods or
services in the normal course of business, and does not have
customers. Accordingly, the Directors consider that the Company is
not within the scope of the Modern Slavery Act 2015.
This Strategic Report was approved by the Board on 31 July 2020.
Invesco Asset Management Limited
Company Secretary
.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the annual financial
report in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under the law the Directors
have elected to prepare financial statements in accordance with UK
Accounting Standards, including FRS 102 ‘The Financial Reporting
Standard applicable in the UK and Republic of Ireland.’ Under company law,
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting
policies and then apply them consistently;
• make judgements and estimates
that are reasonable and prudent;
• state whether applicable
accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
and
• prepare the financial statements
on the going concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and which enable them to ensure
that the financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors’ Report,
which includes a Corporate Governance Statement, and a Directors’
Remuneration Report that comply with that law and those
regulations.
The Directors confirm that:
• in so far as they are aware,
there is no relevant audit information of which the Company’s
Auditor is unaware; and
• each Director has taken all the
steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish
that the Company’s Auditor is aware of that information.
The Directors of the Company each confirm to the best of their
knowledge that:
• the financial statements,
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position, net return and cash flows of the Company;
and
• this annual financial report
includes a fair review of the development and performance of the
business and the position of the Company together with a
description of the principal risks and uncertainties that it
faces.
The Directors consider that this annual financial report, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
Signed on behalf of the Board of Directors
Graham Kitchen
Chairman
31 July 2020
.
INCOME STATEMENT
FOR THE YEAR ENDED 31 MAY
|
|
2020 |
2019 |
|
NOTES |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
Losses on investments held at fair
value |
9 |
– |
(12,632) |
(12,632) |
– |
(7,814) |
(7,814) |
Gains/(losses) on derivative
instruments |
10 |
2 |
(159) |
(157) |
28 |
(268) |
(240) |
(Losses)/gains on foreign
exchange |
|
– |
(22) |
(22) |
– |
9 |
9 |
Income |
2 |
3,950 |
80 |
4,030 |
5,258 |
21 |
5,279 |
Investment management fees |
3 |
(206) |
(473) |
(679) |
(229) |
(520) |
(749) |
Other expenses |
4 |
(463) |
(9) |
(472) |
(466) |
(2) |
(468) |
Net return before finance costs
and taxation |
|
3,283 |
(13,215) |
(9,932) |
4,591 |
(8,574) |
(3,983) |
Finance costs |
5 |
(37) |
(88) |
(125) |
(77) |
(179) |
(256) |
Return before taxation |
|
3,246 |
(13,303) |
(10,057) |
4,514 |
(8,753) |
(4,239) |
Tax |
6 |
(245) |
– |
(245) |
(246) |
– |
(246) |
Return after taxation for the
financial year |
|
3,001 |
(13,303) |
(10,302) |
4,268 |
(8,753) |
(4,485) |
Return per ordinary
share: |
7 |
|
|
|
|
|
|
– UK Equity Share
Portfolio |
|
4.12p |
(24.75)p |
(20.63)p |
5.73p |
(15.34)p |
(9.61)p |
– Global Equity Income Share
Portfolio |
|
5.39p |
(16.58)p |
(11.19)p |
6.90p |
(9.82)p |
(2.92)p |
– Balanced Risk Allocation
Share Portfolio |
|
(0.02)p |
(3.88)p |
(3.90)p |
0.42p |
(4.86)p |
(4.44)p |
– Managed Liquidity Share
Portfolio |
|
0.65p |
0.03p |
0.68p |
0.59p |
0.54p |
1.13p |
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 year. Income Statements for the different
Share classes are shown on pages 13, 20, 27 and 31 for the UK
Equity, Global Equity Income, Balanced Risk Allocation and Managed
Liquidity Share Portfolios respectively.
.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY
|
SHARE
CAPITAL
£’000 |
SHARE
PREMIUM
ACCOUNT
£’000 |
SPECIAL
RESERVE
£’000 |
CAPITAL
REDEMPTION
RESERVE
£’000 |
CAPITAL
RESERVE
£’000 |
REVENUE
RESERVE
£’000 |
TOTAL
£’000 |
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 |
– |
– |
(9,925) |
– |
– |
– |
(9,925) |
Share conversions |
(2) |
– |
2 |
– |
– |
– |
– |
Return after taxation per the income
statement |
– |
– |
– |
– |
(8,753) |
4,268 |
(4,485) |
Dividends paid – note 8 |
– |
– |
(297) |
– |
– |
(4,214) |
(4,511) |
As at 31 May 2019 |
1,055 |
1,290 |
66,372 |
353 |
62,871 |
354 |
132,295 |
|
|
|
|
|
|
|
|
Cancellation of deferred shares |
– |
– |
(6) |
6 |
– |
– |
– |
Shares bought back and held in
treasury |
– |
– |
(9,986) |
– |
– |
– |
(9,986) |
Share conversions |
(5) |
– |
5 |
– |
– |
– |
– |
Return after taxation per the income
statement |
– |
– |
– |
– |
(13,303) |
3,001 |
(10,302) |
Dividends paid - note 8 |
– |
– |
(931) |
– |
– |
(3,407) |
(4,338) |
As at 31 May 2020 |
1,050 |
1,290 |
55,454 |
359 |
49,568 |
(52) |
107,669 |
.
BALANCE SHEET
AS AT 31 MAY
2020
|
NOTES |
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 |
9 |
52,121 |
55,778 |
6,347 |
2,682 |
116,928 |
Current assets |
|
|
|
|
|
|
Derivative assets held at fair value
through profit or loss |
10 |
– |
– |
401 |
– |
401 |
Debtors |
11 |
236 |
2,607 |
248 |
15 |
3,106 |
Cash and cash equivalents |
|
– |
146 |
251 |
50 |
447 |
|
|
236 |
2,753 |
900 |
65 |
3,954 |
Creditors: amounts falling due
within one year |
|
|
|
|
|
|
Derivative liabilities held at fair
value through profit or loss |
10 |
– |
– |
(151) |
– |
(151) |
Other creditors |
12(a) |
(938) |
(2,179) |
(23) |
(140) |
(3,280) |
Bank overdraft |
12(b) |
(2) |
– |
– |
– |
(2) |
Bank loan |
12(b) |
(4,800) |
(4,980) |
– |
– |
(9,780) |
|
|
(5,740) |
(7,159) |
(174) |
(140) |
(13,213) |
Net current
(liabilities)/assets |
|
(5,504) |
(4,406) |
726 |
(75) |
(9,259) |
Net assets |
|
46,617 |
51,372 |
7,073 |
2,607 |
107,669 |
Capital and reserves |
|
|
|
|
|
|
Share capital |
13(a) |
439 |
393 |
106 |
112 |
1,050 |
Share premium |
14 |
– |
– |
1,290 |
– |
1,290 |
Special reserve |
14 |
25,931 |
24,926 |
2,556 |
2,041 |
55,454 |
Capital redemption reserve |
14 |
74 |
78 |
27 |
180 |
359 |
Capital reserve |
14 |
20,173 |
25,975 |
3,151 |
269 |
49,568 |
Revenue reserve |
14 |
– |
– |
(57) |
5 |
(52) |
Shareholders’ funds |
|
46,617 |
51,372 |
7,073 |
2,607 |
107,669 |
Net asset value per ordinary
share |
15 |
145.8p |
178.5p |
135.1p |
104.4p |
|
The financial statements were approved and authorised for issue
by the Board of Directors on 31 July
2020.
Signed on behalf of the Board of
Directors
Graham Kitchen
Chairman
.
BALANCE SHEET
AS AT 31 MAY
2019
|
NOTES |
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 |
9 |
61,250 |
67,040 |
7,385 |
4,710 |
140,385 |
Current assets |
|
|
|
|
|
|
Derivative assets held at fair value
through profit or loss |
10 |
– |
– |
175 |
– |
175 |
Debtors |
11 |
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 |
10 |
– |
– |
(223) |
– |
(223) |
Other creditors |
12(a) |
(670) |
(334) |
(65) |
(143) |
(1,212) |
Bank loan |
12(b) |
(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 |
13(a) |
436 |
389 |
108 |
122 |
1,055 |
Share premium |
14 |
– |
– |
1,290 |
– |
1,290 |
Special reserve |
14 |
28,551 |
30,734 |
3,106 |
3,981 |
66,372 |
Capital redemption reserve |
14 |
74 |
78 |
26 |
175 |
353 |
Capital reserve |
14 |
28,225 |
31,015 |
3,363 |
268 |
62,871 |
Revenue reserve |
14 |
– |
373 |
(56) |
37 |
354 |
Shareholders' funds |
|
57,286 |
62,589 |
7,837 |
4,583 |
132,295 |
Net asset value per ordinary
share |
15 |
173.1p |
197.6p |
139.5p |
104.9p |
|
.
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY
|
NOTE |
2020
£’000 |
2019
£’000 |
Cash flows from
operating activities |
|
|
|
Net return before
finance costs and taxation |
|
(9,932) |
(3,983) |
Tax on overseas
income |
|
(245) |
(246) |
Adjustments for: |
|
|
|
Purchase of
investments |
|
|
(97,439) |
|
(48,892) |
Sale of
investments |
|
|
110,920 |
|
63,997 |
Sale of
futures |
|
|
(455) |
|
35 |
|
|
13,026 |
15,140 |
Scrip dividends |
|
(57) |
(53) |
Losses on
investments |
|
12,632 |
7,814 |
Losses on
derivatives |
|
157 |
240 |
Decrease/(increase) in
debtors |
|
463 |
(152) |
Decrease in creditors
and provision |
|
(20) |
(4) |
Net cash inflow from
operating activities |
|
16,024 |
18,756 |
Cash flows from
financing activities |
|
|
|
Interest paid on bank
borrowings |
|
(124) |
(256) |
Decrease in bank
borrowings |
|
(2,448) |
(5,346) |
Share buy back
costs |
|
(9,551) |
(9,717) |
Equity dividends
paid |
8 |
(4,338) |
(4,511) |
Net cash outflow from
financing activities |
|
(16,461) |
(19,830) |
Net decrease in cash
and cash equivalents |
|
(437) |
(1,074) |
Cash and cash
equivalents at the start of the year |
|
884 |
1,958 |
Cash and cash
equivalents at the end of the year |
|
447 |
884 |
|
|
|
|
Cash flow from operating
activities includes: |
|
|
|
Interest received |
|
3 |
88 |
Dividends received |
|
3,876 |
4,871 |
|
|
|
|
|
|
|
|
Analysis of changes in net
debt |
AT 1 JUNE
2019
£’000 |
CASH FLOWS
£’000 |
AT 31 MAY 2020
£’000 |
Cash and cash equivalents |
884 |
(437) |
447 |
Bank overdraft |
– |
(2) |
(2) |
Bank loans |
(12,230) |
2,450 |
(9,780) |
Total |
(11,346) |
2,011 |
(9,335) |
NOTES TO THE FINANCIAL STATEMENTS
1.
Accounting policies
Accounting policies describe the
Company’s approach to recognising and measuring transactions during
the year and the position of the Company at the year end.
The principal accounting policies are set out below:
(a) Basis of
preparation
(i) Accounting Standards
applied
The financial statements have been prepared in accordance with
applicable United Kingdom Accounting Standards, including FRS 102
‘the Financial Reporting Standard applicable in the UK and Republic
of Ireland’, and applicable law (UK Generally Accepted Accounting
Practice (UK GAAP)) and with the Statement of Recommended Practice
Financial Statements of Investment Trust Companies and Venture
Capital Trusts, issued by the Association of Investment Companies
(AIC) in October 2019. The financial
statements are issued on a going concern basis as disclosed on page
56.
The revised SORP issued in October
2019 is applicable for accounting periods beginning on or
after 1 January 2019. As a result,
the presentation of gains and losses arising from disposals of
investments and gains and losses on revaluation of investments have
now been combined, as shown in note 9 with no impact to the net
asset value or profit/(loss) reported for both the current or prior
year. No other accounting policies or disclosures have changed as a
result of the revised SORP.
The accounting policies applied to these financial statements
are consistent with those applied for the preceding year.
(ii)
Definitions used in the financial statements
‘Portfolio’ the UK Equity
Share Portfolio, the Global Equity Income Share Portfolio, the
Balanced Risk Allocation Share Portfolio and/or the Managed
Liquidity Share Portfolio (as the case may be). Each comprises, or
may include, an investment portfolio, derivative instruments, cash,
loans, debtors and other creditors, which together make up the net
assets as shown in the balance sheet.
‘Share’
UK Equity Share, Global Equity Income Share, Balanced Risk
Allocation Share, Managed Liquidity Share and/or Deferred Share (as
the case may be).
The UK Equity, Global Equity Income, Balanced Risk Allocation
and Managed Liquidity Share Portfolios’ income statements and
summaries of net assets (shown on pages 13, 20, 27 and 31) do not
represent statutory accounts, are not required under UK Generally
Accepted Accounting Practice and the auditor does not express an
opinion on each individual portfolio. These have been disclosed to
assist shareholders’ understanding of the assets and liabilities,
and income and expenses of the different Share classes.
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the income statement
between items of a revenue and capital nature has been presented
alongside the income statement.
(iii)
Functional and presentational currency
The Company’s investments are made in several currencies,
however, the financial statements are presented in sterling, which
is the Company’s functional currency. In arriving at this
conclusion, the Directors considered that the Company’s shares are
listed and traded on the London Stock Exchange, the shareholder
base is predominantly in the United
Kingdom and the Company pays dividends and expenses in
sterling.
(iv)
Transactions and balances
Transactions in foreign currency, whether of a revenue or
capital nature, are translated to sterling at the rates of exchange
ruling on the dates of such transactions. Foreign currency assets
and liabilities are translated to sterling at the rates of exchange
ruling at the balance sheet date. Any gains or losses, whether
realised or unrealised, are taken to the capital reserve or to the
revenue account, depending on whether the gain or loss is of a
capital or revenue nature. All gains and losses are recognised in
the income statement.
(v)
Significant Accounting Estimates and Judgements
The preparation of the financial statements may require the
Directors to make estimations where uncertainty exists. It also
requires the Directors to make judgements, estimates and
assumptions, in the process of applying the accounting policies.
There have been no significant judgements, estimates or assumptions
for the current or preceding year.
(b) Financial
instruments
The Company has chosen to apply the
provisions of Sections 11 and 12 of FRS 102 in full in respect of
the financial instruments, which is explained below.
(i) Recognition of financial
assets and financial liabilities
The Company recognises financial assets and financial
liabilities when the Company becomes a party to the contractual
provisions of the instrument. The Company will offset financial
assets and financial liabilities if the Company has a legally
enforceable right to set off the recognised amounts and interests
and intends to settle on a net basis.
(ii)
Derecognition of financial assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the asset expire or it transfers the
right to receive the contractual cash flows on the financial asset
in a transaction in which substantially all the risks and rewards
of ownership of the financial asset are transferred. Any interest
in the transferred financial asset that is created or retained by
the Company is recognised as an asset.
(iii)
Derecognition of financial liabilities
The Company derecognises financial liabilities when its
obligations are discharged, cancelled or expire.
(iv) Trade
date accounting
Purchases and sales of financial assets are recognised on trade
date, being the date on which the Company commits to purchase or
sell the assets.
(v)
Classification and measurement of financial assets and financial
liabilities
Financial assets
The Company’s investments, including financial derivative
instruments, are classified as held at fair value through profit or
loss.
Financial assets held at fair value through profit or loss are
initially recognised at fair value, which is taken to be their
cost, with transaction costs expensed in the income statement, and
are subsequently valued at fair value.
Fair value for investments, including financial derivative
instruments, that are actively traded in organised financial
markets is determined by reference to stock exchange quoted bid
prices at the balance sheet date. For investments that are not
actively traded or where active stock exchange quoted bid prices
are not available, fair value is determined by reference to a
variety of valuation techniques including broker quotes and price
modelling. Where there is no active market, unlisted/illiquid
investments are valued by the Directors at fair value with regard
to the International Private Equity and Venture Capital Valuation
Guidelines and on recommendations from Invesco’s Pricing Committee,
both of which use valuation techniques such as earnings multiples,
recent arm’s length transactions and net assets.
Financial liabilities
Financial liabilities, excluding financial derivative
instruments but including borrowings, are initially measured at
fair value, net of transaction costs and are subsequently measured
at amortised cost using the effective interest method.
(c)
Derivatives and hedging
Derivative instruments are valued at fair value in the balance
sheet. Derivative instruments may be capital or revenue in nature
and, accordingly, changes in their fair value are recognised in
revenue or capital in the income statement as appropriate.
Forward currency contracts entered into for hedging purposes are
valued at the appropriate forward exchange rate ruling at the
balance sheet date. Profits or losses on the closure or revaluation
of positions are included in capital reserves.
Futures contracts may be entered into for hedging purposes and
any profits and losses on the closure or revaluation of positions
are included in capital reserves. Where futures contracts are used
for investment exposure any income element arising on bond futures
is recognised as a gain on derivative instruments in the
income statement and shown in revenue.
(d) Cash and
cash equivalents
Cash and cash equivalents may comprise cash (including short
term deposits which are readily convertible to a known amount of
cash and are subject to an insignificant risk of change in value)
as well as cash equivalents, including money market funds.
Investments are regarded as cash equivalents if they meet all of
the following criteria: highly liquid investments held in the
Company’s base currency that are readily convertible to a known
amount of cash, are subject to an insignificant risk of change in
value, have a maturity of less than three months at date of
origination and provide a return no greater than the rate of a
three-month high quality government bond. For the Balanced Risk
Allocation and Managed Liquidity Portfolios, cash and cash
equivalents do not include investments in Invesco Liquidity Funds
plc – Sterling (formerly Short Term Investment Companies (Global
Series) plc) as this forms part of those Portfolio’s fixed
assets.
(e) Income
Dividend income from investments is recognised when the
shareholders’ right to receive payment has been established,
normally the ex-dividend date. UK dividends are stated net of
related tax credits. Interest income arising from cash is
recognised on an accruals basis and underwriting commission is
recognised as earned. Special dividends are taken to revenue unless
they arise from a return of capital, when they are allocated to
capital in the income statement. Income from fixed income
securities is recognised in the income statement using the
effective interest method.
(f)
Expenses and finance costs
All expenses are accounted for on an accruals basis. Expenses
are charged to the income statement and shown in revenue except
where expenses are presented as capital items when
a connection with the maintenance or enhancement of the value
of the investments held can be demonstrated and thus management
fees and finance costs are charged to revenue and capital to
reflect the Directors’ expected long-term view of the nature of the
investment returns of each Portfolio.
Expenses charged to the Company in relation to a specific
Portfolio are charged directly to that Portfolio.
Expenses charged to the Company that are common to more than one
Portfolio are allocated between those Portfolios in the same
proportions as the net assets of each Portfolio at the latest
conversion date.
Finance costs are accounted for on an accruals basis using the
effective interest rate method.
The management fees and finance costs are charged in accordance
with the Board’s expected split of long-term returns, in the form
of capital gains and income, to the applicable Portfolio as
follows:
|
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 any 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.
(g)
Dividends
Dividends are accrued in the financial statements when there is
an obligation to pay the dividends at the balance sheet date.
(h)
Taxation
Tax expense represents the sum of tax currently payable and
deferred tax. Any tax payable is based on taxable profit for the
period. Taxable profit differs from profit before tax as reported
in the income statement because it excludes items of income or
expenses that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Company’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance
sheet date.
For the Company, any allocation of tax relief to capital is
based on the marginal basis, such that tax allowable capital
expenses are offset against taxable income. Where individual
Portfolios have extra tax capacity arising from unused tax
allowable expenses which can be used by a different Portfolio, this
extra tax capacity is transferred between the Portfolios at a
valuation of 1% of the amount transferred.
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an
obligation to pay more tax or a right to pay less tax in the future
have occurred. Timing differences are differences between the
Company’s taxable profits and its results as stated in the
financial statements. Deferred taxation assets are recognised
where, in the opinion of the Directors, it is more likely than not
that these amounts will be realised in future periods.
A deferred tax asset has not been recognised in respect of
surplus management expenses as the Company is unlikely to have
sufficient future taxable revenue to offset against these.
Investment trusts which have approval under the appropriate tax
regulations are not liable for taxation on capital gains.
2.
Income
This note shows the income generated
from the portfolios (investment assets) of the Company and income
received from any other source.
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Income from investments |
|
|
|
|
|
UK dividends: |
|
|
|
|
|
– ordinary
dividends |
1,401 |
361 |
– |
– |
1,762 |
– special dividends |
61 |
29 |
– |
– |
90 |
– Scrip dividends |
50 |
7 |
– |
– |
57 |
|
1,512 |
397 |
– |
– |
1,909 |
Overseas dividends: |
|
|
|
|
|
– ordinary
dividends |
133 |
1,787 |
13 |
23 |
1,956 |
– special
dividends |
– |
20 |
– |
– |
20 |
Unfranked investment income |
11 |
– |
– |
– |
11 |
Interest from Treasury bills |
– |
– |
38 |
– |
38 |
|
1,656 |
2,204 |
51 |
23 |
3,934 |
Other income |
|
|
|
|
|
Deposit interest |
– |
– |
3 |
– |
3 |
Rebates of management fee |
– |
– |
– |
13 |
13 |
Total income |
1,656 |
2,204 |
54 |
36 |
3,950 |
2019 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Income from investments |
|
|
|
|
|
UK dividends: |
|
|
|
|
|
– ordinary
dividends |
2,058 |
463 |
– |
– |
2,521 |
– special dividends |
96 |
38 |
– |
– |
134 |
– Scrip dividends |
36 |
17 |
– |
– |
53 |
|
2,190 |
518 |
– |
– |
2,708 |
Overseas dividends: |
|
|
|
|
|
– ordinary
dividends |
108 |
2,295 |
11 |
14 |
2,428 |
Unfranked investment income |
44 |
– |
– |
9 |
53 |
Interest from Treasury bills |
– |
– |
39 |
– |
39 |
|
2,342 |
2,813 |
50 |
23 |
5,228 |
Other income |
|
|
|
|
|
Deposit interest |
1 |
1 |
5 |
– |
7 |
Rebates of management fee |
– |
– |
– |
23 |
23 |
Total income |
2,343 |
2,814 |
55 |
46 |
5,258 |
Special dividends of £32,000 in respect of the Global Equity
Income Portfolio and £48,000 in respect of the UK Equity Portfolio
were recognised in capital during the year (2019: £21,000 in
respect of the UK Equity Portfolio).
3.
Investment management and performance fees
This note shows the fees paid to the
Manager. These are made up of the individual Portfolio investment
management fees calculated quarterly on the basis of their net
asset values and the performance fees of the UK Equity and Global
Equity Income Portfolios.
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Investment management fee: |
|
|
|
|
|
– charged to revenue |
88 |
97 |
17 |
4 |
206 |
– charged to capital |
206 |
227 |
40 |
– |
473 |
Total investment management fee |
294 |
324 |
57 |
4 |
679 |
2019 |
|
|
|
|
|
Investment management fee: |
|
|
|
|
|
– charged to revenue |
98 |
107 |
18 |
6 |
229 |
– charged to capital |
228 |
250 |
42 |
– |
520 |
Total investment management fee |
326 |
357 |
60 |
6 |
749 |
Details of the investment management agreement are given on page
56 in the Directors’ Report.
No performance fee was earned on the UK Equity and Global Equity
Income Portfolios for the current or previous year and therefore no
performance fee provision has been made in either year. Any
under-performance must be fully offset by over-performance before
any performance fee can be paid. Movements on the UK Equity and
Global Equity Income Portfolios’ under-performance carried forward
follow:
|
UK
EQUITY
2020
£’000 |
GLOBAL
EQUITY
INCOME
2020
£’000 |
UK
EQUITY
2019
£’000 |
GLOBAL EQUITY
INCOME
2019
£’000 |
Under-performance brought
forward |
(768) |
(1,491) |
(540) |
(893) |
Under-performance in the year |
(142) |
(1,096) |
(228) |
(598) |
Under-performance carried
forward |
(910) |
(2,587) |
(768) |
(1,491) |
4.
Other expenses
The other expenses of the Company,
including those paid to Directors and the auditor, are presented
below; those paid to the Directors and the auditor are separately
identified.
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Charged to revenue: |
|
|
|
|
|
Directors’ remuneration (i) |
58 |
64 |
8 |
3 |
133 |
Auditor’s fees (ii): |
|
|
|
|
|
– for the audit of
the Company’s
financial statements |
17 |
20 |
3 |
1 |
41 |
Other expenses (iii) |
122 |
133 |
29 |
5 |
289 |
|
197 |
217 |
40 |
9 |
463 |
Charged to capital: |
|
|
|
|
|
Custodian transaction charges |
3 |
5 |
1 |
– |
9 |
Total |
200 |
222 |
41 |
9 |
472 |
|
2019 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Charged to revenue: |
|
|
|
|
|
Directors’ remuneration (i) |
70 |
74 |
9 |
5 |
158 |
Auditor’s fees (ii): |
|
|
|
|
|
– for the audit of
the Company’s
financial statements |
14 |
15 |
2 |
1 |
32 |
Other expenses (iii) |
115 |
125 |
29 |
7 |
276 |
|
199 |
214 |
40 |
13 |
466 |
Charged to capital: |
|
|
|
|
|
Custodian transaction charges |
1 |
1 |
– |
– |
2 |
Total |
200 |
215 |
40 |
13 |
468 |
(i) The Director's Remuneration Report provides
information on Directors’ fees. Included within other expenses is
£12,000 (2019: £14,000) of employer’s national insurance payable on
Directors’ remuneration. As at 31 May
2020, the amounts outstanding on Directors' fees and
employer's national insurance was £22,000 (2019: £27,000).
(ii) The Auditor’s fees shown include out of pocket
expenses, but exclude VAT, which is included in other expenses.
(iii) Includes fees for depositary, broker and registrar, and
also printing, postage and listing costs.
5.
Finance costs
Finance costs arise on any borrowing
the Company has utilised in the year. The Company has a committed
£20 million revolving credit facility (see note 12(b) for further
details).
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Interest payable on borrowings |
|
|
|
|
|
repayable within one year as
follows: |
|
|
|
|
|
Charged to revenue |
16 |
21 |
– |
– |
37 |
Charged to capital |
40 |
48 |
– |
– |
88 |
Total |
56 |
69 |
– |
– |
125 |
|
|
|
|
|
|
2019 |
|
|
|
|
|
Interest payable on borrowings |
|
|
|
|
|
repayable within one year as
follows: |
|
|
|
|
|
Charged to revenue |
55 |
22 |
– |
– |
77 |
Charged to capital |
127 |
52 |
– |
– |
179 |
Total |
182 |
74 |
– |
– |
256 |
6.
Tax
As an investment trust, the Company
pays no tax on capital gains. However, the Company suffers tax on
certain overseas dividends that is irrecoverable and this note
shows details of the tax charge. In addition, this note clarifies
the basis for the Company having no deferred tax asset or
liability.
(a) Tax
charge
|
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
|
Overseas tax |
15 |
230 |
– |
– |
245 |
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
Overseas tax |
9 |
237 |
– |
– |
246 |
The accounting policy for taxation is disclosed in note
1(h).
(b)
Reconciliation of tax charge
|
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
|
Return before taxation |
(6,697) |
(3,171) |
(213) |
24 |
(10,057) |
|
Theoretical tax at the current |
|
|
|
|
|
|
UK Corporation Tax rate of 19.00%
(2019: 19.00%) |
(1,273) |
(602) |
(41) |
5 |
(1,911) |
|
Effect of: |
|
|
|
|
|
|
– Non-taxable losses on investments
and derivatives |
1,491 |
909 |
31 |
– |
2,431 |
|
– Non-taxable losses on foreign
exchange |
1 |
1 |
2 |
– |
4 |
|
– Non-taxable scrip dividends |
(19) |
(1) |
– |
– |
(20) |
|
– Non-taxable UK dividends |
(265) |
(69) |
– |
– |
(334) |
|
– Non-taxable UK special
dividends |
(12) |
(16) |
– |
– |
(28) |
|
– Non-taxable overseas
dividends |
(25) |
(335) |
– |
– |
(360) |
|
– Overseas tax |
15 |
230 |
– |
– |
245 |
|
– Disallowable expenses |
1 |
1 |
– |
– |
2 |
|
– Accrued income taxable on
receipt |
– |
7 |
– |
– |
7 |
|
– Excess of allowable expenses over
taxable income |
101 |
105 |
8 |
(5) |
209 |
|
Tax charge for the year |
15 |
230 |
– |
– |
245 |
|
|
2019 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
|
Return before taxation |
(3,316) |
(710) |
(265) |
52 |
(4,239) |
|
Theoretical tax at the current |
|
|
|
|
|
|
UK Corporation Tax rate
of 19.00% (2018: 19.00%) |
(630) |
(135) |
(50) |
10 |
(805) |
|
Effect of: |
|
|
|
|
|
|
– Non-taxable losses/(gains) on
investments and derivatives |
945 |
546 |
49 |
(5) |
1,535 |
|
– Non-taxable (gains)/losses on
foreign exchange |
(1) |
1 |
(2) |
– |
(2) |
|
– Non-taxable scrip
dividends |
(7) |
(3) |
– |
– |
(10) |
|
– Non-taxable UK dividends |
(385) |
(88) |
– |
– |
(473) |
|
– Non-taxable UK special
dividends |
(22) |
(7) |
– |
– |
(29) |
|
– Non-taxable overseas
dividends |
(20) |
(427) |
– |
– |
(447) |
|
– Overseas tax |
9 |
237 |
– |
– |
246 |
|
– Accrued income taxable on
receipt |
– |
(8) |
– |
– |
(8) |
|
– Excess of allowable expenses
over taxable income |
115 |
121 |
3 |
– |
239 |
|
Transfer of expenses between
Portfolios: |
|
|
|
|
|
|
– revenue |
5 |
– |
– |
(5) |
– |
|
Tax charge for the year |
9 |
237 |
– |
– |
246 |
Given the
Company’s status as an investment trust, and the intention to
continue meeting the conditions required to retain such status for
the foreseeable future, the Company has not provided any UK
corporation tax on any realised or unrealised capital gains or
losses arising on investments.
(c) Factors
that may affect future tax charges
The
Company has excess management expenses and loan relationship
deficits of £14,735,000 (2019: £13,595,000) that are available to
offset future taxable revenue. A deferred tax asset of £2,800,000
(2019: £2,311,000), measured at the standard corporation tax
substantively enacted rate of 19% (2019: 17%) has not been
recognised in respect of these expenses since the Directors believe
that there will be no taxable profits in the future against which
the deferred tax assets can be offset.
On
11 March 2020 it was announced (and
substantively enacted on 17 March
2020) that the UK corporation tax rate would remain at 19%
and not reduce to 17% (the previously enacted rate) from
1 April 2020.
7.
Return per Ordinary Share
Return per share is the amount of
profit (or loss) generated for each share class in the financial
year divided by the weighted average number of the shares in
issue.
Revenue, capital and total return per ordinary share is based on
each of the returns after taxation shown by the income statement
for the applicable Share class and on the following numbers of
Shares being the weighted average number of Shares in issue
throughout the year for each Share class:
|
AVERAGE
NUMBER OF SHARES |
SHARE |
2020 |
2019 |
UK Equity |
32,530,315 |
34,607,613 |
Global Equity Income |
30,394,232 |
32,378,620 |
Balanced Risk Allocation |
5,465,560 |
5,966,462 |
Managed Liquidity |
3,551,612 |
4,597,944 |
8.
Dividends
Dividends are distributions of
Portfolio returns to shareholders. These are determined by the
Directors and paid four times a year.
Dividends paid for each applicable Share class, which represent
distributions for the purpose of s1159 of the Corporation Tax Act
2010, follows:
|
2020 |
2019 |
|
NUMBER OF SHARES |
DIVIDEND RATE
(PENCE) |
TOTAL £’000 |
NUMBER OF SHARES |
DIVIDEND RATE
(PENCE) |
TOTAL £’000 |
UK Equity |
|
|
|
|
|
|
First interim |
33,048,823 |
1.50 |
496 |
35,536,971 |
1.50 |
534 |
Second interim |
32,549,709 |
1.50 |
488 |
34,757,443 |
1.50 |
521 |
Third interim |
32,334,465 |
1.50 |
485 |
34,732,059 |
1.50 |
521 |
Fourth interim |
32,203,602 |
2.10 |
676 |
33,490,968 |
2.10 |
703 |
|
|
6.60 |
2,145 |
|
6.60 |
2,279 |
Global Equity Income |
|
|
|
|
|
|
First interim |
31,466,468 |
1.55 |
488 |
32,756,219 |
1.50 |
492 |
Second interim |
31,189,234 |
1.55 |
483 |
32,410,667 |
1.50 |
486 |
Third interim |
29,900,843 |
1.55 |
463 |
32,604,620 |
1.50 |
489 |
Fourth interim |
29,334,234 |
2.40 |
704 |
31,888,951 |
2.40 |
765 |
|
|
7.05 |
2,138 |
|
6.90 |
2,232 |
Managed Liquidity |
|
|
|
|
|
|
Prior year interim |
4,370,361 |
0.80 |
35 |
– |
– |
– |
Current year
interim |
2,492,814 |
0.80 |
20 |
– |
– |
– |
|
|
1.60 |
55 |
|
– |
– |
Total paid in the year |
|
|
4,338 |
|
|
4,511 |
No dividends have been paid to Balanced Risk Allocation
shareholders during the year (2019: nil).
The Company’s dividend policy permits the payment of dividends
by the UK Equity, Global Equity Income and Managed Liquidity
Portfolios from capital. An analysis of dividends paid in the year
from revenue and capital follows.
2020 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Dividends paid in the year: |
|
|
|
|
From revenue – current year |
1,340 |
1,639 |
23 |
3,002 |
From revenue – reserves brought
forward |
– |
373 |
32 |
405 |
From revenue |
1,340 |
2,012 |
55 |
3,407 |
From capital |
805 |
126 |
– |
931 |
|
2,145 |
2,138 |
55 |
4,338 |
|
2019 |
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
Dividends paid in the year: |
|
|
|
|
From revenue |
1,982 |
2,232 |
– |
4,214 |
From capital |
297 |
– |
– |
297 |
|
2,279 |
2,232 |
– |
4,511 |
9.
Investments held at fair value
The portfolio is made up of
investments which are listed, i.e. traded on a regulated stock
exchange, and a small proportion of investments which are valued by
the Directors as they are unlisted or not regularly traded. Gains
and losses are either:
•
realised, usually
arising when investments are sold; or
•
unrealised, being the
difference from cost of those investments still held at the year
end.
(a) Analysis
of investments by listing status
|
|
2020
£’000 |
2019
£’000 |
|
UK listed investments |
58,159 |
68,122 |
|
Overseas listed
investments(i) |
58,751 |
72,248 |
|
Unquoted hedge fund investments |
18 |
15 |
|
|
116,928 |
140,385 |
(i) Includes the Invesco Liquidity
Funds plc – Sterling, money market fund (formerly Short-Term
Investments Company (Global Series) plc) positions held by the
Balanced Risk Allocation Portfolio of £2,330,000 (2019: £1,735,000)
and Managed Liquidity Portfolio of £40,000 (2019: £220,000).
(b) Analysis
of investment gains
|
|
2020
£’000 |
2019
£’000 |
|
Opening valuation |
140,385 |
166,605 |
|
Movements in year: |
|
|
|
Purchases at cost |
99,149 |
48,735 |
|
Sales proceeds |
(109,974) |
(67,141) |
|
Losses on investments in
the year |
(12,632) |
(7,814)* |
|
Closing valuation |
116,928 |
140,385 |
|
Closing book cost |
123,110 |
129,931 |
|
Closing investment holding
(losses)/gains |
(6,182) |
10,454 |
|
Closing valuation |
116,928 |
140,385 |
The Company received £109,974,000 (2019: £67,141,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £105,970,000 (2019: £64,033,000)
realising a profit of £4,004,000 (2019: £3,108,000). These
investments have been revalued over time and until they were sold
any unrealised profits/losses were included in the fair value of
the investments.
* Due to adoption of the revised SORP issued in October 2019 (see Note 1(a)(i)). The losses on
investments figure of £7,814,000 for the year ended 31 May 2019 is as follows:
|
|
2019
£’000 |
|
Net realised profit on sales |
3,108 |
|
Investment holding losses in the
year |
(10,922) |
|
Losses on investments |
(7,814) |
(c)
Transaction costs
Transaction costs were £158,000 (2019: £88,000) on purchases and
£49,000 (2019: £42,000) on sales.
10. Derivative
instruments
Derivative instruments are contracts
whose price is derived from the value of other securities or
indices. The Balanced Risk Allocation Portfolio uses futures, which
represent agreements to buy or sell commodities or financial
instruments at a pre-determined price in the future.
Excluding forward currency contracts used for currency hedging
purposes.
|
2020
£’000 |
2019
£’000 |
Opening derivative assets held at
fair value through profit or loss |
175 |
281 |
Opening derivative liabilities held
at fair value through profit or loss |
(223) |
(54) |
Opening net derivative
(liabilities)/assets held at fair value shown in the balance
sheet |
(48) |
227 |
Closing derivative assets held at
fair value through profit or loss |
401 |
175 |
Closing derivative liabilities held
at fair value through profit or loss |
(151) |
(223) |
Closing net derivative
assets/(liabilities) held at fair value shown in balance sheet |
250 |
(48) |
Movement in derivative holding
assets/liabilities |
298 |
(275) |
Net realised (losses)/gains on
derivative instruments |
(457) |
7 |
Net capital losses on derivative
instruments as shown in the income statement |
(159) |
(268) |
Net income arising on
derivatives |
2 |
28 |
Total losses on derivative
instruments |
(157) |
(240) |
The derivative assets/liabilities shown in the balance sheet are
the unrealised gains/losses arising from the revaluation to fair
value of futures contracts held in the Balanced Risk Allocation
Share Portfolio, as shown on page 25.
11.
Debtors
Debtors are amounts due to the
Company, such as monies due from brokers for investments sold and
income which has been earned (accrued) but not yet received.
|
2020
£’000 |
2019
£’000 |
Amounts due from brokers |
2,300 |
3,246 |
Collateral pledged for futures
contracts |
244 |
398 |
Tax recoverable |
223 |
271 |
Prepayments and accrued income |
339 |
601 |
|
3,106 |
4,516 |
12(a). Other creditors
Creditors are amounts owed by the
Company and include amounts due to brokers for the purchase of
investments and amounts owed to suppliers, such as the Manager and
auditor.
|
2020
£’000 |
2019
£’000 |
Shares bought back |
653 |
218 |
Tax payable |
137 |
137 |
Amounts due to brokers |
1,653 |
– |
Performance fee accrued |
531 |
531 |
Accruals |
306 |
326 |
Other payables |
3,280 |
1,212 |
12(b). Bank overdraft and loans
At the year end the Company had a £20 million (2019: £25
million) committed 364 day multicurrency revolving credit facility,
which is due for renewal on 14 May
2021 (2019: 15 May 2020). In
addition, an overdraft facility for the purpose of short term
settlement is also available. Both facilities are with The Bank of
New York Mellon. For amounts drawn on the credit facility interest
is payable based on LIBOR plus a margin. Additionally, there is a
0.15% commitment fee on the facility amount not utilised.
Under the facility’s covenants, the Company’s total indebtedness
must not exceed 30% of total assets (excluding any Balanced Risk
Allocation Portfolio assets) and the total assets must not be less
than £60 million (2019: £75 million).
13. Share
capital
Share capital represents the total
number of shares in issue, including treasury shares.
All shares have a nominal value of 1 penny.
(a) Movements
in Share Capital during the Year
Issued and fully paid:
|
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
TOTAL
SHARE
CAPITAL |
|
ORDINARY SHARES (NUMBER) |
|
|
|
|
|
|
At 31 May 2019 |
33,088,595 |
31,668,234 |
5,618,428 |
4,370,361 |
74,745,618 |
|
Shares bought back into
treasury |
(1,460,772) |
(3,213,136) |
(164,000) |
(875,893) |
(5,713,801) |
|
Arising on share conversion: |
|
|
|
|
|
|
– August 2019 |
886 |
(234) |
(578) |
(240) |
(166) |
|
– November 2019 |
62,756 |
(61,021) |
6,067 |
6,238 |
14,040 |
|
– February 2020 |
279,137 |
403,391 |
(225,335) |
(1,007,652) |
(550,459) |
|
– May 2020 |
7,339 |
(10,434) |
2,304 |
4,218 |
3,427 |
|
At 31 May 2020 |
31,977,941 |
28,786,800 |
5,236,886 |
2,497,032 |
68,498,659 |
|
TREASURY SHARES (NUMBER) |
|
|
|
|
|
|
At 31 May 2019 |
10,517,040 |
7,301,023 |
5,157,218 |
7,805,785 |
30,781,066 |
|
Shares bought back into
treasury |
1,460,772 |
3,213,136 |
164,000 |
875,893 |
5,713,801 |
|
At 31 May 2020 |
11,977,812 |
10,514,159 |
5,321,218 |
8,681,678 |
36,494,867 |
|
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
TOTAL
SHARE
CAPITAL |
|
ORDINARY SHARES OF 1
PENNY EACH (£’000) |
|
At 31 May 2019 |
331 |
316 |
56 |
44 |
747 |
|
Shares bought back into
treasury |
(15) |
(32) |
(2) |
(9) |
(58) |
|
Arising on share
conversion: |
|
|
|
|
|
|
– November
2019 |
1 |
(1) |
– |
– |
– |
|
– February
2020 |
2 |
5 |
(2) |
(10) |
(5) |
|
At 31 May 2020 |
319 |
288 |
52 |
25 |
684 |
|
TREASURY SHARES OF 1
PENNY EACH (£’000) |
|
At 31 May 2019 |
105 |
73 |
52 |
78 |
308 |
|
Shares bought back into
treasury |
15 |
32 |
2 |
9 |
58 |
|
At 31 May 2020 |
120 |
105 |
54 |
87 |
366 |
|
TOTAL SHARE CAPITAL
(£’000) |
|
Ordinary share
capital |
319 |
288 |
52 |
25 |
684 |
|
Treasury share
capital |
120 |
105 |
54 |
87 |
366 |
|
At 31 May 2020 |
439 |
393 |
106 |
112 |
1,050 |
|
Average buy back
price |
167.4p |
197.8p |
138.2p |
101.3p |
|
|
|
|
|
|
|
|
|
|
|
|
|
The total cost of share buy backs was £9,986,000 (2019:
£9,925,000). As part of the conversion process 614,700 (2019:
238,918) deferred shares of 1p each were created and subsequently
cancelled during the year. No deferred shares were in issue at the
start or end of the year.
No ordinary shares were issued from treasury during the year
(2019: nil).
(b) Movements
in Share Capital after the Year End
Since the year end, 1,698,000 UK Equity and 1,311,000 Global
Equity Income shares have been bought back into treasury.
(c) Voting
Rights
Rights attaching to the Shares are described in the Directors’
Report on pages 57 and 58.
(d) Deferred
Shares
The Deferred shares do not carry any rights to participate in
the Company’s profits, do not entitle the holder to any repayment
of capital on a return of assets (except for the sum of 1p) and do
not carry any right to receive notice of or attend or vote at any
general meeting of the Company. Any Deferred shares that arise as a
result of conversions of Shares are cancelled in the same reporting
period.
(e) Future
Convertibility of the Shares
Shares are convertible at the option of the holder into any
other class of Share. Further conversion details are given on the
inside front cover and in the Shareholder Information on page
110.
14.
Reserves
This note explains the different
reserves attributable to shareholders. The aggregate of the
reserves and share capital (see previous note) make up total
shareholders’ funds.
The share premium comprises the net proceeds received by the
Company following the issue of new shares, after deduction of the
nominal amount of 1 penny and any applicable costs. The special
reserve arose from the cancellation of the share premium account,
in January 2007, and is available as
distributable profits to be used for all purposes under the
Companies Act 2006, including buy back of shares and payment of
dividends. The capital redemption reserve arises from the nominal
value of shares bought back and cancelled; this and the share
premium are non-distributable.
Capital investment gains and losses are shown in note 9(b), and
form part of the capital reserve. The revenue reserve shows the net
revenue retained after payments of any dividends. The capital and
revenue reserves are distributable.
15. Net asset
value per Share
The total net assets (total assets
less total liabilities) attributable to a share class are often
termed shareholders’ funds and are converted into net asset value
per share by dividing by the number of shares in issue.
The net asset value per Share and the net assets attributable at
the year end were as follows:
ORDINARY SHARES |
2020 |
2019 |
|
NET ASSET
VALUE PER
SHARE
PENCE |
NET ASSETS
ATTRIBUTABLE
£’000 |
NET ASSET
VALUE PER
SHARE
PENCE |
NET ASSETS
ATTRIBUTABLE
£’000 |
UK Equity |
145.8 |
46,617 |
173.1 |
57,286 |
Global Equity Income |
178.5 |
51,372 |
197.6 |
62,589 |
Balanced Risk Allocation |
135.1 |
7,073 |
139.5 |
7,837 |
Managed Liquidity |
104.4 |
2,607 |
104.9 |
4,583 |
Net asset value per Share is based on net assets at the year end
and on the number of Shares in issue (excluding Treasury Shares)
for each Share class at the year end.
16. Financial
instruments
This note summarises the risks
deriving from the financial instruments that comprise the Company’s
assets and liabilities.
The Company’s financial instruments comprise the following:
– investments in
equities, fixed interest securities and liquidity funds which are
held in accordance with the Company’s investment objectives and the
investment objectives of the four Portfolios;
– short-term debtors,
creditors and cash arising directly from operations;
– short-term forward
foreign currency and futures contracts; and
– bank loans and
short-term overdrafts, used to finance operations.
The financial instruments held in each of the four investment
portfolios are shown on pages 12, 19, 25, 26 and 31.
The accounting policies in note 1 include criteria for the
recognition and the basis of measurement applied for these
financial instruments. Note 1 also includes the basis on which
income and expenses arising from financial assets and liabilities
are recognised and measured.
The Company’s principal risks and uncertainties are outlined in
the Strategic Report on pages 39 to 42. This note expands
on risk areas in relation to the Company’s financial instruments.
The portfolios are managed in accordance with the Company’s
investment policies and objectives, which are set out on pages 32
to 35. The management process is subject to risk controls, which
the Audit Committee reviews on behalf of the Board, as described on
pages 50 and 51.
The principal risks that an investment company faces in its
portfolio management activities are set out below:
Market risk – arising from fluctuations in the
fair value or future cash flows of a financial instrument because
of changes in market prices. Market risk comprises three types of
risk: currency risk, interest rate risk and other price risk:
Currency risk – arising from fluctuations in the
fair value or future cash flows of a financial instrument because
of changes in foreign exchange rates;
Interest rate risk – arising from fluctuations in
the fair value or future cash flows of a financial instrument
because of changes in market interest rates; and
Other price risk – arising from fluctuations in
the fair value or future cash flows of a financial instrument for
reasons other than changes in foreign exchange rates or market
interest rates, whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting all similar financial instruments traded in the
market.
Liquidity risk – arising from any difficulty in
meeting obligations associated with financial liabilities.
Credit risk, incorporating counterparty risk –
arising from financial loss for a company where the other party to
a financial instrument fails to discharge an obligation.
Risk Management Policies and
Procedures
As an investment trust the Company invests in equities and other
investments for the long-term in accordance with its investment
policies so as to meet its investment objectives. In pursuing its
objectives, the Company is exposed to a variety of risks that could
result in a reduction in the Company’s net assets or a reduction of
the profits available for dividends. The risks applicable to the
Company and the Directors’ policies for managing these risks
follow. These have not changed from those applying in the previous
year.
The Directors have delegated to the Manager the responsibility
for the day-to-day investment activities of the Company as more
fully described in the Directors’ Report.
The main risk that the Company faces arising from its financial
instruments is market risk – this risk is reviewed in detail below.
Since the Company mainly invests in quoted investments and
derivative instruments traded on recognised exchanges, liquidity
risk and credit risk are significantly mitigated.
16.1 Market Risk
Market risk arises from changes in the fair value or future cash
flows of a financial instrument because of movements in market
prices. Market risk comprises three types of risk: currency risk
(16.1.1), interest rate risk (16.1.2) and other price risk
(16.1.3).
The Company’s portfolio managers assess the individual
investment portfolio exposures when making each investment decision
for their Portfolios, and monitor the overall level of market risk
on the whole of their investment portfolio on an ongoing basis. The
Board meets at least quarterly to assess risk and review investment
performance for the four Portfolios and the Company, as disclosed
in the Board Responsibilities section of the Directors’ Report on
page 52. Borrowings can be used by the UK Equity and Global Equity
Income Portfolios, which will increase the Company’s exposure to
market risk and volatility. The borrowing limits for these
Portfolios are 25% and 20% of attributable net assets,
respectively.
16.1.1 Currency
Risk
A majority of the Global Equity Income Portfolio, derivative
instruments in the Balanced Risk Allocation Portfolio and a small
proportion of the UK Equity Portfolio consist of assets,
liabilities and income denominated in currencies other than
sterling. As a result, movements in exchange rates will affect the
sterling value of those items.
Management of Currency Risk
The portfolio managers monitor the separate Portfolios’ exposure
to foreign currencies on a daily basis and report to the Board on a
regular basis. Forward foreign currency contracts can be used to
limit the Company’s exposure to anticipated future changes in
exchange rates and to achieve portfolio characteristics that assist
the Company in meeting its investment objectives in line with its
investment policies. All contracts are limited to currencies and
amounts commensurate with the exposure to those currencies. No such
contracts were in place at the current or preceding year end.
Income denominated in foreign currencies is converted to sterling
on receipt. The Company does not use financial instruments to
mitigate the currency exposure in the period between the time that
income is accrued and its receipt.
Foreign Currency Exposure
The fair value or amortised cost of the Company’s monetary items
that have foreign currency exposure at 31 May are shown below.
Where the Company’s equity investments (which are not monetary
items) are priced in a foreign currency they have been included
separately in the analysis in order to show the overall level of
exposure.
UK EQUITY PORTFOLIO:
CURRENCY |
DEBTORS
(DUE FROM
BROKERS
AND
DIVIDENDS)
£’000 |
CASH/
(OVERDRAFT
AT BANK)
£’000 |
CREDITORS
(DUE TO
BROKERS
AND
ACCRUALS)
£’000 |
TOTAL
FOREIGN
CURRENCY
EXPOSURE
ON NET
MONETARY
ITEMS
£’000 |
INVESTMENTS
AT FAIR
VALUE
THROUGH
PROFIT OR
LOSS THAT
ARE EQUITIES
£’000 |
TOTAL NET
FOREIGN
CURRENCY
EXPOSURE
£’000 |
YEAR ENDED 31 MAY 2020 |
|
|
|
|
|
|
Canadian Dollar |
– |
– |
– |
– |
2,852 |
2,852 |
Euro |
2 |
– |
– |
2 |
– |
2 |
US Dollar |
24 |
– |
– |
24 |
4,454 |
4,478 |
|
26 |
– |
– |
26 |
7,306 |
7,332 |
|
|
|
|
|
|
|
YEAR ENDED 31 MAY 2019 |
|
|
|
|
|
|
Canadian Dollar |
– |
– |
– |
– |
1,591 |
1,591 |
Euro |
34 |
– |
– |
34 |
2,235 |
2,269 |
Swiss Franc |
48 |
– |
– |
48 |
– |
48 |
US Dollar |
4 |
– |
– |
4 |
1,798 |
1,802 |
|
86 |
– |
– |
86 |
5,624 |
5,710 |
|
GLOBAL EQUITY INCOME PORTFOLIO:
CURRENCY |
DEBTORS
(DUE FROM
BROKERS
AND
DIVIDENDS)
£’000 |
CASH/
(OVERDRAFT
AT BANK)
£’000 |
CREDITORS
(DUE TO
BROKERS
AND
ACCRUALS)
£’000 |
TOTAL
FOREIGN
CURRENCY
EXPOSURE
ON NET
MONETARY
ITEMS
£’000 |
INVESTMENTS
AT FAIR
VALUE
THROUGH
PROFIT OR
LOSS THAT
ARE EQUITIES
£’000 |
TOTAL NET
FOREIGN
CURRENCY
EXPOSURE
£’000 |
YEAR ENDED 31 MAY 2020 |
|
|
|
|
|
|
Brazilian Real |
7 |
– |
– |
7 |
– |
7 |
Canadian Dollar |
– |
1 |
– |
1 |
– |
1 |
Euro |
256 |
– |
– |
256 |
7,071 |
7,327 |
Hong Kong Dollar |
527 |
– |
(527) |
– |
1,650 |
1,650 |
Japanese Yen |
3 |
– |
– |
3 |
952 |
955 |
Korean Won |
– |
– |
– |
– |
1,911 |
1,911 |
Norwegian Krone |
6 |
– |
– |
6 |
– |
6 |
Swedish Krona |
4 |
– |
– |
4 |
1,395 |
1,399 |
Swiss Franc |
438 |
– |
(835) |
(397) |
5,066 |
4,669 |
Taiwanese Dollar |
– |
– |
– |
– |
2,372 |
2,372 |
US Dollar |
826 |
– |
(159) |
667 |
26,016 |
26,683 |
|
2,067 |
1 |
(1,521) |
547 |
46,433 |
46,980 |
CURRENCY |
DEBTORS
(DUE FROM
BROKERS
AND
DIVIDENDS)
£’000 |
CASH/
(OVERDRAFT
AT BANK)
£’000 |
CREDITORS
(DUE TO
BROKERS
AND
ACCRUALS)
£’000 |
TOTAL
FOREIGN
CURRENCY
EXPOSURE
ON NET
MONETARY
ITEMS
£’000 |
INVESTMENTS
AT FAIR
VALUE
THROUGH
PROFIT OR
LOSS THAT
ARE EQUITIES
£’000 |
TOTAL NET
FOREIGN
CURRENCY
EXPOSURE
£’000 |
YEAR ENDED 31 MAY 2019 |
|
|
|
|
|
|
Australian Dollar |
– |
– |
– |
– |
1,515 |
1,515 |
Brazilian Real |
55 |
– |
– |
55 |
445 |
500 |
Canadian Dollar |
– |
1 |
– |
1 |
1,398 |
1,399 |
Euro |
120 |
– |
– |
120 |
18,631 |
18,751 |
Japanese Yen |
22 |
– |
– |
22 |
2,390 |
2,412 |
Korean Won |
– |
– |
– |
– |
1,878 |
1,878 |
Norwegian Krone |
6 |
– |
– |
6 |
913 |
919 |
Swiss Franc |
123 |
– |
– |
123 |
4,243 |
4,366 |
Taiwanese Dollar |
– |
– |
– |
– |
1,596 |
1,596 |
US Dollar |
70 |
12 |
– |
82 |
23,445 |
23,527 |
|
396 |
13 |
– |
409 |
56,454 |
56,863 |
BALANCED RISK ALLOCATION PORTFOLIO:
CURRENCY |
DERIVATIVE
ASSETS
AT FAIR
VALUE
THROUGH
PROFIT
OR LOSS
£’000 |
DEBTORS
DUE FROM/
(CREDITORS
DUE TO)
BROKERS &
DIVIDENDS/
ACCRUALS)*
£’000 |
CASH/
(OVERDRAFT)
AT BANK
£’000 |
DERIVATIVE
LIABILITIES
AT FAIR
VALUE
THROUGH
PROFIT
OR LOSS
£’000 |
TOTAL
FOREIGN
CURRENCY
EXPOSURE
ON NET
MONETARY
ITEMS
£’000 |
INVESTMENTS
AT FAIR
VALUE
THROUGH
PROFIT
OR LOSS
THAT ARE
EQUITIES
£’000 |
TOTAL NET
FOREIGN
CURRENCY
EXPOSURE
£’000 |
YEAR ENDED 31 MAY
2020 |
|
|
|
|
|
|
Australian Dollar |
– |
80 |
32 |
(29) |
83 |
– |
83 |
Canadian Dollar |
– |
20 |
19 |
(1) |
38 |
– |
38 |
Euro |
76 |
(12) |
53 |
– |
117 |
– |
117 |
Hong Kong Dollar |
– |
42 |
25 |
(4) |
63 |
– |
63 |
Japanese Yen |
57 |
(36) |
23 |
– |
44 |
– |
44 |
US Dollar |
207 |
170 |
70 |
(117) |
330 |
18 |
348 |
|
340 |
264 |
222 |
(151) |
675 |
18 |
693 |
|
|
|
|
|
|
|
|
YEAR ENDED 31 MAY
2019 |
|
|
|
|
|
|
Australian Dollar |
98 |
(52) |
35 |
– |
81 |
– |
81 |
Canadian Dollar |
19 |
20 |
32 |
– |
71 |
– |
71 |
Euro |
12 |
29 |
– |
– |
41 |
– |
41 |
Hong Kong Dollar |
– |
35 |
2 |
(6) |
31 |
– |
31 |
Japanese Yen |
– |
69 |
5 |
(58) |
16 |
– |
16 |
US Dollar |
31 |
270 |
29 |
(159) |
171 |
15 |
186 |
|
160 |
371 |
103 |
(223) |
411 |
15 |
426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Debtors includes collateral pledged for futures contracts.
Foreign Currency Sensitivity
The preceding exposure analysis is based on the Company’s
monetary foreign currency financial instruments held at each
balance sheet date and takes account of forward foreign exchange
contracts, if used, that offset the effects of changes in currency
exchange rates.
The effect of strengthening or weakening of sterling against
other currencies to which the Company is exposed is calculated by
reference to the volatility of exchange rates during the year using
the standard deviation of currency fluctuations against the mean,
giving the following exchange rate fluctuations:
|
2020 |
2019 |
£/Australian Dollar |
+/– 3.6% |
+/– 2.0% |
£/Brazilian Real |
+/– 12.3% |
+/– 3.4% |
£/Canadian Dollar |
+/– 2.6% |
+/– 1.6% |
£/Euro |
+/– 2.7% |
+/– 1.6% |
£/Hong Kong Dollar |
+/– 2.9% |
+/– 1.6% |
£/Japanese Yen |
+/– 3.5% |
+/– 1.9% |
£/Norwegian Krone |
+/– 6.1% |
+/– 2.1% |
£/South Korean Won |
+/– 2.0% |
+/– 1.9% |
£/Swedish Krona |
+/– 2.5% |
+/– 2.5% |
£/Swiss Franc |
+/– 3.1% |
+/– 1.9% |
£/Taiwan Dollar |
+/– 2.7% |
+/– 1.2% |
£/US Dollar |
+/– 2.8% |
+/– 1.5% |
The tables that follow illustrate the exchange rate sensitivity
of revenue and capital returns arising from the Company’s financial
non-sterling assets and liabilities for the year for the UK Equity,
Global Equity Income and Balanced Risk Allocation Portfolios using
the exchange rate fluctuations shown above.
If sterling had strengthened against other currencies by the
exchange rate fluctuations shown in the table above, this would
have had the following after tax effect:
UK EQUITY
PORTFOLIO: |
|
2020 |
2019 |
|
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
Canadian Dollar |
– |
(74) |
(74) |
– |
(25) |
(25) |
Euro |
(1) |
– |
(1) |
– |
(36) |
(36) |
US Dollar |
(5) |
(125) |
(130) |
– |
(27) |
(27) |
|
(6) |
(199) |
(205) |
– |
(88) |
(88) |
GLOBAL EQUITY INCOME
PORTFOLIO: |
|
2020 |
2019 |
|
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
Australian Dollar |
(1) |
– |
(1) |
(1) |
(30) |
(31) |
Brazilian Real |
– |
– |
– |
(2) |
(15) |
(17) |
Canadian Dollar |
(1) |
– |
(1) |
(1) |
(22) |
(23) |
Euro |
(12) |
(195) |
(207) |
(15) |
(298) |
(313) |
Hong Kong Dollar |
(15) |
(33) |
(48) |
(1) |
– |
(1) |
Japanese Yen |
(2) |
(33) |
(35) |
(2) |
(45) |
(47) |
Norwegian Krone |
(2) |
– |
(2) |
(1) |
(19) |
(20) |
South Korean Won |
(1) |
(38) |
(39) |
(1) |
(36) |
(37) |
Swedish Krona |
– |
(35) |
(35) |
– |
– |
– |
Swiss Franc |
(15) |
(131) |
(146) |
(3) |
(81) |
(84) |
Taiwan Dollar |
(2) |
(64) |
(66) |
(1) |
(19) |
(20) |
US Dollar |
10 |
(775) |
(765) |
(9) |
(352) |
(361) |
|
(41) |
(1,304) |
(1,345) |
(37) |
(917) |
(954) |
|
BALANCED RISK
ALLOCATION PORTFOLIO: |
|
2020 |
2019 |
|
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
REVENUE
RETURN
£’000 |
CAPITAL
RETURN
£’000 |
TOTAL
RETURN
£’000 |
Australian Dollar |
– |
(3) |
(3) |
– |
(2) |
(2) |
Canadian Dollar |
– |
(1) |
(1) |
– |
(1) |
(1) |
Euro |
– |
(3) |
(3) |
– |
(1) |
(1) |
Hong Kong Dollar |
– |
(2) |
(2) |
– |
– |
– |
Japanese Yen |
– |
(2) |
(2) |
– |
– |
– |
US Dollar |
– |
(10) |
(10) |
– |
(3) |
(3) |
|
– |
(21) |
(21) |
– |
(7) |
(7) |
If sterling had weakened to the same extent as the currencies
above, the effect would have been the exact opposite.
16.1.2 Interest
Rate Risk
Interest rate movements may affect:
– the fair value of
the investments in fixed-interest rate securities;
– the level of income
receivable on cash deposits; and
– the interest payable
on variable rate borrowings.
Management of interest rate risk
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account as part of the portfolio management and borrowings
processes of the portfolio managers. The Board reviews on a regular
basis the investment portfolio and borrowings. This encompasses the
valuation of fixed-interest and floating rate securities and
gearing levels.
When the Company has cash balances, they are held in variable
rate bank accounts yielding rates of interest dependent on the base
rate of the custodian or deposit taker. The Company has a £20
million (2019: £25 million), 364 day multicurrency revolving credit
facility which is due for renewal on 14 May
2021. The Company uses the facility when required at levels
approved and monitored by the Board.
Interest rate exposure
The Company also has available an uncommitted overdraft facility
for settlement purposes and interest is dependent on the base rate
determined by the custodian.
At 31 May the exposure of financial assets and financial
liabilities to interest rate risk is shown by reference to:
– floating interest
rates (giving cash flow interest rate risk) – when the interest
rate is due to be reset; and
– fixed interest rates
(giving fair value interest rate risk) – when the financial
instrument is due for repayment.
The following table sets out the financial assets and financial
liabilities exposure at the year end:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2020 |
|
|
|
|
|
Exposure to floating interest
rates: |
|
|
|
|
|
Investments held at fair value
through profit or loss(1) |
– |
– |
2,330 |
2,682 |
5,012 |
Cash and cash equivalents |
– |
146 |
251 |
50 |
447 |
Bank loans |
(4,800) |
(4,980) |
– |
– |
(9,780) |
Overdraft |
(2) |
– |
– |
– |
(2) |
|
(4,802) |
(4,834) |
2,581 |
2,732 |
(4,323) |
Exposure to fixed interest
rates: |
|
|
|
|
|
Investments held at fair value
through profit or loss including |
|
|
|
|
|
UK Treasury Bills |
– |
– |
3,999 |
– |
3,999 |
Net exposure to interest rates |
(4,802) |
(4,834) |
6,580 |
2,732 |
(324) |
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2019 |
|
|
|
|
|
Exposure to floating interest
rates: |
|
|
|
|
|
Investments held at fair value
through profit or loss(1) |
– |
– |
1,735 |
4,710 |
6,445 |
Cash and cash equivalents |
476 |
245 |
153 |
10 |
884 |
Bank loans |
(7,350) |
(4,880) |
– |
– |
(12,230) |
|
(6,874) |
(4,635) |
1,888 |
4,720 |
(4,901) |
Exposure to fixed interest
rates: |
|
|
|
|
|
Investments held at fair value
through profit or loss including UK Treasury Bills |
– |
– |
5,635 |
– |
5,635 |
Net exposure to interest rates |
(6,874) |
(4,635) |
7,523 |
4,720 |
734 |
(1) Comprises holdings in PIMCO
Sterling Short Maturity Source UCITS ETF and Invesco Liquidity
Funds plc – Sterling (formerly Short Term Investment Companies
(Global Series) plc).
The income on the PIMCO Sterling
Short Maturity Source UCITS ETF and Invesco Liquidity Funds plc –
Sterling (formerly Short Term Investment Companies (Global Series)
plc) investments is affected by interbank lending rates; the
principal amount should normally remain stable regardless of
interest rate movements.
Interest rate sensitivity
At the maximum possible borrowing level of £20 million (2019:
£25 million), the maximum effect over one year of a 0.5%
movement in interest rates would be a £100,000 (2019: £125,000)
movement in the Company’s income and net assets.
The maximum effect of a 1% movement in the interest rates on
investments held at fair value through profit and loss would be a
£12,000 (2019: £16,000) movement in the Company’s income and net
assets.
The above exposure and sensitivity analysis are not
representative of the year as a whole, since the level of exposure
changes frequently throughout the year.
Other price risks (i.e. changes in market prices other than
those arising from interest rate risk or currency risk) may affect
the value of the equity investments, but it is the role of the
portfolio managers to manage the Portfolios to achieve the best
returns they can.
16.1.3 Other Price
Risk
Management of Other Price Risk
The Directors monitor the market price risks inherent in the
investment portfolios by meeting regularly to review
performance.
The Company’s investment portfolios are the product of the
Manager’s investment processes and the application of the
Portfolios' investment policies. Their value will move according to
the performance of the shares held within them. However, the
Portfolios do not replicate their respective benchmarks or the
markets in which the Portfolios invest, so their performance may
not correlate with them.
Notwithstanding the issue of correlation, if the fixed asset
value of an investment portfolio moved by 10% at the balance sheet
date, the profit after tax and net assets for the year would
increase/decrease by the following amounts:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
2020 |
|
|
|
|
Profit after tax increase/decrease
due to rise/fall of 10% |
5,212 |
5,578 |
635 |
268 |
2019 |
|
|
|
|
Profit after tax increase/decrease
due to rise/fall of 10% |
6,125 |
6,704 |
739 |
471 |
16.2 Liquidity Risk
Management of liquidity risk
Liquidity risk is mitigated by the investments held by the
Company’s four portfolios being diversified and the majority being
readily realisable securities which can be sold to meet funding
commitments. If required, the Company’s borrowing facilities
provide additional long-term and short-term flexibility.
The Directors' policy is that in normal market conditions
short-term borrowings be used to manage short term liabilities and
working capital requirements rather than realising investments.
Liquidity risk
The contractual maturities of financial liabilities at the year
end, based on the earliest date on which payment can be required,
are as follows:
|
UK EQUITY
3 MONTHS
OR LESS
£’000 |
GLOBAL
EQUITY
INCOME
MORE THAN
3 MONTHS
£’000 |
BALANCED
RISK
ALLOCATION
3 MONTHS
OR LESS
£’000 |
MANAGED
LIQUIDITY
3 MONTHS
OR LESS
£’000 |
MORE
THAN
3 MONTHS
£’000 |
3 MONTHS
OR LESS
£’000 |
COMPANY
TOTAL
£’000 |
2020 |
|
|
|
|
|
|
|
Overdraft |
2 |
– |
– |
– |
– |
– |
2 |
Bank loans |
4,800 |
– |
4,980 |
– |
– |
– |
9,780 |
Amounts due to brokers |
132 |
– |
1,521 |
– |
– |
– |
1,653 |
Other creditors and accruals |
275 |
– |
658 |
23 |
– |
140 |
1,096 |
Performance fee accrued |
– |
531 |
– |
– |
– |
– |
531 |
Derivative financial
instruments |
– |
– |
– |
95 |
56 |
– |
151 |
|
5,209 |
531 |
7,159 |
118 |
56 |
140 |
13,213 |
|
|
|
|
|
|
|
|
|
UK EQUITY
3 MONTHS
OR LESS
£’000 |
GLOBAL
EQUITY
INCOME
MORE THAN
3 MONTHS
£’000 |
BALANCED
RISK
ALLOCATION
3 MONTHS
OR LESS
£’000 |
MANAGED
LIQUIDITY
3 MONTHS
OR LESS
£’000 |
MORE
THAN
3 MONTHS
£’000 |
3 MONTHS
OR LESS
£’000 |
COMPANY
TOTAL
£’000 |
2019 |
|
|
|
|
|
|
|
Bank loans |
7,350 |
– |
4,880 |
– |
– |
– |
12,230 |
Other creditors and accruals |
139 |
– |
334 |
65 |
– |
143 |
681 |
Performance fee accrued |
– |
531 |
– |
– |
– |
– |
531 |
Derivative financial
instruments |
– |
– |
– |
161 |
62 |
– |
223 |
|
7,489 |
531 |
5,214 |
226 |
62 |
143 |
13,665 |
16.3 Credit Risk
Credit risk is that the failure of the counterparty in a
transaction to discharge its obligations under that transaction
could result in the Company suffering a loss.
This risk is managed as follows:
– investment
transactions are carried out with a selection of brokers, approved
by the Manager and settled on a delivery versus payment basis.
Brokers’ credit ratings are regularly reviewed by the Manager, so
as to minimise the risk of default to the Company;
– the derivative
financial instruments are all exchange traded and the exchange
guarantees their settlement;
– the risk of
counterparty exposure due to failed trades causing a loss to the
Company is mitigated by the daily review of failed trade reports
and the use of daily stock and cash reconciliations. Only approved
counterparties are used;
– the Company’s
ability to operate in the short-term may be adversely affected if
the Company’s Manager, other outsource service providers, or their
delegates suffer insolvency or other financial difficulties. The
Board reviews annual controls reports from major service
providers;
– where an investment
is made in a bond, corporate or otherwise, the credit rating of the
issuer is taken into account so as to minimise the risk to the
Company of default; and
– cash balances are
limited to a maximum of £2.5 million for each Portfolio with any
one deposit taker (other than cash collateral on derivative
instruments), with only deposit takers approved by the Manager
being used. Cash held at brokers includes any cash collateral on
futures contracts and during the year only one futures clearing
broker, Merrill Lynch, was used.
The following table sets out the maximum credit risk exposure at
the year end:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2020 |
|
|
|
|
|
Bonds (UK Treasury bills) |
– |
– |
3,999 |
– |
3,999 |
Cash held as short-term
investment(1) |
– |
– |
2,330 |
40 |
2,370 |
Unquoted securities |
– |
– |
18 |
– |
18 |
Derivative financial
instruments |
– |
– |
250 |
– |
250 |
Debtors(2) |
236 |
2,607 |
248 |
15 |
3,106 |
Cash and cash equivalents |
– |
146 |
251 |
50 |
447 |
|
236 |
2,753 |
7,096 |
105 |
10,190 |
|
|
|
|
|
|
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2019 |
|
|
|
|
|
Bonds (UK Treasury bills) |
– |
– |
5,635 |
– |
5,635 |
Cash held as short-term
investment(1) |
– |
– |
1,735 |
220 |
1,955 |
Unquoted securities |
– |
– |
15 |
– |
15 |
Derivative financial
instruments |
– |
– |
(48) |
– |
(48) |
Debtors(2) |
3,580 |
518 |
412 |
6 |
4,516 |
Cash and cash equivalents |
476 |
245 |
153 |
10 |
884 |
|
4,056 |
763 |
7,902 |
236 |
12,957 |
(1) Invesco Liquidity Funds plc,
money market fund (formerly Short-Term Investments Company (Global
Series) plc.)
(2) Cash collateral pledged for
futures contracts of £244,000 is included in debtors (2019:
£398,000).
17. Fair
Values of Financial Assets and Financial Liabilities
‘Fair value’ in accounting terms is
the amount at which an asset can be bought or sold in
a transaction between willing parties, i.e. a market-based,
independent measure of value. This note sets out the fair value
hierarchy comprising three ‘levels’ and the aggregate amount of
investments in each level.
The financial assets and financial liabilities are either
carried in the balance sheet at their fair value (investments and
derivative instruments), or the balance sheet amount is a
reasonable approximation of fair value.
FRS 102 as amended for fair value hierarchy disclosures 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.
Categorisation within the hierarchy is determined on the basis
of the lowest level input that is significant to the fair value
measurement of each relevant asset/liability.
The valuation techniques used by the Company are explained in
the accounting policies note. The majority of the Company’s
investments are quoted equity investments and Treasury bills which
are deemed to be Level 1. Level 2 comprises all other quoted fixed
income investments, derivative instruments and liquidity funds held
in the Balanced Risk Allocation and Managed Liquidity Portfolios.
Level 3 investments comprise any unquoted securities and the
remaining hedge fund investments of the Balanced Risk Allocation
Portfolio.
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2020 |
|
|
|
|
|
Financial assets at fair value
through profit or loss: |
|
|
|
|
|
Level 1 |
52,121 |
55,778 |
3,999 |
2,642 |
114,540 |
Level 2 |
– |
– |
2,731 |
40 |
2,771 |
Level 3 |
– |
– |
18 |
– |
18 |
Total for financial assets |
52,121 |
55,778 |
6,748 |
2,682 |
117,329 |
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
Level 2 – Derivative
instruments |
– |
– |
151 |
– |
151 |
|
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
COMPANY
TOTAL
£’000 |
2019 |
|
|
|
|
|
Financial assets at fair value
through profit or loss: |
|
|
|
|
|
Level 1 |
61,250 |
67,040 |
5,635 |
4,490 |
138,415 |
Level 2 |
– |
– |
1,910 |
220 |
2,130 |
Level 3 |
– |
– |
15 |
– |
15 |
Total for financial assets |
61,250 |
67,040 |
7,560 |
4,710 |
140,560 |
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
Level 2 – Derivative
instruments |
– |
– |
223 |
– |
223 |
18. Capital
Management
This note is designed to set out the
Company’s objectives, policies and processes for managing its
capital. The capital is funded from monies invested in the Company
by shareholders (both initial investment and any retained amounts)
and any borrowings by the Company.
The Company’s total capital employed at 31 May 2020 was £117,449,000 (2019: £144,525,000)
comprising borrowings of £9,780,000 (2019: £12,230,000) and equity
share capital and other reserves of £107,669,000 (2019:
£132,295,000).
The Company’s total capital employed is managed to achieve the
Company’s investment objective and policy as set out on pages 32 to
35, including that borrowings may be used to raise equity exposure
up to a maximum of 25% of net assets. At the balance sheet date,
maximum possible gross gearing was 18.6% (2019: 18.9%). The
Company’s policies and processes for managing capital are unchanged
from the preceding year.
The main risks to the Company’s investments are shown in the
Directors’ Report under the ‘Principal Risks and Uncertainties’
section on pages 39 to 42. These also explain that the Company has
borrowing facilities which can be used in accordance with each
Portfolio's investment objectivity and policy and that this will
amplify the effect on equity of changes in the value of each
applicable portfolio.
The Board can also manage the capital structure directly since
it has taken the powers, which it is seeking to renew, to issue and
buy back shares and it also determines dividend payments.
The Company is subject to externally imposed capital
requirements with respect to the obligation and ability to pay
dividends by Corporation Tax Act 2010 and by the Companies Act
2006, respectively, and with respect to the availability of the
overdraft facility, by the terms imposed by the lender. The Board
regularly monitors, and has complied with, the externally imposed
capital requirements. This is unchanged from the prior year.
Borrowings comprise any drawings on the credit and/or overdraft
facilities, details of which are given in note 12.
19.
Contingencies, guarantees and financial commitments
Any liabilities the Company is
committed to honour but which are dependent on a future
circumstance or event occurring would be disclosed in this note if
any existed.
There were no contingencies, guarantees or financial commitments
of the Company at the year end (2019: £nil).
20. Related
party transactions and transactions with the Manager
A related party is a company or
individual who has direct or indirect control or who has
significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as
related parties. The Directors’ remuneration and interests have
been disclosed on pages 63 to 65 with additional disclosure in note
4. No other related parties have been identified.
Details of the Manager’s services and fees are disclosed in the
Director's Report on page 56 and note 3.
21. Post
Balance Sheet Events
Any significant events that occurred
after the Company’s financial year end but before the signing of
the balance sheet will be shown here.
There are no significant events after the end of the reporting
period requiring disclosure.
However, there continues to be potential for economic and market
impacts from Covid-19, which may affect the Company’s investment
portfolio. As at close of business on 30
July 2020 the NAV, price and discount of each class of the
Company’s Shares were as follows:
SHARE CLASS |
NET ASSET VALUE
(PENCE) |
SHARE PRICE
(PENCE) |
DISCOUNT |
UK Equity |
143.2 |
142.0 |
(0.8)% |
Global Equity Income |
183.1 |
181.5 |
(0.9)% |
Balanced Risk Allocation |
141.4 |
133.5 |
(5.6)% |
Managed Liquidity |
105.0 |
101.5 |
(3.3)% |
.
The financial information set out above does not constitute the
Company’s statutory accounts for the year ended 31 May 2020.
The financial information for 2019 is derived from the statutory
accounts for the year ended 31 May
2019, which have been delivered to the Registrar of
Companies. The auditor has reported on the 2019 accounts; the
audit report was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying the report and did not contain a statement under
section 498 of the Companies Act 2006. The statutory accounts
for the year ended 31 May 2020 have
been finalised and audited but have not yet been delivered to the
Registrar of Companies.
The audited annual financial report will be available to
shareholders, and will be delivered to the Registrar of Companies,
shortly. Copies may be obtained during normal business hours
from the Company’s Registered Office, from its correspondence
address, 43-45 Portman Square, London W1H 6LY, and via the web pages of all
of the Share classes on the Manager’s website at
www.invesco.co.uk/investmenttrusts .
The Annual General Meeting will be held on 6 October 2020 at 11.30am at 43-45 Portman Square, London W1H 6LY.
By order of the Board
Invesco Asset Management Limited
31 July 2020
Contacts:
Angus Pottinger 020 3753 1000
Paul
Griggs
020 3753 1000
.
Notice of Annual General Meeting
NOTICE IS GIVEN that the Annual General Meeting (AGM) of Invesco
Perpetual Select Trust plc will be held at 43-45 Portman Square,
London W1H 6LY at 11.30am on 6 October
2020 for the following purposes:
Ordinary Business of the Company
1. To receive the Annual
Financial Report for the year ended 31 May
2020.
2. To approve the Directors’
Remuneration Policy.
3. To approve the Annual
Statement and Report on Remuneration.
4. To re-elect Craig Cleland as a Director of the Company.
5. To re-elect Alan Clifton as a Director of the Company.
6. To re-elect Graham Kitchen as a Director of the Company.
7. To re-elect Victoria Muir as a Director of the Company.
8. To re-appoint Grant
Thornton UK LLP as Auditor to the Company and authorise the Audit
Committee to determine the Auditor’s remuneration.
Special Business of the Company
To consider and, if thought fit, to pass the following
resolution which will be proposed as an Ordinary Resolution:
9. THAT:
the Directors be and they are hereby generally and
unconditionally authorised, for the purpose of section 551 of the
Companies Act 2006 as amended from time to time prior to the date
of passing this resolution (‘2006 Act’) to exercise all the powers
of the Company to allot relevant securities (as defined in sections
551(3) and (6) of the 2006 Act) up to an aggregate nominal amount
equal to £1,000,000 of UK Equity Shares, £1,000,000 of Global
Equity Income Shares, £1,000,000 of Balanced Risk Allocation Shares
and £1,000,000 of Managed Liquidity Shares, provided that this
authority shall expire at the conclusion of the next AGM of the
Company or the date falling fifteen months after the passing of
this resolution, whichever is the earlier, but so that such
authority shall allow the Company to make offers or agreements
before the expiry of this authority which would or might require
relevant securities to be allotted after such expiry and the
Directors may allot relevant securities in pursuance of such offers
or agreements as if the power conferred hereby had not expired.
To consider and, if thought fit, to pass the following
resolutions which will be proposed as Special Resolutions:
10. THAT:
the Directors be and they are hereby empowered, in accordance
with sections 570 and 573 of the Companies Act 2006 as amended from
time to time prior to the date of the passing of this resolution
(‘2006 Act’) to allot Shares in each class (UK Equity, Global
Equity Income, Balanced Risk Allocation and Managed Liquidity) for
cash, either pursuant to the authority given by resolution 9 set
out above or (if such allotment constitutes the sale of relevant
Shares which, immediately before the sale, were held by the Company
as treasury shares) otherwise, as if section 561 of the 2006 Act
did not apply to any such allotment, provided that this power shall
be limited:
(a) to the allotment of Shares in
connection with a rights issue in favour of all holders of
a class of Share where the Shares attributable respectively to
the interests of all holders of Shares of such class are either
proportionate (as nearly as may be) to the respective numbers of
relevant Shares held by them or are otherwise allotted in
accordance with the rights attaching to such Shares (subject in
either case to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to fractional
entitlements or legal or practical problems under the laws of, or
the requirements of, any regulatory body or any stock exchange in
any territory or otherwise);
(b) to the allotment (otherwise than
pursuant to a rights issue) of equity securities up to an aggregate
nominal amount of £30,279 of UK Equity Shares, £27,475 of Global
Equity Income Shares, £5,236 of Balanced Risk Allocation Shares and
£2,497 of Managed Liquidity Shares; and
(c) to the allotment of equity
securities at a price of not less than the net asset value per
Share as close as practicable to the allotment or sale
and this power shall expire at the conclusion of the next AGM of
the Company or the date fifteen months after the passing of this
resolution, whichever is the earlier, but so that this power shall
allow the Company to make offers or agreements before the expiry of
this power which would or might require equity securities to be
allotted after such expiry as if the power conferred by this
resolution had not expired; and so that words and expressions
defined in or for the purposes of Part 17 of the 2006 Act shall
bear the same meanings in this resolution.
11. THAT:
the Company be generally and subject as hereinafter appears
unconditionally authorised in accordance with section 701 of the
Companies Act 2006 as amended from time to time prior to the date
of passing this resolution (‘2006 Act’) to make market purchases
(within the meaning of section 693(4) of the 2006 Act) of its
issued Shares in each Share class (UK Equity, Global Equity Income,
Balanced Risk Allocation and Managed Liquidity).
PROVIDED ALWAYS THAT
(i) the maximum number of Shares
hereby authorised to be purchased shall be 14.99% of each class of
the Company’s share capital at 6 October
2020, the date of the Annual General Meeting (equivalent, at
30 July 2020, to 4,538,963 UK Equity
Shares, 4,118,622 Global Equity Income Shares, 785,009 Balanced
Risk Allocation Shares and 374,305 Managed Liquidity Shares);
(ii) the minimum price which may be paid
for a Share shall be 1p;
(iii) the maximum price which may be paid for
a Share in each Share class must not be more than the higher of:
(a) 5% above the average of the mid-market values of the Shares for
the five business days before the purchase is made; and (b) the
higher of the price of the last independent trade in the Shares and
the highest then current independent bid for the Shares on the
London Stock Exchange;
(iv) any purchase of Shares will be made in
the market for cash at prices below the prevailing net asset value
per Share (as determined by the Directors);
(v) the authority hereby conferred shall
expire at the conclusion of the next AGM of the Company or, if
earlier, on the expiry of 15 months from the passing of this
resolution unless the authority is renewed at any other general
meeting prior to such time; and
(vi) the Company may make a contract to
purchase Shares under the authority hereby conferred prior to the
expiry of such authority which will be executed wholly or partly
after the expiration of such authority and may make a purchase of
Shares pursuant to any such contract.
12. THAT:
the period of notice required for general meetings of the
Company (other than Annual General Meetings) shall be not less than
14 days.
Ordinary Business of the UK Equity
Share Class
Only holders of UK Equity Shares may vote on this resolution,
which will be proposed as an Ordinary Resolution:
13. To approve the UK Equity Share Class
Portfolio dividend payment policy as set out on page 36
of the 2020 annual financial report.
Ordinary Business of the Global Equity
Income Share Class
Only holders of Global Equity Income Shares may vote on this
resolution, which will be proposed as an Ordinary Resolution:
14. To approve the Global Equity Income
Share Class Portfolio dividend payment policy as set out on page 36
of the 2020 annual financial report.
All Resolutions are explained further in the Directors’ Report
on pages 59 to 61.
Dated 31st July
2020
By order of the Board
Invesco Asset Management Limited
Company Secretary