Invesco Perpetual Select Trust plc
LEI: 549300JZQ39WJPD7U596
HALF-YEARLY FINANCIAL REPORT
SIX MONTHS ENDED 30 NOVEMBER
2020
.
FINANCIAL PERFORMANCE
CUMULATIVE TOTAL RETURNS(1)(2) TO 30 NOVEMBER 2020
| UK Equity Share
Portfolio |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
| Net Asset Value |
10.9% |
–8.6% |
–4.1% |
12.4% |
| Share Price |
15.3% |
–7.5% |
–3.6% |
11.8% |
| FTSE All-Share Index |
6.9% |
–10.3% |
–1.9% |
22.1% |
|
|
|
|
|
| Global Equity Income Share
Portfolio |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
| Net Asset Value |
16.1% |
–0.3% |
9.2% |
53.0% |
| Share Price |
16.4% |
0.4% |
9.9% |
50.1% |
| MSCI World Index (£) |
12.2% |
11.0% |
33.2% |
88.9% |
|
|
|
|
|
| Balanced Risk Allocation Share
Portfolio |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
| Net Asset Value |
14.1% |
5.6% |
10.2% |
32.2% |
| Share Price |
14.7% |
2.8% |
7.4% |
26.5% |
| ICE BoA Merrill Lynch 3 month LIBOR
plus 5% |
|
|
|
|
| per annum |
2.6% |
5.6% |
17.0% |
27.9% |
|
|
|
|
|
| Managed Liquidity Share
Portfolio |
|
|
|
|
|
SIX
MONTHS |
ONE
YEAR |
THREE
YEARS |
FIVE
YEARS |
| Net Asset Value |
1.0% |
1.0% |
3.7% |
3.8% |
| Share Price |
0.5% |
0.8% |
1.6% |
1.1% |
PERIOD END NET ASSET VALUE, SHARE PRICE AND DISCOUNT
SHARE CLASS |
NET ASSET
VALUE
(PENCE) |
SHARE
PRICE
(PENCE) |
DISCOUNT |
| UK Equity |
158.38 |
157.50 |
(0.6)% |
| Global Equity Income |
203.82 |
202.00 |
(0.9)% |
| Balanced Risk Allocation |
154.07 |
148.00 |
(3.9)% |
| Managed Liquidity |
105.41 |
102.00 |
(3.2)% |
(1) Alternative Performance Measure
(APM). See pages 38 to 40 for the explanation and calculation of
APMs. Further details are provided in the Glossary of Terms and
Alternative Performance Measures in the Company’s 2020 annual
financial report.
(2) Source: Refinitiv.
.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S
STATEMENT
CHAIRMAN’S STATEMENT
Investment Objective and Policy
The Company’s investment objective is to provide shareholders
with a choice of investment strategies and policies, each intended
to generate attractive risk-adjusted returns.
The Company’s share capital comprises four Share classes: UK
Equity Shares, Global Equity Income Shares, Balanced Risk
Allocation Shares and Managed Liquidity Shares, each of which has
its own separate portfolio of assets and attributable
liabilities.
The Company enables shareholders to alter their asset allocation
to reflect their views of prevailing market conditions.
Shareholders have the opportunity, every three months, to convert
between share classes, free of capital gains tax and free of
charges.
Performance
In net asset value (NAV) terms, with dividends reinvested, the
UK Equity Share Portfolio returned +10.9% over the six months to
the end of November 2020, and +15.3%
on the share price, compared with its benchmark, the FTSE All-Share
Index total return of +6.9%.
The Global Equity Income Share Portfolio returned +16.1% in NAV
terms, and +16.4% on the share price, compared with its benchmark,
the MSCI World Index total return over the period of +12.2%.
The Balanced Risk Allocation Share Portfolio returned +14.1% in
NAV terms, and +14.7% on the share price. The Portfolio’s
benchmark, ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum,
returned +2.6%.
The Managed Liquidity Share Portfolio had a return of +1.0%
based on NAV and +0.5% based on the share price.
It is very pleasing to report that all three Portfolios based on
risk assets outperformed their benchmarks. In the period under
review sentiment towards financial markets, and equities in
particular, fluctuated in response to the news about the Covid-19
pandemic. Towards the end of the period, the announcement of a
number of successful vaccines led to a significant rise in
equities, with many markets having their greatest ever monthly
return in November. The Company’s Portfolios benefitted from being
geared in the period, as well as from positive stock and sector
selection by the portfolio managers. The UK Equity portfolio
manager had a balanced approach, holding both gold stocks as a
defensive hedge, as well as more economically sensitive stocks such
as Barclays, Next and JD Sports Fashion. The latter were impacted
by the government lockdowns and restrictions in response to the
pandemic, but rallied during November on the vaccine news. The
Global Equity Income Portfolio also had a balanced construction,
with pharmaceutical stocks such as Novartis and Roche offering
defensive characteristics, offset by economically sensitive stocks
such as Samsung Electronics, Taiwan Semiconductor Manufacturing and
JPMorgan Chase. The Global Equity Income Portfolio outperformed its
benchmark despite being underweight the US equity market, which
once again has been a very strong performer.
The Balanced Risk Allocation Portfolio by its very nature has a
combination of equities, bonds and commodities. During the period
under review, the exposure to risk assets such as equities and
commodities proved beneficial, whilst bonds had a small negative
return. The portfolio manager also generated a positive return
during the period through tactical allocation between the different
asset classes.
Throughout the period interest rates around the globe remained
at, or very near, record lows. Nevertheless, the Managed Liquidity
Portfolio generated a positive return from the investment in short
dated bonds. As announced at the end of the half year, Derek Steeden has been appointed manager of this
Portfolio. The investment policy will remain unchanged, with the
portfolio manager targeting a positive return from investing in
short dated bonds, with particular attention given to yield,
duration and credit risk. As has been mentioned in the past, this
Share class has a lower risk profile than the Company’s other three
Share classes. Nevertheless, it is not designed to be a cash fund,
and as such is not without risk to capital.
Proposed Combination with Invesco
Income Growth Trust plc
On 1 December 2020 the Board
announced the agreement of Heads of Terms with the board of Invesco
Income Growth Trust plc (IVI) in respect of a proposed combination
of IVI with the Company’s UK Equity Share class. It is intended
that this proposal, if approved by each company’s shareholders and
subject to regulatory and tax approvals, will be implemented
through a scheme of reconstruction pursuant to section 110 of the
Insolvency Act 1986, resulting in the voluntary liquidation of IVI
and the rollover of its assets into the Company in exchange for the
issue of new UK Equity shares to IVI shareholders and a partial
cash exit. A circular and prospectus in relation to this
transaction will be posted to shareholders in due course.
If the proposal is approved by shareholders, Ciaran Mallon, who has managed IVI’s portfolio
since 2005, will become joint portfolio manager of the UK Equity
Share Portfolio, with James
Goldstone, who has managed it since October 2016. The Boards of both this Company and
IVI believe that the two managers’ combined and complementary
skills, with a disciplined investment process, can deliver
attractive returns for shareholders. Ciaran and James jointly
manage Invesco’s largest open ended UK equity funds, which have
outperformed their benchmark since appointment. The Company’s
smaller UK Equity portfolio will give the managers freedom to
invest across the size and liquidity spectrum and to offer the
prospect of a genuine best ideas portfolio, clearly distinguished
from their open-ended funds, where stock selection is limited to
larger, more liquid investments. The change will bring the benefits
of increased scale, including enhancing secondary market liquidity
and the spreading of fixed costs over a larger cost base.
Additionally, the Board has negotiated improved management fee
arrangements to apply from when the scheme becomes effective. The
current flat annual management fee of 0.55% of net assets payable
by the UK Equity Share Portfolio will be reduced, with 0.55%
payable on its net assets up to £100 million and 0.50% over £100
million; and the performance fee (being 12.5% of any increase in
net assets above the benchmark plus 1.0%, capped at 0.55% of net
assets) will be removed. In the interests of alignment, the 0.55%
management fee on the Company’s Global Equity Income Share
Portfolio will be amended in the same way, and its performance fee
removed. Costs of the transaction will be significantly mitigated
by Invesco waiving its accrued performance fee of £531,000 in
respect of the UK Equity Share Portfolio.
The Company will retain its innovative capital structure,
offering investors the opportunity to switch (on a quarterly basis)
between its UK Equity, Global Equity Income, Balanced Risk
Allocation and Managed Liquidity share classes to react to changing
investment conditions.
Dividends
The Board has declared equal first, second and third quarterly
dividends for the current year for each of the equity share
classes. These were all at the same level as last year.
Accordingly, for the UK Equity shares each of these dividends was
1.5p, making 4.5p declared for the financial year to date. For the
Global Equity Income shares each of these dividends was 1.55p,
making 4.65p declared for the financial year to date.
With pressure on income streams from Covid-19 the Board has not
set targets for annual dividends for the current financial year.
However, as in recent years, the earnings of the UK Equity and
Global Equity Income Portfolios will be augmented with
contributions from capital.
It continues to be the case that in order to maximise the
capital return on the Balanced Risk Allocation Shares, the
Directors only intend to declare dividends on the Balanced Risk
Allocation Shares to the extent required, having taken into account
the dividends paid on the other Share classes, to maintain the
Company’s status as an investment trust. None have been declared to
date.
No dividends have been declared in respect of the current
financial year on the Managed Liquidity Shares. Although
improvements to revenue allowed small dividends to be paid in the
last two years, in this exceedingly low interest rate environment
it currently appears unlikely to be repeated this year.
Discount and Share Buy Backs
The Company has continued to operate a discount control policy
for all four share classes through the period and the discounts
have remained within a reasonably narrow range.
During the period the Company bought back 4,588,000 UK Equity
shares at an average price of 144.4p, 2,945,000 Global Equity
Income shares at an average price of 186.0p, 705,000 Balanced Risk
Allocation shares at an average price of 141.9p and 174,000 Managed
Liquidity shares at an average price of 101.5p.
Outlook
As I noted in the last annual financial report, the impact of
the Covid-19 pandemic on economies and societies has been profound.
At the time of writing, there are still very high infection rates
in Europe and North America, although the pandemic is much
more contained in Asia. As a
result, GDP growth has resumed in Asia, whilst it is more subdued in those areas
of the globe still experiencing high infection rates. Nevertheless,
equity markets have rallied strongly in anticipation of economic
recovery following the roll out of vaccines. Equity markets have
also been supported by government stimulus packages throughout the
world. The magnitude of these has been even greater than during the
financial crisis, and yet bond yields are at near record lows, as
inflation has remained subdued. Given the profound dislocation that
has occurred following the pandemic, it would be foolhardy to make
bold predictions for the second half of the Company’s year. Much
will depend upon the effectiveness of vaccines, and the speed and
extent of the recovery in GDP. Although equity markets are
anticipating a recovery, there are still many sectors trading at
very low valuations which offer upside. Furthermore, although it is
difficult to anticipate government bond yields moving lower, unless
there is an upsurge in inflation, bond yields could remain low.
Undoubtedly financial markets will be volatile, but this should
provide the portfolio managers the opportunity to continue to build
upon the strong investment performance in the first half of the
Company’s year.
We remain convinced that the Company offers an attractive and
unique mix of strategies, and its structure, with opportunities to
convert between share classes, makes it an ideal vehicle for
self-managed investors who want enhanced control of their
investments – long-term investing with flexibility to switch
portfolios in response to market changes.
Graham
Kitchen
Chairman
5 February 2021
.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S
STATEMENT
Related Party Transactions
Under United Kingdom Generally Accepted Accounting Practice (UK
Accounting Standards and applicable law), the Company has
identified the Directors as related parties. No other related
parties have been identified during the period. No transactions
with related parties have taken place which have materially
affected the financial position or the performance of the
Company.
Principal Risks and Uncertainties
Explanations of the Company’s principal risks and uncertainties
are set out on pages 39 to 42 of the Company’s 2020 annual
financial report, which is available on the Manager’s website.
These are summarised as follows:
• Investment Objectives and
Attractiveness to Investors – the investment policies may not
achieve the published investment objectives;
• Market Movements and Portfolio
Performance – falls in stock markets will affect the performance of
the individual Portfolios and securities held within the
Portfolios;
• Risks Applicable to the Company’s
Shares – the prices of Shares in the Company may not appreciate and
the level of dividends may fluctuate;
• Viability and Compulsory Conversion of
a Class of Share – lack of demand for one of the Company’s Share
classes could result in the relevant portfolio becoming too small
to be viable. If ownership of a class of Shares becomes too
concentrated the Directors may serve notice on holders of the
affected class requiring them to convert to another class;
• Liability of a Portfolio for the
Liabilities of Another Portfolio – in the event that any Portfolio
was unable to meet its liabilities, the shortfall would become a
liability of the other Portfolios;
• Gearing – borrowing will amplify the
effect on shareholders’ funds of gains and losses on the underlying
securities;
• Hedging – where hedging is used there
is a risk that the hedge will not be effective;
• Regulatory and Tax Related – whilst
compliance with rules and regulations is closely monitored,
breaches could affect returns to shareholders;
• Additional Risks Applicable to
Balanced Risk Allocation Shares – the use of financial derivative
instruments, in particular futures, forms part of the investment
policy and strategy of the Balanced Risk Allocation Portfolio. The
degree of leverage inherent in futures trading potentially means
that a relatively small price movement in a futures contract may
result in an immediate and substantial loss to the Portfolio;
and
• Reliance on Third Party Service
Providers – the Company has no employees, so is reliant upon the
performance of third party service providers, particularly the
Manager, for it to function.
In the view of the Board these principal risks and uncertainties
are as equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Despite the disruption to markets and revenue streams from
Covid-19, and the impact on global economies, the Company continues
to operate effectively and to pursue its investment objectives.
Resilience of the Company, its Board and its service providers has
been demonstrated throughout and the Directors remain
confident that the Company’s investment strategies will continue to
serve shareholders well over the longer term.
Going Concern
The financial statements have been prepared on a going concern
basis. The Directors consider this to be appropriate as the Company
has adequate resources to continue in operational existence for the
foreseeable future, being 12 months after approval of the financial
statements. In reaching this conclusion, the Directors took into
account the value of net assets; the Company’s Investment Policy;
its risk management policies; the diversified portfolio of readily
realisable securities which can be used to meet funding
commitments; the credit facility and the overdraft which can be
used for short-term funding requirements; the liquidity of the
investments which could be used to repay the credit facility in the
event that the facility could not be renewed or replaced; its
revenue; and the ability of the Company in the light of these
factors to meet all its liabilities and ongoing expenses.
.
MARKET AND ECONOMIC BACKGROUND
The six months to the end of November
2020 saw global equity markets deliver positive returns
against a backdrop of the gradual and partial reopening of the
global economy from the Covid-19 induced restrictions imposed from
March onwards. Commodity markets saw energy and industrial metals
make gains on expectations of a return of demand from the increases
in travel and economic activity. However, given the strength in
risk assets, bond prices retreated as demand for safe havens
diminished.
Despite some rebound in economic growth across each region of
the world throughout this period, the year 2020 will go on record
as delivering the sharpest decline in global GDP since World War
2.
In the UK it was a volatile six months for the equity market,
largely dominated by the impact of Covid-19, where the social and
economic effect has been devastating, and it will take years to
recover. Additional ongoing issues such as US-China trade
relations, Brexit, UK domestic politics and the US Presidential
Election also added to the background noise in recent months.
The effect on equity markets could have been worse. Rapid and
forceful action by central banks and governments around the world
to loosen monetary and fiscal policy in order to cushion the
economic shock to consumers has prevented, so far at least,
economic depression. The challenge for governments is to provide a
level of effective support, while at the same time recognising the
need to control levels of borrowing. Consumer spending power has
largely been maintained, and indeed is likely to be the driver of
post-Covid economic recovery in 2021.
Throughout the bulk of the period equity markets continued to be
extremely bifurcated, with a narrow range of e-commerce, technology
and high growth ‘thematic’ stocks outperforming significantly, in
addition to those perceived winners from the changes in consumer
behaviour brought about by Covid-19. More traditional companies
across a range of sectors, especially those with more ‘value’
orientated characteristics and greater sensitivity to the economic
cycle, continued to underperform. Of course, travel and leisure
companies as well as energy stocks were in the eye of the storm as
restrictions severely curtailed business travel and holidays.
Healthcare stocks were also weak, despite their relatively secure
short-term profitability, as concerns around a Democrat sweep of
the US Presidency and Congress raised fears of more radical
healthcare reform in the US.
In the UK, towards the end of the review period the FTSE
All-Share Index continued to trade below the pre Covid-19 levels of
February, but above the market low that was witnessed in March.
Uncertainty around a national lockdown as a result of a steep rise
in Covid-19 infections weighed on share prices into the autumn,
along with concerns around progress in Brexit negotiations. Whilst
there remained uncertainty on some key issues, there appeared to be
room for cautious optimism that a negotiated settlement would be
reached with the EU before the end of the year, although there was
some strong posturing around a threat of a ‘No Deal’.
The beginning of November marked quite a radical rotation within
the global equity market. The catalyst was initially the US
election result, delivering a Democratic president, but with a
gridlocked Congress. In the view of the market, thus preventing
radical shake ups of tax policy and the healthcare sector, whilst
allowing a more diplomatic approach to foreign relations and policy
making. A ‘Goldilocks’ scenario to many investors. This was rapidly
followed up by good news both from Pfizer and Moderna on vaccines.
The prospect of a rapid pick up in economic growth in 2021 was in
sight and hence selling expensive ‘winners’ and buying companies
more exposed to a ‘return to normal’ became a popular strategy as
we headed to the end of the six months under review.
.
UK EQUITY SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return
|
SIX MONTHS
TO 30 NOV
2020 |
YEAR TO
31 MAY
2020 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
| Net Asset Value |
10.9% |
–12.4% |
–4.9% |
1.1% |
22.0% |
| Share Price |
15.3% |
–16.2% |
–3.1% |
0.3% |
22.5% |
| FTSE All-Share Index |
6.9% |
–11.2% |
–3.2% |
6.5% |
24.5% |
| Source: Refinitiv. |
|
|
|
|
|
| Revenue return per share |
1.50p |
4.12p |
5.73p |
5.49p |
5.38p |
| Dividend |
3.00p |
6.60p |
6.60p |
6.45p |
6.25p |
.
UK EQUITY SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the UK Equity Portfolio is to
provide shareholders with an attractive real long-term total return
by investing primarily in UK quoted equities.
Portfolio Strategy and Review
The Portfolio outperformed its benchmark over the six months to
30 November 2020, with a net asset
value total return of +10.9%, compared with +6.9% for the FTSE
All-Share Index.
At the sector level, the largest source of positive performance
was the exposure to general retailers, where the share prices of
Next and JD Sports Fashion made gains on the strength of their
differentiated distribution models. As consumption picked up, their
already well-established online models came to the fore. Next
benefitted from an upgrade to annual profit expectations as second
quarter results in September beat analyst estimates. JD Sports
Fashion had resilient sales and very strong growth in its online
revenues. The switch to online came with additional costs, but the
share price rose on the news of reinstated guidance for strong
full-year profits which, whilst below last year’s, were impressive
under the circumstances.
CVS, which is an integrated veterinary services provider, coped
relatively well with the crisis. Trading began to return to normal
in the summer as lockdown eased and it made a strong contribution
to performance in the period.
Burford Capital, another positive contributor, released
half-year results in October, which were well received and helped
to move the share price higher. The company had been beleaguered by
short selling activity for some time, but said it had recovered
US$820 million from litigations in
the six months to the end of June, which was an increase of 32%
when compared with the same period in 2019. It has now listed on
the New York Stock Exchange, which has helped address some of the
company’s governance and liquidity questions.
The share price of flooring specialist Victoria was boosted by encouraging signs in
recent trading and its full year 2020 numbers showed solid recovery
from the previous year. The position has now been sold. Meanwhile
media group Future, which specialises in consumer websites, was a
strong performer despite being temporarily impacted by the market
weakness mid-March. The company released a trading statement in
July indicating that the business had continued to grow despite the
crisis and a further trading statement at the beginning of
September prompted analysts to increase estimates.
Global speciality chemicals company Elementis released a trading
statement in October. Despite volumes being down approximately 13%
on the prior year, pricing remained resilient across most of the
business and cost savings and supply chain efficiencies left
trading in line with expectations. This news was well received
by the market and buoyed the share price, making Elementis one of
the top contributors to performance on a relative basis.
Barclays was the largest position in the portfolio at the end of
November and reported better than expected quarterly profit on the
back of lower provisions for bad loans and a strong performance by
the investment bank. Along with other banks, Barclays ceased paying
its dividend on the instruction of the Prudential Regulation
Authority (PRA), but the regulator has now judged “that an
extension of the exceptional and precautionary action” is no longer
necessary.
Travel and leisure sector businesses On the Beach and easyJet
have been severely impacted by travel restrictions, but both are
well placed to benefit from any pick up in travel. Following news
of the successful development of a vaccine, both shares recovered
sharply.
Weaker performance over the six-month period was seen from the
portfolio’s overweight exposure to basic materials. This exposure
is almost entirely represented by holdings in four North American
gold mining companies, namely Barrick
Gold, Newmont, Wheaton Precious Metals and Agnico Eagle
Mines. After a period of extremely strong performance the gold
price weakened as promising news of vaccine developments increased.
Sentiment improved towards stocks that had been hit hard by the
pandemic and investors started to move from ‘risk off’ to ‘risk
on’, but the thesis underpinning these gold stocks’ position in the
portfolio remains valid.
Aerospace and defence company Babcock International also
detracted from performance despite a strong rally during the last
month of the period. Its March and June dividends were cancelled in
order to conserve cash until there was greater certainty around the
impact of the pandemic and the company has stated that it intends
to prioritise strengthening the balance sheet. A new CEO and CFO,
both with relevant experience, are now in place and we await their
strategic review at the time of full-year results.
The share price of British American Tobacco has been volatile
over the six-month period and ultimately detracted from relative
performance. Just after the end of the period the company released
a trading statement stating that despite the challenges posed by
Covid-19 the business was performing strongly. It is committed to
its strategy of gaining new non-combustible product customers, an
area which continues to grow (currently approximately 10% of
revenues), and has restated that it is committed to a 65% dividend
pay-out ratio.
Tesco is a significant overweight in the portfolio and whilst
the share price was virtually unchanged over the period the
overweight meant that it detracted from performance on a relative
basis. Tesco is well capitalised, with around £2 billion of cash on
the balance sheet. The company had to employ extra staff during
lockdown, which added to the £725 million of Covid-19 costs, but
these were in part made up for by increased sales. Online orders
have more than doubled, with customers utilising ‘click and
collect’ as well as delivery. The business believes that the
current crisis has accelerated the shift to online. An agreement to
sell its Asian business has been announced and Tesco has said that
part of the proceeds will be returned to shareholders as a special
dividend. The company has also said that it will repay the business
rates relief it received to cope with the pandemic.
The share prices of oil majors BP and Royal Dutch Shell both fell as the pandemic
unfurled and as market pessimism around oil demand and prices grew.
Both companies cut their dividends early in the crisis on concerns
that it would take a long time for demand and prices to recover and
to fund expansion in renewable energy. Their share prices remained
depressed over the summer. The holding of Royal Dutch Shell was sold in June, leaving a
lower allocation to the sector over the summer before the holding
in BP was increased in September. More recently, BP has risen in
step with oil prices towards the end of the period on expectation
that demand for oil will recover sharply as the vaccine is rolled
out.
Performance relative to the benchmark was also assisted by a
handful of stocks that were not held, notably GlaxoSmithKline,
AstraZeneca, Reckitt Benckiser and Diageo, which are in the
healthcare and consumer staples sectors. These stocks had been
trading on high valuations prior to the pandemic and, while they
still are, the premium has eroded as the market has rotated away
from these more ‘growth’ orientated stock towards
‘value’.
New holdings purchased over the period were Aviva, Chemring and
Lancashire. Disposals included Royal Dutch
Shell, Compass, Pennon, NatWest, DS Smith, and Experian.
The Portfolio has been geared from borrowings during the period,
to positive effect. Gearing going into the crisis in 2020 was
around 6%, at the beginning of the review period in June 2020 it was 10.3% and it was 18.6% at the
end of November 2020.
Outlook
While recent news of the successful development and distribution
of a vaccine for Covid-19 is very welcome, it will be some months
before a sufficient number of the UK population has been vaccinated
for the economy to return to normal. As part of its ongoing efforts
to mitigate the impact of the Covid-19 outbreak, the UK government
and central bank have continued to provide substantial monetary and
fiscal support to corporates and households. Bank of England interest rates remain at historic lows
and are further supported by large scale asset purchases. The
strength and depth of the UK’s fiscal policy response offers us
some reassurance.
Brexit has finally reached a conclusion, albeit with some major
outstanding issues (eg Services) to be addressed in the coming
months. However, the enormous disruption and consequent soured
relations with the EU from a no-deal Brexit has been avoided. The
US Presidential Elections have reached their conclusion and, whilst
the demonstrations are concerning, were outcome is now
clear.
Although these headwinds look now to have an end in sight, I do
expect markets to continue to be volatile. We should expect further
waves of optimism as the vaccination programme rolls out but it is
clear that the after-effects of Covid-19 will have significant
economic consequences for some time to come. The restrictions put
in place to limit the further spread of Covid-19 while the vaccine
is distributed will naturally have a large impact on a wide range
of economic indicators. With significant areas of private sector
output currently subject to severe disruption and the exit path
from lockdown yet to be determined, the range of possible outcomes
for economic activity over 2021 are still much wider than normal.
Company earnings estimates have been revised down significantly
since the start of the pandemic, but visibility still remains low
and guidance by companies has been in large part
withdrawn.
The environment for gold remains supportive despite the gold
price having fallen from its recent high in the summer. The
portfolio’s holdings in four North American gold mining companies
performed their protective role admirably during the market
volatility and now represent around 11% of the portfolio. At the
current gold price their valuations remain extremely attractive and
if things develop as I anticipate, gold should have further gains
to make. I believe that these four companies are best in class and
have good sustainability credentials which are increasingly being
recognised. Barrick Gold recently
won the Capital Finance International award for Best Sustainable
Mining Strategy (Africa) as a
result of its collaborative local partnerships and shared
stakeholder benefits. These stocks continue to play a critical role
in the portfolio and I intend to maintain the position at or around
its current weighting for the foreseeable future.
James
Goldstone
Portfolio Manager
5 February 2021
.
UK EQUITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2020
Ordinary shares listed in the UK
unless stated otherwise
COMPANY |
SECTOR† |
MARKET
VALUE
£’000 |
% OF
PORTFOLIO |
| Barclays |
Banks |
2,421 |
4.7 |
| Tesco |
Food & Drug Retailers |
2,360 |
4.5 |
| BP |
Oil & Gas Producers |
2,300 |
4.4 |
| Barrick Gold – Canadian Listed |
Mining |
2,171 |
4.2 |
| British American Tobacco |
Tobacco |
2,051 |
3.9 |
| Babcock International |
Aerospace & Defence |
1,653 |
3.2 |
| Newmont – US Listed |
Mining |
1,643 |
3.2 |
| Next |
General Retailers |
1,624 |
3.1 |
| SSE |
Electricity |
1,600 |
3.1 |
| JD Sports Fashion |
General Retailers |
1,479 |
2.8 |
| Coats |
General Industrials |
1,411 |
2.7 |
| Ultra Electronics |
Aerospace & Defence |
1,355 |
2.6 |
| Agnico Eagle Mines – Canadian
Listed |
Mining |
1,279 |
2.5 |
| PureTech Health |
Pharmaceuticals &
Biotechnology |
1,097 |
2.1 |
| Pearson |
Media |
1,091 |
2.1 |
| Vodafone |
Mobile Telecommunications |
1,081 |
2.1 |
| RELX |
Media |
1,050 |
2.0 |
| Sigma CapitalAIM |
Financial Services |
953 |
1.8 |
| Wheaton Precious Metals – Canadian
Listed |
Mining |
943 |
1.8 |
| Phoenix Spree Deutschland |
Real Estate Investment &
Services |
927 |
1.8 |
| Future |
Media |
903 |
1.7 |
| CVSAIM |
General Retailers |
889 |
1.7 |
| Johnson ServiceAIM |
Support Services |
864 |
1.7 |
| Fevertree DrinksAIM |
Beverages |
859 |
1.7 |
| Ashtead |
Support Services |
826 |
1.6 |
| Urban Logistics REIT |
Real Estate Investment Trusts |
808 |
1.6 |
| Chemring |
Aerospace & Defence |
786 |
1.5 |
| XPS Pensions |
Financial Services |
785 |
1.5 |
| Burford Capital |
Financial Services |
778 |
1.5 |
| PRS REIT |
Real Estate Investment Trusts |
733 |
1.4 |
| Aviva |
Life Insurance |
728 |
1.4 |
| Sirius Real Estate |
Real Estate Investment &
Services |
708 |
1.4 |
| MJ Gleeson |
Household Goods & Home
Construction |
684 |
1.3 |
| Chesnara |
Life Insurance |
684 |
1.3 |
| Hays |
Support Services |
664 |
1.3 |
| National Grid |
Gas, Water & Multiutilities |
664 |
1.3 |
| Barratt Developments |
Household Goods & Home
Construction |
659 |
1.3 |
| Secure Trust Bank |
Banks |
621 |
1.2 |
| Essentra |
Support Services |
621 |
1.2 |
| DFS Furniture |
General Retailers |
595 |
1.1 |
| McBride |
Household Goods & Home
Construction |
561 |
1.1 |
| Harworth |
Real Estate Investment &
Services |
543 |
1.0 |
| Elementis |
Chemicals |
520 |
1.0 |
| easyJet |
Travel & Leisure |
506 |
1.0 |
| Lancashire |
Non-life Insurance |
504 |
1.0 |
| HomeServe |
General Retailers |
499 |
1.0 |
| Bushveld MineralsAIM |
Mining |
494 |
1.0 |
| On the Beach |
Travel & Leisure |
477 |
0.9 |
| United Utilities |
Gas, Water & Multiutilities |
466 |
0.9 |
| Countryside |
Household Goods & Home
Construction |
465 |
0.9 |
| IAG |
Travel & Leisure |
446 |
0.9 |
| Safestyle UKAIM |
General Retailers |
369 |
0.7 |
| Sherborne Investors (Guernsey)
C |
Financial Services |
275 |
0.5 |
| TungstenAIM |
Financial Services |
238 |
0.5 |
| Distribution Finance
CapitalAIM |
Financial Services |
178 |
0.3 |
| Total Holdings (55) |
|
51,889 |
100.0 |
† FTSE Industry Classification Benchmark.
AIM Investments quoted on AIM.
.
UK EQUITY SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2020 |
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
| Gains on investments held at fair
value |
– |
3,985 |
3,985 |
– |
2,855 |
2,855 |
| Income |
592 |
– |
592 |
959 |
48 |
1,007 |
| Investment management fees – note
2 |
(36) |
(84) |
(120) |
(47) |
(110) |
(157) |
| Other expenses |
(92) |
(1) |
(93) |
(102) |
(2) |
(104) |
| Net return before finance costs and
taxation |
464 |
3,900 |
4,364 |
810 |
2,791 |
3,601 |
| Finance costs – note 2 |
(9) |
(22) |
(31) |
(9) |
(21) |
(30) |
| Return before taxation |
455 |
3,878 |
4,333 |
801 |
2,770 |
3,571 |
| Tax – note 3 |
(7) |
– |
(7) |
(7) |
– |
(7) |
| Return after taxation for the
financial period |
448 |
3,878 |
4,326 |
794 |
2,770 |
3,564 |
| Return per ordinary share –
note 4 |
1.50p |
12.97p |
14.47p |
2.42p |
8.46p |
10.88p |
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Fixed assets |
51,889 |
52,121 |
| Current assets |
742 |
236 |
| Creditors falling due within one
year, excluding borrowings |
(674) |
(938) |
| Bank overdraft |
– |
(2) |
| Bank loan |
(8,700) |
(4,800) |
| Net assets |
43,257 |
46,617 |
| Net asset value per ordinary share –
note 5 |
158.38p |
145.78p |
|
|
|
| Gearing: |
|
|
| – gross |
20.1% |
10.3% |
| – net |
18.6% |
10.3% |
SUMMARY OF CHANGES IN NET ASSETS
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Net assets brought forward |
46,617 |
57,286 |
| Shares bought back and held in
treasury |
(6,670) |
(2,463) |
| Share conversions |
(116) |
651 |
| Return after taxation for the
financial period/year |
4,326 |
(6,712) |
| Dividend paid – note 9 |
(900) |
(2,145) |
| Net assets at the period/year
end |
43,257 |
46,617 |
.
GLOBAL EQUITY INCOME SHARE
PORTFOLIO
PERFORMANCE RECORD
Total Return
|
SIX MONTHS
TO 30 NOV
2020 |
YEAR TO
31 MAY
2020 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
| Net Asset Value |
16.1% |
–6.4% |
–1.3% |
7.8% |
29.2% |
| Share Price |
16.4% |
–6.1% |
–0.1% |
5.7% |
31.1% |
| MSCI World Index (£) |
12.2% |
8.9% |
5.3% |
8.2% |
31.3% |
| Source: Refinitiv. |
|
|
|
|
|
| Revenue return per share |
1.19p |
5.39p |
6.90p |
6.50p |
5.62p |
| Dividend |
3.10p |
7.05p |
6.90p |
6.70p |
6.40p |
.
GLOBAL EQUITY INCOME SHARE
PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Global Equity Income Share
Portfolio is to provide an attractive and growing level of income
return and capital appreciation over the long term, predominantly
through investment in a diversified portfolio of equities
worldwide.
Portfolio Strategy and Review
The portfolio outperformed its reference benchmark in the six
months to the end of November 2020.
On a total return basis, the Portfolio’s net asset value rose by
16.1% over the six months, compared to a rise of 12.2% in the MSCI
World index (£, total return, net of withholding tax).
Throughout the period we maintained a significant exposure to
the technology sector; Taiwan Semiconductor Manufacturing, for
example, is a clear technology leader in a highly oligopolistic
market, benefitting from diversified sources of revenue growth. It
has 15% of its market capitalisation on its balance sheet as net
cash and pays a 3% yield, growing at around 8% per annum. We would
also include companies such as Microsoft and Samsung Electronics in
this category, despite lower dividends. They all share similar
attributes of market leadership, strong balance sheets, and a
continued runway for earnings and dividend growth. Towards the end
of the period, however, we had begun to reduce exposure where we
felt valuations were running too hot, such as Microsoft and
Mastercard, or where we had become less confident in the management
strategy, such as Analog Devices.
We added Coca-Cola to the portfolio during the summer. It has
underperformed other consumer staple stocks this year, mainly due
to its over exposure to the restaurant and bar market, which was
significantly impacted globally by Covid-19 restrictions. It was
trading at a low level relative to its sector and the US equity
market. New management is reinvigorating the product range and
sales strategy. It has a growing, above average, dividend
yield.
Another new holding was Progressive, a leading US automotive
insurer which we thought was attractively valued. It has an
innovative business strategy and brand, with the ability to grow
market share and compound returns for many years in what is a
highly fragmented market.
Although travel and leisure related names have been costly for
us throughout the year, we felt it appropriate to maintain some
exposure to good businesses, on discounted valuations, which ought
to be able to weather the storm. The good news we saw on vaccines
in November meant that companies such as Amadeus, Rolls-Royce,
American Express and Coca-Cola, outperformed significantly towards
the period end. Banking stocks also performed well as the period
came towards a close, due to an improved economic outlook for
2021.
Financials remain the least liked sector in the market (apart
from energy) by many investors. Whilst we acknowledge the
challenges the sector faces, we continue to believe banks, such as
JPMorgan Chase and Standard Chartered, offer massive recovery
potential and low valuations by historic standards. Also, we
believe insurers such as AIA, Zurich Insurance and Progressive
offer some modest growth and significant secure income. Despite the
strong recovery in performance witnessed in November we continue to
see further upside.
Amongst other portfolio changes, we disposed of our position in
Bayer in October after it issued another unexpected warning on
profitability, principally due to challenges in their crop
business. This was the latest in a series of disappointing updates
from the company and caused us to re-evaluate our position as we do
not have confidence that it can begin to reach the levels of
profitability we envisaged at the time of purchase. We felt it was
right to move on and invest in a company where we have higher
conviction.
Outlook
Markets feel to be in a very different place in 2021 from that
of only a few months ago. Optimism has replaced fear as equity
prices have rebounded. Certainly, it is understandable that markets
have rallied with the resolution of Brexit, the US election and
vaccine approvals, but it does leave us questioning, what next?
There has been a good deal of good news, but much of this now feels
‘in the price’, certainly at an aggregate market level. With news
of further virus spread, any negative issues surrounding vaccine
roll out and return to normal could undermine this bullish
sentiment, at least for the first half of 2021.
However, our central case remains that vaccines roll out broadly
as planned, and governments and central banks continue to adhere to
more growth friendly monetary and fiscal policies. Earnings and
dividend growth should recover rapidly, but global equity markets’
returns are likely to lag the growth in corporate earnings.
Stephen
Anness
Portfolio Manager
5 February 2021
.
GLOBAL EQUITY INCOME SHARE PORTFOLIO
LIST OF INVESTMENTS
AT 30 November 2020
Ordinary shares unless stated
otherwise
COMPANY |
INDUSTRY GROUP† |
COUNTRY |
MARKET
VALUE
£’000 |
% OF
PORFOLIO |
| Samsung Electronics – preference
shares |
Technology Hardware &
Equipment |
South Korea |
3,221 |
5.4 |
| Taiwan Semiconductor
Manufacturing |
Semiconductors & Semiconductor
Equipment |
Taiwan |
3,109 |
5.2 |
| JPMorgan Chase |
Banks |
United States |
3,029 |
5.1 |
| Novartis |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
2,497 |
4.2 |
| Coca-Cola |
Food, Beverage & Tobacco |
United States |
2,338 |
3.9 |
| Zurich Insurance |
Insurance |
Switzerland |
2,267 |
3.8 |
| Microsoft |
Software & Services |
United States |
2,266 |
3.8 |
| Texas Instruments |
Semiconductors & Semiconductor
Equipment |
United States |
2,172 |
3.7 |
| Progressive |
Insurance |
United States |
2,131 |
3.6 |
| Alphabet |
Media & Entertainment |
United States |
1,968 |
3.3 |
| Roche |
Pharmaceuticals, Biotechnology &
Life Sciences |
Switzerland |
1,789 |
3.0 |
| TencentR |
Media & Entertainment |
China |
1,731 |
2.9 |
| AIA |
Insurance |
Hong Kong |
1,659 |
2.8 |
| 3i |
Diversified Financials |
United Kingdom |
1,558 |
2.6 |
| Alimentation Couche-Tard – Class
B |
Food & Staples Retailing |
Canada |
1,489 |
2.5 |
| TJX Companies |
Retailing |
United States |
1,403 |
2.4 |
| Standard Chartered |
Banks |
United Kingdom |
1,337 |
2.3 |
| Ashtead |
Capital Goods |
United Kingdom |
1,306 |
2.2 |
| Lundin Energy |
Energy |
Sweden |
1,306 |
2.2 |
| Bristol-Myers Squibb |
Pharmaceuticals, Biotechnology &
Life Sciences |
United States |
1,244 |
2.1 |
| American Express |
Diversified Financials |
United States |
1,233 |
2.1 |
| Amadeus |
Software & Services |
Spain |
1,203 |
2.0 |
| Home Depot |
Retailing |
United States |
1,200 |
2.0 |
| PepsiCo |
Food, Beverage & Tobacco |
United States |
1,191 |
2.0 |
| Diageo |
Food, Beverage & Tobacco |
United Kingdom |
1,134 |
1.9 |
| RELX |
Commercial & Professional
Services |
United Kingdom |
1,079 |
1.8 |
| Melrose Industries |
Capital Goods |
United Kingdom |
1,071 |
1.8 |
| Berkeley |
Consumer Durables & Apparel |
United Kingdom |
1,064 |
1.8 |
| Rolls-Royce |
Capital Goods |
United Kingdom |
1,030 |
1.7 |
| Next |
Retailing |
United Kingdom |
939 |
1.6 |
| Accenture – A shares |
Software & Services |
United States |
926 |
1.6 |
| Total |
Energy |
France |
872 |
1.5 |
| Volkswagen – preference shares |
Automobiles & Components |
Germany |
821 |
1.4 |
| NetEase – ADR |
Media & Entertainment |
China |
811 |
1.4 |
| Colgate-Palmolive |
Household & Personal
Products |
United States |
802 |
1.4 |
| Inditex |
Retailing |
Spain |
775 |
1.3 |
| Sony |
Consumer Durables & Apparel |
Japan |
746 |
1.3 |
| Automatic Data Processing |
Software & Services |
United States |
741 |
1.2 |
| Wells Fargo |
Banks |
United States |
719 |
1.2 |
| Sberbank – ADR |
Banks |
Russia |
583 |
1.0 |
| Installed Building Products |
Consumer Durables & Apparel |
United States |
574 |
1.0 |
| Total Holdings (41) |
|
|
59,334 |
100.0 |
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.
† MSCI and Standard & Poor’s Global Industry
Classification Standard.
.
GLOBAL EQUITY INCOME SHARE
PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2020 |
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
| Gains on investments held at fair
value |
– |
7,442 |
7,442 |
– |
4,869 |
4,869 |
| Gains/(losses) on foreign
exchange |
– |
1 |
1 |
– |
(6) |
(6) |
| Income |
540 |
– |
540 |
1,079 |
32 |
1,111 |
| Investment management fees – note
2 |
(43) |
(99) |
(142) |
(53) |
(123) |
(176) |
| Other expenses |
(99) |
(2) |
(101) |
(113) |
(2) |
(115) |
| Net return before finance costs and
taxation |
398 |
7,342 |
7,740 |
913 |
4,770 |
5,683 |
| Finance costs – note 2 |
(9) |
(22) |
(31) |
(10) |
(22) |
(32) |
| Return before taxation |
389 |
7,320 |
7,709 |
903 |
4,748 |
5,651 |
| Tax – note 3 |
(66) |
– |
(66) |
(105) |
– |
(105) |
| Return after taxation for the
financial period |
323 |
7,320 |
7,643 |
798 |
4,748 |
5,546 |
| Return per ordinary share – note
4 |
1.19p |
27.05p |
28.24p |
2.56p |
15.21p |
17.77p |
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Fixed assets |
59,334 |
55,778 |
| Current assets |
521 |
2,753 |
| Creditors falling due within one
year, excluding borrowings |
(518) |
(2,179) |
| Bank loan |
(6,880) |
(4,980) |
| Net assets |
52,457 |
51,372 |
| Net asset value per ordinary share –
note 5 |
203.82p |
178.46p |
|
|
|
| Gearing: |
|
|
| – gross |
13.1% |
9.7% |
| – net |
12.8% |
9.4% |
|
|
|
| SUMMARY OF CHANGES IN NET
ASSETS |
|
|
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Net assets brought forward |
51,372 |
62,589 |
| Shares bought back and held in
treasury |
(5,515) |
(6,402) |
| Share conversions |
(206) |
724 |
| Return after taxation for the
financial period/year |
7,643 |
(3,401) |
| Dividend paid – note 9 |
(837) |
(2,138) |
| Net assets at the period/year
end |
52,457 |
51,372 |
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
PERFORMANCE RECORD
Total Return
|
SIX MONTHS
TO 30 NOV
2020 |
YEAR TO
31 MAY
2020 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
| Net Asset Value |
14.1% |
–3.1% |
–2.7% |
6.4% |
9.8% |
| Share Price |
14.7% |
–6.9% |
–0.7% |
4.5% |
11.9% |
| ICE BoA Merrill Lynch 3 month LIBOR
plus 5% per annum |
2.6% |
5.9% |
5.8% |
5.4% |
5.5% |
Source: Refinitiv.
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Balanced Risk Allocation
Portfolio is to provide shareholders with an attractive total
return in differing economic and inflationary environments, and
with low correlation to equity and bond market indices by gaining
exposure to three asset classes: debt securities, equities and
commodities.
Portfolio Strategy and Review
For the half year to 30 November
2020 the Balanced Risk Allocation Portfolio posted a
positive return of 14.1%. Two of the three asset classes in which
the portfolio invests generated positive results over the period,
with bonds posting negative results.
Strategic exposure to commodities was the top contributor to
performance with all four commodity complexes posting gains.
Agricultural commodities led results, headed by grains,
specifically soymeal and soybeans. Demand for feed increased as
meat processing plants reopened and as hog herds in China started to recover from swine flu.
Weather in the Midwest also supported higher grain prices as
windstorms followed by low rainfall and an extended heatwave in
August reduced crop sizes. Industrial metals rose with the increase
in Chinese manufacturing and infrastructure spending, while
production constraints also impacted copper supply. Energy prices
advanced as news on the Covid-19 vaccine sparked hopes for higher
demand. Precious metals posted subdued gains after strong
performance early in the period, when they had been supported a
decline in the US dollar, low real yields and demand for safe-haven
exposure. Safe-haven demand decreased as optimism over the Covid-19
vaccine increased.
Strategic exposure to equities also contributed positively to
results with all six markets invested in posting positive results.
US small caps were the top contributor and outpaced US large caps
as optimism around the recovery increased risk appetite.
Hong Kong equities also
contributed due to increased manufacturing and economic activity in
China. Japanese equities rose on
the recovery from the Covid-19 bottom as well as the election of
Yoshihide Suga to replace
Shinzo Abe. European equities rose
despite a resurgence of Covid-19 cases. UK equities advanced too,
but were subdued compared to other markets as increased Covid-19
cases led officials to reimpose lockdowns and as the UK dealt with
renewed Brexit uncertainty.
Strategic exposure to government bonds detracted from results as
the safe-haven demand that bonds had enjoyed dissipated with the
rise of risk assets. Enthusiasm for bonds was further dampened by
the unified call from central banks for higher levels of inflation.
Australian bonds led results as the Reserve Bank of Australia expanded its term funding facility
to ensure the smooth provision of credit and indicated they would
increase bond buying through quantitative easing. Japanese bond
performance was flat for the period. North American bond markets
produced losses as US equity markets generally fared well,
dampening enthusiasm for safe havens. Canadian bonds saw yields
rise despite the Bank of Canada
communicating that it had recalibrated its quantitative easing
program to focus on the longer end of the curve. Returns were
relatively muted, with central banks having begun to point out the
limits to monetary policy and the need for additional fiscal
stimulus to support the recovery from the Covid-19 lows. Average
inflation targeting introduced by the US Federal Reserve (Fed)
during the period, and anticipation that other central banks are
likely to follow the Fed’s lead, could be further impeding a move
lower in yields.
Tactical positioning delivered additional gains as overweights
to equities, industrial metals and agriculture proved timely.
Outlook
Over the near term, the success in stopping the spread of
Covid-19 infections will likely be the primary driver of asset
class returns. Now
that several vaccines are available and are being administered,
we should see the extent to which they are able to reduce the
spread and,
by extension, the need for lockdowns. Given the degree of
stimulus present in the system, any sign of effectiveness could
extend the
powerful rally across risk assets.
Scott
Wolle
Portfolio Manager
5 February 2021
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
MANAGER’S REPORT
TARGET ANNUALISED RISK
The targeted annualised risk (volatility of monthly returns) for
the Portfolio as listed below is analysed as follows:
| ASSET CLASS |
RISK |
CONTRIBUTION |
| Equities |
4.5% |
48.2% |
| Commodities |
3.1% |
33.0% |
| Fixed Income |
1.7% |
18.8% |
|
9.3% |
100.0% |
Derivative instruments held in the Balanced Risk Allocation
Share Portfolio are shown on the next page. At the period end all
derivative instruments held in this Portfolio were exchange traded
futures contracts. Holdings in futures contracts that are not
exchange traded are permitted as explained in the investment policy
which is disclosed in full on page 34 of the Company’s 2020 annual
financial report.
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
LIST OF INVESTMENTS
AT 30 NOVEMBER 2020
|
YIELD
% |
MARKET
VALUE
£’000 |
%
OF
PORTFOLIO |
| Short Term Investments |
|
|
|
| Invesco Liquidity Funds plc –
Sterling |
0.05 |
2,175 |
35.2 |
| UK Treasury Bill – 0% 17 May
2021 |
(0.06) |
751 |
12.2 |
| UK Treasury Bill – 0% 10 May
2021 |
(0.08) |
750 |
12.2 |
| UK Treasury Bill – 0% 22 Mar
2021 |
(0.13) |
750 |
12.2 |
| UK Treasury Bill – 0% 01 Feb
2021 |
0.03 |
550 |
8.9 |
| UK Treasury Bill – 0% 04 Jan
2021 |
0.02 |
450 |
7.3 |
| UK Treasury Bill – 0% 04 May
2021 |
(0.05) |
300 |
4.9 |
| UK Treasury Bill – 0% 15 Feb
2021 |
0.03 |
279 |
4.5 |
| UK Treasury Bill – 0% 26 Apr
2021 |
(0.05) |
150 |
2.4 |
| Total Short Term Investments |
|
6,155 |
99.8 |
| Hedge Funds(1) |
|
|
|
| Harbinger Class PE Holdings |
|
13 |
0.2 |
| Harbinger Class L Holdings |
|
3 |
– |
| Total Hedge Funds |
|
16 |
0.2 |
| Total Fixed Asset Investments |
|
6,171 |
100.0 |
(1) The hedge fund investments are residual
holdings of the previous investment strategy, which are awaiting
realisation of underlying investments.
.
LIST OF DERIVATIVE INSTRUMENTS
AT 30 NOVEMBER 2020
|
NOTIONAL
EXPOSURE
£’000 |
NOTIONAL
EXPOSURE
AS % OF
NET ASSETS |
| Government Bond Futures: |
|
|
| Australia |
2,049 |
29.8 |
| Canada |
1,718 |
24.9 |
| US |
655 |
9.5 |
| UK |
537 |
7.8 |
| Total Bond Futures (4) |
4,959 |
72.0 |
| Equity Futures: |
|
|
| Japan |
757 |
11.0 |
| Hong Kong |
639 |
9.3 |
| UK |
566 |
8.2 |
| US small cap |
548 |
7.9 |
| Europe |
469 |
6.8 |
| US large cap |
405 |
5.9 |
| Total Equity Futures (6) |
3,384 |
49.1 |
| Commodity Futures: |
|
|
| Agriculture |
|
|
| Soybean |
263 |
3.8 |
| Cotton |
244 |
3.6 |
| Soybean meal |
236 |
3.4 |
| Sugar |
73 |
1.1 |
| Coffee |
69 |
1.0 |
| Wheat |
67 |
1.0 |
| Corn |
65 |
0.9 |
| Soybean oil |
51 |
0.7 |
| Industrial Metals |
|
|
| Copper |
422 |
6.1 |
| Aluminium |
299 |
4.4 |
| Precious Metals |
|
|
| Gold |
401 |
5.8 |
| Silver |
255 |
3.7 |
| Energy |
|
|
| Gasoline |
195 |
2.8 |
| Brent crude |
180 |
2.6 |
| WTI crude |
102 |
1.5 |
| Low sulphur gasoline |
58 |
0.9 |
| Natural gas |
46 |
0.7 |
| New York Harbor ultra-low sulphur
diesel |
43 |
0.6 |
| Total Commodity Futures (18) |
3,069 |
44.6 |
| Total Derivative Instruments
(28) |
11,412 |
165.7 |
.
BALANCED RISK ALLOCATION SHARE
PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2020 |
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
| Losses on investments held at fair
value |
– |
(4) |
(4) |
– |
(7) |
(7) |
| Gains on derivative instruments |
14 |
992 |
1,006 |
(3) |
400 |
397 |
| Losses on foreign exchange |
– |
(40) |
(40) |
– |
(11) |
(11) |
| Income |
4 |
– |
4 |
30 |
– |
30 |
| Investment management fees – note
2 |
(8) |
(19) |
(27) |
(9) |
(21) |
(30) |
| Other expenses |
(23) |
(1) |
(24) |
(21) |
– |
(21) |
| Return before taxation |
(13) |
928 |
915 |
(3) |
361 |
358 |
| Tax |
– |
– |
– |
– |
– |
– |
| Return after taxation for the
financial period |
(13) |
928 |
915 |
(3) |
361 |
358 |
| Return per ordinary share – note
4 |
(0.25)p |
17.83p |
17.58p |
(0.05)p |
6.47p |
6.42p |
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Fixed assets |
6,171 |
6,347 |
| Derivative assets held at fair value
through profit or loss |
440 |
401 |
| Current assets |
338 |
499 |
| Derivative liabilities held at fair
value through profit or loss |
(36) |
(151) |
| Creditors falling due within one
year, excluding borrowings |
(27) |
(23) |
| Net assets |
6,886 |
7,073 |
| Net asset value per ordinary share –
note 5 |
154.07p |
135.06p |
| Notional exposure of derivative
instruments as % of net assets |
165.7% |
125.4% |
|
|
|
| SUMMARY OF CHANGES IN NET
ASSETS |
|
|
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Net assets brought forward |
7,073 |
7,837 |
| Shares bought back and held in
treasury |
(1,008) |
(228) |
| Share conversions |
(94) |
(323) |
| Return after taxation for the
financial period/year |
915 |
(213) |
| Net assets at the period/year
end |
6,886 |
7,073 |
.
MANAGED LIQUIDITY SHARE PORTFOLIO
PERFORMANCE RECORD
Total Return
|
SIX MONTHS
TO 30 NOV
2020 |
YEAR TO
31 MAY
2020 |
YEAR TO
31 MAY
2019 |
YEAR TO
31 MAY
2018 |
YEAR TO
31 MAY
2017 |
| Net Asset Value |
1.0% |
1.1% |
1.3% |
0.3% |
0.0% |
| Share Price |
0.5% |
1.6% |
–0.5% |
0.5% |
0.5% |
| Source: Refinitiv. |
|
|
|
|
|
| Revenue return per share |
0.04p |
0.65p |
0.59p |
0.24p |
(0.04)p |
| Dividend |
nil |
0.80p |
0.80p |
nil |
nil |
.
MANAGED LIQUIDITY SHARE PORTFOLIO
MANAGER’S REPORT
Investment Objective
The investment objective of the Managed Liquidity Share
Portfolio is to produce an appropriate level of income return
combined with a high degree of security.
Portfolio Strategy and Review
The investment strategy followed for this Portfolio in the six
months ended 30 November 2020 was to
invest 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 was invested in the Sterling Liquidity Portfolio
of Invesco Liquidity Funds 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
provide capital preservation, liquidity and stronger return
potential relative to traditional cash investments, in exchange for
a modest increase in risk. The fund is actively managed by PIMCO
and invests predominantly in sterling denominated short-term
investment grade debt (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 managed by Invesco in a laddered maturity structure, investing
in repurchase agreements, time deposits, commercial paper,
certificates of deposit, medium-term notes and floating rate notes
rated A-1/P-1 or better.
The Bank of England base rate
of interest remained at only 0.1% throughout the period.
Outlook
The Board announced on 30 November
2020 the appointment of Derek
Steeden to manage the Company’s Managed Liquidity
portfolio. Based in London,
Mr Steeden is a Portfolio Manager for the Invesco Investment
Solutions team, which provides customised, multi-asset investment
strategies for clients. He joined Invesco in 2019, having
begun his investment career in 2005. There will be no change to the
investment objective and policy of the portfolio.
Following his appointment, Mr Steeden, together with Invesco
Investment Solutions, has undertaken a review of the Portfolio’s
holdings and identified the benefit of switching holdings in the
PIMCO Sterling Short Maturity Source UCITS ETF to the iShares
Sterling Ultrashort Bond UCITS ETF. This fund offers diversified
exposure to investment grade very short maturity sterling
denominated fixed and floating rate bonds, including direct
investment in corporate bonds across sectors (industrials,
utilities and financial companies) with improved yield, liquidity
and charges. The switch was completed on 19 January 2021.
Invesco
5 February 2021
.
MANAGED LIQUIDITY SHARE PORTFOLIO
LIST OF INVESTMENTS
AS AT 30 November 2020
|
MARKET
VALUE
£’000 |
%
OF
PORTFOLIO |
| PIMCO Sterling Short Maturity Source
UCITS ETF |
2,664 |
91.1 |
| Invesco Liquidity Funds plc –
Sterling |
260 |
8.9 |
|
2,924 |
100.0 |
MANAGED LIQUIDITY SHARE PORTFOLIO
INCOME STATEMENT
|
SIX
MONTHS ENDED
30 NOVEMBER 2020 |
SIX
MONTHS ENDED
30 NOVEMBER 2019 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
| Gains on investments held at fair
value |
– |
22 |
22 |
– |
11 |
11 |
| Income |
7 |
– |
7 |
23 |
– |
23 |
| Investment management fees – note
2 |
(2) |
– |
(2) |
(2) |
– |
(2) |
| Other expenses |
(4) |
– |
(4) |
(6) |
– |
(6) |
| Return before taxation |
1 |
22 |
23 |
15 |
11 |
26 |
| Tax |
– |
– |
– |
– |
– |
– |
| Return after taxation for the
financial period |
1 |
22 |
23 |
15 |
11 |
26 |
| Return per ordinary share – note
4 |
0.04p |
0.77p |
0.81p |
0.36p |
0.26p |
0.62p |
.
SUMMARY OF NET ASSETS
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Fixed assets |
2,924 |
2,682 |
| Current assets |
84 |
65 |
| Creditors falling due within one
year, excluding borrowings |
(140) |
(140) |
| Net assets |
2,868 |
2,607 |
| Net asset value per ordinary share –
note 5 |
105.41p |
104.40p |
|
|
|
| SUMMARY OF CHANGES IN NET
ASSETS |
|
|
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| Net assets brought forward |
2,607 |
4,583 |
| Shares bought back and held in
treasury |
(178) |
(893) |
| Share conversions |
416 |
(1,052) |
| Return after taxation for the
financial period/year |
23 |
24 |
| Dividend paid – note 9 |
– |
(55) |
| Net assets at the period/year
end |
2,868 |
2,607 |
.
CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 NOVEMBER
|
2020 |
2019 |
|
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
REVENUE
£’000 |
CAPITAL
£’000 |
TOTAL
£’000 |
| Gains on investments held at fair
value |
– |
11,445 |
11,445 |
– |
7,728 |
7,728 |
| Gains on derivative instruments |
14 |
992 |
1,006 |
(3) |
400 |
397 |
| Losses on foreign exchange |
– |
(39) |
(39) |
– |
(17) |
(17) |
| Income |
1,143 |
– |
1,143 |
2,091 |
80 |
2,171 |
| Investment management fees – note
2 |
(89) |
(202) |
(291) |
(111) |
(254) |
(365) |
| Other expenses |
(218) |
(4) |
(222) |
(242) |
(4) |
(246) |
| Net return before finance costs and
taxation |
850 |
12,192 |
13,042 |
1,735 |
7,933 |
9,668 |
| Finance costs – note 2 |
(18) |
(44) |
(62) |
(19) |
(43) |
(62) |
| Return before taxation |
832 |
12,148 |
12,980 |
1,716 |
7,890 |
9,606 |
| Tax – note 3 |
(73) |
– |
(73) |
(112) |
– |
(112) |
| Return after taxation for the
financial period |
759 |
12,148 |
12,907 |
1,604 |
7,890 |
9,494 |
| Return per ordinary share – note
4 |
|
|
|
|
|
|
| UK Equity Share
Portfolio |
1.50p |
12.97p |
14.47p |
2.42p |
8.46p |
10.88p |
| Global Equity Income
Share Portfolio |
1.19p |
27.05p |
28.24p |
2.56p |
15.21p |
17.77p |
| Balanced Risk Allocation
Share Portfolio |
(0.25)p |
17.83p |
17.58p |
(0.05)p |
6.47p |
6.42p |
| Managed Liquidity Share
Portfolio |
0.04p |
0.77p |
0.81p |
0.36p |
0.26p |
0.62p |
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 for the financial period is
the total comprehensive income and therefore no additional
statement of other comprehensive income is presented. The
supplementary revenue and capital columns are presented for
information purposes in accordance with the Statement of
Recommended Practice issued by the Association of Investment
Companies. All items in the above statement derive from continuing
operations of the Company. No operations were acquired or
discontinued in the period. Income Statements for the different
Share classes are shown on pages 13, 18, 23 and 26 for the UK
Equity, Global Equity Income, Balanced Risk Allocation and Managed
Liquidity Share Portfolios, respectively.
.
CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 NOVEMBER
|
SHARE
CAPITAL
£’000 |
SHARE
PREMIUM
£’000 |
SPECIAL
RESERVE
£’000 |
CAPITAL
REDEMPTION
RESERVE
£’000 |
CAPITAL
RESERVE
£’000 |
REVENUE
RESERVE
£’000 |
TOTAL
£’000 |
| At 31 May 2020 |
1,050 |
1,290 |
55,454 |
359 |
49,568 |
(52) |
107,669 |
| Cancellation of deferred shares |
– |
– |
(2) |
2 |
– |
– |
– |
| Shares bought back and held in
treasury |
– |
– |
(13,371) |
– |
– |
– |
(13,371) |
| Share conversions |
1 |
– |
(1) |
– |
– |
– |
– |
| Return after taxation per the income
statement |
– |
– |
– |
– |
12,148 |
759 |
12,907 |
| Dividends paid – note 9 |
– |
– |
(966) |
– |
– |
(771) |
(1,737) |
| At 30 November 2020 |
1,051 |
1,290 |
41,114 |
361 |
61,716 |
(64) |
105,468 |
| At 31 May 2019 |
1,055 |
1,290 |
66,372 |
353 |
62,871 |
354 |
132,295 |
| Shares bought back and held in
treasury |
– |
– |
(5,063) |
– |
– |
– |
(5,063) |
| Return after taxation |
– |
– |
– |
– |
7,890 |
1,604 |
9,494 |
| Dividends paid – note 9 |
– |
– |
(190) |
– |
– |
(1,800) |
(1,990) |
| At 30 November 2019 |
1,055 |
1,290 |
61,119 |
353 |
70,761 |
158 |
134,736 |
CONDENSED BALANCE SHEET
AS AT 30 NOVEMBER 2020
REGISTERED NUMBER 5916642
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
TOTAL
£’000 |
| Fixed assets |
|
|
|
|
|
| Investments held at fair value
through profit or loss |
51,889 |
59,334 |
6,171 |
2,924 |
120,318 |
| Current assets |
|
|
|
|
|
| Derivative assets held at fair value
through profit or loss |
– |
– |
440 |
– |
440 |
| Debtors |
78 |
336 |
148 |
6 |
568 |
| Cash and cash equivalents |
664 |
185 |
190 |
78 |
1,117 |
|
742 |
521 |
778 |
84 |
2,125 |
| Creditors: amounts falling due
within one year |
|
|
|
|
|
| Derivative liabilities held at fair
value through profit or loss |
– |
– |
(36) |
– |
(36) |
| Other creditors |
(674) |
(518) |
(27) |
(140) |
(1,359) |
| Bank loan |
(8,700) |
(6,880) |
– |
– |
(15,580) |
|
(9,374) |
(7,398) |
(63) |
(140) |
(16,975) |
| Net current
(liabilities)/assets |
(8,632) |
(6,877) |
715 |
(56) |
(14,850) |
| Net assets |
43,257 |
52,457 |
6,886 |
2,868 |
105,468 |
| Capital and reserves |
|
|
|
|
|
| Share capital |
438 |
392 |
105 |
116 |
1,051 |
| Share premium |
– |
– |
1,290 |
– |
1,290 |
| Special reserve |
18,694 |
18,692 |
1,455 |
2,273 |
41,114 |
| Capital redemption reserve |
74 |
78 |
27 |
182 |
361 |
| Capital reserve |
24,051 |
33,295 |
4,079 |
291 |
61,716 |
| Revenue reserve |
– |
– |
(70) |
6 |
(64) |
| Shareholders’ funds |
43,257 |
52,457 |
6,886 |
2,868 |
105,468 |
|
|
|
|
|
|
| Net asset value per ordinary
share |
|
|
|
|
|
| Basic – note 5 |
158.38p |
203.82p |
154.07p |
105.41p |
|
CONDENSED BALANCE SHEET
AS AT 31 MAY 2020
|
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 |
52,121 |
55,778 |
6,347 |
2,682 |
116,928 |
| Current assets |
|
|
|
|
|
| Derivative assets held at fair value
through profit or loss |
– |
– |
401 |
– |
401 |
| Debtors |
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 |
– |
– |
(151) |
– |
(151) |
| Other creditors |
(938) |
(2,179) |
(23) |
(140) |
(3,280) |
| Bank overdraft |
(2) |
– |
– |
– |
(2) |
| Bank loan |
(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 |
439 |
393 |
106 |
112 |
1,050 |
| Share premium |
– |
– |
1,290 |
– |
1,290 |
| Special reserve |
25,931 |
24,926 |
2,556 |
2,041 |
55,454 |
| Capital redemption reserve |
74 |
78 |
27 |
180 |
359 |
| Capital reserve |
20,173 |
25,975 |
3,151 |
269 |
49,568 |
| Revenue reserve |
– |
– |
(57) |
5 |
(52) |
| Shareholders’ funds |
46,617 |
51,372 |
7,073 |
2,607 |
107,669 |
| Net asset value per ordinary
share |
|
|
|
|
|
| Basic – note 5 |
145.78p |
178.46p |
135.06p |
104.40p |
|
.
CONDENSED CASH FLOW STATEMENT
|
SIX MONTHS
ENDED
30 NOVEMBER
2020
£’000 |
SIX MONTHS
ENDED
30 NOVEMBER
2019
£’000 |
| Cash flows from operating
activities |
|
|
| Net return before finance costs and
taxation |
13,042 |
9,668 |
| Tax on overseas income |
(73) |
(112) |
| Adjustments for: |
|
|
| Purchase of
investments |
(41,226) |
(21,408) |
| Sale of investments |
49,945 |
33,393 |
| Sale of futures |
852 |
208 |
|
9,571 |
12,193 |
| Scrip dividends |
(9) |
(26) |
| Gains on
investments |
(11,445) |
(7,728) |
| Gains on
derivatives |
(1,006) |
(397) |
| Decrease in debtors |
340 |
443 |
| Increase/(decrease) in
creditors |
23 |
(59) |
| Net cash inflow from operating
activities |
10,443 |
13,982 |
| Cash flows from financing
activities |
|
|
| Interest paid on bank
borrowings |
(53) |
(63) |
| Increase/(decrease) in bank
borrowings |
5,798 |
(6,950) |
| Share buy back costs |
(13,781) |
(5,228) |
| Equity dividends paid – note 9 |
(1,737) |
(1,990) |
| Net cash outflow from financing
activities |
(9,773) |
(14,231) |
| Net increase/(decrease) in cash and
cash equivalents |
670 |
(249) |
| Cash and cash equivalents at the
start of the period |
447 |
884 |
| Cash and cash equivalents at the end
of the period |
1,117 |
635 |
| Reconciliation of cash and cash
equivalents to the Balance Sheet is as follows: |
|
|
| Cash held at custodian |
547 |
635 |
| Cash held on the Invesco Liquidity
Funds plc – Sterling |
570 |
– |
| Cash and cash equivalents |
1,117 |
635 |
| Cash flow from operating activities
includes: |
|
|
| Interest received |
– |
23 |
| Dividends received |
1,250 |
2,220 |
|
AT
1 JUNE
2020
£’000 |
CASH
FLOWS
£’000 |
AT
30 NOVEMBER
2020
£’000 |
| Analysis of changes in net debt |
|
|
|
| Cash and cash equivalents |
447 |
670 |
1,117 |
| Bank overdraft |
(2) |
2 |
– |
| Bank loans |
(9,780) |
(5,800) |
(15,580) |
| Total |
(9,335) |
(5,128) |
(14,463) |
.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting
Policies
The condensed financial statements have been prepared in
accordance with applicable United Kingdom Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice),
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of Ireland,
FRS 104 Interim Financial Reporting and the Statement of
Recommended Practice Financial Statements of Investment Trust
Companies and Venture Capital Trusts, issued by the Association of
Investment Companies in October 2019.
The financial statements are issued on a going concern basis.
The accounting policies applied to these condensed financial
statements are consistent with those applied in the financial
statements for the year ended 31 May
2020.
2. Management Fees
and Finance Costs
Investment management fees and finance costs are charged to the
applicable Portfolio as follows, in accordance with the Board’s
expected split of long-term income and capital returns:
PORTFOLIO |
REVENUE
RESERVE |
CAPITAL
RESERVE |
| UK Equity |
30% |
70% |
| Global Equity Income |
30% |
70% |
| Balanced Risk Allocation |
30% |
70% |
| Managed Liquidity |
100% |
– |
Any entitlement to the investment performance fee which is
attributable to the UK Equity and/or the Global Equity Income
Portfolio is allocated 100% to capital as it is principally
attributable to the capital performance of the investments in those
Portfolios.
The Manager is entitled to a basic fee which is calculated and
payable quarterly. The fee is based on the net assets of each
Portfolio, at the following percentages:
– 0.55% per annum in the case of the UK Equity and Global Equity
Income Portfolios;
– 0.75% per annum for the Balanced Risk Allocation Portfolio;
and
– 0.12% per annum for the Managed Liquidity Portfolio.
The Manager is also entitled to receive performance fees in
respect of the UK Equity and Global Equity Income Portfolios of
12.5% of the increase in net assets per relevant Share in excess of
a hurdle of the relevant benchmark plus 1% per annum. The amount of
the performance fee that can be paid in any one year has been
capped at 0.55% of the net assets of the relevant Portfolio and
payment is subject to a high water mark. Any underperformance of
the benchmark, or performance above the cap, is carried forward to
subsequent periods and any underperformance must be offset by
future overperformance before any performance fee can be paid.
Due to underperformance brought forward, no performance fee was
earned by the UK Equity Portfolio during the six months
(30 November 2019: £nil). The
performance fee accrued for past periods is £531,000 and, as it
cannot be reduced by future underperformance, remains an obligation
of the Company. Similarly, no performance fee was earned for the
Global Equity Portfolio during the six months (30 November 2019: £nil).
Underperformance movements in the six months to 30 November 2020 are shown below:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
| Underperformance brought
forward |
(910) |
(2,587) |
| Performance in the period |
136 |
145 |
| Underperformance carried
forward |
(774) |
(2,442) |
3. Investment Trust
Status and Tax
It is the intention of the Directors to conduct the affairs of
the Company so that it satisfies the conditions for approval as an
investment trust company. Any company so approved is not liable for
taxation on capital gains.
The tax charge represents withholding tax suffered on overseas
income for the period.
4. Basic Return per
Ordinary Share
Basic revenue, capital and total return per ordinary share is
based on each of the returns on ordinary activities after taxation
as shown by the income statement for the applicable Share class and
on the following number of shares being the weighted average number
of shares in issue throughout the period for each applicable Share
class:
|
WEIGHTED
AVERAGE
NUMBER OF SHARES |
|
SIX MONTHS
ENDED
30 NOVEMBER
2020 |
SIX MONTHS
ENDED
30 NOVEMBER
2019 |
|
| UK Equity |
29,891,243 |
32,758,348 |
|
| Global Equity Income |
27,063,818 |
31,216,223 |
|
| Balanced Risk Allocation |
5,205,603 |
5,580,509 |
|
| Managed Liquidity |
2,840,113 |
4,189,561 |
|
5. Net Asset Values
per Ordinary Share
The net asset values per ordinary share were based on the
following Shareholders’ funds and shares (excluding treasury
shares) in issue at the period end:
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| PORTFOLIO SHAREHOLDERS’ FUNDS |
|
|
| UK Equity |
43,257 |
46,617 |
| Global Equity Income |
52,457 |
51,372 |
| Balanced Risk Allocation |
6,886 |
7,073 |
| Managed Liquidity |
2,868 |
2,607 |
|
NUMBER OF
SHARES |
|
AT
30 NOVEMBER
2020
£’000 |
AT
31 MAY
2020
£’000 |
| PORTFOLIO SHARES IN ISSUE |
|
|
| UK Equity |
27,311,720 |
31,977,941 |
| Global Equity Income |
25,737,022 |
28,786,800 |
| Balanced Risk Allocation |
4,469,506 |
5,236,886 |
| Managed Liquidity |
2,720,683 |
2,497,032 |
6. Classification
Under Fair Value Hierarchy
FRS 102 sets out three fair value levels. These are:
Level 1 The unadjusted quoted
price in an active market for identical assets or liabilities that
the entity can access at the measurement date.
Level 2 Inputs other than quoted
prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability,
either directly or indirectly.
Level 3 Inputs are unobservable
(i.e. for which market data is unavailable) for the asset or
liability.
The fair value hierarchy analysis for investments held at fair
value at the period end is as follows:
|
UK
EQUITY
£’000 |
GLOBAL
EQUITY
INCOME
£’000 |
BALANCED
RISK
ALLOCATION
£’000 |
MANAGED
LIQUIDITY
£’000 |
| AT 30 NOVEMBER 2020 |
|
|
|
|
| Financial assets at fair value |
|
|
|
|
| through profit or
loss: |
|
|
|
|
| Level 1 |
51,889 |
59,334 |
3,980 |
2,664 |
| Level 2 |
– |
– |
2,615 |
260 |
| Level 3 |
– |
– |
16 |
– |
| Total financial assets |
51,889 |
59,334 |
6,611 |
2,924 |
| Financial liabilities: |
|
|
|
|
| Level 2 – Derivative
instruments |
– |
– |
36 |
– |
|
|
|
|
|
| AT 31 MAY 2020 |
|
|
|
|
| Financial assets at fair value |
|
|
|
|
| through profit or
loss: |
|
|
|
|
| Level 1 |
52,121 |
55,778 |
3,999 |
2,642 |
| Level 2 |
– |
– |
2,731 |
40 |
| Level 3 |
– |
– |
18 |
– |
| Total financial assets |
52,121 |
55,778 |
6,748 |
2,682 |
| Financial liabilities: |
|
|
|
|
| Level 2 – Derivative
instruments |
– |
– |
151 |
– |
Level 1 This is the majority of
the Company’s investments and comprises all quoted investments and
Treasury bills.
Level 2 This includes liquidity
funds held in the Balanced Risk Allocation and Managed Liquidity
Portfolios, and any derivative instruments.
Level 3 This includes the
remaining legacy hedge fund investments of the Balanced Risk
Allocation Portfolio.
7. Movements in
Share Capital and Share Class Conversions
IN THE SIX MONTHS ENDED 30 NOVEMBER
2020
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
| Ordinary 1p shares (number) |
|
|
|
|
| At 31 May 2020 |
31,977,941 |
28,786,800 |
5,236,886 |
2,497,032 |
| Shares bought back into
treasury |
(4,588,000) |
(2,945,000) |
(705,000) |
(174,000) |
| Arising on share conversion: |
|
|
|
|
| – August 2020 |
(200,692) |
(315,682) |
84,642 |
738,300 |
| – November
2020 |
122,471 |
210,904 |
(147,022) |
(340,649) |
| At 30 November 2020 |
27,311,720 |
25,737,022 |
4,469,506 |
2,720,683 |
|
|
|
|
|
|
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
| Treasury Shares (number) |
|
|
|
|
| At 31 May 2020 |
11,977,812 |
10,514,159 |
5,321,218 |
8,681,678 |
| Shares bought back into
treasury |
4,588,000 |
2,945,000 |
705,000 |
174,000 |
| At 30 November 2020 |
16,565,812 |
13,459,159 |
6,026,218 |
8,855,678 |
| Total shares in issue at 30 November
2020 |
43,877,532 |
39,196,181 |
10,495,724 |
11,576,361 |
| Average buy back price |
144.4p |
186.0p |
141.9p |
101.5p |
As part of the conversion process, 194,710 deferred shares of 1p
each were created. All deferred shares are cancelled before the
period end and so no deferred shares are in issue at the start or
end of the period.
8. Share Prices
PERIOD END |
UK
EQUITY |
GLOBAL
EQUITY
INCOME |
BALANCED
RISK
ALLOCATION |
MANAGED
LIQUIDITY |
| 30 November 2019 |
178.00p |
209.00p |
144.00p |
102.00p |
| 31 May 2020 |
139.50p |
176.50p |
129.00p |
101.50p |
| 30 November 2020 |
157.50p |
202.00p |
148.00p |
102.00p |
9. Dividends on
Ordinary Shares
First interim dividends for UK Equity and Global Equity Income
were paid on 17 August 2020. Second
interim dividends for UK Equity and Global Equity Income were
paid on 16 November 2020:
PORTFOLIO |
NUMBER
OF SHARES |
DIVIDEND
RATE
(PENCE) |
TOTAL
£’000 |
| UK Equity |
|
|
|
| First interim |
30,584,941 |
1.50 |
459 |
| Second interim |
29,379,249 |
1.50 |
441 |
|
|
3.00 |
900 |
|
|
|
|
| Global Equity Income |
|
|
|
| First interim |
27,605,800 |
1.55 |
428 |
| Second interim |
26,376,118 |
1.55 |
409 |
|
|
3.10 |
837 |
Dividends paid for the six months to 30
November 2020 totalled £1,737,000 (six months
to 30 November 2019: £1,955,000). No dividend was paid in
the period to the holders of Managed Liquidity shares (six
months to 30 November 2019: £35,000, in respect of the year
ended 31 May 2019).
10. The financial
information contained in this half-yearly financial report, which
has not been reviewed or audited by the independent auditor, does
not constitute statutory accounts within the meaning of section 434
of the Companies Act 2006. The financial information for the half
years ended 30 November 2020 and
30 November 2019 has not been
audited. The figures and financial information for the year ended
31 May 2020 are extracted and
abridged from the latest audited accounts and do not constitute the
statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and include the Independent
Auditor’s Report, which was unqualified and did not include a
statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
5 February 2021
.
STATEMENT OF DIRECTORS’ RESPONSIBILITY
in respect of the preparation of the half-yearly financial
report
The Directors are responsible for preparing the half-yearly
financial report using accounting policies consistent with
applicable law and UK Accounting Standards.
The Directors confirm that, to the best of their knowledge:
– the
condensed set of financial statements contained within the
half-yearly financial report has been prepared in accordance with
the FRC’s FRS 104 Interim Financial Reporting;
– the
interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R of the FCA’s Disclosure
Guidance and Transparency Rules; and
– the
interim management report includes a fair review of the information
required on related party transactions.
The half-yearly financial report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Graham
Kitchen
Chairman
5 February 2021