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LEI: 549300JZQ39WJPD7U596
Invesco Select Trust plc
Annual Financial Report for the year ended 31 May 2022
The following text is extracted from the Annual Financial Report of the Company
for the year ended 31 May 2022. All page numbers below refer to the Annual
Financial Report which will be made available on the Company's website.
Financial Performance
Cumulative Total Returns(1)(3)
To 31 May 2022
One Three Five
UK Equity Share Portfolio Year Years Years
Net Asset Value 6.8% 25.9% 21.1%
Share Price 3.0% 13.6% 10.4%
FTSE All-Share Index 8.3% 18.4% 22.2%
One Three Five?
Global Equity Income Share Portfolio Year Years Years
Net Asset Value 9.6% 39.0% 47.9%
Share Price 4.4% 30.0% 37.3%
MSCI World Index (£) 7.4% 43.0% 62.9%
One Three Five?
Balanced Risk Allocation Share Portfolio Year Years Years
Net Asset Value 0.3% 21.8% 26.1%
Share Price -5.2% 11.6% 15.7%
Composite Benchmark Index(2) -6.1% 11.8% 20.3%
ICE BoA Merrill Lynch 3 month LIBOR plus 5% 5.1% 16.1% 27.3%
per annum
One Three Five?
Managed Liquidity Share Portfolio Year Years Years
Net Asset Value -0.3% 4.5% 6.1%
Share Price -4.0% -2.0% -2.0%
Year end Net Asset Value, Share Price and Discount
Net Asset Share
Value Price
Share Class (pence) (pence) Discount
UK Equity 194.35 175.00 (10.0)%
Global Equity Income 249.00 229.00 (8.0)%
Balanced Risk Allocation 169.87 154.50 (9.0)%
Managed Liquidity 106.92 97.00 (9.3)%
(1) Alternative Performance Measure (APM). See Glossary of Terms and
Alternative Performance Measures on pages 116 to 119 of the financial report
for details of the explanation and reconciliations of APMs.
(2) With effect from 1 June 2021, the benchmark adopted by the Balanced Risk
Allocation Portfolio is comprised of 50% 30-year UK Gilts Index, 25% GBP hedged
MSCI World Index (net) and 25% GBP hedged S&P Goldman Sachs Commodity Index.
Prior to this, the benchmark was ICE BoA Merrill Lynch 3 month LIBOR plus 5%
per annum. Accordingly, both the new and old benchmark are shown.
(3) Source: Refinitiv/Bloomberg.
Chairman's Statement
Highlights
- UK Equity Share, Global Equity Income Share and Balanced Risk Allocation
Share Portfolios delivered positive NAV performance over the period, with the
Global Equity Income and Balanced Risk Allocation Share Portfolios
outperforming their respective benchmark indices.
- Dividends rose to 6.70p per UK Equity Share, 7.15p per Global Equity Income
Share and 1.00p per Managed Liquidity Share.
- Net assets in the Global Equity Income Share Portfolio increased to £62.6m,
with net conversions into that portfolio.
- Period of consolidation following completion of the business combination with
Invesco Income Growth Trust in April 2021, one of the results of which are
lower ongoing charges.
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 each of the portfolios are set out on
pages 39 to 41.
The Company's structure enables shareholders to adjust asset allocation to
reflect their views of the prevailing market outlook. As set out on page 2,
shareholders have the opportunity to convert between share classes, free of
capital gains tax, every three months.
Performance
It was pleasing to note, given the global macroeconomic backdrop, that three of
the four portfolios delivered positive NAV performance, with the Global Equity
Income Share Portfolio and Balanced Risk Allocation Share Portfolio
outperforming their respective benchmarks over the period.
The UK Equity Share Portfolio has been jointly managed by Ciaran Mallon and
James Goldstone over the period. The portfolio saw positive NAV total return
performance during the year, although underperformed the benchmark by 1.5%. The
NAV total return of the UK Equity Share Portfolio over the year was 6.8%, which
compares with the total return of 8.3% from the FTSE All-Share Index. The share
price total return was 3.0%. Market sentiment continued to be dominated by the
ongoing impact of the pandemic on the economy and inflationary pressures,
particularly around energy costs, which were then worsened by the war in
Ukraine.
The Global Equity Income Portfolio, managed by Stephen Anness, also saw
positive NAV total return performance, outperforming the benchmark total return
by 2.2%. The NAV total return of the Global Equity Income Share Portfolio over
the year was 9.6%, which compares with the total return from the MSCI World
Index (£) of 7.4%. The share price total return was 4.4%. The portfolio's stock
selection remained strong, particularly in the US and UK, where overweight
exposure to consumer staples was a positive element to performance.
The Balanced Risk Allocation Portfolio, by its very nature, has a combination
of equities, bonds and commodities exposures. It is managed by Invesco's Global
Asset Allocation Team, based in Atlanta. During the period under review, NAV
total return of the Balanced Risk Allocation Share Portfolio was 0.3%, which
outperformed the total return from its composite benchmark by 6.4%. The share
price total return was -5.2%. The positive NAV performance was largely driven
by the portfolio's exposure to commodity markets, particularly energy
commodities and industrial metals, due to a combination of strong demand
twinned with supply constraints.
The NAV total return on the Managed Liquidity Portfolio, managed by Derek
Steeden, was -0.3%. The portfolio's return has been impacted by the effect of
rising interest rates to combat increasing inflation. It is important to note
that although this share class has a lower risk profile than the Company's
other three share classes, it is not designed to be a cash fund, and as such is
not without risk to capital. The share price total return was -4.0%.
Balanced Risk Allocation Benchmark Change
As reported in the 2021 Annual Financial Report and effective 1 June 2021, a
new benchmark has been used. This new comparator benchmark is a composite whose
components are approximate proxies for the portfolio's holdings and is a blend
comprising 50% 30-year UK Gilts Index, 25% GBP hedged MSCI World Index (net)
and 25% GBP hedged S&P Goldman Sachs Commodity Index (all total return).
Gearing and Structure
The UK Equity and Global Equity Income portfolios are able to employ gearing by
means of a bank loan facility. Your Board has renewed this facility at a level
of £40 million to allow the Portfolio Managers to employ gearing, if desired,
across the two equity portfolios.
The Company continues to 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 in order to position their portfolios for changing investment
conditions.
Dividends
We have continued to apply the dividend policy adopted six 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 1.50p per share and for the Global Equity Income
Shares 1.55p per share. The fourth interim dividends were 2.20p per share for
the UK Equity Shares, bringing the total to 6.70p per share for the year (2021:
6.65p), and 2.50p per share for the Global Equity Income Shares, bringing that
total to 7.15p (2021: 7.10p) per share for the year.
The Company's dividend policy permits the payment of dividends in the UK
Equity, Global Equity Income and Managed Liquidity portfolios from capital.
With total income of the Company increasing to £6.99m (2021: £3.18m) the
contribution from capital required for the Company's dividends to meet the
Board's target level was reduced from 2021 levels. For the Global Equity Income
Shares a contribution from capital of approximately 2.30p per share was
required to achieve the dividend level (2021: 3.15p per share). For the UK
Equity Shares a contribution from capital of approximately 0.7p per share was
required to achieve the dividend level (2021: 2.75p per share).
We intend to continue with the policy of a partial augmentation from capital
where appropriate 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, we did
not set dividend targets in 2022 due to the uncertainty of income flows as a
result of the pandemic. With the current uncertainty of future income flows,
due in particular to the risk of entering a period of global recession, the
Directors have not set dividend targets for the year to 31 May 2023.
The first interim dividends declared in respect of the year to May 2023, which
will be paid on 15 August 2022 to shareholders on the register on 22 July 2022,
were 1.50p per share for UK Equity Shares, 1.55p per share for Global Equity
Income Shares.
The Board has also declared an interim dividend for the year ended 31 May 2023,
payable as noted above, of 1.00p per share for Managed Liquidity Shares. This
is payable from retained revenue reserves. Given the quantum involved it is
unlikely that such payments will be more frequent than annually and may indeed
be less frequent.
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 this share class 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 over the period.
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. Your Board remains committed to its utilisation,
although it has stepped back at times since the onset of the Ukraine conflict,
in light of market volatility, and discounts have been somewhat wider than
before, in line with discounts generally across the investment trust market.
The ongoing 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 pre-emptive basis, being renewed at general meetings of the
Company.
As discussed below, the Company is seeking a class consent from the
shareholders of the UK Equity and Balanced Risk Allocation share classes to
cancel their respective share premium accounts. This will give the Company
ample scope to continue share buybacks.
Share Capital Movements
During the year to 31 May 2022 the Company bought back and placed in treasury
11,996,500 UK Equity Shares at an average price of 184.1p, 583,000 Global
Equity Income Shares at an average price of 227.7p, 165,000 Balanced Risk
Allocation Shares at an average price of 165.5p and 63,000 Managed Liquidity
Shares at an average price of 104.0p. Other than in connection with the share
conversion process, no shares were issued during the year. In addition, no
shares were sold from treasury and no treasury shares were cancelled. Since the
year-end a further 687,000 UK Equity Shares and 295,000 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; 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 future market returns. 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: 1 August 2022; 1 November 2022; 1 February
2023; and 2 May 2023. The total number of Share class conversions that have
occurred over the year's conversion opportunities resulted in net flows of £5.0
million out of the UK Equity Share Portfolio; of £4.8 million into the Global
Equity Income Share Portfolio; of £0.5 million into the Balanced Risk
Allocation Share Portfolio; and £0.3 million out of the Managed Liquidity Share
Portfolio. 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 ten days
before the relevant conversion date.
Cancellation of the UK Equity and Balanced Risk Allocation Share Premium
Accounts
In addition to the usual business to be conducted at the AGM, the Board is
recommending that the share premium accounts of the UK Equity Share Class and
the Balanced Risk Allocation Share Class are cancelled. This will give the
Company greater flexibility, subject to financial performance, to make
distributions and/or to make purchases of its own shares. The proposal will be
implemented by means of a Capital Reduction, which will not involve any
distribution or repayment of capital and will not reduce the underlying net
assets of the Company. In addition, due to the provisions of the Articles of
Association of the Company, the Company will seek a class consent from the
shareholders of the UK Equity Share Class and the Balanced Risk Allocation
Share Class in respect of the proposed cancellation of the reserves at class
meetings to be held immediately prior to the AGM (see below). Full details of
the proposal can be found on pages 105 to 111 and in my letter to shareholders
set out in the Appendix on pages 112 to 113.
Annual General Meeting ('AGM')
I am pleased to invite all our shareholders to the Company's AGM which will be
held in person at 43-45 Portman Square, London, W1H 6LY at 11.30am on 4 October
2022.
As well as the Company's formal business, there will be a presentation from the
UK Equity and Global Equity Income Portfolio Managers. Shareholders will have
the opportunity to put questions to the Directors and UK Equity and Global
Equity Income Portfolio Managers. Light refreshments will be available.
Shareholders may bring a guest to these meetings. To register your interest in
attending, please contact us at investmenttrusts@invesco.com.
For those unable to make it in person, we will be posting video updates from
all the Portfolio Managers on our website ahead of the AGM.
The business of the AGM is summarised in the Directors' Report on page 60. 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. The
Board has considered all the resolutions proposed in the Notice of the AGM and
believe they are in the best interests of shareholders and the Company as a
whole. Accordingly, the Directors recommend that shareholders vote in favour of
each resolution, as will the Directors in respect of their own shareholdings.
I look forward to meeting as many of you as possible at the AGM.
Outlook
Many of the challenges that impacted your Company's portfolios over the last
year continue to make their presence felt. The lack of preparedness for the
re-opening of the economy post-pandemic has resulted in global supply chain
issues and contributed to the current inflationary environment. It was hoped
that higher levels of inflation would be a transitory issue, with a lower peak;
forecasts are now indicating a 'higher for longer' environment. Central banks
were caught somewhat on the back foot and have had to act more quickly, and
raise rates more strongly, than they might otherwise have done. The economic
environment remains uncertain in the short term, with a risk of a global
recession, and a cost of living crisis which is resulting in industrial action
being seen in many sectors.
There are a number of geopolitical tensions, both in the UK, with the current
Conservative leadership contest and Brexit overhang, and on the global stage.
The horrific conflict in the Ukraine continues and, sadly, a peaceful
resolution feels further out than originally hoped. The effect of the war is
having a global impact on energy and food prices.
Market volatility looks to remain heightened for some time as we wait to see
how the current economic and political uncertainties play out. Your Company's
UK Equity and Global Equity Income Portfolios continue to be run in a style
that maintains 'balance'. Your Portfolio Managers continue to see attractive
investment opportunities and target portfolio returns driven by the performance
of the individual underlying companies they have selected. Additionally, income
is an important constituent of the total return of the equity portfolios. Your
Portfolio Managers have a strong belief in the ability of equities to protect
the investor from the effects of inflation in the long term.
The Balanced Risk Allocation Portfolio aims to deliver equity-like returns but
with half the volatility of equity markets; it seeks to give some protection to
investors from market falls and inflation, with exposures across growth,
defensive and real return assets. The Managed Liquidity Portfolio offers a
higher degree of security for those with a more conservative outlook; its
investments may be impacted by interest rates as well as other factors.
I believe that the choice and diversification offered by your Company's four
portfolios provide investors with additional flexibility and thus a level of
protection against market downsides. Shareholders are able to position their
investment into the asset classes where they expect to see the greatest
returns, or use the Company's share classes as a tool to diversify investment
exposure. The ability to change allocation to the Company's investment
portfolios, without crystallising a taxable gain, also provides the option to
use the Company as a 'lifestyling' investment, as the ratios of exposures to
the four asset classes can be altered on a quarterly, or far less frequent
basis, according to risk appetite.
Your Company's structure and portfolios continue to be well positioned to
negotiate the market challenges and opportunities that lie ahead.
Victoria Muir
Chairman
3 August 2022
UK Equity Share Portfolio Managers' Report
Q How has the portfolio performed in the twelve months to 31 May 2022?
A The portfolio has underperformed its benchmark over the twelve months to 31
May 2022, with a net asset value return of +6.8%. Over the same period the FTSE
All-Share Index rose +8.3% (both total return, in sterling terms). For most of
the twelve-month period market sentiment continued to be dominated by the
ongoing effects of the pandemic on the economy. As the period continued
attention swiftly turned to the ever-increasing inflation figures being
reported, driven higher by increases in the prices of imported goods and large
increases in the costs of energy, all of which have been exacerbated by the war
in Ukraine. Unfilled job vacancies also increased inflationary pressures
further as wages rose to attract applicants. The combination of these factors
has increased the cost of living for the end consumer and to try and curb the
rapidly rising rate of inflation the Bank of England has raised interest rates
several times since December.
Q What have been the key contributors and detractors to performance over the
year?
A Over the period, positive performance relative to the benchmark was seen in
six out the eleven sectors that the portfolio is invested in and stock
selection in industrials and consumer staples sectors was generally strong. At
a sector level the biggest contribution to positive performance versus the FTSE
All-Share Index over the twelve-month period was the portfolio's overweight to
the utilities sector. The portfolio's holdings of Drax, National Grid and SSE
performed strongly and were all in the top five best performing stocks on a
relative basis versus the FTSE All-Share Index. Drax rose strongly on higher
electricity prices and recognition from the market following the transition
from coal fired electricity production to sustainably sourced biomass along
with the potential for carbon capture and storage technology. Drax is a unique
UK listed asset with impressive sustainability credentials and an ambition to
become a carbon negative business by 2030.
National Grid performed strongly largely due to the attractive inflation
protected revenues in large parts of the company. Additionally, there is an
added appreciation of the potential growth in the business as a result of the
increased electrification of the economy and the resultant grid infrastructure
required. Similarly, SSE was a strong performer as elements of the company's
revenues are inflation protected and it will also benefit from the
electrification theme and higher energy prices.
The portfolio's overweight to the industrials sector performed well on a
relative basis. The holdings of Ultra Electronics, Bunzl and Chemring all
performed well. UItra Electronics received a bid approach from Cobham in July
2021. Over the course of the rest of the year the position was reduced before
exiting fully in March this year. Bunzl the outsourcing specialist and supplier
of disposable products released its full year results in February. Although the
company experienced a decline in demand for personal protection equipment,
which had been strong throughout the depths of the pandemic, this decline was
offset by a recovery in business activity and success in passing on
inflationary price increases. The company also made some strategic acquisitions
as part of its continuing and successful growth strategy.
RELX which has activities in areas such as science journals, risk analytics,
legal databases and exhibitions continued its recovery from Covid-19 which saw
the events and exhibition part of the business effectively close due to the
pandemic and travel restrictions. Results released in February illustrated that
growth had been seen from all four divisions of its business and selective
acquisitions had supplemented their organic growth strategy.
The portfolio's underweight to consumer staples was helpful as large
international branded staples producers Unilever and Reckitt Benckiser, which
are not held in the portfolio, were weaker over the period as was supermarket
delivery company Ocado. This was helpful for relative performance versus the
FTSE All-Share Index.
Naturally there were some weaker performances in the portfolio. The largest
detractor on a sector basis was healthcare where biotherapeutics company
PureTech Health was weaker despite good progress in the development of many of
its products. There has been no negative news but a de-rating of US
biotechnology companies as technology shares have fallen has been unhelpful.
The company aims to address significant areas of un-met medical need with novel
and lower risk route to market products and approaches, along the
brain-immuno-gut axis and has an encouraging pipeline of treatments.
Apart from RELX, mentioned previously, other consumer discretionary stocks have
been under pressure due to the rise in the cost of living. Clothing retailer
Next has been no exception and whilst the company has experienced strong
trading over the twelve-month period the share price has been weaker and has
detracted from relative performance. Similarly, JD Sports Fashion had been
trading well but a sudden management change and general concerns about the
retail sector have also weighed on the share price. Restaurant Group had some
modest downgrades earlier in the year and despite some costs being hedged there
are concerns that some cost inflation will be passed on to the consumer in
price adjustments.
In the basic materials sector the gold holdings were weaker over the period.
Historically gold has been a good hedge against inflation and with inflation
likely to remain at elevated levels for longer than probably anticipated, we
believe this position will provide some diversification benefits in the months
to come and have an attractive yield.
The price of crude oil has risen sharply over the twelve months period as
supply has struggled to keep up with recovering demand post pandemic. The
portfolio is slightly underweight the energy sector compared to the benchmark
weighting, and specifically Shell, which performed strongly. Consequently, this
was a headwind to relative performance.
Year end
Total Portfolio
Key Contributors Impact % Weight %
Ultra Electronics +0.98 -
Drax +0.97 2.9
National Grid +0.54 4.7
SSE +0.37 4.4
RELX +0.36 4.1
Year end
Total Portfolio
Key Detractors Impact % Weight %
Next -1.26 4.4
PureTech Health -0.99 0.7
Shell -0.79 5.6
JD Sports Fashion -0.71 1.2
Restaurant Group -0.70 0.6
Q How has gearing impacted the performance and what is your strategy going
forward?
A The use of gearing in the portfolio over the period enhanced overall
performance. Net gearing at the start of the twelve-month period was around 6%
and this was increased to approaching 12% towards the half year mark before
reducing to just below 11% at the end of the period. This level is below the
limit of 25% set by the Board.
The level of gearing is under regular review and the strategy used to ascertain
the appropriate level for the portfolio is unchanged. We are comfortable that
the current level of gearing provides an opportunity to enhance the portfolio's
returns relative to the FTSE All-Share Index when considering a wider macro
view and the opportunities in the portfolio. Looking to the future, our view
remains that UK companies remain attractively valued compared to other
developed markets such as the US.
Q How has the portfolio evolved over the period and how is it currently
positioned?
A There have been no material adjustments to the positioning of the portfolio
although there has been some trading to adjust for the level of gearing over
the period. The holding of Fevertree was reduced and subsequently exited early
in the period and following the bid for Ultra Electronics the holding was sold
and the capital redeployed elsewhere in the portfolio.
The holdings of Young & Co's Brewery and CVS the veterinary services group were
reduced over the period. The opportunity was taken to add to the portfolio's
existing position in PRS REIT when the company raised money in September 2021
to acquire pipeline assets comprising six sites with the potential for 670 new
homes.
Hiscox the insurer was added to the portfolio early in the twelve-month review
period whilst Cranswick, the pork, poultry, and food products producer, has
been a very recent new addition. The holding of Essentra, the packaging
products and specialist component manufacturer, was also added to around the
same time and performed strongly following a business review that resulted in
the disposal of its packaging business. An encouraging fourth quarter update
followed by full year results gave rise to some share price volatility. Post
the review period end the disposal of the packaging business has been confirmed
with the stated intention that most of the cash proceeds will to be used to
strengthen the balance sheet.
On a sectoral basis and relative to the FTSE All-Share Index, we remain
over-weight consumer discretionary and utilities stocks. The overweight to
utilities offers an inflation-linked return that in our view continues to
remain underappreciated. Exposure to the energy sector is slightly reduced from
twelve months ago but we maintain that these companies continue to stand to
benefit from elevated oil prices as growth in supply continues to be
outstripped by demand post pandemic. We remain under-weight consumer staples
which we see as expensive, and financials in general.
Previously we have spoken to five broad investment themes that the portfolio is
exposed to. It is best to think of these themes as an outcome of the investment
process rather than a conscious element of the portfolio construction. Our
conviction is very much in these key stocks that are spread across "UK
Domestics" (28% of the value of the portfolio), "International Value" (31%),
"International Growth" (22%), "Recovery" (7%) and "Transformers" (12%). When
comparing these weightings to those of twelve months ago the only change is the
tilt to "International Value" versus "International Growth" which has shifted
approximately 5% as we favour shorter duration value orientated stocks.
Q What is your outlook for the next twelve months and beyond? Why invest in the
UK now?
A Overall, we remain positive on the outlook for UK equities despite the
current fear of entrenched inflation and higher interest rates which has
created a significant amount of market volatility. Furthermore, we strongly
believe in the ability of equities to protect an investor from the effects of
inflation in the long run.
Short term volatility and uncertainty look set to continue in the months to
come and consequently a balanced portfolio that can perform in a range of
economic and market regimes is our continuing objective. This balance is
expected to reduce the reliance on unpredictable economic or market outcomes
and leave the performance of the portfolio to be driven by the performance of
the individual companies we have selected within it.
Since the Brexit vote in 2016 UK shares have underperformed other global
markets but, many of these UK listed companies are often largely international
businesses trading at a discount to their international peers. An improvement
in outlook for UK corporate earnings and for nominal growth should, in an
undervalued market, boost the outlook for UK listed equities. However, in the
current environment it is difficult to predict that this will transpire and
whilst we have seen consumer demand remain strong and company order books
healthy, concerns are centred around supply challenges. If the economic outlook
does improve, and we think it will, key beneficiaries will likely include high
quality, cash generative businesses, which form a significant part of our
portfolios.
Should the discount to international peers continue there is an increased
likelihood that interest in UK companies from international buyers might
materialise through merger and acquisition activity. Relative weakness in
sterling versus the US dollar also potentially increases the attractiveness of
UK assets.
We remain confident in the long-term prospects of the companies that we own in
the UK Equity Portfolio which comprises our highest conviction, best ideas. The
portfolio is concentrated around high quality, cash generative businesses, with
strong liquidity that are likely to further enhance their competitive
positions, and this leaves us feeling conservatively optimistic for the year
ahead in 2022.
James Goldstone & Ciaran Mallon
Joint Portfolio Managers
3 August 2022
UK Equity Share Portfolio List of Investments
AT 31 May 2022
Ordinary shares listed in the UK unless stated otherwise
Market
Value % of
Company Sector? £'000 Portfolio
Shell Oil, Gas and Coal 8,871 5.6
National Grid Gas, Water and Multi-Utilities 7,520 4.7
SSE Electricity 6,968 4.4
Next Retailers 6,942 4.4
BP Oil, Gas and Coal 6,552 4.1
RELX Media 6,440 4.1
AstraZeneca Pharmaceuticals and Biotechnology 6,035 3.8
Barclays Banks 5,735 3.6
Barrick Gold - Canadian Listed Precious Metals and Mining 5,539 3.5
PRS REIT Real Estate Investment Trusts 5,057 3.2
Top Ten Holdings 65,659 41.4
Newmont - US Listed Precious Metals and Mining 4,809 3.0
Drax Electricity 4,623 2.9
British American Tobacco Tobacco 4,455 2.8
Bunzl General Industrials 3,954 2.5
Experian Industrial Support Services 3,897 2.5
Legal & General Life Insurance 3,873 2.4
Ferguson Industrial Support Services 3,411 2.3
Vodafone Telecommunications Service 3,295 2.1
Providers
Tesco Personal Care, Drug and Grocery 3,215 2.0
Stores
Young & Co's Brewery - Travel and Leisure 3,044 1.9
Non-VotingAIM
Top Twenty Holdings 104,235 65.8
United Utilities Gas, Water and Multi-Utilities 3,015 1.9
Smith & Nephew Medical Equipment and Services 2,851 1.8
Croda International Chemicals 2,772 1.8
Chemring Aerospace and Defence 2,701 1.7
Ashtead Industrial Transportation 2,432 1.5
Phoenix Life Insurance 2,425 1.5
Coats General Industrials 2,382 1.5
Compass Consumer Services 2,319 1.5
Whitbread Travel and Leisure 2,240 1.4
Barratt Developments Household Goods and Home 2,135 1.3
Construction
Top Thirty Holdings 129,507 81.7
Essentra Industrial Support Services 2,118 1.3
JTC Investment Banking and Brokerage 1,984 1.3
Services
NicholsAIM Beverages 1,860 1.2
JD Sports Fashion Retailers 1,823 1.2
Babcock International Aerospace and Defence 1,796 1.1
Future Media 1,781 1.1
Hiscox Non-Life Insurance 1,643 1.0
Hays Industrial Support Services 1,608 1.0
Sirius Real Estate Real Estate Investment and 1,601 1.0
Services
Chesnara Life Insurance 1,538 1.0
Top Forty Holdings 147,259 92.9
XPS Pensions Investment Banking and Brokerage 1,502 0.9
Services
Jupiter Fund Management Investment Banking and Brokerage 1,410 0.9
Services
CVSAIM Consumer Services 1,359 0.9
Treatt Chemicals 1,225 0.8
DFS Furniture Retailers 1,219 0.8
PureTech Health Pharmaceuticals and Biotechnology 1,178 0.7
Johnson ServiceAIM Industrial Support Services 1,079 0.7
Restaurant Group Travel and Leisure 933 0.6
Lancashire Non-Life Insurance 845 0.5
Sherborne Investors (Guernsey) C Investment Banking and Brokerage 324 0.2
Services
Top Fifty Holdings 158,333 99.9
Cranswick Food Producers 117 0.1
Total Holdings 51 (2021: 51) 158,450 100.0
AIM Investments quoted on AIM.
? FTSE Industry Classification Benchmark.
Global Equity Income Share Portfolio Manager's Report
Q How did the portfolio perform in the year under review?
A The net asset value of the portfolio grew in the year to 31 May, by 9.6%,
this exceeded the return of the comparator benchmark which increased in value
by 7.4%, (both total return, in sterling terms).
Through the summer and autumn of 2021 as parts of the world global equity
markets were strong; most economies around the world continued to rebound from
the Covid-19 epidemic. Inflation began to pick up due to the continuing
disruption of supply chains, especially in Asia, and strong consumer demand.
Both monetary and fiscal policies in the developed economies around the world
eased as authorities prioritised growth in the wake of the enforced shutdowns
during 2020. Hopes remained that the pick-up seen in inflation, post pandemic,
would prove transitory.
However, through the early winter and into 2022 price pressure increased in a
range of commodities, in particular oil and gas and food. In the US and Europe
labour was increasingly scarce, in part due to large numbers of older workers
leaving the labour force post pandemic. Wage inflation also began to increase
sharply. The response of central banks, particularly the Federal Reserve has
been to tighten monetary policy. Elsewhere in the world, the continuation of
China's policy of 'zero covid' has led to a series of rolling lockdowns across
the country which has seriously impinged on industrial production and exports
(from ports such as Shanghai for example). A combination of rising inflation
and interest rates has led to increased fears of recession amongst investors,
hence global equity markets and especially those stocks trading on very high
valuations (such as in the technology sector) were particularly weak.
Whilst rumours were rife of a Russian incursion into Ukraine through the early
part of 2022, most market participants viewed it as unlikely, sadly they (and
we) were wrong. The onset of all out war in Europe for the first time in 75
years has further fuelled commodity prices, as well as increasing geopolitical
uncertainty which has a negative impact on asset values.
Q Given weakness in markets so far this year are you surprised at the positive
returns achieved?
A Whilst markets were down (in sterling terms) 6.5% in the first five months
of 2022, they were up 14.8% in the last seven months of 2021. It really has
been a year where optimism about the earnings and economic growth prospects has
been rapidly replaced by pessimism driven by the prospect for rising interest
rates and inflation, and thus a risk of a global recession.
Another factor to remember is the relative weakness of sterling particularly
against the US dollar which bolstered the valuation of our US dollar
denominated assets, and hence supported net asset value in sterling terms.
Q What were the key contributors and detractors to performance?
A Overall, for the portfolio during the period our stock selection delivered
outperformance. Stock selection was especially strong in the US and Europe and
weak in Asia. We maintained an underweight position in the energy sector
through the period, this was clearly negative given the strong increase in the
oil and gas price. However, over the medium term we see upside in these
companies capped by increasingly punitive tax regimes, and a shift toward
renewable technologies. We are not minded to add to positions now.
Key individual holdings for us included Coca-Cola and PepsiCo which performed
well as the global economy reopened through 2021, and through the more
difficult start to 2022 where their strong brand recognition and historic
strength during periods of weak economic growth were valued by investors.
Overall, our overweight exposure to consumer staples was a positive for the
portfolio.
Elsewhere, our insurance holdings, Zurich Financial and Progressive were also
relatively strong. Once again, their relative insulation from an economic
recession made their shares attractive, as did very strong balance sheets and
above average and growing dividend yields.
We started the period with a position in Meta Platforms (formally known as
Facebook). It performed well, but we grew more concerned around a variety of
governance and social issues as well as its valuation. We disposed of the
holding in the autumn of 2021, a few months before it announced some weak user
datapoints. Such was its weight in the benchmark that not owning through this
period made it one of our key winners in terms of relative performance.
On the negative side, as we described in the half-year management report, our
holding in Tencent, the Chinese based social media, gaming and payments
platform was weak during the late summer of 2021 in response to the tightening
of regulations relating to privacy and online gaming. We have maintained a
position, albeit a reduced one, as we continue to believe the company offers
significant upside. By contrast we disposed of our holding in NetEase, the pure
play Chinese gaming company, as we saw increased restrictions limiting any
share price upside.
One of the most frustrating holdings for us over the year has been Verallia.
Our holding in the French based producer of glass bottlers and containers was
built up through the fourth quarter of 2021. It is a key player in a highly
concentrated industry and a leader in recycling and the reduction of CO2 in
production. Nevertheless, natural gas continues to be essential for production
and the sharp rise in costs fuelled fears over a squeeze on its margins. The
share price has therefore been weak. We remain comfortable that cost increases
can be passed onto customers and the company remains a core holding in the
portfolio.
As mentioned earlier, despite rising tensions in the early part of 2022, we did
not expect a Russian invasion of Ukraine, hence we continued to maintain a
modest position in Sberbank, the leading Russian financial institution. The
market was steadily pricing in the prospect of a war in Ukraine and
consequently the value of Sberbank fell dramatically, with a final write-down
in early March of approximately £35,000 or 6 basis points. As such it was a key
detractor over the period.
Year end
Total Portfolio
Key Contributors Impact % Weight %
Lundin Energy +1.43 3.2
Coca Cola +1.09 4.7
Progressive +0.86 2.5
Standard Chartered +0.73 3.5
Meta Platforms Inc +0.70 -
Year end
Total Portfolio
Key Detractors Impact % Weight %
Tencent -1.51% 2.4
Apple -1.01% -
Sberbank - ADR -0.96% -
Verallia -0.85% 4.6
NetEase -0.71% -
Q How has the portfolio evolved over the period?
A The portfolio has evolved steadily over the year. Whilst our holdings in the
industrial segment of the market have increased somewhat it is primarily due to
the addition of Kone, a Finnish based elevator and escalator manufacturer whose
earnings streams are highly predictable due to the large service and
maintenance component.
We have significantly cut back exposure to the consumer staples sector,
including some of our strong performers such as Coca-Cola, and sold out of
Diageo and Colgate Palmolive. Strong relative performance for the sector means
it now trades at a significant premium to the market. We prefer to deploy
capital to areas we perceive some positive asymmetry in valuation.
Our exposure to big ecommerce and internet names has reduced as we have sold
Meta Platforms and significantly reduced our holding in Alphabet (the parent of
Google). However toward the end of the period we added a position in Universal
Music, the leading global recoding and rights label which was trading at what
we believe to be a discount to its intrinsic value, offers an attractive
dividend and we expect to prove a relatively non-cyclical income stream if we
head to a recession in 2023.
We remain heavily overweight the financial sector, but not in banks where our
key positions remain JPMorgan Chase and Standard Chartered. Our key overweight
remains the insurance sector where we see strong dividend income streams and
valuations which remain attractive with somewhat less risk than banks. Our
holding in 3i, the UK based private equity group, is a key position in the
fund. 3i 's largest holding is a European based discount retailer, Action,
where we see a strong runway for growth for several years ahead of us.
Q What about the healthcare sector? You remain very underweight.
A Healthcare is one of our largest sector underweight positions compared to
benchmark. During the year we disposed of Roche, the Swiss pharmaceutical
company, but added a modest position in Danaher, the US based medical device
and equipment company.
Our caution on the sector stems from the operating environment facing the
sector. Due to patent laws which confer exclusivity on developed medicines for
typically 10-15 years, large pharmaceutical companies continually need to
reinvent themselves, as they have become larger, so it becomes more difficult
to grow as newly developed medicines simply replace those losing patent
protection. Combine that with ongoing price pressure (especially in the US),
makes in our view for an unattractive mix where we struggle to find companies
we want to own.
We do own Novartis, another leading Swiss pharmaceutical company. Whilst its
earnings growth is likely to be modest in the coming three years, it is in our
view relatively low risk, it has a very strong balance sheet and is likely to
pay a growing dividend which is currently worth around 4% per year.
Q How does your analysis of ESG risks impact your stock selection and portfolio
construction?
A We view analysing ESG risks as a key part of our investment process. As
active, fundamental managers we consider every key aspect of a company's true
worth, including material ESG considerations because we believe that the most
sustainable way to make money is to buy companies for less than they are worth.
Establishing an estimated 'fair value' of a company is therefore essential and
this entails incorporating ESG aspects into our investment methodology. We take
a holistic approach where a company's ESG credentials are scrutinised alongside
traditional financial and qualitative aspects to derive a fair value. All
companies face challenges regarding ESG and therefore we have to consider
materiality (the impact of ESG factors on fair value), and ESG momentum (the
potential for ESG improvement over time). Both can influence a stock's
potential returns and our conviction levels in an investment. As shareholders
we actively engage with companies to enhance the value of our investments. We
encourage companies to create sustainable value and mitigate risks in relation
to their corporate activities. This can include prompting them to improve
governance structures, make better asset allocation decisions, instilling
sustainable practices and policies, and providing better disclosure. This
reinforces our fundamental belief that responsible investing demands a
long-term view and that a stakeholder-centric culture of ownership and
stewardship is at the heart.
Further details of the Manager's ESG process, together with examples, are shown
on page 34 to 38.
Q What is your outlook for equity markets over the coming year?
A Truly, this is one of the hardest outlooks to call in my career. Peak to
trough market corrections have ranged from 12-35% over the past 40 years, so
far in 2022 equity markets are currently down 22% (in US dollar terms) On the
one hand I look at a market where the correction from highs achieved in late
December 2021 makes it seem that we are already discounting a mild to moderate
recession. On the other, we are yet to see material downgrades to earnings
expectations, and markets were correcting from a high valuation base.
Our most optimistic scenario is that interest rate rises in the US have already
begun to slow the economy. More will follow in coming months. Mortgage rates
have risen sharply in recent months which has a relatively quick impact on the
housing market. Providing energy prices stabilise, and hopefully begin to fall
by year end, we may be close to a peak in inflation during this cycle. Markets
may well recover strongly toward year end as the market perceives an end to the
monetary policy tightening cycle.
However, we must acknowledge that structural changes in the global economy,
such as a declining availability of labour, together with rising inflationary
expectations throughout most major markets and ongoing shortages of key
commodities, will maintain significant inflationary pressure despite rising
interest rates. Furthermore, we remain concerned that inflationary expectations
are becoming embedded in the labour market. As a result, central banks may be
forced to raise interest rates to higher levels than is currently expected and
create a material slowdown in economic activity to choke off inflationary
pressure. Equity markets could stay under pressure until well into 2023.
We feel our process is well positioned to cope with either the optimistic or
pessimistic scenarios, although in the latter we must acknowledge markets may
have further downside and our objective will be to deliver outperformance
relative to benchmark. We will continue to focus on our process; seeking to
identify competitively advantaged businesses, with no obvious ESG risks, who
generate substantial free cashflow and effectively allocate capital either to
growing the business or return it to shareholders. We seek to buy these
companies at a discount to their long-term intrinsic value.
Stephen Anness
Portfolio Manager
3 August 2022
Global Equity Income Share Portfolio List of Investments
AT 31 May 2022
Ordinary shares unless stated otherwise
At
Market
Value % of
Company Sector? Country £'000 Portfolio
3i Diversified Financials United 3,634 5.4
Kingdom
American Tower Real Estate United 3,499 5.2
States
Microsoft Software and Services United 3,425 5.1
States
Coca-Cola Food, Beverage and Tobacco United 3,163 4.7
States
Verallia Materials France 3,116 4.6
AIA Insurance Hong Kong 2,708 4.0
Broadcom Semiconductors and United 2,568 3.8
Semiconductor Equipment States
Standard Chartered Banks United 2,381 3.5
Kingdom
Zurich Insurance Insurance Switzerland 2,204 3.3
Lundin Energy Energy Sweden 2,167 3.2
Top Ten Holdings 28,865 42.8
Link REIT Real Estate Hong Kong 2,130 3.1
Taiwan Semiconductor Semiconductors and Taiwan 1,998 3.0
Manufacturing Semiconductor Equipment
KKR & Co Diversified Financials United 1,742 2.6
States
Progressive Insurance United 1,695 2.5
States
Union Pacific Transportation United 1,681 2.5
States
Novartis Pharmaceuticals, Biotechnology Switzerland 1,669 2.5
and Life Sciences
Universal Music Media and Entertainment Netherlands 1,661 2.5
TencentR Media and Entertainment China 1,620 2.4
Melrose Industries Capital Goods United 1,584 2.3
Kingdom
Herc Holdings Capital Goods United 1,577 2.3
States
Top Twenty Holdings 46,222 68.5
RELX Commercial and Professional United 1,574 2.3
Services Kingdom
Kone - B Shares Capital Goods Finland 1,555 2.3
PepsiCo Food, Beverage and Tobacco United 1,477 2.2
States
JPMorgan Chase Banks United 1,436 2.1
States
The TJX Companies Retailing United 1,318 1.9
States
Alphabet Media and Entertainment United 1,250 1.8
States
Home Depot Retailing United 1,212 1.8
States
Amazon Retailing United 1,191 1.7
States
Installed Building Consumer Durables and Apparel United 1,159 1.7
Products States
Canadian Pacific Railway Transportation Canada 1,112 1.6
Top Thirty Holdings 59,506 87.9
Texas Instruments Semiconductors and United 1,044 1.5
Semiconductor Equipment States
Accenture - A Shares Software and Services United 998 1.5
States
Nvidia Semiconductors and United 981 1.5
Semiconductor Equipment States
Samsung Electronics - Technology Hardware and South Korea 981 1.5
preference shares Equipment
Rolls-Royce Capital Goods United 817 1.2
Kingdom
Berkeley Consumer Durables and Apparel United 749 1.1
Kingdom
Danaher Pharmaceuticals, Biotechnology United 728 1.1
and Life Sciences States
Volkswagen - preference Automobiles and Components Germany 722 1.1
shares
Ping An InsuranceH Insurance China 698 1.0
Nestlé Food, Beverage and Tobacco Switzerland 406 0.6
Top Forty Holdings 67,630 100.0
SberbankUQ - ADR Banks Russia - -
Total Holdings 41 (2021: 67,630 100.0
40)
UQ Unquoted due to delisting of Russian securities.
ADR American Depositary Receipt - 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.
H H-Shares - shares issued by companies incorporated in the People's
Republic of China ('PRC') and listed on the Hong Kong Stock Exchange.
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.
Balanced Risk Allocation Share Portfolio Manager's Report
Investment Objective
The investment objective of the Balanced Risk Allocation Share Portfolio is to
provide shareholders with an attractive total return in differing economic
environments, and with low to moderate correlation to equity and bond market
indices by gaining exposure to three asset classes: debt securities, equities,
and commodities.
Q How has the strategy performed in the year under review?
A The Balanced Risk Allocation Share Portfolio posted a strong return of 0.3%
over the fiscal year, outperforming the benchmark by 6.4%. The past twelve
months to the end of May 2022 were characterized by consumers unleashing
pent-up demand, fuelled by expiring Covid-19 lockdowns and highly accommodative
fiscal and monetary policy. The elevated demand coupled with ongoing supply
chain issues led to the rise of meaningful and persistent inflation across
developed economies. At the turn of the year, the Russian invasion of Ukraine
further stoked inflation as persistently high demand was now met with supply
constraints due to sanctions on Russian energy, metal and fertilizer exports as
well as fears of poor crop yields on planting delays and adverse weather
conditions. Central banks were forced to shift their characterisation of
inflation as transitory and act through a combination of rate increases and
quantitative tightening efforts to try to catch up to the growing threat. The
inflationary environment strongly benefitted commodities, particularly energy
and agriculture which were top contributors while metals generated smaller
contributions. Equities produced tepid results as early period gains were
surrendered on geopolitical concerns and fears that central bank tightening
could lead to slowing growth and potentially recession. Fixed income exposures
performed poorly as the combination of interest rate hikes and high inflation
overwhelmed any potential gains from geopolitical concerns.
Q What were the biggest contributors and detractors to performance?
A Exposure to commodity markets was the lone positive contributor to results.
Energy commodities delivered the strongest performance due to strong demand,
followed by agriculture where the largest contributions came from cotton,
soybean oil and wheat. Industrial metals benefitted from Russia's attack on
Ukraine as Russian sanctions magnified already existing supply constrains in
aluminium. Copper prices sold off towards the end of the period, resulting in a
minor loss, on fears of a slowdown in growth. Precious metals detracted due to
rising interest rates and a rising US dollar. Silver declined more than gold as
it traded in sympathy with weakness in China and the broader industrial metals
complex.
Exposure to equities detracted from results as four of the six markets in which
the portfolio invests saw prices decline. UK equities were the top contributor
to results in the period as relatively higher exposures to energy, materials,
and aerospace and defence names held up well amid the rise in commodity prices
and the Russian invasion of Ukraine. European shares fell on the Russian
invasion and concerns that the conflict would at least have a negative impact
on economic activity and, at worst, could potentially see further spread in the
region. US small caps saw prices fall as the heightened volatility had
investors cutting risks in higher-beta exposures. Emerging markets fared poorly
on fears of China decoupling from the US and renewed Covid-19 lockdowns.
Exposure to government bonds was the largest detractor from performance with
all six markets producing negative results. Despite ongoing geopolitical
turmoil and another Covid-19 outbreak in China, there was little demand for
government bonds as a haven. Rather, the highest inflation in multiple decades
and soaring commodity prices had fixed income investors fretting over how
aggressive central banks would be in their efforts to curb inflation.
Q How did the tactical allocation perform?
A The tactical allocation detracted from results with losses in equities and
commodities offsetting gains from underweights across bonds. Tactical equity
disappointed primarily due to ill-timed overweights at the beginning of the
year. Tactical commodities detracted largely due to underweights across energy
for most of the period. Tactical bonds contributed due to timely underweights
towards the end of the period.
Q What is your 30-day outlook?
A The current period is one of the toughest environments for investors in some
years. Stocks have experienced their second bear market in just over two years,
and bonds posted two consecutive negative quarters for the first time in four
decades. While commodities have offered some diversification benefits this
year, concerns about central bank efforts to curtail inflation have sparked
fear of declining economic growth, which has hit prices in economically
sensitive complexes like energy and industrial metals. Should the growth scare
materialize alongside evidence of peaking inflation, bonds may be the more
interesting asset class.
Tactical positioning for July includes underweights in emerging markets,
Europe, Japan and US equities, while UK equities are overweight. In fixed
income, the portfolio is overweight Canada, Germany, Japan, the US and
Australia and neutral in the UK. In commodities, the portfolio is underweight
all exposures except Brent crude oil and gasoline.
Scott Wolle
Portfolio Manager
3 August 2022
Balanced Risk Allocation Share Portfolio List of Derivative Instruments
AT 31 May 2022
Notional
Notional Exposure
Exposure as % of
£'000 Net Assets
Government Bond Futures:
Australia 1,670 23.6
Germany 1,289 18.2
Canada 876 12.4
US 772 10.9
Japan 461 6.5
UK 232 3.3
Total Bond Futures (6) 5,300 74.9
Commodity Futures:
Energy
Brent crude 267 3.8
Gasoline 266 3.8
WTI crude 264 3.7
Natural gas 203 2.9
Low sulphur gasoline 190 2.7
New York Harbor ultra-low sulphur diesel 136 1.9
Agriculture
Soyabean 201 2.8
Cotton 194 2.7
Soyabean meal 165 2.3
Soyabean oil 110 1.6
Wheat 86 1.2
Coffee 69 1.0
Corn 60 0.8
Sugar 53 0.7
Precious Metals
Gold 293 4.1
Silver 86 1.2
Industrial Metals
Copper 189 2.7
Aluminium 172 2.4
Total Commodity Futures (18) 3,004 42.3
Equity Futures:
UK 686 9.7
Japan 588 8.3
Emerging markets 297 4.2
Europe 227 3.2
US small cap 222 3.1
Total Equity Futures (5) 2,020 28.5
Total Derivative Instruments (29) 10,324 145.7
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 2.9% 37.1%
Commodities 2.9% 36.6%
Fixed Income 2.1% 26.3%
7.9% 100.0%
List of Investments
Market %
Yield value of
% £'000 Portfolio
Short Term Investments
Invesco Liquidity Funds plc - Sterling 0.96 3,512 56.3
UK Treasury Bill - 0% 19 Sep 2022 0.90 747 12.0
UK Treasury Bill - 0% 07 Nov 2022 1.33 547 8.8
UK Treasury Bill - 0% 01 Aug 2022 0.40 499 8.0
UK Treasury Bill - 0% 31 Oct 2022 1.25 448 7.2
UK Treasury Bill - 0% 15 Aug 2022 0.90 276 4.4
UK Treasury Bill - 0% 24 Oct 2022 1.15 199 3.2
Total Short Term Investments 6,228 99.9
Hedge Funds(1)
Harbinger Streamline Offshore Fund 5 0.1
Total Hedge Funds 5 0.1
Total Fixed Asset Investments 6,233 100.0
(1) The hedge fund investments are residual holdings of the previous
investment strategy, which are awaiting realisation of underlying investments.
During the year the prior residual holdings (4 classes) were consolidated into
one holding in a new vehicle.
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 40.
Managed Liquidity Share Portfolio Manager's Report
Q How does the portfolio generate returns?
A The investment objective of the portfolio is to produce an appropriate level
of income return combined with a high degree of security. We aim to generate
returns by investing mainly in sterling-based high quality debt securities and
similar assets but with the flexibility to invest in assets with a greater
weighted average maturity than a money market fund. Accordingly the value of
the Portfolio may rise or fall.
The majority of the portfolio is invested in the iShares £ Ultrashort Bond ETF.
We reviewed the ETF universe in December 2021 and elected to retain this ETF.
We also hold a portion of the portfolio in the Sterling Liquidity Portfolio of
Invesco Liquidity Funds plc. to meet short term payment obligations.
The iShares £ Ultrashort Bond ETF invests in Sterling denominated investment
grade corporate bonds and quasi-government bonds, aiming to track performance
of the Markit iBoxx GBP Liquid Investment Grade Ultrashort Index and has a
weighted average maturity of around one year.
Q What has the performance of your portfolio been over the last year?
A The Managed Liquidity Portfolio NAV total return for the year ended 31 May
2022 was -0.3%.
The need to begin to raise interest rates to cool demand began as western
economies rebounded more sharply than expected from Covid-19 restrictions. The
inflationary effect of this was expected to be transitory, but was brought into
much sharper relief by Russia's invasion of Ukraine on 24 February. Sadly, the
considerable humanitarian crisis may last some time. Disruption to global
movements of oil, gas and foods could last several years as supply chains
re-adjust. The impact on prices continues to transmit through markets with UK
CPI inflation hitting 9.1% in May. Central banks are now catching up with
substantial interest rate hikes and as a result bond prices have fallen, with
one year interest rates up 1.5% over the year.
This portfolio has a substantially shorter duration of around 0.2 years and so
has been protected to a large extent. Nevertheless, a small fall in NAV is
expected as the impact of rising interest rates more than offset the income
yield of the portfolio.
Q What's the outlook for returns given high inflation and rising interest
rates?
A Higher short term rates have increased the portfolio's yield, with the
average coupon within the iShares £ Ultrashort Bond ETF standing at 1.8% at the
end of June, vs UK base rate of 1.25%. A further six UK central bank interest
rate rises are priced into markets by the end of 2022 (four in the US and
Eurozone). While visibility on price demand and wage growth is weaker than
usual, there are signs that inflation is peaking and growth slowing, as
consumers pull back on spending and companies experience higher input costs.
Should central banks and governments be successful in limiting inflation and/or
should growth slow more abruptly than expected, we could see rates rise by less
than is currently priced, which would lift bond prices.
We continue to expect the portfolio to deliver a meaningful pickup over base
rates while providing ready access to capital with a high degree of security.
Derek Steeden
Portfolio Manager
3 August 2022
Managed Liquidity Share Portfolio List of Investments
AS AT 31 MAY
2022 2021
Market Market
Value % of Value % of
£'000 Portfolio £'000 Portfolio
Invesco Liquidity Funds plc - 130 9.0 140 7.7
Sterling
iShares - Sterling Ultrashort Bond 1,315 91.0 1,669 92.3
UCITS ETF
1,445 100.0 1,809 100.0
Environmental, Social and Corporate Governance ('ESG') statement from the
Managers
UK Equity Share Portfolio & Global Equity Income Share Portfolio
Ciaran Mallon
UK Equities Fund Manager
James Goldstone
UK Equities Fund Manager
Stephen Anness
Global Equities Fund Manager
What does ESG mean to us?
. Investing in stocks which have good Environmental, Social and Governance
('ESG') momentum behind them can be a positive way for our portfolios to
potentially generate returns in excess of the benchmark
. We draw upon ESGintel, Invesco's proprietary tool, which helps us to
better understand how companies are addressing ESG issues
. Engaging with companies to understand corporate strategy today in order to
assess how this could evolve in the future
. Monitoring how companies are performing from an ESG perspective and if the
valuations fairly reflect the progress being made
Our focus as active fund managers is always on finding mispriced stocks and ESG
integration underpins our investment process.
The incorporation of ESG into our investment process considers ESG factors as
inputs into the wider investment process as part of a holistic consideration of
the investment risk and opportunity, from valuation through investment process
to engagement and monitoring. The core aspects of our ESG philosophy include:
materiality; ESG momentum; and engagement.
. Materiality refers to the consideration of ESG issues that are financially
material to the company we are analysing.
. The concept of ESG Momentum, or improving ESG performance over time,
indicates the degree of improvement of various ESG metrics and factors and help
fund managers identify upside in the future. We find that companies which are
improving in terms of their ESG practices may enjoy favourable financial
performance in the longer term.
. Engagement is part of our responsibility as active owners which we take
very seriously, and we see engagement with companies as an opportunity to
encourage continual improvement. Dialogue with portfolio companies is a core
part of the investment process for our investment team. As such, we often
participate in board level dialogue and are instrumental in giving shareholder
views on management, corporate strategy, transparency, and capital allocation
as well as wider ESG aspects.
ESG integration is an ongoing strategic effort to systematically incorporate
ESG Factors into fundamental analysis. The aim is to provide a 360 degree
evaluation of financial and non-financial materially relevant considerations
and to help guide the portfolio strategy.
Our investment process has four stages. In this report we go through in detail
how ESG is integrated into each stage of our process.
Idea Generation
We believe it is important to spread our nets as wide as possible when trying
to come up with stock ideas which may find their way into our portfolios. We
remain open minded as to the type of companies we will consider. This means not
ruling out companies just because they happen to be unpopular at that time and
vice versa. ESG can create opportunities too - for example, the benefits of
moving towards more sustainable sources of energy like wind, solar and
hydroelectric power generation. This was one of the reasons we became
interested in some of our utility holdings which are held in the UK portfolio.
This highlights the importance of opportunities brought about by ESG and not
just the risks. Investing in stocks which have the right ESG momentum behind
them - by focussing on fundamentals and the broader investment landscape - can
be a unique way for our portfolios to potentially generate returns in excess of
the benchmark as those businesses that have got ESG momentum behind them have
the potential to be rerated.
Fundamental Research & ESG Analysis
Research is at the core of what we do. Our fundamental analysis covers many
drivers, for example, corporate strategy, market positioning, competitive
dynamics, the macroeconomic environment, financials, regulation, valuation,
and, of course, ESG considerations, which guide our analysis throughout.
We use a variety of tools from different providers to measure ESG factors. In
addition, at Invesco, we have developed ESGintel, Invesco's proprietary tool
built by our Global ESG research team in collaboration with our Technology
Strategy Innovation and Planning (SIP) team.
ESGintel provides fund managers with environmental, social and governance
insights, metrics, data points and direction of change. In addition, ESGintel
offers fund managers an internal rating on a company, a rating trend, and a
rank against sector peers. The approach ensures a targeted focus on the issues
that matter most for sustainable value creation and risk management.
This provides a holistic view on how a company's value chain is impacted in
different ways by various ESG topics, such as compensation and alignment,
health and safety, and low carbon transition/ climate change.
We always try to meet with a company prior to investment. Based on our
fundamental research, including any ESG findings, we focus on truly
understanding the key drivers and, most importantly, the path to change. This
helps us better understand corporate strategy today and how this could evolve
in the future. Today, the subject of ESG is increasingly part of these
discussions, led by us.
Portfolio Construction
We aim to create a well-diversified portfolio of active positions that reflect
our assessment of the potential upside for each stock weighted against our
assessment of the risks. Sustainability and ESG factors will be assessed
alongside other fundamental drivers of valuation. The impact of any new
purchases will need to be considered at a portfolio level. How will it affect
the shape of the portfolio having regard to objectives, existing positions,
overall size of the portfolio, liquidity and conviction?
We do not seek out stocks which score well on internal or third party research
simply to reduce portfolio risk.
Ongoing Monitoring
Our fund managers and analysts continuously monitor how the stocks are
performing as well as considering possible replacements. Is the company
performing from an ESG perspective and are the valuations fairly reflecting the
progress being made or not?
How do we monitor our holdings from an ESG perspective? Again, the same
resources used during the fundamental stage are available to us. Our regular
meetings with the management teams of the companies we own provides an ideal
platform to discuss key ESG issues, which will be researched in advance. We
draw on our own knowledge as well as relevant analysis from our ESG team and
data from our previously mentioned proprietary system ESGintel which allows us
to monitor progress and improvement against sector peers. Outside of company
management meetings we constantly discuss as a team all relevant ESG issues,
either stimulated internally or from external sources.
Additional ESG analysis is carried out by the team, when warranted, on
particular companies. Such cases would be those that are more controversial,
considered to be higher risk and viewed poorly by ESG providers, resulting in a
valuation discount. We don't just look at the specific issue considered to be
higher risk either, for example the environmental risk of an oil company, but
all areas of ESG. This means undertaking extensive analysis of social and
governance policies and actions at the same time.
Challenge, Assessing & Monitoring Risk
In addition, there are two more formal ways in which our portfolios are
monitored:
There is a rigorous semi-annual review process which includes a meeting led by
the ESG team to assess how our portfolios are performing from an ESG
perspective. This ensures a circular process for identifying flags and
monitoring of improvements over time. These meetings are important in capturing
issues that have developed and evolved whilst we have been shareholders.
There is also the 'CIO challenge', a formal review meeting held between the
Henley Investment Centre's Chief Investment Officer (CIO) and each fund
manager. This review includes a full breakdown of the ESG performance using
Sustainalytics and ISS data, such as the absolute ESG performance of the
portfolio, relative performance to benchmarks, stocks exposed to severe
controversies, top and bottom ESG performers, carbon intensity and trends. The
ESG team review the ESG data and develop stock specific or thematic ESG
questions. The ESG performance of the portfolio is discussed with the CIO using
the data and the stock specific questions to analyse the fund manager's level
of ESG integration. The aim of these meetings is not to prevent a fund manager
from holding any specific stock: rather, what matters is that the fund manager
can evidence understanding of ESG issues and show that they have been taken
into consideration when building the investment case.
Climate Risk
UK Equity Portfolio
A core aspect of our philosophy on ESG issues is the concept of ESG momentum,
or improving ESG performance over time. We find that companies which are
improving in terms of their ESG practices may enjoy favourable financial
performance in the longer term. At first glance it might appear that the
development of the UK Equity Share Portfolio has been at odds with such aims:
as indicated by ISS Scope 1 + 2 measures, Carbon intensity has increased
between by 7% from January 2020 to May 2022 and stands at 171.9, some 9% higher
than the FTSE All-Share Index. However, looking deeper into the detail of the
underlying data, tells a very different tale.
. The carbon intensity of the UK Equity Share Portfolio has over the same
period increased by substantially less (by +7%) than the FTSE All-share index
(+23%), as calibration within the energy sector in particular has developed
over time. It is a reminder that the yardsticks used for measurement and
comparison are still in their early stages.
. The biggest single contributor to carbon intensity of the UK Equity Share
Portfolio (we estimate around 23% of the total ISS defined emissions) derives
from the position held in Utility company SSE. As a major distributor of
electrical power in the UK, SSE necessarily at present has significant exposure
to distribution of power generated from non-renewable sources. However, it is
in our view at the very forefront of progress as an enabler of transition
towards net zero: it develops, builds and operates infrastructure needed to
support the transition, and has set out detailed and specific targets across
each of scope 1, 2 and 3*.
. As of 31 May 2022, 28 out of the 51 holdings (55%) in the UK Equity Share
Portfolio have aligned with, are aligning, or are committed to aligning with
the net zero objective by 2050. This compares favourably with the FTSE
All-Share Index of just 133 out of 595 holdings (24%).
We continue to believe that the approach to climate change, and the
philosophies behind all aspects ESG deserve to be embedded in an investment
framework which encourages positive change. Coupling this with a focus on
valuation is, to our minds, the best way to deliver strong investment outcomes
over the long term for our clients.
Global Equity Income Portfolio
Climate change continues to be a strategic priority for Invesco, with a
commitment to the Net Zero Asset Managers initiative. Companies' climate
transition plans were the most common topic of our targeted ESG engagements
over the last twelve months. As an indication of the progress made in reducing
carbon emissions (ISS Scope 1+2); the portfolio has reduced carbon intensity by
16% between January 2020 and May 2022 , compared the MSCI World benchmark which
reduced emissions by only 9%. Encouragingly, we expect to see more net zero
commitments from the companies we are invested in, suggesting this trend can
continue.
We would highlight however that the process may not be smooth. Different
regions are moving at different speeds, with Europe and the UK in front, Asia
and Emerging Markets still lagging. Larger companies are leading smaller and
mid- size companies.
As of 31 May 2022, 30 out of the 43 holdings (70%) in the portfolio have
aligned with, or are committed to aligning, with the net zero objective by
2050. All companies in our portfolio produce sustainability reports and we are
encouraging all companies that we meet to sign up to the net zero initiative,
whilst in acknowledging for some companies it may not be technically feasible
yet.
Company Specific Examples In the selection overleaf, we highlight some of the
recent engagements that we have had with companies to give you a flavour of how
active engagement can create positive outcomes.
* Scope 1 and 2 are those emissions that are owned or controlled by a company.
Scope 3 refers to the indirect emissions that occur at different points in the
full range of activities undertaken in order to create the products or services
of the reporting company.
UK Equity Portfolio Example
Independent power production and biomass supplier
- The investment team engaged with the Head of Sustainability to review
progress on sustainable carbon capture and storage, sustainable forests and
Biomass.
- On Carbon Capture and Storage (CCS) we questioned the company on the
environmental risks of leakage. The company were able to confirm that the
carbon stays in the ground as part of the geological formation in the same way
that oil & gas currently stays in the ground. High pressure is used to drive
the carbon deep underground and over time the CO2 infuses into the rocks.
- In terms of sustainable forests it was reiterated that they do not cut down
trees to simply provide wood in order to produce energy. Instead it is the wood
waste that is used for the production of biomass. The forests are for the
production of good quality timber for furniture or the lower grade timber that
is used in pallets. It is the 2-5% of branches, thinnings or hollow trees that
are used for pellet production. In British Columbia, Canada, forest floor
residues are also used for biomass and, this is happening to good effect.
Previously, residues were left to decay or piled up and burnt. In some
instances they were a fire hazard but they are now being utilised in pellet
production. The company is adding economic value to a forest by taking the
waste and creating better environmental outcomes.
- In order to support sustainable forestry the company traces the source of
wood for biomass and has created an audit protocol and procurement policy in
order to do this effectively. It rejects any supply that does not have the
correct certification and works closely with US based foresters who work with
suppliers to meet UK based governance standards. Following transactions the
company returns to the forest to check that the ESG outcomes have been
delivered. In terms of biomass sustainability the company's policy is compliant
with current UK and EU law. 100% of woody biomass produced by the company has
been verified against a number of forest certification programmes. Action:
position maintained
Savings and retirement provider
- We engaged with the management team post their FY21 results released in
March 2022. They have a programme of initiatives for 2022 including their new
Think Tank. They intend to use research to lead fresh debate, prompt a national
conversation, and inspire the action needed to make better longer lives a
reality, for all of us. There is a significant retirement savings gap in the
UK, which they are committed to help close. They intend to provide customers
"with the right guidance and products, at the right time, to support the right
decisions" and promote financial inclusion.
- The scale of the business has enabled them to invest £1.3bn into sustainable
assets during 2021, including investing over £500m into affordable housing,
which helped support some of society's most vulnerable people. In addition over
£200m has gone into projects with a positive environmental impact, such as the
provision of renewable electricity, to nearly half a million homes.
- The company is measuring the carbon footprint of their investments and are
aligning their portfolio to decarbonisation pathways in line with global
temperature goals. Their own scope 1 and 2 emissions will be Net Zero by 2025
(34% reduction per FTE last year) and they are progressing towards their
commitment to be Net Zero across their investment portfolio by 2050. Examples
of their own energy efficiency activities include a new photovoltaic glass roof
in one of their office locations, LED lighting roll out at some office sites
and an adoption of a travel policy whereby emphasis is on trip avoidance and
carbon efficiency. Action: position maintained
Travel and leisure
- Background: In September 2019, the company engaged with the investment team
to seek shareholder feedback on the possibility of moving from a traditional
long term incentive plan (LTIP) to a Restricted Share Plan (RSP). We expressed
our concerns about the quantum of the award and that the discount from moving
from a LTIP to the RSP should begin at a guide rate of 50%. The initial
proposal from the company did not achieve this. We further wanted to ensure
there was an appropriate financial underpin in place to protect shareholders'
interests. Following further engagement, we became comfortable with the
rationale and the quantum of the RSP and supported the proposal at the AGM.
In December 2020, following shareholder approval for the RSP, the impact of
the Covid-19 pandemic on the business meant that the financial underpins of the
2020 RSP would not be met. We engaged with the Remuneration Committee to
discuss reviewing and possibly removing entirely the financial underpins for
the 2020 RSP. We made clear to the committee that, whilst we were mindful of
the impact of the pandemic, we would not support the retrospective adjustment
of this 2020 award. Following this engagement and after considering shareholder
views carefully, the company decided not to proceed any further with the
proposal to remove the financial underpins from the 2020 RSP. We regarded our
engagement as positive from both a governance and stewardship perspective and
reflective of an active approach to governance engagement.
- In Q3 2021 the investment team engaged with the Chairman, General Counsel,
and Investor Relations to discuss governance issues including the material vote
against the chair (10.2%) and remuneration report (16.8%). The concerns with
the board were due to potential over-boarding. We discussed attendance and
furthermore that the chair would relinquish certain other board positions. We
engaged with the company prior to the AGM on the proposed changes to the RSP
and made clear that we would not support the plan on its current terms and were
not supportive of changes to in-flight remuneration plans that were not
forecast to vest. The company decided to make some changes from their initial
position and we were of the view that the revised plan warranted support.
Action: position maintained
Global Equity Income Portfolio Example
A supplier of glass bottles and packaging
Our assessment
- Glass packaging is essential in the food and beverage sector, as well as in
a range of healthcare settings. The investment team finds the company
attractive on a range of valuation measures, believes management is aligned
with our objectives and regards the company as maintaining a strong position in
a consolidated market.
- Although glass has the benefit of being infinitely recyclable, its
production generates significant CO2. The team have engaged with the company
extensively to discuss their strategy to lower emissions. The company is
switching from heavy fuel oil to gas which will lower CO2 output by around 30%
from 2022 levels by 2030. It is also seeking to increase its usage of cullet
(crushed recycled glass) from 49% in 2022 to 59% in 2025 which reduces energy
usage. Overall, the company aims to reduce CO2 emissions by 46% by 2030 from
the 2020 level. The company see themselves as leaders in the glass packaging
industry in CO2 reduction and expect this to be a competitive advantage when
negotiating with customers.
- We have also engaged with the company on governance issues relating to the
separation of CEO and Chairman roles which has now been enacted. We note around
60% of the company's interest expense is linked to meeting CO2 reduction
targets, we view this as a positive signal. We are also encouraged by the
enhanced employee share ownership plan which aims for 5% of shares owned by
employees by 2025, by from 3% in 2020. Action: position maintained
A global producer of soft drinks
Our assessment
- We have been impressed by the commitment given by the company to the
science-based target of reducing carbon emissions (scopes 1 2 and 3) by 30% by
2030, and its ability to encourage its suppliers to respond to the CDP Supply
chain questionnaire. The company has an ambition to be net zero by 2050 - we
intend to monitor the approach to achieving this over time. The company has
made significant progress in improving the sustainability of water resource
used in its operations.
- We have actively engaged with the company regarding the use and recycling of
plastics. The company is already well within reach of its goal of making 100%
of its packaging recyclable by 2025. The company also aims to have 25% of its
beverages (by volume) sold in refillable or returnable packaging by 2030. We
note that the company has already made progress in a number of markets, such as
in Latin America where refillable bottles were initially introduced as an
affordable packaging type. The real challenge for the company comes with the
collection of packaging to reduce the impact of waste on the environment. The
company targets the collection and recycling of a bottle or can for each one
that they sell by 2030. This will require collaboration with local governments,
businesses and societies. We will continue to engage on this issue in our
regular meetings with the company in future.
- Regarding sugar, our view is that the company is making good progress in the
reformulation of its products to reduce the calorific content of its beverages,
and its work developing and using natural sweeteners. 28% of volumes in 2021
were low or no calorie. More remains to be done and we will continue to
question the company on this issue.
- Regarding disclosure, we note the comprehensive environmental, business, and
social governance report the company has produced for the past three years and
believe this is a significant improvement on previous practise. Action:
position maintained
Voting Policy
We review Annual General Meeting ('AGM') and Extraordinary General Meeting
('EGM') proposals taking into account our own knowledge of the companies in
which our portfolios are invested, as well as the comments and recommendations
of proxy voting analysis providers ISS*, Glass Lewis and IVIS**. In addition,
Invesco provides proprietary proxy voting recommendations and publishes these
recommendations via its PROXYintel platform. All voting decisions remain with
the portfolio manager, however, where a portfolio manager votes against an
Invesco voting recommendation, the rationale for such decision is recorded and
available on the platform. There will be times when we will follow the
recommendations made by proxy research providers but times where we disagree
with the stance being taken.
Voting in line with management recommendations should not be seen as evidence
of a lack of engagement or challenge on our part, but rather that we believe
that the governance of the companies in which we are invested is appropriately
robust and worthy of support. There may be instances where we vote in support
of management, but the ESG performance of the company is not perfect and issues
have been identified. In this situation we would seek to engage with the
company leading up to the vote and if necessary, would have raised concerns and
likely given a time horizon or measure for improvement which, if not met, could
lead to a vote against in the future. In that respect, our approach to
governance is one of engagement and improvement.
We do not expect companies to change overnight but we do expect continual
review of governance processes and continued improvement. Further details of
how the manager has voted on holdings in the portfolio is available on the
company's webpage at www.invesco.co.uk/selectuk and www.invesco.co.uk/
selectglobal.
A recent example of voting engagement, which concerned executive remuneration,
is shown on page 37, under the Travel and leisure case study.
Conclusion
The regulatory landscape is rapidly evolving, which increasingly compels
organisations and investors alike to clearly demonstrate their awareness of ESG
issues in their decisions. Landmark initiatives such as the European Union's
new Sustainable Finance Disclosure Regulation (SFDR) are at the forefront of
this shift.
We believe that our approach is fair, coherent and pragmatic. Whilst we
consider ESG aspects, we are not bound by any specific ESG criteria and have
the flexibility to invest across the ESG spectrum from best to worst in class,
but we think that the principles behind ESG deserve to be embedded in an
investment framework which encourages positive change. Coupling this with a
focus on valuation is, to our minds, the best way to deliver strong investment
outcomes for our clients' long term. This reinforces our fundamental belief
that responsible investing demands a long-term view and that a
stakeholder-centric culture of ownership and stewardship is at the heart of ESG
integration.
* ISS - Institutional Shareholder Services .
** IVIS - Institutional Voting Information Service.
Business Review
Purpose, Business Model and Strategy
Invesco 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
shareholders' 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 Group 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, with an income that will grow
over time, by investing primarily in UK quoted equities.
Investment Policy and Risk
The UK Equity Portfolio is invested primarily in UK-quoted equities and may
also hold equity-related or fixed interest 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 40 and 50
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.
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), 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. As such, the Portfolio may be more sensitive to and
impacted by interest rate movements and other factors.
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 2022 and of relevant benchmark indices were as follows:
UK Equity Portfolio 6.8%
FTSE All-Share Index 8.3%
Global Equity Income Portfolio 9.6%
MSCI World Index (£) 7.4%
Balanced Risk Allocation Portfolio 0.3%
Composite Benchmark -6.1%
ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum 5.1%
Managed Liquidity Portfolio -0.3%
Source: Refinitiv.
Other performance periods, together with share price total returns, are shown
on pages 9, 16, 23 and 29.
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 6.00p (2021:
3.90p), based on net revenue for the year of £4,697,000 (2021: £1,322,000),
which included £438,000 (2021: nil) of non-recurring 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 Directors did not
set dividend targets for the year to 31 May 2022 due to the uncertainty of
income flows as a result of the impact of Covid-19. Given the ongoing
uncertainty to income flows, due in particular to the risk of entering a period
of global recession, the Directors have not set dividend targets for the year
to 31 May 2023.
Dividends Declared:
The Directors have declared and paid four interim dividends for the year ended
31 May 2022 totalling 6.70p per UK Equity Share (2021: 6.65p) of which 6.00p
(2021: 3.90p) was met from revenue earned in the year. The aggregate of
dividends paid in respect of the year was £5,213,000 (2021: £1,814,000) - the
large increase reflects the larger number of shares in issue following the
issue of shares due to the business combination with Invesco Income Growth
Trust plc in April 2021.
A first interim dividend for the year to 31 May 2023 of 1.50p was declared on
14 July 2022. 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
4.85p (2021: 3.95p), based on net revenue for the year of £1,197,000 (2021: £
1,024,000), which included £149,000 (2021: £192,000) of non-recurring 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 Global Equity Income dividends per share from year to year. The
Directors did not set dividend targets for the year to 31 May 2022 due to the
uncertainty of income flows as a result of the impact of Covid-19. Given the
ongoing uncertainty to income flows, due in particular to the risk of entering
a period of global recession, the Directors have not set dividend targets for
the year to 31 May 2023.
Dividends Declared:
The Directors have declared and paid four interim dividends for the year ended
31 May 2022 totalling 7.15p (2021: 7.10p) per Global Equity Income Share, of
which 4.85p (2021: 3.95p) was met from revenue earned in the year. The
aggregate of dividends paid in respect of the year was £1,757,000 (2021: £
1,815,000) - 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 2023 of 1.55p was declared on
14 July 2022. 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 return of £44,000 in the year (2021: £8,000 net loss).
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 Directors declared and paid one
interim dividend for the year ended 31 May 2022 totalling 1.00p (2021: nil).
The Managed Liquidity Portfolio recorded a net revenue loss for the year of £
1,000 (2021: profit of £33,000, including a one-off refund of management fees
of £34,000).
A first interim dividend for the year to 31 May 2023 of 1.00p was declared on
14 July 2022 and this will be funded from revenue reserves. It is unlikely,
given the quantum of revenue being earned, that future dividends will be more
frequent than annual and they could be less frequent.
Discount
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 Board reviews the buy
back parameters from time to time taking into account current market conditions
and other factors and instructs the brokers accordingly.
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 43. At 31 May 2022, the share prices, net asset values
('NAV') and the discounts of the four Share classes were as follows:
2022 2021
Net Asset Share Net Asset Share
Value Price Value Price
Share Class (Pence) (Pence) Discount (Pence) (Pence) Discount
UK Equity 194.35 175.00 (10.0)% 188.33 176.00 (6.5)%
Global Equity Income 249.00 229.00 (8.0)% 233.91 226.00 (3.4)%
Balanced Risk 169.87 154.50 (9.0)% 169.33 163.00 (3.7)%
Allocation
Managed Liquidity 106.92 97.00 (9.3)% 108.11 102.00 (5.7)%
The following charts show the premium/(discount) at which the Shares traded
over the two years to 31 May 2022. The Shares of all four Portfolios have,
generally traded in a range of 3% premium to 13% discount. As can be seen below
and on the following page, since the onset of Covid-19 in March 2020 and the
more recent conflict in Ukraine, the volatility in markets has led to higher
levels of discount being seen sporadically throughout the period.
Source: Refinitiv.
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:
Global Balanced
UK Equity Risk Managed
Company Equity Income Allocation Liquidity
2022 0.76% 0.74% 0.78% 1.09% 0.45%
2021 0.87% 0.91% 0.81% 1.21% 0.39%
The above excludes rebates received by the Managed Liquidity Portfolio.
Performance fee arrangements were removed from both the UK Equity and Global
Equity Income Share Portfolios in 2021, hence a performance fee is no longer
payable. 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 80 shows the assets and liabilities at the
year end. Details of the Company's borrowing facility are shown in note 13 of
the financial statements on page 92, 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.
Global Balanced
UK Equity Risk Managed
Number of shares Equity Income Allocation Liquidity
Shares held at the year end
- excluding treasury 73,772,657 25,155,784 4,170,938 1,238,254
- held in treasury 34,743,775 16,036,159 6,437,218 9,313,678
Movements during the year:
- increase/(decrease) arising (2,552,831) 1,967,979 266,843 (306,425)
from conversions
- shares bought back into (11,996,500) (583,000) (165,000) (63,000)
treasury
- average price thereon 184.1p 227.7p 165.5p 104.0p
Since the year end another 687,000 UK Equity Shares and 295,000 Global Equity
Income Shares have been bought into treasury at average prices of 160.8p and
219.8p respectively.
Further details on net changes in issued share capital are set out in note 14
to the financial statements on pages 93 and 94. 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, consistent with the business combination with Invesco
Income Growth Trust plc in April 2021, 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 63 and 64). In carrying out this
assessment, the Audit Committee together with the Manager, have considered
emerging risks such as geopolitical risks, evolving cyber threats and climate
related risks.
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 17 to the financial
statements.
Category and Principal Mitigating Procedures Risk trend
during
Risk Description and Controls the year
Strategic Risk
Investment Objectives and The Board monitors the share Unchanged
Attractiveness to Investors registers and the performance of
There is no guarantee that the the Company and each Portfolio. It
Investment Policy of the Company and has established a structure
of each Portfolio will provide the offering a range of options for
returns sought by the Company. There investors and has set guidelines to
can be no guarantee, therefore, that ensure that the Investment Policy
the Company will achieve its of the Company and each Portfolio
investment objectives or that the is pursued by the Manager.
Shares will continue to meet
investors' needs.
Market Movements and Portfolio The performance of the Manager is Increased
Performance carefully monitored by the Board
Individual Portfolio performance is and the continuation of the
substantially dependent on the Manager's mandates is reviewed each
performance of the securities year. The Board has established
(including derivative instruments) guidelines to ensure that the
held within the Portfolio. The investment policies of each class
prices of these securities are of Share are pursued by the
influenced by many factors including Manager.
the general health of regional and
worldwide economies; interest rates; For a fuller discussion of the
inflation; government policies; economic and market conditions
industry conditions; political and facing the Company and the current
diplomatic events; tax laws; and future performance of the
environmental laws; and by the different Portfolios of the
demand from investors. The Manager Company, please see both the
strives to maximise the total return Chairman's Statement on pages 6 to
from Portfolios, but the investments 8 and the Portfolio Managers'
held are influenced by market reports starting on pages 11 to 31.
conditions and the Board
acknowledges the external influences The Company has a nil-valued
on the performance of each holding in Sberbank, a Russian bank
Portfolio. Further risks but no other direct investments in
specifically applicable to the Russia or other holdings with
Balanced Risk Allocation Shares are significant links to Russia.
set out on page 47.
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. There is an
ongoing risk to global economies
from measures taken in response to
Covid-19, many companies remain at
risk from the effects of imposed
lockdowns or other restrictions on
their production and revenues and
this has a consequential effect on
the availability of investment
income.
The risk could be triggered by
unfavourable developments globally
and/or in one or more regions, a
contemporary example being the
market uncertainty in relation to
the ongoing invasion of Ukraine by
Russia.
Risks Applicable to the Company's The Board has adopted a discount Unchanged
Shares control policy that applies to all
Shares in the Company are designed Share classes and the Board and the
to be held over the long-term and Manager monitor the market rating
may not be suitable as short-term of each Share class.
investments. There can be no
guarantee that any appreciation in While it is the intention of the
the value of the Company's Shares Directors to pay dividends to
will occur and investors may not get holders of the UK Equity, Global
back the full value of their Equity Income and Managed Liquidity
investments. Owing to the potential Shares, this will be affected by
difference between the mid-market the returns achieved by the
price of the Shares and the prices respective Portfolios and the
at which they are sold, there is no dividend policy adopted by the
guarantee that their realisable Board. Accordingly, the amount of
value will reflect their mid-market dividends paid to shareholders may
price. fluctuate. Any change in the tax or
accounting treatment of dividends
The market value of a Share, as well received or other returns may also
as being affected by its net asset affect the level of dividend paid
value (NAV), is also influenced by on the Shares in future years. The
investor demand, its dividend yield, Directors have resolved, in the
where applicable, and prevailing absence of unforeseen
interest rates, amongst other circumstances, to supplement
factors. As such, the market value revenue with capital profits in
of a Share can fluctuate and may not order to pay equity Portfolio
reflect its underlying NAV. Shares dividends at levels set by the
may therefore trade at discounts to Board (see pages 41 and 42).
their NAVs.
Past performance of the Company's
Shares is not necessarily indicative
of future performance.
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 The Board monitors share Unchanged
result in the relevant Portfolio conversions and Portfolio sizes and
becoming too small to be viable. liaises with the Manager on the
continued viability of each Share
The continued listing on the class.
Official List of each class of Share
is dependent on at least 25% of the If at any time the Board considers
Shares in that class being held in that the listing of any class of
public hands. This means that if Share on the Official List is
more than 75% of the Shares of any likely to be cancelled and the loss
class were held by, inter alia, the of such listing would mean that the
Directors, persons connected with Company would no longer be able to
Directors or persons interested in qualify for approval as an
5% or more of the relevant Shares, investment trust under section 1158
the listing of that class of Share of the Corporation Tax Act 2010,
might be suspended or cancelled. The the Board may serve written notice
Listing Rules state that the FCA may on the holders of the relevant
allow a reasonable period of time Shares requiring them to convert
for the Company to restore the their Shares into another Share
appropriate percentage if this rule class.
is breached, but in the event that
the listing of any class of Shares
were cancelled the Company would
lose its investment trust status.
Liability of a Portfolio for the The Directors intend that, in the Unchanged
Liabilities of Another Portfolio 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 Gearing levels of the different Unchanged
Borrowing will amplify the effect on Portfolios will change from time to
shareholders' funds of gains and time in accordance with the
losses on the underlying securities. respective Portfolio Managers'
assessments of risk and reward. The
Whilst the use of borrowings by the Manager assesses the exposure to
Company should enhance the total gearing on a regular basis,
return on a particular class of including the level of borrowings
Share where the return on the and covenants of the credit
underlying securities is rising and facility.
exceeds the cost of borrowing, it
will have the opposite effect where The Balanced Risk Allocation
the underlying return is falling, Portfolio may also be geared (by up
further reducing the total return on to 250%, according to the
that Share class. Similarly, the use investment policy set out on page
of gearing by investment companies 40) by means of the derivative
or funds in which the Company instruments in which it invests.
invests increases the volatility of This is discussed separately below,
those investments. under the heading: Additional Risks
Applicable to Balanced Risk
The Company has a £40 million 364 Allocation Shares.
day multicurrency revolving credit
facility and 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.
Hedging The Company may use derivatives to Unchanged
Where hedging is used there is a hedge its exposure to currency or
risk that the hedge will not be other risks and for the purpose of
effective. 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 Manager reviews the level of Unchanged
The Company is subject to various compliance with the Corporation Tax
laws and regulations by virtue of Act 2010 and other financial
its status as a public limited regulatory requirements on a daily
investment company registered under basis. All transactions, income and
the Companies Act 2006, its status expenditure are reported to the
as an investment trust and its Board. The Board regularly
listing on the London Stock considers the risks to which the
Exchange. Loss of investment trust Company is exposed, the measures in
status could lead to the Company place to control them and the
being subject to UK Capital Gains potential for other risks to arise.
Tax on the sale of its investments. The Board ensures that satisfactory
A serious breach of other regulatory assurances are received from
rules could lead to suspension from service providers. The depositary
the London Stock Exchange, a fine or and the Manager's compliance and
a qualified Audit Report. Other internal audit officers report
control failures, either by the regularly to the Company's Audit
Manager or any other of the Committee.
Company's service providers, could
result in operational or The risks and risk management
reputational problems, erroneous policies and procedures as they
disclosures or loss of assets relate to the financial assets and
through fraud, as well as breaches liabilities of the Company are also
of regulations. detailed in note 17 to the
financial statements.
Additional Risks Applicable to The Manager actively seeks the most Unchanged
Balanced Risk Allocation Shares liquid means of obtaining the
The use of financial derivative required exposures. The financial
instruments, in particular futures, derivative instruments used for the
forms part of the investment policy strategy are geared instruments and
and strategy of the Balanced Risk the aggregate notional exposure
Allocation Portfolio. The degree of will usually exceed the net asset
leverage inherent in futures trading value of the Portfolio. Whilst this
potentially means that a relatively could result in greater
small price movement in a futures fluctuations in the net asset
contract may result in an immediate value, and consequently the share
and substantial loss to the price, the use of leverage is
Portfolio. The Portfolio's ability normally necessary to achieve the
to use these instruments may be target volatility required to meet
limited by market conditions, the return objective. The degree of
regulatory limits and tax leverage inherent in futures
considerations. trading potentially means that a
relatively small price movement in
The absence of a liquid market for a futures contract may result in an
any particular instrument at any immediate and substantial loss and
particular time may inhibit the it would be necessary to increase
ability of the Manager to liquidate the collateral held at the clearing
a financial derivative instrument at broker to cover such loss. This is
an advantageous price. 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.
Third Party Service Providers Risk
Reliance on Third Party Service Third-party service providers are Unchanged
Providers subject to ongoing monitoring by
The Manager may be exposed to the Manager and the Company. The
reputational risks. In particular, Manager reviews the performance of
the Manager may be exposed to the all third-party providers regularly
risk that litigation, misconduct, through formal and informal
operational failures, negative meetings. The Audit Committee
publicity and press speculation, reviews regularly the performance
whether or not it is valid, will and internal controls of the
harm its reputation. Any damage to Manager and all third-party
the reputation of the Manager could providers through audited service
result in potential counterparties organisation control reports,
and third parties being unwilling to together with updates on
deal with the Manager and by information security, the results
extension the Company. This could of which are reported to the Board.
have an adverse impact on the
ability of the Company to The Manager's business continuity
successfully pursue its Investment plans are reviewed on an ongoing
Policy. basis and the Directors are
satisfied that the Manager has in
The Company has no employees and the place robust plans and
Board comprises non-executive infrastructure to minimise the
directors only. The Company is impact on its operations so that
therefore reliant upon the the Company can continue to trade,
performance of third-party service meet regulatory obligations, report
providers for its executive function and meet shareholder requirements.
and service provisions. The The Board receives regular update
Company's operational structure reports from the Manager and
means that all cyber risk third-party service providers on
(information and physical security) business continuity processes and
arises at its third-party service has been provided with assurance
providers, including fraud, sabotage from them all insofar as possible
or crime against the Company. The that measures are in place for them
Company's operational capability to continue to provide contracted
relies upon the ability of its services to the Company.
third-party service providers to
continue working throughout the
disruption caused by a major event
such as the Covid-19 pandemic.
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 Company's main service
providers, of which the Manager is
the principal provider, are listed
on page 115. 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.
Damage to the reputation of the
Manager could potentially result in
counterparties and third parties
being unwilling to deal with the
Manager and by extension the
Company, which carries the Manager's
name. This could have an adverse
impact on the ability of the Company
to pursue its investment policy
successfully.
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
and emerging risks to which it is exposed, as set out on pages 44 to 48,
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 have been 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 the impact of Covid-19 from March 2020 on
global economies and the conflict in Ukraine. Despite the disruption to markets
from these recent events, 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 also 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 more than covers the value of the Company's short term
liabilities and annual operating costs. In arriving at this assessment, the
Board considered stressed scenario-testing for both income and loan covenants;
borrowing structure; level of gearing; and the liquidity of the portfolios.
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 audit committee report required by the AIC Corporate Governance Code is set
out on pages 63 and 64. There are no areas of concern in relation to the
financial statements to bring to the attention of shareholders.
Duty to Promote the Success of the Company (s.172)
The Directors have a statutory duty under section 172 of the Companies Act 2006
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. The Company has no
employees and no customers in the traditional sense 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. In doing so, it has due regard to the impact of its actions on other
stakeholders including the Manager, other third-party service providers and the
impact of the Company's operations on the community and the environment which
are all taken into account during all discussions and as part of the Board's
decision making.
The Board is committed to maintaining open channels of communication and
engagement with stakeholders in a manner which they find most meaningful. The
table below sets out how the Board engages with each of its key stakeholders:
Stakeholder Key considerations and engagement
Shareholders - Shareholder relations are given high priority by the Board and the
continued Manager. The prime means by which the Company communicates with
shareholder shareholders are the annual and half-yearly financial reports, which
support and aim to provide shareholders with a full understanding of the
engagement are Company's activities and its results. This information is
important to the supplemented by daily publication of the NAVs of the Company's shares
business and the via the London Stock Exchange, ad hoc regulatory announcements,
delivery of its monthly factsheets and other information on the Manager's website
long-term www.invesco.co.uk/investmenttrusts, including pre-investment
strategy. information, Key Information Document ('KID'), shareholder circulars,
Further details Portfolio disclosures, conversion forms and instructions, Stock
of our strategy Exchange announcements, schedule of matters reserved for the Board,
can be found on terms of reference of Board Committees, Directors' letters of
pages 39 to 41. appointment, the Company's share price and proxy voting results. The
Chairman and Directors welcome contact with shareholders. 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 in writing to
the Company Secretary at the address given on page 115.
The Manager - The Board engages with the Manager at every Board meeting and reviews
the Manager's the Company's relationships with other service providers, such as the
performance is registrar, depositary and custodian, at least annually. During the
critical for the year the most significant engagement was with the Manager and, in
Company to particular the individual Portfolio Managers. At every Board meeting
successfully the Directors receive an investor relations update from the Manager,
deliver its which details any significant changes in the Company's shareholder
investment register, shareholder feedback, as well as noti?cations of any
strategy and publications or press articles.
meet its
objective to Maintaining a close and constructive working relationship with the
provide Manager is crucial as the Board and the Manager both aim to achieve
shareholders consistent, long-term returns in line with the Company's investment
with consistent strategy. Important components in the collaboration with the Manager,
long-term representative of the Company's culture are:
returns. Further
details of the * Encouraging an open discussion with the Manager, allowing time
Portfolio and space for original and innovative thinking;
Managers * Recognising that the interests of shareholders and the Manager
investment are, for the most part, well aligned, adopting a tone of
approach can be constructive challenge, balanced with robust negotiation of the
found in the Manager's terms of engagement if those interests should not be
Portfolio fully united;
Manager Reports * The regular review of underlying stratgegic and investment
on pages 11 objectives;
to 31. * Drawing on Directors' individual experience and knowledge to
support and challenge the Manager in its monitoring of portfolio
companies and engagement with its investee companies; and
* Willingness to make the Directors' experience available to
support and challenge the Manager in the sound long-term
development of its business and resources, recognising that the
long-term health of the Manager's business is in the interests of
shareholders in the Company.
Third-party The Board through the Manager maintains regular contact with its key
Service external service providers and receives regular reporting from them,
Providers - in both through the Board and committee meetings, as well as outside of
order to the regular meeting cycle. Their advice, as well as their needs and
function as an views are routinely taken into account.
investment trust
with a premium The Board (through the Management Engagement Committee) formally
listing on the assesses the third-party service providers' performance, fees and
London Stock continuing appointment annually to ensure that the key service
Exchange, the providers continue to function at an acceptable level and are
Company relies appropriately remunerated to deliver the expected level of service.
on a diverse
range of The Audit Committee reviews and evaluates the financial reporting
reputable control environments in place at each service provider. There have
advisers for been no material changes to the level of service provided by the
support in Company's third-party suppliers as a result of the Covid-19 pandemic.
meeting all
relevant
obligations.
Investee On the Company's behalf the Portfolio Managers engage with investee
Companies - the companies, particularly in relation to ESG matters and shares held in
Board recognises the portfolio are voted at general meetings.
the importance Examples of Portfolio Managers engagement with investee companies can
of good be found on pages 37 to 38.
stewardship and
communication
with investee
companies in
meeting the
Company's
investment
objective and
strategy.
Regulators - the The Company regularly considers how it meets various regulatory and
Company can only statutory obligations and how any governance decisions it makes can
operate as an have an impact on its stakeholders, both in the shorter and in the
investment trust longer term. The Board receives reports from the Manager and Auditor
if it conducts on their respective regulatory compliance and any inspections or
its affairs in reviews that are commissioned by regulatory bodies.
compliance with
such status. The Company is a member of the AIC, which looks after the interests
Interaction with of investment trusts and provides information to the market.
regulators such Comprehensive information relating to the Company can be found on the
as the Financial AIC website, www.aic.co.uk.
Conduct
Authority ('FCA) As a member of the AIC, the Company is welcomed to comment on
' and Financial consultations and proposal documents on matters affecting the Company
Reporting and annually to nominate and vote for future board members.
Council ('FRC'),
who have a
legitimate
interest in how
the Company
operates in the
market and
treats its
shareholders,
and industry
bodies such as
the Association
of Investment
Companies,
remains an area
of Board focus.
The mechanisms for engaging with stakeholders are kept under review by the
Directors and will be discussed on a regular basis at Board meetings to ensure
that they remain effective. Examples of key discussions and considerations of
the Board made during the year were:
. to consider the continued impact of Covid-19 and the impact of global
events such as the situation in Ukraine on the Company and portfolio holdings;
. to consider and approve the renewal of the Company's loan facility;
. to consider and approve four quarterly dividend payments (see page 41
and 42 for further details);
. to consider and approve four quarterly share conversions (see page 2 for
further details); and
. to consider and approve the ongoing use of share buybacks as part of the
Board's adopted discount policy (see page 42 for further details).
Board Diversity
The Company's policy on diversity is set out on page 57. The Board takes into
account many factors, including the balance of skills, knowledge, diversity
(including gender) and experience, amongst other factors when reviewing its
composition and appointing new directors. The Board has considered the
recommendations of the Davies and Hampton-Alexander review as well as the
Parker review, but does not consider it appropriate to establish targets or
quotas in this regard. There are no set targets in respect of diversity,
including gender. However, diversity forms part of both the Nomination
Committee and main Board's deliberations when considering new appointments. The
Company's success depends on suitably qualified candidates who are willing, and
have the time, to be a director of the Company. Summary biographical details of
the Directors are set out on page 54. The Company has no employees.
The Board notes the new FCA rules on diversity and inclusion on company boards
introduced for accounting periods starting on or after 1 April 2022 and will
report fully on compliance with those rules in the Company's annual financial
report for the year ended 31 May 2023. However, in compliance with two of the
three new FCA rules, at the year end the Board comprised five directors, two of
whom are women, thereby constituting 40% female representation and both the
Chairman of the Board and Senior Independent Director appointments are women.
Environment, Social and Governance ('ESG') Matters
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 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 ('PRI'),
which demonstrates its extensive efforts in terms of ESG integration, active
ownership, investor collaboration and transparency. The Manager achieved a
global 'A+' rating for its overall approach to responsible investment for the
last four years as well as achieving an 'A' or 'A+' across all categories in
the latest available assessment period from PRI for Strategy and Governance. In
addition, the Manager is an active member of the UK Sustainable Investment and
Finance Association as well as a supporter of the Task Force for Climate
Related Financial Disclosure ('TCFD') since 2019. The Manager published its
Climate Change report in line with the TCFD in November 2021. Although TCFD
does not apply directly for the Company at present, the Board confirms that it
will comply with all reporting regulations as they are implemented.
The Manager has also complied with the spirit of the Sustainable Finance
Disclosure Regulation ('SFDR') which came into effect within the European Union
on 10 March 2021 and introduces a number of sustainability-related disclosure
requirements for financial market participants.
The wider Invesco investment team incorporates ESG considerations in its
investment process 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 portfolios, 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.
Further details are shown in the ESG Statement from the Manager on pages 34 to
38.
The Company's stewardship functions have been delegated to the Manager. The
Manager 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. The Manager is also a
Tier 1 signatory of the Financial Reporting Council's Stewardship Code, 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.
A copy of the current Manager's Stewardship Policy can be found at
www.invesco.co.uk.
A greenhouse gas emissions statement is included in the Directors' Report on
page 58.
Modern Slavery
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 3 August 2022.
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
Victoria Muir
Chairman
3 August 2022
Electronic Publication
The Annual Financial Report is published on the Manager's website
www.invesco.co.uk/investmenttrusts. The Directors are responsible for the
maintenance and integrity of the corporate and financial information included
on the Company's website, which is maintained by the Company's Manager.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Income Statement
FOR THE YEARED 31 MAY
2022 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at 9 - 9,824 9,824 - 28,391 28,391
fair value
Gains/(losses) on derivative 10 72 (32) 40 38 1,701 1,739
instruments
Gains/(losses) on foreign - 43 43 - (104) (104)
exchange
Income 2 6,988 - 6,988 3,184 539 3,723
Investment management fees 3 (360) (836) (1,196) (198) (454) (652)
Performance fee waiver 3 - - - - 531 531
Other expenses 4 (502) (6) (508) (385) (23) (408)
Net return before finance 6,198 8,993 15,191 2,639 30,581 33,220
costs and taxation
Finance costs 5 (70) (165) (235) (38) (90) (128)
Return before taxation 6,128 8,828 14,956 2,601 30,491 33,092
Tax 6 (191) - (191) (230) - (230)
Return after taxation for 5,937 8,828 14,765 2,371 30,491 32,862
the financial year
Return per ordinary share 7
(basic and diluted)
- UK Equity Share Portfolio 6.00p 6.07p 12.07p 3.90p 41.42p 45.32p
- Global Equity Income Share 4.85p 16.66p 21.51p 3.95p 57.28p 61.23p
Portfolio
- Balanced Risk Allocation 1.05p (0.83)p 0.22p (0.17)p 33.10p 32.93p
Share Portfolio
- Managed Liquidity Share (0.07)p (0.28)p (0.35)p 1.35p 0.95p 2.30p
Portfolio
The total column of this statement represents the Company's Income Statement
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 current year. Income
Statements for the different Share classes are shown on pages 15, 22, 28 and 32
for the UK Equity, Global Equity Income, Balanced Risk Allocation and Managed
Liquidity Share Portfolios respectively.
The accompanying accounting policies and notes are an integral part of these
financial statements.
Statement of Changes in Equity
FOR THE year ended 31 May
Capital
Share Share Special redemption Capital Revenue
capital premium reserve reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 May 2020 1,050 1,290 55,454 359 49,568 (52) 107,669
Cancellation of - - (5) 5 - - -
deferred shares
Shares bought back - - (28,704) - - - (28,704)
and held in
treasury
Share conversions (1) - 1 - - - -
Return after - - - - 30,491 2,371 32,862
taxation per the
income statement
Dividends paid 8 - - (1,283) - - (2,346) (3,629)
Issue of shares on 666 121,859 - - - - 122,525
business
combination
Cost of shares - (159) - - - - (159)
issued in respect
of the business
combination
At 31 May 2021 1,715 122,990 25,463 364 80,059 (27) 230,564
Cancellation of - - (8) 8 - - -
deferred shares
Shares bought back 15 - - (10,438) - (13,485) - (23,923)
and held in
treasury
Share conversions (6) - 4,478 - (4,472) - -
Return after - - - - 8,828 5,937 14,765
taxation per the
income statement
Dividends paid 8 - - (560) - (516) (5,909) (6,985)
At 31 May 2022 1,709 122,990 18,935 372 70,414 1 214,421
The accompanying accounting policies and notes are an integral part of these
financial statements.
Balance Sheet
AS AT 31 MAY 2022
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
Notes £'000 £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value 9 158,450 67,630 6,233 1,445 233,758
through profit or loss
Current assets
Derivative assets held at fair value 10 - - 362 - 362
through profit or loss
Debtors 11 804 351 331 8 1,494
Cash and cash equivalents 322 215 401 9 947
1,126 566 1,094 17 2,803
Creditors: amounts falling due
within one year
Derivative liabilities held at fair 10 - - (225) - (225)
value through profit or loss
Other creditors 12 (448) (206) (17) (138) (809)
Bank facility 13 (15,754) (5,352) - - (21,106)
(16,202) (5,558) (242) (138) (22,140)
Net current (liabilities)/assets (15,076) (4,992) 852 (121) (19,337)
Net assets 143,374 62,638 7,085 1,324 214,421
Capital and reserves
Share capital 14(a) 1,085 412 106 106 1,709
Share premium 15 121,700 - 1,290 - 122,990
Special reserve 15 - 17,211 1,000 724 18,935
Capital redemption reserve 15 80 81 27 184 372
Capital reserve 15 20,509 44,934 4,683 288 70,414
Revenue reserve 15 - - (21) 22 1
Shareholders' funds 143,374 62,638 7,085 1,324 214,421
Net asset value per ordinary share 16 194.35p 249.00p 169.87p 106.92p
The financial statements were approved and authorised for issue by the Board of
Directors on 3 August 2022.
Signed on behalf of the Board of Directors
Victoria Muir
Chairman
The accompanying accounting policies and notes are an integral part of these
financial statements.
Balance Sheet
AS AT 31 MAY 2021
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
Notes £'000 £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value 9 176,434 63,902 5,741 1,809 247,886
through profit or loss
Current assets
Derivative assets held at fair value 10 - - 292 - 292
through profit or loss
Debtors 11 1,040 299 190 36 1,565
Cash and cash equivalents 2,331 137 704 32 3,204
3,371 436 1,186 68 5,061
Creditors: amounts falling due
within one year
Derivative liabilities held at fair 10 - - (18) - (18)
value through profit or loss
Other creditors 12 (1,627) (185) (19) (139) (1,970)
Bank facility 13 (11,844) (8,551) - - (20,395)
(13,471) (8,736) (37) (139) (22,383)
Net current (liabilities)/assets (10,100) (8,300) 1,149 (71) (17,322)
Net assets 166,334 55,602 6,890 1,738 230,564
Capital and reserves
Share capital 14(a) 1,111 392 103 109 1,715
Share premium 15 121,700 - 1,290 - 122,990
Special reserve 15 9,224 14,305 817 1,117 25,463
Capital redemption reserve 15 74 81 27 182 364
Capital reserve 15 34,225 40,824 4,718 292 80,059
Revenue reserve 15 - - (65) 38 (27)
Shareholders' funds 166,334 55,602 6,890 1,738 230,564
Net asset value per ordinary share 16 188.33p 233.91p 169.33p 108.11p
The accompanying accounting policies and notes are an integral part of these
financial statements.
Cash Flow Statement
FOR THE YEARED 31 MAY
2022 2021
Notes £'000 £'000
Cash flows from operating activities
Net return before finance costs and taxation 15,191 33,220
Tax on overseas income (191) (230)
Adjustments for:
Purchase of investments (50,081) (111,945)
Sale of investments 74,109 129,265
Sale of futures 177 1,715
24,205 19,035
Scrip dividends (676) (9)
Gains on investments (9,824) (28,391)
Gains on derivatives (40) (1,739)
(Increase)/decrease in debtors (449) 650
Decrease in creditors (213) (460)
Net cash inflow from operating activities 28,003 22,076
Cash flows from investing activities
Cash acquired following business combination(1) - 3,342
Net cash inflow from investing activities - 3,342
Cash flows from financing activities
Interest paid on bank facility (234) (128)
Increase in bank facility 708 10,612
Costs associated with the issue of shares on business - (159)
combination(1)
Share buy back costs (23,749) (29,357)
Equity dividends paid 8 (6,985) (3,629)
Net cash outflow from financing activities (30,260) (22,661)
Net (decrease)/increase in cash and cash equivalents (2,257) 2,757
Cash and cash equivalents at the start of the year 3,204 447
Cash and cash equivalents at the end of the year 947 3,204
Reconciliation of cash and cash equivalents to the
Balance Sheet is as follows:
Cash held at custodian 747 1,114
Invesco Liquidity Funds plc - Sterling, money market fund 200 2,090
Cash and cash equivalents 947 3,204
Cash flow from operating activities includes:
Interest received (1) (1)
Dividends received 5,732 3,107
At At
1 June Cash 31 May
2021 Flows 2022
£'000 £'000 £'000
Analysis of changes in net debt:
Cash and cash equivalents 3,204 (2,257) 947
Bank facility (20,392) (708) (21,100)
Total (17,188) (2,965) (20,153)
(1) For definition of business combination used in this annual financial
report, refer to Glossary of Terms and Alternative Performance Measures on page
116.
The accompanying accounting policies and notes are an integral part of these
financial statements.
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 April 2021. The financial statements are issued on a going concern basis as
disclosed on page 57.
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 15, 22, 28, 32 and 33) 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 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:
Revenue Capital
Portfolio Reserve Reserve
UK Equity 30% 70%
Global Equity Income 30% 70%
Balanced Risk Allocation 30% 70%
Managed Liquidity 100% -
(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.
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Income from investments:
UK dividends:
- ordinary dividends 3,694 204 - - 3,898
- special dividends 438 91 - - 529
- scrip dividends 676 - - - 676
4,808 295 - - 5,103
Overseas dividends:
- ordinary dividends 561 1,248 8 5 1,822
- special dividends - 58 - - 58
Interest from Treasury bills - - 4 - 4
5,369 1,601 12 5 6,987
Other income:
Rebates of management fee - - - 1 1
Total income 5,369 1,601 12 6 6,988
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Income from investments:
UK dividends:
- ordinary dividends 1,460 142 - - 1,602
- scrip dividends 9 - - - 9
1,469 142 - - 1,611
Overseas dividends:
- ordinary dividends 187 1,147 2 3 1,339
- special dividends - 192 - - 192
Interest from Treasury bills - - 2 - 2
1,656 1,481 4 3 3,144
Other income:
Rebates of management fee - - - 40(1) 40
Total income 1,656 1,481 4 43 3,184
(1) Includes a £34,000 (1.40p per share) refund of unpaid management fees in
respect of historic overcharges. As reported in the 2017 Half-Year Financial
Report, it was agreed that the refund would be paid directly to affected
shareholders and any unpaid amounts would be returned to the Company.
Special dividends recognised as revenue for the year are as shown above. There
were no special dividends recognised in capital in respect of any of the four
Portfolios during the year (2021: £539,000 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.
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Investment management fee:
- charged to revenue 240 102 16 2 360
- charged to capital 561 237 38 - 836
Total investment management fee 801 339 54 2 1,196
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Investment management fee:
- charged to revenue 91 88 16 3 198
- charged to capital 213 204 37 - 454
Total investment management fee 304 292 53 3 652
Details of the investment management agreement are given on pages 57 and 58 in
the Directors' Report.
During the 2021 financial year, following the issue of shares pursuant to the
Scheme of Reconstruction of Invesco Income Growth Trust plc ('the business
combination'), an improved fee structure was proposed for the UK Equity Share
Portfolio and Global Equity Income Share Portfolio. The management fee payable
by the Company in respect of these two share portfolios will be reduced to
0.55% per annum on the net assets of up to £100 million, and 0.50% per annum on
the net assets of over £100 million.
As a result of the business combination in 2021, the Manager agreed to remove
the performance fee arrangements which were in place for both the UK Equity and
Global Equity Income Share Portfolios. Furthermore, the historical performance
fee accrued on the UK Equity Share Portfolio of £531,000 was also waived by the
Manager as a benefit towards the costs of the business combination and
written-back to capital in the Income Statement in the 2021 financial year.
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.
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Charged to revenue:
Directors' remuneration (i)(ii) 103 38 4 1 146
Auditor's fees (iii):
- for the audit of the 34 15 2 1 52
Company's financial statements
Other expenses (iv) 200 83 18 3 304
337 136 24 5 502
Charged to capital:
Custodian transaction charges 2 2 2 - 6
Total 339 138 26 5 508
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Charged to revenue:
Directors' remuneration (i)(ii) 60 55 8 2 125
Auditor's fees (iii):
- for the audit of the 34 11 1 1 47
Company's financial statements
Other expenses (iv) 111 73 25 4 213
205 139 34 7 385
Charged to capital:
Custodian transaction charges 17 4 2 - 23
Total 222 143 36 7 408
(i) The Director's Remuneration Report provides information on Directors'
fees. Included within other expenses is £13,000 (2021: £12,000) of employer's
national insurance payable on Directors' remuneration.
(ii) As at 31 May 2022, the amounts outstanding on Directors' fees and
employer's national insurance was £26,000 (2021: £26,000).
(iii) The Auditor's fees shown include out of pocket expenses, but exclude
VAT, which is included in other administrative expenses. In the 2021 financial
year Grant Thornton UK LLP provided non-audit services related to work on the
business combination with Invesco Income Growth Trust plc, which amounted to £
23,000. This amount was recognised in investment gains and losses as part of
professional fees in respect of the business combination.
(iv) 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 £40 million revolving credit facility (see note 13 for
further details).
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Interest payable on borrowings
repayable within one year as follows:
- charged to revenue 50 20 - - 70
- charged to capital 118 47 - - 165
Total 168 67 - - 235
2021
Interest payable on borrowings
repayable within one year as follows:
- charged to revenue 20 18 - - 38
- charged to capital 48 42 - - 90
Total 68 60 - - 128
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
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Overseas tax 45 146 - - 191
2021
Overseas tax 18 212 - - 230
The accounting policy for taxation is disclosed in note 1(h).
(b) Reconciliation of tax charge
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Return before taxation 9,499 5,453 9 (5) 14,956
Theoretical tax at the current
UK Corporation Tax rate of 19.00% 1,805 1,036 2 (1) 2,842
(2021: 19.00%)
Effect of:
- Non-taxable losses on investments (1,035) (832) (2) 1 (1,868)
and derivatives
- Non-taxable losses on foreign 2 (3) - - (1)
exchange
- Non-taxable scrip dividends (128) - - - (128)
- Non-taxable UK dividends (677) (39) - - (716)
- Non-taxable UK special dividends (83) (15) - - (98)
- Non-taxable overseas dividends (107) (218) - - (325)
- Non-taxable overseas special - (13) - - (13)
dividends
- Foreign tax expensed - (2) - - (2)
- Overseas tax 45 146 - - 191
- Accrued income taxable on receipt - 6 - - 6
- Excess of allowable expenses over 223 80 - - 303
taxable income
Tax charge for the year 45 146 - - 191
2021
Return before taxation 15,392 16,085 1,559 56 33,092
Theoretical tax at the current
UK Corporation Tax rate of 19.00% 2,924 3,056 296 11 6,287
(2020: 19.00%)
Effect of:
- Non-taxable gains on investments (2,521) (2,871) (320) (5) (5,717)
and derivatives
- Non-taxable losses on foreign 2 2 15 - 19
exchange
- Non-taxable scrip dividends (2) - - - (2)
- Non-taxable UK dividends (274) (27) - - (301)
- Non-taxable overseas dividends (35) (216) - - (251)
- Non-taxable special dividends (102) (37) - - (139)
- Overseas tax 18 212 - - 230
- Disallowable expenses 3 1 - - 4
- Accrued income taxable on receipt - 1 - - 1
- Excess of allowable expenses over 5 91 9 (6) 99
taxable income
Tax charge for the year 18 212 - - 230
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 £
16,922,000 (2021: £15,258,000) that are available to offset future taxable
revenue. A deferred tax asset of £4,230,000 (2021: £3,814,000), measured at the
standard corporation tax substantively enacted rate of 25% (2021: 25%) 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.
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. The basic and diluted returns per share are identical as the
ordinary shares for each of the portfolios are not dilutive.
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 2022 2021
UK Equity 78,338,470 33,926,654
Global Equity Income 24,671,635 25,925,091
Balanced Risk Allocation 4,178,755 4,733,820
Managed Liquidity 1,440,703 2,436,740
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:
2022 2021
Number Dividend Total Number Dividend Total
of shares rate £'000 of shares rate £'000
(pence) (pence)
UK Equity
First interim 83,711,988 1.50 1,256 30,584,941 1.50 459
Second interim 78,889,303 1.50 1,183 29,379,249 1.50 440
Third interim 76,191,115 1.50 1,143 26,871,720 1.50 403
Fourth interim 74,135,486 2.20 1,631 23,814,892 2.15 512
6.70 5,213 6.65 1,814
Global Equity
Income
First interim 23,770,805 1.55 368 27,605,800 1.55 428
Second interim 24,551,255 1.55 381 26,376,118 1.55 409
Third interim 24,846,796 1.55 385 25,557,022 1.55 396
Fourth interim 24,920,131 2.50 623 23,745,988 2.45 582
7.15 1,757 7.10 1,815
Managed Liquidity
First interim 1,544,679 1.00 15 - - -
1.00 15 - -
Total paid in the 6,985 3,629
year
No dividends have been paid to Balanced Risk Allocation shareholders during the
year (2021: 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.
Global
UK Equity Managed Company
Equity Income Liquidity Total
2022 £'000 £'000 £'000 £'000
Dividends paid in the year:
From revenue - current year 4,697 1,197 - 5,894
From revenue - reserves brought - - 15 15
forward
From revenue 4,697 1,197 15 5,909
From capital 516 560 - 1,076
5,213 1,757 15 6,985
Global
UK Equity Managed Company
Equity Income Liquidity Total
2021 £'000 £'000 £'000 £'000
Dividends paid in the year:
From revenue 1,322 1,024 - 2,346
From capital 492 791 - 1,283
1,814 1,815 - 3,629
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 on the investments held at
the year end.
(a) Analysis of investments by listing status
2022 2021
£'000 £'000
UK listed investments 161,557 178,775
Overseas listed investments(i) 72,196 69,106
Unquoted hedge fund investments 5 5
233,758 247,886
(i) Includes the Invesco Liquidity Funds plc - Sterling, money market fund
positions held by the Balanced Risk Allocation Portfolio of £3,512,000 (2021: £
2,359,000) and Managed Liquidity Portfolio of £130,000 (2021: £140,000).
(b) Analysis of investment gains
2022 2021
£'000 £'000
Opening valuation 247,886 116,928
Movements in year:
Purchases at cost 49,637 230,052
Sales proceeds (73,589) (127,485)
Gains on investments in the year 9,824 28,391
Closing valuation 233,758 247,886
Closing book cost 215,092 226,927
Closing investment holding gains 18,666 20,959
Closing valuation 233,758 247,886
The Company received £73,589,000 (2021: £127,485,000) from investments sold in
the year. The book cost of these investments when they were purchased was £
61,472,000 (2021: £125,833,000) realising a profit of £12,117,000 (2021: profit
£1,652,000). 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.
(c) Transaction costs
Transaction costs were £71,000 (2021: £257,000) on purchases and £36,000 (2021:
£64,000) on sales and are included in investment gains and losses. Transaction
costs in relation to the 2021 financial year investments acquired from the
business combination are shown in 9(d) below.
(d) Purchases at cost
During the 2021 financial year £118,144,000 of investments were acquired in
respect of the business combination. Stamp duty of £475,000 plus professional
costs of £512,000 less cash benefits of £534,000 were incurred and recognised
in investment gains and losses.
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.
2022 2021
£'000 £'000
Opening derivative assets held at fair value through profit or 292 401
loss
Opening derivative liabilities held at fair value through (18) (151)
profit or loss
Opening net derivative assets held at fair value as shown in 274 250
balance sheet
Closing derivative assets held at fair value through profit or 362 292
loss
Closing derivative liabilities held at fair value through (225) (18)
profit or loss
Closing net derivative assets held at fair value shown in 137 274
balance sheet
Movement in derivative holding (liabilities)/assets (137) 24
Net realised gains on derivative instruments 105 1,677
Net capital (losses)/gains on derivative instruments as shown (32) 1,701
in the income statement
Net income arising on derivatives 72 38
Total gains on derivative instruments 40 1,739
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 26.
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.
2022 2021
£'000 £'000
Amounts due from brokers - 520
Collateral pledged for futures contracts 321 187
Tax recoverable 234 204
Prepayments and accrued income 939 654
1,494 1,565
12. 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.
2022 2021
£'000 £'000
Shares bought back 174 -
Tax payable 137 137
Amounts due to brokers 85 1,205
Accruals 413 628
Other payables 809 1,970
Interest payable on the bank facility is included within the amounts
outstanding on the bank facility as shown on the balance sheet.
13. Bank facility and overdraft
At the year end the Company had a £40 million (2021: £40 million) committed 364
day multicurrency revolving credit facility, which is due for renewal on 25
April 2023 (2021: 26 April 2022). 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. The interest payable on the credit facility is
based on the Adjusted Reference Rate (principally SONIA, SOFR and ?STR
respectively in respect of loans drawn in GBP, USD and Euro) plus a margin for
amounts drawn.
Under the bank 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 £120 million (2021: £120
million). The Company was in compliance with the covenants throughout the year
and at year end.
At the year end, the interest payable on the bank facility was £6,000 (2021: £
3,000).
14. Share Capital and Reserves
Share capital represents the total number of shares in issue, including
treasury shares.
All shares have a nominal value of 1 pence.
(a) Movements in Share Capital during the Year
Issued and fully paid:
Global Balanced Total
UK Equity Risk Managed Share
Equity Income Allocation Liquidity Capital
Ordinary Shares (number)
At 31 May 2021 88,321,988 23,770,805 4,069,095 1,607,679 117,769,567
Shares bought back into (11,996,500) (583,000) (165,000) (63,000) (12,807,500)
treasury
Arising on share conversion:
- August 2021 (1,176,185) 890,450 110,924 (109,971) (284,782)
- November 2021 (578,188) 375,541 83,750 57,345 (61,552)
- February 2022 (635,629) 466,335 155,457 (144,944) (158,781)
- May 2022 (162,829) 235,653 (83,288) (108,855) (119,319)
At 31 May 2022 73,772,657 25,155,784 4,170,938 1,238,254 104,337,633
Treasury Shares (number)
At 31 May 2021 22,747,275 15,453,159 6,272,218 9,250,678 53,723,330
Shares bought back into 11,996,500 583,000 165,000 63,000 12,807,500
treasury
At 31 May 2022 34,743,775 16,036,159 6,437,218 9,313,678 66,530,830
Ordinary Shares of 1 penny
each (£'000)
At 31 May 2021 883 238 40 16 1,177
Shares bought back into (119) (6) (2) (1) (128)
treasury
- August 2021 (12) 9 1 (1) (3)
- November 2021 (6) 4 1 - (1)
- February 2022 (6) 5 2 (1) -
- May 2022 (2) 2 (1) (1) (2)
At 31 May 2022 738 252 41 12 1,043
Treasury Shares of 1 penny
each (£'000)
At 31 May 2021 228 154 63 93 538
Shares bought back into 119 6 2 1 128
treasury
At 31 May 2022 347 160 65 94 666
Total Share Capital (£'000)
Ordinary share capital 738 252 41 12 1,043
Treasury share capital 347 160 65 94 666
At 31 May 2022 1,085 412 106 106 1,709
Average buy back price 184.1p 227.7p 165.5p 104.0p
The total cost of share buy backs was £23,923,000 (2021: £28,704,000). As part
of the conversion process 815,900 (2021: 457,600) 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 (2021: nil).
(b) Movements in Share Capital after the Year End
Since the year end, UK Equity and Global Equity Income Portfolios bought back
687,000 and 295,000 shares respectively to be held in treasury.
(c) Voting Rights
Rights attaching to the Shares are described in the Directors' Report on page
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 page 2 and in the Shareholder
Information on page 114.
15. 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.
During the year the special reserve in relation to the UK Equity Portfolio was
fully utilised to fund share buy backs and subsequent share buy backs were
funded from the capital reserve.
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.
16. Net Asset Value per Share
The 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 2022 2021
Net Asset Net Asset
Value Per Net Assets Value Per Net Assets
Share Attributable Share Attributable
Pence £'000 Pence £'000
UK Equity 194.35 143,374 188.33 166,334
Global Equity Income 249.00 62,638 233.91 55,602
Balanced Risk Allocation 169.87 7,085 169.33 6,890
Managed Liquidity 106.92 1,324 108.11 1,738
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.
17. 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 facility and short-term overdrafts, used to finance operations.
The financial instruments held in each of the four investment portfolios are
shown on pages 13 and 14; 20 and 21; 26 and 27; and 32.
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 44 to 48. 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 39
to 41. The management process is subject to risk controls, which the Audit
Committee reviews on behalf of the Board, as described on page 64.
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.
17.1 Market Risk
Market risk arises from changes in the fair value of future cash flows of a
financial instrument because of movements in market prices. Market risk
comprises three types of risk: currency risk (17.1.1), interest rate risk
(17.1.2) and other price risk (17.1.3).
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 55. 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.
17.1.1 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 the 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 values of the Company's monetary items that have currency exposure at
31 May are shown below. Where the Company's investments (which are not monetary
items) are priced in a foreign currency they have been included separately in
the analysis so as to show the overall level of exposure.
UK Equity Portfolio:
Year ended 31 May 2022
Investments
Foreign at fair
value
currency through
Debtors exposure profit or
(due from on net loss Total net
brokers & Cash monetary that are foreign
dividends) at bank items equities currency
*
Currency £'000 £'000 £'000 £'000 £'000
Canadian Dollar - - - 5,539 5,539
Euro 1 - 1 - 1
US Dollar 169 - 169 4,809 4,978
170 - 170 10,348 10,518
Year ended 31 May 2021
Canadian Dollar 40 - 40 6,818 6,858
Euro 2 - 2 - 2
US Dollar 161 - 161 5,342 5,503
203 - 203 12,160 12,363
Global Equity Income Portfolio:
Year ended 31 May 2022
Investments
Foreign at fair
value
currency through
Debtors exposure profit or
(due from on net loss Total net
brokers & Cash monetary that are foreign
dividends) at bank items equities currency
*
Currency £'000 £'000 £'000 £'000 £'000
Canadian Dollar - - - 1,112 1,112
Euro 83 127 210 7,054 7,264
Hong Kong Dollar 43 - 43 7,156 7,199
Norwegian Krone 6 - 6 - 6
South Korean Won - - - 981 981
Swedish Krona 14 - 14 2,167 2,181
Swiss Franc 134 8 142 4,279 4,421
Taiwanese Dollar - - - 1,998 1,998
US Dollar 27 - 27 32,144 32,171
307 135 442 56,891 57,333
Year ended 31 May 2021
Canadian Dollar - - - 1,356 1,356
Euro 63 2 65 2,642 2,707
Hong Kong Dollar 20 - 20 4,462 4,482
Norwegian Krone 6 - 6 - 6
South Korean Won - - - 1,944 1,944
Swedish Krona 8 - 8 1,612 1,620
Swiss Franc 124 - 124 7,317 7,441
Taiwanese Dollar - - - 2,977 2,977
US Dollar 45 - 45 30,468 30,513
266 2 268 52,778 53,046
Balanced Risk Allocation Portfolio:
Year ended 31 May 2022
Derivative Derivative Investments
assets liabilities Foreign at fair
held value
at fair held at currency through
fair
value Debtors value exposure profit or
through (due from through on net loss Total
net
profit brokers & Cash profit monetary that are foreign
or loss dividends) at or loss items equities currency
* bank
Currency £'000 £'000 £ £'000 £'000 £'000 £'000
'000
Australian - 114 14 (88) 40 - 40
Dollar
Canadian - 20 5 (7) 18 - 18
Dollar
Euro 7 96 13 (57) 59 - 59
Japanese 46 (10) 7 (3) 40 - 40
Yen
US Dollar 272 92 76 (65) 375 5 380
325 312 115 (220) 532 5 537
Year ended
31 May
2021
Australian 15 6 24 - 45 - 45
Dollar
Canadian - 23 18 (5) 36 - 36
Dollar
Euro 28 5 43 - 76 - 76
Japanese 14 20 21 - 55 - 55
Yen
US Dollar 209 84 77 (13) 357 5 362
266 138 183 (18) 569 5 574
* 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:
2022 2021
£/Australian Dollar +/- 2.6% +/- 1.2%
£/Canadian Dollar +/- 2.5% +/- 1.2%
£/Euro +/- 1.1% +/- 2.2%
£/Hong Kong Dollar +/- 2.9% +/- 3.9%
£/Japanese Yen +/- 2.5% +/- 4.7%
£/Norwegian Krone +/- 2.0% +/- 1.5%
£/South Korean Won +/- 1.3% +/- 2.6%
£/Swedish Krona +/- 2.6% +/- 1.8%
£/Swiss Franc +/- 1.7% +/- 3.3%
£/Taiwan Dollar +/- 1.8% +/- 2.2%
£/US Dollar +/- 3.2% +/- 3.8%
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:
2022 2021
Revenue Capital Total Revenue Capital Total
loss
return return after return return return
tax
£'000 £'000 £'000 £'000 £'000 £'000
Canadian Dollar - (138) (138) - (82) (82)
Euro (3) - (3) (2) - (2)
US Dollar (32) (154) (186) (19) (203) (222)
(35) (292) (327) (21) (285) (306)
Global Equity Income
Portfolio:
2022 2021
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Canadian Dollar - (28) (28) - (16) (16)
Euro (3) (79) (82) (1) (58) (59)
Hong Kong Dollar (3) (208) (211) (1) (174) (175)
South Korean Won - (13) (13) (3) (51) (54)
Swedish Krona (2) (56) (58) (1) (29) (30)
Swiss Franc (3) (73) (76) (8) (241) (249)
Taiwan Dollar (1) (36) (37) (1) (65) (66)
US Dollar (16) (1,029) (1,045) (22) (1,158) (1,180)
(28) (1,522) (1,550) (37) (1,792) (1,829)
Balanced Risk Allocation
Portfolio:
2022 2021
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Australian Dollar - (1) (1) - (1) (1)
Euro - (1) (1) - (2) (2)
Japanese Yen - (1) (1) - (3) (3)
US Dollar - (12) (12) - (14) (14)
- (15) (15) - (20) (20)
If sterling had weakened by the same amounts, the effect would have been the
converse.
17.1.2 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 £40 million (2021: £40 million), 364 day
multicurrency revolving credit facility which is due for renewal on 25 April
2023. 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:
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Exposure to floating interest
rates:
Investments held at fair value - - 3,512 130 3,642
through profit or loss(1)
Cash and short term deposits 322 215 401 9 947
Bank Loans (15,750) (5,350) - - (21,100)
(15,428) (5,135) 3,913 139 (16,511)
Exposure to fixed interest rates:
Investments held at fair value - - 2,716 - 2,716
through profit or loss including UK
Treasury Bills
Net exposure to interest rates (15,428) (5,135) 6,629 139 (13,795)
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Exposure to floating interest
rates:
Investments held at fair value - - 2,359 140 2,499
through profit or loss(1)
Cash and cash equivalents 2,331 137 704 32 3,204
Bank facility (11,842) (8,550) - - (20,392)
(9,511) (8,413) 3,063 172 (14,689)
Exposure to fixed interest rates:
Investments held at fair value - - 3,377 - 3,377
through profit or loss including UK
Treasury Bills
Net exposure to interest rates (9,511) (8,413) 6,440 172 (11,312)
(1) Comprises holdings in the Invesco Liquidity Funds plc - Sterling.
The income on the iShares - Sterling Ultrashort Bond UCITS ETF and Invesco
Liquidity Funds plc - Sterling investments are 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 £40 million (2021: £40 million), the
maximum effect over one year of a 0.5% movement in interest rates would be a £
200,000 (2021: £200,000) movement in the Company's income and net assets.
The effect of a 1% movement in the interest rates on investments held at fair
value through profit and loss would result in a £7,000 (2021: £12,000) maximum
movement in the Company's income statement 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.
17.1.3 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:
Global Balanced
Equity Risk Managed
UK Equity Income Allocation Liquidity
£'000 £'000 £'000 £'000
2022
Profit after tax increase/ 15,845 6,763 623 145
decrease due to rise/fall of 10%
2021
Profit after tax increase/ 17,643 6,390 574 181
decrease due to rise/fall of 10%
17.2 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:
Global Balanced Risk
Equity Managed
UK Equity Income Allocation Liquidity
3 months 3 months 3 months More than 3 months Company
or less or less or less 3 months or less Total
2022 £'000 £'000 £'000 £'000 £'000 £'000
Bank facility(1) 15,754 5,352 - - - 21,106
Amount due to - 85 - - - 85
brokers
Other creditors 448 121 17 - 1 587
and accruals
Derivative - - 200 25 - 225
financial
instruments
16,202 5,558 217 25 1 22,003
Global Balanced Risk
Allocation
Equity Managed
UK Equity Income Liquidity
3 months 3 months 3 months More than 3 months Company
or less or less or less 3 months or less Total
2021 £'000 £'000 £'000 £'000 £'000 £'000
Bank facility(1) 11,844 8,551 - - - 20,395
Amount due to 1,139 - - - - 1,139
brokers
Other creditors 488 185 19 - 2 694
and accruals
Derivative - - 18 - - 18
financial
instruments
13,471 8,736 37 - 2 22,246
(1) Interest due on the bank facility at the year end was £6,000 (2021: £
3,000).
17.3 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 £5 million for each of the
UK Equity and Global Equity Income Portfolios and £2.5 million for each of the
Balanced Risk Allocation and Managed Liquidity Portfolios, with any one deposit
taker (other than cash collateral on derivative instruments). Only deposit
takers approved by the Manager are 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:
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Bonds (UK Treasury bills) - - 2,716 - 2,716
Cash held as short-term - - 3,512 130 3,642
investment(1)
Unquoted Securities - - 5 - 5
Derivative financial Instruments - - 137 - 137
Debtors(2) - - 321 - 321
Cash and short-term deposits 322 215 401 9 947
322 215 7,092 139 7,768
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Bonds (UK Treasury bills) - - 3,377 - 3,377
Cash held as short-term - - 2,359 140 2,499
investment(1)
Unquoted securities - - 5 - 5
Derivative financial Instruments - - 274 - 274
Debtors(2) 520 - 187 - 707
Cash and cash equivalents 2,331 137 704 32 3,204
2,851 137 6,906 172 10,066
(1) Invesco Liquidity Funds plc, money market fund.
(2) Cash collateral pledged for futures contracts of £321,000 is included in
debtors (2021: £187,000) and excludes tax recoverable and prepayments and
accrued income.
18. 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 - fair value based on quoted prices in active markets for identical
assets.
Level 2 - fair values based on valuation techniques using observable inputs
other than quoted prices within level 1.
Level 3 - fair values based on valuation techniques using inputs that are not
based on observable market data.
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.
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2022 £'000 £'000 £'000 £'000 £'000
Financial assets designated at fair value
through profit or loss:
Level 1 158,450 67,630 2,716 1,315 230,111
Level 2 - - 3,874 130 4,004
Level 3 - - 5 - 5
Total for financial assets 158,450 67,630 6,595 1,445 234,120
Financial liabilities:
Level 2 - derivatives liabilities held at - - 225 - 225
fair value
Global Balanced
UK Equity Risk Managed Company
Equity Income Allocation Liquidity Total
2021 £'000 £'000 £'000 £'000 £'000
Financial assets designated at fair value
through profit or loss:
Level 1 176,434 63,902 3,377 1,669 245,382
Level 2 - - 2,651 140 2,791
Level 3 - - 5 - 5
Total for financial assets 176,434 63,902 6,033 1,809 248,178
Financial liabilities:
Level 2 - derivatives liabilities held at - - 18 - 18
fair value
19. 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 2022 was £235,521,000 (2021: £
250,956,000) comprising borrowings of £21,100,000 (2021: £20,392,000) and
equity share capital and other reserves of £214,421,000 (2021: £230,564,000).
The Company's total capital employed is managed to achieve the Company's
investment objective and policy as set out on pages 39 to 41, 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 gross gearing was 9.8% (2021:
17.3%). 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 44 to 48. 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 13.
20. 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 (2021: £nil).
21. 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 65 to 67
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 pages 57 and 58 and note 3.
22. 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.
The figures and financial information for the year ended 31 May 2022 are
extracted from the Company's annual financial statements for that year and do
not constitute statutory accounts. The Company's annual financial statements
for the year to 31 May 2022 have been audited but have not yet been delivered
to the Registrar of Companies. The Auditor's report on the 2022 annual
financial statements was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006.
The figures and financial information for the year ended 31 May 2021 are
compiled from an extract of the published accounts for that year and do not
constitute statutory accounts. Those accounts have been delivered to the
Registrar of Companies. The Auditor's report on the 2021 annual financial
statements was (i) unqualified, (ii) did not include a reference to any matters
to which the auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
The audited annual financial report will be posted to shareholders during
August 2022, 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.
A copy of the annual financial report will be submitted shortly to the National
Storage Mechanism ("NSM") and will be available for inspection at the NSM,
which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The separate General Meeting of the Shareholders of the UK Equity Share Class,
the separate General Meeting of the Shareholders of the Balanced Risk
Allocation Share Class and the Annual General Meeting will be held on 4 October
2022 from 11.00am at 43-45 Portman Square, London W1H 6LY.
By order of the Board
Invesco Asset Management Limited
3 August 2022
Notice of separate General Meeting of the shareholders of the UK Equity Share
Class
THIS Notice of a separate General Meeting of the shareholders of the UK Equity
Share Class IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt as to what action to take, you should consult your stockbroker,
solicitor, accountant or other appropriate independent professional adviser
authorised under the Financial Services and Markets Act 2000. If you have sold
or otherwise transferred all your Shares in the UK Equity Share Class of
Invesco Select Trust plc, please forward this document and the accompanying
Form of Proxy to the person through whom the sale or transfer was effected, for
transmission to the purchaser or transferee.
NOTICE IS GIVEN that the general meeting of the UK Equity Share Class of
Invesco Select Trust plc will be held at 43-45 Portman Square, London W1H 6LY
at 11.00am on 4 October 2022 for the following purposes:
To consider, and if though fit, pass the following resolution as a special
resolution:
Special resolution
1. That, in accordance with section 630 of the Companies Act and articles
5.6.2 and 8 of the articles of association of the Company, this separate
general meeting of the holders of the UK Equity shares of 1 penny each in the
capital of the Company hereby irrevocably consents to and sanctions the passing
of the resolution numbered 17 set out in the notice of the annual general
meeting of the Company to be held on 4 October 2022 and every variation,
modification or abrogation of the rights, privileges and restrictions attaching
to the UK Equity shares of 1 penny each in the capital of the Company as a
class of shares that will or may be effected thereby.
Dated 3 August 2022
By order of the Board
Invesco Asset Management Limited
Company Secretary
Notice of separate General Meeting of the shareholders of the Balanced Risk
Allocation Share Class
THIS Notice of a separate General Meeting of the shareholders of the Balanced
Risk Allocation Share Class IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to what action to take, you should consult your
stockbroker, solicitor, accountant or other appropriate independent
professional adviser authorised under the Financial Services and Markets Act
2000. If you have sold or otherwise transferred all your Shares in the Balanced
Risk Share Class of Invesco Select Trust plc, please forward this document and
the accompanying Form of Proxy to the person through whom the sale or transfer
was effected, for transmission to the purchaser or transferee.
NOTICE IS GIVEN that the general meeting of the Balanced Risk Allocation Share
Class of Invesco Select Trust plc will be held at 43-45 Portman Square, London
W1H 6LY at 11.15am on 4 October 2022 for the following purposes:
To consider, and if though fit, pass the following resolution as a special
resolution:
Special resolution
1. That, in accordance with section 630 of the Companies Act and articles
5.6.2 and 8 of the articles of association of the Company, this separate
general meeting of the holders of the Balanced Risk Allocation shares of 1
penny each in the capital of the Company hereby irrevocably consents to and
sanctions the passing of the resolution numbered 17 set out in the notice of
the annual general meeting of the Company to be held on 4 October 2022 and
every variation, modification or abrogation of the rights, privileges and
restrictions attaching to the Balanced Risk Allocation shares of 1 penny each
in the capital of the Company as a class of shares that will or may be effected
thereby.
Dated 3 August 2022
By order of the Board
Invesco Asset Management Limited
Company Secretary
Notice of Annual General Meeting
THIS Notice of Annual General Meeting IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt as to what action to take, you should
consult your stockbroker, solicitor, accountant or other appropriate
independent professional adviser authorised under the Financial Services and
Markets Act 2000. If you have sold or otherwise transferred all your Shares in
Invesco Select Trust plc, please forward this document and the accompanying
Form of Proxy to the person through whom the sale or transfer was effected, for
transmission to the purchaser or transferee.
NOTICE IS GIVEN that the Annual General Meeting (AGM) of Invesco Select Trust
plc will be held at 43-45 Portman Square, London W1H 6LY at 11.30am on
4 October 2022 for the following purposes:
Ordinary Business of the Company
To consider and, if thought fit, to pass the following resolutions which will
be proposed as an Ordinary Resolutions:
1. To receive the Annual Financial Report for the year ended 31 May 2022.
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 Davina Curling as a Director of the Company.
6. To re-elect Mark Dampier as a Director of the Company.
7. To re-elect Victoria Muir as a Director of the Company.
8. To re-elect Tim Woodhead as a Director of the Company.
9. To re-appoint Grant Thornton UK LLP as Auditor to the Company.
10. To authorise the Audit Committee to determine the Auditor's
remuneration.
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:
11. To approve the UK Equity Share Class Portfolio dividend payment policy
as set out on page 41 of the 2022 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:
12. To approve the Global Equity Income Share Class Portfolio dividend
payment policy as set out on page 41 of the 2022 Annual Financial Report.
Special Business of the Company
To consider and, if thought fit, to pass the following resolution which will be
proposed as an Ordinary Resolutions:
13. 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 15 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:
14. 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 13 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 £72,923 of UK Equity Shares, £
24,946 of Global Equity Income Shares, £4,215 of Balanced Risk Allocation
Shares and £1,257 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 15 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.
15. 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 as at the date of the
AGM;
(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.
16. That:
the period of notice required for general meetings of the Company (other than
Annual General Meetings) shall be not less than 14 days.
17. That:
the share premium accounts of each of (i) the class of UK Equity shares of 1
penny each in the capital of the Company; and (ii) the class of Balanced Risk
Allocation shares of 1 penny each in the capital of the Company, be cancelled
and the amount of the share premium of each share class so cancelled be
credited to a reserve in respect of each the respective share classes.
Dated 3 August 2022
By order of the Board
Invesco Asset Management Limited
Company Secretary
Appendix
Proposed cancellation of the UK Equity and Balanced Risk Allocation Share
Premium Accounts
DEFINITIONS
"Act" Companies Act 2006 (as amended from time
to time)
"Capital Reduction" the proposal recommended by the Board that,
subject to the approval of the Court, (i) the sum of £121,700,000 being the
entire amount standing to the credit of the UK Equity Share Class share premium
account; and (ii) the sum of £1,290,000 being the entire amount standing to the
credit of the Balanced Risk Allocation Share Class share premium account, be
cancelled and credited to a reserve;
"Court" the High Court of Justice in England and
Wales
"Latest Practicable Date" 2 August 2022 (being the latest practicable date
prior to the publication of this document)
TIMETABLE
Expected date of initial directions hearing of the Court 18
October 2022
Expected date of Court hearing to confirm the Capital Reduction 8
November 2022
Expected effective date for the Capital reduction
on or around 21 November 2022
Note The expected dates for the confirmation of the Capital Reduction by the
Court and the Capital Reduction becoming effective are based on provisions
dates that have been obtained for the required Court hearings of the Company's
application. These provisional hearing dates are subject to change and
dependent on the Court's timetable.
LETTER FROM CHAIRMAN
Capital Reduction
In addition to the usual business to be conducted at the AGM, I am writing in
connection with the Capital Reduction; to provide you with information about
the reasons for the Capital Reduction, to explain why the Board considers it to
be in the best interests of the Company and its shareholders as a whole, and to
explain why the Board unanimously recommends that you vote in favour of it.
The two share premium accounts have built up over time. The UK Equity Share
Class account in particular grew significantly following the merger with
Invesco Income Growth Trust plc in 2021. The Balanced Risk Allocation Share
Class account has grown due to historic share issuance. The Capital Reduction
will have the effect of creating distributable reserves in respect of each of
the relevant share classes and which will provide the Company with flexibility:
(a) Subject to the financial performance of the Company, to make
future distributions; and/or
(b) to make purchases of its own shares as permitted by the Act and in
accordance with resolution 15 to be proposed at the AGM.
The Directors will only exercise the authority to purchase the Company's shares
if, in light of market conditions prevailing at the time, they consider that
the purchase of such shares can be expected to result in an increase in
earnings or net assets per share and is in the best interest of the Company's
shareholders (and other stakeholders) generally.
The Capital Reduction will not involve any distribution or repayment of capital
or share premium by the Company and will not reduce the underlying net assets
of the Company. There will be no change to the number of ordinary shares in
issue (or their nominal value) following implementation of the Capital
Reduction and no new share certificates will be issued as a result of the
Capital Reduction.
Share premium account
The Act requires that if a company issues shares at a premium to the nominal
value of those shares, whether for cash or otherwise, a sum equal to the
aggregate amount of value of the premiums must be transferred to the company's
share premium account. A share premium account can only be used in limited
circumstances. Due to the structure of the Company each of the share classes
has its own share premium account. The Board is recommending that the share
premium accounts of UK Equity Share Class and Balanced Risk Allocation Share
Class be cancelled. As at the Last Practicable Date the amount standing to the
credit of the UK Equity Share Class's share premium account was £121,700,000
and the amount standing to the credit of the Balanced Risk Allocation Share
Class's share premium account was £1,290,000. Following the implementation of
the Capital Reduction the entire share premium account of each of the UK Equity
Share Class and Balanced Risk Allocation Share Class will be cancelled.
Approval of the shareholders and class consent
Section 641 of the Act provides that any reduction of the share premium account
must be approved by the Company's shareholders by a special resolution. In
addition, in accordance with the provisions of the articles of association of
the Company, the Company will seek a class consent from the shareholders of the
UK Equity Share Class and the Balanced Risk Allocation Share Class in respect
of the proposed cancellation of the reserves.
Court approval
In addition to the approval of the shareholders, the Capital Reduction requires
the approval of the Court. Accordingly, following approval of the Capital
Reduction by shareholders at the AGM, an application will be made to the Court
in order to confirm and approve the Capital Reduction.
Creditor protection
In providing its approval, the Court may require protection for the creditors
of the Company (if any) whose debts remain outstanding on the relevant date,
except in the case of creditors (including contingent creditors) that have
consented to the Capital Reduction. Any such creditor protection may include
seeking the consent of the Company's creditors to the Capital Reduction or the
provision by the Company to the Court of an undertaking to deposit a sum of
money into a blocked account created for the purpose of discharging, in due
course, any amounts owing to the non-consenting creditors of the Company.
Court hearing
It is anticipated that the initial directions hearing in relation to the
Capital Reduction will take place on 18 October 2022, with the final hearing by
the Court to confirm the Capital Reduction taking place on 8 November 2022 and
the Capital Reduction becoming effective as soon as practicable thereafter,
following the necessary registration of, amongst other things, the order of the
Court (Court Order) confirming the Capital Reduction at Companies House.
Right to abandon
The Board reserves the right to abandon or to discontinue (in whole or in part)
the application to the Court in the event that the Board considers that the
terms on which the Capital Reduction would be (or would be likely to be)
confirmed by the Court, would not be in the best interests of the Company and/
or the shareholders as a whole. The Board has undertaken a thorough review of
the Company's liabilities (including contingent liabilities) and considers that
the Company will be able to satisfy the Court that, as at the date on which the
Court Order relating to the Capital Reduction and the statement of capital in
respect of the Capital Reduction are registered by the Registrar of Companies
at Companies House and the Capital Reduction therefore becomes effective, the
Company's creditors will either have consent to the Capital Reduction or be
sufficiently protected.
Victoria Muir
3 August 2022
END
(END) Dow Jones Newswires
August 04, 2022 02:00 ET (06:00 GMT)
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