DJ New Star Investment Trust PLC: Interim ANNOUNCEMENT for the Six Months to 31 12 2020
New Star Investment Trust PLC (NSI)
New Star Investment Trust PLC: Interim ANNOUNCEMENT for the Six Months to 31 12 2020
22-March-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014
(MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
=----------------------------------------------------------------------------------------------------------------------
NEW STAR INVESTMENT TRUST PLC
This announcement constitutes regulated information.
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31st DECEMBER 2020
INVESTMENT OBJECTIVE
The Company's objective is to achieve long-term capital growth.
FINANCIAL HIGHLIGHTS
30th June %
31st December 2020
2020 Change
PERFORMANCE
Net assets (GBP '000) 122,813 113,885 7.8
Net asset value per Ordinary share 172.92p 160.35p 7.8
Mid-market price per Ordinary share 122.00p 106.00p 15.1
Discount of price to net asset value 29.4% 33.9% n/a
Six months ended Six months ended
31st December 2020 31st December 2019
Total Return* 8.71% 4.02% n/a
IA Mixed Investment 40-85% Shares (total return) 10.00% 4.41% n/a
MSCI AC World Index (total return, sterling adjusted) 12.32% 4.89% n/a
MSCI UK Index (total return) 5.48% 3.03% n/a
Six months ended
Six months ended 31st December
31st December
2020
2019
REVENUE
Return (GBP'000) 279 792
Return per Ordinary share 0.39p 1.11p
Proposed dividend per Ordinary share - -
Dividend paid per Ordinary share 1.40p 1.40p
TOTAL RETURN
Return (GBP'000) 9,922 4,582
Net assets (dividend added back) 8.7% 4.0%
Net assets 7.8% 3.1% * The total return figure for the Group represents the revenue and capital return shown in the consolidated statement of comprehensive income plus dividends paid.
INTERIM REPORT
CHAIRMAN'S STATEMENT
PERFORMANCE
Your Company generated a positive total return of 8.71% over the six months to 31st December 2020, taking the net asset value (NAV) per ordinary share to 172.92p. By comparison, the Investment Association's Mixed Investment 40-85% Shares Index rose 10.00%. The MSCI AC World Total Return Index rose 12.32% in sterling while the MSCI UK Total Return Index rose 5.48%. Over the six months, UK government bonds declined 0.82%. Further information is provided in the investment manager's report.
Your Company made a revenue profit for the six months of GBP279,000 (2019: GBP792,000).
GEARING AND DIVIDENDS
Your Company has no borrowings. It ended the period under review with cash representing 9.51% of its NAV and is likely to maintain a significant cash position. Your Company has small retained revenue reserves and your Directors do not intend to pay an interim dividend (2019: nil). Your Company paid a dividend of 1.4p per share (2019: 1.4p) in November 2020 in respect of the previous financial year. The level of future dividends may, in the short term, be adversely affected by Covid-19-related dividend cuts.
DISCOUNT
During the period under review, your Company's shares continued to trade at a significant discount to their NAV. The Board keeps this issue under review.
OUTLOOK Accommodative monetary and fiscal policies, the roll-out of Covid-19 vaccination programmes and mild inflation should underpin equities in early 2021, particularly lowly-valued cyclical stocks. Geographically, the UK stockmarket appeared attractive in the early spring of 2021 because of its heavy weightings in cyclical sectors as did the stockmarkets of Asia excluding Japan and the emerging markets, where public sector debt levels were low and where companies were trading on low valuations. Long-dated government bonds appeared vulnerable at a time of rising inflation expectations but gold equities may benefit from the current environment in which inflation is higher than official interest rates.
NET ASSET VALUE
Your Company's unaudited NAV per share at 28th February 2021 was 170.52p.
Geoffrey Howard-Spink
Chairman
18th March 2021
INVESTMENT MANAGER'S REPORT
MARKET REVIEW
Global equities rose 12.32% in sterling terms over the six months to 31 December 2020 as monetary and fiscal stimulus proved supportive and global Covid-19 vaccine rollout programmes began, increasing expectations of an early return to economic normality. Global bonds gained 6.03% in local currencies but fell 4.15% in sterling because of foreign exchange movements.
In the autumn of 2020, increasingly stringent lockdown measures were introduced in America and Europe to combat a second wave of the pandemic. Central banks responded with more stimulus to cushion the impact on businesses and households. The Federal Reserve shifted its inflation target from the fixed 2% rate it adopted after the credit crisis to an average of 2%, implying inflation will be allowed to exceed 2% for some time to compensate for more than a decade of persistently below-target inflation. The Bank of England announced GBP150 billion of additional quantitative easing in November while the European Central Bank announced an additional EUR500 billion of asset purchases in December. In the US, a further large-scale fiscal stimulus is on the way, with the new president, Joe Biden, unveiling a USD1.9 trillion rescue plan in addition to the USD900 billion relief package enacted in December.
Sterling strengthened as December's European Union-UK trade agreement averted a hard Brexit. Sterling gained 10.63%, 5.87% and 1.55% respectively against the dollar, yen and euro. UK stocks underperformed, rising 5.48%, but UK smaller companies, typically more sensitive to domestic trends, gained 27.56%. UK government bonds fell 0.82% but sterling corporate investment-grade and high-yield bonds gained 5.57% and 9.29% respectively as default fears receded and income-seeking investors bought corporate bonds in the wake of equity dividend cuts.
US stocks rose 22.16% in dollars but only 10.42% in sterling. Investors welcomed the initial outcome to November's elections. These gave the Democrats the presidency and control of the House of Representatives but not the Senate, initially forestalling investor fears of higher taxation and increased regulation. Run-off elections in January, however, gave the Democrats Senate control.
Asia was largely spared a second wave of Covid-19 infections, allowing China to ease restrictions. Dollar-weakness and stronger industrial commodity prices contributed to outperformance by equities in Asia excluding Japan and emerging markets, which gained 18.84% and 18.77% respectively in sterling. Strong global demand for Chinese products, particularly electronic goods, contributed to a record USD78 billion trade surplus.
Inflation data were stronger than anticipated, particularly in the US and UK, despite unemployment rising significantly above pre-pandemic levels. In the US, the five-year breakeven inflation rate, which measures medium-term inflation expectations, rose and implied that inflation would exceed 2%. In early 2021, commentators were divided on the long-term inflationary consequences of the exceptional monetary and fiscal easing in response to the pandemic. It is likely, however, that higher commodity prices, pent-up consumer demand and disrupted supply chains will foster inflation in the short term.
PORTFOLIO REVIEW
Your Company's total return over the period under review was 8.71%. By comparison, the Investment Association (AI) Mixed Investment 40-85% Shares sector, a peer group of funds with a multi-asset approach to investing and a typical investment in global equities in the 40-85% range, rose 10.00%. The MSCI AC World Total Return Index rose 12.32% in sterling while the MSCI UK Total Return Index rose 5.48%. Your Company benefited from its allocations to UK smaller stocks and emerging market equities but its allocations to dollar cash and gold equities hurt performance. Income from investments fell over the period as dividends were cut, cancelled and deferred. This will affect the revenue available to pay a dividends unless retained reserves are utilised.
Your Company's investment in dollar cash and the allocation to gold equities within the BlackRock Gold & General portfolio were hurt by currency movements over the period as extraordinary monetary and fiscal stimulus weakened the dollar and hopes of a Brexit deal buoyed the pound. Gold and gold equities rose 3.26% and 0.91% respectively in dollars but fell 6.66% and 8.78% respectively in sterling because of currency movements. Dollar cash and gold equities provide diversification, however, and may offer some capital protection should equity markets in general fall.
(MORE TO FOLLOW) Dow Jones Newswires
March 22, 2021 03:01 ET (07:01 GMT)
DJ New Star Investment Trust PLC: Interim -2-
Your Company benefited from its relatively-low allocation to US equities, which underperformed global equites, gaining 10.42% in sterling. US technology stocks, however, gained 14.45%, contributing to the 19.13% gain by Polar Capital Technology. Fundsmith Equity gained only 9.99%, however, despite its heavy technology weighting.
Good news on vaccines benefited your Company's allocation in cyclical stocks as investors looked beyond the American and European pandemic lockdowns and anticipated the reopening of economies. Aberforth Split Level Income was the best-performing holding over the period, gaining 50.64%. Its manager invests in UK smaller companies and follows a value-oriented investment style, which had been out of favour in an environment of ultra-low interest rates and below-target inflation. The addition of leverage from zero-dividend preference shares amplified the sensitivity to domestic economic trends, contributing to outperformance.
Chelverton UK Equity Income, which focuses on smaller stocks, rose 22.80% but lagged the gain for UK smaller companies. MI Brompton UK Recovery and Man GLG Income gained 18.09% and 12.39% respectively, outperforming UK equities because of their bias towards small and medium-sized companies. Trojan Income lagged, rising only 2.24% because of its relatively-high holdings in larger companies and defensive sectors such as consumer staples. The allocation to UK equites reduced in July when the investment in the SPDR FTSE UK All Share exchange-traded fund, which was bought following the stockmarket falls precipitated by the first lockdown in March 2020, was sold.
Amongst your Company's emerging market investments, JP Morgan Emerging Markets Income did best, rising 34.79%. The investment benefited from its holdings in China and Taiwan and in the technology sector, with Taiwan Semiconductor and Samsung Electronics amongst the largest investments. Liontrust Asia Income marginally underperformed, however, gaining 17.79%.
Stewart Investors India Subcontinent rose 27.86%, outperforming the 26.08% gain for Indian equities in sterling as the country's economy recovered from nationwide lockdown earlier in the year. The prime minister, Narendra Modi, introduced structural reforms in agriculture and labour markets and the ease of doing business in India improved according to a World Bank study. Your Company's allocation to emerging markets increased through purchases of Matthews Asia ex Japan Dividend and Vietnam Enterprise Investment Trust while the global equity allocation fell as a result of the sale of Artemis Global Income.
All the EF Brompton Multi Manager OEIC funds outperformed their IA benchmarks. Your Company's allocation to more conservative strategies hurt performance in a rising equity market but may prove defensive should markets fall.
There were no significant adjustments to the valuations of the unquoted stocks. Your Company's largest unquoted holding, Embark, continued to integrate its recent acquisitions. OUTLOOK
At the period end, the outlook for equities appeared positive because monetary and fiscal policies are likely to remain accommodative for some time and equities may perform well in an environment of mild inflation. Strong performance from cyclical companies, which were typically on low valuations compared to some growth companies, may persist as vaccine rollout programmes allow economies to reopen. The UK stockmarket may benefit from this trend because of its relatively-high weighting in cyclical sectors such as energy, financials, industrials and mining while smaller companies may benefit from reviving domestic demand and increasing takeover activity.
Equities in Asia excluding Japan and emerging markets appeared particularly attractive because they were trading on lower valuations while public sector debt levels were lower than in many developed economies. Dollar weakness and stronger oil and commodity prices would also prove tailwinds for these markets.
Your Company ended the period under review with no direct investments in longer-dated bonds, which may fall should inflation expectations rise whereas gold equities may provide diversification and perform well at times such as the present time when inflation is higher than interest rates. Investments in dollar cash and lower risk multi-asset funds also provide diversification and, potentially, a measure of capital protection.
Brompton Asset Management LLP 18th March 2021
DIRECTORS' REPORT
PERFORMANCE
In the six months to 31st December 2020 the total return per Ordinary share was 8.7% (2019: 4.0%) and the NAV per ordinary share increased to 172.92p, whilst the share price increased by 15.1% to 122.00p. This compares to an increase of 10.0% in the IA Mixed Investment 40-85% Shares Index.
INVESTMENT OBJECTIVE
The Company's investment objective is to achieve long-term capital growth.
INVESTMENT POLICY
The Company's investment policy is to allocate assets to global investment opportunities through investment in equity, bond, commodity, real estate, currency and other markets. The Company's assets may have significant weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds, futures, options, limited partnerships and direct investments in relevant markets. The Company may invest up to 15% of its net assets in direct investments in relevant markets.
The Company will not follow any index with reference to asset classes, countries, sectors or stocks. Aggregate asset class exposure to any one of the United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or Emerging Markets and to any individual industry sector will be limited to 50% of the Company's net assets, such values being assessed at the time of investment and for funds by reference to their published investment policy or, where appropriate, their underlying investment exposure.
The Company may invest up to 20% of its net asset value in unlisted securities (excluding unquoted pooled investment vehicles) such values being assessed at the time of investment.
The Company will not invest more than 15% of its net assets in any single investment, such values being assessed at the time of investment.
Derivative instruments and forward foreign exchange contracts may be used for the purposes of efficient portfolio management and currency hedging. Derivatives may also be used outside of efficient portfolio management to meet the Company's investment objective. The Company may take outright short positions in relation to up to 30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its net assets, such values being assessed at the time of investment. The Company may borrow up to 30% of net assets for short-term funding or long-term investment purposes. No more than 10%, in aggregate, of the value of the Company's total assets may be invested in other closed-ended investment funds except where such funds have themselves published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds.
SHARE CAPITAL
The Company's share capital comprises 305,000,000 Ordinary shares of 1p each, of which 71,023,695 (2019: 71,023,695) have been issued and fully paid. No Ordinary shares are held in treasury, and none were bought back or issued during the six months to 31st December 2020.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks identified by the Board, and the steps the Board takes to mitigate them, are discussed below. The audit committee reviews existing and emerging risks on a six monthly basis. The Board has closely monitored the societal, economic and market focused implications of the events of the last 12 months to consider emerging risks.
Investment strategy: Inappropriate long-term strategy, asset allocation and fund selection could lead to underperformance. The Board discusses investment performance at each of its meetings and the Directors receive reports detailing asset allocation, investment selection and performance.
Business conditions and general economy: The Company's future performance is heavily dependent on the performance of different equity and currency markets. The Board cannot mitigate the risks arising from adverse market movements. However, diversification within the portfolio will reduce the impact. Further information is given in portfolio risks below.
Macro-economic event risk: The Covid pandemic has been felt globally in 2020. The scale and potential adverse impact of a macro-economic event, such as the Covid pandemic, has highlighted the possibility of a number of identified risks such as market risk, currency risk, investment liquidity risk and operational risk having an adverse impact at the same time. The risk may impact on: the value of the Company's investment portfolio, its liquidity, meaning investments cannot be realised quickly, or the Company's ability to operate if the Company's suppliers face financial or operational difficulties. The Directors closely monitor these areas and currently maintain a significant cash balance.
Portfolio risks - market price, foreign currency and interest rate risks: The largest investments are listed below. Investment returns will be influenced by interest rates, inflation, investor sentiment, availability/cost of credit and general economic and market conditions in the UK and globally. A significant proportion of the portfolio is in investments denominated in foreign currencies and movements in exchange rates could significantly affect their sterling value. The Investment Manager takes all these factors into account when making investment decisions but the Company does not normally hedge against foreign currency movements. The Board's policy is to hold a spread of investments in order to reduce the impact of the risks arising from the above factors by investing in a spread of asset classes and geographic regions.
(MORE TO FOLLOW) Dow Jones Newswires
March 22, 2021 03:01 ET (07:01 GMT)
