INVESCO SELECT TRUST PLC - UK EQUITY SHARE PORTFOLIO Invesco Select Trust plc
Annual Financial Report Announcement
Year Ended 31 May 2021
Financial Performance
Cumulative Total Returns(1)(2) To 31 May 2021
| One | Three | Five | |
| UK Equity Share Portfolio | Year | Years | Years |
| Net Asset Value | 34.6% | 12.2% | 38.4% |
| Share Price | 31.6% | 6.8% | 31.2% |
| FTSE All–Share Index | 23.1% | 5.9% | 40.5% |
| One | Three | Five | |
| Global Equity Income Share Portfolio | Year | Years | Years |
| Net Asset Value | 35.9% | 25.6% | 74.8% |
| Share Price | 32.6% | 24.4% | 72.3% |
| MSCI World Index (£) | 22.3% | 40.2% | 99.2% |
| One | Three | Five | |
| Balanced Risk Allocation Share Portfolio | Year | Years | Years |
| Net Asset Value | 25.4% | 18.4% | 38.3% |
| Share Price | 26.4% | 16.8% | 36.7% |
| ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum | 5.1% | 16.8% | 27.7% |
| One | Three | Five | |
| Managed Liquidity Share Portfolio | Year | Years | Years |
| Net Asset Value | 3.6% | 6.0% | 6.4% |
| Share Price | 0.5% | 1.6% | 2.6% |
Year end Net Asset Value, Share Price and Discount
| Net Asset | Share | ||
| Value | Price | ||
| Share Class | (pence) | (pence) | Discount |
| UK Equity | 188.33 | 176.00 | (6.5)% |
| Global Equity Income | 233.91 | 226.00 | (3.4)% |
| Balanced Risk Allocation | 169.33 | 163.00 | (3.7)% |
| Managed Liquidity | 108.11 | 102.00 | (5.7)% |
(1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 110 to 113 of the financial report for details of the explanation and reconciliations of APMs.
(2) Source: Refinitiv.
Chairman’s Statement
Highlights
– All four portfolios delivered positive outperformance over the period.
– Dividends rose to 6.65p per UK Equity Share and 7.10p per Global Equity Income Share.
– Company size increased to £230.6 million at 31 May 2021 following the combination of Invesco Income Growth Trust plc with the UK Equity Share Class.
– Lower investment management fees negotiated for the UK Equity & Global Equity Income share classes.
– UK Equity portfolio now managed in partnership between James Goldstone and Ciaran Mallon, with income growth added to the objective.
– Derek Steeden appointed to run Managed Liquidity Share Portfolio.
– Change of benchmark for Balanced Risk Allocation Portfolio.
This is my first statement as Chairman of your Company, since being appointed Chair on 1 June 2021. I would like to thank my predecessor, Graham Kitchen, for his hard work, valuable inputs and effective chairmanship of your Company since 2019, through both the pandemic and the combination of Invesco Income Growth Trust plc with the UK Equity Share Portfolio.
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 their asset allocation to reflect their views of the prevailing market outlook. As set out on the inside of the front cover, shareholders have the opportunity to convert between share classes, free of capital gains tax, every three months.
Performance
The NAV total return of the UK Equity Share Portfolio over the year was 34.6%, which compares with the total return of 23.1% from the FTSE All-Share Index. The share price total return was 31.6%.
The NAV total return of the Global Equity Income Share Portfolio over the year was 35.9%, which compares with the total return from the MSCI World Index (£) of 22.3%. The share price total return was 32.6%.
The NAV total return of the Balanced Risk Allocation Share Portfolio was 25.4%, which compares with its benchmark of 3 months LIBOR plus 5%, which returned 5.1%. The share price total return was 26.4%.
The NAV total return of the Managed Liquidity Share Portfolio was 3.6%. The share price total return was 0.5%. Shareholders will recall that a historical management fee error was reported in the Chairman’s Statement for the 30 November 2017 half year report, which resulted in an overcharging of management fees by the Manager. As part of the restitution, it was agreed that the Manager would make payments directly to affected shareholders. Having exhausted all reasonable avenues to locate all affected shareholders, an amount remained unpaid for shareholders that could not be located and has been returned to the Managed Liquidity Share portfolio under the restitution agreement. This receipt has contributed to a 2% uplift to the NAV at the year end.
It was pleasing to note, both for the Board and for shareholders, that all four Portfolios outperformed their benchmarks over the period.
Investment Management Changes
The Managed Liquidity Portfolio saw Derek Steeden being appointed as portfolio manager with effect from 1 December 2020. Derek is a Portfolio Manager for the Invesco Investment Solutions team, which provides customised, multi-asset investment strategies for clients. He joined Invesco in 2019, having begun his investment career in 2005. The Portfolio continues to be invested in other collective investment vehicles, but the principal investment was changed to the iShares – Sterling Ultrashort Bond UCITS ETF.
Balanced Risk Allocation Benchmark Change
Since adopting the strategy in 2012, the returns of the Balanced Risk Allocation Portfolio have been compared against 3-month LIBOR + 5% per annum. Following discussion, the Directors have taken the view that a cash plus benchmark does not reflect the strategy. The new comparator benchmark is a composite whose components are approximate proxies for the portfolio’s holdings. The new benchmark took effect from 1 June 2021 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).
Business Combination with Invesco Income Growth Trust plc
On 23 April 2021 the proposed combination of Invesco Income Growth Trust plc (‘IIGT’) with the Company’s UK Equity Share Portfolio was completed, resulting in a transfer of approximately £120 million of assets into the Company in exchange for the issue of new UK Equity shares to IIGT shareholders.
Ciaran Mallon, who has managed IIGT’s portfolio since 2005, became joint portfolio manager of the UK Equity Share Portfolio, with James Goldstone, who has managed it since October 2016. The Board believes that the two managers’ combined and complementary skills, with a disciplined investment process, can deliver attractive returns for shareholders. Ciaran and James jointly manage Invesco’s largest open-ended UK equity funds, which have outperformed their benchmark since appointment.
The size of your Company’s combined UK Equity portfolio will give the managers freedom to invest across the market capitalisation and liquidity spectrum and to offer the prospect of a genuine best ideas portfolio, clearly distinguished from their open-ended funds, where stock selection is limited to larger, more liquid investments. The change will bring the benefits of increased scale, including enhancing secondary market liquidity and the spreading of fixed costs over a larger cost base.
Fees
Additionally, the Board negotiated improved management fee arrangements to apply from the scheme effective date of 23 April 2021. The flat annual management fee of 0.55% of net assets payable by the UK Equity Share Portfolio was reduced, with 0.55% now payable on its net assets up to £100 million and 0.50% over £100 million; and the performance fee was also removed. In the interests of alignment, the 0.55% management fee on the Company’s Global Equity Income Share Portfolio was amended in the same way, and its performance fee removed. The costs of the transaction were significantly mitigated by Invesco waiving its accrued performance fee of £531,000 in respect of the UK Equity Share Portfolio.
The Portfolio is able to employ gearing by means of a bank loan facility. Your Board has recently extended the size of this facility, from £20 million to £40 million, to allow a similar percentage level of gearing, if desired, across the larger post-merger Portfolio.
The Company will retain its innovative capital structure, offering investors the opportunity to switch (on a quarterly basis) between its UK Equity, Global Equity Income, Balanced Risk Allocation and Managed Liquidity share classes in order to position their portfolios for changing investment conditions.
Outlook
We live in continuing uncertain times. Whilst we have witnessed a significant increase in M&A activity, Covid-19 resurgence and variance fears are continuing to cause market jitters regarding global economic recovery. The debate and concerns around inflation and the application of central bank policy will, no doubt, go on for some time yet. There are mixed views at the Monetary Policy Committee regarding the need to tighten policy and whether the pick-up in inflation is temporary. The immense support provided by the Treasury and the Bank of England has avoided deep economic scarring. The route back out from restricted economies across the globe is likely to experience road-bumps which after a period of relative calm could give rise to increased market volatility.
In an environment such as this, Select’s multi-portfolio structure provides a flexible tool for shareholders, or their advisors, to reflect their future market expectations. The Company’s two equity Portfolios are run by forward-looking active fund managers, whose bottom-up stock-picking approach is not constrained by a rigid target benchmark. Both sets of equity fund managers have sought to build balance in their portfolios, so that any unexpected Covid curve-balls do not derail the progress of the overall share class. The equity managers also have the additional tool of gearing that they can employ (within overall parameters set by your board) to reflect their view of the attractiveness of the asset class. Income is an important component of the total return of these share classes and the ability of companies to start, resume or increase dividend distributions is closely monitored. Alongside this, your board has the capacity to supplement the dividend paid out to shareholders with any revenue reserves and capital reserves.
Complementary to the equity share classes, the Balanced Risk Allocation Share Portfolio looks to provide shareholders with attractive total returns regardless of the economic or inflationary backdrop, across the three asset classes of debt securities, equities and commodities. Lastly, the Managed Liquidity Share Portfolio offers a higher degree of security for those with a more conservative outlook. I believe your Company’s structure and portfolios should be well positioned to traverse a variety of market outcomes over the long term.
The Board
I am delighted to welcome Davina Curling, Mark Dampier and Tim Woodhead, who joined the Board on completion of the business combination on 23 April 2021. As part of the business combination, Alan Clifton and three long-standing directors of Invesco Income Growth Trust plc, the chair, Hugh Twiss, Jonathan Silver and Roger Walsom retired from their positions. We thank them for their significant contribution in bringing the combination to fruition.
Graham Kitchen stepped down from the Board on 31 May 2021 and I succeeded him as Chairman on 1 June 2021. The Board extend their gratitude to Alan and Graham for their extensive contribution, knowledge and guidance during their time on the Board.
Dividends
We have continued to apply the dividend policy adopted five years ago, and supported by shareholder advisory votes, whereby for both UK Equity and Global Equity Income Shares, dividends are paid by way of three equal interim dividends declared in July, October and January with a ‘wrap-up’ fourth interim declared in April. For the year under review the first three dividends declared for the UK Equity Shares were 1.50p per share and for the Global Equity Income Shares 1.55p per share. The fourth interim dividends were 2.15p per share for the UK Equity Shares, bringing the total to 6.65p per share for the year, and 2.45p per share for the Global Equity Income Shares, bringing that total to 7.10p per share for the year.
There were a number of dividend cuts in the year, due to Covid-19, meaning a greater contribution from capital was required for the Company’s dividends again this year to meet the Board’s target level. For the Global Equity Income a contribution from capital of approximately 3.15p per share was required to achieve the dividend level (2020: 0.4p per share). For the UK Equity Shares a contribution from capital of approximately 2.75p per share was required to achieve the dividend level (2020: 2.5p 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, with the current uncertainty of future income flows due to Covid-19 the Directors have not set dividend targets for the year to 31 May 2022.
The first interim dividends declared in respect of the year to May 2022, which will be paid on 16 August 2021 to shareholders on the register on 23 July 2021, were 1.50p per share for UK Equity, 1.55p per share for Global Equity Income and 1.00p per share for Managed Liquidity.
It continues to be the case that in order to maximise the capital return on the Balanced Risk Allocation Shares, the Directors only intend to declare dividends on the Balanced Risk Allocation Shares to the extent required, having taken into account the dividends paid on the other Share classes, to maintain the Company’s status as an investment trust. No dividends have been paid on the Balanced Risk Allocation Shares over the period.
Despite continuing low interest rates, it remains the Directors’ intention to distribute substantially all net revenues earned by the Portfolio going forward. Given the quantum involved it is unlikely that such payments will be more frequent than annually and may indeed be less frequent. Following the receipt of a £34,000 payment, which has been returned to the Portfolio as part of the management fee restitution agreement, the Board declared an interim dividend of 1.00p per share and intend to use the remaining amount to smooth dividend payments over the next couple of years.
Discount Policy
The Company adopted a discount control policy for all four Share classes in January 2013, whereby the Company offers to issue or buy back Shares of all classes with a view to maintaining the prices of the Shares at close to their respective net asset values. The policy has been successful to date and your Board remain committed to its utilisation. 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.
Share Capital Movements
During the year to 31 May 2021, the Company bought back and placed in treasury 10,769,463 UK Equity Shares, 4,939,000 Global Equity Income Shares, 951,000 Balanced Risk Allocation Shares and 569,000 Managed Liquidity Shares. In connection with the business combination, 66,628,879 UK Equity Shares were issued on 26 April 2021. Other than this and as an artefact of the share conversion process, no other Shares were issued or sold from treasury and no treasury shares were cancelled. Since the year end a further 4,860,000 UK Equity Shares and 63,000 Managed Liquidity Shares have been bought back into treasury. The Board intends to use the Company’s buy back and issuance authorities when this will benefit existing shareholders as a whole and to operate the discount control policy mentioned above, and will ask shareholders to renew the authorities as and when appropriate.
Share Class Conversions
The Company enables shareholders to adjust their asset allocation to reflect their views of future market conditions. Shareholders have the opportunity to convert their holdings of Shares into any other class of Share, without incurring any tax charge (under current legislation). The conversion dates for the forthcoming year are as follows: 2 August 2021; 1 November 2021; 1 February 2022; and 3 May 2022. 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.
Articles Refresh
One of the resolutions being proposed at this AGM is an amendment to the Company’s articles of association (the “Articles”) to allow for ‘hybrid’ shareholder meetings to be held where some attendees are based in a single physical location and others attend, participate and vote by electronic means. Certain consequential changes to the Articles in order to facilitate this amendment will also be made. While the Board does not currently intend to hold meetings in this way, the resolution would allow the Board to hold hybrid meetings when in the best interests of shareholder safety, for example, in the event of a continuing lockdown. The amendments will not prevent the Company from holding physical meetings and the Board’s intention is always to hold a physical general meeting when safe and practical to do so. A summary of the changes being introduced can be found in the Appendix section on page 104.
Annual General Meeting (‘AGM’)
Following the Government’s lifting of all legal restrictions on social contact on 19 July 2021, I am pleased to once again invite all our shareholders to the Company’s AGM and have the opportunity to meet and question the Directors and the Manager. The business of the AGM is summarised in the Directors’ Report on pages 51 to 56. The AGM will be held at 43-45 Portman Square, London W1H 6LY at 11.30am on 5 October 2021. I hope as many of you as possible will attend. However, should further restrictions be re-imposed the AGM may have to be held as a closed meeting again. In this eventuality, the Board will communicate any necessary changes to shareholders in the form of an RNS announcement and on the Company’s web page at www.invesco.co.uk/investmenttrusts. 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. All shareholders are welcome and may bring a guest with them. To register your interest in attending, please contact us at investmenttrusts@invesco.com.
Shareholder Web Call
We also note that online meetings have been very popular during Covid-19 restrictions and so for those shareholders unable to travel to the AGM and also for potential investors, we will be holding an online presentation on 28 September 2021 at 11.30am. Presentations will be made by James Goldstone, Ciaran Mallon and Stephen Anness followed by a question and answer session.
Shareholders can submit questions during the presentation or in advance by writing to the Company Secretary at the address given on page 109 or by email to investmenttrusts@invesco.com. Details on how to register for the event are available via the Company’s website www.invesco.co.uk/investmenttrusts.
Engagement with Shareholders and Investors
In combination with the Distribution Team of the Manager we are exploring new avenues to enhance our engagement with private clients, to ensure that we are able to provide updates and insight into the management of each of the strategies. One such initiative that we have recently supported, is a new start-up called Doceo, which currently provides our investors with a 2 minute overview of the UK Equity portfolio managers’ approach, as well as a slightly longer video providing an update on the Portfolio. We will continue to assess these opportunities and provide an update in future reports.
I hope to meet as many of you as possible at the AGM or on the webinar.
Victoria Muir
Chairman
5 August 2021
Strategic Report
UK Equity Share Portfolio Manager’s Report
Q How has the Company performed in the 12 months to 31 May 2021?
A The Portfolio outperformed its benchmark over the 12 months to 31 May 2021, with a net asset value total return of +34.6%. Over the same period the FTSE All-Share Index rose +23.1%. Whilst volatile, the UK equity market performed strongly over the 12 month period. The social and economic impact of the pandemic dominated market sentiment together with the additional issues of Brexit, UK domestic politics, US-China trade relations and the US Presidential Election. The rapid and meaningful response by central banks and governments around the world to loosen monetary and fiscal policy in order to cushion the economic shock of the pandemic provided an effective level of support.
In the autumn, news of a number of successful Coronavirus vaccine trials boosted sentiment and the UK equity market rose in response. The subsequent roll out of vaccinations in 2021 has progressed rapidly in the UK and there has also undoubtedly been a positive effect following the negotiation of a Brexit deal.
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 nine out of the eleven sectors in which the portfolio is invested. The decision making behind the allocation of capital across the major sectors was strong, as was the stock selection within some of these sectors.
The biggest contribution to positive performance versus the FTSE All-Share Index over the period was from the portfolio’s significant underweight to the large pharmaceutical companies GlaxoSmithKline and AstraZeneca for most of the time. This was helpful to relative performance as both underperformed the Index. A position in AstraZeneca has now been added to the portfolio, a reflection of improved execution in its pipeline of clinical success and the prospects for improvement in cash flows following the acquisition of Alexion.
Medical technology company PureTech Health contributed strongly to relative performance against the Index. 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. There have been some significantly positive developments over the last twelve months, most notably the approval of group company Gelesis’s obesity product “Plenity”.
Consumer discretionary stocks also performed well on a relative basis over the period. The retail sector had a particularly strong period of performance with the holdings of veterinary services group CVS and Next key contributors to relative performance. CVS released very strong half year results, and Next performed well as demand remained robust for those companies with strong online offerings.
Technology company Future, which publishes a range of special interest websites and magazines including TechRadar was again one of the portfolio’s better performing holdings. The company also generates revenue through online advertising and commissions from reader ‘click through’ and recently acquired the price comparison website Go Compare which was well received by the market.
Being underweight the consumer staples sector was helpful to relative performance. Whilst the holdings of Tesco and British American Tobacco detracted from relative performance this was more than offset by the benefit of not having any exposure to very highly rated international consumer staples which underperformed over the past year.
Within financials, Banks were overall positive for relative performance and Barclays, which was a top five contributor, reported better than expected results on lower loan losses and a sharp increase in trading activity within the investment bank.
Industrials and basic materials were the main detractors to relative performance over the 12 month period. Babcock International underperformed over the period but the new management team have recently provided a more positive update in respect of liquidity and financing in their strategic review than many had expected which has been supportive of the share price recently. However, this underperformance was partially offset by the positive relative performance of industrial equipment rental business Ashtead.
Not owning any significant holdings in any of the industrial metals & mining companies proved to be biggest detractor from relative performance. In a reflationary environment, industrial commodities have in the near term been particularly strong (iron ore & copper). The portfolio is positioned to benefit from what we believe to be more sustainable long-term dynamics favouring gold miners. Whilst the price of gold increased modestly over the period as a whole, it was volatile as the debate continued around expectations for future inflation and the impact of negative real interest rates. In the absence of any significant corporate news flow, the gold mining holdings Barrick Gold, Agnico Eagle Mines, Wheaton Precious Metals and Newmont detracted from relative performance.
| Year end | ||
| Total | Portfolio | |
| Key Contributors | Impact % | Weight % |
| AstraZeneca | +1.89 | 3.4 |
| GlaxoSmithKline | +1.63 | — |
| Barclays | +1.59 | 4.1 |
| Future | +1.55 | 1.6 |
| CVS Group | +1.44 | 1.2 |
| Year end | ||
| Total | Portfolio | |
| Key Detractors | Impact % | Weight % |
| Barrick Gold | –1.82 | 3.9 |
| Babcock International | –1.73 | 1.1 |
| Agnico Eagle Mines | –0.96 | — |
| Tesco | –0.83 | 1.8 |
| Wheaton Precious Metals | –0.80 | — |
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 performance. Gearing at the start of the 12 month period was around 10% and this was increased to approaching 20% at the end of 2020. Following the combination with Invesco Income Growth Trust plc in April the gearing has been reduced to around 10%. This level is below the limit of 25% set by the Board.
The appropriate level of gearing is under regular review. Looking forwards 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 as our view remains that the UK companies remain attractively valued compared to their 20 year average and compared to other developed markets such as the US.
Q Has the crisis changed your approach at all?
A Fundamentally there has been no change in the approach we have taken to managing the portfolio during the crisis. We believe that there is significant opportunity within the UK equity market with some highly favoured companies trading on excessively high valuations, whilst other stocks remain heavily out of favour and undervalued.
We are now co-managing the portfolio using the joint investment process that has been applied with good effect to other portfolios that we have co-managed since May 2020. We have reduced the number of stocks in the portfolio as part of the combination of the two trusts so that the portfolio is more concentrated in stocks in which we have the most conviction. The portfolio is also positioned in holdings that we believe will withstand the various possible economic environments and different market outcomes that follow as we transition out of the crisis.
Q How is the UK Equity Share Portfolio positioned following the appointment of Ciaran as joint manager?
A On a sectoral basis and relative to the FTSE All-Share Index, we are over-weight Utilities and Consumer Discretionary stocks. Overall, the position in the utilities sector has been increased with additions to the holdings of National Grid, United Utilities and SSE. These additions offer an inflation linked return that is in our view underappreciated. In addition, we have increased our exposure to Energy companies which have a lot of the same characteristics of the metals and mining companies.
Existing positions of RELX and Barratt Developments have also been added to whilst positions in Barclays, Tesco, British American Tobacco and Babcock International were reduced.
We are under-weight Financials in general but have a sizeable position in Barclays because our view is that it is still the standout company among UK Banks. We are also under-weight what we see as expensive Consumer Staples and Basic Materials businesses (principally, industrial metals and mining).
But a perhaps a more meaningful way of looking at the portfolio is to think in terms of five broad investment themes that the portfolios are exposed to, and our conviction in key stocks that fall within these themes:
1. “UK Domestics” (approx. 27% of the portfolios): companies that are particularly exposed to the UK. Examples include Barclays, Legal & General, National Grid, and United Utilities.
2. “International Value” (approx. 27%): companies that though listed in the UK, derive much of their earnings overseas. Examples include BP and Royal Dutch Shell. AstraZeneca is a recent addition in this theme.
3. “International Growth” (approx. 27%): UK listed, world-class businesses, with real potential to deploy more capital and grow returns overseas. Examples include: RELX, Smith & Nephew and JD Sports Fashion.
4. “Recovery” (5-10%): companies that are in the early stages of recovery either from a particular dislocation in markets, or from company specific issues. Examples include: Compass, Whitbread and Young & Co’s Brewery.
5. “Transformers” (5-10%): companies that are changing to take advantage of new opportunities. Examples include: PureTech Health, Next, SSE, and Drax.
Underlying Portfolio Characteristics at Year End
| 12 month | Free Cash | Return | ||
| 31 May | Price/book | forward | Flow | on |
| 2021 | value (x) | p/e ratio(%) | Ratio (%) | Equity (%) |
| UK Equity Share | ||||
| Portfolio | 1.9 | 14.9 | 5.3 | 12.1 |
| FTSE All-Share Index | 1.8 | 13.5 | 6.1 | 12.7 |
Q What is your outlook for the next 12 months and beyond? Why invest in the UK now?
A All things considered we are optimistic for a recovery in the global economy over next 12 months as vaccines continue to be distributed around the world and lock-downs ease. There is undoubtedly still some uncertainty with regard to how the pandemic might evolve and what government policy, in reacting to the pandemic, might look like. Consequently, we are keen to have a balanced portfolio that can perform in a range of economic outcomes. If we continue to see strong economic growth on the back of strong growth in earnings then we have a part of the portfolio that will benefit from that very constructive backdrop but by the same token, if there are some roadblocks along the way and it is more of a stuttering recovery, then we have a part of the portfolio that will provide some element of protection in such an environment.
We have frequently referenced our analysis that shows UK equities to be cheap across a blend of valuation measures, relative to history, and also particular relative to the US market. We have also said that this opportunity is evident in every major sector, not just at an index level.
We are excited at the prospects for the UK Equity Portfolio, which comprises our highest conviction, best ideas. The portfolio is concentrated around very high quality, cash generative businesses, with strong liquidity, that are likely to emerge from the pandemic in an even better competitive position than beforehand, which leaves us very optimistic for the second half of 2021 and beyond.
James Goldstone & Ciaran Mallon
Joint Portfolio Managers
5 August 2021
UK Equity Share Portfolio List of Investments
AT 31 May 2021
Ordinary shares listed in the UK unless stated otherwise
| Market | |||
| Value | % of | ||
| Company | Sector† | £’000 | Portfolio |
| Next | Retailers | 8,763 | 5.0 |
| Barclays | Banks | 7,214 | 4.1 |
| Barrick Gold – Canadian Listed | Precious Metals & Mining | 6,818 | 3.9 |
| SSE | Electricity | 6,670 | 3.8 |
| National Grid | Gas, Water & Multi-Utilities | 6,642 | 3.8 |
| RELX | Media | 6,044 | 3.4 |
| AstraZeneca | Pharmaceuticals & Biotechnology | 5,943 | 3.4 |
| Royal Dutch Shell – B Shares | Oil, Gas & Coal | 5,564 | 3.2 |
| BP | Oil, Gas & Coal | 5,368 | 3.0 |
| Young & Co’s Brewery – Non-Voting | Travel & Leisure | 5,346 | 3.0 |
| Top Ten Holdings | 64,372 | 36.6 | |
| Newmont – US Listed | Precious Metals & Mining | 5,342 | 3.0 |
| Legal & General | Life Insurance | 4,924 | 2.8 |
| Experian | Industrial Support Services | 4,611 | 2.6 |
| British American Tobacco | Tobacco | 4,007 | 2.3 |
| Ferguson | Industrial Support Services | 3,983 | 2.3 |
| Smith & Nephew | Medical Equipment & Services | 3,944 | 2.2 |
| Bunzl | General Industrials | 3,792 | 2.1 |
| Vodafone | Telecommunications Service Providers | 3,760 | 2.1 |
| Barratt Developments | Household Goods & Home Construction | 3,718 | 2.1 |
| Ashtead | Industrial Transportation | 3,501 | 2.0 |
| Top Twenty Holdings | 105,954 | 60.1 | |
| Drax | Electricity | 3,471 | 2.0 |
| United Utilities | Gas, Water & Multi-Utilities | 3,265 | 1.9 |
| JD Sports Fashion | Retailers | 3,263 | 1.9 |
| Croda International | Chemicals | 3,260 | 1.8 |
| Phoenix | Life Insurance | 3,250 | 1.8 |
| Ultra Electronics | Aerospace & Defence | 3,221 | 1.8 |
| Tesco | Personal Care, Drug & Grocery Stores | 3,219 | 1.8 |
| Whitbread | Travel & Leisure | 3,041 | 1.7 |
| Future | Software & Computer Services | 2,868 | 1.6 |
| Chemring | Aerospace & Defence | 2,714 | 1.5 |
| Top Thirty Holdings | 137,526 | 77.9 | |
| Coats | General Industrials | 2,635 | 1.5 |
| PureTech Health | Pharmaceuticals & Biotechnology | 2,591 | 1.5 |
| Jupiter Fund Management | Investment Banking & Brokerage Services | 2,571 | 1.5 |
| Nichols | Beverages | 2,526 | 1.4 |
| Compass | Consumer Services | 2,437 | 1.4 |
| CVS | Consumer Services | 2,094 | 1.2 |
| Fevertree Drinks | Beverages | 2,086 | 1.2 |
| JTC | Investment Banking & Brokerage Services | 2,023 | 1.1 |
| Hays | Industrial Support Services | 1,988 | 1.1 |
| Treatt | Chemicals | 1,868 | 1.1 |
| Top Forty Holdings | 160,345 | 90.9 | |
| Babcock International | Aerospace & Defence | 1,848 | 1.1 |
| Johnson Service | Industrial Support Services | 1,784 | 1.0 |
| XPS Pensions | Investment Banking & Brokerage Services | 1,699 | 1.0 |
| DFS Furniture | Retailers | 1,639 | 0.9 |
| Sirius Real Estate | Real Estate Investment & Services | 1,624 | 0.9 |
| Essentra | Industrial Support Services | 1,589 | 0.9 |
| Chesnara | Life Insurance | 1,570 | 0.9 |
| Restaurant Group | Travel & Leisure | 1,519 | 0.9 |
| Lancashire | Non-Life Insurance | 1,466 | 0.8 |
| PRS REIT | Real Estate Investment Trusts | 933 | 0.5 |
| Top Fifty Holdings | 176,016 | 99.8 | |
| Sherborne Investors (Guernsey) C | Investment Banking & Brokerage Services | 418 | 0.2 |
| Total Holdings 51 (2020: 65) | 176,434 | 100.0 |
AIM Investments quoted on AIM.
† FTSE Industry Classification Benchmark.
Global Equity Income Share Portfolio Manager’s Report
Q How has the Company performed in the year to 31 May 2021?
A The NAV of the share class grew by 35.9% (total return in sterling terms). This compares to a rise of 22.3% (total return in sterling terms) in the MSCI World Index (£) which we use as a benchmark. Global equity markets were strong throughout the year as optimism around economic recovery post the Covid-19 crisis grew through the summer of 2020 on the back of coordinated central bank monetary and governmental fiscal stimulus. The rally in markets gathered pace in the autumn of 2020 when strong clinical trial data from a number of vaccine candidates showed high levels of efficacy, raising expectations of a path back to normality in 2021.
Q What were the key contributors to and detractors from performance in the year?
A Overall, through the year the portfolio has been relatively over-exposed to more economically sensitive companies and sectors, which has clearly been beneficial to performance. Our view through Spring/Summer 2020 was that we were being asked to pay too high a price for the safe, secure winners from the crisis, and that the opportunity for gains was elsewhere in the market. As Spring 2021 approached our positioning became more balanced as those gains in cyclical sectors were realised.
Our holdings in two of the world’s largest semiconductor companies delivered strong outperformance. Both Samsung Electronics, the South Korean company, and Taiwan Semiconductor Manufacturing, based in Taiwan, have built formidable technological and scale leadership in the production of a range of semiconductors. Demand for semiconductors continued to be strong through the pandemic across a range of applications from cloud computer storage, to mobile telephony and the automotive industry. Our sense is that the trend towards ‘the digitalisation of everything’ may mean these companies continue to see strong growth in the years to come, our challenge is to judge when all the good news is priced into the shares.
Through the dark days of Spring 2020 we retained exposure to companies which we believed had strong, durable business models which would emerge from the crisis stronger than before. Companies such as Ashtead, the UK listed industrial equipment hire company, the bulk of whose business is in the US, and Next, the UK retail group with a strong online offering, are good examples of such business. These companies performed particularly well through the latter part of 2020 as the market began to price in a more normal world in 2021/2.
Some of our biggest detractors in terms of relative performance have included companies such as Tesla, which we have not owned due to its valuation which, in our view, is extremely extended. We have, however, owned Volkswagen, a company with a chequered history in terms of governance, the ‘Dieselgate’ scandal of 2016 being a significant example. We have, like many other investors, engaged with this company in order to drive improvements in its corporate culture. Whilst we acknowledge the company has much work to do, we note it is likely to be the largest electric vehicle manufacturer in the world by 2023. The shares were strong performers in the past year.
In terms of negative performance contributors, we would highlight the pharmaceutical sector which underperformed in all regions over the year. Overall, we were underweight in the sector compared to the benchmark, nevertheless our two key holdings, Roche and Novartis, both based in Switzerland, lagged the performance of the market and peers in the sector. Concerns around reforms to drug pricing in the US market as well as company specific issues drove this underperformance. We continue to own these companies in the view of the strength of scientific research, strong balance sheets and cash generation which funds an attractive growing dividend stream.
| Total | Year end | |
| Key Contributors | Impact % | Portfolio Weight % |
| Taiwan Semiconductor | ||
| Manufacturing | +2.63 | 4.6 |
| Samsung Electronics | +2.14 | 3.1 |
| Ashtead | +1.69 | 2.3 |
| JPMorgan Chase | +1.17 | 3.9 |
| Texas Instruments | +0.86 |
3.2 |
| Total | Year end | |
| Key Detractors | Impact % | Portfolio Weight % |
| Novartis | –0.93 | 3.1 |
| Roche | –0.84 | 2.6 |
| Bayer | –0.79 | – |
| Alimentation Couche-Tard | –0.74 | 2.1 |
| Bristol Myers Squibb | -0.54 | – |
Source: Invesco.
Q How has the portfolio evolved over the period?
A At the beginning of the period we were in the midst of the crisis, and the consensus was being willing to pay an extremely high price for security of earnings, consequently shunning any stock or sector vulnerable to negative profits revisions. In fund manager parlance ‘the valuation dispersion’ in the market was extremely high both between sectors and stocks within sectors. We took the view that the opportunity going forward lay in more economically sensitive sectors of the market such as financials, as well as certain technology, industrial and consumer discretionary companies where valuations seemed to discount a permanent lockdown and economic recession. We also added to positions in certain consumer orientated stocks which were badly impacted by Covid-19, such as Coca-Cola, and Diageo, the UK drinks company.
As the year went on, and especially after the strong market rally we saw in the fourth quarter of 2020, our analysis began to indicate many more economic cyclicals were discounting a full normalisation of consumer behaviour and a continued strong economic recovery into 2022. The good news was in the price. Hence over the last quarter of the period the portfolio has become more balanced between companies and sectors more sensitive to the economic cycle and those with more defensive earnings streams such as consumer staples and certain stocks in the insurance and real estate sectors.
Underlying Portfolio Characteristics at Year End
| 12 month | Free Cash | Return | ||
| 31 May | Price/book | forward | Flow | on |
| 2021 | value (x) | p/e ratio(%) | Ratio (%) | Equity (%) |
| Global Equity Income | ||||
| Share Portfolio | 4.5 | 17.7 | 5.4 | 20.5 |
| MSCI World Index (£) | 3.5 | 19.9 | 4.1 | 18.5 |
Q Have you altered your investment approach in response to the Covid-19 crisis?
A No, absolutely not. Our process, seeks to identify high quality companies in all sectors of the market. We aim to acquire them when for whatever reason they are trading at a discount to our estimate of their intrinsic value. We like to buy good companies when they are ‘on sale’.
This crisis is however (hopefully) a once in a career event, and we have used it to completely re-examine our investment case for all the companies in the portfolio. We are conscious of the evolution in business models and the strenuous efforts management teams have taken to adapt to new circumstances. Our sense is, providing vaccines continue to offer strong protection, most companies and sectors will revert to something close to the ‘old normal’ in a year or two. However, we are constantly alert for evidence of permanent change which may reduce the long term earnings power of our holdings.
Perhaps the one area where we are taking a more cautious view is financial leverage. Whilst corporate debt helps to enhance returns to equity holders, too much debt increases risk, especially in an environment where interest rates may trend modestly higher in the coming years.
Q How has the ability to use some gearing influenced performance over the past 12 months?
A Clearly it has been a positive for the Portfolio in the rising markets which we have enjoyed over the last year. Our view in May/June 2020 was that the consensus was assuming the Covid-19 crisis to be semi-permanent, and hence equities were oversold and undervalued. We were therefore happy to use our leverage capability for the benefit of shareholders. We have been comfortable to remain with between 10-13% leverage ever since. Rest assured, when we feel the risk/reward balance tilts towards the negative we will reduce our leverage and indeed run a net cash position when we feel it to be appropriate.
Q What is your outlook for the next 12 months and beyond?
A On balance we would be constructive on the outlook for global equities over the next 12 months. There appears to be no appetite from governments around the world to impose post GFC-style austerity policies. The huge sums borrowed will need to be repaid, and strong economic growth is the best way to generate the tax revenue required. Hence, we sense a willingness to run the global economy ‘hot’ in the coming few years. We acknowledge equity valuations are relatively high at present, and we would therefore expect positive returns from equities to fall well short of corporate earnings growth, allowing valuations to somewhat normalise over the next year to 18 months.
We would judge the key risk to our benign scenario as signs of the current pick-up in inflation, most of which we view as temporary, becoming more permanently incorporated into investor and consumer expectations leading to a more material derating of equity valuations.
In the longer term, we know changes to consumption and investment patterns will occur, not least because of our move towards a ‘net zero carbon’ economy, which will gather pace as we move through the decade. How that will impact investor returns from the global equity market is still too early to assess.
Q After the strong performance in 2020/21, why invest in Global Equities now?
A The great thing about the ability to invest globally is the sheer range of opportunities we have access to around the world, from larger companies to smaller, from new
business models targeting industries of the future to older business models which offer sustainable growth. Whilst we acknowledge valuations today are relatively high, we see nothing in the economic, or market outlook to suggest the investor with patience and a longer term time horizon will do any worse owning equities than someone who invested in the asset class 10 or 20 years ago.
Stephen Anness
Portfolio Manager
5 August 2021
Global Equity Income Share Portfolio List of Investments
AT 31 May 2021
Ordinary shares unless stated otherwise
| Market | ||||
| Value | % of | |||
| Company | Industry Group† | Country | £’000 | Portfolio |
| Taiwan Semiconductor | Information Technology | Taiwan | 2,977 | 4.6 |
| Manufacturing | ||||
| Microsoft | Information Technology | United States | 2,832 | 4.5 |
| Alphabet | Communication Services | United States | 2,641 | 4.2 |
| Coca-Cola | Consumer Staples | United States | 2,607 | 4.1 |
| JPMorgan Chase | Financials | United States | 2,504 | 3.9 |
| Progressive | Financials | United States | 2,497 | 3.9 |
| 3i | Financials | United Kingdom | 2,295 | 3.6 |
| TencentR | Communication Services | China | 2,265 | 3.4 |
| Texas Instruments | Information Technology | United States | 2,055 | 3.2 |
| American Tower | Real Estate | United States | 2,032 | 3.2 |
| Top Ten Holdings | 24,705 | 38.6 | ||
| Novartis | Health Care | Switzerland | 1,991 | 3.1 |
| Zurich Insurance | Financials | Switzerland | 1,957 | 3.1 |
| Samsung Electronics – | Information Technology | South Korea | 1,944 | 3.1 |
| preference shares | ||||
| American Express | Financials | United States | 1,939 | 3.0 |
| Standard Chartered | Financials | United Kingdom | 1,771 | 2.8 |
| Nestlé | Consumer Staples | Switzerland | 1,688 | 2.6 |
| Roche | Health Care | Switzerland | 1,681 | 2.6 |
| Lundin Energy | Energy | Sweden | 1,612 | 2.5 |
| Home Depot | Consumer Discretionary | United States | 1,577 | 2.5 |
| PepsiCo | Consumer Staples | United States | 1,568 | 2.5 |
| Top Twenty Holdings | 42,433 | 66.4 | ||
| Ashtead | Industrials | United Kingdom | 1,455 | 2.3 |
| AIA | Financials | Hong Kong | 1,455 | 2.3 |
| NetEase – ADR | Communication Services | China | 1,398 | 2.2 |
| Union Pacific | Industrials | United States | 1,396 | 2.2 |
| RELX | Industrials | United Kingdom | 1,373 | 2.2 |
| Alimentation Couche-Tard – | Consumer Staples | Canada | 1,356 | 2.1 |
| Class B | ||||
| Communication Services | United States | 1,243 | 1.9 | |
| Installed Building Products | Consumer Discretionary | United States | 1,174 | 1.8 |
| Diageo | Consumer Staples | United Kingdom | 1,132 | 1.8 |
| Inditex | Consumer Discretionary | Spain | 1,112 | 1.7 |
| Top Thirty Holdings | 55,527 | 86.9 | ||
| Melrose Industries | Industrials | United Kingdom | 1,057 | 1.6 |
| Berkeley | Consumer Discretionary | United Kingdom | 1,025 | 1.6 |
| Rolls-Royce | Industrials | United Kingdom | 1,016 | 1.6 |
| TJX Companies | Consumer Discretionary | United States | 951 | 1.5 |
| Volkswagen – preference | Consumer Discretionary | Germany | 930 | 1.5 |
| shares | ||||
| Accenture – A Shares | Information Technology | United States | 914 | 1.4 |
| Ping An InsuranceH | Financials | China | 742 | 1.2 |
| Total | Energy | France | 600 | 0.9 |
| Colgate-Palmolive | Consumer Staples | United States | 574 | 0.9 |
| Sberbank – ADR | Financials | Russia | 566 | 0.9 |
| Total Holdings 40 (2020: 45) | 63,902 | 100.0 |
ADR American Depositary Receipts – are certificates that represent shares in the relevant stock and are issued by a US bank. They are denominated and pay dividends in US dollars.
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
Q How has the strategy performed in the year under review?
A The Invesco Balanced Risk Allocation Portfolio posted a strong return of 25.4% over the fiscal year, outperforming the benchmark by 20.3%. The recovery from Covid-19 lows was bumpy at the beginning of the period as positive developments in the form of expanding economic and manufacturing activity were met with concerns over pockets of increased incidence of Covid-19 infections and the potential for a rollback of reopening efforts. However, 2020 finished off strong with the development of several vaccines igniting a powerful rally in risky assets. The combination of the possibility of an end to lockdowns, along with the staggering degree of monetary and fiscal stimulus introduced to combat the negative economic impact from the virus, led to a broad-based rally in global equities and across the four commodity complexes. Bonds, which had fulfilled their role as safe-haven assets earlier in the year, saw prices drift lower as fear gave way to hope.
The increase in total vaccinations along with easing restrictions sparked a powerful rebound in risky assets to start 2021. Equity markets posted gains in the first five months of 2021 as pent-up demand was released, and commodity prices generally rose as demand outstripped supply. Bond yields predominately rose over the period on a lack of safe-haven demand and central banks’ apparent willingness to tolerate higher rates at the long end of the curve.
Q What were the biggest contributors and detractors to performance?
A Exposure to commodity markets was the top contributor to performance with all four subcomplexes posting positive returns. Energy was the top contributor of the complexes as demand increased with the reopening of economies. Agriculture also contributed due to increased demand from China after their crops got wiped out in floods in 2020. Industrial metals generated gains as both aluminium and copper prices rose in response to strong manufacturing activity and, in the case of copper, the strong performance of clean energy and electric vehicle positions coupled with supply shortages due to Covid-related mine disruptions in South America. Precious metals posted positive returns but muted relative to the other complexes after leading the asset class at the beginning period. Both gold and silver saw prices fell later in the fiscal year on a stronger dollar, higher real rates and lack of a safe-haven bid.
Equity markets contributed to results led by US equities with small caps benefitting from the dramatic rise in industries like clean energy and biotechnology. Asian markets posted handsome contributions from both Japan and Hong Kong. Increased manufacturing activity along with an earlier exit from Covid-19 lockdowns were likely factors contributing to the strong relative performance. European and UK equities saw share prices rise despite having a protracted battle with the virus and attendant restrictions. Central bank support and expectations for a continued rebound in demand despite the reimposed restrictions helped improve sentiment.
Exposure to government bonds detracted from performance with four markets producing negative returns as strong growth and concerns about mounting inflationary pressures elevated yields. Japanese yields were flat.
Q How did the tactical allocation perform?
A The tactical allocation added to results with gains in all three asset classes. Tactical equity was the top contributor, primarily due to timely overweights in US small caps. Gains from tactical positioning within commodities were driven by overweights in agriculture, industrial metals and precious metals. Tactical positioning within energy detracted due to underweight positioning.
Q What is your 30-day outlook?
A The Balanced Risk Allocation Portfolio strategy is rebalanced monthly and its time horizon is 30 days as part of the investment process/philosophy. The continued rollout of vaccines, along with the seemingly successful application of therapeutics such as ivermectin in Latin America and India, have allowed further relaxing of restrictions put in place to contain Covid-19 infections. The reopening has led to a further increase in demand while supply is constrained either as a result of supply chain issues or labour shortages. Much has been made about the uptick in inflation and whether the effects will be transitory or more persistent. To be sure, low base effects are having an impact, but if the supply issue and labour shortages continue, inflation may prove stickier than not.
Tactical positioning for June has overweights to all six equity markets. In fixed income, the strategy is neutral Australia and Japan, but underweight Canada, the UK and the US. Due to the negative yields in Germany, the portfolio continues to exclude fixed income from this country. Across commodities, the strategy is overweight coffee, corn, cotton, the soy complex, sugar, wheat, gold and silver. The strategy is underweight gasoil, natural gas, heating oil and industrial metals. The rest of the commodity exposures are carried at neutral.
Scott Wolle
Portfolio Manager
5 August 2021
Balanced Risk Allocation Share Portfolio List of Derivative Instruments
AT 31 May 2021
| Notional | ||
| Notional | Exposure | |
| Exposure | as % of | |
| £’000 | Net Assets | |
| Government Bond Futures: | ||
| Australia | 1,296 | 18.8 |
| Canada | 1,092 | 15.8 |
| UK | 1,018 | 14.8 |
| US | 440 | 6.4 |
| Japan | 97 | 1.4 |
| Total Bond Futures (5) | 3,943 | 57.2 |
| Equity Futures: | ||
| Japan | 620 | 9.0 |
| UK | 562 | 8.2 |
| Emerging markets | 532 | 7.7 |
| Europe | 451 | 6.5 |
| US small cap | 397 | 5.8 |
| US large cap | 295 | 4.3 |
| Total Equity Futures (6) | 2,857 | 41.5 |
| Commodity Futures: | ||
| Agriculture | ||
| Soy bean | 161 | 2.4 |
| Cotton | 146 | 2.1 |
| Soybean meal | 139 | 2.0 |
| Soy bean oil | 56 | 0.8 |
| Wheat | 47 | 0.7 |
| Corn | 46 | 0.7 |
| Coffee | 43 | 0.6 |
| Sugar | 41 | 0.6 |
| Precious Metals | ||
| Gold | 403 | 5.8 |
| Silver | 197 | 2.9 |
| Energy | ||
| Gasoline | 127 | 1.8 |
| Brent crude | 96 | 1.4 |
| WTI crude | 92 | 1.3 |
| Low sulphur gasoline | 80 | 1.2 |
| New York Harbor ultra-low sulphur diesel | 61 | 0.9 |
| Natural gas | 46 | 0.7 |
| Industrial Metals | ||
| Copper | 181 | 2.6 |
| Aluminium | 174 | 2.5 |
| Total Commodity Futures (18) | 2,136 | 31.0 |
| Total Derivative Instruments (29) | 8,936 | 129.7 |
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 | 4.6% | 50.0% |
| Commodities | 2.9% | 31.3% |
| Fixed Income | 1.7% | 18.7% |
| 9.2% | 100.0% |
List of Investments
| Market | % | ||
| Yield | value | of | |
| % | £’000 | Portfolio | |
| Short Term Investments | |||
| Invesco Liquidity Funds plc - Sterling | 0.03 | 2,359 | 41.1 |
| UK Treasury Bill – 0% 20 Sep 2021 | 0.04 | 750 | 13.1 |
| UK Treasury Bill – 0% 08 Nov 2021 | 0.06 | 750 | 13.1 |
| UK Treasury Bill – 0% 15 Nov 2021 | 0.06 | 749 | 13.0 |
| UK Treasury Bill – 0% 02 Aug 2021 | — | 550 | 9.6 |
| UK Treasury Bill – 0% 01 Nov 2021 | 0.06 | 300 | 5.2 |
| UK Treasury Bill – 0% 16 Aug 2021 | 0.02 | 278 | 4.8 |
| Total Short Term Investments | 5,736 | 99.9 | |
| Hedge Funds(1) | |||
| Harbinger Class PE Holdings | 4 | 0.1 | |
| Harbinger Class L Holdings | 1 | – | |
| Total Hedge Funds | 5 | 0.1 | |
| Total Fixed Asset Investments | 5,741 | 100.0 |
(1) The hedge fund investments are residual holdings of the previous investment strategy, which are awaiting realisation of underlying investments.
Derivative instruments held in the Balanced Risk Allocation Share Portfolio are shown on the previous page. At the year end all the derivative instruments held in the Balanced Risk Allocation Share Portfolio were exchange traded futures contracts. Holdings in futures contracts that are not exchange traded are permitted as explained in the investment policy on page 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 – Sterling Ultrashort Bond UCITS ETF. We reviewed the Exchange Traded Fund (ETF) universe in December 2020 and as a result switched from the PIMCO Sterling Short Maturity Source UCITS ETF to improve the portfolio’s characteristics. This resulted in a moderate reduction in average maturity and charges and a moderate improvement in average credit quality and liquidity, with the expectation of a moderately higher net yield as a result. 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 – Sterling Ultrashort Bond UCITS 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 fund been over the last year?
A The Managed Liquidity Portfolio NAV total return for the year ended 31 May 2021 was 1.6%, excluding the one-off rebate of management fee referred to in the Chairman’s statement, which accounted for 2% of the total return.
While low relative to historical cash rates, and particularly in comparison with strong equity returns over the year, the Portfolio’s return remained meaningfully above the Bank of England’s Base Rate (0.1% since March 2020) and the average overnight interbank rate (SONIA, 0.05%) over the year.
Q What’s the outlook for returns given low interest rates and rising inflation?
A We expect interest rates to remain low into 2022 as central banks globally continue to provide emergency support to businesses emerging from Covid-19 related restrictions. However, this support also benefits the Portfolio, as facilities such as the Bank of England’s Coronavirus Business Interruption Loan Scheme (CBILS) provide working capital to those large firms who need it.
The additional spread of credit returns over base rates are also tight, as demand for low-risk paper remains strong, limiting the potential for returns from ultrashort bonds.
Regarding inflation, changes in consumer preferences, and supply/demand imbalances have led to some variability in the calculation of consumer price inflation over the past 12 months. As the economy reopens we expect to see the transitory effect of this in rising inflation over the next year. Brexit-related trade and labour frictions may contribute to moderately higher UK inflation over the longer term, although negative real interest rates remain a global and structural phenomenon. As such would expect liquidity portfolios to continue to deliver returns below inflation.
Nevertheless, we expect ultrashort bonds to continue to deliver a meaningful pickup over base rates while providing ready access to capital with a high degree of security.
Derek Steeden
Portfolio manager
5 August 2021
Managed Liquidity Share Portfolio List of Investments
| AS AT 31 MAY | ||||
| 2021 | 2020 | |||
| Market | Market | |||
| Value | % of | Value | % of | |
| £’000 | Portfolio | £’000 | Portfolio | |
| PIMCO Sterling Short Maturity Source UCITS ETF | — | — | 2,642 | 98.5 |
| Invesco Liquidity Funds plc – Sterling | 140 | 7.7 | 40 | 1.5 |
| iShares – Sterling Ultrashort Bond UCITS ETF | 1,669 | 92.3 | — | — |
| 1,809 | 100.0 | 2,682 | 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 the right 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 note 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.
Company Specific Examples In the selection below, 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.
UK Equity Portfolio Example
International transmission and distributor of electricity and gas
Our assessment
– The company outlined their ESG strategy in October 2020 and the key role they will play in facilitating the electrification of high carbon emitting industries and products such as electric vehicles, and thus helping the UK achieve its ambitious greenhouse gas targets by promoting decarbonisation of the grid. They outlined their carbon reduction targets, which include a 2050 net-zero target as well announcing on the webinar an interim scope 3* reduction target for 2030.
– The company’s business model means it is less exposed to carbon risk than utilities that have greater generation capacity (the company are distributors), but the company lags many peers in terms of supporting the transition to a less carbon-intensive grid according to Sustainalytics. We know from our conversations with the company, however, that they are trialling new products in order to promote transition.
– We provided feedback to the company that although the overall vision is very strong, more clarity is needed about how their gas business can be decarbonised and the feasibility of proposed solutions such as Renewable Natural Gas (RNG) or hydrogen blending.
* 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.
International vending and catering services
Our assessment
– Over the past two years and particularly in during the Covid-19 Pandemic, we have been engaging with the board, management and advisors to this company.
– During this time we have discussed and challenged management on its business plan and strategy and the impact of Covid-19. We have 1-1 conversations with the CFO and Head of Investor Relations on issues including challenges in attracting labour and ensuring work force safety.
– We have challenged the company on end to end chain food wastage and what schemes can be implemented to significantly reduce waste. We have also challenged their performance on recent issues surrounding the provision of free school meals under lockdown.
– We have questioned and tested their remuneration policies to ensure management is aligned with shareholders, incentivised and stable and that there are adequate succession plans in place for the future. We have discussed the company’s cultural values and concluded that their culture is one of safety, for both employees and consumers.
Global Equity Income Portfolio Example
US building materials company
Our assessment
– This company is a leading installer of insulation products to the US residential and commercial construction sectors. Building sustainable cities and communities is an Sustainable Development Goal (SDG) and we view insulation as one of the most cost effective ways to save energy. Its annual report contained little of substance to allow investors to ascertain both its role in reducing carbon emissions, and its policies towards reducing its own and its suppliers carbon footprint. Furthermore, there was a lack of disclosure around certain elements of the sustainability programme, particularly around human capital to allow 3rd party rating agencies to form a proper view of procedures.
– We have actively engaged with the company, our internal ESG team has been extremely helpful to the company in order to identify which issues around human capital were merely related to lack of disclosure, and others, particularly around carbon footprint, which have required more detailed audit and data collection which the company has undertaken. We note a step change in how the company present their ESG data in investor presentations. Better disclosure we believe will help reclassify the company from the ‘homebuilders’ to building materials sectors of 3rd party rating agencies which will allow better peer to peer comparison.
– There remain issues around governance which are not unusual for founder owned companies and we would note the founder CEO has been an excellent steward of shareholder capital over the last 20 years.
Consumer and Industrial electric and equipment provider
Our assessment
– The team actively engaged with the company on ESG issues since inception of the position and believes it has seen tangible progress on issues of concern.
– These would include improvements in shareholder returns policy, improvements in the human rights (notably whistle-blower policy) and employee safety.
– Furthermore, in corporate governance policies, a greater level of transparency is apparent and independent board members have been appointed.
– The team continues to engage with the company to achieve progress on outstanding ESG issues of concern.
Voting Policy
We review AGM and 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 involved director remuneration at a large international distribution and outsourcing services group. We reviewed the company’s director remuneration policy ahead of the AGM and noted that the group has formalised its policy on post-employment shareholdings for directors which was an issue we had raised previously. Given this, overall we were supportive of the policy. However, prior to voting at the AGM we continued to have an outstanding query on executive directors pension benefits, and whether the pension contribution would be aligned over time to those available to the wider workforce as this did not appear to be the case. This was also flagged by a third party research provider. We engaged with the company on the matter and shortly after the company issued an announcement setting out how the CEO’s remuneration would align with the pension contribution rate for the majority of the wider workforce in the UK. As a result we felt able to support all the resolutions at the AGM and had successfully discharged our stewardship duties.
* ISS – Institutional Shareholder Services.
** IVIS – Institutional Voting Information Service.
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 honest, 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.
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 their needs. The underlying strategies are each targeted at achieving returns corresponding with specified objectives through a disciplined investment process. The strategy the Board follows to achieve its overall objective and those of each Share class is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below.
The business model the Company has adopted to achieve its objective has been to contract investment management and administration to appropriate external service providers. The Board has oversight of the Company’s service providers, and monitors them on a formal and regular basis. The Board has a collegiate culture and pursues its fiduciary responsibilities with independence, integrity and diligence, taking advice and outside views as appropriate and constructively challenging and interacting with service providers, including the Manager.
The principal service provider is Invesco Fund Managers Limited (‘IFML’ or the ‘Manager’). In addition to managing the Portfolios in accordance with the Board’s strategy and under its oversight, the Manager is also responsible for providing company secretarial, marketing, accounting and general administration services. In practice, many of these services are performed under delegated authority by Invesco Asset Management Limited (IAML), a company related to IFML. References to the Manager in this annual financial report should consequently be considered to include both entities.
All administrative support is provided by third parties under the oversight of the Board. In addition to the management and administrative functions of the Manager, the Company has contractual arrangements with Link 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.
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 2021 and of relevant benchmark indices were as follows:
| UK Equity Portfolio | 34.6% |
| FTSE All-Share Index | 23.1% |
| Global Equity Income Portfolio | 35.9% |
| MSCI World Index (£) | 22.3% |
| Balanced Risk Allocation Portfolio | 25.4% |
| ICE BoA Merrill Lynch 3 month LIBOR plus | |
| 5% per annum | 5.1% |
| Managed Liquidity Portfolio | 3.6% |
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 3.90p (2020: 4.12p), based on net revenue for the year of £1,322,000 (2020: £1,340,000) with no receipts of special dividends (2020: £61,000 receipts of non-recurring special dividends, equivalent to 0.19p).
Dividend Policy:
It is the Board’s policy that the Directors will declare four dividends in respect of each accounting year (with payment in the month following) comprising of three equal interim dividends, declared in July, October and January, and a ‘wrap-up’ fourth interim dividend, declared in April. Depending on the level of income received in each quarter, and in the year, these four dividends may be enhanced with contributions from capital profits to achieve the Board’s target level. In recent years the Directors have set a target of at least maintaining, in the absence of unforeseen circumstances, the level of annual UK Equity dividends per share from year to year. The impact of Covid-19 constitutes unforeseen circumstances in this context and, given uncertainty of income flows, the Directors did not set dividend targets for the year to 31 May 2021 and have not done so for the year to 31 May 2022.
Dividends Declared:
The Directors have declared and paid four interim dividends for the year ended 31 May 2021 totalling 6.65p per UK Equity Share (2020: 6.60p) of which 3.90p was met from revenue earned in the year. The aggregate of dividends paid in respect of the year was £1,814,000 (2020: £2,145,000) – 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 2022 of 1.50p was declared on 15 July 2021. 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 3.95p (2020: 5.39p), based on net revenue for the year of £1,024,000 (2020: £1,639,000), which included £192,000 (2020: £49,000) 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 impact of Covid-19 constitutes unforeseen circumstances in this context and, given uncertainty of income flows, the Directors did not set dividend targets for the year to 31 May 2021 and have not done so for the year to 31 May 2022.
Dividends Declared:
The Directors have declared and paid four interim dividends for the year ended 31 May 2021 totalling 7.10p (2020: 7.05p) per Global Equity Income Share, of which 3.83p was met from revenue earned in the year. The aggregate of dividends paid in respect of the year was £1,815,000 (2020: £2,138,000) – 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 2022 of 1.55p was declared on 15 July 2021. In the absence of unforeseen circumstances, and in accordance with the dividend policy set out above, the Board intends for this to set the level for the next two quarterly dividends.
Balanced Risk Allocation Shares
In order to maximise the capital return on the Balanced Risk Allocation Shares, the Directors only intend to declare dividends on the Balanced Risk Allocation Shares to the extent required, having taken into account the dividends paid on the other Share classes, to maintain the Company’s status as an investment trust under section 1158 of the Corporation Tax Act 2010. The Portfolio recorded a net revenue loss of £8,000 in the year (2020: £1,000 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. No dividends were paid in the year (2020: 0.80p). The Managed Liquidity Portfolio recorded a net revenue profit for the year of £33,000 (2020: £23,000).
A first interim dividend for the year to 31 May 2022 of 1.00p was declared on 15 July 2021. 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/(Premium)
The Company has a discount control policy in place for all four Share classes, whereby the Company offers to issue or buy back Shares of all classes with a view to maintaining the market price of the shares at close to their respective net asset values and, by so doing, avoid significant overhangs or shortages in the market. It is the Board’s policy to buy back shares and to sell shares from treasury on terms that do not dilute the net asset value attributable to existing shareholders at the time of the transaction.
The operation of this policy is dependent upon the authorities to buy back and issue shares being renewed by shareholders. Notwithstanding the intended effect of this policy, there can be no guarantee that the Company’s shares will trade at close to their respective net asset values. Shareholders should also be aware that there is a risk that this discount policy may lead to a reduction in the size of the Company over time.
The Board and the Manager closely monitor movements in the Company’s share prices and dealings in the Company’s shares. Share movements in the year are summarised on page 43. At 31 May 2021, the share prices, net asset values (NAV) and the discounts of the four Share classes were as follows:
| 2021 | 2020 | |||||
| Net Asset | Share | Net Asset | Share | |||
| Value | Price | Value | Price | Premium/ | ||
| Share Class | (Pence) | (Pence) | Discount | (Pence) | (Pence) | (Discount) |
| UK Equity | 188.33 | 176.00 | (6.5%) | 145.78 | 139.50 | (4.3)% |
| Global Equity Income | 233.91 | 226.00 | (3.4%) | 178.46 | 176.50 | (1.1)% |
| Balanced Risk Allocation | 169.33 | 163.00 | (3.7%) | 135.06 | 129.00 | (4.5)% |
| Managed Liquidity | 108.11 | 102.00 | (5.7%) | 104.40 | 101.50 | (2.8)% |
The following charts show the premium/(discount) at which the Shares traded over the two years to 31 May 2021. The Shares of all four Portfolios have, historically, generally traded in a range of 0% to 4%. As can be seen below, although this continued in the past year it was somewhat more volatile from the onset of the market disruptions from Covid-19, in March 2020, with higher levels of discount being seen sporadically throughout the pandemic influenced 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 | |
| 2021 | 0.87% | 0.91% | 0.81% | 1.21% | 0.39% |
| 2020 | 0.90% | 0.89% | 0.88% | 1.25% | 0.35% |
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 and no performance fees were paid during the year. 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 77 shows the assets and liabilities at the year end. Details of the Company’s borrowing facility are shown in note 12(b) of the financial statements on page 88, 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 in issue at the year end: | ||||
| – excluding treasury | 88,321,988 | 23,770,805 | 4,069,095 | 1,607,679 |
| – held in treasury | 22,747,275 | 15,453,159 | 6,272,218 | 9,250,678 |
| Movements during the year: | ||||
| – increase/(decrease) arising from conversions | 484,631 | (76,995) | (216,791) | (320,353) |
| – shares bought back into treasury | (10,769,463) | (4,939,000) | (951,000) | (569,000) |
| – increase from scheme of reconstruction with | ||||
| Invesco Income Growth Trust plc | 66,628,879 | — | — | — |
| – average price thereon | 157.1p | 194.8p | 145.7p | 101.8p |
Since the year end another 4,860,000 UK Equity Shares and 63,000 Managed Liquidity Shares have been bought into treasury at average prices of 179p and 104p respectively.
Further details on net changes in issued share capital are set out in note 13 to the financial statements on pages 89 and 90. 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 59 and 60).
The following are considered to be the most significant risks to the Company and to shareholders in relation to their investments in the Company. Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 16 to the financial statements.
Investment Objectives and Attractiveness to Investors
There is no guarantee that the Investment Policy of the Company and of each Portfolio will provide the returns sought by the Company. There can be no guarantee, therefore, that the Company will achieve its investment objectives or that the Shares will continue to meet investors’ needs.
The Board monitors the share registers and the performance of the Company and each Portfolio. It has established a structure offering a range of options for investors and has set guidelines to ensure that the Investment Policy of the Company and each Portfolio is pursued by the Manager.
Market Movements and Portfolio Performance
Individual Portfolio performance is substantially dependent on the performance of the securities (including derivative instruments) held within the Portfolio. The prices of these securities are influenced by many factors including the general health of regional and worldwide economies; interest rates; inflation; government policies; industry conditions; political and diplomatic events; tax laws; environmental laws; and by the demand from investors. The Manager strives to maximise the total return from Portfolios, but the investments held are influenced by market conditions and the Board acknowledges the external influences on the performance of each Portfolio. Further risks specifically applicable to the Balanced Risk Allocation Shares are set out on page 45.
The extreme market volatility experienced in February and March 2020 from the market reaction to Covid-19, and the continuing effects, exemplify the risks from external influences. All of the Company’s Portfolios, except for Managed Liquidity, were, and are still being, affected. There is an ongoing risk to global economies from the measures taken in response to Covid-19, many companies are at risk from the effects of the imposed lockdowns on their production and revenues and this has a consequential effect on the availability of investment income.
The performance of the Manager is carefully monitored by the Board and the continuation of the Manager’s mandates is reviewed each year. The Board has established guidelines to ensure that the investment policies of each class of Share are pursued by the Manager.
For a fuller discussion of the economic and market conditions facing the Company and the current and future performance of the different Portfolios of the Company, please see both the Chairman’s Statement on pages 6 to 8 and the portfolio managers’ reports starting on pages 11 to 31.
Risks Applicable to the Company’s Shares
Shares in the Company are designed to be held over the long-term and may not be suitable as short-term investments. There can be no guarantee that any appreciation in the value of the Company’s Shares will occur and investors may not get back the full value of their investments. Owing to the potential difference between the mid-market price of the Shares and the prices at which they are sold, there is no guarantee that their realisable value will reflect their mid-market price.
The market value of a Share, as well as being affected by its net asset value (NAV), is also influenced by investor demand, its dividend yield, where applicable, and prevailing interest rates, amongst other factors. As such, the market value of a Share can fluctuate and may not reflect its underlying NAV. Shares may therefore trade at discounts to their NAVs. However, the Board has adopted a discount control policy that applies to all Share classes and the Board and the Manager monitor the market rating of each Share class.
Past performance of the Company’s Shares is not necessarily indicative of future performance.
While it is the intention of the Directors to pay dividends to holders of the UK Equity, Global Equity Income and Managed Liquidity Shares, this will be affected by the returns achieved by the respective Portfolios and the dividend policy adopted by the Board. Accordingly, the amount of dividends paid to shareholders may fluctuate. Any change in the tax or accounting treatment of dividends received or other returns may also affect the level of dividend paid on the Shares in future years. The Directors have resolved, in the absence of unforeseen circumstances, to supplement revenue with capital profits in order to pay equity Portfolio dividends at target levels set by the Board (see pages 41 and 42).
Viability and Compulsory Conversion of a Class of Share
It is possible that through poor performance, market sentiment, or otherwise, lack of demand for one of the Company’s Share classes could result in the relevant Portfolio becoming too small to be viable. The Board monitors share conversions and Portfolio sizes and liaises with the Manager on the continued viability of each Share class. The Board has received assurances from the Manager that the size of the portfolios is not critical to the Manager being able to continue to offer its investment management services in respect of any of the Company’s four portfolio strategies.
The continued listing on the Official List of each class of Share is dependent on at least 25% of the Shares in that class being held in public hands. This means that if more than 75% of the Shares of any class were held by, inter alia, the Directors, persons connected with Directors or persons interested in 5% or more of the relevant Shares, the listing of that class of Share might be suspended or cancelled. The Listing Rules state that the FCA may allow a reasonable period of time for the Company to restore the appropriate percentage if this rule is breached, but in the event that the listing of any class of Shares were cancelled the Company would lose its investment trust status.
Accordingly, if at any time the Board considers that the listing of any class of Share on the Official List is likely to be cancelled and the loss of such listing would mean that the Company would no longer be able to qualify for approval as an investment trust under section 1158 of the Corporation Tax Act 2010, the Board may serve written notice on the holders of the relevant Shares requiring them to convert their Shares into another Share class.
Liability of a Portfolio for the Liabilities of Another Portfolio
The Directors intend that, in the absence of unforeseen circumstances, each Portfolio will effectively operate as if it were a stand-alone company. However, investors should be aware of the following factors:
• As a matter of law, the Company is a single entity. Therefore, in the event that any of the Portfolios has insufficient funds or assets to meet all of its liabilities, on a winding-up or otherwise, such a shortfall would become a liability of the other Portfolios and would be payable out of the assets of the other Portfolios in such proportions as the Board may determine; and
• The Companies Act 2006 prohibits the Directors from declaring dividends in circumstances where, following the distribution, the Company’s assets would represent less than one and a half times the aggregate of its liabilities or the amount of net assets would be less than the aggregate of its share capital and undistributable reserves. If the Company were to incur material liabilities in the future, a significant fall in the value of the Company’s assets as a whole may affect the Company’s ability to pay dividends on a particular class of Share, even though there are distributable profits attributable to the relevant Portfolio.
Gearing
Performance may be geared by use of the £40 million 364 day multicurrency revolving credit facility. The Company also has an uncommitted overdraft facility of up to 10% of net assets. There is no guarantee that these facilities will be renewed at maturity or on terms acceptable to the Company. If it were not possible to renew these facilities or replace them with one from another lender, the amounts owing by the Company would need to be funded by the sale of securities. This facility was increased to its current limit of £40 million in connection with the Company’s combination with Invesco Income Growth Trust plc in April 2021, having previously stood at £20 million.
The Balanced Risk Allocation Portfolio may also be geared (by up to 250%, according to the investment policy set out on page 40) by means of the derivative instruments in which it invests. This is discussed separately below, under the heading: Additional Risks Applicable to Balanced Risk Allocation Shares.
Gearing levels of the different Portfolios will change from time to time in accordance with the respective portfolio managers’ assessments of risk and reward. Where market exposure is geared, any reduction in the value of the geared Portfolio’s investments may lead to a correspondingly greater percentage reduction in its NAV (which is likely to affect Share prices adversely). Any reduction in the number of Shares in issue (for example, as a result of buy backs) will, in the absence of a corresponding reduction in borrowings, result in an increase in a Portfolio’s gearing.
Whilst the use of borrowings by the Company should enhance the total return on a particular class of Share where the return on the underlying securities is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling, further reducing the total return on that Share class. Similarly, the use of gearing by investment companies or funds in which the Company invests increases the volatility of those investments.
Hedging
The Company may use derivatives to hedge its exposure to currency or other risks and for the purpose of efficient portfolio management. There may be a correlation between price movements in the underlying securities, currency or index, on the one hand, and price movements in the investments, which are the subject of the hedge, on the other hand. In addition, an active market may not exist for a particular hedging derivative instrument at any particular time.
Regulatory and Tax Related
The Company is subject to various laws and regulations by virtue of its status as a public limited investment company registered under the Companies Act 2006, its status as an investment trust and its listing on the London Stock Exchange. Loss of investment trust status could lead to the Company being subject to UK Capital Gains Tax on the sale of its investments. A serious breach of other regulatory rules could lead to suspension from the London Stock Exchange, a fine or a qualified Audit Report. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.
The Manager reviews the level of compliance with the Corporation Tax Act 2010 and other financial regulatory requirements on a daily basis. All transactions, income and expenditure are reported to the Board. The Board regularly considers the risks to which the Company is exposed, the measures in place to control them and the potential for other risks to arise. The Board ensures that satisfactory assurances are received from service providers. The depositary and the Manager’s compliance and internal audit officers report regularly to the Company’s Audit Committee.
The risks and risk management policies and procedures as they relate to the financial assets and liabilities of the Company are also detailed in note 16 to the financial statements.
Additional Risks Applicable to Balanced Risk Allocation Shares
The use of financial derivative instruments forms part of the investment policy and strategy of the Balanced Risk Allocation Portfolio. The Portfolio’s ability to use these instruments may be limited by market conditions, regulatory limits and tax considerations. The absence of a liquid market for any particular instrument at any particular time may inhibit the ability of the Manager to liquidate a financial derivative instrument at an advantageous price. However, the Manager actively seeks the most liquid means of obtaining the required exposures. The financial derivative instruments used for the strategy are geared instruments and the aggregate notional exposure will usually exceed the net asset value of the Portfolio. Whilst this could result in greater fluctuations in the net asset value, and consequently the share price, the use of leverage is normally necessary to achieve the target volatility required to meet the return objective. The degree of leverage inherent in futures trading potentially means that a relatively small price movement in a futures contract may result in an immediate and substantial loss and it would be necessary to increase the collateral held at the clearing broker to cover such loss. This is mitigated by the Company not using financial derivative instruments to create net short positions in any asset class combined with holding cash balances sufficient to meet collateral requirements.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is therefore reliant upon the performance of third party service providers for its executive function. In particular, the Manager performs services that are integral to the operation of the Company and the custodian appointed by the depositary holds assets on its behalf. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its Investment Policy.
The Manager may be exposed to reputational risks. In particular, the Manager may be exposed to the risk that litigation, misconduct, operational failures, negative publicity and press speculation, whether or not it is valid, will harm its reputation. Any damage to the reputation of the Manager could result in potential counterparties and third parties being unwilling to deal with the Manager and by extension the Company. This could have an adverse impact on the ability of the Company to successfully pursue its Investment Policy.
The Directors continue to monitor the Covid-19 situation closely, together with the Manager and third-party service providers. A range of actions have been implemented to ensure that the Company and its service providers are able to continue to operate as normal, even in the prolonged disruption being experienced. The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements.
The Manager has mandated work from home arrangements and split team working will be implemented when business premises reopen. Any meetings are being held virtually or via conference calls.
The Company’s other service providers have similar working arrangements in place.
Viability Statement
The Company is an investment company which operates as a collective investment vehicle, designed and managed for long term investment. The Board considers long term for this purpose to be at least three years and so has assessed the Company’s viability over this period. However, the life of the Company is not intended to be limited to that or any other period.
In assessing the viability of the Company the Board considered the principal risks to which it is exposed, as set out on pages 44 to 46, 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 from Covid-19 in the past year. Despite the disruption to markets from Covid-19 and the impact on global economies, the Directors remain confident that the Company’s investment strategies will continue to serve shareholders well over the longer term. On the question of scale, this has been mitigated by the business combination of Invesco Income Growth Trust plc into the UK Equity Portfolio and 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 is a multiple of 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 extended audit committee report required by the UK Corporate Governance Code is set out on pages 59 and 60. There are no areas of concern in relation to the financial statements to bring to the attention of shareholders.
Board’s Duty to Promote the Success of the Company (s.172)
As set out in the Directors’ Report on page 51 the Directors have a statutory duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, suppliers, customers and others, and to have regard to their interests (s172 Companies Act 2006). However, the Company has no employees and no customers in the traditional sense.
In fulfilling these duties, and in accordance with the Company’s nature as an investment trust, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. Notwithstanding this, the Board has a responsible governance culture and also has due regard for broader matters so far as they apply. In particular, the Board engages with the Manager at every Board meeting and reviews the Company’s relationships with other service providers, such as the registrar, depositary and custodian, at least annually. During the year the most significant engagement was with the Manager and, in particular the individual portfolio managers. Matters engaged upon included discussions in connection with the successful business combination of Invesco Income Growth Trust plc into the UK Equity Portfolio, the management of the enlarged UK Equity Portfolio and the appointment of Ciaran Mallon as joint manager, related investment management fee reduction and removal of the performance fee for both the UK Equity and Global Equity Income portfolios. Furthermore, Derek Steeden was appointed as the designated portfolio manager for the Managed Liquidity Portfolio. As would be expected, there was also engagement with service providers generally in connection with the extended lockdown conditions due to Covid-19, all of which were able to report business as usual capability.
The Board is committed to maintaining high standards of Corporate Governance. The Corporate Governance Statement required by the UKLA Listing Rules is set out on page 58.
Environment, Social and Governance considerations are dealt with in a separate section of this Strategic Report on pages 34 to 38.
Shareholder relations are given high priority by the Board and the Manager. The prime means by which the Company communicates with shareholders are the annual and half-yearly financial reports, which aim to provide shareholders with a full understanding of the Company’s activities and its results. This information is supplemented by daily publication of the NAVs of the Company’s shares via the London Stock Exchange, ad hoc regulatory announcements, monthly factsheets and other information on the Manager’s website, including pre-investment information, key information document (KID), shareholder circulars, Portfolio disclosures, conversion forms and instructions, Stock Exchange announcements, schedule of matters reserved for the Board, terms of reference of Board Committees, Directors’ letters of appointment, the Company’s share price and proxy voting results.
The Chairman and Directors welcome contact with shareholders, although this has been difficult recently with the Covid-19 situation. There is a regular dialogue between the Manager and individual major shareholders to discuss aspects of investment performance, governance and strategy and to listen to shareholder views in order to help develop a balanced understanding of their issues and concerns. The Company’s corporate broker, Investec Bank plc, is also consulted. General presentations to institutional shareholders and analysts take place throughout the year. All meetings between the Manager and institutional shareholders are reported to the Board.
It is the intention of the Board that the annual financial report and the notice of the AGM be issued to shareholders so as to provide at least twenty working days’ notice of the AGM. Shareholders wishing to lodge questions in advance of the AGM are invited to do so, either on the reverse of the proxy card or in writing to the Company Secretary at the address given on page 109.
There is a clear channel of communication between the Board and the Company’s shareholders via the Company Secretary. The Company Secretary has no express authority to respond to enquiries addressed to the Board and all such communication, other than junk mail, is redirected to the Chairman or Senior Independent Director as appropriate.
Shareholders normally have the opportunity to communicate directly with the Directors at the AGM. It is hoped that by the date of this year’s AGM on 5 October 2021 restrictions due to Covid-19 will have eased and, if so, shareholders are encouraged to attend the AGM. However, should this not be the case the AGM may have to be held as a closed meeting again. In this eventuality it is recommended that shareholders exercise their votes by means of registering them with the Company’s registrar ahead of the meeting, online or by completing paper proxy forms, and appoint the Chairman of the meeting as their proxy. Questions, on the business of the meeting or otherwise, may be addressed to the Company Secretary, by email to investmenttrusts@invesco.com or, by letter, to 43-45 Portman Square, London W1H 6LY.
Board Diversity
The Company’s policy on diversity is set out on page 53. At the year end the Board comprised four male and two female non-executive Directors resulting in female representation of 33%. This figure increased to 40% from 1 June 2021. Summary biographical details of all the current Directors are set out on page 50. The Company has no employees.
Environment, Social and Governance (ESG) Matters
As an investment company with no employees, property or activities outside investment, environmental policy has limited application. A greenhouse gas emissions statement is included in the Directors’ Report on page 54. In relation to the portfolios, the Company has delegated the management of the Company’s investments to the Manager, who has an ESG Guiding Framework which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders.
The Manager is committed to being a responsible investor and applies, and is a signatory to, the United Nations Principles for Responsible Investment, which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager also achieved a global ‘A+’ rating for its overall approach to responsible investment for the fourth consecutive year since 2018 as well as achieving an ‘A’ or ‘A+’ across all categories in the 2020 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 has published its inaugural Climate Change report in line with the TCFD in July 2020. 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 voluntarily complied with 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 Manager is also a signatory to the FRC Stewardship Code 2020, which seeks to improve the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.
The equity investment teams incorporate ESG considerations in their investment processes as part of the evaluation of new opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The portfolio managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio, although third party ESG ratings may inform their view. Additionally, the Manager’s ESG team provides formalised ESG portfolio monitoring. This is a rigorous semi-annual process where the portfolios are reviewed from an ESG perspective.
Regarding stewardship, the Board considers that the Company has a responsibility as a shareholder towards ensuring that high standards of corporate governance are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met. The principal means of putting shareholder responsibility into practice is through the exercise of voting rights. The Company’s voting rights are exercised on an informed and independent basis. The Company’s stewardship functions have been delegated to the Manager, which has adopted a clear and considered policy towards its responsibility as a shareholder on behalf of the Company. As part of this policy, the Manager takes steps to satisfy itself about the extent to which the companies in which it invests look after shareholders’ value and comply with local recommendations and practices, such as the UK Corporate Governance Code. A copy of the current Manager’s Stewardship Policy, which is updated annually, can be found at www.invesco.co.uk/investmenttrusts. Further details are shown in the ESG Statement from the Managers on pages 34 to 38.
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 5 August 2021.
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
5 August 2021
Income Statement
FOR THE YEAR ENDED 31 MAY
| 2021 | 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains/(losses) on investments held at | |||||||
| fair value | 9 | — | 28,391 | 28,391 | — | (12,632) | (12,632) |
| Gains/(losses) on derivative instruments | 10 | 38 | 1,701 | 1,739 | 2 | (159) | (157) |
| Losses on foreign exchange | — | (104) | (104) | — | (22) | (22) | |
| Income | 2 | 3,184 | 539 | 3,723 | 3,950 | 80 | 4,030 |
| Investment management fees | 3 | (198) | (454) | (652) | (206) | (473) | (679) |
| Performance fee waiver | 3 | — | 531 | 531 | — | — | — |
| Other expenses | 4 | (385) | (23) | (408) | (463) | (9) | (472) |
| Net return before finance costs and taxation | 2,639 | 30,581 | 33,220 | 3,283 | (13,215) | (9,932) | |
| Finance costs | 5 | (38) | (90) | (128) | (37) | (88) | (125) |
| Return before taxation | 2,601 | 30,491 | 33,092 | 3,246 | (13,303) | (10,057) | |
| Tax | 6 | (230) | — | (230) | (245) | — | (245) |
| Return after taxation for the financial year | 2,371 | 30,491 | 32,862 | 3,001 | (13,303) | (10,302) | |
| Return per ordinary share | 7 | ||||||
| – UK Equity Share Portfolio | 3.90p | 41.42p | 45.32p | 4.12p | (24.75)p | (20.63)p | |
| – Global Equity Income Share Portfolio | 3.95p | 57.28p | 61.23p | 5.39p | (16.58)p | (11.19)p | |
| – Balanced Risk Allocation Share Portfolio | (0.17)p | 33.10p | 32.93p | (0.02)p | (3.88)p | (3.90)p | |
| – Managed Liquidity Share Portfolio | 1.35p | 0.95p | 2.30p | 0.65p | 0.03p | 0.68p | |
The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return after taxation for the financial year 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. On 23 April 2021 the Company acquired the assets of Invesco Income Growth Trust plc following a scheme of reconstruction. No other operations were acquired or discontinued in the 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.
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 2019 | 1,055 | 1,290 | 66,372 | 353 | 62,871 | 354 | 132,295 | |
| Cancellation of deferred shares | — | — | (6) | 6 | — | — | - | |
| Shares bought back and held in treasury | — | — | (9,986) | — | — | — | (9,986) | |
| Share conversions | (5) | — | 5 | — | — | — | - | |
| Return after taxation per the income | ||||||||
| statement | — | — | — | — | (13,303) | 3,001 | (10,302) | |
| Dividends paid | 8 | — | — | (931) | — | — | (3,407) | (4,338) |
| At 31 May 2020 | 1,050 | 1,290 | 55,454 | 359 | 49,568 | (52) | 107,669 | |
| Cancellation of deferred shares | — | — | (5) | 5 | — | — | — | |
| Shares bought back and held in treasury | — | — | (28,704) | — | — | — | (28,704) | |
| Share conversions | (1) | — | 1 | — | — | — | — | |
| Return after taxation per the income | ||||||||
| statement | — | — | — | — | 30,491 | 2,371 | 33,862 | |
| Dividends paid | 8 | — | — | (1,283) | — | — | (2,346) | (3,629) |
| Issue of shares on business | ||||||||
| combination | 13(f) | 666 | 121,859 | — | — | — | — | 122,525 |
| Cost of shares issued in | ||||||||
| respect of the business combination | — | (159) | — | — | — | — | (159) | |
| At 31 May 2021 | 1,715 | 122,990 | 25,463 | 364 | 80,059 | (27) | 230,564 |
Balance Sheet
AS AT 31 MAY 2021
| Global | Balanced | |||||
| UK | Equity | Risk | Managed | |||
| Equity | Income | Allocation | Liquidity | Total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Fixed assets | ||||||
| Investments held at fair value through profit | ||||||
| or loss | 9 | 176,434 | 63,902 | 5,741 | 1,809 | 247,886 |
| Current assets | ||||||
| Derivative assets held at fair value through profit | ||||||
| or loss | 10 | — | — | 292 | — | 292 |
| 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 | ||||||
| value through profit or loss | 10 | — | — | (18) | — | (18) |
| Other creditors | 12(a) | (1,629) | (186) | (19) | (139) | (1,973) |
| Bank facility | 12(b) | (11,842) | (8,550) | — | — | (20,392) |
| (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 | 13(a) | 1,111 | 392 | 103 | 109 | 1,715 |
| Share premium | 14 | 121,700 | — | 1,290 | — | 122,990 |
| Special reserve | 14 | 9,224 | 14,305 | 817 | 1,117 | 25,463 |
| Capital redemption reserve | 14 | 74 | 81 | 27 | 182 | 364 |
| Capital reserve | 14 | 34,225 | 40,824 | 4,718 | 292 | 80,059 |
| Revenue reserve | 14 | — | — | (65) | 38 | (27) |
| Shareholders’ funds | 166,334 | 55,602 | 6,890 | 1,738 | 230,564 | |
| Net asset value per ordinary share | 15 | 188.33p | 233.91p | 169.33p | 108.11p |
The financial statements were approved and authorised for issue by the Board of Directors on 5 August 2021.
Signed on behalf of the Board of Directors
Victoria Muir
Chairman
Balance Sheet
AS AT 31 MAY 2020
| Global | Balanced | |||||
| UK | Equity | Risk | Managed | |||
| Equity | Income | Allocation | Liquidity | Total | ||
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Fixed assets | ||||||
| Investments held at fair value through profit | ||||||
| or loss | 9 | 52,121 | 55,778 | 6,347 | 2,682 | 116,928 |
| Current assets | ||||||
| Derivative assets held at fair value through profit | ||||||
| or loss | 10 | – | – | 401 | – | 401 |
| Debtors | 11 | 236 | 2,607 | 248 | 15 | 3,106 |
| Cash and cash equivalents | – | 146 | 251 | 50 | 447 | |
| 236 | 2,753 | 900 | 65 | 3,954 | ||
| Creditors: amounts falling due within one year | ||||||
| Derivative liabilities held at fair | ||||||
| value through profit or loss | 10 | – | – | (151) | – | (151) |
| Other creditors | 12(a) | (938) | (2,179) | (23) | (140) | (3,280) |
| Bank overdraft | 12(b) | (2) | – | – | – | (2) |
| Bank facility | 12(b) | (4,800) | (4,980) | – | – | (9,780) |
| (5,740) | (7,159) | (174) | (140) | (13,213) | ||
| Net current (liabilities)/assets | (5,504) | (4,406) | 726 | (75) | (9,259) | |
| Net assets | 46,617 | 51,372 | 7,073 | 2,607 | 107,669 | |
| Capital and reserves | ||||||
| Share capital | 13(a) | 439 | 393 | 106 | 112 | 1,050 |
| Share premium | 14 | – | – | 1,290 | – | 1,290 |
| Special reserve | 14 | 25,931 | 24,926 | 2,556 | 2,041 | 55,454 |
| Capital redemption reserve | 14 | 74 | 78 | 27 | 180 | 359 |
| Capital reserve | 14 | 20,173 | 25,975 | 3,151 | 269 | 49,568 |
| Revenue reserve | 14 | – | – | (57) | 5 | (52) |
| Shareholders’ funds | 46,617 | 51,372 | 7,073 | 2,607 | 107,669 | |
| Net asset value per ordinary share | 15 | 145.78p | 178.46p | 135.06p | 104.40p |
Cash Flow Statement
FOR THE YEAR ENDED 31 MAY
| 2021 | 2020 | |||||
| Notes | £’000 | £’000 | ||||
| Cash flows from operating activities | ||||||
| Net return before finance costs and taxation | 33,220 | (9,932) | ||||
| Tax on overseas income | (230) | (245) | ||||
| Adjustments for: | ||||||
| Purchase of investments | (111,945) | (97,439) | ||||
| Sale of investments | 129,265 | 110,920 | ||||
| Sale of futures | 1,715 | (455) | ||||
| 19,035 | 13,026 | |||||
| Scrip dividends | (9) | (57) | ||||
| (Gains)/losses on investments | (28,391) | 12,632 | ||||
| (Gains)/losses on derivatives | (1,739) | 157 | ||||
| (Decrease/(increase) in debtors | (650) | 463 | ||||
| Decrease in creditors and provision | (460) | (20) | ||||
| Net cash inflow from operating activities | 22,076 | 16,024 | ||||
| Cash flows from investing activities | ||||||
| Cash acquired following business combination(1) | 13(f) | 3,342 | ||||
| Net cash inflow from investing activities | 3,342 | |||||
| Cash flows from financing activities | ||||||
| Interest paid on bank facility | (128) | (124) | ||||
| Increase/(decrease) in bank facility | 10,612 | (2,448) | ||||
| — | ||||||
| Costs associated with the issue of shares on business combination(1) | (159) | — | ||||
| Share buy back costs | (29,357) | (9,551) | ||||
| Equity dividends paid | 8 | (3,629) | (4,338) | |||
| Net cash outflow from financing activities | (22,661) | (16,461) | ||||
| Net increase/(decrease) in cash and cash equivalents | 2,757 | (437) | ||||
| Cash and cash equivalents at the start of the year | 447 | 884 | ||||
| Cash and cash equivalents at the end of the year | 3,204 | 447 | ||||
| Reconciliation of cash and cash equivalents to the Balance Sheet is as follows: | ||||||
| Cash held at custodian | 1,114 | — | ||||
| Invesco Liquidity Funds plc – Sterling, money market fund | 2,090 | 447 | ||||
| Cash and cash equivalents | 3,204 | 447 | ||||
| Cash flow from operating activities includes: | ||||||
| Interest received | (1) | 3 | ||||
| Dividends received | 3,107 | 3,876 | ||||
| At | At | |||||
| 1 June | Cash | 31 May | ||||
| 2020 | Flows | 2021 | ||||
| £’000 | £’000 | £’000 | ||||
| Analysis of changes in net debt: | ||||||
| Cash and cash equivalents | 447 | 2,757 | 3,204 | |||
| Bank overdraft | (2) | 2 | — | |||
| Bank facility | (9,780) | (10,612) | (20,392) | |||
| Total | (9,335) | (7,853) | (17,188) | |||
(1) For definition of business combination refer to Glossary of Terms and Alternative Performance Measures on page 110.
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 October 2019. The financial statements are issued on a going concern basis as disclosed on page 53.
The revised SORP issued in April 2021 is applicable for accounting periods beginning on or after 1 January 2021. The SORP has no substantive changes but has been updated to reflect changes to IFRS standards and regulatory requirements. No accounting policies or disclosures have changed as a result of the early adoption of the revised SORP.
The accounting policies applied to these financial statements are consistent with those applied for the preceding year.
(ii) Definitions used in the financial statements
‘Portfolio’ the UK Equity Share Portfolio, the Global Equity Income Share Portfolio, the Balanced Risk Allocation Share Portfolio and/or the Managed Liquidity Share Portfolio (as the case may be). Each comprises, or may include, an investment portfolio, derivative instruments, cash, loans, debtors and other creditors, which together make up the net assets as shown in the balance sheet.
‘Share’ UK Equity Share, Global Equity Income Share, Balanced Risk Allocation Share, Managed Liquidity Share and/or Deferred Share (as the case may be).
The UK Equity, Global Equity Income, Balanced Risk Allocation and Managed Liquidity Share Portfolios’ income statements and summaries of net assets (shown on pages 15, 22, 28 and 32) 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.
(vi) Issue of Shares Pursuant to a Scheme of Reconstruction of Invesco Income Growth Trust plc (“business combination”)
During the year, the UK Equity Share Portfolio issued new ordinary shares to shareholders of Invesco Income Growth plc (‘IIGT’) in respect of assets received following the business combination. This transaction has been accounted for as a business combination under Section 19 of FRS102 on the basis of the assets and shareholder base added to the Company. The assets acquired comprised of investments, accrued income and cash. These assets have been recognised in share capital and share premium, as disclosed in note 13(f) of the financial statements. Costs in respect of the shares issued have been recognised in share premium, whereas other professional costs in relation to the business combination have been recognised as transaction costs included within investment gains and losses.
(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 | |
| 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.
2020
Income from investments:
| UK dividends: | |||||
| – ordinary dividends | 1,401 | 361 | – | – | 1,762 |
| – special dividends | 61 | 29 | – | – | 90 |
| – scrip dividends | 50 | 7 | – | – | 57 |
| 1,512 | 397 | – | – | 1,909 | |
| Overseas dividends: | |||||
| – ordinary dividends | 133 | 1,787 | 13 | 23 | 1,956 |
| – special dividends | – | 20 | – | – | 20 |
| Unfranked investment income | 11 | – | – | – | 11 |
| Interest from Treasury bills | – | – | 38 | – | 38 |
| 1,656 | 2,204 | 51 | 23 | 3,934 | |
| Other income | |||||
| Deposit interest | – | – | 3 | – | 3 |
| Rebates of management fee | – | – | – | 13 | 13 |
| Total income | 1,656 | 2,204 | 54 | 36 | 3,950 |
There were £539,000 of special dividends in respect of the UK Equity Portfolio recognised in capital during the year (2020: £48,000 in respect of the UK Equity Portfolio and £32,000 in respect of the Global Equity Income 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 | |
| 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 |
2020
| Investment management fee: | |||||
| – charged to revenue | 88 | 97 | 17 | 4 | 206 |
| – charged to capital | 206 | 227 | 40 | – | 473 |
| Total investment management fee | 294 | 324 | 57 | 4 | 679 |
Details of the investment management agreement are given on page 54 in the Directors' Report.
Pursuant to the issue of shares pursuant to the Scheme of Reconstruction of Invesco Income Growth Trust plc (“the transaction”), 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 cent. per annum on the net assets of up to £100 million, and 0.50 per cent. per annum on the net assets of over £100 million.
As a result of the business combination 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 transaction and written-back to capital in the Income Statement. No performance fee was earned or paid during the year (2020: none).
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 | |
| 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 Company’s financial statements | 34 | 11 | 1 | 1 | 47 |
| Other administrative 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 |
| Global | Balanced | ||||
| UK | Equity | Risk | Managed | Company | |
| Equity | Income | Allocation | Liquidity | Total | |
| 2020 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Charged to revenue: | |||||
| Directors’ remuneration (i)(ii) | 58 | 64 | 8 | 3 | 133 |
| Auditor’s fees (iii): | |||||
| – for the audit of the Company’s | |||||
| financial statements | 17 | 20 | 3 | 1 | 41 |
| Other administrative expenses (iv) | 122 | 133 | 29 | 5 | 289 |
| 197 | 217 | 40 | 9 | 463 | |
| Charged to capital: | |||||
| Custodian transaction charges | 3 | 5 | 1 | – | 9 |
| Total | 200 | 222 | 41 | 9 | 472 |
(i) The Director’s Remuneration Report provides information on Directors’ fees. Included within other administrative expenses is £12,000 (2020: £12,000) of employer’s national insurance payable on Directors’ remuneration.
(ii) As at 31 May 2021, the amounts outstanding on Directors’ fees and employer’s national insurance was £26,000 (2020: £22,000).
(iii) The Auditor’s fees shown include out of pocket expenses, but exclude VAT, which is included in other administrative expenses. Grant Thornton LLP provided non-audit services related to work on the business combination with Invesco Income Growth Trust plc, which amounted to £23,000 (2020: none). This amount is recognised in investment gains and losses as part of professional fees in respect of the business combination.
(iv) Includes fees for custody, depositary, broker, registrar, printing, postage, listing costs and other administrative expenses.
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 12(b) for further details).
| Global | Balanced | ||||
| UK | Equity | Risk | Managed | Company | |
| Equity | Income | Allocation | Liquidity | Total | |
| 2021 | £’000 | £’000 | £’000 | £’000 | £’000 |
| 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 |
2020
| Interest payable on borrowings | |||||
| repayable within one year as follows: | |||||
| Charged to revenue | 16 | 21 | – | – | 37 |
| Charged to capital | 40 | 48 | – | – | 88 |
| Total | 56 | 69 | – | – | 125 |
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 | |
| 2021 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Overseas tax | 18 | 212 | — | — | 230 |
| 2020 | |||||
| Overseas tax | 15 | 230 | – | – | 245 |
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 | |
| 2021 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Return before taxation | 15,392 | 16,085 | 1,559 | 56 | 33,494 |
| Theoretical tax at the current | |||||
| UK Corporation Tax rate of 19.00% (2020: 19.00%) | 2,924 | 3,056 | 296 | 11 | 6,287 |
| Effect of: | |||||
| – Non-taxable gains on investments and derivatives | (2,521) | (2,871) | (320) | (5) | (5,717) |
| – Non-taxable losses on foreign exchange | 2 | 2 | 15 | — | 19 |
| – 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 taxable income | 5 | 91 | 9 | (6) | 99 |
| Tax charge for the year | 18 | 212 | — | — | 230 |
2020
| Return before taxation | (6,697) | (3,171) | (213) | 24 | (10,057) |
| Theoretical tax at the current | |||||
| UK Corporation Tax rate of 19% (2019: 19.00%) | (1,273) | (602) | (41) | 5 | (1,911) |
| Effect of: | |||||
| – Non-taxable losses on investments and derivatives | 1,491 | 909 | 31 | – | 2,431 |
| – Non-taxable losses on foreign exchange | 1 | 1 | 2 | – | 4 |
| – Non-taxable scrip dividends | (19) | (1) | – | – | (20) |
| – Non-taxable UK dividends | (265) | (69) | – | – | (334) |
| – Non-taxable UK special dividends | (12) | (16) | – | – | (28) |
| – Non-taxable overseas dividends | (25) | (335) | – | – | (360) |
| – Overseas tax | 15 | 230 | – | – | 245 |
| – Disallowable expenses | 1 | 1 | – | – | 2 |
| – Accrued income taxable on receipt | – | 7 | – | – | 7 |
| – Excess of allowable expenses over taxable income | 101 | 105 | 8 | (5) | 209 |
| Tax charge for the year | 15 | 230 | – | – | 245 |
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 £15,258,000 (2020: £14,735,000) that are available to offset future taxable revenue. A deferred tax asset of £3,814,000 (2020: £2,800,000), measured at the substantively enacted corporation tax rate of 25% (2020: 19%) 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 of portfolio 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 | 2021 | 2020 | |
| UK Equity | 33,926,654 | 32,530,315 | |
| Global Equity Income | 25,925,091 | 30,394,232 | |
| Balanced Risk Allocation | 4,733,820 | 5,465,560 | |
| Managed Liquidity | 2,436,740 | 3,551,612 | |
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:
| 2021 | 2020 | ||||||
| Number | Dividend | Total | Number | Dividend | Total | ||
| of shares | rate (pence) | £’000 | of shares | rate (pence) | £’000 | ||
| UK Equity | |||||||
| First interim | 30,584,941 | 1.50 | 459 | 33,048,823 | 1.50 | 496 | |
| Second interim | 29,379,249 | 1.50 | 440 | 32,549,709 | 1.50 | 488 | |
| Third interim | 26,871,720 | 1.50 | 403 | 32,334,465 | 1.50 | 485 | |
| Fourth interim | 23,814,892 | 2.15 | 512 | 32,203,602 | 2.10 | 676 | |
| 6.65 | 1,814 | 6.60 | 2,145 | ||||
| Global Equity Income | |||||||
| First interim | 27,605,800 | 1.55 | 428 | 31,466,468 | 1.55 | 488 | |
| Second interim | 26,376,118 | 1.55 | 409 | 31,189,234 | 1.55 | 483 | |
| Third interim | 25,557,022 | 1.55 | 396 | 29,900,843 | 1.55 | 463 | |
| Fourth interim | 23,745,988 | 2.45 | 582 | 29,334,234 | 2.40 | 704 | |
| 7.10 | 1,815 | 7.05 | 2,138 | ||||
| Managed Liquidity | |||||||
| Prior year interim | — | — | — | 4,370,361 | 0.80 | 35 | |
| Current year interim | — | — | — | 2,492,814 | 0.80 | 20 | |
| — | — | 1.60 | 55 | ||||
| Total paid in the year | 3,629 | 4,338 | |||||
No dividends have been paid to Balanced Risk Allocation shareholders during the year (2020: 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 | |
| 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 | |
| 2020 | ||||
| Dividends paid in the year: | ||||
| From revenue – current year | 1,340 | 1,639 | 23 | 3,002 |
| From revenue – reserves brought forward | – | 373 | 32 | 405 |
| From revenue | 1,340 | 2,012 | 55 | 3,407 |
| From capital | 805 | 126 | – | 931 |
| 2,145 | 2,138 | 55 | 4,338 |
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:
| 2021 | 2020 | |
| £’000 | £’000 | |
| UK listed investments | 178,775 | 58,159 |
| Overseas listed investments(i) | 69,106 | 58,751 |
| Unquoted hedge fund investments | 5 | 18 |
| 247,886 | 116,928 |
(i) Includes the Invesco Liquidity Funds plc – Sterling, money market fund positions held by the Balanced Risk Allocation Portfolio of £2,359,000 (2020: £2,330,000) and Managed Liquidity Portfolio of £140,000 (2020: £40,000).
(b) Analysis of investment gains
| 2021 | 2020 | |
| £’000 | £’000 | |
| Opening valuation | 116,928 | 140,385 |
| Movements in year: | ||
| Purchases at cost | 230,052 | 99,149 |
| Sales proceeds | (127,485) | (109,974) |
| Gains/(losses) on investments in the year | 28,391 | (12,632) |
| Closing valuation | 247,886 | 116,928 |
| Closing book cost | 226,927 | 123,110 |
| Closing investment holding gains/(losses) | 20,959 | (6,182) |
| Closing valuation | 247,886 | 116,928 |
The Company received £127,485,000 (2020: £109,974,000) from investments sold in the year. The book cost of these investments when they were purchased was £125,833,000 (2020: £105,970,000) realising a profit of £1,652,000 (2020: £4,004,000). 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 £257,000 (2020: £158,000) on purchases and £64,000 (2020: £49,000) on sales and are included in investment gains and losses. Transaction costs in relation to investments acquired from the business combination are shown in 9(d) below.
(d) Purchases at cost
During the 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.
| 2021 | 2020 | |
| £’000 | £’000 | |
| Opening derivative assets held at fair value through profit or loss | 401 | 175 |
| Opening derivative liabilities held at fair value through profit or loss | (151) | (223) |
| Opening net derivative assets/(liabilities) held at fair value as shown in balance sheet | 250 | (48) |
| Closing derivative assets held at fair value through profit or loss | 292 | 401 |
| Closing derivative liabilities held at fair value through profit or loss | (18) | (151) |
| Closing net derivative assets held at fair value shown in balance sheet | 274 | 250 |
| Movement in derivative holding assets/liabilities | 24 | 298 |
| Net realised gains/(losses) on derivative instruments | 1,677 | (457) |
| Net capital gains/(losses) on derivative instruments as shown in the income statement | 1,701 | (159) |
| Net income arising on derivatives | 38 | 2 |
| Total gains/(losses) on derivative instruments | 1,739 | (157) |
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.
| 2021 | 2020 | |
| £’000 | £’000 | |
| Amounts due from brokers | 520 | 2,300 |
| Collateral pledged for futures contracts | 187 | 244 |
| Tax recoverable | 204 | 223 |
| Prepayments and accrued income | 654 | 339 |
| 1,565 | 3,106 |
12a. 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.
| 2021 | 2020 | |
| £’000 | £’000 | |
| Shares bought back | — | 653 |
| Tax payable | 137 | 137 |
| Amounts due to brokers | 1,205 | 1,653 |
| Performance fee accrued(1) | — | 531 |
| Accruals | 631 | 306 |
| Other payables | 1,973 | 3,280 |
(1) Performance fee accrued of £531,000 on the UK Equity Share Portfolio was waived by the Manager and written-back as a benefit towards the costs of the business combination with Invesco Income Growth Trust plc.
12b. Bank facility and overdraft
At the year end the Company had a £40 million (2020: £20 million) committed 364 day multicurrency revolving credit facility (‘bank facility’), which is due for renewal on 26 April 2022. The facility renewal was originally scheduled for 14 May 2021, but was brought forward to 27 April 2021 as part of the business combination of the UK Equity Share Portfolio with Invesco Income Growth Trust plc. 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. In addition, there is a 0.15% commitment fee on the facility amount not utilised.
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 (2020: £60 million). The Company has complied with the loan facility covenants throughout the year.
13. 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 2020 | 31,977,941 | 28,786,800 | 5,236,886 | 2,497,032 | 68,498,659 |
| Shares bought back into treasury | (10,769,463) | (4,939,000) | (951,000) | (569,000) | (17,228,463) |
| Arising on share conversion: | |||||
| – August 2020 | (200,692) | (315,682) | 84,642 | 738,300 | 306,568 |
| – November 2020 | 122,471 | 210,904 | (147,022) | (340,649) | (154,296) |
| – February 2021 | 575,172 | 2,966 | (143,595) | (701,812) | (267,269) |
| – May 2021 | (12,320) | 24,817 | (10,816) | (16,192) | (14,511) |
| Issue of shares on business combination | 66,628,879 | — | — | - | 66,628,879 |
| At 31 May 2021 | 88,321,988 | 23,770,805 | 4,069,095 | 1,607,679 | 117,769,567 |
| Treasury Shares (number) | |||||
| At 31 May 2020 | 11,977,812 | 10,514,159 | 5,321,218 | 8,681,678 | 36,494,867 |
| Shares bought back into treasury | 10,769,463 | 4,939,000 | 951,000 | 569,000 | 17,228,463 |
| At 31 May 2021 | 22,747,275 | 15,453,159 | 6,272,218 | 9,250,678 | 53,723,330 |
| Ordinary Shares of 1 penny each (£’000) | |||||
| At 31 May 2020 | 319 | 288 | 52 | 25 | 684 |
| Shares bought back into treasury | (108) | (49) | (9) | (6) | (172) |
| – August 2020 | (2) | (3) | 1 | 7 | 3 |
| – November 2020 | 2 | 2 | (2) | (3) | (1) |
| – February 2021 | 6 | — | (2) | (7) | (3) |
| Issue of shares on business combination | 666 | — | — | — | 666 |
| At 31 May 2021 | 883 | 238 | 40 | 16 | 1,177 |
| Treasury Shares of 1 penny each (£’000) | |||||
| At 31 May 2020 | 120 | 105 | 54 | 87 | 366 |
| Shares bought back into treasury | 108 | 49 | 9 | 6 | 172 |
| At 31 May 2021 | 228 | 154 | 63 | 93 | 538 |
| Total Share Capital (£’000) | |||||
| Ordinary share capital | 883 | 238 | 40 | 16 | 1,177 |
| Treasury share capital | 228 | 154 | 63 | 93 | 538 |
| At 31 May 2021 | 1,111 | 392 | 103 | 109 | 1,715 |
| Average buy back price | 157.1p | 194.8p | 145.7p | 101.8p |
The total cost of share buy backs was £28,704,000 (2020: £9,986,000). As part of the conversion process 457,600 (2020: 614,700) 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 (2020: nil).
(b) Movements in Share Capital after the Year End
Since the year end, UK Equity and Managed Liquidity Portfolios bought back 4,860,000 and 63,000 shares respectively to be held in treasury.
(c) Voting Rights
Rights attaching to the Shares are described in the Directors’ Report on page 54.
(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 108.
(f) Issue of Shares pursuant to a business combination with Invesco Income Growth Trust plc
On 26 April 2021, 66,628,879 ordinary shares of par value of 1p per share in the UK Equity Share Portfolio were issued to the shareholders of Invesco Income Growth Trust plc, in lieu of their investment in that company. The net assets acquired for these shares was as follows:
| Share | Share | ||
| Capital | Premium | Total | |
| £’000 | £’000 | £’000 | |
| Investments | — | 118,144 | |
| Accrued income | — | 1,039 | |
| Cash | 3,342 | ||
| Net assets acquired | 122,525 |
14. Reserves
This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.
The share premium comprises the net proceeds received by the Company following the issue of new shares, after deduction of the nominal amount of 1 penny and any applicable costs. The special reserve arose from the cancellation of the share premium account, in January 2007, and is available as distributable profits to be used for all purposes under the Companies Act 2006, including buy back of shares and payment of dividends. The capital redemption reserve arises from the nominal value of shares bought back and cancelled; this and the share premium are non-distributable.
Capital investment gains and losses are shown in note 9(b), and form part of the capital reserve. The revenue reserve shows the net revenue retained after payments of any dividends. The capital and revenue reserves are distributable.
15. Net Asset Value per Share
The total net assets (total assets less total liabilities) attributable to a share class are often termed shareholders’ funds and are converted into net asset value per share by dividing by the number of shares in issue.
The net asset value per Share and the net assets attributable at the year end were as follows:
| Ordinary Shares | 2021 | 2020 | ||
| Net Asset | Net Asset | |||
| Value Per | Net Assets | Value Per | Net Assets | |
| Share | Attributable | Share | Attributable | |
| Pence | £’000 | Pence | £’000 | |
| UK Equity | 188.33 | 166,334 | 145.78 | 46,617 |
| Global Equity Income | 233.91 | 55,602 | 178.46 | 51,372 |
| Balanced Risk Allocation | 169.33 | 6,890 | 135.06 | 7,073 |
| Managed Liquidity | 108.11 | 1,738 | 104.40 | 2,607 |
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 as shown in note 13(a).
16. Financial Instruments
This note summarises the risks deriving from the financial instruments that comprise the Company’s assets and liabilities.
The Company’s financial instruments comprise the following:
• investments in equities, fixed interest securities and liquidity funds which are held in accordance with the Company’s investment objectives and the investment objectives of the four Portfolios;
• short-term debtors, creditors and cash arising directly from operations;
• short-term forward foreign currency and futures contracts; and
• bank facility and short-term overdrafts, used to finance operations.
The financial instruments held in each of the four investment portfolios are shown on pages 15, 22, 28 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 46. 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 60.
The principal risks that an investment company faces in its portfolio management activities are set out below:
Market risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk:
Currency risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in foreign exchange rates;
Interest rate risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market interest rates; and
Other price risk – arising from fluctuations in the fair value or future cash flows of a financial instrument for reasons other than changes in foreign exchange rates or market interest rates, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
Liquidity risk – arising from any difficulty in meeting obligations associated with financial liabilities.
Credit risk incorporating counterparty risk – arising from financial loss for a company where the other party to a financial instrument fails to discharge an obligation.
Risk Management Policies and Procedures
As an investment trust the Company invests in equities and other investments for the long-term in accordance with its investment policies so as to meet its investment objectives. In pursuing its objectives, the Company is exposed to a variety of risks that could result in a reduction in the Company’s net assets or a reduction of the profits available for dividends. The risks applicable to the Company and the Directors’ policies for managing these risks follow. These have not changed from those applying in the previous year.
The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Directors’ Report.
The main risk that the Company faces arising from its financial instruments is market risk – this risk is reviewed in detail below. Since the Company mainly invests in quoted investments and derivative instruments traded on recognised exchanges, liquidity risk and credit risk are significantly mitigated.
16.1 Market Risk
Market risk arises from changes in the fair value or future cash flows of a financial instrument because of movements in market prices. Market risk comprises three types of risk: currency risk (16.1.1), interest rate risk (16.1.2) and other price risk (16.1.3).
The Company’s portfolio managers assess the individual investment portfolio exposures when making each investment decision for their Portfolios, and monitor the overall level of market risk on the whole of their investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance for the four Portfolios and the Company, as disclosed in the Board Responsibilities section of the Directors’ Report on page 51. Borrowings can be used by the UK Equity and Global Equity Income Portfolios, which will increase the Company’s exposure to market risk and volatility. The borrowing limits for these Portfolios are 25% and 20% of attributable net assets, respectively.
16.1.1 Currency Risk
A majority of the Global Equity Income Portfolio, derivative instruments in the Balanced Risk Allocation Portfolio and a small proportion of the UK Equity Portfolio consist of assets, liabilities and income denominated in currencies other than sterling. As a result, movements in exchange rates will affect the sterling value of those items.
Management of 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 value or amortised cost of the Company’s monetary items that have foreign currency exposure at 31 May are shown below. Where the Company’s equity investments (which are not monetary items) are priced in a foreign currency they have been included separately in the analysis in order to show the overall level of exposure.
UK Equity Portfolio:
| Foreign | Investments | |||||
| Creditors | currency | at fair | ||||
| Debtors | (due to | exposure | value | Total net | ||
| (due from | Cash and | brokers | on net | through | foreign | |
| brokers & | cash | and | monetary | profit or | currency | |
| dividends)* | equivalents | accruals) | items | loss | exposure | |
| Currency | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| 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 | |
| Year ended 31 May 2020 | ||||||
| Canadian Dollar | – | – | – | – | 2,852 | 2,852 |
| Euro | 2 | – | – | 2 | – | 2 |
| US Dollar | 24 | – | – | 24 | 4,454 | 4,478 |
| 26 | – | – | 26 | 7,306 | 7,332 |
Global Equity Income Portfolio:
| Investments | ||||||
| Foreign | at fair value | |||||
| Creditors | currency | through | ||||
| Debtors | (due to | exposure | profit or | |||
| (due from | brokers | on net | loss | Total net | ||
| brokers & | Cash | and | monetary | that are | foreign | |
| dividends)* | at bank | accruals) | items | equities | currency | |
| Currency | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| 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 |
Year ended 31 May 2020
| Brazilian Real | 7 | – | – | 7 | – | 7 |
| Canadian Dollar | – | 1 | – | 1 | – | 1 |
| Euro | 256 | – | – | 256 | 7,071 | 7,327 |
| Hong Kong Dollar | 527 | – | (527) | – | 1,650 | 1,650 |
| Japanese Yen | 3 | – | – | 3 | 952 | 955 |
| Korean Won | – | – | – | – | 1,911 | 1,911 |
| Norwegian Krone | 6 | – | – | 6 | – | 6 |
| Swedish Krona | 4 | – | – | 4 | 1,395 | 1,399 |
| Swiss Franc | 438 | – | (835) | (397) | 5,066 | 4,669 |
| Taiwanese Dollar | – | – | – | – | 2,372 | 2,372 |
| US Dollar | 826 | – | (159) | 667 | 26,016 | 26,683 |
| 2,067 | 1 | (1,521) | 547 | 46,433 | 46,980 |
Balanced Risk Allocation Portfolio:
| Derivative | Derivative | Investments | |||||
| assets held | liabilities | Foreign | at fair value | ||||
| at fair | held at fair | currency | through | ||||
| 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 bank | or loss | items | equities | currency | |
| Currency | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Year ended | |||||||
| 31 May 2021 | |||||||
| Australian Dollar | 15 | 6 | 24 | — | 45 | — | 45 |
| Canadian Dollar | — | 23 | 18 | (5) | 36 | — | 36 |
| Euro | 28 | 5 | 43 | — | 76 | — | 76 |
| Japanese Yen | 14 | 20 | 21 | — | 55 | — | 55 |
| US Dollar | 209 | 84 | 77 | (13) | 357 | 5 | 362 |
| 266 | 138 | 183 | (18) | 569 | 5 | 574 |
| Derivative | Debtors | Derivative | Total | Investments | |||
| assets | due from/ | liabilities | foreign | at fair | |||
| at fair | (creditors | at fair | currency | value | |||
| value | due to) | value | exposure | through | Total net | ||
| through | brokers & | Cash/ | through | on net | profit or | foreign | |
| profit | dividends/ | (overdraft) | profit | monetary | loss that | currency | |
| or loss | (accruals)* | at bank | or loss | items | are equities | exposure | |
| Currency | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Year ended | |||||||
| 31 May 2020 | |||||||
| Australian Dollar | – | 80 | 32 | (29) | 83 | – | 83 |
| Canadian Dollar | – | 20 | 19 | (1) | 38 | – | 38 |
| Euro | 76 | (12) | 53 | – | 117 | – | 117 |
| Hong Kong Dollar | – | 42 | 25 | (4) | 63 | – | 63 |
| Japanese Yen | 57 | (36) | 23 | – | 44 | – | 44 |
| US Dollar | 207 | 170 | 70 | (117) | 330 | 18 | 348 |
| 340 | 264 | 222 | (151) | 675 | 18 | 693 |
* 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:
| 2021 | 2020 | |
| £/Australian Dollar | +/– 1.2% | +/– 3.6% |
| £/Brazilian Real | +/– 5.5% | +/– 12.3% |
| £/Canadian Dollar | +/– 1.2% | +/– 2.6% |
| £/Euro | +/– 2.2% | +/– 2.7% |
| £/Hong Kong Dollar | +/– 3.9% | +/– 2.9% |
| £/Japanese Yen | +/– 4.7% | +/– 3.5% |
| £/Norwegian Krone | +/– 1.5% | +/– 6.1% |
| £/South Korean Won | +/– 2.6% | +/– 2.0% |
| £/Swedish Krona | +/– 1.8% | +/– 2.5% |
| £/Swiss Franc | +/– 3.3% | +/– 3.1% |
| £/Taiwan Dollar | +/– 2.2% | +/– 2.7% |
| £/US Dollar | +/– 3.8% | +/– 2.8% |
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:
| 2021 | 2020 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | return | return | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Canadian Dollar | – | (82) | (82) | – | (74) | (74) |
| Euro | (2) | – | (2) | (1) | – | (1) |
| US Dollar | (19) | (203) | (222) | (5) | (125) | (130) |
| (21) | (285) | (306) | (6) | (199) | (205) | |
Global Equity Income Portfolio:
| 2021 | 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| return | return | return | return | return | return | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Australian Dollar | – | – | – | (1) | – | (1) | |
| Canadian Dollar | – | (16) | (16) | (1) | – | (1) | |
| Euro | (1) | (58) | (59) | (12) | (195) | (207) | |
| Hong Kong Dollar | (1) | (174) | (175) | (15) | (33) | (48) | |
| Japanese Yen | – | – | – | (2) | (33) | (35) | |
| Norwegian Krone | – | – | – | (2) | – | (2) | |
| South Korean Won | (3) | (51) | (54) | (1) | (38) | (39) | |
| Swedish Krona | (1) | (29) | (30) | – | (35) | (35) | |
| Swiss Franc | (8) | (241) | (249) | (15) | (131) | (146) | |
| Taiwan Dollar | (1) | (65) | (66) | (2) | (64) | (66) | |
| US Dollar | (22) | (1,158) | (1,180) | 10 | (775) | (765) | |
| (37) | (1,792) | (1,829) | (41) | (1,304) | (1,345) | ||
Balanced Risk Allocation Portfolio:
| 2021 | 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| return | return | return | return | return | return | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Australian Dollar | – | (1) | (1) | – | (3) | (3) | |
| Canadian Dollar | – | – | – | – | (1) | (1) | |
| Euro | – | (2) | (2) | – | (3) | (3) | |
| Hong Kong Dollar | – | – | – | – | (2) | (2) | |
| Japanese Yen | – | (3) | (3) | – | (2) | (2) | |
| US Dollar | – | (14) | (14) | – | (10) | (10) | |
| — | (20) | (20) | — | (21) | (21) | ||
If sterling had weakened by the same amounts, the effect would have been the converse.
16.1.2 Interest Rate Risk
Interest rate movements may affect:
• the fair value of the investments in fixed interest rate securities;
• the level of income receivable on cash deposits; and
• the interest payable on variable rate borrowings.
Management of interest rate risk
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account as part of the portfolio management and borrowings processes of the portfolio managers. The Board reviews on a regular basis the investment portfolio and borrowings. This encompasses the valuation of fixed-interest and floating rate securities and gearing levels.
When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependent on the base rate of the custodian or deposit taker. The Company has a £40 million (2020: £20 million), 364 day multicurrency revolving credit facility which is due for renewal on 26 April 2022. 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 | |
| 2021 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Exposure to floating interest rates: | |||||
| Investments held at fair value through profit | |||||
| or loss(1) | — | — | 2,359 | 140 | 2,499 |
| 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 through profit | |||||
| or loss including UK Treasury Bills | — | — | 3,377 | — | 3,377 |
| Net exposure to interest rates | (9,511) | (8,413) | 6,440 | 172 | (11,312) |
| 2020 | |||||
| Exposure to floating interest rates: | |||||
| Investments held at fair value through profit | |||||
| or loss(1) | – | – | 2,330 | 2,682 | 5,012 |
| Cash and cash equivalents | – | 146 | 251 | 50 | 447 |
| Bank facility | (4,800) | (4,980) | – | – | (9,780) |
| Overdraft | (2) | – | – | – | (2) |
| (4,802) | (4,834) | 2,581 | 2,732 | (4,323) | |
| Exposure to fixed interest rates: | |||||
| Investments held at fair value through profit | |||||
| or loss including UK Treasury Bills | – | – | 3,999 | – | 3,999 |
| Net exposure to interest rates | (4,802) | (4,834) | 6,580 | 2,732 | (324) |
(1) Comprises holdings in Invesco Liquidity Funds plc – Sterling and additionally, for 2020, PIMCO Sterling Short Maturity Source UCITS ETF.
The income on the iShares - Sterling Ultrashort Bond UCITS ETF, PIMCO Sterling Short Maturity Source 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 (2020: £20 million), the maximum effect over one year of a 0.5% movement in interest rates would be a £200,000 (2020: £100,000) 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 £12,000 (2020: £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.
16.1.3 Other Price Risk
Management of other price risk
The Directors monitor the market price risks inherent in the investment portfolios by meeting regularly to review performance.
The Company’s investment portfolios are the product of the Manager’s investment processes and the application of the Portfolios’ investment policies. Their value will move according to the performance of the shares held within them. However, the Portfolios do not replicate their respective benchmarks or the markets in which the Portfolios invest, so their performance may not correlate with them.
Notwithstanding the issue of correlation, if the fixed asset value of an investment portfolio moved by 10% at the balance sheet date, the profit after tax and net assets for the year would increase/decrease by the following amounts:
| Global | Balanced | |||
| Equity | Risk | Managed | ||
| UK Equity | Income | Allocation | Liquidity | |
| £’000 | £’000 | £’000 | £’000 | |
| 2021 | ||||
| Profit after tax increase/decrease due to rise/fall of 10% | 17,643 | 6,390 | 574 | 181 |
| 2020 | ||||
| Profit after tax increase/decrease due to rise/fall of 10% | 5,212 | 5,578 | 635 | 268 |
16.2 Liquidity Risk
Management of liquidity risk
Liquidity risk is mitigated by the investments held by the Company’s four portfolios being diversified and the majority being readily realisable securities which can be sold to meet funding commitments. If required, the Company’s borrowing facilities provide additional long-term and short-term flexibility.
The Directors’ policy is that in normal market conditions short-term borrowings be used to manage short term liabilities and working capital requirements rather than realising investments.
Liquidity risk
The contractual maturities of financial liabilities at the year end, based on the earliest date on which payment can be required, are as follows:
| Global | |||||||
| Equity | Balanced Risk | Managed | |||||
| UK Equity | Income | Allocation | Liquidity | ||||
| 3 months | More than | 3 months | 3 months | More than | 3 months | Company | |
| or less | 3 months | or less | or less | 3 months | or less | Total | |
| 2021 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Bank facility | 11,842 | — | 8,550 | — | — | — | 20,392 |
| Amount due to brokers | 1,139 | — | — | — | — | — | 1,139 |
| Other creditors and accruals | 490 | — | 186 | 19 | — | 139 | 834 |
| Derivative financial | |||||||
| instruments | — | — | — | 18 | — | — | 18 |
| 13,471 | — | 8,736 | 37 | — | 139 | 22,383 | |
| 2020 | |||||||
| Bank overdraft facility | 2 | – | – | – | – | – | 2 |
| Bank facility | 4,800 | – | 4,980 | – | – | – | 9,780 |
| Amounts due to brokers | 132 | – | 1,521 | – | – | – | 1,653 |
| Other creditors and accruals | 275 | – | 658 | 23 | – | 140 | 1,096 |
| Performance fee accrued | – | 531 | – | – | – | – | 531 |
| Derivative financial | |||||||
| instruments | – | – | – | 95 | 56 | – | 151 |
| 5,209 | 531 | 7,159 | 118 | 56 | 140 | 13,213 | |
16.3 Credit Risk
Credit risk is that the failure of the counterparty in a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
This risk is managed as follows:
• investment transactions are carried out with a selection of brokers, approved by the Manager and settled on a delivery versus payment basis. Brokers’ credit ratings are regularly reviewed by the Manager, so as to minimise the risk of default to the Company;
• the derivative financial instruments are all exchange traded and the exchange guarantees their settlement;
• the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports and the use of daily stock and cash reconciliations. Only approved counterparties are used;
• the Company’s ability to operate in the short-term may be adversely affected if the Company’s Manager, other outsource service providers, or their delegates suffer insolvency or other financial difficulties. The Board reviews annual controls reports from major service providers;
• where an investment is made in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default; and
• cash balances are limited to a maximum of £5 million for each of the UK Equity and Global Equity Income Portfolios and £2.5m 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 being used. Cash held at brokers includes any cash collateral on futures contracts and during the year only one futures clearing broker, Merrill Lynch, was used.
The following table sets out the maximum credit risk exposure at the year end:
| 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 investment(1) | — | — | 2,359 | 140 | 2,499 |
| Unquoted securities | — | — | 5 | — | 5 |
| Derivative financial Instruments | — | — | 274 | — | 274 |
| Debtors(2) | 1,040 | 299 | 190 | 36 | 1,565 |
| Cash and cash equivalents | 2,331 | 137 | 704 | 32 | 3,204 |
| 3,371 | 436 | 6,909 | 208 | 10,924 | |
| 2020 | |||||
| Bonds (UK Treasury bills) | – | – | 3,999 | – | 3,999 |
| Cash held as short-term investment(1) | – | – | 2,330 | 40 | 2,370 |
| Unquoted securities | – | – | 18 | – | 18 |
| Derivative financial instruments | – | – | 250 | – | 250 |
| Debtors(2) | 236 | 2,607 | 248 | 15 | 3,106 |
| Cash and cash equivalents | – | 146 | 251 | 50 | 447 |
| 236 | 2,753 | 7,096 | 105 | 10,190 |
(1) Invesco Liquidity Funds plc, money market fund.
(2) Cash collateral pledged for futures contracts of £187,000 is included in debtors (2020: £244,000).
17. Fair Values of Financial Assets and Financial Liabilities
‘Fair value’ in accounting terms is the amount at which an asset can be bought or sold in a transaction between willing parties, i.e. a market-based, independent measure of value. This note sets out the fair value hierarchy comprising three ‘levels’ and the aggregate amount of investments in each level.
The financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments and derivative instruments), or the balance sheet amount is a reasonable approximation of fair value.
FRS 102 as amended for fair value hierarchy disclosures sets out three fair value levels. These are:
Level 1 – 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 | |||||||
| 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 | — | — | 18 | — | 18 | ||||||
| Global | Balanced | ||||||||||
| UK | Equity | Risk | Managed | Company | |||||||
| Equity | Income | Allocation | Liquidity | Total | |||||||
| 2020 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||
| Financial assets at fair value through profit or loss: | |||||||||||
| Level 1 | 52,121 | 55,778 | 3,999 | 2,642 | 114,540 | ||||||
| Level 2 | – | – | 2,731 | 40 | 2,771 | ||||||
| Level 3 | – | – | 18 | – | 18 | ||||||
| Total for financial assets | 52,121 | 55,778 | 6,748 | 2,682 | 117,329 | ||||||
| Financial liabilities: | |||||||||||
| Level 2 – Derivative instruments | – | – | 151 | – | 151 | ||||||
18. Capital Management
This note is designed to set out the Company’s objectives, policies and processes for managing its capital. The capital is funded from monies invested in the Company by shareholders (both initial investment and any retained amounts) and any borrowings by the Company.
The Company’s total capital employed at 31 May 2021 was £250,956,000 (2020: £117,449,000) comprising borrowings of £20,392,000 (2020: £9,780,000) and equity share capital and other reserves of £230,564,000 (2020: £107,669,000).
The Company’s total capital employed is managed to achieve the Company’s investment objective and policy as set out on pages 30 to 40, 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 17.3% (2020: 18.6%). 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 46. These also explain that the Company has borrowing facilities which can be used in accordance with each Portfolio’s investment objectivity and policy and that this will amplify the effect on equity of changes in the value of each applicable portfolio.
The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy back shares and it also determines dividend payments.
The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility, by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year.
Borrowings comprise any drawings on the credit and/or overdraft facilities, details of which are given in note 12.
19. Contingencies, guarantees and financial commitments
Any liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.
There were no contingencies, guarantees or financial commitments of the Company at the year end (2020: £nil).
20. Related party transactions and transactions with the Manager
A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. Under accounting standards, the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed on page 62 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 53 and 54 and note 3.
21. Post Balance Sheet Events
Any significant events that occurred after the Company’s financial year end but before the signing of the balance sheet will be shown here.
There are no significant events after the end of the reporting period requiring disclosure.
The financial information set out above does not constitute the Company’s statutory accounts for the year ended 31 May 2021. The financial information for 2020 is derived from the statutory accounts for the year ended 31 May 2020, which have been delivered to the Registrar of Companies. The auditor has reported on the 2020 accounts; the audit report was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 May 2021 have been finalised and audited but have not yet been delivered to the Registrar of Companies.
The audited annual financial report will be available to shareholders, and will be delivered to the Registrar of Companies, shortly. Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 43-45 Portman Square, London W1H 6LY, and via the web pages of all of the Share classes on the Manager’s website at www.invesco.co.uk/investmenttrusts .
The Annual General Meeting will be held on 5 October 2021 at 11.30am at 43-45 Portman Square, London W1H 6LY.
By order of the Board
Invesco Asset Management Limited
29 July 2021
Contacts:
Angus Pottinger 020 3753 1000
Will Ellis 020 3753 1000
.
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 5 October 2021 for the following purposes:
Ordinary Business of the Company
1. To receive the Annual Financial Report for the year ended 31 May 2021.
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 Victoria Muir as a Director of the Company.
6. To elect Davina Curling as a Director of the Company.
7. To elect Mark Dampier as a Director of the Company.
8. To elect Tim Woodhead as a Director of the Company.
9. To re-appoint Grant Thornton UK LLP as Auditor to the Company and 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:
10. To approve the UK Equity Share Class Portfolio dividend payment policy as set out on page 41 of the 2021 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:
11. To approve the Global Equity Income Share Class Portfolio dividend payment policy as set out on page 42 of the 2021 annual financial report.
Special Business of the Company
To consider and, if thought fit, to pass the following resolutions which will be proposed as an Ordinary Resolutions:
12. 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:
13. 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 12 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 £82,285 of UK Equity Shares, £24,661 of Global Equity Income Shares, £4,180 of Balanced Risk Allocation Shares and £1,434 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.
14. 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.
15. That:
the period of notice required for general meetings of the Company (other than Annual General Meetings) shall be not less than 14 days.
16 That :
The Articles of Association as produced to the meeting and initialled by the Chairman for the purpose of identification (the ‘Articles’) be adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association.
All Resolutions are explained further in the Directors’ Report on pages 55 to 56.
Dated 5 August 2021
By order of the Board
Invesco Asset Management Limited
Company Secretary
