In July 2020, the UK equity allocation reduced through the sale of the SPDR FTSE UK All Share exchange-traded fund (ETF), which had been bought after stockmarket falls triggered by the initial lockdowns in March 2020. In January 2021, the allocation to higher-yielding UK smaller companies increased through an addition to Chelverton UK Equity Income, which gained 44.65% but lagged the gain for smaller companies overall as dividend cuts narrowed the opportunities to generate equity income. Brompton UK Recovery and Man GLG UK Income also benefited from their bias towards smaller companies, rising 30.35% and 23.32% respectively. Trojan Income lagged, however, up only 8.16% because of its focus on large stocks in defensive sectors such as consumer staples, accounting for 27% of its portfolio at the year end.
Equities in emerging markets and Asia excluding Japan gained 26.43% and 25.25% respectively in sterling as Covid-19 was initially contained following stringent lockdowns in China and other Asian countries. In July 2020, the allocation to Asia ex-Japan equities increased through the purchase of Matthews Asia ex Japan Dividend. The Chinese economy rebounded strongly at first but there were signs in the weeks after your Company's year end that growth was slowing. There were also fears that Beijing's focus on "common prosperity" might lead to regulation to reduce corporate profits.
At 30 June 2021, Matthews Asia ex Japan Dividend was underweight in China and overweight in Vietnam and South Korea. Vietnam benefits from manufacturers shifting production out of China to reduce costs and mitigate the impact of poor China-US trade relations. Vietnam Enterprise Investments, which invests mainly in quoted companies, was added to increase your Company's exposure to this fast-growing economy. Your Company's emerging markets allocation increased in February through the addition of JP Morgan Emerging Markets Income, an open-ended fund that follows a similar strategy to the JP Morgan Global Emerging Markets Income investment trust, an existing holding, which gained 40.11% over the year. Somerset Asia Income Fund, previously Liontrust Asia Income, also outperformed, rising 28.60%.
Among your Company's single-country Asian and emerging market investments, Stewart Investors Indian Subcontinent Sustainability rose 47.52%, outperforming the 40.41% gain for Indian equities in sterling as investors shrugged off rising Covid-19 infections exacerbated by the more infectious delta variant and focused on the longer-term impact of Narendra Modi's liberalisation of employment and agricultural laws. The HSBC MSCI Russia Capped ETF rose 22.96% while Russian equities gained 24.96% in sterling. The Russian market, which has a bias towards energy stocks, benefited from the strong oil price, up 61.63% in sterling, but currency weakness resulting from rising political risk in the wake of the US election, proved a headwind. Lindsell Train Japanese Equity fell 8.01%, lagging the 10.71% gain for Japanese stocks in sterling, because of its bias towards quality companies during a year in which cyclical stocks such as banks outperformed.
Investments in dollar cash and BlackRock Gold & General, which holds gold miners, provide diversification and may offer some capital protection should equity markets fall. Both investments were hurt during the year under review by currency swings as exceptional monetary and fiscal measures weakened the dollar and the Brexit deal buoyed the pound. Gold and gold equities fell 14.07% and 14.01% respectively in sterling, contributing to a 15.46% fall by BlackRock Gold & General. The holding in dollar cash suffered from the dollar's 10.56% fall against sterling although the impact was muted because some cash was invested during the year in new opportunities, predominantly in equity markets.
All six of the EF Brompton Global multi-asset funds were ranked above the median for performance in their respective Investment Association (IA) peer group with four funds in the top quartile and two funds in the second quartile.
Amongst your Company's private equity investments, there was good news regarding the holding in Embark, which accounted for 6.14% of net assets at the start of the year. In July 2021, Lloyds Banking Group said it had reached agreement, subject to regulatory approval, to buy the majority of Embark's business. As a result, your Company recognised an additional net GBP7.9 million in respect of this investment.
OUTLOOK
Over the late summer of 2020, the outlook for equities remained positive given the monetary and fiscal support in place and the possibility that further stimulus measures might be forthcoming, particularly in the US. By July, leading indicators for some of the world's major economies had risen significantly, implying that a global economic recovery was on the horizon. Your Company did, however take some profits from investments in equity funds shortly after the year end because of uncertainty regarding the spread of Covid-19. In June, the World Health Organisation warned the worst could be to come.
In the early autumn of 2021, there were grounds to be positive on the prospects for equities given the strong economic bounce-back fuelled by exceptional monetary and fiscal stimulus programmes. Dividends fell over the year as companies cut or deferred dividends but such cuts are likely to be temporary and your Company has added to its income-oriented equity investments.
Inflation may prove higher and more persistent than central bankers expect, raising the prospect of monetary tightening. Equities may perform well in an environment of moderate inflation but longer-dated bonds, in which your Company has no direct investments, may fall. Gold equities should provide diversification and the potential for gains in an environment where inflation is above interest rates. Low-risk multi-asset and alternative investments may also provide some protection in a falling market.
SCHEDULE OF LARGEST HOLDINGS AT 30TH JUNE 2021
Purchases/ Market Market value 30 June (Sales) movement Market value 30 June 2020 2021 % of net assets GBP'000 GBP'000 GBP'000 GBP'000 Embark Group 6,990 - 7,852 14,842 10.74 Fundsmith Equity Fund 8,561 - 2,092 10,653 7.71 Polar Capital Global Technology 7,381 - 1,918 9,299 6.73 TM Crux European Special 4,921 - 982 5,903 4.27 Situations Fund Matthews Asia Ex Japan Fund - 4,500 1,339 5,839 4.23 MI Chelverton UK Equity Income 3,013 1,000 1,374 5,387 3.90 Fund EF Brompton Global Conservative 4,358 - 408 4,766 3.45 Fund BlackRock Continental European 3,931 - 500 4,431 3.21 Income Fund Aquilus Infection Fund 4,076 - 302 4,378 3.17 Aberforth Split Level Income Trust 2,253 - 1,959 4,212 3.05 BlackRock Gold & General 4,985 - (790) 4,195 3.04 Baillie Gifford Global Income 3,354 - 721 4,075 2.95 Growth EF Brompton Global Equity Fund 2,972 - 754 3,726 2.70 First State Indian Subcontinent 2,446 - 1,162 3,608 2.61 Fund EF Brompton Global Opportunities 2,923 - 622 3,545 2.57 Fund EF Brompton Global Growth Fund 2,758 - 551 3,309 2.40 Liontrust Asia Income Fund 2,622 - 611 3,233 2.34 Lindsell Train Japanese Equity 3,531 - (332) 3,199 2.32 Fund MI Brompton UK Recovery Unit Trust 2,317 - 703 3,020 2.19 EF Brompton Global Balanced Fund 2,314 - 355 2,669 1.93 Man GLG UK Income Fund 2,206 - 378 2,584 1.87 EF Brompton Global Income Fund 2,070 - 284 2,354 1.70 SPDR FTSE UK All Share 5,544 (5,551) 7 - - Artemis Global Income Fund 3,361 (3,381) ____20 _____- ____- 88,887 (3,432) 23,772 109,227 79.08 Balance not held in investments 14,128 4,217 2,155 20,500 14.84 above Total investments (excluding cash) 103,015 785 25,927 129,727 93.92 The investment portfolio, excluding cash, can be further analysed as follows: GBP '000 Investment funds 100,642
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