TB WISE INVESTMENT. Interim Short Report For the six month period ended 31 August 2011

Transcription

1 Interim Short Report For the six month period ended 31 August 2011

2 INVESTMENT OBJECTIVE & POLICY The investment objective of TB Wise Investment is to provide capital growth over the medium-to-long term in excess of deposit account returns and inflation. The Fund will invest in collective investment schemes, including unit trusts and open-ended investment companies, although other investments may also be held including investment trusts, money market instruments and deposits. The Fund will, from time to time, invest directly in UK listed shares if the investment manager feels that value can be added by doing so. The Fund will invest in the following assets: UK and overseas equities, fixed interest securities and cash. FUND FACTS Launch date: 1 April 2004 Ex-dividend dates: 1 September, 1 March Dividend payment dates: 31 October, 30 April Total Expense Ratios¹ A Shares B Shares 2.18 % p.a. 1.53% p.a. ¹ To 31 August As calculated in accordance with the FSA handbook COLL 4, Annex 1. The Total Expense Ratio ( TER ) includes annual management charges ( AMCs ) and other operating expenses (Depositary s fee, audit fee etc). As the Fund invests in other funds, the weighted average costs of the underlying funds have also been taken into account.

3 INVESTMENT REVIEW Performance Cumulative returns for the periods ended 31 August 2011 (%) 6 months 1 year 3 years 5 years A Shares (7.94) B Shares (7.64) FTSE 100 Total Return Index (8.04) IMA Active Managed Sector Mean (7.60) Source: Financial Express. Total return, bid to bid. Note: Past performance is not a reliable indicator of future results. Investors are reminded that the price of shares and the revenue derived from them is not guaranteed and may go down as well as up.

4 Overview This report will discuss the fund s performance during the six months to 31 August The period can be divided into two uneven halves; on the whole the world s stock markets were rising until early July; they fell sharply during the rest of the period, particularly during early August. Performance During the review period, the fund s performance has been more or less in line with its benchmarks. TB Wise Investment is down 7.64% (B shares) and 7.94% (A shares), compared to a loss of 7.60% (IMA Active Managed Sector average) and of 8.04% (FTSE-100 index). The fund s performance compared to its benchmarks as at the end of August was very good over one year, good over three years, still slightly below average over five years and better than average since launch. Objective The fund aims to provide capital growth over the medium to longer term, taking a three to five year view. It can achieve its aim by holding assets in shares, commercial property (via Investment Trusts), fixed interest or cash, anywhere in the world. In the stock market it can invest in any sector. The only constraint is that, to justify inclusion in the IMA Active Managed Sector, the fund must hold at least 10% of its assets in overseas shares. There is no restriction on how the other 90% is invested; it could all be in cash. I have managed funds of this type continuously for over 20 years and, unsurprisingly, over such a long period a process has evolved which tends to work better at some times than others. The process consists of looking for markets or sectors where there is long term growth, or significant undervaluation. Having uncovered such areas of growth or value, the challenge is to invest in the most effective way possible. For a very small company with limited research capabilities, it makes sense to employ specialist managers in the sectors in which we invest, rather than attempting to pick individual shares ourselves. We look for rational managers with long experience in their specialist areas, with consistent good performance history, and who tend to stay put rather than moving round from one fund to another and from one company to another. On the whole, but by no means exclusively, we prefer small funds to big ones, and we have a strong preference for managers who are prepared to meet us regularly (typically once a year) on a one-to-one basis.

5 We find ourselves using investment trusts more and more. As at 31 August, TB Wise Investment held 6.2% cash, 0.7% directly in equities, 28.9% in collective investment schemes, with the other 64.2% in investment trusts. This approach has advantages and disadvantages. The main advantages are that the use of investment trusts allows us access to sectors such as private equity, where there are no unit trusts or OEICs, and to excellent investment managers who don t run unit trusts. Also, investment trusts tend to have lower charges. The main advantage is being able to buy assets at a discount to their market value. We try to be very disciplined, buying funds when they reach historically high discounts and selling them again when the discounts narrow or disappear. Most portfolio activity over the half-year period involved taking profits on funds which had become fully valued, and recycling the proceeds into other, better-value areas. The main disadvantages are that investment trusts can be difficult and sometimes impossible to buy and sell. The fluctuating discounts mean that losses are sometimes exaggerated in a sell-off, where the assets in the fund fall in value, and the fund s discount widens. Ordinarily, our cautious, value-based approach limits losses in falling markets, but the widening investment trust discounts sometimes negate these relative gains, as has happened in this latest sell-off. All the above characteristics give TB Wise Investment a personality. On the whole, the fund will tend to perform well after a major change of direction in the stockmarket, at times when value shares are preferred over growth, and when smaller companies are doing better than large ones. I continue to believe that a method which involves the disciplined buying of well-managed funds in good-value sectors, and then disposing of the holdings once the value has been realised, which may be many years later, is the best way to manage money and will produce satisfactory results over time, as has happened in the past. Sector themes Some of the value themes in TB Wise Investment are: - Japan Japan has had two lost decades of deflation and sluggish economic growth interspersed with recession. Japan s problems include ineffective politicians, poor demographics, a huge structural government debt, and an over-valued currency. However, there are some very good and very cheap companies in Japan. The main stock market index (the Nikkei 225) stands at less than a quarter of its peak level (December 1988). Interestingly, our best performing holdings during the recent sell-off have been in Japan, especially smaller companies.

6 - Private equity The role of private equity is to take stakes in small companies, usually ones that aren t listed on stock exchanges, and help them to grow. Many private equity companies got greedy in the years before the crisis, borrowed excessively, and injected too much debt into their investee companies. Investors are still wary of private equity, and even the better funds such as Electra can be bought today at discounts of around 40% to their net asset values, an anomaly which will disappear over time. With the borrowing binge well and truly over, private equity has had to de-risk, but still has an important role to play in the economy. Today s problem is that the funds have more cash than there are opportunities, leading to a sellers market, but the better funds the ones we own continue to make steady progress. - Alternative energy/energy efficiency This is a relatively new theme for TB Wise Investment, representing 6.1% of the fund s value. We invest through three funds, Blackrock New Energy, Impax Environmental, and Jupiter Green. This area is interesting because it combines the inevitability of growth over the longer term with being deeply unfashionable with investors. In the short term, a global economic slowdown will lead to lower oil prices, which doesn t help the cause of efficiency/alternatives. The funds have been hit quite hard in the recent sell-off in anticipation. The funds in this area haven t been profitable for the fund up to now, and I don t expect much progress in the next few months, during which time I hope to increase my understanding of the sector, its opportunities and challenges.

7 The asset allocations at the balance sheet date are shown below: Sector Asset allocation as at 31 August 2011 (%) Asset allocation as at 28 February 2011 (%) Europe International Japan Property Specialist - Energy Specialist - Alternative Energy Specialist - Financial Specialist - Healthcare Specialist - Technology Specialist - Utilities USA UK Growth UK Mid Cap UK Smaller Companies UK All Companies Private Equity Cash and other Total

8 Outlook This report is being written at a time of extreme uncertainty over the economic outlook. We have no more insight into the possible outcomes than anyone else. However, we continue to be impressed with the way companies, far more than private individuals or governments, have adapted to the new, harsher environment and seem able to make headway in it. We are now in a position where we can buy good, cheap shares through well managed trusts, at discounts of 20% to their already reasonable valuations, 40% in the case of private equity, and we have used the recent turbulence to return gradually to being almost fully invested. To n y Ya r r ow Fund Manager When sentiment becomes as negative as it is today, a small change could have a disproportionate effect on asset values. So we are not altogether gloomy. 13 October 2011 TOP TEN HOLDINGS Top Ten Holdings as at 31 August 2011 (%) Top Ten Holdings as at 28 February 2011 (%) British Empire Securities & General 6.3 HG Capital 6.7 Caledonia Investments 6.3 British Empire Securities & General 6.3 Graphite Enterprise 6.2 Caledonia Investments 5.7 Ecofin Water & Power Opportunities 5.0 Ecofin Water & Power Opportunities 4.9 HG Capital 4.6 Graphite Enterprise 4.5 Marlborough Special Situations 3.5 Investec UK Special Situations 4.2 3i Group 3.3 Thames River Property 4.0 Discretionary 3.3 Hiscox Insurance Portfolio 3.5 Herald 3.1 Fidelity European Values 3.5 Investec UK Special Situations 2.9 GLG Japan CoreAlpha 3.2

9 PERFORMANCE Share Prices and Revenue B Accumulation shares A Accumulation shares Calendar year Highest price Lowest price Net revenue accumulated per share Highest price Lowest price Net revenue accumulated per share Prices to 31 August and net revenue to 31 October. Net Asset Values B Accumulation shares A Accumulation shares Date Total shares in issue NAV per share NAV ( ) Total shares in issue NAV per share NAV ( ) 28 Feb ,524, ,262,817 9,421, ,685, Feb ,146, ,563,630 9,090, ,177, Feb ,833, ,639,133 8,180, ,309, Aug ,552, ,127,340 7,797, ,921,187 Note: Past performance is not a reliable indicator of future results. Investors are reminded that the price of shares and the revenue derived from them is not guaranteed and may go down as well as up.

10 RISK PROFILE Please remember that both the price of shares and the revenue derived from them may go down as well as up and that you may not get back the amount originally invested. Furthermore, changes in foreign currency exchange rates may cause the value of your investment to increase or diminish. Capital appreciation in the early years will be adversely affected by the impact of initial charges (A class shares only), which by their nature are not levied uniformly throughout the life of the investment. You should, therefore, regard your investment as medium to long term. Past performance is not a reliable indicator of future results.

11 OTHER INFORMATION The Company TB Wise Investment Funds 64 St. James s Street Nottingham NG1 6FJ ACD T. Bailey Fund Managers Limited 64 St. James s Street Nottingham NG1 6FJ Tel: Fax: Website: Authorised and regulated by the Financial Services Authority. Investment Manager Depositary The Royal Bank of Scotland plc Trustee & Depositary Services Ground Floor 15 Bishopsgate London EC2P 2AP Authorised and regulated by the Financial Services Authority. Auditors Deloitte LLP 4 Brindleyplace Birmingham B1 2HZ Registered to carry out audit work by the Institute of Chartered Accountants in England and Wales. Wise Investments Limited Broadstone Grange Broadstone Hill, Old Chalford Chipping Norton Oxfordshire OX7 5QL Tel: Fax: Website: Authorised and regulated by the Financial Services Authority. Further information regarding the activities and performance of the Fund for this and previous periods is available on request from the ACD as are copies of the Annual and Interim Report and Financial Statements.

12 Issued by T. Bailey Fund Managers Limited ( TBFM ). TBFM is a Regulated Collective Investment Scheme Manager and is authorised and regulated by the Financial Services Authority. Registered in England No: