MI TwentyFour Investment Funds Monument Bond Fund. (Formerly PFS TwentyFour Investment Funds)

Transcription

1 MI TwentyFour Investment Funds Monument Bond Fund (Formerly PFS TwentyFour Investment Funds) Short Report 31 March 2016

2 Directory Authorised Corporate Director (ACD) & Registrar Maitland Institutional Services Ltd Springfield Lodge, Colchester Road, Chelmsford, Essex, CM2 5PW Telephone: Fax: Website: (Authorised and regulated by the Financial Conduct Authority) Customer Service Centre Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: Fax: (Authorised and regulated by the Financial Conduct Authority) Directors of the ACD P.J.Foley-Brickley S. Georgala (appointed 24 August 2015) D. Jones R.W.Leedham D.W. Munting D.C. Tibble (Retired 24 July 2015) Investment Adviser TwentyFour Asset Management LLP 24 Cornhill, London EC3V 3ND (Authorised and regulated by the Financial Conduct Authority) Depositary National Westminster Bank plc Trustee & Depositary Services 135 Bishopsgate, London EC2M 3UR (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Independent Auditor PricewaterhouseCoopers LLP Chartered Accountants & Statutory Auditors 7 More London Riverside London SE1 2RT 1

3 Investment Objective and Policy Investment objective The Fund aims to provide an attractive level of income relative to prevailing interest rates whilst maintaining a strong focus on capital preservation. Important Note: The Fund does not offer a capital guarantee or principal protection mechanism. Efforts to preserve the Fund s capital will be focused on the selection of underlying securities where the Investment Adviser has a high degree of confidence as to the issuer s ability to repay the principal due. Investment policy The investment policy of the Fund is to invest in a diversified portfolio of European and Australian asset-backed securities ( ABS ) rated at least BBB- (or equivalent) at the time of investment by one or more of Standard & Poor s, Moody s Investor Services and Fitch, where the securities will be backed by the assets of institutions and issuers such as but not limited to residental mortgages, commerical mortgages, automobile leases and loans, SME loans and other secured bonds. A portion of the portfolio may be held in cash or cash equivalents, such as treasury bills and government bonds, in order to further enhance the Fund s liquidity. From time to time it is possible that a significant portion of the portfolio may be invested in securities from a particular geographical region. The Fund will also use derivatives, including but not limited to credit derivatives, to either optimize exposures or reduce them in line with the Investment Adviser's market viewpoint, thereby giving the Fund the potential opportunity to perform through different market environments. The Fund may also employ synthetic short positions both for hedging purposes and to take account of deterioration either in the market generally or with respect to specific issuers. The Fund may also hedge some or all of its exposure in the foreign exchange markets. The Investment Adviser has overall responsibility for investment policy and authority to select service providers pursuant to the Investment Management Agreement entered into with the ACD. Securities may be traded over-the-counter, although any securities that the Fund will invest in will be listed on Eligible Markets and will be cleared through a major clearing system such as Euroclear or Clearstream. The Fund will not invest in any Collective Investment Schemes with the exception of Money Market Funds (MMFs) which do not adversely alter the risk profile of the Fund. 2

4 Investment Adviser s Report for the year ended 31 March 2016 Market Commentary The twelve month period to the end of March 2016 was one which presented significant ongoing issues to all markets from a variety of sources. As the period opened, the wider markets were dealing with a deterioration in confidence regarding the ability of Greece to stand by the terms of their bailout and make good on their expected future repayments. This was an issue that overshadowed markets until July, and which plumbed the considerable depths of Greece walking away from the negotiating table late on in the process and seeking a mandate from the electorate via a referendum. The effect on the goodwill of Greece s creditors and the rhetoric at this point created significant instability in most markets. April also saw questioning around expectations of the Fed s timetable to start lifting US rates, as weak data from Q was published. The uncertainty around this finally happening was to be an issue that overshadowed sentiment until the December meeting when the refi rate was raised, however, since then uncertainty as to the future path of rates has continued as financial markets have faced sustained volatility. Asset Backed Securities ( ABS ) performance during the early period was stable, as sovereign bonds and other parts of fixed income suffered. This outperformance was partially driven by expectations for the ongoing ABS Purchase Programme at the European Central Bank ( ECB ). Within the ABS market however, UK Non-Conforming Residential Mortgage Backed Securities ( RMBS ) bonds saw spreads drift wider as supply in primary markets increased. In contrast Prime and Buy to Let RMBS, Commercial Mortgage Backed Securities ( CMBS ) and Collateralised Loan Obligations ( CLOs ) displayed resilience. Peripheral RMBS did display some weakness in May in sympathy with market concerns around Greece. Spread widening was more evident in June as the market was initially distracted by the annual ABS conference, and then as dealers lightened inventory prior to the half year end for banks. Throughout the year two ABS specific issues weighed on the market, the imposition of Solvency II and the ECBs ABS Purchase Programme. Solvency II is a new set of capital requirements for insurance companies investing in a variety of asset classes which came into effect at the start of The treatment of ABS under this regulation has been widely criticised for being overly punitive, and while there has been a small degree of compromise, the regulations in their final form still made it materially less efficient for insurers to maintain their ABS positions, and selling was accordingly seen throughout In contrast the ECB should have been boosting the market as they bought ABS securities, however the pace and volume of purchases were significantly below market expectations, and the benefits that were expected across the board never materialised. While July saw the resolution of the more immediate Greek problems, the market was kept in check as concerns mounted that Chinese growth was struggling to maintain momentum. Chinese equity markets sold off heavily and in response the Chinese government took unprecedented measures by suspending hundreds of stocks, banning large investors from selling and instructing a $500bn state run fund to initiate support to the market. This continued into August when falling energy and commodity prices further hit sentiment, and the People s Bank of China depreciated the Yuan on consecutive days, leading to a large and broad-based equity market sell-off. 3

5 Investment Adviser s Report continued Market Commentary (continued) The focus on China and the Federal Reserve ( Fed ) continued throughout August and September, putting significant pressure on asset performance in a number of sectors. Spreads on UK Non- Conforming RMBS bonds continued to widen, and were joined by UK Buy to Let in September, again a sector that had seen significant recent supply. UK Non-Prime RMBS was put under further pressure until November as the outcome of the sale of the mortgage pool backing the Granite (Northern Rock) RMBS transaction created uncertainty as to whether it would result in the maturity of an existing multibillion pound transaction, or the refinancing of the pool into a larger transaction. Ultimately the outcome was deemed favourable by the market as all outstanding Granite bonds were called at par, providing investors with significant cash to invest into a smaller market place. The support this gave the ABS market helped spreads stabilise and perform through the turn of the year, and notably outperform the volatility seen elsewhere in January, however with the extreme moves seen in all other markets, as banks pulled back capital and pushed bid offer spreads wider, the ABS market was forced to correlate and material price declines were seen throughout February. There has, however, been a degree of recovery in March as a result of the impact of the ECBs expansion of their market stimulus. Fundamental performance of underlying asset pools however remained strong, and the drivers of these, particularly in the consumer space, continued to improve with employment, wage and house price data either stabilizing or improving in the majority of geographies in which the Company invests. The disconnection between price/yield on one hand and credit risk on the other has materially improved the risk/return dynamic for large parts of the market. Portfolio Performance The portfolio performance was driven by the UK non-conforming holdings which sold off gradually through the summer as supply pressure and the uncertainty around the Granite sale weighed on prices. The partial switch into UK assets at the start of 2015 had been driven by the pricing effect of the ECB s ABS Purchase Programme. This crystallised capital gains on ECB eligible securities and allowed for a pick-up in yield given a weakening in UK non-prime assets, but it also narrowed the investment universe for the fund, which led to the suggestion and successful adoption of the widened investment remit that started to be reflected in the portfolio at the start of The performance in the first quarter of 2016 was notably weaker, as the sharp change in sentiment across all financial markets overrode the more positive end to 2015 which had been driven by the Granite redemption. Bond prices reached multi-year lows and this allowed a degree of portfolio rotation to incorporate the new investment remit, taking advantage of materially cheap offers in CLOs and CMBS, which has helped the subsequent partial recovery of the portfolio towards the end of the quarter and after the period end. Fundamental performance of the asset pools backing the portfolio and the structure protecting investors has been strong, and leading indicators of future performance continue to be strong, giving conviction around long-term performance. Overall, in the 12 months to 31 March 2016, the fund s total return performance was -3.41% (Class I Acc Gross). 4

6 Investment Adviser s Report continued Market Outlook The majority of negative drivers that the European ABS market has laboured under for the past year are largely gone, or priced in, in the view of the Portfolio Manager. Solvency II has been implemented and insurance companies have adjusted their holdings of ABS as a result, the ECB s ABS Purchase Programme has disappointed since early 2015, and the UK market is priced to reflect changes in supply and demand. Current pricing is attractive when compared to where it has been in recent years, and the type and level of risk presents a very attractive opportunity for both income and capital gain. However the Portfolio Manager recognises that market sentiment is far from stable and while performance of the underlying asset pools and securitisation structures are within expectations, price moves across fixed income could be driven by external factors as they have been in the past. This should present opportunities for the Fund to access further attractive investment opportunities, as buyers with long term capital will typically prove to be scarce at that point. While it is not expected that the Monetary Policy Committee will adjust the Bank Rate in 2016, the Fund will benefit from this move when it does happen. 5

7 Comparative Tables Accounting and distribution dates Accounting Distribution Final 31 March 31 May Interim 30 September 30 November Change in net assets per share A Income Net A Accumulation Net ^^ Opening net asset value per share Return before operating charges^ Operating Charges Return after operating charges^ Distributions on income shares n/a n/a n/a Closing net asset value per share Retained distributions on accumulation shares n/a n/a n/a ^After direct transaction costs of Performance Return after charges % 2.20% 5.31% -4.17% 2.21% 5.44% Other Information Closing net asset value 0 2,066,548 2,788,423 41,974 1,400,842 4,678,991 Closing number of shares 0 187, ,036 3, , ,320 Operating Charges 0.00% 1.29% 1.38% 1.13% 1.29% 1.38% Direct transaction costs 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Prices Highest share price Lowest share price ^^ On 22 January 2016, as part of the Retail Distribution Review the A Income Net was transferred to the I Income Net share class. 6

8 Comparative Tables continued Change in net assets per share A Income Gross A Accumulation Gross ^^ Opening net asset value per share Return before operating charges^ Operating Charges Return after operating charges^ Distributions on income shares n/a n/a n/a Closing net asset value per share Retained distributions on accumulation shares n/a n/a n/a ^After direct transaction costs of Performance Return after charges % 2.59% 5.79% -3.82% 2.56% 5.93% Other Information Closing net asset value 0 5,984,364 8,177,711 17,709 5,862,720 5,790,835 Closing number of shares 0 544, ,056 1, , ,259 Operating Charges 0.00% 1.29% 1.38% 1.13% 1.29% 1.38% Direct transaction costs 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Prices Highest share price Lowest share price ^^ On 22 January 2016, as part of the Retail Distribution Review the A Income Gross was transferred to the I Income Gross share class. I Income Net I Accumulation Net Opening net asset value per share Return before operating charges^ Operating Charges Return after operating charges^ Distributions on income shares n/a n/a n/a Closing net asset value per share Retained distributions on accumulation shares n/a n/a n/a ^After direct transaction costs of Performance Return after charges -3.88% 2.54% 5.59% -3.89% 2.54% 5.65% Other Information Closing net asset value 76,825,950 78,890,186 34,071,610 23,689,632 29,811,345 19,647,973 Closing number of shares 731, , , , , ,597 Operating Charges 0.83% 0.99% 1.08% 0.83% 0.99% 1.08% Direct transaction costs 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Prices Highest share price Lowest share price

9 Comparative Tables continued Change in net assets per share I Income Gross I Accumulation Gross Opening net asset value per share Return before operating charges^ Operating Charges Return after operating charges^ Distributions on income shares n/a n/a n/a Closing net asset value per share Retained distributions on accumulation shares n/a n/a n/a ^After direct transaction costs of Performance Return after charges -3.52% 2.91% 6.16% -3.53% 2.91% 6.23% Other Information Closing net asset value 79,238,199 89,814,177 32,713,702 11,580,944 8,343,927 17,107,295 Closing number of shares 754, , ,067 91,814 63, ,615 Operating Charges 0.83% 0.99% 1.08% 0.83% 0.99% 1.08% Direct transaction costs 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Prices Highest share price Lowest share price Operating charges include indirect costs incurred in the maintenance and running of the Fund, as disclosed (but not limited to) the detailed expenses within the Statement of Total Return. The figures used within this table have been calculated against the average Net Asset Value for the accounting year. The return after charges is calculated as the closing net asset value per share plus the distributions on income shares minus the open net asset value per share as a % of the opening net asset value per share. Direct transaction costs include fees, commissions, transfer taxes and duties in the purchasing and selling of investments, which are offset (where applicable) against any dilution levies charged within the accounting period. The figures used within the table have been calculated against the average Net Asset Value for the accounting year. 8

10 Comparative Tables continued Risk and reward profile The risk and reward indicator table demonstrates where the Fund ranks in terms of its potential risk and reward. The higher the rank the greater the potential reward but the greater the risk of losing money. It is based on past data, may change over time and may not be a reliable indication of the future risk profile of the Fund. The shaded area in the table below shows the Fund s ranking on the risk and reward indicator. Typically lower rewards, lower risk Typically higher rewards, higher risk The Fund is ranked at 3 because funds of this type have experienced low to medium rises and falls in value in the past. Please note that even the lowest risk class can lose you money and that extreme market circumstances can mean you suffer severe losses in all cases. The indicator does not take into account the following risks of investing in this Fund: Investing overseas can bring additional returns and spread risk to different markets. There are risks, however, that changes in currency exchange rates may cause the value of your investment to decrease and increase. On occasions the Fund may be significantly invested in particular geographical regions, meaning it will have greater exposure to the market, political and economic risks of those regions than if it was more diversified across a wider number of countries. There is no guarantee that an asset which provides the security for a bond will maintain its value. The Fund can use derivatives in order to meet its investment objectives or to protect from price anc currency movements. This may result in gains or losses that are greater than the original amount invested. We can use derivatives to help reduce risk but we may not be fully successful. Derivatives can also reduce gains you may otherwise have made. Currency risk reduction techniques can have an effect on the value of your investment and on the performance of the share class. Bond values are affected by changes in interest rates, inflation and any decline in creditworthiness of the bond issuer. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may not be able to pay the bond income as promised or could fail to repay the capital amount used to purchase the bond. There may be cases where the organisation from which we buy a bond fails to carry out its obligations, which could cause losses to the Fund. For further risk information please see the prospectus. 9

11 Comparative Tables continued Risk warning An investment in an Investment Company with Variable Capital should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the revenue from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuation in exchange rates, which can be favourable or unfavourable. 10

12 Sector spread of investments All sectors in percentage order are shown below Sector % of Fund as at Euro denominated asset backed securities Sterling denominated asset backed securities United States dollar denominated asset backed securities 1.63 Forward currency contracts (1.04) Net other assets 4.69 Sector % of Fund as at Sterling denominated asset backed securities Euro denominated asset backed securities United States dollar denominated asset backed securities 3.77 Forward currency contracts 0.36 Net other assets 1.00 Major holdings The top ten holdings at the end of each year are shown below Holding % of Fund as at Preferred Residential Securities Series X B1C 3.75 Leek Finance Series 18X CC 3.71 Leek Finance Series 17X CC 3.29 Residential Mortgage Securities Series 21X M1A 2.85 Cordusio RMBS Series 2 C 2.75 Money Partners Securities Series 1X M2A 2.60 Magellan Mortgages Series 4 A 2.52 Equity Release Funding Series 5 A 2.44 Money Partners Securities Series 4X M2B 2.33 Resloc UK Series X B1A 2.20 Holding % of Fund as at Preferred Residential Securities Series X B1C 3.38 Southern Pacific Series 05-1X C1C 3.15 Leek Finance Series 19X CC 2.93 Chesnut Financing Series A 2.70 Money Partners Securities Series 1X M2A 2.70 Paragon Secured Finance Series 1 A 2.50 RMAC Securities Series 2006-NS4X A3A 2.39 Ludgate Funding Series X A2A 2.36 Equity Release Funding Series 5 A 2.25 Paragon Mortgages Series 19 C

13 General Information Authorised status MI TwentyFour Investment Funds (the 'Company') is structured as an Investment Company with Variable Capital ('ICVC'), under regulation 12 (Authorisation) of the OEIC Regulations (Open-Ended Investment Companies Regulations 2001 (SI2001/1228)), and qualifies as an Undertaking for Collective Investment in Transferable Securities ('UCITS') Scheme. The Company does not intend to have an interest in immovable or tangible movable property. The Company is authorised and regulated in the UK by the Financial Conduct Authority ('FCA') as a UCITS Scheme and 'Umbrella company' under the COLL Sourcebook. The Company was incorporated in England and Wales on 23 July 2009 under registration number IC The Shareholders are not liable for the debts of the Company. Buying and selling units The ACD will accept orders for the purchase and sale of shares on normal business days between and Instructions to buy or sell shares may either be in writing to: Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Or by telephone to: The ACD has the right to establish facilities for recording telephone calls made or received on this telephone line A contract note giving details of the shares purchased will be issued no later than the next business day after the business day on which an application to purchase shares is received and instrumented by the ACD. Certificates will not be issued in respect of shares. Ownership of shares will be evidenced by an entry on the register of shareholders. Report and accounts This document is a short report of for the year ended 31 March The full Report and Accounts for the Fund is available upon written request to Maitland Institutional Services Ltd, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW. Other information The information in this report is designed to enable you to make an informed judgement on the activities of the Fund during the year it covers and the results of those activities at the end of the year. Significant information On 1 June 2015 the Authorised Corporate Director, Phoenix Fund Services (UK) Ltd ( PFS ), became a subsidiary of Maitland International Holdings plc. On 4 April 2016 PFS was subsequently renamed Maitland Institutional Services Ltd to reflect the change in ownership. As a result of this, the names of the Scheme and sub-fund(s) changed, such that the prefix of PFS has been replaced with MI. Risk warning An investment in Investment Company with Variable Capital should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the revenue from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuation in exchange rates, which can be favourable or unfavourable. 12

14 Registered in England No Authorised and regulated by the Financial Conduct Authority.