Interim Report and Financial Statements for MGTS Future Money Dynamic Growth Fund

Transcription

1 Interim Report and Financial Statements for MGTS Future Money Dynamic Growth Fund For the six months ended 31 January 2016 (Unaudited) HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING 1 SOVEREIGN COURT PO BOX GRAHAM STREET BRENTWOOD BIRMINGHAM VAT No. (GB) CM14 9ND B1 3JR Registered in England No TELEPHONE: Authorised and Regulated by TELEPHONE: FACSIMILE: the Financial Conduct Authority FACSIMILE:

2 ACD Margetts Fund Management Limited 1 Sovereign Court Graham Street Birmingham B1 3JR Tel: Fax: (Authorised and regulated by the Financial Conduct Authority) Directors of the ACD T J Ricketts T H Ricketts A J M Quy J E J Clay M D Jealous A S Weston G M W Oakley (non-exec) J M Vessey (non-exec) Depositary BNY Mellon Trust & Depositary (UK) Ltd The Bank of New York Mellon Centre 160 Queen Victoria Street London EC4V 4LA (Authorised and regulated by the Financial Conduct Authority) Administrator and Registrar The Bank of New York Mellon (International) Limited PO Box Edinburgh EH7 5NJ Tel: Fax: (Authorised and regulated by the Financial Conduct Authority) Auditors Shipleys LLP Chartered Accountants & Statutory Auditors 10 Orange Street Haymarket London WC2H 7DQ

3 Contents ACD s Report 1 Certification of Accounts by Directors of the ACD 4 Portfolio Statement 5 Net Asset Value per Share and Comparative Tables 6 General Information 8

4 ACD s Report For the six months ended 31 January 2016 Investment Objective To provide long term capital growth through an actively managed diversified portfolio of investments with the objective of significantly growing the value of the investment above the rate of inflation. The fund will be appropriate for a higher risk investor and consists of holdings exposed to UK & International equities, Fixed Interest and Property based investments. Investment Review MGTS Future Money Dynamic Growth R -5.68% MGTS Future Money Dynamic Growth -6.04% Benchmark Composite Benchmark -2.80% 5% - GBP 3 month LIBOR 25% - FTSE Government Secs All Stock TR 40% - FTSE All Share Index TR 30% - FTSE World Ex UK Source: Morningstar Direct. Performance is NAV to NAV with income reinvested. The MGTS Future Money Dynamic Growth fund has underperformed its benchmark over the six month reporting period. This can largely be attributed to the strong performance of UK Gilts in January 2016 as market sentiment turned negative. Performance up to the end of December 2015 had been in line with benchmark. Gilts, otherwise known as government bonds, form a significant part of the benchmark but due to concerns over high valuations are not currently owned in the portfolio, where corporate bond positions are held instead. We believe that government bonds are at a turning point in a long term cycle that will see them underperform both corporate bonds and equity markets in the coming years. However, investment markets have not yet recognised the valuation discrepancy and instead are currently being driven by sentimental factors, which can be fickle, as we have seen going from December 2015 to January The portfolio s overweight allocation to Asian and Emerging Market stocks and underweight to the US had been limiting factors on returns until mid-december 2015, due to fears surrounding the impact of the anticipated interest rate rise in the US. However, since the event occurred on December 16 th this trend has been reversing with Asian and Emerging Market equity markets being the strongest performers. This period has witnessed continued volatility as oil continued a steep decline and focus, once again, turned to the possibility that economic growth is slowing sharply in China. The Federal Reserve increased interest rates for the first time in nearly a decade moving the key benchmark rate from 0.25% to 0.5%. Market sentiment improved notably during the festive season however the mood turned sour as the New Year began. It is likely that the sudden and many short term market swings which have been seen in recent months are indicative of some market imbalances adjusting. A period such as this often leads to new trends being established which may be considerably different to the trends experienced in recent history. The long term performance of the fund going forward could be substantially improved, or losses reduced, by identifying the new trends at an early stage. There is an expression sometimes used which states that stock markets have accurately predicted seven of the last three recessions. This illustrates that markets can often fall significantly on fears which are not realised and in these cases values recover reasonably quickly. Investors can sometimes panic-out during these dips and miss the subsequent recovery damaging their long term returns. 1

5 ACD s Report (continued) Prior to the significant and lengthy equity market falls which were a precursor to recessions in 2000 and 2008 there were some indications of trouble ahead. On both occasions equity valuations were high and many investors held significant weightings in this asset class. The high valuations reflected high levels of confidence regarding future economic growth which turned out to be misplaced. The current sell-off began in April 2015 and the degree of loss is within the normal range for global equity markets. In developed markets the yield from equities is generally above the yield on ten year bonds which is a sign of value as you would normally expect equities to yield less given their long term potential for capital growth in addition to yield. As a consequence the current lower equity market values could represent a buying opportunity if concerns have been over stated and begin to reduce leading markets to recover in the short term. The primary concerns are oil prices, a slowdown of growth in China and the effect of entering an environment of rising interest rates following a prolonged period of emergency rates and money printing. Whilst the volatility in oil markets has been extreme with oil sliding from around $110 per barrel during the first half of 2014 to a current range of around $30, the reasons for this are clear with the benefit of hindsight. China began a rapid expansion of infrastructure in 2008 which increased the demand for energy considerably. The long term stability of a relative low oil price prior to this had resulted in modest investment into exploration. This surge in demand overwhelmed supply and led to a sharp increase in price as demand for oil does not erode significantly as price rises due to basic requirements for energy. The high price created super profitably within the energy sector encouraging a step change for investment into exploration and more efficient technologies. These investments were very effective as fracking technologies and other developments rapidly increase the amount of available oil and gas. The development cycle took around three years at which point supply began to expand coinciding with the end of China s infrastructures development project. The result has been over supply with weakening demand added to which political tensions in the Middle East has seen Saudi Arabia and Iran competing to out-pump each other. The effect has been massive oversupply resulting in energy prices reaching lows which many thought impossible only a few years ago. Investment markets have become anxious that the dwindling oil price is actually an indication of weak global growth and this has reduced market confidence. However the position is more political than economic as oil producing countries could actually increase their revenues if they cut production and it is likely that this logic will eventually prevail. In the meantime, the investment cycle has reversed and little is being spent on future energy exploration and this will continue whilst the oil price remains low. The long term effect will be higher oil prices in the future as current supplies begin to peak whilst demand steadily rises. In the meantime the benefit is that the consumer s energy savings are being transferred and spent elsewhere or saved which has resulted in rising consumption and savings trends. The Chinese stock market hit the headlines in the first two days of 2016 as the market fell 7.5% on both days triggering newly installed circuit breakers which closes the market for the day on sharp falls to steady the market. It appeared that the circuit breakers had actually caused the falls they were intended to control and the market became more orderly when they were removed on day three. The negativity of press comment in relation to China was evidenced by the hourly coverage this news story received. Few readers were aware that the CSI 300 index is notoriously volatile and the stocks are generally traded by Chinese individuals who are more familiar with the high levels of volatility. This market was a top performer in 2014 returning 45.89% and 2015 returning 11%. Since the beginning of 2014 to the end of January this index had outperformed the FTSE World Index by 17.65% even after taking the news worthy falls into account. This suggests that investors do not have a balanced perspective when considering events in China and their relevance to the markets perhaps leading to a greater level of fear than the facts justify. 2

6 ACD s Report (continued) China created massive global imbalances during the 1990s and 2000s as economic growth was driven by manufacturing export growth. China exported too much and consumed too little leading to a build-up of huge reserves. In recent years the Chinese authorities have embarked on a transition to move the economy towards a more balanced basis with local consumption driving growth in addition to exports. A transition of this type will involve some pain but the signs are that progress is being made and China has significant reserves which can be used to mitigate financial risks as and when they emerge. The benefit of the Chinese consumer is already being felt within the global economy and whilst growth is slowing it remains high relative to other large economies at 6.9%. Whilst the press reported this under the headline China s Economic Growth In 2015 Is Slowest In 25 Years the reality is that this represents around one third of total expected economic growth which is nearly twice the contribution expected from the US. This reinforces the negative sentiment which appears to be prevalent towards China. Fears of a banking crisis have surrounded China since 2012 after it became clear that their infrastructure building programme had considerably exceeded current demands with empty flats, transport stations and even cities. Since 2012 Asian stock markets have significantly unperformed their Western counterparts and although some serious issues have emerged they have been contained and a full blown crisis has not occurred. Given the intervening period it is likely that concerns will start to focus elsewhere as time goes on. Some bubbles, whilst costly to the investors at the time, leave behind a legacy of economic importance. The railroad bubble left behind a valuable infrastructure which has helped drive economic growth for decades and the internet bubble helped to create high speed communication technologies which are widely used today. Whilst the tulip bulb bubble and South China Sea bubble left behind little benefit the Chinese infrastructure bubble has more to offer as these empty properties are gradually being filled as city populations continue to expand and use the associated infrastructure. Valuations in Asian markets are attractive due to the high degree of anxiety which persists. Investors generally have little exposure to these markets and this combination is attractive for those seeking long term returns. If anxiety eases valuations are likely to improve and tempt investors to re-allocate to the region driving investment flows which will further increase returns. The asset classes which do appear to have potential for a long term decline are fixed interest markets, although investors are reluctant to draw this conclusion, instead relying on this asset class to provide a safe haven during periods of turbulence. Fixed interest markets appear to meet some of the criteria for a long term decline in that valuations are historically very high and investors generally have high allocations whilst confidence in the asset class is also very high. Although UK Government Gilts have recorded a strong increase during this period the market remains below its peak on 30th January 2015 despite the FTSE 100 being more than 10% lower. The ability of Gilts to protect against equity market slides is beginning to look questionable. Corporate bonds have followed a steadily falling pattern as liquidity risks emerge evidenced by the total failure of a specialist corporate bond fund in the US. Whilst this event was peripheral to UK bond markets it does sound a cautionary note. Falling energy prices have underlined the lack inflation in the short term however the long term effect of printing money through the process known as quantitative easing is likely to be inflationary. As unemployment has reduced, the job market has become stronger and wages are beginning to rise. Given that inflationary expectations are rock bottom the future direction of travel is expected to be upwards. As bond yields are so low, with trillions of bonds yielding less than zero any inflation could begin to erode the value of these assets. 3

7 ACD s Report (continued) In summary, we believe that investor anxiety is not justified which will result in a fairly short term recovery rather than a protracted bear market. The area of concern remains with fixed interest markets which have not had the same level of scrutiny as equity markets and investors may be worrying about the wrong thing (i.e. global growth rather than future inflation prospects). Current equity market levels represent good prospects for future growth and there are early signs that the underperformance trends in Asia and Emerging Markets may be reversing. The fund is positioned with an overweight position to equities with high levels of diversification focusing on areas of the market which we believe are offering good value. The exposure to fixed interest markets is skewed towards cash and near cash investments which are less sensitive to interest rate rises, inflation concerns and liquidity risks. Margetts Fund Management ACD 10 March 2016 Certification of Accounts by Directors of the ACD This report is signed in accordance with the requirements of the Collective Investment Schemes Sourcebook (COLL) as issued and amended by the Financial Conduct Authority. T J Ricketts Margetts Fund Management Ltd 18 March 2016 M D Jealous Authorised Status The MGTS Future Money Dynamic Growth Fund is a sub-fund of the MGTS Future Money ICVC with investment powers equivalent to those of a UCITS Scheme. The umbrella company is MGTS Future Money ICVC which is an open-ended investment company with variable capital incorporated in England and Wales under regulation number IC706 and authorised by the Financial Conduct Authority with effect from 23 September It is a Non-UCITS Retail Fund (NURS) as classified under the FCA s Collective Investment Schemes Sourcebook. Shareholders are not liable for the debts of the fund. 4

8 Portfolio statement As at 31 January 2016 Total Net Assets Holding Portfolio of Investments Value ( ) % % UK 2,120,709 AXA Framlington UK Select Opps ZI 2,922, ,651,955 Jupiter UK Special Situations I 2,911, ,071,072 Majedie Asset UK Equity X 2,753, ,629,999 Old Mutual UK Alpha U1 2,819, ,125 Royal London UK Mid Cap Growth I 2,774, ,350,011 Threadneedle UK Growth & Income ZNI 3,009, Total UK 17,191, Bonds & Gilts 2,079,290 AXA Sterling Credit Short Duration Bond Z 2,345, ,216,776 Kames Investment Grade Bond B 2,016, ,220,091 Standard Life Global Index Linked Bond I 1,744, ,619,298 SVS Brown Shipley Sterling Bond I 2,044, Total Bonds & Gilts 8,150, European 1,455,150 F&C European Growth & Income 2 2,440, ,533,023 Henderson European Focus I 2,446, Total European 4,886, US 10,186 Vanguard US Equity Index GBP 2,830, Total US 2,830, ,557,784 Emerging Markets PFS Somerset Emerging Markets Div Growth Fund A Net 3,048, Total Emerging Markets 3,048, Asia Pacific (excl. Japan) 230,150 M&G Asian I 2,610, ,090 Stewart Investors Asia Pacific Leaders Inst B 2,759, Total Asia Pacific (excl. Japan) 5,369, Portfolio of Investments 41,478, Net Current Assets 178, Net Assets 41,656, The investments are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds and are authorised Collective Investment Schemes. 5

9 Net Asset Value per Share and Comparative Tables Accumulation share class Change in net assets per share 31/01/ /07/ /07/ /07/2013 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share Retained distribution on acc shares * After direct transaction costs of Performance Return after charges -6.04% 5.32% 3.48% 18.89% Other Information Closing net asset value ( ) 24,693,415 31,870,612 42,350,494 46,352,046 Closing number of shares 15,617,579 18,938,748 26,505,021 30,019,762 Operating charges 0.08% 0.12% 0.12% 0.11% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence) R accumulation share class Change in net assets per share 31/01/ /07/ /07/ /07/2013 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share Retained distribution on acc shares * After direct transaction costs of Performance Return after charges -5.68% 6.12% 4.26% 19.38% Other Information Closing net asset value ( ) 16,956,133 13,413,703 5,458, ,650 Closing number of shares 10,479,248 7,818,794 3,376, ,998 Operating charges 0.08% 0.12% 0.11% 0.11% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence)

10 Net Asset Value per Share and Comparative Tables (continued) R income share class Change in net assets per share 31/01/ /07/ /07/ /07/2013 Opening net asset value per share Return before operating charges * Operating charges Return after operating charges Distribution on income shares Closing NAV per share * After direct transaction costs of Performance Return after charges -5.69% 6.12% 4.42% 19.40% Other Information Closing net asset value ( ) 6,875 5,706 1,152 1,054 Closing number of shares 4,355 3, Operating charges 0.08% 0.13% 0.05% 0.11% Direct transaction costs 0.00% 0.00% 0.00% 0.00% Prices Highest share price (pence) Lowest share price (pence) Risk Warning An investment in an open-ended investment company (OEIC) should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income 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 fluctuations in exchange rates, which can be favourable or unfavourable. Fund Performance The performance of the fund is shown in the Investment Adviser s Report. Ongoing charges figure % % ACD's Annual Management Charge Other expenses Total Expense Ratio Synthetic TER Complete OCF Ongoing charges - R Class ACD's Annual Management Charge Other expenses Total Expense Ratio Synthetic TER Complete OCF

11 General Information Valuation Point The Valuation Point of the fund is at 8.30am each business day. Valuations may be made at other times with the Depositary s approval. Buying and Selling of Shares The ACD will accept orders to buy or sell shares on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the following valuation. Instructions to buy or sell shares may be made either in writing to: Margetts Fund Management Ltd, PO Box 12081, Brentwood CM14 9ND or by telephone on A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. Prices The most recent mid prices of shares are published on the Margetts website at Other Information The Instrument of Incorporation, Prospectus, Key Investor Information Document, Supplementary Information Document and the latest annual and interim reports may be inspected at the offices of the ACD, with a copy available, free of charge, on written request. The register of shareholders can be inspected by shareholders during normal business hours at the offices of the Administrator. The Head Office of the Company is at 1 Sovereign Court, Graham Street, Birmingham B1 3JR and is also the address of the place in the United Kingdom for service on the Company of notices or other documents required or authorised to be served on it. The base currency of the Company is pounds ( ) sterling. The maximum share capital of the Company is currently 10,000,000,000 and the minimum is 1,000. Shares in the Company have no par value and therefore the share capital of the Company at all times equals the Company s current net asset value. Shareholders who have any complaints about the operation of the fund should contact the ACD or the Depositary in the first instance. In the event that a shareholder finds the response unsatisfactory, they may make their complaint direct to the Financial Ombudsman Service at South Quay Plaza, 183 Marsh Wall, London E14 9SR. Data Protection Act Shareholders names will be added to a mailing list which may be used by the ACD, its associates or third parties, to inform investors of other products by sending details of such products. Shareholders who do not want to receive such details should write to the ACD, requesting their removal from any such mailing list. 8

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