FP Verbatim Portfolio 5 Income Fund

Transcription

1 FP Verbatim Portfolio 5 Income Fund Short Report for the year ended 31 December 2015 Investment Objective and Policy The Fund will use a broadly cautious balanced investment strategy with the aim of achieving income with some potential for capital growth over the medium to longer term. The Fund will seek to achieve its objective through investment in Collective Investment Schemes (regulated and unregulated) as well as directly held transferable securities, derivatives, cash, deposits, warrants and money market instruments. Investment may be made globally but foreign currency exposure through non UK investments may be hedged back into Sterling. The Fund may also gain exposure (directly and indirectly) to alternatives, including but not limited to, property, commodities, hedge funds, private equity, infrastructure and loans, through investment in Collective Investment Schemes and transferable securities. The equity element of the portfolio will have a bias towards stocks generating a high and sustainable income. Use may also be made of stock lending, borrowing, cash holdings and derivatives. It is intended that derivatives may be used for investment purposes as well as for efficient portfolio management but the ACD does not anticipate that such use of derivatives will have any significant adverse effect on the risk profile of the Fund. In particularly volatile markets, the Manager may temporarily hold more than 10% in cash provided it is in accordance with the investment objective of the Fund. As the Manager has the discretion to borrow up to 10% of the value of the property of the Fund, this facility may be used to help manage liquidity. Fund Facts Risk Profile Interim/Annual Accounting End Dates 30 June 31 December Ex-dividend (xd) Dates 1 April 1 July 1 October 1 January Income Distribution/ Accumulation Dates 31 May 31 August 30 November 28 February Please refer to the Full Prospectus for details of all the risks. The Fund has exposure to credit, counterparty and usual market risks. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. You should always regard investments in the Fund as medium to long term. Charges Share Class Initial Charge Annual Management Charge as at Total Expense Ratios as at Total Expense Ratios as at Share Class A Income 5.00% 1.40% 1.97% 2.14% Share Class B Income 5.00% 0.65% 1.22% 1.39% Page 1

2 Distributions/Accumulations 2015 Share Class A Income Share Class B Income Distribution payable 28/02/ Distribution paid 30/11/ Distribution paid 31/08/ Distribution paid 31/05/15 1, Share Class A Income Share Class B Income Distribution paid 28/02/ Distribution paid 30/11/ Distribution paid 31/08/ Distribution paid 31/05/ Comparative Tables Performance record Change in net assets per Share A Income 31/12/13 B Income 31/12/13 Opening net asset value per Share Return before operating charges* Operating charges (1.97) (2.14) (2.20) (1.22) (1.39) (1.45) Return after operating charges* (1.02) (0.19) Distributions on income Shares Closing net asset value per Share * after direct transaction costs of: Performance Return after operating charges (0.85%) 9.24% 2.24% (0.15%) 9.93% 2.87% Other information Closing net asset value 3,579,545 7,144,964 8,797,770 16,333,531 11,968,228 6,647,374 Closing number of Shares 3,127,709 5,979,815 7,798,032 13,747,899 9,742,477 5,771,401 Operating charges 1.97% 2.14% 2.20% 1.22% 1.39% 1.45% Direct transaction costs 0.07% 0.10% 0.12% 0.07% 0.10% 0.12% Prices Highest Share price Lowest Share price Page 2

3 Comparative Tables (continued) Major Holdings Top 10 Holdings % of Fund as at Sarasin Global Higher Dividend Sarasin Global Dividend Sarasin Global Higher Dividend Sterling Hedge 8.50 Kimberly-Clark 1.29 Cisco Systems 1.29 Investor AB 1.26 Scottish Widows 7% Bonds 16/06/ Reckitt Benckiser 1.11 Vodafone 1.11 Barclays 1.10 Top 10 Holdings % of Fund as at Sarasin Global Higher Dividend Sarasin Global Dividend Sarasin Global Higher Dividend Sterling Hedge 7.76 Schroder All Maturities Corporate Bond 3.23 Intel 1.96 Microsoft 1.86 Nokia 1.51 Legal & General 1.46 Cisco Systems 1.40 Scottish Widows 7% 16/06/ Portfolio Information Breakdown by Investment type % 34.33% % 3.23% 2.67% 2.49% 2.45% 2.35% 2.27% 1.89% 1.49% 1.29% 1.08% 0.97% 0.84% 0.76% 0.47% 0.35% 0 Comparative figures shown above in square brackets relate to 31 December % of Fund as at % of Fund as at Insurance Page 3

4 Investment Manager s Report Investment Review Despite an uninspiring absolute performance for the year, the last quarter was relatively good for the Fund. As widely expected, the US Federal Reserve raised interest rates in December, reflecting the first rate rise in 7 years. Over the final quarter, the trend in UK gilt yields was upwards, following US Treasuries. The Bank of England 10 year gilt rose by 20bp, the total return for all gilts was -1.2% leaving the calendar year return a slim but +0.6%. This is in stark contrast to the first half of the year: in April we saw German 10 year bond yields fall below 0.1%, in essence saying that investors were prepared to tie up their money for a decade with no return. Corporate bonds, which make up 38% of the bond portfolio and are at the lower end of the range, largely held their own in Quarter 4 and credit spreads tended to tighten. As a result their return was a modest positive and up 0.7% for the year. All the same, there were problems in the US with specialist distressed debt funds resurrecting fears of liquidity problems across the market. This was unhelpful. The Fund s corporate bond exposure was maintained at an average credit rating of A minus throughout the year and no exposure to high yield energy companies. The last quarter was also a relatively good one for equities, and in particular for the core holdings in Sarasin Global Dividend Funds almost a third of the portfolio. The Franchise Power theme served us well with a strong contribution from Reckitt Benckiser over the year and steady performances from Nestle and Givaudan - a world leader in the flavour and fragrances industry - as well as Roche (held in Disruption and Innovation). Within equities, we had disappointments. The banking sector was generally weak, where we own Barclays, ING and high dividend paying Nordic banks. The American real estate firm Senior Housing Property Trust [SHP] further disappointed and over-shadowed good performances from European office property Real Estate Investment Trusts, Eurocommerciale and Klepierre. We appreciate the quality of the SHP assisted living portfolio but there is evidence of over capacity. The dividend yield is 10%, and we hold for recovery. Elsewhere, Jardine Matheson was disappointing but maintains its diverse exposure to long-term Chinese/Asean growth. We lost conviction in Amec Foster Wheeler given worsening business conditions in energy services. We sold our shares (whilst keeping entitlement to the interim dividend) and added new positions in the French power generator Engie (senior secured) bonds with a 7% coupon, and shares in Drillisch, the German mobile telephone provider, towards the end of the year. Fortunately, the Federal Reserve s 0.25% move in December was well signalled but perhaps inevitable following the decision in September to wait for calmer market conditions before raising rates. The global backdrop had indeed settled down after the summer s volatility with China taking steps to underpin confidence with further rate cuts, albeit having rattled markets by devaluing its currency in August. At this point, the Fund had struggled both in absolute terms and relative to its benchmark*; yield spreads for corporate debt had risen in almost every sector in anticipation of higher credit default rates, particularly with energy and commodity sectors battling with over capacity. Within equities, we hold Rio Tinto where, compared with its peers, we believe there is sufficient buffer within the balance sheet to fund its dividend payment short term. Page 4

5 Investment Manager s Report (continued) Investment Review (continued) Having reviewed the portfolio and being comfortable with the holdings we decided to ride out the volatility. All the same, we had liquidated a higher yielding specialist debt fund invested in mostly US dollar denominated higher yielding bank preferred securities and held within alternative investments (i.e. not in the three traditional asset classes of equities, bonds and cash), which either lacked liquidity and/or are more complex in nature. With the proceeds we invested in Sterling bonds with strong covenants such as in Kennedy Wilson (UK property), with a gross yield of over 4%. We continued with this defensive approach in the final quarter by reducing exposure to less robust parts of the market, preferring to add, as before, in infrastructure, energy distribution and residential property. Source: Sarasin Information Centre, December 2015 * Benchmark: 40% IBOXX Sterling Corporate Index; 30% MSCI AC World (Local Currency) (GBP); 30% MSCI All Countries World Daily (Net Total Return) Performance of the Fund Source: Sarasin & Partners LLP Outlook Whilst Chinese authorities have given publicity to promoting a more consumer driven economy, more recently, they favour a weakening currency in order to protect Chinese manufacturing and this requires careful monitoring in respect of corporate bond credit spreads and our equity exposure. We hope, however, that our defensive approach should stand the portfolio in good stead as and when interest rates start to normalise. Only small rises in US interest rates should help limit the dollar s rise and will contain the risk of a shock to the world s enormous debt pile. A gradual increase should not be sufficient to price investors out of the equity market to any significant extent. It will remain a slow boat to China, global industrial production will struggle and excess capacity and deflationary trends will persist. But the service sector is less affected - it typically accounts for more than 75% of Organisation for Economic Co-operation and Development (OECD) economies** and the benefits of efficiency and automation and solid employment underpin the broader economy. Page 5

6 Investment Manager s Report (continued) Outlook (continued) Economic momentum is still fragile but has improved sufficiently to mean that bond yields have stopped falling. In turn, this means that the buoyant returns on most asset classes witnessed since the financial crisis may now be more subdued as the re-rating comes to an end. Against a backdrop of rising rates, we believe that corporates that are growing should do better than those whose growth potential is more challenged. We continue to focus on companies with disciplined management, financial strength and resilient cash flows to withstand short-term periods of volatility in markets over the months ahead. As investors we need to be patient in a low growth world. Equity returns from here are more likely to be determined by individual financial performance (earnings and dividend performance), rather than a continued re-rating. This favours dividend growth stocks. Source: **Bloomberg December 2015 Investment Manager Sarasin & Partners LLP 18 January 2016 Page 6

7 Significant Information On 22 July 2014, Fund Partners Limited was authorised by the FCA as an Alternative Investment Fund Manager ( AIFM ). Under the Alternative Investment Fund Managers Directive ("AIFMD"), acting as the AIFM, Fund Partners is required to disclose how those whose actions have a material impact on the Funds are remunerated. The remuneration strategy across Fund Partners is governed by the Remuneration Committee, a committee appointed by the Fund Partners' Board. The Remuneration Committee has established an AIFM Remuneration Policy designed to ensure the AIFM Remuneration Code in the UK Financial Authority handbook is met proportionately for all AIFM Remuneration Code Staff. Fund Partners considers its activities as non complex due to the fact that regulation limits the AIF strategies conducted and the scope of investment in such a way that investor risk is mitigated. The discretion of Fund Partners and the portfolio manager is strictly controlled within certain pre-defined parameters as determined in the prospectus of each Alternative Investment Fund. In its role as an AIFM, Fund Partners deems itself as lower risk due to the nature of the activities it conducts. Fund Partners does not pay any form of variable remuneration currently. Therefore Fund Partners has provided a basic overview of how staff whose actions have a material impact on the Funds are remunerated. December 2015 Number of Beneficiaries Total remuneration paid Fixed remuneration Variable remuneration paid Carried interest paid by the AIF Total remuneration paid by the AIFM during the financial year 49 1,548,527 1,548, Remuneration paid to employees of the AIFM who have a material impact on the risk profile of the AIF 5 375, , Due to the size and structure of Fund Partners, it is determined that employees of the AIFM who have a material impact on the risk profile of the AIF include the Board and the Head of Risk and Compliance. The delegated investment manager is subject to regulatory requirements on remuneration that Fund Partners deem to be equally as effective as those detailed in the AIFMD, which would include the Capital Requirements Directive or Markets in Financial Instruments Directive. The information in this report is designed to enable shareholders to make an informed judgment on the activities of the Fund during the period it covers and the result of those activities at the end of the period. The long Report and Accounts are available free of charge on request. For more information about the activities and performance of the Fund during the period and previous periods, please contact: Authorised Corporate Director Fund Partners Limited Cedar House, 3 Cedar Park, Cobham Road, Wimborne, Dorset, BH21 7SB Customer Service Centre: Authorised and regulated by the Financial Conduct Authority (FCA) Depositary Northern Trust Global Services Ltd 50 Bank Street, Canary Wharf, London, E14 5NT Authorised by the Prudential Regulation Authority (PRA) and regulated by the FCA and the PRA Investment Manager Sarasin & Partners LLP Juxon House 100 St Paul s Churchyard London EC4M 8BU Authorised and regulated by the FCA Auditor Please note that telephone calls may be recorded for monitoring and training purposes, and to confirm investors' instructions Deloitte LLP Chartered Accountants and Statutory Auditor Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2DB Page 7