TB WISE INCOME. Interim Short Report For the six month period ended 31 August 2010

Transcription

1 Interim Short Report For the six month period ended 31 August 2010

2 INVESTMENT OBJECTIVE & POLICY The investment objective of TB Wise Income is to provide a starting yield roughly equivalent to a good building society account with the potential for income growth and capital growth from a diversified portfolio of collective investment schemes including unit trusts and open-ended investment companies, equities including investment trusts, bonds, government securities, money market instruments and cash. There will be no restriction on allocations between asset classes or geographic regions. FUND FACTS Launch date: 3 October 2005 Ex-dividend dates: 1 June, 1 September, 1 December, 1 March Dividend payment dates: 31 July, 31 October, 31 January, 30 April Total Expense Ratios¹ A Shares B Shares 2.13% p.a. 1.48% 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. INVESTMENT REVIEW Performance Cumulative returns for the periods ended 31 August 2010 (%) 6 months 1 year 3 years A Inc Shares (15.66) B Inc Shares (14.00) FTSE 100 Total Return Index¹ (5.80) IMA Active Managed Sector Mean¹ (0.48) 7.53 (4.93) ¹ Source: Lipper Hindsight. Total return, bid to bid.. As TB Wise Income is fund of funds, Index figures and IMA sector figures are to 27 August 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.

3 Overview This report will discuss the fund s performance during the six months ended August 31st 2010 and how we see the prospects for the months ahead. The figures shown above under Performance indicate that the fund has had a reasonably satisfying six months. During a period when investors have had to face a number of challenges, in particular the sovereign debt issues in Europe, and the prospect of a double-dip recession in the UK and the US, the fund has made a total return of around 4.5%, while the stock market has made 0.50% and the IMA Active Managed sector is down 0.48%. During this period TB Wise Income was the best performing fund out of 128 funds in the sector. Performance over one year has also been acceptable, with a total return of 11.34% ( A shares) and 12.08% ( B shares). Three-year performance is still poor, mainly due to losses made in the last three months of It is therefore likely that three-year performance will look much better by the time of the next report. Performance Against Aims Since launch in October 2005, TB Wise Income has had three aims. We continue to believe that these aims are right for the fund, and bear them in mind at all times. Our aims are: 1) To produce a high starting yield, equivalent to a good building society account. 2) To increase the income yield over time, in line with inflation or better. 3) To increase the capital value over time, in line with inflation or better. First Aim Our latest forecast for the fund s yield in the year ahead is 6.02%. The forecast yield now is a little higher than the 5.86% we reported six months ago, despite the small rise in the capital value. Second Aim During the period, we have been affected by BP s dividend suspension. We didn t hold BP directly, but it is held by several of our investment and unit trust holdings. Apart from that, we are not aware of any dividend cuts affecting the portfolio during this period. However, there have been a number of significant dividend increases. Also, we have continued our policy of taking profits on lower-yielding holdings, and replacing them with higher yielders. We aren t aware of any dividend cuts in the pipeline. We expect dividend increases to continue. Companies have been gathering cash over the last eighteen months, and now have the resources, and increasingly the confidence to make higher dividend payments. The fixed interest yields won t rise, and the property yields are very unlikely to do so. Over the next year, we expect modest dividend growth from the rest of the portfolio, in the order of 5-10%. We may be able to improve this return by tactical trading.

4 Third Aim The latest price we have for TB Wise Income (A Inc Class) is 83.97p (as at 18th October 2010). This is better than 78.54p at the end of February, but still a long way below the 1.00 at which the fund was launched, and the high point of 1.20 touched in May How might we help the price to move back up towards these former levels? My answers to this question have been the same for some time now. First, a lot of companies are in far better shape than the economy as a whole, and we are investing in the companies and not the economy. Second, there is a particular opportunity in the financial sector, which is the one investors remain most nervous about. Companies in the sector some banks (HSBC and Standard Chartered), insurance companies (Legal & General, Standard Life) investment companies and wealth managers are trading strongly, and raising large amounts of cash which can act as a cushion against future shocks, and be used to maintain and increase dividends. It s also worth remembering that many of these companies benefit from reduced competition, as competitors have been forced to scale back their operations or withdraw altogether. I believe that we are in a bull market in shares. Bull markets tend to have three distinct phases, a recovery phase, a growth phase and a speculative phase. The first one takes prices up from oversold levels. The second is driven by growth in earnings and dividends. The third happens when investors come to the conclusion that shares can only go up, and the hot money pours in. This time round, the recovery phase lasted from March to October 2009, and was followed by a long period of sideways trading, which probably ended at the end of June. We are now in the early stages of the second phase, during which we believe, and are already seeing, that investors are more confident to hold the better financial companies. If we are right, then the fund will make acceptable returns over the next six months.

5 Sector and Fund Review A glance at the sectors at the beginning and end of the period shows that there have been no significant changes to the shape of the portfolio in the last six months. We continue to be very comfortable with the vast majority of our holdings. Our property trusts are good value again, and the dividend payments have settled down at attractive levels in the 7-8% region. TB Wise Income has twelve individual shareholdings, all in UK based companies. There are two main themes good cyclical companies and financials. The cyclical companies must be strongly managed, have little or no debt, be market leaders and clearly capable of surviving difficult periods. The four companies in this area (Balfour Beatty, W.S Atkins, Morgan Sindall, Severfield Rowen) have all experienced major price falls, have started to recover from low levels, and pay attractive dividends. The financial companies include four life assurers (Legal & General, Standard Life, Royal and Sun Alliance, Aviva) and three others, Close Brothers (UK merchant banks and investment company), Investec (investment manager) and Charles Taylor (insurance services). The only area of slight concern is among the U.K. investment trusts. Our two largest holdings, City of London Trust and Henderson High Income have both performed strongly in the year to date, up 11.7% and 13.0% respectively on a total return basis the FTSE-100 is up 3.0%. Both are now at small premiums to their net asset values. As a general rule, it isn t a good idea to hold investment trusts when they re at premiums, so we aim to reduce these holdings over time, and re-deploy the cash into other trusts, and possibly some individual shares. The asset allocations at the balance sheet date are shown below: Sector Asset allocation as at Asset allocation as at 31 August February 2010 (%) (%) Asia Europe International Property UK Preference Shares UK Equity Income - Investment Trusts UK Equity Income - Shares UK Equity Income - Unit Trusts UK Smaller Companies Cash and other Total

6 Outlook Our aim in managing the fund will be to continue focussing on the quality of the earning streams we invest in. TB Wise Income is a high-yielding fund, and if the yield can be maintained and enhanced, as is our aim, capital growth should follow. Tony Yarrow Fund Manager 21 October 2010 TOP TEN HOLDINGS Top Ten Holdings as at 31 August 2010 (%) Top Ten Holdings as at 28 February 2010 (%) Henderson High Income 7.9 Standard Life Property Income 6.6 Small Companies Dividend Trust 5.1 Invesco Perpetual High Income 4.6 Ignis Argonaut European Income 4.1 Rights & Issues 4.1 City of London 4.0 Newton Global Higher Income 4.0 ISIS Property 3.5 Ecclesiastical 8.625% Non-Cum IRR Pref 3.4 Henderson High Income 8.0 City of London 7.6 Invesco Perpetual High Income 6.5 Standard Life Property Income 6.3 Ignis Argonaut European Income 5.7 Small Companies Dividend Trust 4.8 Newton Global Higher Income 4.0 Rights & Issues 3.8 Standard Life 3.7 Aviva 3.5

7 PERFORMANCE Share Price and Revenue B Income shares A Income shares Calendar year Highest Lowest Net revenue Highest Lowest Net revenue price price distributed price price distributed per share per share (pence) (pence) (pence) (pence) (pence) (pence) B Accumulation shares A Accumulation shares Calendar year Highest Lowest Net revenue Highest Lowest Net revenue price price accumulated price price accumulated per share per share (pence) (pence) (pence) (pence) (pence) (pence) From 3 October. 2 Prices to 31 August and net revenue to 31 October. 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.

8 Dividend distributions/accumulations for the six months ended 31 August 2010 Quarter Ended Share Class 31 May August 2010 (pence (pence per unit) per unit) B Income A Income B Accumulation A Accumulation 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.

9 Net Asset Values B Income shares A Income shares Date Total shares NAV NAV Total shares NAV NAV in issue per share in issue per share (pence) ( ) (pence) ( ) 15 Mar ,877, ,591,201 6,199, ,674, Feb ,502, ,667,391 6,789, ,950, Feb ,045, ,040,062 7,163, ,597, Aug ,534, ,449,238 7,476, ,844,415 B Accumulation shares A Accumulation shares Date Total shares NAV NAV Total shares NAV NAV in issue per share in issue per share (pence) ( ) (pence) ( ) 15 Mar ,661, ,701,923 2,348, ,367, Feb ,471, ,023,304 2,077, ,412, Feb ,020, ,015,034 2,060, ,990, Aug ,069, ,106,872 1,862, ,865,938 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 Wise Investments Limited Broadstone Grange Broadstone Hill, Old Chalford Chipping Norton Oxfordshire OX7 5QL 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 2 New Street Square London EC4A 3BZ Registered to carry out audit work by the Institute of Chartered Accountants in England and Wales. 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: