TB WISE INCOME. Annual Short Report For the year ended 28 February 2010

Transcription

1 Annual Short Report For the year ended 28 February 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 2.22% p.a. 1.57% p.a. ¹ To 28 February 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 28 February 2010 (%) 6 months 1 year 3 years A Shares (20.87) B Shares (19.64) FTSE 100 Total Return Index¹ (3.43) IMA Active Managed Sector Mean¹ (4.61) ¹ Source: Lipper Hindsight. 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.

3 Overview This report will discuss the fund s performance, and the ways it has changed, during the year ended February 28th 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. 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 This one applies mainly to new investment. The forecast income yield for the year is 4.6p for the A shares. The forecast yield is the amount a holder will receive per unit over the course of the year, if we make no portfolio changes and all payments are maintained at last year s levels. We update the forecast with declared dividend cuts or increases as soon as these are known. We update the forecast on our website once a month. At the end of the review period the A share price was 78.54p, so the forecast yield is 5.86% net of basic rate tax, and TB Wise Income more than fulfils its first aim. TB Wise Income is now a high-yielding fund. The FTSE-All Share index yields 3.1%, and U.K. Equity Income funds, which tend to invest in the higher yielders, are mainly paying in the region of 3.5 to 4.5%, with a benchmark requirement of 10% above the All-Share yield (3.4%). U.K. government stock yields 4.0% before tax. Corporate bond yields have fallen over the last year as prices have risen. The well-respected Invesco Perpetual Corporate Bond fund yields 5.1% pre-tax. So Wise Income s 5.86% net is a high yield. This yield is the result of deliberate policy on our part. Investors are being starved of yield by the central banks interest rate policy. At a time when inflation in the U.K. is over 3.0%, it is extraordinary that the base rate is 0.5%. For a while investors were too nervous to consider moving out of cash, but as time goes on, we expect high-yielding assets to become increasingly attractive to investors, which should cause their prices to rise. This will happen so long as the income streams we hold turn out to be sustainable, which is the focus of our research in this area. I believe that income fund managers should always be on the lookout for assets which are unfashionable rather than inherently flawed. These assets will tend to offer a high yield. In time, the fashion will change, the price of the asset will rise, and the yield will correspondingly fall. Then it s time to take profits and look for the next unfashionable asset. Despite the recent market rise, we are finding no shortage of high-yielding unfashionable assets to invest in.

4 Second Aim The income paid by TB Wise Income A Shares since launch has been, in pence per unit (forecast) There is good and bad news here. As late as the summer of 2008, I was confident that we would have few, if any dividend cuts; however in the chaos which followed, yields were slashed, with the result that 2009 s payment was nearly a quarter lower than 2008 s. This was particularly disappointing as TB Wise Income s dividend cut coincided with the drastic reduction in interest rates, which led to the evaporation of many unit holders savings income. On the other hand, 2010 s income looks likely to be around 19% up on 2006 s, equivalent to a 4.0%p.a. compound rise, and will be higher than any previous year apart from Looked at another way, the total dividends paid in the fund s first five years ( ) look likely to be around 22.4p or roughly 4.5%p.a. net based on the fund s starting price. Third Aim At the end of the period TB Wise Income s A units were 78.54p, and the B units 80.49p was an annus horribilis for the fund was very good with the fund returning around 40% on a total return basis including income. However, the strong recovery was not sufficient to recoup the earlier losses, with the result that at the end of the review year, the income units were around 20% below the level at which they were launched in October The reason why was so bad for income funds was because so much income arises from the financial and property sectors which were at the epicentre of the crisis. We were not nearly ruthless enough in avoiding the vulnerable areas. The fund s portfolio was not changed radically between and A little over 60% of the value of the fund on February 28th 2010 was in assets which were in the fund a year earlier. It wasn t so much that we switched out of bad assets which went down into good ones which went up, but rather that assets which investors had priced for oblivion, survived and in due course bounced back. The most extreme example in the portfolio is Legal & General, a share we have held throughout , which has quadrupled in value from its low point. TB Wise Income was 38th out of 125 funds in the IMA Active Managed sector in We are in the Active Managed sector because, of all the IMA categories, it offers us the greatest freedom of movement, the only stipulation being that we must hold 10% of the fund in overseas shares at all times.

5 In order to fulfil our aim of a fund price rising in line with inflation, the income share fund price would need to be around 1.13, so prices of 83.3p for A shares and 85.5p for B shares (as at 21st April) are disappointing. While it s impossible to predict the share price performance, TB Wise Income holds some high-yielding and undervalued assets. We continue to believe that investors will increasingly seek these assets out as time goes on. Looking ahead, our main threats are more dividend cuts, and inflation. We will do all we can to avoid the first of these challenges, but the other will be harder. In general, though, real assets such as shares and property, where yields can rise, fare better at times of inflation than cash and fixed interest. Summary At present, the fund s first aim is more than achieved. We expect to fulfil our second aim this year, but by a more erratic path than we would have chosen. Despite a strong recovery in the last year, the fund has failed so far to achieve its third aim, and by a wide margin.

6 Fund Selection and Asset Allocation As already mentioned, portfolio activity over this year has been fairly limited. The main sector changes have been a big rise in U.K. direct shareholdings from 11.4 to 23.4%, and a corresponding fall in unit trust holdings in the same sector. The main reason for the change has been a concern that the unit trusts all invest in the same few very large companies (Vodafone, GlaxoSmithKline, Tesco and others). We are very comfortable with these companies, but we now invest directly, at lower cost. Also, we have found some excellent undervalued smaller companies (Severfield Rowan, Morgan Sindall and Charles Taylor Consulting currently) paying high, well-covered dividends. The small drop in corporate bonds as a proportion of the total is due to the fact that the sector has performed a little less well than the shares. Sector Asset allocation as at Asset allocation as at 28 February February 2009 (%) (%) 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

7 Outlook Our aim in managing the fund will be to continue focussing on the quality of the earning streams we invest in. We anticipate periods of market turbulence, and hope to be able to use these times to add to our best ideas, and add new ones. Tony Yarrow Fund Manager 3 June 2010 TOP TEN HOLDINGS Top Ten Holdings as at 28 February 2010 (%) Top Ten Holdings as at 28 February 2009 (%) 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 4.8 Newton Global Higher Income 4.0 Rights & Issues 3.8 Standard Life 3.7 Aviva 3.5 Invesco Perpetual High Income 8.4 Henderson High Income 8.2 City of London 5.7 Temple Bar 4.2 Standard Life UK Equity High Income 3.8 Aviva UK Equity High Income 3.5 Newton Global Higher Income 3.5 Ecclesiastical Insurance Office 8.625% 3.2 F&C Commercial Property 3.2 Ignis Argonaut European Income 3.1

8 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 distributed price price distributed per share per share (pence) (pence) (pence) (pence) (pence) (pence) From 3 October. 2 Prices to 28 February and net revenue to 30 April. 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 Dividend distributions/accumulations for the year ended 28 February 2010 Quarter Ended Share Class 31 May August November February 2010 (pence (pence (pence (pence per unit) per unit) per unit) per unit) B Income A Income B Accumulation A Accumulation 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, ,597,249 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, ,990,919 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 Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU 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: