FP Matterley Regular High Income Fund

Transcription

1 FP Matterley Regular High Income Fund Short Report for the six months ended 31 July 2016 Investment Objective and Policy The investment objective of the FP Matterley Regular High Income Fund is to generate a high income with the potential for capital growth from a portfolio consisting predominantly of UK bonds, government securities, high yielding equities and preference shares. There may be occasions when the investment manager chooses to hold Collective Investment Schemes and a high level of cash and money market instruments. The Fund has no benchmark. The aim is to produce the highest income from a low risk portfolio. The FP Matterley Regular High Income Fund has distribution fund status which requires at least 60% to be invested in gilts and corporate bonds. The aim is to keep comfortably above this level through active management and to invest the balance in preference shares, equity Collectives and individual equities where underlying companies have a good record of prudent management and rising dividend payments. Fund Facts Risk Profile Interim/Annual Accounting End Dates 31 July 31 January Ex-dividend (xd) Dates 01 May 01 August 01 November 01 February Income Distribution/ Accumulation Dates 30 June 30 September 31 December 31 March 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 Ongoing Charge Figures as at Ongoing Charge Figures as at 31/01/16 Share Class A 0.00% 1.00% 1.08% 1.09% Share Class C 0.00% 0.75% 0.83% 0.84% Page 1

2 Distributions/Accumulations Distributions Distribution payable 30/09/16 30/09/15 30/06/16 30/06/15 Share Class A Income Share Class A Accumulation Share Class C Income Share Class C Accumulation Comparative Tables Date Share Class A Income of Share Class ( ) Shares in Issue per Share (p) 31/01/16 5,079,334 5,231, Percentage Change (%) 4,205,449 4,249, Share Class A Accumulation 31/01/16 1,337, , ,058, , Share Class C Income 31/01/16 50,252,536 50,667, ,580,432 50,966, Share Class C Accumulation 31/01/16 6,665,771 6,029, ,516,848 5,662, Major Holdings Top 10 Holdings % of Fund as at UK Treasury 4.75% UK Treasury 4.5% UK Treasury 8% Aberforth Geared Income Trust 1.33 Motability Operations 6.625% UK Treasury 5% Go-Ahead 5.375% Telecom Italia 6.375% British American Tobacco 1.22 British Telecomunication 8.625% Top 10 Holdings % of Fund as at 31/01/16 UK Treasury 4.75% UK Treasury 3.75% UK Treasury 4.5% British Airways 8.75% UK Treasury 8% Aberforth Geared Income Trust 1.36 Inmarsat 1.32 Legal & General 1.31 Motability Operations 6.625% Go-Ahead 5.375% Page 2

3 Portfolio Information Breakdown by Investment type % % % 6.09% 2.53% 0 Debt Securities [66.12%] Equities [20.06%] Preference Shares [5.12%] Investment Funds [7.06%] Net other assets [1.64%] Comparative figures shown above in square brackets relate to 31 January Risk and Reward Profile As at 31 July 2016 Typically lower rewards Lower risk Typically higher rewards Higher risk Share Class A Share Class C This indicator is based on historical data and may not be a reliable indication of the future risk profile of the Fund. The risk category shown is not guaranteed to remain unchanged and may shift over time. The lowest category does not mean 'risk free'. The Fund appears as a 3 on the scale. The Fund invests in fixed income investments whose values do not fluctuate widely. Page 3

4 Investment Manager s Report Investment Review The last six months have been challenging for UK focused investors but we have been pleased with the resilience of the Fund in these testing times. The main drivers of sentiment and price action in our markets have been central bank policy decisions and the UK referendum on membership of the European Union. Both of these factors have led to heightened levels of volatility in asset prices and unprecedented moves in sovereign yield curves. We started the period with ten year UK sovereign debt yields at 1.56% 1 and ended it at an all-time record low of 0.69% 1. Over the same period we have seen the FTSE 100 equity index trade in a 20% range and have witnessed double digit movement intra-week It is against this backdrop that the Fund has posted a 4.4% 2 total return whilst maintaining a 4.7% 2 gross yield. We have also continued to deliver first quartile volatility statistics on a three year basis, giving our investors a much smoother performance profile than both our competitors and many global markets We have been quite active over the period to keep the Fund positioned to capture value whilst minimising capital risk. We actively manage our duration exposure through the use of UK sovereign debt and offset this with shorter corporate debt to get the desired level of yield in the portfolio. This balance of longer sovereign debt and exposure to lower rated credits needs constantly monitoring and adjusting in these rapidly changing markets. We end the period with a higher level of duration than when we started, as the consensus expectation and indications from the Bank of England are for further base rate cuts and a potential increase in the central bank s Asset Purchase Target. Both of these events would be good for the majority fixed income allocation that we hold within the Fund and we hope to capture any further outperformance in the fixed income markets. We have also been closely monitoring the dividend sustainability of the equity allocation within the Fund and continue to look for those stocks that offer both a sustainable and growing dividend yield. A number of shorter dated corporate debt holdings were sold over the period including RELX 5.625% 2016, BA 8.75% 2016 and Next 5.875% These holdings have performed exactly as we had hoped but offer little value or upside now that they are coming up to maturity. We decided to sell prior to maturity and re-invest the proceeds in longer dated names where we see a better spread over the gilt curve. We sold a number of investment trusts during the period which had either served their purpose and were coming up to the end of their fixed term or were no-longer required as part of our asset allocation strategy. The Ecofin Power & Water Opportunities investment trust was coming to the end of its fixed life and looking to re-structure into a number of new vehicles. With the new structure not suiting the needs of our mandate we decided to sell out of this position prior to the wind-up date. We also sold our holdings in the Seneca Diversified Income Trust and the Invesco Perpetual Enhanced Income trust where we feel there are better ways of accessing these markets either directly or via another vehicle. We saw some value in preference shares and hybrid debt over the last six months and added to a number of holdings. We bought the Lloyds 9.25% preference share as well topping up our Sainsbury s 6.5% hybrid debt, both of which offered relative value at the time. In Sainsbury s case the debt has a call in 2020, with a re-set of five year swap rate plus 9.727%, which makes us pretty certain that it will be called. In order to limit our overall exposure to Sainsbury s we sold out of our equity position since we see better value in the debt. Page 4

5 Investment Manager s Report (continued) Performance of the Fund The Fund has been resilient in what has been a very turbulent six months for global markets. Over the last six months we have generated a 4.4% 3 total return and we have continued to provide a 4.7% 3 gross yield for our investors. We always focus on capital preservation and aim to minimise the volatility in our unit price which is demonstrated by our 1st quartile volatility performance over the last three years. This is reassuring when we have been experiencing such dramatic fluctuations in equity markets, with stock markets falling double digit percentages during the reference period. A lot of this is down to our multi-asset approach to investing where we can construct a number of natural hedges within the portfolio to try and minimise the impact of both expected and unexpected market events. We have a flexible mandate which allows us to target the asset classes where we currently see value to try and extract a relatively high yield whilst preserving capital. Outlook Heading in to the next six month period we anticipate a number of global events to drive markets: we expect the Bank of England to provide additional rate cuts and/or additional quantitative easing; the UK to face a period of uncertainty surrounding its Brexit negotiations; the US election to come into focus and start to impact global financial markets; and geopolitical tensions to remain heightened. These potential event risks point towards yields remaining compressed and a strong demand for high quality investments. It is during these times of uncertainty that having an extensive range of investment tools to hand becomes invaluable. Within the Fund structure we have the ability to invest across a broad range of asset classes and we are confident that we can position the Fund to continue to perform as our client s desire. With yields hitting record lows and no signs of that changing in the medium term, we fully understand the importance to investors of finding a reliable and proven source of income for their portfolios. Source: 1 Bloomberg. 2 Financial Express Analytics. 3 Financial Express Analytics as at 31 July 2016, pound sterling, net income re-invested. Investment Manager Charles Stanley & Co. Limited 2 August 2016 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 State Street Trustees Limited 20 Churchill Place, London, E14 5HT Authorised and regulated by the FCA Investment Manager Charles Stanley & Co Limited Granville House, 25 Luke Street, London EC2A 4AR 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 Auditors Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2DB Page 5