from New Star Investment Trust PLC (isin : GB0002631041)
New Star Investment Trust PLC: IR-Half-yearly Results
New Star Investment Trust PLC (NSI) NEW STAR INVESTMENT TRUST PLC
This announcement constitutes regulated information.
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31st DECEMBER 2023
The Company’s objective is to achieve long-term capital growth.
FINANCIAL HIGHLIGHTS
INTERIM REPORT
CHAIRMAN’S STATEMENT
PERFORMANCE
Your Company’s generated a total return of 3.38% over the six months to 31st December 2023, leaving the net asset value (NAV) per ordinary share at 181.10p. By comparison, the Investment Association’s Mixed Investment 40-85% Shares Index gained 5.52%. The MSCI AC World Total Return Index gained 7.19% in sterling while the MSCI UK Total Return Index rose 5.58%. Over the period, global bonds returned 3.94%. Further information is provided in the investment manager’s report.
Your Company made a revenue profit for the six months of £1,467,000 (2022: £735,000). The 2022 revenue profit was struck after the £385,000 direct management fee was deducted. Following a change in accounting treatment last year, direct management fees are now taken from capital.
GEARING AND DIVIDENDS Your Company has no borrowings. It ended the period under review with cash representing 14.70% of its NAV and is likely to maintain a significant cash position. In respect of the six months to 31st December 2023, your Directors will pay an interim dividend of 1.70p per share (2022: 0.90p). Over the second half of 2023, your Company continued to increase its investments in income-yielding assets with the aim of enhancing its revenue and thus its dividend-paying capacity. Further purchases of income-yielding assets were made after the period end.
DISCOUNT Your Company’s shares continued to trade at a significant discount to their NAV during the period under review. The Board keeps this issue under review.
OUTLOOK
NET ASSET VALUE
Your Company’s unaudited NAV at 29th February 2024 was 184.56p.
Geoffrey Howard-Spink Chairman 21st March 2024
INVESTMENT MANAGER’S REPORT MARKET REVIEW
Global equities and bonds rose 7.19% and 3.94% respectively in sterling over the six months to 31 December as investors became increasingly confident that interest rates had peaked for this monetary cycle and would soon be reduced in response to falling inflation. Some leading indicators suggested the global economy would deteriorate in 2024 but a soft, rather than a hard, landing is likely.
The Federal Reserve increased its official rate by a quarter percentage point to 5.25-5.5% in July. The Bank of England raised its Bank Rate a quarter point to 5.25% in August and a month later the European Central Bank raised its policy rate a quarter point to 4%. Since then, official interest rates have been on hold although monetary policy has tightened somewhat because central banks have reduced their bond holdings. Interest rates are expected to fall in the second half of 2024, with inflation figures showing price rises trending down to central bank targets of 2%.
Inflation is now well below its 2022 peak. US personal consumption expenditures (PCE) inflation, the Fed’s preferred measure, was 3.00% in June 2023 but had fallen to 2.40% by January 2024. Eurozone inflation fell from 5.5% in June 2023 to 2.6% in February 2024. The UK’s consumer price index inflation rate fell from 7.9% in June 2023 to 3.4% in February 2024.
The US economy proved stronger than many forecasters feared, with gross domestic product (GDP) showing 4.9% and 3.2% year-on-year rises during the third and fourth quarters of 2023 as unemployment remained low and consumer spending strong. By contrast, eurozone GDP was flat over the period while the UK entered a technical recession, enduring two quarters of GDP decline.
The People’s Bank of China cut its key reserve requirement ratio by a quarter point in September and a further half point in February 2024 to support the economy as Country Garden, once China’s largest homebuilder, joined its rival, Evergrande, in defaulting on its debts, another sign of stress in the over-indebted property sector. Chinese stocks are likely to remain out of favour in 2024 for two reasons: US bipartisan support for sanctions against Chinese companies to protect US technological leadership and Beijing’s regulatory intervention in private companies in pursuit of so-called “common prosperity”. By contrast, India’s economy is outpacing the Chinese economy. The International Monetary Fund (IMF) forecasts India’s economy will grow 6.3% in 2024 compared to 4.2% for China.
PORTFOLIO REVIEW
Your Company’s total return over the period under review was 3.38%. By comparison, the Investment Association Mixed Investment 40-85% Shares sector, a peer group of funds with a multi-asset approach to investing and a typical investment in global equities in the 40-85% range, rose 5.52%. The MSCI All Companies World Total Return Index rose 7.19% in sterling while the MSCI UK Total Return Index rose 5.58%. Your Company benefited from investments in US stocks and global technology stocks while investments in some emerging market equity funds hurt performance.
US technology stocks rose 11.93% in sterling. Valuations in the technology sector and other growth sectors tend to rise in response to signs that interest rates are likely to fall because investors discount future cash flows less aggressively. Technology stocks also benefited as investors recognised the potential of artificial intelligence (AI). Nvidia, a top-three holding in Polar Capital Global Technology and the iShares S&P 500 exchange-traded fund (ETF), supplies semiconductors to artificial intelligence companies. It rose 16.77% in sterling over the period, helping Polar Capital Global Technology and the iShares S&P 500 ETF to rise 11.26% and 9.75% respectively.
Among your Company’s other global equity holdings, Baillie Gifford Global Income Growth underperformed, up only 5.37%, in part because its income mandate biased it away from lower-yielding technology stocks towards higher-yielding industrials. The portfolio’s largest holding was, however, Novo Nordisk, which gained 28.70% in sterling thanks to the success of its Wegovy weight-loss drug.
An increase in investments managed in accordance with their income mandate will support your Company’s ability to pay an income. During the period, the Fundsmith Equity holding was reduced by £5.9 million, a further £2.5 million was invested in Baillie Gifford Global Income Growth and a further £4.7 million was invested in Redwheel Global Equity Income.
UK stocks lagged, rising only 5.58%, but smaller companies outperformed, up 8.86%. UK equities ended the period trading on relatively-low earnings multiples and above-average yields. Amongst your Company’s UK equity income investments, Man GLG Income did best, returning 10.70%, but Trojan Income gained only 3.79% while Aberforth Split Level Income and Chelverton UK Equity Income, both small-cap specialists, rose 8.42% and 6.38% respectively.
Equities in Asia ex Japan and emerging market equities gained only 2.77% and 4.63% respectively in sterling, dragged lower by Chinese stocks, down 6.22%. Your Company’s relatively-high allocation to these markets hurt performance. Matthews Asia ex Japan Total Return Equity, which switched from an income to a total return mandate, fell 8.19%. Your Company’s holding was reduced by £1.0 million. Somerset Asia Income, JP Morgan Emerging Markets Income and JP Morgan Global Emerging Markets Income Trust, an investment trust, outperformed, however, rising 4.38%, 4.18% and 3.06% respectively.
Indian equities outperformed, rising 14.87% in sterling. Narendra Modi, India’s prime minister, is likely to win a third term in office in this year’s election and a mandate to continue his pro-business policies. Stewart Investors Indian Subcontinent underperformed, however, rising 6.00%. Vietnamese stocks fell 2.25% in sterling as policy makers intensified their anti-corruption campaign. Vietnam Enterprise Investments underperformed, falling 4.13%.
Japanese stocks rose 6.88% in sterling but Lindsell Train Japan lagged and was sold. The gold price rose 6.78% in sterling and BlackRock Gold & General, which holds mining stocks, rose 6.75%. Your Company’s unquoted investments account for less than 2.0% of the assets.
Investments in sterling and dollar cash generated significant income, with interest rates above 5% throughout the period. With interest rates likely to have peaked for this cycle, your Company has invested £3.1 million in longer-dated US government bonds through a sterling-hedged holding in the iShares Treasury Bond 7-10 year ETF. In line with most of the other portfolio changes made over the period, this investment aims to support growth in your Company’s dividend. Further changes aimed at increasing income have been made since the period end.
OUTLOOK
There are grounds to be positive about equity and bond markets over the coming months because easier monetary policy should prove a tailwind for both asset classes. Economies have proved resilient so far in the face of rising interest rates despite well-established leading indicators suggesting the onset of recession. These include inverted yield curves as 10-year government bond yields fell below two-year yields and tighter lending conditions at commercial banks.
US stocks should perform well because the economic environment is likely to favour growth sectors such as technology and growing investor recognition of the commercial possibilities of AI. There are also grounds to be positive about emerging markets although it will probably pay to be cautious about China. Some developing countries have lower levels of public sector indebtedness than industrialised countries and better economic growth prospects. The International Monetary Fund predicts that developing countries will show 4% economic growth in 2024 against 1.4% for developed countries.
Political risks are likely, however, to move markets more this year than in 2023 because a large percentage of the world’s population will be voting in general elections. Countries holding elections in 2024 include the US, India, Taiwan, Indonesia, Pakistan, South Africa and Mexico and probably the UK. Sterling and dollar cash, low-risk multi-asset investments, gold equities and bonds provide diversification and should prove defensive should equities fall.
Brompton Asset Management Limited
DIRECTORS’ REPORT PERFORMANCE
In the six months to 31st December 2023 the total return per Ordinary share was 3.38% (2022: 0.19%) and the NAV per ordinary share increased to 181.10p, whilst the share price decreased by 3.33% to 116.00p. This compares to an increase of 5.52% in the IA Mixed Investment 40-85% Shares Index.
The Company made a revenue profit for the six months of £1,467,000 (2022: £735,000).
The management fee charged directly by Brompton is now allocated to the capital account. Compared with the corresponding period last year, the amount available for distribution has increased by £385,000 (£0.55p per share).
DIVIDEND
The Directors propose an interim dividend of 1.70p per Ordinary share in respect of the six months ended 31st December 2023 (2022: £0.90). The dividend will be paid on 29th April 2024 to shareholders on the register at the close of business on 2nd April 2024 (ex-dividend 28th March 2024).
INVESTMENT OBJECTIVE
The Company’s investment objective is to achieve long-term capital growth.
INVESTMENT POLICY
The Company’s investment policy is to allocate assets to global investment opportunities through investment in equity, bond, commodity, real estate, currency and other markets. The Company’s assets may have significant weightings to any one asset class or market, including cash.
The Company will invest in pooled investment vehicles, exchange traded funds, futures, options, limited partnerships and direct investments in relevant markets. The Company may invest up to 15% of its net assets in direct investments in relevant markets.
The Company will not follow any index with reference to asset classes, countries, sectors or stocks. Aggregate asset class exposure to any one of the United States, the United Kingdom, Europe ex UK, Asia ex Japan, Japan or Emerging Markets and to any individual industry sector will be limited to 50% of the Company’s net assets, such values being assessed at the time of investment and for funds by reference to their published investment policy or, where appropriate, their underlying investment exposure.
The Company may invest up to 20% of its net asset value in unlisted securities (excluding unquoted pooled investment vehicles) such values being assessed at the time of investment.
The Company will not invest more than 15% of its net assets in any single investment, such values being assessed at the time of investment. Derivative instruments and forward foreign exchange contracts may be used for the purposes of efficient portfolio management and currency hedging. Derivatives may also be used outside of efficient portfolio management to meet the Company’s investment objective. The Company may take outright short positions in relation to up to 30% of its net assets, with a limit on short sales of individual stocks of up to 5% of its net assets, such values being assessed at the time of investment.
The Company may borrow up to 30% of net assets for short-term funding or long-term investment purposes.
No more than 10%, in aggregate, of the value of the Company’s total assets may be invested in other closed-ended investment funds except where such funds have themselves published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds.
SHARE CAPITAL
The Company’s share capital comprises 305,000,000 Ordinary shares of 1p each, of which 71,023,695 (2022: 71,023,695) have been issued and fully paid. No Ordinary shares are held in treasury, and none were bought back or issued during the six months ending 31st December 2023.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks identified by the Board, and the steps the Board takes to mitigate them, are discussed below. The audit committee reviews existing and emerging risks on a six monthly basis. The Board continues to monitor the geopolitical, societal, economic and market focused implicati |