Interim Management Statement

RNS Number : 8879K

British Empire Sec & Gen Tst PLC

02 August 2013

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Interim Management Statement - 3 months ended 30 June 2013

This investment management report relates to performance figures to 30 June 2013.

Summary NAV Performance (total return basis)

	Qtr	Financial Year#	Calendar Year
BTEM	-3.4%	13.0%	4.7%
Benchmark2	-0.5%	14.8%	11.6%
MSCI World1	1.0%	18.9%	16.6%
MSCI World ex US	-1.3%	16.6%	10.8%

#British Empire Securities & General Trust financial year commences on the 1st October.  All figures published before the fiscal results announcement are AVI estimates and subject to change.

Quarterly Investment Manager's Review

The fear that the Federal Reserve would start to normalise monetary policy by tapering its asset purchases led to falls in stock markets around the world during May and June.  In this environment of negative investor sentiment and risk aversion, discounts widened on the types of company in which we invest.  Although we had raised cash levels in the fund early in the period, the impact of widening discounts, as well as some specific issues relating to a small number of our holdings, weighed against us and our performance against the benchmark suffered accordingly.

Since the near term lows were reached towards the end of June, markets have once again bounced back as Ben Bernanke was at pains to remind investors that "tapering" was not the same as "tightening".  The short lived correction allowed us to reinvest part of our cash into both new holdings as well as existing ones and the level of cash currently in the portfolio is c. 15%.

Performance
During the Quarter, the NAV per share fell by 3.4%, compared to a decrease of 0.5% for the Benchmark² index.

The largest positive contributors to performance were AP Alternative, Kinnevik, Orkla, Ferrovial and Macquarie International Infrastructure Fund.  The discounts on all of these holdings narrowed during the period and in the case of Ferrovial and Macquarie, this led us to sell our entire holding in the former, and the majority of our holding in the latter.

A number of specific holdings weighed heavily on our performance over period.  Detour Gold was the largest detractor.  The very sharp falls in the gold price over the period caused a substantial fall in Detour's share price.  Aker was another weak performer.  A profits warning from Aker Solutions, one of Aker's key holdings, reduced the NAV of the holding company and sent the share price lower.  Meanwhile at First Pacific, a deeply discounted capital raising combined with the general weakness of emerging markets, saw the share price fall sharply over the period.  In each of these three cases share prices have recovered since the end of June but we were able to  add to our positions at the weaker price levels.

Discounts³
At the end of June the weighted average discount of the underlying portfolio (excluding liquidity) stood at 30.4% compared to 26.9% at the end of March.  The discount calculation is a measure of how much the share price of each stock in the portfolio is below our estimate of its net asset value.  The trend in the weighted average discount can be seen in the chart below:

Weighted Average Discounts in the underlying portfolio of
British Empire Securities & General Trust (ex liquidity) 

http://www.rns-pdf.londonstockexchange.com/rns/8879K_-2013-8-2.pdf 

Activity
Activity over the period was dominated by a number of significant sales that saw the level of cash in the portfolio rise from 8.5% at the end of March to 22.6% at the end of June.  Notable sales included Jardine Strategic which had been in the portfolio for over 10 years, in which time it generated an estimated IRR of 43% per annum.  We also sold out of Ferrovial following strong share price performance which saw the discount contract to single digit levels, having been as wide as 40% when we first invested in 2011.  As described earlier, we exited from the majority of our holding in Macquarie International Infrastructure Fund after the company announced the IPO of its largest asset, Taiwan Broadcasting Corporation, and offered shareholders the choice of either shares in the newly listed company, or cash and we opted for cash. The holding in Vivendi was partially reduced following a period of strength in its share price and expectations regarding the timing of asset sales.

Several new investments were made, in particular towards the end of the period after market falls.  New holdings include Dogan Holding in Turkey where we invested on a 50% discount to NAV (and below the level of cash on the balance sheet) and Great Eagle in Hong Kong where the shares trade on a 56% discount to NAV and the potential for a return of capital following a well timed disposal of hotel assets ought to lead to good returns.

Share Buyback

We bought back 695,000 shares in British Empire during the period at an average price of 496.65p.  The shares were purchased at discounts between 12.0% and 13.5%.

Subsequent to the period end we have bought back a further 2,489,250 shares at an average price of 491.52p at discounts between 12.4% and 13.9%

Financial Performance to 30 June 2013

Statistics

	Value (GB pence)	1 qtr %	1 yr %	3 yr %	5 yr %
Price1	476.0	-3.9	19.9	22.1	23.1
Net Asset Value1	4540.4	-5.2	17.6	20.7	25.1
Net Asset Value Total Return1		-3.4	19.7	29.7	39.1
Benchmark1		-0.5	19.9	39.1	35.5

Annual Returns (%)	2012	2011	2010	2009	2008
Price1	17.8	-12.8	18.5	27.9	-22.3
MSCI World1	11.4	-4.3	15.9	16.5	-17.4

1 Source: Morningstar. Share price total return is on a mid-to-mid basis, with net income re-invested.
2 Morningstar Global Growth Index: official Benchmark from 1 October 2008
3 Discounts are AVI estimates

4 NAV Ex-Income

Top Ten Equity Holdings	% of total assets
Vivendi	6.04
Jardine Matheson	5.79
Orkla	5.06
Investor AB	4.30
Aker	3.59
Groupe Bruxelles Lambert	3.10
Kinnevik-B	3.05
Sofina	3.01
Dundee Corp	2.90
First Pacific Co	2.76

Geographic Breakdown (% of total assets)

	30/06/13	31/03/13
Europe	33.4	41.0
Americas	19.2	18.6
Pacific ex-Japan	17.8	22.5
EMEA	4.8	7.3
United Kingdom	1.6	1.6
Liquidity	22.6	8.5

~ Liquidity is held primarily in UK and US Government Securities

Sector Breakdown (% of total assets)

	30/06/13	31/03/13
European Holding Companies	25.9	30.3
Asian Holding Companies	14.0	17.5
Closed-End Funds	13.2	13.7
Property	8.7	7.3
Other	7.4	11.3
Resources & Mining	3.3	7.3
N. American Holding Companies	2.9	3.5
EMEA Holding Companies	1.3	0.0
Liquidity	22.6	8.5

Major Movers

Largest Risers	% change	% of Assets at 30/06/13
AP Alternative Assets LP	19.40%	1.51%
Investment AB Kinnevik-B SHS	8.90%	3.05%

Largest Fallers	% change	% of Assets at 30/06/13
Detour Gold Corp	-57.75%	1.28%
Aker ASA-A Shares	-22.46%	3.59%

Further Information Investment Manager - John Pennink and Joe Bauernfreund, AVI Ltd. [phone]       [e-mail] The share price can be found under 'INVESTMENT COMPANIES' in The Financial Times, The Times, The Daily Telegraph, The Scotsman and The Evening Standard. Information may be found on the following websites. www.british-empire.co.uk or www.assetvalueinvestors.com

Risk Factors you should consider before investing Investment in the British Empire Securities and General Trust plc (the "Trust") carries risks, which are more fully described in the Key Features Document.  Listed below are some of the key risks: Investors are reminded that past performance is not a guide to future performance and that their capital will be at risk and they may therefore lose some or all of the amounts that they choose to invest in the Trust. The Trust utilises gearing techniques (leverage) which exaggerate market movements both down and up and which could mean sudden and large falls in market value. Movements in exchange rates can impact both the level of income received and the capital value of your investment.  If the currency of your residence strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will reduce and vice versa. As with all stock exchange investments the value of investment trust shares will immediately fall by the difference between the buying and selling prices. Where investments are made in emerging market, unquoted securities or smaller companies, their potential volatility may increase the risk to the value of, and the income from the investment.

All figures as at the period under review unless otherwise stated.  All sources Asset Value Investors Ltd unless otherwise stated.  Asset Value Investors Limited ("AVI") is authorised and regulated by the Financial Conduct Authority ("FCA").  This document does not constitute an offer to buy or sell shares in the British Empire Securities and General Trust plc (the "Trust").  The contents of this message are not intended to constitute, and should not be construed as, investment advice. Potential investors in the Trust should seek their own independent financial advice.  AVI neither provides investment advice to, nor receives and transmits orders from, investors in the Trust nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FCA's rules. British Empire Securities and General Trust plc, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW.  Registered in England & Wales No: 28203

 

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