New City High Yield Fund Ltd : Interim Manageme...

To:      THOMSON REUTERS
Date:  17 May 2012
From: New City High Yield Fund Limited

Interim Management Statement

For the Three Month Period from 1 January 2012 to 31 March 2012

Investment Objective

The investment objective of the Company is to provide investors with a high dividend yield and the potential for capital growth by investing mainly in high yielding fixed interest securities.

Performance Summary

Total Return	For the three month period ended 31 March 2012
Net asset value per share	+8.0%
Ordinary share price	+8.6%

Capital Values	As at  31 March 2012	As at 31 December 2011	% Change
Net assets	£125.4 million	£117.9 million
Net asset value per share	56.94p	53.55p	+6.3%
Share price	61.13p	57.13p	+7.0%
Premium	7.4%	6.7%
Gearing (100 = nil geared position) *	103	102

• Gearing = Total assets ÷ Equity Shareholders' Funds 

Review for the Period:

The net result in the Greek chapter of the peripheral sovereign debt market looks to be the vast majority of bond holders agreeing to an exchange and write-down of their paper, but not enough to avoid the Collective Action Clause (CAC) being triggered by the Greek government and as a result a credit event was deemed to have occurred triggering the Greek CDS, albeit after long and probated debates behind the walls of ISDA.  This was deemed a positive for the sovereign CDS market, again probably short term.  Our view remains that any further restructuring in European sovereigns will be on an individual case by case basis.

As for Greece?   The long term outlook is not great; with German tour operators indicating a 33% fall in booking to Greek destinations this summer.  Whilst some of this volume may be picked up elsewhere, in Greece the Germans are viewed as big spenders as tourists and unless their numbers are replaced by either the Scandinavians or Russians and not the British or French, who are viewed as being more cautious with their holiday spending, then growth is far away.

At the end of the quarter, German Chancellor, Angela Merkel, was eventually persuaded to relax the German resistance to increasing the Eurozone financial firewall after the renewed fear over the existing €200 bn commitments to run alongside the permanent bail-out plan of €500 bn; positive but still too small to support both Italy and Spain!

For the Company, a positive quarter with the total return of NAV +8.01% and the share price +8.62%, and we paid a second increased interim dividend of 0.88p at the end of February.  

Major changes in the portfolio were the call of the Katanga 14% 2013 Can $ bond in early January, the sale of Resolute Mining ordinary shares which were a resultant holding from the convertible bond in early February for a sensible profit.

The Company opened a holding in Norcell 10 1/4% bond 2019, a Euro denominated piece of paper at the beginning of the quarter as we found it attractive in both yield and the opportunity to have its credit perception improved.  This was to be proved right as we sold the holding two months later for a 10% profit.  We used the funds from Katanga to add to Ocean Rig 9 1/2% 2016 below par and Panoro 12% 2018 both in US dollars as there were no Canadian dollar opportunities at the time.  A holding was added in Northland Resources AB 13% 2017, again in US dollars, an iron ore miner on the Swedish/Finish border with an Oslo listing in February.  In March when a bid for Neo Materials effectively capped the upside for the convertible bond holding, we switched into a new convertible from Great Western Minerals, a vertically integrated rare earth business.

Looking to the future of the portfolio we continue to look for opportunities to increase income streams and enhance capital.  We expect to have opportunities over the coming months as the lack of liquidity continues to provide volatile markets.

Dividend:
A second interim dividend for the year to 30 June 2012 of 0.88p per share was paid on 24 February 2012 to shareholders on the register on 27 January 2012.

Top Ten Holdings as at 31 March 2012

Company	Sector	Percentage of total assets
Antares Energy 10% 2013	Oil and Gas	3.8
Balfour Beatty 10.75% Cum Pref	Construction	3.7
REA Finance 9.5% 2017	Food products	3.5
Cable & Wireless 8.625% 2019	Telecommunications	2.4
Skipton 10% 2018	Financial	2.4
Santos Finance 8.25% 2070	Oil and Gas	2.1
Phoenix Life 7.25% 2049	Insurance	2.1
Tullett Prebon 7.04% 2014	Financial	2.0
Brit Insurance 6.625% 2030	Insurance	2.0
F&C Finance 9% 2016	Financial	2.0
Total		26.0

Analysis of Investments by Currency as at 31 March 2012

	Percentage of total investments
Sterling	58
US Dollar	17
Australian Dollar	9
Euro	6
Norwegian Krone	5
Swedish Krone	3
Canadian Dollar	2
Total	100

Analysis of Investments by Asset Class as at 31 March 2012

	Percentage of total investments
Bonds	74
Convertibles	13
Preference shares	9
Equities	4
Total	100

Analysis of Investments by Quotation as at 31 March 2012  

	Percentage of total investments
Listed/Quoted on a recognised investment exchange	98
Unquoted (convertible into a security quoted on a recognised exchange)	1
Unquoted	1
Total	100

Significant Events or Transactions since 31 March 2012
A third interim dividend for the year to 30 June 2012 of 0.88p per share was declared on 19 April 2012.  This dividend is payable to shareholders on the register on 27 April 2012 and will be paid on 25 May 2012.

The Board is not aware of any other significant events or transactions which have occurred since 31 March 2012 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Daily and Key Information
Further information regarding the Company including the share price and the recent monthly fact sheet, can be found at the Investment Manager's website www.ncim.co.uk

Disclaimer
This interim management statement has been prepared solely to provide information to meet the requirements of the UK Listing Authority's Disclosure and Transparency Rules.

For further information please contact:
Ian Francis, New City Investment Managers    
020 7201 5366

Martin Cassels, R&H Fund Services Limited
0131 625 2951

Beth Harris, Newgate Threadneedle Limited
0207 653 9850

Note to Editors:

New City High Yield is managed by Ian Francis of New City Investment Managers.

The investment objective of the Company is to provide a high gross dividend yield and the potential for capital growth by mainly investing in high yielding fixed interest securities.

If you would like to receive the monthly factsheet on the New City High Yield Trust or any of the other New City Investment Managers' trusts please email [e-mail]

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Source: New City High Yield Fund Ltd via Thomson Reuters ONE

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