Interim Management Statement

RNS Number : 8904A

Personal Assets Trust PLC

08 February 2011

 

Personal Assets Trust plc

Interim Management Statement

For the Three Month Period from 1 November 2010 to 31 January 2011

Investment Objective

Personal Assets is an investment trust run expressly for private investors. Its capital structure is the simplest possible for an investment trust, consisting only of ordinary shares. Its investment objective is to protect and increase (in that order) the value of shareholders' funds over the long term and to earn as high a total return as is compatible with a risk equivalent to that of the FTSE All-Share Index. Since Personal Assets invests for the long term, the Board assesses performance not annually at the end of each accounting year but over rolling three-year periods.

We aim to pay as high, secure and sustainable a dividend as is compatible with maintaining our investment flexibility. Our policy is for the present dividend rate to grow over the long term in real terms relative to both the Retail Price Index and the Consumer Price Index and never to cut the dividend rate, so shareholders know that each payment will at least equal the previous one.

The Board's policy is to ensure that the shares of Personal Assets always trade at close to NAV.

Performance Summary

	As at  31 January  2011	As at 31 October 2010	Movement
Market capitalisation	£283.4m	£266.7m	6.3%
Shareholders' funds	£276.6m	£263.3m	5.1%
Effective liquidity (1)	45.4%	43.0%	-
Share price	£306.50	£306.75	-0.1%
Net asset value per share	£299.12	£302.82	-1.2%
Premium to NAV	2.5%	1.3%	-
FTSE All-Share index	3,044.27	2,936.15	3.7%

⁽¹⁾ Includes holding in Gold Bullion Securities of 12.9% at 31 January 2011 (31 October 2010: 12.2%).

Period Review and Material Events

Up until the end of August, with the announcement of the second round of money printing, markets looked set for a lacklustre year.  At the end of the summer, UK and US stocks had fallen 5% and 7% respectively for the year to date.

The willingness to use the monetary printing press again sent risk assets on a roll, with UK stocks lurching up 17% while US stocks rose by 19% in the following four months.  Cyclical and industrial related shares performed well, leaving some of our favoured holdings behind.  Our natural bias is away from more speculative small and mid cap stocks that are more likely to be subject to the vagaries of the business cycle.  Long standing investors in PAT will not be surprised that we lagged the market in these months.  Our determination to avoid such investments can lead to periods of underperformance but has always worked out over any meaningful investment horizon.

The renewed bout of paper money debasement helped the gold price to soar, ending the year at or near all time highs in most major currencies.

Federal Reserve Chairman, Ben Bernanke, goaded investors to speculate, even openly admitting as much in an op-ed piece in the Washington Post after QEII was eventually confirmed in November.  He said;

"This approach (quantitative easing) eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose … higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

We question whether a 'manufactured' rise in the stock market will generate the desired re-leveraging of the consumer and thereby germinate a recovery in the US economy.

The rise in stock prices Mr Bernanke so dearly desires may come, but it will prove totally unsustainable, merely bringing returns forward in the same way the Fed's loose monetary policy achieved in the late 1990s and again in 2003-7.  The gain will not come without subsequent pain. Puffing up asset prices through the use of loose monetary policy only provides a misplaced confidence of perpetual capital gains. As the perceptive and too often ignored economist, Ludwig von Mises, said of asset bubbles: 'In fact, all this amazing wealth is fragile, a castle built on the sands of illusion'. It is only retained gains that count in the long run.

As investor confidence grows and memories of 2008 gradually dissipate, we need to consider a more volatile outlook.  Shareholders need to be aware that momentum investing has returned, which does not suit our value-based, qualitative approach. In previous periods when there has been a paucity of attractive investment opportunities we had the comfort of turning to cash to preserve investor's capital and produce a decent positive real return. In an inflationary but zero interest rate world this safety valve has been turned off.  Nevertheless, equity exposure has fallen during the last quarter from 57% to 55%.  Shareholders can expect us to become more cautious as markets rise and the number of investment opportunities decline.  Amid our natural caution, we are continuing to find a number of undervalued blue chips that are a refuge to invest new monies at attractive rates of return, Microsoft being a recent addition to the portfolio.

Over the three months ended 31 January 2011 the Company issued 55,361 Ordinary shares for a total consideration of £17.2 million, representing 6.4% of the Ordinary shares in issue at the beginning of the period.

The Board intends that during the Company's financial year beginning 1 May 2011 the Company will move from paying dividends half-yearly to paying dividends quarterly. Full details will be announced to shareholders before 30 April 2011.

Top Ten Equity Holdings as at 31 January 2011

Company	Percentage of shareholders' funds	Percentage of equity exposure
British American Tobacco	5.2	9.5
Nestle	4.6	8.4
Coca Cola	4.6	8.4
Diageo	3.4	6.2
Tesco	3.4	6.2
Vodafone	3.2	5.9
GlaxoSmithKline	3.1	5.7
Johnson & Johnson	3.0	5.5
Centrica	3.0	5.5
Philip Morris International	3.0	5.5
Other equities (9)	18.1	33.2
Total	54.6	100.0

Geographical Analysis as at 31 January 2011

Country	Percentage of shareholders' funds
UK equity exposure	26.2
US equities	21.9
European equities	4.6
Australian equities	1.9
Liquidity	45.4
Total	100.0

Sector Distribution as at 31 January 2011

Sector	Percentage of shareholders' funds
Basic Materials	4.4
Consumer Goods	24.2
Health Care	7.0
Consumer Services	4.9
Telecom	3.2
Utilities	3.0
Financials	2.6
Technology	5.3
Liquidity	45.4
Total	100.0

Additional Information

Further information regarding the Company, including Quarterly Reports and Investment Plan documents can be obtained from the Company's website www.patplc.co.uk or from Steven Budge, Personal Assets Trust plc, 10 St. Colme Street, Edinburgh EH3 6AA. Telephone: [phone].

Email: [e-mail]

 

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