Interim Management Statement

RNS Number : 0279B

Personal Assets Trust PLC

26 February 2014

 

Personal Assets Trust plc

Interim Management Statement

For the Three Month Period from 1 November 2013 to 31 January 2014

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.

We aim to pay as high, secure and sustainable a dividend as is compatible with protecting and increasing the value of our shareholders' funds and maintaining our investment flexibility.

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  2014	As at 31 October 2013	Movement
Market capitalisation	£547.3m	£586.9m	(6.7%)
Shareholders' funds	£553.5m	£583.7m	(5.2%)
Equities Gold Index-Linked Government Securities Cash and cash equivalents	42.8% 11.0% 22.3% 23.9%	40.2% 11.3% 24.3% 24.2%	- - - -
Share price	£318.60	£336.60	(5.3%)
Net asset value per share	£322.23	£334.75	(3.7%)
(Discount)/Premium to NAV	(1.1%)	0.6%	-
FTSE All-Share index	3,496.51	3,585.32	(2.5%)

Period Review and Material Events

Universally low yields have been a painful thorn in our side for the past two years. At the start of 2012 we wrote about how we believed that it would be harder for us to generate good returns, given that yields across most assets had significantly compressed. That warning was timely and frustratingly accurate. Our caution on equities came too early. Not holding more in equities these last 12 months was a blow on the chin, but holding alternatives that demonstrated a negative correlation to rising stocks has been a more painful punch to the stomach. In 2000 and 2007, opportunities were available for the canny to protect capital. In 2000, it was in so-called 'old economy' stocks that had been left behind in the unseemly dash for internet stocks. In 2007 bonds offered protection along with foreign currency as sterling was extremely overvalued. Today, all those routes of escape are more dangerous. Furthermore, traditional safe haven assets such as gold and index-linked bonds have recently been anything but safe.  Trying to act prudently has been punished. Since the summer of 2012 it has, surprisingly to us, paid to be bullish.

Developed world stock markets have been driven more by the fumes of hope than the fuel of impressive earnings growth. Indeed the overwhelming majority of last year's US stock market progress came from multiple expansion rather than an improvement in corporate fundamentals. In both the UK and continental Europe, earnings in 2013 are likely to have fallen for a second consecutive year meaning that all of the impressive advances were predicated on investors' willingness to pay more for less.

Within this environment, as patient investors with an eye on value, we have found new investment opportunities to be few and far between.  A number of our favoured stocks have been de-rated recently, in part due to currency-led earnings downgrades, which we view as temporary.  This may begin to provide opportunities to increase our holdings in equities, at the margin.  We prefer buying when sentiment is soured and so we took the opportunity of share price weakness to add to our core holdings of Dr Pepper Snapple Group and Philip Morris International.

With the exception of a few selective opportunities, overall stock market valuations look anything but mouth-watering and recent parabolic surges in the social media stocks and the biotech sector are reminiscent of the tech bubble in 1999.  We will be consistent in our investment approach and not be tempted into such areas.  This is a time in the cycle where careless capital will, ultimately, be lost.

Today, it is difficult to recall another time in the recent past when optimism about the stock market, profits and the UK economy was so widespread. Fear has unquestionably surrendered to greed and stock markets, to us, look more expensive and more extended that at any time since 2007. Investor faith in central bankers is at an all-time high. Many stocks are trading on, in our opinion, nose-bleed valuations, yet investors seem happy to go tripping along a high tightrope in the belief that the Federal Reserve stands ready with a safety net, not near the floor but only inches below the rope. This explains why stock market corrections have become both shallower and more infrequent. With interest rates already at zero this safety net may be more illusionary than real. We see risk when others are blind to it and refuse to chase returns just because we have recently underperformed.

Earnings need to increase sharply to provide rational justification for current valuations of most stocks and markets. If they do not and positive market momentum continues then equity markets are at risk of entering another bubble whilst the echoes of the last two popping are still in ear shot. Stock market bubbles are very democratic; they make all investors look foolish either before or after the peak. We will always be lonely and choose the former.

Over the three months ended 31 January 2014 the Company issued 2,110 Ordinary shares for a total consideration of £0.7million, representing 0.1% of the Ordinary shares in issue at the beginning of the period and bought-back 27,942 Ordinary shares for a total cost of £9.0million, representing 1.6% of the Ordinary shares in issue at the beginning of the period.

On 21 November 2013 the Company announced a third interim dividend of £1.40 per share. This was paid to shareholders on 16 January 2014. On 22 January 2014 the Company announced a fourth interim dividend of £1.40 per share. This will be paid to shareholders on 17 April 2014. The Company also announced on that date that the Board intends to maintain, barring unforeseen circumstances, the payment of four interim dividends of £1.40 per share each to shareholders in the year ending 30 April 2015.

Top Ten Equity Holdings as at 31 January 2014

Company	Percentage of shareholders' funds	Percentage of equity exposure
Nestle	3.8	8.9
British American Tobacco	3.7	8.7
GlaxoSmithKline	3.3	7.7
Microsoft	3.3	7.7
Coca-Cola	3.0	7.0
Sage Group	2.9	6.8
Imperial Oil	2.9	6.8
Becton Dickinson	2.7	6.3
Philip Morris International	2.4	5.6
Dr Pepper Snapple Group	2.2	5.1
Other equities (11)	12.6	29.4
Total	42.8	100.0

Geographical Analysis as at 31 January 2014

Country	Percentage of shareholders' funds
US equities	21.1
UK equities	13.4
European equities	4.1
Canadian equities	3.6
Australian equities	0.6
Gold	11.0
Index-Linked Government Securities	22.3
Cash and cash equivalents	23.9
Total	100.0

Sector Distribution as at 31 January 2014

Sector	Percentage of shareholders' funds
Oil & Gas	3.0
Basic Materials	2.5
Consumer Goods	21.5
Health Care	6.3
Consumer Services	0.8
Financials	2.5
Technology	6.2
Gold	11.0
Index-Linked Government Securities	22.3
Cash and cash equivalents	23.9
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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