FP Matterley Undervalued Assets Fund

Transcription

1 FP Matterley Undervalued Assets Fund Short Report for the year ended 30 September 2014 Investment Objective and Policy The investment objective of the Fund is to achieve long-term capital growth. The Fund aims to invest predominantly in securities of UK companies, either directly or indirectly, which the Investment Manager considers to be undervalued relative to its asset base and to the returns on capital the companies are generating. The Fund may also invest in other transferable securities, units or shares in Collective Investment Schemes, money market instruments, deposits, cash, near cash and derivatives and forward transactions. Fund Facts Risk Profile Interim/Annual Accounting End Dates 31 March 30 September Ex-dividend (xd) Dates 01 April 01 October Income Distribution/ Accumulation Dates 31 May 31 January Please refer to the Full Prospectus for details of all the risks. The Fund has exposure to credit, counterparty and usual market risks. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up. Exchange rate changes may cause the value of any overseas investments to rise or fall. You should always regard investments in the Fund as medium to long term. Charges Share Class Initial Charge Annual Management Charge as at 30/09/14 Ongoing Charge Figure as at 30/09/14 Ongoing Charge Figure as at 30/09/13 Share Class A 0.00% 1.25% 1.38% 1.37% Share Class B 0.00% 0.75% 0.88% 0.87% Distributions/Accumulations The distribution for Share Class A Income is p per share, payable 31 January The distribution for Share Class A Accumulation is p per share, payable 31 January The distribution for Share Class B Income is p per share, payable 31 January The distribution for Share Class B Accumulation is p per share, payable 31 January Page 1

2 Comparative Tables Net Asset Value Date Share Class A Income Net Asset Value of Share Class ( ) Shares in issue Net Asset Value per Share (p) 30/09/12 8,231,506 12,306, /09/13 8,616,058 10,120, /09/14 2,013,513 2,064, Share Class A Accumulation 30/09/12 9,432,211 13,420, /09/13 13,055,450 14,336, /09/14 3,865,524 3,649, Share Class B Income 30/09/12 6,070,689 9,000, /09/13 23,530,862 27,394, /09/14 32,397,729 32,920, Share Class B Accumulation 30/09/12 18,763,990 26,252, /09/13 27,144,887 29,164, /09/14 46,731,992 42,953, Price and Revenue History Calendar Year Share Class A Income Highest Published Share price (p) Lowest Published Share price (p) Net Revenue per Share (p) 2010¹ ³ Share Class A Accumulation ³ Share Class B Income 2010² ³ Share Class B Accumulation ³ From 16 February to 31 December Share Class A and B Accumulation was launched 12 August From 24 March to 31 December Share Class A Income was launched 16 February From 1 January to 30 September Share Class B Income was launched 24 March Includes the distributions paid 31 January, 31 May 2014 and payable 31 January 2015 and payable 31 January Page 2

3 Comparative Tables (continued) Major Holdings Top 10 Holdings % of Fund as at 30/09/14 HSBC 5.81 BP 4.05 Lloyds Banking 2.93 Old Mutual 2.85 Vodafone 2.71 QinetiQ 2.59 Royal Dutch Shell 2.49 Royal Dutch Shell 'B' 2.44 Barclays 2.14 Volution 2.00 Top 10 Holdings % of Fund as at 30/09/13 Vodafone 5.51 HSBC 5.08 BP 4.12 Rio Tinto 3.80 QinetiQ 2.38 Paragon 2.32 Berkeley 2.20 Tesco 2.14 Legal & General 2.13 Daejan 2.07 Portfolio Information Breakdown by Investment type Oil & Gas Producers [11.99%] Banks [8.31%] Real Estate Investment & Services [2.76%] Financial Services [7.35%] Support Services [6.11%] Household Goods & Home Construction [3.39%] Construction & Materials [0.58%] Mining [6.42%] Life Insurance [0.00%] Travel & Leisure [6.62%] Net other assets [5.56%] Non Life Insurance [0.00%] Media [1.93%] Mobile Telecommunications [5.51%] General Retailers [1.03%] Aerospace & Defence [2.38%] Technology Hardware & Equipment [0.77%] Software & Computer Services [2.62%] Tobacco [0.00%] Euro Denominated Debt Securities [0.00%] Food & Drug Retailers [2.14%] Oil Equipment, Services & Distribution [1.38%] Electronic & Electrical Equipment [2.54%] Alternative Energy [2.72%] Forward Currency Contracts [0.00%] 7.54% 7.04% 6.31% 5.26% 4.82% 4.56% 3.93% 3.91% 3.66% 3.31% 2.71% 2.66% 2.59% 1.74% 1.73% 1.72% 1.01% 0.84% 0.68% 0.63% 0.12% 0.10% 8.73% 10.88% 13.52% Comparative figures shown above in square brackets relate to 30 September Page 3

4 Portfolio Information (continued) Sector % of Fund as at 30/09/14 % of Fund as at 30/09/13 Insurance Pharmaceuticals & Biotechnology General Industrials Industrial Engineering Utilities Risk and Reward Profile As at 30 September 2014 Typically lower rewards Lower risk Typically higher rewards Higher risk FP Matterley Undervalued Assets Fund Share Class A FP Matterley Undervalued Assets Fund Share Class B This indicator is based on historical data and may not be a reliable indication of the future risk profile of the Fund. The risk category shown is not guaranteed to remain unchanged and may shift over time. The lowest category does not mean risk free. The Fund appears as a 6 on the scale. This is because it invests in the shares of companies whose values tend to vary more widely. Investment Manager s Report Investment Review During the period the Fund returned 16.4% 1 compared to the rise of 6.1% 1 for the FTSE All-Share Total Return. Strong performance came from Mecom and F&C Asset Management, both of which were bid for.f&c rose 35% 1 on a bid from Bank of Montreal, at a time when the company was valued by the market at less than 10x earnings and less than 1% of assets under management as the balance sheet was moving to a net cash position. Mecom, the newspaper group, received a bid from Dutch publisher, De Persgroep, at a time when it was trading at 6x earnings with a balance sheet moving rapidly towards net cash. We feel both instances highlight the importance of sticking to our process of choosing stocks with strong balance sheets that are significantly undervalued by the market. Kentz, the oil engineering and construction services company, was also a strong performer, rising 40% 1 during the period. It made a 40% 1 accretive purchase of Valerus, which makes small and midsized process plants for onshore US oil and gas firms. The deal also provided the potential for cross selling services across the whole group as an opportunity to drive further revenue. Page 4

5 Investment Manager s Report (continued) Investment Review (continued) On the downside weak performance came from Aberdeen Asset Management as emerging market fears caused the shares to fall by 21.8% 1. While we continued to view the 2015 story as an attractive one, based on the integration of the recent SWIP deal, we were also aware that at times such as these the short term can totally dominate. With material redemptions causing a reversal in estimates momentum we were quick to act, and shielded the portfolio from some of the share price fall. As with Mecom and F&C Asset Management, we feel the Fund s focus on businesses that would be difficult to replicate for the current price should serve us well in an environment of rising M&A. It was therefore disappointing not to own AstraZeneca at the time of the Pfizer bid. We had owned it in the past but had ceased to do so following a run of earnings downgrades. The lack of ownership did cause the Fund to suffer in relative terms, but it would have been contradictory to our process to continue to own a company with negative earnings momentum. Market Overview The period under review was one of elevated volatility relative to recent years as investors struggled with the significant uncertainty of the timing of a normalisation in interest rates. In the UK this was probably best exemplified by the forward guidance introduced by Mark Carney. An unemployment target of 7% was set before the first rate rise would be considered but this was quickly removed and the more opaque measure of productivity was introduced. The upshot of this has been that bond yields that look unsustainably low in the context of history continue to be sustained. Ultimately, this is a positive backdrop for the equity market, as there is a material yield uplift to be enjoyed for those investors who are prepared to accept the additional risk of investing in equities. The other key dynamic that the market has had to deal with has been a gradual withdrawal of central bank led quantitive easing. This has undoubtedly affected liquidity in the market place, and is something to be acutely aware of in our view. Our response to counter this threat is an overwhelming focus on the companies that enjoy the soundest capital structures. Outlook Owing to a withdrawal of liquidity in the market and an environment of sustained low bond yields, there now exists a significant unease in the investment community about both the outlook for global growth and the stability of the financial system itself as Quantitive Easing (QE) is withdrawn. With regards to low bond yields, we think it is extremely important to analyse the more benign inflationary environment we find ourselves in. The crucial question to ask ourselves is whether a fall in food, fuel and utility bills is bad news. Our view is that this is anything but deflationary, and rather than hindering growth, it in fact assists it. The concern over liquidity is extremely relevant but while the US may be reducing its asset purchases we think it is important not to forget the both the ECB and The Bank of Japan have signalled their own measures which will mean 2015 will be a year that continues to be assisted by the provision of liquidity. Page 5

6 Investment Manager s Report (continued) Outlook (continued) The most crucial fundamental elements that will define the prospects for the year ahead are valuation and the prospect of earnings growth. With valuation in mind, we are now moving to a more attractive level. While the relative attractions of equities versus bonds have been in place for a while, we are happy to say we are now starting to transition back to a level that can be described as absolute value. This is not only a function of the price falls that we have seen but also a function of earnings growing for the first time in three years. The key drivers to this earnings growth is firstly the recent weakness we have witnessed in our exchange rate which has a positive effect on the translation of overseas earnings. Secondly, and as discussed above we can point to an environment where we are finally seeing a huge boost to disposable income in the western world as the unavoidable spending items of food, fuel and utility bills are all falling in value. Our confidence in the year ahead is therefore predicated on more attractive valuation levels combined with the prospect of earnings growth, as history would relate that when earnings do grow, the probability of the equity market delivering a positive total return is in excess of 80%. Finally we think it is important to bring to the attention of investors that in September Charles Stanley terminated the sub advisory agreement for the management of this Fund. As of December this responsibility will be handed over to Miton Group. We would like to take this opportunity to thank investors for their support for the six years that I have been managing the Fund. Source 1 Bloomberg Investment Manager Charles Stanley & Co Limited 21 October 2014 Significant Information On 5 December 2014 the Investment Manager will change from Charles Stanley & Co Limited to Miton Asset Management Ltd. The information in this report is designed to enable shareholders to make an informed judgment on the activities of the Fund during the period it covers and the result of those activities at the end of the period. The long Report and Accounts are available free of charge on request. For more information about the activities and performance of the Fund during the period and previous periods, please contact: Authorised Corporate Director Fund Partners Limited Cedar House, 3 Cedar Park, Cobham Road, Wimborne, Dorset, BH21 7SB Customer Service Centre: Depositary State Street Trustees Limited 20 Churchill Place, London, E14 5HJ Investment Manager Charles Stanley & Co Limited Granville House, 25 Luke Street, London, EC2A 4AR Authorised and regulated by the FCA Authorised and regulated by the FCA Authorised and regulated by the FCA Auditor Deloitte LLP Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2DB Please note that telephone calls may be recorded for monitoring and training purposes, and to confirm investors' instructions Page 6