New Star Investment Trust PLC (NSI)
New Star Investment Trust PLC: Annual Financial Report
30-Sep-2019 / 07:00 GMT/BST
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NEW STAR INVESTMENT TRUST PLC
This announcement constitutes regulated information.
UNAUDITED RESULTS
FOR THE YEAR ENDED 30TH JUNE 2019
New Star Investment Trust plc (the 'Company'), whose objective is to achieve
long-term capital growth, announces its consolidated results for the year
ended 30th June 2019.
FINANCIAL HIGHLIGHTS
30th June 30th June %
2019 2018 Change
PERFORMANCE
Net assets (GBP '000) 113,971 111,366 2.34
Net asset value per Ordinary share 160.47p 156.80p 2.34
Mid-market price per Ordinary share 111.00p 113.00p -1.77
Discount of price to net asset value 30.83% 27.9% n/a
Total Return* 2.98% 6.5% n/a
IA Mixed Investment 40% - 85% Shares 3.66% 4.9% n/a
(total return)
MSCI AC World Index (total return, 10.30% 9.5% n/a
sterling adjusted)
MSCI UK Index (total return) 1.68% 8.3% n/a
1st July 2018 to 1st July 2017 to
30th June 2019 30th June 2018
Revenue return per Ordinary 1.81p 1.17p
share
Capital return per share 2.86p 8.51p
Return per Ordinary share 4.67p 9.68p
TOTAL RETURN* 2.98% 6.5%
PROPOSED DIVIDEND PER ORDINARY 1.40p 1.00p
SHARE
* The total return figure for the Group represents the revenue and capital
return shown in the consolidated statement of Comprehensive income plus
dividends paid (the Alternative performance measure).
CHAIRMAN'S STATEMENT
PERFORMANCE
Your Company's net asset value (NAV) total return was 3.0% over the year to
30th June 2019. This took the year-end NAV per ordinary share to 160.47p. By
comparison, the Investment Association's Mixed Investment 40-85% Shares
index gained 3.7%. Your Directors believe this benchmark is appropriate
because your Company has, since inception, been invested in a broad range of
asset classes. In a volatile year, global equity markets generated positive
returns although European and Asian equities underperformed US equities as a
result of escalating trade tensions, slowing economic growth and fears about
the consequences of a "no deal" Brexit. The MSCI AC World Total Return and
MSCI UK Total Return Indices gained 10.3% and 1.7% respectively while UK
government bonds returned 5.2%. Further information is provided in the
investment manager's report.
EARNINGS AND DIVIDEND
The revenue return for the year was 1.81p per share (2018: 1.17p). This
represents a substantial increase. Your directors do not envisage increases
of a similar magnitude in subsequent years. A performance fee of 0.58p per
share (2018: nil) was deducted from capital.
Your Company has a revenue surplus in its retained revenue reserve, enabling
it to pay a dividend. Your directors recommend the payment of a final
dividend in respect of the year of 1.4p per share (2018: 1.0p).
OUTLOOK
Global economic growth slowed during 2019, with manufacturing suffering more
than services as a result of trade disputes and rising tariffs. The US is
seeking to maintain its technological supremacy so there may not be an early
end to its trade dispute with China. This may have a significant effect on
eurozone and Asian exporters while Brexit uncertainties may continue to
affect UK commercial and consumer confidence.
The decline in long-term bond yields relative to short-term bond yields
shows that investors fear the onset of recession. Major central banks have
sought to counter slowing economic growth through monetary easing but, after
a decade of such measures, further easing may prove to be less of a stimulus
than in the past. Your Company reduced its equity holdings over the year and
increased its holdings in cash. Investments in dollars, gold equities and
lower-risk multi-asset funds provide diversification and potentially some
protection if equity markets weaken.
CASH AND BORROWINGS
Your Company has no borrowings and ended its financial year with cash
representing 18.1% of its net asset value. Your Company is likely to
maintain a significant cash position.
The Company is a small registered Alternative Investment Fund Manager under
the European Union directive. The Company's assets now exceed the threshold
of EUR100 million. As a result, should it wish to borrow it would require a
change in regulatory permissions.
DISCOUNT
During the year, your Company's shares continued to trade at a significant
discount to their NAV. The Board keeps this issue under review.
ANNUAL MEETING
The Annual General Meeting will be held on Thursday, 14th November 2019 at
11am.
NET ASSET VALUE
Your Company's unaudited net asset value per share at 31st August 2019 was
162.91p.
INVESTMENT MANAGER'S REPORT
MARKET REVIEW
US monetary policy reached a watershed moment during your Company's
financial year. Starting in December 2015, the Federal Reserve had tightened
monetary policy through successive interest rate increases and some
reduction of its swollen balance sheet, culminating in December 2018, when
the Fed funds target rate rose to 2.25-2.50%. Global equities fell 10.57% in
sterling over the final quarter of 2018, more than erasing the previous
quarter's gains because investors feared overly-restrictive monetary policy
might choke off economic growth. In a significant volte-face, however, the
Fed chairman, Jerome Powell, retreated from earlier hawkish comments that
interest rates were "a long way" from neutral, saying rates were "close to"
neutral. Confidence returned following the Fed's U-turn, with global
equities gaining 16.68% in sterling in the six months to 30th June 2019 to
end a volatile year up 10.30%. US equities outperformed, rising 14.54% in
sterling, but European and Asian equities underperformed.
Safe-haven assets were in demand as economic prospects deteriorated. Global
bonds rose 9.80% in sterling while UK government bonds and sterling
corporate bonds rose 5.23% and 6.83% respectively. The yield on 10-year US
treasury bonds fell from 2.85% to 2.20%, with investors looking forward to
US interest rate cuts. Gold rose 16.25% in sterling as the decline in bond
yields reduced the opportunity cost of holding this nil-yielding commodity
and investors sought safety from the potential debasement of some major
currencies through monetary easing.
The Fed changed tack because of slowing economic growth and below-target
inflation. US gross domestic product (GDP) rose 3.1% in 2018 but the rate
slowed to 2.2% in the final quarter as the impact of fiscal stimulus and
increased public sector spending faded. In August 2019, the Fed forecast
growth of 2.1% for 2019. The narrowing difference between short-dated and
long-dated US bond yields led some forecasters to be more pessimistic,
fearing a recession might be approaching.
In August, shortly after your Company's year end, the 10-year US treasury
bond yield fell below the two-year yield. This so-called "yield inversion"
has preceded every US recession in the last 40 years although some months
have typically elapsed between the inversion and the onset of recession. US
leading indicators for manufacturing and non-manufacturing sectors weakened
in the first eight months of 2019 and the manufacturing leading indicator
dipped to a level that implied output might fall. Consumer spending,
however, proved resilient as a result of low unemployment. Employment data
tend, however, to be lagging indicators. In August, the Sino-US trade
dispute escalated as both sides increased tariffs. US tariffs have gained
bipartisan support and are likely to become an established feature of US
trade policy, reducing the scope for an economic boost if the impasse is
resolved.
UK GDP expanded 0.5% quarter-on-quarter in the first quarter of 2019. GDP
did, however, fall 0.2% quarter-on-quarter in the second quarter, according
to the first estimate, probably as a result of activity having been brought
forward into the first quarter ahead of the first Brexit deadline of 29th
March. UK household spending continued to grow steadily but leading
indicators deteriorated and the potential disruption from a no-deal Brexit
may tip the UK into recession. Brexit-risks overshadowed UK equities, rising
only 1.68% over the year under review. UK smaller companies did worse,
falling 5.36% because they tend to be more reliant on domestic earnings than
larger companies, whose export and overseas businesses benefitted from
sterling weakness. In response to the increased likelihood of a no-deal
Brexit, sterling fell 3.60% and 6.23% respectively against the dollar and
yen.
Equities in Europe excluding UK rose only 8.18% in sterling over the year.
Eurozone manufacturers suffered from worsening global economic prospects and
the impact of trade disputes and tariffs. German GDP fell in the third
quarter of 2018 and the second quarter of 2019 as the manufacturing sector
contracted. In June, German industrial production fell 1.5% on the previous
month, leaving it down 5.20% over 12 months as vehicle production was hit
particularly hard.
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