The Scottish Investment Trust posted esults for the six months to April 30, 2016. The net asset value per share (NAV) total return was 4% with borrowings at market value.
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The share price total return was 4.4%. The company does not have a formal benchmark but, by way of reference, over the review period the FTSE All‑World Index total return was 4.8% and the FTSE All‑Share Index total return was 0%.
Total income benefitted from sterling weakness and increased by 15.7% compared to a year ago. The board has declared an interim dividend of 5.25p per share (2015: 5.00p), an increase of 5.0%.
The geared equity portfolio contributed 5.2% but this was not fully reflected in the NAV, largely due to the change in value of company's long‑term borrowings, interest costs and the decision to repurchase a fifth of company's secured bonds. Gearing was largely unchanged over the period at 5.1%.
The biggest gain over the period came from, the Australian‑listed, Treasury Wine Estates (+£9.1m). This wine producer has been transformed under the leadership of Michael Clarke and has focussed on maximising the value of branded wine while ensuring the most efficient use of the asset base.
Pandora (+£4.6m), the Danish‑listed jewellery brand, delivered another very strong performance as its 'affordable luxury' products continued to be very popular. Since the period end we have sold company's holding, as the stock had performed extremely well and we think the balance of risks has changed in this fashion driven segment.
Rentokil Initial (+£3.1m), the UK support services company, continues to perform solidly and we think the value of the attractively positioned pest control business is overlooked.
A theme for a number of the better performing holdings was that dependable businesses with higher than average dividend yields were more widely appreciated, in difficult market conditions.
KDDI (+£2.9m), the Japanese telecoms operator, continues to enjoy an oligopoly position and benefitted as a safe haven following the decision by the Bank of Japan to introduce negative interest rates.
Other holdings which gained from strong results and the prospect of secure, rising dividends were Sydney Airport (+£2.8m), which controls the only major airport serving the Australian city, Johnson & Johnson (+£2.2m), the US medical product and pharmaceutical company, and Micro Focus International (+£1.7m), the UK‑listed information technology company.
Ambev (+£1.6m), the Brazilian‑based brewer, delivered solid results and benefitted from the improved sentiment towards emerging markets while Sands China (+£1.7m) gained on the prospects of improved visitor spending in Macau.
Within company's retail holdings, Ross Stores (+£2.1m) continued to offer an attractive 'value for money' proposition in a tough US retail market but, in contrast, Associated British Foods (-£1.2m) saw a slowdown in sales at the Primark retail chain. We sold both holdings subsequent to the period close as we felt that neither was priced for a spell of sustained slower growth.
Company's largest loss came from British Land (-£2.3m), as the company suffered from a change in perception towards the London property market and the potential threat of 'Brexit'.
The majority of other losses in the period came from company's financial holdings, which reacted to both the actual or speculated imposition of negative interest rates as well as the prospect of losses from loans to commodity backed ventures.
Most impacted were Japanese banks, Bank of Kyoto (-£2.0m) and Sumitomo Mitsui Financial Group (-£1.9m), but European holdings Intesa Sanpaolo (-£1.2m), BNP Paribas (-£1.1m) and ING (-£0.9m) were also affected. Standard Life (-£1.5m) likewise reacted to the threat of negative interest rates and 'Brexit' and also a concern about the prospects for the flagship GARS fund. ■
Modified arctic air combined with a moisture-laden area of low pressure along the Gulf Coast will continue to allow for a broad area of winter weather impacts from the Lower Mississippi Valley to the Southeast today into early Saturday morning.