Global equity markets rebounded strongly in the first half of 2019. For the first six months the Trust’s Total Shareholder Return (TSR)*, NAV Total Return* and Equity Portfolio Total Return* were 16.8%, 16.7% and 16.3% respectively, compared to our benchmark, the MSCI All Country World Index (ACWI) which returned 16.7% over the same period. Since Willis Towers Watson’s (WTW) appointment in April 2017, the TSR was 21.1%, NAV Total Return was 20.5% and the Equity Portfolio Total Return was 22.2% before fees, outperforming the Trust’s benchmark, which returned 21.5%.
Our discount remained steady and over the six month period it averaged 5.1% and varied between 4.0% and 6.1%. During the period we repurchased and cancelled only 3.6m shares reflecting the reduction in demand for our buyback programme. We will continue to operate the programme to support the management of our discount.
The sale of ATS, to Interactive Investor, completed on 28 June. As previously announced, the total consideration payable for the business was £40m including office premises, subject to post completion adjustments. The net proceeds after costs associated with the disposal of £34.2m will be reinvested in the Trust’s global equity portfolio.
I would like to take this opportunity to thank all the hard-working staff at ATS for their efforts over the years to build the business.
In 2017, our shareholders approved the Board’s plan to change our investment approach and to simplify the Trust. We have now completed our transformation into a fully focussed global equity trust.
The sale of ATS, combined with the ongoing reduction in our mineral rights through a structured sale process, means that 99.5% of the Trust’s assets will be invested in the equity portfolio. Our remaining non-core investments, now valued at under £14m, should be realised before the year end.
As our portfolio is much simpler, comprising almost entirely equities, there will no longer be a need to report both the NAV Total Return and the Equity Portfolio Total Return as they will be virtually identical. We will now focus on the NAV Total Return as our key measure of investment performance. We recognise that over historic periods that return will have been impacted by ATS and our non-core investments. We continue to target 2% outperformance against our benchmark, after costs, over a rolling three year period and we remain confident that our investment approach will deliver good long-term returns, exceeding our benchmark. In the future, rather than refer to the Gross Dividend Reinvested variant of the MSCI ACWI, we will refer to the Net Dividend Reinvested variant as our benchmark. As this variant of the index includes the effects of foreign withholding tax on dividends paid, it more accurately reflects the return that a shareholder could expect to actually receive.
We recognise the increased focus on stewardship within the UK investment sector and have strengthened our commitment to responsible investment through the appointment of Hermes Equity Ownership Services (HEOS), to provide a new engagement overlay service. HEOS is a leading stewardship provider which works with companies around the world to address the key risks and challenges they face, including, environmental, social, governance, strategy, risk and communication matters. All of the Trust’s stock pickers have been vetted by WTW for their approach to stewardship and responsible investment, and HEOS will provide an additional layer of expertise.
Our shareholders at our Annual General Meeting in April approved an increase in the total ordinary remuneration that is allowed to be paid to our Directors. This additional flexibility has enabled the Board to take a decision to increase both the size of the Board and its gender diversity. We hope to announce the appointment of an additional, female, Director before the end of the year.
As announced in our Annual Report, from 1 July the fees paid to our Chairman, Deputy Chairman, Senior Independent Director and Chairman of the Remuneration Committee will be reduced, in aggregate, by 16.8% or £67,500. This reflects the significant simplifications that have taken place in the Trust.
Following the sale of ATS and our office premises, the Trust is remaining headquartered in Dundee. We have taken a lease of a smaller office there in which the Executive function will be based and where we will hold Board meetings.
We continue to keep a close eye on the expenses we incur in running the Trust and we have managed to maintain them at around the same level as last year. Where possible, we will seek savings to reflect the simplification of the Trust.
On 24 June we announced the appointment of Investec Bank plc as our sole broker. This appointment followed the decision by our former brokers to cease providing this service and the move of our existing brokerage team to Investec. We will consider later in the year whether we wish to carry out a tender exercise for the role.
Like a number of other investment trusts we pay four interim dividends a year and do not seek approval from our shareholders of a final dividend. We believe that this meets the needs of our shareholders. However, at our next Annual General Meeting we will ask our shareholders to approve our dividend policy.
The Board has declared a second interim dividend for the year ending 31 December 2019 of 3.49p per ordinary share payable on 30 September 2019 to shareholders on the register on 6 September 2019; the ex-dividend date is 5 September 2019. This is a 3% increase on last year.
Lord Smith of Kelvin, Chairman
25 July 2019
*Alternative Performance Measure (refer to Glossary on page 25).View the full interim report