Performance and Dividends
The net asset value (“NAV”) total return, with net income reinvested, for the six months to 30 June 2016 increased by 30.1% compared with a total return of 10.0% on the Company's benchmark (40% FTSE World UK and 60% FTSE World ex UK). Over the six month period the share price total return increased by 22.7% reflecting a move from a premium to a discount to NAV on which the shares traded.
Two interim dividends of 10.5p (2015: 10.5p) have been declared in respect of the period to 30 June 2016. The first interim dividend is payable on 17 August 2016 to shareholders on the register on 8 July 2016 and the second interim dividend will be paid on 17 November 2016 to shareholders on the register on 7 October 2016.
By far the largest contributing factor to positive overall portfolio returns was Sterling's weakness; with close to ninety percent of net assets invested internationally, the currency's depreciation proved positive for returns. In addition, increased portfolio diversification from constant recycling of profits over the past two years contributed both positive absolute and relative performance. This proved particularly relevant within the fixed income portfolio where recently established Emerging Market bonds significantly enhanced returns. On a regional basis within equity exposures, significant overweight positions in Asia and Latin America were positive from an asset allocation basis as both regional indices significantly increased in Sterling terms. Positive stock selection in Thailand, Taiwan, Singapore, Hong Kong, Chile and Brazil produced solid capital gains in excess of benchmark indices, as did defensively orientated exposures to the UK and North America. Despite negative local currency returns from Japan and European markets, the portfolio's exposure to selective companies in these regions produced strong capital returns, further enhancing overall absolute and relative outperformance.
Management of Premium and Discount
The Board has continued to seek to manage the liquidity in the Company's shares. During the period under review, this has resulted in the Company purchasing in the market for treasury 756,163 Ordinary shares at a discount to the prevailing NAV (excluding income) and issuing 140,000 new Ordinary shares at a premium to the prevailing NAV (including income) per Ordinary share. Subsequent to the period end an additional 311,300 Ordinary shares have been purchased for treasury. As at the close of business on 15 August 2016, the exclusive of income NAV per share was 1136.1p and the share price was 1089.0p equating to a discount of 4.2% per Ordinary share.
The Board continues to believe that it is appropriate to seek to address temporary imbalances of supply and demand for the Company's shares which might otherwise result in a recurring material discount or premium. Subject to existing shareholder permissions (given at the last AGM) and prevailing market conditions over time, the Board intends to continue to buy back shares and issue new shares (or sell shares from treasury) if shares trade at a persistent significant discount to NAV (excluding income) or premium to NAV (including income). The Board believes that this process is in all shareholders' interests as it seeks to reduce volatility in the premium or discount to underlying NAV whilst also making a small positive contribution to the NAV.
Gearing
In May 2016 the Company agreed a new £15 million loan facility with The Royal Bank of Scotland plc (“RBS”) which was drawn in full on 16 May 2016 and fixed for three years at an all-in rate of 1.467%. The new facility has been used to repay a maturing £15 million loan with RBS. At the same time the Company also repaid from its cash balances the YEN 1.6 billion loan with ING Bank N.V. At the period end the Company had net gearing of 11.9%.
Final Conversion of B Ordinary Shares
Following receipt of approval from shareholders at the general meetings held in April 2016, all remaining B Ordinary shares in issue on 30 June 2016 were converted into Ordinary shares with effect from 1 July 2016 and there was a bonus issue of one new Ordinary share for every 100 B Ordinary shares held. The final conversion and bonus issue resulted in the issue of 948,124 new Ordinary shares on 1 July 2016. Going forward the Board believes that the Company's capital structure is now simpler and more straightforward for shareholders and potential shareholders to understand and there will be future cost savings achieved from the exercise.
Directorate
I would like to reiterate the Board's sincere thanks to Lady Balfour of Burleigh, CBE, following her retirement at the AGM held in April 2016. I would also like to take this opportunity to welcome Mrs Alexandra Mackesy to the Board following her appointment on 1 May 2016. Alexandra is a former investment equity research analyst by background and, having spent the majority of her executive career in Asia, she brings further global perspective to the Board.
Outlook
Previously both the Manager and I have highlighted the extreme distortions in the financial landscape that monetary policy choices have produced over the past eight years. It is now estimated that some thirteen trillion US dollars equivalent of sovereign and corporate bonds trade at negative yields. This is unprecedented and scarcely explicable. It remains to be seen how this will play out in financial markets and the global economy, but policy makers seem certain to find it a struggle to navigate successfully the environment we are now in.
Corporate earnings globally, but particularly in the developed markets, are under some pressure, and prospects are more than usually opaque as consumers are wary of the prevailing economic and interest rate environments they are facing. The Company's portfolio emphasises holdings in nations that have favourable demographics, with reasonable growth and prosperity potential. This fact, in combination with maintained stock selection disciplines, underpins the investment positioning of the portfolio.