Fund manager commentary
The Company’s net asset value increased 5.8% on a total return basis during the month. This compares with a 5.3% increase in the FTSE All Share 5% Capped Index over the same period.
There were three significant corporate transactions during the month.
Melrose, the international engineering group, returned £600 million to shareholders through a capital distribution of 47 pence per share. This return of capital, announced in January, followed on from the disposal of five businesses during the past year for £950million, representing a tripling in value of these businesses during the five years of Melrose’s ownership. The balance of the proceeds from the sales were used to reduce the company’s existing borrowings. Melrose’s strategy is to acquire businesses which are underperforming their potential, improve them over the medium term through a combination of additional investment and increased management focus, and then subsequently realise the additional value created and return it to shareholders.
Another international engineering business, IMI, also announced a £620 million return of cash to shareholders following the disposal of its Beverage Dispense and Merchandising divisions. IMI is now a specialist flow control group focused entirely on industrial end markets.
During the month Vodafone announced the completion of the sale of its 45% stake in Verizon Wireless, the largest mobile operator in the United States, and the return of $84 billion to shareholders in Verizon Communications shares and cash. The Trust’s holding in Verizon Communications, a US listed company was subsequently sold. As a result of this transaction Vodafone’s weighting in the FTSE 100 falls by around half.
The valuation of UK equities appears reasonable when viewed in the context of other competing asset classes such as cash and bonds however it is more demanding when viewed in isolation. The improving macro-economic outlook together with rising business confidence and more stable capital markets suggest we may see a continued pick-up in the level of merger and acquisition activity in the year ahead.
As at 28 February 2014
Percentage growth, total return, bid to bid price with net income reinvested in sterling. Basis in accordance with the regulations of the FSA. Past performance is not a guide to future performance. Stock market movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount originally invested. A fund investing in a specific country carries a greater risk than a fund diversified across a range of countries. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. If markets fall, gearing can magnify the negative impact on performance. The discrete annual performance table refers to 12 month periods, ending at the date shown.