The key points are as follows:
· PAT's investment policy is to protect and increase (in that order) the value of shareholders' funds per share over the long term.
· Over the year to 30 April 2021 PAT's net asset value per share (“NAV”) rose by 9.1%. This compares to a rise of 22.1% in the FTSE All-Share Index. PAT's share price rose by £38.00 during the year and at 30 April 2021 was £471.00. An analysis of performance is provided in the Chairman's Statement and Investment Manager's Report below.
· Since PAT became independently managed in 1990 its NAV has increased by 720.8% compared to the FTSE All-Share's 281.9% and the RPI's 140.7%.
Capital returns to 30 April 2021:
|
|
3 Years |
5 Years |
10 Years |
Since 1990 |
|
NAV |
19.8% |
26.7% |
47.8% |
720.8% |
|
FTSE All-Share |
(3.5)% |
16.4% |
26.3% |
281.9% |
|
RPI |
7.7 % |
15.2% |
28.5% |
140.7 % |
· During the year the Company's shares continued to trade close to NAV. The Company issued 509,926 Ordinary shares.
· During the year, PAT continued to maintain a high level of liquidity. At 30 April 2021, liquidity was 54.2%. This included 12.7% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 41.5% in various classes of non-equity risk assets: 32.6% in US TIPS and 8.9% in Gold Bullion. This compared to holdings as at 30 April 2020 of 14.1% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 41.2% in various classes of non-equity risk assets: 31.3% in US TIPS and 9.9% in Gold Bullion.
· Dividends are paid in July, October, January and April of each year. The first interim dividend of £1.40 per Ordinary share will be paid to shareholders on 16 July 2021. Barring unforeseen circumstances, three further interim dividends of £1.40 per Ordinary share are expected to be paid to shareholders in the year ending 30 April 2022, totalling £5.60 for the year.
The Chairman, Iain Ferguson, said:
I am delighted to be writing my first Chairman's Statement for you, having taken over as Chairman of Personal Assets Trust plc (“PAT”) from Hamish Buchan at the AGM last September. I have been on the Board of PAT since 2017 and have been an investor in PAT for nearly 30 years.
Our recollections of the last 15 months will inevitably be dominated by the global pandemic which has created extremely testing times for all, with personal and business challenges extending well beyond the horizons of our investment world. PAT is in a fortunate position, our investments are managed by Troy Asset Management Limited (“Troy”) and our administration is managed by Juniper Partners Limited (formerly known as PATAC Limited). We are grateful to the people of both organisations for the way that they quickly adapted their operations to work in a virtual way and have been able to maintain their usual high standards of service. The PAT Board has also embraced new technology and has met virtually. We do look forward, however, to returning to in-person meetings as soon as the situation allows.
The last year has seen a number of Board changes with Robin Angus and Hamish Buchan both retiring at the last AGM. Robin served as a Director from 1984 and Executive Director from 2002, and Hamish as a Director from 2001 and Chairman from 2009. They have both been instrumental in the success of our Company and we wish them well for the future. We are very pleased to record that Mandy Clements and Robbie Robertson both joined the Board immediately after the last AGM, each bringing great experience and particular skills which strengthen and diversify our Board capabilities.
All of our Directors are also investors in PAT. We share a strong alignment with and are advocates of the core PAT investment proposition, which is to protect and increase (in that order) the value of shareholder funds per share (otherwise known as net asset value (“NAV”) per share) over the long term.
We track the performance of PAT from 1990 and since then the NAV has grown at an annual compound rate of 7.0% compared to 4.4% for the FTSE All-Share Index and 2.8% for the RPI, the two main comparators which we use. We also track the degree of risk experienced in achieving our financial performance. The results are tabulated in the Key Features section on page 1 of the Annual Report and the degree of risk experienced is indicated on the chart on page 15. This shows that consistently, over the last 20 years, PAT has been less volatile than equities in general and also less volatile than any of the investment trusts in the AIC Global and AIC Flexible Investment Sectors. Whilst this combination of above-comparator financial returns and below-sector volatility is the outcome of a focus on capital preservation, these metrics are by no means a target. The investment manager's focus remains on the avoidance of permanent capital loss (our preferred definition of risk) and on growing the real value of the Company's capital over the long run. In his report on pages 4 and 5 of the Annual Report, Sebastian Lyon, our Investment Manager, provides further details of our investment performance.
We remain committed to paying an annual dividend of £5.60 per share and are able to do this without
interfering with the balance and composition of our investment portfolio as our articles of association permit PAT to distribute realised capital gains as dividend. In the year ending 30 April 2021 the dividend was 81% covered by earnings and 95% covered on a five-year average basis.
During the year we issued a record number of net new Ordinary shares, 509,926, for a record net inflow of £229.8 million. As at the 30 April 2021 we had 3,232,929 Ordinary shares in issue. It is the policy of the Company to aim to ensure that its Ordinary shares always trade at close to NAV and this policy is enshrined in the Articles of Association. It is reassuring to report that since November 1999, when investment trusts were empowered to use capital to buy back shares and hence control the discount to NAV at which their shares trade, the PAT share price has closely tracked the NAV while the number of shares in issue is now nearly nine times higher.
Our relationship with Troy has continued to be excellent and their transition from Investment Adviser to
Investment Manager was achieved seamlessly with effect from 1 May 2020. PAT is now benefitting from greater access to shared resources and focused support from the Troy team lead by Sebastian and his senior colleagues. We have agreed a revised fee structure with Troy which reflects the sharing of the benefits of scale as our shareholders' funds grow above £1.5 billion. Details of the revised fee structure are shown on page 7 of the Annual Report. We also pay particular attention to ensuring the competitiveness of our ongoing charges ratio, which was 0.73% for the year ending 30 April 2021, having reduced from 1.18% in 2011.
Our relationship with Juniper Partners, which provides our administrative, company secretarial and discount control services, also changed during the year. The transfer of this business from PAT to The Juniper Companies Limited was approved by the FCA and the transaction was completed on 30 September 2020. Following the transfer PATAC Limited changed its name to Juniper Partners Limited. I am pleased to be able to tell you that the Juniper Partners team continue to provide a first class service to PAT and to their other clients, moreover, it is also very encouraging to note that they have already added to their client base and recruited additional team members, thereby building greater capacity and resilience in their operations, which benefits all of their clients.
We recognise the changing nature of the Company's shareholder base and the increasing number of investors holding shares indirectly through the platforms who may not have direct access to communications from the Company. During the year we have introduced an updated website (www.patplc.co.uk) and Sebastian and Troy have taken on the production of the PAT Quarterlies. We hope that both of these developments are providing investors with easy and effective access to information about PAT. We are always pleased to receive questions and comments from our shareholders with our Company Secretary and Troy working together to ensure prompt and appropriate responses.
In our Annual Report last year, we introduced the Personal Assets Trust Foundation, a charitable organisation with the objective of promoting and advancing the financial education of younger people wishing to pursue careers within or related to the investment and finance industries. Whilst good progress has been made on the establishment of the charity, the public launch has been delayed due to the pandemic. We hope to be able to report on both the launch and the first recipients of awards in our next Annual Report.
My colleagues and I greatly missed the opportunity to meet with our fellow shareholders last year as we had to hold our AGM in a virtual format. Unfortunately, it looks as if we will again have to hold a virtual AGM this year on Friday 23 July 2021. As we will not be holding the AGM in the usual format I will be holding a Q&A session with the Investment Manager to answer any shareholder questions. This video will be made available following the AGM. I would encourage all shareholders to submit any questions for this session to our Company Secretary by email at cosec@patplc.co.uk by Tuesday, 13 July 2021. As a Board we would very much like to have the chance to meet our shareholders and we will keep the situation under review, looking at the possibility of holding a shareholder event later in the year.
In the meantime, I wish all of you good health and thank you for your investment in PAT.
The Investment Manager, Sebastian Lyon, said:
Over the year to 30 April 2021 the net asset value per share (“NAV”) of Personal Assets Trust (“PAT”) rose by 9.1% while our traditional comparator, the FTSE All-Share Index (“FTSE”), rose by 22.1%. The UK Retail Price Index (“RPI”), which we also use as a comparator (see the inside front cover of the Annual Report and Key Features and Record 1990-2021 on pages 1 and 13 of the Annual Report respectively), rose by 2.9%. Over the past three years the NAV per share rose by +19.8% compared to the FTSE All Share return of -3.5% and RPI +7.7%.
During the pandemic we protected shareholders' capital on the downside but shareholders may question why we have not participated more in the upside in recent months. Since we wrote the interim report in November, markets have experienced a strong bounce back as a reflation-driven, re-opening trade has taken hold following the good news of vaccine approvals. We have been here before in 2003, 2009, 2013 and 2017 with rotations into more cyclical and 'value' sectors such as financials, energy and industrials. The worst thing we could do would be to increase our risk the more speculative markets become. To do this would be the equivalent of pressing harder on the accelerator the closer we get to the cliff. There remains material business risk from technological change and the disruption that it brings. As companies enjoy the fruits of the reopening trade, many of the structural pressures look, for now, to be in abeyance. However, the pandemic has, if anything, been a catalyst to accelerate these trends. Share prices of recovery stocks may prove short-lived as economic reality re-asserts itself on challenged business models.
Our focus for PAT is on durable and profitable businesses. Over the past few years, we have been more active than in prior ones, making changes to constantly evolve the portfolio on an ongoing basis to align it with our investment proposition. In the past financial year, we exited long-term holdings in Coca-Cola, Colgate-Palmolive and British American Tobacco. Our preference is for companies that are resilient and continue to grow. We added to core holdings during the year including American Express, Franco-Nevada, Nestlé, Philip Morris and Unilever. A number of recent new additions to the portfolio helped performance, especially Alphabet (the holding company of Google), Visa and Agilent.
PAT shares ended the financial year at an all-time high. We have confidence in our long-term, conservative investment approach and are committed to staying the course. The current environment is not however as riskless as may first appear. Commodity prices are signalling inflationary risks not seen for over a decade but there is some confusion as to whether this is an early-cycle recovery from a self-inflicted recession or if in fact the economy is late-cycle and overheating. Bottlenecks and business demands for labour look more like the latter. In the aftermath of the pandemic, geopolitics seem also to be contributing to the inflation side of the ledger, with increased nationalism and fragmenting supply chains. At this stage however, it is difficult to predict how sustained these inflationary forces will be. We are open-minded about the monetary backdrop of the future, mindful that unprecedented waves of monetary and fiscal stimulus meet strong, countervailing deflationary forces, whilst the uniqueness of the current environment continues to obfuscate the longer-term picture. This lack of visibility increases the risk of a policy error. Central bankers have the unenviable task of endeavouring to wean the economy off their current, highly-stimulative policies.
How do we structure our Company against this backdrop? Today, fixed income no longer offers its traditional defence. The recent falls in the bond market show that there are fewer places to hide in markets that are flirting with record valuations. Our preference has been to own index-linked bonds, particularly US Treasury Index Protected Securities (“TIPS”). Should inflation surprise on the upside, these will provide us with some protection. Gold bullion protects us from ongoing debasement of currencies and, despite its volatility, has proven its worth over the long term as a portfolio diversifier. We used weakness in gold and TIPS over the year to add to our existing holdings. We expect real interest rates to move more negative in the medium term as the era of financial repression (when interest rates remain below the level of inflation) continues.
There are plenty of signs of investor speculation in Special Purpose Acquisition Companies ('SPACs'), electric vehicles and alternative energy. At the 2011 AGM, as the new Investment Adviser to PAT, I was asked how we were going to gain exposure to the US shale boom. The answer was, we were not, which went down like a lead balloon. The boom soon turned to bust and very few made money from shale. Capital gushed into the sector, diminishing returns; this has similarities with the enthusiasm for some investments buoyed today on a huge wave of liquidity. Not all growth is created equal.
I recently came across a copy of the 16 Rules of Investment Success by Sir John Templeton. One I thought particularly relevant to PAT was Rule No.5: “When buying stocks, search for bargains among quality stocks”. That has perhaps become less fashionable in the past year as quality, which served us so well during the pandemic, has been left behind in the recent re-opening rally. This should provide us with opportunities to add to our favoured holdings at better valuations.