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Personal Assets Trust Plc - Final Results

Results for the year ended 30 April 2019


The Directors of Personal Assets Trust plc ("PAT") are pleased to announce the Group's results for the year ended 30 April 2019.


The key points are as follows:


·    PAT is run expressly for private investors. Its 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 2019 PAT's net asset value per share ("NAV") rose by 4.3%. This compares to a fall of 1.4% in the FTSE All-Share Index.  PAT's share price rose by £16.00 during the year and at 30 April 2019 was £408.00. An analysis of performance is provided in the Chairman's Statement and Investment Adviser's Report below.


·    Since PAT became independently managed in 1990 its NAV has increased by 614.5% compared to the FTSE All-Share's 290.0% and the RPI's 130.4%.


Capital returns to 30 April 2019:



3 Years

5 Years

10 Years

Since 1990






FTSE All-Share











·    During the year the Company's shares continued to trade close to NAV. The Company issued 179,842 Ordinary shares.


·    During the year, PAT continued to maintain a high level of liquidity. At 30 April 2019, liquidity was 64.0%. This included 21.0% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 43.0% in various classes of non-equity risk assets: 27.8% in US TIPS; 3.8% in US Treasuries; 8.1% in Gold Bullion; and 3.3% in UK Index-Linked Gilts. This compared to holdings as at 30 April 2018 of 26.4% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 35.2% in various classes of non-equity risk assets: 20.0% in US TIPS; 2.7% in US Treasuries; 8.9% in Gold Bullion; and 3.6% in UK Index-Linked Gilts.


·    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 12 July 2019. 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 2020, totalling £5.60 for the year.


The Chairman, Hamish Buchan, said:

Personal Assets' objective is simply stated. It is to protect and increase (in that order) the value of shareholders' funds per share (otherwise known as net asset value per share, or "NAV") over the long term. To us this means not just examining performance over an arbitrary period of five or ten years but going right back to 1990, when the Company became self-managed and so began its existence in its present form. Since 30 April 1990 the NAV has risen at an annual compound rate of 7.0% compared to 4.8% for the FTSE All-Share Index and 2.9% for the RPI. (The rise in share price at the higher annual compound rate of 8.4% is because at 30 April 1990 the shares sold at a discount to NAV of 30.3%.)


To measure how far Personal Assets succeeds in achieving its objective the Board looks at investment

performance from two angles - the result achieved and, just as important, the degree of risk accepted in achieving it. The result achieved is shown in Key Features on page 1 of the Annual Report while the degree of risk accepted is indicated in the bottom chart on page 10. This shows how over the past nineteen years Personal Assets has been not only less volatile than UK equities in general but also less volatile than any of the investment trusts in the AIC Global Sector, in which we were included until December 2015, and the AIC Flexible Sector, in which we have been included since January 2016. In his Investment Adviser's Report, Sebastian Lyon cautions that significant amounts of fragility and vulnerability lie beneath current levels of equity markets and we are positioned to withstand this.


Three years ago I reported that, as a result of the change in the Articles of Association to permit the Company to distribute realised capital profit as dividend, the Board had been able to commit to paying the dividend at the present annual rate of £5.60 per share for the foreseeable future without interfering with the balance and composition of our investment portfolio. In the year to 30 April 2019 the dividend was over 90% covered by earnings but to maintain the level of payment we also drew on capital to the extent of £0.50 per share (based on the number of shares outstanding at the year end).


During the year we issued 179,842 shares for a total of £71.6 million. It is the policy of the Board that our shares should at all times be readily realisable by individual holders at as close as possible to their NAV, and it is reassuring to report that since 8 November 1999, 'Discount Freedom Day', when investment trusts were empowered to use capital to buy back shares and hence to control the discount to net assets at which their shares sell, Personal Assets' share price has risen more or less exactly in line with shareholders' funds per share while the number of shares outstanding is now six and a half times higher, having grown from 369,121 at 30 April 2000 to 2,392,275 by 30 April 2019.


Last year I described how since 2016 we had diversified and strengthened the Board's composition by the recruitment of Jean Sharp, Iain Ferguson and Paul Read, and I also mentioned that Frank Rushbrook had intimated that he would like to retire after the 2019 AGM on completing ten years' service. Frank has been a hard-working and enthusiastic Director with a special concern for the needs of private shareholders. We are most grateful to him and we shall miss him as a Director, although glad that he remains a shareholder and a friend.


Next year we can also look to further diversifying and strengthening of the Board as Robin Angus and I retire after completing 36 and 19 years of service respectively. We will, however, remain closely involved (perhaps through a charitable foundation) in preserving and extending Personal Assets' legacy of commitment to financial education and research as well as making more widely known the benefits for individual investors of investing through investment trusts. As our plans for this develop we shall keep you in touch and hope you will share our enthusiasm for continuing the work which Ian Rushbrook began. The Board has agreed that on my retirement Iain Ferguson will take over as Chairman and I wish him every success when he takes over from me next year.


As I wrote last year, continuity and collective memory are extremely important to any Board and especially to one with Personal Assets' long tradition of independent thought and action. With this in mind, Gordon Neilly has agreed to stay on (subject to re-election) as a Director over this period of change specifically in order to provide such continuity. To give maximum scope to new Directors as they begin their duties, Gordon will not be a member of any of the Board Committees.


The Investment Adviser, Sebastian Lyon, said:

Over the year to 30 April 2019 the net asset value per share ("NAV") of Personal Assets rose by 4.3% while our comparator, the FTSE All-Share Index ("FTSE"), fell by 1.4%.


The twelve months to 30 April 2019 was very much a 'game of two halves' with the UK stock market falling sharply from its peak last May, followed by a rally since the calendar year end. Our aim is to 'preserve and grow' the NAV, in that order, and - as shareholders would expect - the trust's NAV and share price volatility was considerably lower than that of the wider market. We believe conditions will continue to be challenging in a world of prospective low returns from all asset classes.


Equity markets today offer an invidious choice to investors: overvalued quality on the one hand and 'cheap' stocks on the other. In the latter category are cyclically or structurally challenged businesses. Earnings from financials, airlines, housebuilders and miners may well be close to cyclical peaks, while structurally challenged businesses are to be avoided as they will likely prove to be wasting assets. More often than not, high yields are an indication of future poor returns, not bargains. With interest rates having remained low for such a prolonged period, dividend growth has been rewarded by share price rises, but many company pay-out ratios are now unsustainable; they are acting as bribes to shareholders, converting capital into income. The temptation of high beta, low quality stocks should be resisted. Our preference remains for companies which invest to sustain good returns and which have a proven history of prudent capital allocation.


During the year, portfolio turnover remained modest. Our emphasis has been on cutting out the weeds and allowing the flowers to bloom. We added to a select few existing holdings on weakness including

Franco-Nevada, the gold streaming and royalty company.


We are wary of management teams that allocate capital as if it were 'other people's money'. Regrettably, this becomes more common later on in the cycle, when capital becomes all too readily available. We sold Altria after it announced in December 2018 that it would be paying nearly $13bn for a 35% stake in JUUL, the US e-cigarette company. Few financial details of the transaction were provided but it was clear that Altria is paying a multiple of almost 40x 2018 revenue for its minority stake. We believe it will be difficult to generate attractive returns on this investment.


More modest holdings in PZ Cussons and Henkel were also sold prior to deteriorating trading, which led to subsequent sharp falls in share prices. We still rate Henkel highly but were concerned that management of its consumer franchise has deteriorated just at a point where the adhesives business is likely to face greater cyclical headwinds.


We are at that dangerous stage in the market cycle when too much liquidity in the system has caused share prices to rise without much improvement to earnings, a sign of investor insensitivity to valuation risk. Corporate indebtedness is at record highs. This has brought forward demand and flattered margins but the economic cycle is at its peak, not a trough. To us, the prospective rewards look less than compelling when compared to the risks.


Markets have been buoyed recently by the reversal of the short-term, oversold position in December, a more dove-ish tone from the Federal Reserve regarding the outlook for monetary policy and 'travelling hopefully' in the expectation of a resolution for Brexit and US/China trade talks. The stock market has reacted positively to the pause in US interest rate rises but the less emotional and more rational bond market is more reliable and less swayed by short-term sentiment. Bond yields point to a weaker economic outlook.


There is a misconception that falling interest rates are good for equities. Cast your mind back to 2002 or 2008 when interest rates were being cut aggressively; those were dreadful years for equity returns. A significant amount of underlying fragility and vulnerability lies beneath current levels of stock markets. In the words of the novelist Ian McEwan, 'the present is the frailest of possible constructs, in which a kaleidoscope of options remains possible'. We agree and are positioned accordingly.