MNL : Manchester & London hit hard by hedging error and PZ Cussons
Over the year to the end of July 2014, Manchester & London’s net asset value fell by 12.3% – a long way short of its benchmark which rose by 1.9%. The dividend was maintained at 13.75p despite revenue falling to 13.63p. The ongoing charges ratio rose to 1.05% from 0.89%.
The Chairman says the fund was “underexposed to U.K. and U.S. centric and smaller capitalisation stocks, overexposed to commodity price driven companies and stocks exposed to developing markets” in addition the fund was leveraged “which accentuated the underperformance”.
The manager says “we have underestimated how some of the geopolitical, economic and technological changes that have occurred since the 2008 depression have structurally altered some business models. We need to be quicker to spot these shifts”.
The report includes a performance attribution analysis:
Performance of Mining investments +2.5%
Performance of Energy investments -0.8%
Performance of Agrisciences investments -1.2%
Performance of PZ Cussons (the largest holding) -2.6%
Performance of Other Consumer Goods investments -3.3%
Performance of Healthcare & Pharmaceuticals investments +0.2%
Performance of Standard Chartered -1.1%
Performance of Hedge against Leverage -5.1%
Other factors -0.9%
The “hedge” involved the fund shorting stock indices in the US and the UK – the manager’s report says “we did not anticipate the devaluation of the US dollar against the British Pound and the Euro to be so pronounced and hence drive up the S&P 500 so much more than the positions we were attempting to hedge”.