British Empire underperformed its benchmark over the year that ended on 30 September 2015, delivering a total return on net assets of -8.3% against a -5.6% return for the MSCI All Country World ex-US Index. The Morningstar Investment Trust Global Index rose by 3.7% over the period. The discount widened slightly from 10.3% to 11.6% (despite them buying back shares during the period which would have been worth £44.4m today – had they not done this the performance would have been worse by 0.8%) and this resulted in a return to shareholders of -9.3%. The annual dividend was increased from 10.5p to 11.7p.
The Board say they are looking at the merits of introducing long-term borrowing into the fund.
The statement expands at length upon a theme of value style investing having underperformed growth style investing for a considerable period now and by implication attributes a large part of British Empire’s recent underperformance relative to its benchmark and peer group to this. Reading the manager’s report however, much of the problem this year seems to have been their commodity and oil exposure.
European Holding Companies had the greatest negative impact on performance – in particular holdings in Aker, Rallye and Sacyr which together took 4.3% off the NAV. By contrast they made money on Tui as it merged with its London listed subsidiary.
Sacyr is a Spanish holding company with investments in Spanish property, various toll road concessions, Infrastructure and also Repsol, the Spanish integrated oil company. It was the investment in Repsol that counted against it as the oil price fell.
Rallye’s principal asset is Casino, a food and electronics retailer with operations predominantly in France, Thailand, Brazil, Colombia and Argentina. Its Latin American exposure was the problem here with weak economies and currencies both taking their toll.
Aker ASA was also hit by the fall in the oil price but British Empire believe it looks attractive now.
Positions in BlackRock World Mining, Ecofin Water & Power Opportunities and Fondul Proprietatea also detracted from returns. all three were hit by weak commodity prices and the weak oil price.
BTEM : British Empire hit by oil and commodity exposure