Standard Life Equity Income has announced results for the year ended 30 September 2015. Over that period, the fund’s total return on net assets was an impressive 14.1% as compared to a -2.3% return on the FTSE All-Share Index. The Chairman believes that good stock selection and being prepared to hold a portfolio which is markedly different from the index have been the key factors in delivering this outperformance. Dividends have been increased by 5% to 14.7p.
The manager says the Company’s strong NAV performance was boosted by heavy exposure to domestic sectors that benefited from the strength of the UK economic recovery. AIM-listed recruitment business Staffline contributed strongly to returns as the market responded warmly to excellent interim results that allowed the dividend to grow by 50%. Management’s revenue and profit targets appeared highly ambitious when first announced, but are becoming more credible given their track record of consistent operational execution. The long-standing holding in Cineworld performed well in response to better than expected interim results, with like-for-like sales growing by 11% driven by increased ticket prices and retail spend in the UK and higher admissions in Central and Eastern Europe. The holding in Rightmove made a positive contribution as the company’s competitive position strengthened, as reflected in rising volumes and pricing, confounding the market’s fears over new competition. The holding in packaging firm DS Smith was another major contributor after the company announced a healthy increase in profits, alongside further evidence of successful bolt-on acquisitions.
Relative performance benefitted from the Company’s limited exposure to the Mining and Oil & Gas sectors. It was particularly helpful that the Company did not own any shares in Glencore or Royal Dutch Shell throughout the period, although performance did suffer from owning Soco International, which disappointed the market due to downgraded reserve estimates linked to lower future investment assumptions.
The holding in van rental business Northgate detracted from performance due to market concerns over toughening competition and falling resale values. Performance also suffered as shares in International Personal Finance responded to unexpected adverse regulatory developments in Poland, which over-shadowed progress in their other markets.
SLET : Good stock selection delivers for Standard Life Equity Income