Perpetual Income & Growth underperformed its benchmark over the six months ended 30 September 2016, returning 4.8% against a return of 12.9% for the UK market. The share price increased by 2.4%, rising from 375.6p to 384.5p per share, with the discount to NAV per share narrowing marginally from 5.1% to 4.7% over the same period.
Martin Walker, who has been working in the manager’s UK equity team since 1999, has been appointed deputy portfolio manager.
The report says that the fund’s relative performance was held back by the portfolio’s zero weighting in the mining sector and the absence of holdings in HSBC and Royal Dutch Shell. These share prices rose strongly, benefiting from weakened sterling (which declined by 8.8% against the US dollar over the period) and, in the case of Royal Dutch Shell, from the recovering oil price. Beyond HSBC, the portfolio’s zero weighting in UK domestic banks was beneficial to performance.
The holdings in the tobacco sector again delivered a positive contribution to performance, benefiting from their international exposure, but also from continued positive news flow. British American Tobacco is seeing the benefits of its focus on key brands – its Global Drive Brands posted a 10.5% volume increase in their second quarter earnings report. Imperial Brands’ half year results confirmed a 10% interim dividend increase, reaping further benefits from last year’s acquisition of US brands (including Winston) and manufacturing facilities.
AstraZeneca, another US dollar beneficiary, announced plans to file its injectable asthma treatment drug with US and European regulators later this year, after favourable trial results. The failure of Bristol-Myers’ lung cancer study was also seen as positive for AstraZeneca’s combination therapy cancer drugs. Other significant positive contributions to portfolio performance came from the holdings in BP and Compass. The latter defied the hit to confidence seen elsewhere in the consumer services sector; the support services business continued its encouraging performance through 2016 with confirmation of new business wins and retention through the third quarter.
The portfolio’s holdings in domestic sectors, notably those particularly exposed to the fall in sterling and those expected to be most impacted by any challenges to the UK economy, performed poorly in the aftermath of the EU referendum. The stock market was also inclined to de-rate companies which warned of lower profits. This was the case with Capita, whose share price fell sharply towards the end of the period following a profit warning; the support services group downgraded full-year earnings.
PLI : Perpetual Income & Growth appoints deputy manager