Polar Capital Technology helps New Star beat its benchmark – New Star Investment Trust has announced results for the year ended 30 June 2018. It delivered an NAV return of 6.5% which compares to 4.9% for the IA Mixed Investment 40% – 85% Shares (on averahe) and 9.5% for the MSCI AC World Index. A dividend of 0.8p (up from 0.3p) was paid during this period and a dividend of 1p is planned.
Talking about performance, the manager reports: “US equities outperformed, rising 12.53% in sterling. Your Company had a relatively low direct US allocation because American stocks appeared highly valued and this was further reduced through the sale of the iShares S&P 500 exchange-traded fund (ETF) in November 2017. The iShares S&P Financials ETF holding underperformed, rising 9.29%, but Polar Capital Technology, which has significant US holdings, was the portfolio’s best performer, rising 30.05%. At the year end, Polar Capital Technology had a fifth of its portfolio in sector leaders such as Alphabet, which owns Google, and Microsoft, while also focussing on small and medium-sized companies with new, potentially disruptive technologies. This approach produced strong returns relative to its benchmark.
The US stockmarket did well in sterling despite the dollar’s 1.61% fall against the pound. The dollar did, however, recover during the final quarter as Brexit fears weighed on sterling. The lack of clarity regarding Brexit and rising political risk following two cabinet resignations are strong arguments in favour of maintaining significant foreign currency assets in the portfolio. At the year end, the majority of the Company’s cash was in dollars.
Among the global equity holdings, Polar Capital Technology was not alone in benefitting from its US holdings. Fundsmith Equity, where partial profits were taken in November 2017, gained 15.18%. Profits were also taken from the sale of Newton Global Income in May 2018. The higher-yielding Artemis Global Income holding lagged, however, rising 8.66%.
The Company’s largest investment, FP Crux European, rose 2.92%, marginally outperforming the 2.70% gain from Europe excluding UK equities in sterling. Standard Life European Income underperformed, however, returning 1.38%. Investment in higher-yielding funds increased in November through the addition of Blackrock European Income.
In the UK, Man GLG UK Income outperformed, rising 13.47%, but the conservatively-managed Trojan Income holding fell 1.02%. UK equities ended the year relatively lowly valued and the market dividend yield looked attractive to income-seeking investors. UK larger companies may perform well if Brexit drives down sterling, with currency weakness enhancing their export competitiveness and the profits of their overseas operations on translation. Schroder Income, which holds stocks with “value” characteristics including high dividend yields, was added to the portfolio in May.
Smaller UK companies rose 7.64%, underperforming larger peers because of their domestic focus, which leaves them vulnerable to a poor outcome to the Brexit talks. Aberforth Split Level Income, which holds smaller stocks, rose just 0.71% but MI Brompton UK Recovery outperformed, rising 10.02%.
Equities in Asia excluding Japan and emerging markets rose 8.43% and 6.84% respectively in sterling but Liontrust Asia Income underperformed, rising 4.29%. Wells Fargo China was sold in favour of JP Morgan Emerging Market Income while Neptune Russia was replaced by the HSBC MSCI Russia Capped ETF. Russian equities outperformed, rising 24.29% as oil prices increased 57.46% in sterling terms, and Russia’s market remained relatively resilient after the financial year end despite US sanctions.
Indian equities rose 4.76% in sterling despite the rupee’s 7.18% fall. Stewart Indian Subcontinent outperformed, rising 11.09%. In response to high valuations, its manager bought more lowly-valued Indian information technology stocks as well as less well-researched stocks in Sri Lanka and Bangladesh.
Gold fell 1.41% in sterling as interest rate rises decreased the attraction of this nil-yielding asset and Blackrock Gold & General fell 9.88%. The potentially defensive characteristics of gold and gold shares, however, provide an important source of diversification to the portfolio given its minimal bond holdings.
Within the portfolio’s private equity holdings, which accounted for 4.83% of assets at 30th June 2018, one company made a GBP2.8 million capital distribution to your Company following a disposal. The investment in the ongoing business was retained. Increased investments in Embark and another private equity investment were made and one new holding was added.”
NSI : Polar Capital Technology helps New Star beat its benchmark