Blue Planet halves dividend after asset allocation error – Blue Planet has reported a second successive year of capital losses and underperformance of its benchmark. Over the year to the end of April 2019, its NAV total return was -3.2% (-4.4% in 2018) against a return of 3.2% (8.5% in 2018) for the benchmark (“an index of the top 100 listed companies in the UK“). The dividend has been cut in half, to 2.4p, reflecting a sharp drop in revenue. The discount widened from 12.1% to 15.2%, leaving shareholders with a return of -4.0%.
To be fair to the trust, the benchmark bears no resemblance to the portfolio (a mix of Emerging Market bonds, bonds issued by energy companies, an eclectic collection of US equities and short positions on some exchange-traded index-tracking funds). The chairman says that the portfolio was positioned for an environment of rising interest rates and the manager was wrong footed by the US Federal Reserve’s pivot to an easier monetary policy at the start of this year.
The trust is also too small – just £24.8m of assets. the consequence is a high ongoing charges ratio – this rose over the year, bucking a general trend for the industry, hitting 3.8%.
If we are looking for other reasons as to why the fund underperformed, the following extracts from the manager’s report give some clues:
- “Our stock selection has always been good. What we got wrong this year was asset allocation and currency hedging. Had we had a higher exposure to equities and not hedged any of our currency exposures then we would have easily beaten our benchmark index.”
- “With only a 11.8% net exposure to equities we were positioned to outperform a falling market. Trump’s intervention and the Fed’s volte-face changed all that and as equities rose, our under exposure to them contributed towards us underperforming our benchmark index“
- “the main reason for our underperformance was losses on our foreign exchange hedges and in particular USD and BRL. These were placed to protect the portfolio against a rise in the value of Sterling following Brexit, and against an adverse outcome in the Brazilian elections, neither of which happened.”
- “our Argentinian investments proved to be a drag on our performance for the second year running. Questions regarding Macri’s ability to bring down inflation and hold onto his Presidency led to the collapse in the value of the Peso“
[When a fund is positioned as far away from its benchmark as this one is, we start to question the benchmark’s suitability. However, we understand the sentiment behind an ambition to deliver total returns ahead of UK equities and a higher yield. We aren’t fans of this trust, as you can probably tell, mainly because it has a habit of making sweeping changes to the portfolio – so it is hard to know from one minute to the next what you have exposure to. The drag on performance from the ongoing charges is another concern. Halving the dividend sounds like really bad news but it might make it more sustainable from here.]
BLP : Blue Planet halves dividend after asset allocation error