Over its financial year ended 30 April 2022, Personal Assets generated a return of 7.1% in NAV terms and 8.0% in share price terms. Inflation (measured by RPI) was 11.1% over that period and the return on the UK market was 8.7%.
Personal Assets’ returns came from a highly defensive portfolio. At 30 April 2022, liquidity was 62.2%. This included 16.9% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 45.2% in various classes of non-equity risk assets: 35.7% in US TIPS and 9.5% in gold bullion. This compared to holdings as at 30 April 2021 of 12.7% in UK T-Bills, UK cash, overseas cash, and net current liabilities and 41.5% in various classes of non-equity risk assets: 32.6% in US TIPS and 8.9% in gold bullion.
The board remains committed to paying an annual dividend of £5.60 per share. High levels of inflation during the year, particularly in the United States, mean that the trust earned significantly more income on its holding of US TIPS than in previous years. Accordingly, in order to meet the investment trust distribution requirements, the board has resolved to pay an additional special dividend for the year to 30 April 2022 of £1.40.
The board has also reviewed the appropriateness of the current share price of around £500 per share. After deep consideration, the board believe that it is appropriate to seek shareholder approval at the upcoming Annual General Meeting to split each ordinary share on a one hundred for one basis. Under the proposals each existing ordinary share will be subdivided into 100 new ordinary shares. [This is great news. I have criticised the unwieldy share price in the past. It makes it much harder for investors to reinvest their dividends or invest through regular savings plans.]
The chairman pays tribute to Robin Angus who died on 4 May 2022. Robin served as a director of the trust from 1984 and executive director from 2002 until his retirement in September 2020. Robin together with Ian Rushbrook was instrumental in establishing the vision for the company and for overseeing its success, as reflected in the growth of market capitalisation from £4.7m to £1.3bn during his tenure.
Extract from Sebastian Lyons’ manager’s statement
“We have been warning for some time that the barbell ‘balanced’ portfolio strategy of putting nominal bonds alongside equities is long past its sell-by-date. The short-term negative correlation between the two asset classes has been of great value to asset allocators in diversifying portfolios and producing consistent returns. Bonds have thrived on the back of low inflation and low growth, whilst equities performed during periods of improved economic activity. Over the course of decades however, falling interest rates supported ever-higher valuations for equities and bonds alike. Today, the short-term negative correlation between the two asset classes seems to have broken down. In a new regime of higher inflation, the risk is that bonds and equities fall together. For this reason we have long preferred index-linked bonds and gold bullion, over conventional bonds, and they have held up relatively well in the recent bond market sell off and should thrive in a negative real interest rate environment, also known as ‘financial repression’.
During the year, a majority of our equities made positive contributions to returns led by core holdings such as Microsoft, American Express, Nestlé, Diageo and Franco Nevada. The only meaningful detractors were Medtronic and Unilever. As markets ran up in 2021 we reduced the Company’s equity exposure amid concerns that valuations had gone too far. Having started the financial year with 46% in equities, we ended the year with a 38% exposure. The Shiller cyclically adjusted price earnings ratio (CAPE), a long-term valuation measure, for the US stock market peaked at 38.6x in November 2021, not far off the level reached in December 1999.
The situation today is different to the tech bubble. In 1999 the overvaluation was concentrated in a smaller number of stocks (Dotcoms, Cisco, Microsoft, and Juniper Networks). Value was on offer elsewhere. Thanks to the prevalence of cheap and plentiful capital over the last decade, the overvaluation is far more evenly spread today, giving fewer places to hide from a de-rating of equities. We are sceptical of those who advocate equities as a good defence against inflation. Historically, stocks love disinflation, not inflation. Stock market returns in inflationary periods have been volatile and poor in real terms, despite growing profits – such is the corrosive effect of inflation. From current starting valuations we suspect returns will be modest and we await lower equity valuations before putting shareholders’ savings to work.”
PNL : Personal Assets plans 100 for one share split