Artemis Alpha says that its NAV fell by 21.9% and the share price by 24.8% over the year ended 30 April 2022 (on a total return basis). In comparison the benchmark All-Share Index rose by 8.7%. The chairman says that this was a disappointing result and points to a 5.9% fall in the 250 Index – but this further highlights the trust’s underperformance.
The dividend was increased by 5.6% to 5.6p and is covered by earnings of 6.29p.
4.4m shares were bought back at an average discount of 6.1% and this added 3.1p to the NAV.
Extracts from the managers’ report
We have noted before that since the rationalisation of the Company’s portfolio four years ago, that its nature – its construction, stock selection and concentrated positioning – means that the portfolio bears little, if any relationship to the existing composition of its benchmark and, as a consequence, may produce very different returns, over limited periods, from this benchmark.
In the previous financial year, the portfolio (which has changed little in its composition for more than two years) had returns well ahead of its comparative index. In 2021/22, those same characteristics of the portfolio meant that it fell far short of its benchmark.
The second half of the year was particularly challenging as a confluence of macroeconomic factors created material short-term headwinds to earnings. These resulted in the market viewing many of the portfolio’s long-held positions unfavourably.
Our most costly mistake was not hedging against the risk of an unexpected shift in monetary policy that we highlighted in last year’s annual report. We also started 2022 close to fully invested, judging equity values to be attractive given the prospects of a strong economic recovery from Covid-19. The Russia/Ukraine crisis happened before this could play out, limiting our flexibility to respond to a decline in values, as we did in 2020.
We have held positions in food delivery companies Delivery Hero since 2017 and Just Eat Takeaway since 2018. We believe that online services for food remain in their early stages of adoption and there is significant potential for growth due to the convenience and value that technology brings.
Having been amongst the Company’s strongest contributors over recent years, both stocks were the largest detractors over the last year. In the changing investment climate, high operating losses have left Delivery Hero and Just Eat vulnerable to being regarded as “concept stocks” with uncertain paths to profitability.
Our view is that the investment case is intact despite changes in the narrative and capital cycle. Many “pandemic winners” benefitted from a pull-forward in demand. If you ordered a sofa during lockdown, you are unlikely to need another one soon. This is not the case for food, and sector trading suggests that the industry is permanently larger following the pandemic. For example, to the end of 2021, we estimate two-year organic volume growth at Delivery Hero and Just Eat to have been 70% and 40% per annum.
ATS : Very poor year for Artemis Alpha