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The Investment Company’s results boosted by gold and flattered by weak pound

The Investment Company reported a fall in net asset value (NAV) of 1.4% in the year to 30 June 2022 to 336.3p, with the weak pound offsetting declines in share prices among its overseas equities portfolio.

The NAV was also boosted by the price of gold, which rose 16.3% against sterling and this increase added about 3.9% to the NAV. The company’s holding in Lukoil, which accounted for 3.3% of net assets, was written down to zero fair value during the year on account of the impact of punitive international sanctions regimes which pose great uncertainty as to the likelihood of receiving any future cash-flows from this holding.

The substantial weakness of the British pound was an important contributor to the results. Though this weakness was unexpected, the company said the protection that comes from its broadly international collection of businesses is deliberate. Most of its investments are listed in different currencies and are active outside the UK. Excluding the gold holdings – a currency in its own right – approximately 61.0% of the portfolio is invested in businesses whose primary listing and trading currency is something other than the British pound. This temporarily flatters the results when the pound is weak and will temporarily flatten them when the pound is strong again.

At present, 67.4% of net assets is invested in 19 different businesses representing 14 different industries with operations all over Europe, the Americas and beyond. A further 28.5% is invested in gold bullion held through three ETFs, whilst the company holds 4.1% in cash and other legacy assets.

The changes to the portfolio during the year were modest compared to the transformation of the prior year. It added four new businesses representing interests in the production of natural flavours and fragrances, premium dairy production, specialty plastics and cigarettes. It also sold off four businesses, sold almost all its remaining legacy assets, and made a small sale of gold bullion. These sales collectively realised gains of £514,000 representing a 17.9% gain on cost. Excluding the sales of legacy assets and the compulsory redemption of Fromageries Bel, the portfolio turnover for the year was around 15%. 

Gold

On its gold holding, the company said that it is “satisfied that gold bullion – as opposed to cash, short-dated bonds, inflation-linked securities or other securities – remains the appropriate reserve asset for a prudent saver looking to protect capital in a thoroughly disingenuous world”.

The company’s chairman Ian Dighé said: “In any case the events of the last 12 months have revealed the weaknesses of these and other financial assets that we think is endemic. With the added benefit of hindsight, the timing of the November 2020 repurposing of the company’s investment objective was opportune. Exceptionally high inflation, paired with purposefully depressed interest rates and rapidly falling foreign exchange rates is a trifecta which few financial assets can withstand. Gold is no panacea – but its value comes from the fact that it is inert and completely unaffected by the world around it. It is independent of any price index, foreign exchange level, interest rate, or the credit risk of any financial institution. It requires nothing and it produces nothing. It is the exemplar of financial independence – there is no other asset like it – and it’s precisely this financial honesty which makes it valuable.”

Outlook

Dighé added: “The outlook for small, listed investment trusts remains challenging as shareholders and their advisors grapple with increasing compliance restrictions as to liquidity and overall market capitalisation. Your board is satisfied as to the underlying strength of its portfolio of undertakings but is fully cognisant of the immense challenges in growing the capital base of the company. The board continues to evaluate genuine opportunities to grow the capital base of the company against the strict criteria of capital preservation and growth over the longer term.”

INV : The Investment Company’s results boosted by gold and flattered by weak pound

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