Lack of energy exposure holds back CT UK High Income 

230601 chi chib chiu philip webster

CT UK High Income Trust says that for the year ended 31 March 2023 it generated an NAV return of -0.4%, underperforming its All-Share benchmark which returned +2.9%. The return to ordinary shareholders was +0.6% and to B shareholders +2.3%. Total dividends increased by 1.1% to 5.51p, representing the tenth consecutive year of dividend/capital repayment increases.

The chairman’s statement notes that the period under review has been yet another difficult one for investors in conventional equity investments, and suggests that given the backdrop, the shortfall is not unexpected. For example, energy companies (to which the company has no exposure but tend to be large and thus in the index) saw their share prices increase sharply purely on the back of rising wholesale costs of oil and gas due to the war in Ukraine.

Extracts from the manager’s report

The manager also draws attention to the backdrop, saying “There is no doubt that this has been another challenging year to navigate. I’m beginning to sound like a broken record as this was exactly what I said in the 2021 and 2022 Annual Report. What I can say is that every year has been totally unique; first with the Covid pandemic, then the Ukraine war and now a cost-of-living crisis. This is also the first time in over a decade where we have seen interest rates closer to longer term historic averages, which will have a slow but significant impact on consumer spending. This has brought with it considerable debate about whether or not the UK experiences a mild slowdown rather than a hard recession.

UK politics has also played a significant part in the turbulence we have seen over the last year. In September, the appointment of Liz Truss as Prime Minister was the start of what was to be seen as an unprecedented time in UK politics, with three Prime Ministers in as many months.”

At a stock specific level; not owning BP, Unilever, AstraZeneca, Shell and HSBC have been a 4.3% drag in relative performance over the last year. I have consistently defended this stance on quality grounds, when it comes to the oil majors. It has taken a war and energy crisis for these names to deliver decent returns on capital employed, a level which I don’t believe is sustainable – unless of course you can provide assurance that the oil price is going back to $100 a barrel. I see better quality businesses than Unilever in the staples sector. The outlier in these names is AstraZeneca. This has performed significantly better than I thought it would, and one I can look back and concede I was wrong to sell.

CHI / CHIB / CHIU : Lack of energy exposure holds back CT UK High Income

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