Bankers Investment Trust’s results for the year ended 31 October 2023 show it just failing to match its benchmark (FTSE World Index) in NAV terms and being hit by a widening discount. The NAV total return was 5.2% against 5.7% for the index and the return to shareholders was -0.7%.
The year end discount was 13.4% against 8.1% at the start of the period. Today, the discount is 12.4% [which is a bit wider than it ought to be]. 60,618,929 shares were bought back in the year.
Over the year, performance relative to the AIC Global peer group placed Bankers at eighth position on share price total return performance out of 13 comparable trusts and similarly sixth position out of 13 on NAV total return.
The chairman notes that the principal reason for poor performance against the benchmark over three years was on account of comparatively low exposure (40% vs 68% in the benchmark) to the US market and in particular the largest technology companies which now dominate the US market. Often called the ‘Magnificent Seven’ (Microsoft, Apple, Amazon, Alphabet, Meta, Nvidia and Tesla), these stocks collectively increased in value by 64% during the twelve months to the end of October 2023. This was in stark comparison to the performance of the remaining 493 stocks in the US S&P 500 index, which barely moved, combined only increasing in value by +0.5% in the year. [This is a refrain that you will be hearing a lot with respect to fund’s results for 2023.]
Bankers’ investment style has long focussed on those growth stocks that pay dividends. With five of the Magnificent Seven not paying a dividend, it only owns two.
The full year dividend was 2.56p, up 10% on the previous year and well covered by earnings of 2.72p. This will be the company’s 57th successive year of annual dividend growth. For the current financial year, the board expects to recommend dividend growth of at least 5%, which would equate to a full year dividend of 2.69p.
Deputy manager, Mike Kerley, will be retiring in 2024. Sat Duhra, who has worked alongside Mike for the past 11 years, will be taking over the portfolio management of the Asia Pacific portfolio.
Extract from the manager’s report
I have rarely seen markets so narrowly focussed on a few winners where the decision to own one or two stocks has meant the difference in under or outperforming the index. The last time this occurred was at the height of the (technology-media-telecoms) bubble, led by Vodafone in the UK, which did not end well for them and now they trade nearly 80% down from their peak in 2000. In the last decade the proportion of our benchmark represented by zero yielding stocks has risen from under 10% to 20%. This year we have seen performance impacted by not owning zero dividend yielding stocks and we are reviewing how to deliver progressive dividend growth while allowing greater investment into zero yielding companies. Outside the large technology stocks, it is apparent that investor demand for equities is weak. Market flows have been impacted by the opportunity cost to investors of owning cash, yielding a risk free 5%. This opportunity cost is impacting demand for equities generally across the world and is likely to remain a negative until interest rates are meaningfully cut from their current levels.
[QD comment: I’m a bit confused by the manager’s comment above – on the one hand, he draws the perhaps valid analogy between the AI boom and the tech bubble, and then he says that he is exploring greater investment in zero yielding companies. There will be times when Bankers’ strategy does not deliver outperformance of indices – this is one of them and the trust has slid down the peer group ranking as a result – but in my mind Bankers has always been a solid, dependable trust – I am not sure that it needs to be more exciting.]
BNKR : Income focus meant Bankers missed out on five of magificent seven