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Discount narrowing boosts New Star’s returns

Discount narrowing boosts New Star’s returns – New Star investment Trust’s total return was 17.9% over the year to 30th June 2017. The discount narrowed from 39.5% to 29.0% and this helped push the share price up by 38.2%. By comparison, the Investment Association’s Mixed Investment 40-85% Shares index gained 16.5%. The MSCI AC World Total Return and MSCI UK Total Return Indices gained 22.9% and 16.7% respectively while UK government bonds fell 1.0%.

The manager’s report says that, amongst the trust’s global equity funds, Fundsmith Equity and Artemis Global Income outperformed, gaining 25.01% and 24.80% respectively. The more defensively-positioned Newton Global Income holding lagged, rising 16.34%, but Polar Capital Global Technology gained 42.18% as technology shares outperformed.

In Europe, significant holdings in Europe ex-UK markets including the FP Crux European Special Situations and Standard Life European Equity Income helped returns but the FP Crux fund (which is the largest holding in the portfolio) was held back when markets started to favour value stocks and cyclicals. The euro-denominated Aquilus Inflection fund, which takes both positive and negative positions in European equities, gained 11.38%.

Aberforth Geared Income investment trust, which has a small company focus, was the best performer, rising 47.00% as the underlying portfolio rose strongly and the trust’s discount to net asset value narrowed ahead of the planned wind-up on 30 June. NSI’s investment has been rolled over into the successor vehicle, Aberforth Split Level Income. Man GLG UK Income also did well, rising 35.74% thanks to its mid-cap “value” focus. By contrast, Trojan Income gained only 11.36%, held back by its bias towards large companies, which lagged the market.

Asian emerging markets outperformed as fears of US protectionism subsided and the pace of monetary policy tightening proved to be gradual. Equities in Asia excluding Japan and emerging markets gained 30.76% and 27.79% respectively in sterling. Emerging markets appeared attractive to investors on valuation grounds compared to developed markets. Within the portfolio, Wells Fargo China and Neptune Russia & Greater Russia did best, rising 29.72% and 29.07% respectively although Wells Fargo China underperformed the Chinese stockmarket.

In July 2016, the fund invested in the unquoted Embark Group, a leading personal pension and small self-administered pension scheme administrator through its Hornbuckle and Rowanmoor brands. Additional shares in Embark were acquired through a placing of new shares in April to fund an acquisition.

The US equity allocation increased through purchases of the SPDR S&P 500 and iShares S&P 500 Financials exchange-traded funds (ETFs) in November following Trump’s election with a mandate for fiscal expansion. The iShares S&P 500 Financials ETF should benefit from the improving profitability of US financial companies as interest rates rise. Their prospects may be further enhanced if Trump’s plans for financial deregulation come to fruition.

NSI : Discount narrowing boosts New Star’s returns

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