Quarterly Report • Sep 11, 2020
Quarterly Report
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Half year report and accounts for the six months ended 30 June 2020
Schroder Asian Total Return Investment Company plc seeks to provide a high rate of total return through investment in equities and equity-related securities of companies trading in the Asia Pacific region (excluding Japan). The Company seeks to offer a degree of capital preservation through tactical use of derivative instruments.
The Company invests principally in a diversified portfolio of 40-70 companies operating primarily in Asia, including Australasia but excluding Japan. It is intended that the Company will have a bias to investing in small and mid cap companies.
Investments may be made in companies listed on the stock markets of countries located in the region and/or listed elsewhere but controlled from within the region and/or with a material exposure to the region. The Company will focus on investing in companies with sound balance sheets, professional management and capital allocation policies that are aligned with the interests of minority shareholders.
The use of derivatives to protect the capital value of the portfolio or for efficient portfolio management is fundamental to the strategy of the Company's portfolio managers. Such derivatives may include listed futures, call options, long puts, OTC instruments and instruments to hedge currency exposure with board approval. The board will monitor the effectiveness of the underlying process and the use of derivatives.
In order to obtain further exposure to equity indices or individual stocks, the Company may enter into contracts for difference where the underlying investments are not delivered and settlement is made in cash. In extreme circumstances, and subject to board approval, the majority, or even all, of the Company's assets could be held in cash or near cash instruments, with appropriate diversification of cash held on deposit.
The Company may use gearing to enhance performance but net gearing will not exceed 30% of net asset value.
The Company does not tie its portfolio construction to the constituents of any benchmark; instead, the size of stock positions are set on an absolute basis reflecting where the best potential risk adjusted returns are to be found.
| Financial Highlights and Long-Term Performance Record |
2 |
|---|---|
| Chairman's Statement | 3 |
| Portfolio Managers' Review | 4 |
| Half Year Report | 11 |
| Investment Portfolio | 12 |
| Income Statement | 14 |
| Statement of Changes in Equity | 15 |
| Statement of Financial Position | 16 |
| Cash Flow Statement | 17 |
| Notes to the Accounts | 18 |
| Directors and Advisers | Back cover |
| Total returns to 30 June 20201 | 6 months % |
1 year % |
3 years % |
5 years % |
10 years % |
|---|---|---|---|---|---|
| NAV per share2 | 6.1 | 6.8 | 27.6 | 96.0 | 146.7 |
| Share price3 | 1.8 | 1.8 | 24.1 | 105.5 | 166.2 |
| Reference Index4 | 0.7 | 2.7 | 15.7 | 57.1 | 101.6 |
| Peer group NAV per share2,5 | 3.1 | 4.5 | 20.4 | 71.8 | 147.6 |
1 Total returns represent the combined effect of any dividends paid, together with the rise or fall in the share price or NAV per share. Total return statistics enable the investor to make performance comparisons between investment companies with different dividend policies. Any dividends received by a shareholder are assumed to have been reinvested in either additional shares of the Company at the time the shares were quoted ex-dividend (to calculate the share price total return) or in the assets of the Company at its NAV per share (to calculate the NAV per share total return).
2 Source: Morningstar. Fully diluted NAVs have been used where applicable.
3 Source: Morningstar.
4 Source: Thomson Reuters. With effect from 15 March 2013, the Reference Index has been the MSCI AC Asia Pacific ex-Japan Index (with net income reinvested), sterling adjusted. Prior to that date, it was the MSCI AC Asia ex-Japan Index (with gross income reinvested), sterling adjusted.
5 Source: Morningstar. The arithmetic average of a group of nine comparable Asia (excluding Japan) investment trusts (the "Peer Group").
| 30 June 2020 |
31 December 2019 |
% Change | |
|---|---|---|---|
| NAV per share (pence) | 380.43 | 365.57 | +4.1 |
| Share price (pence) | 367.00 | 368.00 | –0.3 |
| Share price (discount)/premium to NAV per share (%) | (3.5) | 0.7 | |
| Gearing (%)1 | 11.3 | 2.2 |
1 Borrowings used for investment purposes less cash, expressed as a percentage of net assets.
This is my first statement to shareholders as Chairman. The previous Chairman, David Brief, reported to shareholders in the annual report as at 31 December 2019, that since Schroders' appointment in March 2013, the Company's net asset value ("NAV") total return and share price total return had comfortably outperformed
the Reference Index. The board would like to thank David for his contributions as director and Chairman.
I am extremely pleased to report that although it has been an exceptionally turbulent six months, with the global economy and stock markets facing disruption and uncertainty of a magnitude unprecedented in recent years, the Company has produced a NAV total return of 6.1% in the period to 30 June 2020, outperforming both the return of the Reference Index of 0.7% and of the peer group average of 3.1%, continuing the Company's record of outperformance. Strong stock selection has contributed significantly to this performance with quality stocks proving resilient, whilst some areas of focus in the portfolio, such as the internet and technology sectors, have proved to be beneficiaries of the business impact of the pandemic.
Further details on performance may be found in the Portfolio Managers' Review.
Although the Company's shares were trading at a premium to NAV at the start of the period, the highly volatile trading conditions caused by the effects of the COVID-19 pandemic resulted in the share price falling to a discount of 3.5% as at 30 June 2020, with an average discount for the period of 2.5%.
The Company's discount management policy targets a discount to NAV of no more than 5% in normal market conditions and the board carefully monitors the share price in order to use the shareholder authority to buy back shares when appropriate. Following a spike in the discount in March, in the midst of market volatility caused by the pandemic, the Company began to purchase shares for holding in treasury. The first buyback was executed at a discount of just over 10% and the Company purchased shares on four subsequent occasions during the period, the last of which was at a discount of around 3.8%. Consequently the Company bought back 124,000 shares during the period and a further 56,508 shares have been bought back at a discount of around 3.5% since the end of the period. As at 9 September, the discount had narrowed to 2.0%.
The portfolio managers have proactively utilised gearing over the period which has contributed to the strong performance. Although the level of gearing started the year at 2.2% this was increased close to the point that markets bottomed in late March to end the period at 11.3%. Having taken advantage of the very substantial rally in global markets during the second quarter of the year the level of gearing has subsequently been reduced to the current level of 8.1% (as at 9 September).
Although the Company's AGM was held behind closed doors due to the government restrictions on public gatherings during the pandemic, the Company's portfolio manager prepared a presentation, which was made available on the Company's webpages (www.schroders.co.uk/satric).
Shareholders are welcome to get in touch with the board with any queries, through the Company Secretary (details on the back cover), and for regular news about the trust, shareholders are also encouraged to sign up to the Manager's investment trusts update by visiting the Company's website www.schroders.com/en/ uk/private-investor/fund-centre/funds-infocus/ investment-trusts/schroders-investmenttrusts/ never-miss-an-update/.
It is an achievement to have delivered positive returns in the last six months despite extremely challenging market conditions, but the repercussions of COVID-19 are likely to continue to have a negative impact on global economies and stock markets both for the remainder of this year and looking further forward. As news of the pandemic hopefully abates, the ongoing concern over US/China trade relations, national security issues in Hong Kong and the US elections in November are likely to continue to cause uncertainty.
The portfolio managers have become more cautious although trading conditions are unlikely to be as volatile as earlier in the year. Valuations for some specific sectors of the market now look steep following very strong performance, although there are still quality stocks to be found at reasonable value. Markets may have to digest successive downward revisions in corporate earnings as the effects of COVID-19 are reflected in company profit forecasts. However this environment provides ample opportunity for stock pickers as benchmark moves belie huge earnings dispersion both within and between sectors. In addition, the portfolio managers' focus on long-term fundamental growth companies in Asia with strong balance sheets and sound corporate governance should provide portfolio resilience, with the added benefit of being able to utilise capital protection against downside risk.
Chairman
10 September 2020
The first half of 2020 saw some of the most volatile movements in stock market history as the world battled with the coronavirus pandemic. As the virus outbreak spread in February from a China issue to a global problem, most Asian countries went into some form of economic lockdown. Investors witnessed the end of a 10 year record-breaking stock market bull run in the USA, which was followed in March by one of the sharpest market crashes in history. Nevertheless, despite the still uncertain near-term economic outlook, markets from early April rebounded strongly as investors were willing to look through the current slump in earnings and towards a more normalized operating environment in 2021. This widespread optimism in markets was also underpinned by the unprecedented efforts by global governments and central banks who stepped in with rounds of fiscal and monetary stimulus to backstop the economy and financial markets.
The portfolio suffered a sharp pull-back in Q1 as the broader market corrected sharply and braced for the uncertain economic impact from measures to combat the COVID-19 pandemic. This was followed by an equally sharp recovery in Q2 as investors' panic started easing on signs of the infection "curves" flattening in most European, North American and Asian countries. After a difficult Q1, the portfolio's performance rebounded strongly, recouping all of the Q1 losses by early June and then putting on some net gains for the first half of 2020. Overall the NAV returned 6.1% versus the Reference Index's 0.7% (MSCI AC Asia Pacific ex Japan index, source Morningstar).
Over the six months, stock selection in China, Taiwan, Singapore and Australia was amongst the notable positive contributors. Companies in the internet and technology sectors generally held up better during the initial sell-off given the limited impact from the lockdowns on their business models. These sectors then led the subsequent rebound as the markets expect to see an accelerated shift to more online activities and technology usage as a result of the pandemic.
Many of our technology holdings such as Sea, Seek, Tencent, MediaTek, Chroma Ate, and TSMC performed well and were among the key contributors. In Australia, performance was helped by strong performance from healthcare names (Cochlear, ResMed, CSL). A key positive was also the limited exposure to oil and gas, banking and heavy industrial stocks which were the weakest performing. Similarly, due to our long-term concerns on competitiveness, the portfolio only owns a handful of Indian and ASEAN stocks which were the weakest markets, finishing the first half in negative territory.
The exposure to domestic Hong Kong was negative owing to worries over collateral damage from the heightened Sino-US tensions, especially following the enactment of the controversial National Security Law in the city. Finally, not holding some of the second-tier or emerging Chinese E-commerce names such as Meituan and Pinduoduo also slightly dragged on performance relative to the Reference Index, as these share prices more than doubled, driven partly by retail sentiment as markets turned increasingly frothy.
On capital protection, our small position in put options on the HK and Chinese indices helped offset a little of the negative returns during the sell-off (puts being an option to sell assets at an agreed price). As the crisis unfolded and markets priced in an increasingly negative outlook, we closed most of the hedges. At the end of March our model readings turned strongly positive on markets and we raised gearing levels moderately to a peak of around 12%, which allowed a fuller participation in the subsequent market recovery.
Post the end of the period covered in this report, markets have continued to bounce strongly despite the cautious outlook on corporate earnings for many sectors. We have reduced gearing and are now starting to look to add some level of protection via put options.
| Contribution to return (%) |
Comments | |
|---|---|---|
| Australia | 0.3 | Seek, ResMed, CSL, Aristocrat Leisure |
| China | 5.0 | Alibaba, Tencent, Wuxi Biologics, Wuxi Apptec, ChiMed |
| France | 0.1 | LVMH |
| Germany | -0.1 | Adidas |
| Hong Kong | -1.9 | Swire Pacific, Swire Properties, Jardine Strategic, Stella |
| India | -1.8 | HDFC Bank |
| South Korea | 0.2 | Naver |
| Philippines | -0.1 | ICTS |
| Singapore | 1.1 | Sea |
| Taiwan | 2.7 | Merida, Voltronic Power, Mediatek, TSMC, Chroma Ate |
| Thailand | -0.7 | Aeon Thana Sinsap |
| United Kingdom | 0.5 | Rio Tinto |
| United States | -0.1 | Las Vegas Sands |
| Vietnam | 0.2 | Vietnam Dairy |
| Derivatives | 1.0 | Put options on market indices |
| Cash / Gearing | -0.2 | |
| Costs / fees | -0.4 | |
| Residual | 0.3 | |
| Total return | 6.1 |
Source: Schroders.
Source: MSCI, net income reinvested.
| Principal contributors | £ Return (%) |
Contribution to return (%) |
|---|---|---|
| Tencent | +43.5 | 2.5 |
| Sea | +174.0 | 1.8 |
| Techtronic | +29.7 | 1.0 |
| Wuxi Biologics | +54.9 | 0.9 |
| Alibaba | +9.0 | 0.9 |
| Principal detractors | £ Return (%) |
Contribution to return (%) |
|---|---|---|
| HDFC Bank | -23.1 | -1.5 |
| Aeon Thana Sinsap | -40.1 | -0.7 |
| Tabcorp | -33.8 | -0.7 |
| Swire Pacific | -29.0 | -0.6 |
| Woodside Petroleum | -32.1 | -0.6 |
Source: Schroders
| Holding | Business | % of total |
|---|---|---|
| Alibaba | Chinese top e-commerce player |
6.9 |
| Tencent | Chinese internet service portal | 6.9 |
| TSMC | Semiconductor manufacturer | 6.3 |
| Samsung Electronics | Korean tech conglomerate | 6.3 |
| Techtronic | Global power tool producer | 3.4 |
| AIA | Regional insurer | 2.8 |
| BHP Group | Global mining company | 2.7 |
| Galaxy Entertainment Macau gaming operator | 2.4 | |
| Ping An Insurance | Chinese insurer | 2.3 |
| Voltronic Power | Taiwanese power equipment producer |
2.2 |
With COVID-related demand destruction still very prevalent, given the rapid spread of COVID-19 in many emerging countries and the risks of secondary spikes in developed countries, profits in many sectors in Asia will continue to face significant near term headwinds. Nevertheless, the recent sharp recovery in markets shows that many investors are instead placing a great deal of hope on a 2021 recovery, along with the reassurance that central bankers and politicians will do "whatever it takes" to backstop the economy and markets. Or perhaps many investors now correctly recognise that if doing whatever it takes means money printing, then equities may be preferable to cash…
The recent optimism has led to some outsized gains within selected parts of the markets. In particular Chinese A-shares have been looking increasingly frothy since May, and this froth has now spilled over into the broader China markets (as proxied by the MSCI China index in the chart below) and now appears to be spreading to parts of the Taiwanese and Korean equity markets.
Source: Bloomberg, Jefferies, July 2020
Source: Factset, July 2020
The driver of the recent moves in the Chinese and North Asian markets has principally been domestic retail investors. As shown in Chart 3 and 4 the turnaround in domestic retail sentiment in Asia has been quite dramatic since the end of March, with significant retail investor buying. Margin balances are also rising sharply (Chart 5) and some of the recent IPOs in Hong Kong are running at oversubscription rates of 200-300 times, the typical levels at the peak of past speculative fervours (Chart 6) in Asia. It would be fair to say the traffic lights are very much flashing amber – and we believe caution is warranted at this point.
Note: Emerging Asia: Korea, Taiwan, India, Thailand, Malaysia. Taiwan flows = non-institutional net buying, India = SIP flows. Other figures represent net buying from retail investors in their respective markets. Source: Bloomberg, AMFI, HKEx, TEJ, FactSet, MSCI, Goldman Sachs, July 2020.
Source: Bloomberg, FactSet, MSCI, Goldman Sachs, July 2020
1 Data to 8 July 2020. Source: Wind, Bloomberg, Jefferies, July 2020 2Highlighted area is from 25-Mar: a 101% increase was observed since then. Source: Korea Financial Investment Association, July 2020
Source: Bloomberg, Goldman Sachs, July 2020
With bubbles seemingly spreading in pockets of the market, we need to ask ourselves a few questions:
The bubble at the moment is not that broad-based, but in some sectors this froth has now become worrying as prices appear to have risen to unsustainable levels. This bubble has some parallels with the TMT bubble of 1999/2000, and it appears to be concentrated in stocks related to the "BEVI" sectors:
B – Biotech and any related pharma stocks – ideally those with no revenues and just a pipeline of hopes and dreams.
EV – Any stock that makes a widget, valve, semiconductor, or battery that might be used in an electric car – and of course particularly a Tesla. It doesn't matter if they have orders, just as long as they can talk about potential ones at an indeterminate date in the future.
I – Internet and any tech companies that can claim they have an internet, cloud, e-commerce, working from home, mobile gaming angle. Ideally, you want companies where losses are still expanding, ideally even faster than revenues and where the model is "new" and untested, but just bound to be loved by Generation Z.
For those who can recall 1999/2000, the current environment will bring back memories of the TMT bubble. And of course, true to form, the ever-creative sell side are creating new valuation measures and challenging each other to come up with sillier price targets for many stocks in these sectors.
The bubble-like conditions in these sectors are quite big for some individual stocks. Biotech stocks are probably the silliest. There are plenty of examples, but a couple stood out for us. One has quadrupled its market cap since its IPO in mid-June; it has no revenues and just a pipeline of which only one or two drugs look potentially material as of today.
Another biotech firm's share price has risen over 20 times this year. We've struggled to find much information about its business, but this firm with a market cap of \$6 billion appears to have 60 employees and no revenues.
Up until early July, the excesses were mostly concentrated in second tier companies, so we were reasonably relaxed that the downside risk overall was not huge. However, we are getting increasingly concerned about the internet sector, particularly in China. China is c.40-50% of most of the standard benchmarks used by Asian funds and internet stocks on their own are around 40-45% of the MSCI China index. So a bubble spreading to this sector does create risks of significant market falls.
Initially, with Chinese tech giants Alibaba and Tencent not participating in the froth, we felt relaxed that overall market risks was not serious, but these two have now joined the party. In the first week of July Alibaba's market value rose by US\$120bn, approximately the combined value of HSBC Bank and Jardine Matheson.
Source: Refinitiv Eikon, July 2020
Source: Refinitiv Eikon, July 2020
So alarm bells are ringing. At least for Alibaba and Tencent, the network effects and investment strategies of these companies may justify some of the strength in their share prices. For many other internet names, though, a clear speculative fervour has taken hold. We question whether network effects that you get in e -commerce, online media etc. are anywhere near as strong in bikesharing, taxis, food delivery, hotel booking, group buying and so on. Certainly in the US it is very much the case that "not all internet stocks are created equal". Will China be so different?
Many other sectors are moribund. ASEAN markets are struggling, Australia is doing nothing; property, banks, cyclicals, industrials, oil & gas remain very out of favour. This again is similar to the bubble at the turn of the century. The retail investor only wants to chase hot themes and stories.
As highlighted above, with the froth spreading to wider areas of internet and technology, we are now concerned about risks to the downside. Our feeling, purely based on past experience of retail bubbles in Asia, is this will get bigger before it bursts. We would expect, however, the bubbly conditions to remain pretty confined to the BEVI sectors.
For those willing to look away from the herd, opportunities in Asia are to be had, such as in great bank franchises or quality resource stocks offering a 7% dividend yield… but that is so passé of course…
At current levels, our model is forecasting flat markets. Our valuation indicators are also back at neutral levels as the rerating in the internet, technology and pharma sectors offsets the optically "cheap" sectors such as banks, property, insurance, commodities and industrials.
Source: Schroders, July 2020
Half year report and accounts for the six months ended 30 June 2020 9
Despite the froth in the BEVI sectors, much of the broader market is still lagging and remains reasonably valued. We therefore haven't been rushing to buy significant hedging, instead we remain disciplined and have trimmed stocks we hold that got pushed above our fair values on thematic excesses. If the bubble gets bigger and spreads to other sectors, we will look to add to hedging.
Meanwhile, in the short-term as we position the Company more defensively, this could mean potentially some periods of underperformance versus the Reference Index if frothy conditions continue.
Past performance is not a guide to future performance and may not be repeated.
Robin Parbrook, Lee King Fuei 10 September 2020
The principal risks and uncertainties with the Company's business fall into the following categories: strategic risk; investment management risk; custody risk; financial and currency risk; gearing and leverage risk; accounting, legal and regulatory risk; service provider risk; and cyber risk. A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 31 to 33 of the Company's published annual report and accounts for the year ended 31 December 2019.
The board has continued to keep under review the effect of the COVID-19 pandemic on the Company's principal risk and uncertainties. Although it was assessed to be an emerging risk in the annual report, the board now considers that the Company's existing principal risks and uncertainties are sufficiently comprehensive. COVID-19 continues to affect the Company, affecting the value of the Company's investments due to the disruption of supply chains and demand for products and services, increased costs and cash flow problems, and changed legal and regulatory requirements for companies. The pandemic has had a significant impact on prospects for global growth as measured by GDP and it continues to create uncertainty in many sectors.
The board notes the Manager's investment process has been unaffected by the COVID-19 pandemic. The Manager continues to focus on long-term company fundamentals and detailed analysis of current and future investments. Nevertheless, the degree of uncertainty relating to investment management risk has increased due to COVID-19, and the board will be keeping this under close review.
COVID-19 also affected the Company's service providers, who implemented business continuity plans in line with government recommendations. However, the board has been pleased to note that to date the Company's service providers have been able to operate on a business as usual basis, despite the pandemic.
Except with respect to the degree of uncertainty relating to investment management risk, the Company's principal risk and uncertainties have not materially changed during the six months ended 30 June 2020.
Having assessed the principal risks and uncertainties, and the other matters discussed in connection with the viability statement as set out on page 34 of the published annual report and accounts for the year ended 31 December 2019, as well as considering the effect of COVID-19 on those risks and, where appropriate, action taken by the Company's service providers in relation to those risks, detailed above, the directors consider it
appropriate to adopt the going concern basis in preparing the accounts.
There have been no transactions with related parties that have materially affected the financial position or the performance of the Company during the six months ended 30 June 2020.
The directors confirm that, to the best of their knowledge, this set of condensed financial statements has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of Recommended Practice, "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in October 2019 and that this half year report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
Investments are classified by the investment manager in the country of their main business operations. Stocks in bold are the 20 largest exposures to companies, which by value account for 60.6% (30 June 2019: 59.5% and 31 December 2019: 61.1%) of total investments and derivative financial instruments.
| Mainland China | ||
|---|---|---|
| Alibaba1 (including ADR2 ) |
28,602 | 6.9 |
| Tencent Holdings1 | 28,390 | 6.9 |
| Ping An Insurance1 | 9,335 | 2.3 |
| WuXi Biologics1 | 8,455 | 2.0 |
| Hutchison China MediTech (ADR)2 | 7,418 | 1.8 |
| Midea Group (UBS) 27/05/213 | 7,001 | 1.7 |
| New Oriental Education & Technology (ADR)2 |
6,038 | 1.5 |
| Shenzou International Group1 | 5,966 | 1.5 |
| WuXi AppTec1 | 4,522 | 1.1 |
| 51 Jobs (ADR)2 | 4,124 | 1.0 |
| Yum China2 | 3,587 | 0.9 |
| Haitian International Holdings1 | 3,208 | 0.8 |
| Total Mainland China | 116,646 | 28.4 |
| Hong Kong (SAR) | ||
| Techtronic Industries | 14,177 | 3.4 |
| AIA | 11,729 | 2.8 |
| Galaxy Entertainment | 9,999 | 2.4 |
| Swire Properties | 6,488 | 1.6 |
| ASM Pacific Technology | 6,098 | 1.5 |
| Hang Lung | 5,018 | 1.2 |
| Convenience Retail Asia | 4,796 | 1.2 |
| Kerry Logistics Network | 4,602 | 1.1 |
| Swire Pacific | 4,238 | 1.0 |
| Hong Kong Television Network | 4,117 | 1.0 |
| Hong Kong Exchanges and Clearing | 3,108 | 0.8 |
| Johnson Electric Holdings | 2,069 | 0.5 |
| Dah Sing Banking | ||
| 1,805 | 0.4 | |
| Pacific Textiles Holding | 1,613 | 0.4 |
| £'000 | % | £'000 | % | |
|---|---|---|---|---|
| Australia | ||||
| BHP Billiton | 11,227 | 2.7 | ||
| CSL | 7,624 | 1.8 | ||
| ResMed | 6,846 | 1.7 | ||
| Medibank Private | 6,340 | 1.5 | ||
| Crown | 5,766 | 1.4 | ||
| Aristocrat Leisure | 5,257 | 1.3 | ||
| Seek | 4,473 | 1.1 | ||
| Woodside Petroleum | 3,970 | 1.0 | ||
| Brambles | 3,285 | 0.8 | ||
| Cochlear | 3,244 | 0.8 | ||
| Bluescope Steel | 1,192 | 0.3 | ||
| Total Australia | 59,224 | 14.4 | ||
| Taiwan | ||||
| Taiwan Semicon Manufacturing | 25,946 | 6.3 | ||
| Voltronic Power Technology | 9,021 | 2.2 | ||
| Mediatek | 6,616 | 1.6 | ||
| Chroma ATE | 6,067 | 1.5 | ||
| Advantech | 5,504 | 1.4 | ||
| Getac Technology | 4,702 | 1.1 | ||
| Total Taiwan | 57,856 | 14.1 | ||
| South Korea | ||||
| Samsung Electronics | 25,820 | 6.3 | ||
| Naver | 5,684 | 1.4 | ||
| SK Biopharmaceuticals | 150 | – | ||
| Total South Korea | 31,654 | 7.7 | ||
| Singapore | ||||
| Mapletree Commercial Trust | 7,361 | 1.8 | ||
| Sea (ADR)2 | 7,216 | 1.7 | ||
| Venture | 5,696 | 1.4 | ||
| Total Singapore | 20,273 | 4.9 | ||
| India | ||||
| Schroder International Selection Fund – Indian Opportunities4 |
8,928 | 2.2 | ||
| HDFC Bank (ADR)2 | 8,632 | 2.1 | ||
| Total India | 17,560 | 4.3 |
| £'000 | % | |
|---|---|---|
| France | ||
| LVMH | 5,431 | 1.2 |
| Total France | 5,431 | 1.2 |
| Germany | ||
| Adidas | 5,354 | 1.2 |
| Total Germany | 5,354 | 1.2 |
| United Kingdom | ||
| Rio Tinto | 4,686 | 1.1 |
| Total United Kingdom | 4,686 | 1.1 |
| Vietnam | ||
| Vietnam Dairy Products | 4,656 | 1.1 |
| Total Vietnam | 4,656 | 1.1 |
| Philippines | ||
| International Container Terminal | ||
| Services | 3,351 | 0.8 |
| Total Philippines | 3,351 | 0.8 |
| United States | ||
| Las Vegas Sands | 3,343 | 0.8 |
| Total United States | 3,343 | 0.8 |
| Thailand | ||
| Aeon Thana Sinsap | 2,555 | 0.6 |
| Total Thailand | 2,555 | 0.6 |
| Total Investments5 | 412,446 | 99.9 |
| Derivative Financial Instruments | ||
| Index Put Options | ||
| Hong Kong Stock Exchange Put Option 10000 August 2020 |
528 | 0.1 |
| Total Index Put Options6 | 528 | 0.1 |
| Total Investments and Derivative Financial |
||
| Instruments | 412,974 | 100.0 |
| 1 Listed in Hong Kong (SAR). 2 Listed in the USA. |
||
| 3 Participatory notes. | ||
| 4 Open-ended collective investment fund. | ||
| 5 Total investments comprise the following: | ||
| £'000 | ||
| Equities American Depositary Receipts (ADR) |
339,523 56,994 |
|
| Collective investment fund Participatory notes |
8,928 7,001 |
|
| Total investments | 412,446 |
6 The combined effect of the options gives downside protection to 1.8% of total investments.
| (Unaudited) For the six months ended 30 June 2020 |
(Unaudited) For the six months ended 30 June 2019 |
(Audited) For the year ended 31 December 2019 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Note | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Gains on investments held at fair value through profit or loss Net gains/(losses) on derivative |
– | 13,948 | 13,948 | – | 47,079 | 47,079 | – | 47,073 | 47,073 | |
| contracts | – | 3,253 | 3,253 | – | (3,210) | (3,210) | – | (4,390) | (4,390) | |
| Net foreign currency (losses)/gains | – | (941) | (941) | – | (97) | (97) | – | 319 | 319 | |
| Income from investments | 4,872 | 353 | 5,225 | 4,481 | 376 | 4,857 | 9,417 | 666 | 10,083 | |
| Other interest receivable and similar income |
8 | – | 8 | 19 | – | 19 | 32 | – | 32 | |
| Gross return | 4,880 | 16,613 | 21,493 | 4,500 | 44,148 | 48,648 | 9,449 | 43,668 | 53,117 | |
| Investment management fee | (290) | (869) | (1,159) | (273) | (819) | (1,092) | (559) | (1,677) | (2,236) | |
| Performance fee | – | – | – | – | (2,614) | (2,614) | – | (2,838) | (2,838) | |
| Administrative expenses | (332) | – | (332) | (327) | – | (327) | (646) | – | (646) | |
| Net return before finance costs and taxation |
4,258 | 15,744 | 20,002 | 3,900 | 40,715 | 44,615 | 8,244 | 39,153 | 47,397 | |
| Finance costs | (55) | (166) | (221) | (59) | (178) | (237) | (113) | (339) | (452) | |
| Net return on ordinary activities before taxation |
4,203 | 15,578 | 19,781 | 3,841 | 40,537 | 44,378 | 8,131 | 38,814 | 46,945 | |
| Taxation on ordinary activities | 3 | 1,095 | – | 1,095 | (189) | – | (189) | (478) | – | (478) |
| Net return on ordinary activities after taxation |
5,298 | 15,578 | 20,876 | 3,652 | 40,537 | 44,189 | 7,653 | 38,814 | 46,467 | |
| Return per share | 4 | 5.41p | 15.92p | 21.33p | 3.94p | 43.74p | 47.68p | 8.10p | 41.10p | 49.20p |
The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net return on ordinary activities after taxation is also the total comprehensive income for the period.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.
| Note | Called-up share capital £'000 |
premium £'000 |
Capital Share redemption reserve £'000 |
Special reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|---|---|
| At 31 December 2019 Repurchase of the Company's own |
4,895 | 60,135 | 11,646 | 29,182 | 234,828 | 17,185 | 357,871 | |
| shares into treasury | – | – | – | – | (436) | – | (436) | |
| Net return on ordinary activities | – | – | – | – | 15,578 | 5,298 | 20,876 | |
| Dividend paid in the period | 5 | – | – | – | – | – | (6,362) | (6,362) |
| At 30 June 2020 | 4,895 | 60,135 | 11,646 | 29,182 | 249,970 | 16,121 | 371,949 |
| Called-up share capital £'000 |
premium £'000 |
Capital Share redemption reserve £'000 |
Special reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|---|---|---|---|---|---|---|---|---|
| At 31 December 2018 | 4,570 | 37,081 | 11,646 | 29,182 | 196,014 | 15,290 | 293,783 | |
| Issue of shares | 142 | 9,894 | – | – | – | – | 10,036 | |
| Net return on ordinary activities | – | – | – | – | 40,537 | 3,652 | 44,189 | |
| Dividend paid in the period | 5 | – | – | – | – | – | (5,758) | (5,758) |
| At 30 June 2019 | 4,712 | 46,975 | 11,646 | 29,182 | 236,551 | 13,184 | 342,250 |
| Called-up share capital £'000 |
premium £'000 |
Capital Share redemption reserve £'000 |
Special reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|---|
| At 31 December 2018 | 4,570 | 37,081 | 11,646 | 29,182 | 196,014 | 15,290 | 293,783 |
| Issue of shares | 325 | 23,054 | – | – | – | – | 23,379 |
| Net return on ordinary activities | – | – | – | – | 38,814 | 7,653 | 46,467 |
| Dividend paid in the year | 5 – |
– | – | – | – | (5,758) | (5,758) |
| At 31 December 2019 | 4,895 | 60,135 | 11,646 | 29,182 | 234,828 | 17,185 | 357,871 |
| (Unaudited) 30 June 2020 |
(Unaudited) 30 June 2019 |
(Audited) 31 December 2019 |
||
|---|---|---|---|---|
| Note | £'000 | £'000 | £'000 | |
| Fixed assets | ||||
| Investments held at fair value through profit or loss | 412,446 | 355,338 | 368,537 | |
| Current assets | ||||
| Debtors | 1,940 | 1,562 | 454 | |
| Cash at bank and in hand | – | 4,641 | 4,202 | |
| Derivative financial instruments held at fair value through | ||||
| profit or loss | 528 | 576 | 477 | |
| 2,468 | 6,779 | 5,133 | ||
| Current liabilities | ||||
| Creditors: amounts falling due within one year | (42,965) | (19,867) | (15,799) | |
| Net current liabilities | (40,497) | (13,088) | (10,666) | |
| Total assets less current liabilities | 371,949 | 342,250 | 357,871 | |
| Net assets | 371,949 | 342,250 | 357,871 | |
| Capital and reserves | ||||
| Called-up share capital | 6 | 4,895 | 4,712 | 4,895 |
| Share premium | 60,135 | 46,975 | 60,135 | |
| Capital redemption reserve | 11,646 | 11,646 | 11,646 | |
| Special reserve | 29,182 | 29,182 | 29,182 | |
| Capital reserves | 249,970 | 236,551 | 234,828 | |
| Revenue reserve | 16,121 | 13,184 | 17,185 | |
| Total equity shareholders' funds | 371,949 | 342,250 | 357,871 | |
| Net asset value per share | 7 | 380.43p | 363.21p | 365.57p |
Registered in England and Wales Company registration number: 02153093
| Note | (Unaudited) For the six months ended 30 June 2020 £'000 |
(Unaudited) For the six months ended 30 June 2019 £'000 |
(Audited) For the year ended 31 December 2019 £'000 |
|
|---|---|---|---|---|
| Net cash inflow from operating activities | 8 | 661 | 2,587 | 6,697 |
| Net cash outflow from investment activities | (26,707) | (20,475) | (34,823) | |
| Dividends paid | (6,362) | (5,758) | (5,758) | |
| Interest paid | (192) | (231) | (461) | |
| Net bank loans drawn down | 11,979 | 4,350 | 695 | |
| Repurchase of the Company's own shares into treasury | (434) | – | – | |
| Issue of new shares | – | 9,576 | 23,379 | |
| Net cash outflow in the period | (21,055) | (9,951) | (10,271) | |
| Reconciliation of net cash flow to movement in net funds | ||||
| Net cash outflow in the period | (21,055) | (9,951) | (10,271) | |
| Bank loan drawn down | (11,979) | (4,350) | (695) | |
| Exchange movements | (941) | (97) | 319 | |
| Changes in net funds arising from cash flows | (33,975) | (14,398) | (10,647) | |
| Net (debt)/cash at the beginning of the period | (7,951) | 2,696 | 2,696 | |
| Net debt at the end of the period | (41,926) | (11,702) | (7,951) | |
| Represented by: | ||||
| Cash at bank and in hand | (16,954) | 4,641 | 4,202 | |
| Bank loans | (24,972) | (16,343) | (12,153) | |
| Net debt | (41,926) | (11,702) | (7,951) |
The information contained within the accounts in this Half Year report has not been audited or reviewed by the Company's auditor.
The figures and financial information for the year ended 31 December 2019 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.
The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of Recommend Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the Association of Investment Companies in October 2019.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 December 2019.
| Revenue £'000 |
(Unaudited) (Unaudited) Six months ended Six months ended 30 June 2020 30 June 2019 Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 |
Revenue £'000 |
(Audited) Year ended 31 December 2019 Capital Total £'000 £'000 |
||||||
|---|---|---|---|---|---|---|---|---|---|
| Irrecoverable overseas tax Recoverable corporation tax relating to prior years |
225 (1,320) |
– – |
225 (1,320) |
189 – |
– – |
189 – |
478 – |
– – |
478 – |
| Taxation on ordinary activities | (1,095) | – | (1,095) | 189 | – | 189 | 478 | – | 478 |
The Company has reached an agreement with HMRC to recover £1,320,000 of corporation tax paid in relation to financial years 2007 and 2008. This represents a favourable outcome for the Company, following a dispute with HMRC over the treatment of overseas income.
The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income.
| (Unaudited) Six months ended 30 June 2020 £'000 |
(Unaudited) Six months ended 30 June 2019 £'000 |
(Audited) Year ended 31 December 2019 £'000 |
|
|---|---|---|---|
| Revenue return | 5,298 | 3,652 | 7,653 |
| Capital return | 15,578 | 40,537 | 38,814 |
| Total return | 20,876 | 44,189 | 46,467 |
| Weighted average number of shares in issue during the period | 97,881,816 | 92,685,767 | 94,433,447 |
| Revenue return per share | 5.41p | 3.94p | 8.10p |
| Capital return per share | 15.92p | 43.74p | 41.10p |
| Total return per share | 21.33p | 47.68p | 49.20p |
| (Unaudited) | (Unaudited) | ||
|---|---|---|---|
| Six months | Six months | (Audited) | |
| ended | ended | Year ended | |
| 30 June | 30 June | 31 December | |
| 2020 | 2019 | 2019 | |
| £'000 | £'000 | £'000 | |
| 2019 dividend paid of 6.5p (2018: 6.2p) | 6,362 | 5,758 | 5,758 |
No interim dividend has been declared in respect of the year ended 31 December 2020 (2019: nil).
| (Unaudited) Six months ended 30 June 2020 £'000 |
(Unaudited) Six months ended 30 June 2019 £'000 |
(Audited) Year ended 31 December 2019 £'000 |
|
|---|---|---|---|
| Changes in called-up share capital during the period were as follows: |
|||
| Opening balance of ordinary shares of 5p each | 4,895 | 4,570 | 4,570 |
| Repurchase of shares into treasury Issue of shares |
(6) – |
– 142 |
– 325 |
| Subtotal, ordinary shares of 5p each, excluding shares held in treasury Shares held in treasury |
4,889 6 |
4,712 – |
4,895 – |
| Closing balance, ordinary shares of 5p each, including shares held in treasury |
4,895 | 4,712 | 4,895 |
| (Unaudited) Six months ended 30 June 2020 |
(Unaudited) Six months ended 30 June 2019 |
(Audited) Year ended 31 December 2019 |
|
| Changes in the number of shares in issue during the period were as follows: Ordinary shares of 5p each, allotted, called-up and fully paid |
|||
| Opening balance of shares in issue Repurchase of shares into treasury Issue of shares |
97,895,159 (124,000) – |
91,400,159 – 2,830,000 |
91,400,159 – 6,495,000 |
| Closing balance of shares in issue, excluding shares held in treasury Closing balance of shares held in treasury |
97,771,159 124,000 |
94,230,159 – |
97,895,159 – |
| Closing balance of shares in issue, including shares held in treasury | 97,895,159 | 94,230,159 | 97,895,159 |
| (Unaudited) Six months ended 30 June 2020 |
(Unaudited) Six months ended 30 June 2019 |
(Audited) Year ended 31 December 2019 |
|
|---|---|---|---|
| Total equity shareholders' funds (£'000) | 371,949 | 342,250 | 357,871 |
| Shares in issue at the period end, excluding shares held in treasury | 97,771,159 | 94,230,159 | 97,895,159 |
| Net asset value per share | 380.43p | 363.21p | 365.57p |
| (Unaudited) Six months ended 30 June 2020 £'000 |
(Unaudited) Six months ended 30 June 2019 £'000 |
(Audited) Year ended 31 December 2019 £'000 |
|
|---|---|---|---|
| Total return on ordinary activities before finance costs and taxation | 20,002 | 44,615 | 47,397 |
| Capital return on ordinary activities before finance costs and taxation | (15,744) | (40,715) | (39,153) |
| Increase in prepayments and accrued income | (174) | (848) | (166) |
| (Increase)/decrease in other debtors | 1 | (9) | (9) |
| (Decrease)/increase in other creditors | (2,690) | 2,712 | 2,914 |
| Special dividend allocated to capital | 353 | 376 | 666 |
| Stock dividend | – | – | (3) |
| Management fee allocated to capital | (869) | (819) | (1,677) |
| Performance fee allocated to capital | – | (2,614) | (2,838) |
| Overseas withholding tax deducted at source | (218) | (111) | (434) |
| Net cash inflow from operating activities | 661 | 2,587 | 6,697 |
The Company's financial instruments that are held at fair value include its investment portfolio and derivative financial instruments.
FRS 102 requires that these financial instruments are categorised into a hierarchy consisting of the following three levels:
Level 1 – valued using unadjusted quoted prices in active markets for identical assets.
Level 2 – valued using observable inputs other than quoted prices included within Level 1.
Level 3 – valued using inputs that are unobservable.
The following table sets out the fair value measurements using the above hierarchy:
| Level 1 £'000 |
30 June 2020 (unaudited) Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|---|---|---|---|---|
| Financial instruments held at fair value through profit or loss | ||||
| Equity investments and derivative financial instruments | 405,973 | – | – | 405,973 |
| Participatory notes1 | – | 7,001 | – | 7,001 |
| Total | 405,973 | 7,001 | – | 412,974 |
| 30 June 2019 (unaudited) | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Financial instruments held at fair value through profit or loss | ||||
| Equity investments and derivative financial instruments | 350,814 | – | – | 350,814 |
| Participatory notes1 | – | 5,100 | – | 5,100 |
| Total | 350,814 | 5,100 | – | 355,914 |
| 31 December 2019 (audited) | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Financial instruments held at fair value through profit or loss |
| Total | 362,555 | 6,459 | – | 369,014 |
|---|---|---|---|---|
| Participatory notes1 | – | 6,459 | – | 6,459 |
| Equity investments and derivative financial instruments | 362,555 | – | – | 362,555 |
1 Participatory notes, which are valued using the quoted bid prices of the underlying securities, have been allocated to Level 2 as, strictly, these are not identical assets.
The directors have evaluated the period since the interim date and have not noted any significant events which have not been reflected in the financial statements.
Sarah MacAulay (Chairman) Andrew Cainey Caroline Hitch Mike Holt
Schroder Unit Trusts Limited 1 London Wall Place London EC2Y 5AU
Schroder Investment Management Limited 1 London Wall Place London EC2Y 5AU Telephone: 020 7658 3847
1 London Wall Place London EC2Y 5AU
HSBC Bank plc 8 Canada Square London E14 5HQ
Scotiabank Europe PLC 201 Bishopsgate 6th Floor London EC2M 3NS
Winterflood Investment Trusts The Atrium Building Canon Bridge House Dowgate Hill London EC4R 2GA
Ernst & Young LLP Atria One 144 Morrison Street Edinburgh EH3 8EX
landlines.
Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Shareholder Helpline: 0800 032 0641* Website: www.shareview.co.uk *Calls to this number are free of charge from UK
Communications with shareholders are mailed to the address held on the register. Any notifications and enquiries relating to shareholdings, including a change of address or other amendment should be directed to the above address and telephone number above.
General enquiries about the Company should be addressed to the company secretary at the Company's Registered Office.
ISIN Number: GB0008710799 SEDOL Number: 0871079 Ticker: ATR
Global Intermediary Identification Number (GIIN) TRPJG6.99999.SL.826
The Company's privacy notice is available on its webpage.
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