|
FINANCIALSInterim 1999 |
 |
 |
|
 |
|
 |
|
|
|
||||||
|
|
||||||||
This is the sixth interim statement for the Trust, and I am delighted to be able to report the highest percentage increase in assets in any six month period since inception, with an overall capital increase of 32.6%. However, this has been achieved against a more sympathetic background for valuations of smaller companies. In general, business conditions in the underlying investments have been sound and the manager believes that the re-rating in the first half is fully justified and reflects a partial catch-up with the revaluation previously seen in larger companies. It is also pleasing to be able to report strong contributions from Europe and the Far East, although the exposure to these markets remains small. The inclusion of the Norwegian software company, Avenir, and the Malaysian newspaper, the Star, in the list of top 20 holdings reflects particularly useful contributions from these investments. These along with the returns on most of the other holdings in the top 20 were the more rewarding because they significantly reflected the benefits of a readjustment to the portfolio last year away from software service companies. It is notable that over this period the FTSE-IT index has, in contrast, been relatively lacklustre. The performance was more broadly based than last year, with 23 stocks appreciating by in excess of £1 million, and in aggregate contributing to a rise in assets of £40 million, across a diverse range of companies and sectors.
Performance has also benefited from the shake out in the market last year which, particularly in retrospect, provided a wonderful opportunity to buy back warrants. In total over 6 million warrants were acquired for cancellation last year, significantly reducing the dilutive effect on the asset rise this year. Whilst volatile markets can be unnerving for investors, they can provide good opportunities for adjusting the portfolio, particularly in a closed end vehicle such as an investment trust.
| Summary of Performance | |||||
| At inception 16 February 1994 |
At 31 December 1998 |
At 30 June 1999 |
Performance since 31 December 1998 |
Performance since inception |
|
| Basic NAV per share | 98.7p | 206.25p | 273.54p* | +32.6% | +177.1% |
| Fully diluted NAV per share | 98.9p | 200.31p | 263.96p* | +31.8% | +166.9% |
| Share price | 90.9p | 161.5p | 241.0p | +49.2% | +165.1% |
| Warrant price | 45.5p | 77.5p | 140.5p | +81.3% | +208.8% |
| FT-SE 100 Index | 3,417.7 | 5,882.6 | 6,318.5 | +7.4% | +84.9% |
| HGSC Index (ext. cap gains ex IT) | 1,750.00 | 1,818.72 | 2,330.18 | +28.1% | +33.2% |
| Russell 2000 Technology Index | - | 157.04 | 184.71 | +17.6% | - |
| * The NAV figures are stated on a capital only basis, and do not include any income retention at that date. This is because the Company only pays one dividend per year and no provision has been made at this stage. However, the NAV figures given after the Balance Sheet do include the Revenue Reserve uplift for the period. The fully diluted NAV figures given after the Blance Sheet take into account the price of the ordinary shares at the period ends, as required by FRS 14. | |||||
|
|
|||||
Capital Performance of the Trust from 31 December 1998 to 30 June 1999
| UK Equities | +34.3% |
| European Equities | +49.6% |
| US Equities | +19.2% |
| Other Overseas Equities | +39.2% |
| Total Portfolio |
+32.6% |
Herald Investment Trust is continuing its policy to pay annual dividends only, reflecting the emphasis on capital growth. The Trust’s income has declined this year in spite of the fact that dividends have almost invariably risen. This reflects the number of acquisitions last year of higher yielding stocks, the reduced levels of interest income due to lower interest rates and a more fully invested position. The modest interest charge reflects the interest payable on a Yen loan equivalent to £3 million put in place at the start of this year, however the rate of interest payable is lower than the interest received on sterling deposits, so this has not adversely affected returns. Second half profits should be higher on current income projections.
For most of 1997 and 1998 the performance of the Trust led the tables for Smaller and International Smaller companies. In the first half of 1999, although the Trust outperformed its most relevant benchmark, the HGSCI by over 4%, it did not head the tables in the first half, as performance from other sectors picked up. However, the record has been sufficient to make the Trust one of the top performers, in any market, over the last five years. And it is a steady long-term record that the manager seeks above all.
Last year the market was unnerved in the third quarter by instability in Asian economies, and by excessively leveraged hedge funds threatening to destabilise financial institutions. Whilst these fears have receded, the recent strong performance and historically high overall market valuations, inevitably make us look for the next storm. The two outstanding positive elements are the low level of interest rates and the increasing appetite for equity savings in the developed world. The greatest risk to equities would seem to come from a reversal of the decline in interest rates reflecting a robust US economy and the recent sharp rise in the price of certain commodities, albeit offset by the deflationary effects of the ever increasing efficiency of world communications. On balance we continue to believe that the case for investing in a portfolio focusing on the growth markets of technology and media remains firmly intact, whatever the macro background.
| Martin Boase | 4th August 1999 |
The information on this page is taken from the Interim Report for the six months ended 30th June 1999