Background

If a primary driver of solid equity market returns in 2023 was the expectation of easing inflationary pressures and central banks cutting interest rates, one could be forgiven for being slightly surprised at the strength of equity market returns, particularly in developed markets, in the first half of this year. Inflation has eased in some areas, proved stubborn in others and the six or seven interest rate cuts expected in the United States at the end of last year have yet to come to pass. The first half of 2024 has been a period of significant developments and transitions in global capital markets. Factors including robust earnings, resilient developed market economies, and technological advancements support the present positive environment and opportunities. Risks such as conflict, geopolitical tensions, inflation, interest rates and a shifting political picture are equally relevant and have the potential to derail the current picture.

Performance and Dividends

The net asset value (NAV) total return, with dividends reinvested, for the six months to 30 June 2024 was 5.5% compared with 12.2% for the Company’s Reference Index (the FTSE All World TR Index in GBP). Over the six month period, the share price total return was 0.5%, as the discount to the NAV widened from -4.0% at 31 December 2023 to -8.7% at 30 June 2024. The Manager’s Review contains more information about both the drivers of performance in the period and activity within the portfolio.

The Company has increased its dividend in each of the last nineteen years and the Board remains optimistic that this progressive dividend policy can be maintained. As a long-established investment trust, the Company has the benefit of over £72.9 million of distributable revenue reserves on its balance sheet at 30 June 2024. In some years, revenue will be added to reserves while, in others, revenue may be taken from reserves to supplement earned revenue for that year to support the annual dividend. Shareholders should not be surprised or concerned by either outcome as, over time, the Company will aim to pay out what the underlying portfolio earns.

Manager Succession

During the period we bade farewell to Bruce Stout who has been the Company’s lead investment manager since 2004. Martin Connaghan and Samantha Fitzpatrick who have worked with Bruce for over 20 years have now taken joint responsibility for the management of the portfolio. On behalf of the Board and shareholders I would like to reiterate our sincere thanks to Bruce for all his efforts, enterprise and expertise.

Management of Discount

In line with most of the investment trust sector, in the first six months of the year the Company’s shares have continued to trade at a discount level that is wider than its long-term average. Consequently, in order to reduce any volatility as well as enhance NAV for ongoing shareholders, the Company bought back 7,385,252 Ordinary Shares of 5p for Treasury at a total cost of £18.1 million and at a weighted average discount of -9.9%, representing 1.2% of the issued share capital.

At the latest practicable date, the NAV (including income) per share was 269.7p and the share price was 249.5p equating to a discount of 7.5% per Ordinary share.

Gearing

In May 2024, the Company repaid its maturing £30 million 5-year fixed-rate loan with The Royal Bank of Scotland International Limited, London Branch. Following the repayment of this loan, the Company’s borrowings now consist of £110m unsecured loan notes which are fully drawn and will not be repayable until 2031. The weighted costs of borrowing of these fixed-rate loan notes is a very cost-effective 2.56%. The borrowings represent a net gearing level of 6.0% based on the Company's NAV at 30 June 2024 (31 December 2023: 8.0%). The Board considered options to replace the maturing loan but concluded that the proposed terms were not appropriate at present, but, working with the Manager, will keep the position under review.

Outlook

As we look forward, macroeconomic difficulties are likely to continue impacting the direction of financial markets. The geopolitical environment, currently at its most polarised, fragile, and uncertain state in a very long time, demands our attention and caution. Even when interest rates begin to decrease, the cadence and scale of their decline could leave market participants disappointed. Numerous heavily indebted nations will still be confronted with fewer and fewer options to stimulate future growth. While Central Banks may have won the battle with inflation and walked the tightrope between recovery and recession, for now, the geopolitical environment could easily alter that in the blink of an eye. Notwithstanding the economic backdrop, our Manager focuses squarely on delivering the investment objective and looking for opportunities that offer proper diversification.

Read the full article in the half yearly report here.

Investment objective

The aim of the Company is to achieve an above average dividend yield, with long term growth in dividends and capital ahead of inflation, by investing principally in global equities.

Cumulative performance (%)

Discrete performance (%)

Total return; NAV cum income, with net income reinvested. Share price total return is on a mid-to-mid basis. Dividend calculations are to reinvest as at the ex-dividend date. NAV returns based on NAVs with debt valued at fair value.

Source: abrdn Investments Limited, Lipper and Morningstar. Past performance is not a guide to future results.