Our annual report summary series delivers a condensed analysis of a selected investment trust's annual report, including details of the trust's aim, investment style, portfolio focuses, gearing policy, charges and performance.
BRITISH EMPIRE TRUST
British Empire Trust (BTEM) targets capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated net asset value (NAV). Its annual report for the year to 30 September 2016 shows shareholders' assets of £844 million.
Joe Bauernfreund of Asset Value Investors (AVI) was appointed chief investment officer in October 2015, having assisted the previous manager for eight years.
He has retained the trust's value-oriented investment style, reinforced its commitment to constructive engagement with its investee companies and concentrated the portfolio down to 33 holdings.
He expects long-term returns to exceed the cost of debt, so long-term gearing has been increased to 8 per cent.
Shareholders' money is invested predominantly in family-controlled holding companies and other closed-ended funds with the following features: shares trading at a discount to NAV; high-quality underlying assets and strong balance sheets; and potential for a catalyst to narrow the discount.
The trust can invest globally, but tends to find its best opportunities in Europe and Asia.
At its financial year-end the trust's holdings were valued at a weighted average discount to NAV of 32 per cent. Continental Europe accounted for 36.7 per cent of the portfolio, North America 19.3 per cent and Asia 16.6 per cent.
BTEM's NAV total return last year was 31 per cent. This exceeded the 28 per cent gain in its benchmark, the MSCI World ex US index, and was a welcome improvement following its patchy performance over the past five years.
With support from £42.3 million of share buybacks, the discount narrowed to 9.64 per cent, lifting share price total returns to 34.3 per cent. The dividend was held at 11.7p, augmented by a special dividend of 2.8p. Ongoing charges were 0.9 per cent.
AVI, its directors and staff own nearly 950,000 shares in BETM. Elliott Capital Advisors and 1607 Capital Partners together own more than 15 per cent of the shares.
See the full annual report on the British Empire website.
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