New Star enjoys exposure to UK small caps and emerging markets

New Star Investment Trust (NSI) announced its full year results for the fiscal year ended June 30, 2021, in which it benefited from its allocations to UK small businesses and emerging markets, but allocations to dollar cash and equities in gold detracted from performance. During the year, NSI generated a total return 22.16%, taking the net asset value (NAV) per ordinary share at 194.49p. For comparison, the 40-85% mixed investment shares of the Investment Association Index increased by 17.48%, the MSCI AC World Total Return index increased by 25.10% in pounds sterling while the MSCI UK Total Return index increased by 17.46%. During the year the British government obligations fell 6.48%. NSI claims to have ended the year with cash representing 6.12% of its net asset value and is likely to maintain a significant cash position. The Read our guide to Boards and Directors

" class="glossary_term">plank recommend the payment of a dividend of 1.4p per share (2020: 1.4p), but say the level of future dividends could, in the short term, be affected by the dividend cuts linked to Covid-19. During the year, NSIO shares continued to trade at a significant discount, which the board says it continues to review. More details on performance are provided in the wallet review below.

The manager’s portfolio review

“The total return for your business in the year under review was 22.16%. By comparison, the 40-85% equity sector of the Investment Association Mixed Investment, a peer group funds with a multi-asset investment approach and a typical investment in global equities in the 40-85% range, rose 17.48%. The MSCI AC World Total Return index gained 25.10% in pounds sterling, while the MSCI UK Total Return index gained 17.46%. Your company benefited from its allocations to UK small businesses and emerging markets, but allocations to dollar cash and gold stocks detracted from performance. Income has plummeted due to dividend cuts resulting from Covid-19 lockdowns. Such reductions are however likely to be temporary and new investments in equity securities were made during the year.

UK stocks have lagged foreign stocks for two main reasons: the strength of the pound and the London stock market’s bias in favor of cyclical companies, resulting in larger dividend cuts than those suffered by non-European companies. United Kingdom and United States. British small businesses outperformed, however, rising 49.77% as Britain’s relatively successful vaccination program led to the lifting of some lockdown restrictions, fueling a nationwide recovery that exceeded expectations. Aberforth Split Level Income, which favors lower value UK stocks, was your company’s best performer, increasing 97.66% as strong investment returns were amplified by the leverage provided by its spin-off. balance sheet - i.e. all the sources of finance a company is using including the equity.

" class="glossary_term">capital structure.

In July 2020, the allocation to UK equities was reduced by the sale of the SPDR FTSE UK All Share exchange traded fund (AND F), which had been bought after the stock market crash triggered by the initial lockdowns in March 2020. In January 2021, the allocation to higher yielding UK small businesses increased through an addition to Chelverton UK Equity Income, which has gained 44.65% but lagged behind the gain for small businesses overall as dividend cuts reduced opportunities to generate equity income. Brompton UK Recovery and Man GLG UK Income also benefited from their bias towards small businesses, up 30.35% and 23.32% respectively. However, Trojan Income was only up 8.16% due to its focus on large stocks in defensive sectors such as consumer staples, accounting for 27% of its portfolio in the past. financial year 

" class="glossary_term">end of the year.

Equities in emerging markets and Asia ex-Japan gained 26.43% and 25.25% respectively in pounds sterling, as the Covid-19 was initially contained following strict containment measures in China and elsewhere. other Asian countries. In July 2020, the allocation to equities in Asia ex Japan increased thanks to the purchase of Matthews Asia ex Japan Dividend. The Chinese economy rebounded strongly at first, but there were signs in the weeks following your company’s year-end that growth was slowing. There were also concerns that Beijing’s focus on “common prosperity” would lead to regulations aimed at reducing corporate profits.

As of June 30, 2021, Matthews Asia ex Japan Dividend is index and often refers to a benchmark.

The opposite is overweight

See also neutral weight

Example

Stock A is 10% of an index.  A portfolio holds 8% of Stock A.  The portfolio is underweight Stock A by 2%

Germany is 10% of the European Index. Investment manager is concerned about Germany. Portfolio holds 8% and is 2% underweight

Outcome

If stock A's share price rises, the portfolio performs badly relative to the index because it holds 2% less than the index

If German markets fall, the portfolio performs well relative to the index because it holds 2% less than the index

" class="glossary_term">underweight in China and index

Overweight is used as a relative term, generally to something neutral, generally an index and in the context of a benchmark.

The opposite is underweight

See also neutral weight

Example

Stock A is 10% of an index.  A portfolio holds 12% of Stock A.  The portfolio is overweight Stock A by 2%

Germany is 10% of the European Index. Investment manager likes Germany. Portfolio holds 12% and is 2% overweight

Outcome

If stock A's share price rises, the portfolio performs well relative to the index because it holds 2% more than the index

If German markets fall, the portfolio performs badly relative to the index because it holds 2% more than the index

" class="glossary_term">Overweight in Vietnam and South Korea. Vietnam is benefiting from the transfer of production out of China by manufacturers to reduce costs and mitigate the impact of poor Sino-US trade relations. Vietnam Enterprise Investments, which invests primarily in cited businesses, has been added to increase your business’s exposure to this rapidly growing economy. Your Company’s allocation to emerging markets increased in February with the addition of JP Morgan Emerging Markets Income, an open-ended fund that follows a strategy similar to that of the JP Morgan Global Emerging Markets Income investment fund, a existing stake, which gained 40.11% over the year. Somerset Asia Income Fund, formerly Liontrust Asia Income, also outperformed, up 28.60%.

Among your company’s investments in Asian and emerging markets in a single country, Stewart Investors Indian Subcontinent Sustainability rose 47.52%, outpacing the 40.41% gain in Indian stocks in pounds sterling as investors ignored the rise Covid-19 infections exacerbated by the more infectious delta variant and focusing on the longer-term impact of Narendra Modi’s liberalization of employment and agriculture laws. HSBC MSCI Russia Capped ETF rose 22.96% while Russian stocks gained 24.96% in sterling. The Russian market, which favors energy stocks, benefited from the strength of the oil price, up 61.63% in sterling, but the weakness of the currency resulting from the rise in political risk following the US election turned out to be an obstacle. Lindsell Train Japanese Equity fell 8.01%, trailing the 10.71% gain in Japanese stocks in sterling, due to its preference for quality companies in a year in which Cyclical stocks such as banks outperformed.

Investments in cash dollars and BlackRock Gold & General, which owns gold miners, provide diversification and may offer some protection of capital in the event of a downturn in the stock markets. Both investments were affected during the year under review by currency fluctuations, with exceptional monetary and fiscal measures weakening the dollar and the Brexit deal supporting the pound. Gold and gold stocks fell 14.07% and 14.01% respectively in sterling, contributing to a 15.46% drop in BlackRock Gold & General. The dollar cash position suffered from the 10.56% decline of the dollar against the pound sterling, although the impact was moderate as part of the cash was invested during the year in new opportunities. , mainly in the equity markets.

EF Brompton Global’s six multi-asset funds were ranked above the median performance in their respective Investment Association (IA) peer group with four funds in the first quartile and two funds in the second quartile. .

Among those of your company capital investment investments, there was good news regarding the stake in Embark, which represented 6.14% of the net assets at the beginning of the year. In July 2021, Lloyds Banking Group announced that it had entered into an agreement, subject to regulatory approval, to purchase the majority of Embark’s business. As a result, your Company has recognized an additional net amount of £ 7.9 million in respect of this investment.

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