Annual Financial Report
LEI: 549300JZQ39WJPD7U596
Invesco Global Equity Income Trust plc
Annual Financial Report for the year ended 31 May 2024
The following text is extracted from the Annual Financial Report of the Company for the year ended 31 May 2024. All page numbers below refer to the Annual Financial Report which will be made available on the Company's website.
Financial Performance
Capital Statistics – Company Level(1)
At 31 May
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| 2024 | 2023 | change % |
| Net Assets (£'000) | 197,555 | 199,739 | –1.1% |
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| Revenue Statistics – Company Level(1) |
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| Year ended 31 May |
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| 2024 | 2023 |
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| Net revenue return after taxation for the financial year (£’000) | 6,099 | 5,994 |
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| Net capital return after taxation for the financial year (£’000) | 21,943 | (5,664) |
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| Net total return after taxation for the financial year (£’000) | 28,042 | 330 |
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| Year end Net Asset Value, Share Price and Discount – Company Level(1)
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| Net Asset | Share |
Discount |
| Global Equity Income | 313.30 | 286.00 | (8.7)% |
| (1) At 31 May 2024 the Company consists solely of the Global Equity Income Portfolio, following the restructure on 7 May 2024 which involved the closure of the UK Equity, Balanced Risk Allocation and Managed Liquidity Portfolios.
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| Cumulative Portfolio Total Returns(2)(3) To 31 May 2024 |
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| One | Three | Five |
| Global Equity Income Portfolio (formerly Global Equity Income Share Portfolio) | Year | Years | Years |
| Net Asset Value | 21.0% | 45.5% | 84.7% |
| Share Price | 26.9% | 38.6% | 72.6% |
| MSCI World Index (£) | 21.6% | 35.5% | 80.4% |
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Cumulative Portfolio Total Returns(2)(3) To 3 May 2024 |
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| One | Three | Five |
| UK Equity Share Portfolio(4) | Year | Years | Years |
| Net Asset Value | 11.3% | 15.7% | 36.5% |
| Share Price | 8.3% | 6.4% | 17.3% |
| FTSE All–Share Index | 13.8% | 23.8% | 35.4% |
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| Balanced Risk Allocation Share Portfolio(4) | Year | Years | Years |
| Net Asset Value | 9.0% | –3.2% | 17.6% |
| Share Price | 11.1% | –9.7% | 6.3% |
| Composite Benchmark Index(5) | 11.1% | –5.3% | 9.5% |
| ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum | 9.9% | 22.7% | 33.7% |
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| One | Three | Five |
| Managed Liquidity Share Portfolio(4) | Year | Years | Years |
| Net Asset Value | 6.9% | 10.4% | 15.6% |
| Share Price | 17.8% | 7.2% | 9.4% |
| (2) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 97 to 100 of the financial report for details of the explanation and reconciliations of APMs. (3) Source: LSEG Data & Analytics/Bloomberg. (4) This class was closed on 7 May 2024, all performance data is calculated to 3 May 2024, being the date of the final computed Net Asset Value of the class. (5) With effect from 1 June 2021, the benchmark adopted by the Balanced Risk Allocation Portfolio is comprised of 50% 30-year UK Gilts Index, 25% GBP hedged MSCI World Index (net) and 25% GBP hedged S&P Goldman Sachs Commodity Index. Prior to this, the benchmark was ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum. Accordingly, both the new and old benchmark are shown. | |||
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Chairman’s Statement
Highlights
– Consolidation and simplification of Company structure completed to form Invesco Global Equity Income Trust plc (Ticker: IGET)
– Continued strong performance has delivered a share price total return ahead of benchmark of 26.9% for the year.
– Dividend to be increased by at least 70% over previous dividend share class arrangement.
Welcome to the first annual report and accounts for the recently consolidated and renamed Invesco Global Equity Income Trust, ticker ‘IGET’.
It has been a year of much change for your Company.
Following a comprehensive review and consultation regarding the strategy and market appeal of your Company, an announcement in December and then a Circular, outlining reconstruction proposals, was published in February 2024. The proposals included reclassifying the UK Equity, Balanced Risk Allocation and the Managed Liquidity shares into the Global Equity Income share-class, thus simplifying the structure of the trust, creating a one share-class vehicle. Part of these plans included enhancing and giving more predictability to the dividend level, a new maximum discount level objective as well as the introduction of a five yearly continuation vote. The objective of the restructure and simplification of your Company was two-fold: to broaden the appeal of the Company’s shares, thus improving liquidity and narrowing the discount at which the shares trade; and, by converting to a global equity mandate, offering the broadest set of investment opportunities for equity investors, whilst also providing diversification benefits.
Your Company was launched in 2006 with a multi-share class structure to enable shareholders to invest in a wide array of asset classes and to rebalance their portfolio by allowing them to convert, tax-efficiently, between share-classes. In recent years there was only a limited take-up of the conversion opportunity by shareholders and the pattern of conversions had gradually, over the years, led to the size of the Balanced Risk Allocation and Managed Liquidity share-classes representing, in aggregate, only a low single-digit percentage of the Company’s overall net asset value.
Investors are increasingly demanding larger, more liquid investment vehicles, and your Board believe that it would have been increasingly challenging to separately market the four individual share-classes and that the multi-share-class structure may have added an additional hurdle for some investors.
Your Board concluded that the broader, global, investment remit, in combination with Stephen Anness’s Global Equity Team’s management, presented the best outcome for the Company’s shareholders.
Shareholders voted in favour of the various resolutions recommended by the Board, to bring about the simplification of the Company’s structure and associated enhancements, at Company and Share Class meetings held in late March and early April. Thank you for your support of these proposals.
The proposals included the opportunity for a 15% tender on the UK Equity share-class and a full cash exit opportunity on the two smaller share-classes, given their significantly differentiated risk profile and asset exposure compared to the Global share-class. Whilst the UK Equity Share tender was subscribed in full, the majority of shareholders of the Balanced Risk Allocation and Managed Liquidity shares opted to roll their investment into Global shares.
The restructure completed in early May, and in mid-May your Company changed its name from Invesco Select Trust plc to Invesco Global Equity Income Trust plc, with the memorable and distinctive ticker of IGET.
Your Company’s Articles of Association were also updated to reflect the change from a multi to a single share-class structure.
Performance
As at 31 May 2024 your Company’s net assets stood at over £197m.
Over the period the Global Equity Income Shares’ NAV total return was 21.0% against the MSCI World Index (£) return of 21.6%. Although the portfolio’s NAV return was marginally below the index, it is important to acknowledge that your Portfolio Managers have achieved this return with a portfolio that looks quite different to the index.
This is covered in more detail in the Portfolio Managers’ update on page 12, as it’s an achievement that should not be overlooked. Your Company’s share price total return successfully surpassed that of the index, at 26.9%.
The returns for the previous share-classes (UK Equity, Balanced Risk Allocation and Managed Liquidity) are shown on pages 24, 27 and 30. Please note they show a partial period (to 3 May 2024), as shareholders in these share-classes either had their holding reclassified into Global Equity Income Shares or elected for a full or partial cash tender as a result of the reconstruction proposals. Thus, shareholders who elected to continue to hold shares in the Company will have a performance return made up of their original share-class returns from 1 June 2023 to 3 May 2024 and, added to this, the returns made by the Global Equity Income share-class from 7 May to 31 May 2024.
Your Team
As a great number of IGET shareholders will have recently converted into the Global Equity Income shares from previous share-classes, we thought it would be helpful to include a chart of the Global Equity Team; please find this on page 18. Your Board has been impressed with the team’s track record of process and performance, throughout varying market conditions, as well as the calibre of the individuals within the team.
As Stephen Anness refers to in the Portfolio Managers’ report, there is a depth and breadth of comprehensive thought and analysis in how the team select and monitor stocks for the portfolio. The team are not afraid to hold a mirror up to their process, with the aim of constantly and continually improving and evolving their fund management approach, to enhance shareholder outcomes.
Within the team, Stephen Anness has been ably assisted by Joe Dowling; the Portfolio Managers have worked together for 11 years. To better reflect Joe’s work and contribution to the management of your Company’s portfolio, we have decided to change Joe’s title to Deputy Portfolio Manager, effective 1 September 2024. A biography of both Portfolio Managers is included on page 12.
Global Portfolio
The objective of the Global Equity Income portfolio is to provide an attractive level of predictable income and capital appreciation over the long term, predominantly through investment in a diversified portfolio of equities worldwide.
Although the fundamental focus of the Portfolio Managers remains on stock selection rather than sector, geographic or macro-economic trend forecasting, the only constant in the global backdrop is change. Key aspects include inflation or disinflation, interest rates and to cut or not to cut, elections have happened or will happen, with a particular eye to the USA.
A key driver of performance for global stock markets has been the narrow focus on a handful of Artificial Intelligence (AI) stocks. As I write, there has been some challenge to the one-way performance of these stocks, which highlights the importance of two of the key fundamentals of our Portfolio Managers’ approach – diversification and valuation.
Gearing
Your Company has the ability to ‘gear’ its portfolio by tactically using borrowings to amplify portfolio returns. During the period your Board renewed the Company’s revolving credit bank loan facility, at a level of £40 million. Your Portfolio Managers have the ability to employ borrowings up to 30% of the value of the Company’s total assets. As at the date I write, your Portfolio Managers have decided to not employ gearing.
Consumer Duty
Your Board continues to work with the Manager to ensure adherence to Consumer Duty, in respect of the four areas of focus, namely products and services, price and value, consumer understanding and consumer support.
To improve the access to information on your Company, the Board, in conjunction with the Manager, has introduced a new information service, which allows shareholders to register to receive updates and similar information; further details are included below.
Company Profile and Information Updates
Following on from the award win in November for the International Income category at the Citywire Investment Trust Awards and being given a Kepler Growth Rating, the performance of IGET and the Global Equities Team continues to be recognised by independent parties. Recently, your Company has been shortlisted by a panel of experts for the Global Equity category for the AJ Bell Investment Awards and, additionally, shortlisted at the Investment Week, Investment Company Awards, for the Global Income category.
Appreciating that the reliability of income can be important for the Company’s shareholders, IGET is classified as an AIC ‘Next Generation Dividend Hero’, with 14 consecutive years of dividend increases.
Shareholders may have noticed that, aligned with the change of structure, your Company has had a significant change in how it is presented, which is a small part of a broader marketing campaign, designed to enhance the profile of the Company. This includes the creation of a new information service, which aims to provide shareholders with regular updates on the portfolio and Manager’s views, which I would encourage you to register for by scanning the QR code included on page 8 with your smartphone/device, visiting the Company’s specific page on the Manager’s website, at https://intouch.rdir.com/Public/PreferenceCentre/Invesco/Standard, or by contacting Invesco directly at investmenttrusts@invesco.com.
Dividend Policy and Dividends Paid
The previous dividend policy consisted of three equal interim dividends and a ‘wrap up’ fourth interim dividend. For the year under review the first three dividends declared were 1.60p per share, with a final fourth interim dividend declared in April 2024 of 2.55p, bringing the total for the year to 7.35p.
Your Company’s new policy will pay an annual dividend of at least 4%, calculated on the unaudited year-end NAV, paid quarterly in equal amounts, thus giving a smoother, more predictable and enhanced income to shareholders. The intention is that these dividends will be paid from your Company’s revenues and, if required, capital reserves. The unaudited year-end NAV was 313.30p; accordingly the first interim dividend, in respect of the year ending May 2025, of 3.13p was paid on 15 August 2024. This represents a projected annualised total dividend of 12.52p per share, which amounts to an increase of at least 70% over the annual dividend that was paid to shareholders of any share class for the year ending 31 May 2024.
As is normal practice an advisory vote on the dividend policy will be put to shareholders at the 2024 annual general meeting (AGM).
Discount Management and Share Capital Movements
Your Company adopted a new discount control policy as part of its reconstruction proposals, whereby ad hoc share buybacks may be used to seek to maintain the discount at less than 10%, in normal market conditions. The Board will ask shareholders to renew the buyback authorities as and when appropriate and intends to put a resolution to shareholders at the 2024 AGM to renew this authority.
As at the date of my statement, for the financial year ending May 2025, 57,000 Global Equity Shares have been repurchased, and placed in treasury, at an average price of 285.79p. Your Company currently has a 6.4% share price discount to NAV. No shares have been issued in the present year.
Full details of shares bought back during the year, including those in the former share classes are set out in the table on page 39.
Other than in connection with the reconstruction proposals, no shares were issued over the period, including shares issued from treasury.
UK Equity, Balanced Risk Allocation and Managed Liquidity shares held in treasury were cancelled as part of the reconstruction proposals.
Prior to the announcement of the restructuring proposals there were two share conversion opportunities, these took place in August and November 2023. Full details of the share movements arising on those conversions are set out in the table on page 39.
On 19 April and 3 May respectively, your Board formally announced the outcome of the restructuring tender, (including the number of shares to be repurchased and the tender prices), and the results of the restructuring and the calculation ratios in respect of the reclassification of the former share-classes into Global Equity Income Shares. I refer shareholders to those announcements as well as the table showing movements in the share capital of your Company set out on page 39.
Continuation Vote
As described in February’s Circular, your Board intends to put forward a vote at the Company’s annual general meeting in 2026 for the continuation of the Company. If the 2026 Continuation Vote is passed the Board will put forward a continuation vote at the Company’s annual general meeting in 2031 and, if passed, at each fifth AGM thereafter.
Corporate Broker changes
Cavendish Capital Markets Ltd were appointed as joint corporate broker to your Company in March 2024. Upon completion of the reconstruction proposals Winterflood Securities Limited retired from their position and Cavendish Capital Markets continue as your Company’s sole corporate broker.
Board Succession
There were no changes to the composition of your Board during the period.
I have recently reached my 9-year anniversary of serving on the Board and therefore it is my intention to retire once my successor has been appointed.
Davina Curling joined the Board of your Company following its merger with Invesco Income Growth Trust plc in 2021, where she served as a director from 2011; Davina intends to retire at the upcoming AGM. I thank Davina for her service to your Company.
A recruitment process is underway to appoint a new Chair of the Board and a new director; announcements will be made once those appointments are formalised. Your Board will be taking into account the skill and diversity make-up of the directors in its hiring decision-making.
Your Company’s remaining three directors will all stand for re-election at the forthcoming AGM.
Timeline of AGM and Invitation to Attend
The Annual General Meeting of your Company will be held at the offices of Invesco Asset Management, 43-45 Portman Square, London, W1H 6LY on Thursday, 21 November 2024 at 3.00pm. A separate circular, including the Notice of AGM and voting instructions, will be sent to shareholders during October 2024.
Any shareholder wishing to submit questions to the Board or the Manager is encouraged to do so by following the procedures which will be set out in the circular. We look forward to welcoming as many of you as possible to the AGM.
Outlook
The NAV total return for the period 31 May to the latest practical date available at the signing of this report is 4.0%, versus 2.5% for the benchmark.
Your Board believes that the Global Equity universe offers the broadest set of investment opportunities for equity investors. We also believe that your Company is well positioned, as Stephen Anness, Joe Dowling and the Global Equities Team will continue to seek out investment opportunities to deliver capital growth with predictable income, to generate the best returns for the ongoing benefit of shareholders.
As my time on the Board comes towards an end, I would like to thank the members of the Board, past and present, as well as your Company’s Manager and corporate advisors, for their service and expertise; and particularly to you, the Company’s shareholders, for your support of IGET, over recent times and into the future.
Victoria Muir
Chairman
25 September 2024
Global Equity Income
(formerly Global Equity Income Share Portfolio)
Total Return
For the year ended 31 May
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| 2024 | 2023 | 2022 | 2021 | 2020 |
| Net Asset Value(1) | 21.0% | 9.8% | 9.6% | 35.9% | –6.4% |
| Share Price(1) | 26.9% | 4.6% | 4.4% | 32.6% | –6.1% |
| MSCI World Index (£)(1) | 21.6% | 3.8% | 7.4% | 22.3% | 8.9% |
| Revenue return per share | 9.03p | 5.20p | 4.85p | 3.95p | 5.39p |
| Dividends | 7.35p | 7.20p | 7.15p | 7.10p | 7.05p |
(1) Source: LSEG Data & Analytics.
Global Equity Income Share Portfolio Historical Shareholder Returns from an Initial Investment of £1,000 on 31 May 2014
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| Annual | Cumulative |
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| Annual | dividends | dividends |
| value (using | dividends |
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| dividends | from | from | Mid-market | mid-market | reinvested on |
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| per share(1) | investment(1) | investment(1) | share price | share price) | payment date |
| 31 May | pence | £ | £ | pence | £ | £ |
| 2014 | – | – | – | 148.00 | 1,000 | 1,000 |
| 2015 | 4.60 | 31 | 31 | 166.75 | 1,127 | 1,160 |
| 2016 | 6.00 | 40 | 71 | 156.00 | 1,054 | 1,128 |
| 2017 | 6.40 | 43 | 114 | 197.50 | 1,334 | 1,478 |
| 2018 | 6.70 | 45 | 159 | 202.00 | 1,365 | 1,561 |
| 2019 | 6.90 | 47 | 206 | 195.00 | 1,317 | 1,560 |
| 2020 | 7.05 | 48 | 254 | 176.50 | 1,192 | 1,465 |
| 2021 | 7.10 | 48 | 302 | 226.00 | 1,527 | 1,941 |
| 2022 | 7.15 | 48 | 350 | 229.00 | 1,547 | 2,028 |
| 2023 | 7.20 | 48 | 398 | 232.00 | 1,567 | 2,120 |
| 2024 | 7.35 | 50 | 448 | 286.00 | 1,932 | 2,689 |
Source: LSEG Data & Analytics.
Global Equity Income Share Portfolio Managers’ Report
Q What changes has the Company undergone?
A After the share class consolidation and the subsequent relaunch of Invesco Global Equity Income Trust (IGET), some shareholders will note the significant transformation that the Company has undergone, whilst others will have remained in the same portfolio throughout, but for all it marks a new chapter in the Company’s history.
For continuing shareholders, I thank you for your support and to our new shareholders, welcome.
Both myself and the Global Equities Team have ensured that throughout the consolidation process, capital was invested into the portfolio as quickly and smoothly as possible and without incident.
This strategic shift aims to enhance capital growth and income potential for investors. With a diversified portfolio of global companies, IGET is targeting capital growth alongside a predictable income, setting an annual dividend target of at least 4% as set by the board.
For those who know us less well, our investment approach is centred around bottom-up stock selection, with a focus on finding quality companies at attractive prices. We look to build a concentrated portfolio of around 40-45 stocks where holdings are mostly uncorrelated to one another, giving the Trust the best opportunity to perform well through most market conditions.
Q How has the Company performed in the year under review?
A In what has been an extremely narrow market, we were pleased to deliver 21.0% (net asset value, total return, sterling), remaining broadly in line with the index (MSCI World) which rose by 21.6%.
2023 was seen by many as the year of “The Magnificent 7”. The 7 largest stocks in the S&P 500 made up over 50% of the returns of the MSCI World. When 7 out of 500 companies make up 60% of the total return of a major index, being benchmark agnostic (or underweight them) can be extremely painful.
Stock market leadership has continued to remain narrow in 2024, mostly a result of the strong share price appreciation in Nvidia.
The bedrock of our philosophy is a focus on cash flows, dividend paying companies and a strict focus on valuation. Given that only 3 of the magnificent 7 pay a dividend we tend to be underweight these companies.
Q What have been some of the biggest contributors?
A Rolls Royce. The turnaround continues at Rolls Royce: flying hours are recovering and cost control remains excellent. The company is well positioned with a strong recurring revenue stream in a growing and duopolistic market.
3i Group continues to benefit from the very strong performance of its main underlying portfolio company, Action, a European discount retailer. Though we have taken some profits and reduced our exposure, the stock remains the portfolio’s largest holding as we continue to see a long runway for growth.
Broadcom delivered strong results supported by accelerating demand for its custom AI semiconductor chips combined with the early benefits derived from its acquisition of VM Ware. We have since reduced our position size to reflect the significant valuation re-rating in the shares.
KKR has performed really well over the period following a series of earnings beats. Though we have reduced some of our exposure this year following the sharp rally in 2023, it remains in the portfolio as a core holding as we think the business should continue to deliver above average growth and improvement in margins.
Progressive. The business continues to take market share (with price increases). They are using their technology advantage to great effect by giving consumers low prices and advertising with high return on investments.
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| Average | Average |
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| Portfolio | Benchmark | Attribution |
| Name | Weight | Weight | Effect |
| Rolls-Royce | 2.31 | 0.05 | 2.17 |
| 3i Group | 5.78 | 0.05 | 2.14 |
| Broadcom | 3.89 | 0.80 | 1.88 |
| KKR | 2.50 | 0.08 | 1.42 |
| Progressive | 3.08 | 0.17 | 1.13 |
Q And detractors?
A Nvidia shares have rallied sharply in the previous 12 months which has been a headwind to relative performance since we do not own the stock. As readers of our previous updates will know we bought Nvidia in the summer of 2022 following a sharp selloff and then subsequently sold in March 2023, after the share price had more than doubled. In hindsight it is easy to say we were too early in selling but we followed our process and stuck to our valuation discipline. Today, we remain hesitant to buy back into the shares as investor expectations are high and the valuation multiple leaves limited room for error, as we have more recently seen.
AIA group. We have undergone a review of this holding to ensure the investment story remains intact and that there has not been a thesis change. Part of the underperformance appears to be related to the accounting move to IFRS 17, rather than any cracks appearing in AIA’s economic moats. We have maintained our exposure.
Azelis. A mid-cap specialty chemicals manufacturer has struggled of late as the cyclical recovery story has been pushed out. The share price came under further pressure when a large shareholder disposed of their holding. We have reviewed the thesis, met management and even conducted a visit to one of their research sites and remain confident in the long term prospects of the business.
Inwit has struggled in the ‘higher for longer’ interest rate environment due to the nature of its balance sheet, i.e., it is highly leveraged. We like the business for its relatively defensive earnings power and the diversification role it plays from a portfolio construction perspective (should benefit when monetary policy begins to ease).
Reckitt Benckiser. When we started the buying the stock a year ago, we regarded it as a ‘cheap defensive’ with an attractive yield that would benefit from an improvement in some of its key brands and better management execution. Unfortunately, recent results have shown this not to be the case. We have sold our position and we put this down to a thesis break and quickly moved on.
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| Average | Average |
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| Portfolio | Benchmark | Attribution |
| Name | Weight | Weight | Effect |
| Nvidia | – | 2.67 | –3.30 |
| AIA Group | 3.33 | 0.16 | –2.10 |
| Azelis | 3.23 | – | –1.44 |
| Inwit | 2.63 | 0.01 | –1.25 |
| Reckitt Benckiser | 2.41 | 0.08 | –1.23 |
Q Have there been any changes to the investment process?
A It is important to note that although a new dividend policy has been introduced, the unique nature of the investment trust wrapper means that this does not impact our approach of rigorous research to select quality companies at attractive valuations.
For stock selection and portfolio construction, the Global Equities Team are always trying to reflect on our process and whether we can improve the results we achieve. As part of this we have been working with a behavioural finance consultancy called Essentia. Essentia use our trading data and try to understand our strengths and weaknesses.
In 2022 Essentia diagnosed our strengths as generating alpha from high conviction stock picks that we had held for the long term (+18 months). Our weaknesses primarily laid around exit timing – selling positions entirely instead of gently trimming would have added to returns. We also tended to average down into both winners and losers. Averaging down to mixed effect is a bias that is common in valuation driven investors and so this was an area we had been actively working on.
In October 2023 we received our latest “check-up” results. We were very pleased to see that we had made significant progress on our exit timing – there were no benefits to trimming vs exiting over three months. Our adding to positions had brought significant value and most importantly we were also delighted to see that we had maintained a high hit rate and payoff.
Q When considering stock selection for the portfolio, how do you incorporate ESG risks and considerations?
A We view analysing ESG risks as a key part of our investment process. As active, fundamental managers we consider every key aspect of a company’s true worth, including material ESG considerations because we believe that the most sustainable way to make money is to buy companies for less than they are worth.
Establishing an estimated ‘fair value’ of a company is therefore essential and this entails incorporating ESG aspects into our investment methodology. We take a holistic approach where a company’s ESG credentials are scrutinised alongside traditional financial and qualitative aspects to derive a fair value. All companies face challenges regarding ESG and therefore we must consider materiality (the impact of ESG factors on fair value) and ESG momentum (the potential for ESG improvement over time). Both can influence a stock’s potential returns and our conviction levels in an investment. As shareholders we actively engage with companies to enhance the value of our investments.
We encourage companies to create sustainable value and mitigate risks in relation to their corporate activities. This can include prompting them to improve governance structures, make better asset allocation decisions, instilling sustainable practices and policies, and providing better disclosure. This reinforces our fundamental belief that responsible investing demands a long-term view and that a stakeholder-centric culture of ownership and stewardship is at the heart.
Q What are your reflections on the market today?
A The key dynamic this year has been the ongoing concentration of market performance in the largest of companies. This has created a challenging backdrop for a number of reasons:
Firstly, it is a key aim of the fund to make sure that we have a diverse portfolio which has the potential to deliver performance in a variety of conditions.
Secondly, that diversity of portfolio helps us to manage risk for clients by avoiding excessive factor or correlation bias. It is challenging to do this when the market performance is so narrow: 2 stocks accounted for around 80% of the index (MSCI World) returns in Q2.
Thirdly, many of the stocks which are some of the largest in the market are deemed somewhat impervious to the macro cycle. This type of behaviour has occurred in the past and generally does not end well.
Of course, much of this has been driven by enthusiasm for AI related stocks.
Q What are your thoughts on AI?
A Technology moves quickly, and it is crucial to understand how it affects our businesses. From advances in semiconductors to artificial intelligence, we are always looking at how these innovations can enhance or challenge the companies within our portfolio.
With regards to AI, we fully appreciate that this new technology will prove to be incredibly important for the world. However, a lot has now been priced into the share prices of many of these companies and we still need to see the speed/scale of AI adoption in proven use cases.
We have seen staggering earnings per share (EPS) upgrades in companies such as Nvidia, and we believe it is unlikely we will see similar going forward. Indeed, it is an interesting point to note that none of the 50+ buy rated analysts covering Nvidia saw the scale of upgrades coming. AI did ‘surprise’ with the pace of change to Nvidia’s earnings which it delivered. It does make us slightly caution how we should think about the EPS power of Nvidia. Might analysts have over-corrected and assumed no cyclicality in demand?
Perhaps the best illustration of the market cap gains of Nvidia, is the comparison with Berkshire Hathaway. It took Warren Buffett almost 60 years to build his company up to a trillion dollars; Nvidia managed to add a trillion in 30 days from April 2024.
Q Are you finding more opportunities in UK equities given how much they have lagged other markets such as the US?
A I guess the first thing to say on that is we do not make asset allocation decisions and the portfolio construction is driven by a bottom-up approach. Although the portfolio has significant exposure to the UK this is not driven by our macroeconomic view of the UK market, but rather the attractive valuation of specific companies within it. Part of this is linked to the UK becoming a smaller and smaller part of the overall index meaning less and less managers are looking at it and so you can find some interesting opportunities and hidden gems.
One such example, albeit less of a hidden gem now after recent performance, is 3i Group – a stock that has been the largest position in the portfolio for quite some time now. What particularly attracted us to 3i when we first looked at it in 2020 was one of its underlying portfolio companies, Action – Europe’s fastest-growing non-food discount retailer. We see this as nothing less than one of the best businesses on the continent, hidden within “Financials”. Action currently has more than 2,300 stores across Europe and plans to open 400 a year by 2026. We estimate it could take almost 20 years to saturate Europe alone so there is a very long runway for growth. The company has a c. 2% dividend yield at the time of writing, and the dividend per share has grown at around 16% pa over the last 3 years.
Q What are your thoughts on gearing?
A We have maintained a neutral position over the period (no gearing) due to some caution on adding additional risk to the portfolio at a point when expectations are already quite high in the market and the cost of gearing has risen. However, this can change quickly if there are any notable market events and we see an opportunity to scale up our risk.
Q Where have you found opportunities in the market?
A We look to build a diverse portfolio of stocks that can perform through most environments.
We do this by carefully managing the risk in the portfolio, namely ensuring we are not overly exposed to any one particular factor and that correlation amongst stocks is limited.
We wrote in our Q2 letter that the market had become excessively concentrated and valuations for some stocks (e.g. magnificent 7 / AI winners) was unlikely to be sustainable, particularly if we were to hit any macro weakness or saw earnings disappointments. Although being underweight this theme had been extremely painful in the past few months, we stuck to our process, and we are pleased to see that this is starting to prove beneficial for our clients.
We will continue to stick to our bottom-up process as we navigate this period of market volatility. These events often provide exceptional opportunities to buy good businesses on sale and the current drawdown is no different.
Stephen Anness Joe Dowling
Portfolio Manager Deputy Portfolio Manager
25 September 2024
Global Equity Income Share Portfolio List of Investments
AT 31 May 2024
Ordinary shares unless stated otherwise
|
|
|
| At Market |
|
|
|
|
| Value | % of |
| Company | Industry† | Countty | £’000 | Portfolio |
| 3i | Financial Services | United Kingdom | 11,891 | 6.1 |
| UnitedHealth | Health Care Equipment & Services | United States | 8,691 | 4.3 |
| Microsoft | Software & Services | United States | 8,182 | 4.2 |
| Texas Instruments | Semiconductors & Semiconductor Equipment | United States | 7,812 | 4.1 |
| Union Pacific | Transportation | United States | 7,348 | 3.7 |
| Broadcom | Semiconductors & Semiconductor Equipment | United States | 7,201 | 3.7 |
| Rolls-Royce | Capital Goods | United Kingdom | 6,973 | 3.6 |
| Azelis | Capital Goods | Belgium | 6,904 | 3.5 |
| Verallia | Materials | France | 6,404 | 3.3 |
| AIA | Insurance | Hong Kong | 6,115 | 3.1 |
| Top Ten Holdings |
|
| 77,521 | 39.6 |
| Coca-Cola Europacific Partners | Food, Beverage & Tobacco | United Kingdom | 5,855 | 3.0 |
| Intercontinental Exchange | Financial Services | United States | 5,843 | 3.0 |
| London Stock Exchange | Financial Services | United Kingdom | 5,778 | 3.0 |
| Universal Music | Media & Entertainment | Netherlands | 5,690 | 2.9 |
| American Tower | Equity Real Estate Investment Trusts (REITs) | United States | 5,518 | 2.8 |
| Progressive | Insurance | United States | 5,280 | 2.7 |
| Infrastrutture | Telecommunication Services | Italy | 5,277 | 2.7 |
| Recordati | Pharmaceuticals, Biotechnology & Life Sciences | Italy | 5,128 | 2.6 |
| Standard Chartered | Banks | United Kingdom | 5,061 | 2.6 |
| LVMH | Consumer Durables & Apparel | France | 4,985 | 2.5 |
| Top Twenty Holdings |
|
| 131,936 | 67.4 |
| Analog Devices | Semiconductors & Semiconductor Equipment | United States | 4,847 | 2.5 |
| Aker BP | Energy | Norway | 4,815 | 2.5 |
| Royal Unibrew | Food, Beverage & Tobacco | Denmark | 4,804 | 2.4 |
| Coca-Cola | Food, Beverage & Tobacco | United States | 4,745 | 2.4 |
| Tractor Supply | Consumer Discretionary Distribution & Retail | United States | 4,535 | 2.3 |
| Herc Holdings | Capital Goods | United States | 4,437 | 2.3 |
| Zurich Insurance | Insurance | Switzerland | 4,375 | 2.2 |
| KKR & Co | Financial Services | United States | 4,183 | 2.1 |
| CME | Financial Services | United States | 3,664 | 1.9 |
| Old Dominion Freight Line | Transportation | United States | 3,358 | 1.7 |
| Top Thirty Holdings |
|
| 175,699 | 89.7 |
|
|
|
| At Market |
|
|
|
|
| Value | % of |
| Company | Industry† | Country | £’000 | Portfolio |
| Prosus | Consumer Discretionary Distribution & Retail | Netherlands | 3,100 | 1.6 |
| Canadian Pacific Kansas City | Transportation | Canada | 2,671 | 1.4 |
| RELX | Commercial & Professional Services | United Kingdom | 2,631 | 1.4 |
| Danaher | Pharmaceuticals, Biotechnology & | United States | 2,413 | 1.2 |
|
| Life Sciences |
|
|
|
| Howden Joinery | Capital Goods | United Kingdom | 2,209 | 1.1 |
| Apple | Technology Hardware & Equipment | United States | 2,118 | 1.1 |
| Taiwan Semiconductor Manufacturing | Semiconductors & Semiconductor Equipment | Taiwan | 1,890 | 1.0 |
| Samsung Electronics – preference shares | Technology Hardware & Equipment | South Korea | 1,791 | 0.9 |
| Home Depot | Consumer Discretionary Distribution & | United States | 1,029 | 0.5 |
|
| Retail |
|
|
|
| Accenture - A Shares | Software & Services | United States | 273 | 0.1 |
| Top Forty Holdings |
|
| 195,824 | 100.0 |
| Sberbank* – ADR | Banks | Russia | – | – |
| Harbinger – Streamline Offshore Fund+ | Hedge Funds | Cayman Islands | – | – |
| Total Holdings 42 (31 May 2023: 43) |
|
| 195,824 | 100.0 |
ADR American Depositary Receipts – are certificates that represent shares in the relevant stock and are issued by a US bank. They are denominated and pay dividends in US dollars.
† MSCI and Standard & Poor’s Global Industry Classification Standard.
* The investment in Sberbank – ADR has been valued at zero as secondary listings of the depositary receipts on Russian companies have been suspended from trading.
+ The hedge fund investments are residual holdings of the previous investment strategy, transferred from the Balanced Risk Allocation Portfolio as part of the Company’s restructure in May 2024, which are awaiting realisation of underlying investments. Given lack of availability of recent valuation, the market value has been written-down to zero.
Global Equity Income Share Portfolio
Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 75 for further details.
Income Statement
|
| Year ended 31 May 2024 | Year ended 31 May 2023 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Gains on investments held at fair value | – | 16,083 | 16,083 | – | 4,782 | 4,782 |
| (Losses)/gains on foreign exchange | – | (21) | (21) | – | 11 | 11 |
| Income | 3,192 | – | 3,192 | 1,893 | 92 | 1,985 |
| Investment management fees | (137) | (319) | (456) | (107) | (250) | (357) |
| Other expenses | (204) | (266) | (470) | (176) | (4) | (180) |
| Net return before finance costs and taxation | 2,851 | 15,477 | 18,328 | 1,610 | 4,631 | 6,241 |
| Finance costs | (7) | (16) | (23) | (50) | (117) | (167) |
| Return before taxation | 2,844 | 15,461 | 18,305 | 1,560 | 4,514 | 6,074 |
| Tax | (291) | 3 | (288) | (261) | (14) | (275) |
| Return after taxation for the financial year | 2,553 | 15,464 | 18,017 | 1,299 | 4,500 | 5,799 |
| Return per ordinary share – note 7 | 9.03p | 54.72p | 63.75p | 5.20p | 18.03p | 23.23p |
Summary of Net Assets
|
| At 31 May 2024 | At 31 May 2023 |
|
| £’000 | £’000 |
| Fixed assets | 195,824 | 66,026 |
| Current assets | 3,498 | 861 |
| Creditors falling due within one year, excluding borrowings | (1,767) | (144) |
| Net assets | 197,555 | 66,743 |
| Net asset value per share | 313.30p | 265.53p |
| Gearing: |
|
|
| – gross | 0.0% | 0.0% |
| – net | –0.9% | –0.8% |
Global Equity Income Share Portfolio Summary of Changes in Net Assets
|
| Year ended | Year ended |
|
| 31 May 2024 | 31 May 2023 |
|
| £’000 | £’000 |
| Net assets brought forward | 66,743 | 62,638 |
| Shares bought back and held in treasury | (360) | (1,677) |
| Share conversions | 2,159 | 1,774 |
| Return after taxation for the financial year – Global Equity Income | 18,017 | 5,799 |
| Return after taxation for the financial year – UK Equity | 9,316 | – |
| Return after taxation for the financial year – Balanced Risk Allocation | 494 | – |
| Return after taxation for the financial year – Managed Liquidity | 215 | – |
| Reserves transferred in respect of the share class reclassification | 107,667 | – |
| Dividend paid – Global Equity Income | (1,864) | (1,791) |
| Dividend paid – UK Equity | (4,695) | – |
| Dividend paid – Balanced Risk Allocation | (124) | – |
| Dividend paid – Managed Liquidity | (13) | – |
| Net assets at the year end | 197,555 | 66,743 |
UK Equity Share Portfolio Performance Record
Total Return
For the year ended 31 May
|
| 2024(2) | 2023 | 2022 | 2021 | 2020 |
| Net Asset Value(1) | 11.3% | –2.6% | 6.8% | 34.6% | –12.4% |
| Share Price(1) | 8.3% | –4.7% | 3.0% | 31.6% | –16.2% |
| FTSE All-Share Index(1) | 13.8% | 0.4% | 8.3% | 23.1% | –11.2% |
| Revenue return per share | 5.12p | 6.40p | 6.00p | 3.90p | 4.12p |
| Dividends | 7.35p | 7.05p | 6.70p | 6.65p | 6.60p |
(1) Source: LSEG Data & Analytics.
(2) This class was closed on 7 May 2024, all performance data is calculated to 3 May 2024, being the date of the final computed Net Asset Value of the class.
UK Equity Share Portfolio
Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 75 for further details. This share class was closed on 7 May 2024.
Income Statement
|
| Period ended 3 May 2024 | Year ended 31 May 2023 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Gains/(losses) on investments held at fair value | – | 7,464 | 7,464 | – | (8,678) | (8,678) |
| (Losses)/gains on foreign exchange | – | (41) | (41) | – | 2 | 2 |
| Income | 3,899 | – | 3,899 | 5,314 | 176 | 5,490 |
| Investment management fees | (188) | (439) | (627) | (210) | (490) | (700) |
| Other expenses | (317) | (409) | (726) | (418) | (1) | (419) |
| Net return before finance costs and taxation | 3,394 | 6,575 | 9,969 | 4,686 | (8,991) | (4,305) |
| Finance costs | (187) | (437) | (624) | (97) | (226) | (323) |
| Return before taxation | 3,207 | 6,138 | 9,345 | 4,589 | (9,217) | (4,628) |
| Tax | (29) | – | (29) | (48) | – | (48) |
| Return after taxation for the financial year | 3,178 | 6,138 | 9,316 | 4,541 | (9,217) | (4,676) |
| Return per ordinary share – note 7 | 5.12p | 9.89p | 15.01p | 6.40p | (12.99)p | (6.59)p |
Summary of Changes in Net Assets
|
| Period ended | Year ended |
|
| 3 May 2024 | 31 May 2023 |
|
| £’000 | £’000 |
| Net assets brought forward | 125,436 | 143,374 |
| Shares bought back and held in treasury | (2,342) | (6,286) |
| Share conversions | (2,004) | (1,995) |
| Costs associated with tender offer | (134) | – |
| Tender offer in respect of the share class reclassification | (19,119) | – |
| Reserves transferred in respect of the share class reclassification | (106,458) | – |
| Return after taxation for the financial year | 9,316 | (4,676) |
| Dividend paid | (4,695) | (4,981) |
| Net assets at the year end | – | 125,436 |
Balanced Risk Allocation Share Portfolio Performance Record
Total Return
For the year ended 31 May
|
| 2024(3) | 2023 | 2022 | 2021 | 2020 |
| Net Asset Value(1) | 9.0% | –11.4% | 0.3% | 25.4% | –3.1% |
| Share Price(1) | 11.1% | –14.3% | –5.2% | 26.4% | –6.9% |
| Composite Benchmark(2) | 11.1% | –17.1% | –6.1% | 16.8% | 2.8% |
| ICE BoA Merrill Lynch 3 month |
|
|
|
|
|
| LIBOR plus 5% per annum(1) | 9.9% | 7.5% | 5.1% | 5.1% | 5.9% |
| Revenue return per share | 4.45p | 3.38p | 1.05p | –0.17p | –0.02p |
| Dividends | 3.00p | 1.00p | nil | nil | nil |
(1) Source: LSEG Data & Analytics.
(2) With effect from 1 June 2021, the benchmark adopted by the Balanced Risk Allocation Portfolio is comprised of 50% 30-year UK Gilts Index, 25% GBP hedged MSCI World Index (net) and 25% GBP hedged S&P Goldman Sachs Commodity Index. Prior to this, the benchmark was ICE BoA Merrill Lynch 3 month LIBOR plus 5% per annum. Accordingly, both the new and old benchmark are shown. Source: LSEG Data & Analytics/Bloomberg.
(3) This class was closed on 7 May 2024, all performance data is calculated to 3 May 2024, being the date of the final computed Net Asset Value of the class.
Balanced Risk Allocation Share Portfolio
Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 75 for further details. This share class was closed on 7 May 2024.
Income Statement
|
| Period ended 3 May 2024 | Year ended 31 May 2023 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Gains/(losses) on investments held at fair value | – | 68 | 68 | – | (2) | (2) |
| Gains/(losses) on derivative instruments | (10) | 261 | 251 | 27 | (963) | (936) |
| (Losses)/gains on foreign exchange | – | (6) | (6) | – | 15 | 15 |
| Income | 270 | – | 270 | 172 | – | 172 |
| Investment management fees | (13) | (30) | (43) | (15) | (34) | (49) |
| Other expenses | (24) | (22) | (46) | (27) | (2) | (29) |
| Net return before finance costs and taxation | 223 | 271 | 494 | 157 | (986) | (829) |
| Finance costs | – | – | – | – | – | – |
| Return before taxation | 223 | 271 | 494 | 157 | (986) | (829) |
| Tax | (56) | 56 | – | (16) | 16 | – |
| Return after taxation for the financial year | 167 | 327 | 494 | 141 | (970) | (829) |
| Return per ordinary share – note 7 | 4.45p | 8.72p | 13.17p | 3.38p | (23.16)p | (19.78)p |
Summary of Changes in Net Assets
|
| Period ended | Year ended |
|
| 3 May 2024 | 31 May 2023 |
|
| £’000 | £’000 |
| Net assets brought forward | 6,190 | 7,085 |
| Shares bought back and held in treasury | – | (147) |
| Share conversions | (218) | 122 |
| Costs associated with tender offer | (8) | – |
| Tender offer in respect of the share class reclassification | (1,104) | – |
| Reserves transferred in respect of the share class reclassification | (5,230) | – |
| Return after taxation for the financial year | 494 | (829) |
| Dividend paid | (124) | (41) |
| Net assets at the year end | – | 6,190 |
Managed Liquidity Share Portfolio Performance Record
Total Return
For the year ended 31 May
|
| 2024(3) | 2023 | 2022 | 2021 | 2020 |
| Net Asset Value(1) | 6.9% | 3.5% | –0.3% | 3.6% | 1.1% |
| Share Price(1) | 17.8% | –5.2% | –4.0% | 0.5% | 1.6% |
| Revenue return per share | 17.07p(4) | 1.06p | –0.02p | 1.35p(2) | 0.65p |
| Dividends | 1.00p | 1.00p | 1.00p | nil | 0.80p |
(1) Source: LSEG Data & Analytics.
(2) Includes a £34,000 (1.40p per share) refund of management fees in respect of prior year overcharges.
(3) This class was closed on 7 May 2024, all performance data is calculated to 3 May 2024, being the date of the final computed Net Asset Value of the class.
(4) Includes a £137,000 (11.6p per share) corporation tax liability write-back and transfer to the Global Equity Income Portfolio as part of the Company restructure in May 2024.
Managed Liquidity Share Portfolio
Individual portfolio breakdowns are provided for additional information only. See note 1(a)(ii) on page 75 for further details. This share class was closed on 7 May 2024.
Income Statement
|
| Period ended 3 May 2024 | Year ended 31 May 2023 | |||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | |
|
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains on investments held at fair value | – | 19 | 19 | – | 23 | 23 | |
| Income | 72 | – | 72 | 21 | – | 21 | |
| Investment management fees | (2) | – | (2) | (2) | – | (2) | |
| Other expenses | (6) | (5) | (11) | (6) | – | (6) | |
| Net return before finance costs and taxation | 64 | 14 | 78 | 13 | 23 | 36 | |
| Finance costs | – | – | – | – | – | – | |
| Return before taxation | 64 | 14 | 78 | 13 | 23 | 36 | |
| Tax | 137 | – | 137 | – | – | – | |
| Return after taxation for the financial year | 201 | 14 | 215 | 13 | 23 | 36 | |
| Return per ordinary share – note 7 | 17.07p | 1.15p | 18.22p | 1.06p | 1.80p | 2.86p | |
Summary of Changes in Net Assets
|
| Period ended | Year ended |
|
| 3 May 2024 | 31 May 2023 |
|
| £’000 | £’000 |
| Net assets brought forward | 1,370 | 1,324 |
| Shares bought back and held in treasury | – | (77) |
| Share conversions | 63 | 99 |
| Costs associated with tender offer | (3) | – |
| Tender offer in respect of the share class reclassification | (460) | – |
| Reserves transferred in respect of the share class reclassification | (1,172) | – |
| Return after taxation for the financial year | 215 | 36 |
| Dividend paid | (13) | (12) |
| Net assets at the year end | – | 1,370 |
Environmental, Social and Corporate Governance (‘ESG’) statement from the Manager
What does ESG mean to us?
Stephen Anness
Head of Global Equities
Joe Dowling
Global Equities Fund Manager
• We draw upon ESGintel, Invesco’s proprietary tool, which helps us to better understand how companies are addressing ESG issues
• Engaging with companies to understand corporate strategy today in order to assess how this could evolve in the future
• Monitoring how companies are performing from an ESG perspective and if the valuations fairly reflect the progress being made
Our focus as active fund managers is always on finding mispriced stocks and ESG integration underpins our investment process.
The incorporation of ESG into our investment process considers ESG factors as inputs into the wider investment process as part of a holistic consideration of the investment risk and opportunity, from valuation through investment process to engagement and monitoring. The core aspects of our ESG philosophy include: materiality; ESG momentum; and engagement.
• Materiality refers to the consideration of ESG issues that are financially material to the company we are analysing.
• The concept of ESG Momentum, or improving ESG performance over time, indicates the degree of improvement of various ESG metrics and factors and help fund managers identify upside in the future. We find that companies which are improving in terms of their ESG practices may enjoy favourable financial performance in the longer term.
• Engagement is part of our responsibility as active owners which we take very seriously, and we see engagement with companies as an opportunity to encourage continual improvement. Dialogue with portfolio companies is a core part of the investment process for our investment team. As such, we often participate in board level dialogue and are instrumental in giving shareholder views on management, corporate strategy, transparency and capital allocation as well as wider ESG aspects.
ESG integration is an ongoing strategic effort to systematically incorporate ESG Factors into fundamental analysis. As illustrated by the diagram below, the aim is to provide a 360 degree evaluation of financial and non-financial materially relevant considerations and to help guide the portfolio strategy.
Our investment process has four stages. In this report we go through in detail how ESG is integrated into each stage of our process.
Idea Generation
We believe it is important to spread our nets as wide as possible when trying to come up with stock ideas which may find their way into our portfolios. We remain open minded as to the type of companies we will consider. This means not ruling out companies just because they happen to be unpopular at that time and vice versa. By focussing on fundamentals and the broader investment landscape – can be a unique way for our portfolios to potentially generate returns in excess of the benchmark as those businesses that have got ESG momentum behind them have the potential to be rerated.
Fundamental Research & ESG Analysis
Research is at the core of what we do. Our fundamental analysis covers many drivers, for example, corporate strategy, market positioning, competitive dynamics, the macroeconomic environment, financials, regulation, valuation, and, of course, ESG considerations, which guide our analysis throughout.
We use a variety of tools from different providers to measure ESG factors. In addition, at Invesco, we have developed ESGintel, Invesco’s proprietary tool built by our Global ESG research team in collaboration with our Technology Strategy Innovation and Planning (SIP) team.
ESGintel provides fund managers with environmental, social and governance insights, metrics, data points and direction of change. In addition, ESGintel offers fund managers an internal rating on a company, a rating trend, and a rank against sector peers. The approach ensures a targeted focus on the issues that matter most for sustainable value creation and risk management.
This provides a holistic view on how a company’s value chain is impacted in different ways by various ESG topics, such as compensation and alignment, health and safety, and low carbon transition/climate change.
We always try to meet with a company prior to investment. Based on our fundamental research, including any ESG findings, we focus on truly understanding the key drivers and, most importantly, the path to change. This helps us better understand corporate strategy today and how this could evolve in the future.
Portfolio Construction
We aim to create a well-diversified portfolio of active positions that reflect our assessment of the potential upside for each stock weighted against our assessment of the risks. Sustainability and ESG factors will be assessed alongside other fundamental drivers of valuation. The impact of any new purchases will need to be considered at a portfolio level. How will it affect the shape of the portfolio having regard to objectives, existing positions, overall size of the portfolio, liquidity and conviction.
We do not seek out stocks which score well on internal or third party research simply to reduce portfolio risk.
Ongoing Monitoring
Our fund managers and analysts continuously monitor how the stocks are performing as well as considering possible replacements. Is the company performing from an ESG perspective and are the valuations fairly reflecting the progress being made or not?
How do we monitor our holdings from an ESG perspective? Again, the same resources used during the fundamental stage are available to us. Our regular meetings with the management teams of the companies we own provides an ideal platform to discuss key ESG issues, which will be researched in advance. We draw on our own knowledge as well as relevant analysis from our ESG team and data from our previously mentioned proprietary system ESGintel which allows us to monitor progress and improvement against sector peers. Outside of company management meetings we constantly discuss as a team all relevant ESG issues, either stimulated internally or from external sources.
Challenge, Assessing & Monitoring Risk
In addition, there are two more formal ways in which our portfolios are monitored:
There is a rigorous semi-annual review process which includes a meeting led by the ESG team to assess how our portfolios are performing from an ESG perspective. This ensures a circular process for identifying flags and monitoring of improvements over time. These meetings are important in capturing issues that have developed and evolved whilst we have been shareholders.
There is also the ‘CIO challenge’, a formal review meeting held between the Henley Investment Centre’s Chief Investment Officer (CIO) and each fund manager. This review includes a full breakdown of the ESG performance using Sustainalytics and ISS data, such as the absolute ESG performance of the portfolio, relative performance to benchmarks, stocks exposed to severe controversies, top and bottom ESG performers, carbon intensity and trends. The ESG team review the ESG data and develop stock specific or thematic ESG questions. The ESG performance of the portfolio is discussed with the CIO using the data and the stock specific questions to analyse the fund manager’s level of ESG integration. The aim of these meetings is not to prevent a fund manager from holding any specific stock: rather, what matters is that the fund manager can evidence understanding of ESG issues and show that they have been taken into consideration when building the investment case.
Global Equity Income Portfolio Example
Asian company that manufactures a wide range of consumer and industrial electronic products
Key ESG issues
E Environmental Policy
S No major issues
G Senior Management
Rated Low Risk by Sustainalytics.
– Invesco’s ESG team have met with management several times alongside members of the investment team over the past few years. The company has had previous issues with senior corruption, which is still a risk and therefore a priority for management. We were also keen to have an update on their sustainability targets.
– Company representatives walked Invesco through their potential candidates for director positions with the upcoming AGM approaching. This took up a majority of the call, however when we broached the subject of environmental sustainability, we were directed to their new environmental policy which is yet to be released. They did not provide any details surrounding targets, as they will be found in the policy.
– Invesco has asked for a follow up meeting once the environmental policy has been released in order to evaluate the ambitiousness of the standards.
Voting Policy
The Global Equity Team’s corporate engagement specialists review AGM and EGM proposals taking into account our own knowledge of the companies in which our funds are invested, as well as the comments and recommendations of ISS*, Glass Lewis and IVIS**. In addition, Invesco provides proprietary proxy voting recommendations and publishes these recommendations via its PROXYintel platform.
Especially where there are situations of controversy or differing views between the consultants mentioned above we will draw on the additional expertise of our internal ESG team.
There will be times when we will follow the recommendations made by ISS, Glass Lewis and IVIS but times where we disagree with the stance being taken. Voting in line with management recommendations should not be seen as evidence of a lack of challenge on our part, but rather that either the governance of the companies in which we are invested is already good and worthy of support or we have engaged with the company and our concerns have been addressed satisfactorily.
|
| Total | Total |
| Category | Number | (%) |
| Ballots Votes | 45 | 100% |
| Ballots against management recommendations | 13 | 29% |
| Ballots against ISS recommendations | 18 | 40% |
Source: Invesco, relates to the period 1 June 2023 to 31 May 2024 for the Invesco Global Equity Income Trust plc.
Engagements in 2023
Our ESG interactions with companies typically occur in group or 1:1 calls between our fund manager(s)/analyst(s) and corporate representative(s).
We strive to meet with companies in order to better understand the management team and their focus and outlook, and to bring up any concerns and suggestions; this can often cover ESG.
|
|
|
|
|
| % meetings |
|
| Combination |
|
|
| where ESG |
| Total ESG Engagements | of E, S, or G | E | S | G | was discussed |
| 51 | 12 | 17 | 6 | 16 | 34% |
Source: Invesco, Data relates to the Henley-based Global Equities team, as at 31 December 2023.
Conclusion
The regulatory landscape is rapidly evolving, which increasingly compels organisations and investors alike to clearly demonstrate their awareness of ESG issues in their decisions. Landmark initiatives such as the European Union’s new Sustainable Finance Disclosure Regulation (SFDR) are at the forefront of this shift.
We believe that our approach is fair, coherent and pragmatic. Whilst we consider ESG aspects, we are not bound by any specific ESG criteria and have the flexibility to invest across the ESG spectrum from best to worst in class, but we think that the principles behind ESG deserve to be embedded in an investment framework which encourages positive change. Coupling this with a focus on valuation is, to our minds, the best way to deliver strong investment outcomes for our clients long term. This reinforces our fundamental belief that responsible investing demands a long-term view and that a stakeholder-centric culture of ownership and stewardship is at the heart of ESG integration.
* ISS – Institutional Shareholder Services.
** IVIS – Institutional Voting Information Service.
Business Review
Purpose, Business Model and Strategy
Invesco Global Equity Income Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.
The Company’s purpose is to generate returns for shareholders by investing their pooled capital to achieve the Company’s investment objective through the application of its investment policy and with the aim of spreading investment risk.
The business model the Company has adopted to achieve its investment objective has been to contract out investment management and administration to appropriate external service providers, which are overseen by the Board.
The principal service provider is Invesco Fund Managers Limited, which throughout this report is referred to as ‘the Manager’. Invesco Asset Management Limited, an associate company of the Manager, manages the Company’s investments and acts as Company Secretary under delegated authority from the Manager.
The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board’s strategy.
Stephen Anness and Joe Dowling are the Portfolio Managers responsible for the day-to-day management of the portfolio.
The Company also has contractual arrangements with Link Asset Services to act as registrar and the Bank of New York Mellon (International) Limited (BNYMIL) as depositary and custodian.
Investment Objective
Following completion of the restructuring on 7 May 2024, the Company’s investment objective aims to provide an attractive level of predictable income and capital appreciation over the long term, predominately through investment in a diversified portfolio of equities worldwide.
Investment Policy and Risk
The portfolio will be invested predominantly in a portfolio of listed, quoted or traded equities worldwide, but may also hold other securities from time to time including, inter alia, fixed interest securities, preference shares, convertible securities and depositary receipts. Investment may also be made in regulated or authorised collective investment schemes. The portfolio will not invest in companies which are not listed, quoted or traded at the time of investment, although it may have exposure to such companies where, following investment, the relevant securities cease to be listed, quoted or traded. The Manager will at all times invest and manage the portfolio’s assets in a manner that is consistent with spreading investment risk, but there will be no rigid industry, sector, region or country restrictions.
The portfolio may utilise derivative instruments including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments for efficient portfolio management and investment purposes. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the portfolio’s direct investments, as described above.
It is expected that, typically, the portfolio will hold between 40 and 55 securities.
The Directors believe that the use of borrowings can enhance returns to shareholders, and the Company may use borrowings in pursuing its investment objective.
The Company’s foreign currency investments will not be hedged to sterling as a matter of general policy. However, the Manager may employ currency hedging, either back to sterling or between currencies (i.e. cross hedging of portfolio investments).
Investment Limits
The Board has prescribed the following limits on the investment policy of the Company:
• no more than 20% of the gross assets of the Company may be invested in fixed interest securities;
• no more than 10% of the gross assets of the Company may be held in a single investment;
• no more than 10% of the gross assets of the Company may be held in other listed investment companies (excluding REITs); and
• borrowings may be used to raise equity exposure up to a maximum of 20% of the net assets of the Company, when it is considered appropriate.
Key Performance Indicators
The Board reviews the performance of the Company by reference to a number of Key Performance Indicators, which include the following:
• Investment Performance
• Revenue and Dividends
• Discount/Premium
• Ongoing Charges
Investment Performance
To assess investment performance the Board monitors the net asset value (NAV) performance of the Company relative to that of the benchmark index it considers to be appropriate. However, given the requirements and constraints of the investment objective and policy followed, no index can be expected to fully represent the performance that might reasonably be expected from the Company’s Global Equity Income Portfolio.
The NAV total return performance of the Global Equity Income portfolio over the year to 31 May 2024 and of the relevant benchmark index as follows:
| Global Equity Income Portfolio | 21.0% |
| MSCI W orld Index (£) | 21.6% |
Source: LSEG Data & Analytics.
Details of the NAV total return on the Company’s former share classes including other performance periods, together with share price total returns, are shown on pages 24, 27 and 30.
Further details on the definition and calculation of total returns can be found in the Glossary and Alternative Performance Measures on pages 97 to 100 of the financial report.
Revenue and Dividends
The Directors review revenue estimates and prospective dividend levels at each Board meeting. Whilst the Directors have become more focussed on total return and have sanctioned contributions to dividends from capital, dividends paid continue to be mostly constituted from revenue and revenue is an important element of overall portfolio returns. Details of dividends paid during the year, including those paid on the Company’s former share classes are set out below.
Global Equity Income Shares
Revenue earnings per Share for the Global Equity Income Share Portfolio was 9.03p (2023: 5.20p), based on net revenue for the year of £2,553,000 (2023: £1,299,000), which included £21,000 (2023: £1,000) of non-recurring special dividends.
Dividend Policy:
As a result of the restructuring and in recognition of the continuing importance of dividends to Shareholders, the Board has introduced a new dividend policy. Under this new policy the Company will pay an annual dividend of at least 4% calculated on the unaudited prior year end NAV, paid quarterly in equal amounts.
The intention is that these dividends are to be paid from the Company’s revenues and, if required, capital reserves.
The Board believes that this new dividend policy should provide both an enhanced dividend compared to historical level of dividends paid on the Global Share Class and, once the relevant unaudited year end NAV is known, a smoother, more predictable income to Shareholders.
Dividends Declared:
The Directors have declared and paid four interim dividends for the year ended 31 May 2024 totalling 7.35p (2023: 7.20p) per Global Equity Income Share, of which 5.02p (2023: 5.20p) was met from revenue earned in the year. The aggregate of dividends paid in respect of the year was £1,864,000 (2023: £1,791,000).
A first interim dividend for the year to 31 May 2025 of 3.13p was declared on 10 July 2024. In the absence of unforeseen circumstances, and in accordance with the dividend policy set out above, the Board intends for this to set the level for the next three quarterly dividends.
UK Equity Shares
Revenue earnings per Share for the UK Equity Share Portfolio was 5.12p (2023: 6.40p), based on net revenue for the year of £3,178,000 (2023: £4,541,000), which included £244,000 (2023: £92,000) of non-recurring special dividends.
Dividends Declared:
Prior to completion of the restructuring, the Directors declared and paid four interim dividends for the year ended 31 May 2024 totalling 7.35p per UK Equity Share (2023: 7.05p) of which 7.35p (2023: 6.40p) was met from revenue earned in the year. The aggregate of dividends paid in respect of the year was £4,695,000 (2023: £4,981,000).
Balanced Risk Allocation Shares
Prior to completion of the restructuring, the Directors declared and paid one interim dividend and one special dividend for the year ended 31 May 2024 totalling 3.00p (2023: 1.00p). The portfolio recorded a net revenue return of £167,000 in the year (2023: £141,000).
Managed Liquidity Shares
Prior to completion of the restructuring, the Directors declared and paid one interim dividend for the year ended 31 May 2024 totalling 1.00p (2023: 1.00p). The Managed Liquidity Portfolio recorded a net revenue return for the year of £201,000 (2023: £13,000).
Discount
As a result of the restructuring the Company introduced a new discount control policy. Under this policy the Company intends to use ad hoc share buybacks to seek to maintain the discount at less than 10%, in normal market conditions. It is the Board’s policy to buy back shares and to sell shares from treasury on terms that do not dilute the net asset value attributable to existing shareholders at the time of the transaction. The Board reviews the buy back parameters from time to time taking into account current market conditions and other factors and instructs the brokers accordingly.
The operation of this policy is dependent upon the authorities to buy back and issue shares being renewed by shareholders. Notwithstanding the intended effect of this policy, there can be no guarantee that the Company’s Global Equity Income shares will trade at close to their respective net asset value. Shareholders should also be aware that there is a risk that this discount policy may lead to a reduction in the size of the Company over time.
The Board and the Manager closely monitor movements in the Company’s share price and dealings in the Company’s shares. Share movements in the year are summarised on page 39. At 31 May 2024, the share price, net asset values (‘NAV’) and the discount of the Global Equity Income shares were as follows:
|
| 2024 | 2023 | ||||
|
| Net Asset | Share |
| Net Asset | Share |
|
|
| Value | Price |
| Value | Price |
|
|
| (Pence) | (Pence) | Discount(1) | (Pence) | (Pence) | Discount(1) |
| Global Equity Income | 313.30 | 286.00 | (8.7)% | 265.53 | 232.00 | (12.6)% |
(1) Further details on the definition and calculation of the discount can be found in the Glossary and Alternative Performance Measures on pages 97 to 100 of the financial report.
Ongoing Charges
The expenses of managing the Company are reviewed by the Board at every meeting. The Board aims to minimise the ongoing charges figure which provides a guide to the effect on performance of all annual operating costs of the Company. The ongoing charges figure is calculated by dividing the annualised ongoing charges, including those charged to capital, by the average daily net asset value during the year, expressed as a percentage.
Further details on the definition and calculation of ongoing charges can be found in the Glossary and Alternative Performance Measures on pages 97 to 100 of the financial report.
At the year end the ongoing charges figure of the Company was as follows:
|
|
| Company |
| 2024 |
| 0.82% |
| 2023 |
| 0.83% |
In addition to inflationary effects, shrinkage from buybacks in connection with the discount control policy will tend to cause the ongoing charge percentages to gradually increase.
Financial Position
Assets and Liabilities
The Company’s balance sheet on page 73 shows the assets and liabilities at the year end. Details of the Company’s borrowing facility are shown in note 13 of the financial statements on page 84, with interest paid (finance costs) in note 5.
Owing to the readily realisable nature of the Company’s assets, cash flow does not have the same significance as for an industrial or commercial company. The Company’s principal cash flows arise from the purchases and sales of investments and the income from investments against which must be set the costs of borrowing and management expenses.
Borrowing Policy
Borrowing policy is under the control of the Board, which has established effective parameters for the portfolios. Borrowing levels are regularly reviewed. As part of the Company’s Investment Policy, the approved borrowing limit is 30% of the Company’s total assets.
Issued Share Capital
The Global Equity Income shares have a nominal value of 1 penny per share.
Authorities given to the Directors at the AGM on 2 October 2023 to allot shares, disapply statutory pre-emption rights and buy back shares will expire at the forthcoming AGM. The following table summarises the Company’s share capital at the year end and movements during the year, including the impact of the restructuring. As a result of the restructuring, on 7 May 2024 the UK Equity, Balanced Risk Allocation and Managed Liquidity shares were redesignated as Global Equity Income shares. The number of new Global Equity Income shares arising from the redesignation is set out in the table.
|
| Global |
| Balanced |
|
|
| Equity | UK | Risk | Managed |
| Number of shares | Income | Equity | Allocation | Liquidity |
| Shares held at the year end |
|
|
|
|
| – excluding treasury | 63,056,464 | – | – | – |
| – held in treasury | 16,930,122 | – | – | – |
| – % of issued shares held in treasury | 21.17 | – | – | – |
| Movements during the year |
|
|
|
|
| As at 1 June 2023 (including treasury shares) | 41,911,901 | 107,396,928 | 10,686,213 | 10,645,038 |
| – Shares bought back | 153,963 | 1,510,343 | – | – |
| – Shares transferred to treasury | (153,963) | (1,510,343) | – | – |
| – (Decrease)/increase arising from quarterly conversions | 565,132 | (800,197) | (129,244) | 65,932 |
| – (Decrease arising from tender repurchase and |
|
|
|
|
| cancellation) | – | (9,985,591) | (714,610) | (417,453) |
| – (Treasury shares cancelled during the year) | – | (40,026,118) | (6,547,218) | (9,393,678) |
| – (Decrease)/increase arising from restructuring |
|
|
|
|
| reclassification | 37,509,553 | (56,585,022) | (3,295,141) | (899,839) |
| As at 31 May 2024 | 79,986,586 | – | – | – |
| – % of issued shares (excluding treasury shares) bought |
|
|
|
|
| back during year (including tender repurchase) | 0.61 | 16.69 | 17.27 | 33.36 |
| – Average price thereon | 233.78p | 186.57p | 154.51p | 110.33p |
| – Nominal value of shares bought back (including tender |
|
|
|
|
| repurchase) | £1,539.63 | £114,959.34 | £7,146.10 | £4,174.53 |
Details of treasury shares cancelled during the year are shown in the table above. Since the year end 57,000 Global Equity Income shares have been bought back into treasury at an average price of 285.79p.
Further details on net changes in issued share capital are set out in note 14 to the financial statements on pages 84 and 85.
Current and Future Developments
As part of the Company’s overall strategy, the Company seeks to manage its affairs so as to maximise returns for shareholders. The Board also has a longer-term to increase the size of the Company in the belief that increasing the assets of the Company in this way will make the Company’s shares more attractive to investors and improve the liquidity of the shares.
Details of trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Chairman’s Statement and the Portfolio Managers’ report. Further details as to the risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.
Principal Risks and Uncertainties
The Audit Committee regularly undertakes a robust assessment of the risks the Company faces, including those that would threaten its business model, future performance, solvency, reputation or liquidity and emerging risks, on behalf of the Board (see Audit Committee Report on pages 56 and 57). In carrying out this assessment, the Audit Committee together with the Manager, have considered emerging risks such as geopolitical risks, evolving cyber threats (including risks associated with Artificial Intelligence) and ESG, including climate related risks.
The following are considered to be the most significant risks, after consideration of mitigating factors, to the Company and to shareholders in relation to their investments in the Company. Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 17 to the financial statements.
| Category and Principal Risk Description | Mitigating Procedures and Controls | Risk trend during the year |
| Strategic Risk | ||
| Market Risk The Company’s investments are mainly traded on Global stock markets including those in Asia, Europe, the US, and the UK. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these Global markets. This could be triggered by unfavourable developments within the region or events outside it. | The Company has a diversified investment portfolio by country, sector and stock. Due to its investment trust structure, no forced sales need to take place and investments can be held over a longer-term horizon. However, there are few ways to mitigate absolute market risk because it is engendered by factors which are outside the control of the Board and the Manager. These factors include the general health of the world economy, interest rates, inflation, government policies, industry conditions, and changing investor demand and sentiment. Such factors may give rise to high levels of volatility in the prices of investments held by the Company. The performance of the Manager is carefully monitored by the Board and the continuation of the Manager’s mandate is reviewed each year. The Board has established guidelines to ensure that the investment policy of the Company is pursued by the Manager. For a fuller discussion of the economic and market conditions facing the Company and the current and future performance of the Company, please see both the Chairman’s Statement on pages 6 to 8 and the report of the Portfolio Managers’ on pages 12 to 18. | Unchanged |
| Geopolitical Risk Political risk has always been a feature of investing in stock markets and it is particularly so when investing on a Global basis. Wider political developments in Global geographies, such as the war in Ukraine and conflict in the Middle East, can create risks to the value of the Company’s assets. Global markets encompass a variety of political systems. There are many examples of diplomatic skirmishes and military tensions and sometimes these resort to military engagement. | The Manager evaluates and assesses political risk as part of the stock selection and asset allocation policy which is monitored at every Board meeting. This includes political, military and diplomatic events and changes to legislation. Balancing political risk and reward is an essential part of the active management process. The Company has a nil-valued holding in Sberbank, a Russian bank, but no other direct investments in Russia or other holdings with significant links to Russia. | Increased |
| Investment Objectives and Strategy The Company’s investment objective and strategy are no longer meeting investors’ demands. | The Board receives regular reports reviewing the Company’s investment performance against its stated objective and peer group, and reports from discussions with its brokers and major shareholders. The Board also has a separate annual strategy meeting. | Unchanged |
| Widening Discount A lack of liquidity and/or lack of investor interest in the Company’s shares leads to a depressed share price and a widening discount to its NAV. A persistently high discount may lead to buybacks of the Company’s shares and result in the shrinkage of the Company. | The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance, level of share price discount to NAV and recent trading activity in the Company’s shares. As a result of the restructuring in 2024, the Board has introduced initiatives to help address the Company’s share rating including new Discount Control and Dividend policies. It may seek to reduce the volatility and absolute level of the share price discount to NAV for shareholders through buying back shares within stated shareholder authorities. The Board also receives regular reports on investor relation meetings with shareholders and prospective investors and works to ensure that the Company’s investment proposition is actively marketed through relevant messaging across many distribution channels. | Unchanged |
| Performance Risk that the Portfolio Managers consistently underperform the benchmark and/or peer group over 3-5 years. | The Board regularly compares the Company’s NAV performance over both the short and long term to that of the benchmark and peer group as well as reviewing the portfolio’s performance against benchmark (attribution) and risk adjusted performance of the Company and its peers. | Unchanged |
| ESG including climate risk Risks associated with climate change and ESG considerations could affect the valuation of the Company’s holdings. | ESG considerations are integrated as part of the investment decision-making in constructing the portfolio. Such investment decisions include the transactions undertaken in the year, the review of active portfolio positions and consideration of the gearing position and, if applicable, hedging. The Manager’s process around ESG is described in the ESG Monitoring and Engagement section on pages 33 to 35. | Unchanged |
| Currency Fluctuation Risk Exposure to currency fluctuation risk negatively impacts the Company’s NAV. The movement of exchange rates may have an unfavourable or favourable impact on returns as nearly all of the Company’s assets are non-sterling denominated.. | With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the Portfolio Managers or the Board feel this to be appropriate. Contracts are limited to currencies and amounts commensurate with the asset exposure. The foreign currency exposure of the Company is reviewed at Board meetings. | Unchanged |
| Third Party Service Providers Risk | ||
| Information Technology Resilience and Security The Company’s operational structure means that all cyber risk (information and physical security) arises at its Third-Party Service Providers (‘TPPs’). This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs. | The Audit Committee receives regular updates on the Manager’s information and cyber security. This includes updates on the cyber security framework, staff resource and training, and the testing of its security systems designed to protect against a cyber security attack. As well as conducting a regular review of TPPs’ audited service organisation control reports, the Audit Committee monitors TPPs’ business continuity plans and testing including the TPPs’ and Manager’s regular ‘live’ testing of workplace recovery arrangements should a cyber event occur. | Unchanged |
| Operational Resilience The Company’s operational capability relies upon the ability of its TPPs to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic. | The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Manager has arrangements and prioritises between work deemed necessary to be carried out on business premises and work from home arrangements should it be necessary, for instance due to further restrictions. Any meetings are held in person, virtually or via conference calls. Other similar working arrangements are in place for the Company’s TPPs. The Audit Committee receives regular update reports from the Manager and TPPs on business continuity processes. | Unchanged |
| Regulatory Risk | ||
| Regulatory and Tax Related The Company is subject to various laws and regulations by virtue of its status as a public limited investment company registered under the Companies Act 2006, its status as an investment trust and its listing on the London Stock Exchange. Loss of investment trust status could lead to the Company being subject to UK Capital Gains Tax on the sale of its investments. A serious breach of other regulatory rules could lead to suspension from the London Stock Exchange, a fine or a qualified Audit Report. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. | The Manager reviews the level of compliance with the Corporation Tax Act 2010 and other financial regulatory requirements on a daily basis. All transactions, income and expenditure are reported to the Board. The Board regularly considers the risks to which the Company is exposed, the measures in place to control them and the potential for other risks to arise. The Board ensures that satisfactory assurances are received from service providers. The depositary and the Manager’s compliance and internal audit officers report regularly to the Company’s Audit Committee. The risks and risk management policies and procedures as they relate to the financial assets and liabilities of the Company are also detailed in note 17 to the financial statements. | Unchanged |
Continuation Vote
As part of the ancillary changes introduced as part of the restructuring, the Board intends to put forward a vote at the Company’s Annual General Meeting in 2026 for the continuation of the Company (the 2026 Continuation Vote). If the 2026 Continuation Vote is passed the Board will put forward a continuation vote at the Company’s annual general meeting in 2031 and, if passed, at each fifth annual general meeting thereafter.
Viability Statement
The Company is an investment company which operates as a collective investment vehicle, designed and managed for long term investment. The Board considers long term for this purpose to be at least three years and so has assessed the Company’s viability over this period. However, the life of the Company is not intended to be limited to that or any other period.
In assessing the viability of the Company the Board considered the principal and emerging risks to which it is exposed, as set out on pages 39 to 41, together with mitigating factors. The risks of failure to meet the Company’s investment objectives, contributory market and investment risks and the challenges of lack of scale have been considered to be of particular importance. The Board also took into account the capabilities of the Manager and the varying market conditions already experienced by the Company since its launch in 2006, including the impact of the Covid-19 pandemic on global economies and the war in Ukraine. Despite the disruption to markets from these and other more recent geopolitical and macro-economic events such as the ongoing conflict in the Middle East, the Directors remain confident that the Company’s investment strategy will continue to serve shareholders well over the longer term.
In terms of financial risks to viability, materially all of the investments are readily realisable. The portfolio also produces a stream of dividend income, which may fluctuate but which the Board expects to continue. The Company has no long term liabilities and the total value of the portfolio more than covers the value of the Company’s short term liabilities and annual operating costs. In arriving at this assessment, the Board considered stressed scenario-testing for both income and loan covenants; borrowing structure; level of gearing; and the liquidity of the portfolio. Consequently, there appears little to no prospect of the Company not being able to meet its financial obligations as they fall due in the next three years.
Based on the above, the Board has a reasonable expectation that, notwithstanding the continuation vote in 2026, the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment.
Audit Committee Report
The audit committee report required by the AIC Corporate Governance Code is set out on pages 56 and 57. There are no areas of concern in relation to the financial statements to bring to the attention of shareholders.
Duty to Promote the Success of the Company (s.172)
The Directors have a statutory duty under section 172 of the Companies Act 2006 to promote the success of the Company whilst also having regard to certain broader matters, including the need to engage with employees, suppliers, customers and others, and to have regard to their interests. The Company has no employees and no customers in the traditional sense and in accordance with the Company’s nature as an investment trust, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. In doing so, it has due regard to the desirability of the Company maintaining a reputation for high standards of business conduct, the need to foster the Company's business relationships and the impact of its actions on other stakeholders including the Manager, other third-party service providers and the impact of the Company’s operations on the community and the environment which are all taken into account during all discussions and as part of the Board’s decision making.
The Board is committed to maintaining open channels of communication and engagement with stakeholders in a manner which they find most meaningful. The table below sets out how the Board engages with each of its key stakeholders:
| Stakeholder | Key considerations and engagement |
| Shareholders – continued shareholder support and engagement are important to the business and the delivery of its long-term strategy. Further details of our strategy can be found on page 36. | To help the Board in its aim to act fairly as between the Company’s members, shareholder relations are given high priority by the Board and the Manager. The prime means by which the Company communicates with shareholders are the annual and half-yearly financial reports, which aim to provide shareholders with a full understanding of the Company’s activities and its results. This information is supplemented by daily publication of the NAV of the Company’s shares via the London Stock Exchange, ad hoc regulatory announcements, the monthly factsheet and other information on the Manager’s website https://www.invesco.com/uk/en/investment-trusts/invesco-global-equity-income-trust.html, including pre-investment information, Key Information Document (‘KID’), shareholder circulars, portfolio disclosures, Stock Exchange announcements, schedule of matters reserved for the Board, terms of reference of Board Committees, Directors’ letters of appointment, the Company’s share price and proxy voting results. The Chairman and Directors welcome contact with shareholders. There is a regular dialogue between the Manager and individual major shareholders to discuss aspects of investment performance, governance and strategy and to listen to shareholder views in order to help develop a balanced understanding of their issues and concerns. The Company’s corporate broker, Cavendish Capital Markets Limited, is also consulted. General presentations to institutional shareholders and analysts take place throughout the year. All meetings between the Manager and institutional shareholders are reported to the Board. It is the intention of the Board that the annual financial report and the notice of the AGM be issued to shareholders so as to provide at least twenty working days’ notice of the AGM. Shareholders wishing to lodge questions in advance of the AGM are invited to do so in writing to the Company Secretary at the address given on page 96. |
| The Manager – the Manager’s performance is critical for the Company to successfully deliver its investment strategy and meet its objective to provide shareholders with consistent long-term returns. Further details of the Portfolio Managers’ investment approach can be found in the Portfolio Managers’ Report on pages 12 to 18. | The Board engages with the Manager at every Board meeting and reviews the Company’s relationships with other service providers, such as the registrar, depositary and custodian, at least annually. During the year the most significant engagement was with the Manager and the Portfolio Managers. At every Board meeting the Directors receive an investor relations update from the Manager, which details any significant changes in the Company’s shareholder register, shareholder feedback, as well as notifications of any publications or press articles. Maintaining a close and constructive working relationship with the Manager is crucial as the Board and the Manager both aim to achieve consistent, long-term returns in line with the Company’s investment strategy. Important components in the collaboration with the Manager, representative of the Company’s culture are: – Encouraging an open discussion with the Manager, allowing time and space for original and innovative thinking; – Recognising that the interests of shareholders and the Manager are, for the most part, well aligned, adopting a tone of constructive challenge, balanced with robust negotiation of the Manager’s terms of engagement if those interests should not be fully united; – The regular review of underlying strategic and investment objectives; – Drawing on Directors’ individual experience and knowledge to support and challenge the Manager in its monitoring of and engagement with its investee companies; and – Willingness to make the Directors’ experience available to support and challenge the Manager in the sound long-term development of its business and resources, recognising that the long-term health of the Manager’s business is in the interests of shareholders in the Company. |
| Third-party Service Providers – in order to function as an investment trust with a premium listing on the London Stock Exchange, the Company relies on a diverse range of reputable advisers for support in meeting all relevant obligations. | The Board through the Manager maintains regular contact with its key external service providers and receives regular reporting from them, both through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely taken into account. The Board (through the Management Engagement Committee) formally assesses the third-party service providers’ performance, fees and continuing appointment annually to ensure that the key service providers continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. The Audit Committee reviews and evaluates the financial reporting control environments in place at each service provider. There have been no material changes to the level of service provided by the Company’s third-party suppliers as a result of the Covid-19 pandemic. |
| Investee Companies – the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. | On the Company’s behalf the Portfolio Managers engage with investee companies, particularly in relation to ESG matters and shares held in the portfolio are voted at general meetings. An example of the Portfolio Managers’ engagement with an investee company can be found on page 35. |
| Regulators – the Company can only operate as an investment trust if it conducts its affairs in compliance with such status. Interaction with regulators such as the Financial Conduct Authority (‘FCA)’ and Financial Reporting Council (‘FRC’), who have a legitimate interest in how the Company operates in the market and treats its shareholders, and industry bodies such as the Association of Investment Companies, remains an area of Board focus. | The Company regularly considers how it meets various regulatory and statutory obligations and how any governance decisions it makes can have an impact on its stakeholders, both in the shorter and in the longer term. The Board receives reports from the Manager and Auditor on their respective regulatory compliance and any inspections or reviews that are commissioned by regulatory bodies. The Company is a member of the AIC, which looks after the interests of investment trusts and provides information to the market. Comprehensive information relating to the Company can be found on the AIC website, www.aic.co.uk. As a member of the AIC, the Company is welcomed to comment on consultations and proposal documents on matters affecting the Company and annually to nominate and vote for future board members. |
The mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a regular basis at Board meetings to ensure that they remain effective. Examples of key discussions and considerations of the Board made during the year were:
• to consider and approve, for the long-term benefit of the Company and its shareholders, the restructuring of the Company (see page 2 and the Chairman’s Statement on pages 6 to 8 for further details);
• to consider and approve the appointment of a new corporate broker and financial adviser (see page 8 for further details);
• to consider and approve the renewal of the Company’s loan facility;
• to consider and approve four quarterly dividend payments (see page 37 for further details); and
• to consider and approve the ongoing use of share buybacks as part of the Board’s adopted discount policy (see page 37 for further details).
Board Diversity
The Company’s policy on diversity is set out on page 51, under the section ‘Nomination Committee’. The Board considers diversity, including the balance of skills, knowledge, experience and gender amongst other factors when reviewing its composition and appointing new directors. The Board continues to recognise the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations.
In view of its relatively small size, the Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment. In doing so, the Board will seek to meet the targets set out in the FCA’s UK Listing Rule 6.6.6R (9)(a), which are summarised below.
In accordance with Listing Rule 6.6.6R (9), (10) and (11) the Board has provided the following information in relation to its diversity as at 31 May 2024, being the financial year-end of the Company. The information included in the tables below has been obtained following confirmation from the individual Directors. As shown in the tables, the Company did not meet the FCA ethnic diversity target as at 31 May 2024, however the Board will continue to take all matters of diversity into account as part of its succession planning.
Board Gender as at 31 May 2024
|
|
|
| Number of | Number in | Percentage of |
|
| Number of | Percentage | senior positions | executive | executive |
|
| Board members | of the Board | on the Board | managementA | managementA |
| Men | 3 | 60% | 0C | n/a | n/a |
| Women | 2 | 40%B | 2C,D | n/a | n/a |
A The Company does not disclose the number of directors in executive management as this is not applicable for an investment trust.
B Meets the target of 40% as set out in UKLR 6.6.6R (9)(a)(i).
C The positions of Chairman and Senior Independent Director are held by women. The position of Chair of the Audit Committee is held by a man but this is not currently defined as a senior position.
D Exceeds target of 1 as set out in UKLR 6.6.6R (9)(a)(ii).
|
|
|
| Number of | Number in | Percentage of |
|
| Number of | Percentage of | senior positions | executive | executive |
|
| Board members | the Board | on the Board | managementA | managementA |
| White British or other White |
|
|
|
|
|
| (including minority-white groups) | 5 | 100% | 2 | n/a | n/a |
| Minority ethnic | 0B | 0% | 0 | n/a | n/a |
A The Company does not disclose the number of directors in executive management as this is not applicable for an investment trust.
B Does not meet the target as set out in UKLR 6.6.6R (9)(a)(iii).
There have been no changes since the year end that have affected the Company’s ability to meet the targets set in LR 6.6.6R (9)(a).
Environment, Social and Governance (‘ESG’) Matters
In relation to the portfolios, the Company has delegated the management of the Company’s investments to the Manager, who has an ESG Guiding Framework which sets out a number of principles that are considered in the context of its responsibility to manage investments in the financial interests of shareholders.
The Manager is committed to being a responsible investor and applies, and is a signatory to, the United Nations Principles for Responsible Investment (‘PRI’), which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager scored four stars for its Investment & Stewardship Policy under new scoring methodology produced by PRI. This followed five consecutive years of achieving an A+ rating for responsible investment (Strategy & Governance) under the previous methodology. In addition, the Manager is an active member of the UK Sustainable Investment and Finance Association as well as a supporter of the Task Force for Climate Related Financial Disclosure (‘TCFD’) since 2019 and published its fourth iteration of its TCFD-aligned Climate Change Report in 2023.
The Manager is complying with the spirit of the Sustainable Finance Disclosure Regulation (‘SFDR’) which came into effect within the European Union on 10 March 2021 and is disclosing in its AIFM document as well as its website how sustainability risks are integrated.
The wider Invesco investment team incorporates ESG considerations in its investment process as part of the evaluation of new opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The Portfolio Managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolios, although third party ESG ratings may inform their view. Additionally, the Manager’s ESG team provides formalised ESG portfolio monitoring. This is a rigorous semi-annual process where the portfolios are reviewed from an ESG perspective.
Regarding stewardship, the Board considers that the Company has a responsibility as a shareholder towards ensuring that high standards of corporate governance are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met. The principal means of putting shareholder responsibility into practice is through the exercise of voting rights. The Company’s voting rights are exercised on an informed and independent basis.
Further details are shown in the ESG Statement from the Manager on pages 33 to 35.
The Company’s stewardship functions have been delegated to the Manager. The Manager has adopted a clear and considered policy towards its responsibility as a shareholder on behalf of the Company. As part of this policy, the Manager takes steps to satisfy itself about the extent to which the companies in which it invests look after shareholders’ value and comply with local recommendations and practices, such as the UK Corporate Governance Code. The Manager is also a Tier 1 signatory of the Financial Reporting Council’s Stewardship Code, which seeks to improve the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.
A copy of the current Manager’s Stewardship Policy can be found at www.invesco.com/uk.
A greenhouse gas emissions statement is included in the Directors’ Report on page 52.
Whilst TCFD is currently not applicable to the Company, the Manager has produced a product level report on the Company in accordance with the Financial Conduct Authority’s (‘FCA’) rules and guidance regarding the disclosure of climate-related financial information consistent with TCFD Recommendations and Recommended Disclosures. These disclosures are intended to help meet the information needs of market participants, including institutional clients and consumers of financial products, in relation to the climate-related impact and risks of the Manager’s TCFD in-scope business. The product level report on the Company is available on the Company’s website at https://www.invesco.com/uk/en/investment-trusts/invesco-global-equity-income-trust.html.
Key elements of the product level report include a scenario analysis of how climate change is likely to impact the portfolio valuation under net zero 2050, delayed transition and hothouse scenarios, and a discussion of the most significant drivers of performance under those scenarios.
Invesco’s Group Level Task Force on Climate-Related Financial Disclosures (‘TCFD’) is available on the Managers’ Website at https://www.invesco.com/uk/en/about-us/esg-and-responsibleinvesting.html
Modern Slavery
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not within the scope of the Modern Slavery Act 2015.
This Strategic Report was approved by the Board on 25 September 2024.
James Poole
Senior Company Secretary
Invesco Asset Management Limited
Corporate Company Secretary
Statement of Directors’ Responsibilities
IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT.
The Directors are responsible for preparing the Annual Financial Report in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with UK Accounting Standards, including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland.’ Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, which includes a Corporate Governance Statement, and a Directors’ Remuneration Report that comply with that law and those regulations.
The Directors confirm that:
• in so far as they are aware, there is no relevant audit information of which the Company’s Auditor is unaware; and
• each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information.
The Directors of the Company each confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position, net return and cash flows of the Company; and
• this Annual Financial Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.
The Directors consider that this Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
Signed on behalf of the Board of Directors
Victoria Muir
Chairman
25 September 2024
Electronic Publication
The Annual Financial Report is published on the Manager’s website https://www.invesco.com/uk/en/investment-trusts/invesco-global-equity-income-trust.html. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website, which is maintained by the Company’s Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Income Statement
|
| Year ended 31 May 2024 | Year ended 31 May 2023 | |||||
|
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Gains/(losses) on investments held at |
|
|
|
|
|
|
|
| fair value | 9 | – | 23,634 | 23,634 | – | (3,875) | (3,875) |
| Gains/(losses) on derivative instruments | 10 | (10) | 261 | 251 | 27 | (963) | (936) |
| (Losses)/gains on foreign exchange |
| – | (68) | (68) | – | 28 | 28 |
| Income | 2 | 7,433 | – | 7,433 | 7,400 | 268 | 7,668 |
| Investment management fees | 3 | (340) | (788) | (1,128) | (334) | (774) | (1,108) |
| Other expenses | 4 | (551) | (702) | (1,253) | (627) | (7) | (634) |
| Net return before finance costs and taxation |
| 6,532 | 22,337 | 28,869 | 6,466 | (5,323) | 1,143 |
| Finance costs | 5 | (194) | (453) | (647) | (147) | (343) | (490) |
| Return before taxation |
| 6,338 | 21,884 | 28,222 | 6,319 | (5,666) | 653 |
| Tax | 6 | (239) | 59 | (180) | (325) | 2 | (323) |
| Return after taxation for the financial year |
| 6,099 | 21,943 | 28,042 | 5,994 | (5,664) | 330 |
| Return per ordinary share (basic and diluted) | 7 |
|
|
|
|
|
|
| – Global Equity Income (formerly Global |
|
|
|
|
|
|
|
| Equity Income Share Portfolio) |
| 9.03p | 54.72p | 63.75p | 5.20p | 18.03p | 23.23p |
| – UK Equity Share Portfolio(1) |
| 5.12p | 9.89p | 15.01p | 6.40p | (12.99)p | (6.59)p |
| – Balanced Risk Allocation Share Portfolio(1) |
| 4.45p | 8.72p | 13.17p | 3.38p | (23.16)p | (19.78)p |
| – Managed Liquidity Share Portfolio(1) |
| 17.07p | 1.15p | 18.22p | 1.06p | 1.80p | 2.86p |
(1) This Portfolio was closed as part of the Company restructure on 7 May 2024.
The total column of this statement represents the Company’s Income Statement prepared in accordance with UK Accounting Standards. The return after taxation is the total comprehensive income and therefore no additional statement of other comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the current year. Income Statements for the different share classes are shown on pages 21, 25, 28 and 31 for the Global Equity Income, UK Equity, Balanced Risk Allocation and Managed Liquidity Share Portfolios respectively.
The accompanying accounting policies and notes are an integral part of these financial statements.
Statement of Changes in Equity
|
|
|
|
|
| Capital |
|
|
|
|
|
| Share | Share | Special | redemption | Capital | Revenue |
|
|
|
| capital | premium | reserve | reserve | reserve | reserve | Total |
|
| Notes | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| At 31 May 2022 |
| 1,709 | 122,990 | 18,935 | 372 | 70,414 | 1 | 214,421 |
| Cancellation of deferred shares |
| – | – | (5) | 5 | – | – | – |
| Shares bought back and held in treasury | 14 | – | – | (4,671) | – | (3,516) | – | (8,187) |
| Share conversions |
| (2) | – | 1,107 | – | (1,105) | – | – |
| Return after taxation per the income |
|
|
|
|
|
|
|
|
| statement |
| – | – | – | — | (5,664) | 5,994 | 330 |
| Dividends paid | 8 | – | – | (932) | – | – | (5,893) | (6,825) |
| Cancellation of share premium account | 15 | – | (122,990) | 122,990 | – | – | – | – |
|
|
|
|
|
|
|
|
|
|
| At 31 May 2023 |
| 1,707 | - | 137,424 | 377 | 60,129 | 102 | 199,739 |
| Cancellation of deferred shares |
| – | – | (233) | 233 | – | – | – |
| Shares bought back and held in treasury | 14 | – | – | (2,702) | – | – | – | (2,702) |
| Share conversions |
| (348) | – | 232 | 116 | – | – | – |
| Return after taxation per the income |
|
|
|
|
|
|
|
|
| statement |
| – | – | – | – | 21,943 | 6,099 | 28,042 |
| Dividends paid | 8 | – | – | (597) | – | – | (6,099) | (6,696) |
| Costs associated with tender offer |
| – | – | (145) | – | – | – | (145) |
| Tender offer in respect of the share class |
|
|
|
|
|
|
|
|
| reclassification |
| – | – | (20,683) | – | – | – | (20,683) |
| Treasury shares cancellation |
| (559) | – | – | 559 | – | – | – |
| At 31 May 2024 |
| 800 | - | 113,296 | 1,285 | 82,072 | 102 | 197,555 |
The accompanying accounting policies and notes are an integral part of these financial statements.
Balance Sheet
|
|
| At | At |
|
|
| 31 May 2024 | 31 May 2023 |
|
|
| Company | Company |
|
|
| Total | Total |
|
| Notes | £’000 | £’000 |
| Fixed assets |
|
|
|
| Investments held at fair value through |
|
|
|
| profit or loss | 9 | 195,824 | 207,389 |
|
|
|
|
|
| Current assets |
|
|
|
| Derivative assets held at fair value through profit or loss | 10 | – | 125 |
| Debtors | 11 | 1,639 | 1,546 |
| Cash and cash equivalents |
| 1,859 | 1,094 |
|
|
| 3,498 | 2,765 |
| Creditors: amounts falling due within one year |
|
|
|
| Derivative liabilities held at fair value through profit or loss | 10 | – | (186) |
| Other creditors | 12 | (1,767) | (579) |
| Bank facility | 13 | – | (9,650) |
|
|
| (1,767) | (10,415) |
| Net current assets/(liabilities) |
| 1,731 | (7,650) |
| Net assets |
| 197,555 | 199,739 |
| Capital and reserves |
|
|
|
| Share capital | 14(a) | 800 | 1,707 |
| Share premium | 15 | – | – |
| Special reserve | 15 | 113,296 | 137,424 |
| Capital redemption reserve | 15 | 1,285 | 377 |
| Capital reserve | 15 | 82,072 | 60,129 |
| Revenue reserve | 15 | 102 | 102 |
| Shareholders’ funds |
| 197,555 | 199,739 |
| Net asset value per ordinary share(1) | 16 | 313.30p |
|
(1) No prior year net asset value per ordinary share is stated as the Company comprised of four individual portfolios until the Company restructure on 7 May 2024, with each portfolio having a separate net asset value per ordinary share.
The total column of this statement represents the Company’s Balance Sheet prepared in accordance with UK accounting standards.
The financial statements were approved and authorised for issue by the Board of Directors on 25 September 2024.
Signed on behalf of the Board of Directors
Victoria Muir
Chairman
Company No. 05916642
The accompanying accounting policies and notes are an integral part of these financial statements.
Cash Flow Statement
|
|
| Year ended | Year ended |
|
|
| 31 May 2024 | 31 May 2023 |
|
| Notes | £’000 | £’000 |
| Cash flows from operating activities |
|
|
|
| Net return before finance costs and taxation |
| 28,869 | 1,143 |
| Tax on overseas income |
| (180) | (323) |
| Adjustments for: |
|
|
|
| Purchase of investments |
| (177,227) | (50,391) |
| Sale of investments |
| 212,682 | 73,142 |
| Sale of futures |
| 190 | (738) |
|
|
|
|
|
|
|
| 35,645 | 22,013 |
| Scrip dividends |
| (109) | (342) |
| Gains/(losses) on investments |
| (23,634) | 3,875 |
| Gains/(losses) on derivatives |
| (251) | 936 |
| Decrease/(increase) in debtors |
| 954 | (52) |
| (Decrease)/increase in creditors |
| (12) | 32 |
| Net cash inflow from operating activities |
| 41,282 | 27,282 |
| Cash flows from financing activities |
|
|
|
| Interest paid on bank borrowings |
| (641) | (493) |
| Decrease in bank facility |
| (9,650) | (11,456) |
| Costs associated with tender offer |
| (145) | – |
| Tender offer in respect of the share class reclassification |
| (20,683) | – |
| Share buy back costs |
| (2,702) | (8,361) |
| Equity dividends paid | 8 | (6,696) | (6,825) |
| Net cash outflow from financing activities |
| (40,517) | (27,135) |
| Net increase in cash and cash equivalents |
| 765 | 147 |
| Cash and cash equivalents at the start of the year |
| 1,094 | 947 |
| Cash and cash equivalents at the end of the year |
| 1,859 | 1,094 |
| Reconciliation of cash and cash equivalents to the Balance Sheet is as follows: |
|
|
|
| Cash held at custodian |
| 559 | 1,094 |
| Invesco Liquidity Funds plc – Sterling, money market fund |
| 1,300 | – |
| Cash and cash equivalents |
| 1,859 | 1,094 |
| Cash flow from operating activities includes: |
|
|
|
| Interest received |
| 47 | 27 |
| Dividends received |
| 6,599 | 6,900 |
The accompanying accounting policies and notes are an integral part of these financial statements.
Notes to the Financial Statements
1. Accounting Policies
Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.
The principal accounting policies are set out below:
(a) Basis of Preparation
(i) Accounting Standards Applied
The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards, including FRS 102 ‘the Financial Reporting Standard applicable in the UK and Republic of Ireland’, and applicable law (UK Generally Accepted Accounting Practice (‘UK GAAP’)) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, updated by the Association of Investment Companies (‘AIC’) in July 2022. The financial statements are issued on a going concern basis as disclosed on page 51.
The accounting policies applied to these financial statements are consistent with those applied for the preceding year.
(ii) Definitions used in the financial statements
‘Portfolio’ the Global Equity Income Share Portfolio, the UK Equity Share Portfolio, the Balanced Risk Allocation Share Portfolio and/or the Managed Liquidity Share Portfolio (as the case may be). Each comprises, or may include, an investment portfolio, derivative instruments, cash, loans, debtors and other creditors, which together make up the net assets as shown in the balance sheet.
‘Share’ Global Equity Income Share, UK Equity Share, Balanced Risk Allocation Share, Managed Liquidity Share and/or Deferred Share (as the case may be).
The Global Equity Income, UK Equity, Balanced Risk Allocation and Managed Liquidity Share Portfolios’ income statement (shown on pages 21, 25, 28 and 31) do not represent statutory accounts, are not required under UK Generally Accepted Accounting Practice and the auditor does not express an opinion on each individual portfolio. These have been disclosed to assist shareholders’ understanding of the assets and liabilities, and income and expenses of the different share classes.
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement.
(iii) Functional and presentational currency
The Company’s investments are made in several currencies, however, the financial statements are presented in sterling, which is the Company’s functional currency. In arriving at this conclusion, the Directors considered that the Company’s shares are listed and traded on the London Stock Exchange, the shareholder base is predominantly in the United Kingdom and the Company pays dividends and expenses in sterling.
(iv) Transactions and balances
Transactions in foreign currency, whether of a revenue or capital nature, are translated to sterling at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. Any gains or losses, whether realised or unrealised, are taken to the capital reserve or to the revenue account, depending on whether the gain or loss is of a capital or revenue nature. All gains and losses are recognised in the income statement.
(v) Significant Accounting Estimates and Judgements
The preparation of the financial statements may require the Directors to make estimations where uncertainty exists. It also requires the Directors to make judgements, estimates and assumptions, in the process of applying the accounting policies. There have been no significant judgements, estimates or assumptions for the current or preceding year.
(b) Financial Instruments
The Company has chosen to apply the provisions of Sections 11 and 12 of FRS 102 in full in respect of the financial instruments, which is explained below.
(i) Recognition of Financial Assets and Financial Liabilities
The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company will offset financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.
(ii) Derecognition of Financial Assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.
(iii) Derecognition of Financial Liabilities
The Company derecognises financial liabilities when its obligations are discharged, cancelled or expire.
(iv) Trade Date Accounting
Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.
(v) Classification and measurement of financial assets and financial liabilities
Financial assets
The Company’s investments, including financial derivative instruments, are classified as held at fair value through profit or loss.
Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the income statement, and are subsequently valued at fair value.
Fair value for investments, including financial derivative instruments, that are actively traded in organised financial markets is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling. Where there is no active market, unlisted/illiquid investments are valued by the Directors at fair value with regard to the International Private Equity and Venture Capital Valuation Guidelines and on recommendations from Invesco’s Pricing Committee, both of which use valuation techniques such as earnings multiples, recent arm’s length transactions and net assets.
Financial liabilities
Financial liabilities, excluding financial derivative instruments but including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.
(c) Derivatives and hedging
Derivative instruments are valued at fair value in the balance sheet. Derivative instruments may be capital or revenue in nature and, accordingly, changes in their fair value are recognised in revenue or capital in the income statement as appropriate.
Forward currency contracts entered into for hedging purposes are valued at the appropriate forward exchange rate ruling at the balance sheet date. Profits or losses on the closure or revaluation of positions are included in capital reserves.
Futures contracts may be entered into for hedging purposes and any profits and losses on the closure or revaluation of positions are included in capital reserves. Where futures contracts are used for investment exposure any income element arising on bond futures is recognised as a gain on derivative instruments in the income statement and shown in revenue.
(d) Cash and cash equivalents
Cash and cash equivalents may comprise cash (including short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value) as well as cash equivalents, including money market funds. Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value, have a maturity of less than three months at date of origination and provide a return no greater than the rate of a three-month high quality government bond.
(e) Income
Dividend income from investments is recognised when the shareholders’ right to receive payment has been established, normally the ex-dividend date. UK dividends are stated net of related tax credits. Interest income arising from cash is recognised on an accruals basis and underwriting commission is recognised as earned. Special dividends are taken to revenue unless they arise from a return of capital, when they are allocated to capital in the income statement. Income from fixed income securities is recognised in the income statement using the effective interest method.
(f) Expenses and finance costs
All expenses are accounted for on an accruals basis. Expenses are charged to the income statement and shown in revenue except where expenses are presented as capital items when a connection with the maintenance or enhancement of the value of the investments held can be demonstrated and thus management fees and finance costs are charged to revenue and capital to reflect the Directors’ expected long-term view of the nature of the investment returns of each Portfolio.
Expenses charged to the Company in relation to a specific Portfolio were charged directly to that Portfolio until the Company restructure on 7 May 2024 following which all expenses were incurred by the one remaining Portfolio.
Expenses charged to the Company that are common to more than one Portfolio were allocated between those Portfolios in the same proportions as the net assets of each Portfolio at the latest conversion date up until the Company restructure.
Finance costs are accounted for on an accruals basis using the effective interest rate method.
The management fees and finance costs are charged in accordance with the Board’s expected split of long-term returns, in the form of capital gains and income, to the applicable Portfolio as follows:
|
|
| Revenue | Capital |
| Portfolio |
| Reserve | Reserve |
| Global Equity Income |
| 30% | 70% |
| UK Equity* |
| 30% | 70% |
| Balanced Risk Allocation* |
| 30% | 70% |
| Managed Liquidity* |
| 100% | – |
* This share class was closed on 7 May 2024.
(g) Dividends
Dividends are accrued in the financial statements when there is an obligation to pay the dividends at the balance sheet date.
(h) Taxation
Tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
For the Company, any allocation of tax relief to capital is based on the marginal basis, such that tax allowable capital expenses are offset against taxable income. Until the Company restructure, where individual Portfolios had extra tax capacity arising from unused tax allowable expenses which could be used by a different Portfolio, this extra tax capacity was transferred between the Portfolios at a valuation of 1% of the amount transferred.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have occurred. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements. Deferred taxation assets are recognised where, in the opinion of the Directors, it is more likely than not that these amounts will be realised in future periods.
A deferred tax asset has not been recognised in respect of surplus management expenses as the Company is unlikely to have sufficient future taxable revenue to offset against these.
Investment trusts which have approval under the appropriate tax regulations are not liable for taxation on capital gains.
(i) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.
2. Income
This note shows the income generated from the portfolios (investment assets) of the Company and income received from any other source.
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
| 2024 | Income | Equity | Allocation | Liquidity | Total |
| Income from investments: | £’000 | £’000 | £’000 | £’000 | £’000 |
| UK dividends: |
|
|
|
|
|
| – ordinary dividends | 779 | 3,102 | – | – | 3,881 |
| – scrip dividends | – | 109 | – | – | 109 |
|
| 779 | 3,211 | – | – | 3,990 |
| Overseas dividends |
|
|
|
|
|
| – ordinary dividends | 2,382 | 430 | 146 | 69 | 3,027 |
| – special dividends | 21 | 244 | – | – | 265 |
| Interest from Treasury bills | – | – | 103 | – | 103 |
|
| 3,182 | 3,885 | 249 | 69 | 7,385 |
| Other income: |
|
|
|
|
|
| Deposit interest | 10 | 14 | 21 | 2 | 47 |
| Rebates of management fee | – | – | – | 1 | 1 |
| Total income | 3,192 | 3,899 | 270 | 72 | 7,433 |
|
|
|
|
|
|
|
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income from investments: |
|
|
|
|
|
| UK dividends: |
|
|
|
|
|
| – ordinary dividends | 273 | 4,159 | – | – | 4,432 |
| – special dividends | – | 92 | – | – | 92 |
| – Scrip dividends | – | 342 | – | – | 342 |
|
| 273 | 4,593 | – | – | 4,866 |
| Overseas dividends: |
|
|
|
|
|
| – ordinary dividends | 1,615 | 714 | 92 | 20 | 2,441 |
| – special dividends | 1 | – | – | – | 1 |
| Interest from Treasury bills | – | – | 64 | – | 64 |
|
| 1,889 | 5,307 | 156 | 20 | 7,372 |
| Other income: |
|
|
|
|
|
| Deposit interest | 4 | 7 | 16 | – | 27 |
| Rebates of management fee | – | – | – | 1 | 1 |
| Total income | 1,893 | 5,314 | 172 | 21 | 7,400 |
Special dividends recognised as revenue for the year are as shown above. Special dividends of £nil (2023: £92,000) in respect of Global Equity Income Portfolio and £nil (2023: £176,000) in respect of UK Equity Portfolio were recognised in capital during the year.
3. Investment management fees
This note shows the fees paid to the Manager. These are made up of the individual Portfolio investment management fees calculated quarterly on the basis of their net asset values in respect of the UK Equity and Global Equity Income Portfolios.
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Investment management fee: |
|
|
|
|
|
| – charged to revenue | 137 | 188 | 13 | 2 | 340 |
| – charged to capital | 319 | 439 | 30 | – | 788 |
| Total investment management fee | 456 | 627 | 43 | 2 | 1,128 |
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Investment management fee: |
|
|
|
|
|
| – charged to revenue | 107 | 210 | 15 | 2 | 334 |
| – charged to capital | 250 | 490 | 34 | – | 774 |
| Total investment management fee | 357 | 700 | 49 | 2 | 1,108 |
Details of the investment management agreement are given on page 52 in the Directors’ Report.
4. Other Expenses
The other expenses of the Company, including those paid to Directors and the auditor, are presented below; those paid to the Directors and the auditor are separately identified.
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Charged to revenue: |
|
|
|
|
|
| Directors’ remuneration (i)(ii) | 67 | 94 | 4 | 1 | 166 |
| Auditor’s fees (iii): |
|
|
|
|
|
| – for the audit of the Company’s financial statements | 38 | 33 | 2 | 1 | 74 |
| Other expenses (iv) | 109 | 190 | 18 | 4 | 321 |
|
| 214 | 317 | 24 | 6 | 561 |
| Charged to capital: |
|
|
|
|
|
| Directors’ remuneration (i)(v) | 10 | – | – | – | 10 |
| Auditor’s fees (iii): |
|
|
|
|
|
| – non-audit fees | 14 | 22 | 1 | – | 37 |
| Custodian transaction charges | 5 | 1 | 1 | – | 7 |
| Other expenses (vi) | 227 | 386 | 20 | 5 | 638 |
| Total | 470 | 726 | 46 | 11 | 1,253 |
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Charged to revenue: |
|
|
|
|
|
| Directors’ remuneration (i)(ii) | 49 | 103 | 5 | 1 | 158 |
| Auditor’s fees (iii): |
|
|
|
|
|
| – for the audit of the Company’s financial statements | 20 | 39 | 2 | 1 | 62 |
| Other expenses (iv) | 107 | 276 | 20 | 4 | 407 |
|
| 176 | 418 | 27 | 6 | 627 |
| Charged to capital: |
|
|
|
|
|
| Custodian transaction charges | 4 | 1 | 2 | – | 7 |
| Total | 180 | 419 | 29 | 6 | 634 |
(i) The Director’s Remuneration Report provides information on Directors’ fees. Included within other expenses is £16,000 (2023: £16,000) of employer’s national insurance payable on Directors’ remuneration.
(ii) As at 31 May 2024, the amounts outstanding on Directors’ fees and employer’s national insurance was £30,000 (2023: £28,000).
(iii) The Auditor’s fees shown include out of pocket expenses, but exclude VAT, which is included in other administrative expenses. An additional fee of £10,000 was paid to the Auditor in respect of extra work performed in relation to the share class reclassification. Grant Thornton UK LLP provided non-audit services related to work on the share class reclassification, which amounted to £37,000 (2023: none).
(iv) Includes fees for depositary, broker and registrar, and also printing, postage and listing costs.
(v) Includes a Directors’ remuneration fee of £10,000 related to the share class reclassification.
(vi) Includes other costs related to the share class reclassification.
5. Finance Costs
Finance costs arise on any borrowing the Company has utilised in the year. The Company has a committed £40 million revolving credit facility (see note 13 for further details).
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Interest payable on borrowings repayable within one year |
|
|
|
|
|
| as follows: |
|
|
|
|
|
| – charged to revenue | 7 | 187 | – | – | 194 |
| – charged to capital | 16 | 437 | – | – | 453 |
| Total | 23 | 624 | – | – | 647 |
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Interest payable on borrowings repayable within one year |
|
|
|
|
|
| as follows: |
|
|
|
|
|
| – charged to revenue | 50 | 97 | – | – | 147 |
| – charged to capital | 117 | 226 | – | – | 343 |
| Total | 167 | 323 | – | – | 490 |
6. Tax
As an investment trust, the Company pays no tax on capital gains. However, the Company suffers tax on certain overseas dividends that is irrecoverable and this note shows details of the tax charge. In addition, this note clarifies the basis for the Company having no deferred tax asset or liability.
(a) Tax charge
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Corporation Tax | 137 | – | – | (137) | – |
| Overseas tax | 151 | 29 | – | – | 180 |
|
| 288 | 29 | – | (137) | 180 |
| 2023 |
|
|
|
|
|
| Overseas tax | 275 | 48 | – | – | 323 |
The accounting policy for taxation is disclosed in note 1(h).
(b) Reconciliation of tax charge
|
| Global |
| Balanced |
|
| ||||
|
| Equity | UK | Risk | Managed | Company | ||||
|
| Income | Equity | Allocation | Liquidity | Total | ||||
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Return before taxation | 18,305 | 9,345 | 494 | 78 | 28,222 | ||||
| Theoretical tax at the |
|
|
|
|
| ||||
| UK Corporation Tax rate of 25.00% (2023: 20.00%) | 4,577 | 2,336 | 123 | 20 | 7,056 | ||||
| Effect of: |
|
|
|
|
| ||||
| – Non-taxable losses on investments and derivatives | (4,005) | (1,866) | (82) | (5) | (5,958) | ||||
| – Non-taxable losses on foreign exchange | 5 | 10 | 2 | – | 17 | ||||
| – Non-taxable scrip dividends | – | (27) | – | – | (27) | ||||
| – Non-taxable UK dividends | (194) | (743) | – | – | (937) | ||||
| – Non-taxable overseas dividends | (523) | (103) | – | – | (626) | ||||
| – Non-taxable overseas special dividends | (5) | (61) | – | – | (66) | ||||
| – Corporation tax transferred to successor fund | 137 | – | – | (137) | – | ||||
| – Overseas tax | 151 | 29 | – | – | 180 | ||||
| – Disallowable expenses | 51 | 102 | 5 | 1 | 159 | ||||
| – Excess of allowable expenses over taxable income | 94 | 352 | (48) | (16) | 382 | ||||
| Tax charge for the year | 288 | 29 | – | (137) | 180 | ||||
|
| Global |
| Balanced |
|
| ||||
|
| Equity | UK | Risk | Managed | Company | ||||
|
| Income | Equity | Allocation | Liquidity | Total | ||||
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Return before taxation | 6,074 | (4,628) | (829) | 36 | 653 | ||||
| Theoretical tax at the |
|
|
|
|
| ||||
| UK Corporation Tax rate of 20.00% (2022: 19.00%) | 1,215 | (926) | (166) | 8 | 131 | ||||
| Effect of: |
|
|
|
|
| ||||
| – Non-taxable losses/(gains) on investments and derivatives | (956) | 1,735 | 194 | (5) | 968 | ||||
| – Non-taxable losses on foreign exchange | (2) | – | (3) | – | (5) | ||||
| – Non-taxable scrip dividends | - | (68) | – | – | (68) | ||||
| – Non-taxable UK dividends | (55) | (818) | – | – | (873) | ||||
| – Non-taxable UK special dividends | - | (53) | – | – | (53) | ||||
| – Non-taxable overseas dividends | (286) | (141) | – | – | (427) | ||||
| – Non-taxable overseas special dividends | (19) | – | – | – | (19) | ||||
| – Foreign tax expensed | (3) | – | – | – | (3) | ||||
| – Overseas tax | 275 | 48 | – | – | 323 | ||||
| – Disallowable expenses | 1 | – | – | – | 1 | ||||
| – Excess of allowable expenses over taxable income | 105 | 271 | (25) | (3) | 348 | ||||
| Tax charge for the year | 275 | 48 | – | – | 323 | ||||
Given the Company’s status as an investment trust, and the intention to continue meeting the conditions required to retain such status for the foreseeable future, the Company has not provided any UK corporation tax on any realised or unrealised capital gains or losses arising on investments.
(c) Factors that may affect future tax charges
The Company has excess management expenses and loan relationship deficits of £20,209,000 (2023: £18,674,000) that are available to offset future taxable revenue. A deferred tax asset of £5,052,000 (2023: £4,668,000), measured at the standard corporation tax substantively enacted rate of 25% (2023: 25%) has not been recognised in respect of these expenses since the Directors believe that there will be no taxable profits in the future against which the deferred tax assets can be offset.
The UK corporation tax rate increased from 19% to 25% from 1 April 2023. Deferred tax assets and liabilities on balance sheets prepared after the enactment of the new tax rate must therefore be re-measured accordingly, so as a result the deferred tax asset has been calculated at 25%.
7. Return per Ordinary Share
Return per share is the amount of profit (or loss) generated for each share class in the financial year divided by the weighted average number of the shares in issue. The basic and diluted returns per share are identical as the ordinary shares for each of the portfolios are not dilutive.
Revenue, capital and total return per ordinary share is based on each of the returns after taxation shown by the income statement for the applicable share class and on the following numbers of Shares being the weighted average number of Shares in issue throughout the year for each Share class:
|
| Average number of shares | |
|
| ||
| Share | 2024 | 2023 |
| Global Equity Income | 28,258,528 | 24,967,715 |
| UK Equity(1) | 62,061,213 | 71,005,942 |
| Balanced Risk Allocation(1) | 3,757,960 | 4,190,331 |
| Managed Liquidity(1) | 1,177,858 | 1,252,806 |
(1) This Share class was closed on 7 May 2024, the 2024 figures above are calculated to 3 May 2024, being the date of the final computed Net Asset Value of the Share class.
Return per Ordinary Share per Portfolio is shown in the Income Statement on page 71.
8. Dividends
Dividends are distributions of Portfolio returns to shareholders. These are determined by the Directors and paid four times a year.
Dividends paid for each applicable share class, which represent distributions for the purpose of s1159 of the Corporation Tax Act 2010, follows:
|
| 2024 | 2023 | ||||
|
| Number | Dividend | Total | Number | Dividend | Total |
|
| of shares | rate (pence) | £’000 | of shares | rate (pence) | £’000 |
| Global Equity Income |
|
|
|
|
|
|
| First interim | 25,135,742 | 1.60 | 402 | 24,860,784 | 1.55 | 385 |
| Second interim | 25,127,260 | 1.60 | 402 | 24,851,044 | 1.55 | 385 |
| Third interim | 25,546,911 | 1.60 | 409 | 24,927,486 | 1.55 | 386 |
| Fourth interim | 25,546,911 | 2.55 | 651 | 24,890,617 | 2.55 | 635 |
|
|
| 7.35 | 1,864 |
| 7.20 | 1,791 |
| UK Equity |
|
|
|
|
|
|
| First interim | 68,881,153 | 1.60 | 1,102 | 73,085,657 | 1.50 | 1,096 |
| Second interim | 67,701,484 | 1.60 | 1,083 | 71,478,782 | 1.50 | 1,072 |
| Third interim | 66,641,813 | 1.60 | 1,067 | 69,800,692 | 1.50 | 1,047 |
| Fourth interim | 56,585,022 | 2.55 | 1,443 | 69,244,026 | 2.55 | 1,766 |
|
|
| 7.35 | 4,695 |
| 7.05 | 4,981 |
| Balanced Risk Allocation |
|
|
|
|
|
|
| First interim | 4,138,995 | 1.00 | 41 | 4,138,995 | 1.00 | 41 |
| Special | 4,138,995 | 2.00 | 83 | – | – | – |
|
|
| 3.00 | 124 |
| 1.00 | 41 |
| Managed Liquidity |
|
|
|
|
|
|
| First interim | 1,251,360 | 1.00 | 13 | 1,238,254 | 1.00 | 12 |
|
|
| 1.00 | 13 |
| 1.00 | 12 |
| Total paid in the year |
|
| 6,696 |
|
| 6,825 |
The Company’s dividend policy permits the payment of dividends from capital. An analysis of dividends paid in the year from revenue and capital follows.
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2024 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Dividends paid in the year: |
|
|
|
|
|
| From revenue – current year | 1,267 | 4,695 | 124 | 13 | 6,099 |
| From revenue | 1,267 | 4,695 | 124 | 13 | 6,099 |
| From capital | 597 | – | – | – | 597 |
|
| 1,864 | 4,695 | 124 | 13 | 6,696 |
|
| Global |
| Balanced |
|
|
|
| Equity | UK | Risk | Managed | Company |
|
| Income | Equity | Allocation | Liquidity | Total |
| 2023 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Dividends paid in the year: |
|
|
|
|
|
| From revenue – current year | 1,299 | 4,541 | 41 | 12 | 5,893 |
| From revenue | 1,299 | 4,541 | 41 | 12 | 5,893 |
| From capital | 492 | 440 | – | – | 932 |
|
| 1,791 | 4,981 | 41 | 12 | 6,825 |
9. Investments held at fair value
The Portfolio is made up of investments which are listed, i.e. traded on a regulated stock exchange, and a small proportion of investments which are valued by the Directors as they are unlisted or not regularly traded. Gains and losses are either:
• realised, usually arising when investments are sold; or
• unrealised, being the difference from cost on the investments held at the year end.
(a) Analysis of investments by listing status
|
| 2024 | 2023 |
|
| £’000 | £’000 |
| UK listed investments | 40,398 | 141,292 |
| Overseas listed investments(i) | 155,426 | 66,092 |
| Unquoted hedge fund investments | – | 5 |
|
| 195,824 | 207,389 |
(i) Includes the Invesco Liquidity Funds plc - Sterling, money market fund positions held by the Balanced Risk Allocation Portfolio of £nil (2023: £3,107,000) and Managed Liquidity Portfolio of £nil (2023: £130,000).
(b) Analysis of investment gains
|
| 2024 | 2023 |
|
| £’000 | £’000 |
| Opening valuation | 207,389 | 233,758 |
| Movements in year: |
|
|
| Purchases at cost | 178,530 | 50,648 |
| Sales proceeds | (213,729) | (73,142) |
| Gains/(losses) on investments in the year | 23,634 | (3,875) |
| Closing valuation | 195,824 | 207,389 |
| Closing book cost | 179,567 | 194,009 |
| Closing investment holding gains | 16,257 | 13,380 |
| Closing valuation | 195,824 | 207,389 |
The Company received £213,729,000 (2023: £73,142,000) from investments sold in the year. The book cost of these investments when they were purchased was £192,972,000 (2023: £71,730,000) realising a profit of £20,757,000 (2023: profit £1,412,000). These investments have been revalued over time and until they were sold any unrealised profits/losses were included in the fair value of the investments.
(c) Transaction costs
Transaction costs were £236,000 (2023: £84,000) on purchases and £103,000 (2023: £36,000) on sales.
10. Derivative instruments
Derivative instruments are contracts whose price is derived from the value of other securities or indices. The Balanced Risk Allocation Portfolio used futures, which represented agreements to buy or sell commodities or financial instruments at a pre-determined price in the future.
|
| 2024 | 2023 |
|
| £’000 | £’000 |
| Opening derivative assets held at fair value through profit or loss | 125 | 362 |
| Opening derivative liabilities held at fair value through profit or loss | (186) | (225) |
| Opening net derivative (liabilities)/assets held at fair value as shown in balance sheet | (61) | 137 |
| Closing derivative assets held at fair value through profit or loss | – | 125 |
| Closing derivative liabilities held at fair value through profit or loss | – | (186) |
| Closing net derivative liabilities held at fair value shown in balance sheet | – | (61) |
| Movement in derivative holding liabilities | 61 | (198) |
| Net realised gains/(losses) on derivative instruments | 200 | (765) |
| Net capital gains/(losses) on derivative instruments as shown in the income statement | 261 | (963) |
| Net (expense)/income arising on derivatives | (10) | 27 |
| Total gains/(losses) on derivative instruments | 251 | (936) |
The derivative assets/(liabilities) shown in the balance sheet for the year to 31 May 2023 are the unrealised gains/(losses) arising from the revaluation to fair value of futures contracts held in the Balanced Risk Allocation Share Portfolio. Following the Company restructure in May 2024 there are no derivative positions held.
11. Debtors
Debtors are amounts due to the Company, such as monies due from brokers for investments sold and income which has been earned (accrued) but not yet received.
|
| 2024 | 2023 |
|
| £’000 | £’000 |
| Amounts due from brokers | 1,047 | – |
| Collateral pledged for futures contracts | – | 443 |
| Tax recoverable | 256 | 217 |
| Prepayments and accrued income | 336 | 886 |
|
| 1,639 | 1,546 |
12. Other creditors
Creditors are amounts owed by the Company and include amounts due to brokers for the purchase of investments and amounts owed to suppliers, such as the Manager and auditor.
|
| 2024 | 2023 |
|
| £’000 | £’000 |
| Tax payable | 137 | 137 |
| Amounts due to brokers | 1,194 | – |
| Margin due to brokers | – | 9 |
| Accruals | 436 | 433 |
|
| 1,767 | 579 |
Interest payable on the bank facility is included within the amounts outstanding on the bank facility as shown on the balance sheet.
13. Bank facility and overdraft
At the year end the Company had a £40 million (2023: £40 million) committed 364 day multicurrency revolving credit facility, which is due for renewal on 23 April 2025 (2023: 24 April 2024). In addition, an overdraft facility for the purpose of short term settlement is also available however, this was unutilised at year end (2023: unutilised). Both facilities are with The Bank of New York Mellon. The interest payable on the credit facility is based on the Adjusted Reference Rate (principally SONIA, SOFR and €STR respectively in respect of loans drawn in GBP, USD and Euro) plus a margin for amounts drawn.
Under the bank facility’s covenants, the Company’s total indebtedness must not exceed 30% of total assets and the total assets must not be less than £100 million (2023: £120 million). The Company was in compliance with the covenants throughout the year and at year end.
At the year end, the interest payable on the bank facility was £nil (2023: £nil).
14. Share Capital and Reserves
Share capital represents the total number of shares in issue, including treasury shares.
All shares have a nominal value of 1 pence.
(a) Movements in Share Capital during the Year
Issued and fully paid:
|
| Global |
| Balanced |
| Total |
|
| Equity | UK | Risk | Managed | Share |
|
| Income | Equity | Allocation | Liquidity | Capital |
| Ordinary Shares (number) |
|
|
|
|
|
| At 31 May 2023 | 25,135,742 | 68,881,153 | 4,138,995 | 1,251,360 | 99,407,250 |
| Shares bought back into treasury | (153,963) | (1,510,343) | – | – | (1,664,306) |
| Arising on share conversion: |
|
|
|
|
|
| – August 2023 | 108,847 | (228,495) | 78,597 | 2,668 | (38,383) |
| – November 2023 | 456,285 | (571,702) | (207,841) | 63,264 | (259,994) |
| Tender offer in respect of the share class |
|
|
|
|
|
| reclassification | – | (9,985,591) | (714,610) | (417,453) | (11,117,654) |
| Share class reclassification | 37,509,553 | (56,585,022) | (3,295,141) | (899,839) | (23,270,449) |
| At 31 May 2024 | 63,056,464 | – | – | – | 63,056,464 |
| Treasury Shares (number) |
|
|
|
|
|
| At 31 May 2023 | 16,776,159 | 38,515,775 | 6,547,218 | 9,393,678 | 71,232,830 |
| Shares bought back into treasury | 153,963 | 1,510,343 | – | – | 1,664,306 |
| Treasury shares cancelled | – | (40,026,118) | (6,547,218) | (9,393,678) | (55,967,014) |
| At 31 May 2024 | 16,930,122 | – | – | – | 16,930,122 |
|
| Global |
| Balanced |
| Total |
|
| Equity | UK | Risk | Managed | Share |
|
| Income | Equity | Allocation | Liquidity | Capital |
| Ordinary Shares of 1 penny each (£’000) |
|
|
|
|
|
| At 31 May 2023 | 252 | 689 | 41 | 12 | 994 |
| Shares bought back into treasury | (2) | (15) | – | – | (17) |
| – August 2023 | 1 | (2) | 1 | – | – |
| – November 2023 | 5 | (6) | (2) | 1 | (2) |
| Tender offer in respect of the share class |
|
|
|
|
|
| reclassification | – | (100) | (7) | (4) | (111) |
| Share class reclassification | 375 | (566) | (33) | (9) | (233) |
| At 31 May 2024 | 631 | – | – | – | 631 |
| Treasury Shares of 1 penny each (£’000) |
|
|
|
|
|
| At 31 May 2023 | 167 | 385 | 66 | 95 | 713 |
| Shares bought back into treasury | 2 | 15 | – | – | 17 |
| Treasury shares cancellation | – | (400) | (66) | (95) | (561) |
| At 31 May 2024 | 169 | – | – | – | 169 |
| Total Share Capital (£’000) |
|
|
|
|
|
| Ordinary share capital | 631 | – | – | – | 631 |
| Treasury share capital | 169 | – | – | – | 169 |
| At 31 May 2024 | 800 | – | – | – | 800 |
| Average buy back price | 233.78p | 161.79p | 158.52p | 114.55p |
|
The total cost of share buybacks was £2,702,000 (2023: £8,187,000. As part of the conversion process 454,200 (2023: 457,700) deferred shares of 1p each were created and subsequently cancelled during the year. No deferred shares were in issue at the start or end of the year.
No ordinary shares were issued from treasury during the year (2023: nil).
(b) Movements in Share Capital after the Year End
Since the year end the Company has bought back 57,000 Global Equity Income Shares to be held in treasury. As at the date of this report the Company has 62,999,464 Global Equity Income Shares in issue and holds 16,987,122 Global Equity Income Shares in treasury.
(c) Voting Rights
Rights attaching to the shares are described in the Directors’ Report on page 52.
(d) Deferred Shares
The Deferred shares do not carry any rights to participate in the Company’s profits, do not entitle the holder to any repayment of capital on a return of assets (except for the sum of 1p) and do not carry any right to receive notice of or attend or vote at any general meeting of the Company. Any Deferred shares that arise as a result of conversions of shares are cancelled in the same reporting period.
(e) Future Convertibility of the Shares
Following the restructure of the Company in May 2024 there are only Global Equity Income Shares in existence and therefore all share class conversions have ceased.
15. Reserves
This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.
The share premium comprises the net proceeds received by the Company following the issue of new shares, after deduction of the nominal amount of 1 penny and any applicable costs.
The special reserve arose from the cancellation of the share premium account, in January 2007, and is available as distributable profits to be used for all purposes under the Companies Act 2006, including buy back of shares and payment of dividends.
The capital redemption reserve arises from the nominal value of shares bought back and cancelled; this and the share premium are non-distributable.
Capital investment gains and losses are shown in note 9(b), and form part of the capital reserve. The revenue reserve shows the net revenue retained after payments of any dividends. The capital and revenue reserves are distributable.
Following class consents and approval of shareholders at the Company’s Annual General Meeting on 4 October 2022, the Court process to cancel the share premium accounts of the UK Equity and Balanced Risk Allocation Share Classes was implemented on 17 November 2022. Following the implementation the entire share premium account of each of the UK Equity and Balanced Risk Allocation Share Classes was cancelled, amounting to £121,700,000 and £1,290,000 respectively. These distributable reserves provide the Company with flexibility, subject to financial performance, to make future distributions and/or, subject to shareholder authority, in buying back shares.
16. Net Asset Value per Share
The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue as at the reporting date.
The net asset value per Share and the net assets attributable at the year end were as follows:
| Ordinary Shares | 2024 | 2023 | ||
|
| Net Asset |
| Net Asset |
|
|
| Value Per | Net Assets | Value Per | Net Assets |
|
| Share | Attributable | Share | Attributable |
|
| Pence | £’000 | Pence | £’000 |
| Company total(1) | 313.30 | 197,555 | – | 199,739 |
(1) No prior year net asset value per ordinary share is stated as the Company comprised of four individual portfolios until the Company restructure on 7 May 2024, with each portfolio having a separate net asset value per ordinary share.
Net asset value per share is based on net assets at the year end and on the number of shares in issue (excluding Treasury Shares) at the year end.
17. Financial Instruments
This note summarises the risks deriving from the financial instruments that comprise the Company’s assets and liabilities.
At 31 May 2024 the Company’s financial instruments comprise the following:
• investments in equities and liquidity funds which are held in accordance with the Company’s investment objectives; and
• short-term debtors, creditors and cash arising directly from operations.
The financial instruments held by the Company are shown on pages 19 and 20.
The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for these financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured.
The Company’s principal risks and uncertainties are outlined in the Strategic Report on pages 39 to 41. This note expands on risk areas in relation to the Company’s financial instruments. The Portfolio is managed in accordance with the Company’s investment policies and objectives, which are set out on page 36. The management process is subject to risk controls, which the Audit Committee reviews on behalf of the Board, as described on page 57.
The principal risks that an investment company faces in its portfolio management activities are set out below:
Market risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk:
Currency risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in foreign exchange rates;
Interest rate risk – arising from fluctuations in the fair value or future cash flows of a financial instrument because of changes in market interest rates; and
Other price risk – arising from fluctuations in the fair value or future cash flows of a financial instrument for reasons other than changes in foreign exchange rates or market interest rates, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
Liquidity risk – arising from any difficulty in meeting obligations associated with financial liabilities.
Credit risk incorporating counterparty risk – arising from financial loss for a company where the other party to a financial instrument fails to discharge an obligation.
Risk Management Policies and Procedures
As an investment trust the Company invests in equities and other investments for the long-term in accordance with its investment policies so as to meet its investment objectives. In pursuing its objectives, the Company is exposed to a variety of risks that could result in a reduction in the Company’s net assets or a reduction of the profits available for dividends. The risks applicable to the Company and the Directors’ policies for managing these risks follow. These have not changed from those applying in the previous year.
The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Directors’ Report.
The main risk that the Company faces arising from its financial instruments is market risk – this risk is reviewed in detail below. Since the Company mainly invests in quoted investments, liquidity risk and credit risk are significantly mitigated.
17.1 Market Risk
Market risk arises from changes in the fair value of future cash flows of a financial instrument because of movements in market prices. Market risk comprises three types of risk: currency risk (17.1.1), interest rate risk (17.1.2) and other price risk (17.1.3).
The Company’s Portfolio Managers assess the Company’s exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance. Borrowings can be used, which will increase the Company’s exposure to market risk and volatility. The borrowing limit is 30% of attributable total assets.
17.1.1 Currency Risk
The majority of the Company consists of assets, liabilities and income denominated in currencies other than sterling. As a result, movements in exchange rates will affect the sterling value of those items.
Management of the currency risk
The Portfolio Managers monitor the Company’s exposure to foreign currencies on a daily basis and report to the Board on a regular basis. Forward foreign currency contracts can be used to limit the Company’s exposure to anticipated future changes in exchange rates and to achieve portfolio characteristics that assist the Company in meeting its investment objectives in line with its investment policies. All contracts are limited to currencies and amounts commensurate with the exposure to those currencies. No such contracts were in place at the current or preceding year end. Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is accrued and its receipt.
Foreign Currency Exposure
The fair values of the Company’s monetary items that have currency exposure at 31 May are shown below. Where the Company’s investments (which are not monetary items) are priced in a foreign currency they have been included separately in the analysis so as to show the overall level of exposure.
Global Equity Income:
Year ended 31 May 2024
|
|
Derivative assets held at fair value through profit or loss |
|
|
Derivative liabilities held at fair value through profit or loss |
|
|
Investments at fair value through profit or loss that are equities |
|
|
|
|
|
|
Foreign currency exposure on net monetary items |
| |||
|
|
|
|
Creditors (due to brokers and accruals) |
| ||||
|
|
Debtors |
|
| |||||
|
| (due from | Cash and cash equivalents | Total net foreign currency | |||||
|
| brokers & | |||||||
|
| dividends) | |||||||
| Currency | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Australian dollar | – | – | 4 | – | – | 4 | – | 4 |
| Canadian dollar | – | – | 5 | – | – | 5 | 2,671 | 2,676 |
| Danish krone | – | 23 | – | – | (8) | 15 | 4,804 | 4,819 |
| Euro | – | 120 | 72 | – | (161) | 31 | 37,488 | 37,519 |
| Hong Kong dollar | – | 121 | – | – | – | 121 | 6,115 | 6,236 |
| Japanese yen | – | – | 5 | – | – | 5 | – | 5 |
| Norwegian krone | – | 17 | – | – | – | 17 | 4,815 | 4,832 |
| South Korean won | – | – | – | – | – | - | 1,791 | 1,791 |
| Swiss franc | – | 159 | – | – | – | 159 | 4,375 | 4,534 |
| Taiwan dollar | – | 1 | – | – | – | 1 | 1,890 | 1,891 |
| US dollar | – | 1,121 | 1 | – | (753) | 369 | 97,332 | 97,701 |
|
| – | 1,562 | 87 | – | (922) | 727 | 161,281 | 162,008 |
| Year ended 31 May 2023 |
|
|
|
|
|
|
|
|
| Australian dollar | – | 91 | – | (25) | – | 66 | – | 66 |
| Canadian dollar | – | 20 | 4 | (1) | – | 23 | 906 | 929 |
| Danish krone | – | 7 | – | – | – | 7 | 2,107 | 2,114 |
| Euro | 38 | 107 | 24 | – | – | 169 | 10,266 | 10,435 |
| Hong Kong dollar | – | 49 | – | – | – | 49 | 5,089 | 5,138 |
| Japanese yen | 49 | – | 7 | – | (9) | 47 | 1,582 | 1,629 |
| New Zealand | – | – | – | – | – | – | 155 | 155 |
| Norwegian krone | – | 16 | – | – | – | 16 | 1,800 | 1,816 |
| South Korean won | – | – | – | – | – | – | 2,374 | 2,374 |
| Swedish Krona | – | 3 | – | – | – | 3 | – | 3 |
| Swiss franc | – | 114 | 9 | – | – | 123 | 2,777 | 2,900 |
| Taiwan dollar | – | – | – | – | – | – | 1,231 | 1,231 |
| US dollar | 35 | 538 | 19 | (144) | – | 448 | 34,348 | 34,796 |
|
| 122 | 945 | 63 | (170) | (9) | 951 | 62,635 | 63,586 |
Foreign Currency sensitivity
The preceding exposure analysis is based on the Company’s monetary foreign currency financial instruments held at each balance sheet date and takes account of forward foreign exchange contracts, if used, that offset the effects of changes in currency exchange rates.
The effect of strengthening or weakening of sterling against other currencies to which the Company is exposed is calculated by reference to the volatility of exchange rates during the year using the standard deviation of currency fluctuations against the mean, giving the following exchange rate fluctuations:
|
| 2024 | 2023 |
| £/Australian Dollar | +/–1.3% | +/–3.1% |
| £/Canadian Dollar | +/–1.2% | +/–3.7% |
| £/Danish Krone | +/–0.7% | +/–1.6% |
| £/Euro | +/–0.7% | +/–1.6% |
| £/Hong Kong Dollar | +/–1.6% | +/–3.3% |
| £/Japanese Yen | +/–2.9% | +/–2.3% |
| £/New Zealand Dollar | n/a | +/–2.0% |
| £/Norwegian Krone | +/–1.7% | +/–4.7% |
| £/South Korean Won | +/–1.9% | +/–2.6% |
| £/Swedish Krona | +/–2.1% | +/–1.9% |
| £/Swiss Franc | +/–1.8% | +/–2.3% |
| £/Taiwan Dollar | +/–1.5% | +/–2.5% |
| £/US Dollar | +/–1.6% | +/–3.4% |
The tables that follow illustrate the exchange rate sensitivity of revenue and capital returns arising from the Company’s financial non-sterling assets and liabilities for the year using the exchange rate fluctuations shown above.
If sterling had strengthened against other currencies by the exchange rate fluctuations shown in the table above, this would have had the following after tax effect:
|
| 2024 | 2023 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
|
| return | return | return | return | return | return |
|
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Australian Dollar | – | – | – | – | (2) | (2) |
| Canadian Dollar | – | (32) | (32) | – | (35) | (35) |
| Danish Krone | – | (34) | (34) | (1) | (35) | (36) |
| Euro | (6) | (262) | (268) | (10) | (164) | (174) |
| Hong Kong Dollar | (3) | (98) | (101) | (6) | (168) | (174) |
| Japanese Yen | – | – | – | – | (37) | (37) |
| New Zealand Dollar | – | – | – | – | (3) | (3) |
| Norwegian Krone | (4) | (82) | (86) | (5) | (85) | (90) |
| Swedish Krona | – | – | – | – | – | – |
| South Korean Won | (1) | (34) | (35) | (1) | (62) | (63) |
| Swiss Franc | (3) | (79) | (82) | (3) | (64) | (67) |
| Taiwan Dollar | – | (28) | (28) | (1) | (31) | (32) |
| US Dollar | (12) | (1,562) | (1,574) | (61) | (1,174) | (1,235) |
| Total return | (29) | (2,211) | (2,240) | (88) | (1,860) | (1,948) |
| Net assets | (29) | (2,211) | (2,240) | (88) | (1,860) | (1,948) |
If sterling had weakened by the same amounts, the effect would have been the converse.
17.1.2 Interest Rate Risk
Interest rate movements may affect:
• the fair value of the investments in fixed interest rate securities;
• the level of income receivable on cash deposits; and
• the interest payable on variable rate borrowings.
Management of interest rate risk
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account as part of the portfolio management and borrowings processes of the Portfolio Managers. The Board reviews on a regular basis the investment portfolio and borrowings. This encompasses the valuation of fixed-interest and floating rate securities and gearing levels.
When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependent on the base rate of the custodian or deposit taker. The Company has a £40 million (2023: £40 million), 364 day multicurrency revolving credit facility which is due for renewal on 23 April 2025. The Company uses the facility when required at levels approved and monitored by the Board.
Interest rate exposure
The Company also has available an uncommitted overdraft facility for settlement purposes and interest is dependent on the base rate determined by the custodian.
At 31 May the exposure of financial assets and financial liabilities to interest rate risk is shown by reference to:
• floating interest rates (giving cash flow interest rate risk) – when the interest rate is due to be reset; and
• fixed interest rates (giving fair value interest rate risk) – when the financial instrument is due for repayment.
The following table sets out the financial assets and financial liabilities exposure at the year end:
|
| Company |
|
| Total |
| 2024 | £’000 |
| Exposure to floating interest rates: |
|
| Cash and short term deposits | 1,859 |
| Net exposure to interest rates | 1,859 |
|
| Company |
|
| Total |
| 2023 | £’000 |
| Exposure to floating interest rates: |
|
| Investments held at fair value through profit |
|
| or loss(1) | 3,237 |
| Cash and short term deposits | 1,094 |
| Bank Loans | (9,650) |
|
| (5,319) |
| Exposure to fixed interest rates: |
|
| Investments held at fair value through profit |
|
| or loss including UK Treasury Bills | 2,430 |
| Net exposure to interest rates | (2,889) |
(1) Comprises holdings in the Invesco Liquidity Funds plc – Sterling.
Interest rate sensitivity
At the maximum possible borrowing level of £40 million (2023: £40 million), the maximum effect over one year of a 3.5% movement in interest rates would be a £1,400,000 (2023: maximum effect over one year of a 5% movement: £2,000,000) movement in the Company’s income and net assets.
The effect of a 3.5% movement in the interest rates on investments held at fair value through profit and loss would result in a £nil (2023: 5% movement: £38,000) maximum movement in the Company’s income statement and net assets.
The above exposure and sensitivity analysis are not representative of the year as a whole, since the level of exposure changes frequently throughout the year.
Other price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the equity investments, but it is the role of the Portfolio Managers to manage the Portfolio to achieve the best return.
17.1.3 Other Price Risk
Management of other price risk
The Directors monitor the market price risks inherent in the investment portfolio by meeting regularly to review performance.
The Company’s investment portfolio is the product of the Manager’s investment processes and the application of the Portfolio investment policy. The value will move according to the performance of the shares held within the Portfolio. However, the Portfolio does not replicate its benchmark or the markets in which it is invested, so the performance may not correlate.
Notwithstanding the issue of correlation, if the fixed asset value of an investment portfolio moved by 10% at the balance sheet date, the profit after tax and net assets for the year would increase/decrease by the following amounts:
|
| Global |
| Balanced |
|
|
| Equity | UK | Risk | Managed |
|
| Income | Equity | Allocation | Liquidity |
|
| £’000 | £’000 | £’000 | £’000 |
| 2024 |
|
|
|
|
| Profit after tax increase/decrease due to rise/fall of 10% | 19,582 | – | – | – |
| 2023 |
|
|
|
|
| Profit after tax increase/decrease due to rise/fall of 10% | 6,603 | 13,435 | 554 | 148 |
17.2 Liquidity Risk
Management of liquidity risk
Liquidity risk is mitigated by the investments held by the Company’s portfolio being diversified and the majority being readily realisable securities which can be sold to meet funding commitments. If required, the Company’s borrowing facilities provide additional long-term and short-term flexibility.
The Directors’ policy is that in normal market conditions short-term borrowings be used to manage short term liabilities and working capital requirements rather than realising investments.
Liquidity risk
The contractual maturities of financial liabilities at the year end, based on the earliest date on which payment can be required, are as follows:
|
| 3 months | More than |
|
| or less | 3 months |
| 2024 | £’000 | £’000 |
| Amount due to brokers | 1,194 | – |
| Other creditors and accruals | 573 | – |
|
| 1,767 | – |
|
| 3 months | More than |
|
| or less | 3 months |
| 2023 | £’000 | £’000 |
| Bank facility(1) | 9,650 | – |
| Amount due to brokers | 9 | – |
| Other creditors and accruals | 433 | – |
| Derivative financial instruments | 136 | 50 |
|
| 10,228 | 50 |
(1) Interest due on the bank facility at the year end was £nil (2023: £nil).
17.3 Credit Risk
Credit risk is that the failure of the counterparty in a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
This risk is managed as follows:
• investment transactions are carried out with a selection of brokers, approved by the Manager and settled on a delivery versus payment basis. Brokers’ credit ratings are regularly reviewed by the Manager, so as to minimise the risk of default to the Company;
• the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the daily review of failed trade reports and the use of daily stock and cash reconciliations. Only approved counterparties are used;
• the Company’s ability to operate in the short-term may be adversely affected if the Company’s Manager, other outsource service providers, or their delegates suffer insolvency or other financial difficulties. The Board reviews annual controls reports from major service providers; and
• cash balances are limited to a maximum of 4% of NAV, across all deposit takers. Only deposit takers approved by the Manager are used.
The following table sets out the maximum credit risk exposure at the year end:
|
| Company |
|
| Total |
| 2024 | £’000 |
| Cash and short-term deposits | 1,859 |
|
| 1,859 |
|
| Company |
|
| Total |
| 2023 | £’000 |
| Bonds (UK Treasury bills) | 2,430 |
| Cash held as short-term investment(1) | 3,237 |
| Unquoted securities | 5 |
| Derivative financial instruments | (61) |
| Debtors(2) | 464 |
| Cash and short-term deposits | 1,094 |
|
| 7,169 |
(1) Invesco Liquidity Funds plc, money market fund.
(2) Cash collateral pledged for futures contracts of £nil is included in debtors (2023: £443,000) and excludes tax recoverable and prepayments and accrued income.
18. Fair Values of Financial Assets and Financial Liabilities
‘Fair value’ in accounting terms is the amount at which an asset can be bought or sold in a transaction between willing parties, i.e. a market-based, independent measure of value. This note sets out the fair value hierarchy comprising three ‘levels’ and the aggregate amount of investments in each level.
The financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments and derivative instruments), or the balance sheet amount is a reasonable approximation of fair value.
FRS 102 as amended for fair value hierarchy disclosures sets out three fair value levels. These are:
Level 1 – fair value based on quoted prices in active markets for identical assets.
Level 2 – fair values based on valuation techniques using observable inputs other than quoted prices within level 1.
Level 3 – fair values based on valuation techniques using inputs that are not based on observable market data.
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.
The valuation techniques used by the Company are explained in the accounting policies note. The majority of the Company’s investments are quoted equity investments and Treasury bills which are deemed to be Level 1. Level 2 comprises all other quoted fixed income investments, derivative instruments and liquidity funds held in the Balanced Risk Allocation and Managed Liquidity Portfolios. Level 3 investments comprise any unquoted securities and the remaining hedge fund investments of the Balanced Risk Allocation Portfolio.
|
| Company |
|
| Total |
| 2024 | £’000 |
| Financial assets designated at fair value through profit |
|
| or loss: |
|
| Level 1 | 195,824 |
| Level 2 | – |
| Level 3 | – |
| Total for financial assets | 195,824 |
|
| Company |
|
| Total |
| 2023 | £’000 |
| Financial assets designated at fair value through profit |
|
| or loss: |
|
| Level 1 | 204,147 |
| Level 2(1) | 3,362 |
| Level 3 | 5 |
| Total for financial assets | 207,514 |
| Financial liabilities: |
|
| Level 2(1) – derivatives liabilities held at fair value | 186 |
(1) Level 2 comprises Invesco Liquidity Funds plc – Sterling of £3,237,000 and unrealised profit on derivative assets of £125,000. These financial assets have been classed as Level 2 due to their nature as non-equity investments with underlying holdings using evaluated prices from a third party pricing vendor.
19. Capital Management
This note is designed to set out the Company’s objectives, policies and processes for managing its capital. The capital is funded from monies invested in the Company by shareholders (both initial investment and any retained amounts) and any borrowings by the Company.
The Company’s total capital employed at 31 May 2024 was £197,555,000 (2023: £209,389,000) comprising borrowings of £nil (2023: £9,650,000) and equity share capital and other reserves of £197,555,000 (2023: £199,739,000).
The Company’s total capital employed is managed to achieve the Company’s investment objective and policy as set out on page 36, including that borrowings may be used to raise equity exposure up to a maximum of 20% of net assets. At the balance sheet date, maximum gross gearing was nil% (2023: 4.8%). The Company’s policies and processes for managing capital are unchanged from the preceding year.
The main risks to the Company’s investments are shown in the Directors’ Report under the ‘Principal Risks and Uncertainties’ section on pages 39 to 41. These also explain that the Company has borrowing facilities which can be used in accordance with each Portfolio’s investment objectivity and policy and that this will amplify the effect on equity of changes in the value of each applicable portfolio.
The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy back shares and it also determines dividend payments.
The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility, by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year.
Borrowings can comprise any drawings on the credit and/or overdraft facilities, details of which are given in note 13.
20. Contingencies, guarantees and financial commitments
Any liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.
There were no contingencies, guarantees or financial commitments of the Company at the year end (2023: £nil).
21. Analysis of changes in net debt
This note summarises the changes in net debt from the start of the year to the end of the year.
|
| At |
| At |
|
| 1 June | Cash | 31 May |
|
| 2023 | Flows | 2024 |
|
| £’000 | £’000 | £’000 |
| Cash and cash equivalents | 1,094 | 765 | 1,859 |
| Bank facility | (9,650) | 9,650 | – |
| Total | (8,556) | 10,415 | 1,859 |
22. Related party transactions and transactions with the Manager
A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. Under accounting standards, the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed on pages 59 and 60 with additional disclosure in note 4. No other related parties have been identified.
Details of the Manager’s services and fees are disclosed in the Director’s Report on pages 51 and 52 and note 3.
23. Post Balance Sheet Events
Any significant events that occurred after the Company’s financial year end but before the signing of the balance sheet will be shown here.
There are no significant events after the end of the reporting period requiring disclosure.
The figures and financial information for the year ended 31 May 2024 are extracted from the Company's annual financial statements for that year and do not constitute statutory accounts. The Company's annual financial statements for the year to 31 May 2024 have been audited but have not yet been delivered to the Registrar of Companies. The Auditor's report on the 2024 annual financial statements was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The figures and financial information for the year ended 31 May 2023 are compiled from an extract of the published accounts for that year and do not constitute statutory accounts. Those accounts have been delivered to the Registrar of Companies. The Auditor's report on the 2023 annual financial statements was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The audited annual financial report will be posted to shareholders during October 2024, and will be delivered to the Registrar of Companies, shortly. Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 43-45 Portman Square, London W1H 6LY, and via the Manager’s website at https://www.invesco.com/uk/en/investment-trusts/invesco-global-equity-income-trust.html.
A copy of the annual financial report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
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