New City High Yield Fund Ltd : Interim Manageme...

To:      THOMSON REUTERS
Date:  16 May 2014
From: New City High Yield Fund Limited

Interim Management Statement

For the Three Month Period from 1 January 2014 to 31 March 2014

Investment Objective

The investment objective of the Company is to provide investors with a high dividend yield and the potential for capital growth by investing mainly in high yielding fixed interest securities.

Performance Summary

Total Return	For the three month period ended 31 March 2014
Net asset value per share	+3.9%
Ordinary share price	+4.0%

Capital Values	As at  31 March 2014	As at 31 December 2013	% Change
Net assets	£173.9 million	£148.6 million
Net asset value per share	62.30p	60.85p	+2.4%
Share price	65.75p	64.13p	+2.5%
Premium	5.5%	5.4%
Gearing (100 = nil geared position) *	111	108

• Gearing = (total assets less other payable) ÷ equity shareholders' funds

Review for the Period:

Over the month of January, we saw the early effects of the US Federal Reserve's tapering of its Quantitative Easing programme, with cheap money fleeing Emerging Markets and higher-risk investments in short order. When combined with the continued cooling of the Chinese economy, albeit at a rate which was broadly in line with market forecasts, the result was a very weak start to the year in all major equity markets, with the Dow Jones Industrial Average down 5.3% on the month, the Nikkei 225 down 8.5% and our own FTSE 100 down 3.5%.

Probably the most important economic event in the western world in February was the first speech from Janet Yellen, the new Governor of the US Federal Reserve Bank ("Fed"). The overarching theme was one of a steady and consistent course forward, with an optimistic tone about the economy following the tapering of quantitative easing although interest rates are likely to remain low. One point of interest associated with lower interest rates was the comment regarding the current unemployment figure of 6.6%, which Yellen stated was "well above levels" that the Fed finds "consistent with maximum sustainable employment". The level at which this maximum is reached could itself be a topic of debate for commentators in the coming months.
The situation in the Ukraine escalated at the end of February, following the overthrowing of the President Yanukovych and the continued sabre-rattling by Russia over the ethnic Russians in the east of the country and the Crimea in the south east of the country.

March news was dominated by the annexation of Crimea by Russia. Having been a knock-on effect of the regime change in the Ukraine where pro-western factions overthrew the incumbent pro-Russian regime, the populous of Crimea, which is 85% ethnic Russian, started to rebel. Masked gunmen in unmarked uniforms seized government buildings and, by the last week of March, occupied all of the Ukrainian bases in the peninsula. During this period, a referendum on the secession was hastily put to the region, with a resounding 96% in favour. As a result, the Crimean parliament declared independence from Ukraine and requested to join the Russian federation. This game of political chess looks to be increasing in intensity with the Russians reverting to methods once implemented by the former Soviet regime; it will take some time to defuse a very volatile and dangerous situation.
Global markets endured a volatile March, with gold rallying strongly during the first half of the month before drifting as the Crimean situation cooled, while global equity markets moved in an almost perfectly inverse manner.

The Company declared its second interim dividend of 0.92p per share, up from 0.90p last year and an increase of 2.2%. This dividend was paid on 28th February 2014.

Over the course of the quarter the company increased its capital base by issuing shares by way of a tap issue totalling 34,816,202 shares at a premium to asset value.

In January the Company added to its holdings in the AA 9.5% PIK 2019, Investec 9 5/8% 2022, Commerzbank 8.151% 2031 and started a holding in Odeon 9.5% 2019.
Following the bid by Bank of Montreal for F&C the Company took a profit on part of its holding in the F&C 6 3/4% 2026. Elsewhere the Company sold the long term holding of Enterprise Inns 6.5% 2018 well above par on a redemption yield of only 5.4% which would be giving up capital for the benefit of the income account.  In February post the recent tap issue, the opportunity was taken to add to core holdings in Phoenix 7.25% perpetual, British Airways 6.75% perpetual, Galaxy Finco 7 7/8% 2021 and increase weightings of holdings in Odeon 9% 2018 and Matalan 9 5/8% 2017.
March was a reasonably active month deploying more of the proceeds of the tap issue into existing holdings.
Away from this Ocean Rig 9.5% 2016 was called by the issuer; this was replaced by a new bond in the same company with a lower coupon of 7.25% and a longer maturity to 2019.  The holding in Co-op Bank ordinary shares which resulted from the restructuring of the 7 7/8% bond at a price of 375p were sold at 530p and as a result the company made its money back on the original purchase of the bond which was originally purchased in April last year. The equity holding in Skyepharma was sold at a level giving a good profit, the holding of Detour gold 5 1/2% convertible was also sold as despite still having 3 years to run the 275% conversion premium does not offer a good risk reward for the portfolio. To add to the diversity of the portfolio new holdings were opened in Thames Water 7 3/4% 2019 and Southern Water 8 1/2% 2019.

Top Ten Holdings as at 31 March 2014

Company	Sector	Percentage of total assets
Phoenix Life 7.25% 2049	Insurance	3.4
Brit Insurance 6.625% 2030	Insurance	3.2
REA Finance 9.5% 2017	Food products	2.5
British Airways Finance 6.75% 2014	Transport	2.5
Balfour Beatty 10.75% Pref	Construction	2.4
Cable & Wireless 8.625% 2019	Telecommunications	2.4
General Accident 8.875%	Financial	2.3
Antares Energy 10% 2013	Oil and Gas	2.1
Matalan Finance 9.625% 2017	Retail	2.1
Moto Finance 10.25%	Retail	2.0
Total		24.9

Analysis of Investments by Currency as at 31 March 2014

	Percentage of total investments
Sterling	61
US Dollar	20
Euro	7
Australian Dollar	5
Swedish Krone	4
Norwegian Krone	2
Canadian Dollar	1
Total	100

Analysis of Investments by Asset Class as at 31 March 2014

	Percentage of total investments
Bonds	72
Convertibles	5
Preference shares	11
Equities	6
Cash	6
Total	100

Analysis of Investments by Quotation as at 31 March 2014

	Percentage of total investments
Listed/Quoted on a recognised investment exchange	99
Unquoted	1
Total	100

Significant Events or Transactions since 31 March 2014
On 24 April 2014 a third interim dividend for the year to 30 June 2014 of 0.92p per share was declared, an increase of 2.2% on the third interim dividend paid last year.  This dividend is payable to shareholders on the register on 2 May 2014and will be paid on 30 May 2014.

On 8 April 2014 the Company issued 2,850,000 ordinary shares at a premium of 3.75% to NAV.
On 1 May 2014 the Company issued 6,500,000 ordinary shares at a premium of 3.75% to NAV.
On 2 May 2014 the Company issued 3,000,000 ordinary shares at a premium of 3.75% to NAV.

The Board is not aware of any other significant events or transactions which have occurred since 31 March 2014 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Daily and Key Information
Further information regarding the Company including the share price and the recent monthly fact sheet, can be found at the Investment Manager's website www.ncim.co.uk

Disclaimer
This interim management statement has been prepared solely to provide information to meet the requirements of the UK Listing Authority's Disclosure and Transparency Rules.

For further information please contact:
Ian Francis, New City Investment Managers            
020 7201 5366

Martin Cassels, R&H Fund Services Limited
0131 524 6140

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: New City High Yield Fund Ltd via Globenewswire

HUG#1786552