Interim Management Statement

RNS Number : 6430W

Hansa Trust PLC

31 July 2009

 



HANSA TRUST PLC

QUARTER ENDED 30 JUNE 2009

PORTFOLIO REVIEW BY JOHN ALEXANDER OF HANSA CAPITAL PARTNERS LLP FOR THE QUARTER ENDED 30 JUNE 2009

SECTOR WEIGHTING AND PERFORMANCE

Sector	Portfolio weighting  at 30 June 2009	3 Months performance to 30 June 2009
	%	%
Strategic	34.6	28.4
Smaller Cap/AIM	18.8	28.0
Natural Resources	14.9	4.0
Property	6.3	10.0
Large Cap	7.8	13.3
Utilities	4.8	2.2
Insurance	3.2	8.5
Mid Cap	3.7	10.6
Investment Trusts	2.2	40.0
Hedge	0.1	10.1
Cash Funds	6.0	0.2

Over the first quarter of the Trust's financial year the Net Asset Value per share (time weighted) rose by 16.9% compared with a rise of 1.6% in the benchmark and a rise of 9.5% in the FTSE ALL-Share Index. The Net Asset Value per share (time weighted) excluding Ocean Wilsons Holdings rose by 12.0%. The share prices of the Ordinary and A Ordinary shares rose 28.4% and 29.1% respectively as both share classes traded at a narrower discount to the net asset value. The two largest positive contributors to the portfolio rise of 113.9p were Ocean Wilsons Holdings 57.5p and Cape 8.0p. We ended the quarter with cash funds and bank deposits representing 6.0% of the portfolio, down from 8.2% at the end of March. We have an outstanding undrawn commitment to DV4 of £8.3m.

This was the best quarterly return from the FTSE ALL-Share since Q2 of 2003, after touching a low on 9 March, with the gains coming in April and May, since when investors have paused for breath and western equity markets have undergone a period of consolidation as the appetite for risk has reduced. The threat of debt deflation, depression and bank failures receded in the face of a policy response of massive monetary intervention in the form of huge government deficits, near zero interest rates, bank rescues and central bank asset purchases. Since the end of March there have been signs that the UK economy is stabilising, after a period of freefall. The UK economy shrank by a massive 2.4% in the first calendar quarter, an annualised rate of 10%, so these signs of green shoots need to be put in to context and reflect a rebound from an extraordinarily sharp fall in private sector activity earlier in the year, given that public spending rose in the period. More recently uncertainty over the outlook for inflation and growth have increased, while worries about exploding fiscal indebtedness has driven up the yields on long government bonds. Although 'quantitative easing' or printing money is potentially inflationary, banks are not resuming their role of being money multipliers but are repairing their balance sheets instead. Wage growth, the key driver of inflation, is slowing against a background of heightened fears of unemployment, so any rise in commodity prices acts like a further tax on income. There is excess capacity in most industries leading to intense price competition so, all in all, deflation is the main risk in the shorter term The global de-coupling investment theme gathered strength, betting that the New World economies will grow faster than the Old World ones, as investors realised the emerging economies have stronger banking systems, less debt, better fiscal balances and higher reserves than the developed countries of the OECD, leaving them in a stronger position to commence a sustainable domestic credit cycle and reduce their current reliance on external trade. Emerging markets now represent 24% of the globe's market capitalisation compared with 18% at the start of 2009.

On that note Ocean Wilsons Holdings rose 28.4% over the quarter and represented 34.6% of assets at period end and fits sweetly with this theme with the two parts to its business, namely its 58.25% holding in quoted Wilsons Sons, the Brazilian operator of ports, tugs and other maritime services, which is gradually increasing its exposure to the oil and gas industry through both its towage and offshore businesses, and Ocean Wilsons Investments, a diversified portfolio of investments with a focus on emerging markets. Ocean Wilsons Holdings trades at a discount of some 30% to the combined value of these two parts. We have other names in our portfolio which give us further exposure to these higher growth economies, namely HSBC, SSL, Cape, Helesi, Glaxo and in a way our 15% exposure to the natural resource sector in part plays to the same theme. Commodities are being impacted by summer softness, a continuing western world demand malaise and a stronger-than-expected market in Q2 09, driven by extraordinary Chinese demand which has been boosted by energetic monetary and fiscal policies. Elsewhere we have continued to back existing investment positions rather than extend our stock list, supporting fund raisings by a number of companies to strengthen their balance sheets, including Premier Foods, Hammerson, Wolseley, HSBC and Lloyds, as well as supporting fund raisings to accelerate growth opportunities with names like Great Portland Estates (with its focus on the West End), Goals Soccer Centres (the premier operator of outdoor 5-a-side soccer centres which is going to accelerate its opening programme by 50% from four to six new centres a year) and Hansteen, which raised £200m to take advantage of exceptional opportunities to buy industrial properties in the UK. Interestingly this was the biggest fundraising by an Aim-listed company in nearly two years, and the company intends to move on to the main list in the second quarter of next year. Our Small Cap Investments rose 28% over the quarter and represented 18.8% of assets with notable performances from Cape (+201.5%), Andor Technology (+70.8%), Goals Soccer Centres (+41.8%) and Morson Group (+66.0%). The technology sector joined in this rally, reflected in a 39.6% rise in Herald Investment Trust.

Since markets bottomed at the beginning of March, the plunging phase and armageddon fear of deflation, depression and frozen credit markets, was first replaced by the expectation of a deep and prolonged recession and then by signs of green shoots and the hope of economic recovery. The re-pricing of stocks has two parts to the process. Stage one is correcting oversold valuations which have come about as a result of forced deleveraging and overbearishness about the operating and financial outlook, while stage two is when re-pricing starts discounting recovery and growth. The big question is will the anticipated recovery in the global economy become self sustaining and gather momentum or will it prove to be a short-lived bout of restocking, a temporary boost followed by a renewed decline, after companies slashed their inventories late last year in the face of collapsing demand. The essential problem is that all over the developed world household, corporate, and now government balance sheets are massively overleveraged in the wake of the recent and extended credit bubble. The US and UK are suffering from a severe balance sheet recession as a result of excessive household and corporate indebtedness and questionable asset values, rather than an income statement problem arising from higher interest rates and an inability to service the debt. Households need to build up their savings and repair their balance sheets, companies need to restructure and reduce debt levels, and governments need to implement spending cuts and increase taxes to balance their deficits. Here in the UK the deterioration in the public finances is structural and reflects permanently lower activity, income and profitability in the financial and housing sectors, while close to half the economy is made up by government spending, and the public sector accounts for some 20% of employment. The public finances are in a shocking state, and the monthly deficit is close to what it used to be for a whole year. A drastic fiscal squeeze is inevitable. Consumers and companies know that taxes will rise and radical cuts to public spending will be required to rescue the economy while at the same time threatening years of stagnant national income. Although the pace at which unemployment is rising has slowed, predictions of reduced pain in the jobs market and a lower peak in the jobless total are premature, since a rise in 'short time' work means workers are earning less while also reducing the prospect of new hirings come an upswing. The public sector has yet to feel the full impact of recession as public spending and public sector employment are cut back in a new era of public sector austerity. More saving, more taxation, contracting wages, tight credit conditions, and ongoing concerns about the economy and employment will put a break on consumer spending. All in all there is a strong likelihood that a period of sub-trend growth could persist for a long time, and any recovery is likely to be slow and fragile. Its going to take time to normalise the financial system, see an increase in the savings rate in the US and UK, and rebalance global trade.

However, investors' preoccupation is likely to shift away from macroeconomic data and towards news from companies, and there are positive signs that the corporate sector is right-sizing for a slower growth/stagnant world, by reducing employment costs and working capital, thereby releasing funds to reduce debt, suggesting that any pickup in earnings performance is likely to be magnified by a much reduced cost base. Actions by management teams to cut costs happened much more quickly than in previous cycles, as they focused on survival and prepared for the equivalent of an asteroid collision after the world stopped in its tracks in Q3/Q4 2008. In other words these measures could represent a 'creative destructive' phase. This is a world where the strong are getting stronger by the day, taking market share from their weaker competition, where the winning companies are raising money to fund growth with little dilution to existing shareholders, unlike the weak companies which have resorted to emergency capital raisings to plug balance sheet holes, with severe dilution to existing shareholders. It goes without saying that high quality companies with strong management teams, proven track records and strong business and financial fundamentals will outperform over the medium and long term against the background of a potentially very weak economic recovery.

Significant Holdings - either those more than 5% of Gross Assets (inc.Income) or Top Ten Holdings (%):

Ocean Wilsons Holdings	34.6
BG Group	4.1
BRIT Insurance Holdings	3.2
JPM Sterling Liquidity Cash Fund	3.1
Hargreaves Services	2.8
BP	2.7
BHP Billiton	2.6
Scottish & Southern Energy	2.6
HSBC Holdings	2.5
ENI	2.4
Total	60.6
No. of Holdings	60

Analysis of Assets (£m):

Total Investments	169.4
Net current assets/(liabs)	3.9
Total assets	173.3
Short-term borrowing	0
YTD revenue / (loss)	2.6
Net assets (ex Income)	175.9
Gearing	0.0%
Net Cash	0.0

There are no Listed Investment Company holdings where the investee company has a policy that does not limit them to investing less than 15% of gross assets in other listed Investment Companies and there are no material changes to the most recent price and Net Asset Value(%):

Share Price on £100 (£):	Ordinary	'A' Ordinary
1 Year	78.90	77.10
3 Years	86.50	87.00
5 Years	181.20	175.70
10 Years	278.10	294.20

Performance Statistics (%):	Fin.YTD	1 Yr	3 Yrs	5 Yrs	10 Yrs
Net Asset Value (#)	15.3	(22.0)	(4.5)	64.5	148.0
Tot.Return on Net Asset Value(#)	17.6	(20.0)	0.5	78.1	186.2
Benchmark	1.6	6.7	20.4	33.9	71.9
Share Price - Ordinary	28.4	(21.1)	(13.5)	81.2	178.1
Tot.Return on Ordinary Shs (#)	31.3	(18.8)	(8.5)	97.4	225.9
Share Price - 'A' Ordinary	29.1	(22.9)	(13.0)	75.7	194.2
Tot.Return on 'A'Ordinary Shs(#)	32.0	(20.6)	(7.8)	92.0	247.2
FTSE All-Share Index	9.5	(23.9)	(26.8)	(2.5)	(26.3)
Tot.Return on FTSE All-Share (#)	11.0	(20.1)	(17.2)	18.7	5.5

Market Data	Share Price (p)	NAV (p) (#)	(Discount) /  Premium (%)	Gross Yield (%)
Ordinary	655.00	732.96	(10.6)	2.8
'A' Ordinary	632.50	732.96	(13.7)	2.9

FSA - Standardised Performance Information

12 mths Period (Bid to Bid)	2004Q2 to 2005 Q2	2005Q2 to 2006Q2	2006Q2 to 2007Q2	2007Q2 to 2008Q2	2008Q2 to 2009Q2
Total Return %age - Ord	68.16	23.09	47.91	(24.27)	(22.29)
Total Return %age - A.Ord	61.97	24.78	43.55	(20.39)	(23.78)

Fund Details

Fund Manager:	John Alexander of Hansa Capital Partners LLP
Launch Date:	1912 (name changed to Hansa Trust in October 2001)
Investor Sector:	UK Growth
Capital Structure:	8,000,000 Ordinary shares of 5p
	16,000,000 'A' non voting Ordinary shares of 5p
Year End:	31st March
Dividend:	Final - ex date June, payment date August
	Interim - ex date and payment date December
Directors:	R.A. Hammond-Chambers, Chairman
	W.H. Salomon, Lord Borwick,
	Prof. G.E. Wood
Ownership	Board of Directors and connected parties own or are interested in 52.5% of the Ordinary shares.
Managers:	Hansa Capital Partners LLP - authorised and regulated by the Financial Services Authority (FSA)
Management Fee:	Maximum of 1.00% per annum (payable by the Trust)
Benchmark:	3 year rolling average composite of 5 year Govt.Bond Yield (with interest being re-invested semi-annually) + 2% from 1 April 2003
Investment Goals, Policy and Benchmark	To achieve growth of shareholder value Hansa Trust PLC invests in a portfolio of special situations, where individual holdings or specific sectors may constitute a significant proportion of the portfolio or that of the equity of the companies concerned. This investment approach may produce returns which are not replicated by movements in any market indices. Performance is measured against an absolute benchmark derived from the three-year average rolling rate of return of the five year government bond with interest being re-invested semi-annually, plus 2 percent.  Investments are intended to add value over the medium to longer term through a non-market correlated, conviction based investment style.
FSA Investment Restriction:	It is the stated policy of the Board not to limit investments in Investment Companies to less than 15% of gross assets as detailed in the FSA Listing Rules Chapter 21.20 (i)

# NOTES:-

Net Asset Value per share is calculated in accordance with the guidelines of the Association of Investment Companies (AIC) in that income received by the company in the period since the last annual accounts is included. With effect from 1 June 2008 Net Asset Values and returns have been restated on a cum income basis in accordance with a change in the AIC guidelines. Hansa Trust PLC is a member of the Association of Investment Companies.

Total Returns on Net Asset Value and Shares has been sourced from unaudited internal management information and from the Close WINS Investment Trusts database, and assumes that all dividends are re-invested.

Other than Standardised Performance Information prices quoted are mid price and performance returns are mid to mid.

Risk warning The information provided here has been issued by Hansa Capital Partners LLP, which is regulated by the Financial Services Authority. Share and performance information has been compiled by Hansa Capital Partners LLP. Past performance is not necessarily a guide to future performance as market and exchange rate movements may cause the value of shares and income from them to fall as well as rise, and an investor may not get back the amount invested.  Investment Trust share prices may not fully reflect underlying net asset values. The spread on Investment Trusts typically averages 1-2% each way on the mid-market price (the price halfway between the bid and offer prices). However, investors wishing to invest in Hansa Trust 'A' shares should note that the market for these shares is at times quite illiquid which leads to a large spread between the buying and the selling prices, the bid to offer spread. For example, for the 'A' shares, as at 30 June 2009 the bid to offer spread was 2.40%*. *Source: Bloomberg

 

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