INTERIM MANAGEMENT REPORT
CHAIRMAN'S STATEMENT
Markets/Performance
The first half of 2024 has been a generally positive period for financial markets. With softer inflation globally, policy makers are focusing on lowering interest rates and investors have responded accordingly by increasing exposure to financial assets. Geopolitical tensions remain elevated however, particularly in Ukraine and the Middle East and the US presidential election campaign is proving eventful. Closer to home in the UK, July saw an earlier than expected general election and of course a change in government.
Against this backdrop the Company made positive progress in the first half of 2024 achieving a net asset value total return of +6.5% compared with a benchmark return of +5.9%, outperformance of 0.6%. The Company's share price total return was lower at +3.4%.
Gearing/Asset Allocation
The Company started 2024 with an overweight position in equities and an underweight position in fixed interest investments compared with its benchmark (80% equities, 20% bonds). This position has not changed markedly during the first half of 2024 and the Company's gearing is also largely unchanged (21.5% as at 30 June 2024).
The Board has continued to regularly review the level of gearing with the Company's Fund Manager during the current period of higher borrowing costs notwithstanding the fact that a proportion of the Company's borrowings are at fixed rates.
Combination with Henderson Diversified Income Trust plc
As highlighted in the 2023 Report and Accounts, the Company was able to issue £72.1 million of new shares in January 2024 following the successful combination with Henderson Diversified Income Trust plc. This will help to improve the liquidity and marketability in the Company's shares and also help to spread the Company's fixed costs across a larger shareholder base which is in the interests of all our shareholders.
Dividends
The first interim dividend of 2.625 pence per share was paid on 26 April 2024 and the second interim dividend for the same amount was paid on 26 July 2024.
A third interim dividend, to be paid from the Company's revenue account, of 2.675 pence per share was announced on 4 July 2024 and this dividend will be paid on 25 October 2024 to shareholders registered at the close of business on 13 September 2024 (with the shares being quoted ex-dividend on 12 September 2024).
The UK equity market is delivering growth in dividend payouts during 2024 as UK corporates remain in relatively robust financial health. Within the market UK banks in particular have increased payout levels although this has been offset to some degree by lower dividends from the UK mining sector where weaker metals prices globally have impacted profitability.
As usual David Smith, the Company's Fund Manager, regularly updates the Board on prospective income levels from the Company's portfolio of investments and the Board continues to have confidence in the Company's ability to deliver a high income return to shareholders.
Outlook
The immediate outlook for markets is dominated by speculation over the timing of interest rate cuts with the US Federal Reserve having just instigated its first reduction. The Bank of England has made its first cut from 5.25% to 5% and there have been a number of reductions across Europe. Inflationary pressures are abating and with early signs of weaker labour markets across the globe it is now likely that monetary policy will loosen further over the remainder of 2024.
The UK equity market continues to look relatively attractively priced in a global context and is currently in the midst of the half year results season; generally it is showing the UK economy in robust shape compared with other European neighbours and UK banks in particular are seeing low levels of distress across both the corporate and personal sectors although there are undoubted pockets of weaker activity, particularly in UK construction and housebuilding. Overall, however, with real wage growth and expectations that monetary policy is on a downward trajectory, the outlook for UK equities appears to be positive and within the Company's portfolio the Fund Manager has increased exposure to the mid cap sector which should benefit from lower interest rates.
There are of course continuing geopolitical tensions to be mindful of and as we near the US presidential election in November we should expect further volatility. The first Labour government budget at the end of October may also result in higher levels of personal taxation which could prove a headwind, but the new government has made positive noises around focusing on growing the economy.
Against this backdrop the Company will continue to focus on the primary objective of delivering a high level of income to shareholders whilst seeking to deliver longer term capital growth.
Jeremy Rigg
Chairman
26 September 2024
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