Monthly Report
January 28 2004 - 11:10AM
UK Regulatory
RNS Number:7474U
Anglo & Overseas Trust PLC
28 January 2004
Anglo & Overseas Trust
REPORT FOR THE MONTH OF DECEMBER 2003
REVIEW
We reduced our gearing slightly and have added to our holdings in Japan
following the year end.
A good month to end the year with NAV (measured with debentures taken at PAR) up
2.6% vs our benchmark up 2.4%. The underlying portfolio was flat versus
benchmark, all the value being added by our gearing. Over the year we have
outperformed our benchmark, the underlying portfolio being flat, gearing added
approximately 1.2% (based on year end NAV) of outperformance vs our benchmark
which was up 16.7% over the twelve months under review.
UK
The UK equity market as measured by the FTSE All-Share Index rose by 2.8% in
capital terms over the month. In contrast to the previous month, the market
recovery was skewed towards large capitalisation stocks. The FTSE 100 Index
rose by 3.1% in capital terms whereas the FTSE Mid-250 and FTSE Small Cap
Indices only rose by 1.6% and 1.1% respectively.
The best performing sectors over the month were the "cyclical" areas of Oil &
Gas, Mining and Construction & Building Materials. Some "defensive" sectors such
as Food Producers, Utilities and Tobacco also performed well, helped by a
recovery in bond markets. The worst performing sector over the month was once
again Steel & Other Metals, but of more importance to the overall equity market
was the continued underperformance of Pharmaceuticals & Biotech (partly due to
further weakness of the US$).
Key transactions during the month included a partial switch out of BP into
Shell. We believe that Shell offers more significant upside at current levels
following recent underperformance. Holdings were also sold in BSkyB and
National Grid Transco, and holdings increased in BAA and Bunzl. A new holding
was established in Wolseley, one of the world's leading distributors of building
materials and plumbing supplies.
USA
The broad market S&P 500 and Dow Jones Industrial Average reached new 20-month
highs, with the blue-chip Dow moving above the psychologically important 10,000
level for the first time since May of 2002. During December, news that US
troops had found Saddam Hussein hiding near his home town of Tikrit lifted
investors' spirits, but seemed to have a limited impact on stocks.
In economic news, the Consumer Price Index dipped, giving some investors
confidence that the economy is rebounding with few signs of inflation. Since
inflation has been low the Federal Reserve has been keeping interest rates low,
which is good news for the economy and equity markets. In December, the Federal
Reserve decided to keep interest rates at their 45-year lows and indicated that
they believed inflation would remain low over the next year.
The broad market S&P 500 index finished the year on a positive note in December,
gaining 5.1% in USD terms. The energy sector, which has lagged gains from other
S&P 500 sectors this year, was the best performing S&P sector for the month,
climbing 14%. Investors, focusing on sustainable crude oil and natural gas
prices going forward, appeared to be rotating out of technology stocks and
adding energy exposure. In December, the technology sector gained only 2%, but
has gained over 46% in 2003, making it the best performing sector for the year.
The large cap core strategy gained 4.9% in December, but underperformed the S&P
500. Strong relative performance from the industrials, financials, and consumer
discretionary sectors was not enough to offset relative weakness in the health
care, technology, and consumer staples sectors. The technology and health care
sectors were top performing sectors for the portfolio in 2003, but lagged in
December.
Significant transactions to the portfolio this month included:
A position in Devon (DVN), a US independent Exploration & Production company,
was added to the portfolio in early December. The Energy sector had been one of
the worst performing sectors in the S&P500 year-to-date and the portfolio was
underweight. Devon was chosen to bring higher beta to the portfolio's Energy
holdings, it is one of the largest overweight positions in the Energy portfolio.
The company's business is biased towards the gas price which we believe may stay
higher than expected for longer due to demand and supply issues. At the time of
purchase, DVN's valuation (6.3x trailing EPS, and 19% undervalued using our
analyst's model) seemed to be pricing in the high level of costs and concerns
over reserve replacement but with no consideration for the possibility of costs
coming down, exploratory success, or the improving balance sheet. The milestones
for this holding, therefore, are continued pay down of debt, some exploratory
success soon (several things in the pipeline), and a lowering of costs.
The remaining holding in Electronic Arts (ERTS) was removed this month although
the position had been reduced at higher prices in November. The world leader in
games software had been a very profitable holding for the portfolio this year.
Earnings growth is expected to decelerate significantly over the next 12-18
months as the games cycle nears an end and investment for the next cycle begins.
In the past cycle, this slowdown resulted in significant underperformance of the
stock. It is possible that 'this cycle is different' as ERTS and the industry
has learned from the past. For instance, ERTS plans to sell more older games for
a longer period while introducing the next generation.
The small remaining position in McGraw-Hill (MHP) was removed in December. The
stock price returned to previous multi-year highs and above the price target of
our analyst who had earlier downgraded it to underperform from outperform. On
business fundamentals, the outlook for MHP is mixed. On the one hand, the S&P
business is strong and may well continue despite the expected slowdown in the
fixed income market. On the other hand, the publishing business, impacted
particularly by education publishing, looks less certain as spending plans may
be put aside by states struggling to balance their budgets. Overall the risk/
return did not seem attractive.
Japan
The TOPIX rose 4.4% in local currency terms in December, shrugging off concerns
about a strong yen as it became evident that the momentum of the Japanese and
global cyclical recovery was intact. Data out over the month showed Japanese
machine tool orders rising at their fastest rate for three years. The December
Tankan survey showed an improvement in business confidence across the board and
strong economic releases from the US together with continued strong demand from
China led Japanese corporations to revise up planned exports in spite of the
strengthening yen. During the month we established a holding in bowling alley
operator Round One and started a holding in medical equipment maker Hogy
Medical. We also established a holding in Hitachi Construction Machinery, which
is benefiting from strong growth in China. We added to Daito Trust following a
positive meeting with the company. We sold the holdings in Asahi Breweries and
Nippon Oil and reduced the position in Daiwa House following a period of
outperformance. We sold the holding in Fast Retailing following a disappointing
meeting with the company.
EUROPE
In common with other major markets Continental Europe rose during December. One
encouraging feature was that some of the less fashionable lagging sectors also
traded higher.
In terms of activity we switched our Italian bank exposure from Unicredito to
Banca Intesa on the basis of greater upside potential. Also within the banking
sector we bought BSCH.
We repurchased a stock we have owned in the past, AP Moeller-Maersk (transport)
after a significant bout of profit taking brought it down to interesting levels.
A new position was acquired in Deutsche Post (business services) which appears
to offer an attractive combination of low valuation and restructuring potential.
This replaced the holding in TPG.
Total disposals were effected in Reed Elsevier (publishing), TDC
(telecommunications) and Stada Arzneimittel (healthcare).
NET ASSET VALUE 31/12/03 30/11/03
prior charges at nominal value 226.28p 220.44p
prior charges at market value 211.93p 207.39p
MID-MARKET SHARE PRICE
Ordinary Share 175.00p 170.00p
Dividend Yield (%) 2.2 2.3
Discount/(Premium) (%) 22.7 22.9
DISTRIBUTION OF ASSETS at market value 31/12/03 30/11/03
Market exposure
% %
EQUITIES
United Kingdom 44.5 44.2
U.S.A. 32.4 34.4
Latin America 0.8 0.7
Japan 7.2 7.1
Austria 0.1 0.1
Denmark 0.2 0.2
Eire 0.2 0.2
Finland 0.5 0.5
France 2.3 2.2
Germany 1.8 1.9
Greece 0.1 0.1
Italy 1.1 1.0
Netherlands 0.8 0.9
Portugal 0.1 0.1
Spain 1.0 0.7
Sweden 0.1 0.1
Switzerland 2.4 2.5
TOTAL PORTFOLIO 95.5 96.9
Net Current Assets 4.5 3.1
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TOTAL 100.00 100.00
---------- ----------
Based on total assets less current liabilities of #305.3 million (#299.2 million).
GEARING
Borrowings and Gearing at 31/12/03 30/11/03
#000's #000's
Debenture Stock 2020 34,425 34,422
Debenture Stock 2012 33,792 33,780
----------- -----------
68,217 68,202
===== =====
28.8% 29.5%
===== =====
Based on net asset value of #237.1 million (#231.0 million).
LARGEST HOLDINGS (market value #116.2 million equal to 39.8% of total portfolio)
% of
#'000's portfolio
Vodafone Group 11,305 3.9
HSBC Holdings 11,068 3.8
GlaxoSmithKline 8,098 2.8
BP 7,774 2.7
Shell Transport & Trading 7,106 2.4
AstraZeneca 5,907 2.0
Royal Bank of Scotland 5,217 1.8
Barclays 4,966 1.7
Scottish and Southern Energy 4,262 1.4
Citigroup 3,886 1.3
Exxon Mobil 3,683 1.3
Microsoft 3,663 1.2
Cisco Systems 3,613 1.2
BT Group 3,608 1.2
General Electric Co. of America 3,494 1.2
Morgan Stanley 3,259 1.1
Pfizer 3,162 1.1
Northern Rock 3,062 1.1
United Technologies 3,033 1.0
Imperial Tobacco 2,803 1.0
BAA 2,800 1.0
Lloyds TSB Group 2,778 1.0
Vardy (Reg) 2,607 0.9
Gallaher Group 2,591 0.9
3M Company 2,418 0.8
FINANCIAL CALENDAR
Preliminary Announcement of Results 23 February 2003
Lead Fund Manager, John Murray
For further information, contact Mark Pope at Deutsche Investment Trust Managers
Limited on 020-7545-6000.
For additional copies, changes of address or details of our Private Investors'
Plan, low cost ISA, PEP Transfer and Dividend Reinvestment Plan (a plan through
which shareholders, who hold their shares on the Company's main register, can
use their dividends to purchase further shares) contact Mark Pope on
020-7545-0520, e-mail address: mark.pope@db.com. Further details of Anglo &
Overseas Trust including the latest annual, interim and monthly reports can be
found on the Deutsche Investment Trust Managers website located at
www.deutsche-its.co.uk.
Issued and approved by Deutsche Investment Trust Managers Limited, One Appold
Street, London EC2A 2UU, authorised and regulated by the Financial Services
Authority and manager of Anglo & Overseas Trust PLC. Investors should note that
the price of shares and the income from them can go down as well as up and are
not guaranteed and investors may not get back the amount they invested.
Fluctuations in exchange rates may also affect the value of your investment.
Anglo & Overseas Trust PLC may invest in shares traded in emerging markets which
may at times be illiquid and/or volatile. The use of gearing is likely to lead
to volatility in the Net Asset Value (NAV), meaning that a relatively small
movement either down or up in the value of the Trust's total assets will result
in a magnified movement in the same direction of that NAV. In extreme
circumstances, investors may get nothing back at all if the fall in value is
sufficiently large.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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