Over the year to the end of September, the £849m closed-end fund saw its net asset value (NAV) total return rise by 13.1%, underperforming the Morningstar Investment Trust Global Growth Index, which climbed 18.9% over the same stretch.
While British Empire’s returns were slightly above its 28-year average of 12%, investments in gold mining stocks, which accounted for 3% of the portfolio at the beginning of the period reviewed, dragged down its 12-month numbers.
Pennink and Bauernfreund said that Defour Gold and St Barbara declined sharply as bullion came under pressure during the second half, and although both are only small investments within their portfolio which they bought to protect against the risks of easy monetary policy, the impact was painful enough to account for the bulk of the trust’s underperformance alongside increased liquidity and a widening of the look-through discount during the second half of the year.
That said, Pennink and Bauernfreund added that while it was “disappointing” to report underperformance to investors, “positive returns were made over the year” and their investments offered a good store of value that would be realised over time.
“The key message we want to leave shareholders with is that the overwhelming majority of the portfolio performed well,” the managers said.
They added: “NAV growth on a look-through basis was strong. We saw discount-narrowing catalysts across the portfolio and see potential for further catalysts to drive returns elsewhere in the portfolio. Our relative performance was held back by a very small but costly holding in gold mining stocks, and by a cash weighting that, while mitigating risk and giving us the flexibility to invest, held back returns in a strong market.”
