Missing Google’s rally held back performance, which remains rejected by the trust’s investment model. Returns were also hindered by exposure to IBM and largest holding Apple although the manager remains loyal to his investment case on both holdings.
“IBM's share price declined marginally for the year as the technology behemoth disappointed investors as its earnings fell short of Wall Street's expectations. We like IBM due to its high exposure to recurring sales, cost cutting levers, solid balance sheet, potential share gains, and relatively stable margins.”
Late to gear
The company’s gearing ranged from 3.9% and 9.1% during 2013, a move that benefited from rising equity markets, but admittedly should have been increased earlier in the year, the report said.
Earnings per share were 15.02p compared with 13.8p in 2012, with a healthy outlook for dividend growth.
Equity portfolio turnover was 55% for the year, which was higher than in 2012, reflecting a broader opportunity set for 2013.
At individual stock level, electronics retailer Best Buy was the star performer. The company struggled over the last few years as online competition intensified, but enjoyed strong sales trends during the year and continues to rank strongly, so its position has been maintained.
“The company is working on personalised marketing messages in an effort to compete with the likes of Amazon. It has outfitted its big box stores with the ability to fulfil and ship online orders, which should result in a big competitive advantage.”
Within financials, some names which added value included Berkshire Hathaway, Key Corp, State Street and Prudential.
Smaller companies were reduced throughout the year, from a range of 3.3-6.3% but ending the year at 2.9%, a reduction based on concerns over valuation.
“Over the long term our small cap allocation has helped the Company's performance and the allocation did add value in 2013 as small caps were more favoured by the market than larger sized companies,” investment manager Garrett Fish said.
Secular growth drivers
Most assets remained in larger companies, and while the manager held firm despite a weak start to the year, performance was boosted in the latter half of the year, with large caps beating their benchmark throughout the period.
“Overall, the portfolio remains positioned for modest economic growth as secular growth drivers remain in place along with the added potential of a cyclical recovery.
“In terms of our sector positioning, our largest allocation remains in technology where we continue to find a number of high conviction names with great growth opportunities. We also have significant exposure to the financials sector and added selectively to the sector early in the year at an attractive entry point. As both loan and securities yields increase in a more normal environment there should be a dramatic improvement in the profits of most banks, insurers and asset management companies.”
