According to Pettigrew, the company produced a return 10% above the benchmark while continuing to grow income.
“It gives me pleasure to report the company’s excellent performance for the year,” Pettigrew said, “producing on a total returns basis a net asset value (NAV) with debt at par of 16.5% versus the return of 6.6% for the FTSE All-Share Index (the ‘Index’), the company’s benchmark. For the same period the NAV with debt at market returned 16.2% and the share price total return (with dividends reinvested) was 15.7%.
He added: “The portfolio continues to be concentrated in a relatively small number of stocks (52 at the year-end) as well as sectors, and its overweight or underweight positions in various sectors continue to be material drivers of the Company’s relative investment performance.”
As a result of this, Pettrigrew said, the share price ended the year 11.4% higher than the previous year at 662p, while the discount to NAV widened less than its peer group from 5.4% to 6% during the period.
The trust is proposing a full year dividend of 23.85p per share, up 1.5% on the prior year.
Looking ahead, while Barnett remains positive on the outlook for the portfolio, he is still concerned about the gap between valuations and earnings growth, pointing out that this remains the primary risk to the current level of share prices.
Barnett said this risk was exacerbated by the increased probability of a change in US monetary policy which “represents a more difficult backdrop for government bond markets” and which would have an inevitable knock-on impact on equity markets.
Within the UK specifically, he said the election result was a positive for business and for UK plc, but it brought two new political risks to prominence: “the risk surrounding the successful integration of the Scottish Nationalist Party (SNP) into the UK parliamentary system and second, the longer term risk relating to the EU “in-out” referendum in 2017”
During the period under review, Barnett said the market had been driven by a increasingly positive view of companies that were able to deliver sustainable growth in earnings, cashflow and dividends. This, he said, benefitted the portfolio’s tobacco holdings. “Altria Group (the parent company of Philip Morris USA), Reynolds American, and Imperial Tobacco delivered total share price returns of 58%, 51% and 32% respectively over the year,” Barnett said.
At the other end of the spectrum further disappointing news from Rolls Royce, which another profit warning in September 2014 that profits were likely to fall again this year and, as a result the holding continues to be a drag on the portfolio.
During the period, Barnett said, new investments were made in Game Digital, P2P Global Investments, Workspace Group and TalkTalk Telecom, while the holdings in Sanofi, Paypoint and Catlin Group were sold.