Philip Webster, manager of Columbia Threadneedle’s CT UK High Income Trust, ditched the trust’s holding in Jupiter during the first half of its financial year, following concerns the FTSE 250 asset manager’s growth potential was not sufficient to compensate for its lack of dividend cover.
Jupiter has seen its share price fall by more than 50% since the beginning of 2022, and Fitch Ratings downgraded the firm’s outlook to negative at the end of September.
Across the six months to 30 September, CT UK High Income Trust’s share price and net asset value (NAV) returned -11.8% and -9.1% respectively, while the FTSE All Share returned -8.3%.
Chairman Andrew Watkins said that Webster’s sector-specific views, and his refusal to add exposure to companies like Shell, BP, and Astrazeneca, had created a “headwind to performance”. But he added that Webster’s view is that these defensive mega-caps will underperform when the market rotates towards a “risk-on” mindset.
The trust, which had total assets of £100m as of 31 October, also shed its holdings in Prudential, Haleon, and Just Eat Takeaway; while stakes in Compass Group, its second largest holding, Beazley, and Deutsche Boerse, were all reduced as their yields have contracted.
Webster took advantage of drops in the share prices of Intermediate Capital, Rio Tinto, Phoenix Group, and Berkeley Group to bulk up the trust’s weightings. Rio Tinto and Berkeley Group are the trust’s third and sixth largest holdings, making up 5.4% and 4.7% of the portfolio, respectively.
Watkins described the market backdrop as “very challenging”, something that was reflected in the 12% fall in share price during the six-month period.
However, the trust has ridden the recent uptick in investor confidence with its share price climbing to around 84p, a near 10% increase since the end of September.
Hargreaves Lansdown estimates its NAV to be 90p as of 5 December, leaving it trading at a discount of 7.5%. While this represents a slight widening from the 6.9% discount as of the end of September, it marks an improvement on the 9.3% discount recorded on 31 March.
In his concluding statement, Watkins was loath to offer any concrete predictions of the trust’s future, but said that the medium-term outlook is wholly dependent on an early resolution to the war in Ukraine.
“The consumer is being squeezed from all angles due to global inflation, supply line shortages and rising prices and there is no simple answer. The government support packages will help on energy prices, but with the Bank of England anxious to make up lost ground in the fight against inflation, interest rates are likely to continue to rise into 2023. This picture makes it very hard to gauge whether we get a soft or hard landing, and whether company earnings’ expectations for 2023 have bottomed, or whether we have more downgrades to come.”