Buy, hold or sell: Simon Gergel
Total returns have, however, been held back by long-standing high-interest debt on its balance sheet, the earliest tranche of which is set to expire in January 2018. Still, manager Simon Gergel's value-orientated stockpicking has steered the trust through stormy seas.
Weaker demand for commodities such as iron ore and copper from China, in combination with the halving of the oil price between June 2014 and January, means that many mining and energy firms have seen their share prices tank over the past 12 months.
In the year to 30 June Antofagasta's share price fell more than 11%, weakness that Gergel took advantage of, as he believes that despite the naysayers, the prospects for copper – Antofagasta's main business – remain strong.
"We are still wary of some commodities, but we think copper is still attractive. There is limited new supply as new mines tend to be delayed and expensive, while demand for copper is well spread. Copper goes into electronics, power stations, electric cars etc, and it's growing; copper is not completely dependent on Chinese infrastructure," says Gergel.
The manager says this growing demand means that copper supply may well soon move into deficit, which will help boost prices. He believes Antofagasta is well-placed to take advantage of this, due its strong balance sheet and almost non-existent debt – important plus points for a cyclical company.
Gergel has held pharmaceutical giant GlaxoSmithKline for well over five years and it is currently his third largest holding at 5.5% of his portfolio. In recent times, however, the company's performance has been disappointing, with shares down close to 15% in the year to 30 June.
Challenges have included loss of revenue from drugs that have gone 'off-patent', meaning that other pharmaceutical firms have been able to produce generic versions at much lower costs, while competition has also increased and pricing has been squeezed in Glaxo's respiratory drugs division.
However, Gergel says a recent deal to acquire Novartis's consumer healthcare and vaccines divisions is improving the company's prospects, which is why he is happy to hold onto Glaxo.
"Around 40% of Glaxo's sales now come from its consumer products and vaccines businesses, and these are very steady with good long-term growth opportunities. What could have gone wrong has gone wrong for Glaxo, but going forward things look more interesting," says the manager.
Gergel's principal reason for holding rather than buying is the firm's already prominent position within his portfolio; however, he adds that should the valuation come down and/or the company begin to deliver on its promises, he could be tempted to add more.
Property investment trust Hammerson made its way into Hammerson made its way into 2013, when Gergel picked up shares for 510p at a 10% discount to net asset value (NAV), which he saw as an attractive prospect.
"When we bought Hammerson the rental yield on its properties was about 5%; given their high quality, we thought that yield was too high. We assumed that as the economy picked up it would go down, and that the portfolio was well underpinned with a good selection of assets," says Gergel.
Fast-forward to 2015 and the manager says that the company's valuation has become much fuller, with shares rising around 30% over an 18-month period. Having reduced his position over a period of months, Gergel finally sold out completely between 670p and 690p
in April, locking in profits ahead of what he believes could be a tricky period for property.
"We are slightly worried that as interest rates start to rise again the underpinning of prime properties might suffer," he says. Shares in Hammerson fell more than 8.2% between the end of March and the end of June, trading at around 617p on 30 June.
This feature was written for our sister publication Money Observer
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.