Interim Board Report - Chairman's Statement
Background
During this review period, there was little respite from the inflationary concerns and interest rate hikes that have dominated the financial backdrop for over eighteen months now. Despite energy and commodity prices significantly declining from this time last year, most consumer-driven economies in the Developed World continue to be squeezed by higher food prices, rising mortgage rates and dwindling disposable incomes. With the impact of higher bond yields translating into higher debt servicing costs, genuine fears over future asset quality are beginning to emerge, with all areas of bank lending attracting scrutiny. For financial markets, the divergence between the performance of bonds and equities proved extremely pronounced: the former constantly fretting over wage inflation and the erosion of real incomes; and the latter apparently ignoring the reality of rising recession risks and downward revisions to growth and corporate profitability. For individual investors and savers, the holy grail remains capital appreciation and real returns; the quandary - where to find them.
Performance and Dividends
The net asset value (NAV) total return, with net income reinvested, for the six months to 30 June 2023 was 2.2% compared with 7.9% for the Company's Reference Index (the FTSE All World TR Index). Over the six-month period, the share price total return was -2.5%, reflecting a move to trading at a small discount to the NAV. The Manager's Review contains more information about both the drivers of performance in the period and the portfolio changes effected.
Two interim dividends of 2.4p (2022: 2.4p - restated for share sub-division referred to below) have been declared in respect of the six months to 30 June 2023. The first interim dividend is payable on 16 August 2023 to shareholders on the register on 7 July 2023 and the second interim dividend will be paid on 17 November 2023 to shareholders on the register on 6 October 2023.
As stated previously, the Board intends to maintain a progressive dividend policy given the Company's investment objective. This means that, in some years, revenue will be added to reserves while, in others, revenue may be taken from reserves to supplement earned revenue for that year to pay the annual dividend. Shareholders should not be surprised or concerned by either outcome as, over time, the Company will aim to pay out what the underlying portfolio earns. The Board currently intends in 2023 at least to match the dividend payout of 11.2p (56.0p per share restated for share sub-division referred to below) in 2022. At the end of June 2023 the Balance Sheet revenue reserves amounted to £70.5m.
Manager Succession
As many Shareholders will be aware, Bruce Stout has been the Company's lead investment manager since 2004. During that time, he has been assisted by Martin Connaghan and Samantha Fitzpatrick. In fact, both have worked with Bruce since 2001, when they joined what was then Aberdeen Asset Management from Murray Johnstone. Over recent years, Martin and Samantha's input into the management of the portfolio, and the Company itself, has increased and many of you may have met or heard from them at meetings or presentations, including AGMs and online webinars. Bruce has now advised us of his intention to retire at the end of June 2024. I am delighted to announce that Martin and Samantha will take on co-managerial responsibility for the Company's investments alongside Bruce with immediate effect, thereby ensuring the smoothest of handovers and no change in abrdn's approach to the investment management of the Company going forward. It is premature of me to thank Bruce for all his efforts on behalf of the Company and I am sure that many of you will have the opportunity to do so personally in the run-up to his departure in just under a year's time.
Interim Board Report - Manager's Review
Background
Continuation of the sharpest reactionary monetary tightening witnessed in living memory featured prominently throughout the first six months of 2023. As interest rates were relentlessly raised and the cost of borrowing soared, most of the debt-dependent Developed World teetered on the brink of recession. Yet any objective assessment of what has actually been achieved by such draconian policy action remains arguably subjective to say the least. Identifiable inflationary pressures associated with commodity price inflation have "behaved" pretty much in textbook fashion. With oil and gas prices down over 50% from twelve months ago, most hard commodity prices have succumbed to the free-market equilibrium associated with lower demand and expanding supply. Yet inflation in many countries persists. For those familiar with the economic vandalism inherent in Central Banks printing money and the consequences of such irresponsible pandering to financial markets, this will come as no surprise. After all, inflation is an "always and everywhere" monetary phenomenon. Until such time that bond markets can accurately price the reality of debt servicing obligations, deteriorating creditworthiness of sovereign states, future interest rate volatility and political incompetence, then inflationary pressures are likely to persist. Against this backdrop, increasingly ineffectual policymakers are coming under intense political pressure to "do more" despite the reality of being "unable to do much", thereby prolonging the economic uncertainty and negative consequences that unconstrained inflation has on currencies, wealth and prosperity. For individual savers, the reality of negative real returns has increasingly become the all-consuming focus of investment strategies.
https://www.investegate.co.uk/announcem ... rt/7689831
Much more detail in the link, particularly re the manager's report.
So Bruce is on his bike (next year).
I hold MYI, though can't say I am overly impressed by its performance (in terms of capital appreciation).