WORLDWIDE FINANCIALS NEWS
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12TH MARCH '10
Blue Planet Worldwide Financials - Interim report to 31 Jan 2010 (Part 1)
Half Yearly Report and Accounts
for the six months ended 31 January 2010
Blue Planet
Worldwide Financials
Investment Trust plc
Officers and Advisors
Directors Investment Manager
Philip Court (Non-Executive Chairman) Blue Planet Investment Management Ltd
D Christopher Jones (Non-Executive) 18A Locker Street
Kenneth C Murray (Non-Executive) Sliema
Malta SLM 3124
Telephone No: +356 2131 4309
Facsimile No: + 356 2131 5219
Local call rate from UK: 0845 527 7588
e-mail: info@blueplanet.eu
www.blueplanet.eu
Administrators, Secretary and Registrars
Registered Office
Blue Planet Investment Advisers Ltd Capita Registrars
Greenside House Northern House
25 Greenside Place Woodsome Park
Edinburgh EH1 3AA Fenay Bridge
Telephone No: +44 131 466 6666 Huddersfield HD8 0LA
Facsimile No: +44 131 466 6677 Shareholder Helpline No: 0871 664 0300
(calls cost 10p per minute plus network
extras, lines are open 8.30am - 5.30pm
(Mon - Fri))
Overseas: +44 208 639 3399
e-mail: info@bpia.eu e-mail: ssd@capitaregistrars.com
www.bpia.eu www.capitaregistrars.com
Auditors Bankers
Deloitte LLP Lloyds TSB Scotland Plc
Saltire Court Henry Duncan House
20 Castle Terrace 120 George Street
Edinburgh EH1 2DB Edinburgh EH2 4LH
Stockbroker Custodians
Fairfax Plc RBC Dexia Investor Services Trust
46 Berkeley Square 71 Queen Victoria Street
Mayfair London EC4V 4DE
London W1J 5AT
Registered Number
SC177928
AIC
Blue Planet Investment Management Ltd is authorised and regulated by the Malta
Financial Services Authority.
Blue Planet Investment Advisers Ltd is authorised and regulated by the
Financial Services Authority.
Blue Planet Worldwide Financials Investment Trust plc is a member of the
Association of Investment Companies.
Financial Record
Investment Policy and Objective
The investment policy of the Company is to invest in securities (as defined by
the Financial Services & Markets Act 2000) including equities and debt issued
by quoted financial companies located anywhere in the World with the objective
of providing investors with a high rate of total return. Not more than 15% of
the Company's portfolio may be invested in any one company at the time the
investment is made. The maximum gearing employed is set by the Directors from
time to time and is currently 50% of shareholders funds (the company's articles
permit a maximum gearing of 75%). The company's benchmark index is the
Bloomberg World Financial Index and there is no restriction on the amount that
may be invested in any one country. The actual number of investment holdings,
the level of gearing and country allocations will depend on market conditions
and the judgement of the Board of what is in the best interest of Shareholders.
Financial Record Six months Six months Year ended
ended ended 31 July 2009
31 January 31 January (Audited)
2010 2009
(unaudited) (unaudited)
Shareholders' funds (£'000) 12,572 8,499 11,138
Net asset value per share (p) 89.32 60.38 79.13
Share price (p) (Bid) 69.00 35.00 59.00
Discount (%) 22.7 42.0 25.4
Gearing (%)* 0 6.8 4.9
Revenue available for shareholders (£ (173) (31) 287
'000)
Revenue return per share (p) (1.23) (0.22) 2.03
Total return per share (p) 11.39 (66.04) (47.53)
Dividend per share(p) - - 1.20
Dividend yield on our shares (%) - - 2.03
Dividend yield on Benchmark Index (%) 2.35 6.20 2.93
Total return on Benchmark Index in Sterling
(%)
* Net debt as a percentage of shareholders' funds.
Dividend
No interim dividend has been declared.
The Investment Manager
Blue Planet Investment Management Ltd is a Malta based investment management
company. It is a totally independent, well respected and innovative firm which
specialises in managing investments in financial companies. Its corporate
philosophy is that consistent out-performance is more likely to be achieved by
specialisation than it is from the generalist approach, which currently
prevails across most of the fund management industry.
Stock markets comprise of many sectors and at any point in time a number of
these sectors will be in economic decline and will produce below average
returns to investors. The financial sector is not immune to these cycles.
However, financial companies, and in particular banks, play a crucial and
central role in free market economies. Money transmission is perhaps the single
most important function performed in any free market economy and it is the
banks' dominance of this function that gives them tremendous economic muscle.
This role will ensure that banks endure whilst other sectors come and go. Blue
Planet believes that investors should only invest in those sectors that have
superior long-term economic prospects and, crucially, which are undervalued.
It believes that the World's financial sector is one such sector.
By focusing on only one sector Blue Planet believes that it is able to develop
a level of expertise and understanding of that sector that generalist fund
managers cannot.
Blue Planet Investment Management Ltd (a company registered in Malta) (BPIM) is
appointed as the Investment Manager of the Company and receives an annual fee
of 1.50% per annum of the total assets of the Company which is paid monthly. Mr
Kenneth Murray is a Director of BPIM which is owned by an Employee Trust for
the benefit of its employees. Blue Planet Investment Advisers Ltd provides
administration and secretarial services to the Company at an annual fee of £
100,000 per annum. Blue Planet Investment Advisers Ltd also provides an
investment advisory service to Blue Planet Investment Management Ltd. The
investment management, administration and secretarial services agreements may
only be terminated on receipt of two years' notice.
In addition to Blue Planet Worldwide Financials Investment Trust plc, Blue
Planet Investment Management Ltd also manages the Blue Planet European
Financials Investment Trust plc, the Blue Planet Financials Growth and Income
Investment Trust Nos 1-10 plc and the Blue Planet Global Financials Fund.
Details of Blue Planet's Savings Scheme, investment trusts and other products
can be obtained from the Fund Administrator and Company Secretary Blue Planet
Investment Advisers Ltd, Greenside House, 25 Greenside Place, Edinburgh, EH1
3AA (Tel no: +44 131 466 6666),email:info@bpia.eu,website :http://www.bpia.eu.
Website Information
Please take the time to visit our website:
www.blueplanet.eu
If you wish to receive a monthly fact sheet on the trusts please visit:
www.blueplanet.eu/blueplanet_downloads.136.html
To download historical Annual and Interim reports and past monthly fund fact
sheets:
www.blueplanet.eu/blueplanet_downloads.124.html
Interim Management Report
Performance
In the last six months there has been a recovery in the net asset value ("NAV")
and share price of your Fund. The NAV has made a total return of 14.3% in the
last six months rising to a value of 89.3p, bringing its return over the past
year to 49.8%. This compares to the Funds benchmark index, the Bloomberg World
Financial Index, return in Sterling terms of 6.0% in the last six months and
41.3% over the last year.
The share price total return of your Fund has been 18.7% during the interim
period and the Fund ended January 2010 at a bid price of 69.0p a share. This
share price represents a 22.7% discount to the NAV of the Fund.
As we said in the Annual Report to July 2009, we believed that the turnaround
in equity share prices that began in March 2009 was the start of a sustained
rally based on improving economic indicators and improving financial results
from banks. This has indeed been the case and since the nadir of the equity
bear market passed in March 2009 share prices have risen sharply. The Bloomberg
World Financials Index rose 30% in Sterling terms in 2009 and your Fund's NAV
rose 48%.
However, the rally has not been without its setbacks as concerns regularly
resurface regarding the sustainability of the economic recovery, which has been
fuelled by many governments pumping money into their economies, and in a number
of countries this has taken the form of quantatitive easing. For this reason we
have been quick to cut back on equity exposures when we see warning signs in
the economic data points that we are monitoring and the volatility in the
markets has meant that the fund has had several months of very strong positive
returns, counterbalanced by a couple of months with sharp falls.
We believe this issue - of the sustainability of the recovery of the global
economy - is a key theme going into 2010 and the makeup of the investment
portfolio has become more cautious by the end of the interim period, with a
reduction in the equity holdings and the diminution of illiquid holdings. There
are a number of major economies whose fiscal positions have become increasingly
strained, and we expect some of these economies to head into a further crisis.
This will negatively impact share prices of all equities whether they be in
strong economies or weak. Economists and market commentators have been focusing
on the Euro area and on Greece in particular, however the economy that causes
us most concern is the UK. Further weakening of the UK's public finances and a
stall in the country's economic recovery will weaken Sterling considerably, and
for this reason cash reserves are held in other currencies, in particular
currencies of commodity-rich countries.
Portfolio
The charts below illustrate that the Fund has ended the six month period with a
reduction in exposure to equities and a higher element of cash. Figure 1 shows
the movement in security types. Figure 2 shows the geographical locations of
the equities in the portfolio at both the year end and the end of the interim
period.
Figure 1: Portfolio movements - by security type
Security Type Jan-10 Jul-09
Equity 53.4% 75.8%
Cash 46.6% 24.2%
Total 100.0% 100.0%
Figure 2: Portfolio movements - geographic locations of equities
Country Jan-10 Jul-09
USA 20.20% 6.30%
Eire 12.70% 18.60%
India 6.90% 18.50%
Norway 2.50% 0.00%
Switzerland 2.50% 0.00%
France 2.50% 0.00%
Germany 2.50% 0.00%
Russia 1.80% 16.10%
Austria 0.90% 0.00%
Cyprus 0.90% 0.00%
Hong Kong 0.00% 6.30%
Indonesia 0.00% 4.80%
Spain 0.00% 2.30%
Total 100.0% 100.0%
The Fund began investing in US financial companies in March 2009 and maintained
investments through most of the interim period. Holdings were sold during
November and December as we refocused on our more familiar theme of emerging
market banks. However a trading position in some of the major US financial
stocks was put in place at the start of January 2009 to capture an anticipated
rally during the fourth quarter 2009 results reporting season starting in
mid-January. However, despite 225 of the 304 companies in the S&P500 index that
had reported results by the 4th February 2010, producing results better than
analysts had predicted, and a very positive 5.7% GDP growth rate in the US in
the final quarter of 2009, these positives were outweighed by concerns over a
proposed "investment banking" financial tax and changes to banking rules
proposed by President Obama. These positions have subsequently been sold.
The Fund holds two investments in the Republic of Ireland. One is in Blue
Planet's Global Financials Fund, listed in Dublin. This has been invested in
global, long-only equities over the last six months. The other holding is in
Allied Irish Banks. Ireland has been hit hard by the global economic slowdown,
and tough economic conditions persist. Unemployment hit 12.7% in January 2010
and house prices, which have fallen every month since March 2007, show no signs
of reversing. Additionally, the introduction of the National Asset Management
Agency (NAMA) to remove bad loans from the Irish banks books, is taking a
considerable time to get off the ground. Against this background, Irish bank
share prices have struggled to recover. We have held Allied Irish Banks in our
portfolio for some time now, and are sticking with it as we believe the strong
measures the Irish government have taken in cutting public sector wages and
reducing welfare payments to cut the country's deficit, as well as NAMA, when
it is introduced, will boost the fortunes of the Irish economy and Irish banks.
India remains a strong economy, with GDP growth of 7.9% year-on-year in the
most recently reported quarter, to September 2009, and plenty of room for
growth in its underpenetrated banking market. However, the Indian government is
currently tightening monetary policy. In the shorter term this is not good for
the banks. They have seen their cash reserve requirements rise from 5.0% to
5.75% in January 2010 and more is expected. The bonds held as part of the banks
overall statutory liquidity requirement are currently falling in value as
inflation in India rises rather rapidly to over 7% and it is anticipated that
this will lead to rising interest rates. As a consequence of the drought in the
monsoon season in June to September 2009 agricultural non-performing loans have
also risen sharply. Towards the end of the interim period we reduced exposure
to Indian equities as there are some short term concerns mentioned above and
also to increase the liquidity of the portfolio and to cut overall exposure to
equities. The remaining Indian holdings have subsequently been sold.
The fund has a selected focus on European stocks. These are mostly high
quality, well-managed banks that have continued to make good profits throughout
the economic downturn, such as DNB NOR in Norway, BNP Paribas in France and
Bank of Cyprus, based in Cyprus, but with a significant international presence.
Some recovery stocks are also held, such as Deutsche Bank.
Exposure in the fund to Russia has been cut considerably. The fund had two
long-term investment holdings in Russia, MDM Bank (formerly URSA bank) and
Vozrozhdenie. The Russian economy has been recovering well from its very sharp
economic contraction; however, both of these mid-sized Russian banks suffer
from being illiquid. This had a very detrimental effect on, in particular,
MDM's share price in 2008. In these volatile markets we prefer to hold easily
realisable holdings and the Vozrozhdenie holding has been sold completely and
the MDM holding reduced to 1.8% of the total portfolio. The size of this
holding has subsequently been reduced further.
The investments in Hong Kong listings of Chinese banks held at the start of the
interim period were sold. We were concerned about the government interference
in the banks to curtail loan growth and restrain economic growth. The Chinese
banks have strong long-term growth potential, however we decided that there may
be a better entry point into this market. Indonesian investments were also sold
more recently, as valuations rose, but the strength of the Indonesian economy
and the growth potential for the banks mean this remains a very attractive
place to invest. Your Fund has subsequently reinvested in two Indonesian banks
and some very modest holdings in Turkish banks following the exit from the US
stocks and the excellent fourth quarter results from the Turkish banks.
Borrowings, Gearing and Liqudity
Gearing in the fund has averaged at about 27% over the past six months. Towards
the end of the interim period it was reduced and ended the interim period at
0%. The Fund has access to a £7.5m revolving loan facility until June 2010.
Generally, gearing beneficially affects the Company's NAV when the value of its
investments are rising, but adversely affects it in periods when the value of
investments are falling.
Dividend
The Directors have declared no interim dividend for the first half of the year.
Last year no interim dividend was paid. A full year dividend of 1.2p per share
was paid on 18 November 2009. For the first half of this year the revenue
return per share has been negative, as it was a year ago. However in the 2009
financial year, investment income for the second half of the Fund's financial
year was forecast to be considerably higher than for the first half. This seems
less likely this year, and it currently looks doubtful that there will be
sufficient income to pay a final dividend based on the full year's results.
Risk
Your Company is, and will continue to be, exposed to a number of risks which
are detailed in full in the Investment Managers Report in the Annual Report.
The key market risk arises from the uncertainty regarding the future price
performance of the securities held by your Company. If gearing is employed this
risk is magnified. The Company is invested in a single industry sector. Being
invested in a single sector exposes the Fund to the risk that the Financial
Sector will under perform relative to other sectors of the market, and the
Financial Sector has underperformed some other sectors during this interim
period.
Nevertheless, the financials sector remains a large part of the market and
constitutes over 22% of the Bloomberg World Index. Banks play a crucial and
central role in free market economies, as the response of governments and
central banks to the recent crisis has shown; a role that will ensure the
prosperity of the banking sector as a whole over time. The prices of the
individual securities in the portfolio are monitored on a daily basis and the
Board, that meets quarterly, imposes borrowing limits to ensure gearing levels
are appropriate to market conditions. When gearing is employed the potential
impact of changes to interest rates is taken into consideration. The securities
dealt in are all listed on recognised exchanges and are readily realisable.
The Fund is exposed to currency risk, due to the range of currencies in which
investments are held. The majority of the Company's assets are denominated in
foreign currencies and movements in these currencies can significantly affect
the total return and net assets. The fund manager tracks currency movements on
a regular basis and hedging is considered on a case-by-case basis.
Blue Planet Services and Price Information Sources
Shareholders can view the Company's share price and additional information
about the Fund on the website of Blue Planet Investment Management Ltd
(www.blueplanet.eu) and the London Stock Exchange (www.londonstockexchange.com
). To find the Company's share price on the London Stock Exchange website go to
the Home page and type "BPW" in the "Price Search" field.
Blue Planet Investment Advisers Ltd offers a Blue Planet Saving Plan via
Equiniti Financial Services Limited (on behalf of Lloyds TSB) to enable lump
sum investments or regular savings. A request form for the savings scheme
application pack is enclosed with these accounts.
Outlook
There are a number of reasons to be optimistic about the economic recovery. GDP
growth estimates for the next two years are being revised up. In January 2010
the International Monetary Fund revised its global growth outlook for 2010 to
3.9%, up three-quarters of a percent from their estimate published in October
2009. In particular growth data is remaining strong in the US and earnings are
continuing to recover. However, the recovery in many of the advanced economies
is slow and governments and central banks need to start to implement exit
strategies from their emergency fiscal stimulus measures and ultra-low interest
rate environments to restore their countries finances to an even keel. The
danger of a country letting its fiscal position deteriorate too far is
highlighted by Greece, which has seen its country's credit rating cut.
There are plenty of ways for a fiscal position to get out of control.
Government debt has risen sharply in many countries. This means that overall
sovereign debt issuance increased by about a third in 2009. It is set to
continue to rise in 2010. In 2009 this issuance was supported by quantitative
easing which in many countries helped absorb the issued debt. Who will buy this
sovereign debt in 2010, and what premium will they demand to buy it in
countries that are a cause of concern? If economic growth does not return then
government revenues will not recover, meaning government expenditure must be
reigned back sharply, potentially causing a double dip recession. Finally, if
interest rates rise in a particular country before its public debt has been
reduced, due to a pick-up in inflation, then the servicing of this debt will
become more costly and create an even higher burden on the state.
A major economy experiencing severe fiscal problems will destabilise markets
worldwide again. There are several countries with the potential to slip into a
fiscal crisis. The UK is our top candidate and we currently find it difficult
to envisage how the UK will avoid a relapse into recession. The UK has a
structural budget deficit (one that won't dissipate as the economy grows) above
10% of GDP and overleveraged consumers. By the end of its £200bn asset purchase
scheme the Bank of England will have bought gilts equal to more than 14% of
GDP. On top of this, the country's move out of recession is very tentative and
credible plans for cutting the deficit are delayed by the impending general
election. This makes Sterling and the country's credit rating look very
exposed.
This potential for instability in the markets in 2010 is both a threat and an
opportunity. In your Fund we will continue to focus on selected emerging market
countries that have well-run economies and under-leveraged banking markets as
well as selected recovery stocks, but intend to maintain a cautious portfolio
and have cash in reserve to enable us to re-enter the market at a better point.
We hold the majority of our assets in currencies other than Sterling, due to
its vulnerability.
I would like to thank all shareholders for their continuing support.
Philip Court
Chairman
17 March 2010
