Momentum Multi-Asset - Half-year Report
05/12/2022 07:00
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RNS Number : 4996I Momentum Multi-Asset Value Trust 05 December 2022
To: RNS
From: Momentum Multi-Asset Value Trust
plc
LEI: 213800OQTUSRFDIL9L29
Date: 5 December 2022
MOMENTUM MULTI-ASSET VALUE TRUST PLC
ANNOUNCEMENT OF HALF-YEARLY FINANCIAL REPORT
Unaudited results for the six months ended 31 October 2022
Chairman's Statement
KEY FACTS
· Net asset value total return -16.7% vs Benchmark +8.8%
· Share price total return -16.3%
· Annualised volatility 13.6% vs 15.1% for the MSCI UK All
Cap Index†
· Quarterly dividend increased to 1.80p per share
· Annualised yield of 4.8% based on the 148.5p period-end
share price
† Source: MSCI/Morningstar/Momentum Global Investment Management
OVERVIEW
Inflation is now at its highest levels in 40 years or more, at rates that have
not been experienced by most people of working age. There are many things
that rightly concern most of us at the moment, not least rising geo-political
issues and climate change but, on a day-to-day basis, inflation, or the cost
of living, is the dominant concern. Understanding how we got here should
provide some clues as to how we might recover. Many commentators had long
worried that loose monetary policy (largely as a response to the 2008 Global
Financial Crisis) would at some point lead to higher consumer price inflation
rather than only affecting the values of capital assets. But equally, most
economists and investors had become too sanguine that Central Banks would be
willing and able to reverse Quantitative Easing (QE) without causing too many
shocks. The impact of this was exacerbated by the onset of COVID-19 and few
commentators predicted governments' reactions to it, the aftermath of labour
market upheavals, supply chain bottlenecks, the reversal of globalisation and
the further easing of monetary conditions. In addition, the Russian invasion
of Ukraine has resulted in energy and agricultural markets dislocations
leading to shortages and subsequent significant price increases.
These two seismic events, on top of the pre-existing loose monetary
conditions, have led to the consumer price inflation we see today. It feels
too glib to suggest some things will get worse before they get better, though
that is the reality, but stockmarkets usually begin to discount or reflect
recovery before it actually happens. Governments and Central Banks must be
bold enough to improve monetary conditions by reversing QE. Fiscal policy must
be conducive to encourage individuals, industries and businesses to adjust and
manage change. The timings and costs of the end of the global pandemic and the
war in Ukraine, both human and financial, are harder to predict. In the
meantime, we expect to see a period of continued and possibly significant
volatility in economies and financial markets.
PERFORMANCE
MAVT adopted its inflation-linked Benchmark of CPI plus 6% per annum in July
2017. Your Board measures performance against this Benchmark over a 'typical
investment cycle' which is defined as one that spans five to ten years. But
'typical' is not an adjective that any reasonable observer could use to
describe the last three years or so, far less the last 12 months. MAVT
generated a net asset value ('NAV') total return per share for the six-month
period (the 'Period') of -16.7%, compared with the Benchmark return of +8.8%.
Indeed, the performance over the 12 months prior to the Period end is even
starker with a NAV total return per share of -17.2% compared with the
Benchmark return of +17.1%. Your Board and Manager do not seek to hide from
these disappointing performance figures, but we do seek to put them in
context. Relative performance can change significantly over short periods, in
both directions. Looking back 12 months to last year's Half-Yearly Report,
MAVT was well ahead of its Benchmark and other comparator indices over all
medium- and longer-term trailing periods.
MAVT's portfolio is diversified but the investment style and the underlying
assets - each and every one - must represent Value. There are times when other
investment styles perform better than Value and we have endured such a period
of late, when Growth has been in favour. Given this underperformance of Value,
your Board and Manager believe that the portfolio currently represents
outstanding potential which will, at some point, be recognised by the stock
market. If nothing else, the events of the last three years or so have amply
demonstrated how quickly and significantly events and investor perceptions
change.
The Q&A with the Manager provides greater analysis and explanation of
MAVT's performance for the Period.
DIVIDENDS
Your Company declared two interim dividends each of 1.8p per share for the
Period, an increase of 7.1% over the equivalent dividends last year. Based on
this quarterly rate the shares yielded 4.8% on the share price of 148.5p at
the Period end.
It is the Board's intention, barring unforeseen circumstances, to declare
aggregate dividends for the year to 30 April 2023 of at least 7.2p per share.
Given the outlook for inflation, it is very likely the fourth interim dividend
due to be announced in May 2023 will be higher than the current quarterly rate
of 1.8p per share, consistent with the Board's intention to increase dividends
by at least inflation over the longer run.
DISCOUNT CONTROL MECHANISM ('DCM')
During the Period MAVT bought back 2,167,692 shares costing £3.6m, and issued
no shares. Shares are bought back at a small discount to the NAV per share,
and issued at a small premium, providing a small enhancement to NAV. However,
the DCM primarily operates to provide liquidity to Shareholders and ensures
the lack of any material discount of the share price to the underlying NAV.
These features are of real value to Shareholders and your Board remains
resolute in its application of the DCM to ensure these benefits are
maintained.
GEARING
At the end of the Period, MAVT renewed its £10m revolving credit facility
with The Royal Bank of Scotland International Ltd for a further two years. At
the Period end, £6.25m was drawn down and during the Period the average net
gearing level was 11.9%. A small amount of the drawn facility is held in cash
to allow instant access to funds should the need arise. The undrawn element of
the facility is in place to assist largely with the operation of the DCM,
enabling gearing levels to be maintained when the DCM results in the issuance
of new shares, and providing short-term working capital, if necessary, when
shares are bought back.
ANNUAL GENERAL MEETING ('AGM')
At the AGM held on 26 July 2022, Shareholders approved all resolutions, each
by a majority of over 98%, including those resolutions that help with the
effective management of the DCM, specifically allowing the Company to issue
shares equivalent to 30% of its equity and to buy back up to 14.99%.
OUTLOOK
Past experience suggests the best strategy when markets are depressed and
sentiment is low is to stay invested and rely on diversified portfolios to
navigate volatile markets. This enables your Manager to capture the recovery
that will inevitably come, probably beginning when hopes are at their lowest.
History shows that investors tend to over-pay for certainty - or at the least
the illusion of it - and under-price uncertainty. In other words, taking
considered risk is a good thing and indeed essential to making good returns
over time.
The prices of many assets held in the portfolio have eroded over the Period,
but the vital issue is whether such erosion is permanent or temporary and due
to fundamental factors or sentiment and valuation ratings. Recent political
turmoil, both at home and abroad, has continued to agitate financial markets.
In the face of the economic difficulties that almost certainly lie ahead, your
Board is confident that your Manager is well able to discern between the
causal factors and therefore believes there will be better performance periods
ahead.
Jimmy McCulloch
Chairman
2 December 2022
Q&A with the Manager
Q1 Could you outline MAVT's performance for the Period?
A1 Your Company's NAV returned -16.7% against the Benchmark return of +8.8%.
Over the Period, the prices of most asset classes declined, and inflation hit
record levels. We acknowledge that MAVT's short-term performance has been
disappointing. However, we consider our investments over the long term and our
contrarian investment style may result in periods of negative returns. Your
Company has historically participated strongly in any subsequent market
recovery, as detailed in A8 below, and we expect this pattern to continue.
Q2 What were the key factors affecting MAVT's performance?
A2 Global equities and bonds have fallen sharply this year and there have not
been many places for investors to hide. The main drag on performance can be
attributed to the portfolio's strong bias towards UK assets and Sterling.
In addition to the impact of recent political events in the UK, your Company
has suffered from continued fallout from COVID-19 with China's sporadic
lockdowns still causing supply chain issues and shipping backlogs, which have
only recently started to subside. Furthermore, rising inflation around the
world and the impact of the war in Ukraine continues to depress markets and
sentiment.
Many of our UK Equity holdings are in smaller and mid-cap companies, which are
often under-researched or overlooked by larger investors and can therefore
yield interesting opportunities. However, extreme negative sentiment towards
the UK has resulted in investors withdrawing capital indiscriminately from
smaller companies with a domestic focus. In our view, the selling in this area
of the market has left many companies with strong fundamentals trading at very
low valuations. Looking across global markets there is not a region,
investment style or size index that has underperformed the MSCI UK Mid Cap
Value Index over the Period. The constituents of this index best represent our
preferred UK Equity allocation.
Our Overseas Equity exposure has fared better, with our holdings in Japan and
Asia proving more resilient over the Period.
In most periods of the economic cycle our Specialist Assets exposure would act
as a portfolio diversifier. While rising interest rates and wider market
turmoil have resulted in falls in this section of the portfolio, this has not
been to the same extent as in the broader equity portfolio.
Q3 The investment landscape has been challenging this year. How have you
adapted the portfolio to manage this?
A3 Aligned with our contrarian approach, we have maintained, and indeed
expanded, our exposure to the UK, principally by adding to existing positions
where we have seen compelling opportunities on grounds of valuation. We have
reduced our Overseas Equity exposure which has held up relatively well to
these market challenges, and have sold into relative strength. Over the long
term, we are confident this exposure will provide strong returns as both
equity valuations and currencies revert to more normal levels. However, in the
short term we appreciate that this goes against the consensus view.
In addition to these changes in equities, we continued to reduce our
Specialist Assets exposure to infrastructure and property due to strong
performance and holdings trading at premiums. Given their sensitivity to
interest rates, this proved to be the correct decision but, perhaps with
hindsight, we could have been quicker and more aggressive in reducing our
exposure.
Q4 Investors are increasingly concerned about inflation. What impact do higher
inflation and rising interest rates have on the portfolio?
A4 We are clearly in a period in which the valuation of risk assets is being
reset to reflect higher interest rates. This heightened uncertainty has
resulted in prices in the mid-cap sector falling even further as many
investors are unsure how to value assets, so they tend to sell and crystallise
their losses. Share prices have moved quickly, but it will take time for
underlying corporate earnings to adjust. That said, there should be some
positive consequences for the portfolio; for example, following the recent
hikes in mortgage rates, we expect to see a squeeze in the rental market in
terms of more demand and less supply. This should result in higher rents for
some of our property holdings.
Many of our Specialist Asset holdings have either implicit or explicit
inflation linkage. For example, renewable energy trusts such as Greencoat UK
Wind will grow their well-covered dividends in line with the Retail Price
Index. Meanwhile, rising inflation has increased subscriptions for music
streaming which should benefit the music royalty trusts in the portfolio
(Hipgnosis Songs Fund and Round Hill Music Royalty Fund). Music royalty funds
have underperformed in the Period. This is due to investors predicting lower
valuations as the value of future royalties is lower in a higher interest rate
environment. We believe the market has focused on this negative, missing the
positives of strong potential income growth in the coming years which have the
ability to offset current valuation pressures.
Q5 What effect are currency movements having on the portfolio?
A5 Sterling weakened significantly against most major currencies over the
Period, particularly against the US Dollar. Therefore, our Overseas Equity
exposure has performed well in Sterling terms, despite global markets
declining significantly. In some cases, the currency depreciation has fully
offset market falls. However, we have lower exposure to overseas assets than
many of our peers, so we have not benefitted as much as others in this regard.
This sets the portfolio up for a potential uplift versus peers should the
Sterling/Dollar rate return to more normal levels. This has already begun as
we have seen strong Sterling appreciation during November.
Q6 Many investors have seen significant income impairment. How is MAVT
navigating such challenges?
A6 The underlying portfolio has a strong focus on income, which is diversified
across many asset classes and regions. Over the Period we have not seen any
impairment to income from the portfolio and, in some cases, dividends have
increased. In addition, the closed-end structure of your Company means that
distributable reserves can be used to support the dividend if needed.
Q7 Are you seeing compelling new investment opportunities? What new holdings
have been added to the portfolio and what did they replace?
A7 Over the Period we have taken profits from strongly performing investments
and have used that capital to add to some of our existing holdings. We have
made one new investment in Capita, where the fundamentals, low debt position,
and pension surplus make the current valuation look attractive.
Q8 What is your outlook for the Company for the year ahead?
A8 The portfolio has clearly had a challenging year but, if we look at the
reasons behind this, we can also see how this may set your Company up for a
positive year ahead.
Major macroeconomic shocks usually cause capital to exit quickly and retreat
to the most liquid assets. However, taking into account the historical
returns of your Company, it can be seen that the best-performing periods have
been preceded by a poor-performing period. If we examine the low points in
MAVT's NAV during recent macro shocks and compare the performance over the
following year, we can see the NAV (total return) gained 44% following the
global financial crisis, 20% following the sovereign debt crisis, 31%
following the Brexit vote and 71% following the COVID-19 sell-off.
Over the next year, we expect to see lower inflation and interest rates should
peak with stocks consequently re-rating from extremely low multiples. This
environment should prove particularly positive for UK mid-cap companies and,
therefore, your Company's portfolio.
Your investment team has clearly demonstrated that we don't panic in periods
of market turmoil but concentrate on the long-term cash generation within the
portfolio. This enables us to take advantage of fearful markets by shifting
capital to assets where we believe valuations have detached from reality.
Contribution analysis by individual holdings in the Period
Contributors Asset class Contribution
1. Doric Nimrod Air Two Specialist Assets +0.44%
2. Doric Nimrod Air Three Specialist Assets +0.24%
3. Diversified Energy Company UK Equities +0.17%
4. JLEN Environmental Assets Group Specialist Assets +0.14%
5. Accrol Group UK Equities +0.07%
Detractors Asset class Contribution
1. Marston's UK Equities -0.79%
2. Chrysalis Investments Specialist Assets -0.78%
3. Schroder UK Public Private Trust Specialist Assets -0.73%
4. Ninety One Global Gold Fund Defensive Assets -0.70%
5. Strix Group UK Equities -0.65%
Momentum Global Investment Management
2 December 2022
Enquiries:
Steve Hunter, Momentum Global Investment Management Ltd 0151 906 2481
Mobile 07470 478974
Gary Moglione, Momentum Global Investment Management Ltd 0151 906 2461
Mobile 07469 852685
Sally Walton, SEC Newgate (media enquiries) 020 3757 6872
Mobile 07961 463864
Juniper Partners Limited, Company Secretary 0131 378 0500
Unaudited Income Statement
Six months ended 31 October 2022 (unaudited) Six months ended 31 October 2021 (unaudited)
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (9,653) (9,653) - 457 457
Currency gains/(losses) - 8 8 - (12) (12)
Income 2 1,545 - 1,545 1,540 - 1,540
Investment management fee (69) (160) (229) (81) (187) (268)
Administrative expenses (254) - (254) (267) - (267)
Profit/(loss) before finance costs and taxation 1,222 (9,805) (8,583) 1,192 258 1,450
Finance costs (32) (73) (105) (19) (36) (55)
Profit/(loss) before taxation 1,190 (9,878) (8,688) 1,173 222 1,395
Taxation (12) - (12) (12) - (12)
Profit/(loss) for the Period/ total comprehensive income 1,178 (9,878) (8,700) 1,161 222 1,383
Return per share (pence) 3 3.88 (32.54) (28.66) 3.42 0.65 4.07
The total column of this statement represents the profit and loss account of
the Company. The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
Audited Income Statement
Year ended 30 April 2022 (audited)
Revenue Capital Total
Notes £'000 £'000 £'000
Losses on investments - (1,453) (1,453)
Currency losses - (15) (15)
Income 2 3,167 - 3,167
Investment management fee (155) (366) (521)
Administrative expenses (522) - (522)
Profit/(loss) before finance costs and taxation 2,490 (1,834) 656
Finance costs (34) (81) (115)
Profit/(loss) before taxation 2,456 (1,915) 541
Taxation (38) - (38)
Profit/(loss) for the year/total comprehensive income 2,418 (1,915) 503
Return per share (pence) 3 7.30 (5.78) 1.52
The total column of this statement represents the profit and loss account of
the Company. The supplementary revenue and capital columns are both prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
Balance Sheet
As at As at As at
31 October 31 October 30 April
2022 2021 2022
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Fixed assets
Investments at fair value through profit or loss 7 49,433 68,490 63,401
Current assets
Debtors and prepayments 248 869 573
Cash 553 509 670
801 1,378 1,243
Creditors: amounts falling due within one year
Bank loan (6,250) (7,000) (7,000)
Other creditors (152) (165) (276)
(6,402) (7,165) (7,276)
Net current liabilities (5,601) (5,787) (6,033)
Net assets 43,832 62,703 57,368
Capital and reserves
Called-up share capital 12,400 12,400 12,400
Share premium account 16,043 16,029 16,063
Special reserve 9,506 16,508 13,116
Capital redemption reserve 2,099 2,099 2,099
Capital reserve - unrealised (18,876) (6,228) (9,238)
Capital reserve - realised 20,428 19,795 20,668
Revenue reserve 2,232 2,100 2,260
Equity shareholders' funds 43,832 62,703 57,368
Net asset value per share (pence) 5 150.51 189.27 183.34
Statement of Changes in Equity
Six months ended 31 October 2022 (unaudited)
Notes Share capital Share premium Special reserve Capital redemption reserve Capital reserve - unrealised Capital reserve - realised
Revenue reserve
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2022
12,400 16,063 13,116 2,099 (9,238) 20,668 2,260 57,368
Total
comprehensive income
- - - - (9,638) (240) 1,178 (8,700)
Dividends paid 4 - - - - - (1,206) (1,206)
Discount Control Mechanism costs - (20) - - - - - (20)
Shares bought back into Treasury 6
- - (3,610) - - - - (3,610)
Balance at 31 October 2022
12,400 16,043 9,506 2,099 (18,876) 20,428 2,232 43,832
Six months ended 31 October 2021 (unaudited)
Notes Share capital Share premium Special reserve Capital redemption reserve Capital reserve - unrealised Capital reserve - realised
Revenue reserve
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2021 12,400 16,044 20,651 2,099 (5,498) 18,843 2,082 66,621
Total 952 1,161 1,383
comprehensive income - - - - (730)
Dividends paid 4 - - - - - - (1,143) (1,143)
Discount Control Mechanism costs - (15) - - - - - (15)
Shares bought back into Treasury 6 - - (4,143) - - - - (4,143)
Balance at 31 October 2021 16,029 16,508 (6,228) 19,795 2,100 62,703
12,400 2,099
Year ended 30 April 2022 (audited)
Notes Share capital Share premium Special reserve Capital redemption reserve Capital reserve - unrealised Capital reserve - realised
Revenue reserve
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2021
12,400 16,044 20,651 2,099 (5,498) 18,843 2,082 66,621
Total
comprehensive income
- - - - (3,740) 1,825 2,418 503
Dividends paid 4 - - - - - - (2,240) (2,240)
Discount Control Mechanism costs - (34) - - - - - (34)
Shares issued from Treasury 53 260 - - - - 313
Shares bought back into Treasury 6 - - (7,795) - - - - (7,795)
Balance at 30 April 2022
12,400 16,063 13,116 2,099 (9,238) 20,668 2,260 57,368
Cash Flow Statement
Six months ended 31 Six months ended 31 Year
October 2022 October 2021 ended 30 April 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net return before finance costs and taxation (8,583) 1,450 656
Adjustments for:
Loss/(gain) on investments 9,653 (457) 1,453
Exchange movements (8) 12 15
Loan interest paid (108) (49) (74)
Tax paid (25) (12) (38)
Decrease/(increase) in dividends receivable 308 188 (105)
Increase in other debtors (21) (23) (15)
Decrease in other creditors (51) (64) (61)
Net cash inflow from operating activities 1,165 1,045 1,831
Investing activities
Purchase of investments (2,141) (5,148) (11,735)
Sales of investments 6,418 9,238 19,660
Net cash inflow from investing activities 4,277 4,090 7,925
Financing activities
Repayment of loan (750) - -
Proceeds of share issues - - 313
Cost of share buy-backs (3,611) (4,347) (8,020)
Equity dividends paid (1,206) (1,143) (2,240)
Net cash outflow from financing activities (5,567) (5,490) (9,947)
Decrease in cash (125) (355) (191)
Exchange movements 8 (12) (15)
Opening balance 670 876 876
Closing balance 553 509 670
Notes
1. Accounting policies
Basis of accounting
The half-yearly financial statements have been prepared in accordance with FRS
104 'Interim Financial Reporting', UK Generally Accepted Accounting Practice
('UK GAAP') and the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (issued by the
Association of Investment Companies in July 2022). They have also been
prepared on the assumption that approval as an investment trust will continue
to be granted. The half-yearly financial statements have been prepared on a
going concern basis and have been prepared using the same accounting policies
as the preceding annual financial statements.
2. Income
Six months ended Six months ended Year ended
31 October 31 October 30 April 2022
2022 2021 £'000
£'000 £'000
Income from investments
UK franked income 620 587 1,309
UK unfranked income 218 202 276
Overseas dividends 707 751 1,582
Total income 1,545 1,540 3,167
3. Return per share
The revenue return per Ordinary share is calculated on net revenue on ordinary
activities after taxation for the Period of £1,178,000 (31 October 2021 -
£1,161,000; 30 April 2022 - £2,418,000) and on 30,352,318 (31 October 2021 -
33,926,022; 30 April 2022 - 33,122,018) Ordinary shares, being the weighted
average number of Ordinary shares in issue during the Period.
The capital return per Ordinary share is calculated on net capital losses for
the Period of £9,878,000 (31 October 2021 - gains of £222,000; 30 April 2022
- losses of £1,915,000) and on 30,352,318 (31 October 2021 - 33,926,022; 30
April 2022 - 33,122,018) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the Period.
The total return per Ordinary share is calculated on total losses for the
Period of £8,700,000 (31 October 2021 - gains of £1,383,000; 30 April 2022 -
gains of £503,000) and on 30,352,318 (31 October 2021 - 33,926,022; 30 April
2022 - 33,122,018) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the Period.
4. Dividends
Ordinary dividends on equity shares deducted from reserves are analysed below:
Six months ended Six months ended Year ended 30 April 2022
31 October 2022 31 October 2021
£'000 £'000 £'000
Fourth interim dividend for 2021: 1.68p - 578 578
First interim dividend for 2022: 1.68p - 565 565
Second interim dividend for 2022: 1.68p - - 550
Third interim dividend for 2022: 1.68p - - 547
Fourth interim dividend for 2022: 2.16p 672 - -
First interim dividend for 2023: 1.80p 534 - -
1,206 1,143 2,240
The Company has declared a second interim dividend in respect of the year
ending 30 April 2023 of 1.80p (2022 - 1.68p) per Ordinary share which will be
paid on 16 December 2022 to Shareholders on the register on 25 November 2022.
5. Net asset value per share
As at As at As at
31 October 31 October 2021 30 April 2022
2022
Net assets £43,832,000 £62,703,000 £57,368,000
Number of Ordinary shares in issue 29,123,156 33,128,848 31,290,848
Net asset value per Ordinary share 150.51p 189.27p 183.34p
6. Called-up share capital
During the Period, the Company repurchased 2,167,692 Ordinary shares at a cost
of £3,610,000 which were placed in Treasury (31 October 2021 - 2,207,500
Ordinary shares at a cost of £4,143,000 which were placed in Treasury; 30
April 2022 - 4,210,500 Ordinary shares at a cost of £7,795,000 which were
placed in Treasury).
During the Period there were no Ordinary shares re-issued from Treasury (31
October 2021 - nil; 30 April 2022 - 165,000 Ordinary shares for proceeds of
£313,000).
At 31 October 2022 there were 20,477,932 Ordinary shares held in Treasury (31
October 2021 - 16,472,240 Ordinary shares held in Treasury; 30 April 2022 -
18,310,240 Ordinary shares held in Treasury).
During the Period there were no new Ordinary shares issued by the Company (31
October 2021 - nil; 30 April 2022 - nil).
At 31 October 2022, excluding Treasury shares, there were 29,123,156 Ordinary
shares in issue (31 October 2021 - 33,128,848; 30 April 2022 - 31,290,848).
The costs of the operation of the Discount Control Mechanism of £20,000 have
been charged against the premium on shares issued.
Treasury shares are Ordinary shares that have been repurchased by the Company
but not yet cancelled. These shares are held in a Treasury account and remain
part of the Company's share capital but do not carry any rights to receive
dividends or vote at General Meetings.
7. Fair Value Hierarchy
Financial Reporting Standard 102 requires an entity to classify fair value
measurements using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy has the
following levels:
- Level 1: the unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement date;
- Level 2: inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly; and
- Level 3: inputs are unobservable (i.e. for which market data is unavailable)
for the asset or liability.
The financial assets measured at fair value in the Balance Sheet are grouped
into the fair value hierarchy at 31 October 2022 as follows:
Financial assets at fair value through profit or loss Level 1 Level 2 £'000 Level 3 £'000 Total
£'000 £'000
Quoted equities (a) 37,190 - - 37,190
Unit Trusts and OEICs (a) 12,236 - - 12,236
Investments in liquidation (b) - - 7 7
Net fair value 49,426 - 7 49,433
(a) Quoted Investments
Quoted equities included in Fair Value Level 1 are actively traded on
recognised stock exchanges and the fair value of these investments have been
determined by reference to their quoted bid prices at the reporting date. The
fair value for OEICs included in Level 1 has been determined based on prices
published by the relevant fund manager. Those OEICs included within Level 1
are quoted in an active market.
(b) Investments in liquidation
Goodhart Partners Horizon Fund HMG Global Emerging Markets Equity Fund is in
liquidation. The fair value has been determined based on the current value of
the fund, as provided by the relevant fund manager, with the application of a
liquidation discount.
8. Half-Yearly Financial Report
The results for the six months ended 31 October 2022 and six months ended 31
October 2021, which have not been reviewed by the Company's auditors pursuant
to the Auditing Practices Board guidance on 'Review of Interim Financial
Information', constitute non-statutory accounts as defined in sections 434 -
436 of the Companies Act 2006. The financial information for the year ended 30
April 2022 has been extracted from the latest published audited financial
statements which have been filed with the Registrar of Companies. The report
of the auditors on those accounts contained no qualification or statement
under section 498 (2), (3) or (4) of the Companies Act 2006.
This Half-Yearly Report was approved by the Board on 2 December 2022.
The report and accounts for the half-year ended 31 October 2022 will be made
available on the website https://momentum.co.uk/MAVT
(https://momentum.co.uk/MAVT) .
9. Principal Risks and Uncertainties
Risks are inherent in the investment process, but it is important that their
nature and magnitude are understood so that risks, particularly those which
the Company seeks to avoid or minimise, can be identified and either avoided
or controlled. The Board has carried out a robust assessment of the principal
and emerging risks facing the Company, including those that threaten its
business model, future performance, solvency or liquidity. The Board has
established a detailed framework of the key risks that the business is exposed
to, with associated policies and processes devised to mitigate or manage those
risks.
The principal risks faced by the Company, are set out below. The Company faces
emerging investment-related risks from rising inflation, extreme geopolitical
events and climate change. The impact of these on the principal risks is
detailed below.
Investment and strategy risks
An inappropriate strategy, including asset class, country and sector
allocation, stock selection and use of gearing, could lead to underperformance
against the Company's Benchmark and peer group, and have an adverse effect on
Shareholders' returns. This could also lead to share buy-backs and a reduction
in the size of the Company.
Mitigation: The Company's strategy is formally reviewed by the Board at least
annually, considering investment performance, Shareholder views, developments
in the marketplace and the structure of the Company. The strategy has been
kept under regular review in light of rising inflation, the Russia Ukraine
conflict and the impact of recent share buy-backs on the size of the Company.
The Board requires the Manager to provide an explanation of significant stock
selection decisions and the rationale for the composition of the investment
portfolio at each Board meeting, when gearing levels are also reviewed. The
Board monitors the spread of investments to ensure that it is adequate to
minimise the risks associated with particular asset classes, countries or
factors specific to particular sectors.
The Board monitors the investment performance and Discount Control Mechanism
activity at each Board meeting.
Portfolio and market risks
External factors such as market, economic, political and legislative change
could cause increased market volatility. This could lead to a fall in the
market value of the Company's portfolio which would have an adverse effect on
Shareholders' funds.
Mitigation: The Board monitors the implementation and results of the
investment process, including gearing strategy and ESG strategy, with the
Manager on an ongoing basis and at each Board meeting, through reviews of the
portfolio composition, investment activity and performance.
Financial risks
Exposure to inappropriate levels of market price risk, foreign currency risk,
interest rate risk and liquidity and credit risk could result in volatility of
Shareholders' funds.
Mitigation: The Company has a diversified portfolio comprising mainly readily
realisable securities, mitigating the Company's exposure to liquidity risk.
The risk of a counterparty failing is minimised through regular review and due
diligence.
Earnings and dividend risks
Fluctuations in earnings resulting from changes in the underlying portfolio,
or factors impacting the dividend paying ability of investee companies, could
result in the Company being required to pay dividends out of reserves on a
sustained basis, resulting in a reduction in NAV.
Mitigation: The Board reviews detailed income forecasts prepared by the
Manager and the Company Secretary at each Board meeting and when the quarterly
dividends are declared.
The Board and the Manager have kept the dividend paying ability of the
investee companies under regular review during the COVID-19 pandemic. The
Company's ability to pay dividends out of distributable capital reserves can
provide flexibility in times of market stress.
Operational and cyber risks
Disruption to, or failure of, systems and controls, including cyber-attacks at
the Manager and the Company's third-party service providers, in particular the
Administrator and Custodian, could result in financial and reputational damage
to the Company.
Mitigation: The Manager's operational systems and controls and those of the
third-party service providers are regularly tested and monitored and are
reported on at each Board meeting. An internal control report, which includes
an assessment of risks, together with the procedures to mitigate such risks,
is prepared by the Company Secretary and reviewed by the Audit Committee at
least once a year. The Custodian, J.P. Morgan Chase Bank N.A., produces an
internal control report every six months which is reviewed by its auditor and
gives assurance regarding the effective operation of its controls. A summary
of this report is reviewed by the Audit Committee.
The operational requirements of the Company, including from the Manager and
its service providers, were subject to rigorous testing as to their
application during the COVID-19 pandemic, when increased use of out of office
working and on-line communication was required. The operational arrangements
proved robust.
Regulatory risks
Breach of regulatory rules could lead to suspension of the Company's stock
exchange listing or financial penalties. Breach of sections 1158 and 1159 of
the Corporation Tax Act 2010 could lead to the Company being subject to tax on
chargeable gains.
Mitigation: The Company Secretary monitors the Company's compliance with the
rules of the FCA and sections 1158 and 1159 of the Corporation Tax Act 2010.
Compliance with the principal rules is reviewed by the Directors at each Board
meeting.
Key man risks
Loss of key personnel and poor succession planning at the Manager or Company
Secretary could lead to disruption for the Company.
Mitigation: To reduce key man risk, MGIM operates a team approach to fund
management, with each member of the four strong highly experienced investment
team contributing to the performance of the Company through their research
specialisations. Juniper Partners has experienced company secretarial and
administration teams in place, with appropriate levels of cover.
Directors' Statement of Responsibilities in Respect of the Half-Yearly
Financial Report
In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority, the Directors confirm that to the best of
their knowledge:
• the condensed set of financial statements has been prepared in accordance
with Financial Reporting Standard 104 (Interim Financial Reporting) on a going
concern basis, and gives a true and fair view of the assets, liabilities,
financial position and net return of the Company;
• the half-yearly report includes a fair review of the important events that
have occurred during the first six months of the financial year and their
impact on the financial statements;
• the Directors' Statement of Principal Risks and Uncertainties shown above
is a fair review of the principal risks and uncertainties for the remainder of
the financial year;
• the half-yearly report includes a fair review of the related party
transactions that have taken place in the first six months of the financial
year; and
• in light of the controls and monitoring processes that are in place, the
Company has adequate resources and arrangements to continue operating within
its stated objective and policy for the foreseeable future. Accordingly, the
accounts continue to be drawn up on the basis that the Company is a going
concern.
Jimmy McCulloch
Chairman
2 December 2022
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