Half-year Report to 31 October 2019

Blue Planet Investment Trust Plc - Half-year Report to 31 October 2019

PR Newswire

London, December 11

Blue Planet Investment Trust plc

Half Yearly Report and Accounts

For the six months ended 31 October 2019

Officers and Advisors

Directors Investment Manager, Administrator and Secretary

Russell Frith (Non-Executive Chairman) Blue Planet Investment Management Ltd

Victoria Killay (Non-Executive) 17 Grosvenor Crescent

Kenneth Murray (Non-Executive) Edinburgh

EH12 5EL

Telephone No: 0131 466 66 66

E-mail: [email protected]

www.blueplanet.eu

Registered Office Registrars

17 Grosvenor Crescent Link Asset Services

Edinburgh The Registry

EH12 5EL 34 Beckenham Road

Telephone No: +44 131 466 6666 Beckenham

E-mail: [email protected] Kent BR3 4TU

www.blueplanet.eu Shareholder Helpline No: 0871 664 0300 (calls cost 12p

per minute plus network extras, lines are open 9am-5.30pm (Mon-Fri))

Overseas: +44 371 664 0300

E-mail: [email protected]

www.linkassetservices.com

Chartered Accountants & Statutory Auditors Custodians

Scott-Moncrieff KAS Bank N.V.

Exchange Place 3 Westferry House, 11 Westferry Circus

Semple Street London

Edinburgh EH3 8BL E14 4HD

Bankers  Interactive Brokers (U.K.) Ltd

Lloyds Banking Group Level 20 Heron Tower, 110 Bishopsgate

1st Floor London EC2N 4AY

48 Chiswell Street

London EC1Y 4XX Caja de Valores SA

25 de Mayo, 362 C1002ABH

Ciudad Autonoma de Buenos Aires

Republica Argentina

Registered Number

SC192153

Blue Planet Investment Trust plc is a member of the Association of Investment Companies.

Investment Policy and Objectives

The Company’s objective is to provide investors with a combination of capital growth and income. To achieve this, it invests in securities (including equities, exchange traded funds, equity-related securities, bonds and derivatives) issued by companies, Governments and other types of issuers located throughout the world.

The Company has not set maximum exposures for any type of issuer, geographical regions or sectors. How the Company’s investments are allocated will depend on market conditions and the judgement of the Board as to what is in the best interests of Shareholders. This is to provide it with the flexibility that is necessary to deal with an ever-changing economic environment. It would, however, normally be expected that most of the Company’s investments will be in equities, exchange traded funds, equity-related securities, preference shares, bonds, bills and derivatives. However, the Company is not prohibited from investing in other types of securities including unlisted investments and property. No more than 15 per cent of the Company’s portfolio may be invested in any one investment at the time the investment is made. There is no restriction on the amount that may be invested in any one country.

Under the Company’s Articles of Association, the maximum gearing the Company may deploy is 75% of NAV although the Board has historically imposed a lower ceiling equal to 50% of NAV. The Board may utilise borrowing up to this limit from time to time to enhance income and capital returns over the long term and may borrow in Sterling and other currencies. 

The Board assesses the Company’s performance in meeting its objectives against the above KPIs, they also believe the above KPIs are of most relevance to shareholders in monitoring the performance of the Company and therefore the return on their investment in the Company.

The Investment Manager

Under the Alternative Investment Fund Management Directive legislation, the Trust has elected to be its own AIF manager but has delegated the day to day management of the investment portfolio and administration to Blue Planet Investment Management Ltd. It is an independent firm that specialises in advising and managing investment and family trusts. It has a great deal of expertise in managing investments on a worldwide basis. It is regulated by the Financial Conduct Authority.

During the period the investment management and administration contracts were transferred from Blue Planet Investment Management Ltd in Malta to Blue Planet Investment Advisers Ltd in the UK, which subsequently changed its name to Blue Planet Investment Management Ltd.

Blue Planet Investment Management Ltd is 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. Blue Planet Investment Management Ltd also receives £196,000 per annum in respect of administration and secretarial services. The investment management, administration and secretarial services agreements may only be terminated on receipt of two years notice.

Website Information

Please take the time to visit our website:

www.blueplanet.eu

Subscribe to our monthly fact sheet service and download past monthly fact sheets:

https://www.blueplanet.eu/monthly-factsheets

To download historical Annual and Interim reports:

https://www.blueplanet.eu/report-accounts

To view stock market RNS announcements:

https://www.blueplanet.eu/regulatory-news-2

Retail Distribution of Investment Company Shares

Blue Planet Investment Trust plc currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future.

The shares are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

PRIIPS Key Information Documents

We are required by EU regulations to provide investors with a Key Information Document (“KID”) which includes performance projections which are the product of prescribed calculations based on the Company’s past performance. Whilst the content and format of the KID cannot be amended under the applicable EU regulations, the Board does not believe that these projections are an appropriate or helpful way to assess the Company’s future prospects. Accordingly, the Board urges shareholders to also consider the more complete information set out in the Annual Report and Accounts, together with the Company’s interim report and accounts, monthly fact sheets and net asset value announcements, when considering an investment in the Company’s shares. These documents are published on the investment managers website at www.blueplanet.eu

Interim Management Report – Portfolio Information

Interim Management Report

Performance

The Fund outperformed its benchmark index during the six months to 31st October 2019, producing a NAV total return of 0.7% as compared to the benchmark’s total return of 0.1% over the same period.

On the 30th April 2019, the end of our previous financial year, we had 62.5% of our portfolio invested in bonds and treasury bills, 31.2% invested in equities and 5.5% invested in leveraged ETF’s designed to short equity indices such as the US S&P 500 and the Italian FTSE MIB. Essentially, we were positioned defensively because we feared market weakness as the Federal Reserve Bank’s carried on raising interest rates as it had repeatedly and publicly vowed to do. However, as explained in our Annual Report, after pressure from President Trump it did a “U-turn” of historic proportions and abandoned that policy literally overnight and started guiding that it would instead be cutting interest rates. That 180° volte-face boosted markets following a severe sell-off at the end of 2018 and was a game-changer which we had to respond to. We did so by increasing the risk profile of the portfolio and gearing, allocating more capital to equities and closing our short ETF positions.

Over the course of the six months under review, we added equity positions in three rapidly growing Chinese companies whose share prices had been depressed by the American Chinese trade dispute in the hope that they would rebound once that dispute was resolved. These were iQiyi Inc, often called the “Netflix of China” however we would perhaps describe it as the “Disney of China” due to their more diversified methods of monetization. Weibo Corp, one of the most popular social media companies in China, and lastly, Momo Inc, a social search and instant messaging application. We also bought shares in high growth and innovative US tech companies such as Zynga Inc, a rapidly growing gaming company with an exciting pipeline of new games. Zendesk Inc and Salesforce.com Inc, two CRM (“Customer Relationship Management”) software companies whose products are used by online retailers and which are set to benefit from the rapid growth of that sector. Shopify Inc which allows companies/traders to sell online, much like Amazon, and which is potentially another Amazon in the making. We also invested in Qualcomm Inc, whose Snapdragon processors address the potentially huge market for 5G connected devices and which have a leading position in it. Micron Technology Inc, one of the largest manufacturers of DRAM and NAND flash memory (memory chips) in the world for which demand is likely to carry on growing exponentially as Artificial Intelligence, the Internet of Things and other developing technologies which require ever more memory take off. Another attraction was that its shares were very cheap and finally, Telaria Inc. which provides a software platform for publishers to manage and monetize video advertising in the United States and which is set to benefit from the streaming revolution with hopefully many years of rapid growth ahead of it.

As we adjusted the risk profile of the portfolio during the first four months of the financial year, we outperformed the benchmark in each of those months, with NAV total return peaking at +15.2% towards the end of July 2019, versus the benchmark’s total return of +2.7%. However, September was a bad month and wiped most of that out as we produced a NAV total return of -10.1%. October, the final month of the period under review, did show a recovery, however, Sterling strength hindered that and meant we ended the interim period with a NAV total return of 0.7%, still ahead of the benchmark’s total return of 0.1%.

In terms of the investments that helped drive our performance higher, Micron Technology had a total return of 33.5% over the period. Qualcomm Inc, Weibo Corp and Momo Inc also added value with total returns of 13.5%, 6.1% and 4.7% respectively. Our two income funds, ETRACS 2x Long WFC BDCI ETN and the newly added Global X Superdividend US ETF both returned 5.7% and 4.1%. The stand-out performer during the period was Roku Inc. We initially bought shares in Roku in March 2019, reduced our holding in September 2019 and finally sold our remaining shares in October 2019, booking a total return during the period of 110.3%. From our bond holdings, Brazil and Egypt were our best performers. Our Republic of Brazil 2029 bonds had a total return of 18.4% and the 2025 bonds returned 13.3%, whereas our Egyptian Treasury Bills both returned 16.7%. Some of our oil bonds also performed well with Siccar Point Energy 9% 01/2023 bonds having a total return of 9.8% and our Genel Energy 10% 12/2022 bonds returning 7.1%.

As for the negative impacts to our performance, Arista Networks Inc, which had been one of our better performers in previous periods, was our worst-performing equity during this period with a total return of -17.9%. Another stellar performer for us previously, MongoDB Inc, had the second biggest negative impact due to its weighting in the portfolio, producing a total return of -8.7%, however at the time of writing, still sits on an unrealised profit of over 225%. The other equities that had negative total returns were Zendesk Inc, -18.2%, iQiyi Inc, -11.7% and The Trade Desk Inc, -8.8%. As for our fixed-income investments, Argentina was again a drag on our performance due to Sterling rising 33.5% against the Argentine Peso and a severe adjustment of 40% to 50% lower in bond prices following the outcome of the Presidential Elections. Our exposure to Argentina government debt totalled 4.2% of the portfolio at the period end.

At the half year-end, the 31st October 2019, 53.6% of the portfolio was invested in equities, mostly high growth US technology companies, 46.0% was invested in bonds and treasury bills with the balance in cash. Our gearing stood at 46.4% having started the period at 9.1%. With the exception of the month of September 2019, we outperformed our benchmark in five of the six months in this interim period. We also outperformed in November 2019. 

Income and Dividends

A dividend of 2.4p per share was paid on 28th August 2019 in respect of the financial year ended 30th April 2019.

The revenue return per share for the first six months of the financial year was 1.2p. This was 27.7% less than we earnt in the same period last year. This decrease was mainly due to the fund reallocating capital from high yielding equities to growth stocks. Our income from our Argentinian investments was also lower due to the depreciation in the Peso.

In accordance with established policy no interim dividend has been declared for the first half of the year.

Gearing and Capital Allocation

At the end of the six-month period to 31st October 2019 the Trust had gearing, net of cash, equal to 46.4% of NAV and its portfolio was allocated as follows: 53.6% was invested in ordinary shares; 46.0% in bonds and 0.4% in cash. Figure 1 shows the movement in the allocation of our capital by geographical region and figure 2 shows the movement by sector, since our year end 30th April 2019.

Figure 1: Portfolio movements – by geographical region

Figure 2: Portfolio movements – by sector

Principal risks and going concern

Your Company is, and will continue to be, exposed to a number of risks which are detailed in full in the Strategic Report on page 5 of the Annual Report and have not changed up to the date of this report. The key market risk arises from the uncertainty regarding the future price performance of the listed securities held by your Company. If gearing is employed this risk is magnified.

The prices of the individual listed securities in the portfolio are monitored on a daily basis and the Board, which meets quarterly, imposes borrowing limits to ensure gearing levels are appropriate to market conditions. When gearing is employed the potential impact of changes in interest rates is taken into consideration. All investments are listed on recognised exchanges, traded in active markets and readily realisable, with the exception of Telford Offshore Holdings Ltd, which is unlisted and is valued using the net book value per share stated in the company’s most recent audited accounts.

The Fund is exposed to currency risk, due to the range of currencies in which investments are held. A substantial proportion of the Company’s assets are held in assets denominated in foreign currencies and movements in these currencies can significantly affect the Sterling value of the Company’s foreign denominated income and assets. The fund manager tracks currency movements on a regular basis and hedging is considered on a case-by-case basis.

The Company has no cyber systems of its own; instead it outsources the provision of services to third party providers who themselves, like any company, are exposed to cyber risk. This risk is monitored by a regular review of service providers by the Company Secretary who reports directly to the Board of Directors.

Where investments are made in emerging markets there is a risk of higher volatility in the price performance of these equities and their associated currencies. Political risk and adverse economic circumstances are more likely to arise, putting the value of the investment at a higher risk. The registration and settlement arrangements in emerging markets may be less developed than in more mature markets so operational risks of investing are higher.

The Company’s business model and strategy, together with the risk factors likely to affect its future position are set out in the Strategic Report on page 4 of the Annual Report and Accounts. The Directors consider that the Company has adequate financial resources in the form of readily realisable listed securities, including cash and credit facilities to continue in operational existence for the foreseeable future. For this reason, they continue to use the going concern basis in preparing the accounts

Borrowings, Gearing and Liquidity

The Fund ended the period with gearing net of cash of 46.4%. The Company financed its gearing by means of credit facilities with KAS Bank N.V and Interactive Brokers Incorporated.

Generally, gearing beneficially affects the Company’s NAV when the value of its investments is rising, but adversely affects it when the value of investments is falling.

Auditors

The Board are disappointed to advise shareholders that the Company’s auditors, Scott-Moncrieff, have merged with the Cogital Group and have advised the Board that they are no longer willing to carry out listed company audits and are therefore resigning as the Company’s auditors after one year in office. The Board is therefore taking steps to appoint new auditors who will carry out the 2020 audit.

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 “BLP” in the “Price Search” field.

I would like to thank all shareholders for your continuing support.

Russell Frith

Chairman

10 December 2019

Investment Managers Outlook

The current bull market is to a large extent the product of central bank monetary policies. Those policies have both financed and driven the bull market by flooding the banking system with excessive amounts of cheap liquidity, encouraged borrowing and discouraged saving. These are the same policies that led to the financial crisis of 2008/9, and of which we forewarned in 2007. They have also created enormous bubbles in bond, property and other markets. Meanwhile low and negative interest rates, flat yield curves and disastrous “money laundering” regulations, which have led to banks treating their customers as though they were criminals, have destroyed the unsurpassed levels of goodwill they once enjoyed with the public and left them as mere shadows of their former selves; weak and unable to withstand another major financial crisis. They may have higher capital ratios than they did in 2007/8 but they are simply insufficient to stop many of them from failing in another major financial crisis. Grossly irresponsible borrowing and spending have left governments in a similarly weak position. 

Those policies have also trapped the central banks, whose options for manoeuvre are rapidly dwindling and soon they will have none. Another financial crisis is now inevitable as debt levels soar to nosebleed heights and it is likely to be significantly worse than the crisis of 2008/9. If anybody is any doubt as to the scale of these bubbles, they need only look to the negative interest rates currently prevailing on about one-quarter of all the bonds in the world and increasingly on bank deposits to see how detached from reality pricing has become. No sane person would or should lend money at negative interest rates. They would be far better off putting it in a safe, that way they avoid entirely the risk of default and the guaranteed loss that is implicit in negative interest rates. Negative interest rates, if left unchecked, will also ultimately lead to the banking system being starved of liquidity as rational investors choose not to deposit their money in banks but to retain it instead. Furthermore, as the risk of the wholesale collapse of banks rises, the incentive for savers to withdraw their money from the banking system will also rise and as banks are nearly always brought down by liquidity, rather than solvency problems, that is in itself concerning.

The bubbles that now exist in so many markets are almost certainly the largest that have ever existed and surpass those that led to the Wall Street crash of 1929 and the 2008/9 financial crisis and history tells us that they will burst with untold consequences. While the proverbial party may still be in full swing, as it always is ahead of a crash and the Fed’s volte-face has prolonged it for a bit longer, further interest rate cuts will only serve to make the problem even more intractable and its consequences even more dire.

Whilst there is nothing we can do to correct the mistakes made by central bankers and politicians, we can do our best to try and protect your fund against their consequences. In order to do that, we intend, over time, to re-allocate capital from growth to income stocks, shorten the average duration of our bond portfolio, reduce gearing and to short those markets that we see as being the most overvalued and therefore the most vulnerable to collapse.

Kenneth Murray

Blue Planet Investment Management Ltd

10 December 2019

Balance Sheet

Statement of Directors’ responsibilities

The Directors confirm that this set of condensed financial statements has been prepared in accordance with FRS 104 “Interim Financial Reporting” and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

On behalf of the Board

Russell Frith

Chairman

10 December 2019

Statement of Changes in Equity

Income Statement 

The Total column of the income statement represents the profit & loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

There were no recognised gains and losses other than those disclosed above. Accordingly, a statement of total recognised gains and losses is not required.

Notes

 The net asset value per ordinary share is calculated on 49,474,863 ordinary shares in issue at the end of the period after deducting treasury shares.

5. No interim dividend is proposed.

6. The carrying value of investments is equivalent to their fair value and all investments are measured at fair value through profit or loss, are quoted in active markets and classified as level one, with the exception of Telford Offshore Holding Ltd, which is unlisted, classified as level two and is valued using the net book value per share stated in the company’s most recent audited accounts.

7. The Company has credit facilities with Interactive Brokers Incorporated. Loans are secured against the investments held in custody accounts. As at 31st October 2019 the prevailing rate of interest on the facility with Interactive Brokers Incorporated was 2.2%. At 31 October 2019, the amount outstanding with this facility was £9,920,121 (31st October 2018 - £1,279,379 with KAS Bank N.V and £6,100,093 with Interactive Brokers Incorporated)

8. The total number of shares held in treasury is 307,125. These shares have no voting rights, do not rank for dividend and are excluded from the calculation of net asset value and return per ordinary share. At 31st October 2019, the Company had the authority to purchase a further 7,467,000 of its own shares. A resolution to renew this authority will be proposed at the Annual General Meeting in 2020.

9. The figures and financial information for the year ended 30th April 2019 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for the period as defined in section 434 of the Companies Act 2006. Those accounts have been delivered to the Registrar of Companies and include the report of the auditors which was unqualified and did not contain a statement either under section 498(2) or 498(3) of the Companies Act 2006. The half yearly Report and Accounts have not been audited or reviewed by the Company’s Auditors.