HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING 1 SOVEREIGN COURT PO BOX 17067 GRAHAM STREET www.margetts.com BIRMINGHAM BIRMINGHAM VAT No. (GB) 795 0415 16 B2 2HL B1 3JR Registered in England No. 4158249 TELEPHONE: 0121 236 2380 Authorised and Regulated by TELEPHONE: 0345 607 6808 FACSIMILE: 0121 236 2330 the Financial Conduct Authority FACSIMILE: 0121 236 8990 Annual Report and Financial Statements for MGTS Future Money Dynamic Growth Fund For the year ended 31 July 2016
Transcript
HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING 1 SOVEREIGN COURT PO BOX 17067 GRAHAM STREET www.margetts.com BIRMINGHAM BIRMINGHAM VAT No. (GB) 795 0415 16 B2 2HL B1 3JR
Registered in England No. 4158249
TELEPHONE: 0121 236 2380 Authorised and Regulated by TELEPHONE: 0345 607 6808 FACSIMILE: 0121 236 2330 the Financial Conduct Authority FACSIMILE: 0121 236 8990
(Authorised and regulated by the Financial Conduct Authority)
Contents ACD’s Report 1 Certification of Accounts by Directors of the ACD 4 Significant Purchases and Sales 5 Portfolio Statement 6 Statement of ACD’s Responsibilities 7 Statement of Depositary’s Responsibilities 8 Report of the Depositary 8 Independent Auditors’ Report to the Shareholders of the MGTS Future Money Dynamic Growth Fund 9 Net Asset Value per Share and Comparative Tables 11 Financial Statements
Statement of Total Return 13 Statement of Change in Net Assets Attributable to Shareholders 13 Balance Sheet 14 Notes to the Financial Statements 15 Distribution Table 22
General Information 23
1
ACD’s Report For the year ended 31 July 2016 Investment Objective To provide long term capital growth through an actively managed diversified portfolio of investments with the objective of significantly growing the value of the investment above the rate of inflation. The fund will be appropriate for a higher risk investor and consists of holdings exposed to UK & International equities, Fixed Interest and Property based investments. Investment Review MGTS Future Money Dynamic Growth 4.59% MGTS Future Money Dynamic Growth R 5.39% Benchmark Composite Benchmark 10.57% 5% - GBP 3 month LIBOR 25% - FTSE Government Secs All Stock TR 40% - FTSE All Share Index TR 30% - FTSE World Ex UK TR Source: Morningstar Direct. Performance is NAV to NAV with income reinvested.
MGTS Future Money Dynamic Growth has delivered a positive return over the past year which has been ahead of inflation and as such the fund has beaten its primary investment objective. The fund has however underperformed its benchmark over the twelve month period. While the second half of 2015 proved successful for the strategy, 2016 has been a year of negative sentiment which has fuelled further rises in UK government bonds. Government bonds (Gilts) make up a large part of the benchmark and have driven a return in excess of Future Money Dynamic Growth. A lot of the gains in Gilts occurred due to concerns surrounding the ‘Brexit’ vote, however we expect these gains to reverse as the falling value of sterling will lead to increasing levels of inflation, which can be highly damaging for Gilt markets. The key event during this reporting period was the historic decision of the British people, expressed through the referendum held on the 23rd June, to leave the European Union. This decision has far reaching consequences for the UK economy, the European economy and the global economy. Stock markets experienced high levels of volatility in the run-up to the vote as the polls showed that the result of the referendum was too close to call. On the day of the referendum, global currency and stock markets appeared to price in a 'remain' outcome, as privately commissioned polls hinted to this likelihood, and this scenario reversed abruptly as the first results were announced. The initial market reaction was a significant fall in both sterling and UK equities shortly followed by a recovery in equity markets. This resulted in strong performance for many assets in the days that followed the Brexit vote. Overseas assets have been boosted in sterling terms by the currency devaluation, whilst UK equities had recovered in expectation, and then on the announcement, of further stimulus from the Bank of England, which reduced the base rate from 0.5% to 0.25% and restarted Quantitative Easing in early August. Prior to the Brexit vote, when David Cameron was interviewed on Radio 4 and asked if he would resign if an ‘Out’ vote occurred, he replied that he would go to work on Friday morning, whatever the outcome, and carry out the will of the British people. In the event, this is not what occurred as when he appeared after the vote, following what was clearly an emotional defeat, he resigned. He suggested that his successor should take over before October and trigger ‘Article 50’ of the Lisbon Treaty, which would formally begin the untested process, by which a member state leaves the European Union. A ‘Hail Mary’ pass is a very long forward pass in American football made in desperation with only a small chance of success. As a firm ‘Remain’ campaigner this was the final option available to Mr Cameron to avoid triggering the irreversible ‘Article 50’ and instead create some time and space for any other developments, which could avoid the outcome he desperately believes to be against the national interest.
2
ACD’s Report (continued) Key European leaders were quick to defend against this tactic. Europe has significant problems and providing an easy exit for the UK will encourage others to pursue a similar path. The President of the European Commission, Jean-Claude Juncker, has insisted that the UK now triggers ‘Article 50’ without delay with French, German and other leaders insisting that no negotiations of any kind (formal or informal) can begin until this occurs. Once ‘Article 50’ is triggered, the UK will be cut out of EU decision-making at the highest level and the only way back is by unanimous consent from all other members, so it is effectively a one way process. In the meantime, the UK remains bound by all other membership requirements of the EU including the contentious requirements of free movement of people and contribution to EU budgets. The process is mandated to only take two years and again all members must consent if any extension is granted. The work and skill required to negotiate a successful exit is considerable and it is not realistic to expect that 43 years of European integration can be undone in such a short timeframe. Since the outcome of the referendum was announced, events have moved quickly. The political landscape has changed considerably as the Labour party has disintegrated, with the majority of the shadow cabinet resigning triggering a new leadership contest, and the Conservative party electing a new lead in Theresa May. Scotland and Northern Ireland voted to remain part of the EU and the Scottish National Party are looking at options of independence once again, and also the possibility of blocking the UK exit from the EU in Parliament. Standard & Poor’s and other ratings agencies have reduced their view of the creditworthiness of the UK, warning of further downgrades due to lower economic growth expectations. This has not negatively impacted the value of UK Government debt, which has soared to record highs. 10 year yields have fallen below 1% on the expectation that UK interest rates will remain lower for longer. The effect to date for investors has been generally positive and some investors will be surprised that their portfolios have risen sharply as a result of Brexit. Investors who hold overseas assets or UK fixed interest investments will have seen positive returns. Investment markets have effectively granted many investors their own ‘Hail Mary’ pass opportunity, as anyone wishing they had ‘panicked’ out of their investments pre-referendum can now do so at a profit to pre-referendum levels. The key question is should they? We feel there are more positives than investors perceive right now. The devaluation in Sterling is something which Western economies have being trying to achieve for many years. Japan, most notably, has engaged in the most aggressive money printing policy (relative to the rest of the world) combined with negative interest rates; but the Yen has remained stubbornly expensive. The benefit of a weak currency is that exports become cheaper and imports more expensive, boosting demand for domestic goods and services. The Brexit effect has created a 10% price cut for UK exporters. Companies trading with the EU are unlikely to benefit due to the increased uncertainty with regard to future UK access to the free market, but export businesses trading internationally outside of the EU will be celebrating. Most would accept that the EU project has been failing in recent years with the credit crisis exposing the huge economic imbalances, which exist within Europe. Youth unemployment of 50% in some southern European countries presents a huge problem and the financial discipline, which Germany insists upon, has condemned many members to years of negative growth with no immediate solution in sight. European politics has become increasingly detached from European democracy and the British referendum has exposed this fact in a manner that cannot be ignored by any member state. Europe must reform to survive and leaving a failing project may work, but remaining part of a reformed Europe may also be logical. This opportunity may ultimately present itself, but this cannot be a short term consideration. In the meantime short term political uncertainty is very high. If or when will the Government trigger 'Article 50'? How long will the exit take and what will it look like? Who will lead the Opposition? Will Scotland and Northern Ireland remain in the UK?
3
ACD’s Report (continued) We have developed an expected framework (outlined below) around these unknowns so that we can monitor outcomes to our current expectations. Theresa May is building a team to negotiate the UK exit from the EU. It does not seem sensible to activate 'Article 50' until she is certain of her initial negotiating position and strategy. This is a considerable project and it could take some time to complete. It will be difficult for the Prime Minister to balance the best possible preparation against the inevitable calls for action from 'out' campaigners if progress is too slow. As an educated guess we expect 'Article 50' to be triggered in the first two quarters of 2017. Political posturing from Scotland and Northern Ireland is unlikely to result in an independence vote until the future position of the UK within Europe is established, as voters will not want to make a decision without this information. It has already become clear that the pace of the UK withdrawal from Europe will be much slower than many of the ‘Leave’ camp initially expected. This is effectively a divorce where there is much at stake. The ‘children’ of the divorce are around 3 million EU nationals who live in the UK and around 1.2 million UK nationals who live in Europe, whose rights must be agreed. The financial implications are the £8Bn per annum (£121m per week) net contribution to the EU budget (source: BBC) and the significant trade generated via our access to the single market, which is vital to both sides. There is also the additional burden of replacing or adopting European legislation once the UK has left the EU. Given the size of the challenge and the need for Europe to agree our exit with the unanimous vote of the remaining 27 members, the prospect that this can be completed in two years is unrealistic, given the issues at stake and the previous pace of European negotiation (with the example of serious issues, such as the Greek debt crisis being negotiated to the 11th hour). If the EU does insist on the UK leaving within the two year timeframe, the exit will be rushed and poorly orchestrated, with significant economic damage caused to both sides. Therefore we expect that a gradual exit programme will be agreed with the UK leaving the EU within the two year timetable, but moving to an EEA plus or minus (European Economic Area) position. This will continue our access to the single market whilst also requiring the UK to contribute to the EU budget and adopt EU legislation. This initial change will not result in any significant difference to the current position, except that we will lose our voice in Europe. But this is balanced by the UK gaining some control over EU immigration, with the ability to negotiate trade agreements outside of the EU. From this position, further withdrawal may occur over the following years with access to the single market being reduced if we cease to contribute to the EU budget and/or impose significant restrictions on EU immigration. During this process, the door back into the EU will remain open, should the EU reform and become more compatible with the will of the British people. From an investment perspective, the referendum result was a shock to global markets and initial thoughts were of a disorderly and rushed exit from the EU. As the initial shock subsided, it will become clear that this exit will be over a number of phases and on a glacial time scale rather than a ‘quickie’ divorce. The uncertainty will continue to lead to market volatility and the EU may start to realise that reform is needed for its survival and this would be a positive outcome. The outcome of the referendum is a path changing or 'sliding doors' event. Prior to this event we believed that economic progress was likely to exceed expectation with signs that the second half of 2016 could experience accelerating growth. This indication is no longer valid as the effects of the referendum are unknown. Post Brexit data has not yet started to come through and we expect that investors will place a high level of importance on economic data collected after the Brexit vote.
4
ACD’s Report (continued) Initially signs of falls in confidence have been observed with downgrades to UK, European and Global growth being reported by many agencies. This reflects apprehension, which is understandable, but if indicators improve in the short term this will be positive and we believe that there are currently investment opportunities available.
Margetts Fund Management ACD 04 November 2016
Certification of Accounts by Directors of the ACD This report is signed in accordance with the requirements of the Collective Investment Schemes Sourcebook (COLL) as issued and amended by the Financial Conduct Authority.
T J Ricketts M D Jealous
Margetts Fund Management Ltd 17 November 2016
Authorised Status
The MGTS Future Money Dynamic Growth Fund is a sub-fund of the MGTS Future Money ICVC with investment powers equivalent to those of a UCITS Scheme. The umbrella company is MGTS Future Money ICVC which is an open-ended investment company with variable capital incorporated in England and Wales under regulation number IC706 and authorised by the Financial Conduct Authority with effect from 23 September 2008. It is a Non-UCITS Retail Fund (NURS) as classified under the FCA’s Collective Investment Schemes Sourcebook. Shareholders are not liable for the debts of the fund.
5
Significant purchases and salesFor the year ended 31 July 2016
Total purchases for the year £11,931,172
Purchases Cost (£)
FIDELITY INDEX US P ACC £2,520,000
AXA STERLING CREDIT SHORT DURATION BOND Z NET ACC £2,455,000
AXA STERLING CREDIT SHORT DURATION BND Z GROSS ACC £2,358,567
ROYAL LONDON SHORT DUR CRDT Z GBP INC £1,882,000
VANGUARD US EQUITY INDEX GBP ACC £1,158,000
Total sales for the year £17,152,460
Sales Proceeds (£)
FP BROWN SHIPLEY STERLING BOND I ACC 3,081,426
HENDERSON EUROPEAN FOCUS I ACC 2,704,963
AXA STERLING CREDIT SHORT DURATION BOND Z NET ACC 2,463,567
VANGUARD US EQUITY INDEX GBP ACC 2,000,000
KAMES INVESTMENT GRADE BOND B ACC 1,535,000
F&C EUROPEAN GROWTH & INCOME 2 ACC 1,078,000
6
Portfolio statement As at 31 July 2016
Total Net Assets
Holding Portfolio of Investments Value (£) 31.07.16
% 31.07.15
%
UK
2,127,037 AXA Framlington UK Select Opportunities ZI 3,041,663 6.83
1,497,342 Jupiter UK Special Situations I 2,960,545 6.65
1,944,277 Majedie Asset UK Equity X 2,895,029 6.50
2,551,120 Old Mutual UK Alpha U1 2,946,544 6.62
878,125 Royal London UK Mid Cap Growth I 2,835,465 6.38
2,121,458 Threadneedle UK Growth & Income ZNI 3,009,288 6.77
Total UK 17,688,534 39.75 41.76
Bonds & Gilts
2,030,641 AXA Sterling Credit Short Duration Bond Z 2,410,371 5.42
1,091,814 Kames Investment Grade Bond B 1,954,675 4.39
1,856,058 Royal London Short Duration Credit Z 1,904,316 4.28
1,220,091 Standard Life Global Index Linked Bond I 1,866,739 4.19
Total Bonds & Gilts 8,136,101 18.28 19.93
European
893,196 F&C European Growth & Income 2 1,683,674 3.78
Total European 1,683,674 3.78 11.61
US
1,650,320 Fidelity Index US P 2,569,384 5.77
7,909 Vanguard US Equity Index 2,676,260 6.01
Total US 5,245,644 11.78 6.02
Emerging Markets 2,184,310 MI Somerset Emerging Markets Dividend
Growth Fund A 3,200,669 7.19
Total Emerging Markets 3,200,669 7.19 7.02
Asia Pacific (excl. Japan)
201,294 M&G Asian I 2,814,533 6.32
508,054 Stewart Investors Asia Pacific Leaders B 3,131,999 7.04
Total Asia Pacific (excl. Japan) 5,946,532 13.36 12.47
Portfolio of Investments 41,901,154 94.14 98.81
Net Current Assets 2,610,634 5.86 1.19
Net Assets 44,511,788 100 100
The investments have been valued in accordance with note 1(b) and are authorised Collective Investment Schemes.
7
Statement of ACD’s Responsibilities The ACD is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice.
The Financial Conduct Authority’s Collective Investment Schemes Sourcebook (“COLL”) requires the Authorised Corporate Director to ensure that the financial statements for each accounting period give a true and fair view of the financial affairs of the Scheme and of the net income / expenses and of the net gains / losses on the property of the Scheme for that year.
In preparing the financial statements the ACD is required to:
select suitable accounting policies, as described in the attached financial statements, and apply them consistently;
make judgments and estimates that are reasonable and prudent;
comply with the Prospectus, generally accepted accounting principles and applicable accounting standards subject to any material departures which are required to be disclosed and explained in the financial statements;
comply with the disclosure requirements of the Statement of Recommended Practice for Financial Statements and Authorised Funds;
keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Scheme will continue in operation.
The ACD is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Scheme and to enable them to ensure that the financial statements comply with the COLL Sourcebook. The ACD is also responsible for safeguarding the assets of the Scheme and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. This function is performed by the ACD and references to the ACD include the AIFM as applicable.
In so far as the ACD is aware:
There is no relevant audit information of which the Scheme’s auditors are unaware; and
The ACD has taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
8
Statement of the Depositary's Responsibilities in Respect of the Scheme and Report of the Depositary to the Shareholders of the Future Money Dynamic Growth Fund of the Future Money (“the Company”) for the Period Ended 31 July 2016 The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority’s Collective Investment Schemes Sourcebook, and, from the 22nd July 2014 the Investment Funds Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended, the Financial Services and Markets Act 2000, as amended, (together “the Regulations”), the Company’s Instrument of Incorporation and Prospectus (together “the Scheme documents”) as detailed below.
The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors.
The Depositary is responsible for the safekeeping of all custodial assets and maintaining a record of all other assets of the Company in accordance with the Regulations.
The Depositary must ensure that:
the Company’s cash flows are properly monitored and that cash of the Company is booked into the cash accounts in accordance with the Regulations;
the sale, issue, repurchase and cancellation of shares are carried out in accordance with the Regulations;
the value of shares of the Company are calculated in accordance with the Regulations;
any consideration relating to transactions in the Company’s assets is remitted to the Company within the usual time limits;
the Company’s income is applied in accordance with the Regulations; and
the instructions of the Alternative Investment Fund Manager (“the AIFM”) are carried out (unless they conflict with the Regulations).
The Depositary also has a duty to take reasonable care to ensure that the Company is managed in accordance with the Scheme documents and the Regulations in relation to the investment and borrowing powers applicable to the Company.
Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the AIFM:
(i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company’s shares and the application of the Company’s income in accordance with the Regulations and the Scheme documents of the Company; and
(ii) has observed the investment and borrowing powers and restrictions applicable to the Company in accordance with the Regulations and Scheme documents of the Company.
For and on behalf of BNY Mellon Trust & Depositary (UK) Limited 160 Queen Victoria Street London EC4V 4LA Manager Date 30 November 2016
9
Independent auditors’ report to the shareholders of MGTS Future Money Dynamic Growth fund We have audited the financial statements of MGTS Future Money Dynamic Growth fund for the year ended 31 July 2016, which comprise the statement of total return, the balance sheet, the statement of change in net assets attributable to shareholders, together with the related notes and the distribution table. The financial reporting framework that has been applied in their preparations is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Fund’s shareholders as a body, in accordance with Rule 4.5.12 of the Collective Investment Scheme Sourcebook as required by paragraph 67(2) of the Open-Ended Investment Companies Regulations 2001. Our audit work has been undertaken so that we might state to the Fund’s shareholders those matters we are required to state to them in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Fund and the Fund’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the ACD and auditors
As explained more fully in the ACD's Responsibilities Statement set out on page 7, the ACD is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Manager’s Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatement or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
give a true and fair view of the state of the Fund's affairs as at 31 July 2016 and of the net income and the net gains on the property of the Fund for the year then ended; and
have been properly prepared in accordance with the Prospectus, the Statement of Recommended Practice relating to Authorised Funds; the rules of the Collective Investment Schemes Sourcebook issued by the Financial Conduct Authority and United Kingdom Generally Accepted Accounting Practice.
Opinion on other matters prescribed by the collective investment scheme sourcebook
The information given in the ACD's report for the financial period for which the financial statements are prepared is consistent with the financial statements; and
we have received all the information and explanations we require for our audit.
10
Independent auditors’ report to the shareholders of MGTS Future Money Dynamic Growth fund (continued) Matters on which we are required to report by exception We have nothing to report in respect of the following matters, where we are required to report, if in our opinion:
adequate accounting records have not been kept; or
the financial statements are not in agreement with the accounting records and returns.
Robert Wood Senior Statutory Auditor For and on behalf of Shipleys LLP Chartered Accountants and Statutory Auditors 30 November 2016
11
Net Asset Value per Share and Comparative Tables
Accumulation share class
Change in net assets per share 31/07/2016 31/07/2015 31/07/2014
Opening net asset value per share 168.2900 159.7900 154.4100
Return before operating charges * 10.2537 8.7000 5.5600
Operating charges -2.6800 -0.2000 -0.1800
Return after operating charges 7.5737 8.5000 5.3800
Distribution on income shares 0.0000 0.0000 0.0000
Closing NAV per share 175.8637 168.2900 159.7900
Retained distribution on acc shares 0.8114 0.4896 0.2836
* After direct transaction costs of 0.0029 0.0022 0.0024
Return after charges 4.50% 5.32% 3.48%
Other Information
Closing net asset value (£) 16,925,041 31,870,612 42,350,494
Closing number of shares 9,623,956 18,938,748 26,505,021
OCF 2.32% 2.41% 2.38%
Direct transaction costs 0.00% 0.00% 0.00%
Prices
Highest share price (pence) 176.78 177.67 163.18
Lowest share price (pence) 150.44 152.49 151.26
Performance
R accumulation share class
Change in net assets per share 31/07/2016 31/07/2015 31/07/2014
Opening net asset value per share 171.5600 161.6600 155.0500
Return before operating charges * 10.5839 10.1100 6.7900
Operating charges -1.5000 -0.2100 -0.1800
Return after operating charges 9.0839 9.9000 6.6100
Distribution on income shares 0.0000 0.0000 0.0000
Closing NAV per share 180.6439 171.5600 161.6600
Retained distribution on acc shares 2.0874 1.7736 1.4890
* After direct transaction costs of 0.0035 0.0024 0.0025
Return after charges 5.29% 6.12% 4.26%
Other Information
Closing net asset value (£) 27,579,071 13,413,703 5,458,930
Closing number of shares 15,267,096 7,818,794 3,376,791
OCF 1.57% 1.66% 1.63%
Direct transaction costs 0.00% 0.00% 0.00%
Prices
Highest share price (pence) 181.58 180.72 164.90
Lowest share price (pence) 153.99 154.53 151.98
Performance
12
Net Asset Value per Share and Comparative Tables (continued)
R income share class
Change in net assets per share 31/07/2016 31/07/2015 31/07/2014
Opening net asset value per share 167.3800 161.9300 155.0800
Return before operating charges * 10.3315 10.1423 6.9400
Operating charges -1.4800 -0.2300 -0.0900
Return after operating charges 8.8515 9.9123 6.8500
Distribution on income shares 0.0000 -4.4623 0.0000
Closing NAV per share 176.2315 167.3800 161.9300
* After direct transaction costs of 0.0000 0.0000 0.0000
Return after charges 5.29% 6.12% 4.42%
Other Information
Closing net asset value (£) 7,676 5,706 1,152
Closing number of shares 4,355 3,033 711
OCF 1.57% 1.66% 1.63%
Direct transaction costs 0.00% 0.00% 0.00%
Prices
Highest share price (pence) 177.13 181.03 165.12
Lowest share price (pence) 150.23 154.81 152.01
Performance
Risk Warning
An investment in an open-ended investment company (OEIC) should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuations in exchange rates, which can be favourable or unfavourable. Fund Performance The performance of the fund is shown in the Investment Adviser’s Report.
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Financial statements
Notes 31.07.16 31.07.15
Income £ £ £ £
Net capital gains 4 1,608,587 2,405,433
Revenue 6 931,933 921,310
Expenses 7 (555,409) (699,807)
Finance costs: Interest 9 (255) (1,431)
Net revenue before taxation 376,269 220,072
Net revenue after taxation 376,269 220,072
1,984,856 2,625,505
Finance costs: Distribution 9 (376,183) (220,095)
1,608,673 2,405,410
£ £ £ £
Opening net assets attributable
to shareholders45,289,392 47,810,576
13,927,098 8,654,074
(16,710,149) (13,812,066)
(2,783,051) (5,157,992)
1,608,673 2,405,410
396,774 231,398
44,511,788 45,289,392
Amounts payable on cancellation of shares
Change in net assets attributable to
shareholders from investment activities
Change in net assets attributable to
shareholders from investment activities
Closing net assets attributable to shareholders
Retained distribution on accumulation
shares
Statement of total returnFor the year ended 31 July 2016
Statement of change in net assets attributable to shareholdersFor the year ended 31 July 2016
Total return before distributions
Amounts receivable on issue of shares
14
As at 31 July 2016
Notes 31.07.16 31.07.15
Assets £ £ £ £
Investment assets 41,901,154 44,751,571
Debtors 10 46,883 294,784
Bank balances 4,834,877 1,917,566
Total other assets 4,881,760 2,212,350
Total assets 46,782,914 46,963,921
Liabilities
Creditors 11 155,961 260,978
Distribution payable on income shares - 135
Bank overdrafts 2,115,165 1,413,416
Total other liabilities 2,271,126 1,674,529
Net assets attributable to shareholders 44,511,788 45,289,392
Balance sheet
15
Notes to the financial statements As at 31 July 2016
1 Accounting policies
a) Basis of accounting
The financial statements have been prepared under the historical cost basis, in accordance with Financial Reporting Standard (FRS 102), as modified by the revaluation of investments, and in accordance with the revised Statement of Recommended Practice (SORP) for Authorised Funds issued by the Investment Management Association in May 2014. No changes to the Net Asset Value of the fund have arisen from the adoption of the SORP.
b) Basis of valuation of investments
The investments are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds, on the last business day of the accounting period.
c) Foreign exchange rates
Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the closing middle exchange rates ruling on that date.
d) Revenue
All income allocations and distributions declared by the managers of the underlying funds up to the accounting date are included in Income, net of attributable tax credits. The net allocations which are retained in Income are included in the fund’s own income allocation. Bank and other interest receivable is accrued up to the accounting date. Equalisation on distributions received is deducted from the cost of the investment and not included in the fund’s income available for distribution.
e) Expenses
The ACD’s periodic charge is deducted from Income. All of the other expenses are charged against Income except for costs associated with the purchase and sale of investments which are charged against Capital.
f) Taxation
(i) The fund is treated as a corporate shareholder with respect to its underlying holdings and its income is subject to streaming into franked and unfranked.
(ii) Corporation tax is provided at 20% on income, other than the franked portion of distributions from collective investment schemes, after deduction of expenses.
(iii) The charge for deferred tax is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset.
2 Distribution policy
Income arising from investments accumulates during each accounting period. Surplus income is allocated to shareholders in accordance with the COLL regulations. In order to conduct a controlled dividend flow to shareholders, interim distributions will be made at the ACD’s discretion, up to a maximum of the distributable income available for the period. All remaining income is distributed in accordance with the COLL regulations.
16
3 Risk management policies
In pursuing the investment objective, a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors, that arise directly from operations. Derivatives, such as futures or forward foreign exchange contracts, may be utilised for efficient portfolio management purposes. Political and economic events in the major economies of the world, such as the United States, Japan and the European Union, will influence stock and securities markets worldwide. The main risks from the fund’s holding of financial instruments with the ACD’s policy for managing these risks are set out below:
i. Credit Risk – The fund may find that collective investment schemes in which it invests fail to settle their debts or deliver the investments purchased on a timely basis.
ii. Interest Rate Risk – Debt securities may be held by the underlying investments of the fund.
The Interest Rate Risk of these securities is managed by the relevant manager.
iii. Foreign Currency Risk – Although the net assets of the fund are denominated in sterling, a proportion of the fund’s investments in collective investment schemes have currency exposure with the effect that the balance sheet and total return can be affected by currency movements.
iv. Liquidity Risk – The main liability of the fund is the cancellation of any shares that investors
want to sell. Securities may have to be sold to fund such cancellations should insufficient cash be held at the bank to meet this obligation. Smaller companies by their nature, tend to have relatively modest traded share capital, and the market in such shares can, at times, prove illiquid. Shifts in investor sentiment, or the announcement of new price-sensitive information, can provoke significant movement in share prices, and make dealing in any quantity difficult. The equity markets of emerging countries tend to be more volatile than the more developed markets of the world. Standards of disclosure and accounting regimes may not always fully comply with international criteria, and can make it difficult to establish accurate estimates of fundamental value. The dearth of accurate and meaningful information and insufficiencies in its distribution, can leave emerging markets prone to sudden and unpredictable changes in sentiment. The resultant investment flows can trigger significant volatility in these relatively small and illiquid markets. At the same time, this lack of liquidity, together with the low dealing volumes, can restrict the ACD’s ability to execute substantial deals.
v. Market Price Risk – Market Price Risk is the risk that the value of the fund’s financial instruments will fluctuate as a result of changes in market prices caused by factors other than interest rates or foreign currency movement. The Market Price Risk arises primarily from uncertainty about the future prices of financial instruments that the fund holds.
Market Price Risk represents the potential loss the fund may suffer through holding market positions in the face of price movements. This risk is generally regarded as consisting of two elements – Stock Specific Risk and Market Risk. The fund’s exposure to Stock Specific Risk is reduced for equities and bonds through the holding of a diversified portfolio in accordance with the investment and borrowing powers set out in the Instrument of Incorporation.
vi. Counterparty Risk – Transactions in securities entered into by the fund give rise to exposure to the risk that the counterparties may not be able to fulfil their responsibility by completing their side of the transaction.
vii. Fair Value of Financial Assets and Financial Liabilities – There is no material difference
between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.
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4 Net capital gains 31.07.16 31.07.15£ £
Proceeds from sales on investments during the year 17,148,956 19,075,591
Original cost of investments sold during the year (15,935,752) (16,868,452)
Gains realised on investments sold during the year 1,213,204 2,207,139
Net appreciation thereon already recognised in prior periods (1,177,417) (1,859,683)
Net realised appreciation for the year 35,787 347,456
Net unrealised appreciation for the year 1,572,800 2,058,617
Net gains on non-derivative securities 1,608,587 2,405,433Net capital gains on investments 1,608,587 2,405,433
Amounts payable for cancellation of shares 98,962 194,309
Accrued expenses:
Amounts payable to the ACD, associates and agents:
ACD's periodic charge 38,450 49,472
Amounts payable to the Depositary, associates and agents:
Depositary's fees 2,229 2,319
Transaction charges 160 30
Safe custody fee 1,251 699
3,640 3,048
Other expenses 14,909 14,149Total creditors 155,961 260,978
12 Contingent liabilities and commitments
There were no contingent liabilities or outstanding commitments at the balance sheet date [31.07.15 : £Nil].
13 Related party transactions
Margetts Fund Management Ltd as ACD, is a related party, and acts as principal in respect of all transactions of shares in the Company. The aggregate monies received through issues, and paid on cancellations are disclosed in the statement of change in net assets attributable to shareholders and note 9. Amounts paid to Margetts Fund Management Ltd in respect of management services are disclosed in note 7 and amounts due at the end of the year in note 11.
Acc R Acc R Inc
Opening number of shares 18,938,748 7,818,794 3,033
Shares issued 199,847 3,635,003 1,322
Shares converted (5,301,428) 5,180,824 -
Shares redeemed (4,213,211) (1,367,525) - Closing number of shares 9,623,956 15,267,096 4,355
14 Shareholders' funds
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15 Post balance sheet events There were no material post balance sheet events which have a bearing on the understanding of the financial statements.
16 Risk disclosures Interest risk - Debt securities may be held by the underlying investments of the fund. The Interest Rate Risk of these securities is managed by the relevant manager. The table below shows the Interest Rate Risk profile at the balance sheet date:
Assets on which interest is not paid (pounds sterling): 41,948,037 45,046,355
Liabilities on which interest is not paid (pounds sterling): (155,961) (261,113)
Net Assets 44,511,788 45,289,392
The floating rate financial assets and liabilities comprise bank balances, which earn or pay interest at rates linked to the UK base rate. There are no material amounts of non-interest bearing financial assets and liabilities, other than collective investment schemes, which do not have maturity dates.
17 Fair Value Techniques
Assets 31.07.16 31.07.15
£ £
Quoted prices for identical instruments in active markets 41,901,154 44,751,571
Prices of recent transactions for identical instruments - -
Valuation techniques using observable data - -
Valuation techniques using non-observable data - -
41,901,154 44,751,571
Liabilities
£ £
Quoted prices for identical instruments in active markets - -
Prices of recent transactions for identical instruments - -
Valuation techniques using observable data - -
Valuation techniques using non-observable data - -
- -
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18 Periodic disclosure As required by FUND 3.2.5R the ACD is required to disclose certain information periodically in relation to the Fund which is shown below. At the end of the reporting period the percentage of the Fund’s assets subject to special arrangements arising from their illiquid nature was 0% (2015: 0%) of the NAV. There have been no new arrangements introduced for managing the liquidity of the Fund.
The risk characteristics of the Fund are explained in the Prospectus. In order to assess the sensitivity of the Fund’s portfolio to the risks to which the Fund is or could be exposed, Margetts Fund Management Ltd monitors relative value at risk, commitment, gross leverage and the results of stress tests. The ACD has set limits considered appropriate to the risk profile of the fund. Any breaches of these limits are investigated by the Margetts risk committee and appropriate action taken if necessary. During the reporting period there have been no changes to the maximum level of leverage that the Fund can employ or any right of reuse of collateral or any guarantee granted under leveraging arrangements. At the end of the reporting period the total amount of leverage, expressed as a ratio, calculated using the commitment approach was 1:0.94 and using the gross method was 1:0.94.
Leverage is limited to overdraft use and the gross exposure from EPM techniques. Although the ACD may use derivatives for EPM, no collateral arrangements are currently in place and no asset re-use arrangements are in place. The maximum leverage expressed as the ratio of the exposure to net asset value using the commitment method is 1.1:1.0 and using the gross method 3.3:1.0. Please note that the maximum leverage under the gross method is theoretical and would only occur if market risk and currency risk were hedged across the entire Fund whilst it was using the maximum borrowing facility of 10%. It is not anticipated that both market risk and currency risk would be simultaneously hedged and therefore the likely maximum leverage which would be used in normal circumstances using the commitment method is 1.1:1.0 and using the gross method 2.2:1.0.
19 Remuneration In accordance with the requirements of FUND 3.3.5(5) the total amount of remuneration paid by the ACD to its staff for the financial year ended 30 September 2015 is:
£
Fixed Remuneration 1,132,404
Variable Remuneration 1,756,307
Total Remuneration 2,888,711
Full Time Equivalent number of staff 29
Analysis of senior management
Senior management 2,180,362
Staff whose actions may have a material impact on the funds -
Other -
2,180,362
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Distribution Table For the year ended 31 July 2016 – in pence per share Final Group 1 – shares purchased prior to 01 February 2016 Group 2 – shares purchased on or after 01 February 2016 Accumulation
Shares Net Income Equalisation Allocating 30.09.16
Allocated 30.09.15
Group 1 0.8114 0.8114 0.4896 Group 2 0.1666 0.6448 0.8114 0.4896
R Income
Shares Net Income Equalisation Payable 30.09.16
Paid 30.09.15
Group 1 - - 4.4623 Group 2 - - - 4.4623
R Accumulation
Shares Net Income Equalisation Allocating 30.09.16
Allocated 30.09.15
Group 1 2.0874 2.0874 1.7736 Group 2 0.5754 1.5120 2.0874 1.7736
Equalisation only applies to shares purchased during the distribution period (group 2 shares). It represents the accrued income included in the purchase price of the shares. After averaging it is returned with the distribution as a capital repayment. It is not liable to income tax but must be deducted from the cost of the shares for capital gains tax purposes.
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General Information Valuation Point The Valuation Point of the fund is at 8.30am each business day. Valuations may be made at other times with the Depositary’s approval. Buying and Selling of Shares The ACD will accept orders to buy or sell shares on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the following valuation. Instructions to buy or sell shares may be made either in writing to: Margetts Fund Management Ltd, PO Box 17067, Birmingham B2 2HL or by telephone on 0345 607 6808. A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. Prices The most recent mid prices of shares are published on the Margetts website at www.margettsfundmanagement.com. Other Information The Instrument of Incorporation, Prospectus, Key Investor Information Document, Supplementary Information Document and the latest annual and interim reports may be inspected at the offices of the ACD, with a copy available, free of charge, on written request. The register of shareholders can be inspected by shareholders during normal business hours at the offices of the Administrator. The Head Office of the Company is at 1 Sovereign Court, Graham Street, Birmingham B1 3JR and is also the address of the place in the United Kingdom for service on the Company of notices or other documents required or authorised to be served on it.
The base currency of the Company is pounds (£) sterling.
The maximum share capital of the Company is currently £10,000,000,000 and the minimum is £1,000. Shares in the Company have no par value and therefore the share capital of the Company at all times equals the Company’s current net asset value. Shareholders who have any complaints about the operation of the fund should contact the ACD or the Depositary in the first instance. In the event that a shareholder finds the response unsatisfactory, they may make their complaint direct to the Financial Ombudsman Service at South Quay Plaza, 183 Marsh Wall, London E14 9SR. Data Protection Act Shareholders’ names will be added to a mailing list which may be used by the ACD, its associates or third parties, to inform investors of other products by sending details of such products. Shareholders who do not want to receive such details should write to the ACD, requesting their removal from any such mailing list.
