TIDMJGCI
RNS Number : 4772S
JPMorgan Glbl Con Inc Fnd Ltd
17 March 2016
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN GLOBAL CONVERTIBLES INCOME FUND LIMITED
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS
ENDED 31 DECEMBER 2015
Chairman's Statement
Dear Shareholders,
In the half year ended 31st December 2015 the total return on
the Company's net assets dropped by 3.4%. The total return to
shareholders was -7.8% due to the fact that the share price
underperformed the net asset value ('NAV'). This was, of course,
disappointing but perhaps is understandable given the challenges
faced from a falling and volatile market.
Whilst performance of the Company's net assets was stronger than
the broader convertibles market, the concurrence of declines in
equity markets and the widening of credit spreads meant that the
strategy did not exhibit as much of a defensive profile as we would
have hoped for.
As you will see from the Investment Managers' Report, in the
period leading up to the half year end, the deterioration in credit
conditions prompted the Manager to increase the diversification
within the portfolio. By raising the number of names and reducing
the size of our most concentrated positions, the portfolio was
repositioned. This avoided some of the sector and security specific
problems seen in recent months, yet allowed it to capitalise on
opportunities arising from the sell-off in high yielding bonds. The
Board believes this to be a sensible compromise, since it enables
us to retain exposure to valuations that appear cheap, relative to
long term returns, and to credit spreads that arguably exaggerate
the risk of recession (especially in the US). Performance since
31st December 2015 has been relatively strong compared to the
broader markets, demonstrating the less volatile nature of the
portfolio.
A more detailed analysis of performance is set out in the
Investment Managers' Report below.
Dividends
The Company's objective is to provide investors with dividend
income together with the potential for some modest capital growth
in sterling terms. Your Investment Manager has considerable
experience in managing convertible portfolios and adding value
through the investment process. The Board has however recognised
that the pursuit of a dividend at the current level is unduly
constraining the Investment Manager's flexibility, given that
medium term interest rates have declined since inception. As a
consequence, the Board has encouraged the Investment Manager to
focus instead on maximising the total return of the portfolio, but
within overall similar risk parameters to the past. That said, your
Board does not expect this to impact the dividend that you receive,
even if, periodically, it requires capital to top up income.
During the half year ended 31st December 2015 one quarterly
dividend totalling 1.125 pence per share was declared and paid. A
second quarterly dividend of 1.125 pence per share was declared on
23rd February 2016 and will be paid on 31st March 2016.
The Board will continue to target an annual dividend of 4.5
pence per share for the foreseeable future.
Managing the Discount
During the half year the Company's share price slipped from a
modest premium to a discount relative to the NAV. The Company is
authorised by the shareholders to buy-back up to 14.99% of the
Company's issued share capital. This authority allows the Board to
address any imbalance that may arise between the supply of and
demand for shares, thereby helping it to control the discount to
NAV.
The Board's approach to managing the discount is to buy-back
shares if the discount to NAV exceeds 5% for any significant period
of time. The Board has delegated the implementation of this to the
Manager, in consultation with the Broker, but retains control of
strategy and monitors the buy-back activity. In the half year the
Company bought back 646,518 shares into Treasury. Since the period
end, the Company has bought back a further 13,881,486 shares into
Treasury.
Subject to any notable market movements, we expect to continue
this approach. There can be no assurance that buy-backs alone will
prevent a discount emerging or widening. The Company is of
sufficient size that it can buy-back shares without compromising
liquidity in its shares.
Borrowing
In July 2015 the Company entered into a two year $32 million
un-secured multicurrency revolving loan facility with Scotiabank
Europe plc. This leverage has been used primarily to permit a shift
towards higher quality and lower yielding names that offer the
potential for good capital gains over the medium term. The Company
may employ gearing up to a maximum of 20% of Net Asset Value at the
time of borrowing. At the time of writing the Company was 2.8%
geared.
Outlook
Concerns regarding China and global economic growth currently
dominate the outlook for 2016. The heavy sell-off of high yielding
bonds in December 2015 has continued into 2016 and has provoked
liquidity concerns, which have since moved from credit markets into
equity markets. After the long-delayed 'lift-off' in interest
rates, further US rate increases now look less likely. Recent
performance has been encouraging against this backdrop.
The Manager believes that whilst the market conditions remain
difficult, they are starting to see opportunities emerge that will
help the portfolio achieve long term income and capital gains. The
repositioning of the portfolio has reduced concentration risk and
allowed it to take advantage of the sell-off in high yielding
bonds.
The Board continues to believe that the portfolio should, over
the medium term, deliver an attractive, sustainable yield whilst
offering the potential to participate in rising equity markets.
Simon Miller
Chairman 17 March 2016
Investment Managers' Report
Performance Review
In the six months to 31st December 2015, the Company generated a
share price return of -7.8% and a net asset value (NAV) total
return of -3.4%. This period of difficult performance indicates the
challenge in combining income generation with defensive positioning
in the face of a number of significant market events over the
review period. Firstly the recovery in energy prices reversed,
followed by concerns regarding China and the impact of a Chinese
slowdown on global growth. Financial conditions tightened into year
end, dragging on the performance of companies with levered balance
sheets, and this was then exacerbated by a significant widening in
high yield credit spreads in December as a number of publicised
hedge fund closures raised liquidity concerns. It is telling that
amidst all this volatility, the arrival of 'lift-off' by the
Federal Reserve ranks so low on the list of shocks to have hit
markets over the review period.
The portfolio's equity sensitivity, income generation, and
positive duration contributed to returns over the period, but these
supportive factors were more than offset by weakness in credit
factors. The currency hedging of the account detracted value over
the period as Sterling generally weakened against other major
currencies. However, full-currency hedging does tend to reduce the
volatility of convertible portfolios, which are inherently less
volatile than equity portfolios.
The portfolio's exposure to companies in the energy sector
represented the largest detractor over the period following renewed
commodity price weakness, even though we had used the recovery in
early 2015 to reduce the portfolio's exposure to just 5.6% going
into the second half of the year. More encouragingly, the
portfolios increased diversification into technology and
non-cyclical consumer sectors added value as these were among the
only sectors to post a positive return over the period.
Portfolio Review
We believe the challenging market conditions referred to above
have started to create attractive opportunities for the portfolio,
but we held a cautious view throughout the review period. In
particular, we sought to reconcile attractive valuations at the
aggregate level with a sense that credit conditions were tightening
at an issuer-specific level.
The primary way in which this review was reflected within the
portfolio was an increase in the number of holdings, from 78 at the
start of the review period to 104 by the end of the year. This
enabled us to remain fully invested, supporting the yield and
maintaining exposure to the valuation component, while
simultaneously reducing the risk of negative company-specific
events. The primary source of these additional names was securities
that had previously occupied the 'balanced' space of the
convertible market, but which had picked up yield following market
weakness. This enabled us to continue the sector rotation we had
started in the beginning of the year, reducing energy still-further
to a 4.1% allocation by the end of the year and increasing the
exposure to non-cyclical consumer names from 6.5% (31st June 2015)
to 10.5% (31st December 2015) and the technology (including
internet) exposure from 13.1% to 18.9%. In addition to reducing our
energy exposure, we also reduced allocations to basic materials
(4.8% to 3.6%) and more significantly non-real estate financials
(15.8% to 8.4%). The rationale for this reduction in exposure to
non-real estate financials was to limit exposure to companies that
we considered to have most exposure to the credit cycle, such as
Business Development Companies in the United States.
Outlook
March 17, 2016 10:57 ET (14:57 GMT)
- Convertibles 174,365 2,724 - 177,089
- Preference 16,092 - - 16,092
-------------------------------------- --------- --------- -------- ---------
Total investments 212,763 2,724 - 215,487
-------------------------------------- --------- --------- -------- ---------
Derivative financial assets:
- Forward foreign currency contracts - 6,232 - 6,232
- Future contracts - 302 - 302
-------------------------------------- --------- --------- -------- ---------
Total financial assets 212,763 9,258 - 222,021
-------------------------------------- --------- --------- -------- ---------
Financial liabilities held at fair
value through profit or loss
Derivative financial liabilities:
- Forward foreign currency contracts - (304) - (304)
-------------------------------------- --------- --------- -------- ---------
The Company's policy for determining transfers between levels is
to ascertain the listing status at each period and for each
investment and determine if any changes have occurred that would
necessitate a transfer.
Fair values of financial assets and financial liabilities
All financial assets and liabilities are either included in the
Statement of Financial Position at fair value or the carrying
amount is a reasonable approximation of fair value.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement
JPMORGAN FUNDS LIMITED
ENDS
A copy of the half year report will be submitted to the National
Storage Mechanism and will be available shortly for inspection at
www.morningstar.co.uk/uk/NSM
The half year report will also be available shortly on the
Company's website at www.jpmconvertiblesincome.co.uk
where up to date information on the Company, including daily NAV
and share prices, factsheets and portfolio information can also be
found.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUWAWUPQGCM
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March 17, 2016 10:57 ET (14:57 GMT)
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