Chairman’s Report


Chairman’s Half Year Statement
30th September 2016

Shareholder Returns:

While we have made it our practice in recent times for the Chairman's Statement to focus on the long-term returns (in line with the stated objective of the Company) and for Hansa Capital, our investment manager, to report on the recent returns, I would like to make the comment that we have had a good start to our fiscal year to 31st March 2017. The net asset value ("NAV") has produced a total return of c. 17% over these first six months - in comparison to a total return of c. 2% from our benchmark.  Alec Letchfield (our portfolio manager's Chief Investment Officer) provides details of those returns and a commentary on the period, on the portfolio and our view on immediate prospects. In the near term, we have felt it appropriate to introduce a more defensive element to the portfolio in the light of the maturing cycle, but, we remain optimistic over the longer-term about our portfolio of investments.

Over the last five years the returns have not been particularly competitive - as shareholders are aware. During the first six months of 2014, the portfolio was realigned with the sale of holdings in large international companies and reinvested in funds with a rather more focused exposure to different sectors and countries. It has resulted in improved returns but not enough to offset the effect of the share price performance of our holding in Ocean Wilsons Holdings (“OW”,“Ocean Wilsons”), affected as it has been by events in Brazil.

The two tables below summarise those returns:





Not altogether surprisingly – given the Brazilian association attached to the two share prices, they have not performed well over the period. Concerned as they have been with a slowdown in the growth of the Chinese economy and the consequential effect on commodity prices, investors generally have been disinvesting from emerging markets equities and their currencies have fallen. A number of them have also had political problems – including Brazil.

However – given the rather more positive developments that have been occurring in Brazil recently (see below) – the two share prices have done rather better in the past six months – the ordinary shares having risen 20.2% and the A ordinary shares by 13.0% - in comparison with the FTSE All-share Index’s increase – after the payment of an 8.0p dividend paid in May.





Brazil and Ocean Wilsons:

Brazil has been much in the news during the past few months because of the impeachment of and removal from office of Dilma Rousseff, Brazil's former President at the end of August. Corruption and economic incompetence have wrought havoc on Brazil - the consequences of which unfolded into the worst recession in the country in many decades, rising unemployment, high single digit inflation, high rates of interest and a collapse of its stock market and currency. Its government and economy seemed to be performing much in line with the common perception of a banana republic.

But all over Latin America (in contrast to many other areas of the world), politics is shifting in a pro-business direction.  With the accession of Michel Temer as the new President, Brazil too is beginning to address some of its economic and social challenges in such a way that there is the longer-term prospect of better business led, general prosperity for a country with many attractive advantages.

Mr Temer's government's first priority - a most important one - is to stabilise government finances and a succession of bills is being presented to Brazil's Congress (in which his party has a very strong representation) to address that. A host of privatisations are being planned - including and importantly for us - in the oil and ports sectors. The recession itself would appear to be "bottoming out".

The overall business of Wilson Sons, Ocean Wilsons' subsidiary, continues to make progress albeit in the port marine services arena, benefitting as it is from the decline on its currency, the Real. Brazil’s oil business is affected by both Petrobras' troubles and the low price of oil. Longer-term, the recent decision to include other international oil companies in the exploration and production of oil from the country's presalt oil reserves will probably be a benefit to Wilson Sons. An up-to-date report on the company's recent trading results and prospects can be found on its website: .


AGM (29th July 2016):

We had our usual good turnout for our annual general meeting and I would like to thank those shareholders, who could join us for the occasion, for coming along. We had - as we always do - a good selection of questions and comments, which we, the Directors value very much. Again, as we always do, the Board reconvenes after the meeting to discuss those issues raised by shareholders.

Following presentations from both Alec Letchfield (concerning the portfolio and its prospects) and me (concerning the holding in Ocean Wilsons and the Board's policy on the discount), there were a number of questions raised by shareholders, including:

• Ocean Wilsons - had it become just a sentimental investment never to be sold? Answer: no, no investment is a "forever" investment but the long-term prospects for the company are, we believe, excellent.

• The Company's Expenses - What was the expense ratio on a look-through basis, including the underlying expenses of the holding in funds?  Answer: circa 1.86%. it was noted that there was and continues to be an upward pressure on costs because of the ever increasing cost of complying with the ever increasing volume of regulation.

• Should the fee charged for management be based on the market value of the Company rather than on the net asset value?  Answer:  the fee is charged on the net asset value after the deduction of the value of the holding in Ocean Wilsons - so not on the whole net asset value. However the Board would discuss the merits of such a change.

• The Holdings in Funds - What was the Portfolio Manager’s view about selling the holdings in underperforming funds?  Answer: the funds we invest in are chosen for many reasons including their economic and/or geographic exposure. We have a portfolio of funds, which provides diversification allowing differing performances at different times.  We monitor the management of the different funds to ensure that they perform in line with the criteria for buying them in the first place. We wish to avoid selling holdings after a period of relative underperformance and just before outperformance begins.

I should point out that, from time to time, we also receive letters from individual shareholders - raising issues, asking questions and making suggestions - all of which are considered by Board and Management. By and large the issues raised are much the same as those raised at annual general meetings.  


Longer-Term Prospects:

While we sense that some things are beginning to turn in our favour - notably and hopefully the political and thence economic environment in Brazil referred to above - we note that the investment world is awash with uncertainty.  Quantitative Easing and non-existent, even negative, interest rates have been good for equity and bond markets but there is uncertainty of the long-term consequences of such monetary policies because we haven't been here before. All the while global debt grows and grows and grows. We all read an enormous amount of written prognostications but none convey any sense of understanding of what lies ahead.

Politics and economic policies that go with them determine economic outcome and thence investment returns. Politics is now an important risk for the investor and political risk - we are concerned - is not priced into markets - inflated as they are by monetary policies. It has made us cautious for the moment and is part of the reason that our fund investments have a certain defensive nature about them.

Investment, as we keep on saying, is a long-term business. Few investment funds retain investments for the length of time that we have held our holding in Ocean Wilsons - holding on to it through the difficult times in the anticipation of and indeed earning good returns in the better times. Over the years that has paid off handsomely and, after the last few difficult years, we expect it to do so again. Our other holdings don't have quite the same longevity but, like Ocean Wilsons, they have good management behind them and likewise we expect to enjoy good long-term returns from them.


Alex Hammond-Chambers


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