LONDON (Alliance News) - Perpetual Income and Growth Investment Trust PLC Thursday said it outperformed its benchmark index over its last financial year, boosted by the investment manager's holdings in the pharmaceutical sector and improving forecasts for UK economic growth.
In a statement, the trust said its net asset value increased by 18.8% on a total return basis in the year ended March 31, compared with an 8.8% rise in the FTSE All-Share Index.
Portfolio manager Mark Barnett, Invesco Perpetual's Head of UK Equities, said a number of holdings, across a range of sectors, contributed to the trust's outperformance, against a broadly positive 12 months for market returns.
"The first quarter of 2014 was challenging as concerns grew over the outlook for economic growth in emerging markets, most notably China, but overall, the 12 months were positive for market returns as equity valuations rerated relative to fixed interest and cash," Barnett said in his report.
Barnett said the trust's holding in Thomas Cook was a driver in its outperformance, with a well-received rights issue early last year and recent news confirming an improved operating performance. In addition, it was helped by exposure to the pharmaceutical sector, boosted by a higher rate of approvals from the US Food and Drug Administration for Astrazeneca PLC's drugs and the approval for BTG's non-surgical varicose vein treatment. Other holdings that contributed to the strong total return were holdings in the fixed line telecoms sector and specialist insurance group Beazley.
Exposure to support services was mixed, with news from from Capital "[continuing] to impress the market as its pipeline of tendered work grows," and Bunzl PLC. However, disappointing news from Serco Group PLC, which warned that 2014 profits would miss market forecasts, was a negative factor, though the outsourcing company was buoyed after it poached Aggreko PLC's boss Rupert Soames. Meanwhile, SSE PLC and Centrica PLC shares were hit by "the continuing political debate over retail electricity prices." In March, UK regulator Ofgem referred the UK energy market to the Competition and Markets Authority, asking it to investigate "once and for all" whether there are barriers to effective competition with the "Big Six" suppliers, consisting of Centrica-owned British Gas, E.ON, EDF, Npower, ScottishPower and SSE PLC.
"We expect the review to conclude that industry returns are not excessive, while moves such as that by SSE are already addressing the political agenda of pricing and transparency of margins," Barnett said.
Meanwhile, he noted the market's surprise at Rolls-Royce Holdings PLC's first profit warning in a decade.
During the year, new investments were made in Betfair, BP, Bunzl, CLS, Derwent London, Horizon Discovery, NewRiver Retail, Nimrod Sea Assets, Macau Property and Shaftesbury, while the holding in Carnival was sold off.
Barnett said the year-to-date has seen the UK equity market struggle to find a convincing direction.
"Despite the well publicised improvements in economic growth in the UK and US economies, the current valuation of the market represents a level which reflects this optimism and which may struggle to be maintained if the pace of earnings growth does not accelerate. Meanwhile, the outlook is likely to remain challenging for the foreseeable future due to a combination of elevated valuations and an environment of continued flat corporate profit growth - the recent earnings season was notable for the number of profit warnings from large corporates," Barnett said.
He also noted that the US Federal Reserve's reduction in the scale of its asset purchases, uncertainty about the strength of economic growth in the developing world, especially China, political risk due to the UK's own general election in 2015, and the tension between Ukraine and Russia, were significant reasons for caution in the near term.
"It is unlikely that the performance of the market in 2013 will be repeated in the current year," Barnett said, but noted that there remain "pockets of value" within the UK equity market.
Chairman Bill Alexander said it is in discussions with Invesco Perpetual about its fee arrangements.
The trust's shares were Thursday quoted at 381.70 pence, down 0.4%.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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