LONDON (Alliance News) - Seneca Global Income & Growth PLC on Tuesday said it underperformed against its benchmark in its most recent financial year due to its UK and US equity positions and lack of safe-haven bonds.
Seneca Global's net asset value total return for its year ended April 30 was 7.6%. This was below the 8.2% return of its benchmark, the UK consumer price index plus 6%.
Negative contributors included the company's overall positioning in UK and US equities, as well as in US safe-haven bonds. Seneca Global's focus on medium-sized companies detracted, as such companies underperformed larger ones overall. Moreover, Seneca Global holds no position in US equities, which hurt performance.
Seneca Global justified its positions, however. Smaller companies, it argued, have outperformed larger ones "by a considerable margin in recent decades" despite being hurt by Brexit and market weakness. Seneca Global also argued that a lack of wide research on such companies makes hidden value more likely.
In terms of US equities, Seneca Global argued that these cost more than twice as much as non-US equities, a situation it views as unsustainable. The price of safe-haven bonds also was given as the reason why Seneca Global has trouble justifying their presence in its portfolio.
Seneca Global's net asset value rose in its most recent year, led by a strong performance from its investment in AJ Bell PLC.
As at April 30, net asset value per share stood at 179.08 pence, rising 4.0% from 172.25p. AJ Bell, which listed in December, was the strongest single contributor to this.
Seneca Global held 3.4 million AJ Bell shares just before AJ Bell listed, with a value of GBP2.9 million or 86.5p each. The listing price was 160p and Seneca Global was required to sell half its holding at that price. By the end of April, the AJ Bell share price had hit 404p per share.
Overall, Seneca Global realised an 85% capital return on half its AJ Bell investment and an as yet unrealised capital return of more than three times the pre-listing 86.5p per share value.
Seneca Global intends to pay a fourth interim dividend of 1.68p per share on June 21. In combination with the three prior dividends, total dividends paid for the year comes to 6.60p, up 3.4% year-on-year from 6.38p.
The investment company is predicting a global downturn in 2020 or early 2021, to be preceded by a bear market starting 2020. However, Seneca Global is concerned this could happen even sooner and started cutting its equity exposure two years ago from overweight to neutral in strategic asset allocation and is now increasingly underweight.
Seneca Investment Managers Ltd said: "We do not think the world economy has yet overheated as is usual before a recession. Inflation pressures have certainly risen in recent years, but they remain relatively benign. And they will have weakened as a result of the falls in equity markets at the end of 2018 and the related concerns about growth. We would not be surprised to see central banks remain dovish for a few months yet. This would argue for some sort of temporary recovery in equity markets in 2019, though it looks like that may all have been squeezed into the ?rst few months of the year."
Shares in Seneca Global were down 0.4% at 175.33 pence on Tuesday.