City Merchants High Yield Trust Limited
Annual Financial Report Announcement
For the year ended 31 December 2020
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
|Total Return for the year(1)(2)||2020||2019|
|Net asset value||+6.9%||+13.4%|
|Ongoing Charges Ratio(2)||0.99%||1.02%|
|Dividend for the year||10p||10p|
Year End Information
|31 DECEMBER||31 DECEMBER||%|
|Net Assets (£’000)(3)||197,675||192,186||+2.9|
|Net asset value per ordinary share(2)||194.29p||192.11p||+1.1|
(1) Source: Refinitiv.
(2) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 68 to 71 of the financial report for details of the explanation and reconciliations of APMs.
(3) Reflects the proceeds of £3.27 million (2019: £5.62 million) from ordinary shares issued in the year.
The Covid-19 pandemic dominated every aspect of life in 2020 and so it’s no surprise that the virus’s impact is easily discernible in the performance of the high yield market. Markets began 2020 in optimistic mood, buoyed by the prospect of a year of steady economic growth. However, optimism rapidly turned to panic as the full impact of the pandemic became clearer and in March the high yield market sold off to levels not seen since 2012. Governments responded to the pandemic by introducing restrictions on social movement, so-called ‘lockdowns’, and the resulting shock to activity saw the UK economy contract by 9.9% in 2020, the largest decline for at least 300 years and more than twice the fall caused by the Global Financial Crisis of 2007-08.
Given the pace and scale of Covid-19’s economic impact it may seem strange that the high yield market quickly rallied from its March lows and then over the remainder of the year returned to its immediate pre-Covid-19 level. The explanation for the rapid restoration of investor confidence lies with the scale of monetary and fiscal support provided by governments and central banks in their efforts to mitigate the pandemic’s economic impact. The huge scale of intervention put the UK on track for government debt to exceed the size of the economy for the first time in more than fifty years (more detail on the market environment and policy response can be found in the Portfolio Managers’ Report).
Despite this volatile and challenging market environment the Company’s net asset value (NAV) total return for the year was 6.9%, compared to a total return of 3.2% for the ICE Bank of America Merrill Lynch European High Yield Index (‘the Index’)(1) and an average return of 6.1% for funds in the Investment Association Sterling Strategic Bond Sector. A move from a premium to a small discount to NAV over the course of the year meant the share price return was more modest, at 1.8%.
The Board believes that investment performance is best assessed over a long-term horizon and hence we pay particular attention to returns over three and five years. For the three and five years to the end of 2020 the Company’s NAV total return was 16.9% and 42.6% respectively, compared to total returns of 13.4% and 34.5% for the Index. These strong performance numbers, achieved in challenging market conditions, are in the Board’s view, evidence of the Manager’s robust and rigorous investment process.
Our investment policy is to provide a high level of dividend income relative to prevailing interest rates and despite the fact that interest rates available to savers declined in 2020 the Company maintained its dividend of 10 pence per share. We have now paid a dividend of 10 pence per share since 2011, a period in which the UK Base Rate has remained stubbornly below 1.0%, and far below its long-term average. The Board has stated its intention to continue to target a dividend of 10 pence in the current financial year although, subject to the merger with Invesco Enhanced Income Limited which is discussed in more detail below, the annual dividend target will increase to 11 pence per year over the next three years.
The dividend was paid in four equal instalments, with the fourth dividend payment paid on 25 February 2021 in the form of an interim dividend payment. Paying the final instalment in the form of an…