LAY in the champagne. Prepare the streamers and balloons. Make time and make haste for the biggest Bear Market Ball of them all.
I refer to the fast-approaching annual general meeting of Personal Assets Trust, the ultimate Doomsayers' fund for the apocalypse, on Thursday, 17 July, at 80 Queen Street, Edinburgh.
Entry is by production of a PAT shareholder certificate or
a giant grizzly bear outfit: either would suit the mood.
The Great Bear Market Ball has been a long time coming for fund manager Ian Rushbrook and that oratorical Rasputin to the Court of Black Armageddon, Robin Angus.
For years, investors listened politely but with increasing scepticism as Rushbrook, like an Old Testament prophet, warned: "It's coming! It's coming!" Puzzled shareholders shuffled in their seats and wondered whether he really meant the End of the World or the drinks and canapes.
Since the stock market recovery set in during the spring of 2003, Rushbrook and Angus have warned of a coming cataclysm in world financial markets. And each year they have had the tedious task of explaining why shares in the trust have hugged the bottom performers' table as the market steadily climbed against their dire predictions.
Until now. This year markets round the world have buckled under the twin assaults of the global credit crunch and soaring oil. For patient investors in PAT, the clock has at last struck 13.
PAT, holding just £70 million of shares (with even these covered by a FTSE 100 put option), and with £189m in cash – by far the most liquid of any investment trust – has sprung out of the doldrums.
While latest Trustnet figures show that investment trust share prices have fallen by 16 per cent on average in the year to 3 July, PAT has held this loss to 3.3 per cent. The discount to net assets is miniscule at 0.6 per cent (average discount across the sector is 11.5 per cent) and there is a modest, but credible, dividend pay-out of 1.8 per cent. No Triffid Yields here.
The stance of Messrs Rushbrook and Angus has spared investors big losses, which range up to 79 per cent elsewhere in the sector.
The Rushbrook/Angus view is that this is something more than a "normal" cyclical downturn: a huge de-leveraging of debt across the financial world, which has still to play out.
Mr Rushbrook will doubtless find his own eloquent words to describe the events of the past year. But the backcloth has been well set out by another investment trust chairman, Richard Wakeling, of Polar Capital Technology, in his report last week.
Mr Wakeling, not normally given to the big tour d'horizon, still less one in such scathing terms, cut through the usual dissemblage of chairmen's statements with this summary:
"In recent years, financial markets have been permeated by excessive greed and risk-taking. The most damaging manifestation of this has been the extraordinary levels of leverage assumed by apparently respectable financial organisations and the degree of speculation evident in the real estate markets in certain countries.
"What began as a basic credit shock in the US subprime lending market became greatly amplified by heavy balance sheet leverage in the asset securitisation markets, and then developed into a global liquidity crisis due to these markets' dependence on short-term funding.
"The ensuing debacle has generated losses on a scale not seen since the US savings and loan crisis of the early 1990s. Hundreds of billions of dollars have been written off, greatly eroding the capital base of the banking system and forcing unprecedented action by the US Federal Reserve to stave off a catastrophic failure of confidence … the longer-term consequences of these policies are yet to be realised."
So here we are. Northern Rock has exploded, shares in banks have seen a dramatic evaporation of value, and the warning I sounded here on 19 May of a coming rights issue catastrophe in the banking sector has proved all too true. Bradford & Bingley's rights issue has imploded, the HBOS share price has plunged below the rights issue price of 275p and investors who subscribed to the mammoth RBS £12 billion rights issue must be wondering, with the shares at just 206p, whether they were wise to subscribe.
Now the talk is of further cash calls next year to pay for the big, bad debt write-offs that look in store. Mr Rushbrook will not have a totally free run with the Black Champagne.
Shareholders will want to know how much further he sees the market falling – though I suspect they will need something stronger than champagne when they hear the answer. And others may want to know a little more about the trust's investment strategy. If the management is so pessimistic, it would surely have been better to convert the entire trust into an index-linked gilt.
Why have an exposure to equities at all, particularly – and this is odd – chunky holdings in Royal Bank of Scotland, Barclays and HBOS which figure in the PAT top ten? Given what's unfolded, these are the Top Three from Hades.
And PAT's performance over the past year is not – or not yet – in the top-ten investment trusts, or even top 20, or even top 50.
It comes in at No62 after such equity stalwarts as Monks Investment Trust, Templeton Emerging Markets and Scottish Mortgage. And over five years, PAT has grown by just 37 per cent compared with 134 per cent for Monks and 144 per cent for Scottish Mortgage. Cash is not quite king yet. And when it is, how long will it reign?
If, as it seems, we are experiencing a series of staggered capitulations – banking, property, media, construction, retail, natural resources – at what point do the managers see value? Or do they believe this will be a long bear market? If so, is there not a case for winding up the trust?
Life is never dull at Personal Assets Trust and the views of Rushbrook and Angus on markets are nothing other than engrossing. Form an orderly queue.
The full article contains 1024 words and appears in The Scotsman newspaper.
