Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018

Objecve ‐ To achieve an above average level of Sterling income, while seeking a reasonable degree of capital security

Investment Policy ‐ The manager will invest in a broad range of asset classes according to ongoing market condions

Strategy ‐ A wide universe of exchange traded funds, direct equies and bonds and other income producing vehicles are as‐ sessed on an ongoing basis, in o rder to provide a broad spread of exposure by way of asset class and income source. The manag‐ er will constantly aempt to provide Cash Plus levels of income and diversificaon of risk Increasing Risk Low Risk Moderate Low Risk Moderate Risk Moderate Risk Higher Risk Aggressive Risk 3 4 5 6 7 8 Cauous Moderately Cauous Income Balanced Moderately Aggressive Aggressive  Long Term Capital Long Capital Term Capi‐ Above Average Level of Long Term Capital Long Term Capital Growth Long Term Capital Growth Growth with high tal Growth with moder‐ Income with fair level of Growth with moderate with some constraint on with no constraint on degree of capital pro‐ ate degree of capital capital security degree of volality of volality compared to volality tecon protecon returns Aggressive Strategy

Launch Date: May 2016 Available through on‐line investment plaorms Dealing Dates: According to plaorm provider Minimum Cash Holding: 2% Benchmark: Bond ‐ Bbg GBP Inv Grade Corp Bnd Index Investment Management Charge: 0.35% Equity ‐ FTSE 100 Target Yield: 4% Current Yield: 5.20% (Before Plaorm and Investment Management Charge)

Bond 24 % Alt Fin 9 % Top Ten Holdings: % Cash 2 % Schroder Inc Maximiser 7% UK Equity Income 10 % TwentyFour Income Fund 7% Tideway Hybrid Capital 7% Invesco Global Fin Cap Fnd 7% SQN Asset Finance Ltd 6% HICL Infrastructure Co Ltd 5%

Infrastructure 15 % Empiric Student Property 5%

UK Equity 16 % Internaonal Public Ptnrs 5% Tritax Big Box REIT PLC 5% Pte Equity 4 % Property 20 % Greencoat UK Wind PLC 5% Last Instructed Weighng

6000 Monthly / Accumulated Income £5,190 5000 per £100,000 invested

4000

3000

2000

1000

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP  Channel Islands  www.bridport.ch  Tel +44 (1534) 887 448

Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018

Model Yield 5.22% Cash 1.81% LLOYDS BANKING GROUP ORD GBP0.25 2.23% 2.28% P2P Global Investments PLC 2.43%

LEGAL & GENERAL GROUP ORD GBP0.025 2.44% HSBC HLDGS ORD USD0.50 2.60% ROYAL DUTCH SHELL AORD EUR0.07 2.62% GLAXOSMITHKLINE ORD GBP0.25 2.63% NATIONAL GRID ORD 11 17/43 2.87% iShares II PLC ‐ iShares UK Property UCITS ETF 2.88% MI Chelverton UK Equity Income Fund B GBP 3.07% iShares VI PLC ‐ iShares Global High Yield Corp Bond GBP Hedged UCITS 3.83% iShares Listed Private Equity UCITS ETF GBP 4.37% GCP Student Living PLC 4.61% Tritax Big Box REIT PLC 4.94% Greencoat UK Wind PLC 4.97% International Public Partnerships Ltd 5.38% Empiric Student Property PLC 5.60% HICL Infrastructure Company Ltd 5.65% SQN Asset Finance Income Fund Ltd 5.98% Invesco Perpetual Global Financial Capital Fund NT GBP 6.38% Tideway GBP Hybrid Capital Fund B GBP 6.67% TwentyFour Income Fund Ltd 6.79% Schroder Income Maximiser Z Inc 6.98%

11.00%

9.10% 9.00%

7.00%

5.00%

3.00%

1.00%

‐1.00%

‐3.00%

‐5.00%

Porolio Stascs (source: Bloomberg) Port (1 Month) Port (3 Months) Port (6 Months) Total Return % ‐1.29 ‐1.59 1.57 Maximum Return % ‐0.01 2.30 Minimum Return % ‐1.29 ‐1.29 Mean Return (Annualized) % ‐6.34 3.14 STD Deviaon 5.43%

Sharpe Rao 0.81

The value of Investments and any income from them, may go down as well as up (which may in part be due to fluctuations in foreign exchange rates), and investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance. bridport & co (Jersey) Ltd has compiled this document and has taken care to ensure that the information contained herein is correct, but it does not warrant, represent or guarantee the accuracy of any such information, nor does it accept any responsibility for any errors, inaccuracies, omissions or inconsistencies herein. This document should not be construed as advice or as a recommendation to buy or sell any investment. bridport & co (Jersey) Ltd is regulated by the Jersey Financial Services Commission.

bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP  Channel Islands  www.bridport.ch  Tel +44 (1534) 887 448

Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018

Commentary

As this was being wrien toward the end of October, the major headline was that pertaining to one of the richest men in the world ‐ Jeff Bezos ‐ the founder of Amazon who “lost” a record amount of wealth in the space of just two days ‐ $20bn. But don’t be too concerned, he is sll the Worlds richest person…..

October was a month that will be scorched in the minds of investors as (so far) the worst month of the year and probably the worst month for risk assets since…..well, the last major sell‐off in 2016, when Deutsche bank was rumoured to be running out of capital ( FTSE 100 down by 20%). Aer that event, we had the Taper Tantrum of 2013 (FTSE down by 10%), the Euro Area Crisis of 2012 (FTSE ‐20%) and the big one of 2008/09 (FTSE ‐46%). So far the FTSE is down this month by as much as 9%, before winding back to ‐5%. Lots of reasons for the sell‐off, but principally we have nervous investors worried about Italy, Brexit, Trade Wars and Rate Ris‐ es. The difference between the big drawdowns of the past and the current one, (with the excepon of 2008/09) is that they were felt in the presence of markets which were not overvalued. There were sll reasons to be concerned at these mes, but stocks and bonds, excluding Government Bonds, had some semblance of value and recovery momentum building up underneath them. This me, there is generally no such sense of comfort, unless you look at unloved “deep value” stocks and related income strategies.

Within these record breaking periods of increased volality and heightened market tension we feel that the small fall in value of this Income porolio is proving to be a very good story. As bond investors first, we become concerned with any porolio value dip in any parcular me frame, although we fully recognise that markets rise and fall. To us, value changes of ‐1% and more are deeply unseling. However, when we step away from the tunnel vision study of bond and income investments to consider the wider world, we find that our comparave out‐performance puts into place the slight change in the value of this porolio to that of the wider market.

We do not run the Porolio against a specific benchmark as this tends to lead investment down the corridor of index hugging. However referencing the porolio against a mixture of Gilts (40%), Corporate Bonds (investment grade and high yield) (20%), plus the FTSE100 (40%), shows a meaningful outperformance of +3.35% more than the index for the year to date and +0.30% outperfor‐ mance for this month. We should also stress that 40% of the benchmark is in Gilts, which recorded a gain of 1 1/2% for this month.

The Diversified porolio has been up, running and fully invested since June of last year (although back‐tested for a year before that). In October, we had sufficient client capital to expand the porolio into it’s current range of investments. Since that me we have made some minor adjustments and added one or two addional funds where we understand there is a demonstrable focus on stability and income. In the course of the last 12 months, the strategy has been witness to some major market events ranging from the rise of the Labour party, and it’s effect on certain stock market areas (infrastructure), the beginning of rate rises in the UK, col‐ lapsing FTSE100 companies (Carillion and Provident) together with EMG market crises, Polical crises, doubling of Oil (June 17 to Sept 18) the rapid cooling of central UK property and the death of several UK retail empires ‐ not to menon the painful Brexit ne‐ goaons and the on‐going trade wars . As such being able to outperform major indices such as the FTSE100 by as much as 7% over that 12 month me frame and finish the most volale month with an outperformance of the FTSE by 3.50% is an accomplish‐ ment.

Our strategy stems from the over arching role we have as income investors. We invest into companies that have solid underpin‐ nings and a long term ability to be able to pay income from a strong capital base. Underleveraged property backed investments and companies that actually own long term rights to income streams from infrastructure and energy, companies that own the as‐ sets they manage to generate income returns for our porolio. We understand financial companies, such as Banks, from the per‐ specve of their balance sheets and look for strong liquidity raos that can withstand economic downturns, but which have the ability to keep paying dividends. We need to be able to understand how our investments generate their returns and be sure they can connue to do so.

We believe the porolio is posioned to connue to provide income from all of it’s holdings. We would prefer capital stability as opposed to the current market volality. We would prefer to be under‐performing our benchmarks, whilst sll making posive returns amidst rising markets. However given these market condions which are likely to persist, we have the choice of invesng in our porolio or selecng the poor opon of receiving negave real returns combined with very low levels of interest rates from the risk free asset class, Gilts and high grade bonds. We cannot see that there is a beer way to invest for the long term income orient‐ ed investor.

bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP  Channel Islands  www.bridport.ch  Tel +44 (1534) 887 448

Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018

Successful Invesng for Income We are now in an economic age which suffers from low income returns. Low interest rates have been the norm since 2009 and it would seem to be the case that the low / moderate interest rate age will connue for the foreseeable future. Since rates began to fall in 2009, returns generated by bonds have held up surprisingly well, buoyed by fixed rates on bonds issued before the crash and capital gains . However, we have seen that the lower for longer interest rate environment has the effect of substanally reducing returns to bond investors as the bonds issued from 2009 and before come to maturity and the maturity proceeds are re‐invested back into the market at very much lower rates. This decline in rates has pushed bond investors to new and higher yielding markets and extremes of ma‐ turity in an effort to maintain returns. Bond invesng is now a complex and difficult market with raised of underlying risk. Annual income returns can be overwhelmed by a market move over a few hours.

Historically, bonds have always aracted investors and savers looking for safe and secure income. Whilst “safe and secure” is arguably sll a feature for most of the bond market, the type of income returns we had become accustomed to over the last 30 years are difficult to achieve.

The low interest rate environment however provides opportunies in equity markets, where the outlook for companies, because of cheap funding, is looking promising. Dividend yields oen exceed bond yields issued by the same company and it makes sense to consider a combined Bond and Equity market ap‐ proach when invesng for income. Understanding the difference between Bond and Equity invesng is vital. Investors could be excused for believing that, in the end, the outcome is the same. The two asset classes react differently to the varying economic pulses and themes that mark the ebb and flow of markets. Rising interest rates, which combat potenally strong inflaon, caused by a pick‐up in growth, may occur in a supporve environment for markets as investors ancipate greater profitability as the economy picks up. Bonds in this environment generally struggle as fears of inflaon and being locked into a lower rate of interest become the main con‐ cern. We provide an investment approach that combines investment into Equity, Bond markets and investment into Real Assets. Our aim is to provide a regular income to our clients without relying on either market. bridport is, by its origins and nature, a specialist in bond markets. However, our long term investment experience provides a unique ability to add to this specialisaon with careful and insighul analycs with‐ in the sphere of income invesng.

Bond investors are mostly concerned with retaining porolio value, in real (inflaon protected) and nomi‐ nal terms. We work to meet specific income targets by invesng in key value sectors of the bond market with target porolio of equies, funds and Investment Companies that pay relavely good levels of divi‐ dend income.

Generally, our approach will feature bonds to a greater extent than equies, although we will not be dog‐ gedly bound to this relaonship and the approach will change over me as market condions evolve.

The value of Investments and any income from them, may go down as well as up (which may in part be due to fluctuations in foreign exchange rates), and investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance. bridport & co (Jersey) Ltd has compiled this document and has taken care to ensure that the information contained herein is correct, but it does not warrant, represent or guarantee the accuracy of any such information, nor does it accept any responsibil- ity for any errors, inaccuracies, omissions or inconsistencies herein. This document should not be construed as advice or as a recommendation to buy or sell any investment. bridport & co (Jersey) Ltd is regulated by the Jersey Financial Services Commission.

bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP  Channel Islands  www.bridport.ch  Tel +44 (1534) 887 448

Regulated by the Jersey Financial Services Commission