The MI Discretionary Unit Fund Interim Report 31 October 2016 The MI Discretionary Unit Fund Contents Page Directory . .1 Investment Objective and Policy . .2 Investment Manager’s report . .2 Portfolio Statement . .4 Comparative Tables . .6 Statement of Total Return . .8 Statement of Change in Net Assets Attributable to Unitholders . .8 Balance Sheet . .9 Certification of Interim Report by the Manager . .9 Distribution Tables . .10 General Information . .11 The MI Discretionary Unit Fund Directory Manager & Registrar Maitland Institutional Services Ltd Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: 01245 398950 Fax: 01245 398951 Website: www.maitlandgroup.com (Authorised and regulated by the Financial Conduct Authority) Customer Service Centre Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW Telephone: 0345 305 4213 Fax: 0845 280 0109 E-mail: [email protected] (Authorised and regulated by the Financial Conduct Authority) Directors of the Manager P.J. Foley-Brickley S. Georgala D. Jones R.W. Leedham D.W. Munting (retired 14 October 2016) Investment Manager Investment Manager to 20 September 2016: Discretionary Unit Fund Managers Limited Investment Manager from 21 September 2016: Thornbridge Investment Management LLP 1 Fore Street, London EC2Y 9DT (Authorised and regulated by the Financial Conduct Authority) Trustee Trustee to 30 September 2016: National Westminster Bank Plc Trustee from 01 October 2016: The Northern Trust Global Services Limited 50 Bank Street Canary Wharf London E14 5NT (Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Independent Auditor KPMG LLP Chartered Accountants and Registered Auditors 15 Canada Square, Canary Wharf, London E14 5GL The MI Discretionary Unit Fund 1 The MI Discretionary Unit Fund Investment Objective and Policy Investment objective The investment objective of the Scheme is to provide maximum appreciation with above average yield for a growth fund. Investment policy It is envisaged that the Scheme will normally be fully invested subject to market considerations. The Scheme is to concentrate on smaller and medium sized UK companies. The policy does not envisage hedging either against price or currency fluctuations. Smaller and medium sized companies display characteristics of lower liquidity and investors should therefore recognise that the Manager reserves the right to control the rate of investment of new monies. The consequence of this is that from time to time the Scheme may hold liquidity in the range of 0% – 10%. Investment Manager's Report for the period ended 31 October 2016 Over the period the FTSE 100 Index was buoyed by the sterling weakness following the UK vote to leave the European Union. Both the FTSE SmallCap Index and FTSE Fledgling Index initially fell away after the vote on fears of a UK slowdown but then subsequently rallied, largely making up lost ground over the FTSE 100 Index. The FTSE SmallCap Index rallied over 9% during the period while the Fund rose 4%. This was a comparatively subdued performance but understandable given the strong performance of the Fund in the previous period. Cash levels are high and investors remain nervous, all of which has contributed to the resilient performance of the indices over the period. The markets, however, remain extremely unforgiving of those companies that miss estimates or warn on profits. Interest rates have been further reduced and UK growth forecasts have been raised and while we remain cautiously optimistic on markets going forward we are also mindful of some high valuations in the UK Small Cap space and the need for estimates to rise for ratings to be maintained. After a strong run there has been profit taking on some of the Fund’s larger holdings towards the end of the period but evidence suggests that trading remains resilient at these companies and we continue to like the fundamentals. Review of Investment Activities The last six months has seen a wide range of performances. Treatt saw a substantial rise which is gratifying as it is the largest single holding in the portfolio. There were also strong performances from Churchill China, Dewhurst, Electrocomponents, Hill & Smith and Rights and Issues Investment Trust. Laird was unfortunately extremely weak over the period and there was softness in Castings, Pendragon and Zotefoams. 2 The MI Discretionary Unit Fund The MI Discretionary Unit Fund Investment Manager's Report continued The Fund took up its rights in John Menzies thereby increasing the position in the Fund. The company secured around 93% acceptances for its rights issue to fund the purchase of a unit of BBA Aviation and said a number of its directors took part in the issue. This followed an agreed a £202 million cash deal in September to buy ASIG from BBA Aviation. Florida-based ASIG is one of the largest independent providers of commercial airline services in the world, with operations across seven countries. J A Bedford Fund Manager The MI Discretionary Unit Fund 3 The MI Discretionary Unit Fund Portfolio Statement as at 31 October 2016 Market % of total value net assets Holding Security £ 2016 Chemicals 16.67% (14.90%) 650,000 Scapa* 1,854,125 4.86 1,700,000 Treatt 3,655,000 9.57 335,000 Zotefoams 854,250 2.24 6,363,375 16.67 Construction & Materials 8.13% (8.30%) 700,000 Boot (Henry) 1,372,000 3.60 1,500,000 Low & Bonar 1,050,000 2.75 800,000 Titon 680,000 1.78 3,102,000 8.13 General Industrials 10.74% (17.91%) 2,480,000 Coral Products* 496,000 1.30 4,500,000 Macfarlane 2,340,000 6.13 133,253 RPC 1,263,238 3.31 4,099,238 10.74 Electronic & Electrical Equipment 4.67% (4.33%) 330,000 Dewhurst 'A' Non Voting* 1,386,000 3.63 60,000 Dewhurst* 396,000 1.04 1,782,000 4.67 Industrial Engineering 13.48% (12.82%) 300,000 Castings 1,260,000 3.30 500,000 Chamberlin* 325,000 0.85 150,000 Fenner 326,625 0.85 150,000 Hill & Smith 1,506,000 3.95 2,595,198 Renold 1,025,103 2.69 15,900 Spirax-Sarco Engineering 701,508 1.84 5,144,236 13.48 Support Services 16.34% (15.57%) 520,000 Brammer 540,800 1.42 400,000 Electrocomponents 1,489,600 3.90 271,428 Menzies (John) 1,344,926 3.52 107,500 SIG 118,788 0.31 400,000 VP 2,742,000 7.18 1,900 WYG* 2,024 0.01 6,238,138 16.34 4 The MI Discretionary Unit Fund The MI Discretionary Unit Fund Portfolio Statement continued Market % of total value net assets Holding Security £ 2016 Food Producers 1.00% (0.95%) 275,000 Carr's 380,875 1.00 Household Goods & Home Construction 9.69% (9.30%) 232,101 Churchill China* 1,880,018 4.93 375,000 Colefax* 1,818,750 4.76 3,698,768 9.69 Leisure Goods 0.31% (0.36%) 400,000 Hornby* 117,000 0.31 General Retailers 1.63% (1.84%) 13,600 Findel 28,152 0.07 2,000,000 Pendragon 595,000 1.56 623,152 1.63 Equity Investment Instruments 9.48% (8.10%) 232,000 Rights & Issues Investment Trust 3,619,200 9.48 Nonequity Investment Instruments 0.01% (0.00%) 4,000 VT Cape Wrath Focus Fund 3,921 0.01 Software & Computer Services 0.00% (0.24%) Technology Hardware & Equipment 1.00% (2.39%) 262,500 Laird 380,625 1.00 Investment assets 35,552,528 93.15 Net other assets 2,612,981 6.85 Net assets 38,165,509 100.00 All investments are ordinary shares or stock units on a regulated securities market unless otherwise stated. The percentages in brackets show the equivalent % holdings as at 30.04.16 * Quoted on the Alternative Investment Market. Total purchases for the period: £389,279 Total sales for the period: £3,272,117 The MI Discretionary Unit Fund 5 The MI Discretionary Unit Fund Comparative Tables Change in net assets per unit Income Units 31.10.16 30.04.16 30.04.15 30.04.14 pppp Opening net asset value per unit 1,670.28 1,458.12 1,460.30 1,053.41 Return before operating charges^ 108.39 251.14 35.13 441.23 Operating charges -19.39 -18.30 -16.10 -14.88 Return after operating charges^ 89.00 232.84 19.03 426.35 Distributions -18.09 -20.68 -21.21 -19.46 Closing net asset value per unit 1,741.19 1,670.28 1,458.12 1,460.30 ^After direct transaction costs of -0.68 -0.64 -0.28 -0.27 Performance Return after charges 5.33% 15.97% 1.30% 40.47% Other Information Closing net asset value £25,958,695 £26,587,942 £25,598,842 £26,735,528 Closing number of units 1,490,856 1,591,824 1,755,604 1,830,821 Operating charges 1.15% 1.15% 1.13% 1.12% Ongoing operating charges* 1.12% ––– Direct transaction costs 0.04% 0.04% 0.02% 0.02% Prices Highest unit price 1,810.55 1,681.57 1,547.70 1,561.90 Lowest unit price 1,541.40 1,476.60 1,301.20 1,056.00 Accumulation Units 31.10.16 30.04.16 30.04.15 30.04.14 pppp Opening net asset value per unit 6,345.34 5,470.73 5,400.78 3,844.31 Return before operating charges^ 412.18 943.52 129.64 1,610.93 Operating charges -73.65 -68.91 -59.69 -54.46 Return after operating charges^ 338.53 874.61 69.95 1,556.47 Distributions -68.72 -77.80 -78.70 -71.24 Retained distributions on accumulation units 68.72 77.80 78.70 71.24 Closing net asset value per unit 6,683.87 6,345.34 5,470.73 5,400.78 ^ After direct transaction costs of -2.57 -2.39 -1.06 -0.97 Performance Return after charges 5.34% 15.99% 1.30% 40.49% Other Information Closing net asset value £12,206,814 £11,701,714 £10,880,235 £12,485,906 Closing number of units 182,631 184,414 198,881 231,187 Operating charges 1.15% 1.15% 1.13% 1.12% Ongoing operating charges* 1.12% ––– Direct transaction costs 0.04% 0.04% 0.02% 0.02% Prices Highest unit price 6,878.65 6,336.34 5,724.10 5,727.60 Lowest unit price 5,856.10 5,540.05 4,812.50 3,853.70 * During the period there has been a reduction in Trustee fees, which has the effect of reducing the Operating charges by 0.03%.