Invesco Perpetual Select Trust plc ANNUAL FINANCIAL REPORT YEAR ENDED 31 MAY 2020 The Company in Brief Nature of the Company Invesco Perpetual Select Trust plc (the ‘Company’) is a public listed Investment Company whose shares are traded on the London Stock Exchange. The business of the Company is to invest shareholders’ funds with the aim of spreading investment risk and generating returns for shareholders. The Company has an indefinite life and is intended as a long-term investment vehicle. The Company provides shareholders with a choice of investment policies and objectives, each intended to generate attractive risk-adjusted returns from segregated portfolios. The Company’s share capital comprises the following four Share classes, each of which has its own separate Portfolio of assets and liabilities: • UK Equity Share Portfolio www.invesco.co.uk/selectuk • Global Equity Income Share Portfolio www.invesco.co.uk/selectglobal • Balanced Risk Allocation Share Portfolio www.invesco.co.uk/selectbr • Managed Liquidity Share Portfolio www.invesco.co.uk/selectml Investment Policy The Company’s Investment Policy, which includes objectives, policies, risks and investment limits for the Company and the separate Portfolios, is disclosed in full on pages 32 to 35. Borrowings and Gearing The two equity portfolios may use bank borrowings, the proceeds from which can be invested, gearing up exposure to the stock market with the aim of enhancing returns to shareholders. The Balanced Risk Allocation portfolio is geared by means of the financial derivative instruments used to implement its investment policy. Business Model The Company has contracted with an external investment manager, Invesco Fund Managers Limited (the ‘Manager’), to manage its investments and for the Company’s general administration. Other administrative functions are contracted to external service providers. The Company has a Board of non-executive directors who oversee and monitor the activities of the Manager and other service providers on behalf of shareholders and ensure that the investment policy is adhered to. The Company has no employees. Share Class Conversion The Company enables shareholders to alter their asset allocation to reflect their views of prevailing markets through the opportunity to convert between Share classes every three months, on or around 1 February, 1 May, 1 August and 1 November each year. Notice from a shareholder to convert any class of Share on any conversion date will be accepted up to ten days prior to the relevant conversion date. Forms for conversion are available on the web pages of all the Share classes on the Manager’s website (see above) and from the Company Secretary. Conversion from one class of Shares into another will be on the basis of a ratio derived from the prevailing underlying net asset value of each class of relevant Share, calculated shortly before the date of conversion. The Directors have been advised that conversion of one class of Share into another will not be treated as a disposal for the purposes of UK Capital Gains Tax. The Company’s four Share classes are each eligible for investment in an ISA and qualify to be considered as mainstream investment products suitable for promotion to retail investors. Front Cover: Close up of Mica Crystals IP Select_pp01_31.qxp 03/08/2020 11:50 Page 01 Contents 02 Financial Performance 03 Chairman’s Statement 06 Market and Economic Background 07 UK Equity Share Portfolio: 07 Performance Record 08 Manager’s Report 12 List of Investments 13 Income Statement UK EQUITY 13 Summary of Net Assets 13 Summary of Changes in Net Assets 14 Global Equity Income Share Portfolio: 14 Performance Record 15 Manager’s Report 19 List of Investments INCOME 20 Income Statement 20 Summary of Net Assets GLOBAL EQUITY 20 Summary of Changes in Net Assets 21 Balanced Risk Allocation Share Portfolio: STRATEGY 21 Performance Record 22 Manager’s Report 25 List of Derivative Instruments 26 List of Investments 27 Income Statement ALLOCATION BALANCED RISK 27 Summary of Net Assets 27 Summary of Changes in Net Assets 28 Managed Liquidity Share Portfolio: 28 Performance Record 29 Manager’s Report 31 List of Investments 31 Income Statement 31 Summary of Net Assets 31 Summary of Changes in Net Assets MANAGED LIQUIDITY 32 Business Review 46 Directors 47 The Company’s Governance Framework 48 Corporate Governance Statement 49 Audit Committee Report 52 Directors’ Report 62 Statement of Directors’ Responsibilities GOVERNANCE 63 Directors’ Remuneration Report 66 Independent Auditor’s Report 74 Income Statement 75 Statement of Changes in Equity 76 Balance Sheet FINANCIAL 78 Cash Flow Statement 79 Notes to the Financial Statements 104 Notice of Annual General Meeting 109 Advisers and Principal Service Providers 110 Shareholder Information FOR 111 Glossary of Terms and Alternative Performance Measures 115 Alternative Investment Fund Managers Directive Disclosures INFORMATION INFORMATION SHAREHOLDERS If you have any queries about Invesco Perpetual Select Trust plc or any of the other specialist funds managed by Invesco, please contact the Invesco Client Services team on: ☎ 0800 085 8677 www.invesco.co.uk/investmenttrusts INVESCO PERPETUAL SELECT TRUST PLC 01 IP Select_pp01_31.qxp 03/08/2020 11:50 Page 02 STRATEGY FINANCIAL PERFORMANCE CUMULATIVE TOTAL RETURNS(1)(2) TO 31 MAY 2020 UK Equity Share Portfolio ONE THREE FIVE YEAR YEARS YEARS Net Asset Value –12.4% –15.7% 1.4% Share Price –16.2% –18.6% –2.5% FTSE All–Share Index –11.2% –8.4% 6.9% Global Equity Income Share Portfolio ONE THREE FIVE YEAR YEARS YEARS Net Asset Value –6.4% –0.4% 28.3% Share Price –6.1% –0.8% 26.3% MSCI World Index (£) 8.9% 24.1% 64.0% Balanced Risk Allocation Share Portfolio ONE THREE FIVE YEAR YEARS YEARS Net Asset Value –3.1% 0.3% 9.7% Share Price –6.9% –3.4% 6.0% Merrill Lynch 3 month LIBOR plus 5% per annum 5.9% 17.1% 28.2% Managed Liquidity Share Portfolio ONE THREE FIVE YEAR YEARS YEARS Net Asset Value 1.1% 2.7% 2.7% Share Price 1.6% 1.6% 1.2% YEAR END NET ASSET VALUE, SHARE PRICE AND DISCOUNT NET ASSET SHARE VALUE PRICE SHARE CLASS (PENCE) (PENCE) DISCOUNT UK Equity 145.8 139.5 (4.3)% Global Equity Income 178.5 176.5 (1.1)% Balanced Risk Allocation 135.1 129.0 (4.5)% Managed Liquidity 104.4 101.5 (2.8)% (1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 111 to 114 of the financial report for details of the explanation and reconciliations of APMs. (2) Source: Refinitiv. 02 IP Select_pp01_31.qxp 03/08/2020 11:50 Page 03 STRATEGY CHAIRMAN’S STATEMENT The Company The Company’s investment objective is to provide shareholders with a choice of investment strategies and policies, each intended to generate attractive risk-adjusted returns. The Company’s share capital comprises four Share classes: UK Equity Shares, Global Equity Income Shares, Balanced Risk Allocation Shares and Managed Liquidity Shares, each of which has its own separate portfolio of assets and attributable liabilities. The investment objectives and policies of all of the Portfolios are set out on pages 32 to 35. The Company enables shareholders to adjust their asset allocation to reflect their views of prevailing market conditions. As set out on the inside of the front cover, shareholders have the opportunity to convert between Share classes, free of UK capital gains tax, every three months. Performance The NAV total return of the UK Equity Share Portfolio over the year was –12.4%, which compares with the total return from its benchmark, the FTSE All-Share Index, of –11.2%. The share price total return was –16.2%. The NAV total return of the Global Equity Income Share Portfolio over the year was –6.4%, which compares with the total return from its benchmark, the MSCI World Index (£), of +8.9%. The share price total return was –6.1%. The NAV total return of the Balanced Risk Allocation Share Portfolio was –3.1%, which compares with its benchmark, Merrill Lynch 3 months LIBOR plus 5%, return of +5.9%. The share price total return was –6.9%. The NAV total return of the Managed Liquidity Share Portfolio was +1.1%. The share price total return was +1.6%. It is extremely disappointing, both for the Board and for shareholders, to report on another year in which all three Portfolios based on risk assets underperformed their benchmarks. The Board is very aware that performance has been decidedly unsatisfactory over an extended period. Our Manager has taken steps to address the situation with some personnel changes and other initiatives and we will be closely monitoring the outcomes. At the half year the UK Equity Portfolio was performing well, but this trend reversed in the second half of the financial year as equity markets fell in response to the Covid-19 pandemic. The sell-off impacted almost every stock, but domestically orientated companies, in which the Portfolio was overweight, were hit particularly hard. The negative returns were exacerbated by the gearing employed during this period. The Global Equity Income Portfolio was also impacted by the level of gearing during the sell-off. The Portfolio was particularly affected by the underweight exposure, relative to the benchmark MSCI World Index, to the US market, which continued to outperform markets in the UK, Europe and Asia. As I reported in my interim statement, investment management responsibility for the Global Equity Income Portfolio moved to Stephen Anness in January of this year. Although the underweight position in the US is now less pronounced, it has still impacted returns. The lockdowns across the world in response to the Covid-19 pandemic led to a significant decline in economic activity.