LONG TERM TRACK RECORD TO 31 OCTOBER 2024

Fund Manager's Report

The year started with optimism that, despite higher interest rates, the world would avoid an economic recession. The view that central banks had engineered a soft landing carried equity markets to new highs through the first half of the year. Once more, technology shares and anything related to Artificial Intelligence ('AI') led the way although the broader market, especially the financials, did participate. In the summer, new job creation slowed and inflation stopped its descent causing a wobble in markets. This was amplified by negative news coming out of Asia and Europe, as their economic growth stalled. Investors sought new policies in markets like China and Germany to stimulate growth but politicians offered little to support their equity markets. Meanwhile in July the Japanese currency reached breaking point and sharply corrected against the US dollar, disrupting the Yen carry trade. However, it did not take long for renewed optimism to be established as interest rates in Europe and then the US, finally started to be cut. Our financial year ended the week before the US presidential election with markets at all time highs, buoyed by the prospect of a Trump win.

The portfolio performed in line with the market until mid-year when Asia and Japan both diverged in performance from the rest of the world. Then Europe also faded against the US following the collapse of the French government. Finally, the US market left all others behind in the run up to the presidential election. Our broadly diversified portfolio has impacted returns, in a year when the US market outperformed the rest of the world by over 10%. Stock selection was also affected by stock picking in the consumer discretionary sector and health care. Consumers were clearly struggling with higher inflation and spending patterns have changed, impacting some past winners like Nike, Burberry and Samsonite. Health care stocks suffered from a sharp derating as investors switched from defensive health care franchises to chase the AI story. The technology underweight in the portfolio was eliminated but not holding Nvidia proved painful for relative performance. The company has strong new order growth but the valuation is now assuming that doubling sales growth and elevated margins carry on for a decade ahead. This would be an unusual outcome in a historically cyclical sector. Competition is also increasing from in-house AI chips developed by the large Technology companies, such as Alphabet and Meta.

The portfolio turnover was exceptional this year and will settle back next year. We have taken advantage of market conditions and large block trades to reposition the portfolio cost effectively, as well as raising the US allocation. The reduction in stocks towards 100 holdings was completed in October and the portfolio is more concentrated into the investment team's best ideas. The Chinese A share portfolio was significantly reduced as we failed to see meaningful government policy to revive the economy, retaining just two holdings making electrical equipment and appliances.

Income and gearing

The underlying level of dividend growth that each of the companies we hold have declared has broadly held up, although it is apparent that the companies listed in the US increasingly favour a share buyback over cash distributions to shareholders. The US market now yields just over 1% and this trend towards higher levels of capex and buying back stocks is likely to affect future income growth from that market. The overall investment income fell 6.9% during the year, which reflects a higher proportion of the portfolio invested in zero yielding securities, a higher allocation to the US market and raising cash for the Company's buybacks. The declining number of shares in issue meant that the Company's earnings per share only fell 3.3% during the year. The outlook for income essentially depends on future corporate profits rising, although structurally there is a shift amongst the wider investment community towards prioritising capital return over dividends.

The gearing at the year end was relatively low at 1.5% as we sold down some positions in Asia and the UK late in the year. We have subsequently increased gearing post the year end. We also allowed the £20m loan facility with SMBC Bank International to expire as we did not anticipate utilising the facility while short term interest rates remain high. For the moment we have sufficient levels of long-term borrowings at a historically low average cost of 2.7%.

Outlook

The health of the US economy and the impact of the new Trump administration dominates the outlook for global equities. Experience tells us that seismic shifts in economic growth are very rare and that we should probably expect Trump's key policies of tariffs, deregulation and deportation of immigrants to have only a modest effect on markets in the long term. Of course, in the short term, there will be hyperbole from commentators, both positive and negative, on the outlook. Trump's policies appear to be inflationary in nature and so it is likely that higher short and more importantly long-term rates than over the last twenty years will curtail much of the optimism eventually. The long-term challenge for the US market is the scale of the budget deficit and whether investors will continue to fund the US government at current yields.

Unlike the highly indebted governments around the world, the companies we own have rarely been in better health. They have generally locked in the low financing rates a few years back and are benefiting from growing levels of capex developing new products and innovation in AI . We expect corporate profits to rise further next year while interest rate cuts in Europe and Asia will ease the pressure on consumers. The falling return on cash and shorter dated bonds, will mean equities remain attractive to investors despite the increase in valuations we have seen this year. We expect a broadening out of markets as the earnings growth from those companies outside the handful of large technology companies catches up and their valuations look far more appealing.

Alex Crooke

Fund Manager

15 January 2025

NOTES TO THE FINANCIAL STATEMENTS

1a. Accounting policies

The Bankers Investment Trust PLC is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The financial statements of the Company for the year ended 31 October 2024 have been prepared in accordance with UK-adopted International Accounting Standards.

The financial statements have been prepared on a going concern basis. The principal accounting policies adopted are set out in the Annual Report. These policies have been applied consistently throughout the year. Where presentational guidance set out in the Statement of Recommended Practice ('the SORP') for investment companies issued by the Association of Investment Companies ('the AIC') amended in July 2022 is consistent with the requirements of UK-adopted International Accounting Standards, the Directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP.

Going concern

In reviewing viability (see Annual Report) and going concern, the Directors have considered, among other things, cash flow forecasts, a review of covenant compliance including the headroom above the most restrictive covenants and an assessment of the liquidity of the portfolio and the impact of the wars in Ukraine and Israel and changes in the international political landscape. The assets of the Company consist mainly of securities that are listed and readily realisable.

Thus, after making due enquiry, the Directors believe that the Company has adequate financial resources to meet its financial obligations, including the repayment of any borrowings, and to continue in operational existence for at least 12 months from the date of approval of the financial statements to 31 January 2026. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.