BLACKROCK HEDGE SELECTOR LTD
Interim Management Statement - period from 1 July 2012 to 30
September 2012
To the members of BlackRock Hedge Selector Ltd
This interim management statement has been produced solely to
provide additional information to shareholders as a body to meet
the relevant requirements of the UK Listing Authority's Disclosure
& Transparency Rules. It should not be relied on by any other
party for any other reason.
This interim management statement relates to the period from
1 July 2012 to 30 September 2012 and contains information that
covers this period, and up to the date of publication of this
interim management statement.
BlackRock Hedge Selector Ltd is a closed-ended investment
company structured to issue a range of classes of Feeder Fund
Shares, each of which will provide investors with exposure to the
performance of an investment fund managed by BlackRock. The Company
had total assets of £60.9m at 30 September
2012.
At present the Company only has one class of Feeder Fund Shares
in issue, the UK Emerging Companies Shares, which provides
investors with exposure to the performance of BlackRock UK Emerging
Companies Hedge Fund Limited, a Cayman
Islands domiciled fund managed by BlackRock which was
launched in May 2004 and has a net
asset value of $1.350 billion as at
30 September 2012 (source: BlackRock,
unaudited).
In addition, the Company has in issue a class of Cash Fund
Shares which provide, via investment in the BlackRock Institutional
Sterling Liquidity Fund (a sub-fund of the Institutional Cash
Series plc), exposure to a portfolio of short-term money market
instruments. At 30 September 2012,
the Institutional Sterling Liquidity Fund had a net asset value of
£24.7 billion (source: BlackRock, unaudited). The Cash Fund Shares
are designed partly as a conversion option for holders of Feeder
Fund Shares who may wish, from time to time, to reduce their
exposure to the BlackRock UK Emerging Companies Hedge Fund.
Stock Performance
31 July 31 August 30 September 28 September
2012 2012 2012 2009 to 30
September 2012*
UK Emerging Companies
Shares
Share Price £1.195 £1.195 £1.2375 n/a
Net Asset Value per share £1.25305 £1.26439 £1.27584 n/a
Discount 4.6% 5.5% 3.0% n/a
Share price performance (0.4%) 0.0% 3.6% 23.8%
NAV performance 0.9% 0.9% 0.9% 27.6%
NAV performance excluding 0.9% 0.9% 0.9% 28.6%
launch costs
Underlying hedge fund - 0.96% 0.90% 0.93% 30.5%**
NAV performance
Cash Fund Shares
Share Price £0.99375 £1.00625 £1.00625 n/a
Net Asset Value per share £1.01802 £1.01805 £1.01806 n/a
Discount 2.4% 1.2% 1.2% n/a
Share price performance (0.1)% 1.3% 0.0% 0.6%
NAV performance 0.0% 0.0% 0.0% 1.8%
Underlying cash fund - 0.72% 0.66% 0.62% 0.75%**
monthly gross annualised
yield
*launch 28 September 2009
** based on published performance data from 30 September 2009 to 30 September 2012
Manager's Review
UK Emerging Companies Shares
The UK Emerging Companies NAV returned 2.7% over the three month
period to 30 September 2012 in
comparison to the underlying hedge fund, which returned 2.8%. The
share price increased by 3.2% over the same period and the share
rating stood at a discount of 3.0% at 30 September.
The BlackRock UK Emerging Companies Hedge Fund is an equity long
short fund that focuses primarily on UK Small and Mid Cap Stocks
but also invests up to 20% in FTSE 100 stocks. The Fund Managers
use a bottom up fundamental approach to build the portfolio and
leverage off the wider UK Equity research platform to drive
investment decisions. The strategy seeks to identify companies with
strong management expertise that will generate superior growth
rates over time. The flexibility of smaller companies to adapt to
changing market conditions is a place to add value when researched
and positioned appropriately. The Fund seeks to
maximize total returns while limiting correlation to the broad
UK equity market. We believe that the small and mid-cap UK market
provides above-average long term growth and our objective is
achieved through a research-intensive investment process and a
risk-controlled, diversified portfolio.
Portfolio characteristics
Long Positions 86
Short Positions 89
Total Positions 175
Top 10 Long Holdings
Company Sector
Aveva Group Technology 2.6%
Oxford Instruments Industrials 2.4%
Senior Plc Industrials 2.3%
Booker Group Consumer Services 2.0%
Rathbone Brothers Financials 2.0%
Ashtead Group Industrials 1.9%
Victrex Basic Materials 1.9%
SDL Technology 1.9%
Brammer Industrials 1.8%
Rotork Plc Industrials 1.7%
Total 20.6%
Sector Breakdown
Sector Long Short Net Gross
% % % %
Basic materials 4.3 (2.2) 2.1 6.5
Consumer goods 3.3 (2.4) 0.9 5.7
Consumer services 11.6 (9.1) 2.5 20.7
Financials 7.0 (3.7) 3.3 10.7
Health Care 2.8 (1.5) 1.3 4.3
Index 0.0 (0.0) 0.0 0.0
Industrials 25.1 (17.5) 7.6 42.6
Oil & Gas 3.5 (1.0) 2.5 4.5
Technology 10.5 (1.1) 9.4 11.6
Telecommunications 0.0 (0.5) (0.5) 0.5
Utilities 0.0 (0.4) (0.4) 0.4
Total 68.1 (39.4) 28.7 107.5
Market Cap Breakdown
Market cap Long Short Net Gross
% % % %
Index 0.0 (0.0) 0.0 0.0
0-0.1bn 7.6 (0.0) 7.6 7.6
0.1-0.25bn 8.0 (1.8) 6.2 9.8
0.25-0.5bn 8.1 (6.5) 1.6 14.6
0.5-1bn 18.2 (8.2) 10.0 26.4
1-2.5bn 22.6 (11.0) 11.6 33.6
2.5bn + 3.6 (11.9) (8.3) 15.5
Total 68.1 (39.4) 28.7 107.5
Cash Fund Shares
The Cash Fund NAV performance was flat over the three month
period to 30 September 2012 and the
share price had increased by 1.2%.
The underlying Institutional Sterling Liquidity Fund seeks to
maximise current income consistent with the preservation of
principal and liquidity through the maintenance of a portfolio of
high quality short-term "money market" instruments, and returned an
annualised yield of 0.67% over the three months to 30 September 2012.
The portfolio invests exclusively in first-tier securities,
which include commercial paper, certificates of deposit, floating
rate notes, time deposits and fully collateralised repurchase
agreements. The fund must maintain 50% of its holdings with a short
term rating of A1+/P1 with the remainder in A1/P1.
Portfolio characteristics
Portfolio composition % S&P Rating %
Financial Company Commercial Paper 33 A-1+ 60
Certificates of Deposit 21 A-1 40
Fixed or floating medium term notes* 20
Government Agency 8
Time Deposits 5
Asset backed Commercial Paper 5
Treasury debt 5
Commercial paper 3
Total 100 100
* Issued by banks or corporates
Maturity distribution
Days
1-7 17%
8-30 18%
31-90 46%
91-180 18%
180+ days 1%
Total 100%
Share Conversion between Share Classes
The Company's Articles of Association provide for holders of UK
Emerging Companies Shares to convert all or part of their holding
into Cash Fund Shares on a quarterly basis. Conversion requests in
respect of 1,562,400 shares were received in respect of the
September 2012 Share Conversion Date
for UK Emerging Companies Shares to be converted into Cash Fund
Shares. Based on a conversion factor of 1.252405, a total of
1,956,758 Cash Fund shares were issued, and admitted to trading on
10 October 2012. The deadline for
receipt of the December 2012
conversion elections for the UK Emerging Companies Share Class was
18 October 2012, and as at this date
conversion elections had been received in respect 2,675,000 UK
Emerging Companies Shares.
The deadline for the next UK Emerging Companies Shares
conversion date of 31 March 2013
would normally be 19 January 2013,
but as announced on 15 November 2012,
this conversion facility is not currently available. Further
information is given below.
Cash Fund Shareholders also previously had the ability to switch
into UK Emerging Companies Shares once a year on the September
Conversion date. The deadline for Cash Fund Shareholders to elect
to convert into UK Emerging Companies Shares was 19 September 2012 and no Cash Fund Shareholders
elected to convert. This facility is also unavailable at present as
announced on 15 November 2012 and as
detailed below.
Material Events & Transactions
Cash Fund Share Class - Breach of Public Hands Test
As previously announced, and further to a transaction in the
Company's Cash Fund Shares, the Cash Fund Shares ceased to be
compliant with the “Public Hands” requirement of the UK Listing
Rules (which, broadly, stipulates that 25 percent of the shares of
each class in a listed company should be held by shareholders who
are neither Directors nor holders who own more than a 5 percent
holding each). This development has been notified to the UK Listing
Authority (`UKLA') and the Jersey Financial Services Commission.
Shares in the UK Emerging Companies Share Class remain compliant
with the UK Listing Rules and retain their listed status.
On 6 November 2012 the Company
received a written notice on behalf of BNP Paribas Arbitrage
("BNPPA") requiring the Company to offer a Cash Exit to the holders
of Cash Fund Shares. BNP Paribas Arbitrage is the holder of
3,799,634 Cash Fund Shares (which is equal to 97.98 per cent. of
the total number of Cash Fund Shares in issue as at the date of
this announcement). This Cash Exit was requested under the
provision within the Company’s Articles of Association that
stipulates that holders of the issued shares of any class may, with
the consent in writing of the holders of two-thirds of the issued
shares of that class, require the Directors to provide holders of
the shares of that class with the opportunity to dispose of such
shares for a cash amount equal to the proceeds of realising the net
assets of the Company attributable to such shares (less the costs
of implementing such disposal and any other deductions that the
Directors consider appropriate).
However, to address the fact that the Cash Fund Share Class is
no longer compliant with the “Public Hands” requirements of the UK
Listing Rules, the Board announced on 15
November 2012 that, subject to the requisite regulatory
approvals and clearances being obtained, and pursuant to the
Company's Articles of Association, it currently intends to
compulsorily redeem all Cash Fund Shares in issue after the next
share conversion between the UK Emerging Company Shares and the
Cash Fund Shares has been implemented on 31
December 2012. This compulsory redemption is expected to be
completed in January 2013.
Consequently, it will not be possible for shareholders to elect to
convert UK Emerging Company Shares in to Cash Fund Shares at the
March 2013 conversion date (the
deadline for which has previously been announced as 19 January 2013), or to make subsequent
conversion elections.
The Board recognises the importance that shareholders place on
the liquidity and discount control mechanism provided by the Cash
Fund switching facility. Given the developments outlined above, the
Board is considering proposals for an enhanced discount control and
liquidity mechanism and a further announcement will be made as soon
as practicable.
Share buy backs
On 24 August, the Company bought back 300,000 UK Emerging
Companies Shares of no par value to be held in treasury at a price
of 118.50p.
Interim Dividend - Cash Fund Share Class
An interim dividend of 1.805 pence
per Cash Fund Share was declared on 25
October 2012, payable on 28 November
2012 to shareholders on the register on 2 November 2012 (ex-dividend date: 31 October 2012).
Net Asset Value
The Company announces its NAV on a weekly basis, which can be
accessed via the London Stock Exchange website.
The unaudited net asset value, share price and share rating for
BlackRock Hedge Selector Ltd's respective Share Classes at close of
business on 9 November 2012 were:
UK Emerging Companies Shares:
NAV:127.541p
Share price:126.25p
Discount:1.0%
Cash Fund Shares:
NAV:99.965p
Share price:100p
Premium:0.04%
Annual General Meeting
The Company's third Annual General Meeting was held on
3 July 2012. All resolutions were
passed.
Interim Results
The Company announced its interim results for the 6 months ended
30 June 2012 on 21 August 2012.
There were no other material events or transactions, except as
disclosed above, during the three months to 30 September 2012, or up to the date of this
announcement, nor was the Company involved in any other material
transactions during the period except the purchase and sale of
securities undertaken in the normal course of its business.
BlackRock (Channel Islands) Limited
Secretary
16 November 2012