Keystone Positive Change

Chairman's Statement

In December 2020 the Board announced that it had undertaken an extensive review of the Company's strategy and had conducted a competitive tender in relation to the Company's investment management arrangements.  For the Company to occupy a core position in shareholders' portfolios and to facilitate identification of the best investment opportunities, the Board had concluded that it should change the Company's investment mandate to a global all-cap strategy that would respond to a growing desire among investors for a more responsible and sustainable approach to investment, and that this strategy should be delivered by Baillie Gifford & Co Limited ('Baillie Gifford'). 

At a General Meeting  on 10 February 2021 shareholder approval was given to appoint Baillie Gifford and implement its Positive Change strategy, committed to achieving positive impact as well as long-term capital growth.  The strategy invests in companies that offer solutions to global challenges in areas such as healthcare, education, social inclusion and the environment. It has been tailored to take advantage of the Company's investment trust structure.

The Company's name, London Stock Exchange ticker and web address were respectively changed to Keystone Positive Change Investment Trust plc, KPC and keystonepositivechange.com. Baillie Gifford agreed to waive its management fee for the first six months.

The portfolio was reorganised completely in the second half of February 2021, with the purchase of 33 new global growth equities that will contribute to positive social or environmental change. As at 31 March 2021, four legacy illiquid holdings remained and a small balance which was held in a FTSE 250 ETF, awaiting market opening for allocation to a target investment.

Stock market volatility worked against the Company initially, with valuations declining in the period following the portfolio transition. As long-term investors, however, the period from 10 February to 31 March 2021 is considered too brief to form a useful perspective on the new mandate.

Performance

Over the six months to 31 March 2020, the Company's net asset value per share ('NAV') total return was -0.9% compared to a total return of +14.2% for the comparative index, being a chain-linked index comprising the movement on the FTSE All-Share Index to 10 February 2021 and the movement on the MSCI All Country World Index in sterling terms thereafter. The share price total return was +14.6% over the six months to 31 March 2021, as the discount to NAV narrowed from 17.3% to 4.5%.

The following table shows performance over the six-month period, segmented into the periods to and from 10 February 2021 under the management of Invesco Fund Managers Limited and Baillie Gifford respectively.

Objective and Investment Policy

At the General Meeting, shareholders approved changes to the Company's objective and investment policy to incorporate two equally weighted objectives to:

¾ generate long term capital growth with the aim of the NAV total return exceeding that of the MSCI All Country World Index in sterling terms by at least 2 per cent. per annum over rolling five-year periods; and

¾ contribute towards a more sustainable and inclusive world by investing in the equities of companies whose products or services make a positive social or environmental impact.

The changes to the objective and investment policy were approved by 95.8% of the votes lodged.

Dividends

The new investment objective and policy will result in returns from the Company's portfolio being generated predominantly from capital growth. As such, the Company expects to pay a significantly lower level of dividend in future.  In respect of the Company's year ended 30 September 2020, the Board declared total dividends of 11.2 pence per Ordinary Share. To mitigate the impact on shareholder income in the short term, as previously announced, the Board intends to utilise the Company's reserves to maintain the dividend in respect of the financial year to 30 September 2021.

The fourth interim dividend for 2020, of 4.0p, was paid on 24 December 2020 to shareholders on the register at the close of business on 4 December 2020. The first interim dividend for 2021, of 2.4p, was paid on 12 March 2021 to shareholders on the register at the close of business on 19 February 2021. A second interim dividend of 2.4p will be paid on 11 June 2021 to shareholders on the register at close of business on 21 May 2021, with the ex-dividend date being 20 May 2021. It is expected that the Company's dividend policy for 2022 will be amended, such that no interim dividends will be paid, and any annual dividend will be paid only to the extent needed for the Company to maintain its investment trust status.

Share Buy Backs and Issuance

In the two months to the end of November 2020, the Company bought back 423,735 shares into treasury, at a cost of £1.1 million and a weighted average discount to NAV of 17.1%. At 31 March 2021, 5,778,363 shares were held in treasury. Such shares have no voting rights and are not entitled to dividends. They are available for reissue when market conditions permit, being a price representing a premium to the prevailing NAV and, as such, accretive to existing shareholders.

The discount to NAV at which the shares have traded narrowed considerably following the announcement of the proposed appointment of Baillie Gifford in December 2020. As at close of business on 27 April 2021, the discount was 1.8% compared with 17.3% at the start of the financial year.  Whilst this is encouraging, and the Board also notes the significant increase in secondary market trading volumes, the Board will continue to review the discount or premium at which the shares trade over the coming months and consider, in discussion with major shareholders, the need to address any imbalance of demand and supply

Outlook

Positive Change is an investment strategy that seeks to align shareholders' interests as investors with their interests as members of wider society and inhabitants of an environment threatened by climate change, amongst other factors. The portfolio managers are focused on finding the companies that will progress through current events and emerge with an even more dominant position and strong prospects, while contributing to building a better outcome for society. In some ways and for some businesses, the Covid-19 crisis is accelerating our path towards a future already anticipated by existing commercial and lifestyle trends. The Positive Change team has an investment horizon of five years and beyond, with turnover in the portfolio of 30-60 stocks expected to be typically no more than 20% per annum.  Commentary on the Managers' investment philosophy and activity over the short period since their appointment can be found in the Managers' Report below.

The Board believes that the Company is well positioned for long term success with a differentiated investment objective that will attract new investors and help increase the size of the Company.  It has been designed to make the best use of the unique features of the investment trust structure, by the use of gearing and, by investing in public and private companies. We look forward to embarking on this new journey, thank our long-term shareholders for their valued ongoing support, and welcome new shareholders who have purchased since the change of strategy.

Karen Brade

Chairman

30 April 2021

Interim Management Report

Keystone Positive Change Investment Trust has two equally important objectives: to deliver attractive investment returns and to contribute towards a more sustainable and inclusive world. In this, our very first Managers' Report for the trust, we felt it would be helpful to outline our philosophy before sharing our short-term activity and long-term ambition.

Philosophy

After centuries of progress and advancement, humanity is now facing a number of challenges that must be addressed in order to place our society onto a path of sustainable development. We need to combat climate change and other environmental degradations. We need to continue improving living standards for the majority. And as Covid-19 has sadly shown us, we need to invest heavily in healthcare so fewer people have their lives cut short by diseases. We believe that the best way for the investment community to contribute to this effort is through a positive and proactive approach, where investing is focused on companies that are addressing those challenges, rather than simply excluding companies that are causing harm.

We live in an extraordinarily exciting period where the advancements of technologies are enabling new solutions and innovations. Precision agriculture is helping farmers to become more sustainable and productive. New classes of therapeutics are helping to treat previously incurable diseases. And mobile and digital technologies are democratising the access to information, education, and financial services. Our focus is on companies that are challenging the status quo and driving a positive change in society. We look for companies that are led by ambitious and committed management teams; where their products and services are helping to address a sustainability challenge; and where there is the opportunity to build a scalable business that will generate long-term value for society and shareholders. Clearly, not every company we invest in will be successful, but we are confident that the successful ones will make an outsized impact on investment returns and sustainable development.

This style of investment requires an active and long-term approach. The challenges to sustainable development are numerous and interlinked and the impact of companies on society is often complex and nuanced. We do not believe that broad-brush approaches such as negative screening or incorporating third-party ESG scores provide much insight. Instead, we leverage in-depth, fundamental research into companies and industries. We use diverse sources of information to help us make informed judgements. A long-term horizon is absolutely crucial, too. Challenges such as climate change will require years and decades of investments. In addition, most companies will face temporary setbacks at some stage. We aim to support companies through those periods of difficulties and encourage management teams to invest for the long-term.

Our aim is to contribute towards a more sustainable and inclusive world whilst generating attractive long-term investment returns. This leads to our dual objectives. On investment, we aim to outperform the global equities benchmark over rolling 5-year periods by at least 2% per annum. On impact, our aim is to invest in and support companies that are making meaningful contributions to solving sustainability and social challenges.

The portfolio will invest in 30-60 exceptional companies whose products and services are proactively solving challenges across our four impact themes: social inclusion and education; environment and resource needs; healthcare and quality of life; and base of the pyramid (addressing the needs of those at the bottom of the global income ladder).

Short Term: The First Six Weeks

Following our appointment at the General Meeting on 10 February 2021, our initial priority was to ensure a smooth transition from the previous portfolio of UK companies to the Positive Change portfolio of global companies. As at the end of March 2021, we are pleased that this process is nearing completion.

Our investment horizon is five years or more but it is worth noting that global stock markets were unusually volatile during the first few months of 2021, which coincided with the period during which we undertook the transition of the portfolio. Amid the recent short-term volatility in stocks, our steadfast focus on the long-term progress for businesses in the portfolio remains even more important.  We are investing in a technological golden age, which is facilitating structural changes in a multitude of industries from healthcare to energy.  Companies in the portfolio are very much at the forefront of some of these changes and will be instrumental in helping us to achieve our two equally important objectives. 

We invested in two new holdings at the end of March which we believe will meet these long-term objectives. Both companies are in the Healthcare & Quality of Life theme although they are contributing towards very different challenges.

Firstly, Peloton, which is a pioneer of connected fitness equipment for use at home and has an ambitious goal of achieving 100 million subscribers over the coming decades. The beneficial effects of fitness are well known and include lower risk of heart disease, stroke, diabetes, depression, dementia, and certain types of cancer. By lowering friction and, over the medium term, cost, we believe Peloton will help drive better health outcomes alongside being a profitable and growing business.

Secondly, AbCellera, which performs antibody discovery services for pharmaceutical and biotech partners. The company increases the speed of antibody discovery and potentially discovers better quality antibodies by leveraging on its in-house technology. By achieving this, we expect AbCellera to help improve and expand antibody treatments for large patient populations suffering from some of the world's most common diseases, including cancer. A meaningful share of the antibodies therapeutic market could lead to a very attractive investment outcome.

These two investments were funded by reductions to Alphabet and Japanese medical platform, M3.

Long Term: Looking Ahead to a Positive Future

Technological advancements and increasing awareness of sustainability issues are providing powerful tailwinds for innovative companies that are addressing societal challenges. This creates exciting opportunities for long-term and purpose-driven investors. We are continuing our research on food and agriculture. This is a sector that is ripe for disruption, from plant-based food to vertical farming. We are also researching the fashion industry, which has enormous environmental and social impact. Here, changing attitudes towards second-hand goods and new sustainable materials are presenting interesting investment opportunities. Other areas that we are looking at include digital connectivity in Africa, innovations related to renewable power generation, energy storage and electrification, and healthcare. 

With Keystone Positive Change Investment Trust, we have expanded our investable universe to include less liquid listed and private companies. There are plenty of exciting opportunities in this space. In addition, the impact of our activity - providing primary capital to help businesses scale - is potentially greater.

We're working closely with the Private Companies team at Baillie Gifford and are inspired by the number of private companies which have the potential to be holdings within the investment trust. We have the ambition for 5-10% of the portfolio to be invested in private companies within a few years and for that proportion to increase gradually over time (up to a maximum of 30%).

We look forward to sharing the outcome of our research over the coming months. We are just at the very beginning of our Keystone Positive Change journey and we thank shareholders for joining us.

Lee Qian and Kate Fox

Portfolio Managers

30 April 2021

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance