LONDON (ShareCast) - New City High Yield Fund, which mainly invests in high yielding fixed interest securities, had a good year but said its headline numbers ‘mask an underlying volatility that suggests continued nervousness.’

Net asset value (NAV) per share at the end of June was 52.99p, up 24.8% on a year earlier. With a year’s worth of dividends adding 3.75p per share to the return, the total return rises to 34.2%.

At the end of June the shares stood at a 6.2% premium to NAV per share which, as chairman Jimmy West pointed out, “compares favourably” with an average premium for the Association of Investment Companies UK High Income Sector of 1.8%, as at the end of June.

Returning to the theme of increase volatility, West described the current environment as a “phoney war” with the markets awaiting “the inevitable withdrawal of the colossal stimulus applied to the world's monetary system in the depths of the financial crisis.”

“That a weaker than expected recovery in the USA has postponed such a withdrawal is not necessarily something to be grateful for,” West added.

The trust’s investment manager, Ian Francis of New City Investment Managers, said the main theme for the financial year had been increased exposure to the recovering financial sector, with the trust initiating holdings in the bonds of Aviva, Brit Insurance, Prudential and Royal London.

“At the time of writing the global economy remains finely balanced. We are aware of the danger of a ‘double dip’ recession and the continuing European Sovereign debt crisis. It is against this background that the portfolio has been positioned to provide a secure income for shareholders while giving full recognition to the importance of preserving and, if possible, increasing capital,” Francis said.

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