Smaller Companies

Dear Friend

Included in this edition of our e-newsletter …






We are pleased to be a main sponsor of Barnstaple’s Christmas Lights’ extravaganza this year!  By all accounts the official turning-on was really well received and we are always very happy to consider supporting community initiatives like this.  If you are local, I hope you enjoy the display!

It is an interesting time as the Election hots-up.  There are many issues but I guess so much hinges on ‘Brexit’ all the same – if we ‘leave’ under Boris then at least the economic and investment situation will be set for the immediate future and I do anticipate an economic bounce as the postponing of decisions by individuals as well as organisations is likely to result in a short-term uptick whatever the long-term holds for us.  I think too there is a great realisation that of so many of the hopes and promises they are all making to us rely upon a stable and growing economy.  If we don’t have that, then tax revenues fall and benefit payments rise and so there is less in the coffers for all the great public services and welfare and so what is crucial is a settled back drop so the economy can indeed continue to be solid and move forwards as all the rest is just piffle.  We haven’t enjoyed that ‘settled’ backdrop for four years now so it will be welcome if it does indeed come on 12 December with a majority government and everyone knowing the future direction – even if the details of the journey are still to be sorted-out!  Countering profligate spending promises too but if the international investment community thinks that we are over-spending then the rates of interest we’ll have to pay for our National Debt increase -as we become a bigger credit risk.  A 2% increase would be a mere £40billion each and every year to find and oddly enough that dwarfs most individual spending pledges by all of them – ouch. And please no, I am not trying to make this missive ‘political’ but simply speaking from a financial and economic perspective, that’s all and the uncertainty from any extenuating hiatus as we may face as individuals let alone as a Country.

Funnily enough too but last week was a strange one for the Euro.  Since its flotation in January 1999, it marked the quietest ever week against the Dollar.  Yes, the movement between highest and lowest exchange rates was a mere 0.38%.  Now what does that tell us (aside from the dealers in these things not making much from what is the most traded pairing on the currency markets!) – probably not a lot aside from the fact that the markets are amazingly sanguine about what is or isn’t happening in the world.  Indeed, six of the twenty sleepiest weeks have been in 2019!  Remember too the average daily trading of that pair is $1.6trillion, quite a colossal sum.  Indeed, in 2019, the Euro’s range against the Dollar has been the lowest in percentage terms as well between $1.087 and $1.157 and even the futures’ market for volatile is remarkably quiet.  It may well say that both now represent considerable parts of international banks’ global reserves of course.

I have also been reminded about this principle of ‘risk’ as well when it comes to someone looking at their financial arrangements.  It is easy to say ‘I don’t want any risk’ (that investments may fall in value) but when in fact that is a sure-fire guarantee of loss because you need to be taking some risk (to achieve what you need now and for the future and deserve) to protect yourself.  Failing to plan sensibly can mean that ‘no risk’ really means your income return is likely to be inadequate, your money is likely to run-out and it will fail to provide you and it with the returns necessary to preserve your real standard of living.


Well, suddenly, smaller company Investment trusts have seen a general surge in interest and the discounts at which so many have traditionally traded have almost evaporated as the value has been recognised and buyers have been stocking-up expecting a surge in the values of the underlying investments when Brexit plans are confirmed – if that is the reason.  We are not complaining as our largest holding is just such a beast and we have oodles of similar too (as well as using the jump in one to offload the lot – Henderson Smaller Companies).  Clients will remember too that a ‘narrowing of the discount’ means a simple technical uplift in the value they receive despite ‘nothing’ happening to the underlying investment values at all!  Read the next piece to understand how a ‘discount narrowing’ can function and happy Christmas for an early present to all those holding such investments!


As you know, we are always looking for new opportunities for clients.  They can be boring or racy or technical opportunities and anything in-between!  I suppose ones which allow us to be ‘greedy’ for low risk are probably the most appealing and we think we have found one.

So, if you could invest for an income of 5% from a very wide range of component investments, centred upon defensive assets and not specifically shares, would that interest?  It does to us and we have added it to strategies.  But what makes it ‘special’ to us?  It is an Investment Trust and has been going for some while and in its heyday when it was very popular (and when it was started in fact!) it was priced at a premium level.  However, after a dull time, the market has bored of it and so there have been more sellers than buyers and so the price has fallen despite the underlying assets remaining fairly valued.

So, for each £1 we subscribe, we are buying £1.19’s worth of underlying assets, a 16% discount effectively.  In view of its portfolio, it should be trading at or above its asset value, as many comparable Trusts are.  The Company is buying-in shares itself and holding them in fact and each one it buys increases the returns for continuing investors.  Let’s look at this practically.  Let’s say the market tires of it and decides to close-it-down so all the components are sold.  Our investors will instantly receive an uplift of 19%.  Let’s say that is over five years – that is equal to 4% a year and that is on top of the 5% income.  If it doesn’t happen, it doesn’t matter, it is still as cheap and it is still a basket of assets spread over a wide range of different things, so the price should still go up anyway.  If the manager turns sentiment around so the price goes up to the asset value then we’ll still unlock our bonus.  In fact, to buy more of it I am looking at selling a similar animal where we were always buying it at a deep discount but it now trades at a premium so yes, it does happen (see the above on smaller company Trusts too)!

In time all of our balanced client strategies will have some of this investment in them – though as ever, it is just one of many components and at most is likely to only count for perhaps 3% of our total assets (more for some clients of course but still not ‘much’).  I’ve kicked-off a purchase with £700,000’s worth and acquiring them at less than I was happy to pay so an even bigger bonus for those initial participating clients!  If you’d like some and are not with us already, then we’d happily take some of your capital to commence a strategy and you’ll have some in due course.

Over our time, we have enjoyed the benefit of a deep discount and an event – or time – producing this technical trading bonus many times and trust we shall be able to do likewise for some time yet to come too!  As I have said many times before, most advisers do not buy Investment Trusts at all and partly because they do not understand them (and most ‘platforms’ still do not allow them as possible holdings anyway, which is daft!).  If your adviser is not ‘us’ then think about it; the example above is enough to contribute handsomely to all management or advisory servicing fees you have to pay and all for ‘free’ for the taking!


Apparently one of our fears from years ago is coming true.  There are lots of institutions which sell ‘socially responsible’ messages but at the end of the day, there are some rather unsavoury things within portfolios.  Most investors don’t check and even charities (including some local ones of which we are aware) just do the ‘first bit’ so they can appear to be politically correctly ‘nice’ to donors and stakeholders but they don’t do a great deal of due diligence at all. 

It is important to note a few things.  The ’world’ is changing and to survive all businesses (to lesser or greater extent) have to react or they will no longer exist.  All businesses which do not go under the label of ‘socially responsible’ or ‘ethical’ are neither irresponsible or unethical either.  It is also true to say that themes and ideas change over time.  A social norm ‘yesterday’ may become unacceptable ‘today’ and it is not an overnight process.  Indeed, inclusion of ‘fossil fuel companies’ is a moot point – do we still invest in them (often the biggest companies in the world – such as Saudi’s oil company Aramco, however which failed to meet its Government’s hopes to be the first $2trillion company but it’s almost there) and thus meaty components of indices like the FTSE100. Indeed, BP and Royal Dutch Shell are usually the biggest traded stocks on the British market, every day.  Sometimes it is ‘conscience salving’ for the investor rather than ‘doing good’ by avoiding something or indeed to include something and it is our personal behaviour and spending patterns which have the biggest impacts based upon our views.  Indeed, if those two oil companies are amongst the highest spending conservation and alternative energy research spenders, does that compensate for the use of necessary fuel today?  I just leave that as a discussion point, that is all but we have to be careful not to be so ‘politically correct’ that we throw the baby out with the bathwater too!  Remember too that where there are themes and trends the scammers are not far behind and lots of well-meaning people have lost lots of money on such things as alternative fuel investments dressed-up to attract people yet where the finances don’t add-up and at the end of the day some of them were or are simple frauds.  Some are also very speculative as they rely upon technological advances which can just as easily fail totally so do be wary.

As I have noted before too, we are finding that more of the investments in which we participate end-up supporting sustainable things regardless too – such as loan companies which have bigger baskets of debts from alternative energy companies covering wind and solar to biomass, opportunities which did not exist twenty years ago.

And just to confound things – prices of certain renewables’ energy have been falling quite heavily (hitting some of these green entities and challenging some of the marginal financial projects) and we have a glut of oil production at the moment (as is beginning to be reflected in lower prices at the pumps)…    Anyway, did you know that OPEC started sixty years ago with five producers?  Thankfully it now only commands 44% of global output (still very significant) and alternative energies have come on stream to shelter us all from price movements which have been so economically destructive in the past but the fourteen current members still preside over 81.5% of the world’s proven reserves.  Russia isn’t a member incidentally.


Remember too I noted the amount of fixed interest bonds which is guaranteeing investors less money than they invest (a negative return)?  Well, from a record $17trillion of investment grade bonds in late August there has been a claw-back of reality and the figure has dropped to $12.6trillion.  It is still daft but mark that this means the pullback has been a quarter of such sum.  As I have stated, we have none of this stuff and instead are buying even more of the sort of thing represented by the above ‘new investment idea’.  And note – a continental bank is now charging private customers if they have money with it – so yes, no interest but you pay interest to the Bank if you have money with it!  Will that happen here – it is possible!


Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!

If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website We celebrated our thirtieth anniversary in 2015 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.

Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.

My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB

Chartered Wealth Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers