Are Markets Dear?

Dear Friend

Included in this edition of our e-newsletter …







I have said before that as staunchly independent investment managers, we can use ‘anything’ to do that specific small part of our overall job for our clients.  We believe in a large diversity of exposure both for risk mitigation but also opportunity seeking and all effectively at no extra cost to the client, just perhaps more sheets of paper on the portfolio report (sorry!).

However, it is not just ‘opportunity’ but it is technical benefit too. For example, we have tended to prefer ‘investment companies’ but most advisers and investors out there instead use the less attractive unitised versions (for a number of reasons including a lack of understanding, a lack of accessibility on their favourite platform or even a problem with the size of the money they or the fund houses they use invest collectively).  This article is interesting in that it shares why generally quoted Investment Companies are ‘better’ than unitised holdings which most have:- I repeat however, we are not biased.  If we felt that the technical extra opportunity had gone, we can use other investment forms to fulfil the best outcome we can hope to achieve for our clients.  Curiously however, of the best performing sectors in the Investment Company space over the last ten years, very few of the mainstream unitised funds had any exposure to them at all – including so-called ‘Private Equity’ which did very well.  Guess what – we’ve had a nice chunk thank you.  Indeed, it is not also saying ‘this sector’ is the best going forward but if all you have is a pot of money in ‘funds’ managed by ABC Co, you won’t even have been able to have considered some, let alone have it.  That is the point.  The article suggests the average out-performance which Investment Companies have provided (or can provide) based upon their special qualities and cost structures is 0.8%pa.  We could look at that and say that could be comparable to the management fee we charge so our service and the dynamic investment management systems we have are thus all for free, despite all the extras we can generate by what we hold for clients too!

Adding a little icing to our cake too, last week Henderson Alternative Assets Trust (our seventh largest holding) propelled itself into our fourth top place after the Board announced it is likely to be winding-up.  Effectively, much of the excessive discount to asset value I have noted for years exists on so many as an opportunity, disappeared for this one.  That was a 10% gain just like that and if that happens as is likely, the gain will increase as the asset value is higher still and all costing us ‘nothing’.  Thank you very much; our clients will be quite happy with that windfall.

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And for those of you who think sometimes that our politics and the effects on markets are all rather a drama, it is that time of the year again when Croyde Players present their pantomime.  If you would like some light relief from whether Big Ben should bong or not, come for some light entertainment and you may just recognise some of the cast…!  Tickets are selling like hot cakes and this year’s ‘Jack and the Beanstalk’ is bound to go down well! If you have trouble buying tickets, drop me a message! Great entertainment for all ages and cheap too – all proceeds to charity as well. Refreshments, bar, free evening parking… what more can you want! Do come and support the cast which has put-in colossal work as usual. (Tickets also available from Copy Catz in Braunton).  0


I think the US market is stretched, yes.  I think there are some artificial factors affecting valuations there and these could all come tumbling-down at some point.  Whilst I am not so naïve as to imagine we’d be insulated over here in Blighty, there are plenty of places to find really good value in entities which will be continuing to do trade whatever happens to some giant US tech stocks.

On a positive, the US Stock Market (the S&P500 for this purpose) paid out $485billion of dividends last year – a new record and up 6.4% on the previous year and for 2020 more gains are expected.  The market notched-up its biggest gain since 2013 and is not far-off having quadrupled since the low in March 2009 after the global financial catastrophe (and that ignores the income too).

Last year, US companies bought-in and cancelled $736billion of shares, reducing supply and squeezing prices ever higher and some may say cynically the Executive bonuses which so often are awarded in stock options for the future.  Why not instead increase dividends – the present income yield is only 1.74% against a long-term average of 4.33% (with an all-time low of 1.11% in August 2008 at the Tech bubble time and a peak of 13.84% in 1932).  Read that another way and investors are being duped into paying more for poorer earnings’ outlooks (and investment returns for them) going forwards!  Guess when it was good to buy and good to sell?  And yes, crises can happen – Boeing has paid dividends and bought-in and cancelled shares to the tune of $8billion in the first nine months of last year alone and its shares are down 25% so not a good investment with the Company’s cash.


No, I don’t think so.  Passive investing is buying the index (or a basket of indices) which basically means everything because it is ‘there’.  There are benefits – primarily the lower cost and the adage that so many ‘active’ funds don’t manage to match the index let alone exceed it.  Well, banking the fact that no pure index-tracker can ever match the index it is designed to replicate as its costs have to be extracted (unless it engages some shenanigans to secure other returns like ‘stock-lending’) and the fact that we are staunchly independent investment managers and can buy ‘anything we want’ to help us fulfil our requirements for the client’s portfolio and reviewing that constantly, meaning that yes, we have some passives in strategies too, let us have a further look.  I have said often that it is a fool who knows the price of everything and the value of nothing.  Index-chasing advocates tend not to point to the world’s largest market in 1989 to which in theory you would have had your largest exposure.  Japan’s index is still down a mighty 40% some thirty years later.  They don’t tend to like thinking about the FTSE100 which hit a peak of just under 7,000 in 1999 and has really only just regained that whereas the FTSE250 (the companies sizing from 101-250) has more than tripled in the same period but guess where most of the money was sitting of course – in the bigger stocks in the ‘top’ 100.

There is also the issue of who is managing your allocation – just what passives do you have and which don’t you have?  What about your currency and how that will affect results – and how do you pay your bills?

Passive assets have just exceeded $11.4trillion as more investors have been sold on the story and the theme of cheapness over all else and most of that (some 65%) oddly enough is in US shares and really that too is dominated by tech stock.  So yes, passive funds in the US now exceed active funds and with a few large fund management group mergers happening, the concentration will ‘worsen’.  Yes, of the ten biggest funds, only three are active now. The total in passives was a mere $2.3trillion ten years ago.  Of course, cost is important and we are looking at that all the time – as well as looking for technical trading opportunities which have little to do with an underlying stock (like the Henderson story above).  We’d like to believe the extra we can provide by such positive ‘manipulation’ covers our management fees anyway with something left for the client so what we pick is there for ‘nothing’ (as well as the ongoing advice in that mix of course).

Could there be a passives’ crash?  Yes – as daft as that may sound it could happen.  Too much money chasing exactly the same stuff, therefore acting as a giant Ponzi scheme pushing prices higher and higher till the bubble bursts and then exactly the same masses all crowd for the door, a virtuous circle turning into a vicious spiral – and who is doing the buying?  The other advantage is that these stocks are liquid – meaning they can be converted to cash easily and that accelerates the trend both ways (in 2009, some big stocks were selling for giveaway prices as a consequence – I remember L&G in the UK down to 29p) whereas smaller brethren are ‘protected’ as you can’t trade them so the prices stay at the ‘same’ better levels!

Seriously though, can it be rational that last year Apple alone saw its collective stock value increase by more than any other stock in history?  No.  That was a ‘mere’ $556billion rise and up 86% last year. Apple is now valued at $1.3trillion – bigger than the value of the rest of the S&P 500 index when excluding the other ‘top’ four companies.  Yes, that gain last year is about the same as the value of the whole of the Italian or Spanish stock markets.  Do these results encourage us to change our view?  No – they endorse it to be frank even if it makes it harder to generate great returns by not having such things – in the short-term at least.   Is the tail wagging the dog, the chicken coming before the egg?  Could this be the next Tech bubble I wonder… it could easily happen.  Still, all the investors losing from such a passive-orientated crash would not be unhappy of course, as they’d all know they are losing the same as ‘most’ other people and are tracking the index downwards religiously so that’s alright.  Funnily enough I don’t think our clients quite think like that…!


Investors have been told they will now have to wait even longer for their funds.  It is really not good enough.  There have been plenty of nasty pieces in the media about all of this but really, what are the practical lessons?

Not ‘gloating’ in any way but I repeat we had nothing with Mr Woodford.  We did start buying his Investment Trust (now managed by reputable Schroders) and perhaps a little too soon but there were, to us, many reasons why we did not buy when he ‘started’ or indeed hold his funds even when he was at Invesco.  There were reasons and yes, markets are made of opinions too and not all are right of course.  There are reasons we don’t hold a number of other ‘guru’ manager funds.  So here is lesson number one, don’t think you are saving money by not having a dynamic and independently-minded investment adviser taking dynamic decisions about where your funds should be held? (And I do appreciate that many good advisers and managers were caught-up in this too so I am not being damning).

Second, how widely spread are your assets?  Too many investors had big chunks of their money in his funds.  That could be because they had had them for ages and they had done well previously but why do we as a Firm instead have such a wide range of components?  The biggest exposure we have as a Firm is 2.5% in one collective fund.  (Of course, some individual clients will have more of their total in it but even then, we spread very widely).  Clients still only receive one collective report so they are not bombarded with lots of paper from different directions of course.  No, it’s not that we don’t have confidence in our choices but it is because sometimes something like the Woodford debacle can happen.

Third, I guess it is ‘read the media with a pinch of salt’.  The same Woodford-dagger-twisting pundits now were in many cases exactly the same ones lauding the launch of his funds and his prowess and who would be lapping-up every word uttered by him and the advisers revelling in the selling opportunity they enjoyed as a consequence.

Fourth, remember too, yes a Firm like our own charges a ‘management fee’ for managing our clients’ accounts but so do all the funds you may hold elsewhere.  But everything else we provide is included too and we take the decisions – it is not a worry for you as we do all of that.  And yes, sometimes we shall be buying into the very things which have fallen-out of bed with others – which is why we have been buying the old Woodford Investment Trust at as low as 29p when it had floated at £1 and why we have now started adding Mark Barnett’s blighted Perpetual Trust to strategies too (he was Neil Woodford’s protégé at Invesco).  Would you know enough about why you might do that and then would you have the confidence or knowledge to do so?  Again however, our overall exposure will be small but every penny of out-performance by such moves in buying artificially cheap investments as we believe them to be, when things recover to normality, is simply to clients’ benefit and all part of our service.


Dolphin Trust which promised great returns from ‘safe’ German property has commissioned a ‘review’.  Interest payments to investors have dried-up and some have fears there will be no money for investors at all and they are not alone – there are other ‘schemes’ with similar pedigrees like the Blackmore Bonds.  I keep warning readers but I guess the average reader here isn’t the sort of person who’d fall for such an arrangement.  I shall keep repeating that there are so many bona fide investments, quoted on the Stock Exchange, accessible and within almost whatever sector and type you want that you don’t have to be duped by glossy brochures and slick salesmen who are there to fleece you with their scams.  So, please, don’t do it.  Send us a cheque instead and we’ll do it all for you!  And yes, there are ones which appear ‘fine’ now but which could all go the same way – too many ‘Peer-to-peer’ schemes for example rely upon speculative property ventures for them to come good and whilst it’s fine if everything in the garden is rosy, when it is ‘not’ it would be too late then to exit.  Remember why too the interest rate may be so high – because the risks are very high as well.   When you realise there are quoted collective loan companies on the Stock Market which are paying dividends of say 8%, isn’t that a better option than a single P2P entity?  You could have a basket of these too to spread your risk even more.  We have quite a few of these within strategies, very diversified and over many different types of underlying projects and across the Globe.


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 celebrate our 35th anniversary in 2020 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