Great news for clients!

Dear Friend

Great news for clients!
Finally, VAT status approval of our managed portfolios has arrived. October last year we made the change and reclaimed past years’ VAT on management fees. I can now confirm finally we have had HMRC consent (despite the copious case studies approved already). The great news is that we shall be enjoying a rebate of VAT of about £1million for clients as well as the ongoing savings!

This all actually came about following a directive. We had challenged treatment on many occasions in the past about how the playing field was unfair in that many investment products were exempted from VAT but discretionary services were not. Finally, first one, then another firm was successful and this snowballed to include us. It means we move to ‘Partial Exemption’ to VAT. We must still charge VAT on other services and also we can no longer reclaim VAT on most costs we suffer. This means it is not a straight ‘20%’ rebate for clients because now we have to suffer the VAT on the services provided to them by other VATable providers. Initially for example, our administrators will still charge us VAT.

What are the consequences? Our already competitive costs which clients pay (especially for what we provide and can do within that) will drop usefully and perhaps the rebate may be equal to something like a net ‘15’ of the ‘20%’ paid already in view of that inability to reclaim now (that would mean clients receiving back 75% of the gross VAT they paid). However, we have also had opportunity to review our overall charges on the back of the phenomenal success we have enjoyed this last eighteen months especially, with funds under management breaching new records to clients’ benefit as their values grow, that we are going to absorb this extra cost, effectively cutting our management fees even more. We shall simply remove the WHOLE 20% VAT despite the fact we must absorb all the VAT our suppliers charge us now. In a nutshell, this means for example that our already very competitive management charges fall by 17%!

The refunds will be calculated and applied automatically for all eligible clients but it will take time as it will be quite a task to perform so please don’t call to ask!  
Investment Opportunity  
So if I said there was a UK quoted investment fund where for 70p today you can buy a Pound’s worth of assets (quoted companies’ shares) and the knowledge that before the year is out the Fund is closing-down so everyone will receive their ‘£1’ back again, would you believe me? That’s a 43% gain if the assets simply remain the same price. Yes, these assets could fall back but they could also rise further (especially as our £1 is enjoying the investment return on £1.43’s worth of assets too). Well, there is and whilst final liquidation is a lengthy process sometimes and there are costs, this technical trading opportunity is just the sort of thing we love for clients. What are the risks? The same as any other share investment fund but with the assurance of ‘playing’ with 30% for free thus much lower – in other words if the assets dropped by 30% between now and then, we still receive our 70p back (and probably dividends in between too). The stupid thing is that the textbooks and regulatory processes will still be rating this investment as ‘higher risk’. If you aren’t with us the likelihood of your manager or adviser having it are pretty non-existent… This quoted investment company is worth less than £100million, so inaccessible to bigger investors who can’t buy enough of it and who feel they then can’t sell it when they want, so we shall keep nibbling-away as much as we can whilst the opportunity endures. We have £1.2millions’ worth of it already but we’re elevating its priority to enable us to acquire more before the extra value is snaffled by others!  
The Big Short  
Have you heard of Michael Burry? He was the contrarian who predicted the Subprime market crash in 2008/9 as its ‘quality’ was based on straw. The film ‘The Big Short’ is certainly worth watching. Unbeknown to me but he has also been suggesting there could easily be a ‘passives-led crash’, as I have been saying is not so impossible and really is probable. Why? Because the reason people have for buying something is simply ‘because it is there’ and not based on fundamentals. This disconnect is very dangerous, especially when the sums involved are so vast. Think about it too – if you have no handle on value at these heady levels, in a falling market when do you perceive there is fair and appropriate value? You don’t have any baseline and in fact would run around like a headless chicken.

This has been fuelled of late with the surge in ‘ESG’ as people blindly buy things which appear to fit those credentials – though very subjective they are too, including, oddly enough, pretty much all the same stuff at the top as the passives own (as several investment groups complained the Hedge Fund buying Morrison’s was paying too little – but they didn’t own the shares to profit on the bid, despite Morrison’s own great ESG credentials such as owning and managing its own farms to assure quality control and so on… This would include fuel-guzzling space entertainment flight companies Amazon and Tesla but oddly enough, they seemed to have ignored companies like Morrisons. It’s a funny old-world but we are staying clear of the over-bought, over-priced stuff but primarily because we can as the unloved is still fundamentally much, much cheaper and thus phenomenally safer than that at which ‘everyone else’ is throwing money like there is no reckoning…, and no, not all of Michael Burry’s predictions have been right either, before someone says so but you only need to be right or near right on the biggest, don’t you…

More random information. So the Eurostoxx biggest fifty companies is ‘worth’ about the same as Apple and Amazon in share terms… so all the biggest EU companies put together. Since 2016, the S&P 500 (dominated by US Tech) has achieved double the return of those Eurostoxx companies in share price terms. Where would I prefer to be… or Robin Hood, the favourite of the tech traders’ brokerages is now worth more than Ford Motor Company… oh deary dear!  
True Grit  
We have two investments called ‘GRIT’. One is an international property investment company which has been losing its following and the shares have been languishing at low levels despite M&G’s rescue by an injection of new cash recently. We continue to buy these cheap shares with an underlying asset value well above present levels to keep topping-up. The other is a residual holding of a global resource Investment Trust which was dying as it ran-out of money but we have helped support it by subscribing our own new capital and it has taken-on new shareholders who have a vision to drive the Company forwards. The shares may only be under 2p each but as a ‘shell company’ with all regulatory permissions in place, it is likely to attract the interest of bigger players now it is capitalised to live another day. The shares did go as low at 0.25p so I suppose even a seven-fold rise since then is helpful even if it is still crumbs for most of our long-standing investors in this tiny entity! I should add we now control just under 30% of the Company.  
It is interesting, however true, that for UK investors (partly replicated elsewhere) that on 3 August the ‘baddies’ had a great day. Heralded by BP’s announcement of better results than expected, dividends and share-buy-backs, the stock jumped almost 6% and was followed by miners and the banks – all sectors eschewed by the ‘environmentally and ethically friendly’ lot. What is then curious is that the indices which they dominate (and they are still of big size in many, like the UK market) benefited handsomely but lots of other ‘friendlier’ stocks fell so the net result was the FTSE100 only rising 0.24%. In a nutshell, if you had oils, banks and miners but didn’t have certain tech favourites, you’d have enjoyed the gains and not the falls… we really feel this will be exaggerated over the next few years as one over-blown sector drifts as another few regain a more suitable composure from seriously neglected levels, regardless of our need to do more about ‘climate change’ which is not in dispute.  
Advisory firms – how safe  
I have always been bemused at how little the FCA demands too many of the firms it regulates have as free capital behind them, to cover the instance of a problem arising. Too many seem to have engaged in speculative (or fraudulent) activities often but with little ‘skin in the game’ so they don’t care if they implode as they walk away and leave the damage for the FSCS to pick-up. My comments were sought by the FT’s sister magazine:-

For ourselves, we have always held far more than the minima the FCA demands because we believe in what we do, put our own money where our mouths are and believe too the signal this gives to clients, new prospective clients and staff alike. Have you checked the free reserves of your firm or does it rip-out every penny of profit as soon as it can?  
Risk Warning
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