Ups, downs and in the dog house

Unhappy dog in dog house
Some investment funds have found themselves 'in the dog house'

I was pleased to hear Australia’s second wealthiest man, Andrew Forrest, is starting a criminal prosecution against Facebook for taking money from scammers and then publishing their adverts.
It will be wonderful if the case succeeds and then compensation could be the next course for all those who have lost billions.

It is not right that there are regulations about financial promotions but Facebook, Google and other social media think the rules don’t have to apply to them.    

A little like Airbnb (and other online agencies) which doesn’t verify that its property owners satisfy all the regulations for renting property either. It needs tightening-up!

I have said for a long time that campaigns should not need to warn us but should hit the Social Media sites themselves, the internet service providers and the telecommunications companies allowing the scammers to use their facilities. As sure as eggs is eggs, things would change immediately when culpability follows.

I actually expressed these opinions to the authorities at the advent of the worldwide web but look what has happened and how many have lost as a consequence of the lack of policing. It would have been so easy. The same applies to duff property ‘investments’.


Amazing UK economy rebound?  

The interest rate on 10 year US Treasuries rose again, broaching 2%, a fourfold rise since July 2020.

At home, the UK economy grew by 7.5% last year – an amazing feat. Yes, plenty was ‘recovering’ but have you noticed how the media has tried its hardest to come-out with the ‘past’, despite the fact they majored on that at the time. This rebound has been swift and significant and an economy now higher than it was pre-pandemic, the fastest bounce in the G7 (the seven largest economies in the World) – and with Brexit-exit in the middle. Now let’s see where the future takes us!

Where all this will take inflation is anyone’s guess – despite the increasing energy costs etc, the Minimum Wage here is increasing by a whopping 6.6% in April, so still above the rise in Consumer prices. Energy prices will fall again, bringing inflation down with it though.

What else? I met with the Small Business Minister, Paul Scully, who visited North Devon and it was good to have his take on how he saw things and their influences generally in our area. I have always believed that as part of my job it is crucial to keep up-to-date with what is happening in Government if and when it may affect the role we fulfil, let alone changes to the fiscal and investment environment affecting our larger decisions for clients!


Investment strategy  

Many investors out there are smarting as the popular darlings which drove the markets to a speculate frenzy have come off the top.

We’re actually doing fine with our more UK-centric concentration – it’s the US tech influence which has left many with bloody noses and suddenly realising the game may be over. Some of our exposures have been affected – such as certain smaller company trusts, though in many instances they are simply cheaper to buy now (at bigger discounts to their asset values) rather than having the wrong components within. We had been trimming-down many profitable holdings too and private equity which had done very well.

There have been some great places to have investment emphasis too and we had been adding usefully to these before the latest surges – as well as collecting big dividends, thank you very much.

We still won’t be touching Fundsmith, Scottish Mortgage and many of the populist funds as they could still have a very long way to fall as the speculative mania realises values of what they have been buying were at such unreal levels. Of course this fall-back will impact all the ‘cheap’ tracker funds too and ‘ESG’ strategies with over-hyped green holdings – not many passives trace the FTSE100 which has risen whilst the Nasdaq has drifted by 12%. If you are not with us – check what has happened to yours!

We are pleased again to know we have outpaced the main ‘cheap’ indices in this rout, despite us having to charge a small management fee for doing the job too. As traditional ‘value’ investors it is curious too how over a period we find we have gravitated towards particular sectors as the value compels us (and the same ‘away’ from an area too). It’s not an overnight decision but as we see value, so often that is endorsed by other similar opportunities for which we must make space.

Over the last few years, commercial property REITs have been taking a bigger proportion of our money (I added another yesterday). There is such a range available and they hit many of our sweet spots – good dividend yields (some not far from 10%) from tenants’ rents, suppressed post-pandemic values of their vast property assets (most are not shops either), real underlying assets and usefully, shares in them still priced at deep discounts to the underlying valuations too. We’ve already done very nicely but of course, written-down property values are notching upwards again, dragging asset values with them.

It’s the same sort of reason we were filling our boots with supermarket shares (including Morrisons, which gave us a great profit on its take-out) and also the banks though in each ‘sector’, still at most maybe 10-15% of total assets may have such individual ‘flavour’ but what a difference it can make, especially when other things are falling from their silly levels.

What else? We have been adding miners which concentrate on precious metals – and our first direct foray into real silver. This is for two reasons – safety and it’s good value (especially compared to gold with a very wide historic valuation differential at the moment), but also something not linked to ‘shares’ and something to preserve values on any major shake-out and indeed perhaps to rise as paper falls.


St James’s Place  

Oh dear, according to ‘Best Invest’, St James’s Place has the largest number of funds in the dog house… SJP has largest number of funds in the ‘dog house’
The funds are amongst the dearest going too, so when the performance starts to fall into the bottom sectors, it becomes clearer why it is wise to seek staunchly independent advice and investment management.

We can and do use any fund managers and any investment ‘products’ wherever found, with a concentration on Investment Trusts as regular readers will know and for reasons which are there to benefit our clients (it makes no difference to us after all!). We also provide daily oversight of the funds selected and the components within and not just an annual statement to pretend that is oversight.

If you have any money with SJP, then regardless of what it is, pension, portfolio or ISAs, we’ll happily arrange the transfer to ourselves and without any subscription costs at all. We’ll do the paperwork for you too. And even if you have withdrawal penalties (deferred commission from the initial sale, more like), then still transfer because you will pay them whether you go or stay, mark my words!

In fact… if you were mis-sold something then maybe you have a right to complain afterwards to try to secure a refund of that inequitable penalty anyway. Schroders (which now works with Lloyds Bank too and also managing Scottish Widows’ funds and the biggest with HBOS) has even more money – £8.6billion – in so-called ‘dog funds’.
Spot the Dog: £8.6bn of Schroders-managed funds underperforming
Safe investments  

I have been saying that investors holding ‘safe investments’ may find that they aren’t as ‘safe’ as they thought at all.

Even the bluest blooded, top-notch government-backed securities can be high risk when conditions turn. Eighteen months ago, Austria launched a 100-year Government Bond at under 1%pa interest. It was snapped-up (as other bonds were actually in minus territory!)

However, your investment would now have halved in value, as comparable bonds are currently paying just a little more than that. In fact, whilst I haven’t seen latest figures, there can’t be many still paying negative returns, compared to the $18trillon at the peak.

If you are not with us, maybe it is time to enquire as to what ‘bond funds’ etc you are holding, as the trajectory may be downhill all the way from here, as well as having ‘no’ income and paying a management fee… is that what your adviser/manager warned you?

Investment hype and trends  

So had you invested in medical applications of cannabis when that started, would it have been a good idea? No. It was over-hyped and ‘green’ and so too many people threw too much money at the idea, which remains in its infancy. The eight US companies in the sector have fallen between 60-80% a piece. It is often the case – just because something is hyped and popular does not mean the price you are paying is right or indeed that it makes a good investment at all. Please be wary.

Indeed, we continue to see new clients whose advisers have pumped-in Fundsmith, Scottish Mortgage or Lindsell Train as each has been popular and very successful, but the top has really come-off and the rats seem to be deserting the sinking ships to some extent (Baillie Gifford, Scottish Mortgage’s manager, saw a colossal 10% of its funds disappear in January). Additionally, the same ones are held across the board so the infection when things turn is significant (and similar for my fears for excessive exposure to passives/index-tracking funds too).

We’re doing fine as we have ‘unknown’ (but not unskilled) great managers with ‘different’ strategies. However, it was sobering to see the weekend rags recount how recent, young investors (more influenced by trendy things and through social media tips, etc) have fared since the end of the year (often all buying the same, techy, popular stuff) and now looking at losses in the region of a quarter to a third and finding it’s not so nice when things go down like that. Plenty of what they hold is still very expensive and based on hope and hype for the future and not value. Boring ol’ Tesco or Rio Tinto for example won’t feature…

Business credit card  

If you run a business, having one of these is not a bad idea. As long as you clear the balance every month, a few offer 1% personal cash back (non-taxable benefit too!) and are at low or zero cost (eg Santander or Capitalontap respectively).

The reason they are a good idea is that it reduces the use of a business bank account where the banks are charging more and more for their services, including transactions. Think about it – and extra cards are available for others who buy things for your business.

How do they work? The commission rate the retailer pays is much higher than ordinary cards. Most retailers absorb the difference. In business, remember that it is easier to cut costs than it is to increase revenues usually!  

Spell check  

Well. I had a curious auto-correct for the mis-spelling of ‘Philip’ the other day as my fingers had walked awry.

‘Pinup’ is not one I have had before and well, maybe in my day but I can’t imagine now, even if my performance as the ‘Emperor’ in Aladdin saw me with false eyelashes for the first time in my life, the usual make-up and a glowing review from NODA… hmm!


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