| Good afternoon and what a beautiful spring day. Things are no better in relation to Ukraine but we must never give up on hope. Maybe for the first time ever the capacity of the ‘rest of the world’ to invoke sanctions will actually work and especially as finances are so intertwined these days. What the long-term ramifications of that will be are anyone’s guess. Inadvertently we could be creating a humanitarian disaster for the 145million Russian inhabitants in attacking Mr Putin and cabal perpetrating this disgraceful war. However, I am not saying sanctions are bad if they create the necessary termination to the atrocities. We cannot also forget that Russia has been the third largest producer of oil in the world with 10million barrels a day and Europe’s most important natural gas supplier. I can almost see a black market for oil developing with back-door oil from Russia on the cheap – and will these actions be a green flag to China to invade Taiwan? Did you know that when the invasion began on February 24 the Russian stock market fell by 38.3% (more since) but that was/is the biggest ever one-day fall in a major world index? We have posted a letter to all clients on our interpretation of how events are and how they could affect our finances and if you would like a copy, please drop us a message. Yes, this costs us significantly but we believe it is a part of the responsibility – and care we feel in the discharge of our job. It is the same as sharing comment to The Daily Telegraph and being published last Wednesday – all hopefully to help our clients better understand what might be happening.  What does it mean for the markets? And a London interlude… So February was the worst month for European shares since July 2020. Yes, we are down, but faring far better than those and the US markets where tech has taken a knock. I know we don’t like being down ‘anything’ but if we are only off say 5-10% whereas the more popular indices are down by a much more significant 18-25% (with some ‘darlings’ down considerably more than that) it shows the benefit of what we are doing. As I have shared before, it is not necessarily being in the right gainers which counts but not being in the ones which are over-valued and which fall the furthest. Yes, within this too, our increased exposures over the last few years to the seriously depressed and out-of-favour, boring areas have been very wise as many of these have risen as the expensive things have been falling – it all helps. On top of that, the Euro has just seen its lowest level against Sterling since 2016 so that bodes badly for it (or positively for Sterling at long last). A couple of weeks ago we went to an exhibition in London. It was very interesting and as we could, we visited a few places at the same time. We were on one of the most crowded Tubes I can remember for many years, restaurants filled to the gunwales and turning over tables as quickly as they emptied and shopping areas as busy as they may have been ‘before’. The British Museum was full and the National Gallery well patronised (and I have always wondered why at least token entry charges are not levied rather than ‘zero’). We visited Portobello Road, somewhere I had not been before and that too and all the shops were jam-packed and yes, it is London, but it still gives a reflection of the realities of how the economy and people’s individual affluence may well be too. Finally, we visited Stanley Gibbons’ free exhibition to see the most valuable commodity in the world for its weight and size. I commend it to you (399 The Strand); it is to see the 1c British Guiana Magenta, whose value is cemented by its notoriety and fabled provenance. However, whilst unique, its beauty is certainly an acquired taste and yes, there are plenty of unique stamps in existence as well. Gibbons bought it and is selling shares in it as a glorified syndicate, both to fund it and to make a profit, though it plans to hold a stake. At least this is tangible, not like pretend ‘NFTs’ which don’t have any form aside from the ethereal one! Maybe this consumer optimism is what drove economic growth in January to exceed dramatically the estimate of 0.2% by hitting 0.8% – some good news at least.  Pension transfer So in answer to a parliamentary question, it was revealed the number of firms offering advice on transferring from final salary (defined benefit) pensions has shrunk by 60% from 2018 to only 1,160. Costs for the advice have rocketed too as liabilities have increased and the insurance cost likewise, to firms in the marketplace. Sadly too, many past transfer cases have found that the cheap ‘duff’ firms have disappeared and even when investors have had compensation for bad advice, it is limited to the FSCS limit and not £350,000 at the FOS! Be careful who you choose to do your review if the protection into the future is important to you (it is to us!)! It is early days to make long-term predictions but it seems the highest transfer values ever were in November 2021 and they could be on a severely accelerating, slippery slope down, now interest rates are ticking upwards to counter inflation. That said, we still see seeing silly figures; a transfer value from a Bank of over £120,000 for a pension of only £1,800pa…  Inflation So US inflation has just hit a 40 year high at 7.9%. That means, effectively, that if you have £10,000 in your bank account, at the end of the year it is only worth £9,210. If people think they are low risk savers and have all or most of their money sitting in cash savings, then clearly they can afford the high risk of losing a considerable amount to inflation. That is the reality – it is a pernicious tax – at 7.9% of your capital.  Dividends Dividends are those reassuring income payments which companies pay shareholders from their profits, after keeping back some for the future, expansion, tax and things like that. Rio Tinto, the miner, for 2021 has just announced the biggest normal dividends in FTSE history – $16.8billion. We hold shares and on several occasions have alluded to the tremendous value this company presents. They have been rising during the latest Ukrainian issues. The yield on this company alone is nigh 10% – yes, had you invested £1,000 then the income cheque over the year is £100, with capital increases on top. It’s not alone however and the advent of ‘balanced investment’ and the return potential from such assets is back with a vengeance (after the arid time over the Pandemic) with over £1.1trillion of dividends in 2021, the biggest ever sum. These reassuring payments are good to know in times of strife and volatility, such as now. Dividends also reassure all of us about the longer term and that whatever nasty thing is happening at the moment, it will not endure for ever and we shall recover, brush ourselves-off and move forwards again. I remind you that the FTSE100 started in 1984. In many ways it has been a poor index, blighted by giant companies in the tech space at the time of the dotcom bubble which ripped-off points artificially from it. The FTSE250 has been a much better judge of value over the same time. However, despite that, in those 37 years, it has still averaged a return of 8%pa – which is pretty good, is it not? The index started at 1,000, so at over 7,000 now, it has withstood some of the worst ravages in living memory. Yes, things such as inflation and interest rates are relevant but the lesson reminds us all – it’s ‘time in the market’ which counts and not necessarily ‘timing the market’ (that said, interest rates on your deposits in the last 13 years have failed to exceed 0.75%pa, so that’s a colossal loss to cash savers and a colossal risk if all your money has been sitting at the bank, building society or in National Savings, a risk which really most people could not afford to have taken. Today, the market here is pretty good value and if you invest £1,000 in it, regardless of what the capital may do from one day to the next, I suggest you are likely to receive cheques worth £40 in the first year, being dividends from all the components – that’s 4%. You won’t find that on any bank account. No, it’s not ‘the same’ but you can see what I mean. You need sometimes to shut your eyes and do what the long-term tells you is a wise thing and keep diversifying your overall capital exposure. We can help you with that of course!  Art exhibition My Mother has been interested in painting pretty much all of her life and with her colleagues at the local group, they are hosting an exhibition with the opportunity to buy artwork over the Easter weekend at St John’s Community Centre in Barnstaple (next to Tesco). It runs from Saturday, April 16 to Monday, April 18 and is open 10am to 4pm Saturday and Sunday, plus 10am to 3pm on the Monday. Admission is free. I have to say that Mum is quite a dab-hand and so I am pleased and proud to help promote that if you are in the vicinity!  Investment spread I have spoken before about diversification – many times. However, if you own a global index-tracking fund (as it is ‘cheap’ management?) then did you know that 20% of your money is in just 10 US companies? That’s not diversity. What is also interesting, as we enter a period of prospective Stagflation, is that ‘Value’ tends to outperform ‘growth’. These big stocks are in the ‘growth’ arena and ‘value’ is nowhere to be seen. We do not encourage such apathetic investment stance (ie global index-tracking) at this stage and advisers who blithely sit in these funds without any consideration (or understanding?) to how the composure of the main index (the US which counts for 70% of the World indices now) has changed so dramatically. It has eschewed ‘value’ over the last few decades when it used to have an equalised weight to it and which produced significant elements of the longer-term results upon which these investors and advisers base their mathematical assessments of ‘passive investing’ now (and as the charts suggest, there is a very wide diversity of performance between the two ‘themes’, also suggesting a long-overdue catch-up is happening). Presently the gap is at a 30 year trough (big opportunity, in our book). It doesn’t matter to us what we buy for our clients – just what we believe is the most suitable – but be assured, we are skewed presently towards deep value and that also pays us good dividends as well. This war is perhaps a harsh harbinger of the changes which are well overdue already but it is building on underlying trends (eg rising commodity prices) which were well in place before this began. We have been well ahead of the field here.  Backwardation Yes, backwardation on many commodity prices is at a record presently. What does this mean? That current prices for many commodities are way above the contract prices you can set for future delivery. So in theory, you can make money simply selling your stock today and replenishing it in three months, or a year at cheaper prices. What is also unusual is that prices in the future are usually higher as they reflect inflation and interest costs. However, demand outstrips supply presently and the expectation is that future supplies will be higher and hence prices lower. The best way of benefiting is if you believe a commodity is too cheap, so simply buy the ‘future’ and if conditions endure, prices will simply rise until you have to close-out (sell) a few days before delivery. The problem is that many of these commodities are at very high levels so the bubble may not persist, despite rising demand for green applications too.  Nationwide Aegon – advice and what do you pay to receive? We have taken on a couple of clients recently who were sold Aegon products by their Nationwide salesman. How did this happen? Well, basically the Society doesn’t advise on Capital Gains Tax – to us a basic prerequisite of a competent financial adviser’s armoury. So the affected individuals had to seek independent advice. One lady has just had the last year’s annual costs’ statement from Nationwide/Aegon. The adviser and Nationwide service charge was £1,200.67. She was quite bemused… for what was she paying! For us, we charge no more for the guidance and advice than the underlying management fees (for which, of course, she was paying Aegon on top).  Mother of all news Yes, amongst many eclectic interests, I have been a ‘mother’ since I was around nine-years-old. This has absolutely nothing whatsoever to do with the financial world, but I thought the attached may be some valuable respite from what is happening at the moment. 20 Magnificent Moth Facts No, that does not mean I have ever pinned lepidoptera to anything but did you know the male of one moth species can smell the female from seven miles away? 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 |
Ukraine and what it means for the markets
