|Well as expected, the Bank of England increased rates by the ‘biggest amount in 27 years’. It’s a tad disingenuous to say that 0.5% is ‘that’ but there we have it. And now headline inflation hits 10.1%, so I suppose in traditional economic terms the BOE will increase rates again (whether it is the right thing to do or not – I think perhaps ‘not’ in these circumstances).
Good news though, our accounts have been enjoying a period in the sun so values are up usefully from the 5 July reporting trough! The last few months proved to be a good time to buy many assets – and we did. It is curious of course how the news also refers to the disparity between salaries and inflation, referring to the annualised increases in each. Indeed, pay cannot hope to keep up with the latest percentages (which I hold will be temporary even if not abating immediately). We need to look at the accumulating figures – not just what one month over another may show. The costs of energy/transport, food and housing are the biggest culprits of this increase and the chunkiest in the statistics.
Did you know for example that US Crude Oil has dropped by 33% since its peak on 8 March? That is beginning to filter-through. I have also written to both Prime Ministerial candidates with proposals to cut the headline inflation immediately, help tackle the cost-of-living crisis, diffuse the likelihood of further strike action and help avert Recession and how it can be funded. A ‘Brexit win’ is also part of the package of proposals.
Whilst average earnings are noted by pundits, really what is more important is average household incomes. Released this March for 2021, the average household incomes were up again and indeed have continued to outpace inflation quite significantly to hit their highest ever levels. In some ways it is obvious – people are promoted at work, their careers and qualifications develop, more than one partner in the home works and extra jobs and working hours increase the income – as well as the benevolence of extra benefits.
Did you know that since 1977, inflation adjusted household incomes have more than doubled? They have gone from £15,246 to £37,622 and yet, everyone seems to keep complaining they don’t ever have enough. Average household income, UK: financial year ending 2021 Yes of course there are the poor amongst us too and the ‘filthy rich’ but the figures are standard and most families are nearer to the averages than not. Contrary to what some say too, but ‘trickle-down economics’ do work, though being envious of billionaires doesn’t help anyone – just be grateful for the tax they pay and the jobs and economic wealth they create for all of us to enjoy as well as their products and services!
On a nicer note, we have celebrated a great Commonwealth Games – not meaning ‘wot we won’ but simply that it was a lovely showcase for Birmingham and the UK and well-hosted indeed. Let us imagine too that perhaps we can do more trade with the nations within the Commonwealth – that is 2.3billion people. I was treated to tickets to badminton finals by my daughter, so we had a weekend there on a few other eclectic activities too.
North Devon Show
We were pleased to support a brilliant Show again after a hiatus of a few years. It was a good Show – the weather started-out rather ropey but it was soon sunshine and almost too warm! Thank you to Felix, Russ, Viv and Sarah for agreeing to be the representatives of the Firm.
It was a pleasure to see many clients and to connect with quite a few new faces too. Well done organisers even if some attention will be needed on the mid-morning traffic treatment, but I am sure that is in hand for next year already.
I am sorry – I was wrong when I said that 70% of the FTSE100’s companies’ earnings come from overseas and thus would be higher in Sterling terms as the Pound has fallen and the Dollar has been roaring away. The actual figure is 80%, so even better.
It is interesting too, especially with all the Brexit conflab at the time, that clearly the London Stock Exchange and our tax and legal regime continue to be a very attractive place for multinational companies to have their base. We don’t want to frighten them away either.
Meantime, the good news on increasing dividends on UK companies continues so that’s great for investors and certainly for our clients! I mean, if frankly you can subscribe say £10,000 to a ‘balanced strategy’ with us and take income of £33pm (4%pa), with potential for that income to rise in time plus the capital doing what it needs to do as well (rise, let alone keep pace with inflation!) then what more do you want? You can weather the short-term storms, rest assured the income payments will continue to help you pay your bills. It’s not the same but the best accessible deposit rates at bank and building society (with assured capital loss in real terms after inflation of perhaps 9%pa) are around 1.5%. (Yes, that means the £10 note in your pocket will only buy £9’s worth of goods in a year’s time).
And yes, we review the projected incomes regularly and with the recent flurry of big increases enjoyed, we’ve been able to increase the projected percentages for ‘natural sustainable income’ flows from our strategies. Effectively the overall ‘rent money’ our tenants (shares and funds!) are paying has been rising consistently so for income clients, that’s great news if you need more cash to pay the bills – or else we shall reinvest the surplus for you in the best opportunities as they arise, buying even more income for you.
Risk & diversity
All investors will know that if you have all your eggs in too few baskets then the risks are very high. Despite that, we often encounter new clients and investors with very few different underlying asset classes or of course even investments within those classes (too much in one share or fund, investment property or whatever).
Well, we take things to an extreme in that presently, our biggest investment counts for just 2.265% of our clients’ total assets, a rather boring (but for us successful) investment, is a deeply discounted investment fund which pays us a nice income too, as well as itself having a very wide range of component assets from the boring to the more mainstream. Yes, some clients won’t have any at all and some will have more than that but still not an excess. That counts for just over £5million. It is actually more than we would allocate today but we are choosing to run with an excess as it has risen very well since the beginning of the year – in fact it is up 22% since the US market peaked (that is still down 11%) and on top of that we’ve had income. By the way, this is a dollar-priced fund so we are making on the currency too.
No, not everything we have has gone upwards and many have fallen as a consequence of what the world has been facing but such an outcome in the short-term is very helpful for all of us. Most of our holdings are below 2% of our total client assets.
Even with the best research and deft footedness, occasionally things don’t turn out as we’d like but that is also why we spread our clients’ capital so widely and all for the same cost, as all fees are percentage-based. It makes lots more work for us researching and monitoring so many things constantly but that’s our choice both to protect clients but also to have the best opportunities we can and remember, it’s no difference to us whatever what we hold – other than what we think is best for our clients.
Indeed, clients will know that we have been hit by the atrocious experience in Blue Planet Investment Trust where we continue to fight for clients. Its latest published asset value was 16p, down from 28.65p on 7 January 2022. However, again we have so little for any individual client thank goodness, as no one could have predicted what the manager was going to do after clearly something fell apart with his totally new strategy – presently our aggregate exposure is less than 0.005% (£5 in £1,000).
No loss is ever ‘enjoyed’ but it is so insignificant for any client. The other holding above has produced significantly more return than ever the losses on this one holding suggest.
There is another reason for the long tail of assets we hold. That is that we can buy some holdings which may be very esoteric and harder to trade, but we never hold a great amount of them collectively or for a single client (we don’t buy the same amount of things anyway – we buy more of safer, bigger, mainstream things).
It might be really small exposures but if that is the case, it is because we think that the value opportunity presented to us can be exponential but perhaps the risks higher. However, if we are risking 0.005% or 1% of our client’s account, the downside risk to them is negligible but if that holding is so unloved that it could double or quadruple (like ‘wheat’ did), then the return is immense and it has a positive impact on the progress of the whole account. Indeed, even then, having these ‘extra’ assets for certain clients and not all, increasing the range held, is in itself actually reducing risks!
Of course the biggest profit opportunities are in direct shares but also the biggest risks if something goes wrong. We concentrate on quoted ‘funds’ for our larger exposures and direct shares for smaller amounts to limit the pain when something untoward does happen. Yes, it can mean we miss big gains with meaningful money when say a takeover happens (like this week with Ted Baker Plc which we hold) but we must retain perspective. That said, it is often these which have the potential to rocket, so even small sums are justified against this happening yet tiny risk to any individual client compared to their total worth.
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