Farewell Your Majesty


Goodbye Ma'am. What an amazing send off for a beloved monarch.
What a send-off to the Queen and what a truly remarkable character to emulate. Nowhere in the world can match what our little Country can do. 
And for all those negative people out there, keen to knock back what we represent and achieve, it was and is time to reflect yet again.   It’s a life story really, striving for improvement on all counts for yourself and others and that’s no excuse for complacency but also, to remind us to start from a position of being grateful for what we have rather than envious and grabbing for what we don’t and perceive we are entitled to have.

When you, when we, have worked unstintingly for seventy years, then maybe we can sit back and relax… (though I am reminded that ‘retirement’ isn’t mentioned once in the Bible…).

However, I pen this in the face of Mr Putin ramping-up his military and eastern parts of Ukraine declaring for Russia to try to ‘become’ part of Russia. It is certainly not good for the world and we all pray for a Damascus-Road experience for that modern-day Czar, renowned in crosswords as a ‘tyrant’.

     

Performance  

We don’t sell ‘funds’ as such so each client has a different outcome but of course there are commonalities across the board. We are reluctant to try to quantify these as a result of the individuality of clients’ accounts but we can generalise, both in terms of what we hold and which areas have done well and perhaps importantly over the last many months, what we haven’t held and which have done badly. We have had many more of the former and far fewer of the latter I am pleased to report.

The trouble is though, that people can still be unhappy if they see their values are down even a few percentage points. We understand that. They either don’t really want to know what has happened elsewhere or they have been suckered by someone else’s glossy sales material or a slick salesman who assures them that their product ‘would be far better or far safer’ (and so the silly investor suffers costs liquidating a great set of very diversified assets and costs (often hidden) to buy yet another set which is far worse than what they have now). However, evidence encourages investors to look under the bonnet and indeed, most of the ‘products’ these people have been selling the last few years have been hit very hard since 4/1/22 whilst thankfully, we have avoided the worst of these bear traps.

Anyway, here are some figures. So we have new clients and funds joining us all the time and we have deaths and other liquidations (roughly a neutral flow since January) so since the peak on 4 January we are doing very well indeed when considering the awful backdrop of Ukraine, energy prices, the cost of living crisis, politics and Sterling’s traumas and their reverberations. Most investors elsewhere (and the growing chunk of those buying ‘cheap’ global passive funds) and those with ‘Investment Grade Bonds’ have instead faced quite devastating losses, with few hiding places.

Those following ‘Environmental’ (Green) and ‘Social’ impact funds will find their assets are dominated by the same expensive tech, so they’ve been hit hard too. Now, I know that one of our clients will do better than another and whenever I quote an ‘average’ there will be some below and some above (usually those doing better don’t comment!). However, the overall funds we manage take everything on the chin (including from Blue Planet’s behaviour!), including cash and riskier AIM strategies.
So overall, income and all costs included, our client funds under management have drifted by under 7% but that is a far better result against your neighbour, the man in the pub, your employer’s pension scheme, your insurance fund or your charities’ endowments, of between 14-25% (meaning whole points not the proportionate difference from ‘7’) depending on what you ‘choose’ as your comparative in just nine months. That is a whopping difference in favour of clients and a loss difference we have protected and saved our clients from suffering.

So how does that compare? These are the disturbing results suffered by most investors (not currency nor cost adjusted):-

1. The MegaCap-8 (the biggest eight companies in the world) all tech and propping-up the world indices as they are so big – Down 27%
2.
The US S&P500/Vanguard US Index 500 (again dominated by the bigger tech companies) – Down 19%
3. The MSCI ACWI IT Index (so tech cos, dominated by the big) – Down 45%
4. The iShares ESG Aware MSCI USA ETF for green and ‘ethical’ investors – Down 21%
5. MSCI World Index – Down 21%
6. Vanguard UK Long Duration UK Gilt Index Fund (so your safest of ‘investment grade’ assets) – Down 33%
7. Index-Linked 2032 Gilt (Inflation ‘protected’ 10 year bond) – Down 22%
8. FTSE250 (so UK companies from 101-250 in size)– Down 23% (sadly our biggest frustration!)
9. Scottish Mortgage Investment Trust – Down 37%
10. Fundsmith Equity Fund from peak on 1/12/21 – Down 16%
11. Lindsell Train from peak on 12/8/21 – Down 43%
12. Gold since 8 March 2022 – Down 19%

So whilst as a client you can be very grateful for the significant out-performance we have been able to achieve, we are not unscathed by Mr Putin’s actions. However, as ever, what is ALWAYS important is the future not the past.
I don’t see over-priced tech stocks suddenly regaining poise but conversely, why would I want them now? So if you are holding on for superstitious hope, don’t. There are so many great, value-based assets out there anyway, yielding super dividend incomes (let alone special opportunities like the one below) so our money is all spent long before I need to pay dearly for vain hope.  
   

Investment opportunities  

One of our commercial property Trusts (with £750million of income producing assets) has just reported and it’s all sound news – occupancy up, values up and as it is primarily US Dollar linked, a currency gain too. However, seemingly the target income yield of 13.6% (from rents of course) isn’t enough to entice new shareholders, let alone the juicy 55% or so discount at which we can buy today, compared to the underlying asset values.

We don’t mind. We can continue buying-up cheap, loose shares for new clients joining us, even if we have to be patient for longer, as we expect, naturally, that values will rise as the opportunity is noticed by some bigger buyers than we tiny one! However, this is just one of a long list of investments like this we like for clients.

Remember too, we can sit-out a period of continuing global uncertainty as we enjoy growing incomes from our investments – incomes paid whatever the short-term does to capital values. 40% of UK companies’ dividends are Dollar based, so they are up 15% this year as the Dollar has risen.
Our ‘Balanced’ strategies are projecting a 4%pa annual income – a natural, sustainable income from a very diversified portfolio of assets, some of which pay no income, to help provide for capital growth and asset preservation potential.    

 

Inflation  

This is the big fear at the moment. However, its drivers are reacting to increased energy supply and government responses. Natural gas prices have dropped by a third this month. Brent crude oil is down 28% from its January peak.
These changes will filter through depending on Mr Putin’s latest moves. 80% of our inflation is imported and the strong Dollar makes that worse.

     

Shrewd politics?
 
So the bankers’ bonus cap is going. These bonuses are not related to ‘you or me’ but typically investment results and they aren’t paid by the taxpayer. However, the bigger they are, the more tax and NI the State is paid. However, what’s more significant is that it may be yet another incentive to banks to invest, move and redeploy staff here. That is ‘inward investment’. There is no ‘one’ thing to attract business but a more attractive business environment is all good for the UK economy.

The EU has noted that its windfall tax on energy companies could produce E140billion. That sounds morally lovely but there are long-term issues imposing such taxes.
First of all, you are not taxing the companies which may profit the most from your citizens during the energy crisis. You are taxing typically multinational companies which earn income globally. If suddenly and arbitrarily you broadcast a windfall tax here or there, then that may be the straw that breaks the camel’s back – much better for companies to relocate to the UK where that won’t happen. Conditions in the EU encouraged Shell and Unilever to ditch their joint Dutch structures. And remember too, if UK companies make more profit, then they pay more Corporation Tax anyway.
   
 

Blue Planet update  

We are concentrating managing the 99.5% of clients’ assets which is not in this tiny Trust, just to make that very clear. Clients have received a letter from our London lawyers too. The latest net asset value is 13.6p so the last selling price (9p) is still a 30% discount.

So we voted our shares at the AGM (as a protest, as we’d never have 50% in view of the Murrays’ holdings). Without warning, they cancelled our votes! What’s daft is if their motions succeeded anyway, they should have accepted ours, despite our challenge because of the Murrays’ conflict of interest. We had a very experienced Investment Trust Company Secretary at the AGM to vote a nominal personal shareholding. However, the Chairman announced the results and never invited him to vote!

In regard to any proposed disenfranchisement, Blue Planet’s Article 53.2 says ‘…then the directors may, in their absolute discretion at any time thereafter, by notice (a ‘Direction Notice’) to such member…’ They issued no Notice and did not issue one to the underlying members under 53.3.

We own over 25% of the Fund and can stop them pushing a liquidation where they would demand two years’ fees. We are not in breach of the Companies Act 2006, a criminal offence. Every year we have voted. It seems that only when they don’t like the outcome they bar us. We wonder about the quality of the legal advice the Board and its cohorts is receiving now. We hope these serious breaches finally stimulate the FCA into action – both criminal and civil (and with compensation claims) and against all those in bed with them for profit, from directors, employees and lawyers to administrators and auditors. Oh, wouldn’t that be sweet justice.

Interestingly, Link Administration has just been fined £50million for failing to fulfil its duties and responsibilities in the Woodford affair. This is on top of a prospective £300million redress demand being considered. Ouch. Link is the registrar to Blue Planet Investment Trust. It is aware of the problems.

     

Fundsmith – Emerging Markets Trust   Hmmm. The Trust is being wound-up following a lacklustre performance. Is that not arrogance? Has long enough passed (eight years), in very difficult circumstances to make such a judgment? The cynic might say a few things – has it detracted attention from the Global Fund and thus better away from investors’ radar? The Trust will have suffered the buying prices of all the stocks held and now the selling prices and costs of the Company and its liquidation too. That might be between 5-10% of the total £300million in the Fund.

Why not instead appoint a ‘better’ manager to take on the assets or indeed at least offer a rollover option to another similar Trust – eg Templeton’s (and no, we have none of that either). Regardless, investors should have options rather than simply telling them the end will happen. Sadly though, we see this sort of arrogance far too often with Trusts and Funds – rather than other solutions to discuss constructively first.    

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
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