|So according to Refinitiv, the drop in US markets has seen $3.5trillion wiped-off the ‘Faang’ stocks plus Microsoft (with $250billion last week alone). Yes, that’s primarily the US Tech leaders including Facebook (Meta) which has plummeted. That’s a third off this year – ouch. |
Thankfully we stuck to our guns and have had none and still don’t. The other problem is that passive investors have found (well we were shouting it-out for ages) it is these same things which propped-up the global indices – the biggest 10 stocks in the US all being the same tech stocks so yip, ‘cheap’ ‘index-trackers’ are proving pretty costly.
Amazon disappointed on its figures and so too did Apple and Microsoft (exaggerated by a dear Dollar). I always said that at such lofty heights it was and is a long way down. Faangs for the memories! Is Elon Musk’s costly takeover of Twitter the last flag of the absolute pinnacle? Maybe. At the same time, Exxon and Shell reported record profits and their share prices are still dirt cheap.
For us though, it’s not a case of picking when to enter or exit over-priced stuff but if there are so many cheap, value-based funds and stocks to buy (and technical trading opportunities like quoted funds at deep discounts to their asset values) then we don’t have to dabble in these expensive things anyway, which could still have a very long way to fall before they are ‘cheap’ (the US technical figures still read ‘very dear’ historically).
If you’re not with us and still full of ‘that stuff’ it’s not too late to change as ‘value’ remains very compelling now and with great incomes as well – and far less distance to fall when things turn bad. Indeed, we are spoilt for choice and may be ‘forced’ to sell some things which may be doing ‘fine’ but where we believe the money from them will work harder in assets which have been severely depressed in price, as future progress will be greater – a conundrum I could say I don’t like!
And where-to energy prices? Saudi has said it will increase production if there is another price surge. We are told there are almost 50 gas super tankers circulating offshore in Europe and waiting for the gas price to rise again (as it has been doing), to sell their cargoes for the highest prices (though they may come unstuck as EU storage capacity is almost full now, temperatures have been warmer so lower consumption).
And in Texas last week, as they are producing more than they can store, the price on the Waha hub on the Intercontinental Exchange temporarily fell to a negative $2.25 per million British Thermal units (in other words the producer had to pay for the gas to be taken). On the same day the US Gas futures rose 7% to $5.585 a mn Btu against the European $28 a mn Btu.
The giant Freeport LNG terminal on the Texas coast has been out of operation since a fire in June too and pricing pressures are compounded by scheduled maintenance on the major gas pipelines there. Natural gas from the US Permian Basin, mainly a by-product of oil production, are set to reach record levels this month, up 9% on last year alone.
Be the best you can
So, at the ripe ol’ age of 60, rather than hanging-up my tools, I decided to apply for Chartered Fellowship status to two more august bodies, to add to the two I have already.
Yes, many may call me masochistic but there we are… I continue to retain the passion for my work, as well as looking after people and also heading-up our specialist discretionary investment management. That helps keep me sharp, even if perfection is impossible! North Devon financial adviser gains top industry qualifications
I promise we shall continue to guarantee our very best efforts and putting all clients first in all we do, especially when they entrust us to do just that. We aren’t magicians but we are there to do the ‘right things’ in the most uncomfortable of times all too often it seems and we shall navigate the choppy waters as I have done for all too many years now.
At the same time it’s nice to be able to report that Plimsoll Publishing informs us yet again we are rated as ‘strong’ in the latest survey of the largest financial advisory companies, its highest accolade awarded and they say ‘this reflects your excellent performance over the last 12 months.’ They say too that a record number of others is making a loss and 12% are in financial danger. We are instead in the top echelons by size, profitability, growth and value as well as a ‘best trading partner’ and appearing in five of their ‘exceptional performance categories’.
Thank you for the praise but we shall never rest on our laurels.
Dunedin Enterprise Trust, one we’ve held for ages, is tendering for over half of its stock, at a tight discount. We’re taking the money and shall recycle it into other similar opportunities. Regular readers will remember that ‘this’ is one of the reasons we buy Investment Trusts at a discount because the ‘bonus’ can indeed be realised. So we’ll be receiving £5.37 for every share. Just think, at the Pandemic trough of 20 March 2020, these shares were £2.31. We shall also be redeeming part of our Sancus ‘Zero’ in December and rolling the rest at an equivalent 9% pa return for five years. We expect to add to that on the market later, at lower levels than the redemption price!
Remember, most of this ‘bonus’ has simply been because the discount to the underlying assets has disappeared. It’s one of the reasons we prefer quoted investment funds for clients rather than unitised holdings as most other investors and advisers out there have in their pensions, ISAs and funds – these extra bonuses are not ‘necessary’ for us but they arise and are in for free. They can make a very useful extra return for clients, for nothing.
Crystal Amber, the activist fund in wind-up and to which I have often referred as being a great discount play, has also jumped usefully as one of its strategic assets has put itself up for sale. I have often referred to this example as ‘why’ we buy these types of things at a deep discount to asset value – effectively buying £1.40’s worth of underlying assets at only £1 but maybe the door to that chance is now closing.
However, as above, mark my words as these ad hoc bonuses WILL happen and they are in for free for our patient clients, just because we buy these types of quoted investment funds and not the unitised types most firms ‘sell at’ their clients and customers (as it is financially more attractive and easy for them to do that incidentally).
As I have also said many times, if we can add even the odd 1, 2 or 3%pa to results simply by having these products and not what ‘everyone else has’, then not only are we covering any and all of our management costs, but we are making extra from exposure to the markets for clients for ‘nothing’ as well, of course, as long-term clients enjoying our dynamic systems and investment contrarianism know.
This principle is such as having avoided the big US Tech implosion since the end of last year and again blighting most investors elsewhere. And yes, sometimes out-performance means losing lots less than everyone else too, as has been the case for 2022.
I also attended a most encouraging update with the managers of one of our collective Property Trusts. It’s not UK property and the biggest tenant is soon to be US Consulates so I think they’re safe for the rent! The latest net asset value was strong and up on the year. Shares are available at a 54% discount to that still. The dividend income, comfortably covered from rents, is just under 6%. At some point the shares will be better supported as the Fund has also committed to an active Treasury operation as well.
‘If’ the share price moves closer to the net asset value, then that means investors will see an uplift of 114% – more than doubling our money. It won’t go all the way but you can see that even something towards a more realistic price is all a bonus for nothing – and 6%pa income whilst we wait.
These are the sorts of technical opportunities we like – low risk indeed, phenomenal upside potential and high income meantime. Is that greedy? No, it is wisdom.
What did we hold and what we didn’t?
The dire impact of events in 2022 only came home to me when I was chatting to someone on Saturday – an astute self-investor who has just retired. His ‘safe’ Gilt funds, built-up to stabilise his pension pot as retirement approached, had dropped a third in the year and his diversified ‘tech ‘ funds had taken a hammering and of course, he didn’t have anything in the bits that have gone-up.
This is the reflection of most investors ‘out there’ and we are very grateful we are not ‘them’ even if we have not escaped unscathed. The differences between ‘them and us’ are very significant.
So what haven’t we had at all which have fallen significantly? US Big Tech (which counts for the biggest portion of all global stocks) down a third, ‘cheap’ global passive/index-tracker funds headed by the same big tech, Investment Grade bonds/gilts, ESG funds (full of big US Tech) and no house builders.
What are our biggest exposures which have risen exponentially (and some we have sold)? Wheat, Coffee, Agricultural products, Defensive industries, Energy stocks, Latin American and a Turkey fund. Remember, if you don’t have something which falls and you have something else which rises instead, you lose less and gain more so you outperform.
What has caught us? UK smaller company funds (with too much tech/growth emphasis – I should have been more ruthless but we did take some profits before), the excessive strength of the US Dollar (though we benefited as well), two tiny direct Russian assets, Commercial Property REITS hit by higher interest rates (now recovering fast), Private Equity funds and biotech funds at deep discounts which became even deeper, insurance, financial companies and brokerages and certain ‘value’ shares like BT and Sainsbury’s not offset by enough other choices which rose/were taken-over.
The difference between the major losers held by ‘most people’ and sold to most investors (‘recommended’) and what we have achieved for clients instead is very significant this year, reminiscent of when we called the Dot.com Bubble in 1999/2000 and which we avoided totally despite the sector (‘TMT’) being 40% of the world’s stock market at its peak.
However, as I say always, it is what the future holds, not the past. We know what we shall still buy and at depressed prices. Remember too, UK holders of the big US tech/passives, etc have been sheltered artificially from some losses as the Dollar has risen, buying more pounds and that will correct, so they’ll make losses when that happens (not ‘if’).
For all the wrong reasons, the clumsily handled Mini-Budget reminded us all that actually the UK does have a rather bigger influence on the global economy than many have wanted to imagine. The reverberations rattled across the Globe. The offending Gilt Yields are now back below the levels before the Budget… and thus the influence on fixed rate mortgages and general loan availability etc. Last week, the Bank for International Settlements announced that London retained its crown as the global centre of currency and derivates’ trading with 38% of global foreign exchange trading as of April 2022, ahead of the US, Singapore and Hong Kong. This is perhaps telling news as it is the first post-Brexit real fact on the subject. It will not be unexpected to see Hong Kong begin to lose some of its influence with recent political concerns too.
You know our views on this. It has now been announced that the first authorised fund listed on the global markets has lost more of investors’ dollars than any other ETF debut, only one year after its record-breaking launch. Proshares’ Bitcoin fund amassed over $1billion in the first week and now showing a 70% loss, the sixth worst result in ETF debut history. With further flows in and out, Morningstar has calculated that investors have lost $1.8billion in the Fund so far. Those falling further raised tiny sums in comparison.
Another crypto one – the Global X Blockchain ETF, fell 77%. ETFs are a good principle, holding $8.4trillion of investors’ assets now. We have plenty – but none in ‘crypto’ as it doesn’t ‘exist’…
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