| Good day! Isn’t it nice to see the days draw-out already! Despite rain and the storms, spring and summer are coming! In the 3 Jan Financial Times the headline read ‘Wealth Industry battles one of the worst years for a century’. How did we fare? It noted a ‘double-digit drop in stocks and bonds’ and ‘pain in markets undermining conventional wisdom’. Swiss Pictet Fund Manager’s Renaud de Planta says ‘this is one of the most significant years of wealth destruction in nearly 100 years’ and ‘many private investors could have lost more than a quarter of their real inflation-adjusted wealth’. Whilst the ravages of inflation are absolutely true, I am pleased to inform you that we have fared remarkably well in comparison. Whilst each of our clients’ accounts is different albeit with common themes and holdings, because we know what we have held we can say with all confidence that we have outperformed the average in nominal terms, however averages are measured. Our clients’ income levels have rocketed and our overall capital performances have resulted in outcomes which are marginally moved against the beginning of the year. Whilst in reality that doesn’t sound very good, if that is compared to your neighbour or work colleague who may be suffering a 10-30% loss (or more) on his more popular and (what he was told were) ‘safer’ market assets, that is a very significant out-performance which puts our clients’ accounts in the top echelons of results for 2022. If you are not with us – what is your outcome? Only today I spoke to a new client with True Potential who had been sold its seven popular funds at the tail end of 2021 and his £385,000 is now £329,000, a drop of 15% – that is the reality for most. When he queried the performance he was told to refer to the website for their latest views! We have to look forwards and our concentration upon ‘value’ should continue to bear fruit. It is not just what we buy but also what we avoid – it is the latter which cost most people their bad results last year. Indeed, two significant things will happen at some point and they will be very positive for your investments. The Ukraine war will end and inflation will be defeated and return to acceptable levels. We believe we are appropriately positioned and meantime are paid with very high income distributions from our investment holdings whilst we wait.  2022 in reflection Some FT estimates suggest that last year global investors lost $34trillion of their wealth in financial assets (which include those ‘safe’ bonds and shares) and on top of that, their housing wealth has dropped too. Funnily enough, the media doesn’t tend to report on this – even the leftist commentators – as it doesn’t fit the rhetoric for ‘inequality’ or ‘poverty’! That compares with the much more broadly-based losses in the financial crisis of $18trillion… If you have fared reasonably well in 2022 (which I guess means a result between -5%-5%), then you should be very grateful! Apple, the biggest ever stock in the world, has lost $1trillion of market value in a year. We had none and if you weren’t with us, as it was so big you are almost inevitably going to have had some in a fund or two somewhere including in your ‘cheap’ trackers. Those simple judgment calls on our part have paid several years’ worth of all the management fees we charge for looking-after clients’ total capital (don’t forget you are paying a management fee somewhere else regardless and our ongoing financial planning advice for participating clients is for ‘free’ within that) – so much for ‘cheap’ passive funds elsewhere! Do you remember I heralded a ‘passive-led crash’ at the peak? A few people pooh-poohed that concept but it has happened – they didn’t want to believe the overhyped party could end (though there was an exodus from passive funds in the UK last year). So that’s all fine and dandy but what for 2023? I think it will be relatively easy to outdo ‘growth’ again this year and especially concentrating upon the UK market which remains so under-priced compared to the rest of the world and we are paid a good dividend whilst we wait. This bodes well for the global economy and indeed stock prices. Residential property remains out on a limb and the hit to it could impact consumer confidence however, so that may be a negative but there remains plenty of excellent value in sectors not so impacted by that. It is also now official – the era of minus interest rates on government bonds is over after Japan increased its rating view. So that’s $17trillion of bonds at the worst – which meant you had to pay governments for the privilege of lending them your money! Last year, headed by expensive US tech, the MSCI Global Index lost 20%. Sterling investors were cushioned as the Dollar rose against Sterling, but that has been reversing and is likely to continue. However, with 66% in the US, 8% in Japan and a mere 4% in the UK, it’s why we shan’t be buying that. If you have it, in your cheap trackers or pension funds, then recognise that you are likely to lose on the currency and also on the US market over 2023 and that could still be significant in view of the US’s historic over-valuation. I say this again on the basis of investing all our money in better value situations skewed away from the US and the Dollar so there’s none left for the over-priced stuff – and if you are not with us, maybe it’s time you changed. We don’t charge any subscription fees either! The UK market remains remarkably cheap versus other global markets – so much so that it is cheaper than it was in the financial crisis when the UK was disproportionately impacted as a consequence of our big financial weightings and little tech. The differential is circa 20% or a prospective 25% uplift to return to par – or 20% less distance we are likely to fall if unexpected things create sourness elsewhere. That’s a significant comfort cushion. Do remember too, there are two types of forecasters in life. Those who don’t know and those who don’t know they don’t know… that said, a little qualification and long-term, successful experience bathed by common sense and driven by contrarianism (an independent mind) works wonders. It’s also not what we have achieved in the past that counts but the capabilities to demonstrate that we can out-perform in the future as we have an independently-minded spirit to at least assess these things – and to take the necessary action to protect and reward our clients, when the need arises.  Good news There’s been a shortage of recent bonuses for clients but I am pleased to report that one of our many value stocks has come into play. Standard Chartered Bank Plc jumped a fifth on the rumours of a bid from a competitor bank (back to 2018 levels) – it’s too cheap and they’d do very well out of it but remember, with our value-based strategies which include equities, theses special situations are in for free on top of our usual market exposure. They’ve since slipped-back some as the rumours are denied but… If all you have are the Apples and Microsofts, that isn’t ever going to happen. Meantime we have had great dividends for years… and the capital more than doubling in two years so, thank you very much. Sadly we only have £1million’s worth… but we have plenty of other targets!  Clients’ income We have to assess portfolios’ anticipated income flows regularly, to help guide clients in terms of what sustainable income they can expect. This is the interest and dividends from all of the components in a particular strategy and payments which are unaffected by short-term capital value gyrations, so they can be relied-upon. As ‘value investors’ traditionally, we expect a good amount of regular income which investors can have every month to pay the bills and our stock concentrations these last few years have included more higher paying assets. As dividends increase (only last week another of our bigger stocks has raised its payments again – thank you!) and if capital values remain depressed, the percentage an investor can expect from ‘today’ rises. At the moment, our two mainstream ISA accounts are projecting an annual income of between 4-6%! Our Defensive ISA is projecting 7% and our Balanced mainstream portfolio over 5%. On our pensions, the figure is over 4% and up to 6% for the more defensive strategies. This means that investors can take the income without any detriment to their capital’s expectations – we are not selling your investments to raise cash to pretend it is ‘income’. Just compare this to the best elsewhere – let alone what interest you can receive from a savings’ account and a rate which will drop if recession leads to reduced rates again. So in simple terms, if you invest say £100,000 in our Balanced Strategy you can anticipate 5%pa income and a great opportunity for capital appreciation. Show me where else you can secure that regular income now and with great opportunity for it to keep pace with inflation and for the capital to go up, from a very diversified portfolio of assets across the world and types including the safest secure loan funds to commodities like silver and currencies?  Poverty at home Just how poor are people in the UK? Of course, where do we start with statistics! Using percentages and averages is all very well but if we say that ‘25% of people live on half the average income’ etc, then that is stating the obvious… it is always the case! I have noted before that average household incomes are higher than before the financial crisis and the majority (the poorer) has seen a much bigger increase but these facts are not often used… Average household income, UK: financial year ending 2021 the figures for 2022 will make interesting reading. I have also noted that average pay for a particular role is also misleading as most people look to gravitate upwards in a career so therefore they earn more regardless and better their circumstances for their families (this is reflected in the ONS statistics here). A nurse starting today will never stay on that pay level and could rise to £109,475 which is the present ‘top’ band of basic pay and that is before any add-ons for whatever reason. Just as Ryan Air announced last week even bigger numbers of those affording to fly on holiday, pet ownership is another interesting thought as you have to be able to afford to keep a pet. Yes, I concur that these have benefits to the owner too but maybe one of one type is enough unless you can afford more… Two years ago there were 7.5million cats and 9million dogs. Now there are 12million cats and 13million dogs and with Battersea’s estimate of an average £1,500pa to have a cat – that’s a lot of money if you are struggling. So what is a fair appraisal – absolute poverty and how much do we need to build into the equation for the plight in which many at the financial bottom find themselves by relationship circumstances or other events like illness? We could add ‘unemployment’ but with more vacancies than people seeking to work, that isn’t an issue today (even if Recession will change things – and Amazon has noted a 10% cut in its global workforce so watch-out).  Home Reit Plc This ‘social’ investment in homes for homeless people (where we have built a stake after the shares plummeted) has suspended its shares as its accounts will be delayed till the auditors address the allegations raised by the aggressive and prospectively defamatory Viceroy Group in the US. The shares, which were £1.30 last year, hit 35p before being suspended at 38p. The assets are residential property. At the cheap levels this may have been one of the best investment opportunities for the year – if the auditors address the issues to everyone’s satisfaction then the accounts will see the shares rocket, even if they don’t return to previous highs. However, you can’t buy them during the suspension.  Best performers in 2022 Oil and gas stocks dominate the best performers in 2022, with 15 of the best 25 in the US S&P500. Sadly, too many investors out there will have missed-out and instead would have the wrong stuff such as US tech as that seemed greener, despite all of us guzzling oil and gas to heat, transport and manufacture despite everyone’s totally correct accelerated ongoing efforts to ‘green’ our economy. Not only are the companies in very sound positions now but they are soon going to be in net cash and wiping out $300billion of accumulated losses from the preceding decade, so they could be considered even more viable and attractive beasts for investment (aside from the headwind of long overdue falling gas, oil and coal prices). This will support big dividends, share buy-backs and plenty of tax for the countries hosting these companies (but not those frightening them away with punitive tax penalties or acute unfriendliness). This is where investors so often go wrong though – they imagine something happening (like no fossil fuel) instantly and they rush into the latest trend (in this case ‘ethical’ or ‘ESG’ funds which have taken a hammering from their naivety over the year). Perhaps the worst example of this naivety was Baillie Gifford’s new appointment on 11/2/21 and name change at Keystone Investment Trust to make it an ‘impact’ investment for ‘positive change’ – dropping 38% with its tech-ful asset list – what a shame and one we held years ago. If Mark Barnett (ex-Invesco) had continued managing it, it would have shown a positive result over the same period, of that I am sure.  Gold and silver We don’t hold gold presently but it is interesting in that central banks have been stock-piling the stuff at the fastest pace for 55 years. We do own silver however which remains at some of the lowest historic values compared to gold. Russia and China have been diversifying away from the US Dollar… though Russia is a big producer (300 tonnes a year) too so keeping its own gold helps there. The thing with gold is that it is already quite expensive – it can go higher but when interest rates rise, the holding costs increase but it has reminded people yet again that it remains a ‘currency of last resort’ and no, cryptocurrency isn’t. Some suggest this volume of interest could herald a seismic change in something – eg the Dollar’s past excessive use as a reserve currency? The leading ‘official’ buyers in the third quarter were Turkey, Uzbekistan and Qatar with its biggest ever monthly acquisition. Pariah states which might imagine sanctions by the West don’t want to rely so much on Dollars perhaps and thus there are consequences. We shall have to see.  Fund platforms An interesting development last week – Fidelity has restricted access to a £1billion fund managed by Jupiter. It says it is to protect investors’ best interests, but does it have the moral authority to restrict what its clients do when they use the platform simply as a receptacle for them to choose the funds they want to engage? Regardless of this, we have seen that more and more platforms restrict what investors can have and that was not and is not what should be happening. Yes, this includes the bigger ones too which can restrict access to smaller entities and stocks unless you are a very wealthy person or a professional investor. From our perspective (not with this Jupiter Fund which we should not be supporting anyway), it makes more opportunities available to us at cheaper terms as so many others can’t buy them. As readers know too, we prefer main market quoted investment funds as they almost always represent better opportunity but many of the big platforms don’t allow them for investors and advisers don’t use them (or, it seems, understand them). It makes no difference to us – it is what is best for the client for that particular job. 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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