New Year rally

Despite pessimistic forecasts the economy still has a little lift in it.
Well, welcome to the highest ever levels for the FTSE100, what a pleasant ‘Father Christmas’ (well New Year) rally. The thing is, our market isn’t dear so the levels are nothing about which to be worried either. The same week also saw not the Bank of England Governor’s wish (he said wrongly in public we were in ‘recession’) but actual economic growth for October (albeit tiny).  

Don’t forget, too the previous three months included the Queen’s Funeral so economic slowdown for that mustn’t be overlooked. And regardless of what anyone says, if this growth is driven by consumer spending, the consumer has the money to spend in the first place if that is the evidence. Inflation has also peaked and is on the way down, led by lower energy prices.


Passives unwinding  

I thought you’d like to learn even more about the Passives-led unwinding last year that we avoided. Yes, they had been driven upwards by a flood of populist ‘you will never go wrong with these good companies’ cash without any consideration to their ‘value’. The 10 biggest stocks in the S&P500 (the main US index) and thus the biggest companies in the world by their stock market value, lost a combined $4.9trillion last year (led by Apple which is 17% of the S&P500 alone – reminiscent of when Vodaphone was 16% of the FTSE100 for a fleeting moment in 2000, the pinnacle of the bubble bursting. We missed that totally and profited handsomely on the way up. Vodaphone is less than a quarter of that heady share price).

I’m going to round that sum to $5trillion, a figure far more than the value of the whole of the British stock market, every single component added together. That is also way more than the combined annual economic output of the UK. Yes, this is simply the amount which was wiped-off those heady valuations and yes, the slippage had started in 2021 and it has continued in 2023. And if you think the worst is past, maybe think again. Those 10 counted for 30% of the value of the S&P500 at the November 2021 peak! (The average of the big ten over the last few decades has been around 20% with the biggest five at 13%). 300 of the index components did better than the Index itself – so much for slavery to ‘passive investing’ because it is ‘cheap’. To match the value of the biggest five companies it takes 456 of the others in the index.

Despite $300billion of inflows, Black Rock, one of the world’s largest management companies, saw its assets fall 14% – so $1.4trillion and bearing in mind that included rock solid assets, the median damage to its investors was higher. Closer to home, Baillie Gifford has admitted it lost $14billion on Tesla and Shopify alone last year – a sum I suspect is far above what it may have made by riding the tech bubble to the top as far more investors are sucked-in on the back of an impressive rise. We weren’t – and avoided it totally. If you are not with us, did your adviser?

What makes me angry is that so many investors out there will have this stuff, whether they realise it or not. Their adviser, manager, pension fund company or whatever will have been rapidly skewing their money to ensure it replicates the biggest companies and yip, that’s what they will have had and right at the wrong time. Adding insult to injury too but the ‘politically correct’ brigade had pushed the same entities to dump anything which didn’t look or sound pristine on their lists of holdings so they missed-out on the significant gains made by energy and natural resource stocks – adding-in armaments industries as well of course as a consequence of Russia’s war. They may since be reassessing but that’s not the point – these actions were taken without much reference to underlying investors.

You know what we have and what we don’t (and didn’t). We still predict that the US market is over-priced and the Dollar is over-valued by perhaps a quarter. There is a very long way to go before long-term norms are seen again over there. Then the UK market is under-priced and the Pound too. No, this is nothing to do with forecasts (even if I am more optimistic than many for our economy) but simply value. So guess where we are skewed and where we are not and remember – of the cheap FTSE100, three-quarters of their earnings come from overseas too.

The ‘passive’ brigade has gone much quieter recently, funnily enough but from where I stand, it still isn’t the place to be, so check if you have index-tracking funds (‘passives’) or ‘lifestyle’ funds which have big chunks of the US market (few big UK institutions have much money in the UK even now). We have no US directly because there is so much ludicrous value elsewhere. Indeed, we read that the French luxury goods’ producers now head the world wealth-wise (so no shortage of money to buy their stuff) though that will be short-lived, I predict. This is all at the same time that Elon Musk has seen the biggest loss of any fortune in history ever, from the peak valuation of his Tesla stake.      
Chooseday – Tuesday 24 January  

The first coffee morning went well on 10 January and we were pleased to welcome attendees to share some company, coffee and cake. The next one is at 10.30am till noon on 24 January – feel free to come along and join us!


Excessive tax  

You will recall my article on Norway’s wealthiest fleeing the Country as the tax charges there have become ‘too high’. No regime wants to see this happening to excess but there is a second part which we seem to have forgotten – attracting new wealthy people to our Country so that they spend, employ, invest, etc and pay tax.  
However, the number of new ‘non-doms’ coming to the UK has fallen savagely. Such encouragement was a very positive thing and Kwasi Kwarteng’s budget did address it but we can’t go there! The new claims for the status dropped 40% in the 2020/21 tax year to 8,500 from 14,200 (no doubt affected by Covid too of course).
The earlier year was down from 15,400 in 2018/19 too, unaffected by Brexit. The totals have fallen from 123,000 in 2015 to 68,300 in 2021. The information noted ‘Many non-doms are highly successful entrepreneurs which have established or invested in UK companies. The availability of non-dom status gives the UK a competitive advantage in attracting talented and wealthy individuals’. So far, of the big parties, Labour plans to ban the status altogether.

Not only this but other more ultra-wealthy residents are leaving as well. Analysis by Henley & Partners suggests that since 2017 we have suffered a net outflow of 12,000 people with assets and cash over $1million. Winners of late have been Switzerland, Greece and Portugal and low taxes in these hosts are a common factor. As an expert in the field noted ‘With them not only goes cash to invest and UK taxes collected but also talent and entrepreneurship which would have otherwise contributed to the economy’.


State Pension top-up  

Do you need to top-up your State Pension? This is for particular people who may have a gap in their contributions’ record. There is reason to think about this if it includes you, as a special concession to go back to 2006/7 ends in three months and then the number of years’ missed or part-contributed becomes limited to only six years. On top of that, the cost rises as it reflects the inflation-linked increase from April. This opportunity applies to those who reached or will reach State Pension age after 5/4/2016.

The full year cost is £824.20 granting 1/35th of the full pension (so £275pa). However, don’t do that if you are still working and will fill your entitlement anyway as you cannot avoid paying contributions till you reach the Pension Age if your gaps are future years!


Terry Smith – Fundsmith  

I was intrigued by Mr Smith blaming his Fund’s underperformance on central banks for failing to notice the impact of low interest rates and quantitative easing on asset prices in 2022. Surely if that is what he felt was happening then he should have managed his assets accordingly? The day before this note, news of the £252million the Fund sent to the management company in Mauritius (mainly owned by him and an apparent £36million has gone his way already) was announced so he is doing fine, investors will be pleased to read. Record payday for Terry Smith as Fundsmith sends £252m to Mauritius  

I am going to be controversial now – he is to be admired and respected for what he has achieved but we didn’t have anything in his £22.5billion fund and we still don’t and won’t. It is impossible to manage such a vast pot as dynamically as it may need to buy the sorts of things which can give a manager the edge over the indices, the very edge which gave him the initial results and the investor support – in other words, hoisted by his own petard.  

We’re a mere provincial brokerage in North Devon but we knocked-the-spots-off his fund in 2022, because we adopted strategies to reflect our views about central banks, global strategies and their impact on asset prices…. His fund is likely to continue floundering and partly because investors will be selling, so the management will need to sell shares to meet that. With only 28 holdings too, its concentration helped it on the way up but clearly wrong choices accelerate the under-performance. Regardless, there are plenty of very good, much smaller fund managers to acquire instead and a wider range with less risky alternatives and we have plenty of them. I am not in any way suggesting the mischief and potential illegality of the Woodford empire but long before some of that took hold, his funds started-out the same way and look what happened to a ‘star fund manager’ lauded by all.

Fundsmith’s underperformance in 2022 was six whole points against its benchmark index, so quite significant but more importantly I don’t see any reason for things to improve for him or his present stock selections, from here. Sorry but don’t hold-on in simple, vain hope.



We have done very well by buying some bombed-out insurance ‘funds’ at the troughs. I wonder if Direct Line’s poor results as a consequence of the cold winter will impact reinsurance?
The Company has pulled its final dividend and the shares have sunk to lower than their float in 2012. They could be a bid target at these depressed levels – perhaps Peter Wood might buy them back and sort-them-out! They’re on my watch list anyway.



Cyber security firm Dark Trace announces good new business figures but cuts overall revenue projections and the shares fall to their lowest since the float in 2021. As a ‘tech’ investment it is becoming a ‘value one’ so maybe to confound everyone, one worthy of consideration whilst it is so unloved… that’s a 73% drop since only 11/21. The Company is still valued at £1.8billion and is a takeover possibility too.

Talking crypto-currency, we learn that even some very sophisticated family investment firms were duped by the FTX debacle, owning shares in it. The philanthropic Belfer Family fortune not only suffered at Bernie Madofff’s hands but also the Enron scandal and now this. It seems that the bigger the con the easier it is to dupe those with significant capital to invest, on the pride basis of ‘you don’t understand it if you are not participating’. We do understand: we didn’t have any and won’t.


FCA regulatory failures  

So the FCA has admitted there were omissions in the information about ‘Blackmore Bonds’ which meant that neither it nor the City of London Police were quick in taking action (three years perhaps?). The FCA says it is ‘not its responsibility to police unregulated entities’ but oh yes, it is. It says that it concentrated its activities on regulated firms linked to the company… though that seems the easy option.

All that would have been required is a letter to the peddler of the fraudulent rubbish to say ‘we believe that the establishment of and sale of these bonds are regulated activities and unless you can demonstrate otherwise within seven days then the sale of these bonds must cease immediately’. This line of attack should be used on the present plethora of ‘secure property investments’ being flogged on the internet and Social Media even now – and Peer-to-Peer lending should be brought into the fold as well.   Reputable firms have nothing to fear.
The FCA has an overarching responsibility both about regulated entities but also activities which should be regulated and for which it needs to act swiftly, in liaison with government departments (eg to close-down companies) and the Police and if illegal activities are found, then action must be taken immediately to stop them. Sadly it seems that easy targets which satisfy the rules are the preferred ones as opposed to stopping the giant scams, many of which are pretty obvious to us and that’s why we report them to the FCA as soon as we see them – as we are obliged to do. Maybe they need someone up there with common sense to act first and worry after – to protect the innocent people who are otherwise defrauded by delay… I’d gladly offer…



Is part of our Society’s problem one of gratitude and appreciation for what we do have, rather than carping about what we don’t? We are now reading reports of ‘record Christmas sales’ from many companies so the money was found from somewhere (yes, inflation pushed prices up of course but that’s not the only thing).

The Philip J Milton & Company Plc Charitable Foundation donated to Tearfund’s Rwanda Self-help group programme at the end of 2022. The principles of this tick all the right boxes for encouragement for self-empowerment, under guidance. One of the ladies profiled shares her story and it starts:- ‘before coming here, I was without work. I didn’t have a job, I had no money for my family’. There is no State benefit system and limited public services.
Let us hope in 2023 we may look at things differently and perhaps that we can encourage others to do likewise – counting our blessings first but that never stops us striving to improve our lot and the circumstances of those less fortunate than ourselves too as well.


Fund suspensions  

Fidelity has now restricted investment in Abrdn Private Equity Trust. I can understand the Jupiter Trust (but it is not really Fidelity’s role to take such action) but not this one which remains an attractive purchase and probably more so now access to it has been restricted. Remember, Fidelity Funds Network is a ‘platform;’ where the investors choose what they can have and now it is becoming a platform where the sponsor deselects what you can’t – time to change platform methinks.
Ours is wholly unfettered, unrestricted.

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