|The Association of Investment Companies has introduced a new form of accreditation for advisers. It is training which explains how investment companies quoted on the markets differ from their ‘open-ended’ brethren which most investors are sold and explains the advantages and possible disadvantages. |
AIC launches Investment Company Accreditation
In its first week, 11 people passed the accreditation. I am pleased to say that connected to Philip J Milton & Company Plc, three of us had been accredited by the Saturday! Well, it shouldn’t have been too difficult for us as our clients have been benefiting from these funds and their special attractions for ages. Readers will know how much we like these ‘closed-ended’ investments for clients and usually more so than open-ended versions but do you know why? If you want to learn more and why they could be more attractive for you, accreditation is for free and the course is a great educational tool too.
We have been using these animals for rather more decades than I care to remember now and to great effect, with plenty of technical trading opportunities which have bolstered clients’ overall returns. It might be the case that to date as a Firm we have the most individuals who have the accreditation so far… It is strange they are not more popularly supported by advisers and investors alike. There are unnecessary barriers to their widespread use but the cynic could say that there are also compromised interests at play. If you want to learn more, I can commend the accreditation.
So this year, the US Fed has announced that its economy is doing better than it thought so it will not hesitate to be more savage with interest rate rises to tackle inflation. That made the Dollar rise and bond yields rise too – whilst the capital values of these safe bond investments fall. Sterling has been weak short-term after the Bank of England Governor noted that maybe interest rate rises here were coming to an end so it remains to be seen if we shall have to follow suit with the US. This too is after the Governor has admitted the economy has been doing better than he feared (but ‘they’ want ‘recession’ as a clear sign people are spending less and thus inflationary pressures are abating).
When do you sell an investment?
This is typically harder to do than when to buy. Much psychology comes into the equation and we are wise to remember that in our own lives, when deciding upon a particular course of action. Especially as the past is very interesting but it is certainly not an assurance of the future (and often it is shouting ‘sell’ if its price is very high as the past outcome is very unlikely to be repeatable and thus keeping the asset has become very high risk, whether you think so or not). This applies to individual shares but also asset classes including houses as investments.
We acquired Beazley Plc, the insurance entity, as it fell heavily during the pandemic. Its shares fell as lowly as under £3 a share. Recently and on the back of myriad brokers noting how promising its future was, the shares hit £6.86. Last Thursday, the results were not as good as anticipated and the shares fell with a bump. We had trimmed already and in January noted that we were looking for the right pricing opportunity to sell our stock. Our last disposals took place a week before the announcement. We too could easily have been lulled into a sense of excitement about the future, based on these brokers’ almost unanimous accolades and the more than doubling since the low but we have said ‘thank you very much’ and accessed the proceeds so that we can instead look for tomorrow’s good investments.
It’s never a finite science – we are selling to someone who buys from us and buying something else from someone who sells to us – think about it. In the extreme situations, you want to buy something everyone hates and sell something everyone loves. Of course there is a little more to it than that but that is a principle!
On the same day, another of our long-term holdings reported better results than expected – Capita Plc and the shares jumped 20%. Most of the gain is ‘recovery’ as they had fallen a long way but it would also have been very easy to dump the stock at the heights of its despair at 20p last March… we continued nibbling-away at those lower levels and at least the share price is now over double that, buoyed by a small subsidiary disposal and a fair wind in the City – at last. Its order book is just under £6billion. We are glad we went against the emotion and held-in-there, even if it looks bad on investors’ reports (sadly that is a reason some managers sell a loser – it has gone from the memory and the attention of the perennially cynical client, fund director or trustee or whoever, even if the best thing to do at that stage is to sit tight)!
Of course we have to keep deciding what we do ‘today’, every day – that is what counts. The same applies to those other two stocks mentioned last time – Rolls Royce and Wood (John) Plc which have both continued their ascent since their announcements. We shall have to keep looking for others like that!
Then one of our loan wind-up Funds sees its shares rise further – over double where they stood last June. We have accumulated a reportable stake there from impatient holders who don’t want to wait till the final pennies. Remember – these are nothing to do with what the stock market is doing – simply a case of collecting-in the last remaining loans ready to distribute the cash to the shareholders. Many investors and advisers don’t understand these types of opportunities which is why the opportunity for us has been such an attractive and rewarding one over the last few years since the Pandemic particularly. However, there aren’t many left now – but yes, still a few!
As I have said many times, alongside being in the mainstream for sensible long-term results, the special parts as icing on the cake are not all about those which rise but also trying to avoid the fallers too, as we did in spades last year with the major sectors of global markets and ‘safe’ investments. Wincanton Plc (a tiny holding for us) announces the loss of the HMRC logistics’ contract and the shares fall 25%. Ground Rents Income Fund has also been slipping incessantly – we hold tight and at some point there will be corporate activity in our view and a possible wind-up. Dividends continue to be paid and the last net asset value was over double the share price now. We’ve nibbled some more today.
More good news
We seem to be on a roll… Macquarie, the giant Australian investment group, could be about to pounce on M&G Plc. We have a little stake (0.4% of total client assets before the interest). Not every client will have these of course as that is not the way we spread our clients’ risks but a ‘value’ remit tends not only to see recovery potential in companies but also where a corporate predator can see significant value in buying ‘the whole company’ if the market is not prepared to revalue its prospects for itself. We also have Jupiter and Abrdn which have jumped in sympathy! We like the finance sector generally.
It all helps and as I have said many times in the past – investment is about actually being in ‘assets’ like these at all as opposed to not and then the icing is about having a few that do really well and not so many that bring shocks. We started nibbling on these when they fell out of bed so much – unloved by the market and in our view far too cheap regardless of what might happen, like this takeover possibility.
I remind that primarily we buy funds from the leading investment managers and opportunities as we see them (we have no ties to anyone) but we do add direct stocks to strategies (those chosen to have them), as opportunity for something on top and with negligible individual risk as we spread the capital so widely.
Our biggest fund investment is presently just over 2% of our clients’ total assets and our biggest individual equity exposures are typically half that. That large fund is a collective fund of other funds so extremely well-spread! I should add too, as with this one it is big for us not because we have put most money into it but because it has done well over the time we have had it and we have taken an active decision to run with an ‘over-weight’ exposure. We do often trim-down such over-weights depending on what they now hold and their prospects etc. We have just trimmed numbers two and three for example!
However, I shan’t beat around the bush – for some of these stocks (like Capita) it is still simply recovery from much higher levels but that is still a great recovery and for investors (like us) who don’t dump something simply because it has fallen. It may seem ‘odd’ but part of a portfolio’s overall return, at any time, is the evaporation of historic paper losses as much as it is gains on other holdings – as ever the bottom line on the portfolio’s total value is what counts. Take Rolls Royce Plc for example – since the end of February this has added £800,000 to our total funds under management – equal to 0.35% of the total funds we manage for clients and taking this to our biggest direct share investment. Taking our charge for say the Pension Fund management, that’s over a quarter of the whole year’s fee for managing the whole pot – and complimentary advice and guidance as well.
Value and opportunity
A report has suggested that the difference in ‘value’ between the US market and the UK market is a whopping 40% and that as a consequence, some companies may relocate their home to the US as their shares will be worth more (of course life is never that easy!). The Chancellor may wish to heed that too if he does not agree to reduce Corporation Tax in his Budget – and to be very wary of windfall taxes – collecting a bigger percentage tax from an altogether smaller pot as he has chased companies away results in less revenue for the Country.
Wolseley, the large builders’ merchants went last year and there are rumours a couple of other companies are thinking likewise. We didn’t win the listing site for Cambridge-based ARM and CRH went to the US instead of us too. The betting giant Flutter is likely to go shortly and Shell reviewed its position and for now decided to locate everything here but the Netherlands lost-out there and also on Unilever and because of the Dutch taxes and other excessive policies.
At this stage I see things rather differently. With an artificially strong Dollar, the US market is doubly expensive and with an artificially weakened Sterling the UK is doubly cheap and we should instead expect more bids from across the Atlantic.
As up to 75% of the biggest 350 companies’ earnings on the London Stock Exchange come from overseas, it makes the judgment even easier for us and our investors and doubly frightening for UK investors who rely so heavily on tracker funds which have ever bigger doses of the same US stocks which in our view are still overvalued historically.
I have just seen the latest annual statement for a With Profits’ plan with last year’s bonuses and results. A few people still have these but are they investments any more or instead ‘liability managing accounts’ for the insurance companies? Anyway, this plan’s surrender value on 1/2/22 was £3,692.15. This year, after the addition of a £100 premium, it is £3,724.55 and it has had a bonus of £11.52 added in the year…
The primary problem is that ‘they’ all use ‘safe’ government bonds for their liability pots, almost like it has been a government conspiracy (to sell their debt!) rather than a ‘sensible’ overall investment strategy over the years (this plan has many years to go till maturity). Yes, ‘With profits’ plans (especially for investments) are still sold to unsuspecting investors who don’t really know what they are and they aren’t cheap either.
We all know what happens to these ‘safe’ investments when interest rates happen to go up (an inevitability from historically record lows). Of course it is then a case of – ‘where for the future’ but never even think about what high inflation is doing to this pot too!
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