The markets have been continuing their sideways negativity, with some situations suffering ‘death by a thousand cuts’, as sentiment remains disillusioned. There are a few brighter spots this week, which is good but it’s easier for the marketmakers to mark things in red to try to drum-up trade than give optimism for the near future.
Of course, whilst that is negative for those thinking of accessing market capital presently, it also presents great opportunity for the sensible-term investor. If you felt the market was fair value at 100 and it is now 80, then your same Pound buys a fifth more of the same – so a fifth more income from it forever too.
It is also again a really strange market backdrop. Goldman Sachs cuts its price target for Barclays from £2.80 to £2.75. I can’t say I’d disagree with that target analysis so the share price? Yip – it rises – to £1.50. Citigroup raises the Nat West target to £4.80 so the shares rise to £2.35… These two examples are not unique either. Of course, these are only opinions which are what all share prices are day-to-day – in the long term prices are a ‘weighing machine’ and short-term a simple ‘voting machine’ driven by selling sentiment versus buying enthusiasm. Banks aren’t in favour presently – we rate them as seriously undervalued with great dividends whilst we wait, all things considered in that mix.
More good news
Blackstone Loan Financing has announced a proposed wind-down of its portfolio and a return of cash to investors. So, ostensibly there is a 25% discount to the underlying asset value based on the present share price and we shall be paid based on actual cash received as the loans mature.
Whilst again this is good news for our investors, it is a good Trust, with a very healthy income and it will be a shame that yet another is no longer available to us – though the discount at which we have been buying its assets has been one of the other attractions to us. If that outcome arises and the figures ring true, excluding the nominal costs and any defaults (which we don’t anticipate but they can happen) the uplift for investors will be some 33% as the cash is returned to shareholders; we must just wait. This is our eighth such prospective bonus for our clients this year.
At least we shall be able to re-subscribe that cash into other similarly depressed closed-ended funds trading at deep discounts and hope for similar news from those! It has little to do with market sentiment per se. It is a bonus for ‘free’ and it all adds value but at this rate, these special opportunities available to us in the new world (which seems to be evolving primarily in reaction to a harsher regulatory regime and managers/directors’ reactions to it) will be fewer I suppose…
Secure Income Trust is also distributing another 6p to shareholders and then the rump will be delisted. The shares were trading at 8p as recently as November, despite the published net asset value of 18.37p. They hit 15p on this news… These figures suggest a final 12p or so is likely, though naturally it is harder to assure when the pot shrinks to the last few assets to realise! This has been a wonderful investment since the bad news was all priced-in, at the absolute safest end of the investment spectrum.
We were mopping-up shares from impatient and disillusioned investors at those times to hold 22% of the Trust but yes, we have really needed patience to see these excellent final returns come through. The interesting thing is that since the final liquidations have been underway, the path has been as smooth as anyone could have hoped too.
Market bubble in the US again
The old bubble didn’t really go away but a handful of stocks has pushed the indices higher yet again. I am indebted to Simon Edelsten’s article in the FT’s Money section on 24 June, Active management is no ‘sham’.
As well as noting some of the exact same things I have stated about active management versus naïve passivism which pretends to ignore what is happening under the surface, he reminds us that the largest five companies count for a quarter of the value of all companies in the wider US S&P500.
What should frighten UK investors more is that of the MSCI World Index (to which more and more of their money is being subscribed (not with us I should add!), these companies count for 15%. These are Apple, Microsoft, Alphabet (Google) Amazon and Nvidia. However, this view is not mere superstition and as Edelsten notes, Bloomberg data shows Apple at 31 times earnings and Amazon on 134 times for example versus the UK average company on 11 times. These firms are priced based on the speculative bubble of massive inflows supporting these share prices and not their basic fundamentals. I am not saying that Apple, for example, should necessarily be priced the same as the average on the UK market but if it was, its shares would fall by two-thirds.
For us the decision is easy; if we can buy exceedingly cheap investments which give us a very generous flow of regular income and whereby the underlying assets are backed by the fundamentals (let alone the prospects), then we can avoid missing-out but more crucially, avoid any over-extended correction which could hit the stars at any time – as history has proven time and time again. For these, 2022 was a high-risk wake-up call and that should be heeded, not ignored, as it isn’t ‘business as usual’.
Do you have salary-related benefits in an old pension scheme?
Remember, you do not have an investment pot. It is not your money – you are a mere liability for which the trustees have to allocate a pot of cash for that liability till you and any qualifying dependants or spouse pop-off. Those ‘transfer values’ which you can ‘uplift’ by transferring to a personal pension so the money is then ‘yours’, have been falling as interest rates have been rising. According to the index by XP, the figures now being seen are at a seven-year low:- Pension transfer values fall to lowest level in 7 years – FTAdviser
The peak was December 2021 though this is an arbitrary index of course as actuaries do not change the mathematical factors for their schemes every day, but that is a drop of over 40%. Is it too late to have a review to see if you should transfer? Never, but clearly you must assess the value of that guidance in the face of your circumstances and needs – as well as overall finances, inheritance tax considerations and your health.
Church of England – fossil fuels?
I was interested to read the Church’s stance on agreeing to stop its senior ministers, members of the Synod and staff from using fossil fuels to power their vehicles and to heat their premises and homes. No actually, the agreement was simply to take cosmetic action which won’t do any good whatsoever, simply by banning these shareholdings from its portfolios… I suspect that means they will be snapped-up by regimes from less savoury places of the world and no, the Church will no longer be able to attend meetings of those companies nor to vote to encourage constructive action going forwards.
I wonder too if that means it won’t use index tracker funds (or any funds which might have fossil fuel companies within them) as they have lots of such holdings… However, the point demonstrates the sheer hypocrisy in relation to well-intentioned naivety and the practical realities. Taking actions like this may appear pious but actually it isn’t doing a great deal of good at all if the practice isn’t followed-through. (Matthew 6 v 5 comes to mind… ahem!).
Rising markets
Did you know that India’s market is now the fifth largest in the world, worth more than ours or the French market? The past three months have added $440billion (14%) to capital values – somewhat over-extended, in our view.
It’s one to watch but remember it is not the same in regulatory standards and the market is, like China, somewhat renowned for speculative activity as well of course. That said, it is also the world’s fifth largest economy.
Miffed – good intentions misplaced
Rigid interpretation of well-intentioned rules can cause damage and mislead investors and that is exactly what is happening in the Investment Trust/Fund sector presently says Baroness Sharon Bowles. She was the chairman of the European Parliament’s committee on Economic and Monetary Affairs between 2009-2004 when the MiFID rules were formed and created and she awards the FCA ‘0 out of 10’ for interpretation which could ‘decimate the industry’. FCA ‘failing in its remit’ with Mifid rules
Not only do unhelpful headline rates on ‘costs’ aid investors but they also mislead if they concentrate on the wrong elements of the equation and not only that but we could well find that certain investment projects (such as renewable energy where we need more investors not fewer) become inaccessible to investors. These could become very difficult/impossible to finance as the apparent costs (unchanged on what they have been all along) look too expensive for investors or fund managers to justify having in clients’ portfolios.
Sub-Premium Bonds
At last National Savings & Investments has increased prizes – to 3.7%. Remember that unless you are mega-rich, they are not ‘good’ financial planning, aside from being part of your emergency cash reserves as the average prize kitty any owner may anticipate is way below inflation or alternative returns elsewhere – in theory.
NSI says its rates must not be the ‘best’, as they ‘don’t want to cause distortion in the savings market’. They are also cutting the number of £25 prizes by 28% though the next layers will see more though still – the prizes are distorted towards the very few people who win the really big prizes. (Picture: National Savings)
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
