Good afternoon. The horrors from the Middle East have not abated. The whole situation is so sad and it is impossible to predict the outcomes. In ways not seen in past decades and centuries, the inert hatred from certain quarters seems to have also manifested itself across the World, in civilised populations which have embraced quite massive migration.
Every last one of us is one of God’s chosen people. However, in our faiths, our religions, He gave us free will to be able to choose Him and the ways we live our lives. The World needs to reflect upon that presently.
Market sentiment
Conditions are yet another negative reason to shun ‘doing anything’ and in this context, it creates another bout of uncertainty, holding-back investment values as individuals and institutions sit on their hands. Bond interest rates have been nudging upwards and the general negativity backdrop will have a positive effect on headline inflation as it also hits consumer confidence, inadvertently helping to cap interest rates and indeed possibly driving them downwards a tad though central bankers will defer such actions for now.
Presently, investment values are amongst some of the most compelling we have seen for a very long time, especially investment ‘funds’ quoted on the Stock Exchange. The FTSE250 is a good reflector of that value, almost back to the trough seen in September and all the good work in the interim lost. Our view here, however, is not even talking about ‘company A’ whose corporate outcomes might suggest its share price should be higher but listed ‘fund’ companies which only invest in baskets of securities, typically baskets you can see and value but whereby the prices at which the funds’ shares trade are at colossal discounts to the collective values of those assets.
Yes of course there are risks – there are risks with ‘everything’ including cash under the mattress which can be eaten by rot or stolen by thief and funds at the bank decimated by inflation which is way above the meagre interest you are paid but at the end of the day, many of these quoted funds will close-down, encashing all their assets and returning cash to their investors. The cheaper they become, the lower the risk they are too and yet at the same time the greater the opportunity for a colossal return for today’s holders – and most of them pay handsome incomes (as received from all the component investments they hold) in the meantime.
We hold plenty of these and yes, many have lessened in value over recent months – frustratingly – but that doesn’t make it wise to sell them now. Instead it is time to bottom fish – not that we can predict the absolute nadir. However, if you can buy a fund owning a collection of ‘secure loans’ say, for just under half the book value and whilst you wait, you receive a dividend (part of the loans’ interest) at perhaps 12%pa, does that make sense? Yes. Of course, to mitigate risks we still spread clients’ funds very widely indeed and no asset we own exceeds 2% of our total funds managed.
Conditions like this benefit income projections from portfolios too. Our latest income figures have been calculated and the average for a ‘balanced strategy’ (however that is defined) is producing what we believe is a sustainable income flow of over 5% and in many areas, over 6% and nudging 7%. This is the by-product from having a very diversified portfolio of different assets, many of which also pay zero income to counterweight higher paying holdings.
During difficult market conditions (like now) it is reassuring as this income flow comes regardless of the short-term gyrations in capital values. This means that if you need the income to help pay your bills – it has been unaffected by any short-term negativity in capital values (indeed it has risen these last few years) and the capital can continue to be positioned as wisely as appropriate for future gains and income increases too. If you don’t ‘need’ the income then please tell us to leave it in the accounts (even for just some months maybe, if your cash funds are ample to carry you-over for that time) as we can use that to drip-feed buy the most compelling investments at seriously undervalued prices as are available now.
History
Latest uncertainties do not encourage people or institutions to subscribe their cash (when history’s likely to suggest that is exactly what they should, with such value available presently). They certainly do not support withdrawals.
History suggests that over the past 30 years, if you were ‘out’ during a bear market or the first two months of a bull market, you missed 78% of the stock market’s best days. If you missed the best 10 days, your returns would have halved. Missing the best 30 days would have cut your returns by 83%. In simple terms, the best time to buy is at the heights of pessimism and uncertainty and the time to sell is when euphoria and mass enthusiasm are chasing prices – that is not now.
Pension transfer
Be careful if you wish to transfer your old pensions! In the ‘old days’ pension companies used to transfer their clients/employees’ pensions without many checks so scammers had a field day. Now, regulators have imposed sensible rules to ensure that the recipient scheme is a bona fide scheme, suitably regulated and HMRC approved.
However, sadly it seems that some of the pension companies have not invested in adequate training to guide their staff so we are finding that naïve personnel are making ludicrous ‘judgements’ of things about which clearly they do not know enough (and with colossal financial clout they should know more than us!) and frightening customers who are wishing to perform legitimate and wise actions. We have had transfer cases rejected because the recipient scheme had ‘overseas’ investments’ (the rules rightly challenge spurious overseas pension schemes which are a different matter entirely). However, funds on the London Stock Exchange which invest overseas are not that! Every pension company will have some overseas assets!
We have been obliged to lodge a formal complaint at NFU Mutual over one case. Sadly, despite noting the error of its ways, it has not relented on its approach and nor had the good grace, upon invitation, to apologise for the ignorant assumptions, noting ‘significant concerns’ about the transfer. That infers that the recipient scheme must be a ‘scam’ and not wise for their customer to choose it. The actual defamatory words note:- ‘concerns identified on this occasion are significant and we consider they would present a real risk should the transfer proceed’. This is the approach the company should have taken before, with the absolute rubbish into which too many people were allowed to transfer willy-nilly previously, from hotel rooms in Cape Verde to off-plan properties in the Caribbean, airport parking lots, storage containers, ethical forestry or whatever other scams.
I am as much saddened in that the Society had an enviable record for customer relations (I state that as a customer of the general insurance arm for decades) but certainly something seems to have changed these last few years. I trust the Society has reported itself to the Regulator for this apparent regulatory breach of interpretation at worst and a seriously patronising attitude to their customer, let alone the highly regulated pension scheme and advisory business defamed by its approach, let alone stopping their long-standing customer from accessing his pension plan upon request!
St James’s Place
The latest announcement regarding a review of its charging structures with the FCA under the ‘Consumer Duty’ startled the market which knocked their shares back 21%. That’s a drop of almost two-thirds since January 2022. Apparently the Company noted that 40% of the funds it manages were enjoying deferred fees from the original sales and that if this was stopped, it could threaten the Company’s balance sheet stability. However, big changes are afoot and it is suspected more to come but the new initial fees applied against all new subscriptions (which ranges from zero upwards) and the ‘management fees’ are still very high versus the industry.
That statement could backfire if its customers begin to worry about its financial strength (which I cannot imagine is threatened at all) but certainly the reputed or actual high charging levels are under attack. It is a curiosity however in that in ‘theory’ the FCA does not intervene on ‘commercial judgments’ by regulated entities though of course the pressure emanates from ‘Consumer Duty’. I wonder who might be first to put that to the test, in regard to what is a ‘commercial decision’!
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
Risk Warning
Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.
To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!
If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrated our 35th anniversary in 2020 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.
Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.
