I know it is early but I want to wish everyone a really Happy Christmas and New Year break. I shall no doubt repeat the greeting before the date but the preparations are already underway, so enjoy them as best as you can!
Let us trust too we shall all continue to enjoy the early ‘Santa Rally’ for which I ‘hoped’ in a recent eshot (backed with substance!) – it has so far indeed begun to come true so investors will be happier than they have been for a while! I should add, though that before Leonie’s Graduation in Birmingham last weekend I succumbed to some strange bug making me rather energy-less so apologies if I am slower to respond to enquiries…
So one swallow does not a summer make but my message in early November (and our mailed client newsletter) noting average discounts on Investment Trusts were the biggest since the 2008 Financial Crisis has since seen that drop back to 11.3% (a decline of a third – meaning a good gain for investors). In real terms, what does that mean? In a rising market it means that regardless of any moves in the values of underlying assets or income received, that the price of the average Investment Trust has now increased by just under 7%. Our clients will have benefited from that as we are full of discount situations. When added to markets generally being more hopeful, it’s not been a bad recovery time, though value is still exceedingly compelling and far below where prices ‘should be’. It’s warming to have a few years’ investment returns in a month but the volatility unsettles investors.
Were you able to take advantage by subscribing more funds when things were at their darkest (and certainly not encashing)? Gains have not been universal either and there has been some poor news but one or two stellar rises alongside the general positivity (and perhaps unexpected as so much so soon) but we shan’t complain. Still, more patience for optimum results, please. That newsletter was the most encouraging one we had written since the 2020 pandemic lows. I hope some of you took advantage of its wisdom.
We are informed that at the same time UK Pension Funds’ ownership of home shares hits a record low, overall overseas’ ownership of the British Stock market hits a record high (57.7%). The old adage of ensuring you keep money in your home currency still rings true as well, to pay the home bills but clearly, investing overseas has benefits (including risk mitigation) but it does increase risks too (eg currency and political risks).
At present, no one seems to be talking about the acute ‘concentration risk’ of the ‘Magnificent Seven’ – the biggest US stocks dominating not just the US but the world – counting for nigh a third of the value of the whole US market. Such extreme situations don’t endure for ever and there will be many innocent investors who won’t realise how exposed they are to this extra and significant risk if or when it unravels on its move back to ‘normality’, whatever that represents. Don’t forget currency risks either – with the US it used to be said that ‘you made on the market and lost on the currency’ – maybe the opposite might ring true from here – lose on the currency and lose on the market – most share funds don’t hedge away your currency risk. Watch-out ‘passive investors’ full of cheap ‘index-trackers’; you’ll track things downwards passively as well but you might not be quite so ‘passive’ yourself then if this risk has not been noted to you!
Investment returns
I am indebted to Richard Evans of The Daily Telegraph for reminding me of what perhaps I can share as the opposite to ‘investor impatience’ when values fall in the short term. Clearly too he has been reading my missives on Investment Trust discounts as we are singing from the same hymn sheet.
Investment trust discounts are at twice their average level. This is the time to buy
Revered investment guru Sir John Templeton noted ‘it is impossible to produce superior performance unless you do something different to the majority. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward’. I am not talking about such deviant strategies to be high risk but simply, sometimes, ‘common sense’ when it comes to ‘value-based’ assets. I hope that you have the necessary patience!
No prisoners
The market is taking no prisoners if a company publishes a negative outlook. It doesn’t matter how insignificant that might be. For example, we don’t hold shares in these for clients but have watched for a long time and slight profit reductions have seen Xaar drop 24% on the day, Halfords 19% and Dr Martens 21%.
Probably these are attractive to buy – but this is shared not as a recommendation but as a consequence of the ludicrousness with which many managers function – if bad news is reported or their broker downgrades hopes, they sell, even if the bad news is more than fully in the price. They don’t seem to care what losses they may suffer nor the atrocious price they secure, just to dump their stock at whatever price they can fetch. You may recall me noting Abrdn’s sale of half its XP Power holding at the nadir – they have bounced by 62% since 6 October’s low of £7.76. When a loss is realised it cannot ever be retrieved.
Is some of this regulatory pressure, perhaps, on risk management (assessment based on what happened in the past, rather than the position looking forwards?), or simply wanting to remove big losers from their current list of investments so the underlying clients, trustees, etc won’t query them as they won’t appear anymore? That’s not investment management, is it. It can be very uncomfortable sometimes and where is patience and conviction based on research and confidence?
Abrdn
Interesting news in that the investment group has committed to investing £30million (six-months’ fees) in the Trusts it is managing, to show an extra level of commitment to them. This is a good sign as extra demand for the shares in these trusts will be welcome.
However, alongside the parent company’s own share buy-in programme, it shows what colossal free cash Abrdn has generally – a ripe-for-takeover target but no one seems interested in biting – how odd.
Meantime, shareholders enjoy great value and also excellent income from the ordinary shares but of course, as ever, this is not a recommendation!
Swiss evasion
For those of you envisioning that Switzerland is the sort of place you have an unnumbered bank account to stash your cash away from the authorities to avoid tax… Banque Pictet et Cie has just paid-over $123million to the US authorities for helping US residents hide $5.6billion. The subject won’t have stopped there though; each depositor was committing tax fraud too as the US will have been chasing them!
There is much public naivety about the low-hanging fruits of uncollected taxes but under accords between the various nations and authorities now, under Money Laundering, it is rather harder for people to avoid the attention of the authorities, although criminals have discovered the allure of cryptocurrency as something temporarily covering their tracks (though some will have come very adrift there, losing everything instead). Please note, this does not affect ‘non-doms’ – those who do not live in the host countries or who live in low-tax countries.
Christmas Tent Appeal
It never hurts to forget that however poorly you may think you are doing in life, finances or health, someone somewhere is always in a far worse position. Imagine having nothing at all to keep the rain and cold away during this spell of dreadful miserable winter weather? Unfortunately, for some right here in North Devon that will be the reality this Christmas, as they find themselves sleeping rough, often for a variety of complex reasons.
Our excellent local charities do great work but sometimes in the short term (and literally to help keep them alive), people really do need a tent, a sleeping bag, or a warm coat.
If you’d like to assist at all, you can find the link to the appeal here:-
Urgent Christmas Tent Appeal launched for homeless in North Devon and Torridge
Gold
Has anyone noticed? The price of gold hit a new peak on the continuing troubles in the Middle East. What’s curious is that as interest rates are higher, typically gold falls as it costs more to hold it but not this time. However, I suspect it is a tad peaky presently but we are doing quite nicely by having some investments with gold miners within them or indeed some actual miners. Silver is our preferred precious metal presently though but it’s harder to transport as it is far bulkier!
Pension savings
A recent report by Defacto suggests as many as 17% of savers have reduced or stopped their pension contributions as a consequence of cost constraints. They need to remember that doing this will lose them their employer’s contributions as well – invariably as much as or more than their own. If these people are over 55 they should not do that at all as they can always access some benefits from their plans instead, if needed?
Mercer has also announced that British pension systems are in the 10 top arrangements in the world. This takes account of private pensions and the significant rises in State Pension benefits over recent years will also be helping. The tax incentives on saving and within plans is also very attractive.
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
