‘Consumer Confidence’ has risen for the third month and now at a two-year high, regardless of what negativity you may hear in the media. This seems to be supported by buoyant consumer spending since last autumn as well.
It’s good, as it will reflect in economic output but will too much enthusiasm dampen the Chancellor’s push to see interest rates fall, as inflation is supported by consumers with the same encouragements? What is curious is that the EU is struggling and its figures remain in descent (Sterling recently went as high against the Euro as levels last seen in August 2022). All that said, there remains much gloominess felt out there and present ‘confidence’ figures remain below long-term averages (which, it has to be said, are incessantly more pessimistic than typically the reality proves to be).
However, the IMF is taking a stance which suggests tax cuts would be reckless to ‘protect public services’. I think they are wrong, especially if the cuts are carefully honed to cut inflation and stimulate the right sort of growth. Anyway, how often is the IMF right with its projections too? It is also straying into areas which frankly are ’none of its business’ such as suggesting how tax policy should be concentrated. It’s been said, if its executives and staff started to pay even some Income Tax on their salaries then there would be a better sense of engagement perhaps… yes, there are several international institutions which operate their own cosy ‘tax havens’ wholly separate from the usual ‘non-residency’ rules!
Thinking of the regulatory environment especially but are you as disheartened as I am when I hear of the crude messages, swearing and disrespectful way in which leading politicians and civil servants seem to believe it is acceptable to conduct their affairs with colleagues and in the work place generally? I am not naïve and it is not ‘prudish’ either, to say this. When I see the revealed messages in whatever public enquiry is ongoing and all the expunged, crude notes, it doesn’t reflect well on the writers (or speakers) whatsoever. Why do they think that it is acceptable and indeed that it reflects well upon them? None of us is ‘perfect’ but no, we do not tolerate crude language in our workplace and we do our utmost to engender mutual respect, even in disagreement.
There are more than enough ‘proper English words’ which can be used without showing an inadequacy of having to resort constantly to crude Anglo-Saxon variants in such everyday parlance surely but even writers of contemporary drama seem incapable of proving a suitable vocabulary! Employers have a responsibility to protect employees too and unacceptable language could be considered to be grounds for formal grievance and ultimately compensation – maybe it is the pocket which might change how ‘these people’ think it has become acceptable to relate to one another.
On the same tack but it beggars belief when (typically for their own ‘home’ popularity) our ‘leaders’ (or those in waiting) slate others and from across the world, others who may then become democratically, fairly elected to a position of authority but naively where they must imagine their prejudice and rudeness will not be trawled-up by the target of their attacks and that it won’t affect their relationship with that person down the line?
Closed-ended Investment Funds
According to Panmure Gordon’s excellent research, in 2023, 40 Trusts raised £1.25billion of new money whilst 165 returned £5.1billion to shareholders in one way or another. Clients will know that we like Investment Trusts and part of our investment strategy is to seek to benefit from discounts and returns of capital.
The most popular route is where Trusts use excess cash to buy-in and cancel their own shares, because they can buy them at a deep discount to the underlying asset value and this means the remaining shareholders enjoy an uplift in their values as the ‘profit’ becomes theirs. Prospectively (albeit superstitiously some may say!) these portents bode well for the ‘industry’ as too many do the opposite things at the wrong times. However, it is easier extracting new money from investors when the story looks bright on the back of hype and convincing people to buy when it’s cheap (meaning having fallen a long way perhaps) is much harder, despite the logical decision.
Average discounts widened dramatically in 2023, reaching a low last seen at the trough of the financial crisis in 2008. These have now begun to correct but there are some notable exceptions. However, the great value we promoted with our special newsletter to all clients in early November last year was prescient but those extreme undervaluations may not return for a very long time now. There are also some encouraging signs that Investment Trust share sales are coming to an end by those who are ‘obliged’ to rejig their portfolios and this is being reflected in quite significant gains in certain private equity funds for example.
Real Estate Investment Trusts are still weak generally as they await stabilisation of the commercial property market and also interest rate and loan rearrangement news. Of course, this also creates bargain opportunities and frankly, why would any investor want to buy a commercial property outright when he can buy a portfolio of them and have them managed cheaply by someone else and only pay say 60% (or much less in some instances) of the market value?
Good & bad news
Henderson Diversified Income has paid-out its cash to us – 71p plus a 0.55p dividend. That is better than the closing price. We can recycle that cash now, looking for some similar opportunities for discount plays too perhaps – and there will be a ha’penny or so rump payment when the old company finally closes-down.
Regardless, that is a 7% bonus for investors and no brokerage costs either and remember, at 67p the share price had already reacted to the wind-up announcement.
Conversely, Gore Street Energy Fund which we hold was afflicted as a result of Gresham Energy Storage Fund’s announcements of problems with connectivity to the National Grid and cutting its dividend. Is that asset worthy of purchase at such a deep discount now and depending on ‘how’ those assets can be valued (the Company is buying-in its own shares with surplus cash now too)? Gore Street has reiterated its positive dividend policy (targeted at a yield of c11%pa based on the latest net asset value). However, after jumping to 92.9p in December, the shares have slipped to 72p. Readers are reminded that NDIC was issued new shares in Gore Street at the net asset value of £1.13 in only December.
Popular investments
It might be interesting to dwell upon a few very popular investments which, well, aren’t as popular now. However, I say that in terms of trying to remind investors that what is popular now may not be so profitable going forwards – or as they imagine.
This isn’t necessarily an ‘opinion’ on the asset or commodity at all but simply suggesting that with investor euphoria, prices can be carried-away, even if the underlying themes are spot-on (these figures ignore income (if any!) and costs. Memories can be short… or convenient too!
I’ll start with one of the ‘Magnificent Seven’ US Tech darlings – Tesla. I’m only talking of its recent past here but it peaked at $299.29 on 19/7/23 but on results not quite as exciting as hoped (the first ever drop in annual profits and revenue down 35% in 2023), the shares have dropped by 37% since 27/12/23. That’s a lot in a short time.
What about China – do you remember when everyone and his dog was pushing the fantastic opportunities there? The Shanghai Composite peaked on 12/1/15 and rebounded some of the way to a recent peak on 10/9/21. The index is down 45% from the high and 24% from the 9/21 high. Bloomberg reminds us that is a cool write-down of some $6trillion.
Ørsted, the giant Danish Wind developer was worth $82billion in 2021, at the height of the ‘ESG revolution’ when lots of people wanted green things in their portfolios. Since then it has shrunk to below a third of that, after having dropped by 79% at its worst.
And lithium – we all know we need loads of this for battery technology and it is found in difficult places. Well yes, from early 2023, it has fallen in price by over 80%, the lowest levels since 2020 and before the hype began to be created and now trading at levels where producers are struggling to justify the costs of production (so it suggests supplies could be hit ultimately).
Yes of course there may be reasons given for the descents but the point about popularity is unchanged and you would do well to heed this! I shall repeat again, it is generally unwise to place too much reliance on ‘past performance’ – what is important is what the future holds.
Do you sell these things at their troughs or do you hold or buy more? That is what makes a good investor and remember that if it is translated into a ‘fund’ or portfolio’ (which must be forward-looking and not backward, driving using the rear-view mirror) as crashes happen when you’re not looking ahead. And developments aside, but are Microsoft and Apple really ‘worth’ $3trillion each…?
And there it was – Meta (Facebook) announces great profits, its first dividend and a $50billion buy-back and the shares rocket, having risen five fold since the October 2022 low. (Is that volatility what an investor might want to see as it can as easily go the other way!) Amazon and Apple also announced good results and the shares have risen, but how much further can that continue and are prices in line with these growth rates regardless? Conversely, what will be the unexpected – a global giantco tax to help rebalance the budget deficits and pay for social projects and greening across the Globe? The opportunity must be very tempting… would the odd trillion here or there be missed or affect their prospects?
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
