So after a useful catch-up, the UK market has pushed past France to regain top spot in European markets in capitalisation terms. That is also partly following the poorly-received election announcement by M. Macron. However, it should never have lost its status…
Inflation comes back-in to descend to the Prime Minister’s target of 2% (well done – a real achievement from 11% last year!) so interest rates should fall soon, according to the Bank of England. It is interesting and what people don’t realise so much is how pernicious inflation is – a tax on every pound in your pocket. If you had £100 of Premium Bonds on 1/1/20 for example, that would have to be £183 to be the same ‘worth’ (or in reverse that £100 can only buy £55’s worth of goods now, losing £45 of value).
Meanwhile, across The Pond, temporarily Nvidia took top spot with a market capitalisation bigger than Microsoft to become the biggest quoted company in the world (and a ‘value’ bigger than the economy of every country in the world except the largest seven)… and ‘worth’ more than the whole of the French and British stock markets combined, with the ‘Magnificent seven’ now ‘worth’ nigh $16trillion and representing 30% of the whole of the US market. I wonder what would happen if, say, ‘tomorrow’ a Taiwanese company announces chip technology superior to Nvidia…? It is the sort of thing that could so easily happen and then, as with Roadrunner and Wile E. Coyote running off a cliff… it is a very long way down. WARNING: Cliff ahead…
What if Mr Musk’s AI venture is successful? Tesla is worth a mere fifth of Nvidia presently…
Stop press – some reality takes hold and Nvidia toppled already and down a mighty 8% in one day (a mere $1/4trillion or so – who’s counting?) before bouncing again.
Over the last four years, foreign ownership of the US market has risen from 45% to 60%. This proportion is higher than just before the Dot.com bubble. Typifying the phenomenon, the S&P 500 has beaten any globally diversified fund allocation in 13 of the last 15 years (and even those other two years, beaten by negligible sums). You may say that means ‘just invest in the US’ or perhaps (wisely in our view) that the likelihood of that continuing is exceedingly, er, unlikely, maybe impossible? Last week saw a record $9billion fund inflow to US Tech funds, beating the previous highest week in the first quarter of 2023.
Our own fortunate conclusion is that if there is fantastic value elsewhere with feet still firmly on the ground and not constraining our improvement prospects and income yields, we know where we shall be staying. That also excludes any form of ‘cheap’ global index-tracking whereby that entails the majority of your money in the same US tech stocks… I have said before, global passives could prove to be the most expensive ‘cheap’ investing opportunity many people ever suffer…
Last week we had a message from an investor who wants to sell his other assets and put the cash into things which are ‘performing’. He listed the biggest US tech stocks. I mean, this game is easy and obvious, isn’t it? Just buy what has already rocketed? It really is reminiscent of 1999 and the Dot.com bubble and if I was old enough, the Dutch Tulip Bulb entertainment… what else may be ringing bells at the US top (a theme I agree I have been noting for some time now)? Well, short interest in the S&P500 and Nasdaq ETFs is now at a six-year low and as a percentage of shares outstanding, half only 2023 levels. Long interest the highest… The volatility index (VIX) is down 40% since then too. Enthusiasm for future further increases seems never to have been higher, with very little caution.
You might not have noticed either but after all the hype leading-up to Bitcoin having tradeable funds for investors to use and theoretically to legitimise the concept, the price dropped by over 18% from the peak – what is the next hype point for this non-asset which is not backed by anything but user confidence?
Politics
So who is going to be best for your pocket? Endeavouring to be apolitical and not upsetting anyone but the economy is improving and some are suggesting Rishi went to the polls too early whereas come say November, the dramatic economic improvements and interest rate cuts working-through would be reflected better in voters’ sentiments. It is a shame if votes for ‘him’ don’t respect ‘that’ significant improvement and the return of inflation to a mere 2% (the BOE target), so mortgage rates will fall but election timing may be foolish instead.
Labour does seem coy on how and where it is going to attract tax revenues – even with unrefuted talk of Capital Gains Tax on your home, as well as new Council Tax bands which of course will raise more Council Tax and still in theory respect the ‘no increases’ pledge. They are likely to tinker with Inheritance Tax – possibly savage the allowances so that far more estates pay it (and quite significantly more, as it is at 40% – just imagine if that dropped say £200,000 – that’s an extra £80,000 of tax to find). They are likely to bring CGT in line with Income Tax too so those making capital gains on shares, property, land or business assets could end-up not paying as little as nothing but paying up to 45% tax.
All of this and the significant tax increases on non-doms from the main parties are also likely to lead to a mass exodus of very wealthy people too, so we collect less tax from that ‘class’ than we do now… of course, the cynic will say that will bring-down average income inequality as the numbers at the top will drop but no-one will have benefited from that purging of wealth (the exact opposite) – political stupidity from deep-seated envy I suppose. And no, we don’t have any wealthy non-doms on our books…
The UK has already lost 8% of its millionaires in the last decade whilst France and Germany have seen 14% and 15% increases respectively, so don’t believe the politicians when they say it won’t happen in spades! It’s not only their Income Tax either – it’s tax on their spending, employing and so on and then their investing in UK projects, construction and so on, as well as the related employment.
Then the windfall tax – rather than collecting lots more money it could end-up costing us billions as well as the loss of investment and jobs…
Britain’s wilful destruction of its oil and gas industry is beyond belief
It’s not all about going green either, it’s about tax and still importing fossil fuels from elsewhere across the Globe and not doing anything to protect our fuel security much.
The markets have been curiously resilient and Sterling as well – what happens if that sentiment changes if it seems the new regime wants to borrow colossally and spend and tax far more in the end? That could push-up interest rates and see Sterling plummet too, affecting inflation as well and again, just as we are pulling-away economically from the savage hits from the pandemic and then the energy and cost-of-living crisis.
Good news/bad news
Clients will be cheered to learn that another of our announced Investment Trusts is making a sizeable capital repayment at the net asset value. We’ve been waiting a while but early next month, 35.4% of the net asset value of Abrdn Diversified Income and Growth will be redeemed. Then Blackstone Loan Financing follows with its first distribution (5.6%). The shares are still trading at a discount of over 34% to the quoted asset value. We’d have liked the Trusts to have continued – good income, diversified and a fair asset to hold but there we are. We shall have to redeploy the cash for similar pregnant Trusts yet to agree to wind-up.
So Hargreaves Lansdown has jumped again as the consortium has returned with a higher offer – it’s still not enough but with a Woodford squall overhanging the Company’s fortunes, perhaps it will go through but another great and successful British Company removed from the Market? We have some exposure but as ever… not enough, said greedily! But we did chase it all the way down below £7 last October so can’t complain. However, it was one of the most shorted stocks at the time so the negative speculators will have had a bit of a bath! This interest has renewed enthusiasm for comparable companies too – of which we have several.
Then on 24 June New Star Investment Trust opened up 14% on corporate action and cutting the discount to the net asset value markedly in one fell swoop and nothing to do with ‘what it owns’. We don’t mind; it has now become our biggest holding and frankly is a pretty boring portfolio. If you are not in ‘them’ before such moves happen, it is too late scrabbling around afterwards for the best opportunities and no, of course they don’t all pay but if the underlying assets are still sound and on the market in a collective fund at a discount, it doesn’t ‘matter’.
Funding Circle surprises the market (and us!) by selling its US business for £33million to concentrate on its UK business. The shares rise 14% on the news before slipping back. Now just shy of £1, they were 26p in March (when I flagged them in the eshot as a speculative ten-bagger possibility in fact, after our results from Rolls Royce and McBride, though the others on the list haven’t really moved yet!). As our second largest direct equity trading company now, we mustn’t complain.
Bad news? SIG the industrial/buildings’ products’ company reported more challenging times despite returning a profit and the shares sank promptly by 7%. It would not be a surprise to see this one taken-out.
Where to, advice?
The Regulator’s well-intended ‘Consumer Duty’ has driven-down excessive costs but at the same time escalating regulatory costs for firms significantly. Indeed, on top of this, a recent poll amongst advisers, often the financial therapists for their clients and not ‘salesmen’, has shown that for many they have ‘had enough’. The apparent barrage of regulation after regulation to better protect consumers with ‘good outcomes’ is also creating a number of unintended consequences, such as 35% of those quizzed noted it was all affecting their mental health and to such an extent that as many as half of those quizzed said they are considering leaving the industry. There is already a significant shortage. Another survey said that for 63% of respondents, the demands of ‘Consumer Duty’ are affecting their ability to do their job.
An article on the subject remarked that if an adviser cannot care for their own mental health, they are of little use to the hundreds or thousands who rely upon them to look after their finances. Indeed, the FCA notes that its regulation in the future is likely to be ‘more targeted, intrusive and assertive’, all words not really encouraging the advisory community to want to remain doing what, in the vast majority of cases, is a great job.
Another consequence is that the ‘smaller investors’ are likely to be drummed out of advisory contact as to service them is unaffordable. Most advisers have happily tried their best to give guidance to ‘everybody’ but stringent rules and the related costs will stop that being able to happen. For example, the recent ‘Retirement Income Review’ regulatory regime and its colossal burden upon advisers, could mean that anyone completing the full programme of demands would have to charge perhaps £2,500 plus VAT just to satisfy the time cost. I mean, is someone with a £50,000 pension going to pay that and can an adviser justify trying to charge the investor that anyway? No. So, where do they go for advice when they really need it, on what are the best options for them based upon their unique personal circumstances and needs according to their overall situation? If you have an independent adviser who will help you and does a good job, value and cling-on to them!
This is one adviser’s take – ‘it costs thousands of pounds a year to service just one client’ – ‘It’s not possible for advisers to serve those in the advice gap’
The Regulations have a number of obligations and one is to increase the accessibility of financial advice for the masses but such outcomes for advisers would make it seem this is going into reverse. The rules also have an objective of supporting and encouraging the financial services’ sector as it is so important to the UK and its economy. However, excessive and disproportionate interpretation does the opposite, as well as resulting in dumbed-down offerings which people have to buy, in transactional and unadvised relationships with big providers only. It that really best?
Maybe a change of political administration might alter the emphasis and indeed start to rebase any negative rhetoric which perhaps could start by recognising how great the average adviser and provider of financial products is first, not starting from the notion that they must be creating bad outcomes and charging too much.
Solar array and batteries
Yip, helping save the planet comes with costs. Not only do solar panels cost to install and batteries with them but up go the insurance premia. Our annual premium has risen by £300 + IPT. It’s inevitable I suppose both for the replacement cost but the higher fire risk but that figure never shows in any of the ‘economic justifications’ for their installation in the first place. Will insurers fail to pay-out on any claim on your property if you haven’t disclosed you have panels on the roof (uberrimae fidei)?
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
