I am pleased to report that the rumbles in markets proved short-lived. However, having ‘biggest losses since 1987’ for Japan and then clawing the way back again (well, still 13% off its peak) is not helpful and a potential portent for the over-priced sections of the Globe.
Volatility is your friend when it is upwards but your enemy for sane and sensible investing for those who panic and don’t listen and for those who are pressurised to sell at the wrong times. Remember too, holding cheap, under-valued assets with good income yields from real underlying activities protects you better during such market routs whereas buying speculative dross does not, as it still doesn’t produce much income, if any, on the way down and may still not have much tangible worth underneath the bonnet either. No, I dare not define what each type ‘is’ but we concentrate upon the former.
Well, the UK Economy grew again in the last quarter, somewhat confounding the critics and indeed those who suggested the last administration left a stagnant or declining position. This will help the Chancellor in that in theory it results in more tax collection but the new government seems to be spending money on significant public sector pay awards more quickly than it is coming-along so far, which is rather disturbing – and which is inflationary too. Inflation has nudged up to 2.2% and retail sales are up again last month. In the US, the rate actually slipped below 3% for the first time since 2021 and they are worried about recession though again, good retail sales have allayed the fears a tad.
It is also likely that the Basic State Pension here will be increased to over £12,000 next April and National Minimum Wage to over £12per hour too, to around £25,000 for a 40-hour week (£500 a week) and becoming ever more unaffordable for small organisations and employers to justify economically, regardless of what their employees may ‘need’. These rises also increase Public Sector costs and thus taxes must continue rising to meet them – the State employs by far and away the most people directly or indirectly of course. The State Pension increase will also add a new ‘tax’ to many pensioners – the duty of paying a professional to help them complete a full Tax Return form, as more will fall into tax-paying status if they have any other income sources at all.
Investment opportunity
It seems so much can be caught-up in the noise that sometimes, a great opportunity to invest is not noticed by the public – let alone the market. This is what we call a ‘technical trading opportunity’ and has ‘nothing’ to do with whether the stock market generally goes up or down (of course economic and sentiment events affect outcomes generally).
Whilst as ever the usual risk warnings have to apply (just as they do if you deposit too much at the Bank or Building Society where interest can fall and inflation eat it away but are the big names really going to go bust…?) As ever, to avoid compromising the regulations, so this is not a recommendation but it is one of our investment components.
What is it? A national, commercial property company/fund owning over 140 units worth £650million, primarily offices and some development properties.
If I invest, what income might I expect? Today, if you invest £1,000, the income, the dividends (which is simply a part of all the rents less expenses) should be 10.5%pa (it has to distribute 90% of its income under REIT rules).
Debt? Yes, the Company has relatively cheap debt where the interest is well below the rents received. It owes just over £250million.
How much is a share? If the Company was starting today, all its assets may be priced at say £1 a share, representing the valuation of everything it owns. However, you can buy a share of those assets for 60p.
What else?
As it develops its empty properties, it anticipates gains from planning and improvements.
As it refurbishes, it hopes to secure more and higher rents, as it has been doing already.
Rents and thus income should rise in line with buoyant demand and inflationary increases.
Present occupancy is only 71% so scope for more, as the properties are brought online.
Property values have been written-down to reflect a more pessimistic backdrop, so higher selling figures are very likely.
If the Company winds-up, we could receive our £1 back, so an uplift of 67% on our investment today (40p over 60p) whilst receiving 10.5%pa income whilst we wait.
What is the catch? There isn’t one but yes, it may struggle to sell units, borrowing may cost more to refinance or prove hard to repay unless sales occur or are forced. Costs may escalate. They may lose tenants. However, there is plenty of comfort in the price we pay.
Is this high risk or low risk? You decide but the lower the share price (so the more that initial investors may have lost when they started at £1), the lower the risk you face! We didn’t buy at the beginning – far from it. Can you match that income? Remember, even if the discount to the underlying assets fell to a more meaningful level of say 20%, that would still have given you a capital uplift of 33.33% on today’s buying price, on top of the income and that is nothing to do with what the rest of the ‘stock market’ is doing.
Wills/Attorneyships
I wrote recently about problems which can and do manifest themselves with the trust people place in others and how to try to avoid falling foul of miscreants (or simply negligent people) which sadly can include once trusted family members, friends or advisers.
Badly written or poorly-considered Wills are one thing and family challenges after the death but then there is outright dishonesty and indeed fraud.
A 71-year-old has just been jailed for embezzling £600,000 to live the high life after he was entrusted as the Attorney for his 93-year-old aunt. Mr David Eggleton, a retired engineer from Calne, was jailed for five-and-a-half-years, after the fraud was discovered as Aunt’s care home fees stopped being paid as the money had gone. He even produced a forged loan agreement between him and his aunt. She trusted him to look after her affairs when she entered care. She has since died and no doubt speeded by the extra stress and worry caused to her, as a recording played to the Court showed.
We have found on too many occasions that our engagement, or as the manager or custodian of a client’s major assets, is more than enough to deter those with ulterior intent but clearly that is not always enough when someone with bad intention begins to attack a vulnerable individual. If you are not with us, what protections do you have in place?
Man jailed for stealing £600k from aunt before she died
Scams
We are continuing to help investors who were scammed through the Organic Investment Management fraud. We have helped people secure tens of millions in compensation, much of this at our cost, simply by our guiding people in terms of what to do but some has been far harder to claim and requiring our specialist assistance.
However, according to a survey by LV, as many as 7.3 million adults have been approached in the last year alone by prospective scammers. The really good news is that the Regulator has tightened-things-up dramatically since the heady days of a free-for-all a few years ago (also making it too difficult for genuine pension transfers, etc to happen now, too and too expensive for many to advise smaller investors) so what are these fraudsters trying to do? Some of these were being enticed simply to take money out of a legitimate pension to send it to the scammer.
Did you know that as many as 4million adults lost money to a purchase scam that year?
What is the lesson we note to our investors? Keep and respect your relationship with your trusted independent wealth manager. They are a barrier between you and the scammer and how much is that worth? You need to give them some trust too – that’s not blind, stupid, faith because it is up to you to still ask questions, etc but faith that they are giving you the best guidance in their view for your personal circumstances at the time – and bloomin’-well listen to what they say!
If you don’t have that basic trust, then maybe it’s time to find an adviser you feel you can trust, as clearly the one you have isn’t for you. The flip side is that if you are an investor who is totally cynical and sceptical of all your adviser of integrity tells you and then you ignore their best advice, maybe it’s time for that adviser to ask you to go elsewhere too, so they can devote their time and resources to those who do appreciate their guidance.
Good news/bad news
JPM Japan Smaller Company has decided to morph into JPM Japan. The Company is offering a cash redemption at the underlying net asset value less 2% so we shall be obliged to accept that. It’s ridiculous we have a Hobson’s choice over the matter as it is then cheaper to use the cash to buy shares back on the market should we wish to do so… so why don’t the boards and advisers realise this and concoct an offer that would be so attractive that we cannot refuse it?
Meantime, our clients benefit in that the shares have been trading at a c15% discount so that means for each one we redeem, we receive a 15% bonus (13 over 85!), for doing nothing. Regular readers will know this is yet another of our successes with closed-ended funds trading at discounts to their underlying asset values, bonuses wholly unrelated to what’s happening to the underlying markets and all adding to returns, thanks very much.
So our £1.8million of Hargreaves Lansdown shares will now go to the bidder as the deal is approved. We shouldn’t complain; it’s £11.40 which is significantly higher than the £7 odd when it was one of the most shorted stocks. We may well sell-out meantime to reinvest more quickly. The price is a 54% premium to the shares the day before the bid.
Three giant UK companies have been languishing of late. Check the share prices of Reckitt Benckiser (40% off its April 2017 levels and a 10 year low) BP (despite its profits, dividends and share buy-backs as well as re-entering the Gulf of Mexico and shares struggling along at levels first seen in 1999) and Diageo (37% below Dec 2021 levels but are younger people really drinking less globally?). Clients only have one of these but they are and have great brands and will come through and thus probably are the sorts of stocks to tuck-away in the bottom drawer and to be paid whilst you wait. Of course this also reminds us of new clients we have inherited over the years who sometimes come with existing portfolios and disproportionately large holdings of these same sorts of stocks which they never trimmed as they were ‘good’ or family heirlooms. Maybe ‘tomorrow’ they will be coming to us with all the same sort of US tech stocks instead…
Abrdn Property Income Trust, which we like, is on a liquidation programme to sell all its assets and return cash to shareholders. It has now announced it is open to a universal offer for the ‘lot’ if not selling piecemeal. It’s a great and varied portfolio and for some astute investor or institution, buying them as is and at a market discount makes very sound sense. Whilst we might not receive 100% of the value, even 90p in the Pound would be a significant uplift over the present share price and we can recycle the proceeds into similar opportunities. Maybe one of the bigger companies will think about it – it remains sad the Trust will be closing as it does a good job and meantime we are paid a handsome income in the way of net rents for waiting and we’ll keep acquiring shares at such a deep discount to their ultimate expected value.
A further tranche of Tufton Oceanic has been redeemed for investors at an 18% premium to the current share price – all good! Again, a shame it is in run-down really as it did what it said on the tin and more, as a great asset diversifier but it’s hard to complain when we receive the bonuses like this – on top of good returns and income for doing its underlying ‘thing’. Remember, these sorts of bonuses are NEVER possible with typical open-ended funds owned by most investors out there. What do you have, if you are not with us? And remember, none of the assets we hold presently counts for over 2% of our total client assets – we spread risk very far indeed, especially with such great choice available!
A challenge
So what did I change only in May last year and need to replace again? The clue is that N, H and I are the worst then E, S, L, O and C.
The answer next time!
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
