Good afternoon. Along with Mr Felix Milton, I have just returned from an encouraging and helpful conference with ACFA – I have not been for a few years so it was a good and worthwhile event to recharge batteries.
We were reminded of the value of the advice and service which a good financial adviser can and does bring to their clients and invariably going well beyond the ‘expected’ realms of delivery according to the regulatory and contractual relationship!
Worries in the Middle East have seen the oil price rise as Iran controls a considerable amount of the world’s supply through the Strait of Hormuz. The world still very much needs oil. Without the rest of the world’s supply, the Gulf’s control of the oil price would have seen the price spike at perhaps double these newly elevated levels so we should be grateful, I suppose. That, however, is not negating the awful and unsettling events over there. Indeed, it is ‘amazing’ that equity markets have not reacted more to the uncertainly but there we are. We must also not forget that at the pumps, the prices have been their lowest for some years too so the gain these last few days is relative; Saudi has also promised to pump more oil to meet demand and that will keep prices in check.
Meantime, The Bank of England Governor seems to have made yet more rather clumsy comments about inflation and interest rates, enough to unsettle Sterling which saw its largest one day drop since 2022. It’s ‘sort of obvious’ that if inflation drops heavily then interest rates can be cut quicker, especially as they’ve been falling in the US and Europe… meantime, natural gas prices have been rising and we hear Europe’s demand is too and supplies limited, so shall we suffer another energy price spike this winter as certainly we don’t have enough alternatives and still not enough storage either, to help smooth prices. We also don’t have other fossil fuel alternatives to cover, as we used to have.
The CBI’s latest survey on ‘business confidence’ is the lowest since December 2022. That might not sound much but remember then was the depths of upset following the ill-fated ‘budget’ under Liz Truss’ premiership. Certainly there are big fears about the impending Budget and consequences to follow. The figures dropped to -38 from a mere -12 the month before. This is not going to drive the economic growth the Chancellor has lauded and ‘that’ is required to generate more tax revenues effectively, without just increasing taxes.
Good news/bad news
Abrdn Property Income has succumbed to a bid for its assets at an 8% discount, so great news for investors and sad for the Trust. So that’s a 45% capital gain from the low in August 2023 and a good income to boot too. We’ll recycle the funds into similar opportunities. We had previously prioritised purchases the cheaper the stock became but maybe still didn’t have enough… greed applying again though! We have just sold our Balanced Commercial Property Trust holding after its bid too.
We have also now received our RM Infrastructure first capital repayment; the shares are 71p on the market but for 17.24% of our shares, we have received a capital sum of 89.59p, so an uplift of 26%.
On the bad news front, certain assets like Petrofac continue to limp from one poor story to another, just as ‘hope’ was appearing on the horizon – either a brilliant opportunity at these levels or one which is going to die. We don’t believe the latter but clearly it is speculative. Higher oil prices should feed through to better values later, if it can hold-on and rearrange financing successfully.
Tips
So the very positive news is that we shan’t be expecting clients to pay tips for our good service. It’s what we do all the time, we hope and if service is poor, please tell us. Indeed, what we pay our staff is reflected in the prices we charge for the services we deliver to you. We don’t add a ‘service charge’ on the bottom of the bill nor do staff expect tips for good service. It’s a requirement of the job!
However, the hospitality, taxiing, delivery, hairdressing industries and others affected must change their practices from last Tuesday, thanks to the last government and not a moment too soon. Now, if a ‘service charge’ is noted on a bill, that must all go to the staff (and shared equally).
Personally, I’d prefer simply to see the ‘cost’ added to the prices of the fare we are enjoying and this sense of ‘obligation’ upon customers removed altogether and where we move to the Japanese example – where a tip is seen as an insult. However, maybe if someone has gone overboard on service, well beyond a good quality provision anyway (which is what we are all paying to enjoy, surely) then maybe a staff tip (still having to be processed by the employer correctly, I should add, it can’t simply go in a staff member’s pocket as there are Tax and National Insurance consequences), fair enough but a ‘tip’ as standard is just an anathema to be frank! Remember too, even on National Living Wage a full-time employee costs the employer up to £30,000pa now when all add-ons, etc are included, so the days of underpaid staff ‘in hospitality’ etc are long gone, in that sense.
St James’s Place – again
I’m not attacking this Group again but the headlines do – ‘more than a quarter of SJP’s funds do not deliver value’, covering £46billion of clients’ cash. Remember it has done this review itself, too. On top of that, apparently 80% of its funds were ‘red-flagged’ for performance. This is quite damning of course but what is ‘value’? Clearly if there are high costs in there then that is a serious criterion and the Company does have a reputation for being rather expensive and clearly high cost doesn’t necessary deliver better value.
However, the criteria upon which the outcomes are judged are also mostly subjective, based clearly upon what all financial providers must complete – ‘Fair Value Assessments’ of what they provide to their customers and then what they actually deliver. Providers may do cosmetic things to appear to be tackling the ‘bad value’ like changing a manager or closing a fund but is that necessarily the best outcome for participating investors, as then, never recoverable costs are incurred. That may ‘look’ a good reaction to the ‘bad’ review and tick regulatory boxes with excited action but what if the best action is to stick-it-out?
Of course, ‘performance’ is a core criterion too but that is also very subjective. Closing all the under-performing funds compared say to the average will just change the average and if that entails them simply dumping all the cheap stocks (which have caused the under-performance) when they may be the best value going (because they have fallen so far). That hardly sounds sensible to me. I could use the analogy of a bag of 100 Pound coins which falls to £50 (yes it can and does happen often!) so then on ‘performance’ people sell it, as it has been ‘bad’ and clearly high risk losing half its value. Reality says you should be buying it at these levels and the risks are far lower now that it has already lost half!
Anyway, you know us – best value in our view is in the Investment Trust space presently and SJP doesn’t offer that to its clients. Indeed, it is a restricted adviser as well and not independent so there will be brilliant investment funds out there but if they aren’t on their list, you’re not going to be sold them by SJP, whereas according to their own definitions, the bad ones will continue to be promoted.
Unsustainable
So following the FCA’s review and demands upon managers to escalate their research into component assets for so-called sustainable portfolios to verify their appropriateness, etc (the ‘sustainability disclosure requirements’), more groups are removing the word ‘sustainable’ from their product ranges instead, the latest being Abrdn’s Myfolio range.
What does this mean? The demands were to limit so-called ‘green-washing’. We are fearful that what ‘seems like a good idea’ is back-firing and anyway, what is ‘sustainable’? Politically the jury is out on that altogether and the fears of the costs of meeting agreed targets and anyway, will the implementation of certain strategies achieve what the optimistic require (and of course, doing ‘nothing’ on the environment especially is not an answer either).
Perhaps my comments are prescient, at the time of the closure of the Country’s last coal mine too, with our 200-year supply remaining under our feet and the last blast furnace to make steel – replaced instead with steel imported from other blast furnaces in the rest of the world including a new fossil-fuel-fired one being built in India. Tata Steel UK’s electric replacement is still some years away but will it be competitive in price too?
Many investors in the sector will have found their results from such ESG investments have been poor so perhaps ‘unsustainable’ too, as the hype exceeded hope and prices paid for concepts were too high. Enthusiastic investors have paid the price (of course that doesn’t mean that will continue). Look at quoted investments in such suitable areas as battery storage, hydrogen and so on and how they haven’t performed as the market has moved-on. We remain very wary and continue to avoid the over-hyped which are over-priced and which to date have created great (unethical?) profits for the sellers of these concepts to an eagerly awaiting investment base, one keen to tick the right boxes to satisfy pressures upon them too.
However, yes, we have been buying several ‘sustainable’ funds but only now they are being eschewed by others and cheap – but that is why the value is now there. I have said before however, ‘sustainable’ also means the business’s ability to continue altogether because if a venture closes, perhaps swamped by the regulatory regime covering its sector (including energy), the consequences of closure are far greater than any nice-sounding SDR demands.
Already we are hearing that as banks have withdrawn financing to North Sea projects and firms are stopping their investment there, this may all come to a sudden end and years before we have alternatives in place – the unintended consequences of what many believe is abject naivety as others in the world which are far less concerned about the environment. Shady politics will simply step into the space and provide their oil and gas to us instead. Meantime we become even more vulnerable about our future energy supplies (and fair prices) to warm us and drive our industry. It’s not an easy act to manage but it seems badly unbalanced presently.
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
