So the dearly departed are coming to the rescue of the Chancellor, as Inheritance Tax receipts for the period from April 2024 to February 2025 topped £7.6billion and that is before the swingeing increases in the Autumn Statement where these death duties will affect pensions and businesses too.
The figure is projected to grow another 12% this year too. What is telling is that one would have imagined that as Covid brought a spike in deaths there would be a lull afterwards but that has not been seen. Tax on lifetime gifts cannot be ruled-out later either.
Gifting is fine but modern society does come with the risks that recipients, children and grand-children mainly, can end relationships and half of the gift leaves the family altogether. Only this month we have heard of two sets of friends/acquaintances who have seen one of their children’s partners betray the relationship and then, that’s often the end and a split arises. There’s little that can be done to protect against that 100%, however much the donor wants to be optimistic and positive to the in-laws.
The media is talking about ‘Awful April’ for all the tax and cost hits though more are instead believing it represents ‘Awful Government’. Sadly, too many of these taxation decisions and the impact on economic growth seem to resonate with that sentiment and we shall all pay the price, not just the ‘disabled’ impacted by the latest cuts.
Last minute
This year we seem to be having more last minute ISA and Pension enquiries and contributions than usual. If you’ve not done yours, time is now very tight – don’t leave it till the last minute.
On top of that, your IHT gifting opportunity ceases too, as well as using CGT allowances.
Good news/bad news
Whilst the markets have been wobbly, led by the US, there have been a few bright spots but not enough to counter general sentiment.
There has been interesting news from Schroders Capital Global Innovation Trust, hot on the heels of the proposed wind-up vote this spring. The shares have been on a deep discount for a long time and the only movement has been downwards. This Trust, you may recall, was the old Woodford Patient Capital Trust (‘what skills did Mr Woodford have in biotech’ we did say at the time; sadly we were too right).
However, it has lost us money since we first started buying after the fall-out and at already depressed prices. However, we have held-in there and chased them down to the bottom. The shares bounced strongly as the sale of Arais Biotech was announced at $400m upfront with up to $740m later in milestone payments. This is the sort of potential with such assets – I don’t really think it should wind-up and make an absolute gift of these sorts of chances to buyers of distressed assets who pay a pittance to buy early.
Just because one institutional investor believes a stock is under-priced and it buys-in to add to its existing stake, it can have a significant impact on a smaller company. Xaar, a relatively recent addition for us, was as low as 59p on 21 March and has since seen £1.16 – absolutely daft movement. However, there are too many such stocks and you have to be in them before the news, not scrabbling-in afterwards. Patience is necessary!
BT has been remarkably resilient these last few months of volatility. This is one of our larger direct stocks – is the major shareholder planning an attack I wonder? The shares have been far too cheap for far too long but… they are up over 60% since last April and a juicy dividend on top. Maybe they’ll take sorely undervalued Vodafone at the same time – must be worth colossally more than present share prices.
Meantime one we don’t own, Wetherspoon, sees its shares slump as it notes the colossal increase in costs from the Chancellor’s Budget and which will all need to be passed-on to consumers – and being inflationary. Several major employers are stopping hiring altogether and hospitality and retail especially are looking very closely at the costs of employing ‘anyone’, going forwards. More than ever before, all employers (apart from the public sector in the short term which simply raises taxes) has a wary eye now on the costs of employing someone and their productivity and contribution to the organisation.
Battery/energy storage funds
Investors may have missed the best chance of a serious under-valuation here. Foresight bid for HEIT (Harmony Energy Income Trust) and now Drax has pipped that at 88p a share, very clever! Sadly we didn’t have any… but are as full as we allow in Gore Street Energy (should have bought Gresham too I guess!) which has bounced usefully from lows in sympathy and as it becomes clear there are predators stalking such targets. Meantime, we like the income and the deep discount, however the assets or the income streams are valued. We kept buying, the cheaper they became.
Green investing
Sadly for participants, the public and institutions alike, certain ‘green’ investing has proven to have actually meant naïve. Now the original investors are feeling green behind the gills and green with envy at what others have achieved instead. This is what angers me – an honourable concept but people and organisations become so carried away and pay too much, fail to do enough research and allow their emotions to cast caution to the wind. Not wishing to appear unkind but was that you and if so, what do you do now and are you being duped by something else in today’s markets like AI? Charlatans also love to exploit investors’ naivety, good intentions and over-enthusiasm.
The S&P Global Clean Energy Transition Index peaked on 8 January 2021 and since then, has fallen by 66% in Dollar terms (all these figures ignore costs and income). 2021 was peak excitement for investment in green energy solutions and investors were carried-away. At the same time, fossil fuels were being lambasted of course and institutions were dumping them to ‘look good’ to their stakeholders, despite using their products to heat their homes, run their businesses and vehicles and to make all those lovely products they use – even if the shift of usage has gone to provide cheap products made from energy created by coal and oil-guzzling China and India, at the same time as we piously close our last steel plants to buy their metal instead.
The S&P BMI Energy index over the same time has returned 63% overall. I remember very well that global giant Shell’s shares went to £9.33 in March 2020 (the Chinese were big buyers of such assets). Yes, on these remember that income is on top and costs too. Income on fossil fuel stocks has been extraordinary and indeed remains very high, with some UK producers in double digit territory. The income for investors, the dividends, then were vast and Shell was buying-in its own shares like no tomorrow. Shell has since been a whisker from £30.
Investors in green energy stocks are smarting and many will have fled on bad results and bad ‘performance’ but is that the right thing to do now? We never put a penny in new fund launches then or subsequently. If you are a client, you’ll now know our stance on the stocks in the sector and whether we think it is time to buy and if so, what to buy and how. Isn’t this what an investment manager should be doing – not simply following everyone else?
Thumbnail sketch
I have done this one before but it is still a traditional investment opportunity. This is not about a ‘special widget manufacturer which is going to make it good’ or some future hope, simply asset mis-pricing in our view. It’s why we have some for clients. In simple terms, it’s a bag of £1 coins being sold for less than the coins’ total value.
So it is a commercial property REIT – Real Estate Investment Trust. Primarily it owns offices across the Country. It has strong occupancy and almost 100% rents being paid. It also owns some development projects with potential to add tens of millions to the bottom line. REITs must distribute most of their net income as dividends. This one distributes c8%pa a share in quarterly payments based on today’s share price.
What else is attractive? Based on the conservative valuation of all its assets, less its borrowing (which should enhance returns to shareholders as its interest rates are low), you can buy a share for 49p knowing you then own £1’s worth of underlying assets. Yes, this is an adjusted price but at some point, the discount will go, regardless of prospects for its properties, the improving underlying valuation trend after a dour time and increasing rents.
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
