Where are all the safe havens? As the markets slip, even gold and silver fall (though as I have kept saying, they have been too dear anyway and ‘alternative safety’ assets need always to be cheap to start). Not that we’re chartists but the charts for those two have boded very badly indeed.
We have shrunk bullion exposure significantly but still hold some mining funds, etc as a proxy to the exponential profit growth they should enjoy from those inflated prices, however temporary. And don’t laugh but we have bought our first pure Gilt exposure for a very, very long time. Probably we are a tad too soon – is the timing right I wonder – it is medium to longer-dated stocks as short-term ones are pointless really – as cash is almost as good frankly and cheaper. So far things have worsened since we first ventured there. Oil related assets are one of the only classes to rise – a useful hedge against the deterioration in the Middle East. Certain soft commodities like wheat and sugar have also been stronger.
However, there are plenty of good, solid companies out there and including many with surplus cash which continue to buy-in and cancel their own shares – a great action when the price is too low as it inflates the returns for the patient investors remaining. Last week though, with the FTSE100 slipping-back through 10,000 as easily as it broached it, there was a whiff of terror in some stocks and sectors, so it is not the time to be panic selling, especially as the uncertainty gives investors ‘reason’ to hesitate and to sit on their hands and assets.
Investors must remember the basic tenets of why they need to invest in broadly-based strategies of very diversified assets, especially value ones which generate good flows of natural, sustainable income regardless of what happens to short-term capital values and to take sensible-term perspectives with their decisions.
So what is unsettling market sentiment? That may seem an obvious question but here we go:-
- Geopolitical events, primarily the Middle East. Escalation concerns do increase ‘uncertainty’.
- The ramifications – oil/gas prices and exposure to fragile resource supplies.
- The hit to global economies, as higher energy costs cut economic growth.
- The likely rise in inflation, so interest rates no longer fall and indeed may start to rise to counter that.
- Increasing bad debt fears for lenders (after initially enjoying higher interest).
- Government borrowing rates increase (ours are the highest since 2008 (when Labour was last in charge) and way above the Truss fiasco). You will remember then was the worst of the Financial Crisis of 2008/9. Déjà Vu…
- The return needed from other assets (compared to ‘safe’ government bonds) means capital prices fall, from shares to residential property.
- Here, with unemployment up and a very weak, wider backdrop created by the Chancellor, our economy is more fragile than most, where government borrowing rates were already significantly higher than all other major economies.
- Markets (human beings are the participants, not machines) hate uncertainty and look for excuses to sell or certainly to not invest, regardless of the value.
An apology
I am afraid we must apologise. This year, as the tax-year end nears, we’ve been literally inundated with enquiries and whilst we have a strong and large team, it is simply an impossibility to meet everyone’s expectations of action before 5 April. I know we say constantly about trying to ‘do stuff’ just after 5 April and not just before and are grateful for those clients who do just that but…
Very few cases are as simple as the enquirer may imagine, when we must cover all the bases but often, we need more information to be able to guide properly. Of course, frequently clients ‘know’ what they want to do (eg to use their ISA allowances with us) and can subscribe funds to strategies we manage ‘unadvised’ and which is absolutely fine but many need far more in-depth guidance and we have only so many hours in the day.
We shall revert to everyone, rest assured but have to beg patience please, as much as we shall extend our best endeavours and we must prioritise our existing clients who have already entrusted us with their financial welfare (so for the future, another reason for anyone to ‘join our elite club’ too!).
I suppose we must be grateful and enquiries are on the back of a successful track record of course, both in service and ‘performance’ but we don’t ever want to be in a situation where our high levels of client service and satisfaction slip as a result. Naturally, that can mean too that we do need to adapt our processes and become more efficient, needing our clients to respond and cooperate likewise as well – however pleasant causal interactions are, naturally.
A second apology
As hard as we have tried to harbour as much of our clients’ capital from the ravages of taxation over the years, annual allowances for ISAs and Pensions are limited and of course we have many clients with assets in ‘unprotected’ portfolios. We manage these as deftly as possible, naturally and look to make transfers into ISA and Pensions etc every year but if the performance is good, it remains hard to keep on top of the values.
Despite the latest market shake-out, whilst it is not meant to sound flippant in the face of ongoing uncertainties, it is good to reflect on a good performance. These tax-naked assets still enjoy Capital Gains Tax free allowances (albeit savagely cut these last few years) and some allowances for dividends and interest but of course, it is harder to keep realised returns under these. So, the apology is to those clients who will have exceeded their allowances and some CGT will fall due and of course, a Tax Return to report that (unless suffering that ignominy already!).
Each year, where practical, religiously we trawl through portfolios to see if we have any losses we could realise to offset excessive gains but this year there haven’t really been many ‘new’ ones at all (which is good) and some of the gains are quite embarrassing, which is a lovely situation to have. Indeed, even then, sales of these have to be weighed to ensure the costs involved justify the decision and in many regards, we don’t want to lose the underlying assets as we are continuing to hold them because we believe their recovery potential is strong or we should have sold them already, loss or not.
Gains this year were swollen by silver (and gold and silver miners) and those won’t be replicated going forward but there remains plenty of other pregnant gains for next year and hopes for many more too. So for those affected, we apologise if we’ve made such gains for you this tax year and that we often don’t have enough losses to offset those and so you may have some tax to pay.
At least you know that that means you have used your free allowance fully and that has to be worthwhile too! If doing a Tax Return is something which might arise for you, you know we can help you with that too of course, a positive reason of an excess return!
Good news/bad news
Amongst all this gloom and uncertainty, there are some assets which almost seem to ‘ignore’ what’s happening. This is true for what has become our largest holding, UIL which has powered to an all-time high (almost doubling in a year) and taking our investment with it. We can’t complain and it’s not because of some wizard formula it has – it’s simply a fund, albeit somewhat esoteric but trading at a deep discount to its underlying investments (sound familiar?).
Ostensibly that discount’s still circa 27% despite its ‘end’ in sight. It is our largest not because we have subscribed the most ever money to it – because of the progress it has made for us and the active decision to run with that. It may only be 1.7% of our total managed assets but if that happens when other things might be falling, it all helps the overall return (and losses elsewhere) in times of acute volatility. The dividends we have received have all been on top too.
RM Infrastructure announces its latest repayment to shareholders at the net asset value too – up to £14million is available and we shall take ours. This is usefully above the latest share price of 60p, a further bonus to investors. Meantime Ground Rents Income Trust announces a further asset sale at close to the independent valuation in the books and reduction in borrowing – the assets left far surpass the Company’s market value now. The shares rally but patience is still required. Borrowing is now far below current cash held.
It cannot ever be all good news and Hydrogen Capital Growth announced its delisting to ‘save money’. So the shares have fallen from £1 in July 2021 to 4p, the latter slippage as investors decided they didn’t want a lack of marketability for the final few coppers, even if it’s hoped the sum later will be in double figures per share. They hit £1.20 in November 2021 as the ‘green’ investing mania peaked, as well-intended but naive investors and advisers chased it.
I have expressed my disquiet and as a reportable holder, should have imagined the consultation process before the vote on this would’ve been less cloth-eared. We’re likely to vote against the motion till most cash has been distributed, to allow investors to still trade. No, we never bought at launch but with hindsight, even though we bought very cheaply as the bad news had already started, we bought too soon but are now ‘forced’ to hold pending the final payouts as assets are realised and not in too fire-sale a fashion I trust, as time is bought.
Still, Gore Street Energy brought some good news (including strong dividends) in a bad week too and that helps though Friday saw SDCL Efficient Energy slump 9% as it sold-down some assets at a discount, to reduce borrowing. The Fund pledges to hold the dividend a year at least, so the yield is 15+% now.
For ‘green’ investors who had filled their boots with all this sort of stuff at their launches when ‘ESG’ was at its height, it has been a torrid time and instead, the oil majors like Shell have risen by over 250% since their lows in October 2020, let alone paying whopping dividends on top. Remember, many of these pious institutional investors, from your pension funds to charities, were bowing to pressure to sell fossil fuel investments at the time (often to the Chinese, now on the registers of these companies) and instead to chase these sorts of green energy investment options – it wasn’t their money they have spaffed, was it.
Sadly, you may recall some while back I referred to the apparent ‘purple patch’ of ‘all news is good news’ and that it wouldn’t continue; is the opposite a ‘brown’ or ‘black’ patch? On the colour spectrum it notes a ‘golden’ patch but that can’t be right, even if it goes nicely with purple. Well, yes, the inevitable’s happened – several of our direct stocks have been attacked during the downturns and the reminder of egg-spreading (as well as gratitude for some profit-taking at higher levels) has come to the fore again. Some is panic-profit-taking of stocks which have risen strongly (especially by retail investors) but also the markets punishing anything which does not report the best results for a company.
Humility
Frequently, we’re humbled by the very kind and unsolicited comments which our clients leave for us. Curiously under ‘Consumer Duty’ we have to do all we can to secure ‘feedback’ such as sending-out inane questionnaires to all and sundry (to which we all become immune to replying, sadly but understandably) and these unexpected comments don’t feature on any regulatory radar. Instead, we have to log ‘complaints’ fastidiously and report them all to the FCA in detail but not the good news.
However, we log these generous messages for our own purposes and for staff’s encouragement and pleasure and to demonstrate ‘customer outcomes’ (don’t we love all the buzz words and phrases…). The regulatory concept is, that how else can we monitor if we are delivering good service and ‘fair value’ and if not, what do we do about that and how do we monitor any negative issues, so we can correct those… I wonder how many such unsolicited positive comments the big firms receive… where do they log theirs I wonder?
Thank you to P&CG for saying:- “Both C and l feel that you (and your team) are doing a great job and are a firm to be trusted.”
Money cannot buy, nor regulation force such kind comments.
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
