I hope that you have had a good Christmas break. Ours was very busy, with lots of friends and relatives with us but a privilege to be able to host them. We shall look forward to a rest afterwards! Before anything else, here are real hopes for a lovely, happy, prosperous, peaceful and healthy 2024 to us all.
So inflation drops sharply to under 4%, heralding cuts in interest rates and earlier than expected. It’s still double what it ought to be and maybe we shall see that target broached again over coming months, if lower commodity and energy prices filter through. However, a 10% increase in the Living Wage (more for younger workers) will add to prices next April and that will be passed-on and have an effect.
However, economic growth was revised so Q2 was a mere 0% and Q3 -0.1%. The good news about this is that it suggests higher interest rates are constraining spending and thus inflation – good. However, we all want economic growth, which won’t exist if confidence is impacted too. Just to confound though, on the news, Sterling rose rather than fell which it ‘should’ have done, on the likelihood of lower interest rates… whilst -0.1% sounds bad, it matched France, Germany and Denmark and the Eurozone average and beat several others including Japan at -0.7%… but in November, government borrowing was a ‘record’ so not such positive news… have a look at the US Dollar versus Sterling too (down 16.5% since the trough in September 2022) – interesting developments there – positive for imported inflation too. Oil is beginning to track back down towards $70 a barrel again too.
Have you noticed how there is a prejudice on ‘news’ so that we are told what ‘they’ want to tell us – or to sell media? For example, did you know that the UK has now leap-frogged France (our annual output – £224billion), to be the world’s eighth largest manufacturer? We had been the 9th for a long time.
Market review 2023
It has not been an easy year for investors but we seem to be ending with a generous flourish and long overdue. It has been very volatile overall and in so many ways, from markets to interest rates and inflation but stabilising at last.
However, it is mixed – the UK market is up only a little and still well down on February’s new highs (perhaps that is the realistic position when assimilating the global economic and political position in fact) whereas the daft, limited US tech sector has again pushed the world’s biggest market ever higher. The Nasdaq Composite is up over 40% this year at time of writing, driven by those ‘Magnificent Seven’ (which we continue to avoid) in view of the concentration risk and also the fact that there is so much great and fundamental value paying chunky incomes elsewhere anyway – and much safer in our view.
The S&P500 (so really ‘the US Market’) is up 25% and at an all-time high, as is the Dow Jones. There is the weight of money argument and more ‘passive’ strategies buying stuff simply ‘because it is there’ but likewise, it represents an even more dangerous extreme, especially as the US stock market represents nigh 70% of the value of all shares in the world. UK investors may also not realise that most funds don’t hedge the currency risk.
Sadly some investors will rotate out of things which have done worse into the things which have risen the most. Common sense and history (let alone fundamentals!) usually suggest you sell the expensive and dramatically out-performing thing and buy the cheap and under-performing – not ‘just because’ of course, as that is daft but after analysing the fundamentals and recognising the behavioural science behind the masses’ actions. That said though, it is amazing how people are destined to repeat the same mistakes of past history – greed or FOMO – the ‘fear of missing out’.
More good news
It’s easy to be greedy… just before Christmas, Harbour Energy has announced a transformative acquisition including new shares being issued at a big premium and debt arranged at a mere 1.8%pa. This is one of our relatively recently acquired direct shares and the move saw the stock rise significantly and add over £1/4million to our total client assets and since advancing again to the highest since last February. This is again one of those stories of ‘you must be in it before it happens rather than trying to scramble in afterwards’. As a real value stock, regardless, in our view and paying a chunky income whilst we wait, it is now better-valued but as ever, as an investment manager our views and decisions for the future are more important than for the past! It should also have the tail wind of FTSE100 promotion as well so index-trackers will be obliged to buy a bigger proportion of it as well.
Of course, not every piece of news of such stocks is positive – we also hold some Petrofac and they tumbled before announcing another larger contract and better results than expected, so they have rallied significantly from the trough – one of those where chasing it down and buying a few more was very wise. However, we’re still well down on average purchasing prices but then, as ever, we spread eggs very widely indeed. However, to move from 17p on 1 December to over 42p is daft too.
Alternative energy/storage
At the end of October, a popular Trust for energy storage saw its shares plummet for no reason (even the company noted the same). They hit 61p. That was half the rather-too-high September 2022 level so a big loss (though that ignores the good dividends they pay). We had a little before but as the price fell, we reprioritised so we could buy more (which we did) as we believed the market was ‘wrong’. At the time of writing, the price is over 90p – a recovery of 50% with income to boot. The dividend going forwards is 6%pa.
I am afraid more often than perhaps we used to have to experience, we have to become accustomed to erratic and inexplicable movements in individual assets but that too is why it is imperative to spread one’s eggs widely, as we do, however confident you can be in your decision. The underlying net asset value of the investments maintained by this Fund (not so easy to value!) is still well north of £1 and indeed on 19 December, a new investor subscribed for £15million of new shares at £1.129.
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
