Good afternoon – the first real, wintry day with the remnants of Storm Austen and isn’t it just so dark… wrap up well and stay safe! At least the Jackdaw Gas Field has been signed-off now so we shall have some more of our own gas piped in some months… gas prices here are 10x what they are in the US and it is no wonder our energy prices are the highest in the world.
We are told the number of children in workless homes has hit a 12-year high of 1.54million homes. The number in a household where no one has ever worked has rocketed too, up by 50% from last year. That is not good at all and under a ‘labour’ government – the Party will have to change its name to the ‘Benefits Party’ I guess. This is not a judgement but a sad indictment – in that the facts show that ‘children growing-up in workless households are four times more likely to be in deep material poverty, perform much worse at school and are vastly more likely to end-up unemployed themselves’: Ben Gregg, Centre for Social Justice. The total number of workless households to 30 June rose to 3.61million.
On top of this, over 10% of all people are on some form of sickness benefit or disability – 7million people and 860,000 have Motability vehicles too. Indeed, there are more under seven-year-olds on disability than 50-year-olds.
Something is not right… Not only is it totally unaffordable but we cannot keep allowing a well-intended but absolutely misguided welfare generosity condemning the futures of so many people and their families in this way, as well possibly of discriminating against those in real need.
Meantime, the UK growth projection by the IMF has been a little better (well back to what it said in January apparently) but also noting inflation is likely to be sticky for much longer – not a good portent. In the US, against an expectation of 3.5%, markets were startled to see its inflation rising to 3.7%, the highest since May. That is likely to push bond yields higher and could strengthen the Dollar as higher interest rates are likelier – more bad news for business. At home, a startling rise to 3.5% from 3.1% means more misery for mortgage and business borrowers.
Employment is up, which is good but vacancies are down as employers are reducing their workforces because of the much higher cost now. AI will see that escalate – we are using it and it is doing the work of ‘many people’ – all as extras but at some point (if not already) it will start to replace people so as natural wastage arises, will their rolls be refilled? Will employers sharpen disciplinary processes to look to remove unproductive and difficult people?
Market trends
No, we are not always ’right’ but who remembers the eshot of 5 May 2023? This is a stark warning that what may appear the consensus view (well it is today, isn’t it!) at any time can change… This is one part:-
It is always bemusing when the media is full of the struggle so many face and yet at the same time, the cash to acquire luxury goods seems to know no bounds. French firm LVMH saw its market capitalisation hit $0.5trillion last month, helping to propel the French stock market above the British one. These companies don’t only sell to the super-rich but there are countless more ‘normal’ people who can or choose to afford their products and services and no longer see these as discretionary purchases but part of the necessities of their lives.
Of course, as I have shared on several occasions, average disposable household incomes last year were the highest they have ever been, inflation adjusted (and primarily because people don’t stand still – they progress – a typical trainee nurse or trainee junior doctor doesn’t remain on starting pay for long for example). Anyway, I believe these luxury goods’ companies are over-priced so we don’t hold them. A rerating will see the value of the French market slip too.
So yes, LVMH has slumped by nigh half in five years and the UK stock market is considerably above the French one… maybe US tech is next?
Ruffer published a very interesting graph of three-month negative betas for the S&P 500. I could say ‘it doesn’t matter what that means;’ other than noting that just before the Dotcom crash, after poodling along at a ‘normal’ 2-7%, it had rocketed to 18% of all stocks. Now it is 45%. And you want to invest in US tech and indeed your passives including the ‘world index’ dominated by US stocks?
After doubling from 2022 and one of its worst-ever annual performances, the Kobeissi Letter sums-up the US excesses well by reminding us that the largest 15 stocks in the S&P500 count for the largest ever portion of the S&P500 – 47%. This means all the other 485 stocks are a mere 53%. The biggest four represent 26.1%, or more than the next 11 altogether. The largest five are ‘worth’ the smallest 434 – the biggest gap ever. At the peak of the Dotcom bubble, the biggest 15 counted for 27.2%. Is it any surprise we have so little in the US now, especially when there is such real and true value elsewhere? Maybe the portent of a correction is the suggested merger of SpaceX and Tesla… If you’re not with us, just where are your funds concentrated?
Good news/bad news
Lindsell Train’s tender offer is rewarding clients with one of those bonuses, where we receive nearly the net asset value for each share tendered and well above the present share price. We tendered all our stock, as much as we didn’t want to do that. However, the double bonus is that we shall share the higher price for 21% of our extra shares! That’s because so many other investors tendered nothing at all. We then intend to continue buying at the lower levels… it is sad, in that most shareholders just didn’t understand… or possibly even professional managers simply didn’t bother to participate – all the more for our clients! We’ll receive £6.373 (brokerage free) against today’s price of £5.80.
There is some hope out there… Marston’s shares jumped 15% on better results than expected; clearly people have more disposable incomes than imagined as they can afford to eat and drink-out more than feared! YouGov jumped by 14% on a more optimistic outlook too – expecting a busy period ahead – I wonder why! The shares were so oversold when we started to sniff around – they have now doubled since the spring low. Unrelated too but quietly but consistently, BP exceeded £6 for the first time – an amazing transformation and long overdue, though we cannot forget the excellent dividends which have been paid and are continuing to be received.
Meantime, popular Duke Capital fell as it warned that prospects for SMEs have worsened so growth in the second half is likely to be tarnished. However, with an income yield of 13%pa, there is some comfort whilst we wait.
Are Investment Trusts better than ‘ordinary’ unitised funds…?
I repeat that we can and do cover any form of investment medium to optimise results for clients, including commodities, currencies, bonds and loan funds… We have no axe to grind; whatever we believe is good for clients can be considered. However, for mainstream assets, we have tended to favour ‘Investment Trusts’ over their open-ended brethren which most advisers and managers sell to their clients. Regular readers will know why we have said that.
Interestingly, the AIC’s done its latest analysis and where managers have ‘both’ types available, they have discovered that nine out of ten Investment Trusts produced better results over 10 years and three-quarters of them after five years:- AIC says nine in 10 trusts outperformed open-ended ‘sister funds’
This is actually quite damning of our industry frankly as so many advisers never even consider nor use Investment Trusts at all. If the out-performance is even a mere 1.3%pa (as it was for the shorter period), that goes a long way towards paying all the costs of ‘everything’ as well, including the advice and the management, so what is there not to like… that will never arise with ordinary unitised assets and remember, we enjoy the bonuses of corporate actions unlocking discounts as well!
If you are not yet with us, ask your adviser why they don’t use Investment Trusts…
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
