North Devon Business Awards
We were delighted to be the main sponsor again for Business Action’s North Devon Business Awards. Well done to Rob Zarywacz and team for a great event and all that volunteer help in assimilating all the applicants and judging them too.
Every applicant was a worthy contender but well done to those winning their categories and then the overall winner! We were delighted to present your well-earned award.
Avoiding scams and helping the scammed
We have been doing our best to help people avoid scams and also to assist them when sadly such things have happened but if you want to hear a little more from me, the attached link shares an FT Adviser In Focus Podcast – When Investments go Wrong – which you may find interesting and illuminating:-
‘There’s no investment need that can’t be met the regulated way’
Being mentioned in the Investment and financial media isn’t necessarily a reflection of prowess, knowledge, experience or service. However, the fact that leading journalists do seek our views is a reassurance, not only to ourselves but we hope to clients too. After all, however good the sales’ spiel from a person or a firm, you can only pull the wool over the eyes of everybody for so long (including the Trade Press!), as Churchill quoted famously! Here is another recent quotation in the FTAdviser on roving fund managers:-
Should you follow a fund manager to their next company?
More good news
One of our Commercial Property Funds which had been trading on a deep discount to its net asset value has agreed a takeover which values it at 35% more than the share price the day before the bid. Whilst it is true that we spread clients’ funds far and wide, this is the fifth such corporate action in 2023 for us so far and all about discounts to the underlying assets being recognised by some form of corporate action.
No single client will have a great deal as we spread risks very widely but we own just under £2million altogether so that’s still a bonus for clients of up to £700,000 (that’s equivalent to 0.3% of our total funds managed for clients) and simply because of the technical trading opportunity represented by this closed-ended fund and the sorts of opportunity we relish. There will be more of these outcomes to come and we keep looking for the next! Every extra bonus like this helps and is on top of a very good income flow clients have enjoyed whilst we waited. Remember, you will never see such special bonuses from simple open-ended funds or ‘cheap’ passive investment strategies as used most extensively elsewhere. That’s not how those funds work. Most advisers and investment managers do not use closed-ended funds at all or even if they do, not very extensively at all.
Then later that day, Momentum Multi-Asset Value Trust, our second largest exposure with £4million invested, also announces it is winding-up. That’s sad as we’ve supported this Trust (and in its previous forms) a long time as it’s fulfilled a particular requirement for us at the lower-risk end of our spectrum, with high income too. It did have a control system narrowing the discount to the underlying asset value so the wind-up ‘bonus’ will be relatively small, this is our sixth Trust facing action so far in 2023. The reasons cited for the closure include the new ‘Consumer Duty’ and I add to that the mechanistic discount control mechanism which forced the Trust to keep eating its own tail by buying-in and effectively cancelling its own shares so it became too small. I am sure we shall recycle the proceeds, in due time, into other closed-ended discount opportunities. Plenty abound!
It’s nice to report too that Plimsoll Publishing informs us that yet again we are rated as ‘strong’ in its latest survey of the largest financial advisory companies, its highest award which they say ‘reflects your excellent performance over the last 12 months’. They say ‘where 360 of your competitors are in financial danger and a record number is making a loss’. We are instead in the top echelons by size, profitability, growth and value as well as a ‘best trading partner’ and appearing in two of their ‘exceptional performance categories’. Thank you for the praise but we shall never rest on our laurels.
Opportunity
We build portfolios over many different assets. Some are boring and very safe and some clearly are more speculative but a vast array of different holdings over myriad asset types to create an ideal risk mitigation tool as well as ‘return opportunity’ system. Our biggest holding is just under 2% of our clients’ total assets, not because we don’t like anything but because that reduces risks and there are so many choices anyway – and it costs clients no more even if it makes much more work for us.
We like technical opportunities as I have shared above too – shares in closed-ended funds trading below the transparent value of their components for example and often these special situations are unlocked (see above), resulting in bonuses for our clients and on top of whatever the market will give us for our exposure to the asset class itself anyway. Of course this is not guaranteed to happen but if it doesn’t, it still doesn’t matter as we are invested in the ’markets’ through these funds anyway and receiving the return on more than our £1’s worth of investment too.
For example, one of our rather boring infrastructure loan funds has decided to consult on its future (I have had a meeting with the Board already), a route which could result in it closing-down and returning investors’ cash to them. What would this mean? Well, in say four years, we could have received income of 26p for every share, as now and a capital uplift from the present share price which is worth 16p. That means 14%pa simple return for in our view a pretty low risk investment.
If it doesn’t wind-up? It doesn’t matter, as the underlying asset value is still there and we continue to receive an income of over 8.5%pa based on today’s share price. Yes, we assess the possible negatives (say if a loan investment goes bad but its pedigree is excellent), the costs (already included) but there is also a possibility of extra return as the assets are slightly down-valued by prudent accounting conventions from what could be attained ultimately).
Investment returns
Especially in times of volatility and negativity, remember that ‘investments’ generally are expected to generate two returns. One is for the capital to appreciate over time and the second (and the most important arguably) is a payment for the ‘use’ of that capital. That can be interest, rents or dividends (which are the shareholders’ portion of the profits which the investee company has made and distributes to its owners).
Reassurance for patient investors during continuing sideways movements on markets like the last few years notes that the first quarter saw record global dividends at $327billion according to the Janus Henderson Global Dividend Index. This includes ‘special dividends’ but these have been frequent too. However, this was 12% up on 2022. Underlying dividend growth here was 5.6%. If investors draw their income to pay bills, in simple terms it has no detrimental impact on their capital doing its job in time. The UK market is paying one of the highest dividends presently, a projection of about 4% and unrelated to capital returns.
Mighty falls
How the mighty have fallen. Vodafone shares have been the lowest since 1997. Do you remember that in 1999 they were the biggest stock on the British market, by far, at 16% of the FTSE100 at the peak of the dot.com bubble after its takeover of Mannesmann, in what was the biggest ever merger?
There weren’t many prepared to suggest caution was wise. Where are the voices today, with such dominance by Apple, Microsoft, Google, etc? We are holders of Vodafone at these levels, a dull, utility company which we believe is sorely undervalued – even if we are losing money on our investment (that’s not reason to dump it). However, we’re ‘value investors’ and not ‘momentum’ slaves and meantime, we’re paid a good dividend, which should be safe, whilst we wait… and wait… No, this is not a recommendation and usual caveats apply. Something is likely to happen!
Froth returns
Nvidia rose 27% on 25 May on hype about AI possibilities. That’s not an unusual individual share price rise but it is when it amounts to a cool $200billion in one day, a company now some 22% higher than its previous high in Nov 2021 and the first chip maker over $1trillion. Is it justified? We’re not buying it… anyway. I am reminded by 7IM, an investment house, that Apple is ‘valued’ by its share price at £2.3trillion, way more than all the UK FTSE100; Apple had £320billion of global sales and £76billion of profits last year.
So in value terms though, the FTSE100 stocks generate £1.5trillion of sales and last year made £215billion of profit. For risk mitigation and diversification, I know which one I prefer – and I’m paid a juicy dividend income whilst waiting too. So, is Apple over-valued by two-thirds (and the main US market with it)? Maybe not that much but would I be so shocked if there was a serious realignment across the Atlantic? No. Anyway, it’s much safer at home! That said, feel sorry for Nvidia’s short-sellers who have lost a cool $8billion in 2023… they may do better from here!
Apple has also propelled returns at Warren Buffett’s Berkshire Hathaway Inc after straying from its mantra in 2016 in terms of the modern ‘tech’ theme with its first purchase. It is now the Fund’s biggest stock at almost a quarter of its total assets. I wonder what will happen to Berkshire Hathaway Inc when the two nonagenarian kingpins are no longer there…
