Inflation is coming-down – only 6.8% and for the first time since 2021, lower than the increase in average pay (including bonuses etc). Food inflation is dropping even faster. Some of the reasons are ‘pigs in pythons’ – when a big increase a year ago drops-out of the figures.
The next big hit will be the increase in minimum wages in April – unless of course inflation persists meantime – so another big rise fuelling continuing inflation and so it goes on.
They say that hotel and restaurant costs have pushed the rises this time but evidence locally suggests that accommodation providers have not only not increased charges generally but have been cutting them to attract trade, so not a universal phenomenon. The argument is that having some guests at £125 a night is better than having none at £150 – that is all well and good for a while but it will lead to rising unemployment down the line too as businesses cannot afford costs without revenue and profit. Of course, the job market has been pushed too by a surge in public sector jobs where pay is almost ‘no question’ to secure the staff – the taxpayer will pay-up or the cost is borrowed – again, not sustainable for ever. The markets have been jittery however as there are concerns that ‘core inflation’ is becoming more embedded – I think they may be wrong as it is not the same across the world.
So after diving to almost 140 to the Dollar on the invasion of Ukraine, the Russian Rouble then went to a seven-year high to nearly 50 but recently has been sinking again (26% this year) and is now at just under 100, its lowest since March 2022. The Country’s budget deficit to pay for the war has been growing and as energy prices have fallen it has impacted its revenues. Inflation is up and the Central Bank has just increased interest rates by almost half to 12%. The budget surplus in 2022 of $5.7bilion turned into a deficit of $29.3billion in the year to July. It is said that countries still trading with Russia are cheating the oil price embargo too by paying colossal prices for transportation instead. Do some nations not have any scruples and is it right we turn a blind-eye to them and continue trading with them because it might suit us?
On other news… Bitcoin slumps as rumours spread that keen protagonist Elon Musk has dumped all his companies’ holdings… and Inheritance Tax receipts are on track for a record year. The Chancellor needs all he can raise.
Commercial property funds for investment
In the ‘good ol’ days’, ordinary folk and institutions who bought unitised investment products from their insurance and investment companies could have a relatively uncorrelated asset in their portfolios. Mixing your assets is always wise so that you don’t have too much of all the same thing and for when something is hit unexpectedly then perhaps something else counter-balances that, at least to a degree. Indeed, that has been one of our biggest jobs these last few decades; to try to ensure we have as many ‘uncorrelated assets’ as is sensible to protect our investors against the unexpected.
It’s not a perfect science but we have had to make some quite big calls over the last few years (but who would have thought buying ‘wheat’ cheaply would have seen it rocket as Russia started a war for example). Yes, some of these may seem esoteric but they can all help and especially in the face of being clever after it is too late.
However, when I was cutting my teeth, these bastions of the investment community had ranges of funds into which investors could switch and one such alternative from the few then available was ‘commercial property’. These pots would own large amounts of offices, shops and complexes, industrial buildings, supermarkets and so on and they would charge tenants rents. There would be some development ongoing in their portfolios often too, to extract more value from the assets owned. The rent wouldn’t change as erratically as say shares gyrate and neither would capital prices. Investors needing a good level of income could expect more from the rents than other assets were often generating too.
However, following some bad management in terms of dealing with the ebbs and flows of investor funds and the relatively illiquid nature of holding such property, this option is effectively non-existent to millions of ordinary savers and investors today and that is a great shame. I can even remember some investment companies whose fortunes were made on the back of selling such secure assets to savers – like Abbey Life’s Property Fund, but it wasn’t alone.
Opportunity to invest in these types of assets still exists and presently is as cheap and attractive as it was at its depths during the financial crisis in 2008 but not many people now have access to them as routes are closed for most investors who only have unitised holdings with today’s big investment institutions. Indeed, in our view the opportunity is even better than ever it was in the ‘old days’ as you can buy £1’s worth of underlying commercial property at big discounts – as low as 50p by buying the shares in Real Estate Investment Trusts at deep discounts to their already relatively depressed assets’ values. That means you also receive double the rent that you would secure if you bought such a property yourself (why would you!) and there is all good likelihood too that if you acquire a portfolio of these investment funds, some will close-down and return the full value of the underlying asset values, so the ‘£1’, all things being equal in that process of course.
One of ours has just succumbed to a bid by a larger competitor and the shares jumped as a result. We are substituting another – a Trust where the income yield is almost 9%pa from rents and we are buying shares at almost half the quoted asset value of the underlying properties but we are buying these shares from some investors who would have paid almost twice as much for them in only February last year.
It is a seriously undervalued asset class presently and yes, we are buying them for our clients (usual risk mitigations and extreme diversity of course!) as we can but if you are not with us and aren’t as ‘sophisticated’ as the regulations demand that you must be to participate, I don’t expect you’ll ever see them in your pensions, ISAs or portfolios (indeed even for self-select investors, many platforms won’t allow you to buy every fund that is available either, as they are taking a ‘responsibility’ to save themselves from any future prospective regulatory liability).
So yes, we use these (and whatever we think is very attractive for our clients, as long as it is listed on the London Stock Exchange/funds) but my greatest point is that for most people, they can’t have them at all, not a penny’s worth and that is sad – and wrong. Of course your declining institution or adviser won’t tell you that…. funny that!
If you are not with us – does your adviser know what they are investing in?
No one is perfect but this was from a statement by Baillie Gifford’s director of Marketing and Distribution. Baillie Gifford: Some advisers didn’t understand what they were investing in (citywire.com)
It is true though – do you or does your adviser just buy what seemed good before and not really understand very much about what’s going-on under the bonnet? Other news is reflecting upon the massive withdrawals of ‘retail money’ from platforms – as investors have seen the values of their funds drop so they sell… that’s not quite how one should be doing it… you buy low and sell high but psychologically for too many it seems easier to do the opposite and especially if you don’t have a trusted adviser between you and the big red button.
The thing is though, does your adviser, your confidant who sold you the product, have a view that isn’t just ‘there, there, it will be alright in the end’? What is that sentiment based upon? Do they understand the underlying tangible values in the markets and have a handle on economics and what is happening? As I said, we are not perfect, but do we earn most of our money in encouraging people to do what is probably the best thing they should be doing at what may be a very uncomfortable time? History suggests that is when a good and knowledgeable adviser really earns their crust.
Instead, those who ‘do it themselves’ and who like checking their investment statements when the values only go upwards are their own worst enemies when the opposite happens – as they have no handle to know what they should be doing and all too often, they push that big red button and cash-out at the worst time, only to venture back again when things have recovered and are much higher. For our clients, we are a ‘barrier;’ not to stop them accessing what they need but an entity to add trusted opinion before an instruction is implemented, as it can be so easy these days and then it is too late – and we’ll talk to any of our clients too – all part of the service.
St James’s Place – again
Oh dear. The latest survey by Bestinvest notes that half of all the ‘dog’ funds were represented by St James’s Place funds with twice as many as any other group (these are funds considered ‘consistent underperformers’).
More than half of ‘dog’ assets are held in SJP funds – FTAdviser
In its defence though, it does have many funds and funds can come-and-go in terms of trends and populism but the Group engages managers to do the job of investment management for it so will it change some of these for others, possibly just at the wrong time…? These funds count for a significant £29.3billion though, according to the article.
However, being published the day after, The Times reported that SJP itself said ‘most of our funds don’t deliver’ doesn’t bode well for the Group. We must let their investors decide!
Most of our funds don’t deliver, says SJP (thetimes.co.uk)
Curiously an interesting article has just been published too on the loans which advisers have (or is it SJP?) and the terms with which the salesmen sign-up to join. I leave it, simply, for readers to enjoy! However, it is curious as to what their sales people think and how they may recommend something different to the restricted SJP range if they believe it is better – which is effectively ‘all’ they can sell?
Inside the £673mn debt burden SJP advisers are grappling with
CAF Bank – update
So after the paper losses of £33.4million on its ‘safe’ bond holdings, the Charity owner of CAF Bank has propped-up the Bank’s reserves with a £15million subordinated loan. The Bank did report a profit of over £10million so as long as conditions continue, it should be able to rebuild this hypothetical hole…. The CAF Chief Executive has stated that the bank will hold all the losing bonds till maturity so it won’t lose a penny then and says that its auditors have endorsed that view. However, I haven’t read anywhere yet that no bonds were bought over par. Let’s hope they all were below that magical £1 maturity level.
We are told not to be concerned and that is partly because global central banks themselves are sitting-on significant paper losses on bonds. The US Federal Reserve’s market losses are over $900billion – a ‘mere’ 22 times its $42billion capital. And no, this does not include US banks’ losses are over $515billion – 23% of banks’ capital reserves.
The difference is that central banks can print their way out of trouble – and that leads to inflation like we are suffering now, don’t forget…
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
