What awful atrocities are happening in Israel and Palestine. Our sympathies go out to all the innocent people and their families affected. Hamas’s action is evil and no protest deserves what it has done, regardless of any ‘excuses’ about its lands and people.
The conflict pushed the oil price back up and on Monday, unless really you had fossil-fuel, defence or gold/silver related stocks and base commodities, it was a down-day. The FTSE100 did reasonably, as it is dominated by Shell and BP of course. Of course if your portfolio excludes such animals, you were not protected. For us it was a relatively sanguine outcome but clearly it is early days to try to predict what might happen as a consequence. Since then, markets appear to have stabilised.
Helen is in Uganda with ROTOM again, the Charity of which she is a Trustee. Our charitable foundation gave her a packed suit case of equipment for her to pass over! All those happy faces seem a world away from what people are facing in Israel/Palestine at the moment. I struggle to know if that creates any perspective or not, to be frank. It is very, very sad and evil, however perpetrated and wherever, must never be allowed to succeed.
New opportunity
So an investment fund in which we had no involvement announces that it has to cut the dividend as it has spent more on maintaining and improving its mainly office properties. The market hates the news, worries about the valuation of its commercial property assets (despite the 82.5% occupancy rates and the strong rent roll received) and then flaps about the amount of borrowing the Trust has and the increased costs with higher interest rates. The shares drop and the Fund’s market capitalisation (shares x share price) falls to £137million, in itself now being below thresholds for larger owners to maintain it so they consider dumping their investment regardless of price. The reduced dividend suggests an annualised income yield going forwards of a mere 18%. So this thing isn’t under pressure to fire-sell properties (it is gradually selling assets which previously has enabled the debt to be reduced and that will continue).
It seems to be mainly small shareholders selling-up and no-one buying. Pre-pandemic, on 14 February 2020 the shares were £1.21. At the time of writing, they are 27p – a drop of 78%. Investors are often silly. So some of the investors may have paid £1.21 and are now selling as they have lost so much money. Yes, that seems wise if the price goes to say 20p or less – which can happen, as it is simply short-term supply and demand.
However, at some point, the shares will rebalance to where they should be – or a corporate predator will say ‘enough!’ and buy the lot and make a tidy profit in buying a £0.75billion interesting portfolio of regional property assets for a song and a quoted corporate vehicle to boot. Yes, things could still worsen (as I have said, the share price); they could cancel the dividend to preserve cash or the lenders could frighten themselves and demand speedier reductions in the debt or having some inane loan covenants driving action at the wrong time but there is a vast comfort cushion there.
I understand the problem investment managers have too – their clients balk at their portfolio’s ‘poor performance’ and decide to move somewhere else because ‘someone else’ says they can ‘do better’, incurring big costs in the process – I mean, selling out at these levels? Why on earth would anyone think that is ‘wise’?
We have several of these types of funds and all on very attractive values to buy. We are going to add this one as we think it is one of the most compelling yet. Of course, we may find that we can’t acquire enough shares to make it worthwhile but we can nibble-away over a lengthy time… all we need is enough investor cash to be able to take advantage of the opportunity – one of the best in the sector we have seen. We shall still watch our overall exposure to the ‘sector’ however.
If (always ‘big’!) the company could secure the values attributed to its properties etc, the asset value after repaying loans is over 70p. That means the shares are at a discount of 62%. The other way around, if the shares went up to over 70p, ignoring the income received, the capital increase would be 160%. The thing is, investors, you need to show patience – we have it and we need you to have it too! It is unlikely to be an overnight affair (but these things can be!).
Pension lifestyling
Our clients aren’t but are you in some form of ‘lifestyling’ pension arrangement? They are designed to dumb-down decisions by participants by automatically reducing risks in the run-up to someone wanting to encash their whole pension pot at a fixed date.
We don’t like the concept whatsoever – we prefer to interact with our clients as they may approach retirement so that we can discuss the options and opportunities based on their unique circumstances and needs and what they may want to do in advance of their retirement plans (which often doesn’t mean 100% encashment of all their pension pot to buy an annuity). Aegon has had criticisms levelled at it for its default, after an investor lost a six-figure sum as the ‘safe’ investments acquired lost a colossal amount:- Aegon defends automatic transfer of clients into loss-making fund – FTAdviser
It all sounds very dandy but the world of investment and economics is not so ‘simplistic’ as the products suggest. If you are in these things then maybe you need independent advice and must not simply rely upon the default – and remember – most of these are found in employer schemes too but you do have options. The ‘product’ may have been well-intended but that doesn’t make it right. Your personal circumstances are the most important factors to consider, not doing the wrong thing at the wrong time simply because of some date on an original application form.
Popular stocks
Not said to gloat but investors need to be wary of ‘popular stocks’. It can happen to the biggest too, even if it feels great to be in a stock which it seems everyone adores and the prices reflect that.
XP Power, a leading ‘power solutions business’, announced a profit drop and cancellation of its dividend and the shares plummeted – as all those trendy followers jumped ship. I never knew much about it but it often featured as a choice ‘buy’ for investment funds too. Abrdn was the biggest with over 10% of the shares. In August 2021, the shares hit £56.10 and they had fallen to £7.16 – a drop of nigh 90%. Could it happen to the US tech darlings? Yes – just be wary. It is hard for over-priced stocks to sustain their momentum and justification for investor ecstasy.
At least with most under-priced (however defined) ‘value’ stocks, there are fundamental underlying assets to help give tangible worth behind the share price and usually a very good dividend whilst we wait. Abrdn has now announced it has cut its stake by at least half – and the shares have promptly rallied 40%… hmmm, stable door, horse bolting…? What decision was worse – not selling at peaks or selling at the trough?
Birkenstock, the German business selling 30 million pairs of sandals a year, is floating on the New York Exchange – not one we’ll chase at the £7billion valuation ascribed to it.
It is likely to be another Dr Martens – check out their shares since they floated. Celebrity endorsements and popularity reflected in a rather exuberant way is not a ‘valuation’ but it is populist, momentum investing to support such exaggerated levels, versus buying good, old-fashioned ‘value’. The family will do well in selling! We were reminded by a client that at its peak, Clark’s was valued at £800million, when it was selling 50 million pairs of shoes.
Well-intended but…
Fidelity and now Interactive Investors have both implemented more censorship to what their execution-only clients can acquire and hold. They suggest that ‘poor value’ investments are not good for investors – with their definition of what ‘poor value’ represents, hiding behind the ‘Consumer Duty’ regime.
Following this to an end-game, it could be said that by doing this and restricting their customers, they are potentially reducing the value of these funds and thus generating a ‘poor value’ outcome, as well as not ‘treating these customers fairly’. Ostensibly too, they are defaming the funds involved by saying they are ‘poor value’ even if they have delivered great outcomes for customers and could well continue doing so. This is taking things too far and needs to be reversed, especially as one ‘reason’ for apparent ‘poor value’ is because of an inequitable treatment of certain costs within Investment Trusts which do not apply on unitised holdings.
It is an interesting scenario – they are not providing any advice or guidance at all but are banning certain investments… many ‘platforms’ had done that already with things which they imagine are complicated or difficult in which to deal, thus restricting the opportunity of investors to have them. No, we are not talking about ‘rubbish’ as used to be allowed, like proportionate hotel rooms in Cape Verde Islands or off-plan holiday developments in St Lucia, carbon credits, airport parking lots, storage units, green forestry in Costa Rica or the myriad scams which existed… but this is going too far – with fully listed and regulated funds quoted on the London Stock Exchange. If they are not ‘good’, will the Listing Authority of the London Stock Exchange (the FCA…) start banning them too under a grandiose responsibility to consumers?
Mark and Leonie Millichope
Well done Mark and Leonie for the gruelling challenge of the 13 Tors Trek you completed for Marie Curie on 8 October! The Charitable Foundation was delighted to support your successful fund-raising too – £1,000 is great for Marie Curie!.
It is amazing to think that for Mark, it wasn’t all that long ago when he was given such a dire diagnosis for his health so we are all eternally grateful for what he has been able to achieve since – and for the consultancy work he still completes for us too!
Atomic power
So one of the ways to a ‘green’ future (or anti-carbon) is atomic power. Presently over 400 reactors generate 10% of the world’s electricity. China is building 24 more, India eight, Turkey four and the US one. With Rolls Royce and NuScale, small-scale local generators are being considered and built. However, governments will face yet more unpopular decisions in their construction – and financing. Meantime, uranium has started to rocket in price – will it continue… we have some in certain strategies.
Trumped-up charges
I have no inside information on the case but something bemuses me. So, a borrower is being accused of multi-billion-dollar, fraudulent overestimations of property values to secure loans. Now, I have been involved in finance for over four decades and I have never known of any form of big loans whereby the lender did not rely upon its own independent valuation appraisal for security purposes and then the legal mortgages, etc to satisfy such facilities and thus to secure whatever terms the lender demanded.
Can someone please explain where I am going awry? Or, if there are lenders out there who will rely upon the borrower’s nod for the valuation of their assets alone, can someone tell me who they are! Certainly those lenders would fall foul of all forms of regulators’ prudence demands too.
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
