My apologies for another eshot so soon but I wanted to take this opportunity to wish you a very Happy Easter. The time has crept-up upon us quickly this year, to a special time when too many parts of the world are quite broken and without easy resolution. Let us reflect upon those whilst at the same time recognising that forgiveness and then salvation manifest themselves at Easter, with new life bursting forth all around us.
So the weeks ending 13 March enjoyed record inflows of money according to Barclays, citing EPFR Global. £56billion came in the last week and above March 2021’s peak. Of this, $22billion chased technology and some pundits suggest this is seen as a ‘haven’ which seems very misguided. Crypto funds attracted $3.4billion – but none of our money.
At the same time, we are seeing more analysts pointing to the need for prudence and that desperate need for more sensible ‘diversification’ when having so much in so few US Tech stocks as that represents a very high risk (Alken founder, Nicholas Walewski being the latest). I have not seen a regulator anywhere demanding that the elevated risks from this ‘concentration’ are flagged to investors. No doubt this’ll happen after bad outcomes have manifested themselves, to demand limits for investors on index exposure or whatever.
History also goes to show that the public (which of course is compounded by people in institutions investing the public’s money) all pile-in when things are dear (and continue selling when things are cheap). Why? Because they let their emotions drive them – at the top they feel euphoric and want what others have already enjoyed (or of course it confirms how wise they have been already, to have stocks) and at the bottom, they have seen the losses they have suffered and fear even worse ahead so they push the big red ‘sell’ button, regardless of what common sense and wise counsel may encourage them to do instead. (That is also when ‘cheap’ self-investing is really costly as those people without respected, long-term confidants/advisers have no one to whom to turn for trusted commentary, so they have nothing but panicky newsprint and social media to drive their fears even more).
Maybe the old superstition ‘Sell in May and go way’ will resonate with US tech this year… contrarily, too many buyers of this stuff see no risks there at all presently – it is all happy gains at the never-ending party. In reality, that doesn’t exist – you have been warned!
Tax-year end planning
Have you filled your £20,000 ISA for 2023/4 yet? If not then why not! For some investors it is a ‘must’ not a ‘could’! Not only is it attractive to do that but from 6 April the tax regime on savings interest, dividends and capital gains for investment becomes swingeing – and the obligation to complete a Tax Return is imposed possibly on hundreds of thousands more people who have avoided that for years.
Have you used your Capital Gains Tax allowance if you have taxable assets with pregnant gains? That is £6,000 each or £3,000 for Trusts etc.
Have you paid into your Pension this year? Even non-earners and the retired under 75 can contribute £2,880 to a personal pension and the generous Taxman will give them £720 for nothing – how is that! The money then grows free from all tax and can even be left on death free of IHT! If you are a Higher Rate taxpayer and still working, you can contribute up to 100% of your earnings into a Pension and if you are over 55, in reality if push came to shove, you could draw funds out again ‘immediately’. Don’t miss the chance!
We are happy to accept clients’ subscriptions but sadly can’t offer lengthy meetings before 5 April as that is unlikely to be possible with so much year-end already to do! However, be prudent – also do next year’s investments just after 6 April to gain the biggest tax benefit rather than leaving it till the end of the year!
Value investing
Defined in myriad ways but taking the blunt comparative of the MSCI Growth v MSCI Value indices, ‘Value’ seems ready for a rerating. Value outperformed growth significantly from 1/1/22 to 5/1/23 (for reasons I have noted many times before) but that has since slipped most of the way back. However, taking the longer-term, since January 2015 and despite a marked uptick in value since October last year, the difference is now stark – growth has generated almost twice as much return as value.
Over the longer term, the style differences have been negligible and textbook investment theory in the area (as well as risk:return and income from dividends) was much more clear cut. However, for the long-suffering, patient value investor, the trends in the US do suggest a rerating of value and at the same time a pullback on growth. It is long overdue.
Investment Trust discounts
Yes, I am sorry but it is a case of ‘patience again’. The average discount has widened-out to 18%, an increase of over 3% in the year. In simple terms, for the optimist (the realist now!) this means a £100 bag of assets is selling for £82. For the pessimist, he sees discounts growing, losing him more money and it will continue. The reality is that the larger the discounts, the greater the likelihood of corporate action then recognising the 100x £1 coins and paying the investor 100% of net asset value (allowing for costs of closure etc).
In simple terms, if I had a few tens of billions…. I’d buy ‘all-over the place’ and then having a foothold in funds which warranted the engagement, strike-up such corporate actions to force the companies to unlock the discounts which, in a worst-case scenario, would force them to wind-up by selling that bag of assets and giving shareholders their money back.
The best case scenario would see discounts shrink and suitably fair values for investors in their share prices but either way, a win-win for investors buying these things presently. The worst case scenario as we see it? Discounts are as large as they have been for a very long time so if ‘nothing’ happens, investors aren’t losing anyway, still enjoying the underlying investment returns and income from £1’s worth of assets for only 82p.
Architectural practices
It seems bizarre as we are tiny yet we are the largest supportive independent investor in the UK’s only quoted firm of architects. It is a small firm in market terms but our Company, with its money, has supported the purchase of an innovative Smart Buildings’ firm which should have a very dynamic future, embracing the benefits of AI alongside that.
No, this is not a plug to buy them but simply to show how strange our market has become where tiny purchases of this AIM stock create such situation. Yes, it is speculative and our overall exposure is minute (most clients with none) but prospects are very interesting. However, this is old-fashioned investing and not pure momentum on the back of others’ froth in a price. Shall we extend our exposure? Maybe, maybe but carefully of course.
Good news, bad news
So JPMorgan’s Multi-Asset Growth and Income Trust is merging into the bigger JP Morgan Global Growth and Income Trust. It’s sad in many ways as it did what was demanded of it, a balanced approach, a very good and dependable income around 5-6%pa and in the end the share price even gave some capital gain against those who supported it at launch in 2018. We can’t complain – we didn’t support it then but we bought-in as the discount appeared, chasing the shares all the way down to their low of 71p in March 2020. The liquidation asset price is in the region of £1.03 and the transfer was at a useful premium to the recent share price levels. What more do investors want?
Again, it demonstrates the benefits of ‘buying a discount’ on a closed-ended fund. Even if that ‘only’ gave us an extra 12% profit uplift in the end, that is not to be sniffed-at, is on top of what the underlying assets were doing anyway and is a bonus for ‘free’. If it didn’t happen, it didn’t matter as we were still buying market assets cheaply. This special bonus had nothing to do with the ‘markets’ either – a technical opportunity we were pleased to exploit but as ever, we are already moving into the next ones, for the next corporate action to unlock them but we need patience and our clients’ patience too, to wait for that.
If all you own are open-ended funds and ‘passives’ – index trackers (as most firms sell to you or manage for you), you aren’t buying these discounts and no bonuses will ever arise. Put it in a different way, if say the ‘costs’ of holding the Trust, or our management or whatever, were say 1.5%pa, you have had it cost free for eight years simply from the bonus. Headline advertised ‘cost’ is not everything when considering the value underneath, so bear that in mind (and we also provide financial planning advice in our ‘costs’ to our participating clients, with our compliments).
The Japanese Yen has been falling again of late as the Central Bank chose to exit the zero-rate (or minus) interest regime by nudging rates slightly higher. The Dollar is now double 2012 levels and up 50% from 2016. I have said it before (and to our cost as we started buying the currency as a hedge – but not at those stronger levels) but it is too early to write-off the Japanese economy and its vast wealth. An equilibrium would be about a third stronger than the present levels plumbing such lows. If you have not visited – time for a cheaper holiday there perhaps! I can commend it!
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
