The markets are hoping that Middle-Eastern concerns have not escalated and after initial worries, markets have rebounded and the oil price slipped-back again. Let us be hopeful that is a permanent state of affairs though the Israel Hostage and Palestine situation does not go away.
The UK and the US have approved further sums for Ukraine too and that has created some necessary relief there. Even Nvidia has had something of a savage hair cut in regard to its share price too.
Well, Mr Neil Woodford and Link have been censured by the FCA for their behaviours. This is a significant time after the events of course (the funds were suspended almost five years ago) and part of the ‘Review’ might consider if the FCA should or could have acted sooner, in the face of some shenanigans such as using Guernsey listings for a few illiquid assets to try to shoe-horn the liquidity issue.
I shall repeat what I have said before however; the biggest failure was ‘what happened afterwards’ really when Link was in charge as opposed to a sensible strategy for unlocking the management for the captive investors and avoiding fire sales of assets at give-away prices, as happened. It is also perhaps apt to note that most parts of these ‘ACDs’ (Authorised Corporate Directors), nominee companies and registrars are not regulated but whether being so would have changed anything, I don’t know. Clearly there were failings in the ‘responsibilities’ of those who administered the underlying funds yet it could be argued ‘regulation’ would have given a pretence of extra respectability – and independent oversight. Link was the same administrator with one of our own bête noires – Blue Planet Investment Trust and it did not do what it could or ‘should’ have done there either. Link lost almost £1billion of investor capital in the process of winding-up Woodford funds it was overseeing. Curiously at the ‘same’ time, Mr Woodford has reappeared and says he is ‘neither hero nor villain’. What do you think?
At last the FTSE100 has broached its all-time record set early in 2023 and driven by old sectors – oils and miners. Oils rose on tightened supply but also on escalating tensions between Israel and Iran. However, most metals (including precious) are rocketing it seems, albeit aside from gold, from very oversold positions. Both sectors have been unloved for a long time, hatred buoyed by ‘ESG mania’ which denied the absolute use of these commodities and even the imperative need for them in the new green environment.
Unrealistic ‘windfall taxes’ on energy providers will also have unintended consequences but inflation will start to turn upwards again on the back of these major moves in input costs and potentially defer cuts in interest rates. Curiously, the US is off its top – and is looking decidedly toppy – a positive correction against it, favouring the UK is long overdue. I am pleased to report we have been squirrelling-away energy and mining assets (as well as some actual metal exposures) for some time, securing very attractive incomes from the related stocks whilst we waited, too – and avoiding dear US tech even if that may have cost-us for some of that time. However, the risks are severe now, for those over-exposed.
Whilst prostitutes are not appropriate, it’s best to sell shovels and provisions to the gold prospectors, not searching for gold itself remember… Sell shovels and picks—better yet, run a bordello—but don’t dig for gold
‘It’s only a dog’
Sad to say that our Dear little Dora, our rescue English Setter of eight years died last Friday week at a ripe-old 13½. I know they say ‘it is only a dog’ but it’s hard not to be saddened when a close family pet dies. Whilst life continues the same, the companion which never changes its unconditional attention and affections for you is no longer there.
In these times of ‘political correctness’, perhaps it is time the expression ‘dog’ being used for such things as ‘bad performers’ and ‘bad experiences’ generally should be banned… as most of our pet experiences are good and hearty for our souls and not ‘bad’ as the inferences suggest, including ‘funds’ and ‘performances’.
Inflation continued
Whilst headline inflation here is drifting lower, the market expressed surprise that UK wage increases remain way above that. What did they expect would happen if the Living Wage was increased by 10%? Employers have no choice but to increase prices to customers. More disturbingly however, the numbers of ‘inactive’ adults of working age has increased but also unemployment has risen, with vacancies shrinking.
I should not be surprised to see marked increases in unemployment over the coming years, both because the cost of employing has rocketed to become unaffordable in many cases but also as AI applications accelerate to compensate and save against this major cost. Tax will also need to increase yet again as the Government is the biggest employer and pressures on better productivity seem to fall on deaf ears in the public sector.
Consumer Duty – the fall-out continues
Whilst well-intentioned, the fall-out is continuing. The numbers of regulated financial advisers and firms is shrinking just as more people need more advice. On top of that, firms are using the ‘excuse’ of ‘poor value’ (however subjectively defined) to close funds and quoted Trusts and often at probably just the best time for sticking with them as they are so out of favour and under-valued.
Indeed, platforms which theoretically are ‘execution only’ so that their investors can decide what they want to buy, without advice, are arbitrarily barring their customers from buying or holding a growing list of assets through their censorship – and frankly that is not acceptable. Often these are some of the most compelling assets – because they have fallen so far and are so cheap – and just when private investors can’t buy them. The same platforms allow spivvy AIM shares perhaps but not highly regulated Investment Trusts if they seem a tad esoteric or risky (meaning have fallen a long way yet probably ready for significant rebounds).
They are frightened that if their investors lost on them, the Regulator could say that they failed in their ‘Consumer Duty’ by ‘allowing these people to invest in them in the first place’. Indeed, one of the subjective measures is ‘performance’. No, in reality this doesn’t mean ‘what you have produced and better than ‘x’’ but overall. This is leading a naivety which suggests that you dump something which has ‘performed’ badly, (typically having gone down in value) and you buy something which has performed ‘well’.
The best value is amongst the things which no one wants and the worst amongst the things everyone wants (at that moment). Where does that feature in the Regulator’s armoury on ‘performance’? No, I am not talking about superstition and the gambler’s last throw to hope to redeem himself here but the fundamental underlying real value of an asset based on what it represents. If a good asset at £1 drops to 50p with no fundamental reasons for further negativity, then in reality it is likely you should double-up and not sell-out. However, this new ‘regime’ would suggest that as a ‘bad performer’ it would be relegated to the disposals’ bin, fuelled by the whole machinery from the regulation and financial liability fear from holding onto it. How absolutely stupid is that…
Indeed, the FCA’s latest data shows that 39.1% of all pensions being accessed now enter ‘drawdown’ without any advice – that is just sheer madness. Perhaps even worse, almost 70% of people first accessing their pensions did so without advice. Some of that will be cost (and as adviser numbers shrink, the cost will rise) but not all. That said, we offer our investing clients complimentary guidance (without any constraint on the size either so even for small pots) and of course most appreciate that but there is still a list of non-responsive investors (typically quite tiny cases we ‘inherited’ through the Organic scam) who don’t respond to any offers for guidance as to what may be best for them (including considering their State Benefit situation quite often), in their unique situation… we try… what more can we do?
On top of that I’d like to ban the daft letters which have to be written to policy holders as they approach the age they put on the original application form for pension access – can we not recognise that if people need money from their pension they can ask? The proportion of those who encash their plans despite not needing it (and that certainly not being the wisest thing to do simply because they have hit age 55, say), is high. That doesn’t help them.
Electric cars
So following the Government’s attractive tax encouragement to limited companies to take-on electric cars for their directors and employees, we did. We took delivery of a Jaguar I-Pace over three years ago and it went back in March under the monthly contract terms. I shouldn’t have wanted to buy one because of the technological advances in batteries but we were shocked to see how a £90,000 vehicle costing the Company some tax-relievable £850pm for three years (so say £30,000 in total) is now for sale at £23,990 or £370pm on a PCP scheme. That’s a capital loss of £66,000 in three years… Will our cheaper replacement Tesla be similarly depreciating?
Investors tend to have short memories. The ‘magnificent seven’ in the US tech world includes Tesla but slowing sales have made this the second-worst S&P500 stock this year, losing a third and with its market value halving from late 2021 to $1.2trillion. As we have been saying for ages – the prices at which some of these tech (all?) stocks are trading can become so divorced from the underlying realities as speculative froth becomes far too excited. Even now, Tesla is not cheap yet its future is really bright – the two things are not necessarily bed-fellows and investors would do well to remember that with their dominant US investments now. I add – Tesla’s electric car division has just announced a 10% redundancy programme across its workforce (14,000 personnel going, worldwide).
Following-on from this theme and index-tracking, Tesla is an interesting case. Its shares have more than halved since its July peak (down 65% since its 5/11/21 top). Tesla joined the S&P500 index in December 2020 when it was already the sixth largest stock by capitalisation (hype pushing-up share prices and arguably not real ‘value’!)
Passive tracker funds suddenly had to buy $78billion of its shares to replicate their index and guess what that type of demand – and inevitable anticipation of that demand – does. So a flurry of activity saw almost a quarter of Tesla’s stock traded on the last day of the period as these cheap index-tracking beasts chased the stock to satisfy the maths. Is this really the way to invest your money? Paying artificially inflated prices for the stock ‘because they must have it’ makes a mockery of the ‘cheap terms’ for passives as they would have lost billions paying too high a price in a short-term window (and don’t forget they all had to dump all the same other stocks to raise the cash to buy them too).
You can’t win them all
I hesitated and we missed the Hipgnosis bid… a gain of a third and the price almost what the original investors paid. What does it say though? That quoted investment funds trading at deep discounts do attract corporate attention such as this. It may be ‘sad’ but that is the greatest ‘value’ opportunity in the market presently and we are ‘full of them’ just waiting. And then along comes Blackstone to pip the first bid and offer investors more than their original £1 back (effectively).
The average discount on Investment Trusts rose last week to 17.9% according to Panmure Gordon, a great opportunity (as the widening is from increasing underlying asset values where share prices haven’t keep pace with them, rather than new negativity).
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
