Not Worried About Inflation And What It Does To Your Money?


Dear Friend

MR WOODFORD AGAIN

Well, you can’t change the past.  No, we never had any of the funds (but have bought some of the quoted Investment Trust at half its previous high price).  However, the thought arises – is dumping your investment now the best thing you could do?  This applies both to the units suspended (which you can’t sell anyway) but also to the managers of the funds who have to raise liquidity or the new managers.  Before anything else, if you have any Woodford or related funds and don’t know what to do, feel free to contact us for some independent thought on matters.  There’s no charge for an initial exploration and no obligation to do anything but please don’t fall for the next worst trick which is advisers or managers selling ‘it’ simply so the toxic name no longer appears in your portfolio – that is NOT a reason for selling something if the best potential for recovery lies in the same ‘pain’ as endured to date.

However, there are some others, namely St James’s Place and Openwork and others, which all appointed Mr Woodford to run some of their direct funds – £3.5billion and £300million on those two respectively.  Well, they have appointed new managers and guess what?  The first thing they are doing is selling large lines of the assets held.  Now, that might be a fair thing to do but is it also the most stupid thing to do?  Selling lines of shares in companies already blighted by being connected to Mr Woodford and where the share prices have already been marked down significantly by selling by Mr Woodford himself and then speculation that more sales are likely to follow (so buyers go on strike pending clarity too) as well as short-sellers selling stock they don’t ‘own’ and all driving the price further down?

‘Value’ investment as Mr Woodford espoused (mainly) is very out-of-favour at the present time too so all of those factors – and a UK-centric investment concept when we have uncertainties from the new PM election as well as the overarching Brexit situation, do not create an ideal back-drop for selling temporarily unpopular shares.  In fact, it is pretty stupid creating losses which when made, can never be recovered.  So you can’t change the first set of problems from Mr Woodford’s suspension etc but these groups are multiplying the pain and yes, I hold that they are responsible for that – not Mr Woodford.  It is not rational judgement and even if the new managers do not ‘like’ certain holdings, just dumping them on a fire-sale basis is not what they should be doing.

In fact, I shall go one further and say that possibly the best shares to hold for the next year or so could well be a collection of those which Mr Woodford and his cohorts have been forced to sell to raise money.  The companies are doing the same things they were before and yes, some will have troubles but some will perform and do what they were expected to do so maybe yes, investing in Mr Woodford’s ‘clean’ funds through the other side could produce exemplary results and simply from a ‘recovery’ from deeply over-sold levels for the components in the main to ‘normal’ levels as existed before the knowledge of all these likely fire-sales hit the markets.  It’s probably common sense rather than any other investment principle…  now, who will be the first to lodge complaints against the new managers for exacerbating an already distressed position – is that what you expected when you engaged say St James’s Place to take those decisions for you?  We don’t use them incidentally… there are plenty of better independent managers out there.

Here are a couple of examples – not recommendations but they could be excellent buys at these levels.  The first is Raven Property Group, a Russian property company.  It has bought-in and cancelled 12% of its shares from Mr Woodford and Invesco.  It did this at 36p.  Yes, it’s an esoteric concept but the last asset value published was 70p.  If my maths is right, the Company swallowing its own tail has added 4.5p to the share value of the remaining 88% of shares (the shares are already back to 40p).  Then there is New River Real Estate Investment Trust, the market’s darling up till recently.  It has a wide portfolio of mainly secondary properties and has been raising new money up till quite recently and since then, all the Woodford stable has been dumping its shares and yes, they owned a big chunk of them.  In September 2017 its shares were £3.53.  At time of writing they are £1.65 and if you invest based on the latest figures you will receive a dividend of over 13%, being a share of the rents being received from tenants in this eclectic portfolio of property assets.  The Woodford holders still have more to sell so I guess that will suppress the price in the short-term but really – is that the best thing for them to do, to sell at these levels?  Is that what you are paying SJP to do for you for example… I can just imagine their call to their brokers.  ‘Hi Broker.  We need to dump all this toxic Woodford stuff as quickly as possible’.  ‘OK – do you want to set price levels?’ ‘No, just do the best you can.  We can blame the results on Mr Woodford’.  It’s like conducting a sale of bankrupt stock – you will not secure the best prices in such a scenario – how foolish indeed, how negligent.  I am sorely tempted in both of these examples – and they represent alternative assets too for further diversification away from the mainstream market.

NOT WORRIED ABOUT INFLATION AND WHAT IT DOES TO YOUR MONEY?

I really enjoyed the BBC2 programmes inside the Bank of England (iPlayer available!).  However, something really struck me on the last episode.  Someone had died and the executors found cash around the property.  No doubt there were lots of current notes but plenty of very old ones too including 10/- ones.  The Bank is obliged to exchange them for current money.  It was suggested that the package received was the biggest ever – £45,000 of old notes, which is a fair sum but what is so sad is that they went back to 1964.  The Bank gave the Estate the £45,000 due.  Do you know that if the deceased had put that money into an inflation-linked asset it would have been worth £866,854?  That could have been several houses, or lumps of gold or other precious items but in real terms, that money has whittled-down to next to nothing.  It is like today if you had £866,854 and you kept it as cash (even on an account the interest is banal now and hardly adds to the return) but in fifty-five years’ time you would have £45,000.  Had that person invested it in the ‘Stockmarket’(for this purpose having all the shares which existed at the time so spreading the risks colossally), yes that really risky thing as they all say and with all those awful crises and wars to boot…. It would be worth over £4.5million today.  Clearly the deceased was a very rich person who could afford to take colossal risks with their money to see so much of it disappear.

GREEN INVESTMENTS

Unfortunately, often participating in schemes to alleviate environmental issues is very well intended but sadly they can prove to be fraught with problems and in the end, you can lose all of your money.  Fraudsters love to frequent the space created by international and government-led issues and all too often, whilst the idea may be very sound, it is simply a way for the operators to run-off with all your money, even if done ‘legitimately’ by stripping too much money out of the companies they have created or failing to be especially business-minded as it is a ‘fluffy’ and perhaps we could say ‘emotional’ subject for them and also participants.  It is a great shame when this happens but likewise, perhaps for many the best ways of participating are by donating money to relevant charities doing research into the subject and investing in standard entities instead and using your returns to support your charitable goals.

The latest to struggle has been an Enterprise Investment Scheme called Oxford Capital Infrastructure.  It all sounds great but it has had to write to participants informing them that many of their underlying investments have had to be revalued at ‘nil’.  Yes of course any and all companies can hit misfortune but too many such implosions seem to happen in market areas, like this, which appeal to the public in ‘different ways’ to the standard as they are ‘pretending’ to represent an ‘ethical’ dimension but all too often, some of the participants can be none too ethical at all!  I am not saying this has happened here but the alarm bells have to be ringing but whether it is sustainable forestry in Costa Rica or Jatropha trees (a diesel replacement) in the arid Middle East, just please be wary.  Locally it can be the solar or other alternative energy installer who goes bust and you lose the money you have entrusted to them for a job or when it comes to repairing a fault, the guarantees a company have given are worthless as they too have ‘gone under’.  Emotional enthusiasm for such a subject is not a replacement for business acumen and all I should say is that you, as an investor, must remember that too in making your decision to part with your hard-earnt capital.

Directors of ‘Global Forestry Investments Plc’ have just been arrested too on fraud as investors saw little from the many millions they piled-into ‘ethical forestry’ in Brazil.  Unfortunately too often people park ‘due diligence’ to one side when they think it is an environmentally-friendly investment scheme but fraudsters are well aware of that.  You need to be aware of it too.

It was interesting too to do some research on ‘socially responsible investment’ recently.  Not only have people’s expectations of what comprises ‘SRI’ changed but also so have fund managers’.  I see the Norwegian Sovereign Wealth Fund (a cool £1trillion and the biggest such fund in the world) has reversed its policy on carbon fuels for five large companies after assurances (?) but when researching a large local charity’s investment policy it was entertaining to read its ‘friendly’ policy but then to find all its such invested reserves are all primarily in the one pot (an SRI Fund) and one where the largest holding is Royal Dutch Shell!  Who is paying lip service to the concept to salve consciences?

MEANNESS REGISTER?

Charity donations as noted on Tax Returns have been rising considerably. At £3.2billion for the 2018 year, that is almost double the 2008/9 year.  It has been especially from high earners increasing their donations.  22% of pensioners made donations totalling £532million but only 11% of working people gave anything at all and 58% of all donations came from those earning over £150,000 though it has proven to be a smaller pool of individuals giving more.  The Government added £1.4billion of GiftAid relief in the tax-year 2018-19.

We do help guide those who want to consider philanthropy and there are many ways in which they can do so.  We have even created charities to assist in this regard when the donors may want more ‘control’ over the use of their capital or indeed its income for charitable purposes.  Indeed, the Company has also created its own Charitable Foundation and for purposes which it looks forward to developing into the future.

And remember, for higher rate Taxpayers, there is tax relief paid at your highest rate on all GiftAided payments made too (after deducting the Basic rate to the charity of course) as well as the recipient charity being able to reclaim 25% tax on your donation.

WANT HELP WITH YOUR TAX RETURN?

Well, HMRC levied even more fines for late Tax Returns in the last year statistics are available – 2016-17 – 331,000 of them in fact were over thirty days late and 14% more than the previous year.  As the numbers of self-employed grow (4.9million in March) then the likelihood is for more fines as more people struggle with the Taxman.  They will have been up again the last year as the details become more complicated to complete.

The penalties can be pretty onerous too, increasing the longer you are with the delay and also depending on the amount of tax you owe – as well as penalties for not telling the Taxman you should have been filing a Return too!  Now here’s a thing – appointing a professional agent, like ourselves, to help with your tax could not only save you any nasty penalties but also save you tax as we guide you on effective tax planning – and we relieve you of the worry too – it doesn’t have to cost the earth either, especially if you do most of the work and keep tidy records!  After all, we don’t want to charge you for simple things you can do yourself do we?

TOO CLEVER TO BE SCAMMED

I have spoken before about victims of scams.  Yes, it is mainly the vulnerable (and remember, that could mean when YOU are feeling vulnerable and don’t realise it).  There have been rocket scientists and professors who have been duped and last week, the sorry case of a long-experienced and distinguished (apparently Christian) solicitor called Hugh Landsell of Hansells in Norfolk who somehow believed that he had won a lottery prize (for a lottery he had never entered).  What made that worse is that as he became sucked into what he perceived was a very plausible web, to release his pretend money he started borrowing money from twenty-nine different client accounts including charities, accounts where he had Power of Attorney and also the firm’s own accounts (he was the senior partner) till finally he had sent nearly £2million to the fraudsters in fifty-nine transactions over two years.  He had also instructed the sale of almost £0.5million of investments managed by Charles Stanley to fund the fraud.  He has been struck-off and has become a bankrupt and indemnity insurance and the firm itself have covered the losses incurred by the firm involved.  I ask a simple question – what simple sign-off arrangements existed in the firm for payments?  What monthly reconciliations of accounts took place, what external audit (we have two independent checks of our general client accounts as the year progresses on top of ongoing investment reconciliations and cash reconciliations to each statement received) all such commonplace things in a firm as our own.  What clerks have been fined and pursued for processing transactions he requested?  The firm did not ‘discover’ the payments till two years had elapsed from the first interaction – disgraceful.  It would be funny if it was not so tragic and indeed whilst a psychologist’s report was presented, I suspect he had early onset dementia.  All very sad and whilst the fraud is disgraceful, it also shows what absolutely unacceptable lacks of checks and balances existed in the firm and indeed perhaps the profession itself if external rules and regulations do not demand more rigid controls and checks as exist in our own industry – and I have been saying for many years now, more needs to be done.

FRENCH BREXIT

In a short article at the back of the Financial Times, not far after more news on the demise of Deutsche Bank’s global closures, it was interesting to note that the numbers of funds registered to certain European countries has been rising – apart from in France.  There, despite the relocation from London of many (and London’s figures still rising despite that), France has witnessed a shrinkage and despite lobbying, a quick train trip from London to Paris and the possible impacts of Brexit being pushed.  There were 10,804 funds domiciled in France at the end of last year, down from 11,790 at the start of 2012.  Luxembourg, Eire, Germany and the UK have all seen increases.

RISK WARNING

Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!

If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrated our thirtieth anniversary in 2015 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.

Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.

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