Dear Friend
DEVONSHIRE ASSET MANAGEMENT LTD previously of suite 108, Queen’s House, Barnstaple
First, our condolences to all those who have lost loved-ones through this horrible virus. Nothing can take that away and it really is a nasty disease and we shall all look forward to when it is finally behind us. Still, as some consolation, wasn’t it lovely to see the 100th birthday celebrations for Captain Tom and the over £30million he has raised for NHS charities through just a little effort. Let’s trust that the money percolates through to the related ground floor charities which can use it as soon as possible and is not swallowed-up by bureaucratic processes.
So the FTSE100 breaks back-through the 6,000 barrier on the upside. This is good news. As usual, we can’t say that it is permanent nor a ‘dead cat bounce’. That’s a ‘mere’ 23% higher than the recent low. Readers will know our sentiments – very much these were to remain invested generally and indeed to buy on the dips though it is still too early to call the turn. What is it with March though? – the 2002/3 bottom was in March and also the financial collapse saw that month as the worst. Oddly enough, we were very much in the minority with our calls then too. I know one or two other advisers and managers were encouraging taking advantage of some of the abnormal financial opportunities at the time (and now) but the majority was in panic mode and continuing liquidating at ludicrously cheap prices and of course pointing to even worse to come. It may not feel like it but technically this recovery constitutes a ‘bull market’.
We have always tried to hold our clients’ hands whatever is happening. It is not a common phenomenon as is clearly the case. We try to encourage our clients according to what we believe is and was the best thing to do at the respective times. We only had three advised clients giving us liquidation instructions during that time and we tried to dissuade them too. The total value was only a few tens of thousands of pounds and one of those took the funds to buy another renting property (against our advice over deferral). I suppose we should be proud that we managed to save ‘everyone else’ from doing the worst possible thing in the worst of the storm. It wasn’t and isn’t easy, going against what it appears everyone else is shouting so loudly. Out there though, the withdrawals investors made from all-over, from gold to bonds to shares and commodities were colossal. Fund management groups have seen hundreds of billions withdrawn and losses crystallised which can never be regained as the participants have left. Much of this is from advisers and managers themselves but lots were from direct investors who do not have a relationship with an adviser to at least share opinion and comment at such times as these. Maybe too, some of that action is because the investors think it is expensive to pay an adviser for contact but if that ‘expense’ has helped anyone avoid losing 23%, it might put the nominal costs into better perspective. But no, we are not perfect at all and the recovery remains just ‘proportionate’ but is still a great relief from where things appeared to be trying to head. The FTSE100 was cheap earlier in the year compared to say the US but it is still down 20% from earlier levels.
We also communicated a great deal (sorry if you think too much but the crisis is important and deserves greater attention). You will know we wrote more eshots than usual and we sent letters to all our discretionary clients on more than one occasion. Then we did a mailing to all our database – excluding the costs of writing it and staff time, etc, that alone cost the best part of £6,000 and it is hardly an income generating exercise for us but it is what we believed was the right thing to do, so we did it. Still, we may not be right on the markets – time will tell but curiously at similar past times (tech bubble in 2001/2 and the financial crash) we have called things correctly when they were ‘too cheap’ and it is a good reflection if it can be shown that your adviser can keep his head when all others around him are losing theirs.
Still, what is even better is that a number of second and third-line stocks which were hit the hardest have also been recovering significant ground, more than the headline indices. We have a number of investments which have bounced markedly from their inappropriate lows and it makes a significant difference when a large collective fund holding goes from say a low of 50p to 72p in weeks – that is 44% and a dividend paid during the time too. And yes, for the clients who entrusted a few more pounds to us during the awful times, we tried to ensure we bought cheaply as depressed and distressed sellers sold regardless of the price. However, there are still plenty of things which remain very depressed in price and if you happen to be full of banks, oil companies, property, travel and retail, it will be some way before you can imagine that values will be back to where they had been. Good balanced strategies will have many such things within them and we remain sober to the paper losses still staring us in the face. When the likes of Royal Dutch Shell shares are still half their earlier levels and you realise it counts for a big chunk of the whole of the UK Stock Market you can see there are big differences in that recovery. Yes, we have some but thankfully not too many but lots of funds will have big holdings of this core company.
OIL PRICE
The bizarre reverse oil price for Texas Crude shocked us all. How could it happen and does it reflect reality? Not really. What did happen (and can happen again) is that storage capacity for the stuff is filling-up. This means that when the delivery point arrives, the only way you can dispose of your oil is by paying someone to take it off your hands! This phenomenon won’t last for long. The taps will be turned-off slowly (Russia has just agreed to cut, pushing prices 30% higher on one day) and the supply will shrink. When the world is back to some semblance of normality its 8 billion inhabitants will revert to similar ideas as existed before and consumption will rise significantly. In fact, there could be oil shortages and then rapidly rising prices. I’ll say again what I have said before, a fair equilibrium oil price in my view (recognising there are many types of oil!) is around $70 a barrel.
So you want to buy cheap oil and you buy an ETF which trades the commodity. Maybe that is a very bad idea. Why? These things hold futures’ contracts. They don’t have vast, expensive storage facilities to keep the oil. So as a contract expiry date approaches, they have to sell to someone who wants physical delivery but at whatever the price, to buy a longer dated future contract. In normal times, this is fine but in these times, it has meant that selling a short-dated contract and buying the next one out sees a dreadful price on what you sell and a high price for what you buy. Whilst usually they don’t trade the nearest month, it could still be the case that your oil ETF loses $20 a barrel each time it has to roll! This pricing anomaly is rare and is called ‘contango’. So in theory, the future price of the commodity is much more than the present price so if you did have a silo and took delivery of oil, you could sell it immediately for say August delivery for a big fat guaranteed profit. So really, if you think oil is too cheap (which it is) then you are better buying oil shares frankly as otherwise your view could be right but you lose on each technical rolling within your ETF.
The same scenario can apply to any commodity but clearly it is rather easier to take delivery of some gold than it is, say, 100,000 barrels of crude oil (and it doesn’t come in barrels either!). In fact though, demand for gold has been high as people look to an ostensibly safe haven asset. However, probably it is becoming pushed too high – if ‘everyone’ wants it, the psychology of the crowds is that it is priced wrongly. It is not cheap at $1,700 an ounce either. However, holding some as a hedge against other things may not be wrong but when it is too dear, more-on. Indians, great lovers of gold, have been selling the real stuff – of course being priced in Dollars (and the rupee has fallen) then the price appears even higher.
There has been a market anomaly here however – the Lockdown has meant that real deliveries of the precious metal have been interrupted so to buy gold over the counter, the price has been as much as 10% more than the market price – isn’t that daft! That’s what you have paid if you are impatient or really want to hold the stuff rather than buying a piece of paper representing either some lump of gold in a central depositary or some paper representing that.
PERSPECTIVE
I am back to my food critic’s comment in the film ‘Ratatouille’ again. With all the negativity and the tragedy, we need to look at things with a different pair of glasses. We see the wonderful example of Captain Tom Moore who is 100 raising £30million by a simple demonstration of support for the NHS. Can we imagine what he has seen in his life? He was a captain in the tank regiment and will have witnessed far worse situations than ever we are facing today, however bad we may think things are. It is then when perhaps we think that ‘we’ and the financial markets are over-reacting – we need a ‘little perspective’. Is it really right that March 2020 was the fourth worst month for the Dow Jones ever for example? In 150 years’ history, the Dow Jones has only lost 15% in a year for five of those. Conversely, the best four calendar months enjoyed gains from 17% to 50% and all of those were during the Great Depression from 1929-1940.
March 2020 was also the second worst month for the UK Small Cap index (smaller companies) in sixty-five years, second only to October 1987 when the market had rocketed beforehand (this time our market had not risen significantly in the twelve months up till March 2020).
DEVONSHIRE ASSET MANAGEMENT LTD previously of suite 108, Queen’s House, Barnstaple
The FSCS (Financial Services Compensation Scheme) has just accepted that this company has been added to its list for claims to be made against it. https://www.fscs.org.uk/failed-firms/devonshire/
Devonshire Asset Management Ltd went into liquidation in 2016 but because of claims against it, the FSCS has taken responsibility for any eligible claims for losses incurred by its clients. Client files shuffled-over to Assured Wealth Management Ltd, operated by the Lofthouse Family in the same office in Queen’s House used by Devonshire Asset Management Ltd till their engagement with that ceased in October 2018. That Firm ceased being FCA regulated on 21.9.2018.
It appears that the main claims arose from the Company’s promotion of investments in a scheme called ‘Connaught Income’ which was promoted as an ostensibly low-risk investment but whereby significant losses were suffered by investors. Compensation has been paid already by professional advisers connected to the scheme too and investors have received some recompense.
If you were a client of Devonshire Asset Management Ltd and have suffered losses from this matter or any other (market losses from ‘normal’ investment movements are not covered when the advice to acquire assets was deemed suitable to you at the time) then you are entitled to lodge a claim for compensation.
We are regulated to provide guidance and advice on such matters as claims with the FSCS and I personally am offering informal, free guidance to anyone who may be affected or who may not know if they have a problem as a consequence of this news. I have more in-depth details of the apparent circumstances surrounding the Firm’s collapse and investments in the Connaught schemes (in which we did not support, as Connaught failed a series of due diligence tests we conducted then). Lodging a claim with the FSCS is free.
It is always very sad when a company goes into liquidation and cannot pay all of its liabilities. When this is a known, local financial advisory firm which has operated for several years, a key local player who we knew well and it happens and there are unpaid claims against it, it is doubly sad. It can be a worrying time for the clients who may have been affected. We never like to see this happen but clearly, in this instance the protections of the Financial Services Compensation Scheme come into their own to ensure those affected by the problems are compensated for their losses. If we can guide people so that they know how to claim their rightful compensation, then we are pleased to help our local community in this way. Please pass the word.
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 celebrate our 35th anniversary in 2020 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
