Well, what sort of three months have you had? Market valuation rises since the vaccine announcement, skewed towards such under-priced ‘value’ stocks, have been phenomenal. We have enjoyed a 20-25% gain on our median ‘balanced’ strategy since the 5 October valuation report (noting this is still simply recovery for longer-term investors though, after the carnage of the spring’s reaction to the Pandemic) and with values of certain holdings at amazing levels compared to March lows. We may have been optimistic during the depths but could never have dared hope to see so much and so soon.
We have trimmed some, yes but have ridden others all the way up and some of our core Investment Trusts held by most clients are at the Firm’s largest ever exposures as a consequence. Investment Trusts like CQS Natural Resources (with a good gold bent), Aberdeen Smaller Companies, Miton Global Opportunities, Seneca Global Growth and Income, Premier Miton Global Renewables and UIL Investments (a utility entity) have rocketed from such cheap levels and yes, some are only regaining earlier levels but some of these were the sorts of things we were buying with every spare pound of cash we had available during those dark months (as others were giving them away because of their ‘poor performance’). Many of our holdings are arguably boringly low risk too by what they hold (define risk? Another day perhaps). Remember as well that our ‘balanced’ approach includes more rock-solid investments such as cash, currencies, core commodities and loan funds which won’t have moved up (or much) so it shows what just a ‘few’ outstanding recoveries does to the whole portfolio! Clients who responded to our encouragement to invest all spare cash they could muster at such cheap levels will have been well-rewarded indeed and in each instance quoted here, ahead of their assets as ‘discounts to asset values’ have narrowed or evaporated as well, creating more return for our investors. Indeed, we have sustained a good level of regular income for those needing it too and can still project forwards a natural income of between 3-4%pa from what we hold now.
I always note, however, that the past is just that and decisions going forwards are what count. Sitting in something just because it is ‘there’ is not the correct thing to do – it has to be reassessed and also considered in the light of tomorrow’s opportunities. Too many investors out there are ‘just sitting’ at the moment (many basking in ludicrous returns from speculative situations) and a rude awakening is likely for them ahead – ‘expect the unexpected’ said Barton Biggs of Morgan Stanley. Anything which has scraped the sky is vulnerable to an Icarus-style falling to earth. Anyway, why remain over-exposed in extended, over-priced situations when there are cheap, fundamental value stocks to buy anyway and there really are loads of them? Rest assured, we shall be gravitating away from those we believe are more fully-valued and into what we think will generate best returns going forwards – isn’t that what our clients are paying us to do for them? There’s no ulterior motive for us after all. So buying models are changed, new stocks introduced to protect values and generate a good level of income (over 7.5%pa on one of them and with growth prospects too), further sector diversification (so clients are even less correlated to mainstream shares) and a few strange ‘technical plays’ with big discounts, etc. So then I have to sell some things to raise money so I can buy our latest best ideas, often bought when no-one else wants them. Imagine how well we have done from something like Schroder Public Private Trust (discredited Mr Woodford’s old vehicle) buying that on the way down but most acquired at the bottom, or Pollen Street Capital (now called Alternative Assets Trust) and seeing it taken-over for a hefty premium (as well as the fact we have received a chunky income throughout the Pandemic too, thank you). These two plus Seneca Global Income and Growth and CQS Natural Resources were the trusts into which most new money went in the spring and summer – check their results since if you like.
No of course not everything does as we should hope for it but over the same time noted above, the FTSE100 (which is what most UK investors check and use as the core for their home capital), is up 13%. That excludes income and fees of course and no, we do not intend to ever replicate just the biggest 100 UK companies and we invest globally but likewise, as many as 30-40% of our holdings have some form of ‘defensive’ characteristics about them too so not pure ‘equity’ plays. We shan’t be able to replicate our results over the next three months as much as we’d like it (that would be greedy) but I am comfortable with what we own and have no lack of places for new money too, all spread very widely and relatively defensively too. Our biggest holding constitutes just 2.7% of our total funds invested too – and it was really unloved for years – our investors have been very patient – and now ‘everybody’ wants it.. However, what you want us to buy and hold is what is unloved now as it is ‘cheap’. If you are not with us as your adviser and investment manager, is this what you pay your advisers (as I assure you that you are doing!) to do for you? Have they been doing it during one of the most challenging times we have all faced – and also some of the best opportunities? If not, you know what to do.
Short-Sightedness On How Much Your Advice Or Management Fees Cost
We see it quite often, especially ‘cute’ new enquirers and in the media and the industry seems fixated by it. Sadly and without wishing to appear rude but all too often people are simply plain stupid and so frequently mistake simple ‘price’ for ‘value’. No, that’s no excuse for anyone to charge exorbitant fees for their product or service and we look constantly at savings and how we may be able to reduce costs for clients. I don’t care what long-term charts exist about ‘passive’ index-tracking investments. Who decided to buy-in and when did you decide to encash and excuse me but what indices did you select, in what proportions and when did you change them? In 1989 you’d have had most money in Japan as the biggest market – the index is still down 35% so ‘cheap’ is irrelevant. It is naive to imagine you can discharge your longer-term investment strategy to such conveniently simplistic method of looking after money. I don’t care how much money you have to invest. You can’t buy the sorts of things that we have and as conveniently structured according to your optimum tax efficiency, as we can do it. You won’t do what might be the wise thing at the wise time either if you don’t have a trusted connection with someone with real knowledge and experience to help counsel you at the most difficult times or to take those decisions for you automatically – or who has the conviction to do ‘the right thing’ however uncomfortable it may be.
Why do clients imagine that most of our Family’s capital including pensions is in exactly the same places as clients’ funds? There it receives the attention it deserves and which it wouldn’t enjoy if simply stuck in some drawer somewhere or some apathetic funds with some defunct insurance or investment company and without any oversight or interaction, let alone regular consideration to tax efficient financial planning changes we all need to remember. Looking at a summary once a year doesn’t count either (and many investors pay advisers big fees just for them to send that along to them!). And no, as investment managers we are not perfect. We start by recognising our inadequacies, our prospective failings and things which have gone wrong before and how we may avoid them in the future but we then have to take action – decisions – even if the most common one we take every day is the decision to stick with what we have (and indeed to buy more of it, the cheaper it may have become). If you are only worried about the headline percentage fee, you are not for us. You can’t call us for a chat or guidance on whatever financial subject or problem you may have or if it may be useful to help you gain or save thousands on something you didn’t know about finances, opportunities or tax planning. You won’t enjoy the investment opportunities we find, no. You may ‘out-perform us’ sometimes too but that could be through big risks, just as too many are taking now by having such significant sums with Terry Smith, Nick Train, Elon Musk, Scottish Mortgage or whatever or whoever is the present ‘fund or man of the moment’. We have none of these (and we could if we thought they were the best for the future) – I wonder why. We didn’t have a sou with Mr Woodford when he was the best thing since sliced bread either…
Corruption & Bribery
There is no excuse and Petrofac’s old Chief Executive has pleaded guilty to paying £30million in bribes to secure lucrative oil service contracts. Whilst the Company and the present board have no taint to this, the news knocked the shares as clearly there could be financial reverberations. Wouldn’t it be lovely too if the recipients of the bribes can be pursued for repayment and criminal charges too, wherever in the world they live and The Middle East is no defence.
That said, does this mean that companies must not operate in nations which are driven by bribery and corruption? Big sums are worse but even charities or governments operating in certain environments having to authorise their local staff to ‘flash cash’ to perform daily activities or ‘buy-off’ the authorities whoever they may be is ‘just as bad’, or else, how do they live and perform? How do we make corrupt regimes change for their own benefits if we carry on?
Before we become all ‘holier than thou’ about our ethical principles of open trade and honesty and companies in which of course we should not invest but back home, Is giving tips to people (especially hospitality staff) immoral too – not declared for tax by the recipients in many instances (despite the rules) and then there are also the ‘discount for cash’ merchants from hair-dressing to plumbing, garages, building or whatever – and then the benefit cheater with that little cash job or money received for baby-sitting or whatever. I suppose that is one ‘good thing’ from the Pandemic – the use of cash has fallen so more transactions are electronic and traceable so that means less opportunity to bribe, defraud or cheat the Taxman or Benefit system I suppose.
Bitcoin Risks
It is not just our views on this fake ‘asset’ but even when people engage there is a high risk of fraud, one of the ‘attractions’ which those peddling it say investors crave (eg no regulation, hidden from central banks and authorities, etc, etc – is it any wonder why criminals like using them?). A client succumbed with his emergency cash funds over the New Year and sent £4663 to Jubiter, an Estonian company. They (if it is really ‘them’ too) now say that £3961 of his money was moved by him and they can’t divulge ‘where’. No he didn’t do it and the extent of scam telephone calls trying to steal more from him, from other entities, shows he has gone onto a scammers’ list. Jubiter won’t help him – but why would anyone deal with an unregulated entity and even then, one outside of this Country? He feels sick that he even started the process in the first pace and is really regretful he did not call us before he embarked upon this but more must be done to stop people (and often vulnerable people) from being scammed like this – let alone the simple gamblers’ speculation on a pretend ‘thing’ which will all end in tears at some point. It is wrong – all so wrong and central regulators should stop it now.
Peer-to-peer lenders
You may recall that two eshots ago I mentioned the risks investors face when using schemes not protected by the FSCS. Yes, the organisers themselves can be ‘regulated’ by the FCA but that doesn’t mean the same as our ‘horrendous’ levels of regulation! It often only means the sales’ processes and marketing for example – quite misleading to an investor. Since then, yet another has bitten the dust, one centred upon secured deposits to buy motorhomes to be rented-out. The problem is, that some depositors have found ‘their’ motorhome has disappeared mysteriously (as many as a quarter or more), or it wasn’t new (if it did exist) or indeed that more than one ‘security’ was taken over the same motorhome. So the Company has gone into liquidation with a £7million (at least) deficit and many of the motorhomes had been sold-on to unsuspecting and innocent buyers who could now find they didn’t have good title to them either so they lose their money as well. St Andrews’ Motorhomes Ltd went under similarly in 2018 taking investors’ monies with it and the latest is called ‘Unbeatable Hire Ltd’.
Have a look at ‘Buy2letcars’, a trade name of ‘The Raedex Consortium Ltd’. This advertises ‘consistently delivering up to 11%pa return since 2012’ (for investors) and a ‘0% default rate’. Search on the Companies House website for the accounts and whilst there are connected companies, would I deposit money with this one? No.
https://find-and-update.company-information.service.gov.uk/company/07951186/filing-history
Peer-to-peer Lenders
Peer-to-peer Lenders
You may recall that two eshots ago I mentioned the risks investors face when using schemes not protected by the FSCS. Yes, the organisers themselves can be ‘regulated’ by the FCA but that doesn’t mean the same as our ‘horrendous’ levels of regulation! It often only means the sales’ processes and marketing for example – quite misleading to an investor. Since then, yet another has bitten the dust, one centred upon secured deposits to buy motorhomes to be rented-out. The problem is, that some depositors have found ‘their’ motorhome has disappeared mysteriously (as many as a quarter or more), or it wasn’t new (if it did exist) or indeed that more than one ‘security’ was taken over the same motorhome. So the Company has gone into liquidation with a £7million (at least) deficit and many of the motorhomes had been sold-on to unsuspecting and innocent buyers who could now find they didn’t have good title to them either so they lose their money as well. St Andrews’ Motorhomes Ltd went under similarly in 2018 taking investors’ monies with it and the latest is called ‘Unbeatable Hire Ltd’.
Have a look at ‘Buy2letcars’, a trade name of ‘The Raedex Consortium Ltd’. This advertises ‘consistently delivering up to 11%pa return since 2012’ (for investors) and a ‘0% default rate’. Search on the Companies House website for the accounts and whilst there are connected companies, would I deposit money with this one? No.
https://find-and-update.company-information.service.gov.uk/company/07951186/filing-history
If there is a zero default rate (meaning not one customer has failed to make instalments) it means the Firm must have funded the payments themselves… how likely could it be that not a single ‘borrower’ since 2012 has ‘defaulted’…? I am happy to be proven wrong…
If you deal with an unprotected entity in the peer-to-peer market and even if you have had a ‘good return’ from your past deposits there, if that payment has also in any way been funded by new investors, then it is a glorified ‘scam’ or ‘Ponzi scheme. Of course there are some better in with the bad too but what sort of good security could you have over a mobile campervan to be honest… it is not like a piece of property which even then can be worthless at the crunch time… (indeed last week more revelations about a property Fund specialising in ‘cheap’ German property – will investors see any of their money? Unlikely).
Well, I mentioned another peer-to-peer operator by name last time and within days, I had an email demanding my ‘blog’ was removed as comments were incorrect and misleading and then a director called to chat. I have asked for details of what was incorrect so I can review that and act accordingly but so far, I have heard nothing… In fact I offered the opportunity in the regional media for their side to be balanced against my own cautions but that has been declined too curiously. I don’t mind what people do with their money as much as they may be given wise counsel. However, I do mind if they don’t realise the risks they are taking – for when things go wrong and the deluge happens, it is too late. I also suggested that if the ‘good guys’ wanted to prove their provenance and security that they could become fully regulated so investors’ deposits would be properly protected. That is quite a process but last week, a new bank was regulated called Oxbury Bank after securing £15million capital. It plans to specialise in agricultural lending. It’s not impossible.
I repeat what I said before. There are quoted investment loan funds on the Stock Market offering exposure to baskets of all forms of loans and whilst they are harder to find than they were, the interest returns are good (often better than ‘peer-to-peer’), the marketability easy (by sale on the Market) and you can spread the risk by having a portfolio of these and not just one. We have several for our clients though the universe is shrinking, as gradually they are being gobbled-up by others or indeed returning cash to investors! Please don’t become involved with straight ‘peer-to-peer’ as the risks are too high and the returns not commensurate with the possible terminal risk you could be taking. That said, we do not recommend you just buy one yourself either – let us do that for you and you secure even more protections.
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
