Wellian Weekly 19.04.2021

The stock market’s response to Covid-19 was breath-taking in its speed. On 17 January 2020, the FTSE 100 closed at 7,674. We didn’t know it then, but that was to be its high point for the entire year. By 23 March 2020, it closed at 4,993. And while we didn’t know it then, that was to be its low point for the entire year. Investors should give serious thought to the speed at which the markets reacted, declining at high speed, and going from peak to trough in a matter of weeks. Compare this to the events of the financial crisis which saw stock markets go from their highs in June 2007 to its lowest point in March 2009, a period of almost 20 months. Now while the two events are of course completely different, the financial crash of 2007-2008 now seems to have been almost pedestrian in its reaction when compared to a global pandemic.

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Wellian Weekly 22.03.2021

Since the start of the year, global bond markets have been getting nervous. Bond yields have been steadily rising upwards (and bond prices have been falling) indicating a fixed income sell-off is underway. And in the last few weeks, that nervousness turned into a rout, as the yield on United States 10-year treasuries jumped from 1.48% to 1.62% on fears of significantly higher levels of inflation. Here in the UK, 10-year gilts also spiked sharply higher too.

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Wellian Weekly 08.03.2021

I am a big fan of Exchange Traded Funds. In my view they are the modern-day unit trust.  I have previously written about Unit Trusts being over 90 years old and although they have come a long way, they have not progressed as fast as they need to, and they need to step aside as a collective medium for investment.  Step up, step forward the ETF – the rightful heir.

There are thousands of ETFs covering all sorts of investment propositions, and many operate with underlying instruments that you just cannot get in unit trust form due to legislative constraints. There is even scope to access levered products for instance. In the last decade, how many new UTs have been launched versus the number of ETFs?  That alone should tell you that ETFs are the future.

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Wellian Weekly 22.02.2021

There seems to be a big hatred for high fund management fees, and this is something I both can and can’t get my head around. I put the word high in speech marks in the title because a high fee is, in my view, entirely subjective and as we all know, cheap doesn’t necessarily mean good, and good doesn’t necessarily mean cheap. “High” fees are subjective.

It is true that fund management has the ability to make healthy margins and profits, but then again, I don’t understand why profit is frowned upon.  Google is allegedly free, but that business is massively profitable. Why is there not outrage that Microsoft made over $15bn profit last year – an increase of 1/3 over the last 12 months. Why aren’t these companies being pressured to reduce their charges? Why aren’t customers choosing alternative spread sheet or word processing documents in their droves?

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Wellian Weekly 08.02.2021

The year we have just been through will be remembered for a long time. I spent most of the year working from my home office (a single room not much bigger than a cell, although at times it did feel like one).  My commute was cut from 60 minutes to 6 seconds – which was great.  I got to spend more time with my wife and children – which was great (for me at least). Allegedly I saved money by not using the train (although my bank balance wouldn’t agree).

From an investment perspective, I think most will look back on 2020 as the year of Zoom and Tesla.  A year where NASDAQ left most in its wake. A year of unprecedented central bank intervention and stimulus. A year that witnessed the quickest fall and bounce back from many metrics surrounding stock markets and economic statistics. A year which saw China – where the Coronavirus was first identified and became an epidemic which then spread globally to become a pandemic – saw its economy shut, then open and by the end of the year seemingly operate as if nothing happened (if only the rest of the world could say the same…). A year that politically saw a change in the White House and the UK and Europe part ways. Bitcoin probably deserves a mention, but would that be from an investment perspective, a speculative perspective or just an interesting aside?

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Wellian Weekly 25.01.2021

An inauguration is usually a fairly mundane affair, but 40 million people tuned in to witness Joe Biden officially become US President. A day of high emotion and high security presence, many outside the US were watching too, if only to make sure his predecessor had definitely left the building. In the first few days since taking office, President Biden has signed 30 executive orders, marking the start of his presidency and a clean-up operation to address some of his predecessor’s more questionable actions.  

Despite a career rich with foreign policy experience, the less than united America Biden has inherited will keep him busy at home this year as he redresses the management of the Covid crisis, with an extra 10 million Americans out of work and the shocking number of citizens who have lost their lives. Surveys in Europe indicated America’s reputation had been weakened by its handling of Covid with a lack of global leadership coming from Washington. Overseas relations will need to be repaired, but they may have to wait until the US domestic environment has stabilised. 

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Wellian Weekly 11.01.2021

2020 will go down as a year of incalculable cost in human terms, yet a time of great innovation and hope too. In market terms, 2020 will probably be remembered as a year in which shares absorbed everything bad that was thrown at them and came back stronger to deliver another good year for many investors. That, however, would be to contradict a very difficult intervening period for investors, which saw share prices down by about a quarter at one point during the year.

Following the introduction of travel restrictions and the closing of non-essential businesses, a short, sharp bear market for stock markets in February and March threatened to set the tone for the entire year. At the time, fears ran high that the Covid-19 pandemic might have long term structural implications for the world’s economies and markets, as opposed to the deep but short recession that actually transpired.

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Wellian Weekly 07.12.2020

Investing is easy – buy an asset for less than you sell it for. Same could be said for football. Score more goals than your opponent in the allotted time.  But we all know that there are lots of rules associated with both investing and football which makes it a little more complicated. Explaining the offside rule for one; games that go to extra time and penalties in cup games but not in league matches; VAR; handball. From an investment angle - understanding risk; portfolio construction; requirements for income; compounding; price volatility; time horizons real returns and so on. What initially seems simple actually isn’t.

To make outsized investing, it is often said that you have to be ahead of the market – for instance, buying into online retailers at the expense of high street retailers, or buying into renewable energy at the expense of fossil fuels, and this is sound, logical advice. But this might not meet with your objectives – such as income, time horizon, or a lower tolerance for risk (depending of course what you are defining as risk for instance) and so on.

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Wellian Weekly 23.11.2020

It was only a few weeks ago that the UK put the clocks back and entered a second period of lockdown, accepting both the physical and metaphorical darkness that accompanies those actions. Since then we have seen some light in the form of the US elections and Covid developments, leading to some interesting reactions in equity markets. 

As the UK government finalises its Covid guidance for the festive season, other nations are also taking stock of their situations. In France, where restrictions have been tight for a number of weeks, the number of new cases is falling and it looks like restrictions will be relaxed, much to the relief of beleaguered retailers who have been lobbying the French government on the issue. The World Health Organisation has expressed some anxiety about the prospect of loosening restrictions in Europe, stating that this should not happen unless the number of cases is consistently low. It’s easy to understand the WHO’s concerns: After getting the first wave of Covid under control, Europe didn’t have the necessary infrastructure ready in the summer to head off a second wave. Without adequate test and trace infrastructure, Europe could be facing a third wave next year. A valid point, but one that seems likely to be overlooked since the WHO’s credibility is low and no government wants to be remembered for, quite literally, cancelling Christmas. Conversely, in Asia, South Korea is warning of possible tighter restrictions to help tackle a small but persistent increase in cases.

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Wellian Weekly 09.11.2020

With the US election heading down the final straight the short-term outlook is still one of uncertainty. With the election being held last Tuesday and a few states yet to declare a final result, President-elect Joe Biden took victory over the weekend, although Donald Trump is yet to concede, meaning there is also a growing likelihood of a legal fight lasting several weeks afterwards to decide who is formally going to be elected President.

Judging by their speeches to supporters, both Trump and Biden are claiming victory even though millions of votes are still uncounted. Trump’s claim rests on being ahead in votes physically cast in ballot boxes on the day in the critical states like Pennsylvania, while Biden’s is on being ahead once postal votes are counted in the coming days.

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Wellian Weekly 26.10.2020

In previous notes we discussed a global equity index with Part 1 showing how the top 10 stocks had changed – both in terms of their numbers, but also their weights. Part 2 discussed how the industries and sector weights altered, as well as how the index underwent a major change a couple of years ago.

This piece looks a bit deeper to the country allocations and how they have changed over the last couple of years. This part, as well as the previous two, have been written to alert the reader to a number of risks. The three-part series is not to promote active management or passive management; it is an education piece. If portfolios are constructed using investment managers that adopt an active or passive approach, the least you can do – as a fund selector – is know what has been bought.

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Wellian Weekly 12.10.2020

Last week brought a slew of announcements from businesses, underlining the pressure the economy is under as a result of the coronavirus crisis. The second postponement of the new James Bond film was the last straw for Cineworld, which will completely shut its cinemas for months, sending a ripple of anguish through leisure parks, where restaurant visits are reliant on filmgoers.  Easyjet has announced it will lose money for the first time in its 25-year history in 2020 and while the headlines focused on the size of the loss (the airline expects to notch up a loss of over £800m) management expects to be operating at 25% capacity in 2021, reaffirming that this will be the biggest challenge to the travel industry that we have seen. Pub operator Greene King has announced job losses and clothing retailer Edinburgh Woollen Mill has called in the administrators. For all these businesses the covid crisis has fundamentally challenged revenue generation and it’s not surprising that companies in these sectors are among the first casualties. The concern is that what were otherwise healthy businesses will struggle to survive this crisis even with government support - after all, we are far from the end of this crisis. The risk here is not solely within equity markets but penetrates all asset classes in some way. For example, in alternatives half of the businesses owned by private equity are estimated to have been affected by covid, with 10% seriously impacted. Going forward the industry expects higher deal prices and low interest rates will be a headwind to generating strong returns. 

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Wellian Weekly 28.09.2020

The total amount of UK debt has now passed £2 trillion for the first time in history after the UK government borrowed a further £35.9bn in August, as tackling the economic fallout of the pandemic has taken its toll on the public finances, official figures from the Office for National Statistics (ONS) have shown. The figure, the difference between spending and tax income, was £30.5bn more than it borrowed in August last year and has taken the total amount of borrowing between April and August to £173.7bn, also a record, and £249.5bn more than the same time in 2019.

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Wellian Weekly 14.09.2020

This profession of ours never stops fascinating me. I absolutely learn something new every day and I am eternally grateful to be able to get access to some of the finest investment minds in the world. As investment analysts and managers using third-party funds to construct our models and portfolios, we have the ability to talk with analysts, strategists, economists, fund managers and specialists. We also benefit from reading their latest thoughts and attending (albeit virtually at the moment) investment conferences to keep us all up to date with the comings and goings of the capital markets.

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Wellian Weekly 24.08.2020

The UK Direct Property sector hasn’t been open to investors for five months now, and you would be forgiven for thinking there may not be much to report back during this time, but property managers’ efforts are now beginning to bear fruit. 

As the summer has progressed, we have seen growing signs of the property market opening up again, with property deals beginning to come through. This is a welcome development for the UK commercial property sector as a growing body of transactions is what is needed to underpin the valuations attached to individual properties and give greater confidence in the pricing on property funds. The entire sector suspended (with the FCA’s blessing) in March when the impact of the coronavirus restrictions hampered the functioning of the market, with property valuers unable to assign values to properties with the usual level of confidence. Since then we have seen some property deals complete, mostly in those sectors least affected by the virus, and a gradual reopening as the ‘material uncertainty clause’ has been removed on a sector by sector basis. 

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Wellian Weekly 10.08.2020

Economies and stock markets across the globe have seen a major shake-up this year, and the UK was no exception. The coronavirus crisis has impacted all parts of our daily lives – from the way we work to the way we communicate with friends. However, the impact on UK businesses was profound, with most unable to operate over the period.

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Wellian Weekly 27.07.2020

In a previous article I wrote about how frustrating it is and long it takes for a fund of funds manager with an outsourced ACD to get an account set up and ultimately be able to trade in collective investments. On the other hand, if I wanted to buy an Investment Trust or ETF then this deal can be completed as soon as the deal ticket was completed and sent and this is a major risk for the unit trust / OEIC industry.  I’m sure we’ve all seen the charts showing that “x” years ago the average investor stayed invested in the same fund for “x” years, whereas today the average investor stays invested for “x” months. If it is difficult to get access in the first place due to admin backlogs, why keep trying?

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Wellian Weekly 13.07.2020

As the UK began to ease back on its lockdown restrictions, the date that seemed to attract most interest was the day on which pubs would once again open their doors. A milestone on the long road of “getting back to normal”, the day was symbolic as much as a reflection of the nation’s love of food and drink. One week on from “Super Saturday”, figures suggest the public were not knocking down the doors of their local eateries and sales were half the pre-covid levels over the opening weekend. 

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Wellian Weekly 29.06.2020

Inflation in the UK fell to a four-year low last month. Year-on-year prices as measured by the Consumer Prices Index rose by just 0.5%. Sounds like inflation is something we don’t need to worry about right now.  However, a study that came out the other week that suggests it could end up being a much bigger problem that we might expect.

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Wellian Weekly 15.06.2020

Investing is not easy. No matter what anybody says. One of the main reasons is there is not one measure of success. The goal posts constantly change.  For instance, if my portfolio has achieved 10% (let’s say the portfolio is constructed of UK large cap stocks) and the benchmark index (a very relevant FTSE 100) has achieved 5% then you could argue that my portfolio has done well. But, if my 10% was achieved with 20% volatility and the index only achieved 10% volatility, have I done as well?  What if my 10% was achieved with 8% capital and 2% income, whereas the benchmark was 1% capital and 4% income and I was an income seeking investor (selling capital gains and using them as income aside).  There are so many “what ifs” when you use more than one measure of success.  Measuring David Beckham for his abilities as a footballing midfielder in reference to pinpoint accuracy on crosses or free kicks, or rallying the team as a captain is one thing. Measuring him for defending, tackling, kicking the ball with his left foot or heading the ball is another. So, overall, is he good or bad?

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Wellian Weekly 01.06.2020

The years since the global financial crisis did not see the return of strong global trade and economic growth rates of the early noughties, but with Donald Trump’s election as US president, protectionist rhetoric evolved into a full trade war with China. Although equity markets were optimistic about the signing of a Phase One deal in January, Covid-19 has given rise to practical and political issues that make the outlook for global trade look questionable. Lockdowns have led to dramatic falls in demand and brought the travel and leisure industry to a stop, clipping the wings of an industry that had been a bright spot for growth. The WTO has warned that it expects a significant rise in costs associated with extra border checks and extra time in transit as a result of travel restrictions that have been put in place. 

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Wellian Weekly 11.05.2020

The Bank of England has warned that the UK economy is heading towards its deepest recession on record as the impact of the coronavirus has meant the economy would shrink by 14% this year, based on the lockdown being relaxed in June. Scenarios drawn up by the Bank to illustrate the economic impact said Covid-19 was dramatically reducing jobs and incomes in the UK.

Bank of England governor Andrew Bailey has said there would be no quick return to normality and described the downturn as unprecedented and that consumers would likely remain cautious of their own choice even when lockdown restrictions are lifted, suggesting that it wouldn’t be until next summer that activity comes fully back.

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Wellian Weekly 27.04.2020

Having worked from home now for several weeks, I have been considering what the world will look like and act like when we are released from our self-isolation. I fear this might last a couple of months and our outlook on investments, the economy, the way we interact with our companies and many other factors will change. Potentially forever.

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Wellian Weekly 06.04.2020

In the last few weeks equity markets have stolen the headlines with some dramatic movements in share prices that have rivalled those of the GFC. Also, in common with that period, we have again seen the suspension of property funds - although this time around managers are at pains to point out that it’s not for want of liquidity. 

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Wellian Weekly 23.03.2020

Last week a long-term client got in touch after reading the last piece we put out (https://www.wellian-is.com/53/572/wellian-weekly-16032020) questioning whether it was maybe a bit complacent in relation to what has been happening in the capital markets over the last couple of weeks.

My initial response was “no, I didn’t think we were”. After all, we had written about the Coronavirus for the past two weeks - here (https://www.wellian-is.com/53/318/wellian-weekly-09-03-2020) and here (https://www.wellian-is.com/53/568/wellian-weekly-02032020) but maybe, in retrospect, we should have written again. So, for the third week in four, here goes.

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Wellian Weekly 02.03.2020

In a meeting with an emerging market equity manager a few weeks ago, the manager took some time to carefully explain all the shares he had not been buying since news of the spreading coronavirus had begun to unfold in the media. The manager was eyeing some consumer discretionary names, but had not seen valuations reach a point that reflected the impact that coronavirus would have on businesses. After the last ten days, we suspect that he will be taking another look at some of the names on his wish list.

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