Comment and opinion for retail investors in the UK
When undertaking some research into Agritech investing a few weeks back, I concluded that for the moment the only way a retail investor could make a highly focused investment in that theme was by purchasing an ETF (Exchange Traded Fund).
One of the reasons I don’t own shares directly (other then for exceptional reasons) is that most of the available shares in any given company are owned by gigantic institutions and if they decide to sell large blocks, the market will usually get wind of that and the share price will plummet. The more concentrated the ownership of shares in a business, the greater that risk becomes.
Yesterday there was a perfect example of that risk turning into reality. A business which has a chequered history is called THG or the Hut group. Its shares were quoted at around 800 pence at the start of the year after floating as a new listing at 500 pence. That was a classic case in itself – the market rating a retailer with not much special going for it as it it was a technology business. It has happened before (ASOS, in its early days).
The mega investor BlackRock built up a 10% holding in the company or 124 million shares (data anyone could check out using stock market ownership notices). They have now decided they don’t want to keep all those shares and are selling half of them. To shift that many shares in one go is not easy, even for BlackRock, so they have offered them at a discount to a price that has alraedy plummeted – in fact at 195 pence.
So if you bought the shares at 800 pence on the basis of a Sunday paper tip written by some lazy pundit (people do that), you would be 75% down by now!
If you owned these shares in a fund, the most you could possibly own (and your fund manager would be due to be sacked if you did) would be 10% of the fund. so your maximum loss would be 7.5%.
In summary, if you want to speculate in shares, remember that you might well be a sprat swimming in the whales’ feeding grounds.
In my October Watching Brief post I introduced a Digging Deeper topic initiated by readers who wanted some pointers on identifying manager style.
You may find it useful to read the introductory comments when I suggested starting with the house style. In the example I chose, which was a real request to me for comment on a fund, I have been looking at the Baillie Gifford Income Growth fund.
I think all readers will know that you can find out who in person manages a fund using resources like Trustnet and Morningstar and most of the time you will easily find a short biography, supplied by the employer and consistent in all research sources. This bio may be expanded on the fund provider’s own web site but that is in my experience unusual.
Base facts that I usually pay attention to are:
In the course of reviewing my own investments, I have just looked at the Jupiter Ecology fund which I rebought recently after a period when I had left it off my short list because of weak performance. A change of manager in early 2021 and a look at some of the holdings in the top 10 had prompted me to give it another run.
The new manager, Jon Wallace, is not known to me as a personality and so I thought I would see what I could find out about him, fitting in with my ongoing project on finding out about manager style. Jupiter has a long track record as an investor in environmentally positive businesses but their ‘old guard’ has now maybe retired and I wanted to get an idea of what the new manager was like.
Of course, he has a little biography published in the fund fact sheet and on the firm’s web site (and he has a very specifically suitable CV) but I wanted to hear him talk, so I looked for videos and found an interview he did with a TV channel I don’t know (ProActive -possibly internet only) about his investment trust – the Jupiter Green Trust.
He won’t necessary run an investmemt trust in the same way is his open ended (OEIC) fund but his answers over a few minutes to a couple of good open questions about how he and Jupiter work allowed me to get some idea of his competence and the way he looks at ESG issues, including what he has absorbed of Jupiter’s established culture as an ESG investor. Jupiter is known to run environmental investing as a major business theme and to have a whole long establised team dedicated to ecloogical issues.
I came away believing all is well and he is on top of his brief in detail (probably because his academic education is on topic), which together with an updated look at a few of the really interesting companies in the top 10 has left me more than comfortable owning this fund.
Of course, I am not recommending the fund to anyone (if that sort of investment interests you, please do your own research) because that is not my role, but I am reporting how I keep an eye on funds I already own, try to uprate my knowledge from time to time and gradually get a feel for what a manager is trying to deliver.
My conclusion to the Digging Deeeper article on manager style is still a work in progress and will be published soon!
A whole range of news coverage leads one to the inevitable conclusion that we are at a potential inflection point in the long term relationship between what economists call ‘the factors of production’. These factors are usually stated as being land, capital and labour, with enterprise touted as a potential extra when I was at college – possibly because top managers did not like being classified as labour!
A piece in today’s FT refers to investors suffering the 60/40 blues. It comments that the expected diversification benefit of adding a large chunk of fixed income securities to an equity portfolio just did not work in September and 60/40 porfolio investors suffered from both an equity sell off and rapidly rising gilt yields.
There is more of that today as the market focuses on rising energy prices. It would be a surprise, but not improbable, if the much anticipated end of cycle market sell off was driven by oil and gas prices. People of my age were used to talking about the energy crisis constantly in that late 70s (I had my moped fuel ration book in 1973/4) and we note the re-emergence of those two little words in media coverage.
As I have pointed out before, an increase in bond yields of 1% is not too dramatic if the rise is from 10%, but a rise from 0.5% to 2% is very dramatic for longer maturities. We are now witnessing the process live.
I have been writing for quite a while that owning a general mix of fixed income securities was not necessarily going to be useful in the next part of the global economic cycle. Some bond fund managers (tactical or speciality funds come to mind) may well still be able to offer some volatility control and even make a little money, but index trackers heavy on long dated gilts and US treasuries are going see their performance hammered.