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Its Not Harry

Comment and opinion for retail investors in the UK

Uncategorised

Researching UK funds – an example

21st October 2020 by Mark Potter Leave a Comment

I recently published a new permanent page on the site about the process of being contrarian in selecting funds and used an example of researching UK funds (which I think are cheap at the moment) to explain the process.

I have continued that research process and one curiosity popped up that I thought might be educational.

If you list UK funds in your preferred research tool, you will find the Blackrock UK Equity fund showing a year to date return of around 3% which is pretty good relative to the average large cap fund or even the benchmark index, say the FT All Share. This is a 5 star fund in Morningstar’s ratings.

It so happens that listed right next to it in the ranking order I selected was the Royal London UK Equity Class M fund which year to date has lost about 19%. Note that this is different to the Royal London UK Growth fund which did a little better and is classified as a mid-cap blend fund.

Now that is a whopping 22% gap from Blackrock. How come?

You have to put in time doing your research if you want to find real bargains in the funds market

This is a blog post, so I will keep the answers short, but I am happy to discuss the research in more detail with subscribers.

  • It is not that Royal London are just useless – the team they acquired when they merged with the Co-op has a good reputation and has delivered excellent results with other funds, notably sustainability focused ones.
  • The fund manager at Royal London is relatively new (started 2016) – that might be a factor? The smaller companies fund which he runs is a poor performer.
  • The performance of the 2 funds was similar until 2020, so something very different happened recently. In fact the Royal London fund has a Morningstar 4 star rating.
  • A really big clue comes from the Morningstar 9 box equity style grid. The BlackRock fund is large cap growth and the Royal London one large cap value on Morningstar’s overall assessment.
  • The top 10 holdings have considerable overlap, so the variation must be further down the holdings list, which we can’t immediately see.
  • Although these are UK funds, the BlackRock fund has 25% of its stocks listed in the US, Royal London only 5%. An overseas listing is acceptable for a UK fund if the firm’s main business activity is in UK, or it is in truth UK based. Both funds own Experian plc, which is US listed, for example.
  • Blackrock’s fund has a significant weight to technology and sensitive stocks, Royal London does not.

More research (like looking at half yearly reports) may reveal some more about the strategy of each manager, but on recent evidence, BlackRock made the right calls for a limited recovery in the UK stock market, biasing the fund away from some parts of the market. Royal London would look to be a good contrarian pick for the brave, although there may be better alternatives. I have not completed my work on this subject yet!

If you are going to invest against the trend (the momentum factor), you need to be thorough with your research and to supress your psychological biases. I will try to keep posting examples to help out!

Filed Under: Education, Funds, Uncategorised

Monday mashup – what are CBDCs?

19th October 2020 by Mark Potter 2 Comments

As I got not a single question from subscribers, I will consider the Q&A idea to be a non-runner!

I will turn the tables.

My question: who knows what the above initials stand for?

I suspect no-one, yet the introduction of CBDCs has the potential to undermine the operations of every private sector bank in the world and change the whole balance of power in both democratic and autocratic countries.

I think it is possible that the wholesale introduction of CBDCs could be the best opportunity in around 150 years for governments to wrest back the power they have steadily lost to corporations since the late 19th century.

What is CBDC and does it matter?

The acronym stands for Central Bank Digitised Currency.

Digital currencies are an interesting and current topic, but like most new ‘products’ have all sorts of hidden risks at the early development stage. Maybe that is why the UK Regulator the FCA is banning the sale and promotion of digital currency derivatives (the most risky way of ‘playing’ with an investment or commodity) to retail investors from next year.

Serious Bitcoin fans who want to take out hedges and so on will get around this by dealing on overseas exchanges, I guess.

And you may know that Facebook thought having a digital currency – Libra – was a good idea and that the G7 nations were seriously opposed to that, rather supporting my proposition that controlling currency will be the new battleground between states and mega corporations.

The news is that China is encouraging Hong Kong residents to get their hands on a chunk of Chinese government digital money by giving away lottery tickets and Shenzhen residents are already able to open digital Renminbi accounts with e-wallets. China is where about a quarter of all the people in the world live, so what happens there is significant.

Would you want to put your money with a government bank?

Any of you that have National Savings Certificates or Premium Bonds have already taken that decision and many did so because they thought it was the most secure option.

That makes me think that a government sponsored e-wallet account would quickly take market share from commercial banks.

The institution that has all your money and also controls the legislative process may be one to worry about. What do you think?

Filed Under: Economics, Monthly commentary, Politics, Uncategorised

Investing in the UK stock market in a post Brexit, post Covid-19 world (m)

29th September 2020 by Mark Potter Leave a Comment

Will there ever be such a world? I hope so!

I have already written that I would do some research into what funds might look attractive to investors looking to bolster their portfolio UK exposure ahead of the world as a whole changing its mind about the UK being rather risky as an investment destination

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Filed Under: Uncategorised

Watching Brief – September 2020

29th September 2020 by Mark Potter Leave a Comment

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Filed Under: Uncategorised

Monday mashup – 50 years of Friedman

14th September 2020 by Mark Potter Leave a Comment

On September 13th 1970 an essay was published in The New York Times Magazine that was to serve as the ‘permission’ for a generation of executives and politicians like Margaret Thatcher and Ronald Reagan to encourage the free market to operate solely for the benefit of the people that theoretically funded it – shareholders.

The rant warning – but this is a bit deeper

Half a century of Friedman

The essay is summarised by the current chief executive of Salesforce, who read it when he was in business school a few years later, in these words – ‘the only business of business in business’.

Training in the late 1970s to be a Chartered Secretary – the company officer charged with keeping a business legal in the UK and many former British colonies – I was taught a different line: that companies were part of the fabric of the economy and therefore of society, so ought to be accountable to other stakeholders, like employees, the government and the consumers.

What I was taught was not, as some still argue, some leftist permission for lazy managers to avoid focusing on profit generation, but an understanding that the profits of a company were generated by the utilisation of other resources apart from capital. That is really just traditional basic economics.

I would argue that to suggest that out of the contributors to profits in a democratic world, only the capitalist should be rewarded is in fact very specifically American and indeed represents right wing liberal philosophy.

The role of companies in society

Much more recently, in his books about humanity (Sapiens etc,), Yuval Noah Harari suggest that some corporations are now so large that they have become a new form of maybe everlasting life, whose influence will forever impact on humanity as a whole.

It is reasonable easy to demonstrate the governments are now at times the servants, not the controllers, of business. The allocation of tax payers’ money to bail out banks, the printing of money (the cost of which will be serviced by the population as a whole, not corporations) and the control of political process (which only the most naïve could deny happens in the US and probably in Europe) by industry paid lobbyists are all examples.

Even in dictatorships and communist countries, the corporation is the favoured entity for corruption. The state assets stolen from the population at the end of te USSR generally went into corporations owned by a few shareholders who used to be party officials.

I would suggest that because ultra large companies offer the opportunity for a few people to acquire almost unlimited power and they will probably use that to their own advantage (not surprisingly), some checks and balances are appropriate in a democracy. This has been recognised by anti-trust law in the US and competition law in Europe, but that only addresses part of the issue and not that effectively when it comes to the ultra large businesses.

If you don’t agree with the last sentence, you must be running your PC on Linux and viewing this page in Firefox – good on you!

I was also not at all surprised to see that Daniel Loeb (an ultra capitalist) defends Friedman by suggesting that the law requires companies to focus on profits only: since the 1960s, US corporations have had the ability to influence the law to their satisfaction, most notably to eliminate foreign competitors. Did I you just think Huawei and Tic Toc?

In fairness, Mr Loeb’s main claim for shareholders is that they should eliminate poor management. Managers (I mean directors and executives) are a sub-class of the employee stakeholder group who might well be accused of acquiring too big a slice of the pie.

As investors, perhaps we should be happy to see profit maximisation as the sole focus of company boards?

That would miss one important point – those who support the Friedman argument often want to create the maximum amount of wealth for themselves, not shareholders in general. In fact, if a takeover or merger that was in their interest would wipe out our investments in a good profitable company, it would not worry them at all!

In their world, the few are supposed to win and the many lose and we, sorry to tell you, are amongst the many.

Sharks or dolphins?

It is obvious that at a basic level, indeed it is a human right, we all need to eat good food. The most efficient and ruthless eaters are maybe sharks, or wolves, or locusts. Should the world seek to adopt their feeding process? I think not.

Most people, because of what humanity is, understand that companies should be run with ethical governance, in a way that sustains the human race and shares wealth with those who are less powerful contributors to its creation, like employees.

The rise of ESG investing and the evidence that well governed companies actually make more profits from normal business operations – quite a different idea from making money for those who are rampant market manipulators and speculators – suggests to me that 50 years down the road Friedman’s proposition is at last being consigned to history. I really hope so.

Filed Under: Rants, Sustainability/ESG, Uncategorised

Wot, no IFA?!

18th August 2020 by Mark Potter Leave a Comment

Research published by Aegon reveals that 53% of wealthier (not exactly defined) individuals are confident managing their own finances.

The most common reason stated for not employing an adviser was cost (33%) then lack of trust (24%). 21% said they no longer needed financial planning advice.

Although NotHarry, of choice, has far too few subscribers to carry out a similar survey and get meaningful results, the discussions I have had with people over the last couple of years have included all of the above reasons for discontinuing an IFA relationship.

Not Harry

The function of this web site is to give those who have advisers some insights that allow them to keep an eye on the value for money they are getting, or not as the case may be. Beyond that, the material available offers insights from a long time investment professional that are intended to be helpful to those who are running their own portfolios.

In fairness to advisers, the same survey reported that of those wealthy individuals who had an adviser (17% of the survey group), 94% were happy with the service they received.

I would always a maintain that good investment and financial planning advice from an experienced and well qualified professional is worth paying good money for. The problem I have noted is that the really good value advisers all have full client books.

The remaining vast majority who do a rather inadequate job of filtering people into centralised investment propositions that have no obvious merits in return for excessive fees have also become rich on the back of consumer naivety. That is partly because we have had more or less rising (bull) stock markets since 2008. All that will change before too long.

Filed Under: Cost of investing, Rants, Uncategorised

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