Indholdsfortegnelse for 1176 i MoneyWeek

So much for April being the cruellest month. For financial markets, it’s September. Since 1945, America’s S&P 500 index, which sets the tone for global equities, has produced an average marginal decline in September, compared with a very small average monthly gain across all the months over the same time frame, notes investment strategist Ed Yardeni. This year, the blue-chip index fell by 5%. It’s been a similar story in Britain in recent years. The main reason for this seasonal anomaly is that nasty shocks, notably 9/11 and the bankruptcy of Lehman Brothers, have often occurred in September. This time, however, the jitters mark the end of a long period of denial by investors. Stocks have dropped because the penny has finally dropped. “That cracking sound in financial markets [is]…

“The days of paper share certificates are numbered… the government estimates that there could be up to 10 million still in existence… Its [digitisation] task force [has suggested] turning all certificated shares into nominee shares [the structure used on digital share platforms]… But these two ways of holding… shares are fundamentally different… With a paper certificate you… are the legal owner of your investments… your name appears on the company’s register… [you] can attend company meetings and vote… Nominee shares… are held via an intermediary such as a platform or a broker… Nominee shareholders technically… have no direct relationship with the company… their ability to attend company meetings and [to vote is] dependent on the… platform… Investors should…still be able to engage with the companies they invest in.”…

Microsoft’s $69bn purchase of Activision Blizzard may be the biggest deal on record in videogaming, but it has also been “one of the hardest to pull off”, say Emily Birnbaum and Malathi Nayak on Bloomberg. With the merger poised to be finalised, the 18 months of “jousting with global regulators” isn’t quite over. The US Federal Trade Commission (FTC) has indicated it is “likely to continue challenging the deal even after it has gone through”. FTC chair Lina Khan has not only vowed to appeal a US court ruling that the deal wouldn’t harm competition, but has also said she will be “pursuing a separate administrative challenge through its in-house judicial system”. The FTC’s plans to restart its in-house trial against Microsoft’s multibillion-dollar acquisition of the Call of Duty maker…

Defence contractor General Dynamics looks poised to go from strength to strength, says Barron’s. The group enjoys the security of long-term contracts to produce tanks and next-generation nuclear submarines. Its order backlog has reached a record $91bn, and its total contract value of $129bn is the equivalent of three years’ sales. The stock also provides “a cyclical kicker” to go with the core business in Gulfstream – a private jet manufacturer. It is preparing to launch a new jet and enjoys a 50% market share in long-range, large-cabin planes, the fastest-growing market segment. Despite this, the shares are on a discount to their historical average. The dividend has risen for 28 years in a row.…

After “leading a successful, bipartisan effort to avoid a government shutdown” over the weekend, Kevin McCarthy (pictured) was “abruptly removed from his role as speaker of the US House of Representatives, ousted by hard-right members of his own Republican party”, says Joan Greve in The Guardian. This is the first time in US history that a speaker of the House has been removed. Republicans now face the “unenviable task” of electing a leader who can command sufficient support. The Republicans who voted to remove McCarthy may be celebrating for now, but they have “cut off their own heads”, says The Wall Street Journal. They toppled the speaker “without a plan, a replacement, or even a policy goal in mind”, and justified their decision with a list of “grievances and supposedly…

Our MoneyWeek exchange traded fund (ETF) model portfolio (see issue 1173) has 10% in cash. Many investors will keep cash in a savings account, but some prefer to hold cash-like funds, so this week we’ll take a look at how these work. Note that these funds, while intended to be very low risk, technically carry some credit risk – so they are not quite as safe as bank savings covered up to £85,000 by the Financial Services Compensation Scheme (FSCS). The closest thing to simply earning the current Bank of England base rate is an ETF such as Xtrackers GBP Rate Swap ETF (LSE: XSTR) and Lyxor Smart Cash ETF (LSE: CSH2). These track the sterling overnight index average (Sonia), which is the rate at which banks borrow money overnight…

The chorus of stockbrokers, wealth managers and financial advisers urging their clients to buy short-dated gilts is almost deafening. They point out that if you buy a low-coupon gilt, such as Treasury 0.125% redeeming at the end of January 2026, and hold it to redemption, you are guaranteed a return of over 10%, equivalent to an annualised return of roughly 4.5%. Nearly all this return will be capital gains, which has tax benefits for those who are holding it in a taxable account. While holders are liable to income tax on the tiny coupon, capital gains on gilts held for more than a year are tax-free. For a higher-rate taxpayer, an annualised, virtually tax-free, return of almost 4.5% might sound compelling. However, with inflation, though falling, still at 6.7%, real…

Why is the UK slacking off at work? Ross ClarkThe Spectator Productivity growth in Britain all but ceased in the year 2007, says Ross Clark. That matters. Without it, we can’t as a nation get pay rises or grow richer. Annual productivity growth slipped to an average of 0.2% after 2007, from 3.6% between 1945 and the mid-1970s, and 2.1% after that. Post-2020, it has been “non-existent or even negative”. And this in an apparent golden age of technological advance, which should in theory boost output per worker. What has gone wrong? Economists are divided. A government-funded commission set up two years ago published a brief review in June last year, but failed to reach a conclusion. Did the problem start with the crisis of 2008, or had it already…

engelsbergideas.com “Professional incompetence is a fascinating trait,” says Tobias Jones. Those who live in Italy “have ample opportunity to study it”: the country seems to have a “national penchant” for poor quality and laxness. Indeed, the phenomenon has even been the subject of academic study. One paper described a “cocktail of confusion, sloppiness and broken promises” and concluded that the country is ruled by “cartels of mutually satisfied mediocrities”. Surprisingly, however, many Italians seem to like this state of affairs, even expect it: after all, if you do not keep your promises to me, then I needn’t feel bad when I don’t keep mine to you. The result is a “bizarre charade”, where both sides test the limit of “how low they can go”. This may explain why there has…

Andrew: Let’s start with inflation. You pointed out recently that US inflation is set to rise from its summer low this year. Rob: Yes, this is certainly not a time to pop the champagne. Investors always seem to forget about the base effect, which is the reason US inflation is heading back up. Our prediction, assuming modest half-percent inflation per month over the coming months, is that it is set to finish the year between 4.5% and 5.5%. It has already ticked up from July’s 3.2% to 3.7% in August. We are replacing near-zero inflation in the second half of last year with non-zero inflation in the second half of this year. So markets may well find the trajectory of the next few months disconcerting. Andrew: More broadly, you have…

Starling Bank has upped the interest rate it pays on current account balances of up to £5,000 from 0.05% to 3.25%. It means someone who maintained the maximum balance would pocket £162.50 over the year in interest. There are higher rates out there, but watch out for the small print. For example, don’t be fooled by Nationwide’s 5% deal, says George Nixon in The Sunday Times. It is only paid on the first £1,500 in your account and only for the first 12 months. You also have to pay in at least £1,000 a month to qualify. As a result, “the most you could earn in a year on your £1,500 would be £75 – but you would have to pay in £12,000”, says Nixon. A better option is the…

New rules aimed at cracking down on fraud and errors in research and development (R&D) tax-credit claims could lead to many legitimate claims being turned down, accountants are warning. Leading advisers say changes introduced to the R&D tax-credit scheme have been poorly communicated and are often misunderstood. The reforms were introduced amid concerns that as many as one in four claims for credits were not eligible. With the total cost of the scheme in excess of £5bn a year, that was simply not sustainable. As a result, earlier this year, ministers introduced additional paperwork for companies claiming the credit, which can reduce a business’s corporation tax bill by 20p for each £1 spent on R&D work. As a result, HM Revenue & Customs will now reject claims for tax credits…

Elon Musk, the entrepreneur behind Tesla and SpaceX, and now owner of X (née Twitter), is rarely out of the newspapers, but a new biography of him by Walter Isaacson will force even those of us “not generally in tune with big-ego tech titans to adopt a more sympathetic view” and “set aside much of the familiar media caricature”, says Martin Vander Weyer in Literary Review. “Charismatic but rebarbative, rich beyond dreams but restlessly unhappy, intellectually gifted but bereft of conventional social skills, Musk is truly an original.” The billionaire cares little for wealth and does not seek luxury or comfort – he sometimes sleeps on the floor under his work desk – nor does he care much for family life. Rather, he “thrives on chaos” and is most fired…

Weight loss drug Ozempic, produced by Novo Nordisk, could give airlines a lift, says the Daily Mail. According to Jefferies’ analyst Sheila Kahyaoglu, “If the average passenger lost ten pounds… it would reduce 1,790 pounds from every United flight – a fuel saving of 27.6 million gallons a year.” With an average 2023 fuel price of $2.89 a gallon, this would save United Airlines $80m a year. The airline made a $1bn net profit in three months to 30 June 2023. One in three US adults is obese, while one measure of jet fuel prices has surged by almost 40% over the past three months. Airlines are always seeking to make their planes weigh less, with schemes to trim the mass of utensils, dishes and trolleys common. Clothing retailers are…

The pound has had its worst month against the dollar since last year’s mini-budget debacle, says Jenni Reid for CNBC. Sterling finished September down by 3.75%. It also had its worst month against the euro since December 2022, with a 1.26% fall. The decline was driven by the Bank of England’s decision to hold interest rates at 5.25% at last month’s meeting. That has deflated bets that UK interest rates could peak at 6.5%. Higher interest rates mean that sterling-based assets pay better returns, prompting foreign investors to buy the pound. Sterling started the year as a top performer among major currencies, says John-Paul Ford Rojas on This is Money. The pound topped $1.31 in July, but some analysts think it could soon fall towards $1.18. Weak UK purchasing managers’…

Sub-Saharan African GDP per capita has fallen by 10% since peaking in 2014, says Javier Blas on Bloomberg. The continent’s economies have long shown an “utter dependence on commodities”, with periods of strong growth closely tied to high prices for oil, copper, cocoa and other resources. The 1950s and 1960s were a “golden era” as post-war reconstruction drove global demand for African raw materials. Periods of weak commodity prices, such as 1980-2000 or 2014-2021, have brought per capita GDP growth to a halt. The recent growth malaise has fuelled unrest and brought democracy, now the continental norm, into question. A spate of coups is a reminder that the “West better start paying attention” to Africa.…

Dame Sharon White has announced she is to step down as chair of John Lewis. The news “should not come as a huge shock”, says the Evening Standard: the fact that she was appointed in the first place, despite having no retail experience, was itself “eye-catching”. What’s more “little has gone right since”, with multiple “missteps”. These include the proposal to end the staff-ownership model in order to bring in new capital, which was eventually abandoned. John Lewis has also suffered major losses. Last year saw a deficit of £234m, and the group admitted that the “turnaround plan would take two years longer to deliver than expected”. White’s decision to leave by early 2025 makes sense, says Nils Pratley in the Guardian. Her failure shows why “it is extremely rare…

Shares in JSW Infrastructure, India’s second-biggest commercial-port operator, jumped by 32% on their first day of trading this week, says Reuters, valuing the company at Rs33bn ($397m). The mood in the Indian market is buoyant, with robust foreign and domestic fund inflows propelling the blue-chip Sensex index to a record high. And the group’s prospects appear rosy: profits more than doubled in the year to 31 March 2023 on a 41% increase in sales. The initial public offering (IPO) was 37 times oversubscribed and follows a successful series of listings. This year has seen 277 companies go public, compared with 172 in the same period in 2022.…

With the next general election only 15 months away at most, the betting exchange Smarkets.com has increased the range of specialised markets it offers. You can now bet not only on the overall winner and which party will get the most votes and seats, but also on the range of votes and seats that each party will get. (Be aware, however, that many of these markets aren’t that liquid.) In addition to the offerings on the Labour and Conservative parties, you can also now bet on how the Scottish National Party will do. With £2,647 matched, the SNP is on 1.17 (85.4%) to get less than 40% of the Scottish vote. The SNP’s credibility in the eyes of voters north of the border has clearly been damaged by the resignation…

The cost of childcare has been rising in the UK for at least a couple of decades. But over the past few years the pace has started to accelerate dramatically. According to a study last week from finance comparison site Finder, more than a third of parents in the UK have had to reduce their working hours or take time off to look after their children due to the high costs of childcare. The average parent is spending £5,000 a year parking the kids somewhere, which is a fifth of average after-tax income; one in ten are paying £10,000 a year or more. Another study by the flexible-childcare provider Pebble found that costs per child were rising by £600 per month as employers increasingly insist that staff are back in…

Technical analysis refers to the use of trends in market data – such as the price of securities and volume traded – to attempt to forecast the future direction of markets. It does not take account of fundamental data such as a company’s earnings. Instead it focuses solely on how individual securities and groups of securities are trading. Users of technical analysis argue that the collective actions of buyers and sellers mean that all available fundamental information should already be reflected in current prices. However, the way in which investors interact as they respond to the flow of new information creates recurring patterns of behaviour, so recognising these patterns may allow chartists to anticipate what is likely to happen next. There are a large number of technical analysis indicators, some…

US life-science services firm Azenta is under pressure from an activist to return more cash to investors, reports CNBC. Politan Capital Management has acquired around 7% of Azenta, which previously owned a semiconductor automation business that it sold to private equity for $3bn in 2022. It used $1bn for share buybacks and spent $500m to buy a temperature-controlled storage and transport solutions business called B Medical, with $1.1bn remaining on the group’s balance sheet. The acquisition of B Medical didn’t go down well with the market, says CNBC. Investors are unhappy with missed forecasts for sales and margins, and concerned that the firm holds cash equal to a third of its market value with no clear plans on how it will be put to work.…

“We still have the ambition to get to net zero by 2050, but we have to remember that we are only 1% of world emissions. If we bankrupt ourselves trying to get there, we won’t achieve net zero. We will also be in a worse position in terms of tackling climate change.” Business secretary Kemi Badenoch (pictured), quoted in The Sunday Times “Money is like muck. No good except it be spread.” Seventeenth-century philosopher Francis Bacon, quoted in The Observer “I am on such good form today and you are asking about many more subjects than I thought you would, so I refuse to say another word unless you agree to double my fee.” Former Labour health secretary Barbara Castle to the BBC’s documentary maker and broadcaster Michael Cockerell during…

dailysceptic.org When cash is given to the homeless, do they just waste it on alcohol and drugs? A new study that received favourable press coverage says no, says Noah Carl. But there’s more to it than meets the eye. Ryan Dwyer and colleagues randomly assigned 50 homeless people to receive unconditional cash while 65 served as controls. The two groups were then followed for a year. As is now common in social science, the researchers pre-registered their study – that is, published their hypothesis online before collecting data to prevent “p-hacking”, or rerunning the analysis until you find a significant result. The hypothesis registered by Dwyer et al – that participants who receive the cash will have better outcomes in terms of cognitive functioning and subjective well-being – was not…

Terrible problems afflict Western societies. Productivity growth has slowed to virtually nothing. Decarbonisation will impose massive costs and, however bad the alternatives might be, make everyone poorer. Fiscal situations are out of control. Most institutions have been captured by cultural Marxists, and an establishment formed of bureaucrats, quangocrats, academics and corporate bosses exercises unaccountable and gleefully anti-democratic rule. Asset-price bubbles have created enormous inequality of wealth unjustified by contributions to productive potential. And sky-high housing prices have alienated the young. Popular support for free markets has collapsed and Big Government is very much in vogue. Capitalism is reviled. But free markets, capitalism and democracy go together. All are in danger. Classical Marxist predictions seem to be coming true, with capitalism said to be about to collapse under the weight of…

The cost of dying has been steadily increasing for years. The amount of money required for funerals and associated expenses is almost 30% higher than ten years ago; it rose by another 3.8% to £9,200 in 2022. There are a several ways you can cut costs. The most popular are opting for a cheaper coffin, spending less on flowers and holding the wake at home. One area where prices have been falling is the cost of a burial. It is still expensive at £3,953 on average, but the price has dropped by 2.5% since 2021, says SunLife’s 2023 Cost of Dying report. You also need to factor in how much a burial plot would set you back. This is typically around £3,000 but can rise to more than £15,000 in…

Thinking about selling your company? If so, don’t overlook your employees in the search for a buyer. The number of British businesses owned by employee ownership trusts (EOTs) is growing fast, new data reveals. More than 1,400 businesses are now structured this way, according to the Employee Ownership Association, marking a 37% increase from a year ago. EOTs can work well for both sides. For a business owner they are a tax-efficient way to sell some or all of the company, but also to protect their legacy and share wealth with the team that has helped to create it. The workforce, meanwhile, gets a stake in the company on an ongoing basis – research suggests this often drives superior performance – as well as a potential financial reward. High-profile deals…

Investing in smaller UK companies during an economic downturn presents challenges owing to the uncertain operating environment they face. But difficult times are when the best businesses and management teams can use agility and effective execution to take market share, thereby laying the foundation for sustainable future growth. This means investments made in the current environment have the potential to be long-term winners. By targeting high-quality, cash-generative companies benefiting from structural growth, investors can grasp the valuation opportunities on offer and position themselves for an eventual rerating, which will favour robust businesses. Window of opportunity for wealth firms The wealth management sector is enjoying structural growth thanks to rising fees and investors’ growing interest in alternative assets. Although macroeconomic uncertainties are putting pressure on companies, the industry continues to benefit…

A “storm has come from Italy”, say Guillaume Benoit and Sophie Rolland in Les Echos. Rome has announced that it plans to borrow more than expected this year, unleashing “a wave of panic” on government bond markets. The yield on Italy’s ten-year bond jumped to almost 5% late last week, its highest level in 11 years. French and German borrowing costs rose to a 12-year high. In America, where the government only narrowly avoided a shutdown (see page 9), ten-year yields have topped 4.7%, the highest level since 2007. Italy’s government says that this year’s fiscal deficit will be 5.3% of GDP, up from a forecast 4.5% in April, says the Financial Times. Italy also plans to borrow 4.3% of GDP next year. Prime minister Giorgia Meloni’s spending blowout has…

Shares in the beleaguered Chinese property developer Evergrande jumped sharply when they resumed trading in Hong Kong this week, says Julia Kollewe in The Guardian. The stock had been suspended last week after a press report that the group’s billionaire chair and founder, Hui Ka Yan, “was under police surveillance”. A day later Evergrande admitted that he was being investigated over suspected “illegal crimes” (possibly an alleged asset transfer). The company, China’s biggest property developer, is grappling with a $300bn debt mountain and defaulted on its offshore debts in late 2021. Analysts “caution against reading too much into the latest price swings”, says John Cheng on Bloomberg. They seem to have been generated by “speculative bets on a penny stock” rather than hard information. Not only is the stock still…

Six to buy Babcock International The Times Shares in this defence contractor have climbed by 40% over the past 12 months as the war in Ukraine prompts more military spending. Babcock is much cheaper than comparable defence players, with the shares on 9.4 times this year’s expected earnings, compared with 15.8 for BAE and 21.4 for Rolls-Royce. Recent disposals of non-defence assets have streamlined operations and helped to de-leverage the balance sheet. This sector always carries risks from “murky politics” and contract disputes, but the shares appear undervalued. 404p CVS Group The Sunday Times Shares in this veterinary group were pummelled last month after the Competition & Markets Authority (CMA) announced a review into exorbitant vet fees. That has left management in the peculiar position of having to downplay strong…

● “A series of missteps and a savage squeeze on incomes” has left online clothing retailer Asos struggling, says Ben Marlow in The Telegraph. Last week’s trading update shows sales slumping. While the firm can point to some progress – forecasts of £40m-£60m this year are better than a £290m loss last year – they are far from the £190m posted during the pandemic. The shares are down 90% from their peak. “Now the sharks are circling”, including Danish billionaire Anders Holch Povlsen (who owns 29%), “the high street’s self-appointed undertaker-cum-salvage specialist Mike Ashley” (with 19%) and hedge fund manager Will Barker (14%), who may be the kingmaker in any tussle for control. Their intentions aren’t clear: in particular, Ashley may be taking a punt on a comeback (he has…

Investors should be prepared for US interest rates to rise as high as 7%, says Jamie Dimon, the long-serving chief executive of JPMorgan Chase, the largest bank in America. Most analysts are forecasting that the US Federal Reserve will raise interest rates just one more time this year, by about 0.25 percentage points from its current range of 5.25%-5.50%. That will be enough to tame inflation and the central bank will be able to begin making a series of cuts next year. But Dimon thinks this may be too optimistic. There are long-term trends that have gone from being disinflationary to inflationary, he says. The benefit of China’s emergence as a low-cost exporter, which helped hold down goods prices, is over. America’s trading relationship with China has deteriorated further since…

■ Fund managers Nick Train and Michael Lindsell shared £35.5m in dividends from their 72% stake in their Lindsell Train management business in the year to January 2023, compared with £38.6m the year before, says Citywire. The firm made £66.7m in operating profits, down 17.4%. Assets under management shrank 12.2% to £18.6bn as outflows rose amid a run of weak returns: the flagship Lindsell Train Global Equity has returned 4.4% year to date, against 10.2% for the MSCI World index. ■ Many long-established investment trusts have names that ”leave all but true aficionados of trusts scratching their heads”, says Jeff Prestridge in The Mail on Sunday. Titles such as Bankers, Brunner, City of London, Monks and Scottish Mortgage are from a “bygone age” and give no clue what they do…

iea.org.uk Conventional economic wisdom has it that a falling population will be a disaster, says James Forder. We need more people because we need more ideas, say some. Or because we need a large future workforce to pay off the government debt we are running up – “an odd sort of very-long-term short-termism”. But a new, “rather dry” economic paper by David Miles of Imperial College argues the opposite: a shrinking population may actually bring economic benefits. If we have fewer workers, we need to undertake less investment. We can maintain the current capital-to-labour ratio even while reducing the overall stock of capital. In other words, we can let some of our existing capital rust away and not replace it without being any worse off, and since we don’t need…

The case for investing in passive funds, such as exchange-traded funds (ETFs) or index funds, appears strong, which is why their share of the overall market is rising. Passive funds account for around 37% of the US market and 25% of the UK one. No wonder. Passive funds are considerably cheaper than active funds, which employ expensive fund managers and research analysts to pick stocks. Passive funds only alter portfolios when stocks enter or fall out of an index, and they do that based on the size of the company, not on any judgement. This is more difficult in emerging markets, for small- or mid-cap indices, and in other areas of the equity and bond markets, resulting in far higher costs. But passives following the more liquid markets typically charge…

● Errors on the part of the government mean that thousands of parents – mostly mothers – who took time out to raise a family in the 1960s and 1970s could be missing out on their full state pension owing to inaccurate National Insurance records. The Department for Work and Pensions is going to be sending out letters over the next few months to those who might have been affected, encouraging them to come forward to see if they are owed money. ● Water bills in England are expected to rise by an average of £7 a month by 2025 as water companies look to customers to cover “a record £96bn investment into fixing raw sewage leaks, building new reservoirs and cutting leaks”, says Sandra Laville in The Guardian. Bills…

● The Association of British Insurers has launched a free tool for small businesses worried about their cyber security. Based on a short questionnaire, the tool helps small firms identify weaknesses in their cyber security and then makes recommendations about how to plug the gaps. Topics covered by the tool include password management, software, crisis planning, back-ups and access controls. See abi.cyber-safety.org.uk for more details. ● Since June 2021 the Small Business Commissioner has managed to secure just £800,000 for smaller companies struggling to get large customers to pay their bills, new data reveals. The scheme, launched in 2017 to advocate for smaller companies in dispute with large enterprises paying invoices late, has been widely criticised for failing to make an impact on the late-payment problem, with the average amount…

2022 Berry Bros. & Rudd Bourgogne Côte d’Or Pinot Noir by Benjamin Leroux, France £25.95, bbr.com If you order only one red Burgundy this autumn, make it this one. Every facet of stunning Côte d’Or pinot noir is present in this creation, and the price is as competitive as I have seen this year for any epic-quality wine made from this fabulous grape. Ben Leroux’s skills are well known and here he draws on fruit harvested from old vines in Chorey-lès-Beaune to craft this expressive, silky, red-cherry-perfumed wine. It is young, but there is already much to adore, from the pristine clarity of aroma and flavour to the delightfully refreshing finish. While you are on the blower to Berrys, grab these keenly-priced beauties, too. The 2021 Wehlener Sonnenuhr, Auslese, Joh.…

The Abuse of Power Confronting Injustice in Public Life Theresa May Headline, £25 Sun Tzu famously said that if you stand by the river long enough, the bodies of your enemies will drift by. Theresa May has no such patience: she’s out to stick the knife in. Just over four years ago, May left office, largely due to the failure of her proposed “withdrawal agreement”, which briefly united all sides of the Brexit debate against her. Now, following the departure of first Boris Johnson and then Liz Truss, and with Rishi Sunak now trailing Labour by double-digits in the opinion polls,  May clearly thinks it is time to rewrite her own history, in the guise of her recently published book, The Abuse of Power: Confronting Injustice in Public Life. May…