Indholdsfortegnelse for 1201 i MoneyWeek

Would you drive more carefully without a seat belt? In the 1960s, the US federal government passed laws requiring seat belts, padded dashboards and various other safety features for cars in an attempt to improve safety. The result? Fewer deaths per accident, as intended. But the policy also led to an increase in the overall number of accidents, negating the benefit of the safety drive. Enter two interlinked iron laws of economics and politics. Firstly, incentives matter. And secondly, watch out for unintended consequences. The cost of reckless driving fell when seat belts were brought in, which provided an incentive to indulge in more of it. Hence the unforeseen result of the policy. “Central bankers have no idea what they are doing; the emperor has no clothes” Failing to learn…

Retailer Next’s shares jumped by 5% last week following a “better-than-expected annual profit haul”, says Holly Williams in the Evening Standard. Next reported a 5% rise in underlying pre-tax profits to £918m for the year to 31 January 2024, better than the £905m it had pencilled in. That impressive figure even includes a £20m hit from the ongoing Red Sea disruption, while Next had also upgraded its earnings guidance five times in the past year. The firm was also upbeat about the coming year. It said the household-spending environment looked “more benign than it has for a number of years”. Next’s full-year results certainly gave investors “plenty to be jolly about”, says Hargreaves Lansdown’s Guy Lawson-Johns. In addition to the upgraded pre-tax profit, the online division “continues to be the…

“After five months of brutal conflict and a number of failed attempts,” on Monday the UN Security Council finally passed a resolution calling for a ceasefire in Gaza, say Rachel Pannett and Kelsey Ables in The Washington Post. The US vetoed previous resolutions on the grounds that they did not condemn the October attacks by Hamas and over fears they might jeopardise hostage negotiations; China and Russia blocked a US-backed resolution that tied a ceasefire to the release of hostages. This time the resolution included a call to free the hostages, which convinced the US to abstain, and so the resolution was passed. The agreed resolution may appear evenhanded in that it asks for “the immediate and unconditional release of all hostages”, alongside a demand for an immediate ceasefire, says…

We’re almost finished reviewing our MoneyWeek exchange-traded fund (ETF) model portfolio, and it’s our investment in UK small caps that looks the most troublesome, as we’ve analysed extensively in the last few articles. This investment is one of the “satellites” to our “core” of large-cap global equities and government bonds, intended to offer greater growth or protection against certain risks. Small caps were originally held for growth, but lately they’ve not delivered much of that. We could hold on to our position in Vanguard FTSE 250 (LSE: VMID), on the basis that the UK is deeply out of favour and may eventually stage a strong recovery. But we have 10% of our portfolio in a single country of shrinking global importance with deep structural problems, and it’s not clear what…

Let’s revive global free trade Raghuram RajanFinancial Times Instead of pushing for a better kind of globalisation, too many of today’s elites are hedging it with “enough caveats” for it to become “rank protectionism”, says Raghuram Rajan. For example, in the US security concerns are now being used as justification for banning Chinese electric vehicles while “strategically inconsequential” takeovers are subject to “serious scrutiny”. “Once open borders are no longer the default, new impediments to competition proliferate.” Tariffs and subsidies abound. The latest elite project – a result of market failures during the financial crisis, concerns about national security and “drawing the wrong lessons from China’s state capitalism” – is creating “national champions”. A current focus is to subsidise chip manufacturers, even though it will neither buy security (controlling the…

unherd.com In her recent speech to the City of London, shadow chancellor Rachel Reeves said that her party intended to usher in a revolution as radical as Margaret Thatcher’s, says Tom McTague. She was thinking of the economic growth of the 1980s, but the notion that the 1980s were a decade of national renewal is far less convincing than many assume. If you pick your statistics from the years 1981-1988, you can show Thatcher had got Britain booming. But “widen the lens even slightly” to take in the slump at the start, and the average growth rate of 2.3% from 1979-1988 is hardly stellar. By 1990, inflation was back over 10%, leading to high interest rates and joblessness. Hardly a decade of renewal. What Reeves should instead take inspiration from…

The investment-trust sector has been buffeted by strong headwinds in recent years. These stem from significant changes in the regulatory environment and the asset-management industry. These challenges can be traced back to the current European regulations on investment products for retail investors, the so-called PRIIPs Regulation. It has had unintended consequences for investment trusts. As trusts are virtually unique to the UK and comprise only a small percentage of the global fund-management industry, the rules were developed with little thought given to these vehicles. PRIIPs force managers to disclose annual management fees and transaction costs for funds. This makes sense with open-ended funds, as the charges and costs are taken out of returns. But with investment trusts, this level of disclosure around costs is misleading because the costs are already…

Debt as a percentage of GDP has grown rapidly over the past half century in the US and in other major developed countries. This is true of both government and private-sector debts. In the US, total debt grew from about 150% of GDP in 1970 to around 300% today. The six other big economies – the UK, China, France, Germany, India and Japan – have been on similar trajectories. But this is a feature of how modern economies work, not a bug, says Richard Vague in The Paradox of Debt (Forum, £20), published last year. The ratio of debt to income in economies almost always rises, he notes, and that’s mostly for the good. Debt tends to rise because new money is always required for economic growth and the technological…

● The amount we’re all paying in accidental subscriptions has doubled in a year, according to Citizens Advice. More than 25% of us – 13 million people – have accidentally taken out a subscription in the past 12 months. It could be anything from a fitness app to pet food to a food-delivery service. You may think you have made a one-off purchase or signed up to a free trial, but instead you have agreed to a recurring payment. These accidental subscriptions cost us £688m in 2023, up from £306m at the end of 2022. “Companies relying on people forgetting to cancel at the end of a free trial is an unacceptable business model that exploits busy, cash-strapped consumers,” says Clare Moriarty, CEO of Citizens Advice. It takes some legwork,…

● Do you know how much you are paying your pension providers in annual charges and other fees? Providers don’t always make it easy to check, warns the Financial Conduct Authority (FCA), the chief City regulator, which has just announced a review of fee transparency in the pensions sector. In the meantime, however, making the effort to get to grips with charges is important. Higher fees erode the value of savings by far more than is often realised, because pensions are such long-term investments. ● As the bitcoin price continues to jump around, the world’s largest pension plan, Japan’s Government Pension Investment Fund, has announced it is considering a move into cryptocurrency assets for diversification reasons. Should UK pension savers do the same? Regulators are far from convinced: the FCA’s…

Mohsin and Zuber Issa “turbocharged their retail empire in the easy-money era through dozens of debt-funded deals” to form one of the world’s largest owners of petrol stations and supermarkets, says Bloomberg. Their sprawling EG Group empire now includes more than 6,000 petrol stations worldwide, Subway fast-food stores and Asda, one of the UK’s biggest supermarkets, which they acquired in a £6.8bn leveraged buyout in 2021. The brothers still have stakes of more than $1bn each across their holdings, but their values have slumped in the space of just two years, and higher interest rates are forcing the brothers and TDR Capital, their private-equity backers, to sell major assets to repay debts. It’s not just their businesses that are under strain. There have long been rumours of a rift between…

2022 Dappled, Appellation Chardonnay, Yarra Valley, Victoria, Australia £34.50, nattyboywines.co.uk Dan Long is a consummate wine retailer, talented restaurateur and sniper-accurate wine buyer. He is making serious waves in London with his two impressive restaurants, combining stunning wine selections, refreshingly low margins and acutely well-prepared food. His wine retailing arm is fascinating, and, of course, my eye is drawn to the Aussies! I recently tasted nine wines with Dan, and every bottle was a bull’s eye. Dappled was a new discovery, and my featured wine, 2022 Dappled, Single Vineyard Les Vergers Chardonnay (£45), its big brother, and 2022 Dappled Pinot Noir Single Vineyard Champs de Cerises (£45), a red sibling, were all devastatingly pure, evocative, and sensual. My featured 2022 Appellation Chardonnay showed lovely, pithy fruit alongside teasing minerality. With…

Harnessing the New Opportunities the Metaverse Creates Shurick Agapitov Worth, £20 In 2021 Facebook founder Mark Zuckerberg announced he was rebranding his social-media company as Meta, and refocusing it on a virtual-reality world known as the metaverse. This was met with derision, and Meta’s share price plunged. Though the shares are now hitting new highs, critics still think the billions he has injected into these ideas are unlikely to pay off, and could have been better spent elsewhere. Tech guru Shurick Agapitov begs to differ. Agapitov argues that, just like the creation of the world wide web itself, and then the social-media revolution, virtual reality will change the way we interact with the internet, upending everything from online commerce to our very concept of possessions. He also thinks that the…

The price of a Centre Court debenture at Wimbledon has risen by 45% to £116,000 for the next five years – four times as expensive as a decade ago and working out at £1,657 a day during the annual tennis championships, says Martyn Ziegler in The Times. The All England Club is confident demand for the top-tier seats will hold up, despite the retirements of stars Roger Federer and Serena Williams (pictured). The price includes a seat on the same tier as the Royal Box, parking, and access to an exclusive restaurant – but strawberries and Pimm’s are extra. A rule that bans regular tickets from being resold is also waived for debenture seats, meaning holders can “cash in hugely” for a high-profile match they don’t want to attend. But…

“[Online] searches for ‘ESG investing’ have plummeted back to mid-2019 levels... The term was the product of an uneasy three-way alliance [between] ethically driven investors [including] pension funds, universities and religious organisations... institutions [and governments]... that aimed to channel money to industries that benefit society [and] investors who wanted to profit from the green revolution... Asset managers jumped at the chance to... revitalise the case for active management... the confusion of motivations made for...a lot of doublespeak. Neither ethical objectives nor bets on decarbonisation square logically with fund managers’ claims that ESG is a... path to higher, safer returns... [There’s also little clarity about] what counts as ethical... a broad tent covering too many interests serves none of them well.” Jon Sindreu, The Wall Street Journal…

Last week shareholders in special-purpose acquisition company Digital World Acquisition Corporation (DWAC) voted to merge with Trump Media & Technology Group (TMTG), Donald Trump’s media business. The new firm will list on the Nasdaq, says Ortenca Aliaj in the Financial Times. The merger and listing were agreed in 2021, but had been “marred by delays”, thanks to various investigations by regulators. DWAC has paid an $18m fine to the US Securities and Exchange Commission (SEC) as it “failed to disclose a material conflict of interest”. In addition to the Truth Social social-media arm, Florida-based TMTG also plans to launch a streaming service offering “non-woke” entertainment to the US public. Investors beware, says Dareh Gregorian for NBC News. When Trump took his casinos public in 1996, ironically with the same ticker…

Politics & economics America and Japan are “planning the biggest upgrade to their security alliance” since their 1960 mutual defence treaty, in a move to “counter” an expansionist China, say Demetri Sevastopulo and Kana Inagaki in the Financial Times. President Joe Biden and prime minister Fumio Kishida will announce details of the plan when Kishida visits the White House on 10 April. Insiders say the allies want to restructure the US military command in Japan to strengthen cooperation in response to China’s increasing aggression, particularly towards Taiwan. Biden signalled his wish to “tilt the focus of US foreign policy towards the Asia-Pacific region” in 2021, when he took office, says Alistair Dawber in The Times. The move to increase operational planning and military exercises between the two allies is…

In a few weeks’ time voters in large parts of England will go to the polls. But in contrast to recent years, when there have been a large number of election-related markets, including on the control of individual councils, there has been relatively little interest from betting markets or bookmakers, possibly because everyone is assuming the Conservatives will lose many councillors, or because all the interest is in the upcoming general election, which will have to take place in just over nine months’ time. One race with a liquid market is the contest over who will be mayor of London. However, even there punters are all but assuming that Sadiq Khan will win. With £200,792 matched on Betfair, Khan is favourite at 1.05 (95.2%), with Conservative Susan Hall out at…

It is the most radical move Unilever has made since Hein Schumacher was drafted in to lead the conglomerate last year. The business, which manufactures Dove soap and Hellman’s mayonnaise, had drifted for years under the dismal management of Paul Polman. Its shares underperformed rivals such as Nestlé and Heinz, activist investors took larger and larger positions, and the board came under rising pressure to ditch the social activism and political posturing and concentrate on delivering better returns for shareholders. Last week, it announced plans both to cut 7,500 jobs and, more radically, spin-off its ice cream unit, which includes brands such as Magnum, Ben & Jerry’s and Wall’s, into a separate company, with either a trade sale or a stockmarket listing as the most likely options. A target date…

Investing strategies can be split into two broad types. Passive investments aim to earn the same return as the wider market as cheaply as possible, by buying all the stocks in an index such as the FTSE 100 or the S&P 500. Active strategies aim to earn a higher return by only investing in a smaller number of specific stocks or bonds that look particularly attractive. Core-satellite investing tries to combine both approaches to produce a portfolio that has low overall costs, but may still be able to beat the market. The core of the portfolio is one or more passive funds. This investment will usually be as broad as possible: it will either track your main domestic stockmarket index or a global benchmark such as the MSCI World or…

“Don’t get me started on the pay disparity, but male actors get paid more because they used to say they drew in the audiences. And actually, that hasn’t been true for decades, but they still like to use that as a reason not to pay women as much as their male counterparts.” Actress Olivia Colman (pictured) on the gender pay gap in Hollywood, quoted on CNN “That’s probably true. What sense is there in being a billionaire if you’re not a bully?” Activist investor Nelson Peltz on being called a “bully billionaire” in a lawsuit by the wedding planners he hired for his daughter’s nuptials, quoted in the Financial Times “My problem lies in reconciling my gross habits with my net income.” Actor Errol Flynn, quoted in Forbes “Not all…

collabfund.com/blog You can have too much of a good thing, says Morgan Housel, and that applies to cleverness too. How is it possible to be too smart? If asked why the stockmarket fell last week, an average person will say they don’t know. A very smart one might instead show you their yield-curve model and valuation analysis and tell you whether stocks will bounce back. Yet ultimately the first answer is always going to be more correct – complex systems such as the stockmarket cannot be reduced to a formula. And being very smart makes it harder to access a far more important quality: humility. In fact, I believe that one of the reasons professional money managers produce such lousy returns is that the industry attracts such clever people –…

Activist investor Tribeca Investment Partners is urging Glencore to abandon plans to spin off its lucrative coal division, and also wants it to shift its primary listing from London to Sydney, says the Financial Times. The Australian hedge fund suggests doing away with share buybacks in order to raise dividends and spinning off a portion of the thriving commodity-trading division. Tribeca points out that since Glencore’s 2011 flotation its share price has underperformed its peers, returning just 9%. As miners move to Sydney and Toronto for higher valuations, the activist’s move puts yet more pressure on London. Tribeca owns $300m of shares and futures in Glencore. It has a record of successful activism against other miners.…

In early February, to almost no fanfare, the Treasury Committee released an extensive report on the Bank of England’s quantitative tightening (QT) programme. QT was the Bank’s attempt to reverse the quantitative easing (QE) programmes it had pursued intermittently over the last 15 years. QT aimed at removing some of the money that the Bank had pumped into the broader banking system by selling some of the large quantities of assets that they had accumulated throughout QE. While the Treasury Committee’s report was nominally about QT, it also had to consider the QE programme itself and its long-term effects. The report found that the unwinding of QE was proving extremely costly and that these costs were being borne by the Treasury – and, through the Treasury, by the taxpayer. The…

SMRs are advanced nuclear reactors with a power capacity of up to 300 MW(e) – megawatts electric – per unit, around a third of the generating capacity of traditional reactors. Because SMRs are so much smaller, simpler, cheaper and quicker to assemble, prefabricated SMRs can be built in places unsuitable for larger nuclear power plants. “One of the challenges to accelerating access to energy is infrastructure – limited grid coverage in rural areas – and the costs of grid connection for rural electrification”, notes the IAEA. “In areas lacking sufficient lines of transmission and grid capacity, SMRs can be installed into an existing grid or remotely, off-grid.” “This is particularly relevant for microreactors, a subset of SMRs designed to generate electrical power typically up to 10 MW(e). Microreactors [are] better…

Ten years ago this month the then-chancellor announced the most dramatic reforms of private pensions for a generation. “Let me be clear,” George Osborne told the House of Commons. “No one will have to buy an annuity.” A decade on, however, many pension specialists wonder whether pension freedoms, as the policy was subsequently dubbed, is all it’s cracked up to be. At first glance, the appeal is obvious. Previously, savers approaching retirement and keen to start drawing an income from their pension funds had little choice but to use their funds to buy an annuity. Annuity rates rise and fall – largely in line with gilt yields and interest rates – so people did well or fared badly depending on whether they were lucky about the timing of their retirement.…

An excellent source of investment ideas for us over the years has been “platform businesses”. These often simplify or enhance their customers’ proposition in return for a fee. Platforms tend to be very scalable and have relatively fixed costs. As a result, a large proportion of any increase in revenue is converted straight into profit. Some possess what we consider to be the holy grail of investing: a network effect. A network effect, simply put, refers to goods or services that grow in value the more people use them, thus attracting more people, in a virtuous circle. Platforms boasting network effects are fairly rare beasts, but we own a number of them in both the CFP SDL Free Spirit and CFP SDL UK Buffettology funds, which aim to buy high-quality…

Vietnam, Poland and the Origins of Prosperity Rainer Zitelmann Encounter Books, £21.99 Book in the news… the miracle of capitalism The issue of inequality and relative poverty in developed countries has shot up the agenda in recent years, and some commentators have even wondered whether democracy will survive the subsequent rise of populism. For many emerging countries, however, the main problem is still growing the pie, rather than deciding how to divide it up in a fairer way. In How Nations Escape Poverty, businessman and historian Rainer Zitelmann looks at two countries, Poland and Vietnam, that transformed their economies, vastly improving living standards and eliminating absolute poverty, by ditching their command economies and embracing the market. Both countries’ experiments with communism proved disastrous. Like many other Eastern bloc countries, Poland’s…

Interest-rate cuts are “in play”, the Bank of England’s governor Andrew Bailey tells the Financial Times. The Bank’s Monetary Policy Committee (MPC) again held interest rates at 5.25% at this month’s meeting, but cheaper money is coming into view. Annual inflation fell to 3.4% in February, its lowest level since September 2021 and steeply down from more than 10% a year ago, says Richard Partington in The Guardian. Markets are now betting on a first 0.25 percentage-point cut for June, with two more to follow. That would see UK interest rates finish the year at around 4.5%. Just a few months ago, the Bank of England’s guidance suggested it might keep raising rates, says Philip Aldrick on Bloomberg. Yet in “one of the sharpest turnarounds… in recent memory” it is…

Turkey has “stunned” investors by hiking interest rates to 50%, say Ezgi Erkoyun and Daren Butler for Reuters. Inflation hit 67% in February. The Turkish central bank has long come under pressure from president Recep Tayyip Erdoğan to keep rates much lower than inflation, with the result that the lira has lost more than 80% of its value against the US dollar over the past five years. But since his re-election last year Erdoğan has shifted towards favouring tighter monetary policy. Turkey has raised rates by 41.5 percentage points since last June. The latest hike of five percentage points came just ten days before local elections and is being interpreted favourably by markets as a “signal that the central bank” is “independent from any political constraints”.…

Investors’ appetite for initial public offerings (IPOs) of “promising yet loss-making companies could be returning”, says Kari Paul in The Guardian. Shares in social-media platform Reddit soared by nearly half when they listed last Thursday, implying a market value of $9bn. At one stage, the stock was 70% above the initial offer price. Still, Reddit’s current valuation marks a decline from 2021, when it was valued at $10bn in a private funding round. What’s more, while it has become “one of the cornerstones of social-media culture”, the company has “failed to replicate the success of its bigger rivals” such as Meta’s Facebook and Elon Musk’s X, and investors will be scrutinising its “roadmap to profitability”. Reddit faces many of the same dilemmas as X or Facebook, especially over moderation, says…

A terrorist attack in Moscow last week ended in the deaths of more than a hundred concertgoers. Islamic State claimed responsibility for the atrocity. In a televised address, Russian president Vladimir Putin did not mention the terrorist group, however, and claimed that Ukraine had been involved, even if he stopped short of directly attributing responsibility to Kyiv. That may reflect a worry that the US government is sitting on intelligence that would undermine such a claim, says The Economist. And it may be embarrassment at his security agencies’ failure to act on American warnings on 7 March of an imminent attack. “Such a hubristic blunder would have consequences in a country where power can be held to account. Russia is not such a country.” Russia deserves better Putin claimed that…

● Close Brothers is “more vulnerable than most” to the Financial Conduct Authority’s crackdown on potential mis-selling of car loans, says Alistair Osborne in The Times. It probably won’t be a case of “PPI on wheels” – PPI cost banks more than £50bn – but Close should nonetheless “buckle up for the ride”, as its £1.9bn motor-finance exposure accounts for a fifth of its loan book. Some 25,000 Close clients have complained to the regulator. CEO Adrian Sainsbury has been under pressure to prove Close could withstand a bigger hit than the £100m he found last month after axing the dividend. He has now found £400m via “brakes on lending growth, some loan asset securitisation and maybe scrapping next year’s dividend”. If the FCA’s review turns out better than feared,…

The outlook for the US is a little less bullish than it was 12 months ago, says Abby Joseph Cohen, the former chief investment strategist at Goldman Sachs, who earned a reputation as a permabull for her upbeat forecasts in the 1990s and 2000s. “Consumers are in good shape [but] they aren’t in the same great shape as last year,” she tells the Barron’s roundtable. “Consumers entered 2023 with extreme levels of excess savings and demand. They wanted to spend… Some of that ammunition has been used up.” While unemployment remains low, there aren’t as many job openings. Many companies have insulated themselves from rising interest rates by issuing long-term debt at low rates, but costs may rise as manufacturing shifts back out of China and from increased spending on…

snowdon.substack.com “Of all the delusions of Britain’s ruling class, none is more absurd than the idea of tackling obesity by forcing the food industry to take the calories out of its products,” says Christopher Snowdon. It has been tried with sugar and was an “epic failure” – people simply stopped buying the low-sugar products. Last month the government published the results of its scheme to reduce the number of calories in processed foods by 20%. “That, too, has been a shambles.” The public seems to like the idea: a poll by Ipsos Mori found that 67.3% of Britons agree that the government should force firms to reduce the amount of fat, salt and sugar in their products. But this is an example of the difference between stated and revealed preferences.…

■ The Scottish Mortgage Investment Trust is to buy back at least £1bn, or 9%, of its shares to lift its stock price, currently at a 13% discount to its net asset value (NAV), says CityWire. Baillie Gifford’s flagship trust is still recovering from the sharp global sell-off in growth companies in 2022, which was triggered by rising interest rates. The slump wiped 50% off the stock. Having repaid £450m of short-term debt in the past two years and cut borrowing to 13% of net assets, the trust said it intended to treble the £353m of shares it had bought back since 1921. The move comes amid an increase in buybacks by investment companies to address sector-wide share discounts and lacklustre returns for shareholders. Scottish Mortgage’s broker, Deutsche Numis, said…

It’s time to consider moving to a new bank. Last week Santander launched a new switching bonus for people who move their current account to them. New and existing customers can get a £185 switching bonus if they move their main bank account to Santander’s Edge, Edge Up or Private current accounts. But are the Santander accounts worth switching to? If you want the £185 bonus, then the Edge account is the one to go for. It has a £3 monthly fee but in return you get 1% cashback on energy, council tax, broadband, TV, mobile and water bills, up to a maximum of £10 a month. Then you get another 1% back on spending at supermarkets, on fuel and trains, again capped at £10 a month. The account also…

Jeremy Hunt’s budget pledge to move towards the abolition of national insurance raises many questions – not least, how would Britain pay for state pensions? While people’s national-insurance contributions are not ring-fenced, a significant proportion of the money ends up in the pensions budget. In any case, there is a direct link between your contributions record and your eligibility for the state pension. Indeed, if you’ve missed several years of contributions, it may be worth making voluntary payments to top up your record. To be eligible for any state pension at all, you must have made at least ten qualifying years of national-insurance contributions; to qualify for the full amount, you’ll need 35 qualifying years. It’s possible to check your national insurance record using the Gov.uk website, which will also…

If asked who has most changed Britain, you might think first of the radical prime ministers – Margaret Thatcher or Tony Blair. Yet lower-ranked politicians have managed to effect big reforms, even though they never made it to the top job – or even a senior role such as chancellor or foreign secretary. One such was Aneurin “Nye” Bevan, who was instrumental in creating the National Health Service, one of the few parts of the postwar welfare state that has survived almost completely intact. The National Theatre’s Nye tells his story. The quest for the NHS It’s December 1959 and Bevan, played by Michael Sheen, is wheeled out of surgery onto a hospital ward after what was supposed to have been a routine operation to remove an ulcer. The procedure…