The choice for investing in numerous assets classes, around the world, using a plethora of investment platforms to execute or discuss trades with fellow speculators have increasingly served private investors well so far in the 21st century, despite difficult periods such as the Great Financial Crisis of 2007-9 and through further dips and recoveries since. The number of private investors or speculators has also grown strongly, especially since the advent of crypto currencies, starting with Bitcoin and now including many other crypto-market incumbents.
Thus, as a long only equity investor, the efforts of the Little deal Clincher have not only become a bit old-fashioned but behind the times too, as the number of investments, firstly, able to be easily understood and, secondly, bought and sold through a traditional stockbroker has dwindled over the last two decades through many mergers and relentless buy-outs from private equity groups or frequent company collapses. These have removed many of the familiar, easily understood ‘old-economy’ stocks from index inclusions, and in-time memory.
After Balfour Beatty or perhaps Laing O’ Rourke -try naming a British owned contactor involved in large scale project design, procurement, and delivery (Think HS2 type scale)? The reality of owning equity in a contractor is not for the faint-hearted either.
Furthermore, when a UK broker can’t easily or willing hold a nominee stock in a well-known overseas holding it becomes clear that some change is required. The number of British companies widely recommended to purchase and hold within a diversified portfolio of ‘blue-chip’ UK equities has dwindled in recent years. Once dubbed as ‘foreign’ companies, they now form a substantial chunk of the venerable FTSE100 index constituents.
The UK focussed FTSE100 still remains the most preferred index of the traditional stock market brokers to encourage the more risk averse investor to participate in regardless much of constituents’ earnings are derived from non-UK operations with many foreign companies included in the index in the last 20 years; especially miners for instance was BHP ever not Australian?
Once calling a traditional broker and buying a portfolio of blue-chip FT100 share-index listed companies like Royal Dutch Shell, now in the process of a major restructuring for the post-COP26 climate-change obsessed investment world or Royal bank of Scotland which was bailed out in 2008 by the British state and calling itself NatWest now (and still a ward-of-state), Scottish Power, bought by Iberdrola many years ago, and Scottish and Newcastle, a brewer probably long forgotten to most but once had an HQ in Edinburgh or indeed Anglo-American, a South-African mining giant, that once it become ‘British’ and not a ‘foreign’ stock was then considered a fine addition to an investor’s portfolio.
Companies such as these were considered staple investments for the tea-and-sandwich quaffing private investors who turned up to company AGM’s with their paper copies of the accounts in-hand and FT in the other. All once good and sensible stuff plus an enjoyable day-out for investment-geeks certainly in pre-COVID and more investment focussed pre-passive ETF index-buyer times.
Notably, Anglo-American recently divested coal operations- Thungela Resources- have a staged an impressive market run during 2021 and coal production remains robust for most producers, a last hurrah for coal? Anglo’s other businesses have recovered well too recently with the CEO Mark Cutifani now stepping down.
Traditional long-only equity investors purchased shares in reliable, understandable ‘old-economy’ type usually dividend paying, sensibly valued companies. This now all sounds rather quaint and long-ago. Even still the FTSE100 index is still full of miners, pharmaceutical companies, oil, and gas producers, fixed-line telecoms such as BT, property companies, utilities, investment, insurance and banks, UK banking behemoth Lloyds for example. Perhaps its lack of new economy or technology-orientated constituents is a reason for its underperform in contrast with the US tech-ladened Nasdaq for example. Questions are being asked of the London Stock Exchange own performance in terms of listings and relevance in today global markets.
Financial media company Bloomberg seems to have reduced their coverage of London equities for years now with their focus on Asian markets and the US, naturally. Not so easy to watch events in GMT unless one’s a night-owl.
Therefore, it’s become time to restructure and make a few changes since the market fell in early 2020 due the ensuing COVID-19 pandemic. The results so far are to partly give up and partly re-invest in new shares. As a further piece of news Little Deal Clincher’s broker, Charles Stanley, for the last 30 years has been bought over itself. This adds something about the plight or decline of the long-only active equity investor in individual company equities. Good luck to them in their new home and thanks for the advice too.
Thus, in the wish to avoid losing money and following less understandable technology and bio-technology offerings or off-the scale risky venture-capital start-ups, a 2001-2010 favourite-waste-of-time. The answer has been partly under the guise of if you can’t beat them then join them notion- and to hand over the bulk of the portfolio to a discretionary asset manager who has invested in a multi-asset global fund-of-funds portfolio with a lower fee structure than before plus retaining some investment trusts such as the Baillie Gifford managed Shin Nippon, Scottish Mortgage and RIT Capital Management with their shareholder approved increase in private-equity allocations.
Some direct holdings have also been retained from the previous portfolio such as Advanced Medical Solutions and Philips, the Dutch electronic and medical devices company. There have been some new additions such as a small high speculative position in DNA Cas9 gene-editing company CRISPR on NASDAQ (and so far not for the faint-hearted either) although as a much smaller part of the overall portfolio than previously.
It does allow one to do other things than constant monitoring and research required for individual company investing. Furthermore, the fact that so many companies have succumbed to private-equity ownership, a less hands-on approach, unless a keen trader or crypto-speculator, is the way to go for private investors in the 2020s as buy-to-hold has changed in to pick your own private-equity manager.
Notably, institutional buyers such as defined-benefit pension schemes had assets totalling £1.7trn in 2020 used to be huge buyers of London listed shares, which in 2008 they had invested 26% in British assets and that by 2020 had fallen to less than 3%, according to figures from the Pension Protection Fund, as reported in the Economist magazine (2021). This is partly because DB pension schemes were encouraged by pension regulation to invest in the safety and guaranteed return of capital and interest from government bonds, a story which will get very interesting in an inflation-returning future after a long period of high prices and low yields. But also, in part by pension managers not buying British equities and a slowdown in the London Stock Exchange initial public offerings.
Looks like more than just Little Deal Clincher has moved on. Let’s hope the London Stock Exchange takes stock, reboots its equity offerings by finding some good opportunities ahead and reclaims its deserved place as a leading global bourse.
LDC.
PS. Since the 1st edition the FTSE100 index has fallen sharply (2.96% on 26th November 2021) due to renewed coronavirus worries over the new variant B.1.1.529 with further travel restrictions imposed on its appearance.
Reference.
The Economist (2021) ‘Briefing: Britain’s sluggish stockmarket- Why London is no longer the world’s bourse’ The Economist Newspaper 2021, London UK, [Online] Available at: Britain’s sluggish stockmarket | The Economist (website accessed: 22nd November 2021 by subscription).