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MAKE IT, KEEP IT, SPEND IT 16 FEBRUARY 2024 | ISSUE 1195 |

Holes in our defence

Will we be caught off guard?
Page 14

BRITAIN’S BEST-SELLING FINANCIAL MAGAZINE MONEYWEEK.COM

 16 February 2024 | Issue 1195 Britain’s best-selling financial magazine

From the editor...

It’s just as well Dry seven technology stocks (see
January is over. page 4) are in addition to
Not only have those another: high valuations. It’s
who put themselves not just that the market-leading
through it finally stocks are “priced for perfection
started talking about something in this world but also the next”,
else, but US investors now also as Michael Lewis puts it in the
have all the more reason to Credit Strategist. The mean-
resort to a stiff drink. They were reverting cyclically adjusted
looking forward to reductions price/earnings ratio, widely
in interest rates this spring. But cited as a guide to long-term
unexpectedly sticky US inflation returns, has rarely been higher,
in January suggests that it could implying poor returns for those
be a lot longer before the US who buy now.
Federal Reserve can reduce the This gauge should be treated

©Alamy
American consumers look likely to run out of money this year
price of money; if February’s with caution, however, as
figures point the same way, Max explains on page 21. His
expectations of a further “Emerging economies have been better analysis also suggests we should
interest-rate hike may spread.
Core inflation, which
managed than developed ones in recent years” be wary of the UK stockmarket
too; he will take a closer look
excludes volatile food and energy prices, as Campbell Harvey points out in a note at its perennial problems, and suggest
ticked up by 0.4% in January, the biggest for Research Affiliates. Delinquencies solutions, next week. In the meantime,
jump since last May. On an annual basis it in consumers’ loans have been trending there are plenty of other options to
is climbing at 3.9%, the same pace as upward recently, and nobody borrows on a research against the familiar backdrop
in December. The downtrend of the past credit card until their savings have gone. of shaky growth and apparently resilient
year appears to have stalled. The cost Bear in mind too that the average interest inflation (see also page 13).
of home insurance is rising at its fastest rate on US government debt is just 3.11%. Our German View and IPO Watch
annual pace since 2015. Car-repair prices With short-term interest rates above 5% sections highlight long-term growth
are also rising. “Inflation in services shows and long-term ones above 4%, the average plays, while Rupert introduces another
little sign of easing,” concludes The Wall rate on state debt is set to jump in 2024 as on page 24. A closer look at emerging
Street Journal. existing debt rolls over and the government markets is also warranted (see page
borrows more. “The ballooning debt and 5). Their economies have been better
Savings spent debt service put upward pressure on long managed by central banks than
Investors who blithely assume that the US rates, thereby impeding business investment industrialised ones in recent years and
economy will just keep motoring may also and growth.” US commercial property their stocks are cheaper. Growth stocks
be in for a rude awakening. Around 70% companies grappling with huge post-Covid at value prices – so much more appealing
of GDP stems from consumption, and a vacancy rates will also have to refinance than the other way round.
key reason spending was so robust last year loans, potentially putting banks at risk.
was that households had amassed $1.2trn All these headwinds for the buoyant US Andrew Van Sickle
in excess savings. This well is running dry, stockmarket dominated by the magnificent editor@moneyweek.com

Good week for:

Bowled over Former chancellor George Osborne has joined US cryptocurrency
Super Bowl LVIII, the exchange Coinbase as an adviser – the latest in a string of well-paid
finale to the American appointments since he left government in 2016, says The Guardian.
football season won At one stage, Osborne was holding down nine jobs. He then
by the Kansas City gave some up to become a partner at investment firm Robey
Chiefs last Sunday, Warshaw in 2021, where he earned £28m last year.
was expected to His pay at Coinbase has not been disclosed.
be the most
lucrative yet in Michael Jackson’s estate has agreed to sell half of
terms of attracting the song catalogue that belonged to the late singer
advertising (pictured) to Sony for $600m in what is probably the “richest
revenue, say transaction” for a musician’s work, says The New York Times.
Daniel Thomas and The deal includes the rights to hits Beat It and Bad, as well as songs
Cover illustration: Adam Stower. Photos: ©Alamy; Getty Images; Flexjet

Sara Germano in the
Financial Times. Brands in the
US, including Microsoft and Uber Eats, were
estimated to have handed Super Bowl broadcaster
Paramount $650m to show their advertisements,
featuring stars such as Jennifer Aniston and
Lionel Messi, during breaks – 10% more than last
year, says Dentsu, an advertising agency. A
30-second slot cost around $7m, reaching some
123.4 million people in the US, making the game the
most-watched television event since the first moon
landing in 1969. The presence of singer Taylor Swift
cheering on her boyfriend Travis Kelce (pictured
©Getty Images
made famous by Ray Charles and Jerry Lee Lewis.
Bad week for:
More than eighty bottles of wine worth €1.5m have vanished from
La Tour d’Argent, a 442-year-old restaurant in Paris
that inspired the Disney film Ratatouille, says BBC News.
The bottles could have gone missing at any time since the last
inventory of 300,000 bottles in January 2020. Some can fetch five-
figure sums.
Chief, a New York-based private members’ club exclusively for
women, is closing its London clubhouse – the first outside of the
US – a year after opening, says The Times. An annual

together) in the stands is thought to attracted a membership had cost up to £7,900. Chief will instead focus on
wider range of brands than normal. its US operations owing to a lack of overseas interest.

moneyweek.com 16 February 2024

4 Markets

S&P hits new highs, fuelled by Big Tech

Alex Rankine
Markets editor

The mood of the global elite gathered in

Davos often serves as a contrarian indicator,
says James Mackintosh in The Wall Street
Journal. When they’re “depressed, buy.
When they’re positive, sell”. At last month’s
annual gathering in the Swiss resort
you could barely move “without having
artificial intelligence pushed at you” as a
universal balm – so is it time to sell?
AI hype helped drive “stunning
gains” for the “magnificent seven”
stocks (Microsoft, Apple, Google-owner
Alphabet, Amazon, Nvidia, Facebook-
owner Meta and Tesla) last year. The
grouping is a dominant force on Wall Street,
together accounting for 29.5% of America’s
S&P 500 index. Boosted by Big Tech, at the
end of last week the S&P closed above the
©Getty Images

symbolic 5,000-point level for the first time.

The rally of this narrow group of stocks
has disguised a “stealthy correction” in
many other parts of the market, Kevin
Gordon of Charles Schwab tells Nicholas
Megaw in the Financial Times. “Only half
of stocks in the S&P 500 have risen this
year.” On an equal-weighted basis (which
strips out the outsized weightings of the tech
megacaps), “the index… remains below the
all-time high it set in early 2021”.
It is hard to overstate the scale of the
tech giants, says Nils Pratley in The
Guardian. Apple alone is worth more than
the entire UK stockmarket. Combined,
the magnificent seven accounted for
17.2% of the MSCI All Country World
Index, a global stock benchmark, as of
the end of 2023, says Duncan Lamont of
Schroders. Extraordinarily, that is almost
the same as the share of the Japanese,
British, Chinese, French and Canadian
Davos serves as a contrarian indicator
markets combined. “Seven US companies
equals five countries.”
Excluding Tesla, the big seven tech stocks
are on course to report a 62.8% jump in
earnings for the most recent fourth quarter,
say Hardika Singh and Charley Grant in
The Wall Street Journal. That compares
with an average 8.6% decline for the rest
of the S&P 500. Yet even if AI “lives up to
its hype… buying tech stocks at high prices
might yield poor results”.
Investors are becoming pickier. Most of
the magnificent seven have delivered robust
quarterly results recently, but while Amazon
and Meta (see page 5) were rewarded with
share-price bumps, some of the others
suffered sell-offs. AI profits are promised
soon, but “so far, the companies have seen
little result from their investments”.
The winners and losers
Some on Wall Street think Tesla is no
longer “magnificent”, says Esha Dey
on Bloomberg. The shares have fallen a
quarter this year amid weakness in the
electric-car market. And a repeat of last
year’s magnificent rally is unlikely, says
Nicholas Jasinski in Barron’s.
Nvidia and Microsoft, the two genuine
AI plays, are likely to power on. A strong
US consumer is cause for optimism
about retailer Amazon and advertising
behemoth Google, too. But Tesla has had a
“tumultuous” run, Apple is suffering from
stagnant sales, and Meta will struggle to
repeat the cost-cutting “year of efficiency”
that briefly made it a stockmarket darling.
It’s time to look beyond tech for the next
stockmarket winners.

Germany: “underloved and oversold”

Germany’s economy is stuck in In recent years, many in
the “twilight zone between Britain and elsewhere came to
recession and stagnation”, regard Germany as “uniquely
says Carsten Brzeski for ING. competent”, says Ambrose
The world’s fourth-biggest Evans-Pritchard in the
economy shrank 0.3% last year. Telegraph. That was always a
Periods of flat growth saw it “myth”, but so is the new story
dodge a technical recession of a “broken” nation beset by
(that is, two consecutive crashing house prices and
quarters of falling GDP), but angry farmers.
that is cold comfort for an The shocks have finally
economy that seems to be in shaken Germany out of its
“permanent crisis”. Germany complacency. Berlin is
©Getty Images

faces specific structural “grasping the nettle with

challenges, not least China’s
shift from a destination for its
exports to a rival in key areas
such as carmaking.
Germany’s economy has
also been underperforming
eurozone peers such as Spain
and Italy of late, says Anna
Cooban for CNN. Yet for all the
national gloom, the local Dax
Deutschland Inc is turning itself around impressively Teutonic
determination”. The country
stock index has gained 9.75% the Dax’s stable of companies has “eliminated its dependence
over the past 12 months and is highly globalised and has on Russian gas”, turned itself
has continued to hit record only “modest” exposure to the into Ukraine’s top European
highs. That partly reflects bets stagnant domestic economy, arms supplier and is investing
that, with eurozone inflation notes Ben Ritchie of Abrdn. heavily in electric-vehicle and
down to 2.8% in January, More recently, falling energy semiconductor factories.
interest-rate cuts are in prices have also given German Deutschland Inc looks
prospect. Like the FTSE 100, corporates a lift. “underloved and oversold”.

16 February 2024 moneyweek.com


US rediscovers
dividends
Dividends are back, says Katie
Martin in the Financial Times.
Facebook-owner Meta has
announced its first-ever
dividend. The payout itself is
“piddling”, equivalent to an
annual yield of just 0.42%, but
the symbolism is important.
Technology firms have long
sworn off dividends, arguing
that their excess funds are
better invested in the next
growth opportunity. Yet after
infuriating investors with
fruitless bets on the “metaverse”,
Mark Zuckerberg wants to show
he can be a “staid, sensible”
Markets 5
Growth stocks at value prices
Rising US interest rates used to
be fatal for emerging markets
(EMs), says Soumaya Keynes
in the Financial Times. US rate
hikes would prompt global
investors to sell EM shares,
sending local currencies
spiralling and deepening dollar-
denominated debt burdens. Yet
on the whole EM economies
have held up remarkably well
during the latest US hiking
cycle. EM central banks were
quicker than their rich country
counterparts to take inflation

steward of investors’ capital.
US investors have “sneered
at dividends” in recent years,
says Jon Sindreu in The Wall
Street Journal. Since the end of
2008, US stocks with yields
above 5% have returned 450%,
compared with 1,200% for firms
that didn’t pay dividends.
Dividends only comprised 30%
of total US stock returns in the
past decade, compared with an
average as high as 80%
between the 1870s and the
1950s. Blame ultra-low interest
rates, which meant bonds
offered little competition to
no-dividend stocks. US
managers have instead come to
prefer share buybacks, which
are more flexible than
dividends and can offer tax
advantages, says The
Economist. But, in a sign of the
times, Meta’s modest dividend
announcement sent the shares
surging by 20%. With interest
rates much increased, even
Americans are starting to
appreciate the dull reliability
of dividends.
©Getty Images
seriously. By the time the Federal
Reserve began raising rates – too
late – in 2022, Latin American
central banks “had already
tightened monetary policy by
an average” of four percentage
points. Sound policymaking
also makes investors more
willing to lend to EMs in their
own currencies rather than US
dollars, reducing the exchange-
rate risks that proved so
damaging in past crises.
A disappointing decade
Economic resilience has not
translated into stock gains. The
average investment company
in the global EM sector has
generated a return of 70% over
a decade, badly lagging the
212% global average (which
is heavily US-focused), says
the Association of Investment
Companies. EMs have outrun
global markets in only two
years out of the last ten
(2016 and 2022). Prolonged
underperformance has left EMs
Mexico has been among the top-performing
emerging markets in the past few years
“under-owned, underestimated, Why? The overall index has
and undervalued”, says Andrew been dragged down by a falling
Ness of Templeton Emerging Chinese market. It makes up
Markets. On a price-to-book 25% of the overall MSCI EM
value basis, the MSCI EM index index. Dispirited investors are
is on a discount of 45% to its selling. Research by JPMorgan
developed market equivalent. finds that only 5.6% of global
Yet EMs contain many “best- investors’ portfolios are now in
in-class companies”, exposed EMs, below the 20-year average
to growing middle classes, of 8.4%, notes Patrick Temple-
commodities and technological West in the Financial Times.
innovation. These look like Some argue that big US tech
“growth stocks at value prices”. stocks like Apple offer investors
Strip out the exceptionally adequate exposure to global
strong US stockmarket and consumer trends, says Shuli
EMs performed broadly in Ren on Bloomberg. That is
line with non-US developed “short-sighted”. Sanctions and
markets (that is, Europe and geopolitical “jostling” have
Japan) during the 2010s, says spurred EMs to trade with each
Hubert de Barochez of Capital other more, bypassing Western
Economics. Yet since 2020 firms. Southeast Asia now
EMs have lagged even non- imports more from China than
US developed markets, even the US does. If investors are to
as a few EMs (such as India, gain exposure to this “seismic
Taiwan and Mexico) have put shift”, then they will still need to
in very strong performances. “rumble and tumble” in EMs.

Viewpoint n Mexico steals a march on China

“Hong Kong’s Hang Seng stock index
now trades around the same levels it did
in 1997... Chinese equities [are deemed]
“uninvestable”... [That] sounds like an
opportunity. A value trade requires
enough gloom to drive market prices
below intrinsic value... According to
Deutsche Bank, the Hang Seng index
trades at a forward price-to-earnings
multiple of about eight... Global equity
valuations [are] more than double that...
Nor are these failing companies. The
largest, such as Tencent and Alibaba,
are... still growing... If [they traded] in
line with their US peers, investors
would... double their money... Beijing...
will provide more fiscal support for the
US imports by country Mexico has eclipsed China as
the top exporter of goods to the
Billions of US dollars, seasonally adjusted US, says Paul Wiseman for the
AP. In the 1980s and 1990s
600
Canada and Mexico were the
leading sources of US goods,
but China’s industrialisation
500 saw it surpass Mexico in 2002
China
Mexico and Canada in the 2010s. That
trend is now reversing as
Canada
400 geopolitical tensions rise and
Washington promotes “friend-
shoring” (production in friendly
countries). Last year, Mexican
300
goods imports to the US rose
by nearly 5% by value to
$475bn, surpassing China’s
Source: US Bureau of Economic Affairs

economy...[while the] regulator is 200 $427bn, itself down by 20% in a

pushing for dividends [and] buybacks... year. The Chinese reduction
A market revival based on returning cash was driven by big falls in
to investors...would bring the value trade 100 “politically sensitive
to fruition... giving foreign investors a categories” such as electronics,
final chance to cash out.” chemicals and pharmaceuticals,
0 says Derek Scissors of the
Robin Harding, the Financial Times American Enterprise Institute.
1985 1995 2005 2015 2025
moneyweek.com 16 February 2024
6 Shares

Arm gains muscle Unilever’s slow

turnaround
Six months ago, Hein
The chip giant’s market value has doubled this year. That’s good news for Schumacher was appointed
Japan’s SoftBank, a major investor in technology. Matthew Partridge reports CEO of Unilever with a plan
to revamp the group’s
A surge in the share price of semiconductor giant performance, “drive growth
Arm Holdings in recent weeks means the US- and focus on the company’s
listed firm is now worth more than all but two 30 strongest brands”, says
FTSE-100 companies (Shell and AstraZeneca), Madeleine Speed in the
says Matthew Field in The Telegraph. Its value has Financial Times. But so far
he has struggled to deal with
more than doubled in 2024. Arm designs “critical problems including
technology used in billions of microchips”. Last “tensions with its ice-cream
week the stock received an additional fillip when brand Ben & Jerry’s” and
the group reported booming sales, with revenues “scrutiny over its continued
rising by an annual 14% in the fourth quarter of operations in Russia”.
2023. Management ascribes this impressive result Last week, Schumacher
to “strong momentum and tailwinds from all said the firm’s
things AI [artificial intelligence]”. competitiveness “remains
The increase in sales, combined with a further disappointing”. While sales
volumes rose for the first
expected rise of 11% this year, is certainly time in two years in 2023,
“significant”, but not in itself enough to justify with underlying sales
©Getty Images

the “mad leap” in its share price, say Robert SoftBank’s founder and CEO Masayoshi growth increasing to 7%, the
Armstrong and Ethan Wu in the Financial Times. Son has been trumpeting AI for a decade proportion of the business
In fact, there is something “slightly off” about that won market share last
Arm benefiting from the AI hype given that it SoftBank, which still owns around 90% of Arm. year slipped to 37%.
specialises in central processing units (CPUs), It seems SoftBank has finally found a successor to Consumers have traded
while AI computing “is driven primarily by Alibaba, which made it tens of billions of dollars down to white-label
graphics processing units (GPUs). in profits, say Megumi Fujikawa and Eliot Brown products, especially in
Europe.
While the AI boom will create demand for in the Wall Street Journal. The declining market
“lots of ancillary computing tasks”, many of This is important – while SoftBank’s founder share certainly calls into
which will rely on data centres powered by Arm and CEO Masayoshi Son “has been evangelising question Unilever’s “guff”
chips, most analysts agree that Arm is “near the the promise of AI for more than a decade”, his about its “unmissable brand
bottom” of the list of AI winners. record “has largely been characterized by flops superiority”, says Alistair
and misses on a giant scale”. Much of the money Osborne in the Times. After
Boost from consumers in his firm’s Vision Funds has gone “mostly all, “if it was that
Arm is only benefiting indirectly from the AI to companies with tenuous or unclear links to unmissable, consumers
boom at present, via consumers buying more AI, such as WeWork and now-defunct lender wouldn’t be trading down to
cheaper private labels in
data-storage capacity, but this is set to change, Greensill Capital”. Europe or up to “super-
says Kyle Wiggers in Techcrunch. Arm expects SoftBank will “be able to use Arm to help premium” stuff in America”.
direct sales to rise “as consumers buy new laptops finance loans for new investments, in the same Still, at least Schumacher is
and other devices with chip-accelerated AI way a stake in Alibaba helped SoftBank secure trying to tackle the problem.
features”. What’s more, AI-supporting chips financing to acquire Arm in the first place”, He has refocused Unilever
“will command higher royalty revenues”, with say Min Jeong Lee and Takahiko Hyuga on on “30 power brands”, and
Arm charging “roughly double the royalty rate Bloomberg. But there is still scepticism over the claims to have developed a
for its latest processor architecture versus the Vision Funds’ hundreds of private start-ups. “new quantitative
previous generation”. Vision Fund 2, funded entirely by SoftBank, is methodology” to “identify
performance gaps”.
In any case, the current surge in Arm’s share still “mired in losses after a post-pandemic slump While there’s no
price will be “music to the ears” of Japan’s hurt tech valuations worldwide”. guarantee this strategy will
work, and no explanation

Will packaging firms wrap up a deal?

Shares in packaging firm
DS Smith, known for its
cardboard boxes, have jumped
by 11% after it confirmed
“whispers” that it could be
taken over by its competitor
Mondi, says Jack Mendel in
City AM. DS Smith, which has
been listed on the London
Stock Exchange since the
1950s, released a statement
that it had received “a highly
preliminary expression of
interest” from several firms.
At the same time, Mondi
also confirmed that it was in
the “early stages” of
considering a possible all-share
combination with DS Smith.
If the merger between the
two companies comes off, it
would result in one of the
world’s top producers of
packaging supplies.
This isn’t the first time that
the two firms have proposed
combining. Mondi made a
merger overture to its rival
three years ago, “even if that
one never got as far as stock
exchange statements”, says
Alistair Osborne in The Times.
However, while that offer took
place at “the height of the
Covid online shopping boom,
with an incarcerated population
maxing out on deliveries”,
things have since become
more difficult.
Still, this may actually
strengthen the case for a deal.
Analysts say the $11bn merger
between Irish Smurfit Kappa
and America’s WestRock
shows that consolidation is
“inevitable” in what is a “very
fragmented industry, especially
in Europe”.
The “ropey outlook for
e-commerce, falling demand
amongst their consumer-goods
group clients and the scope
for cost savings” mean the deal
“makes sense”, says Aimee
Donnellan on Breakingviews.
Analysts at Jefferies think a
tie-up could produce cost
savings as high as £400m from
integrating the two groups’
mill systems and
manufacturing plants.
Regulators, meanwhile, should
be unfazed. The combined
entity would only have 13% of
the relevant segment of the
European paper market.
about where it will leave the
smaller brands, the growth
in sales provides “glimmers
of progress”, with even his
critics having to accept that
he’s “trying to bring some
extra zip”.
There are “clear signs of
progress”, says Matt
Britzman of Hargreaves
Lansdown. And Unilever
should now benefit from
more favourable headwinds,
especially in terms of future
margins. In particular,
“easing” cost inflation
means that “less needs to be
passed on to consumers
who were starting to trade
away from Unilever’s higher-
priced products”. Still,
there’s “a long way to go”
before Schumacher can “call
mission complete on the
turnaround”.

16 February 2024 moneyweek.com

8 Shares

MoneyWeek’s comprehensive guide to this week’s share tips

Five to buy
Beeks Financial Cloud
Interactive Investor
This technology firm provides
financial-services companies
with the digital infrastructure
(such as cloud-computing and
analytics) they need to run
their operations. News of
major progress on contracts
has seen the shares surge by
50% this month and may
herald an “inflection
point”. Switching
providers is a headache,
so in this industry,
clients tend to stick
with their contracts and
earnings are reliable.
That could eventually
open the way to a
rerating or a takeover
by a bigger industry
player. 140p
Burberry
Shares
This luxury brand is
“firmly out of fashion”
with investors after
two recent profit
warnings. Faltering
global demand remains
a headwind, but on 15.9 times
2024 earnings the shares trade
at a huge discount to the level of
40 they hit as recently as 2021.
...and the rest
Investors’ Chronicle
Shares in specialist wealth and
asset manager Mattioli Woods
have had a volatile few months.
A regulatory clampdown on
charges in the sector prompted
a sell-off, only for that to reverse
as the broader stockmarket rally
took hold. Such a roller-coaster
is unusual for a solid performer
with high levels of recurring
sales; it also attracted inflows
of £326m in the six months to
30 November. The stock is on
a slight premium to the sector’s
average, but that is justified by
the “solid earnings profile”, so
keep buying (582p).
Trading has remained robust
in Japan – where consumers
are particularly fond of British
brands – while a Chinese
recovery or a reintroduction of
VAT-free shopping for tourists
visiting the UK could eventually
be catalysts for a recovery.
Meanwhile, enjoy the 4%
dividend yield. 1,294p
Next
The Telegraph
Next has embraced
e-commerce rather than
fighting it by investing
heavily in warehousing and
logistics, giving it a strong
competitive position. It also
bodes well that consumers
could become more
confident as wage growth
outstrips inflation and
interest rates look poised to
fall. On 14.5 times forecast
earnings, Next’s shares are
far from the high street’s
cheapest – but on a “risk/
reward basis” they are
one of the sector’s best
picks. 8,366p
Renishaw
Investors’ Chronicle
An 18-month slump in demand
for global semiconductors
The Mail on Sunday
Specialist cleaner
React does a dirty
but vital job: cleaning
up and disinfecting
the scenes of violent
crimes and road
accidents once police
forensics have been
taken. The work
demands well-trained
crews, and the firm
has also been extending its
offerings by acquiring related
businesses that focus on services
such as deep cleaning and
window cleaning. Sales have
risen more than sixfold in four
has made for tricky trading
at Renishaw, which provides
precision-manufacturing
equipment to the chip sector.
But things are now looking up,
with double-digit increases in
profits expected for the second
half of the year; new business
lines in industrial automation
and data should also help lift
revenue. A rally has pushed the
valuation back towards historic
averages, but there could be
further upside to come as new
manufacturing capacity that
was built during the chip slump
comes online. 4,044p
One to sell
McDonald’s
The Times
The golden arches have been a
“dominant force” in fast food
for decades, but the outlook is
less cheerful than a happy meal.
Challenges are mounting, from
a backlash by consumers in
established markets as inflation
erodes the brand’s reputation
for value, to structural trends
that favour healthier eating over
a burger with fries. Potential
for growth is limited because
most markets are already
saturated. Management is
years and there should
be plenty more growth
to come. Buy (1.25p).
Shares
Cooling inflationary
pressures have sent
earnings “fizzing
higher” at AG Barr,
the soft-drinks maker
behind Scotland’s much
loved Irn-Bru brand.
Further upgrades appear likely
in the medium-term, and a solid
balance sheet gives management
the financial firepower to hit the
acquisition trail if it wishes. Keep
buying (550p).
Rent Guarantor
The Mail on Sunday
Ever more Britons are renting,
but up to a fifth of potential
tenants have trouble sourcing
all of the required paperwork,
such as character references
or employment checks, for
landlords. Rent Guarantor
provides landlords with a
year-long guarantee that rent
will be paid, screening tenants
and helping them to secure
accommodation in return for
a fee. Defaults are rare and the
number of tenant contracts
jumped by 57% in 2023. 274p
pinning its hopes for expansion
on China, but that may not fly
because cheaper local options
are available. McDonald’s main
appeal to Chinese consumers
is that it offers a taste of US
culture, but that’s a tougher sell
than it used to be. $292
The Telegraph
French giant TotalEnergies
is unusual in owning all parts
of the liquefied natural gas
(LNG) supply chain, from
wells to liquefaction plants and
tankers. That gives it a strong
position as Europe continues
to shift away from Russian
gas. Strong cash generation
underpins a generous 5.2%
forward dividend yield.
Furthermore, on just seven
times forecast earnings the
shares trade at a steep discount
to US peers, despite being
better managed on some
metrics (€59.80)

A German view IPO watch

Cincinnati-based Chemed Corporation is a former conglomerate
that has ditched various divisions over the years, leaving it with
its two best ones, says WirtschaftsWoche. It owns Vitas
Healthcare, one of America’s top providers of hospice care, and
Roto-Rooter, the largest plumbing and drain-cleaning group.
The first initial public offering (IPO) of the year on Aim, the
London Stock Exchange’s junior market, has proved a success,
says UK Investor Magazine. Shares in MicroSalt, a company that
has developed a technology to reduce sodium in salt by up to
50%, have more than doubled since they made their debut at 43p
a fortnight ago. The outlook for MicroSalt is auspicious, given
©Alamy; McDonald’s; Next Plc

The prospects for both companies are promising. The plumbing

outfit is recession-resistant, while the ageing population and
growing acceptance of assisted dying augur well for Vitas.
It helps that the federal health-insurance system, Medicare,
finances 92% of Vitas’s services. Chemed has no debt and
frequently buys back its own shares.
the key role sodium plays in causing cardiovascular diseases.
The World Health Organisation estimates that 1.8 million people
die from eating too much of it every year. The group has secured
several deals with a major food company, and also boasts orders
from one of the world’s top snack-food makers.

16 February 2024 moneyweek.com

10 Politics & economics

Labour ditches green pledge Betting on politics

The controversy over US
president Joe Biden’s
A key plank of Starmer’s campaign has given way. Matthew Partridge reports age – a federal
prosector’s report
Two years ago, Labour’s been scaled back once described him as an
pledge to invest £28bn in the face of rising “elderly man with a poor
a year in the “green borrowing costs, so memory”, raising doubts
economy” was “the it was little surprise about his fitness for
biggest jewel in its policy that many in Labour’s office – has drastically
shortened the odds on
crown”, says campaign team wanted former first lady Michelle
The Times. Fast-forward to get rid of something Obama becoming the
to the present, and that they viewed as an Democrat nominee. With
it has been formally “electoral liability”. £10.65m matched on
abandoned by leader Keir The change of heart is, Betfair, she is now at 9.2
Starmer on the grounds though, unlikely to do (10.8%), in front of both
that “such a large anything to stop Tory California governor
spending commitment attacks. Now they will Gavin Newsom at 11
is incompatible with ask how Labour can (9.1%) and vice-president
Kamala Harris at 14.5
his party’s promise to square its U-turn with (6.8%). Indeed, only
reduce government a pledge to “achieve Biden himself is ahead of

©Getty Images
debt as a proportion of clean power by 2030”. her at 1.48 (67.5%).
­economic output”. In its Starmer and Reeves: the dream team had a rude awakening Starmer’s critics on the The idea isn’t
place is a revised “green left are claiming that the completely insane.
prosperity plan” that is “priced at the considerably whole episode shows that he “lacks vision”. Michelle Obama has
more modest sum of £23.7bn over the course of the name recognition and
next parliament, in addition to £10bn which the Not a good look could be seen as a
government has already committed”. unifying figure if there
That’s unfair, says Polly Toynbee in The
were a fight at the
Guardian. Labour’s new plan may have been Democratic convention –
Changing tides “pared down” compared with the original pledge, especially if she agreed
Labour’s retreat is the result of “a number of but it’s “still the only growth policy in town” – to serve only one term.
changing tides in politics”, says Stephen Bush in provisions include a beefed-up windfall tax on Polling on her is
the Financial Times. There has been a “global oil and gas companies, and £13bn of borrowing relatively scarce, but she
backlash against climate action”, and the UK’s long- to “lever in private investment”. It could even be had an approval rating of
standing “relative consensus” on climate policy has that a more modest plan will help provide the up to 68% immediately
made it a “global outlier”, for one. The economic “iron certainty” needed to make any programme after her husband left
situation has changed, too, from when Starmer a success. Still, even Starmer’s fans will admit that office. One YouGov poll
in May 2020 gave her an
and his shadow chancellor, Rachel Reeves, made “the slow-motion U-turn has been excruciating, approval rating of 55.8%,
their pledge. Interest rates were at record lows and and it would have been better from the start not to figures that both Biden
they faced in Boris Johnson a Tory prime minister punt up a large single number”. and Trump could only
“whose closest allies were committed to tackling It’s not a good look for the party, especially at dream about.
climate change”. Today they are challenging one a time when Labour is mired in controversy over Still, the idea of
“who is busily and cheerily retreating from many of comments that several candidates have made parachuting in someone
Johnson’s more ambitious pledges”. about Israel, says Freddie Hayward in The New who has never even
Before Labour’s U-turn, there were signs Statesman. Labour suspended its candidate in the contested a primary is
that the Conservatives were planning to “run Rochdale by-election, and is investigating several probably a step too far,
even in today’s politics.
an aggressive campaign” arguing that the green others. Both events have shifted the attention from a It’s clear that Biden is set
pledge would “inevitably lead to tax rises”, says “flailing prime minister to an opposition struggling on running, and even if
Katy Balls in The Spectator. The plan had already to get its troops in line for the campaign to come”. he doesn’t, vice-
president Harris won’t

The great tartan tax exodus

stand aside. I would
therefore avoid the
temptation to bet on
At the end of last year, the exodus” in the form of “a Sunday Times. Indeed, the her (and don’t put any
Scottish government, surge in Scots’ interest Scottish Fiscal Commission more on Biden and
led by first minister in properties in estimates that the recent rise in Harris if you’ve already
Humza Yousaf Northumberland” the highest rate of income tax in taken my previous
(pictured), hiked over the border. Scotland was likely to have advice to bet on them).
income tax Scotland may, in produced just £8m of additional Instead, I’d take
again, raising the other words, revenue – less than a rounding Betfair’s 1.18 (84.8%) on
top rate to 48% have passed the error next to the £19bn spent on Biden not being
for the highest fiscal tipping the NHS and related services. impeached by at least
earners, with a point where tax This is a big problem for a one House of Congress
new 45% band for hikes fail to bring in government that is “already before election day.
those earning more more money as they losing high-skilled workers to The Republican caucus
than £75,000, say instead bring about England”, says Fraser Nelson in may be dominated by
Jonathan Brocklebank and behavioural change. The Spectator. It can’t afford to the extremes, but the
Mark Howarth for the Daily Mail. This is the insight to be do so, not least because the size small size of their
Now “everyone in Scotland distilled from the “famous Laffer of the population of taxpayers is majority, which became
earning more than £28,850 pays curve”, which shows that tax in “permanent decline”. “Cutting even smaller after
more tax than if they lived cuts can lead to higher revenues tax and letting people better their recent defeat in a
elsewhere in the UK”. Higher in certain circumstances, and build their lives through their special election, will
earners have clearly “sat down that higher taxes do not work will be a tool that, I suspect, make even symbolic
©Getty Images

and done their sums” as there is necessarily bring in more Scotland and the UK will have to action against Biden
evidence of a “tartan tax money, says Alex Massie in The use before too long.” virtually impossible.

16 February 2024 moneyweek.com

12
Atlanta
Coke keeps its fizz: Coca-Cola reported
better than expected revenue in the fourth
quarter as higher prices for its products
helped the drinks giant overcome a lower
volume of sales in North America, says
Amelia Lucas for CNBC. Net sales by value
rose 7% to $10.8bn, beating estimates of
$10.7bn, although net income fell slightly
to almost $2bn, or 46 cents per share.
Demand for Coca-Cola’s bottled water,
sports drinks, coffee and tea all fell as
household budgets continue to be squeezed.
The decline was not as severe in rival
News
PepsiCo’s beverage business, investors, says Aaron Back in
which saw volume sales fall The Wall Street Journal. Its
6% in the fourth quarter shares are not a bargain at
from a year earlier. More 21.1 times forward earnings,
globally, the Israel-Hamas but they are below the
war has caused supply-chain company’s ten-year average
issues and depressed demand. of 22.3 times. With investors
For 2024, Coca-Cola needing some hedges in their
expects 6% to 7% organic sales portfolios in case things go awry
growth (which strips out acquisitions), should US inflation lead to interest rates
higher than Pepsi, which forecasts organic staying higher for longer, consumer staple
growth of at least 4%. Coca-Cola’s steady stocks fit the bill. “Investors should stick
performance underscores its appeal to with ones that have proven their resilience.”

San Francisco
Uber turns a corner: After 15 years of trying, ride-hailing app Uber is finally profitable, says Camilla
Hodgson in the Financial Times. The US company made an operating profit of $1.1bn in 2023
compared with a $1.8bn loss the previous year, while its fourth-quarter operating income
of $652m comfortably beat forecasts. This was driven
by strong demand for ride bookings and food
deliveries, as well as cost reductions.
Uber had consistently made steep
losses, and when it floated in New
York five years ago, it failed to meet
its expected $120bn valuation. Uber also burned
through cash to gain market share and fend off
increasing competition from Lyft, Deliveroo and
DoorDash. Last year was “an inflection point
for Uber, proving that we can continue to generate
strong profitable growth at scale”, said CEO Dara
Khosrowshahi (pictured). The company reported $3.4bn
of free cash flow for 2023, up from $390m in 2022, and suggested
that it could return capital to shareholders. However, Uber should steer
clear of buying back shares with its newfound cash as its margin is only
9%, says Lex in the same paper. Social media firm Meta, for comparison,
which recently announced a buyback programme and its first dividend, has
free cash flow that is equal to nearly a third of revenue.

Midland
New energy giant: Diamondback Energy is
buying Endeavor Energy Resources to create
a $50bn oil and gas giant in Texas, say Lauren
Thomas and Laura Cooper in The Wall Street
Journal. Diamondback beat others, including
ConocoPhillips, to acquire Endeavor for $26bn,
including debt. The target had been one of the
most coveted assets for sale in the Permian Basin,
the largest oil patch in the US that straddles
West Texas and New Mexico. Diamondback’s
shareholders will own the majority of the
enlarged group, with the merger resulting in
annual savings of $550m, representing $3bn of
net present value over the next decade.
There has been a flurry of deals in the energy
sector as firms seek to consolidate prime acreage
amid high oil prices. ExxonMobil,
Chevron, and Occidental
Petroleum have all struck deals in
the Permian region since October.
After completion of the deal,
Diamondback will pump 816,000
barrels a day of oil equivalent (boe/d) in
2025, which represents spectacular growth
considering that it was founded only in
2007 with assets that produced just 800
boe/d, says Javier Blas on Bloomberg. But
the deal will see Diamondback lumbered
with about $15bn of debt, which can only
be cut by lowering shareholder payments,
which “may work in Silicon Valley, but it’s not
what Permian investors are accustomed to”.

The way we live now... how sensible became sexy

Proving you can manage your finances
has real pulling power when it comes
to dating, says Claer Barrett in the
Financial Times. Score, a new US
dating app for those with a good credit
rating, is capitalising on the new trend
sparked by an accountant in Boston
who added a screenshot of her
excellent credit score to her Hinge
profile that quickly went viral on
TikTok. The app, not yet available in
Britain, only accepts singles who have
passed an Equifax credit check with a
same test. If you fail, the app provides
tips to help shore up your rating.
A healthy credit score is seen as a
proxy for wealth and stability – a 2015
Federal Reserve study found those
with high ratings were more inclined to
committed relationships. But a high
score doesn’t necessarily mean a big
bank balance. Someone with many
credit cards who manages them well
would get a high score, but a debt-free
millionaire or those living with parents,
who don’t have utility bills in their
©Getty Images

score above 675 out of 850. The score name, may have a low one. Besides,
doesn’t appear on your profile, but “would a cheap date saving for a house Forget the roses, just pay your bills
everyone on the app has passed the deposit be a turn-off or a turn-on”?

16 February 2024 moneyweek.com

 News 13
Amsterdam
Beer sales fall flat: Heineken, the world’s second-largest brewer, warned that
economic and geopolitical uncertainty could continue to weigh on profits this
year, says Michael Susin in The Wall Street Journal. Its shares fell as much as 6.5%
on Wednesday following the news. Net profit fell to a disappointing €2.3bn in 2023
from €2.7bn a year earlier, although revenue rose 4.9% to €36.4bn. The Dutch
company blamed higher prices, rising energy costs, and “volatile macro-
economic conditions in some key markets” for denting sales volumes.
Consolidated beer volumes, which includes 300 brands such as Heineken, Amstel,
Red Stripe and Murphy’s, fell 4.7% – worse than the 4.3% decline the market had
expected. However, volume sales of the Heineken brand grew by 2.5%. For 2024,
Heineken expects operating profit growth in the single digits. Analysts have
forecast 9.9% growth. The estimate is “disappointing”, because investors had
thought lower commodity costs would boost margins, James Edwardes Jones of
asset manager RBC Capital Markets tells the Financial Times. But it would take a
“brave CEO” to give bullish forecasts given the current environment and there is
“nothing wrong with being a little more conservative and over-delivering”, says

©Alamy
The beer that bucked the trend
Steve Minnaar of investment firm Abax Investments on Reuters.

Jakarta
Prabowo claims victory: Indonesia’s defence
minister Prabowo Subianto claimed victory
in the presidential election on Wednesday
after “quick count” results suggested the
72-year-old had comfortably exceeded the 50%
threshold to avoid a run-off, says The Economist.
The electoral commission has until 20 March to
announce the final tally. “The man who seems
likely to lead the world’s third-biggest democracy
is dancing around a troubling past – one that few
young Indonesians either know or care about.”
Prabowo spent his youth in exile, when his father,
a celebrated economist, opposed Indonesia’s first
president. He was able to return home in 1970
and Prabowo joined the army. He later built on his
connections in 1983 when he married the daughter
of Indonesia’s last dictator. But Prabowo is accused
of ordering the kidnapping of pro-democracy
activists in 1998, which he denies.
“Small wonder” Prabowo has been keen to
recast his strongman image, becoming a “social-
media hit”. This is his third tilt at the
presidency. President Joko Widodo,
known as Jokowi, remains popular
but could not run again. Prabowo has
promised to continue with “Jokowinomics”
of “infrastructure-led development and an
industrial policy based on Indonesia’s huge
nickel reserves”. Critics warn he could
harm democracy. “The cute grandpa’s
followers appear to have been
too busy scrolling to care.”

London
Inflation’s bumpy road: “Like a tall man in a cramped cottage,
we were braced for a bump, so it’s a relief that inflation held at
4% [year on year in January]”, says Sarah Coles of Hargreaves
Lansdown. “However, we can’t afford to relax.” Electricity and
gas prices were 18% lower than a year earlier (although 89%
higher than in January 2021), despite a £94 rise in the energy price
cap at the start of the year. Yet, “energy bills are still a stretch for
millions”. Rising food and non-alcoholic drink prices also slowed,
for the tenth month in a row, to 6.9%. But how that affects you
largely depends on what you put in your shopping basket. Olive oil
is 38.2% dearer than a year ago. Still, it’s “highly likely inflation
[will] trend downwards from here” towards the Bank of England’s
2% target, helped by lower wholesale energy prices. Then it is
expected to bounce back up. “The Bank… has already said it’s
not going to cut [interest rates] in a hurry” and it probably won’t
before the second half of 2024. Pay growth in the three months
©Alamy; Getty Images
Islamabad
Political turmoil: Shehbaz Sharif
(pictured), Pakistan’s former prime
minister, has been nominated to lead the
country again after a coalition including
the conservative Pakistan Muslim League-
Nawaz (PLM-N) and the centre-left Pakistan
People’s Party (PPP) agreed to form the next
government, says Adnan Aamir on Nikkei Asia.
It ensures the party of imprisoned former prime minister Imran
Khan, Pakistan Tehreek-e-Insaf (PTI), will not take power despite
winning the most seats in last week’s election. No party obtained
a majority. Sharif’s brother Nawaz, a three-time former prime
minister who had the backing of the military, had been expected to
win, but his party, PML-N, came in second place, taking 75 out of
265 seats. Voters instead turned to independent candidates backed
by the PTI, which won 101 seats, while the PPP gained 54. The

to December was also faster than expected, say Delphine Strauss
and Mary McDougall in the Financial Times. That is a “lingering
concern” for the Bank. It believes “inflation could remain ‘sticky’ if
employers are able to pass on higher labour costs to consumers”.
moneyweek.com
result was a rebuke to Pakistan’s army, which has effectively ruled
the country for its 76-year history. The first challenge for the new
government will be to secure a new loan from the International
Monetary Fund, with the current $3bn bailout set to end in April.
16 February 2024
14 Briefing

Britain’s crumbling defences

The UK spends above the Nato average on the armed forces, but doesn’t spend wisely, which has
left the country with worrying deficiencies in a time of global conflict. Simon Wilson reports
What’s happened?
Nato began a massive programme of
military exercises this week, involving
a total of 90,000 troops across Eastern
Europe and the Baltics. The UK’s
contribution is considerable, and involves all
three armed services. About 16,000 British
Army troops will be deployed between
now and June; on Tuesday, some 600
military vehicles were loaded for shipping
to northern Germany. Royal Air Force
aircraft, including F-35B Lightning II jets
and Poseidon P8 surveillance aircraft, will
practise simulated conflict scenarios. More
than 400 Royal Marines Commandos are
heading to the Arctic Circle as part of an
allied task group. And the Royal Navy is
deploying eight warships and submarines,
and more than 2,000 sailors. They are the
biggest Nato military exercises for decades,
©Getty Images

and they come at a difficult time for the Britain has state-of-the-art kit, but skimps
alliance – and for the UK armed forces. on the things that make it work properly

Why is it a difficult time? How much does the UK spend? due to a fuel leak. Even once launched,
There’s a growing sense that the war in We’re not delinquents: we spend £50bn a the ship must rely on allies’ vessels for
Ukraine could presage a wider conflict year, or about 2.3% of GDP, which is above logistical support. Our own 34-year-old
between Russia and Europe within a few the average for Nato (but less than many RFA Fort Victoria, the last so-called solid
years, for which Nato nations – including Asian nations, according to an IISS global support ship left in the British fleet, is
Britain – are not remotely ready. In overview published this week, and much currently laid up for repairs, despite a
January, defence secretary Grant Shapps less than Russia’s 6%-8%). But the 2.3% recent refit. “There is a dissonance
warned that the UK is “moving from a mark is misleading, says The Economist, between the UK’s military ambitions and
post-war to a pre-war world”, and must as a fifth of that goes on nuclear weapons, its capabilities,” argues Richard Barrons,
start to prepare. And at a moment of and the conventional forces we now need former head of Britain’s armed forces. “The
potential existential peril for Nato, there’s have been “cannibalised to pay for nuclear risk is that we get drawn into a conflict and
ominous uncertainty about America’s cost overruns”. We are the sixth-biggest can’t sustain our presence, and this exposes
future commitments, especially in the military spender in the world, yet we don’t a strategic weakness.”
event of conflict with China. According spend wisely, with “penny-pinching and
to RUSI defence analyst Justin Bronk, in short-termism” resulting in “Britain buying Are politicians listening?
the event of US “military confrontation high-end kit and then economising on the There’s a growing recognition that changed
with China in the mid-to-late 2020s, things that make it work properly”. Our times will mean changed priorities. Last
Russia will have a strong incentive to take navy has fewer frigates and destroyers than week a year-long review by the cross-party
a once-in-a-lifetime opportunity to break Japan, South Korea, or France. And our Commons defence committee published
Nato while the US cannot reinforce Europe army has shrunk from 109,600 troops in a sobering report. It found that Britain’s
effectively”. There’s anxiety, too, about the 2000, to 73,000, and would struggle to “increasingly overstretched” and “hollowed-
likely return to power of Donald Trump. deploy a single heavy division. (To put that out” forces are not ready for conflict with
in context, Russia a “peer adversary” such as Russia. And
Is that a worry? “The armed forces recruit has deployed 40,000 it concluded that the government “will
Yes, because troops solely in its never achieve warfighting or strategic
an unstable US
only five people for every operation to take the readiness” without urgent reforms to reverse
president in thrall eight who leave” small Ukrainian town a recruitment crisis and boost Britain’s
to authoritarian of Avdiivka.) Britain stockpile of weapons and ammunition.
strongmen leaders – and in particular to has “admirably emptied its cupboard to Currently, the forces recruit only five people
Vladimir Putin – is a clear danger to an arm Ukraine, but its meagre ammunition for every eight who leave, and the UK has
alliance built on liberal-democratic values, holdings are now a matter of… concern”. a critical lack of domestic manufacturing
and whose purpose is to deter Soviet, capacity to produce weapons, combat
now Russian, aggression. Trump shocked What’s going wrong? vehicles and ammunition at pace and
European leaders last week with his wild An example came this week, at the start of scale. The government’s “aspiration” is to
claim that once in office he would encourage the Nato exercises. The Royal Navy now raise defence spending to 2.5% of GDP as
Russian assailants to “do whatever the has just two aircraft carriers, HMS Queen “circumstances allow”. But that’s plainly
hell they want” to “delinquent” European Elizabeth and HMS Prince of Wales. The “inadequate”, says the Financial Times.
allies – meaning those not meeting the Nato former was due to sail to Norwegian waters In the cold war era, defence spending
commitment to spending 2% of GDP on to join the exercises, but last week she was topped 4%, and something of that order
defence. Yet for all Trump’s bluster, there’s pulled out, due to corrosion on a shaft would be appropriate now. Britain and
plenty of truth in his central point: that coupling. Instead, the Navy scrambled to her allies do not want a wider war. Their
Europe needs to take more responsibility get HMS Prince of Wales ready, but again urgent task is to “rebuild military capacity
for its own defence. Britain, alas, is far from there was embarrassment: the launch was to the point where they can once again deter
exempt from that. put back a day at the last minute, apparently adversaries from ever starting one”.
16 February 2024 moneyweek.com
16 City view

What we can learn from Japan

In some ways the country has been dealt a bad hand, but it has played it well
it has not tried to fix all the problems that
Matthew Lynn creates with a vast inflow of people. Net
City columnist
migration is running at about 100,000
people a year, a fraction of the numbers
Investors have been burned so many times recorded in most developed countries. In the
by the “Japanese recovery” story that they UK, for example, net migration is running
have learned to ignore it. Ever since the epic at seven times that number, even though
Tokyo bull market of the 1980s crashed, this is a far smaller country. The same is
there have been plenty of false dawns. They true of most major European countries.
have always ended badly. Still, there is no Steady levels of immigration are
mistaking the strength of Japanese equities beneficial for an economy and Japan may
over the last year. Over the last 12 months, have become too insular a society. Yet, it is
the Nikkei 225, made up of Japan’s largest becoming increasingly clear that the very
companies, is up by 35%, and over the high levels run by most G7 economies put
last five years it is up by 74%. It is hitting a huge strain on housing, infrastructure
highs that have not been seen in more than and social services, while encouraging
30 years, an entire career for most investors. companies to fix problems with cheap
The epic bear market that started with the labour rather than investing in automation
bursting of the Japanese bubble of the 1980s and higher productivity. Japan appears to
finally looks to be over. have a far better mix, with the emphasis
on rising living standards instead of just
More stuff for fewer people boosting total output with more people.
We will find out over the coming year
whether that is durable. The more Ultra-Keynesianism wins the day

interesting question is, are there other
lessons that the rest of the world can take
from Japan’s success? On the surface, the
answer would seem to be no. The headline
figures are dismal. The country is forecast
to grow by only 1.6% this year, and for
much of the last year Japan has been stuck
in permanent recession, accompanied by
zero inflation, with prices often falling in
absolute terms. The economy has become
a textbook instance of zero growth that
policy markers regularly use as an example
of what they are trying to avoid.
But that is because Japan has a declining
population, and conventional GDP just
measures total output. If you measure
GDP per capita, it has done much better.
According to Bloomberg data, there was a
62% appreciation in GDP per capita from
2013 to 2022 in local currency terms, the
©Getty Images
Japan is getting older yet richer
best performance of any of the countries
in the G7. It easily beat France, the UK,
Germany and the US. Japan’s population
is now in steady decline, falling from 128
million people in 2013 to 124 million last
year. It is still going down and, with no
sign of an increase in the birth rate, it will
carry on going down for a few decades to
come. The result? Although total output
only increases modestly, at best, every year,
output per person, and therefore the income
per person, rises far more rapidly. It may
look stagnant, but Japan is still a country
where living standards are generally rising.
In fact, Japan got two things right.
First, although it has increased immigration
slightly to cope with its declining birth rate,
Second, Japan has kept investing in
infrastructure, despite sluggish growth
and the pressure on healthcare from a
rapidly ageing population. Japan has run
the most ultra-Keynesian economic policy
of any major country over the last 20 years,
with zero interest rates, vast quantities
of printed money, and huge budget
deficits. That has been enough to keep
GDP rising modestly and to allow living
standards to rise, and, just as importantly,
it has enabled the country to build some
of the best infrastructure in the world.
Japan illustrates how a mature industrial
economy with an ageing population can do
remarkably well. Sure, it has its problems.
But most European countries, with their
addiction to cheap imported labour, could
learn from it. They might even be rewarded
with a rising stockmarket too.

City talk
l Barratt’s £2.5bn takeover of
Redrow is good news for the
two housebuilders, says
Nils Pratley in The Guardian.
They can make cost savings,
merge supply chains, and grow
their land portfolios. But this
just looks like two firms
“coming together to get through
a slow trading period by reaping
some savings and waiting to see
whether sales pick up”. Any
potential “wider benefits are
hard to spot”. The real test is
whether the deal increases the
supply of new homes. And in
this respect Barratt’s promise
that it will create the potential to
quicken the pace of building to
more than 22,000 homes a year
in the medium term seems
“gloriously loose”. The
Authority should have a “poke
around the rafters” of this deal.
l Struggling luxury-goods
behemoth Kering is right to
focus on its flagship brand
Gucci, but a “longed-for revival
remains some way off”, says
Andrea Felsted on Bloomberg.
Gucci’s sales fell by an annual
4% in the fourth quarter of
2023. Outlandish designs
under former creative director
Alessandro Michele became
unpopular, and analysts
wonder whether the designs
of his successor, Sabato
de Sarno, are distinctive
enough. Gucci needs
to attract more
high-end
customers by
availability of some products
and improving its leather
goods. It is investing
in the supply chain, advertising
and events, and updating
stores, but it is “extremely
difficult” to reposition a
brand to become more
upmarket amid tough
conditions in the overall sector.
Still, Gucci has a history
of turning its brand around,
and Kering is the “master of
combining creative talent
with a sharp eye for what
will sell in stores, backed by
canny marketing”. Kering
may be able to reduce
the valuation gap with
competitors, “but
its turnaround
looks more like a
time to catch on than a viral
fashion hit.”
l The advent of Serco’s former
CEO (and grandson of Winston
Churchill), Rupert Soames, as
president of the Confederation
of British Industry (CBI) is a
“lifeline” for the lobbying group
after allegations of sexual
misconduct, says Alex
Brummer in the Daily Mail. But
do we really need the CBI? Its
traditional role in labour
disputes (negotiating with
trade union bosses) has
dwindled, its surveys duplicate
other polls and firms are
capable of dealing with the
Tories or Labour without a
conduit. Soames may find a
“magic pill”, but “the train has
©Alamy

Competition and Markets limiting the trend that takes already left the station”.

16 February 2024 moneyweek.com

 Investment strategy 17

A yardstick for turnarounds Guru watch

Ed Yardeni,
founder,
Microsoft’s renaissance shows that Microsoft (Nasdaq: MSFT) Yardeni
Share price in US dollars Research
giant companies can occasionally 500
America could
find new opportunities to grow be headed for
400
another “roaring

©Getty Images
Cris Sholto Heaton twenties”, says
300 Ed Yardeni, the veteran Wall
Investment columnist
Street strategist known for
200 his generally bullish views
Ten years ago, Microsoft was deeply out of on stocks. Technological

Source: Yahoo Finance

favour. The tech giant was struggling to grow innovation, together with
100
under Steve Ballmer, who had been CEO since loose monetary policy in the
2000. It was earning solid profits from its near- wake of the Covid pandemic,
0 have sparked a “productivity
monopolies in Windows and Office, but had
1986 1996 2006 2016 2026 growth boom” in the US.
failed to take advantage of new markets such as “History doesn’t repeat
smartphones. Only value investors were talking itself, but it does rhyme,”
up its prospects, and they were mostly drawn to In fact, they could have paid more than $150 per Yardeni tells Bloomberg. He
steady cash flows from a boring business. share after factoring in dividends – equal to a p/e see strong parallels with the
At the end of 2013, the shares were trading ratio of 60 – although nobody sane would have. 1920s, when the US
on about $37. Earnings per share that year were Of course, this assumes that Microsoft is economy grew rapidly and
$2.58, putting it on a price/earnings (p/e) ratio of worth $400 per share now. Maybe the artificial living standards rose amid
14. A dividend of $0.92 meant a yield of about intelligence (AI) hype is overdone. Let’s assume it’s rapid progress after the end
of World War I and the
2.5% – not exciting, but it had doubled in five only worth 20 times earnings today – about $230,
Spanish flu pandemic.
years and could go higher if Microsoft accepted or where it fell in the 2022 sell-off. In that case, “It must have been pretty
that it was ex-growth, stopped wasting cash, and the investor with perfect foresight would have depressing to think about the
settled for being a dividend machine. paid around $85 or a p/e of over 30 back in 2014. outlook for the 1920s at the
Then in February 2014, Satya Nadella took Microsoft’s turnaround is remarkable in beginning of the decade.
over from Ballmer. Over the next few years, itself, but it also makes an interesting yardstick And yet it turned out to be
everything changed. The focus shifted away from for situations when a mature firm finds a the roaring 1920s because of
Windows and Office as Microsoft committed to revolutionary new market. AI is an obvious technological innovations,”
cloud computing. Today, Microsoft is the world’s example, but a simpler scenario is the weight-loss he says. “Auto manufactur-
ing adapted more efficient
most valuable listed company. The shares have drugs now being sold by Novo Nordisk and Eli
ways of producing things,
risen tenfold to $400 during Nadella’s tenure. It is Lilly. The growth potential is clear, but both trade and as a result of that, we
once again a high-growth stock and trades on 35 on steep valuations: Novo is on 37 times forecast had a tremendous
times forecast earnings. Still, those who bought 2024 earnings and 30 times 2025 earnings, while productivity boom.”
for income haven’t lost out: the annual dividend of Lilly is on 61 times 2024 and 42 times 2025. US tech stocks have
$3 is an 8% yield on the price a decade ago. It is difficult for a mature firm to justify these rallied strongly in recent
valuations, yet Microsoft shows it can sometimes months over enthusiasm
What a transformation can be worth be possible. The comparison is not perfect. about the potential for
Microsoft is the most spectacular example of a Neither Novo nor Lilly ever went ex-growth like artificial intelligence (AI),
helping the S&P 500 index
large, mature business that returned to being a 2014-era Microsoft. Competition from rivals will
reach record highs above
fast-growth one. Over the past decade, the increase. There is a risk that severe side effects 5,000 earlier this week. The
S&P 500 Equal Weight index has returned about emerge. Still, these valuations look bullish, but US economy grew faster
10.5% per year. Microsoft has returned 27%. So not insane. I am not gung-ho on growth, but I still than expected in the final
an (implausibly prescient) investor could have paid hold Novo and Microsoft – although I must admit quarter of last year, by 3.3%,
far more back then and still matched the index. I bought both a decade ago for the dividends! while fading inflation has
encouraged investors to
such as earnings before believe that rates will be cut
I wish I knew what EV/Ebitda was, interest and tax (Ebit), instead in the coming months,
but I’m too embarrassed to ask of net income. A lower EV/
Ebit ratio implies a cheaper
which should be a further
boon for markets.
The simplest way to measure interests). These last two company, just like a lower Yardeni remains
the value of a company is to use factors are usually less price/earnings ratio. optimistic about further
its stockmarket capitalisation – significant compared with debt Some analysts prefer to gains in the near term,
the value of all its outstanding and cash, but could be look at earnings before forecasting the S&P 500 will
shares. However, this may not important in some situations. interest, tax, depreciation end the year at 5,400, but
always provide a useful For a fuller picture, analysts and amortisation (Ebitda) and sounds even more upbeat
reflection of all the claims that sometimes use enterprise value value companies using the about the longer-term
different groups of investors (EV), which puts together all EV/Ebitda ratio, on the basis prospects for firms that are
have on a business. these sources of funding. For that removing depreciation prepared to benefit from
For example, a company may example, if a company with a and amortisation (which are revolutions such as AI,
be heavily funded with debt market cap of £5bn also has non-cash charges) makes it robotics, gene editing, and
rather than equity. Conversely, it £3bn in debt, £1bn in cash, easier to compare firms with quantum computing.
may have a lot of unused cash £500m in preferred stock, and different accounting policies. “I think we’ve got a
on its balance sheet offsetting 25% of a subsidiary valued at This can be useful, but be technology revolution that
some of that debt. It might also £1bn is held by other investors, aware that a flaw with Ebitda started in the 1990s… Every
have preferred stock in issue its total enterprise value will be is that it makes no allowance company is a technology
(securities that rank above £5bn + £3bn − £1bn + £500m + for maintenance capital company,” he tells Forbes.
ordinary shares, but below (25% × £1bn) = £7.75bn. expenditures (ie, the cost of “You either make it or you
debt), or some of its subsidiaries Since interest on debt is paid replacing old equipment), use it. If you don’t use it,
may be partly owned by other out of pre-tax earnings, EV is which depreciation and you’re going to lose it; you’re
investors (known as minority usually valued against a metric amortisation try to reflect. going to go out of business.”

moneyweek.com 16 February 2024

18 Best of the financial columnists
Britain’s Britain is more free of corruption than most countries, says Simon Kuper. Money talks
Yet we might be sliding backwards. Stefan Dercon, author of Gambling
corrupt
“All of these men
on Development, argues that a country develops when its elites strike a who are in
bargain and agree to go for development rather than dividing the spoils. charge of
elites Examples include China from 1979 and India from 1991. Britain’s
development bargain, however, has broken down. A string of election
things, they
just keep
Simon Kuper victories led the Tories to suspect voters will back them no matter what, moving
Financial Times and they lost their common project in the Brexit wars. “When a common these cards
project dies, what remains is self-advancement.” This is what we saw around to
during Covid, when well-connected Tories such as Michelle Mone and make money…
The way men do
David Cameron used the crisis as an opportunity to pursue private gain.
business is a Ponzi
Britain’s “wealth-power nexus”, where City elites buy up political ones, scheme… The percentage
“remains under-scrutinised”, but the public is catching on: polls show of women in the 1%
record numbers agreeing that politicians are just out for themselves. who made their own
The good news is that the Tories will probably lose power this year. money is about 3.5%, and
Elites strike development bargains when misrule threatens their legitimacy. that’s shocking.”
China’s did after Mao’s death. “Britain’s elite may be getting there.” Candace Bushnell (above),
author of Sex and the City,
the basis for the 1990s

How to
TV series, on not getting
The trickle of effectively bankrupt local councils is turning into a stream
royalties from the new
and risks becoming a flood, says Anthony Breach. The problem is bigger Netflix deal to stream the
fix broke than a few cases of financial mismanagement, and cuts to government
grants are only half the story. The other half is that council-tax increases are
show, quoted in The Times

councils capped by central government. Squeezed between these two forces, councils
are struggling to provide more than the statutory minimum of public
“The painful reality is I
am leaving a subsidised
service. The answer is fiscal devolution to shift local finance away from sector where 13 years
Anthony Breach
central grants and towards more local control. This would allow councils of standstill funding is
Conservative Home
to keep more of the proceeds of growth and give them better incentives to taking its toll. For decades
the theatre industry
generate revenues. Grants should continue on a simple per-head basis to
has fuelled the UK’s
help finance the services councils are required to provide. Business rates world-renowned creative
should be returned to local control, giving councils an incentive to listen to industries, providing
businesses and provide land for new factories, offices and shops. Councils vital pathways for artists
should also have more flexibility over council-tax rates and get a slice of to flourish, going from
locally generated income tax to broaden the tax base and redistribute the subsidised theatre into
burden more fairly. In the long term, this is the only way to get local-council the West End and into
finances “back out of the headlines where they don’t belong”. TV and film. But without
investment we could lose
this pipeline of talent

“Precision
within a generation.”
It’s been 20 years since the Human Genome Project mapped nearly all Kwame Kwei-Armah, the
20,000 of our genes, says James Le Fanu. At the time, it was expected this outgoing artistic director
medicine” would change the face of medicine. The mechanisms involved in common
illness such as diabetes, heart disease and cancer would be identified, and
of the Young Vic, quoted in
The Guardian
is all hype therapies precisely targeted at the genes responsible. Since then, genetics has
become the dominant discipline in biomedical research. Massive studies “Everyone starts off as a
that sequence the genomes of thousands of participants have become leftie and then wakes up
James Le Fanu
routine. Yet for all the enthusiasm and hype, the expected breakthroughs at some point after [they]
Literary Review
start either making
have failed to materialise. James Tabery’s Tyranny of the Gene shows us
money, working, trying
why. The hype means genetic research is gobbling up all the “immensely to run a business, trying
generous” funding, marginalising potentially more fruitful lines of enquiry. to buy a home, and then
Genetic research itself has revealed that dozens of genes are implicated realises what cr*p ideas
in common illnesses, and the genetic effects are generally so small and they all are and then you
distributed so diffusely that even a successful genetic intervention may have go to the right… Jacob
negligible effects on the progression of the disease. Yet these insights have [Rees-Mogg] for PM.”
not led to a rethink because the whole enterprise has become “too big to Actress, model and singer
fail”. Tabery’s book “reveals much about the current state of science”. Holly Valance, quoted in
The Telegraph

“I’ve never felt wealthy,

Is diversity It is a “sacred mantra” in business circles that diverse boards improve
company performance, says Alex Edmans, a professor of finance at
and it wasn’t until I retired
on a pretty good pension
good for London Business School. But is that true? No. One study often cited from
the Financial Reporting Council said that it found that higher levels of
that I felt financially
comfortable. No one
business? gender diversity positively correlate with future financial performance.
But this stated conclusion was nowhere to be found in the actual results.
goes into politics to make
money – or if they do they
Another study from McKinsey did find a strong link between diversity and will be disappointed.”
Alex Edmans Norman Fowler, who
The Spectator earnings before interest and tax. But look at other measures of profitability,
served in the cabinet of
and the result disappears. It’s almost as if McKinsey cherry-picked the Margaret Thatcher, quoted
result they were looking for. Another study from BlackRock uses dubious in The Times
performance measures and methodologies, and switches between them in
different tests. This is not just of academic interest. These studies are having “Whoever said money
a real impact on business and regulators are proposing diversity quotas can’t buy happiness didn’t
and targets. One reason for opposing such things is that it is harmful to know where to shop.”
the quest for true diversity – not just in terms of race or gender, but of age, American writer
©Getty Images

socioeconomic background, cognitive style and so on. My own research Gertrude Stein, quoted
on Goodreads
shows that such true diversity is in fact linked with better financial returns.
16 February 2024 moneyweek.com
 Best of the blogs 19

Thatcher’s quiet
revolutionary
capx.co
Many of the victories of the
Thatcher era were at the time
thought to be permanent, says
Harry Phibbs. They have proved
to be transitory. Socialism in
one guise or another persists.
Even capitalists these days are
“apologetic” about capitalism,
by a “quiet revolutionary”
– Norman Fowler, a cabinet
minister under Thatcher and
her successor, John Major.
Fowler’s recently published
diaries are an “enthralling
account” of the times and his
role in them. He pioneered
Thatcher’s privatisation

just as they were in the 1960s
and 1970s, when “leading
industrialists were keen to
suck at the teat of the subsidies
offered by the corporate state”.
But this misses the depth
of Thatcher’s victory. It was
captured by the former PM
herself when she said, “How
absurd it will seem in a few
years’ time that the state ran
Pickfords Removals and
the Gleneagles Hotel”. She
was right, and no one in the
opposition parties even contests
the point anymore. That deep
underlying victory was secured
not by the “death or glory”
types such as Thatcher, but
©Shutterstock
programme “before the word
for it even existed”.
Not a time for compromise
At the time he was appointed
transport minister in 1979,
road haulage was nationalised,
as was furniture removals
company Pickfords. Bus and
coach transport was dominated
by state leviathans too. Any
private-sector company
“brave enough to propose a
new cheap coach service from
Birmingham to London” had
to apply to “quasi-judicial
traffic commissioners” and
would be opposed by the
nationalised British Rail, which
Norman Fowler was a key figure in the privatisations of the 1980s
also ran “scarcely profitable
and woefully underinvested”
subsidiaries, including hotels.
When Fowler made a
statement in Parliament about
privatising the hotels and
Sealink ferries, the opposition
was “furious”, and not only
from the Labour benches.
The uproar only got louder as
the privatisation programme
proceeded. But an important
part of the effort was to
persuade the management
and workforce of nationalised
firms to see privatisation as
an “opportunity rather than
a threat”. Fowler played a key
role in that. While political
rows broke out around him, he
plodded on with his mission. He
was a “pragmatist”, someone
who mastered the details and
sought to win people around.
Yet at the same time he could
see the need of the hour was
for “fundamental reform”, not
“endless compromise”. “Others
might be remembered for bolder
ideological rhetoric. But Fowler
was a man of action. His legacy
should be acknowledged.”

Don’t forget the 2023 bank crisis It’s time to

embrace nanny
project-syndicate.org bloomberg.com/opinion
Three mid-sized US banks collapsed in 2023, the most prominent of which was Silicon Valley Bank The phrase “nanny state” used
(SVB), the second-largest bank failure in US history, say Raghuram Rajan and Viral Acharya. Yet the to be an automatic argument-
episode was quickly forgotten. It shouldn’t be. Historically, smaller US banks financed themselves winner, just as “you sound like
conservatively. Yet the Federal Reserve’s pandemic-era quantitative-easing (QE) programme flooded Hitler” is, says Adrian
Wooldridge. It is losing its
the banks with “uninsured demandable deposits”. At the same time, instead of holding liquid reserves, power. Rishi Sunak is banning
by early 2023 smaller banks were more weighted to long-term securities and lending, the market value disposable vapes and outlawing
of which fell as interest rates rose. SVB’s sudden demise caused investors to scrutinise banks. They smoking. Keir Starmer wants to
didn’t like what they saw, so the risk of contagious bank runs was very real. This is why the authorities make sure children brush their
came to the rescue, lending money on generous terms. Borrowing by smaller banks skyrocketed, and teeth. Other nannying measures
a potential banking crisis was converted into a more slow-burning problem – and an ongoing one that would involve taking on the
(New York Community Bancorp, which bought parts of one of the banks that failed in 2023, recently food and supermarket lobby
announced large losses). “Too big to fail” was bad enough, but now we have “too many to fail”. This have been shied away from, but
mini-crisis “was much more than a footnote in banking history. We cannot afford to bury it”. they shouldn’t be. It’s time to
embrace and celebrate the
nanny state – and welcome bans
on fast-food advertisements,
Why you
But even if you have the money, would step aside at the earliest
should you do it? possible date to make way for taxes on sugary drinks and
Not if you don’t want to the younger generation and prods to do more exercise.

mustn’t retire contend with “potentially

economist.com
Giorgio Armani refuses to quit
as chief executive at the age of
89. Warren Buffett is still going
strong at 93. Such people are
exceptional, but in staying active
into their old age, they’re not
unique, says The Economist’s
Bartleby columnist. One poll
this year found that almost one
in three Americans say they may
©Getty Images
painful losses – of income,
purpose or, more poignantly,
relevance”. Things have
changed from when people
time for the grandchildren or
crossword puzzles. Lifespans
are getting longer, and although
you can replace work with
other activities, they don’t tend
to provide the framework and
buzz of daily activity, nor are
they as fulfilling. You can pack
your diary with art exhibitions
and badminton lessons, and yet
end the day feeling your life is
pointless. “There is a depth in
being useful” and the challenges
The idea that the nanny state
is a bad thing rests on the
assumption that individuals are
“isolated, rational entities who
are the best judges of their long-
term interests”. The truth is that
we are “social creatures who
can be deceived about our own
interests”. In an age where the
welfare state provides its
citizens with all kinds of cradle-
to-grave benefits, it’s only
reasonable that the state should
take an active interest in the lives

of people it cares for: the state

never retire. Most said that was of the daily grind “can act as an “should be a nanny rather than
Keep on keeping on
because they couldn’t afford it. anti-ageing serum.” just a sugar daddy”.

moneyweek.com 16 February 2024

20 Funds

Bonds could boom in 2024

These funds offer exposure to one of this year’s potentially lucrative investment themes
rates, so they may offer better
Rupert Hargreaves returns. The iShares Core £
Investment columnist
Corporate Bond ETF (LSE:
SLXX) is one way to invest in

I f 2023 was the year of

artificial intelligence (AI),
then 2024 will be the year of
this market, although half of the
portfolio is in BBB-rated debt,
the lowest rung of investment-
the bond – or that’s what the grade credit, potentially
Pacific Investment Management exposing you to defaults if the
Co. (Pimco) seems to believe. economic outlook deteriorates.
Pimco is best known for its Active bond funds could
Total Return Fund, a bond- prove more promising as
based mutual fund that has research shows that fixed
achieved equity-like returns income is one area where
without the risk inherent in managers can still add some
stocks. The asset-management value, partly because the
giant produces an annual report market is so large. For example,
on the global economy and the Euronext, the pan-European

outlook for markets over the
next year.
Dearer money takes a toll
This year, Pimco said that it
expects higher interest rates
to start taking their toll on
the US economy. However,
it will perform better than
other developed economies
such as the UK, Australia and
the eurozone. As economic
conditions deteriorate, Pimco
expects central banks to start
cutting interest rates, which will
be positive for bond prices.
“If current economic conditions
persist, bonds have the potential
to earn equity-like returns
based on today’s starting yield
levels,” it said. In the event
of a recession, bonds should
outperform stocks, and even
if inflation resurges, “high
starting yields can provide a
potential cushion for bonds”.
Bond prices have an inverse
relationship with interest rates,
Actively-managed bond funds may win the
race against their passive counterparts
so when rates go up, bond
prices go down. When rates
go down, prices go up. This
is especially true of long-term
bonds, or long-duration bonds.
Global bond prices plunged in
2022 and 2023 as US interest
rates jumped from near zero to
5.25% to 5%. Still, if this goes
into reverse in 2024, as Pimco
predicts, then bond prices could
jump to deliver investors those
“equity-like” returns through
a combination of bond capital
growth and income.
It wouldn’t take much to
hit this target. Over the four
decades to the end of 2023, the
MSCI World index produced a
compound annual total return
of around 10%. With UK and
US ten-year government bonds
currently yielding between
3.8% and 4%, producing a
double-digit annual return as
©Getty Images
projected would only take a
small capital gain. The best way
for UK investors to play this
theme is with bond funds. A
word of warning, though: there
is no guarantee interest rates
will fall in 2024. If inflation
picks up again, rates could stay
where they are, or even rise
further, and that would hurt
bond prices, undermining the
principle of the trade.
The iShares $ Treasury Bond
20+yr ETF (LSE: IBTL) and
SPDR Bloomberg 15+Year Gilt
ETF (LSE: GLTL) are exchange-
traded funds (ETFs) offering
exposure to the longer-dated
paper issued by the US and UK
governments. They are cheap
passive ways to invest in the
respective government bond
markets. Corporate bonds tend
to offer a higher yield, but are
also more sensitive to interest
market infrastructure provider,
facilitates trading in 2,000
equities across Amsterdam,
Brussels, Dublin, Lisbon, Oslo,
Milan and Paris, but more than
52,000 bond issues are traded
across its platforms.
The Janus Henderson
Strategic Bond Fund is one
option. It is skewed towards
long-duration government
bonds and has limited corporate
bond exposure. Consider also
the M&G Corporate Bond
Fund, which holds at least 70%
of its portfolio in investment-
grade corporate bonds
denominated or hedged back
into sterling. A riskier option
is the JPM Global High Yield
Bond Fund. It offers exposure
to high-yield bonds. While this
does come with more risk,
JPMorgan, as America’s largest
bank, has the resources and
insight to find the market’s best
opportunities while avoiding the
riskiest borrowers.

Activist watch Short positions... Neil Woodford saga finally ends

Oil giant BP is under pressure from
n A High Court judge has approved a £230m n Tritax Big Box, a real-estate
activist investor Bluebell Capital
redress scheme for 300,000 investors trapped in investment trust focusing on large
Partners to ditch its plan to cut oil
Neil Woodford’s collapsed fund, says This Is distribution centres, plans to merge
and gas output by a quarter
Money. In December, nearly 94% of the investors with smaller rival UK Commercial
compared with 2019 by 2030, says
voted in favour of the compensation plan, which Property Reit (UKCM), creating a
The Guardian. Bluebell argues that
is also backed by the Financial Conduct FTSE 100-listed company with a
BP is worth 50% more than its share
Authority (FCA), the City regulator. The redress £6.3bn portfolio, says The Times.
price suggests, and that it is
scheme incurred the wrath of some investors, The enlarged group will be worth
“unrealistic” about the decline in
who say the collapse cost them more than £1bn. more than £4bn and generate more
demand for oil and gas. It called for BP
The judge dismissed calls to force the FCA to than £290m of rental income per year.
to increase production, pledge to cut
demand that Woodford Investment, the fund’s The deal values UKCM at £924m, a
emissions only “in line with society”,
manager, top up the amount. The Woodford 10.8% premium to its pre-deal share
and reduce investment in bioenergy,
Equity Income Fund was suspended in June 2019 price. Its shareholders will have a 23.3%
hydrogen, and renewables by $28bn
after more than £500m was withdrawn in four stake in the new group. Tritax counts
by 2030. Bluebell, which manages
weeks by investors rattled by the fund’s poor Amazon and Ocado as tenants in its
about $150m, will face opposition
performance. It was later closed and wound sprawling portfolio of warehouses
from BP’s new CEO, Murray
down. Approval of the scheme effectively across the UK, and the merger will see
Auchincloss, who intends to follow
pre-empts lawsuits against the fund’s it add to its collection of smaller
his predecessor’s strategy to invest in
administrator, Link Fund Solutions, and possibly warehouses, which UKCM focuses on.
clean energy to make money when
other connected parties, such as Hargreaves UKCM’s £1.3bn portfolio also contains
demand for oil eventually falls.
Lansdown, which promoted the fund. hotels and retail parks.

16 February 2024 moneyweek.com

 Opinion 21

Are markets cheap or expensive?

Investors should treat indices’ Cape
ratios with caution, says Max King
The conventional tool for assessing the valuation
of stockmarkets is the price/earnings (p/e) ratio,
calculated by dividing the level of the index by its
aggregate earnings. If these profits are in the past,
you have a historic p/e ratio; if they represent analysts’
forecasts for the year ahead, it is a prospective p/e
ratio. Earnings normally rise in a period of economic
growth and fall in a recession, often sharply. Markets
decline, but not as far as earnings, as investors
discount a rebound in the future.
Similarly, investors should be sceptical about an
economic upswing going on forever and therefore
ascribe a lower p/e ratio to their holdings. At the top of
a market, equities often appear to be reasonable value
judging by their p/e, and they seem expensive at the
bottom of a market cycle.
To enable investors to look through the cycle,
Robert Shiller of Yale University devised the
“cyclically adjusted p/e ratio” (Cape). This divides the
index level by average earnings over the last decade,
which is assumed to iron out the economic cycle.
The resulting ratio, which will tend to look high
because of the upward trend of earnings over time,
is then compared to the history of the ratio to judge
whether the market is cheap or expensive.
The problem is that it has not turned out to be
a very useful forecasting tool. The Cape ratio can

remain depressed or elevated for long periods of time;
the S&P 500 was only fleetingly reasonable value
in 2008 before looking expensive again. “Mean
A modern economy is based on transforming energy
reversion,” the return to the average, looks credible on
the 100-year chart, but not on any realistic timescale.
There are three key reasons for this. Firstly,
accounting conventions have become more stringent
over time. Expenditures and write-offs once regarded
as “extraordinary items” are now included in
earnings. Secondly, economic cycles are not regular, so
a decade may include two recessions or none at all.
Thirdly, Cape takes no account of yields on
government bonds, the risk-free alternative to equities.
When yields are structurally low, investors should
be prepared to regard a higher p/e ratio as normal,
but when they are high, as in the 1970s, the p/e ratio
should be lower.
How oil prices affect the ratio
In a recent report for investment management group
Gavekal, Charles Gave provides two other convincing
explanations for shifts in the Cape ratio. Because “a
modern economy is nothing but energy transformed”,
he uses a chart of the S&P 500 relative to the price
of energy (the average oil price over a rolling four-
year period) to indicate whether the US economy is
transforming energy profitably. If so, “investors would
expect to pay more for future earnings”.
Secondly, he takes into account changes in
government spending as a share of GDP on the basis
that the private sector (through the process of creative
destruction) generates wealth, while the public sector
is subject to no pricing or value-creation discipline,
“The derating
ensuring “a good deal of malinvestment”. of the UK
That would cause “the overall economy’s growth
rate to decline structurally”. Gave backs up his
stockmarket is
argument by showing that the Shiller p/e does indeed justified, and
tend to rise when the S&P 500 is outperforming the
oil price and also when the private sector’s share of
will not easily
GDP is rising. The reverse also applies. As the US be reversed”
moneyweek.com
©Getty Images
turned from being an oil importer to an exporter and
bond yields fell, the Shiller p/e ratio rose to a peak of
40 in 2021, close to the peak reached at the apex of the
dotcom bubble in 2000.
Gave believes that “this recovery, unusually, is led
by government spending financed by bigger and bigger
budget deficits”, so with bond yields having risen too,
the Shiller p/e ratio should fall. It already has, to 31,
but Gave believes it will fall further, unless the oil
price collapses. This could happen through the market
falling or earnings rising faster than the index over
several years.
Gave’s analysis can also be used to explain the
derating of the UK market. The UK has lost its self-
sufficiency in oil and gas and is determined to be
increasingly dependent on imports. Through taxation
and regulation, energy prices have risen and eclipsed
their counterparts in other developed economies. Bond
yields have risen, as they have in the US, and earnings
growth is held back by higher corporation taxes.
The public sector’s share of the overall economy has
risen faster than in the US and the UK public sector
is notoriously inefficient by international standards.
Unsurprisingly, the long-term, or trend, rate of
economic growth has fallen far lower than in the US.
The UK market ought to benefit from high exposure
to overseas earnings, but it suffers from being
dominated by mature and cyclical rather than growth
businesses, which shun technophobic Britain.
The derating of the UK is therefore fully justified,
and will not reverse without a coherent energy
strategy, a more efficient public sector accounting for
a lower share of the total economy, and a higher trend
rate of growth. Until that happens, investors might
be better off finding a market where those factors are
moving in investors’ favour – Argentina, perhaps.
16 February 2024
22 Analysis
Why private debt is
beating private equity
Hundreds of billions of dollars of corporate debt needs to be refinanced. This is creating a “golden
moment” for lenders, but investors must pay attention to credit quality, says Frédéric Guirinec
The rapid rise in interest rates over the past two years
has made it much harder to finance deals that employ
large amounts of debt, such as most investments by
private equity funds. This has led to an abrupt drop in
private equity transactions: total global private equity
and venture capital deals fell from 20,887 in 2021 to
12,016 last year, according to S&P.
However, at the same time that tighter conditions are
squeezing private equity, they are creating opportunities
for private debt – or so many in the industry hope.
Jonathan Gray, president of alternative-investments
giant Blackstone, has called it a “golden moment” for
the fast-growing market. Preqin, the alternative-asset
data firm, forecasts there will be $2.8trn in private-debt
assets by the end of 2028, up from $1.5trn in 2022 and
just $280bn in 2007. And anybody who has flicked
through the recent crop of 2024 outlooks from asset
managers will have noticed that many of them are very
keen to talk about what it can add to a portfolio.
So what is private debt (also referred to as private
credit)? It can be broadly defined as loans to companies
that do not come from banks or from public markets.
This includes leveraged loans (loans made by banks
to companies with a credit rating below investment
grade and then sold on to institutional investors) and
direct lending (loans made by an investor directly to
companies). Private debt usually – although not always
– pays a floating interest rate, meaning it changes in
line with benchmark interest rates. It does not include
traditional high-yield bonds, which are publicly traded
and mostly pay fixed interest rates.
The name derives from private equity – ie,
investments in companies that are not publicly listed.
It will often involve lending to a firm owned by private
equity, so the two markets are closely connected and
many key players are active in both.
After the crisis
Until the early 2000s, most acquisitions made by private
equity were financed by banks. The relationship was
and remains strong: many major private equity firms
grew from teams that spun out of investment banks
a few decades ago or individuals who kept strong
relationships with their former employer.
Investment banks provide finance, structure the
debt and sell it in tranches with different coupons and
seniority (a process called syndication). By selling on
the debt rather than making long-term loans on their
own balance sheet, banks became intermediaries,
freeing up their capital to fund new deals. Buyers of
debt often include insurance companies and pension
funds that need yield to fund their liabilities; business
“The private- development companies (BDCs) in the US, which are a
kind of closed-end investment company that provides
debt market capital to unlisted small and medium-sized firms; and
grew from collateralised loan obligations (CLOs).
A CLO is a complex financial product that raises
$280bn funding from investors (at floating interest rates) and
in 2007 to uses it to acquire leveraged loans. The investors in the
CLO have varying levels of seniority in the capital
$1.5trn by structure: those that invest in the lowest tranches get
2022” the highest interest rate, but are the first to suffer losses
16 February 2024
if any of the loans default, while those that invest in the
highest tranches get a lower interest rate but will only
suffer losses if all the capital from investors below them
is wiped out. While the design of a CLO looks similar
to collateralised mortgage-backed securities (CMBS) in
real estate, these funds passed the test that the CMBS
flunked in the 2007-2009 global financial crisis, mainly
because debt covenants and diversification provided
more protection against losses.
Private debt has existed alongside private equity for
a long time. In the US, Apollo, a major private equity
group, and Oaktree, a distressed debt specialist, have
been raising private-debt vehicles since the 1990s. In
Europe, it really began a decade or so ago, when private
equity firms saw an opportunity to buy up the debt of
their own portfolio firms after the financial crisis and
use their unique position to capitalise on distressed
valuations. Unlike other potential buyers of the debt,
they already had control of these companies, had
appointed the management, had a strong insight into
the business and could inject fresh equity to address
issues with the capital structure as their own investors
committed money to their funds.
Meanwhile, regulation following the 2008 financial
crisis has made it more difficult for banks to lend to
some of these companies. Disintermediation of the
financial sector is encouraging companies that would
usually borrow from banks to seek debt funding from
direct lenders. And so the debt arms of the private
equity firms grew further. Most now include both direct
lending and CLOs. The system has become intertwined
to the point where private equity managers may own
the debt of companies held by competitors, making any
debt-restructuring discussions rather interesting.
Peak for private equity
In 2021-2022, private equity experienced a boom
reminiscent of the peak of the last bubble in 2006.
Funds generated excellent returns by selling companies
through initial public offerings (IPOs) at stretched – and
even irrational – valuations. But the music has now
stopped. Thus 2023 saw the lowest level of IPOs since
2009, with only $123bn raised globally. Private equity
managers are sitting on $2.8trn of unsold investments,
according to estimates by Bain Capital. Those with
maturing funds that would usually be looking to exit
through IPOs are instead rolling over their portfolio
companies to continuation funds, postponing the time
when they have to be listed at lower valuations.
This current vintage of private-equity-backed
companies was acquired in an era of ultra-low interest
rates and using high levels of debt. While financial
conditions eased a little towards the end of last year, the
expectation is that rates will remain elevated compared
with when these deals were originally done, so there is a
pipeline of debt that will need to be refinanced from the
second half of 2024 and 2025 at much higher rates.
Distressed borrowers lack access to capital markets,
and need to find alternatives to tackle these looming
maturities. They may try to find a white knight to
refinance their existing debt, or to “amend and extend”
existing debt – at higher cost and with additional
moneyweek.com
©Wella
A loan to beauty products firm Wella is among the debt owned by CVC Income & Growth
terms – in exchange for a maturity extension. The
caution of banks, who are facing new Basel III capital
requirements rules that will force them to curtail
lending further, creates more opportunities for private
credit. The private equity sector has a total of $2.5trn in
dry powder (uninvested capital committed by investors)
to deploy, according to Preqin, and lenders may call on
fund managers to inject more capital to reduce leverage
and risk as part of this refinancing process.
A better time for private debt
Under this scenario, it is very plausible that typical
private-equity returns will be much lower that investors
have come to expect, while private debt could do well.
Private debt funds have beaten private-equity ones
for the last two quarters, according to the State Street
Private Equity index, which may be a sign of things to
come. In absolute terms, recent returns have been very
attractive. In the US, direct lending generated over 11%
over the last 12 months according to Cliffwater Direct
Lending index. US leveraged loans returned nearly 12%
according to the Morningstar Leveraged index, while
the Credit Suisse Western European Leveraged Loan
index has delivered 10% year to date.
In future, we might expect lenders to have to make
some concession on their margins to make the total cost
of debt affordable to borrowers. High margins were
not an issue when benchmark interest rates were close
to zero, but that is no longer the case. However, there
continue to be many opportunities. In the US, 2022 was
the weakest year for loan issuance for the past decade,
meaning there is a sizeable debt “maturity wall” of
borrowers that would have liked to refinance earlier at
lower rates, but will be forced to do so soon.
There is $700bn of non-investment grade, non-
financial debt maturing by the end of 2025, according
to S&P. In addition, many companies have “capital
structures [that] are inadequate for the new economic
environment”, as Apollo put it (ie, carrying too much
debt) and will have to be refinanced or restructured.
moneyweek.com
Analysis 23
Be cautious with CLOs “Distressed
Still, I would stay wary of CLOs and CLO funds.
The underlying loans were often used to acquire borrowers
companies at steep valuations (eg, an enterprise value lack access
(EV) to earnings before interest, tax, depreciation and
amortisation (Ebitda) of 11 times) by private equity to capital
funds financed with high leverage (eg, debt to Ebitda of markets and
5.5 times). These loans may then be distributed between
more than 100 CLOs – known as broadly syndicated need to find
loans (BSL). CLO managers with these holdings may alternatives”
have limited powers of negotiation when defaults rise.
Note, too, that CLO funds have a pre-defined
investment period and a fixed maturity, and they are
in a race to deploy the capital in the current fund, raise
capital for the next one and build the next “warehouse”
(the short-term investment structure used to fund the
process of building the portfolio of loans that will
go into the next fund). Once the CLO is built, it may
contain more than 200 borrowers across 15 to 20
industries – a portfolio that is difficult to monitor.
As a result, I lean towards active debt managers
who can evaluate the creditworthiness of borrowers
(eg, looking for companies without structural issues
or short-dated debt that trades at a discount) and have
portfolios that may earn better risk-adjusted returns (eg,
direct lending and distressed opportunities).
In the US, investors can choose from several BDCs,
such as Blackstone Secured Lending (NYSE: BXSL),
which is tempting on an 11% yield – but this specialist
fund may not be available through all brokers. Among
UK-listed funds, consider CVC Income & Growth
(LSE: CVCG), which invests mainly in European sub-
investment grade debt and focuses on senior secured
loans at the top of capital structure. It trades at an 8%
discount to net asset value and offers a yield of close
to 7%. The underlying portfolio is priced at a yield to
maturity of 14%. Holdings are currently split roughly
80%/20% between floating-rate and fixed-rate debt (the
fixed-rate part will include opportunistic investments in
high-yield bonds) and seems well diversified.
16 February 2024
24
Move your portfolio up a gear
Buying shares in Exor N.V. will give you access to a global champion at a discounted price
Rupert Hargreaves
Investment columnist
O nly a handful of
companies in the world
boast a product so unique that
they can afford to pick and
choose their customers. It’s not
easy to get to this position. It
takes time and money, and even
then, there’s no guarantee a
business will be able to cultivate
the cult following required.
High-end Swiss watch
brands are the perfect example.
Rolex only makes a million
watches a year, and the waiting
lists for its top models are
over a decade. But it’s not the
most exclusive brand in the
watch sector. Patek Philippe
and Audemars Piguet are
far more upmarket, with
the latter producing around
40,000 watches a year and
some commanding prices of
over £700,000. You can’t just
walk into a store and buy these
watches, even if you have the
money. You need to have a
history of purchases with
the company or dealer,
which means you must be a
regular customer with several
high-end timepieces.
Another company with
a unique product and cult
following is Ferrari (NYSE:
RACE). The Ferrari brand is
one of the most valuable in
the world and also one of the
most exclusive. The group
is producing around 13,500
cars per year, and there are no
plans to increase this number
dramatically. By limiting
production, Ferrari keeps the
brand exclusive. You have to
have a purchase history to gain
access to the latest and most
Exor N.V. (AMS: EXO)
Share price in euros
100
90
80
70
60
2023
16 February 2024
Companies
The conglomerate owns a 22.9% stake in Ferrari
high-end models, and if you
don’t have a purchase history,
you’re going to have to join the
waiting list. The company is
so strict about this policy that
it has actually been sued by
wealthy individuals who’ve
been blocked from jumping
to the front of the queue.
What’s more, Ferrari doesn’t
even advertise its products.
Its Formula One team is
essentially its only marketing
tool, as well as being a global
arena to showcase its prestige.
Riding the wave
Ferrari has been riding a
wave of spending by wealthy
individuals on luxury products
recently. Profits hit a record
last year as buyers snapped
up the cars that rolled off its
production line. The number
of cars produced ticked up
by 3.3% year on year, but
revenues rose by 17%, and
net profit surged by 34%. The
average selling price of the
group’s vehicles hit €397,000, a
new record as buyers splashed
2024
©Getty Images
out on fancy upgrades, such
as bespoke interiors and paint
jobs. Management expects this
trend to continue in 2024.
Ferrari’s brand and growth
do not come cheap. The stock
is trading at a forward price/
earnings (p/e) ratio of 45. With
a five-year average operating
profit margin of 23.5% and
a return on capital of 21.3%
(only a shade lower than
reported by some of the world’s
top tech companies), Ferrari
certainly deserves a premium
valuation. However, investors
don’t have to pay up like
Ferrari’s customers to join the
race. There’s another way in,
and it’s much cheaper.
One of Ferrari’s major
shareholders, owning 22.9%
of the business, is Exor N.V.
(AMS: EXO). Exor is the
holding company of the Agnelli
family dynasty, set up by
Giovanni Agnelli, one of the
original founders of the Fiat
motor company. Fiat acquired
a stake in Ferrari in the early
1960s, and the latter became
a subsidiary of the larger
manufacturer. By 1988, Fiat
owned 90% (Ferrari’s founder,
Enzo Ferrari, kept a 10% stake)
and in 2014, it spun the stake
off into a separate publicly
owned company.
Exor remains a significant
shareholder in Fiat (now called
Stellantis) and Ferrari, as well
as several other companies,
including The Economist,
CNH Industrial (also spun out
from Stellantis) and Juventus
Football Club. On top of
these holdings, Exor has an
investment arm, Lingotto
Investment Management,
which manages £2.4bn for
the group. James Anderson,
who managed Baillie Gifford’s
Scottish Mortgage Investment
Trust, joined Lingotto as one
of its fund managers in May
last year. Exor’s CEO is John
Elkann, the great-grandson of
Giovanni Agnelli. He remains
a major shareholder in Exor
and is chairman of its largest
holdings, Stellantis and Ferrari.
Elkann has presided over a
long period of value creation at
Exor. The company’s net asset
value (NAV) has grown at a
compound annual rate in the
high teens since 2009, nearly
doubling the return of the
MSCI World Index in euros.
Despite this growth, the shares
continue to look cheap.
Deep discount
At the end of June 2023, the
firm said its NAV per share
was €150, compared with
the current share price of
€93. Since then, the value
of its Ferrari stake has
jumped by 17%, while
the value of its Stellantis
stake is up by 31%. At current
prices, the Ferrari stake
accounts for 75% of Exor’s
market value, leaving nothing
for the rest of the holdings.
Exor has always traded at
a discount to its NAV; call
it a conglomerate discount.
Nevertheless, the share price
has tracked the growth in NAV.
What’s more, Elkann and
his team know how to return
cash to investors. Exor uses
tender offers and buybacks to
reduce the share count when
the company is flush with cash.
In 2022, it sold PartnerRe,
the global reinsurer, to French
peer Covéa for $9.3bn (having
bought it in 2015 for $6.9bn).
Of this, $1.1bn has been
returned to investors through
a tender offer and share
buyback. The rest has been
reinvested into new holdings,
notably a large stake in the
struggling Dutch medical-
device manufacturer Philips.
Exor offers investors a way into
Ferrari as well as a collection
of other businesses at a deep
discount, alongside an owner-
operator with a proven record
of creating value for investors.
Rupert Hargreaves owns
shares in Exor.
moneyweek.com
26 Personal finance

Delegate your decisions Cut the cost of

home insurance
You need a Lasting Power of Attorney in case you are incapacitated The cost of home insurance is
soaring. The average
buildings-only policy reached
Ruth Jackson-Kirby £262 at the end of 2023, up by
Money columnist 15% on the previous year,
according to the Association
of British Insurers (ABI).

M ore than one million

Lasting Powers of
Attorney (LPA) were registered
Policies covering buildings
and contents have risen by
13%. Insurance firms are
in 2023, according to probate blaming the weather. Winter
broker Final Duties. That’s storms have been costly,
leading to £352m in claims.
the first time the number has
Meanwhile, a cold snap led to
ever hit six figures. An LPA is “a wave of claims for burst
a legal document that allows water pipes, which insurers
you to name one or two people are still working out”, says
who can make decisions for Sam Barker in the Daily Mail.

you if you are unable to in the
future. They are known as
your attorneys. They can either
handle any medical decisions
concerning your long-term
health and care, or they can
deal with financial matters
such as banking and bills.
If you lose the ability to
make decisions for yourself
and don’t have a power of
attorney in place, your friends
and family face an uphill battle.
They would have to apply to
the Court of Protection to be
named as your “deputy”. It
can take up to six months and
costs around £80 in addition to
legal costs of another £1,000.
If the court decides it needs a
hearing to take place, then the
expense can spiral. There are
two types of LPA. One is for
health and wellbeing and gives
someone the power to make
medical decisions and choose
your long-term care situation.
The other is for finance and
property, and allows your
nominated attorneys to handle
your financial affairs. When
choosing your attorneys think
Go through the paperwork carefully to avoid having the application rejected
carefully about who is best
placed to make decisions for
you. Setting up an LPA can be
straightforward and does not
require a solicitor. You can get
the forms for £82 each from
Gov.uk; there’s a 50% discount
if you earn less than £12,000
before tax. After you’ve
completed the forms, you post
them to the Office of the Public
Guardian to be registered.
It takes around four months
for the forms to be processed
and registered. However, just
because you can take the DIY
route doesn’t mean you should:
30,000 applications were
rejected owing to mistakes in
the 2022-2023 year, according
to a Freedom of Information
request by wealth management
company Quilter.
The most common errors
include signing the form in
the wrong order, leaving off
vital information and making
contradictory requests.
An example of the last is
©Getty Images
So, how can you keep your
home-insurance costs down?
Firstly, pay your premiums
appointing three attorneys and annually rather than monthly.
When you pay monthly the
stating they should act “jointly
insurer is effectively lending
and severally”, then later you the money and it will
saying decisions must be made charge a hefty interest rate.
by majority vote. “By acting It can cost as much as 40%
jointly and severally, all of the more to pay monthly.
attorneys have equal power to Secondly, make sure you
act and make decisions,” says shop around. It seems
Grace Witherden in Which. obvious these days, but using
There are also other more than one comparison
website will ensure you aren’t
mistakes that the Office of
overpaying. Just don’t
the Public Guardian may not automatically opt for the
pick up on and would only cheapest one. Check it has all
become a problem once your the cover you need, and that
attorney tried to use the power the insurance firm has good
of attorney. For example, you reviews from customers.
appoint a friend but misspell Finally, improve your home
their name. They could then security. “A safer lock can
face problems as their ID drastically lower the cost
of your policy, as it
wouldn’t match the documents.
demonstrates you are
Avoid problems by asking a proactively reducing the risk
solicitor to help you set up of a break-in and needing to
your LPA. This costs around make a claim,” Chris Lear
£500-£700 per form. You may from insurance broker One
be able to reduce the fee by Sure Insurance told The Daily
setting up both types of power Telegraph. Smoke alarms,
of attorney at the same time burglar alarms and cameras
and combining it with writing can all improve security and
cut your premiums too.
or updating your will.

Pocket money... new type of mortgage arrives in UK

l A new style of mortgage has
arrived in Britain. Dutch-style
mortgages have interest rates
that fall as you pay off your
loan. Dutch lender April will
launch mortgages for first-time
buyers with 5% deposits in the
spring, having launched them
for those with 15% deposits in
November, says Ruby
Hinchliffe in The Daily
Telegraph. April offers fixed-
rate mortgages of five to 15
years and “homeowners can
switch to a lower loan-to-value
band, and therefore pay a
reduced rate of interest, as
their loan decreases. Normally
homeowners can only do this
when they remortgage”.
l If you’ve got a Land Rover or
Range Rover, brace yourself
when you renew your car
insurance. Premiums have
“soared amid a surge in
thefts”, says George Nixon in
The Times. Cover for a Range
Rover Velar soared from a
typical £1,349 in 2022 to £2,432
last year, an 80% jump. While
car-insurance premiums are up
across the board, luxury SUVs
are seeing eye-watering
increases and some insurers
are even refusing to cover
certain models that are being
targeted by crooks. “Thieves
have worked out how to
override keyless entry systems,
either by using handheld
transmitters or by cutting into
the cars and tampering with the
wiring.” Thefts were up by 21%
in 2022-2023, according to the
Home Office. Now “some big
insurers will only cover a Range
Rover if you also insure your
home with them to spread the
risk, and if the car is parked off
the road. Sometimes the price is
so high that the insurer is
effectively saying it won’t insure
you”, William Cooper from
insurance broker Stanhope
Cooper told the paper.
l Ring has irritated its
customers by putting up the
cost of its subscription, reports
Saqib Shah in the Evening
Standard. The Amazon-owned
firm is increasing its basic
subscription – which allows
you to store the video recorded
on its doorbells – by 43% from
£3.49 a month to £4.99. The
plan’s cost has doubled since
June 2022.
l “Energy firms will have to
pay £30 compensation if a
customer switching to a rival
firm is not moved within
five working days,” reports
Ali Hussain in The Sunday
Times. From April the firm you
are switching to will have to
pay you the compensation
thanks to a rule change by the
regulator Ofgem.

16 February 2024 moneyweek.com


How the self-employed save
If you don’t benefit from auto-enrolment, you need to plan carefully
David Prosser
Business columnist
T here are five million self-
employed people without
the option of automatic
enrolment into an occupational
pension scheme. As a result,
three-quarters of the self-
employed are not making any
pension provision. And half
these workers have never saved
anything for old age.
Yet there is no shortage
of good-value, tax-efficient
retirement savings vehicles
available to self-employed
workers. You won’t benefit
from an employers’ contribution
to boost your savings, but
you should open some sort of
pension plan, not least because
you will still be entitled to tax
relief on pension contributions
– effectively a free top-up from
the state. The relief is payable
at your highest marginal rate of
income tax, so paying £1,000
into a pension costs basic-rate,
higher-rate and additional-rate
taxpayers only £800, £600 or
£550 respectively.
The simplest option is a
stakeholder-pension plan.
These are basic savings vehicles
with rules on charges set by
regulators. Pension providers
are not allowed to charge
more than 1% a year for these
plans, although at the cheapest
providers you’ll pay around half
this amount.
Beware additional costs
There may also be additional
fees for the underlying
investments you make inside
your stakeholder plan, but
these are inexpensive and
simple pension products. There
are often default investment
options available, so that you
don’t have to make too many
decisions, and minimum
contribution levels tend to be
low. The plans should also be
flexible, enabling you to change
your contributions and switch
investments regularly.
The downside to stakeholder
pension plans can be a lack of
choice. You may only be offered
a limited range of funds. Your
options at retirement may also
be narrow: to convert your
savings into income, say, you
may have to depend on an
annuity, rather than having the
moneyweek.com
Pensions 27
Is inflation eating
your pension?
Are you now retired and
drawing on final-salary
pension rights partly built up
prior to 1997? If so, you may
have noticed that your
pension income appears to
be struggling to keep pace
with inflation.
That’s because, while the
law changed in 1997 to
require these pension
schemes to increase
pensions payment each year
in line with the cost of living,
the right only applies to
benefit entitlements accrued
from 1997 onwards.
Employers are under no legal
obligation to raise final-salary
pensions related to savings
made before 1997.
©Getty Images
Around 75% of the self-employed
This discrepancy has
are not making any pension provision
prompted retired employees
of a growing number of
option of income drawdown of individual shares, collective companies to complain.
arrangements. In that case, investment funds and other Pensioners receiving benefits
a personal pension may be a assets. Sipps can work really from employers including
better option. These work in the well if you’re keen to manage KPMG, Goldman Sachs and
same way as stakeholder plans. your pension investments more Hewlett-Packard, for
You make regular contributions, closely. But charges will eat into example, have all raised this
issue with their former
earn tax relief, and aim to build returns, particularly over longer employers in recent months.
up as large a retirement fund as periods. Shop around for the Pensioners point out
possible during your working best deals on Sipps’ fees. that where employers don’t
life. But charges aren’t regulated Self-employed people are raise benefits in line with
in the same way. Providers may entitled to the same contribution inflation, they are effectively
therefore be able to offer greater allowances as everyone else imposing an inflation-
investment choice and more when it comes to pensions. adjusted reduction on the
options at retirement. You can save up to £60,000 incomes of their former
In particular, self-invested in a private pension – or the employees. The high inflation
rates of the past two years
personal pensions (Sipps) have value of your annual income, if
have been particularly tough
become increasingly popular lower. Self-employed pension for these former staff.
in recent years. Sipps offer savers may also be able to make Employers, on the
more investment choice than good use of the carry-forward other hand, argue that
any other type of pension rules, which allow you to bring pension increases related to
arrangement, giving you unused pension contribution pre-1997 service are
much more control over your allowances forward from any discretionary – and that the
retirement planning. Most of the past three tax years. case for uprating benefits has
people run their Sipps on an Since many self-employed to be balanced against the
need to ensure funding levels
online investment platform, workers find their annual
are maintained for the benefit
through which they have income unpredictable, this can of all scheme members.
access to a very broad range be a very useful opportunity.
News in brief... a loophole for expats
l “Investment pathways,” introduced by 2023-2024 tax year. The perk enables low-earning
regulators to help pension savers manage spouses to transfer 10% of their personal
income-drawdown arrangements, could cost you allowance to their partner, effectively reducing the
dearly, says consumers’ group Which. Since 2021, couple’s overall tax bill. However, increases in the
the Financial Conduct Authority, the City regulator, state pension are undermining the value of this
has set out a range of these pathways, offering arrangement, tax specialists warn. Next year’s
four supposedly simple and good-value increase is also being made at a time when
investment arrangements to suit people with personal tax thresholds remain frozen.
different goals as they move into income-
drawdown plans in retirement. But Which says the l Wealthy savers who transfer pensions abroad
cost of opting for one of these pathways varies could use a loophole in the law to claim twice as
hugely from one provider to another, potentially much tax-free cash from their plans as is usually
costing savers tens of thousands of pounds extra allowed. Expatriate pension specialists note that
and depleting their pension savings more quickly. UK tax laws do not require overseas pension
schemes to check whether a saver has already
l Pensioners who have shared part of their taken tax-free cash from their pension fund when
personal allowance with their spouse under the transferring it to a new provider abroad. So once
marriage-allowance tax perk could find the transfer is completed, savers may be able to
themselves hit with an unexpected tax bill in the take a second tax-free lump sum from their pots.
16 February 2024
 28 Personal view

Leading lights in emerging markets

with long-term growth at a discount
A professional investor tells us where he’d put his money. This week: Chetan Sehgal,
lead portfolio manager, Templeton Emerging Markets Investment Trust
We employ a bottom-up, research-driven approach
focused on identifying long-term sustainable earnings
power at a discount to intrinsic value. Market and
sector weightings are a result of our bottom-up stock
selection process, and we always seek to ensure the
portfolio is appropriately diversified. Our portfolio
construction process aims to build a research-driven,
high-conviction portfolio primarily powered by
company-specific factors and focused on the long term.
In addition, we focus on being responsible and
practising effective stewardship. Stewardship is not
just about making responsible investment choices. It
also involves engaging with investee companies and
other key stakeholders who can help us solve corporate-
governance problems, as well as the pressing social and
environmental challenges of our time.

An extensive ecosystem
Tencent Holdings (Hong Kong: 700) is the largest
gaming, entertainment and communication platform in
©Alamy

Korea’s Doosan Bobcat makes loaders, forklifts and mowers

China. It is a major player in online games; non-gaming
value-added services, such as the provision of video,
music and live-streaming; digital advertising, financial
technology (fintech) and other businesses, such as
cloud computing. The company is a key beneficiary of
artificial intelligence (AI) across its businesses.
Tencent has built its own ecosystem and has a strong
relationship with its users via WeChat, one of China’s
most popular apps. With more than 1.3 billion users
worldwide, WeChat has been transformed from being
an instant messaging app into becoming a platform
that can enable everything from making payments and
playing games to ordering food and booking flights.
The company seems to have adjusted well to the
changing regulatory environment and slowing Chinese
economy and continues to deliver strong cash flows,
albeit at a much slower pace of growth. Tencent has
“Online also made significant public and private investments in
China and globally. Trading at attractive valuations, the
one-stop- company has been buying back shares, which further
shop Tencent enhances earnings per share.
Doosan Bobcat (Seoul: 241560) is a South Korea-
Holdings based compact-equipment and industrial-vehicle
is a key manufacturer. Its product range includes loaders,
excavators, mowers, and forklifts. The owner of
beneficiary Bobcat, the leading compact equipment brand in the
of AI” United States, Doosan Bobcat is a key beneficiary of
growth in construction activity in the country. The
company has been bolstering the competitiveness of
existing products and adding new ones to its range,
with a focus on innovation, including electrification,
automation and connectivity. It receives about 25%
of its revenues from demand for replacing machine
parts and attachments. Large free cash-flow generation
provides Doosan Bobcat with a buffer to withstand
any volatility.
Samsung Life Insurance (Seoul: 032830) is the
largest life-insurance and leading health-insurance
company in South Korea. Its strong brand recognition
and leading market share in the insurance sector allows
it to derive premium income from annual sales and
customers’ renewals, resulting in a steady earnings
stream. With ownership interests in other key Samsung
Group companies, including Samsung Electronics
and Samsung Fire & Marine Insurance, Samsung Life
Insurance provides exposure to these companies at a
discount to their market value.
With the semiconductor cycle bottoming out, and
expectations of a recovery this year driven by AI-
induced demand, exposure to Samsung Electronics
should also contribute to Samsung Life’s share-price
performance. An improving dividend payout should
further enhance shareholder value.
©The Telegraph 2024

16 February 2024 moneyweek.com

30 Profile

The business tycoon who became king

Malaysia’s new sovereign has ascended to the throne, but he has no intention of remaining a symbolic
figure and says he wants to heal the country’s political divisions. Jane Lewis reports
The Malaysian royal throne “I must earn a living, like
is unique among the world’s ordinary Malaysians,” he told
monarchies. Rather than The Star (Malaysia). Most,
being inherited, it is rotated of course, don’t own three
every five years between the Gulfstream private jets, a
heads of Malaysia’s nine royal Boeing 737, or a 300-strong
families. In normal times, says fleet of luxury cars – including
The Times, the occupant is a one apparently gifted to a
“symbolic figure”. That may be forebear by Adolf Hitler.
about to change. Neither can they call upon
The new king, Sultan their own “private army”, a
Ibrahim Iskandar of Johor, condition granted to the
is “colourful, ambitious ruler of Johor when Malaysia
and controversial” – and a gained independence from
billionaire tycoon. Rather Britain in 1957.
than being “a compliant
constitutional monarch”, he Virus of division

©Getty Images
is intent on making an impact Ibrahim’s father, Mahmud
on the country’s fractured Iskandar, caused an upset
political landscape. There may in conservative Malaysian
be “difficult questions about circles in 1955 when he married
reconciling his vast business “There are 222 of you in parliament, Josephine Trevorrow, the
interests with his role as king”. 30 million outside. I’m with them” teenage daughter of a Cornish
businessman whom he met in
Corruption hunter credentials are a bit rich, says Bloomberg – the then internationally glamorous resort
A Ferrari-driving, “Instagram-savvy” rather like the monarch himself. of Torquay, says The Times. The couple
motorbike enthusiast, renowned for Conservatively worth roughly $5.7bn, divorced six years later, perhaps as a
driving around his home state on a Harley- Ibrahim is a big swinger in property, palm consequence of Mahmud’s vicious streak.
Davidson, Ibrahim, 65, has promised to oil and telecommunications – owning just Himself a former king (between 1984 and
be much more than “a puppet king”, says under a quarter of U Mobile, Malaysia 1989), he was renowned for “his short
The Straits Times of Singapore – saying he largest cell-phone provider. His property temper, arrogance and deadly violence”.
will reign “for the people”. “There are 222 investments include a stake in a $100bn Fortunately, the new king –
of you in parliament,” he told Malaysia’s luxury housing project in Johor – a joint who was schooled in Malaysia and
MPs. “There are over 30 million outside. venture with the troubled Chinese property Australia, later qualifying as a paratrooper
I’m not with you, I’m with them.” developer, Country Garden. In an effort to – appears to have none of these traits.
To that end, he has vowed to root out boost that project, he has been pushing for Indeed, he is remarkably popular in Johor,
corruption. The Iskandar family have a high-speed rail line linking Kuala Lumpur says The Star, and intends now to stand
always been “great hunters”, he told an to Singapore. for tolerance and unity. “I feel that our
interviewer last year. “I make sure when I Malaysia’s constitution specifically country has been infected with a virus
go hunting, I bring back nice returns. But prohibits the king from actively engaging of division,” he has said. Hopes, for the
when I’m in Kuala Lumpur it’s a concrete in any commercial enterprise. But Ibrahim moment, are high. But if Ibrahim tries to
jungle, so what do I hunt? I’m going to hunt – who claims to be “open and transparent” root out corruption while furthering his
all the corrupt people.” Given his business about his operations – seems “likely to own business interests, he is going to ruffle
interests, some might say his populist resist this stricture”, says The Times. a good many feathers.

Zuckerberg triumphs in his fight with Musk

Twenty years after January and was the best- Musk, says The Economist. Not sensitive to his shareholders,
“TheFacebook” was performing Big Tech the literal cage fight that both has listened to critics and
launched on 4 stock in 2023. Rumours agreed to but never happened, changed course to focus on
February 2004, of Meta’s demise have but the long-running spat about improving existing products as
“the world still long circulated, but it “who is cooler than whom”. well as making big bets on the
doesn’t know remains one half of Musk – who has triumphed in future, and returned cash to
what to make of the “global space rocketry – would seem to shareholders.
Mark Zuckerberg, advertising duopoly” have won hands-down over the But there are signs he may
its very peculiar alongside Google, is “geeky dilettante in a hoodie not be up to the challenges he
co-founder”, says better at bringing together who has given the world nothing now faces, says Dave Lee on
Andrew Orlowski for buyers and sellers, has but a website widely deemed to Bloomberg. Zuckerberg has
Spiked. Zuckerberg (pictured) survived various political be a social menace”. But while long relied on “copying and
has spent most of the past storms, and made some savvy Musk has got bogged down in pasting” his way out of trouble –
decade “trying so very hard to acquisitions. Zuckerberg is still legal battles, Zuckerberg has imitating the innovations of
be liked”. Now, he seems to have throwing billions at his ludicrous been “punching the air”. Results rivals or buying them up. Bolder
stopped worrying about that metaverse concept, but then he released on 1 February showed projects have fallen apart. But to
and got back to business. has plenty of it to play with. a “staggering rise in sales and thrive in a world of new
Meta Platforms, Facebook’s “Things really couldn’t have margins”. And while Musk hardware from Apple and AI,
parent company, is worth more worked out any better for him.” continues to thumb his nose at costly innovation will be needed.
©Shutterstock

than $1trn. Its share price hit an Zuckerberg has also won his investors and the courts, There will be no hiding from the
all-time high at the end of fight with rival billionaire Elon Zuckerberg has grown up: he is fallout if this fails.

16 February 2024 moneyweek.com

32
Chris Carter flies with Flexjet to St Moritz for the Snow Polo World Cup
I t’s not every morning that
you’re in the departure lounge
at Farnborough Airport in
Hampshire, chatting to one of
the two pilots who are going to
fly you to St Moritz in a private
jet. At least not for me. Sipping
my cappuccino as the first
rays of sun crested the control
tower, I asked Gavin Scott, the
captain, casually, “So, how long
does it take to learn to fly one
of these things?” By “things”, I
was referring to Flexjet’s swish
Gulfstream G650 that would
be whisking me to the Swiss
Alps late last
month for the
39th Snow Polo
World Cup,
where Flexjet
was fielding
a team. “About a
month,” said Gavin
cheerfully. But
the airstrip at
Samedan, the
closest to the
uber-glamorous
Swiss resort, is
(he said with a
rueful smile and
sideways nod)
“tricky”. Pilots
have to undergo special
training. So much for my
dreams of joining Flexjet’s
roster of pilots by Easter.
Ensconced in my wide
Gulfstream seat a little later
and enjoying a breakfast
of smoked salmon and
Champagne at 40,000 feet,
we were making a beeline
for Madrid to pick up a
couple more guests. That
just goes to show how easy it
is to flit across Europe when
you have your own private
jet. “Lunch in Madrid?
Sure, so long as we’re in
St Moritz in time for the fourth
chukka.” Viv Diprose, Flexjet’s
head of communications, was
telling me about the recruitment
process. Not only are pilots
brimming with experience,
but they are also polished to
shine when talking to client-
owners (see right). Hence
Gavin’s good-natured tolerance
of my silly questions earlier.
The main Flexjet model is one
of fractional ownership. So
when you sign up to fly with
Flexjet, you fly in an aircraft
you part-own. And who would
be so gauche as to fly their own
16 February 2024
Travel
The only way to fly
private jet? Not least because
you could be sitting in the
back – comme moi – sipping
Champagne and snaffling
smoked salmon. I imagine
it’s rather like owning your
own Bentley and Flexjet does,
indeed, have aircraft done up
like Bentleys in its fleet.
Victorian pursuits
A quick stop in Madrid – adios,
españa! – and we were on our
way to St Moritz for the snow
polo. Ours was a full flight and
the cabin server did a superb job
of keeping our glasses topped
up and the sushi rolling. Too
soon I saw the snowy peaks of
the eastern Alps come into view.
The Gulfstream gave a little
wobble on the approach
to Samedan and
Kulm Hotel St Moritz overlooks the lake
we were down on the ground
before I could say “oh, go on
then, but this really is my
last glass”.
A short drive took us to the
Kulm Hotel St Moritz, the
grand Swiss mountain retreat,
with its acres of pinewood and
a plethora of century-old sepia
photos on the walls of eccentric
Britons doing eccentric things
– not least the Cresta Run. In
the 1880s, our irrepressible
ancestors, with too much time
on their hands and not
enough sense in their
heads, thought it
would be jolly
to throw themselves down
the hill headfirst on trays.
Thus began the grandfather
of the Olympic sport
today known as skeleton
racing – only without
the helmets. At the
Kulm, the cabinets are
bursting with the
sport’s gleaming
silverware.
The spa is
also worthy
of mention, with its several
saunas and steam rooms, large
pool, hot tub and outdoor
heated pool with bubbles and
spectacular views.
Prancing on ice
Polo is another example of
those madcap Victorian
antics. The modern version
of the game was invented by
British cavalry officers who,
again, thought it would be
jolly to swap their sabres for
mallets and charge after a
ball on half-tonne horses. But
you can’t blame the British
for taking it to the ice. That
was the capital idea of Swiss
©Kulm Hotel
hotelier Reto Gaudenzi and
St Moritz has been hosting the
Snow Polo World Cup on its
frozen lake since 1985. It was
onto this lake that I waddled
last month to watch the equine
theatrics, my hands buried in my
stylish new black winter jacket,
kindly supplied by Mackage, a
co-sponsor of the World Cup,
with Flexjet.
That late January weekend,
the sun illuminated the
mountains around the resort
town against a cloudless blue
sky. The weather was glorious.
Too glorious, in fact. The
matches had to be called off as
the spell of warm weather risked
turning the snow polo into water
polo. Instead, the teams took
penalty shots to determine the
winner, and Team Mackage
came out on top. Hurrah!
Where to next? I cast my mind
back to my chat with Gavin in
the terminal at Farnborough
Airport, at the start of my trip.
“But how far could we go in the
Gulfstream, I mean really go?”,
I had pressed. We could go as
far as Tokyo, was the answer.
But for that trip, we would
need three pilots onboard. So,
theoretically, after my month’s
flight training, we really could
be eating sushi in Japan in time
to see the cherry blossoms. But
why go to the trouble? I think I
could settle for eating tuna nigiri
in the back of my Gulfstream
G650, wherever we’re going.
Chris was a guest of Flexjet
(flexjet.com). See right for
details. Double rooms at
Kulm Hotel St Moritz start at
CHF 630 (£570) a night in the
summer, including breakfast.
See kulm.com for details.
moneyweek.com
©FlexJet

The Gulfstream G650 amid the majestic Swiss Alps

How Flexjet works
This might come as a surprise,
but flying in a Gulfstream G650
is actually pretty comfortable.
It can accommodate up to 12
passengers, plus crew, and some
of the seats can be made into
beds. There is also a table, a
longish galley and the biggest
bathroom that I had ever come
across at 40,000ft. As for
the decor, each jet is slightly
different, but hand-sewn
leathers, woods and tailored
textiles come as standard in
Flexjet’s LXi Cabin Collection.
Flatscreen televisions are
dotted around and Elon
Musk’s Starlink constellation
of satellites ensures high-speed
internet is kept up the whole
way. Along with the Gulfstream
G650, Flexjet also operates the
super-midsize nine-passenger
Embraer Praetor 600 and the
Sikorsky S-76 helicopter as part
of its European fleet.
Naturally, there are
environmental costs to flying
privately. In Europe, Flexjet
offsets emissions by 300% for
“Hand-sewn
leathers, woods and
tailored textiles
come as standard”
each flight and it sends the data
to the University of Cambridge
for analysis. It is also moving
towards using sustainable
aviation fuel (SAF) – which
is non-petroleum-based and
results in lower levels of harmful
emissions – with the goal of
using 12% of SAF for its fuel
needs by 2030. And Flexjet is set
to become the first operator to
fly the eVTOL Eve – essentially
an electric helicopter – in the
not-too-distant future.
There are three ways to fly
with Flexjet. You can buy a
share of an aircraft, starting
from a 16th, which equates to
50 of an aircraft’s 800 annual
flying hours. A Praetor 600, for
example, is valued at around
$20m (£16.3m), so a 16th
works out at around £1m, with
owners committing to contracts
of at least 30 months. There is
also a monthly management
fee, which covers training,
insurance, hangaring and
administration; and an
“occupied hourly rate”, which
covers maintenance, pilot
fees and catering. Flexjet also
has a flexible lease programme,
which provides similar benefits,
but without the upfront costs.
Lastly, there’s the pre-paid
Flexjet Jet Card, charged at an
hourly rate, which allows fliers
to try the service before making
a bigger commitment.

Wine of the week: a trio of stunners from Piemonte

2022 Barbera d’Alba, My three recommendations grape’s talents, and if this were a
Matthew Jukes today come from some of the Barolo, it would be a cheapie! It is
Massolino, Piemonte, Wine columnist
Italy most highly respected estates in made by one of the most revered
the entire region. My headliner wineries on Earth, so take my
£28.25, For a mighty wine region famous barbera is hedonistically advice and load up. It is drinking
wineutopia.co.uk for its long-lived red wines, appointed with layers of juicy now and is jaw-droppingly
Piemonte has another style of blackberry and plum tones and a delicious. Finally, another
wine that cannot wait to leap into hint of dark chocolate and superstar winery and a
your glass to be downed with espresso bean on the finish. It is tremendous expression of the
gusto. No, not the Barolos or raring to go and exceptionally dolcetto grape. The 2022 Dolcetto
Barbarescos, made from the regal classy. This wine alone will d’Alba, G.D. Vajra (£21.99,
nebbiolo grape variety, but the convert you to barbera’s charms in lokiwine.co.uk) is a little lighter
“non-neb” reds made from grapes a blink of an eye. than the duo of barberas, and it
such as freisa, pelaverga, If you would like to continue has crisp acidity and a lust for life
grignolino, dolcetto and barbera. your barbera journey, then 2019 that brings a grin to your chops.
While the first three are rare, Barbera d’Alba Conca Tre Pile
dolcetto and barbera are widely Aldo Conterno (£46.99, Matthew Jukes is a winner of the
available and, in the right hands, thewinereserve.co.uk) might International Wine & Spirit
can be forward-drinking and seem expensive for a barbera, Competition’s Communicator of
stunning value. but it sits at the pinnacle of this the Year (MatthewJukes.com).

moneyweek.com 16 February 2024

34 Property
This week: converted properties – from a loft-style apartment with views towards Canary Wharf in a fo

Bath Lodge Castle, Somerset. A Grade Horlicks Quarter, Stock Gardens,

II-listed former gate lodge built in 1806 and
now in need of some updating. It has flagstone
floors, exposed stone walls, beamed ceilings,
grand fireplaces and comes with three roof
terraces. 11 beds, 9 baths, 2 receps, breakfast
room, kitchen, outbuildings, gardens, woods,
3.6 acres. £1.8m+ Savills 01225-474 500.
Slough, Berkshire. A development of one-
bedroom, two- and three-bedroom flats and
penthouses in a former Horlicks factory.
All come with access to parking, roof-top
gardens, a gym, games room and a co-
working studio. Prices range from £390,250
to £649,950. Savills 01189-520540.

Limehouse Cut, Morris

Road, London E14. A converted
warehouse overlooking the
Limehouse Cut. It has Crittall
windows, exposed brick walls
and steel beams, flagstone
floors, high ceilings in the living
area with large windows and
a spiral staircase leading to a
mezzanine area on the second
floor. 2 beds, 2 baths, study,
open-plan kitchen/living
area, parking, communal
roof terrace. £875,000
Knight Frank 020-7480 6848.
16 February 2024 moneyweek.com

ormer warehouse in Wapping, London, to a Grade II-listed gate-lodge conversion in Bath
Great Jubilee Wharf, Wapping,
London E1W. A substantial loft-style
apartment spread over two floors in a
converted warehouse on the Thames
waterfront with a south-facing
balcony overlooking Canary Wharf.
The flat retains its original windows,
exposed brickwork, oak floors and
cast-iron beams. 2 beds, 2 baths,
open-plan kitchen/living area, office,
lift, bike storage, parking. £2m
Knight Frank 020-7480 6848.
moneyweek.com
Property 35
Jays House,
High Bridge, Dalston,
Carlisle, Cumbria. A
converted Dutch Barn
surrounded by open
countryside and close
to the Lake District
National Park. It has
triple glazing, solar
panels, insulation, zoned
heating and has been
awarded an A-rated
energy performance
certificate. 3 beds, 2
baths, open-plan kitchen/
living area, utility,
office/recep, parking,
electric-vehicle charging
point, patio, gardens,
garden store. £650,000
Finest Properties
01434-622234.
Salt Lane, Salisbury.
A converted warehouse
in the centre of
Salisbury. It has an
open-plan living area
with beamed ceilings,
a luxury fitted-kitchen
and a room on the
second floor with bi-fold
doors leading onto a
roof terrace. 4 beds, 3
baths, courtyard garden.
£1.3m Hamptons
01722-563117.
The Butts, Calstock,
Cornwall. A Grade II-listed
house and outbuildings in a
former mining area. It has
been converted from an old
station marshalling yard and is
situated in grounds overlooking
the Tamar Valley. There is
scope to develop its Grade
II-listed water tower, former
wagon-repair shop and engine
house, subject to planning
permission. 3 beds, bath,
recep, kitchen, conservatory,
3 barns, 3.5 acres. £700,000
Bradleys 01579-382999.
Old School House,
Newcastle, Craven Arms,
Shropshire. A converted school
house in a rural village in an
Area of Outstanding Natural
Beauty with views over the
Shropshire Hills. The house
retains its original beamed
ceiling, exposed beams and
stonework, and has a wood-
burning stove, contemporary
kitchen and bathroom.
4 beds, 3 baths, 2 receps,
study, flagstone courtyard,
gardens, garage/workshop,
woodland, 2.4 acres. £750,000
Savills 01952-239500.
16 February 2024
36 Reviews
Book of the week Tu: good for financial advice Mastering the Mental
that’s down with the kids Game of Trading
Rich AF Harnessing the power of the
The Money Mindset That inner self to fuel trading
Will Change Your Life outperformance
Steven Goldstein
Vivian Tu
Harriman House, £26.99
Michael Joseph, £18.99
Trading for a
This reviewer is living, whether
a millennial, with someone
but after else’s money or
reading the first your own, is
chapter of bond- tough. You need
trader-turned- the “edge” to
influencer generate
adequate returns
Vivian Tu’s and the discipline to stick with a
Rich AF: The Money Mindset,
©Getty Images

game plan while avoiding some

I felt my age. It’s not just the
gimmicky title, or the blizzard
of acronyms and slang (several
of which I had to look up), nor
that it opens with the author
boasting about how many
followers she has on TikTok
– certainly not something
you see in most books about
investing and personal finance.
It’s the whole tone. By the
time she started talking about
the importance of having an
“abundance mindset”, my eyes
were already sore from rolling.
Yet shameless pandering
to her Generation-Z audience
aside, it’s hard to deny that
some elements of Tu’s approach
have merit. One of her big
arguments, for example, is that
effective budgeting is not just
about managing your money,
but ais lso about maximising
your earnings power. Although
this is obviously easier said
than done, she give some useful
suggestions that are worth
considering. She writes about
the importance of mentors and
advocates, and of learning how
to network and avoid certain
companies, all things I wished
I’d paid attention to when I
was doing City internships
“By the time the author was telling us
about the importance of an ‘abundance
mindset’, my eyes were sore from rolling”
as a student. She also gives
advice on how to go about
finding a “side hustle” without
being roped into a multi-level-
marketing scam or running
yourself into the ground.
Steer clear of bear traps
Her budgeting advice includes
useful tricks to help you avoid
wasting money on impulse
purchases, and is followed by a
look at investing. Here she gives
some sensible tips, reinforced
by anecdotes from her career
as a banker. And although
Tu’s guide is primarily aimed
at those living in the US, she
has some basic information
about pensions and investment
vehicles in the rest of the world,
including a short section on
individual savings accounts
(Isas) in the UK.
Some of the advice she offers
is more debatable, and several
times she makes a particularly
contentious statement before
admitting that things aren’t
quite so simple. For instance, she
spends several pages singing the
praises of investing in physical
real-estate using borrowed
money, only to have to concede
a few pages later that, maybe,
just maybe, “real estate is not
the first place that I’d start”.
Still, these missteps are relatively
rare, and Tu generally does a
good job of steering clear of
such obvious “get-rich-quick”
bear traps.
All in all, this is a book a
parent could usefully give to
their teenage or young-adult
children. You may even want to
have a read yourself, if you can
stomach the youth-speak.
Reviewed by
Matthew Partridge
common pitfalls. Professional
trading coach and former trader
Steven Goldstein has some
advice about the latter.
His substantial book offers
many intriguing ideas. Goldstein
divides traders into two broad
schools: those who follow the
“house” strategy of going for
frequent small wins and
tolerating the occasional larger
setback; and “players” who go
for big wins. Both can succeed,
provided you accept the
limitations associated with each
approach, and stick with one
strategy at a time.
The author also stresses the
need to prevent your irrational
ego distracting you from your
game plan. In the short run, this
involves developing the
resilience to move on from the
inevitable loss. In the longer run,
it means finding and sticking to
the correct approach, rather
than becoming fixated on
immediate outcomes. The book
will be most useful to financial
professionals because most
ordinary investors would do
better to avoid trading at all, in
favour of a long-term investment
plan based on investment trusts
or index-linked funds. But the
lessons summarised here apply
more generally, so even the
latter should find it helpful.

In the news… the class war that changed Britain

Miners’ Strike 1984:
The Battle for Britain
Directed by Tom Barrow
Watch at channel4.com
This year sees the 40th anniversary of the
miners’ strike, the industrial action that
began in March 1984 to prevent colliery
closures, and which is now seen as a
watershed moment in British postwar
history. The strike marked the beginning of
a process that would see what had been
one of Britain’s key industries all but
disappear within a decade, with
devastating effects on the communities
that relied on the mines for their livelihood.
The failure of the action to halt the closures
was also a turning point for the trade
unions. In the 1970s, they were a dominant
political and economic force. The miners’
strike was the key battle between that
force and the prime minister, Margaret
Thatcher, who was determined to clip its
wings. As Channel Four’s three-part mini-
series demonstrates, the result was an
intensely acrimonious battle that turned
communities against each other.
Rather than trying to detail the entire
strike from start to finish, each episode
hones in on a particular story. The first part
looks at Shirebrook, the Derbyshire mining
village that was seen as one of the main
fault lines due to its position between
Yorkshire (where the strike was generally
solid) and Nottinghamshire (where most
people remained at work). The second
looks at the “Battle of Orgreave”, where a
mass picket was met by police brutality
and an attempted frame-up. The series
concludes by focusing on Thatcher’s
adviser David Hart and his behind-the-
scenes role in encouraging efforts to help
miners who wanted to return to work.
The length of the series gives space to
explore a large number of themes,
including the hardship faced by the
miners, the shift from the police being
impartial enforcers of the law to strike-
breakers, and the way in which the
egotism of the miners’ leader, Arthur
Scargill, alienated vital sections of the
mining community and doomed his union
members. The film would have been
better still if it had set the story in the
broader context of the economic and
social changes taking place at the time.
But it is compelling viewing and its
cinematography and interviews with
those involved give it a film-like quality.

16 February 2024 moneyweek.com

 Crossword 37
Bridge by Andrew Robson Tim Moorey’s Quick Crossword No.1195
A bottle of Taylor’s Late Bottled Vintage will be given to
Cost-nothing extra chance the sender of the first correct solution opened on 26 Feb
On this week’s Three Notrumps, West knew his partner was bereft. 2024. By post: send to MoneyWeek’s Quick Crossword
No.1195, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email:
He made a good play, but declarer ultimately prevailed.
scan or photograph completed solution and coupon and email to: crossword@
moneyweek.com with MoneyWeek Crossword No.1195 in the subject field.
Dealer South East-West vulnerable

♠ K9 ?????

♥ A1053 ????

♦ 1064 ????

J1085
????
?? ♣ ????
♠ QJ5 ??? N ???? ♠ 107643
♥ Q7 ???? ???? ♥ 8642
???? ????
♦ KQ875 W E ♦ 93
????
♣ KQ6
???? ♣ 72
S ????

♠ A82 ????
♥ KJ9
♦ AJ2
♣ A943
The bidding
South West North East
1♣ 1♦ 1♥ pass
1NT* pass 2NT** pass
3NT pass pass pass
* 15-17 balanced (in the modern style).
** Inviting game.

West’s seven of Diamonds lead was taken by declarer’s Knave, and,

at trick two, declarer led the Knave of Hearts. There are many Wests
who would have made the knee-jerk cover with the Queen, rendering
Down clues are mildly cryptic whilst across clues are straightforward
the contract easy to make. Not this West, who suspected declarer’s
ploy: tempting a cover with no intention to finesse. Indeed – declarer ACROSS DOWN
rose with dummy’s Ace (when West smoothly played low) to run the 1 Spiny anteater (7) 1 Turn out to be some bowling ahead (3,2)
Knave of Clubs. 5 Refuse (5) 2 Hearty affair in Scotland? (8,5)
West won the Queen of Clubs, and pressed on with the King of 8 A mess (4,9) 3 Be taunted about a young socialite (9)
9 Chum (3) 4 Name in regions for stadia (6)
Diamonds. Declarer won the Ace and his basic plan was to take a
10 Come to light (9) 5 Pot from East or West acceptable (3)
second Club finesse. Just in case the Queen of Hearts was falling
12 Roof cover of 6 Change to southern steam train?
doubleton, however, a cost-nothing extra chance, declarer first laid canvas (6) I’d deal with that (13)
down the King of Hearts (key play). 13 Hood in the US (6) 7 Petition hospital department about
Declarer’s care was rewarded as West’s Queen of Hearts was 15 Range of a gun (5,4) a closure in prospect (7)
felled. Declarer no longer needed the Club finesse, for he could 16 Behind at sea (3) 11 Lost shirt possibly on candidates selected (9)
cash the promoted nine of Hearts, cross to the King of Spades, cash 18 Top politician (5,8) 12 Wasting a prize (7)
the ten of Hearts, and score his black Aces – to bring his trick tally 20 Hindus, perhaps 14 The reduced division in Economy (6)
to nine via four Hearts, two Diamonds, two Spades and one Club. trying different 17 Note on wine that makes you sleepy (5)
Game made. postures? (5) 19 Being in apprehension (3)
21 Taught (7)
For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com

Name

Sudoku 1195 Address

To complete MoneyWeek’s
7 3 Sudoku, fill in the squares
7 4 6 in the grid so that every row
email !
and column and each of the Solutions to 1192
1 6 3 2 nine 3x3 squares contain all Across 1 Reposed on = re + pos = Ed 5 Sit-in deceptive definition
the digits from one to nine. 8 Suspender US inside Spender 9 Sag sag(e) 10 Tenet palindrome 12 Year
2 1 7 The answer to last week’s dot anagram 13 Power politics deceptive definition 15 Mooring moo +
4 9 5 puzzle is below. ring 17 Liege two definitions 19 Irk (k)irk 20 Stevedore anagram 22 Siren
two definitions 23 Sisters anagram less d Down 1 Resit 2 Pas 3 Shelter
3 6 5 4 Daddy longlegs 5 Syria 6 Test drive 7 Negates 11 New Yorker 13 Pommies
5 3 4 9 8 6 2 1 7 14 Illness 16 Ibsen 18 Evens 21 Ode.
2 1 9 8
8 9 6 1 7 2 4 5 3
8 5 4 7 2 1 5 4 3 8 9 6
The winner of MoneyWeek Quick Crossword No.1192 is:
John Combes of Dibden
4 6 6 5 7 4 9 1 3 8 2 Tim Moorey is author of How To Crack Cryptic Crosswords, published
by HarperCollins, and runs crossword workshops (timmoorey.com)
2 1 3 7 6 8 5 4 9
MoneyWeek is available to visually Taylor’s is one of the oldest of the founding Port houses, family run and entirely
9 4 8 2 3 5 7 6 1
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moneyweek.com 16 February 2024

38
Cap’n Biden’s trillions
In an election year, the money spigots are turned to full
Going down with the ship?
Bill Bonner
Columnist
H
ere’s a shocker. A high
government official –
Jerome Powell – is trying to
warn Congress that it is headed
over a fiscal waterfall. “The
US federal government’s on
an unsustainable fiscal path,”
the Federal Reserve chair said
in a 60 Minutes interview on
American television. “The
debt is growing faster than the
economy.” Fiscal deficits over
the past four years have totalled
about $9trn, which has helped
to more than triple the national
debt to a record $34trn in the
past two decades.
“Unsustainable” means it
can’t go on. But it’s already gone
on for a long, long time. Since
1970, US GDP rose from $5trn
to $25trn – an increase of five
times. US debt, meanwhile, rose
from $350bn to $34trn – or
nearly an increase of 100 times.
This will not come as a shock to
anyone. Everyone knows it. But
it has gone on for so long that
most people – if they think about
it at all – must think it’s perfectly
sustainable. After all, it’s been
this way for half a century.
It wasn’t until 1982 that US
debt went over $1trn. It took
another 27 years, until 2009,
to raise the debt by $10trn.
Gradually the deficits increase
– and then, all of a sudden, they
are mammoth. From 2009 to
16 February 2024
Last word
today – just 15 years – the debt
rose by $22trn. Now, based on
the first five months of this fiscal
year, the deficit is headed for
around $2.5trn, which will be
added to the national debt.
What Powell is signalling is
not a change in direction, but a
change in speed. The direction
was set in 1971 when the US
switched to fake money. It was
slow going at first, unlearning
all of the lessons of the real-
money world. The wisdom
of countless generations had
been distilled as instincts – a
penny saved is a penny earned;
waste not, want not; neither a
borrower nor a lender be. All
“Nutty? Yes. And
finally, someone is
sounding the alarm”
of this common sense had to be
replaced with uncommon new
habits. Balance the budget? Cut
out unnecessary spending? Turn
the lights off when you leave a
room? Who does that anymore?
In this new and remarkable
world, deficits don’t matter.
Nutty? Yes. And finally,
someone – other than ourselves
– is sounding the alarm. Alan
Greenspan. Ben Bernanke.
Janet Yellen. None of them
thought debt was worth
mentioning. And so, while the
men and women at the helm
changed, no course correction
was made. The ship just went
©Getty Images
further towards the lip of
the financial world, where
economies plunge into chaos
and catastrophe.
And now what? This
warning will come like a fire-
alarm test on a cruise ship. No
way are people going to go
out onto a cold deck in their
underwear. “The ship has never
sunk before,” they’ll say to
themselves; “it won’t this time
either.” Meanwhile, it’s full
speed ahead. Cap’n Joe Biden
will spend as much as possible in
preparation for the November
election. Money for Israel,
money for the Ukraine, for the
chip industry, for the firepower
industry. Money for diversity,
equity and inclusion. Money for
everything. Money for everyone.
The money is already flowing all
over the place.
But wait. What if Donald
Trump wins the forthcoming
presidential election? Ahem.
That would be the same Trump
who pestered Powell to lower
interest rates to make it easier to
borrow back in 2017. And the
same Trump who blew up the
biggest deficit in US history – to
more than $3trn. He accuses
Powell of making “political”
decisions, and suggests he may
cut interest-rates to help the
Democrats win reelection.
Trump now says that, if he is
elected, one of his first acts will
be to fire Powell. If Trump sticks
with his positions, Powell will
indeed have to go.
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