Tag Archives: investing

Investment Trusts by John Baron | Book Review

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investmenttrustsWhen I first saw the title of this book, ‘Investment Trusts’. I thought that it would be quite a dry read. I was very wrong. This is a well written and easy to read guide to investment trusts. A must read for investors and financial advisers.

John Baron presents an extremely compelling case for investing in investment trusts instead of the more common and traditional unit trusts/ mutual funds.

As a very basic overview.

Unit trusts are open ended (except  funds from new investors) and trade at their net asset value

Investment trusts trade like shares on an exchange. They are closed ended (don’t accept new investor funds) and can trade at a discount or premium to their actual net asset values.

The book does a much better job of explaining the differences and goes into a lot more detail. Baron examines the factors which explain why unit trusts/OEICs under perform investment trusts. He clearly presents the opportunities which many investors may be missing out on.

The book is well researched (Baron has worked in the industry for many years). It is clear easy to understand, jargon free and well structured. It is difficult to argue with any of the authors conclusions. The book also has extra tips for successful investing and information on how to construct and monitor a trust portfolio. This is a must read for any investor who currently only invests in mutual funds. I’m not surprised it has a flawless record of 5 star reviews on Amazon.

5/5

Financial Times Guide to Investment Trusts: Unlocking the City’s Best Kept Secret is available here.

 

 

Royal Mail to float – what interested investors should do

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The biggest privatisation for two decades

 

·         Royal Mail to float

·         What interested investors should do

·         IPO Q & A

Today the Government have announced plans to float the Royal Mail in what could be the largest privatisation for two decades. The state-owned postal service could be valued up to as much as £3 billion in an initial public offering (IPO) taking place this year.

 

Richard Hunter, Head of Equities, Hargreaves Lansdown;-

““The success of the Direct Line Group & esure share offers has reignited private investor interest in IPOs. The offer of shares to the public is reminiscent of the float of British Gas in the 1980’s which was accompanied by the “Tell Sid” Campaign. Shares will be marketed to the public and any investors aged over 18 will be able to apply for shares.

 

What interested investors should do

 

Richard Hunter

 

“We don’t have the details of the IPO yet. Investors can register their interest with a stockbroker now and when a prospectus and application pack becomes available they will contact you with all the information needed to invest.”

 

Tell Sid? – Investing in an Initial Public Offerings (IPOs) Q & A

 

From the first “Tell Sid” privatisation of British Gas in the 1980s, flotations and Initial Public Offerings (IPOs) have always been of interest to the investor. Richard Hunter, Head of Equities, explains how they work.

 

What is an IPO?

 

An Initial Public Offering (IPO) is where the owner(s) of a company sell all of part of their stake to the public in order to raise money. This cash can then be used to grow the company or simply be returned to the owners. An IPO is also commonly called a flotation.

 

An IPO may only be made available to institutional investors or to a mixture of private (retail) and institutional investors. An IPO happens in three stages.

 

1.            The Intention to Float – The company announces to the stock market, public stating they wish to float the company

2.            Preparation of Prospectus – The company will then prepare and release a prospectus. This aims to be the definitive document relating to the launch and will describe the offer in detail. Applications to buy shares in an IPO should always be made on the basis of the information contained in the prospectus

3.            Sale of shares – The company and their advisers invite applications for the shares. The IPO will be open for a fixed time known as the Offer Period

 

When will the share price be known?

 

In some cases fixed price offers are made and the investor will know the share price in advance. Alternatively the share price will not be known until the date the company floats. In some cases the company will provide an indicative range for the flotation price of the shares e.g. £2.00 to £2.20. The precise price won’t be fixed until near the listing date and may depend on demand for the shares. Once the share has floated on the open market, the price will the rise and fall as all other shares do.

 

Why would investor want to get buy shares at IPO?

 

An IPO allows investment in a company when it first enters a stock market.

 

When will shares go on sale?

 

The timetable for an IPO generally spans four weeks. An Intention to Float announcement is made and then around two weeks later the prospectus is issued and the offer period starts. It is during this period investors can apply for shares.

 

Where can investors get a prospectus for an IPO?

 

Interested investors should contact a stock broker who will be able to register your interest in receiving a prospectus. In some cases a stock broker will provide research and updates as information becomes available. For example, Hargreaves Lansdown has been involved in the majority of IPOs over the last 30 years.

 

How do investors buy IPO shares?

 

Investors can buy IPO shares through a stockbroker. A share dealing account should be opened and money deposited to buy the shares. This can be done online or over the telephone using a debit card, or alternatively a paper application accompanied by a cheque can be used.

 

How many shares can investors buy from an IPO?

 

There is normally a minimum number – If the offer is oversubscribed investors may not be able to buy all the shares they want to buy. If this is the case the balance of money can be used to buy other shares or can be refunded.

 

Can investors buy IPO shares through an ISA, SIPP or Junior ISA?

 

In some cases money in an ISA, SIPP or Junior ISA can be used to buy IPO shares. This depends upon which market the company is listing upon and the type of IPO.

 

What dealing costs are paid?

 

Buying IPO shares is often free for investors.

 

Hargreaves Lansdown’s charges are as follows:

 

IPO share purchase                         Free

Share account charge                     Nil (Other charges to hold shares may apply e.g. in ISA and SIPP (ISA – 0.5% capped at £45 a year, SIPP – 0.5% capped at £200 a year).

 

Selling IPO shares will be subject to a dealing charge from £5.95 and no more than £11.95 (online).

 

Buying IPO shares after the offer period, when the shares are available in the market, will be subject to a dealing fee of no more than £11.95 (online) plus stamp duty of 0.5%.

 

Is there a minimum holding period? How quick can an investor sell?

 

There is no minimum period, but generally it takes 3 working days from the date of the float to issue the shares and selling cannot practically happen before then.

 

How will investors be able to sell IPO shares?

 

This is easy. Simply choose when and how many to sell, and execute the deal online or alternatively instruct a sale over the telephone. Dealing online is almost always cheaper than dealing over the telephone.

 

Will there be a dividend from IPO shares and if so, how will they be paid and when?

 

This depends upon the company. The prospectus will normally detail any proposed dividend policy.

 

How will investors find out if there are any special discounts or shareholder perks?

 

If there are any, they will be detailed in the prospectus

 

What are the risks?

 

The value of shares will fall as well as rise, so investors may get back less than they invested. Dividends are not guaranteed and, if paid, are variable. During the period between the Intention to Float being announced and the start of the offer period, the intention may be withdrawn. This rarely happens.

A company which is the subject of an IPO may not have a long track record and could be difficult to value or calculate a fair price. In many IPOs investors do not know the share price before committing to buy and therefore may end up buying at a higher price than they wished.

Investors should read the prospectus and any supplementary documentation as this will include the main risks of investing.

 

A decade on since FTSE 100 hit bottom at 3,287

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A decade on since FTSE 100 hit bottom at 3,287

 

–       FTSE 100 returns 93% over 10 years

–       Technology sector is best performing returning 369%

Adrian Lowcock, Senior Investment Manager at Hargreaves Lansdown, looks at how investors have fared over the last 10 years.

 

In the last 10 years the FTSE 100 has risen 3,074 points or 93% since the low of March 2003, although it remains a little way off the high point of 6,732 reached on 15th June 2007.  Whilst the market has risen over the last 10 years there have been some big winners and losers during that time.  The Banking sector has been the worst performer over the last 10 years and the only sector to post a negative capital return with the FTSE All-share/banks returning -20%. The Technology sector posted the best performance with the FTSE All-share/Technology returning 369%, recovering from the lows seen in the years following the Dotcom bubble.

 

 

Performance of FTSE Sectors from 12 March 2003 to 28th February 2013

 

All Share Sector

% Growth
FTSE All-Share/Banks CR

-20.25
FTSE All-Share/Financials CR

22.81
FTSE All-Share/Health Care CR

78.02
FTSE All-Share/Telecommunication CR

100.11
FTSE All-Share/Oil & Gas CR

110.22
FTSE All-Share/Consumer Services CR

112.91
FTSE All-Share/Utilities CR

179.25
FTSE All-Share/Basic Materials CR

280.44
FTSE All-Share/Consumer Goods CR

346.31
FTSE All-Share/Industrials CR

360.45
FTSE All-Share/Technology CR

369.08

 

Adrian Lowcock says;-

 

“The technology sectors strong performance over the last 10 years highlights the contrarian nature of the stock market.  However, it is difficult for any investor to go against the trend and take such risks. Instead investors should focus on their long term investment goals and invest whenever they can afford to do so.”

 

“It is time in the market not timing that counts. Even though the FTSE 100 remains below its all-time high (6,930 on 30th December), if you had been invested all that time, with dividends reinvested, you would have been up 44.73%. In addition picking the right funds can transform your portfolio and make the nominal value of an index meaningless.”

 

Recommendations

 

Schroder UK Alpha Plus – Richard Buxton takes a long term view and is able to spot some opportunities before others – a distinguishing feature of all great investors.  Having the conviction to back them is equally important and Richard holds only 30-40 companies in his fund which means each idea has a significant effect on performance. You will never see his portfolio padded out with mediocre holdings just to make up the numbers. This fund has the potential to deliver superb returns, in a variety of economic conditions.

 

JO Hambro UK Equity Income – The managers believe the UK economy is performing better than most commentators expect. The fund continues to have a bias towards more economically-sensitive companies and has performed well recently as a result.

 

Why the Economy Could Take Another Downturn—and What the Average Investor Can Do To Protect Themselves

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Why the Economy Could Take Another Downturn—and What the Average Investor Can Do To Protect Themselves

The following article was written by Daniel A. White, CLU, ChFC , President, Daniel A. White & Associates:

To the casual observer, the economic headlines look promising. To be fair, there are a few positive indicators. Unemployment figures are gradually improving, retail sales are on the upswing, corporate profits are up and consumer confidence is surging. Unfortunately, the reality is much more complicated. To many financial advisors and investment professionals–myself included at Dan White and Associates–there are reasons to be cautious. A closer look at historical comparisons and advanced metrics behind the rosy headlines reveal cause for concern.

Trouble looming?

One of the biggest underlying reasons I suspect we might be headed for another 2008-type bubble in the not-too-distant future—is my skepticism regarding the pace of the current recovery and the factors driving it. Standard and Poor’s (S&P) earnings are on pace to hit $91/share by August; up nearly 13 fold from the March of 2009 lows of $7/share and surpassing the all-time high of $90/share in the 3rd quarter of 2007. There is nothing wrong with profits, but why are we seeing those profits?

The short answer is pretty simple: the government is printing more money as part of a strategy called Quantitative Easing (QE2); monetizing the national debt by purchasing securities and turning government bonds into circulating money.

So what happens when the government turns off the spigot? We can get a pretty good idea by looking at other government incentive programs. Whether it was a home-buying tax credit or a “Cash for Clunkers” promotion, the markets dropped off sharply when programs ended. It’s also worth noting that after the last round of Quantitative Easing–in the months after April 2010–the market plunged.

PE ratios and commodity oddities

Since QE2 began last August, the price of Silver is up 70%, crude oil and coal are up close to 40%, and a number of other commodities are up sharply. And when you see the U.S. Dollar down 10.6% at the same time, that’s a recipe for trouble.

Perhaps most concerning, is the historical pattern of the price to earnings (P/E) ratio and what it means to investors. When you get in the market at a low P/E ratio, things tend to work out well, and when you get in when the P/E ratio is high, that doesn’t bode well. The current S&P 500 P/E 10–is at about 24. It has only been at 24 a handful of other times in history.

What can you do?.

* Be conservative. Investing in healthy companies with large cash reserves is fairly safe, but commodities and other risky assets are a bad idea.
* Plan ahead, be cautious and don’t get overextended. The first sign of trouble is likely to be short-term interest rates starting to tick up. If you see that happening, reduce your exposure.
* If you are retired or almost retired, all of this is particularly relevant. Be extremely vigilant and pay close attention to the subtleties of the marketplace.

Founded in 1987, Glen Mills, Pa.-based Daniel A. White & Associates is a financial planning firm specializing in asset protection and transitional and retirement planning. Through a team of knowledgeable experts, Daniel A. White & Associates provides comprehensive financial planning for retirees and pre-retirees in estate planning, asset protection, wealth management and wealth transfer strategies.

www.danwhiteandassociates.com