There are no prizes for guessing the Chancellor’s favorite word. In Rachel Reeves’ first budget speech, she said “growth” 31 times, the equivalent of almost once every two minutes.
And last week, its use was beginning to seem almost obsessive. His first speech at Mansion House in the City did not last half an hour, but included 41 mentions of “growth”.
It is increasingly clear that the Chancellor expects all aspects of the economy and all areas of society to feed her fixation on growth. (Whether she is supporting them to do so is another question.)
And his speech at Mansion House hinted at how he expects pension savers to increase.
He outlined plans that would mean our pension savings would be used to invest in major infrastructure projects and emerging industries.
This would be done by merging pension plans (local government and defined contribution in particular) to create ‘mega funds’ large enough to purchase such massive assets. We are probably talking about airports, wind farms, bridges: investments costing billions.
Rachel Reeves calls for growth in Mansion House speech
It stopped short of requiring the investment to be made in UK assets. But that is what she hopes, otherwise we would lose the opportunity for pension funds to boost – you guessed it – the growth of the economy.
So what does this mean for pension savers? Firstly, he believes these plans will “unlock” (another favorite word) £80bn of investment, increasing the value of pension funds. But experts are divided over whether pensioners will see any benefits.
Secondly, if a flood of cash is about to flow into UK assets, some experts believe there may be opportunities for individual investors to get ahead of pension funds. Alex Campbell, from the investment platform Freetrade, is one of them.
“With Rachel Reeves continuing to build up pension funds and push them to invest in the economy, retail investors have attractive opportunities to get ahead of these changes,” he says.
‘However, the trick to timing the market in this way is always a challenge. Be prepared for the ups and downs along the way – it’s unlikely that a tap of billions of fresh capital will be turned on next week.’
Brian Byrnes, head of personal finance at investment platform Moneybox, agrees that mega pension fund schemes can create infrastructure investment opportunities, but warns this could take years.
He says the Mansion House speech “is not enough for investors to change their asset allocation; they should continue to invest based on their risk appetite and financial goals.”
He adds that investors should “keep an eye on” any rules or guidance that are announced on how mega funds will be created, as this will give a further indication of what types of investments could benefit and when.
How to invest in infrastructure now
For investors looking to invest in infrastructure, opportunities abound. However, it is probably wise to do so only if such investments are judged on their merits, rather than waiting for some boost from pension reforms.
One fund that has piqued Alex Campbell’s interest is Greencoat UK Wind, which exclusively owns and operates wind farms in the UK. It is an investment trust and trades at a 19 per cent discount.
The trust pays a dividend and aims to increase it in line with inflation. “The discount should start to narrow if capital flows increase and interest rates fall,” says Alex. “This could be an interesting entry point for investors who want to benefit from the income stream for years.”
He also mentions HICL Infrastructure, which invests primarily in UK assets such as railways, prisons and hospitals.
This investment trust is also trading at a discount, a substantial 22 per cent. If one is not convinced by the infrastructure investment arguments, but accepts the growth rhetoric, the opportunities are more abundant.
Or should I just invest in “cheap” UK shares?
A word of caution, however: Growth fell to 0.1 percent in the third quarter of this year.
And while Reeves said his was a budget for growth, many disagree.
Ben Yearsley, investment consultant at Fairview Investing, says: “The business was gutted.”
Despite this, he is one of many experts who claim that the UK stock market is “very cheap and has many excellent, well-run companies”.
It suggests investors could consider Vanguard UK Equity Income. This is a passive fund that tracks an index made up of companies listed on the London Stock Exchange that are expected to pay generally above-average dividends. It’s cheap to hold: just 0.14 percent. An investment of £1,000 three years ago would now be worth £1,297.
For investors who prefer an actively managed fund, Ben mentions JO Hambro UK Equity Income, which invests in UK companies of all sizes, and Montanaro UK Smaller Companies Trust, which invests in small companies. The former costs 0.81 per cent a year and has turned a £1,000 investment into £1,236 in three years.
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