JEFF PRESTRIDGE: Act to keep Keir Starmer out of your money

Eddie Browne, a retired biscuit maker, is one of my most loyal readers. Over the years, he has never been afraid to give his opinion on the key financial issues of the day.

In fact, I feel cheated if I don’t get an email from you on a Sunday morning when I wake up screaming for a cup of coffee.

It’s not always a compliment (Eddie is the most forthright person you’ll ever meet), but it’s always on point. He’s well versed in pensions and a shrewd investor, and is currently delighted that a small stake in the stock market listing of budget computer company Raspberry Pi last month has yielded some attractive returns.

Eddie, who once worked for United Biscuits in Manchester helping to make McVitie’s Jaffa Cakes, sent me a ‘bonus’ email two days ago, in the wake of Labour’s resounding victory at the polls.

She didn’t mince words. “My first reaction was to cry and then scream,” she said. “May God help the country I love. I fear for the financial future of my children and grandchildren.”

His vision of what lies ahead is disastrous: “low economic growth, higher taxes and financial chaos within three years.” It is a vision shaped by the experience of the Labour governments of the 1970s and a period of high inflation, unemployment, industrial unrest and a bailout by the International Monetary Fund.

But it is also based on a Labour agenda that Eddie says will drive talent out of the country, force more pensioners to pay tax and impose higher taxes on savers and investors.

Through shrewd use of tax-advantaged ISAs and pensions, Eddie has circumvented some of the restrictions placed on tax-advantaged wealth creation by former Chancellor Jeremy Hunt.

It is a strategy I implore readers to adopt as Labour prepares to raise investment taxes even further and introduce a tougher inheritance tax regime. The time for crying and shouting is over. Protect your wealth from Labour.

One of the few times Eddie ever reprimanded me was six months ago, when he gave me a “yellow card” for suggesting that some of the older beasts of the mutual fund industry should change their names to reflect what they do. “What matters,” he told me, “is that investors do their homework and understand what they are investing in.”

Two of these “old” companies, Alliance (founded in 1888) and Witan (1909), are changing names, not to highlight their global investment mandates, but because they are merging to form a £5.6bn investment fund that will bear the name Alliance Witan.

When the deal closes this autumn, the combined investment beast should become a FTSE100-listed stock, joining Scottish Mortgage as the standard-bearer of the investment trust industry.

The merger, in which Alliance figures prominently, makes sense. Alliance, the larger of the two trusts, has been rejuvenated in recent years, with new managers overseeing its investment portfolio, but Witan has not shone.

Since Willis Towers Watson (WTW) took control of Alliance in April 2017, shareholders have enjoyed a total return of 105 percent. Over the same period, Witan has returned 65 percent. More needs to be said.

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Money for the elections

The two trusts are similar. First, they both invest in the stock markets seeking a combination of capital returns and income.

Second, they have committed to increasing dividends to shareholders (paid quarterly), and Alliance has 57 years of annual dividend growth under its belt (Witan, 49).

Both also allocate portions of their portfolios among several specialist fund managers in order to extract returns from the markets. On all three counts, Alliance performs better than Witan.

Following the merger, it is not surprising that WTW will take over the combined portfolio. We do not yet know how many managers it will use to manage the trust’s assets, but I do not believe that all those currently working on the two trusts will be retained (only GQG Partners and Veritas are common to both funds).

Although the merger appears to be a resounding success, there is no room for complacency. Alliance Witan will have to deliver on the promise made by its chairman-in-waiting (Dean Buckley, current chairman of Alliance) to offer shareholders excellent value for money.

This should be reflected in total annual costs of less than 0.6%, lower than the 0.62% and 0.76% charged by Alliance and Witan respectively. The trust will need to continue to reduce this cost, thereby demonstrating that it is firmly on the side of investors.

It is essential that Alliance continues to do what it has done for the past seven years: generate above-average returns from its group of global equity investment trusts. WTW will be key to this. It must demonstrate beyond a doubt that its multi-manager approach is a winning formula.

If it can meet these two objectives, the combined trust has a promising future, especially if it can market itself to the public as Alliance has done quite successfully for some time.

In recent years, most investment funds have virtually shut down all communications in response to Covid-19 as cash savings have become fashionable again. As a result, they have disappeared from the radar of many investors, raising questions about their future.

But Alliance has bucked this trend, leading to a healthy appetite for its shares. Alliance Witan should do the same, perhaps encouraging other trusts to follow suit.

Cash discounts, anyone?

Cash usage continues to decline, despite Cash Access UK’s efforts to ensure high streets have an ATM, bank, post office or banking centre.

According to ATM network Link, £235m was withdrawn from ATMs on election day last Thursday, 27 per cent less than the previous election day on 12 December 2019, when Boris Johnson was victorious.

“People are using less cash,” admits Graham Mott of Link.

“More and more, they are using cards and phones to make everyday payments.”

Some retailers are fuelling this cash exodus by only accepting card payments, but a few are going against the grain, as I discovered eight days ago while enjoying tapas at a local restaurant.

Paying in cash, as the menu explained, would entitle me to a 4 percent discount if I spent less than £90, or 8 percent if my bill was more.

I have also had builders offer me a discount if I paid cash, but never retailers.

Let me know if you have experienced the same: jeff.prestridge@mailonsunday.co.uk.

The tax-free fun of Premium Bonds

On the topic of the moment (protecting your wealth from the Labour Party), a quick mention of Premium Bonds.

If you’re looking for a product to top up your ISA and pension with tax benefits, that won’t see you hit the hook for any nasty employment taxes that come your way, then this offering from National Savings and Investments should be ideal for you.

All prizes, which are paid out monthly, are tax-free and the current prize rate equates to an average annual interest rate of 4.65 percent. Some holders will do better than this, others worse.

While this percentage may be reduced if interest rates in the broader economy fall in the coming months, Chancellor of the Exchequer Rachel Reeves will not be able to take even a portion of the profits.

The maximum stake per adult is £50,000 and prizes range from £25 to £1 million.

Premium bonds add a bit of fun to your savings, something Labour can’t take away.