With another hike in interest rates on the cards this Thursday, it’s hard to see the light at the end of the tunnel (if there is any).
Regardless of the size of the jump in base rates, higher interest rates will challenge many homeowners with variable mortgages — and those who come off fixed deals made when base rates were closer to one than five percent.
They will also further destabilize house prices and shake consumer confidence, already undermined by ongoing inflation. For the time being, stagflation – high inflation and economic stagnation – will predominate.
Not a great backdrop for investors looking to make money from the UK stock market. After all, if consumers are less inclined to spend money, that reduces the company’s sales and profits. Yet there are investment experts who disagree. These professionals spend their lives looking ahead to determine when the light at the end of the tunnel will appear – and position their portfolios accordingly.
A few days ago I had a fascinating conversation with Andrew Bell, CEO of investment fund Witan. Along with investment director James Hart, Bell oversees a £1.5 billion global portfolio. It is a well-managed trust with a solid investment record. Over the past ten years, it has generated an average annual return of 9.6 percent. Part of this return comes from a modest dividend that has grown impressively annually for the past 48 years. In the past year, Witan has achieved a return of 14.2 percent despite headwinds.
Light at the end of the tunnel: An undervalued stock market can boost investors
About a fifth of its assets are in the UK, with the trust’s largest holdings including interests in well-known UK brands such as BP, Diageo, NatWest and Unilever. Given the precarious state of the UK and global economy, it would be safe to assume that Witan is in defensive mode. But that is not it. It has used its assets – assets owned by all trusts – to borrow to increase its exposure to equities. In the jargon-ridden financial world, this is called gearing.
As a result, the listed fund has £250 million of loans invested in equities. The average annual cost of these loans, says Bell, is 3.75 percent, although this will rise as UK interest rates rise.
What Bell and Hart believe is that they (and the investment specialists they use to manage portions of the trust’s assets) can generate an annual investment return of more than 3.75 percent from this money over the medium term, thus complementing on the assets of the fund. overall performance. Great when this happens, but if not debilitating in terms of shareholder returns.
It’s a gamble, but a gamble (9.6 percent beat 3.75 percent). Bell argues the trust’s bold approach should work regardless of what happens to UK rates on Thursday and regardless of inflation’s ‘stickiness’. He says inflation is close to its peak, but the trajectory after that will be more Table Mountain (close to the top) than the Matterhorn (a sharp descent from the top).
In other words, it will take some time for inflation to return to the 2% that the Bank of England wants to reach. The light, Bell sees, is in the form of an undervalued stock market. While pressure on consumers will intensify, this will be offset by the government’s commitment to investing in infrastructure, decarbonising the economy and higher defense spending.
“People have to decide how much money to set aside for emergencies,” says Bell. They also need to be able to sleep at night with confidence in the investment decisions they make. But I am sure that the stock markets will appreciate in the medium term.’
It’s a message investors shouldn’t forget, especially when markets are moving down and the urge to sell takes over.
Memo to NS&I boss: Increase prize money NOW
Premium Bondholders are getting restless – and rightly so.
They think it’s about time NS&I, the government-backed savings organization, increased the price percentage on these bonds, giving them a chance to win monthly prizes ranging from £25 to £1 million. The last increase in the price (the ‘effective’ rate) was announced on Valentine’s Day and then increased to 3.3 percent.
Since then, the Bank of England has raised its base rate twice – from 4% to 4.25% and then to 4.5%. But NS&I has not responded by raising the price rate, as is normally the case.
Martin Grugeon, from Trowbridge in Wiltshire, is among those enraged by the silence. ‘Please give the new boss of NS&I a push,’ he urged me last week.
“I’m sure you have his phone number on the speed dial, so please talk to him about the premium bond’s lack of premium.”
Well, Martin, I don’t have NS&I CEO Dax Harkins’ number – for now he refuses to get in touch with me as he gets his legs under the table at NS&I HQ.
But I’m more than happy to give him a little push. Mr. Dax, increase the prize percentage. NOW.
Crazy barking… £6,900 a year for animal protection
Ruff Justice: Tamara Baker with her dogs
Thanks for your emails about the rising cost of pet insurance.
Judging from what you’ve told me, insurers are making hay — pushing premiums to unacceptable levels, discriminating against older pets with a double whammy of higher premiums and deductibles, and imposing draconian limits on specific treatments.
Many pet owners waive coverage and put the money spent on premiums in a savings account in case treatment is needed.
Tamara Baker, from Thetford in Norfolk, has taken this self-financing route. The scientist who specializes in cancer research has owned rottweilers for 25 years and currently has four: Dad and Abbie, both seven years old, Tinie, three, and Solo, eleven months old.
Insurance for the four, all under one policy, cost a hefty £370.68 per month. But she’s just been told the renewal premium is £574.91 (nearly £6,900 a year). Understandably, she is apoplectic with anger. “It’s disgraceful,” she says. “I can’t afford to insure them any more.”
So she’ll put the £370.68 she paid a month into a savings account, find new insurance for the younger Solo and pray her three other dogs don’t need expensive treatment in the near future. Insurers take advantage of pet owners. They must be investigated by the Competition and Markets Authority.
Let’s not get carried away with the opening of the Acton banking hub
Much fanfare accompanied the launch of the Acton banking center in west London last week, giving locals access to high street banking services. Great, but let’s not get carried away with all the hype around the opening.
After all, this is only the fourth – yes FOURTH – banking hub across the country to get off the ground since banks agreed to fund them in late 2021 (two pilots had already started).
During this period, hundreds of branches have disappeared and many cities have no access to personal banking.
The banks get away with the equivalent of blue murder.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.