STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS

VOL 19 / ISSUE 30 / 3 AUGUST 2017 / £4.49 SHARES WE MAKE INVESTING EASIER

OUR TAKE ON BP AND SHELL Chinas RESULTS Internet BAIDU, ALIBABA AND TENCENT - WHO THEY ARE, WHAT THEY DO Stars AND HOW TO INVEST

BIG DEALS PAYMENTS FIRMS IN DEMAND

FOUR WAYS PENSIONS TO USE IMPACT OF INVESTMENT FREEDOMS TRUSTS OVERDONE?

DIVIDEND DANGER: ASTRAZENECA TO CUT AFTER TRIAL FAILURE? MONKS INVESTMENT TRUST

LAUNCHED IN 1929, MONKS HAS OVER £1.4BN IN NET ASSETS UNDER MANAGEMENT, WHILE ITS ONGOING CHARGE IS A MODEST 0.59%*.

A HEAVYWEIGHT STRATEGY THAT AIMS TO DELIVER LONG-TERM GROWTH.

Monks Investment Trust, we believe, could be a core investment for anyone seeking long-term growth. It is managed by Baillie Gifford’s Global Alpha team who are also responsible for looking after some £31bn on behalf of clients across the globe. As a result, Monks takes a highly active approach to investment and its portfolio looks nothing like the index. The managers like to pick from what they believe are the best ideas available at Baillie Gifford and take a measured approach to portfolio construction. They invest in around 100 stocks, which allows for excellent diversification, and offers the chance to unearth some of the more interesting companies listed on global stock markets.

Please remember that changing stock market conditions and currency exchange rates will affect the value of your investment in the fund and any income from it. You may not get back the amount invested. If in doubt, please seek financial advice.

If you’re looking for an investment with a bit of ‘heft’, look no further. Call 0800 917 2112 or visit www.monksinvestmenttrust.co.uk Long-term investment partners

*Ongoing charges as at 30.04.17. All other data as at 30.06.17. Your call may be recorded for training or monitoring purposes. Monks Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA, which are managed by Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager and secretary of Monks Investment Trust PLC. EDITOR’S VIEW What dollar dive means for markets Exploring the implications of a reversal in fortunes for the US currency

n early 2017 sterling traded at levels THE BIG SWITCH? against the dollar which had not There are a number of implications for I been seen since the mid-1980s and investors. If this trend were to continue some observers were predicting the two it could be negative for the FTSE 100 currencies could reach parity. given it derives upwards of 70% of its Amid reports Theresa May was earnings from overseas and many are committed to a so-called ‘hard’ Brexit big dollar earners. These dollar earnings the UK currency tanked against its US are now worth less when translated counterpart and fell below $1.21. In the back into pounds. intervening seven months the direction Our main feature in the 27 April of travel has been very different and issue operated on the premise that the exchange rate recently flirted the Conservatives would increase their with $1.32, despite ongoing political majority in the General Election and uncertainty in the UK following an inconclusive although this did not transpire it may be worth election result. revisiting that article now given it was focused on just such a reversal of sterling’s poor run against POLITICS AND INTEREST RATES the dollar. If the traditional inverse relationship There are two key reasons for the slide in the dollar. between the dollar and commodities holds true President Donald Trump’s administration has been there could be a boost for resources stocks (we beset by chaos with numerous high profile departures look at the first half results from big oil on page 8). and there is growing lack of faith in its capacity to The reversal in the dollar could be useful for deliver meaningful economic and fiscal reforms. US companies with big export markets. Heavy Less high profile but almost certainly as manufacturers such as Caterpillar fall into this important is the posture adopted by US Federal category. Investors looking for exposure to the Reserve chairman Janet Yellen which has limited US industrials space could consider an exchange- expectations for many further interest rate traded fund like SPDR S&P US Industrials Select increases in the US this year. Sector (SXLI) which has an all-in charge of 0.15%. As a quick reminder higher rates tends to The basket of tracked stocks includes Caterpillar translate into currency strength. The increased alongside the likes of General Electric and return on offer attracts foreign investment, Lockheed Martin. inflating demand for and the value of the home US $ TO UK £ (WMR) - EXCHANGE RATE (01/08/17) country’s currency. ETX Capital senior market analyst Neil Wilson 1.34 says: ‘there’s a lot of dollar softness out there 1.32 with political uncertainty and doubts around the 1.30 Federal Reserve’s capacity to raise rates again this 1.28 year weigh’. 1.26 ‘The dollar index plunged to new 13-month 1.24 lows below 93, a level that takes it close to pre- 1.22 1.20

tightening levels,’ he adds. ‘The dollar has lost Source: Thomson Reuters Datastream 10% this year and is showing no signs of arresting JAN FEB MAR APR MAY JUN JUL that decline.’ HIGH 1.32 1/8/17,LOW 1.21 16/1/17,LAST 1.32 1/8/17

3 | SHARES | 03 August 2017 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 03 August 2017 TO THE RELEVANT STORY

EDITOR’S VIEW 03 What dollar dive means for markets 06

BIG NEWS 06 HS BC returns to expansion

BIG NEWS 07 Wh y tobacco earnings won’t go up in smoke

BIG NEWS 08 Can BP and Shell deliver on dividends? GREAT IDEAS UPDATES BIG NEWS 10 16 S witch on to ITV 09 FD M beats again GREAT IDEAS UPDATES STORY IN NUMBERS 18 Toasting Diageo 10  Fevertree’s fizz and other stories TALKING POINT in numbers 19 Wh y payment companies are GREAT IDEAS so attractive 12 Alf a by name and performance WEEK AHEAD 20 R esults, trading GREAT IDEAS updates, AGMs 14 Ba g Mulberry for and more over the global growth coming week

securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor DISCLAIMER agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, IMPORTANT self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. 2. Reporters will inform the editor on any occasion that they transact shares, Comments published in Shares must not be relied upon by readers when they derivatives or spread betting positions. This will overcome situations when the make their investment decisions. Investors who require advice should consult a interests they are considering might conflict with reports by other writers in the properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited magazine. This notification should be confirmed by e-mail. do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. 3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor. Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it 4. A reporter should not have made a transaction of shares, derivatives or spread will be disclosed. Shares adheres to a strict code of conduct for reporters, as betting positions for seven working days before the publication of an article that set out below. mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within seven working days after the 1. In keeping with the existing practice, reporters who intend to write about any on-sale date of the magazine.

4 | SHARES | 03 August 2017 Contents

MONEY MATTERS 34 Weighing up the Vanguard LifeStrategy funds

MONEY MATTERS 36 L essons from the pension freedoms

LARGER COMPANIES 38 Can AstraZeneca recover from failed cancer trial?

SMALLER COMPANIES 39 Victoria’s a compelling growth yarn

SMALLER COMPANIES 40 Tarsus to take off in 22 second half

FUNDS MAIN FEATURE 41 Join the 20% club 22 China ’s Internet Stars 32 FEATURE 30 Th e small caps which could succeed where Astra failed

INVESTMENT TRUSTS 32 F our ways to use investment trusts

WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS Daniel EDITOR: EDITOR: We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer broker views on stocks. @SharesMagDan @SharesMagTom @SharesMagSteve FUNDS AND REPORTER: JUNIOR REPORTER: CONTRIBUTORS Green means buy, Orange means hold, Red means sell. INVESTMENT TRUSTS David Stevenson Lisa-Marie Janes Emily Perryman EDITOR: @SharesMagDavid @SharesMagLisaMJ Tom Selby James Crux Jennifer Hill The numbers refer to how many different brokers have @SharesMagJames that rating. MANAGING DIRECTOR PRODUCTION ADVERTISING 4 2 1 Mike Boydell Head of Design Senior Sales Executive Eg: means four brokers have buy ratings, Rebecca Bodi Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. CONTACT US: Designer [email protected] [email protected] Darren Rapley The traffic light system gives an illustration of market views Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. but isn’t always a fully comprehensive list of ratings as some All Shares material is copyright. Repro­duction in whole or part is not permitted without written banks/stockbrokers don’t publicly release this information. permission from the editor.

03 August 2017 | SHARES | 5 BIG NEWS HSBC back to expansion

Bank is returning excess capital to shareholders

espite already being Europe’s largest bank HSBC (HSBA) is definitively back in D growth mode. FOR A BANK THAT WAS SHRINKING Its results for its second quarter to 30 June beat consensus forecasts across the board. Its pre-tax FOR ALMOST A DECADE, WE BELIEVE profit figure of $5.3bn is, for example, 13% ahead THAT HSBC IS BACK TO GROWTH of the estimate from Alastair Ryan, analyst at Bank of America Merrill Lynch. He says that half of the outperformance was delivered by a gain on the sale of Visa. shareholders.“ He says that as HSBC has $13bn above ‘For a bank that was shrinking for almost a decade, the bank’s management target of 13% CET1, ‘our we believe that HSBC is back to growth,’ says Ryan. estimates already assume another $2bn buyback will announced at the third quarter results’. ROBUST FINANCIAL POSITION It is also very well capitalised. Its common CONSISTENT DIVIDEND PAYER ” tier one equity (CET1) is up 0.4% to 14.7% With all investments there are risks and Ronit beating the consensus figure of 14.3%. CET1 is Ghose, analyst at Citi, says that political risks due basically the size of the bank’s cash reserves to some of the markets in which HSBC operates against its loans, accounting for riskier assets such as well as regulatory pressures could impact the as unsecured lending. bank. He gives the bank a target price of 810p, The good news for investors is that any capital implying 7.6% upside on the current share price held above the CET1 figure is liable for return to of 760.80p. shareholders and that is what HSBC is doing. It HSBC has been a consistent dividend payer, announced on Monday that it would be extending maintaining the $0.51 per share for some time, its share buyback scheme by $2bn, bringing the with Alastair Ryan predicting that figure to stay the total amount of buybacks since the second half of same for years to come. HSBC is not the cheapest 2016 to $5.5bn. stock, UBS’ Napier forecasts its price to book value This strong capital position has led Jason Napier, at 1.4-times for 2017. This is at the top end of bank analyst at UBS, to predict further returns of capital to valuations but you get what you pay for. (DS)

6 | SHARES | 03 August 2017 BIGBIG NEWSNEWS Why tobacco earnings won’t go up in smoke Correction may have created an opportunity at London’s cigarette giants

hares in London’s two listed cigarette titans dramatic impact on other cigarette markets.’ British American Tobacco (BATS) and Imperial Bulls also argue the FDA’s changes are likely to SBrands (IMB) sold off heavily following speed up smokers’ migration to substitute products, the US Food and Drug Administration’s (FDA) an area where large tobacco firms dominate. announcement (28 Jul) that it intends to lower British American Tobacco’s £41.7bn acquisition of nicotine levels in cigarettes to non-addictive levels. the remaining 57.8% of Reynolds has deepened At first glance, the news appears negative for its presence in the US, though BATS is the largest these major contributors to the yield generated by vapour company in the world with brands including the FTSE 100, although the correction could present Vype, Ten Motives and Vuse. a buying opportunity. Berenberg writes: ‘The announcement is not The FDA wants to start a public dialogue on all “anti-tobacco”. Indeed the harm reduction how to reduce nicotine levels in cigarettes to non- policy will be very controversial for many in the addictive levels in the US market. Yet no timeline anti-tobacco lobby, which prefers a “quit or die” was given and there’s no definition of “non- approach. The FDA appears ready to distinguish addictive”, so what this means for the US cigarette between different “harm” levels and to favour market and when is unclear. some products over others. Berenberg notes that ‘the FDA by statute is not ‘This would be a markedly different approach legally permitted to force the industry to reduce to the “ban/tax them all” approach prevalent in nicotine to zero, and this would be technically very some countries. The policy change will take years difficult anyway as nicotine is a natural constituent to implement, but if the FDA can back this with of tobacco’. Furthermore, ‘the imposition of scientific proof of success it may serve as a model for maximum tar and nicotine levels has not had a other countries.’ Source: SharePad Source:

03 August 2017 | SHARES | 7 BIG NEWS Can BP and Shell deliver on dividends? First half results encouraging for investors in the sector

he future direction of UK oil majors BP (BP.) and Royal Dutch Shell (RDSB) is heavily tied A yield of A yield of T to the fate of their dividends. On balance we 5% 5% think these payments will be sustained and their would imply a would imply a hefty prospective yields will compress or in other BP share price Shell share words their share prices will rise. At the current of more than price of £21.52 Shell yields 7% and at 462p BP yields 6.5%. First half results from BP and Shell were 600p £30 encouraging. BP unveiled (1 Aug) production up 6% and unit operating costs down 18%. Profit Shell’s results on 27 July were slightly less actually fell year-on-year in the second quarter eye-catching but still solid with chief executive from $720m to $684m thanks to a write-off on a Ben van Beurden noting that significantly ‘over cancelled project in Angola but this was materially the past 12 months cash flow from operations of better than the $500m pencilled in by analysts. $38bn has covered our cash dividend and reduced gearing to 25%’. CASH IS KING Both UK companies fared notably better than GUINNESS Investing in listed Capturing strong A play on growing Before payments related to the 2010 Gulf of their US peers. ExxonMobil and Chevron endured GLOBAL MONEY MANAGERS asset managers returns on capital global savings Mexico oil spill were factored in cash flow of $6.9bn share price weakness as their earnings fell short Equal weighted, concentrated portfolio of 30 stocks with high active Guinness Funds are built on an investment philosophy focusing on areas we know well actually covered capital expenditure and dividends of expectations. Chevron’s earnings per share of share and well controlled stock specific risk. and like. The global listed asset management sector is one of those areas that can offer exciting returns. Our Global Money Managers portfolio invests in asset managers around – the holy grail for BP. But with payments factored 77 cents per share compared with a consensus the world. 110% in the figure was trimmed to $4.9bn. The dividend forecast of 87 cents and Exxon’s 78 cents with a Guinness Global Money Managers remained at 10 cents. forecast of 84 cents. • High returns on capital 90% IA Global sector Successful asset management companies can grow using relatively little capital and are Nonetheless they still posted improved profit highly scalable. Overall shareholder returns can therefore be very high FE Offshore Financial Sector figures, demonstrating that big oil’s effort to scale 70% in • Growing global savings Oil majors back costs is bringing some reward. Global savings, particularya in conventional assets under management, are growing 50% significantly faster than world GDP. This is supporting surprisingly resilient growing revenues closer to in the sector, despite some pricing headwinds covering OIL IS RECOVERING 30% Oil prices are showing signs of being more helpful • Low balance sheet risk Asset management companies tend to have very low gearing versus other financial sectors divi with cash 10% Source: Financial Express with both the US yardstick WTI and its international From Fund launch (31.12.10), in GBP (especially banks), reducing balance sheet risk flow benchmark Brent trading above $50 per barrel as -10% • Above average dividend yield they posted the first monthly gains of 2017 in July. The sector typically exhibits high free cashflow, which currently translates into higher dividend This has been supported by a drop off in US 2011 2012 2013 2014 2015 2016 2017 yields on average than the broad equity market stockpiles and a fall in the dollar which makes Total Return, in GBP (to 30.06.17) YTD 1 Year 3 Years 5 Years From Launch • Higher beta commodities like oil, which are priced in dollars, Return 13.6% 38.2% 31.6% 138.3% 107.0% The sector has the potential to significantly outperform the market (capture higher beta) Fund Quartile 1st 1st 4th 1st 1st during periods of equity market strength, however bear in mind it may underperform less expensive for holders of other currencies. Rank in IA Sector 10/272 6/269 206/236 13/204 40/179 noticeably in weak markets IA Global Sector 7.1% 23.7% 43.1% 89.2% 75.6% FE Offshore Financial Return 9.0% 37.5% 48.0% 98.2% 71.9% Sector • Which investors should consider this Fund? SHARES SAYS:  Those who will accept higher year year-on-year volatility in return for the potential for a higher long run return; and have a long term investment time horizon We would be buyers into strength at BP and Shell. Discrete years (X Class, in GBP) Jun '13 Jun '14 Jun '15 Jun '16 Jun '17 Fund 47.8% 22.6% 13.3% -16.0% 38.2% Learn more about what managers Tim Guinness and Will Riley think about the investment IA Global Sector 21.4% 9.0% 8.4% 6.7% 23.7% FE Offshore Financial opportunity at guinnessfunds.com/global-money-managers-fund BROKER SAYS 3615 29.6% 3.3% 12.8% -4.6% 37.5% Sector Source: Financial Express

Past performance is not a guide to future returns. The value of your investments and the income received from them can fall W: guinnessfunds.com 8 | SHARES | 03 August 2017 E: [email protected] as well as rise. You may not get back the amount you invested. T: 0845 519 2161 BIGBIG NEWSNEWS FDM beats again Surging IT skills demand prompts forecast upgrades

orporate panic over incoming new data and cyber security are particularly in demand protection rules and IT skills shortages given their important to either shaving Care powering demand for IT project skills organisation costs or generating higher- supplied by FDM (FDM). This means that the margin income. company will beat market expectations for the US operations have been very busy so far this fourth year in a row. year, where ‘mountie’ revenues jumped 56% to GDPR are the general data protection £36.9m in the six months to 30 June. Asia-Pacific regulations that are due to come into effect is also growing fast, albeit from a low base, on 25 May 2018 in the UK and across the EU. but UK ‘mountie’ revenues, up 14% to £51m, This is causing widespread panic for many is surprisingly strong given the post-Brexit vote businesses given the far-reaching implications panic that dragged on the share price. and hefty financial penalties non-compliance could mean. SHARES SAYS:  FDM drops its highly-trained IT consultants, FDM remains a high-quality business capable of called ‘mounties’, into clients firms to solve consistently beating ambitious expectations. (SF) specialised technology problems. Things like cloud infrastructure transition, ecommerce BROKER SAYS 004

GUINNESS Investing in listed Capturing strong A play on growing GLOBAL MONEY MANAGERS asset managers returns on capital global savings Equal weighted, concentrated portfolio of 30 stocks with high active Guinness Funds are built on an investment philosophy focusing on areas we know well share and well controlled stock specific risk. and like. The global listed asset management sector is one of those areas that can offer exciting returns. Our Global Money Managers portfolio invests in asset managers around the world. 110% Guinness Global Money Managers • High returns on capital 90% IA Global sector Successful asset management companies can grow using relatively little capital and are highly scalable. Overall shareholder returns can therefore be very high FE Offshore Financial Sector 70% in • Growing global savings Global savings, particularya in conventional assets under management, are growing 50% significantly faster than world GDP. This is supporting surprisingly resilient growing revenues in the sector, despite some pricing headwinds 30% • Low balance sheet risk Asset management companies tend to have very low gearing versus other financial sectors 10% Source: Financial Express From Fund launch (31.12.10), in GBP (especially banks), reducing balance sheet risk

-10% • Above average dividend yield The sector typically exhibits high free cashflow, which currently translates into higher dividend 2011 2012 2013 2014 2015 2016 2017 yields on average than the broad equity market

Total Return, in GBP (to 30.06.17) YTD 1 Year 3 Years 5 Years From Launch • Higher beta Return 13.6% 38.2% 31.6% 138.3% 107.0% The sector has the potential to significantly outperform the market (capture higher beta) Fund Quartile 1st 1st 4th 1st 1st during periods of equity market strength, however bear in mind it may underperform Rank in IA Sector 10/272 6/269 206/236 13/204 40/179 noticeably in weak markets IA Global Sector 7.1% 23.7% 43.1% 89.2% 75.6% FE Offshore Financial Return 9.0% 37.5% 48.0% 98.2% 71.9% Sector • Which investors should consider this Fund? Those who will accept higher year year-on-year volatility in return for the potential for a higher long run return; and have a long term investment time horizon Discrete years (X Class, in GBP) Jun '13 Jun '14 Jun '15 Jun '16 Jun '17 Fund 47.8% 22.6% 13.3% -16.0% 38.2% Learn more about what managers Tim Guinness and Will Riley think about the investment IA Global Sector 21.4% 9.0% 8.4% 6.7% 23.7% FE Offshore Financial opportunity at guinnessfunds.com/global-money-managers-fund 29.6% 3.3% 12.8% -4.6% 37.5% Sector Source: Financial Express

Past performance is not a guide to future returns. The value of your investments and the income received from them can fall W: guinnessfunds.com E: [email protected] as well as rise. You may not get back the amount you invested. T: 0845 519 2161 STORY IN NUMBERS Ceres 99 facing cash FEVERTREE% bonfire AN INITIATION NOTE from IS FULL OF FIZZ investment bank Berenberg IS THE SHARE of the value growth gives an optimistic take Fevertree Drinks (FEVR:AIM) has on the future of fuels cells driven in the entire UK mixer category technology developer within retail in the past 12 months, the Ceres Power (CWR:AIM). premium carbonated mixers marvel It has slapped a 15p target now holding a 30% value share. This on the stock, versus the statistic demonstrates the extent to current 11.75p. Yet the which Fevertree is transforming the UK technology is still years mixer category. Triggering yet another away from commercial round of earnings upgrades for the posh success, if it gets there at tonic water-to-ginger ale supplier, first all. Berenberg predicts half results (25 Jul) served up by CEO that massive fundingis still Tim Warrillow revealed revenue up an needed. The investment astonishing 77% to £71.9m with strong bank forecasts £25.4m will growth delivered across all regions, be burned through by the channels and flavours. Fevertree also business by 2019, at which begins the second half with a bumper point estimated revenues £40.5m net cash in the coffers. of £7m will still be dwarfed by £9.7m of pre-tax losses. Ceres had £16m of net cash as of 30 June.

RIGHTMOVE HAS SOLID FOUNDATIONS

£81 THE UK HOUSING market an 8% year-on-year decline may be slowing down but in housing transactions. online property portal Rightmove’s market leading Rightmove (RMV) is still position creates a virtuous demonstrating its ability circle whereby it lists the to post solid growth by most properties, meaning it deriving more from its is the place most prospective estate agent clients. buyers go to look for a house, Average revenue per reinforcing its position as a agent was up £81 per must-have product for estate month to £911 in agents even during times of the first half despite market uncertainty. (TS)

10 | SHARES | 03 August 2017 STORY IN NUMBERS

£1.8BN BANK BASHING -13.7% UK CAR MANUFACTURING FALLS NOT OVER YET ON BREXIT UNCERTAINTY JUST WHEN UK banks thought they’d heard UK CAR MANUFACTURING volumes declined enough about claims over misconduct, two 13.7% in June, according to the Society of Motor high street stalwarts set aside £1.8bn for Manufacturers and Traders (SMMT). SMMT chief legacy misdemeanors. executive Mike Hawes warned that uncertainty Lloyds (LLOY) has put the bulk aside to from the UK’s decision to leave the European deal with payment protection insurance Union is ‘not helping investment and stalling (PPI) claims at £1.1bn but at least it still growth.’ The analysis also suggests if the UK made a profit.Barclays (BARC), which set fails to secure a deal or interim agreement to aside a not inconsiderable £700m for PPI, is maintain current trading back in the red though, sliding into a £1.4bn conditions, output could loss for the first half of 2017. fall more heavily in 2019.

CELEBRATING 6 YEARS’ OF SUCCESSFUL INVESTOR EVENINGS! If you have not been to one of our investor events then you are missing out Go to the shares events link and put the dates and venues in your diary so you don’t miss out again.

We provide free wine, beer, soft drinks and nibbles

TICKETS TO OUR EVENTS ARE FREE. YOU SIMPLY NEED TO REGISTER IN ADVANCE

Click here for details on upcoming events. You can also watch videos from past events. We look forward to seeing you soon

03 August 2017 | SHARES | 11 GREAT IDEAS Alfa by name and performance This may be the UK market’s best quality software company

e’re on a decent outdated. run of high-quality ALFA FINANCIAL This implies a large number Wsoftware businesses  BUY of big businesses increasingly of reasonable scale joining the (ALFA) 482.75p open to the idea of outsourcing London market. Firms like FDM Stop loss: 386p to Alfa’s best in class suite of (FDM), Kainos (KNOS), Sophos tools. Rob Warensjo, of the (SOPH) and Softcat (SCT) spring Market value: £1.45bn Megabuyte software industry to mind. Alfa Financial (ALFA) analysis boutique, believes that might just be the pick of the lot. the company has only scratched Floating on 1 June at 325p, for its browser-based, Java- the surface of the market investors have fallen over developed solution that includes opportunity to date. That Alfa themselves to buy stakes, heavyweight financial institutions raised no new money at the IPO sending the share price soaring such as Barclays (BARC), Bank shows that future growth is very to 482.75p. Even so, we believe of America and Commonwealth likely to be self-funded. there is reliable, long-run mid- Bank of Australia, plus the finance teens growth or better on offer, arms of manufacturing giants STRONG FINANCIALS something we think the market like Mercedes-Benz, Siemens Figures revealed in the intention will continue to pay a hefty and Toyota. Alfa has 10 offices to float document highlighted premium for. worldwide with over 250 staff. strong growth in the year to 31 The world of asset finance December 2016, with revenues OPERATES IN A may sound dull but the up 35% to £73.3m. From that UNIQUE NICHE opportunity for Alfa to the company earned £32.8m of Founded by executive chairman develop and grow into this operating profit, itself up 46%. Andrew Page in 1990, Alfa niche space certainly is not. According to Reuters, forecasts provides an enterprise system That’s largely because of the revenues will hit £86.1m in 2017 for the asset and consumer continued dominance of legacy and about £100m next year, finance industry. The platform IT systems often developed implying £40.7m and £47.3m provides new business and by large organisations of pre-tax profit respectively. agreement management inhouse. With the demand for The shares are expensive, on functionality as well as workflow increased digitisation and new a rough 2018 price to earnings and analytics capabilities. functionality, many of these multiple of 39.5, but we think Alfa has a global client base systems are fast becoming this will continue to be justified by growth. (SF)

ALFA FINANCIAL SOFTWARE FTSE ALL SHARE 500 Rebased to first 490 480 470 460 450 440 430 420 410 400 390 Source: Thomson Reuters Datastream JUN JUL

12 | SHARES | 03 August 2017 SharePad is the award-winning web-based service from ShareScope

Home in on the very best investments

We think you’ll be surprised how much SharePad has to offer. These are ü Perfect for tablets, Macs & PCs professional-quality investment tools in an easy-to-use format and at a very ü Fast, effective analysis affordable price. ü Shares, funds, ITs, ETFs & bonds ü Powerful screening It looks great on an iPad and even better on a laptop or PC. ü Superb portfolio management Broker ratings, news & alarms SharePad provides more financial history, more powerful stock screening ü and better portfolio management than any other service. What’s more, you can research anything you might want to invest in - stocks, funds, investment trusts, ETFs and bonds.

Our SharePad and ShareScope products have been voted UK’s Best Investment Software for 15 years running. Customers tell us that the improvement in their performance more than pays for the subscription. Isn’t it time you found out what everyone is raving about?

BEST INVESTMENT 2015 SOFTWARE PROVIDER WINNER Best Investment Take a closer look at www.sharepad.co.uk Software Program or call 0800 052 1515 today. GREAT IDEAS Bag Mulberry for global growth Turnaround progress and sector M&A are reasons to bag British luxury brand

hares believes this is an continue to recover. opportune moment to XXXXMULBERRY  BUY  BUY Footwear brand Jimmy Choo’s Sbuy British luxury brand (xxx)(MUL:AIM) xxxp £10.23 (CHOO) £896m takeover by Mulberry (MUL:AIM) following Stop loss: £81.8xxp US handbags brand Michael a pullback to £10.23 per share. Market value: xxx£638.6m Kors at a significant premium The fashion bags-to-footwear demonstrates the strategic retailer’s turnaround is gaining attraction of luxury brands, traction, currency movements while Coach has snapped up give some overseas tourists tough comparative and delivered handbags rival Kate Spade & more purchasing power in the in a seasonally quiet period. Co for $2.4bn, luxury groups UK, while recent M&A activity Mulberry has successfully coming together in defensive highlights the attractions of re-focused on its core ‘relatively’ mergers that bring scale. strong luxury brands. affordable £500-to-£995 pricing For the year to March point. New products launched 2018, Barclays sees Mulberry MULLING OVER MULBERRY under the creative direction generating adjusted pre-tax Investing on takeover hopes of Johnny Coca, including the profits of £9m, improving to alone is foolish and we’re bestselling Zipped Bayswater £10m in 2019, with a flat 5p mindful of Challice Limited’s bag, are gaining momentum. dividend shaded in for both dominant 56.2% stake in The £638.6m cap closed the years. These forecasts could Mulberry, yet its turnaround year with £21.1m cash in the prove conservative if Mulberry’s under CEO Thierry Andretta coffers and no debt, giving it global growth moves pay off. is gaining traction. Full year the firepower to grow its core Not only has Mulberry results (14 Jun) to 31 March leather goods business and established a majority-owned revealed a 21% pre-tax profit stretch the brand into footwear, entity, Mulberry Asia, with surge to £7.5m on sales up 8% accessories and jewellery. Challice to operate the business to £168.1m, with retail sales in China, Hong Kong and Taiwan, including digital up 5% on a GOING FOR GROWTH it has also formed a new 50:50 like-for-like basis. Barclays analysts argue joint venture with Onward Global The English design Mulberry is unique Fashion (OGF) to operate its company did report among listed peers in business in Japan. (JC) softer trading entering being immature in the new global luxury financial year. markets BROKER SAYS: 010 It flagged outside the MULBERRY GROUP modest 1% UK. This FTSE ALL SHARE retail like- quality that 1250 Rebased to first for-like sales could make it 1200 1150 growth for attractive as 1100 the 10 weeks a takeover 1050 to 3 June, target, so 1000

though this long as 950 Source: Thomson Reuters Datastream was against a earnings 2016 2017

14 | SHARES | 03 August 2017 The opportunity of a Lifetime (ISA)

Aged 18-39? Save £4,000 each year, and the government will give you £1,000 – for free – to spend on your first home, or retirement.

Open an account today Up to £32,000 youinvest.co.uk in free government Low-cost SIPPs, ISAs, funds & shares bonuses

Capital at risk. We don’t offer advice so if you’re unsure please consult a financial adviser. Tax rules may change. Paying into a Lifetime ISA may affect employer pension contributions and your future entitlement to means tested benefits. You will incur a 25% government withdrawal charge on any money you withdraw before age 60 unless you are using it to buy your first home, therefore you may get back less than you paid in.

AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE GREAT IDEAS UPDATES

SOPHOS ITV (SOPH) 460p (ITV) 172.2p

Gain to 27 July 2017*: 114.6% Loss to date: 11.5% Original entry point: Original entry point: Buy at 220.7p, 28 Jul 2016 Buy at 194.6p, 22 December 2016 MORE ROBUST TRADING through the first OUR VIEW THAT an advertising quarter for cyber security FTSE 250 Sophos slowdown was already priced-in at (SOPH) makes it easier to understand why the free-to-air broadcaster ITV (ITV) share price has more than doubled in a year. proved too hopeful. But with a new End point security is the star, justifying previous chief executive appointed and a investment and helping the company secure what difficult first half out of the way there Numis calls ‘an exceptionally large deal.’ This is could be scope for the shares to do rather better presumably a response to soaring demand for in the remainder of the year. For these reasons we tools to fight off ransomware hacking attacks, hold to our positive view. such as WannaCry and Petya. Results for the six months to 30 June were Stripping some of the sheen off is a steep decline announced on 23 July. Although earnings were in adjusted operating profit to just $3.4m, and down 9% this was actually a little better than we would guess that this is partly down to front feared and the year-on-year decline in advertising loading costs ahead of what should be a busy revenues due to political and economic uncertainty second half. That’s backed up by a hefty second in the UK came in at 8% against guidance of half bias of contracts renewals, says Numis, even if between 8% and 9%. billings growth of 16% shows a slowdown on the Liberum reckons non TV-advertising revenue 25% this time last year. now accounts for 45% of the group total. ITV has We continue to like Sophos’ position in this high invested in its production and online arms. The

demand cyber security space, and believe there ITV decline in TV ad remains a long-term value creation opportunity in FTSE ALL SHARE revenue is expected 230 Rebased to first holding the shares. 220 to moderate in the That said, modest caution over the required 210 third quarter at 5%. growth to meet upgraded forecasts for the full 200 EasyJet (EZJ) boss year to 31 March 190 Carolyn McCall will SOPHOS GROUP 180 FTSE ALL SHARE 2018 makes take the helm at ITV 500 170

Rebased to first Source: Thomson Reuters Datastream it sensible to 160 on 8 January 2018. 450 take some well- 2016 2017 400 earned profit off 350 SHARES SAYS:  300 the table. If we liked ITV at nearly 200p it follows we should 250

200 Source: Thomson Reuters Datastream be even more positive at the current levels. With the 2016 2017 outlook brightening we see scope for the shares to recover in what remains of 2017. (TS) SHARES SAYS:  This is a good time to cash in. (SF) BROKER SAYS: 12 8 3

BROKER SAYS: 8 2 0

*Date exited Great Ideas portfolio

16 | SHARES | 03 August 2017 INVESTMENT FACTS. WHO CAN YOU TRUST?

In uncertain times, when the economy is buffeted by change, it can be hard to know who to trust when investing.

Shares magazine is produced by our expert editorial team, offering 24/7 coverage and insight into today’s vibrant investment markets. A subscription to Shares gives you access to the SHARES digital investment hub and a host of benefits including: > Your weekly digital magazine brimming full of investment ideas > Market news and company updates > Exclusive investor tools including live share prices

Try it now for just £1 for the 1st month and then just £12 a month*.

Explore the best investment news and latest share prices

+ Subscribe today at www.sharesmagazine.co.uk/subscribe £ % £ £ £

+

* The £1 for 1 month and then £12 a month offer is only available to new subscribers. Your first payment will be £1 and thereafter subscriptions will automatically continued, billed at £12 per month unless cancelled. Subscriptions can be cancelled at any time by calling 0207 378 4424 between 8am - 4.30pm on Monday to Friday. No refunds are offered during the cancellations period but all outstanding issues and services will be fulfilled. For enquires contact us at [email protected] GREAT IDEAS UPDATES

DIAGEO CLIPPER LOGISTICS (DGE) £24.55 (CLG) 420p

Gain to date: 13% Gain to date: 36.8% Original entry point: Original entry point: Buy at £21.73, 12 Jan 2017 Buy at 307p, 1 September 2016 OUR POSITIVE STANCE on alcoholic drinks giant FULL YEAR NUMBERS from Clipper Logistics (CLG) Diageo (DGE) has been rewarded with a 13% share (28 Jul) initially supported another healthy advance price advance so far. Investors’ thirst for the shares in the shares although profit takers have swooped has been further stimulated by news (27 Jul) of in the interim. Still, we remain in a healthy profit on record full year profits, an upgrade to its three-year our positive call on the stock. Exposed to growth in margin improvement target and the launch of a online shopping, the company handles warehouses palate-pleasing £1.5bn share buy-back. and delivery services for retailers. This includes In January, we flagged the top line growth and sending out clothes ordered online and, probably margin enhancement potential on offer at the more crucially, handling any returns. Clients world’s biggest spirits company, whose winning include ASOS (ASC:AIM), Tesco (TSCO), Asda and brands include Johnnie Walker whisky, Captain John Lewis. In the year to 30 April profit after tax Morgan rum, Smirnoffvodka and Tanqueray gin. was up 20.6% at £12.5m on revenue up 17.2% at Diageo’s sales and operating profits were up 15% £340.1m. On broker Cantor Fitzgerald’s reckoning to £12.1bn and 25% to £3.6bn respectively in the the company trades at a 100% premium to the

year to June, helped by currency movements but CLIPPER LOGISTICS broad logistics FTSE ALL SHARE more importantly, reflecting robust organic growth. 460 Rebased to first and parcels 440 CEO Ivan Menezes said his charge ‘delivered 420 sector. Although consistent strong performance improvement 400 some premium 380 across all regions’ and flagged ‘progress in our 360 is warranted it 340 focus areas of US Spirits, scotch and India’. 320 believes this Diageo is an ‘expensive defensive’ but we’re 300 is ‘difficult 280 260 Source: Thomson Reuters Datastream staying positive given wider macro-economic 2016 2017 to justify’. uncertainties. Diageo’s strong brands represent an economic moat, engendering loyalty among consumers, conferring pricing power upon the SHARES SAYS:  business and creating barriers to entry for rivals. The shares are up more than four-fold on the 100p DIAGEO issue price from its 2014 IPO but appear to have FTSE ALL SHARE 2500 Rebased to first stalled for now. A great company but this is reflected 2400 in the share price and with a lack of immediate 2300 catalysts it makes sense to book some profit. (TS) 2200 2100 BROKER SAYS: 2 0 0 2000 1900 Source: Thomson Reuters Datastream 2016 2017

SHARES SAYS:  We’re in agreement with the bullish consensus, fans of Diageo’s brand strength, geographically diversified earnings and strong free cash flow generation. (JC) BROKER SAYS: 18 9 3

18 | SHARES | 03 August 2017 Our views on topical issues TALKING POINT Why payment companies are so attractive What caused the recent flurry of deals in the fast consolidating payment processing sector?

ayment processing companies are in demand. P FTSE 250 Paysafe (PAYS) receiving a £3bn bid (21 Jul) weeks after US credit card company Vantiv struck a £9bn deal to buy Worldpay (WPG) (4 Jul). News of the Worldpay transaction came just 24 hours after Danish payments processor this offer suggests a share price price shot up by 24% to 395p. Nets confirmed that it had been value of 590p. The UK-based Once it became clear that in talks with US private equity company says this represents Vantif was the preferred buyer firms including Hellman & around a 34% premium over the the shares traded down and Friedman over a potential average share price for the first are currently at 375.10p. Our buy-out. The Copenhagen- six months to 30 June. unnamed industry source says, based firm had previously been Someone from within the ‘Event driven hedge funds purchased by private equity industry who preferred not to be thought the approach Vantiv giants Advent International and named explains the draw of these made to Worldpay was the start Bain Capital in 2014. type of firms. ‘Companies are of a process not the end of one’ And in the same week, realising the strategic importance hence the sharp price increase. French payment specialist of knowing what consumers Jean Beaubois, analyst at Ingenico acquired Bambora for are spending their money on investment bank Berenberg, €1.5bn while another French and offering analytics insights to says the attraction of a company company Worldline announced retailers to optimise business.’ like Worldpay is that it will give it was to buy Sweden’s Digital Payment information is useful the likes of Vantiv international River World Payments. to retailers as it can allow them e-commerce capabilities that The pattern is clear, payment to tailor their advertising to would allow the company to processing companies are certain customers based on cross sell to their US client base. attractive to investment spending history. Berenberg has been predicting heavyweights and they don’t just that Worldpay ‘would be the want a stake but the whole thing. DRAMATIC BID perfect target for a US acquirer’ FOR WORLDPAY since 14 March this year. PREMIUM BID FOR PAYSAFE Worldpay’s journey into the Vantiv and Worldpay say Paysafe, having previously hands of Vantiv is far more it will now be able to serve a rebuked an offer from a dramatic and includes one of wider range of customers, with consortium including CVC the biggest moves in a FTSE a strong position in the four Capital Partners and Blackstone 100 company’s share price for core regions of the US, Europe, in May, seems to be more some time. When the company Asia-Pacific and South America. receptive to the current all cash revealed it had been approached These locations contain many of offer of £2.9bn. by two potential buyers, Vantiv the world’s largest e-commerce According to the company and JP Morgan Chase, the share merchants. (DS)

03 August 2017 | SHARES | 19 WEEK AHEAD

FRIDAY 4 AUGUST FBD HOLDINGS FBH JARDINE STRATEGIC HOLDINGS JDS KENNEDY WILSON EUROPE REAL ESTATE KWE MERLIN ENTERTAINMENTS MERL MILLENNIUM & COPTHORNE HOTELS MLC Global life insurance company PEARSON PSON Prudential (PRU) is releasing its ROYAL BANK OF SCOTLAND RBS interim results on 10 August and RPS RPS investors will be keen to see what Two West Country engineering ECONOMICS is driving this behemoth. companies are set to report their US Will Asia still be providing the first half results next week. On NON-FARM EMPLOYMENT CHANGE bulk of new business profits as 8 August Bath’s Rotork (ROR) UNEMPLOYMENT RATE it did last year or have global publishes its numbers and MONDAY 7 AUGUST demographics changed? For a Cheltenham’s Spirax-Sarco company of this size, growth can INTERIMS Engineering (SPX) follows suit come in many forms and from TELIT COMMUNICATIONS TCM on 9 August. Spirax, which is various parts of the globe. ULTRA ELECTRONICS ULE diversified across lots of different AGMS industries has enjoyed an AKERS BIOSCIENCES AKR extremely strong run, reflected ECONOMICS in a 94% three-year run in the UK share price. In contrast Rotork is HALIFAX HPI down 16% thanks to a slowdown in the oil market and recently TUESDAY 8 AUGUST announced the departure of chief INTERIMS executive Peter France. T CLARKE CTO INTERCONTINENTAL HOTELS IHG AGMS IP GROUP IPO Unloved specialist retailer Pets BLUE PLANET IWG IWG at Home (PETS) is about to scurry INVESTMENT TRUST BLP MORGAN SINDALL MGNS in with a first quarter trading INVESTEC INVP MEREO BIOPHARMA MPH update (8 Aug). Investors will ECONOMICS MPORIUM MPM be hoping a recent return to UK PETS AT HOME PETS growth in merchandise sales has MANUFACTURING PRODUCTION PADDY POWER BETFAIR PPB continued, although the outlook CONSTRUCTION OUTPUT ROTORK ROR for Pets is highly uncertain. The INDUSTRIAL PRODUCTION SIG SHI UK consumer is being squeezed EX-DIVIDEND STANDARD LIFE SL. and competition is intensifying in AVON RUBBER AVON 4.11P TP ICAP TCAP UK pet care; one notable rival for BT BT.A 10.55P WORLDPAY WPG Pets to worry about is Germany- FORESIGHT TRADING STATEMENTS based online only pet food and SOLAR FUND FSFL 1.58P BELLWAY BWY accessories seller Zooplus, whose GREENE KING GNK 24.4P AGMS sales are growing quickly. IOMART IOM 6P FRUTAROM INDUSTRIES FRUT MAVEN INCOME & MILESTONE GROUP MSG GROWTH VCT MIG6 0.25P ECONOMICS THURSDAY 10 AUGUST INTERIMS NEW CENTURY AIM VCT NCA 11.6P UK AMEC FOSTER WHEELER AMFW NORTHGATE NTG 11.6P BRC RETAIL SALES MONITOR TRITAX BIG BOX REIT BBOX RM RM. 1.65P WEDNESDAY 9 AUGUST COCA-COLA HBC CCH RPC RPC 17.9P INTERIMS CINEWORLD CINE ST MODWEN G4S GFS DERWENT LONDON DLN PROPERTIES SMP 2.02P HASTINGS GROUP HSTG EVRAZ EVR TRIAD GROUP TRD 0.5P LEGAL & GENERAL LGEN HILL & SMITH HILS YU GROUP YU. 1.5P RIVERSTONE ENERGY RSE PAGEGROUP PAGE SPIRAX-SARCO ENGINEERING SPX PRUDENTIAL PRU Click here for complete diary STOCK SPIRITS STCK THE VITEC GROUP VTC www.sharesmagazine.co.uk/market-diary

20 | SHARES | 03 August 2017 The opportunity of a Lifetime (ISA)

Aged 18-39? Save £4,000 each year, and the government will give you £1,000 – for free – to spend on your first home, or retirement.

Open an account today Up to £32,000 youinvest.co.uk in free government Low-cost SIPPs, ISAs, funds & shares bonuses

Capital at risk. We don’t offer advice so if you’re unsure please consult a financial adviser. Tax rules may change. Paying into a Lifetime ISA may affect employer pension contributions and your future entitlement to means tested benefits. You will incur a 25% government withdrawal charge on any money you withdraw before age 60 unless you are using it to buy your first home, therefore you may get back less than you paid in.

AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE Chinas Internet BAIDU, ALIBABA AND TENCENT - WHO THEY ARE, WHAT THEY DO Stars AND HOW TO INVEST

e’re all familiar with Facebook revenues growing fast. (FB:NDQ), Amazon (AMZN:NDQ), Unsurprisingly, FANG shares have gone Netflix (NFLX:NDQ) and Google bananas this year, smashing the performance of – courtesy of its parent Alphabet the S&P 500, and that’s even after the modest W(GOOG:NDQ), aka the FANG stocks. They’ve sell-off in big tech names recently. Investors been blazing a trail this year on spectacular love their huge cash flows and high growth trading, with soaring key performance indicators rates, and are rightly willing to pay a hefty (KPIs) like new subscribers and advertising premium for that.

22 | SHARES | 03 August 2017 BAT VS FANG, AT A GLANCE

FORECAST MARKET VALUE OPERATING PROFIT LAST FY REVENUE ($M) REVENUE GROWTH FOWARD PE ($M) ($M) (%) CHINA (BAT) Baidu 70,783 10,468 (CNY 70,549) 1,491 (CNY 10,049) 21.2 28.0 Alibaba 404,220 23,484 (CNY 158,273) 10,264 (CNY 69,172) 46.3 30.3 Tencent 370,077 22,546 (CNY 151,938) 8,327 (CNY 56,117) 47.8 37.0 US (FANG) Facebook 506,109 27,638 16,494 41 28.2 Amazon 512,680 135,987 4,186 22.3 135.1 Netflix 81,150 8,831 380 30.3 107.2 Google alphabet 662,530 90,272 30,419 20.5 26.4 Source: Reuters Eikon, 28 July 2017

But how well do you know their Chinese butcher, baker and candlestick maker - little of that equivalents, to so-called BAT stocks, Baidu exists in rural China, where a single hardware store (BIDU:NDQ), Alibaba (BABA:NYSE) and Tencent may exist. (0700:HK). You may be surprised to discover that And to buy anything more than everyday goods, they are almost as big as their US peers, throw an iPhone say, or a book, it’s either a trek to the off similarly large amounts of cash, have arguably nearest large town, a round trip that could be more diversified businesses and, crucially, are hundreds of miles, or buy online. growing even faster. >> continues on page 27 Shares in Baidu, Alibaba and Tencent have shot- up an average 55% in 2017 so far, led by Alibaba’s astonishing 81% rally. Retail space perRetail capita Space (m2) per Capita (m2)

25 Hyper Growth Potential 25.6 What really confounds investment experts is the BAT’s apparent ability to defy the law of large numbers, the idea that growth rates should converge towards the mean as an organisation gets 20 bigger. Alibaba and Tencent have both been putting up revenue growth of around 40% for the past five years and current forecasts anticipate similar 15.4 15 progress ahead. ‘I find it extraordinary,’ says Ali Unwin, manager of the Neptune Global Technology Fund

(GB00BYXZ5N79). Unwin was a fan of the Chinese 10 internet boom long before he helped launch his Neptune fund in December 2015, and his fund has held stakes in all three of BAT stocks during the 21 months since launch. 5 China still has enormous growth potential. One 3.8 3.8 of the reasons that so many Chinese are adopting 2.4 2.1 online commerce is historical and cultural. Outside 0.5 0.2 of the big cities there is little retail infrastructure, as 0 Neptune’s Unwin explains. Where we in the UK are US Canada UK France Germany Brazil China India all used to local high streets for shopping – with a Source: Barclays

03 August 2017 | SHARES | 23 UNDERSTANDING THE B AT STOCKS UNDERSTANDING THE BA T STOCKS

BAIDU (BIDU:NDQ) $220 – THE CHINESE GOOGLE?

Nasdaq-listed Baidu is the Chinese dialects. benefitted from Google’s exit largest Chinese language These days the other from the Chinese market search engine in China, with an 20% of its revenue comes in 2010 but it has come up estimated 80% market share from Baidu Wallet, a mobile against accusations of slowing that sees about 3.3bn searches payments app, and iQiyi, a growth and declining gross per day. About 80% of Baidu’s video streaming service. This profit margins more recently. revenue comes from online latter business has grown In 2016 a gross margin of ads across its search services, fast and is now reckoned to 50.1% represented the fourth through applications such as be the largest online video straight year of decline and Baidu Encyclopedia, maps, platform in China. the 71% levels of 2012 seem image search, music and video This is typically higher like a long time ago. There’s search, news search and so on. margin, subscription based also ballooning research and Like its US peer, Baidu has income although it also means development costs as Baidu expanded beyond its original Baidu must spend fortunes in pushes into potentially large search market. Its offering both buying in quality content future markets (healthcare includes a translation service as well as investing in its in- technology, artificial capable of recognising subtle house production arm. intelligence, augmented and differences between the many Baidu has undoubtedly virtual reality, for example).

TOP FUNDS FOR BAIDU Fund ISIN % of fund Invesco Perpetual Hong Kong & China GB0033028332 6.04 Neptune China GB00B04H0Y06 5.93 Jupiter China GB00B1DTDX49 4.39 Legg Mason IF Martin Currie China GB00BVZ6TV39 4.08 Invesco Perpetual Asian GB0033028225 3.95 Threadneedle China Opportunities GB00B1PRWF12 3.50 Rosenberg Global Emerging Markets Equity Alpha IE00B101JZ71 3.30 M&G Asian GB0030939556 3.21 Fidelity China Consumer GB00B6WFC751 3.00 HSBC Chinese Equity GB00BYNBTL16 2.42 Source: Trustnet

24 | SHARES | 03 August 2017 UNDERSTANDING THE BA T STOCKS

ALIBABA GROUP (BABA:NYSE) $154 – THE CHINESE AMAZON, OR EBAY, OR BOTH?

Ranked as the largest IPO of population, and a far greater buyers now but the company all-time, when the company proportion of China’s 1.6bn- wants to hit 2bn by 2036, an floated on the New York stock odd population is expected to astonishing ambition. market in 2014, clawing in join them in future. That gives To do this Alibaba has made $25bn for selling shareholders. Alibaba an enormous domestic digital vertical investments Alibaba operates China’s largest market alone. into things like smart logistics, e-commerce platforms Taobao But that hasn’t stopped the payment services, cloud and Tmall. company from expanding into computing, online marketing The latter is a classic new growth areas, such as cloud services, travel booking, music business to consumer platform computing, digital media and and video streaming. It has (B2C) where online retailers entertainment. also fired the gun on overseas sell to individuals, more like Alipay, their third-party online expansion, with Indonesia and Amazon. In contrast, Taobao is payment platform, has now other South East Asia territories a consumer to consumer (C2C) become the dominant player in its sights. India is also on the marketplace model that’s more in the Chinese online payment cards. in tune with Ebay (EBAY:NDQ). market, which neatly links its The e-commerce giant has With more than 700m main businesses into a coherent already steered the market Chinese already online, that’s digital ecosystem. The big push to expect revenue growth of about the same number now is to rapidly hike its active between 45% and 49% this year of people as the entire EU buyer base. It has around 423m to 31 March 2018.

TOP FUNDS FOR ALIBABA Fund ISIN % of fund Invesco Perpetual Hong Kong & China GB0033028332 10.25 HSBC Chinese Equity GB00BYNBTL16 9.53 Threadneedle China Opportunities GB00B1PRWF12 9.40 Henderson China Opportunities GB0031860934 9.37 Fidelity China Consumer GB00B6WFC751 7.50 Baillie Gifford Greater China GB00B39RML74 8.00 Allianz Total Return Asian Equity GB0031384257 5.70 JPM Asia GB00B235GR40 5.40 Newton Oriental GB0006781289 4.92 Investec Asia Ex Japan GB0031141913 4.60 Source: Trustnet

03 August 2017 | SHARES | 25 UNDERSTANDING THE BAT STOCKS

TENCENT HOLDINGS (0700:HK) HK$305.4 – THE CHINESE FACEBOOK?

Tencent is an investment easy-to-use app. Estimates example, is China’s largest local holding company that provides suggest the average Chinese language portal integrating internet value-added services user is on the platform for up to news, interactive communities, and online advertising across four hours daily. The equivalent entertainment products and mainland China, Hong Kong figure for the likes of Facebook, widely used basic services. and elsewhere internationally. Twitter, Instagram, Whatsapp is Like its peers, Tencent has That rather loose description one-and-a-half hours. also been busy expanding basically covers a wealth QQ provides an internet- elsewhere, with cloud of messaging and social based all-in-one instant computing support, video networking platforms - Weixin/ messaging service, with text streaming and its TenPay WeChat and QQ. messaging, video, voice chat app, which are all growing Weixin/WeChat is a as well as online/offline file fast. Integrating TenPay with phenomenon and one of the transmission. its social platforms is also world’s fastest growing social Both services have upwards streamlining the purchase of apps. Released in 2011, the of 800m monthly active users, products and services. The platform combines messaging, implying than the majority stock is listed in Hong Kong and social communication and lots use both services for different Tencent is one of the largest of mobile games, all in a single things. Website QQ.com, for public companies in Asia.

TOP FUNDS FOR ALIBABA Fund ISIN % of fund Neptune China GB00B04H0Y06 10.69 Legg Mason IF Martin Currie China GB00BVZ6TV39 9.52 Threadneedle China Opportunities GB00B1PRWF12 9.30 Baillie Gifford Greater China GB00B39RML74 9.20 Baring Eastern Trust GB0000799923 8.97 Allianz Total Return Asian Equity GB0031384257 7.13 Henderson Asia Pacific Capital Growth GB0007681603 6.40 Schroder Global Emerging Markets GB0007906463 6.25 Legg Mason IF Martin Currie Emerging Markets GB00BVZ6TX52 6.17 AXA Rosenberg Asia Pacific Ex Japan GB0007705071 4.40 Source: Trustnet

26 | SHARES | 03 August 2017 UNDERSTANDING THE BAT STOCKS The nation also lacked a retail business TENCENT IS THE establishment, leaving the way free for BAT QUALITY PLAY, companies to rapidly gain scale. The Chinese ALIBABA THE government’s ongoing ban on western social GROWTH“ PLAY, media businesses, including FANG plays Facebook, Twitter, Google previous exit and Amazon’s BAIDU THE lacklustre progress in that market to date, have also helped. VALUE PLAY. PAUL DANES, CO-MANAGER, MARTIN CURRIE ASIA Middle Class Millions UNCONSTRAINED But the real growth engine is China’s rapidly INVESTMENT TRUST growing middle class, which is having a massive impact on available spending power. Average household earnings have been outstripping the high single-digit China’sgrowth soring of household China income GDP for several

China’s soring household income years, and with continue to do so. Estimates 25000 suggest this middle class going from 50m or so a few years ago to 500m over the next decade, perhaps quicker. It is a demographic trend that Apple CEO Tim Cook has talked up in the past. 20000 Income (bn) Why is this? Paul Danes, co-manager of the Martin Currie Asia Unconstrained (MCP) investment trust, uses a handy analogy. Imagine, for example, an average family earning the equivalent of 15000 say, $2,000 a year. About $1,800 of that goes on day to day necessities, food, keeping the light on and the home warm in winter, clothing, basic education and 10000 healthcare etc. That leaves $200 a year of disposable income for fun stuff – eating out, going to the pictures, and mobile phones. But as demand for cheap Chinese labour rises 5000 from western markets, local salaries rise. If that average family’s annual income goes up to $2,500 a year, even with modest inflation in necessities (say to $1,900 annually), it means disposable earnings 0 1985 1995 2005 2015 2025 will have jumped 200% to $600 a year, and clearly a lot of that extra money is finding its way to BAT companies’ online platforms, one way or another. Per capita Renminbi (CNY) 2,084 4,796 8,575 16,218 27,177 ‘We look for long-term, quality growth that is well-priced,’ says Danes. He’s a particular fan of US $ Tencent despite the company’s frustratingly opaque 267 267 614 1,098 2,076 equivalent disclosure. Source: McKinsey For example, 70% of the firm’s revenue comes

03 August 2017 | SHARES | 27 BAIDU HANDLES ABOUT 3.3bn INTERNET SEARCHES PER DAY

ALIBABA WANTS TO INCREASE 423m ACTIVE ONLINE SHOPPERS TO 2bn BY 2036

TENCENT WECHAT APP HAS 938m MONTHLY ACTIVE USERS

28 | SHARES | 03 August 2017 TOP 10 MOST VALUABLE BRANDS IN CHINA, 2017 Brand Brand value % annual change Tencent $106.18 29 Alibaba $58.01 22 China Mobile $57.90 1 ICBC $31.48 -8 Baidu $23.89 -11 Huawei $20.38 10 China Construction Bank $18.40 -7 Ping An $16.46 5 Moutai $16.22 41 Agricultural Bank of China $14.85 -9 Source: Kantar

from ‘internet value-added services,’ with little entity, structures that involve owning stakes in more detail available for ordinary investors. Fund holding companies that themselves own shares managers like Danes get the opportunity to meet in the end business. This adds complication, while management, and from those conversations Danes also points out that these structures have have been able to work out that a massive 50% never been legally tested in terms in courts. of the group’s entire income stems from gaming. Danes remains comfortable with that, but not everyone will be. How To Invest Neptune’s Unwin is less comfortable with this Should you look for exposure to these fast growth specific Tencent dynamic, which is why he has internet stories? Yes, says Neptune’s Unwin, ‘if you trimmed exposure to the company over the past are interested in material growth over the next few months. The fund manager remains right couple of decades,’ he says. ‘It’s hard not to.’ behind Alibaba, however, his preferred BAT play. Investors that do want to pursue the potentially He likes the Chinese Amazon/Ebay’s use of data to vast Chinese internet growth opportunity might really get to know its customers and users, which choose to do so through relevant funds or investment helps Alibaba push increasingly relevant products trusts. Danes’ investment trust may be an option. and services that its user base really wants. Other investment trust options include the Polar Capital Technology (PCT) investment trust or Allianz Technology Trust (ATT), both run by the highly Govenance Risks respected Ben Rogoff and Walter Price respectively. Baidu remains the arguable weakest link of the There are many funds with sizeable stakes, and we BAT trio. According to Neptune’s Unwin, slowing have pulled together handy lists of 10 with decent growth, the loss of key personnel (such as former exposure to Baidu, Alibaba and Tencent in turn. chief scientist Andrew Ng earlier this year), greater Alternatively, a small handful of exchange traded competition in its core search markets and poor funds (ETFs) provide ways of tracking the wider business transparency are key reasons why ‘I’ve Chinese internet investment theme. Some worth sold, I’m concerned, ‘ the fund manager says. looking at in further detail include the BLDRS Limited transparency and disclosure is a big issue Emerging Markets 50 ADR Index Fund (ADRE), for many investors, and Martin Currie’s Paul Danes Guggenheim BRIC ETF (EEB), iShares MSCI China also waves this potential red flag. Things like dual ETF (MCHI) or the KraneShares CSI China Internet share structures that limited the voting power of Fund (KWEB). All but the iShares product are outside investors. US-listed ETFs. Lesser understood risks come in the form of ‘Finding growth in China is not difficult,’ says complex ownership vehicles, such as VIE schemes, Paul Danes, ‘but finding growth that translates into explains Danes. This stands for variable interest shareholder returns is more challenging.’

03 August 2017 | SHARES | 29 THE SMALL CAPS WHICH COULD SUCCEED WHERE ASTRA FAILED

These UK-listed firms are awaiting big news which could trigger further growth

ancer treatments are dominating the through immuno-oncology breakthroughs, headlines after at least £10bn was wiped providing tech to develop treatments or protecting off AstraZeneca (AZN) following its failed against side effects from chemotherapy. C MYSTIC lung cancer trial on 27 July. Companies breaking ground in these areas AstraZeneca could not prove the combination are Oxford BioMedica (OXB), Abzena of durvalumab and tremelimumab (ABZA:AIM) and Clinigen (CLIN:AIM). immunotherapies was more effective at stopping the progression BLOCKBUSTER POTENTIAL of lung cancer compared to The World Health It has been a whirlwind year for chemotherapy. Oxford University spin-out Oxford Cancer can be treated in Organisation believes BioMedica, which we initially various ways, but one of new cancer cases are flagged back in March before the biggest breakthroughs expected to rise by Novartis submitted its CTL019 set to redefine treatment is 70% over the next treatment for approval. immunotherapy, also known as two decades. Oxford BioMedica manufactures immuno-oncology. lentiviral vectors, in laymans terms This involves using the immune tools for gene delivery, for CTL019. system to target and destroy cancerous Since March, the biopharmaceutical cells without invasive and dangerous side- company’s share price has nearly effects from surgery or chemotherapy. doubled to 8.6p. This is before the therapy has There are a few UK-listed companies benefitting even been approved by the US Food and Drug from these innovative treatments against cancer Administration (FDA) so we believe the share price

30 | SHARES | 03 August 2017 has further to run. Abzena improves the properties of Jefferies analyst Peter Welford believes CTL019 pharmaceutical products to make them work more has the potential to hit blockbuster status, effectively through its Inside programme. forecasting at least $1bn in peak worldwide sales. In June, Numis analyst Stefan Hamill said the CTL019 replaces genes in the white blood cells of ultimate sales potential from the Abzena Inside leukaemia sufferers, which allows them to programme currently in the clinic is recognise and attack cancer cells. approximately $10bn. N+1 Singer’s Sheena Berry Since then, Abzena has sealed has upgraded earnings before a licence agreement with Telix interest, tax, depreciation and CANCER IS THE Pharmaceuticals to develop amortisation from £1.5m to SECOND LEADING products for the imaging and £2.4m in 2017 on a new supply treatment of prostate cancer. agreement with Novartis. CAUSE OF DEATH The deal has the potential The analyst believes Oxford GLOBALLY to deliver over $65m in ACCORDING TO THE WORLD BioMedica could potentially HEALTH ORGANISATION. licence fees and milestone receive over $100m over the payments to Abzena. next three years. In April, the firm raised £25m Earlier this month, the US Food to upgrade its US biomanufacturing and Drug Administration’s Advisory facilities. The funds will allow Abzena Committee voted unanimously in support of to supply more products and enhance its CTL019. This is good news for Oxford BioMedica as biology and chemistry offerings in the US and UK. the FDA typically follows recommendations from the panel. PROTECTION AGAINST CHEMOTHERAPY The FDA’s ultimate decision is expected by 29 SIDE EFFECTS September 2017. Specialty pharmaceutical company Clinigen is If the treatment is approved, Rodman & one to watch this year after it was able to lift Renshaw analyst Joseph Pantginis forecasts 3% restrictions for its cardio protective cardioxane of royalties for the biopharma firm. He estimates in Europe. $127.3m in revenue for Oxford BioMedica from In the year to date, Clinigen has rallied 21.9% sales of CTL019 in 2022. to 988.4p. Cardioxane helps protect the heart during GROUNDBREAKING TECHNOLOGY chemotherapy, but was seen as dangerous to Life sciences group Abzena is set for a potential children. The drug was thought to put children at share price rally as it waits for American biopharma risk of a major heart attack so sales were restricted firm Gilead’s Phase III trial results for andecaliximab to adults in Europe. in the third quarter of this year. Clinigen has worked hard to lift the restriction Abzena provided the composite human and prove that cardioxane does not cause heart antibody technology for andecaliximab, which was attacks, which it was able to do through support developed by Gilead to treat gastric cancer. from over 60 key opinion leaders in cardiology. The share price has rallied 29.5% to 49.9p since While leading French regulatory agency the start of 2017 as excitement over the looming ANSM is happy to lift the restriction, it needs results from Gilead mounts. to be rubber stamped by the European Medical If Gilead is successful in developing the Agency so Clinigen can promote the drug to treatment, Abzena would benefit from licence senior physicians. fees, royalties and milestones in the low-to-mid It would also allow the company to revitalise digit range. the product and benefit from an uplift in sales in While this sounds low, Gilead is anticipated to the medium term. hit $1.4bn in peak sales for andecaliximab, which Broker Stifel analyst Max Herrmann is optimistic could potentially also be used to treat rheumatoid about the company’s outlook and anticipates arthritis and cystic fibrosis. Gilead aims to launch that cardioxane will drive ‘strong growth going the treatment in 2020. forward.’ [LMJ]

03 August 2017 | SHARES | 31 INVESTMENT TRUSTS Four ways to use investment trusts As investment trust assets hit an all-time high we look at ideas for four different types of investor

ecord issuance of ‘By doing so they are begins at home, so you could investment company joining a sort of club in start with 60% in a UK equity Rshares during the first which members, or rather income trust, like Finsbury half of 2017 has propelled shareholders, are stakeholders, Growth & Income (FGT). industry assets to an all-time however modest, in an ‘Reinvested dividends should high of £167.9bn. incredibly worthwhile give a steadier overall return Ten new initial public offerings enterprise.’ than growth-orientated funds raised £1.5bn, while secondary that tend to invest in smaller issuance reached £3.3bn – a BEGINNER TRUSTS companies and can be more record over a half-year period. For beginners dipping volatile,’ says Klonowski. The closed-end structure holds their toes in the world Add a global trust that excludes benefits for a range of investors: of investment, experts the UK, such as Monks (MNKS), gearing (borrowing money to recommend both UK and part of the Baillie Gifford stable, invest alongside shareholders’ global trusts. with the other 40%. capital) can supercharge returns ‘Don’t be too specific about This 60/40 approach works for younger investors with a sector or geographic location, whether you are investing a long investment horizon, while and don’t be misled by articles lump sum or saving regularly. the ability to smooth dividend suggesting you can afford to Newlands recommends drip payments is a boon for income- invest in far-flung locations or feeding money into markets and seekers in retirement. esoteric sectors just because you many trusts have regular savings ‘People who discover can take a longer-term view,’ says schemes from £50 per month. investment trusts and invest in Francis Klonowski of Leeds-based reputable ones (and there are Klonowski & Co. ‘A simple, well- TRUSTS FOR MEDIUM- virtually no disreputable ones) diversified trust will include some TERM GOALS will rarely if ever regret it,’ says of those areas, but have much Investment trust John Newlands, founder of else besides.’ shares can trade at a discount Newlands Fund Research. Like charity, investing often or premium to the value of

32 | SHARES | 03 August 2017 INVESTMENT TRUSTS underlying assets, and those excellent vehicles for diversifying The closed-end structure saving for a medium-term goal, portfolios and gaining exposure means managers will never be like school fees, could consider to more illiquid or specialist forced into a fire-sale of assets buying into a growth sector on a markets – infrastructure and at knock-down prices to meet decent discount. alternative sources of fixed redemptions. ‘There are some great income, such as peer-to-peer managers in the smaller lending and asset-backed INCOME-GENERATING companies space with securities,’ says Harrison. TRUSTS strong long-term returns All infrastructure Investment trusts can and you can pick INVESTMENT trusts are trading work well for income-seekers some up on double- TRUST ASSETS AT on a premium at not least because trusts can digit discounts,’ ALL-TIME HIGH OF present – sometimes hold back 15% of dividends says Monica Tepes, a double-digit one – generated by the underlying investment companies £167.9bn but experts point to portfolio each year. research director at the likely conservative ‘This can be used to Cantor Fitzgerald. nature of net asset value supplement dividends in She likes BlackRock Smaller calculations: discount rates used future years should the income Companies (BRSC), BlackRock to value infrastructure assets disappoint due to dividend cuts,’ Throgmorton Trust (THRG) have fallen much less than yields says Haynes. ‘It can prove an and Schroder UK Mid & Small on other assets and remain close excellent way for trusts to build Cap (MCP). to levels seen a decade ago. long records of dividend growth.’ Newlands favours listed After a five-year absence, Diane Weitz, a director of private equity trusts, like ICG asset manager 7IM has re- Ashlea Financial Planning in the Enterprise (ICGT), also on a entered the sector, using recent Cotswolds, points to many trusts’ double-digit discount, for more fundraisings as an attractive history of more than 40 years’ adventurous investors. entry point into HICL (HICL), rising income. These sectors can be choppy, BBGI (BBGI) and International Among them are UK so be aware of gearing and Public Partnerships (INPP). equity income trusts City of consider how you will manage Tepes likes alternative London (CTY) and JP Morgan your investment as you approach energy trusts, like NextEnergy Claverhouse (JCH), which have the time you need the money. Solar Fund (NESF) and increased their dividends for 50 ‘Many investment trust Greencoat UK Wind (UKW), and 44 years respectively. managers use gearing to as satellites, while Gavin Weitz also likes F&C European enhance performance, which Haynes, managing director of Assets (EAT), which is designed can then exaggerate losses Whitechurch Securities favours to yield around 6% and generate in falling markets,’ says Jim trusts like F&C Commercial capital growth. Harrison, a director at Master Property (FCPT) for illiquid Newlands tips equity income Adviser. ‘Invest for at least five investments like property. and growth trusts for retirees, years and look at the share price such as Edinburgh (EDIN), and total return in 2007/09 Perpetual Income & Growth so you’re not just considering (PLI) and Temple Bar (TMPL). returns in a bull market.’ ‘That way you can draw a very decent income of TRUSTS AS SATELLITE say 3% per annum to pay HOLDINGS for the groceries while Specialist investment having the expectation of trusts make good satellite longer-term and, extremely holdings for investors with importantly, potentially portfolios of open-ended funds. inflation-beating capital ‘Investment trusts are growth,’ he says. (JH)

03 August 2017 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues Weighing up the Vanguard LifeStrategy funds Is their low cost, diversified nature too good to be true?

nvestors have been pouring money into the Vanguard ILifeStrategy funds, attracted by their low fees, diversification and strong track record. But the funds’ inability to respond to market movements has led some people to question whether their advantages are overstated.

20-100% EQUITY EXPOSURE

than the smallest companies. WHO ARE THEY SUITABLE FOR? The US is home to the The funds are designed to be WHAT ARE THE VANGUARD greatest number of large cap a one-stop-shop solution that LIFESTRATEGY FUNDS? stocks, but to make the funds meets the needs of investors The funds provide investors more appealing to UK investors regardless of their risk profile. with a static portfolio made Vanguard has given them a UK The funds with the lowest equity up of Vanguard’s equity and bias. For example, the Vanguard exposure are designed for low- bond index funds. You can LifeStrategy 60% Equity Fund risk investors and the funds with choose from one of five funds, (GB00B3TYHH9) has a 25% the highest equity exposure are ranging from a 20% equity equity weighting to the UK, for higher-risk investors. exposure all the way up to a considerably higher than the UK’s Mark Entwistle, an investment 100% equity exposure, with weight in the global market. any remainder in bonds. James Norton, senior The funds are passive, which investment planner at Vanguard, VANGUARD LIFESTRATEGY means they track indices says one of the advantages of PAST PERFORMANCE rather than employing a fund the funds is their diversification. 5 year annualised Fund manager to make strategic Someone who invests in the 60% return investment decisions. This equity fund will get exposure to 20% Equity Fund 5.62% enables them to have a low 17 underlying funds containing a 40% Equity Fund 7.89% ongoing charge of 0.22%. total of 19,822 equity and fixed The funds are built on a market income holdings. 60% Equity Fund 10.16% capitalisation-weighted basis The funds rebalance to ensure 80% Equity Fund 12.42% – the largest companies in the the equity and bond allocations 100% Equity Fund 14.69% indices carry a higher weighting remain consistent over time. Source: Morningstar. Data as at 21 July 2017

34 | SHARES | 03 August 2017 MONEY MATTERS manager at Walker Crips, says other asset classes alongside a funds launched in 2011 the the products may be particularly LifeStrategy fund. ‘This would Threadneedle UK Equity appealing for smaller investors, be clunky, however, and would Income Fund (GB00B888FR33) for whom high costs can make mean more work for the has outperformed the FTSE All building a diversified portfolio investor,’ he adds. Share by almost 40%. uneconomical. The funds have a bias towards Randal Goldsmith, an ‘Vanguard’s ready-made, large-cap stocks. Smith reckons analyst at Morningstar, says diversified proposition may suit investors would benefit from it’s very difficult to identify at such investors who are looking a higher allocation to the mid- the outset which managers for a simple, diversified approach cap sector as it tends to include will outperform. to their investments without companies at earlier stages of ‘If you’re going with an needing to involve a finance development with stronger active manager you need to professional,’ he explains. growth characteristics. look at their performance Dan Smith, investment analyst ‘History also suggests that for a long time before you at Thomas Miller Investment, over time mid-cap stocks have can be confident in their says passive portfolios are suited outperformed large-cap in abilities. Even then, you don’t to investors who are starting to virtually all developed equity know what is going on in the accumulate wealth and investing markets, albeit with slightly manager’s life or what their regularly into the markets. He higher levels of volatility,’ he says. priorities are, so what they do says this typically this implies a going forward could be very long investment time horizon. THE PASSIVE VS ACTIVE DEBATE different to what they’ve done Unlike active funds, the in the past,’ he argues. WHAT ARE THE LifeStrategy funds can’t The LifeStrategy funds have DISADVANTAGES? outperform their benchmark performed strongly since their Although the LifeStrategy funds index. inception, but Smith says this are diversified across equities The vast majority of active is partly owing to the fact and bonds, they exclude US equity managers have failed that equities and government other asset classes such as to outperform the S&P 500 in bonds have been the principle infrastructure, absolute return, recent years, but there are UK beneficiaries of central property and commodities. and Asia equity managers who banks’ monetary stimulus Entwistle says in order to have consistently outperformed programmes. achieve a truly diversified their benchmarks. Smith says equities and portfolio, investors would ideally For example, since the bonds currently look expensive hold a portfolio exposed to these Vanguard LifeStrategy both relative to history and on an absolute basis. ‘Going forward, we expect Alternative Options some reduction in central bank BlackRock’s Consensus range consists of five funds ranging from a stimulus and it seems logical 35% equity exposure to a 100% equity exposure. The equity allocation to expect those markets that isn’t fixed but instead can move within a defined range. TheBlackRock have benefitted most from Consensus 85 Fund (GB00B8D0SR58) can invest between 40% and central bank policies to suffer 85% in equities. some losses when stimulus Legal & General has eight multi-index funds but they can invest is withdrawn. This is not a opportunistically, as long as this is within the fund’s targeted risk position or opinion that can be level. As well as bond and equity index funds, they can hold UK expressed using the Vanguard commercial property. strategies, which to our mind Another alternative would be to create your own portfolio of index is a negative factor, recognising funds. It could be more diversified and better suit your needs, but it’s that not taking such positions likely to be more expensive. is precisely what the strategy is designed to do,’ adds Smith. (EP)

03 August 2017 | SHARES | 35 MONEY MATTERS Helping you with personal finance issues Lessons from the pension freedoms More than two years after they were introduced we look at the impact of the changes

hen the pension the flexibilities are being from £11,132 in the second freedoms launched used and the retirement quarter of 2016 to £9,300 – or Win April 2015, nobody choices people are making. £3,100 per month - in the same was quite sure how savers So far the worst fears about period this year. would react. people spending their retirement More savers also appear to be Some feared people pots irresponsibly have not been setting up regular payments from wouldn’t be able to resist borne out. their pensions, with the average draining their pots quickly number of payments per person to fund immediate spending SAVERS MAKING SENSIBLE increasing from 1.86 in Q2 2016 needs. Others, including RETIREMENT INCOME to 1.97 this year. It’s impossible former pensions minister DECISIONS to draw firm conclusions from Steve Webb, insisted people In fact, the average amount this limited data, of course, but if could be trusted with their withdrawn per person has been people are taking less out of their savings and wouldn’t splurge steadily declining since April pension at regular intervals that the lot on sports cars. 2015, according to the latest feels like a good sign. We are now beginning to Government stats. The average The sustainability of these get a clearer picture of how value of withdrawals dropped withdrawals is still not clear,

36 | SHARES | 3 August 2017 MONEY MATTERS however, and will depend on the circumstances of the individual Recap: How do the freedoms work investor. For example, a healthy If you are aged 55 or over and are in a defined contribution (DC) 65 year old with a £1m pot pension scheme, you can withdraw as much of your pension as can be confident withdrawals you want. Up to 25% is available tax-free, with the remainder taxed of £15,000 a year should last in the same way as income. throughout their retirement You can choose to take ad-hoc lumps sums from your fund, with (with something left over to 25% of each chunk tax-free, or leave your money invested and take pass on to the kids). If the same an income by entering drawdown. person had a total pot worth Alternatively, you can still buy an UM £100,000 then there is a serious P S UM annuity – products sold by insurers L risk their money would run out. H up to C which provide you with a guaranteed A 25% It’s absolutely vital you think E

income for life. R TAX FREE about how long your fund O will need to last when you Unused drawdown funds can F make your retirement income be passed on tax-free if you die 75% plan. Someone retiring at 65 before your 75th birthday, or at your TAXABLE might need their pension to beneficiaries’ marginal rate of income last for 30 years or more, so a tax otherwise. sustainable withdrawal plan needs to reflect this. would simply rather have the year to just £4,000. TIP: THINK CAREFULLY ABOUT money elsewhere. You also need to think about WHAT YOU WANT TO DO If this is you, think carefully how you will protect your WITH YOUR MONEY about your decision. Pensions money from rising prices. One of the mistakes a lot of are extremely tax efficient, with The rate of inflation currently people make when using any investment growth free of stands at 2.6%, so if you the pension freedoms is to capital gains tax. Furthermore, withdraw your pension and access their pot without really if you take any taxable income put it in a Cash ISA paying considering what they want to from your pot, the amount you an interest rate of 1%, the do with the money. For some can subsequently save into a value of your savings will it is a trust issue – the pensions pension and receive tax relief be guaranteed to fall in real ‘brand’ is tarnished and they will plummet from £40,000 a terms. (TS)

AVERAGE WITHDRAWALAverage withdrawel per PER person PERSON TAKE UP OF PENSIONTAKE UP OF PENSION FREEDOMS FREEDOMS

£20000 £450,000 £400,000 Average withdrawal £350,000 Number of payments £15000 £300,000 Number of individuals £250,000 £200,000 £10000 £150,000 £100,000 £50,000 £0 £5000 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q1 2017 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q1 2017

Source: HMRC Source: HMRC

03 August 2017 | SHARES | 37 LARGER COMPANIES Can AstraZeneca recover from failed cancer trial? Mixed views on the drug company’s prospects as dividend fears surface

nalysts are split on whether drugs titan AstraZeneca (AZN) can ANALYST SAYS bounce back from the shocking Afailure of its MYSTIC lung cancer 50% trial as fears of a dividend cut and DIVIDEND CUT opportunistic takeover bids emerge. COULD BE ON Shares in AstraZeneca crashed THE CARDS 15.6% on 27 July after the trial failed to demonstrate that a combination of durvalumab and tremelimumab immunotherapies could help patients in the advanced stages of lung cancer. After a modest recovery they trade at £45.42. AstraZeneca has been trying to catch up to leaders in immunotherapy – a means of treating cancer and other diseases which taps into the expenditure spent on the MYSTIC trial. power of the immune system. EARNINGS HIT QUANTIFIED COULD THE DIVIDEND BE CUT? Jefferies is also negative and says the ‘failure Beaufort Securities analyst Ben Maitland has of MYSTIC to hit the progression-free survival downgraded AstraZeneca to ‘sell’ on the failed endpoint for the mono and combo arms is a drug trial and believes the dividend is at risk. significant blow.’ The investment bank estimates He has also cut his forecast target price by the disappointing results have wiped off between 11% to £39. 10% and 15% of mid-term earnings and valuation ‘Looking forward, we are becoming more from AstraZeneca. concerned that the core AstraZeneca business is Despite AstraZeneca’s setback, Jefferies believes not generating enough cash to justify its generous the company has an interesting pipeline and dividend policy,’ comments Maitland. highlights that the Imfinzi (durvalumab) drug He believes the full year 2018 dividend is at experienced success in other areas and could be risk and suspects that a cut in a range of 25% to used to treat other cancers. 50% may be on the cards. In the full year to 31 It adds the pipeline could make the pharma December 2016, AstraZeneca paid $2.80 per share. giant a ‘potential consolidation target, once the Maitland says a potential takeover of the negative impact of MYSTIC has been priced in.’ company is unlikely as nothing has Cantor Fitzgerald’s Brian White also significantly changed since US rival Pfizer FAILURE SEES sees recovery potential in AstraZeneca tried to acquire AstraZeneca in 2014. thanks to the strong launch of oncology This deal was largely justified by UK cost BIGGEST EVER drugs Lynparza and Tagrisso, which cutting and tax rate savings and was 1 DAY SHARE generated $59m and $232m in sales in ultimately blocked by the authorities. PRICE FALL OF the first half of 2017. He believes AstraZeneca is not AstraZeneca trades on a forecast deterred from its oncology focus, 15.6% 15.1 times earnings per share in the year despite the setback and the high capital to 31 December 2018. [LMJ]

38 | SHARES | 03 August 2017 SMALLER COMPANIES Victoria’s a compelling growth yarn Global growth scope and dividend potential are not fully understood

hares views the global growth scope and Going forwards, the acquisition of Dutch future dividend paying potential of innovative artificial grass businesses GrassInc and Avalon has Sflooring specialist Victoria (VCP:AIM) as positioned Victoria in a rapid growth, high margin underappreciated. Take advantage as the design-led European artificial grass market. With scale now carpets-to-hardwood flooring manufacturer ahead achieved in carpet manufacturing, Victoria is of further earnings upgrades and acquisitions in a turning its acquisitive attentions to higher margin fragmented global flooring market. hard flooring in Europe. Victoria has achieved scale in carpet manufacturing through acquisitions and is FORMIDABLE CASH FLOW now turning its attentions to growing its hard Last year, Victoria generated £23.7m of underlying flooring business. free cash flow, equating to more than 100% of In a real coup, the £485m cap recently hired underlying profit after tax. The charismatic Wilding seasoned flooring industry operator Philippe reminds investors that in 2006, Warren Buffett Hamers as CEO, enabling executive chairman acquired leading flooring manufacturer Shaw Geoff Wilding to focus on acquisitions. In response Industries for its prodigious cash flow. Well-run to rapid growth, Victoria has also kick-started a flooring makers generate oodles of cash due to reorganisation of its UK production and logistics attractive supplier terms, quality debtors and the that will also increase capacity, drive efficiencies long life of their manufacturing assets. and boost cash flow. Victoria currently trades without a dividend, management’s focus being on industry consolidation ON A ROLL and paying down debt which remains manageable – Better-than-expected full year results (25 Jul) the net debt to earnings ratio is comfortably below showed revenue up 29.5% to £330.4m and a 61% 2 times. In the medium-term however, Victoria’s surge in underlying profit before tax to £29.4m, formidable cash flow means it will be capable of reflecting organic growth and earnings enhancing paying an attractive dividend indeed. acquisitions. The second half performance was For the year to March 2018, Cantor Fitzgerald boosted by contributions from acquired underlay Europe forecasts pre-tax profit of £38.2m and makers Ezi-Floor and Dunlop. earnings per share of 31.3p, rising to £40.2m and 32.9p respectively by March 2019. Despite a series of upgrades in recent years, Shares believes consensus estimates are conservatively pitched, as canny Wilding likes to under-promise and over-deliver.

SHARES SAYS:  A prospective PE of 17.4 doesn’t immediately scream value but we’re increasingly bullish about Victoria’s global growth potential, cash generation and future dividend-paying potential. Buy at 545p. (JC).

BROKER SAYS: 002

03 August 2017 | SHARES | 39 SMALLER COMPANIES Tarsus to take off in second half Big events coming in the remainder of the year

vents company Tarsus (TRS) could do better rebound in its Turkish business which saw revenues than anticipated in the second half and the fall 15% in the first half but is expected to end the Evaluation looks undemanding. year flat, implies to us that the second half could be Buy now ahead of a pivotal second six months a bit better than the market expects and this could of 2017 and for a decent and rising dividend, hiked result in earnings upgrades. 11% at the half-year stage. At 299.3p the shares Risks to weigh include a rebound in sterling trade on an average price to earnings ratio for 2018 which would impact the value of Tarsus’ and 2019 of 14.2 based on Investec’s forecasts and predominately overseas earnings and net debt of offer a prospective yield of 3.5%. £85.8m. Borrowings have built up partly as a result This smoothes out the significant disparity in of M&A in China and the US which should in the earnings per share between odd and even years long-term be a positive for the business. as its two biggest events, the Dubai Air Show and Labelexpo, both fall in odd years. SHARES SAYS:  There is also a significant weighting to the Numis has a price target of 350p and we also see second half of 2017, which includes both of upside at current levels. (TS) these shows, expected to account for 85% of adjusted pre-tax profit. BROKER SAYS: 004 The hefty increase in the dividend and a big

Monitise cranks up Investors panic Surgical Innovations takeover pressure after Augean to buy Elemental issues warning Healthcare CYNICS MIGHT ARGUE that mobile money technology Waste management company Med tech Surgical Innovations designer Monitise (MONI:AIM) is Augean (AUG:AIM) spooks (SUN:AIM) is to acquire medical attempting to twist shareholder’s investors by saying that profits products distributor Elemental arms to accept a £70m cash and will come in at the lower end of Healthcare for £9.3m in a bid to shares offer for the company. market expectations. enhance earnings and provide Investors have been reluctant The result was a 21% drop in a direct route to the UK market. to take the terms from Nasdaq- the share price to 50p following Co-founder David Marsh and listed Fiserv. News that Monitise, the announcement (25 Jul). The managing director Adam Power once valued at more than £1bn, company’s first half results to 30 from Elemental will become has missed lowly-set revenue June also warns that its energy significant shareholders once forecasts by a mile could change and construction business profits the acquisition is completed. their minds, Monitise flagging were ‘marginally down’ while In the last 12 months Surgical £50.9m, 25% south of consensus integrated services were flat year Innovations is up more than 100% £58.9m expectations. (SF) on year. (DS) to 3.8p. (LMJ)

40 | SHARES | 03 August 2017 FUNDS Join the 20% club We examine the best performing funds from AJ Bell Youinvest’s list of favourites

ike a number of investment fund in mega cap Alphabet. growing companies where he platforms AJ Bell Youinvest But the fund is really looking to can understand their business Loffers a list of ‘favourite those smaller companies which models and which in his view are funds’ to help you narrow may be the next generation of both sustainable and scalable’. down your selections from the tech leaders. Jake Moeller, head The portfolio of between 40 thousands of options available research for the UK and Ireland and 50 holdings will contain to you. There are 72 active and at Thomson Reuters’ Lipper, says those with higher yielding passive funds to choose from, ‘Polar has managed to outshine dividends than the market as all selected with the help of competitors in a tough market for well as those with good growth investment consultant Square tech funds. It takes on a bit more prospects. Mile, for this article we’re focusing risk in smaller cap stocks to do so on funds that have returned more but has converted its bets well.’ Artemis US Smaller than 20% to investors, all but one Jupiter Asian Income Companies GB00BMMV5766 over a three-year period. (GB00BZ2YMT70)Jupiter Asian Income GB00BZ2YMT70 Fund size: £178.44m Polar Capital Global 3-yr return: 24.65% Technologies Fund size: £480.27m Annual fee: 0.9% IE00B42W4J83 Return (since Top holdings: Advanced inception in Energy Fund size: $1.48bn Feb ’16): 28% Industries, Swift 3-yr return: 29.22% Annual fee: 0.98% Transportation, Annual fee: 1.16% Top holdings: Samsung Digitalglobe Top holdings: Alphabet, Electronics, Facebook, Taiwan This fund offers investors Microsoft Semiconductor, exposure to smaller US Sands China companies with a market cap As the name suggests, this between $1bn and $10bn. fund looks to capitalise on the This fund is the odd one Square Mile says that although growing value of technology out from the selection as this fund doesn’t have a long equities. Its aim is to beat its it offers a healthy yield of track record, starting in 2014, benchmark, the Dow Jones 3.72% as well stellar growth ‘we are comforted by our belief World Technology index, by 3% opportunities. Run by Jason that [fund manager] Mr Weldon to 7% a year. Pidcock, who Moeller describes is an accomplished investor According to Square Mile, as an ‘industry veteran’, at who built a highly credible track lead manager Nick Evans Jupiter he is free to use his record at Threadneedle Asset supported by his team visit 800 own investment philosophy, Management where he ran a companies each year as well as unconstrained by house styles similar product. industry events to keep up with seen at other firms. He has over Lipper’s Moeller says ‘the developments. 20 years of experience investing US economy is well placed to The fund’s portfolio is made in Asian stocks. support smaller companies and up of between 70 and 90 stocks. The fund is new, launching this fund should provide good While the idea is for a single in early 2016 and has already opportunities for investors holding to make no more than returned 26%. with a decent risk budget’. The 3% of the fund, it has 8% of the Square Mile says Pidcock ‘likes fund aims for diversification

03 August 2017 | SHARES | 41 FUNDS

and contains between 50 and Baring Europe Select Trust Invesco Perpetual Asian 70 holdings with a rule that for GB00B7NB1W76 GB00BJ04DS38 every unit of downside risk, a stock should have at least twice Fund size: £1.76bn Fund size: £1.11bn the upside potential. 3-yr return: 21.05% 3-yr return: 20.24% Annual fee: 0.81% Annual fee: 0.9% Polar Capital Global Top holdings: Top holdings: Samsu ng Insurance IE00B5339C57 Teleperformance, IMCD, Electronics, Plastic OMNIUM Netease, Fund size: £843.84m JD.com 3-yr return: 22.42% This fund’s team of managers, Annual fee: 0.91% Colin Riddles, Rosie Simmonds According to Square Mile, the Top holdings: Chubb, Marsh, and Nicholas Williams, look team, led by manager Wiliam Arch Capital for companies with growth Kam, believes that investors potential and reasonable market behavioural biases can give rise Fund manager Nick Martin’s valuations. to market inefficiencies, such as aim with this fund is to invest in The fund limits the market overreactions to short-term news. quality insurers that can produce cap of companies it can invest The previous lead manager sustainable underwriting profits. in to €5bn. Stuart Parks now heads the Asian These companies tend to have equity team at the firm. management teams that are underwriting with their own Old Mutual UK Smaller Baillie Gifford Japanese money through material stock Companies GB00BHBX8S02 GB0006011133 ownership. Fund size: £1.08bn Fund size: £1.56bn Standard Life Investments 3-yr return: 20.74% 3-yr return: 20.22% Global Smaller Companies Annual fee: 0.94% Annual fee: 0.68% GB00B7KVX245 Top holdings: Fevertree, Top holdings: Softbank, Ascential, Inpex, Fund size: £542.63m Paysafe Sumitomo 3-yr return: 22.32% Mitsui Annual fee: 1.06% Top holdings: Align Managed by small cap According to Square Mile, Technologies, veteran Dan Nickols, his team this fund is managed by a highly Balchem, has a growth bias but also regarded team with a long Wintrust take a macro view which can established record of investing Financial guide them to more cyclical in Japanese equities. One or defensive companies when distinguishing feature of this This fund looks for companies appropriate. fund is the longer time horizon that have the potential to be The fund’s objective is to used by the management team future leaders in their field. outperform the Numis Smaller consisting of Matthew Brett and Square Mile views that manager Companies (ex Investment Trust) Sarah Whirley. (DS) Alan Rowsell ‘has a very good benchmark. understanding of his asset class Source for all data AJ Bell Youinvest and shows a deep commitment to the fund’s investment philosophy and process’.

42 | SHARES | 03 August 2017 INDEX

Intelligent Investments In minutes

Open an account today youinvest.co.uk SIPPs, ISAs, funds & shares

The value of investments can go down as well as up and you may get back less than you originally invested. We don’t offer advice about the suitability of our products or any investments held within them, if you require financial advice you should consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change.

AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE

KEY BP (BP.) 8 iShares MSCI China 29 Polar Capital Global 41 (MCHI) Technology Fund • Main Market British American 7 Tobacco (BATS) ITV (ITV) 16 (IE00B42W4J83) • AIM Jimmy Choo (CHOO) 14 Polar Capital 29 • Fund Technology Trust JP Morgan 33 • Investment Trust (PCT) Claverhouse (JCH) • IPO Coming Soon Prudential (PRU) 20 •  ETP Jupiter Asian Income 41 (GB00BZ2YMT70) Rightmove (RMV) 10 Kainos (KNOS) 12 Rotork (ROR) 20 Abzena (ABZA:AIM) 30 Lloyds Banking (LLOY) 11 Royal Dutch Shell 8 Alfa Financial (ALFA) 12 Ceres Power 10 (RDSB) Martin Currie Asia 27 Allianz Technology 29 (CWR:AIM) Unconstrained (MCP) Schroder UK Mid & 33 Trust (ATT) City of London (CTY) 33 Small Cap (SCP) Monitise (MONI:AIM) 40 Artemis US Smaller 41 Clinigen (CLIN:AIM) 30 Softcat (SCT) 12 Companies Monks (MNKS) 32 Clipper Logistics 18 Sophos (SOPH) 12, 16 (GB00BMMV5766) (CLG) Mulberry (MUL:AIM) 14 SPDR S&P US 3 AstraZeneca (AZN) 30, 38 Neptune Global 23 Diageo (DGE) 18 Industrials Select Technology Fund EasyJet (EZJ) 16 Sector (SXLI) (GB00BYXZ5N79) Edinburgh (EDIN) 33 Spirax-Sarco 20 NextEnergy Solar 33 Engineering (SPX) F&C Commercial 33 Fund (NESF) Property (FCPT) Standard Life 42 Old Mutual UK 42 Investments Global F&C European Assets 33 Smaller Companies Smaller Companies (EAT) (GB00BHBX8S02) (GB00B7KVX245) Augean (AUG:AIM) 40 FDM (FDM) 9, 12 Oxford Biomedica 30 Surgical Innovations 40 Fevertree Drinks 10 (OXB) Baillie Gifford 42 (SUN:AIM) Japanese (FEVR:AIM) Paysafe (PAYS) 19 Tarsus (TRS) 40 (GB0006011133) Finsbury Growth & 32 Perpetual Income & 33 Temple Bar (TMPL) 33 Barclays (BARC) 11, 12 Income (FGT) Growth (PLI) Threadneedle UK 35 Baring Europe 42 Greencoat UK 33 Pets at Home (PETS) 20 Equity Income Fund Select Trust Wind (UKW) (GB00B888FR33) (GB00B7NB1W76) HICL (HICL) 33 Vanguard 34 BBGI (BBGI) 33 HSBC (HSBA) 6 LifeStrategy BlackRock 35 ICG Enterprise (ICGT) 33 60% Equity Fund Consensus 85 Fund Imperial Brands (IMB) 7 (GB00B3TYHH9) (GB00B8D0SR58) International Public 33 Victoria (VCP:AIM) 39 BlackRock Smaller 33 Partnerships (INPP) Worldpay (WPG) 19 Companies (BRSC) Polar Capital 42 Invesco 42 Global Insurance BlackRock 33 Perpetual Asian (IE00B5339C57) Throgmorton Trust (GB00BJ04DS38) (THRG)

03 August 2017 | SHARES | 43