VOL 22 / ISSUE 02 / 16 JANUARY 2020 / £4.49

VEGAN BOOM

4 stocks with the right ingredients

HOW MUCH MONEY WHY THE ‘LOWEST COST’ RETAIL SECTOR WILL YOU NEED IN ETFS AREN’T ALWAYS CHRISTMAS WINNERS RETIREMENT? THE CHEAPEST AND LOSERS EDITOR’S VIEW Good news on the horizon for your cash savings Why finding a better deal for your money may become a lot more straightforward

roposals from the Financial Conduct Authority (FCA), a regulator, to simplify P the easy access cash savings market are important on many levels. The need to find the best deal on cash is often forgotten by investors, despite many people putting so much work into researching the best stock, fund or bond opportunities. It is just as important to get the best returns from cash as it is from other assets. Cash should be a major part of your wealth strategy. Even though investments may dominate ISAs and SIPPs, particularly for people not yet in retirement, cash is still a major part of the wealth puzzle in that you need it for emergencies and also At the time of writing the pound had started to to take advantage of opportunities in the market. fall in value as the market weighs up the prospect You shouldn’t let cash sit in accounts paying a of the Bank of England potentially cutting interest pittance, particularly as inflation can eat away at rates to help stimulate the UK economy. Such your real returns. That means looking around for action makes it even more important to shop the best deals which could become a lot easier in around now to find the best possible deal for the future if the FCA’s proposal is actioned. your cash before savings rates are cut further to The FCA has proposed that banks and building the bone. societies have a single rate for easy access cash Higher rates can be found if you’re happy to lock savings accounts after an initial 12-month period. up your cash for longer periods. Just remember It means that long-standing customers will have that a wise wealth strategy involves keeping the same rate as those coming off an introductory some cash ready for immediate access to deal rate. In essence, it will mean that savings providers with emergencies like a broken boiler, so don’t won’t be able to gradually reduce interest rates put everything in a one-year or longer fixed-term over time. savings account when the cash cannot be accessed This should make it easier for savers to compare before the end of the term. their current deal with the rest of the market. As for anyone investing in the banking sector, Ahead of an update from the FCA later this year it doesn’t seem like you need to be too worried it is worth pointing out some developments in the about the FCA’s proposal creating substantial extra market which involve financial services companies costs for the industry. Broker Shore Capital believes offering cash switching accounts. the impact will be ‘relatively small’ in the context of For example, asset manager Octopus has a banks’ revenue bases and therefore it is a marginal service whereby you deposit cash and it will find rather than a material headwind. some of the best savings rates on the market. At the end of the savings term you’ll automatically be offered its best available rate from a range of By Daniel Coatsworth Editor partners. We expect more companies to launch similar services in 2020.

2 | SHARES | 16 January 2020 We strive to go deeper.

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121040187_IT_ADVERT_Shares_Online_2186.indd 1 09/01/2020 16:05 VIEWING SHARES AS A PDF? Contents CLICK ON PAGE NUMBERS TO JUMP TO THE START OF THE RELEVANT EDITOR’S SECTION 02 VIEW Good news on the horizon for your cash savings Can the Christmas retail losers’ problems be fixed? / Liontrust roars 06 NEWS ahead / Debate emerges over rate cut after weak GDP data / NMC Health / The value of takeovers on the AIM market

GREAT New: / 11 IDEAS Updates: / Reach / Joules UNDER THE 16 BONNET Why growth could be a hard slog for

19 FEATURE Vegan boom: 4 stocks with the recipe for success

28 RUSS MOULD The most and least popular stocks heading into 2020

32 ETFS Why the ‘lowest cost’ ETFs aren’t always the cheapest

36 FUNDS The pros and cons of funds with concentrated portfolios

38 EDUCATION The difference between bottom-up and top-down investing MONEY 40 MATTERS How much money will I need in retirement?

43 ASK TOM ‘How do VCT and EIS products work alongside a pension?’

44 CASE STUDY How I invest: managing a concentrated portfolio of stocks

47 INDEX Shares, funds, ETFs and investment trusts in this issue

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 Index of companies and funds in this issue 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 | 16 January 2020 GREAT BRITISH DIVIDENDS

Sometimes reliable and steady wins the race, which is why the JPMorgan Claverhouse Investment Trust plc is designed to provide sustainable income. For 46 years, we’ve delivered unbroken dividend growth*, helping UK investors looking for strong, reliable returns build stronger portfolios. Find out more jpmorgan.co.uk/JCH

Your capital may be at risk. Past performance is not a reliable indicator of current and future results. *The Association of Investment Companies’ article as of 12 March 2019. Morningstar ratingTM: © Morningstar rating all rights reserved, as at 30 November 2019. FE Crown rating as at 30 November 2019. The methodology calculations use by companies that provide awards and ratings are not verified by J.P.Morgan Asset Management and therefore are not warranted to be accurate or complete. LV-JPM52492 | 12/19 | 0903c02a8279937e NEWS Can the Christmas retail losers’ problems be fixed?

We look at how the listed retailers fared over the festive period

he kindest description you could give the post-Christmas trading updates from the BEST PERFORMERS Tretail sector would be ‘mixed’. Some companies excelled, such as Next (NXT) Share maintaining its recent sales growth momentum, Stock price rise but others had a much harder time. year-to-date Next’s strong online sales and the robust sales growth at purely web-faced fashion firm Boohoo Safestyle 20.0% (BOO:AIM) suggests the internet continues to take business from the traditional high street, where the general trend was a fairly disappointing build-up to Christmas with lots of price cuts to Boohoo 12.4% draw in shoppers. High street fashion brand Superdry (SDRY), which reported its festive trading on 10 January, appears to have been a victim of chief executive Julian Dunkerton’s decision to avoid price cutting. Frasers 10.5% The result of a poor Christmas trading period was that profit for the current financial year could be Source: AJ Bell, SharePad. Data 1 Jan to 14 Jan 2020. wiped out entirely. A company shouldn’t be judged on one trading into his comeback at the company and he will period but Dunkerton is now around nine months be under increasing pressure to demonstrate his attempts to boost margins and restore brand integrity are gaining traction. Either, as Dunkerton argues, the brand has suffered thanks to too much discounting and/or some poor recent collections or its faux-Japanese products have lost their cachet with shoppers. The answer to this question will determine if its recent struggles are a short-term blip or signs of a longer- HOME COMFORTS term decline.

Sales of homewares appeared to be a bright LOST IN THE POST spot this Christmas – specialist Dunelm Card Factory’s (CARD) struggles look far from short (DNLM) posted a 5% increase in like-for-like term. On 9 January it reported a poor update with sales supported by strong online growth. sales growth seemingly coming from new store While in an otherwise mixed update from openings rather than organically. discount chain B&M (BME) ‘continued The real damage to the share price came from strength and outperformance across our Home the decision not to pay a special dividend. The Departments’ was flagged. company arguably painted itself into a corner by paying special dividends in the past so regularly

6 | SHARES | 16 January 2020 BIGNEWS NEWS

WORST PERFORMERS Share Stock price rise year-to-date

Card Factory -32.9% HOW DIFFERENT PARTS OF THE RETAIL SECTOR FARED Joules -23.5% CLOTHING – BDO’s high street sales tracker shows the two week build-up to Christmas was very disappointing for fashion sellers Superdry -18.9% HOME – the strongest category of growth Source: AJ Bell, SharePad. Data 1 Jan to 14 Jan 2020. according to BDO (fourth quarter +6.5%) supported by upbeat commentary from that investors got used to them. Dunelm and B&M If sales continue to falter then the ordinary dividend could eventually hit the chopping block. ELECTRICALS – Wasn’t great at both John Selling gift cards and wrapping paper cheaply Lewis and Argos, with gaming in particular has been a lucrative business but there seems a suffering. Mike Coupe, Sainsbury’s CEO, said: real risk that people just aren’t sending as many ‘The gaming market was down more than cards as they used to and/or are resorting to online 35%, impacted by an absence of new product greeting cards. launches’

RADICAL CHANGES NEEDED? CARDS – Card Factory’s like-for-like sales Another high street outfit struggling to stay relevant declined by high single digits in November and is Marks & Spencer (MKS). The story told by its December, with the company blaming weak latest trading statement is not a new one. Food is consumer sentiment. This resulted in a lowered doing fine but the clothing and home business is not. profit outlook There have been several attempts to fix this part of the business going back more than a decade but to TOYS – Weakness was flagged at both B&M date nothing seems to have worked. and Sainsbury’s which called the category down Liberum suggests a possible, more radical by double digits for a second year in a row solution: ‘In our opinion, Clothing & Home needs help from third party brands if it is to grow again. DIY – Q4 is a seasonally small quarter. Introducing third party brands, and therefore Weakness at SIG looked company-specific offering increased choice to the customer, has while Topps Tiles noted an improved exit trend proven to be an excellent growth driver to to the quarter competitors such as Next. ‘Since November 2015, the number of brands Source: Numis, Shares, BDO listed on Next’s website has increased 68% to 737. Over a similar period, revenue from these third With the pressures on the rest of the business, party brands has increased 106% while profits the launch of a food delivery service with Ocado from them have increased 186% (margins have (OCDO) later in 2019 really needs to go smoothly increased from 12% to 17%).’ for Marks.

16 January 2020 | SHARES | 7 NEWS Liontrust roars ahead on sustainable fund flows Shares in the asset manager have hit a new all-time high

hares in Liontrust Asset Management (LIO) jumped over 9% to a new all-time high 100 of £12.20 last week after it revealed that S LIONTRUST ASSET MANAGEMENT net fund inflows had almost doubled in the nine months to 31 December compared with the same 1000 period a year ago. Assets under management at the end of 2019 were £19.1bn compared with £11.2bn in 2018. 00 Part of the increase was due to the acquisition of Neptune Asset Management in October, which brought in £2.7bn of assets, while the rest was due 201 to the strong performance of its funds and a surge of new money. Between April and December net inflows market has primarily driven these sales, there is reached £2.2bn, almost twice as much as in the growing interest from institutional investors and same period the previous year. Although the firm we are optimistic about increasing flows from didn’t specify which funds attracted the most cash, non-UK investors. As we enter a new decade, it did reveal that its Sustainable Investment team is we anticipate the strong momentum behind now managing over £5bn of customer funds. sustainable investment at the end of the last year Chief executive John Ions says: ‘While the retail will accelerate.’ Debate over rate cut after weak GDP data Policymakers are waiting to see if there was a post-election bounce before deciding whether to cut interest rates

A DEBATE HAS emerged over economy back on track, though data services purchasing managers’ whether or not the Bank of England following the election will be key to index data on 24 January, as these should cut interest rates after the any decision. could indicate where the economy economy grew by just 0.1% in the Five monetary policy committee headed in December. three months to November. members have hinted they would John Hawksworth, chief While this figure was slightly consider voting for a near-term economist at PwC, said it’s ‘too better than forecast, the economy rate cut. This includes external early to say for sure’ if economic shrank 0.3% month-on-month member Gertjan Vlieghe who told the momentum will pick up in the New in November, below the flat rate Financial Times he would vote for a Year now the political situation predicted. cut if data released later this month is clearer. Bank of England officials are shows there was no economic But he added that PwC’s latest debating whether to cut the base bounce after the election. financial services sector survey rate of borrowing from 0.75% to Investors will therefore be keeping ‘does suggest some boost to 0.5% to boost spending and get the a close eye on manufacturing and optimism’ since the election.

8 | SHARES | 16 January 2020 BIGNEWS NEWS Selling by insiders raises new questions for NMC Health It’s hard to marry the actions of major share sales and long-term support for the business

nited Arab Emirates-based private shareholdings in NMC. healthcare provider NMC Health (NMC) These recent events do not make for happy Ufaces mounting pressure amid short selling reading and raise more questions than answers for and as major shareholders ditch hundreds of shareholders and onlookers alike. millions of pounds worth of stock. It was all very different back in 2012 when the The business first came under fire from short company floated in London at 210p per share. seller Muddy Waters on 17 December when it Spurred on by acquisitive growth, the shares published a dossier which accused the firm of quickly became one of the darlings of the market, overstating its asset values, cash and reported reaching £40 in 2018, generating an 18-fold return debt levels. The shares plunged as much as 42% for early investors. at one point before recovering to close 27% down Doubts first started to be raised by analysts and on the day. investors at the start of 2019 regarding the use of One would normally expect a strong rebuttal of funding which wasn’t recorded in the company’s the claims and a management team expressing accounts. This is called off-balance sheet debt and ‘confidence’ in the business by committing to while the company claimed that it made ‘limited buying shares at depressed levels. use’ of this type of funding, investors took a less However, in a dramatic turn of events the sanguine view. company’s largest shareholder Saeed Mohamed However the current situation plays out, there Al Qebaisi has off loaded £375m worth of shares, are already a few lessons for investors to learn while relative Khalifa Butti Al Muhairi sold shares from this debacle. Extra scrutiny is required of worth £55.8m. companies operating in foreign lands, but quoted The company released a statement saying both on the London market, especially if growth is driven shareholders remained supportive and long-term by acquisitions funded by large amounts of debt. investors in the business. And high and/or increasing executive pay However, the wording used, which explains that combined with inadequate corporate governance the motivation of the sale ‘pertains only to the should be treated as a significant red flag. means of financing the investors’ shareholdings’ suggests that they had pledged their NMC shares NMC HEALTH 17 Decemer: udd aters against loans as a means of ‘cashing-out’ without 200 issues sell dossier formally selling shares. 200 This is supported by the announcement on 7 2400 7 anuary: January that investment bank Credit Suisse had 2200 aor share sales conducted an accelerated book-build to place announced 2000 $490m shares in NMC, owned by Saeed Mohamed Al Qebaisi and Khalifa Butti Al Muhairi, in order to 100 reduce their indebtedness. 100 Institutional shareholders Capital Group 1400 23 Decemer: N announces indeendent reie and Goldman Sachs were two institutions that 1200 participated in the placing, increasing their O NO D JAN

16 January 2020 | SHARES | 9 NEWS The value of takeovers on the AIM market increased by a third in 2019 Fintech and tech firms in demand as AIM takeover numbers outstrip Main Market

ccountant UHY Hacker Young reports that the value of takeovers of AIM-quoted Acompanies jumped by 32% last year with appetite for fast-growing fintech, technology and financial services targets driving the increase. It found that a large number of AIM takeovers in 2019 were driven by overseas acquirers snapping up valuable strategic acquisitions. Last year saw the value of AIM takeovers increase from £2.18bn to £2.88bn. These included payment services play Earthport being picked off by Visa for £205m while mobile advertising provider and allow founders and shareholders to exit at RhythmOne was bought by rival Taptica, now attractive valuations. There is no need for tech known as Tremor International (TRMR:AIM), for companies to stay private for them to achieve that. £225m. ‘Acquisitive businesses worldwide are now However, the numbers were also boosted by a much more aware of AIM’s reputation as a growth rebound in the value of oil and gas company M&A, platform for quality tech and fintech companies.’ which topped £1bn in 2019. In terms of takeover numbers, AIM actually UHY Hacker Young’s Laurence Sacker says the outperformed London’s Main Market. While the figures show AIM works well as an incubator of volume of M&A deals on the latter fell 18% to 18 tech and fintech companies. ‘Tech companies transactions in 2019, AIM takeovers held steady at listed on AIM do attract supportive shareholders 27 in both 2019 and 2018.

FTSE 350 MOVERS OVER THE PAST WEEK BEST PERFORMERS STOCK SHARE PRICE RISE REASON 13.0% Positive read-across from Ryanair update, analyst upgrades Lagonda 12.6% Reports of new funding/bid interest Galliford Try 10.3% Positive trading update following sale of housebuilding arm

WORST PERFORMERS STOCK SHARE PRICE FALL REASON SIG -21.7% Reports lower than expected profit and slashes guidance -13.6% Profit warning and stalled progress on debt reduction Marks & Spencer -13.3% Worse than expected Christmas trading in Clothing & Home Source: Shares, SharePad. Data to 14 Jan 2020

10 | SHARES | 16 January 2020 The signs are improving for Travis Perkins so buy now There is positive read-across from a sector rival and from activity in the property market

hares in builders’ merchant and tool-hire firm Travis TRAVIS PERKINS SPerkins (TPK) had a bumpy  BUY ride last quarter thanks to (TPK) £15.96 negative sentiment in its sector Stop loss: £11.17 caused by profit warnings from building supplies firm SIG (SHI) Market value: £3.9bn and a drop in UK housebuilding activity amid uncertainty over Brexit and the general election. With the election out of the way and Brexit due to be formalised later this month, the housing market already seems to market backdrop. community is undecided on have recovered some of its poise. What growth there was, Travis is an understatement. Of Large sales that had been mainly in ‘heavyside’ categories, the 20 analysts who cover the on hold have gone through was down to price increases stock, 15 are firmly on the fence and estate agent (SVS) rather than higher volumes. with a ‘hold’ recommendation reported that improved buyer In December 2018, according to Reuters. At the sentiment had led to a ‘strong’ management announced a plan same time the consensus price finish to the year, which should to cut costs, simplify the group target is £14.60 or more than 8% lead to improved sentiment and focus on its strengths in below the current share price. across the sector. the direct-to-trade business With the fourth quarter Rival builders’ merchant by selling both the trading update still to come Grafton (GFTU)also said trading consumer-facing division and the there may be another wobble in at the end of 2019 was better wholesale plumbing and heating the share price, but our feeling than expected. All this activity division. A buyer has now been is that the firm is through the suggests that Travis Perkins is well found for the latter with Travis worst of the slowdown and is worth a look at the current price. getting £46m in cash before right-sizing itself to improve In the three months to the end working capital movements. returns once construction of September, Travis reported The cost-cutting programme spending and the housing like-for-like sales up 3.4% with is already bearing fruit and is market pick up. notable contributions from the expected to save between Toolstation equipment hire £20m and £30m of operating 1700 business and the Wickes retail expenses by mid-2020. 1600 TRAVIS PERKINS business. Last month, new chief 1500 However the core direct-to- executive Nick Roberts 1400 trade merchanting business confirmed that the Wickes 1300 reported flat like-for-like sales demerger was on track for the 1200 after accounting for a difference second quarter of this year. 1100 in trading days due to the tough To say that the investment 2019 2020

16 January 2020 | SHARES | 11 Allianz Technology Trust is a must-have investment Access the some of the world’s most transformative and profitable companies with this London-listed trust

he world’s turned a few times since Walter Price ALLIANZ TECHNOLOGY Tfirst started picking TRUST  BUY technology stocks and few fund (ATT) £17.89 managers know the changes, Stop loss: £14.31 challenges and implications Total assets: £629m of the vast technological Tesla Gigafactory transition that is taking place across the globe than the senior electronics to online shopping, narrowed in 2020 reflecting the fund manager of the Allianz how we consume entertainment market’s current appetite for Technology Trust (ATT). using cloud computing to technology investment options. That makes this investment providing solutions to keep The average 3.4% discount trust an excellent solution for us safe from crooks and other tends to reflect the sometimes retail investors who want a way internet threats. volatile nature of tech stocks, in to the exciting profit potential which is typically penalised by that tech offers, but are scared WHY THIS TRUST STANDS OUT investors. But we believe there off by the complexity and high One of the ways Allianz is scope for this trend to change ratings of many tech companies. Technology Trust stands apart as investors switch to companies The trust has beaten its from other tech funds is that it most capable of delivering benchmark in both net asset has scope to drift further beyond sustainable growth through any value (NAV) and share price its benchmark index than most. economic slowdown. terms over one, three and five This means it can combine larger That could see the share price years, and the stock has increased or smaller positions in some of attain a decent premium to NAV nearly 250% in price since 2014. the world’s largest technology over the next 12 to 18 months. Price and his team like to be companies with outsized The stock has previously traded close to the action which allows stakes in faster growing names, close to a 6% premium to NAV. the trust to take a bottom-up, although it could also make the With very reasonable fees hands-on approach to stock share price more volatile. (ongoing charges are 0.48%), selection, able to visit foundries There are plenty of familiar the Allianz Technology Trust is or research and development tech names in the portfolio a very attractive option for UK sites, and speak directly to senior (Microsoft is its largest position investors looking for well-run management frequently. That’s right now), including Facebook, tech exposure. a big help since retail investors Apple, Tesla and Mastercard, simply don’t get access to the while the likes of online payroll 1900 1800 top brass of the biggest and best and human resources supplier 1700 tech companies in Silicon Valley, Paycom Software, advanced 1600 China or elsewhere. testing business Teradyne 1500 Today innovation in and Ring Central, the digital 1400 technology is transforming communications firm may be 1300 AIA THG TST virtually every industry. From less known in the UK. 1200 electric cars loaded with The discount to NAV has 2019 2020

12 | SHARES | 16 January 2020 GAMES WORKSHOP the dividend was hiked from 65p to 100p. One of the reasons we are excited about Games (GAW) £69.70 Workshop is the licensing opportunity associated with its intellectual property. Encouragingly Gain to date: 21.6% royalties increased by £5.2m to £10.7m during the Original entry point: period, although we are mindful that this income Buy at £57.30, 21 November 2019 stream can be unpredictable. The company continues to develop a TV series OUR POSITIVE CALL on fantasy miniatures firm based on the Eisenhorn novels which are set in its Games Workshop (GAW) is off to a cracking start, Warhammer universe. We are pleased to see the with first half results (14 Jan) taking the shares to company approaching this carefully. fresh highs. SHARES SAYS:  For the six months to 1 December 2019, pre-tax We still see significant potential, so keep buying. profit rose 44% to £58.6m year-on-year as sales advanced 19% to £148.4m. 7000 On a constant currency basis, sales were up 6500 6000 GAM WORHO by 16% to £145.6m. Trade, or sales through 5500 independent stockists, generated £76.1m, up 5000 4500 from £61.4m; retail £45.3m, up from £42.6m; 4000 and online £24.2m, up from £21.2m. 3500 3000 Pre-Christmas trading was also flagged as being in 2500 line with expectations and, in a show of confidence, 2019 2020 REACH JOULES (RCH) 143p (JOUL:AIM) 178.5p

Gain to date: 45.8% Stopped out Original entry point: Original entry point: Buy at 98.1p, 5 December 2019 Buy at 258p, 31 January 2019 WE IDENTIFIED THE old Trinity Mirror Group, now called Reach (RCH), as an outstanding value opportunity on 5 December 2019. Negative investor sentiment had resulted in the shares trading at a valuation that looked too pessimistic, especially with the improving balance between UNFORTUNATELY OUR BULLISH call on premium digital and print revenues. British lifestyle brand Joules (JOUL:AIM) hasn’t Given the difficult industry backdrop we were worked out. A slump in the share price has prepared to be very patient for the fledgling signs triggered our 200p stop loss following a poor of revenue stabilisation to have an impact on the Christmas trading update. share price. In rare cases, but less rare than we The shares are now in the recovery ward might suppose, value can in itself be a ‘catalyst’ following a warning that full year underlying and propel once nervous buyers and enriched pre-tax profit will be ‘significantly below market sellers to revise their expectations. expectations’. There has been no news since our article on While Joules delivered strong Black Friday sales, 5 December to justify the strong share price retail sales over the seven week festive period as performance – up nearly 50% – but even after a whole were ‘significantly’ behind expectations. such an impressive move the stock remains one Joules was unable to fully satisfy strong online of the cheapest on the UK market. demand during the Christmas sales due to ‘an Shares can understand why long-term investors internally generated stock availability issue’. may wish to stay the course in anticipation of more A poor Christmas, plus new tariffs impacting gains, but that will require the fundamentals to the US business and added supply chain costs continue to improve. means full year profit will disappoint. Reach will announce Liberum downgraded its year to May 2020 and its full-year results on 2021 pre-tax profit estimates by 37% and 20%, to 24 February. At the £10.1m and £14.4m respectively. same time the senior management team will 320 300 present their strategic 280 plans for value creation. 260 240 150 220 140 200 130 REACH 120 180 JOULES GROUP 110 160 100 2019 2020 90 80 70 SHARES SAYS:  60 50 Joules’ profit warning appears self-inflicted 2019 2020 rather than reflecting fundamental impairment of SHARES SAYS:  the brand. But we’re very disappointed that this A near-50% gain in such a short space of time is promising trade has turned sour. We want to see fantastic. However, we’re going to lock in those evidence that problems have been fixed before profits while the going is good and sell out now. suggesting to buy the shares as a recovery trade.

14 | SHARES | 16 January 2020 ACTIVELY MANAGED. DESIGNED TO PERFORM.

See how AVI’s strategy has stood the test of time.

Asset Value Investors (AVI) has managed the c. £1 bn time; (2) a sum-of-the-parts discount to a fair net asset AVI Global Trust since 1985. The strategy over that value; and (3) an identifiable catalyst for value realisation. period has been to buy quality companies held through A concentrated portfolio of c. 25* investments allows for unconventional structures and trading at a discount; the detailed, in-depth research which forms the cornerstone of strategy is global in scope and we believe that attractive our active approach. risk-adjusted returns can be earned through detailed research with a long-term mind-set. Once an investment has been made, we seek to establish a good relationship with the managers, directors and, The companies we invest in include family-controlled often, families behind the company. Our aim is to be a holding companies, property companies, closed-end constructive, stable partner and to bring our expertise – funds and, most recently, cash-rich Japanese companies. garnered over three decades of investing in asset-backed The approach is benchmark-agnostic, with no preference companies–for the benefit of all. for a particular geography or sector. AGT’s long-term track record bears witness to the success AVI has a well-defined, robust investment philosophy of this approach, with a NAV total return well in excess of in place to guide investment decisions. An emphasis is its benchmark. We believe that this strategy remains as placed on three key factors: (1) companies with attractive appealing as ever, and continue to find plenty of exciting assets, where there is potential for growth in value over opportunities in which to deploy the trust’s capital.

DISCOVER AGT AT WWW.AVIGLOBAL.CO.UK

*One investment is the Japan Special Situations basket of 15 Japanese stocks as at 31 December 2019.

Past performance should not be seen as an indication of future performance. The value of your investment may go down as well as up and you may not get back the full amount invested. Issued by Asset Value Investors Ltd who are authorised and regulated by the Financial Conduct Authority. Why growth could be a hard slog for Morrisons The supermarket group faces a highly competitive market backdrop

he UK’s fourth-largest supermarket chain can Tproudly trace its roots back to 1899 when William Morrison first set up his stall trading eggs and butter in Bradford Market. Today the business operates from almost 500 stores across the country, most of which it owns freehold, and turns over more than £17bn a year. On 7 January Morrisons (MRW) reported like-for-like sales for the 22 weeks to 5 Four supermarkets in being RETAIL CHALLENGES January 2020 down 1.7%. ‘vertically integrated’, with The tough conditions facing UK As well as the retail business, half of the fresh food it sells supermarkets are well known, which sells groceries and petrol either prepared at its own and the rapid expansion of and makes up the vast majority manufacturing sites or in- limited-assortment retailers such of sales, the group also has a store. Morrisons even has its as Aldi and Lidl has only made wholesale business providing own abattoir so that it can life harder for smaller chains like products to other retail and manage the whole - Morrisons. wholesale customers. p r o d u c i n g p r o c e s s ‘ f r o m fi e l d According to data from market It is unique among the Big to fork’. research firm Kantar, in the last year Morrisons’ UK grocery TESCO market share has shrunk from 6.7% 10.6% to 10.3% while Aldi and 5.0% SAINSBURYS Lidl’s combined market share has 5.9% 27.4% ASDA gone from 12.4% to over 14%. Four years ago the discount 6.1% MORRISONS duo’s combined share wasn’t even 10%, but their relentless MARKET ALDI store-opening campaign has 7.8% SHARE CO-OP starved other retailers of growth. If there is one saving grace for 16.0% LIDL the supermarkets over the last 10.3% year it’s that prices have been WAITROSE rising steadily which has largely 14.8% REST offset flat-to-falling volumes. As a result, total UK grocery sales 27Source: Kantar Worldpanel. Market share by sales. 12 weeks to 29 Dec 2019.+1615108657 in pounds have only shrunk in 16 | SHARES | 16 January 2020 absolute terms once in the last 12 2018 2019 2020E 2021E months so the ‘pie’ has remained Sales £17,262m £17,735m £17,744m £18,079m fairly stable. Operating £445m £465m £516m £537m WHOLESALE OPPORTUNITIES Profits Operating The wholesale business, which 2.6% 2.6% 2.9% 3.0% sells Morrison’s products via Margin Amazon and through petrol ROCE 5.5% 7.6% 8.6% 10.2% station forecourts thanks to deals ROCE = Return on Capital Employed. Note: Morrison’s financial year ends in January. Source: Reuters, Shares magazine with Harvest and Rontec, turned over more than £700m last year. been 2.6% for the last couple 7.9% respectively, but a lot of Given that group turnover was of years although analysts have the profit increase depends on £17.7bn it is clearly a fledgling pencilled in an increase to 2.9% margin gains and cost savings. In business but more deals with for the year to 31 January 2020 such a competitive market the the forecourt firms and the and 3% for the year after. likelihood is that margin gains get nationwide roll-out of Amazon’s Even Tesco (TESCO), the reinvested in (lower) prices to Prime Now delivery service are market leader with almost three keep customers coming through driving growth, as is a deal with times Morrisons’ share, had the doors instead of defecting to convenience store operator sub-3% margins a couple of years the discounters. McColl’s (MCLS). At the half-year ago but last year it managed to The balance sheet is solid stage the firm said it was ‘on track’ lift them to 3.5% and this year enough, with net debt of around for £1bn of annual wholesale analysts are forecasting they will £2.3bn, while the property estate revenues. hit 4.5%. is predominantly freehold and Whereas like-for-like sales at the pension fund is in surplus to the core retail business rose just LITTLE CHANCE OF A the tune of more than £750m. 1.5% in 2018/19, and growth was RE-RATING Capital expenditure is half what it actually negative in the first half of At the current price of 192p the was at its peak and is sustainable the current financial year (-1.1%), shares are trading on 14.5 times at current levels so there isn’t wholesale like-for-likes were up by earnings for the current financial much danger of a drain on capital. 3.3% last year and 1.3% in the first year and 13.8 times earnings for Our feeling is that Morrisons half of this year. the year to January 2021. is the kind of stock that is best Sales at McColl’s were below Shore Capital forecasts 7.34p suited to investors who are expectations in the most normal dividend and 6p special looking for income as earnings recent quarter but trial stores dividend next financial year, are unlikely to explode upwards which have been converted equating to a 6.9% yield. While in the near future and therefore to Morrisons Daily performed the normal dividend is covered neither is the valuation. strongly and there are plans to less than one and a half times WM MORRISON FTSE 350 extend the scheme to another by earnings, the firm generates 0 00 20 or more stores during January significant cash flow meaning and February. there is little chance of the pay- 20 00 out being cut. 220 LOW GROWTH OUTLOOK However you get very little 200 Selling groceries isn’t a growth growth in revenue or earnings. 10 business, unless like the According to Reuters, the 200 discounters you can keep rolling consensus sees revenue for the 2011 201 201 201 2019 out new stores every month year to January 2021 growing by and taking market share from 1.8% and for the year to January your rivals. 2022 by 1.9%. By Ian Conway Nor is it a high-margin activity. Reported earnings per share Senior Reporter Morrisons’ operating margin has are seen growing by 4.8% and

16 January 2020 | SHARES | 17 LISTEN TO OUR WEEKLY PODCAST Recent episodes include:

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You can download and subscribe to ‘AJ Bell Money& & Markets’ by visiting the Apple iTunes PodcastStore, Google Podcast or Spotify and searching for ‘AJ Bell’. The podcast is also available on Podbean. VEGAN BOOM By James Crux Funds and Investment Trusts Editor

4 stocks with the right ingredients

lthough vegan diets have existed based food and drink. for thousands of years, practiced by The health benefits of eating more plant-based many societies for religious and health protein are becoming more widely known, as is the reasons, veganism is now one of the impact that practices such as mass factory farming Afastest growing trends in the food industry. have on the environment. Hundreds of thousands of people in the UK are All these factors mean investors should take note taking part in this month’s ‘Veganuary’ challenge of the companies capitalising on the vegan trend. in a bid to benefit health and well-being while However, the huge popularity of the movement simultaneously combating climate change. means lots of businesses are trying to jump on the Veganism’s meteoric rise is also somewhat bandwagon so there is a lot of competition. validated by the publicity surrounding ’ (GRG) vegan roll, which proved nothing MEAT-FREE FRENZY short of a marketing phenomenon and has kept January is the traditional month of the year when the bakery retailer relevant in the minds of UK gyms experience a boom in memberships or consumers. boozers attempt a ‘Dry January’, but increasingly The increasing numbers of people becoming it is the time of year when people try to stick to a vegetarians or adopting ‘flexitarianism’ – limiting vegan diet; avoiding all animal products including animal-meat intake but not eschewing it dairy, as well as products which are cooked completely – is driving demand for more plant- with meat.

16 January 2020 | SHARES | 19 WHAT IS PLANT-BASED MEAT?

THE COMMERCIAL SUCCESS of plant-based lentils or other protein-rich plant substances – meat takes aim at a $1.2trn global addressable instead of animals. animal meat industry. You might be familiar with Often processed in a way to taste like animal- the , a meatless burger patty made based meat, plant-based meat products are from , mushrooms, beans or other vegetables, already commercially available. but the term ‘alternative meat’ is a new Cell culture technology is a process through phenomenon driven by two food technologies: which meat is grown from a small sample plant-based meat and cell culture technology. size of animal cells, similar to the technology Through a processing technology known as used in regenerative medicine. While the first extrusion, plant-based meat replicates the core cultured burger was demonstrated in 2013, structure of meat on a molecular level using as yet no cell cultured meat products are proteins from plants – including peas, beans, commercially available.

The ‘Veganuary’ trend has entered the based meat products are sold at a premium to mainstream with the uptick in demand for comparable animal-meat products in both the vegan and vegetarian products being boosted grocery retail and foodservice channels. by health-conscious and environmentally-aware millennials. Consumers are thinking more PLANTING THE FLAG carefully about what they eat, where it comes Investment bank UBS forecasts the global plant- from and how sustainable it is, and supermarkets based meat market will grow rapidly to roughly are seeing demand for their meat-free and vegan $50bn by 2025 for 2.5% penetration of total ranges. meat consumption volume, up from less than Fast-food outlets are getting in on the act 1% today. And over the next five years, eating too. KFC has launched a vegan burger in the UK, habits are expected to undergo profound change Caffe Nero has a ‘veganero’ menu featuring new with implications for food producers, restaurants products including vegan croissants and vegan and retailers. sausage rolls, while The Co-op has launched a new vegan brand called Gro. PLANT-BASED MEAT COULD REACH Burger King has launched ‘The Rebel Whopper’ 3/4 OF THE POPULATION made from soy and aimed at flexitarians, although it is not suitable for vegetarians because it is cooked on the same grill as the restaurant’s 16% beef burgers, and even McDonald’s offers vegan 27% options on the menus under its golden arches.

MEAT-ING THE CHALLENGE Plant-based meat is often described as better 20% for the environment than animal-based meat because its production uses fewer greenhouse 13% gases. It also helps meet the challenge of resource scarcity because it requires less land and water to produce relative to animal-based 24% meat. Then there are the health benefits of plant- based products, which have lower cholesterol Tried it only once Repeat consumer than their animal-based meat counterparts. Interested16 in trying Indifferent about +20241327B trying According to the American Heart Association, consuming a primarily plant-based diet reduces Not interested in trying your risk of heart failure by 42%, although plant- Source: UBS Evidence Lab

20 | SHARES | 16 January 2020 UBS says that the plant-based meat opportunity brings a growing profit pool to pure plays like Beyond Meat and its privately-owned rival Impossible Foods, the producer of a soy-based burger with the taste, texture and artificial bleed of traditional animal meat.

NO FREE LUNCH Like all hot trends, it is worth considering the risks if you want to get involved as an investor. Appetite for meat alternatives is ravenous right now, but it could slow in the future. For Beyond Meat, it relies on a few suppliers for its main ingredient, pea protein, while its success is attracting hot competition. Growing awareness of plant-based meat Incumbent meat producers and food giants among investors owes much to the stunningly aren’t going to let disruptors like Beyond Meat and successful stock market debut of Beyond Meat Impossible Foods eat their lunch. Major names are on the US NASDAQ market in May 2019. Famed investing to enter the meatless meat category or for its ‘Beyond Burger’ that mimics the traditional the broader vegan and vegetarian foods market. ground beef burger, Beyond Meat was (at one Tyson Foods has launched its own meatless point) one of 2019’s biggest stock market success products, Switzerland’s Nestle acquired plant- stories. based meat maker Sweet Earth in 2017, while There was a feeding frenzy when it floated on Kellogg, Conagra Brands and Nomad Foods have the stock market with the stock initially jumping all highlighted plant-based meat offerings and from its $25 IPO offer price by an incredible 163% innovation plans to investors. French food group to $65.75 and then topping $250 in July. Beyond Danone, whose brands include soya milk maker Meat has lost sizzle since, settling back at $90.25 , is delivering strong growth from its plant- at the time of writing. based offering.

CONSUMPTION OF GLOBAL MEAT SUBSTITUTES (BILLION LBS) THE FIRST VEGAN-themed exchange-traded fund, US Vegan Climate ETF, has done well 0.9 13.6 on the stock market since floating last year. 3.1 Unfortunately the product is not currently available for UK investors. It screens the market according to vegan 3.3 and climate-conscious principles. The top holdings aren’t the obvious food manufacturers or retailers; instead, you’ve got names like 4.2 Microsoft and Apple which may come as a surprise to many investors.

2.0 US VEGAN CLIMATE ETF

Meat US Europe APAC LatAm Meat substitutes growth growth growth growth substitutes today 2025 SE E Source: UBS Estimates, Euromonitor, Nielsen xAOC+C, USDA, Company presentations; Note: APAC meat substitutes exclude tofu products

16 January 2020 | SHARES | 21 EXAMPLES OF LONDON-LISTED STOCKS WITH A VEGAN ANGLE

• (PFD) has a new plant-based outlined an interest in healthier plant- brand called Plantastic whose products based products with a lower environmental include cake bars and dessert pots which use impact, although UBS describes the FTSE plant-based ingredients. Half-year results in 100 giant’s steps in plant-based categories as November went down well with the market. ‘incremental rather than projecting a more Stockbroker Peel Hunt says: ‘Premier Foods serious strategic shift’. has been viewed as a zombie company for most of the past decade, constrained by its • Cosmetics supplier Warpaint London’s balance sheet and pension fund, and unable (W7L:AIM) wares include the Very Vegan to invest sufficiently in marketing, new cosmetics brand. product development and assets. However, changes are afoot with a new senior • Science in Sport (SIS:AIM) makes a high- management team combined with a business protein range of plant-based protein bars and that is improving sales, profits and cash flow.’ powders under the PLANT20 name which caters for demand from vegan, vegetarian and • Unilever’s (ULVR) portfolio of food brands clean-eating athletes along with the growing includes The Vegetarian Butcher and numbers of flexitarian and environment- numerous vegetarian and vegan friendly conscious consumers. It also supplies a wide offerings such as Hellmann’s Vegan Mayo, range of vegan products including the brand’s Ben & Jerry’s vegan ice cream and Knorr GO Electrolyte powder, GO Energy powder, Vegan Mealmakers. Unilever has also Hydro and GO Isotonic Energy gels.

Kraft ’s main meat-alternative brand is with vegetarian and vegan products where meat- the BOCA Burger (one of the first veggie burgers), munchers might not think to look. although this has lost market share since 2013. One challenge for the BOCA Burger is that today’s OTHER ISSUES TO WEIGH UP alternative-meat craze is being driven not by Another factor to consider is how certain raw vegetarians, but by flexitarians – meat devourers materials are produced. Agne Rackauskaite, who occasionally buy alternative-protein a senior research analyst at Impax Asset products. Management, comments: ‘When evaluating In order to appeal to these shoppers, Beyond investment in companies focused on meat Meat and other upstarts are convincing grocers alternatives, it is important for the investor to to stock their products next to fresh-looking look at the environmental impact of the entire animal burgers in chilled-meat cases. In contrast, production cycle. BOCA Burgers are frozen and sit in refrigerators ‘For example, if we want to invest in a company growing fruit and veg, we conduct a detailed analysis, looking closely at the company portfolio, what they are growing and its impact. ‘Almonds might score well on greenhouse gas emissions, but require a lot of water to grow while avocados can lead to deforestation and growing demand contributes to monoculture. ‘As companies developing meat alternatives continue to scale, they will have to focus on supply chain – by 2050, there will be 9bn people in the world and the challenge is to have more high quality based proteins to feed everyone.’

22 | SHARES | 16 January 2020 PLANT-BASED PRODUCTS ARE PRICED AT A SIGNIFICANT PREMIUM TO TRADITIONAL ANIMAL PRODUCTS

$9 360% $8 320% Price premium (%) $7 280% $6 131% 240% $5 241% 200% $4 300% 160%

Price ($) $3 120% $2 80% $1 40% $0 0% Burger patties Ground Sausage Traditional meat Plant-based

Source: BCM estimates, Berenberg

MEAT PLAYERS GET IN ON THE ACT

Hilton Food (HFG), the global meat packing helped high-quality pig processor Cranswick to business, is benefiting from vegetarian and diversify away from and into plant-based vegan products produced by Dalco, in which it categories, while strengthening its ties with has a 50% stake. major retailers. Having made its bones by packaging up red meat for retailers including Tesco (TSCO), Hilton has moved with the times by investing in Holland’s leading vegetarian product maker, enabling it to diversify into a further protein and expand significantly into the fast-growing vegetarian market. From an investment perspective, you will have to pay close attention to see if the vegan movement results in a drop in meat-related business and whether there is enough plant- based activity to pick up the slack for Hilton. There is a similar angle with pork-to-poultry supplier Cranswick (CWK) which acquired Mediterranean food products business Katsouris Brothers in a deal that further broadened its non- meat activities. Supplying everything from Greek olives and olive oil to feta and chickpeas, Katsouris also has a presence in nuts and grains. This acquisition

16 January 2020 | SHARES | 23 FOUR WAYS TO INVEST IN THE VEGAN BOOM

Fragrances and DSM as three relevant companies harnessing the structural growth trend of people eating and using greater amounts of plant-based products. Danone’s acquisition of Whitewave in 2017 increased its plant-based product set. And its Alpro brand has been around a long time making plant-based food and drinks including soya, almond and oat milks as well as lactose-free 100% plant-based yoghurts. As for International Flavors & Fragrances, it is pioneering technologies that support SECURITIES TRUST OF SCOTLAND (STS) alternative and sustainable food sources without BUY AT 207.5P compromising taste.

We’re a fan of the quarterly-dividend paying investment trust whose manager Mark Whitehead goes global in targeting companies that have strong ESG policies and sustainability practices that drive revenues, profitability and cash flows. ‘These companies will most likely be aligned with a low carbon, equitable, healthy and safe society and reward shareholders with a growing dividend and strong total returns over the long term,’ the Martin Currie money manager informs Shares. ‘As investors we have a pivotal role to play SARASIN FOOD & AGRICULTURE in preventing climate change, and must act to OPPORTUNITIES (B77DTQ9). BUY AT 188.1P prevent global warming by demanding that the companies we invest in are a force for good,’ One way to gain exposure to the vegan theme is continues Whitehead. through funds focused on ESG factors. Portfolio ‘The increased amount of animal protein being managers with ESG mandates are putting money produced is boosting greenhouse gas emissions to work in this area because veganism and that are contributing meaningfully to climate offer solutions to ethical dilemmas change. DSM estimates that livestock and fish such as climate change, animal cruelty, land production contribute to 14.5% of our world’s degradation and human health. greenhouse gas emissions, at a time when the Sarasin Food & Agriculture Opportunities, a world is demanding more meat and fish as fund managed by Henry Boucher and Jeneiv populations swell and incomes rise, particularly in Shah, invests in Dutch-listed life science company Asia. Koninklijke DSM. It produces a ModuMax taste ‘These factors are providing a tailwind for modulator which can be used in plant-based companies to be able to innovate and capture foods to help them taste better. It has also swelling demand for healthier and more developed a livestock feed enzyme able to reduce sustainable plant-based alternatives to drive methane emissions from dairy cows by about revenue growth.’ 30%. Another top holding in the fund is China From the Securities Trust of Scotland portfolio, Mengniu Dairy, currently enjoying success with its he cites Danone, International Flavours & non-dairy range.

24 | SHARES | 16 January 2020 GREGGS (GRG). BUY AT £24.18 KERRY (KYGA). BUY AT €114.9

Perhaps the most obvious veganism play on the The complexities associated with shifting to UK stock market is Greggs, whose strong festive plant-based products leaves London-listed Irish sales were boosted by the ongoing, priceless food producer Kerry well-placed to provide its publicity surrounding its now-iconic vegan- technological capabilities into the supply chain, friendly sausage roll. says UBS. Greggs has added to its vegan-friendly range Stockbroker Davy also sees Kerry as a with the launch of the ‘Vegan Steak Bake’, which beneficiary of the vegan boom. It says first uses Quorn instead of meat with gravy made generation plant-based food options often from vegan steak seasoning, onion powder, spice lacked flavour but second generation options extracts, flavourings and water, as well as its first now hitting the shelves have more focus on the vegan doughnut. taste experience, thereby benefitting Kerry as Its initial vegan launch proved a marketing an ingredients business. It can make plant-based masterstroke and played a role in what proved burgers tasted beefier, less salty and have a less a ‘phenomenal’ 2019 for the business, to quote starchy taste. chief executive Roger Whiteside, and the hype around new vegan launches could hold the key to further earnings upgrades. However, risk-averse investors should note the high-flying shares are now ‘priced for perfection’, according to Shore Capital analyst Darren Shirley, with a valuation that leaves no scope for disappointment. Importantly for anyone considering an investment in Greggs, it seems clear that its vegan products have acted as a sustained catalyst to bring more people into its shops and that it wasn’t a one-off fad.

Kerry also has a consumer foods business with brands such as Richmond, which last year launched its first meat-free sausage, as well as its first dedicated meat-free alternative brand called Naked Glory. The latter offers meat-free meatballs, burgers, mince and containing a natural Can Greggs’ latest vegan offering hold the key to further earnings upgrades? smoke extract.

16 January 2020 | SHARES | 25 THIS IS AN ADVERTISING PROMOTION

SUSTAINABLE FINANCIAL RETURNS FOR LONG- TERM GROWTH BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC

ESG considerations are becoming more important for investors. Adam Avigdori, Co-Manager of the BlackRock Income and Growth Investment Trust plc, discusses how they draw ESG analysis into their investment process.

Adam Avigdori Co-Manager BlackRock Income and Growth We believe that companies that promote sustainable Investment Trust plc relationships with all their stakeholders are better positioned to mitigate risks and to sustain their financial returns over the Capital at risk. The value of investments and the income long term. Our analysis of the ecosystem highlights both the from them can fall as well as rise and are not guaranteed. The risks as well as the opportunities facing companies over the investor may not get back the amount originally invested. long term. On the BlackRock Income and Growth Investment Trust, We are particularly interested in the growing interdependencies we are looking for companies that generate a high return between stakeholders as the focus on ESG increases. For on capital and can grow dividends over time. In order for example, a company may differentiate its products or services companies to do this, they need to score highly on a range of by reducing its environmental footprint. However, this can also financial factors, but non-financial factors are equally important differentiate the company as an employer and influence its to ensure those returns are sustainable. This is where our ability to attract and retain talent as employees are increasingly environmental, social and governance (ESG) analysis comes in. responsive to companies’ ESG practices. This in turn can This part of our analysis has always been important. However, influence the financial factors as well as influence other as issues such as climate change come under greater stakeholders such as the shareholders and the cost of capital. scrutiny from policymakers, consumers and regulators, we BEYOND FINANCIAL FACTORS are conscious that shareholders are becoming increasingly sensitive about owning any company that isn’t actively As such, while analysis of financial factors such as managing the associated risks. However, we have always its revenue growth, profitability, cash generation and felt that considering ESG factors is the best way to manage allocation, the balance sheet and return on capital are businesses over the long term for all stakeholders. vitally important, our analysis of ESG factors provides us with conviction that these returns are sustainable over the EMBEDDED ESG long term. Whilst we have no direct ESG mandate, these factors have Within our environmental analysis, we consider companies always been an integral part of our analysis. In our 1,000+ that have low absolute and relative resource intensity and company meetings each year, we seek to understand how have a clear understanding of how they are using carbon companies are performing, the industry dynamics they and water. We like to see a company improving its resource face, what differentiates them versus their competitors and efficiency and helping others to reduce their resource importantly how sustainable this competitive position is, and footprint. therefore how it is likely to evolve over time. This research is complemented by our analysis of the ecosystem surrounding Our analysis of social factors includes looking for a the company; understanding the company’s relationships commitment to high and improving standards of health with its customers, regulators, suppliers, employees and and safety. We want to see robust management of human shareholders. resources – a living wage, a good working environment, THIS IS AN ADVERTISING PROMOTION

plus an analysis of labour practices along the supply Additionally, BlackRock has a large Stewardship team. We chain. Evidence of a sustainable relationship with both partner with our colleagues in Stewardship to engage with suppliers and customers is also vitally important for long companies regularly. We believe this engagement helps align term growth. companies’ behaviours to maximise the potential for long- term shareholder value creation. ‘Governance’ involves understanding a company’s risk management and mitigation processes, its This trust aims to deliver long-term consistent growth relationship with regulators and its management in capital and income to our investors. We believe this remuneration strategy. We want to ensure that a analysis of ESG factors helps us deliver these dual goals company’s capital allocation policies are supportive for our shareholders. They are part and parcel of creating a of its long-term strategy. Additionally, we look at the sustainable business for the long term. composition of the Board, including factors such as Unless otherwise stated all data is sourced from BlackRock independence, diversity of tenure, experience, geography as at November 2019. and gender. For more information on this Trust and how to access the TEAM SUPPORT opportunities presented by the income and growth sector, In undertaking this ESG analysis, we are supported by please visit: www.blackrock.com/uk/brig BlackRock’s large internal team of ESG specialists. They provide us with data and insights to keep us well informed of sustainability considerations. Armed with the necessary TO INVEST IN THIS TRUST data and tools, we can bring this information into our CLICK HERE investment processes.

Risk Warnings listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence. Past performance is not a reliable indicator of current or future results and should not be the sole factor of Net Asset Value (NAV) performance is not the same as consideration when selecting a product or strategy. share price performance, and shareholders may realise returns that are lower or higher than NAV performance. Changes in the rates of exchange between currencies may cause the value of investments to diminish or The BlackRock Income and Growth Trust plc currently increase. Fluctuation may be particularly marked in conducts its affairs so that its securities can be the case of a higher volatility fund and the value of an recommended by IFAs to ordinary retail investors in investment may fall suddenly and substantially. Levels accordance with the Financial Conduct Authority’s rules and basis of taxation may change from time to time. in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. Trust Specific Risks The securities are excluded from the Financial Conduct Liquidity risk: The Fund’s investments may have Authority’s restrictions which apply to non-mainstream low liquidity which often causes the value of these investment products because they are shares in an investments to be less predictable. In extreme cases, the investment trust. Any research in this material has been Fund may not be able to realise the investment at the procured and may have been acted on by BlackRock for latest market price or at a price considered fair. its own purpose. The results of such research are being made available only incidentally. Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered BlackRock has not considered the suitability of this when the value of the underlying investments fall. investment against your individual needs and risk tolerance. To ensure you understand whether our Important Information product is suitable, please read the fund specific risks Issued by BlackRock Investment Management (UK) in the Key Investor Document (KID) which gives more Limited, authorised and regulated by the Financial information about the risk profile of the investment. Conduct Authority. Please refer to the Financial Conduct The KID and other documentation are available on the Authority website for a list of authorised activities relevant product pages at www.blackrock.co.uk/its. We conducted by BlackRock. recommend you seek independent professional advice The Company is managed by BlackRock Fund prior to investing. Managers Limited (BFM) as the AIFM. BFM has This document is for information purposes only and does delegated certain investment management and other not constitute an offer or invitation to anyone to invest ancillary services to BlackRock Investment Management in any BlackRock funds and has not been prepared in (UK) Limited. The Company’s shares are traded on connection with any such offer. the London Stock Exchange and dealing may only be © 2019 BlackRock, Inc. All Rights reserved. through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other ID: MKTGQR1219E-1041175-4/4 RUSS MOULD The most and least popular stocks heading into 2020

Discover the names which analysts are By Russ Mould either backing to go up or down in value AJ Bell Investment Director this year

lthough the UK’s stock market institutional investors but websites such as underperformed those of Eastern Europe, Sharecast and the Broker Forecasts section of Athe US and Western Europe in 2019, in Shares’ own website provide a summary of how sterling, total-return terms, few investors are likely many analysts cover a stock and how many rate the to sniff at a total return of 19.2% from the FTSE 350 stock a ‘buy’, ‘hold’ or ‘sell’. index. The FTSE 250 outpaced the FTSE 100 with a This column has back-tested the performance on total return of 28.9% against 17.3%. the most and least popular stocks at the start of a Better still, the headline indices were relatively year for the past several years and its conclusion calm, especially compared to the wild swings of the remains that broker research needs to be treated fourth quarter of 2018. with a degree of caution. Yet for all of the positive headlines and lack of This is not to poke fun at the analysts. It just volatility, there was still huge dispersion between shows how hard picking individual stocks can be, the best and worst performing stocks. even if it is your full-time job. Ten members of the FTSE 100 generated a positive The good news, from the brokers’ point of view, total return that exceeded 100% and the top five – was that the FTSE 100 stocks with the greatest Future (FUTR), (PETS), JD Sports (JD.), Galliford Try (GFRD) and Dunelm (DNLM) – offered BROKERS’ TOP FTSE 100 PICKS BEAT THE INDEX IN 125% of more, even though three were retailers 2019 (BUT SO DID THE NAMES THEY LIKED LEAST) and one was a magazine publisher, industries widely % analysts with Total returns perceived to be in distress. Buy ratings in 2019 Only 40 of the FTSE 350 generated losses over DCC 93% 11.7% the year but there were still some nasty accidents. The worst five performers – Pearson (PSON), IP Informa 92% 39.5% Group (IPO), NMC Health (NMC), Aston Martin Melrose Industries 91% 49.4% (AML) and (TLW) – all cost investors at NMC Health 89% -34.8% least 30% of their investment. GVC 87% 36.2% This begs the question of how investors can find Mondi 86% 12.9% winners or avoid portfolio-damaging losers. Segro 86% 55.8% TOP OF THE POPS Glencore 84% -13.7% One possible way to narrow down an index as 3i 80% 46.8% big as the FTSE 350 is to identify which firms are St. James’s Place 80% 23.2% most and least preferred in the research written Total 23.2% by analysts at the leading investment banks and broking firms. FTSE 100 52% 17.3% Granted, this is primarily intended for Source: AJ Bell, Sharecast, Shares, Refinitiv

28 | SHARES | 16 January 2020 RUSS MOULD percentage of ‘buy’ ratings went up and – on average – provided a total return which exceeded that of the index. The bad news was that the stocks with the greatest percentage of ‘sell’ ratings managed the same feat, albeit not quite to the same degree.

BROKERS’ TOP FTSE 350 PICKS BEAT THE INDEX IN 2019 (BUT THEIR LEAST PREFERRED NAMES DID EVEN BETTER)

Total % analysts with returns Buy ratings in 2019 Avast 100% 63.1% Polypipe 100% 68.6% Sirius Minerals Coats 100% -6.4% BCA Marketplace 100% 10.4% percentage of ‘sells’ going into 2020 since AJ Bell Oil & Gas 100% 48.0% began this annual survey in 2015, at least so far as the FTSE 100 is concerned. St. Modwen Properties 100% 27.4% Make of that what you will, but wilful contrarians 100% 8.7% may be cheeky enough to think it is a ‘buy’ signal. CLS 100% 46.2% Primary Health Properties 100% 49.2% BROKERS SEEM LESS BULLISH NOW Sirius Minerals 100% -82.9% ON FTSE 100 STOCKS THAN AT ANY STAGE Total 23.2% SINCE 2015 FTSE 100 FTSE 100 51% 19.2% Buys Holds Sells Source: AJ Bell, Sharecast, Shares, Refinitiv 2015 47% 39% 14% The same pattern can be seen across the whole 2016 47% 40% 13% of the FTSE 350, where the stocks that came with 2017 45% 40% 15% the highest percentage of broker ‘buys’ beat 2018 49% 37% 14% the index, so did the names they were keenest 2019 52% 36% 12% to avoid. In fact, the least popular names did 2020 46% 38% 16% better still. Source: AJ Bell, Sharecast, Shares, Refinitiv THE WISDOM OF CROWDS Some slack can be cut for the beleaguered analysts, FTSE 350 since we are still in a bull market, merger and Buys Holds Sells acquisition activity is running hot and 2019 was 2015 49% 39% 12% generally a good year for equities around the globe. Putting up ‘sell’ ratings is therefore a potentially 2016 48% 40% 12% thankless task and at least the analysts’ combined 2017 47% 39% 15% top picks did beat the index, something that they 2018 48% 38% 13% had failed to do in 2015, 2016, 2017 and 2018. 2019 51% 38% 11% In that context, it is interesting to note that 2020 47% 39% 14% the broking community is carrying the lowest percentage of ‘buy’ ratings and the highest Source: AJ Bell, Sharecast, Shares, Refinitiv

16 January 2020 | SHARES | 29 RUSS MOULD

THE WAY AHEAD This goes to show that anyone prepared to pick their own stocks rather than pay a fund manager or use an index-tracker fund to do it for them must do their own research on individual companies before they even think about buying or selling any of its shares. At best, broker research may be a useful filter or perhaps a contrarian indicator. With that in names which investors may wish to analyse mind, investors might like to know which stocks in greater depth, or simply avoid altogether, are most liked – and disliked – by analysts at the depending upon their view of the value of the start of 2020. The tables below list the research provided.

THE 10 MOST AND LEAST POPULAR FTSE 100 STOCKS WITH ANALYSTS AT THE START OF 2020

FTSE 100: MOST POPULAR STOCKS IN 2020 FTSE 100: LEAST POPULAR STOCKS IN 2020 % analysts with Buy ratings % analysts with Sell ratings Melrose Industries 92% Hargreaves Lansdown 67% NMC Health 90% Kingfisher 50% Coca-Cola HBC 86% Rightmove 50% M&G 86% Sage 47% Vodafone 83% Intertek 45% International Cons. Airlines 83% Admiral 44% DCC 80% Smurfit Kappa 80% Standard Chartered 43% British American Tobacco 79% InterContinental Hotels 43% JD Sports Fashion 78% Ocado 41%

FTSE 100 46% FTSE 100 16%

THE 10 MOST AND LEAST POPULAR FTSE 350 STOCKS WITH ANALYSTS AT THE START OF 2020

FTSE 350: MOST POPULAR STOCKS IN 2020 FTSE 350: LEAST POPULAR STOCKS IN 2020 % analysts with Buy ratings % analysts with Sell ratings 100% Hargreaves Lansdown 67% 100% 67% 100% TalkTalk Telecom 58% Energean Oil & Gas 100% 57% Future 100% 55% CLS 100% Sage 50% PPHE Hotel 100% Kingfisher 50% PureTech Health 100% Royal Mail 50% 100% Rightmove 50% Galliford Try 100% Barr AG 50%

FTSE 350 47% FTSE 350 14%

Source: Sharecast, Shares, Refinitiv. Percentage of ‘buy’ and ‘sell’ ratings as of 2 Jan 2020. The FTSE 350 table has been amended after the original article included incorrect data. We apologise for any confusion.

30 | SHARES | 16 January 2020 SIPPs | ISAs | Funds | Shares

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AJ Bell Youinvest does not provide advice. Capital at risk. Why the ‘lowest cost’ ETFs aren’t always the cheapest Low fees definitely have their advantages, but there’s more to consider when choosing an ETF

ow low can you go? lowest price that a seller is willing Typically asked during to accept. H a game of limbo, it has For example, the been a question increasingly aforementioned ETF at 0.04% posed by investors in exchange- is Lyxor Core Morningstar UK traded funds (ETFs). (LCUK). It is almost half of the Pitched as a simple way to cost of the popular iShares Core invest at a cheaper price than FTSE 100 ETF (ISF) at a total using the services of a fund expense ratio (TER) of 0.07%. manager, ETFs can invest in But the bid-ask spread for the stocks for a charge as low as Lyxor ETF is 0.2%, whereas the 0.04%, equating to 4p for every spread for iShares one is 0.05%, £100 invested. meaning despite the headline MSCI classifies South Korea That figure could get even cost for the Lyxor ETF being as an emerging market, smaller as the price war among 0.04%, the total cost of it is 0.24%, whereas FTSE doesn’t. While ETF providers shows no sign of whereas the actual cost for the it is impossible beforehand to abating in 2020. iShares one is half that at 0.12%. say how well South Korea will As with all investments Brennan says that looking perform, in 2019 the MSCI however, while cost is definitely at the size of an ETF can be an index – with South Korea in it important, the headline fees isn’t important factor. – returned 12.7%, whereas the the full story. The Lyxor ETF holds £44m of FTSE index returned 15.1%. investors’ money, whereas the That’s a 2.4% difference which TOTAL COST OF OWNERSHIP iShares one holds £8.5bn. The would negate any difference in ‘If you’re going to buy and hold more investors in a fund, the the costs between different ETFs. an ETF for 20 years, clearly one more buying and selling of its Headline costs for EM ETFs can that’s got a lower cost is going shares there will be, which in vary greatly, costing anywhere to work in your favour,’ says turn means the bid-ask spread from 0.18% to 0.5%. Matt Brennan, head of passive will generally be lower. The point here is that when it portfolios at AJ Bell. Aside from cost, performance comes to more niche areas like But for those who plan to hold is another important factor to emerging markets, be sure of an ETF for anywhere between consider. For developed markets what you want to invest in. one and five years, Brennan says such as the UK and US, it’s unlikely Brennan says: ‘In a UK ETF, you it is more important to look at there will be much variance for know you’re buying UK shares what he describes as the ‘total ETFs investing in the likes of the like HSBC (HSBA) and Royal cost of ownership’. FTSE 100 and S&P 500. Dutch Shell (RDSA). This includes the level of bid- For areas such as emerging ‘But for emerging markets it ask spread you will encounter markets (EM) though, there can can be more complex. It’s less when looking to buy an ETF, or be significant differences. about cost and more important in other words the difference Brennan uses the example of to pick an ETF that best between the highest price a South Korea and the two main represents what you’re trying to buyer is willing to pay and the index providers, FTSE and MSCI. get exposure to.’

32 | SHARES | 19 January 2020 LOOKING UNDER the top 10 constituents as well some digging to find the total THE BONNET as a percentage breakdown of cost of ownership figures for To do this, he adds that it’s the countries and sectors which ETFs. We haven’t found a central important to check what’s in the make up the index, which should source of information, instead index. This is usually easy to do – give you a good enough idea of it requires you to look on each just type the name into a search what’s in the index. ETF provider’s website for the engine, e.g. MSCI World Index, Though it must be said information or to contact them and the index’s latest monthly MSCI does a much better job directly for the data. factsheet is often among the of making its index information Just remember that the first results that appear. accessible than other providers, ongoing charges figure is a good Using the MSCI World index such as FTSE Russell and starting point for your research as an example, it has 1,646 Solactive, which often require but it isn’t the complete picture. constituents so it’s neither a little more digging on their We now look at various parts of practical nor necessary to go websites to find the right the market and reveal the ETFs through a list of all of them. information. with the lowest ongoing charges But the factsheet will contain Sadly you also have to do figure per category.

UK GLOBAL

As most ETFs track the FTSE 100 index, going for Anyone investing in a global ETF should know a low cost option is a good way for investors to they will most likely have more than half of their get exposure to UK large caps. But as mentioned, portfolio invested in US stocks, as most of them be aware of the fund size, as this can potentially follow the MSCI World or FTSE World indices, increase the bid-ask spread and negate any which skew heavily towards the US. difference in headline cost. Picking a global dividend ETF which doesn’t use MSCI or FTSE indices is the most effective way to ETF OCF get a more truly diversified global exposure, though Lyxor Core Morningstar UK 0.04% these ETFs typically cost twice the amount as more L&G UK Equity 0.05% vanilla global ETFs. iShares Core FTSE 100* 0.07% Source: AJ Bell. OCF = Ongoing charges figure

US

The US is considered the most efficient stock market in the world with the odds stacked against active fund managers outperforming. Most of the US-focused ETFs follow the same index. Most of the cheapest ones on offer have over £1bn in assets.

ETF OCF Invesco S&P 500 0.05% ETF OCF L&G US Equity 0.05% L&G Global Equity 0.10% Vanguard S&P 500* 0.07% Lyxor Core MSCI World 0.12% Source: AJ Bell HSBC MSCI World 0.15% *Other ETFs have the same cost. The ones chosen provide an illustrative example. Source: AJ Bell

19 January 2020 | SHARES | 33 JAPAN GLOBAL BONDS

One of the most popular ways to invest in Japan Bond ETFs have gained increasingly popularity is via an ETF, particularly in the large cap space with investors as they are a simple, low cost way where the vast majority of active managers have to add bonds to a portfolio. historically underperformed. An active fund could Given most of the biggest global bond ETFs be the way to go for Japanese small and mid-caps, are also the cheapest, they can provide a low which are the considered the least efficient stock total cost of ownership with a low bid/ask markets in the developed world. spread as well as headline cost. Please note But for exposure to companies in the Nikkei 225 that the lowest cost ones tend to track global or 400, a low cost ETF seems to do the job better aggregate bond indices, which are a mix of than a more expensive active fund. government and company bonds. Global corporate bond ETFs, which invest in bonds of the biggest firms around the world, on the other hand typically cost more and have also performed better in the past year. Though underperformance could be higher in a market downturn, and past performance is no guide to future performance.

ETF OCF Amundi IS Barclays Global 0.10% Aggregate 500M ETF OCF iShares Global Aggregate Bond 0.10% Xtrackers Nikkei 225 0.09% SPDR Bloomberg Barclay Global 0.10% Lyxor Core MSCI Japan 0.12% Aggregate Bond Amundi IS JPX-Nikkei 400 0.18% Source: AJ Bell Source: AJ Bell

EMERGING MARKETS GLOBAL PROPERTY As mentioned, it’s important to check what’s in Property ETFs are yet to take off in the way bond the index to ensure you’re getting the exposure ETFs have and options for investors are relatively you want. Most in this category follow the MSCI limited, hence the charges tend to be higher than Emerging Markets index, with the exception of other sectors. Vanguard FTSE Emerging Markets (VFEM). Most of those available for investors invest in real estate investment trusts (REITs) across ETF OCF global developed markets, typically in the US, UK and Europe. iShares Core MSCI EM IMI 0.18% Xtrackers MSCI Emerging Markets 0.20% ETF OCF Amundi IS MSCI Emerging Markets 0.20% Amundi IS FTSE EPRA 0.24% Source: AJ Bell NAREIT Global HSBC FTSE EPRA/NAREIT 0.40% Developed SPDR Dow Jones Global 0.40% Real Estate ETF By Yoosof Farah Reporter

Source: AJ Bell

34 | SHARES | 19 January 2020 Growth and Innovation

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PRESENTING AND EXHIBITING AT THE EVENT INCLUDE: • AJ Bell • Intelligent Ultrasound • Sativa • Anexo Group • Itaconix • Seeing Machines • Circle Property • IXICO • Shares • Diaceutics • LiDCO • ShareSoc • Duke Royalty • Manolete • Shearwater Group • Eden Research • Marlowe • TClarke • Hardide • Mirada • Trackwise Designs • ILIKA • MJ Hudson • Velocity Composites • Ingenta • Open Orphan • Xpediator • Inspiration Healthcare • OPG Power Ventures + more to be announced soon... GUEST SPEAKERS: Daniel Coatsworth, Editor – Shares. Steven Frazer, News Editor – Shares. Richard Penny, Fund Manager – CRUX Asset Management. Gervais Williams, Senior Executive Director – Miton Group. www.sharesmagazine.co.uk/events Contact: [email protected] or [email protected]

In partnership with Associate sponsors The pros and cons of funds with concentrated portfolios

What do you need to consider when investing in collectives with a limited number of holdings?

he pros and cons of it will adopt a high conviction positions by taking board portfolios with only approach, targeting around seats and making shareholder Ta small number of 30 positions. proposals at annual meetings.’ holdings have come under the New investment trust By investing in fewer holdings spotlight after ratings company Nippon Active Value Fund funds are also more exposed Morningstar downgraded plans to float on the UK stock when something goes wrong LF Lindsell Train UK Equity market in February with a with an individual investment. (B18B9X7) from Gold to Bronze. very concentrated portfolio, The reverse is true too, a good Among the reasons cited was targeting up to 20 small to mid- call will have a more appreciable the higher levels of stock-specific cap Japanese companies. In this impact on performance. The net risk than most peers created case the concentrated approach result is these funds are likely by the fund’s portfolio being is linked to its aim of being an to diverge more from the wider concentrated on just 23 stocks. activist investor. market and their benchmark. The counterpoint to Rising Sun Management will Morningstar’s concerns, and one run the fund and chief investment BEATING THE BENCHMARK made by Lindsell Train itself (and officer James Rosenwald says: There are arguments in favour acknowledged by Morningstar), is ‘The directors of Rising Sun of a more conviction-based that the concentration has made Management have developed approach. Active managers a big contribution to an enviable a focused approach to activist get paid to make investment long-term track record. investing, which we will utilise in decisions and a highly diversified To be classified as a Nippon Active Value Fund. fund which hugs its benchmark concentrated portfolio you ‘For example, we have could struggle to justify the extra would generally need less generated reasonable returns for cost compared with a passive than 50 holdings. Adopting clients using highly concentrated tracker fund. this approach means taking relatively big bets on assets in the portfolio. If the investor ‘To be classified as a concentrated portfolio you gets it right then they could see market-beating gains – but get it would generally need less than 50 holdings’ wrong and the results could be disastrous in relative terms.

TRENDS WITH CONCENTRATED PORTFOLIOS Aberdeen Standard Investments was recently appointed to take over running LF Woodford Income Focus (BD9X6D5) and

36 | SHARES | 16 January 2020 LF Blue Whale Growth Micro-Cap Growth (B2403R7). limited number of shares. Fund (BD6PG78) has just over Steered by Judith MacKenzie ‘My understanding is a large 20 holdings and launched in since its inception in 2011, number of fund managers do September 2017. Over the last holdings in the likes of home not have a lot of resources. If 12 months the fund has achieved safety products firm FireAngel you have two people running a cumulative performance of Safety Technology (FA.:AIM), 75 stocks and working 10 hours 26.2% against 19.8% for the IA professional services outfit a day, that leaves just five hours Global benchmark. Norman Broadbent (NBB:AIM) per stock. Co-manager Stephen Yiu and delivery group DX ‘We have a team of five, and says: ‘We felt there was a (DX.:AIM) have not paid off working the same 10 hours a day shortage of funds in the market in recent times. Over the last we can spend a much greater which aim to deliver significant three years the fund is down amount of time looking at outperformance and if you 16% against a 39% advance individual stocks.’ want to have a product which from the IA UK Smaller Yiu points out that unlike offers potential for significant Companies benchmark. some funds he and his team outperformance you need to run Arguably this fund’s approach do not rely on broker research a highly concentrated portfolio.’ leaves it exposed to two which is available to competitors, significant risks, both the greater allowing them to come up with ARE CONCENTRATED volatility inherent in smaller more original investment ideas PORTFOLIOS COMMON? company shares, alongside the in-house. Shares has identified 28 lack of diversification. open-ended funds with holdings POINTS TO CONSIDER of 25 or less and which have MANAGING THE RISKS Provided you do your own three-year performance track So how do managers look to research diligently there is no records. Out of this number, 18 mitigate the risks associated inherent reason to avoid buying have outperformed their relevant with running a more a fund with a small number of benchmark according concentrated portfolio? holdings, but crucially only as to FE Fundinfo. There is an emphasis on really part of a diversified portfolio. One fund in this category doing the homework on a stock This way if a previously which has not performed and as Blue Whale’s Stephen Yiu lauded fund manager loses their that well is MI Downing UK says this is easier with a more golden touch or faces a series of unexpected failures among their investments, the impact Top performing concentrated funds on your personal wealth will be Outperformance contained. Fund (%)* Yiu adds that to achieve diversification it might be Seilern World Growth 31.7 preferable to invest in three Lindsell Train Japanese Equities 29.5 different high conviction funds AB Concentrated US Equities 26.2 with limited crossover in terms CFP SDL Free Spirit General 24.7 of their holdings, thus benefiting Mirabaud Equities Global Focus 23.6 from the expertise of three separate fund management LF Lindsell Train UK Equity 21.2 teams, rather than buying a Nomura Funds Global High Conviction 15.1 single more diversified fund. Dominion Global Trends Luxury Consumer 11.7 VT Castlebay UK Equity 8.4 By Tom Sieber GAM Star Japan Leaders 7.5 Deputy Editor Source: Morningstar, FE Trustnet *3-year cumulative performance relative to the benchmark.

16 January 2020 | SHARES | 37 The difference between bottom-up and top-down investing

They are two different ways of looking for opportunities on the market

ll investors want to make start a screening process. money from equity One way is to decide if you Amarkets but you can go are a top-down investor or a about it in many different ways. bottom-up one. These are two Styles like growth, value and broad ways investors can work income are widely understood, out a starting point to begin as are buying shares directly or searching for investments that using funds or investment trusts. are right for them. And within the wider funds space there is the age-old debate WHAT’S THE DIFFERENCE about active versus passive, BETWEEN THE TWO? where you elect to put your cash • Top-down investing means to work with a trusted expert you first look at the overall who picks stocks on your behalf, economic picture and then or go with trackers or ETFs, which start drilling down in to areas will follow an index, sector or that appear most fruitful. It is investment theme. also known as macro investing. AN EXAMPLE OF TOP-DOWN While more experienced • Bottom-up investing is stock INVESTING investors will have already picking, where the investor established what kind of investor pays much more attention Let’s look at a couple of they are, what sort of assets are to a company at the start of hypothetical examples. The attractive, and where to begin the research process and less referenced investment products looking, those newer to investing attention to its sector or the are for illustration only and not may be confused with how to economy. a recommendation for readers to buy. TOP-DOWN John is a 50-year-old from INVESTING Liverpool with two grown-up children and a third doing their A Levels. He works in the shipping ECONOMY insurance industry and already ECONOMY has a firm grasp of international INDUSTRY INDUSTRY markets and economies, and is comfortable investing overseas. COMPANY He believes that GDP growth COMPANY of 6%-plus in China makes it an attractive investment market BOTTOM-UP as the population in that region INVESTING becomes increasingly wealthy and educated. He also thinks

38 | SHARES 16 January 2020 US consumers can continue to The late 1990s was a great investing in funds that invest in prop up the US economy for example of top-down investing, overseas firms. the foreseeable future, so likes for instance, when many Sarah has learned a lot about North America as an investment investors saw huge profits for Marks & Spencer in her time space too. companies that were taking with the company, and while In China John believes that advantage of the internet. she understands that clothing smartphones and internet access While some of those stocks sales performance has been will continue to drive digital have done extraordinarily well propped up by far better food entertainment, and believes since then, many more did not, sales, she believes fashion sales that makes the technology and crashing, burning and generating can be turned round over the social media industries in China miserable returns for those that coming years through better potentially exciting. invested in them. buying and using the powerful As part of his study of the Marks & Spencer brand. markets, John puts online retail AN EXAMPLE OF BOTTOM-UP On a next 12 months price-to- giant Alibaba on his research INVESTING earnings multiple of 10.7 (based list as it has the potential to on Refinitiv data) the shares are benefit from more Chinese Now let’s look at an example of a on a rough 50% discount to the people buying stuff on their bottom-up investor. Meet Sarah, wider retail sector, and Sarah smartphones. a 36-year-old mother of two wonders if there is substantial John also wants access to young children from Watford. share price recovery potential if wider trends in the US and She returned to work three years management get the business China, so he looks for ETFs and ago by taking a part-time job back on track. funds to bolster his portfolio. managing the women’s fashion One product he intends to floor in a local Marks & Spencer KNOWLEDGE ADVANTAGE research is iShares MSCI USA SRI (MKS) store. Should she proceed and buy the UCITS ETF (SUAS), which blends shares, her decision will have large cap growth with income been influenced by her in-depth and owns names like Microsoft, knowledge of the business – Walt Disney and Pepsi. something that falls under the He is also interested in learning banner of ‘bottom-up investing’. about Fidelity Asia Pacific Choosing an investment Opportunities Fund (BQ1SWL9), because of the robust which has around three quarters fundamentals or recovery of its assets in young and mature potential, not the bigger industry, Asian companies. country or macroeconomic picture, is most widely used for USEFUL APPROACH equities, but it can also be easily That’s top-down investing, applied to corporate bonds, since albeit a little simplified. It is a they have a similar source of useful approach for choosing a value (the company). specific country (if you are open She’s nervous about directly Such an investor does not to foreign stock investing), and owning shares in foreign ignore macro trends, but they it works well for asset classes businesses, preferring familiar would put much more weight like stocks, commodities and brand names from the UK. She on company fundamentals than currencies. knows the fashion industry wider industry dynamics. Currencies don’t really have a well, but is also aware that she bottom-up counterpart, anyway, can access global economies because their value against other and companies either by By Steven Frazer currencies is entirely based on buying shares in UK companies News Editor macroeconomic factors. that sell a lot overseas, or by

16 January 2020 | SHARES | 39 How much money will I need in retirement? We examine the range of options from the bare minimum up to a comfortable lifestyle

t is very difficult to predict how much you’ll spend I each year looking a decade ahead, let alone trying to predict what your annual spending will be in retirement. But it’s important to know how much you’re likely to spend, so you can make sure you’ve saved enough to meet those costs. Many people tend to base their income expectations in retirement on a comparable sum to what they earned each year when they were employed, but for lots of people this will be a really ambitious sum to reach. Generally, your costs should be lower in retirement, as worked out the costs. for a couple or £10,200 for an you could have paid off your The options include different individual, to £47,500 for a mortgage, your children should levels of holidays, spending couple or £33,000 per person. be financially independent and on food and leisure activities, These figures increase if you won’t have to pay the costs among others. They vary you’re living in London, where of commuting, for example. between a £15,700 a year cost the cost of living is higher – for example the minimum level DOWNSIZING for a couple rises to £19,800 You might also move to a smaller “an individual and the comfortable level for house, which is cheaper to an individual rises to £36,300. maintain, or only need one car, buying an annuity Clearly everyone will spend rather than two. Conversely money differently, but it’s a good many people plan to spend might need a guide to roughly how much you their retirement going on lots of might need for the lifestyle you holidays, which can be a big cost, pension pot of want. as well as socialising more or Back of an envelope sums taking up pricier hobbies, such around £200,000 suggest an individual buying an as golf. to achieve a annuity might need a pension To help people plan out pot of around £200,000 to how much we actually need in £10,000 annual achieve a £10,000 annual pension income, the Pension income – although most of us and Lifetime Savings Association income” should be able to supplement (PLSA) has put together three our in-comings with the scenarios for retirement and state pension.

40 | SHARES | 16 January 2020 HOW MUCH DO YOU NEED IN RETIREMENT? UK-wide London and the south-east One person Couple One person Couple Minimum £10,200 £15,700 Minimum £12,400 £19,800 Moderate £20,200 £29,100 Moderate £24,100 £33,300 Comfortable £33,000 £47,500 Comfortable £36,300 £49,300

Source: PLSA Retirement Living Standards report

Let’s look at each scenario: mobile phone per person on a is given for hobbies or social £7.50 a month contract. occasions, allowing for going to Transport is another big the cinema or swimming, for MINIMUM difference between the example. scenarios. This example assumes This is the base level case from that you don’t have a car to run, the PLSA, and covers all of the and that you use your free bus MODERATE basics while also leaving a little pass and also have a rail card pot of money to have some to get reduced fares, as well as This scenario is intended to give a fun with. It allows £38 a week allowing for £100 per person a touch more financial security and for food and drink for a single year for train tickets, and £10 a bit more luxury in places. The person, which covers a food shop week per household for taxis. food and drink costs rise to £46 in Tesco, including some cheap For clothing and personal a week, accounting for slightly beer or wine, and one takeaway care you’re allowed a £15 hair higher-end goods, but still from plus one meal out a month, at an cut or £8 for men every month Tesco, including more expensive additional cost of £45. to six weeks, as well as £350 a wine and beer. It also accounts All the scenarios assume year for clothes for women and for £75 a month for eating out or you’re a homeowner, not a £230 a year for men. Basic costs getting a takeaway. renter, and that you have paid off of dentists, new glasses etc are For housing the costs allow for your mortgage, although they do included for all scenarios. much more than the minimum: allow money for household bills. Holidays are a big focus for you can get building and The minimum scenario means many in retirement, and even contents insurance, pay for boiler you can buy contents insurance the basic model allows for some servicing and insurance, and pay and can spend £150 a year on trips. You can have one week- for a funeral plan. In addition you decorating or maintenance of long trip in the UK a year on a have £500 a year to spend on your house, but it doesn’t allow coach package deal, as well as a decorating or getting a handy- for any gardening or cleaning. long weekend in the UK, but with person in to fix things, but it All scenarios allow for basic both going off peak, and £225 doesn’t allow anything for major broadband at home, a TV and a holiday spending money in total house renovations. You also Sky package and this minimum for the year for the couple. have no budget for a gardener case also allows for a basic Finally, £40 per couple a week or cleaner. On top of this you

16 January 2020 | SHARES | 41 can have a better smartphone, costing £16 a month per person. In this scenario on top of the same allowance for train and taxis as the minimum case, car ownership is included. The example is that the car is three years old and is replaced every decade. The clothing budget is also bumped up to £750 a year per person, while hairdressing costs are increased to £45 every six weeks for women as well as £20 for beauty treatments. Your holiday options are also upgraded and stretch to going On top of what’s provided luxurious in this scenario, with abroad. The model allows for 10 for in the moderate case, you a two week trip to the Med in days in the Mediterranean, but get a higher budget of £900 the summer, still not in school still outside of school holidays, for decorating costs or house holidays, as well as a week in in a three-star hotel, as well as maintenance, so doing a big the sun in winter, to somewhere a long weekend in the UK. Total project like redoing your kitchen like the Canaries. Total holiday spending money also increases or getting double-glazing could spending money increases to £475 per couple for both be possible after a few years to almost £1,000 in total for trips too. of saving. a couple a year. The social You can spend more on Also included is a gardener budget ramps up too, to £100 hobbies and going out, with the to do some work a couple of per couple a week, meaning budget increasing to £70 a week times a year and mow the lawn that you could have a gym for a couple, meaning you can go regularly and a cleaner to help membership or belong to the to the theatre or take a day trip, two days a year with deep local golf club, as well as have for example. cleans, as well as a window some outings. cleaner every month. You can In addition, you get a number also have a top-of-the-range of upgrades to your home life. COMFORTABLE smartphone costing £28 a So the cost of a second TV month per person. is accounted for, as well as a This example is intended to show For this example as a couple streaming service like Netflix on more financial freedom but also you’re allowed a more high-end top of your Sky TV subscription, allow for some luxuries in your car (the example is a Nissan and a music service like retirement, as well as bit more Qashqai) that’s five years old Spotify is also included. Also day-to-day spending. but replaced every five years, £1,000 a year is included in The food and drink costs in addition to a second, older, the budget to spend on family increase further to £56 a week, cheaper car that’s also replaced members, so either for taking which allows you to shop at every five years. You train costs grandchildren out, contributing Sainsbury’s rather than Tesco, are bumped up to £200 a year to a family holiday or saving up although mainly buying own- per person. to give bigger gifts for things brand goods. It also gives a The clothing budget is like weddings. much bigger budget for eating increased again to £1,500 a year out: £100 per couple a week for for a woman and £1,000 for By Laura Suter meals out or takeaways, plus men, while hairdressing costs AJ Bell Personal £100 a couple a month to take rise to £75 every six weeks. Finance Analyst others out for a meal. Holidays get distinctly more

42 | SHARES | 16 January 2020 ‘How do VCT and EIS products work alongside a pension?’

AJ Bell pensions expert Tom Selby looks at the associated tax breaks

I’ve maxed out my pensions income tax liability of £10,000 Enterprise Investment lifetime allowance of £1,055,000 and invested £20,000 in VCT Scheme (SEIS), operates in a and am looking for alternative shares, the tax relief of £6,000 similar way to EIS, but with ways to invest my money in a tax (30% of £20,000) would be income tax relief given at 50% efficient way. Can you explain deducted from the tax bill, on qualifying investments up to how VCTs and EIS product work? leaving you with £4,000 to pay. £100,000 in a tax year. David Shares need to be held for at Both SEIS and EIS investments least five years to qualify for allow you to defer chargeable income tax relief. gains on any assets by Tom Selby Dividends from VCTs of up reinvesting the gains in shares in AJ Bell to £200,000 are also tax-free qualifying companies, potentially Senior Analyst says: and there is no capital gains tax allowing you to reduce your (CGT) to pay when you dispose overall tax liability. ISAs are the best known of your shares. These tax incentives are alternative to pensions, allowing EIS products also offer tax specifically in place to you to contribute up to £20,000 relief of up to 30% on qualifying encourage people to invest a year and invest in stocks, investments, with a significantly in smaller, early-stage, and bonds and funds around the higher limit on investments of therefore potentially riskier, world without paying any £1m in a tax year. companies. As a result, only tax on the gains you make. Tax relief is applied in the certain companies can qualify. Furthermore, you can withdraw same way as for VCTs. Disposals You’ll need to do your own funds from ISAs tax-free. of shares at a profit are usually research to understand if they Beyond pensions and exempt from CGT, provided the might be suitable for your ISAs, there are alternative shares have been held for three personal circumstances. In vehicles designed to encourage years. Income tax or CGT relief particular, you should be mindful people to invest in certain is also available for losses on of the fact companies that types of companies. Two of disposals. qualify for these reliefs are likely the main types of schemes are A third alternative, Seed to be high risk. venture capital trusts (VCTs) and the Enterprise Investment Scheme (EIS). DO YOU HAVE A QUESTION ON RETIREMENT ISSUES? Individuals aged 18 or over can receive income tax relief at Send an email to [email protected] with the words 30% on investments of up to ‘Retirement question’ in the subject line. We’ll do our best to Shares £200,000 a year in newly issued respond in a future edition of . Please note, we only provide guidance and we do not provide ordinary shares in VCTs, with financial advice. If you’re unsure please consult a suitably relief given via a reduction in qualified financial adviser. We cannot comment on individual your income tax liability. investment portfolios. For example, if you had an

16 January 2020 | SHARES | 43 HOW I INVEST: Managing a concentrated portfolio of stocks

46-year-old Dave looks for opportunities among both small and large companies

ith just over 20 years’ clearing the mortgage with my employment. He says partial FIRE investing experience investments but after discussing – namely having to work less – Wunder his belt, Dave this with my investor friends I would also be fine, but in either from Staffordshire has honed decided to carry on investing.’ case he would also like to have his skills to be able to run a Dave’s goal is FIRE – a term built up enough wealth to ensure concentrated portfolio entirely to describe the ‘financial his son has a good start in life. out of small, medium and large independence, retire early’ ‘I’m careful with money. If I can cap stocks. movement. This is where people save a few quid I will as it all adds The 46-year-old public sector manage to stop working early up and can be put to better use worker first began putting because they’ve saved up doing nice things with the family.’ money into the markets in 1999. enough money, either cash or Dave describes himself as ‘I opened an ISA possibly at the investments, to help fund their a nervous investor and not worst time to start investing,’ lifestyle and not be slave to someone looking to take on he says. ‘Fortunately I topped it more risk. He used to spend 20 up at opportune moments and ‘I did toy with the hours a month managing his eventually doubled my money by idea of clearing the portfolio and looking for new the time I cashed out when my opportunities but this has been mortgage with my son was born.’ reduced more recently. His son is now a teenager and investments but after ‘I look at financial websites for has already gained his first taste discussing this with content, chat and stock screening of the investing world by helping my investor friends to find new companies to to edit some of the videos Dave I decided to carry research. I also follow the work made on his YouTube channel on investing” of ShareSoc, the not-for-profit – all about stocks. ‘He enjoyed shareholder society.’ editing all of the “errs” out of my videos. I hope he gets serious about investing early.’ Dave says he is now less involved with the broadcasting side of his interests so as to spend more time with the family.

PAYING DOWN THE DEBTS Having separated from his partner, he took out a second mortgage which has now been paid off. There is also not much left of the original mortgage to pay off. ‘I did toy with the idea of

44 | SHARES | 16 January 2020 WHAT’S IN HIS PORTFOLIO? lagged many of its peers in last interesting business using clever His portfolio currently consists of year’s gold price rally due to technology to lawfully track 15 stocks, the biggest of which is operational setbacks. However, people on the internet, mainly biotechnology group Bioventix its shares have started to recover those visiting banks or insurers’. (BVXP:AIM). ‘This has been a in the past few weeks amid If any readers have spent stellar performer, which I’ve held another rally in the metal price. time waiting in airports over from around £5 and was buying the past decade, they may all the way up to £12. I had to COLLECTING DIVIDENDS recall seeing sports cars parked trim it back slightly as it would Income is another major theme in the departures lounge with have been around 50% of my among Dave’s investments someone selling tickets to win portfolio. This was a mistake as it with numerous stocks bought a vehicle. This was the old promptly doubled in price.’ partially for their dividend-paying business model of AIM-quoted characteristics. Spread betting Best of the Best (BOTB:AIM), 4500 BIOVENTIX provider IG (IGG) was picked one of Dave’s investments and 3500 in his search for what he calls a company which is now fully 2500 ‘quality companies’, noting that online running luxury item it operates in an addressable prize draws. 1500 market worth billions of pounds. 500 400 2015 2016 2017 2018 2019 Acorn Income Fund (AIF) was 5 years to 9 Jan 2020. ource Datastream BEST OF THE BEST purchased for income and the 340 fact its shares were trading on a The second biggest holding large discount to the value of its 280 is Rockrose Energy (RRE), an underlying assets. oil and gas producer. ‘I wanted Insurer Legal & General 220 2019 2020 some exposure to oil and I get (LGEN) was snapped up for 1 year to 9 Jan 2020. ource Datastream that from both Rockrose and a yield and as a play on the UK stake in activist investor Crystal market. There is also quarterly- ‘Trading has been going well,’ Amber (CRS:AIM) which owns dividend paying Duke Royalty he says, and so has the share a significant chunk of Hurricane (DUKE:AIM) which lends money price. At the time of writing Best Energy (HUR:AIM).’ to private companies on a long- of the Best was trading at its Completing the commodities term basis, typically between highest level since June 2017. theme in his portfolio is Fresnillo 25 and 40 years, in exchange (FRES), the FTSE 250 precious for part of their revenue. DISCLAIMER: Please note, we metals miner. The company do not provide financial advice SMALL CAP FAN in case study articles and we Elsewhere, Dave has selected are unable to comment on numerous smaller companies the suitability of the subject’s which may not be familiar to the investments. Individuals who general public. These include are unsure about the suitability D4t4 Solutions (D4T4:AIM) of investments should consult which he describes as ‘a very a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term.

By Daniel Coatsworth Editor

16 January 2020 | SHARES | 45 SHARPEN YOUR INVESTING SKILLS WITH

A SUBSCRIPTION TO SHARES HELPS YOU TO: • Learn how the markets work • Discover our best investment ideas • Monitor stocks with our customisable watchlists • Enjoy our guides to sectors and themes • Get the inside track on company strategies • Find out how fund managers make money

Digital Online Investment magazine toolkit ideas INDEX

KEY HSBC (HSBA) 32 Savills (SVS) 11 Tremor International • Main Market 10 Hurricane Energy Science in Sport (TRMR:AIM) 45 22 • AIM (HUR:AIM) (SIS:AIM) Tullow Oil (TLW) 28 • I nvestment Trust IG (IGG) 45 Securities Trust of Unilever (ULVR) 22 • Fund 24 Scotland (STS) • Exchange-Traded Fund IP Group (IPO) 28 US Vegan Climate ETF 21 • IPO Coming Soon iShares Core FTSE SIG (SHI) 11 Vanguard FTSE 32 • Overseas share 100 ETF (ISF) Superdry (SDRY) 6 Emerging Markets 34 JD Sports (JD.) 28 Tesco (TSCO) 17, 23 (VFEM) Acorn Income Fund Joules (JOUL:AIM) 14 Travis Perkins (TPK) 11 Warpaint London 45 22 (AIF) (W7L:AIM) Kerry (KYGA) 25 Allianz Technology Legal & General 12 45 Trust (ATT) (LGEN) Aston Martin (AML) 28 LF Blue Whale Growth KEY ANNOUNCEMENTS 37 B&M (BME) 6 Fund (BD6PG78) OVER THE NEXT WEEK Best of the Best LF Lindsell Train UK 45 36 (BOTB:AIM) Equity (B18B9X7) Full year results 23 January: Blue Prism. Beyond Meat 21 LF Woodford Income 36 Focus (BD9X6D5) Half year results Liontrust Asset 8 Management (LIO) 21 January: IG Group, Joules, Sensyne Health. 22 January: Van Elle. 23 January: CPL Resources, Lyxor Core Ilika, NCC. Morningstar UK 32 (LCUK) Trading statements Marks & Spencer 7 (MKS) 17 January: Gym Group. 20 January: Audioboom, Henry Boot. 21 January: . McColl’s (MCLS) 17 Bioventix (BVXP:AIM) 45 22 January: Close Brothers, Sage. 23 January: MI Downing UK Boohoo (BOO:AIM) 6 , Gear4Music. Micro-Cap Growth 37 Card Factory (CARD) 6 (B2403R7) Cranswick (CWK) 23 Morrisons (MRW) 16 WHO WE ARE Crystal Amber 45 Next (NXT) 6 EDITOR: DEPUTY NEWS (CRS:AIM) Daniel EDITOR: EDITOR: Nippon Active Value Coatsworth Tom Sieber Steven Frazer D4t4 Solutions 36 45 Fund @Dan_Coatsworth @SharesMagTom @SharesMagSteve (D4T4:AIM) NMC Health (NMC) 9, 28 Duke Royalty FUNDS AND SENIOR REPORTER: 45 Norman Broadbent INVESTMENT TRUSTS REPORTERS: Yoosof Farah (DUKE:AIM) 37 EDITOR: Martin Gamble @YoosofShares (NBB:AIM) James Crux @Chilligg Dunelm (DNLM) 6, 28 Ocado (OCDO) 7 @SharesMagJames Ian Conway CONTRIBUTORS DX (DX.:AIM) 37 @SharesMagIan Russ Mould Pearson (PSON) 28 Tom Selby FireAngel Safety Laura Suter 37 Pets at Home (PETS) 28 Technology (FA.:AIM) Premier Foods (PFD) 22 Fresnillo (FRES) 45 ADVERTISING PRODUCTION Reach (RCH) 14 Senior Sales Executive Head of Design Designer Future (FUTR) 28 Nick Frankland Darren Rapley Rebecca Bodi Rockrose Energy Galliford Try (GFRD) 28 45 020 7378 4592 (RRE) [email protected] Games Workshop 13 Royal Dutch Shell (GAW) 32 CONTACT US: Shares magazine is published weekly every (RDSB) [email protected] Thursday (50 times per year) by Grafton (GFTU) 11 AJ Bell Media Limited, 49 Southwark Bridge Road, Sarasin Food & London, SE1 9HH. Company Registration No: 3733852. Greggs (GRG) 25 Agriculture 24 All Shares material is copyright. Hilton Food (HFG) 23 Opportunities All chart data sourced by Refinitiv Repro­duction in whole or part is not permitted (B77DTQ9) unless otherwise stated without written permission from the editor.

16 January 2020 | SHARES | 47