VOL 22 / ISSUE 07 / 20 FEBRUARY 2020 / £4.49

REINVENTING BP Is the FTSE 100 giant going to turn its back on oil and gas?

HELPING FIRST-TIME INVESTORS • The difference in risk between cash, bonds and shares • How much you need to invest to hit your goals EDITOR’S VIEW Why a change of name is often a cheap trick Royal Bank of Scotland’s plan to be renamed NatWest won’t fix its underlying problems

ou can put lipstick on a pig but it is still a pig. This colourful analogy came to mind after Ythe news that Royal Bank of Scotland (RBS) plans to seek shareholder approval to change its corporate name to NatWest. This would represent the third high profile name change of a UK-listed firm in the last three months. In December Mike Ashley’s retail vehicle Sports Direct became Frasers (FRAS) followed by Bovis Homes becoming Vistry (VTY) in January. Each company could point to some justification for the change. NatWest is RBS’ biggest brand and Sports Direct was looking to move upmarket so Frasers is probably a more appropriate moniker for that strategy. Adopting the Vistry brand was part of a bigger strategic change which saw Bovis acquire assets from Galliford Try (GFRD) at the away all of its past problems. start of 2020. At least a quick Google search will likely reveal However, it is hard to escape the feeling that the the truth about a renamed large cap’s past. respective companies are, to some extent, trying to More insidious are the small cap companies sweep negative history under the carpet. which run into trouble and change their name in an attempt to secure capital from new investors WHAT’S IN A NAME? who haven’t been burned before. RBS is still most synonymous with its part in the credit crunch and the actions of its disgraced SEEKING A NEW IDENTITY former CEO Fred Goodwin. The Sports Direct A name change can also seem like an attempt to chain has a reputation as a ‘pile ‘em high, flog ‘em pretend a business is something which it is not, cheap’ operator and Ashley has had a tortured such as Imperial Tobacco’s decision to rebrand relationship with the City. The name changes could as Imperial Brands (IMB). While the company is be a way of getting people to forget the past. moving into areas like vaping, it’s not like changing A corporate rebranding isn’t going to alter the its name is going to make everyone forget it sells fact RBS is more than 60% owned by the state or millions of cigarettes every year. that sports retail accounts for more than three It certainly hasn’t spared the company from a quarters of Frasers’ earnings. big sell-off as the sector faces a regulatory backlash. As for Bovis, it previously ran into problems Since it adopted its new title in February 2016 over its build quality, although at least current Imperial Brands’ shares have halved in value. CEO Greg Fitzgerald has gone a long way to fixing these issues. For larger companies like these, a change By Tom Sieber Deputy Editor of name can feel like an insult to investors’ intelligence, as if somehow a new name will wipe

2 | SHARES | 20 February 2020 THE MERCANTILE INVESTMENT TRUST

PUTTING THE BRIGHTEST SPARKS IN YOUR PORTFOLIO

Some of the most attractive investment opportunities lie outside the FTSE 100. The award winning Mercantile Investment Trust draws on over 130 years of experience to tap into the long-term growth potential of UK mid and small cap stocks, focusing on those companies that can ignite long-term success. Invest in tomorrow’s winners and share in the return potential of this dynamic area of the market.

Rolling 12-month performance to the latest quarter (%) As at end of December 2019

2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 Share Price 30.00 -3.67 30.22 -17.08 53.93 Benchmark 12.15 5.91 17.92 -14.96 28.95

Benchmark: FTSE All-Share (ex FTSE 100, ex Inv companies) (£). Source: J.P. Morgan Asset Management / Morningstar as at 31/12/19.

Visit jpmorgan.co.uk/MRC

The Mercantile Investment Trust plc may utilise gearing (borrowing) which will exaggerate market movements both up and down. The Mercantile Investment Trust plc may also invest in smaller companies which may increase its risk profile. Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a company with a full listing on the London Stock Exchange. Your capital may be at risk. Past performance is not a reliable indicator for current and future performance. © Incisive Business Media (IP) Limited. All rights reserved.

The methodology and calculations used 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.

JPM52452 | 11/19 | 0903c02a827da7e2 VIEWING SHARES AS A PDF? Contents CLICK ON PAGE NUMBERS TO JUMP TO THE START OF THE RELEVANT SECTION EDITOR’S 02 VIEW Why a change of name is often a cheap trick Markets complacency with the coronavirus / Underappreciated risks 06 NEWS to Dunelm’s share price / Government review could put the brakes on rail operators’ earnings / Major cost-cutting fails to lift HSBC’s shares

GREAT New: Persimmon / Third Point Offshore 11 IDEAS Updates: S&U / Centrica / Luceco

16 FEATURE Reinventing BP UNDER THE 22 BONNET Why JD Sports Fashion can sustain its winning run New to investing: the difference in risk between cash, bonds and 26 FEATURE shares

Value for money reports / Can you get your money out of a fund 32 FUNDS when you need to?

36 ASK TOM What happens to pension assets in divorce? MONEY 38 MATTERS How to save money on your internet and phone bills 41 EDUCATION The stocks and indices which matter when investing in Europe

44 RUSS MOULD What is behind Bitcoin’s latest comeback?

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 | 20 February 2020

NEWS Why the markets could be too complacent about the coronavirus Apple warning on Chinese issues highlights the risks facing many businesses

he news from Apple that the coronavirus will hit sales of its iPhone should not have 3400 Tcome as a surprise but has nonetheless provided a jolt to investors who had seemed quite 3100 relaxed about the outbreak. There may now be increased attention on the 2800 S&P 500 impact on other firms. The management teams of Crude Oil companies with Chinese exposure, either through 6 13 20 27 3 10 17 JAN FEB their manufacturing function or customer base, will face increased scrutiny over the issue. Specifically it could be raised when consumer goods firm Reckitt Benckiser (RB.) and advertising giant WPP (WPP) report their full year numbers on 27 February. Reckitt has a significant sales footprint in China and WPP is often seen as a proxy for the global economy. Apple said it is unlikely to meet quarterly revenue guidance of up to $67bn as it admitted its worldwide iPhone supply will be ‘temporarily the virus. constrained’, with demand for products in China It comes as an increasing number of market also down due to store closures because of commentators have cautioned that investors are getting too complacent over the disruption coronavirus could cause to global supply chains. The UK small cap hit by Apple’s news Saxo Bank’s head of equity strategy Peter Garnry said the ‘alarm bells are ringing further and THE APPLE WARNING also had a direct louder every day… that the market is becoming read-across to AIM-quoted semiconductor insane’ having continued to rise despite ‘worrying’ manufacturer IQE (IQE:AIM), which counts comments from experts that coronavirus could Apple as a big customer. infect 40% to 70% of the world’s population in a Its shares plunged over 8% on 18 February worst-case scenario. to 56p as investors poured over the potential Instead of looking at company shares at the knock-on impact. moment, Garnry added that he ‘cannot emphasis Analysts at Canaccord Genuity forecast that, enough’ to look at commodities such as crude oil, depending on the duration and steepness of the iron ore and copper for real insight into the demand hit to Apple, the potential earnings impact for picture in China. IQE could be ‘low to mid-single digit percentage Before Apple’s warning, the FTSE 100 had been revenue and around 5% to 20% adjusted EBIT in recovery mode and the likes of France’s CAC 40 downgrades’. and Germany’s DAX were hitting record highs, along with the Dow Jones, Nasdaq and S&P 500 in the US.

6 | SHARES | 20 February 2020 NEWS Dunelm’s price looks too high given China risks

A high equity rating leaves the retailer’s shares vulnerable to a big correction if there are problems stocking its stores

hares in homewares market leader Dunelm strong multi-channel business and click and collect (DNLM) have surged 148% higher since the proposition increased footfall to stores. Sstart of 2019 thanks to a series of positive Admittedly the retailer’s wares aren’t everyday trading updates. Its latest half year results, published essentials, but a recent pick-up in the housing market on 12 February, show the benefits of a recently- with higher prices offers an earnings tailwind, since upgraded digital platform which has made it easier it indicates stronger activity in the property space. for customers to buy goods online. People moving home is a natural catalyst to buy new The key challenge for investors is to decide if homeware items, such as those offered by Dunelm. the stock has become too expensive or whether it Broker Shore Capital insists Dunelm is ‘starting to actually deserves to trade on a premium rating. We leverage its scale in a highly fragmented market from can see a clear risk to its supply chain in the near- John Lewis and others given their recent travails’, and term and so the rating makes the stock vulnerable to broker Peel Hunt says the business has ‘significant a large share price correction upon the slightest bit growth potential ahead’. of bad news. Risks to earnings forecasts include additional In Dunelm’s defence, it is clearly doing something pressure on disposable incomes should the economy well to enjoy strong earnings momentum. However, turn down, homeware category expansion by the valuation looks rich for a retail business with a competitors and unseasonal weather. large physical store estate. At £13.40, it is trading But perhaps the biggest risk is China being locked on 24.5 times forecast earnings for the year ending down by the coronavirus and how that could disrupt June 2020. In comparison, Next (NXT) trades on supplies. 15 times expected earnings for its financial year Investment bank UBS points out that 17% of ending January 2021. Dunelm’s goods are sourced directly from China. In the second half of 2019 Dunelm’s like-for-like It therefore feels prudent to assume there will be sales grew by 5.6% despite demanding comparatives some supply chain disruption and that the shares are and a soft homewares market, and gross margins priced too high to warrant buying. improved thanks to sourcing gains and fewer We like the business and believe the best markdowns. approach is to wait for any large pullback in the share Online sales grew 33% in the first half as Dunelm’s price before buying. 1500 DUNELM 5 Dec 2019. Says full year 1200 results to beat forecasts 7 Jan 2019. Reports 9% like- for-like sales growth in Q2 900 20 Jun 2019. Trading 12 Feb 2020. Market 600 better than expected likes interim results 2019 2020

20 February 2020 | SHARES | 7 NEWS Government review could put the brakes on rail operators’ earnings Changes are likely to impact quoted operators FirstGroup and Go-Ahead

n the next few weeks the Government is set to publish a review of the UK rail industry Iwhich is likely to recommend a major shake- up in the way trains are run and the way we pay for them. The Williams Review, led by former British Airways boss Keith Williams, has been a year in the making and is expected to call for changes to both the current franchise model and the ticketing model, with implications for the rail operators and ticket sellers. Under the current franchise system, train operators collect fares and pay a cut to the Treasury. As the franchise is effectively a monopoly, the operators are free to set prices to maximise profits. The review is likely to suggest scrapping the franchise model and replacing it with fixed contracts whereby operators would receive a fixed improvements for customers from our current rail fee from the Government, which would set the portfolio, including the introduction of additional fares and ‘run’ the networks. services and longer, faster and more reliable trains This not only takes pricing out of the hands with more seats.’ of the operators, it gives Government control FirstGroup operates the Great Western Railway, of the rail network at both mainline and which runs express services to Bath, Bristol and local levels. Cardiff, together with South Western Railway, Hull The review is also likely to recommend replacing Trains and the TransPennine Express. the UK’s over-complicated ticketing system with a Meanwhile Go-Ahead (GOG) operates Govia ‘single leg’ pricing model where fares are charged Thameslink Railway, which extends from Brighton on a per-journey basis. to Bedford and Cambridge and which accounted A new Government body would award for 24% of all UK rail journeys last year according contracts, set fares and monitor the performance to the firm’s website. of the train operators and Network Rail. There It also operates the Gatwick Express service and are even hints that the review will suggest some the SouthEastern franchise which is due to expire stations be privatised. in April this year. A spokesman for FirstGroup (FGP) says: ‘We As well as the train operators, the review could await publication of the report and will work pose a problem for Trainline (TRN) which makes together with DfT and industry partners to money by comparing fares to save customers implement its recommendations. money and then charging a booking fee for ticket ‘Our focus will remain on delivering transactions.

8 | SHARES | 20 February 2020 NEWS Major cost-cutting fails to lift HSBC’s shares The bank has suffered a large drop in profit and outlined a large restructuring plan

urope’s largest bank HSBC (HSBA) has revealed plans to slash up to 15% of its Eworkforce over the next three years after earnings more than halved in the year to 31 December. Despite a 4% increase in revenue, net profits slid 53% to just $6bn from $12.6bn as the bank took a $7.3bn write-down on its investment banking and commercial banking units in Europe and a $2.8bn charge for bad loans. Shares in the bank dived 6% to 555p making HSBC the worst performer in the FTSE 100 on the day of the news (18 Feb). As part of its plan to increase returns the bank is taking capital away from the investment and commercial banking units, which interim chief executive Noel Quinn admitted are ‘not delivering acceptable returns’, and focusing on Asia where the bank continues to perform well. share price as the market tends to like cost cutting. As well as reducing capital it is cutting jobs, with However, investors appear to be focused on the the group headcount ‘likely to go from 235,000 potential economic impact of coronavirus in China to closer to 200,000 over the next three years’ and Hong Kong and how that raises the risk that according to Quinn. HSBC’s Asian business could struggle this year and Job cuts of this scale would normally drive up a the bank subsequently misses its targets.

FTSE 350 MOVERS OVER THE PAST WEEK BEST PERFORMERS STOCK SHARE PRICE RISE REASON Future 11.2% Positive broker comment, recovery from short selling attack Puretech Health 10.4% Strong investor sentiment following $200m sale of interest in affiliate IP Group 9.8% Market continues to react to healthy profit from sale of stake in Ceres Power

WORST PERFORMERS STOCK SHARE PRICE FALL REASON Centrica -14.3% Weak full year results marred by significant write-downs Finablr -13.4% Association with the ongoing problems at NMC Health, given director links GVC -10.9% Fears stakes for online gambling may be reduced

Source: Shares, SharePad. Data to 18 Feb 2020

20 February 2020 | SHARES | 9

Buy Persimmon which yields 7% and is getting its house in order The housebuilder has learned from its mistakes yet still trades at a discount to peers

e think housebuilder Persimmon (PSN) can PERSIMMON  BUY W close the valuation (PSN) £32.15 gap on its rivals as it repairs its Stop loss: £25.72 reputation and improves its Market value: £10.4bn building practices amid robust conditions for the wider sector. The housebuilding space has believe it is not a stretch to argue enjoyed good momentum since that Persimmon with its higher the December general election returns and net cash should delivered a measure of political return to a lower dividend yield The main risk to our positive certainty arguably not seen than Barratt and Taylor Wimpey stance on the shares is that the since before the Brexit vote in as was the case in 2017.’ company’s efforts to address June 2016. For Persimmon to trade these problems lead to significant Online property site on the same yield as Barratt sacrifices on its level of returns. Rightmove (RMV) recently it would need its share price For now, Persimmon continues signalled a bumper time for to rise by more than 30% to to generate higher margins than house prices this spring as pent approximately £43. its rivals and has an exceptionally up buyer demand comes through The reasons for Persimmon strong balance sheet, even by – this will coincide with the all- lagging behind in recent the standards of a sector which important selling season for the times is the construction and is awash with cash. The company housebuilders acting as a further customer care issues which led has an £844m net cash position. catalyst for share prices. to murmurings that it might lose It also benefits from limited Persimmon may provide some its eligibility for the Help to Buy exposure to the south east where colour on this when it reports full scheme which has been highly valuations are more stretched, year numbers on 27 February and lucrative for the industry. with lower average sale prices in a subsequent trading update As it looked to address these than peers and a good track scheduled for 29 April. problems, the company curbed record of acquiring land at the Based on Jefferies’ the number of home right prices. forecasts Persimmon Solid completions in 2019, is on a 2020 yield of foundations: with properties 3400 7.3%, while Barratt also sold later in PRSMMN Developments, Dividend is the construction a good point of underpinned by process. comparison given Completions fell 2600 its similar size, is on £844m 4% to 15,855 a yield of 5.5%. net cash leading to a 2.4% The investment position drop in revenue to 1800 bank comments: ‘We £3.65bn. 2019 2020

20 February 2020 | SHARES | 11 ADVERTORIAL FEATURE

THE SNOWBALL EFFECT OF DIVIDENDS

If you’re a regular reader, you’ll know that we often One of the things we may consider before investing in an ‘unloved’ talk about dividends. That’s because they can make company is if it has sufficient cash to pay dividends throughout its turnaround. As our approach is based on long-termism and patience, a a big difference to your long-term investments. In sustainable dividend may make it easier for us to hold the stock while this article we go back to basics and explore the the business is recovering. A good example of this is our investment in role of dividends. Dutch telecoms group KPN. Deemed unexciting by many, we view the steadiness of this business as a virtue. It fits our ‘unloved’ criteria, because Making dividends work for you shrinking revenues have set investors’ expectations low. The company If you’re a shareholder in a company, you may receive a dividend from has a credible plan to improve its fortunes. As we wait for positive that company’s profits – as a reward for entrusting it with your capital. As development, we can enjoy the dividend – the belt to the braces. with all investment trusts, The Scottish’s main source of income used to pay dividends to its investors are the dividends received from its portfolio  dividends can play an integral part in the of holdings. You may not be aware that we deliver one of the highest return on your investments over the long-term dividend yields in the AIC Global peer group. This is important because, in conjunction with share price movements, dividend income forms a What if the company doesn’t pay a dividend? substantial part of an investor’s total return. If dividends are so useful, does that mean we’ll shun companies that Compounding occurs as dividends are used to buy more shares don’t pay one? Not necessarily. When a company is putting its house in which, in turn, earn dividends on their own. These reinvested dividends order, it might choose to stop paying a dividend, conserving its cash to would then gain or lose in line with the movement of the share price. allow it to improve the business (investing in new technology or changing For example, over 25 years to 31 December 2019, the share price of The its business model, for example). Indeed, this was the case with Tesco, Scottish increased by 297%. The share price plus dividends taken as cash which suspended its dividend before we invested. Tesco addressed would raise this to 431% over the same period and, if those dividends had areas of concern, made improvements to its business – then restarted been reinvested, the total return would have been 612% (all before any its dividend. We see the reinstatement of a dividend as an important dealing expenses). It’s important to remember, of course, that markets signal that a company’s rehabilitation is underway. Another example can be volatile and shares (and the income from them) can go down as is Royal Bank of Scotland, which was forced to cease dividends during well as up. the financial crisis. Similarly, the company restarted dividends when its financial position improved. Why a contrarian approach can pay dividends As you can see, dividends can tell us a lot about a company’s health As we’ve demonstrated, dividends can play an integral part in the – and its future prospects. We always pay close attention to a company’s return on your investments over the long-term. We’re pleased to say that dividends when we’re considering investing – both its ability to pay them we’ve increased our regular dividend for the last 36 consecutive years and its track record of doing so, because dividends can make a tangible which makes us a ‘dividend hero’ according to the AIC. Though remember difference to long-term investors. ■ that dividends are not guaranteed and they can fall as well as rise. 6 January 2020 In this context, how does our contrarian style come into play? It guides us to look for what we call ‘ugly ducklings’ – unfashionable and unpopular investments. The share price of such investments typically reflects their ‘unloved’ status, often written off by other investors. By contrast, we research these companies to ascertain if they are ripe for improvement. Has there been a change in their business model, or to High conviction, global contrarian investors senior management? Are there nascent opportunities in the markets in For more information visit www.thescottish.co.uk which they operate? If we believe we can see a change, and the company or follow presents a credible plan for recovery, we’ll consider investing. However,  @ScotInvTrust we also take a ‘belt and braces’ approach to our investment – which   The Scottish Investment Trust PLC brings us back to dividends.

RISK WARNING Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest. The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority. Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor. Issued and approved by SIT Savings Ltd, registered in Scotland No: SC91859, registered office: 6 Albyn Place, Edinburgh, EH2 4NL. Authorised and regulated by the Financial Conduct Authority. Telephone: 0131 225 7781 | Email: [email protected] Website: www.thescottish.co.uk Bargain entry point to access activist investor Dan Loeb Third Point Offshore provides a way to benefit from the acumen of one of Wall Street’s most famous names

steep 20% discount to net asset value (NAV) THIRD POINT at London-listed Third OFFSHORE A  Point Offshore Investors (TPOU) INVESTORS BUY offers an attractive entry point (TPOU) $17.10 for those keen to access the Stop loss: $12.00 money-making acumen of Wall Market value: $665m Street luminary Dan Loeb, a famous activist investor. We’ll be upfront and say aggressive letters to companies this investment is not for and proposing big changes, selling to identifying intrinsically everyone. Accessing Loeb’s although more recently his mispriced value stocks. investing skills means paying a investing campaigns have been Some of these techniques premium – ongoing charges less contentious, coming with a can be high risk and so investors are a hefty 2.8%. constructivist bent. should only consider buying the Returns can also be lumpy. In Third Point employs an shares if they are comfortable good years, Third Point could event-driven, value-oriented with how short-selling works and significantly outperform the investment style, with Loeb that they understand betting market such as in 2013 when it seeking to identify situations against companies can cause big delivered nearly twice the return where a catalyst will unlock losses if Third Point gets it wrong. of the MSCI World benchmark value and deliver attractive Third Point is increasingly (46.9% versus 25% respectively, risk-adjusted returns for his focused on generating and according to Morningstar). investors. Current positions implementing more activist and In bad years, it could include electronics group Sony, constructivist ideas and beefing underperform and that’s what food group Nestle and medical up the fund’s exposure to these you saw in 2018 and 2019. supply company Baxter. positions, while also using Taking a longer-term view, it has Loeb believes that stock market sell-offs to snap up stakes beaten the market with 13.9% picking opportunities will be in high-quality companies. annualised returns over the past created by greater equity market 10 years versus 12.9% from the volatility, increasingly caused by 17.00 TR PNT MSCI World benchmark. algorithmic and passive trading SR The investment trust invests strategies. NVSTRS directly into Third Point Offshore, Although Third Point is best 16.00 the flagship hedge fund of New known as an activist investor, York-headquartered Third Point, activism is just a part of this 15.00 where Loeb serves as chief investment firm’s arsenal. Its 14.00 executive officer. expertise spans everything from 2019 2020 Loeb is known for sending opportunistic credit to short

20 February 2020 | SHARES | 13 S & U CENTRICA (SUS) £24.40 (CNA) 73p

Gain to date: 9.9% Loss to date: 19.2% Original entry point: Original entry point: Buy at £22.20, 30 May 2019 Buy at 90.42p, 19 December 2019 MOTOR FINANCE AND bridging loan provider OUR VALUE-DRIVEN ‘buy’ call on energy firm S & U (SUS) delivered another positive trading Centrica (CNA) is off to an underpowered start update last week, confirming our view that the thanks to a disappointing set of full year results business is well placed to cash in on a recovery in (13 Feb). the UK economy. The company reported adjusted profit down The volume of transactions has increased in both 35% to £901m and was forced to book a £1.1bn businesses since the general election in December one-off charge linked to falling commodity prices with the result that, unlike many of its rivals in the and issues in its nuclear business. used car market, S & U will meet earnings forecasts There is an argument that weak natural gas when it reports in March. prices, the nuclear outages it experienced and the In contrast with the new car market, the used new caps on energy tariffs were arguably outside car market where it operates saw steady volumes of management’s control. last year while prices rose by over 6%. As vehicle While operational issues might delay the manufacturers cut production of diesel cars, disposal of its nuclear arm, the divestment of the demand for nearly-new eco-friendly diesels 69% interest in oil and gas producer Spirit Energy continues to rise, pushing up used prices. remains on track with offers for the business Meanwhile the Aspen property bridging business expected around the end of the first quarter. is ‘making progress’ according to chairman However, the sale price is likely to have been Anthony Coombs. Demand for new loans, typically affected by the write-down and ongoing weakness for residential developments, is starting to pick up in commodity markets. while the level of repayments has also improved On a brighter note the which has helped group cash flow. company is making progress Despite slower profit growth, in line with with its core consumer company forecasts, energy arm, customer the board approved an accounts were up 722,000 increase in the second in 2019 and the company interim dividend in a is ahead of target with sign of confidence in planned cost savings. the outlook for the group. 140 CENCA 2500 110 S & U 2200 80

1900 2019 2020

2019 2020 SHARES SAYS:  An undoubted blow, but as the business is reshaped SHARES SAYS:  we expect the market to respond to the value on S & U is a great way to play a UK recovery and we offer. Be patient and aware of the risks to the remain buyers. investment case.

14 | SHARES | 20 February 2020 LUCECO confirm if, or when, the factory might reopen but as analysts at Liberum rightly point out any shortfall (LUCE) 123.8p in volumes near-term can be made up for during the rest of the year at the cost of some modest Gain to date: 6.7% overtime. Original entry point: ‘Management note that there is no impact to Buy at 116p, 19 December 2019 current full year guidance,’ says Liberum. Guidance for 2020 adjusted operating profit of between INVESTORS SEEM TO be taking a shoot first, £20.5m and £21.5m. ask questions later approach to electronics components and LEDs firm Luceco (LUCE) 160 and any potential output problems from the LUCEC shutdown of its factory in Jiaxing, China. 120 The site has been closed down for the past couple of weeks because of the coronavirus 80 outbreak. Importantly, there have been no reported cases of coronavirus among Luceco’s 2019 2020 employees. But after raising 2020 full year guidance at SHARES SAYS:  the end of January thanks to firming demand, Short-term risks cannot be discounted but the investors are clearly concerned that those powerful growth and margin improvement story remains intact. We will keep an eye on events in case bumped up targets may now be missed. of a more prolonged impact. As we went to press we had been unable to

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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. 20 February 2020 | SHARES | 15 REINVENTING BP Is the FTSE 100 giant going to turn its back on oil and gas?

By Tom Sieber Deputy Editor

il major BP (BP.) is the fourth largest Ultimately BP is one of the most significant company on the FTSE 100, representing companies on the UK stock market and investors 5% of the total market cap of the index. should therefore take note of how the business According to Link Market Services, might evolve in the coming years. OBP and Royal Dutch Shell (RDSB) combined paid On 12 February it announced potentially the 20% of all dividends served up by UK-listed firms biggest shakeup in its 111-year history as it over the last decade. It is unsurprisingly a very pledged to be net zero on its emissions by 2050. popular holding in UK income funds owned This news really matters as Link’s chief operating by thousands of investors across the country. officer Michael Kempe observes: ‘Compared to other major countries, investors in UK equities are unusually reliant on oil to provide income on their shares. ‘As pressure builds on all firms to show environmental strategies, investors will be looking for clear direction, such as this announcement from BP’s CEO and from all the oil majors regarding their plans to decarbonise their operations when they are making future investment decisions.’ BP’s new chief executive Bernard Looney arguably had little choice but to lay down transformational BP’s CEO Bernard Looney plans given the growing clamour for the oil and gas industry to address its contribution to climate

16 | SHARES | 20 February 2020 change, not only from environmental campaigners but from institutional investors and politicians. WHY SHOULD BP LEAD However, at this stage it is unclear whether THE RENEWABLES CHARGE? Is the FTSE 100 giant going to turn its back on oil and gas? BP’s net zero plan is ‘greenwashing’, a phrase to describe addressing environmental concerns but not following up with real action, or a genuine commitment to change. That question may be answered more fully when the company hosts an investor day in September but in this article we will discuss the potential implications of the net zero pledge, in particular what it might mean for the company’s dividend, how the pledge might be achieved and where the company is starting from. A biofuel field owned by BP’s Tropical BioEnergia subsidiary

WHAT DOES IT ALL MEAN? Given the toxic legacy of BP’s fossil fuel So what did BP mean when it said it wanted to assets, why should it, rather than a company be ‘net zero’ by 2050? In plain English it hopes to unencumbered by such a legacy, be part of the make no addition to the amount of greenhouse transition towards renewables? gases in the world’s atmosphere through either its According to Nick Boyle, the founder of solar operations or the oil and gas it produces. It is also business Lightsource, the answer is that oil and aiming to halve the carbon intensity of its products gas companies have been powering the world by the same date (or sooner). for 100 years. BP recently increased its stake in The ‘or sooner’ bit may become increasingly Lightsource to 50%. relevant as BP could face pressure to move more ‘Oil and gas companies have the experience quickly on this issue. of building large engineering projects in remote BP’s pledge to cancel out the emissions from places, knowledge of the energy markets and the oil and gas it produces is perhaps most huge trading capability as well as the necessary eye-catching. In a Q&A session in front of financial wherewithal,’ he says. campaigners, journalists and investors, Looney Steve Wreford, portfolio manager of said the ‘tools in the toolbox’ for achieving this Lazard Global Thematic (B241MZ1), also aim would include carbon capture, hydrogen and believes BP is a natural fit for the renewables natural climate solutions. space and doesn’t believe its current structure Carbon capture and storage (CCS) involves will hinder efforts to transform into a business trapping carbon in caverns or porous spaces fit for the next generation. underground and then transporting to locations ‘I look for companies with a solution to where it can be stored or used. emissions rather than part of the problem,’ he says. ‘There are a select number of companies A CASE OF DÉJÀ VU? REHASHING who can manage the transition from a world ‘BEYOND PETROLEUM’ of fossil fuels to a world of renewables and emissions-light, which is about 20 to 25 years In July 2000 BP announced a PR campaign away. Some of them are renewable companies entitled ‘Beyond Petroleum’ ditching its but not all of them. traditional shield-based logo and replacing it ‘We invest in BP which is busy rolling out its with a new sunburst design. renewables platform. It still owns lots of oil Tangible investment in genuinely moving fields but it can manage the transition. beyond oil and gas was subsequently limited. ‘People think of BP as an oil company It fulfilled a 2005 pledge to spend $8bn on but the life span of its proven reserves is 10 renewables by 2013 but failed to set a new target years. In other words, BP could be a totally and notably scrapped ‘Alternative Energy’ as a different company by 2030 – it could be standalone business in 2009. ‘Beyond Petroleum’ finally.’

20 February 2020 | SHARES | 17 Hydrogen refers to the use of a variety of technologies, including the electrolysis of water RESTRUCTURING THE BUSINESS and chemical synthesis of natural gas, to produce hydrogen-based zero-emissions liquid fuel. For the first time in its history BP is abandoning Natural climate solutions involve tapping into the traditional upstream (oil and gas exploration natural carbon sinks, including oceans, plants, and production) and downstream (refining forests, and soil; these remove greenhouse and marketing operations) structure. gases from the atmosphere and reduce their The new corporate structure splits the concentration in the air. business into production and operations, However, these approaches and technologies customers and products, gas and low carbon have not yet been proved up on any significant scale. energy, and innovation and engineering. A January 2020 report from think-tank the Atlantic Council noted: ‘The core argument held by many environmentalists against hydrogen technologies will emerge could lead to a and CCS is that they are too risky—meaning that climate disaster should the technologies fail to continuing oil and gas production in the hopes materialise, and the population is consuming that these and other future decarbonisation business-as-usual levels of oil and gas.’

WHICH FUNDS ARE MOST EXPOSED TO BP?

The table shows the funds and investment trusts with the most significant exposure to BP in their respective portfolios. According to data from FE Fundinfo, 246 funds out of an Investment Association universe of 4,051 have 1% or more of their portfolio in BP; 67 have an interest in excess of 5%. The FE data also shows 20 investment trusts with more than 1% of their portfolios in the oil company.

Investment trusts with material exposure to BP

BP as proportion Funds with material exposure to BP Fund of portfolio BP as proportion Fund Edinburgh Investment Trust 6.4% of portfolio Schroder Income Growth 5.4% BlackRock GF World Energy 9.7% JP Morgan Elect 4.9% MFS Meridian Global Energy 9.0% Managed Income Investec Global Energy 8.4% BlackRock Energy & 4.9% SJP UK Income 8.2% Resources Income LF Majedie UK Income 8.0% Perpetual Growth & Income 4.8% Temple Bar 4.3% Scottish Widows 8.0% UK Select Growth Value & Income 4.3% Jupiter Growth & Income 7.9% Invesco Perpetual Select 4.3% Lazard UK Omega 7.8% UK Equity M&G Recovery 7.6% Keystone IT 4.2% UBS UK Equity Income 7.5% Fidelity Special Values 3.5%

Source: FE Analytics, 12 Feb 2020 Source: FE Analytics, 12 Feb 2020

18 | SHARES | 20 February 2020 What are the implications of BP’s plan?

LOONEY SAYS NOTHING to be announced 2 Growth in September will compromise the principles Looney says BP may still be producing oil and gas in of growing cash flow and distributions to 2050, although probably less than it does now. shareholders, maintaining a strong balance sheet In the wake of the Gulf of Mexico oil spill the through capital discipline, and driving down costs. company has already streamlined itself, divesting However, there are three main areas which will billions of dollars’ worth of assets. almost certainly be affected by a plan to realign BP on this scale and have a greater reliance on renewable energy.

1 Dividends Investment bank Morgan Stanley characterises the situation facing the big oil and gas companies, including BP, as an ‘impossible trinity’ of investing to maintain oil and gas production, building out what it calls ‘new energies’ businesses, and BP Jim Cunningham rig maintaining their current substantial dividends. Referencing this challenge Morgan Stanley The company has signalled it will focus on says: ‘In almost any scenario, this raises important the highest quality barrels. In practice that will uncertainties over the majors’ long-term dividend to mean avoiding projects which involve more capacity. If they transition too slowly, what intensive work to get the oil and gas out of the will underpin their earnings when oil demand ground. This includes assets in very deep water or plateaus and eventually peaks? Can the majors oil which is particularly heavy or viscous as well find new businesses that can match the historical as developments which involve dealing with high profitability of oil? pressures and temperatures. ‘On the other hand, if they transition too The company’s main growth initiative in the last fast, will their new decade was the acquisition of shale assets from energies businesses be BHP (BHP). This seems at odds with a ‘highest sufficiently profitable quality barrels’ approach given shale operations to underpin current have a significant environmental footprint thanks dividends? So far, new to their land use and associated levels of water and energies returns appear air pollution. a lot lower than oil and gas returns. ‘Even if the majors 3 Debt transition at precisely BP is under pressure to reduce its borrowings. the right pace, and Gearing, which represents the ratio of net debt the returns in new to total equity, hit 30.3% in the fourth quarter of energies are indeed 2019. Indebtedness has increased since 2018 as a sufficient, it will take result of the BHP deal. many years before this This gearing ratio is just above the company’s becomes clear. For 20% to 30% targeted range and was up from 27.4% the next several years, a year earlier. The company plans to sell off more investors are simply assets to get gearing down, yet investing in more BP windfarm Cedar Creek faced with considerable capitally intensive alternative energy assets could uncertainty.’ put the balance sheet under strain.

20 February 2020 | SHARES | 19 Should you buy or sell BP shares?

THE ANNOUNCEMENT OF the net zero plan is only likely to ramp up the pressure on the business WHAT DO THE EXPERTS THINK? and this could be damaging to the share price. Recent pressure on oil prices linked to the One fund manager who wished to remain coronavirus outbreak is another headwind. anonymous and who attended Looney’s Income is the main attraction of the stock – the presentation of the net zero plan told Shares company has a 6.8% prospective dividend yield that the BP boss ‘walked a fine tightrope’ but based on consensus forecasts – and we do think reckons he carried it off. They note the retail it’s unlikely that the dividend will be cut in the investor perception that fossil fuels are bad foreseeable future. therefore BP should get rid of them but point However, this has to be balanced against the out this would just pass the problem to someone risk of further capital losses. September, when the else and it would still be a problem for society. company’s investor day should provide more meat Consultancy Lux Research’s Holly Havel on the bones of these new targets, looks like a says BP’s announcement references methane potential negative catalyst. detection and low carbon investments, but highlights that BP’s broader decarbonisation BP solar panels in the UK strategy is centered around completely restructuring the organisation. ‘BP has struggled to reinvent itself in the past but may find more success as the industry reaches a turning point in the evolving energy transition.’ Berenberg analysts Henry Tarr and Ilkin Karimli see a risk from the whole oil and gas sector investing in this transition at once. ‘With substantial regulatory and technological uncertainty, not to mention increasing competition, it remains to be seen how fast and What could happen? Either the company won’t successfully such a transition can be made. We go far enough to appease shareholders who want have already seen that crowding of industry it to take decisive action on climate change or it investment into “growth” areas can drive goes too far and alienates investors who prize a overcapacity and weak returns (eg in gas and dividend underpinned by cash flow from its oil petrochemicals), although industry players will and gas related businesses. hope that such overcapacity is cyclical in nature There are just too many unknowns and and eventually reverts back to healthier levels.’ headwinds to warrant owning the shares now. Existing shareholders should sell and prospective investors should look elsewhere for opportunities.

BP

BP wind farm in Hawaii

20 | SHARES | 20 February 2020 LISTEN TO OUR WEEKLY PODCAST Recent episodes include:

Football, fake tan and finance! It’s a podcast special with Lindsell Train fund manager Nick Train who talks about investing in Manchester United, PZ Cussons and Unilever The tough job of running a China investment fund, Tesla’s runaway share price, digesting the new-look Just Eat, and millions of pounds in unclaimed pension tax relief How pensions and investments have been hit by the coronavirus, Woodford refund time and ISAs versus SIPPs MONEY MARKETS Listen on Shares’ website here

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. Why JD Sports Fashion can sustain its winning run The sports fashion brands seller has a winning formula and plenty of global growth to shoot for

entiment towards the UK retail sector remains Slargely negative, not helped by a number of post- Christmas profit warnings, yet JD Sports Fashion (JD.) continues to stand out from the crowd. The sports fashion and outdoor brands retailer is one of the UK retail sector’s all-time success stories and ranks amongst the best total return performers over Shares’ two-decade-long-plus history. Despite a premium valuation we remain bullish on JD Sports Fashion. It is a rare retail structural growth winner with a in store. aspirational items such as those formidable track record, strong At the same time, it has must-have trainers. relationships with key suppliers maintained its attractive gross and a huge global growth margins thanks to markdown WHY EARNINGS ARE opportunity ahead. discipline, no easy feat in SPRINTING AHEAD the increasingly promotional Through its JD Sports chain – HOW JD HAS DEFIED THE branded fashion retail sector. strapline ‘Undisputed King of RETAIL DOOM AND GLOOM? Analysts and fund managers Trainers’ – the company sells Guided by gruff sporting brands are consistently wowed by the branded sports and casual wear, supremo and executive chairman sustained like-for-like growth in combining globally recognised Peter Cowgill, recent years have the core sports fashion business. brands such as Nike, Adidas, seen JD Sports Fashion defy the Again, this is some achievement Puma and The North Face with wider UK retail industry doom as JD Sports’ tough comparatives own brand labels including Pink and gloom. meet the law of large numbers, Soda and Supply & Demand. Despite a myriad of challenges driven by the successful riding The £8.5bn cap lures facing bricks and mortar retailing, of a so-called ‘athleisure’ boom fashion-savvy shoppers in with the Bury-headquartered among youthful gym-goers and everything from sought-after group has continued to deliver fashion-savvy consumers. trainers, jackets, track pants strong like-for-like growth and More recently, the business and football shirts to hoodies, consistent earnings upgrades has benefited from something leggings and sports bras, all over the past five to 10 years of a consumer flight to quality; merchandised within vibrant thanks to its knowing its the volume of stuff people are shops that create ‘retail theatre’ audience inside out and serving buying has reduced, but they and deploy digital technology to it effectively both online and are prioritising spending on keep those tills ringing.

22 | SHARES | 20 February 2020 GROUP REVENUE BY GROUP REVENUE BY GEOGRAPHICAL MARKET CHANNEL

5% 3% UK 19% RETAIL STORES 21% EUROPE MULTICHANNEL 45% US WHOLESALE

REST OF 29% WORLD 78% 45+29215C 78Source: JD Sports Fashion,+193C February 2019 financial year Amid a wider retail malaise, its brand organically and by In addition to store refits, JD Sports, which operates a acquisition to Europe, Asia and the retailer is bringing its best complementary gyms business Australia. The model has proved practice to Finish Line stores and sponsors brand-boosting particularly potent in Europe, and simultaneously opening a big time boxing bouts, is thriving where sales densities are ‘eye- number of flagship JD stores in by offering shoppers something catching’, to quote broker Peel big US cities. The latter move different. Hunt, and like-for-like growth has will bring the chain into the constantly been in the teens and consciousness of the strong AND JD’S GOING GLOBAL higher. US consumer. In an in-depth JD Sports also owns outdoor 2018 saw JD Sports complete November research note, Peel retail brands including Go the acquisition of The Finish Line, Hunt reckoned that in five years Outdoors, Blacks and Millets. But a potentially significant move time, there will be about 200 its promotion into the FTSE 100 providing a platform for growth JD stores and around 300 Finish ranks for the first time in 2019 in the US, the world’s largest Lines across the Atlantic. was primarily a reward for the athleisure market, and increasing Encouragingly, The Finish successful transfer of the JD DNA JD’s strategic importance to Line is being successfully turned into global markets. major global brand partners, around, outperforming US peers JD has successfully exported principally Nike and Adidas. such as Foot Locker, and margin expansion represents a tailwind to group-level earnings going forwards.

WORTH FRETTING OVER FOOTASYLUM? In a setback for JD management, the UK Competition and Markets Authority (CMA) reckons shoppers could lose out following the takeover of smaller sports fashion rival Footasylum and is moving to block the deal. A sale looks to be the only move available for Cowgill at

20 February 2020 | SHARES | 23 this stage, although investors shouldn’t be unduly concerned, because Footasylum is a very small part of the wider JD machine. Cowgill issued a punchy rebuttal of the CMA’s findings nevertheless, claiming its decision demonstrates ‘a complete misunderstanding of our market to an alarming extent’ and insisting a combination with Footasylum would provide ‘significant long- Sports Direct owner Frasers will try to keep JD Sports on its toes term benefits to customers, colleagues and brand partners’. he also stressed that ‘these strategy’, Frasers is shifting to Speaking to Shares, Shore global brands need distributors more premium, higher price- Capital retail expert Greg and the JD brand is on fire at the point, higher margin products, Lawless explained that Nike has moment’. although given its legacy as a come off Amazon and is going Lawless also believes ‘the discounter, Sports Direct still direct to consumer (DTC) in Finish Line opportunity is pretty doesn’t have the same access a bid to control its brand and transformational’, pointing out to the aspirational brands that retain margin, while German that ‘Nike welcomed JD buying undisputed sector champion rival Adidas has launched a new Finish Line. They can sweat the JD Sports Fashion does. flagship showroom on Oxford assets better and that is good Additional risk factors include Street; this outlet sells very news for Nike.’ the possibility that store like- little product but it is essentially for-like growth slows or turns a showroom designed to OTHER RISKS TO WEIGH negative in the UK. If JD cannot showcase the brand. There are other risks to weigh offset this with savings on rent, This trend towards DTC up. They include the competitive then profitability in its core has implications for JD Sports threat from maverick Newcastle market could be eroded. Fashion, which has built its United owner Mike Ashley, The Finish Line business looks success on close ties with whose Frasers (FRAS) empire in increasingly fine fettle. Yet these and other powerhouse (owner of Sports Direct) will try major acquisitions can destroy sportswear brands. ‘DTC is a to keep JD Sports on its toes. value and the US has historically threat to JD,’ said Lawless, but Under a so-called ‘elevation proved a tough nut for UK retailers to crack. Even if it looks highly promising thus far, problems with the integration of The Finish Line could absorb more cost and capital expenditure than JD Sports Fashion’s best- in-class management originally counted on.

YET ANOTHER UPGRADE Accompanying JD Sports Fashion’s response to the CMA decision was yet another

24 | SHARES | 20 February 2020 JD SPORTS IS SPRINTING AHEAD Year to January Adj. pre-tax profit (£m) EPS (p) DPS (p) PE 2019 (A) 346 27.7 1.7 31.4 2020 (E) 430 34.3 1.8 25.4 2021 (E) 455 36.9 1.9 23.5 2022 (E) 495 40.1 2.0 21.7 Source: Company accounts, Peel Hunt estimates. Based on 870p share price / £8.45bn market cap earnings upgrade. The retailer and its earnings estimate from Strongly cash-generative, said it now expects full year 33.5p to 34.3p. the progressive dividend payer 2020 to be ‘at least equal’ to As the table above shows, was sat on £118.1m of net the top end of current market based on these estimates, cash at the 3 August half-year expectations of £434m thanks JD Sports Fashion trades on a balance sheet date. This strong to strong Christmas and January premium PE valuation. financial position will enable the trading in both the UK and However, it is worth noting company to invest in sustainable internationally. that could be further upgrades competitive advantage, fund Peel Hunt upgraded its year when JD Sports Fashion sprints the growth of the core business to January 2020 pre-tax profit in with its annual numbers on and scout for further compelling forecast from £420m to £430m 15 April. strategic acquisitions. We agree with Peel Hunt that Footasylum is a small issue and the upgrade to consensus is far more fundamental. JD continues to carry all before it and the progress globally is impressive. ‘The shares are no longer eye-catchingly cheap but they are very good value and should be a core holding for all growth funds,’ the broker concludes.

By James Crux Funds and Investment Trusts Editor

20 February 2020 | SHARES | 25 GETTING STARTED WITH INVESTING

by MARTIN GAMBLE Senior Reporter

New to investing: the difference in risk between cash, bonds and shares Understanding how you might be able to hit certain investment goals

ou don’t need a lot which works out at just over of money to start £83 a month. Y investing. What’s Julie is at catering college more important is to start as and hopes to fulfil her early as possible. We’ll show dreams by following in the you why in this article. footsteps of her mother and So far in our first-time becoming a Michelin-starred investor series we’ve chef. She is living at home explained the types of and can afford to save £40 a returns you can get on month but decides that is too both saving in cash and small to make a difference. 7.3% a year for UK stocks and investing your money. We ‘I will start saving seriously shares. This is for illustrative also explained how making when I get a well-paid job,’ purposes only. Actual returns regular contributions can she says. will be much more variable really work magic over time. She decides to wait and and sometimes negative. The next step is to 10 years later tries to make The first thing that jumps consider how you going to up for lost time by putting out from the tables is that afford to put money aside aside £2,000 a year. Sam’s investment pot is for investing. To illustrate The accompanying table 31% bigger than Julie’s, the point, let’s look at two shows how much they’ve giving him an extra £8,305. different people and how both invested and made over Notice that both invested they might be able to juggle 20 years. To be conservative the same £20,000. This their finances so there is we have assumed that both demonstrates the power money available each Sam and Julie achieve annual of compounding as we payday to invest. growth in their investments discussed in our first article. Sam, an engineering of 5% a year, below the If Sam had aimed to graduate has just secured long-term average return of make the same amount himself a job at a big as Julie (£26,414) he could engineering firm and one have reduced his annual day wants to go to into space. contributions to around He is ambitious and plans £760, giving him more to move up the corporate disposable income. ladder but he is also keen to We can’t emphasise this secure his financial security enough – starting early, even and starts contributing to his if in a small way, is much more pension straight away. He can effective and cheaper than afford to invest £1,000 a year waiting until you are older

26 | SHARES | 20 February 2020 FIRST TIME INVESTORS: SAM & JULIE Start Capital £m Contribution £m Return % End Capital £m Year Sam Julie Sam Julie Sam & Julie Sam Julie Year 1 1,000 5.0% 1,050 Year 2 1,050 - 1,000 - 5.0% 2,153 - Year 3 2,153 - 1,000 - 5.0% 3,310 - Year 4 3,310 - 1,000 - 5.0% 4,526 - Year 5 4,526 - 1,000 - 5.0% 5,802 - Year 6 5,802 - 1,000 - 5.0% 7,142 - Year 7 7,142 - 1,000 - 5.0% 8,549 - Year 8 8,549 - 1,000 - 5.0% 10,027 - Year 9 10,027 - 1,000 - 5.0% 11,578 - Year 10 11,578 - 1,000 - 5.0% 13,207 - Year 11 13,207 - 1,000 2,000 5.0% 14,917 2,100 Year 12 14,917 2,100 1,000 2,000 5.0% 16,713 4,305 Year 13 16,713 4,305 1,000 2,000 5.0% 18,599 6,620 Year 14 18,599 6,620 1,000 2,000 5.0% 20,579 9,051 Year 15 20,579 9,051 1,000 2,000 5.0% 22,657 11,604 Year 16 22,657 11.604 1,000 2,000 5.0% 24,840 14,284 Year 17 24,840 14,284 1,000 2,000 5.0% 27,132 17,098 Year 18 27,132 17,098 1,000 2,000 5.0% 29,539 20,053 Year 19 29,539 20,053 1,000 2,000 5.0% 32,066 23,156 Year 20 32,066 23,156 1,000 2,000 5.0% 34,719 26,414

Amount Invested Sam £20,000 Julie £20,000

Source: Shares, figures rounded to nearest whole number. Indicative example, does not include fees. and perhaps earning more. that you don’t have a large lower risk investments. appetite for risk. Therefore It’s worth thinking about WOULD YOU PREFER you would need to consider different investment types as BUNGEE JUMPING only investing in lower-risk being rungs on a ladder. At OR A CUP OF COCOA? assets which might mean you the bottom end of the ladder don’t reach your financial is the lowest risk investment. Investing is not about putting goals or you perhaps need The risks increase as you your money into any stock or to increase your future climb the ladder. Shares are fund in the hope of getting investment contributions. near the top. the best returns. You need It all comes down to The position of funds on to pick your investments making a plan that suits the risk ladder depends on wisely and also consider how your temperament and what’s inside their portfolio. you might feel about losing lifestyle while giving you the An ‘equity’ fund will contain money if some investments best chance of staying the shares and potentially a go wrong. course and not panicking or very small allocation to cash If you can’t bear the swerving off course. or bonds. A multi-asset thought of losing a chunk of Read on and we’ll give you fund will have a mixture of your money, it might suggest some examples of higher and shares, bonds and cash and

20 February 2020 | SHARES | 27 potentially some commodities Compensation Scheme, so and property exposure. HIGH effectively any cash you hold RISK this way is guaranteed. HIGHER RISK However, the downside is the low interest rates on Investing all your money offer, which are often below in shares is considered an the rate of inflation, which ‘aggressive’ stance and is means that the purchasing only suitable for younger power of your cash falls people who have a very long over time. It’s unlikely that a investment horizon. It also saving pots entirely in cash requires a strong stomach will meet your long-term and the fortitude to handle financial goals. tough times when the value VCTS of your portfolio falls. MEDIUM RISK Although the long-term return from UK shares has Another way of reducing averaged 7.3% a year, along variability but getting a INDIVIDUAL the way there have been COMPANY better return than cash is some prolonged periods of SHARES to put some money into negative returns. These are fixed interest investments, often called bear markets and sometimes called bonds. on average they have lasted This type of investment has 14 months and delivered EQUITY FUNDS historically returned more negative returns of 33%. than cash but less than shares. Counter-intuitive as it may A bond is like an ‘IOU’ – a sound, the stock market government or company would need rise by 50% to borrows money from an recover losses of 33%, which investor by issuing bonds means if you invested near BONDS in exchange for cash. They the prior peak, your portfolio then pay a fixed amount could be ‘under water’ for an of interest over a specific extended time. This is why time period; at maturity the it is advisable to invest for a investor cashes in the bond minimum of five years and BOND FUNDS for its original face value preferably longer. (also known as ‘par’). If you are the type to get You often see people anxious and lose sleep after discuss bonds in terms of reading about coronavirus their yields. This can be headlines hitting the value of CASH confusing given that stocks your investments, you might are discussed in terms of be better off with a portfolio share prices. You just need that moves around less and is to understand that bond more stable. yields move in the opposite direction to the price. So LOW (OR NO) RISK when someone says a bond’s yield is falling, the price is The easiest way to achieve actually rising. more stable returns is to Bonds are also good to stay in cash. Cash deposits put into a portfolio because at UK banks are protected LOW historically they tend to up to £85,000 per institution do well when equities by the Financial Services RISK fall, because they are

28 | SHARES | 20 February 2020 considered safer. Also the tax goes up every year due higher as pressures on the Bank of England tends to to the effects of inflation and pension system build from reduce interest rates during therefore you need to factor an ageing population. economic contractions, which this increase into your future Assuming that both sexes increases bond prices. Having spending needs. retire at 67, the pension some bonds in your portfolio To illustrate, let’s say would need to last from therefore adds some stability. inflation averages 2% for between 13 and 17 years. the next 30 years. After Nobody wants to run out GETTING THE RIGHT 30 years your £2,000 annual of money, so to be cautious MIX FOR YOU council tax bill will be 81% we have assumed that a higher at £3,622. 30-year-old today will need For most people, having a In the same way, if you to fund 24 years of income in mix of stocks, bonds and had targeted living off a retirement. Even this might cash is a sensible way to pension generating £30,000 not be conservative enough. invest for the long-term. a year in 30 years’ time, that To fund the annual spend The precise mix will is equivalent to £54,340 in of £38,460 and not run out always depend on your today’s money. of cash for 24 years would individual financial Don’t forget your state require an investment pot circumstances, age and pension which currently pays of £572,000. To reach this temperament, but the £8,767 a year and fortunately target requires a monthly principles laid out here it will rise by 2.5%, the rate of investment of £683. That should help you create a inflation or average earnings may be beyond a lot of useful framework. growth, whichever is largest. people’s means so just save We’ll look at asset If we assume 2.5% annual as much as you can. allocation – another term increase, the state pension A rough rule of thumb for to describe the mix of should pay out £15,880 a estimating the size of pension stuff in your portfolio – in year in 30 years’ time. pot you need is to multiply more detail later on in this If we reduce our pension your required annual income education series. pot return target by the by 15. assumed inflation-adjusted Expending a little effort to HOW MUCH DO I NEED state pension figure make a financial plan suited TO INVEST? (£54,340-£15,880), we arrive to your circumstances and at a target annual income risk appetite can pay off over Now you’ve got an idea goal of £38,460 in real the long haul. about the different levels of inflation-adjusted terms. risk attached to cash, bonds and shares, it’s time to think THINK ABOUT LONGEVITY about some goals, i.e. how NEXT TIME IN OUR much would you like to make We can now figure out FIRST-TIME from investing or think you the size of the investment INVESTOR SERIES will need at a certain point in pot needed to generate • Should I run my own the future? the desired level of annual investment account People are notoriously income. But for how long or get someone else bad at thinking about how do we need this income? to do it? they will feel about some As morbid as it sounds, we event a long way into the first we need to estimate life • Choosing an ISA or future, but it pays to give it expectancy. SIPP provider serious consideration. According to the Office for The calculation is made National Statistics, a 30-year- • How to open an doubly-hard by the fact old woman is expected to live account and make that we need to adjust for 84 years and a man for 80 an investment numbers for inflation. years. The future retirement For example, your council age will probably creep

20 February 2020 | SHARES | 29 Sponsored content

INVESTING IN THE UK: BEYOND THE FTSE 100 1. Software and computing Guy Anderson, lead investment manager Information technology (IT) comprises the strongest for The Mercantile Investment Trust, sub-sector position within the trust’s holdings, a situation that is likely to continue since the best IT explains the benefits of investing in mid firms offer huge potential over the long term. and small cap UK companies and the Specialised software company AVEVA Group plc is thinking behind some of the trust’s more a global leader in its field and stands ready to benefit interesting holdings. from the so-called “fourth industrial revolution”. Working across industries as diverse as mining, The case for UK mid and small caps utilities and biotechnology, AVEVA provides solutions After a year of political convulsions brought on by to optimise business efficiency, from planning and Brexit, 2020 promises greater stability following Boris procurement to operations. Johnson’s decisive general election victory back in Softcat is another IT business in which the trust December. With Brexit uncertainty abating, at least has an overweight position. The company provides in the short term, sentiment towards the UK stock infrastructure, digital workspace, cybersecurity and IT market is improving. For investors focused on the long efficiency solutions to well-known names, including term, the outlook for UK mid and small cap companies Virgin Money and Nuffield Health. A FTSE 250 looks particularly positive. Allow me to explain why. company, Softcat has enjoyed strong ongoing growth The uncertain state of British politics may have and hit the £1 billion revenue milestone in 2018. affected all UK share valuations in recent years, but the intrinsic value of the best stocks has remained strong. 2. Property and construction These quality companies with strong fundamentals Although UK housing sales volumes have experienced have been resilient through the turmoil, leaving a prolonged downturn, prices and demand have them well positioned to thrive now that the political remained relatively healthy in several regions outside landscape looks to be settling down. of the traditionally overheated London market, Some of the most attractive opportunities can including in Yorkshire, the Humber and Scotland. be found in the mid and small cap areas of the The trust continues to be substantially overweight in UK market. Mid and small cap stocks provide the Bellway, a FTSE 250 company with a 70-year trajectory opportunity to diversify beyond the typical holdings in from family business to one of the UK’s biggest house a FTSE 100-focused fund, while allowing investors to builders. The firm sold more than 10,000 homes in access the stronger growth potential of firms that are 2018 in hotpots from Bristol to Scotland, with a return at an earlier stage of their development trajectory. on capital employed of 27.2%.1 Over the last 60 years, mid and small cap stocks in aggregate have outperformed the overall market 3. Retail in two out of every three years. The cumulative The febrile political backdrop of 2019 dented performance of mid and small caps has also been consumer confidence, which lagged last year behind strong, even through bumpy periods*. the increase in disposable income. However, while the media may be focused on struggling traditional Sectors and companies to watch high street retailers, behind the headlines there are While ongoing uncertainty around Brexit has had an businesses exploiting sub-sectors with plenty of room impact on UK equity valuations, the strongest firms for growth. across a range of sectors could be set to benefit as These include the discount store owner B&M soon as the fog has lifted. As our choice of sectors European Value Retail, which has grown to a chain of and stocks determines the relative performance that nearly 600 shops in the UK with minimal spending we are able to deliver for investors, it’s worth taking a on advertising and an aggressive pricing policy. closer look at some of our holdings. B&M purchased French retailer Babou in October 2018, establishing a position in the three strongest on three key areas: European markets. • Quality: Profitability, sustainability of earnings and Fantasy game business Games Workshop Group capital allocation discipline PLC may seem like a leftfield choice, but its suitability • Outlook: Growth potential and operational as an investment is firmly based in reality. Both a momentum manufacturer and a retailer, the company is a global • Value: Future prospects relative to market leader in its niche market. estimates Finally, also worth mentioning is SSP Group plc. Billing themselves as the “food travel experts”, the Our careful active selection of sectors and stocks firm specialises in running food outlets in travel has allowed The Mercantile Investment Trust plc to locations, such as airports and major stations. SSP’s outperform its benchmark over three, five, ten and 25 global operations mean that it is well placed to years. continue to benefit from the ongoing growth of While income is not a primary focus, a strong international travel, with more than 2,600 outlets in secondary objective is to grow dividends at least in 33 countries worldwide. line with inflation. Since the turn of the millennium, dividends have increased six-fold and have never Why Mercantile? been cut. Over the last five years, the trust has The Mercantile Investment Trust plc is built around a grown its dividend at a 10% annual growth rate, and rigorous investment process, which seeks to identify by 5% per annum over the last ten years, providing businesses that either have leading positions in an income that has grown well ahead of the rate growing end markets, or that are well placed to of inflation.** disrupt incumbents or make an early move into new markets. Our specialist investment team then focuses For more information visit jpmorgan.co.uk/MRC

Important information The Mercantile Investment Trust plc Quarterly rolling 12 months - as of 31/12/2019

2014/15 2015/16 2016/17 2017/18 2018/19 Share price 30.00 -3.67 30.22 -17.08 53.93 NAV 23.14 -3.25 29.95 -15.70 40.36 Benchmark 12.15 5.91 17.92 -14.96 28.95

Past performance is not a guide to current and future performance. Source: J.P. Morgan Asset Management/ Morningstar. Net asset value performance data has been calculated on a NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.

The Mercantile Investment Trust plc may utilise gearing (borrowing) which will exaggerate market movements both up and down. The Mercantile Investment Trust plc may also invest in smaller companies which may increase its risk profile. Companies listed on AIM tend to be smaller and early stage companies and may carry greater risks than an investment in a company with a full listing on the London Stock Exchange.

This is a marketing communication. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance is not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms and Conditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. Our EMEA Privacy Policy is available at www.jpmorgan.com/emea-privacy-policy. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. 0903c02a8280edb0

1 Source: Bellway Annual Report 2018 P2. *Source: J.P. Morgan Asset Management, Reuters Datastream. All series are rebased to 100 from 31 December 1993 to 31 December 2019. All indices in GBP and include reinvested dividends. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not a reliable indicator of current and future results. **Source: J.P. Morgan Asset Management. All figures based on the current trust total shares, after the 10 for 1 stock split in mid 2018. Data as of 31 December 2019. Past performance is not a reliable indicator of current and future results. How to spot if your funds offer value for money Assessment of value reports will still leave investors with work to do

ew ‘value for money’ THE FCA’S ASSESSMENT OF VALUE CRITERIA data is emerging that N could make selecting funds easier for investors. Since 30 September 2019, fund managers have been forced to start publishing ‘assessment of value’ (AoV) reports under a new UK regulatory crackdown. These documents are designed to illustrate each fund’s quality of service, performance, costs, and how well they’re doing Comparable Share classes against their competitors market rates in a jargon-free way that is easy to understand for the AFM costs Economies average investor. of scale The investment fund industry currently manages around Comparable Quality of service £1trn for individual investors, services and a further £3trn on behalf Performance

of people’s pensions. Source: Deloitte In an FCA investigation in 2017 that looked into the funds industry, the financial watchdog powerful financial institutions. ‘Where a fund is not providing was scathing about how the In a study early last year the overall value, firms will need to whole sector operates. European Securities take prompt and meaningful ‘We found that asset and Markets Authority, an actions as this part of the management products and independent body that published statement is likely to services are complicated, safeguards the EU’s financial receive the most scrutiny from objectives may not be clear, fees system, found that retail regulators and investors.’ may not be transparent and investors can pay up to twice as With AoVs due within four investors often do not appear much in fund fees compared to months of a fund’s financial year to prioritise value for money institutional investors. end, the first began trickling effectively,’ the study said. ‘The criteria set out by the out this month for funds with a FCA are closely intertwined and 30 September year end. While WIN FOR THE ORDINARY essentially filter down to three there is no enforced template INVESTORS elements; cost, performance for the reports, pacesetter The new rules will be hailed by against peers and quality of Vanguard has set down a marker many as a victory for the legion service,’ said Deloitte, the audit, for others to follow by providing of retail investors in the battle to accountancy and financial readable consolidated report for level the funds playing field with consultancy firm. multiple funds.

32 | SHARES | 20 February 2020 EASY TO READ SNAPSHOT Added complexity comes Vanguard, one of the world’s from trying to compare suitable largest fund management firms, funds for individual investors, used a neat traffic light system each with their own unique for the 29 UK funds reviewed, objectives, ambitions and risk giving readers an easy on the eye sensitivities. snapshot. For instance, the Polar Capital ‘Over 12 months, three Global Growth Fund (B42W4J8) years, five years and 10 years has ripped its benchmark’s (the respectively, 93%, 96%, 92% Dow Jones Global Technology and 75% of our UK-domiciled Net Total Return index) funds have outperformed their to the end of September performance to shreds, over peers’, the Vanguard report 2019, its £48m Rathbone UK three, five and 10 years, but it is stated clearly, before going into Opportunities Fund (B77H7W3) also a high growth, higher risk detail about what it sees as returned 28% compared to its fund, so will not be for everyone. ‘good value’, how it measures benchmark’s return of nearly There is also nothing to performance and how it believes 40%. It said the fund, which has stop fund management firms it could improve. an ongoing charge of 0.61%, will concentrating on their own Handing its funds largely green be closely monitored. particular strengths. For lights (for ‘good value’), it did flag Rathbones will pull the plug example, Vanguard highlights four with an amber signal for on its other poor performer, that its ongoing charges for its poor performance. the £118m Rathbone Global UK funds are ‘on average 73% Vanguard’s report Alpha Fund (B8W5FR0), after cheaper than the average for highlighted two active funds, admitting that it had ‘consistently their respective sectors,’ and its £65m Vanguard Global underperformed its benchmark’. that its funds are ‘typically Equity (BZ82ZT6) and £37m ranked within the lowest 10% of Vanguard Global Equity A GOOD START, BUT NOT their respective peer groups in Income (BZ82ZW9), for PERFECT terms of cost.’ underperformance over one and There is little doubt that value for This is largely because of three years. money reports will be a useful Vanguard’s economies of In its passive range, the £2.2bn new addition to the information scale, and while it is relevant Vanguard FTSE Developed for fund investors, but there are information, it is worth bearing Europe ex-UK Equity Index possible drawbacks, not least in mind that such data plays very (B5B71H8) and the £1.25bn the sheer volume of data and much to Vanguard’s key low-cost Vanguard FTSE UK Equity Income access to it. For now investors model objective, which may not Index (B59G4H8) failed to match have to go direct to each fund be crucial for every investor. benchmarks over five years. management firm for reports, a We understand that Aviva Vanguard has promised that significant faff if you’re trying to Investors and Merian Global the four flagged funds would compare funds across multiple Investors are expected to be closely monitored, while providers. publish their AoV reports later the group has modified fees In an ideal world every fund in February, with Schroders and to reflect the performance will make its AoV available Artemis in April. Other big fund undershoot. to third parties, investment firms, like Jupiter, M&G and Investment management firm platforms like AJ Bell and Fidelity are expected to follow Rathbones assessed eight of its Hargreaves Lansdown for suit later in the year. 35 funds and concluded that example, and data providers like six of them were consistently Morningstar say, giving investors meeting objectives, but the other access to all from a single By Steven Frazer two were failing. Rathbones provider. But that may or may News Editor admitted that in the five years not happen.

20 February 2020 | SHARES | 33 Can you get your money out of a fund when you need to?

Why accessing your cash fast is easier from some products than others

ince the collapse of funds run by the one-time “Some assets, like Sstar fund manager Neil Woodford, the question most shares in FTSE 100 fund investors want the answer companies, are more to right now is ‘how quickly can I get my money back should I liquid than others choose to sell?’. The ease with which you can such as property buy or sell an asset is defined as its liquidity. It matters because or bonds” there might be a time when you need access to a big chunk of cash at short notice, and so it would invariably be important to be able to sell some or all of your holdings quickly. liquidity, such as publishing property or even bond funds You might also want to move information on how long it might carries a higher risk that the fund your money because your risk take to sell all their assets, should manager won’t be able to sell profile has changed or you they be forced to. enough assets in time to meet have seen a more compelling So far we’ve only see a handful all requests from investors for investment opportunity. of asset managers publish this their money back (also known information and we would as redemptions) because the DIFFERENT LIQUIDITY LEVELS welcome greater clarity from underlying assets can be illiquid. It’s important to understand that the industry. Dealing in several property some assets, like shares in FTSE For example, Fundsmith funds had to be suspended in 100 companies, are more liquid Equity (B41YBW7) estimates the wake of the market shock than others such as property in its latest monthly factsheet created by the Brexit vote in or bonds, where there can be that it could liquidate 62% of its June 2016, in order to give the fewer people trading them and portfolio in seven days. fund managers more time to sell so it can take longer to find a This compares with the two assets at the best possible price. buyer. In the case of property the months it took for Aberdeen buying and selling process is also Standard Investments to WHAT HAPPENED WITH inherently more time-consuming liquidate its Emerging Markets WOODFORD? and complicated. Government Bond fund and Those investing in Woodford’s The Woodford debacle and return money to investors, which open-ended equity funds would subsequent spotlight on the it had to do after two big clients have, not unfairly, expected to industry means that funds are decided to withdraw their funds. be able to sell their investments becoming more upfront on Investing in open-ended the day they needed to, or the

34 | SHARES | 20 February 2020 day after, as advertised. So not being able to get their money LOOK AT THE ‘EMS’ FIGURE TO GAUGE LIQUIDITY back quickly, with trading in the funds suspended for more than LONDON STOCK EXCHANGE’S six months, was undoubtedly a website publishes an Exchange huge shock. Market Size (EMS) figure which A large part of the reason they gives you some guidance couldn’t was that Woodford had on how many shares in an invested in a lot more illiquid, individual company you can i.e. hard to sell, stocks than sell readily. people realised. Some were FTSE 100 constituent not quoted on any mainstream Vodafone (VOD) has an EMS of stock exchanges. 10,000 which at a share price of The Association of Investment 150p implies you would have no Companies (AIC), which issue selling up to £15,000 worth represents investment trusts, of stock in one go. believes the liquidity problems Small cap pharmaceutical suffered by Woodford and firm Synairgen (SNG:AIM) also property fund investors has has an EMS of 10,000 but its arisen due to ‘foreseeable 15.5p share price means you failures of product design and may only be able to sell £1,500 inadequate regulation’. worth of shares in a single Its chief executive Ian Sayers transaction. says: ‘Like a square peg in a round hole, daily redemption being a business that’s difficult a key consideration of our and hard to sell assets just do not to replicate. portfolio construction process fit together. It is this mismatch Keith Skeoch, chief executive as well as an integral part of risk that threatens financial stability. of Standard Life Aberdeen, says oversight across our full fund The worst case is a vicious his company’s equity funds range’. cycle of redemptions leading only invest in shares that can to further fund collapses and be traded on stock exchanges, NEW RULES ON THE HORIZON declining asset values.’ with risk management a ‘central The Financial Conduct part’ of its investment processes, Authority (FCA), a regulator, is LIQUIDITY MONITORING which includes liquidity introducing rules that will force The concerns about liquidity are monitoring undertaken by fund asset managers to improve not lost on the investment fund managers. their liquidity measures and industry, with many telling Shares He adds: ‘Liquidity can be an disclosures from September. the issue is a big focus for them. issue in public market securities It should see investors in Liontrust says some of its – both equity and bonds – which certain types of open-ended funds contain small cap stocks is why we’re very vigilant in funds investing in illiquid which can be more illiquid monitoring it.’ assets being provided with than larger companies. Yet the BlackRock Special Situations clear information on liquidity asset manager argues that not (B3R25W6) fund manager risks, and the circumstances in all illiquid small caps are the Roland Arnold says liquidity ‘has which access to their funds may same, with it being easier to always been front and centre in be restricted. find a buyer for good, profitable BlackRock’, adding that he has a companies that fit its investment monthly meeting to talk about criteria – low gearing, high cash liquidity and risk in his fund. By Yoosof Farah flow return on capital, having A spokesperson for Jupiter Reporter an owner-manager culture and says liquidity has ‘always been

20 February 2020 | SHARES | 35 What happens to pension assets if I get divorced? Our resident pensions expert explains three options to consider when assessing retirement savings upon a marriage ending

I know this makes me a bit of a misery guts, but I’m getting married in a year and started thinking about what happens to my assets – and particularly my pension – if we get divorced. Clearly this isn’t my plan or hope, but equally I want to be prepared just in case. Ben

Tom Selby AJ Bell Senior Analyst says: of the pension you hold. 2. EARMARKING There are somewhere in the If you are offsetting a defined An ex-spouse can ‘earmark’ region of 100,000 divorces benefit (DB) pension – i.e. a benefits in a pension, allowing every year in the UK, with pension that pays a guaranteed them to access the income roughly four in 10 first income based on your salary and/or lump sum benefits at marriages failing to last the and the number of years you some point in the future. This distance. So while it might have worked for your employer could be when the member seem fairly miserable, it makes – a ‘cash equivalent transfer retires or when they die. sense for all married savers to value’ will be used to establish Where a DB pension is understand how divorce could the value of the benefits you earmarked, the ex-spouse affect their retirement plans. have built up. You should be will be awarded a percentage When a couple get divorced, able to request this from your of the member’s pension at their pensions may be included pension scheme. the scheme’s normal pension in the division of assets and/or If you have a defined age – this is simply when they income that takes place. There contribution (DC) pension like become entitled to income are three options available: a SIPP, you simply use the value from the scheme. of the assets held in your fund. For DC pensions, the ex- 1. OFFSETTING Under offsetting, the value of DO YOU HAVE A QUESTION ON RETIREMENT ISSUES? the pension is (predictably) ‘offset’ against the other assets Send an email to [email protected] with the words in the marriage. So if you hold ‘Retirement question’ in the subject line. We’ll do our best to a valuable pension and your respond in a future edition of Shares. Please note, we only provide guidance and we do not provide ex-spouse does not, on divorce financial advice. If you’re unsure please consult a suitably your ex-spouse might be qualified financial adviser. We cannot comment on individual granted a greater share of the investment portfolios. other assets to ‘offset’ the value

36 | SHARES | 20 February 2020 spouse will receive a set spouse die, the payment of any benefits to be received. percentage of the member’s benefits in relation to it Because pension sharing own pension rights and/or tax- will end. This is also the case achieves a clean break, the free cash. In such circumstances if the ex-spouse remarries death or marriage of either care needs to be taken to (but not the member). party has no impact – instead ensure the award only relates each person has a legal right to funds accumulated up to 3. PENSION SHARING to their portion of the income divorce and the related growth, Pension sharing splits the and/or tax-free cash from the not the value resulting from scheme member’s pension pension. This clean break also subsequent payments into the rights at the time of divorce. makes it the most popular pension. For DC this will be expressed choice for dealing with pensions Under earmarking, the as a percentage of the fund, on divorce. pension remains ‘owned’ by while for DB it is in terms of the As you can imagine, this is the member and the ex-spouse a complex area and I’ve only has no control over when they been able to touch briefly on receive their money. This allows “It makes sense for all the options available. So make the member to delay taking sure you read around further an income from their pension, married savers to and, if you are going through a potentially depriving the ex- understand how divorce involving a significant spouse of an expected income. pension, speak to a lawyer, an For this reason, earmarking isn’t divorce could affect FCA qualified financial adviser, a popular option. their retirement plans” and your pension provider to It’s also worth noting that confirm options before making where the member or the ex- any decisions.

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BOOK YOUR FREE PLACE AT www.scotsmanconferences.com 20 February 2020 | SHARES | 37 How to save money on your internet and phone bills Providers now have to tell you when contracts are ending so you can shop around for a better deal

t is easier for anyone with a broadband, TV, I landline or mobile phone to find out when their monthly costs are about to be hiked thanks to changes that came on 14 February. New rules from the regulator, Ofcom, mean that your provider now has to warn you when coming up. you’re current contract is They will also highlight any HOW HAVE ending, which is usually when price changes that will happen prices are hiked. The move is after that date – which is usually PROVIDERS expected to alert more than a hike in the price – and they 20m people to the fact that they will have to tell you about any RESPONDED? are out of contract and paying deals that you could get if you above the odds. switched to another contract AS PART OF a separate with them. If you don’t decide bit of work from Ofcom, WHY ARE THE CHANGES to switch, then you’ll get a some broadband providers HAPPENING? reminder every year with the have pledged to restrict the The new plans from Ofcom are same information. increases to your monthly bill trying to tackle the so-called Some people will choose once you’re out of contract. ‘loyalty penalty’ whereby to ignore these reminders, For example, Sky has existing customers whose thinking it’s too much hassle to pledged that out of contract contracts have ended pay far worry about switching, or that customers will only pay up to more than new customers, who they can’t save enough money £5 a month more than in- can access cheaper introductory to make it worthwhile. But for contract customers. deals. This happens in lots others it will be the prompt BT has pledged to cap the of other markets too, from they need to switch and save. difference too, at £8, and says mortgages and insurance to it will let those customers who energy bills. HOW MUCH COULD YOU SAVE? are out of contract access the As part of the changes, The number of people who are same deals as new customers. broadband, TV, landline or out of contract is huge, with It has made an extra pledge mobile phone providers will 40% of people with a combined that people who can’t access have to contact you between phone and broadband service, superfast broadband will not 10 and 40 days before your or combined phone, broadband pay more than those are on contract comes to an end, and TV service out of contract, superfast deals. reminding you that the date is and almost 90% of those with

38 | SHARES | 20 February 2020 a landline-only service are out websites that allow you to of contract. compare costs and see if you Ofcom estimates that could get the same package for Ofcom estimates customers who are out of a lower price. And even a £10 contract on their broadband saving a month adds up over that customers service could save £100 a year the year. who are out of by switching. If you sign up to a new deal Most people can reduce their you will often have to enter a contract on their costs quite easily if they call their new contract, which usually current provider and haggle on means committing to another broadband the price. They’ll usually be able year or even two years with to get the same package for a that provider. So if you know service could cheaper deal, or pay the same that you want to cancel soon or and get a better package or switch to a new provider in the save £100 a faster internet, for example. This near future, you can stick on the year by switching is the lowest-hassle move, as it current rate – just make sure doesn’t require you to switch you remember to switch when providers or hunt around for a you planned to. better deal. However, you can save even By Laura Suter more if you shop around other AJ Bell Personal providers and switch. There Finance Analyst are lots of price comparison

ARE YOU MISSING OUT? SHARES PUBLISHES NEWS AND FEATURES ON ITS WEBSITE IN ADDITION TO CONTENT THAT APPEARS IN THE WEEKLY DIGITAL MAGAZINE. THE LATEST STORIES INCLUDE:

FTSE SURGES AMID BLANCCO TECHNOLOGY EASING CORONAVIRUS IS EMERGING WITH FEARS ESG INVESTMENT CREDENTIALS 14 March 2019 | SHARES | 39

39 | SHARES | 28 June 2018 WWW.SHARESMAGAZINE.CO.UK/NEWS/SHARES07 June 2018 | SHARES | 39 This content is FREE to read and will help you stay up to date on the latest stock market news and events relevant to investing.

The stocks and indices which matter when investing in Europe

We take a look inside the Euro Stoxx 50 and DAX 30 indices

or investors looking to invest directly in This is the third of a multi part series. Part one covered the FEuropean markets, the FTSE 100 and FTSE 250. Part two covered the S&P 500 and Euro Stoxx 50 is the leading Nasdaq Composite indices. index of blue-chip stocks from across the Eurozone, used EURO STOXX 50 by financial institutions both Financials 17.3% as a benchmark and as the BY SECTOR Industrials 13.6% underlying index for exchange- Cons Discretionary 12.2% traded funds (ETFs) and hedging tools such as futures and Technology 11.1% options. Cons Staples 10.2% Over the last year the index Healthcare 10.1% has gained a respectable 21% compared with a gain of just Materials 9.5% over 5% for the FTSE 100 and Energy 5.7% a 23% rise in the S&P 500 in Utilities 5.7% the US. Communications 4.8% WHAT’S IN THE INDEX? As its name suggests the index Source: Invesco. Data is based on Invesco Euro Stoxx 50 ETF structure comprises 50 of the largest 17+14121110965+C stocks from across the euro EURO STOXX 50 TOP TEN currency area, weighted by market capitalisation, and Name Weight % excludes stocks listed in the UK, SAP 5.0 Scandinavia and Switzerland. Total 4.4 The index is dominated by ASML 4.2 French and German companies, which make up over two LVMH 4.0 thirds of the constituents Linde 3.9 by number, with smaller Sanofi 3.8 representations from Spain, Italy Allianz 3.4 and the Netherlands. Belgium, Siemens 3.4 Finland and Ireland are each represented by a single stock. Unilever 2.9 Unlike the FTSE, the Euro Airbus 2.9 Stoxx 50 contains no mining Source: Invesco. Data is based on Invesco Euro Stoxx 50 ETF structure

20 February 2020 | SHARES | 41 or tobacco companies. The two sectors with the biggest DAX 30 Financials 17.3% number of stocks are consumer BY SECTOR discretionary – personal goods, Materials 13.6% media, retail and automobiles – and financials, followed by Technology 12.2% healthcare and industrial goods Cons Discretionary 11.1% and services. The sectors with Industrials 10.2% the smallest number of stocks are chemicals, oil and gas, Healthcare 10.1% telecoms and utilities. Communications 9.5% The biggest constituent of the Utilities 5.7% Euro Stoxx 50 index is SAP at 5%. This is a European software Real Estate 5.7% business founded in 1972 in Cons Staples 4.8% Germany and now with offices around the world. SAP stands for ‘systems, applications and Source: iShares. Data is based on iShares Core DAX ETF structure products in data processing’. 17+14121110965+C One way of getting exposure to the index is via exchange- DAX 30 TOP TEN traded fund Invesco Euro Stoxx Name Weight % 50 ETF (SX5S). SAP 10 WHY THE DAX INDEX Linde 9 IS IMPORTANT Allianz 8 Siemens 7 For investors specifically Bayer 7 interested in the shares of German companies, the BASF 5 benchmark index is the DAX Adidas 4 30 which tracks the 30 largest Deutsche Telekom 4 companies traded on the Munich Re 3 Frankfurt Stock Exchange. While the DAX is a Daimler 3 capitalisation-weighted index Source: iShares. Data is based on iShares Core DAX ETF structure like the FTSE and the S&P 500, unusually it is a ‘total return’ as Adidas, BMW, Daimler, SAP is joined by chipmaker index which means that returns Lufthansa and Volkswagen. Infineon and payments firm include reinvested dividends. Financial stocks used to be a big Wirecard. Over the past year the index part of the index and they now There are various tracker has gone up 23.9%, including have a much smaller weighting funds providing exposure to dividends, and unlike the FTSE than in the past, which is a the DAX 30 index including it contains no mining, oil, gas or similar story to the FTSE. exchange-traded fund iShares tobacco stocks as there are no Other sectors with notable Core DAX ETF (0MLH). large German companies which weightings are chemicals, thanks qualify for inclusion. to BASF and Linde; healthcare, By number of stocks the which is predominantly By Ian Conway DAX is heavily skewed towards represented by Bayer and Senior Reporter consumer companies, such Merck; and technology, where

42 | SHARES 20 February 2020 SHARPEN YOUR INVESTING SKILLS WITH

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Digital Online Investment magazine toolkit ideas RUSS MOULD AJ Bell Investment Director What is behind Bitcoin's latest comeback? The cryptocurrency is nearing the $10,000 mark again

t a time when a FTSE 100 member’s That represents almost shareholder list looks flaky and shares in two-thirds of total crypto Aa fake meat company’s shares are sizzling market valuations and means again in the US it may come as no surprise to some Bitcoin is valued more highly than Royal Dutch Shell investors that an alternative currency (RDSB), the largest company in the FTSE 100. It also (or a fake one, depending on your viewpoint) means Bitcoin is bigger than all but luxury goods seems to be coming back into vogue. Bitcoin is giant LVMH in Europe’s Eurofirst 100 index and once more nearing the $10,000 mark. would rank 32nd by market cap within America’s Some may view this as another reason to view S&P 500 equity benchmark for good measure. markets as worryingly frothy, as a plentiful supply If Bitcoin keeps going, this could well rekindle of liquidity from central banks keeps them bubbling the debates as to whether Bitcoin is ‘money’. That along. Others will argue the cryptocurrency’s return in turn fuels discussion over whether it is worthy to favour affirms their view that central banks’ of consideration as investment as part of a continued provision of cheap cash is only serving balanced portfolio. to debase existing currencies and open the way to The case for considering Bitcoin to be ‘money’ is major reset. that cryptocurrencies are money, as they facilitate Bitcoin first reached $10,000 in December 2017, transactions over time and distance and represent briefly recapturing that level in summer 2019 a trusted medium (at least by some), just as cowrie and the cryptocurrency is now trying again, as it shells, cows, metal, slips of paper and plastic cards trades near $9,800. That is still a long way below have since time immemorial. its all-time high of $18,941 from late 2017 but it So long as someone believes in cryptocurrencies represents a stunning recovery from the December they and their network have a value – and the 2018 low of $3,196. more people there are in the network then the more value they may have. SHOW ME THE MONEY Sceptics have three specific counter-arguments According to the website www.coinmarketcap.com, to this. First, the Bitcoin mining process is inefficient the total value of Bitcoins in circulation is $178bn. and energy intensive. Second, Bitcoin miners’ and transaction fees can make using the cryptocurrency BITCOIN IS ENJOYING ANOTHER GOOD RUN inconvenient or even expensive, especially for micropayments. 20,000 Finally, Bitcoin is not a particularly efficient Bitcoin ($) 15,000 payment system. It can handle a maximum of around seven transactions per second. Visa 10,000 deals with around 1,700. 5,000 When it comes to seeing Bitcoin as an 0 investment, believers will point to the crypto’s 2015 2016 2017 2018 2019 resurgent price. Source: Refinitiv data Fans will also point to how Bitcoin supply is limited

44 | SHARES | 20 February 2020 RUSS MOULD AJ Bell Investment Director to 21m, a stark contrast to central bank-controlled fiat currency and an era of record-low interest rates, quantitative easing and spiralling government spending plans and budget deficits – and that is even before we get to Modern Monetary Theory. In sum, Bitcoin is viewed by supporters as a store of wealth and protection against central bank and governmental monetary profligacy.

VALUE VERSUS PRICE So-called ‘no-coiners’ will dismiss such arguments saw a shift to cutting interest rates rather than on three counts. First, they say, there is a theoretical raising them and even fresh US Federal Reserve limit to the supply of Bitcoins but the proliferation intervention in the US interbank funding markets. of initial coin offerings (ICO) suggests that crypto- Gold has rallied, too, perhaps for the same currencies are no better at managing supply and reasons. Although looking at the recent share providing sound money than the central banks. price performance of meat-alternative provider The coinmarketcap website lists over 2,300 Beyond Meat and next-generation car maker different cryptocurrencies Second, the Mt. Gox Tesla, older heads may just be tempted to dismiss disaster, 2017’s enforced shutdown of the Silk Road Bitcoin’s renaissance in this context as the latest website and 2019’s Bulgarian OneCoin scandal in a long line of bubbles fuelled by central bank- show that cryptos are subject to fraud (not that this provided liquidity. admittedly unduly distinguishes them from other forms of remote payment or investment). BITCOIN IS NOT THE ONLY ALTERNATIVE Finally, non-believers will assert that cryptos’ INVESTMENT TO HEAD BACK INTO ORBIT biggest alleged strength – they are not authorised IN 2020, WITH BOTH BEYOND MEAT …. or regulated or subject to ‘official’ control – is their 240 biggest weakness. Beyond Meat ($) Unless Bitcoin can be used to buy groceries or 180 pay taxes, they have limited use and thus value, no 120 matter how many you have, goes the argument, 60 while there is always the risk that the authorities 0 do get involved. 2019 2020 US president Franklin Roosevelt’s Executive Source: Refinitiv data Order 6102 criminalised the possession of gold in 1933 and Facebook’s Libra payments project has quickly encountered substantial central … AND AUTOMOTIVE REVOLUTIONARY TESLA bank opposition. HEAVILY FAVOURED BY INVESTORS As banking dynasty founder Mayer Amschel 900 Rothschild once said: ‘Permit me to issue and Tesla control the money of a nation and I care not 675 who makes its laws.’ It seems unlikely that 450 central banks will cede control, although 225 Bitcoin believers will argue they could lose it. It may be no coincidence that Bitcoin and 0 cryptocurrencies are finding fresh support in the 2015 2016 2017 2018 2019 2020 wake of 2019’s central bank policy U-turn which Source: Refinitiv data

20 February 2020 | SHARES | 45 MAR 26 2020

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KEY Merck 42 • Main Market Next (NXT) 7 KEY ANNOUNCEMENTS • AIM Persimmon (PSN) 11 OVER THE NEXT WEEK • I nvestment Trust Polar Capital Global 33 • Fund Growth (B42W4J8) Full year results • Exchange-Traded Fund Rathbone Global 21 February: Pearson. 24 February: Ascential, CC • Overseas Share 33 Alpha (B8W5FR0) Japan Income & Growth, EasyHotel, Kosmos Energy, Rathbone UK Merian Chrysalis, Quartix, Reach, RTC. 25 February: Adidas 42 Opportunities 33 Croda, Hammerson, Meggitt, Petrofac, Synectics. BASF 42 (B77H7W3) 26 February: Avast, Restaurant Group, Rio Tinto, Reckitt Benckiser Bayer 42 6 Serco, Taylor Wimpey, William Hill. 27 February: (RB.) BHP (BHP) 19 Bakkavor, Evraz, FBD, Flutter Entertainment, Grafton, Rightmove (RMV) 13 Hikma, Hunting, Inchcape, MacFarlane, Mondi, BlackRock Special 35 Royal Bank of Persimmon, PPHE Hotels, Provident Financial, Reckitt Situations (B3R25W6) 2 Scotland (RBS) Benckiser, Rentokil Initial, RSA, St James’s Place, WPP. BMW 42 Royal Dutch Shell 16, 44 Half year results BP (BP.) 16 (RDSB) S&U (SUS) 14 24 February: Dechra, Finsbury Foods, Tristel. SAP 42 25 February: Bluefield Solar Income, Clinigen, DotDigital, Hotel Chocolat, Innovaderma, Springfield Synairgen (SNG:AIM) 35 Properties. 26 February: Avingtrans, Revolution Bars, Third Point Offshore 13 Town Centre Securities. 27 February: Haydale, Netcall. Investors (TPOU) Trainline (TRN) 8 Centrica (CNA) 14 Vanguard FTSE Developed Europe Daimler 42 33 ex-UK Equity Index Dunelm (DNLM) 7 (B5B71H8) FirstGroup (FGP) 8 Vanguard FTSE UK WHO WE ARE Frasers (FRAS) 2, 24 Equity Income Index 33 Fundsmith Equity (B59G4H8) EDITOR: DEPUTY NEWS 34 Daniel EDITOR: EDITOR: (B41YBW7) Vanguard Global Coatsworth Tom Sieber Steven Frazer 33 @Dan_Coatsworth @SharesMagTom @SharesMagSteve Go-Ahead (GOG) 8 Equity (BZ822T6)

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