AJ Bell Shares magazine 25 January 2024 by Shares Magazine

VOL 26 / ISSUE 03 / 25 JANUARY 2024 / £4.49

ENJOY THE ENJOY THE RETIREMENT RETIREMENT YOU WANT YOU WANT HOW TO BUILD A HOW TO BUILD A SIPP PORTFOLIO SIPP PORTFOLIO

Cut through with conviction

Available in an ISA

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The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.ﬁdelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Limited, a ﬁrm authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Investment professionals include both analysts and associates. Source: Fidelity International, 30 September 2023. Data is unaudited. UKM1223/384820/SSO/1224

Contents NEWS 06 US stocks hit new high buoyed by biggest jump in consumer confidence in 33 years

07 UK core dividend payments rose 5.4%

to £88.5 billion last year

08 Finsbury Growth & Income marks three years of underperformance

09 Under the radar tech star Super Micro Computer surges as earnings set to smash forecasts

09 Birkenstock under pressure after disappointing post-IPO earnings

10 Will Pets at Home win a pat on the head from investors?

11 How Advanced Micro Devices has surfed AI wave

12 Crucial week for markets as central banks set out their stalls for 2024

GREAT IDEAS 14 Why Smithson is a smart idea for 2024 15 Investors should buy Datadog before its appeal hits the mainstream

UPDATES 17 Stick with food producer Cranswick as it strengthens competitive position

18 INVESTMENT TRUSTS What should investors do with Scottish Mortgage?

FEATURES 24 COVER STORY

Enjoy the retirment you want: How to build a SIPP portfolio

30 Why falling interest rates could be a ‘harbinger of boom’ for commercial property 34 CASE STUDY From stage and screen to stocks and shares – Beth shares how she has started her investment journey

38 EDITOR’S VIEW Why there could be a little too much optimism around right now

40 RUSS MOULD Discover the most and least popular stocks heading into 2024

47 FINANCE

Get ahead of the big ISA changes coming soon

48 ASK RACHEL I’m approaching 75 what should I do with my SIPP?

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

25 January 2024 | SHARES | 03

Contents

Three important things in this week’s magazine Investm ent Trus ts:

Feature:

Scottish Mortgag e

Property Se

ctor

What sh Scottish ould investors d Mortgag o with One-tim e? e star inv estment trust is

tes even its ting the patience most ard ent fans of

ENJ

OY THE RETIR YOU EMENT HOW TO

WANT

BUILD A

SIPP PORT

FOLIO

The size of what to inv pot you might ne ed to ach est in at different ieve the right inc stages of ome and your ret ost of us will irement journey to plan for be aware of the nee our

d retirement far or oth Loughboro , however erwise in Social Polugh University’s Cen stop workin with doing so. Aftwe might have got person nee icy, calculated how tre for Research quality of g we all still want er all, when we to life ‘comfortabl ds to live a ‘minim much the average much mo . In this article we enjoy a decent um’, ‘moder e’ ney you will will exp ate’ or After tax, lifestyle. lore how pot require need and the investment d to achieve it as we the level of pension lifestyle is estimaannual cost of a ‘mi nimum’ ted at £12 and £19 process, thoideas for people at ll as providing som e curren ,900 for a couple ,800 for an individ . The state have alreadyse nearing retirem the start of the ual tly £10 ,60 ent and tho pension is 0. retired. For a cou se who by the new ple, that figure is mo HOW MUC £10,600, whfull state pension, re than covered H DIFFER which stan ile the PLS LIF EN ES sing ds TY T A at le bel A 2023 Reti LES COST person is ‘very achievaieves £12,800 for the state produced rement Living Standa a ble pen by pension sav sion with income if they suppleme Saving Ass the PLSA (Pensio rds report nt ns ociation), during the ed through autom from a workplace based on and Lifetime atic enrolm ir wo research by ent The tables rking life’. paint a pict 24 | SHARES you could exp ure of the | 14 Dece ect to affo mber 2023 kin d of thin rd based on gs the differe nt

How to enjoy the retirement you want A look at what it will cost to meet different living standards and investment ideas for different stages of pension investing.

or the firs t Mortgage time in years Scottis h investors Investment Trust reached acr (SM are contem and plating sell T) Bloomber oss Western eco is the mo moving on. Ove nomies. Dat g r the past ing up st sold inv cuts are cur shows more than a from platform, est mo accounting ment trust on the nth, it interest raterently priced in by160 basis point This is alm for 14.6% AJ the s of all trust Bell poi nt cuts for this year, with 150 market for US too. For mo ost unheard of, sales. and This would the Eurozone and and 130 basis investors st of the 21st Cen it is meaningful UK respec hav tur shallow ma lower the cost tive the hilt, enj e backed Scottis y, long-term of rke bor h rowing and ly. Only it did t discount rates of succes oying a seemingly Mortgage to ses the trust’s n’t seem to play on growth assets (AMZN:NA , including stakes endless supply . out that wa of growth shares for most of (TSLA:NA SDAQ), Tencent (07in Amazon 2023 when y for stocks we SDAQ) lon 00: Mo HK nt ple G), rtg to market cau g nty age the mo Tesla ght on. before the rest of portfolio remained firmly out on, but Scottish the It is a run hol Tesla and dings like Nvidia of favour. While foundation that has made Sco Sho (NV DA:NASDA triple-digit pify (SHOP:NY portfolios stone of thousandsttish Mortgage a Q), SE) we 2023 gains, , powerin Scottish Mo re clocking up g the trust of private invest or rtgage’ sha into the FTS Scottish INVESTME re E 100. Mortgag e Many inv NT STRATEGY (p) estors wil l kno Mortgage aims to ide w the pitch – Sco 1,400 most excepti ntif ttis onal growth y and back the wo h by doing 1,20 rld’ 0 com s so, sharehold deliver exceptionapanies, and 1,000 ers over the l returns things, it for long ter sou 800 execute and nds simple, yet m. As with many is 600 what mig investors must be far from easy to ht be call wil ling ed excepti to accept In theory 400 onal risk too. for the tru , 2024 should be 200 a forward notst than recent one much better year s. 0 expectatio backwards, and Investors look the n that pea k interest re is widespread 2019 2020 rates hav 2021 e been 2022 18

2 | SHARES

| 25 Janu

ary 2024

Chart: Shar es magazin

e • Source:

2023

LSEG

2024

Patience is wearing thin with Scottish Mortgage The investment trust has struggled of late after previously spectacular performance – what’s needed to get things back on track?

Why fall could be ing interest rate for com a ‘harbinger of s mercial Marcus Ph propert boom’ ayre-Mu dge, mana y ger of TR

Pro

perty, ex hile it was plains his fou ago as a gen nded over a cen thinking tury since 198 eral investment trus After the 4 struggled property sector acr focused excTR Property (TRY) t, UK and Eur in has lusively on interest rate 2022 and 2023 dueoss Europe analysing most profitaopean property sec s, the Pha tors ble and attr yre-Mudge to the steep rise 2024 will The FTSE active com looking for the in see is reasons. Sha it return to favour, convinced 12 Europe 250 company curren panies. for res sat dow an n with him several holdings in countries, includi tly has exposure to INTERE to hear wh ng small num over 60 stocks and the UK, through y. ST-R ber fun ‘Listed rea ATE SENSITIVITY Marcus Pha of direct property ds as well as a l esta te has Christmas Property sinc yre-Mudge, wh investments. future, pric acted as the ghost o rates early of ing in higher surveyor at e 2011, was form has managed TR and ruthless interest erly an inve to overselling ly – ulti Chartered Knight Frank and qua stment the manag of the sector as mately leading an unequa Surveyor over 30 yea lified as a a whole,’ er. says Not only hav alongside lled insight into the rs ago, giving him his skills as UK running sca e institutional an investm property market inve red sto of proper ent manag other sou ty stocks, rs been er. rce hedge fun 28 | SHARES market and s of ‘fast money’ ds and | 25 Janu have shorted the ary 2024 sector sinc come into the e the pan demic,

Scope for a property sector rebound A chat with a leading fund manager in the space about why real estate could be about to enjoy a renaissance.

Visit our website for more articles Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis. Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:

Christmas for Associated British Foods-owned Primark saved by late festive sales flurry

Spirit Airlines/JetBlue take on Federal Court in last ditch attempt to save merger

Wincanton set to go private after recommending all-cash takeover

04 | SHARES | 25 January 2024

Does S4 Capital’s latest update signal a turnaround for the advertising group?

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News

US stocks hit new high buoyed by biggest jump in consumer confidence in 33 years Falling inflation expectations and resilient growth is music to the Fed’s ear

fter a new year stutter which saw the S&P 500 index fall in three of the opening four sessions, the world’s largest market is back to winning ways notching up a new all-time high on 19 January. Investors seem to have taken heart from a widening in stock market participation beyond the ‘Magnificent Seven’ with the Philadelphia Semiconductor index, or SOX, also racking up new all-time highs. Almost in stealth-like fashion, shares in Cambridge-based UK chip-designer ARM (ARM:NASDAQ) are up an impressive 54% since floating in September 2023.

ARM ($) 70 60 50 Oct 2023

Nov

Dec

Jan 2024

Source: LSEG

Meanwhile, the technology-focused Nasdaq Composite index is now only 4% shy of its all-time high reached in late 2021. However, the small-cap economically-sensitive Russell 2000 is roughly 20% below its 2021 highs. Stronger than expected economic data continues to play a part in stoking investor risk appetite. Consumer confidence hit a two-and-a-half year high on 19 January after the University of Michigan Consumer sentiment reading jumped 13% to 78.8 against a reading of 70 expected by economists. 06 | SHARES | 25 January 2024

The second consecutive month of improvement took the cumulative gain to 29%, the biggest two-month increase since 1991 after a recession ended, according to Michigan University director of surveys Joanne Hsu. The sentiment survey also provides a glimpse of consumer inflation expectations. Over the next year consumers expect inflation to average 2.9%, down from 3.1% previously. On a five- and 10-year timeframe, inflation is expected to average 2.8%. The findings chime with a Federal Reserve Bank of New York survey released this month which found consumers expect inflation to ease over the short-, medium- and long-term. While the latest data is supportive of the Fed’s view that inflation expectations remained well ‘anchored’, it does suggest more work needs to be done to get the measure back to the central bank’s 2% target. Initial filings for unemployment benefits came in lower than expected at 187,000 compared with just over 200,000 the prior week on 18 January. That was the lowest reading since September 2022, showing just how resilient the labour market has been in the face of higher interest rates. All of which suggests the Fed can keep interest rates higher for longer without taking too much of a risk of pushing the economy into recession. The odds of a Fed pivot to lower rates, which investors were pricing in as early as March a few weeks ago, have now drifted further out into late spring with markets now forecasting less than a 50% chance of an early cut. [MG]

News

UK core dividend payments rose 5.4% to £88.5 billion last year Banks become the biggest-paying sector for the first time since 2007

hile it may have been choppy seas for growth investors last year, for those with an income strategy it was plainer sailing with regular dividend payments for the FTSE All-Share excluding investment trusts growing by more than 5% to over £88 billion according to the latest Dividend Monitor report from financial services company Computershare. The firm’s latest quarterly report reveals some interesting trends, with underlying dividend growth accelerating in the final quarter which hopefully bodes well for 2024 payouts. The main drivers of growth were the banks, in particular HSBC (HSBA), which fully restored its quarterly payment for the first time since the pandemic and as a result regained its position as the number one dividend payer in the UK, a spot it last held in 2008 says the report. Thanks to HSBC, the banks not only made the biggest contribution to dividend growth for the second year running, with payments up by nearly a third to £13.8 billion, they also became the largestpaying sector for the first time since the great financial crisis let alone since the pandemic. Computershare’s chief executive of issuer services Mark Cleland said: ‘The need to quell inflation with higher interest rates means the last

two years have delivered a dramatic turnaround. Bank investors are reaping the dividends of this reversal and we expect them to see even larger payouts in 2024.’ Oil and gas and utility stocks were also major contributors, with high energy prices driving a 15.8% increase in payouts from energy stocks and inflation-linked dividend policies boosting utility payouts to a record level. However, the mining sector let the side down with payments shrinking over 28% to just £4.5 billion due to weak commodity prices. The survey also revealed that although underlying dividends grew by 5.4%, the overall dividend ‘pot’ shrank by 3.7% to £90.5 billion due to fewer one-off special dividends. With major companies such as Aviva (AV.), BP (BP.), Glencore (GLEN) and Shell (SHEL) buying back shares, reducing the number in circulation, the total value of dividends paid rose more slowly than it would have. According to Computershare, without buybacks dividend growth last year would have been 7.2% instead of 5.4%. For 2024, the firm is expecting underlying dividend growth of 2% to £89.8 billion and total headline growth of 3.7% to £93.9 billion helped by an increase in special dividends. [IC]

UK Q4 dividends – (£ Billion) Regular Dividends

Special Dividends

10B

2007

2008

2009

2010

2011

2012

2013 20131 2015

2016

2017

2018

2019

2020

2021

2022

2023

Chart: Shares magazine • Source: Exchange Data International & Computershare

25 January 2024 | SHARES | 07

News

Finsbury Growth & Income marks three years of underperformance Manager blames stock selection and lack of exposure to energy sector

Finsbury Growth & Income Trust (p) 900 800 Apr 2021

Jul

Oct

Jan 2022

Apr

Jul

Oct

Jan 2023

Apr

Jul

Oct

Jan 2024

Chart: Shares magazine • Source: LSEG

ollowing on from our coverage of Fundsmith Equity (B41YBW7) and the fact it has lagged its benchmark for three years running, another popular fund with retail investors, the Nick Train-run Finsbury Growth & Income (FGT), has also failed to outperform over the last three years. As the manager says in his December factsheet: ‘This is disappointing to me and all my colleagues, because we work hard, we care and are invested in the strategy ourselves.’ In the year to 31 December, the trust generated a NAV (net asset value) return of 5.8% and a share price return of just 3.9% against a 7.9% gain for the FTSE All-Share index. The main reason for this underperformance, as Train himself acknowledges, is not owning oil and mining shares and having too much exposure to consumer and financial stocks, which together make up nearly 80% of the portfolio. Train also blames his individual stock selection: ‘In addition, I have invested in some companies where my confidence in their earnings power and undervaluation has been misplaced, at least to date. Amongst these, Hargreaves Lansdown (HL.) has been a big detractor from the returns, as have Burberry (BRBY) and, particularly in 2023, Diageo (DGE).’ Shares in Hargreaves Lansdown lost around 14% in 2023, while Burberry lost 30% of its value last year and has lost another 13% so far

08 | SHARES | 25 January 2024

this year. Shares in Diageo lost around 22% last year, and like Burberry are trading down again this year as evidence mounts that sales of upmarket spirits, like those of luxury goods, aren’t as immune to a downturn in consumer spending as had been argued. To his credit, Train isn’t about to change his investment strategy just because the trust didn’t outperform and nor would we expect him to. As per the saying, when the going gets tough the tough get going. ‘I can assure investors that our approach remains unchanged and that the structure of the portfolio makes it very likely to continue to perform very differently from the benchmark. Of course, we hope for the better.’ There is one new addition to the trust, FTSE 100 housing market portal Rightmove (RMV), which enjoys ‘a formidable competitive position’ according to the manager. Train also notes that CoStar (CSGP:NASDAQ), which is aiming to challenge Rightmove’s market dominance, trades on 67 times forward earnings against 22 times for the UK company, demonstrating how undervalued successful UK digital companies are by comparison with their US peers. (IC) Disclaimer: The author (Ian Conway) owns shares in Fundsmith Equity.

News

Under the radar tech star Super Micro Computer surges as earnings set to smash forecasts Company’s liquid cooling solutions becoming increasingly relevant in an AI world

analyst consensus of $3.06 billion. Adjusted earnings are pegged at $5.40 to $5.55 per share, up from the $4.40 to $4.48 per share which Shares in US data centre hardware had previously been penciled in. outfit Super Micro Computer Super Micro makes and sells (SMCI:NASDAQ) have extended their hardware behind servers for remarkable gains over the last 12 websites, data storage and AI months to 491% as the company (artificial intelligence). Its offering flagged an exceptional second of liquid cooling solutions for data quarter performance (19 January). centres is seen as particularly Revenue for the three-month important given the amount of period to 31 December is power consumed and the heat expected to total between generated when running $3.6 billion and $3.65 AI applications. Moving billion, well in excess Super Micro’s HIGHER fortunes are of previous guidance of $2.7 billion to $2.9 therefore closely tied billion and ahead of the to those of its partner

Super Micro Computer ($) 400 200 0 Apr 2023

Jul

Oct

Jan 2024

Chart: Shares magazine • Source: LSEG

Nvidia (NVDA:NASDAQ), which makes the chips used to power AI. Investors will be looking for more colour on the outlook and detail on what is driving earnings when the second-quarter numbers are reported in full around the end of this month. [TS]

Birkenstock under pressure after disappointing post-IPO earnings Shares in German sandal maker tumble after markets lose faith in the brand Birkenstock (BIRK:NYSE) tripped over itself on Wall Street last week, with the shares falling by as much as 14% at the opening bell before stabilising after the German shoemaker delivered a mixed earnings report for the fourth quarter of 2023 and a muted outlook for 2024. The stock slid as the European footwear brand forecast 18% revenue growth for 2024 and EBITDA (earnings before interest, tax, DOWN depreciation and in the amortisation) of dumps between $566 million and $577 million.

The company said it expected profits to shrink this year as it ramped up its investment plans, although there are clear signs shoppers globally are cutting spending on ‘nice-to-haves’ in favour of ‘must-haves’ like food and shelter. Birkenstock has undergone a major shift under chief executive Oliver Reichert in the last decade, going from a family-owned specialist manufacturer to a global footwear brand. The company made its stock market debut last October at $46 per share, giving it a market value of approximately $9 billion. Analysts at Morgan Stanley were

Birkenstock 50 48 46 2024 Chart: Shares magazine • Source: LSEG

encouraged by the firm’s full-price sales performance, while Jefferies analyst Randall Konik flagged Birkenstock’s 30% sales growth in the US in the final quarter of 2023 and suggested the firm’s 2024 sales guidance could turn out to be ‘conservative’. [SG] 25 January 2024 | SHARES | 09

News: Week Ahead

UPDATES OVER THE NEXT 7 DAYS FULL-YEAR RESULTS 29 January: British American Tobacco 30 January: Vodafone, SThree 31 January: Abrdn Private Equity Opportunities Trust, GSK 1 February: Shell INTERIMS 30 January: Diageo 31 January: ITM Power 1 February: Rank Group TRADING ANNOUNCEMENTS 26 January: Record, Paragon Banking, WH Smith 30 January: Pets at Home, Luceco 1 February: Cranswick, JTC, Barr (A.G.)

10 | SHARES | 25 January 2024

Will Pets at Pets at Home Home win a pat on the head from investors? (p)

350

The pet food purveyor needs to show like-for-like sales continue to recover from short-term logistics centre disruption Compared to other retail verticals, Christmas is relatively less important to the pet care market. Nevertheless, UK market leader Pets at Home (PETS) will need to reassure investors that retail like-for-like sales momentum has been sustained when it bounds in with a third-quarter trading update on 30 January. Liberum Capital doesn't expect any reporting surprises, although the broker does remain ‘concerned around the slip we notice in store standards’ at the FTSE 250 retail name, which reiterated guidance for the year to March 2024 at the first half results on 28 November. At the time, the pet food-to-vet services purveyor said the consumer environment remained ‘uncertain’. Yet Pets at Home stressed its sales growth had normalised after a short-term revenue hit from distribution centre disruption which affected product availability. The

300

Apr 2023

Jul

Oct

Jan 2024

Chart: Shares magazine • Source: LSEG

early weeks of the third quarter started well with ‘good initial sellthrough’ of Christmas ranges and the company expressed confidence in delivering annual underlying pretax profits of around £136 million, in line with the analyst consensus supported by cost reductions and veterinary services outperformance. The next big catalyst for the shares, up more than 100% over five years but down over 10% on a one-year view, should be the Competition & Markets Authority’s initial findings from its review of the UK veterinary services market, likely to see the light of day in early 2024. [JC] Whatthe themarket marketexpects expects What ofPets Petsat atHome Home of EPS EPS (p) (p)

Revenue Revenue (£bn) (£bn)

YeartotoMarch March2024 2024 Year

19.9 19.9

1.5 1.5

YeartotoMarch March2025 2025 Year

23.7 23.7

1.6 1.6

Table:Shares Sharesmagazine magazine• •Source: Source:Berenberg Berenberg Table:

News: Week Ahead

How Advanced Micro Devices has surfed AI wave Nvidia challenger is generating huge excitement among in-theknow analysts

Advanced Micro Devices

It’s been easy to overlook Advanced Micro Devices (AMD:NASDAQ) as Nvidia (NVDA:NASDAQ) cornered the market for AI microchips last year. Yet analysts are increasingly seeing scope for AMD to emerge as a second AI chip champion as computer processing power demands surge. Microsoft (MSFT:NASDAQ) is incorporating AMD’s AI chips into its Windows PC operating system as part of a multi-year partnership, for instance, and it is not alone. Facebook parent Meta Platforms (META:NASDAQ) has been eying AMD’s AI processors as a lower-cost alternative to those provided by

140

What the market expects of Advanced Micro Devices EPS ($)

Revenue ($bn)

Q4, 2022

0.69

5.60

Forecast for Q4, 2023

0.77

6.14

Forecast for Q1, 2024

0.69

5.79

Table: Shares magazine • Source: Koyfin

US UPDATES OVER THE NEXT 7 DAYS

($) 160

120 100 80 60 Apr 2023

Jul

Oct

Jan 2024

Chart: Shares magazine • Source: LSEG

industry leader Nvidia. AMD stock has already doubled since October 2023, and has tripled over the past 15 months, with January strength powered by multiple analyst forecast and target price upgrades from the likes of Barclays, KeyBanc Capital Markets and Susquehanna Financial. Fourth-quarter 2023 earnings after the market closes on 30 January will test whether the stock’s run is sustainable. Analysts forecast around 15% earnings growth on last year’s Q4 $0.67 marker at $0.77, on only its second quarter ever of $6 billion-plus revenue ($6.13 billion is the forecast). Analysts estimate 18% earnings growth through 2024, based on Koyfin’s latest data. [SF]

QUARTERLY RESULTS 26 January: Caterpillar, American Express, ColgatePalmolive, Norfolk Southern 29 January: Graco, Franklin Resources, Woodward, Rambus, Crane, Whirlpool 30 January: Microsoft, Alphabet, Advanced Micro Devices, Danaher, Pfizer, UPS, Stryker, Chubb, General Motors, Harley Davidson, Pitney Bowes 31 January: Mastercard, Boeing, Boston Scientific, MetLife 1 February: Apple, Amazon.com, Merck & Co, Honeywell, Eaton, Microgen, Royal Caribbean Cruises, Pinterest, Hartford, Spire

25 January 2024 | SHARES | 11

News: Week Ahead

Crucial week for markets as central banks set out their stalls for 2024 Investors are already repricing the likelihood of rate cuts in the spring After a stellar rally in the final quarter of last year, markets are on the back foot in 2024 as hopes of a round of interest rate cuts early in the spring have faded following higher-than-expected inflation data in the UK and stronger retail sales figures in the US. While economists had penciled in a 0.1% fall in the rate of UK inflation to 3.8% last month, the official data showed a 0.1% rise to 4% due to an increase in tobacco duty and alcohol prices. As Morningstar market strategist Michael Field

Macro diary 25 January to Macro diary 25 January to Macro diary 25 January to 1 February 2024 1 February 2024 1 February 2024 Date Date Date

25-Jan 25-Jan 25-Jan

26-Jan 26-Jan 26-Jan

30-Jan 30-Jan 30-Jan

31-Jan 31-Jan 31-Jan

01-Feb 01-Feb 01-Feb

Economic Economic Event Event Economic Event

German IFO Survey German IFO Survey German IFO Survey US December Durable US December Durable US December Goods Orders Durable Goods Orders Goods Orders US Q4 GDP US Q4 GDP US Q4 GDP US December Personal US December Personal US December Personal Income Income Income US December Personal US December Personal US December Personal Spending Spending Spending UK December Consumer UK December Consumer UK December Consumer Credit Credit Credit UK December Mortgage UK December Mortgage UK December Mortgage Approvals Approvals Approvals US December Job US December Job US December Job Openings Openings Openings Euro-zone Q4 GDP Euro-zone Q4 GDP Euro-zone Q4 GDP US January ADP US January ADP US January ADP Employment Employment Employment UK January Manufacturing PMI UK January Manufacturing PMI UK January Manufacturing PMI US January ISM US January ISM US January ISMPMI Manufacturing Manufacturing PMI Manufacturing PMI

Previous Previous Previous Month Month Month

86.4 86.4 86.4 5.4% 5.4% 5.4% 4.9% 4.9% 4.9% 0.4% 0.4% 0.4% 0.2% 0.2% 0.2%

£2bn £2bn £2bn 50k 50k 50k 8.79m 8.79m 8.79m 0.5% 0.5% 0.5% 164k 164k 164k

47.4 47.4 47.4

Table: Shares magazine • Source: Morningstar, central bank websites Table: Shares magazine • Source: Morningstar, central bank websites Table: Shares magazine • Source: Morningstar, central bank websites

12 | SHARES | 25 January 2024

notes we are still a long way from the Bank’s 2% target and ‘although the fall so far has been impressive, the going may get tougher from here’. December UK retail sales on the other hand were alarmingly weak, falling 3.2% – with non-food sales sliding 3.9%. It is possible consumers blew their budgets early, taking advantage of the discounts on offer in the Black Friday sales and similar, or they may have preferred to spend money on ‘experiences’ like going to pub, the cinema or bowling. No doubt the Bank of England will be weighing up all these possibilities ahead of its rate-setting meeting on 1 February, but while we can’t see interest rates moving higher neither can we imagine there is enough of a case for a cut just yet. In the US, after December’s retail sales and consumer confidence surprised to the upside the Federal Reserve will be watching the personal income and spending data on 26 January along with the JOLTS (job openings and labour turnover) survey four days later when it considers whether to cut interest rates at its meeting. US 10-year bond yields moved above 4% again last week while pricing in the swap market showed the chances of a cut in the Fed’s benchmark interest rate in March fell from 80% to below 60% for the first time in a month. Fed officials have been pushing back against expectations of an imminent cut and the latest Beige Book cited bumper consumer spending as having propelled the economy in recent months. [IC]

Next Next Central Central Bank Bank Meetings Meetings & & Current Interest Rates Next Central Bank Meetings & Current Interest Rates Current Interest Rates Date Date Date 25-Jan 25-Jan 25-Jan 31-Jan 31-Jan 31-Jan 01-Feb 01-Feb 01-Feb

Event Event Event European Central Bank European Central Bank European Bank US FederalCentral Reserve US Federal Reserve US Federal Reserve Bank of England Bank of England Bank of England

Previous Previous Previous 4.5%

4.5% 4.5% 5.5% 5.5% 5.5% 5.25% 5.25% 5.25%

Great Ideas: Investments to make today

Why Smithson is a smart idea for 2024 Historically-wide 11.5% discount presents a buying opportunity at high-quality global small- and mid-cap trust

Smithson Investment Trust (SSON) £13.93 Market cap: £2.22 billion

fter a steep decline during most of 2023, investment trust Smithson’s (SSON) shares are enjoying a healthy rebound which should have further to run as sentiment towards quality global small- and mid-cap companies improves, with potential interest rate cuts providing a tailwind. The trust’s wide 11.5% discount to NAV (net asset value), which compares to its long-term average of 2%, presents a compelling entry point for investors as a further narrowing of the discount combined with growth in underlying portfolio NAV would provide a powerful performance doublewhammy. Established by star fund manager and Fundsmith chief executive Terry Smith, Smithson’s investment approach entails identifying companies with superior operating characteristics, investing at attractive valuations and holding them for the long term. Managed by Simon Barnard and assistant portfolio manager Will Morgan, Smithson offers high-conviction exposure to quality global equities at the small- to mid-cap end of the spectrum with a market value of between £500 million to £15 billion at the time of initial investment. Barnard and Morgan scour global markets for small- and mid-sized firms delivering strong profitability which is sustainable over time and generating substantial cash flow they can reinvest back into their businesses. The focus is on firms which are outperforming competitors and rely heavily on

14 | SHARES | 25 January 2024

Smithson Investment Trust (p) 2,000 1,500 1,000 500 0 2019

2020

2021

2022

2023

2024

Chart: Shares magazine • Source: LSEG

intangible assets, which leads the managers to sectors such as information technology, health care and consumer goods. Over the past five years, Smithson has generated an NAV total return of 60.7% against returns of 54.5% for the MSCI World SMID Index and 34.2% for the global smaller companies sector. In 2023, as the peak in rates was reached, Smithson delivered an NAV total return of 13.3% versus 9.1% from the MSCI SMID Index and 4.5% from its peer group. Concentrated around 33 holdings as of 29 December 2023, the portfolio offers exposure to the likes of rare disease medication maker Recordati (REC:BIT) and Italian luxury fashion house Moncler (MONC:BIT), not to mention enterprise software firm Temenos (TEMN:SWX) and internet domain name services provider Verisign (VRSN:NASDAQ). The fund also owns Fortinet (FTNT:NASDAQ), a play on the bull market in cybersecurity spending, as well as recovery situation Fevertree Drinks (FEVR:AIM). Kepler analyst Nicholas Todd believes there are bargains to be had in the smaller companies market and that Smithson could benefit from the serial acquirers in the portfolio that are ‘in a position to absorb competition to gain market share or gain access to alternative markets at knock-down prices which could lead to a higher rate of return over the long term’. Ongoing charges on the trust are 0.9%. [JC]

Great Ideas: Investments to make today

Investors should buy Datadog before its appeal hits the mainstream Manhattan company has the hallmarks of a great AI/data tech growth story

Datadog (DDOG:NASDAQ) $132.98

Market cap: $43.7 billion

ooming spending on AI (artificial intelligence) and cloud computing infrastructure has ignited a new tech bull market. That’s the claim of several analysts and fund managers and if you’re willing to bet on that narrative, Datadog (DDOG:NASDAQ) is a stock worth backing. While overall IT budgets are expected to be up modestly in 2024, cloud and AI-driven spending will be up 20% to 25% over the next year, ‘with use cases now exploding’ in the enterprise and consumer landscape. ‘We believe the new tech bull market has now begun, and tech stocks are set up for a strong 2024 as the AI spending tidal wave hits the shores of the broader tech sector,’ as one analyst told clients. Investing in US growth stocks comes with risk. These companies can often be more volatile than average, often look expensive compared to the market, and there’s things like currency

Datadog ($)

150

100

0 2020

2021

2022

Chart: Shares magazine • Source: LSEG

2023

2024

unpredictability to consider. But as we have seen over the past 12 months or so, when stocks like Nvidia (NVDA:NASDAQ), Meta Platforms (META:NASDAQ) and Palo Alto (PANW:NASDAQ) clocked up triple-digit returns, buying well-positioned tech growth stocks can pay-off way more impressively than even the most optimistic predictions. So, what makes Datadog worth a look? The short answer is that it provides mission-critical data tools to businesses and is rapidly expanding its total addressable market as organisations around the world grapple with the huge volumes of data that AI and machine learning need to become effective. WHAT DATADOG DOES Datadog won’t be a familiar name to most UK investors, but we expect that to change over the coming years. The $43.7 billion Manhattanbased business provides a software-as-a-service suite that allows clients to monitor and analyse 25 January 2024 | SHARES | 15

Great Ideas: Investments to make today

cloud-scale applications across the technology stack in real-time from a single place. This means monitoring servers, databases, tools, and services across major cloud providers, including Amazon’s (AMZN:NASDAQ) AWS, Microsoft (MSFT:NASDAQ) Azure, Alphabet’s (GOOG:NASDAQ) Google Cloud and others. This makes Datadog a crucial behind-thescenes facilitator for more than 25,000 firms worldwide. ‘The company’s unified, real-time view into the entire technology stack remains mission-critical to developers and enterprises as they focus on identifying and eliminating performance issues,’ spelled out analysts at Oppenheimer in a note to clients. ‘While not recession-proof, the missioncritical nature of its solutions gives Datadog relative resiliency in times of spending constraints,’ they said. Rapidly expanding its target market, through vertical shifts into areas like digital security, corporate compliance, and workflow efficiency, has scope to massively ramp the revenue growth opportunity. BMO analysts earlier this month calculated Datadog’s core TAM (total addressable market) out to 2026 at $24 billion, yet thrown in large adjacent opportunities, BMO projects a 2026 TAM of approximately $58 billion. To get here, Datadog has had to invest millions of dollars, and shareholders have endured a whiteknuckle ride. After clocking up roughly $123 million 16 | SHARES | 25 January 2024

of net losses in the five years to 2022, results for 2023 should reveal its annual profits breakthrough. The company reported net earnings per share of $0.28, $0.36, and $0.45 in quarters one to three in 2023, with Q4 (to 31 December) due on 13 February. It calls for around $0.44 of EPS to hit the consensus full year forecast of $1.53, according to Stockopedia data. 2024 consensus is set at $1.82 but we see scope for those estimates to rise as the year progresses, providing more momentum for the share price. ‘We believe the dynamics of the cloud market have meaningfully improved in the past few quarters, which should help with Datadog’s revenue growth in 2024 and beyond’, said BMO in its initiation note to clients this month. Oppenheimer has previously noted Datadog’s high-teens percentage free cash flow and operating margins, while growing revenue above 30% a year on average. Datadog has beaten quarterly forecasts every time since it listed on Nasdaq in September 2019 at $27 per share. WHERE IT COULD GO WRONG As Datadog continues to integrate itself at the heart of its clients’ operations, it makes the company a potential target for malicious cyber-attacks. A lot of sensitive data and information is flowing through its platform, and if the company were to suffer a significant data breach, it could expose this business to some significant reputational damage. There is also intense competition in this area, both from in-house tools hosted by the big cloud providers previously mentioned, plus specialists like Dynatrace, New Relic and AppDynamnics, according to Gartner. This means Datadog will have to keep investing in R&D to maintain an edge. It’s also important to realise that the valuation, while down about a third from pandemic peaks, when the stock hit $193 in October 2021, still trades at lofty multiples – a price to earnings of about 72, on current estimates. That said, great growth stocks never look cheap in the short term, so potential investors must put near-term valuations into the context of long-run growth potential. All-in-all, Shares believes that Datadog shares offer a rare combination of growth and profit for years into the future and are worth buying now. [SF]

Great Ideas Updates

Stick with food producer Cranswick as it strengthens competitive position Company’s pig herd now supplies over half its needs

Cranswick (CWK) £40

Profit to date: 11% In November 2023, we said investors hungry for positive earnings momentum and an unbroken 33 years of dividend growth should take a closer look at pork and poultry products supplier Cranswick (CWK). We saw scope for further earnings forecast upgrades based on strong UK food trading highlighted by leading grocer Tesco (TSCO). There is also underappreciated upside from Cranswick’s recent entry into the pet food business where it can leverage its strong existing relationships with UK supermarkets. WHAT HAS HAPPENED SINCE WE SAID BUY? The earnings upgrades continued after the company delivered a sizzling first half update (21

Cranswick (p)

3,800 3,600 3,400 3,200 Aug 2023

Sep

Oct

Chart: Shares magazine • Source: LSEG

Nov

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Jan 2024

November), with sales up 12% and pre-tax profit jumping 24% to £81.6 million beating consensus expectations. Growth was driven by ‘effective inflation recovery’ and ‘resilient’ volume growth across four UK food categories. Tight control of costs and a positive contribution from rapidly expanding pig farming operations saw the operating margin expand to 6.8% from 6.1% in the same period of 2022. Since the update, consensus earnings per share estimates have increased by around 5% for both 2024 and 2025 according to Refinitiv data. Shore Capital raised its own 2024 earnings forecast by around 5% and commented: ‘We see Cranswick’s considerable investment in the UK food supply chain and food security as a major contributor to its margin enhancement.’ Berenberg noted Cranswick’s competitive moat is expanding as its market share increases on the back of the outperformance of its key customersnamely Sainsbury’s (SBRY), Tesco and Marks & Spencer (MKS). ‘Cranswick will continue to pursue investment in capability expansion and partner with its key customers to deliver growth in underdeveloped opportunities such as pet food,’ added the analysts. WHAT SHOULD INVESTORS DO NOW? We believe investors should stick with Cranswick as it continues to benefit from its investment programme and ramps up volumes in its emerging pet food business. [MG] 25 January 2024 | SHARES | 17

Investment Trusts: Scottish Mortgage

What should investors do with Scottish Mortgage? One-time star investment trust is testing the patience of even its most ardent fans

or the first time in years Scottish Mortgage Investment Trust (SMT) investors are contemplating selling up and moving on. Over the past month, it is the most sold investment trust on the AJ Bell platform, accounting for 14.6% of all trust sales. This is almost unheard of, and it is meaningful too. For most of the 21st Century, long-term investors have backed Scottish Mortgage to the hilt, enjoying a seemingly endless supply of successes, including stakes in Amazon (AMZN:NASDAQ), Tencent (0700:HKG), Tesla (TSLA:NASDAQ) long before the rest of the market caught on. It is a run that has made Scottish Mortgage a foundation stone of thousands of private investor portfolios, powering the trust into the FTSE 100.

reached across Western economies. Data from Bloomberg shows more than 160 basis point cuts are currently priced in by the market for US interest rates this year, with 150 and 130 basis point cuts for the Eurozone and UK respectively. This would lower the cost of borrowing and shallow market discount rates on growth assets. Only it didn’t seem to play out that way for the trust’s shares for most of 2023 when plenty of growth stocks went to the moon, but Scottish Mortgage remained firmly out of favour. While portfolio holdings like Nvidia (NVDA:NASDAQ), Tesla and Shopify (SHOP:NYSE) were clocking up triple-digit 2023 gains, Scottish Mortgage’ share

INVESTMENT STRATEGY Many investors will know the pitch – Scottish Mortgage aims to identify and back the world’s most exceptional growth companies, and by doing so, deliver exceptional returns for shareholders over the long term. As with many things, it sounds simple, yet is far from easy to execute and investors must be willing to accept what might be called exceptional risk too. In theory, 2024 should be a much better year for the trust than recent ones. Investors look forward not backwards, and there is widespread expectation that peak interest rates have been

1,400

18 | SHARES | 25 January 2024

Scottish Mortgage (p)

1,200 1,000 800 600 400 200 0 2019

2020

2021

Chart: Shares magazine • Source: LSEG

2022

2023

2024

Investment Trusts: Scottish Mortgage price rose just 12% in 2023, ending the year at 808p, and that was only after a post-Halloween rally – up until then the stock was actually down 11%. Not much has changed this year so far either, the stock off around 4% in January 2024 (as of 22 January). Even so, the discount to net assets has narrowed, roughly halving from almost 23% to 10.8% now, according to Trustnet data. Yet that remains historically high, with the long-run average discount calculated by Trustnet at 4.8%. In that light, Scottish Mortgage’ focus on

Scottish Mortgage' greatest hits By contribution to investment returns January 2003 to June 2022

Amazon

10%

Atlas Copco

Petrobras

Tencent

Baidu

Brazilian inflation-linked bonds

Tesla

British American Tobacco

Vale

Kering

Barclays

Illumina

Alibaba

Suncor

Table: Shares magazine • Source: Baillie Gifford, 14 assets have earned 53% of 12-times return on investment, January 2003 to June 2022

sustained technological advances could be on the cusp of another wave of outperformance, enhanced by a further narrowing of the discount. That would come as a relief for shareholders who have endured a period of poor returns that have tested patience. During the three years to 31 December 2023, the shares lost 32.8%, according to manager Baillie Gifford, versus a 28.7% gain for its FTSE All World Index benchmark. Even over five years, typically the period joint managers Tom Slater and Lawrence Burns prefer to be judged on, it has barely tracked the benchmark’s 77.8% returns. STAKES IN PRIVATE BUSINESSES A big part of that underperformance comes from Scottish Mortgage’s decisions on the thorny issue of owning stakes in private companies, notoriously difficult to value and especially so during dry spells for funding rounds and an IPOs (initial public offerings) drought. Scottish Mortgage has scope to invest up to 30% of the portfolio into private companies, and the trust is rock solid in its belief that privates offer some of the most exciting growth opportunities anywhere, such as Elon Musk’s SpaceX, ‘an exceptional and unique company’, according to Claire Shaw, one of the specialists on the trust’s investment team. SpaceX is not about off-planet tourism, but its launch capabilities to slash the cost of its Starlink satellites network, which is providing super-fast connectivity in parts of the world with little or no alternatives. The post-carbon economy will have a strong appetite for energy storage solutions, due to the proliferation of electric vehicles and intermittency of renewable energy generation. Yet the West remains hugely reliant on China, which provides about 80% of the world’s batteries production and materials. That’s not a comfortable place to be with tension hot between Washington and Beijing. This, in turn, bolsters the investment case for Northvolt, aided by the sustainable nature of its materials sourcing and manufacturing process. Lawrence Burns acknowledged that a variety of battery technologies are gaining prominence but noted that lead times are long and therefore they trust the company to allocate R&D 25 January 2024 | SHARES | 19

Investment Trusts: Scottish Mortgage

Big bets on private companies Space X Northvolt ByteDance Bandwidth Tempus Stripe Zipline Ant Redwood Materials Epic Games Other

3.7% 3.2% 2.6% 2.4% 2.0%

13.90% 20%

Private companies 28.6% of portfolio

6.10% 8.6%

Source: Baillie Gifford, 30 November 2023

as appropriate. ByteDance, the owner of the hugely popular social media platform TikTok, is another private company in the portfolio, as is Stripe, one of the world’s biggest payment platforms. Scottish Mortgage invested £193.7 million into new private companies in 2023. IPO BOOST COULD LIFT SHARE PRICE ‘Many private companies in the portfolio are ready for IPO as soon as market conditions allow, including Northvolt, Tempus, SpaceX and ByteDance,’ say analysts at Winterflood. Scottish Mortgage conducted more than 400 revaluation exercises last year with most falling within a 5% range after price discoveries, the trust says. Many believe 2024 will see the IPOs market pick up again, which will help established private company valuations and dispel some of the worries investors might have. ‘Risk aversion is rife among equity market 20 | SHARES | 25 January 2024

investors, and that’s where we can create value for shareholders,’ says Slater, who claims average growth of portfolio companies is close to 40%. ‘Sometimes, that is not easy, but if it wasn’t a volatile journey there would be lots of investment companies doing what we do,’ he says. ‘You have to endure those periods when what you are investing in is out of favour, and not conform with whatever the market is interested in.’ Despite its previous popularity, Scottish Mortgage’s Slater admits that it won’t suit all investors. But for those willing to accept the volatility inherent in the share price, this remains a clearly focused investment trust aiming to capture outlier returns amid market risk aversion from many of the largest investment themes around, such as AI, (artificial intelligence), energy storage, digital commerce, and healthcare technology. We believe this means share price performance will improve and could repeat the benchmark-

Investment Trusts: Scottish Mortgage

Scottish Mortgage’ top 30 stakes ASML 6.8% Moderna 5.3% Nvidia 5.2% MercadoLibre 5.1% Amazon 4.7% PDD 4.7% Tesla 4.5% Space X 4.0% Northvolt 2.8% Ferrari 2.7% Wise 2.4% ByteDance 2.3% Brandtech 2.2% Spotify 1.8% Tencent 1.8% Kering 1.8% Tempus Labs 1.7% Stripe 1.7% Adyen 1.6% Meituan 1.5% Zipline 1.5% Snowflake 1.5% Shopify 1.4% Affirm 1.2% Delivery Hero 1.1% Netflix 1.1% Cloudflare 1.1% Meta Platforms 1.0% Nio 1.0% Gingko Bioworks 0.9%

Top 10: 45.8%

Top 20: 64.6%

Top 30: 76.4%

30.6%

11.8%

Source: Baillie Gifford, 31 December 2023

beating return of the past decade’s 318.9% versus 193.2%. Disclaimer: AJ Bell referenced in this article owns Shares Magazine. The author (Steven Frazer) and editor of this article (Tom Sieber) own shares in AJ Bell. The author of

the article (Steven Frazer) owns shares in Scottish Mortgage. By Steven Frazer News Editor

25 January 2024 | SHARES | 21

ADVERTISING FEATURE

Twenty years of dividend investing Bruce Stout, Martin Connaghan and Samantha Fitzpatrick, co-managers of Murray International Trust In 2024, and after twenty years at the helm, Bruce Stout will hand over management of Murray International to Samantha Fitzpatrick and Martin Connaghan. Here the team consider how dividend investing has changed over that time, and its prospects from here. Twenty years is a long time in financial markets. It has seen the technology bubble collapse of the early 2000’s, the 2007/08 global financial crisis and, more recently, the global Covid pandemic. Murray International Trust has steered a path through these various crises by focusing intently on its investment objective – to build and grow its payouts to shareholders. However, the tools available to achieve that objective have changed considerably. In 2003, the Murray International portfolio looked very different to how it is positioned today. It had a significant weighting in the UK, at over 40% of the fund, plus a weighting of around 20% in bonds. It was only lightly invested in faster growing areas, such as technology, or emerging markets. While the mandate was flexible, choice was limited because many regions and sectors did not pay a dividend. For example, Asian companies had just emerged from their financial crisis, and had neither the inclination nor the wherewithal to pay dividends. Japan had almost no dividend-paying companies, while US and European dividend payouts were patchy, and often confined to single sectors, such as utilities. There was a prevailing view that companies had given up on future growth if they started to pay dividends to shareholders. In the US, senior executives were often rewarded on the

growth they could achieve in earnings per share, so spent any spare capital on buybacks rather than dividends. This made it tough to run a global fund truly diversified across sectors and geographies. THE EXPANSION OF DIVIDENDS The past twenty years have seen an astonishing breadth of choice open up for dividend investors. It is possible to draw an income from equities across a vast range of countries and sectors. Dividend payers now include technology giants Broadcom in the US or TSMC in Taiwan; plus numerous other companies from across the globe including emerging markets. Investors no longer have to choose between reliable dividends and capital growth. Global dividend portfolios can now be far more diversified, which makes them more robust. The diversification of global income into new companies and different regions is ongoing. For example, the high end luxury goods companies are now increasing dividend payouts to shareholders, which would have been unheard of even 10 years ago. Japan’s corporate governance reforms are encouraging companies to use capital more efficiently and, where appropriate, return profits to shareholders through dividends. There

is a growing realisation that, rather than implying a company has no pathway to growth, paying dividends can be a sign of strength. This choice and flexibility has helped manage changes in the dividend landscape. These happen periodically. There was a time when UK banks were a source of stable income and a significant feature of most income portfolios. The financial crisis saw dividends decimated and share prices tumble. If, however, investors had had the flexibility to look at Asian banks, for example, they would have found opportunities such as OverseaChinese Banking Corporation, a wellcapitalised, Singapore-based bank which has maintained a solid dividend policy throughout, with dividend growth last year of over 40%. Equally, flexibility can help investors take advantage of opportunities as they arise. Miners will never be a bedrock of an income fund, but they will have periods of real strength at certain points in the economic cycle. The dividend landscape is always changing and there will be times to invest in certain areas and times to avoid them. In Murray International we hold a Chilean lithium company, which is currently in the sweet spot for demand, but that will ebb and flow. While this transformation has been

ADVERTISING FEATURE

happening in global income, investors have been minutely focused on capital growth, and a handful of technology companies in particular. The majority of the world’s market cap is now in America. This means that many growth portfolios are now more concentrated and less robust than they have been in a generation. The contrast with global dividend portfolios could not be more acute. THE END OF LOW INTEREST RATES The era of loose money that has characterised the past decade is almost certainly over. This is not necessarily because of higher inflation, but also because the balance sheets of global governments are exhausted and need to be brought back to sustainable levels. This means bonds will once

again be priced by the market, rather than their price being distorted by government policy and central bank intervention. This changes the landscape for Murray International and global income strategies from here. Pre-2008, around 60% of the annual returns from equities came from reinvested income. From 2008, 60% came from capital growth. This could reverse as investors place a higher priority on the tangible, near-term returns delivered by dividends, rather than the longerterm, less reliable prospect of future capital growth. Equally, in a less certain environment, with less support from loose monetary policy, diversification is likely to become increasingly important. Relying on a handful

Important information: Risk factors you should consider prior to investing: • The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested. • Past performance is not a guide to future results. • Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years. • The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV. • The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares. • The Company may charge expenses to capital which may erode the capital value of the investment. • Movements in exchange rates will impact on both the level of income received and the capital value of your investment. • There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value. • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bidoffer spread can widen.

•

of technology companies looks an increasingly precarious strategy. We believe the more tangible charms of high quality, cash generative businesses around the world will come to the fore, as they have done historically. Over 20 years, the inherent philosophy of Murray International Trust has remained the same – to pay a high and growing dividend. We recognise that investors don’t want to see significant fluctuations in their capital, but when market volatility does occur, the stability of reliable income that the trust provides becomes even more important for shareholders. On the way that objective is achieved we remain flexible in recognition that the options available to us are improving and diversifying all the time.

With funds investing in bonds there is a risk that interest rate fluctuations could affect the capital value of investments. Where long term interest rates rise, the capital value of shares is likely to fall, and vice versa. In addition to the interest rate risk, bond investments are also exposed to credit risk reflecting the ability of the borrower (i.e. bond issuer) to meet its obligations (i.e. pay the interest on a bond and return the capital on the redemption date). The risk of this happening is usually higher with bonds classified as ‘sub investment grade’. These may produce a higher level of income but at a higher risk than investments in ‘investment grade’ bonds. In turn, this may have an adverse impact on funds that invest in such bonds. Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends. The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.

Other important information: Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London, EC2M 4AG. Authorised and regulated by the Financial Conduct Authority in the UK. Find out more by at www.murray-intl.co.uk or by registering for updates here. You can also follow us on social media: X (formally Twitter) and LinkedIn.

ENJOY THE RETIREMENT

YOU WANT HOW TO BUILD A SIPP PORTFOLIO

The size of pot you might need to achieve the right income and what to invest in at different stages of your retirement journey

ost of us will be aware of the need to plan for our retirement, however far or otherwise we might have got with doing so. After all, when we stop working we all still want to enjoy a decent quality of life. In this article we will explore how much money you will need and the level of pension pot required to achieve it as well as providing some investment ideas for people at the start of the process, those nearing retirement and those who have already retired.

HOW MUCH DIFFERENT LIFESTYLES COST

A 2023 Retirement Living Standards report produced by the PLSA (Pensions and Lifetime Saving Association), based on research by 24 | SHARES | 14 December 2023

Loughborough University’s Centre for Research in Social Policy, calculated how much the average person needs to live a ‘minimum’, ‘moderate’ or ‘comfortable’ lifestyle. After tax, the annual cost of a ‘minimum’ lifestyle is estimated at £12,800 for an individual and £19,900 for a couple. The state pension is currently £10,600. For a couple, that figure is more than covered by the new full state pension, which stands at £10,600, while the PLSA believes £12,800 for a single person is ‘very achievable if they supplement the state pension with income from a workplace pension saved through automatic enrolment during their working life’. The tables paint a picture of the kind of things you could expect to afford based on the different

RETIREMENT LIVING STANDARDS 2023 (OUTSIDE LONDON)

MODERATE

(£23,300 a year)

COMFORTABLE

SINGLE

(£12,800 a year)

MINIMUM

WHAT STANDARD OF LIVING COULD YOU HAVE?

Covers all your needs, with some left over for fun

More financial security and flexibility

More financial freedom and some luxuries

HOUSE

DIY maintenance and decorating one room a year

Some help with maintenance and decorating each year

Replace kitchen and bathroom every 10/15 years

FOOD

£54 a week on food (including food away from the home)

£74 a week on food (including £144 a week on food (including food away from the home) food away from the home)

TRANSPORT

HOLIDAYS & LEISURE

CLOTHING & PERSONAL

HELPING OTHERS

(£37,300 a year)

No car

3-year old car replaced every 10 years

2-year old car replaced every five years

A week and a long weekend in the UK every year

2 weeks in Europe and a long weekend in the UK every year

3 weeks in Europe every year

Up to £580 for clothing and footwear each year

Up to £791 for clothing and footwear each year

Up to £1,500 for clothing and footwear each year

£20 for each birthday present

£34 for each birthday present

£56 for each birthday present

MODERATE

(£34,000 a year)

COMFORTABLE

COUPLE

(£19,900 a year)

MINIMUM

WHAT STANDARD OF LIVING COULD YOU HAVE?

Covers all your needs, with some left over for fun

More financial security and flexibility

More financial freedom and some luxuries

DIY maintenance and decorating one room a year

Some help with maintenance and decorating each year

Replace kitchen and bathroom every 10/15 years

HOUSE

FOOD

TRANSPORT

HOLIDAYS & LEISURE

CLOTHING & PERSONAL

HELPING OTHERS

(£54,500 a year)

£96 a week on food (including £127 a week on food (including £238 a week on food (including food away from the home) food away from the home) food away from the home) No car

3-year old car replaced every 10 years

Two cars, each replaced every five years

A week and a long weekend in the UK every year

2 weeks in Europe and a long weekend in the UK every year

3 weeks in Europe every year

£460 per person for clothing and footwear each year

£791 per person for clothing and footwear each year

Up to £1,300 per person for clothing and footwear each year

£20 for each birthday present

£34 for each birthday present

£56 for each birthday present

Table: Shares magazine. Source: 2023 Retirement Living Standards report, Pensions and Lifetime Saving Association

25 January 2024 | SHARES | 25

income levels. Pot size to reach different When it comes to the level of pot required to achieve the income you want, the PLSA has had a Retirement Living Standards stab at working out how much you might need to generate the different income tiers. Retirement Living Single Couple (per The results are based on buying an annuity Standard person person) after accumulating funds in a defined contribution Minmum £36,500 £0 pension and, while this is now a more viable option thanks to increased interest rates, the Moderate £248,000 £121,000 assumptions here were made at the peak of Comfortable £530,000 £328,000 annuity rates seen in 2022. They are just a rough guide. It does helps to Based on purchasing an annuity offering £6,200 per £100,000 have figures in your head to shape your goals and encompasses state pension investment plan but a lot can change over time. Table: Shares magazine • Source: 2023 Retirement Living Standards Report, Pensions and Lifetime Savings Association The more you can put away and the longer you can put it to work in the markets the better as you benefit from the compounding effects. This if you stay invested after you stop work, one describes the process whereby investment returns advantage is the value of your investments and any themselves generate future gains. income you derive from them can continue to grow The value of an investment and help beat inflation – whereas increases exponentially because the income from an annuity is fixed growth is earned on the initial sum Very achievable if they (unless you buy an inflation-linked of money plus the accumulated product which pays out a lower supplement the state wealth. The impact of compounding starting rate). Read on for portfolio pension with income becomes immensely powerful if you ideas for someone in the initial from a workplace pension invest over an extended period. stages of their career and getting Whether you opt for an annuity saved through automatic started early with their planning, enrolment during their or stay invested in retirement will someone getting closer to the magic depend on your risk appetite and date and someone already working life personal circumstances. However, in retirement.

”

SIPPS AND PENSIONS THE BASICS A SIPP or self-invested personal pension is the most flexible type of personal pension. It allows you access to a wide range of different investment choices and gives you several options on how you draw your cash when you reach 55 (or 57 from 2028). Pensions benefit from tax relief, so contributing to one can be an effective use of cash that isn’t needed to repay expensive debts or pay bills. Thanks to the generous tax relief on offer, £1,000 paid into a pension will automatically be

26 | SHARES | 25 January 2024

topped up to £1,250 via 20% basic rate tax relief based on the total contribution. Those who pay a higher rate of tax can claim an additional 20% through their selfassessment tax return or by contacting HMRC. If your taxable income is over £150,000, you’ll pay a tax rate of 45% on everything over this threshold. You can claim additional tax relief on that amount - an extra 5%, to give you 45% tax relief in total on all pension contributions

from your income over this threshold. In Scotland slightly different tax rates apply. While SIPPs benefit from up-front tax relief, any income drawn from them is subject to taxation (unlike ISAs). You have three main alternatives at retirement: buy an annuity (an insurance-like product providing an income for life); drawdown regular chunks or income from your pension pot as and when you wish; or take the lot in one go. Or you can opt for a mix of these options. Up to 25% of your pension can be taken tax-free with the rest taxed as normal income.

Planning for retirement

SCENARIO

Assuming you have a decade or more to go until you retire then your priority should be growing your retirement pot as much as possible. For this reason, it is worth taking on a little more risk in order to achieve a higher level of return. The selections below are intended to meet that objective without taking on disproportionate levels of risk.

INVESTMENT IDEAS Fidelity UK Smaller Companies (B7VNMB1) 376.4p Smaller companies typically have more scope for growth albeit with higher levels of volatility, which make them a good fit for someone with a lengthy time horizon. This is a diversified fund made up of around 100 small- and medium-sized UK firms. Manager Jonathan Winton looks for businesses which have slipped under the radar and which might have endured a difficult spell but where he can see scope for improvement. He does not invest in companies which are facing structural decline, and accounting and investigation of cash generation are a key part of his due diligence. Performance has been impressive on a three, five and 10-year view. Top holdings include defence contractor Babcock International (BAB) and support services outfit DCC (DCC). Ongoing charges are 0.92%

JPMorgan Emerging Markets (JEMI) 100.6p Because they are at a different stage of their development, emerging markets have

the potential for faster growth than developed economies, particularly when you consider they typically have more youthful populations. This investment trust is backed by a team of more than 90 research and investment specialists who conduct in excess of 3,000 company visits a year. A focus on quality should help limit some of the governance and financial issues which can dog emerging markets businesses and that is reflected in the trust’s performance. Ongoing charges of 0.84% compare favourably with the peer group. The trust is on a discount to NAV (net asset value) of 12.3%.

Schroder Global Healthcare (B76V7Q0) 257p

Investing in health care has two benefits. Demand is less closely correlated to fluctuations in the economy and, in the West, an ageing population is likely to be a significant driver of demand. This fund, which has an ongoing charge of 0.92%, has a very strong track record. Steered by John Bowler since 2004. It owns some of the names at the forefront of areas like obesity drugs including Eli Lilly (LLY:NYSE) and Novo Nordisk (NOVO-B:CPH).

Planning for retirement retirement portfolio Planning Planning for for retirement portfolio portfolio Fund/trust Fund/trust Fund/trust

Fidelity UK Smaller Companies (B7VNMB1) Fidelity Fidelity UK UK Smaller Smaller Companies Companies (B7VNMB1) (B7VNMB1) JPMorgan Emerging Markets (JMG) JPMorgan JPMorgan Emerging Emerging Markets Markets (JMG) (JMG) Schroder Global Healthcare (B76V7Q0) Schroder Schroder Global Global Healthcare Healthcare (B76V7Q0) (B76V7Q0)

Three-year Three-year Three-year annualised annualised annualised total return total total return return 10.8% 10.8% 10.8% 5.5% 5.5% 5.5% 4.3% 4.3% 4.3%

10-year 10-year 10-year annualised annualised annualised total return total total return return 9.0% 9.0% 9.0% 8.3% 8.3% 8.3% 12.0% 12.0% 12.0%

Yield Yield Yield 2.1% 2.1% 2.1% 1.5% 1.5% 1.5% 0.2% 0.2% 0.2%

Ongoing Ongoing Ongoing charges charges charges 0.92% 0.92% 0.92% 0.85% 0.85% 0.85% 0.92% 0.92% 0.92%

Table: Shares magazine • Source: Morningstar, 19 January 2024 Table: Table: Shares Shares magazine magazine •• Source: Source: Morningstar, Morningstar, 19 19 January January 2024 2024

25 January 2024 | SHARES | 27

SCENARIO

Nearing your retirement date Whichever route you choose to draw on your defined contribution pension, it’s likely you’ll want to build up at least some cash in your pension by selling investments in what is sometimes called the ‘retirement runway’. That’s because most people take their 25% tax free cash at retirement,

for obvious reasons. To limit the risk of a big fall in the market just as you’re about to crystallise your investments to fund this withdrawal, you probably want to build this cash up incrementally. You may also want to dial down your risk, even if you are going to stay invested when you retire.

INVESTMENT IDEAS Allianz Strategic Bond (B06T9362) 139.1p This fund provides a decent stream of income and has historically done a decent job of protecting investors against stock market volatility. An unconstrained mandate means the portfolio can differ significantly from the benchmark. Lead manager Mike Riddell and his team have the flexibility to look at the parts of the global bond market which look most attractive. This can include everything from government bonds to corporate bonds, inflation-linked bonds and emerging markets debt. What also helps is Allianz is the largest investor in bonds in Europe so the fund is backed by significant resources and expertise. The ongoing charge is a reasonable 0.44% a year.

Brunner (BUT) £11.35 We think this trust’s balanced approach makes it a sensible option for someone looking to reduce their risk profile in the run-up to retirement while still benefiting from some of the growth potential offered by the stock market.

Investing in global stocks, Brunner has a record of delivering consistent returns across market cycles. The shares currently trade at an 11.9% discount to NAV. The ongoing charge is 0.63%. The focus is on attractively-valued quality companies which enjoy big market shares, pricing power, strong balance sheets and a sustainable competitive advantage. There is also a focus on tapping into structural growth trends.

VT Argonaut Absolute Return (B7FT1K7) 275.9p Run by Barry Norris, well-known in investment circles as taking a contrarian view, the fund has a strong track record. Norris employs an ‘earnings surprise’ stock picking method which, as its moniker suggests, looks to identify companies which can deliver positive surprises on earnings. Norris has the flexibility to go short (bet against) stocks he thinks will fail as the fund aims to provide positive absolute returns over a three-year rolling period regardless of market conditions. The portfolio has 51 long holdings and 33 short holdings and the ongoing charge is 0.81%.

Nearing your retirement date portfolio Nearing Nearing your your retirement retirement date date portfolio portfolio Fund/trust Fund/trust Fund/trust

Allianz Strategic Bond (B06T936) Allianz Allianz Strategic Strategic Bond Bond (B06T936) (B06T936) Brunner (BUT) Brunner Brunner (BUT) (BUT) VT Argonaut Absolute Return (B7FT1K7) VT VT Argonaut Argonaut Absolute Absolute Return Return (B7FT1K7) (B7FT1K7) Table: Shares magazine • Source: Morningstar, 19 January 2024 Table: Table: Shares Shares magazine magazine •• Source: Source: Morningstar, Morningstar, 19 19 January January 2024 2024

28 | SHARES | 25 January 2024

Three-year Three-year Three-year annualised annualised annualised total return total total return return 9.9% 9.9% 9.9% 14.1% 14.1% 14.1% 12.0% 12.0% 12.0%

10-year 10-year 10-year annualised annualised annualised total return total total return return n/a n/a n/a 11.6% 11.6% 11.6% 6.1% 6.1% 6.1%

Yield Yield Yield 4.3% 4.3% 4.3% 1.8% 1.8% 1.8% 2.5% 2.5% 2.5%

Ongoing Ongoing Ongoing charges charges charges 0.44% 0.44% 0.44% 0.63% 0.63% 0.63% 0.81% 0.81% 0.81%

SCENARIO

Staying invested in retirement If you opt to go into drawdown rather than purchasing an annuity, providing a guaranteed income for life, then it makes sense to have an eye towards growth as well as income. Current UK life expectancies mean a 65-year-old man could expect to enjoy nearly 20 years of retirement and a woman of the same age a little more

than two decades. We have therefore created this hypothetical portfolio with a look towards regular income (including an instrument which pays monthly income) alongside the potential for capital appreciation. At the same time, we have avoided investments at the higherrisk end of the spectrum.

INVESTMENT IDEAS Jupiter Monthly Income Bond (B1XG8Y1) 98p A fund offering monthly income is useful as it can provide you with means to meet at least some of your regular outgoings in retirement. The fund employs a balanced approach to a portfolio of largely (more than 90%) corporate bonds. It has delivered a solid performance over the medium to long term, achieving top quartile performance over three, five and 10 years, and has an ongoing charge of 0.65%. The yield is more than 6%.

STS Global Income & Growth (STS) 215p

The investment manager behind this trust, Troy Asset Manager, adopts an inherently cautious approach to markets and this is reflected in the way it seeks to achieve income and growth from global stocks. A concentrated portfolio of 31 names, made up of solid corporate citizens which do not require huge amounts of capital to grow and, as a result, have the capacity to pay out generous dividends. Steered by James Harries and Tomasz Boniek, the managers are on the lookout for businesses

with robust balance sheets and clear competitive advantages. Holdings include US payroll services firm Paychex (PAYX:NASDAQ) and consumer goods company Reckitt Benckiser (RKT). The ongoing charge is 0.94% and the trust trades at a modest discount to NAV of 3.2%.

Royal London Global Equity Income (BL6V111) 152p

This fund employs the same well-tested investment approach of Royal London’s other global funds. This involves a ‘Corporate Life Cycle’ framework, built on the assumption corporate returns on productive capital and growth tend to progress along a life cycle and every company can be located economically in one of five corporate life cycle categories. These include early-stage accelerators and growth compounders as well as more mature returners and turnarounds. This helps it to perform well across different market backdrops. Holdings include North Carolina-headquartered trucking outfit Steel Dynamics (STLD:NASDAQ) and European aircraft engine maker UnitedHealth (UNH:NYSE). The ongoing charge is 0.7%.

Staying invested in retirement portfolio Staying Staying invested invested in in retirement retirement portfolio portfolio Fund/trust Fund/trust Fund/trust

Royal London Global Equity Income (BL6V111) Royal Royal London London Global Global Equity Equity Income Income (BL6V111) (BL6V111) Jupiter Monthly Income Bond (B1XG8Y1) Jupiter Jupiter Monthly Monthly Income Income Bond Bond (B1XG8Y1) (B1XG8Y1) STS Global Income & Growth (STS) STS STS Global Global Income Income & & Growth Growth (STS) (STS)

Three-year Three-year Three-year annualised annualised annualised total return total total return return 14.6% 14.6% 14.6% 1.4% 1.4% 1.4% 4.5% 4.5% 4.5%

10-year 10-year 10-year annualised annualised annualised total return total total return return n/a n/a n/a 3.4% 3.4% 3.4% 7.7% 7.7% 7.7%

Yield Yield Yield 2.9% 2.9% 2.9% 6.4% 6.4% 6.4% 2.8% 2.8% 2.8%

Ongoing Ongoing Ongoing charges charges charges 0.72% 0.72% 0.72% 0.65% 0.65% 0.65% 0.94% 0.94% 0.94%

Table: Shares magazine • Source: Morningstar, 19 January 2024 Table: Table: Shares Shares magazine magazine •• Source: Source: Morningstar, Morningstar, 19 19 January January 2024 2024

25 January 2024 | SHARES | 29

Feature: Property Sector

Why falling interest rates could be a ‘harbinger of boom’ for commercial property Marcus Phayre-Mudge, manager of TR Property, explains his thinking

hile it was founded over a century ago as a general investment trust, since 1984 TR Property (TRY) has focused exclusively on analysing the UK and European property sectors looking for the most profitable and attractive companies. The FTSE 250 company currently has exposure to 12 European countries, including the UK, through holdings in over 60 stocks and funds as well as a small number of direct property investments. Marcus Phayre-Mudge, who has managed TR Property since 2011, was formerly an investment surveyor at Knight Frank and qualified as a Chartered Surveyor over 30 years ago, giving him an unequalled insight into the UK property market alongside his skills as an investment manager. After the property sector across Europe struggled

30 | SHARES | 25 January 2024

in 2022 and 2023 due to the steep rise in interest rates, Phayre-Mudge is convinced 2024 will see it return to favour, for several reasons. Shares sat down with him to hear why. INTEREST-RATE SENSITIVITY ‘Listed real estate has acted as the ghost of Christmas future, pricing in higher interest rates early and ruthlessly – ultimately leading to overselling of the sector as a whole,’ says the manager. Not only have institutional investors been running scared of property stocks, hedge funds and other sources of ‘fast money’ have come into the market and shorted the sector since the pandemic, he believes, with the result that European listed real estate has rarely traded at

Feature: Property Sector

TR Property Top 10 Sector Allocations Sector

% of NAV

Industrial

20.9

German Residential

16.4

European shopping centres

11.0

Swiss Diversified

8.1

UK Majors

7.8

French Offices

7.6

UK Diversified

7.1

Swedish Diversified

6.9

Spanish Diversified

4.1

Nordic Residential

3.5

Table: Shares magazine • Source: TR Property, data correct as of 29 December 2023

such large discounts. ‘Historical data shows that as discounts widen, average future returns for listed real estate tend to rise. An even more crucial consideration for 2024 is that when interest rates peak, property equities recover much more sharply than the wider stock market. ‘The missing piece of the puzzle is that we don’t know exactly when this peak will come, with the game of “will they, won’t they” surrounding central bankers truly alive and well. But the past 18 months have proven once again just how sensitive listed property is to interest rates, and now comfort for this rate-induced scare is appearing in the near distance.’ Judging by the upward move in markets over the year-end, investors may have got ahead of themselves somewhat in discounting the speed and timing of rate cuts. December’s higher-than expected UK inflation hasn’t helped sentiment, but the consensus seems to agree higher prices for some goods were the result of one-off factors and the ‘direction of travel’ for both inflation and interest rates remains downward.

SECTOR IS BETTER CAPITALISED Going into the great financial crisis a decade and a half ago, it’s fair to say there was an excess of leverage across the global economy. The cycle which took place following the crisis ‘was characterized by large deleveraging of banks, governments, consumers and firms all at the same time, which was hugely disinflationary’, with the effects of this felt throughout the following decade says Felipe Villaroel, partner of fixed income boutique manager TwentyFour. Today, ‘banks are in good shape, governments are running very large deficits and consumers and firms have solid balance sheets for the most part,’ adds Villaroel. It’s tempting to say no sector felt the unwanted effects of having to deleverage more than real estate. ‘Valuable lessons were learned in the global financial crisis and excessive leverage is now largely avoided in the listed sector, especially in the UK,’ confirms Phayre-Mudge. Therefore, ‘as an additional safety net, investors can hunt for businesses that have balance sheets which can withstand interest rates remaining at current levels’ says the manager.

25 January 2024 | SHARES | 31

Feature: Property Sector

TR Property Performance 2019

2020

2021

2022

2023

Fund NAV

28.3%

−3.2%

18.7%

−32.4%

17.0%

Share Price

41.4%

−12.0%

23.5%

−35.6%

18.3%

Benchmark

21.3%

−5.7%

11.1%

−33.0%

13.6%

Table: Shares magazine • Source: TR Property, data correct as of 29 December 2023

MAXIMUM BANG FOR HIS BUCK The trust is currently tilted towards Continental European property shares, which make up 72% of the £1.15 billion portfolio, while UK shares make up just under 36% and 6% is invested directly in UK assets. Eagle-eyed readers will have spotted that the percentages above come to 114% - this is because for the first time in many moons Phayre-Mudge is himself using debt to leverage the trust’s returns. ‘We have the ability to run up to 20% of the fund in cash, and at the other extreme to use as much as 20% leverage,’ explains the manager. ‘Before the great financial crisis we had the maximum amount of cash, whereas today we’re using leverage, which tells you which way we think

TR Property Top 10 Holdings Company

©Picton

% of NAV

Vonovia

10.0

Klepierre

5.5

Gecina

5.4

Land Securities

5.4

PSP Swiss Property

5.2

Castellum

4.1

Fastighets Balder B

3.5

Sagax B

3.4

Picton Property Income

3.4

Argan

3.3

Table: Shares magazine • Source: TR Property, data correct as of 29 December 2023

32 | SHARES | 25 January 2024

markets are going.’ The trust’s biggest exposure is to European industrial property, shopping centres and residential assets, with limited exposure either to offices or the retail sector. Of the top 10 holdings by NAV (net asset value), just two are in the UK – Land Securities (LAND) and Picton Property Income (PCTN). While he doesn’t expect interest rates to fall sharply this year, the fact they are not rising, combined with rising rents and stable margins thanks to strong demand and lack of supply in key markets, means the sector is set for a revival says the manager.

By Ian Conway Deputy Editor

Finding Compelling Opportunities in Japan Asset Value Investors (AVI) drives positive change through active engagement

Asset Value Investors (AVI) has managed the c.£200m* AVI Japan Opportunity Trust (AJOT) since 2018. The strategy over the five years has been to buy quality companies and engage with management on increasing shareholder value. AJOT’s focus is on small-cap companies with excess cash. The concentrated portfolio of 20-25 stocks are all companies that have been thoroughly examined by the investment team to find value, quality, and an event to realise the upside. Corporate governance reform has strengthened over the past five years and is a major driver of value realisation in the Japanese stock market. As Japanese companies have become more focussed on improving profitability and efficiency, AJOT’s strategy is now more relevant than ever.

Japan is no longer a value trap and there are many reasons to consider Japan now: Interesting macroeconomic backdrop with a cheap currency, sustained inflation, and moderate wage pressure. Improving corporate governance since the introduction of the Corporate Governance and Stewardship Codes.

AJOT targets high-quality companies with strong business fundamentals to avoid value traps. Our event-driven engagement strategy to unlock value is supported by an experienced investment team undertaking bottom-up research. AJOT has a well-defined, robust investment philosophy in place to guide investment decisions. Our

aim is to be a constructive, stable partner and to bring our expertise – garnered over decades of investing in Japan to realise value. AJOT’s track record since launch bears witness to the success of this approach, with a NAV** total return well in excess of its benchmark.** We believe that this strategy remains as appealing as ever and we continue to find plenty of exciting opportunities.

The Tokyo Stock Exchange is putting pressure on companies trading on low price to book ratios to improve. Opportunity set in undervalued,small-cap and cash rich companies.

Discover AJOT at www.ajot.co.uk *As at 31 December 2023 **23OCT2018 - 31DEC2023 AJOT NAV TR +40.5% vs MSCI Jap Sm Cap +16.2% (GBP returns) 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.

Case Study: How I invest

From stage and screen to stocks and shares – Beth shares how she has started her investment journey The twentysomething actress started investing during the pandemic after a chat with her dad

wentysomething Beth started her investment journey during the pandemic after chatting with her dad who is an experienced investor. Prior to that investing was ‘never on her radar’. Beth’s parents opened a Stocks & Shares ISA for her with investment platform AJ Bell and this is how she primarily invests. She also has a Lifetime ISA – a tax free savings product available to the under-40s which can be used to save for your first home and retirement. Beth hopes her ISA will ‘compound’ over the long term by using her active investment strategy. WHERE DID IT ALL START? Beth used her free time during the pandemic in 2020 and 2021 to learn about investing in the stock market, particularly those areas of interest to her. This largely includes UK-listed stocks across the range of market valuations. ‘One of my biggest investment wins was in investing in Marks & Spencer (MKS) over a year ago when its turnaround story was becoming more compelling,’ she explains. She readily admits that the last three

34 | SHARES | 25 January 2024

EXAMPLES OF HOLDINGS IN BETH’S PORTFOLIO

Molten

Marks & Spencer

Card Factory

Renold Graphic: Shares magazine. Source: Investor’s own records

years have been volatile for her portfolio due to uncertain market conditions. When planning her ISA, she restricts herself to 20 holdings at a time. Interestingly she prefers to buy individual shares over funds. ‘‘I prefer buying stocks as I feel I can understand them better whereas funds contain many individual holdings,’ she says. WHAT DOES BETH INVEST IN? Beth doesn’t believe in investing in cryptocurrencies and is currently ignoring the noise about this now. ‘I prefer to invest in solid asset-backed companies over crypto and at the moment I’m happy with my levels of risk. I also want to keep a sensible amount of cash in savings [as a buffer],’ says Beth. Beth has a focus on UK high street retailers, cosmetics, and fast fashion. ‘My biggest regret was not selling Boohoo (BOO:AIM) sooner after doubling my return on investment. ‘I didn’t notice that Boohoo’s growth was slowing, and it was losing market share to Chinese low-cost fashion retailer Shein.’ To broaden her knowledge about stocks and shares she reads the business

Case Study: How I invest pages of national newspapers like the Times and the Telegraph and watches online webinars about investing. Beth doesn’t read any publications focused on ‘tipping’ any particular stocks. She also follows a few individuals on social media. These include Richard Crow a self-described 24-year-old ‘pro-investor trader’ on X (formerly Twitter) called ‘Cockney Rebel’ who largely discusses retail stocks.

LIFETIME ISA IN A NUTSHELL To open an account, you must be 18 or over but under 40, and you can pay in up to £4,000 per year as part of your £20,000 annual ISA limit until you are 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. In theory, therefore, if you pay in £4,000 every year from age 18 to age 50 you could get a ‘free’ £32,000 from the government on top of your original savings of £128,000. Once you turn 50, you can’t pay into your Lifetime ISA or earn the 25% government bonus but your account stays open and earns interest or investment returns. You can hold cash, shares, or a mixture of them, and you get all the usual ISA benefits such as no tax on income and capital gains but there are strict rules on withdrawals. You can only withdraw money if you are: • Buying your first home; • Aged 60 or over; • Terminally ill with less than 12 months to live. If you withdraw cash or assets for any other reason, you must pay a 25% charge based on your total pot.

MAKING PLANS FOR THE FUTURE Beth believes it is important for people her age to start investing now thus giving them a long investment horizon of 30 years or more. ‘I’m passionate about investing, it is empowering and not enough people my age invest maybe due to lack of cash or just don’t know enough,’ says Beth. She adds that people shouldn’t ‘underestimate the power of time in the market and compound growth’. As Beth has recently bought a property in southwest London with the help of deposit money from her parents, she will be focusing on home improvements in the near term. ‘However, I really enjoy investing using my ISA and I am hoping to grow my savings over time, perhaps buy a car with cash and achieve financial freedom in years to come.’ DISCLAIMER: Please note, we do not provide financial advice in case study articles, and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply. AJ Bell referenced in this article owns Shares magazine. The author (Sabuhi Gard) and editor (Tom Sieber) of this article own shares in AJ Bell.

By Sabuhi Gard Investment Writer

25 January 2024 | SHARES | 35

Emerging markets outlook Sponsored by Templeton Emerging Markets Investment Trust

As BRICS grouping grows find out which of the original members has done best A divergence in performance has become more pronounced in recent years

t may have started off as an acronym to describe the main emerging markets in the early noughties but Brazil, Russia, India and China have co-opted the term to create an alliance over the last decade or so bringing South Africa into the fold. This BRICS alliance just added new members to the fold in the form of Egypt, Iran, Ethiopia, Saudi Arabia and United Arab Emirates. But looking at the performance of the four original members – Brazil, Russia, India, China – over the last decade is an interesting exercise – with Russia something of an outlier for obvious reasons – and instructive given the weight they carry in the emerging markets universe. For China we have used the CSI 300 index which could be considered a better gauge for Chinese stocks than the SSE Composite index. A similar exercise two years ago revealed India as the clear winner, with China a close second and Brazil in third. Looking at the last decade though, Brazil and China have swapped places. India remains out in front with upcoming elections this spring likely to reinforce the position of the ruling BJP party and its leader Narendra Modi. Both are seen as playing a key role in delivering economic and market reforms in the country. This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit www.temit.co.uk

36 | SHARES | 25 January 2024

BRIC: how the big emerging markets have performed over the last decade 264% 250%

200 163% 150

100 51.5%

S&P BSE 100 Bovespa Index (India) Stock Index (Brazil)

CSI 300 Index (China)

Russian Trading System Index (Russia) −14.3%

Chart: Shares magazine • Source: SharePad, 17 January 2023

Emerging markets outlook Sponsored by Templeton Emerging Markets Investment Trust

Emerging markets: positive 2024 outlook for stocks and earnings as voters go to the polls Three things the Franklin Templeton emerging markets team are thinking about right now

We are constructive on equity markets in 2024. Drivers include consensus expectations for a recovery in earnings growth, the likelihood of a soft economic landing in the United States, and evidence that interest rates have peaked. Over the past 30 years, emerging market equities have on average risen 14% in the 12 months following the first Federal Reserve (Fed) rate cut. In 2024, more than four billion people will take part in elections, starting with Taiwan in January and culminating with the United States in November. Voters will also go to the polls in India, Indonesia and Mexico, as well as in other countries. The Indian election in April-May is expected to see the incumbent Bharatiya Janata Party (BJP) party returned to power, as the benefits from widespread reforms continue to cascade down to households and companies. Consensus expectations call for a recovery in global earnings growth in 2024. Emerging market earnings growth is expected to accelerate to 18% in the year ahead, driven by South Korea and Taiwan. This represents a sharp recovery from the contraction in 2023. Price to earnings (PE) valuations for emerging market equities remain below their long-term averages. On a relative basis, the PE gap between emerging market and global equities is close to its highest level in over 20 years. Faster earnings growth in emerging markets relative to global equities may act as the catalyst to reverse the valuation discount.

2. 3.

TEMPLETON EMERGING MARKETS INVESTMENT TRUST (TEMIT)

Porfolio Managers

Chetan Sehgal Singapore

Andrew Ness Edinburgh

TEMIT is the UK’s largest and oldest emerging markets investment trust seeking long-term capital appreciation.

Are you an Emerging Markets Guru? 10 quick questions – some amazing answers. Take the quiz and see how you score. 25 January 2024 | SHARES | 37

Editor’s View: Tom Sieber

Why there could be a little too much optimism around right now Economic forecasters do not have a great track record and the outlook remains uncertain

anadian American economist John Kenneth Galbraith once observed that ‘the only function of economic forecasting was to make astrology look respectable’. His words came to mind when great credence was given to the EY ITEM Club lifting growth forecasts for the UK recently. There is hardly an abundance of exuberance on display, yet the new Winter Forecast sees the growth outlook upgraded from the 0.7% predicted in October to a still sluggish 0.9%. There is more striking optimism on inflation, which is expected to fall to the Bank of England’s target of 2% by May and average 2.4% through 2024 compared with the previous forecast of 2.9%. Off the back of this, 125 basis points (1.25%) of rate cuts are expected from the Bank of England, and this is expected to feed into an improved outlook for house prices and consumer spending, two especially important contributors to UK growth. An improved outlook for the property market has been heavily priced into FTSE 350 housebuilder shares which are up nearly 35% on average over the last three months. Morgan Stanley thinks the market may have got carried away, observing: ‘Even if mortgage rates materially corrected, volume recovery is capped by planning bottlenecks and labour availability.’ If a surfeit of optimism is apparent at a sector and industry level, it might be emerging at a broader

38 | SHARES | 25 January 2024

level too. Quoting Galbraith’s wry observation is not intended to ridicule the role of any forecaster, not least EY ITEM Club. There is value in looking at what they have to say and, in particular, why they are saying it. But, more than ever, the backdrop is fraught with uncertainty. Geopolitical tensions are already feeding into renewed inflationary pressures as shipping costs surge off the back of disruption to routes through the Red Sea thanks to attacks by Houthi rebels. Middle East tensions are also sustaining higher energy prices which, as this column observed a couple of weeks back, might otherwise have fallen more sharply given the supply and demand picture. The impact of the sharp increase in rate hikes since late 2021 has still not been fully absorbed by businesses and individuals alike. Many homeowners are still to roll off their fixed-rate mortgages on to higher rates and, as the latest Red Flag Alert from insolvency consultant Begbies Traynor (BEG:AIM) shows, 47,000 UK businesses are teetering on the brink. According to the report, the levels of ‘critical’ financial distress increased by around a quarter for a second three-month period in a row, while a much larger number of firms – more than half a million – are in ‘significant’ financial distress. These companies really need rate cuts, and soon. It remains an open question whether the Bank of England will deliver.

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Russ Mould: Insightful commentary on market issues

Discover the most and least popular stocks heading into 2024 Which names are in favour with analysts and which they are shunning?

very year this column tracks the ratings put on stocks across the FTSE 100 and FTSE 350 by the investment banks which provide research on the UK equity market. What catches the eye this year is that the analyst community is the most bullish (and least bearish) it has ever been since our first survey back in 2015, based on stock-specific, public recommendations. Analysts have become progressively more bullish over the past three years. While this does not look so smart in terms of the UK market’s sluggish overall performance, it makes sense, as the FTSE 100 and FTSE 350 continue to lag their global peers and thus become progressively cheaper on a relative basis (and an absolute one, as earnings and dividends continue to grow). As we enter 2024, 59% of all stock ratings are buys and just 8% are sells for constituents of the FTSE 100, the highest and lowest scores in a decade. For the FTSE 350 index 62% of all recommendations are positive ratings and just 7% are negative, again the highest and lowest scores since 2015. We are not endorsing these views, but investors could be forgiven for wondering whether this is a signal to buy more London-traded stocks or actually a warning to cut exposure to UK equities. Momentum players may feel inclined to stick with US equities and join the herd in running with the ‘Magnificent Seven’ US tech stocks. Contrarians may take to heart Mark Twain’s maxim that: ‘Whenever you find yourself on the side of the majority it is time to pause and reflect.’ This might lead them to ponder whether the analysts are on to something as they champion the unloved, and thus potentially undervalued, UK stock market. One way to research which path may be the best one to follow is to assess the efficacy of individual analyst recommendations.

40 | SHARES | 25 January 2024

A GOOD YEAR This column has back-tested the performance of the most and least popular stocks at the start of a year, as measured by the percentages of ‘buy’ and ‘sell’ ratings attributed to them by analysts. The good news is that the most popular picks outperformed the FTSE 100 in 2023 (after similar success in 2019) to suggest there may be some truth in the idea that the huge flows of money into passive instruments such as exchange-traded funds (ETFs) mean there are opportunities for skilled stock-pickers. Sceptics will counter by saying that the least popular FTSE 100 stocks with analysts, as ranked by the percentage of ‘sell’ ratings attributed to them, went up more than the most popular ones and the index overall. Analysts will take less satisfaction from how their labours worked out across the FTSE 350. When it came to the broader index, the most popular selections marginally underperformed the index and the least popular ones outperformed hugely. This is not to poke fun. It just shows how hard picking individual stocks can be, even if it is your full-time job (and this column should know, having been an equity analyst at a leading investment bank from 1993 to 2005). No analyst sets off with the intention of joining the consensus. It just so happens that their views shape that consensus and almost by definition the consensus is priced in quickly, so if anything unexpected happens (as it tends to) then share prices will diverge from the anticipated path. HIGH CONVICTION The ultimate conclusion still probably has to be that broker research needs to be treated with a degree of caution (assuming that investors can get their hands on it in the first place), certainly in the cases where stocks seem universally popular. Anyone prepared to pick their own stocks rather

Russ Mould: Insightful commentary on market issues

Analysts are more bullish than ever on FTSE 100 and FTSE 250 stocks as we enter 2024

FTSE 100 Buys Holds Sells

13%

14% 47%

45%

47% 40%

39%

2015

14%

16% 46%

54%

35%

38%

2020

52%

36%

2017

2018

2019

33%

2021

49% 37%

40%

2016

12%

14%

15%

57%

34%

2022

57%

32%

59%

2023

2024

Average 2015-2024: Buys - 51.5%, Holds - 36.4%, Sells - 12.5% Data as of 9 January 2024. Rounded to nearest % Chart: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

FTSE 350 Buys Holds Sells

12%

12% 49%

39%

2015 14% 47% 39%

2020

47%

48% 40%

48% 38%

39%

2016

2017

2018

12%

54%

35%

32%

2021

11%

13%

15%

59%

2019

30%

32%

2022

51%

38%

60%

2023

62%

2024

Average 2015-2024: Buys - 52.6%, Holds - 36.1%, Sells - 11.3% Data as of 9 January 2024. Rounded to nearest % Chart: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

than pay a fund manager or index-tracker fund to do it for them simply must do their own research on individual companies before they even think about buying or selling any of its shares. In sum, Warren Buffett seems spot on with his observation that, ‘you cannot buy what is popular and do well’. The stunning performance of the Magnificent Seven in America will put that to the test once more in 2024 and, closer to home, investors might

like to know which stocks are most liked – and disliked – by analysts at the start of 2024. The tables below list the names which investors may wish to analyse in greater depth, or simply avoid altogether, depending upon their view of the value of the research provided. By Russ Mould Investment Director at AJ Bell 25 January 2024 SHARES | 41

Russ Mould: Insightful commentary on market issues

Brokers’ top FTSE 100 picks beat the index in 2023 (but so did the least popular names)

FTSE 100 most popular by Buys in 2023 Buy

Hold

Sell

%Buy

2023 total return

CRH

100%

Shell

95%

5.0%

Endeavour Mining

93%

6.8%

JD Sports Fashion

93%

Smurfit Kappa

91%

Prudential

90%

Entain

89%

Glencore

89%

Beazley

88%

86.5%

32.4% 8.3% −20.1% −24.8% −13.3% 85.5% −23.2%

Total

14.3%

FTSE 100 total return

7.9%

Data as of 6 January 2023, 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, Marketscreener

FTSE 100 least popular by Sells in 2023 Buy

Hold

Sell

%Sell

abrdn

60%

Kingfisher

37%

Rolls Royce

31%

Sainsbury

31%

45.9%

Bunzl

28%

18.0%

Ocado

28%

23.0%

Severn Trent

25%

Sage

24%

Vodafone

24%

Rightmove

23%

Total

2023 total return 2.1% 8.8% 221.6%

1.4% 60.9% −9.6% 14.3% 38.6%

Data as of 6 January 2023, 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, Marketscreener

42 | SHARES | 25 January 2024

Russ Mould: Insightful commentary on market issues

Brokers’ top FTSE 350 picks did not beat the index and the least popular names did in 2023

FTSE 350 most popular by Buys in 2023 Buy

Hold

Sell

%Buy

Centamin

100%

Future

100%

Grafton

100%

Network International

100%

Diversified Energy

100%

Energean

100%

CRH

100%

Hill & Smith

100%

IG Group

100%

NCC

100%

2023 total return −8.3% −37.1% 20.1% 30.8% −43.6% −13.1% 86.4% 66.6% 4.5% −33.2%

Total

7.3%

FTSE 350 total return

7.9%

Data as of 6 January 2023, 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, Marketscreener

FTSE 350 least popular by Sells in 2023 Buy

Hold

Sell

%Sell

2023 total return

abrdn

60%

2.1%

Ashmore

45%

1.6%

TUI

43%

−20.0%

Kingfisher

37%

8.8%

easyJet

33%

Rolls Royce

31%

Sainsbury

31%

45.9%

ASOS

30%

−16.6%

Bunzl

28%

18.0%

Ocado

28%

23.0%

57.1% 221.6%

Total

34.1%

Data as of 6 January 2023, 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, Marketscreener

25 January 2024 SHARES | 43

Russ Mould: Insightful commentary on market issues

The 10 most and least popular FTSE 100 stocks with analysts at the start of 2024

FTSE 100 most popular by Buys in 2024 Buy

Hold

Sell

%Buy

Endeavour Mining

100%

Smurfit Kappa

100%

Beazley

94%

AstraZeneca

91%

DCC

91%

Melrose Industries

91%

Prudential

89%

Airtel Africa

89%

Intermediate Capital Group

86%

Data as of 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

FTSE 100 least popular by Sells in 2024 Buy

Hold

Sell

%Sell

Bunzl

Admiral Group

Ocado

Severn Trent

Kingfisher

28%

Spirax-Sarco Engineering

27%

Unilever

26%

Sage

25%

Sainsbury

25%

Antofagasta

24%

Data as of 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

44 | SHARES | 25 January 2024

38% 36% 33% 31%

Russ Mould: Insightful commentary on market issues

The 10 most and least popular FTSE 350 stocks with analysts at the start of 2024

FTSE 350 most popular by Buys in 2024 Buy

Hold

Sell

%Buy

OSB Group

100%

Endeavour Mining

100%

Smurfit Kappa

100%

Inchcape

100%

Morgan Advanced Materials

100%

Serco

100%

Energean

100%

Grainger

100%

Hochschild Mining

100%

Bytes Technology

100%

Data as of 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

FTSE 350 least popular by Sells in 2024 Buy

Hold

Sell

%Sell

abrdn

Hammerson

AO World

Renishaw

38%

Bunzl

38%

Admiral Group

Hargreaves Lansdown

33%

Ocado

33%

Ninety One

33%

Ashmore

33%

57% 47% 40%

36%

Data as of 9 January 2024 Table: Shares magazine • Source: LSEG Datastream data, analysts consensus, London Stock Exchange

25 January 2024 SHARES | 45

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Personal Finance: ISA changes

Get ahead of the big ISA changes coming soon Tax wrappers to get a spring clean for the new tax year

hank you to Shares reader Thomas, who suggested we cover the ISA changes announced in the Autumn Statement. If you also want to get ahead with next year’s ISA planning, here is a reminder of what is happening from 6 April 2024. ALLOWANCES STAY THE SAME The ISA allowances have been frozen for 2024/25. That adds up to a total of £20,000 across all your ISAs – including the £4,000 limit for Lifetime ISAs – and a Junior ISA allowance of £9,000. FLEXIBILITY TO PAY INTO MULTIPLE ISAS OF THE SAME TYPE

That could be a direct debit into a Stocks & Shares ISA on one investment platform, and later in the year a ‘Bed and ISA’ on another, to move investments into another ISA there. Cash ISA savers might want to mix and match between an easy access cash ISA with one provider and locking in a fixed term account with another. There are two things to keep in mind though: • The flexibility will not be extended to Lifetime ISAs; and • You will need to keep a close eye on your multiple ISAs to make sure you do not bust your overall allowance.

investments bought with money you paid in this year, you will have to move it all at once. NO NEED TO REAPPLY FOR DORMANT ISAS Getting rid of this little known rule makes it easier to pay into ISAs that are already open. You might have been asked to ‘reapply’ for existing ISAs in the past – an ISA is dormant if no money has been paid in into it for a whole tax year. INNOVATIVE FINANCE ISAS EXTENDED You will soon be able to invest in long term asset funds (LTAFs) and open-ended property funds with redemption periods in the Innovative Finance ISA. HMRC figures show that this type of ISA made up only 0.13% of the ISAs paid into last year so this new home for these unloved property funds looks little more than a marriage of convenience. Fractional shares to come? The Government plans to consult on allowing certain fractional shares in ISAs. This could be good news for investors who want to buy into some of the big US brands that are currently out of reach for smaller, regular investments due to their share price.

GOODBYE TO TRANSFER RED-TAPE From 6 April, you will be able to transfer as much (or as little) as you want between different providers. Right now, if you want to transfer cash and

Charlene Young Pensions and Savings Expert

25 January 2024 | SHARES | 47

Ask Rachel: Your retirement questions answered

I’m approaching 75 what should I do with my SIPP? Helping with a query on the rules around pensions and inheritance tax My wife and I are both retired with excellent private and state pensions which more than cover our lifestyle. I am 74 years old. I also have another SIPP pension of £350,000 which I have not drawn down. If I do nothing, will I lose the chance to draw 25% (£87,500) of the pension tax free? I know that if I die before I am 75 my family will be able to draw on the pension tax free. However, once I reach 75, they would have to pay tax at their marginal rate. Our estate will be valued at more than £1 million so it is important the remaining SIPP pension would not be part of our estate. Brendan Rachel Vahey, AJ Bell Head of Public Policy, says:

Under pension rules, someone’s 75th birthday has always been an important milestone. That was because it meant a further test against the lifetime allowance of any untouched pension funds, plus any investment growth in drawdown plans. That test has effectively been dropped for this tax year and will be gone completely from April. But age 75 remains a key date. If someone dies before this birthday, then any lump sums paid out 48 | SHARES | 25 January 2024

to their beneficiaries will normally be tax free up to a £1,073,100 limit, and any income paid out to them, say from their drawdown plan, will normally be completely tax free. If the pension saver died on or after this birthday, then any lump sums or income paid out would be subject to income tax. Pension savers can usually take up to 25% of their pension fund as a tax-free lump sum. There is nothing stopping people from taking this lump sum after their 75th birthday. It should still be available (although you should check the pension scheme rules allow this). PROS AND CONS There are, as you have identified, pros and cons to taking the tax-free lump sum, where someone doesn’t need the funds. If they keep it in the pension, then it can grow in a tax-efficient environment. It will also be shielded from inheritance tax. The pension saver can identify who they want to benefit from the pension funds. And although it will be subject to income tax (if the pension saver dies after age 75), the beneficiary can decide how and when to take the funds. For example, instead of passing the funds to a spouse who doesn’t need them, or an adult child, someone may want to leave it to a grandchild who isn’t currently paying income tax, or who is a low earner. They can then manage their withdrawals to

Ask Rachel: Your retirement questions answered

keep down any additional tax bill. It’s important if a pension saver wants to leave the funds to someone other than a dependant (usually their spouse or any of their children aged under 23), that they complete a nomination form making their preferences clear. And review this on a regular basis. Taking the 25% lump sum means getting it tax free. But it will fall into the pension saver’s estate for inheritance tax purposes. GIFTING CASH The money can be gifted to others. Everyone is entitled to give away up to £3,000 a year as a gift free of inheritance tax. And there are other gifts which can be made on top of that – such as to help pay for a wedding. Gifts can also be made tax-free as part of a normal pattern of expenditure, where they are paid from surplus income each year whilst the person retains sufficient income to maintain their normal standard of living.

And finally, a potentially exempt transfer - or PET – means if someone decided to make a gift above the £3,000 annual gift allowance then the funds would only become chargeable to inheritance tax if the person didn’t survive for seven years from the date of the gift. So, deciding whether to gift any pension tax-free lump sum may also depend on the pension saver’s health, if they want it to count as a PET.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES? Send an email to askrachel@ajbell.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares. Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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Index

Main Market

Overseas shares

Temenos

Aviva

Advanced Micro Devices

Alphabet

Burberry

Amazon

Cranswick

16, 18

Diageo

Glencore

Hargreaves Lansdown

HSBC

Land Securities

Marks & Spencer

17, 34

ARM

Rightmove

Birkenstock

Sainsbury's

CoStar

Datadog

Eli Lilly

Fortinet

17 AIM

Begbies Traynor

Boohoo

Fevertree Drinks

Microsoft

11, 16

Moncler

Novo Nordisk

Nvidia

9, 11, 15, 18

Palo Alto

Recordati

Shopify

Steel Dynamics

Super Micro Computer

STS Global Income & Growth

TR Property

30 Funds

Allianz Strategic Bond

UnitedHealth

Verisign

Fidelity UK Smaller Companies Fundsmith Equity

Jupiter Monthly Income Bond

Royal London Global Equity Income

Schroder Global Healthcare

VT Argonaut Absolute Return

Brunner

Finsbury Growth & Income Trust

JPMorgan Emerging Markets

Picton Property Income

WHO WE ARE EDITOR:

Tom Sieber @SharesMagTom DEPUTY EDITOR:

Ian Conway @SharesMagIan NEWS EDITOR:

EDUCATION EDITOR:

Tesco

James Crux @SharesMagJames

11, 15

Smithson

Tesla

FUNDS AND INVESTMENT TRUSTS EDITOR:

Meta Platforms

Steven Frazer @SharesMagSteve

Scottish Mortgage Investment Trust

Tencent

Investment Trusts

Pets at Home

Shell

Martin Gamble @Chilligg

INVESTMENT WRITER:

Sabuhi Gard @sharesmagsabuhi CONTRIBUTORS:

Daniel Coatsworth Danni Hewson Laith Khalaf Laura Suter Rachel Vahey Russ Mould

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Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.

DISCLAIMER 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. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. 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 will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below. 1. In keeping with the existing practice, reporters who intend to write about any 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 agrees that the

reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests. 2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail. 3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor. 4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for 30 days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the magazine.

25 January 2024 | SHARES | 51