Bitcoin is hard to ignore again after Trump victory and what next for oil?
07
Retailers and hospitality firms bemoan budget cost burden
08 Why AstraZeneca shares remain in the doldrums despite raised outlook
10 Flyaway Palantir valuation reaches boiling point / Second profit warning in a month sends Vistry shares to year-low
11 Boring has been beautiful for shareholders of distributor Diploma
12 US consumer bellwether Walmart could bump up its outlook again
13 Stocks and bonds diverge as US election result becomes clear
GREAT IDEAS
15 Publishing group Bloomsbury is a growth story worth buying
17 Occupational health provider Optima Health is a great buy-and-build story UPDATES
19 Why British Airways owner International Consolidated Airlines can continue to soar
20 Why investors should expect a MercadoLibre bounce
22 What the market will be watching when Nvidia reports
28 COVER STORY
Investing for Trump 2.0 What the president-elect’s return means for markets
36 Investing in the US: how buying actively managed funds compares with stocks 39 UNDER THE BONNET
How a tiny US healthcare company has become one of the year’s hottest stocks 43 RUSS MOULD
Revisiting the Triffin dilemma as Trump’s election victory sees dollar soar
Stamp duty changes in Budget to cost some buyers
£11,250 more
49 ASK RACHEL
What should I do after the inheritance tax advantage on pensions was wiped out by the Budget? 52 INDEX
Three important things in this week’s magazine
What will a Trump presidency mean for your investments and for global markets?
We look at the impact the incoming administration could have on stocks, bonds, interest rates and inflation, and what it might mean for your wealth.
What analysts and investors are expecting of AI chip champion Nvidia
As the world’s most valuable company by market value prepares to publish its latest results, we ask if its stellar run can continue based on its new product pipeline.
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:
Why everyone is talking about Hims & Hers
The US telehealth company has taken the US market by storm and should be seen as ‘the Netflix of consumer health care’ says one investor.
Bitcoin is hard to ignore again after Trump victory and what next for oil?
Examining the parameters for two very volatile asset classes
In this column a few weeks back I flagged Bitcoin and gold as potential barometers of Donald Trump’s chances in the election.
As it turned out, Bitcoin was the better marker and has continued to soar since he prevailed hitting record highs close to $90,000 while gold has been hamstrung by a surging dollar.
Investors will have their own take on the merits of cryptocurrencies, and this author would lean towards Warren Buffett’s less than generous view, but once again Bitcoin is proving pretty difficult to ignore.
There are measures a Trump administration could take which might act as a meaningful catalyst for Bitcoin - if nothing else, he has pledged to fire Gary Gensler as chair of the Securities Exchange Commission ‘on day one’ of his presidency.
As Lazard’s chief market strategist Ronald Temple points out: ‘Gensler has advocated more stringent regulation of cryptocurrencies through much of his term.’
In this context, US wealth manager Bernstein says it remains confident in its end2025 $200,000 target. However, this asset has proven highly volatile in the past. Trading below $5,200 in March 2020 and just a smidge above $16,000 in late 2022.
So, if you are gaining exposure to crypto there is logic to doing so as part of a diversified investment portfolio, rather than putting all your eggs in the Bitcoin basket.
producers’ cartel OPEC+ might respond. The organisation’s current plan is to start increasing supply in January, a move which has already been delayed twice.
We look at what Trump 2.0 might mean for financial markets in general in this week’s cover story.
From one volatile asset class to another, oil prices have seen their own ups and downs both before and after the election leaving market observers scratching their heads about how
Bank of America Europe’s commodity and derivatives strategist Francisco Blanch says: ‘What will OPEC+ do next? Brent crude oil prices swung from a low of $68 in early September to a high of $81 per barrel in early October and have recently settled into the middle of the range near $74, a level that seems fair given all the uncertainty. Indeed, geopolitical tensions between Iran and Israel remain high, with no disruptions to show, and while refining margins hint at weak oil demand, inventories are below preCovid levels and not yet rising meaningfully.
Blanch adds: ‘The group faces a difficult challenge, which likely requires continued resolve and possibly additional curtailments if balances deteriorate further. Supply disruptions, whether from sanctions or conflict, may be the group’s only hope for boosting supply next year, but be prepared for a slow steady return of barrels if this occurs.’
Chart: Shares magazine • Source: LSEG
Retailers and hospitality firms bemoan budget cost burden
Rachel Reeves’ changes are a headwind for shopkeepers and leisure firms
Retail and hospitality companies have slammed the UK government’s Budget as a raid on corporate coffers that will heap extra costs on already hard-pressed sectors, with Labour’s 6.7% increase in the National Living Wage and uplift in employers’ national insurance contributions (NICs) forecast to lead to job cuts and price hikes.
Chancellor Rachel Reeves’ lowering of the employers’ NIC threshold to £5,000 from April next year will prove particularly costly for firms with large employee bases and relatively high labour ratios, which will look to mitigate the NIC headwind where possible through job cuts and price hikes.
In the words of one chief financial officer quoted by Jefferies: ‘I don’t think anyone’s in a position to just suck it up, so I would expect prices to move in response.’
High-profile critics of the measures include Stuart Rose, defacto interim chief executive of Asda, whose charge will face a £100 million increase in its NIC bill.
Sainsbury’s (SBRY) estimates its NIC bill will rise by roughly £140 million with chief executive Simon Roberts warning the extra cost burden will lead to higher prices on the shelves.
Marks & Spencer (MKS) faces a £60 million hit and Tesco UK will likely be hit to the tune of £250 million, while other big UK employers facing a massive hit from the wage and NICS increases include Greggs (GRG), Pets at Home (PETS) and DFS Furniture (DFS)
A letter to the chancellor signed by the bosses of more than 200 of the UK’s biggest restaurant, pub and hotel businesses, among them Premier Inn-owner Whitbread (WTB) and Fuller, Smith & Turner (FSTA), warned Reeves’ NICS hike will cause ‘unprecedented damage’ to the sector; hospitality firms insisted they’ll be disproportionately affected by the changes to employment costs, that prices will need to rise by 6% to 8%, and hospitality businesses will be forced to close or cut jobs and slash investment.
UK hospitality and retail - national
UK hospitality and retail - national living
and
Table: Shares magazine • Source:
Companies whose share prices have slumped since the budget, with investors fretting over the profits impact from the NICS changes, include pub stocks Mitchells & Butler (MAB), where Shore Capital estimates a hit of up to £40 million, and JD Wetherspoon (JDW), where the broker forecasts a £35 million hit, while the market is telling us Marston’s (MARS) also faces a NICS-induced hangover.
However, Shore Capital highlighted Whitbread and tenpin bowling operator Hollywood Bowl (BOWL) as ‘two stocks where the negative share price reaction goes well beyond the announced expected increases in employment costs’. [JC]
Disclaimer: The editor of this article (Ian Conway) owns shares in Greggs.
Why AstraZeneca shares remain in the doldrums despite raised outlook
Pharmaceutical giant has a good track record of success in the laboratory
One might reasonably expect a company’s share price to rally when it delivers earnings ahead of consensus forecasts and raises its outlook, especially when the shares have dropped 25% heading into the numbers.
That is not how things played out at the UK’s largest listed company AstraZeneca (AZN) on 12 November, however, with the shares failing to respond positively.
The company issued a raft of announcements including plans to invest $3.5 billion in the US to expand its research and manufacturing capabilities by the end of 2026.
Yet another piece of good news. Even positive comments from long-time chief executive Pascal Soriot could not excite investors: ‘We are highly encouraged by the broad-based underlying momentum we are seeing across our company in 2024, and growth looks set to continue through 2025,’ exclaimed Soriot.
So why the downbeat response?
Investors appear concerned by recent investigations and the detainment of current and former AstraZeneca employees by the Chinese authorities around allegations
of medical insurance fraud, illegal drug importation and personal information breaches.
For its part, AstraZeneca is adamant it has not received any notification that it is being investigated.
The drug business can be unpredictable, and sometimes the science does not work out as hoped, and this seems to be the case with AstraZeneca’s investigative cancer treatment DatoDXd, which is in development with Japanese drug giant Daiichi Sankyo (4568:TYO).
Following disappointing late-stage trial readouts and feedback from the US FDA (Food and Drug Administration), the company has decided to voluntarily withdraw its application for accelerated approval to treat patients with advanced lung cancer.
AstraZeneca is resubmitting a new application based on results from a mid-stage TROPIONlung-05 phase two trial.
Analyst Sean Conroy at Shore Capital believes Dato-DXd is an important asset in the company’s pipeline with ‘significant blockbuster potential’.
Setbacks like this are part of the drug discovery business and are the reason why pharmaceutical and biotechnology companies build a broad portfolio of assets to diversify the overall risks of failure.
On this score, AstraZeneca has built one of the strongest drug pipelines drugs in the industry. The company raised its full-year EPS (earnings per share) growth forecast to the upper-teens from mid-teens, reflecting ongoing momentum across the business.
The recent drop in the shares has wiped around £50 billion from the company’s market value and takes the valuation of the business to back to the sector average, notes Conroy.
‘We still believe a premium is warranted based on its earnings growth and pipeline prospects,’ adds the analyst. [MG]
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Flyaway Palantir valuation reaches boiling point
More analyst ‘sell’ calls on the stock than ‘buys’ as shares continue to surge
Crypto, gold, Donald Trump’s social media operation Trump Media & Technology (DJT:NASDAQ) have all been going gangbusters lately but if it’s momentum you’re after, you don’t get any hotter than Palantir (PLTR:NASDAQ)
Shares in the data analytics company have jumped 25% in the past five days (at time of writing, 12 November), are up nearly 40% in a month and have surged 263% in 2024 as a whole.
third quarter earnings as Palantir continues to ride the AI (artificial intelligence) wave, producing real sales and profits, something that not all AI stocks can say.
Yet analysts have been lining up to call time as valuation stretches to, potentially, breaking point. Jefferies and Argus are the latest to pull ‘buy’ ratings on the stock as it sailed into triple-digit PE (price to earnings) territory, joining the likes of Goldman Sachs and others. There are now more analyst ‘sell’ calls on the shares than ‘buys’.
The stock’s been on an unrelenting tear souped up by recent blowout
This follows CEO Alex Karp’s recent $650 million worth of stock sales and Cathie Wood’s ARK ETF recently flogged a $8.7
Second profit warning in a month sends Vistry shares to year-low
Housing developer Vistry (VTY) dealt shareholders another body-blow last week when it revealed (8 November) that charges for its understatement of costs on some sites would be higher than originally forecast.
On 8 October, after an extensive internal review of its operations, the FTSE 100 firm warned earnings for this year, next year and 2026 would be impacted by erroneous build cost calculations on nine developments in its South Division, ‘including some largescale schemes’.
The company initially cut its 2024 pre-tax profit
forecast from £430 million to £350 million while shaving £30 million off its 2025 forecast and £5 million off its 2026 forecast for a total cost of £115 million.
It has now updated that guidance, reducing the current-year forecast by another £25 million and lowering its 2025 and 2026 forecasts by £20 million and £5 million respectively taking the total hit to £165 million.
Russ Mould, investment director at AJ Bell, commented: ‘It seems Vistry’s big pivot into affordable housing and regeneration over recent years caused some ruptures and the management in place for this problem child of the business, exclusively
million stake in the business. Shares’ August in-depth look at Palantir alerted readers to both the substantial upside and the possibility that its premium could be whittled away, and those risks have only intensified since then. [SF]
drawn from the traditional housebuilding operations, have dropped the ball in a big way.’
21 Nov: First Property, Halma, Jet2, Liontrust Asset Management, Norcros, Speedy Hire
TRADING ANNOUNCEMENTS
21 Nov: Breedon, Close Brothers, Restore
Boring has been beautiful for shareholders of distributor Diploma
The firm consistently generates double-digit top- and bottomline growth
There is a lot to be said for being boring, especially when markets are volatile, and no firm quite captures that essence like FTSE 100 specialist distribution group Diploma (DPLM), whose shares have already sailed serenely to half a dozen all-time highs so far this year.
Diploma operates a decentralised model with three divisions: Controls, which supplies components including specialised wiring, Seals and Life Sciences, which includes consumables and instrumentation.
Over the last 15 years the group has grown EPS (earnings per share) at an average of 15% per year through a combination of organic (like-for-like) growth and acquisitions.
In the nine months to the end of June, the firm posted revenue growth of 13%, with organic, volume-led growth of 6% supplemented by 10% growth from acquisitions which was partly offset by a 3% currency headwind.
The firm said its strong third-quarter performance had continued into the final quarter meaning revenue and margins were in line with expectations. Analysts are forecasting fullyear revenue of £1.38 billion,
an increase of just under 15% on last year, with operating profit of £283 million meaning a 20.5% margin compared with £237 million and 19.7% a year ago.
For September 2025, the consensus sees revenue rising around 11% to £1.53 billion and operating profit rising slightly faster to £318 million for a margin of 20.7%. [IC]
US consumer bellwether Walmart could bump up its outlook again
Shares expects upcoming thirdquarter results (19 November) from Walmart (WMT:NYSE) to confirm the world’s biggest retailer continued to gorge on US market share and grow internationally in the three months to the end of October.
Given its sheer scale, Walmart has been able to push back against inflation, keep costs low and pass on the savings to price-sensitive shoppers and bargain-hunting upper income households alike, enabling it to win market share in groceries, household goods and fashion. As such, investors shouldn’t be surprised to see Walmart raise full year guidance again.
Investors will also be hungry for updates on Walmart’s advertising business, the progress being made with AI and automation initiatives and for chief executive Doug McMillon’s read on the health of the US consumer now that election uncertainty has passed.
Walmart’s shares have surged 60% higher year-to-date to an all-time
high of $85 with investors regarding the Bentonville-headquartered behemoth as one of the few retailers capable of competing with Amazon (AMZN:NASDAQ).
On 15 August, Walmart wowed investors with second-quarter earnings which showed US comparable sales up 4.2% for the period to end-July and said it expected annual sales to rise by 3.75% to 4.75%, and adjusted earnings to come in between $2.35 and $2.43 per share, both upgrades on its previous guidance.
QUARTERLY RESULTS
18 Nov: Keysight Technologies 19 Nov: Autodesk, Best Buy, Dollar Tree, Jacobs Engineering, Lowe’s, Medtronic, Walmart 20 Nov: Deere&Company, JM Smucker, Nvidia, Target, TJX 21 Nov: Intuit, PDD Holdings
Stocks and bonds diverge as US election result becomes clear
Higher spending and lower taxes spell bad news for treasuries
Markets generally dislike uncertainty, so on the one hand traders were pleased the US presidential race turned out to be a more one-sided affair than the polls had predicted.
On the other hand, while equities hit new highs on Trump’s reputation for backing ‘growth’ and doing away with regulation, treasury prices fell and yields continued to rise as forecasts for deficit spending and inflation increased.
There was also some consternation regarding
the path of interest rates and the potential clash of personalities between the incoming president and Federal Reserve chair Jerome Powell.
While interest rates were cut last week, as widely expected, the Fed set a cautious tone ‘as policymakers navigate a complex landscape under the upcoming Trump administration’, as Principal Asset Management’s chief global strategist Seema Shah tactfully put it.
Meanwhile, Trump’s public attacks on the Federal Reserve chair, a lawyer by training, are well-documented, as is his dislike of the Fed’s decades-long independence in setting monetary policy.
Asked if he would step down before the end of his term in May 2026 if asked to, Powell outright refused, but if Michael Barr, vice chair for supervision, were to step down rather than stay in his post until 2026, it could allow Trump to influence regulatory policy relatively quickly once he returns to office.
As the focus turns away from politics and back towards the macro economy, the highlights over the next week will be UK and Eurozone thirdquarter growth figures and core consumer prices, while in the US eyes will be on the fourth-quarter Atlanta GDPNow survey as well as retail sales as investors try to gauge how the election may have impacted consumer sentiment. [IC]
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Publishing group Bloomsbury is a growth story worth buying
A diversified approach is paying off and profitability is increasing
Bloomsbury (BMY) 700p
Market cap: £571 million
Publishing group Bloomsbury (BMY) is a pandemic winner which has kept on winning since Covid.
Lockdown saw people rediscover their love of reading, and the company has tapped into and exploited through successful marketing some popular trends in fiction which have helped drive a big increase in returns.
That has meant Bloomsbury’s return on capital employed has more than doubled from 8.2% in 2019 to 19.1%, according to data from Stockopedia.
This has been matched by an extremely strong share price performance which has driven the stock to record levels.
However, any investors thinking they may have missed the boat should think again. Based on Berenberg’s analysis, the company is trading bang in line with its five-year average price-to-earnings ratio of 17.5 for the 12 months to February 2026.
And yet Bloomsbury is a better business now than it was in 2019. Read on to discover the catalysts which can propel the stock to fresh highs.
BACKGROUND ON BLOOMSBURY
Bloomsbury was founded in 1986 by the current chief executive Nigel Newton and three others. Its initial success can be traced to the decision to sign then unknown author J.K. Rowling and the subsequent publication of the hugely successful Harry Potter series. When the initial phase of Pottermania eased, Bloomsbury’s fortunes waned with it.
However, a shift away from focusing purely on
consumer titles, begun nearly two decades ago, has served it well. So, while ‘romantasy’ author Sarah J. Maas has been a notable success, it is not so reliant on one big literary franchise.
Other recent triumphs – apart from fiction titles – include Hugh Fearnley-Whittingstall’s How to Eat 30 Plants a Week, which shot to number one in the Sunday Times bestseller list, Georgina Hayden’s Greekish; and Poppy O’Toole’s Poppy Cooks: The Actually Delicious Air Fryer Cookbook.
As well as having a strong footprint in fiction and non-fiction consumer titles, the company has a meaningful presence in academic publishing, bolstered by its May 2024 acquisition of assets from US outfit Rowman & Littlefield for £65 million, which added more than 40,000 academic titles to the company’s library.
This has created a portfolio with a decent spread across different genres, digital and print formats and geographies. On 24 October the company announced revenue and pre-tax profit rose 32% and 58% respectively for the first half of the year as it boosted full-year guidance.
WHAT IS BLOOMSBURY’S GROWTH STRATEGY?
Alongside its results for the year to February 2024, the company unveiled a new three-pronged strategy based on growth, portfolio and people. This means acquiring more assets to increase its share of the academic market, discovering talented
Full year 2024 revenue by format as a percentage of sales*
Rights and services (3)
Bloomsbury
Digital Resources (BDR) (8)
eBooks (15)
Audio (2)
*The R&L acquisition was completed post full year 2024 which increases the share of eBooks and BDR
Chart: Shares magazine • Source: Company reports.
new authors and expanding internationally in countries like the US and India (as well as being the best place to work in publishing).
The potential in some of its top titles is not necessarily fully factored into analysts’ forecasts. Berenberg highlights that £30 million of incremental revenue from Sarah J. Maas’ latest title, due out next year, would boost its earnings forecast for 2026 by 10%.
There is scope for interest in Harry Potter and Sarah J. Maas to be stoked by television adaptations which are at varying degrees of being progressed. This could boost interest in relevant backlist titles (those over 12 months old), which account for a significant chunk of Bloomsbury’s sales.
Delivering content in a digital format allows Bloomsbury to generate revenue from this backlist of previously published books at very limited additional cost, benefiting margin performance – and a natural shift here should benefit the business.
The academic arm is also seeing a continuing move to digital, amid growing take-up of the Bloomsbury Digital Resources platform, with its own positive implications for profitability.
If that wasn’t enough Bloomsbury has a strong balance sheet which underpins a progressive dividend policy and recently reiterated its intention to increase the dividend for the current financial year, even if the 2.3% yield is relatively modest. [SG]
Print (72)
Occupational health provider Optima Health is a great buy-and-build story
Mergers and acquisitions have been part of Optima’s strategy from its formation
Optima Health (OPT:AIM) 164.5p
Market Cap: £146.1 million
As the UK’s leading occupational health provider, Optima Health (OPT:AIM) is uniquely positioned to consolidate a fragmented market via bolt-on acquisitions as well as delivering organic growth faster than the underlying market.
Analysts at RBC Capital Markets believe Optima Health’s buy-and-build strategy can deliver a 23% compound annual growth rate in total revenue over the next five years alongside an expansion in margins driven by scale efficiencies.
The company was recently spun-out of businesscritical services provider Marlowe (MRL:AIM) and is due to reveal its maiden half year results to investors in early December.
Newly-listed companies can be higher-risk and cautious investors may prefer to wait and see how the management team performs in the full gaze of a public listing before buying.
That said, we like Optima’s clear growth opportunity, its market-leading position and the experienced management team led by chief executive Jonathan Thomas who has been with the business since 2013.
As the prior finance chief, Thomas oversaw growth in revenue from £28 million to more than
Optima Health
£100 million and was involved in the trade sale to Marlowe in 2022. He was also instrumental in integrating the Marlowe-acquired businesses.
A MARKET RIPE FOR CONSOLIDATION
Optima Health is the market leader and around twice the size of its nearest competitor in terms of revenue and customers, serving over 2,000 clients in both the public and private sector and covering more than five million people in the UK workforce. The company operates across the whole size spectrum, from small businesses through to some of the largest employers in the UK including the Metropolitan Police, retailers Sainsbury’s (SBRY) and Currys (CURY), Bupa and the Ministry of Defence.
Chart: Shares magazine • Source: LSEG
The competitive landscape of the outsourced occupational health market
The Health and Safety at Work Act of 1974 governs the primary legislation in the UK covering occupation health. The market was worth around £1.3 billion in 2023 and grows around 4% a year.
Around 60% of the market is outsourced, with another 25% of companies providing an in-house service while the rest of the market is serviced by the NHS (National Health Service) or other government services.
There is an ongoing shift towards outsourcing driven by rising sickness rates, an ageing population and increased regulation. To give some idea of the degree of market fragmentation, there are more than 5,000 companies providing occupational health services in the UK but only 125 of these have a turnover of more than £500,000.
Another potential area of growth for Optima is the estimated 80% of employers in the UK who do not offer occupational health services, either because they are unaware of the regulations or are not yet compliant.
RBC believes Optima can drive its total market share from 10% currently to 25% by 2030 which would imply revenue growing more than three-fold to around £375 million.
Optima has four operational centres and 48 clinical sites offering services such as health surveillance, performance management, immunisation, safety-critical activity and wellbeing services. It also operates around 30 mobile clinics and remote delivery services.
The company’s 800 professional clinicians make over one million client interventions each year
with 60% being conducted remotely, and Optima is aiming to increase the rate of remote interventions to drive efficiency.
HIGH REVENUE VISIBILITY AND RETENTION
The company has a predictable revenue stream stemming from its approach to developing longterm contracts, typically between three and five years. Contracts with smaller companies are generally shorter in duration with annual reviews, but tend to be higher-margin than public sector contracts.
Optima achieves high revenue retention rates, averaging 95% over the last three years. One of the reasons for this is the excellent return on investment Optima delivers.
Chief executive Jonathan Thomas told Shares the company can demonstrate a strong return on investment of around seven to one.
Optima has invested over £15 million in its IT platform over the last seven years as it aims to increasingly automate the business, and has also developed a proprietary digital tool enabling patients to self-assess using a computer or smartphone.
The product is undergoing an accreditation assessment which could lead to a successful rollout into the NHS, and is expected to be delivered on a SaaS (software-as-a-service) basis.
Overall, we believe Optima Health has the potential become a bigger, more profitable business over several years and provide strong shareholder returns. [MG]
Why British Airways owner International Consolidated Airlines can continue to soar
Strong cash generation and higher passenger revenue has seen the shares ascend
International Consolidated Airlines (IAG) 239p
Gain to date: 47.5%
Since we flagged the appeal of the stock in March, British Airways owner International Consolidated Airlines (IAG) has gone from strength-to-strength.
Passenger numbers have increased despite continued pressures on household budgets and the company has put in a strong financial performance which looks set to continue.
The airline’s shares have soared 56% over the past year, but they, are still below the 400p level seen prior to the Covid pandemic.
WHAT HAS HAPPENED SINCE WE LAST SAID BUY?
The company achieved a key milestone, paying its first dividend since the start of the pandemic on 1 August after beating expectations for the first half.
It subsequently announced a €350 million share buyback after third-quarter earnings beat estimates (8 November).
The group, which also owns Iberia, Aer Lingus and Vueling, booked a 7.9% increase in total revenue to €24.05 billion for the nine months to 30 September.
The revenue growth was attributed to higher passenger volumes as well as an improvement in cargo and MRO (maintenance, repair, and overhaul) related income at Iberia.
Planned growth in capacity for the fourth quarter is expected to be 5% to 6% with the business seeing
strength in the North Atlantic region and Latin American market.
WHAT SHOULD INVESTORS DO NOW?
We remain upbeat about the business. It is growing revenue and seeing improved margins and cash flow which in turn is facilitating returns to shareholders and an improvement in its balance sheet position.
The company is doing a good job of ensuring its planes are as full as possible, getting more aircraft off the ground year-on-year and keeping costs on a tight leash.
Research house Edison’s Neil Shah says: ‘With liquidity at €13.3 billion, IAG is well positioned to withstand potential demand fluctuations. Looking forward, IAG is on a path to balance growth with cost efficiency, especially as passenger demand has seen a continuous rise.’ [SG]
Chart: Shares magazine • Source: LSEG
Why investors should expect a MercadoLibre bounce
Quarterly reporting maybe great for transparency but it can be a curse for long-run growth stocks, as investors in MercadoLibre (MELI:NASDAQ) are finding out.
The stock was thumped last week (7 November) after a third-quarter report saw sales surge but profits miss expectations. Quarterly revenue jumped 35% year-on-year to $5.31 billion, beating forecasts by $30 million, but EPS (earnings per share) fell well shy of $10 expectations at $7.83, while payment volumes were also a little light on forecasts, albeit partly due to product mix changes.
WHAT HAS HAPPENED SINCE WE SAID BUY?
A lot of operational progress. Remember, this is a chrysalis of a business, one transitioning from a pure online retail platform into Latin America’s premier digital finance provider, and there are bound to be bumps in that road. Finance chief Martin de los Santos flagged the importance of investments in some of the firm’s strategic initiatives, ‘one of which is credit’.
‘The credit card is an important part of our
fintech strategy’, and perhaps an area where analysts had underestimated short-term costs, said de los Santos.
Aggressive expansion into the credit card market is part of MercadoLibre’s strategy to leverage the card to promote the adoption of its broader fintech ecosystem. ‘The initiative seems to be bearing fruit, as evidenced by a 4.2 million increase in Fintech Monthly Active Users, marking the secondbest quarter since the company began reporting this metric in the first quarter of 2023,’ said analysts at BTIG.
WHAT SHOULD INVESTORS DO NOW?
There’s a strong argument that there is never a bad profit and a near-30% return could be siphoned off and allocated elsewhere, but that is not what Shares would do.
We retain high conviction over the enormous opportunity in front of MercadoLibre. Recycling profit into a better opportunity will be difficult to find given EPS growth of 80% and 30% this year and next. That suggests to us investors should consider topping up stakes not downsizing. [SF]
Chart: Shares magazine • Source: LSEG
Country Spotlight: Greece
In this series, BEMO portfolio managers share their insights on the countries within the compelling investment universe of emerging EMEA.
Here we put a spotlight on Greece which, a decade after it was teetering on the edge of a Eurozone exit, has defied critics and rebounded. Greece has delivered some of the strongest growth in Europe, supported by a business-friendly government and an appetite to modernise.
Why we like it
• Greece has staged a remarkable recovery, with inflation and unemployment falling and competitiveness improving, driving strong growth and stock market outperformance relative to the Euro area.
• Following intense efforts to reduce its debt burden, Greece’s sovereign risk rating has been upgraded to investment-grade status by most major rating agencies, lowering the cost of borrowing and providing a stable funding base for the country’s future needs.
Pro-business and Harvard-educated prime minister Kyriakos Mitsotakis has a strong mandate to continue with his ambitious reform programme, from modernising the public health system to investing in digitisation and a green energy transition.
• Tourism, which can account for up to a third of Greece’s GDP, continues to boom post-Covid, and should be further supported by government plans to boost year-round revenues and improve infrastructure in key destinations.
Key themes
INVESTMENT: Business-friendly regulation and lower taxes are helping to drive up foreign direct investment, which hit an all-time high of €8 billion in 2022. Although this fell to €4.7 billion in 2023, we anticipate Greece’s new investment-grade rating will
continue to see strong investment into its servicebased economy.
FINANCIALS: The full reprivatisation of banks bailed out during the financial crisis sees a return to normality for Greece’s financial sector. ECB approval in mid-2024 for the four largest Greek banks to resume dividend payments should provide further strong investor support for the sector.
In summary:
Although challenges such as falling birth rates, labour shortages and demands for higher wages remain, Greece’s hard-fought economic recovery is bearing fruit. A focus on growth-focused companies with highly disciplined balance sheet management should hold investors in good stead during this period of recovery and renewed investment.
Matthias Siller, CFA Head of EMEA Equities 26 years investment experience
Adnan El-Araby, CFA Investment Manager, EMEA 14 years of investment experience
To read more Country Spotlights from the Barings EMEA equity team, visit bemoplc.com
Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Changes in currency exchange rates may affect the value of investments. Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Coupled with less developed regulation, this means your money is at greater risk. Any investment results, portfolio compositions and or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of shares in the Company. It is recommended that prospective investors seek independent advice as appropriate. The Key Information Document (KID) must be received and read before investing. This and other documents, such as the prospectus, latest fact sheet, annual and semi-annual reports, are available from www.bemoplc.com Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information. Baring Asset Management Limited, 20 Old Bailey, London, EC4M 7BF, United Kingdom. Authorised and regulated by the Financial Conduct Authority. Date of issue: November 202413231.
What the market will be watching when Nvidia reports
We look at the short-term and longerrun factors that could drive more share price gains for AI chip champ
In early September, shares in Nvidia (NVDA:NASDAQ) tanked. In just eight days, more than $400 billion of market cap vanished, leaving investors wondering what to do. To help, Shares took an in-depth look at the AI (artificial intelligence) chip designer and concluded that investors’ best bet was probably to do nothing.
Since then, the stock has rallied hard, adding more than $1 trillion to its market cap (now $3.65 trillion). Just consider that fact for a moment… $1 trillion added. That’s the equivalent of slapping a 2018-sized Apple (AAPL:NASDAQ) on to Nvidia’s market value.
That 45% run since early September 2024 saw Nvidia’s share price hit a new all-time high of $148.88 (7 Nov), powering the company beyond Apple and Microsoft (MSFT:NASDAQ) to become the world’s most valuable company. And by some margin - $200 billion more than Apple and nearly half a trillion dollars more than Microsoft, now numbers two and three respectively.
Right now, it seems no matter what the market throws at Nvidia, the stock just keeps going up.
A few days from now (20 November) will be the
next potential catalyst as the Santa Clara, Californiabased business reports its fiscal third quarter. The numbers and commentary will shed more light on the firm’s growth trajectory and put its valuation into context.
As any decent fund manager will tell you, valuation is always important and a crucial part of any decision an investor should make about any stock. So, let’s look at Nvidia’s current valuation and scope to keep knocking the lights out.
WHAT DOES THE MARKET EXPECT?
According to Koyfin’s consensus data, the market anticipates EPS (earnings per share) of $0.74 on $32.9 billion revenue, or in other words, more than 80% year-on-year growth. Analysts see $0.81 EPS on $36.5 billion revenue in the last quarter to 31 January 2025.
For the full year, consensus implies 120% and 106% year-on-year growth in earnings and revenues respectively. If analysts are right, fiscal 2026 will see both metrics rally more than 40% again. As most readers will know, the stock has responded with gusto, up more than 200% this year and soaring from below $7 just before the pandemic broke.
The obvious conclusion is that Nvidia valuation multiples must be sky high today. But are they? Current consensus implies that the stock is trading on a PE (price to earnings) of about 43, based on a next 12-months basis. Yet, as the chart shows, the valuation is barely any higher today that it was back in 2020.
This is not quite the conundrum it may seem. It is a response to forecasts that since the start of 2023 have been raised again and again, and yet Nvidia has continued to beat them all, doing so for seven quarters straight as the scale of the AI (artificial intelligence) opportunity has emerged.
Forecasts have seen big upgrades
Looking at forecasts from roughly a year ago (see chart) gives an indication of just how AI has tilted the markets expectations for Nvidia’s earnings and revenue growth.
And you can see how optimistic this has made analysts by looking at how consensus price targets have soared, from around $60 roughly a year ago to more than $150 now. In January 2023, the consensus target price was pitched at $20.
Japanese bank Mizuho this month named Nvidia its top pick, stressing the company’s strong chip leadership in AI and data centre markets, where it is estimated to command a 95% market share or more.
Mizuho anticipates substantial growth in the data centre AI chip market, projecting a compound annual growth rate of 74%, potentially pushing the market size past $400 billion by 2027. This expansion is expected to be driven by Nvidia’s advanced product line-up and roadmap in HBM, or high band-width memory chips.
Bernstein’s team believes that ‘several’ billion dollars of incremental Blackwell revenue into Q4 ‘should drive solid further sequential growth, and it feels to us that Hopper could easily continue to show sequential strength as well which might further accelerate things’.
Blackwell and Hopper are Nvidia’s next two generations of GPU (graphics processing units) earmarked for AI’s next development phase.
Then there’s Nvidia’s Grace CPU and NVL36/72 servers, which are seen as catalysts for content growth within AI servers.
WHY THE MARKET IS UPBEAT
Unlike other stocks that have surged this year, on AI excitement or otherwise, Palantir (PLTR:NYSE) say, or MicroStrategy (MSTR:NSASDAQ), few analysts are raising valuation questions about Nvidia, illustrated by how many have buy recommendations on the stock.
But Nvidia remains a key player outside of AI and data centres, with its conventional clout in the gaming market. Here it holds an estimated 75% market share in PC gaming GPUs (graphics processing units). Mizuho analysts see untapped growth potential, noting their belief that ‘headwinds from China AI chip restrictions remain muted’.
OPPORTUNITIES BEYOND AI
The firm also points to an upgrade cycle opportunity with the upcoming RTX 50-series, given that penetration of the RTX 40-series stands at around 10% of the PC market, which could position Nvidia to reach a gaming revenue run rate exceeding $10 billion annually.
What this all underscores is Nvidia’s competitive edge over rivals, like Advanced Micro Devices (AMD:NASDAQ), Intel (INTC:NASDAQ), and others, even as peers push ahead with their own developments.
Analysts at Goldman Sachs have also been recently championing Nvidia’s cutting edge tech, saying the firm is ‘set up well to sustain its outperformance’, noting that demand for AI-driven compute solutions shows little sign of slowing.
Chart: Shares magazine • Source: Koyfin
For investors, the question now seems to be not if you should have Nvidia exposure, but how much”
Goldman emphasises Nvidia’s current trading level, while high, is still ‘well below its past threeyear median PE multiple’, when compared with other stocks within Goldman’s coverage, suggesting room for further gains.
The bank anticipates that Nvidia’s fiscal first quarter of 2026 in April 2025 will be a ‘breakout’ quarter, chiefly driven by the rollout of Blackwell GPUs and easing supply-side constraints. The anticipated combination of new product offerings and strengthened supply is expected to drive ‘meaningful positive EPS revisions’, implying that even anticipated 40% upside expectations next year could prove conservative.
Before then, Goldman expect Nvidia’s third quarter 2025 and Q4 guidance to validate the firm’s long-term growth thesis. No surprise then that Nvidia remains a fixture in Goldman’s Americas Conviction List.
EVIDENCE-BACKED OPTIMISM
Evidence for such bullishness came in droves over the recent Q3 reporting season, where many of Nvidia’s biggest clientsAlphabet (GOOGNASDAQ), Meta Platforms (META:NASDAQ), Microsoft, and Amazon (AMZN:NASDAQ) reported strong earnings and commitments to massive AI investment ahead, even if that news wasn’t always taken so well by investors.
A common theme here was that cloud computing growth was constrained by supply, not demand. Microsoft specifically forecast a re-acceleration in Azure revenue growth as more capacity comes online. This aligns with statements from other top cloud players, which expect increased spending in the coming years to meet AI demand.
Little wonder then that Goldman Sachs has raised its forecast for cloud capex growth across
the industry, now expecting a 70% increase in 2024, followed by 24% in 2025 and 11% in 2026.
Given that the biggest threat to Nvidia is widely seen as any potential big drop off in AI infrastructure spending, risk to forecasts looks capped to the downside with significant upside scope.
For investors, the question now seems to be not if you should have Nvidia exposure, but how much and how you go about it. Given the stock’s hefty S&P 500 and Nasdaq weighting, almost all of us own Nvidia exposure even if indirectly, and its recent inclusion in the Dow Jones Industrial Average, where it replaced Intel, merely ups that ante.
For many, that will be enough, never mind the droves of actively managed funds that own the stock.
Others may feel differently, and with good reason. What if the forecast upgrade cycle continues for several quarters to come and EPS growth for fiscal 2026 and 2027 nudge 50% and 30%, regressing to say 15% for 2028, where consensus is pitched at just 6% growth currently. Now visualise a PE consistent with the current next 12-months rating of 43, say 40 to be conservative.
None of this is unreasonable and it would imply EPS of around $4.28, $5.56, and $6.40, give or take for 2026 to 2028. A PE of 40 would imply a $256 share price. Nvidia’s market value would break the $5 trillion barrier at about $204, so at $256, you’re looking at a market cap in excess of $6 trillion.
That’s investment potential worth the implied risk and worth buying, in our view.
By Steven Frazer News Editor
Leading the energy transition and driving positive impact on the environment and society.
VH Global Sustainable Energy Opportunities plc (GSEO) invests globally in a diverse range of sustainable energy infrastructure assets, working towards its strategic goals of accelerating the energy transition towards a net zero carbon world and providing shareholders attractive risk-adjusted returns.
Why invest in GSEO?
A vehicle presenting a distinctive combination of access, return and impact.
Access Return Impact
• Access to global private markets energy investments
• A geographically and technologically diversified portfolio of actively managed, high-impact investments which aim to ensure an effective and just climate transition
• Targeting total NAV return of 10%, net of costs and expenses
• Progressive dividend target of 5.68p reaffirmed for 2024
• High degree of inflation-linkage with over 90% of revenues that are inflation-linked
• Minimal interest rate risk exposure
• Creating environmental and social impact transforming lives and communities without compromising on returns
• Transparent impact reporting
• SFDR Article 9 fund
By Tom Sieber Editor
WHAT THE PRESIDENT-ELECT’S RETURN MEANS FOR MARKETS INVESTING FOR TRUMP 2.0
The result of the US presidential election has created shockwaves in the financial markets and beyond and I’m sure raised questions about your own portfolios. That’s understandable and arguably this was among the more consequential elections of recent times. However, the occupant of the White House has historically made little
difference to the long-term returns available from the financial markets so it’s important not to overreact.
In this article we examine some of the stocks and sectors which might be most impacted while also looking at what Trump 2.0 means for inflation, growth, trade, interest rates and the dollar.
How the Dow Jones Industrials Average performed
WHY IT’S IMPORTANT TO RETAIN PERSPECTIVE
To quote Pictet Asset Management’s senior multi asset strategist Arun Sai: ‘Our analysis of past US elections shows that the impact on asset prices usually starts to fade after a couple of months. Over the long term, economic fundamentals rather than politics tend to determine market direction.’
With this in mind we have delved into how the US market stacks up on earnings and valuation to help understand the context for market returns during a Trump presidency and looked at the potential macro-economic impact.
The other thing to consider is a point we borrowed from British journalist John Authers in our preview of the election: that you should take Trump seriously but not literally on policy. Some of his pre-election rhetoric on items like trade, tax and tariffs may be watered down. Although likely Republican control of all the levers of government does provide him with considerable room for manoeuvre
Pictet’s Sai says: ‘In this scenario, Trump has the power to institute a more radical programme. The federal debt will go up sharply – double the increase we would have got under Kamala Harris, according to the Committee for a Responsible Federal Budget.
‘That’s on top of potentially harsh tariffs,
US small caps, Bitcoin and Tesla in demand as Trump wins
including the threat of a 10% universal baseline. This in our view is a very negative outcome for US treasuries. And though Trump is a big supporter of US oil and gas production (and anti-renewables), his push for greater domestic energy supply is unlikely to cause prices to fall by much, offset by oil demand staying stronger for longer.
‘On balance, this is likely to drive inflation higher forcing corporate bond spreads to widen and the yield curve to steepen.
‘This result favours US equities and the dollar and is negative for non-US equity and bond markets, not least emerging market debt. Within equities, banks stand out as a clear winner benefiting both from higher yields and potential deregulation.’
WHAT ABOUT STOCKS, SECTORS (AND BITCOIN)?
One individual stock which really stands out is Tesla (TSLA:NASDAQ) now up more than 40% in the wake of Trump’s election, with Elon Musk’s closeness to the president-elect expected to result in favourable treatment for the company. Given Trump is an avowed supporter of cryptocurrencies it is no surprise to see Bitcoin at record highs above $80,000 and even close to touching $90,000.
Smaller US companies with a domestic focus – with protectionist policies and a favourable tax regime likely to provide a supportive environment – are another likely beneficiary. And the Russell 2000 US small- and mid-cap index has been a strong performer in the wake of the election result.
Sectors which may benefit from a Trump presidency include banks, for the reasons Sai pointed to above, as well as oil & gas (thanks to deregulation) and pharmaceuticals, as Mirabaud’s senior investment specialist John Plassard observes: ‘Reducing the cost of drugs and boosting domestic production of essential medicines is another initiative that Trump could undertake, which could be advantageous for US pharmaceutical companies, particularly biotechs.’
Consumer discretionary stocks may face the largest impact if Trump sticks to the plan on tariffs and is met by tit-for-tat action in response, while the renewables space could count the cost if Trump rolls back Biden’s green infrastructure plans.
WHERE DO US MARKET EARNINGS AND VALUATIONS
The markets have so far assumed – rightly or wrongly – that Trump’s bark is worse than his bite and that talk of blanket tariffs and a trade war are his way of negotiating a deal.
However, the US economy is very different to the one he inherited in 2017 – it is running hotter, with lower employment (at or around 4% for 30 months in a row) and higher core inflation (and voters really don’t like inflation) together with higher deficits.
As Peel Hunt’s economists flag, whereas Trump’s policy mix boosted US growth during his first term, ‘the risk this time around is that a combination of demand-boosting tax cuts but supply-impairing import tariffs and immigration controls could harm long run US growth potential and stoke inflation pressures’.
The returning president also faces a different stock market to 2017 – valuations are considerably higher and earnings expectations for 2025 are stretched to put it mildly.
Using data from S&P Global, we can see consensus EPS (earnings per share) forecasts for the S&P 500 index are for 18% growth next year compared with 10% this year and the 6% trend growth rate of the last three decades.
Admittedly, the path of earnings has been volatile due to the pandemic, but growth had moderated to around 11% last year and the same is pencilled in for this year, so where is the sharp increase in 2025 supposed to come from?
Surprisingly, perhaps, the strongest growth in operating earnings is seen in Health Care stocks where profits are expected to jump by a third and make up 13% of the index total for the first time.
Close behind is Information Technology, where
Forecast
and make up over a quarter
the first time.
Next up is Materials, where mining and processing firms are forecast to grow earnings by more than 25% although they still only make up a small percentage of the index total by weight.
Curiously, earnings for the Communications Services sector – essentially tech by another name as it includes Alphabet (GOOG:NASDAQ) and Meta Platforms (META:NASDAQ), as well as actual media companies such as News Corp (NWS:NASDAQ) and Netflix (NFLX: NASDAQ) – are only seen rising 13% and making up just under 11% of the index total.
Just as odd, Financial stocks – which make up 17% of S&P 500 earnings and are considered a bellwether of the economy – are only seen increasing their profits by 1.8% next year, so if analysts are correct, growth is likely to be very lopsided and highly dependent on a small group of businesses.
Even if we assume the forecasts are accurate, right now the S&P 500 is trading on 36 times cyclically-adjusted earnings, higher than at the peak of the internet bubble in 2000, so there is no room for policy errors on the part of the incoming administration. [IC]
S&P 500 Index CyclicallyAdjusted PE Ratio
WHAT TRUMP MEANS FOR THE BROADER
MACROECONOMIC BACKDROP
How will Trump’s economic policies likely affect the macroeconomic landscape in the US and the rest of the world? Investors got a good steer on the direction of travel from the market moves on the day after the election.
Stocks went up by a lot more than they usually do after a US election, reflecting expectations Trump will introduce business friendly policies, cut taxes loosen financial regulations, and remove red tape for businesses.
Given Trump’s domestic focus, based on his ‘Make America Great Again’ slogan, it is no surprise the small-cap Russell 2000 index raced ahead by almost 6%, trouncing 2%-plus gains in the large cap S&P 500 and Nasdaq indices. On the other hand, bond investors received
a delayed Halloween scare as yields on 10-year treasuries soared by close to twenty basis points to 4.4%, inflicting price losses, reflecting fears of a higher national debt and stickier inflation.
Bond markets immediately priced in fewer interest rate cuts and a higher terminal rate, (the neutral policy rate) which has moved up to 3.8% from close to 3% a month ago, according to TwentyFour Asset Management.
SOFT LANDING BETS INCREASE
There appears to be a consensus among economists that under Trump the US economy is
Chart: Shares magazine • Source: LSEG
more likely to see a soft landing and less likely to suffer a hard landing.
Senior economist George Brown at Schroders believes Trump is well-positioned to implement his economic agenda because prediction markets are assigning odds of over 90% that the Republicans achieve a so-called Red-Sweep of both the House of Representatives and the Senate.
‘And so, later this month we intend to further raise our above-consensus 2.1% growth forecast for 2025. Our previous forecasts in August were conditioned on betting odds at the time, which had pointed to a divided government under Harris,’ explains Brown.
Brown believes inflation could prove to be stickier, reinforcing his conviction the Fed will not be able to deliver as many interest rates cuts as it has indicated.
‘Trump’s return to the White House likely means that the Fed needs to keep rates above 3.5%, which is our estimate of the neutral rate,’ adds Brown. The Schroders’ team also believe Trump’s policies indicate a stronger US dollar, although fiscal pressures could weigh on the greenback longer-term.
THE RETURN OF THE BOND VIGILANTES
Trump’s policies hint at ‘massive’ increases in unfunded fiscal deficits over the next decade according to analysts at Panmure Liberum.
Based on estimates from the US non-partisan Tax Foundation unfunded deficits could rise by $6 trillion, increasing the US debt-to-GDP ratio to more than 143%, putting the US in the same bracket as Italy.
That looks conservative against an estimate from The Committee for a Responsible Federal Budget which sees Trump’s campaign costs adding $15.6 trillion to the public debt by 2025.
While no one appears to be contemplating the idea of the US defaulting on its debts, Trump’s spending plans will have costs attached to them. Specifically, investors may demand higher treasury yields to compensate for the risks.
Researchers from Stanford found that for every one percentage point increase in the debt-to-GDPratio, 10-year yields rise by 0.32%.
Panmure Liberum points out this will raise borrowing costs for both consumers and businesses, not to mention the government.
TRADE FRICTIONS
Trade tariffs are a key part of Trump’s agenda and depending on the extent of actual measures deployed versus negotiating rhetoric, the impacts could be far reaching.
In general, trade wars create uncertainty for businesses and act as a drag on growth while stirring inflationary pressures.
China is clearly in Trump’s line of fire and preparing its own stimulus measures to mitigate tariffs and boost its flagging economy. Emerging markets could see the worst effects from trade frictions given they are already struggling with a stronger dollar.
Closer to home, Goldman Sachs has slashed its forecasts for Eurozone GDP growth in 2025 to 0.8% from 1% and trimmed estimates for the following year, based on the impact from expected trade tariffs and a ramp-up in European defence spending.
The investment bank believes the inflationary effects from tariffs will be modest because of retaliatory actions from European firms which could dampen demand. This also raises the prospect for further interest rate cuts from the ECB, argues Goldman.
US firms are not immune from the effects of Trump’s trade policies argues Pictet Asset Management. It estimates companies could suffer a ‘hit’ to earnings of around 7% as tariffs on imports from China are increased, some of which would be offset by tax cuts. [MG]
Is your global fund truly diversified?
• US dominance of global stock markets is at an all-time high.
• Donald Trump will return to power in January
• Murray International strives for a more geographically and sectordiverse portfolio
The US remains the largest and most liquid stock market in the world. It has been the birthplace for a number of the world’s most innovative companies and remains one of the faster growing developed economies. However, it is now a huge weight in many major global indices, and this may be a risk for investors – whatever thoughts they may have on the emphatic results of the recent presidential election.
After what had been a bad-tempered contest, Donald Trump declared victory in the early hours of November 6th with what he termed “an unprecedented and powerful mandate”. The President Elect has a fully formed plan of action for when he returns to the White House in January, with material policy changes lined up. The recent period of US political uncertainty is now at least over and global leaders have rushed to congratulate Trump on his emphatic victory. However, no one yet knows what the impact of the forthcoming US policy changes will be on relationships between the US and its overseas partners.
BURGEONING DEBT BACKDROP
While politics may not always have
a direct bearing on the fortunes of individual companies, the recent political fragility in the US needs to be set against the backdrop of burgeoning debt in the US. The US debt is currently $35.7 trillion, 10x that of the (also highly indebted) UK. It is taking up an increasingly vast share of government revenues. Trump will likely cut taxes, implying that he has no plans to address this deficit.
This appears a precarious backdrop, and one that could dent sentiment towards the US market. Yet US dominance of global stock markets is at an all-time high. The MSCI AC World is now 64% weighted to US stocks. Within that US exposure, there is also high concentration in technology companies, and the Artificial Intelligence (AI) theme in particular –Apple, Microsoft, Nvidia, Amazon, Meta and Alphabet comprise around 18% of the MSCI AC World index.
This also creates risks. The US technology sector has been a superb place to be invested over the past decade for capital growth, but the circumstances are different today. Interest rates are structurally higher, which typically creates a less favourable environment for high growth companies. Valuations are also higher. Apple, for example, has seen its price to earnings ratio double over the past five years. Nvidia’s price to earnings ratio is also double its level since October 2022. These companies are growing fast, but if that is already in the valuation, they may not make good investments.
A CONCENTRATION ISSUE
This concentration is an issue for passive funds, but also for any global fund where the starting point is the index. These funds are likely to contain similar biases and will focus on the same handful of US technology companies. This argues for introducing greater diversity into a portfolio. Given the distinct investment objective of Murray International, we believe in a ‘blank slate’ approach, paying far closer attention to a company’s ability to grow its capital and dividends over time, than its weighting in an index which would not actually deliver the investment mandate.
This creates a more geographically and sector-diverse portfolio. We do find opportunities in North America, but it is 29% of the portfolio and there are no holdings in the mega-cap technology companies which pay little or income. We hold similar weighting in Europe (24%), Asia ex Japan (24%), and the rest of the world, with significant holdings in areas such as Latin America, which barely feature in the MSCI AC World index. The sector mix is also broader, with around 16% in technology, but also 17% in financial services, another 16% in consumer-facing companies, and around 13% in healthcare.
The AI theme is still represented in our portfolio: we recognise its longterm growth potential – but we are investing in it through companies where valuations are more compelling
and income is also available, including Taiwan Semiconductor Manufacturing (TSMC). TSMC makes the majority of Nvidia chips, and yet trades on a far lower valuation.
AI is also a new technology, which brings risks, which is why our portfolio is balanced across a range of ideas, many of which are only lightly represented in a typical global equities portfolio. Our aim is to have a range of different moving parts, with different factors contributing to performance. The trust has always looked distinct from the index and continues to do so. We would worry if all the portfolio started to move in unison.
This is also important in fulfilling our income objective. Growing the income on the trust year in, year out, means having a diversity of income sources. We cannot be reliant on a single sector, country or type of company for income. We draw income as widely as possible.
Important information
EVERY POSITION COUNTS
Unlike an index-focused portfolio, we try to ensure that every position counts, holding a minimum of 1% and maximum of 5% in each position. While the MSCI AC World index has some exposure to Latin America, it is less than 1%. This means it is often neglected by investors. Not only is this an oversight – Latin America has been the best-performing region in 11 out of the previous 26 years in Sterling terms – it creates mispricing that can be exploited. We hold around 9% of the trust there, spread across six holdings. Our ‘go anywhere’ approach gives us real flexibility to exploit mispricing when markets are temporarily derailed by factors that are unlikely to matter in the long term. For example, in Mexico, market confidence has been knocked by the uncertainty surrounding the new President, and her reform agenda. We don’t believe her accession will
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 bid-offer spread can widen.
• With funds investing in bonds there is a risk that interest rate fluctuations could affect the capital value of investments.
significantly impact holdings such as Mexican airport operator Grupo ASUR. The company has just paid a large special dividend, which has helped cushion short-term volatility in its share price.
We are long-term in our time horizon, which helps us navigate volatility. For example, our new holding in Mercedes has been volatile since initiation: the company has undergone some restructuring, and the car industry is difficult. However, we can wait for its value to be recognised by the market, and in the meantime, the company is paying an attractive and growing dividend, well-supported by cash flows.
The US is important, but it has become a very large part of global stock markets and there are potential growing risks. We believe it is important to have more balance in a global portfolio, looking beyond the US for growth and income opportunities at the individual stock level.
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 at www.abrdn.com/MYI or by registering for updates
Investing in the US: how buying actively managed funds compares with stocks
The different options for those looking to get a slice of the returns on offer across the Atlantic
The US stock market is the biggest in the world and the listing domain of globally-renowned companies including Apple (AAPL:NASDAQ), Nvidia (NVDA:NASDAQ) and Amazon (AMZN:NASDAQ), which makes the market an extremely attractive proposition for UK-based investors. The US equity market’s sheer size means it is highly liquid and offers investors greater scope for diversification than other regional markets. Just because the US market is home to the world’s largest companies doesn’t mean profits are guaranteed - even the most valuable stocks can shed value. But what you can count on is that America’s stock market is awash with opportunities.
A big decision you’ll need to make is whether to invest in the US market directly or opt for an actively managed fund, where a market professional will manage your investments and make decisions on what to buy and sell. In return for his or her expertise, you’ll pay a fee and to justify the expense, the fund should outperform its stated benchmark at the very least.
GOING WITH THE PROS
Investing in the US stock market needn’t be complicated nor expensive and UK investors are blessed with an array of actively-managed US funds to choose from for their ISA or pension, with portfolios specialising in large cap, mid cap and small cap stocks or pursuing growth, value or income strategies.
A useful starting point is AJ Bell’s list of Favourite funds. Selected by investment specialists for
the value they offer to investors, among other characteristics, the list’s trio of US actively managed selections includes Artemis US Select (BMMV510), a capital growth ‘best ideas’ fund managed by the experienced Cormac Weldon alongside Chris Kent, Artemis US Smaller Companies (BMMV576), also managed by Weldon alongside Olivia Micklem, and JPM US Equity Income (B3FJQ26), a £3.2 billion fund managed by David Silberman and Andrew Brandon.
Single-country investment trusts trading at discounts to NAV (net asset value) include JPMorgan American (JAM), North American Income Trust (NAIT) and Baillie Gifford US Growth (USA), as well as JPMorgan US Smaller Companies (JUSC) and Brown Advisory US Smaller Companies (BASC).
PICKING YOUR OWN STOCKS
Buying US shares is as simple as investing in the UK and investment platforms including AJ Bell enable you to buy stakes in US giants such as iPhone designer Apple, Elon Musk-steered electric vehicles company Tesla (TSLA:NASDAQ), the world’s biggest retailer Walmart (WMT:NYSE) and entertainment giant Walt Disney (DIS:NYSE).
Keep in mind that if you are looking to buy US investments in any account other than a SIPP, you’ll need to complete a W-8BEN form. As well as allowing you to deal in US shares, this form lets you benefit from the US Internal Revenue Service (IRS) treaty rate, which lowers the withholding tax for qualifying US dividends and interest from 30% to 15%.
There are two US-based stock exchanges: the NYSE and the NASDAQ, which are the world’s biggest and second biggest exchanges respectively and follow the same opening times. Unlike many stock exchanges around the world, neither the NYSE or the NASDAQ closes for a lunch break, so buying and selling takes place from the opening bell at 9:30 am through to the closing bell at 4:00 pm.
WHEN CAN YOU TRADE?
US stock exchange trading hours work using three distinct sessions: pre-market, regular and after-hours. Pre-market runs from 4:00 am to 9:30 am, regular runs from 9.30 am to 4:00 pm and after-hours runs from 4:00 pm to 8:00 pm New York time. This The three major US stock indices - the S&P 500, the Dow Jones and the NASDAQ 100 - follow the same times as the NYSE and the NASDAQ. For UK investors this means you can invest between 2.30pm and 9.30pm.
For risk-averse, time-poor investors, it may make sense to invest in funds rather than individual stocks, since funds allow you to cost-effectively build a diversified portfolio and outsource the monitoring of individual company news flow and performance to professionals, for whom picking stocks is their day job. You’ll also avoid the extra dealing costs of constructing a portfolio for yourself. By investing even a few hundred pounds in a fund you can get exposure to far more companies and indices than you could by putting money into the market directly.
One downside of the funds route is that by spreading your eggs across numerous baskets, you’ll reduce the positive impact that a group of winning investments might have had on your total wealth compared to if you had all your portfolio invested in just a handful of stocks, but the decision really depends on your risk appetite and the time you have available to research the market and monitor individual shares.
DISCLAIMER: AJ Bell, referenced in this article, owns Shares magazine. The author (James Crux) and editor (Tom Sieber) own shares in AJ Bell.
By James Crux Funds and Investment Trusts Editor
Stuck in the middle with EU
While it is no doubt a gross simplification of a much more complex reality, one can think of the now-dissolving world order as based on two strategic compromises.
On the one hand, America accepted large-scale technology transfer (aka theft) to Chinese companies in return for a steady supply of cheap manufactured products. On the other hand, Russia provided cheap and plentiful hydrocarbon energy to European industry. In exchange, European powers turned a blind eye to the cronyism and corruption of Putin’s regime, not to mention its efforts to meddle in European affairs.
No country in Europe bought into this particular element of 21st century realpolitik quite as much as Germany. At least in terms of this second compromise, Russia’s invasion of Ukraine has shattered the wandel durch handel (change through trade) dogma that drove Germany’s post-war relationship with allies and foes alike. So what follows? And with what consequences for Europe?
Beyond the relationship with Russia, it is hard to overstate how far perceptions of German economic interests have shaped the European Union. France’s military and geostrategic ambitions for Europe have been serially constrained. The tension between a France that dislikes NATO and wants a full-on EU foreign policy and military and a Germany that fully backs NATO and the US has been central to understanding much of European politics in recent decades. Europe’s monetary union was shaped in Germany’s image. The European Commission (until very recently) was the bastion of European free market thinking, a Germanled bulwark against the more protectionist and nationalist instincts within the EU.
Europe’s schizophrenic relationship with China – economic necessity meets human rights abuses and climate insouciance – must also be understood in these terms. European manufacturers increasingly rely not just on Chinese final demand, but also on intricate supply chains that run through Asia. Does the EU, therefore, try and straddle a path that runs directly between the two great powers of today’s world? Accept US hegemony in full and the consequences
Disclaimer
of its grand strategic rivalry with China? Or drive full throttle towards a United States of Europe that can challenge the protagonists of the emerging bipolar order?
In coming years, Europe is in danger of being squeezed between a declining and polarised tech superpower and an autocratic but rising manufacturing powerhouse. For Germany, this is an existential crisis. Its national identity and economic supremacy stem from the prowess of its industrial base, not least its once dominant auto industry. But Germany’s manufacturing engine is spluttering, badly.
This year, 4 million vehicles will roll off production lines in Germany, about the same as last year. Before the pandemic, the figure averaged 5.5 million vehicles. Production volumes have now run well below this level for six successive years. Across the entire industrial sector, new order volumes are running about 5% below their 2019 level, itself about 5% off the 2018 cyclical peak. The figures for output and production look even worse.
Much of this weakness appears structural. China’s balance sheet recession has some way still to run. Muscular economic nationalism is supported on both sides of the political aisle in Washington. Cheap and plentiful hydrocarbon energy from Russia is a thing of the past. Xi’s strategic vision for China sees it eating the lunch of European carmakers. And to the extent that ‘change through trade’ was once the orthodoxy of the European Commission, it is no longer. Mario Draghi’s recent report for European Commission President Ursula von der Leyen makes that plain.
No other major European power has as much to lose from the emerging bipolar world as Germany. Its response to these dangers will have profound ramifications, not just for German economic performance but for the political economy of Europe in the years ahead.
Jamie Dannhauser, Economist
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How a tiny US healthcare company has become one of the year’s hottest stocks
By offering a trusted, personalised, online service, business is booming for Hims & Hers
Surprisingly, one of the most talked-about US stocks of 2024 has nothing to do with AI (artificial intelligence), chips, gold or cryptocurrencies.
It is a small tele-health company based in San Francisco called Hims & Hers Health (HIMS:NYSE), which provides prescription and over-the-counter medicines as well as personal care products through its online platform.
When we say small, its market cap is just $4 billion, which is miniscule in comparison with stocks like Alphabet (GOOD:NASDAQ) and Microsoft (MSFT:NASDAQ), but its shares have left these giants eating its dust with a 95% gain year-to-date.
So why all the excitement? Read on to find out.
AFFORDABLE AND ACCESSIBLE
Hims provides affordable and accessible directto-consumer solutions for sexual health, mental health, dermatology, hair loss and weight loss by connecting customers with licenced healthcare professionals for personalised consultations and
treatments from the comfort of their own home on a subscription basis.
In the relatively short period since it was founded in 2017, Hims has built a leading and trusted brand in health and wellness which suits consumers who increasingly rely on the internet and social media for health advice and information.
This was never more true than during the pandemic, when public trust in doctors and hospitals fell and increasing numbers of people turned to the internet for health information from trusted sources.
In a survey of nearly 500,000 Americans, trust in
Addressable markets
Speciality
Erectile
Premature
Sexually-transmitted
Est. annual spend ($bn)
$34
$13
$13
$13
a brand via marketing that is extremely visible across the channels consumers utilize, and once on the site, Hims makes it easy to get the care as consumers can access 24/7 treatment via virtual visits and receive medication shipments, on average, in less than 24 hours from the point of care’, say the analysts.
In addition, Hims’ cash pay model makes the buying process simple and affordable for customers, more of whom have what are known as HDHPs (high-deductible health plans) which actually raise the cost of treatment, making it more likely people will pay out of their own pocket than claim on their plan.
THE OPPORTUNITY IN OBESITY
The real kicker to Hims business, and the reason why so many US investors are talking about the stock, has been the development of GLP-1 weightloss drugs.
When demand for these drugs exploded earlier this year, firms like Eli Lilly (LLY:NYSE) and Novo Nordisk (NOVO-B:CPH) couldn’t keep up with demand so the FDA (Food & Drug Administration) added them to its list of treatments in short supply.
That meant generic drugmakers were able to produce compounds which combined the key ingredient in the patented versions with other drugs and sell them at a lower price.
$4 Birth control
$3
Table: Shares magazine • Source: Estimates from Needham & Co
doctors and hospitals fell from 72% in April 2020 to 40% in January 2024.
Analysts at US research firm Needham believe this sharp fall in trust in public healthcare combined with a demographic shift towards ‘digitally native millennials and GenZers’ has driven more consumers to look for health solutions online.
A survey by eMarketer in late 2023 indicated that over 80% of respondents used the internet for health-focused research, with 65% of that group looking for information on medications, treatments and healthcare services.
This has created ‘a favorable market dynamic for the growth of Hims, which has effectively built
In May, Hims launched both compounded oral and injectable versions using the same active ingredient as Ozempic and Wegovy and was inundated with subscribers with almost no marketing spend.
Almost 40% of Americans are defined as obese, and another 30% are considered overweight, meaning the weight loss category is a massive opportunity.
Needham puts the annual US market for weight loss drugs at $37 billion and argues Hims is ‘well positioned to take advantage of this market opportunity as cost and access have been identified as the two primary barriers to usage of the drug’.
Although Eli Lilly’s and Novo Nordisk’s drugs are no longer on the short-supply list, Hims is using its scale and ‘flywheel effect’ to keep prices low including lowering the cost for customers who choose longer-duration treatments.
Asked by an analyst on its second-quarter conference call in August how it was able to offer
Total revenue ($bn)
Subscribers (millions)
weight-loss drugs way below Eli Lilly and Novo Nordisk, with compounds starting at $79 per month and GLP-1s at $199 per month, the firm said pricing was ‘just a reflection of the benefits from the scale that we have today, which enables us to negotiate across the supply chain and place it at these price points’.
STRONG SUBSCRIBER GROWTH
In less than a year, weight loss has scaled to an annual run-rate of $100 million of revenue, becoming the fastest specialty to do so, but there is much more to Hims – the rest of the business grew its sales by 46% in the second quarter to over $300 million.
The primary driver of this growth is the expansion of the firm’s online subscriber base, which grew 44% to two million in the third quarter, attracted by the evolution of its personalised solutions and their affordability.
As it offers more multi-condition solutions and customised dosages, so an increasing number of customers are switching to personalised treatment (55% of new subscribers in the second quarter opted for an individually-tailored solution, with a strong uptake among sexual health users).
Group revenue for the third quarter rose 77% to $401 million, way above market forecasts, lifted by both the increase in subscriber numbers and by average monthly online revenue which rose by 24% from $54 to $67 per subscriber.
That translated into a 40% increase in its average order value from $99 to $148, as more than a million customers chose a personalised solution.
The gross margin dipped slightly but was still a remarkable 79%, while EBITDA (earnings before interest, tax, depreciation and amortisation) rose more than four-fold from $12.3 million to $51.1 million and free cash flow increased three-fold from $19.3 million to $79.4 million.
The firm raised its full-year guidance once again, as chief financial officer Yemi Okupe explained: ‘Our model is rapidly gaining scale, driving accelerating top line growth, improving profitability and strong cash flow. We are seeing this strength across our business.
‘Our ability to unlock access to high-quality, personalised care continues to expand, further instilling confidence that our model is positioned to help tens of millions of individuals over time.’
‘THE NETFLIX OF CONSUMER HEALTH’
Besides the opportunity in weight loss drugs, there are huge addressable markets in Hims’ other areas of expertise.
Needham estimates the annual market in sexual health to be around $33 billion, while dermatology could be over $90 billion and mental health in the region of $25 billion, giving the firm ‘an expansive runway for growth for the foreseeable future’.
There are multiple other verticals the firm could expand into such as testosterone, menopause, fertility, eczema, rosacea, PTSD and insomnia.
In total, its addressable market represents annual revenue of $525 billion - if it were to take just a 1% share by 2025, that would mean sales of $5.25 billion against the current Stockopedia consensus of $2 billion.
As one UK investor who has watched the Hims story unfold this year put it to Shares, ‘The best way to think of it is like the Netflix (NFLX) of healthcare: they’ve built a platform that makes getting care more accessible, more personalised and cheaper.
‘They currently have close to two million subscribers – who pay a monthly fee plus extra for any drugs they are prescribed by the physicians they connect to online – and the company thinks there are over 100 million people in the US alone who could become customers.’
By Ian Conway Deputy Editor
Finding Compelling Opportunities in Japan
Revisiting the Triffin dilemma as Trump’s election victory sees dollar soar
New administration could face a no-win scenario as it looks to address the trade deficit
Fans of Gene Roddenberry’s long running Star Trek television and film franchise will know that any would-be captain of a Starfleet vessel had to complete the so-called Kobayashi Maru test, a simulation from which there was no way out, to see how they responded to extreme pressure. The first captain of the USS Enterprise, James T. Kirk, earned his place at Starfleet Academy by reprogramming the computer that ran the test, to ensure there was a way to rescue a marooned ship, avoid starting a war and escape unscathed. It will be interesting to see how America’s president-elect, Donald Trump, seeks to wriggle out of a potential no-win scenario that he may face in the coming four years.
This is because Trump may just find himself on the horns of a dilemma when it comes to the US dollar. Upon news of the victory achieved by the Republican Party candidate in the 60th presidential election in US history, the greenback surged and all but wiped out the losses suffered over the summer.
The dollar surged on news of Trump’s election win
Source: LSEG Refinitiv data
But rhetoric during his previous presidency, and also comments from vice-president elect J.D. Vance in the 2024 campaign, suggest Trump prefers a weak dollar, as a means of boosting exports. Trump spent his first spell in the White House badgering the US Federal Reserve for interest rate cuts, and looser monetary policy could also weaken the dollar, at least if the Fed lowers headline borrowing costs either faster than expected, or faster than its global peers.
It will therefore be interesting to see what, if anything, Trump has to say about the bouncy buck. This issue has implications and also for the world, at least if the Triffin Dilemma has anything to say about it.
TRIFFIN TOPICAL AGAIN
The current world monetary system was set up in 1971, when then US president Richard M. Nixon and treasury secretary John Connally took America off the gold standard, effectively killing the Bretton Woods system set up toward the end of the Second World War. Bretton Woods had replaced the pound with the dollar as the globe’s reserve currency, pegged other currencies to the US currency and in turn to gold, for which they could exchange greenbacks.
“Donald Trump” by Gage Skidmore is licensed under CC BY-SA 2.0.
The idea was that America, the world’s economic superpower, could not easily run a cheap dollar policy and export its way to total dominance or be fiscally imprudent at home. A soaring gold price (or tumbling dollar) would be the sign than the US was printing - and devaluing – dollars.
Professor Robert Triffin spotted the catch in a book he wrote in 1960, Gold and The Dollar Crisis: The Future of Convertibility. He argued that the greenback’s global reserve currency status would come at a cost – either to America or the world.
This is the potential scenario that faces the new Trump administration. The current system is all well and good while confidence in the dollar remains, lenders are happy to hold US treasuries and the US is happy to run a trade deficit. But it becomes a problem if lenders lose faith (as they did briefly in 2008) or America’s trade policy is changed.
This is where president Trump enters the equation. America’s last trade surplus was 1975, according to the US Bureau of Economic Analysis, and Trump’s first administration made little or no dent in the annual trade deficit. If he succeeds this time around, and America sells more than it buys, dollars will flow back to the US and drain the global economy and the world’s financial markets of the greenbacks and liquidity upon which they are reliant.
The US has not run an annual trade surplus this century
Source: FRED- St. Louis Federal Reserve, database, US Bureau of Economic Analysis
EMERGING ISSUE
As noted in this column two weeks ago commodity prices generally struggle under a strong dollar, and so do emerging markets, the former because a higher greenback increases the cost of raw
materials for non-dollar users, and the latter because their dollar-denominated debts become heavier and more expensive to service. In short, a strong dollar is inherently disinflationary, even deflationary for the world.
This is the potential no-win scenario that faces the new Trump administration. His policies are designed to boost US economic exports, output and growth. But if they prove so successful that the dollar advances strongly as a result, then the damage to the rest of the world could be considerable and perhaps enough to deprive America of the buyers of its exports for which it longs.
There is no computer for Trump to reprogramme. It may be that his threat of acrossthe-board tariffs on US imports is no more than a bargaining tool, but investors will need to watch the trade-weighted dollar (DXY) index, any comments from the president-elect on US Federal Reserve policy and the gold price for clues as to what may be coming next.
The precious metal may be the biggest ‘tell’ of all. If Trump fails – or backs off – and the US keeps piling up a fiscal deficit as well as a trade one then gold could thrive, not least as such an environment would smack of plentiful dollar supply and greenback weakness (especially if the Fed resorts to lower interest rates, or even a return to quantitative easing, to keep the national debt and associated interest bill manageable). If he succeeds, renewed faith in paper dollars would perhaps lessen even gold bugs’ ardour for the precious metal as a store of value.
Gold and the dollar tend to be inversely correlated
Source: LSEG Refinitiv data
How can investors thrive in a world of change?
Change is constant in the global economy. What is unique –and exciting for investors – about this current point in time is that there appears to be several transformational and multi-generational shifts occurring simultaneously.
Three areas of major change offer diverse and compelling long-term investment potential.
1. DISRUPTIVE FORCE OF AI
Given the multi-faceted nature of the AI ecosystem, there is no single ‘correct’ way to map the investable opportunities, but we have looked to distinguish between the near and longer-term opportunities.
Five areas of focus include: compute (semiconductors, or the ‘brains’ of AI), infrastructure (cloud service providers, data centres and networks, which provide the ‘plumbing’), AI model developers, software applications and the endindustry beneficiaries who can bring the technology to consumers.
In AI, scale is an advantage. Big tech companies already have proprietary data, large amounts of capital and vast user-bases to which they can sell AI products and services. While some AI startups may find success over time, the starting point for existing tech companies is very strong.
2. A NEW WAVE OF HEALTH CARE INNOVATION
The next era in pharmaceutical innovation could be transformative for health care. Breakthroughs
in gene therapy and gene editing, for instance, are leading to interventions to tackle a range of genetic disorders.
Novel treatments like these could address major, but largely untreated, illnesses worldwide, such as cancer, obesity and cognitive impairment.
We have seen how pharma innovation can have profound implications, as GLP-1 treatments – the drugs to treat diabetes and obesity – have gained enormous interest worldwide.
3. INDUSTRIAL RENAISSANCE
For the past 15 years, investors have largely ignored ‘old-economy’ businesses that make physical things. However, signs are emerging of an industrial renaissance driven by multi-year trends such as energy security, data centre build-out, rising defence spending and supply chain reconfiguration.
Essentially, old economy manufacturers could become critical enablers of our future economy and, in doing so, transform themselves into long-term growth companies.
These areas of transformational change are reflected in Capital Group New Perspective strategy, which has navigated global shifts for more than 50 years.
Each investment in the strategy is grounded in fundamental research and expresses portfolio managers’ highest conviction ideas.
Capital Group New Perspective strategy
Stamp duty changes in Budget to cost some buyers £11,250 more
The impact chancellor Rachel Reeves’ measures will have on property purchasers
Stamp duty changes announced in the Budget mean that from April 2025 buyers will face higher costs when buying a home – with first-time buyers hit the hardest. The ending of a temporary stamp duty cut means that the tax will rise next year. This measure, originally introduced by former prime minister Liz Truss to boost the housing market, will end on 31 March 2025. The most significant impact will be felt by first-time buyers who buy property at the higher end of the market, with up to £11,250 in additional tax costs. Here’s what the upcoming changes mean for buyers and the housing market.
First-time buyer changes
highlights the higher tax that first-time buyers will face when the new rules take effect.
HOW WILL HOME MOVERS BE AFFECTED BY THE CHANGES?
WHAT CHANGES ARE COMING TO STAMP DUTY FOR FIRST-TIME BUYERS?
Currently, first-time buyers in the UK benefit from reduced stamp duty rates on properties valued at £625,000 or less. For these buyers, there’s no stamp duty on the first £425,000 of the property’s value, and a 5% rate applies on the remaining value up to the £625,000 limit. However, with the upcoming changes in April 2025, the property value eligible for this reduction will drop to £500,000. On top of this, only the first £300,000 of a qualifying property will be exempt from stamp duty, with 5% payable on the remaining balance up to the new £500,000 threshold.
In the worst case, this change will result in a £11,250 increase in stamp duty for first-time buyers buying homes priced at £625,000. The table
Home movers will also see changes in stamp duty rates, although the increase in tax will generally be lower than that for first-time buyers. Currently, those buying their next home pay no stamp duty on the first £250,000 of a property’s value, with a 5% rate on any amount up to £925,000. From April 2025, however, the threshold for stamp duty-free purchases will be lowered to £125,000, with a 2% rate re-introduced on properties valued between £125,001 and £250,000.
For home movers, the reintroduction of this 2% band means that they could face an additional £2,500 in stamp duty tax.
WILL THERE BE A RUSH TO BUY BEFORE THE DEADLINE?
The impending changes are expected to create a surge in property transactions before the deadline. With the stamp duty savings set to end on 31 March 2025, many buyers may attempt to secure property purchases before they face higher taxes.
Table: Shares magazine • Source: AJ Bell
Stamp duty ratesnow
Stamp duty ratesnow
£925,001 to £1.5m 10%
Stamp duty ratesfrom April 2025
Stamp duty ratesfrom April 2025
£250,001 to £925,000 5%
£925,001 to £1.5m 10% £250,001 to £925,000 5%
£1.5m+ 12%
£1.5m+ 12%
A similar trend was seen when pandemic-related stamp duty cuts expired, which led to a surge in sales. However, this urgency to buy could distort the market, potentially driving up property prices thanks to increased competition among buyers.
WHAT OTHER CHANGES HAPPENED TO STAMP DUTY IN THE BUDGET?
Those buying a second home were also hit with higher tax costs in the Budget. These buyers already face higher rates of stamp duty than people buying their main residence, but those rates will increase further. Before the Budget anyone buying an additional property paid an additional stamp duty rate that’s three percentage points higher, but Labour has now extended this to five percentage points. The change came into effect immediately, for any sales completing from 31st October onwards.
£925,001 to £1.5m 10%
£925,001 to £1.5m 10%
£1.5m+ 12%
2017 and paid in the full £4,000 a year would now have a pot worth just over £50,000, assuming 5% investment growth a year after charges.
Across those eight years they would have contributed £32,000 and benefited from £8,000 in free money from the government. They would have also seen just over £10,000 of investment growth in that time.
HOW A LIFETIME ISA CAN HELP FIRSTTIME BUYERS
If you’re aged 18 to 40 you could use a Lifetime ISA to help boost your house deposit savings – and help to offset some of those higher stamp duty costs - as you get a 25% bonus on your savings from the government. You can deposit up to £4,000 per tax year into a Lifetime ISA and the government will add up to £1,000 a year, effectively giving you free money that can significantly speed up your deposit savings efforts.
For example, someone who had opened a Lifetime ISA when the accounts were introduced in
If instead you’d saved that same £4,000 a year into a normal stocks and shares ISA over the same timeframe, you’d have contributed the same £32,000 over the period. But you wouldn’t have benefitted from any government bonus and even if your investment returns stayed at the same 5% a year, the returns would be just over £8,000 – as you’re only getting returns on your contributions, not on the government bonus too. At the end of the period, you’d have £10,000 less in your savings pot. However, it’s important to be aware that there are restrictions on how the funds can be used; you can only withdraw the money penalty-free when buying a first home priced at £450,000 or less, or after age 60. Withdrawing for any other reason triggers a 25% penalty on the amount withdrawn, which effectively reverses the government bonus and potentially reduces your original savings. Read more about how the accounts work here.
By Laura Suter AJ Bell Head of Personal Finance
Table: Shares magazine • Source: HMRC
Table: Shares magazine • Source: HMRC
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What should I do after the inheritance tax advantage on pensions was wiped out by the Budget?
Our resident expert helps with a query from a 74-year-old considering the implications of the chancellor’s changes
Now we have had the Budget, I think this may alter my retirement planning strategy. The significant IHT (inheritance tax) pensions advantage has now gone (or will within two years).
I am 74, have around £1.5 million in SIPPs largely untouched. I have fixed protection 2014, and my tax-free cash limit is £375,000 less £25,000 taken in 2024.
In view of IHT advantages of pension (until the Budget) I had been taking income from my ISA (value around £600,000) at a rate of £1,000 a month and £1,000 from trading account.
Now it would seem sensible to take a modest amount of tax-free cash and use some to repay the money into the ISA which I think I can do within the same tax year. So far that amounts to £8,000.
I think over next year I might well now need to take some tax-free cash and gift it so provided I live seven years it will reduce those possible additions to my estate. Leaving my ISAs in the tax wrapper.
choose to change the tax rules on death.
This was perhaps not unexpected. The current rules are very generous; indeed, if a pension saver dies before age 75 then their beneficiaries could be able to take all the income from a pension tax free. If the saver dies after age 75, then income tax will be due on any lump sum or income taken at the beneficiary’s marginal rate of tax. Furthermore, pensions were always kept separate from inheritance tax (IHT).
The chancellor has now suggested changing the rules from April 2027 to include pensions within someone’s estate for IHT.
The first thing to emphasise is this is not yet law. The government is consulting with the industry on how to bring this in. It sounds a simple idea; but in practice it will be very difficult to mesh pension rules with probate rules.
TAKE A MOMENT AND DON’T PANIC
So, before you rush out to change your plans, take a moment. Don’t panic. Think through all your options and if possible, wait a few months for the dust to settle to find out exactly how this will work in practice.
Do you agree there is now merit in topping up ISA either from savings of tax-free cash and are there any other things I should consider.
Eric Rachel Vahey, AJ Bell Head of Public Policy,
says:
Budget changes to pensions tax rules always seemed a possibility. Whereas the chancellor chose to keep the tax advantages of tax relief on pensions contributions and the allowance on tax-free cash lump sums that can be taken in a lifetime, she did
Even if it comes in, the change won’t take place for over another two years, and in the meantime, pensions remain very tax-efficient, and free from inheritance tax.
Although IHT comes with a fearsome reputation, it’s best to remember that very few estates are subject to IHT. There is no doubt this will increase if pensions are included, but it will not affect everyone.
Importantly, any pension money passed on to a spouse or civil partner won’t be subject to IHT. And under the current IHT nil rate bands up to £325,000 can be passed on to other loved ones tax-free before IHT applies, with another £175,000 available if the family home is passed on to direct descendants. Under a ‘second death’ this could
Ask Rachel: Your retirement questions answered
mean a potential £1 million nil rate band.
For other cases, where IHT applies, age 75 will still act as a watershed. On death after this age, inherited pension funds will be subject to both income tax and IHT. So, it makes sense, from this age, to take any taxfree cash people are entitled to.
Currently, many people choose to take their funds from other investments, such as ISAs and dealing accounts, and leave their pensions until last. If the change happens, then it’s likely many people, especially if older than 75, will want to revise this order and start to take income from their pension first.
If they take money out of their pension, then they will have to pay income tax on it. They could then move it into their ISA, if they don’t need to spend it, where it will still be subject to IHT, but no further income tax will be paid by the beneficiary who inherits those funds through the estate. This could be advantageous if the pension saver is over 75, has no spouse or civil partner and is a basic rate taxpayer, and the beneficiary is a higher rate
taxpayer. But if they pay the same rate of income tax then there may not be many advantages to doing this. The money will still be subject to income tax and IHT.
ALTERNATIVE OPTIONS
An alternative is to gift the removed pension money to others. People will want to use their IHT allowances to do this. For example, everyone has an annual £3,000 allowance, or some could use the rules to allow them to pay a regular income to another if it doesn’t affect their standard of living. Another option is to use the ‘seven-year rule’ which means no tax is due on gifts given if the donor lives for seven years after giving them.
Finally, some pension savers may want to explore setting up trusts for their loved ones. Estate planning however can be complicated, so pension savers, once we understand more clearly the final rules, may want to ask a regulated financial adviser for help in setting up a strategy to suit their personal circumstances.
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COHORT
HENDERSON INTERNATIONAL INCOME TRUST
Henderson International Income Trust scours global markets to look for reliable and growing income. By investing in established and enduring companies outside of the UK, we aim to offer a truly diversified source of income and potential for capital growth that is not bound by borders.
Cohort is the parent company of six innovative, agile and responsive defence technology businesses providing a wide range of services and products for UK and international customers. It has headquarters in Reading, Berkshire and employs in total over 1,300 core staff there and at its other operating company sites across the UK, Germany, and Portugal. NB
PRIVATE EQUITY
NB Private Equity is a London-listed investment company focused on generating attractive long-term returns by investing in a portfolio of direct investments in private companies, all hand-picked by Neuberger Berman’s team of experts.
WHO WE ARE
EDITOR: Tom Sieber @SharesMagTom
DEPUTY EDITOR: Ian Conway @SharesMagIan
NEWS EDITOR: Steven Frazer @SharesMagSteve
FUNDS AND INVESTMENT
TRUSTS EDITOR: James Crux @SharesMagJames
EDUCATION EDITOR: Martin Gamble @Chilligg
INVESTMENT WRITER: Sabuhi Gard @sharesmagsabuhi
CONTRIBUTORS: Dan Coatsworth
Danni Hewson
Laith Khalaf
Laura Suter
Rachel Vahey
Russ Mould
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.
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.
