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are, reckons Gibson, around In this week’s the beginning of this bit of our podcast stunning information technology (moneyweek.com/ revolution right now (a little podcasts) I talk to earlier than we might have been Rob Arnott, the without Covid-19). chair of Research One example? Education. She Affiliates. We talked a good bit points to the rise of Coursera, about the UK market. He is as one of the originators of massive convinced as we are that now open online courses (MOOCs) with Brexit off the front pages and a company now using the (the gas shortage has nothing internet to open access to highto do with Brexit – see page 14) status education to anyone with and the UK’s Covid-19 strategy the ability to take it on. Health proving to have been more is another example: diagnosis successful than one might have Conventional energy: sometimes price matters is well on its way – via artificial suspected last year, there is no “We may be just at the start of a stunning intelligence (AI) and genomics – good reason for our market to be to being less educated guesswork, trading at a 60% discount to the information technology revolution right now” and more accurate, personalised US market. We talked about the and efficient. Think about the change US market too – I wondered if it is possible ratios, but with one to the idea of the stage underway, the change to come and the that the valuation differential between the we are at in our current technological almost limitless opportunities there are for US and the UK might be closed not by the growth cycle (see carlotaperez.org for more companies set up to grasp them; and, while UK rising, but by the US falling. on the theory regarding this). Much of the one-year valuations are not meaningless, In part, yes, says Arnott – there are time nothing much happens; but every now they can’t offer the information that is really parts of the US market that are definitely and then (five times in the last 550 years) important – about the potential tied up in not in a bubble of any description (think we get a sudden speeding up in innovation revolutionary companies. energy) but there are other parts that are – a technological revolution. Think the I love this gloriously optimistic way of (technology). It makes sense for investors to Industrial Revolution, the age of steam, the looking at it – there’s a reason I have and steer away from the super expensive to the widespread adoption of electricity, and the will keep holdings in a variety of Baillie reasonably valued. age of oil and mass manufacturing.

Gifford funds. But there’s room for both In all cases there are two stages. First, views in a portfolio – and sometimes price the “installation” stage, in which the new The case for optimism really does matter. I am topping up my technology enhances a few sectors and I’m minded to agree with him, of course conventional energy holdings too. makes a few great fortunes. These stages (MoneyWeek tends to be biased towards – which typically last 20 years – tend to value investing). But there is also a very compelling alternative view. Kirsty Gibson, be characterised by rises in inequality co-manager of the Baillie Gifford US Growth and social unrest. Next comes the good bit – the “deployment phase” – the bit Trust, suggests looking at some of the more when the new technology enters all parts “optically expensive” US companies – not Merryn Somerset Webb of the economy and benefits everyone. We with an eye to short term price/earnings editor@moneyweek.com

Good week for:

Maya Ruiz-Picasso (pictured), 86, the daughter of artist Pablo Picasso and his muse and lover, Marie-Thérèse Walter, has handed over nine artworks by her father to the French state to help settle an inheritance tax bill, says John Reynolds in The Times. Among the six paintings is one entitled The child with the lollipop sitting under a chair, said to depict Ruiz-Picasso as a girl. The oldest, a traditional portrait of Picasso’s father, José Ruiz y Blasco, is dated 1895, while the most recent, Head of a Man, was painted in 1971, two years before Picasso’s death, aged 91. The collection also comprises two sculptures and a sketchbook.

While a value was not placed on the works at a ceremony in Paris on Monday, at which Bruno Le Maire, France’s finance minister, was present, the collection is thought to be worth tens of millions of pounds. Since 1968, individuals have been allowed to settle tax bills with “recognised cultural goods of high artistic or historical value”.

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Restaurant staff will be allowed to keep all their tips under a planned new law. Restaurant owners are currently prohibited from holding o on to cash tips, but can keep tips given via plastic cards. This is estimated to cost individual staff an average of £2,000 a year, reports The Mail on Sun Sunday.

The state-owned British Business Bank has reported a pre-tax profit of £293.5m this year, compared with a loss of £2.1m last year, reports T The Times. It made a 14.6% return on capital employed versus a target of o just 0.1%. The bank, “probably the largest venture capital fund in the UK”, according to CEO Catherine Lewis La Torre, invests in promising promisin tech businesses, such as fintech firms Revolut and Wise.

Bad week for:

In the week that Victoria Beckham (pictured) was forced to slash prices on her clothing range in the hope of turning a profit, the ex-Spice Girl rushed to take action against a US website that was selling “discounted” items under the banner “Beckham”, says The Daily Telegraph. The site’s co-founder claimed “harassment”, but the World Intellectual Property Organisation (Wipo) found in favour of Beckham, ordering that she be handed control of the website.

©Alamy

Cover illustration: Howard McWilliam. Photos: iStockphotos; Nike Inc

Novel tax payment of the week

Rare stamps dealer Stanley Gibbons has filed for Chapter 11 bankruptcy protection for its US business, Mallett, after a $1.3m rent row with Stella McCartney’s fashion brand, says The Times.

The dealer had sublet a shop in Manhattan to McCartney, but when tthe fashion house shut the boutique last April, it also stopped paying ren rent.

Stanley Gibbons, in turn, failed to secure rent relief from its landlord landlord, the billionaire Goldman family, or to end the lease early.

24 September 2021

MONEYWEEK

4

Markets

Chinese property spooks global markets “A wave of fear over Chinese economic growth swept through global markets on Monday,” say Narayanan Somasundaram and Jack Stone Truitt on Nikkei Asia.

Markets dropped in Asia, Europe and the US, where the Dow Jones Industrial Average at one point fell 972 points (almost 3%) before paring losses to 1.8% before the close. Behind the bout of jitters lay the fate of Evergrande, China’s most indebted property developer, which is teetering on the brink of default (see page 7).

An Evergrande bankruptcy would “amount to a financial tsunami”, says Caixin. The firm has ¥2trn (£227bn) in known liabilities (about 2% of China’s GDP), plus unknown amounts of off-book ones. Some analysts say it could be “China’s Lehman Brothers”, referring to the 2008 collapse of the US investment bank that helped trigger the global financial crisis.

Risks are manageable

That’s an exaggeration, say analysts at Barclays. Evergrande is big and there will be consequences for China’s real-estate sector.

“But a true ‘Lehman moment’ is a crisis of a very different magnitude.” It would entail a “lenders strike” across the financial system, a “sharp increase in credit distress” outside real estate and banks not being willing to lend to each other in the interbank market.

Evergrande won’t cause that. First, its financial-system liabilities are much smaller than its headline liabilities (more than half the total is what it owes to suppliers) – it has around ¥227bn in bank loans and about ¥158bn in offshore and onshore bonds. Second, China has “navigated successfully through a number of defaults

©Getty Images

Cris Sholto Heaton Investment columnist

Fears about an Evergrande default have spread far beyond China

and restructurings” lately, including the financial conglomerate Huarong, which had about ¥1.4trn in liabilities. There’s no reason to expect policymakers to mess up this time. Third, Evergrande – and other Chinese property firms – aren’t at the mercy of wholesale funding markets, as Lehman was. “In an extreme scenario where capital markets are shut to all Chinese property firms … which is not occurring … regulators could direct banks to lend to such firms, keeping then afloat.”

Unpredictable consequences

The crisis is not a Lehman moment, concurs Bill Bishop in his Sinocism newsletter.

“But it is ugly and will get uglier.” It’s rash to assume policymakers “have a full understanding of all the Evergrande

liabilities and interconnections with other firms” Some form of bailout will happen, but “the lack of guidance from regulators seems to be spooking investors”.

This “is far from being a well-managed process”, agrees The Economist – hence bonds from other developers such as R&F, Fantasia and Sinic have slumped over fears they may be next. The underlying issue is that Xi Jinping, China’s president, is cracking down on excess debt in real estate as “one of several campaigns [he] is using to remould the country”. So the contagion risks aren’t just about markets. Real estate accounts for 20%-25% of GDP, thus “an extended campaign against developer debt could significantly lower China’s growth prospects... and lead to greater economic and financial turmoil down the road”.

“Recent crackdowns have proven that few sectors are safe from Beijing’s control,” says the FT’s Lex column. “No industry looks as vulnerable as Macau’s gambling market.” Shares in the territory’s casino operators fell sharply amid a regulatory review that may end up cutting the number of casino licences in the world’s largest gambling hub. “Should the new laws limit the number of licences below six, some operators could go out of business” when all current permits expire in June 2022.

Even if that doesn’t happen, “it is clear that Macau will be more demanding than in past years”, says Katrina Hamlin on Breakingviews. Operators may face “unprecedented micromanagement, including

MONEYWEEK

Gambling operators may soon come under intense state scrutiny state representatives scrutinising daily operations, and stricter oversight for junkets, which organise visits and credits for high rollers”.

There’s even a suggestion that firms may require government approvals to pay dividends.

24 September 2021

The message for markets extends beyond Macau, says Shuli Ren in Bloomberg: China is serious about its “common prosperity campaign”. Hence shares in Hong Kong’s four biggest property developers also tumbled after reports that

©Getty Images

Xi’s crackdown spreads to Macau and Hong Kong Beijing has “asked the territory’s real-estate billionaires to resolve the city’s housing crisis”. The high cost of property in Hong Kong is often blamed for fuelling the widespread political protests in 2019. Investors now fear developers could be forced to donate some of their large land banks to the government.

Deflating Hong Kong’s realestate bubble won’t just mean squeezing the tycoons – it will also require a big shake up in tax policy, adds Jacky Wong in The Wall Street Journal. The territory earns twice as much from land sales as income tax, which is partly why tax rates have stayed so low until now. “Hong Kong’s housing market has produced immense wealth for some...

Leaner times could be ahead.”

moneyweek.com

Markets

Iron-ore slump slams miners

“China’s moves to rein in its mammoth steel industry have roiled [iron ore] markets this year,” say Krystal Chia and Yuliya Fedorinova on Bloomberg. Global iron-ore prices hit a record high in May; contracts for spot (immediate) delivery to north China soared to over $235 a tonne. Since then, they have slumped by around 60%, falling below $100 a tonne for the first time in a year.

The turmoil in the real-estate sector (see page 7) has played a minor role in the latest slump.

However, the underlying cause of both boom and bust is the government’s attempts to curb steel production, in order to reduce power consumption, cut carbon emissions and – most pressingly – improve air quality ahead of the Winter Olympics next year. Hence the industry saw iron-ore prices “spiking in the first half as [steel] mills rushed to front-load volumes ahead of additional production restrictions being rolled out”, followed by the recent rout as demand dried up.

An overreaction both ways

Just the surge in May was “an overblown rally”, the plunge was “a disorderly retreat”, says Clyde Russell on Reuters.

Neither was “fully justified by the fundamentals of supply and demand”. Changes in physical shipments of iron ore are “nowhere near as dramatic as the moves in prices”. China’s

Viewpoint “‘There is no alternative’ is a real reason to stay with [US] stocks. Low bond yields surely force many investors… to buy stocks and this must support stock prices… Corporate profits are strong, and while their growth is slowing, it remains solid… GDP growth, similarly, is slowing but is still above trend… The Fed is clearly determined to keep rates low…

Given all of this … is it really time to take US equity risk off the table? All bets are off… if inflation gets out of control and the Fed has to push the economy into recession to stop it. Whether the above bull case convinces you will depend on the probability you place on that happening. But if you are sanguine about inflation, a little deceleration from abnormally high growth, and the accompanying sentiment, seem like bad reasons to underweight the best asset class there ever was.”

Robert Armstrong, Financial Times

moneyweek.com

Iron-ore prices have fallen by 60% since May

not yet be over… so investors are at a crossroads in terms of trying to catch a falling knife by picking a bottom of the iron-ore price, or rotating out of heavily exposed iron-ore stocks.”

Yet diversified miners such as Rio, BHP, Anglo American, Glencore and Vale “are in the best shape ever”, says Andrew Bary in Barron’s. Their balance sheets are strong. Limited capital expenditure means good cashflow. “Even with the slump in iron ore, the producers remain highly profitable… other commodities are in better shape.” Copper is up 20% this year, aluminium is up 40% and thermal coal prices have doubled. Price/earnings ratios are in single digits and dividends are attractive.

“For investors willing to accept some risk, the Big Five miners offer a rich opportunity.”

iron-ore imports in the first eight months of the year were down just 1.7% from the same period in 2020; imports in August were the highest since April, with no sign that inventories at ports are building.

The fact that price moves have been so excessive may be due to “increased speculator interest in a market that traditionally was the preserve of large players, miners and steel mills”. In any case, with prices around $100/tonne, conditions look more balanced. “History suggests that iron ore is likely to spend more time below $100 a tonne than above it.”

Blue-chip miners look cheap

The slump has sparked “panic selling” in blue-chip miners, says Alex Gluyas on the Australian Financial Review.

“Analysts predict the worst may

n Buffett indicator flashes red Global market cap to global GDP (%)

140

120

100

80

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40

2004 2006 2008 2010 2012 2014 2016 2018 2020

Source: Bloomberg.

“The appeal of Russian markets is eclipsing risks from president Vladimir Putin’s crackdown on political rivals,” says Jake Rudnitsky on Bloomberg. Stocks are soaring, buoyed by “the central bank’s drive to curb inflation, a conservative fiscal policy, rebounding commodity prices and the easing threat of US sanctions”. GDP should grow 3.9% this year. “With so many reasons to be bullish, investors are looking past the political situation.”

Last week’s blatantly rigged election won’t change that. The Kremlin jailed or barred many opposition candidates and used a range of dirty tricks to see off others – yet when the polls closed “it fleetingly appeared as if [its party] United Russia … might be in for a tough time”, says Felix Light in the New Statesman. Then “after a mysterious 14-hour delay, the two million votes cast as part of an online voting trial scheme were added to those cast at traditional polling stations”.

United Russia “which had been polling at under 30% for months, wound up with half of all votes cast and a two-thirds parliamentary supermajority”.

Yet in the long term, the Kremlin’s “social manipulation” will spawn “a crisis of human capital”, says Andrei Kolesnikov in the Financial Times. That bodes ill for an economy that can’t rely on oil and gas forever.

“What Putin and his inner circle are relying on is that there will be enough political and economic heft for the rest of their time in power. What happens after that… is of little concern to them.”

©Alamy

Rigged vote won’t rattle investors

5

Two decades ago, Warren Buffett described the ratio of stockmarket capitalisation to GDP as “probably the best single measure of where valuations stand at any given moment”, says Business Insider. It was a useful indicator that stocks were overvalued in the dotcom bubble and again in 2007 before the global financial crisis. Now the ratio has hit fresh highs: global market cap to global GDP climbed above 140% this month, while US market cap to GDP stands at over 200%. Bears argue that buying at this level is “playing with fire”. Optimists counter that the ratio is distorted by the way that governments have ramped up stimulus (boosting markets) while simultaneously shutting down much of their economies (shrinking GDP).

24 September 2021

MoneyWeek

Shares

6

MoneyWeek’s comprehensive guide to this week’s share tips Five to buy JD Sports s Fashion

Investors’ rs’ Chronicle JD Sports ports Fashion shion has benefited enefited from rom the US government’s vernment’s stimulus mulus ckage: the package: merican American business ness uced over produced half of the up’s pre-tax group’s o t p profit o of £439.5m in the first six months of 2021.

That’s a sevenfold increase from the same period last year and 177% higher than in 2019.

The group has completed a string of successful acquisitions across the US, Poland, Spain and Britain, which have helped drive growth. Its core UK and Ireland business did well despite new lockdowns; when shops were closed in the spring it made 90% of the sales it generated in the same period in 2019 from online sales. The firm remains cautious, forgoing an interim dividend in case of further lockdowns, but a larger full-year dividend is in prospect should positive trading continue. 1,151p

Darktrace

The Daily Telegraph Around 15% of cybersecurity company Darktrace’s shares are owned by Mike Lynch, “a man accused of a multibillion dollar fraud”. But there is no sign of dubious practice at Darktrace.

Since it listed in April the stock has tripled. The company faces stiff competition from American rivals. But it stands out because its software analyses users instead of devices, providing customers with a “map”, or visualisation, of their networks that makes it easier to spot anomalies. The firm has plenty of potential, and taking “a small punt” on it at this stage could pay off. 728p

sales of £7.9m, a 20% yearon-year rise. Analysts expect revenues of £17.5m for 2021 and £21m next year. The group is expected to be profitable from next year and the whisky market is booming. The shares have dipped recently, but given the firm’s solid prospects, they should recover. 83p

Chemring

Artisanal Spirits Company

The Mail on Sunday The Scotch Malt Whisky Society was founded in 1983 by Edinburgh’s Pip Hills and 12 of his friends, so that they could buy and enjoy casks of whisky.

It now boasts 29,000 members and listed on Aim in June as the Artisanal Spirits Company.

Members pay around £65 a year and most buy at least seven bottles averaging £75 each. First half figures for 2021 revealed

of vet surgeries. It recently acquired a majority stake in vet chain Medivet for £1bn and will continue to concentrate on acquisitions. Like-for-like sales for the 12 months to June jumped by 17.4%. For now, at least, pet owners are spending large sums on their animals while taking out insurance for them, too. The coming months will reveal whether the pet trend begins to slow, but if CVS continues to perform, it is one to buy. 2,490p

CVC

The Sunday Times Pets have become a big business following the pandemic.

Complex procedures and “posh pet food” have become widely available, driving rapid growth among insurers, pet shops and veterinary practices. CVS Group is an Aim-listed owner

Shares Defence group Chemring says its order book has grown, “providing visibility” for the remainder of the year and fuelling confidence that it will meet analysts’ expectations for the year to 31 October.

The order book was valued at £464m in August, up from £450m at the end of April.

The company’s cybersecurity subsidiary, Roke, should keep flourishing as the sector expands: further double-digit growth is expected. Orders for 2022 are building too. The stock’s quality and “ongoing resilience” make it a buy. 328p

...and the rest for 2022 and 2023 have risen strongly recently. Buy (385p).

B&Q owner Kingfisher’s like-for-like sales were 5% higher year-on-year in June, compared with a 2% rise for the overall market. The group has an “above average” chance of maintaining its edge over rivals.

Lockdown was a huge boost for home improvement and the pandemic introduced many people to “the joys of DIY”.

Hold (371p).

Shares

Recent acquisitions by refusespecialist Biffa have cemented

Investors’ Chronicle

its lead in waste-recycling. It has recovered from the crisis more rapidly than expected: revenue for the first five months of the year to 31 August was 12% higher than in the same period of 2019. Earnings forecasts

An American view

SVB Financial Group, also known as Silicon Valley Bank, stands out “in the stodgy world of banking”, says Carleton English in Barron’s. It lends to innovative tech start-ups that lack the business history to obtain finance elsewhere. SVB works directly with venture capitalists and has developed expertise in its field while “building a business that can withstand the ebbs and flows of the tech industry”. Its return on equity, a key gauge of profitability, reached an “impressive” 16.8% last year, compared with the sector’s average of 8.3%. Almost two-thirds of the tech and healthcare firms to have floated in the first half of 2021 have been SVB clients.

MONEYWEEK

24 September 2021

Higher demand from private patients boosted operating profits at Spire Healthcare Group, Britain’s second-biggest private provider, to £46.2m in the six months to 30 June 2021; the previous year it made a loss.

Demand should remain robust.

Hold (236p).

The Mail on Sunday

Palm oil “is a controversial commodity” but Indonesia-

based MP Evans prides itself on sustainable production, proper treatment of workers and supporting local communities.

The company looks after investors too: it has maintained or increased its dividend every year for the last 25 years. The firm has announced a 588% increase in half-year profits to £30m and a doubling of the interim dividend to 10p. It has also pledged to increase the annual dividend by 36% to 30p.

Existing shareholders should hold, and new investors “could dip their toes in”(788p).

IPO watch France’s cloud-services provider OVHcloud is planning an initial public offering (IPO) that could value the business at over $4.7bn.

The firm rents computing, storage and networking capability to users, and oversees a network of 30 data centres worldwide. It must convince investors that it can compete with industry giants such as Amazon, Microsoft and Google, says The Wall Street Journal. The firm is marketing itself as “a safe steward” for European data as governments become increasingly concerned about US authorities being able to access their information through American cloud services. If the offering proceeds, OVHcloud would list in Paris and hope to raise €400m.

moneyweek.com

©CVS; iStockphotos; JD Sports

The Daily Telegraph

7

Shares City talk

Evergrande on shaky ground

The Chinese property developer has overexpanded and overborrowed, and is now close to bankruptcy. Will Beijing bail it out? Matthew Partridge reports

©Alamy; Getty Images; National Express

l Two of Britain’s biggest transport operators, National Express and Stagecoach, are in talks over an all-share deal, says Louis Ashworth in The Daily Telegraph. The tie-up would give Stagecoach investors a quarter of the new company. National Express is “the UK’s biggest longhaul coach operator” while Stagecoach is one of Britain’s largest bus operators, running 8,500 buses and employing 25,000 people; it was forced to quit the rail business in 2019 after it was banned from bidding for three franchises.

Taking over Stagecoach “could help National Express expand while keeping costs down by sharing infrastructure such as bus depots and routes”.

The pandemic has “ravaged profits” in the sector, with shares in both companies halving since March 2020, says Harry Dempsey in the Financial Times. There is also a need “to invest heavily in expensive zero-emission buses” as the UK moves to meet climate targets. And a deal will still have to be approved by regulators, who are likely to require “some disposals” to reduce “the overlap in long-distance coach operations”. l Universal Music Group’s market debut has been a “smash hit” as shares in the company, spun out of Vivendi, rose by 38% in their initial public offering (IPO) on Tuesday, says Carol Ryan in The Wall Street Journal. The jump valued the company at $54bn. Investors are clearly wowed by the rapid growth of demands for streaming services, which made up 56% of Universal’s sales in the first half of 2021. However, they are perhaps overlooking the “lingering uncertainty” about how exactly the spoils of the streaming revolution “will be split between the major consumer-facing platforms that have driven it”, such as Spotify – and the big record labels. moneyweek.com

The Chinese property conglomerate Evergrande “teeters on the edge of collapse”, threatening to “send shockwaves” through China’s property and banking sectors by defaulting on some of its $300bn in liabilities, say Didi Tang and Tom Howard in The Times. Founded in 1996, Evergrande claims “to have built homes for more than 12 million people”.

However, rapid expansion, including into other areas such as “football and electric vehicles”, has turned it into “the world’s most-indebted housebuilder”. This debt has caused it to come unstuck “amid disputes with its contractors, pressure from lenders and the suspension of work at some of its developments”. The share price has slumped by 85% this year.

Evergande’s finances seem to have been in a mess for some time, says the Financial Times. It allegedly used billions raised by selling high-risk wealth-management products to retail investors “to plug funding gaps and even to pay back other wealth-management investors”. With retail investors now wanting their money back, and lenders unwilling to advance any more money, the company is promising investors flats or parking spots instead of giving them back their cash.

Reading the runes

With Evergrande “struggling to meet the interest payments on its debts”, its best hope seems to that Beijing, spooked by the “very serious potential fallout of such a heavily-indebted company collapsing”, decides to “step in to rescue it” says Peter Hoskins and Katie Silver on the BBC. However, Evergrande should not automatically assume that any request for direct aid will be granted. In an indication of Beijing’s current thinking, the editor-in-chief of state-backed Global Times newspaper, Hu Xijin, has publicly said Evergrande “should not rely on a government bailout and instead needs to save itself”. No wonder the government is denying that it is going to bail out Evergrande, says John Authers on

The group’s collapse could cause a nasty downturn in the real-estate sector

Bloomberg, especially since it has been trying to “clamp down on property developers”. But Beijing also plainly intends this to be “more LTCM than Lehman”. Regulators have already “dispatched accounting and legal experts, including a team from restructuring speciality law firm King & Wood Mallesons”. All this suggests that Beijing “could be laying the groundwork for a restructuring of Evergrande and its debt”.

It’s true that an Evergrande bankruptcy could lead to a “painful” correction in the local realestate sector, with implications for every company that invests in or exports things to China, says Peter Sweeney for Breakingviews. However, even if it goes bust, the direct implications for Western banks and financial institutions will be limited, as Evergrande’s biggest lenders “are domestic banks like China Minsheng Banking and Agricultural Bank of China”. The upshot? Some foreign trading desks “will take a hit” while investment bankers who sold the developer’s bonds to clients “may have uncomfortable conversations with lawyers coming up”.

Can Chase catch the big retail banks?

JPMorgan Chase is launching its first overseas retail bank in digital form. “Chase” will be based around a smartphone app and “will offer current accounts initially before expanding into savings, loans and other products”, says Katherine Griffiths in The Times.

Chase’s CEO Sanoke Viswanathan says JPMorgan aims to get “millions of customers over time”, though it will also focus on the “quality of users” to ensure that it can make money from them.

Chase will need all the luck it can get, says Emma Dunkley in The Mail on Sunday. A “raft of start-ups” including internet bank Egg and German

Chase can draw on a big technology budget challenger N26 have “sunk without trace” after “trying to break the dominance of Barclays, Lloyds, NatWest and HSBC”.

Even surviving challengers such as “Santander, Nationwide Building Society and digital newbies Monzo, Starling and Revolut” have not got very far: the “big four” still

control a “colossal seven in ten personal current accounts”.

JPMorgan’s move into UK consumer banking “goes against the grain”, says Lex in the Financial Times. Big global players such as Citigroup and HSBC “are cutting back their international retail networks”.

Still, it would be a mistake to write it off completely, as there are “some advantages to being a late mover”, including the fact that the UK offers “regulatory expertise” as well as “strong consumer awareness” when it comes to digital banking. JP Morgan also has a “big tech budget of $12bn a year” and will be “free of the burden of a branch network”.

24 September 2021

MoneyWeek

8

Politics & economics

Submarine deal makes waves

The unveiling of Aukus, a trilateral defence pact between the Australia, the UK and the US, last week is one of those “rare occasions” when you see the “tectonic plates of geopolitics shifting in front of your eyes”, says The Economist. The treaty envisages a “wide range of diplomatic and technological collaboration” from cybersecurity to artificial intelligence. At the heart of the deal is a plan to provide Australia with eight nuclear-powered submarines, presumably based on the US’s Virginia class or the UK’s Astute class – an initiative that also involves cancelling an A$90bn (£48bn) agreement for Australia to buy conventional submarines from France.

“It’s rare that a submarine deal – or any military partnership – creates quite as many waves as [this] has,” says Andrew Erickson on Foreign Policy. It is certainly significant. The reason why Australia wants to become only the seventh country to have nuclear submarines is clear, as is America’s willingness to share a capability it has previously only offered to the UK. The greater power and endurance provide a “critical technological edge in any future tension or conflict with China” which is already in the nuclear sub club and is now upgrading its fleet with Russia’s help. So the deal “should be celebrated by those favouring robust allied sea power as a bulwark against Chinese aggression – and at least understood by all who believe in national interests and sovereign decisions”.

The strop and substance

However, the decision to ditch an order for 12 French Shortfin Barracuda subs – which are France’s own latest nuclear fleet adapted for diesel – was not well received in Paris.

The immediate response of Emmanuel Macron was to withdraw his ambassadors from Canberra and Washington in an act

America’s Virginia-class submarines may be the basis for Australia’s new fleet

of “almost comic sulkiness”, says Daniel Hannan in The Daily Telegraph. This is not the first time that the French president has “ordered French envoys home in a fit of pique” and it underscores why Anglosphere democracies “do not see him as a reliable partner”. Given that France is one of the few countries “capable of projecting global naval force” and one with “significant territories in the Pacific” – the region is home to nearly two million of its citizens and 7,000 of its troops – it is “worth considering why the Anglosphere acted as they did”. It would be wrong to attribute all the blame to one president, but Macron’s unnecessary, and often counterproductive, “bellicosity” towards the UK over the past four years has not inspired confidence.

Biden’s clumsy monomania

Still, America’s handling of the French was “graceless”, says The Economist.

Alienating a key ally and one with “serious” Indo-Pacific interests, isn’t wise. “Creative

efforts will now be needed... to mitigate the damage”. More broadly, it looks like an extension of Joe Biden’s failure to engage with Europe over Afghanistan, which has created “considerable bad feeling”, says John Kampfner in The Times. The US president may be “calculating that Europe will have no choice but to follow him on his China course”, or simply that Europe is “no longer an important player” but those are “two mighty risky assumptions”.

Biden doesn’t care, says Janan Ganesh in the Financial Times. China is the theme that connects his “exit from Afghanistan, his grudging tolerance of a gas pipeline from Russia to Europe”, his refusal to pick a fight with Saudi Arabia over “sundry misdeeds” and his greater investment in the Quad, the informal strategic grouping of the US, Australia, India and Japan.

There is “nothing ambiguous about this strategic monomania”, even if it is hard for Europeans to grasp how “all-consuming” his fixation with China is.

The illusion of an election

MoneyWeek

©Getty Images

China dismantles Hong Kong institutions

In Hong Kong’s first elections since Beijing’s radical overhaul of the polling system in May, pro-Beijing candidates have won all but one of the positions on Hong Kong’s 1,500 person Election Committee, says Primrose Riordan in the Financial Times. The electoral revamp increased the size of the Election Committee by 25% but reduced the number of voters by 97% to just 4,800, comprising “mostly pro-Beijing Hong Kong elites”. In 2022, the group will choose Hong Kong’s next chief executive and appoint 40 of its 90 legislative seats, says Helen Davidson in The Guardian. Of the remaining 50, 30 will be chosen by special interest groups and “just 20

24 September 2021

©Alamy

An Australia-UK-US defence pact will reshape geopolitics, but has alienated France. Emily Hohler reports

will be directly elected”. The Chinese and Hong Kong authorities say the changes ensure “anti-China elements will be barred from office”.

Critics say it is designed to align Hong Kong’s political system with that of China.

The “sham election highlights that the Beijing-led crackdown on Hong Kong’s political system, in the wake of the city’s 2019 pro-democracy protests, is nearly complete,” says Chiara Rimella in Monocle.

So far, international attention to China’s repression has focused on high-profile figures such as protest leader Joshua Wong or tycoon Jimmy Lai, who owned the Apple Daily newspaper, but Beijing is also

“dismantling the city’s unions,” says Maya Wang in The Nation.

Chinese state media describe the unions as a “chronic poison of society” despite their “long and illustrious histories of defending civil liberties and workers’ rights” in a city known for “hyper-capitalism”.

Fears of persecution have led many civic groups including the Hong Kong Confederation of Trade Unions, to disband, says Rhoda Kwan on Hong Kong Free Press. The HKCTU’s founder and general secretary, activist Lee Cheuk-yan, is now serving 20 months in prison for taking part in the 2019 prodemocracy protests and faces a “national security charge of ‘incitement to subversion’”.

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Politics & economics

Open for visits, not for trade

Betting on politics

After “months of relentless lobbying” from the UK and the EU, the White House has agreed to end a “sweeping travel ban” first imposed in March 2020, says Henry Zeffman in The Times.

At the moment, almost all Europeans are banned from the US: “only American citizens, their families, and permanent residents can enter if they Biden played down the chance of a trade deal have been in the UK or in a meeting with Johnson on Tuesday the EU at any point in the previous two weeks”. However, Joe Biden has “little prospect of progress towards a one-to-one announced that “people who have had two doses deal” before the next general election in 2024 as the of a coronavirus vaccine will be able to enter the US Biden administration “focuses on other priorities”. from the UK and the EU” from November.

It’s true that Biden was hardly enthusiastic about The announcement still leaves some aspects to a US-UK trade deal, but it was hardly the “snub” be determined, including the status of children, that some of the government’s critics imply, says and whether AstraZeneca jabs, which have formed Freddy Gray in The Spectator. Compared to his the “cornerstone” of the UK’s programme, will previous statements, his overall tone “sounded more be recognised, says Poppie Platt in The Daily well-disposed towards Brexit Britain than he has Telegraph. The US Food and Drug Administration before”. Still, the “boring truth” is that a bilateral has not yet approved the AstraZeneca vaccine for trade deal has been a “diplomatic dead duck” for use in the United States. However, Anthony Fauci, a while. So “ambitious Brexiteers” now see more Biden’s chief medical advisor, has strongly hinted potential in joining the USMCA, the new trade that – while the final decision will be left up to the agreement between the US, Mexico and Canada.

US Centres for Disease Control & Prevention – he thinks that “there would not be a problem” in The price of entry would be too high recognising the vaccine for visitors.

Yet most trade experts believe that trying to join the USMCA will be just as difficult as a bilateral deal, says US trade deal is a diplomatic dead duck the Financial Times. Even if the UK could manage While UK citizens may soon be able to visit the US it, the “price of entry” may not be worth paying. again, it seems that hopes of a post-Brexit trade Any accession process would leave the US, Mexico and Canada with the “whip hand, free to name deal with the US “have all but evaporated” after their price for joining what is essentially a regional a meeting between Biden and Boris Johnson on trade pact”. Besides, the benefits are unlikely to be Tuesday , says Heather Stewart in The Guardian.

Johnson once touted a bilateral free trade agreement that great, since USMCA “has limited coverage of with the US as “a key Brexit win, highlighting the many of the UK’s competitive advantage in exports, prospects for British exporters unfettered from the notably services, and would subject many British EU”, but the government now accepts that it sees companies to two competing sets of regulations”.

The mine fuels a nearby power station

©Getty Images

Poland defies Brussels over coal mine

Poland has said that it will “defy Brussels by continuing to operate a coal mine near the Czech border despite facing fines of €500,000 a day”, says Louis Ashworth in The Daily Telegraph. The “hefty fine” was imposed by the European Court of Justice this week after Poland repeatedly ignored a temporary ruling to shut the mine down,

MONEYWEEK

24 September 2021

following complaints from the Czech Republic that the mine “harmed the environment and drained water from nearby Czech villages”. Warsaw argues that the mine is “essential to the operations of a nearby power station that produces about 7% of Poland’s energy”.

The mine isn’t the only area of growing contention between Poland and Brussels, says Sam Fleming and Henry Foy in the Financial Times. The European Commission is preparing to wield powers “linking billions of euros of funds to human rights standards in member states”.

Poland has been allocated up to €121bn of EU funding over the next six years, but the commission is now required to

check that recipients are complying with the EU’s charter of fundamental rights. Some EU members may argue that funds should not be released to Poland, as well as Hungary, due to “breaches of EU values”.

These disputes don’t seem to be turning Poles away from the EU: polls suggest that the public remains firmly pro-European with “over two-thirds seeing EU membership as a positive for the country”, says William Nattrass in The Spectator. Still, Brussels can’t be complacent.

Warsaw’s “confrontational statements” suggests “a real debate over Poland’s EU membership is slowly emerging”, with unmistakeable echoes of Brexit.

©Getty Images

Biden ends travel ban, but still shuns UK trade deal. Matthew Partridge reports

Jerome Powell (below) might not be a politician in the traditional sense of the word, but it is up to the US president whether to reappoint the chair of the Federal Reserve. With his four-year term in office due to expire in early 2022, some Democrats, most notably the left-wing congresswoman Alexandria OcasioCortez, have argued that Joe Biden should replace Powell with someone else, due to Powell’s refusal to do more to tackle climate change and economic inequality.

As neither economic inequality nor climate change are part of the Federal Reserve’s mandate, or indeed something that the Federal Reserve has much power over, this seems a weak reason to replace a Fed chair.

Certainly, punters seem sceptical about the chances of any change.

Caption here With £5,749 matched on Betfair, Powell is at 1.14 (87.7%) to be the next Fed chair. If Powell does end up being replaced, Federal Reserve governor Lael Brainard is the favourite to replace him, as she is in second place on odds of 6 (16.7%).

The conventional wisdom is that the president rarely refuses to re-nominate any sitting Fed chair who wants to carry on, although Powell isn’t considered irreplaceable in the way that Alan Greenspan or Ben Bernanke were. With the US economy still recovering from Covid-19, Biden may wish to have someone more sympathetic to him in place. I’d lay (bet against) Powell being the next Fed chair at 1.17 (85.4%), equivalent to betting on him not being the next Fed chair at 6.88 (14.5%).

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10

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12

News Ottawa

Snap election inconclusive: Having

spent two years poring over the polls to find the perfect moment to call an election, the Canadian prime minister Justin Trudeau (pictured) has failed to regain the majority he lost in 2019, says Charlie Mitchell in The Times. After a “bruising” and expensive campaign “marked by widespread apathy, Canadians opted for the status quo”. The balance of power remains largely unchanged with the Liberals set to win 158 seats, short of the 170 majority needed to avoid relying on the support of opposition parties. The main campaign issue was Trudeau’s handling of the pandemic, but “kitchen table economics” – in particular, the affordability of housing – came a close second, says Natalie Alcoba in Al Jazeera. Consumer prices rose by 4.1% in August over the same period in 2020, the fastest pace since March and “well above” the target inflation rate of 2%.

The Bank of Canada insists that price rises will be relatively short-lived. Meanwhile, the economy unexpectedly shrank in the second quarter.

London

Britain launches green gilts: The budget deficit stayed near record highs in August, with public sector net borrowing totalling £20.5bn. The sum is £5.5bn less than we borrowed in the same month last year, but still the second-highest figure for August since records began in 1993. Rising consumer prices are now also starting to hurt the public finances, says Samuel Tombs of Pantheon Macroeconomics. Interest payments on inflation-linked debt are tied to the retail price index (RPI) of two months earlier, and June’s 0.7% rise in the RPI was much bigger than the 0.2% increase in June 2020. As a result, interest payments jumped to £6.3bn that month, from £3.4bn a year ago. The “fiscal squeeze” is likely to continue in 2022, “subduing the recovery”. Investors, however, “queued up” to buy the government’s inaugural sale of 12-year “green guilts” on Tuesday, placing £100bn of bids – a record for a public UK bond sale, says Tommy Stubbington in the Financial Times. The £10bn raised from the bonds yielding 0.87% must be spent on environmental projects.

Washington DC

America reopens to tourism: With 675,000 deaths, more

Americans have now died from Covid-19 than during the 1918 flu pandemic, says Oliver Milman in The Guardian. The population of the US was a third of what it is today a century ago, but Covid-19 is still “a colossal tragedy... given major advances in scientific knowledge and the failure to take maximum advantage of vaccines”. Around 36% of Americans aged 12 and above have yet to be fully vaccinated. Vaccinated air passengers from 33 countries including Britain and the EU will be allowed into the country from November, much to the relief of airlines. The economy, meanwhile, is “proving resilient in the face of the Delta variant”, says Josh Mitchell in The Wall Street Journal. Retail spending increased “briskly” last month, “while employers have largely resisted the urge to lay off workers”.

Buenos Aires

Economy shrinks again: Argentina’s GDP

declined by 1.4% quarter-on-quarter between April and June 2021 following three successive quarterly gains. It was still almost 18% bigger than during the same period last year, which marked the nadir of the economic crisis. A second wave of Covid-19 prompted the government to impose new restrictions this spring, although some were loosened towards the end of the quarter. The government is hoping for overall economic growth of 8% this year and 4% in 2022. But inflation, a perennial problem in Argentina, is undermining the outlook.

Prices have risen by 51.4% in the past year, and are climbing by around 3% a week. This

is undermining consumers’ confidence and purchasing power.

The government has hiked the minimum wage by 55.3% already this year, and is under pressure to keep alleviating the cost-of-living crisis as a mid-term Congressional election, which could see the ruling party lose its grip on the legislature, will be held in November. The government is also still working on a deal with the International Monetary Fund to reschedule payments due on $45bn of debt. $4bn is due to the IMF before the end of the year. Argentina has promised to reach a deal by March 2022.

Bali has turned its back on backpackers

MONEYWEEK

24 September 2021

Holiday destinations that have traditionally appealed to budget travellers are setting their sights higher in preparation for when the tourist industry returns after the pandemic, says The Times. The Indonesian island of Bali, destination of choice for millions of backpackers, is among them.

Luhut Pandjaitan, Indonesia’s minister in charge of the pandemic wants to “filter” tourists. “We do not want backpackers.” He plans to ensure that “the tourists who come here are of quality”. It’s not only Bali: the nearby island of Komodo is to raise the price of entry from $10 to $1,000, with the regional governor saying that “those visiting this place must be wealthy. If you’re

not classified as such and want bargains, it’s better to go elsewhere, such as Jakarta... or Lombok.”

Spain, too, wants to move away from “the more tourists, the better” model, said its tourism minister, and is hoping to attract “premium” tourists. It’s a similar story in New Zealand. “We have an opportunity to redefine our global value proposition”, said Stuart Nash, the New Zealand tourism minister. Our “marketing effort will go into high-net worth individuals.” His main problem is with campervan dwellers is their lack of hygiene: “defecating on the side of the road and waterways is not who we are as a nation”.

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The way we live now: rejecting the riff-raff

News

13

Amsterdam

Carbon permits are a major expense for coal-fired power producers

The price of power: EU carbon-permit prices reached a record high of €62.75 a tonne last week amid expectations that Europe will rely more on coal-fired power stations in winter due to the natural-gas supply shortage, says The Daily Telegraph. Prices have since dipped, but at €60/tonne remain higher than they ever were before September. Under the EU’s Emissions Trading System, polluters get an annual allowance for the amount of carbon dioxide they can emit. Those that go over their cap must buy permits from those that have excess allowances. Permits are traded on the Intercontinental Exchange in Amsterdam (having moved there this year from London) and the European Energy Exchange in Germany, and are attracting growing interest from financial players such as hedge funds, which some analysts argue is pushing up prices. High carbon prices also mean higher power prices: while fuel costs are the biggest expense with gas-fired generation, carbon permits account for an increased share of costs when using cheaper but more polluting coal.

Tokyo

Softbank eyes up cars and NFTs: Japanese

conglomerate SoftBank, the world’s biggest investor in technology, bought several new assets through its second Vision Fund this week.

The group, led by founder Masayoshi Son (pictured), joined China’s Tencent in funding Indian used-vehicle seller Cars24, which has now doubled in value in less than a year to almost $2bn. Used car prices have been increasing sharply, notes the Financial Times, “as the global chip shortage forces manufacturers to cut production of new vehicles”. SoftBank also took part in a $680m fundraising for French fantasyfootball firm Sorare, valuing the firm at $4.3bn. Players of the game can earn points to buy non-fungible tokens (NFTs) in the form of digital football cards which can be traded with other players (similar to physical football stickers).

The group also followed sovereign wealth funds in Saudi Arabia and Abu Dhabi in backing a new $2.5bn private equity fund set up by Steven Mnuchin, US Treasury Secretary under Donald Trump. Liberty Strategic Capital will invest in technology and financial services.

Frankfurt

Beijing

got a third bigger on Monday to become the Dax-40. The ten new companies include Airbus, online clothing retailer Zalando, meal-box provider HelloFresh, Porsche and sportswear group Puma. After the Wirecard scandal cast a pall over the index last year, Deutsche Börse Group, the Dax’s operator, opted to give the 32-year-old index a makeover, says Joe Miller in the Financial Times. It decided to expand the blue-chip index while adding a profitability requirement – a lesson learned from the Wirecard debacle. Firms now have to be able to post two years of positive earnings before interest, taxes, depreciation and amortisation (Ebitda). The expansion “adds some [sectoral] diversification but keeps the index’s welcome old-school deep cyclical character, exposed to Germany’s economic rebound”, says Ben Laidler of trading platform eToro. Others, however, sense a missed opportunity in leaving out innovative firms, such as BioNTech, which developed a Covid-19 vaccine with US drugs giant Pfizer.

“We don’t have any big IT or tech companies in the top index apart from SAP and Infineon”, DZ Bank’s Christian Kahler tells Deutsche Welle. “That’s a big drawback for the German market in comparison with the US, for instance.”

major publication, the “Doing Business” report, after an external investigation by law firm WilmerHale found senior managers had pressured staff into altering the data to flatter China and other countries, says Josh Zumbrun in The Wall Street Journal. The implicated leaders include then-CEO, Kristalina Georgieva, who is now managing director of the International Monetary Fund, and then-World Bank president Jim Yong Kim. Georgieva said she disagreed “fundamentally” with the findings. The “Doing Business” report, which ranks countries according to how straightforward it is to set up and run companies within them by, for example, obtaining licences, connecting to electricity and paying taxes, had been prominent at the World Bank, whose primary mission is to provide financing in poor countries. However, in 2018, the World Bank had been in negotiations to receive an extra $13bn, and Beijing, the numberthree shareholder in the bank despite being the second-largest economy, had been “eager to see its power increased as part of a deal for more funding”. According to the investigation, staff then set about looking into ways they could alter the methodology to improve China’s score.

The Dax expands: Germany’s benchmark blue-chip stock index

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World Bank axes biased report: The World Bank has cancelled a

24 September 2021

MONEYWEEK

14

Briefing

Britain’s looming energy crisis

Global natural gas prices have soared as resurgent demand collides with supply disruptions. The UK is especially vulnerable and could be heading for a very tough winter. Simon Wilson reports What’s happening?

Everybody in Britain will be relieved to know that there is “absolutely no question of the lights going out or people being unable to heat their homes”. Nor will there be any “three-day working weeks or a throwback to the 1970s”.

However, the fact that Kwasi Kwarteng, the business and energy secretary, had to make those pledges in the House of Commons on Monday shows that something has gone badly wrong with the UK’s energy supplies. The country faces a growing crisis that is already beginning to have major knock-on effects on the economy and the situation could well get worse as winter approaches.

To take one example, four retail suppliers of gas and electricity have collapsed this month because they were unable to supply energy at the prices they’ve agreed (see page 22). Or to take another, two big industrial fertiliser plants shut down last week, as they can’t be operated economically at current gas prices. That means that supplies of carbon dioxide (a by-product of the ammonia production process) have dried up, in turn causing disruption in a range of crucial sectors including the production, packaging and supply of meat, other fresh produce and drinks. It is also needed by hospitals and the nuclear power industry. This week a government subsidy (in the tens of millions) persuaded CF Industries, owner of the plants supplying 60% of the UK’s CO2, to restart production of the gas at one plant. But both sides made clear this was a temporary fix (a three-week deal for now) to a long-term problem.

Supplies in Europe were already low due to pandemic disruption, meaning that European markets are now competing with Asian countries for scarce cargoes of liquefied natural gas. Norway has suffered several production outages, including at the giant Troll field, a major source of gas for Britain. Flows of gas from Russia have also fallen in recent months. Part of the reason for that, said Kathryn Porter of energy analysts Watt-Logic, is Russia’s own need to replenish domestic storage after last winter, as well as some reduced production levels, and maintenance on both the Yamal-Europe and Nord Stream pipelines.

There was also a fire at one of Gazprom’s condensate treatment plants in western Siberia in August.

Why have gas prices surged?

Is that the whole story?

Kwasi Kwarteng: promising the lights will definitely stay on

What supply problems?

Sharply rising global demand and severely Maybe not. There are strong suspicions constrained supply have seen wholesale gas that Moscow is using the market conditions prices surge sixfold over the past year, and to ramp up pressure on the EU, and they have doubled in the past two months.

Germany in particular, to approve the On Monday this week, they jumped 16% in politically sensitive Nord Stream 2 pipeline a day. This is partly Russia “The UK currently has less –toconnecting to do with Covid-19: western Europe than nine terawatt hours of via the Baltic, rather demand fell last year, but has bounced back than via Ukraine. stored gas reserves” as countries emerge Russia only sends from the pandemic, creating a demand Britain a tiny amount of gas directly (about spike. Countries are also trying to cut their 1%) but any shortages in European markets use of coal, and switching to less polluting will affect the UK, which is exceptionally gas. Weather patterns have played a role vulnerable to gas-market disruption. too. Global demand was high during the cold and prolonged northern hemisphere Why is Britain so vulnerable? winter, especially towards the end of the Several reasons. First, it uses a lot of gas season – causing storage levels to fall. In a (about 40% of its energy mix), including normal year, stocks would be replenished for electricity generation. So the gas price through the summer. But this year, the rise affects the whole energy sector. Second, heatwaves across the northern hemisphere domestic gas production has slumped 28% (but not in the UK) kept energy demand this year due to pandemic project delays high as supply problems worsened. and maintenance, according to consultancy

MoneyWeek

24 September 2021

Wood Mackenzie. Third, Britain’s strength in renewables (accounting for 25% of consumption) has played against it over past few months, which has seen one of the least windy period across Europe for decades.

That means gas-fired power plants have taken up the slack, accounting for up to 60% of electricity generation. And fourth, the UK’s uniquely low gas storage capacity has left it exposed if the supply crunch lasts through the winter and into next year.

How big is the UK’s storage capacity?

Tiny. Since the closure of its Rough facility off the Yorkshire coast in 2017, the UK has operated a “just-in-time” approach to gas procurement – in effect “subcontracting” its storage needs to Germany and the Netherlands, said Ambrose Evans-Pritchard in The Daily Telegraph. Data from Gas Infrastructure Europe shows that the UK currently has less than nine terawatt hours of stored gas reserves, compared to 75 in the Netherlands (with a quarter of the population), 113 in France, 148 in Germany and 166 in Italy.

Will the lights go off?

The government is betting that Britain is unlikely to run out of gas, given half is still produced domestically, and another 20% comes by pipeline from Norway, a reliable ally. But if a harsh winter and supply crunch leads to blackouts and stoppages in mainland Europe, the threat of similar chaos will be high in Britain, which could be dangerously reliant on the cross-channel electricity interconnectors for power. “It is potentially catastrophic”, said Andrew Large of the Energy Intensive Users Group.

“We’re already seeing plant closures… when the weather is still warm and domestic heating is low. Fast forward two months and this could be an acute crisis.” moneyweek.com

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What’s going wrong?

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City view

16

Solving the semiconductor shortage The EU’s plan to build a microchip ecosystem will fail, but the UK should take advantage of that

The EU doesn’t have the expertise to create a microchip industry. It will move too slowly, back the wrong technologies, and invest money where it is politically expedient rather than where it is needed. However, that creates an opportunity for the UK to fill the gap that undoubtedly exists. Britain has produced some huge microprocessor companies such as Arm, and promising ones such as Newport Wafer Fab – but it allowed them to be sold off. There are three obvious steps the government should take to repair that damage.

Matthew Lynn City columnist

There is no faulting the ambition. Last week, Ursula von der Leyen, the president of the European Commission, announced a new “Chips Act” to coordinate European efforts to create a microprocessor industry. After falling way behind Taiwan, South Korea, the United States and China, the EU plans to take control of its member states’ industrial policy, and make sure the bloc takes at least 20% of the global chips market by the end of the decade. Billions of euros will be made available for investment in research and development (R&D) and factories, and markets will be protected if necessary, while officials in Brussels will no doubt steer the continent’s car makers, electronics companies, and telecoms suppliers towards EU-based manufacturers.

Three steps to a better strategy

Taiwan Semiconductor Manufacturing: a small country created a world leader

©TSMC

The EU’s problem

There is certainly space for more players in this market. The challenges of the pandemic have created critical supply shortages this year. Even once that sorts itself out, as it will, there will still be huge and growing demand for processors. However, the EU is not nearly as good at creating new industries as it likes to pretend it is, and the more high-tech they are the worse its record.

Most recently we have seen that in vaccines. The EU hijacked control of the procurement of inoculations to deal with Covid-19. It ordered the wrong vaccines, in the wrong quantities, and found itself in a war of words with AstraZeneca, the manufacturer of the most cost-effective jab on the market. Far from boosting European industry, one of the intentions, it ended up completely reliant on the Americancontrolled Pfizer and Moderna vaccines,

and while it caught up eventually it was way behind the US and UK. We’ve seen the same with other projects.

Remember Quaero? It was the alternative European search engine to Google that received hundreds of millions of euros in EU funding. Launched with huge fanfare, it quickly disappeared without trace. Or take the Europe 2020 strategy, launched in 2010, to create an “Innovation Union” that would be a world leader in new technologies.

In the subsequent decade, it has fallen even further behind. The UK has as many tech “unicorns’” as the whole of Europe put together. The EU’s record is only consistent in one respect. It always fails. There is no reason it will be any different this time.

Who’s getting what

MONEYWEEK

● Qantas CEO Alan Joyce has become “synonymous with extraordinary levels of executive pay”, says The Australian.

Joyce’s base salary rose by A$172,000 (£91,400) to nearly A$1.8m in 2020, despite “a horror year for the airline”.

His total pay rose by A$235,000 to almost $A2m.

That’s still “way below” the A$24.6m that Joyce earned in 2017, and A$10.9m in 2018, “but headlines of him being Australia’s highest paid executive seem to

24 September 2021

Nice work if you can get it

remain stuck in the public memory”. ● Nigel Rich, who is to replace Ian Barlow as chairman of Londonfocused estate agency Foxtons, will be paid £150,000 a year, including £50,000 in shares. Barlow, who has been with Foxtons for eight years, had come “under heavy fire from investors in recent months over company salaries and dividend payments”, says City AM. Nearly 40% of shareholders voted against the company’s pay policy in April after CEO Nic Budden received almost £1m in bonuses last year.

©Getty Images

● Pimlico Plumbers, the London-based plumbing firm founded by Charlie Mullins (pictured) in 1979, has been sold to private equity-owned US home services group Neighborly, says the Financial Times. The deal is said to be worth between £125m and £145m and will see Mullins sell his 90% stake in the business.

His son, Scott, Pimlico’s CEO, will reportedly retain a share of around 10% in Pimlico, which makes revenues of around £70m a year and employs 400 staff.

First, expand the freeports so that chip plants can be built tax free. We are already building low-tax, low-regulation zones around the country. Let’s expand three or four of them and encourage microchip manufacturers and start-ups to base themselves there. Next, create an R&D hub modelled on the new Vaccines Manufacturing and Innovation Centre in Oxfordshire. This would be a centre of excellence, bringing together cutting edge science and state-of-the-art manufacturing. Finally, target state aid at selected manufacturers in computing.

Even better, the Treasury should use its new Breakthrough fund, which invests in earlystage businesses that might struggle to attract funding elsewhere.

Most of all, a UK microprocessor strategy should be market-led, and work with the US and China instead of against them.

Small countries can do well in this industry: Taiwan is a world leader. But top-down, statist, politically compromised industrial strategies almost always fail. The Chips Act will be added to that list, quickly bogged down in politics and suffocated in red tape.

The UK should seize the opportunity. We might even be able to sell some processors to the rest of Europe.

Pay for board members at the biggest US companies held steady last year for the first time in more than a decade, says The Wall Street Journal. Analysis by consultancy Compensation Advisory Partners of the 100 biggest publicly traded US firms by revenue found that median pay for directors in 2020 was $310,000, unchanged from 2019 and up from $305,000 in 2018. Board pay was trimmed at some firms during the pandemic as a way to show that directors shared in their companies’ struggles. However, that is set to change, with some companies moving to raise pay this year, citing the fact that boards have been sitting more frequently due to Covid-19 and the greater focus on environmental, social and governance (ESG) issues. At least one board has already recommended paying the directors a one-off bonus in recognition of their increased workload.

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Investment strategy

Beware corporate waffle

Guru watch Ron Baron, founder, Baron Capital Management

When top executives try to retreat behind impenetrable jargon, investors should be very sceptical

Corporate jargon is an irritating fact of life. But it can also damage your investment returns, if a new study is to be believed, reports John Authers in Bloomberg. Analysts at investment bank Nomura looked at the language used by top executives at America’s biggest listed companies (those in the Russell 1000 index) in conference calls discussing their annual and quarterly results, going back to 2014. They used a readability tool to rate the communications for complexity (readability Jeff Bezos: skilled at boiling down complex ideas tools analyse aspects such as sentence length and choice of words). They found a strong correlation between clarity and returns: share prices of investors over the years. Warren Buffett’s annual the stocks whose executives used the clearest letters to Berkshire Hathaway shareholders language in calls far outperformed those who are perhaps the most-scrutinised corporate waffled or used lots of impenetrable jargon. documents in investment history. In his own This makes logical sense. If someone can’t shareholder letters, Amazon founder Jeff Bezos explain their business strategy also proved highly skilled at “There is a strong boiling down a complex business clearly, it usually means one of two things: either they don’t correlation between to some key strategic points. know what they’re doing, or they Here in the UK, fund manager clarity and returns” Terry Smith is admired for his do know what they’re doing, and they’re trying to hide it from you. Neither forthright views, while a large part of Simon is a good prospect for an investor. What’s more, Wolfson’s success as head of retailer Next is his the analysis backs up previous research into the commitment to explaining very clearly what the relationship between corporate communications company is doing and why. and earnings. For example, one study published Yet you don’t need to hunt down CEOs or in the Research in International Business and managers with exemplary communication skills.

Finance journal in 2016, found that French Here’s a simple test to carry out on your own companies that used more complex language in portfolio right now. Look at your holdings. Are earnings reports also were more inclined to use you confident that you could clearly explain to debatable accounting techniques to make their another interested investor what your reasoning is results look better than they really were. for owning each fund or stock? Try to sum it up in a sentence for each one. If you can’t, then maybe it’s a sign that it shouldn’t be in there – or at the Lessons for investors very least, that you need to do more homework.

There are many examples of skilled Give it a go – I suspect you might be surprised. communicators who have done well for their

I wish I knew what the energy price cap was, but I’m too embarrassed to ask In the UK, the energy price cap is the maximum price that energy suppliers can charge customers who are on their standard (default) tariffs. The cap was introduced in January 2019 and is set by energy regulator Ofgem. The purpose is, in effect, to prevent gas and electricity providers from continually raising energy prices for apathetic or loyal long-term customers in order to subsidise the cost of attracting new customers with cheap but temporary energy deals.

The price cap is reviewed twice a year. Ofgem sets it by looking at energy prices in the wholesale markets, which reflect the cost of electricity and

MONEYWEEK

gas to suppliers. It is currently set at £1,138 per year. Those who pay by cash or cheque can be charged £93 more to cover “the higher cost for suppliers to serve them”, while those who pay by pre-payment meter pay £32 extra. The cap will rise to £1,277 a year from October, and appears likely to rise again in April, assuming that energy costs remain at current levels (this is worth taking into account if you are looking at switching provider – comparison sites usually won’t take into account future changes in the cap when calculating potential savings).

The term “price cap” sometimes causes confusion,

24 September 2021

particularly as it is usually cited in terms of an annual cost. Note however that this annual rate “is based on a household with typical consumption on a dual electricity and gas bill paying by direct debit,” says Ofgem.

It is not a cap on actual annual costs – if you use twice as much energy as the average household, then of course you will pay twice as much in energy costs.

The cap instead sets a limit on the rate paid for each unit of gas or electricity. So for example, from October, the limit per kWh for electricity users will rise to 21p, and for gas users, to 4p (including standing charges). These figures are for payment by direct debit, and are rounded to the nearest penny.

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John Stepek Executive editor

“I was betting on Elon Musk and most people bet against him.“ Between 2014 and 2016, Ron Baron bought a 1% stake in electric car manufacturer Tesla for his firm, Baron Capital Management. He has since made a $4bn profit on that bet alone, he tells David Rubenstein on Bloomberg, and “I think we’re gonna make maybe three or four times that in the next ten years”. Baron is just as keen on Musk’s rocketry venture, SpaceX. “They’re innovating at the speed of light.”

Baron’s faith in the oftencontroversial Musk has helped his Baron Partners Fund to beat 99% of its peers over the last three years. So what does he look for in a

chief executive? “I want someone who’s really smart, works really hard, has integrity... they have a vision for their business. And they’re good leaders.”

What makes him sell a stock? “I give up because we made a mistake on the business... I don’t give up because a stock doesn’t perform... stock performance isn’t a measure of whether the business is successful or not,” says Baron. “We were an investor in Tesla for... six years and didn’t make a return. And then... we made seven times in a year.”

As for concerns that the stockmarket is overvalued and might crash, Baron, 78, is sanguine. “I don’t worry about it. The only things I am certain of is our economy and our country.” He focuses instead on the long-term cost of living. “I think that the value of my money will fall in half every 17 or 18 years... I regard stocks as a hedge against that depreciation on my currency. So I want to own... shares of businesses that can outpace inflation.”

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A better plan for funding social care Mark Littlewood The Times

So much for soaking the rich Catherine Rampell The Washington Post

Failing financial literacy Felix Salmon Axios

China beefs up Asian trade bloc Henry Gao and Weihuan Zhou Nikkei Asian Review

Best of the financial columnists The current government deserves credit for tackling the social-care funding crisis, says Mark Littlewood. However, raising national insurance (NI) on workers to pay for the current generation of the elderly by placing a “serious financial burden” on the relatively young (who are less likely to vote Conservative) is a political rather than sensible solution. In the past 25 years, pensioners’ households have seen their disposable incomes double. The average wealth held by someone in their 60s is £300,000; for those in their twenties, it is £2,000. Thanks largely to the rise in properly prices, 20% of those aged 65 and over are millionaires. While there are many poor pensioners who need to rely on the welfare state, it doesn’t seem unreasonable to ask someone with a £700,000 house who racks up a £200,000 social-care bill to repay that £200,000 in inheritance tax after they die. The current scheme, meanwhile, risks becoming a “Ponzi scheme” as the NI hike is to be used for current expenditure rather than being ringfenced for possible future use for the individuals paying it. Given that the fund will also be used to “ease crises” in the NHS, it is “doubtful” how much of it will “end up paying for social care at all”.

“Despite the slogans, the polling and even the infamous white ballgown, Democrats appear to be getting cold feet on ‘taxing the rich’,” says Catherine Rampell – even though the wealthy have accrued “massive” gains in recent decades while their effective tax rates have fallen. This is because the people whom Democrats deem rich are a dwindling group. Barack Obama reckoned that those earning more than $250,000 could “tolerate a tax hike”. Joe Biden’s figure is $400,000 (just 5% of Americans) while Alexandria Ocasio-Cortez talks of those with “hundreds of millions… if not billions” of dollars. Why? Because Democrats are increasingly “well-off”.

Hence the party has also rejected Biden’s proposal to raise the capital gains tax (CGT) rate to that of income tax, along with closing a loophole whereby those who inherit stocks don’t have to pay CGT on gains during the original owner’s life. They are diluting other proposals too, while arguing in favour of tobacco and nicotine taxes, disproportionately paid by lower-income people. The plan to raise top rates on personal and corporate income taxes is not “nearly sufficient” to pay for their “generous welfare state”. This “soaking” of the rich “could be mistaken for a warm bath”.

Few readers will have been taught much about money in school, says Felix Salmon. Now a “whole industry, rife with conflicts of interest, is springing up” to change that. Financial literacy matters. Millions of people are poor and “struggle with their finances”. Earlier this month, the Financial Times launched a financial-literacy charity and says its programme will be transformative. Yet a 2014 analysis found that interventions make almost no difference, particularly for the poorest and especially for children who “don’t yet need to live on their income”. The main reason teens are targeted is because they are captive audiences for large financial-services companies. It is no surprise that Charles Schwab’s “ambitious” Moneywise America programme, aimed at making “free financial education” available to all, is taught by Schwab employees and provides materials with Schwab copyright and branding. Meanwhile, Robinhood Learn tells students (and potential customers) that “the sooner you invest, the longer you give your money a chance to grow”. Financial education is increasingly being created by the very firms students should be sceptical of. Beware the “financial-literacy industrial complex”.

For all the talk about China looking inwards, it has been “tearing down trade and investment barriers” to pave the way for its formal application to the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), say Henry Gao and Weihuan Zhou. The application highlights China’s desire to be “more active in international rule-making” and follows last year’s deals with Asian neighbours (RCEP) and with Europe (the Comprehensive Agreement on Investment). The irony is that the CPTPP was conceived by the US – which isn’t a member, thanks to Donald Trump – to contain China. But will China be able to meet the CPTPP’s “high standards?” The gap between CPTPP rules and China’s existing international obligations is “much narrower” than many think. On joining the World Trade Organisation (WTO) in 2001, China agreed to go “far beyond” the WTO’s standard rules, and these obligations, alongside those of RCEP’s, look more “rigorous” than the CPTPP’s. Beijing may have to mend “strained” relations with Canada and Australia to gain entry since all members need to agree to China’s accession. But if successful, this could “further cement the Asia Pacific’s role as the world’s leading economic bloc”.

MONEYWEEK 24 September 2021

Money talks “I recently paid £12 to get a packet of crisps delivered to my house at 10pm because of a major pregnancy craving. A £1 packet of Pipers… on Deliveroo. I just really needed them.”

Fashion designer Rejina Pyo (pictured), quoted in the Evening Standard “[The BBC] is its own worst enemy. I think they should start again. I don’t think the licence fee can survive — it’s mad. We don’t tax any other bit of household equipment.”

Broadcasting veteran and author Jeremy Paxman, quoted in The Sunday Times “I started on zero, or less than zero. And I’m aware… that I like it more where I am now… It’s very hard to realise when you pass the point where you’re not going to go back to it… it’s probably about five years after you do that, that you think OK, I can take care of myself now.”

Crime writer Richard Osman on growing up poor, quoted in The Guardian “The workshop that I trained at now has to charge people. At school, drama was compulsory, now it’s off the curriculum.

I mean, I would not know how to advise a young lad from an area like mine how to get into a career like this.”

Actor Jack O’Connell, who grew up in working-class Derbyshire in the 1990s, quoted in The Observer “Wearing bright colours was the instruction from above – the theme was eternal summer, they even paid for us to go on sunbeds.”

Television presenter and model Ulrika Jonsson on being TV-am’s weather girl in the early 1990s, quoted in The Sunday Telegraph “If you don’t find a way to make money while you sleep, you will work until you die.”

Warren Buffett, quoted on Twitter

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©Getty Images

20

Best of the blogs

21

noahpinion.substack.com

“Degrowth” – halting global economic growth in order to save the planet – has become increasingly fashionable, says Noah Smith. It is also “a very bad idea”. Why? Because it can never work.

The “massive… reordering of global production and consumption that degrowthers fantasise about is not just… impossible to implement, it’s the kind of thing that essentially everyone… is going to reject”.

Degrowth implies freezing the global economy at this stage, with income per head at an average of $17,000 a year. This means most people in the world would never experience anything near developed economies’ living standards (Britain’s GDP per head is around $30,000); around 25% of the global population earns less than $2.50 a day ($650 a year).

To avoid condemning much of the world to eternal penury, degrowthers would have to produce an income distribution whereby everyone above the current average is driven down to it, while those below it are allowed to keep growing until they reach it.

But for this to occur, most of the Western population would have to swallow a huge reduction in income. Around 86% of the people in developed countries are richer than the global average.

This is clearly a “political non-starter.” We’re not simply talking about “giving up beef and SUVs”, but accepting big cuts to the size of our dwellings, eating far less and giving up much medical care.

China wouldn’t play ball

A further problem is that cutting living standards in the industrialised world would

©Getty Images

Degrowth is a deranged idea

China’s CO2 output exceeds America’s, Japan and Europe’s combined

have little impact on overall greenhouse-gas emissions because most of them stem from emerging markets – China’s CO2 output is greater than those of the US, EU and Japan combined. In fact, its CO2 emissions per dollar of GDP are more than double America’s and five times the EU’s.

China is hardly likely to accept a reduction in its resource-intensive growth to “satisfy the environmentaleconomic diktats of activists” in Europe. In any case, as

Capitalism cuts consumption fee.org

Many people think that capitalism is all about “acquiring material possessions”, says Patrick Carroll.

But “wanton” consumption is actually undermined by “the very mechanisms that make the system tick”. A high price for an item you like, for instance, isn’t a case of the shop being greedy but a reflection of the good’s scarcity; if it is out of your range and you look for a cheaper product or don’t buy it at all, capitalism has encouraged you to lower your consumption. The system also discourages materialism by giving you opportunities to save and invest. That in turn creates future capital that can be put towards resources or goods later. “By promoting the accumulation of wealth, capitalism necessarily discourages the consumption of wealth.” Indeed, it is often governments that encourage consumption by “undermining… market-based incentives”. Tax credits and subsidies, which skew the price mechanism, spur spending; people will always be inclined “to splurge when they don’t have to pay the full cost [of] their indulgence”. Similarly, taxes on savings such as capital-gains tax and inheritance tax discourage saving and incentivise consumption. The upshot? Capitalism isn’t about consumption; “it expands our ability to consume”.

spectator.co.uk

Fresh out of university, at my first job in advertising, there was a “palpable disdain for suits,” says Chris Cotonou. My Generation-X boss told me that mine was “pompous”.

News that Marks & Spencer is no longer stocking suits in some of their shops suggests that the “post-pandemic world agrees”. In the suit’s place, the “tastemakers” at M&S moneyweek.com

have “unveiled their new Smartwear range for the office”, an “unimaginative line of neutrals… seemingly inspired”

by Jeff Bezos. It’s become “almost a form of rebellion” to wear a suit. Take the late Rolling Stone Charlie Watts. As

©iStockphotos

Will suits stage a revival?

Suits are a mark of respect

Mick Jagger strutted in leather vests, his “passion for tailoring seemed... defiant”.

He always looked stylish.

I have found that a few simple pieces can “carry you through any situation”.

I still believe that suits are a mark of respect, and the same one can be worn a hundred different ways, including with trainers. You can be creative, without having to try “nearly as hard”. There is a new “generation of young tailors challenging the suit’s stiff image”. The suit could yet stage a comeback.

the pandemic reminded us, sharply squeezing growth in the industrialised world will have knock-on effects in emerging markets. The sharp Covidinduced slump in March 2020 caused a decline in tourism and Western imports in emerging markets. Hunger and child mortality increased. Add it all up and the degrowth movement is a utopian delusion. No matter how “shrilly degrowthers quote apocalyptic projections, the things they call for simply will not happen”.

Scrap tax privileges for global quangos

iea.org.uk “There is something profoundly distasteful about the apparatchiks of multinational quangos, who exempt themselves from paying the taxes that apply to the rest of us, proposing we pay more taxes”, says Andy Mayer. Amid the fuss over the Paris-based Organisation for Economic Co-operation and Development’s proposal to impose a global minimum corporation tax rate of 15%, nobody highlighted its cosseted staff’s tax arrangements – or lack thereof.

They pay no French income tax but receive generous pay and benefits such as an 18%-24% employers’ pension contributions, 30 days’ annual leave, allowances for their children’s education, childcare and an extra week off at the end of the year. It is a “similar story” at the United Nations and the International Energy Agency.

This is “amazing work if you can get it” and shields employees from ordinary people’s experience of an “everexpanding global tax burden.”

The OECD’s workers must stop shirking payments. If that means “a quarter to a third of them” have to be sacked, “so be it”.

24 September 2021 MoneyWeek

22

Personal finance

Energy firms go bust

Don’t fret if your supplier fails, but be ready to get a cheaper deal

E

give to the new supplier when it contacts you. The tariff that you had with your old supplier will end and the new supplier will put you on a special “deemed” tariff – often its standard variable tariff (SVT). However, this may not be the best deal available, so once the firm gets in contact, ask what its cheapest tariff is – and shop around to see if you can do better elsewhere. You can transfer to a new provider without exit fees.

nergy prices in Britain are soaring.

Wholesale electricity prices are at record levels, and gas prices have hit multi-year highs (see page 14). One consequence of this has been a wave of bankruptcies among smaller energy suppliers. Seven firms have already ceased trading this year and more could follow. The most recent failures are Fix prices for more certainty Utility Point and People’s Energy, who had The increase in wholesale costs is putting half a million customers between them pressure on suppliers to raise their prices, when they went out of business last week. and on the government to increase the The good news is that if this happens to energy price cap (the most providers can your energy supplier, it shouldn’t have any charge on SVTs). Ofgem has raised the direct impact on you. price cap for a typical Ofgem, the industry “You shouldn’t try to switch household by £139 regulator, will switch provider while the transfer to £1,277 with effect you to a “supplier from 1 October. This process is taking place” increase of last resort”. Your was decided electricity and gas will continue to be in August, before the recent wholesale spike. supplied in the meantime and any credit So the next six-monthly review – which will that you had with the old supplier will be be announced in February and take effect in transferred to the new one. Ofgem usually April – could well see the cap rise again. finds customers another provider within 14 Fixed-term deals are the best way to days of an energy firm ceasing trading. It protect yourself from future increases, says has already appointed British Gas to take on The Daily Telegraph. Locking in a one- or customers from People’s Energy, while those two-year fixed rate is optimal even if the currently with Utility Point will go to EDF. savings are minimal for now, because of You shouldn’t try to switch to a different the likelihood that the cap will rise over the provider while the transfer process is taking next year. SVTs around the level of the cap place, but take meter readings now to may look attractive at present, but there

PAPER

©iStockphotos

Saloni Sardana Web writer

Your energy will keep coming, but it may cost you more

is a danger that anybody on one could see another substantial increase next year, says Lisa Barber of Which?. So it’s prudent to consider switching now while there are still some competitive fixed-rate deals.

Energy firms are pulling many cheaper tariffs from the market: there are just nine tariffs from four providers available on comparison site GoCompare, an 89% decrease on normal levels. However, better deals can still be found on some providers’ own websites. For example, Sainsbury’s Energy, which is operated by E.on Next, offers a one-year fixed deal for £1,177 a year for a typical household, which is £100 less than the cap, and a two-year fixed deal for £50 less, says Martin Lewis of MoneySavingExpert.

“If the cap rises again… these deals will look even more appealing.”

POWER

60% of the energy used to produce paper and paper packaging in Europe comes from renewable sources.

Discover the story of paper www.lovepaper.org

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Source: Confederation of European Paper Industries (CEPI), 2018 CEPI represents 92% of European pulp and paper production Love Paper is a registered trademark for Two Sides Ltd. Registered in the UK, U.S. and other countries and used with permission.

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24 September 2021

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Pensions

23

Earn less, save more

Older workers will pay more tax

Rising national insurance rates make salary-sacrifice schemes more appealing

Changing the way that you save for retirement could help limit the damage of next year’s national insurance hike.

Pension experts are anticipating a surge of interest in salarysacrifice schemes ahead of next April, when the chancellor Rishi Sunak’s 1.25% national insurance increase for employers and employees alike takes effect.

In a salary-sacrifice scheme, you agree to give up part of your salary in return for a different benefit worth the same amount. That might be anything from childcare vouchers to membership of a cycle-to-work scheme, but pension contributions are a popular option.

Giving up a slice of your compensation will bolster your retirement savings

©Getty Images

David Prosser Business columnist

■ Good news and bad for older workers. While next April’s national insurance tax hike does not apply to them, since no-one over the state-pension age – currently 66 – has to pay this tax, they will pay more from April 2023.

This is because 2022’s 1.25% national insurance hike will then be replaced with a new tax, the health and social care levy, payable at the same rate. And this will have to be paid by anyone earning an income, irrespective of their age.

The upshot is that for the first time, workers old enough to receive state-pension benefits but still in work will be required to pay a contribution to cover the costs of state care.

The new tax will work in exactly the same way as national insurance, with only those earning above a certain amount required to pay – currently £184 per week or £9,568 a year – but your age will make no difference.

Bear in mind too that older people are also caught by the increase in dividend taxes coming into force next year. From April 2022, basic-rate taxpayers will have to contribute 8.75% (up from the current 7.5%), higher-rate taxpayers will pay 33.75% and additional-rate taxpayers will owe 39.35%. If you are a saver depending on investments held outside an individual savings account (Isa) or pension wrapper, that could prove costly.

insurance saving of £177 under A basic-rate taxpayer on a the new tax rates. Effectively, salary of £30,000 will then employer and employee share a pay £332.50 in income tax and national insurance on their final windfall of £309.50. £1,000 of pay; assuming they then want to make a £1,000 How it works Mind the drawbacks pension contribution, £200 of Typically, employees make There are some downsides to that is covered by income-tax pension contributions out of salary-sacrifice schemes. In relief, but national insurance of their wages before they are particular, they reduce the value £132.50 will still be payable. subject to income tax. This of benefits linked to your salary, By contrast, means you will such as life insurance cover and “The salary cut goes in a salarypay national maternity and paternity pay. sacrifice straight into your insurance on There could also be an scheme, where your earnings at impact on the size of the pension savings” the employee the usual rates. mortgage you can secure, since simply gives up £1,000 of In addition, your employer lenders look at salary when pay in return for a pension has to pay employers’ national making advances. Nevertheless, contribution of £1,000, there insurance on your wages. if your employer offers a salaryis no income tax or national The effect of a salarysacrifice plan, it will be even insurance to pay on the income sacrifice scheme, by contrast, more worthwhile considering forgone. In addition, the is to reduce your salary, with it now that national insurance employer makes a national your employer paying the rates are rising. amount you give up straight into your pension scheme instead.

National insurance, for both you and your employer, is then calculated on your reduced ● Compensation pay- City regulator, said the However, ministers wages, resulting in lower bills outs to victims of poor data underlined the are concerned about advice about pensions need to crack down on the pension choices for both parties. poor advice. made by a much Salary-sacrifice schemes have and investments have more than tripled over broader range of older grown in popularity in recent the past decade, ● New rules people. years. Employers are especially according to new data could require They therefore keen on them because the from the Financial your employer to propose to require schemes provide an opportunity Services encourage you to take occupational-pension to reduce their national Compensation advice before cashing scheme trustees insurance costs substantially.

Scheme (FSCS). in your pension. to ask members Some employers even offer to The FSCS, which At present, accessing their pays out to clients of only members of pensions to take share these savings with staff, firms such as final-salary pension financial advice on their in the form of higher pension independent financial schemes options, or to explicitly contributions. advisers, rather than contemplating opt out of doing so.

With national insurance when pension schemes transferring their due to rise from 6 April 2022 fail, paid out £453m in savings to a non● Thousands of in order to help fund the NHS 2020-2021, up from guaranteed scheme are people claiming their and the costs of social care, £130m in 2012-2013. obliged to state pensions for the these benefits will become even The Financial take financial advice first time are suffering more attractive.

Conduct Authority, the before they do so. serious delays, the

Compensation claims for poor advice soar

moneyweek.com

Department of Work and Pensions (DWP) has admitted. Staffing difficulties at the DWP, exacerbated by the pandemic, have led to significant backlogs as officials process pension claims made by people about to turn 66.

Some claimants, including those with little or no income on which to survive, have now been waiting months for their money. The DWP says the system should be back to normal by the end of October.

24 September 2021

MONEYWEEK

24

Investment focus

Where to find companies involved in cutting-edge science Universities are innovation incubators and often launch businesses involved in fast-growing fields ranging from biotechnology to artificial intelligence. Dr Mike Tubbs explains how to invest in their “spin-outs”

A thriving sector

“Oxford Nanopore is one of the UK market’s most eagerly anticipated initial public offerings this year” MoneyWeek

Spinouts UK, a quarterly journal tracking the sector, has compiled a list of companies spun out from universities since 2000. Six universities have produced more than 100 spin-outs each over this 20-year period: Edinburgh (275), Cambridge (273), Oxford (198), Imperial College (144), Strathclyde (129) and University College London (112). Many spin-out companies are not listed but a sizeable proportion are.

That means it is possible to invest in spin-outs directly by taking a stake in listed companies such as Oxford Instruments or Abcam, for instance, or by buying into initial public offerings (IPOs) when spinouts float. But there are also listed holding companies with diverse portfolios of university spin-outs and other early-stage companies.

Examples include IP Group, Frontier IP Group, Allied Minds, Arix Bioscience and Mercia Asset Management. IP Group is a £1.5bn FTSE 250 company; Arix Bioscience a £214m firm; Mercia Asset Management a £180m Aim-listed group; Frontier IP Group a £60m Aim company; and Allied Minds is a £56m stock with investments

24 September 2021

mainly in the US. I will also discuss spin-outs from Cambridge Consultants (CC). CC was never listed. Since 2020 it has been owned by consultancy giant Capgemini.

IP Group acquired Top Technology Ventures in 2004, Fusion IP in 2014 and Touchstone Innovations in 2017. The latter two were similar but smaller listed companies investing in university spin-outs. IP Group, Mercia, Frontier and Arix all provide investors with diversification since all four have investments in university spin-outs at different stages of development – although Arix invests in only one sector: biotech.

We will take a detailed look at IP Group’s portfolio as an illustration and then give a brief summary of the portfolios of the others.

The unicorns in IP Group’s portfolio

IP Group takes IP-protected ideas through company formation and development. IP Group’s largest investment is in Oxford Nanopore, a geneticsequencing company that makes low-cost, convenient sequencing instruments and was spun out of Oxford University in 2005. IP Group’s 14.5% stake in Oxford was valued at £359m in the group’s report covering the six months to the end of June 2021. This values Oxford Nanopore at £2.49bn.

However, Oxford is planning to float later this year.

According to Shares magazine, it is “one of the UK’s most hotly awaited IPOs”. Analysts reckon that the group could be valued at £3.9bn-£7bn when it lists. At a £4bn valuation, IP Group’s 14.5% would be worth £600m rather than £359m.

Oxford Nanopore is a unicorn: an unlisted start-up valued at over $1bn. IP Group has three other unicorns in its portfolio. The first is Hinge Health, a patient-centred digital clinic for musculoskeletal conditions, founded by two scientists from Oxford University and Imperial College. IP Group has a 2.4% stake in Hinge, worth £41.4m at the end of June 2021, valuing the company at £1.73bn.

The second is Ceres Power. Spun out of Imperial College, it has a cost-effective technology to lower carbon emissions and reduce air pollution. Ceres’ value expanded from £1m to £1bn in less than eight years and IP Group exited with proceeds of £128m, seven times its investment. The third is Oxford Sciences Innovation (OSI), a holding company resembling IP Group, in which IP Group had a 2.3% stake worth £20.6m at the end of 2020, valuing OSI at £896m.

OSI has, since 2015, worked with 200 of Oxford University’s academic staff to build a portfolio now containing more than 60 businesses. OSI was formed because of IP Group’s early successful agreement with Oxford University’s chemistry department. In return for an up-front sum from IP Group, the Oxford chemistry department agreed, for a 15-year period, to give IP Group 50% of the equity in every firm spun out of the chemistry department.

IP Group has over 100 significant portfolio companies with the top ten worth £654.2m at the end of 2020 (62.3% of IP Group’s then-£1.05bn market cap). Most portfolio companies are in the UK but moneyweek.com

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In the 1960s, universities had few links with industry.

Indeed, there were student demonstrations and sit-ins in 1970 at the University of Warwick against the connections the university was trying to form with local industry, a reflection of the anti-capitalist ethos prevalent in universities at the time.

These days, though, most universities welcome industrial contacts and contracts. There are over 100 science parks at British universities, marking a rapid expansion since 1970, when the first one was set up at the University of Cambridge. The other big change is that some academics see the potential in patented research and form small companies to exploit it.

These are called university spin-out companies. The universities welcome these and take a share in the intellectual property (IP), so they also make money from successful spin-outs.

There was a mere trickle of spin-outs in the 1970s, there are now over 1,000 in the UK each decade. One of the earliest was Oxford Instruments in 1959; it is now a £1.5bn FTSE 250 company. It was spun out of the University of Oxford by Martin Wood, who started it in his garden shed. Sir Martin and I were both members of the UK’s National Committee for Superconductivity. Oxford Instruments was the first major spin-out from Oxford and probably the UK’s first substantial university spin-out.

A far more recent Oxford University spin-out is Vaccitech. The company has been in the news recently since it holds the intellectual property for the Covid-19 vaccine developed by Professors Andy Pollard and Sarah Gilbert; the treatment was licensed to AstraZeneca. Another biotechnology firm, Abcam, with a market capitalisation of £3.4bn, is a very successful recent spin-out from Cambridge.

Specialising in antibodies, reagents and proteins, it was founded by Jonathan Milner, a post-doctoral researcher at Cambridge.

Professor Sarah Gilbert developed the Covid-19 vaccine that was licensed to AstraZeneca

6% of the portfolio value is accounted for by North America; 0.7% by Australia and New Zealand.

Arix, meanwhile, focuses on biotechnology companies. Five of the 12 companies in the portfolio are university spin-outs: Autolus, which develops T-cell therapies to treat cancer, was spun out from UCL in 2014; TwelveBio and Stipe Therapeutics, respectively gene-editing and immune-oncology specialists, from Danish universities; and Depixus from a French university and LogicBio from Stanford University – these last two companies both specialise in genetics. At the end of June 2021 the portfolio was valued at £115m with cash of £164m.

From Plymouth to Portugal

Frontier is much smaller than IP Group, with 18 significant companies in its portfolio and a market cap of only £60m. Frontier originally held mainly spinouts from Scottish universities, but it now includes spin-outs from the universities of Cambridge and Plymouth, as well as from Portugal. The portfolio was valued at £23.4m at the end of December 2020, up by 43% from the end of 2019, with cash of £3.8m.

Frontier’s larger portfolio companies are grouped into four main categories: artificial intelligence (AI), data and robotics (nine companies); engineered materials (six); pathogens and cell imaging (five); and food and agritech (seven).

Mercia Asset Management has collaborations with 19 regional universities accounting for 20% of its investment portfolio of 390 businesses. In December 2019 Mercia acquired three VCT (venture capital moneyweek.com

trust) fund management contracts. Mercia’s top 20 portfolio companies were valued at £83.3m in March 2020 but none are yet listed. Back then Mercia held an over-20% stake in 16 businesses; these were all at a relatively early stage of development with only three showing a profit in their most recent financial year.

Mercia had three main near-term targets: to achieve operating profitability (before fair value adjustments in the portfolio’s holdings); to grow assets under management to over £1bn; and to “evergreen” the balance sheet: to ensure that direct investment activities are funded by portfolio cash realisations.

In its preliminary results for the year to the end of March 2021, Mercia said that it had managed to achieve these three objectives.

Allied Minds, meanwhile, has a market cap of only £56m and concentrates on spin-outs from US government laboratories and universities. It has refocused its portfolio over the last few years and is now developing just seven companies. It is not funding any new spin-outs. The fair value of the portfolio at the end of 2020 was estimated at $41.6m, with cash of $24.5m.

“Autolous, which develops T-cell therapies to treat cancer, emerged from UCL”

Cashing in at Cambridge

CC was formed in 1960 by three graduates (led by Tim Eiloart of Trinity College) to, in their words, “put the brains of Cambridge University at the disposal of the problems of business and industry”. CC’s spinouts are therefore indirect spin-outs from Cambridge Continued on page 25 24 September 2021

MoneyWeek

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Investment focus

Continued from page 25

University. CC created more than 20 successful spinout companies, including four unicorns – Domino Printing Sciences (acquired by Brother Industries in 2015), Cambridge Silicon Radio (bought by Qualcomm in 2015), Xaar (printing technologies with a skew towards industrial ink-jet printheads) and inhaled-medicine group Vectura (which Philip Morris recently acquired). Many other CC spin-outs were scooped up before they listed, leaving Xaar as the major one still listed.

There are three ways to invest in university spinouts. The first is to invest directly in a diverse group of listed, established spin-outs such as Oxford Instruments, Abcam and Xaar. The second is to invest in a holding company with a diversified portfolio of spin-outs such as IP Group, Mercia, Frontier or Arix.

The third is to invest in the IPOs of spin-outs as they come to market. But the history of IPOs shows that the share price often rises sharply over the first few days but then disappoints in the medium-term. It may be safer to opt for the first two approaches.

Within the FTSE 250, examples of well-established spin-out companies include Oxford Instruments and Oxford Biomedica (also spun-out of Oxford University) with Xaar (from CC) a spin-out member of the FTSE Small Cap index. Vaccitech is listed on America’s Nasdaq.

University spin-outs listed on Aim with a market cap over £50m include Abcam (from Cambridge), Seeing Machines (Australian National University), a maker of technology that monitors drivers and pilots, and radiation-detection specialist Kromek (Durham).

How to assess the options

The most straightforward way to invest in a diversified range of university spin-out and other early-stage companies is through a holding company such as IP Group, Mercia, Frontier or Arix. To gauge holding companies’ suitability, investors should look for a sizeable and diverse portfolio, evidence of past successful exits from investments, a substantial cash balance to fund portfolio development and evidence of co-funders keen to participate in funding developing portfolio companies.

The portfolio should have shown increases in fair value over the last few years. In addition, the level of share price volatility over the last five years gives an indication of what to expect in the future. Most holding-company shares fell to a low when the virus struck in early 2020 but in many cases have risen substantially since then.

These holding companies are similar to venturecapital funds, which have a rule of thumb that every ten investments will yield one or two substantial successes and one or two failures. The rest give modest or reasonable returns. A venture capitalist makes almost all its money from the big successes – Oxford Nanopore being one example for IP Group.

It is difficult to use a price/earnings (p/e) ratio to assess holding companies’ value since their profits are “lumpy” – they tend to come in fits and starts – and tied to portfolio-company exits. For example, IP Group’s profits in 2020 were mainly derived from the sale of its stake in Ceres Power. The p/e for 2020 is 6.7.

It is more useful to assess the likelihood of early increases in value for key portfolio companies.

As portfolio companies mature some will become listed but most will probably be acquired by large companies keen to absorb new technologies and

MoneyWeek

24 September 2021

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Three ways to invest

Ceres Power has developed a cost-effective technology to cut emissions

products. The key issue is exit value compared to the cost of the investment.

Where to look now

IP Group (LSE: IPO) is the key holding company investment. It has a well-developed portfolio with holdings in nine companies already floated on the LSE (including Ceres Power, which it exited in 2020 for £128m – seven times cost). In the first half of 2021 it sold six companies, raking in £111.4m.

IP Group also has a 14.5% holding in Oxford Nanopore which could prove to be worth much more than its value in the latest accounts should Oxford’s IPO be as successful as many analysts expect. IP Group has net cash of £249m and pays a 1p dividend, giving a yield of 0.7%.

Mercia Asset Management (LSE: MERC) also has a large portfolio of over 400 companies but only 25 of these are direct investments, the remainder being in Mercia-managed funds. Blue Prism, a software company with a current market cap of £1.2bn, was a Mercia portfolio company. Mercia made its first profit in the year to 31 March 2021.

Frontier IP Group (Aim: FIPP) has a smaller portfolio of earlier-stage companies but has returned a small profit over the last few years. Arix Bioscience (LSE: ARIX) specialises in one sector – biotech – and has recorded losses for the last four years.

“Vaccitech has other promising treatments that could follow its discovery of the Covid-19 vaccine “

My favourite individual spin-outs

A selection of individual listed spin-outs can be used to supplement stakes in holding companies. Oxford Instruments (LSE: OXIG) and Abcam (Aim: ABC) made a profit in the most recent financial year. Oxford has a 2022 p/e of 35 and yields 0.7%. Abcam is on a 2023 p/e of 58 and a yield of 0.8%. Of the others, Oxford Biomedica (LSE: OXOA), the cell and gene therapy company, increased revenue by 37% in 2020 and is expected to become profitable next year. It has partnerships with AstraZeneca, Bristol Myers Squibb, and Novartis. The pipeline contains treatments for cancer, Parkinson’s disease, Covid-19 (approved) and others.

Xaar (LSE: XAR), the printing-technology group, is undergoing a turnaround under new management.

Losses have fallen fast in recent years. Both Xaar and Kromek (LSE: KMK), the radiation-detection specialist, should be worth investing in once growth and profitability are restored. Vaccitech (Nasdaq: VACC) may produce more successes following its discovery of the Covid-19 vaccine. Its pipeline includes potential treatments for prostate cancer and Mers, along with two hepatitis vaccines. All five analysts covering it deem it a buy, although it is expected to report losses into 2023. moneyweek.com

www.graviscapital.com

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Analysis

How you can profit from the beautiful game

Football clubs may often be money pits for oligarchs, but they are also huge global brands, says John Chambers – and investors are now starting to recognise their potential

Owning football clubs has long been considered an effective way of separating rich men from their fortunes. But if they are just vanity projects for sheikhs and oligarchs, why are shrewd investors such as Nick Train of fund manager Lindsell Train and bankers from JPMorgan getting involved in the business of football?

The past 18 months have been a struggle for all football clubs, owing to the virus-induced absence of fans from grounds – Europe’s top clubs have missed out on some €2bn of revenue over this period. Still, with a return to near-normality this season, that shortfall is likely to prove a relatively small blip in otherwise strong revenue growth over the past few years.

If any proof were needed that football has become a huge business opportunity, then look no further than last spring’s ill-fated European “Super League”. While the notion was quickly squashed following a dramatic rebellion by fans and opportunistic politicians, it clearly signposts the direction of travel for the industry.

Forbes, the financial media company, produces an annual list of the world’s most valuable sports teams, traditionally headed by the Dallas Cowboys NFL franchise. Forbes estimated that had the Super League proposals gone ahead, the two leading Spanish football teams – Barcelona and Real Madrid – would have taken over at the top of the table. Forbes’ analysis clearly shows that the dozen top football teams are breaking away from the rest in terms of revenue and valuation.

The 2021 analysis is summarised in the table below.

Tottenham Hotspur’s new stadium hosts American Football matches too

Clubs are becoming brands

These days a relatively small proportion of the revenue for the leading clubs comes from matchday receipts – typically around 15% of the total. Even the huge

Forbes Football Super Dozen FC Barcelona Real Madrid Bayern Munich Manchester United Liverpool Manchester City Chelsea FC Arsenal FC Paris Saint-Germain Tottenham Hotspur Juventus Borussia Dortmund

0

MONEYWEEK

792 792 703 643 619 609 520 430 599 494 441 405

4760 4750 4215 4200 4100 4000 3200 2800 2500 2300 1950 1900 1250 2500 3750 Valuation US$m Revenue US$m

24 September 2021

5000

revenues from broadcasting of games throughout the world are being dwarfed by the commercial rights from sponsorship and merchandising. The club is becoming the brand.

Stadium assets, too, are being worked harder.

Long gone are the days of opening them up for 20 Saturdays a season. They are often open daily for tours, conferences, events and other sports matches.

The new Tottenham Hotspur stadium, for example, was designed with NFL (American Football) matches in mind as much as soccer.

The NFL games hosted there are sell-outs, with the supporters putting soccer fans to shame in terms of the merchandise they buy. The stadium can also host boxing matches and other sports. It is open for away matches so fans can watch the game and drink at the longest bar in Europe. The rapidly growing popularity of the women’s game is also helping to fuel sales.

The leading fan of football clubs as an investment opportunity is Nick Train. Lindsell Train has major stakes in at least four clubs. It is the number-two shareholder in Manchester United after the Glazer family with a 26% holding, and number-two again in Juventus with an 11% stake. It also has stakes in Borussia Dortmund and Glasgow’s Celtic. Train highlights the scarcity value of listed football teams.

Many are owned by individuals or, in Spain and Germany, fan-controlled trusts.

Putting a financial value on clubs is difficult, given that so many are in private hands. Revenue from trading players can dwarf underlying profits and result in volatile earnings from year to year. Accounting can also throw up anomalies. For instance, if a club buys a player for £50m, that sum will show up in the balance sheet, whereas a home-grown player who has risen moneyweek.com

Analysis “Manchester United has 141 million social-media followers; only Real Madrid and Barcelona boast more”

29 hugely popular in Asia and has helped to raise the club’s profile there, greatly facilitating a shirt-sponsorship deal with Hong Kong-based life-insurer AIA. Ryan Hughes, head of fund selection at investment platform AJ Bell, agrees with Nick Train that if you are considering an investment in a football team you must think big: “In the world of sport, it is very much a case of the big get bigger, and the big get stronger because of the power of the global brand.” With the growth in social media and streaming the spoils will increasingly go to the biggest brands. If you fancy taking on the billionaires and oligarchs, here are some ideas.

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Three potential winners

from the club’s academy will not feature even if he has a similar valuation. Kieran Maguire, who teaches a football industries MBA at Liverpool Management School, has written a fascinating book, The Price of Football, on the topic.

Both Forbes and the consultancy Deloitte publish annual analyses of the value of football clubs. They have tended to use revenue as the key metric on which to base their valuations, although Deloitte is also starting to record the number of social-media followers each club has, which is key to gauging the size of the fan base.

The amount a club can achieve for sponsorship deals is ultimately a function of the number and passion of their fans. Keith Wilson, a director at Lindsell Train, points out that “sports franchises in particular have the power to draw the largest number of eyeballs, making them among the most valuable of intellectual properties”.

Europe has gone global

European football is a worldwide industry. The major teams have fan clubs all over the world. In most countries you will see children playing in Manchester United or Barcelona shirts. Train believes that the widespread Italian and Scottish diaspora is valuable for Juventus and Celtic. If you go to an Italian suburb in any North American city, the locals will be passionate about the Ferrari Formula One team – and Juventus.

The major clubs are all looking for ways to grow their global popularity and brand recognition, especially in the lucrative Asian market. For example, Son Heung-min is arguably a more valuable player to Tottenham than Harry Kane. The South Korean is moneyweek.com

Football clubs can be volatile, with share price movements tracking the performance on the pitch over the short term. But over the longer term, valuations have increased greatly. There are ten European football clubs listed on recognised stock exchanges.

For the reasons outlined above I would ignore any club outside the top 12 in the Forbes list, as the revenues drop off very quickly.

It is difficult to look past Manchester United (NYSE: MANU) as it is one of the ultimate global brands with widespread recognition even outside the game. It has 141 million followers on the main socialmedia platforms; only Barcelona and Real Madrid boast more. The stock is not cheap, with the highest price relative to turnover of the listed clubs, but it is 30% below its pre-Covid-19 peak and on a discount to the Forbes valuation.

Juventus FC (Milan: JUVE) dominates Italian football.

Following an unbeaten season in 2011-2012, it went on to win the next nine seasons. Some 34% of Italian football fans support the club, while there are many more international supporters. It has over 100 million socialmedia followers. The club is controlled by their Turin neighbours, the Agnelli family of Fiat Motors, through Exor NV, the family-run holding company with a 64% shareholding. Andrea Agnelli is the club chairman.

Unlike other billionaire football-club owners, the Agnellis run Juventus as a profit-making business: witness the recruitment of Cristiano Ronaldo for €100m at the relatively mature age of 33 in 2018. The strategy behind this was not so much his potential impact on the field but the huge rise it led to in terms of merchandising and brand awareness. Following Ronaldo’s recent move to Manchester United, shirt sales smashed all previous records in a few hours.

Institutional investors cannot add shares in Tottenham Hotspur to their portfolio as they are only available on the informal share-trading platform Asset Match (assetmatch.com) and trading volumes are very low. For the patient private investor, however, it might be worth a look.

It is very cheap compared with its listed peers.

Based on the last trade, the company is valued at less than its annual sales. The two major shareholders are billionaire currency trader and investor Joe Lewis and the club chairman Daniel Levy, but there is a small rump of private shareholders, mostly fans – a legacy of its past life on the Aim market. Levy is considered one of the finest brains in football and has run the club on a self-funding basis without external finance.

You would need to be prepared to hold onto it for the long term, given the lack of liquidity, but there might be some potential catalysts that could boost the share price in the not-too-distant future. Firstly, if Tottenham were ever to get an NFL franchise it would be a complete game changer. Alternatively Lewis, who is now 84, might decide to hang up his boots.

(The author is a shareholder.)

24 September 2021

MoneyWeek

Funds

30

A promising new chapter at RIT The trust’s long-standing chairman stepped down in 2019, but the new team are doing very well

The quoted equities portfolio, which accounts for 52% of the total, contributed 6% to the overall return. There has been a shift towards defensives, which might help reduce the volatility of returns, including consumer goods producers Unilever and Reckitt Benckiser.

A further 20% of the portfolio is in absolute return and credit investments, which contributed 1.6% to the overall return.

Max King Investment columnist

E

Activist investor Elliott Management is pushing for Scottish energy group SSE to separate its renewables arm from its networks business through a sale or spin-off. SSE is now close to announcing plans to split into two listed companies, says The Daily Telegraph – but the firm is still saying that it has not yet made a decision.

Spinning off renewables could attract ESG-focused investors into this growing business, where SSE plans to spend £7.5bn on low-carbon projects by 2025. SSE shares are up 9% this year, including a 6% gain after reports in August that Elliott had bought a stake said to be just under the 5% threshold that requires formal disclosure. The firm says it will give an update on its growth plans at its interim results in November.

MONEYWEEK

24 September 2021

The changeover from Rothschild to a younger generation has probably resulted in increased boldness in the decision making. It is hard to imagine RIT under Rothschild investing in Coupang or Robinhood, or allowing a gearing (debt to equity) ratio of around 10%. Clearly, management is positive about the outlook for the portfolio.

The only negatives are a tendency to overhedge currency exposure into sterling (49% of the portfolio at the half year) which is costly when sterling is weak. At 1.6% fund costs are high, thanks to investment in third party funds, and there is also a management incentive scheme. These costs are an issue for many wealth managers who charge their clients additional fees, but direct investors should only be concerned about net performance, which is excellent.

My scepticism late last year was wrong. RIT should be a key building block of any investment trust portfolio.

Short positions... ETF giants in merger talks ■ Fund manager Invesco is in talks to merge with State Street’s asset management business, says The Wall Street Journal. The talks might not result in a deal, but if it went ahead it would be one of the industry’s biggest mergers in recent history: State Street manages nearly $4trn in assets and Invesco oversees $1.5trn. Both firms have large exchange-traded funds (ETF) businesses, which have grown in popularity as investors shift from active funds that charge higher fees. Deals have boomed among asset managers as they try to cut costs to stay competitive, says Breakingviews. In this case, State Street and Invesco might be able to generate $160m in annual savings. However, in the end these mergers are still “a pit stop in a race to the bottom”. Cutting costs won’t do much to change “the fee-crunching trend”, while the deals can also create new problems as portfolio managers leave, “demand chunky sums to stay or just grumble over culture clash”.

■ Michael Hasenstab (pictured) has seen his Templeton Global Bond fund shrink from $43bn to $5.75bn over several years of underperformance , says Citywire. Now fund research firm Morningstar is questioning whether this decline poses any dangers. Hasenstab’s strategy is known to “make up ground in a hurry” but it’s volatile; that, coupled with the “spectre of persistent outflows”, raises the “risk of liquidity trouble”.

Templeton disputes this, saying the fund invests “among the most liquid markets in the world” and is “designed to navigate volatility and liquidity risks”.

moneyweek.com

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Activist watch

Bolder decision making

©Getty Images

veryone likes to think that they’re indispensable. When Randolph Churchill resigned as chancellor in 1886, he expected to bring down the government.

But his successor George Goschen did at least as good a job as he had done. Churchill’s career and reputation was ruined and he later admitted: “I had forgotten Goschen.”

So Jacob Rothschild may have mixed feelings about the success of RIT Capital Partners (LSE: RCP) since he stepped down as chairman in 2019. His family, who account for over 25% of the £4.2bn company, E-commerce firm Coupang has delivered strong returns clearly benefit from the strong performance, but he may be put out that the management team on its debut. It accounted for (to 30 June) but the volatility of are doing very well without him. performance and correlation to 9% of the portfolio at mid-year, Investment returns of 18% over the index is low,” notes Chris though its share price dropped the six months to June 2021, 13% in July. It contributed Brown, an analyst at JPM and 42% over 5.5% towards the first half’s Cazenove.

“RIT’s returns are overall performance.

12 months, The trust’s among the best in performance are among There were several other positives in the private equity the best in the has accelerated the global sector” in the last year, section, which includes global sector and far ahead of the 12% and exposure to funds as well as but its shares were still trading direct investments. A £29m 26% returns of the MSCI All on a 6% discount to net asset new investment in stock trading Countries index in sterling. value this week. platform Robinhood is doing This acceleration is largely well and the £50m investment due to the success of private New investments delivering in Webull, another trading equity investments, which RIT aims to deliver long term platform in the US, looks capital growth while preserving contributed 13% of the overall promising. Rothschild’s absence shareholders’ capital. It seeks to 19% return in the first half. is not limiting RIT’s access to Private equity accounts for outperform the relevant indices good deals round the world; 29% of the portfolio but this “over time”, but expects to fall the management team are well excludes Coupang, the Korean behind in rising markets. “RIT connected and the Rothschild e-commerce company, which has slightly lagged the reference listed in March and surged 40% name is still a door opener. index over the last five years

Trading

It has been a poor fortnight for my four long tips. Three fell and only one appreciated.

Media group ITV slid from 116p to 108p, homebuilder DR Horton decreased from $94.96 to $87.17 and construction firm Morgan Sindall slipped from 2,615p to 2,507p.

The only bright spot was spread-betting firm Plus500, which increased from 1,400p to 1,416p.

Broker TP ICAP, US homebuilder PulteGroup and Royal Mail remain below the level at which I recommended that you should go long. Overall, my long tips are making a total profit of £3,253, down from £4,146 two weeks ago.

My six short tips have done better, with four going down, one rising and one unchanged.

Electric-car company Plug Power fell from $26.40 to $25.72, digital currency bitcoin dropped from $51,253 to $43,075 and remote medicine firm Teladoc dipped from $144.56 to $136.

Cinema chain AMC also declined from $44.02 to $40.29.

However, cloudcomputing specialist Snowflake remain unchanged at $310 while electric carmaker Tesla increased from $706 to $730. Overall, my short tips are making a net profit of £109, compared with a loss of £360 a fortnight ago.

I now have four active long tips (ITV, DR Horton, Morgan Sindall and Plus 500) and six shorts (Plug Power, bitcoin, Teladoc, AMC, Snowflake and Tesla). I also have three pending long tips yet to reach the level at which you should activate them (Royal Mail, TP ICAP and Ensign Group).

I don’t advocate closing any of these positions, but I think you should cut the level at which you cover Snowflake and Plug Power to $325 and $40 respectively (down from $350 and $55) and raise the stop-loss on DR Horton to $70 (from $63).

moneyweek.com

The profits in private care

Nursing and care-home specialist Ensign Group should thrive as Americans age Matthew Partridge Senior writer

T

he British government has incurred criticism for its decision to raise taxes in order to fund social care. But however the issue is ultimately dealt with, it will be a recurring theme over the next few years as populations age and require more looking after. And given this backdrop it’s no surprise that private care providers have attracted the attention of investors recently.

Shares in nursing and care-home specialist Ensign Group (Nasdaq: ENSG), for instance, have done very well over the past eighteen months, more than doubling from their lows in March 2020. However, over the past few weeks they have fallen back, and are now approximately 20% down from their peak in the early spring. Does this mean that all the investment opportunities have disappeared, or is this just a pause?

A fragmented industry

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How my tips have fared

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Demographic trends have spurred interest in the sector

12% a year. The group’s earnings per share have Ensign operates 250 US care homes employing risen nearly threefold during the same period. Both 25,000 people in 13 states on a franchise model, revenue and earnings are expected to carry on with around two-thirds of its homes in five states: growing over the next few years.

California, Texas, Arizona, Utah and Colorado.

Ensign’s other metrics also look impressive. Its While this makes it the second-largest provider in operating margin increased from around 6% in the US, the fact that the industry is so fragmented 2015 to 9% five years later. It also makes good means there is still plenty of room for expansion, use of its capital, achieving a double-digit return and Ensign has been steadily growing its presence on capital, a key gauge of profitability. This has by buying up care homes. Even though Ensign allowed it to eliminate its spun off its home health and “The group grew sales by net debt even as it expands. hospice division in 2019, its overall number of facilities 80% between 2015 and Furthermore, the fact that it trades on a 2022 price/ has grown from 150 in 2015, 2020 – 12% a year” earnings (p/e) ratio of 20 and 223 in 2019 to 250 times, roughly the same as the overall US market, homes as of July 2021. means it is hardly expensive in view of the growth Ensign’s growth does not just come from opportunities in this area. increasing the number of homes but is also a Still, Ensign’s Group’s share price has been in result of growing the amount of money it derives the doldrums, so I suggest you wait a little until it from each home, with their average revenue and regains its momentum before jumping in. Go long occupation rates increasing after several years after it reaches $85 a share, around 10% above its of ownership. This success, combined with the current price of $77. When it does reach that level, overall growth of the market, which is set to I recommend you go long at £40 per $1, with a expand by around 7% a year thanks to America’s stop-loss at $60. This gives you a total downside ageing population, has helped Ensign grow its revenue by nearly 80% from 2015 to 2020, around of £1,000.

Trading techniques... using circuit breakers

Since 1988, US regulators have sought to impose so-called “circuit breakers” on both individual shares and the overall market. Once the S&P 500 falls by 7% from its opening price, trading is halted for 15 minutes (unless it is late in the trading day), with another brief interruption once the S&P 500 declines by 13%. Finally, if the market falls by 20%, then all trading is halted for the rest of the day.

For individual shares in the S&P 500, a 5% fluctuation up or down in any five-minute period will cause trading in that share

to be halted for five minutes, while there is a temporary short-selling ban on any share that has fallen by 10% or more in a single day. Those supporting circuit breakers argue that they can exert a calming effect on the market by giving traders a breathing space, reducing panic-buying or selling. Advocates also claim that breakers can prevent attempts to distort or manipulate the market.

However, critics argue that it not only interferes with the market adjusting to changes in the price that are the result of

new information, but could also make a crash worse by depriving the market of liquidity.

For traders the big question is whether a circuit breaker represents a buying opportunity (once trading is allowed to resume) or presages future falls.

According to a study by Concordia University in Montreal, US shares that fell by 10% or more between 2012 and 2015, thus triggering the shortselling ban, tended to perform roughly in line with the market once the ban expired, suggesting that circuit breakers are not a useful trading indicator.

24 September 2021

MONEYWEEK

Personal view

32

How to profit from India’s high-tech recovery A professional investor tells us where he’d put his money. This week: David Cornell, fund manager, India Capital Growth Fund, selects three favourites

Kier (Aim: KIE) Share price in pence

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Kier (Aim: KIE) is a construction and infrastructure company. The firm embarked on a turnaround programme in June 2019 amid a collapse in its share price, mounting debts and accusations of poor payment practices, says Construction News. It reported its first pre-tax profit since 2018 for the financial year ending 30 June, earning £5.6m compared with last year’s loss of £225.3m. Revenue declined by 4.2% in the same period thanks to virus-induced restrictions, but the firm’s order book for 2022, bolstered by long-term projects, looks strong. The shares have risen by 166% in 12 months.

Be glad you didn’t buy…

Greatland Gold (Aim: GGP) Share price in pence

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Greatland Gold (Aim: GGP) is a miner of industrial and precious metals operating in Western Australia and Tasmania. It recently published encouraging drilling results from its flagship Havieron project, but the stock has still dropped by 30% over the last year. The firm has found high-grade gold ore, but similar discoveries had already been made last year, says The Motley Fool. There is continued uncertainty surrounding the project’s pre-feasibility study. Odds look favourable, but mining is “exceptionally complex”. The study should be finished by the end of 2021, but until then GGP’s share price is likely to remain volatile.

©The Telegraph 2021

Consumption patterns and corporate approach, and is rewarded only when strategy in India have changed significantly customers are converted to a service or in response to the pandemic, and keenproduct. It uses artificial-intelligence eyed investors have noticed. Widespread (AI) algorithms to create a virtuous circle smartphone usage, combined with whereby the more data is applied the lockdowns, have accelerated the advent of more conversions occur, which in turn e-commerce and digital banking. India’s encourages more advertising through its young population are early digital adopters, platform. Affle is expected to grow sales by and the country’s advanced tech ecosystem an annual 47% over the next three years. is first-class. Data is cheaper than anywhere, Profits should grow at a similar pace. and per-capita usage is the highest globally; 99% of all online activity happens on Exporting Tesla parts to China smartphones.

Equally affected by consumers’ Similarly, India’s next generation of changing habits is Sona Blw (Mumbai: vehicle buyers will not be wedded to the SONACOMS), an automotive-component merits of combustion engines and will manufacturer; specialisms include starter willingly “go electric”, since most will motors. It is a direct beneficiary of electricbe first-timers. An open-minded society vehicle (EV) adoption globally, as its combined with a vast population of precision-engineered parts are critical to an consumers (50% of which are under 25) EV’s high-torque requirements. As the sole suggests that vehicle manufacturers will supplier to Tesla’s China plant (as well as see India, not Europe or China, as the real to other car manufacturers globally), Sona market of the future. is a recent example of Indian companies Another side-effect of the pandemic has exporting to China. Profits are set to grow been the urgency with which multinational handsomely as EV sales ramp up globally. corporations are diversifying supply-chain risk away from China A leader in “Car manufacturers will see outsourcing owing to mounting political tensions India, not Europe or China, A low-cost producer with Western of electrical equipment as the market of the future” such as LED lighting, countries. This bodes well for India, a winner in sectors washing machines, TVs and smartphones, such as electrical equipment, speciality Dixon Technologies (Mumbai: DIXON) chemicals and pharmaceutical production. benefits from the government’s policies This is largely due to an English-speaking aimed at reducing Chinese imports. workforce, lower labour costs (now one As well as being an outsourcing solution third of China’s) and ongoing deregulation for the global branded manufacturers fostering enterprise. needing to reduce manufacturing costs, it also provides a supply-side alternative to China, and enables these companies to The boom in digital advertising penetrate India’s huge consumer market.

Affle (Mumbai: AFFLE) is a digitaladvertising technology agency that operates We expect Dixon to generate annual sales growth of more than 45% over the next only via smartphone. It stands to profit three years while maintaining its industryfrom an increase in post-Covid-19 digital leading return on capital of over 30%. spending. It adopts a targeted advertising

If only you’d invested in…

MONEYWEEK

24 September 2021

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Profile

33

The father of the home computer

Clive Sinclair was a serial inventor and visionary whose output also included the prototype electric car.

His other interests included poetry, marathon-running and poker. Jane Lewis reports cheaply... and dispatched to customers” from their home.

“RIP, Sir Sinclair. I loved that computer,” tweeted Elon Musk. He wasn’t alone, says the Financial Times. The death, aged 81, of Sir Clive Sinclair, the entrepreneur behind the UK’s first mass-market home computer, brought tributes from “a host of engineers, entrepreneurs and tech billionaires” who claimed “their careers had been built on his inventions” – notably the affordable ZX Spectrum.

The combustible calculator

©Shutterstock

Sinclair’s drive for innovation saw him produce what he claimed to be the world’s first pocket calculator in 1973, says The Daily Telegraph. Its tendency to burst into flames nearly caused “an international incident”: when a Soviet diplomat’s device exploded in London, the Russians thought it was “an assassination attempt”.

Sinclair’s own temperament was Coming a cropper no less explosive. Reportedly “One part visionary, one “he only went into computing part dotty uncle and one part to annoy his ex-employee, marketing genius”, for a few The C5’s battery needed recharging every 20 miles Chris Curry, who left Sinclair years in the 1980s Sinclair to develop home epitomised “the new hi-tech, “If an idea is good enough, it’s going to Research computers and founded the go-ahead Britain”, says The Guardian. But his reputation appear crazy to almost anyone... either you successful Acorn brand”. Indeed, Sinclair prided himself on never “came a cropper” in 1985 do it yourself or it ain’t going to happen” using computers. with the launch of the C5, his Sinclair’s rivalry with Curry prototype electric car. The it ain’t going to happen.” Born in 1940, may be one reason he took his eye off the three-wheeled, low-slung vehicle had a topin the London suburb of Richmond, commercial ball. By the mid-1980s, the speed of 15mph and a battery that needed Sinclair was “the son and grandson of Spectrum had been eclipsed by its rival recharging every 20 miles. engineers”, says The Guardian. His own Amstrad and a new generation of IBM Sinclair predicted annual sales of enthusiasm was apparently sparked by an PCs and clones. He consoled himself with 100,000, but the “tricycle with a modified inventor character on the children’s radio other interests, including poetry, marathonHoover washing-machine engine” sank programme Toytown. By the age of 12, running and poker. With an IQ of 159, he “under gales of derisive media laughter”. “he had designed a one-person submarine became chair of the British arm of Mensa.

Several ensuing inventions – including an out of a petrol tank”. Leaving school with At 70, he married a former pole-dancer electric bicycle called a Zike and a tiny A-Levels in maths and physics, Sinclair 36 years his junior. Sinclair long ago radio that could fit in the ear – did little to eschewed university to become a journalist secured his legacy as “the father of the dispel his eccentric image. But his descent on the trade paper Practical Wireless. His home computer”, says The Conversation. into mad-professor territory never deterred passion was “miniaturisation” and in “But time is only now vindicating his him, says The Independent on Sunday.

1962 he and his first wife, Ann, formed a other creations” – particularly “electrified “If an idea is good enough, it’s going to company, Sinclair Radionics, making mailpersonal transportation”. Even his so-called appear pretty crazy to almost anyone,” order radio kits “using transistors bought failures were prescient. he observed. “Either you do it yourself or

©Alamy

Great frauds in history... George Bidwell’s fake bills

George Bidwell was born in Bloomfield, New York, in 1835. From the age of six he helped his father in the family shop before eventually going into partnership with him as a merchant. However, a conman tricked them out a large amount of money, destroying their firm and encouraging George to drift into crime. By the age of 30 George had been imprisoned for fraud in West Virginia.

Having escaped from jail and fled to New York, he and his brother Austin met up with a gang of forgers, and they decided to try their luck in Europe in 1871, with George

moneyweek.com

“Mac” MacDonnell and Edwin Noyes Hills.

What was the scam?

By 1872 the gang had moved to England, quickly discovering an opportunity with bills of exchange: promises to pay a certain amount of money in the near future. They were bought and sold at a discount by the Bank of England. They therefore opened business accounts under two different names at the Bank of England and the Continental Bank with legitimate bills of exchange.

After a period of shuffling money between the accounts, they started selling forged

bills, dated three months in the future, to the Bank of England, using the other account to launder the proceeds.

What happened next?

Initially, the fraud worked well, as the Bank of England accepted the bills without asking any questions. This persuaded the gang to print an additional batch of false bills.

However, they accidentally omitted the due date on two of their bills from this run. A clerk at the Bank of England noticed the discrepancy and contacted the person who had supposedly issued the bill, uncovering the fraud. Noyes Hills was eventually arrested trying to cash a cheque for £20,000, while the three others

were eventually traced. All four received long sentences.

Lessons for Investors Before they were caught, the gang sold £102,217 in bills (£9.3m today) from the Bank of England, though some of the money was recovered when New York police seized a large chest containing $220,500 in US bonds that they had bought with the proceeds.

Jewellery and gold was also found. The scam could have been avoided had the Bank of England contacted the issuer to check that the bills were genuine before buying them – as was standard practice on Wall Street at the time. Doing proper due diligence is crucial.

24 September 2021

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FREE UK delivery Order today

A Stunning Autuumnal Selectioon The Robert Rolls cellar is like the Old Curiosity Shop of the wine world, and my selection of six thrilling creatio ons demonstrates perfectly the uniqueness an nd creativity of this wine merchant.

Jack Chaddockk , cellar master supreme, makes sh hort notes on every wiine sub d for me to bmiitted taste. They are some of the most fascinating in

All wines come personally recommended

our business, adding colour, detail and subtle explanations of some of the more intricate nuances in the wines. You cann not afford to miss out on tasting our MWWC win nes this month because they will b will be vinous horizons. e sure to expand your v inous h orizons.

Matt tthew t Jukes

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Prices shown below are per case of 12 bottles. Wines are also available in a 12 bottle mixed case (2 of each of the wines) excellently-priced at £195.00 (saving £18.40 per case). It’s a chance for you to try them all, and it is the most popular choice with readers of MoneyWeek.

£10.75

2019 Domaine Preignes Le Neuf Viognier, Coteaux de Beziers, France

£14.95

2017 Côtes-du-Rhône, Vieilles Vignes, Famille Gras, France

£11.95

I remember a column I wrote many moons ago which stated, ‘Don’t buy Viognier without me.’ I like fewer than 5% of Viogniers that I taste each year, because this grape is a shocker in the wrong hands – fat, oily, confected, greasy and clumsy are various crimes levelled against this grape. Preignes Le Neuf is spot on with a terrific, invigorating perfume, a slender chassis and a crisp finish. Less is way more, and this wine is a superstar with a tiny price tag.

CASE PRICE: £129

£13.42 Using fifty-year-old (plus) vines

and no trace of oak whatsoever, this wine is a direct expression of the exquisite Grenache, Syrah, Mourvèdre and Cinsault grapes found at this highly respected property. My short tasting note read ‘Autumn in a glass’ and, expanding on this, heady perfume and evocative flavour, there is silkiness here which is mesmerising, too. Famille Gras, making wine since at least the 1870’s, will tell you this wine is all about the fruit – and I have not tasted fruit as focussed or as pure this year.

CASE PRICE: £161.04

£13.95

2020 Figuière Blanc, Méditerranée, France

I love the rosés from this estate, but I have never tasted this superb, forward-drinking 100% Rolle (aka Vermentino), and it is nothing short of thrilling.

Superbly-dry, hauntingly floral and raspier and more combative than an ocean of Sauvignon Blanc / Semillon blends. There is a genuine essence of Provence here with sunshire infused fruit, which is as unmissable as it is enticing. It also manages to capture the brightness and innocence of its flavour on its label design, which is another skill altogether.

CASE PRICE: £150

£12.50

2018 Les Châteliers, Anjou Gamay, Domaine Richou, Loire, £17.95 £16.08 France Most of this great Gamay grape hails from Beaujolais but there is a powerful renaissance in the Loire Valley, and Les Châteliers is an elite example of what you can expect when you use tip-top organic grapes and then leave oak out of the equation altogether. The directness and lip-smacking nature of the lusty blackberry-soaked fruit here is nothing short of hypnotic and this wine, like the CdR, is tailor-made for the finest autumnal recipes.

CASE PRICE: £192.96

2015 Bougogne Blanc, Les Herbeaux, Domaine Michel Caillot, £23.95 France £21.50

How on earth does a Bourgogne Blanc from an old orchard in the centre of Meursault manage to age beautifully for six years and then perform like this wine does on the nose and palate?

You know I am going to use the term ‘mini-Meursault’ here, so I will get this out of the way, but the intrinsic quality and restraint in this wine is baffling. If you want to drink effortlessly classy white Burgundy, at the top of its game, for a little over twenty quid – this is it!

CASE PRICE: £258

£23.95

2016 Château Grand Peyruchet, Loupiac, Bordeaux, France

I don’t think I have selected a sweet wine for the MoneyWeek Wine Club before but when this heavenly Loupiac jumped into my glass, it made the cut immediately. Grand Peyruchet, created from Sauvignon Blanc and Semillon grapes, is a dreamboat from start to finish with waxy lemons, crème anglaise, honeysuckle, apricots and patisserie tones cavorting in the glass. Add to this that this cosmic wine is a ‘full’ bottle and not a ‘half’, and this makes the price simply unmissable.

CASE PRICE: £258

£21.50

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Terms & Conditions: Offer ends 30 September 2021. Free delivery is to UK addresses only - excludes highlands & islands. Payment can be made by credit or debit card over the phone or online. Prices quoted are all inclusive of duty and VAT. Subject to availability.

Travel

35

Three trips for you and your dog

If you need a break and can’t leave your pet behind, try a dog-friendly destination, says Natasha Langan The Grove, Hertfordshire

For anybody who can’t face travelling abroad due to the complex rules and tests – or the many people who don’t want to leave their lockdown dogs behind – there’s a five-star retreat just outside London that can meet all your needs. The Grove in Hertfordshire is a restored Grade II country house dating back to the 1500s, set in 300 acres of countryside, including several several rooms where your (house-trained) dogs can spend a staycation with you.

Your approach takes you through large grounds across a river towards the main house, where you are greeted by delightful staff focused on meeting your every need.

The refurbished rooms with comfortable beds and muted, stylish decor may be tempting but there’s much to explore.

You and pooch have the run of extensive grounds, from woodland walks to wildflower meadows. Bikes and Segways are available for hire if you want to take a load off while exploring.

Children will be as entertained as your dog at The Grove with archery, clay pigeon shooting, bush craft, tennis, woodland hawking and football camps among other activities. There’s also a championship golf course open to hotel guests, with a dedicated team of golf instructors if you want to improve your game. If you’re missing sea and sand, the open-air heated swimming pool in the walled garden has a sandy beach, restaurant and bar, and an ice cream hut from Jude’s, a family company specialising in delicious small-batch ice cream, including ice cream for dogs. If the British weather lets you down, there’s always the indoor pool as back up, with sauna, steam room and jacuzzi.

You can relax after all that activity in the award-winning Sequoia Spa with a variety of

The Yan, Grasmere

The Yan is ideally placed for exploring The Lake District, just a 20-minute walk away from Lake Windermere with “boutique-neat rooms, moneyweek.com

facials and massages including the Inner Calm Massage, an hour and 15 minutes of relaxation to help you forget the previous 18 months. Of course you could enjoy a drink on the terrace outside the Glasshouse bar, whose range of cocktails uses aromatics and fresh herbs from the kitchen garden. There are a variety of restaurants throughout the estate, making use of the produce grown on site. If the weather is fair, choose instead to sit outside, with red kites and little owls flying overhead to keep you company as you relax in the peace of the lovely surroundings.

Natasha was a guest of The Grove (thegrove.co.uk). Rooms start from £475 (Superior West Wing) and £550 (Deluxe West Wing). Dog friendly rooms have a £50 surcharge.

surrounded by fields and enviable fell views”, says The Telegraph. It offers dogfriendly rooms, although unlike at Gidleigh Park (right) you’ll have to bring

your own dog bed. But the real reason to stay at The Yan is the “hearty eating without the mountainous prices” says Grace Dent in The Guardian.

This family run restaurant with rooms “serves rustic stuff with finesse, but not too much finesse”. From Cumberland sausage platters complete with buttery mash and excellent vegetarian options, this is hearty food “made from scratch” served by “jolly staff”, perfect after a day walking on the fells with your dog.

A dog friendly room at The Yan is £130 per night on a room-only basis with a £10 charge for your dog.

See theyan.co.uk

Gidleigh Park

Set in the north of Dartmoor, Gidleigh Park is “one of the West Country’s finest luxury hotels” says Felicity Cloake in The Times. There are four heated kennels with cosy beds but most dog lovers opt to sleep with their dogs, in a choice of two dogfriendly rooms or the self-contained cottage within the grounds. Your dog will have his very own hamper with bed, towel, bowls, bags and ball, topped off with “Gidleigh

Park branded bone-shaped peanut butter biscuits”. With terraces overlooking the river and the “glorious gardens” there’s plenty of space for your pooch to run free.

The staff are “all dog people” and will welcome you both throughout the hotel.

Overnight stays including breakfast start from £285 per room. The dog-friendly rooms start from £402 per night with a £20 supplement per dog including the dog hamper. The cottage is from £790 per night. More details on gidleigh.co.uk 24 September 2021

MoneyWeek

36

Property

This week: historical working spaces transformed into homes – from a penthouse and studios in a former aircraft fact

Brewhouse, Royal William Yard, Plymouth, Devon. A spacious apartment in a Grade I-listed property built between 1825 and 1831 to store the Royal Navy’s food, drink and supplies. The property has exposed stone walls, floor-to-ceiling windows and panoramic views. 2 beds, bath, recep/kitchen, parking. £600,000 Knight Frank 01392 423111.

Acomb Mill, Acomb, Hexham, Northumberland. A Grade II-listed former watermill, rebuilt in the 17th century and renovated in the 1990s. It has stone walls and beamed ceilings, and 3.7 acres of private grounds. 4 beds (2 ensuite), bath, 3 receps, garden room, kitchen/breakfast room. £1.75m Finest Properties 01434 622234.

Wotton Works, Cricklewood, London NW2.

This property is a former aircraft factory – now comprising three commercial studio spaces and a penthouse – where much of the original building materials were reused.

It has a gated entrance and landscaped courtyard, plus Crittal windows and infrared heating. 5 beds, 4 baths, 3 receps, study, kitchen, pantry, utility, library, terrace, parking. £6.5m Savills 020 7472 5000.

MoneyWeek

24 September 2021

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Property

37

ory in London to a converted Victorian granary in Norfolk, situated in an Area of Outstanding Natural Beauty Castle Mill, Dorking, Surrey. A Grade II-listed restored watermill overlooking the River Mole in the North Downs, surrounded by gardens and with a raised terrace overlooking the mill wheel and race. The building, believed to date from the 17th century, is now updated for modern living but retains beamed ceilings, wooden floors and the original mill workings.

5 beds, 3 baths, 3 receps, kitchen/breakfast room, cloakroom, double garage. £2m Hamptons 01306 580164.

The Granary, The Quay, Wells-next-theSea, Norfolk. A duplex penthouse apartment within a converted Victorian granary, situated in an Area of Outstanding Natural Beauty. It has large windows overlooking Wells harbour. 2 beds, bath, recep, kitchen/ living area. £895,000 Bedfords 01328 730500.

Moat Mill, Mayfield, East Sussex. A restored Grade IIlisted former watermill, with the potential to restore the mill for hydroelectric power generation. There is exposed brickwork, wooden floors and the original workings, with wood burning stoves and views over landscaped gardens.

5 beds, 2 baths, 2 receps, large hall, study, kitchen/ breakfast room, utility, separate stable/tack room and office building. 5.59 acres. £1.65m Hamptons 01892 516611.

The Tent House, Shad Thames, London SE1. A freehold Victorian warehouse conversion with private roof terrace and west-facing views towards The Shard. There is a large reception area with a vaulted beamed ceiling, wooden floors, exposed brickwork and a top floor Juliet balcony.

3 beds, 3 baths, 2 studies/beds 4 & 5, open-plan kitchen/living area, garage. £2.85m Cluttons 020 7407 3669. moneyweek.com

Narrow Street, Wapping, London E14. A Grade II-listed converted warehouse at St Dunstan’s Wharf, dating from 1878, with 3,300 sq ft spread over three floors and a large integral garage. It is a short walk from Canary Wharf and has good transport links to the City. The Thames Path is also easily accessible. There are wooden floors, large skylights on the top floor and a spacious living room. 3 beds, 2 baths, entrance hall, recep, kitchen/ dining room. £1,999,995 Dexters 020 7650 5350.

24 September 2021

MoneyWeek

38

Cars

A marriage of comfort and power Bentley’s latest Continental GT Speed delivers the best handling yet. Jasper Spires reports

“N

obody could ever accuse the GT Speed of not doing what it says on the tin, tin,” says Matt Bird on PistonHeads. Each and every iteration of Bentley’s flagship grand tourer has delivered more power every time.

This time, performance is still “abundant”, but there has been a new focus on handling.

For the first time, the 2022 Continental GT Speed brings four-wheel steering, electronically controlled limited-slip differential at the rear and the option of the largest ceramic-brake system in the world, as well as revised allwheel-drive system and recalibrated electronic stability control. The result is a willingness to turn keenly, matched with a consistent and satisfying steering system, creating “a more engaging drive than any current GT”.

The Speed snakes through streets with little effort and drama, says Jon Wong on Cnet.

The four-wheel steering shows its worth. The

“If you’re still up for the last hurrah in luxurious comfort, make your move”

engine “sings on long straights” straights as the car shoots through the road. A firm press of the accelerator out of corners results in “controlled tail wags” due to the rear-biased all-wheel-drive system, which can send up to 93% of the engine’s torque to the back.

Even while “romping around” the car offers “serene comfort”, but in Comfort drive mode, everything slows down. It becomes less jumpy and the engine turns silky on the road. The dual-clutch transmission “is buttery smooth… never fumbling”. The manual mode allows you to “swap cogs yourself” but the auto mode is well tuned enough that the Sport and Comfort settings do all the work.

The GT Speed offers the best combination of luxury and increased sporting character, says Simon de Burton in the Financial Times.

Driving it around Sicily’s Comiso aerodrome “felt akin to being inside a video game, not least since the car seemed capable of negotiating it at implausible speed”. As we move towards electrification, cars like the GT Speed will cease to be made. “If you’re still up for the last hurrah in luxurious comfort, make your move.”

Engine: 5998cc W12 twin-turbocharged Transmission: 8-speed dual clutch, all-wheel drive Power (hp): 659@5,000rpm Torque (lb ft): 664@1,500-5,000rpm 0-62mph: 3.6 secs Top speed: 208mph Weight: 2273kg Price: £209,000 (coupe), £230,990 (convertible)

Wine of the week: a thrilling wine at a thoroughly reasonable price 2017 Sino da Romaneira, Quinta da Romaneira, Douro, Portugal £17.95, reduced to £15.95 by the case, leaandsandeman.co.uk

MONEYWEEK

with a thoroughly reasonable price tag. by Romaneira is run b AXA Christian Seely of AX I find myself talking up great Millésimes, which wines every single day. Last year I controls the interests of such talked up 2016 Quinta da legendary estates suc Romaneira Reserva on this very as Châteaux Pichon page, and it is a magnificent wine Baron and Suduiraut slowly evolving into a titan of the as well as super-star Douro. The 2017 vintages are in Douro leviathan, stock this year, and at 30 fewer Quinta do Noval. pounds per bottle, this grand Carlos Agrellos estate’s Sino is sounding genuine makes Romaneira’s alarm bells in the wine trade. So, ports and wines and in contrast to my lifelong, spendwhile this is a small more-and-spend-accurately property and a less mantra, I am genuinely talking you starry name, the down this week so you can wines crafted here experience a thrilling red wine are stunning.

24 September 2021

Matthew Jukes Wine columnist

Sino is made from traditional varieties arieties Touriga Francesa, Tinta Roriz, oriz, Touriga Nacional and Tinto Cão, ão, it is matured in old oak for ten months, and it sports a genial 13.5% 3.5% alcohol level. It is a pure and sonorous onorous wine with immediate charm harm and drinkability – an epic advert for classic Douro red wines. There is more than a smattering of claret-like flair here – not surprising given Christian’s vinous heritage.

So save some cash with this alluring, autumnal red wine.

Matthew Jukes is a winner of the International Wine & Spirit Competition’s Communicator of the Year (MatthewJukes.com).

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40

Blowing it

Battling for the year’s biggest art sale

The Macklowes’ acrimonious divorce means one of America’s greatest collections is up for auction

O

ne of the truisms of divorce is that most of the conflict is not about relatively unimportant matters – like who is to blame for the marriage breaking down or the custody of the children – but who gets to keep the porcelain ducks gifted

by Great-Aunt Edna. Still, in among the second hand-junk, sometimes a thing or two of value emerges. In this case, “one of America’s greatest private art collections, including works by Picasso, Warhol and Rothko”, is heading to market to help settle the “acrimonious divorce” of billionaire couple Harry and Linda Macklowe, says Nina Lloyd in the Times.

During their 59 years of marriage the couple (pictured, right, in happier times) amassed a huge collection of art, thanks to property magnate Harry’s fortune and Linda’s “keen eye for curation”, says Lloyd. However, when Linda discovered her husband’s affair with museum director Patricia Landeau she decided to file for divorce. In response, when Harry remarried, he “put up giant his-and-hers photographs with his new spouse on the side of a skyscraper overlooking Central Park in an apparent dig at his former wife”.

As you might expect, the negotiations over the couple’s assets weren’t smooth either, with a two-year fight “over how the works should be split and valued”.

Experts divided

The problem was that many of the valuations of the artworks produced by the couple’s “hired experts” were “vastly different”, says Jacqui Palumbo on CNN. Indeed, in the case of one “existential” sculpture, “the valuation varied by $30m”.

Sick of the squabbling, the judge overseeing the case eventually ordered “the Macklowes to sell 65 artworks and split the profits”.

While the resulting sale doesn’t include the whole of their “eye-popping billion-dollar

art collection”, the art that is going under the hammer is still expected by Sotheby’s “to fetch over $600m in total” which is “the highest estimate ever placed on any collection to come to auction”.

Sotheby had better hope that their estimate is correct, says Anna Brady in The h Art Newspaper. While the Macklow Macklowes’ divorce may have been bitter, there w was also a “tug of war” over who was to be put in charge of the auction. In th the end, the battle between Sotheby’s an and rival Christie’s “came down to one thing – who would give the biggest guarantee”. As a result, Sotheby’s will have to pay out if the final figure is lower. This isn’t an empty threat either, as Sotheby’s found out after the sale of a 500-work collection in 2015 ended up short of the $515m guarantee.

“Sotheby’s has put prices of up to $80m on works by Giacometti and Rothko”

Hunger for masterpieces

The large guarantee is a reflection of the fact that, at the moment, auction houses have suffered from a “scarcity of top-quality inventory”, making a “meaty collection” like that of the Macklowes’ an “especially energizing prize”, says Robin Pogrebin in the New York Times. Still, Sotheby’s is confident tthat “r the sale will go well, arguing that “record demand” from across the globe and a “real hunger for great masterpieces”, mea means that demand, especially in the form off outs “strong interest in Asia” is “far outstripping supply”. This will help justify prices of up to $80m each in the case of a sculpture sculpt by b Alberto Giacometti and a painting by Mark Rothko.

● American writer Tom Lehrer famously observed that “satire became obsolete when Henry Kissinger was awarded th the Nobel Peace Prize”, says Nick Ferrari in the Sunday Express. Surely, the same can now n be said of “irony” with the headlinegrabbing pictures of Alexandria Ocasio OcasioCortez (pictured), dubbed AOC, arriving at the exclusive Met Gala event in New York Yo last week. The left-wing New York congresswoman came dressed in an ex exotic ball gown by Brooklyn-based designer brand Brother Vellies, bearing the slog slogan “Tax The Rich” daubed in large red lett letters across the back. Tickets to the Met Gala Gal had cost £25,000 each and French luxur luxury fashion house Chanel even splashed ou out £360,000 on just one table. “The mediu medium is the message,” said AOC in response to her many detractors. “You’re wrong,” says Ferrari. “This was one giant-sized gaffe.”

MONEYWEEK 24 September 2021

● Nona Gaprindashvili, the Georgian chess grandmaster, has every reason to be angry with Netflix, who she e is suing for $5m over her depiction on in The Queen’s Gambit, says Dominic Gambit ominic Lawson in the Daily Mail. In n the series, a character says of Gaprindashvili: “She’s the female le world champion and has never faced aced men”. In reality, she played ed against many male grandmasters ters and shared first place in a 1977 tournament. ournament. Her lawyer has asked d the streaming behemoth, with its $25bn annual revenues, to admit dmit its mistake, but has met “extraordinary raordinary hubris”.

“Defamation on writs are difficult to win in the US… But it would be so good if Nona beat Netflix to add to her chess ss victories.”

● A reporter wants to know if I am “a money-grabbing b*****d”, says Jeremy Clarkson (who owns a farm) in The Sun. The journo reckons £126 is too much for a box of lamb containing a leg, a shoulder, 12 loin chops, four chump chops, one neck fillet and 12 sausages. “It isn’t.” The cost of producing a lamb was £508.

“That doesn’t include a penny for the endless nights I spent in the lambing barn, with my hand up a sheep’s a***... Nor does it include the cost of replacing Wayne Rooney, the ram, who died.” This is good meat and you don’t have to buy it. “Therefore, my message to the reporter is: Why don’t you continue to fill your face every night with a Subway and understand that in farming, absolutely no one is getting paid too much.”

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Tabloid money… AOC’s misfiring message

Crossword

41

Bridge by Andrew Robson

Tim Moorey’s Quick Crossword No.1070

Reading the singleton

A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 4 Oct 2021.

Answers to MoneyWeek’s Quick Crossword No. 1070, 31-32 Alfred Place, London, WC1E 7DP.

When West leads the nine of Spades, dummy’s suit, you can be fairly sure it’s singleton. Plan the play on that basis.

Dealer North

Neither-side vulnerable AK8632 A93 52 43

9 J87 K1043 K10765

QJ104 10 AQ76 QJ82

N W

E S 75 KQ6542 J98 A9

The bidding South

West

2♥ 4♥

pass end

East pass pass

North 1♠ 3♥*

* Partner has guaranteed five or more Hearts for the majorresponse at the Two-level, so raising Hearts is better than repeating Spades (Hearts being the known fit).

You win dummy’s Ace of Spades and, assuming Hearts split no worse than three-one, can count nine tricks. There’s a potential third-round Diamond ruff in dummy, but securing dummy’s King of Spades is an issue. At trick two, you must cross to your King of Hearts (noting East’s ten) then lead up your second Spade.

If West ruffs, your life is easy, soon able to establish dummy’s Spades. After West discards, you win dummy’s King and lead a third Spade. You can actually play any card from hand (except for the Ace of Clubs), but ruffing low caters to all Heart layouts. Let West overruff and the defence cash two Diamonds, for you can win their (say) Club return, cross to the Ace of Hearts, ruff a fourth Spade, ruff a Diamond, and cash a long Spade, discarding your Club. Ten tricks and game made.

Funnily enough, if West had led any one of their 12 non-Spades, Four Hearts cannot be made.

For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com.

Across clues are mildly cryptic while down clues are straight

ACROSS 1 Cycle’s first to traffic light in curve of the road (6) 4 Drum in two French words for reflection (3-3) 9 New starter in reserve (9) 10 Broadcast from Nairobi (3) 11 What makes presbyterians best in prayers? (7) 12 Stick with medicinal lozenge but not ill (5) 13 Caretakers having locks installed after New Year’s Day (11) 18 Deny fleshy root to be returned (5) 20 Interval especially needed in ceremony (7) 22 York is one to view (3) 23 “Pee” is what starts puzzle! (6, 3) 24 Crawlers seen initially in Arabian country (3-3) 25 Leave area without water (6)

DOWN 1 Cornflakes, say (6) 2 Eyelash cosmetic (7) 3 Mistake (5) 5 A cephalopod mollusc with tentacles (7) 6 Snares (5) 7 Sell (6) 8 Support for the frail aged? (6, 5) 14 Highly concentrated (7) 15 A model of its kind (7) 16 Very cold (6) 17 Loss (6) 19 Lagers (5) 21 Stockholm native (5)

Name Address

Sudoku 1070 7

1 4 5 9

2

2

8 2 8 4 7 1 7 5

5 9 1

7 9

3

5 4 8 4

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For details, call 0303-123 9999, or visit RNIB.org.uk.

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✁

Solutions to 1068

Across 1 Adjust a d just 4 Maxims two definitions 9 Ashanti homophone 10 Arena hidden 11 Tokyo anagram 12 Vintage n tag inside vie 14 Laundresses la(d) undresses 18 Observe Observe(r ) 20 Thyme homophone 21 Sheds two definitions 23 Air beds air + Beds 24 Shower two definitions 25 Resent (p)resent.

To complete MoneyWeek’s Sudoku, fill in the squares in the grid so that every row and column and each of the nine 3x3 squares contain all the digits from one to nine.

The answer to last week’s puzzle is below.

4 2 9 8 3 7 6 1 5

3 1 6 2 5 9 4 7 8

7 5 8 1 6 4 9 3 2

6 4 7 9 1 2 8 5 3

5 8 2 3 7 6 1 9 4

1 9 3 5 4 8 7 2 6

8 3 5 4 9 1 2 6 7

9 6 4 7 2 3 5 8 1

Down 1 Adapts 2 John Keats 3 Sundown 5 Again 6 Ice 7 Scared 8 Silver medal 13 Acetylene 15 Set free 16 Posses 17 Bedsit 19 Rosie 22 Ego.

2 7 1 6 8 5 3 4 9

The winner of MoneyWeek Quick Crossword No.1068 is: Richard Farr, Tunbridge Wells Tim Moorey is author of How To Crack Cryptic Crosswords, published by HarperCollins, and runs crossword workshops (timmoorey.com)

Taylor’s is one of the oldest of the founding port houses, family run and entirely dedicated to the production of the highest quality ports. Late Bottled Vintage is matured in wood for four to six years. The ageing process produces a high-quality, immediately drinkable wine with a long, elegant finish; ruby red in colour, with a hint of morello cherries on the nose, and cassis, plums and blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

24 September 2021

MONEYWEEK

Last word

42

Crime doesn’t pay enough

Editor-in-chief: Merryn Somerset Webb Executive editor: John Stepek Editor: Andrew Van Sickle Markets editor: Alexander Rankine Comment editor: Stuart Watkins Politics editor: Emily Hohler Digital editor: Ben Judge Web writer: Saloni Sardana Wealth editor: Chris Carter Senior writer: Matthew Partridge Writer & editor: Nicole Garcia Merida Contributors: Bill Bonner, Ruth Jackson-Kirby, Max King, Jane Lewis, Matthew Lynn, David Prosser, David Stevenson, Simon Wilson

You don’t have to worry about financial chicanery on the streets of Baltimore Bill Bonner Columnist

W

An honest robbery

The nice thing about being mugged on the streets of Baltimore is that the principle is clear. No hidden agendas. No chicanery or disguised villainy. It was an honest, in-yourface robbery. That gives us a sly

The bottom line $1bn How much US

financial watchdog the Securities and Exchange Commission (SEC) has paid out in awards to 207 whistleblowers since 2012, including $500m this fiscal year. The SEC last week announced awards of $110m (its second-highest ever) and $4m.

£312m The losses

suffered by victims in the UK to bank transfer fraud between 2019 and 2020 after cases of internet banking fraud doubled that year, according to Home Office figures. Of that total, just £147m (47%) was reimbursed by banks.

MONEYWEEK

Profit from broken markets

Don’t want to go to college?

Don’t want a job? No problem.

Try trading cryptocurrencies – or become a non-fungible token (NFT) millionaire. In August,

3.6 million pesos

The value (£130,000) of drug lord Joaquín “El Chapo” Guzmán’s safe house in Culiacán, northwestern Mexico.

The house was seized after being raided by marines in 2014, and was raffled off last week by the Mexican government. The holder of ticket number 1,438,619 claimed the prize.

€950 The “birth grant”

paid to parents in France, one of the 28% of countries worldwide to have adopted “pronatalist” policies. The Social Market Foundation (SMF) think tank has warned Britain is

24 September 2021

Art director: Kevin Cook-Fielding Picture editor: Natasha Langan Chief sub-editor: Joanna Gibbs

©Getty Images

Founder: Jolyon Connell

an anonymous buyer paid 400 ethereum for an illustration of a rock – a transaction worth, at the prevailing ethereum price, more than $1.3m. The doodle is one of a set of 100 images of the same stone in a slightly different shade.

The seller had bought it just a few weeks before at only 1.7 ethereum – $4,800 at the time.

Or how about starting a hedge fund? You raise money from friends and family. You “invest” it in the highest-flying, fastestmoving tech companies on the market. If they go up, you become rich and famous. If they go down, well… it wasn’t your money.

There are so many welltrodden paths to success in a late, degenerate, capitalist system. And the “not your money” mantra is the secret to them all. But who chases the suits through the streets?

Who calls the police on them?

facing a “baby shortage” and resulting “long“long-term economic stagn stagnation”.

£1.1bn The co cost

of the project to extend London’ London’s Northern line, in the first major expansion of the Underground network since the Jubilee line was opened in the late 1990s. The two new stations, Battersea Power Station and Nine Elms, opened on Mon Monday.

ow much £35m How

owell Simon Cowell ), the (pictured), creator off The X Factor TV series, has turned wn for the down alibu Malibu ansion he mansion ought for bought 17.5m four £17.5m ears ago, years ays The says ail on Mail nday.

Sunday.

The 1.6-acre perty has property s of the views c Ocean, Pacific is court, a tennis ccess to a and access ded beach. secluded

Account Director: Joe Teal (020-3890 3933) Group advertising director: Caroline Fenner (020-3890 3841) Chief customer officer: Abi Spooner Publisher: Kerin O’Connor Chief executive officer: James Tye

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MoneyWeek is published by Dennis Publishing Ltd. 31-32 Alfred Place, London,WC1E 7DP. Phone: 020-3890 3890.

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e are back in the US. It is hot and humid here in Baltimore.

We’ve scarcely set foot in the city the last two years, but not much has changed.

Elizabeth was mugged on the street last week. She was taking a photo when a man grabbed her phone and ran off with it. She gave chase… yelling. Someone called the police. The chase went on… but the man got away.

She then went back to the house and called up the “Find my Turn them loose on the suits Phone” app. It showed the phone near where the perp had given her respect for the creep who stole the the slip. Returning to the scene… phone. His life could have been so she saw the miscreant wandering much simpler… so much easier… around. She gave chase again, so much nicer. All he had to do was keeping her distance… shouting… join the privileged elite. and making a scene. Again, she lost How? You could borrow money him – but later found her phone in to go to college. You put on a suit the bushes. and get a job “The nice thing about …

“It was just in Washington. being mugged is the an old phone…”

Maybe even get we began yourself elected principle is clear” a question. to Congress.

“Wouldn’t it be better just to let it Not too smart? Don’t worry about go? He could have turned around it; you’ll fit right in. And don’t turn and shot you.” your nose up at the private sector.

“Well, it was the principle of the You might even work your way up thing,” she answered. to be CEO, earning 278 times more than the typical employee.

© Dennis Publishing Limited 2021. All rights reserved.

MoneyWeek and Money Morning are registered trade marks.

Neither the whole of this publication nor any part of it may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the written permission of the publishers. © MoneyWeek 2021 IISSN: 1472-2062

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