Shares magazine 25 April 2024

DIVIDEND MACHINES

The companies which reward shareholders like clockwork

NEWS

06 Warnings from chip giants casts doubt over semiconductor optimism

07 Retail sales not as bad as reported, while consumer confidence rises slowly

08 FTSE 100 finally joins the new-highs club despite being unloved for years

09 United Airlines soars on upgrades despite Boeing-related hit

09 Ocado shares wobble after M&S relationship turns sour 11 Retail giant Next sees strong first-quarter full-price sales increase

12 All eyes on sales momentum for Eli Lilly’s obesity drug Zepbound

14 UK housing market springs a surprise but all eyes still turned to the US

GREAT IDEAS

16 Buy underappreciated Gaming Realms before the market recognises its true worth 19 Why investors should buy this gold tracker UPDATES

21 We’re sticking with Dr Martens despite the latest profit warning FEATURES

23 Are corporate spin-offs a good hunting ground for profitable investments? 28 COVER STORY

36 Small World: read about Gresham Technologies, T Clarke, REDX

into

Should I use a SIPP to

Three important things in this week’s magazine

DIVIDEND MACHINES

The companies you can rely on to increase their payouts

Shares reveals the most reliable dividend raisers and picks one stock each from the UK, Europe and the US as well as a global ‘aristocrats’ fund.

Should you consider investing in spin-offs?

As a growing number of companies opt to demerge their subsidiaries and list them on the market we look at how the returns stack up.

Visit our website for more articles

Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.

Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:

How to diversify your portfolio through micro-caps

Small can be beautiful when it comes to growth and innovation.

Warnings from chip giants casts doubt over semiconductor optimism

ASML and TSMC have both hinted that demand has weakened in the first half of the year

Chip stocks are coming under pressure from investors made nervous by hints of weakening demand during the first half of 2024. During the past week or so there have been warnings from industry bellwethers from Europe and the Far East, dampening enthusiasm just as earnings season gets going in earnest.

On 22 April Taiwan Semiconductor Manufacturing Company (TSM:NYSE), or simply TSMC, the world’s biggest contract chipmaker, delivered profit that beat first-quarter estimates and predicted second-quarter sales of up to 30% amid a wave of demand for the chips that power AI (artificial intelligence) applications.

Yet the $600 billion firm pulled back on expectations for growth in the overall chip sector and refrained from revising up its capital spending plans, as had been widely expected, triggering a sell-off of its shares. It capped a two-week drift that has seen the shares lose more than 12% since 11 April, the New York-listed stock closing at a fraction over $130.

It is a run that has coincided with a near-10% slump for ASML (ASML:AMS), the Dutch tech firm that dominates the market for lithography systems. These machines can cost hundreds of millions of dollars each and use light beams to help create microscopic circuitry, crucial for chip manufacturing.

ASML reported net sales of €5.29 billion (17 April), missing first quarter 2024 consensus pitched at €5.39 billion, and notably, net bookings for ASML’s equipment, a key indicator of future revenue. This stood at €3.61 billion for Q1, marking a 4% decrease year-on-year and

Chart: Shares magazine • Source: LSEG

a substantial drop from the previous quarter, significantly missing the consensus estimate of €4.63 billion.

The shortfall sounds worse than it is given the sheer size of single-kit sales. Even so, it poses an interesting question for sector investors – having largely gunned higher this year thanks to booming demand for the most advanced AI technology, have market expectations crept too high?

Readers may have a clearer picture by the end of next week, with chips stocks including Intel (INTC:NASDAQ), ON Semiconductor (ON:NASDAQ) and Advanced Micro Devices (AMD:NASDAQ) will have reported, as will Lam Research (LRCX:NASDAQ), another kit supplier crucial to the industry. Nvidia (NVDA:NASDAQ) will not report earnings until 22 May.

In the meantime, the US SOX semiconductor index, which measures the world’s meaningful chips stocks, has hit the skids, falling around 15% since early March, having rallied 30% during the first 10 weeks of 2024. [SF]

Retail sales not as bad as reported, while consumer confidence rises slowly

Consumer

There was a general wringing of hands on 19 April over the latest monthly retail sales figures published by the ONS (Office for National Statistics) which showed the volume of goods bought flatlined from February to March rather than increasing by 0.3% as expected.

However, when measured on an annual basis rather than a month-on-month basis – which to our mind seems a much fairer comparison –volumes rose by 0.8%, the best result since March 2022, potentially signalling an end to almost two

years of decline.

When measured on a value basis – taking into account the total amount of pounds spent rather than the number of items bought – the increase on March 2023 was 3.3%, or 3.4% excluding fuel sales, continuing a run of positive year-on-year growth dating all the way back to February 2021.

So why all the gloom? Admittedly there are some areas of retail sales which are seeing a steady decline in sales in value terms – household goods in general being a good example, and in particular furniture, lighting and electrical goods – yet there other areas which are growing such as clothing and hardware (which we read as positive for our call on DIY retailer Kingfisher (KGF)).

Even in volume terms, sales in the three months to March were up 1.9% marking the fastest quarterly growth since 2021 and prompting Alex Kerr of Capital Economics to declare the retail recession ‘at an end’ in a quote for the Financial Times

It would be premature to celebrate victory, however, as the latest PwC Consumer Sentiment survey shows.

Although confidence is improving and consumers say they feel better off, there is ‘a slight decoupling between improved household finances and spending intentions’ according to the authors with 70% of consumers planning to cut back on spending in the next three months.

Despite falling inflation, a resilient job market and wage growth and the reduction in national insurance leading to improved finances, especially for the 25 to 44 age group, confidence is still lacking with the authors pointing to a ‘spending hesitancy’ among consumers, especially for bigticket items.

Spending priorities vary across age groups, with 18 to 24 year-olds favouring health, wellbeing and clothing, 25 to 34 year-olds pet food and care and home improvements and 35s and over thinking about holidays once their children are taken care of, according to the survey. [IC]

FTSE 100 finally joins the new-highs club despite being unloved for years

gains of 20% and 22%, and insurer Beazley (BEZ) whose shares are up 28% this year.

After almost closing at a new high in early April, the UK’s blue-chip FTSE 100 has finally made it into the ranks of indices hitting new all-time highs thanks to a 4.5% gain since the start of January.

On 22 April the index reached its highest ever close and on 23 April it moved through its previous intra-day high.

The UK clearly isn’t in the same league as the US, where the S&P 500 has notched up no fewer than 20 new life-highs so far in 2024, but it is still a notable achievement for a market which global investors have shunned pretty much since the Brexit vote in 2016.

In terms of sector contributions, banks and general financials have been a big support for the index this year with Barclays (BARC) and NatWest (NWG) among the top five performers up 24% and 29% respectively.

They are joined by investment firms Intermediate Capital (ICG) and 3i Group (III) with

Also making a strong contribution are industrial stocks, in particular aerospace and defence companies, with engine-maker Rolls-Royce (RR.) extending 2023’s stellar run with a further 38% gain this year and BAE Systems (BA.) racking up a 19% gain as geopolitical tensions continue to unnerve investors.

Energy companies BP (BP.) and Shell (SHEL) are two of the more heavyweight contributors, both being top 10 stocks in the index, with gains of around 13% apiece thanks to higher oil prices, but selected consumer stocks have done well this year with Associated British Foods (ABF), Flutter Entertainment (FLTR), Intercontinental Hotels Group (IHG) and Next (NXT) all racking up doubledigit increases.

This is clearly a stock-picker’s market, however, as not all financial, industrial, commodity or consumer stocks have done well – the bottom reaches of the index include Mondi (MNDI), Ocado (OCDO), Prudential (PRU), Reckitt Benckiser (RKT) and Rio Tinto (RIO). [IC]

September 2007 Run on Northern Rock

September 2008 Lehman Brothers collapses 2010/11 European debt crisis

February 2020 Covid crash begins

August 2015 China crisis sparks global sell-off

June 2016 Brexit vote

October 1987 Black Monday crash Chart: Shares magazine • Source: LSEG

1990 1995

United Airlines soars on upgrades despite Boeing-related hit

The Chicago-headquartered airline first-quarter results beat expectations

Over the past six months United Airlines (UA:NASDAQ) shares have gained over 45% as the US airline managed to shrug off negative news concerning delayed deliveries and canceled flights related to safety issues at aircraft maker Boeing (BA:NYSE)

On the day of its first quarter results (16 April) United Airlines shares gained nearly 20% at one point hitting the $50 mark as the US airline upgraded guidance. This took the limelight rather than the

$200 million hit from the grounding of Boeing planes after a cabin panel below out on a flight operated by rival Alaska Airlines.

The company forecast earning between $3.75 to $4.25 per share in the second quarter, ahead of Wall Street estimates of approximately $3.76 per share.

United has also reiterated its full year earnings forecast of between $9 and $11 per share. The company is seeing robust demand for domestic and transatlantic flights and a notable uptick in business travel.

United said it will receive just 61

Ocado shares wobble after M&S relationship turns sour

Legal action and calls to abandon London listing preoccupy the online grocer

Shares in Ocado (OCDO) have fallen by 20% over the past month as the online grocer continues with its fractious relationship with joint venture partner Marks & Spencer (MKS

for the online grocer.

The recent positive trading update comes after a lengthy period of disappointing performance, and for Marks & Spencer the targets set out when it agreed the tie-up with Ocado in 2019 have not been met.

Despite reporting average orders per week of 414,000, an 8.4% increase compared with the first quarter of 2023, and a 10.6% rise in revenue for Ocado Retail for the 13 weeks to 3 March, trouble is brewing

Ocado has threatened legal action over an outstanding, performancedependent instalment in the £750 million agreement, and according to recent media reports the online grocer is under pressure from

new narrow-body planes, down from 101 it said it had expected at the beginning of the year. [SG]

shareholders to abandon its London listing for New York.

Although Ocado’s innovative technology has global potential and revenue growth is on an upward trajectory, its shares are far off their peak of around £28 during the pandemic.

DISCLAIMER: The author of this article (Sabuhi Gard) owns shares in Ocado.

Sophisticated global investing made effortless

FULL-YEAR RESULTS

29 April: Jadestone Energy, Christie, One Media, Biome Technologies

30 April: Card Factory

1 May: HSS Hire

FIRST-HALF RESULTS

26 April: Jupiter Fund Management

2 May: Smiths News

FIRST-QUARTER RESULTS

30 April: St James’s Place

2 May: Shell, Standard Chartered

TRADING ANNOUNCEMENTS

30 April: Elementis, Howden Joinery, Rotork

1 May: Haleon, Next

Retail giant Next sees strong firstquarter full-price sales increase

The firm has set the bar high although growth is expected to moderate With shares in UK high-street bellwether Next (NXT) trading close to all-time highs above £90 despite the recent pull-back in markets, there is a fair bit riding on its upcoming firstquarter trading update (1 May).

When it posted full-year results in late March, the firm said it had been ‘a long time since we started a year in a more positive frame of mind’ after a better-than-expected performance in 2023 when it delivered its highest ever levels of revenue and profit.

‘Perhaps more encouragingly, we enter the financial year with new avenues of growth along with a cost base that feels under control,’ the company added.

Key to the firm’s success is the NEXT brand itself, the ‘jewel in the crown’, which this year management has vowed to ‘take to another level’ through greater breadth of choice and ‘more aspirational levels of quality’.

The clothing sector has positive tailwinds as clothes are an essential rather than a discretionary purchase, the only question being where the

(p)

Jul 2023 OctJan 2024 Apr 6,000 8,000

Chart: Shares magazine•Source: LSEG

customer chooses to spend their money.

For the first quarter as a whole, the company has guided for fullprice sales up 5% against a weak first quarter last year followed by flat sales in Q2 against a strong comparison last spring (sales up 6.9%) due to unusually warm weather through May into June.

For the full year, full-price sales are expected to grow by 2.5% with the second half being much more balanced in terms of quarterly performance. [IC]

All eyes on sales momentum for Eli Lilly's obesity drug Zepbound

Demand for the group's products may exceed supply again this year

Pharmaceutical giant Eli Lilly (LLY:NYSE) is due to report firstquarter earnings before the market opens on 30 April. Wall Street is expecting EPS (earnings per share) of $2.54 which represents a 57% increase compared with the first quarter of 2023.

All eyes will be on sales momentum in Lilly’s diabetes treatment Mounjaro and obesity treatment Zepbound following the latter’s launch in November 2023 after which it raked in $176 million in the final few weeks of the year.

The strong debut of Zepbound and continued success of the company’s diabetes treatment Mounjaro helped the company report a 28% increase in fourth-quarter sales to $9.35 billion, beating consensus estimates.

Mounjaro generated revenue of $2.21 billion compared with just $279 million in the same period of 2022. Capacity issues will be a key area of interest for investors after Lilly flagged intermittent delays in fulfilling orders

US UPDATES OVER THE NEXT 7 DAYS

QUARTERLY RESULTS

26 April: Exxon Mobil, AbbVie, Chevron, HCA, Colgate-Palmolive, Phillips 66, Aon

of certain Mounjaro doses given significant demand, which is expected to impact volumes.

The company gave a positive outlook and forecast 2024 sales in the range of $40.1 billion to $41.6 billion with adjusted EPS between $12.2 and $12.7, slightly ahead of consensus estimates.

Chief financial officer Anat Ashkenazi said she expected revenue to accelerate in the second half as new production capacity of Zepbound and Mounjaro comes on stream. Overall, the company said demand was likely to outstrip supply again in 2024. [MG]

29 April: NXP, Welltower, Arch Capital, Global Payments, ON Semiconductor, Everest, Domino’s Pizza

30 April: Eli Lily, Coca Cola, McDonalds, Stryker, Mondelez, PayPal, Ecolab, Gartner

1 May: Mastercard, Uber Tech, Pfizer, DoorDash, Estee Lauder, MetLife, AIG, Kraft Heinz, Allstate, Yum!Brands, Verisk, ebay, Etsy, Dayforce

2 May: Apple, Linde, ConocoPhillips, Amgen, Booking, Cigna, Datadog, Moderna

UK housing market springs a surprise but all eyes still turned to the US

Attention on inflation and jobs data after Fed official cedes the possibility rates could rise

The week started with positive UK economic news as the April Rightmove (RMV) house price survey showed asking prices rising at 1.7% on last year, their biggest jump in 12 months, driven by more top-end properties coming to market.

The average price of homes put up for sale reached £372,324, less than £600 short of the record level registered last May, as a revival of activity in the market prompted more owners of

bigger, detached houses to sell up.

However, the market’s focus is likely to be firmly on US data ahead of the Federal Reserve meeting next Thursday 1 May and its impact on forward guidance.

Shortly after Shares goes to press, March’s PCE (personal consumer expenditure) price index –one of the Federal Reserve’s key inputs when it comes to deciding whether or not to cut interest rates – is released.

This is followed next week by various purchasing managers’ surveys along with jobs figures, which if they continue to surprise to the upside will deepen the gloom over the prospect for rate cuts.

As predicted, there was a good deal of chatter last week around comments from senior central bank officials, in particular New York Fed President John Williams, who said the US benchmark interest rate was ‘in a good place’ and there was no urgency to cut any time soon.

When pressed as to whether rates could actually rise rather than fall, Williams didn’t rule out the possibility although he admitted it wasn’t his base case.

The notion that US rates are not just set to stay higher for longer but could potentially rise if inflation isn’t brought under control was enough to send the S&P 500 index down 5%, marking its worst week since October 2022. [IC]

Jump

European growth

Buy underappreciated Gaming Realms before the market recognises its true worth

Licensing revenue grew 20% year over year in the first two months of 2024

Gaming Realms

(GMR:AIM) 31.6p

Market cap: £93.4 million

For the uninitiated, Gaming Realms (GMR:AIM) is a leading business-tobusiness licensor and distributor of games to the regulated gaming market.

The company owns the IP (intellectual property) to the Slingo brand, one of the most popular formats of games played online.

As the name suggests the format is a mash-up of slots and bingo. The game in its various formats has been played billions of times since its invention in the US in the 1990s.

The company’s other significant asset is an internally-built remote RGS (remote game server) which allows it to distribute and integrate games to third parties.

After purchasing the Slingo IP in 2015, Gaming Realms began to commercialise the game by licensing it to gaming companies.

Starting from a low base, growth has been impressive. Revenue has grown at a CAGR (compound annual growth rate) of 30% per year and is expected to reach £27.3 million in 2024 while net profit has grown at a CAGR of 44% a year.

Gaming Realms financial forecasts

Gaming Realms

Shares believes the business is only in the foothills of its global growth journey. Past investment in the SAAS (software-as-a-service) platform and strong relationships with gaming operators provide a solid base to convert an increasing amount of revenue growth into profit and cash flow as costs remain relatively fixed.

Peel Hunt’s leisure analyst Ivor Jones projects revenue to grow around 14% per year and pre-tax profit to more than double over the next three years. The business is forecast to generate almost £30 million of free cash flow from 2023 to 2026.

The shares trade on a lowly 2024 PE (price-toearnings) ratio of 9.5 times based on Jones’ EPS (earnings per share) estimate of 3.3p which looks

REVENUE GROWTH BY TERRITORY

like a bargain relative to the growth prospects.

With no debt and an estimated £14.5 million of cash on the balance sheet at the end of 2024, Jones says, ‘it is therefore relatively low risk and wellplaced, in our view, to contemplate returning capital to shareholders’.

The cherry on the cake is the roughly £31 million pounds of tax losses carried forward which may tempt a corporate bidder out of the woods.

Gaming Realms’ management is executing its growth plan without seemingly missing a beat and is ably steered by chief executive Mark Segal and executive chair Michael Buckley, joint co-founders of the business.

It is also noteworthy that Mark Blandford, gambling industry veteran and co-founder of SportingBet (now part of Entain (ENT)), is a shareholder and non-executive board director.

MULTIPLE GROWTH DRIVERS

There are three clear growth levers available to the company. The first is developing new games to build on the number of games it currently distributes. In 2023 Gaming Realms grew the number of games by 15% to 75 and the number of unique players increased by 24%.

Not all the games available on the platform have been licensed by all the operators, which represents another layer of growth on top of developing new games.

The second growth lever is to increase the number of gaming operators. From a humble start in 2018 serving four operators, today the company has relationships with 180 operators.

The company added 44 licensees in 2023 including Bet365, and the state lottery in Ontario, Canada.

Most gaming companies run global businesses and this represents the third growth lever as operators introduce Slingo-style games across a greater number of territories.

The US market is now the largest territory for the company, and US revenue grew by 22% in 2023. The US is expected to see 61% online casino growth from 2024 to 2028 according to industry consultants Eilers & Krejcik Gaming.

Gaming Realms is starting to scale in multiple markets outside the US and generated 214% revenue growth in Canada and 159% in Italy in 2023.

Looking ahead to 2024, the company is expected to go live in Greece, South Africa, West Virginia and British Columbia among other territories.

In summary, we believe Gaming Realms is entering the sweet spot of its growth trajectory whereby profits and margins expand faster than revenue leading to an increase in shareholder value.

Savvy investors should consider taking advantage before the market fully appreciates this lower-risk investment opportunity. [MG]

Source: Gaming Realms

Why investors should buy this gold tracker

Xtrackers IE Physical Gold ETC Securities (XGDU) $35.61

Assets: £2.43 billion

It may have beaten a hasty retreat from recent record highs as concerns about an escalating conflict in the Middle East have eased but gold prices are still forecast in many quarters to make further gains from here.

For investors concerned about geopolitical and economic risk, as inflation shows signs of being more entrenched and a divisive US presidential election looms, 2024 has seen the precious metal’s safe haven credentials underlined. You don’t need to be a gold obsessive to understand that it can be a useful source of protection and diversification in a portfolio.

So, what is the best (and cheapest) way to gain exposure to this precious metal? The answer is simple. Through an ETC (exchange-traded commodity) that tracks physical gold.

The Xtrackers IE Physical Gold ETC Securities (XGDU) is currently the cheapest ETC to invest in physical gold around with an ongoing charge of just 0.11%.

An ETC has the security of being backed by the physical gold itself and the investor has the benefit of owning physical gold at a significantly reduced cost compared to doing so directly and without having to worry about storage or any other associated hassle. Over a three-year period, the ETC has returned 50.2% to investors, and over the past year 19.7%.

Gold, which has very limited practical applications, tends to be in demand during periods

These factors lie behind some bullish forecasts from investment banks with Goldman Sachs predicting a price of $2,700 per ounce by the end of 2024. Risks to gold include a resolution to the wars in the Ukraine and Middle East and a diminution of central bank demand. [SG] Great low-cost way to take advantage of a safe haven asset

of economic or geopolitical strife, when inflation threatens paper currencies or there are significant falls in bond and equity markets.

Its status as a safe-haven asset is based on its historic role as a store of value and the fact that, unlike currencies, its value cannot be manipulated through adjustments to interest rates. It is also rare and tightly supplied, you can’t create it at will.

Another big driver for gold in recent times is demand from central banks as they seek to diversify their reserves. Gold’s inverse relationship with the US dollar, another major reserve asset, is an element of its appeal for central banks. When the dollar drops in value, gold typically rises, enabling central banks to protect their reserves when markets are volatile.

We’re sticking with Dr Martens despite the latest profit warning

The company’s troubles are of its own making and are

Dr. Martens (DOCS) 72.1p

Loss to date: 21.6%

In mid-December 2023 we said the knockdown share price of iconic footwear brand Dr. Martens (DOCS) was too tempting to resist despite the company delivering four profit warnings.

Our rationale was simple – either the self-inflicted operational issues would be fixed by the current management or the business would be taken over by an opportunistic predator who recognised the untapped value of the brand.

WHAT

HAS HAPPENED SINCE WE SAID TO BUY?

The shares were trading steadily and ticked into the money briefly before plunging 30% on 16 April after the company released yet another disappointing trading update.

Management confirmed results for the full year to the end of March 2024 would be in line with market expectations, but took an axe to its planning assumptions for 2025 after revealing the US wholesale division’s Autumn/Winter order book –which makes up the majority of the firm’s secondhalf trading – was significantly down year-on-year.

Consequently, the board’s base-case outcome for the 2025 financial year is a £20 million impact on pre-tax profit assuming there are no ‘meaningful’ in-season re-orders.

Yet investors seemed to focus not on the base case but the worst-case scenario which envisaged pre-tax profit falling to around a third of the level achieved in 2024.

The firm said increased cost pressures were unlikely to be mitigated by price hikes, while most of the £15 million additional inventory storage costs incurred in 2024 were now expected to repeat in 2025.

Chief executive Kenny Wilson said he intended

to step down at the end of the financial year to be replaced by current chief brand officer Ije Nwokorie. Nwokorie was previously at Apple (APPL:NASDAQ) where he led the firm’s D2C (directto-consumer) business.

WHAT SHOULD INVESTORS DO NOW?

It is clearly disappointing to see another profit warning and a change of leadership at a time when the company is trying to rebuild shareholder trust and confidence.

It was never going to be a smooth ride for shareholders following the volatile debut of the shares since listing. However, we are keeping faith with our original thesis and are prepared to ride the ups and downs in the shares in the belief the brand’s value will ultimately be realised. [MG]

Dr. Martens

Are corporate spin-offs a good hunting ground for profitable investments?

The sizeable gap between winners and losers means due diligence is crucial

This feature explores spin-offs or demergers, looking at the rationale for them and how they have performed, and asks if they can be a promising hunting ground for investors.

One of the UK’s largest recent spin-offs was GSK’s (GSK) demerger of its consumer healthcare division in 2022.

GSK reportedly rebuffed a £50 billion offer from personal goods giant Unilever (ULVR) to buy the division, named Haleon (HLN), in the autumn of 2021.

The GSK board instead decided to spin the business off to its own shareholders and the shares began trading at 330p per share on 18 July 2022, valuing the business at roughly £31 billion, way below Unilever’s offer.

In a twist of fate, Unilever’s new management team has announced it now wants to spin off its ice cream division (19 March) as the fast-moving consumer goods group looks to accelerate its growth plan aimed at increasing shareholder returns.

YET TO DELIVER

Haleon was the largest new listing on the London Stock Exchange since mining group Glencore (GLN) came to the market in May 2011 with a market cap of around £37 billion, according to Refinitiv data.

Almost two years on from their debut, Haleon shares trade close to their listing price but the combined market cap of Haleon and GSK today is approximately a tenth below where it was at the time of the separation meaning investors have so far seen no benefit from the demerger.

That isn’t how demergers are supposed to work, but it does demonstrate the wide dispersion in outcomes when companies spin off parts of their business.

One of the most successful spin-offs of all time is advanced semiconductor equipment maker ASML (ASML:AMS), which was hived off from its Dutch parent Philips (PHIA:AMS) in 1994.

Since listing, ASML shares have increased 367fold which is equivalent to a compound annualised return of 22.6% per year.

Global information services company Experian (EXPN) is one of the best-performing UK demergers, delivering a share price return of 10% per year since it spun out of GUS (Great Universal Stores) in 2006.

The aim of a spin-off is to increase the share price of the parent and create greater shareholder value for both sets of shareholders”

GUS no longer exists as a company as its Argos catalogue retail division now resides within supermarket group Sainsbury’s (SBRY) and its iconic fashion brand Burberry (BRBY), which started life as a mail-order business in Manchester over a century ago, is separately listed.

One of the worst-performing demergers in recent times is home improvement retailer Wickes (WIX), which was spun out of Travis Perkins (TPK) in April 2021.

The share prices of both companies have suffered due a slowdown in the home improvement market with the former down 38% and the latter down by 50% since the split.

WHY SPIN OFF IN THE FIRST PLACE?

Where a company operates a conglomerate structure with a mishmash of unrelated businesses, the value of the group can be less than the sum of its parts as investors often apply a conglomerate discount.

The aim of a spin-off is to increase the share price of the parent and create greater shareholder value for both sets of shareholders.

Demerging a subsidiary business allows investors to get a clearer picture of its true value, which can subsequently lead to a higher valuation over time than its implied value inside the parent company.

There is an argument to suggest demerged businesses tend to be better managed as the directors are responsible for their own profit and loss account and are incentivised to create shareholder value.

Unshackled from the parent, a demerged business is free to follow its own path and drive its own destiny, potentially becoming more innovative and driving faster growth.

NOTABLE US AND UK SPIN-OFFS

The US market has a rich history of spin-offs, from the break-up of AT&T (T:NYSE) or ‘Ma Bell’ as it was known in the 1980s to eBay’s (EBAY:NASDAQ) split with PayPal (PYPL:NASDAQ), Altria’s (MO:NYSE) divestment of Philip Morris International (PM:NYSE) and Abbott Laboratories (ABT:NYSE) spinning off its biopharma business AbbVie (ABBV:NYSE)

More recently, US pharmaceutical firm Johnson & Johnson (JNJ:NYSE) followed in GSK’s footsteps by spinning out its own consumer healthcare division Kenvue (KVUE:NYSE) in August 2023, generating $13.2 billion in cash for the parent.

The trend to demerge healthcare businesses continues apace. Diversified technology firm 3M (MMM:NYSE) spun off its healthcare unit Solventum (SOLV:NYSE) in March 2024. The company operates four divisions ranging from wound care, dental solutions, purification, and filtration to hospital software.

Feature: Corporate spin-offs

In October 2023, Corn Flakes and Special K cereal maker Kelloggs (KLG:NYSE) spun out its Pringles and Pop-Tarts snacks business into a new company called Kellanova (K:NYSE)

US industrial giant GE (GE:NYSE) has carried out two spin-offs. In 2023 it distributed a pro-rata dividend which entitled holders of GE common stock to receive a distribution of one share in GE HealthCare (GEHC:NASDAQ) for every three shares of GE held.

company Marriott International (MAR:NYSE) in the early 1990s. Marriott’s board decided to demerge the asset-heavy property business from the capital-light property management operation, and after poring over the 400-odd page prospectus Greenblatt spotted something interesting.

The debts of the company backing its properties were held by a subsidiary of the parent company which itself was debt free.

Earlier this month, GE distributed another pro-rata dividend which entitled holders of GE common stock to receive a distribution of one share in GE Vernova (GEV:NYSE) for every four shares of GE held.

Following these spin-offs, GE operates as GE Aerospace, a global provider of aircraft engines, systems and services with revenues exceeding $30 billion, but it retains its original ticker.

In the UK, industrial group Melrose (MRO) carried out a similar exercise in 2023, spinning off its automotive components business Dowlais (DLS) as a separate entity allowing it to concentrate on aerospace activities.

DO SPIN-OFFS MAKE MONEY FOR INVESTORS?

Often spin-offs perform poorly shortly after listing as investors receive relatively few shares, meaning they have to buy more to build up a meaningful holding. Lack of broker coverage and familiarity with the business mean they are more likely to sell the ‘free’ shares and move on.

Hedge fund investor and author Joel Greenblatt believes these dynamics can present profitable opportunities to buy underappreciated and undervalued assets on the cheap.

One of Greenblatt’s biggest successes, as discussed in his book You can be a Stock Market Genius, was investing in the spin-off of property

Greenblatt estimated the assets were worth $6 per share compared with the $4 per share asking price, meaning the company was selling for less than its tangible worth: four months later the shares were trading at $12.

However, not all spin-offs make great investments. A Harvard Business Review study analysed 350 public spin-offs valued at more than $1 billion between 2000 and 2020.

The results were surprising ─ the study found half of the companies failed to create any shareholder value within two years of separation while 25% destroyed a ‘significant’ amount of shareholder value. The average separation delivered just a 5% increase in combined market cap.

The contrast between the best and worst performers was stark. Top-quartile demerger performed very well with their combined market cap up 75% two years after separation, whereas companies in the bottom quartile destroyed value by as much as 50% of the combined market cap.

The authors of the study believe the key to success is creating a clear focus on the ‘go-forward’ equity story and targeting achievable financial targets before separation is even announced. This helps cement a clear roadmap for creating shareholder value.

In conclusion, spin-offs can be a profitable hunting ground, but good judgment and fundamental research is needed to find the few that go on to create sustainable shareholder value.

In other words, just because a demerged company is initially unloved or ignored by investors is no guarantee of future success.

By Martin Gamble Education Editor

DIVIDEND MACHINES

The companies which reward shareholders like clockwork

Interest rates are expected to stay higher for longer to combat the sticky inflation which remains a threat to investors’ hard-earned wealth and purchasing power. During periods of high inflation, it is crucial to invest in companies that possess pricing power, because these firms can pass on increased costs to customers, enabling them to maintain profit margins and generate the robust cash flows that support a reliable and rising dividend to shareholders.

Dividend income has long been known as a powerful tool for compounding wealth. No less a figure than John D. Rockefeller once said: ‘Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.’

And as Ben Lofthouse, head of global equity income at Janus Henderson, explains: ‘The growing dividend streams from equities are one of the best ways to protect investors’ income from the ravages of inflation over the long term. That only holds true though if the companies are committed to sharing their growth with investors, and paying and

growing dividends (it doesn’t work if a company is a “fair weather” payer). A long track record of dividends suggests that a company is committed to sharing their success with investors and, perhaps just as importantly, has a business that can stand the test of time and economic cycles.’

ARISTOCRATS & KINGS

A useful starting point for spotting companies with pricing power is to look for those with a track record of consistent earnings growth and shareholder distributions, many of which are found among the so-called ‘dividend aristocrats’, firms that have consistently raised their dividends for at least 25 years.

The US dividend aristocrats are a select group of S&P 500 index-listed corporations that have raised the shareholder reward for a quarter of a century or more. As of 28 March 2024, there were 67 constituents in the S&P 500 Dividend Aristocrats

index with top 10 constituents by index weight including construction equipment giant Caterpillar (CAT:NYSE), discount retailer Target (TGT:NYSE), engineering services stalwart Emerson Electric (EMR:NYSE) and food processor-to-commodities trader Archer-Daniels-Midland (ADM:NYSE). Other aristocrats include retail behemoth Walmart (WMT:NYSE), energy giant Chevron (CVX:NYSE) and drinks colossus Coca-Cola (KO:NYSE), not to mention industrial and healthcare company 3M (MMM:NYSE) and fast food chain McDonald’s (MCD:NYSE).

An even more elite group are the ‘dividend kings’, ultra-rare stalwarts of the dividend scene that have raised the shareholder reward for at least 50 years, although many of these kings are mature businesses generating pedestrian growth. Their number includes American States Water (AWR:NYSE) and Dover Corp (DOV:NYSE), which have each hiked dividends for pushing on 70 successive years, as well as consumer goods Goliath Procter & Gamble (PG:NYSE) and motion and control technologies specialist Parker Hannafin (PH:NYSE) on 67 years of growth apiece, and the aforementioned Walmart and Coke, which have increased the dividend for at least half a century. That’s no mean feat when you consider the period spanned multiple recessions, the bursting of the dot.com bubble, the Great Financial Crisis and the Covid pandemic.

Lofthouse points out that Microsoft (MSFT:NASDAQ) has become a dividend aristocrat over the last decade. ‘The yield is low after the

Investment trust STS Global Income & Growth (STS) has owned dividend aristocrat ADP (ADP:NASDAQ) for several years. This high-quality software business provides outsourced human capital management services to businesses including payroll, tax, employee benefits and insurance.

STS Global Income & Growth’s manager James Harries says: ‘The impetus to outsource these functions grows as complexity increases giving a long runway for growth. As a company with limited capital requirements and high returns on capital, ADP can both invest sensibly in the business to fund innovation and entrench their competitive advantages, as well as pay a growing dividend. The shares have delivered an excellent return balanced between income and capital growth and currently yield 2.3% on a prospective basis.’

current rally, but it could be one for investors to think about. Microsoft is well positioned to benefit from the investments it has made in cloud computing and AI (artificial intelligence). CocaCola has a higher yield and a long track record of dividend growth, too. The company has been focused on making itself less capital intensive whilst broadening out its product offering.’

Luc Plouvier, senior portfolio at Van Lanschot Kempen, highlights the attractions of another drinks name, alcoholic beverages company Diageo (DGE). ‘It has a broad range of world-famous brands like Smirnoff vodka, Captain Morgan rum, Johnnie Walker whisky, Baileys Irish cream, and Tanqueray gin and sells its products in more than 180 countries. The business has high profit margins, high returns on invested capital, and a strong balance sheet. Over the past two decades, Diageo has been able to grow 4% to 6% per annum, in line

ADP

A high-quality aristocrat

Selected UK dividend machines (stocks which have increased their dividends in at least nine out of the last 10 years)

Selected US dividend machines (stocks which have increased their dividends in at least nine out of the last 10 years)

Selected European dividend machines (stocks which have increased their dividends in at least nine out of the last 10 years)

Kepler Partners analyst Ryan Lightfoot-Aminoff points out that investment trusts are well suited to becoming dividend aristocrats due to their ability to hold back some revenue each year to support dividends in more challenging periods. ‘This was particularly beneficial during the covid pandemic when, although dividends were slashed, numerous trusts were able to fall back on their reserves to maintain payouts,’ says Lightfoot-Aminoff, who believes JPMorgan Claverhouse (JCH) is worth highlighting ‘as an example of a great dividend track record, having recently achieved its 50-year milestone of growing its dividends. More impressively, the annualised dividend growth of 8.8% has beaten both UK inflation of 4.9% per annum and the market’s dividend growth of 6% per annum since 1972. Managers William Meadon and Callum Abbot are fundamental stock pickers, but are always mindful of risks, adopting a barbell approach to building the portfolio. The trust’s historic yield is circa 5%, though the board has indicated it will raise interim dividends by 3% over 2023 levels. JPMorgan Claverhouse has steadily built revenue reserves to support the dividend in leaner times, with over 73% of 2023’s dividend in reserve to support growth going forward. As such, we believe the attractive, inflation-busting dividend is well supported and should appeal to investors.’

with the global spirits market. Because there are no substantial reinvestment needs, Diageo pays out a predictable and growing dividend. It complements these dividends by buying back their shares in the open market.’

TAP INTO DIVIDEND MACHINES

A fervent fan of dividend growth investing is legendary US fund manager Peter Lynch. In his book ‘Beating the Street’, Lynch remarks that ‘the dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 or 20 years in a row.’

Taking our cue from the feted American investor, Shares has used Stockopedia to screen for dividend champions across the UK, US and European markets that have grown their dividends in at least nine of the last 10 years, which captures companies that may have undergone the briefest of Covid-induced dividend-paying hiatuses. We outline our best ideas below plus a tracker which offers exposure to a diversified list of regular dividend hikers.

CLAVERHOUSE

One to consider

US DIVIDENDS FOR UK INVESTORS

Most US shares can be held in a dealing account, ISA or SIPP (self-invested personal pension). For any account except a SIPP, you will need to complete a W-8BEN form to be able to invest in a US share. The form can typically be completed online. Tax treaty arrangements between the US and UK mean that the usual 30% withholding tax on US dividends is halved to 15% for investments in a dealing account or ISA once a W-8BEN form is completed.

A W-8BEN form is not required for US investments held within a SIPP as the relevant US authority, the IRS, recognises SIPPs as a qualifying pension scheme and all qualifying US dividends and interest are automatically paid free of any withholding tax.

ExxonMobil (XOM:NYSE)

$118.52

Nestle (NESN:SWX)

Share price: CHF 93.72

Forecast dividend yield (source: Stockopedia): 3.3%

Chart: Shares magazine • Source: LSEG

For investors prepared to set aside any environmental concerns, US oil firm ExxonMobil (XOM:NYSE) is an excellent source of shareholder rewards. Since 2019, the company estimates it has added $10 billion to annual earnings and cash flow at an oil price of $60 per barrel and the plan is to increase this by a further $14 billion from the end of 2023 through to the end of 2027. This has been achieved through operational efficiencies and a disciplined approach to capital investment. Global oil prices have consistently tracked higher than $60 over the last three years and the company’s copious cash generation has supported a stream of share buybacks and dividends. Based on consensus forecasts, Exxon offers a 2024 dividend yield of 3.2%. US firms like Exxon have faced less pressure than their European counterparts to invest in areas like renewables but the company has still put money into what it describes as ‘ lower-emissions opportunities’ and plans to allocate $20 billion to these areas by the end of 2027. However, instead of wind and solar, Exxon is prioritising areas which it perceives as a better fit for its skillset like lithium, hydrogen, biofuels and carbon capture and storage. [TS]

Nestle (NESN:SWX) has built a strong track record of consistent dividend growth stretching back 35 years. Since 1995 this global consumer defensive giant has never failed to increase its annual dividend which has grown at a compound annual growth rate of 9% a year. Given the company’s strong balance sheet and high returns on capital, the prospects for the historical trend to continue looks reasonably assured. Nestle has assembled a very diversified stable of global brands from Kit-Kat, Milkybar and Perrier water to Maggi soups and Purina pet food. Growing the business organically is a key part of Nestle’s strategic focus. The company targets mid-single digit organic sales growth based on investment in categories and regions with attractive long term growth trends. In addition, Nestle has a focus on increasing the contribution from premium brands to drive margin expansion and accelerate growth. Another leg of the strategy is to deliver a quarter of sales from e-commerce by 2025. Nestle spent two-thirds of its media budget on digital campaigns and acquired 308 million first-party data records in 2023. The company says applying artificial intelligence to the dataset helps its brands reach target audiences more efficiently. UK holders of Swiss stocks are subject to a 35% dividend withholding tax but this can be reduced to 15% by filling out the relevant paper work. [MG]

Nestle (CHF)

Chart: Shares magazine • Source: LSEG

Cranswick (CWK)

Share price: £40.95 Dividend yield (source: Stockopedia): 2.1%

SPDR S&P Global Dividend

Aristocrats UCITS ETF (GBDV)

Share price: £24.00

SPDR S&P Global Dividend

Aristocrats

Meat and poultry producer Cranswick (CWK) isn’t an obvious candidate for a feature on dividend growers, yet the Kingston upon Hullbased company has increased its payout every year for more than three decades which seems an extraordinary achievement for such an unglamorous business. Formed in the early 1970s by farmers in East Yorkshire to produce animal feed, today the company supplies a range of highquality, predominantly fresh food, including fresh pork, poultry, convenience and gourmet products to most major supermarket and caterers. Using data going back to the early 1990s, we estimate Cranswick has compounded earnings at more than 11% per year with remarkable consistency which would explain its ability to increase the dividend. It has achieved this by constantly innovating and adding value for its customers, both investing in its own operations and via acquisitions, meaning it can pass through price rises to offset rising input costs and protect its margins and cash-flow.

Analysts seem to continually underestimate the firm’s natural growth rate, as it regularly beats consensus forecasts resulting in upgrades and a constantly rising share price. Its latest venture, supplying pet food to Pets at Home (PETS), is in its early days but we have little doubt that too will

Income-hungry investors seeking low-cost passive exposure to the theme should consider SPDR S&P Global Dividend Aristocrats (GBDV), an ETF (exchange-traded fund) with low ongoing charges of 0.45% which has delivered solid annualised total returns of 6.4% over the past decade. The fund physically replicates the S&P Global Dividend Aristocrats index, which tracks high dividend yielding shares globally. The index is designed to measure the performance of high-dividend-yielding companies that have increased or maintained dividends for at least 10 successive years and also have positive cash flow from operations and a positive (ROE) return on equity. Diversified across 99 cash generative businesses with an average market cap of 20.5 billion, the ETF offers an attractive 4.1% dividend yield and exposure to reliably income-yielding sectors including financials, utilities and real estate. Top 10 positions include US-listed REIT (real estate investment trust) Highwoods Properties (HIW:NYSE) and Belgian multinational chemical company Solvay (SOLB:EBR), as well as cash generative US telecommunications conglomerate Verizon (VZ:NYSE) and Getty Realty (GTY:NYSE), a REIT specialising in convenience and automotive retail property.

Chart: Shares magazine • Source: LSEG

Why Darktrace is getting exciting again

Forecasts for built-in-Britain cybersecurity business have been upgraded three times this year

How Darktrace forecasts have changed

It must be maddening for analysts that every time they’ve put forecasts for Darktrace (DARK) into the market, they’re forced to tear them up and start again. It happened for the third time already this year earlier this month (11 April), in the wake of a surprisingly strong third fiscal quarter update (to 31 March) that the company predicts will mean an extra $2.4 million of ARR, or annual recurring revenue, this year, with sales and margin guidance also raised.

Investors typically like stability and predictability yet you’ll find no one complaining. It means that while 2024 revenue projections have been increased by around 1% this year, the subsequent hike to net income margins, from 12.6% to 18.2%, means net profit is now forecast to be 46% higher ($124 million versus $85 million) this year than anticipated in January, based on Berenberg forecasts.

Against a backcloth of intense geopolitical tension, governments and corporate clients are becoming increasingly wary of the threat of hacking attacks. At the same time, AI (artificial intelligence) tools are making it easier for hostile actors to carry out phishing attacks.

‘We are preparing to roll out enhanced market and product positioning to better demonstrate how our unique AI can help organisations to address novel threats across their entire technology

footprint,’ said Darktrace chief executive Poppy Gustafsson.

Founded in Cambridge in 2013, Darktrace’s core cybersecurity solution is its Enterprise Immune System, a IT system-agnostic platform that uses behavioural analysis to detect the early signs of a cyberattack on a network. EIS creates a model of users, devices, and network behaviours in normal conditions, and, through real-time analytics and AI pattern recognition, alerts IT teams on activities outside of the norm.

Darktrace shares, in the relative doldrums for 18 months or so, jumped 6% on the update and surged again following Israel’s recent retaliatory strike against Iran.

‘We believe that the demand backdrop remains positive, driven by the incidence of attacks and regulation,’ Liberum analysts said on the outlook for Darktrace.

Analysts continue to claim that Darktrace stock is being undervalued compared to US peers, partly due to concern in recent years over shareholder and founding investor Mike Lynch, who faces fraud charges in the US over his former company Autonomy. Lynch has denied the charges.

By Steven Frazer News Editor

FIDELIT Y INVESTMENT TRUSTS

Truly global and award-winning, the range is supported by expert portfolio managers, regional research teams and on-the - ground professionals with local connections

With over 450 investment professionals across the globe, we believe this gives us stronger insights across the markets in which we invest This is key in helping each trust identify local trends and invest with the conviction needed to generate long-term outperformance

Fidelity’s range of investment trusts :

• Fidelity Asian Values PLC

• Fidelity China Special Situations PLC

• Fidelity Emerging Markets Limited

• Fidelity European Trust PLC

• Fidelity Japan Trust PLC

• Fidelity Special Values PLC

The value of investments can go down as well as up and you may not get back the amount you invested Overseas investments are subject to currency fluctuations The shares in the investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand

The investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Investments in emerging markets can more volatile that other more developed markets Tax treatment depends on individual circumstances and all tax rules may change in the future

To find out more, scan the QR code, go to fidelity.co.uk/its or speak to your adviser.

Small World: read about Gresham Technologies, T Clarke, REDX Pharma and more

Takeovers, de-listings, re-listings and a pivot from psychedelic drugs to crypto

It’s been a busy month in small-cap land with good news, bad news and downright weird news for investors to digest.

First the good news, as the persistent undervaluation of UK companies – and small caps in particular – draws increasing numbers of corporate buyers.

Financial services software provider Gresham Technologies (GHT) agreed a 163p per share cash offer from funds managed or advised by STG Partners, valuing the firm’s equity at just under £150 million or a 27% premium to its market cap.

For investors in Gresham, including major stakeholder Kestrel Partners, the deal represents an opportunity to cash in at a premium, although anyone who bought the shares above the bid price will be forced to take a loss.

For STG, there is ‘an exciting opportunity to combine Gresham with its portfolio company, Alveo, which Bidco acquired in January 2023 with the aim of building a global and differentiated enterprise data management and governance platform for the capital markets tech ecosystem’.

ANOTHER TAKEOVER DEAL

‘Smart buildings’ and alternative energy group T Clarke (CTO) was another firm attracting a takeover approach, this time from existing shareholder and gas supplier Regent, at 160p per share, valuing it at roughly £90 million.

The directors argue the 28% premium gives minority investors a chance to ‘accelerate the crystallisation of a certain value from their investment’ at an attractive price given the shares have ‘consistently traded at a discounted multiple’ to those of their listed peers.

As with Gresham, however, anyone who bought the stock above 160p is crystallising a loss not a profit and won’t exactly be jumping with joy.

For Regent, the deal is aimed at bringing it a greater presence in more attractive markets with better growth prospects than gas services and metering.

FTSE Small Cap

While the M&A (mergers and acquisitions) market continues to bubble away as buyers take advantage of low valuations, at the other end of the market there is still a steady stream of companies opting to de-list and take themselves private.

Clinical-stage biotech firm REDX Pharma (REDX:AIM), which focuses on the discovery and development of novel, smallmolecule, targeted medicines for the treatment of cancer and other diseases, proposed de-listing its shares and reregistering as a private company.

Despite some of the biggest AIM capital raises for a biotech company, REDX’s valuation is ‘not reflective of our track record or future potential and is not conducive to raising the level of capital required for our growing clinical portfolio,’ according to the directors.

(MNG) and serial investor Richard Griffiths, who between them control close to half of the firm’s equity, as well as minority shareholders.

In a highly personal thread on X, formerly Twitter, chief executive Ahmad Mortazavi described the UK capital markets as not just illiquid but ‘completely broken and closed’.

Mortazavi went on to say the firm tried to raise funds earlier this year and ‘couldn’t even secure a serious meeting let alone have a shot at raising capital’.

The response from investors was ‘a blanket refusal to invest in an AIM company and that a private company would be far more attractive’.

AN ODD CHANGE OF STRATEGY

In terms of sheer oddness, we couldn’t not include Aquis-listed Clarify Pharma which announced it was no longer going to invest in psychedelic-led biotech and life sciences companies and would instead become ‘a provider of Filecoin stacking nodes’.

To fund this new strategy, the firm sold two of its investments in Nasdaq-listed businesses and has applied to Companies House to change its name to File Forge Technology, after which the ticker will change from PSYC to FILE. Rather than back studies into LSD and MDMA as psychotherapy treatments, which some investors might already consider to be fairly out-there, the firm’s new mission is to build ‘an active and engaged community of investors that believe in the opportunity of the Filecoin ecosystem and want public market exposure to this growing market’.

Ironically, REDX was flagged by a national newspaper in February as potentially eyeing a US listing which might have improved its valuation.

THROWING IN THE TOWEL

Another AIM-quoted biotech firm throwing in the towel is e-Therapeutics (ETX:AIM), which has proposed canceling its London listing and is looking at floating on Nasdaq instead.

The firm has proposed raising around £29 million in new shares by tapping funds managed by M&G

For the uninitiated, Shares included, Filecoin is ‘a decentralised storage network that turns cloud storage into an algorithmic market. The market runs on a blockchain with a native protocol token (also called “Filecoin”), which miners earn by providing storage to clients,’ the firm helpfully explains.

By Ian Conway Deputy Editor

THE STORY OF THE ISA: HOW TAX-FREE SAVING HAS EVOLVED IN THE UK

wealth for millions of savers.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

FROM PEP TO ISA

Originally introduced by Chancellor Nigel Lawson in 1986 as the Personal Equity Plan (PEP)1, its purpose was to encourage the “democratisation” of investment, by offering a tax-efficient avenue into the stock market to a broader range of savers. The original amount that savers could shelter from the tax authorities was set at £2,400 per annum,1 but the annual allowance has been increased several times since then.

The PEP was replaced in 1999 by the ISA,2 but its intention remained the same. At the outset, savers could place £7,000 each year into an ISA. The amount each adult can currently shelter from the tax authorities each year stands at £20,000 per person.3

In the meantime, the ISA has evolved, with innovations such as the Junior ISA in 2011,4 which allows adults to save up to £9,000 per annum for their children, and the introduction of the Lifetime ISA in 2017,5 as a way for people to save or invest for their future, providing an additional boost towards buying a first property or saving for retirement.

HOW MUCH HAS BEEN INVESTED IN ISAS IN THE UK?

The amount we’re paying into ISAs has grown significantly over the years. In the tax year of their introduction £28.4 billion was saved across 9.3 million adult ISAs.6 By the 202122 tax year, this amount had grown to £66.9 billion across

1 Hansard – 1986 Budget Statement – 18/03/1986

2 Hansard – 1998 Spring Budget Statement – 17/03/1998

3 UK Government – Individual Savings Accounts – 18/04/24

4 UK Government – Junior ISAs launch today – 01/11/2011

that the tax-efficient structure has gone some way to fulfil its original objectives.

Indeed, the ISA’s role in democratising investment in the UK has also helped catalyse the significant growth we have seen from the investment trust industry over the last 25 years. According to government data, more than £28 billion of ISA money is invested in investment trusts.1 BlackRock manages nine investment trusts focused on specific market niches, all of which are suitable for consideration as a home for an individual’s ISA allowance.

Meanwhile, the ISA structure continues to be reformed. In the 2024 Spring Budget, Chancellor Jeremy Hunt introduced the concept of the UK ISA, which will represent an opportunity for investors to shelter an additional £5,000 from the tax authorities annually, as long as they invest it in the UK. We expect to receive the finer details of this policy in the coming months, but the intention is to encourage more investment into UK companies, which is similar to the aim of the original PEP back in 1986.

5 UK Government – What you need to know about the new Lifetime ISA – 17/02/17

6 HMRC – Individual Savings Account (ISA) Statistics – 30/06/22

7 UK Government data – annual savings statistics 2023 – 22/06/23

Melissa Gallagher, Head of Investment Trusts, BlackRock

HAVE ISAS MADE PEOPLE WEALTHY?

The ISA has clearly been successful in encouraging more investors to access the UK stock market to help build their long-term wealth. So much so, in fact, that it is estimated that the UK now has more than 4,000 ISA millionaires.8 Within the investment trust industry, according to research from the Association of Investment Companies (AIC), the trade association which represents the investment trust sector, a total of 32 investment trusts could have created millionaires of their shareholders.9

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

This is an excellent reminder of the power of compounding in the stock market, as well as the ability of active investment managers.

CONCLUSION

Beyond the thousands of ISA millionaires that have been created, there has been a much broader benefit, with literally millions of investors becoming empowered to build a valuable, tax-efficient portfolio of ISA investments.

The ISA has changed significantly over the years and, as the recent UK ISA proposal demonstrates, it continues to evolve. Throughout the change, however, it has remained a highly relevant structure for UK investors and its success to date

should be seen as just the beginning. The process of longterm compounding – Albert Einstein’s “eighth wonder of the world”10 – may mean that many more ISA millionaires could be created in the years ahead.

From the start, the ISA has been a highly suitable home for investment trusts, and that continues to be the case today. Investment trusts are a highly valid route to market for investors that are hoping to be part of the next generation of ISA millionaires.

For further information on BlackRock’s investment trusts, please visit: www.blackrock.com/its

8 The Openwork Partnership – ISA millionaires hit record high – 01/08/23

9 AIC – ISA millionaires – 13/02/24

10 Investors Chronicle – Compound interest – the eighth wonder of the world – 22/09/22

RISK WARNINGS

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase.

Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

This document is Marketing material. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH0424E/S-3508439

Tap into micro caps for a slice of UK innovation

Find out more about a ‘forgotten growth market’

Akey rationale for investing in the smallest companies on the UK market is that these businesses have the most capacity for growth.

However, for several reasons investing in microcap businesses is not for everyone and has, with some notable exceptions, proved less than fruitful

WHAT IS A MICRO CAP?

The definition of what constitutes a micro cap varies. Natalie Bell, fund manager at the Liontrust Economic Advantage team defines a micro cap as being a company with a market cap under £275 million.

The MSCI UK Micro Cap Index which focuses on this sector includes 400 companies of which the largest (as of 29 March 2024) has a market valuation of £430 million. The mean average size is around £96 million.

Ryan Lightfoot-Aminoff, analyst at Kepler Trust Intelligence says: ‘There are several investment trusts that focus on primarily on micro caps which typically invest below this. They invest from as low as circa £20 million market cap up to a maximum of £150 million at the time of initial investment, though often holdings are allowed to grow if the investment thesis holds.’

in recent years.

Chris McVey, co-manager of the FP Octopus UK Micro Cap Growth Fund (BYQ7HN4) told Shares: ‘UK smaller companies are the forgotten growth market with the FTSE Small Cap Index, and FTSE AIM Index, offering similar earnings growth dynamics to Nasdaq, well ahead of the FTSE 100, yet trading at half the US peers’ earnings multiple. This valuation disconnect will not sustain. We are excited about the prospect for significant returns from current levels for UK growth equities as interest rate conditions normalise and the economy pushes forward.’

Top

performing UK small cap funds and investment trusts

HOW TO INVEST IN MICROCAPS

There are several ways to invest in microcaps either buying a single stock, an investment trust or fund focused on the micro-cap sector.

The FP Octopus UK Micro Cap Growth Fund and FP Octopus UK Multi Cap Income Fund (BG47Q55) are two examples.

The FP Octopus UK Multi Cap Income Fund has beaten its benchmark – Investment Association UK

Equity Income – since launch in 2019, delivering returns of 43% to investors (cumulative performance to 29 February 2024) versus 29.2% from its benchmark. Holdings include wholesaler Kitwave (KITW:AIM)

Kitwave has had a steady stream of upgrades following its IPO in 2021 which has helped propel its shares up by more than 100%. From a dividend per share of 9.3p for the year to October 2022, the group

is forecast to deliver a dividend this current financial year of 12.3p, equating to a yield of almost 4%, and income growth of over 36% in the period.

FP Octopus UK Micro Cap Growth aims to achieve capital growth by investing in a portfolio of between 60 and 100 growing smaller companies.

Since launch (31 August 2007) the fund has returned a return of 158.9% and over five years 15.5%.

ADVANTAGES OF MICRO CAP INVESTING

Overall, in the micro-cap investment universe it is possible to sometimes invest in an exciting growth stock”

One of the main advantages of investing in micro caps is that the investor is investing in small businesses which are flexible and can adapt to challenging market conditions, whereas larger organisations are slower to change.

Smaller companies also have quite flat management structures and can problem solve and come up with solutions quicker. The smaller the company, the more focused they are on a product or service.

Gervais Williams, fund manager at Miton UK MicroCap Trust (MINI) says: ‘There are two main reasons for investing in micro caps. First, being immature, when they succeed, they sometimes go on succeeding for a series of years. They often start off at sub-normal valuations, and as they expand, they sometimes get lucky and grow even more rapidly than expected. The net effect is that some

micro caps have the potential to deliver a multiple of the original share price.

‘Second, when they succeed, their market capitalisation rises so that they become of interest to a wider group of professional investors. At this point, investors often get quite excited about its prospects, and can sometimes drive up its market valuation.’

The largest holding in the Miton UK Microcap Trust is currently Yu Group (YU.: AIM). The trust started buying the holding when its shares traded was between 70.6p and 80.5p in August 2020. As of 28 March 2024, its share price was £18.

‘Overall, in the micro-cap investment universe it is possible to sometimes invest in an exciting growth stock, at a valuation which ticks the value box, in a business model that is in our view quality.’

DISADVANTAGES OF MICROCAP INVESTING

Although micro-cap stocks can offer investors an opportunity to get into some of the most exciting growth companies in the UK at an early stage, they do come with certain risks which need navigating.

‘These include lower liquidity, higher price volatility, hype-driven price cycles (also known as market bubbles, which can frequently occur in the shares of single stocks) and lower standards of corporate governance,’ says Liontrust’s Natalie Bell.

Bell adds that micro caps are also not the traditional hunting ground for yield hungry investors: ‘A company paying a dividend is generally a sign of maturity and financial stability, and therefore not naturally associated with micro caps. These are typically younger firms focused primarily on growth rather than distributing profits via dividends.

‘More generally within the micro-cap universe of 832 companies, only 27% pay a dividend, and among these dividend-paying micro caps, only 12% offer a yield that surpasses the yield on a two-year gilt (currently 4% according to US data firm Bloomberg).’

By Sabuhi Gard Investment Writer

The largest holding in the Miton UK Microcap Trust is Yu Group

Fidelity European Trust PLC

Chosen by AJ Bell for its Select List

Fidelity European Trust PLC aims to be the cornerstone long-term investment of choice for those seeking European exposure across market cycles.

Aiming to capture the diversity of Europe across a range of countries and sectors, this Trust looks beyond the noise of market sentiment and concentrates on the real-life progress of European businesses. It researches and selects stocks that can grow their dividends consistently, irrespective of the economic environment.

Holding a steady course throughout market cycles

It is an uncertain time for the world and particularly for Europe. It is however vitally important for investors not to be blown off course. Good companies are still good companies and finding them remains the ‘secret sauce’ of any effective investment strategy.

We will remain focused on the companies in which we have invested and, in particular, on their ability to continue to grow their dividends. As always, we will ask ourselves if that rate of dividend growth is already discounted in the share price.

Performance over five years

We continue to seek new opportunities to add to the portfolio at the right price and remain confident in those names we currently hold. This approach has historically served the portfolio well - including through the recent volatility of the last few months - and we see no reason to change course.

Past performance is not a reliable indicator of future returns.

Source: Morningstar as at 31.03.2024, bid-bid, net income reinvested. ©2024 Morningstar Inc. All rights reserved. The FTSE World Europe ex-UK Total Return Index is a comparative index of the investment trust.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. This trust can use financial derivative instruments for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

The latest annual reports, key information documents (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment

(UK) Limited. Issued by FIL Investment Services (UK) Ltd, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F

UKM0424/385993/SSO/0724

The perils of drawing your pension early

There is a temptation to dip into your retirement pot as soon as it becomes accessible but it requires careful thought

Every time anyone in the UK puts money into a pension, a deal is struck. The government adds tax relief to the contribution, and the quid pro quo is you have to lock that money away for retirement. Hence why you can only access a pension after the age of 55, rising to 57 from 2028.

The idea is that if you’ve got your own funds to live on in retirement, you won’t fall back on the benefits system and cost the exchequer more money in the long term. This unwritten private pension contract is not without its controversy, particularly around the issue of allowing tax relief for higher rates taxpayers, but that’s the system the UK and many other countries operate to incentivise retirement saving.

DRAWING EARLY

The inability to draw on your money until age 55, or 57, is undoubtedly a

reason why some people spurn private pensions, seeing it as an unappealing constraint. But actually, if you’re saving for retirement, 55 is a pretty young age to start drawing on your funds. Life expectancy for a 55 year old man is 81, and for a woman is 84, and these being averages, 50% of people can expect to live longer than that. So, if you access your pension in your mid 50s, you could easily be drawing on your retirement fund for as long as you’ve been saving into it. If you’re contributing somewhere in the region of 10% of your salary while working, you would therefore be relying on Herculean levels of investment growth to maintain your standard of living in retirement.

Despite this a large number of people are drawing their pension early. Around a third of those who made regular withdrawals from their pension in 2022/23 were between the ages of 55 and 64, according to the Financial Conduct Authority.

You would therefore be relying on Herculean levels of investment growth to maintain your standard of living in retirement”

One of the benefits of saving into a private pension is you take control of your retirement, and having a robust retirement fund as you approach your 60s means you can call the shots on when to take a step back from work. But clearly accessing your

pension early opens up the possibility you might run out of money later on in your retirement. But how can you get a handle on how big a risk is involved?

DIFFICULT TO PLAN

They say nothing is certain apart from death and taxes, and that includes the timing of the former. Not knowing how long we will live for is a gigantic encumbrance when it comes to retirement planning. But you can take some lead from annuity rates. These are produced by insurance company based on stacks of data about how long people live. If you hand over £100,000 to an insurance company at age 55, they will provide you with an income for life of £5,940 each year. At 65, the same sum would snaffle you an annuity payment of £7,010 a year. This means your pension needs to be about 20% bigger if you want to retire at 55 compared to 65, or at least that’s what an insurance company actuary would say. These figures reflect average life expectancy, so if you’re a teetotal marathon runner with a family history of longevity, you might find yourself relying on your pension for even longer.

Your pension fund can be passed on to beneficiaries free from inheritance tax”

grows free of income and capital gains tax within the pension wrapper, so if you’re considering withdrawing cash from your pension pot to fund investment elsewhere, your decision should factor in whether you’re moving money from a taxfree to a taxable environment.

It’s also worth considering the inheritance tax situation. Your pension fund can be passed on to beneficiaries free from inheritance tax, but if you take money out and hold it in cash, or invest it in a property, that then forms part of your estate and is potentially liable to IHT.

LIMITS ON WITHDRAWALS

Depending on how you go about it, drawing your pension early might also reduce the annual amount you are permitted to save into a pension from £60,000 to £10,000. You might think that once you start taking your pension you won’t want to put any more money into it. That makes sense but might not necessarily end up being the case. If you continue working while drawing your pension, your employer is required to offer to pay into a pension for you.

As well as having to sustain you for a longer period, if you use your pension to retire early you also lose out on growth on the money you withdraw and spend. Every £1 in your pension at age 55 would be worth £1.46 in real terms at age 65, assuming 6% fund growth and 2% inflation. This money also

You also might find yourself with a lump sum, for instance from an inheritance, which you might like to use to bolster your retirement fund. Accessing your pension early could therefore limit your ability to reload your retirement fund.

Clearly the ability to draw on retirement funds earlier rather than later is one of the main reasons some people save large sums into their pension. This might not mean entirely disappearing from the workforce, it could simply mean working fewer days, or going freelance, and using your pension fund to top up your earnings. This sort of flexibility around your retirement options is one of the rewards of prudently putting enough money aside every month while you’re in the full swing of working. But it’s still important to take a lengthy pause for thought before dipping into your pension pot for the first time, and if in doubt, consider taking professional financial advice.

By Laith Khalaf AJ Bell Head of Investment Analysis

Smaller companies: Starting to turn?

Abby Glennie and Amanda Yeaman, Managers of abrdn UK Smaller Companies Growth Trust

• The long-awaited turnaround in smaller companies is unlikely to happen just because shares are lowly-valued

• However, an improving economic and interest rate backdrop could spark renewed interest in the sector

• M&A activity is also providing support for the smaller companies sector

Investors in UK smaller companies are justified in feeling impatient. The turnaround in the sector has been slow to arrive, and poor sentiment has persisted far longer than justified by the on-the-ground experience of most smaller companies. However, a number of factors are coalescing that may improve sentiment towards this unloved part of the market.

It has long been clear that low valuations are not, in themselves,

a reason to predict an imminent turnaround for UK smaller companies. This part of the market has been cheap for some time and, even as earnings for many small companies have improved, it has only got cheaper. Today, the FTSE 250 has never been as cheap versus the FTSE 100. The sector has continued to experience painful outflows.

Nevertheless, we see signs that the market has found its floor. Smaller companies recovered strongly from their lows in October 2022 and October 2023 and, for the investment trust sector, discounts have started – tentatively – to improve. This is encouraging.

IMPROVING EARNINGS GROWTH

We see an increasing differentiation within smaller companies, with an improving earnings growth picture for the stronger, higher quality smaller companies versus their peers. While

many companies had a tailwind during the Covid recovery period, growth has been harder to find more recently. We believe in a world of lower growth, the market is likely to reward those companies that can grow earnings organically and not be dependent on external factors.

Our priority is to find companies that are in charge of their destiny. In the retail sector, for example, we hold Games Workshop and Hollywood Bowl, which have shown themselves able to generate strong recurring revenues in spite of a tougher time for consumers. Bytes Technology is an IT solutions and services company, aiming to help companies achieve maximum efficiency. At present, investors do not have to pay a significant premium for higher quality companies and this, in our view, is an opportunity and could change sentiment towards parts of the smaller companies sector.

CHALLENGING ECONOMIC BACKDROP

There have been two key sources of poor sentiment towards UK smaller companies. The first has been the lacklustre UK economy. It may not be strictly true, but smaller companies tend to be perceived as more domestically focused, and therefore more vulnerable to the UK’s economic weakness. The second has been rising interest rates.

While UK economic growth is unexciting, the country only experienced a very short-lived and shallow recession at the end of 2023 and activity revived in January . The sticky inflation problem that has weighed on growth is now ebbing, with the Consumer Prices Index slowly falling. Consumer health has been weak, but now appears to be showing signs of improvement.

This, alongside slowing employment data, should allow the Bank of England to reduce interest rates. This removes a major impediment to a revival in sentiment for the UK’s smaller companies. History suggests that after the first rate cut, smaller companies outperform their larger peers over the next six and 12 months.

SHIFTING MARKET ENVIRONMENT

If the economic backdrop is becoming more benign for smaller companies, the market environment may also turn from a headwind to a tailwind. We see a subtle shift from a market focused on macroeconomic factors,

such as the direction of interest rates and inflation, to one focused on the characteristics of individual companies. This has even been evident among the so-called ‘Magnificent Seven’, where Tesla and Apple have diverged from their peers as investors have scrutinised their performance more closely.

This is a more helpful environment for smaller companies in general, and the type of quality growth companies we favour in particular. It has long been a source of frustration for us that many of the companies in the abrdn UK Smaller Companies Growth Trust have shown strong operational performance that has not be recognised by the market. From here, characteristics such as resilience, pricing power, and balance sheet strength – the type of characteristics we value – may be rewarded by the market.

M&A ACTIVITY

Companies are increasingly taking their destiny into their own hands. Some are buying back stock, reasoning that if the market will not value their business properly, they are going to back it with their own capital. Bid activity is also picking up. In particular, bids are coming in from private equity groups with cash to spare. At the margins, trade buyers and other listed vehicles are also taking an interest. Some companies have been taken out at too low a price, but it may help create support

for smaller company share prices in the longer-term, particularly for the highest quality companies.

More recently, the government has also done its bit for the sector. It announced plans for the new British ISA, alongside a number of disclosure requirements for UK pension funds designed to encourage them to invest in smaller companies . There is more that could be done, but it is clear that policymakers of all political stripes are focused on reviving the UK equity market and smaller companies should be a beneficiary.

This is a stronger backdrop than has been seen for smaller companies for some time. Nevertheless, there are still pockets of fragility. It is a more difficult backdrop for companies with higher debt, weaker business models or poor pricing power. Companies are having profit warnings and finding resilient companies with good visibility of earnings is important.

UK small cap is a diverse investment class, with lots of great companies. With a tailwind from policymakers, M&A, plus a benign macroeconomic and market environment, we are more confident on the outlook for smaller companies than we have been for some time.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

Important information

Risk factors you should consider prior to investing:

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.

• Past performance is not a guide to future results.

• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.

• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.

• A s with all stock exchange investments the value of the Trust shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.

• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.

• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.

• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

• The Company may charge expenses to capital which may erode the capital value of the investment.

• The Alternative Investment Market (AIM) is a flexible, international market that offers small and growing companies the benefits of trading on a world-class public market within a regulatory environment

designed specifically for them. AIM is owned and operated by the London Stock Exchange. Companies that trade on AIM may be harder to buy and sell than larger companies and their share prices may move up and down very sharply because they have lower trading volumes and also because of the nature of the companies themselves. In times of economic difficulty, companies listed on AIM could fail altogether and you could lose all your money.

• The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.

• Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.

• Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss.

• Certain trusts may seek to invest in higher yielding securities such as bonds, which are subject to credit risk, market price risk and interest rate risk. Unlike income from a single bond, the level of income from an investment trust is not fixed and may fluctuate.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at: www.abrdnuksmallercompaniesgrowthtrust.co.uk, or by registering for updates

Meet the newest addition to Alliance Trust’s roster of managers

Popular investment vehicle replaces Jupiter after departure of highly-rated Ben Whitmore

Popular investment vehicle Alliance Trust (ATST) has announced a modest but meaningful shake-up of its portfolio.

The FTSE 250 constituent invests in global equities across a range of industries and sectors through a ‘manager of managers’ approach. Following an overhaul in 2017, the trust gives investors relatively low-cost exposure (with an ongoing charge of 0.62%) to 10 leading fund managers selected by Willis Towers Watson, the manager of the trust.

These managers run concentrated portfolios of their very best ideas and by pursuing this approach, Alliance Trust hopes to achieve a high level of diversification across different investment styles and geographies. On a 10-year view it has achieved a creditable annualised return of 12.9%. The shares trade at a modest 3.4% discount to NAV (net asset value).

Following news of Ben Whitmore’s imminent departure from Jupiter Fund Management (JUP) the trust has taken the decision to make a switch to ARGA Investment Management. Jupiter accounted for 9% of the portfolio at the last count, while the trust has said ARGA will have an 8% weighting.

Numis analyst Ash Nandi comments: ‘Ben is a highly-rated manager and therefore the switch away from Jupiter to ARGA shouldn’t be a surprise. ARGA also takes a value-orientated approach, meaning the manager change does not result in any meaningful change in style allocation for the fund.’

As Nandi says, ARGA IM is a global value-focused manager. Its overriding strategy is to capitalise on situations where the market has overreacted to negative news flow and has mistaken temporary share-price stress for an irretrievable situation.

Founded in 2010 by chief investment officer A. Rama Krishna, the company has some £11.8 billion of assets under management and operates from

locations in the US, India and UK. The table shows the allocations in Alliance Trust following the switch out of Jupiter.

By Tom Sieber Editor

International Biotechnology Trust plc (IBT):

The changing face of biotechnology

In the UK, investor perceptions of the biotech sector seem out-dated. It would perhaps be wrong to say the whole world has moved on, but without doubt, part of it, namely the US biotech sector, has changed beyond recognition over the last 20 years.

If you ask twenty investors what they think of a particular sector, you are likely to be greeted with twenty different responses. The role of the stock market is to find a consensus from that range of views, and its ‘invisible hand’ then sets prices accordingly.

We live in an ever-changing world, however, and sometimes industry dynamics can change faster than investor perceptions, creating opportunities for active investors to capture.

In the case of biotechnology, there’s a fair chance that such an investor survey would be smattered with phrases such as “high octane”, “early stage”, “funding dependent”, “binary outcomes” and “distant cashflows”. Some investors would be attracted to the high risk, potentially high reward, opportunity that is reflected in such statements. Others – arguably, the majority, given current sector valuations – would likely run a mile.

It is fair to say that the history of the biotech industry has influenced such views, particularly in the UK. But a key question for investors to consider is, are the current perceptions that are reflected in biotechnology sector valuations still relevant? Or has the industry matured positively in recent years, without investors really noticing?

THE BIRTH OF BIOTECH

From ancient Egyptian fermentation practices to the genetic experiments of Gregor Mendel in the 19th century, the roots of biotechnology can be traced back through many centuries. The 20th century saw crucial breakthroughs such as the unlocking of the secrets of DNA, and in the 1980s, biotech emerged on the stock market with the arrival of businesses such as Genentech and Amgen in the United States.

The origin of the sector as a stock market

phenomenon involved a collection of very small companies coming to the public market to progress their cutting-edge drug discovery programmes. As the science was relatively new, the failure rate of these businesses was initially high and there were many high profile blow ups, mainly in the US but also in the UK. Undoubtedly, these early disappointments will have scarred many market participants, and to a large extent, modern investor perceptions are still influenced by those negative outcomes.

It is fair to say that, to this day, the failure rate remains high in early stage biotech, but as the industry has matured, success stories have become more frequent. Advances in technology, a deeper understanding of biology and improved research methodologies have all contributed to a steady decline in the failure rate over time, as has the evolution of regulatory frameworks, which provide clearer pathways for drug development.

Biotech companies have taken over from “in house” R&D at big pharma companies. IQVIA reported that less than 25% of the global drug pipeline was being developed in pharmaceutical companies in 2022, with small biotech companies responsible for over two thirds of new drugs1 Pharmaceutical companies now

plug their distribution pipelines with acquisitions of and licencing deals with biotech companies.

Many of the original pioneers, including Amgen and Genentech (now part of Roche), have gone on to become very successful scaled businesses, with highly profitable drug franchises and their own distribution networks. And the share price appreciation they have enjoyed as their development pipelines have delivered has been extraordinary.

From a UK investor’s perspective, this evolution of the biotech sector may come as something of a surprise. That’s because the vast majority of the success stories have been concentrated in the US. Indeed, the Nasdaq Biotechnology Index (NBI) as a whole turned cash positive back in 2007, which demonstrates the very significant change that has occurred in US biotech over the years.

REGIONAL DIFFERENCES

Part of the perception problem stems from the fact that, outside of the US, success stories have not been so numerous. The UK still does not have a poster child of a scaled commercial biotech business. Europe has seen some successes, such as Novo Nordisk and Genmab from Denmark, but the fragmented nature of the European market has made it hard for it to fully develop the ecosystem that is required to provide young biotech companies with everything they need to mature into scaled, commercial enterprises. By contrast, the US has developed this infrastructure and know-how. It still takes time, but with thriving innovation hubs in places like Boston and the San Franscisco Bay area, the US has built the necessary financial, technical, scientific and human resource ecosystems to be able to support young biotech businesses through to maturity positively. In biological terms, the US biotech industry has developed the muscles for success.

Indeed, on many occasions, UK and European biotechs have felt compelled to migrate to the US to improve their chances of success, either through merger & acquisition (M&A) activity or through listing. For example, Cambridge-based GW Pharmaceuticals originally listed on London’s Alternative Investment Market (AIM) in 2001, and in 2013 it dual-listed on Nasdaq in the US. This gave it access to significantly more equity capital and the increased demand resulted in a valuation uplift of c. 30%. In 2016 it announced it would cancel its UK listing and, in 2021, it was acquired by Jazz Pharmaceuticals.

PLAYING TO EACH REGION’S STRENGTHS

So, while US biotech has matured into an established market, the UK biotech sector remains early-stage and higher risk. With a strong academic pedigree and

a history of innovation, the UK is exceptionally good at early-stage biotech and has a deserved reputation for cutting edge drug discovery in the global biotech ecosystem, but has not been able to convert earlystage promise into scaled, commercial reality independently.

UK investor perceptions are, inevitably, shaped by what’s on our doorsteps and what we hear about and read about in the domestic media. This potentially means that UK investors are less aware of the compelling biotech investment opportunity that has unfolded – and continues to unfold – in the US. In turn, this perhaps makes them more risk averse than they need to be when it comes to investing in biotech.

A potential solution for investors perhaps revolves around a strategy that harnesses the best of both worlds. As managers of International Biotechnology Trust plc (IBT), we would point to the important clue in its name. While IBT is a UK listed investment trust, the vast majority of IBT’s assets are invested in the US, the clear epicentre of the biotech industry and the location of the vast majority of its historic success.

Where we are exposed to other parts of the world, it tends to be to attain exposure to particular parts of the biotech universe. For example, our venture fund investments account for less than 10% of IBT’s net asset value and are designed to provide broad exposure to earlier-stage unquoted biotech innovation. In this part of the portfolio, the geographic balance is very different, with nearly 50% of assets exposed to the UK, due to the UK’s world-class capabilities in earlystage biotech.

IBT’S NAV% BY HEADQUARTER LOCATION

DIVERSITY OF OPPORTUNITY

To further illustrate the scale and diversity of US biotechnology, below we have sliced up the IBT portfolio into different market cap segments. Investors may perceive a biotech investment proposition as being dominated by small, lab-based companies, but clearly that is not the case. Indeed, when we talk about ‘small cap’ biotech, we are talking about businesses with a market cap of anything up to $2bn.

We believe it is worth having some exposure to exciting early-stage drug discovery through the venture portfolio, but this should be balanced by exposure to opportunities at a more advanced stage of development too. This allocation is not set in stone – as active investors, it can and does change over time as the opportunity set evolves.

The IBT portfolio currently has a sizeable exposure to small cap biotech, but almost two-thirds of it is invested in companies with a market cap of more than $2bn, most of which have an approved product on the market. Nearly a fifth is invested in what we categorise as “mega caps”, with a market cap in excess of $30bn. This segment includes the likes of Amgen and Gilead, which started small but are clearly now very substantial and successful businesses – shareholders have enjoyed that journey of long-term value creation.

CONCLUSION

In the UK, investor perceptions of the biotech sector seem out-dated. It would perhaps be wrong to say the whole world has moved on, but without doubt, part of it, namely the US biotech sector, has changed beyond recognition over the last 20 years.

As professional investors, dedicated to the biotech sector, the opportunity set that we see today is more diverse than ever. We can still access smaller, earlystage drug discovery businesses, but we can also invest in very substantial, cash generative businesses. And there is a diverse spectrum of opportunity in between.

We divide the market into three categories of relative maturity – early stage (companies with drugs in development), revenue growth (companies whose drugs are approved but not yet turning a profit) and profitable, as illustrated below. Our intimate knowledge of the industry allows us to change the composition of the portfolio to suit where we are in the biotech investment cycle. If we become concerned about the outlook for the sector, we can shift emphasis towards the large, less risky, profitable biotech companies. Alternatively, when the outlook appears more benign, we can increase exposure towards higher-beta opportunities earlier in their drug development journey in the early stage and revenue growth categories.

Importantly, we are currently tilting the portfolio towards the higher-beta, smaller biotech companies, because we are excited about what lies ahead in 2024 and beyond. With long-term secular growth trends currently being supported by cyclical investment tailwinds, we are confident about the outlook for the biotech sector, particularly in the US. As it has matured, the fundamentals of the US biotech investment proposition have continued to strengthen, and we believe that IBT is well-positioned to capture its incredible long-term potential.

Click here to find out more about International Biotechnology Trust (IBT)

MARKETING MATERIAL

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.

The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue.

Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

For help in understanding any terms used, please visit address https://www.schroders.com/en/insights/investiq/investiq/education-hub/glossary/

We recommend you seek financial advice from an Independent Adviser before making an investment decision. If you don’t already have an Adviser, you can find one at www.unbiased.co.uk or www.vouchedfor.co.uk

Before investing in an Investment Trust, refer to the prospectus, the latest Key Information Document (KID) and Key Features Document (KFD) at www.schroders.co.uk/investor or on request.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.

Authorised and regulated by the Financial Conduct Authority.

Chinese manufacturing PMI data needs to be closely watched

Understand how these indices are constructed and why they are so influential

The world’s second largest economy and most dominant emerging market remains China and to get a window into the prospects for growth investors often look to PMI (purchasing managers’ index) data.

One influential reading is the Caixin/S&P Global China General Manufacturing PMI. Manufacturing accounts for a big chunk of Chinese GDP and PMI surveys are used globally as a leading indicator of economic health. Businesses have to react rapidly to changing market conditions and, given they control the purse strings, their purchasing managers hold what is likely to be the most up to date and relevant insight into the company’s view of the economy.

The Caixin/S&P index is compiled based on responses to questionnaires sent to a panel of around 650 private and state-owned manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.

Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

Any figure above 50 will imply growth whereas any number below this threshold indicates contraction. The index is a weighted average of

five different underlying indices covering New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).

Sponsored by

Emerging markets: China rebound, Indian elections and valuations

Three things the Franklin Templeton emerging markets team are thinking about right now

1.

China–Signs of a rebound: Purchasing manager indexes in China rebounded in March, with the Caixin/S&P Global index reaching its highest level in over a year. Drivers of the rebound included rising raw material purchases and inventories. Chinese industrial companies may be restocking ahead of the government’s planned 20% increase in special bond issuance this year to $680 billion. The increase in special bond issuance is linked to the official gross domestic product (GDP) growth target of ‘around 5%’ in 2024.

2.

India confirmation of election date: India will go to the polls on 19 April, with voting in the general election continuing over six weeks. The incumbent Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is expected to win comfortably. Investors are focusing on whether the party and its partners can win 358 seats—or a two-thirds majority in the lower house—which will enable them to make constitutional changes.

3.

Emerging market valuations: The priceto-earnings discount for emerging markets (EMs) relative to developed market (DM) peers was 35% in March. Historically, EMs trade at a valuation discount to DMs; however, the gap has

widened over the past 12 months on a narrowing of the GDP growth differential and higher DM earnings growth. Looking ahead, the GDP growth differential may widen in favour of EMs. In combination with higher earnings growth this year and next, we think these factors could act as a catalyst for investors to reassess their allocations to emerging markets, potentially leading to increased fund inflows and improved equity market performance.

Portfolio Managers

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

Chetan Sehgal Singapore

TEMPLETON EMERGING MARKETS INVESTMENT TRUST (TEMIT)

Andrew Ness Edinburgh

INVESTINTHE COMPANIESSHAPING OURFUTURE

A market-leading range of funds, built around the structural trends that are re-defining our world

Our funds offer investors unbeatable access to the cutting-edge megatrends shaping our future

INVESTMENT PROCESS

Designed in partnership with leading impact research and data providers, impact is at the heart of the methodology underpinning our funds. Robust impact analysis ensures that only the highestrated companies are selected for our funds.

CIRCA5000 is a thematic investment specialist.

We believe the world’s biggest challenges are also the biggestreturn opportunities. From renewable energy to vertical farming and access to housing and healthcare, these trends are rapidly transforming the global economy. Through our in-depth research we offer investors unrivaled access to these future trends in their purest form.

We have built CIRCA5000 for investors that demand full transparency, clear data to support every claim and active engagement with the companies within our funds.

1

We screen the global equity universe for companies that are aligned to each theme. Additional filters are appliedto weed out any businesses involved in controversial activities.

2

The remaining companies in each theme are then meticulously analysed to identify those companies with the most direct exposure to the given area. Any company not deemed to have a materially positive impact is removed.

Only companies with measurable direct links to the theme remain in the universe. The final fund is weighted usinga combination of market capitalisation and scoring from our research.

Our investment process produces 5 market-leading funds built around the structural trends that are redefining our world.

C5KW

Clean Water & Waste

Impact UCITS ETF

C5KG

Green Energy & Technology

Impact UCITS ETF

C5KF

Sustainable Food & Biodiversity

Impact UCITS ETF

C5KE

Social & Economic Empowerment

Impact UCITS ETF

C5KH

Health & Wellbeing

Impact UCITS ETF

CIRCA5000 has been a certified B Corp since 2019. In both 2021 and 2022 CIRCA5000 was recognised by B Lab as ‘Best For The World: Customers’, scoring in the top 5% of B Corps globally for services to our customers. In 2023, we were awarded ‘Best For Sustainable Investors’ by Boring Money and ‘New ETF Issuer Of The Year’ by ETF Stream.

circa5000.com

Disclaimer : Issued by CIRCA5000 UK Ltd. Registered in England and Wales, company no. 13214839. Registered office: 86-90 Paul Street, London, United Kingdom, EC2A 4NE. CIRCA5000 UK Ltd is an appointed representative (FCA reg no. 950019) of CIRCA5000 Ltd, who is authorised and regulated by the Financial Conduct Authority (FCA reg no. 846067). Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by CIRCA5000. The CIRCA5000 ICAV is an open ended Irish collective asset management vehicle which is constituted as an umbrella fund with variable capital and segregated liability between its sub funds and registered in Ireland with registration number C -491100 and authorised by the Central Bank of Ireland as a UCITS. The manager of the ICAV is Carne Global Fund Managers (Ireland) Limited, who is authorised and regulated by the Central Bank of Ireland, reference number C 46640. The ICAV is a recognised scheme under section 272 of the Financial Services Market Act 2000 and so the prospectus may be distributed to investors in the UK . Thematic Risk: The Fund may be subject to the risks associated with, but not limited to, investing in companies with a material exposure to the climate transition. These risks include the obsolescence of intellectual property as technology evolves and changes in regulation or government subsidies that may affect the revenue or profitability of a company Derivative Risk: The Fund may invest in Financial Derivative Instruments (FDIs) to hedge against risk , to increase return and/or for efficient portfolio management. There is no guarantee that the Fund’s use of derivatives for any purpose will be successful. Derivatives are subject to counterparty risk (including potential loss of instruments) and are highly sensitive to underlying price movements, interest rates and market volatility and therefore come with a greater risk . Sustainability Risk: The Manager, acting in respect of the Fund, through the Investment Manager as its delegate, integrates sustainability risks into the investment decisions made in respect of the Fund. Given the investment strategy of the Fund and its risk profile, the likely impact of sustainability risks on the Fund’s returns is expected to be low. Currency Risk: Some of the Fund’s investments may be denominated in currencies other than the Fund’s base currency (USD) therefore investors may be affected by adverse movements of the denominated currency and the base currency. Market Risk: The risk that the market will go down in value, with the possibility that such changes will be sharp and unpredictable. Operational Risk: The Fund and its assets may experience material losses as a result of technology/system failures, human error, policy breaches, and/or incorrect valuation of units. Capital at risk . The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. All features described in this fact sheet are those current at the time of publication and may be changed in the future. Nothing in this fact sheet should be construed as advice and it is therefore not a recommendation to buy or sell investments. If in doubt about the suitability of this product, you should seek professional advice. No investment decisions should be made without first reviewing the key investor information document of the Fund (“KIID”) which can be obtained from www.circa5000.com This marketing material is only directed at investors resident in jurisdictions where this fund is registered for sale. It is not an offer or invitation to persons outside of those jurisdictions. We reserve the right to reject any applications from outside of such jurisdictions.

Wage growth pressures remain high: Why it matters to investors

Companies will either have to stomach lower profit margins or once again pass on extra costs to the customer

The persistently high interest rate environment means companies are under pressure to cut costs and jobs are an obvious target. While they can cut their workforce through redundancies or slash the wage bill through shorter or fewer shifts, others might already be operating with a skeleton crew and cannot pare back any further.

It is against this scenario that higher wages are adding to companies’ problems and threatening to dilute their profit margins – something the market does not like, thus acting as an anchor on share prices.

The latest UK wage growth figures came in hotter than expected, up 5.6% in the three months to February. Furthermore, UK companies have this month found themselves nursing another headache in the form of changes to the National Living Wage. The minimum amount paid to workers has gone up by approximately one pound per hour to £11.44 and the minimum qualifying age has moved from 23 to 21. More money for more people.

TWO OPTIONS FOR COMPANIES

The hospitality and retail sectors are particularly exposed to the National Living Wage changes and there are two ways that companies can respond

– swallow the extra costs and suffer a hit to profit margins or pass on the extra costs to the customer.

The latter is a risky strategy in a period where everyone expects inflation to fall and the public has already had enough of big price hikes over the past few years. However, the recipient of the pay rise will have more money in their pocket, so companies need to decide if hiking prices is a risk worth taking.

There are other factors to consider. The additional two percentage point cut to national insurance announced in March and actioned from 6 April is worth £450 annually to the average worker, according to the Treasury. Another boost to their finances.

In the supermarket’s latest results, Tesco (TSCO) chief executive Ken Murphy said price inflation in groceries had ‘lessened substantially’, suggesting that the rapid rise in the cost of a weekly shop is already slowing. Energy bills are also declining –from 1 April, the typically energy bill fell to £1,690, the lowest price in two years.

GENEROUS PAY RISES

Supermarkets will be happy as many firms have pushed through bigger pay rises than required until the National Living Wage so they could do with customers filling their baskets to help cover

the extra wage bill. For example, Tesco is lifting its hourly pay by one pound to £12.02 per hour from 28 April, representing a 9.1% pay rise.

These factors combined suggest that consumers should be in a better situation to get their finances under control. That clarity could feed into greater confidence which in turn could lead to higher spending – thus companies facing higher wage bills might not be facing disaster.

However, demand for certain goods and services is still fragile and companies cannot sit back and assume consumers are going to splash the extra cash in their pocket. Therefore, aggressive price hikes to cover extra wage bills could easily backfire.

‘In 2024, businesses will hope for a quicker-thanexpected fall in inflation and interest rates, but many moving parts need to slot into place before we can be sure of an economic “soft landing”,’ says Jo Robinson, a partner at consultant EY-Parthenon.

‘We expect to see increasing disparity between businesses that are positioned to capitalise on stilllimited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.’

WHAT ABOUT OVERSEAS COMPANIES?

At face value, it seems as if many UK companies might weather the storm with the extra wage bill. How does that compare with other geographic territories? It looks as if the UK might have a small advantage but the situation is far from perfect.

Big companies with operations around the world continue to lay off staff, including many in the tech and banking sectors. An uncertain economic outlook means management teams need to take a prudent view of near-term earnings prospects. For example, Tesla (TSLA:NASDAQ) is cutting 10% of its workforce as it has become harder to sell electric vehicles despite price cuts.

International recruitment consultant PageGroup (PAGE) on 15 April reported a drop in quarterly profit for every single operating region, including the UK. Companies lack confidence in the nearterm outlook and we are seeing a slowdown in hiring activity. Even people in receipt of a job offer are taking ages to accept them, says PageGroup, a sign of nervousness to move job. No-one wants to accept a new role and then find out why the ‘last in,

PageGroup gross profit analysis

Q1 2023 vs Q2 2024

Table: Shares magazine • Source: Page Group

first out’ mantra has stood the test of time. A year ago, people predicted interest cuts would have happened by now – they have not, apart from a small group of countries. Businesses and consumers are both under pressure and that has a profound impact on spending decisions. Companies that continue to pass on extra costs to customers are simply adding to these pressures and this can fuel inflation, which in turn gives central banks even less of a reason to cut rates. That poses a risk to equity and bond markets which have been desperately waiting for the central bank pivot in monetary policy. With the economic winds continuing to blow in different directions, investors will need to stay focused and patient.

By Daniel Coatsworth AJ Bell Editor in Chief and Investment Analyst

Fidelity Special Values PLC

An AJ Bell Select List Investment Trust

The recent strong relative performance of the UK equity market has gone largely unnoticed by investors, reinforcing its unloved status. Alex Wright, portfolio manager of Fidelity Special Values PLC, believes the value-oriented areas of the UK market represent a strong investment opportunity.

Turning insight into opportunity

Despite the UK being a value market, many of those who invest in the market don’t invest with a value bias. However, Alex looks to construct portfolios focused on unloved UK companies entering a period of positive change. The market is often slow to recognise change in out-of-favour stocks which creates opportunities to add value by identifying companies whose improving growth prospects are not yet recognised by other investors.

Our broad analyst coverage means that we are able to find ideas across the market cap spectrum, giving us many shots on goal. Our network of over 400 investment professionals around the world place significant emphasis on questioning management teams to fully understand their corporate strategy. They also take time to speak to clients and suppliers of companies in order to build

Past performance

Past performance

conviction in a stock. Our approach translates into a clear bias towards small and mid-cap value stocks, compared to most of our competitors who are often less differentiated.

It’s a consistent and disciplined approach that has worked well; the trust has significantly outperformed the FTSE All Share Index over the long term both since Alex took over in September 2012 and from launch over 29 years ago.

Past performance is not a reliable indicator of future returns

Past performance is not a reliable indicator of future returns

Past performance is not a reliable indicator of future returns

Morningstar as at 31.03.2024, bid-bid, net income reinvested. ©2024 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust

Source:Morningstar as at 31.12.2023, bid-bid, net income reinvested. ©2024 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust

Source:Morningstar as at 31.12.2023, bid-bid, net income reinvested. ©2024 Morningstar Inc. All

Important information

a comparative index of the investment trust

The

The value of investments can go down as well as up and you may not get back the amount you invested. Overseas investments are subject to currency fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The Trust can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Investment professionals include both analysts and associates. Source: Fidelity International, 31 January 2024. Data is unaudited. The latest annual reports, key information documents (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Ltd, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0424/385993/SSO/0724

What Bitcoin halving means and why the price barely moved

Trading in cryptocurrency proves once again it is better to travel than arrive

Followers of Bitcoin will have been closely watching the latest ‘halving event’ in the cryptocurrency which took place on 19 April.

For the fourth time, the number of new Bitcoin entering the market has been slashed by cutting the rewards earned by Bitcoin miners by 50%.

Mining Bitcoin involves using powerful computers to solve extremely complicated mathematical problems in order to verify transactions in the currency. In return for this work the miner receives a predetermined amount of Bitcoin.

Planned to take place at rough four-year intervals, the eventual aim of halving events is to cap the supply of Bitcoin at 21 million units by 2140. The halving mechanism was written into Bitcoin’s code when it was first created.

Previous halvings (in 2012, 2016 and 2020) were followed by strong gains for Bitcoin, as the table shows.

However, this time round the situation may end up reinforcing an idiom which has a rather longer history than Bitcoin itself: when it comes to investing, it is better to travel than arrive.

Financial markets, made up of countless individual investors, are forward-looking, discounting mechanisms. They seek to anticipate an event, price in a perception of what it means and then move on. It is only when a fresh piece of news emerges which challenges the market view that the price of an asset is likely to see a significant change. Put more simply, markets specialise in buying on speculation and selling on fact.

The latest acquisition by JD Sports (JD.) received a positive reception from the market which, given it represented a UK retailer boosting its US footprint, feels fairly significant.

The US has often been a graveyard for the ambitions of UK companies keen

Chart: Shares magazine•Source: LSEG

What happened to Bitcoin after previous halving events

$1,163 (Nov 2013)

2 9 Jul 16$638.51 $19,333 (Dec 2017)

3 11 May 20 $8,475.00 $68,982.20 (Nov 2021)

Shares magazine • Source: Coin Metrics

to expand but JD’s previous success in the States gives it the credibility others lack. One of the key decisions it made when acquiring Finish Line for $558 million in 2018 was to retain the existing management team and leverage their considerable expertise. This strategy proved to be a winner, and the company followed it up with the $681 million capture of Shoe Palace. It will hope the $1.1 billion deal for Hibbett proves similarly successful.

A Specialist Solar Energy & Energy Storage Fund

NextEnergy Solar Fund is a leading specialist solar energy and energy storage investment company that is listed on the premium segment of the London Stock Exchange and is a constituent of the FTSE 250. NextEnergy Solar Fund invests primarily in utility scale solar assets, alongside complementary ancillary technologies, like energy storage.

NextEnergy Solar Fund is driven by a mission to lead the transition to clean energy.

Ask Rachel: Your retirement questions answered

Should I use a SIPP to supplement my workplace pension?

Our resident expert helps with a query from someone approaching their sixth decade

I’m going to be 50 next year, and so far, I have saved about £18,000 in a workplace pension. I have been automatically enrolled since 2016.

My question is should I stick with it and get a SIPP pension as well? Or should I just put more in the workplace one until retirement?

I hadn’t really thought about a pension until I hit 50.

Fran

Rachel Vahey, AJ Bell Head of Public Policy, says:

Generally, for those who are members of a workplace pension scheme, staying in that scheme is likely to be sensible. They will get the extra bonus of their employer’s pension contributions, as well as upfront tax relief. And the combination of these can mean it’s much easier to build up a pension pot. (As you have already discovered.)

Beyond that individuals need to think about whether pension saving is their priority for spare

cash. Most people want to get an emergency pot sorted first, then think longer-term towards things like pensions and investment ISAs.

If pension saving is the priority, then consider whether to top up contributions to the workplace pension or contribute to another pension, such as a SIPP. (Most workplace pension savers should be able to easily top up their pension account.)

There are a few things a pension saver should think about when making this decision. Such as: costs and charges, and how these compare between the two options. But also, how easy is it to manage these pensions. Having to track two pensions with two different providers requiring two logins etc. involves a bit of extra hassle. But on the other hand, the other pension provider may offer a different experience – for example more information or smoother administration. Having a different pension account could also mean having different options – for example on investment choices or how to take pension money.

A WAKE-UP CALL

When pension savers get to age 50, they get a

Ask Rachel: Your retirement questions answered

document from the pension provider that gives a summary of the pension – a wake-up pack. It is designed to prompt people to think about how they want to take their pension money. (The minimum age someone can receive pension pot funds is age 55 – rising to age 57 from 2028.) This could include how to generate an income when that time comes and the retirement lifestyle they want. This all feeds into how much someone could contribute in the run up to retirement and how much investment risk they might take.

These can be difficult decisions. There is help though. The Pensions and Lifetime Savings Association have published a set of ‘retirement living standards’ which can help people picture what kind of lifestyle they could have in retirement, and how much money they may need to get this.

The government also offer a free, impartial guidance service – Moneyhelper. The guides can be very helpful in figuring out what questions to ask about pension savings, and what people need to think about.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

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

Finding Compelling Opportunities in Japan

Driving positive change through active

Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.

Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.

EDITOR: Tom Sieber @SharesMagTom

DEPUTY EDITOR: Ian Conway @SharesMagIan WHO WE ARE

Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH.

Company Registration No: 3733852.

All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.

1. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.

2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.

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4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for 30 days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the magazine.