Money why women should be in charge
by Doug Brodie
In this blog:
/1. We have a huge amount of respect for Christine Lagarde
/2. If you like a lot of chocolate on your biscuit…
/3. Investing in reverse
/4. Remember Harry Patch
/5. What a discretionary portfolio looks like – and what they charge you. Or, this is what Consumer Duty is all about.
/6. Valuations and hot air
/7. “I need a pension of £60k per year, I’ve got £90k in my pension”
/8. Pay rises in 2023 – what’s in your wallet?
/1. We have a huge amount of respect for Christine Lagarde
Ostensibly a background of French politics and the law might not appear to be the lead qualifications for President of the European Central Bank, however, her previous role was eight years as the managing director of the International Monetary Fund. Ms Lagarde is the epitome of UCal’s superior assimilator.
Ursula von der Leyen is the German President of the European Commission – raised in Brussels where her father was one of the first European civil servants. Academically she was brought up bilingual, graduated up the road from our office at the London School of Economics, followed by qualifying as a doctor at Hanover Medical School [Ed: “Why have I wasted my life??”] Moving into politics in the late 1990’s she started in state legislature before graduating to the federal cabinet in family, youth, labour and social affairs before finally minister of defence for six years – the first woman to hold that position in Germany.
You won’t know Karen Lynch or Jane Fraser – they run CVS Health (300,000 employees) and Citigroup (200 million customer accounts, 160 countries). Mary Barra is CEO of General Motors, Jane Sweet is CEO of Accenture. Ana Botin is chair of Santander, previously at JP Morgan and a director of Coca Cola. In the UK Alex Mahon was the only woman in Vogue’s 2022 list of Most Influential Women in a commercial business environment, CEO of Channel 4 since 2017, whose academic background is anchored by a PhD in medical physics from Imperial College.
There is plenty of evidence of society being led by women displaying the very real characteristics identified by UCal’s research, and the obvious question from the side of money and investment is whether or not the financial crisis of 2008 would have happened if women had been in charge. As Investopedia curtly writes (I paraphrase) “Excessive leverage and direct involvement by two of the firm’s hedge funds…. Mr Fuld’s compensation in 2007 was $34.38 million”. In terms of competent macro management, women clearly demonstrate an ability to ensure many plates are kept safely spinning, that their mastery covers both scientific and artistic skills simultaneously.
We find working with female clients is noticeably different for us – explanation of the underlying investment engine is a required given, however the focus is much more on the financial outcomes and the fluidity of the planning. Male clients (in general) want to know the details of our view on Chinese equities, Australian commodities and whether we think the government will change laws & rules (they will, they always do). Most men we work with don’t have relevant reference points for the details of the conversations we have, they seek comfort in our research and awareness of macro matters. Women just want to get on with it and, in practice, they end up with much less financial anxiety.
Click here for the great Keb’ Mo’s honest summary:
He set the borders, built the walls
He won't stop 'til he owns it all
And here we are
Standing on the brink of disaster
Enough is enough is enough is enough
I know the answer
Put a woman in charge
/2. If you like a lot of chocolate on your biscuit…
As we are trundling towards Easter, we give thanks to Switzerland’s chocolate industry. It happens to export just shy of $1 billion of chocolate, the largest producer being Barry Callebaut, followed by Lindt.
Six days ago the Swiss National Bank became the first major developed central bank to cut interest rates since the pandemic. They jumped ahead of the ECB and the Fed. Why?
The SNB said Swiss economic growth is “likely to remain modest in the coming quarters,” with the GDP poised to expand by roughly 1% this year.
“Our forecast for Switzerland, as for the global economy, is subject to significant uncertainty. The main risk is weaker economic activity abroad.
Quite how economists can come to the conclusion that Switzerland’s $800 billion economy is going to grow by a wafer thin 1% we don’t know, however, the rate cut was undoubtedly sitting in someone’s in-tray impatiently waiting for an excuse to happen. Thank you Switzerland, the others will now surely follow in quick succession.
/3. Investing in reverse.
The media are not very good at showing readers both sides of the investment coin, however for you to buy any listed asset someone has to have made the decision to sell that same asset. Our friends at Visual Capital sent round this summary earlier this week. If you’re not a particularly engaged or interested investor then don’t worry – in summary, there are some big, loud-mouthed investment firms and products here that have severely trollied their investors’ money. From the bond juggernaut that is PIMCO, to Cathie Woods’ Ark, to China and emerging markets, ETFs and passive trackers.
These twelve funds alone account for investor losses of $56,400,000,000. [Ed: no, we don’t hold any of these].
/4. Remember Harry Patch
Will your retirement be as long as his? Harry died in 2009 at the age of 111, the last remaining Tommy who had fought in the trenches (he was a Lewis gun armourer if you were wondering).
In an interview with the BBC on his 111th birthday he was asked if he was happy to have lived so long and he said “no”. He explained that all his family and friends had died at younger ages and that now his life was populated by strangers. That was a remarkably succinct summary of what human happiness is – you may have financial independence, however, if your partner/wife/husband is still working, and your friends are still at grindstone then you’re unlikely to be happy without a full-time hobby/activity.
The pensions we are working with now are quite different from Harry’s day. Larry Fink has recently written about the looming issue of a material mismatch between pension income needs and the pension savings of those in money purchase schemes. The problem is huge.
Consider this: 109 billion people have lived and died over the last 192,000 years, add 8 billion now for a total of 117 billion, and half of that number of the people who have ever lived, have lived in the last 2000 years.
The New York Times recently carried an article about Valter Longo, pictured below in his lab in Milan, in January. “For studying aging, Italy is just incredible,” said Dr. Longo, a youthful 56. “It’s nirvana.” He is a research scientist aiming to live till he is 120 or 130 years old.
He clearly hasn’t read the story of Harry’s life. That’s not to say longevity is bad and to be discouraged – far from it – however it needs to be society-wide so that he/I/you are not the only 120 year old surrounded by strangers – how many of our friends’ and family’s funerals would we want to attend?
Importantly, how is the lifespan going to be paid for? One thing is for certain, with the ratio between working and retired population skewing to the latter it can’t be by taxation on the working. That leaves saving – in its broadest form, and along with that, the income engine can’t run out – we need the investment version of perpetual motion. For your grandkids’ grandkids, I don’t know what that will be, however, I do know that as the media spreads the words of people like Larry Fink – those whose voices will be heard – then perpetual fonts of bubbling income like investment trusts will be snapped up.
Get them while you can, over future generations, this will not last.
/5. What a discretionary portfolio looks like – and what they charge you.
Or, this is what Consumer Duty is all about.
We recently ran a full financial planning exercise for a wonderful client in the highlands of Scotland. She needs a fairly fixed income to meet some proper costs of a large house in grounds and the recent grandchildren.
We match income to expenses – our strategy is very much liability matching, so you choose the lifestyle, we create the income. The other way round is a lifestyle dictated by income. Following a divorce many moons ago she had a large part of her portfolio managed by one of the large, listed wealth managers on a discretionary basis. She had a competent yield from her ISA, 5.72%, and this is how they did it:
Apart from the three mainstream trusts, none of the others has any reserves. There are eleven holdings to achieve less income than the single trust Shires Income, that has been listed on the market since 1929, has £43 million in capital and income reserves underpinning a divi payment of £5m.
The large wealth manager charges as we do for financial planning and advice (plus VAT), however they charge again for the investment, which is why they shy away from seeking packaged, simple solutions. The end result in our summary showed the combined charges being 2.8% per year, so on her investments we will be saving her 0.95% per year in costs whilst delivering precisely the same income, arguably with greater security.
This we refer to as the Russian space pencil – the apocryphal story of NASA spending $3 million inventing a pen that will write in space whilst the Russians just took a pencil.
We like pencils, we like simple and reliable.
/6. Valuations and hot air
Trump Media & Technology Group listed this week – on the first day, its shares rose 59% in a spike then settled back to value the firm at just under £8 billion. This values the platform (a Twitter copy) at $1,096 per user, versus Twitter’s value at $80 per user (and it has 238 million daily users). The company lost $10.6 million in the first nine months of last year, with revenues of $3.4 million.
Ostensibly that gives Trump’s 60% share a value of around $4.8 billion. That is not money in the bank, that is hot air, an illusion, Scotch mist. Trump cannot sell any shares for six months, and if he were to try to sell the whole shebang the price would just collapse. Don’t get fooled by headline valuations of listed companies – this is precisely why we follow cashflow investing in precisely the same furrow as Warren Buffett.
Perhaps the best example of illusory market cap is Saudi Aramco, the Saudi national oil company. The headlines say the value is $2 trillion, but 90% is owned by the Saudi government and another 8% is owned by the Saudi sovereign wealth fund.
/7. “I need a pension of £60k per year, I’ve got £90k in my pension”
This was a very interesting phone call some years back from a relative of a long-standing client, the managing director of a firm in the creative industries.
He retired last year and has his £60k per year. He’s not yet drawing un sou from his pension, he doesn’t need to. Over the years he’s been a client the work that we’ve done with him has been quite straightforward – maximising the pension input, sorting out the income investments and getting the financial planning right. The key is planning; essentially he came to us (note ‘he’, not ‘she’) with a box full of financial jigsaw pieces and over time we have organised his financial life such that he resigned from his work last year. Without the burden of PAYE, he is now back as his own boss, consulting in his chosen field, and working because he wants to not because he needs to. Often the solution sits within a client’s accumulated life assets, it just needs to be found and organised. Getting the right pieces in the right places not only brings visual clarity but also removes a lot of financial friction.
Don’t ignore the value of effective planning.
/8. Pay rises in 2023 – what’s in your wallet?
This is a snip of an analysis workbook that we return to identify trends in investment trusts – it’s manual because it’s unique (we’re building an automated version).
This is the redacted table of 36 trusts showing the discrete annual payment increases over 1, 3, 5 and 10 years plus the annualised income growth rate since 1987 and two collated 5-year rolling periods. The average growth rate last year was 4.54% excluding the exceptionals – the core portfolios however paid increases averaging 6.01%.
If you’re a client, drop us a line if you want an unredacted version. For everyone else, here’s an Easter present of data for trusts we don’t use which have had exceptional items last year.
PS, F&C increased its dividend by 9% this year (2023 accounts) – given it has paid its dividend every year without fail since 1868 we wonder if this is perhaps the solution that Larry Fink is looking for?