AJ Bell Comments

Analysis of investment trends via AJ Bell Youinvest (www.youinvest.co.uk) so far this ISA season shows:

“Although Chancellor Philip Hammond failed to stick to the planned 15-minute script, he stayed ‘on message’ otherwise, reaffirming the Government’s commitment to reducing the annual budget deficit and the £41 billion annual interest bill on the overall national debt,” says Russ Mould, AJ Bell Investment Director.

“Kinshasa is famous for hosting 1974’s heavyweight boxing match between George Foreman and Muhammad Ali but the Democratic Republic of Congo’s capital is now hosting a more delicate form of negotiation between President Joseph Kabila’s Government and the miners who work in the country. Randgold Resources has met with the President this week and discussions are set to continue as the DR Congo prepares to sign a new mining code into law,” says Russ Mould, AJ Bell Investment Director.

“The old saying about ‘profit is a matter of opinion but cash is a matter of fact’ is one that investors should always bear in mind, as it can help them avoid potential portfolio losers and find possible winners.

“A 14% increase in the total dividend to 71.3p a share means Intertek remains a member of the select band of 26 current FTSE 100 firms that has increased its shareholder payout every year for the last ten,” says Russ Mould, AJ Bell Investment Director.

A committee comprising MPs and industry experts has today called for radical simplification of the UK’s ISA framework. ‘Time for change: A review of the Individual Savings Accounts (ISA) regime’, published by the Association of Accounting Technicians (AAT), suggests a new ‘Everything ISA’ should be created as part of reforms designed to make ISAs easier for consumers to understand.

A report published by the Continuous Mortality Institute, part of the respected Institute and Faculty of Actuaries, suggests life expectancy improvements between 2011 and 2017 were “significantly lower” than any other recent six year period.

“The most recent GfK survey on UK consumer confidence showed a reading of -10 for February, only just above the four-year lows reached by the indicator late last year, and this may help to explain the woes of retailers such as Toys R Us and Maplins (not to mention quoted companies such as Debenhams and Mothercare, whose shares are grinding relentlessly lower,” says Russ Mould, AJ Bell Investment Director.

“The absence of a special dividend for the first time since 2011, the appearance of further exceptional costs and an increase in the programming budget are all weighing on ITV’s shares today, “ says Russ Mould, AJ Bell Investment Director.

“Questions will be asked about the structure of 2012’s long-term incentive plan, the riches it bestowed upon management and how shareholders let it through on the nod, but Persimmon has gone a long way to calming at least one unhappy party by showering investors in the stock with a cash windfall of their own,” says Russ Mould, AJ Bell Investment Director.

“Hammerson’s full-year results show that not all real estate investment trusts (REITs) are equal, as the increase in its net asset value per share compares with the drop at Capital & Counties, outpaces the growth at Intu but lags the latest advance at Segro,” says Russ Mould, AJ Bell Investment Director.

“Willie Walsh and his fellow executives at International Consolidated Airlines are likely to be perplexed, if not downright irritated, by the bumpy reception given to the firm’s fourth-quarter figures and launch of a €500 million share buyback, but to many experienced investors the cash return may be as much of a red flag as it is good news,” says Russ Mould, AJ Bell Investment Director.

“The latest quarterly reshuffle of the FTSE 100 index is due to be calculated on the basis of closing market valuations on Tuesday 27 February and at the moment Royal Mail is set to make a return at the expense of real estate investment trust Hammerson,” says Russ Mould, AJ Bell Investment Director.

With just over a month until the tax year end, AJ Bell senior analyst Tom Selby outlines his top ten tips to help consumers keep a step ahead of the taxman and turbo-charge their savings.

HMRC has today (21st February) confirmed how pension tax relief will work for Scottish taxpayers following an overhaul of the income tax system north of the border.

“HSBC has just shown its best growth in customer deposits and loans since early 2014 and shown its first increase in risk-weighted assets for four years, but the shares are down, as if investors are politely telling the new management team of chair Mark Tucker and chief executive John Flint not to get too aggressive when it comes to future expansion plans or even acquisitions,” says Russ Mould, AJ Bell Investment Director.

“America’s leading stock indices have yet to fully recover all of the ground they lost in early February but they are still in positive territory for the year, to suggest that a big freeze is not about to engulf the markets just yet,” says AJ Bell Investment Director Russ Mould.

The influential Work and Pensions Committee will tomorrow (21 February) hear oral evidence on the benefits to savers of Collective Defined Contribution (CDC) pensions.

“A return to sales growth in the fourth quarter, increased cost-saving targets and a higher dividend are not proving enough for shareholders in Reckitt Benckiser, whose shares are the worst performers in the FTSE 100 in early trading” says Russ Mould, AJ Bell Investment Director.

“America’s Senate may have reached a deal to increase the national Government’s debt ceiling from its (already surpassed) limit of $19.8 trillion but the need to increase federal borrowing suggests that the foundations of the US economic recovery may be more precarious than they seem – especially as corporate and consumer debt is rising sharply too,” says Russ Mould, AJ Bell Investment Director.

“With Western market slang in mind it may be a bit unfortunate that on 16 February China will welcome the Year of the Dog, especially as the Shanghai Composite index has been caught up in the turbulence caused by concerns over US interest rates and the gradual withdrawal of Quantitative Easing by the US Federal Reserve,” says Russ Mould, AJ Bell Investment Director.

“Since the latest stumble in UK stocks appears to have taken its lead from overseas events, namely US wage inflation and the possibility of American interest rates rising more quickly than previously thought, it might be worth investors taking a global perspective,” comments Russ Mould, investment director at AJ Bell.

“For the last two years, Shell has been dogged by concerns that its annual dividend was at risk of a cut owing to the plunge in oil and natural gas prices but today’s full-year figures for 2017 should help to put such worries to rest, thanks to an extensive self-help programme and also a rebound in crude,” says Russ Mould, AJ Bell Investment Director.

“Retailers, restaurateurs and housebuilders (and their shareholders) will all be relieved to see an increase in both in the GfK headline consumer confidence figure and the major purchase sub-index for January,” says Russ Mould, AJ Bell Investment Director.

“The rise in the yield available from Government bonds has not happened overnight but it has finally started to draw investors’ attention in a classic case of ‘boiling frog’ syndrome: the water has been getting slowly hotter (bond yields going slowly higher), with the frog (or in this case investors) barely noticing at first, but the heat is now reaching a level whereby the first signs of discomfort are perhaps becoming evident,” says Russ Mould, AJ Bell Investment Director.

“This is a big fortnight for big oil. Royal Dutch Shell is due to report its full-year results for 2017 on Thursday, quickly followed by fellow majors Chevron and ExxonMobil on Friday and BP next week and each company will be delighted to see Brent crude trading around $70 a barrel and West Texas Intermediate around $65,” says Russ Mould, AJ Bell Investment Director.

The FTSE 350 stocks with the highest percentage of US revenues.

The Government has removed an amendment to the Financial Guidance and Claims Bill which would have seen people who were taking benefits under pension freedoms or transferring benefits automatically enrolled into guidance.

“Since the UK’s vote to leave the EU in June 2016 one straightforward trade has been ‘pound down, FTSE 100 up’ as a result of the high proportion of stocks with a big percentage of their earnings overseas. But the pound’s sudden surge could force a rethink and lead investors to focus on neglected plays on the domestic economy,” says AJ Bell Investment Director Russ Mould.

“Having been carried out by online grocer Ocado yesterday short sellers are being bitten by Pets at Home today, as the specialist retailer and provider of veterinary and grooming services reveals stronger-than-expected trading for the third quarter,” says AJ Bell investment director, Russ Mould.

“The stock market is currently taking a relatively relaxed view of the fifth major US Government shutdown since 1990 for three reasons,” says AJ Bell Investment Director Russ Mould. “None of the prior shutdowns lasted for more than 21 days, none of them derailed the major share indices in any way and there is clearly a belief that the Democrats and Republicans will reach agreement quickly to prevent any lasting harm being done to the services or to the economy.”

Research under Mifid II spotlight underperformed the market last year.

“All four leading US stock market indices – Dow Jones Industrials, S&P 500, Nasdaq Composite and Russell 2000 – continue to rack up a string of record closing highs. One common explanation for this is the potential benefits of President Trump’s Tax Cuts and Jobs Act and with the US corporate reporting season about to hit top gear we will find out whether investors’ lofty expectations are realistic are not,” says Russ Mould, AJ Bell Investment Director.

“If the Dow Jones Industrials rises by a further 1.3% to 26,450 by the close on Friday the headline US index will have generated its best return ever in the first year of any post-war President, something which Donald Trump may well be keen to crow about on Twitter,” says Russ Mould, AJ Bell Investment Director.

“Yield-hungry fixed-income investors will be concerned by gathering speculation about the supposedly imminent demise of the 30-odd-year bull run in bonds but today’s UK inflation figures will at least offer little new to frighten them or the Bank of England,” says AJ Bell Investment Director Russ Mould.

The high profile failure of Carillion and the fact that all 27,000 members of the group’s various defined benefit (DB) schemes will likely go into the Pension Protection Fund (PPF) will bring the viability of DB pensions into sharp focus once again.

“While the recriminations are only just beginning, investors can immediately draw six lessons from the Carillion debacle which they will be able to apply to stocks from all geographies and sectors,” says Russ Mould, AJ Bell Investment Director.

“Brent crude oil broke through the $70 a barrel mark yesterday for the first time in over three years and it would be no surprise if private investors and professional money managers were to start revisiting the industry and its leading stocks if this price strength persists,” says Russ Mould, AJ Bell Investment Director.

“Today’s trading statement, which sees housing completions come in at the top end of management’s expectations and no repeat of 2016’s quality and customer relations problems, shows that Bovis is firmly on the way back under chief executive Greg Fitzgerald,” says Russ Mould, AJ Bell Investment Director.

“Investors are showing disappointment with M&S’ Christmas update, as Food sales fell for the fourth straight quarter and the decline at Clothing and Home reaccelerated, to leave the firm lagging the big supermarkets and leading specialist retailers in both categories,” says Russ Mould, AJ Bell Investment Director.

“A second straight drop in Sainsbury’s general merchandise sales will have knees knocking at investors in Marks and Spencer ahead of its festive update tomorrow but investors in the grocery giant will still be pleased to see an increase in overall like-for-like sales growth, good progress at Argos and a small upgrade to profit forecasts for the full year to March,” says Russ Mould, investment director at AJ Bell.

“The battle between the bulls and the bears continues at Morrisons but it is the shareholders rather than the short-sellers who are raising a glass to the grocer’s Christmas trading statement,” says Russ Mould, AJ Bell Investment Director.

A powerful year-end rally leaves the FTSE 100 trading above 7,700 for the first time ever, buoyed by a perceived acceleration in global activity, increases in commodity prices and the ongoing search for yield in a world where interest rates remain low and are rising only slowly.

“Some investors may be feeling a little groggy today after a sharp pullback in two cannabis tracker funds which are traded in America, following comments from US Attorney General Jeff Sessions that he may rescind the Obama administration’s ‘Cole Memo,’ which loosened federal rules on medical or recreational use of marijuana,” says Russ Mould, AJ Bell Investment Director.

“America created fewer jobs than economists expected in December, with the addition of 148,000 non-farm jobs undershooting the consensus forecast of 190,000,” says AJ Bell Investment Director Russ Mould. “However, this is unlikely to shake the Fed from its planned course of three more interest rate hikes in 2018, especially as job cuts in 2017 reached their lowest level since 1990* and wage inflated inched higher to 2.5%.”

Gold may have been put in the shade by a barnstorming performance from global equities (and Bitcoin) but it rose by a perfectly respectable 13% in dollar terms in 2017 and it has started the new year with rattle, going back above $1,300 an ounce.

“Eight months after launching his Debenhams Redesigned strategy, Sergio Bucher, the company’s boss, must be wondering what he has let himself in for by taking the job, as today’s huge profit warning means it looks more like a case of Debenhams Undone,” says Russ Mould, AJ Bell Investment Director.

“One technical sign of a really healthy market is good breadth, with lots of the constituents taking an index higher, while it can be a cause for concern if a small group of heavyweight stocks or just one hot sector, is responsible for a benchmark’s gains,” says Russ Mould, AJ Bell Investment Director.

“In a marked contrast to the start of 2017, when a profit warning hammered the shares, Next sits proudly at the top of the FTSE 100 leaderboard after its Christmas statement showed improved full-price sales momentum, exceeded profit expectations and offered a £300 million share buyback, as the firm demonstrated the power of its online operations,” says Russ Mould, AJ Bell Investment Director.

“A slight decline in UK manufacturing activity according to the latest monthly survey shows how even the modest gains made by the pound in late 2017 could provide a headwind to companies and their exports in particular in 2018, a factor which may well influence Bank of England thinking when it comes to setting interest rates in the coming year,” says Russ Mould, AJ Bell Investment Director.

The Scottish finance minister has confirmed changes to income tax bands as follows:

“In dollar terms silver is broadly flat this year and gold up by some 10%, returns which pale in comparison to those made by any intrepid soul who piled into Bitcoin back in January - some 1,500%,” says AJ Bell Investment Director Russ Mould.

Investors can now trade in Bitcoin futures as an alternative to buying the actual cryptocurrency, so they can now take a view on its price movement without owning it. Anyone who feels Bitcoin is capable of going higher can therefore get involved, although anyone who has their reservations is likely to stay well clear.

Proposed changes to the income tax bands in Scotland could cause pension chaos for consumers, advisers and pension providers, according to AJ Bell.

“Whether Bank of England Governor Mark Carney’s comments on Tuesday about the London Stock Exchange Group’s (LSEG) succession plans had any impact or not, this messy situation has been resolved in one way by the decision of chief executive Xavier Rolet to step down immediately and chairman Donald Brydon’s choice not to seek re-election in 2019,” says AJ Bell Investment Director Russ Mould.

“Chinatown-owner Shaftesbury continues to defy the doubters of the UK commercial property market with a 12% increase in its net asset value per share and a 9% increase in its full-year dividend,” says Russ Mould, AJ Bell Investment Director.

“The fourth annual round of banking stress tests may not totally satisfy those who argue that 2007-09 was a liquidity crisis and not a solvency crisis, but the Bank of England may be happy to take the relatively minor share price movements in the Big Five FTSE 100 banks this morning as a sign that investors share its view that the major lenders are much better placed to withstand the next economic and financial market downturn,” says Russ Mould, AJ Bell Investment Director.

The final FTSE reshuffle of 2017 will be based on this evening’s closing prices and barring any dramatic changes today Just Eat, DS Smith and Halma will be promoted to the FTSE 100 at the expense of Merlin, ConvaTec and Babcock.

“A profit warning amid falling customer numbers and price pressure means that shares in Centrica are showing a double-digit fall in early trade, amid worries over the long-term sustainability of the dividend.

Analysis from AJ Bell shows that first time buyers can use a combination of the new stamp duty relief and the Lifetime ISA (LISA) to pay for 10% of their house purchase.

“Better-than-expected full-year profits, a 50% increase in its dividend to 8.1p and a £100 million special dividend (worth around another 21p per share) mean that Upper Crust-owner SSP is providing investors with a feast of good news today and the shares are up strongly to a new all-time high as a result,” says AJ Bell Investment Director Russ Mould.

“Bank of England Governor Mark Carney and his colleagues on the Monetary Policy Committee will not welcome this week’s latest bout of weakness in sterling or renewed strength in the oil price, as both are complicating factors when it comes to inflation, which at 3% is still running some away above the official 2% target,” comments Russ Mould, investment director at AJ Bell.

“Shareholders in both Tesco and Booker seem pleased that the regulator has provisionally cleared their £3.7 billion merger, as in early trading both stocks were right at the top of the FTSE All-Share index and that benchmark has around 640 members,” says AJ Bell Investment Director Russ Mould.

“Investors have decided to throw back their shares in Fishing Republic this morning after a disappointing trading update which reinforces two key lessons for anyone with a portfolio of stocks, whether they own this tiddler or not,” says AJ Bell Investment Director Russ Mould.

Proprietary research from AJ Bell shows that 42 members of the UK’s FTSE 100 paid a tax rate in their last financial year that came in below the UK’s then official 20% corporate rate – and although 11 paid less than 10%, conspiracy theorists are likely to be disappointed, since the global nature of their operations and legitimate tax breaks such as those for loss carry forwards or investment generally explain the difference.

“Stock markets can be terribly impatient things and the indifferent response given to Marks & Spencer’s interim results is a good example of this. The shares are down even though there are signs of improving momentum in the Clothing & Home operation and the plans outlined by Steve Rowe as part of the ‘next phase’ of his turnaround plan make sense – and a lot more sense than some of the fripperies introduced at the end of the Bolland era, such as share buybacks,” says AJ Bell Investment Director Russ Mould.

“Meagre US wage growth of just 2.4% year-on-year, despite bumper jobs growth of 261,000 for the month of October, represents a teaser for the US Federal Reserve in the short-term and investors in the long-term,” says AJ Bell Investment Director Russ Mould.

“The first Bank of England interest rate hike in over 10 years will be the only interest rate increase many people have ever seen,” comments Tom Selby, senior analyst at AJ Bell.

“The Bank of England has finally followed up on one of its heavy hints and delivered the first interest rate rise since July 2007. However, several reasons it has given for its prior inactivity remain valid, notably poor wage growth and the uncertainty created by Brexit,” says AJ Bell Investment Director Russ Mould.

“A powerful combination of higher production, higher selling prices and lower costs mean that Shell’s profits improved substantially in the third quarter and with oil bubbling up to the $61-a-barrel level there is a chance that there could be further increases to come,” says AJ Bell Investment Director Russ Mould.

A downbeat outlook for Christmas trading is weighing on Next today as the High Street bellwether’s shares slump to the bottom of the FTSE 100.

Banking stock indices are trading at or near year-highs the world over yet Barclays’ shares are languishing at their year lows, despite an apparently attractive valuation, as investors yet again ponder whether the investment banking operation is really worth the trouble at the giant bank.

After a long and painful retrenchment and restructuring process Lloyds’ preparation for next February’s Strategic Review suggests the lender’s management team is gearing up for a dash for growth but this may be precisely what a lot of its shareholders do not want, as they are looking for a safe utility bank which pays them a safe and reliable dividend. This, coupled with the company’s valuation, explains why the shares are responding so indifferently to a good set of third-quarter results.

Flat profits at Costa Coffee, a slowdown in the key hotel industry metric of revenue per available room and near-term uncertainty over both cost inflation and the UK’s near-term economic outlook are taking the steam out of Whitbread’s shares this morning.

Japan is (still) where no Western investor or central banker wants to go, at least in terms of its 25-year struggle against deflation, but a third straight General Election victory clears the way for Prime Minister Shinzō Abe to pursue the policies that he thinks can finally stoke consistent growth, aided and abetted by Bank of Japan and its Governor Haruhiko Kuroda.

There can be no doubt that the new management team at bakery-to-cakes-to-ingredients group Real Good Food have inherited a mess but today’s profit warning is a big blow, especially as it comes barely a month after the company stated that its planned capacity additions were very much on track.

Pension tax relief is once again in the firing line, this time to allegedly pay for tax breaks for younger people.