Our presenters, Ben Peters, Alex Rae, Hugh Yarrow, Tony Yarrow, James Payne & Angus Aston held a Q&A session after during the Wise Seminar. The below are the answers to your pre-submitted questions, questions asked on the night and to any submitted after the event.
Please note that some of the questions and answers refer to the presentations given at the seminar. Slides and transcripts for all of the presentations can be found here.
What is ‘disruption technology’ referred to in Hugh’s presentation slide ‘List of Gloom’?
HUGH – The term ‘disruptive technology’ usually refers to any technology that destroys the economics of a mature industry by rendering established products and services inferior, normally to the point of obsolescence. More recently, in the last 10 to 20 years, this has been primarily driven by developments in computing and internet usage. Consider the rise and impact of the internet businesses like Amazon and Google, who didn’t exist 20 years ago but are now amongst the largest businesses in the world. More generally, the ability of the internet to support new business models is creating change in most areas of the economy.
More information about disruptive technology and its impact on investments can be found here in the Evenlode Investment View – April 2016.
You’ve talked about shipping today, but one thing seems to be missing – forecasting. Given the current state of the world, what is a good investment right now?
TONY – Forecasting is difficult as you never know how markets will react or to what extent the market has already priced in an event. No one can predict what will happen – who expected the oil price to fall like it did last year? Hugh has shown you a graph of Unilever today that shows a company that has continued to do business through difficult markets for hundreds of years and they are strong enough to survive and thrive throughout all the events that come and go.
HUGH – We of course consider what will happen if certain events come to pass. Some firms spend a lot more time on that than we do. You can only plan to a degree and whilst you need to give some thought to the impact of certain events on investments we hold or could hold, you can never predict the fall out. The best strategy is to be aware of the market noise but ultimately to invest in companies that are likely to be resilient or less effected by external events.
We know that markets hate uncertainty, but to what extent do you think markets are suppressed at present in the run-up to the EU referendum and US presidential election?
TONY - I’m sure that there has been an effect from both, but it’s hard to quantify. In recent years markets have tended to be suppressed in the run up to any major known event. After the event we often see a rise in the stockmarket overall as the unknown has become known, but of course the market could view an event as negative and the opposite could happen. It is impossible to know the effect until after it happens, which is why we focus on companies and try not to get too involved in predicting how the market might react to something that may or may not happen.
Also see the answer above
How do you think the vote on EU membership will affect investments in the future, both for and against membership?
TONY - There would be a relief rally in both sterling and the stock market if we vote Remain. The markets don’t like Leave, but it’s hard to know how much of that is already priced in, with sterling falling 12% since last summer, and the FTSE-100 1000 points lower than it was then. We invest for the long-term, though, and we don’t believe that BREXIT would turn good companies into bad ones, or vice versa. We aren’t clever enough to finesse the referendum result, and we aren’t trying to do so.
How would you vote in the EU referendum?
TONY - This isn’t a vote on whether to abolish the EU. All the deficiencies of the EU will still be there after the vote, it’s just that outside the EU, we will have less influence on the outcome.
ALEX – Well, I am happy to share my view on the referendum in terms of my vote. I will vote Remain for personal reasons. I came to the UK in 1995 age 15 with my family. In fact Sweden only joined the EU in 1995 and so this enabled us to move to the UK. Having had the freedom of free movement across the EU it has enabled me to work and make a life in the UK. It has also enabled me to have a 16 year career at Wise Investment. Leaving the EU would mean it is much more difficult for people like me to move within the EU and to be able to work and live in a different country.
Why has Wise Income performed better than Wise Investment?
TONY - It’s remarkable how similar the performance of the two funds has been over the years considering that they invest in almost entirely different things, such that the divergence of the last two years is an anomaly. The reason for TB Wise Investment’s underperformance is mainly the wide discounts on the investment trusts the fund holds. If the underlying assets were all valued at market prices as they would be in unit trusts, the price of TB Wise Investment would immediately rise by around 15%, which would make up the difference. The funds have different investment remits and markets sometimes favour income assets over growth assets. Over certain time periods the funds have been very similar. We have also had a few investments that haven’t done as well in Wise Investment.
Have been invested in p2p and community energy, which seems to be giving a good return. Are you interested in these and what is your view on them?
TONY - On P2P, I would have answered the question as follows. P2P lending began in the middle of the crisis, around seven years ago. I think it is still an immature market. People have made excellent returns, with loans at rates far above what you might expect from other investments, and there have been very few defaults. However, market forces are very good at pricing risk on loans. Risky loans come with higher interest rates, and safer ones with lower interest rates. So I think one of two things will happen – when the next recession comes along, there may be a lot of defaults on P2P lending, which would justify the high rates of interest that have been paid. Otherwise, as the market matures, if defaults stay low, then the interest rates are likely to come down, which would reduce the returns for investors. In the meanwhile, the high interest rates combined with low default rates are an anomaly in the market.
BEN – We as a company and I personally have recently invested in a community energy project in Charlbury. Investments like these are interesting and can work well, especially as part of a wider portfolio. You probably wouldn’t want to hold all your savings in these areas, as different areas of the market perform well at different times. So, while P2P is providing excellent returns now, at some point in the future it is likely that performance will drop and other areas on the market will do better.
I recently received my portfolio valuation and couldn’t understand most of it. Can you explain what it all means and are there any plans to improve them?
ANGUS – We know that the valuations are not as clear as they could be – we used to send a guide out with the valuations. At the moment, the valuations are prepared by Pershing. We’ve talked a lot about technology today and new technology opens up the possibility of outsourcing the valuations or at least giving more control over them. In the meantime, there are a few changes planned to the existing format.
Following the Q&A session, we spoke to the person who asked this question in order to provide a more detailed answer. If you would like more information about the valuations, would like a copy of our valuation guide, or would like to go through your valuation with someone, please call the main office and ask for Claire Brain.
Is it sensible to convert our investments into ISAs every year up to the maximum allowed?
ANGUS – Yes. All investments within ISAs are exempt from capital gains tax, and following the change in dividend taxation (as of 6th April 2016), all income is also completely tax exempt. Unlike income from non-ISA investments any income earned does not need to be declared on your tax return. If you would like to consider ISAs in relation to your personal circumstances, please speak to your adviser.
The bull market has been going on for seven years now. Is it about to end?
TONY - I would argue that the bull market is an odd one in that the FTSE-100 is no higher than it was five years ago, and for that matter, is around 12% below where it was at the end of 1999. An odd sort of bull market.
Do you think inflation will return and if so what will happen to our investments?
TONY - I would argue that inflation will return in the next three to five years, and that it will end the long bull market in fixed interest, and favour the kind of assets which cope well with inflation, which are things like quality companies, which can increase their dividends, and commercial property, where rents increase in line with inflation – exactly the things that we recommend to our investors.
How worried are you about Donald Trump?
TONY – Yes, I am worried about Trump, but I hope he won’t get in!
Why didn’t we talk about the funds as much as normal?
TONY - We talk about the funds a lot and we felt in the past that we have over focused on them in the seminar. There’s lots about them on the website, factsheets, reports etc. and we felt it was good to talk more about the company, as there have been so many changes that affect all the people there, and the general investment markets which people always ask us about. We talked a bit about the company last year and many people told us how much they enjoyed that element so we decided to give you some more information. We will consider the balance between funds and company update in future seminars.