It is early June and time for an update. We all send you our best wishes for you and your families and thank all those involved in the NHS, other carers and voluntary sector workers.

I would like to

  1. Update you on Satis Wealth Management
  2. Point out a couple of important areas that are getting a little less coverage than I would expect

Satis Wealth Management

I and all my colleagues are working successfully from home. Most of the technology works well most of the time. Our email addresses and telephone numbers are unchanged. We aim to respond promptly to all communications.

We are having an increased number of conversations with clients and we are thoroughly enjoying this; if there is anything you would like to discuss – and this includes a request for some reassurance, questions about withdrawals, questions about value vs growth, discussions around estate planning, helping grandchildren or anything really – then do contact us. We very much look forward to talking with you

Why does this not get more press?

Dividends – Shell’s decision to cut its dividend is huge news. If Shell can cut its dividend then so can any company. As several commentators have pointed out “You can be sure of Shell (dividends)” is no longer the case. A J Bell have noted that Shell alone were responsible for 15% of UK dividends from FTSE 100 companies last year. The recently announced cut is the first for over 70 years.

Dividends are complicated but it is true that they have been a key part of returns particularly in developed markets. The banks have been strong armed by the regulator to decrease or suspend dividends. Once Shell et al reduce or suspend dividends the bitter pill has been swallowed. Chief Execs and FDs will not rush to reinstate dividends.

The Satis portfolios have had modest yields for many years, with the exception of a few unusual cases and a few value holdings, we expect “natural” yields to decline. For the many clients relying on monthly payments from your portfolios, this is nothing to be alarmed about. In many cases payments have come from capital gains in the past or from simple encashment of bonds or gilts. This will continue to be our policy.

The most watched inflation rate in the US (the CPI) was negative in April (though still positive over 12 months). This is highly unusual but not unprecedented. A bit like dividends, it is a complicated picture. Gathering data on prices is not easy when businesses are shut. UK CPI is not yet negative but it is heading that way. Negative inflation…..negative interest rates? For the first time in history the UK government last month managed to sell gilts with a negative interest rate. They did not just “manage to sell them”, they were oversubscribed. What this means is that those that lent the government money last month, for three years, after three years and allowing for the paltry interest payments will get back less than they loaned the government in the first place. The maths is simple but it feels a bit weird. And that assumes that the government repays the capital. Unlike Argentina last week.

Negative interest rates in the bank are a possibility. If that happens you will get a higher return with your money under the mattress than with your favourite high street bank. Though the banks probably provide more security. Negative interest rates would be new for the UK but not internationally. While negative interest rates grab headlines, it is real – inflation adjusted – rates that matter. Using real interest rates, interest rates in the developed world are very rarely attractive and are often negative. Indeed when the reverse is true, if investors can earn a comfortable return in excess of inflation on bank deposits then why invest in equities? (Remember the early Thatcher years).

Asset prices. It is not long since we had the charm offensive from various intermediaries extolling the benefits of investing in aircraft that were to be leased to major airlines. Yet another opportunity too good to miss that was too good to be true. For an interesting take on the value of aircraft look at the most recently released trailer for Christopher Nolan’s latest film Tenet. The scene in question is an aircraft crashing for which the relevant CGI experts were engaged. However Nolan worked out it was cheaper to buy, pilot and purposefully crash a real Boeing 747 than to have the CGI experts create it on screen. Incredible.

The whole world of value investing is grabbing headlines. Value investing is in essence buying firms that are out of favour in the hope that they will fall back in favour. All around the world this style of investing has in the long term paid a higher return than the market. But the catch is “in the long term”. Value investing has failed to deliver a premium for about 10 years. James Anderson who manages the Scottish Mortgage Investment Trust has said that this style of investing is “an investment tragedy”. Very strong words. We are aware of the debate and our investment committee discuss the topic regularly. There are a number of detailed recent academic papers on this topic. We note that it is US tech firms that have led the recent stock market recovery.

We continue to advocate that clients have a tilt towards value stocks. We do not recommend value investing above all else – we encourage moderation and diversification – value investing helps with this. If you would like to discuss this further do speak to your usual planner.

As fast as I type this it becomes out of date. Topics for another time include Brexit (remember that?), new work patterns, a fabulous website, domestic savings rates and much more.

I planned to finish with some levity but world events prevent me from doing so. On the economic front, we are all delighted to see what seems like the start of a return to something like normality but we are at the very start of a potentially long and bruising journey. As a regular consumer of the hospitality, travel and arts industries I look forward to their return. They are suffering and there is no quick route back.

Take care