Sequoia Economic Infrastructure Income Fund Limited
(“SEQI” or the “Company”)
Monthly NAV and portfolio update
The NAV per share for SEQI, the specialist investor in economic infrastructure debt, increased to 94.30 pence per share from the prior month’s NAV per share of 92.46 pence, representing an increase of 1.84 pence per share.
A full attribution of the changes in the NAV per share is as follows:
The valuation of most fixed rate instruments (which represents 58.6% of the portfolio) has increased during May 2024 due to the marginal reduction in risk free rates and a sustained reduction in benchmark spreads for certain instruments, predominantly in the utility and power/energy sectors. This has also resulted in a reduction in the pull to par from 4.2 pence per share in April 2024 to 3.8 pence per share in May 2024. The Investment Adviser also expects abating inflation to provide a foundation for steadier credit markets, highlighting that the long-term outlook on inflation and base rates points towards a beneficial tailwind to the Company’s NAV, as falling rates would typically increase asset valuations.
As the Company is approximately 100% currency-hedged, it does not expect to realise any material FX gains or losses over the life of its investments. However, the Company’s NAV may include unrealised short-term FX gains or losses, driven by differences in the valuation methodologies of its FX hedges and the underlying investments – such movements will typically reverse over time.
Market Summary
During May 2024, central banks across the UK, US and Eurozone maintained policy rates at 5.25%, 5.50% and 4.00%, respectively. On 06 June 2024, the Eurozone announced the first rate cut of 0.25% to 3.75%, as CPI inflation has declined in the region to 2.4% as at April 2024. On 12 June 2024, the Federal Reserve held rates steady in the US and signalled that just one rate cut is to be expected by the end of the year. In the UK, the next policy rates announcement will be held on 20 June 2024 and the markets have priced in at least one rate cut by the end of the year.
Five-year sovereign debt yields were down marginally in the UK and US by 0.5% and 0.2% respectively, and up marginally by 0.1% to 2.7% in the Eurozone during May 2024. In the UK, the most recent data on annual CPI inflation shows that it has fallen to its lowest level in almost three years, as prices rose by 2.3% in April 2024, down from 3.2% in March 2024. Inflation is also trending in the right direction in the US, down from 3.8% in March 2024 to 3.6% in April 2024. CPI inflation is expected to return closer to the 2% target by the end of the year across all three regions, mainly due to the unwinding of energy-related base effects.
Most people would love to have an extra grand a month in passive income. I most certainly would, which is why I regularly invest in dividend stocks.
Here, I’ll set out a realistic five-step road map to aim for this goal.
1. Build a solid base
Warren Buffett’s right-hand man, the late Charlie Munger, famously said: “The first rule of compounding: Never interrupt it unnecessarily.”
However, once a large expense inevitably cropped up, I had to dip into my portfolio and sell shares –sometimes at a loss — to cover the payment. I was breaking Munger’s first rule of the wealth-building process
Therefore, it’s important to first have a rainy-day fund to cover such expenses and leave the portfolio uninterrupted.
2. Open the right account
Next, I’d make sure I’m investing in the most tax-efficient account possible.
In the UK, this would be a Stocks and Shares ISA, as dividends and interest are free from income tax, while any capital gains are exempt from capital gains tax.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Buy top-notch shares
Once I’m ready to buy shares, I’d focus on researching and investing in established companies with a solid track record of generating profits. I’d avoid risky biotech start-ups and speculative penny stocks.
One that I think would make a great starter stock today is Diageo (LSE: DGE).
Mind you, this hasn’t stopped the FTSE 100 stock from falling 23% in the past year alone!
The reason is that some consumers, especially in North and Latin America, have been trading down from the firm’s premiums brands, hurting profits. This is understandable considering how high inflation has ripped a hole in people’s budgets.
Weak consumer spending is the main risk with the stock today. We don’t know how long it will persist.
However, Diageo encountered slowing sales during the financial crisis almost 20 years ago. It bounced back from that and I reckon it will from this tricky period.
Meanwhile, the stock is cheaper than usual and offering a 3.1% dividend yield for 2024. And while no payout is guaranteed forever, Diageo makes plenty of cash and is classed as a Dividend Aristocrat.
Diageo Dividend per Share (2006-2024)
Created at TradingView Provided by The Motley Fool
Reinvest dividends
As I’m building my portfolio, I’d want to reinvest the dividends I receive rather than spend them.
This fuels the compounding process, which is where interest earns more interest.
Start enjoying dividends
If I invest £500 a month and achieve an average 8% return annually, I’d end up with £284,639 after 20 years.
This return isn’t set in stone, but it is the ballpark average over time.
A £284k portfolio of stocks yielding just 4.25% would generate £12,097 in yearly passive income. Many UK stocks often yield far higher than this though.
The post 5 simple steps to build a £1,000 a month passive income portfolio appeared first on The Motley Fool UK.
Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.
No change in our estimate of the number of investment companies trading at a 52-week high discounts over the past week – 10. But a couple of new names make it onto the latest list. The Discount Watch List reveals all.
ByFrank Buhagiar•10 Jun
We estimate that 10 investment companies saw their discounts hit 12-month highs over the course of the week ended Friday 07 June 2024 – the same number as the previous week.
No change at the headline level maybe, but two new names on this week’s Discount Watch to mention.
At the beginning of the week who would have thought Downing Strategic Micro-Cap (DSM) would make it onto the list? As at Wednesday 5 June, shares were trading at a -6.62% discount. Just one day later and that discount had widened to -31.82% and by the end of the week it had stretched out to -35.31% after the fund released its Final Results on 6 June 2024.
First glance, all seems on track with the wind down of the fund – 74% of year end NAV has either been or is being distributed to shareholders. But the Chairman’s Statement did go on to chronicle in detail the Board’s interaction with Milkwood, a 28% shareholder. Now, Milkwood voted against the managed wind-down of the company and it appears they are not admitting defeat, presumably putting a question mark around the full realisation of the company’s assets. Was this enough to spook the market and cause the dramatic widening in the discount?
TwentyFour Income (TFIF), another new entry on the list. The year-high discount was clocked on 5 June 2024, the same day the debt investor put out a press release revealing shareholder Rathbones had reduced its overall stake in the fund from 11.125% to 10.9976%. Not much change but enough to move the share price it seems.
Two new entries, two company-specific reasons for their appearance on the Discount Watch List.
The Results Round-Up – The Week’s Investment Trust Results
Which investment trust has joined the £1 billion club? And what has Odyssean IT been able to do that a large number of investment companies haven’t been able to this past year?
Frank Buhagiar•14 Jun, 2024•
TR Property (TRY) looking for stability
TRY posted a +21.1% NAV total return for the year, outpacing the benchmark’s +15.4%. As Chair, Kate Bolsover, explains, most of the year’s gains were made in the second half as H1’s NAV Total Return came in at just +3.3%. Bolsover puts the strong H2 down to the underlying companies making ‘great strides to improve their balance sheets and debt books over the last two years. This was always going to be a key building block in the sector’s recovery.’ Heightened M&A activity also helped. Looking ahead, Bolsover points out that ‘What is being looked for is stability in the monetary environment with lenders returning and margins normalising.’
JPMorgan: ‘TRY has outperformed, building on a good long-term track record, driven by security selection overall, we remain comfortable with our Overweight recommendation.’
Numis: ‘TR Property’s pan-European mandate focused on listed Property companies is unique in the ICs sector. TRY shares are currently trading at a c.9% discount, which we continue to view as undemanding.’
Fidelity China Special Situations (FCSS) and the importance of being a £1bn fund
FCSS may have posted a -16.3% NAV Total Return for the year, but at least this was better than the MSCI China Index’s -18.8% total return (sterling). According to Chairman, Mike Balfour, China’s tough year was down to global uncertainties and geopolitical concerns remaining heightened, as well as a softer-than-expected economy recovery in the wake of COVID restrictions being lifted. The fund’s latest full-year performance means FCSS’ NAV has now outperformed the index over one, five and 10 years. Over the last ten years, total shareholder returns stand at 125.7%, compared to the index’s 49.3% return.
That long-term record goes some way towards explaining why 99.9% of abrdn China shareholders supported the proposed tie-up with FCSS. The transaction resulted in a £126 million asset infusion for FCSS, taking the asset base to over £1 billion. Not just a nice round number. As Portfolio Manager, Dale Nicholls, explains ‘the increased scale and liquidity should help to bring Fidelity China Special Situations PLC to the attention of more professional fund buyers’.
Numis: ‘we believe that Fidelity China is an attractive way to access the market, should investors be comfortable with the risk profile of a leveraged fund with a focus on mid/small caps in a single Emerging Market.’
JPMorgan: ‘We think FCSS deserves a narrower rating due to its larger size and better liquidity and it has also had a favourable NAV TR performance over the past 1 year, 3 year and 5-year periods.’
Odyssean (OIT), an outlier
OIT’s concentrated UK small-cap portfolio didn’t benefit from any takeovers during the latest financial year – one of the reasons given by Chair, Linda Wilding, for why NAV per share came in at -3.7%, compared to 3% for the broader market. While the wider market benefited from M&A activity, this largely escaped industrial stocks, an area OIT has significant exposure to.
A strong long-term performance record helped keep the share price at around NAV during the year, allowing the fund to grow by issuing equity. Makes OIT something of an outlier in the broader investment company space.
Numis: ‘Performance since launch has been exceptional, with OIT producing NAV total returns of 75% (9.6% pa), compared to 32% (4.6% pa) for the DNSCI inc. AIM ex ICs index. We believe that the stockpicking record speaks for itself and that Odyssean represents an attractive and differentiated addition to a portfolio.’
Lindsell Train (LTI) standing out from the crowd
LTI posted a total NAV return of +2.1% for the year, some way off the MSCI World Index’s +22.5% (sterling). According to Chairman, Roger Lambert, the underperformance is due to a combination of factors including a drop-off in annualised NAV total returns to +6.4% per annum from +14.4% between 31 March 2001 and 31 March 2020; fund outflows from investment manager LTL in which LTI has a 24% stake; and a general widening of discounts in the investment trust sector.
Despite the disappointing year, the fund has kept true to its investment disciplines – it rarely changes its portfolio of a small number of stocks so that compounding can work its magic on earnings and value. As Lambert says ‘It is a differentiated approach that stands out against the crowd’.
Numis: ‘We believe that Lindsell Train IT is an interesting vehicle that benefits from both an experienced management team and a unique approach. The fund’s long-term performance is impressive, helped by strong returns from the management group.’
Winterflood: ‘The Board believes that, to maintain or grow dividend going forward, ‘material improvement’ in LTL performance is required, and this will need to be evidenced before the Board is willing to utilise additional revenue reserves, which ‘will be asking a lot over the next year’.’
abrdn New India (ANII) focusing on quality
ANII may not have matched the +34.4% return of what Chairman, Michael Hughes, describes is the riskier MSCI India Index, but the fund’s NAV total return still soared +27.8% in sterling terms during the year ended 31 March 2024. And since period end to 10 June 2024, the fund’s NAV total return of +14.7% trounced the index’s +6%. As Hughes points out there’s a lot to like about India: fast-growing economy; large, youthful population; growing middle class; corporations holding their own on the international stage; supportive policies; infrastructure spending boom; and relative geopolitical stability.
There’s a but, though. ‘Investing in India, however, means accepting market volatility, particularly as high growth rates in corporate earnings come with high valuations’. That’s especially true in the small and mid-cap space. As a result, ‘these do not form the core of our portfolio although they are included in it to ensure that shareholders benefit over the medium-to-longer term.’ Instead, the focus is on “high-quality, resilient companies that possess strong balance sheets and can profit from pricing power at each stage of the economic cycle.’
Winterflood: ‘The strongest sector returns came from holdings in Property, Infrastructure and government spending beneficiaries in Utilities and Industrials sectors, while Consumer, Financials and Energy stocks lagged market returns.’
Baillie Gifford UK Growth Trust (BGUK), not in the business of second-guessing markets
BGUK’s NAV total return came in at +0.6% for the year, some way off the FTSE All-Share’s +7.5%. Similar story over the five years to 30 April 2024: +3% NAV total return compared to the All Share’s +30.1%. Chair, Carolan Dobson, puts this down to the macroeconomic backdrop of sluggish economic growth, rising interest rates and a spike in inflation. An environment ‘not conducive to Baillie Gifford’s growth investment style’. The index is jam-packed with resource and financial stocks ‘whose profits tend to be cyclical with limited long-term sustainable growth and as such are not areas that meet the Managers’ long term growth requirements.’
The Investment Managers have asked themselves what they could have done differently. They could have taken positions in index heavyweights such as the resources and financials. But this would have meant ditching their long-term active investment approach for a short-term one based around ‘trying to second guess, and trade around, short term swings in style in stock markets. Attempting to do so in our view could make things far worse for shareholders.’ The Board sounds happy with that – it is recommending shareholders vote for the continuation of the fund at the upcoming AGM.
Numis: ‘After a difficult period for performance since Baillie Gifford took over the trust in June 2018, the Board has committed to allow shareholders to realise up to 100% of their assets via a performance-related conditional tender should the fund not match or exceed the FTSE All Share in the five years to 30 April 2029. This is conditional on the continuation vote in September 2024 passing.’
JEMAposted a +6.9% NAV total return for the half year, a little off the benchmark’s +9.1%. The difference is partly down to the fund’s Russian assets which do not form part of the index. The Russian holdings continue to be subject to strict sanctions. Looking ahead, the investment managers sound as if they are ready for anything, ‘whatever 2024 may hold, we remain optimistic about the longer-term prospects of emerging markets in Europe, the Middle East and Africa.’
Winterflood: ‘As at 30 April, portfolio comprised 100 stocks, of which 26 were Russian securities. The latter account for 8% of portfolio (written down to account for sanctions).’
The great stock market recovery is under way. Provided by The Motley Fool
by Zaven Boyrazian, MSc
The stock market’s been rampaging over the last eight months. With inflation steadily falling, investor sentiment’s improved drastically compared to early 2022. And, subsequently, UK shares across the board have been marching upward.
Since October 2023, the FTSE 250‘s surged more than 25%, including dividends! That puts it firmly back in bull market territory. Similarly, the flagship FTSE 100‘s also up by double-digits, with the FTSE All-Share tagging along for the ride.
Yet despite this stellar surge of growth, many UK shares are still trading well below their pre-inflation prices. So supposing the recent stock market momentum continues, it may not be long before these cheap shares start delivering fantastic results.
Capitalising on slashed prices
2022 was the first time in over a decade investors had to endure a prolonged slide in valuations. That’s because such events are actually pretty rare. There are always buying opportunities to take advantage of. But having such a wide range of options available all at the same time is exceptional.
However, not all of these ‘cheap’ stocks are actually bargains. Some may never recover to their former highs. Therefore, simply snapping up sold-off stocks could likely end up destroying wealth rather than creating it.
Instead, investors still need to exercise discipline and diligence when selecting companies for a portfolio. This is especially true when examining smaller enterprises.
A downturn in the market may only be a temporary headwind, but it could still be a permanent threat if a business doesn’t have the financial resources to see it through the storm. Similarly, a company that hasn’t been able to protect itself with a competitive moat could see its performance wither as other firms steal market share.
With that in mind, investors need to look beyond the stock market climate when determining why a stock has taken a tumble. That way, it becomes far easier to identify traps.
A bargain stock to buy today?
It’s important to highlight that 2023 saw a lot of non-repeating sources of profit for this enterprise. As a result, the P/E ratio’s currently biased downward. Therefore, using the forward P/E ratio is more appropriate and this increases the metric to 7.0. That’s still looking relatively cheap, but it’s clear this business isn’t the stellar bargain suggested.
In the short term, things are looking up for this enterprise. And it seems the majority of analysts following the stock are recommending to buy with an average 12-month price target of 170p – about 27% higher than today’s price. But in the long run, there may be some greater uncertainty.
How to create a ton of passive income within an ISA in 3 easy steps
Story by Edward Sheldon, CFA
The Motley Fool
Passive income’s often said to be the ‘holy grail’ of personal finance. With this form of income, investors get paid without having to actively work for the money.
Here, I’m going to explain how UK investors can potentially build up a ton of passive income within an ISA in just a few simple steps. Let’s get into it.
Thanks to higher interest rates, it’s possible to generate passive income within a Cash ISA. At present, some of these accounts are offering interest rates of over 5%.
However, if an investor wants to generate a really high-level income, Stocks and Shares ISAs are a better bet, in my view. That’s because these products offer access to high-yielding investments such as dividend stocks and income funds. So if I was looking to create a powerful passive income stream, I’d start by opening this type of ISA.
Look for attractive dividend stocks Once I have an account open, my next move would be to identify some attractive high-yielding dividend stocks.
Now, this part of the process can be a little tricky. This is due to the fact that high-yielding stocks don’t always turn out to be good investments.
Sometimes, a high yield’s actually a signal that the underlying company has fundamental problems. So it’s important to look beyond a company’s yield and think about its long-term prospects.
One dividend stock I like the look of today is FTSE 250 company the Renewables Infrastructure Group (LSE: TRIG). It’s an investment company that owns a portfolio of clean energy assets (wind and solar farms etc).
Looking ahead, the transition away from fossil fuels towards renewable energy is likely to be a huge theme. So the backdrop for this company should be quite favourable.
Currently, the yield here is around 7.75%. This means that a £3k investment could potentially generate annual income of about £233 (dividends are never guaranteed though).
Over the last two years, this company’s share price has taken a hit due to higher interest rates. After this fall, I reckon now’s a good time to consider building a position in it.
That said, there’s always the chance that the share price could dip further. Falling energy prices are one risk to consider with this company.
Given that every company has its own risks, the last step in my passive income plan is spreading capital out over a number of different stocks.
This move – which is known as ‘diversifying’ a portfolio – can help to reduce stock-specific risk. This, in turn, can improve the chances of generating strong overall returns.
For example, if you only own three stocks and one of them tanks, your overall returns could be ugly. However, if you own 20 stocks and one falls heavily, it’s probably not going to be so bad.
Billionaire Warren Buffett owns this stock with a 60% dividend yield.
Story by Charlie Keough
Investors seeking inspiration in the stock market, they should look no further than Warren Buffett.
He’s arguably one of the best stock pickers of all time. His company Berkshire Hathaway has long produced returns that have comfortably trumped the market.
Alongside seeking out stocks that can bag him incredible returns, Buffett loves to make passive income. And today his investment in Coca-Cola (NYSE: KO.) yields a staggering 59.7%.
A whopping payout
Readers may wonder how that’s possible. Well, let me explain.
Buffett first snapped up its shares back in 1988. Over the next few decades, he slowly built up his position. Today, he owns over 400m shares worth over $24.7bn.
This year, he’s set to receive $776m in dividends from his investment. For us mere mortals, the Coca-Cola yield stands at 3.1%. For Buffett, that means he’s in line to receive back just shy of 60% of his $1.3bn investment through dividends. Incredible.
Lessons to learn
But what does this tell us?
Well, first it shows that playing the long game is effective. For starters, the value of Buffett’s investment has risen massively in 36 years. During that time, the Coca-Cola share price has gone through numerous peaks and troughs. But those are ironed out over a longer timeframe. His average buy price is $32.90. Today, a share costs $63.90.
It also shows that targeting shares that pay a dividend is an incredible way to start generating a second income. The ‘Oracle of Omaha’ owns plenty of other stocks that also have bulky yields, such as Citi Group, Chevron, and Kraft Heinz.
It’s something I’ve tried to do with my own portfolio. That’s why around 75% of the stocks I own pay a dividend.
In Q1 this year, Coca-Cola delivered revenue growth of 3% to $11.3bn while earnings per share also grew 3% to $0.74. This shows that demand for its products has remained steady despite economic uncertainty. It’s no surprise given that over 1.9bn servings of its drinks are consumed in over 200 countries every day.
There’s also its dividend track record. Its yield is by no means the highest out there. However, it has increased its payout for 62 years on the trot. Dividends are never guaranteed, so a record like that is worth its weight in gold. It’s for such reasons that I suspect Buffett is such a big fan of the stock.
