The Monty Hall Market: Three lessons for today’s investors

09 June 2025

Orbis takes a cautionary look at market concentration, investor herd behaviour and the importance of stepping beyond the obvious in search of lasting value.

By Orbis Investments

In today’s investment landscape, the dominance of the US – especially a handful of mega-cap technology companies – is hard to ignore. These firms have powered a disproportionate share of global equity market returns in recent years and the US now accounts for around 75% of the MSCI World index. The so-called ‘Magnificent Seven’ have captured investor imagination and capital alike. But when nearly everyone is crowded around the same trade, it’s worth asking: what if we’re all looking behind the wrong door?

Enter the Monty Hall problem. This classic probability puzzle, loosely based on a 1970s game show, involves a contestant picking one of three doors. Behind one is a car, behind the others, goats. After the contestant picks, the host (who knows what’s behind each door) opens one of the remaining doors to reveal a goat. The contestant is then given the option to switch. While most stick with their initial choice, switching actually doubles the contestant’s odds of winning the car!

The puzzle is a compelling metaphor for today’s markets: just because something feels obvious – or has worked recently – that doesn’t make it the right choice in future.

Lesson 1: The obvious choice isn’t always the best one

On the surface, staying heavily invested in US equities looks sensible. It’s the world’s largest economy, home to dominant companies, and it has outperformed for over a decade.

But history reminds us that market leadership shifts. In the late 1980s, Japan made up more than 40% of the global index before its bubble burst. Similarly, the dot-com crash of 2000 exposed the perils of speculative excess in the technology, media and telecoms sectors. Both events were obvious in hindsight, but herd mentality and a fear of missing out clouded judgements at the time.

Source: FTSE, Orbis. Image Source: Grantuking via Wikimedia Commons. Benchmark data is for the FTSE World Index. Statistics are compiled from an internal research database and are subject to subsequent revision due to changes in methodology or data cleaning. Data shown through to January 2002 to show subsequent peak to trough decline.

Today’s US equity market shows signs of similar concentration and froth. President Trump’s renewed tariff threats have unsettled markets as well as global supply chains, and fresh US export restrictions on chips to China prompted warnings from Nvidia about billions in lost revenue. Meanwhile, valuations remain stretched.

For a generation of investors raised on uninterrupted American outperformance, it may be time to reassess where the real risks – and opportunities – now lie.

Source: LSEG Datastream, Orbis. Relative total return of the DataStream US Market versus DataStream World ex-US Market indices.

Lesson 2: Insight matters – but only if you act on it

Spotting market dislocations is one thing, acting on them is another. Investors may sense that sentiment is frothy but going against the crowd is always difficult. It’s particularly hard when the prevailing narrative is that “AI is the tide that will lift all boats” and investors are surrounded by highly speculative activity being wildly profitable.

At the end of 2024, cryptocurrencies and digital tokens were valued at $3.3 trillion – up 96% in a year. In a sign of the times, ‘Fartcoin’ which was launched in October ended 2024 with a market cap just shy of $1 billion. That’s more than three times the peak valuation of Pets.com, the dot-com bubble’s poster child, which managed to go public and go bankrupt in the same year back in 2000.

Source: CoinGecko, Cryptocurrency logos. *Total market capitalisation of all cryptocurrency.

Meanwhile, US hyperscalers have been ramping up capital expenditures to chase AI dreams – with no clear line of sight to monetisation. Their ratios of capex to sales are rising sharply, and it’s not clear that returns will justify the outlays.

And that’s the crux of it: markets aren’t always efficient, especially when investors are chasing hype over substance. As the Monty Hall problem teaches us, knowing the odds isn’t enough. You need to tune out the noise and have the conviction to switch, even when it feels uncomfortable.

Lesson 3: Nothing is certain – apart from death and taxes

Even with the optimal Monty Hall strategy, contestants only win two-thirds of the time. In investing, research shows that even top-tier managers only get it right about 60% of the time. That’s why broad and thoughtful diversification across sectors, geographies, and styles is so valuable.

Many investors today believe they’re diversified because they hold global index trackers. But with US stocks now making up nearly 75% of global benchmarks like the MSCI World index, many portfolios are far more concentrated than they appear. That concentration is made more problematic by valuation levels. The S&P 500 trades at around 23 times forward earnings – well above its historical average and significantly more expensive than global markets, which average closer to 14 times. This discrepancy suggests that investors might be paying too much for the comfort of familiarity.

Source: LSEG Datastream, Orbis. World ex-US is the Datastream World ex-US Market Index. US is the Datastream US Market Index. Calculated using I/B/E/S consensus 12-month forward earnings estimates.

Meaningful diversification is about holding assets that behave differently and the benefits are felt most when the prevailing market trends reverse. Investors need to ask whether their portfolios are truly positioned to weather regime changes. And if they aren’t, what’s stopping them from switching?

Reframing comfort zones

The Monty Hall problem teaches us that the obvious answer isn’t always the correct one. The same holds true in investing. Sticking with the US and big tech may have felt safe, until very recently at least, but sticking with what’s familiar can offer false comfort. In today’s environment, defined as it is by extreme market concentration and investor herding, the real edge lies in having the conviction to take a different path.

Ultimately, investors must always be sceptical about simply following the prevailing market consensus, as current prices already reflect those views.  Proper diversification today also requires going beyond simply mirroring global benchmarks.

Just as switching doors improves your chances in the Monty Hall problem, being willing to look beyond the obvious and focus on where value is being overlooked is the key to long-term success in investing.

How gilts can help you pay less tax on savings interest
Helen Saxon

Edited by Gary Caffell
Updated 9 September 2024

If you pay tax on savings interest, and you’ve already maxed out your cash ISA for this tax year, investing in specific gilts (also known as government bonds) could shelter more of your cash from the taxman. In this guide we take you through what gilts are, how this trick works, and how to buy gilts. We’ve even developed a quick gilts calculator to help you compare returns to normal savings…

This is the first incarnation of this guide. We want to thank Sam Benstead, fixed income lead at Interactive Investor for helping us fact check it. Note that this guide doesn’t constitute financial or investment advice and – as with any investment or new financial product – you should always do your own research to make sure it’s right for you.

What is a gilt?
Governments have two main ways of raising cash to pay for public services. The first is to tax the population, which is generally unpopular. The second is to borrow, which is generally more popular, though comes with its own downsides. One way the UK Government borrows is to sell debt, and one way it does this is by issuing gilts.

These gilts – also known as UK government bonds – can act a lot like fixed savings accounts, particularly if the gilt is maturing within a couple of years. At the start, you put money in (to do this you buy the gilt, usually through an investment platform – more on the different pricing structures below). But, instead of the cash sitting with a bank, you are effectively lending it to the Government.

In return the Government promises to pay you regular interest while you hold the gilt. This is known as the “coupon” or “coupon rate” and will be listed prominently on all gilts.

And, as you might expect, when the gilt reaches its maturity date, the Government pays back the lump sum it borrowed, which is £100 per gilt (though you might have paid less for it). So, you’ve your money back, likely plus a bit extra if you bought at a discount. And you also get the interest (coupon) you’ve made during the period you held the gilt.

Are gilts safe to invest in?
As gilts are issued by the UK Government, they are seen as safe. The UK Government has never yet defaulted on gilt repayments or coupon payments.

However, there is some risk. If the UK was to go bankrupt, then there’s a chance the government of the day wouldn’t have the cash to pay you back when your gilt matures. Though it’s likely that if such a thing were to happen, we’d all have bigger problems anyway.

That said, like any savings account or investment, it’s best not to put all your eggs in one basket. If you do choose to invest in gilts, for safety it should only form part of your savings strategy. If you’re not sure what to do, or whether this is right for you, seek help from an independent financial adviser.

A quick glossary before we continue…
If you’re new to gilts, then there are a few terms you’ll need to understand before reading the rest of this guide…

Coupon: this is a fixed interest rate the Government pays to the gilt’s holder. It’s usually paid twice a year on fixed dates six months apart. For example, a 10-year gilt with a face value of £100 and a coupon rate of 3% would pay out £3 each year.

Maturity (or par) value: the amount of capital you’ll receive when when the bond reaches its full term. Most gilts are redeemed at a face value of £100 when they mature.

Maturity date: when the bond matures and the Government pays the gilt holder the maturity value. On this date, you’ll receive the final coupon payment and the principal capital amount back. For example, if you hold the gilt “TREASURY 0.125% 30/01/2026” it will mature at the end of January 2026.

How can gilts help me pay less tax on savings?
The ‘What is a gilt’ section of this guide above assumes you buy the gilt at full price at issue and hold it to maturity. Which can work, but often isn’t tax efficient as you pay tax on the coupon.

Instead, there’s another way – buying low-coupon gilts at a discount via an investment platform and holding them to maturity. This is more tax efficient, as the gain isn’t subject to tax (not even capital gains tax). Here’s how it works:

Buy a low-coupon, short-term gilt at a discount. The gilts that have been popular in realising this tax-efficient gain are mainly those issued during the pandemic and coming to maturity in the next year or two.

Get the coupon while you hold the gilt. The coupon payment(s) is counted in the same way as savings interest for tax purposes. So, if it comes under your Personal Savings Allowance, it’s tax-free. If you’ve already gained enough interest from other savings that you’ve used this up, then you’ll pay income tax on the coupon at your marginal rate.

Hold it to maturity and realise the capital gain. Gilts are a special case as, unlike most normal bonds, any value gain you make on them isn’t subject to capital gains tax, and doesn’t count towards your CGT allowance (£3,000 in the 2024/25 tax year). This is true whether your capital gain is from holding gilt(s) to maturity, or selling it for more than you paid for them.

Using gilts in this way is tax-efficient, as it minimises the amount you’d need to pay in income tax on savings, but maximises the amount you can earn tax-free as a capital gain.

Here’s how this could work in practice… (prices correct at time of writing; always do your own research on current prices and use the calculator below to see the annualised return and whether savings are likely a better option).

Gilt T26 matures on 30 January 2026. It has a coupon of 0.125% and a price of £95.04. Buy it at that price and hold it to maturity and you’ll get £100 capital back in January 2026. You’ll also have made between 10p and 19p on the coupon (depending on your tax rate). This is an annualised return of around 3.6%.

While this doesn’t seem a lot, if you pay even basic-rate tax on savings interest, you’d need a savings account paying 4.75% to get the same return after tax. For higher-rate, it shoots up to 6.33% (additional 6.91%) – and those rates definitely aren’t out there.

Important: Know the difference between ‘clean’ and ‘dirty’ gilt pricing

The ‘clean’ price of a bond (the one you’ll see quoted on gilt price listings) is its price without accrued interest. Yet it may not be the price you end up paying.

This is because you may need to compensate the gilt’s current holder for any coupon amount accrued – but not paid out to them – at the point you buy. The price you pay which incorporates this amount is known as the ‘dirty’ price. This mechanism allows gilt holders to be certain they’ll get the coupon payment due for the time they hold the bond, irrespective of when they choose to sell.

If you buy a bond immediately after the latest coupon has been paid (usually this is every six months), the clean and dirty prices will be the same.

Investment platforms tend to list the clean price for easy comparison between bonds, but be aware the amount you actually pay may be slightly different.

Thursday 19 June

3i Group PLC ex-dividend date
Baillie Gifford China Growth Trust PLC ex-dividend date
Barings Emerging EMEA Opportunities PLC ex-dividend date
British Land Co PLC ex-dividend date
Diverse Income Trust PLC ex-dividend date
Fidelity China Special Situations PLC ex-dividend date
Fidelity China Special Situations PLC ex-dividend date
Maven Income & Growth VCT PLC ex-dividend date
NewRiver REIT PLC ex-dividend date
Patria Private Equity Trust PLC ex-dividend date
Schroder Real Estate Investment Trust Ltd ex-dividend date
Scottish American Investment Co PLC dividend payment date

You have a capital sum you want to save you for a special reason, your reason will be special to you

You could save in a cash isa, which may or may not be changed by the current chancellor. The interest you receive will be variable.

You could save within an isa, using a money market fund, where again the interest you receive will be variable.

Or you could buy a UK Government Gilt, where all gains are tax free if held within a tax free wrapper.

You want to save for 5 years and decide to buy

Cost to buy one unit currently £101.48, which matures on the 07/03/30 at £100.00

If you bought for example 10k of T30 the income yield will be 4.3%

£430.00 pa. If you re-invested the twice yearly payments into the gilt, considering the cost of re-investing maybe once a year.

After 5 years your 10k should compound @ say 4% p.a. into £11,700.

Interest rates will change during this time period but as long as you hold until maturity there is no risk as £11,700.00 will be returned which includes your capital investment of £10,148.00

In General:

If the price is below the cloud it’s raining on your position.

If the price is above the cloud the sun is shining on your position.

If in the cloud it could break either way.

It is not advisable to trade momentum, unless you have a stop loss policy in place.

Dividend:

·    Total dividends declared of 8.43p per Ordinary Share for the twelve months ended 31 March 2025 (31 March 2024: 8.35p).

·     Dividend cover for the twelve months ended 31 March 2025 was 1.1x (31 March 2024: 1.3x).

·    The Board is pleased to reconfirm its full-year dividend target guidance for the year ending 31 March 2026 of 8.43p per Ordinary Share (31 March 2025: 8.43p).

·     As at 13 June 2025, the Company offers an attractive dividend yield of c.12%.

·     The full-year dividend target per Ordinary Share for the year ending 31 March 2026 is forecast to be covered in a range of 1.1x – 1.3x by earnings post-debt amortisation. 

·     As at 31 March 2025, the Company had declared total Ordinary Share dividends of £395m since inception, the equivalent to 76.26p per Ordinary Share.

Anyone who owned for TR may be disappointed but for dividend hunters they are well on the way to achieving the Holy Grail of investing in having a share that generates income and sits in your account at a zero, zilch cost.

As you can see from the chart, you may have to hold for a long time to print a profit, meanwhile the income from the Gilt is below the rate of inflation.

DIY Investor Diary: why I’m ‘all in’ on this volatile gilt

A reader shares the details of his bet on a UK government bond maturing in 2061 that is hinged on the economic outlook of the UK.

10th June 2024

by Sam Benstead from interactive investor

Our DIY Investor Diary series is no stranger to punchy portfolio bets – but they are normally centred around shares or funds.  

However, one ii customer in their 60s, who wished to remain anonymous, is taking a different approach.  

• Invest with ii: How Bonds & Gilts work | Tax Rules for Bonds & Gilts | What is a Managed ISA?

The retired investor, who is based in the south of England, has put the lion’s share of his portfolio outside his pension – £135,000 – into a UK government bond, known as a gilt.  

Gilt holders receive semi-annual coupon payments from the UK government – which all but guarantees its interest payments – and the return of their £100 principal per gilt when the bond matures.  

While this may appear an extremely cautious way of investing, the devil is in the detail. Gilts come in all shapes and sizes, with the ones closest to maturing offering very different risk and return profiles to those maturing way out into the future.  

This investor has bought UNITED KINGDOM 0.5 22/10/2061 

TG61 1.52%

– a bond maturing in 2061 and issued in 50p annual coupons per £100 bond. It was issued when rates were extremely low, in May 2020, but it now has a yield to maturity, which is the annual total return figure assuming the bond is held to maturity, of 4.25%, according to Tradeweb data. The running (or income) yield, which just accounts for the coupons collected and not capital appreciation of the bond, is around 1.7%. 

The characteristics of this bond – low coupon and long maturity date – mean that it has a high duration, or sensitivity to interest rates. Its duration is 29.5 years, which compares with just 3.5 years for a gilt maturing in four years’ time, also with a low coupon.  

A 1% change in interest rate typically leads to a change in a bond’s price equal to its duration. So, rates increasing 1% leads to a 29.5% drop in the price of this bond, with the reverse also true if rates fall.  

This means that when interest rates rise, TG61 bond will fall more than other gilts, and when interest rates fall, it will rise more.  

That duration has been on display recently, with the price of the bond plummeting from £93.50 in late November 2021, to £26.50 just two years later. It now trades at close to £30.  

The investor said: “I am attracted to this gilt’s duration. Clearly if you look at gilts as an asset class, they have really underperformed recently. It was due to rates going from an all-time low, so gilt yields were minimal, to where they are today after a spurt of inflation.  

“TG61 has fallen the most due to its duration. But what goes up must come down. As rates fall there is every chance that there will be a significant capital appreciation for investors buying at today’s prices. I’ve bought at an average price of £29, with yield to maturities of about 4.5%.”  

By his calculations, if the yield on the bond drops to around 3.2%, which he thinks is likely to be a reasonable long-term interest rate for the UK government to borrow at, then that means the price of the bond will have to rise to £42, nearly a 50% capital gain on the £29 he has paid for the bond on average.  

Benstead on Bonds: the four gilts investors are backing – should you too?

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He says that he is willing to wait for the gilt to reprice, which is one of the key advantages he has as a retail investor over a professional investor. 

“There is a timing factor here, as rate cuts keep getting pushed back, but the first move from the Bank of England is likely to come soon, so it’s a good position to own now before that happens. It could work out in three months, or nine months or 12 months – I’m happy to wait and collect my coupons.” 

For this bond to rally, interest rates have to come down. He says that an inverted yield curve – where short-term yields are unusually greater than longer-term ones – suggests a recession is coming. A recession would lead to interest rate cuts and a big rerating of his TG61 gilt.  

“My cunning strategy is the inverted yield curve may imply a recession and equity market crash. 

“Data shows that one in four mortgage owners could default on at least one interest payment this year. If that is the case, I can’t imagine any government (or the Bank of England) would keep interest rates high for any longer than is absolutely necessary.  

“I also think that inflation is likely to come down further than many think. It takes 18 months for interest rate rises to flush through the system and, according to some observers, we’re only about one-third of the way through that process,” he said.  

If he’s right that the gilt rally will happen alongside an equity market sell-off, his plan would be to put his profits from the gilt trade back to work in a cheaper equity market – truly selling high and buying low.  

Will interest rates really fall?  

But what could upset his plan? One possibility is that a Labour government comes in next month and ramps up spending, which could lead to higher inflation and interest rates. 

“That is a risk,” he admits, but he counters that financial markets seem comfortable with a Labour government.  

The investor got the first ideas for this trade after Liz Truss was elected prime minister and there was the “mini-budget” that caused gilt markets to collapse.   

He realised that government bonds could be extremely volatile and represent good investment opportunities, while also paying investors to wait. He has been a dedicated reader of ii’s fixed-income content ever since.  

Everything you need to know about investing in gilts

Benstead on Bonds: why gilt auction access is a win for small investors

“I see this as a tremendous one-off opportunity to benefit from a good yield and a significant capital gain. These opportunities don’t arrive very often,” he said.  

Another advantage is that gilts are free from capital gains, meaning that any difference between the buying and selling price of the gilt is not touched by the taxman. The investor has some TG61 in his ISA, but the bulk in his General Investment Account.

The Simple (and Safe) Way to 15%+ Returns Every Year

From Dividend Stocks

Contrian Outlook

While most people are chasing big dividend payers right now, a small group of “hidden yield” stocks are quietly handing smart investors growing income streams PLUS annual returns of 15%, 17%, 21% and more.

So if you’re ready to grab fast dividend growth that could triple your retirement income and drive fast price gains in almost any economy, here are the 5 investments to buy right away …

If you’re trying to figure out which way this market is going to swing next …

If you’re worried the S&P 500 might take another leg down, just like it did in 2022 …

Or if you’re worried about a resurgence of inflation that could result in a deep recession …

Then I have good news: I recently uncovered 5 “hidden yield” investments that are poised to soar while dishing out solid income.

For example, there’s the ag play that has quietly returned 2,000% to shareholders that Wall Street has completely missed …

And another company that’s seen its dividend surge 425% in just the last five years ! And it’s STILL undervalued (for now!) …

Plus, an unloved biotech primed to treat rare diseases, 10,000 of which are known today (while only 5% of those have treatments). That points to massive growth, sending the dividend (and share price) soaring!

Together, these five dividend-paying stocks could almost serve as a standalone portfolio – one that you can look to for steady payments … growing retirement income … and solid capital gains year in and year out.

But before I get deeper into the specifics of each of these companies, I want to explain why …

These Particular Stocks Could

Grow Your Money 15% a Year FOREVER …

Doubling Your Portfolio Every 5 Years

You probably already know that dividends are responsible for a very large chunk of the stock market’s historical returns.

In fact, dividends have accounted for more than 40% of the gains produced by US shares since the 1930s.

But it actually goes much deeper than that.

My research indicates a certain group of dividend stocks can give you A LOT more than just steady quarterly payments.

I’ve discovered a relationship between dividends and price gains that holds the key to 15%+ returns per year from very conservative investments – enough to double your portfolio in 5 years, and it could provide 3 TIMES MORE INCOME THAN MOST RETIREMENT EXPERTS SAY YOU NEED.

See, everyone wants dividend stocks with good current yields.

It’s easy to scan a newspaper or financial website and pick out the stocks that are paying 3%, 4%, 8% or whatever number you might consider “good.”

It even provides some instant gratification.

But that’s NOT the right way to pick dividend stocks.

You have to pull back the veil and find out if those yields are actually supported by the company’s cash flow, earnings power, long-term prospects and other signs of dividend, and business, health.

You have to sift through the same company’s history to determine how long it’s been paying those dividends …

How consistently it’s been paying those dividends …

And especially the trajectory of those payouts …

Over time, has the dividend increased, decreased or remained flat?

If You Understand One Simple Fact, You Could

Make SERIOUS Money from Dividend Stocks …

My research has found selecting companies with long histories of dividend hikes IS one of the safest and most reliable ways to get rich investing in stocks.

But it might not be for the reason you think.

Yes, every time a company raises its dividend, you start earning even more money from your original investment.

For example, $30 in annual dividends equals a 3% return on your original $1,000 investment.

Later, if the dividends go up to $40 a year, you are effectively earning 4% on your original $1,000 investment.

And if the trend continues over time, you could easily end up earning 10% or even 20% a year just from rising dividends … because your original amount of invested money never changes!

This explains why some savvy investors are able to collect “hidden yields” – regular payments that are MANY TIMES MORE than the dividend numbers you see reported by major media outlets.

But that’s only part of the story …

The Market Quickly Covers Up These “Hidden Yields”

Handing You One Potential Windfall After Another!

For example, if a stock pays a 3% current yield and then hikes its payout by 10%, investors will typically see the new 3.3% yield and buy more shares.

In the process, they’ll drive the price up and push the yield back down towards 3% again.

I call this the “Dividend Magnet” because, over the long term, the rising payout pulls the share price higher.

Let me show you how this works in the real world with a well-known income stock like Procter & Gamble (PG).

PG typically yields around 2.5% a year, so as the firm has been growing its dividend every year, investors have been bidding the stock up to keep its yield in line with that level.

You can see this very clearly in this chart of Procter’s stock. The purple line shows the stock’s price over the last five years. The orange line shows the stock’s dividend going up each of those years.

As the chart shows, despite some ups and downs, PG shares rose more or less as fast as the company’s dividend payments.

Of course, I am NOT saying Procter & Gamble is a stock you should buy right now.

Its sales growth slowed a bit as inflation drove shoppers to discount brands over PG’s household hallmarks. A trade war could also hurt its margins, in turn slowing its payout growth (and by extension its price gains).

The important thing here is that although investors tend to fixate on stocks’ current yields – which are widely published and available – meaningful dividend growth can be a valuable source of “hidden yields.”

Let’s look at two more popular dividend stocks—AbbVie (ABBV) and JPMorgan Chase & Co. (JPM)—to see the same thing in action. Both of these stocks have had nearly constant yields over the last 10 years.

Why?

Because their price returns have also closely tracked their dividend growth.

As you can see:

AbbVie increased its dividends 221.6% (green line) and its stock rose 248.3% (blue line) …

And JPMorgan’s dividends (in orange) jumped an impressive 212.5%, while the company’s shares (in purple) jumped 304.3%!

So the very best dividend stocks rarely show high yields because the Dividend Magnet pulls their prices higher with the increasing payments!

You can see the trend in the chart above. But most people never realize any of this.

But those of us who DO stand to profit handsomely and almost automatically!

It’s a simple three-step process:

Step 1. You invest a set amount of money into one of these “hidden yield” stocks and immediately start getting regular returns on the order of 3%, 4% or maybe more.

Step 2. Over time, your dividend payments go up, so you’re eventually earning 8%, 9% or 10% a year on your original investment.

Step 3. As your income is rising, other investors are also bidding up the price of your shares to keep pace with the increasing yields.

This combination of rising dividends and capital appreciation is what gives you the potential to earn 15% or more, on average, with almost no active trading at all.

So with “hidden yield” stocks, you just get into the right investments and let a proven system take your wealth higher and higher without much fuss at all. However …

If You Want THE BEST POSSIBLE RETURNS,

Look for One More Thing to Add Extra

Upside to Your Dividend Stocks!

I imagine you’d be pretty darn happy to watch your portfolio grow roughly 15% every year … doubling in value every five years … and creating bigger and bigger potential income streams along the way.

And as I’ve just explained, picking the right “hidden yield” stocks can do that without exposing you to outsized risks or can’t-sleep-at-night worries.

But what I’ve found is that adding in one additional criteria can point you to even bigger, faster upside from dividend stocks.

Stock repurchases.

Whenever a company buys back its own stock, it is basically improving every single “per share” metric that investors watch – earnings … free cash flow … book value … etc.

After all, if a company reduces the number of its shares by 50%, its earnings per share will automatically DOUBLE without any actual increase in profits.

I probably don’t need to tell you what should happen next …

Investors will quickly bid up the stock’s price to bring it back in line with the value it was trading at before.

Indeed, my research shows that simply investing in the right stocks that are reducing their share counts can help you beat the broad market’s performance.

Best of all, analysts expect record buybacks this year, as companies invest money they squirreled away during the pandemic into their own stocks.

But even now, there are plenty of firms buying back shares, and getting a nice upside kick in return.

You can see this by looking at the shares of Walmart (WMT), which has taken an impressive 17% of its stock off the market in the last 10 years, helping drive a 200% gain in the share price!

And that’s just one example. By targeting cash-rich companies that either continue to buy back shares now or have a long record of doing so you can set yourself up for HUGE price gains.

And you’ll do even better if you …

Combine “Hidden Yield” Stocks With

Buyback Programs. The Gains Can Be Truly Explosive!

Let’s take a trade I recently closed to see the kind of returns this combo can provide.

Back in April 2020, as the world was shutting down, I recommended food maker Mondelez International (MDLZ). The stock hit my radar because it was quickly growing its dividend payments and management was aggressively buying back shares.

Specifically, Mondelez had reduced its outstanding shares by an amazing 12.3% in the preceding five years, and was nicely set to keep those repurchases coming.

Plus, the stock was still yielding around 2.6%, even after it had boosted the payout a massive 90% in the five years leading up to our buy!

All those things told me the stock could take off as the company continued growing its dividends and buying back more shares.

Sure enough, it played out just that way.

The company reduced its share count by another 4.6% over the next three years, while hiking its payout another 35%. The market quickly responded as that happened and the stock soared 38.5% in that span.

All together, we ended up with a 48% total return (with dividends included) when we sold in April 2023, from a “boring” blue chip stock!

35% Dividend Hikes + 38.5% Price Gains (and Buybacks!) = 48% TOTAL RETURN!

Of course not all of my recommendations work out exactly like this one … some better, some not quite as well… but this example shows that there’s no need to invest in things you don’t understand … or guess about how some new product rollout or business development is unfolding.

If you find companies that are consistently raising their dividends at solid rates PLUS consistently buying back their own shares, you have the recipe for annual total returns of 15% or more.

That’s WAY better than what you can expect from a broad stock market mutual fund or ETF …

And it’s far more than what you’d get from most bonds or other fixed-income investments right now …

And it’s more than triple what the very best certificates of deposit pay at the moment.

In fact, since most experts recommend withdrawing 4% of your nest egg each year during retirement, it means your portfolio could actually be growing three times faster than you’d be withdrawing money.

Put another way, simply investing in the right “hidden yield” stocks at the right time could triple the amount of money you have to enjoy in your golden years.

Best of all, it can do so without taking on unnecessary risk !

Outlook brightens for investment trusts despite sector shakeout

• 13 June 2025
• QuotedData

Boards get proactive as discounts retreat and investors return

Ahead of our 2025 Investment Trust Forum, I thought it might be worth looking at the state of the London-listed companies market. The message that I want to leave you with is that the outlook for the sector is pretty good. However, I am aware that some readers may need to be convinced of this.

A history of discounts

Let us begin with some history. A good place to start is the chart in Figure 1, which shows the median discount across all investment companies. Discounts are a good indication of sentiment towards investment companies. This is because, simplistically, they chart the balance of buying and selling interest.

Going into 2020, the mood was relatively upbeat. The investment companies that we were covering were trading on a median discount of about 5.5%. Then COVID hit, investors panicked, and discounts ballooned. If you were lucky/clever enough to go bargain hunting in March, you were swiftly rewarded. Central banks and governments stepped in to calm nerves, slashing interest rates and injecting stimulus into economies. In the autumn, we had confirmation that the vaccines worked, and the investment company IPO market re-opened.

Over 2021, the IPOs continued, but trouble was looming as the inflation rate started to climb. Going into 2022, it became clear that interest rates would need to rise. However, Russia’s invasion of Ukraine exacerbated the problem, triggering food and energy price spikes.

As investors were presented with more attractive yields on cash and bonds, the shine came off the alternative income sectors. This included areas such as infrastructure and renewables. Trusts that had traded at premiums for most of their lives found themselves on widening discounts. The problem was compounded by the cost disclosure issue that we have covered extensively.

The tide is turning

However, what is clear is that the tide began to turn again just over a year ago. Yes, interest rates did start to fall again, but I think we were also seeing the effects of the efforts that boards have made to tackle discounts through measures such as buybacks, tenders, mergers, wind-downs, and dividend hikes.

There was a spike in discounts again around ‘Liberation Day’, but Trump’s backtracking meant that was short-lived. The sector’s discount problem is not fixed, but things are headed in the right direction.

Some credit must also go to Saba for taking advantage of the deep value available within the sector. Its objectives may be self-serving and its methods crude, but it has poured money into the sector and reportedly is inspiring copycat investors to do the same. We are not there yet, (in fact, I am expecting more fireworks) but as discounts narrow eventually these activists will run out of targets.

But is the sector disappearing?

Three of the trusts that Saba targeted in its first wave of attacks (or perhaps second, if you count nudging European Opportunities to institute its tender offers as the first) are – or will shortly be – no longer with us (Keystone, Henderson Opportunities, and Middlefield Canadian). However, this is just the tip of the iceberg when it comes to trusts leaving the sector.

2020 saw 8 new trusts launched and then 16 in 2021. However, the IPO market snapped shut in 2022 and, has barely reopened since (Ashoka Whiteoak Emerging and Onward Opportunities in 2023, Aberforth Geared Value and Income in 2024, Achilles Investment Company this year).

Boards often get castigated for inaction, but, with the exception of a few stragglers, this view looks grossly out of date. Boards have professionalised over the last decade, directors take their roles seriously and are busy – the discount control measures I mentioned above can eat up a lot of directors’ time. We have already seen 16 exits so far this year, and as I wrote in an article for Citywire a couple of weeks ago, of the 281 investment companies that we cover that are left, 38 are in managed wind-down, being taken over, or otherwise set to disappear.

The industry moves in cycles

That might seem worrying, but we have been here before. The industry moves in cycles. In the early 2000s we saw split cap mania and then crisis – an explosion of trust creation and destruction. Then, in the run up to the financial crisis we saw a swathe of often highly geared property trusts launched and a dramatic expansion of the hedge fund sector. The crisis killed off many of the property trusts and a few private equity vehicles. When it turned out that the hedge funds were not the defensive investment that had been hoped for, there was an equally dramatic rush for the exit. In the post GFC era of low interest rates, the demand was for income producing vehicles. Many of these failed even before interest rates started to rise.

As Figure 3 shows, the last gasp of the IPO market brought with it a number of vehicles that have struggled since. There are some gems in there, and some that are oversold and will recover if given time. However, launching in a period of heightened investor enthusiasm meant that life in a more normal environment was always going to be hard.

Unfortunately, the sector’s history often feels like one of boom and bust. However, if you look through the noise, there are trusts that are over 100 years old and have adapted to survive and thrive such as Alliance Witan and Scottish American, trusts that are focused on multi-decade issues such as climate change and environmental pollution – The Renewables Infrastructure Group and Foresight Environmental Infrastructure being good examples, and trusts that have leant into the flexibility afforded by the investment company structure such as JPMorgan Global Growth and Income. These survivors and innovators can form the bedrock of a sector that will be with us for many years yet.

Written By James Carthew

Head of Investment Company Research