The Trump Trade excites equity investors
Last week was a truly pivotal week for stock markets, with US equities storming ahead. In this weeks Big Picture column we dig a little deeper into the trends revealed over the last week since Trump was (re) elected. Yet again UK equities underperformed but there were some fascinating moves in investment trust land.

By
David Stevenson
14 Nov, 2024

This week, I’m going to break with the regular schedule of charting progress (or otherwise) in our Doceo Model investment trust portfolios and switch instead to the big topic on everyone’s minds: the Trump win. We’ve seen a version of what’s been called the Trump Trade playing out for a few weeks now, even before the resounding electoral win.

In simple terms, this trade is bullish for most US equities (more tax cuts), bearish for US Treasury stock (more debt issuance, higher yields), and super bullish for bitcoin (Trump has heartily embraced the crypto tech bros). As for the rest of the investment world, the Trump trade is mainly silent. It’s bad news for most emerging markets and their currencies, good news on balance for many commodities, and neutral overall for gold (assuming Trump stops all the wars, which is a big ask).

Well, as you’d expect, most of those trades played out last week as the US election results came in – worries about post-election legal fights faded away, and Trump and the Republicans stormed ahead to win not only the presidency but also the Senate and, probably, the House of Representatives. The reaction from equity investors was almost instant:

The NASDAQ 100 index rose 5.78% last week, while the DJIA was up 4,95% (the S&P 500 was up 4.29%)

US stocks added $1.62 trillion in value on Wednesday (last week), marking the largest-ever post-election gain and the 5th largest single-day gain in history.

The S&P 500 is now up 25% in 2024, the best start to a year since 1997 and 12th best in history.

According to Rahul Bhushan “US households’ stock allocation has reached 49%. Americans have never held more stocks in modern history.” According to Carson Research, the S&P 500 has gained an average of +15.2% in the year, following 9 of the last 10 elections, adding optimism for further upside in 2025.

In terms of individual US stocks Tesla pushed past the $1 trillion market value, up 12.3% over the week, but the real winners were security plays such as Palantir up 41% over the week) and Axon Enterprise (up 39%). Other notable winners included EPAM Systems, Trimble (defence again), and even poor old Intel (up 16%).

Even Chinese stocks did all right – the CSI 300 was up 4% as local investors anticipated local policy initiatives to combat Trump tariffs

Japanese stocks in the Nikkei 225 rose 3.8%

Overall the FTSE All World index was up 3.36% over the last week

There were marginal gains in Europe for French equities (the CAC 40 was up 0.7%), German equities (the FAX was up 1.61%) and the Swiss Market was up 0.27%.

The US dollar gained which might constrain equity enthusiasts over time

Brazil is one of the few EM nations that could benefit from potential trade wars through China’s retaliation.

Bitcoin set 2 milestones, crossing $75,000 during the week, and reaching $80,000 over the weekend, bringing its YTD gain to ~90%

Over in commodities land, very few gained over the week, except soybean futures (up 3%), coffee (up 3%), cotton (up 1.5%), coal and steel.

How about the losers?

Since mid-September, the yield on the 10-year Treasury bond has climbed by 70 bps to 4.305%

most EM currencies lost with the Mexican peso and Asian manufacturers’ currencies affected most.

In the commodities space, gold has slipped by 1.84% over the week but silver was the biggest loser (down just under 5%) only bested by platinum down 7.4%.

What about the UK? UK equities fell behind, again. The FTSE ALL Share index was down marginally over the week, as was the FTSE 100 (both under 1%). By contrast, the FTSE 250 did rally 1.19%. Looking at individual UK large-cap stocks, the biggest gainers have been Wise (up 17% over the week), BAe Systems (up 11.9%), and IAG, up 10%. In terms of individual users, that list is topped by ITV (down 14.5% over the week in non-US election news), Ocado (down 3.3%) and Burberry (down 2.69%).

Let’s stop and ponder prospects for the UK market more generally for one moment. I would maintain that the UK economy post-budget is in calmer waters, despite all the howls of protest from big business (over the NI and minimum wage changes) and farmers.

National economic growth should pick up as extra spending kicks in, and British businesses should benefit from the faster economic growth in the US, which proponents of the Trump trade promise. As US equities grind ever higher, more and more value types might be tempted to look at decently valued alternative markets with decent growth prospects, such as the UK market – we might even benefit from the growing concerns about the Eurozone economy. Another positive might be an uptick in M&A activity as liquidity conditions improve and more deal making emerges.

However, there is an evident risk: those Trump tariffs specifically and the Trump administration’s views of the Labour government. The UK is an open economy and not in a big trade block like the EU, which makes us especially vulnerable to general tariffs imposed by Trump. And if a China-US tariff war does break out, the Eurozone will probably be forced to defend its markets with its own tariffs, which could again hit the UK hard. At the political level, I’d also be worried by the evident hostility from many senior Republicans towards parts of the Labour government. Being one of the most left-wing administrations in the G7 is probably not an attribute worth shouting about in a new Trump-led world order. Thus, the political risks are growing even as macroeconomic prospects brighten.

nombres alemanes
nombresdepersona.com/alemania
Williama60457@gmail.com
64.187.236.142

Nice post. I learn something more challenging on different blogs everyday. It will always be stimulating to read content from other writers and practice a little something from their store. I’d prefer to use some with the content on my blog whether you don’t mind. Naturally I’ll give you a link on your web blog. Thanks for sharing.

£££££££££££££££

Tks for the comment, you can copy any published information.

If it’s from another source, please use any attribution. Have a nice day.

Goldman forecasts just a 3% S&P 500 annual return the next 10 years, down from 13% the last decade.

££££££££££££££

Whilst Goldman’s know more about investing than most, there is no way of knowing if their prediction will be correct. One scenario is a big fall in the S&P then a gentle recovery but of course the only way to find out is to keep watching and waiting. Maybe, just maybe it might be wise, as a hedge, to have some of your portfolio in high yielding assets.

(OR TEN POUNDS)

£10 a day invested in UK shares could one day create a second income of over £3,000 a month!

Mark David Hartley outlines a strategy he’d use to aim for a second income that gets bigger over time, by investing just £10 a day.

Posted by

Mark David Hartley

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.Read More

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

A decade ago, earning a second income by investing in the stock market was considered a side hustle for the wealthy.

Nowadays, all that’s needed is a smartphone and as little as £10 (or less) a day. Sure, Wall Street still talks a big game, throwing the word ‘billion’ around like it’s small change. But in truth, lucrative investment opportunities are no longer the reserve of the fat cats.

So how can the little guy (or girl) earn a tidy bit of extra cash in this day and age?

Choose quality shares

Since this is a long-term strategy, I’d choose shares of well-established companies with a history of reliable performance. In other words, the opposite of volatile artificial intelligence (AI) tech stocks or speculative assets like crypto. I’m talking Tesco, Unilever or GSK, businesses that people use every day and are likely to continue doing so.

Take Aviva (LSE: AV.), for example. As the largest general insurer in the UK, it’s well-established with a £12bn market-cap and £18.5bn in revenue last year.

Its dividend yield is currently 7.5%and typically averages around 5%. Over the past four years, the share price has grown 48.8%, with annualised returns of 10.4% a year. 

However, it can be volatile. In 2022, the stock fell 40% only to climb 47% the following year. In addition to that, it faces another risk. The UK insurance industry is highly competitive, with Prudential, Phoenix Group and Legal & General all jostling for market share. If an aggressive rival pushes down premiums to attract customers, Aviva may need to sacrifice profits or risk losing out.

Overall, it enjoys steady growth and has a good track record of paying dividends. So I would say it is a decent option to consider for an income portfolio.

Cost-cutting

Scraping together an extra tenner a day should be easy enough. When I used to live in London we joked that as soon as you left your front door, £50 was gone (often more!).

Staying in just one night a week can make the difference between building a second income or living paycheck to paycheck.

 Another way to cut costs is to reduce tax obligations. UK residents can do this by investing via a Stocks and Shares ISA. This allows up to £20,000 a year invested with a tax break on the capital gains.

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.

Compounding returns

Ten pounds a day is £3,650 a year — not exactly life-changing savings. But through dividend investing and the miracle of compounding returns, it could be.

Consider a well-constructed portfolio that returns 6% a year, slightly above the FTSE 100 average. With a focus on high-yield dividend stocks, the same portfolio could aim to receive an additional 5% return in dividends.

By putting £10 a day into that portfolio and reinvesting the dividends for 20 years, the pot could grow to £266,830. If the average yield held, it would pay £12,000 a year. At that point, I could start withdrawing my dividends for a second income of £1,000 a month. 

But if I kept going for another 10 years, the pot could reach a massive £825,430. The dividends then? £37,680 a year, or over £3,000 a month !

I’d buy 4,186 Legal & General shares to aim for £14,616 a year in passive income

Financial services and asset management firm Legal & General (LSE: LGEN) shares paid a dividend last year of 20.34p.

This yields 9.5% on the current £2.15 share price. By comparison, the average yield of the FTSE 100 is just 3.6% and of the FTSE 250 only 3.3%.

A better return than could be had from a UK savings account certainly. But even more could be made by using a standard investment process called ‘dividend compounding’.

What’s the point of dividend compounding ?

This method aims to produce exponentially higher returns over time than can be achieved otherwise. It is achieved by using the dividends paid by a stock to buy more of it. And the effects are astonishing.

For example, the same £9,000 at the same average 9.5% yield would make me £14,185 after 10 years, not £8,550. And over 30 years on the same basis, I would make £144,854 rather than £25,650.

Adding in the initial £9,000 investment would give a total value of the holding of £153,854. On the same 9.5% yield, this would pay me £14,616 a year in passive income. This is money made from minimal effort, as with share dividends.

Is a high yield sustainable?

A company’s dividends and share price are powered by earnings growth over time and may go up as well as down. A risk for Legal & General is any resurgence in the cost of living, which may prompt customers to close accounts.

However, analysts forecast that Legal & General’s earnings will grow a stellar 28% each year to end-2026.

Given this, the projections are that it will be able to at least match its promised rises in dividend payments over the period.

Back in June, the firm announced it would increase its dividend this year by 5%. That would bring the total payment to 21.36p, yielding 9.9% on the present share price.

For 2025 and 2026, it pledged a 2% annual increase, lifting respective dividends to 21.78p and 22.22p. On the current share price, these would generate yields of 10.1% and 10.3%.

Are the shares also undervalued?

Provided that the shares maintain a high yield (which isn’t guaranteed) – regardless of share price – I would never sell them. However, if I did have to for some reason then I would rather not lose money on the price.

A discounted cash flow analysis using other analysts’ figures and my own shows the shares are currently 61% undervalued. So a fair value for them is £5.51, although they may go lower or higher given market unpredictability.

Given their strong earnings growth prospects, exceptional yield, and undervaluation, I will buy more Legal & General shares very soon.

The post I’d buy 4,186 Legal & General shares to aim for £14,616 a year in passive income appeared first on The Motley Fool UK.

££££££££££££££££££

It’s doubtful that u would be able to re-invest the dividends in LGEN at 9.5% over such a long period but it’s likely there will be other fish in the sea.

I’ve decided to add AGR to the portfolio for their ‘secure’ dividend.

I’ve decided against buying back SOHO, even though the price has fell since the recent sale as I don’t want to risk the earned profits.

SOHO trades at larger discount and a slightly higher yield but a similar Trust is Home REIT which is a disaster area, although with different management.

The AGR dividend looks ‘secure’ although no dividend is 100% secure, so I’ve decided to stick to the knitting.

I’ve bought 6k of Assura AGR.

US market excitement may be misplaced

Posted on 13th November 2024 | By Phil Oakley

Phil looks at the state of the US stock market following the presidential election and the reasons why it might continue to boom and why it might not.

Even if you don’t invest in US shares, what happens on Wall Street has a big say in how UK shares will perform. A high-flying US stock market can be a tide that lifts all boats. A sinking one usually means a strong headwind where most shares struggle to make gains.

Last week’s US presidential election win for Donald Trump has been greeted with euphoria on Wall Street, pushing the S&P 500 to fresh record highs. The bullish sentiment has been driven by the expectations of big tax cuts for companies and a bonfire of regulations which should give a big boost to company profits.

For some, this could usher in a bull market similar to the roaring 1920s when technological innovation and euphoria pushed stock prices to very lofty levels.

Most people know what happened to share prices at the end of the 1920s. The Wall Street Crash of 1929 led to a very long bear market and weak returns for shareholders for many years.

The current long winning streak of the US market often raises questions on how long it will last and if it will crash, but it seems there are some warning signs out there that investors should probably not ignore.

Will Trump crash the US economy?

While some salivate over tax cuts and fewer regulations, others fret about what big government job cuts and a crackdown on migration might do to the US economy. Fewer jobs and pay packets sucks demand out of an economy as those affected have less money to spend.

The US economy has been very reliant on migrant labour. If a lot of workers suddenly find that they are told to leave the country under the new president’s plans then a labour shortage could cause chaos and push up prices.

The higher inflation that would result could push up interest rates. This is rarely good news for shares as higher interest rates reduce the value of future company profits expressed in today’s money which usually means lower share prices.

The same can be said for higher tariffs that are placed on imported goods. These are paid by consumers and push up inflation which reduces consumer buying power.

Interest rates could also rise if Trump does not bring down the size of the US government deficit. The current government has been spending considerably more than it takes in taxes and has been plugging the deficit by borrowing money from investors.

Will the bond market bite investors?

But what happens if the expected tax cuts don’t increase tax revenues and the deficit balloons?

The yield on the 10-year US treasury – the interest rate the US government has to pay to borrow money for 10 years – has risen significantly in recent years and could keep on doing so if investors believe that debt levels are getting out of hand.

Bond yields have actually been quite subdued after the election. However, it is worth recognising that they are a key determinant of the valuation of all financial assets, especially shares.

Low bond yields justified high price-to-earnings (PE) ratios on shares during the last decade but there will be a level when higher yields bring them down.

The current yield of 4.3% isn’t that level, but over 5% might start to bring them down. It won’t take much bad news on deficits or inflation to get there.

US shares trade at lofty PE ratios

US shares have been expensive for a while, but this hasn’t stopped the market from going up.

Booming profits for technology companies have been a big help and have driven their valuations up and with it the value of the market. At the moment, the S&P 500 trades on a one-year forecast PE multiple of around 23 times which is punchy.

Put another way, the earnings yield (the inverse of the PE ratio) is 4.3% which is the same as the yield to maturity on the 10-year treasury which suggests that stocks are not great value when compared with bonds.

The Shiller PE which measures the value of the US market based on its rolling 10-year average earnings is also looking very elevated at 38.3 times. This is below the peak of 44 during the internet boom in December 1999 but somewhat higher than the 31.5 times seen in August 1929 before the Wall Street crash.

If you look at the biggest companies in the S&P 500, you will struggle to find any cheaply valued shares.

S&P 5000: Top 20 constituents

Source: SharePad

When compared with expected growth in earnings per share (EPS) – using a price-earnings growth or PEG ratio – high-flying NVIDIA could still be seen as cheap on a PEG of 0.7 – a PEG below 1 is often seen as good value – but not many shares are on this measure.

High valuations tend to be a forewarning of poor future returns from shares as a lot of future growth has already been priced in.

Investment bank Goldman Sachs points to these high valuations as the reason why it expects average annual returns of just 3% from US shares over the next decade which will be lower than those from US government bonds.

Buffett piling up cash

Perhaps one of the most cautious indicators of the fragile state of the US market is the fact that Warren Buffett has been selling shares and building up the cash reserves of his Berkshire Hathaway company.

Buffett has a canny knack for knowing when valuations are getting too high. He folded his investment partnership in 1969 because he could not see enough attractively priced shares, and he has done well subsequently by avoiding overpriced shares.

2024 has seen Berkshire be a net seller of almost $130bn of stocks which has boosted its cash balances to more than $300bn or practically one-third of its market capitalisation.

Big cash buffers saw Buffett profit handsomely from the fallout of the 2008 financial crisis as he picked up cheaper investments at very attractive prices. The fact that he has been stockpiling cash recently does not mean the US market is about to crash but if history is any guide, could be a sign that the risk-reward trade-off from investing in it is not very good right now.

££££££££££

It’s usually better to follow than predict.

• Richard Williams

November 2024

Winners and losers in October 2024

Best performing funds in price terms	(%)
Life Science REIT	7.2
Residential Secure Income	4.0
PRS REIT	3.1
Phoenix Spree Deutschland	2.6
Globalworth Real Estate	2.1
Henry Boot	0.9
Target Healthcare REIT	0.8
Balanced Commercial Property Trust	0.3
Schroder European REIT	0.1
Triple Point Social Housing REIT	0.0

Source: Bloomberg, Marten & Co

Worst performing funds in price terms	(%)
Workspace Group	(14.9)
Great Portland Estates	(11.9)
Tritax Big Box REIT	(11.3)
Helical	(11.3)
IWG	(10.2)
SEGRO	(10.2)
Safestore	(9.8)
Hammerson	(9.6)
Derwent London	(8.8)
Sirius Real Estate	(8.5)

Source: Bloomberg, Marten & Co

Best performing funds

Speculation and apprehension over the contents of the budget dominated October and was reflected in the share price moves among real estate companies with a median decline of 4.8%. There were a handful of positive movers, however, with Life Science REIT leading the way. This follows an uplift in its share price last month after its chair commented that the board was willing to take any action necessary to address its steep discount to NAV, which still lingers at around 45%. Residential Secure Income decided to throw in the towel having battled a persistently wide discount for much of its life (see the corporate activity section for more detail). Meanwhile, PRS REIT hoisted a ‘for sale’ flag over the company following shareholder pressure to act on its wide discount. Investors seem to be appreciating the solid progress Phoenix Spree Deutschland is making in delivering on its strategy to sell condominiums at large premiums to book value, with the Berlin residential landlord’s share price up almost 14% over the past three months. Target Healthcare REIT’s share price move was in step with its NAV performance over the quarter to the end of September (see below for more detail), while Balanced Commercial Property Trust was up slightly following last month’s take-private offer.

Worst performing funds

Budget nerves saw some of the largest listed real estate companies suffer the most as concerns move from inflation and interest rates to economic growth. It was no surprise, then, to see some of the largest office investors and developers in the bottom 10. Flexible workplace providers Workspace and IWG both succumbed to double-digit falls in their value over the month while, similarly, London office developers Great Portland Estates, Helical and Derwent London also experienced sharp share price falls. There is an integral link between GDP growth and demand for office space and worries that growth will be anaemic under Labour have surfaced. It was not just office players that got hammered, all of the property big guns were on the wrong end of investor caution, with logistics heavyweights SEGRO (which now has a market cap of £10.6bn) and Tritax Big Box REIT (£3.4bn market cap) also losing just over 10% in value during October. Retail behemoth Hammerson’s recent positive share price momentum was stopped in its tracks despite continued operational and balance sheet strengthening, including the launch of a £140m share buyback programme. It was a torrid month all round, with property bellwethers British Land (down 8.5%) and Land Securities (down 7.6%) also suffering.

Valuation moves

Company	Sector	NAV move (%)	Period	Comments
AEW UK REIT	Diversified	3.0	Quarter to 30 Sept 24	2.9% like-for-like valuation increase for the quarter to £215.6m
Target Healthcare REIT	Healthcare	0.9	Quarter to 30 Sept 24	Like-for-like valuation increased by 0.6% to £916.4m
Alternative Income REIT	Diversified	0.5	Quarter to 30 Sept 24	Value of portfolio up 0.4% to £103.1m
PRS REIT	Residential	10.9	Full year to 30 June 24	Value of group’s portfolio was £1.1bn, up from £1.0bn in 2023
Town Centre Securities	Diversified	(2.4)	Full year to 30 June 24	Like for like portfolio valuation down 4.7% to £256.0m
Grit Real Estate Income Group	Rest of world	(20.5)	Full year to 30 June 24	NAV impacted by high debt levels and debt costs

Source: Marten & Co

Corporate activity in August

Tritax EuroBox’s board recommended a cash offer for the company from Canadian private equity giant Brookfield that usurps SEGRO’s bid for the company. Brookfield’s bid of 69.0p per share values Tritax EuroBox at around £557m. This represents a premium of 6% to the implied value of the SEGRO offer of 65.1p at 9 October 2024. The offer price also represents a premium of 28% to the closing price of 53.8p per Tritax EuroBox share on 31 May 2024 (the last business day prior to the commencement of the offer period), but a discount of 12% to its last reported NAV.

British Land raised £301m in a placing, retail offer and subscription and will use the proceeds to part fund the acquisition of a portfolio of retail parks for £441m (see below for details). In aggregate 71,227,309 new ordinary shares were placed at a price of 422p, which represents a discount of 3.6% to the closing price on 2 October 2024.

Empiric Student Property raised £56.1m in a placing and retail offer.

A total of 59,686,950 new ordinary shares representing 9.9% of the company’s existing share capital were placed at a price of 93p, raising proceeds of £55.5m, with an additional £0.6m raised via retail investors. The proceeds will be used to acquire two operational assets in Manchester and Edinburgh for combined £30m, while the company has a broader pipeline of a further eight assets under negotiation.

PRS REIT announced that it was undertaking a strategic review to consider the future of the company following shareholder pressure. The review will explore all the various strategic options available to the company, which may include a potential sale. This follows the requisition notice made by a number of shareholders to replace the chairman, Steve Smith, and another director with Robert Naylor and Christopher Mills. The shareholders were unhappy at the award of a multi-year investment management contract to current manager Sigma without proper shareholder consultation and the lack of action to narrow the company’s discount to NAV. In September, Smith announced he would step down at the next AGM, while both Naylor and Mills were appointed to the board.

The board of Residential Secure Income proposed a managed wind-down of the company following a review of options for maximising shareholder value. The company’s persistent and material share price discount to NAV and its small market cap of around £101m (which it said may be a deterrent to some potential investors due to lower share liquidity) led the board and manager (Gresham House) to conclude that executing a managed wind-down and portfolio realisation strategy is the best course of action for shareholders. To implement this proposal, the board said that it intends to propose resolutions to change the company’s investment policy.

Impact Healthcare REIT changed its name to Care REIT plc to align with the Financial Conduct Authority’s updated sustainability disclosure requirements. Its stock market ticker is now CRT.

Hammerson commenced a £140m share buyback programme, with the sole purpose of reducing the company’s share capital. Shares purchased will be cancelled

The current expected dividend total for 2024 is now £10,978.00.

The earned dividends total is subject to 2 Trusts declaring their dividends and the payment for either could slip into 2025.

Based on current earned dividends there is no change to the 2025 figures.

Dividends to be received fcast £9,120.00. Target 10k.