The only UK stock these global managers own

22 May 2024

One global fund has been cutting back on its US tech exposure and adding to this UK company.

By Matteo Anelli

Senior reporter, Trustnet

US dominance and the relative bottoming out of the UK market over the past decade may have left some global investors wondering whether there is a need to look to the domestic market at all.

Murmurs have begun about a potential poor run for the US, with Temple Bar manager Ian Lance telling Trustnet yesterday that investors should expect to make a loss from American stocks over the long term from here.

Chris Rossbach and Katerina Kosmopoulou, who are in charge of the $252.4m J. Stern & Co. World Stars Global Equity portfolio, are bullish still on the prospects of the US titans,  recently stating that “we are in not a tech bubble of any kind”.

They have stuck with their exposure to digital through tough times before – most notably in 2000 – and did so again in 2021-2022 when they added to stocks such as Nvidia, the leading chip manufacturer. This has rewarded the managers, with the stock rising to be the top holding in the fund, making up 8.3% of the total assets under management (AUM).

Yet even they have begun to look elsewhere, trimming some of their tech allocation as they weigh up the continued strong growth from the US giants versus the prospects of better returns from elsewhere in the future.

Thanks to successful calls on these US names and the returns they have brought in, Kosmopoulou explained that the fund is now in a strong position to take some profit and allocate to other areas.

One such area has been the UK, where, however, only one business convinced the managing duo – spirits company Diageo.

The company has been through a turbulent time in recent years, marked by a profit warning and its chief financial officer stepping down. Unsurprisingly, therefore, it has been a terrible performer of late, losing almost 20% over the past 12 months, 12% over the past three years and 6% over five months.

Performance of stock over 1yr

Source: FE Analytics

But the company is a good recovery play to Kosmopoulou, who said that Diageo is “a screaming buy”.

“Covid massively disrupted consumption and generated excess inventory throughout the supply chain. This is in the process of being corrected now, but the market hates that, so the stock is trading at more than 10% discount to its historical levels,” she said.

“Now if you could tell me that you and I will never drink again, I’m going to sell my Diageo position. But if you tell me that tonight we are likely to have a nice glass of whiskey, then to me that is that is basically a screaming buy.”

This is currently the only UK-listed company owned by the fund, Rossbach noted, with the overall country exposure adding up to 2% of the total AUM.

“We look at a global universe of companies, and the listing matters only in regards to the history of the company, the governance and the liquidity of its shares, with the UK being very strong on all of those points,” he said.

“There are a number of world-leading businesses that are here that we keep on analysing, especially in consumer products, healthcare and the intellectual property (IP) and payments-related areas of financial services, which we think are very interesting.”

Historically, Shell had been a holding in the J. Stern & Co. World Stars Global Equity fund. It was bought in 2012 at inception and sold later in 2014, when the managing team decided energy stocks weren’t for them. Since then, Diageo has been the only UK stock in the portfolio.

It is not alone in owning Diageo, with IFSL Evenlode Global Equity and Lindsell Train Global Equity among six funds in the IA Global sector also placing the stock in their respective top 10 holdings.

Nick Train also has a big position in the stock through his investment trust Finsbury Growth & Income. In the trust’s latest factsheet, the manager noted that it is “well-established” that the stock is out of favour and warned “it is still possible the next set of results will disappoint already low expectations”.

“Nonetheless, Diageo’s shares have now fallen over 30% from their peak in 2021 and we are sure it is right to be looking ahead to better trading for the company. In our view, Diageo shares will likely recover before those better conditions are confirmed,” he said.

SSE declared a final dividend of 40.0p for a full-year payout of 60.0p, down 40% from 96.7p the year before, in line with the plan the company had set out back in November.  SSE repeated its commitment for annual dividend increases from the lowered base of between 5% and 10% until financial 2027.

Impact Healthcare REIT plc acquires, renovates, extends and redevelops high quality healthcare real estate assets in the UK and lets these assets on long-term full repairing and insuring leases to high-quality established healthcare operators which offer good quality care, under leases which provide the Company with attractive levels of rent cover.

The Company aims to provide shareholders with an attractive sustainable return, principally in the form of quarterly income distributions and with the potential for capital and income growth, through exposure to a diversified and resilient portfolio of UK healthcare real estate assets, in particular care homes for the elderly.

The Company’s dividend policy is to maintain a progressive dividend that is covered by adjusted earnings.

On this basis, the target total dividend for the year ending 31 December 2024 is 6.95 pence per share, a 0.18 pence increase over the 6.77 pence in dividends paid or declared per ordinary share for the year ended 31 December 2023.

 BARCLAYS RAISES JLEN ENVIRONMENTAL ASSETS TO ‘OVERWEIGHT’ (E-W) – PRICE TARGET 110 PENCE

BARCLAYS CUTS NEXTENERGY SOLAR FUND TO ‘EQUAL WEIGHT’ (OW) – PRICE TARGET 87 (100) PENCE

 RBC CUTS HICL INFRASTRUCTURE PRICE TARGET TO 165 (175) PENCE – ‘OUTPERFORM’

BARCLAYS RAISES VH Global Sustainable Energy Opp target to 89 (88) p – ‘EQUAL WEIGHT’

 BARCLAYS RAISES FORESIGHT SOLAR FUND TARGET TO 102 (99) PENCE – ‘EQUAL WEIGHT’

 BARCLAYS CUTS OCTOPUS RENEWABLES INFRASTRUCTURE TRUST TARGET TO 88 (98)P – ‘OVER WEIGHT’

BARCLAYS CUTS BLUEFIELD SOLAR INCOME FUND TARGET TO 128 (132) P – ‘OVERWEIGHT’

JEFFERIES CUTS ASSURA TO ‘HOLD’ (BUY) – PRICE TARGET 45 (52) PENCE

Q1 2024 Dividend Declaration

The Company declares that it will pay a dividend of 1.20 pence per share (“pps”) for the period 1 January 2024 to 31 March 2024, (1 January 2023 to 31 March 2023: 1.65pps). The entire dividend will be paid as a REIT property income distribution (“PID”).

Shareholders have the option to invest their dividend in a Dividend Reinvestment Plan (“DRIP”), and more details can be found on the Company’s website https://www.regionalreit.com/investors/investors-dividend/dividend-reinvestment-plan.

The key dates relating to this dividend are:

Ex-dividend date	30 May 2024
Record date	31 May 2024
Last day for DRIP election	21 June 2024
Payment date	12 July 2024

The level of future payments of dividends will be determined by the Board having regard to, among other factors, the financial position and performance of the Group at the relevant time, UK REIT requirements, the interest of shareholders and the long term future of the Company.

Stephen Inglis, CEO of London & Scottish Property Investment Management, Asset Manager commented:

“During the period under review, rent collection remained strong, positive leasing momentum was maintained, EPC ratings continued to improve, and the disposals programme remains on track for 2024.

“With inflation pressures subsiding we expect this to lead to an easing of pressure on the wider economy and in turn the likely reduction in the borrowing cost environment. The combination of these two factors should see a positive impact on the investment market and transactional activity, assisting the sales programme and the value of our assets.

“We are acutely aware of the need to reduce our LTV back towards the 40% long term target and finding the most appropriate solution for the retail bond, which is due to mature in August. We continuing to progress the work on debt and equity refinancing options available to the Company, whilst executing the controlled disposal programme.

“The Board continues to align the dividend with earnings and has today declared the Q1 2024 dividend of 1.20pps for the period.”

££££££££££££££

Dividend unchanged, a strong hold.

Investing £20k in the US now will lose you almost £8k, says fund manager

21 May 2024

Expected US returns are likely to disappoint investors, said Redwheel’s Ian Lance.

By Matteo Anelli

Senior reporter, Trustnet

The US has been investors’ favourite market for more than a decade and particularly so in 2023 and 2024. However, Temple Bar manager Ian Lance  warned fans of the New World should reconsider their positions or be willing to lose on average 4% of their money each year for the next 12 years.

For UK investors who maxed out their £20,000 ISA allowance this past financial year, this could mean be losing up to £7,745 by 2036, if that money was all invested in the S&P 500.

For investors who didn’t go all-in and allocated approximately 70% to the US – for example through the MSCI World index, whose weighting to the US is 70% – the losses from the US portion of the tracker on the £20,000 initial investment would amount to £5,422.

This is what can be drawn from the chart below, put together by John Hussman of Hussman Strategic Advisors. The culprit for this is valuations.

Market cap of non-financial US companies as a ratio to their gross-value added

Source: Redwheel, Hussman Strategic Advisors

“The market has become too valuation-agnostic,” Lance explained. “People disregard them, but valuations do drive future returns.”

The chart above shows the US stock market’s annualised returns 12 years on from the point of purchase (on the y axis), in connection to valuations (across the x axis, cheap on the left-hand side, expensive on the right-hand side).

Unsurprisingly to Lance, buying the US market on a ratio of 0.5x made investors about 18% per year, while buying them off at an average valuation of 1x produced an average return of about 9%.

“And then just take a look at where we are today, over the far right-hand side of the chart. If that data holds, by buying the US stock market today you should expect to lose 4% per annum for the next 12 years.”

“Although the US looks this expensive, lots of investors that I know of have 70% of their clients’ equity money invested in the US market on those very high valuations.”

Other US value managers agreed with Lance. One of them was Phoenix-based Cole Smead, manager of Smead US Value UCITS, who called the US “the most over-owned market in the world” and what’s going on in it “a craze and a mania”. He came to this conclusion using the chart below.

US household equity ownership

Source: Federal Reserve Economic Data, Bloomberg

The blue line shows American households ownership of stocks as a percentage of US household financial assets. There are three highs in this dataset – 1969, 1999 and 2021, which was the highest so far. The orange line displays the subsequent 10-year rolling-returns of the S&P 500.

“You’ll notice the y axis starts negative on the right side and it ends positive on the bottom, and that’s because these two datasets have a powerful relationship to be negatively correlated,” Smead said.

“This is not particularly shocking. When everyone’s excited about stocks, how does broad common stock participation United States do, as noted by the S&P 500? It does terribly.”

With this, the manager wants to prepare investors for the upcoming stock market failure, whereby the market will fail to make money in real (inflation-adjusted) terms.

In 1969, the 10-year forward return of the S&P 500 was 5.9%. If that sounds not too bad, there’s a catch. The decade started with 6% inflation and ended it with 13.3%, amounting to a 4-5% real negative return.

Again in 1999, investors lost almost 1%. With 3% inflation during the decade of the 2000s, they ended up losing 3-4% in real terms, all of which are examples of stock market failure in Smead’s opinion.

“The highs in this data set argue that the S&P is going to make negative returns in real terms. When I hear people say that you can’t lose money over 10 years in stock markets, I say you absolutely can. You can be broadly diversified and still lose money in stocks,” he said.

“The US is the most over-owned market, the biggest casino in the world. What’s going on with the meme stocks stocks such as Coinbase Global and Gamestop Corporation, which can maintain elevated prices regardless of their underlying worth thanks to their web-based popularity is just evidence that this is a craze and mania and the biggest danger to global capital today.”

I’ve sold the portfolio shares in SMIF for a profit of £160.50 including the dividend earned but not received.

I’ve bought 14768 shares in GSF Gore Street Energy for 10k after today’s update, there was a stamp duty charge of £100 included in the buying cost.

At the higher end of the risk profile but a fcast yield

As previously highlighted, the Company reaffirms its dividend target of 7% of NAV for the reported period.

Wall Street’s Most Accurate Analysts’ Views On 3 Tech And Telecom Stocks Delivering High-Dividend Yields

During times of turbulence and uncertainty in the markets, many investors turn to dividend-yielding stocks. These are often companies that have high free cash flows and reward shareholders with a high dividend payout.

Below are the ratings of the most accurate analysts for three high-yielding stocks in the communication services sector.

Sinclair, Inc. (NASDAQ:SBGI)
Dividend Yield: 6.87%
Rosenblatt analyst Barton Crockett maintained a Neutral rating and raised the price target from $10.4 to $15.7 on Jan 18. This analyst has an accuracy rate of 68%.
Guggenheim analyst Curry Baker maintained a Buy rating and cut the price target from $30 to $20 on Nov. 3, 2023. This analyst has an accuracy rate of 67%.
Recent News: On May 8, Sinclair reported financial results for the three months ended March 31, 2024.

Verizon Communications Inc. (NYSE:VZ)
Dividend Yield: 6.64%
Tigress Financial analyst Ivan Feinseth maintained a Buy rating and raised the price target from $50 to $52 on May 17. This analyst has an accuracy rate of 71%.
Oppenheimer analyst Timothy Horan maintained an Outperform rating with a price target of $48 on April 23. This analyst has an accuracy rate of 70%.
Recent News: On April 22, Verizon Communications reported fiscal first-quarter 2024 results. Its sales increased 0.2% year over year to $32.98 billion, marginally missing the consensus of $33.24 billion.
Telephone and Data Systems, Inc. (NYSE:TDS)
Dividend Yield: 3.65%

Morgan Stanley analyst Simon Flannery maintained an Equal-Weight rating and increased the price target from $15 to $18 on Sept. 11, 2023. This analyst has an accuracy rate of 65%.
Citigroup analyst Michael Rollins upgraded the stock from Neutral to Buy with a price target of $16 on Aug. 4, 2023. This analyst has an accuracy rate of 75%.
Recent News: On May 3, Telephone and Data posted upbeat quarterly sales.

Keep watching and waiting, it could be prudent to take some of the money off the table, the worst thing that could happen is the price continues to rise and u make even more money.