Europe
We have often advocated European companies as being an interesting, yet often underappreciated area of the market that offers exposure to global leaders, that just happen to be headquartered in Europe. A recent article in the FT drew attention to the continued strong performance of 11 European companies known as the ‘Granola’ stocks. In contrast to the Magnificent Seven, which are currently the seven largest companies in the MSCI World indices, the Granola stocks were identified by a Goldman Sachs analyst in 2020 as representing a collection of companies which all had strong balance sheets, low volatility earnings growth, and good dividend yields. This collection of companies did well in the ten years up to February 2020, when they were first identified. The 11 Granola companies (or more accurately Grannnolass…) consist of GlaxoSmithKline, Roche Holding, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi. Strong performance in aggregate continued during the Coronavirus sell-off and subsequently. We note that these do not represent the largest companies in the European Index, which as of 31/12/2023 also included several energy companies, banks, insurance, miners, and consumer staples.

According to the FT article, the 11 Granolas have generated around 50% of the European stock market’s gains over the last 12 months (to mid-February 2023), and their combined market capitalisation has reached nearly 25% of the Stoxx Europe 600, which is nearly equivalent to the Magnificent Seven weighing in at 29% of the S&P500. Whilst the article claimed that Granola’s dominance was echoing that of the Magnificent Seven in terms of the impact of concentration on portfolios, we are not quite so sure. The difference comes in the size of these companies, and therefore their relevance to a non-European focussed investor.

We have analysed the Magnificent Seven and the Granola stocks share of the Morningstar Global Markets Index (which is equivalent to MSCI World). As of 31/12/2023, the Granolas represented just 3% of the Global Index. So, these 11 companies combined, in a variety of different sectors, represent less than either Apple or Microsoft’s weighting in the global index. This may be concentration, but it is a pretty dilute concentrate! As the Granola’s illustrate, many of Europe’s leading businesses have no US or other significant global competitors of note. They clearly offer an opportunity to access strong growth, but with very different drivers and risks than the Magnificent Seven expose investors to.

Of the seven large-cap AIC Europe trusts, all but one hold Novo Nordisk as the largest or second-largest holding in the portfolio, the exception being Baillie Gifford European Growth (BGEU), which has only one of the Granola stocks in its top ten holdings and looks very different to the rest. BlackRock Greater Europe (BRGE) has been an impressively strong performer over the long term, with its concentrated portfolio focussed on high-growth opportunities across Europe. Manager Stefan Gries leads a team focussed on stock picking. The portfolio is exposed to a number of long-term secular growth trends and typically has low turnover and long holding periods, all of which have contributed to an outstanding long-term track record. BRGE has been awarded one of our 2024 Growth Ratings.

Thematic
Staying in equity markets, but looking for non-crowded growth opportunities, one might look at thematic funds. High-growth technology opportunities of a very different flavour to those of the Magnificent Seven can be found within the likes of Impax Environmental Markets (IEM). IEM targets companies in a range of six different environmental sectors, such as efficiency & waste management, water, sustainable food, and energy. The trust has a distinct bias towards mid and small caps, which offers investors a very different exposure to that found in most global equity portfolios. That said, the small-cap growth focus has cost it dearly relative to the wider global indices over 2023. We think it noteworthy that the managers of BlackRock Energy & Resources Income (BERI) have noted the underperformance of the “energy transition” universe of companies that they follow and have been adding exposure to this area. BERI offers another very different exposure to world markets, with a strong thematic flavour, but with an element of in-built balance. Strong performance is reflected in BERI having won a Kepler Growth Rating for 2024. The growthier opportunities in the energy transition part of the portfolio complement the “value” characteristics that traditional energy and mining stocks offer. As a result, relative to world equity markets, it offers a potentially interesting place to find shelter from any mega-cap technology storms that may break over the horizon.

Asia
Global indices, and some might say the global economy, seem inextricably linked to China. However, Asian stock markets have also tended to be correlated to China, given its position as the economic powerhouse of the region. Certainly, this seemed to be the case until 2023. With economic growth moderating, combined with heightened political tensions with the US, it has also performed poorly over the short term. In fact, just as we show in the graph below, as China has stumbled, India has powered ahead.

Ashoka India Equity (AIE) has been the best-performing trust since it launched in July 2018, and this strong performance continues. It won a Kepler Growth Rating for 2024, the first year that it had a track record long enough to be considered, and continues to issue shares this year, when most trusts appear to buying shares back trying to protect their discounts. AIE has a natural tilt towards small and mid caps, but the team also favour higher-quality businesses and place a great deal of weight on good governance. The team have recently been adding exposure to companies in some more highly regulated areas in which they are typically light. This is in order to ensure their stock-selection successes are not outweighed by the impact of a surge in the more regulated, state-owned sectors, given the current government looks set to win elections this year.

Alongside India, it may also make sense to look at Vietnam, which shares some high-level characteristics, both being at earlier stages of their development than China, and both might arguably have now achieved ‘escape velocity’ from the traditional orbit of Chinese growth. In particular, Vietnam is one of the countries benefitting the most from the decoupling of US/China trade, all while it is continuing its long-term liberalisation of its economy and markets. Vietnam Enterprise Investments (VEIL) sets out to benefit from these trends, using the deep knowledge and connections of a locally-based management team. VEIL has delivered strong long-term returns in both absolute and relative terms. Returns in Vietnam tend to be volatile, and 2022 was a tough year, but 2023 has seen a decent recovery in the market. The managers tell us they are growing increasingly bullish and have increased their weighting to cyclical, economically sensitive companies in anticipation of strong earnings growth over the next few quarters.

INDIA & CHINA DIVERGE
Source: Morningstar
Past performance is not a reliable indicator of future results

Japan
Japanese stock markets are now surpassing the 1989 peak in nominal terms. That said, Japanese small caps—particularly those focussed on growth—have had a torrid time in relative and absolute terms during 2023. One might argue that growth opportunities in Japanese small caps are as far as it is possible to be from the Magnificent Seven but the current narrative around these companies is one of intrigue, offering a potentially differentiated source of growth opportunity buoyed by a number of tailwinds. Perhaps most compelling of all is the optimism around recent corporate governance reforms.

Over the course of 2023, a lot of investor attention was steered towards the more liquid and easily traded large companies that had already demonstrated positive changes. However, the manager of Fidelity Japan (FJV) argues that these changes are starting to trickle down the market-cap scale presenting a plethora of untapped opportunities. Mid and small caps are a relatively under-covered part of the market, which means being locally based and having access to a dedicated on-the-ground team, provides the manager with valuable insight into company management and the domestic market that others in the sector might be missing. Over the last year, two opportunities with good long-term potential were unearthed—Harmonic Drive Systems and Taiyo Yuden, both of which fall into the electric appliances sector. Both companies are sitting at attractive valuations, versus overseas and large-cap domestic peers and offer a differentiated source of returns.

Following a similar vein, JPMorgan Japan Small Cap Growth and Income (JSGI) also provides exposure to this part of the market. The manager believes there is huge potential for active management to add alpha in this part of the market, evident by its recent investment in Osaka Soda. It’s a global chemical company positioned in multiple niche product categories, but its biggest future growth driver, in the manager’s eyes, is silica gel, which is used in the same GLP-1 obesity drugs that have driven Novo Nordisk’s recent success. Furthermore, the manager argues that the average valuations of Japanese companies remain attractive compared to most other major markets and the longer-term potential for improved shareholder returns– bodes well for Japanese equities, which in their eyes, position the portfolio well to capital on future growth. Recent pressure on Japanese small caps has led to poor performance over 2023, these types of companies can kick back quickly when these pressures alleviate.

As we highlighted above, the Magnificent Seven have suffered a painful stumble before, and in any event, nothing lasts forever. We have illustrated a number of very different growth opportunities, that over the medium term could complement a portfolio. In our upcoming virtual ‘Themes for your ISA in 2024’ event, three of these managers are presenting

The Motley Fool

In my opinion, it’s never too late to put in place a strategy to generate passive income.

But everyone’s individual circumstances are different. This means some leave it until later in life before addressing the issue of how they’re going to have enough income to fund a comfortable retirement.
Assuming a retirement age of 67, starting at 40 still leaves 27 years to build a nest egg.

My strategy (indeed, one I’m already following) would be to save as much as possible and buy UK stocks.

I’d keep reinvesting any dividends received and then, when the time comes to retire, switch into high-yielding shares, and live off the passive income.

Fabulous five
According to AJ Bell, the average yield of the five best dividend stocks in the FTSE 100 is currently 10%.
But it’s important to remember that returns to shareholders are never guaranteed.

And a stock with a high yield might be a value trap — a share that looks to be a bargain but is the opposite.

However, for the purposes of this exercise, I’m going to assume that it’s possible to generate a 10% annual return.

The golden years
The next issue to be addressed is how much income I’m going to need later in life.

It’s usually assumed that less is required in retirement.

The UK average salary is currently £34,963 a year. Let’s say I will need around 50% (£17,482) of this for a comfortable lifestyle.

At first sight, this might appear to be an alarming drop from the average, but remember, the State Pension age is also 67. Those eligible will receive £10,600 a year at today’s rate to add to that amount.

Assuming a yield of 10%, an investment portfolio of £175,000 is required to generate an annual income of £17,500.

Possible returns
So, how much will a 40 year-old need to save to reach my earnings target? The answer depends on the rate of growth of the stock market.

From 1984 to 2022, with dividends reinvested, the average annual increase in the FTSE 100 was 7.4%.

Again, this isn’t necessarily going to be repeated.

But if it was, investing a lump sum of £2,054 at the start of each year, for 27 years, would turn into £175,064.

Assuming our ‘fabulous five’ continue to deliver the same returns as they do now, this would provide me with an annual income of £17,506.

It’s possible to exactly match the performance of the FTSE 100 by investing in a tracker fund.

However, other stocks have historically delivered better returns. For example, over the past five years, Frasers Group has seen its share price increase by 193%.

By contrast, the stock of International Consolidated Airlines Group has fallen 64%.

A tracker would help reduce the risk of buying the ‘wrong’ stocks.

Final thoughts
But all of these figures are sensitive to the assumptions made.

If the FTSE 100 grew at a rate of 5.3% (the historical return without dividends being reinvested) it would take another six years to achieve the same result.

If I invested for another 13 years, at 7.4% per annum, my retirement pot would be £448,445.

Clearly, it’s better to start earlier than 40, and save more.

But don’t let the perfect be the enemy of the good. My advice would be — whatever someone’s age — they should start investing!

It’s all random, isn’t it ?

The market is showing it wants to go higher but not yet.

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How average savers can turn £180 a month into a lifelong second income

The Motley Fool

by John Fieldsend
A recent study put the average UK household saving at £180 a month. Putting a couple of hundred away monthly is to be applauded and this level of saving can even lay the groundwork for a lifelong second income.

Creating an income stream from average savings — around £6 a day — sounds like a tall order. But new savings vehicles with low fees and easy-to-use platforms have simplified getting big returns on investments. A passive income stream that lasts for life is easier to achieve than ever, I’d say.

More and more people are targeting this kind of income too. Some 4,000 people have reached £1m in ISAs now with around half of them hitting the figure in the last year alone.

Reaching the million-pound mark given the deposit limits on those accounts is impressive indeed, but such a large nest egg isn’t needed for a life-changing income.
Losing cash
I’ve been working towards something like this myself, and for me, financial security is what appeals most. The State Pension isn’t really enough to live on (and only 38% of under 35s expect to receive it). Plus near-double-digit inflation makes saving in cash look unattractive.

Inflation is a killer for average savers. Our society is built around low levels of inflation, it’s true. While keeping cash circulating benefits an economy, it hurts savers who see their cash lose value constantly.

Even single-digit levels of inflation can be devastating. A 5% inflation rate means prices double after just 14 years. In other words, a £3 sandwich becomes £6. Perhaps more pertinently, £1,000 of savings will have the buying power of £500.

While current inflation levels are unusually high, whichever way you slice it, all of us are seeing our cash being worth less and less. And with money losing value, I see inflation-beating investments as a no-brainer.

Let’s waste no more time then. On to the strategy. My plan essentially requires two things: a return above inflation and compound interest over decades.

What I’m doing
For inflation-beating returns over years and years, I see no better option than investing in high-quality stocks.

Wait a second! The stock market? Isn’t that risky? Won’t I be competing with bankers working 80-hour weeks and lightning-fast algorithm traders?

Well, the answer is no, for the most part. While the stock market has plenty of high-risk, high-reward gambles, I won’t be touching those. My investing strategy is boring and slow – although the risk can never be fully removed and I may still lose money.
I invest the same way as billionaire Warren Buffett. He doesn’t buy stocks for a few days, but for a few decades. He says his “favourite holding period is forever”.

Slow and steady
By looking long term, I can enjoy the inflation-busting effect of stock market returns while avoiding the erratic ups and downs of day-to-day share price moves.

Better still, £180 a month is more than enough to dip my toe in the water. These days, fees to buy stocks are only a few pounds with modern platforms like Hargreaves Lansdown or AJ Bell that make it simple for anyone to invest.

££££££££££££

Consider ii but DYOR

In general they charge a percentage of funds and

AJ Bell a maximum figure that will increase over time.

The Group anticipates EPRA NTA per share to be approximately 89p (December 2022: 103p) due to the increased number of shares in issue following the £25 million equity raise in September 2023 for the Gyle acquisition.

7.3% increase in proposed final dividend of 2.95p per share delivering a total dividend for the year of 5.70p per share (December 2022: 2.75p per share and 5.25p per share, respectively.

After withdrawing 25k tax free from the remaining £75,000 fund you could expect a drawdown policy to provide an annual income from age 69 of around £6,100 which may last until 90 if investment performance is good.

An annuity does provide a guaranteed level of income until you die, but the annual figure would likely be lower at around £5,750 per annum at current rates.

Money Week.

The blog plan is to invest 100k or pro rata into dividend paying

Investment Trusts.

The plan after ten years is to receive a ‘pension’ of 14k per annum

with a target of 16k.

You could either take your tax free lump sum from the fund but

if u didn’t want to lose the dividend stream, u could take out 25%

tax free from your ‘pension.

You would also maintain control of your capital to pass on

to family members but remember those wee cats and dogs.

The Motley Fool

How to try and turn £180 a month into a five-figure second salary with income shares

Story by Zaven Boyrazian, MSc

Income shares are one of the best ways to generate a passive income, in my opinion. While they come with some risks, investors with modest sums of capital can leverage the power of compounding to achieve some lucrative results and in the long run, it’s possible to create the equivalent of a second salary without having to lift a finger.

The power of compounding
On average, households across the country are saving around £180 a month. It’s generally a good idea to use these savings to build a solid emergency fund within an interest-bearing savings account. However, for those fortunate enough to already have a large cash cushion, it may be smarter to start drip-feeding this capital into income shares instead.
Looking at the FTSE 100, the index has historically generated an average annual return of around 8%. That’s both ahead of inflation and average savings interest rates offered by banks. At this level of return, drip-feeding £180 each month can build up to a substantial pile of wealth in the long run.

After 30 years of regular investing, a total of £64,800 would have been poured into a stock portfolio. But thanks to compounding, the actual value of this portfolio would be just under £270,000. And for those able to wait another decade, the snowball effect becomes clear since the valuation would reach as high as £628,400.

Following the 4% withdrawal rule, that’s the difference between a passive income of £10,800 and £25,136 per year. That’s why so many financial advisors recommend to start investing as soon as possible.

Risk versus return
Waiting three to four decades to hit a five-figure passive income target is a big ask. Even more so, considering a poorly-timed crash or correction could easily extend the waiting time. While a few investors may have this level of patience, others likely want to get rich quicker.

When it comes to investing, becoming a millionaire overnight is near impossible. The few extremely rare occurrences give novice investors a false sense of hope. However, that doesn’t mean there aren’t strategies investors can deploy to accelerate the wealth-building process.

The first and simplest is to allocate more money to investments each month. Getting a promotion, switching jobs, and cutting spending are all viable strategies to increase the amount of spare capital available at the end of each month.

Investors can also strive to build more wealth with higher returns through stock picking. Instead of following an index, a hand-crafted portfolio of individual top-notch companies can potentially deliver market-beating returns.

This does carry significantly more risk and demands a far more hands-on approach. But even achieving an extra 2% gain can have a significant impact. In fact, doubling monthly contributions to £360 and hitting a 10% annualised return is enough to cut almost 12 years from the waiting time to reach £600k.

Shares Magazine

How all-weather global equity fund Brunner has rewarded our faith

The diversified dividend hero has beaten its benchmark once again and the shares are testing new highs

Brunner Investment Trust (BUT) £12.75

Gain to date: 19%

We highlighted investment trust Brunner (BUT) at £10.71 in April 2023 on the basis a 7.1% discount to (NAV) net asset value provided an opportunity to purchase a balanced global portfolio for less than the value of the underlying assets.

Our bullishness reflected the fact that the quarterly dividend-paying trust has delivered consistent returns across the market cycle and had particular appeal during the prevailing uncertainties at the time.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

Shares in Brunner have trekked almost 20% higher, helping the discount relative to peers begin to narrow, boosted by the global equities rally witnessed towards the back end of 2023 as well as portfolio outperformance and well-received full year results (14 February).

Brunner beat its benchmark once again in the year ended 30 November 2023, delivering an NAV total return of 8.7%, ahead of the 5.5% increase in the composite benchmark. This reflected strong stock selection from the managers and standout performances from the likes of tech titan Microsoft (MSFT:NASDAQ), Greek-listed retailer Jumbo SA (5JB:FRA), Danish pharma star turn Novo Nordisk (NOVO-B:CPH) and insurer Munich Re (MUV2:ETR), which chair Carolan Dobson said demonstrates ‘the variety of companies and sectors the manager selects to meet the company’s performance and risk objectives’.

WHAT SHOULD INVESTORS DO NOW?

Stick with Brunner, a reassuringly diversified trust providing exposure to high quality companies with high market shares and pricing power, as well as strong balance sheets and a sustainable competitive advantage, that are expected to perform well over the long term. This all-weather fund should hold up well in 2024, a year of countless elections around the world and with the geopolitical landscape remaining dangerous.

Brunner also proposed a 5.6% hike in the total dividend to 22.7p, meaning it has now reached 52 years of consecutive dividend increases. 

Chelverton UK Dividend Trust plc

Declaration of Interim Dividend

The Company has today declared a third interim dividend in respect of the year 1 May 2023 to 30 April 2024 of 3.15p per share (2023: 2.9425p). This dividend represents an increase of 7.05% compared to the equivalent amount declared in the previous year.

The interim dividend of 3.15p per Ordinary share will be paid on 19 April 2024 to the holders of Ordinary shares on the register at 5 April 2024, with an ex-dividend date of 4 April 2024.

It is the Board’s intention that this payment will be the third of four equal core dividend payments of 3.15p each, being a total of 12.60p, for the year ending 30 April 2024.

Triple Point Social Housing REIT plc

(the “Company” or, together with its subsidiaries, the “Group“)

DIVIDEND DECLARATION

The Board of Directors of Triple Point Social Housing REIT plc (ticker: SOHO) has declared an interim dividend in respect of the period from 1 October 2023 to 31 December 2023 of 1.365 pence per Ordinary Share, payable on or around 29 March 2024 to holders of Ordinary Shares on the register on 15 March 2024. The ex-dividend date will be 14 March 2024.

The dividend will be paid as a Property Income Distribution (“PID”).

Following payment of this dividend the Company will have paid an aggregate dividend of 5.46 pence per Ordinary Share in respect of the financial year ended 31 December 2023, in line with the Company’s target for the financial year.