Market Musings

The stock market seems to be positively benign at present, if not almost somnambulant. While certain sections of the economy have gone to hell in a handcart, the enthusiasm for technology stocks has not abated. My very diversified portfolio is up today at the time of writing by 0.4% helped by good news from Dotdigital (DOTD) today and a sudden enthusiasm for GB Group (GBG). Optimism about a more general recovery in the economy seems to be still prevalent.

It’s probably a good time to consider overall market trends with a view to adjusting portfolios for the future. It is very clear for example that the UK at least, if not the world, is heading for a “net zero” world, i.e. a world where we are not emitting any carbon which implies a very high reliance on electricity generated from wind, solar and hydroelectric sources.

Whether that can be achieved in reality, and in my lifetime, remains to be seen. Whether it is even rational, or economically justified, is also questionable. But now that the religion of zero carbon has caught on, I do not think it is wise for any individual investor to buck the trend. As with any investment fashion it’s best to jump on the bandwagon and as early as possible. So I hold no oil companies and few interests in coal miners, except where they are part of diversified mining companies who are also mining copper (essential for the new electrification) and steel (not easily replaced). But I have recently invested in “renewable infrastructure” investment companies of which there are several, and in funds that provide battery support and load smoothing systems. Wind farms and solar panels tend to generate intermittent electricity so there is a big demand for emergency sources of power.

There was a very good article by Bearbull in last weeks Investors Chronicle headlined “The Net Zero Perversion” on this subject. He commences by saying “It is surely the new paradigm – that economic recovery from the damage caused by the response to Covid-19 can only be achieved by a fundamental shift towards a zero-emissions future. This is stated as fact – that reducing greenhouse gas emissions to ‘net zero’ by 2035 will be the powerhouse of economic growth – when, of course, it’s just a contention; much like the complementary one that investing in companies that are wonderfully compliant in meeting their economic, social and governance (ESG) commitments will bring excess investment returns”.

He goes on to say, after some other comments that must have enraged the uneducated environmental enthusiasts: “Yet there is plenty of evidence that the pursuit of net zero is brimming with unintended consequences, which is what you might expect from a movement driven by a weird mixture of idealism and greed”. He points out that rewiring our homes and expanding the grid to cope with the new electricity demand might cost £450 billion, i.e. £17,000 per household. Similarly the banning of the sale of new internal combustion powered vehicles from 2035 just causes the pollution generated from the manufacture of electric vehicle power systems and associated mining activities to happen elsewhere in the world. But overall emissions might not fall.

This fog of irrationality and attacks on personal mobility via vehicles using the Covid-19 epidemic as an excuse is now happening in several London boroughs, encouraged by central Government “guidance” and funding. Roads are being closed. In the Borough of Lewisham, adjacent to where I live, road closures have caused increased traffic congestion, more air pollution and gridlock on a regular basis. There is enormous opposition as the elderly and disabled rely on vehicles to a great degree while in the last 75 years we have become totally dependent on vehicles for the provision of services (latterly for our internet deliveries). Councillors in Lewisham think they are saving the world from global warming and air pollution that is dangerous to health when they won’t have any impact on overall CO2 emissions and there is scant evidence of any danger to health – people are living longer and there is no correlation between local borough air pollution and longevity in London. Air pollution from transport has been rapidly falling while other sources (many natural ones) are ignored. Lewisham and other boroughs have partially backed down after a popular revolt but local councillors still believe in their dogma. There is a Parliamentary E-Petition on this subject which is worth signing for those who think that the policy is misguided: https://petition.parliament.uk/petitions/552306

The Bearbull article concludes with this comment which matches my opinion: “All of which means investors should preserve their scepticism. But they should also recall their purpose in investing – to make money, not to go to war with the climate change movement, however ridiculous they may see some of its follies. Sure, as consumers they should see much of the pursuit of net zero for what it is – another charge on their net income. But as investors they should see it as an opportunity to join the momentum and, at the very least, to park some of their capital in a fashionable part of the market”.

When it comes to investment, markets can be irrational for a very long time. That is surely the situation we are currently seeing with stock markets kept buoyant by a flood of cheap money and there being nowhere else to stash it. With traditional industries and businesses in decline, most of the money is going into technology growth stocks or internet shopping driven businesses such as warehousing. That trend surely cannot continue forever. But in the meantime, following market trends is my approach as ever.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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FRC Report on AGMs and Defensive Tech Stocks

 The Financial Report Council (FRC) have recently published a report on AGMs with a subtitle of “An opportunity for change”. The report covers how Annual General Meetings have functioned during the Covid-19 epidemic.  With restrictions on physical meetings, companies have adopted different approaches. Some have provided only the legal minimal which means ordinary shareholders have not been able to attend or ask questions. Other companies have provided virtual AGMs, with questions needed to be asked in advance, while others have provided a more comprehensive solution with questions capable of being asked and answered on the day, and votes capable of being submitted on the day.

I have commented on these different approaches and on the general issue of how to operate hybrid AGMs in future on this blog – just use the search function to search for “AGM” to see the articles.

The FRC report is a very good analysis in general of this subject (see below). It’s not too long or tedious for the casual reader but there are a few points worth noting:

They suggest that all shareholders be encouraged to use electronic communication and that they should provide an email address when purchasing shares.  It would certainly be good to have an email address on the share register which I have long argued for. It would assist communication from companies to their investors, and enable other shareholders to communicate with their fellow shareholders (a basic prerequisite for shareholder democracy). But the need to have the same information on the register for those in nominee accounts is also required.

Some share registrars already maintain a record of email addresses of shareholders and have electronic systems for recording voting but these can be complex and waste shareholders’ time. They also claim that these records are not part of the official “share register” which is dubious.

However, there are practical issues here that are not mentioned. I don’t mind receiving some information from companies via email but maintaining a record of which companies have my email address (and which one from multiple email accounts, particularly after I have changed them) would not be easy. We really do need a secure central register of all public company shareholders that the shareholders can maintain themselves as regards names, postal addresses, bank accounts (for dividend payments) and email addresses. Also there is the problem that I don’t like trying to read Annual Reports that can be several hundred pages long, on-line. Much better to receive a paper Annual Report.

For the above reasons, I gave up opting in for on-line communication and have all my reports on paper.

It is important for shareholders to be able not just to ask questions at AGMs but to “speak” on anything relevant to the business of the company. Some companies have adopted Articles providing for virtual AGMs that limit this. They also need to be able to ask “follow-up” questions.

The FRC suggests splitting the AGM into two meetings – an initial one for presentations and questions/answers with a formal meeting for voting later. That seems a good approach.

The FRC Report is present here:  https://www.frc.org.uk/getattachment/48c4ee08-b7be-4b7c-8f19-bcaf3d44e441/Corporate-Governance-AGM.pdf

The FRC is proposing to bring together a “stakeholder group” to consider the need for legislative changes or propose alternative means to achieve the required flexibility.

Defensive Tech Stocks

On another subject, why have technology stocks proved to be such good defensive holdings during the pandemic?  The editor of Techinvest spelled it out in these words in a recent edition:

“Driving the high demand for FAANG stocks since the start of the Covid-19 crisis has been the flight to safety after markets sold off heavily in early March. While it may seem counterintuitive, big tech has been attracting buyers-this-year because if its perceived defensive qualities. At a time when many other industries are being adversely affected by the Covid-19 disruption, tech appears to be emerging in a stronger position, with demand increasing in areas such as online shopping, remote working, and digital connectivity. According to research by McKinsey, the speed of digital adoption has been so quick in response to the pandemic that five years’ worth of progress has been made in just a few weeks. Big tech, in particular, is seen as a major beneficiary of the accelerated demand for digitalisation and investors have been backing this theme”.

Yes the world is changing rapidly and investors need to take note of that.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Share Centre Future and FT Spoofing Article

The Share Centre recently advised their customers of “Our Future with Interactive Investor”. It gave details of the transfer of accounts to the Interactive Investor platform following the acquisition of the Share Centre business. However they failed to point out one important point which customers need to be aware of.

Share Centre ISAs are “Flexi ISAs”. This means that you can take cash out of the ISA and put it back in so long as you do it in the same tax year. Many people may have taken cash out this year after stock markets fell and put it on deposit, with the intention of putting back in later.

But Interactive Investor do not offer a Flexi ISA so if a Share Centre customer took cash out they won’t be able to put it back in after the account transfer. The Share Centre should surely have warned people about this but I can see no reference to it in their literature.

Spoofing

There was a very interesting article in the Financial Times today on the subject of “spoofing” – the practice of entering and cancelling orders in rapid succession to manipulate the prices of shares, bonds or commodities. The article was headlined “US regulators step up battle with spoofing” and mentioned the $920m fine imposed on JPMorgan Chase this week. Apparently the company’s traders had been using this abusive practice for years. The size of the fine should surely deter the practice if companies can actually control their traders.

This practice is not just confined to the USA of course. It was also alleged to have taken place in Burford shares recently. It just needs large transaction volumes in an order book system to make it viable.

It is symptomatic of the sharp practices that are rampant in the financial world. It is of course a practice to be abhorred as it creates a false market in the shares of a company. It suggests that there are buyers or sellers queuing up to buy or sell the stock, and a general impression of activity when none might exist.

Why not put a stop to it by imposing a time limit before an order can be cancelled?  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Regulating Consumer Investments and Company Register Reform

 The Financial Conduct Authority (FCA) have launched a consultation on the Consumer Investment Market. They consider it a priority to reduce the harm that many consumers suffer from fraud in this sector. The FCA has this to say:

“We have made significant improvements to this market to protect consumers. But there are over 5,000 financial adviser firms and more than 27,000 individual advisers acting as intermediaries between the consumer and their investment. Dominated by small firms, these complex chains of interdependent products and services – some of which are beyond our regulatory remit – make it easy for bad actors to ‘hide’ and challenging for us to oversee. The consumer investment market is not working as well as it should. Too often consumers receive lower returns than they should because of unsuitable products with high fees. Too often there have been scams and scandals in this market leading to consumer loss. Too often consumers leave their savings in cash because they don’t have confidence in the alternatives. That’s why we have made Consumer Investments a priority in our current Business Plan”. They also say:

“Some of the most serious harms we see relate to investments outside our regulatory perimeter and online scams, many based overseas. We have limited powers and capabilities in this space, in particular in our ability to deal with online promotions”. This is now a major problem that the FCA has been particularly poor at dealing with as Mark Taber regularly points out.

The “Call for Input” document only has 38 complex questions so I suspect they are unlikely to get many responses from real consumers, but those interested in financial markets may care to read it. See here:  https://www.fca.org.uk/publications/calls-input/consumer-investments

The Government BEIS Department consulted previously on modernising Companies House who maintain the register of companies. The Government’s response to the consultation has now been published. You can read it here: https://www.gov.uk/government/consultations/corporate-transparency-and-register-reform

Company registration, and the identification of company directors is clearly a very essential element in preventing frauds of all kinds, but has been woefully inadequate in the past. The identify of directors is not checked and Companies House even has very limited abilities to query new applications. So you could probably set up a company called Mickey Mouse Ltd with the sole director named as Mickey Mouse. Indeed I did check to see if there was such a company registration. Yes there is a company of that name, although the sole director’s name is different.  

The report even says: “There are benefits to the UK’s fight against crime: these reforms will increase the accountability of those few that transgress. As noted, the volume of economic crime in the UK is immense and growing. It accounts for almost one third of all crime experienced by individuals. The Home Office estimates that the social and economic cost of fraud to individuals in England and Wales is £4.7 billion per year and the social and economic cost of organised fraud against businesses and the public sector in the UK is £5.9 billion.

We will be able to trace and challenge those who misuse companies through the improved information on those who set up, own, manage and control companies. In partnership with others, our improved analytical capacity will use this information to detect suspicious activity earlier and hold those responsible to account”.

The recommendation to tighten up on the identities of directors has been generally supported so that is likely to be progressed. The ability to suppress some personal information will also be enhanced to improve security over that.

In general I suggest company directors and shareholders should welcome the proposals as a step forward in modernising Companies House, but you may care to review the details.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Record Fine on Deloitte, But It’s Not Enough

 The Financial Report Council (FRC) has fined accounting firm Deloitte £20.6 million (including costs) for its defective auditing of Autonomy. Deloitte is the largest of the big four audit firms and this is what the head of the firm said when talking about their 2019 results: “Our FY 2019 results are a validation of Deloitte’s strategy to deliver high-quality, globally consistent service to our clients while continuing to serve the public interest and working to restore trust in capital markets”.

Revenue of the firm in 2019 was $46.2 billion. The average payout to UK partners was £882,000 and there were 699 partners (i.e. a total paid of £616 million). That size of fine therefore will not worry them much. The fine should surely have been much greater!

The fine is the biggest yet issued by the FRC which at least means it’s a step in the right direction, but still not far enough.

This is some of what the FRC said about the case:

“The Tribunal found that each of Deloitte, Mr Knights and Mr Mercer [the two responsible audit partners] were culpable of Misconduct for failings in the audit work relating to the accounting and disclosure of Autonomy’s sales of hardware during FY 09 and FY 10.  They failed to exercise adequate professional scepticism and to obtain sufficient appropriate audit evidence.  Deloitte should not have issued unqualified audit opinions in these years based on the audit evidence obtained. Deloitte, Mr Knights and Mr Mercer fell seriously short of the standards to be expected of a reasonable auditor.

Similarly, in relation to certain of Autonomy’s sales to VARs, the Tribunal found that Deloitte, Mr Knights and Mr Mercer were culpable of Misconduct for failing to obtain sufficient appropriate audit evidence and for a lack of professional scepticism in relation to the nature of these sales.  Deloitte and Mr Knights should not have issued an unmodified audit opinion in FY 09 without obtaining further audit evidence.

The Tribunal commented that ‘…it is the wholesale nature of the failure of professional scepticism in relation to the accounting for the hardware sales and the VAR transactions as well as our findings of Misconduct and of breaches of Fundamental Principles that make this case so serious’.

The Tribunal also made findings of Misconduct in relation to the consideration by Mr Knights and Mr Mercer of Autonomy’s communications with its regulator, the FRC’s Financial Reporting Review Panel (FRRP), in January 2010 and March 2011 respectively.  Mr Knights acted recklessly and thus here with a lack of integrity. Mr Mercer failed to act with professional competence and due care”.

Autonomy was acquired by HP who relied partly on the audited accounts no doubt but subsequently had to write off $8.8 billion related to the acquisition. Both criminal and civil law suits over the accounts of Autonomy are still live.

Altogether a disgraceful example of how the auditing profession is being brought into disrepute of late.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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The Advantages of Investment Trusts

The AIC has issued a video which spells out some of the advantages of investment trusts over open-ended funds. They spell out that with most investment products you don’t have a say, but with investment trusts you do because you can vote on important decisions about how your company is run and what it invests in. You can also attend the Annual General Meeting (AGM) to meet, and question, the board directors and the investment manager. Investment companies also have independent boards of directors.

You may think that all of this is theoretical and in practice shareholders have little influence. But that is not the case. When push comes to shove, shareholders can change the fund manager and even the board of directors. I have been involved in several campaigns where this actually happened – not just in smaller companies such as in VCTs but at Alliance Trust. The outcome is usually positive even if a revolution does not actually take place.

But attending AGMs is now only available as an on-line seminar using various technologies. I have attended several in the last few weeks of that nature, and they are less than perfect in some regards. Technology is not always reliable and follow up questions often impossible. But they do save a lot of time in attending a physical meeting and they are certainly better than nothing. I look forward to when AGM events can return in a “hybrid” form where you can attend in person or via a webinar.

The AIC video is available from here: https://www.theaic.co.uk/aic/news/videos/your-investment-company-having-your-say

Brexit

I see my local M.P. Sir Bob Neill, is one of the troublemakers over the Internal Market Bill. He gave a longish speech opposing it as it stands in the Commons. But I was not convinced by his arguments. Lord Lilley gave a good exposition of why the Bill was necessary on BBC Newsnight – albeit despite constant interruptions and opposing arguments being put by the interviewer (Emily Maitlis). A typical example of BBC bias of late. Bob Neill is sound in some ways but he has consistently opposed departure from the EU and Brexit legislation. To my mind it’s not a question of “breaking international law” as the unwise Brandon Lewis said in Parliament but ensuring the principles agreed by both sides in the Withdrawal Agreement are adhered to. Of late the EU seems to be threatening not to do so simply so they can get a trade agreement and fisheries agreement that matches their objectives.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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British Smaller Companies VCT AGM

I “attended” the British Smaller Companies VCT Annual General Meeting today via Zoom. This was yet another variant on the practice of virtual AGMs. But there were apparently about 30 people connected which is more than they normally get of shareholders at their AGMs.

It was well managed with no significant technical problems, unlike others recently I have attended. Shareholders could vote for or against the resolutions on the day by using a Zoom Vote facility to give an instant poll result (rather like a “show of hands” vote which is technically what I assume it was although that was not made totally clear). The poll votes were given after each resolution was voted upon. The proxy counts were also displayed at the end. All proxy counts were in favour with the highest opposition being 11% against share buy-backs (probably by ill-informed investors as these are quite essential in my view in VCTs).

The poll figures showed only one or two people voting against a few of the resolutions. I voted against the remuneration resolutions and against the re-election of Chairperson Helen Sinclair – partly because she was first appointed in 2008, and for historic reasons.

Shareholders could submit questions previously or at the meeting by typing them in (but no follow-up possibilities). Not as good as a verbal question/answer model.

David Hall gave a short presentation on the results before questions. They achieved a total IRR of 5.4% last year, depressed by the Covid epidemic as their year end is March. The epidemic had a varied impact on their portfolio holdings, but there has been a bounce back since the year end.

There was a question on dividend policy and the answer was that the current policy will remain in the short term.

The meeting was relatively short with most of it taken up by the voting procedure. But it was certainly better than not allowing any shareholder attendance as other companies have been doing.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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EMIS Interims, AstraZeneca and Brexit

Healthcare technology company EMIS Group (EMIS) issued some interim results this morning. This is one of my longest standing holdings first purchased in 2011 although it has not been one of my greatest investments – overall total return over the years of only 9% per annum. But I did buy some more in March as I considered it would be a defensive share during the epidemic and might actually benefit from the medical crisis. That has turned out to be generally true.

Revenue was down by 2% however and adjusted profits likewise and it appears that business-to-business activity has been constrained but the share price has risen by 5% today (at the time of writing). Some effort has clearly been put into meeting new requirements from the epidemic but a new EMIS-X module was announced (EMIS-X is a new modular platform they are developing). However, it does seem that EMIS-X is slow in arriving in comparison with my expectations.

The health system is becoming more digitised so EMIS is in a good place and unlike other companies who are chopping their dividends, EMIS announced a 3% increase in the interim dividend.

For those who are not big consumers of health services like me it is truly revolutionary how the world has changed of late. Email discussions with GPs and video conversations are now enabled and the whole health system is more responsive. But it is getting more difficult to actually see a doctor in person which is sometimes still required.

Edison have published a video interview with the CEO of EMIS which you can watch here: https://www.edisongroup.com/edison-tv/emis-group-executive-interview/

As regards the epidemic AstraZeneca have indicated they have put their clinical trial of a vaccine on hold due to a possible adverse reaction in one patient. It may purely be a random effect. But with lots of competitors for a vaccine and a low probability of any one making money, this is not necessarily significant news.

Brexit

I was very amused to see Government Minister Brandon Lewis admitting in Parliament that it will break international law over the Brexit withdrawal treaty, in an attempt to “rewrite” it or “clarify” it depending on who you care to listen to. I would not rate Mr Lewis very highly in terms of his knowledge of the law having met him when he was a Government Minister in a different role. We discussed the use of police waivers of prosecutions for speeding offences which I consider an abuse and a perversion of justice. He simply suggested it was a form of “plea bargain”. Not that they are part of the UK judicial system of course so it was a very odd response.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Boris Johnson Not Backing Down and the Technology Stocks Bubble

Today I received an email from the Conservative Party signed by Boris Johnson and entitled “I will not back down”. The first few sentences said:

“We are now entering the final phase of our negotiations with the EU. The EU have been very clear about the timetable. I am too. There needs to be an agreement with our European friends by the time of the European Council on 15 October. If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on. We’ll then have a trading arrangement with the EU like Australia’s. I want to be absolutely clear that, as we have said right from the start, that would be a good outcome for the UK”.

But he says the Government is still working on an agreement to conclude a trade agreement in September. However the Financial Times reported that there are problems appearing because the “UK government’s internal market bill — set to be published on Wednesday — will eliminate the legal force of parts of the politically sensitive protocol on Northern Ireland that was thrashed out by Mr Johnson and the EU in the closing stages of last year’s Brexit talks”. It is suggested that the EU is worried that the Withdrawal Agreement is being undermined. But reporting by the FT tends to be anti-Brexit so perhaps they cannot be relied upon to give a balanced commentary on the issues at present.  

Of course this could all just be grandstanding and posturing by both the UK Government and the EU to try and conclude a deal in their favour at the last minute. But we will have to wait and see what transpires.

Well at least it looks like Brexit news will dominate the media soon rather than the depressing epidemic stories.

Technology Stocks Bubble

Investors seem to have been spooked last week by the falls in the share prices of large technology stocks such as Apple and Tesla (the FAANGs as the group are called). This resulted in overall market falls as the contagion spread to many parts of the market, particularly as such stocks now represent a major part of the overall indices. I am glad to see my portfolio perked up this morning after substantial falls in my holdings of Polar Capital Technology Trust (PCT) and Scottish Mortgage Investment Trust (SMT) both of whom have big holdings in technology growth stocks although they are not index trackers.

I’ll give you my view on the outlook for the sector. Technology focused companies should be better bets in the long-term than traditional businesses such as oil companies, miners and manufacturing ones. There are strong market trends that support that as Ben Rogoff well explained in his AGM presentation for PCT which I mentioned in a previous blog post.

But in the short term, some of the valuations seem somewhat irrational. For example I consider Tesla to be overvalued because although it has some great technology it is still in essence a car manufacturer and others are catching up fast. Buying Tesla shares is basically a bet on whether it can conquer the world and I don’t like to take those kinds of bets because the answer is unpredictable with any certainty. I would neither buy the shares nor short them for that reason at this time. But Tesla is not the whole technology sector.

Some technology share valuations may be irrational at present, but shares and markets can stay irrational for a very long time as different investors take different views and have different risk acceptance. In summary I would simply wait to see if there is any certain trend before deciding to buy or sell such shares or the shares of investment trusts or funds focused on the sector.

Investment trusts are particularly tricky when markets are volatile as they often have relatively low liquidity and if stocks go out of favour, discounts can abruptly widen. Trading in and out of those kinds of shares can be very expensive and should be avoided in my view.

I don’t think we are in a technology stocks bubble like in the dot.com era and which I survived when anyone could sell any half-baked technology business for oodles of money to unsophisticated investors. But it is worth keeping an eye on the trends and the valuations of such businesses. Very high prospective/adjusted p/e ratios or very high price/sales ratios are still to be avoided. And companies that are not making any profits or not generating any free cash flow are ones of which to be particularly wary (Ocado is an example – a food delivery company aiming to revolutionize the market using technology). Even if the valuations are high, if a company is achieving high revenue growth, as Ocado is, then it might be able to grow into the valuation in due course but sometimes it just takes too long for them to do so. They risk being overtaken by even newer technologies or financially stronger competitors with better marketing.

Investors, particularly institutional ones, often feel they have to invest in the big growth companies because they cannot risk standing back from the action and need to hold those firms in the sector that are the big players. Index hugging also contributes to this dynamic as “herding” psychology prevails. But private investors can of course be more choosy.

This is where backing investment trust or fund managers who have demonstrable long-term record of backing the winners rather than you buying individual stocks can be wise. Keeping track of the factors that might affect the profits of Apple or Tesla for an individual investor can be very difficult. Industry insiders will know a lot more and professional analysts can spend a lot more time on researching them than can private investors. It is probably better for private investors to look at smaller companies if they want to buy individual stocks, i.e. ones that are less researched and are somewhat simpler businesses.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Polar Capital Technology Trust AGM Report

Today I “attended” the Annual General Meeting of Polar Capital Technology Trust (PCT). This was a very good example of how to run a “virtual” AGM, unlike some I have attended recently. It included the ability to vote within the meeting and ask questions. It used the Lumi platform.

The meeting was chaired by Sarah Bates, and all the directors were in attendance and introduced themselves. Sarah “dropped out” at one point but another director immediately took over. Voting was done on a poll and only the two unusual resolutions were described (the continuation vote and remuneration policy).

The main part of the meeting was taken up with a presentation by fund manager Ben Rogoff which appeared to be pre-recorded and hence lacked spontaneity. But he is always worth listening to as he covers the trends in the technology world very well. I won’t cover it in detail as the recording is available on the company’s web site and much of it is in the Annual Report.

The NAV per share value was up 18.6% on the year and has continued to rise since the year end. Large cap stocks have been the drivers. Ben stated that the aim was to beat their benchmark by 2% and he covered some examples of major holdings.

There were only a few questions answered in the meeting. One was about the concentration of the portfolio in large cap stocks. The answer in essence was that reflects the market trend and hence has been a successful strategy. Another question was on portfolio turnover which was 87%. This apparently rose during the recent market turmoil. Only one question was on the formal business which related to whether repurchased shares were ever issued at a discount. The answer was no.

This is one of the few companies I hold where I can vote “for” to all the resolutions.

In all, a very well organised and run meeting that lasted only 50 minutes. I sometimes find at some of these events I can be doing something else such as checking emails at the same time as I have two screens on my desk, but not this one. Ben Rogoff speaks so fast and without any frippery you have to pay attention.

I would just like to highlight a couple of comments by the fund manager in the company’s annual report to give some insight into the world economy. To quote from it:

  1. “Our own outlook is broadly in-line with the current consensus which (we believe) assumes a limited lockdown period (2–3 months) that is followed by a recovery hampered by social distancing restrictions ahead of a vaccine in 2021 beyond which things ‘normalise’. During this time, policymakers are likely to do whatever is required to preserve the financial system. Their efforts thus far have been nothing short of spectacular. Interest rates have been slashed to zero in nearly all developed economies, while central banks have already expanded their collective balance sheet by an estimated $4trn, led by $2.4tr from the Federal Reserve (Fed). By the end of 2021, the G4 plus China are expected to have increased their balance sheets by $13tr with the Fed and the ECB balance sheets exceeding 50% of GDP. Unlimited QE from the Fed, the world’s lender of last resort, has effectively taken on private sector credit risk. Fiscal stimulus has also been ‘eye popping’ with US efforts estimated at $2.6trn, close to double anything seen in over a century with its flagship Coronavirus Aid, Relief and Economic Security (CARES) Act worth c.9% of GDP and double the size of the intervention following the financial crash in 2008. While different countries have adopted varied approaches, total worldwide stimulus has been estimated at $15tr to date, equivalent to c.17% of the global economy last year.

2. COVID-19 represents one of those generational moments when normality is suspended. Usually, these are deeply personal moments when the passage of time is interrupted by news of serious illness or an unexpected development that changes everything. Once life restarts, for some it simply snaps back to its earlier state. But for many, the timeout allows them to recalibrate and focus on what really matters to them. Our sense is that COVID-19 will result in societal recalibration – permanent changes that persist long after the pandemic – many of which will seem obvious in the fullness of time. The success of work from home (WFH) together with challenges to mass transit systems posed by social distancing means that many of us are unlikely to work as we did previously. This may have a profound and lasting impact on demand for commercial property, coffee shops (as a ‘third space’), business travel and even the role of cities. Rather than trying to move people at high speed in and out of business hubs (with HS2 expected to cost more than £106bn) perhaps infrastructure spending should be redirected to providing nationwide high-speed Internet. If we came to dominate the world because sapiens were the only animal able to assemble and cooperate flexibly in large numbers, then in a socially distanced world the case for universal internet access has never looked stronger”.

I totally agree with the last comment. Building railways which are certainly “old technology” at great expense seems somewhat perverse.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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