Tag: Alliance Trust

Alliance Trust GM and Greggs Trading Statement

I was hoping to attend the General Meeting of Alliance Trust (ATST) this morning on-line to approve the merger with Witan but at the time of writing despite having registered for it no invitation has been received. I voted against it of course.

Another company I hold shares in is Greggs (GRG) who issued a Q3 trading statement this morning. It is good news with total sales up 10.6% and LFL sales up 5.0% in company managed shops. They opened 152 new shops and closed 66 with a number of relocations.

This company shows how effective a change of management can be in reviving the fortunes of a business which happened a few years ago. But the share price fell over 5% this morning on negative media comments about slowing sales growth. I will ignore this “noise” and continue to hold the shares.

Paul Scott on Stockopedia reported positively on sampling the products recently. He said “Revenue growth slowed in Q3, but is still good. Maybe that’s to be expected as inflation moderates? Profit expectations are in line for FY 12/2024. Is “in line” good enough when shares are on a punchy 21.6x forward earnings? Lovely company, but shares look fully priced”. See the Small Cap Value Report for more information.

Personally I don’t mind paying a high price for shares in businesses that are well managed and generally meet forecasts.

Yesterday I had a visit from T.M.Akers who repairs antique furniture in London. It’s more than 20 years since I last saw him. Isn’t it annoying when you meet someone who appears not to have aged after 20+ years while I have become quite decrepit!

We have the Conservative Party Conference running at present but it’s not a very exciting affair. This is what John O’Connell, chief executive of the Taxpayers Alliance, hit the nail on the head when he said: “Labour came in promising to step more lightly on people’s lives, but the change they are set to deliver looks likely to be yet another round of spending increases and tax hikes that only further damages household budgets while doing little to reform gravely underperforming public services.”

Where are the positive proposals from the Tory leadership candidates that will capture the public’s imagination?

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

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Alliance Trust and Witan Merger

 

Shareholders in Alliance Trust (ATST) and Witan Investment Trust (WTAN) should have received voting instructions for how to vote on the proposed merger of the two companies (I hold one of them). I commented on the relative performance of the two trusts earlier this year – see https://roliscon.blog/2024/03/25/alliance-trust-and-witan-why-is-one-doing-well-but-not-the-other/

Clearly shareholders in Witan might be unhappy and might welcome the merger but I can see little benefit for Alliance Trust shareholders. The combined trust will be larger and hence the ongoing charge for Alliance shareholders might improve slightly but it is already quite low at 62 bps. But the larger an investment trust becomes the worse the performance tends to be. There are only so many “good ideas” that a fund manager can have.

As a holder of only Alliance Trust I have therefore voted against the merger. This is one of the proposals that seems of more benefit to the fund managers than to the shareholders.

BUT DO MAKE SURE YOU VOTE!

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

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Alliance and Witan Merger – Is It Wise?

Two large generalist global investment trusts – Alliance (ATST) and Witan (WTAN) have announced a proposed merger. Alliance is slightly larger with assets of £3.8 billion versus Witan at £1.8 billion. Both have relatively low charges – for example Alliance has an ongoing charge of 0.62% according to the AIC and one justification for the merger is that charges will reduce further on a larger combined portfolio. The relative portfolios already overlap to some degree.

Alliance Trust has produced better performance over the last 5 years and have done very well since the revolution in management a few years back with a particularly good performance last year – NAV Total Return up 21.6% and ahead of their benchmark.

I can see why the merger might be of benefit to Witan shareholders but as a holder of Alliance Trust shares I can see little benefit. A marginal reduction in charges will be offset by the negative aspect of having a larger portfolio. Stock-picking gets more difficult the larger the portfolio becomes.

I shall probably be voting against the merger on those grounds.

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

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Alliance Trust AGM 2024 Report

I attended the Annual General Meeting of Alliance Trust (ATST) this morning using the Lumi AGM platform. It was physically held in Dundee which is their traditional location and they intend to continue with that in future apparently.

The Lumi platform normally works well although there was a hiccup during the Chairman’s introduction and I had to log in again.

I have held shares in this trust since 2015 and am very happy with recent performance.  The Chairman, Dean Buckley, reported a “very strong investment performance” last year – total return up 21.6% and significantly better than their benchmark plus better than their competitors. Good performance has continued in 2024. The trust has increased dividends for 57 years and the discount to NAV is only 5.4% and heading down.

Craig gave an overview of their investment approach – a global stock picking based on “high conviction” choices but diversified. They were underweight the “magnificent 7” technology stocks last year but that was offset by good performance in other holdings.

I will only report on the question I asked which was “According to page 9 of the Annual Report you seem to be selling the winners and increasing exposure to losers. Please comment as this is contrary to my investment philosophy”. The answer given was that “Individual stock pickers may have different views on this. But it only applies to stock pickers overall performance. It is just a matter of rebalancing the portfolio, avoids a big bias to growth and helps manage risk while lowering volatility.

Comment: It seems to work.

The meeting was well organised and managed by the Chairman. I am happy to continue holding the shares as a foundation holding which I don’t have to continually monitor. As their Annual Report says “Our ready-made portfolio does all the hard work for you….We provide a simple, high-quality way to invest in global equities at a competitive cost”.

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

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Alliance Trust and Witan – Why Is One Doing Well But Not the Other?

As a shareholder in Alliance Trust (ATST) I have been reading their Annual Report. They had a very good year last year with a Total Shareholder Return of 20.2%, beating their benchmark MSCI index which only managed 15.3%. Total Return over 10 years was 206.7.

Alliance Trust now use a multi-manager approach to achieve their performance. The investment manager’s report says this which is interesting: “As in previous years, we kept all our so called “factor” positions well balanced relative to the benchmark in 2023 through regular small adjustments to stock picker allocations, allowing stock selection to shine through as the key source of return. However, we did add a Japan specialist, Dalton Investments (‘Dalton’) in July, which was discussed in detail in the Interim Report. Excluding Dalton, the table on page 15 which details stock picker weights at the beginning and end of the year shows little change. But this disguises the fact that, to keep pace with shifting market dynamics, from one factor to another, we regularly take money away from the best performing stock pickers and give it to those who are underperforming. It may seem counterintuitive to trim exposure to “winners” and increase exposure to “losers” but this process helps to keep portfolio exposures balanced across sectors, countries, and styles, thereby avoiding the build-up of excessive concentration risks that can result from leaving allocations unchanged. The idea is to ensure that stock selection based on business fundamentals makes the key difference to returns, not over or underweight sector or country exposures, which can be subject to sentiment-based mood swings. However, this rebalancing process is not automatic. Although we have target weights for each stock picker, changing allocations is ultimately a judgment call. For example, we did not add to Jupiter Asset Management (‘Jupiter’) or Lyrical Asset Management (‘Lyrical’) last year, despite their underperformance, as they often invest in smaller companies that are inherently riskier than the stocks typically chosen by of some of the other stock pickers, such as Veritas Asset Management (‘Veritas’), who tend to focus on large, higher-quality value, companies.”

Coincidentally one of my contacts pointed out that Witan Investment Trust (WTAN) who are another global equity trust with a multi-manager approach seem to have run into problems. They have recently announced a review of “investment management arrangements” and also said this: “In 2004, in a major strategic shift, Witan adopted a multi-manager approach to investing in global equities, at the same time becoming independent of any single investment management group. For much of the subsequent period, the approach proved successful and, although the volatile conditions in recent years have eroded earlier outperformance, Witan’s performance remains in line with its equity benchmark in net asset value total return terms and ahead in share price total return terms since making that strategic shift. However, in more recent years the asset management and investment trust sectors have seen considerable changes in markets, competition, governance and regulation. These pose new investment and communication challenges for independently managed investment trusts to address successfully and cost-effectively. In view of these structural changes, Andrew Bell’s forthcoming retirement after over 14 years as our CEO is an appropriate opportunity for Witan to review proposals for the future management of the Company’s portfolio.”

According to the AIC, Witan’s one year share price total return is 15.1% and only 136.7 over ten years so you can see why shareholders might be getting nervous and it is time to review the management of the portfolios.

If you are a holder or prospective holder of Witan shares there is a webinar organised by ShareSoc at which you can learn more – see https://www.sharesoc.org/events/sharesoc-webinar-with-witan-investment-trust-plc-wtan25-april-2024/

A question to ask might be “why has Alliance Trust made a success of a multi-manager approach but Witan has not?”

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

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Alliance Trust, Segro and NatWest AGMs

Yesterday I attended the Annual General Meeting of Alliance Trust (ATST) online. This at least enabled me to avoid travelling to Dundee and I am still avoiding physical meetings because of the Covid risk. From the experience of one tradesperson who visited us yesterday this is still very sensible I think – he caught it in London but had been very unwisely avoiding vaccination – as a result he spent several days in hospital with pneumonia despite being a young and fit person beforehand.

The Alliance Trust AGM was held as a “hybrid” meeting using the Lumi platform which enables on-line voting and was a very well managed event.

Alliance Trust is of course a generalist global trust and after a difficult few years in the past have now reverted to being one of those trusts suitable for widows and orphans, or anyone who desires a “simple, high-quality way to invest in global equities at a competitive cost” to quote from their Annual Report. They use WTW to select and manage a portfolio of independent fund managers.

The Chairman, Gregor Stewart, made the following comments. They outperformed their benchmark in the first half of the year but underperformed in the second half. This was due to the market being focussed on a few large US technology stocks in which they are underweight. But the dividend was increased last year with a total increase of 32.5%. NAV Total return was 18.6%. The discount to NAV has widened but that is true of most investment trusts as people lost confidence in the stock market and its prospects.

When it came to the Q&A session, one shareholder questioned the increase in the dividend which was done by paying out capital profits. The Chairman’s response was that there were differing views on this issue and they had consulted shareholders who generally thought the yield needed to come up a bit. Longer term their expectation is that dividends will be covered by income. Comment: Capital growth retained within the trust is tax free while if it is paid out as income you get taxed on the dividends. So I would personally prefer they not do this. But I can understand why some people would prefer increased dividends and companies in which they are invested are tending to pay lower dividends (the very high dividend payers are often mature businesses in sectors to be avoided). There is also the problem that Alliance may look less attractive to investors if they pay a headline lower yield than other similar trusts. In summary this is not a straightforward issue and will certainly not affect my decision to hold this trust.

Segro AGM

This was only held as a physical event yesterday although there was a recording made which I watched this morning (it’s available from their web site). There were only a few shareholders in physical attendance. Why could they not hold a hybrid meeting? They could surely afford to set one up using Lumi or other platforms.

The meeting was chaired by Gerald Corbett who is retiring this year. CEO David Sleath gave a presentation and I note here some of what he said: Adjusted eps was up 14.6%, adjusted NAV was up 39.7% and dividends were up 10%. The board believes there is a lot more growth to come due to favourable market dynamics. There is a record demand for space resulting in an unheard of vacancy rate of 3.5%.

They even reacquired some offices in Slough sold in 2016 to redevelop into industrial units. The board is confident in the outlook for the business and there is the potential to double rental income.

The Q&A was relatively brief and hampered by not everyone using a microphone so that was another organisational failure.

I commented previously on the voting for this event in March and in particular the remuneration Report and Policy (see  https://roliscon.blog/2022/03/20/its-the-agm-season-but-voting-not-easy/ ). But the actual voting as reported showed only 2.4% of shareholders voting against the Remuneration Report and 1.1% against the Remuneration Policy. This is exasperating. Irrespective of the fact that the company is doing very well and I have no complaints about the directors, the performance is due to market conditions and the remuneration is excessive.

NatWest Group AGM

The NatWest AGM is being held on the 28th April as a physical meeting in Edinburgh although there was a virtual event to enable shareholders (of which I am not one) to ask questions yesterday. Why cannot they hold a proper hybrid meeting?

Remuneration is an issue at this company also. ShareSoc have published some voting recommendations and other comments written by Cliff Weight – see here: https://www.sharesoc.org/vci/nwg-natwest-group-information-and-vote-guidance-2022/ although I understand you need to be a member to read them.

One thing Cliff said was this: “I question what was the need and rationale for the CEO to be given a 19% pay rise only 1 year into a new job – has she over delivered to such a degree that the Board think they were underpaying her?”. It’s clearly another case of excessive and unjustified remuneration which is all too common in the banking sector. NatWest is still recovering from its near collapse and effective nationalisation by the Government in the financial crisis of 2008 which it is no doubt trying to forget by changing its name from the Royal Bank of Scotland.

There is obviously still a generic problem of excessive pay for executive directors in public companies which changes to corporate governance and regulations in the last few years have failed to tackle. With votes on remuneration dominated by institutional investors who have no interest in controlling pay as they swim in the same pond, and private shareholders typically disenfranchised by obstructive platforms more substantial reforms to tackle this issue are clearly required.

In the case of NatWest, even the Government must have been consulted upon and voted to support the remuneration as they still hold 48% of the shares!

Mello Event

One physical event that investors may be interested in is the return of the three-day Mello meeting in Chiswick on the 24th to 26thof May run by David Stredder. See https://melloevents.com/ .

There is nothing like meeting companies and fellow investors in person to gain real understanding of what is going on. But regretfully David I won’t be joining you. Have just been advised to have a fifth covid vaccination!

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

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Alliance Trust Resets Dividend

An announcement this morning from Alliance Trust (ATST) says that the board has concluded that an increased dividend “will benefit existing shareholders and enhance the attractiveness of the Company’s shares”. They expect the overall annual dividend to increase by 32.5% over the 2020 dividend. The proposed increase will be well covered by distributable reserves and income it is suggested although no doubt some of the extra dividend cost will come from capital.

ATST had a reported yield of 1.43% last year according to the AIC which is the figure a lot of private investors look at when identifying good investments, when they should be looking at total return and overall performance. So far as the tax position of most private investors are concerned, turning capital growth into dividend income is a mistake as they will end up paying more tax. If they need more cash income they could simply sell some shares.

As with City of London Investment Trust I recently commented upon, and as very evident at their AGM, the emphasis on dividends paid by the trust, and growth in them, is apparently aimed at pleasing investors when investors are being fooled by the cash they see coming in when total return including capital growth is what they should really be paying attention to.

There are some interesting comments on Alliance Trust by Mark Northway in the latest ShareSoc Informer newsletter published today. He points out that the change to a “best ideas” portfolio approach managed by Willis Towers Watson since 2017 has not returned significantly above average performance after costs as anticipated. A huge amount of effort has been put in with little benefit he suggests. But perhaps that just shows how difficult it is to beat index benchmarks consistently particularly when the trust’s portfolio is so diversified. At least the trust’s performance is no worse than its benchmark as used to be the case before the revolution and appointment of a new manager.

As part of my “barbell” portfolio I am happy with the performance of Alliance Trust but I would have preferred them not to increase the dividend. I barely need to the cash as household expenditure is sharply down in the last year due to self-isolation from Covid. I’ll end up reinvesting the dividend cash after paying tax on it, when Alliance could do that for me tax free!   

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

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Soporific Webinars, Property Market, Portfolio Performance, and It Helps to be Older.

I attended three on-line company meetings yesterday – AGMs and results presentations. I have to admit that I fell asleep watching one of them which shows how soporific many of these events are. It does not help when the presenters read from a script that they have rehearsed beforehand which causes them to drone on. There is much less spontaneity than in a physical meeting.

The other common failure is that they show presentation slides at the same time that are not easily readable. That would be OK if the slides just contained bullet points in large type or graphics that reinforced the points the speaker was making but they frequently contain masses of small font text that are barely readable on a small laptop screen.  If hybrid meetings are going to be the norm in future, then more attention needs to be paid to how to do them well.

One of the presentations was by Equals CEO Ian Strafford-Taylor who had gone to his office in the City on the day. Surprisingly he said he had not managed to get a seat on the tube and there were queues at sandwich shops. So it seems life might actually be returning to City offices.

Perhaps it was coincidence but the share price of Schroder REIT (SREI) rose by 2.6% on the day and has been rising steadily since it bottomed out last July. The trust holds a mixed portfolio of commercial property. This morning the trust gave an update on rent collection which said “The Company has collected 88% of rents due on the 25 March 2021 for the quarter ending June 2021, after allowing for agreed rent deferrals.  This is ahead of the equivalent date in the previous quarter.  The breakdown of collection rates between sectors is 98% for industrial, 96% for office, 83% relating to ancillary uses and 51% relating for retail and leisure.  The Company remains in active dialogue with tenants for all rents due to be paid and expects to recover a significant portion of the outstanding amount”.

Clearly the retail sector is still one in difficulties, but the discount to NAV of SREI shares as reported by the AIC is 26% so I think there is value there if one has the patience to wait some time.

I don’t know how readers portfolios are faring of late but mine seems to be zooming up in valuation – up over 60% since the low point of the start of the pandemic in March 2020 (that’s ignoring dividends received and cash movements). There is clearly a lot of enthusiasm among retail investors for stock market investment. Is the market becoming irrational and over-valued? I would not like to say. But as a dedicated trend follower I have had some difficulty in keeping up (I tend to buy more when share prices are rising and vice versa).

It was interesting to see a report from Interactive Investor (II) who published the chart below of the performance of their clients in the first quarter of the year. Clearly there is a benefit in being old when it comes to stock market investing!

They report “all age categories trailed the FTSE World Index, which was up 4.09%, while the FTSE All Share did even better after a poor 2020, up 5.19%”. They also say though that “the average interactive investor customer portfolio – in median terms – is up 32.09% over the year to end March 2021, ahead of the FTSE All Share”.

They explain these results by saying “The outperformance of the 65 plus age group could be in part due to lower cash weightings in a rising market, and their low exposure (in median average terms) to tech stocks like Apple, Tesla or Amazon, which had a shaky Q1. No tech stocks appeared in the top 10 holdings by value (in median average terms), amongst the over 65s”.

In a quarter in which the FCA warned that some younger investors are taking on board too much risk this does not seem to be an overall trend amongst Interactive Investor customers. They have a high weighting in investment trusts but less in individual technology stocks.

But as Alliance Trust (ATST) reported at their AGM yesterday, I have underperformed global stock market indices because I don’t have big holdings in the mega technology stocks such as Tesla or Apple. They are held by some investment trusts I hold but they tend to be under-weight in them like ATST. I am not unhappy to be under-weight in very large tech stocks which certainly look to be in bubble territory to me.

I hold the stocks mentioned above.

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

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Recent Annual Reports and Trust Discounts

After the news over the weekend, it’s clearly going to be another very bad day on stock markets. One rare riser initially was Ten Entertainment Group (TEG) despite the fact that they announced this morning that all their bowling venues had been closed but they made some positive comments about their cash balances and Government support which might have helped.

As per guidance issued by the Financial Conduct Authority (FCA) it has delayed publication of its Preliminary Financial Results for two weeks as many other companies will be doing. This seems unfortunate to me as a company could just give only a limited outlook statement in there and issue separate trading statements as the crisis developments. But there is no reason to delay the historic figures for the last year.

The AIM Regulator (the LSE) has also announced that in response to the epidemic it is making the rules around suspension of listings more flexible. It is also permitting Nomads not to do site visits to new clients. See https://www.londonstockexchange.com/companies-and-advisors/aim/advisers/inside-aim-newsletter/inside-aim-coronavirus.pdf for details.

Clearly all companies affected by the closure of all public entertainment venues such as pubs, bowling alleys and cinemas are going to suffer greatly. Although they might get some financial relief from the Government, a close examination of their balance sheets and debt will be essential. Some might request suspension of their shares until their financial position becomes clearer. Property companies seem to have been badly hit simply because independent valuers are having difficulty valuing commercial properties as the market is frozen. Retailers with physical stores are also closing them, apart from supermarkets who are doing well due to panic buying and the shift from eating out to eating in as restaurants close. But they seem to be having difficulties adapting their supply chains and coping with the new demands for on-line ordering.

With preliminary announcements being delayed, the AGM season might be delayed also. Companies might have difficulty holding physical meetings and venues might become unavailable, particularly in London. We might see companies holding small meetings in their own offices instead as they won’t expect many people to turn up – I certainly won’t be attending as I am one of those people being told to stay at home for 12 weeks. Some larger companies may try and provide a live on-line stream of the meeting such as Alliance Trust (ATST) who just issued their Annual Report which I would certainly encourage them to do, preferably with some way to submit questions.

It is interesting to look at the discounts to NAV of the share price of that trust and other similar large trusts. According to the AIC, their discount was 17.5% at the weekend, and others were Brunner on 17.5%, F&C on 19.3%, Monks on 12.6% and Witan on 15.6%. These are much higher discounts than such trusts have traded on of late. When private investors have lost faith in the stock market, the discounts tend to rise, although some of the discount can be accounted for by the delay in reporting.  There may be some bargains in investment trusts in due course as private investor sentiment tends to lag financial news.

One company that just distributed their Annual Report and which I hold is property company Segro (SGRO). They had a good year last year although the share price is down 28% from its peak in February due to the general malaise in the property sector as open-end funds close to redemptions and run out of cash. I won’t  be attending their AGM but I will certainly be submitting a proxy vote which all shareholders should do anyway. I will be voting against their remuneration report simply because the total pay of executive directors is too high. The remuneration report consists of 27 pages of justification and explanation, which is way too long and is a good example of how both pay and pay reporting has got out of hand of late.

With bonuses, LTIPs and pension benefits, the total pay of the 4 executive directors (“single figure” report) was £20.4 million. They also wish to change the Articles of the company to raise the limit on the total pay of non-executive directors to £1 million so I will be voting against that also. I would encourage shareholders to do the same.

Lastly for a bit of light relief as it looks like we might have a major recession this year, I mentioned the book “Caught Short!” by comedian Eddie Cantor on the 1929 Wall Street crash in a previous blog post. Now Private Eye have repeated one of his comments in October 1929 after John D. Rockefeller (probably the richest person in the world at the time) said “during the past week, my son and I have for some days been purchasing sound common stocks”. This was seen as an attempt to calm the market in a world where a few very wealthy investors could influence financial markets. Eddie Cantor’s response was “Sure, who else has any money left”. I hope readers do not feel the same.

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

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Brexit Investment Strategies

Investors may have noticed that the pound is in free fall and heading towards US$1.20. That’s near the low after the initial Brexit vote. Pundits, not that they can be relied on for forex forecasts, suggest it could go lower now that we seem to be heading for a “no-deal” Brexit.

With the pound falling, and potential damage to the UK economy from a hard Brexit, investors should surely have been avoiding companies reliant on UK sales, or UK consumers, or those such as engineers and manufacturers that rely on just-in-time deliveries from Europe. The key has been to invest in those UK listed companies that make most of their sales overseas in areas other than the EU.

One such company that announced interim results today is 4Imprint (FOUR), a supplier of promotional merchandise. Most of its sales are in the USA and its accounts are in dollars. Revenue in dollar terms was up 16% at the half year and pre-tax profit up 22%. The share price rose 6.5% yesterday and more this morning but the former suggests the good news leaked out surely. With the added boost from currency movements, this is the kind of company in which to invest but there are many other companies with similar profiles. For example, many software companies have a very international spread of business, or specialist manufacturers such as Judges Scientific (JDG). Those are the kind of companies that have done well and are likely to continue to do so in my view if the US economy remains buoyant and the dollar exchange rate remains favourable.

The other alternative to investing in specific UK listed companies with large export revenues and profits is of course to invest directly in companies listed in the USA or other markets. But that can be tricky so the other option is to invest in funds such as investment trusts that have a global spread of investments with a big emphasis on the USA. Companies such as Alliance Trust (ATST), Scottish Mortgage (SMT) or Polar Capital Technology Trust (PCT) come to mind. Alliance Trust has a one-year share price total return of 11% according to the AIC and the share price discount is still about 5%. I received the Annual Report of PCT yesterday and it makes for interesting reading. Net asset total return up 24.7% last year and it again beat its benchmark index. The investment team there has been led by Ben Rogoff for many years and what he has to say about the technology sector is always worth reading. Apparently the new technology to watch is “software containerisation” which is compared to the containerisation of cargo shipments in its revolutionary impact.

Another interesting comment is from the Chairman complimenting Ben on having the skill of buying shares and holding those which go on to outperform, but also knowing when to sell at the right time which the Chairman suggests is not common in fund managers.

Another hedge against a hard Brexit is to invest in companies that own warehouses because a lot more stockpiling is already taking place as a protection around the Brexit date by importers, but also more will be required to hold buffer stocks for manufacturers in the future. Companies such as Segro (SGRO), Tritax Big Box (BBOX), and Urban Logistics (SHED) have been doing well for that reason. They have also been helped by the trend to internet shopping which requires more warehousing space and less retail space. These trends are likely to continue in my view and the retail sector is likely to remain difficult for those retailers reliant on physical shops. You can see that from the results from Next (NXT) this morning. Shop sales down while internet sales up with the overall outcome better than expected as on-line sales grew rapidly. Anyone who expects the high street or shopping malls to revive is surely to going to be disappointed in my view.

There are bound to be some problems for particular sectors if we have a hard Brexit. The plight of Welsh sheep farmers was well covered by the BBC as Boris Johnson visited Wales yesterday. Most of their production currently goes to Europe but they may face 40% tariffs in future. The Prime Minister has promised assistance to help them but they have been heavily reliant on subsidies in the past in any case. There will need to be some difficult decisions made about the viability of farming on marginal land in future.

The falling pound has other implications of course. It will help exporters but importers will face higher prices with the result that inflation may rise. However, there are few products from Europe that cannot be substituted by home grown or produced equivalents, or by lower cost products from the rest of the world. With import tariffs lowered on many imports the net effect may be very low in the long term. But it will take time for producers and consumers to adjust. Tim Martin of JD Wetherspoon is well advanced in that process so you can see just how easy it will be to adapt.

In summary, investors should be looking at their current portfolios and how they might be impacted by Brexit now, if they have not already done so. There will clearly be winners and losers from the break with Europe and investors should not rely on any last-minute deal with the EU even if Boris is expecting one. Any solution may only be a temporary fix and the policies suggested above of international diversification are surely wise regardless of the political outcome.

Note: the author holds some of the stocks mentioned.

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

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