Strategic Investment Review

As it is a new Tax Year when one can put another £20,000 in one’s ISA I have reviewed my investment portfolio and tax position. To become an ISA millionaire and maximise the tax advantages of saving via ISAs you need to put the maximum in each year if possible and the sooner during the year the better.

One thing that has occurred to me is that with my portfolio showing good returns in the last few years I need to increase the amount in my will that I give to charity so as to reduce my IHT bill. The rate of Inheritance Tax is reduced by 10% — from 40% to 36% — where at least 10% of the net estate is left to charity. So I shall add a codicil to my will to amend the figure I give to Leicester University who are doing some good work on kidney disease.

In the short term we are also donating to the DEC Ukraine Humanitarian Appeal – see https://www.dec.org.uk/ . I recommend it because it looks like the war will continue for some time and the need for basic support such as food and shelter is urgent.

As regards investment strategy, with inflation rising I think property companies are good bets. They often have indexed linked rent reviews and some sectors of the commercial property market such as warehouses and self-storage companies have been doing well. I expect those trends will continue and property is a defensive investment in the current uncertain financial environment. But I will avoid retail property investments unlike my local Bromley Council who I have just discovered are overweight in them in an investment fund. It seems like other Councils they saw investment in property as a way to increase income at little risk – Croydon came seriously unstuck with this strategy and effectively went bankrupt as a result eighteen months ago.

Another area which is surely worth adding to is the renewable energy sector following the publication of the Government’s energy strategy. The AIC have published an interesting note on this subject which gives the performance of Alternative Energy Trusts over the last few years. Most have done well over the last 5 years and have good yields. I own several of the companies listed in the AIC note and am likely to increase my holdings in them.

The comments of some of the fund managers on nuclear energy are unfortunate. It is a relatively safe technology and one of the few alternatives that can supply a good base load while wind and solar are so intermittent which batteries can only help with to a degree. But the Government is moving much too slowly in building new nuclear plants.

The AIC press release is here: https://www.theaic.co.uk/aic/news/press-releases/must-do-better

Am I giving up on technology stocks? No because many of them have pricing power that can protect their profits against inflation. Software companies for example are not affected by inflation in commodity prices and should have no supply chain difficulties although staff costs can rise. I will simply be selective about new investments in technology companies.

A good example of the defensive quality of some technology companies was given by a trading statement from Diploma (DPLM) this morning. They said “The Group’s trading performance so far this year has been strong, with double digit underlying growth in Q2 (consistent with Q1) driven by our organic revenue initiatives, market share gains and robust demand”. The share price is up over 10% at the time of writing and there is a positive “outlook statement”. But the share price is still less than it was last year when technology stocks were all the rage.

Having lived through the 1970s I do not fear inflation. But it’s clear that it is best to invest in assets even by borrowing to do so as inflation will wipe out your debts. But I won’t be borrowing to invest in the stock market which can be called “gambling with other people’s money”. This is not the time to gear up a portfolio in my view. Maybe I should buy a new car?  Average rates on car loans are still low.

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

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