Regulatory disclaimer: This newsletter is provided solely to enable clients to make their own investment decisions. The information within this newsletter does not constitute advice or a personal recommendation, or take into account the particular investment objectives, financial situations, or needs of individual clients. It may therefore not be suitable for all recipients. If you have any doubts as to the suitability of this service, you should seek advice from your investment adviser. The past is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise and investors may get back less than they originally invested. Certain Investment Trusts will permit using gearing as an investment strategy. Gearing is a strategy which involves borrowing money to increase holdings of investments or investing in warrants or derivatives. Such a strategy is likely to result in movements in the price of the relevant security being amplified significantly and may be subject to sudden and large falls in value and investors may get back nothing at all. Any tax rates and reliefs are those currently applying, are dependent on individual circumstances, and could be subject to change. All estimates and prospective figures quoted in this newsletter are forecasts and are not guaranteed. Within our advisory service we offer advice on a wide range of investments including shares, corporate bonds, gilts and managed funds. Within the RDR our advisory service is recognised by the FCA as a ‘restricted’ service as we do not offer advice on the whole of the financial planning market which includes products such as life policies and personal pension schemes. Barratt and Cooke is the trading name of Barratt & Cooke Limited. Registered in England No. 5378036. Barratt & Cooke Limited is authorised and regulated by the Financial Conduct Authority, who are based at 12 Endeavour Square, London, E20 1JN.
Two months and three weeks of sense, one week of mayhem
I pen the spring newsletters with narrative as of 5th April to be in line with the tax year end, so this was written as Trump started his ‘reciprocal tariff’ crusade. The dilemma is the pace of change in the economic landscape whilst writing, printing, and finally distributing.
Mr Trump has brought out his sledgehammer and wielded it with greater vigour than even the great Geoff Capes. We remember the shot putter fondly, indeed those world’s strongest man competitions in the 1990’s were great television. However, the difference between Capes and Trump is stark, the former was said to be a compassionate family man, perhaps the metaphorical ‘gentle giant’, the latter, big in stature too, but that is where the similarity ends.
To retain the consistency and not to forget what happened over the last two months and three weeks prior to the ‘mayhem’, we have written the ‘pre-reciprocal tariff’ words, then addressed the escalation of the trade war. We always encourage investors to consider solid long term performance rather than short term volatility, and so, to simply focus on the week straddling the end of the tax year would be counterproductive. Furthermore, as I say in my opening line, I really want to focus on companies rather than politics this time around, an ever increasing challenge… And, as this goes to print, President Trump has just ‘backed down’ on some of the reciprocal tariffs, mayhem indeed.
1st January 2025 – end of March (sense)
Having been faced with major political events ahead of each of the last three Newsletters (the General Election, the Budget and the US Presidential Election), these ramblings have been a little ‘politics heavy’ in recent times.
That said, with crippling taxes and enormous state spending dominating the headlines, in addition to an increasingly uncertain geopolitical world, perhaps it has been right to focus on fiscal policy. Despite having recently witnessed further Government intervention via the Spring Statement (another Budget), this publication focuses on the nuts and bolts of portfolio management and construction.
It will be a ‘dry’ read but I make no apologies for this as, from time to time, it is important to demonstrate what really is going on behind the scenes when it comes to your investments. I’ll await the comments on having lost my sense of humour but, this time, I know it is right, and I assure you I certainly haven’t lost the spark, yet!
Hopefully this, more than any newsletter in recent memory, is a glimpse into the debate (sometimes heated) we have over stocks behind the scenes, whether promoting to buy, downgrading to sell or those that sit on the watch list for action at a specific limit. We retain our bias towards ‘quality’ businesses; this has been our investment policy for generations (more on this later), but valuation at entry and indeed exit is imperative. If you buy a good company at the wrong price, it can take a long time to yield returns.
Over the 18 months to January 2025, the stockmarket and, specifically, benchmark comparator performance, which, by definition, always follows the momentum trade, has been challenging to compete with, a narrative shared by many of our peers. The underlying exposure of the benchmark seemingly carries inflated risk day by day where average valuations reflect premium multiples.
That said, if we take a step back, to have delivered positive total returns over the last couple of years whilst managing risk and volatility, in the face of the aforementioned challenges, in addition to a lack of material GDP growth, higher interest rates and persistent inflation, has been somewhat of a relief and, over the last few months, the tide has started to turn in our favour, as ‘sense’ has prevailed.
Just to touch on the Spring Statement, it transpires that having increased taxes on ‘working people’ in her initial budget, Rachel Reeves has now shrunk the welfare state in order to try and create a cigarette paper’s worth of headroom, £9.9bn. To put this number in context servicing the interest payments on Government debt costs £104.9bn annually. She appears to be ‘betting the house’ on interest rates coming down, GDP returning to growth and unemployment numbers falling. To misquote the well-known phrase, she is “taking with one hand
(taxation) and grabbing with the other (reducing spending)”. An extraordinary turn of events for a Labour Chancellor. Within hours of this statement, President Trump had come out with one of his initial tariff pledges, a 25% levy on car manufacturers outside the US, causing further headaches for our Chancellor who still purports to be ‘pro business’. We do of course endorse further investment in defence as a government’s overriding responsibility is the safety of their population.
Stockmarket valuations
We have used data to 5th April 2025, with 4-year performance numbers rather than 5 years to ensure a reasonable starting base (5 years ago we were at the bottom of the covid trough before the relief rally) so this removes some of the distortion from the pandemic and the tariff war.
The S&P (the flagship US index) numbers are interesting. Having produced stellar returns over the 4-year period, the YTD (year to date) numbers show a reversal in fortunes; this has been referred to by some commentators as the ‘Trump Slump’. If we drill down further into the number on the S&P since the start of January (-13.7%) and compare cyclicals (Technology, Industrials, Real Estate, Financials) to defensives (Consumer Staples, Healthcare, Utilities) we see that cyclicals are down -17.1% and defensives -2.1%. Looking even deeper into the constituents, the ‘Magnificent 7’ technology stocks are actually off -24.2% on average. You may remember this time last year I wrote about Europe’s ‘Granola’ stocks (including AstraZeneca, ASML, Novartis and L’Oreal). Not only do some of these companies dominate the European index (the STOXX 50) which is only down 0.4% this year, but they are the types of business represented within the S&P defensive category.
In terms of ‘valuation’ P/E (Price to Earnings ratio) gives a crude, but fair, indication of whether shares are ‘good value’ (a low number) or ‘expensive’ (a higher number) using last year’s earnings numbers. The FTSE 100 looks ‘good value’ with its P/E standing at 12.0x (vs. a long-term average of 14.7x), European Equities stand at reasonable value at 14.4x (vs. a long-term average of 14.2x) and the S&P expensive at 21.7x (where the longterm average is 18.8x). When using this metric, it is important to compare to averages, rather than just other indices, as certain markets (e.g. the US) offer greater prospects for growth in earnings (and of course risk). This can be accounted for by PEG ratios (where the G stands for growth) but I am not going to get too technical here. Tolerance for a high multiple is based upon the anticipation of greater acceleration in earnings growth and, in effect, the quicker speed (time) to earn back the price paid. This all being said, the differential between the UK and US currently looks unsustainably wide, and therefore, we would continue to argue the UK remains ‘cheap’ whilst certain sectors in the US are ‘expensive’.
Dividend yield can prove to be a bit of a ‘red herring’ as UK companies have always sought to return value to shareholders through a balance of income and growth in share prices. The UK investor’s mantra has long been to preserve capital and, if you require it, spend income for cash flow. US investors tend to opt for capital growth, and if they require liquidity, they deem this a capital event so they execute a sale. We do however consider dividend growth as an important metric as it is a good measure of company strength (>50% of the companies on our buy list have grown their dividends for 5 consecutive years or more).
Whilst portfolios are increasingly international in composition, they are still considerably overweight the UK versus both the benchmarks and our peer group. Whilst we believe individual equities listed within the UK market remain attractive, it is important to acknowledge some of the headwinds we, in the UK, suffer which could mean that discounts in share prices to overseas counterparts are warranted. Whilst portfolios are increasingly international in composition, they are still considerably overweight the UK versus both the benchmarks and our peer group.
A couple of headwinds for UK corporates
Cost of energy
The cost of energy is not only a substantial challenge for the domestic consumer but also for business and, specifically, industrial companies who manufacture on our shores.
UK industrial energy prices are in fact the highest of the 28 countries covered by the most recent International Energy Agency (IEA) report. They are four times higher than those in the US, not helped by Trumps “drill baby drill” policy, and 46% higher than the IEA median. This makes it challenging to compete in traditional energy intensive industries, or industries of the future like making batteries or AI. Of course, the war in Ukraine has been a major factor and this really has highlighted our reliance on importing energy. I try not to comment too much on the Green agenda, we all have our own personal views about climate change, and I respect each individual’s position on this. Whilst Ed Miliband’s desire for clean energy is a good example for the global stage, we have to acknowledge the facts. The cost of energy in the UK currently puts us at a substantial competitive disadvantage in energy intensive industries.
Refinancing risk – cost of debt
Many UK consumers and businesses became addicted to ‘free money’ post the financial crisis. Between March 2009 and March 2022 Bank of England interest rates stood below 1%, an extraordinary opportunity to put money on the credit card, start a mortgage or for businesses to ‘gear up’ even if on tight margins. However, from the spring of 2022, interest rates rose exponentially as the Governor and his committee tried to curb inflation; within 17 months the base rate stood at 5.25%.
I do acknowledge that many readers lived in a time of 10% -15% interest rates (serious pain for mortgage holders) but the recent rate of change has only really been seen between 1978-79, and even then, the base rate started at 6% so anyone who took on debt had a degree of experience in servicing borrowings (the starting base was not ‘free’ money).
Though the impact of Trump’s tariff war may actually be deflationary for the UK, which will plausibly lead to the Bank of England cutting interest rates to stimulate the economy, the current level of base rates present a problem for companies refinancing.
We know of the exponential increase in mortgage costs for those who have had to enter a new term in the last couple of years. Companies tend to borrow for longer terms and therefore debt accumulated on, for example, a five year term. i.e. taken out during the pandemic in 2020 (when interest rates were close to 0%) will be far more expensive to service when refinanced over the next year or so, increasing cost, denting margin, and reducing profitability.
Take Vodafone (not held in client portfolios) as an example, a FTSE 100 company that is part funded through a significant amount of debt. Since March 2021 the total debt on Vodafone’s balance sheet has reduced by over £10 billion, from £68 billion to £57 billion, however due to the higher cost of debt, the amount of interest Vodafone now pays has actually increased.
I watched a television programme recently on Thames Water. Whilst this is not a listed enterprise it still serves as an example. As has been well documented, the company failed to meet a number of regulatory thresholds, receiving significant fines, whilst it had also built-up debt of almost £20 billion. Thames Water almost went bankrupt but managed to secure its future, for now, by raising capital via the bond markets. With the perceived risk attached to these bonds very high, Thames Water had to pay investors a coupon of 9.75%. This is an eye-watering cost for a company where growth is pedestrian (if at all); no wonder OFWAT had to allow them to put up their bills by a whopping 31%. These levels of debt are part of the reason no water utility companies are currently on our buy list, though we do hold Xylem which is in a more positive camp, delivering clean water solutions across the globe.
Our investment approach and screening process naturally minimises our exposure to refinancing risk. Indeed, many companies within our investment universe operate with a balance sheet of ‘net cash’ (holding a greater proportion of cash compared to debt) and often zero debt. Moreover, those companies we invest in that do hold a reasonable amount of debt, will in most cases benefit from strong recurring cashflows, an investment grade credit rating and a working relationship with their banking syndicate, enabling them to refinance (usually 12-18 months before maturity) on more attractive terms compared to those that carry a higher degree of financial/operational risk.
Research
In addition to doing our own analysis on companies, we receive research from JPMorgan, Investec, Barclays and Berenberg, as well as attending several investor conferences. We also host a number of Investment Trust managers who come and meet the whole team. I have recently received positive feedback from a Corporate Broker: “I thoroughly enjoy bringing fund managers to Barratt and Cooke, they think they are going for a nice cup of tea and perhaps a slice of cake in the fine City of Norwich, then they get hit with some big questions from a few of the beady eyed Investment
Quality focus
by Edward Sidgwick
Guided many moons back by CWLB, we have long focused on “quality, quality, quality”. ‘Quality’ is perhaps in the eye of the beholder, so what do we mean when we refer to quality companies (which comprise the mainstay of the equity focused portfolios that we manage)?
Managers who are clearly keen to learn about the investment rationale to the minutia of detail. After the presenter has overcome his or her initial surprise this makes for an engaging and positive discussion where all are energised and learn, they could work on their coffee though!”
We have started having more one on one engagement with FTSE 100 business leaders too, which we will write about in another edition of the newsletter.
The graphic below hopefully helps to articulate the key characteristics that we are looking for when identifying companies worthy of our clients’ investment:
The following company examples help add some flesh to the bone:
• An increasing share of a structurally growing market: Consider Visa (US) which, alongside its peer Mastercard, has a dominant (not far off duopolistic) position in the payments processing sector. In the most recent reporting year, Visa handled 234 billion transactions across its network (up 10% on the prior year) and processed payments worth $13.2 trillion (up 7% on the prior year).
• Benefit from good visibility to future earnings: Consider the London Stock Exchange Group (UK), which is best known for its involvement in capital markets (e.g. share dealing, IPOs etc), but for which the business is in fact now predominantly focused on providing data and analytics products (e.g. licensing FTSE Indices). Within their data and analytics business, over 95% of revenues are subscription based, providing the company with strong visibility of future sales and a degree of resilience should economic conditions deteriorate.
• Offer premium products, brands or services: Consider L’Oreal (French), which is the global leader in beauty products, with 36 leading brands across skincare, fragrances, make-up and dermatological products. L’Oreal’s brands portfolio is strategically positioned across geographies (with sales split roughly one third between Europe, America and Asia), price points and end markets.
• Enjoy strong and defendable competitive positions: Consider National Grid (UK), whose core business is focused on owning and operating the high-voltage electricity transmission network in England and Wales (amongst related activities in both the UK and US), enjoying what is essentially a fully defendable competitive position, with no scope for new entrants.
• Industry leaders with global relevance: Consider ASML (Dutch), the manufacturer of highly complex machinery used in the production of semiconductor chips, for which the company essentially has a monopoly. When customers such as TSMC, Intel and Samsung want to produce the most cutting-edge chips, they have no choice but to buy from ASML, whose high end machines cost over €300m each.
• Generate high profitability and cashflow: Consider Shell (UK) whose profitability and cash flow is admittedly tied to the prevailing oil price (largely outside of the company’s control), but for which cash flow in 2024 was the second highest in the company’s history, generating cash from operating activities of $55bn, $40bn of which
known as ‘free cashflow’ (for the company to spend on dividends, buying back shares and making capital investments).
• Conservatively financed with strong balance sheets: Consider Alphabet (US), the parent company to Google, whose underlying businesses include the fantastically cash generative search engine. At last count (31st December 2024), Alphabet had total cash, cash equivalents and marketable securities totalling over $95bn, way in excess of the company’s debts and other liabilities.
Of course, companies evolve and quality can wax and wane over time, whether driven by technological developments, erroneous acquisitions or competition, hence our assessment of such credentials is an ongoing exercise.
For the avoidance of doubt, the shares of quality companies won’t always outperform. Indeed, in recent years, we have witnessed various passages of marked outperformance of lesser quality companies, including:
• Profitless technology companies with grand visions but negligible cash flow (e.g. through 2021).
• Banks, which require significant leverage (risk) to eke out modest returns (e.g. through 2024).
Such ‘dashes to trash’ can prove challenging for quality focused investors, whose performance is likely to lag in such periods. However, it is comforting that with stockmarket volatility picking up in recent weeks, quality companies have fared somewhat better, as we would hope and expect.
Alongside an overarching focus on quality, the list of examples above (which includes companies operating across a wide range of industries and geographies) helps to demonstrate a similarly important emphasis on diversification. We have previously discussed the extraordinary concentration witnessed in global stockmarkets in recent years, perhaps best exemplified by the rise of the ‘Magnificent 7’ US technology companies, with obvious and increasing implications on risk. With this in mind, Nicholas Burrows has written a pertinently timed article on the continued importance of diversification, which can be found on the Insights section of our website. If you would like a hard copy posted to you, please do let your Investment Manager know.
Seeking shelter in Gilts
by Sam Matthews
In recent months, clients will have noticed a larger allocation to short-dated UK Government Stocks (gilts) within portfolios, indeed our overall gilt weightings have reached levels not seen since the 2008 financial crisis. For certain clients, we are holding gilts for the first time, a fact that reflects both their current attractiveness and the broader market backdrop.
The rationale behind this shift is multifaceted, reflecting a combination of economic factors, stockmarket valuations and the inherent characteristics of short-dated gilts as a defensive asset class. Firstly, the pronounced increase in gilt yields over the past 3 years, resulting from tightening monetary policy (higher interest rates to counteract inflationary pressures), has resulted in gilts offering increasingly attractive returns. For income seeking clients, higher gilt yields offer a compelling low risk income stream, particularly in an environment of lower dividend yields from global equities.
Secondly, in the face of a potential economic slowdown and heightened economic uncertainty (exacerbated by the Trump tariffs), gilts provide a degree of stability and capital preservation, which forms the basis of our approach to portfolio risk management. Backed by the UK Government, gilts are a ‘safe haven’ asset, offering a degree of insulation against equity market turbulence and economic downturns. The price volatility of shortdated gilts is low, and it is this stability that makes them a valuable component of a diversified portfolio.
Backed by the UK Government, gilts are a ‘safe haven’ asset, offering a degree of insulation against equity market turbulence and economic downturns.
The tax-efficient appeal of low-coupon Gilts
Beyond the broader benefits that gilts bring to portfolios, there is currently a particularly compelling opportunity within the gilt market for higher-rate taxpayers: low-coupon issues. These are gilts that were issued when interest rates were very low, and as interests have risen, the prices of these issues have fallen below the issue price of £100 (par). These depressed prices must however return to ‘par’ at maturity, meaning many gilts offer the attractive combination of small annual interest payments and material capital appreciation to maturity. This combination offers a distinct tax advantage to higher/additional rate taxpayers, where the low amount of interest is subject to income tax, while the larger capital gain, realised on redemption, is tax free.
To illustrate this point, consider the gilt maturing on 31 July 2031, with a coupon rate of 0.25%, priced at £78.5, giving a gross redemption yield of 4.1%. For this bond, most of the total return is derived from capital appreciation (£78.5 rising to £100 on maturity), for individuals and trusts, this capital gain is taxed at zero. Consequently, the net redemption yield for a 45% taxpayer is 4.0%, which is equivalent to obtaining a bank interest rate of 7.3% (i.e. 7.3% less 45% tax = 4.0%).
Please do speak to your investment manager if you hold surplus funds on deposit elsewhere and wish to discuss taking advantage of the attractive net returns available on low coupon short-dated gilts.
One week of mayhem, Trump escalates his trade war significantly
by Rob Finch Noyes
Introduction to the tariffs
A tariff is essentially a tax charged on goods bought/ imported from another country. They are typically a percentage of a product’s value and though charged at the ‘component level’ are often passed through to consumers through a rise in price for the end product. Tariffs are seen as both a source of revenue and a form of regulation.
President Trump has long argued that the US should use tariffs to boost its domestic economy; essentially applying a tariff to imported goods increases their cost, thereby encouraging US consumers to purchase more domestically produced goods. This would have the effect of reducing the differential between the value of goods the US buys from other countries, and the value of goods US companies sell overseas.
Against this backdrop, on 2nd April 2025, so called ‘Liberation Day’, US President Donald Trump announced a hostile “reciprocal” tariff plan that was far more aggressive than markets had expected, introducing a minimum baseline tariff of 10% on all trading partners, with much higher rates for nations the US claims treat it unfairly (as defined by the trade surplus/deficit with each country).
These higher rates include a massive tariff on China (in addition to the previous 20% tariff) and 20% on the EU. Canada and Mexico, who had the initial shot across the bows, are not subject to new reciprocal tariffs, for now. The 10% universal tariff will take effect on 5th April 2025, while other reciprocal tariffs are set to begin on 9th April 2025. These new tariff measures, combined with the 25% auto tariffs announced in March, will increase the effective tariff rate from around 9% to above 20%. Serious negotiations with the EU and other US trading partners are expected to start immediately.
Economic and political goals
Trump has implemented these widespread tariffs for several reasons, each aimed at achieving specific economic and political goals:
Economic Goals
1. Protecting Domestic Industries: Trump aims to shield U.S. industries from foreign competition. By imposing tariffs, he hopes to encourage domestic production, increase employment and reduce the reliance on imports. This will immediately hurt US companies who rely heavily on Chinese manufacturing. For example, Apple sources over 90% of hardware from the Far East.
2. Reducing Trade Deficits: One of Trump’s key objectives is to decrease the U.S. trade deficit by making imported goods more expensive and less attractive to US consumers.
3. Increasing Government Revenue: Tariffs generate additional revenue for the government, which can be used to reduce domestic taxation, one of his key campaign promises.
Political Goals
1. Negotiation Leverage: Trump uses tariffs as a bargaining tool in trade negotiations. By applying economic pressure, he aims to secure more favourable agreements for the U.S.
2. Punitive Measures: Tariffs serve as a punitive tool against countries that engage in perceived unfair trade practices or other actions that the administration deems harmful to U.S. interests.
3. National Security: Some tariffs are justified on the grounds of national security, aiming to protect critical industries and reduce dependence on foreign suppliers.
Impact on the global economy
Trump argues that a 10% hike in the average US tariff rate could generate approximately $300 billion in revenue for the US Government annually (assuming a 10% decline in import volumes), which would create room for some of his promised income tax cuts. However, this is at the cost of global economic growth. Indeed, higher tariffs, retaliations, a less competitive trade environment and inefficient resource allocation are expected to reduce economic growth for US trading partners and, even more so, for the US. Tariffs are, without doubt, a net negative for the global economy.
China: As one of the largest exporters to the US, China is significantly impacted by these tariffs. The new additional 34% tariff on Chinese imports is expected to significantly strain the Chinese economy. This could also escalate trade tensions between the two countries, affecting global trade dynamics. Trump has subsequently implemented an additional 50% rate taking the total Chinese tariff to 104% comprising of: 20% (initial), 34% (reciprocal), 50% (in response to Chinese tit-for-tat retaliation). As this goes to print (10/04/2025) it is now 125%!
European Union: The EU faces a 20% tariff on its exports to the US, which is likely to impact key industries such as automotive and machinery. Previously viewed as a protectionist trading bloc, the EU has expressed concerns about the tariffs, viewing them as a major blow to the global economy. This has led to a set of retaliatory tariffs between 10%-25% on around $23bn of US goods including poultry, soya beans, steel and aluminium, tobacco, and yachts. Despite this, the EU has stated its clear preference is to find negotiated outcomes with the US, noting that tariffs ‘can be suspended at any time’. As this goes to print it has been reduced to 10%.
United Kingdom: The UK faces a 10% baseline tariff. This comes at a challenging time as the UK navigates post-Brexit trade agreements. The tariffs could impact key sectors such as the pharmaceuticals and heavy industrials sectors. The Labour government now has to approach any trade negotiations with caution, as to be seen to choose sides with the US, the EU or China would be damaging. This is unchanged by the latest news.
US impact
The tariff-induced increase to import prices, resulting in higher inflation, has led economists to expect the Fed to keep base rates at elevated levels for longer as they seek to dampen the inflationary effects of the tariffs. We expect economic growth in the US to slow and the possibility of stagflation (inflation, low growth and increasing unemployment) or recession in the US economy has increased as a result of the tariffs.
What next?
In the coming months, we expect higher levels of equity volatility as the tariff announcements are negotiated and potentially retaliated against. This could be positive (share price increases) if a compromise is found and there is increasing pressure on President Trump from business leaders who backed him during his leadership campaign.
The new US administration inherited a booming stock market and a mandate from the voters to fight inflation, both of which are now at risk due to potentially overplaying the tariff card. Portfolio diversification will be key to weathering trade policy uncertainty, and we will be deciphering the winners and losers in this new environment as global trading conditions develop and stabilise, monitoring for opportunities to buy high quality businesses at attractive long-term prices.
In the coming months, we expect higher levels of equity volatility as the tariff announcements are negotiated and potentially retaliated against.
“Only when the tide goes out do you discover who’s been swimming naked”
Warren Buffet
Conclusion
I don’t expect many readers will have made it this far through this dry (as promised) publication, but I hope that for those of you that have, you now have a deeper understanding of some of the valuation techniques, risk mitigation tools, dialogue (internal and external) and analysis we undertake on the ‘nuts and bolts’ of portfolios both in equity markets and fixed interest. We won’t get every decision right and, indeed, sometimes we will buy that ‘right stock at the wrong price’, we then face an uncomfortable decision. It takes courage to retain conviction, sometimes we do, sometimes we don’t, cutting out to move on to another business where the ‘opportunity cost’ is skewed in favour of a new holding. We certainly spend more time analysing the losers than celebrating the winners, as that is how we learn. I do know ‘hindsight’ in markets can bite harder than a crocodile or indeed a puppy with sharp teeth, as I have recently experienced.
I started this newsletter with the title “Two months and three weeks of sense, one week of mayhem”. The ‘sense’ was a rerating in the Magnificent 7 from crazy multiples with the ‘lifeboat holdings’ and Gilts providing support. The mayhem started when Trump created his tariff policy, where words and numbers have seemingly been plucked from mid-air, some even think he got ChatGPT to write his strategy. How else could Heard Island and MacDonald Island (which are unpopulated except for penguins and sit off the Antarctic coast with access only by a seven-day boat trip from Australia) be subject to a tariff? Shambolic, and he has subsequently started to ‘back down’.
Edward Sidgwick wrote of CWLB’s slogan “quality, quality, quality”. Of course, my father had a bit of ‘spice’ to sit alongside proven global businesses, as do we, but the ‘quality’ principal remains at our core. So, I’ll finish with one of CWLB’s favourite quotes from Warren Buffet:
“Only when the tide goes out do you discover who’s been swimming naked”
As this tariff war plays out, I rather hope we are ‘togged up’ like Victorian women in the Lidos before one of my heroes, Gertrude Ederle, smashed that glass ceiling. The last couple of weeks has been a challenge but my goodness I am relieved portfolios have been positioned in quality.
William Barratt Chairman April 2025
*This is dated 5/4/2025 and there are a few additional comments in the tariff narrative, but the lid was put on the pen at 10am on 10 April 2025 as we have to send the document to print. Well done Rob Finch Noyes, a baptism of fire on his first contribution to a newsletter. He will be authoring a full tariff insight document once we know the direction of travel. Perhaps President Trump will go and enjoy The Masters now and keep quiet for a few days… here’s hoping!
April 2025 equity suggestions
Overseas companies#
* Equivalent Gross Redemption Yield for Index Linked Gilts assuming RPI inflation averages 3% or 5% to redemption.
** Price adjusted for inflation (please note the published price may be different as it does not include accrued inflation)
FTSE 100 – 1 year
FTSE 100 – 5 year
Source: Iress
Barratt & Cooke is:
• The trading name of Barratt & Cooke Ltd., a wholly owned subsudiary of Barratt & Cooke Holdings Ltd.
• Authorised and regulated by The Financial Conduct Authority (registered number: 428789), whose address is 12 Endeavour Square, London, E20 1JN.
• Registered in England and Wales (registered number: 05378036) and is a Member of the London Stock Exchange.
