AJ Bell Shares Magazine 08 May 2025

V O L 2 7 / I S S U E 1 8 / 0 8 M AY 2 0 2 5 / £ 4 . 4 9

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Contents 05 EDITOR’S VIEW

Could BP and Shell really be about to merge?

26

NEWS 07 Latest payroll figures suggest US

economy is on a firm footing despite tariffs

08 The first-quarter earnings season was a mixed one for the UK’s big banks

09 Buffett surprises markets after

stepping down as CEO after 60 years at the helm

10 CVS shares boosted by benign

working paper from the competition watchdog

10 Clarkson shares down 20% as

uncertainty impacts maritime demand

11 Can Burberry buck the luxury sector malaise with its full-year results?

12 Can Walmart mitigate tariff-related price shocks?

?

GREAT IDEAS 14 Spotify is an exciting defensive

growth play during market volatility

16 Why bombed-out sustainability

investor Impax Asset Management could see a big bounce

UPDATES 19 Jet2’s shares recover from turbulence

on buyback and reassuring trading update

35

FEATURES 26 COVER STORY

BATTLE OF THE BRANDS Reckitt vs Unilever, which has the best turnaround tune?

21 How did latest US mega-cap tech earnings shape-up?

33 How I manage my pension

investments, or ‘knowing your limitations’

35 PERSONAL FINANCE

Should I max out my pension before investing elsewhere?

37 DAN COATSWORTH

We could be at a major turning point for asset allocation

37

41

41 ASK RACHEL

I’m approaching 75 and thinking about how to use my tax-free allowance

44 INDEX

Shares, funds, ETFs and investment trusts in this issue

08 May 2025 | SHARES | 03

Contents

Three important things in this week’s magazine

Fe

ature: Big tech earn How did ings tech earnlatest US mega-c ap ings sha Key takeaw pe -up? and little ays include stron sign of rec g profit, mo ess re

I

F

or years, con powerhous sumer goods assesses wh Reckitt Ben es Unilever (ULVR) and ckiser (RK right now ether their shares of . worth buy reliable per the UK stock markeT) were two ing The UK’s their global formers, prized by t’s more cap, Unilevefourth largest com investors pany by ma for dividends scale, predictable r is in the pro ear and share rket hor off the bac buybacks nings, rising formductivity programm ns of a major e, launched er CEO Hei brands conk of their enviable generated in n Schum 2024 by business and bra businesse ferred pricing pow nds. These deliver €80acher to simplify the and see a er s 0 million red earnings andand underpinned upon their based role uction of 7,500 ma in savings their defens s. inly officeive But in mo copious cash gen Unilever have been re recent periods, eration. which spe is focusing on the Pow both firm ak for mo s with the bacthrough leadership re than 75% er Brands turnover, has pressured kcloth becoming changes and produc beefed-up investm of its tougher as household shoppers right-size t marketing and con ent in brand to seek out finances pushed the unbranded Both FTS brands and business by sellingtinues to activists andE 100 firms have bee alternatives. buying new non-core The n ones. tak targ £11 en action eted by 7.5 simplify the to res of separating billion cap is in the Brands’ tha ir businesses, prio tructure and process its Ice Cre a demerg ritis am bus er around the t are beloved by con ing ‘Power 2025; ‘Th on track for the fouiness with e Magnum growth run world and boast lon sumers rth quarter of be spun out Ice Cream ways. In this g-te article, Sha rm entity late as a separate stock Company’ will res r Amsterda this year with a prim market-listed m. ary listing in

1

26 | SHARES

| 08 May

2025

Battle of the brands Unilever and Reckitt are two UK consumer goods giants undergoing significant turnarounds but which is better placed?

ionary pu llba

AI invest

ck (for no f we’re in w) for rise, it’s qua leaner times as rec investors rters like this that ession risks not will now had late to bet against big remind tec st Apple (AA h. We’ve quarterly PL: Meta Platfor NASDAQ), Amazonumbers from Microsoft ms (META:NASDA n (AMZN:NASDAQ), (MS (GOOG:NA FT:NASDAQ), ledQ) and leading US SDAQ) previously (24by Alphabet ma Both the rkets higher with April), and they are out losses S&P 500 and Nasdaqvigour. bra tariffs bom ved by investors have all but wipedsinc to earningsbshell on ‘Liberation e Donald Trump ’s firm remind beats, largely confideDay’ (2 April) thanks prosper aga ers that these com nt outlooks, and pan inst all kind Investors s of marke ies are built to we t backcloths re hoping for that the AI . rea That huge wheels are not com ffirmed optimism AI ing off and talk of pos investment was pay got it. sibl online adv e recession hadn’t ing off, check. Tha ertising spe t blo tariffs pol nding, tick wn a hole in icie streams. Tha s are not ripping . And that Trump’s chu t nks was out of largely that the big tech player a check, with the revenue s with mo cav st consum eat er US

megate

ch perfo

2

rmance

Revenues

Alphabet

Amazon

Apple

95.36

Meta

42.31

Microsoft

Source:

90.23

Investing

.com

70.1

S

vs expect

ations

($bn)

Reporte

155.7

ment

d ($bn)

Forecast 89.32

($bn)

EPS ($) Reporte

d ($)

2.81 155.29 1.59 94.22

Forecast

($)

2.02 1.37

1.65 41.48

1.61 6.43

68.53

5.24 3.46

Big tech scorecard

Buffett su after ste rprises marke after 60 pping down as Cts years at E $10,000 inv the helm O when Bu ested in Berkshir ffett took e Hathawa over today y

3.23

08 May 2025

| SHARES

| 21

Examining some of the key takeaways from the large US technology plays’ first-quarter earnings.

be worth

in 196 around $53 5 would 5 mi

News

Be

llion rkshire hares in Ber Hathaw ay B ($) B:NYSE) fell kshire Hathaway (BR CEO Warren 5% on 5 May, afte Kr chair and Buffett ann 400 step oun The 94-yea down after 60 years ced plans to r-old sav at the hel the dying 200 minutes of ed the surprising new m. meeting on Berkshire’ s until for his suc 3 May, when he decs shareholder 0 ces the end of sor Greg Abel to lared it was time step into his the One of the year.

2000 shoes at biggest cha 2010 Berkshire llen ges is 2020 Source: LSEG burgeonin finding opportuni facing Abel and ties to dep g cash pile billion in the loy its which gre w firs to stag t a quarter. record $34 e, to stan When ask 7.7 ‘The enthusd to their feet in a said he and ed about deploying rapturous iasm shown be interpr acquisition Abel came close to the cash Buffett by the respon ovation. eted in two but ma The compan declined to offer king a $10 billion Buffett in his custom different ways,’ se could further det quipped y was a net ary self-eff Tributes 10th straight ails. seller Buffett incl from business leaderacing manner. its own sha quarter and refrain of equities for the uding App s poured res for the ed from buy Coo in for le (AP k who said third consec In early 202 ing back : ‘There’s PL:NASDAQ) CEO Warren, and plan at Ber 4, Shares examin utive quarter. countless never been someon Tim ed the suc hav peo e article her kshire in detail and bee ces ple n , myself incl e like you can rea sion e. the great inspired by his wisdom uded, d that The plan priv The board ileges of my life to . It’s been one of has been for vice chair Abel kno of an open sec to succee dire w him.’ ctors voted in favour d Buffett former vice ret since of confirming Buffett’s recomme unanimously Charlie Mu -chair and Buffett’ 2021 when the late s bus nge Howard is Buffett would rem ndation, as well Only two r let the cat out of iness partner ain exp the bag in Prior to the ected to succeed chair. Buffett’s son daughter of Berkshire’s eleven 2021.

Sus shares clos shareholder me him eventually. announcem ie and son Howard directors, Buffett’ etin ed at g the 40,000 ent before it emerg knew of Buffett’s s conglomerate a record high of $54Berkshire’s B at people in ed, 0, the audien which prompted by a third over the$1.16 trillion. The the valuing the ce and Abe last year com stock gain for the There’s ne l on S&P pared wit is up ver been h a 10% Buffett inte 500 index.

Warren, someone nds to kee and coun say lik ing p e goi , ‘I wo tless peop ng included conceivabl uld still hang aroundto the office, le, mysel , have be f en inspir wisdom. word wouldy be useful in a few , and could ed by his It’s been cas be es, but what Greg one of the in capital privileges said, in ope the final dep great of my life rations he explain loyment, whatever TIM COO to know K, CEO, App ed. it might be, , le him Longstandi ’ CNBC he hop ng Berkshire dire ctor Ron Ols es Buffett to Abel in on told tak es on the Buffett’s lea same way Munge an advisor role r had don dership. [MG e under ]

3

”

Buffett to retire

08 May 2025

| SHARES

| 09

A key question for the Sage of Omaha’s final months in charge and for his nominated successor is what to do with a huge cash pile.

Visit our website for more articles Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.

Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:

Alpha Group shares hit all-time high on bid approach

Ford pulls guidance and warns of $1.5 billion profit hit

Pearson shares dip despite on track for full year

04 | SHARES 08 May 2025

Whitbread shares gain on outlook and £250 million share buyback

Editor’s View: Tom Sieber

Could BP and Shell really be about to merge?

Plus we may be close to seeing the direct impact of tariffs on the US economy

I

f speculation about a BP (BP.) and Shell (SHEL) merger were a bowl of rice it would surely give you a monster bout of food poisoning given the number of times it has been reheated.

But BP has rarely looked so vulnerable, so it’s not a huge surprise to see rumours of Shell swooping in gather a head of steam. That vulnerability and a diminished valuation are one of the key reasons to think a deal could be on the cards.

Unlike an overseas buyer, Shell would be unlikely to face obstacles around government oversight and interference in the sale of a business which could be considered a strategic asset to the UK. BP’s activist shareholder Elliott might also welcome a deal as a way of exiting its position at a profit.

However, there is a list as long as your arm why Shell might steer clear. Yes, BP’s assets have value, but the business is in a mess and has suffered from lack of a clear strategic direction. It also has a mountain of debt which Shell would be forced to absorb – $27 billion at the end of the first quarter.

In addition, it would be very much at odds with Shell chief executive Wael Sawan’s attempts to streamline the business and make it a more efficient, returns-driven operation - an approach which has helped Shell handily outperform both BP and its big US counterparts since the beginning of 2023.

If I were a Shell shareholder I would be hoping talk of the company running a rule over BP was simply a matter of not ignoring all potential opportunities rather than a precursor to a serious plan to take over the business.

Shell has outperformed since Sawan's appointment Shell BP Chevron ConocoPhillips

ExxonMobil

120

110 106.9 100 93.63

90

80 75.49 74.25 73.76

70 2023

2024

2025

Rebased to 100 Source: LSEG

A

s we discussed in our news section in last week’s issue, the impact of tariffs announced in early April were always likely to take some time to feed through to the US economy as cargo ships from China made their way across the Pacific. However, we could be close to the point of seeing some first-order effects.

Berenberg’s chief economist Helger Schmieding says: ‘The full sticker shock for US consumers is not yet visible in the data, as retailers and wholesalers prepare to pass on the tariff costs. Some of it will likely show up in the inflation numbers for April once they are released on 13 May, but we also expect further price increases beyond that.

‘US household consumption depends more on imports from China than from any other country.

Directly, around 1.5% of the core PCE basket (which excludes food and energy) consists of Chinese goods, roughly equal to the combined share of imports from Mexico and Canada.’

08 May 2025 | SHARES | 05

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News

Latest payroll figures suggest US economy is on a firm footing despite tariffs production down, new export orders down, sentiment about future output at a 10-month low and the first job losses in six months. or fans of the US stock market, the nonWe also know trade with China is grinding to a farm payroll report for April (2 April) was halt, with deliveries to ports such as Los Angeles the proof they needed ‘exceptionalism’ is down by a third from normal levels. alive and well in terms of the economy.

According to LA port director Gene Seroka, According to the Bureau of Labour interviewed by Bloomberg, the US supply You can’t Statistics, there were 177,000 new jobs chain has five to seven weeks’ worth of created last month, compared with stock to get through before shortages begin just flick a economists’ forecasts of 133,000 and a to appear, but even if a deal with China switch and ‘whisper number’ of 120,000, meaning were announced tomorrow ‘you can’t just turn trade Wall Street was braced for a negative flick a switch and turn trade back on’. surprise rather than a positive one.

All the while tariffs stymie exports back on Before we get the flags out, however, it’s GENE SEROKA, to the US, Chinese factories are finding director, LA port worth bearing in mind payrolls aren’t and other buyers – as a Beijing spokesman never have been a leading indicator, they observed, ‘other people have money too’ are a lagging indicator.

– and where factories are dormant, the High-frequency data – such as weekly jobless government can afford to support workers and wait claims – are also typically a lagging indicator, but it out, so the pain is likely to be very one-sided. [IC] it’s worth flagging the last few reports have been disappointing so it may take until next month’s payroll report for us to get a truer picture of labour US consumer confidence market conditions. plummets on tariffs What we do know is consumer confidence has plunged, with the Conference Board’s main index Consumer confidence hitting a five-year low in April and the expectations Consumer confidence - expectations index collapsing to the lowest level since 2011.

According to the Wall Street Journal, the survey included ‘an especially dark view of the 120 labour market’.

Around a third of people surveyed said they 100 expect there to be fewer jobs in the next six months, nearly as many as during April 2009 in the 80 recession which followed the global financial crisis.

For middle- and low-income households, that 60 fear of whether or not they will have a job in the next six months is stopping them from consuming, 40 as the big retailers flagged clearly at the beginning of April and as McDonald’s (MCD:NYSE) confirmed 2015 2020 2025 in its latest earnings.

That pessimism is shared by business leaders, Source: LSEG with the latest manufacturing PMI survey showing

Jobs data is a lagging indicator where as surveys indicate pain is coming

F

”

08 May 2025 | SHARES | 07

News

The first-quarter earnings season was a mixed one for the UK’s big banks Pick of the bunch was NatWest, with shares touching a new 14-year high

A

fter a strong performance across the board in 2024, this year has been slightly less uniform for the UK’s Big Four high-street banks.

First to report was global bank HSBC (HSBA), which put in a good showing with underlying revenue and earnings increasing thanks mainly to its Asia-based wealth management operations, although its trading desks also made hay during the market turmoil.

The group maintained its banking net interest income guidance for the full year and announced it would buy back another $3 billion worth of shares, having only just completed its previous $2 billion buyback.

Next up was Barclays (BARC), which posted better-than-expected earnings, raised its full-year outlook and confirmed it would return £10 billion or almost a quarter of its market cap to shareholders in the form of dividends and share buybacks, with a preference for the latter.

FTSE 350 Banks 5,500 5,000 4,500

Jul 2024 Source: LSEG

08 | SHARES | 08 May 2025

Oct

Jan 2025

Apr

The only UK lender with an investment bank capable of taking on Wall Street titans like Goldman Sachs (GS:NYSE) and Bank of America (BAC:NYSE), Barclays reaped the benefit of increased stock market volatility with outsized gains from its bond and currency trading operations.

It also benefited from strong demand for loans and mortgages in the UK, raising its full-year net interest income target by £300 million to £12.5 billion.

It was a less successful reporting season for the UK’s largest mortgage lender Lloyds (LLOY), which reported a 13% drop in underlying profit due to higher operating costs and increased impairment charges which more than offset an improvement in the net interest margin.

Costs rose 6% reflecting inflationary pressures and business growth, together with higher severance costs, while provisions for bad loans swelled from £57 million to £309 million.

On a positive note, the bank didn’t increase its provisions for motor finance commissions, which currently stand at £1.15 billion after it put aside £450 million in 2023 and another £700 million last year.

Saving the best till last, NatWest (NWG) delivered first-quarter operating profit no less than 18% above the consensus thanks to a combination of strong mortgage demand, a better net interest margin and gains at its investment banking business.

NatWest also surprised with its cost-to-income ratio, which dropped to 48.6% from 58.4% a year ago and makes it the leanest of the Big Four, although it maintained its estimate of full-year running costs meaning there was little room for analysts to tweak their forecasts.

That said, the bank raised its total income and return on tangible equity targets to the top of their respective ranges sending the shares to a 14-year high briefly. [IC]

News

Buffett surprises markets after stepping down as CEO after 60 years at the helm $10,000 invested in Berkshire Hathaway when Buffett took over in 1965 would today be worth around $535 million

S

hares in Berkshire Hathaway (BRKB:NYSE) fell 5% on 5 May, after chair and CEO Warren Buffett announced plans to step down after 60 years at the helm.

The 94-year-old saved the surprising news until the dying minutes of Berkshire’s shareholder meeting on 3 May, when he declared it was time for his successor Greg Abel to step into his shoes at the end of the year.

One of the biggest challenges facing Abel and Berkshire is finding opportunities to deploy its burgeoning cash pile which grew to a record $347.7 billion in the first quarter.

When asked about deploying the cash Buffett said he and Abel came close to making a $10 billion acquisition but declined to offer further details.

The company was a net seller of equities for the 10th straight quarter and refrained from buying back its own shares for the third consecutive quarter.

In early 2024, Shares examined the succession plan at Berkshire in detail and you can read that article here.

The plan for vice chair Abel to succeed Buffett has been an open secret since 2021 when the late former vice-chair and Buffett’s business partner Charlie Munger let the cat out of the bag in 2021.

Only two of Berkshire’s eleven directors, Buffett’s daughter Susie and son Howard knew of Buffett’s announcement before it emerged, which prompted the 40,000 people in the audience and Abel on

There’s never been someone like Warren, and countless people, myself included, have been inspired by his wisdom. It’s been one of the great privileges of my life to know him TIM COOK, CEO, Apple

”

Berkshire Hathaway B ($) 400 200 0 2000

2010

2020

Source: LSEG

stage, to stand to their feet in a rapturous ovation.

‘The enthusiasm shown by the response could be interpreted in two different ways,’ quipped Buffett in his customary self-effacing manner.

Tributes from business leaders poured in for Buffett including Apple (APPL:NASDAQ) CEO Tim Cook who said: ‘There’s never been someone like Warren, and countless people, myself included, have been inspired by his wisdom. It’s been one of the great privileges of my life to know him.’

The board of directors voted unanimously in favour of Buffett’s recommendation, as well confirming Buffett would remain chair. Buffett’s son Howard is expected to succeed him eventually.

Prior to the shareholder meeting Berkshire’s B shares closed at a record high of $540, valuing the conglomerate at $1.16 trillion. The the stock is up by a third over the last year compared with a 10% gain for the S&P 500 index.

Buffett intends to keep going to the office, saying, ‘I would still hang around, and could conceivably be useful in a few cases, but the final word would be what Greg said, in operations, in capital deployment, whatever it might be,’ he explained.

Longstanding Berkshire director Ron Olson told CNBC he hopes Buffett takes on an advisor role to Abel in the same way Munger had done under Buffett’s leadership. [MG] 08 May 2025 | SHARES | 09

News

CVS shares boosted by benign working paper from the competition watchdog CVS The regulator’s key concerns are price transparency and excessive mark-ups for cremation services Veterinary services company CVS (CVSG:AIM) saw its shares jump 13% on 1 May in response to the release of the CMA’s (Competition and Markets Authority) working paper

on potential remedies for the £6.3 billion vet market which it has been investigating over the last year.

The latest price move takes the gain since the start of 2025 to 54%, making CVS one of the bestperforming stocks in the UK this year.

The share price reaction reflects the relatively benign set of potential remedies drawn up by the CMA, which analysts expect to have a low- to medium-level impact on the business.

It is worth noting the regulator has not yet come to an overall view on whether or not the industry suffers from unfair competition or excessive

Clarkson shares down 20% as uncertainty impacts maritime demand The shipbroker’s annual profits could be more than 25% lower due to trade tensions and dollar weakness Clarkson’s (CKN) shares are down more than 20% over one year following what have effectively been two profit warnings within two months from the shipbroking leader.

On 10 March, Clarkson flagged a slow start to 2025 and warned results would be second half weighted amid concerns over the global shipping market and an increasingly uncertain geopolitical outlook.

Then on 1 May, the shipping services specialist warned profits for 2025 could be down more than 25% year-on-year, pinning 10 | SHARES | 08 May 2025

the blame for the earnings alert on global trade tensions and the weaker US dollar. Andi Case-steered Clarkson cautioned that at current exchange rates, underlying pre-tax profit for 2025 will be within the £85 million to £95 million range, implying a 25%-plus year-on-year plunge for this recent addition to Nick Train’s Finsbury Growth & Income Trust (FGT).

‘Uncertainty arising from the potential of a global trade war has escalated’ since the fullyear results on 10 March, explained Clarkson, adding that US dollar

(p)

1,200 1,000 800 2025 Source: LSEG

pricing, or indeed whether remedies will be required at all.

The authority has asked companies for feedback from its current working paper which runs to the end of May. The next working paper will address possible excessive profitability before a provisional decision is made in July. [MG]

Clarkson (p) 4,000

3,000 2025 Source: LSEG

spot negotiations in broking yearto-date were running 7% lower than anticipated as recently as March.

However the company, which has delivered 22 years of consecutive dividend growth, insisted it remains ‘very well placed’ to navigate macroeconomic uncertainty due to its market position, flexible cost base, forward order book and strong balance sheet. [JC]

News: Week Ahead

UK

UPDATES OVER THE NEXT 7 DAYS FULL-YEAR RESULTS 13 May: Angling Direct, Bytes Technology, Diaceutics 14 May: Burberry 15 May: 3i Group, National Grid, Premier Foods, United Utilities

Can Burberry buck the luxury sector malaise with its full-year results?

The industry has been struggling due to softening consumer demand in US and China

Investors maybe pinning their hopes on a glimmer of recovery in the luxury goods sector when UK fashion house Burberry (BRBY) reports its results for the 52 weeks ending 29 March on 14 May. FIRST-HALF RESULTS The sector has been struggling 12 May: Victrex due to weakness in the largest luxury 13 May: On The Beach, goods markets – US and China Renew Holdings, Treatt which has been compounded by 14 May: Britvic, Trump’s tariffs.

Compass, Victorian On 15 April French counterpart Plumbing LVMH (MC:EPA) reported weaker15 May: Auction Technology, Grainger, than-expected first quarter sales Imperial Brands, Nexus mainly due to softer demand in Asia.

Infrastructure, Sage LVMH shares fell 7% to a four-year low of €495 on the news.

The French multi-national luxury goods specialist Kering (KER:EPA) also reported disappointing first-quarter sales with a 25% drop at flagship label Gucci due to a ‘weakening backdrop’, TRADING according to Jefferies’ analysts.

ANNOUNCEMENTS Kering’s shares fell 5% after this 9 May: International trading update and have fallen 26% Consolidated Airlines year-to-date.

Burberry’s outlook doesn’t look pretty if we consider these updates What market expects of from its larger peers What market expects of and its significant Burberry exposure to the Burberry Chinese market.

However, in its last EPS Revenue trading update in EPS Revenue 2025 (11.3p) £2.45bn January, the luxury 2025 (11.3p) £2.45bn firm upgraded its full 2026 19.8p £2.46bn 2026

19.8p

Burberry Burberry 1,000 1,000 500 500

Jul Jul 2024 2024

Oct Oct

Jan Jan 2025 2025

Apr Apr

year 2025 operating profit guidance, despite reporting a 4% fall in thirdquarter revenue. Notably this was before the Trump administration upended things with its new trade policy.

The company has also initiated a brand reset with 360-degree ‘It's always Burberry weather’ outerwear campaign which has caught the attention of Morningstar's senior equity analyst, Jelena Sokolova.

‘We also support the desire to appeal to a wider consumer audience versus a niche, fashion-driven strategy the brand was pursuing before,’ says Sokolova.

Elsewhere there has been speculation about current creative director Daniel Lee leaving the business, a question which may be raised when the company engages with the market alongside its full-year numbers. [SG]

£2.46bn

Source: Stockopedia. Year end 30 March Source: Stockopedia. Year end 30 March

08 May 2025 | SHARES | 11

News: Week Ahead

Can Walmart mitigate tariff-related price shocks?

The world’s biggest retailer could emerge from the current fog with an even greater market share Trade war uncertainties are weighing on sentiment towards consumerfacing stocks, and investors will be able to take the temperature of the all-important US consumer when Walmart (WMT:NYSE) reports firstquarter earnings on 15 May. Given the world’s biggest retailer’s sheer scale it should be able to grab greater market share by absorbing some of the pain from tariffs and widening the price gap to its competitors.

Investors should see evidence of further market share gains in groceries and general merchandise from Walmart, which despite the volatile consumer backdrop, reaffirmed its 3% to 4% first quarter sales growth guidance at its ICM (Investment Community Meeting) on 9 April.

Reassuringly, Walmart left full-

What market expects of Walmart

Q1 forecast

EPS

Revenue

$0.58

$165.6bn

Source: Investing.com

12 | SHARES | 08 May 2025

year 2026 sales and operating profit Walmart growth guidance unchanged although 100 the first-quarter range was widened 80 due to prevailing uncertainties 60 including ‘the Jul Oct Jan Apr desire to maintain 2024 2025 flexibility to invest in price’ as tariffs are Source: LSEG implemented.

‘History tells us that when we lean into these periods of uncertainty, Walmart emerges on the other side with greater share and a stronger business,’ commented chief financial officer John David Rainey at the investor meeting.

US One of the few retailers capable of competing with Amazon UPDATES (AMZN:NASDAQ), Walmart OVER THE is undergoing a technology NEXT 7 transformation which analysts at DAYS Jefferies believe could drive highsingle-digit to low-double-digit QUARTERLY RESULTS percentage annualised operating 12 May: Fox Corp, Simon Property profit growth.

14 May: Cisco ‘Walmart should continue to 15 May: Applied gain market share and leverage Materials, Deere & technology, AI, and alternative Company, Walmart revenue streams to improve margins,’ argues the broker. [JC]

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Great Ideas: Investments to make today

Spotify is an exciting defensive growth play during market volatility Music streaming leader still has substantial expansion headroom

Spotify (SPOT:NYSE) $637.65 Market cap: $130.5 billion

I

t’s been a wild ride for investors this year as global stock markets try to come to terms with Donald Trump’s tariff policy, yet music streaming app Spotify (SPOT:NYSE) has proved incredibly resilient. Year-to-date, the Wall Street-listed stock is up nearly 40%, rapidly recovering all its ‘Liberation Day’ losses and more.

During that same spell, the S&P 500 remains around 3.5% off where it started 2025. A breakthrough into profitability made 2024 a line in the sand year for Spotify, rewarding the confidence investors started showing the company early in 2023. Since the start of that year, Spotify shares have rallied more than 700%, but if analysts are right, the stock could be an excellent defensive growth stock to add to ISA or SIPP portfolios during what could continue to be turbulent times while Trump is in the White House.

Spotify Technology ($) 600 400 200 0 2021

2022

Source: LSEG

14 | SHARES | 08 May 2025

2023

2024

2025

SPOTIFY 101 Spotify is an on-demand music streaming service that allows users to browse a vast catalogue of music and podcasts, licensed through multiple record labels, then create and share playlists with other users.

In much the same way that Netflix (NFLX:NASDAQ) has emerged to dominate streaming TV and films, Spotify has become top dog with music, changing the music consumption landscape since 2008.

Spotify has 678 million total users, including 268 million subscribers and 423 million users of its free, adsbacked service.

Founded by CEO Daniel Ek and Martin Lorentzon in Sweden in 2006 as a solution to a massive internet music piracy problem, it now operates in more than 180 markets worldwide. These roots are why it reports in euros, not dollars.

The revenue model is not complex. Spotify pays licence fees to recording labels, artists, publishers, and other rights holders for streaming their music on its platform. It uses clever algorithms to work out what tracks have been played and pays a royalty per stream to the artist or label.

Variables such as where a song is played (geographically), local currency, artist value and a load of other factors go into the royalty calculation per stream. The company stays tight-lipped on

Great Ideas: Investments to make today

Spotify revenue (€bn) €15.62 €11.72 €10 €2.94 2016

€4.62

€5.25

2017

2018

€6.76

2019

€7.88

2020

€13.24

€9.66

2021

2022

2023

2024

Source: Company data, Business of Apps

details, this is very market sensitive stuff, but it has been previously speculated by experts in the music industry that the average royalty payout per stream lands somewhere between $0.006 and $0.0084, depending on the artist, track or podcast.

Spotify is expected to push through global price rises over the coming month to close the price parity gap, which is good for future revenue

WHY DO WE LIKE IT It’s a big opportunity. Consider, YouTube has more than 2.5 billion active users, according to Statista data from February 2025, and while not strictly comparable, it too offers users a so-called ‘freemium’ model, where users can get free, adsbacked access to content, or choose to pay for an ads-free subscription.

The platform currently charges roughly $12 a month in the US, £12 in the UK, but prices are lower elsewhere. This is useful info for a few reasons; first, Spotify is expected to push through global price rises over the coming month to close the price parity gap, which is good for future revenue. Second, regular price rises are built-in to the business model, but not so most analyst estimates, which provides forecast outperformance potential down the line.

A Spotify subscription remains a relatively lowticket item, but one highly valued by users, which makes it less likely that subscribers will pull the plug even when they are relatively cash-strapped, a point Shares has made about Netflix too.

Spotify’s growth will likely moderate from current expectations, as will its ad revenues. A rolling 12-month PE (price to earnings) multiple above 50 leaves a lot of room to de-rate.

Even so, the essence of Spotify’s defensive qualities are a major reason why so many analysts like the stock in spite of current uncertainties.

According to Stockopedia data, 25 of the 32 analysts that follow the stock have it as a ‘buy’ or ‘strong buy’, with just a single ‘sell’ recommendation.

If current forecasts are on the money, it would imply an average 16% a year revenue growth over the next few years, but a far faster rise in profits as margins rapidly strengthen. Net profit margins were approximately 7.3% in 2024, according to Stockopedia, but are set to firm to 10.2% and 12.8% this year (to end December) and next. It implies 2024 EPS (earnings per share) of €5.67 could grow to €9.21 and €12.80 over the next two years, and higher still beyond.

Investors should think carefully about the risks, volatility in markets can make for uncomfortable times for higher rated stocks. But we believe this is a long-run expansion story with considerable defensive qualities growing far faster than market averages, and thus warrants a premium valuation. [SF]

RECESSION RISKS Of course, if we are plunged into a global recession, as some fear Trump’s economic policies might,

”

08 May 2025 | SHARES | 15

Great Ideas: Investments to make today

Why bombed-out sustainability investor Impax Asset Management could see a big bounce A single-digit PE ratio implies a lot of bad news is discounted in the share price

Impax Asset Management (IPX:AIM) 150.1p

Impax Asset Management

Market cap: £193.6 million

1,400

E

SG (environmental, social, and governance) investing has not been front of mind for many investors since the end of the pandemic as rising interest rates, inflation and the cost-of-living crisis have taken centre stage.

Leading specialist asset manager Impax Asset Management (IPX:AIM), which is focused on investing in opportunities arising from the transition to a sustainable global economy and climate change, has born the brunt of investor neglect.

In late 2021, the shares were riding high and briefly touched £14.60 but the brutal fall from grace has seen them sink to as low as 121p at the end of April.

This de-rating of the stock means the PE (price to earnings) ratio for expected earnings to the end of September 2025 has dropped to 6.6 times compared with 32 times in 2021.

Adjusting for the circa £100 million of own net cash sitting on Impax’s balance sheet, the 2025 PE multiple falls to a miserly 4 times earnings per share.

Despite the recent (8 April) profit warning

16 | SHARES | 08 May 2025

(p) 1,200 1,000 800 600 400 200 0 2021

2022

2023

2024

2025

Source: LSEG

which revealed a 26% drop in AUM (assets under management) at the half year, principally from a £5.2 billion redemption from one of Impax’s biggest clients St James’s Place (STJ), we believe the investment risks are low while the chances of a bounce-back are high.

From a longer-term perspective, we believe such a low valuation is unsustainable and is likely to attract a predator or opportunistic buying from institutions.

After all, Impax has displayed all the

Great Ideas: Investments to make today GREEN IS STILL RELEVANT While the political isolationism fostered by president Trump means the US has probably watered down its net-zero ambitions, that is not true for the rest of world.

Roughly a quarter of Impax’s £25.3 billion AUM are in the US, but two thirds of its clients are outside with 43% in EMEA (Europe, Middle East and Africa), 23% in the UK and 4% in Asia Pacific, where demand for Impax’s specialist sustainable environmental focus remains strong.

Meanwhile, management has not sat idly by and has implemented an efficiency drive to cut costs, reducing its headcount by 30 people which represents 10% of its wage bill.

With no debt and cash on the balance sheet the company is working to ‘optimise’ its capital allocation priorities and said it will provide more details in the half-year report on 27 May. This includes a likely dividend debasement to a more sustainable level, given last year’s dividend of 27.6p per share is not fully covered by 2025 expected earnings per share of 22p.

It is worth noting Impax has slowly begun diversifying away from equities through the acquisitions of Absalon, a corporate credit specialist, and high-yield bond manager Sky Harbor.

In summary, we believe the negative sentiment surrounding ESG investing has likely run its course, and with investment performance on the up, Impax shares represent a great buying opportunity. [MG]

characteristics of a high-quality business and earns highly-respectable returns on equity which have averaged 33% over the last five years.

TRACK RECORD Impax has developed strong investment credentials in its areas of specialisation like water, agriculture, and renewable energy. While investment performance over the last three years has lagged the MSCI All World Index, over five years both the Leaders Fund and Global Opportunities Fund, which combined represent 45% of group AUM, have outperformed, demonstrating value-add for clients.

And against direct counterparts the company shows a credible outperformance, exemplified by the Water Fund which has bested peers over one, five and seven years.

Encouragingly, recent performance to the end of February showed a pick-up across the group’s funds with more than two thirds of group assets ahead of benchmarks in the first two months of 2025.

Existing clients and AUM are likely to be stickier than St James’s Place, which did not provide a reason for its redemption. For example, key fund distributer BNP Paribas (BNP:EPA) recently awarded Impax a fresh mandate and importantly holds a 13% equity stake in the company.

After overseeing a strategic review of the £750 million Impax Environmental Markets (IEM) trust, chair Glen Suarez reiterated his confidence in the Impax team.

Impax Asset Management Impax Asset Management Financial year Financial year 2019

2019 2020 2020 2021

Assets under management (£bn) Assets under management (£bn)

Adjusted operating margin (%) Adjusted operating margin (%)

15.1 15.1

24.4

24.4 26.6

20.2 20.2

37.2

26.6

39.0

2021 2022

37.2 35.7

2022 2023

35.7 37.4

32.6

2023 2024

37.4 37.2

32.6 31.0

37.2

31.0

2024 2025 (Q2)

25.3

2025 (Q2)

25.3

39.0 38.4 38.4

Source: Impax. Note: financial year ends in September Source: Impax. Note: financial year ends in September 08 May 2025 | SHARES | 17

FINANCIAL PROMOTION

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Great Ideas Updates

Jet2’s shares recover from turbulence on buyback and reassuring trading update

TOP STOCKS FOR 2025

The airline and package holidays provider’s customer first approach pays off

Jet2 (JET2:AIM) £16.96 Gain to date: 4.5%

W

e included Jet2 (JET2:AIM) in our list of stocks to buy for 2025, noting an undemanding valuation and scope for expansion, and at first that looked like it might have been an error.

WHAT HAS HAPPENED SINCE WE SAID BUY? However, the package holidays provider provided a positive catalyst for the share price on 29 April by announcing a £250 million share buyback and confirming it expected its full year 2025 results to be in line with guidance.

The company sees a group profit before foreign exchange revaluation and taxation for the year ending 31 March 2025 of between £565 million

Jet2 (p) 1,600 1,500 1,400 1,300 1,200 Jul 2024 Source: LSEG

Oct

Jan 2025

Apr

and £570 million.

The buyback was a reflection of an extremely strong balance sheet. Total cash of £3.2 billion includes money taken from customers when booking holidays but even if we just look at its own cash this totals £1.1 billion as of 31 March 2025.

Jet2 also said at the end of April that it had launched new bases at Bournemouth and London Luton airports due to ‘encouraging’ demand.

WHAT SHOULD INVESTORS DO NOW? Jet2 shares are now comfortably ahead of our entry point. The airline and package holidays provider seem to have got its strategy right when it comes to looking after its customers and growing its market share.

We think investors should hold on to the stock for now. Analysts at Canaccord Genuity said in a recent note that the company offers ‘strong customer trust’ and ‘flexibility at a predictable all-in cost.’

Adding: ‘[Jet2] holidays offer scope to deliver a more sustainable EPS (earnings per share) and expand achieved PE (price to earnings) as investors focus on the value of holidays.’

Canaccord sees its full year 2026 pre-tax profit outlook a ‘touch higher’ due to the company’s ‘fortress balance sheet’ and ‘end-to-end’ customer care. [SG] 08 May 2025 | SHARES | 19

ADVERTISING FEATURE

Small companies, big opportunities

stock selection, active engagement and diversification.

The UK market offers a particularly fertile ground for smaller companies due to its entrepreneurial culture, robust regulatory framework, and access to global markets.

Despite recent challenges many have leveraged their innovative capabilities to address new market demands, ranging from digital transformation to sustainable business practices.

Our WS Gresham House UK Smaller Companies Fund is well-placed to benefit from structural growth themes across various sectors.

Managed by Ken Wotton and Cassie Herlihy, and our specialist UK equity team, they look across the small cap market and target companies with high-quality financial metrics at what they consider to be attractive valuations. By focusing on companies whose long-term earnings growth and cash generation are largely independent of external economic forces, the Fund aims to provide returns less correlated to broader market or economic developments.

Negative sentiment has widened the disconnect between share prices and underlying business fundamentals. This means that many well-run businesses are now trading at low prices providing attractive opportunities for managers to deploy capital.

WS Gresham House UK Smaller Companies Fund is a high-conviction, concentrated fund that looks to grow capital over the long term (in excess of five years).

Investing in UK smaller companies presents a compelling opportunity for investors seeking long-term growth and diversification. These companies are typically more agile and innovative than their larger counterparts. Their smaller scale allows them to pivot quickly, seize emerging opportunities, and capitalise on niche areas within key sectors, such as technology, finance, professional services and healthcare, which are helping to drive the economy.

One of the key advantages of investing in smaller companies is their potential for higher returns. Historically, smaller companies have outperformed larger ones over the long term, benefiting from their ability to grow revenues and earnings at a faster pace. While they are perceived to carry higher risks due to factors like market volatility and limited resources, these risks can be mitigated through careful

Discrete performance

Cumulative performance Cumulative returns to 28 February 2025

1 year

3 years

5 years

Since launch (1 Feb 2019)

WS Gresham House UK Smaller Companies Fund

6.9%

7.6%

45.0%

67.8%

IA UK Smaller Companies

4.3%

−11.3%

11.7%

21.2%

2

1

1

1

Quartile

Source: FE Analytics net of charges, as at 28 February 2025

Discrete annual returns

2024

2023

2022

2021

2020

WS Gresham House UK Smaller Companies Fund

9.5%

7.3%

−16.0%

25.5%

10.9%

IA UK Smaller Companies

6.7%

0.5%

−25.2%

22.9%

6.5%

Source: FE Analytics net of charges, as at 28 February 2025

PAST PERFORMANCE IS NOT A GUIDE TO FUTURE RETURNS Capital at risk. The value of the Fund is not guaranteed and may fall as well as rise. Portfolio investments in smaller companies typically involve a higher degree of risk.

The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment and it does not in any way constitute investment advice. This advertorial contains information on investments which does not constitute independent investment research.

Issued by Gresham House Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (FCA no. 682776).

Feature: Big tech earnings

How did latest US mega-cap tech earnings shape-up?

Key takeaways include strong profit, more AI investment and little sign of recessionary pullback (for now)

I

f we’re in for leaner times as recession risks rise, it’s quarters like this that will remind investors not to bet against big tech. We’ve now had latest quarterly numbers from Apple (AAPL:NASDAQ), Amazon (AMZN:NASDAQ), Meta Platforms (META:NASDAQ) and Microsoft (MSFT:NASDAQ), led by Alphabet (GOOG:NASDAQ) previously (24 April), and they are leading US markets higher with vigour.

Both the S&P 500 and Nasdaq have all but wipedout losses braved by investors since Donald Trump’s tariffs bombshell on ‘Liberation Day’ (2 April) thanks to earnings beats, largely confident outlooks, and firm reminders that these companies are built to prosper against all kinds of market backcloths.

Investors were hoping for reaffirmed optimism that the AI wheels are not coming off and got it.

That huge AI investment was paying off, check. That talk of possible recession hadn’t blown a hole in online advertising spending, tick. And that Trump’s tariffs policies are not ripping chunks out of revenue streams. That was largely a check, with the caveat that the big tech players with most consumer

US megatech performance vs expectations Revenues ($bn)

EPS ($)

Reported ($bn)

Forecast ($bn)

Reported ($)

Forecast ($)

Alphabet

90.23

89.32

2.81

2.02

Amazon

155.7

155.29

1.59

1.37

Apple

95.36

94.22

1.65

1.61

Meta

42.31

41.48

6.43

5.24

Microsoft

70.1

68.53

3.46

3.23

Source: Investing.com 08 May 2025 | SHARES | 21

Feature: Big tech earnings

Apple

Amazon

Meta Platforms

12

26

Microsoft

Alphabet

120 110 100 90 80 70 5 Jan

19

2 Feb

9

16

23

2 Mar

9

16

23

30

6 Apr

13

20

27

Rebased to 100 Source: LSEG

spending exposure – namely Apple and Amazon – remain wary given the current uncertainty surrounding the health of the US economy.

TRADE TENSION IMMUNITY They face growing pressure from trade tensions and shifting spending patterns, and if a recession does emerge, there will be impacts on advertising budgets and consumer spending, and some

22 | SHARES | 08 May 2025

readjustment even if not.

A wider note of caution is these earnings, while undoubtedly a positive, all related to a three-month period before most of the tariff action took place.

‘Apple quantified the impact of the tariffs as a $900 million (extra cost) next quarter, around one percentage point of margin,’ said Matt Ward, co-manager of the AXA Framlington Global Technology Fund (B4W52V5), ‘and Amazon took a similar sized margin hit this quarter on inventory pull forwards.’

To sidestep some of the tariffs harm, Apple has been shifting significant iPhone manufacturing from China to India, although this plan was in place long before Trump’s re-election anyway. Amazon’s online shopping platform is its most visible part and sourcing an estimated 25% of the products it sells there come from China, the company’s caution is understandable, but Amazon’s cloud computing business AWS is the company’s real growth driver.

There may have been some disappointment that unlike at Microsoft and Alphabet, growth for the first three months of the year in this part of the business was a smidge below expectations.

Capital spending is continuing, and overall spending plans among the hyper-scalers, large cloud service providers that offer massive computing resources, storage, and networking infrastructure to support enterprise-scale applications and services, have increased this quarter, despite fears of cuts. As

Feature: Big tech earnings

Valuation compression in big tech this year Next 12 months PE now

Next 12 months PE Jan 2025

Alphabet

17.6

22.3

Amazon

29.8

37.6

Apple

28.4

33.0

Meta

22.7

24.5

Microsoft

29.5

31.7

25.6

29.8

Average

YTD stock performance −14.6% −13.6% −12.5% −4.5% 1.6% −8.7%

Source: Koyfin

noted by Morgan Stanley this week, estimates for capex growth in 2025 among the US cloud hyperscalers have increased from 31% to 38% over the last month despite fears of spending being cut in a more uncertain macro environment.

Amazon CEO Andy Jassy, reminded markets of the nascent stage of the cloud transition so far, saying on the conference call that: ‘It’s useful to remember that more than 85% of the global IT spend is still on premises, so not in the cloud yet.’

SPENDING TAPS RUN HOTTER Meta has been reaping the benefits of AI integration across its business, helping to direct

more relevant content to users, thus keeping them engaged and serving up more relevant ads, yet upping its already hefty AI investment capex, from $62.5 billion in January to $68 billion, at the midpoint of ranges, is a big rebuff to those that thought AI spending might tail off.

Hyper-scaler cloud/AI platforms continue to talk of capacity constraints limiting growth this quarter, while Microsoft mentioned intra-quarter pick-ups in demand and continued increases in the contribution of AI to growth. ‘We think the commentary this quarter bodes well for continued spending growth through 2025,’ said AXA’s Ward.

If latest quarterly reports tell us anything it is that valuation compression is behind sluggish share price performance this year, not growth and earnings. The performance of Alphabet, Amazon, Apple, Meta and Microsoft has averaged -8.7% year to date, while average next 12-month PEs (price to earnings) have fallen 14%, from 29.8 at the start of 2025 to 25.6 now.

Chip designer Nvidia (NVDA:NASDAQ) will post its next quarterly results on 28 May, and assuming they project more positives, they could cement renewed optimism around AI and tech.

By Steven Frazer News Editor

08 May 2025 | SHARES | 23

ADVERTISING FEATURE

The merits of a true investment journey Gabriel Sacks , Co-Manager of abrdn Asia Focus plc More so than ever before, data is regarded as the lifeblood of investment decisions. There is a a genuine superabundance of it, and cutting-edge technology means it can be processed with increasing speed and effectiveness.

Against this backdrop, the notion of direct engagement with investee companies may seem hopelessly passé. Why make some kind of personal pilgrimage to a business when enhanced disclosure and artificial intelligence can handle all the “heavy lifting”?

Imagine, for example, a cab squeaking to a halt outside a rather shabby-looking factory in an emerging market (EM) country. Out steps a somewhat dishevelled figure who has travelled thousands of miles by plane, train and taxi to get here.

The character in question is a fund manager. He believes in having an on-the-ground presence in the region in which he and his colleagues invest, which is why he has journeyed to this out-of-the-way location and this vaguely delipidated facility.

Seriously, what does he hope to accomplish? How can he expect to learn anything that could not be more easily discerned by analysing the swathes of information this company must supply to anyone who expresses an interest?

Well, the somewhat dishevelled figure was me. And what I learnt was that behind the shabby façade

was a business eminently capable of profiting from some of the most important economic and demographic long-term trends in Asia.

Such an experience is far from unusual. Equally, I have visited plenty of conspicuously plush offices and discovered the companies within them fall a long way short of such opulent surroundings and should therefore be avoided at all costs.

The point is that quantitative analysis can sometimes tell us only so much. The qualitative aspects of a business might prove every bit as significant in determining whether

an investment is likely to succeed or fail.

There are numerous issues that could demand attention. They might include a company’s strategy, its inherent agility and adaptability, its capacity for continued innovation and even the strength of the relationships between its senior executives.

In the experience of our team, which operates throughout Asia, this is why “being there” can still have great value. The three overarching considerations below particularly lend themselves to favouring such an approach.

ADVERTISING FEATURE

DIGGING DEEPER Wherever it may be, a company might not always project an image that mirrors the reality of its situation. We have already seen how this problem can manifest itself in a business’s premises, but it can apply much more widely.

Take financial statements – what we might think of as the corpuscles of the aforementioned lifeblood. Do accounting profits, often adjusted by the management team, translate to healthy cashflows? Even if they are perfectly accurate, they may not reveal the full story.

For instance, evidence of short-term underperformance might obscure the possibility of longer-term growth.

On the other hand, page after page of jaw-dropping stats could disguise the underlying inadequacies of a management team that lacks a decent plan for the way forward.

Face-to-face meetings provide a powerful means of digging deeper and discerning the whole truth.

APPRECIATING EACH COUNTRY’S UNIQUENESS Culture has long been acknowledged as a key driver of corporate performance. Yet it is vital to recognise it differs not just from company to company but from nation to nation.

Every country’s unique history, attitudes and even eccentricities can play a part in investment decisions.

This is perhaps most notably the case in a region such as Asia, where

Important information •

•

The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.

Past performance is not a guide to future results.

many aspects of day-to-day life – not least in the professional sphere – are markedly dissimilar to those in the West.

Take South Korea, where business dealings generally entail a delicate synthesis of extreme politeness and strict observance of hierarchy. As investors, we need to understand the nuances of such “normals” and appreciate how they are reflected in what a company says and does.

EXPLORING THE UNKNOWN Even though we live in an era of ever-improving governance and everaccelerating technological progress, thousands of good businesses consistently escape the notice of the broader investment community.

This is because transparency and processing power can count for little – and even for nothing – if a company is simply overlooked.

•

Emerging markets tend to be more volatile than mature markets and the value of your investment could move sharply up or down.

Other important information: Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate,

This is frequently the fate that awaits some of the brightest opportunities in Asia, as well as those in EMs around the globe.

Maybe above all, promising smaller businesses routinely go unremarked.

Most investment analysts are too bound up in the proven attractions of mega-cap organisations in the US and other major regions – or it may be that third-party research houses can afford to cover only the most liquid stocks in any given market.

As a consequence, the job of unearthing hidden gems is likely to lie with specialist teams. Their indepth knowledge should stem from an extensive first-hand appreciation of the places, people, practices and policies that help shape genuinely informed investment choices in some of the world’s fastest-growing and most fascinating economies.

London EC2M 4AG. Authorised and regulated by the Financial Conduct Authority in the UK. Find out more at www.Aberdeen.com/aas or by registering for updates.

You can also follow us on social media: Facebook, X and LinkedIn.

?

F

or years, consumer goods powerhouses Unilever (ULVR) and Reckitt Benckiser (RKT) were two of the UK stock market’s more reliable performers, prized by investors for their global scale, predictable earnings, rising dividends and share buybacks generated off the back of their enviable brands. These brands conferred pricing power upon their businesses and underpinned their defensive earnings and copious cash generation.

But in more recent periods, both firms have been through leadership changes with the backcloth becoming tougher as pressured household finances pushed shoppers to seek out unbranded alternatives.

Both FTSE 100 firms have been targeted by activists and taken action to restructure and simplify their businesses, prioritising ‘Power Brands’ that are beloved by consumers around the world and boast long-term growth runways. In this article, Shares

26 | SHARES | 08 May 2025

assesses whether their shares worth buying right now.

The UK’s fourth largest company by market cap, Unilever is in the horns of a major productivity programme, launched in 2024 by former CEO Hein Schumacher to simplify the business and deliver €800 million in savings and see a reduction of 7,500 mainly officebased roles.

Unilever is focusing on the Power Brands which speak for more than 75% of its turnover, has beefed-up investment in brand and product marketing and continues to right-size the business by selling non-core brands and buying new ones.

The £117.5 billion cap is in the process of separating its Ice Cream business with a demerger on track for the fourth quarter of 2025; ‘The Magnum Ice Cream Company’ will be spun out as a separate stock market-listed entity later this year with a primary listing in Amsterdam.

While its market cap is less than a third of Unilever’s, Reckitt Benckiser (RKT) is another consumer goods big beast as the blue-chip benchmark’s 23rd biggest business. And like its larger consumer goods peer, is also reshaping and streamlining its operations.

Slough-based Reckitt’s struggling Essential Home segment is up for sale and the company is considering strategic options for Mead Johnson Nutrition, the troubled infant formula business captured for $18 billion in 2017 that has proved nothing short of a disastrous acquisition and remains a source of litigation risk for the group. These disposals will sharpen the focus on ‘Core Reckitt’, which is in rude health and performing well.

Reckitt has expressed hope to complete the sale of Essential Home this year, but market conditions could cause delays, especially for private equity firms trying to raise finance in volatile bond market conditions.

UNILEVER IS MOVING AT PACE Chances are Shares readers will have more than a few Unilever products sitting in their fridges, freezers or bathroom cabinets. After all, the fast-moving consumer goods giant’s iconic portfolio of household, food and beauty brands are used by more than 3.4 billion people every day in over 190 countries.

Unilever has around 400 brands, but it is lasering in on 30 superior ‘Power Brands’, a list that include the likes of Dove and Domestos, Persil, Comfort, Vaseline and Liquid I.V., not to mention Knorr, Horlicks, Hellmann’s and ice cream labels Magnum, Cornetto and Ben & Jerry’s.

Deep entrenchment in the supply chains of its retailers is the source of cash-generative, progressive dividend payer Unilever’s wide economic moat. In February, the Rexona-toSunsilk maker shocked the market by parting ways with Schumacher after just 18 months in the CEO role. Yes, his turnaround strategy had borne early fruit, yet progress had stalled prior to his departure with the Hellmann’s-toHorlicks supplier issuing weak guidance.

Schumacher was replaced with Unilever’s CFO (chief financial officer) Fernando Fernandez, an executive with ‘a love of brands and a profound knowledge of Unilever’s operations’ according to chair Ian Meakins, who insisted the new CEO has the ability to ‘drive change at speed’.

RECKITT IS BEING REJUVENATED Consumer health and hygiene company Reckitt Benckiser makes and distributes a wide range of household, toiletry and pharmaceutical products on a global basis

Unilever vs Reckit Benckiser 180 UNILEVER (UK) 165.98

160 140 120 100 80

RECKITT BENCKISER 83.3

60 40 20 0 2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Rebased to 100 Source: LSEG

08 May 2025 | SHARES | 27

Unilever – Key details Ticker

ULVR

Share price

£46.69

Market cap

£117.5bn

FTSE subsector

Personal Products

Reckitt Benckiser – Key details Ticker

RKT

Share price

£47.40

Market cap

£31.9bn

FTSE subsector

Nondurable Household Products

Source: Shares magazine

and like its rival, boasts a formidable brand portfolio, though it has felt the pain from the public trading down in recent years to supermarket own-brand or cheaper alternatives amid the cost-of-living squeeze.

Reckitt Benckiser is also prioritising its strongest brands, a portfolio dubbed ‘Core Reckitt’ and spanning 11 consumer health and hygiene ‘Powerbrands’ including Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex and Veet. These are its strongest brands and drive over 80% of Reckitt’s net revenue, while the non-core Essential Home portfolio up for sale includes Air Wick, Calgon and Cillit Bang.

Reckitt Benckiser’s operating margins are expected to improve in 2025, driven by cost savings from CEO Kris Licht’s Fuel for Growth turnaround strategy. In common with Unilever, Reckitt Benckiser has a highly cash generative business model which supports ongoing dividend growth. Investment bank Berenberg says the potential disposal of Essential Home could result in a special dividend and/or a share buyback programme in 2026.

Risks to consider include tough competition and waning consumer confidence in the US, where the impact of tariffs needs to be monitored, since North America spoke for 26% of Core Reckitt sales in 2024. And it is worth noting that the company’s Nutrition business has yet to recover from the share losses sustained on the back of last year’s Mount Vernon tornado-related supply disruption.

28 | SHARES | 08 May 2025

Source: Shares magazine

HOW ARE THE BUSINESSES PERFORMING? On 24 April, Unilever reported marginally better-than-expected first quarter sales thanks to robust demand for its beauty, personal care and ice cream products. Driven by volume and price, underlying sales growth of 3% marked a slowdown from the 4% generated in last year’s fourth quarter, but the performance was solid enough in the context of the tougher market conditions and the private label competition facing the company.

The deodorants-to-dishwasher tablets maker reiterated its full-year guidance and Fernandez sounded confident that growth will improve as self-help measures take hold in emerging markets such as Indonesia and China.

‘First quarter underlying sales growth of 3% reflects the strength of our increasingly premium and innovation-led portfolio in developed markets. We have interventions in place in some emerging markets to step up growth in the remainder of the year,’ added Fernandez.

First-quarter figures (23 April) from Reckitt Benckiser revealed subdued group like-forlike growth of 1.1% and offered evidence the US consumer is feeling less than healthy as the numbers missed expectations. The good news was Reckitt Benckiser stuck with its full-year 2025 guidance for 3% to 4% like-for-like sales growth in Core Reckitt, though hitting this target could prove a

stretch given US household spending was already under pressure even before the impact of the current US trade policy had been felt.

It was no surprise that most of the company’s growth came from emerging markets, where the threat posed by unbranded alternatives is less and where, for reasons of quality and safety, shoppers will stick with familiar names where possible.

WHICH STOCK SHOULD YOU BUY NOW? As Stockopedia data demonstrates, both Reckitt Benckiser and Unilever have the hallmarks of quality companies with wide economic moats, evidenced by a double-digit return on equity (ROE) and return on capital employed (ROCE). Unilever’s returns on these quality metrics are superior, which in part explains why its shares have dramatically outperformed Reckitt Benckiser’s over the past decade.

Innovation is a key source of competitive advantage for the latter, which manufactures science-backed health and hygiene brands that consumers trust and will pay up for, even

when times are tough. As the tables provided show, Reckitt Benckiser’s pricing power is reflected in a gross margin of 60.7% in 2024, up 70 basis points on 2023 and comfortably ahead of Unilever’s 2024 gross margin of 45%, albeit from a different product mix.

Reckitt Benckiser’s operating margin is also richer than Unilever’s, though the latter is seeking to close that gap through its massive efficiency drive. The former’s shares are cheaper on a prospective price-to-earnings (PE) basis, swapping hands for less than 14 times forward earnings versus 18 times-plus for Unilever, one reason why the bargain-seeking investment trust Fidelity Special Values (FSV) has popped up on the shareholder roster.

Key drivers of the valuation discount are concerns over rising competition across Reckitt Benckiser’s main categories, including increased price promotions by rivals, and the major risk of litigation amid accusations that its Enfamil infant formula failed to warn of the danger of necrotising enterocolitis among premature newborns who consumed the product. A mountain of

UNILEVER IN NUMBERS Breakdown by product category

Q1 sales – regional breakdown

Beauty & Wellbeing

22%

Asia Pacific Africa

Foods

22%

North America

22%

Personal Care

22%

Europe

20%

Home Care Ice Cream

20% 14%

Latin America

44%

14%

Source: Unilever Q1 presentation

Source: Unilever, based on FY24 turnover

08 May 2025 | SHARES | 29

RECKITT BENCKISER IN NUMBERS Geographic breakdown for 'Core Reckitt' Emerging markets America

Europe

North America 26%

2024 highlights

North

Emerging markets 39%

Cash returns to shareholders

75.2%

Like-for-like revenue growth

1.4%

Q4 like-for-like growth

4.6%

Adjusted operating margin

24.5%

Source: Reckitt Benckiser

Europe 35%

Source: Reckitt Benckiser, for FY 2024

30 | SHARES | 08 May 2025

Reckitt and Unilever are high margin, high returns

UNILEVER

Operating margin

ROE

ROCE

2022

17.6%

42.3%

20.2%

2023

16.1%

34.9%

18.6%

2024

15.1%

30.2%

16.9%

2025 RECKITT BENCKISER

Operating margin

ROE

ROCE

2022

22.3%

27.8%

15.8%

2023

17.3%

18.3%

13.5%

2024

17.1%

18.9%

14.0%

2025

Forward PE

Prospective yield

18.3

3.4%

Forward PE

Prospective yield

13.6

4.5%

PE = price to earnings. ROE = return on equity. ROCE = return on capital employed Source: Stockpopedia, data as at 29 April 2025

liabilities from hundreds of lawsuits could add up to a significant sum and means there could be an overhang on Reckitt Benckiser’s shares for months to come.

On balance, Shares considers Unilever to be the safer bet right now. In its latest update, the Dove-to-Domestos supplier assured investors the direct impact of tariffs on profitability will be ‘limited and manageable’ and reconfirmed its full-year 2025 outlook, guiding for underlying sales growth within the 3% to 5% range with a ‘modest improvement’ in underlying operating margins.

When Fundsmith Equity’s (B41YBW7) legendary manager Terry Smith speaks, Shares is minded to listen. At the Fundsmith annual shareholder meeting in February, the star fund manager described Unilever’s Argentinian new broom as ‘dynamite, especially in understanding operations in depreciated currency environments’.

Fundsmith’s head of research Julian Robins

added: ‘It’s disappointing how few truly impressive CEOs we come across. Our heroes include Jean-Paul Agon (L’Oreal), Kevin Lobo (Stryker), Carlos Rodriguez (ADP), Jonathan Jaques (IDEXX), and Dr. Udit Batra (Waters).

I think Fernando Fernandez will join that group; this guy is fantastic.’

And don’t forget, buying Unilever shares will enable investors to participate in the product innovation and future growth of The Magnum Ice Cream Company, which owns five of the top 10 selling global ice cream brands, when it demerges via listings in Amsterdam, London and New York. Unilever’s Ice Cream unit churned out a decent firstquarter performance, with underlying sales up 4% driven by both volume growth and price, setting a positive tone ahead of the spin-out.

DISCLAIMER: James Crux has a personal investment in Fidelity Special Values.

08 May 2025 | SHARES | 31

Feature: Managing a pension

How I manage my pension investments, or ‘knowing your limitations’ Failed attempts at chasing gains have made me a firm believer in compounding

A

s I’ve explained in previous articles, I’m an income-focused investor rather than someone who chases capital gains.

The decision to focus on income comes down to two factors – first, it’s not easy to find stocks which can guarantee you capital gains, whereas over the years I’ve bought several stocks which have done just the opposite and generated big losses very quickly; and second, the power of compounding never ceases to amaze me as without lifting a finger my interest earns interest.

You could put it down to age, although I decided to alter my approach some time ago, and while my pension may not have kept pace with the ‘Magnificent Seven’ or the Nasdaq – I don’t know

many people whose pension has, in fairness – not only has it kept pace with inflation, it has held up well in times of market turmoil.

OBSERVING THE FIRST RULE OF MAKING MONEY Given the first rule of making money is not to lose money, the fact my pension pot has not just held its

Managing a monthly income stream from dividends Investments: A

B

C

D

E

Feb

Mar

F

G

H

Dividend income

£800

600

400

200

Jan 2025

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

08 May 2025 | SHARES | 33

Feature: Managing a pension What I am doing, however, is backing my winners and increasing my bet when others may be giving in to doubt and selling – a long-term mindset is key, and as long as nothing has changed with your original investment case, all investors should have the courage to buy on a correction.

own but has grown in value this year is a big comfort.

There’s no great secret to how I manage my investments – it’s a mixture of regular contributions into my SIPP, regularly reinvesting dividends and adding to a few ‘copper-bottomed’ growth stocks on pullbacks.

Contributing regularly to a pension is crucial, and the sooner you start the better as investing for retirement is a long process which can’t be rushed.

With this regular inflow of money, and with my cash ‘reserve’, I make fixed monthly investments in a couple of core holdings, a process known as ‘pound-cost averaging’.

If prices are up one month, I buy less shares, if they are down the next month I buy more shares, it’s that simple.

One of my core holdings is a global equity fund which has generated a higher rate of return each year than I could ever hope to achieve by myself, even if it hasn’t necessarily beaten the index.

Another is a fixed income fund which pays interest monthly, so by making a regular investment I’m turbo-charging the compounding process, buying more shares with capital and interest, while I have the opportunity.

Having said at the start I no longer chase capital gains, I do own a handful of stocks which I believe are attractive growth companies with huge addressable global markets, trading at a fraction of their intrinsic value, and which I expect to double or treble over the long term.

From time to time, when markets allow thanks to a sharp sell-off, I add to these stocks, but I don’t profess to be an expert in market timing and very rarely do I pick the low.

34 | SHARES | 08 May 2025

KEEPING SOMETHING IN RESERVE I have a small cash ‘reserve’, which I referred to earlier and which allows me to add a stock or a fund to my pension if it looks really compelling, but the number of compelling ideas out there is very small and it’s rare that I add a new name.

The exception to this rule is when a company or fund I own is taken over and I have to redeploy the cash I receive.

Frankly, I would rather none of my holdings were taken over as more often than not bidders are opportunistic and the long-term returns I have factored into my thinking are thrown out the window or at the very least brought forward by several years.

Finally, the bulk of my pension looks after itself as it is invested in stocks and funds with instructions for the dividends to be automatically reinvested given I don’t need the income for several years.

What I will need to do going forward is to rebalance my investments so the monthly dividend stream is more evenly distributed and less ‘lumpy’ than it is at present.

That involves increasing some holdings and decreasing others depending on when dividends are paid, so when I do come to retire I have a steady monthly income which allows me to budget for my expenditure without having to dip into my capital at any point.

Naturally, this approach won’t work for everyone and most people will have their own ideas about managing money as well as their own skillset which they can bring to pension investing.

However, I’m mindful of past mistakes and am happy to let the ‘eighth wonder of the world’ do most of the heavy lifting for me – as Dirty Harry says in the classic 1973 film Magnum Force, a man’s got to know his limitations.

By Ian Conway Deputy Editor

Personal Finance: Pensions

Should I max out my pension before investing elsewhere?

The case for prioritising your retirement pot with your available cash

T

hanks to the advent of auto-enrolment, pensions have become arguably the easiest way to invest your money.

In fact, if you are employed by a company, you must actively put in effort to not invest via your pension, by going through the opt out process. With this contribution squared away, your focus might shift to investing through other methods, such as an ISA. But, depending on your investment goals, taking a closer look at your pension contributions could help your money go further than using a separate vehicle.

As a base, when you’re auto enrolled in a pension, 4% of your salary will go towards contributions, while your employer contributes a

How salary sacrifice can work Salary of £60,000 4% pension contribution 8% pension contribution Source: AJ Bell

Pension contribution + after tax income in higher rate bracket £6,797

£7,757

minimum of 3% and the government provides 1% in tax relief.

INCREASING PENSION CONTRIBUTIONS However, you can still increase your own contribution to take full advantage of your pension. For the 2025/26 tax year, you can contribute up to £60,000 and benefit from tax relief. And depending on your employer, they may base their own contribution on how much you choose to put in.

The method that companies use for this differs, but many companies will raise their percentage contribution if you choose to raise yours. It is important though to check your contract and policy to see if this is a worthwhile exercise.

The other possible benefit of upping your pension rather than other investments is if your workplace participates in a salary sacrifice scheme.

This is a contractual deal between an employee and employer where the employee agrees to give up a chunk of their salary in favour of a benefit (in this case, a pension). By giving up a chunk of their salary, they avoid this part of their income being subject to tax. This can be a valuable tool if you are on the edge of a tax bracket.

For example, if you have a salary of £60,000 per year, around £10,000 of your income would be within the higher tax rate. Assuming your work has a salary sacrifice program, through auto enrolment, £2,400 of your salary would be put into your pension each year, leaving you with £57,600.

08 May 2025 | SHARES | 35

Personal Finance: Pensions The higher rate of taxable income begins at £50,271, so after the 40% tax, you’d receive £4,397 from the portion of your salary which sits in the higher tax bracket.

But what if you instead put 8% in your pension?

You’d have a contribution of £4,800 each year, and after the 40% tax, you’d receive £2,957 from that bracket. If you combine the amount you put into your pension with the amount you make after tax from the high income bracket in each of these examples, you’d have a total of £6,797 at 4% and £7,757 with 8%. If your employer matches your percentage increase, then the benefit would be even greater.

REMEMBER THE LIMITATIONS If your main investment goal is for retirement, this can be a sensible way to go about your saving.

But pensions of course come with limitations.

You can’t begin to withdraw from your private pension until you’re 55, and this age is set to rise to 57 in April 2028. When your goals include things like purchasing a home or paying for your child’s education, you will likely need access to your money much sooner.

This is when vehicles like stocks and shares ISAs and Lifetime ISAs can be a useful tool. And with a Lifetime ISA, you still can get some benefits as the state provides a bonus top-up of up to £1,000 per year, though this wrapper comes with its own restrictions.

ISAs can also have benefits when it comes to withdrawals. Anything you hold in an ISA is tax free, and you can withdraw it without eating into your annual income allowance, which is £12,570.

Pensions allow you to withdraw 25% of the total amount tax free from the age of 55, but in most cases the remainder would be taxed as income.

THE BENEFITS OVER TIME If someone simply rode out their auto-enrolment, on a £60,000 salary they would contribute £2,400 and their employer and tax break contributions would add another £2,400. In 30 years, if you had an annual return of 5% after charges, you would accumulate £332,903. You could take £83,226 of this tax free and, assuming you spread the rest of your pension over the coming years, you could have a tax rate of 20% on the rest.

If you took your £2,400 and invested it yourself with the same return over 30 years, you’d end up with £166,451. Even after factoring in the taxed amount, your returns are far better utilising a pension.

Because of the different ways employers handle pensions, and because people have a variety of goals for their money, the decisions around pension contributions will differ depending on your personal circumstances. Ensure that you understand your company’s policies and when you plan to access your savings before making any changes and if in any doubt it is always worth seeking independent advice.

Hannah Williford AJ Bell Content Writer

36 | SHARES 08 May 2025

Dan Coatsworth: US allocation

We could be at a major turning point for asset allocation Why the US could become a smaller part of investors’ portfolios

A

month has passed since Donald Trump’s Liberation Day tariff announcement.

In that period, we’ve seen financial markets tumble and, for most parts of the world, fully recover. If you’d been on holiday for those four weeks and not looked at your portfolio or the news, you might not realise anything had happened.

Yet those four weeks could go down in history as

being a pivotal moment for markets. Not because of the brief slump in asset values, but for triggering a potentially significant shift in investors’ mindset towards exposure to the US. Investors have been happy to pay a premium for US shares relative to other parts of the world such as Europe and Asia over the past decade or so. At the start of 2013, the S&P 500 traded on the same 12.5-times multiple of earnings as the MSCI World

12-month forward price to earnings ratio MSCI WORLD

FTSE 100

S&P 500

22 20 18 16 14 12 10 8 2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Source: AJ Bell, LSEG

08 May 2025 | SHARES | 37

Dan Coatsworth: US allocation

How the US compares to other parts of the world on How the US compares to other parts of the world on performance and valuation performance and valuation Index Index

Country Country

S&P 500 S&P 500 MSCI Brazil MSCI Brazil Dax Dax

US US Brazil Brazil Germany Germany Hong Hong Kong Kong China China UK UK Europe Europe Japan Japan Emerging Emerging Markets Markets India India

Hang Seng Hang Seng MSCI China MSCI China FTSE 100 FTSE 100 Stoxx 600 Stoxx 600 MSCI Japan MSCI Japan MSCI Emerging Markets MSCI Emerging Markets MSCI India MSCI India

Price change year-toPrice date change year-todate

12-month forward PE 12-month forward PE 19.6 19.6

−4.7% −4.7%

7.7 7.7

16.9% 16.9% 13.6 13.6

13.0% 13.0%

9.9 9.9

12.2% 12.2%

10.7 10.7 11.8 11.8 13.3 13.3 12.8 12.8

9.4% 9.4% 4.0% 4.0% 3.9% 3.9% 3.3% 3.3%

11.6 11.6

3.5% 3.5% 22.2 22.2

1.5% 1.5%

Source: AJ Bell, LSEG. Performance data 1 Jan 2025 to 2 May 2025 8am BST. PE data as of 30 April 2025 Source: AJ Bell, LSEG. Performance data 1 Jan 2025 to 2 May 2025 8am BST. PE data as of 30 April 2025

index, a popular benchmark for the global stock market. The FTSE 100 traded on 11 times earnings, a slight discount.

In 2016, the gap between all three indices started to widen and that’s continued since. At the start of 2025, the S&P 500 traded on 22.3 times 12-month forward earnings estimate, compared to 19.5-times for the MSCI World and 11.2-times for the FTSE 100. Investors were happy to pay nearly twice as much for a US share as an UK one.

You have to go back to 2002 until 2007 to see a period when US equities last underperformed the global market on a consistent basis. Anyone who started investing in the past 10 to 15 years won’t have known a period where US shares struggled badly for a long time.

Over the past 15 years, the S&P 500 has returned 476% including dividends versus 303% from the MSCI World, according to data from FE Fundinfo.

These performance figures might give you the impression the US is a guaranteed money maker but that is certainly not the case if you look back in history.

38 | SHARES | 08 May 2025

REASONS WHY APPETITE FOR THE US MIGHT WEAKEN Markets fell after the Liberation Day speech in April 2025 because investors worried about tariffs backfiring and causing damage to the US economy, instead of strengthening it.

It’s prompted certain investors to think hard about their portfolios and wonder if they’re too

Dan Coatsworth: US allocation

reliant on the US for returns. Even someone who has a global equity tracker fund and not a US-specific fund will still have significant exposure to that part of the world – they might not realise unless they look under the bonnet of their portfolio.

The superior performance from US equities, particularly big tech companies, in recent years has increased the weighting of the US in the MSCI World index to account for approximately three quarters of the entire global market. That’s double what it stood at in the 1980s.

Whether it’s being prudent about not being overexposed to one region or disagreeing with Trump’s policies and worrying about long-lasting damage to the US economy, there is a growing list of reasons why someone might be thinking about dialling down US exposure.

The big question is where will investors turn to?

Cheaper valuations are a natural starting point.

The UK market is still cheap, so is Japan, China and emerging markets in general. Is it a coincidence these territories have been among the best performing markets year-to-date? Possibly not.

Germany, Brazil and Hong Kong have all delivered 10%+ returns so far in 2025 whereas the US is in the red and the worst performing major market.

Speaking on AJ Bell’s Money & Markets podcast, Peter Fitzgerald, chief investment officer, Macro Discretionary at Aviva Investors, remarked: ‘We need to be open to a period where US assets lag those of the rest of the world.

‘The globe is over-invested in US assets,’ he added. ‘I don’t think it would take a huge amount to see a period whereby that rebalances.’ He says the MSCI World global benchmark being 72% invested in the US is ‘not a balanced benchmark’ and believes it should be less than 50%.

AN EQUAL-WEIGHTED OPTION This situation might prompt investors to look at equal-weighted tracker funds, a type of investment that is growing in popularity as they reduce concentration risk.

Certain investors might be familiar with the concept. For example, an S&P 500 tracker fund might be heavily exposed to a handful of mega cap tech names like iPhone seller Apple (AAPL:NASDAQ) and cloud computing-to-gaming

giant Microsoft (MSFT:NASDAQ) because they are dominant names in the underlying market capweighted index. An equal-weighted version of that US index would have the same amount of exposure to all constitutes in the index.

An equal-weighted fund tracking the MSCI World index works in the same way, to a point. You might think such an index spreads the asset allocation equally between countries around the world, which would solve the problem of the US being overly dominant. It doesn’t quite work that way.

The equal-weighted version takes the same companies that belong to the ‘normal’ version of the MSCI World – 1,352 large and mid-cap stocks from 23 developed market countries – and once a quarter rebalances so they each member represents a same-sized slice of the cake.

Whereas the ‘normal’ version of the MSCI World currently has a 72% weighting to the US, the equalweighted version of the index has 41.7%. Someone invested in this version of the MSCI World index would effectively still have exposure to the US, but significantly less reliance compared to the ‘normal’ version.

There are other ways of reducing exposure to the US such as trimming positions in US-specific funds or putting new money into non-US assets.

Each investor will choose their own strategy, and it will be fascinating to come back in a year’s time to see if the great rotation has happened, or whether investors’ addiction to the US was just too strong to give up.

DISCLAIMER: AJ Bell referenced in this article owns Shares magazine. The author (Dan Coatsworth) and editor (Tom Sieber) of this article own shares in AJ Bell.

08 May 2025 | SHARES | 39

WATCH RECENT PRESENTATIONS JPMorgan Emerging Markets (JMG)

Emily Whiting, Investment Specialist JPMorgan Emerging Markets seeks to uncover quality stocks from across emerging markets that are also attractively valued, benefiting from an extensive network of country and sector specialists from one of the longest established emerging market teams in the industry.

Seplat Energy PLC (SEPL)

James Thompson, Head of Investor Relations Seplat Energy is Nigeria’s leading indigenous energy company. Following the acquisition of Mobil Producing Nigeria Unlimited, Seplat Energy’s enlarged portfolio consists of eleven oil and gas blocks in onshore and shallow water locations in the prolific Niger Delta region of Nigeria, which the company operate with partners including the Nigerian Government and other oil producers.

Strategic Equity Capital (SEC)

Ken Wotton, Fund Manager

Strategic Equity Capital is a specialist alternative equity trust. Actively managed by Ken Wotton and the Gresham House UK equity team, it maintains a highly-concentrated portfolio of 15-25 high-quality, dynamic, UK smaller companies, each operating in a niche market offering structural growth opportunities.

Visit the Shares website for the latest company presentations, market commentary, fund manager interviews and explore our extensive video archive.

www.sharesmagazine.co.uk/videos

CLICK TO PLAY EACH VIDEO

SPOTLIGHT

Ask Rachel: Your retirement questions answered

I’m approaching 75 and thinking about how to use my tax-free allowance Helping with a question about taking lump sums out of a retirement pot I’m approaching 75 & thinking about the 25% tax-free allowance.

I’ve already taken the 25% from my SIPP. But I also have two stakeholder pensions of about £250,000, and I’m considering taking the tax-free portion and paying it into family ISAs. I assume dying before 75 would be beneficial, tax-wise, but I’d prefer not to.

Ian Rachel Vahey, AJ Bell Head of Public Policy, says:

O

ne of the most attractive tax perks of pensions is the ability to take up to 25% of the pension pot as a tax-free lump sum (or pension commencement lump sum (PCLS)) once you reach age 55 (increasing to age 57 from April 2028).

Last year the rules on pensions changed. Now, only the amount withdrawn as tax-free lump sums are measured against a limit. The amount you withdraw as income isn’t measured, allowing you to build up a pension pot of any size, withdraw it all as income, with no additional taxes beyond the standard income tax.

THERE’S A LIMIT ON LUMP SUM WITHDRAWALS The limit controlling tax-free lump sums is called the lump sum allowance (LSA). It’s usually set at £268,275. If when you add the tax-free lump sums you take from all your pensions you go over this limit, then the excess will be taxed in the same way as earnings.

When you take your tax-free lump sums you are removing your money from a very tax-efficient environment so it’s a good idea to consider the most suitable time and way to do this. And if you do withdraw put it somewhere where it can keep on growing tax efficiently.

Paying into ISAs is a good solution. Every adult has a £20,000 allowance across all their ISAs, up to £4,000 of which can be paid into a Lifetime ISA. Although it’s important to remember that ISAs fall within your estate for inheritance tax (IHT) purposes when you die.

Grandparents and others can also pay into a Junior ISA for an under 18-year-old. Their ISA allowance is £9,000.

Another alternative is to pay into a pension for a relative, whether that’s an adult or a child. The overall limits for personal contributions to receive tax relief is the individual’s earnings (with the annual allowance of, usually, £60,000, applying as well). Even if the individual isn’t earning – for example a child - £2,880 can be paid into a pension each year. When HMRC adds the tax relief on that’s an annual contribution of up to £3,600. However, the pension holder cannot access the money until they are 55 (rising to 57 from April 2028).

A WORD OF WARNING One word of warning for those who take their PCLS from their pension but are still contributing into it.

HMRC has set rules to prevent recycling of tax-free lump sums. This means deliberately taking a PCLS 08 May 2025 | SHARES | 41

Ask Rachel: Your retirement questions answered

out of a pension and then paying it back into the pension as a contribution, receiving tax relief on the way.

Recycling is said to have happened if the PCLS is more than £7,500, the pension contributions significantly increase, the additional contributions are more than 30% of the PCLS, and the recycling was pre-planned.

Once you have taken your PCLS, then you can take the income out of the pension whenever you want through drawdown. However, it’s always worth checking if the pension scheme offers drawdown – not all of them do, especially some workplace-based schemes.

If you die with funds remaining in your pension (known as unused pension funds), then your loved ones can inherit them and take them as a lump sum or maybe an income. If you die under age 75 then any income they take will be tax free, and any lump sum will be tax free if the total tax-free lump sums paid out in life and on death are below a certain limit, the lump sum and death benefit

allowance (LSDBA). This is usually £1,073,100.

If you die over the age of 75, then any inherited pensions taken by your loved ones as either a lump sum or an income is taxed in the same way as earnings.

Currently, unused pension is free from IHT (inheritance tax). The government has proposed changing this so IHT is extended to unused pension from April 2027. However, this is not yet settled, and we don’t know the final rules.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES? Send an email to askrachel@ajbell.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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Past performance should not be seen as an indication of future performance. The value of your investment may go down as well as up and you may not get back the full amount invested. Issued

by Asset Value Investors Ltd who are authorised and regulated by the Financial Conduct Authority.

42 | SHARES | 08 May 2025

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Index

Main Market

Overseas shares

Barclays

8

Alphabet

21

BP

5

Amazon

21

Clarkson

10

HSBC

8

Apple

9, 21, 39

Berkshire Hathaway

9

BNP Paribas

17

Money & Markets podcast

featuring AJ Bell Editor-in-Chief and Shares’ contributor Dan Coatsworth

LATEST EPISODE Investment Trust Show: how trusts fared in the market sell-off and recovery, opportunities in Asia, and the boring side of tech Lloyds

8

NatWest

8

McDonald's

7

Reckitt Benckiser

26

Meta Platforms

21

Microsoft

21, 39

Netflix

14

Nvidia

23

LISTEN NOW

WHO WE ARE EDITOR:

Tom Sieber @SharesMagTom DEPUTY EDITOR:

Ian Conway @SharesMagIan NEWS EDITOR:

Steven Frazer @SharesMagSteve FUNDS AND INVESTMENT TRUSTS EDITOR:

Shell

5

James Crux @SharesMagJames

St James's Place

16

EDUCATION EDITOR:

Martin Gamble @Chilligg

INVESTMENT WRITER:

Sabuhi Gard @sharesmagsabuhi

Spotify

14

Investment Trusts

Unilever

26 AIM

Fidelity Special Values

29

Finsbury Growth & Income Trust

10

Impax Environmental Markets

17

CVS

10

Impax Asset Management

16

AXA Framlington Global Technology Fund

22

Jet2

19

Fundsmith Equity

31

44 | SHARES | 08 May 2025

Funds

CONTRIBUTORS:

Dan Coatsworth Danni Hewson Laith Khalaf Russ Mould Laura Suter Rachel Vahey Hannah Williford ADVERTISING

Senior Sales Executive Nick Frankland 020 7378 4592

nick.frankland@sharesmagazine.co.uk

Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.

All Shares material is copyright.

Repro­duction in whole or part is not permitted without written permission from the editor.

DISCLAIMER Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.

Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.

1. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the

reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.

2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.

3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor.

4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for 30 days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the magazine.