TOP FUNDS TO FILL YOUR ISA
OUR BEST IDEAS AS THE TAX YEAR END APPROACHES
Growth
05 EDITOR’S VIEW
QinetiQ fails to live up to the hype around the defence sector
NEWS
07 Stagflation fears stoked by stalling consumer confidence and rising inflation
08 Threat of Asda-led price war puts supermarket shares under pressure
09 Buy now, pay later firm Klarna files for IPO despite volatility
1 1 Greatland Gold shares gain 53% year-to-date as bullion price hits new high
1 1 ASOS shares hit new all-time low despite US restructuring news
13 Vistry expected to draw a line under cost issues and provide new medium-term targets
14 Business services group Cintas has been an outstanding performer
GREAT IDEAS
16 Aerospace and defence group Melrose aims for the stars with its 2029 targets
19 Recent M&A highlights what an excellent opportunity Target Healthcare shares represent UPDATES
22 Gym Group is getting stronger so we recommend investors stay the course FEATURES
24 COVER STORY TOP FUNDS TO FILL YOUR ISA
Our best ideas as the tax year end approaches
39 Can Boohoo’s reboot save the company’s fast-fashion business?
41 Why stock splits can give shares a boost and who might be next 34 INVESTMENT TRUSTS
Revealed: the best performing investment trusts so far in 2025 37 MONEY MATTERS
My Financial Life – how to help teens and tweens get to grips with money
45 RUSS MOULD
Why markets need more conversation and less action
48 FINANCE
How to become a family of millionaires
51 ASK RACHEL
Will my defined benefit pension increase in line with inflation?
54 INDEX
Shares, funds, ETFs and investment trusts in this issue
Three important things in this week’s magazine
TOP FUNDS TO FILL YOUR ISA
Five funds for your ISA
As the new tax year approaches, the Shares team selects its top picks for a diversified portfolio ranging from established names to relative newcomers, all with strong track records.
Can Boohoo’s reboot save the company’s fast-fashion business?
Can Boohoo’s new boss boost the firm’s prospects?
Dan Finley may be the busiest man in British retail and he is on a mission to rejuvenate the fastfashion firm.
Why companies who split their shares are often long-term winners
We explain the thinking behind stock splits and reveal the research which suggests, despite the maths, they add value for companies and investors.
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:
Trustpilot pleases with full-year profit beat and raised outlook
QinetiQ fails to live up to the hype around the defence sector
A great story doesn’t always make for a great investment and what sovereign wealth funds think about tariffs
As companies on the stock market go, QinetiQ (QQ.) has a particularly engaging backstory. Emerging out of the Ministry of Defence arm believed to be the inspiration for James Bond’s gadget-man Q, these origins even tell you something about the company today given its focus on tech-driven areas of the defence sector.
However, an annualised total return of 4.7% since its IPO 19 years ago suggests the company has largely flattered to deceive since joining the market. More Johnny English than 007.
Of late, the company’s 2022 acquisition of Avantus Federal – a Virginia-based cyber and data analytics business – has not lived up to $590 million price tag.
Now the company has issued a major profit warning, which dented investor expectations that it could benefit from increased military spending in Europe.
Shore Capital’s Jamie Murray indicated that the 2025 downgrade equates to a 15% cut to his forecasts, while the 2026 revision represents approximately an 8% cut to his forecast of earnings before interest. Murray attributed these delays to the UK’s Strategic Defence Review and proposed spending cuts in the US by the Trump administration.
There are arguably two takeaways here. First, ‘story’ stocks are probably best avoided unless the excitement they generate can be backed up by the hard currency of growth in revenue, earnings and cash flow.
Second, investors need to be cautious about playing an emergent new theme. An increase in European defence spending obviously creates opportunities for the sector, but on the flipside it will likely take time for evidence of bigger budgets in European countries to be reflected in the performance of individual companies.
In addition, the reason countries in Europe are having to step up to the plate is a likely US retrenchment which looks set to see one of the more reliable buyers of military hardware scale back spending.
Another knock-on effect of the new US administration’s policy agenda, this time on trade, is reflected in some pretty bleak-looking projections from the OECD and domestic consumer confidence readings, which Martin Gamble discusses and places in context in this week’s news section.
There were some interesting views on trade thrown up by a recent Invesco survey of sovereign wealth funds managing $1 trillion worth of assets.
While tariffs are clearly becoming more of a concern, the responses provide a lesson for investors concerned about recent stock market volatility.
Invesco says: ‘Despite sovereign investors anticipating higher levels of volatility, they anticipate there could also be benefits. As longterm investors, they can ride out short-term volatility and seize on dislocation opportunities.’
The message is, having a long time horizon allows you to keep a sense of perspective and not feel you have to react to short-term noise.
Stagflation fears stoked by stalling consumer confidence and rising inflation
The US consumer’s inflation expectations are the highest since 1993 University
With recession worries taking all the headlines last week, the latest University of Michigan consumer confidence survey reading on 14 March was hotly anticipated.
Not only did the reading fall short of expectations, plumbing a two year low of 57.9, but the survey also revealed a sharp rise in consumer inflation expectations to 4.9% over the next year from 4.3% in the prior month.
As a reminder February’s inflation reading according to the Federal Reserve’s favourite inflation measure, the core PCE (personal consumption expenditure) index was 2.5%.
More worryingly, long-term inflation expectations jumped 0.4% to 3.9%, the highest reading in more than three decades.
The survey’s director Joanne Hsu said consumer confidence weakened across all income categories, suggesting a broad slowdown. At the same time uncertainty around tariffs appears to be the cause behind rising inflation expectations.
Forty-eight percent of survey respondents spontaneously mentioned tariffs during interviews with the Michigan University.
‘Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future,’ said Hsu.
The slowing consumer narrative was in focus again on 17 March after US retail sales for February came in weaker than expected and the prior month was revised down to mark its biggest drop since 2021.
University of Michigan consumer confidence survey - five-year inflation
Chart:
consumer
While many retailers reported solid sales growth at the back end of 2024 their outlooks have generally been below analysts’ forecasts.
The latest example is sporting equipment and apparel group Dick’s Sporting Goods (DKS:NYSE) which gave (11 March) soft guidance after reporting its strongest holiday trading on record.
CEO Lauren Hobart said: ‘We definitely are feeling great about our consumer. We are just reflecting an appropriate level of caution given so much uncertainty out in the marketplace.’
More evidence of uncertainty impacting retail sales can be gleaned from work undertaken by consultancy RetailNext which revealed footfall in US stores declined 4.3% year-on-year in early March, extending declines seen at the turn of the year.
Tariff uncertainties are expected to have broader economic impacts including slower economic growth and higher inflation according to the latest (17 March) projections from the OECD (Organisation for Economic Co-operation and Development).
The OECD said: ‘Further fragmentation of the global economy is a key concern. Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.’
Global growth is projected to slow this year and next, from 3.2% in 2024 to 3.1% and 3% in 2025 and 2026 respectively, GDP growth in the US is seen decelerating from 2.8% last year to 2.2% in 2025 and 1.6% next year. [MG]
Threat of Asda-led price war puts supermarket shares under pressure
Asurprise announcement from Asda has caught investors off guard and threatened to spark a supermarket price war. Its UK rivals were knocked off their axis by the profit warning and a statement it intends to invest more in price and store standards this year.
Executive chair Allan Leighton said the chief aim behind Asda’s move was to restore the supermarket’s 5% to 10% price gap ‘which had closed to flattish post its 2021 acquisition’.
Leighton added that these actions will materially reduce Asda profitability in 2025, from a 2024 adjusted EBITDA (earnings before interest taxation depreciation amortisation) (including rents) of £1.14 billion.
pressured,’ said analysts at Jefferies.
Shore Capital retail guru Clive Black says: ‘From a direct commercial impact in terms of store adjacencies and so customer switching it would, to us, be the likes of B&M (BME), Iceland and Morrisons that would be most impacted whilst just because of its scale, Tesco may notice some ripples too.
Asda’s news sent other supermarket stocks tumbling on the day (14 March) with Tesco (TSCO) falling 10%, Sainsbury’s (SBRY) 8% and Marks & Spencer (MKS) 7%. They followed up these declines with further losses on 17 March.
‘Clearly, market conditions are changing rapidly. It remains far from clear whether Asda has the ability to commit to the scale of cuts outlined if volume growth does not improve measurably in the coming weeks and months. Until this evidence arrives, we expect sector valuations to remain
Market
for 'Big
‘Whilst no one is immune to the chess moves of others, Marks & Spencer, Sainsbury’s, and Waitrose would singularly appear less exposed we contend, as would Aldi and Lidl with their stronger private label assortments.
‘The danger, of course, as we see with tariffs, is contagion. So, what does Asda do and does this lead to secondary movements on pricing and promotions that threatens the rationality of the market and so the gross margin environment.
‘On this important matter, we simply have to wait and see but we do point out that Tesco and Sainsbury’s have much stronger value propositions in 2025 compared to days gone-by, augmented by powerful proprietary loyalty programmes, better assortments, meaningful price matching to Aldi, and much stronger execution capability than Asda at this time.’ [SG]
and Lidl
Buy now, pay later firm Klarna files for IPO despite volatility
The company hopes to join the US market in April having agreed a tie-up with Walmart
Buy now, pay later company Klarna has filed its long-awaited IPO (initial public offering), with a $15 billion valuation mooted, according to reports.
The Swedish fintech is believed to be aiming to price the New York Stock Exchange IPO in early April and is hoping to raise around $1 billion of growth funding in what could be the first of several exciting new listings this year.
Klarna, founded in Stockholm in 2005, has become a dominant player in a ‘buy now, pay later’ sector, often shortened to BNPL, claiming 85 million customers globally and partnerships with major retailers like Argos, Currys (CURY), and Uber Eats.
Klarna is one of several players in the BNPL space that enable customers to purchase goods with the promise of interest-free credit. After launching in the US in 2015, Klarna hit a hefty valuation of more than $45 billion by 2021, a figure that swiftly plummeted by 85% to $6.5 billion due to market concerns over long-run growth, competition, and valuations.
The anticipated $15 billionplus valuation suggests a strong recovery, though it remains well below its former high, reflecting a cautious recalibration of investor expectations.
The IPO arrives at a pivotal moment for Klarna, which has spent recent years refining its operations and returned to profit in 2024. The company has shed non-core businesses, leaned heavily into AI to streamline processes, reducing headcount by 22% to around 3,500, and expanded partnerships, such as with payment processor Stripe. Klarna also plans to close offices in Amsterdam and the German city of Mannheim by the end of 2025, and won’t renew the lease for its office in Columbus, Ohio by the end of March 2027.
cryptocurrency market, a move that could diversify its business but also introduce regulatory and volatility risks. These efforts appear aimed at presenting a leaner, more focused entity to public investors.
Klarna has signalled its intention to enter the
Faced with pressure to stem losses and become profitable, Klarna’s US rival Affirm (AFRM:NASDAQ) has leaned on interest-bearing lending, which made up 72% of its loans in 2024, 33% year-on-year growth. Affirm’s progress saw its share price make strides higher during the latter part of 2024 but recent worries about the health of the US economy and president Donald Trump’s tariff policy, have seen the stock collapse this year, almost halving from February’s $80 highs. Notably Klarna recently snared a coveted position with leading retailer Walmart (WMT) from its already-listed rival. Nonetheless, the same worries which have hit Affirm could spook investors and limit backing for Klarna’s IPO just when it needs support the most. Such uncertainty could also delay other IPOs this year, with AI chip tech firm CoreWeave, UK-based neo-bank Revolut and healthcare supplies business Medline among those being watched closely. [SF]
Greatland Gold shares gain 53% yearto-date as bullion price hits new high
AIM-quoted Greatland Gold (GGP:AIM) has seen its shares gain a healthy 53% year-to-date as the mining firm rides the coat-tails of the record gold price and completes two transformational deals in Australia.
The precious metal hit $3,000 per ounce for the first time on 14 March due to central bank purchases, sticky inflation and large shipments to the US ahead of president Donald Trump’s imposition of tariffs.
Meanwhile, Greatland said
earlier this month it had secured 100% ownership of the Havieron gold-copper project – the second largest gold-copper development in Australia – and full control of gold-copper mine Telfer in a landmark deal with US mining company Newmont (NEM:NYSE). Greatland’s managing director Shaun Day said the company had made a strong start to production in December helped by very substantial mined stockpiles at surface, Telfer mine-life extension targets and the future development
ASOS shares hit new all-time low despite US restructuring news
The share price chart of online fastfashion firm ASOS (ASC) is quite unnerving even for investors who don’t own the FTSE 250 stock.
Something has clearly gone very wrong since the start of the year, yet the news flow – such as it is – has been positive.
In mid-January, the firm announced that, thanks to its new commercial model’s success in reducing stock levels through FY23 and FY24, it would mothball its Atlanta distribution centre and serve its US customers from its Barnsley site and a smaller, more flexible US site.
As a result of the changes, the
company expects an increase of between £10 million and £20 million in EBITDA from the start of the new financial year in August, although it will report £190 million of adjusting items ‘predominantly relating to non-cash fixed asset impairments’, resulting in a corresponding negative impact on reported profit.
In addition, Stockopedia data shows analysts have been raising their FY25 and FY26 net profit estimates over the last couple of months.
of Havieron.
Analysts at Canaccord Genuity were upbeat about the firm’s latest trading statement, saying ‘the continued cash generation from concentrate sales are a positive sign.’
The company is targeting an ASX (Australian Securities Exchange) dual listing in the second quarter of this year which it hopes will expand its investor base and increase liquidity. [SG]
Yet Jefferies’ sales tracker for January and February shows both ASOS and Boohoo (BOO:AIM) revenue trending down around 20%, the same rate as in 2024, meaning ‘there is no sign of any benefit from weak comps (comparable sales) yet, as confirmed by Boohoo’s trading update,’ says the firm. [IC]
UK UPDATES OVER T HE NEXT 7 DAYS
FULL-YEAR RESULTS
24 March: RTC, S4 Capital, Tandem
25 March: Barr AG, Gamma Communications, Getbusy, Henry Boot, Kingfisher, Michelmersh Brick, Mission Group, Xaar
26 March: Anpario, Everplay, Pharos Energy, Vistry
27 March: Arbuthnot Banking Group, Chesnara, Next, Playtech, Tribal
FIRST-HALF RESULTS
25 March: Bellway, Frenkel Topping, Smiths
TRADING ANNOUNCEMENTS
25 March: Ocado, Time Finance
Vistry expected to draw a line under cost issues and provide new medium-term targets
Recent updates from the sector have been positive
Vistry (VTY), one of the largest housebuilders in the UK is scheduled to release its full year results on 26 March alongside an update on its medium-term targets.
Investors will be hoping the company can draw a line under the cost issues which have impacted the business over the last few months, resulting in three consecutive profit warnings. This is reflected in the shares falling more than 53% over the last six months.
In October 2024 the company surprised the market after revealing cost issues at the group’s South division.
After initiating an independent and internal review, the group has instigated a series of controls including a tightening of procedures.
The company has also completed a review of its operational structure with the objective of reducing reporting lines. It has consolidated the group from six divisions into three with each being led by an executive chair, reporting directly to the CEO.
In a trading update on 15 January the company said it continues to believe the Partnerships market remains very attractive and reiterated its commitment to this ‘asset light, high returns’ market.
The firm said increased cash generation and continued capital discipline is the group’s primary focus for 2025. It is targeting a ‘significant’ reduction in stock and
work progress levels.
Overall partner demand is expected to be at similar levels to 2024 while the open market remains constrained, with a recovery in consumer confidence key to sales growth.
The group expects low single-digit build cost inflation which it will look to mitigate through scale benefits and efficiency gains. The company has identified a circa £5 million impact from increased employer national insurance contributions, rising to an annualised £7 million in 2026.
Despite these headwinds, the company said it expects to make year on year progress in both profit and cash generation. [MG]
Business services group Cintas has been an outstanding performer
If we took a straw poll, we’re fairly sure not many UK investors would be familiar with Mason, Ohio-based Cintas (CTAS:NASDAQ), which provides workwear, mops and cleaning products.
We’re also fairly sure not many people would know Cintas shares have outperformed five of the ‘Magnificent Seven’ over the last five years with a gain of 340% excluding reinvested dividends (for the record, Amazon (AMZN:NASDAQ) shares are up 115%, Microsoft (MSFT:NASDAQ) 183%, Alphabet (GOOG:NASDAQ) 213%, Apple (AAPL:NASDAQ) 272% and Meta Platforms (META:NASDAQ) 306%).
Founded during the Great Depression, the company rents out its products to over one million businesses in North America, and while it isn’t exactly glamorous, it generates an impressively resilient revenue stream.
We estimate the company has grown its EPS (earnings per share) by an average of 14% per year over the
last 40 years, with remarkably little volatility.
However, the company believes it can continue growing and increasing its market share as there are a potential 16 million customers in North America, penetration rates are just 20% and most of its new business is with customers who weren’t previously in a rental programme.
The problem is, the business has become so successful the shares are now trading on a PE (price to earnings) ratio of over 46 times, and expectations are sky-high when it reports its third-quarter results for the three months to the end of February on 26 March.
As well as scrutinising the earnings, investors will be looking closely at the company’s guidance after it reduced its organic sales growth forecast for the year to May alongside half-year results in November.
With fears of an economic slowdown growing, what Cintas says about the outlook for this and the next financial year represent a huge test for the company and the share price. [IC]
authorised and regulated by the Financial Conduct Authority. There can be no assurance that the Company’s objectives or performance target will be achieved. Any investment is subject to fees, taxation and charges within the Trust and the investor will receive less than the gross yield. Investors should read and note the risk warnings in the Company’s Key Information Document (KID). Copies of the KID and Report & Accounts are available on Lazard Asset Management’s website or on request. The tax treatment of each client will vary and you should seek professional tax advice. The Trust is listed on the London Stock Exchange and is not authorized or regulated by the Financial Conduct Authority. This information has been issued and approved by Lazard Asset Management Limited and does not in any way constitute investment advice. The company currently conducts its affairs so that the ordinary and subscription shares in issue can be recommended by financial advisers to ordinary retail investors in accordance with the Financial Conduct Authority’s (“FAC’s”) rules in relation to non-mainstream investment products and intends to do so for the foreseeable future.
Aerospace and defence group Melrose aims for the stars with its 2029 targets
There is huge earnings and valuation upside from today’s depressed price
Melrose Industries (MRO) 523p
Market cap: £6.8 billion
It’s not often you see a FTSE 100 company lose nearly 30% of its market value in just two days, but that’s what happened earlier this month when aerospace and defence firm Melrose (MRO) published its preliminary 2024 results.
It didn’t matter that earnings were better than forecast, or that the firm issued upbeat growth forecasts for the next five years, the market decided it didn’t like the statement and wiped a couple of billion pounds off the company’s value.
We think the reaction was overdone and the shares now offer good value for investors willing to take a longer-term view on a high-quality, tier-one aerospace supplier.
BEAT AND RAISE
While the Melrose of old was known for its ‘buy, improve, sell’ model, today the group is a pure aerospace play with a high-margin manufacturing business and an aftermarket sales and servicing business which is growing strongly.
It operates two divisions, Engines – which generated around £1.5 billion of revenue last year with an operating margin of 28.9% – and Structures, which generated around £2 billion of revenue last year with a 7.2% margin.
The Engine business leads the industry in the manufacture of advanced structures, cases and frames, and is a risk- and revenue-sharing partner on 19 engine programmes covering some 70% of
major civil aircraft flight hours globally.
The company estimates over 100,000 flights each day involve aircraft with some of its technology on board.
It also supplies the engines for the Saab Gripen fighter and engine parts for the F-35, although defence – which is obviously a hot topic nowadays – represents just 28% of revenue against
Melrose Industries
72% for civil work.
In Structures, Melrose has ‘design-to-build’ expertise in lightweight composite and metallic components for airframes as well as electrical wiring interconnection systems, and it has moved into ‘additive manufacturing’.
Despite supply constraints impacting the construction of new aircraft, sales and earnings were comfortably above estimates for the year to December largely thanks to a strong after-market where revenue grew 32%.
As domestic and international air traffic continues to rise, along with passenger loads, total 2024 flight hours were above 2023 levels and above pre-pandemic levels, meaning more aircraft needed engine shop visits and spares.
And, with average aircraft life increasing and no new engine programmes due to start before the end of this decade, maintenance and servicing needs are only going to grow.
As a result, Melrose sees group revenue rising to £5 billion in 2029, operating profit rising to more than £1.2 billion (implying a group margin of over 24%) and EPS (earnings per share) growing at a compound annual rate of 24% which is radically higher than in the past.
CASH MISMATCH
A big part of future cash flow – some £22 billion according to the company – is set to come from Engine risk-and-revenue-sharing partnerships (RRSPs) which guarantee after-market profits across various engine families, but investors have often struggled to get their heads round this.
According to some commentators, the sell-off in the share price on results day was due to a perceived mismatch between cash flow and reported earnings under the IFRS 15 accounting standard.
The company has even produced a booklet and held a teach-in for investors to explain why, under IFRS 15, it has to report a proportion of its future aftermarket income as ‘variable consideration’.
‘This is due to a combination of specific contractual rights and the nature of our components in these partnerships, which typically last the lifetime of the engine,’ explains the firm.
‘The variable consideration, which is currently around a quarter of our overall RRSP revenue, effectively recognises or pulls forward a percentage of our future contractually entitled aftermarket
income and treats it as revenue at the point of delivery of our components.’
With work from these partnerships set to ramp up as engines need more aftermarket parts, the variable consideration will rise and there will continue to be a mismatch between reported profit under IFRS 15 and cash, but in this respect Melrose is no different to any other firm in the same situation and we see no reason to be concerned.
UPGRADES COMING THROUGH
Analysts at Barclays’ investment bank raised their price target from 650p to 730p and repeated their ‘overweight’ (buy) call on the shares, while RBC responded to the raised guidance by hiking its earnings per share forecasts and adding a 760p price target.
‘While the share has not reacted well, we see the update as highly supportive of consensus. The 2029 targets are 20% above consensus, with the free cash-flow guide in particular a clear support,’ said the team at RBC.
Considering the firm’s ambitious targets, with the operating margin seen topping 24% against 16% currently and EPS growing at a 20%-plus rate, we think the risk-reward trade-off looks highly favourable.
An easy win would be for the firm to rebrand itself as GKN Aerospace, as the business has moved on and the old Melrose monicker no longer seems relevant. [IC]
Recent M&A highlights what an excellent opportunity Target Healthcare shares represent
Takeover of peer Care REIT puts spotlight on a quality portfolio of assets offering generous income
Target Healthcare (THRL) 92.8p
Market cap: £575.6 million
The £448 million recommended cash offer for care home landlord Care REIT (CRT) has shone a light on the value in this sector. We think this makes a compelling case for Care REIT’s main lookalike Target Healthcare REIT (THRL).
While the Care REIT deal has been struck at a 10% discount to net asset value (NAV), Target has a higher-quality portfolio of assets.
Real estate investment trusts (and investment trusts more generally) have suffered in an elevated interest rate environment, which has increased the return people can get on their money without taking on additional risk.
Target shares currently trade a 20%-plus discount to NAV, when prior to the pandemic care home REITs typically traded at a premium, and they offer an attractive dividend yield of 6.3%.
Target operates in a market with some compelling drivers which arguably are not linked to recent sources of market volatility. The resilience of valuations is reflected in on- and off-market transactions and recent growth in the trust’s own NAV.
Manager Kenneth MacKenzie flagged to Shares that the trust has been actively recycling capital when it sees the opportunity, selling lessattractive properties comprising 8% of the portfolio either at or above the prevailing net asset value over the last 18 months.
Healthcare REIT
LONG-TERM DRIVERS
Care home demand is driven by long-term demographic changes as the UK’s population gets older and this helps underpin long leases with upwards-only, inflation-linked rental growth. Target’s average lease length is more than 25 years. Target Healthcare is further differentiated in this attractive niche by its focus on modern purpose-built facilities (84% constructed since 2010), with singleoccupancy units and full en-suite wet rooms (99% of the portfolio).
This an example of where doing the right thing also makes for a good investment strategy, both affording people dignity in later life but also meaning the portfolio is fit for the future.
Panmure Liberum analysts observe: ‘The care home sector is fundamentally strong, driven by the aging population and increasing
How the Target Healthcare portfolio has been transformed over the last five years
Table: Shares magazine • Source: Target Healthcare REIT, 31 December 2024
healthcare needs.
‘The requirement for purpose-built, future-proof homes highlights the importance of maintaining a modern asset base. Older facilities might generate immediate cash flow, but they carry higher longterm risks. Target benefits from a modern and future-proof portfolio.
‘Purpose-built homes that comply with modern regulatory and environmental standards are critical for long-term viability. Older properties risk obsolescence and could face declining demand or require costly upgrades.’
A COMPETITIVE ADVANTAGE
This then is a real competitive advantage for the trust. In the six-month period to 31 December 2024, contractual rent was up 3% to £60.6 million
Healthcare's interest costs
and like-for-like rental growth was 1.3%. Rent collection was 98%, and the trust is protected by a diversified portfolio and tenant base with 34 tenants across 94 properties.
The trust has also demonstrated its ability to manage what little disruption it has seen across its portfolio. In the most recent six-month period to the end of 2024, one home was re-let after a tenant had taken the decision to exit the sector.
The managers found a replacement tenant backed by an experienced team and the contracted rent from the property remained unchanged, with the rent-free period granted to the new tenant being partially funded by the previous tenant, an increase in the minimum annual rental uplift and an improvement in the property’s valuation yield.
Elsewhere, action was taken in relation to a nonpaying tenant of a single home in the South West amounting to 1.5% of rent roll. Target is already in discussions with robust alternative tenants and expects a minimal impact on returns.
DIVIDENDS UNDERPINNED
Locked-in rental growth and a tight rein on the purse strings should help underpin the company’s quarterly dividend.
A loan-to-value based on net debt of 22.7% looks manageable and while ongoing charges are higher than they would be on an equity-focused vehicle at 1.51%, this is relatively competitive when set against other REITs.
Summed up, Target Healthcare offers investors responsible exposure to income from a sector with extremely healthy fundamentals and that is not reflected in the current discounted valuation. [TS]
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Gym Group is getting stronger so we recommend investors stay the course
The shares trade at an unjustifiable 15% to 20% discount to replacement cost
Loss to date: 4.5%
In July 2024, we highlighted low-cost gym operator Gym Group (GYM) as a good risk/ reward investment based on increasing like-for-like sales momentum and improving returns on investment.
This has allowed the company to increase the rate of site expansion using internally-generated cashflow and to target 50 new sites over the next three years.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
As recently as November 2024 the shares were showing a 23% gain, but they have subsequently drifted back below our purchase price.
The fall in the share price is at odds with what has happened in the business given that at the first-half results last September the company raised its full-year profit guidance to the top end of market forecasts.
Earlier this month, the group posted full-year profit ahead of consensus expectations, with adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) less normalised rent up 24% to £47.7 million and free cash flow up 39% to £37.5 million.
The group also raised its guidance for 2025 to the top end of its previously upgraded range thanks to strong trading since the start of the year. Strong cash flow reflects revenue growth and
With new sites said to be trading well and earning a 30% return on capital, we believe profitable growth should create greater shareholder value over time. [MG] Gym Group (GYM) 131.56p
increased returns on invested capital, with the business achieving its 25% target earlier than expected, up from 21% the prior year, allowing it to increase new site openings to between 14 and 16 this year from 12 in 2024.
‘With significant white space opportunity suggesting a decade of roll-out potential, we are accelerating our self-funded roll-out of circa 50 sites over three years that are expected to deliver an average 30% return on invested capital,’ the company said.
WHAT SHOULD INVESTORS DO NOW?
Share prices rarely move in straight lines, but eventually they follow growth in profits and patience is needed to stay the course.
Emerging EMEA: Add a new dimension to your ISA
Discover the compelling markets that may be often overlooked
A golden rule of investment is diversification. Spread your portfolio across a variety of investments allowing you to broaden opportunities while spreading risks. As global markets move increasingly in tandem, it can be hard to find opportunities that genuinely offer diversification. But one group of markets that can potentially deliver something new to your portfolio is Emerging EMEA.
Comprising the markets of Eastern Europe, the Middle East and Africa, Emerging EMEA presents some compelling reasons to invest.
1. They’re often overlooked
Because they’re very young, and spread across a vast region, the markets of Emerging EMEA still don’t get the analyst coverage of, say, the emerging markets of Asia-Pacific. That means well-run public companies with great growth prospects can often fall under the radar providing opportunities for investors who do focus on them.
2. Many have great demographics
Whereas the West and many countries across Asia are struggling with the rising cost of an ageing population, Emerging EMEA economies often have a much younger age profile. In Turkey, for example, the median age is 34 (compared to almost 41 in the UK) while in Kuwait and South Africa, it’s 30.1 This means these countries have a greater proportion of the population working, spending, and contributing to their economy. When this is combined with an educated and highly skilled workforce (as is the case in Turkey), the economic prospects look even more interesting.
3. They’re each very different
Emerging EMEA spans selected markets from Saudi Arabia to South Africa, and from Poland to Qatar. The demographics, cultures and economic drivers of these countries are very varied. So as well as providing a new dimension to the rest of your portfolio, an Emerging EMEA portfolio enjoys strong internal diversification –
spreading your risks and broadening your opportunity.
4. Digitalisation is only just beginning Emerging EMEA is one of the few regions left in the world, where the digitisation of society is still at an early stage. What’s more, it’s often home-grown companies that are leading the market. So there are opportunities to capture growth potential in sectors such as technology and online payments at far lower share price valuations than the US tech giants can now offer.
5. Potential for income too Investors tend to associate young emerging markets with capital growth. But as these economies progress, companies are looking to reward their shareholders with attractive dividends too. In addition, the ongoing economic repair in Greece is allowing its biggest banks to return to paying dividends for the first time since the country’s 2008 debt crisis, an important milestone, and supporting the regions place as a strong income diversifier.
Barings Emerging EMEA Opportunities PLC allows you to focus on these diverse and dynamic markets. Managed by one of the longest-serving investment teams dedicated to the region, it offers a valuable opportunity to invest in a portfolio of companies often overlooked by large institutional investors and complement returns from other emerging market regions.
To find out more and read our Country Spotlights, visit bemoplc.com and for news and views, sign up at bemoplc.com/preferencecentre
1 www.cia.gov/the-world-factbook/field/median-age/country-comparison
Investment involves risk. Value of any investments and any income generated may go down as well as up and is not guaranteed. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Changes in currency exchange rates may affect the value of investments. This article is for illustrative purposes only, is not an offer or solicitation for the purchase/sale of shares in the Company and are not indicative of any future investment results or portfolio composition. Prospective investors should seek independent advice as appropriate. The Key Information Document (KID) must be received and read before investing. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information. Baring Asset Management Limited, 20 Old Bailey, London, EC4M 7BF, United Kingdom. Authorised and regulated by the Financial Conduct Authority.
TOP FUNDS TO FILL YOUR ISA
OUR BEST IDEAS AS THE TAX YEAR END APPROACHES
The end of the tax year is now just a couple of weeks away so if you want to make use of any remaining ISA allowance your window to do so is rapidly closing.
In this article the Shares team has put its collective heads together to identify a quintet of funds which we think are worthy of inclusion as part of a diversified portfolio.
Some of these names may already be familiar but others are likely to be further below most investors’ radars.
Each of these choices offers something different, so depending on your goals, appetite for risk and whether you want to prioritise income or growth with your investing there should be something for you. Read on to discover more.
Fundsmith Equity (B41YBW7) 700p
For investors wanting global exposure to a concentrated group of high-quality businesses generating sustainably-high returns on capital, the Terry Smith-steered Fundsmith Equity Fund (B41YBW7) is an obvious port of call.
Smith’s approach is to seek out superior businesses, buy them at an attractive valuation –which doesn’t have to be rock-bottom but can be around fair value, which is more likely the case for high-quality companies – and literally do nothing but hold onto them in perpetuity.
Needless to say, there aren’t that many genuinely world-class companies to invest in, and there are currently just 28 stocks in the portfolio with an average market cap of over £100 billion.
The average age of the companies in the fund is over 100 years, and Smith takes great pride in the fact they have much higher ROCE (returns on capital employed), margins, cash conversion and interest cover than either S&P 500 or the FTSE 100 index.
‘Consistently high returns on capital are one sign we look for when seeking companies to invest in,’ says Smith.
‘Another is a source of growth — high returns are not much use if the business is not able to grow and deploy more capital at these high rates.’
In 2024, the average ROCE of the portfolio companies was 32% against half that for the two main indices, while the weighted average free cash flow (the cash the companies generate after paying for everything except the dividend) grew by 14%.
Admittedly, the fund has underperformed the market over the last three years, because although it owned Meta Platforms (META:NASDAQ) and
Fundsmith Equity top 10 holdings
Consistently high returns on capital are one sign we look for when seeking companies to invest in”
Microsoft (MSFT) it didn’t own all the so-called ‘Magnificent Seven’ technology stocks, but by the same token it hasn’t suffered the same level of volatility.
As Smith says, the object of the fund is to produce ‘a high likelihood of a satisfactory return rather than the chance of a spectacular return, which could be spectacularly good or spectacularly bad’. [IC]
DISCLAIMER: Ian Conway has a personal investment in Fundsmith Equity
Table: Shares magzine
Source: Fundsmith, data correct as of 28 Fenruary 2025
Fidelity Special Values (FSV) 326.5p
Market cap: £1.06 billion
Investors braced for further uncertainty and stock market volatility in the years ahead should put their faith in a fund with a formidable longrun track record and a contrarian, value-focused investment philosophy that’s proven to work in all weathers. Step forward Fidelity Special Values (FSV), whose winning strategy is available to investors on a 5.5% discount to net asset value (NAV) and with ongoing charges a reasonable 0.7%.
Managed by Alex Wright and Jonathan Winton, Fidelity Special Values is a diversified portfolio of unloved yet high-quality companies spanning the cap spectrum ─ top 10 holdings at last count spanned tobacco firm Imperial Brands (IMB), banking groups Standard Chartered (STAN) and NatWest (NWG), as well as geotechnical contractor Keller (KLR) and consumer goods group Reckitt Benckiser (RKT)
The £1.06 billion cap trust aims to generate long-term capital growth by investing primarily in UK-listed companies Wright believes are both unloved and entering a period of positive change. Supported by Fidelity’s deep bench of analysts, Wright and Winton pursue a contrarian, value-oriented stockpicking approach with a focus on downside protection. They seek out unloved companies that are entering a
A UK-focused trust with something
period of positive change that the market has not yet recognised and the consistent application of this winning approach has enabled the fund to perform well in a range of market conditions. Fidelity Special Values is the best share price total return performer in the six-strong UK All Companies sector over the last one, five and 10 years, up more than 130% over the latter timeframe. Despite their improved performance over recent years, Wright observes UK shares still look cheap relative to other markets and reasonable on an absolute basis and sees ‘good opportunities for attractive returns from UK stocks on a three-to-fiveyear view’.
Thanks to the focus on buying companies on cheap valuations, takeover activity typically benefits performance. And while the focus is on long-term capital growth rather than income generation, dividends have historically formed an important part of the trust’s total shareholder return. Fidelity Special Values is one of the AIC’s ‘Next Generation’ dividend heroes; the inflation-beating 8.4% increase in the total dividend to 9.54p for the year to August 2024 representing its 15th consecutive year of growth in the shareholder reward. [JC]
Table: Shares magazine • Source: The AIC, data as of 13 March 2025
Latitude Global Fund (BMT7RH1) 172p
Assets: £436 million
The Freddie Lait managed Latitude Global Fund (FUND:BMT7RH1) follows a focused, style agnostic approach to investing in high quality, large liquid global companies.
Lait only invests in businesses when the market offers him a significant margin of safety and where he believes a company can grow intrinsic value per share on a sustainable basis for many years.
Reflecting this focus, growth in earnings per share for the companies in the portfolio has averaged around 16% a year, a good proxy for growth in intrinsic values.
Meanwhile, the portfolio’s average PE (price to earnings) ratio is around 14.5 times, which Lait believes is undemanding versus the growth and quality of the companies in the fund and lower than the market rating.
Since inception in September 2020 the fund has delivered an absolute return of 81%, which is equivalent to 16% a year, outperforming the return of the FTSE All World index.
The fund demonstrated its all-weather credentials in 2022, generating a small positive return against a 17.7% fall in the FTSE All World index.
Latitude Global Fund top 10 holdings
Data as at end February 2025
The fund has no exposure to these risks which means it has good potential to deliver strong relative and absolute returns should these risks materialise
In short, the fund offers exposure to companies which have the potential to grow faster than average but trade on lower multiples.
Lait has warned of the investment risks emanating from high levels of market concentration in mega-cap technology and elevated valuations, especially in growth areas of the market.
The fund has no exposure to these risks which means it has good potential to deliver strong relative and absolute returns should these risks materialise.
The fund has an annual management fee of 0.75% and an ongoing charge of 1.18%. In January the company negotiated better terms from its service providers and passed on the benefits to clients which lowered the ongoing charge by 3.5 basis points. [MG]
Murray International (MYI) 268.5p
Market cap: £1.6 billion
Murray International (MYI) would suit a cautious investor seeking long-term growth in dividends and capital ahead of inflation. This global equity income trust’s defensive approach and value bias means it has a role to play as a portfolio diversifier and looks attractive on a 4.4% dividend yield and a 6.3% discount to net asset value (NAV).
Murray International is also about to be granted Association of Investment Companies (AIC) ‘Dividend Hero’ status, having raised the total dividend for 2024 by 2.6% to 11.8p for a 20th consecutive year of rising payouts, which should help with marketing the trust to new investors.
Managed by no nonsense duo Martin Connaghan and Samantha Fitzpatrick, Murray International’s distinctive style and avoidance of frothily valued growth stocks means it brings something different to the table and performance should shine again if equity market returns become less concentrated. A diversified portfolio of quality companies, the managers’ focus on cash-generative firms with durable business models, wide economic moats, strong management teams and ESG credentials is reassuring at this time of geopolitical uncertainty. Admittedly, results (6 March) for the year to December 2024 were underwhelming with NAV total returns of 8.1% lagging the 19.8% increase in the FTSE All World Index. However, this delivered real growth ahead of UK inflation, while the underperformance reflected the
Portfolio analysis
Portfolio Analysis Murray International (p)
deliberate absence of any ‘Magnificent 7’ names, not to mention an overweight to Latin America, and this lack of Mag 7 exposure has turned from headwind to tailwind given a recent correction in US mega caps.
The managers have prudently taken profits on strong performers such as Broadcom (AVGO:NASDAQ) and topped up positions in the likes of Diageo (DGE) and Wal-Mart de Mexico, while new positions include luxury car brand MercedesBenz (MBG:ETR), housebuilder Taylor Wimpey (TW.) and Coca-Cola (KO:NYSE). Cautious of the geopolitical landscape in 2025, the managers will ensure Murray’s portfolio remains ‘well diversified across regions and sectors and resilient enough to generate income and capital growth whilst endeavouring to preserve capital during periods of market weakness.’ [JC]
Diversified global portfolio with a defensive bias
Source: Murray International, data as of 31 January 2025
VanEck Morningstar Developed Markets Dividend Leaders ETF (TDGB) £36.17
For investors wanting global exposure to high dividend-paying stocks, this fund is an ideal solution as it seeks out the top 100 income plays around the world at very low cost (just a 0.38% ongoing annual fee).
Companies are selected not just on the size of their yield, but on its sustainability and the potential for it to grow over time.
Dividend resilience is a particular focus, with preference given to companies which have consistently paid dividends and where earnings appear to comfortably cover future dividends.
The fund is diversified across countries and sectors, and for those who like an ethical bias it also screens for ESG (environmental, social and governance) risks and excludes companies making or selling controversial products.
Unlike most global products, the US market only makes up around 20% of the portfolio, with France making up 12.7% and the UK, Italy and Canada around 8% each.
The top 10 holdings include financials such as HSBC (HSBA) and Intesa SanPaolo (ISP:BIT), energy stocks such as Chevron (CVX:NYSE) and
and Sanofi (SAN:EPA).
Over the last three years the fund has returned 15.8% (2022), 11.8% (2023) and 16% (2024), and in the first two months of this year it has already notched up 10% gains.
As of the end of February, the fund had a trailing 12-month yield of 3.8%, and dividends are paid quarterly, making it attractive to investors looking for a regular source of income. [IC]
Van Eck Dividend Leaders
Source: VanEck Morningstar, data correct as of 28 February 2025
Table: Shares magazine • Source: VanEck Morningstar, data correct as of 28 February 2025
Biotech – themes for 2025
Articulating the long-term growth drivers of biotech
The turning of the year should be a time for optimism, but from an investment perspective, the biotechnology investment sector still seems to be struggling to break free from the shackles of a threeyear bear market.
Despite the lacklustre returns delivered by the biotech sector as a whole in 2024, we are pleased to have delivered another year of outperformance, with the International Biotechnology Trust’s (IBT) NAV up 12.4% in total return terms (with dividends reinvested), versus 1.4% from the Nasdaq Biotechnology Index. Past performance is not a guide to future performance and may not be repeated.
On the same basis, the trust’s NAV is now up 15.7% over the last three years (to end December 2024), versus 1.1% from the index1, which demonstrates how active portfolio managers with a disciplined investment approach can continue to add significant value even when markets are moving sideways. The share price total return over the same period was 3.9%.
The last three and a half years, since we took over as Lead Managers of IBT in March 2021, have provided
a solid platform upon which we intend to continue to build.
Key drivers for 2025
The new year typically commences with a visit to the JP Morgan Healthcare Conference in San Francisco, one of the most significant annual events in our industry. It gathers leading industry executives, policymakers and global investors to discuss business development, trends, innovations and investment opportunities within biotech and healthcare more broadly.
Merger & acquisitions (M&A)
Fifteen years ago, arriving at the conference was a ritual in itself. It has often been used as a platform for major industry announcements, including significant acquisitions, so back then, portfolio managers and analysts would touch down in San Francisco and immediately scan their BlackBerry for big deal announcements, usually timed to coincide with the start of the conference. The baggage carousel would become a stage for whispered speculation and informal discussions about the implications of the latest transaction.
These days, thanks to in-flight Wi-Fi, the drama can unfold at 35,000 feet, which is perhaps more efficient but robs the conference of some of its nostalgic charm. Nevertheless, we were not disappointed this year in terms of M&A announcements. News of Johnson & Johnson’s acquisition of IBT’s largest holding Intra-Cellular Therapies for $14.6bn was exciting for us – and indeed for IBT shareholders. Coming at a premium of nearly 40% to Intra-Cellular’s prior closing price, this represented an immediate boost to IBT’s net asset value. It is the third time that the portfolio’s largest holding has been acquired, and we have now seen 27 deals among IBT’s portfolio companies since 2020.
The Intra-Cellular deal is the largest seen in the biotech industry since early 2023 and therefore marks the end of a slight hiatus in activity. This pause was perhaps linked to political uncertainty in the run up to the recent US election.
Additionally, Lina Khan’s leadership of the Federal Trade Commission (FTC) since 2021 made larger deals challenging. Two major biotech-pharma deals
were temporarily blocked due to the FTC’s anticompetitive concerns, which may have dissuaded other companies from pursuing significant transactions, but with a change of leadership, the FTC is expected to take a more industry friendly stance.
However, the drivers of industry M&A remain strong. Biotech companies are an increasingly powerful force in healthcare innovation, accounting for 70% of new drug approvals in 2024, up from just 26% a decade ago2. This reflects both the biotech industry’s clear capabilities in drug discovery and development, as well as the pharmaceutical industry’s retreat from internal research in favour of in-licensing or acquisitions. Pharmaceutical companies face erosion of their revenues as their products reach the end of their exclusivity periods. As the chart below demonstrates, there is an increased number of blockbuster drugs reaching patent expiry over the next few years, so pharmaceutical companies’ reliance on the biotech industry is set to intensify.
This suggests that M&A will return as one of biotech’s key drivers in 2025 and beyond. While we never invest in a company solely on its potential to be acquired, our experience, and specifically Marek’s background in business development, gives us a proven ability to identify companies which are likely to look most attractive to a pharmaceutical acquirer.
Initial public offerings (IPOs)
Other topics of discussion at the conference
included the IPO pipeline. The IPO market has been lacklustre since the sharp market correction in 2021. We had been expecting this to improve as 2024 progressed, but the drought has continued. Follow-on equity financings have been numerous, IPOs less so. Encouragingly, while it has remained challenging for private companies to float, the good quality companies appear to have no difficulty in accessing private finance to ensure their innovative drug development is not impacted by the equity
market cycle.
Another factor behind the IPO drought is that many recent public offerings still are trading “below water”, which means they continue to trade at a level below the price at which they floated. It is plausible that IPO activity will return as the political clouds start to lift, but we don’t see it as a necessary condition for a better year of performance from the biotechnology sector. Indeed, it may be that we need to see a better period of performance, boosting investor confidence in the sector, before the IPOs start to return.
Innovation
Continued and accelerating therapeutic innovation was another prominent conference theme. As the data cited above on drug approvals testifies, this is what the biotech sector excels at. Towards the end of
2024, we observed an uptick in the number of clinical trial initiations, and follow-on funding levels suggest this momentum should carry forward into 2025. Valuations also remain compelling, with the proportion of biotech businesses trading below the value of their cash on balance sheet near a record high. This, and our confidence that we are now in a more supportive phase of the biotech investment cycle, has encouraged us to gradually shift the portfolio down the market capitalisation spectrum, with more than three-quarters of the portfolio now invested in companies valued at less than $10bn (i.e. small and mid sized companies) This money has been invested carefully, spread across a basket of stocks in each of our core thematic areas (chart below), and retaining over 60% of the portfolio in companies which already have an approved product.
The rest is politics
As noted earlier, political uncertainty weighed on sentiment towards the biotech sector in 2024. This is not unusual for an election year, but Trump’s victory comes with its own uncertainties, particularly around some of the appointments he intends to make. For example, Robert F Kennedy Jr. may be confirmed as Secretary of Health and Human Services. While his scepticism towards vaccines caused initial unease, we don’t think Kennedy will bring drastic change. It appears increasingly likely that his focus will be more on health and nutrition rather than therapeutics, which, if shown to be the case, could provide near-term relief for the biotech sector.
Similarly, Trump’s appointment of Andrew Ferguson as FTC chair could pave the way for a more businessfriendly approach to M&A. If this materialises, it may unlock greater deal activity, reversing the recent lull.
Conclusion
Overall, we have a positive view on the biotech sector as we enter 2025. Long-term structural drivers in healthcare remain intact, and innovation continues to fuel growth for biotech in particular. While political uncertainty persists, we believe the sector is wellpositioned to navigate these challenges and thrive in the years ahead. Active stock pickers who know the sector intimately are well-placed to add value in this
environment.
The fundamental tailwinds of demographic growth and accelerating innovation have enabled biotech to demonstrated impressive resilience in the face of political and economic shifts. From the Affordable Care Act to the Inflation Reduction Act, the sector
has consistently adapted and emerged stronger. For investors, the opportunity to participate in this longterm growth story remains compelling, and we are confident that IBT is well-placed to capture it.
Click here to find out more about the International Biotechnology Trust plc
1Source: Bloomberg on a total return basis in UK sterling to 31 December 2024. Past performance is not a guide to future performance.
2Source: BofA Global Research to 31 December 2024 / 50% from biotech companies directly and 20% from biotech assets acquired by large pharma
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Revealed: the best performing investment trusts so far in 2025
M&A and a recovery in European and Chinese markets have been among the key drivers
So far 2025 is shaping up to be an unpredictable and difficult year for investors, but for one part of the financial markets there has been some positivity. Last October, investment trusts were languishing at an average discount to NAV (net asset value) of 17%, the largest since the financial crisis, according to data from industry body the Association of Investment Companies (AIC).
Valuations had been brought low by higherfor-longer interest rates, which undermined the relative attractions of what for many years has been a reliable source of income.
By early March, the average discount had closed to 11%, helped in part by lower rates but also by M&A activity and, arguably, by the attentions of activist US hedge fund Saba.
Even though it failed in its attempt to secure
Analysis by the AIC going back to 2008 shows investment trusts with average discounts above 10% returned 89.3% over the next five years while trusts with average discounts under 5% returned 56.1%.
Annually, wide discounts produced returns of 13.6% compared to 9.3% for narrow discounts — a difference of more than four percentage points. This analysis covers 128 five-year periods from June 2008 to January 2024.
control of several trusts trading at a discount to NAV, its campaign was successful in shaking up the trust universe and encouraging engagement with shareholders as well as spurring actions to address persistent discounts.
We decided it would be worthwhile to look at the trusts which have performed best so far this year to see what trends can be identified and understand what has
helped drive them higher. Top of the list is JPMorgan Emerging Europe, Middle East & Africa Securities (JEMA), but this is an outlier – it’s shares are trading at a huge premium to net asset value on the basis its Russian holdings, whose value has been written down, might be worth something after all based on hopes for a peace deal in Ukraine and an apparent thawing in US-Russian relations.
Best performing investment trusts so far in 2025
(investment trusts)
Shares magazine • Source: Sharescope, data to 12 March 2025
Other top performers, including logistics investor Warehouse REIT (WHR), infrastructure play BBGI Infrastructure (BBGI), Ground Rents Income Fund (GRIO) and care home owner Care REIT (CRT) have been the subject of consummated and unconsummated bid interest.
As well as being pulled higher in Warehouse REIT’s slipstream, fellow retail landlords Urban
Logistics (SHED) and Supermarket Income REIT (SUPR) have announced plans to bring their management teams in-house, potentially saving on costs.
Deutsche Numis analyst Colette Ord comments: ‘The externally-managed REIT model has been coming under increased pressure over recent months in the face of widespread discounts driven by structural and technical headwinds, including cost disclosure, competition for capital and potential for misalignment of incentives from management fees.’
The other big themes which stand out are the recovery in trusts which are exposed to the Chinese and European markets as both geographies have seen a revival in terms of investor sentiment since the start of the year.
By Tom Sieber Editor
If you’re eager for the kind of returns that active management generates but don’t want to live life constantly on the edge, Alliance Witan is for you. Our unique investment process is designed to quietly deliver long-term capital growth by investing in companies around the world without you needing to leave your comfort zone. We’ve increased our dividend every year for an impressive 58 years, making this an ideal equity centrepiece for your portfolio. So sit back and relax, secure in the knowledge that your investment is just working away in the background. To find out more visit: alliancewitan.com
My Financial Life – how to help teens and tweens get to grips with money
Starting good habits early can really make a difference to someone throughout their life
This is the last in a series of articles looking at the different financial pressures and opportunities open to women and girls at different decades in their lives.
I hadn’t intended to write one focusing in on the teen and tween-age years, as I figured many of the decisions made in this decade are actually made by parents, but my two daughters are 16 and 18 years old and are now beginning to realise the value of money, what it takes to earn it and how quickly it vanishes from their bank accounts.
The big shift came just before they turned 16 and the little brown envelope arrived detailing their national insurance number.
STARTING OFF IN THE WORLD OF WORK
Not long after they both got part time jobs in a local pub and when their first pay dropped like magic into their bank account that was a total game changer.
They had ‘real money’ for the first time, and it quickly became apparent what sort of relationship each was going to have with that money.
One, the eldest, seems unable to resist spending
her wage almost as soon as she gets it, and we are now on a first name basis with the man who delivers all those online shopping parcels.
The other hoards her cash, lording her balance over her sister whilst shamelessly ‘borrowing’ items of clothing which aren’t hers.
As a parent it’s given me the opportunity to bore them with financial tips and tricks to help them travel the first few miles of their money journey.
I started early, in fact they would clutch a shiny pound coin as I wheeled them around the supermarket when they were still small enough to fit in the trolly seats, carefully working out what to spend their money on.
But once they entered those precocious tweenage years a banana or a chocolate frog wasn’t going to cut it and each month I put £5 into their bank accounts, and they got a kick out of using a debit card to pay for the things they wanted.
LEARNING EARLY
They learnt early on the importance of keeping an eye on their balance and how saving up a couple
Danni Hewson: Money Matters
of months pocket money (plus any birthday money they got from friends and family) could result in being able to buy things they really wanted.
Now they have online bank accounts so they can keep an eye on their spending easily, and they’ve both started digital savings accounts with a monthly £25 direct debit which goes out the day their wages go in.
At the moment they haven’t had to pay tax or national insurance, but they’re hyper aware of what it is because many of their colleagues pay it.
And they’re waiting expectantly for the increase in the national living wage, though the 16-yearold is miffed that her wage is and will remain substantially lower than her 18-year-old sister, though they do exactly the same job.
MAKING IT REAL
I’ve found conversations about money are much easier when they have real life implications.
Explaining the superpower that is compound interest was just exciting enough to persuade my daughter that the small amount in her child trust fund shouldn’t be spent on a mega shopping trip but instead to open a Lifetime ISA that should help her with the deposit on her first house (and hopefully mean she won’t still be living with us when we hit retirement).
If your child was born between 1st September 2002 and the 2nd January 2011 they will have had cash put into a tax free account ─ £250 during their first year and a further £250 at age 7 (though that second payment was scrapped in 2010).
Even if you’d forgotten all about it, you or your teen can track it down via the Government’s Gateway service as long as you have their national insurance number to hand and it’s the perfect moment to try and promote good investing habits which will stand them in good stead for the rest of their lives.
SIMPLE TIPS CAN HELP
Some parents get really nervous when their kids ask them about finances but just simple tips on budgeting and saving can help them avoid some of the big potholes out there especially when they start to live away from home.
Jotting down what they’ve got coming in every month, or every term if they’re at university, then
My financial life teens and tweens check list
1. Start good habits early.
2. Learn how to set and keep to a budget
3. Track down lost Child Trust Funds
4. Use tech to help you save for the future: budgeting apps or investing apps like Dodl are designed for ease of use.
5. Don’t be afraid to talk about money with your parents/children
working out how much they have to spend every day on food, travel and necessities, and giving themselves a savings cushion for unexpected expenses or fun treats like travelling with friends.
Remember they’ve probably already come across options to buy now and pay later so explaining how credit works is a big one.
Just knowing that credit normally comes at a price, that once you add interest on, you’ll end up paying a lot more than you would have if you’d saved up to buy it is a simple lesson but a really important one.
And make sure they’re making the most of all those handy apps out there which make it easy to keep track of spending and help them set a budget and stick to it.
Can Boohoo’s reboot save the company’s fast-fashion business?
Rebranding
itself as Debenhams and a ‘marketplace’ is a big gamble
They say if you want something doing, ask a busy person, and few people have been busier over the past four months than Dan Finley, head of Manchester-based online fashion firm Boohoo (BOO:AIM)
Since taking over as chief executive at the start of November, Finley has fought off a rearguard action by Frasers (FRAS) to install Mike Ashley in the CEO role, raised £39 million of fresh capital in an oversubscribed share offering and sold the firm’s Soho headquarters in order to help pay down £50 million of debt. If that wasn’t enough to be getting on with, he’s also seen off an attempt by Frasers to remove founder and vice chair Mahmud Kamani from the board.
Now, Finley is rolling the dice with a new strategy, ‘Debenhams is Back’, which involves changing the group’s name and restructuring the fashion operations along the same lines as the once-beloved department store’s ‘online marketplace’ model.
Under Finley’s aegis, Debenhams has been successfully turned round since Boohoo bought the brand out of administration in 2021, evolving from a bricks-and-mortar retailer to a ‘stock-lite’ model partnering with external brands and with no inventory of its own.
fashion businesses such as Boohoo itself and PrettyLittleThing, which were once the group’s driving force but more recently have been suffering from flagging sales and rising competition from aggressive rivals like Shein?
The consumer team at Panmure Liberum accept the young fashion brands are struggling, but argue the potential Debenhams provides could attract a new type of investor.
‘This “stock-lite” strategy reduces both risk and capital investment—a significant advantage in the fast-evolving e-commerce landscape,’ observes trade journal Retail Gazette. Indeed, the marketplace model has driven impressive growth with GMV (gross merchandise value) jumping 43% to £645 million in the year to February 2025.
Just as impressive, the business achieved a 27% margin of EBITDA (earnings before interest, tax, depreciation and amortisation) to sales, ‘a strong performance in today’s challenging retail climate,’ adds the Gazette. But can the same model be applied to fast-
‘There exists huge optionality in the value of the young fashion brands and their turnaround opportunity. This could take many forms which will become clearer over the next year; they may be a cash cow earning high single digit EBITDA margins, their IP may be sold off and integrated into the marketplace offer or invest behind them and grow from here. What is key, is that Debenhams is a blueprint for the turnaround of the wider business.’ So far the market seems underwhelmed by the potential rebrand and is probably awaiting evidence the new strategy is gaining traction before it will give the business any credit.
By Ian Conway Deputy Editor
Temple Bar Investment Trust is managed by Redwheel’s Ian Lance and Nick Purves, who have more than fifty years of investing experience between them.
Experts in the UK stock market, Ian and Nick are classic value investors, looking to build a diversified portfolio of the most compelling undervalued companies they can find.
With the UK stock market currently among the most attractively valued assets that investors can buy anywhere in the world, they are currently very excited about the potential opportunity that lies ahead for the Trust.
Think value investing Think Temple Bar
“UK stocks look very attractively valued in a global context and when compared to history. Overseas businesses are already recognising this potential through acquisitions, and management teams are buying back shares at a record pace. These could represent meaningful catalysts for unlocking the inherent value in UK stocks. The long-term opportunity for UK value investors is significant.”
Ian
Lance,
Portfolio Manager
Temple Bar Investment Trust
For further information, please visit templebarinvestments.co.uk
Why stock splits can give shares a boost and who might be next
Expensive shares often get that way because the business has been very successful
If you have ever wondered why some companies split their shares into smaller chunks, this article is for you. In essence share splits do not make any meaningful difference to the fundamentals of a company.
It is the equivalent of cutting the same pizza into more pieces.
This is why there is some scepticism around companies undertaking a share split. It could be interpreted as management cynically trying to juice the share price. That said, it does seem to work.
New research from Bank of America reveals that companies undertaking share splits see their share price go up 25% on average in the following 12-months, outperforming the 12% average delivered by the market.
That is quite a lot more juice, so what is going on?
The authors of the research believe share splits democratise share ownership by making shares more affordable to the average investor. They may have a point.
Consider Apple (AAPL:NASDAQ) whose shares are widely held by many retail investors. The company has split its share price five times since floating on the stock market.
Had the company not made those splits the shares would today cost more than $50,000 a pop,
HOW A STOCK SPLIT CAN WORK IN PRACTICE
Company A has a share price of £1,000 and 1 million shares outstanding and does a 10-forone split, reducing the share price to £100 while the number of shares increases by a factor of 10 to 10 million.
The market capitalisation of the company remains £1 billion in both cases, so do not be fooled, nothing has changed. (100 x 10 million = 1,000 x 1 million)
rather than the current $250 per share.
AI darling Nvidia (NVDA:NASDAQ) provides another remarkable example of the effect of not splitting share prices. The company has conducted six share splits since 2000, without which, the shares would trade today at $54,000.
Notwithstanding US investors can access fractional share ownership platforms, arguably the exorbitant price of the unsplit share is a large barrier to broad retail share ownership.
It is worth noting the UK government has committed to changing current ISA (Individual savings accounts) rules to allow certain fractional shares.
Why do share prices get so high? As famed investor Terry Smith is fond of reminding people, in the long run share prices track profits. This suggests a high share price often reflects the historical growth rate and economic success of a business.
Over many decades this compounding effect can drive share prices to exorbitant levels.
Nowhere is this more evident than with US conglomerate Berkshire Hathaway (BRK-B:NYSE)
High priced stocks across
the globe
SP CAGR = Share price compound annual growth rate since listing. Split ratio= How many times the stock has split. Local prices converted at $1.29 and €1.19.
Table: Shares magazine • Source: Google Finance, Stockopedia, Sharepad
whose A-shares cost over three-quarters of a million dollars each.
Since taking over the company in 1965 at $19 per share, CEO and chairman Warren Buffett has transformed the struggling textile business into an economic powerhouse, comprised of over 189 businesses and a public equities portfolio worth $272 billion.
Berkshire shares have delivered a compound annualised return of 19.9% a year over those sixty years compared with a 10.4% annualised return for the S&P 500 index.
Berkshire also has B-shares in issue which can be converted into A-shares at any time. Buffett issued the bulk of the B-shares in 1996
with the part-equity funded purchase of BNSF Railroad, along with a 50 for one share split. Today the B-shares cost around $500 each, still a large number, but a lot easier to swallow than the A-shares.
Buying a single share in Swiss-based premium chocolate maker Lindt & Sprungli (LISN:SWX) would set you back around £100,000 (CHF114,000) but the share price would be even higher had the company not made a five-for-one split in 2008.
Including the share split, the shares would today cost just under half a million pounds apiece, close to the cost of owning a share in Berkshire.
As well as the idea of democratising share ownership, share splits may also create higher daily liquidity. The reason this is important is because effective price discovery tends to work best when there is an abundance of willing buyers and sellers.
There are other interesting takeaways from the Bank of America research paper.
Share splits flash a positive signal to investors that business prospects are likely to continue, demonstrating management confidence.
This may lead to analysts upping their earnings estimates, providing further momentum for the shares. Share prices of companies receiving positive earnings revisions tend to outperform the market.
US companies ripe for a share split
One of the latest companies to announce a stock split is coke bottler Coca-Cola Consolidated (COKE:NYSE) which announced a 10-for-one stock split on 4 March, pending shareholder approval at its 16 May shareholding meeting.
The shares trade around $1,300 which implies a post-split price of $130 when they begin trading on 27 May 2025. Chair and CEO J. Frank Harrison said the split aims to make the shares more accessible to a wider range of investors.
Given the high price of Markel’s shares ($1,834) and the fact they have never split them, it seems unlikely the firm will start now.
STOCK SPLITS ARE INCREASING, WHO COULD BE NEXT?
The pace of stock splits is increasing, says Bank of America with 17 announced in 2024, the highest number in a decade.
Not only that, but the magnitude of outperformance is also rising as demonstrated by the 17% outperformance over six months for those 17 companies announcing share splits in 2024.
These include fast food group Chipotle (CMG:NYSE) which undertook a 50-for-one split, network infrastructure company Broadcom (AVGO:NASDAQ) did a 10-for-one split and Nvidia competed a 10-for-one split on 10 June 2024.
As we have discussed, some companies choose to split often, while others, notably Lindt and Berkshire have conducted just one share split throughout their long history.
While we would never suggest making an investment based on a share split alone, the evidence for a share price pop following a share split seems reasonably compelling.
Netflix (NFLX:NASDAQ) looks more promising. The streaming giant last split its shares a decade ago in a seven for one ratio when they traded around $420. Today they sit close to $1,000.
Obesity treatment and insulin specialist Eli Lilly (LLY:NYSE) has seen its shares fly over the last five years, driven by the huge success of Wegovy and Zepbound.
The shares are up more than 500% in that period, trading at nearly $900 per share. The company last made a share split in 1997, so another one is long overdue.
Membership warehouse retail operator Costco (COST:NYSE) has split its shares two times, the last one in 2000 when it enacted a two-for-one split. The shares would cost $3,700 had the company not split rather than $1,037 today.
In December 2024 chief financial officer Gary Millerchip told analysts there were no nearterm plans to undergo a share split because employees and retail investors likely have access to fractional share buying.
Companies with high share prices tend to have a good track record of earnings growth, so picking potential investment candidates from such a list is arguably not a terrible to start investigating further.
Four of the most expensive companies have never enacted a stock split including Berkshire Hathaway, insurance and investment company Markel (MKL:NYSE), Biscoff biscuit maker Lotus Bakeries (LOTB:EBR) and fantasy games and miniatures retailer Games Workshop (GAW).
‘But we do also recognise that there’s a benefit of the stock feeling more affordable for our retail investors and employees who are very important constituents for us. So, we’ll continue to evaluate over time,’ added Millerchip, leaving the door open for a split.
Martin Gamble Education Editor
STRENGTHENING YOUR STOCKS & SHARES ISA
How a well-diversified Investment Trust could help
With the end of the 2024/25 tax year in sight, now is the time many investors will be reviewing their ISA portfolios to ensure they are positioned for long-term success. With market volatility always a consideration, diversification remains one of the smartest ways to reduce risk while maximising returns.
When it launched in 1868, F&C Investment Trust was the world’s first collective investment fund. Today, F&C offers access to an investment approach that is based on diversification: between countries, sectors and types of company – from wellestablished businesses to upand-coming innovators.
Beyond public markets, F&C also offers exposure to robust, well-managed private equity funds.
This extra layer of diversification aims to unlock further potential for long-term returns, complementing the Trust’s holdings in listed companies.
The trust carefully considers strategic
asset allocation on behalf of its investors, to optimise performance. Paul Niven, Fund Manager of F&C Investment Trust, explains: “By actively managing the allocations, we aim to reduce the risk of underperformance for end investors while enhancing returns.”
This long-term approach can be particularly valuable in a Stocks & Shares ISA, where tax-free growth and reinvested dividends can compound over time. Investors can also take comfort in F&C’s strong dividend track record, having increased payments for 53 consecutive years*.
With a global reach and a strategy spanning bluechip stocks, private equity, and emerging markets, F&C Investment Trust could provide a strong foundation for ISA investors looking to maintain a well-diversified portfolio.
By actively managing the allocations, we aim to reduce the risk of underperformance for end investors while enhancing returns.”
If you still have an unused 2024-25 ISA allowance, now is the time to actbefore it’s gone for good.
*There is no guarantee that dividends will continue to grow.
Capital at risk. Past performance is not a guarantee of future returns. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and tax rules may change in the future. This advertisement approved for distribution 12/03/25 by Columbia
Why markets need more conversation and less action
It is worth keeping tabs on levels of volatility in the Nasdaq index
Asecond wobble in US equities in seven months, following the summer squall of last August, is creating a fair degree of noise, if not panic.
Dyed-in-the-wool bulls will assert that the S&P 500 is down by just 9% from its high (at the time of writing), while even the Nasdaq’s 13% slide is no great drama in the context of the bull run seen since the Covid-inspired lows of early 2020. The S&P 500 is back to where it was in late August, the Nasdaq in mid-September, but such pullbacks, in recent times, have simply been chances to ‘buy on the dip,’ goes the bullish thesis.
US equities are back to where they were just six months ago
Bears will have a different take. They will point to the almost parabolic gains of the past two years and the accompanying rise of meme stocks, oneday options trading, a new all-time high in margin debt in the US and what they would assert are many other classic features of markets that are becoming overheated – complexity, opacity and leverage (debt), right up to a leading figure in the cryptocurrency world buying and then eating a piece of art for which he paid $6.2 million.
For anyone worrying about the gentleman’s digestive system, the ‘art’ was a banana taped to a wall, but such devil-may-care behaviour does not usually characterise market bottoms, or end well.
As John Maynard Keynes once tartly observed: ‘When the capital development of a country becomes a by-product of a casino, the job is likely to be ill-done.’
However, no-one, but no-one can time market tops (or bottoms) to perfection – even Warren Buffett was one to two years early when he went heavily to cash in the late 1990s and then again in the middle of the first decade of the new millennium ahead of the smashes of 1998-2000 and 2007-09.
One measure that could help investors test the market mood is volatility. The more we get of it, as crudely measured by the number of daily moves of more than 1%, 2% and 5% to the downside or upside, the less healthy the market probably is, at least if history is any guide. In this respect, a little more conversation and a little less action may be no bad thing, both on the stock exchange and in the White House.
SUSPICIOUS MINDS
The timing of the latest US equity market stumble, be it no more than that or a warning of something more malign, is notable for how it coincides with the 25th anniversary of top in the technology, media and telecoms bubble. The Nasdaq Composite peaked at 5,048 on 10 March 2000. It troughed at 1,114 on 9 October 2002 and then took thirteen years to recoup that crushing loss.
One warning that trouble may have been coming was how volatility started to increase. As valuations became extended, even when based on very bullish earnings growth forecasts, any minor departure
from the bullish script caused share prices to slide, only for the bullish narrative to reassert itself. Again, this can be seen in how the number of one-day, open-to-close movements in excess of 1%, 2% and 5% became increasingly prevalent, even as the Nasdaq doubled in a year.
The Nasdaq became more volatile as it approached the 2000 peak
From 10 March 1999 to 10 March 2000, with the 10th of each month as the starting point.
Chart: Shares magazine • Source: LSEG
DON’T BE CRUEL
Worse was to follow. Volatility soared – the Nasdaq by more than 1% on an open-to-close basis on 196 occasions in the next 260 trading days, with 115 gains or drops between 2% and 5% and 31 swings of more than 5%.
The Nasdaq became even more volatile as the bear market began
From 11 March 2000 to 10 March 2001, with the 10th of each month as the starting point.
Chart: Shares magazine • Source: LSEG
Rallies were bear traps in disguise, as the index ground lower and that punishment forced more and more bulls to throw in the towel over the next 31 months. From peak to trough, the Nasdaq had 446 days where it rose and 440 where it fell. The best
daily gains were bigger than the worst daily falls, but the bears won out over the bulls as they grappled for control.
Nasdaq’s biggest daily gains outshone its losses in the 2000-03 bear market
Ten biggest gains
RETURN TO SENDER
The worrying sign now is that volatility is picking up again (and it can even be traced back to a tricky August, like that of 1999).
There is one massive difference, though, namely that the Nasdaq is up by just 9% over the past year. It can be argued the environment is not as frenzied now as it was in 2000, even allowing for hot spots
Nasdaq volatility is on the rise again
like AI and memes. Bears may grab that one, too, mind you. One shrewdie is pointing out on social media that shares in Microsoft (MSFT:NASDAQ), the poster child for investment in AI, are unchanged since January 2024 (after a near-20% slide from last July’s peak). Gold is up 50% in the same time frame. Maybe the market mood is changing after all.
From 10 March 2024 to 10 March 2025, with the 10th of each month as the starting point.
Chart: Shares magazine • Source: LSEG
How to become a family of millionaires
By making use of existing allowances this sum could have been reached in just the last 10 years
For many families, the thought of becoming millionaires might feel like a pipe dream. However, with smart investing and a bit of discipline, it’s possible for a family of four to have reached the coveted £1 million mark in as little as 10 years.
A family of four who has diligently maxed out their ISA allowances for the past 10 years will be on the cusp of the £1 million milestone, thanks to generous ISA allowances and the compounding effect of investment growth.
Currently, a family could invest £58,000 a year in ISAs, using two adult ISA allowances and two Junior ISA allowances. However, the current ISA limits are far more generous than they were a decade ago. Back then, the total amount needed to max out the ISA allowances for a family of four
Family portfolio value
was £38,640.
But if the family of four had invested their full allowance each year for the past 10 years in a global tracker fund like the Fidelity World Index (BJS8SJ3), their total investment would be worth approximately £990,582 as of March 2025. A little additional investment growth in the coming months or their contributions in the new tax year would push them past the £1 million mark.
STARTING THE JOURNEY
What if you didn’t start your ISA journey 10 years
Based on real returns of Fidelity World Index, after charges, but not taking into account platform fees. Based on investment made at the start of each tax year, for full tax year. Except 2024-2025, which runs until 5th March 2025. Chart: AJ Bell
• Source: AJ Bell/FE
How to build a family million
ago but want to become a millionaire family today? It’s still possible, although unsurprisingly it requires a significant annual investment. We’ve modelled it based on annual ISA allowances remaining the same as they are today, meaning a family of four would need to invest £58,000 annually, no small feat.
For this to work, the two parents would need to contribute £20,000 each year to their individual ISAs, which could grow to £372,000 each after 13 years, assuming an annual investment return of 5% after charges. Simultaneously, £9,000 would need to be invested in each child’s Junior ISA each year, growing to £266,000 per child over the same period if they saw the same 5% investment growth a year. After 13 years, this family could see a total ISA pot of £1,079,000, leaping past family millionaire status.
If you took more risk, and were rewarded with higher returns, you could reach that golden million faster: increasing the annual investment returns to 7% after charges could allow a family to reach millionaire status in just over 11 years.
If the £58,000 annual investment isn’t feasible, it’s still possible to reach the £1 million target, but it will take longer. For instance, a family could hit the target in 18 years by investing £12,000 per year into each adult’s ISA (or £1,000 per month), alongside £5,000 annually into each child’s Junior ISA. With a 5% return after charges, this strategy could accumulate over £1 million by the time the children reach adulthood.
MAXIMISING ISA ALLOWANCES
With the tax year-end fast approaching, it’s important to consider how to make the most of your ISA allowances. While many people focus solely on adult ISAs, overlooking Junior ISAs can be a costly mistake. The Junior ISA allowance is very generous and investing it can significantly boost a family’s wealth.
Reaching £1 million is just the beginning. Once the family’s ISA pot reaches millionaire status, there are many ways to put that wealth to work. By investing in income-generating assets, the family could potentially earn a tax-free income of around £40,000 per year, equivalent to a taxable salary of £51,000, which could significantly boost the family’s financial security.
However, there’s an important consideration when it comes to Junior ISAs. These accounts are in the children’s names and will transfer to them once they turn 18. While this can be a great financial gift, it also means the children could choose to withdraw the funds at that time, potentially jeopardising the family’s millionaire status.
Note: Data accurate as of 5th March 2025.
By Laura Suter AJ Bell Head of Personal Finance
Chart: AJ Bell
Fidelity China Special Situations PLC
An AJ Bell Select List Investment Trust
If you want to take full advantage of the incredible growth of China’s middle classes and a seismic shift towards domestic consumption, you need real on-the-ground expertise.
Fidelity China Special Situations PLC, the UK’s largest China investment trust, looks to capitalise on an extensive, locally based analyst team to make site visits and attend company meetings. This helps us find the opportunities that make the most of the immense shifts in local consumer demand.
China’s growth story
Since its launch in 2010, the trust has offered direct exposure to China’s growth story; from tech giants right the way through to entrepreneurial medium and small-sized companies, and even new businesses which are yet to launch on the stock market. Portfolio manager Dale Nicholls looks to identify and invest in companies that are best placed to capitalise on China’s incredible transformation.
Past performance
Investing in China’s most compelling growth drivers Dale believes a vast and still expanding middle class is increasingly driving stock market returns in China.
“China is well established now as a major driver of growth and investment performance, not just in Asia, but in the wider world. The sheer size of China’s economy, its continued growth and ever-increasing global importance, should see investors increase their exposure to China as part of a balanced investment portfolio.”
Past performance is not a reliable indicator of future returns.
Past performance is not a reliable indicator of future returns
Source: Morningstar as at 28.02.2025, bid-bid, net income reinvested. ©2025 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust
Source: Morningstar as at 28.02.2025, bid-bid, net income reinvested. ©2025 Morningstar Inc. All rights reserved. The MSCI China Index is a comparative index of the investment trust.
Important information
The value of investments can go down as well as up and you may not get back the amount you invested. Overseas investments are subject to currency fluctuations. Investments in emerging markets can be more volatile than other more developed markets. The trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The Trust can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
The latest annual reports, key information documents (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL
(UK)
Issued by FIL Investment Services (UK) Ltd, authorised and regulated by the
the Fidelity International logo and F symbol are trademarks of FIL
Will my defined benefit pension increase in line with inflation?
Helping with a question about the way final salary schemes operate
I am aged 63, and will start to collect my work pension in two years’ time. I have a defined benefit scheme which I left about a year ago after working for the company for about 35 years, as well as a SIPP.
I wanted to check if the pension I get from the defined benefit scheme will increase each year? And if so, will that be by inflation?
Paul
Rachel Vahey, AJ Bell Head of Public Policy,
says:
On the face of it this sounds a simple question. But the answer isn’t necessarily straightforward.
Let’s start by explaining some of the jargon. A defined benefit scheme promises to pay a pension based on an individual’s salary and length of service. This is paid from the retirement age for the scheme. But schemes will allow people to take their pension early, from age 55, although the pension paid will probably be reduced. You may also be able to take your pension later than the scheme’s retirement age.
Sometimes, a separate cash lump sum is paid alongside the pension, or, more commonly, you may be able to exchange some of the pension for a cash lump sum (which means your annual pension will be reduced). This is also known as ‘commutation’.
IT DEPENDS ON THE INDIVIDUAL SCHEME
The guiding principle for many questions about defined benefit schemes is it depends on the particular pension scheme’s rules. So, it’s always best to check with your pension scheme in the first instance and they can tell you exactly how it works for your personal circumstances.
However, I can give you some information about the rules for increasing pensions once they start
to be paid out. I’ll start by explaining the legal minimum increases to pensions that a defined benefit pension scheme has to apply.
The time you were working for the company when you were a member of the pension scheme is called ‘pensionable service’. If you have any pensionable service on or after 6 April 1997 then the pension built up in this time has to increase each year in line with prices. The increase is capped at 5% for any pension built up between April 1997 and April 2005 and capped at 2.5% for any pension built up after that time. (Another bit of jargon for you - this cap is called LPI (limited price indexation).)
If you have any pension built up from service before April 1997 then generally that does not have to increase each year. However, some people may have, as a small part of their benefits, a GMP (guaranteed minimum pension) (which may have built up when they were contracted out of the earnings-related part of the state pension). If this is the case then any GMP built up between April 1988 and April 1997 must increase in line with prices, capped at 3%.
Ask Rachel: Your retirement questions answered
The legislation setting these minimum increases does not specify which measure of inflation should be used. Instead, it says the ‘percentage increase in the general level of prices in Great Britain’. Since 2012 the government has said that the inflation rate should be CPI (consumer price index). Before this the RPI (retail price index) was used. Many private pension schemes have not changed their rules since 2012 and continue to use RPI when working out the increases to the pensions in payment. This is good news for pension scheme members as RPI is usually higher than CPI.
SOME SCHEMES ARE MORE GENEROUS
These are the legal minimum increases, but the scheme may offer more generous increases. For example, it may increase the whole pension at the same rate, including that built up before 1997, even though it doesn’t have to. It may also apply discretionary increases in addition to the legal minimum. In this case, it would be up to the trustees each year to decide what the increase
should be. This would be based on the funding position of the scheme, and how much money it has in excess of that needed to cover the pensions and lump sums it is going to pay.
As I said above, the best idea is to contact your pension scheme and find out how it approaches increases in pension. You can also check your handbooks and other scheme documents or online sources. Your benefit statement may also detail the increases.
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.
Finding Compelling Opportunities in Japan
1 APRIL 2025
NOVOTEL TOWER BRIDGE
LONDON EC3N 2NR
Registration and coffee: 17.15
Presentations: 17.55
During the event and afterwards over drinks, investors will have the chance to:
• Discover new investment opportunities
• Get to know the companies better
• Talk with the company directors and other investors
COMPANIES PRESENTING
LAW DEBENTURE (LWDB)
At Law Debenture our objective is to achieve longterm capital growth in real terms and steadily increasing income. The aim is to achieve a higher rate of total return than the FTSE Actuaries All-Share Index Total Return through investing in a diversified portfolio of stocks.
THE SCHRODER ASIAPACIFIC FUND (SDP)
Provides UK investors access to the high growth potential of the Asia Pacific region (excluding Japan) through a diversified portfolio of selected stocks.
SEPLAT ENERGY (LSE: SEPL) (NGX: SEPLAT)
Nigeria’s leading indigenous energy company. Listed on both the Nigerian Exchange Limited and the Main Market of the London Stock Exchange.
SMITHSON INVESTMENT TRUST (SSON)
Smithson aims to deliver strong, long-term capital growth by creating a concentrated portfolio of the world’s best small and mid-sized companies.
WHO WE ARE
EDITOR: Tom Sieber @SharesMagTom
DEPUTY EDITOR: Ian Conway @SharesMagIan
NEWS EDITOR: Steven Frazer @SharesMagSteve
FUNDS AND INVESTMENT
TRUSTS EDITOR: James Crux @SharesMagJames
EDUCATION EDITOR: Martin Gamble @Chilligg
INVESTMENT WRITER: Sabuhi Gard @sharesmagsabuhi
CONTRIBUTORS:
Dan Coatsworth
Danni Hewson
Laith Khalaf
Laura Suter
Rachel Vahey
Russ Mould
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.
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.
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CleanTech Lithium (CTL)
Gordon Stein, CFO
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Richard Shepherd-Cross, Investment Manager
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EJF Investments (EJFI)
Neal Wilson, CEO and Co-CIO
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