EMERGING MARKETS COMEBACK
WEIGHING THE PROSPECTS FOR A CONTINUED RECOVERY
05 EDITOR’S VIEW
Hefty tariffs on EU imports to US might be good news for British businesses
07 New tariffs threaten European, Canadian and Mexican trade with the US
08 Bitcoin prices set record as investor bet big on ‘crypto week’
09 Infrastructure group Galliford Try hits five-year high on raised guidance
09 ‘Ugly’ update sends former ad giant WPP’s stock to 15-year low
10 Can MONY maintain momentum with its first-half results?
11 Lockheed Martin’s Q2 clues to US defence spending regime
12 Genus is on the cusp of a transformation to sustainably higher profitability
Personal Group is a small cap with big ambitions
Rockwood Strategic is rewarding investors with a stellar
MARKETS COMEBACK
Weighing the prospects for a continued recovery
22 What cleaner accounts might be telling investors about long-term shareholder value
25 FUNDS
When should you give an underperforming fund manager the boot? 27 DAN COATSWORTH
Housebuilders: what’s holding back the sector and what could drive a recovery
Three important things in this week’s magazine
EMERGING MARKETS COMEBACK
Why emerging markets are back on investors’ buy lists
The first half of this year has seen a revival of interest in emerging markets, which in turn has generated a revival in performance, as global investors look for alternatives to the tired narrative of ‘US exceptionalism’.
Why it pays to own companies with clean accounts
When companies repeatedly adjust their earnings for so-called ‘nonrecurring items’ it can be difficult to get a clear picture of how the business is really doing. We cut through the morass to reveal the companies with ‘clean’ accounts.
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:
Knowing when to sell an underperforming fund or trust
All active managers go through periods of underperformance, but judging when to give them the benefit of the doubt and when to call it a day is by no means easy. We look at the factors which can help you make the crucial decision.
Hefty tariffs on EU imports to US might be good news for British businesses
One analyst thinks there is only one clear recommendation today – ‘buy UK’
As we write, the UK has put itself in a pretty rare position by virtue of already having thrashed out a trade agreement with the US.
The Trump administration continues to make threats of hefty levies on imports elsewhere, as Ian Conway explains in this week’s News section, with the EU and Mexico facing 30% tariffs based on the latest pronouncements from the White House.
The apparently harsh treatment of the EU could be to the benefit of the UK according to Panmure Liberum analyst Joachim Klement.
Klement acknowledges there could be considerable movement between now and the 1 August deadline, when said tariffs are set to come into force, but examines how things might play out based on the current rhetoric.
‘We emphasise three key points,’ says Klement. ‘One, if the tariffs are implemented as threatened, the US will almost certainly go into recession in 2026 and see inflation spike above 4%; two, UK stocks should outperform European peers because thanks to the trade deal between the US and the UK, trade uncertainty is much lower for UK businesses; and three, if the tariffs remain in place for longer, there is an arbitrage opportunity for European business to divert exports to the US via the UK, creating a large need for investments in the UK in the next three to five years.’
Klement concludes: ‘As the world stands today,
there is one clear recommendation: Buy UK.’ Klement spells out how his third point could work over time. Noting that, because the UK is subject to 10% tariffs from the US and exports from the EU to US are typically 10%, EU manufacturers could ship goods from the EU to the UK, do what’s required to make them goods which could qualify as being made in the UK, then ship them to the US.
The argument against this is the unpredictability of President Trump and a potential change in government in 2028, or an outcome in the midterm elections next year which leads to a less compliant Congress.
These possibilities could put companies off making long-term decisions around investing in manufacturing and logistics infrastructure in the UK to benefit from any arbitrage on tariffs.
Nonetheless, and amid plenty of bad news for UK plc of late, it will be interesting to see if this country can genuinely be a long-term beneficiary of the trade war.
In this issue we look at emerging markets and whether the nascent recovery in the first part of 2025 can continue, and also consider the importance of how a company handles its accounts. Martin Gamble hears from a fund manager about things to look out for in accounting and highlights some examples of best and worst practice.
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Jonathan Neame, CEO & Mark Rider, CFO
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New tariffs threaten European, Canadian and Mexican trade with the US
Another week and another round of US tariffs on imports, with the White House threatening a 35% levy on Canada and 30% on goods from the EU (European Union) and Mexico.
The three regions are major trading partners with the US, so if the tariffs are implemented as planned on 1 August it would mean a significant increase in the price of goods and therefore inflation, but in his usual style President Trump has said he might make changes or he might not.
The Financial Times quoted a US administration official as saying the tariffs on Canada would likely be waived for goods which comply with the 2020 trade agreement signed by Trump, which could blunt their impact, but no final decision had been made.
According to the Department of Commerce, Canada had a trade surplus of just $36 billion last year, while the EU and Mexico ended 2024 with trade surpluses of around $148 billion and $176 billion, although they still trailed China which had a surplus of $262 billion.
The EU, the biggest trading partner with the US, is reportedly stepping up efforts to engage with other countries hit by tariffs, including Canada
and Japan, as well as looking to deepen trade relationships with India and countries in South-East Asia.
EU competition chief Teresa Ribera told Bloomberg TV: ‘We need to explore how far, how deep we can go in the Pacific area with other countries.’
Meanwhile, European Commission chief Ursula Von der Leyen told reporters the EU would continue to suspend its current trade countermeasures against the US, which would impact around $25 billion of goods, until the start of August to allow for further talks.
The UK, which imports more from the US than it exports, has just a 10% tariff on goods and services, which makes it a clear winner if the status quo is maintained.
Stock markets, which might have been expected to sell off as they did in April after the ‘Liberation Day’ announcement, have instead powered to new highs, leading analysts to raise their year-end price targets for the S&P 500 index.
The acid test for investors will be the secondquarter earnings season, which kicked off this week with the major US banks including JPMorgan Chase (JPM:NYSE) and Wells Fargo (WFC:NYSE). [IC]
Bitcoin prices set record as investor bet big on ‘crypto week’
US lawmakers to debate cryptocurrency framework that could provide crucial reassurance for markets
Bitcoin vaulted past $120,000 for the first time on 14 July, the latest milestone for the world’s largest cryptocurrency as investors bet on industry policy wins in what been dubbed ‘crypto week’. This is a banner being used to describe a series of debates by US lawmakers that could lay the foundations for a longsought regulatory framework on digital assets.
‘Donald Trump has talked about making America the crypto capital of the world, and now the market is hoping those words become reality’, wrote Dan Coatsworth, investment analyst at AJ Bell.
Bitcoin rose to register a record high of $123,153.22 before easing and was last noted trading at $117,124.20, marking an 11% rally over the past month. The cryptocurrency is now up more than 25% so far in 2025.
‘Crypto week’ will see US lawmakers debate a range of issues, including three pieces of new legislation; the Clarity Act, the Anti-CBDC Surveillance State Act, and the Senate’s Genius Act.
‘After years of dedicated work in Congress on digital assets, we are advancing landmark legislation to establish a clear regulatory framework for digital assets that safeguards consumers and investors, provides rules for the issuance and operation of dollar-backed payment stablecoins, and permanently blocks the creation of a Central Bank Digital Currency (CBDC) to safeguard Americans’ financial privacy,’ said House Committee on Financial Services chair French Hill.
Source: LSEG
debt, which is high and set to go even higher. Bitcoin is seen as a portfolio diversifier and a ‘just in case’ store of value in a similar vein to gold, albeit a highly volatile one. While bitcoin valuation is driven purely by speculation, interest continues to grow in cryptocurrency assets.
‘There are now various investment funds that track the bitcoin price and that gives investors more choice in how they get exposure. It’s made it a lot easier to take a position and that has helped to drive up demand and push up the bitcoin price,’ wrote AJ Bell’s Coatsworth.
Despite ongoing uncertainties around trade tariffs, economic growth and geopolitical issues, investors appear to be hedging their bets by piling into bitcoin. Even though equities have been moving higher as markets appear to shrug off the latest tariff news, investors know they cannot rule out Donald Trump taking a completely new direction with trade discussions and doing something out of the blue. There are also growing concerns about US national
But lots of UK investors still rely on ‘bitcoin proxies’ to gain exposure, shares in listed companies who own large slugs of bitcoin and/or other cryptocurrencies. Wall Street-listed Strategy (MSTR:NASDAQ) has seen its stock surge 50% this year and 180% over the past 12 months for this reason, regularly among the most traded US equites on the AJ Bell platform. [SF]
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (Tom Sieber) own shares in AJ Bell.
Infrastructure group Galliford Try hits five-year high on raised guidance
Second increase to full-year forecasts in less than six months
In case investors were in any doubt as to which part of the UK construction market looks most attractive, infrastructure and civil engineering firm Galliford Try (GFRD) laid that to rest this morning with another increase to full-year revenue, margin and earnings guidance.
Ahead of the release of its results for the financial year to June, the company said thanks to its water contracts and ‘solid’ highways delivery, revenue and pre-tax profit
would be above the top end of the latest estimates, which sit at £1.885 billion and £41.6 million, respectively.
The raised outlook, the second from the firm after it lifted forecasts at the beginning of March, sent the shares to a new five-year high of 441p on the day (9 July).
Chief executive Bill Hocking said the group’s first-half performance gave it the confidence to ‘improve expectations’, while its recent major framework wins and the size of its order book provided ‘clear visibility
update sends former ad giant WPP’s stock to 15-year low
Second-quarter client spend and net new business below expectations
In a disappointing six-month trading update (9 July), global media group WPP (WPP) said it had seen a deterioration in performance as the second quarter had progressed.
As a results, it lowered its first-half like-for-like revenue guidance to a drop of 4.2% to 4.5%, with a second-quarter decline in the region of 5.5% to 6%, below its previous forecast.
before factoring in foreign currency headwinds.
The firm also reduced its guidance for full-year like-for-like revenue and operating profit, predicting ‘continued macro uncertainty weighing on client spend and weaker net new business than originally anticipated’.
and security of future workloads well beyond the current financial year’.
The firm also said stronger trading meant it would deliver ‘further margin progression towards our 2030 sustainable margin target of 4.0% and previously communicated margin target of 3.0% in 2026’. [IC]
At the same time, headline operating profit for the first half is seen between £400 million and £425 million, consistent with a margin decline of 280 to 300 basis points
Chief executive Mark Read commented: ‘Since the start of the year, we have faced a challenging trading environment with macro pressures intensifying and lower net new business.
‘While we expected the second
Source: LSEG
quarter to be similar to the first quarter, performance in June was worse than anticipated and we expect this pattern of trading in the first half to continue into the second half.’
WPP shares fell more than 100p or 19% to a post-financial crisis low of 426p on the day of the announcement, finishing the week lower still. [IC]
UK UPDATES OVER T HE NEXT 7 DAYS
FULL-YEAR RESULTS
22 July: Metir, Severfield, TheWorks, Van Elle
FIRST-HALF RESULTS
21 July: MONY Group
22 July: Me Group International
23 July: Breedon
24 July: Centrica, Howden Joinery, Lloyds Banking, Primary Health Properties, Reach, Relx
TRADING ANNOUNCEMENTS
22 July: BT, Compass, Kier, Vodafone, Wetherspoon
24 July: Wizz Air
Can MONY maintain momentum with its first-half results?
The price comparison website helped households save a record £2.9 billion last year
Moneysupermarket owner MONY Group (MONY) is due to report firsthalf year results on 21 July.
Investors will be looking to see whether the price comparison site can continue the strong trading momentum demonstrated in February when the company reported record group revenue of £439.2 million for the year ending 31 December.
Back in May, the company delivered more good news to investors by reaffirming its full-year forecast.
The company expects adjusted EBITDA (earnings before interest taxation depreciation amortisation) for 2025 to be in line with market expectations (in the range of £143.1 million to £151.7 million).
The company delivered a robust performance in the first four months of the year in its insurance, money,
Source: LSEG
and home services divisions, with only travel letting the side down due to UK consumer uncertainty and a challenging economic backdrop.
MONY also said recently its £30 million share buyback programme is progressing well with more than £8 million worth repurchased to date and confirmed it is on target to conclude in late 2025.
William Tamworth, co-manager of Artemis UK Future Leaders (AFL) says: ‘[The company] has consistently generated strong cash flows – we estimate a free cash flow yield of 9% – and has a very strong balance sheet. This gives the business options: either to invest, to do M&A or to return surplus cash to shareholders: it’s currently one of the record numbers of small caps buying back shares.
‘We are particularly excited by the opportunity from SuperSaveClub – which now has 1.3 million members. This has the potential to reduce MONY’s reliance on Google and drive greater repeat business.’ [SG]
Lockheed Martin’s Q2 clues to US defence spending regime
Analysts think company will face slowing growth during rest of 2025
If the global defence sector is undergoing a paradigm shift driven by geopolitical tensions and technological innovation, Wall Streetlisted Lockheed Martin (LMT:NYSE) is a critical player, not that you would have guessed so by recent share price performance.
While European defence firms like Babcock (BAB) and BAE Systems (BA.) have been going gangbusters in 2025, Lockheed is down 3% year to date in spite of record US defence budgets. Compare that to the VanEck Defence (DFNG), the UK’s biggest sector-themed ETF, which has rallied 42% this year. Even by the standards of its US peer group Lockheed has been poor, with rivals RTX (RTX:NYSE) and Northrop Grumman (NOC:NYSE) up 26% and 10% respectively so far in 2025.
Quite why is a bit of a mystery, as we head towards second quarter earnings (22 July, the same day as its two peers, interestingly). True, much of Europe’s defence rally comes from
Source: LSEG
US UPDATES OVER THE NEXT 7 DAYS
QUARTERLY RESULTS
US political pressure for nations like the UK, Germany and France, to close the defence spending gap (currently 1.9% to 2.3%) towards the US’s 3.4% of GDP and beyond.
First-quarter revenue and earnings beat analyst expectations in April, growth and margins were typically robust and there is some excitement around Lockheed’s Conventional Prompt Strike programme, a groundbased hypersonic missile system, to act as an important growth catalyst going forward.
Execution may be the perceived sticking point, and whether Q2 results will underscore its strategic positioning to capitalise on a decade of modernisation or face the slowing of growth through the second half of the year, as many analysts appear to predict, based on Koyfin consensus data. [SF]
18 July: 3M, American Express, Charles Schwab, Schlumberger, Truist Financial
21 July: Domino’s Pizza, NXP, Roper Technologies, Verizon
22 July: Baker Hughes, Capital One Financial, Chubb, Coca Cola, Danaher, Equifax, General Motors, Lockheed Martin, Philip Morris, Texas Instruments
23 July: AT&T, Chipotle Mexican Grill, FreeportMcMoran, General Dynamics, Hasbro, Hilton Worldwide, IBM, Moody’s, Raymond James Financial, Rollins, ServiceNow, Tesla, Thermo Fisher Scientific
24 July: Blackstone, Dow, First Solar, Honeywell, Intel, Keurig Dr Pepper, Mastercard, Nasdaq, VeriSign
Genus is on the cusp of a transformation to sustainably higher profitability
Firm expects to have 80% of US sows on its PRP programme by 2030
Genus
(GNS) £23.91
Market cap: £1.58 billion
Leading global animal genetics company Genus (GNS) is on the cusp of fully commercialising its proprietary PRP (PRRS or Porcine Reproductive and Respiratory Syndrome virus-resistant pig) technology.
This could be transformational for farmers in the porcine industry who have seen their herds decimated by the virus over many years.
A recent study from Iowa State University reported the devastating virus costs $1.2 billion per year in the US alone.
PRP should provide a material competitive
advantage for producers who adopt it, plus it has the potential to transform the profitability of Genus.
The US FDA (Food and Drug Administration) approved the use of Genus’ gene editing technology for use in the food supply on 30 April 2025, earlier than anticipated.
This gives Genus the green light to begin exploiting the opportunity, although there is still work to be done in terms of getting regulatory approval in the key US export markets of Canada, Mexico and Japan, with announcements expected in 2025.
PRP has already been approved in Brazil, Columbia and the Dominican Republic, while progress is also being made in China.
Analysts at Peel Hunt believe Genus has spent more than £80 million over the last decade developing its proprietary gene editing technology. The company has a strong intellectual property portfolio protecting the technology with 43 patents issued in 37 countries.
Shore Capital’s Sean Conroy is of the view US
farmers to control the sex of their cow’s offspring.
The genetics industry has increasingly adopted a royalty income model which today represents around 85% of global volumes and as much as 97% of volumes in the US market.
regulation could extend Genus’ position as the ‘leading authority’ on porcine genetics for decades to come.
Analysts at Peel Hunt and Panmure Liberum believe the full financial benefits of PRP are equivalent to between £11 and £12 per share, with little of the incremental value discounted in the current share price.
At a capital markets day in November 2023, Genus showed PRP could have a material impact on revenue growth and margins, potentially tripling operating profit in its pig division over the next decade, and doubling group operating profit.
The financial benefits from the PRP programme are expected be seen from 2027 onward, based on a calendar 2026 launch.
Meanwhile, the shares trade more than 60% below their peak in 2021 and earnings are depressed.
After a two-year cycle of downward earnings revisions, a new upcycle is within reach as the underlying business stabilises and the emerging PRP opportunity starts to be reflected in financial forecasts.
ROYALTY INCOME MODEL
Genus also operates in dairy and beef herd genetics to help farmers select the best animals for breeding by identifying and selecting desirable animal traits for animal wellbeing, productivity and resilience to disease.
Typically, a fee is paid at the time of delivery on the cost of goods sold, followed by ongoing royalty fees paid when value is delivered (pigs weaned, pigs marketed, sows used).
Genus believes the advantages of this model outweigh an upfront pricing model as it better aligns with customer benefits and value, incentivises more frequent genetic updates and generates steadier revenue and profit.
The model also ensures income is independent of commodity prices, although if farmers cannot operate at a profit, it does indirectly impact the demand for Genus’ services, as seen in China during 2023 and 2024.
For example, in 2023 pig prices were very volatile, impacted by the African Swine Fever and changing Covid-19 policies. Prices trended down and by the end of the year were below the cost of production, causing farmers not to replace or rebuild their sow herds.
For the six months to the end of December 2024, Genus booked royalty revenue of £87.3 million, up 5% on the prior year and equivalent to around a fifth of group revenue.
STRATEGY AND FINANCIALS
The company’s strategic priorities are to achieve stable growth in China, the world’s biggest pig market, improve margins and returns in bovine and deliver a successful commercialisation of its PRP programme.
In a trading update on 15 July Genus upgraded full year adjusted pre-tax profit guidance to ‘at least’ £68 million.
The company also noted strong free cash flow and a reduction in leverage to less than 1.6 times at year end.
In summary, we believe little of the potential incremental benefits from the PRP programme and improved efficiencies are yet to recognised, giving long-term investors a low-risk entry point.
One risk to be aware of is the ongoing tariff uncertainties, given the global export nature of pork and beef products. [MG] Genus financial forecasts
The company has patents on its breeding stocks and related technologies like Sexcel, which allows
Personal Group is a small cap with big ambitions
Company is targeting a substantial increase in revenue and profit by the end of this decade
Personal Group (PGH:AIM) 284p
Market cap: £86.7 million
Workplace benefits and health insurance provider Personal Group (PGH:AIM) is a relative market minnow but chief executive Paula Constant and chief financial officer Sarah Mace have big ambitions for the business. We think these ambitions are worth backing for investors, particularly with the valuation looking undemanding. Consensus forecasts put the shares on 11.6 times 2026 earnings and have them offering a yield of 6.9% based on next year’s dividend.
The duo aim to achieve £100 million of revenue by 2030, more than twice what it made in 2024. The hope is this will translate into £30 million of EBITDA (earnings before interest, tax, depreciation and amortisation) or three times what it made last year.
As well as lifting revenue 13% and EBITDA 29%, the firm won multiple industry awards in 2025. Significantly it also built on its existing relationship with FTSE 100 accounting and financial software firm Sage (SGE) and delivered the best ever months of leads in November and December.
That momentum has carried through into the current year. Paula Constant says the firm is ‘on a great organic trajectory’, with its offering really chiming with customers.
‘We are completely focused on winning new partnerships, maximising the value of our Sage relationship and winning new insurance business,’ says Constant.
Among the roster of existing staff benefit partners are B&Q, British Airways, DHL, Mitie (MTO), Ocado Retail and Royal Mail. Personal Group also counts universities and museums among its clients.
Personal Group (p)
Source: LSEG
The Sage Employee Benefit scheme for SMEs boosted annual recurring revenue by 10% last year and increased insurance sales by 18%. A customer retention rate running above 80% shows how much the client base values the service.
Behind the scenes there has been some tangible progress too. There has been a real emphasis on securing recurring revenue streams and reducing the seasonality in the business while, at the same time, together with making the balance sheet more robust.
The full-year dividend was hiked 41% to 16.5p –ahead of the 32% increase in basic EPS (earnings per share) from operations. There should be capacity to increase the amount it doles out to shareholders from here too. As at the end of December the firm had cash and bank deposits of more than £25 million and zero debt.
Dividends are likely to come before M&A in the list of priorities. Constant says any potential transaction ‘would have to be absolutely right’ to justify the effort, the money and the drain on the executive team’s time and resources. The size of the existing addressable market and the significant potential to grow the business organically are clearly at front of mind for management. [IC]
Rockwood Strategic is rewarding investors with a stellar returns
Our late 2023 ‘buy’ call on the value-focused small caps fund is 65% in the money
Rockwood Strategic (RKW) 310p
Gain to date: 65.3%
Shares flagged the merits of Rockwood Strategic (RKW) at 187.5p in November 2023, highlighting the value-focused trust as a way to gain differentiated exposure to a small cap asset class with re-rating scope.
We lauded manager Richard Staveley’s tried-andtested strategy, which identifies undervalued stocks where the company will benefit from operational, strategic or management changes that can unlock or create value for investors.
WHAT HAS HAPPENED SINCE
WE SAID
TO BUY?
Rockwood Strategic has cemented its position as one of the very best performing UK smaller company trusts and the shares have responded positively post results (18 June) for the year to March 2025.
These revealed NAV total returns of 21%, which compares to the 1.2% average of the AIC’s (Association of Investment Companies) UK Smaller Companies sector. Rather than being generated by M&A as in past reporting periods, the returns were driven by holdings delivering strong operational performance, in many cases instigated by Staveley. ‘This has since been recognised by other investors leading to share price recoveries,’ points out Kepler analyst Ryan Lightfoot-Aminoff. ‘As such, we believe these results demonstrate the repeat potential of Richard’s approach, as whilst M&A can often be sporadic and reliant on external factors, the heavy engagement approach means value can be extracted from holdings in a variety of backdrops.’
Rockwood Strategic (p)
Source: LSEG
division and cost-saving plan which Staveley helped to instigate; he has booked some profits but continues to hold the stock.
WHAT SHOULD INVESTORS DO NOW?
Stick with Rockwood Strategic, whose premium to NAV has allowed the trust to issue shares to help sate investor demand. Staveley insists: ‘A concentrated portfolio, full of incredibly undervalued equities, is now in place, with identifiable catalysts across our investments to unlock, create or realise value for shareholders.’
One of last year’s best performers was Funding Circle (FCH), aided by the sale of a loss-making
Among the new holdings seeding returns for holders of Rockwood are outsourcing business Capita (CPI), regional venture capital provider Mercia Asset Management (MERC:AIM) and Kooth (KOO:AIM), a digitally led hybrid service providing mental health services to young people, which Staveley believes has significant growth opportunities in the US and the rest of the World. [JC]
EMERGING MARKETS COMEBACK
WEIGHING
THE PROSPECTS
FOR A CONTINUED RECOVERY
By Ian Conway and Sabuhi Gard
Thanks to a topsy-turvy start to the year, driven by a combination of the new US administration’s unpredictable policies on trade and foreign relations, sticky inflation and the rise of geopolitical uncertainty and conflict, investors are broadening their
horizons and reassessing how and where they should allocate their capital.
With the US representing close to 60% of world market cap and more than 70% of global developed market indices, attention is turning to areas which might offer better opportunities in terms of growth and value.
One area which has long been neglected, relatively speaking, is EM or emerging markets. However, since the turn of the year that has started to change.
According to the AIC (Association of Investment Companies), global emerging market equities trusts recorded an average return of 11.4% against 7% for the investment trust universe as a whole.
Investment trusts focused on Chinese equities were among the best performers in the six months to June, with an average return of 14.6%, again comfortably above the average for the wider trust space.
Even emerging market debt, which is considered high-risk by most fixed income investors, is ‘showing signs of life, with fund flows rebounding sharply since the end of April and 2Q investment performance outpacing that
A weak dollar has often been good news for emerging markets
of developed market fixed income indices,’ according to analysts at Jefferies.
As the analysts go on to point out, this resurgence ‘has been underpinned by a weakening US dollar, which, historically, has supported EM asset valuations and investor appetite for the asset class’.
A GROWING VOICE
As this month’s BRICS summit in Brazil demonstrated, emerging market countries are keen to represent a new front in what is becoming a ‘multipolar’ world.
The BRICS themselves, which have expanded significantly from their first summit in 2009 with the addition of more developing countries, now represent more than half the world’s population and 40% of its economic output, according to Reuters.
A joint statement released by the group said the tit-for-tat increase in tariffs sparked by the Trump administration threatened global trade, while forums such as the G7 and G20 appeared powerless to check the increase in protectionism.
Brazil’s president Lula da Silva drew parallels between the BRICS and the Non-Aligned Movement, a group of countries that refused to be formally aligned with either the US or the Soviet Union during the Cold War, adding: ‘If international governance does not reflect the
new multipolar reality of the 21st century, it is up to BRICS to help bring it up to date.’
In a sign of the group’s growing importance on the global stage, Trump was moved to respond within hours, warning he would punish countries aligning themselves with the ‘antiAmerican policies’ of the BRICS with extra tariffs, as usual with no further clarification.
Against this backdrop, Shares took the opportunity to canvass opinion among fund managers as to why emerging markets had begun to outperform and why investors should think about allocating money to them.
‘THE STARS ARE ALIGNED’
‘The stars seem to be aligned’ for emerging markets, says Chris Tennant, who co-manages the £540 million Fidelity Emerging Markets (FEML) investment trust with Nick Price.
Tennant acknowledges a weaker US dollar has been an important driver for emerging markets this year, but argues it isn’t the only one.
‘Some easing of trade tensions, renewed focus on technological innovation, and relatively cheap valuations are some of the other reasons why emerging markets have outstripped the MSCI World Index so far this year.’
Tariff announcements have led to heightened volatility in equity markets, but Fidelity Emerging Markets has the ability to go both long and short stocks which helps it capitalise on sharp movements.
Fidelity Emerging Markets
The trust has a bias towards small and mid caps, but it does invest in large caps, with South African tech company Naspers (NPN:JSE) and Taiwanese chipmaker TSMC (2330:TPE) being two of its biggest holdings, while in China the managers take an ‘active’ approach, shying away from banks, property and heavy industrials on concerns of oversupply.
Ayush Abhijeet, manager of Ashoka Whiteoak Emerging Markets (AWEM), also flags valuation as an important catalyst for the recent outperformance of EM stocks: ‘Emerging markets are undervalued compared to historical data, which is why countries like China have shown such strong performance in the last year.’
The trust has significant exposure to Chinese stocks, including top 10 positions in Alibaba (9988:HKG), Tencent (0700:HKG) and Hong Kong Exchanges and Clearing (90388:HKG).
Taiwanese chipmaker TSMC is also in the top 10 holdings, while Abhijeet says he is finding other attractive opportunities Taiwan as well as in India where he owns healthcare and industrial sectors in India like Hitachi Energy India (POWERINDIA:NSE).
Vera German, manager of the Schroder Emerging Markets Value Fund (BNV5M75), argues EM present ‘a compelling opportunity’ today, particularly through a disciplined valueinvesting lens.
‘In emerging markets, “value investing” is often associated with cyclical, state-owned enterprises in sectors like metals & mining or oil & gas. While these opportunities exist, deep value can take
multiple forms such as fallen angels, cyclicals, special situations and companies with hidden growth,’ explains German.
Investors are too often swayed by prominent stories and strong narratives at the country or sector level, causing them to overlook exciting companies, says the manager.
‘We actively monitor companies which fall within our criteria and operate in regions or countries where investors aren’t looking, but where there are significant growth tailwinds for years to come.’
A prime example is telecoms company Airtel Africa (AAF), which operates in 14 African countries including Nigeria and Kenya and has grown its top line at around 20% consistently. This growth doesn’t even account for the substantial opportunities presented by mobile money and data centres, argues German.
Conversely, the fund eschews companies it thinks are expensive, even if they are considered ‘good quality’ businesses and large constituents in the benchmark, so one notable exception in the portfolio is TSMC.
THE CASE FOR LATIN AMERICA
Fidelity’s Price and Tennant are overweight Latin America, viewing Mexico and Brazil in particular as relative winners from US tariff policy and a future source of nearshoring for the US.
Specialist manager Sam Vecht, who runs BlackRock Latin American (BRLA), believes the
waning belief in ‘US exceptionalism’ favours other regions, including Latin America.
‘Rising uncertainty around trade policy, governance and debt is prompting a repricing of US risk premia. While growth has remained resilient due to pandemic-era savings, those buffers are now exhausted, and sentiment is weakening.’
Key supports, such as government spending and immigration-driven labour supply, face challenges under a more hawkish Trump administration, says Vecht, leading investors to reassess US risk and the dollar’s safe haven status.
‘In our view, the world has entered a new geopolitical era defined by rising tensions between East and West, with a third bloc of politically neutral countries emerging in between.
‘This third group of politically neutral countries is well-positioned to benefit from the ongoing realignment of trade routes and supply chains,’ adds Vecht, almost echoing the BRICS statement.
Emerging markets have historically performed well during periods of lower interest rates and a weaker US dollar, as lower rates help foster growth while a softer US currency can boost exports, although there tends to be a high degree of dispersion.
Even China, which has borne the brunt of the tariffs, is an outperformer year-to-date, notes Vecht, as the expectation of government stimulus and domestic investor participation have buoyed the market.
‘People tend to overlook the fact that the China of 2025 is much better prepared and less reliant on US exports than the China of 2018,’ adds the manager.
While the trust sees opportunities across many countries, Latin America looks particularly well-positioned. Perhaps surprisingly, the MSCI EM Latin America index has outperformed broader emerging markets year-to-date by 14.6% as of the end of June, proving to be an unlikely defensive candidate in an increasingly volatile world.
Vecht believes increased geopolitical tension worldwide and the subsequent rewiring of global supply chains away from China is already benefitting a broader range of emerging markets, ranging from Indonesia to Mexico.
‘In Mexico for instance, despite some headline noise, we do not see a major change in the secular trend of nearshoring of supply chains, as Mexico will remain a much cheaper location to manufacture than the United States. (President) Sheinbaum’s pragmatic approach to trade negotiations underscores this view.’
The trust generated an NAV total return of 34.2% in US dollar terms in the five months to the end of May compared to a benchmark return of 22.4%.
The returns have been driven by strong stock selection within Brazil, which after a poor performance in 2024 due to fiscal issues and a weakening currency has bounced back significantly in 2025.
‘Our Mexico exposure has also been additive, with strong stock selection in the financials and materials space,’ says Vecht.
It is also worth noting the trust has the flexibility to invest in off-benchmark names, a good example being a Uruguayan fintech company which has been among the biggest contributors year-to-date.
A COMPELLING INCOME STORY
Isaac Thong, recently appointed lead manager of the £328 million Aberdeen Asian Income Fund (AAIF) alongside Eric Chan, highlights three reasons why emerging markets, and those in the Asia-Pacific region in particular, are well placed to meet the needs of income investors.
‘The region continues to lead global GDP growth, averaging 4% to 5% versus 1.5% to 2% in developed markets. For UK investors seeking diversification and long-term income opportunities, Asia offers a compelling blend of economic growth, innovation and market maturity,’ says Thong.
This stronger growth has spurred corporate governance reforms, with the Asia-Pacific region (ex-Japan) now contributing 31% of global dividends, on a par with the US.
Finally, dividend volatility is lower than in developed markets – even during Trump’s previous term, says Thong, MSCI Asia Pacific ex-Japan showed lower dividend volatility (1.14%) compared to the S&P 500 (10.15%), demonstrating its resilience.
Omar Negyal, manager of the £1.3 billion JPMorgan Global Emerging Markets Income Trust (JEMI), says he looks for a combination of value and quality, prioritising companies with good returns on equity, free cash flow and positive dividend policies.
‘We have identified Mexico, Indonesia and Korea as compelling markets, with a sector overweight in financials due to good returns on equity,’ says the manager.
‘Trade tariffs pose challenges, but opportunities exist to invest in companies with domestic revenue or by being selective among exporting countries, and a weaker dollar could be a tailwind.’
Emerging Markets
Negyal sees opportunities for shareholder returns to rise in Korea and China: ‘There have been corporate governance improvements in Korea, leading to increased shareholder engagement, higher payout ratios and more buybacks. Chinese companies are also improving shareholder returns by paying dividends and considering buybacks in response to slower growth.
The return profile in China is shifting from growth-focused to a balance between dividends and growth.’
Chetan Sehgal, co-manager of the £1.9 billion Templeton Emerging Markets Investment Trust (TEM), believes in the long-term emerging markets as an asset class could offer up to 7% or 8% yields, although US trade tariffs are a risk to growth in the short term.
‘We are overweight Korea and Brazil, which have recovered after a tough period. At the same time, we have reduced our China exposure and added to our Indian holdings when the market sold off,’ reveals Seghal.
‘Our standout holdings, however, have been TSMC, where demand has been driven by the AI (artificial intelligence) boom, along with SK Hynix (000660:KRX).’
Looking ahead, Sehgal is keeping an eye on both the Middle East and Eastern Europe in the hope hostilities cease and opportunities open up again.
Clearly there is no way round the thorny issue of tariffs, which could disproportionately impact certain emerging markets, but with lack of clarity on where the numbers might eventually land companies have no choice but to get on with the day-to-day running of their operations.
Trump’s baseline 10% tariff has already raised US revenue receipts, and looks certain to remain in place now that bond and equity markets have recovered their poise.
food and agricultural products which are highfrequency purchases.
Given wholesalers typically hold a limited amount of inventory, US retailers will have no choice but to pass on the majority of the price increases which means consumers will feel the impact relatively quickly.
The ‘grace period’ on additional reciprocal tariffs was recently extended to 1 August, suggesting the US is still open to negotiations, while Japan, South Korea and Malaysia were sent letters confirming the rate which will apply to their exports would be roughly in line with the ‘Liberation Day’ proclamation.
However, in what is clearly a politicallymotivated attack, and without any discussion, Trump has imposed a 50% tariff on goods from Brazil from 1 August, sending its currency and its stock market down.
Brazilian exports to the US are small in the grand scheme of things, but they are mostly
Top 10 sources of US imports
Coercing foreign companies to relocate factories to the US, which is one of Trump’s objectives, would entail years of planning and hundreds of billions of dollars of investment, and is simply not going to happen on any great scale before the end of his current term.
For now, tariffs haven’t had a measurable impact on inflation or employment, nor have they had an impact on corporate earnings, and forecasts for the second quarter have been lowered sufficiently that a ‘beat’ is almost certain.
As the months roll by, however, US consumers are going to experience a steady rise in prices, which could lead to higherfor-longer interest rates, a decline in real wages, a slowdown in consumption, a rise in unemployment or in a worst-case scenario a full-blown recession.
Data for January through May
Source: US Census Bureau
What cleaner accounts might be telling investors about long-term shareholder value
The way a company presents its numbers can reveal more than you think
This feature looks at the increasing trend for companies to present adjusted financial figures and/or APM (alternative performance measures) and asks whether it may say something about the companies themselves.
For example, do companies which provide unadjusted numbers make better long-term investments?
Fund manager David Beggs at Sandford DeLand believes that may be the case, telling Shares: ‘Companies which report clean, unadjusted financials are increasingly rare in today’s market – but they often prove to be among the most
SANDFORD DELAND EXAMPLES OF CLEAN ACCOUNTS
GAMES WORKSHOP
The largest holding in the UK Buffettology Fund (FUND:BF0LDZ3).
One of few companies which still produces a traditional black-and-white annual report with no glossy images or distractions.
SOFTCAT
Held in the UK Buffettology Fund.
Consistently well-run business with clean financials.
JAMES HALSTEAD
Held in the UK Buffettology Fund.
Family business with a long track record of financial conservatism and clean reporting.
successful long-term investments.’
‘Clean financials can be an indicator of a strong business franchise that is able to deliver high-quality earnings consistently without the need for “smoothing” by the CFO in the form of “adjustments” each year,’ explains Beggs.
THE ‘RAW’ AND THE
‘COOKED’
Companies are required to prepare annual accounts under the Companies Act 2006, but they can choose which accounting standards to use.
In the UK and Europe, companies report under the IFRS (International Financial Reporting Standards) standards while in the US firms use GAAP (Generally Accepted Accounting Principles) measures.
It may seem reasonable for companies to offer a nuanced view of performance (accountants are far from perfect), but the issue is analysts tend to base forecasts on adjusted numbers which means
Selection of companies with clean accounts in Shares view
Selection of companies with clean accounts in Shares’ view
Company Ticker
Source: Stockopedia, Refinitiv
statutory results tend to get less scrutiny.
A knock-on effect is incentives and executive pay are often based on APM which consequently can change company behaviours.
We are not suggesting all companies which adjust numbers are bad, simply that cleaner accounts reflect good corporate governance and a refreshing honesty with shareholders.
As Beggs says: ‘The raw numbers can speak for themselves. They suggest strong internal controls, accounting discipline and a conservative management culture.’
This table aims to provide a list of companies which appear to adopt clean accounts, but it’s also worth discussing some commonly used alternative performance measures.
EBITDA IS NOT CASH
The late Charlie Munger had an almost pathological candour about him. ‘I think you would understand any presentation using the word EBITDA if every time you saw that word, you just substituted the phrase with bull**** earnings,’ fumed Munger.
EBITDA (earnings before interest, tax, depreciation, and amortisation) was popularised
Market Cap (£bn)
by private equity firms as a proxy for cash flow, allowing them to maximise the amount of leverage they could use.
However, it has a major drawback, because depreciation is a real business cost.
Most firms own assets, and most assets depreciate with use, so depreciation is a real cost to a business, and assumptions about the useful life of an asset have consequences for reported profits.
For example, if company A assumes five years of useful life and company B believes seven years is about right, company A will, all else being equal, report lower profitability, even though it is adopting a potentially more prudent approach.
In any case, why use a proxy for cash when all companies report the real thing? Simply head to the cash flow statement and look for ‘cash generated from operations’ to get a more useful picture.
Operating cash flow minus normalised capital expenditures (maintenance spending) is often the best measure of sustainable cash flow, although few companies divulge their maintenance capital expenditure.
Some companies calculate adjusted EBITDA which usually involves removing one-off, non-
Source: WeWork
recuring or irregular items. The culprits are typically costs related to acquisitions or asset write-downs.
This covers a wider category of adjustments related to non-recurring items, and in some cases they can provide a clearer picture of underlying operations.
That is not the case with companies which regularly make acquisitions as part of their growth strategy. If the same non-recurring items appear every year, they are clearly part of everyday business operations and should be treated as such. Another potential banana skin for watch out
for is when a company is undergoing a multi-year period of restructuring and regularly excludes the associated costs.
Sometimes companies get even more creative. Beggs highlights the example of shared office space company WeWork which was once valued at $47 billion.
‘WeWork coined the term ‘Community Adjusted EBITDA’ when marketing its debut bond offering in 2018, an eyebrow-raising attempt to strip out nearly all operating expenses,’ says Beggs.
It is also worth flagging the significant $300 million of stock-based compensation which was effectively ignored, despite stock compensation being a real cost.
When should you give an underperforming fund manager the boot?
Determining
when to call time on a struggling investment vehicle
In his latest semi-annual letter to shareholders, Terry Smith has laid out another spell of underperformance for the Fundsmith Equity (B41YBW7) fund. The fund fell behind the MSCI World Index by a modest amount, just 2% in the first six months of this year. However, this comes on the back of four calendar years of failing to beat the global stock market.
goes through a difficult patch, there are also questions DIY investors can ponder which will help them come to a decision on whether to stick or twist.
MEASURING PERFORMANCE
Investors in Fundsmith Equity will no doubt draw their own conclusions. But this does tap into the wider question of how long you should give a fund manager who is underperforming. Professional investors, like those who put together the AJ Bell Favourite Funds list, will interrogate managers face to face, and analyse their funds in detail, finding out the precise reasons for underperformance, and looking for signs the manager isn’t sticking to their knitting.
Replicating this approach is challenging for the everyday investor, who doesn’t usually have the time or resources to dedicate themselves to analysing funds in such forensic detail. That’s why professionally selected funds lists, like AJ Bell’s Favourite Funds, can be a helpful resource for investors to check on. But when a fund manager
The first thing to do is assess performance properly. Fund price movements up and down are clearly what ultimately matter most to investors, but if you’re evaluating an active manager, you need to compare performance to an appropriate benchmark. Often this will be shown on the fund’s factsheet, but do be a bit careful as sometimes fund groups provide performance compared to the fund sector they sit in. This might not be a bad comparator, depending on the sector, but it probably won’t be as good as the official benchmark, which will normally at least be stated on the factsheet. When looking at investment trusts, it’s the NAV (net asset value) return which you should focus on, if you’re assessing a manager’s performance. The share price return includes movements in the discount and premium, which the fund manager can’t realistically be expected to control.
All active managers will go through periods of underperformance, so you shouldn’t worry too much about a short spell when the fund falls behind its benchmark. As well as total performance over a given time period, consider annual performance over the last five years too, which is normally presented on the fund factsheet. Consider if there was one bad year which has been responsible for most of the underperformance, and how the fund has done otherwise.
ALL LONG PERIODS OF POOR RETURNS START WITH A SHORT ONE
All long periods of underperformance start with a short one, and deciding if and when to pull the plug is undoubtedly a difficult one. As a fund investor, you have a choice about how to go about things. Either you cut and run at the first sign of trouble, or you sit and wait it out. If you jump ship quickly, you might get out of some funds before a long downturn in performance, but equally you will miss some that bounce back. Meanwhile you also rack up trading costs and spend a lot of time and effort moving your portfolio around. You also have to switch your money into another fund, and who’s to say the one you choose is not about to embark a period of underperformance? If you choose the patient route, you avoid these issues. Sometimes you will hold a fund for longer than you would with perfect hindsight, but in a diversified portfolio, other funds should take up the slack.
CONSIDER THE MARKET CONTEXT
It’s also important to consider what’s going on in the market and whether that explains underperformance. Fund managers tend to have a certain style, which is to say there are certain types of stocks, sectors or segments of the market which their investment strategy leads them towards. These could be dividend payers, smaller companies, or growth stocks, for instance. Such styles can fall out of favour and remain unloved for long periods, which means some forbearance is required if this is the root of fund underperformance.
Right now, many fund managers investing globally or in the US have found it hard to match the world index, which has been driven higher by a small clutch of big technology companies. If an active manager didn’t hold these stocks, or simply held less than the index, it would have left the rest
of the portfolio needing to do a lot of heavy lifting to generate outperformance. The hegemony of the Magnificent Seven has moderated somewhat in 2025, but even if that trend is sustained, it will take some time to feed through into long-term performance figures.
ONE IN, ONE OUT
If you sell out of a fund because of underperformance, you’ll need to put your money somewhere else. There are broadly two options if you’re staying invested. One is to go for a tracker fund, which can be expected to underperform the index by a small amount (the annual fund charges) each year. This is a wholesale change in approach and implies some disillusionment with active management as a whole.
The other option is to pick another active fund manager, though of course this means you still have the possibility of experiencing underperformance. There’s a real risk here that if you keep moving out of underperforming funds and into top performers, you’re selling low and buying high, which can have a damaging effect on your wealth over the long term. The other risk is that you pull out of an active fund without any idea where to put the proceeds, and you end up just sitting in cash. It’s easy to forget to reinvest that money, which potentially means missing out on returns as the market rises.
DISCLAIMER: AJ Bell owns Shares Magazine. The author (Laith Khalaf) and editor (Tom Sieber) of this article own shares in AJ Bell.
By Laith Khalaf AJ Bell Head of Investment Analysis
Housebuilders: what’s holding back the sector and what could drive a recovery
Shares are inexpensive and dividend yields are decent, so why aren’t investors lapping them up?
Falling mortgage rates, a government eager to have more homes built, decent dividends and cheap equity valuations should, in theory, make housebuilders a big hit with investors.
Instead, we’ve got a sector where share prices are stuck in a rut. So, what will it take to get shares motoring again?
Fundamentally, we need new government incentives to fire up the property market, further interest rate cuts to improve mortgage affordability, and stronger consumer confidence. Two of those three factors are in motion, while the third is plausible.
SENSITIVE SECTOR
Shares in UK housebuilders are sensitive to interest rate expectations and economic activity. When sentiment is in their favour, these stocks can deliver supersized returns to investors. The opposite applies when there are economic or interest rate headwinds.
For example, shares in Taylor Wimpey (TW.) went up 85% between October 2014 and August 2015, fluctuated in a narrow range until May 2016, and then fell 43% over the following two months. Such levels of volatility mean housebuilders won’t suit all investors.
So far this year, the sector has lost 2.3% on average based on share price movements and dividends versus a 10.3% positive total return from
Source: LSEG
the FTSE 100. At the top end, Crest Nicholson (CRST) has nearly matched the FTSE 100’s return whereas MJ Gleeson (GLE) has lost 26.4%.
MARKET CONCERNS
The market is worried about two key factors, while there are also company-specific factors which explain the divergence in fortunes.
Among investor concerns is the likelihood that first quarter 2025 sales were stronger than normal as individuals raced to beat changes to stamp duty. That implies that second quarter and potentially third quarter sales might be lacklustre across the sector.
Taylor Wimpey (p)
Housebuilders versus FTSE 100
Company 15-year total return 10-year total return
Year-to-date total return
Data to 8 July 2025
Source: AJ Bell, ShareScope
Disappointing news on the volume of completions in Barratt Redrow’s (BTRW) latest update on 15 July, as well as significant charges relating to legacy building issues, haven’t helped sentiment.
Between September 2022 and the end of March 2025, buyers of homes in England and Northern Ireland worth less than £250,000 didn’t pay any stamp duty. First-time buyers paid no stamp duty on the first £425,000 when buying a home worth less than £625,000.
From 1 April, the rates changed whereby buyers pay 2% on values between £125,001 and £250,000 and the first-time buyer threshold has fallen to £300,000. Above these values, the tiered rate system is the same as before.
The prospect of paying thousands of pounds extra in stamp duty caused a rush of home buyers racing to complete purchases ahead of the April deadline. Certain people didn’t get their transaction over the line and there were reports of potential buyers pulling out of deals.
The other worry point for investors is the return
of cost pressures. Extra employment related costs as a result of the chancellor’s Budget decisions in October 2024 have trickled through the supply chain, with companies supplying materials to housebuilders passing on those extra costs. Housebuilders themselves have also had stomach higher employment costs directly.
MJ Gleeson shares fell in June when it slashed profit forecasts, blaming a slower housing market, rising build costs and increased sales incentives. It also failed to sell a big block of land, thereby having less cash coming into the business than previously expected.
©MJ Gleeson
REASONS TO BE OPTIMISTIC
There is a reasonable chance that certain headwinds could fade away and tailwinds to move to the forefront as the year progresses.
The race to beat stamp duty is likely to have distorted near-term earnings for housebuilders, yet it should only be a temporary issue.
The market expects interest rates to fall from 4.25% to 3.5% by early 2026 and that would make mortgages much more affordable. It could be the catalyst to get more people on the housing ladder
and drive transaction volumes among existing homeowners looking to move to a different property.
There are signs of optimism in pockets of the housebuilding industry among developers and suppliers. For example, Bellway (BWY) struck a confident tone in its June trading update, pointing to ‘good’ levels of customer demand. Brickmaker Ibstock (IBST) is planning to increase production capacity, citing signs of recovery in the UK housing market. Persimmon (PSN) is buying more land and gave an upbeat outlook in May.
The GfK Consumer Confidence index in June recorded its second consecutive monthly gain, driven by a more optimistic view of the economy. Consumer confidence is an important metric to track as buying a house is a big financial decision and people won’t commit if they are worried about their personal finances and job security.
The government has a target to build 1.5 million new homes by 2029. Key to achieving this target is reforming the planning system, removing red
UK-listed housebuilders: key metrics
Housebuilders
tap that slows down approval of infrastructure projects, and removing obstacles that have stalled new home developments.
While there remains uncertainty as to whether the government can achieve the goal, its policies still provide a tailwind for housebuilders to increase output.
The property market has been a priority for successive governments and this remains the case today. We’ve seen the Help to Buy scheme followed by the launch of the Lifetime ISA and various changes to stamp duty along the way, all designed to stimulate demand and facilitate access to the property market.
It’s natural to ask when we will get the next incentive, and there is chatter about a potential new equity loan scheme. One proposal from the Home Builders Federation bundles up a 5% deposit from the customer and a 15% equity loan from the government, including a 1% contribution from the developer.
On 15 July chancellor Rachel Reeves announced
a shake-up of the mortgage market to enable more people to get on the housing ladder, potentially helping to stoke demand.
CHEAP VERSUS HISTORY
Valuations are not expensive across parts of the housebuilding sector relative to history. In boom times, it’s normal to see housebuilders trade on two times net asset value. Today, they trade at or below one-times.
Investing is all about taking a view on what might happen next, rather than looking in the rearview mirror. There is no guarantee that consumer confidence will continue to improve, inflation comes down, and the Bank of England cuts interest rates in the near-term.
However, it does feel as if the sector is looking more interesting and as a key industry in both the FTSE 100 and FTSE 250 indices, it could be worth keeping a closer eye on what housebuilders say from here, and what’s implied by key economic data points.
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How do the carry-forward rules on pension contributions work?
Our resident expert explains that your maximum contribution depends on your annual earnings
I could do with clarification on the carry forward rules. The guide is that I must have used up my full allowance for the current tax year.
I am taking very low salary as a director of my own business so my earnings are capped at £12,570.
Last year I put the maximum I can personally place into my pension i.e. £12,570 including tax relief. But that still left £47,430 to get up to the £60,000 annual maximum. My company placed further amounts in directly, but still short of the maximum by about £17,000.
So, my question is - have I used my full allowance for the tax year, or does it have to maxed out at £60,000 before I can consider carry forward?
Andrew
Rachel Vahey, AJ Bell Head of Public Policy, says:
How much someone can pay into a pension can sometimes be complicated. As a reminder, there are two different allowances.
The first is on the maximum contributions an individual can make to their pension and claim tax relief. This is capped at the higher of £3,600 or 100% of the pension saver’s relevant UK earnings, including the tax relief.
Very broadly, relevant earnings are earned income or self-employment income, including bonuses, but not including investment income such as dividend income.
KEY POINT TO REMEMBER
The key point to remember when it comes to personal contributions is the maximum contribution which can be made is restricted to the relevant UK earnings in that tax year, regardless of how much annual allowance is available. The second allowance is the annual allowance,
which covers any personal contributions, employer contributions and tax relief.
Any contributions above the available allowance will suffer a tax charge if carry forward isn’t available.
The standard annual allowance is £60,000, but it could be lower if someone is a very high earner, or has previously ‘flexibly accessed’ their benefits, usually by taking taxed withdrawals from their flexiaccess income drawdown plan.
Doing so would trigger the money purchase annual allowance (MPAA) which is £10,000.
If someone doesn’t use all their annual allowance in a tax year, then it might be possible to carry it forward to another tax year to count against contributions paid in then.
However, this doesn’t apply if the MPAA has been triggered. If that’s the case, unused MPAA will just be ‘lost’ once the tax year ends.
You say last tax year you paid in £12,570, and as you have £17,000 unused annual allowance left (out of your starting £60,000), I am going to assume your employer paid in about £30,430, giving total contributions of £43,000.
You haven’t said what pension contributions you made in the two tax years before that, but
Ask Rachel: Your retirement questions answered
I am going to assume you have unused annual allowance from those years as well.
USE UP THE CURRENT YEAR’S ALLOWANCE FIRST
To use unused annual allowance from previous years, you must first use up your annual allowance in the current year. If we assume both you and your employer make the same contributions this tax year, 2025-26, as you did last year, then you will still have £17,000 left over.
To use up this £17,000 your employer contributions could be increased. It’s worth remembering that to be treated as an allowable deduction against profits, pension contributions have to made wholly and exclusively for the purposes of the business.
If the employer contributions were increased by any more than £17,000, then not only would it use up the annual allowance for this year, but any excess could be set against unused annual allowance from previous tax years starting with three tax years ago (2022-23), and once that is used
up, moving onto 2023-24 and 2024-25
As an alternative, you could increase your personal contributions but you would have to have the relevant UK earnings to ‘justify’ a higher personal contribution.
For example, if you earned £29,570, you could pay a contribution which, when including tax relief, equalled £29,570. This, in addition to the employer contribution of £30,430, would use up your total £60,000 annual allowance.
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.
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
Russ Mould
Laura Suter
Rachel Vahey
Hannah Williford
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.