The Autumn Statement aimed to send out a clear message that you should consider backing Britain. Chancellor Jeremy Hunt declared that: ‘It’s time to get Sid investing again.’
Not only did the Chancellor revive the spirit of the iconic small shareholder who starred in the 1986 British Gas privatisation campaign, he also delivered measures that could supply an extra £75billion-a-year of finance to reinvigorate the languishing UK markets.
Yet some investors may still be unsure whether they will once more become a Sid, or join this club for the first time, perhaps participating in the possible sale of the Government’s remaining stake in NatWest.
For one thing, while the individual savings account (Isa) rules will be simplified, the Chancellor sadly failed to unveil a special tax incentive in the form of a ‘Brisa’ – a British Isa.
Also we have been assured for months that UK shares, particularly those in small to medium-sized businesses, are a bargain. According to the Wall Street titan Morgan Stanley, they may even be ‘the cheapest asset class in the world’.
Yet shares in these enterprises have continued to struggle, with the result that British small-cap businesses are now historically cheap.
Darius McDermott of Fund Calibre comments: ‘As the Numis Schiller index shows, the price-earnings (p/e) multiple of small-cap companies – a measure of value – is now 13 times, against its average of 20. It has only been that cheap for 4.87 per cent of the time since 1987.’
Particularly hard hit have been the fledgling companies traded on AIM (Alternative Investment Market). The FTSE AIM All-Share index is down 15 per cent since January, beset by unfounded rumours of the withdrawal of the inheritance tax breaks available on these shares if held for more than two years.
Intrigued by these statistics, you may be planning to join the Sid club – but at some future point, making a move only when a rebound is under way.
After all, the Chancellor may be encouraging pension funds – which have deserted the UK markets – to make a return, but he has not required them to commit a specific amount of cash. Moreover, their presence will not be immediately felt. But Richard Staveley, manager of the Rockwood Strategic, a trust that specialises in UK smaller companies, warns that it is tricky to profitably time such a manoeuvre. If you are ready for a gamble, it can be better to take at least a three-year view, buying before you see the light at the end of the tunnel.
Recent takeover activity suggests the professionals sense that an upturn could be coming.
Staveley said: ‘In recent months, four of the 20 or so companies that we own in our trust have been acquired. For instance, Youngs is taking over City Pubs, while Costar, the US real estate group, is snapping up the OnTheMarket portal which is a true British start-up firm.’
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Other Americans are not hanging back until revival is evident. The mighty Mars confectionery conglomerate is gobbling up the British boutique sweet treat maker Hotel Chocolat.
These purchases include a slice of Schroder UK Mid Cap.
This trust has stakes in the electrical engineering group Spectris and Games Workshop, owner of the Warhammer game and model franchise, whose fans include singer Ed Sheeran.
Games Workshop shares may have risen by 273 per cent over the past five years, but it is still likely that Wall Street would put an even higher valuation on this company.
The Isa tweaks should allow some of Warhammer’s less well-heeled younger followers to hold ‘fractional’ shares in this and certain other companies.
At £107.9 apiece, shares in Games Workshop are somewhat unaffordable for novice Sids, so they will be able to own a portion of a share.
I think that there are many more stock bargains available than in Black Friday sales.
I am holding onto my UK smaller-cap companies and trusts, and on my shopping list are Rockwood Strategic and a FTSE 100 name, Taylor Wimpey. The construction company’s prospects may appear lacklustre amid subdued demand for housing. But it has plenty of cash and a large land bank.
McDermott’s fund picks are Montanaro UK Income and Marlborough UK Micro-Cap Growth. Only Sids with strong nerves should make the leap, however, because, as he puts it: ‘You have to close your eyes, shut the drawer and wait.’
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