The Coronavirus pandemic and its effect on stock markets has now been with us for over a month. We have seen dramatic falls in asset prices across the globe, as uncertainty about the long-term effects of COVID-19 and the likely duration of the current lockdown are as yet unknown.

Last week we saw markets recover dramatically over three days before falling again on Friday. Stock markets are leading indicators, meaning that they reflect what the market anticipates will be the situation in 3-6 months time. We have no way of knowing whether last week’s lows will mark the bottom of this particular market set back or whether a second downdraft will occur in the weeks ahead.

What we do know is that there will be an end to this pandemic; test kits, ventilators and vaccines will be manufactured, and the world will get back on its feet and economies will recover. Already central banks have cut interest rates to their lowest in history, and governments the world over have announced unprecedented fiscal stimulus packages and aid to companies and individuals hardest hit. Under normal circumstances such moves would be extremely bullish.

We continue to recommend that clients sit tight through this period and wait for asset prices to recover. For those with cash to invest, we recommend starting to buy now, with a plan to invest in tranches over a pre-ordained period so that if prices fall still further, your average cost of total assets purchased decreases.  (The principle is known as pound cost averaging.)

While asset prices will fluctuate, our major concern is what happens to the income that clients rely on from these assets to fund their retirement. Already we have heard that a raft of UK companies will be cancelling or postponing their dividends this quarter. Marks & Spencer, British Land and Persimmon amongst a raft of other retailers, pub groups, property companies, car dealerships, travel firms and housebuilders have cut or cancelled £4.3bn worth of pay outs. There will be more.

While it is impossible for clients to avoid a certain level of income reduction – Commercial Property Trusts for example –  there is some comfort we can draw from most of the investment trusts we own. Investment Trusts – uniquely amongst pooled investment vehicles – have the ability to call on revenue reserves, built up over the good times, to make up for any shortfall in income from their underlying assets during tough times. In this way income to shareholders can be smoothed so that the likes of Caledonia, for example, has been able to increase its dividend every year for the last 52 years, Scottish Mortgage for the last 36 years and Murray International for the last 15 years. Finsbury Growth & Income, for instance has £44.8m in its revenue reserve account, which is enough to cover its dividend for 1.3 years even if every underlying holding cancels their dividend. ( Clients may be interested in Annabel Brodie-Smith’s comment under Post Script at the foot of this Bulletin.)

Peter Rintoul

Peter, who most of you will have met, retires shortly. Having reached the age of 3 score and 15, he has earned the right to hang up his boots. He joined us 8 years ago. He has been a wise councillor and an excellent teacher. He leaves with our best wishes for a happy retirement. We will miss his chutzpah. “We are not averse to income.” “Most of our clients will want to eat their income.” “At last, this trust has picked up its skirt.”  “You must resist the temptation to twitch, Andrew.” “Keep it simple, Andrew.” Talking of funds, “You can always expect to have the occasional dog, but you mustn’t have a kennel full.” “Dull is sometimes good.” “Try and include funds which are the polar opposite of each other,” or put another (Peter) way, “We should worship at the altar of diversification.”

I am sure you will want to join us in wishing Peter the happiest of retirements.

Simon Milne

Simon, who joined us in November of last year, takes over the reins as Investment Director. He has 30 years experience in the investment business, including Chief Investment Officer at Murray Asset Management. He is calm and thoughtful and has already demonstrated that he is just the right man to have in these uncertain times.

Finally, I know this is a worrying time so if you have any questions, do please phone – mobile numbers below. In the meantime, I hope you have managed to derive some benefit from being forced to stay at home – I could get quite used to it!

Very best wishes from,

Post Script

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), has recently said: “Markets are experiencing deep falls and it’s been an unsettling time for everyone. But it’s in times like these that investment companies’ unique income advantages come to the fore. Investment companies can squirrel away up to 15% of the income they receive each year into a revenue reserve, which can help them boost dividends at times when companies in their portfolio can’t. Whilst dividends are never guaranteed, the structural benefit which has helped investment companies deliver growing dividends in falling markets should be a comfort to investors at this time.”