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Infrastructure funds being hit....
HR Man
Posted: 26 September 2017 11:17:47(UTC)
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I see that Labour Party's statement yesterdaythat they would bring PFI contracts 'in house' if they came into power is having an impact on infrastructure funds today which must say something.

HICL is down 3.3%, BBGI 3.9%, INPP 3.7% and JLIF also down 3.4%.

Normally these funds do not react in the same way as markets normally do -as the one thing that does impact on them is if the PFI contract process were to change and clearly the Labour announcement were they elected and followed through would.

Most investors probably know that they would not find it as easy to do if they tried to effectively cancel the contracts or take them back into public ownership but clearly some investors are spooked!
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Andrew Smith 259 on 30/09/2017(UTC)
Chris Howland
Posted: 26 September 2017 11:32:06(UTC)
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The one thing that as investors (and indeed the general public) we are ill informed about, is just how watertight PFI contracts are.

Political statements from the lectern are usually delivered to an on-side audience, and as they say 'talk is cheap', especially where the electorate is concerned.

Most contracts include some form of exit consideration, but in my experience they tend to be expensive where the exit is for the convenience of one party.

The big question the Labour party have yet to answer is where does all the money come from?
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Andrew Smith 259 on 30/09/2017(UTC)
HR Man
Posted: 26 September 2017 12:09:07(UTC)
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I agree- Labour are talking vaguely about issuing bonds to fund contracts that they think would be of more value in the public sector's hands but are backtracking and saying that there will be a 'review' and that only a "handful" of contracts may be renegotiated or taken in house.

I wonder how long it will take for investors to get that message!
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Andrew Smith 259 on 30/09/2017(UTC)
dyfed
Posted: 26 September 2017 12:44:17(UTC)
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I was once responsible for signing a hospital PFI/PPP/PPI contract: the government could buy it out but at a price which would be of questionable value. I doubt any PPP is much different. Wouldn't worry me much if I had infrastructure funds: in fact i will buy in if they fall significantly.

I am more worried about owning utilities. I suppose an act of parliament could allow repossession of utilities but presumably the utility owners would go to court unless a fair price was paid: I have no idea what the outcome would be.
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Andrew Smith 259 on 30/09/2017(UTC)
Chris Howland
Posted: 26 September 2017 14:18:50(UTC)
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I think utilities companies might be the first domino to fall: they are generally profitable, and with no shareholders to pay dividends to, there is an argument that they could pay for themselves to be taken into public ownership.

The effectiveness of this becomes suspect if retail prices are reduced (as per the manifesto promise) too much, so I'd expect price increases for industrial customers.

Whatever happens re: public ownership of utilities, it's not going to be pretty. The balance between supply and demand is precarious, and investment in additional generation capacity is required in the near term.

www.gridwatch.templar.co.uk gives an interesting insight into how our electricity is generated, and how much capacity we have in reserve.
Jeff Liddiard
Posted: 26 September 2017 14:43:25(UTC)
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t s
Posted: 26 September 2017 15:09:35(UTC)
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Not bothered by this bluster. I purchased more INPP and UU. today.
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Tim D on 26/09/2017(UTC), Andrew Smith 259 on 30/09/2017(UTC)
Mr Helpful
Posted: 26 September 2017 16:05:24(UTC)
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t s;51437 wrote:
Not bothered by this bluster. I purchased more INPP and UU. today.


Reasonable decision providing located on risk/attack side of portfolio.

Some however may have Infrastructure on the defensive side of their portfolio, having been driven into supposed Fixed Income Alternatives by dire Bond yields/prices. Then might come a reason for selling, to preserve stablish value monies for the day, should it ever arrive, mainstream Stocks tank (dry powder,etc).

If Infrastructure share prices are now to be determined overly by investor sentiment/worries then Infrastructure no longer fulfils a defensive role. It is not that Infrastructure has suddenly become a bad investment, more the correlation issues.

After consideration of the vulnerability of the underlying assets, sold HICL and INPP at dawn.
Have been wonderful investments.
Retained BBGI and 3IN to ponder further.

Interesting times!
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Chris Howland on 26/09/2017(UTC), Tim D on 26/09/2017(UTC)
andy
Posted: 27 September 2017 04:51:57(UTC)
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Interesting ...

I do not hold any infra trusts but in terms of "seizing" assets. Governments can (and have) simply seized assets in the past - they simply need to pass primary legislation to do so.

Between the possibility of having assets seized by Labour and a Tory / Labour BREXIT destroying the economy I think I will continue to reduce exposure to the UK.

Question is ... as I move abroad I am taking more currency risk. Does anyone know how to hedge some of that back out?
t s
Posted: 27 September 2017 09:19:41(UTC)
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Mr Helpful;51441 wrote:
t s;51437 wrote:
Not bothered by this bluster. I purchased more INPP and UU. today.


Reasonable decision providing located on risk/attack side of portfolio.

Some however may have Infrastructure on the defensive side of their portfolio, having been driven into supposed Fixed Income Alternatives by dire Bond yields/prices. Then might come a reason for selling, to preserve stablish value monies for the day, should it ever arrive, mainstream Stocks tank (dry powder,etc).

If Infrastructure share prices are now to be determined overly by investor sentiment/worries then Infrastructure no longer fulfils a defensive role. It is not that Infrastructure has suddenly become a bad investment, more the correlation issues.

After consideration of the vulnerability of the underlying assets, sold HICL and INPP at dawn.
Have been wonderful investments.
Retained BBGI and 3IN to ponder further.

Interesting times!


Would you have sold if the Comrades had not spoken their wisdom? Do you think they can ever again come to govern?
Tim D
Posted: 27 September 2017 09:39:41(UTC)
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andy;51445 wrote:

I do not hold any infra trusts but in terms of "seizing" assets. Governments can (and have) simply seized assets in the past - they simply need to pass primary legislation to do so.


Indeed. And we've been here before with "The Windfall Tax".

andy;51445 wrote:

Between the possibility of having assets seized by Labour and a Tory / Labour BREXIT destroying the economy I think I will continue to reduce exposure to the UK.

Question is ... as I move abroad I am taking more currency risk. Does anyone know how to hedge some of that back out?


If you believe these bad things come to pass, then the pound will tank and your foreign assets will be worth more (in Sterling). That sounds like exactly what you'd want to happen, so I'm not sure why you'd want to hedge the currency exposure away?

In any case, depending what you're into in the UK, "moving abroad" may have less impact than you think. A big lesson of the post-referendum pound crash was that the FTSE100 and FTSE250 are actually pretty internationally exposed (I think the numbers often quoted are 75% and 50% foreign revenue for each index respectively), and the indices did very nicely (in Sterling terms!) out of what was actually the markets taking a negative view of future UK prospects. That was a pretty good hedge against the sterling fall! Of course if you're overweight more domestically-focussed small caps (as many active fund managers were?) it could be a different story (one containing the words "too late" maybe). Personally, given the rest of the world is looking so expensive, I suspect the UK now actually has some super buying opportunities. The optimal entry point of maximum pessimism has probably yet to be reached though.
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andy on 01/10/2017(UTC)
Mr Helpful
Posted: 27 September 2017 10:07:20(UTC)
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t s;51453 wrote:
Mr Helpful;51441 wrote:
t s;51437 wrote:
Not bothered by this bluster. I purchased more INPP and UU. today.


Reasonable decision providing located on risk/attack side of portfolio.

Some however may have Infrastructure on the defensive side of their portfolio, having been driven into supposed Fixed Income Alternatives by dire Bond yields/prices. Then might come a reason for selling, to preserve stablish value monies for the day, should it ever arrive, mainstream Stocks tank (dry powder,etc).

If Infrastructure share prices are now to be determined overly by investor sentiment/worries then Infrastructure no longer fulfils a defensive role. It is not that Infrastructure has suddenly become a bad investment, more the correlation issues.

After consideration of the vulnerability of the underlying assets, sold HICL and INPP at dawn.
Have been wonderful investments.
Retained BBGI and 3IN to ponder further.

Interesting times!


Would you have sold if the Comrades had not spoken their wisdom? Do you think they can ever again come to govern?


If JC can become leader of the Labour Party, then anything is possible. The Conservatives do not seem overly popular and the Liberal (Democrats) are limiting their appeal by not being realistic/balanced about the Brexit situation. Just don't know what may happen.

The sales were driven by these once seemingly stable investments becoming unstable, by now being subject to investors hopes/fears about political outcomes. Thus no longer qualifying for inclusion in the defensive allocation of portfolio.
Probably should have seen this coming ?
The more astute investors would probably have all this figured out and factored in some time ago.
See prices recovering a little today!
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Aidan MacGinley on 27/09/2017(UTC), Andrew Smith 259 on 30/09/2017(UTC)
Andrew Smith 259
Posted: 30 September 2017 20:35:58(UTC)
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t s;51453 wrote:

Would you have sold if the Comrades had not spoken their wisdom? Do you think they can ever again come to govern?


I fear Labour has a fairly good chance of winning the next election unless Conservatives get their act together. BREXIT is going to be their biggest problem but there are plenty of other problems ahead for them.

Most analysis seems to suggest the majority of people under 45 are more likely to support Labour. This is a very worrying trend. To be honest I would be much less worried about a Labour victory if they had a more moderate leader with more moderate policies.
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andy on 01/10/2017(UTC)
andy
Posted: 01 October 2017 08:49:23(UTC)
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Tim D

Thank you for the reply.

What I want to happen politically and what I predict will happen are clearly slightly intertwined - however, in terms of investments I am trying to keep a more nuanced head about it.

Currency speculation is a bit of a mugs game - I have friends who think all investing is a mugs game but I'll leave that alone.

As such - while at the moment Europe feels like a stronger economy - the currency direction from here is not something I have an opinion on - thus I may want to be invested in Europe and hedge out the exposure to the euro. There is an outside risk that the BREXIT risk is watered down so much that it becomes a non issue and then the currency appreciated back again - at that point the FTSE 100 would presumably weaken again.

However, as you say - everything feels expensive right now but they felt expensive at the start of 2017 - and still the German Private Equity and German Property I hold is up 30-40%. The fear (in me) is certainly starting to rise - but we are taught not to try and time the market ... I am wondering if this is what 1999 felt like?
Tug Boat
Posted: 01 October 2017 09:29:51(UTC)
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It doesn't feel like 1999. I sold tech and invested in a 32 inch CRT TV with the balance invested in Fidelity Moneybuilder Income.

My investing friends went wild chucking dosh into tech, eventually losing 80%.

Their attitude was astonishing. They asked if I was investing and when I replied I'd sold the lot they laughed at me. That misplaced confidence is not there yet.

I bumped into one of my friends recently and his total wealth, outside his pension, is still in cash as the tech experience had destroyed his confidence.

I'm nervous, but I've been in that state for two years. If I start buying Fidelity Moneybuilder Income, I'll let you know.
Mr Helpful
Posted: 01 October 2017 10:06:20(UTC)
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Tug Boat;51589 wrote:
It doesn't feel like 1999. I sold tech and invested in a 32 inch CRT TV with the balance invested in Fidelity Moneybuilder Income.

My investing friends went wild chucking dosh into tech, eventually losing 80%.


No it does not (FAANGs excepted) seem like 1999.
Yet most position valuations today seem within 10% of top having fallen back just a little in valuation terms.
Wider market measures seem less reliable.

Which leaves the thought, could the present high valuations be steadily eroded away by sideways or moderate (sub-earnnings) rising prices?
A bubble gently deflating, rather than bursting?
Difficult to tell from historic records how often this occured in past.

Apologies for going a bit further off-topic here!
Tim D
Posted: 01 October 2017 10:06:45(UTC)
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andy;51587 wrote:
As such - while at the moment Europe feels like a stronger economy - the currency direction from here is not something I have an opinion on - thus I may want to be invested in Europe and hedge out the exposure to the euro. There is an outside risk that the BREXIT risk is watered down so much that it becomes a non issue and then the currency appreciated back again - at that point the FTSE 100 would presumably weaken again.


These things are entirely plausible (although I doubt a U-turn on Brexit would get the pound back to where it was; rest of the world would be wondering when the next flip-flop would be coming, and it's not going to repair the credit rating and concerns about the country's finances overnight).

The obvious solution would be to use currency hedged ETFs (e.g https://www.justetf.com/...&currencyHedged=GBP ; sorted by TER but personally I'd be wary of liquidity and spread of anything less than ~£100M in size). There are some hedged active funds and trusts, and some which employ currency hedging tactically but you'd have to dig through their documents and news coverage to figure out their policy and whether you think they have any chance of getting it right. This might be interesting.

Personally I wouldn't do it for equities (and I now regard my one dabble in a currency hedged Japanese ETF as a mistake) but my experience is recently coloured by spending some time abroad after the 2016 pound crash (everything seemed expensive; I had to keep reminding myself of how much I'd just gained, in sterling terms. If the pound swings back I'm pretty sure I'll be happy to offset the fact I'll be poorer in sterling terms with the knowledge my pounds will go further abroad and imports will be cheaper).

andy;51587 wrote:
I am wondering if this is what 1999 felt like?


If there's anything which reminds me of 1999 these days it's Bitcoin (and cryptocurrencies generally)!
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