I spoke to Richard Smith after I heard this to find out what he knew, which is that his Aviva pot goes back to when he was in Britain’s then “best GPP in the country” – gold plated by PWC where he worked. Nest is the good young pension that he has been recently and guess what, Nest is the one that’s doing best. The Aviva pension started life with Winterthur and has been through several owners managing his contract.
What he did is split his pot at some recent day in the past and Nest’s default has outperformed. He thinks he’s in equities and that means US equities because they dominate the splits he can see in investment. Here is a chart of how US equities (the S&P 500 have done recently (5 years).
Richard can see that there was a crash in the S&P 500 index early in this year (which everyone because it was political and very newsworthy). What he doesn’t know is that the index is now pretty well on the growth trajectory that American equities have been on throughout the last five years ( and longer).
What’s happening to Richard’s two pension pots is that they are doing well from the stock markets and especially the American market (the UK FTSE 100 is also doing well but neither of his pension pots are likely to be heavily invested in that one. I’m not Richard’s adviser, it’s just that he’s got an interest in something that preoccupies me personally.
What else matters?
One of the things that matters is currency hedging, am I take a bet on UK sterling or a bet on US Dollar or am I taking bets off the table? I have know idea other than currency rates seem to make a big bet to the returns on overseas equities because returns have to be delivered in sterling whatever currency they were earned in. Here’s a chart that amateur me looks at. We’ve done well against the dollar of late – unusual and not good news if your money is earned in dollars.
I’m writing this for you Richard – does it make sense? It is your future we’re talking about! Your last six months have probably been impacted by politics (tariffs we don’t understand)
You said you wanted to know about the “Magnificent 7”. Here’s a chart on how four did. It’s making a point about recent returns showing how Apple is lagging behind, read below for the explanation. The chart doesn’t include Tesla which is down even more than Apple’s fall of 15% over the period due to the mess surrounding Elon Musk ( or so most people say)
Actually, the reason than one of my pots is doing better than another is the amount I’m invested in AI. I suspect you are involved in the same competition as Apple has with Google and Meta (see the uber-simplified graphic below. The message is very simple
Investors in AI rewarded
Richard, if you are unlucky enough to have lots of Apple and not so much of the other Big Techs (that have invested more in Artificial Intelligence) then you are doing worse than the person who invested more in the future of Facebook and other social platforms!
But heh – maybe being ordinarily intelligent might pay off!
Pressure to conform is growing. The FT’s commentators says Apple will “significantly” expand its investment, though doesn’t say by how much. But the numbers are likely to remain small. Analysts expect $11bn of capital expenditure next year — a tenth of what Meta and Microsoft have planned.
Apple is thus not a bad bet for investors who fear the AI infrastructure boom will end in tears.
The man at the FT says that you are being ripped off by Private Equity firms
I think the private capital versus listed issue equity goes wider than just insurance. Listed companies are increasingly releasing surplus cash by share buy-backs designed to bolster their share price and thereby reducing funds that would be otherwise invested in future developments in the Company, e.g. R&D, acquisitions etc. but also increasing p/e ratios. This benefits investors selling their shares at the expense of investors operating on a buy and maintain basis.
This is not a good time to be invested in Britain for the long term Richard!
As the London market had traditionally been dominated by investors, such as pension funds, operating on a longer term basis the p/e ratios in London, particularly for technology stocks but perhaps increasingly for financial stocks, have been lower than in the US. This puts them at a disadvantage as a source of capital for those companies wishing to raise capital to fund future developments.
You like me have been invested over the past 20 years in equity indices and only recently have you started putting your money into a more ambitious fund (Nest). I too have money in equity trackers and in Nest and I ask myself if the Nest approach – to move money into other investment than overseas equities and quoted bonds and into Private Capital, might not be the best thing for me. Reading the man from the FT , I understand that I know nothing. I’m just like you Richard
Private capital removes the pressure to protect the share price, allowing the owner the freedom to allocate the cash that would otherwise be used for share buy-backs to fund either future developments or a smoothed annual dividend flow. While this is currently particularly affecting the London market, the US market is not immune and is becoming increasingly dominated by stocks with high p/e ratios supported particularly by private investors targeting capital gains in the short term, but also through index tracking funds.
You and I Richard, blokes of our age and interests – needed more artificial intelligence! Perhaps we should be wary as the FT calls on trustees to be! Or maybe we just need to hope that our fiduciaries are taking the best advice and have the best judgement!
Perhaps trustee boards should consider this when deciding how much and how to invest in equities.
A long answer to your question, Richard. The answer is we can see what worked in the past, can hope we’ve got it right for the future and it being a Saturday morning, I’m off to have a bet on the Stewards Cup at Goodwood this afternoon!
