Opportunities – and pitfalls – to investing in baby boomers’ retirements: UBS

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Within the next 15 years, almost all of the 6 million Australians who make up the “baby boomer” generation will reach or be well into their retirement. The vast majority will not be wealthy enough to get by without an income unless they sell the equity in their home and move into some form of retirement accommodation.

The sector is set to boom in coming years and the small cap equities fund managers at UBS are already buying in.

Not that the sector has been an easy one for investors. One of Australia’s largest retirement village operators, Aveo Group, shed 15.2 per cent of its value last month after a Fairfax/Four Corners investigation revealed many disgruntled current and former residents, who claim they were exploited.

Most other large ASX-listed operators are trading well below their 2016 highs.

Read more on The Sydney Morning Herald

Investor Chronical: How our ‘Best of the FTSE 350’ is performing

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I am wary of waxing lyrical about the virtues of systematic stock selection techniques. This is not to say they don’t work – witness the success of Investors Chronicle’s benchmark momentum portfolio – but there are bound to be times when strategies underperform, which is disheartening in a period where simply holding a cheap index tracker is more successful than chopping in and out of trades.

Read more on Investors Chronicle

FTSE 350 companies’ level of support for pension schemes sinks

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Companies’ ability to fulfil pension schemes promises at its lowest level since the recession- according to PwC’s Pension Support Index.

New research by PwC reveals the ability of FTSE 350 companies to fulfil their defined benefit (DB) pension obligations has sunk to its lowest level since the recession. PwC analysis shows that despite growth in the FTSE, the relative support companies provide to their pension schemes has weakened significantly.

PwC’s Pension Support Index tracks the relationship between the financial strength of the FTSE 350 companies and the size of DB pension scheme commitments, rating the overall level of employer support offered to these schemes. This year’s score of 69 out of a possible 100 is down from 82 the previous year, and is the lowest score since 2009.

Read more on Small Business

The private equity party is overcrowded

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An overheated market intoxicated by cheap credit serves as a warning to investors

There are few surer financial warnings than Stephen Schwarzman, co-founder of the private equity group Blackstone, throwing a big party. His 60th celebration a decade ago marked the pre-crisis peak for the industry, so the 70th birthday party he held last month in Palm Beach, Florida, featuring fireworks, camels, and a cake in the shape of a Chinese temple, is worrying.

Private equity entered a slump after his 2007 party, with the huge debt-financed deals struck at the peak looking stupid with hindsight. Ten years later, it is doing extremely well for itself. As hedge funds stumble and public stock markets are increasingly dominated by passive index funds, veterans such as Mr Schwarzman and LeonBlack of Apollo are masters of their universe.

It is a safe bet that this will not last, since it never has before. The global industry gathers every year at a conference called SuperReturn, held in Berlin this week. The name is not always merited but this year’s resembles a crowded party that could erupt at any moment. Cocky financiers in expensive suits, intoxicated by cheap credit and high dividends? Run for the exits.

Even this was bearable until Mr Black took to the SuperReturn stage on Monday to declare that, although a correction was probably imminent, it could be postponed by Donald Trump’s pledge of a “revved up” US economy. That could unleash a further three years of “turbocharged” growth for leveraged buyouts backed by the $820bn of capital yet to be invested. Then I really got nervous.

Private equity’s problem is not that it is suffering but the opposite: it has recovered so fully that it is flush with money. As it sells the businesses it bought a few years ago, many at a high profit, and returns cash to the pension funds and institutions that invest through it, more is arriving. This is a very good period to be selling assets but a hard one to find a bargain.

The industry should still have advantages even in these heady times. Compared with hedge funds, which also charge stiff fees to invest other people’s money, it has performed well. Warren Buffett wrote harshly of hedge fund managers in his annual letter to Berkshire Hathaway investors, but has partnered with 3G, the Brazilian-led private equity firm.

 

…read more on Financial Times

Why UK mid and small caps are alive and kicking

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The UK mid- and small-cap market has delivered excellent long-term returns which have outpaced the FTSE 100 in two years out of three for the past 60 years.

However, more recently, this trend has reversed, with the FTSE 100 posting strong performance in the immediate aftermath of the UK’s referendum to leave the EU while the FTSE 250 faltered.

This change reflects a combination of factors, the most significant being the greater exposure of mid and small caps to the UK economy, compared to the highly international nature of the FTSE 100.

Interestingly, however, while perceptions may have changed, the UK’s economy reality has stayed robust since the EU referendum, with growth actually outpacing forecasts as consumption held up better than anticipated.

KEY STRUCTURAL DRIVERS

It is also worth reminding ourselves of the very first point: why has exposure to the mid- and small-cap market been so beneficial over the long term and can this be sustained in the future?

In our mind, there are three key structural drivers and, whatever the outcome of the Brexit negotiation process, these will remain true.

Higher growth

Smaller companies by their nature are better able to generate higher growth which is not as dependent upon the strength of the economy, unlike their large-cap counterparts.

Nimble businesses

This segment of the market can adapt to most forms of change. There are many examples of disruptors in this part of the market, who can challenge incumbents and find creative ways of growing even when external forces may be changing and/or stacked against them.

 

…read more on Money Observer

Why FTSE 250 and FTSE 350 Indexes May Change Economy View

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The fortunes have reversed for U.K. bank shares a little more than four months after Brexit spurred their worst slump since 2009. A gauge tracking lenders in the FTSE 350 Index has rallied twice as much as the broader market since a June low following the referendum. Gains of about 40 percent or more in HSBC Holdings Plc and Barclays Plc, which get more than half their revenue outside the U.K., have helped lift bank valuations from their lowest since 2009. Aviva Investors Global Head of Multi-Assets Peter Fitzgerald discusses U.K. investing and the outlook for the Fed with Anna Edwards and Yousef Gamal El-Din in London and Manus Cranny in Dubai on “Bloomberg Daybreak: Europe.”

Watch the video at Bloomberg

Are these overlooked FTSE 250 firms the next big winners?

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Gloomy forecasts suggesting the UK stock market would crash after the referendum have so far been proved wrong.

Market performance has been so strong that some investors are questioning whether there’s any value left out there. I think that while there are a handful of FTSE 100 stocks that remain attractive, the big cap index is probably quite fully valued.

I’m increasingly attracted to the FTSE 250. After performing strongly in recent years, the mid-cap index has climbed just 3% so far in 2016. I believe the FTSE 250 contains a number of stocks which could offer decent value for investors.

In this article, I’ll highlight two companies I believe may be worth a closer look.

Eastern demand is fuelling growth

Like most other UK-listed airline stocks, shares in Wizz Air Holdings (LSE: WIZZ) fell sharply when the UK’s Brexit vote was announced. At the time of writing, Wizz Air shares are worth 22% less than they were five months ago.

However, Wizz Air may not deserve this down-rating. Whereas most other UK-listed airlines have issued profit warnings or cut forward guidance since June, Wizz Air has not. Broker forecasts were cut following the referendum but have climbed again since.

Instead of reducing its planned growth, Wizz Air has been able to shift planned capacity away from the UK and into non-UK routes elsewhere in Europe. In Wizz Air’s July update, the airline said that net profit guidance for the current year would remain unchanged at EUR245m-EUR255m. Planned capacity growth would also remain broadly in-line with previous guidance, at 16-17%.

It may be prudent to delay any investing decisions about Wizz Air until 9 November, when interim results are due. But with earnings per share expected to grow by 15% this year and a forecast P/E of 9, Wizz Air looks good value to me.

Customers hate this firm

How can a company be so unpopular and yet remain profitable? That’s a question that Southern Rail travellers would probably like to ask management at Govia Thameslink franchise operator Go-Ahead Group (LSE: GOG).

The transport group’s profits came in as expected last year, despite strikes and cancelled services on key London rail routes. Shareholders benefited from Go-Ahead’s strong free cash flow and enjoyed a 6.5% dividend hike which took the payout to 95.85p per share. That’s equivalent to a yield of 4.7% at the current share price.

Go-Ahead’s operating margin rose from 3.0% to 3.5% last year. The group’s pre-tax profit of £99.8m was 26.8% higher than in 2014/15, while earnings per share rose by 33.5% to 152p.

A similar improvement in performance is expected this year. Broker consensus forecasts suggest that earnings per share will rise by 19% to 191.9p, putting the stock on a forecast P/E of 11. The dividend is expected to rise by 6% to 101.5p, giving a prospective yield of 4.9%.

Go-Ahead’s net debt of £323m represents a net debt to EBITDA ratio of 1.36x, which looks safe enough to me. The group’s pension deficit was almost zero at the end of last year, removing another potential risk.

In my view, Go-Ahead has the potential to deliver attractive income and capital gains for shareholders.

Today’s top mid-cap buy?

If you’re looking for a mix of income and growth, then you may also want to consider this home-grown FTSE 250 business.

The Motley Fool’s top investment experts believe that the company concerned has the potential to triple in value over the next few years.

They believe that this firm’s profitable track record suggests its overseas expansion will succeed.

You can find full details of this potential buy in A Top Growth Share From The Motley Fool.

This exclusive report is FREE and carries no obligation.

To download your copy today, click here now.

 

SOURCE: Motley Fool

The FTSE 250 stock I’ve bought with a 5 per cent yield and ‘years of significant earnings growth ahead, by leading investor

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Chris White, who runs the Premier Monthly Income fund, which has a yield of 4.4 per cent, has been buying the shares of Brokerage firm Tullet Prebon, as he feels the shares will have ‘three of four years of very significant earnings growth.’

Tullet Prebon is presently in the middle of a merger with the voice broking business of ICap, and White remarked, ‘the cost savings from that merger when it happens will be very material, and will lead to earnings growth.’

White added, ‘the shares already yield 5 per cent and looked reasonably lowly valued, it is a sort of self-help story, it doesn’t rely on the wider economy.’

Read more: The three FTSE 250 stocks I’m buying for income right now, by manager of £1.3 billion

He has also invested in the shares of GoAhead Group. This is a transport company which owns, amongst other assets, the Southern Rail franchise.

White commented that the company has a dividend yield of 5 per cent, ‘which is covered by the earnings of the bus business it owns, even if the Southern Rail industrial action continues. Industrial disputes have a habit of working themselves out.’ White started to buy the shares when they fell from £23 to £18.

He is also invested in house builders such as Galliford Try, and construction firm Kier Group, as he believes that further government action to stimulate the housing market in the UK is likely in the Autumn Statement.

The Premier Monthly Income fund has returned 77 per cent over the past five years. The largest investments in the fund are Royal Dutch Shell and Imperial Tobacco.

 

SOURCE: What Investment

MarketWatch Analysis: U.K. stocks ‘have their cake and eat it’

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Midcap stocks in the U.K. surged to a record Tuesday, shaking off a slide in the pound to a three-decade low against the U.S. dollar as investors focused on domestic economic data and the potential for increased merger activity.

The FTSE 250 MCX, -0.39% leapt 0.9% to end at 18,342.07, marking an all-time closing high, according to FactSet data. It’s now up about 23% from the low it hit after the Brexit referendum in June.

Roughly 52% of revenue for companies that make up the FTSE 250 is derived from the British economy, so a drop in the pound isn’t always welcome news for many U.K.-exposed companies.

But sterling’s downward trajectory isn’t the only factor driving action for midcaps.
The “FTSE 250 is participating in the rally because we’re having our cake and eating it at the moment,” said Jasper Lawler, market analyst at CMC Markets. The weaker pound “obviously helps the multinationals but the economy is doing fine and that helps the domestic firms, too.”

The FTSE 100 UKX, -0.39% blue-chip benchmark closed at its highest since April 2015 as the pound GBPUSD, -0.1962% slumped to a 31-year low below $1.28. The pound has been slammed by a flare-up in Brexit-related worries, particularly concerns that the U.K. government will prioritize immigration issues over access to the EU’s single market in the Brexit talks.

Stronger-than-anticipated U.K. construction activity data released Tuesday added to a series of reports showing the economy has held up fairly well after the U.K. in June voted to leave the European Union. The final estimate of second-quarter economic growth released last week was raised to an annualized rate of 2.7%, compared with an earlier estimate of 2.4%.

Some of the FTSE 250’s smaller, or so-called challenger banks, “are being supported by some fairly good U.K. economic data which is still coming through,” said Richard Hunter, head of research at Wilson King Investment Management.

He also said investors should watch for potential gains for the index’s insurers, as “they tend to have more overseas earnings” than other U.K.-focused businesses, he said.

Metro Bank PLC shares MTRO, +0.22% turned lower to close down 1.5% on Tuesday, but last week finished the third quarter with a nearly 53% rally. Insurer Hiscox Ltd. HSX, -0.57% rose 0.6% on Tuesday and closed the third quarter up about 1%.

M&A attraction: Lawler noted that FTSE 250 constituent Henderson Group PLC HGG, +0.57% on Monday reached a deal to merge with investment management firm Janus Capital Group Inc. JNS, +0.65% which should expand their reach in the U.S., Europe and other regions.
“U.K. midcap companies are far from down and out. Some deals are getting done and when you’re talking about a drop in the pound, which companies are going to be the best targets for foreign companies stepping in and taking advantage…from a takeover perspective?,” Lawler said. “It’s not going to be, for the most part, the big blue-chips. It’s going to be slightly further down the ladder.”

While equities have been shooting higher in the short-run, “there remain a number of issues apart from Brexit and sterling which investors need to keep an eye on,” Hunter said. “The next Fed decision, which December seems to be the favorite for the next [rate] hike, and the U.S. presidential election is coming more on center now.”

 

SOURCE: MarketWatch

FTSE 250 investors – take your profits while you still have them, Deutsche Bank

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The German bank says that most of this outperformance has been driven by European cyclicals performing better than defensive stocks, sterling’s recent stabilisation and a better-than-expected rebound in UK macro data after the sharp post-Brexit plunge.

These drivers, however, look like they have now run their course and the FTSE 250 should underperform the FTSE 100.

Analysts at Deutsche Bank write that after one of the sharpest rallies in cyclicals since 2010, performance has started to show some weakening in the face of deterioration in global macro surprises, while given their concerns over the global growth picture, UK macro data looks fragile and may “surprise on the downside”.

“While our FX strategists revised up their end-2016 GBP forecast earlier this month (from £/$1.15 to £/$1.25), their new target still implies downside for the FTSE 250’s relative performance,” they write.

“Furthermore, any increase in political tension around the Brexit negotiation is likely to lead to renewed GBP weakness, in our view, further weighing on the FTSE 250’s relative performance.”

The bank adds: “Recent developments suggest that Brexit-related uncertainty is intensifying. Recent commentary suggests that the likelihood of a “hard Brexit” (i.e., a complete withdrawal from not only the EU but also the single market) is rising. We agree with our FX strategists that uncertainty is likely to increase further as the difficulties around the Brexit process become clearer. After the initial relief of avoiding an economic shock following the referendum, we believe this increase in political uncertainty is bound to weigh on the UK macro picture and the currency, supporting our underweight on the FTSE 250.”

And the top five FTSE 250 companies that have outperformed the index since the July 5 trough are all on Deutsche Bank’s Hold or Sell lists.

Zoopla (LON: ZPLAZ) +21.4% – Hold

Hays (LON: HAYS) +21.2% – Sell

Redrow (LON: RDW) +19.7% – Hold

Bellway (LON: BWY) +19.6% – Hold

Crest Nicholson (LON: CRST) +18.3% – Hold

 

SOURCE: News.Markets