"Despite a volatile month for equity markets, the investment trusts bought in April remained largely unchanged from the previous month, according to the interactive investor trading platform.Once again, trusts managed by Baillie Gifford made a ..."
HICL has been looking more and ore abroad. Obviously the deals it has in lace should be reasonably stable but all infra would be reluctant to get too involved with a Corbyn government without major guarantees in triplicate.
Quietly comfortable with the situation since Carillion disaster announced and may top up if it falls much further. As far as HICL is concerned, it is really a re-allocation of finance and contracts by banks and partner construction companies. Any big projects will have to go continue in some form it will just be the shareholders and subcontractors of Carillion who will ultimately bear the majority of the pain.
Corbyn et al especially (and any government wanting to get things done but not having the cash on deposit) face several problems...
1) Stop using PFI - fine. Borrow to build - fine. At what rate? When the markets see the government coming cap in hand the markets will charge higher interest rates because of a couple of things.....one the government is borrowing more and more and so in order to get the funds a higher rate will be demanded. Cynically, if the city can't get it's profits / bonuses via a comparatively small and uncertain return on PFI then it will find some other way....lending to the government for these infrastructure projects.
2) How do they justify not using PFI.....Tony Blair acknowledged that the PFIs under his watch had delivered services for the last 20 years. So, if it's ok for parties of both colours to do it historically and say it has worked, what has changed going forward?
3) When companies tender for these projects they are going to ensure they have a big enough margin of profit to ensure they cover all bases - even more than now. Or not tender in the UK.
4) Internationally we will be seen as a spend, spend, spend nation......yes in the long term we may well get back to a similar standing as now. But we are talking 25-30 years. In the short term what will happen to the £? What will happen to inflation, taxation and even money for the NHS? We can only spend £1 once.
5 )Corbyn said re nationalising NG etc there would be no more net borrowing because there would be more net assets on the government books, but in these cases the assets won't be there when they want to borrow! That will be some point down the line.
I sold my holdings in HICL. JLIF and GCP yesterday, thankfully avoiding today's losses. I will not be tempted back in until the Carillion disaster has been cleared up. Even then there is the malingering threat of a Corbyn government. Searching for stable and reasonable income while maintaining capital has become a serious challenge and evermore difficult to achieve.
Agree. I'm fairly confident that HICL is a well run trust - it certainly appears that way to me. I think the question marks are more around the robustness of the financial deals that UK focused infras invest in. Governments can change the rules very quickly in ways very damaging to investors!
I hold HICL and some other infras as a small part of SIPP portfolio in run up to retirement - goal to provide regular income that is at least inflation proof, maybe for the rest of my life - so I am not concerned by sp directly (I may never sell!) except as a buying oppty. My concern is more the resilience of these trusts and this model.
Key questions for me
- SP fluctuates but published NAV apparently shows a steady up ward trend. How reliable/real is that NAV number with all the accounting behind?
It was reassuring to hear that HICL had contingency plans, as is good commercial practice - at least they were looking at the actual facts, rather than the government/opposition/media who were too busy politicking and polishing their ideologies to deal with reality.
My holy grail these days is an investment trust that can consistently and safely pay 4% a year while delivering a little capital growth.
In these income straitened times, there is bound to be at a premium charged for that.
In HICL's case the premium has been over 6% since I first bought into the trust at launch. Sometimes the premium has been above 20%. Once it nudged 30%.
Which was patently ridiculous.
I've always been slightly uncomfortable with super high premiums - sooner or later they tend to revert to the norm. And to me, all infrastructure trusts seem to have at least a whiff of financial smoke and mirrors about them!
But this has never struggled to pay out 4-5% a year so I've stuck with it. Plus the share price has grown - although it's gone nowhere for two years.
So yesterday was a dramatic day.
The HICL premium fell to 0.4%. It has NEVER, since launch in 2009, been that low. Which reflects fears that the whole UK PFI edifice might be slowly and messily dismantled.
So is now a good time to buy? Interesting conundrum for those of us who hold this.
Will this fall to a 10% discount?
I can see arguments for variously selling, holding and adding.
The killer question, everything else being equal, is what shape will UK PFI be in, in the future?
Can it regain the thin veneer of fiscal credibility it once had? (Some of the economic arguments whipped up by the current media storm seem pretty damming.)
Will that 'Oh Jeremy Corbyn' song sweep Labour into power?
Politics are the scourge of investing - they make the whole thing feel like a bit of a punt.
So, I know why we have seen a fall of 8% in recent weeks, but arent these discussions by the tories and threats by labour just that. Surely the government needs to keep up on infrastructure projects, and they have no money to do it. Companies like HICL have to provide the capital for them. Longer term this should be safe... No ?
This was written back in June and the share pricehas fallen somewhat since then, so maybe they are re-evaluating their positions.
This extract is interesting :-
""HICLs most recent reported results are a good illustration. Over the year to 31 March 2017 NAV/share grew from 142.2p to 149.0p, excluding dividends paid of 7.6p/share. However, the 6.8p/share growth in NAV included 2.1p as a result of share issuance at a premium and 2.8p as a consequence of an aggregate reduction in the discount rate applied to future cashflows.
Therefore, underlying growth in the value of the portfolio over the year was 1.9p/share; or 1.3 per cent. The dividend paid totalled 7.6p, an attractive yield of 4.5 per cent based on the current share price, but in terms of capital growth over the year HICL delivered a negative real return, once the gains from lowering its aggregate discount rate and issuing new stock at a premium are excluded."""
When you add in the 1% management charge it's real return I guess is even more negative.
This is probably why the share price has fallen so much.
That and the 2nd reason which is the scarcity of quality investments out there, also described in more detail in the article.
And 3rd -- the belief that there is a degree of investor complacency around the potential downside risks to NAV relating to rising risk free rates.
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