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David Kempton: my eurozone meltdown survival kit
Citywire columnist David Kempton shares his investment picks to survive the worsening eurozone debt crisis.
As the news from the eurozone gets worse, David Kempton is seeking shelter in technology, high-yielding internationals, resources and non-euro currencies.
All eyes on Italy
Much ink has been spilt about Greece, but it is a sideshow compared with Italy. I fear that Italy will need a bailout in the next two weeks, as the cost of new money rises to 7% and the ludicrous Berlusconi stands down. The bears will then turn on Spain, and the whole eurozone situation will become desperate, with the future unpredictable. The fallout will hit us very hard.
There is insufficient money in Europe to cover the debts, so we are dependent on China to bail us out. Twelve years working with the Chinese in South East Asia has taught me that they are tough negotiators and play a very long game. I have no idea what lies ahead, but do know that they will acquire some of our hard assets and leave us poorer for a generation. We surely deserve it, when we need rescuing by a country whose average annual wage is $4,000.
There are no precedents in history for much of what is happening now, but there are still investment opportunities, all of them internationally focused, with minimal dependence on the ‘old world’.
Recently I have concentrated my investments into four areas: technology; large, high-yielding internationals; resources; and currency (not sterling or euros).
There is no precedent for the astonishing speed of technology advancement, and it is hard to keep up with, but it does offer some exciting investment opportunities. As I can't judge the merits and potential of a particular technology, I happily resort to three excellent investment trusts: Polar Capital Technology , RCM Technology Trust and Herald . Take your pick, but I have gone for Herald, where I have a high regard for the manager, Katie Potts. The current discount of 18%, now well behind its peers, offers a good buying opportunity.
Or look at Impax Environmental Markets investment trust, effectively a technology stock, on an exceptional discount of 20%. In any investment, you can either bet on the jockey (the fund manager) or the horse (the stock). If you can’t analyse the jockey, you have to become a horse expert, and with technology I have neither the skills nor the time.
There is no precedent either for our extraordinary longevity. It's a major issue to which people pay lip service, but really it is very frightening. Now exacerbated by no enforced retirement at 65, while we have 1,000,000 people under the age of 25 unemployed.
Many of our lot are now expected to make it into our 90s, and the current generation has no hope of supporting our pensions, public or private. There is no current solution for this, but we all keep taking the pills and topping up our GlaxoSmithKline (GSK.L), which no serous portfolio should be without, together with other big-hitting, high-yielding internationals BG Group (BG.L), Vodafone (VOD.L), Aviva (AV.L) – or RSA (RSA.L) – Royal Dutch Shell (RDSa.L), National Grid (NG.L), SSE (SSE.L) and Fenner (FENR.L).
Meanwhile, our corporate pay structures are in the same mess as the Premier League’s, and I have some sympathy with the genuine protesters at St Pauls, Madrid and New York. In 1970 the CEO of a large company earned 25 times the average wage. In 2006 the figure in the UK was 475 times the average, which feels quite unreasonable. In the past 2,000 years no civilisation has survived long without serious upheaval when there has been such enormous disparity between the rich and the poor.
This growing unrest makes me flee our currencies and mistrust others, so I remain a gold and resources bull. My last purchase was Silver Wheaton (SLW), presented to me by a good friend. He presented this to me as his legacy stock, to hold and forget until he’s back on our shores. SLW is the world’s biggest metals streaming company, and gives money to mining companies in exchange for an annual supply of silver and gold. It is a leveraged bet on those commodities, without the mining risks, and looks excellent value at its current price.
There are only two currencies where I would hold much cash. The dollar, inevitably, even though the economy is awful, as it remains ‘the sanctuary’, and the Chinese renminbi, which has been undervalued for years, but at last looks close to a revalueation as part of our demise.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
Look up the funds
Look up the shares
- GlaxoSmithKline PLC (GSK.L)
- BG Group PLC (BG.L)
- Vodafone Group PLC (VOD.L)
- Aviva PLC (AV.L)
- RSA Insurance Group PLC (RSA.L)
- Royal Dutch Shell Plc (RDSa.L)
- National Grid PLC (NG.L)
- SSE PLC (SSE.L)
- Fenner PLC (FENR.L)
Look up the investment trusts
- Polar Capital Technology (Ordinary Share)
- RCM Technology Trust (Ordinary Share)
- Herald (Ordinary Share)
- Impax Environmental Markets (Ordinary Share)
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