EP10 | FTSE vs Wall Street: Can the UK compete? | The Art of Investing

Summary

• Market Insights: The podcast discusses the recent performance of global stock markets, highlighting all-time highs in the US indices and significant movements in Japan, China, and emerging markets due to political changes and potential stimulus measures.
• UK Stock Market Challenges: The conversation emphasizes the decline of the UK stock market over the past 25 years, attributing it to factors like pension fund divestment from equities, political uncertainties, and global economic shifts.
• Investment Trends: There is a focus on the impact of global and passive investing trends, which have shifted capital away from the UK, and the need for policy changes to attract investments back to the UK market.
• Company Discussions: The podcast mentions significant corporate movements, such as Anglo-American's merger with Tech Resources and Oracle's substantial market capitalization increase, highlighting the importance of maintaining UK listings for major companies.
• Policy Recommendations: Suggestions for revitalizing the UK market include regulatory changes, tax incentives for UK investments, and leveraging institutions like the British Business Bank to support domestic companies.
• Financial Education: The importance of improving financial literacy and encouraging UK retail investors to engage with the domestic stock market is stressed as a means to foster a more robust investment environment.
• Portfolio Performance: The podcast concludes with an update on the portfolio's performance, noting gains in sectors like blockchain and mining, while considering potential adjustments in response to market conditions and upcoming policy changes.

Transcript

If you actually do the maths, you can work out that1 trillion pounds worth of equities have been sold over the last 25 years. >> And the shares were up 40%. That's the biggest ever single day move for a company that's worth over half a trillion dollars. >> This is all clickbait. You know, the reality is a week later we're talking about bond yields coming down. And what was the problem? >> Developing new technologies, biotechnology, when they become any good, they end up in America. >> Can't disagree with you. >> How do we change that? So, we are putting a lot of our assets into our pensions and then we're sending it abroad. It is utter madness. How do we make the British stock market great again? And this is a Brexit dividend. Hey ho. >> Hey. >> They often are talked about as though there's something unusual. They're celebrated. Might even get on the news at 10:00. And so, everyone thinks, "Oh my goodness, something really important happened." >> Your capital is at risk. The value of your shares, ETFs, and ETCs can fall as well as rise, which could mean getting back less than you originally put in. This content is for information purposes only and is not investment advice. Past performance is not an indication of future results. [Music] Welcome to episode 10 of The Art of Investing brought to you by IG, the global investing platform. I'm Sophie here on my debut appearance as Rich takes a well-deserved holiday, but I'm joined by our regulars Chris Felingham and Mark Holden. Hi both. >> Hi Sophie. Great to see you. >> Thank you. I'm particularly excited to be joining for this episode because we have our first ever guest on the show. Charles Hall, head of research at Pill Hunt, joins us to talk about the health of the UK stock market. Welcome. >> Thanks for having me, Sophie. >> Thank you. But first, Spice, take us into what's been happening in the markets this week. >> Last week, we talked about the saying, bad news is sometimes good news. And this week has most definitely been a week where there's been bad news but most definitely good news as well because there's been a load of new all-time highs uh been hit particularly in the US stock markets. >> The the S&P 500, NASDAQ um and the Dow Jones have all eaked out new highs. The Nikai in Japan uh helped by the prime minister are actually resigning um showing that politics isn't always bad news. Uh there's hope there that the new prime minister who will be will be more stimulative. Um and that's raised the Nikai straight through its old high and up to a new one. Also we've seen move up in China and Hong Kong up to threeyear highs. There's hopes there of a trillion dollars of worth of potential new stimulus and that's helped the emerging markets as a whole push up to a four-year high which is great. Um also we've seen big move up in gold and silver. Gold back to a new all-time high and silver to a 14-year high. So, that's great news. Obviously, we're very pleased about that because we've got exposure in our portfolio to many of them. >> Spice, can I just mention alltime highs because they often are talked about as though there's something unusual and then they're celebrated. You know, the Wall Street Journal will talk about it. It might even get on the news at 10:00 and so everyone thinks, "Oh my goodness, something really important to happen." We should expect all-time highs to happen all the time because companies are growing, profits are growing, economies are growing, they're developing new exciting AI applications that are going to deliver value in the future. We should be expecting stock markets to be at all-time highs regularly. And I think actually sometimes it's off-putting for a lot of investors because they hear alltime high and they go, "I've missed it." And they haven't. There's still another all-time high that might happen next week or next month or next year. >> That's so true, Charles. So true. Um but of course that should naturally be happening in the basic supply demand of economics and share prices because the companies are doing share buybacks all the time. There's lots of mergers and acquisitions and so there's a natural shrinkage in the amount of equities or the amount of shares available for investors to invest in and yet they're getting cash in the whole time on a regular basis through dividends through growing in wages uh and you know any other ways they get their money endowments investments and they want to put it back into those stock markets. As you say, naturally there is more demand than there is natural supply and supply has been shrinking about 2 or 3% in just in things like share buybacks without the mergers and acquisitions. So there should be a natural move up in in stock markets. Definitely. I totally agree. >> God, that's making me feel like we need to add some more equities to our portfolio. Have to think about that later. One of the reasons that markets have pushed up to new highs this week is because we've had some bad data and that's led to expectations uh of potential interest rate cuts being built further into the US particularly. Now, if you remember, we talked about non-farm payrolls being a guide to how many jobs are being created in the in the United States, and it's a number that comes out regularly. Last week on Friday, the number was 22,000. That's not very many. When six months ago, it was running at around 200,000. >> Spice I get but in again. >> Go on then. >> Non-farm payrolls. I know they're sort of it's a really weird terminology for um for employment, but data is really important and there's a real problem with data collection and we've had this in the UK. The ONS has admitted for national statistics. >> There you go. Uh they've admitted that it's very difficult to collect the data on how many people are employed. And the US is going through exactly the same issue is that the old-fashioned ways of determining how many people are employed, they do surveys and people would fill in the survey. People are not filling in the surveys as much as they used to and as a result the data is becoming increasingly poor. So what was really interesting was that they changed a lot of the data for non-farm payrolls for the last year. So it wasn't that we've suddenly had a sort of oh it's got got worse in the short term. Actually, it could be that we just weren't collecting the data properly. >> That's correct. I mean it was nearly a million jobs wiped out of what people thought were created which is a huge number. It's a huge number. Um and that the that added to the bad news feeling but if you remember the Federal Reserve in America that run and set interest rates have a dual mandate. They have two jobs. They have to try and control inflation keep it around 2%. But they have another one which is to try and create full employment as well. And because those payrolls or the employment numbers were worse than expected, their focus now shifting away from inflation potentially into looking after the jobs market. >> And it's really important point because we don't have that. We only have this focus on a 2% inflation rate. We don't seem to worry about employment levels. Do you think we should look at changing it? >> If I if I was when I when I'm running the Bank of England, I would definitely be pushing for a change of mandate. I think it's it's very common sensical. I see no reason why we stick to this just oldfashioned. And by the way, the Bank of England don't really stick to that, do they? I mean, they've been cutting interest rates while inflation has been well over 3%. For the last 6 months, so they they sort of ignore it, but I mean, you know, bond investors like Chris will probably throw their toys out the pram if they do change that because their main target is to try and keep low inflation and that keeps bond prices higher. Can I be a little bit uh um controversial here and a little bit conspiracy? Okay, so we had non-farm payrolls, this number in the states over a month ago. It wasn't what Donald Trump likes, so he fired the lady in charge of producing them. >> Indeed. >> Now we've suddenly had results that showed that they should be cutting rates. Is there a link between that? Do we think? Do we think I mean if we wanted to start thinking about conspiracy theorists would we believe that actually maybe the data's been got at >> so cynical so >> putting it out there >> but probably >> but moving on to some of the company stuff and I know Charles this is something close to your heart but obviously we've seen Anglo-American announce a merger with tech resources from Canada and the good news which I think you pointed out on one of your LinkedIn posts uh which was that they are going to after the merger keep the listing in the UK stock market which is great because the UK has been for a long time now a home for mining companies we've got some of the biggest and best in the world Rio Tinto BHP Bilitin uh and now Anglo-American is going to be even bigger when merged with tech resources >> and you may remember Glenor were looking at their doicile from a stock market point of view and only recently came out to say they are going to stay in the UK and so we've had a double vote of confidence for mining in the UK and there's no natural reason of course for mining companies and we don't do a huge amount of mining in the UK but but we are at the sort of center epicenter of sort of geopolitics and global trade and having those mining companies in the UK is really important for us in terms of tax collection in terms of our overall stock market. So that that was a a good moment when we saw that that was announced. Oracle has basically announced a trading update yesterday and the shares were up about 40%. That's the biggest ever single day move for a company that's worth over half a trillion dollars. And that move added about $250 billion to the market capitalization of that company, which by the way is pretty close to the market capitalization of Astroenica, which is the UK's biggest company. Isn't that sad? >> Yeah. And Larry Ellison is now the world's richest man. He is poor women. >> Yeah, absolutely. And you know, Elon Musk will be doing his best to try and fight back on that one along with Mark Zuckerberg, but lucky old them. Hey, the only thing I was going to touch on today was uh the politics that have been going on in France. We've touched on this before. Uh the important thing was that the the stock markets managed to brush off the fact that they need to look for a new prime minister. Um, and they continue to do that, but their bond yields, uh, the price that the the French government can borrow money at for 10 years rose quite sharply. Uh, and they now can only borrow money at the same rate as the Italians over the next 10 years, which is about 3 12%. Uh, the Germans can still borrow money considerably less. Sadly, the UK, we have to pay another 1% above where Italy and France have to borrow their money for 10 years as a government. I think it is worth adding we talked the last few weeks on the pressure there's been in bond markets that's been relieved a little bit this week generally as the weak numbers have come out in the states the US bond market has done quite well yields have fallen there and they've had a effect on bringing down some of the yields in the UK and in some of the other markets so I would say pain postponed rather than happening straight away >> the only thing that I will say to finish this market update is that in by this time next week we'll know whether The European Central Bank have changed interest rates. They're meeting today as we record this on the Thursday. They're not expected to change, but the Federal Reserve on Wednesday are expected to change and cut by about a quarter of percent, maybe even a half percent. Some people are speculating on that, but the odds on that are very low. And then the Bank of England meet on Thursday when we'll be recording this next week. And they are again not expected to change. And that's changed a little bit because a couple of weeks ago they were expected to cut in in this month, but now that's looks like it's been pushed to November. But that finishes the market update for this week. >> Thank you. Now, I know you two have lots of questions for Charles, so let's jump into this week's hot topic. Chris, would you like to do the honors? >> Uh, yes, I would. I'm I'm really really excited that Charles is here today to talk about a subject which I loosely think of as what happened to the UK equity market and when can we get it to return. Today's guest is a legend >> as one of a few poo people who have taken on the mission of trying to change the narrative around the prospects for the UK. I applaud him for that because one of my greatest criticisms of the city of London is that we don't stand up for ourselves. We don't point out the good that has been done with the health of the U financial sector driving forward growth. We've allowed the liberal narrative that wealth is bad to become all pervasive and Charles is going to explain therefore how do we make the British stock market great again. That's enough for my critics who I'm sure will be now writing lots of uh bad things about me on various social media websites. So Charles, welcome here. We would love you to start off by talking about a little bit about your own background and then we'll get into some um more questions. I'll give you a little brief um introduction. So I started at Kasnov Queens broker at the time as a graduate trainee many moons ago. Uh and it was an incredibly privileged role because Kazanov was the most powerful uh investment bank as we now call them, stock broker as we call them that back then in the market. Uh looked after half of the Footsie 100 companies, looked after the Queen's money. A and it was incredibly old-fashioned. Uh we called all the partners sir. Uh shoes had laces, trousers had braces, you had to wear a waist coat, hats, top hats. There was still not top well at the front door obviously but Bola hat still came in there was a partner's entrance a partner's dining room so it was an amazing experience I started in the library seems quite archaic now that you would even have a library but we had to collect lots of bits of information and it was the only way to keep a depository of knowledge obviously before Google and Wikipedia and now AI to control everything I started in research properly and so I've been doing research for a long time but research is an amazing role because you are allowed to ask senior executives challenging questions that are incredibly impertinent and pointed. And these are people who might be 20, 30 years uh older than you who are running companies with tens of thousands of people and you as a pesky little analyst go and say why have you done this and is this going to work? And so the desire to ask questions is close to my heart and it's been something that I haven't stopped doing ever since. Have you got any examples of any of those cheeky little questions? Is there anything for our for our listeners that might that might bring that to life? >> Well, one of the very first things I worked on was a rescue rights issue for Asda. And it was fascinating because Asda was very close to going bust. When I say very close, days. And Archie Norman, who is an absolute legend, uh stepped in during the the rights issue when we were trying to raise money. And you know, I I he was very scary for me. I was about 25. Uh and he was already a legend back then. Uh and so asking him questions and I'd have to ask him things like what's the price of bread? Uh to be able to determine whether Asda was cheap enough compared to Tesco's and Tainspre. So it's things like that that you're you're able to ask in a really annoying question uh that we try and catch politicians out. I can try and catch executives out on. Could he answer it? Of course he could. He knew everything. genuinely he did know everything. >> Shame he became a politician really, wasn't it? >> Not for long. I think he realized it's quite difficult. >> Okay, that's fantastic. Nice to hear that you started off at the Queens broker. I suppose what we really wanted to sort of put some framework around was the fact that when I started in the city, Mark as well, the London stock market was regarded as one of the most important stock markets in the world. We were nicely situated between uh the Far East and America. So we were in the right time zone. We were even more important in that stage than than America. We were we it was really the stock market. We had a pension system which was envied by everybody at that stage. This is the late 80s early 90s. And my simple question is what the hell happened? Yeah. It it's been a like boiling a frog in that we didn't see it happening in plain sight for year after year after year. Whether it was politicians, whether it was people in financial markets, whether it's the pension fund managers, this has been a problem that has been brewing for 25 years. Uh and you're absolutely right to mention pensions. It's at the heart of it. And the reason for that is pensions are the biggest asset now for pretty well everyone. It's the only big asset aside from their house. And we used to have pensions invested in the stock market. And when I started at Kasanov, if we wanted to raise money for a company, we went to a range of pension funds. Those were the funders of company growth and investment. And over the last 25 years, that's gone. And there are numerous reasons which I won't bore you with. It's about taxation. It's about Gordon Brown changing the dividend tax reasons. It's about accountancy. But what's actually happened is that those pensions that were fully funded that were defined benefit which meant that they paid out based on your final salary those were used to be invested in the the equity market and now they're invested in guilts and in bonds. If you actually do the maths you can work out that 1 trillion pounds worth of equities have been sold over the last 25 years. So a vast amount of money. It's amazing that the UK market still exists when you imagine the selling pressure every single day. Spice mentioned earlier, it's all about demand and supply. It is. So, if you have one of your key drivers of funding for companies selling relentlessly, that's precisely what happens. So, it's not just that. Obviously, we've had some self-inflicted wounds as well. You know, the financial crisis back in 2008 was worse for the UK because we had a banking system that was overleveraged. So that was the sort of start of the economic issues. We then had austerity. Uh we then had the Scottish vote and people forget that. What was it 2014? I think it was 2014. That was uncertain for the UK. Were we going to start breaking up? Then we had a little vote in 2016. Don't remember that >> which one that was. >> I forget. And whether you agree with it or don't agree with it, what it meant was we then had four years of uncertainty about politics, about our role in Europe, about our economic performance. Global investors were questioning the UK. And then COVID happens. We got hit by COVID more than pretty well any other country because we did a lot huge lockdown. And then we had inflation, tear away inflation post the Ukraine war. And that really hit us hard because we were more exposed to oil and gas coming into the country. There's another topic about net zero and Ned Milliban, but maybe come back to that one. Too much information that I I can't upset too many people in my podcast. So So what we've had is is a lot of hurdles to jump over. And what this has meant is that for many years, international investors have put the UK bottom of their investment list. Now, they would almost go anywhere but the UK. Why is that important? We've had sellers of pension funds for all the way through this period. Who would be the buyers? It would be the overseas investors. And for as many years as I can remember, they've been net sellers. So the interesting thing is I think we're now at a turning point. There's a a long history of issues in the UK market that has resulted in poor performance. And you know what investors are like? They look at what the track record has been and we see that in funds. We see that in shares. People like to buy things that are successful. The UK has been palpably unsuccessful in stock market terms and as a result a lot of funds have gone underweight. The question now is is that right for the next 25 years in the same way as it's been right for the last 25 years. So there's a couple of points that I would make from what you're saying and I'm sure Mark might have a couple as well. But I think you draw very well this um analogy that you've got a whole domestic base which used to buy equities which has disappeared. Whereas when we look around the world at other countries they still have this domestic base buying their equities. So if there is a problem the international people don't want to buy their equities. They can always pick up that loose stuff themselves. Yeah. the UK pension funds have moved away from that and therefore there is no natural buyer in the UK and so we've shot ourselves in the foot on a number of other things but we haven't had that natural buyer in the UK. >> Absolutely right and and there are a few facets to that. So take define contribution schemes which most younger people are now in uh and are going to be the mainstay of our pensions going forwards. So people are putting money into those. They're called pensions. They're not. They're saving schemes. And hopefully younger people are putting their money into equities because that is going to drive the best long-term return for them. Can I pause you there just for a second cuz right at the start of our podcast series, you will hear us talk about the natural home for people with a long time to retirement is the equity market. And that's where they should be. any investment away from equities is a risk position. Correct. And and this is something that a lot of people don't understand and and this is a particular issue in the UK and financial education is incredibly important and we have very very poor financial education now when people are taking out their pension. Do they know what it should be invested in? Do they even know post investment? Uh, and I saw a stat that was done recently by my friends at New Financial and they did a survey of people with defined contributions and asked them how much was in equities, how much was in UK equities. This was particularly looking at the UK equity piece. The answer that came back from all of these people was that they were very pro-UK equities um because they thought, you know, I live in the UK, these are the sort of things I should be invested in. So that the answer came back roughly 40% they thought would be invested in UK equities. you you'll know what the answer is. >> I don't know. I do know this% tragic 4%. So what that proves is that most people want to be invested in UK equities. Most people are not invested in UK equities. And the reality is far too much in bonds which uh or cash which has underperformed inflation over generations and a huge waiting to the US. Now absolutely there are some brilliant companies in the US and we definitely ought to be encouraging people to invest there. but to put the majority of their money into the US taking a currency risk. Not only does that mean that uh we are providing people with tax advantages to move to the US, it means we are underfunding our own companies. And this is one of the things that I think is so important about pensions is you are putting your own money in. Your company is then topping it up and then the government is topping it up. So, we are putting a lot of our assets into our pensions and then we're sending it abroad. It is utter madness. Every pensioner pretty well, apart from the lucky few and go and live in Monaco. 99.9% of people who are saving into pensions will retire in the UK. Do they want to have a good economy that is well funded that can pay their long-term pensions or are they happy to put all their money into the states and grow the US economy effectively? I think you made a a number of great points there and I would be standard bearer but behind you saying let's just follow this man's campaign. Let's go into what we can do about it in a in a moment. Mark, have you got anything that you want to add to the reasons why this has happened or or or where we've come from just to add to that bit of the discussion. >> Sure. I mean, when I started in the market, the UK had about 5,000 companies you could invest in as a UK equity fund manager, which I was. By the year 2000, that had fallen to just 2,800. And today, I think it's only around 1,200. You have a very limited sort of cake to go after to to eat. Whereas the Americans, yes, their markets have been shrinking as well, the number of companies they can invest in as well. And part of that is through mergers and acquisitions, private equity. They've gone from 7,000 companies back in 2000. They're down to about 4 and a half thousand, but that's still, you know, three times what we've got here. And a lot of those companies, and we've talked in previous episodes about factor investing, so people investing for growth or value or quality or defensiveness. Uh, and the American stock market is gifted by having a huge number of highquality, high- growth companies like technology companies. And we talked about Oracle earlier on being another case point of that. The UK had one of the best which is Arm Holdings. >> Don't even talk about Arm Holdings. Yeah. >> We sold it to you know we sold it to the company floated in and it's based in Cambridge. >> Exactly. They floated it back in America which and it would have been the fourth biggest company in the UK now and you know it's it's amazing. It grew out the BBC computers little Acorn Computers. So you know the trouble is as a international equity investor you're quite limited in what you can buy in the UK. Now you know value investing when I started the market all those years ago would value would have a good year every other year and then it went to every 3 years every four years every 5 years and now you're lucky if you get one every five or six years a good year for value investing but the UK is a very valueorientated market because there's lots of financials like banks and it's got some good companies and growth companies like you know healthcare but they're very limited. We need a bigger technology industry. And it saddens me that we have some of the best universities in the world with some of the most educated professors and and students coming through who are developing new technologies, biotechnology, and yet those those when they become any good, they end up in America. >> Can't disagree with you. >> How do we change that? >> Well, we can change it. Um and what we have to recognize is that if we do nothing then it's inevitable that our companies will be listing in the US capital will go to the US. So we have to do something and maybe we'll come back to that but one of the two key things that has happened over the last 20 years is that now we have global investing. Now you'll remember 20 years ago it people generally put their money in their own market. That that was just normal. We don't have that anymore. That's just fact and that's reality and we have to respond to it. The other thing is passive investing. Passive investing barely existed 20 years ago. You know, Vanguard was a little company back then. Now it's an absolute giant. And so we have these two themes that are just carrying on relentlessly. And in days gone by, politicians of all stripes felt that they could just ignore the equity market. It just was out there. It existed. It's part of the financial ecosystem. Aren't we lucky? London's great, but really it's not it's not my job to meddle. The reality is now it is their job to meddle because if we want the UK to be successful as an economy, as a wealth creating country able to finance pensions in 10, 20, 50 years time, we have to get these things right. We have to enable scale up capital to happen in the UK. We have to encourage people to invest in the UK. We have to encourage companies to list in the UK. If we don't do these things, then it is inevitable what will happen. I think it's also key that I don't think we pay our our managers and chief executives. To be fair, I think Julia Hoget has done a brilliant job. Julia Hoget is um chief exec of the LSSE, >> London Stock Exchange, >> London Stock Exchange and she has been very vocal about the need to pay people properly because nowadays we now have in most of our larger companies a very international set of executives and a very international set of non-execs. If we don't pay them well enough, we are not going to recruit the best talent, we're not going to keep the best talent and we will also lose our companies. And and I often get told, what does it matter? You know, if Astroenica chooses to go to the US, world will keep on turning. You know, life won't change very much. I can tell you it matters massively because the second they move, you lose tax revenue and billions of tax revenue. You also lose health care being the epicenter of our economy and you know we can all see in the newspaper it's challenged. You know we only had Merc today dropping a big plan to invest in in London and so we absolutely have to nurture these companies and and realize that they are incredibly important to our economy and to our tax revenue. And one of the things that I think often gets forgotten is public companies pay more tax. They pay corporation tax. there's stamp duty. You pay big tax on dividends. The second these companies go private or go overseas, that tax base just goes. So when you say, oh, you know, we got a bit of welfare payments issue or we've got winter fuel allowance, that is small beer compared to keeping our companies in the UK. I'm with you. We need to get the animal spirits back. We need to start people feeling that wealth is good, that actually making money isn't a bad thing. uh you know this as I said before this narrative we have nowadays that if you're rich you know you've done something wrong I want your money how can I get it you shouldn't be wanting to parade it we've got to stop that we've got to turn that round so on that basis what have you been up to and where is that and we will then ask some questions feeding into that well let me tell you the good news we've moved past the stage of admiring the problem everyone now knows there is an issue and they now know we have to do something It's about what do we do and some very practical things have already happened that have changed the momentum in London in the equity market and I I don't often praise regulators but the FCA the financial conduct authority has done a brilliant job in alliance with people at the LSE and various other regulators and we have changed the rule book. It used to be being a public company was hard work, a lot of cost, a lot of bureaucracy, and a competitive disadvantage to being private. And I won't go through all the changes that have taken place, but it now makes it easier to be a listed company. It makes it easier to raise money. It makes it easier to IPO IPO to do a public offering, so list in the UK. And and so having those changes that have been coming through over the last three years, most of them are now in place fundamentally changes the dynamics of the UK. And what that is doing is starting to attract companies that previously said I can't go to the UK because of the regulatory burden are now going actually the UK is a really good place to go. In many respects it's now better than the US. US is very high cost. It's also highly regulated. The legal system as we all know is incredibly punitive. Yeah. So that there it's not a panacea to go to the US and actually there's some real challenges. It's not a panacea to go to Amsterdam. There's some really tough regulations that you have to go through. So that has been a massive change. It it doesn't get the headlines, but it is fundamentally different now. >> So we can give a tick to regulation. >> No, we're give more than one tick. We're going to give it three. Give it three. Okay. And three ticks is a good number. Twix out is out of three. Generally, three out of three. Let's give you one example. And this is a Brexit dividend. Hey ho. >> Hey, >> come on. >> There has been a regulation in place that says if you are doing raising money for a company, there is a limit on the amount of money that retail investors can put into that fundraising. That limit, and you'll see why it's European regulation, is 8 million euros. Quite why? No one knows. I've asked. No one knows. And finally, that is going in January. I think it's going to finally go. That means that retail investors will be able to invest more into UK fundraising. So that's good news. Well done. Brilliant. Another three ticks. So that is the terrific side. But what the bad news is we still have capital going out of the UK. So UK investors are moving their money out of the UK into global. Whether that's pensions, whether it's ISAs, whether it's retail investors, it's all going global. And as I said earlier, if we don't do anything about it, then it's our own fault. But how do we do something about it? And the reality is that some of it is sentiment, some of it is animal spirits. And the sentiment has been so poor to the UK for so long, it's just becoming ingrained. And we need to change that narrative that actually we do have some great companies. Some of it is about taxation. And so give you one example. We tax people for investing in UK companies. So if you buy Barclays today as a retail investor, you pay 0.5%. Stamp duty. It's not a big charge, but it's a nuisance. If you buy the same share Barclays in the US, it's called an ADR. Don't ask me what ADR stands for. >> American depository. >> There we go. It was obvious, wasn't it? You don't pay stamp duty. What? So you you can go and buy something. >> I'm buying I'm buying the same asset, >> correct? >> In the US. Yeah. And you ask the Treasury and they say, "Oh, well, you know, it's4 billion pounds a year of stamp duty. It's very important for paying for all our public services." And you go, "Yes, but this is impacting the UK economy and the UK equity market." And if we don't realize that that matters, you need to go and do some financial education. So, one of the things we need to address is stamp duty. But there are lots of other things. No, pensions. We have to address pensions because if we don't have our pensions, our biggest pot trillion pounds, it's a very very I think it's the second or third largest pension system in the world, >> a huge asset for the UK that is not helping the UK economy. Now, one of the things that's happened over the law of the last couple of years, we had something called the mansion house compact. This year it was the mansion house accord. Lord Mayor has done a brilliant job coraling a whole load of pension funds to say we will invest in the UK. At the moment it's in private assets. So this is going to be into infrastructure and various other projects. But finally we're actually saying no it's a good thing to invest in the UK. We want to have our own institutions investing in our own infrastructure. Okay. But I I'm going to challenge that because don't give me temp's water. No no no no. I'm not going to give you T's water. But what I'm going to say is that many supporters of private equity, of the private equity industry and what the private equity industry does, I think you can claim some very good things about it. I'm not a supporter of it. I've come out straight away and say that. I've said it on many occasions in this podcast already and we'll carry on saying it until the cows come home. It's a way of leverage on the balance sheet and then interest rates get cut and the private equity guys make a load of money and then when the interest rates go up, they don't work so well. Now, to me, we're encouraging all these pension funds to buy illquid assets after they've had a massively good run already and nobody wants to buy them anymore. So, oh, who could we get to buy them? Oh, those private investors, they haven't bought any. Oh, let's go and get them in there or something else. We should be making a much clearer case. Don't put it in private equity. Put it in the stock market. So, lots of lots of strands in that. Gosh, where where do we start? Sorry, I I'll stop ranting. I've ranted. >> Private equity. I I look at private equity companies as well as public equity companies and some of them do terrific job. Some of them just lever up the balance sheet and guess what don't pay much in the way of corporation tax. So it's a very mixed picture. Some of them are terrific at supporting fantastic growth companies and look to the states and unfortunately then again the US is miles better at that at helping to grow fast growing technology companies than we are. And so this isn't about just putting money into private equity. And and one of the features of private equity that I think we probably agree on is that the value creation goes to a few individuals. Whereas in public equity, anyone can own it. And I think that's a fundamental difference that ought to be remembered. >> So here we're talking not really about private equity, which is juiced up returns on debt. We're talking much more about infrastructure projects and scale up projects. And so uh working with the British Business Bank uh which is a terrific organization incidentally set up by Vince Cable. Well done Vince Cable 2014. It's been a fantastic success. It provides 20% of all money that goes into venture capital is through the British Business Bank in the UK. So that has really outlasted him. Most politicians everything they do gets changed. He did that uh and it's been a brilliant success. So what we need is to have the pension fund money going in alongside organizations like the British Business Bank to I think we need to get away from this. It's going into private equity. Yes, some of it might do, but and the private equity guys will be asking for for it, but I think it's going to be very selective. It's much more about investing in infrastructure. I find it extraordinary that the biggest funders of our in infrastructure projects are typically Australian pension funds and Canadian pension funds. H how can we be in that situation? Thinking though again about how other countries do it. Australia is the poster child here. Australia you do have a benefit because you get a dividend tax credit bit like what Gordon Brown removed as a public equity owner. >> Yes. So I'm just making the difference to be clear. We were talking private equity or the private markets. Talk private equity. It's all the private markets. Here you're talking about Australia got this tax relief in their publicly listed market holdings. And what the Australian pension funds have done so successfully is that they have a few of them that are very large. So there's real scale and they invest in Australia. If you read the uh annual report of Australian super, the largest one, you would see Australia, Australia, Australia, Australia. They invest 20% of their fund goes into Australian equities. And you probably know that the Australian stock market is less than 2% of the global index. Our pension funds invest 4%. It's a world of difference and they take great pride in >> those numbers again just for everybody's benefit. We do four they do 20 >> and they do 20. That's >> our market is twice as large. >> Yeah. >> As their market extraordinary know the chasm but actually it's the attitude. I think if you read their annual report, you'll talk see them talking about investing in Australian infrastructure, helping to grow jobs, helping companies to grow and the Australian stock market performs well as a result because it gets buying every single year. Guess what? Those pensions also perform well. They massively outperform our pension fund performance. And so every single year, the beauty of compounding growth is that that makes a massive difference over 20 30 years. >> That's something we talked a lot about in this podcast, compounding growth. But let's that's a great case. Brilliant. Superb. Are the politicians receptive? >> Okay. So we are looking at lots of things and yes they are receptive and I think the tail end of the Conservative government finally grasp the issue. So Jeremy Hunt in his last Mansion House speech, he talked about addressing the amount of money that our UK pensions were putting into UK companies. He also developed something called the British ISA. >> He was on the right lines to actually say we need to keep money in the UK. Uh and then Richie called the election and bang, it's all gone. Rachel got rid of it. Rachel got rid of it and she said how how how she was comfortable with wealth creation and how she wanted growth to be her number one thing >> and then we had a massive budget. So what where I come back to you is this is a great story but you know why do I believe why do you believe >> but the evidence isn't so far because the evidence is all let's tax wealth let's tack its inheritance you get less allowances and so the evidence is all negative what I can say is there's a lot of discussion behind the scenes and a recognition that some of those decisions were not very sensible not very well thought through I still think it's utterly bizarre they took on the farmers in a very ill judged tax mechanism which makes zero sense. Same on AIM shares. Absolutely mad to be cutting the the inheritance tax allowance and making holding some of our better UK growth companies no longer tax allowable. But what we have to do is go actually we need to find ways to make companies list in the UK and longer term we have to have a proper debate. Should we be taxing differently investments in the UK to investments elsewhere? Why do we pay the same rate of capital gains tax on a company that is listed in the US compared to one listed in the UK? Does that make any sense? Why are we giving 9 billion pounds? And some people who watch this might think it's, you know, hands off our ISIS, but it's a 9 billion pounds of tax that we are giving to people to either keep in cash or to invest overseas. And you know, I do my ISIS. I go and invest overseas. I think it's utterly bizarre. I get a tax break to do so. I totally agree with that. I think that's absolutely right. And Mark will know from many lunches with him and and colleagues that we've had that I'm the one who is always saying, "Let's change these rules. Let's focus tax relief on holding British shares. And if you want to go and hold Nvidia, that's fine. I'm not stopping you doing it. I'm just not giving you any money for doing so." Correct. >> I totally agree. People should save for a rainy day. But do you need to save £20,000 every single year for a rainy day? No. Clearly you don't. Do you need to get a tax advantage for that? It makes no sense. Uh and so that is something that's been looked at hopefully we'll see something in the budget. But of course we heard the backdraft from all the banks going oh my god if you get rid of the cash iser where mortgage rates will go up and you go what absolute poppyccock because it is totally ridiculous. 1015 years ago cash is didn't exist. No one was saying oh my goodness we must introduce a cash iser so our mortgage rates go down. So why are we worrying about this? And the cash market is absolutely vast. is trillions of pounds compared to the cash ISER. It it shouldn't be even thought about. And yet the second when someone says no to a politician, oh my god, o be careful. You know, if you do that, it's going to be a disaster. The politicians go, oh right, okay, we won't do it then. And that was exactly the same with the British Iser. It's the same with all of these sorts of things. So politicians like have to get braver at lots of things. We all know that. You know, they need to be braver on welfare. They need to think about pensions. you know, we cannot have a triple up pensions for the next 30 years. We'll be bankrupt. It's mad. And yet it's all push it further up. So what what I can say is that I speak to Department of Business, I speak to the Treasury, I start speak to the British Business Bank, I speak to number 10 and there is lot of engagement. So it's not about an unwillingness to think about these things. It's more about timelines and are we going to do something that is impactful enough? And what I would dearly love thinking about the IPO market, if we could get some of our really exciting fintech companies, we we're one of the best in the world, probably the best in the world at fintech. We've got some brilliant companies that would be 1 to10 billion market cap. Now, some of them will be 50 to 100 billion. Probably in five or 10 years time, these sort of companies would be a trillion dollars. No, we genuinely could have some of the fantastic growth companies that we actually will start to see overseas investors wanting to invest in the UK because we have the most exciting companies. But we've got to get them to list in the UK. How do we make sure that happens? Stamp duty is one of the things that a lot of these companies, you know, the boss of Revolute has said, "How could I list my company in a country that charges a tax on trading?" You know, our whole point is to remove tax on trading. It makes no sense. So go figure. We ought to think about stamp duty if we want to have companies like Revolute um listing in the UK. We ought to make sure that we have a quasi sovereign wealth fund and it gets a dirty name in the UK. But every other country effectively has a sovereign wealth fund. Whether that's a pension fund or whether it's TMESAC, the big sovereign wealth fund in Singapore or Abu Dhabi investment authority or the QIA in uh Qatar. These are very powerful organizations and they drive how people invest and where they list their companies. I want the British Business Bank to be supporting UK growth companies. At the moment, they can only do it privately. If they could do it publicly and we had a well-funded British Business Bank that said, I am backing this company only if it lists in the UK. How powerful would that be? They would then be able to go to the pension funds and say, "Look, I'm backing this terrific fintech company. Why don't you back it as well?" Then we would go to TESC or whoever else, all these sovereign wealth funds and say, "Look, we we're backing this brilliant British uh fintech company. It's going to list in the UK. Do you want to come in as well?" And suddenly we'd have a totally different feel about investing in the UK. It's not difficult. It doesn't need a lot of money. we can change the dial on how people think about investing in the UK market and if we can get the capital side right then we will be a go-to market now the US at the moment is dominant and if we don't do anything about it they will suck companies in you know we've seen yeah cler's just Swedish company why is cler not floating in Sweden it's floating in the states you know we shouldn't be allowing these sort of things to happen if we can make sure that the UK is a thriving equity market. Guess what? We will get companies coming to list here. >> Just to clarify there when you said we shouldn't be allowing these things happen. We're not saying we should ban them from doing it. We should give them enough incentives to make incentivization. That's my main point. I just wanted to make sure nobody was suggesting we were starting to get very uh very dictatorial on this. >> You've got to be able to pay people as well. And this is where I think the UK falls down a lot. I mean, there's some huge headlines going around at the moment. And obviously only last week there's talk of Elon Musk getting a trillion dollar 10-year pay package, right? No company in this country would ever dream it. The government would throw all their toys out the politics of >> I think that is starting to change. I really genuinely do. We are now paying a lot of our senior executives very differently to what was the case only 3 years ago. Now those sort of massive pay packets is probably someone only like Elon Musk could better on a billion dollars for three years. >> Yeah. but they could be living in in the UK. So, I'm much more relaxed about the pay side of it. What I'm less relaxed about is the taxation side of it because we have a system in the UK where you're incredibly successful. Guess what? You are in heavily incentivized to list your company overseas and live overseas and nothing infuriates me more than we have nurtured a brilliant company and yet for tax reasons they are taking it elsewhere. It is lunatic. What we should be having is a system where an entrepreneur if they stay in the UK and pay tax in the UK and list in the UK then they are given an opportunity to retain more of their capital. And that's to me is so important as part of this and you look at the states one of the great things about the US is people make a lot of money. A lot of them give it away to charity and a lot of them also go again. they either set up another company or they go and fund a new generation of companies. So there's a real flywheel of capital creation and we have to have that in the UK. You know you can see what's happening with AI already that people who who are complacent about this don't realize it's now happening. You know we saw PWC they are reducing the number of graduates that they are employing because of AI and this is year one you know just imagine what it's going to be like in year five. So we have to have technology-led companies that are creating wealth and growth and jobs in the UK. And if we don't have a system that encourages that and a system that says stay in the UK if you're a great technology entrepreneur or even why don't we get some technology entrepreneurs come to the UK. Wouldn't that be brilliant? >> So let's say we do create an environment where we can get UK companies IPOing here and we've got you mentioned trillions held in cash. What's the next step? Because how do we get UK retail investors investing in the UK market? >> It's financial education and it's a tax structure that enables them to do that and ISAS are brilliant in terms of enabling you to access all sorts of share portfolios or funds or whatever you want to do. So those are great but I think we need to start financial education a lot younger. Uh it is to me extraordinary that more people who are younger are um buying and selling cryptocurrency. They have no idea what they pay in terms of costs and they probably have no idea whether it's going up or down. And so it is more akin to gambling. It's not investing. And yet you can invest in loads of companies that are if you if you want to invest in technology companies. There are loads of technology based companies that are going to grow really well over the next decade. They're also going to pay dividends. Cryptocurrency doesn't pay any dividends. So actually the education piece and I'd love to see that taught in schools. But it's people like you and us to that are actually spreading the word a lot more to make sure that there's a collective understanding and and it's just a muscle memory that we've lost over the last 30 years. No, go back 30 years. Everyone was investing in equities who possibly could. I remember the um all all the utility companies and we're all busy filling in forms to get our equities. tells it and there will be a campaign next year which is great to be able to start talking about equities. I think we also have to look at the risk side and I think the um FCA are doing this to because at the moment uh the the risk warnings are are sort of you're going to lose all your money and they sort of tell you you know don't don't assume that you'll get anything back and and look at the history of investing in stocks and shares. You know they genuinely you hit all-time highs on a regular basis. That's normal. And so the risk warning as you discussed earlier is actually investing in cash should be the risk rather than investing in stocks and shares. And so having that I think is really important. I'm going to ask you a question Sophie. Do you know what your pension is invested in? >> Funny enough, I looked at this only about a week ago. >> Isn't that lucky? Come on. >> I will hold my hands up that I only looked at this a week ago because I got the letter from Fidelity and decided I should know what I'm invested in. that. But you see, I'm I'm going to just come in there and say, you know, um I'm I'm slightly disappointed you, Charles, that you didn't say the art of investing is the answer to all your educational needs. Next time I'll train you better. But that's what we're trying to do here. And we've been emphasizing to people when you get that pension statement, rather than put it in the bin, look at it. You can see what you're invested in. And even if you don't have as much financial knowledge as others, it this we we hope what we're trying to do in this podcast is get you to ask the right questions. >> So right >> and say, well, hold on. Why am I holding this? I had a conversation with someone yesterday actually and said, what are these things I've got? And there were four bond holdings and all these four bond holdings over the last 5 years have lost money. >> Yeah. >> Well, why are people holding these things? But I will guarantee you that that portfolio is not the only portfolio when people look and see what has been invested in where they say, "Well, hold on a minute. I'm listening to why I should be in equities. I I should be in a position if I've got an if I've got a long time through to retirement. If I'm, you know, if I if I've looked after got a little bit of cash myself now, I should be looking at where my equity holdings are and how much have I got >> and it is so important." And um I look at the the Nest portfolio which we go back to the UK hardly mention of the UK. It is changing but slowly. They have four different um portfolios that you can invest in. And uh one of them is their lower growth fund and it won't surprise you to find out that it's barely moved over the last decade. So it absolutely does what it says on the tin, but it should have a health warning saying please don't invest in this fund if you're under the age of about 90. Then it has a higher growth fund which has lots of risk warnings saying oh you have to be you know very very careful on this one performs pretty well. So that's great. Their Sharia fund has been the best performing uh because it typically was overweight and equities. So final question from me. You've had some great interaction with government with with various regulators. We've got a budget coming up. I'm sitting here hoping that someday the UK stock market is going to do really well again. What could they do? What do you think they might do in the budget? I I'm not asking you to tell me I'm going to put money on it, but what do you think from those conversations they might do? >> Yeah. Well, one of the big debates has been on cash ISIS, and it's going to be about getting the balance right. People can still save for a rainy day. We still have enough cash to fund uh banks to do mortgages, but do we need to have it as exactly the same as the stocks and shares is and the reality is it wasn't in days gone by. George Osborne was the one that made it the same back in something like 2006 or something like that. So, it it doesn't have to be the same. No one says it has to be the same. And I think addressing that, putting more money to work in stocks and shares is better for people's long-term wealth creation and investment than it is effectively encouraging them to put too much into cash. So, that that's the starting point. I'd love them to then go you need to be putting more into UK's docks and shares because that that is the crucial aspect. I I'm not 100% confident of that but I think that's a debate that definitely needs to happen needs to happen is happening >> is happening but probably falling on deaf ears. So I think it's something that we still need to come back to is to recognize that if we export all of our capital that deprivives the fuel for economic growth. Capital drives economies and we are sending ours overseas. It's bananas. Pensions. I think we need to have that. I'm not expecting that necessarily to come through in the budget, but we need to have an allocation to the UK. What I would then love to see is the British Business Bank giving the mandate to be able to invest in UK equities directly. I think that would be a really powerful it it would just be a signal that we care about UK markets and we care about our fast growing technology companies. >> Stamp duty. I think something really easy for them to do is say no stamp duty on IPOs for say 5 years. It doesn't cost anything because we're not we've hardly got any IPOs. So if you started to have companies listing in the UK, that is an incredibly important driver of economic activity and and it shouldn't be a surprise. You know, if you are sitting in the in the US investing your 401k, you know that it you're you are investing in the US economy. You know, most of them will put it straight into US equities. It's not a debate. And yet we don't have that in the UK. So, I think there are a number of things they can do that can change the dynamic about the UK capital market. >> But, but I think I would conclude from what you're saying, and please tell me if I'm wrong, that you might expect a little bit in the short term, but you still think there was this is this is still a campaign with some way to go before we get >> I am not giving up and I don't think the budget I'm going to be saying, right, done. I think we're going again afterwards. And things like, you know, the the debate about entrepreneurs tax relief. I don't blame Labor. Conservatives were just as bad, if not worse. You know, they reduced our capital gains tax allowance. They reduced our dividend tax allowance. They reduced the entrepreneurs relief. >> These things are mad in terms of generating. Yeah. Absolutely. So, I suppose I suppose all I can ask is that when you go to these meetings, you refer them to the art of investing and then they might actually learn. There's a huge opportunity set that we're trying to Are you suggesting that that the government could do with a bit of financial education? >> I I would certainly think that so we won't worry about Thank you so much for coming today. Pleas Thank you very much, >> Charles. Thank you so much for coming and to join us. I think you've given all of our listeners a huge amount to to think about and take away. Um it's that time in the podcast where we go to portfolio performance spice. How have we done this week? >> It's been a really good week actually. We we've made about what in in stock market terms you'd call about 150 basis points which for everyone else is about 1 and a.5% we've made just this last week. So since the portfolio started just over a month ago we're up now 2.59% let's call it 2.6%. And that's been led this week by crypto and blockchain, our ETF, the VANC blockchain, and that was up 6.3%. A great week. If I can interrupt into that, say one expression I really love is better to be lucky than good. We bought that ETF because of its um its linkage to Bitcoin and crypto, but it's also got a lot of exposure to data centers and the new AI uh investment spend. And of course, that's the thing that's really taken off this week with Oracle. So, it's been a fantastic performance. Bitcoin's gone down. I mean, what a great what a great trade that's been. Absolutely. Uh and Black Rockck World Mining have benefited from some of the mergers and acquisitions we've seen this week with Anglo-American being front and center of that. So, they're up about 4.7%. And then Japan, as we mentioned, change of prime minister and the market pushes through and it's up over 4% in the last week. So that's been a really good combination for us. And actually one of the the things about portfolio is all very well making money, but you want to lose as little as possible. And actually this week we've had a good a good result there because we've only where we've lost money, we've lost very little of it. We've lost just 0.6% in copper in our copper ETF. Um and we lost 0.3% uh in our German DAX position. That's a German stock market. Of course, cash actually was our third worst performer, but actually went up. It was up 0.2%. So, overall a really good week. If we could do this week in week out, we'd be retired in >> I think you're retiring as chairman now having done such a fantastic job over o over one month. >> Well done, sir. Thank you very much. Thank you. >> Any changes this week? Well, we we've got a lot to think about because of of Charles obviously, but we also in the back of our mind constantly is what about the budget coming up when we thinking about the UK in particular. Um, but it is certainly given us a lot to think about and thank you Charles for that. >> I'm very keen on on Charles's presentation because it's what I believe in as well that it's what we need to as a country. But unfortunately, we're learning investment. You can't let emotion get in the way of a good decision. And so I think we probably have to wait to see what happens in the budget and see whether there's any signs there that people are actually listening because if they are listening the market is very cheap. So there's a long way it could run. So I think my view unless we change that view over the next few days having having taken in what Charles said is that we will we will be positively positioned towards the UK in our portfolio as you as you know we actually have 10% in the footsie um which is much more than most people have from what you were saying earlier. I wouldn't be afraid of adding if I thought the UK uh government were actually embracing some of these problems. Number one. Uh number two, I suppose for me I am quite nervous about how well our antifragile assets have done. I mean we we've done absolutely superbly with some of those assets which are only meant to work at times of problems and actually they've worked well anyway. So that makes me a bit nervous. The VANC one has done fantastically at 16% up but we only have 5% of it and we're still keen on the data center Bitcoin type background. So, I wouldn't be suggesting we want to do anything there. The place I'm thinking more about is the gold holding, which um gold's gone up 40% this year. It's gone up 7% since we put it on this portfolio. We've got 10% of it. So, I I'm not far away from thinking maybe we should take some profit out of it. Now, I am a raider. Now, for those of you who remember our talk two weeks ago when I talked about the art of execution, which is a fantastic book, I am a raider, which means I take my profits probably a bit too early. Spice over there, who's a a connoisseur, which means that he holds on to things for a lot longer. We'll be having a little tussle about that and in our communications to see whether now is the time to just top slice is what it's called, but just take a bit of profit out of that gold. Leave some, but sell some. So today, not recommending anything, but lots to think about. >> I think that's all we've got time for this week. Thank you so much again, Charles, for coming on to join us as our first ever guest on the show. >> Thank you very much. Well done. Thank you, Charles. >> And as ever, if you've enjoyed this episode, please like, share, subscribe, send it to your neighbors. If you have any questions, guys, where can they find us? >> The art of investing at ig.com. >> Perfection >> getting better. >> Be sure to join us next week. Bye-bye. >> Bye. [Music]