Monthly Archives: October 2013

Fund Focus: M&G Optimal Income

M&G Investments is a part of Prudential PLC, one of the world’s largest insurers.

M&G is the fund management arm of Prudential. In 1931 they launched the first Unit Trust (collective investment fund) to UK investors. With over £230 Billion under management, they really are an investment giant.

A very highly regarding fund from M&G is the Optimal Income Fund. With £15,662 Million = £15.6 Billion in this fund, it is massive.

The Fund aims to provide a total return to investors through strategic asset allocation and specific stock selection. The Fund will be at least 50% invested in debt instruments, but may also invest in other assets including collective investment schemes, money market instruments, cash, near cash, deposits, equities and derivatives. Derivative instruments may be used for both investment purposes and efficient portfolio management.

It holds:

Government bonds 21.5%
Investment grade bonds 46.8%
High yield bonds 18.1%
Equities 11.3%
Cash 1.4%

In the past 5 years this fund has grown, and even in the financial crisis of 2008.

The top investment holdings are:

Verizon Communications 2.7%
Granite Master Issuer 2.1%
Lloyds Banking Group 1.9%
BAA 1.1 %
GE Capital 0.9%
HSBC 0.9%
EDF Energy 0.8%
Enel 0.8%
Microsoft 0.8%
Telefonica 0.8%

Interesting to see that this fund is holding Blue Chip Assets, such as financial securities issued from corporates like Microsoft, General Electric, HSBC etc. Profitable companies that are able to pay dividends and interest on bonds.

Emerging Markets: Paying Dividends.

Out of the FTSE 100, the UK flagship index of the 100 largest companies, 5 PLC’s paid about 36% of all the dividends paid. Incredible to see the reliance of pension funds and income investors of a few companies.
But one thing is sure for dividend paying companies, they are able to pay cash to investors which is a clear sign of good management and corporate governance. The ability to manage the business and generate cash.

In Emerging Markets, like India, Brazil etc, companies too are now able to pay dividends, showing a level of maturity in the market. Also one has to note that law and politics are an issue, so holding shares in say the Brazilian energy giant, Petrobas is lucrative, as in Brazil companies have to pay by law 25% (at least) of their profits in dividend payment.

An amazing snippet I have found, is that there are about 18,000 listed companies in Asia (this excludes Japan, New Zealand & Australia), of which nearly 9,000 paid dividends to shareholders in the past 12 months. Perhaps one can make an assumption that there is the realisation that many emerging markets are not so emerging anymore.

Singaporean Investment: Temasek Holdings

Temasek Holdings is one of the two state investment companies of Singapore, (the other one is known as GIC, Government Investment Corporation). This is a sovereign wealth fund.

£107 Billion under managed (Singapore Dollar SG$215 Billion). The history of growth is very interesting. Formed in 1974, Temasek began with a portfolio of £176 million. It has grown and in 2003 it was worth £30 Billion, and now it is £107 Billion in 2013.It mainly invests in shares (equities)

Portfolio is broken down into 6 sectors:

31% Financial Services (Global Banking & Financial Markets)
24% Telecoms, Media & Technology
20% Transportation & Industrials
12% Life Sciences, Consumer and Real Estate
6% Energy & Resources
7% Others

The Geographic Breakdown is:
30% Singapore
41% Asia (outside Singapore)
25% North America, EU, Australia & New Zealand
4% Latin America, Africa, Central Asia & Middle East.

It’s largest equity investments are in these companies:

AIA Group
Bank of China
China Construction Bank
DBS Bank
ICBC Industrial and Commercial Bank of China
Ping An Insurance
Danamon PT Bank Indonesia
Standard Chartered Bank

It holds its portfolio of the £107 Billion in 6 currencies:
Singapore Dollars, Hong Kong Dollars, US Dollars, UK Sterling, Euros and Others.

A diverse investment fund, across the globe, securing Singapore’s long term wealth.

AT&T and Crown Castle: $4.85 Billion

On Sunday 20th Oct 2013, AT&T announced the plan to raise $4.85 Billion = £2.99 Billion by leasing the rights of its wireless (base stations) to Crown Castle


AT&T will lease its 9,708 towers.

Reading the financials from Crown Castle gives an insight to the business:

Crown Castle pays $4.85 Billion, to operate the towers for an average of 28 years, and AT&T commits an initial lease term for 10 years.
AT&T will pay $1,900 per site.

This means each month Crown Castle will earn from AT&T £1900 x 9708 = $18,445,200 ($18.445 million) which is $221,342,400 per year ($221 million = £136 million), and get this for 10 years.

And in this each year Crown castle will increase the charge by 2%.

A nice monthly revenue from AT&T, for Crown Castle running and maintaining the radio towers, and AT&T gets a cash injection of $4.85 Billion.

Crown Castle who own the 7,100 T-Mobile USA tower network could have the option to manage the overlap, and optimise the 2 networks, and bring cost savings, and after 10 years, has the option from AT&T to buy the network too.

Crown Castle is clearly an infrastructure company, that is getting stable returns each month.
The share price is about $75 a share

They are proposing an annual dividend of $1.4 a share which equate to a yield of 1.86%.
So in these low interest rate times, the US Federal Reserve Base Rate is 0.25%, so by investors investing in Crown Castle, they are able to obtain a return of 1.86%.
The ability to fund this dividend comes from the stable and safe monthly rent obtained from the leases from AT&T and USA T-Mobile, and other carriers whose radio towers it runs.

Also what will be interesting to see, is what AT&T does with the $4.85 Billion. It could use the money for a share buy back, pay down some debt, or perhaps use it buy strategic assets, like more spectrum, or perhaps buy another carrier in Europe.


The Pacific Investment Management Corporation [PIMCO] is the famous fixed income fund manager, made famous by the two chief investment officers, Bill Gross and Mohammed El-Erian.


Founded in 1971, the money that Pimco manages is huge. They are a fixed income investor, that are mainly investing in bonds (debt)

Numbers are staggering:

$1.97 trillion (£1.21 Trillion) in assets under management
$1.61 trillion (£995 Billion = £0.995 Trillion) in third party client assets

The flagship invesment fund, and perhaps the fund that has made Bill Gross and Pimco famous is the Pimco Total Return Fund. This is a bond fund

PIMCO Total Return Fund has assets $251,105 million = £156,848 million = £156 Billion.
This giant fund has its investments spead in these sectors:
US Government-Related Bonds 35.00 %
Mortgage Bonds 36.00 %
US Credit Bonds 9.00 %
Non-U.S. Developed Bonds 2.00 %
Emerging Market Bonds 6.00 %
Other 5.00 %
Money Market and Net Cash Equivalents 7.00 %

The UK Operation of Pimco has Andrew Balls as the UK Managing Director. Andrew is the brother of the Shadow Chancellor Ed Balls, the MP for Morley and Outwood, West Yorkshire. []

Pimco is owned by the German insurer Allianz, []

Fund Focus: Invesco Perpetual High Income Fund

In the financial press these past few days, the big news that has been making the headlines that Neil Woodford a highly successful fund manager at Invesco Perpetual is leaving to set up his own fund management business.

Neil Woodford runs quite a few funds at Invesco Perpetual, such as the Invesco Perpetual High Income Fund, The Edinburgh Investment Trust and The Invesco High Income fund to name just three.

The Invesco Perpetual High Income Fund, is huge, This fund £13,971 million = £13.971 billion.

£10,000 in 1990 invested The Invesco Perpetual High Income Fund would be worth over £200,000 today.


The total number of holdings are 122
The Top 10 holdings are:-

AstraZeneca 8.68%
GlaxoSmithKline 8.44%
BT 6.35%
BAE Systems 5.51%
Roche 5.50%
British American Tobacco 5.05%
Imperial Tobacco 4.82%
Reckitt Benckiser 4.42%
Reynolds American 4.32%
Capita 4.18%

This makes 57% of the entire fund.

Very interesting to see BT in the fund, a long term investor in the world’s most dynamic telecoms group, look at the sound fundamentals of BT


With 6.35% of the £13.971 billion fund in BT, that equates to £887million worth of shares in BT held by The Invesco Perpetual High Income Fund. Not entirely surprising having such a high quality investment, as in these times of low interest rates, BT is yielding 2.5%.

Now BT has about  7,910,539,487 shares on issue, so the market capitalisation (value) of BT is 7,910,539,487 x £3.64 (the current share price) = £28,802 million (£28.8 billion)
With the The Invesco Perpetual High Income Fund owning £887 Million worth of shares, that equate to just over 3% of BT.
This fund from Invesco Perpetual owns 3% of BT. Almost certainly other funds from Invesco Perpetual own shares in BT, so one can see, it is a strategic investor in BT Group PLC.

Berkshire Hathaway.

Berkshire Hathaway, the name says it all. This is the investment company lead by Warren Buffet.

A very humble website, from the most respected investor in the world.

The top 10 holdings in listed companies are:

Wells Fargo = 21.47% of the BH Portfolio = 463,131,623 shares
Coca Cola Co = 18.02% of the BH Portfolio = 400,000,000 shares
IBM = 14.62% of the BH Portfolio = 68,121,984 shares
American Express = 12.73% of the BH Portfolio = 151,610,700 shares
Procter & Gamble = 4.57% of the BH Portfolio = 52,793,078 shares
Wal-Mart Stores = 4.12% of the BH Portfolio = 49,247,235 shares
U.S. Bancorp = 3.18% of the BH Portfolio = 78,277,301 shares
DIRECTV Group Inc = 2.58% of the BH Portfolio = 37,275,400 shares
DaVita HealthCare Partners = 2.03% of the BH Portfolio = 29,947,812 shares
Phillips 66 = 1.80% of the BH Portfolio = 27,163,918 shares

Total Number of stocks held by Berkshire Hathaway is 42.
The value = $89,031,205,000 = $89 Billion
Financials make up = 40.86% of the Portfolio

The shares are 2 classes of stock, A and B

Berkshire A []
Berkshire B []
This explains the difference:

A share of Class B common stock has the rights of 1/1,500th of a share of Class A common stock
except that a Class B share has 1/10,000th of the voting rights of a Class A share.

Class A share price analysis of the shareprice.

27 Oct 1993 = $17,100
24 Oct 2006 = $100,000
9 Oct 2013 = $168,075

Today the share price is about $171,295

Imagine owning one share in Berkshire Hathaway in the 1980s….

Buffett insists on keeping at least $20 billion in cash on Berkshire’s balance sheet at any given time.

A brilliant investor, a long term value investor.

The Norwegian Sovereign Wealth Fund

The Government Pension Fund of Norway is also known as The Norwegian Sovereign Wealth Fund.

With $760bn = £477bn in the fund, it is one of the world’s largest sovereign wealth.
it is projected by 2020, the fund could be over £600bn

This fund is so large, 2.5% of every listed European company and is often in a group’s top 20 shareholders, also incredibly the fund holds on average 1.25% of the world’s shares, that is why when looks at the annual report of large listed companies, one sees this name:

Norges Bank Investment Management (NBIM). This is the investment arm of The Norwegian Central Bank.

It holds:

Equities = 63.4% of the fund
Bonds = 35.7% of the fund

The UK’s Tony Watson sits on the corporate governance advisory board to the fund. A famous name who was the former CEO of Hermes Investment Management, the fund manager of the UK’s largest pension fund, the BT Pension Fund.

Amazing to think a fund started in 1996, has become this large, what is true, is acorns become oak trees.

Global Telecommunications Revenues

Total Telecom published the revenue figures for the global carriers.

Some very interesting numbers that explain this mission critical industry.

The Global 100 Telecom Operators, gross revenue was flat at €1.28 trillion = £1.08 Trillion = £1,080 Billion

US players–AT&T, Verizon and Sprint–together contributing €211 Billion = £178 Billion

Telefonica, Deutsche Telekom, Orange, Telecom Italia and BT generating €215 Billion = £181 Billion

Top 20 Carriers on Revenues.

1 AT&T  £81,352 Million = £81 Billion
2 NTT  £74,765 Million
3 Verizon  £73,954 Million
4 China Mobile £56,642 Million
5 Telefónica £52,617 Million
6 Deutsche Telekom £49,493 Million
7 Vodafone £44,442 Million
8 America Movil £37,999 Million
9 Orange  £36,719 Million
10 China Telecom £28,610 Million
11 KDDI £25,588 Million
12 China Unicom £25,159 Million
13 Telecom Italia £24,895 Million
14 Softbank  £23,604 Million
15 Sprint £22,564 Million
16 BT £18,015 Million
17 Telstra £15,388 Million
18 Vimpelcom £14,722 Million
19 KT £14,253 Million
20 BCE £12,791 Million

Large Numbers from one of the most dynamic industry sectors.

Also worth considering how the industry is changing. Look at BT, perhaps the most innovative telecoms operator in the world, the global MPLS network, a television broadcaster, a solution provider, and broadband service provider, as financial technology service operator. A world class player.

US National Debt: Government Shutdown

The US Federal Government on Sunday 30th Sept 2013, at midnight, had to shut down, unable to agree the federal budget. The reason being, the government literally has run out of money, it was unable to borrow any more, as it had reached the legal debt ceiling.

The US has a huge national debt, caused by a simple fact, that the US government spends more than it earns in taxes. It runs a budget deficit.

Thus to bridge that gap, the US government borrows, it issues T-Bonds (Treasury Bond).

What is the US National Debt ?

A good site:


As you can see, over $16 trillion.

[$1000 Million = $1 Billion]
[$1000 Billion = $1 Trillion]
US National Debt is $16.9 Trillion = £10.5 Trillion

US 2012 GDP was $15.68 Trillion = £9.74 Trillion

Thus Debt / to GDP Ratio is 108%

These numbers are incredible.

UK Equities: Share Ownership

Interesting days ahead with the Initial Public Offering (IPO) of The Royal Mail (formerly known as Consignia…). The shares are eagerly awaited and look like they will rise on the first day of trading due to strong demand, and also the hard assets it owns. For example the property (real-estate) alone is worth a fortune, such as the London Mount Pleasant Complex near Kings Cross. So good to see demand for equities, and this lead me to look at share ownership of UK shares.

The ONS (Office of National Statistics) published a report on the 25th Sept 2013.
It is gives a breakdown of who owns UK shares:-


Some fantastic figures:

At the end of 2012, the UK stock market was valued at £1,756.3 billion. UK quoted ordinary shares was £1,756.3 billion. Of this, the rest of the world held 53.2% (£935.1 billion).

UK individuals owned an estimated 10.7% of the UK Stock market.

Unit trusts held an estimated 9.6% of the UK Stock market

Insurance companies held an estimated 6.2% of the UK Stock market

Pension funds held an estimated 4.7% of the UK Stock market

Non-British shareholders owned 53% of the UK Stock market

The financial crisis of 2008 led to unprecedented government intervention in the UK financial industry. There was initial recapitalisation of The Royal Bank of Scotland Group plc (RBS) in November 2008 with a further injection in 2009. The recapitalisations of LloydsTSB Group plc and HBOS plc took place in 2009. Government also participated in two subsequent recapitalisations of Lloyds Banking Group plc. in 2009. On 31 December 2012, these interventions equated to shareholdings valued at £42.6 billion. The 2.5 % of UK shares are held by HM Government, almost all in FTSE 100 companies. This is due to the government interventions in Lloyds Banking Group and Royal Bank of Scotland.

Interesting numbers from our Office of National Statistics.


Fund Focus: The Polar Capital Technology Investment Trust

The Polar Capital Technology Investment Trust is a FTSE Listed Investment Company (Investment Trust) that buys shares in technology companies.


The financial fundamentals are:-


The share price is about £4.46. The market capitalisation is £572 Million.

The Top Ten holdings are:-

Google 6.4%
Apple 5.8%
Cisco Systems 2.8%
Samsung Electronics 2.5%
Facebook 2.3%
Microsoft 2.0%
Amazon 2.0%
Qualcomm 1.9%
Oracle 1.7%
SAP 1.6%

These ten holdings make up 29% of the total holdings.
70% of the holdings are in the USA so clearly the investment has significant exposure to currency movement of the US Dollar to UK Sterling.

Interesting to see that “financial companies” like MasterCard are in the portfolio of investments of The Polar capital Investment Trust. Not surprising, these companies like banks are really technology companies, due to their investment in global technology. Perhaps one can say, Global Banking and Financial Markets  companies are really technology businesses

The Japan Debt Burden

With the USA  just over 100% debt to GDP, the UK too spending more than is earned in taxes, Japan looks totally unstainable.

The article by Kate Allen in the FT on the 1st October, gives some real insight to Japan.
It is amazing to know since 1975, Japan’s government has spent more than income. This is where government expenditure is higher than tax income. So for 38 years, the government has had to bridge that annual deficit by issuing bonds, known as Japanese Government Bonds (JGB’s).

Today 2013 Japan’s government revenue is about 40 Trillion Yen (£0.25 Trillion), and government expenditure is about 90 Trillion Yen (£0.56 Trillion).

¥1,000,000,000,000,000 is the Japanese National Debt (yes, 1000 Trillion Yen, my numbers are correct).
(15 zeros if you are interested… be honest, (¥1.008 quadrillion is easier to say)

That is $10.46 Trillion = £6.45 Trillion

The UK national debt is £1.2 trillion and our GDP is about £1.5 trillion
(we in the UK are about 80% Debt to GDP)

This Japanese level of debt is more than twice the size of the economy. debt versus the country’s GDP is 230%, the highest in the developed world

The debt is mainly held by domestic fixed income investors.

What is effecting the Japanese economy is the high standard of living in Japan, and that has resulted in the aging population, and the need to pay for the pensions and long term health care of an aging population, putting pressure on the government’s finances.

The most crazy figure, is that today the Japanese government has to spend over 20% of all its expenditure on debt interest.
the UK pays about 6% of government expenditure on debt interest.
Now one can understand why Japan has such low interest rates, when the level of government debt is so high, it needs low rates to be able to finance itself, and also needs access to the bond market to simply bridge the gap of its tax income and outgoings. So clearly their is confidence in the Japanese government to borrow, as domestic creditors are funding the Japanese government. As long as this confidence remains, the debt cycle continues.


On Tue 24th Sept, Blackberry (Research in Motion), headquartered in Waterloo, Ontario, announced it was going to be taken over and go private. This means delisting its shares from the stock exchanges where the shares are traded (Nasdaq and Toronto), and become a privately held stock. From reading the media it is to be bought by a consortium led by Fairfax Financial for $4.7bn (£3bn).

So while the shares are still listed on the Nasdaq and Toronto stock exchanges, I undertook some analysis into the stock


Today about $8 a share, 12 months ago $18 a share. Over 50% decline in value.

The Market capitalisation is $4,623,089 = £2883 Million = £2.8 Billion

The annual report gives some insight too.


524,159,844 Common Shares in issue.
54.6% of BlackBerry users based outside of North America

Revenue (U.S $) March 2, 2013 = $11,073 million = £6,905 million
Revenue (U.S $) March 2, 2012 = $18,423 million = £11,489 million

A near 40% decline in revenues.

The Company’s revenues by geographic region are as follows:

6% = Canada
20.2% = USA
11.2% = UK
29.5% = Europe
19.1% = LatAm
14% = APAC

Despite increased competitive pressures in consumer segments, the Company remains a leader in enterprise mobility, with deployments in over 90% of the Fortune 500 companies

As of March 2, 2013, the Company’s research and development team consisted of approximately 6,000 full time employees. Research and development expense was approximately $1.5 billion.

As of March 2, 2013, the Company had approximately 12,700 full-time employees.

Cash and cash equivalents on the balance sheet of  $ 1,549 Million = £966 Million
Short-term investments $1,105 Million = £689 Million
It’s debt is tiny, it is only accounts payable.

Advertising expense, which includes media, agency and promotional expenses totalling $925 million = £576 Million.

One thing that jumps out, the very low level of debt that Blackberry carries. So despite the falling sales, and shrinking market share, the company has been able to develop new products, as it has not had the burden of loans, interest payments etc, when it has had to deal with the competition from Apple and Android. A company with fantastic technology, that is swimming against the tide of the competition.

UK Government Borrowings: September 2013

Another month, guess what, it is the same old story, HM Government, spends more money than it receives via taxes. Another deficit month, thus to bridge the gap, needs to borrow on the bond market.

In September 2013, the HM Government had to borrow money to meet the difference between tax revenues and public sector expenditure. The term for this is The PSNCR: The Public Sector Net Cash Requirement.

There were 4 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office ( to raise cash for HM Treasury:-

19-Sep-2013 1¼% Treasury Gilt 2018  £5,083,730,000
12-Sep-2013 2¼% Treasury Gilt 2023  £4,124,604,000
10-Sep-2013 3¼% Treasury Gilt 2044  £3,017,840,000
03-Sep-2013 0 1/8% Index-linked Treasury Gilt 2024 £1,627,140,000

When you add the cash raised:-

∑(£5,083,730,000 + £4,124,604,000 + £3,017,840,000 + £1,627,140,000) = £13,853,310,000

 £13,853,310,000 = £13,853,310 Million  = £13.853 Billion

On another way of looking at it, is in the 30 days in August HM Government borrowed:-

£461 million each day for 30 days. We are fortunate, the global banking and financial markets still has the confidence in HM Government to buy the Gilts. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2018, 2023, 2033 and 2024. All long term borrowings, we are mortgaging our futures.

Cinven: Private Equity & Pizza

Cinven is an investment firm, that is a private equity investor that invests in 6 sectors:
Business Services, Consumer, Financial Services, Healthcare, Industrials and Telecoms, Media and Technology.

Some famous names have been owned by Cinven: Eutelsat, Hamleys of Regent Street, NCP Car Parks, Sema, Tetley Tea.
Today it owns Pizza Express via its ownership of Gondola.

More recently it bought Heidelberger Leben from Lloyds Banking Group, a German Life Insurer that was owned via Halifax Bank of Scotland, a member of the Lloyds Banking Group


That was a €300 million investment from Cinven, one can see, it is entering the world of financial services with investments in the UK too in Life Assurance from Guardian Financial Services and life policies from Phoenix Life.

Founded in 1977, with money from the Coal Board Pension Fund, Barclays Pension Fund and Railway Pensions, it invests in private equity buy outs, with a minimum investment of £100 million. The name Cinven comes from Coal Investments.
Final thoughts, if one eats Pizza from Pizza Express, it is funding the pensions of UK coal miners, retired railway workers and Barclays workers.