spectator money may 2015

CONSERVATIVE GAINS: WHAT THE ELECTION MEANS FOR INVESTORSCOLLECTING RARE STAMPS | SIPPS V. ISAS | BETTING ON GOLF

23 MAY 2015

BIG OILLITTLE OILMatthew Lynn and Robin Andrews

pick the sector’s winners and losers

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A season of new optimismHow long will the post-election rally last before the next round of market jitters kick in? Whether it’s ‘Grexit, Brexit, even Scoxit’, as Tim Price says in this issue, there are bound to be upsets over the next two years, perhaps even from directions we have not yet foreseen.

But for now, the biggest uncertainty that has hung over the UK economy for the past year — the threat of an anti-enterprise Labour regime with a penchant for

higher taxes — has been lifted. The continuation of business as usual in Downing Street and the Treasury comes as welcome relief for investors, entrepreneurs and prospective home-buyers. As Chris Blackhurst writes, business leaders can now draw up an agenda of what they want a new Conservative government to deliver. We can all now turn our attention to investment decisions that were left on hold during the long election campaign.

Looking to the future, this issue of Spectator Money takes an in-depth look at the energy sector: Matthew Lynn and Robin Andrews assess what’s to come for oil and gas stocks, large and small. For savers pondering their own long-term prospects, Laura Whitcombe and Neil Collins weigh up the pros and cons of Sipps, Isas and ‘auto-enrolment’ in company pension schemes. And by way of variety, Christopher Silvester discovers fascination and value in rare postage stamps.

If we have learned anything from the 2015 UK general election, it is that expert predictions can be embarrassingly wrong. The same is true in investment — but with that caveat, and in this season of renewed optimism, I hope you find the Spectator Money menu of ideas richly stimulating.

Martin Vander Weyer

Editor Martin Vander WeyerAssistant editor Camilla Swift Sub-editors Peter Robins, John Honderich and Victoria Lane

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Conservative gains Chris Blackhurst 6

What business leaders want Cameron to deliver

Tales of the unexpected Tim Price 8

This result is like Christmas, but not in a good way

COVER FEATURES

Big Oil: not over yet Matthew Lynn 10

There will be gains aplenty on the way down

Little Oil: cash is king Robin Andrews 12

A veteran investor picks AIM-listed prospects

Save now, save plenty Laura Whitcombe 15

Pensions advice for anxious thirtysomethings

Why ISAs beat pensions Neil Collins 19

A better way to save for your old age

Interview: James Anderson Jonathan Davis 21

An investor who is hunting for long-term holds

Sex and the City Camilla Swift 26

Is the financial sector now friendlier to women?

First-class postage Christopher Silvester 29

An alternative investor’s guide to rare stamps

Property Ross Clark 24

Why can’t I invest in private landlords?

The Speculator Freddy Gray 33

The hottest tipster in golf

Reality check Louise Cooper 34

Life lessons from investing in Equitable Life

COLUMNISTS

POST-ELECTION SPECIAL

‘Start saving now, save as much as you can‘Laura Whitcombe, page 15

‘Pensions have had their day, just when the state is forcing more people into them‘ Neil Collins, page 19

Contents _Spectator Money Issue 3_Spectator Supplements 210x260_ 5 14/05/2015 12:58

6 SPECTATOR MONEY | 23 MAY 2015 | WWW.SPECTATOR.CO.UK

At a party in London’s St James’s on elec-tion night, the many senior business figures present were ecstatic.

We’d had dinner, and the mood dur-ing the meal was one of fearful anticipa-

tion. At 10 p.m. we gathered round the big screens and up snapped the television exit poll. At a stroke, the atmosphere was transformed. When confirmation came with the first significant results, the backslapping and mutual congratu-lations began.

What was provoking most of the instant smiles — if I’m honest —was not the thought that the demise of Ed Miliband meant the minimum wage would not be raised (something he’d promised) or that residential rents would not be capped (another Labour pledge) or energy prices frozen (still another), or zero hours contracts scrapped (one more). Rather, it was the disappearance of the mansion tax.

These chairmen and chief executives would no longer face the threat of paying the proposed levy on houses worth more than £2 million. Indeed, as their chortling and toasting made clear, some of them were facing not one but two lots of duty — if their country homes, in addition to their Lon-don ones, were also caught.

It’s easy to interpret this reaction as typical of the greedy self-interest Labour had complained so loudly about dur-ing the campaign. There’s no question that for many peo-ple, the sight of these braying corporate chiefs would have confirmed that Miliband and Co were right to pursue the

new property charge.The glee, though, was not simply relief

that the mansion tax had been avoided — after all, these people could afford to pay it, even twice over, without blinking. More, it was a response to genuine deep-seated anger. They believed they had

worked hard for properties they had aspired to own, and they deserved them. Labour’s attack was unfair. It was a stifling of ambition. It was anti-business.

Labour claimed not to see it that way. Not once in their rhetoric did the party hierarchy justify the policy by saying they wanted to punish business. It was a measure against those with more than enough, an attempt to begin restoring equality, to raise much-needed funds for the NHS.

But the mansion tax was one of several Labour gam-bits that inspired loathing in the business community: the prospect of a higher income tax band; market interventions in property and energy; abolition of flexible working via zero-hours contracts; the imposition of a bankers’ bonus tax; overhaul of the rail franchise system; cracking down on

fixed-odds terminals in betting shops; ambiguity over the renewal of the Trident nuclear defence contract.

Shares in the companies affected by Labour policies rose sharply on Friday morning after the poll. Similarly, investors’ delight at escaping a Labour government goes much deeper than pleasure at avoiding these plans, some of which were notable for their pettiness. The belief was always that this was the slippery slope: that once in power, a socialist administration under Miliband would let rip.

If challenged, Labour stuck to the script and repeatedly maintained it was pro-business. But you can’t poke the rich on the one hand and maintain you’re for business on the other. Unless someone has inherited money, the likelihood is they acquired their mansion, or mansions, by dint of suc-cess in some form of business.

Confirmation of Labour’s anti-business stance came from the fact that nowhere in the party’s manifesto or in media interviews did the leadership spell out how they intended to achieve economic growth, and create wealth. They talked a good game on clobbering the wealthy but had no idea how to create wealth themselves. They’re smart at spending other people’s money, but much less sure about how to generate it.

For Miliband the leftist ideologue, assisting business was nowhere near the top of his agenda. That’s because, funda-

Investors believed that once in power, a Miliband socialist administration would really let rip

Conservative gainsBusiness dreaded Miliband — but now expects Cameron to deliver

CHRIS BLACKHURST

GETTY IMAGES

Chris Blackhurst election_Spectator Money Issue 3_Spectator Supplements 210x260_ 6 14/05/2015 13:00


mentally, he’s at best suspicious of and at worst downright hostile to the needs of capitalism. He was forever talk-ing about ‘Britain’s hard-working families’ and how they should be feted and helped, without giving any thought to where they actually find that work.

This disconnect lay at the heart of the Labour effort and was the prime reason it collapsed so badly: by not promot-ing wealth creation, it showed itself to be a party that was offering nothing to the aspiring middle classes. Worse, with its mealy-mouthed strictures against business it revealed itself to be a party that would make work more difficult, not easier.

Tony Blair realised the folly of being anti-wealth and thus being seen to be anti-business. To the criticism of many in his party he embraced them both. He knew a fundamen-tal truth: that most people want to get rich, and that their only realistic hope in doing so lay through business.

Miliband’s contradictory claim to be pro-business while attacking those who have succeeded in business was also undermined by the lack of people around him who had ever held down a senior job outside politics. No one in Labour’s senior team, with the exception of Chuka Umunna, the shadow business secretary who used to be a solicitor in a City law firm, had any real commercial experience.

This meant Miliband existed in a bubble of ignorance

and suspicion, fuelled by the dated dogma of the trade unions that propelled him to the leadership in the first place. The naivety of Labour in this regard can be fright-ening. I well remember a senior party figure who went on to become a Cabinet minister telling me how he’d uncov-ered a plot to fund the Tories ‘using corrupt Hong Kong money’. It transpired that a certain Tory had connections with a Hong Kong property family. There was no sugges-tion of them making a donation, and no evidence they were corrupt. In the Labour politician’s eyes, however, they were corrupt because they were rich.

But if business has buried its Labour bête noir, what does it think of David Cameron? Don’t imagine the busi-ness community has an unconditional romance with Cam-eron’s Tories. There remain serious misgivings about poor infrastructure (scarcely touched upon nationally during the campaign), lack of skills and suitability for work among British school-leavers and graduates; excessive restric-tions on foreigners with those skills; too much red tape; too much tax; and among the banks, a sense of being unwanted and unloved.

These are also corporate chiefs who argued passionately for the Union to be saved, albeit only towards the end of the Scottish referendum campaign. They won that argument, but now find, thanks to the general election, that Scotland is moving ever closer to independence and Cameron may make even further concessions to the rampant SNP.

Their concern about Scotland is as nothing, though, to their anxiety at the possibility of a British exit from the EU. Labour’s only saving grace was that Miliband was pro-EU. Big business in Britain is resolutely pro-EU — although of course they want to see proper reform, an end to the profli-gacy and the removal of barriers to trade (for all its promise, the EU has still to deliver on the notion of a single market with one set of rules).

Cameron had said he will hold a referendum on Brit-ain’s continued membership. That’s welcomed, although business leaders will not relish any attempt by Cameron to appease the right in his party that may involve a harden-ing of attitude towards Europe. It should be borne in mind, too, that support for Britain staying in is strongest among multinationals, many of which have made this country their base for Europe, the Middle East and Africa. Already we’ve seen HSBC thinking aloud about moving. If Britain left, the pressure on these companies and banks to relocate away from the UK would be intense.

The pro-EU lobby group Business for New Europe counts on BAE Systems, WPP, the London Stock Exchange, BT and Royal Bank of Scotland. Another pro-EU group, TheCityUK, includes Goldman Sachs, JPMorgan Europe, Bank of America, Citigroup, Deutsche Bank and BNP Pari-bas. The only major UK company in the Eurosceptic camp is Next, headed by the Tory peer Lord (Simon) Wolfson.

What the pro companies are looking for is a clean, short campaign, with a decisive result in favour of staying in. A protracted debate, laced with xenophobia and watched closely by the EU, would not go down well. Much worse would be defeat and ‘Brexit’.

The hope is that a galvanised, rejuvenated, strengthened Cameron will deliver results that match his talk of greater prosperity and opportunity. For business there’s no ques-tion: he’s a lot better than the alternative.

Counting the cost: Labour

offered nothing for the aspiring

middle class

The victor: now let’s see

what he can do for prosperity

Chris Blackhurst election_Spectator Money Issue 3_Spectator Supplements 210x260_ 7 14/05/2015 13:00


Well, few saw that coming. After a drearily overlong campaign, election night man-aged to surprise us after all. This elec-tion has otherwise felt a lot like Christ-mas. Interminable commercials, a sea-

son hijacked by the venal and the immature — and the adults end up paying for everything.

But it’s nice to see that the pollsters got it badly wrong, just as they did in 1992. That election was my first and last experience of political spread-betting. City colleagues back then felt — correctly — that the polls were overstating the Labour lead and had misjudged the popular mood, and asked me if I wanted to join them in ‘buying’ Tory seats. I nonchalantly said I’d bet a fiver. I didn’t appreciate at the

time that I was betting a fiver a seat. That was the first election I followed

throughout the night as each constitu-ency reported. This was the second. Just the sight of Ed Balls being defenestrated made it all worthwhile. Anyone suspicious of authoritarianism will have welcomed

the savaging inflicted on Labour and the Lib Dems by an electorate clearly comfortable in the middle ground.

Sterling welcomed the outcome with a relief rally, as did the FTSE 100. The equity bull market now feels a little long in the tooth, but what are the practical alternatives? UK Gilt yields remain repellent to anyone experiencing brain activity. Trying to assess the market’s ongoing response to a Conservative victory is also trickier than normal, because the financial market is no longer a free market as such — since the financial crisis, it has been largely a plaything of

the state. Base rate has been slashed to its lowest level since the Bank of England was established in 1694. Gilt yields have been kept artificially low through quantitative easing (and by regulatory coercion of pension funds, which are barely allowed to invest in anything else). QE, allied with near-zero interest rates, has caused capital to flood into financial assets, including bonds, stocks and property. Markets are said to hate uncertainty, but it is the apparent certainty of the Bank of England’s determination to keep rates suppressed that represents one of the biggest risks of all.

In the past week, German govern-ment bond yields have shot up despite the explicit support of the European Central Bank, which has pledged to buy them as part of its own stimulus programme. There is no market riskier than one rigged by central banks. As Margaret Thatcher once said, you can-not buck the market forever.

In keeping with an election cam-paign long on windiness and short on accuracy, popular attitudes toward economic trends have been misguided, not to say misreported by the media. There has been no real deleveraging

since Lehman Bros blew up, certainly not by the state. The coalition’s debt reduction programme ended up add-ing more to the national debt in five years than the pre-vious Labour regime managed in 13. Under the coalition, the terms ‘debt’ and ‘deficit’ were handily conflated (in the same way that legal tax avoidance and illegal tax evasion became blurred), and the media were complicit in the pro-cess. A little fiscal honesty by the new government would be welcome, but is highly unlikely. Facing down an overexcited Scottish National Party, which now looks at English taxpay-ers’ wallets with envious eyes, is not going to be George Osborne’s easiest challenge in the months ahead.

Voltaire is credited with the observation that while doubt is uncomfortable, certainty is absurd. This election leaves many uncertainties remaining, not least a number of poten-tial geopolitical fractures: Grexit, Brexit, even Scoxit. And the two most important figures for the UK economy were not involved in the voting: Mark Carney, the Canadian gov-ernor of the Bank of England, and Mario Draghi, the Italian governor of the European Central Bank. While the Tories were celebrating, Europe’s government bond markets, with their yields spiking sharply higher, were warning ominously of the practical limits of QE. After a multi-decade orgy of government spending across the developed economies, the debt hangover remains. An emboldened Tory government may be more likely than its opponents to tackle the deficit, but the real austerity is surely still to come. David Cameron may end up wishing he had lost after all.

Tim Price is Director of Investment at PFP Wealth Management.

Since the 2008 crisis, financial markets have been largely a plaything of the state

Like Christmas, but not in a good wayAn investor’s response to the Conservative victory

TIM PRICE

Missing man: Carney’s policies

matter as much as Osborne’s

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t was the kind of megadeal that sets pulses racing in the City. When in early April the oil giant Royal Dutch Shell unveiled a £47 billion takeover of its British rival BG, it prompted a predictable flurry of speculation about a fresh round of megadeals in the energy sector. Inde-pendents such as Tullow Oil were immediately put in the frame. Even the mighty BP no longer looks too big to be taken out by a rival such as Chevron of the US — even if the UK govern-ment might oppose such a bid.

And yet this dealmaking fever is as much a sign of weakness as of strength. Increasingly Big Oil looks like this decade’s equivalent of Big Tobacco. A once massive industry, supply-ing a product that is part of everyday life, faces

long-term decline, and companies are scrabbling around to find ways of cutting costs as they try to deal with that pros-pect. Yet, just like Big Tobacco, Big Oil can still be very prof-itable. Cigarette companies have made plenty of money as they retreat: energy giants can do the same.

Shell’s acquisition of BG was the largest deal in the industry for two decades. BG used to stand for British Gas, but the company had come a long way since the days when everyone was telling Sid about it as it was privatised in 1986. The arm that delivered gas into people’s homes has long since been hived off as Centrica, and the BG that Shell is buying is mainly an oil and gas exploration and production company, with the emphasis on gas. The combined group will be worth more than £200 billion, making it one of the biggest companies in the world and a rival to the American giant ExxonMobil. The deal will allow Shell to leave its tra-ditional British rival BP behind — and perhaps even to take

it out, from a position of strength, at some point in the next few years.

But this hardly compares to the last round of megamergers, when the likes of BP’s Lord Browne were buying up busi-nesses in a race for global domination. Oil and gas is still a huge industry, of course,

turning over hundreds of billions of dollars a year, powering the world’s cars and trucks, keeping electrical generators running, and heating homes. But technology is against it — and in the medium term, that is always a bad place to be.

The big problem for the oil industry is that even though the global economy is still growing, despite what some of the pessimists might tell you, and lots of new countries are joining the developed (and therefore energy-hungry)

world, demand for oil seems to have started running out of steam. Take the US, for example, traditionally the biggest consumer of oil. American demand rose from 15 million barrels a day in the early 1980s to 22 million barrels a day by 2006. Since then it has steadily fallen to around 19 million barrels, even though the American economy is more than 10 per cent larger in GDP terms than it was then. The same is true of most developed economies. China and the emerg-ing markets are still increasing their oil demand, but the developed world has stopped — and it will, of course, only be a matter of time before the rest of the world catches up.

The reason is simple. We have become more energy-efficient, and alternative energy sources are providing real competition for the first time. Anyone who has bought a car in the past couple of years (unless it was a top-of-the-range Rolls, in which case you probably don’t care) will have noticed it is far more fuel-efficient than the one it replaced. Average miles per gallon for American cars has risen by 29 per cent over the last 13 years, and since people aren’t driving much more that means they use much less fuel. The rise of electric cars is dramatic. Last year 285,000 were sold worldwide, and sales are accelerating at 20 per cent annu-ally. Every time someone buys an electric car, they take another little chunk out of the oil and gas business.

It’s the same in other industries. Massive subsidies for wind, wave and solar power have cut the demand for oil to generate electricity. Solar power is starting to become a mainstream product, powered by massive falls in the cost of solar panels and their much greater efficiency. The moment is close when solar can be declared a viable mainstream energy source. Indeed, renewable energy is already starting to replace fossil fuels such as oil and gas. The turning point came in 2013 when, according to Bloomberg New Energy Finance, renewables overtook fossil fuels for the first time in terms of the amount of new generating capacity built. The same was true last year. There are still a lot of existing power stations, of course, and oil will be used for a while yet. But every year, slightly less.

At the same time, there is more supply. Shale gas and oil producers are under pressure as a result of the current price slump. But they have opened up vast new supplies of both commodities at a time when demand is static at best, and falling in many markets. And that’s with only the American shale producers on stream in significant scale. If we ever manage to subdue our anti-fracking protestors, the UK will be capable of producing vast quantities of hydro-carbons from shale. So will the French, the Germans and the Poles. Add in potential supplies from Iraq and Iran and

Big Oil: not over yetThe old energy giants can still make good money on the way down

MATTHEW LYNN

24%Probability of a Labour/SNP coalition — the

likeliest outcome, according to

Populus

20%Probability of a

Labour/Lib Dem coalition

The problem is that, while the global economy is still growing, oil demand may be running out of steam

Matthew Lynn on big oil_Spectator Money Issue 3_Spectator Supplements 210x260_ 10 14/05/2015 12:59


suddenly there’s a glut of oil at the same time as the black stuff has hit serious competition from other power sources. The net result? The halving of the oil price over the last year is unlikely to be a short-term blip. It may well be the begin-ning of a long-term decline.

The transition we’re talking about here could easily take 50 years. Technologies stick around for a decades after they start to become obsolete. It will take a long time for every-one to switch to electric (and even driverless) cars. Tractors and trucks will take even longer — farmers don’t upgrade just because they want the latest model to look good next to the barn. Switching power generation, and ships and heat-ing systems and all the other stuff that runs on oil, will take even longer. Even so, all machines become obsolete even-tually — and as they are replaced, fewer of them will use fossil fuels.

That means the Shell-BG deal is unlikely to be the last. If $40-$60 is the price range of a barrel of oil for the next few years, then all the major companies are going to strug-gle to make money, while the smaller explorers that Robin Andrews looks at overleaf will be in deep trouble. One by one they will be taken over as the bigger boys find it simpler to buy them out and take over their fields than develop new ones of their own. If the barrel price rachets down to $20-$30, which is by no means impossible, that process will only accelerate — and Citigroup is already predicting the price will sink that low over the next few years. The oil industry will no longer be about expansion. It will be about coping with a shrinking business as best as you can.

There is a twist to the story, however — and an impor-tant one for investors. Any long-term sectoral decline is, of course, unfortunate for workers and suppliers. Jobs are lost and prices are squeezed. But it can be surprisingly good for investors. Take tobacco again, another widely disliked prod-uct that was once ubiquitous. We smoke far less than we used to — in Britain, smoking is down from 45 per cent of the population in 1974 to below 20 per cent today. But if you had invested in British American Tobacco, you’d have done pretty well. Since 1998, its shares are up 600 per cent. Not much sign of painful decline there.

Why is that? Once they stop worrying about growing and conquering new markets, managements can focus on stuff like squeezing out excess costs, raising prices where they can, and tieing up mergers that will deliver real effi-ciencies. It is dull, brutal work, but it is effective and it makes a lot of money for shareholders. Big Oil has a long way to fall, but paradoxically a lot of money will be made on the way down.

A sudden glut: the shale revolution has come at a time when western oil demand is falling

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Matthew Lynn on big oil_Spectator Money Issue 3_Spectator Supplements 210x260_ 11 14/05/2015 12:59


The small oil and gas company sector, consist-ing chiefly of AIM-quoted companies, has been massacred over the past few years, and in par-ticular since the oil price decline that began last summer. The good have declined as well as

the bad, so in theory there must be value to be found — but the key factor in any analysis of this sector is verysimple: cash.

Most small oil companies have no cash flow, and require continual injections of new equity to sustain their existence. With a majority of small oil stock prices at all-time lows, raising new cash is exceedingly difficult — never mind that existing shareholders are doubly dis-

advantaged by rarely being invited into heavily discounted private plac-ings. So before getting overexcited by, say, recent news from UK Oil & Gas plc — which announced prospec-tive resources of of ‘up to 100 billion barrels’ at Horse Hill near Gatwick Airport in Sussex — the first ques-tion must be: ‘Have these companies got the cash to explore and pay their overheads, or is there another dis-counted share placing just around the corner?’

If life’s so hard in the small oil sector, you might expect relative-ly cheap UK onshore exploration to be a sensible option. However, a wave of largely ill-informed popu-list ‘nimbyism’ from Lancashire to Hampshire has caused progress in any onshore exploration, whether conventional or shale, to get stuck in a glue of planning applications and reviews. So well-positioned compa-nies such as IGas, Egton and Europa have suffered.

Against such a depressing back-ground, it is certain there will have to be amalgamations and trade sales in the small company sector. Most small companies have administration expenses ranging from £250,000 to £1 million. Exploration budgets can be cut but overheads must be paid — and raising such amounts has become exceedingly difficult. Few investors are happy to be paying for salaries, listing fees and audits while they wait for better market conditions or a rare exploration success.

Merging sounds easy and logical — until it becomes clear that only one management team and one set of advisers will survive. Activist inves-tors are desperately needed to ration-alise what has become an inefficient sector.

So where do we look in the small oil company sector for values that are

so effectively hidden at the moment? On the following page are five names quoted on AIM that might survive long enough and finally prosper when oil prices recover and sentiment changes.

In the meantime their shares could rise for reasons not directly connected to their fundamental businesses but because of corporate activity, changes of governments and perhaps even changes of public opinion towards hydrocarbon exploration.

Robin Andrews is a former stockbroker who has financed many natural resources ventures. He holds the shares marked •.

Little Oil: cash is kingA veteran investor picks AIM-listed prospects

ROBIN ANDREWS

Robin Andrews on oil_Spectator Money Issue 3_Spectator Supplements 210x260_ 12 14/05/2015 13:01


In Any Other Business, an anthology of his very best writings from The Spectator and elsewhere, Martin Vander Weyer brings a sharp eye and a very personal style to bear on often controversial topics, alongside recollections of life in the City and dissections of the current state of play; deliciously evocative accounts of travel, culture, food and daily life; and, very occasionally, reflections on the travails of middle age. Beautifully written, this collection offers a warm, witty and insightful perspective on our changing times.

“The most oracular and entertaining business

commentator in London”

B o r I s J o h n s o n

“A collection of tales from Britain’s financial front line

with the fun bits left in”

F r a s e r n e l s o n

available now at The Spectator Bookshop at the discounted price of £13.99. www.spectatorbookshop.co.uk

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Five oil and gas minnows ‘that might survive and prosper’Egton resources • (Market cap £25.5 million at 11.5p) This venture has shown an ability to be both corporately active and geologically astute. The first of those qualities could be the reason to back it. Two years ago, an acquisition of UK shale licences with huge potential, and a joint venture with Total, caused the shares to triple; cash was then raised that should fund onshore UK drilling this year and next. Brokers talk of asset value at least five times existing capitalisation. Egton also holds 38 per cent of the Holmwood prospect — in the same geological play as UK Oil & Gas at Horse Hill.

Andes Energia • (£158m /28.5p) Investment bank Macquarie put a 35p target on this South American

venture. What’s not quantified is the potential impact of a more co-operative Argentine government later this year. If this happens, Andes’ massive reserves could be a target for an oil major — while existing production covers overheads and some exploration.

Rockhopper Exploration (£184m/62p) Other beneficiaries of change in Argentina might be Rockhopper and its co-explorers in Falklands waters. Not that a new regime would withdraw its claim to ‘Las Malvinas’ — but it might try a new diplomatic tack, allowing Argentine involvement in the exploration areas and onshore service facilities. And Rockhopper is more than just its Falklands interest. Having received over

$250 million from Premier Oil & Gas and Noble Energy in a farm-out deal, it used some of the cash to buy Mediterranean Oil & Gas, which has interests in Italy, Malta and France.

Madagascar Oil (£42.4m/6.5p) This company aims to exploit a world-class resource of heavy oil in an African country that has a supportive government. Technology, necessary approvals and a strong management team are in place. So what’s wrong? The fact that only 16 per cent of the shares are freely traded doesn’t help, and a major fundraising could be needed unless new boss Robert Estill succeeds in bringing in major partners, obviating the need for new funding. Meanwhile, the company should still have

some of the $20 million raised last November, and 100,000 barrels of oil in storage to sell.

Infrastrata (£6.5m/4.25p) Something completely different: with the shift from coal and oil to gas and renewables in power generation, reliable gas supplies are even more vital: gas needs to be stored for days when the wind doesn’t blow or the sun doesn’t shine. This tiddler is developing a huge underground gas storage facility at Islandmagee in Co. Antrim, with EU support, and will also be drilling an onshore exploration well — with a minimum target of 40 million barrels, but not until September — when bird nesting activity has finished. Brokers Arden have set a target price of 36p.

Robin Andrews on oil_Spectator Money Issue 3_Spectator Supplements 210x260_ 13 14/05/2015 13:02

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George Osborne, just before the election, waved his golden wand to give the over-55s access to their pension cash at long last. Lucky them. How wonderful it must be to have a tax-free lump sum with which to

treat yourself to a luxury holiday or a flash new car. In fact, it’s enough to make most young workers sick.

Final-salary pension schemes are long gone. The best most of us thirtysomethings can hope for is a decent employer offering a defined-contribution scheme. If we’re lucky, our taskmasters may be so good as to top up our measly pots with a few per cent of our salaries. So

for those of us only just starting on our pension-saving journey, how can we get ahead and ensure that we too can one day retire in style?

You probably think this is going to be a rather complicated area of finan-cial planning, but the good news is that

there’s a simple answer: start saving now and whack your cash into equities. Of course, there’s slightly more to it than that. But there’s really not that much to fret over, so let’s get started.

Don’t just start saving now: save as much as you can. The longer your money is invested in a pension — or anything else — the more time it has to grow. And over

the long term, the stock market has always outperformed cash. You’ll also benefit from the effects of compound interest, reinvested dividends and pension relief (if all the governments to come before you retire don’t steal it away).

But how much should you be put-ting away? Figures from Legal & General show that to amass a pot big enough to pay you an annual income of just £5,000 from the age of

65 (excluding state pension) requires monthly contribu-tions from a 25-year-old of £238 in today’s money. Leave it until you turn 35 and you’ll have to find £308 a month. The older you get, the harder it will be to get started: if you live in a cave until you turn 55, you’ll have to make monthly contributions of £840 a month. All that for an eventual return of less than £417 a month on top of the state pen-sion, which today pays just over £500 a month at best.

If you want a more comfortable retirement income, you’ll have to put away a lot more. Precisely how much depends on many factors, including your current income and your personal retirement goals. But a good rule of thumb is to divide your age by two and tuck away that percentage of your net earnings each month. So thirtysomethings should save between 15 and 20 per cent.

Once you’ve worked out how much you can afford to save, the next question is where to put it. As already mentioned, an employer’s defined contribution scheme is most likely to be your best bet. Turn it down and you’re effectively doing yourself out of a pay rise — or free money — in the form of your employer’s contributions. Such schemes tend to match employee contributions, or even exceed them, up to a set proportion. The average employer contribution was 6.1 per cent of gross salary in 2013, down from 6.6 per cent in 2012, according to the Office for National Statistics. On a salary of £30,000, that

Save now, save plentySimple pensions advice for anxious thirtysomethings

LAURA WHITCOMBE

A good rule of thumb is to divide you age by two and tuck away that percentage of your monthly net pay

Whitcombe pensions_Spectator Money Issue 3_Spectator Supplements 210x260_ 15 14/05/2015 12:23

equates to an annual injection into your pension pot of £1,830, or £152.50 a month.

There’s tax relief too, at 20 per cent for basic-rate tax-payers and 40 or 45 per cent for higher and additional-rate payers. That means a £10,000 pension contribution effectively costs a higher-rate taxpayer just £6,000, and a 45 per cent taxpayer £5,500. However, with all the main political parties threatening to cut pension tax relief for the wealthy, the sensible advice is to get saving even faster if you’re lucky enough to be well paid, and don’t rely on the tax perks.

It’s also worth noting that by April 2017, all employ-ers will be required automatically to enrol staff aged 22 and above, earning £10,000-plus, into a company pension scheme. Neil Collins challenges the merits of auto-enrol-ment in this issue, but here are the facts. The minimum an employee must contribute is currently 0.8 per cent of qualifying earnings, but this will rise to 4 per cent by 2018. Employers must contribute at least 1 per cent, rising to 3 per cent in three years’ time, while the government pays 0.2 per cent rising to 1 per cent (see gov.uk/workplace-pensions). You don’t have to join the scheme — but you will have to opt out if you don’t want to join, and every three years you will automatically be opted back in.

If you leave your employer, you can choose to keep your company scheme (whether or not you were auto-enrolled) but it’s up to you whether you continue to make contributions. Your ex-employer obviously won’t. The alternative is usually to move your pension to your new employer’s company scheme. There will be a cost of mov-ing your money but it will be easier to monitor if you do, and keeping all your pension cash in a single pot avoids multiple fees, which in turn helps your money grow more over the long run.

Maike Currie, associate investment director at Fidel-ity Personal Investing, says the next option worth consid-ering for pension savers is a Sipp (self-invested personal pension). These are nothing to do with your employer, and you can open one online from any good fund plat-form, such as Hargreaves Lansdown, Bestinvest, Fidelity or Interactive Investor.

With standard personal pension schemes your invest-ments are managed for you within the pooled fund you have chosen. Sipps, by contrast, give you the freedom to choose and manage your own investments, and Maike Currie says they are suitable for most investors who want ‘more con-trol over where their pension money is invested, its future growth and the eventual income they receive in retirement’.

You can choose to invest in all manner of things from

individual shares to government bonds, investment trusts and commercial property. ‘But don’t forget about costs,’ Currie continues. ‘Sipps come with a multitude of differ-ent charging structures, so make sure your provider has a transparent and simple one.’ Unlike employer schemes, you will usually have to pay a set-up fee of £100 upwards, and you’ll be charged to buy and sell your investments.

Of course, however you invest your pension, you should always find out exactly what fees you will be charged, because over the long run they can take a significant bite out of any gains. When Steve Webb, the pensions minister in the last government, announced that charges on auto-enrolled pension schemes would be capped at 0.75 per cent, he claimed that this would save the average earner who was previously paying charges of 1.5 per cent around £100,000 over the course of their working life.

The last piece of advice for thirtysomethings starting out on their pension journey is this — diversify your port-folio. This will ‘reduce risk and give much more consist-ent performance’, according to Danny Cox of Hargreaves Lansdown. Patrick Connolly at Chase de Vere adds: ‘The best approach is usually to hold a combination of dif-ferent asset classes including equities, fixed interest and property. A portfolio of this type has growth potential through equities but the other asset classes provide some protection if stock markets fall.’

He also points out that pension investors can often afford to take more risk while they are many years from their likely retirement date, because they have time to claw back short-term losses and can ride out market ups and downs. ‘This is particularly the case for those investing regular premiums into their pensions, as most thirtysome-things will do, because this approach helps negate the risk of market timing. Indeed, if prices fall, then investments can simply be bought cheaper the following month. If thir-tysomethings are happy to accept the risks, it can be per-fectly sensible for them to invest most, or even all, of their pension into equities.’

Canny investors should, however, plan to increase their weighting in other risk-

diversifying asset classes as their pension grows and they come nearer to retirement.

Pension planning really doesn’t have to be complicated when you have three or four dec-

ades of working and earning still ahead of you. Just remember the simple mantra: start saving now and

save as much as you can.

Laura Whitcombe is deputy editor of Moneywise and co-author of Money Made Easy 2015-16, published by Harriman House.

£238Monthly savings

required from age 25 for a pension income of £5,000

from age 65

£308Monthly savings required for same

from age 35

£840…and from age 55


Whitcombe pensions_Spectator Money Issue 3_Spectator Supplements 210x260_ 16 14/05/2015 12:23

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‘Pensions are finished. I don’t think they have a future.’ Thus Michael Johnson, the Centre for Policy Studies expert on the subject. It seems an odd remark given that pensions are all about the future. Contributors look forward when

they save; pensioners think about how long they’ve got before they expire. Yet Johnson is right. Pensions have had their day, and it’s typical of Britain’s dysfunctional savings market that this is happening just when the state is forcing more people into them.

For a young worker, retirement looks almost inconceiv-ably distant, and there are many more pressing demands on his or her (probably modest, perhaps intermittent) income. It seems pointless to save for old age before buying a home or supporting a family — and because so many had reached this sensible conclusion, the last two governments decided that people had to be forced into pension schemes.

Thus came ‘auto-enrolment’ of every worker, down to the smallest businesses. This was clearly going to be so unpopular that the legislators opted for the frog-in-the-cooking-pot approach. At first, workers were required to contribute just 1 per cent of a slice of their pay. By Octo-ber 2018, that will have heated up to 4 per cent, by which time it will be much too late to jump out. Employers will be obliged to match the amounts.

The malign effects of this nannying by the state are about to be felt. Take-home pay will stagnate as pay rises are forced into pension contributions. Further out, auto- enrolment will turn into a third income tax, rather as national insurance has metamorphosed into the second one. It will also discourage other forms of saving, with work-

ers fooled into thinking that the proceeds of those deductions will be enough for comfort in old age. As any actuary can tell you, saving 8 per cent a year will not buy a pension anywhere near to even half your average lifetime salary. The principal ben-eficiaries of this gathering wave of savings

will be investment houses collecting annual fees for manag-ing — and all too frequently mismanaging — the pooled penny-packets of the lowest-paid workers.

The valedictory crowd-pleaser from the last govern-ment, allowing over-55s the freedom to spend pension sav-ings however they like rather than being forced to buy an annuity, threatens to make things worse. Release from the miserable value of compulsory annuities is welcome, but the impression the move gives is that old age now starts at 55, little more than halfway through the average adult life.

Yet even 55 will seem an unimaginably long time to tie up the (compulsory) savings of our 30-year-old worker trying to make ends meet. It’s also a racing certainty that the rules will have changed half a dozen times before then.

It’s not hard to see why politicians tinker with pensions, given the sums at stake. Following auto-enrolment, the Pensions Policy Institute estimates that the tax relief will be worth £35 billion a year, with 70 per cent of it going to higher-rate taxpayers. Those at the top can not only pay in more, but get twice the relief of a worker who pays only the standard rate. Thus, those who find saving most difficult get the least benefit from doing so. Since the purpose of the tax relief is to help citizens avoid being dependent on the state in their old age, this has always seemed perverse.

Today every political party is gnawing away at pension privileges, whether by shrinking the size of the tax-free pot or restricting the tax relief. The rules are hideously compli-cated, which is another reason why pensions are doomed. Individual Savings Accounts, by contrast, merely need an authorised intermediary to ensure that the £15,240 annual maximum subscription isn’t exceeded.

Because your ISA has nothing to do with your income, it’s of no interest to the taxman. Income and capital gains inside the wrapper are tax-free without limit, and any adult can play, whether in work or not. Add in a Junior ISA, and a family of four can invest £38,640 this tax year. Since ISA is Labour’s name for the Personal Equity Plan they adopted from the Tories, a radical assault on it looks unlikely.

It’s still not too late to reverse the nonsense of auto-enrolment, though time is pressing. The (after-tax) money could be just as easily paid into an ISA should the employ-ee agree. It could even be made ‘compulsory’, since you can get at the ISA money any time you want. It also saves enough tax relief to finance a deep cut in National Insur-ance, but that’s another story…

Forget pensions: ISAs are the futureA better way to provide for your old age

NEIL COLLINS

Doomed: politicians are gnawing away pension privileges

The beneficiaries of compulsory pension savingwill be investment firms collecting annual fees

GETTY IMAGES

Neil Collins on pensions_Spectator Money Issue 3_Spectator Supplements 210x260_ 19 14/05/2015 13:03

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Interviewing James Anderson is a lot more refresh-ing than grilling your average fund manager: he runs one of the country’s most venerable investment trusts, but in a most unvenerable way. Baillie Gif-ford’s Scottish Mortgage Trust, established in 1909,

has been taken in an adventurous direction by a manage-rial team that pairs Anderson, a historian, with Tom Slater, a computer scientist.

Their new thrust is most evident in the list of names that make up the trust’s biggest holdings. The top ten include three of the biggest US internet stocks, Amazon, Google and Apple, and two emerging Chinese rivals, Baidu and Tencent. Further down the list are Facebook, LinkedIn and (less happily) Twitter. No other mainstream fund in

the UK has made such a strong com-mitment to the digital revolution, or so challenged the conventional wisdom that these stocks are both richly val-ued and most likely to be heading for dramatic falls.

Anderson bats away suggestions that his fund is flying, Icarus-like, too close to the digital sun. While his con-centrated holdings make performance more volatile than the norm, he says, it is the rest of his profession that is out of step in failing to recognise the rapid changes and new global titans that the internet is creating.

I ask how he benchmarks his approach against that of wily old War-ren Buffett, who refuses to buy tech

stocks on the grounds that, one, he doesn’t understand what they do and, two, their future earnings are so uncer-tain, given the pace at which the digital world is changing, that they cannot pass the classic value investor’s ‘margin of safety’ test. If they rise so quickly, can they not disappear just as fast?

Anderson doesn’t buy that argument. He has great admiration for aspects of Buffett’s approach, including his preference for large long-term bets on a small number of powerful brands — but the world has changed. ‘Buffett grew up at a time when growth in the world was linked to what those great American consumer staples were doing [think Procter & Gamble, Coca-Cola and so on]… But many of the new tech companies have proved to be much

INTERVIEW » JAMES ANDERSON

The self-confessed optimistAn investor who is hunting for long-term holds

JONATHAN DAVIS

Jonathan Davis interviews James Anderson_Spectator Money Issue 3_Spectator Supplements 210x260_ 21 14/05/2015 13:04


longer-lasting than anyone expected. The run of excess profitability that say Microsoft or Bloomberg has enjoyed makes us wonder whether they are themselves becom-ing great long-term franchises of the kind that Buffett so admires.’

Anderson namechecks the economist John Kay, who sits on Scottish Mortgage’s board, for encouraging him to think deeply about what makes a great company, one that can both grow fast and maintain its dominance for years. Those are the elephants his fund is hunting. A good exam-ple is Illumina, his largest holding, a brainchild of Cam-bridge scientists but now under US ownership and leading the world in genome sequencing. Just as Moore’s law has relentlessly driven down the cost of computer process-ing, so something similar is happening with sequencing, with dramatic potential for medical advances. It was ‘not a great push for us’, says Anderson, to see that the price of sequencing would continue to fall, and that in turn would produce huge earning power several years ahead — while leaving Illumina’s shares as a blind spot for overpaid, over-active, quarterly-earnings-obsessed UK fund-managers (a ‘psychologically impaired’ group, in his view).

Despite their youthfulness, some internet pioneers have also proved highly effective at growing market-dominant businesses. Anderson cites Mark Zuckerberg of Facebook as an example of a new breed who have been almost Rockefeller-like in their ability to consolidate their industry. Many analysts pooh-poohed Facebook when it was first

floated, but since then its dominance has continued to grow, not least because of Zuckerberg’s ability to persuade other social network pioneers, such as Instagram and WhatsApp, to sell their businesses to him. In other words, for all his wisdom Buffett may have failed to see how well-managed and Buffett-like in practice these new globally dominant companies could be.

What then about Apple, I ask, currently by far the most valuable company in the world? Anderson sees Steve Jobs as a rare example of a leader who was able to pass on a unique way of doing business to his successors, in Apple’s case that unique culture being ‘the primacy of the engineer-ing design task’. But having made a lot of money from the shares, he has recently found it harder to reconcile the com-pany’s future earnings capacity with its $700 billion market capitalisation, and has been cutting his holding.

The reality is that the biggest internet companies are now ‘quite close to being monopolies, while spending their time trying to pretend that they’re not’. Market domi-nance is a big issue ahead — good for shareholders but provocative to governments, regulators and public opin-ion. He thinks institutional shareholders should be press-ing the Googles and Amazons to show more concern about becoming ‘respected members of society’ (read: paying more tax) while simultaneously fighting back against gov-ernments about security of personal information.

The rise of the big Chinese internet companies raises different questions. Their founders all have close links to the Communist party, but are notable for the way they study and copy their peers in Silicon Valley. The founder of Softbank, Anderson notes, likes to compare Steve Jobs to Leonardo da Vinci as a giant of civilisation. Yet the rapid growth and reach of the internet clearly poses a threat to the future of the communist regime. ‘Serious revolution’ in China is a real possibility over the course of the next dec-ade. How real? ‘We try to think through all the possibili-ties, but it is much more difficult to say where it ends and whether it is good or bad for the companies.’

A self-confessed optimist and vocal critic of the myo-pia of traditional fund-managers, Anderson says he’s just as excited about developments in another field of technology, solar power, where the economics are ‘pretty much there’ and new capacity is being added at an exponential rate. The impact of clean energy on society could be just as trans-formational as the internet and genomics — and the big rewards still lie ahead.

Despite what looks to some a high-risk strategy, the Scottish Mortgage formula is working well. Although the trust’s shares dipped badly during the crisis, they are up 135 per cent over five years and 388 per cent over ten, a hand-some reward for patient investors — and a useful source of diversification for those with other fund holdings, given the very different make-up of its portfolio. To its credit, the board keeps the management fee at 0.3 per cent per annum, low by industry standards.

It would be a mistake to think that this trust is only about tech stocks. In an eclectic list of 70 holdings, Ander-son also likes two reviving car makers, Porsche and Fiat, a German business-seeding firm, the Spanish retailer Indi-tex and Whole Foods, the upmarket American grocer. You would be amazed, he says, how even Americans are now taking to healthier food in a big way: an early sign that the skids may be under McDonald’s, another iconic heavy-weight in the global stock market, just as they are under, in Anderson’s view, Big Oil and Big Pharma, two sectors he avoids completely.

Just as refreshing as his disregard for consensus think-ing is Mr Anderson’s refusal to waste time debating the pros and cons of QE. ‘Markets have become obsessed by it — which creates opportunities for those with a different narrative.’ He merely says that the consensus view which assigns the behaviour of global markets almost entirely to monetary policy is overlooking ‘much deeper, more funda-mental issues’ — such as the technology that has made him so much money.

Jonathan Davis is the founder of Independent Investor and a columnist in the Financial Times.

Many of the new tech companies have proved to be much longer-lasting than anyone expected

A new Rockefeller: Mark Zuckerberg of Facebook is building market dominance

GETTY IMAGES

Jonathan Davis interviews James Anderson_Spectator Money Issue 3_Spectator Supplements 210x260_ 22 14/05/2015 13:05

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PROPERTY » ROSS CLARK

Why can’t I invest in private landlords?

Here’s an oddity. It might make an essay ques-tion for an A-level in personal finance, if there is such a thing. Given that every other taxi driver claims to have made a fortune in buy-to-let, and that millions are being with-

drawn from pension pots to put into supposedly smarter investments in bricks and mortar, why are there so few companies willing to invest in letting residential property?

You can buy a slice of the Shard or a peel of the Gher-kin on the stock market, but you will struggle to gain exposure to residential property. There is FTSE250-listed Grainger plc, which owns 4,000 homes, but in a special-ised field: old regulated tenancies that produce very low rents but increase sharply in capital value when the tenant eventually leaves. There’s also Unite Group, specialised in student lettings. Apart from those, there are few options for getting your hands on a slice of the residential market without becoming a landlord yourself.

Three years ago the government set out to encourage institutions into the sector by launching a £1 billion Build To Rent fund, giving developers access to taxpayer-guar-anteed loans to fund 50 per cent of development costs. This was a year before the Help To Buy scheme offered similarly backed loans to homebuyers. Both schemes are open to the same criticism: why should taxpayers under-write property investment? Build To Rent is just helping pump up house prices when otherwise they might have fallen to a more affordable level. Frustrated first-time buyers might welcome a greater supply of rental flats, but many would rather have the opportunity to buy a home.

For two years there were few takers for Build To Rent. But that changed sharply last year. According to Savills, £3.5 billion was invested in residential letting prop-erties by businesses and institutions in 2014. That’s equivalent to 10,000 cen-tral London flats, but still tiny compared with the money being poured into buy-

to-let by private investors, who borrowed £1 billion for that purpose in January alone, according to the Council for Mortgage Lenders. There are also many cash buyers in the market.

Institutional investors in this sector tend to be small and unquoted. There is Fizzy Living (a subsidiary of Thames Valley Housing), which owns four purpose-built blocks in east London and Epsom. Essential Living has

eight developments under way in London. Biggest of the private rented sector schemes is East Village, the former athletes’ village for the 2012 Olympics, where a private investment firm, Delancey, owns 1,400 flats.

All are targeting 25-to-35-year-old professionals who are too well off to qualify for social housing yet too poor to buy. Their biggest selling point is being able to offer longer tenancies. Whereas private landlords tend to offer only six or 12 months, standard lengths for an assured short-hold tenancy, rental companies can offer longer tenancies because they are in the investment for the long haul.

You would think there would be huge economies of scale in one company owning and managing large blocks. But this isn’t quite how institutional investors see it, according to Lucian Cook of Savills. ‘Lots of individual tenants place high management demands,’ he says. More-over, yields are generally lower than in the commercial sector and business has always been more sceptical than amateur investors towards the notion that property prices will gallop endlessly upwards. The temptation for inves-tors is put up a block and then sell it off to wide-eyed buy-to-letters, perhaps holding on to the freehold for a steady stream of ground rent.

In London, it’s the amateurs who were right and the professionals wrong: homeowners have made huge capi-tal returns over the past 20 years. When the masses start to buy something, it doesn’t matter how mad professional investors think they are, their expectation of good returns becomes a self-fulfilling prophecy. The question is, what will it do for the property market if companies start rush-ing into the private rented sector, building hundreds of new flats for rent? It won’t help buy-to-letters who own grotty basement conversions: if letting becomes more pro-fessional, there will be less room for bad amateurs.

On the other hand, if you want to invest in the residen-tial sector, buying shares in a quoted company has a lot of appeal over owning flats directly. Letting property is more like a job than an investment — getting phoned up at mid-night because your tenant’s boiler has broken loses its appeal after a while. Moreover, buying a single property means putting a lot of eggs into one basket. If institution-al investors do start to dominate buy-to-let, small-time investors may end up happiest with the arrangement. As for the people who will be filling the flats, however, I fear that Built To Rent properties will be just one more thing which helps to price them out of the housing market.

There are few options for getting into the residential market without becoming a landlord yourself

Ross Clark_Spectator Money Issue 3_Spectator Supplements 210x260_ 24 14/05/2015 13:16

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Why would any female graduate ever want to work on a City trading floor? Lots do, of course, and very successful-ly, earning salaries and bonuses the rest of us can only dream about. But if you

made your career choice on the basis of tabloid headlines, no self-respecting woman would ever set foot in the finan-cial sector.

‘Sickening footage shows young City trader throw-ing up after eating EIGHT quarter pounders in humili-ating initiation ritual’, reads one in the Mirror. Another: ‘Woman City trader forced to wear bunny costume and play “Borat bitch” in team-building exercise, tribunal hears.’ And: ‘Investment banker made redundant on maternity leave “for not being at work’’.’

Did Leonardo DiCaprio’s 2013 film The Wolf of Wall Street leave a nasty taste in your mouth? Never fear — the man whose life it was based on has said that the film didn’t reflect reality. ‘My life was even worse than that,’ admits Jordan Belfort. It’s not just the lad culture, either.

The hours are painfully long, especially for juniors.

It just doesn’t sound attractive, does it? For a young woman fresh from uni-versity, it takes some balls — if you’ll pardon the expression — even to submit a CV for a City graduate scheme. Why not just plump for a nice civilised job;

teaching maybe, or PR, or magazine journalism?But what’s the truth behind all this? Does the money

world — and its trading floors in particular — actually offer an enjoyable and stimulating working life, but the media have decided to trash the reality? Surely in the aftermath of the crash, banks must have taken urgent steps to improve their image as employers just as much as their profile as market risk-takers? I decided to find out by asking a selection of women currently working in the sector — and some who worked there in the 1980s and 1990s and have seen it evolve — what they think of the City as a place to build a career today.

One woman I spoke to certainly believes the atmos-phere has taken a turn for the better. She has only worked in finance post-crash but, she says, the Wolf of Wall Street days are over. Lavish entertainment budgets have been cut in favour of giving more to charity, and many of the most unpleasant co-workers — the ones who fuelled the macho culture in the first place — have departed or been forced to tone down their act. ‘A lot of the assholes who gave banking a bad reputation have been humbled,’

she says: the culture is now more about yoga and kale smoothies than lap-dancing.

Having moved from trading into the more cerebral milieu of fund management (not because of the men or the atmosphere, she was keen to point out, but to escape the 5 a.m. wake-up alarm), she thinks there has never been a better time to be a woman in the City. For a start, many banks — both the giants and the boutiques — are so keen to be perceived as ‘equal opportunity’ employers since the crash that simply being female is likely to bolster your chances of being hired.

The idea that the macho side of the financial world has been toned down since the crash of 2008 seemed to be an overarching theme of these conversations. One woman in her mid-thirties said that the general misogyny and sex-ual harassment had decreased significantly during her time in the industry. But that does not mean it has gone away entirely. The work still involves plenty of ‘schoolboy humour’, alcohol-fuelled evenings in strip clubs and cor-porate days at ‘dull-as-death sports events’ such as rugby and boxing.

Only one female financier said she had experienced sexual harassment in recent times. But for those who worked in the City ten or 20 years ago, it was a differ-ent kettle of fish. Back in the 1980s ‘it really was brutal’, said one. She was told by a client that he would remove her bank from his account unless she slept with him. She refused, and was held back from promotion as a result. But despite her experiences she would still recommend a City career — if you can hack it. The hours are still very long (‘You have to kiss goodbye to your life while you pursue your career’), but you’ll be well paid, in a dynamic working environment, surrounded by some of the most talented people in the country.

The opportunities for women graduates in banking may be increasing, and the unpleasant aspects of work-ing there may be diminishing — but apparently the girls just aren’t applying these days. A senior manager at one bank told me that since the crash she had seen a signifi-cant decrease in the number of women candidates. Prior to 2008, she said, it was usual to see a 50/50 gender split. Nowadays you’re lucky if 30 per cent of graduate appli-cants are women. Why? She put it down to the perceived macho culture, the insecurity of the career path and the appeal of alternative job choices that might be more ‘female friendly’.

But for the young woman who hasn’t been put off, how should she make the most of the City opportunity and give smashing through the glass ceiling her best shot? One

More yoga than lap-dancingThe City is a better workplace for women than it was before the crash

CAMILLA SWIFT

‘The hours are so long that you have to kiss goodbye to your life while you pursue your career’

Camilla Swift on City women_Spectator Money Issue 3_Spectator Supplements 210x260_ 26 14/05/2015 13:45


twentysomething pointed out enigmatically that ‘a girl can get her foot in the door more easily, for the same reason that could eventually hinder her once through the door’. Another gave this advice to women starting out: ‘Don’t try to be one of the boys, or even worse treat men like a wife or mother. They already have those.’

For her, being a big fish in a small pond had worked well — starting on the graduate scheme of a small company and focusing on a niche area. Financial services may have a way before it offers genuine equality, but in certain ways women have the upper hand. ‘The cult of per-sonality seems to prefer women,’ she said. ‘Women at the top may be rare, but when they are there, they are very, very good.’

So, getting a job in the financial sector as a woman is by no means an impossible feat. In fact, gender might even count in your favour. But what can women expect once they have reached their early thirties, say, and want to

start families? Obviously trading-floor hours aren’t par-ticularly convenient for young mothers, but that doesn’t mean the whole sector is a write-off. One girl in her twen-ties who works at a boutique investment bank said ‘there always seems to be someone pregnant in my office’— with maternity leave policies well established, and career breaks entirely possible. Another, in her thirties with a young son, highlighted start-ups and consultancy roles as being highly flexible, and thus areas where you’re very likely to find other working mothers.

Perhaps it’s not that the jobs aren’t flexible enough, but that many women’s priorities change once they become mothers: given the choice between time spent at work or with their children, the family wins. Meanwhile, the cul-ture of the City seems to be a lot less masculine than it used to be — and it is now one more place where the girls, if they have the inclination, the self-confidence and the stamina, can beat the boys at their own game.

Camilla Swift on City women_Spectator Money Issue 3_Spectator Supplements 210x260_ 27 14/05/2015 13:45

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With the exception of the venerable Stan-ley Gibbons, founded in 1856, most Brit-ish stamp dealers are snooty about the idea of buying stamps for investment pur-poses. Yet according to the Knight Frank

Luxury Investment Index, rare stamps returned 195 per cent over ten years to the end of June 2014. What’s more, the billionaire Bill Gross, who as co-founder of Pimco was

dubbed America’s best-known bond investor, attests to having invested well over $50 million in rare stamps and declares them ‘better than the stock market’.

Needless to say, rare stamps are an illiquid investment that suits sophis-ticated, buy-and-hold investors. And you would have to be a holy fool to buy a supposedly investment-grade stamp over the internet, however alluring its price may seem.

To date, Stanley Gibbons is the only organisation in the UK with a dedicated investment department for stamps and collectible coins. And indeed Stanley Gibbons itself has only been catering to the appetite for alternative investments among wealth managers and their clients for the past six years, during which time it has opened offices in Hong Kong and Singapore to augment its ones in the US and the Channel Islands.

Potential investors will almost cer-tainly want to start by looking at Stan-ley Gibbons products. First among these is its Capital Protected Growth Plan (CPGP), which has a minimum subscription of £15,000 for a fixed five-year investment. It guarantees to preserve your wealth and charg-es 20 per cent of any profit that may accrue. A typical annual return would be around 10–15 per cent, though you might do better. The CPGP is rather similar to those structured products that used to guarantee your money back if the stock market rose over so many consecutive quarters, except that there are no ifs and buts on the preservation element, only the upside growth.

After five years you can either take the stamps away and sell them privately or cash in your portfolio and roll the proceeds into a fresh five-year plan or another Stanley Gibbons product, namely the Flexible Trad-ing Portfolio (FTP) or the Premium Portfolio Builder (PPB). The FTP, as its name suggests, allows you to trade within the portfolio and draw down annually to take advantage of

your Capital Gains allowance, or simply to liquidate part of your portfolio if you have a sudden need. The PPB is more like a traditional regular savings plan, requiring an initial investment of £10,000 followed by £1,000 top-ups at quarterly intervals.

Stanley Gibbons has around 6,500 investment cli-ents, with an average portfolio size between £20,000 and £30,000. In any given portfolio, Stanley Gibbons likes

ALTERNATIVE INVESTMENT

First-class postageThe profit potential — and fascination — of rare stamps

CHRISTOPHER SILVESTER

GETTY IMAGES

Christopher Silvester on stamps_Spectator Money Issue 3_Spectator Supplements 210x260_ 29 14/05/2015 13:06


to include a small number — say seven to 12 — of less liquid but highly prized items, rather than larger numbers of more tradable items, because critical mass is prefera-ble for investment purposes. There are no management charges and all items are stored and insured free of charge.

The British stamp market remains buoyant, assisted by occasional opportunities such as the 175th anniversary of the Penny Black. ‘This is a stamp that will always be prized and is now being prized in emerging markets,’ says Keith Heddle, investment director at Stanley Gibbons. ‘There’s an international stamp show every year. This year it’s in Singapore, but in 2020 it will be back in London and that ten-year cycle allows collectors to build GB collections, particularly from Queen Victoria’s reign, since that’s where it all started. So in the next two or three years we expect a bit of a build-up towards 2020, because big col-lectors will need to buy the right items in order to exhibit or dealers will hoard in order to sell out.’

Like stock markets, stamps have their indices of per-formance. The GB30 Rarities Index has not fallen in value in the past 60 years and even managed a 38.6 per cent gain during the 2008 stock-market crash. The wider GB250 Index generated an average annual compound return of 13.2 per cent over the ten years until the end of 2013.

Some exceptional modern British stamps with errors from the 1960s and 1970s are true collector’s items. For example, there is a block of two basic 13p stamps, one of which has the Queen’s head missing. There are only three of these stamps with a missing Queen’s head in the world. The Queen has two in the Royal Collection, and one of Stanley Gibbons’s clients has the other.

In the British Empire and Commonwealth catego-ry, triangular Cape of Good Hope stamps remain stores of value and growth potential (Plymouth pharmacist Edward Stanley Gibbons got started by accepting a bag of Cape stamps in lieu of cash from some mariners in his shop). Brazilian ‘bullseyes’, Brazil’s equivalent of Penny

Blacks, also trade at a premium — Brazil was one of the first countries after Great Britain to issue stamps.

Which other countries’ stamps might attract inves-tors? ‘Australia and New Guinea are quite hot,’ says Hed-dle. ‘Then there are Commonwealth territories like the Malayan States, where interest is partly driven by grow-ing wealth in south-east Asia… The US has its own strong stamp heritage… It is a huge collecting nation and remains a core market.’ The gorilla in the chandelier, however (as with the fine wine market), is China. More than a third of the world’s stamp collectors are Chinese and, according to the Hurun Report, 64 per cent of Chinese millionaires invest in luxury goods, with stamps forming the largest sub-category. Predictably, stamp collecting was scorned by Chairman Mao as a bourgeois activity, but some People’s Republic rarities go for high prices. A mint set of 1952 general-issue stamps that were withdrawn after mistak-enly being stamped ‘Soviet Union’ would now be worth around £50,000. And the unissued 1968 Victory of the Cul-tural Revolution stamp is much sought after.

But it is the Chinese antiquities market that holds the greatest promise as Chinese collectors around the world reclaim their history. Late 19th-century Qing dynas-ty stamps and even stamps from the Republic period (1912–47) are the most exciting prospects. An offering of 1878–85 Large Dragons — China’s first stamps — earned $2,046,140 at auction in March 2011. Then there are the 1897 Red Revenues, described by Dr Jeffrey Schneider of InterAsia Auctions as ‘the most romantic of all issues for Chinese collectors’. An 1897 Red Revenue small one-dollar stamp (of which there are only 32 known in exist-ence) fetched $890,000 at auction in Hong Kong in 2013.

While such figures may be out of the reach of most investors, there are plenty of items available at more man-ageable prices. But remember: like any good investment strategy, buying and holding stamps for profit is all about striking a balance between rarity and diversity.

You send me: World Stamp Expo 2013 in Melbourne. Previous page: an 1897 Red Revenues stamp, ‘the most romantic of all issues for Chinese collectors’

195%Return on rare stamps over ten

years to June 2014, according

to the Knight Frank Luxury

Investment Index

10-15%Typical annual

return on Stanley Gibbons’s Capital Protected Growth

Plan

$2mPrice for an offering of

1878–85 Large Dragons

at auction in March 2011

GETTY IMAGES

Christopher Silvester on stamps_Spectator Money Issue 3_Spectator Supplements 210x260_ 30 14/05/2015 13:07

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THE SPECULATOR » FREDDY GRAY

Hole in one: golf’s hottest tipster

Why would anyone bet seriously on golf? It’s fun to have a little punt on the big tournaments — but you’d have to be a moron to put real money on such an unpredictable and frustrating game. Or

would you? Last year, I heard friends talking in hushed tones about a brilliant golf tipster called Major Al. ‘He just doesn’t get it wrong,’ they whispered. I didn’t believe them — until I did some research, and was awestruck.

Al, it turns out, is a financial analyst and golf obsessive — who plays off three himself. He has been offering tips on golf’s four major tournaments for almost four years. Each time he lists between five and ten standout players and offers betting advice on them according to a points system. In 2012, his first big year as a tipster, he predicted Bubba Watson would win the Masters, which Bubba duly did, and two months later he picked second and fourth in the US Open.

Then the fun really started. Al chose seven major win-ners in a row. He tipped Ernie Els at 40-1 to win the Brit-ish Open at Lytham St Annes. In the same tournament the next year he picked first, second, third and fifth. In the 2013 US PGA, he picked first, second and third. If you had started with £100 when Al started tipping and stopped after the British Open last year, you would have £1.2 million. Not bad.

Al admits he’s had plenty of luck, but he must be doing something right too. His method is to combine his skills as an analyst with his encyclopaedic knowledge of the game. He ‘screens’ players using a giant spreadsheet which takes into account all sorts of factors and variables.

Such techniques brings to mind Nate Silver, the American baseball geek turned psephologist who uses statisti-cal analysis to divine the future in sport and politics — and who made his name by correctly predicting the result for 49 out of 50 states in the November 2008

US presidential election, missing only Indiana, which went the wrong way (for Barack Obama) by a single percentage point.

These days, however, Silver sounds a lot less con-vincing — indeed, more like a data-driven Mystic Meg — especially after his vague but nonetheless completely wrong prediction on the British general election.

Al, on the other hand, is cheerfully straight in his

assessments. ‘I call my method screening analysis with a mood overlay,’ he says. ‘For example, last year Sergio García screened very well for Valhalla but he has said he hates the place so I left him out.’ He tells me he spends about 40 hours before each tournament, pulling together statistics from websites. He studies form closely and analy-ses each player’s strengths in relation to the course they are about to play, a factor he says bookmakers often mis-judge. He usually chooses about five players who, accord-ing to his analysis, are likely to do well. Then he selects two or three generously priced outsiders who are well suited to the course in question and in good form.

He’s most proud of selecting Jim Furyk at 70-1 to win the US PGA at Oak Hill Country Club in 2013. ‘The course really favours players who drive with a right-hand draw,’ he says, meaning players who curve the ball left-to-right off the tee. ‘Furyk hits a right-hand draw and was playing well. I looked at the price and just thought: that’s ridiculous.’ Furyk, in the event, came second: Jason Dufner won at about 125-1. Al had picked Dufner too, of course, but it’s telling that he considers Furyk the shrewd-er — because more logical — tip.

Before the Masters in Augusta this year, Al decided to start charging for his tips — £50 a year for annual mem-bership to his website. Sod’s law meant he duly had his first major major failure.

He decided not to back Jordan Spieth, the young American genius, because the odds seemed too low, but Spieth won the tournament with ease. Al’s other picks, with the exception of Dustin Johnson, failed to finish in the top five. If you had reinvested that £1.2 million, you would have lost 84 per cent. ‘Looking back that was so predictable, wasn’t it?’ he says philosophically.

Al now offers tips for eight tournaments a year and is optimistic about the forthcoming US and British Opens — at Chambers Bay in Washington State, and St Andrews, the home of golf. ‘They are courses which bring out par-ticular strengths in certain players’ games,’ he says. ‘If my system works, it should work for those courses.’

Maybe his hot streak is over. But he’s well worth fol-lowing. As he points out on his website — www.majo-ralspicks.com — if you had taken a more conservative approach with your £100 and reinvested just 50 per cent each time, you’d still have been £33,000 up after the Mas-ters. Try getting that kind of return from your boring old tracker funds.

Major Al is most proud of selecting Jim Furyk at 70-1 to win at Oak Hill Country Club in 2013

Freddy Gray_Spectator Money Issue 3_Spectator Supplements 210x260_ 33 14/05/2015 13:03


REALITY CHECK » LOUISE COOPER

Lessons from Equitable Life

My name is Louise and I’m an Equita-ble Life pension holder. In April 2000 I began putting £1,000 a month into an Equitable Life plan.

Back in the 1990s, Equitable’s fund managers had a reputation for delivering great returns. But in July 2000 the House of Lords ruled that the society had to pay guaranteed annuity rates to policy-holders: this was deemed a blow, but not sufficient to threaten solvency. In fact it was expected that Equitable might be demutu-alised, and savers would get ‘free’ shares. For this reason I invested £1,000 in the ‘with-profits’ fund — for the free shares — and the rest in unit-linked. Fifteen years later I have finally got around to looking into this decision, and there are lessons to be learnt.

We now know that the House of Lords ruling was the final nail in the coffin for Equitable. Paul Braithwaite of EMAG, which campaigns for compensation for Equitable members, says the society was in crisis beforehand: ‘Equi-table Life was technically insolvent… from about 1991. But it was kept hidden by regulators and management.’

I took out my policy three months before the House of Lords decision. But long after it, Equitable was reas-suring me as to its financial position. In June 2002, chair-

man Vanni Treves wrote: ‘We are now in a more stable position. The society is sol-vent.’ ‘Baloney,’ says Paul Braithwaite. If the society was in such great shape, how come with-profits policyhold-ers lost around £4.5 billion? And why did the government compensate them unless there was significant regulatory

and management maladministration? But compensation has only been partial. On average,

with-profits policyholders have received 23 per cent of what they lost. And that was only in 2012, and only thanks to the change in government in 2010. Analysing my policy now, I’m surprised at the favourable impact of my deci-sion to invest mostly in unit-linked funds, which I thought little about at the time. During 2000 and 2001, I put about £14,000 into the unit-linked fund: by April 2014 it was worth £32,279.

Lethargy has proved profitable in several ways. It’s only in the past four years that the with-profits policies have been able to pay bonuses, making up for years of none. Chris Wiscarson, who took over as chief executive of Equitable Life in 2010, decided to de-risk the business and release regulatory capital back to members — that is, holders of with-profits funds. The first major distribution was in April 2011, paying back 12.5 per cent; then another 12.5 per cent in April last year and 10 per cent this April. Wiscarson admits that bonuses in the future are unlikely to be quite so large, but that still means my £1,000 turns out to be worth more than £1,300.

So I have hung on long enough to benefit from Equi-table’s recovery under a new boss. But I can’t claim it was a smart strategy. I just couldn’t be bothered to look at the paperwork. And my inactivity has benefited me again. Last year Equitable decided to scrap a 5 per cent exit fee, so I have also missed having to pay a hefty charge to trans-fer my money out.

I don’t like to conclude that apathy and ignorance are good investment principles. What my example does illus-trate is the importance of compounding, of leaving your money to grow. Although I bought the unit-linked funds near the December 1999 market peak, they have grown at 5 per cent a year, largely thanks to reinvested dividends.

What other lessons? Super-smart fund managers deliv-ering above-market returns are rarer than hens’ teeth — but I knew that already. Monthly savings were much easier PK (pre-kids). And the saying ‘a cobbler’s children have no shoes’ applies to my financial planning.

But the last lesson goes to Paul Braithwaite, who has fought all these years for compensation for almost a mil-lion Equitable Life policy-holders facing pensioner pov-erty through no fault of their own: ‘This is a tale of the establishment covering its own arse… No blame has ever been allocated and full compensation has not been paid. It’s a damming indictment of the industry and the devious ways of the Treasury who for 15 years have perpetuated a smokescreen to conceal their own guilt.’

Paul Braithwaite fights on. I’ve decided to take my money elsewhere and look after it myself. This cobbler is shoeing her children.

This is a damning indictment of the industry, and the devious ways of the Treasury

Louise Cooper_Spectator Money Issue 3_Spectator Supplements 210x260_ 34 14/05/2015 13:02

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