Investing in the shipping industry may seem like the ultimate contrarian trade. After all, the ink on the deal between the US and Iran to reopen the Strait of Hormuz is barely dry, and volumes are sharply down in the Suez Canal. Throw in the disruption caused by the Russian invasion of Ukraine and the perceived threat to global trade from US president Donald Trump's tariffs, and it does seem like a sector under threat. But if you look beyond the headlines, far from diminishing, the amount of goods shipping around the world “is only going to increase”, says Daniel Cunningham, founder and CEO of logistics firm Shiplo. At the same time, digitalisation and sustainability are creating new opportunities.

The bull case for the shipping industry

Perhaps the best reason to be bullish about shipping is that for many goods and commodities, it has few competitors. “From the days of horse and cart to the present day, sea travel still provides the most direct and efficient mechanism for moving large quantities of freight,” says Nick Bartlett, co-founder and director of Wayfindr, a Hong Kong-based 4PL logistics provider. Air travel has chipped away at this a bit, especially for immediate deliveries of individual packages, but shipping remains – and will continue to be – the “most cost-effective mechanism for moving large amounts of freight”.

Indeed, it is “one of the most economically efficient mechanisms for moving large volumes of goods across borders”, says Nadiya Albishchenko, founder and managing director of international trading company Inas Exim. This economic advantage means that the industry's long-term future should remain “fundamentally strong”, enabling it to overcome any short-term disruptions caused by geopolitics and continue to be the “backbone of international trade and global supply chains”.

At the same time, despite Trump's protectionist rhetoric, global trade “has never had it so good”, says Simon MacAdam, deputy chief global economist at Capital Economics. His tariffs have “not damaged bilateral trade between the US and other countries to the extent that most people were predicting” and the US “only makes up around 15% of world trade”. Meanwhile, the rest of the world “remains committed to free trade and is resisting the temptation to get stuck in a beggar-thy-neighbour spiral”. The AI boom is also a tailwind “as it is not only very goods-intensive, but also import-intensive”.

Similarly, while the shutdown of the Strait of Hormuz created a lot of short-term disruption for specific markets, that will be less of an issue in the longer term, says MacAdam. Proposed alternatives, such as new oil pipelines, “will be expensive and subject to many of the same risks as shipping” and, with Iran and the US committed to reopening trade routes, the Strait of Hormuz should be able to return to normal levels of traffic volumes by 2028. In any case, although the Middle East clearly remains a big shipping hub for oil, it doesn't play as large a role in global trade as people tend to assume, accounting for around 10% of overall global shipping volumes.

Geopolitical turmoil could even provide a silver lining for the industry, as it is forcing firms to move away from the idea of “very lean supply chains” in favour of having locations in several countries, with “more duplication and regionalisation, leading to more trade, not less”, says MacAdam. Albishchenko has already found that her customers have moved away from choosing the cheapest shipping option towards arrangements “that emphasise continuity of supply, reliability and availability of alternatives”.

New shipping routes and ports are being built

One of the best indicators that transporting goods by sea has a rosy future is the amount of money that has been going into upgrading port infrastructure around the world. A case in point is the Middle East. Current tensions haven't dissuaded governments in the region from investing in some major projects, as Bartlett points out. These include Saudi Arabia's Neom city; the aggressive capital-spending programme of AD Ports, the developer and regulator of ports and related infrastructure in Abu Dhabi; and Iraq's Grand Faw port. Taken together, these projects represent the biggest concentration of new capital invested largely in ports anywhere in the world.

Governments and industry are also increasing their port capacity elsewhere around the world. There has also been a lot of investment in the Indian Ocean, for example. India is opening its first deep-water port at Vizhinjam and DP World is pouring billions into a programme stretching from India through Senegal and the DRC to London, says Bartlett. But the region that will see the most explosive growth over the next decade is Africa, especially on the western side.

When Bartlett co-founded Wayfindr around ten years ago there was virtually no trade between Asia and Africa. But the development of online marketplaces such as Jumia means that Africa is beginning to import huge volumes of Chinese products. At the same time there has been an increase in industrial production within Africa, “which means that it is now starting to become a significant exporter of goods in its own right”. The continent is therefore going to need big investments in transport over the next decade or two. Ports such as Senegal's Ndayane and Bakassi Deep Seaport in Nigeria are positioning themselves as the “next generation of Atlantic gateways”.

There has also been awakened interest in developing new trade routes. The need for additional capacity and developments in technology have led to an explosion of interest in the trans-Arctic shipping route (or “northeastern passage”) connecting the Atlantic and the Pacific via the Arctic coasts of Norway and Russia, says Jonathan Colehower, a managing director at infrastructure services company UST. “We don't yet have the infrastructure or ships to make that viable, but these will be in place within the next five years, which is why there's already a fight to lay out landmarks and claim territory.”

Shipping is going digital

All parts of the industry are also investing in digital technology, notably in technology to achieve “end-to-end visibility”. Track-and-trace tools have come a long way in the last few years, allowing vessels to be tracked almost in real time, but there are challenges whenever goods change hands. The next five years are going to see a shift to more comprehensive and secure tracking, says Colehower.

Digitalisation will also reduce the time and money spent getting goods to and from ships, says Ben Slupecki, an equity analyst for Morningstar. Many of the big freight-forwarding companies, who deal with transporting goods to and from ships, “are seeing more and more opportunities to use AI in their work”, he says. The technology is helping them boost efficiency by cutting the cost of dealing with routine paperwork, such as processing invoices and getting goods through customs.

Digital technology and AI will also improve efficiency by enhancing the ability of shipping companies and the firms that they serve to anticipate demand, says Albishchenko. Traditionally, companies have based their forecasts on historical sales and then periodically adjusted them. Digital forecasting approaches allow firms “to consider broader variables, including seasonality, customers' behaviour, market trends and changing commercial conditions”. Better forecasts “can reduce shortages, excess inventories and the need for emergency logistics decisions”.

Progress will come when the industry finds a way to break down the “data silos” held by different firms to allow better co-ordination of shipments, says Cunningham. Many decisions in all parts of the shipping industry will eventually be carried out by AI agents, autonomous programs that can carry out tasks on their own without any human supervision, he believes. These will reduce waste by making sure that every bit of spare capacity on vessels is used, as well as tweaking routes in real time to ensure that they are optimised for speed and cost.

The shift to greener transport

Opposition from the Trump administration may temporarily have put a dampener on the costs of complying with stricter environmental regulations, and so shipping companies don't for the time being have to worry too much about ambitious schemes such as the proposed global carbon tax. But the expectation that shipping companies will try and work in a more environmentally friendly way remains, says Bartlett. Younger generations in particular care about the planet and the shipping industry cannot ignore changing social attitudes. Indeed, despite opposition from Saudi Arabia and the US, the EU has already taken matters into its own hands by adding shipping to its carbon-taxation framework, as Nikos Petrakakos, managing director at Tufton Investment Management, points out.

This will naturally cost money. Decarbonisation of the global shipping fleet alone may cost as much as $1.4 trillion, reckons Petrakakos. At least $500 billion of this will be spent on retrofitting existing ships to take greener fuels, or building new, more sustainable ships from scratch. That is at least good news for the shipbuilding industry. Indeed, shipyards are so busy that “if you order a new ship now you will have to wait until at least 2030 to get it”. Most major shipbuilders have a backlog of at least three years.

The changing face of insurance

The growth of volumes and the digital revolution that is taking place within shipping is also good news for those firms that offer services to the shipping industry. Albishchenko sees a greater role for those companies that can provide communications services and data, especially as all parts of the supply chain “increasingly depend on faster information exchange across procurement, suppliers, freight partners and customers”. Indeed, “delayed information can sometimes create as much disruption as delayed cargo”.

One major support industry that will benefit from the continued growth of shipping is insurance. The market for insurance “is becoming more dynamic”, says Albishchenko, and insurance companies are moving away from basing their pricing on “historical routes, standard risk assumptions and established coverage models” to a more bespoke approach that considers such things as changing geopolitical conditions and operational resilience. This approach will mean that there will be “greater interaction between insurance providers” and logistics planners, “rather than treating insurance as a separate administrative function”.

Insurers are becoming much more selective about who they will insure and the prices that they are willing to offer, says Lale Akoner, eToro's global market strategist. The overall market is becoming “more data dependent”, with some insurers even requiring real-time updates about vessels' location, routes, history, cargo data and even exposure to sanctions. This is good news for the advisory firms, the data providers and the specialist brokers.

Compliance is also becoming a bigger issue, especially around sanctions, which is leading to increased demand for “sanction-screening tools, counterparty due diligence, legal advisory and general insurance compliance checks”. All this is good news for specialist insurers that will benefit from higher rates. But brokers and advisers may have the cleaner business model, “as they earn commissions from advising clients about the risk and providing data, without directly bearing any insurance risk themselves”.

We look at some of the best plays on all of these themes below.

The best shipping investments to buy now

One investment trust focused on shipping that's worth considering is Tufton Assets (LSE: SHIP), which invests in a diversified portfolio of second-hand commercial seagoing vessels. These range from dry bulk carriers that carry grains and cements to container ships and gas carriers that carry liquefied petroleum gas, with 21 ships in its portfolio as of April. Tufton has a strong record of increasing its dividend, which has more than doubled since 2020. The stock trades at around a 14% discount to its book value and has a yield of 7.75%.

One of the world's largest shipping companies is Matson (NYSE: MATX). It focuses on the Pacific Ocean, moving goods between Asia and Alaska, Hawaii and California. It also offers freight-forwarding, warehousing and supply-chain services and owns a stake in terminal-services company SSA Terminals. Matson has seen its revenue grow by around 40% between 2020 and 2025, and its stock trades at 12.6 times expected 2027 earnings.

Lale Akoner is keen on Clarkson (LSE: CKN), which operates a range of integrated shipping services, mainly broking and advisory services. Its asset-light business model is “supported by good market fundamentals” and will “experience rising demand” as the industry looks for the necessary expertise to navigate changing markets. The company has a very strong balance sheet and a long record of paying dividends. Clarkson's revenues nearly doubled between 2020 and 2025 and are expected to keep growing. The stock trades at a modest 16 times expected 2027 earnings.

A promising play on shipbuilding

One of the world's largest shipbuilding companies is Korean firm HD Hyundai (Seoul: 267250). HD Hyundai is a large conglomerate involved in everything from oil refining to robotics, but shipbuilding is currently its main segment, accounting for around 40% of sales and a similar share of operating profits. Recently, its shipbuilding arm has been performing strongly, boosted by both higher prices and improvements in productivity. HD Hyundai has seen its total revenue go up by around 275% between 2020 and 2025, but the stock only trades at 8.7 times expected 2027 earnings. The dividend yield is 2.2%.

A purer play on continued demand for new ships is Samsung Heavy Industries (Seoul: 010140), which makes the vast majority of its revenue from shipbuilding. The company is investing heavily in sustainability, with project ranging from producing more efficient designs to switching to alternative fuels, such as ammonia and even nuclear power. Other technologies in the pipeline include floating nuclear-power plants and autonomous ships. The company's revenue has grown by more than half between 2020 and 2025, and is forecast to grow strongly in the next few years. The stock is more expensive than HD Hyundai, but still trades at a modest 16.4 times expected 2027 earnings.

Morningstar's Ben Slupecki likes the Danish firm DSV (Copenhagen: DSV), which focuses on logistics and freight-forwarding services. It deals with road and rail transport as well, but much of its business involves transporting goods to and from ships. Slupecki considers DSV to be a strong business, and its integration of DB Schenker, which it bought in 2025 from German rail operator Deutsche Bahn, is also “going well” and has made it the largest freight-forwarder in the world. The stocks trade at 17.6 times expected 2027 earnings.

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The invisible hand of the facilities management (FM) industry operates in almost every large commercial building. Someone is maintaining the chillers and the fire-suppression system. Someone is cleaning the floors. Someone, in theory, knows whether the heating, ventilation and air-conditioning (HVAC) unit on the fourth floor is three months from failure. This industry, sprawling, unglamorous and rarely covered by analysts, generates north of $4 trillion in annual global revenue. It is also in the early stages of a bifurcation that will create some genuinely interesting investment opportunities and destroy a remarkable amount of value for those who pick the wrong horse.

The core problem with facilities management is that it has spent decades solving the wrong problem. It has been focused on fixing things rather than understanding why things break in the first place. It has been reactive when its customers need it to be predictive. It has been operational when the most sophisticated clients are desperate for something more strategic. And it has been unable to provide evidence of the value it affords. Every contract renewal thus defaults to a conversation about cost that facilities management companies are badly placed to win.

Technology is now changing this, but not in the way most industry observers have assumed. The narrative for many years has been that some form of unified digital platform, a so-called single pane of glass, would allow facilities managers to own the data and therefore control the strategic conversation with their clients. That narrative is broadly correct. What it has missed is who actually ends up controlling that glass.

The problem with facilities management companies

The smart money is on the original equipment manufacturers (OEMs). Siemens, Schneider Electric, Johnson Controls and Trane Technologies have all made aggressive acquisitions of integrated workplace-management software businesses in the last three years. They control the mechanical and electrical systems that generate the core telemetry. They are now buying the platforms that interpret that data.

CBRE and JLL, two giant US commercial property services and investment groups, have responded with their own investments in technology, and CBRE in particular has built something genuinely differentiated. Its technology stack, running from raw asset data through AI-driven performance optimisation to a generative AI interface for facility managers, is meaningfully ahead of most traditional facilities management rivals.

More importantly, CBRE has made a strategic choice that I think is correct and underappreciated: it self-delivers the engineering and maintenance work where risk and complexity are high and it subcontracts almost everything else. This keeps the business focused on what it does best, avoids the diseconomies of running enormous low-margin cleaning and catering workforces, and keeps the conversation with customers at the level where CBRE's technology and insight capabilities actually add value.

The integrated model that FM firms ISS, Coor, Mitie and ABM Industries have pursued, employing vast workforces across subsectors from cleaning and engineering to food service, has struggled with low margins, volatile earnings and weak cash generation.

It is not that these companies are badly run. It is that the model is structurally disadvantaged. Every dollar of capital reinvested in innovation or process improvement flows through to a smaller share of the overall business when that business is simultaneously managing electricians, cleaners, security guards and caterers. The benefits of scale are harder to capture. Best practice is harder to standardise. The most talented engineers would often rather work for a pure-play technical services company than be one service line among eight.

Compass Group found the right path

There are exceptions and they are instructive. Compass Group has built one of the most impressive records in global services by staying almost entirely focused on food. Its management and performance framework is a masterclass in what happens when a large, decentralised services firm imposes a common operating language and a small number of clearly defined drivers of value across an entire organisation.

The framework ties every decision to one of five levers determining profit or loss – from client retention and consumer participation through to labour scheduling and overhead control. It sounds almost boring in its simplicity. It has produced two decades of best-in-class margin delivery at scale.

My preferred name among facilities management stocks is Bravida (Stockholm: BRAV), the technical services group that installs and maintains the electrical, HVAC and plumbing systems in buildings across Sweden, Denmark, Norway and Finland. It does not try to do everything.

Bravida focuses almost entirely on facilities management engineering delivered through a network of 330 branches providing the local density and proximity to customers that makes the economics work. When you build genuine scale in a single technical discipline, you can standardise ways of working, invest properly in training and certification, attract the best engineers, and compound efficiency gains year after year.

Bravida has been through a difficult patch, hit by a Swedish construction downturn, a governance failure in one branch that has since been closed and prosecuted, and some bad debts from a large customer. The share price has derated significantly. I think that creates an opportunity. The underlying business model is sound, the structural drivers for technical building services are strongly positive, and the company's internal focus on operational excellence is exactly the kind of self-improvement culture that separates durable compounders from cyclical operators.

The privately owned CFS, or Churches Fire & Security, is another business worth watching. It operates in the UK fire safety and electronic-security market, an arena driven by tightening regulation, historic underinvestment and alarming fragmentation that sees roughly 2,000 small operators competing with essentially no scale advantages. CFS has now absorbed over 70 businesses, each integrated fully within three to six months. Revenue has jumped to £100 million at attractive margins. The model is replicable, the regulatory tailwinds are real and the market is large enough to sustain further consolidation.

Depth beats breadth in the facilities management industry

Focused, scalable business models with genuine density economics outperform diversified ones over time, by a wide margin. The temptation to add services and geographies is understandable in an industry where large contracts look attractive from the outside. But every incremental service line is also an incremental distraction. Peter Thiel has noted that you cannot run dozens of start-ups simultaneously and hope one works out. The same logic applies to a low-margin services business with finite capital and management bandwidth. Depth beats breadth, almost every time.

The FM industry is also at a genuine technology inflection. Advances in building sensors, AI-driven predictive maintenance and integrated data platforms are removing the ability of mediocre operators to hide. Buildings that were opaque are becoming transparent. Clients that once relied on SLA compliance reports are now demanding energy dashboards, asset-lifecycle forecasts and sustainability documentation.

Operators with weak processes and inconsistent data capture will be exposed. Operators with strong processes, standardised ways of working and an ability to translate data into value for customers will find themselves able to charge for something other than just labour. The buildings around us are getting smarter. The companies that service them need to be smarter too. The ones that are will be interesting to own.

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“Are markets just plain wrong to keep looking through the Iran war?” ran the title of the 17 April Merryn Talks Money Bloomberg podcast as markets hit all-time highs. The answer, as was made clear, is almost certainly not. “If you think the market is wrong, it's probably not the market, it's you,” as John Stepek said on the show. Geopolitics famously does not affect markets that much, yet every time there is a disruptive geopolitical event, it is followed by an endless stream of experts claiming that a disaster for investors is inevitable.

Rarely have the experts been as wrong as this time around. From top to bottom in late March, both the S&P 500 and the FTSE 100 fell 9% before bouncing all the way back up again and more in the next three weeks. The pundits predicted the oil price would rise to $150 or $200 a barrel and that there would be a consequent surge in inflation, pushing up interest rates and leading to a recession. This would hit corporate earnings hard and stock markets would spiral downwards. The only safe haven was gold.

Instead, the oil price has struggled to get past $100, gold has fallen about 12% since the start of March, bond yields (except in the UK) have retreated, inflation has ticked only modestly higher and there is no sign of a recession, although interest rates will probably go up, especially in the UK. Anyone who listened to the pundits and took action to “reduce risk” will have lost money. It gets worse. The US market has not stumbled, as confidently expected, but surged ahead, led by the much-maligned “magnificent seven” mega-caps. The AI “bubble” has not burst; it is the potential victims of AI in the software and data-provider sectors that have suffered. Earnings forecasts have continued to rise. The predictions of inevitable disaster were heavily influenced by historic parallels that, on closer inspection, turned out to be false.

The market holds little solace for doomsters

What lessons should be learned for the future? Further disruptive geopolitical crises are inevitable and when they happen, the “end of the world is nigh” crowd will be out in force, hogging the media's attention with their dire warnings of looming disaster and explanations of why markets are being totally complacent. The pessimists are already scanning the horizon for the next crisis to upset markets. With the tide having turned against Russia in Ukraine, that war is unlikely to provide solace for doomsters. If Ukraine's missiles can knock out oil facilities on the Baltic coast, they can surely destroy the Kremlin if Ukraine wishes to. A Chinese invasion of Taiwan has long been predicted by the prophets of doom, but that remains a highly risky venture for a country whose last military adventure, the invasion of Vietnam in support of the Khmer Rouge in Cambodia, was more than 50 years ago and was a disaster. Besides, modern drone technology makes a seaborne invasion even more risky than before.

Doubtless, some new reason to worry about geopolitical events will be found, but the key question is not what such events portend for markets, but what the market reaction tells us about the importance of such events. Nine times out of ten, as with this time, the market's reaction is right and the doomsters are wrong. Still, the parable of the boy who cried “wolf” teaches us that the time may come when those who cry wolf are, at last, right. It is nearly 20 years since stocks suffered a sustained bear market, as opposed to a short-term fall that was soon recovered. The US market is expensive and dependent on a pace of earnings growth that might not be sustainable. The UK and European markets are no longer cheap, just reasonably valued with limited prospects for earnings growth given sluggish or non-existent economic growth. Asian markets have advanced a long way in a short period of time.

“Buy on the sound of cannons, sell on the sound of trumpets,” Nathan Rothschild advised some 200 years ago. For now, taking some profits is starting to look like a better strategy than charging in, but it still looks as though markets will continue to make positive returns in the rest of the year. As US strategist Ed Yardeni reminds us, “earnings growth and economic expansion drive markets, not geopolitical shocks”. Earnings expectations continue to rise, with S&P 500 forecast earnings per share for the next 12 months at $344.30 and expected to reach $380 by year end. That puts the index on a forward multiple of 20.8, falling to 18.8 by year end. For the mid- and small caps, the forward multiple is around 16; for the “magnificent seven”, it is close to 27.

That sounds demanding, but, Yardeni notes, the information-technology sector, up 8% in the year to date, has benefited from a 33% rise in forecast revenue and 55% in forecast earnings in the last 12 months. The semiconductors sub-sector accounts for 42% of the sector, up from 15% a decade ago, and accounts for 47% of expected earnings. With expected earnings soaring, its prospective multiple is actually at a small discount to the S&P 500. Meanwhile, the application-software subsector has seen its multiple more than halve since 2021 to 23.4, the lowest reading since 2014, due to fears that AI will eat into its markets. Despite the $5 trillion valuation of Nvidia, this suggests that the exuberance of last year has given way to a more sober assessment, finding losers as well as winners.

The information-technology sector accounts for 28% of the S&P 500, but three of the magnificent seven, Amazon, Meta and Tesla, are not in it. Including all AI-related shares, technology accounts for 45% of the index and has doubled in three years. Liam Halligan of The Telegraph worries that this is unsustainable, just as the energy share of more than 25% was in 1980 (now 3%), or the more than 60% share of railways was in 1900. That is likely to be true, but doesn't prove that the US market is overvalued; rather, that its sector composition will continue to change over time. Meanwhile, UK and European pundits can only look on in envy; their markets are significantly cheaper, but their dependence on imported energy and their meagre exposure to technology means lower growth in revenue and earnings and a significant valuation discount.

Halligan is on firmer ground pointing out that the cyclically adjusted price/earnings (Cape) ratio for the US market is at an all-time high. This has been an unreliable indicator in the long term, owing to changing accounting rules, rates of corporation tax and its backwards-looking nature. It calculates the ten-year rolling average of corporate earnings in an effort to even out the ups and downs of the economic and earnings cycle. In recessions, earnings drop sharply, bringing down the Cape, so what the current level tells us is that there hasn't been an economic recession for well over ten years, merely short-term dips.

Stay invested, but be wary

No recession is visible, but they never are and when one comes, corporate earnings will fall. In addition, bear markets always expose overoptimistic accounting, weak finances and less than resilient business models. The best protection against this is a moderately valued market providing a cushion against earnings disappointments. A multiple of earnings above 20 and a ten-year US Treasury yield approaching 4.5% do not provide that, so investors are skating on fairly thin ice. Global diversification may not help; other markets may be better value, but have less earnings growth. Emerging markets are performing well, but are heavily dependent on the technology super-stocks of the Far East. If the US market falters, it is hard to imagine other markets carrying on regardless.

There is no need to panic, but investors need to be wary. If markets flatline for the rest of the year, re-establishing value, they can relax about 2027. If they continue upwards, 2027 could bring trouble, even if peace returns to the Middle East and Ukraine, oil prices fall and the political outlook improves.

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In January 2013, the then-prime minister David Cameron announced that there would be a “very simple” referendum on whether Britain should stay in or get out of the European Union. The result would draw a line under the whole issue for a generation, he said, so that we, and in particular his party, could all stop “banging on” about it. As the tenth anniversary of the Brexit referendum approaches in June of this year, we might all now reflect on just how simple the whole thing proved to be and how joyful it is that everyone has much better things to talk about.

That reflection would at least help us appreciate that God does indeed have a sense of humour. The process of leaving the EU and judging its consequences has turned out to be anything but simple, of course, and the conversation about our membership of the EU has not ended – in fact, in recent months it has all been rather stirred up again.

Prime minister Keir Starmer is exploring a deal that would align Britain with the EU's single market for goods under his EU “reset” plans. He had already signed agreements to align with the bloc's rules on food standards and carbon emissions. The latest plan would force British manufacturers to comply with hundreds of EU regulations, says The Telegraph, without having any say in how they are shaped. It would, in effect, return Britain to something like the “backstop”, the former prime minister Theresa May's attempt to lock Britain into EU rules to avoid a hard border in Ireland. That idea was repeatedly defeated by MPs and ultimately scrapped by Boris Johnson when he became prime minister. The difference is that rejoining the customs union has been ruled out, to avoid breaking manifesto commitments and protect trade deals with India and the US.

The cost to Britain of Brexit

Those on one side of the Brexit wars – and even some of those in the opposing camp – will say that this is all to the good, at least in principle, as very clearly something had to be done. Brexiters at the time of the referendum argued that disentangling from the EU would unlock long-term economic potential as it would free British policymakers from EU red tape and give them more freedom for manoeuvre, as Ryan Bourne, a member at the time of the referendum of Economists for Brexit, said in The Times towards the end of last year. Yet ten years on, “we cannot pretend things have gone well so far” on that score. A review of the data from the National Bureau of Economic Research (NBER) has suggested that GDP per person is 6%-8% lower today than it would have been if Britain had voted to remain in the EU. Business investment is down 15%, and employment and productivity by 3%-4%.

True, the NBER's study has been loudly mocked. It requires us to believe that if only the vote had gone the right way Britain would have grown four times more than Japan and Germany, almost twice as much as France and Italy, and be performing as well as the US. “If you believe that I have a bridge to sell you,” as Andrew Neil put it on X.

But still, “let's not kid ourselves”, says Bourne. The facts show that the UK has grown more slowly than Italy, France and Japan, and the microeconomic, firm-level data are “crystal clear” that Brexit had a “significant, depressive impact”. The NBER study showed that the more exposed to the EU a company was, the more likely it was to cut investment and slow hiring in the wake of the referendum. By 2023, average business investment was 12% lower and productivity within firms 3%-4% weaker. Roughly half of firms listed Brexit as a top source of uncertainty for years after the vote.

Such evidence cannot easily be dismissed, whatever your political inclinations. “Brexit did not cause Britain's growth malaise, but it undoubtedly deepened it,” says Bourne. “Nor did it create our fiscal woes, although it worsened them too. Denial… helps no one.”

Indeed, Brexit was never likely to be a solution to the underlying complaints that provoked it, and “so it has proved”, says Jeremy Warner in The Telegraph. Ten years on, and the economy is in even more of a mess than it was back then. Immigration has “surged”, the public finances are in “a state of ruin”, many public services appear “broken beyond repair”, and voters are “angrier than ever”. This might not be the fault of Brexit as such, but nor did leaving the EU prove to be “the moment of national renewal that its cheerleaders promised”. Nor was it ever likely to be. “Economic salvation seems as far away as ever.”

Edging closer to the EU might be the best way forward

Brexit remains an issue for a reason. The most obvious impact of the decision to leave the EU was on trade. UK exports since 2019 have been much weaker than in other G7 countries, and trade is an important driver of productivity growth, which in turn is the most important factor in improving living standards. Some of that weakness may be a result of Donald Trump's tariffs, but that in itself just goes to show how much the world has changed since the Brexit referendum, as David Smith has pointed out, also in The Times. Tensions with the US and with China show that “dreams of a painless transition to non-EU trade were the wishful thinking of a different age”. The Iran war quickly brought changing global geopolitical realities into even sharper focus and has bolstered the case for closer cooperation with the EU. “It is increasingly clear that as the world continues down this volatile path, our long-term national interest requires closer partnership with our allies in Europe and with the European Union,” as Starmer has said. The opportunity to strengthen security ties and improve economic relations is, says Starmer, “simply too big to ignore”.

That's surely true, but reversing Brexit – or “resetting” relations – will be easier said than done, as The Economist points out. It would, for a start, be impossible to revert to the pre-2016 status quo. Britain would have to reapply for membership and negotiate its conditions, and would be unlikely to secure the opt-outs it had previously. It would not regain its special budget rebate, for example, and might have to agree to join the euro. The EU has also changed significantly in the interim and there is little desire to reopen a painful debate.

Starmer's attempts to find pragmatic ways quietly to edge closer to the EU might be the best way forward. The EU is more open than it was to allowing non-members to cherry-pick bits of the single market and “new forms of partial membership, Swiss-style, may seem more acceptable to the EU as it considers its further expansion eastwards”, says The Economist. Different types of relationship with the EU could emerge from the reopening of debates about Norway and Iceland joining, or from forging closer links with the western Balkans, Moldova and Ukraine, which “might suit Britain better than a hard Brexit”.

“In retrospect, the 2016 referendum may come to be seen not to have permanently settled Britain's place in the European project,” says The Economist. The relationship will keep evolving, sometimes in unpredictable directions. And for the next few years, that is likely to push the two sides closer together, not further apart.”

What David Cameron got right about Brexit

Whatever happens, Cameron was right about one thing. On one level, the issue voted on in the referendum ten years ago was a simple one. Economics is mostly common sense and the issue at stake and the likely consequences should have yielded to some simple logic. Britain was on the doorstep and a member of one of the largest free-trade blocs in the world. Making a decision that would certainly make trade with that bloc more costly and raise barriers would, all else being equal, surely leave Britain worse off.

All else is never quite equal, of course, hence the arguments that Brexit could conceivably give the country more freedom to make better arrangements that would be more conducive to growth. In other words, alongside the fact that Brexit would probably make us worse off there was a judgement to be made about whether Britain's elite and bureaucracy would in the long run prove more effective than the one in Brussels. A relatively simple matter of judgement on both counts, if ones that have had, as we have seen, some rather more complex ramifications.

There is no point relitigating the matter. We are where we are. But in the years since the vote we might draw two lessons from the experience of Brexit. The first is that Britain's historical tendency to “muddle through” rather than plan might not be such a bad one, as Paul Cornish, a professor of strategic studies at the University of Exeter, points out in the Financial Times. As Charles Lindblom put it, “Policy is not made once and for all; it is made and re-made endlessly. Policymaking is a successive approximation to some desired objectives in which what is desired itself continues to change under reconsideration”.

What could be more appropriate, says Cornish, in “a time of seeming chronic volatility and complexity, particularly in matters of national strategy and international security”? Breaking free from the EU and setting out alone as “Global Britain” on the high seas of freedom and opportunity might have seemed like a great plan to some and far superior to all the muddling and compromise of EU membership. Following a raid from the pirates of reality, we're back to the muddling.

“Populists” unwittingly make the case for a stronger Europe

The second lesson is that the EU may be less bad than all the alternatives, as Janan Ganesh puts it, also in the FT. At the time of the referendum, victorious Brexiters were fond of predicting that other countries would soon follow our good example and fall like dominoes out of the EU. A decade on, all of the EU's 27 other dominoes stand and, despite having entered an “era of ardent nationalism”, no one really wants out of the “supranational club”. If anything, nationalist politicians on the continent go out of their way to reassure voters that they have no intention of leaving. Europeans still trust the EU above their national political systems, and support for the euro has grown.

“Few things are stranger about modern politics,” says Ganesh, but the explanation is not hard to find. Nigel Farage, Vladimir Putin and Donald Trump have all unwittingly helped to make the case for a stronger Europe and have “given a multilateral, technocratic and liberal institution a sense of existential purpose that it was starting to lack”. Moreover, the “debasement of our own political elite” post-referendum has “brought the UK closer to the European experience”. As Labour edges closer to the EU, Conservatives may “scream betrayal”, but “voters shrug”. “Through their comportment in office, Brexiters have forfeited the benefit of the doubt.”

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From acorns grow oak trees: that's the sales pitch from fans of the Seed Enterprise Investment Scheme (SEIS), though the scheme's offer of more generous tax incentives than any other similar investment initiative is also part of the appeal. And with other opportunities to shelter from rising taxes now diminishing, many experts think the SEIS is set to become more popular than ever in the current tax year, which began earlier this month. Introduced in 2012, the SEIS aims to help very small and very young companies raise money to fund their growth. These are businesses that may lack the trading record necessary to borrow money from the bank, or to raise capital from other sources. Without access to finance, their growth may be stunted, preventing them from fulfilling their potential.

We really are talking about acorns. Raising money through the SEIS is only an option for businesses that have been trading for less than three years, which have assets of no more than £350,000 and fewer than 25 employees. There are also several more technical qualifying rules that limit SEIS eligibility to start-ups and very early-stage businesses. Inevitably, many of these businesses fail, taking investors' money with them. A recent study from Warwick Business School put the three-year survival rate for start-ups in the UK at 47% – falling to just 10% after ten years. Even businesses that show some early success – those that might therefore catch investors' eyes – often don't progress. Just 7% of businesses making it to £1 million of turnover go on to surpass £3 million, the Warwick study found.

That said, some start-ups do turn into scale-ups. New investors come in at higher valuations; SEIS investors who took the early risks may be able to exit at a handsome profit. It's even possible for SEIS-backed firms to make it all the way to a stock market listing.

SEIS can offer some extraordinary tax breaks

One example of a successful SEIS investment is Cognism, now regarded as one of Europe's leading data technology companies. The business raised SEIS funding in 2017, two years after its launch, with investors then able to exit when the business secured new backers in 2022; their returns were estimated to be worth around 40-times their initial stake. Only a handful of such winners can be rocket fuel for a SEIS portfolio, says Alex Davies, founder and CEO of investment platform Wealth Club. “The SEIS offers the chance to back very early-stage businesses with genuine high-growth potential, while recognising that most won't succeed,” Davies says. “The key is that you don't need many winners to generate significant returns.”

In part, that's because a few very large gains will compensate you for losses elsewhere. But the tax incentives offered on the SEIS – the government recognises that investors need some encouragement to risk their money – also provide plenty of insulation. Those tax breaks genuinely are quite something. You can invest up to £200,000 each tax year through the scheme, but you get 50% income-tax relief on this subscription, reducing its cost by half as long as you're earning enough to claim relief in full. In addition, you can claim capital-gains-tax reinvestment relief – if you've got taxable profits on other investments, you can reduce the bill by 50% by reinvesting these gains through the SEIS.

There's also support later on. Once you've held shares in a SEIS company for three years or more, any profits you make on the investment are free from capital-gains tax. Alternatively, if the business goes bust, you can claim loss relief, setting your losses against other taxable income you may have. SEIS investments also get preferential treatment on inheritance tax. The first £2.5 million worth of qualifying investments don't count towards the value of your estate for inheritance tax (IHT) purposes; on investments above this threshold, IHT is charged at only 20%, half the usual rate.

The combined effect of all these reliefs is significant. “SEIS tax reliefs turbocharge returns when things go well and cushion the impact when they don't,” explains Davies. “In today's high-tax environment, it's increasingly difficult for non-tax-advantaged investments to compete.” If you invest £100,000, say, in a portfolio of SEIS investments that returns 50%, your effective gain after income tax and capital-gains reinvestment relief will be 112%. But even if there's no growth and you only get your starting capital back, you would still be making a 62% gain.

Alternatively, the tax reliefs limit downside risk. If your £100,000 investment halves in value, you'll still be making a positive return of 12% after the income-and capital-gains tax breaks. Or, in the worst case scenario, where your investment ends up worthless, the actual loss on your initial £100,000 stake would only be £15,500.

Such perks look even more attractive given that the tax reliefs available on similar schemes are being reduced. The upfront income-tax relief on offer to investors in venture capital trusts (VCTs) – which also invest in early-stage businesses – fell from 30% to 20% on 6 April. At the same time, the tax burden that investors in these schemes are often looking to mitigate is increasing. Most notably, the IHT net will shortly be extended to include unused pension savings, while exemptions for business and agricultural assets are being eroded. Together with an ongoing freeze on the thresholds at which IHT becomes payable on estates, this has the potential to drive up bills for many families.

In fact, the SEIS is one of the few tax-efficient investment schemes to offer relief on IHT – along with its big brother, the Enterprise Investment Scheme (EIS). Cash and assets held within an individual savings account (ISA), for example, will count towards the value of your estate for IHT purposes. The same is true of VCTs. No wonder that the SEIS is attracting more interest, with investment in qualifying businesses already on an upward trend. “The SEIS is a key part of the UK's dynamic start-up environment, and recent changes with the reduction of tax relief for VCT investors make it even more attractive by comparison,” says Matt Cooper, co-CEO of the private market investment platform Crowdcube.

Pause and think about the risk

In the 2023-2024 tax year, the most recent period for which data is available, 2,290 companies raised £242 million through the SEIS, up more than 50% on the previous year, partly thanks to a tweak to the rules that enabled more companies to participate and to raise more money. Almost 10,150 investors put money into companies qualifying for the scheme, a 23% increase compared to the 2022-2023 tax year. The early indications are that the SEIS saw further growth in 2024-2025, with HM Revenue & Customs receiving 3,195 applications for “advanced assurance” – essentially requests from companies for guidance that they qualify for the SEIS scheme before they seek investment. That was 18% more than in the previous year.

Nevertheless, investing in the SEIS simply for tax reasons would not be sensible. Given the elevated risk profile of SEIS companies, this is an investment only suitable for wealthy and sophisticated investors who feel comfortable with the possibility of losing some or even all of their money. You will almost certainly have made good use of ISA and pension allowances before thinking about the SEIS; you may well have invested in VCTs and the EIS too. Also, remember that the scheme is most tax-efficient for investors who have other capital gains to roll over into it.

Still, the good news from an investment perspective, argues Joseph Zipfel, the chief investment officer of early-stage investment specialist SFC Capital, is that the SEIS has matured since its launch more than a decade ago. “The risk profile has changed materially,” he says. “While early-stage investing will always carry risk, the underlying quality, maturity and resilience of SEIS-backed companies has improved over the last ten years.”

The explanation, Zipfel believes, is that the UK's start-up ecosystem has improved markedly in terms of the amount of support available to entrepreneurs, with help on offer from universities, incubators, accelerators and government-backed organisations such as the British Business Bank and Innovate UK. Business founders are more sophisticated as a result – and the backing available has encouraged a broader range of people to launch their own enterprises.

Moreover, many SEIS-eligible businesses are now run by more experienced founders. “The SEIS has funded more than 2,000 companies every year for more than a decade; one of the most important consequences of this scale is the recent emergence of a second wave of entrepreneurs building their second or third venture,” Zipfel adds. “These founders bring hard-earned lessons from their first businesses, whether successful or not. They are typically more disciplined in capital allocation, clearer on go-to-market strategy, and faster at identifying what does not work.”

Add in the changes to the SEIS rules made in 2023, which saw slightly larger businesses become potentially eligible, and the overall picture is of a more resilient set of opportunities. “This evolution does not eliminate risk,” says Zipfel, “but it does mean that the starting point is much stronger and the overall risk-adjusted opportunity has improved materially.”

How to invest in the SEIS

There are two ways to take advantage of the investment opportunities and tax incentives that the SEIS offers. Your first option is to invest directly in a qualifying company that is currently raising money. The firm will need to have checked its SEIS eligibility with HMRC and should be able to tell you that it has received assurance that investments are likely to qualify.

The easiest way to find such opportunities is via a crowdfunding site – an online platform where early-stage companies appeal directly to retail investors. Platforms including Crowdcube, Crowd for Angels, Republic Europe (until recently known as Seedrs) and SyndicateRoom all feature SEIS-eligible businesses making pitches to investors.

The advantage of investing directly is that you have total control over which firms you decide to back. The downside is that it may be harder to spread your bets – you'll need to invest in multiple qualifying companies to avoid the danger of being exposed to a single high-risk business, or even a small handful. You'll also need to do your own due diligence.

Option two, therefore, tends to be more popular. Many investors opt for a SEIS fund – essentially a portfolio of ten to 25 or so qualifying companies chosen by a professional investment manager who specialises in investing in early-stage companies. Specialists in this area include Fuel Ventures, Guinness, Haatch and SFC. Wealth Club is one central point of access to a choice of SEIS funds.

With a fund, you get diversification and the benefit of the manager's expertise and experience. Funds may also have access to a wider range of opportunities, including attractive companies not on your radar. Investing in SEIS funds can also be a useful way of spreading risk, “although this needs to be balanced against the likelihood of higher returns from a direct individual investment if it goes well”, says Crowdcube's Matt Cooper.

There are downsides to the fund approach, too. Expect to pay much higher charges than on other types of collective investment funds, which will dilute your returns. You'll also be surrendering control of investment decisions and losing the direct relationship with individual firms, which many investors enjoy.

Finally, note that once you've made your investment, the business or fund will send you a form so that you can claim the various tax reliefs through your self-assessment tax return. This paperwork – known as the SEIS3 form – is critical; you won't be able to apply for relief from HMRC without it.

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The government has been shouting about getting more people to invest for some time now. For the chancellor Rachel Reeves, it would mean more money to help boost the UK economy.

And she so desperately wants people to invest, she even went ahead with plans to slash the cash ISA allowance from £20,000 to £12,000, effective from the next tax year, for those under age 65.

For anyone looking to take advantage of a £20,000 ISA allowance, they would need to invest anything above £12,000 using a stocks and shares ISA.

This has caused a bit of a stir among cash lovers, though in reality, a large majority of those stomping their feet over the cut have never used their full cash ISA allowance in the first place.

But, if we put feelings aside, the important thing to remember is that people should consider investing – not to please Reeves, but to boost their own wealth. See our guide to investing to help you get started.

I am not sure a squirrel is the right choice for its Invest for the Future campaign, though. It's too closely associated with cash and investing is not squirrelling. Investing does not mean hoarding your cash. And while a squirrel may stash its nuts, investing means you may lose some nuts along the way but hopefully end up with a lot more than you started with.

Savvy the Squirrel is certainly cute and likeable, unlike the pensions ‘Workie’ for those who remember the scary monster appearing on TV screens in 2015 to promote auto-enrolment pensions.

Though, I am not convinced the squirrel will be effective in converting cash hoarding Brits into a nation of investors with the same power as the British Gas ‘Tell Sid’ campaign – now that really did demonstrate the power of spreading the word.

Investing versus saving

If the Savvy Squirrel doesn't convince you to invest, then it’s worth considering what investing could mean for you in the first place.

Latest data from investing platform Vanguard shows that if you had invested £100 in global shares in 1970 and held them through the oil shocks of the 1970s, the dot-com boom, and the Global Financial Crisis, it would now be worth around £35,000, that is 10 times the £3,400 if you had kept your savings in cash.

We take a closer look at saving versus investing in our article.

When should you invest?

Getting started with investing is simple, despite the myths that you need expertise or a lot of cash – you need neither of those. You can invest with just a few pounds and you don’t need to be a trader.

But there are some simple rules you should consider before you invest. This includes:

• Clear unsecured debt
• Build emergency savings
• Have some cash for short-term goals (five years or less)
• Do not invest money you need for bills

And then there are also simple rules to consider when you do start investing. This includes:

• Start small to build confidence
• Do not panic when markets fall; keep investing each month
• Investing is for the long term, so invest money you do not need for five years or more.

According to Vanguard, Brits have a collective £200 billion sitting in excess cash. This is cash that can be invested. By not investing, you are at risk of letting inflation eat into your savings over the long-term. Inflation has come down from its highs of 9.6% in November 2022, but at that time, unless you were earning over 9.6% in cash interest, you were losing money.

Inflation is 3.3%, but again, if your cash is not earning more, you’re losing spending power as the value of your cash erodes.

And remember, when you invest, the power of compounding can be phenomenal and over time, you will build more wealth. And of course, while there are risks in investing, most people see an upside and become more financially resilient than if they had stuck with cash.

Inheritance tax bills are on the rise and there are some parts of the UK where the liability is set to hit six figures.

Despite a £325,000 threshold and a £175,000 main residence allowance, frozen thresholds, high house price growth and rising asset values have pushed increasing numbers of estates into the inheritance tax trap.

Research by The Private Office reveals that homes in 136 local authorities are already exposed to inheritance tax in 2026, with estimated average liabilities ranging from just over £150 to more than £340,000 per estate.

The wealth manager analysed average property prices by local authority and estimated inheritance tax liabilities even with the nil-rate band and main residence allowance.

The Private Office’s analysis found that Kensington and Chelsea ranks as the UK’s most expensive inheritance tax hotspot, with most liability in London and the South East of England.

More regions could be hit from 2027 as well when unused pension savings are included in inheritance tax calculations.

Here are the regions facing the highest inheritance tax bills.

The regional inheritance tax divide

The data suggests a regional imbalance in inheritance tax exposure across the UK in 2026, with liabilities heavily concentrated in London and the South East.

This is compounded by higher house prices in these regions meaning an estate could easily surpass the current frozen thresholds.

Kensington and Chelsea tops the list, where the average property value is £1.18 million.

The estimated IHT liability reaches £343,924 per estate and the total average estate values exceed £1.3 million, according to the research.

Other London boroughs, including Camden, Richmond upon Thames and Hammersmith and Fulham, also show projected tax bills well into six figures. Beyond the capital, affluent southern areas such as Elmbridge, St Albans and Windsor and Maidenhead remain within taxable territory, reflecting sustained house price growth across commuter-belt locations.

In contrast, northern England features very limited exposure at higher levels, with only a small number of areas approaching the tax threshold.

Trafford is the only northern authority appearing in the dataset, with an estimated average inheritance tax liability of around £20,814.

The impact of pension changes on inheritance tax

More estates could be caught as a result of pension changes coming next year.

From 6 April 2027, unused pension funds will be included within an individual’s estate for inheritance tax purposes.

By combining average property values across 372 local authorities with estimated pension wealth, the research indicates that 152 areas previously below the threshold could become liable, bringing the total number of exposed local authorities to 288.

New regions that could face inheritance tax bills for the first time after the pension changes include Stevenage in Hertfordshire as well as the City of Edinburgh in Scotland and Cardiff in Wales.

Pippa Vick, financial adviser at The Private Office, said: “Inheritance tax is increasingly becoming a property tax by default.

"Many families don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills. Without proper planning, beneficiaries may be forced to sell assets simply to settle the liability. Early advice and structured estate planning can significantly reduce the eventual tax burden.

“Pensions have long sat outside inheritance tax calculations, so bringing them into scope has a major regional impact. In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.”

Shell, BP, HSBC, AstraZeneca, British American Tobacco – nobody's idea of an exciting portfolio.

Yet a study of every UK-listed stock over the past 50 years found that the top ten wealth creators, including these five, captured nearly a third of all the real wealth generated by UK stocks. Thousands of listings came and went in that time. These stayed and compounded, and also sometimes feature in the most popular stocks purchased by DIY investors.

This makes the current anxiety about market concentration worth examining. The Magnificent 7 now account for 39% of the S&P 500. Passive fund assets have passed 50% of all US equity fund assets for the first time.

In his January 2026 shareholder letter, Terry Smith warned that the shift into index funds is 'laying the foundations of a major investment disaster', though he conceded he couldn't say when or how it would end.

It's an argument that resonates. When seven stocks dominate a major index, something feels uncomfortable. But three recent studies, covering UK and US equities over periods from 50 years to nearly a century, tell a different story. Wealth creation has always been concentrated in a tiny minority of companies. The question isn't whether your index is top-heavy. It's whether the alternative gives you better odds.

And on that, the evidence is striking.

Which UK stocks created the most wealth?

Only three per cent of UK stocks created all the wealth. A newly published, peer-reviewed study in the Journal of Asset Management quantifies what many investors suspect but few grasp in full. Jonathan Fletcher and Michael O'Connell at the University of Strathclyde examined every stock listed on the London Stock Exchange, the Unlisted Securities Market and AIM between 1975 and 2024. Their finding: just 3.1% of those companies generated all of the market's aggregate net wealth creation in real terms.

The names that did the heavy lifting won't surprise anyone. Shell, BP, HSBC, British American Tobacco, AstraZeneca, Rio Tinto, GlaxoSmithKline and Unilever – dull yet dependable.

The top 10 alone captured nearly a third of all aggregate wealth created. These weren't the stocks that made headlines; they were the ones that compounded quietly while the headline stocks came and went.

More than half of all UK stocks failed to beat Treasury Bills over their lifetimes. The median stock lost money after inflation: a lifetime real return of −13.9%. AIM, the market segment most associated with exciting growth stories and tax-efficient wrappers, produced negative aggregate net wealth of −£2.6 billion.

This isn't a UK anomaly. Hendrik Bessembinder at Arizona State University, whose 2018 study first documented the pattern in the US, has updated his data through 2022. Across nearly a century of American equities, just 4% of stocks accounted for all $55 trillion of net shareholder wealth creation. The remaining 96% collectively matched Treasury Bills at best.

Two different markets. Two different time periods. The same conclusion: equity wealth creation has always been radically concentrated. The few carry the many.

So when only 3% of stocks generate all the aggregate wealth, today's top-heavy indices aren't a distortion. They reflect how markets work. And if you're picking individual stocks, you're betting you can identify those winners before the fact, from a pool where the median outcome is a loss.

Avoiding market concentration actually made things worse

If concentration is structural, what happens when you try to fight it? Mark Kritzman of Windham Capital Management and MIT Sloan and David Turkington of State Street Associates set out to answer that in their recent paper - The Fallacy of Concentration.

They built a dynamic strategy that reduced equity exposure whenever market concentration was historically high and increased it when concentration fell. The result: lower returns, higher risk and less than half the cumulative wealth of staying invested.

The buy-and-hold investor earned a Sharpe ratio of 0.52. The concentration-avoider earned 0.39. Both held the same average equity exposure over the full period, at 67.8 per cent. The difference wasn't about courage or conviction. It was about fighting a feature of the market that turns out not to be a bug.

Large companies aren't just large. They're structurally less volatile. Kritzman and Turkington found that the biggest decile of S&P 500 stocks had annualised volatility of 19.2 per cent, compared with 28.8 per cent for the smallest. A market dominated by large companies is, counterintuitively, a calmer one.

Smith is not wrong that passive flows direct money mechanically toward the biggest stocks. That's how cap-weighted indexing works. But whether that mechanism exists matters less than whether the concentrated index is more dangerous than the concentrated stock-picking portfolio. On that, the evidence is clear.

Buy the whole book

The Fletcher and O'Connell data leaves stock pickers with an uncomfortable question. If the vast majority of listed companies destroy value over their lifetimes, picking individual stocks looks less like a skill contest and more like a raffle. The rational response isn't to study the tickets harder. It's to buy the whole book.

Terry Smith, of course, would disagree. But his own record is instructive. Fundsmith returned 0.8% in 2025 against 12.8% for the MSCI World - Smith’s fifth consecutive year of underperformance.

Laith Khalaf, head of investment analysis at AJ Bell, noted that the fund has now lagged its benchmark over both five and 10 years.

Khalaf's wider point is worth hearing too: “Fundsmith's earlier outperformance was partly flattered by the low interest rate environment that suited Smith's quality style. Now that tailwind has reversed, the structural headwinds facing stock pickers are harder to ignore.”

None of that reflects on Smith's intelligence or his process. It reflects the odds, and those odds don't bend for reputation.

Market concentration is worth understanding. It's worth watching. But the evidence from three studies spanning two markets and close to a century of data points the same way: the risk most investors should worry about isn't a top-heavy index. It's a portfolio that bets against the 3 per cent carrying everything else.

For most of us, the better odds are hiding in plain sight.

Most listed private-equity funds are trading at deep discounts to net asset value (NAV). These discounts imply scepticism from investors about whether the funds will be able to sell many of the holdings in their portfolios at the valuations at which they are currently carrying them – a concern driven by several years of limited exits. However, over the past 18 months, managers have started to monetise investments more successfully. Can a savvy investor grab any low-hanging fruit before discounts start to narrow?

Before considering whether listed private-equity funds offer value at discounts, it is worth understanding the cyclical challenges that private equity has been facing. Private equity had surged in popularity over the past decade, mainly due to a strong track record. Returns regularly outperformed public market – buyout funds have achieved an internal rate of return (IRR) of 15% globally over the last ten years, according to Pitchbook. What made this look even better was that returns showed limited volatility, since they are typically based on semi-annual valuations made by managers. For example, valuations decoupled with listed markets in 2022, with private equity down by 4.1%, while global equity markets fell by 25.4%.

Private-equity funds typically exit investments through initial public offerings (IPOs), “trade sales” to another company in the same industry, or sale to another private equity buyer. Wind back to 2021 and the industry was in a Goldilocks market. Globally, exits reached over $1.7 trillion that year, according to McKinsey – more than three times the level of 2007. Funds offloaded many firms that had benefited from lockdowns or had refinanced at record low interest rates. A record number of IPOs, many made at irrational valuations, generated windfalls. Most of these IPOs later fell by 50%: Allfunds, Cazoo, Deliveroo, Dr Martens and Petco to name a few.

However, exits then halved to $800 billion in 2023. As a result, money distributed to investors was quickly outpaced by capital calls – ie, money that investors were putting into funds to pay for new investments (often commitments that they had made some years before). So there was a large cumulative gap between what investors were getting out and what they were being asked to contribute back.

How have private-equity funds fared?

With the exception of 2021, the amount of capital returned to investors is not keeping pace with the increasing scale of private equity, which has tripled in size over the last decade and doubled over the past five – total assets under management for the whole private equity industry now exceed $14 trillion. Distributions as a percentage of NAV have fallen to 15% in 2025, versus 29% on average before the pandemic, according to Bain Capital.

A typical private-equity fund has a five-year period in which it makes investments, while the fund itself has a maturity of ten to 12 years. This means the last investment made will be held for a maximum of seven years, although funds usually aim to exit an investment faster than that (eg, three to five years). However, as a result of exuberant dealmaking in 2021 and the recent slowdown in exits, private-equity funds have ended up holding a lot of companies longer than planned. “The average holding period for assets at exit is floating around seven years,” notes Bain. “The industry is still sitting on 32,000 unsold companies worth $3.8 trillion” Meanwhile, the median holding period for all investments – not just the ones being exited – is at a record of 6.3 years.

This logjam has created a significant problem for the industry. From 2011 to 2020, funds had sold 30% of their investments by year four, but just 19% of the 2021 acquisitions had been sold by 2025. These companies must be exited soon or at least undergo a “dividend recapitalisation” – taking on debt to pay out a large dividend. Managers need to return cash to investors to be able to fundraise for their next funds.

More than a third of the largest buyout funds were on the road last year to raise capital. Yet fundraising is challenging: in Europe, capital raised fell 41% year-on-year to $118 billion in 2025, according to McKinsey. It reportedly takes an average of 23 months to complete fundraising. Meanwhile, the number of funds trying to raise money is higher than ever: Bain reports there are 18,000 funds aiming to raise a total of $3.3 trillion. Maybe only a third of this target will be reached.

It is easier for blue-chip mega funds to raise money (25% of capital is raised by funds of over $10 billion), but even they need to return cash from existing funds to their investors. Distributions do not simply provide money that investors will cycle back into new funds – they also confirm that the valuations and performance are accurate. The proof of the pudding is in the eating. And of course, investors don't just want their money back – they want it back reasonably quickly, and this is becoming a point of contention. Less than 20% of private equity investors are satisfied with the pace of exits, according to a survey by data firm Preqin.

How private-equity fund exits work

Hence the need to get deals going. During the exit drought, some managers have sold holdings from one of their own funds to another. Some managed to convince investors to back continuation funds – new funds set up to specifically to buy assets from maturing funds. Continuation vehicles are now 14% of exits by value and can help to set a floor for the price of assets that must be sold. However, investors worry that they can be used to hide the real value of underperforming assets, delaying the day of reckoning. More broadly, these solutions are never going to be a substitute for an broad upswing in IPOs and deal-making.

The good news is that exits rebounded to $1.3 trillion in 2025, according to McKinsey – the second-highest year on record. While the impact of the Middle East crisis on markets remains a wildcard, it's likely that 2026 should witness a continued pick-up. Certainly mergers and acquisitions (M&A) activity has been strong in 2025 and at the start of this year. Corporates have strong balance sheets and are net buyers of assets. And while private equity buyers tended to be focused on add-on acquisitions last year, they are expected to do larger deals this year, allowing the “pass the parcel” of sales from one private equity owner to another. Of course, this requires debt markets to remain supportive.

Deserved discounts

So what does a pick-up in exits mean for private equity funds and discounts? Some investors argue that fund managers tend to value their portfolios conservatively and will surprise on the upside when selling their holdings. Recent exits are being done slightly above current valuation. However, sceptics will suggest that only the best assets are currently being sold.

In general, the existence of a discount to NAV is justified for private equity. Some funds may hold investments at cost, even where the traded price of loans or bonds issued by portfolio companies unambiguously indicate some trouble. In other cases, they may not adequately reflect market reality. While IPOs accelerated in late 2023 and 2024 – with deals including Birkenstock, Galderma, Douglas, Renk, Younited and Zabka – the trend was short-lived. Yet some private equity managers refuse to reset marks on their holdings, considering the IPO discounts needed to achieve exits to be too deep.

As a result, investors are right to challenge NAVs reported by managers. However, in the secondaries market – the buying and selling of stakes in unlisted funds – discounts have stabilised at around 15% and may tighten as buyers such as Ardian, Coller and Jefferies increase activity. Meanwhile, listed private equity funds are trading at discounts of 30% or more – and should represent a much better opportunity than buying into secondaries funds with their layers of fees.

What to buy in the private equity market

3i (LSE: III) is the oldest private equity firm in the UK. It was trading at a 70% premium to NAV in 2024, but the share price finally corrected and is now below NAV. However, the portfolio is extremely concentrated, with two-thirds of the NAV in discount retailer Action. This is being valued at an enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of 18.5. Action's growth is slowing and the very high concentration of the portfolio makes the investment risky

Instead, we can look for trusts that are trading at a discount to NAV and are using cash from disposals to buy back their shares instead of paying high prices for new investments. For example, Oakley Capital Investment (LSE: OCI) trades at a very attractive 35% discount to NAV. HarbourVest Global Private Equity (LSE: HVPE) trades at 30% discount. It recently sold a $300 million portfolio of five buyout fund positions at a 6% discount to NAV and used some of the proceeds to buy back shares.

Pantheon International (LSE: PIN) trades at a 30% discount to NAV, which has widened significantly since December 2021. The portfolio is mature, with an average holding period above five years, and half the portfolio is in pre-2020 vintages. The NAV may also lag some of the uplift in valuations seen this year. The company announced some buybacks, as well, to narrow the discount, but is under growing pressure from activists on its shareholder roster – including AVI, Metage and Saba – to do more.

Looking beyond the UK, Eurazeo (Paris: RF) trades at a compelling 50% discount to NAV. The portfolio is very diverse in terms of sectors and strategies (buyout, growth, venture and asset-based financing) and the company also manages large amounts of third-party money. It is ahead on its exit plan, having sold 31% of its assets since 2023.

In Poland, MCI Capital (Warsaw: MCI) is a great opportunity It offers exposure to the steadily growing region of central Europe and to fintech and e-commerce sectors. The company has been listed since 2000 and the portfolio includes travel technology firm eSky, which now owns Thomas Cook. It has realised successful exits in 2025 and it trades on a 30% discount to the NAV.

Wendel (Paris: MF) trades on a 50% discount to NAV due to doubts on its strategy. It is run by an old industrial family from the north of France, similar to the Bonomi family and Investindustrial, or the Wallenberg family and EQT. However, the acquisition of private equity manager IK Partners and Monroe Capital in recent years is transformative. The last three funds of IK Partners are strong performers and should enable the firm to continue fundraising.

Once you factor in the value of IK Partners, Monroe, a stake in listed testing and inspection firm Bureau Veritas, and cash, no value is assigned to the €3.3 billion unlisted portfolio. Even though Wendel has significantly reduced its holding of Bureau Veritas – as well as exiting coatings firm Stalh (after nearly 20 years) and telecom-tower operator IHS with a 20% premium to NAV – it keeps trading at deep discount. This is a great opportunity for the patient investor.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

In 1776, Adam Smith, often described as the father of economics, published his masterwork, The Wealth of Nations. It was in many ways a very different world to the one we now know, as John Kay recounts in The Corporation in the 21st Century. The men founding the new nation flattered themselves that it would become “the greatest and most formidable that ever was in the world”, and that “indeed seem[ed] very likely”, as Smith wrote. That seems prescient, but it was not for his political acumen that he is remembered, but for his economic insights.

“It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions in a well governed society that universal opulence which extends itself to the lowest ranks of the people,” said Smith in The Wealth of Nations. Since he wrote those words, inflation-adjusted GDP per head in Britain has grown more than tenfold. The scale of that change can perhaps better be imagined, as Kay recounts, by remembering that Adam Smith wrote his manuscript with a quill pen and that his Edinburgh residence was lit by candlelight. Smith, you could say, had barely glimpsed the modern world. It's unlikely he had even seen inside that famous pin factory he used as an example to describe the power of the division of labour. And yet he saw further and deeper than most men – of his own time, or indeed since.

Adam Smith's “invisible hand” is omnipresent

The true depth and greatness of Adam Smith's writings are unlikely to be fathomed by those who content themselves with commentary about them. A great deal of the latter was produced last month to celebrate the 250th anniversary of the publication of The Wealth of Nations, but those ploughing through it all would be unlikely to come to a true appreciation of Smith's contribution. It was dispiriting to read pieces intended as celebrations of Smith that were really little more than pretexts for marshalling, for a narrow ideological or political cause, some of Smith's most familiar and overused quotations – those making the case for and championing free trade and the power of the “invisible hand”, if of one ideological persuasion; those lamenting the power of the rich and the damaging effects of monopoly and the division of labour if of another.

Go to the source instead, however, and you will find an embarrassment of riches. Shortly before his death, Adam Smith was still working on revisions to his earlier book, The Theory of Moral Sentiments, which should be seen as a companion volume to his better-known work and be read alongside it. Anyone who has will see what a nonsense it is to claim, as some do, that Smith only mentioned the “invisible hand” a few times and that therefore the concept is not as of great importance as later commentators have made of it. It would be more true to say that the invisible hand is at work in pretty much every sentence Smith wrote, in both of his books.

In The Theory of Moral Sentiments, for example, Smith considers the natural sympathy that arises in our breast for the suffering of others. When another man is ill, for example, and especially if that man is Adam Smith saw further than most men near and dear to us, we imagine what it would be like to suffer ourselves as he is, and hence really do suffer on his account, and because of that seek to do what we can to alleviate his pain. Our natural sentiments assist us in this noble endeavour, yet if they did all the work perfectly naturally then our efforts to help wouldn't be seen as noble at all, rather just what happens as instinctively as a dog salivating at mealtimes. Because most of us are not perfectly selfless, at least not all the time, and because our ability to enter imaginatively and sympathetically into the suffering of others has its limits, we are apt to act in ways somewhere short of saintliness when confronted with the travails of others, especially if we consider that they are not making every possible effort to pull themselves together and get well.

Perhaps we go to see our relative in hospital, for example, but are secretly rather glad to get away from all the complaining when visiting time is over. This may seem something short of virtuous from the point of view of our own conscience, and yet because our limitations are probably all too well known by the sick person, that enters as a factor into their own recovery. They moderate expressions of their own suffering to levels that others can sympathetically enter in to, keep a stiff upper lip with regard to the rest, and make every effort to get well and return to social life. These efforts are in themselves conducive to healing. This explains why the best thing we can do when depressed is get out and spend time in company, even if it is the last thing we feel like doing. Selfishness, in short, in the right doses, can act as if by an invisible hand in ways that promote the general wellbeing of ourselves and indeed of society as a whole. A judicious mix of the sympathy and the selfishness of others helps lift us up and move us on.

The case for progress

This kind of deep psychological and spiritual insight is the sort of thing you expect more from the classic novels of the 19th century than from a philosopher or economist, and The Theory of Moral Sentiments abounds in them. They lay the basis for a true appreciation of The Wealth of Nations. Many take the later work to be a kind of dry economics textbook, but it is more fascinating than any manifesto for neoliberalism or free markets could ever be, and remains deeply relevant to modern-day issues.

Take the contemporary debate about the desirability of economic growth and progress, for example. One side argues that these represent, if not everything, then nearly everything we should care about when it comes to human flourishing and happiness. The other side mocks this crudely materialist understanding and argues instead for other, higher values, and for indifference to or even the reversal of growth, all the while unconsciously enjoying the fruits of it, and making arguments that would be unthinkable if we did not have that foundation to stand upon. The latter argument these days is more associated with the political left, the former with the right. Adam Smith sees more clearly than both. In chapter 8 of the first book of The Wealth of Nations, where Smith examines what determines wage rates, he argues that it is progress itself, far more than the level of wealth, that is important:

“…[I]t is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable,” he wrote. “It is hard in the stationary and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining, melancholy.”

Human beings, in short, are goal-oriented creatures, and are miserable if they are poor, just as they may be miserable if they are rich, if there is not a sense of progress towards higher states of flourishing and prosperity. It is not solely a question of whether or not more money can deliver happiness; it is a question of understanding human nature.

Similarly, in the same chapter Adam Smith addresses another contemporary issue – population. If you want to increase the population, as many thinkers say is now urgently necessary, then the answer according to Smith is simple. If increasing levels of wealth through economic growth were delivered, wages would inevitably rise, and hence so would population: demand creates its own supply. Stated baldly like that it sounds mechanical and deterministic, but Adam Smith is simply well attuned to the conditions most conducive to the desired course of action. When people are thinking about having families, or about the size of them, naturally their state of mind about their own situation and prospective future will enter into the decision. Happy, creatively active people whose wages and general levels of prosperity are going up might feel more positively about the prospect of a larger family and its ability to survive and thrive than miserable drudges who can barely make ends meet as it is. The economic and the moral, the selfish and the selfless, are two sides of the same coin. The thing to rely on is the invisible hand, if we were just wise enough to allow it its sway.

Shining a light on modernity

Reading Adam Smith's books will inevitably shine a light on many other contemporary issues. What is “astonishing”, as Jesse Norman, the author of Adam Smith: Father of Economics, points out in The Washington Post, is that Smith still, 250 years on, “frames the central questions we face, not just about free markets, trade and capitalism, but about the nature of human society, and even what it is to be human at all”. Smith is, for example, often cited in rows about Donald Trump's tariffs. One of the central aims of Smith's book was, after all, to counter the mercantilism of his own day, and reading it “clarifies the stakes” at issue today. The central question, says Norman, is not whether tariffs or other government interventions are ever justified. Smith himself allowed that they could be, when national defence is concerned, for example. It is “whether trade policy strengthens or weakens the competitive foundations of prosperity”. The fact is they weaken it, impose costs not on foreign rivals but domestic consumers, and lay the foundation for “institutional drift” and “crony capitalism”.

Or take another contemporary issue, the rise of AI. Adam Smith recognised that the division of labour and rise of machinery, while leading to huge increases in general efficiency and prosperity, could also lead to the crippling of human abilities if not corrected by education. Today, new technologies threaten our cognitive abilities by allowing us to delegate them to a machine. That too may lead to huge efficiency gains and prosperity, but we must be alive to the risks, as Smith was to the risks of machinery in his day. There are, as ever, moral issues too. Smith's moral philosophy revolved around what he called “the impartial spectator”, the internalised voice through which we each evaluate our conduct. AI does not have a conscience or sense of responsibility. So if institutions “shift authority from human deliberation to algorithmic outputs – because those outputs are so much cheaper, faster or statistically superior – the habits of accountability, and the demands we make for them, may weaken”, says Norman. “The danger is subtle. It is not that machines will suddenly rule us. It is that we will grow accustomed to deferring to them.”

Calling Adam Smith an economist “seriously understates his significance”, says Clive Crook on Bloomberg. The breadth of his thinking is hard for modern readers to grasp, but the effort is worth it because his followers, “intent on narrowing and thereby desiccating the field, have let him down”. Smith “delighted above all in observing and disentangling unforeseen or unintended consequences” and “as a result he ranged far beyond economics… through moral and political philosophy, sociology, and social psychology… driven by curiosity more than conviction”. Above all, Smith was a pragmatist. “He saw that commercial society worked, and applied his open mind to asking why. After 250 years, his answers are still enlightening.”

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Korean beauty brands are all the rage right now and for investors it could be a glowing opportunity with the UK market projected to reach £14 billion by 2033.

Research firm Grand View Horizon says the market generated $9.2 billion (£7 billion) revenue in 2025, with skin and haircare products among the leading categories. It estimates a compound annual growth rate of 9.7% from 2026 to 2033, by which time the market is expected to be worth over $19 billion (approximately £14 billion).

With ingredients like PDRN (salmon sperm), snail mucin (the silver slime) and mugwort (an Asian weed), these products come with promises of glass-like skin, youth and hydration like no other.

And it’s taken off, with these products now in almost every store across the globe and flooding social media – a phenomenon known as ‘Hallyu’ or ‘Korean Wave’, referring to the Korean culture spreading to other cultures.

But it isn’t just confined to beauty, it's K-pop, K-food, K-fashion and K-movies, too. You may remember the widespread song ‘Gangnam Style’ by PSY in 2012, the early days of the Korean Wave.

Now, you see Korean marts like Oseyo popping up in popular locations around London and K-beauty scattered across high street beauty stores such as Boots, Sephora and Space NK.

“K-beauty is transitioning from a niche category into a scalable growth segment, supported by innovation, pricing, and cultural export. Globally, the segment is growing at around 10% compound annual growth rate, with the US now the largest demand centre and the UK still in early adoption,” Lale Akoner, global market analyst at eToro, said.

“Forecasts suggest K-beauty could capture a meaningful share of the UK market over the next decade as distribution expands across Boots, Superdrug, and online channels.”

While K-beauty users claim it does wonders to your skin and hair, could it do the same for your portfolio? Quite possibly - after all, lipstick stocks never quite go out of fashion and Korean skincare is a trend that is unlikely to go away. And while they do not form part of the top stocks and funds for DIY investors, this could change in months to come.

Here’s how you can get exposure to this explosive Korean skincare industry and the Korean Wave.

How to invest in K-beauty

Direct exposure for UK investors is limited, but there are some accessible options. Two stocks to consider, both listed on Korea Exchange and available via international brokers, are:

• Amorepacific (KRX:090430) - the South Korean company is behind some of the biggest Korean beauty brands like Laneige and Innisfree, seen in the UK’s top retailers.
• LG H&H (KRX:051900) - Previously called LG Household & Health Care, the company, a subsidiary of the LG Group, specialises in cosmetics and household products such as Dr Belmeur and Euthmyol.

However, these companies do come with higher volatility and China sensitivity, with China being South Korea's largest trading partner.

And we have already seen how volatile the Korean stock market can be when earlier this month, the fallout from the Middle East conflict forced the Korean stock market to implement a stock market circuit breaker, a temporary pause on trading.

L’Oréal brings in Korean skincare

Some more traditional routes can also provide you with exposure to K-beauty.

“A more stable route is through global beauty majors like L’Oréal (PA:OR) or Estée Lauder (NYSE:EL), which benefit from K-beauty trends via distribution and acquisitions. Retail platforms (such as Sephora) also capture upside as K-beauty drives customer traffic and basket size,” said Akoner.

L’Oréal entered the Korean skincare market following its acquisition of Gowoonsesang Cosmetics, including subsidiary Dr.G, from Swiss retail group Migros in December 2024.

Dr.G is a Korean skincare brand founded by dermatologist Dr Gun Young Ahn in 2003, headquartered in Seoul. L’Oréal said the brand is “positioned to meet the rising demand for K-beauty”.

LSE listed Unilever (LSE:ULVR) too has grown into K-Beauty with its acquisition of Carver Korea in 2017.

ETFs for K-beauty and other South Korean brands

As mentioned previously, Hallyu isn't just confined to Korean skincare and buying into an exchange-traded fund (ETF) or an actively-managed fund could give wider exposure to South Korean brands. These LSE listed Korea ETFs are worth considering:

• HSBC MSCI Korea UCITS ETF (LON:HKOR): Tracks the MSCI Korea Index.
• Franklin FTSE Korea UCITS ETF (LON:FLRK): Tracks the FTSE Korea 30/18 Capped Index, consisting of large and mid-cap Korean stocks.
• Barings Korea Trust: actively-managed fund investing in Korean stocks.

What’s clear is that the beauty industry is an attractive proposition with a steady demand as consumers seek out premium skincare, supported by an ageing population.

K-beauty is in the centre of this global growth, but the beauty sector as a whole is one to keep an eye on.

Private equity has always been the VIP room of investing. Big institutions got in. You didn't. Now the velvet rope is coming down. From 6 April, the FCA has given the green light to make long-term asset funds eligible for stocks and shares ISAs. But should you add private equity to your ISA?

Schroders and Hargreaves Lansdown have already partnered to list the first on a major retail platform. The government, keen to channel household savings into the real economy, is backing the push. Ordinary investors, we're told, can finally share in returns once reserved for the wealthy.

It sounds good. But two recent papers – Ludovic Phalippou at Oxford Saïd and Nori Gerardo Lietz at Harvard Business School – take it apart. What's being democratised, they argue, isn't the upside. It's the cost, the complexity and the risk.

So, should you add private equity to your stocks and shares ISA?

Will private equity in my ISA see strong returns?

The case for private equity rests on one claim: superior returns for your ISA. The numbers behind that claim don't hold up.

Take the industry's favourite metric, the internal rate of return (IRR). Phalippou shows it doesn't measure what most people think.

Investment firm KKR reported a gross IRR since inception of roughly 25.5% across 18 consecutive annual filings. Sounds extraordinary. But IRR tracks the timing of cash moving in and out of a fund, not the rate at which your wealth compounds. If you treated that 25.5% as a compound annual return, you'd arrive at what Phalippou calls 'implausibly large' terminal wealth. A number built to impress, not inform.

Compare private equity against public markets on a like-for-like basis and the picture shifts. Lietz matches the actual cash flows of private equity funds against equivalent investments in the S&P 500 using Pitchbook's public market equivalent methodology.

Over the past 15 years, private equity's edge has vanished – for the trailing five years, it's negative at -4.62%. The premium that justified the whole exercise no longer exists.

You can't fix this by picking better managers. Performance persistence among buyout funds has disappeared for vintages after 2000. Sort managers into quartiles at fundraising and there's no significant difference in final outcomes. The idea that a retail platform will consistently spot the winners is a fantasy.

Where does the money really go when you invest in private equity?

Even if private equity delivered the returns its marketing promises, fees would eat most of them before they reached you.

Phalippou calculates that standard institutional private equity fees already consume about 7% of returns annually: management charges, performance fees and the portfolio-company costs that rarely appear in headline figures. Retail wrappers add roughly another three percentage points for distribution, platform and oversight. The Schroders Capital Global Private Equity LTAF, one of the first products heading for ISA shelves, carries wrapper charges exceeding 2% a year. That's before the underlying fund costs.

Lietz's fund-of-funds data is the closest preview of what retail buyers will actually experience, since platforms and target-date managers add a comparable fee layer. The result: consistent underperformance, with a return multiple below 1.0 across nearly every period she examined.

Then there are the valuations. In traditional private equity, a questionable net asset value (NAV) was an accounting curiosity. In open-ended retail funds, investors buy and sell at reported net asset values, so every mark has direct cash consequences.

In 2024, Hamilton Lane's retail fund bought private equity stakes at roughly 80% of stated NAV and marked them to 100% the next day. That's not a rounding error. It's a wealth transfer from incoming investors to existing holders, booked as a gain.

LTAFs work the same way. Valuations are monthly. Redemption notice periods run to at least 90 days. Buy in at an optimistic mark and you can't get out fast; worse, you may be subsidising someone else's exit.

The Woodford echo

We've been here before. The Woodford Equity Income fund didn't collapse because one manager made bad calls. It collapsed because the structure was unsound: illiquid assets inside a vehicle promising daily dealing. Ordinary savers bore the full cost – see our article on how Woodford investors are suing Hargreaves Lansdown.

LTAFs are better designed. The notice period exists to prevent a run. But the deeper tension hasn't gone away. The Financial Conduct Authority classifies these funds as 'restricted mass market investments', yet the new targeted support regime lets platforms actively nudge savers toward them. And from April 2027, under-65s will be capped at £12,000 in a cash ISA, pushing anyone who wants to use their full £20,000 allowance toward investment products. The alternatives are being narrowed at the same time as the risks are being widened. Phalippou's verdict: litigation is 'not merely possible but predictable'.

A simpler route to private equity exposure

If you want exposure to private equity's economics, there's a cheaper and more liquid option.

Lietz found that a basket of publicly listed private equity firms comfortably outperformed their own flagship private funds.

In the trailing five years to December 2024, US-listed private equity stocks beat their firms' private vehicles by an average of 23%. You get transparent pricing, daily liquidity and full exposure to the management fees, carried interest and asset growth that drive private equity profits.

Put simply, the best way to profit from private equity is to skip the expensive products and buy the companies selling them.

If a platform does offer you an LTAF in your ISA this spring, ask three questions before committing. What is the total annual cost across all layers? What are the redemption terms in a stress scenario? And who values the fund? If you can't get straight answers, that tells you everything you need to know.

The VIP room is opening its doors. Check what the drinks cost before you walk in.

“Enshittification” is a term coined by author Cory Doctorow. It describes the moment a company stops trying to win customers with value and starts attempting to trap them to extract money.

It is a specific, predatory trend where companies deliberately make their products worse to meet the demand for short-term profit. The apps we once loved become increasingly frustrating to use. The services we've relied on for years are suddenly cluttered with advertisements, hidden fees and unnecessary upgrades that don't actually improve anything.

Not only is this bad for the people using these services, but in the long run, it is catastrophic for investors. This trend of corporate decay threatens the very moral legitimacy of capitalism itself. To protect the free market, we must tackle the root problem head-on.

To see this, we must look at a source of wisdom from outside the free market. Most capitalists tend to switch off the moment a trade-union leader starts talking about corporate greed. When the National Union of Rail, Maritime and Transport Workers (RMT) launches an attack on parasitic middlemen, it is easy to dismiss this as class-war rhetoric. But in the case of the RMT's crusade against Trainline, the union is right.

Current RMT boss Eddie Dempsey and his predecessor Mick Lynch argue that Trainline has inserted itself as an unavoidable digital toll booth. It charges booking fees to customers and takes commissions from train operators such as Avanti, often 5% per booking, while adding almost zero tangible value to the journey. What was once a simple transaction has become a tool for extracting rent. The service has become a digital tax while senior executives collect multi-million-pound pay packets. This is an example of a dominant company resting on its laurels because it has achieved a monopoly. It doesn't have to innovate; it just has to exist and extract.

Enshittification turns moats into cages

Doctorow says that “enshittification” follows a specific, three-stage life cycle of corporate decay. In the first stage, the platform is good to its users, often subsidising services to lock them in. Once the users are captured and the competition is dead, the platform shifts to being good to its business customers, such as advertisers, at the expense of those original users. In the final, terminal stage, the business becomes hostile to everyone, squeezing users and partners alike to maximise returns. It is the business equivalent of a strip-miner: once the ore that's easy to reach is gone, it starts tearing up the foundation of the mountain just to find a few more ounces of profit.

In the book The Myth of Capitalism, Jonathan Tepper explains that this is the death of high-functioning competition. When companies abandon efficiency and stop offering the best service, the rot sets in. They replace competition with so-called “moats” that are really just cages, designed to trap customers rather than win them. In the process, the free market stops working as it should. It is easy to see why company directors would do this. In the short term, extraction boosts margins and placates the quarterly demand for growth. But for the long-term investor, this behaviour should ring alarm bells. When a business shifts from being customer-obsessed to becoming extraction-obsessed, it is usually because it has run out of ideas. It is no longer growing the pie; it is eating it.

The extraction phase of a company often looks like a success story as the company becomes more profitable long before it looks like a disaster in the real world. For a short-term trader, this is the sweet spot: margins are expanding and the monetisation strategy is working. But a long-term investor must distinguish between a company that is creating new value and one that is exploiting brand equity.

The playbook for “enshittification” was refined by private equity firms. The strategy is to find a brand with decades of accumulated trust and milk it until the brand is a hollowed-out shell. For 50 years, Dr. Martens was owned by the Griggs family in Northamptonshire. It was a business that championed British manufacturing and made high-quality boots. In 2013, the family sold the business to the private equity firm Permira for about £300 million. Permira's strategy was textbook extraction: it moved production to cheaper locations in Southeast Asia, diversified the brand into flimsy products such as cheap T-shirts to promote the brand and hiked prices. By the time it brought the company back to the stock market in 2021, the valuation had ballooned to £3.7 billion.

On paper, Permira generated a massive return. In reality, the brand had been strip-mined. Today, the consequences are undeniable. Long-term fans complain of the declining quality of the leather and soles that split within months, yet the retail price has outpaced inflation. By harvesting the goodwill built over half a century, the private equity owners extracted billions, but left a hollowed-out legacy. They didn't grow the business; they simply extracted the value of the reputation built by the Griggs family and sold the remains to the public.

For digital platforms, the squeeze occurs when a service becomes so dominant that it acts as a conduit between a business and its customers. Auto Trader and Rightmove are among the UK's premier digital platforms. In their early days, they were revolutionary tools that helped dealers and agents reach a wider audience for a modest fee. However, as they achieved near-total market saturation, the value-creation phase ended and the extraction phase began.

Auto Trader now charges UK dealers an average of nearly £3,000 per month just to be on the platform; a cost that has consistently risen faster than inflation. Its 2024 rollout of Deal Builder sparked a full-scale revolt among dealers. This feature forced dealers into a system that allowed customers to reserve stock for a £99 fee. For the dealer, this meant the inventory was effectively frozen for up to a week for a customer who might never show up, while Auto Trader collected the data and the fee. The platform felt safe making the dealer's life harder because it knew the dealer has nowhere else to go.

Rightmove is following a similar path and currently faces a £1 billion legal claim for allegedly abusing its dominant position to impose excessive and unfair subscription fees. When a platform's profit margins reach 70%, as Rightmove's have, it is no longer a partner to the industry; it is a parasite. The company has stopped innovating to make it easier to buy a house; it is simply exploiting its position to raise the price.

Another form of “enshittification” is the degradation of the search function. Twenty years ago, Amazon's value proposition was simple: the company would help you find the best product at the best price. Today, Amazon has pivoted to becoming an advertising company that happens to ship boxes. If you search for a specific product today, the first several products are no longer the best results; they are sponsored placements. Amazon has introduced a pay-to-play model where the merchant that pays the highest gets the top spot, regardless of product quality or price.

This is deliberate, as the customer then has to work harder and scroll longer to find the product they want. Amazon wins because it collects the fee; the merchant pays up to buy visibility; the customer loses because their time and trust are being harvested. This is the extraction economy: making the product just annoying enough that the seller has to pay to be seen, and the buyer has to pay in time and frustration to find it. This is the behaviour of a slum-lord who stops fixing the plumbing because they know you can't afford to move.

The subscription squeeze

Finally, we have the subscription squeeze, perfectly illustrated by the streaming giants. In the first phase of “enshittification”, services such as Netflix and Disney+ were good to customers. They offered massive libraries for little cost to kill off the old competition (RIP Blockbuster Video). Once the competition was dead and the user was locked in, the extraction began.

Until 2023, for Disney+ the proposition was £7.99 a month for everything. No advertisements, high-definition films and TV, access to the full library. This was the subsidy phase. Once lock-in was achieved, “enshittification” began. In 2023, it introduced a tiered system. By 2024, if you wanted to keep the advertising-free service you already had, the price jumped 12.5% to £8.99. If you wished to stay at the old price, you had to accept a lower-tier cluttered with advertisements.

By late 2025, the prices hiked again. To avoid commercials now, a UK customer is paying £9.99 per month, nearly 25% more than they were two years ago for the exact same service. This is the extraction economy at its most cynical. The company isn't charging you more because the content is 25% better, but because it knows you've already invested years in its offerings. It's betting that the friction of leaving is higher that of paying more for less. This is the ultimate sign of a business in decay: when the primary driver of revenue growth is no longer attracting new customers with a better product, but squeezing the ones it already has because it knows they are too trapped to leave.

As investors, when we see a company transition from growing the pie to eating the pie, we should recognise that the feast is almost over. It is undeniable that the early stages of “enshittification” can be intoxicating for shareholders. When a firm pivots from serving a customer to mining them, the surge in profitability can drive a share price to record highs. But long-term, investors must distinguish between a windfall and a terminal decline. The most resilient businesses are those that realise customers' trust is a non-renewable resource.

Costco (Nasdaq: COST) has a famously customer-orientated culture. Its $1.50 hot-dog combo has remained unchanged since 1985. When co-founder Jim Sinegal's successor suggested raising the price to protect margins, Sinegal's response was: “If you raise the price of the f**king hot dog, I will kill you. Figure it out”. This wasn't about snacks; it was a radical commitment to a business model that refuses to strip-mine its own fans.

We see this same dedication to the customer today with Wise (LSE: WISE). While legacy banks use foreign exchange to hide extortionate fees, Wise is obsessed with transparency, continually lowering prices and increasing speed to make the service better. I would bet on a company that compounds value for its users over a toll-booth value-extractor any day. Milton Friedman, one of the free market's fiercest defenders, recognised the danger. When a business abuses monopoly power to crush competition, it stops being part of a healthy capitalist system and instead invites the very state intervention that ultimately smothers enterprise.

This brings us back to the RMT. We may dismiss its rhetoric, but its diagnosis is a warning we must heed. “Enshittification” is a threat to the moral legitimacy of capitalism. If we allow this rot to persist by rewarding it with our capital, we are handing the ultimate weapon to those who may wish to dismantle the system entirely. To preserve the freedom to invest, we must demand better. To save capitalism, we must stop funding the extractors and start backing the builders.

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The UK's unemployment rate climbed to 5.2% in the three months to December 2025, according to the Office for National Statistics – up from 5.1% in the three months prior to that. Vacancies also remained flat and workers on payroll fell, too.

The data also showed wage growth has slowed to 4.2%.

The market is undeniably looking gloomy. In part, you could point the finger at chancellor Rachel Reeves and the policies in the Autumn Budget both in 2024 and 2025, as the cause of businesses slowing down with recruitment over the Christmas period and stalling on hiring plans for 2026. Minimum wage increases and higher employer National Insurance Contributions have added to costs, forcing many employers to cut back on staff and avoid backfilling roles.

The slower wage growth has added to the woes as many workers face higher taxes due to frozen thresholds, alongside inflation adding to the costs of living, meaning they take home less overall.

Unemployment and AI

But there is another reason why the UK labour market could be slowing – artificial intelligence (AI), which is undeniably adding to uncertainty employers face today.

Earlier this month, speaking to the Financial Times, Mustaf Suleman, CEO of Microsoft, warned that desk-based jobs were at most risk from AI and that human-level performance tasks which involve someone sitting down at a computer will be taken over by AI in the next 18 months or so.

He said jobs in accounting, legal, marketing, and even project management were potentially at highest risk.

According to Morgan Stanley research, the UK is losing more jobs to AI than elsewhere across the globe.

Morgan Stanley claimed AI has now shifted from experimental technology to a functional driver of business strategy. Of the sectors it looked at, companies saw an 11.5% increase in productivity and 4% decline in headcount over the last 12 months.

While it is not clear that unemployment rates are directly related to AI, it is clear that AI is causing disruption in the Labour market and today’s increase in unemployment may just be the start to more disruption and uncertainty.

It is not good news for the economy that is still battling inflation and in uproar over taxes.

Last year, Andrew Bailey, the governor of the Bank of England, told BBC Radio 4 that the widespread adoption of AI “is likely to displace people from jobs in a similar way seen during the Industrial Revolution”.

Where next for interest rates?

With a weaker labour market, for now, Bailey's task is to bring stability back to the economy and as such interest rate cuts could well be on the cards.

In the last meeting, the Bank of England’s Monetary Policy Committee (MPC) decided to keep the base at 3.75%, but it’s likely that members will vote in favour for a cut in March 2026 as the labour market softens, which has been a key concern.

But how the MPC vote next month could also be determined by tomorrow’s inflation figures.

With the economy under pressure, some experts, such as the Trades Union Congress, have called for quick fire cuts to help give households and businesses a much needed confidence boost.

See our article on what the experts are saying about the next interest rate cut.

It is nearly ten long years since the British people voted for Brexit and to leave the European Union. The latest opinion polls show that a majority now believe that Brexit has gone badly. Too much time has been wasted searching for a satisfactory halfway house that does not exist. The additional uncertainty has delayed business investment and dampened economic growth. The increase in friction at the border has hampered the UK’s trade with the EU, at least in some goods. The politics has also remained toxic. In particular, net migration to Britain has surged, rather than being brought under control. The carving out of Northern Ireland has undermined the integrity of the UK.

On the other hand, even this “botched Brexit” has not been the economic disaster that many predicted. The UK still leads the rest of Europe as a destination for foreign investment. Domestic investment is rebounding as uncertainty fades. There has already been some good progress in lowering barriers to trade with the rest of the world. Meanwhile, trade in services has boomed. The City of London continues to flourish and is now a champion of the benefits of smarter regulation. Susan Langley, the new lady mayor, has said that the prospect of realigning financial rules with the EU has passed and warned against linking regulations to any single jurisdiction.

On the money front, Britain has already saved tens of billions of pounds in contributions to the EU budget. Some argue that this has been more than offset by the loss of tax revenue as a result of weaker economic growth. However, it is still hard to separate the impact of Brexit from other shocks, notably the UK’s relatively high energy costs. Overall, the performance of the UK economy has been similar to that of France, and much better than Germany’s. The really big divergence has been between Europe’s persistent economic weakness and America’s strength.

Finally, just to chuck another uncertainty into the mix, many argue that the creeping isolationism of the US under Donald Trump has strengthened the case for Britain to realign more closely with the EU.

Is Brexit being reversed by Keir Starmer?

This is the complicated backdrop against which many of the old debates about Brexit are now resurfacing. Thus far, Keir Starmer’s Labour government has attempted to steer a middle course, with some success. Under Starmer, Labour has stuck to the “red lines” in the party’s 2024 manifesto. This explicitly ruled out a return to the EU’s single market or to the customs union and said no to the restoration of “freedom of movement”. In the meantime, the Labour government has developed the new global trade deals started under the Conservatives and continued the gradual decoupling from EU rules in areas such as financial services and animal welfare (both for the better). Until recently, the long-scheduled “UK-EU reset” also looked like something that most people could happily support. The government was simply proposing to tidy up parts of the post-Brexit arrangements that could easily be improved. Examples here included the mutual recognition of veterinary standards and professional qualifications, and making life a little easier for touring artists.

This strategy has had some real benefits. Brexit has dropped way down the list of concerns for the public and, at least as importantly, for businesses. The Bank of England’s “Brexit Uncertainty index” had already fallen sharply since 2019, but it has remained low under Labour. Yet, this “middle way” now appears to be unsustainable. Labour had framed its position as accepting Brexit as a settled fact. But 2026 could be the year when this starts to change.

This partly reflects internal Labour party politics. The days of Starmer’s premiership appear to be numbered. Potential leadership rivals, notably Wes Streeting and David Lammy, have already broken ranks by backing a new UK-EU “customs union”, at least implicitly. This followed YouGov polling that suggests that 80% of Labour voters would also be in favour. Prominent figures in the trade-union movement and in the media are banging the drum for the customs union, too.

This echoes a wider debate. Could renewed and closer ties with the EU help to address Britain’s economic problems? Some say that forming a new customs union would be a good first step. Others argue that we could also improve our access to the single market by accepting more EU rules. But scratch just a little deeper and it becomes clearer that the choices are not that simple.

In a nutshell, a “customs union” is an agreement to remove tariffs on most, or all, goods traded between member countries. To make this work, all members must apply a common external tariff to goods imported from outside the union. It is not possible for a non-EU nation state, such as the UK, to join the EU’s Customs Union (capital “C”, capital “U”). But it would be possible to enter some more limited form of “customs union” with the EU, as Turkey has done, and as then prime minister Theresa May initially proposed as part of her Withdrawal Agreement.

Would a customs union with the EU work?

However, there are three compelling reasons to oppose this idea. First, there would not be much to gain in terms of lower tariffs. Most UK-EU goods trade is already tariff-free and quota-free under the terms of the existing deal (the EU–UK Trade and Cooperation Agreement). Admittedly, EU tariffs are still charged on some imports from the UK where the appropriate “rules of origin” are not met, including some high-tech manufactures, or where it is too costly to prove compliance with them, such as some low-value goods. But any remaining tariff benefit from a new customs union would still need to be set against the UK’s obligation to apply the EU’s tariffs on goods that we import from the rest of the world. These EU tariffs are often higher. The UK would probably also be obliged to share customs revenues with the EU, and to allow countries that the EU has trade deals with to access UK markets with no guarantee of reciprocity.

Second, there is not much to gain in terms of non-tariff barriers either. Crucially, there would still need to be checks at the UK-EU border, especially if the UK remained outside the single market and the Schengen free-movement zone. These checks could only be reduced by accepting a raft of other European regulations – with no say on how these are determined.

Third, the ability to do independent trade deals with other countries would be severely limited. The UK might still be able to negotiate a few agreements covering some aspects of trade in services, but not trade in goods. At the very least, the government would have to renegotiate all the new trade deals it has done since Brexit – as Starmer has rightly stressed. The UK may have to cancel most of these new deals altogether, making the UK look like a very unreliable partner. For instance, UK goods exporters currently face lower US tariffs, on average, than those from our competitors in the EU selling the same products. This advantage is partly due to Brexit – and it would be lost.

Any support for rejoining a “customs union” would surely fall away if these costs were properly explained. Indeed, other polling by YouGov last summer found that only 9% of Labour voters would be happy for the UK’s tariff policy to be decided by anyone other than the UK government itself.

Single market would bring few benefits

There have also been many dodgy claims about the economic benefits. In particular, the Liberal Democrats have argued that a new customs union with the EU could boost the UK economy by 2.2% and tax revenues by £25billion. These figures are attributed to a February 2025 study by the consultancy Frontier Economics. In reality, this study relied on some heroic assumptions about the impact of small changes in trade openness on productivity.

Moreover, the report modelled something that is simply not on the table, namely regulatory alignment based on “mutual recognition”, with the most favourable results assuming that this applies to both goods and services. So this was not, in fact, the same thing as a “customs union”.

Some supporters of a new UK-EU customs union also still claim that the EU would be willing to offer relatively favourable terms. But this is a triumph of hope over experience. The recent negotiations over a limited UK-EU reset have stalled in several areas precisely because the EU wants to extract every possible concession. For example, the UK is being asked to overpay to rejoin the EU’s Erasmus student exchange programme and even for the right to contribute to Europe’s defence. Adopting the EU carbon-emissions scheme and imposing additional carbon taxes will raise energy costs even further.

There is also little evidence that realigning with the single market would provide much of an economic boost. EU policymakers are experts in “managed decline” and masters of overregulation.

It might be argued that the EU is a worse place without the UK to support other more instinctively market-liberal countries. But the counter-argument is that it would be madness to seek to realign more closely with a failing economic bloc. The euro debt crisis and now the need to ramp up spending on defence have put modernisation of the EU on hold.

The UK could do more good by demonstrating the economic advantages of supply-side reform and smarter regulation outside the EU. If other European countries then want to follow, all the better. Indeed, Europe’s biggest banks and insurers have already called for EU regulators to copy the example of the UK with a formal objective to support economic growth and competitiveness, intensifying the sector’s drive to ease the cost and complexity of its rules.

A more positive vision of Brexit

This would support a more positive vision of Brexit, based on going back to basics. The vote to leave the EU in 2016 was essentially a vote to regain control of borders, laws and money. Polling shows that the British people still want their own government to make policy in a wide range of areas, not just trade. This is surely incompatible with giving sovereignty back to the EU. Viewed this way, the UK must be able to diverge from European regulations, especially in growth sectors such as AI and life sciences. The UK also needs to be able to run its own trade policy and choose who comes to live, work or study here.

This more positive vision of Brexit may seem hard to square with the academic studies that suggest that the departure from the EU has had a large and negative impact on trade, productivity and growth. But just like the headlines from opinion polling, it is worth digging a little deeper. This can be illustrated by dissecting two numbers – 4% and 8% – which are widely quoted by those arguing that the UK should rejoin the EU, or at least the single market and customs union.

The 4% is the assumption made by the Office for Budget Responsibility (OBR) about the long-term impact of Brexit on UK productivity. Clearly, any analysis from the government’s own fiscal watchdog needs to be taken seriously, but this figure is widely misunderstood. For a start, the 4% is simply an average of the results of 13 external studies, rather than original work by the OBR. These studies, all done before the final shape of the exit agreement was known, used a variety of different models and assumptions, most of which now look far too pessimistic. Even then, nine of these studies put the impact at less than 4%.

Moreover, the key driver of the 4% hit to productivity is assumed to be a sharp fall in the “trade intensity” of the UK economy. Specifically, UK imports and exports are both assumed to be 15% lower than if we had remained in the EU. This covers total trade, both goods and services, and with the whole world, not just the EU. These assumptions are only weakly supported by the actual data – if at all. Falls of 15% had always looked pessimistic given the relatively favourable tariff terms in the initial UK-EU trade deal. In reality, the overall “trade intensity” of UK GDP has continued to track that of our peers in the EU, rather than collapse.

Most economists agree that UK trade has held up much better than expected after Brexit. The UK’s trade intensity might be a few percentage points lower than it would otherwise have been. This is unlikely to make much difference to productivity in a large, advanced economy that remains relatively open. Moreover, any drag is likely to fade over time as businesses adjust, the full benefits of new post-Brexit trade deals start to come through, and the major EU economies continue to underperform against the rest of the world.

Last but not least, the OBR’s 4% does not take account of any potential benefits of Brexit, including new trade deals, smarter policies on immigration and better regulations at home. This omission is partly because the OBR judges that these benefits will be small. But it is mainly because it does not usually incorporate the impacts of policy changes that have not yet been made.

Applying the smell test

But one of the most extreme estimates of the “harm done by Brexit” comes from a Working Paper published in November last year by the US National Bureau of Economic Research (NBER). This study estimated that Brexit has already shrunk the UK economy by as much as 8% since the vote to leave in 2016, which would indeed be nothing short of a disaster.

However, the 8% figure fails a simple “smell test”. For context, the UK economy has grown by about 12% since 2016, outpacing Japan, Germany, Italy and France. If you add another 8% the UK would have been the fastest growing economy in the G7 – bar only the US – and left its EU peers far behind. This would not be impossible, but it is surely unlikely.

So, how did the authors of the NBER paper arrive at an 8% hit? They compared the UK’s per capita GDP growth since 2016 to that of a wide range of other countries and assumed that any underperformance must have been due to Brexit. There are a number of problems here. But briefly, any GDP-weighted comparison is dominated by the US. Over this period the US economy has benefited disproportionately from low energy prices, a large fiscal stimulus and the boom in artificial intelligence.

The NBER paper also uses a computer program to find the weighted group of countries (or “doppelgänger”) whose performance was closest to that of the UK before Brexit. This control group can be a very odd bunch. The NBER doppelgänger gave the highest weight (61.4%) to the US, followed by Estonia (10.9%) and Greece (9.5%). Latvia, Iceland and Hungary also featured. There was no place for Germany or France, which are more obvious benchmarks. More fundamentally, the best fit in one period and in one set of circumstances may not be the best in another, especially where there have been many other shocks (not just Brexit) which could be expected to hit the UK differently, including Covid and the energy crisis.

Finally, Canada is the laggard among the G7 group of major advanced economies in terms of growth in per-capita GDP, not “Brexit Britain”. That perhaps has something to do with Canada’s very high levels of net immigration – a feature shared with the UK. But clearly it cannot be blamed on changes in trade relations with the EU.

Which way should Britain jump?

In summary, the mainstream narrative on Brexit’s economic impact relies on many dodgy assumptions and selective use of data. While it is important to acknowledge the negative effects, it is equally important to question the magnitude and duration of these effects, and to consider alternative explanations.

Looking forward, the UK needs to decide which way to jump. Many will continue to argue that Britain’s economy can only thrive again if properly unbound from the EU. However, it is increasingly easy to imagine Labour heading into the next election with an explicit commitment to realign much more closely, even if this stops short of full membership. That would at least be a more honest position than the current fudge. But reopening the “Brexit wars” could increase uncertainty again and do more harm than good, especially as many in the EU seem as determined as ever to punish the UK for daring to leave.

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The histories of the UK and Argentina are closely linked, with the relationship often marked by irony. The staff bar at the British embassy in Buenos Aires (BA) is called The Hand of God, and Argentina’s president Javier Milei cites Margaret Thatcher as his hero. He claims that the British leader, responsible for the controversial sinking of the ARA General Belgrano during the 1982 Falklands War, has been inspirational to the economic revolution he initiated in 2023.

Indeed, on the issue of the Falklands, Milei has said that he sees a future where the Malvinenses vote with their feet to join Argentina’s future success. However, over the past year, that future seemed increasingly in peril as the “Milei Revolution” faltered, just as the UK most needed it as an inspirational route out of its stagnant economy trapped by government overreach. Despite a series of setbacks, Milei unexpectedly recovered to win the critical midterm elections. The 26 October midterms were the first national referendum on Milei’s painful but necessary economic shock therapy. After two years of deep spending cuts and fiscal adjustment, the vote was a critical test of the public’s willingness to endure hardship for the promise of political stability and economic growth.

It would either validate Milei’s radical mandate or signal the beginning of the end for his ambitious project. The unexpected outcome represented a stark repudiation of the consensus view. Following allegations of corruption targeting the president’s sister and general secretary, Karina, and disastrous provincial election results just six weeks earlier, it began to appear as if Argentina might once again snatch defeat from the jaws of victory. On 7 September, Milei’s La Libertad Avanza (LLA) party was trounced in the significant BA Province, leading to widespread speculation that Milei’s support was collapsing.

How Javier Milei overturned the odds

However, just six weeks later on the national stage, the LLA roared back with a victory that shattered most expectations. The man with the chainsaw and a unique economic vision for his country had again overturned the odds. In the more significant national poll, the LLA secured 41% of the vote. Theories for the dramatic turnaround ranged from a galvanised anti-Peronist voter base following the provincial poll to an unproven but widely circulated claim in pro-Milei circles that a more secure national voting system had eliminated a million fraudulent provincial votes. Others accused the US of buying Milei’s victory with a strategically timed financial intervention in the days before the ballot.

Regardless, financial markets, which had braced for the worst and sold off after the September results, exploded. There followed a melt-up in the Argentine peso as investors priced in the new reality: Milei’s reform agenda had received widespread endorsement and a runway extension that could lead to an all-important second term. The currency leapt by more than 8% versus the dollar. Long-dated sovereign dollar bonds rose 20%; bank stocks rocketed, with the share price of Grupo Financiero Galicia, the country’s largest listed bank, gaining 130% from its mid-September low.

Although the LLA remained a minority force in both houses, the election shifted the balance of power. By more than doubling its representation, Milei’s party critically strengthened his political authority. Holding more than one-third of Congressional seats, the LLA can now prevent the opposition from mustering the two-thirds supermajority needed to override a presidential veto. As investors celebrated Milei’s strengthened political position, the real test is how the new arithmetic in Congress can translate market euphoria into tangible success. Despite reaching this key political milestone, the path to lasting economic recovery remains far from clear. Politics is always uncertain; Argentine politics is, by a factor, more so.

Milei's bold experiment

Argentinians have lived through a high-stakes experiment in fiscal discipline and deregulation. For investors looking on, there has been a remarkable macroeconomic stabilisation with plummeting inflation amid early signs of robust economic growth. However, for people on the ground, it has come at a profound cost, which they cannot endure indefinitely. The clock is ticking, but Milei has added valuable extra time. His success matters beyond Argentina.

Milei’s overarching achievement so far has been to strangle the hyperinflation that threatened to consume the nation in 2023. He inherited an economy on the brink of collapse, with an annualised inflation rate of 15,000%, a fiscal deficit equivalent to 15% of GDP, and no borrowing capacity. His response was immediate and uncompromising.

In the words of his British political hero, there was no alternative. Milei slashed public spending, cutting the number of government ministries by more than half and laying off tens of thousands of public workers. By March 2024, Argentina recorded its first fiscal surplus in a generation. The effect on prices was dramatic. Reported monthly inflation plummeted from 25% in December 2023 to just 2.4% by the time I visited BA in November 2024.

However, the cost of living in BA was not as cheap as you might expect; the peso had strengthened. Yet an early decree repealing stringent rent control laws had a swift impact on the housing market. Real rental prices fell by 30%, while supply tripled. My Airbnb, a newly built flat in a nice part of town, worked out to about £60 a night.

But ripping off policy plasters always has negative consequences, and the removal of long-standing subsidies for public transport and energy revealed the extent of Argentines’ dependency. A friend who has lived in BA for many years reported that his monthly electricity bill increased from $8 to $32 over a few months. Not too much of a problem for a British expat, but Argentina’s poverty rate, an absolute measure of survival, jumped to 57% – although it declined to 46% later in 2024 and to 32% in the first half of 2025.

Amid the fiscal contraction and economic restructuring, unemployment jumped to a four-year high of 8% in early 2025. But this measure only tells part of the picture. Significantly, informal measures of underemployment increased in Argentina’s vast grey economy, where over 40% of people work undocumented. Such indicators threatened to derail the entire project, creating an opportunity for Milei’s opponents in September’s provincial elections. Fighting inflation involved defending an overvalued peso, and this policy was costing Argentina an increasing share of its scarce currency reserves. Argentina’s financial position started to fray, and doubts about the Milei plan multiplied.

A lifeline from Donald Trump

It was at this point that the White House provided a critical financial backstop in the form of a US Treasury-backed $20 billion swap line, followed by a similarly sized, bank-financed package – stabilising market sentiment and granting Argentina access to scarce dollars.

The prime motive for any refinancing is open to interpretation. One person’s bailout is another man’s prudent liquidity boost to tide things over to secure growth. Donald Trump’s peso intervention was no exception: US Treasury secretary Scott Bessent indicated that underwriting Argentina’s access to dollar reserves was a rational act that protected America’s share of the International Monetary Fund’s outstanding $45 billion loan to Argentina. He went on TV to claim the US had made a profit on the trade. As a former global hedge fund manager, he found it difficult to hide his satisfied grin.

However, whether financially savvy or not, with the US Department of State currently re-enacting the 1823 Monroe Doctrine in Venezuela, support for Argentina is as strategically sensible as it is economically rational. With the world fracturing into key spheres of influence, Argentina’s alternative was to increase its exposure to China’s Belt and Road initiative for the long-term prize: access to Argentina’s vast, untapped natural resources, including shale oil, rare earth elements and its significant agricultural output.

Despite a backlash from the US farming lobby, which claimed that Argentina’s farmers were receiving better treatment from Trump than American soybean growers and cattle ranchers, the US administration’s support for Milei was ultimately strategically vital. Expectations are that Milei will undertake a reset of his policy agenda and delivery. Critically, Milei plans to push labour, pension and tax reforms. The government argues that more flexible labour laws would make it easier for companies to put informal workers on the books, granting them access to benefits and increasing pension payments. But such measures will undoubtedly provoke further union opposition and strike action, which in Argentina often extends to political violence. The struggle for the Milei Revolution is not over.

Furthermore, alongside his full agenda of domestic reforms, Milei must also address his key external problem: the peso. In particular, he must morph his managed peso bands into a more fully fledged floating exchange rate. If anything signifies the success of the Milei Revolution, it is his ability to land this hard-to-control plane in a world of economic turbulence.

Once in the category of currencies reserved for the Zimbabwean dollar and the Venezuelan bolívar, the Argentine peso would, by standing unaided in the global currency market, signal Argentina’s final recovery like nothing else. This landmark achievement is a prerequisite for Milei to return Argentina to the ranks of the world’s top economies.

And why does this matter to the UK? The UK’s out-of-control fiscal position and government overreach are taking us towards the same ultimate endgame that Argentina has experienced over decades. The particulars of our economies and politics differ; however, the UK is currently on a path that, sooner or later, makes a Milei-style reset unavoidable.

How far down this ruinous road must the UK travel before voters can handle such hard truths? And who will deliver this message to an electorate that chooses not to listen? It has taken 80 years of Peronist dysfunction for Argentina to reach its point of no alternative. The lesson from the Argentine experience is that the longer it’s left, the more painful the required adjustments will be. Even now, for Argentinians, the path remains uncertain – and is still painful. But with Milei, they have a man honest enough to tell them the truth and survive. The UK might not be so fortunate.

Jeremy McKeown is market strategist at Dowgate Wealth and writes the blog HyperNormalTimes on Substack.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

We’re now halfway through the decade that began with Covid, which was succeeded by a surge in the cost of living. Geopolitical turmoil has also buffeted markets in recent years. 2025, however, was a good one for equities. Let’s see how the companies I picked early this year have fared over the previous 12 months.

Four of the six proved profitable, and the portfolio delivered an average return of 35%, comfortably ahead of the FTSE All World index’s 19.5%. This means that my picks have delivered an 89.65% return since 2021, or a yearly average of 17.93%.

This compares very favourably with most fund managers’ performances, as they usually fail to beat their benchmarks (despite their high fees for trying to do so). I also comfortably beat the market as the FTSE All-World achieved 55.9% in the same period. This means I am outperforming the market by 60%.

Luxury retailer Burberry has had a turbulent year, hampered by the tariffs and a shaky backdrop for household spending on luxury goods. The stock, which I tipped at 962p, fell as low as 596p before rebounding to new multi-year highs. The turnaround is progressing well and the investment thesis is intact – I believe there is more to come.

PensionBee, a platform that consolidates people’s pensions into a single, easily manageable online account and helps people manage them, has made great strides, expanding its customer base, which provides recurring revenue.

The company’s cash position more than doubled year on year in the third quarter to £33.3 million, from £14.6 million last year. The group is targeting one million invested customers by 2034 and with 297,000 already in the bag I believe the bull case is even stronger with a slight decline in price.

Gulf Marine Services is a provider of self-propelled, self-elevating support vessels (SESVs) for the offshore-energy sector. The stock has been very volatile and is finishing the year almost unchanged, despite being up 43% at one stage.

This is despite profit upgrades and a successful refinancing of the loan facility, resulting in a lower net-interest margin. In view of this progress and the price staying steady, I think the stock is a more attractive buy now than it was a year ago. At some stage, with continued deleveraging, the company’s improvement should be recognised by the market.

Filtronic is a British company specialising in the design, development, and manufacture of advanced radiofrequency (RF) communication components and sub-systems. Elon Musk’s SpaceX is a key customer.

Filtronic has been a major star in 2025. As I wrote last December, there was plenty of upside despite the high valuation as long as the business kept performing well. It has, with more profit upgrades emerging, and more follow-on orders from SpaceX. Again, there could be continued upside. However, I believe the balance between risk and reward has now changed as the price has caught up with the story.

Cybersecurity outfit Intercede has been the sole disappointment this year. I feel this is because there have been no big one-off contracts, as there were in previous years. This is a solid and resilient business, and I believe there is more upside here as the story continues to unfold.

Audioboom, a top global podcast platform, has been another top performer and a big contributor to my overall result this year, along with Filtronic. I was surprised to see that the company is considering putting itself up for sale so soon after raising money for the acquisition of Adelicious, another podcast network. While Audioboom has been a big winner already, I do feel there could be more to come.

This year’s selection are all cash-generative companies and established businesses. I have been burnt in the past by picking stocks without positive cash flow, and as there are no stop-losses allowed when choosing shares for a year, I’ve decided they are too risky to include. Remember, as always, my picks are never tips. They are ideas only. I do my best to highlight both positives and negatives, but you should do your own research.

Four stock ideas for 2026

1. Virgin Wines (Aim: VINO)

Virgin Wines is an online wine retailer. It floated in March 2021, and was buffeted by the cost-of-living crisis and changes to Apple’s iOS 14.5 operating system, which hampered online advertising. However, the group appears to have steadied the ship. Expenditure on acquiring customers has fallen and the business has remained profitable throughout.

At a market value of £27.1 million, the business boasts net cash of £9.3 million – after £2 million of shares were repurchased during the period. The cash it reports is split between the value of customers’ deposits and the actual cash on the company’s balance sheet, and not given as a single figure, as is the case at another wine retailer.

This year Virgin Wines managed to acquire 28% more customers by spending just 6% more. A new mobile app to be released in early 2026 will help customers engage with the business more efficiently. Commercial relationships with Ocado and Moonpig help explain why Virgin Wines recently announced that its pre-tax profit numbers are running ahead of expectations.

Earnings and net cash are expected to fall in the year to 30 June 2027, as the investment in acquiring customers eases, and there has been a further share buyback of up to 7.15% of the shares in issue approved.

If the company can now acquire quality customers who deliver a payback over the long run, then Virgin Wines could have a bright future. The market has hated this stock, but the early green shoots are starting to appear.

2. Peel Hunt (Aim: PEEL)

Peel Hunt is another Covid float, listing in September 2021 at 228p per share. It now looks as though the business is entering a new phase of growth. The current share price is 50% below the price at the initial public offering (IPO).

But a bet on Peel is a bet that the UK market will rebound, and Peel is in pole position with a growing list of corporate clients. It now provides investment-banking services for 57 FTSE-350 companies as well as many smaller growth companies. Offerings range from corporate broking and research to trading and flotations. Net assets currently stand at £100.7 million, against a market value of £119.1 million, and while there are no forecasts we can see the business generated a net profit of £8.3 million in the six months to 30 September 2025. Sales rose significantly in the same period, to £74.4 million from £53.8 million, but we also have to accept that this is a volatile figure as it is geared towards financial markets. But if you believe we are in for a new cycle of growth, Peel Hunt is lean and ready to capitalise.

3. THG (LSE: THG)

THG went public at 500p in September 2020. THG is an online retailer with a variety of brands. Its value has collapsed more than 90% since it listed. I have been a vocal bear on THG for some time, but when the facts appear to have changed I reserve the right to change my mind. Successful investors in equities always update prior assumptions when new information is released. The THG of today, in my opinion, is very different from the THG of a few years ago. The business had its strongest quarter of organic sales growth since 2021, with both THG Beauty and THG Nutrition’s growth accelerating.

THG’s Myprotein is one of the top nutrition, diet, and fitness brands in the UK. The brand is now expanding through collaborations with Mars and moving into gyms and supermarkets. I think the move offline solidifies Myprotein’s brand and presence, in addition to securing new growth and new customers. THG also sold Claremont Ingredients for £103 million, having bought it in late 2020 for £52 million, which proves it can spot and grow value. I believe Myprotein has the potential to keep growing and maintain dominance in its sector, which bodes well for THG without factoring in the growth of its beauty offering.

The overall business carries £321.4 million of net debt as of June 2025. However, the sale of Claremont will reduce this figure, and with the Beauty and Nutrition divisions both growing we could soon see a rebound in THG’s shares.

Still, it is worth noting that THG is forecast to be loss-making in 2026 before making a profit of £6.24 million in 2027. I would highlight that a lot of things can happen in that time, but also that there have been two share placings in the last two years.

THG’s cash balance was £129.4 million in mid-2025, down from £287.7 million in the first half of 2024. But we can also see that £181.7 million was a repayment of bank borrowings, while £21.7 million in cash was generated from issuing more shares.

A figure of £40.5 million for net cash used in operating activities shows that the company is more than adequately financed to keep the lights on for the foreseeable future.

4. Sylvania Platinum (Aim: SLP)

Sylvania Platinum is not another Covid float – the only stock in this quartet not to be. It is a South African company producing platinum-group metals (PGMs) such as platinum, palladium, and rhodium. As a result of the commodity prices being volatile, Sylvania’s profits and share price are both also prone to wild fluctuations.

For example, net profit was $99.8 million in 2021 and $7 million in 2024. But platinum has hit highs not seen since 2013, while palladium has fallen from $3,000 in 2022 to $1,350 in 2025, via a low of $850 in 2024. The company’s balance sheet is strong, with net cash of $60.9 million and management has a proven record of returning cash to shareholders via dividends and share buybacks.

Panmure Gordon has pencilled in $52 million of profit before tax for the year to 30 June 2026, and if we’re now entering a new bullish phase for palladium and platinum, as the recent strong price action indicates, then Sylvania’s cash and profits could be growing further in the coming years.

Michael holds long equity positions in BOOM, VINO, PEEL, THG, and SLP. You can find more of Michael’s trading ideas at newsletter.buythebullmarket.com

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The UK renewable energy sector cannot catch a break. At the end of October, the government launched a consultation on changing the Renewables Obligation Certificate (ROC) scheme that subsidises some renewable-energy production. At present, the subsidies are linked to inflation using the retail price index (RPI) measure, but they may now be switched to the consumer price index (CPI). RPI usually rises faster than CPI (the gap varies, but one percentage point is a rough rule of thumb), and so this would mean that subsidies rise more slowly in future.

The government has proposed two options for this. One is to switch to CPI in 2026. The other is backdate the change to 2002 (when ROCs were introduced) by freezing the current price until a new “shadow price” linked to CPI since 2002 catches up with today’s RPI-linked price, and thereafter increase with CPI. Neither are good, but the latter option is clearly worse. Hence shares in listed renewable energy investment funds (REIFs) slumped further, having already been battered by a series of setbacks and problems in recent years.

The changes would have no direct impact on new investments – the ROC schemes closed to most new applications in 2017. However, existing wind and solar farms have been promised subsidy payments until 2037 in some cases, so the changes will affect their earnings. More broadly, making retrospective changes undermines the assumptions on which existing investments have been made. That will erode investors’ confidence in committing future capital.

While the subsidies are ultimately paid by users as part of their energy bill, the change from indexing on RPI to using CPI is likely to mean a minimal reduction in the average household bill. At the same time, it will probably raise the cost of capital for future projects, making it ultimately self-defeating, argue infrastructure funds. Certainly, one has to feel that the government’s Clean Power 2030 (CP30) plan – which assumes £40 billion of private investment a year in green energy between now and 2030 – now seems wildly optimistic.

Losing patience with renewable energy funds

The direct impact of the change on listed REIFs will depend on which option is chosen (and on how much ROCs contribute to their income – typically 40%-50%). For many investors, this may feel like the final straw – yet more evidence that the sector is both unlucky and dysfunctional. While the government is clearly to blame for this particular shock, the way that the REIF sector has developed in recent years hasn’t encouraged investors to give it the benefit of the doubt. One can’t treat all REIFs as exactly the same and I’m going to focus largely on the solar funds here, but many of the problems apply more widely.

Bluefield Solar Income Fund (LSE: BSIF), Foresight Solar Fund (LSE: FSFL) and NextEnergy Solar Fund (LSE: NESF) put out statements saying that the impact on net asset value (NAV) would be around 2%, 1.6% and 2% respectively under option one and 10%, 10.2% and 9% under option two. This sounds manageable. However, we immediately get onto the question of how much investors trust these reported NAVs, which are based on fair value accounting and “mark to model” assumptions. The fact that most REIFs trade on 30%-40% discounts to NAV implies some scepticism about these valuations, while the fact that dividend yields are in the 10%-15% range suggests some concerns about their sustainability.

The original sin in the REIF model is that it was built around being able consistently to issue shares at premiums to NAV to fund new projects. REIFs were marketed as a growing income story in a low-yield world, with the added bonus of a green angle during the economic, social and governance (ESG) boom. Yet they were always paying out cash with one hand while taking it in with the other (hence NESF’s shares outstanding have doubled from 278 million 10 years ago to 555 million currently). This model only worked when the shares traded at a premium to NAV – now that they don’t, the REIFs no longer have access to cheap equity. Debt is no longer cheap either. It might make sense to cut dividends and reinvest the cash, but that would alienate investors who bought for income.

While this explains their growth problem, the opaqueness of returns explains why many investors are wary of them even as a limited-life income asset. In theory, the NAV represents the current value of future expected cash flows. The focus on this – and on paying steady dividends – makes it look as if REIFs have very simple, predictable economics. Reality is more complicated. Projected revenues depend on power price forecasts that come from third-party forecasters. When these change, so do NAVs. Meanwhile, actual performance has plenty of real-world complications.

For solar, there’s the amount of sun that falls on the panels. There’s whether it all gets used or whether grid outages means some gets wasted (FSFL had UK production 8.9% above budget in the first half, but would have been 13% higher without outages). On sunny summer days, there will be points when a surplus of solar power floods the system and sets the marginal price (at extremes the unsubsidised price can even go negative). Hence the “capture price” that solar farms get can sometimes be less the base load price (the price for steady, always-on power) – this summer, capture rates have frequently dropped to 80%. And if the grid physically can’t cope with the power being supplied, producers may be curtailed (turned off) by the system operator, meaning lost revenue.

Since the REIFs’ lenders and shareholders prioritise stability, the managers fix prices for much of their output in advance with power purchase agreements (PPAs). However, this means that they don’t capture much upside from spikes in spot prices (driven by higher gas prices, which set the marginal UK power price most of the time). All these factors come together in a bewildering series of assumptions. To take just one example, NESF’s short-term power price assumptions have fallen 56% from £139 per megawatt hour (MWh) in September 2022 to £61/MWh in September 2025. Longer-term power price assumption has risen 22% over the same three-year period. Yet its 20-year average price forecast has halved since it floated in 2014, pointing to long-term downward pressure.

Can renewable energy funds win back nervous investors?

What is the result of trying to distil such complexity into a single NAV that constantly changes? It is doubt about whether management are trying to mask poor economics with financial engineering, unconsolidated statements, fair value accounting and unverified assumptions. The accounting might technically be correct, but it is opaque and hard to compare between funds. Each time forecasts prove too optimistic and NAVs get downgraded, scepticism grows. This is why the REIFs now trade at huge discounts to NAV. (Policy risk – as demonstrated by the government’s proposed ROC change – may be another factor.)

Most of the REIFs seem to have little idea of how to get investors to trust them. They have tried to address the discount to NAV with share buyback programmes, but these have been too insignificant to counter the wave of selling. What’s more, buybacks often increase leverage: in May this year, NESF had to pause its buyback as leverage would have increased beyond its 50% debt-to-gross asset value policy limit. Rising debt is exactly what nervous investors don’t want to see.

Many have tried to sell assets, which would raise cash to pay down debt and fund buybacks while also validating NAV through real-world selling prices. This process has been slow, suggesting it may be hard to achieve prices respectably close to NAV. For example, in April 2023 NESF said it would sell 246MW of UK subsidy-free solar capacity across five separate projects. At present, there are still two project with 100MW yet to be sold. Last year, FSFL said it would sell its Australian portfolio (170MW across four sites), but the process has now been paused. A small number of bids for the portfolio were received, but none were deemed deliverable. In March this year, it earmarked a further 75MW for sale, with no results so far.

More recently, Bluefield proposed merging with its manager to focus on developing a 1.4GW pipeline of projects. However, that model implied a cut to the dividend and was quickly rejected by shareholders (if they were sceptical about the potential returns on capital, it is not surprising given the sector’s record). The fund was forced to ditch this and put itself up for sale. This has not steadied the decline in the share price, which has fallen to new lows below 70p, with a yield of 13% and a discount to NAV of 39%.

Until now, REIFs that have faced continuation votes have largely won them despite these woes – probably because investors are sceptical that they can sell their assets, pay back the debt and achieve a decent return for shareholders. This detente may be changing as investors get more anxious. The chairs of NESF, FSFL and BSIF have all stepped down in the past year and new brooms may be minded to sweep clean.

We could be reaching the point of maximum pessimism, as seems to have happened with battery funds. I have a position in NESF, bought on the basis that the dividend could well be cut, but that much of the bad news was already in the price with a yield in the mid-teens. Still, if the REIFs’ accounts clearly told us how much cash is being generated per pound invested per MW and whether it is declining, it would be much easier for investors to decide whether they still want to back these “sustainable” investments.

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Savers will be up to £1,200 worse-off after five years once cash ISA reforms and new savings taxes are introduced, research suggests.

Chancellor Rachel Reeves used her Autumn Budget last week to reveal plans to cut the cash ISA allowance to £12,000 from April 2027 while also raising the income tax rate on savings by two percentage points, to 22% for basic rate taxpayers and 42% for higher earners from the next tax year.

The combination of both changes could be bad news for savers.

Analysis by InvestEngine found that of the 7.1 million who contribute to cash ISA in 2022/2023, 2 million saved more than £12,000.

The investment platform’s research suggests that millions of savers could be affected as the remaining £8,000 they may have previously put in a cash ISA - the difference between the cash ISA and stocks and shares allowance - could end up being taxed in a mainstream savings account, even with the personal savings allowance.

Here is how savers could be affected once savings income tax rises in 2026 and the cash ISA allowance is cut in 2027.

The impact of cash ISA cuts and savings income tax hikes

InvestEngine’s analysis found that almost 1.5 million basic-rate taxpayers and 462,00 higher-rate taxpayers deposited more than £12,000 into their cash ISA in the previous financial year

But it won’t take much for the taxman to come knocking if cash ISA savers divert their money into savings accounts instead.

A basic rate taxpayer will see the income tax on savings rise to 22% from April 2027.

They still have a personal savings allowance of £1,000.

But if they put £8,000 into a savings account each year, earning the current typical rate of 4.5%, the personal savings allowance would be breached after the third year and they will have paid £264 of tax after five years.

It is worse for higher earners, who will face a 42% savings income tax rate and already have a reduced personal savings allowance of £500.

Higher earners saving £8,000 per year at 4.5% would breach the allowance after just two years and face paying £1,216 in tax after five years.

Andrew Prosser, head of investments at InvestEngine, said: “Our analysis shows that millions of savers regularly deposit more than £12,000 a year into cash ISAs.

"This cut to the allowance could push many into paying unnecessary tax on their savings interest."

How to protect your savings after the cash ISA cut

The cut to the cash ISA allowance will take effect in April 2027, with savers being allowed to put the full £20,000 tax-free limit in cash until then.

But after this date, those who still want to put that extra £8,000 into cash will have to get a bit more creative and look into alternative ways to protect their savings from the taxman.

Stocks and shares ISAs

The easiest way for savers to avoid a new tax bill is by investing instead in a stocks and shares ISA.

That may be easier said than done though, especially if you are uncertain about financial markets.

Nottingham Building Society found only 38% of cash ISA holders nationwide would consider switching to a stocks and shares ISA.

Harriet Guevara, chief saving officer at Nottingham Building Society, said: “Millions of savers rely on cash ISAs as a low-risk way to build financial stability. Two thirds of our cash ISA customers have used the full £20,000 allowance so far this year. These aren’t people with excess wealth - they’re individuals and families working hard to save for the future.

“What’s more, limiting cash ISA deposits is also at odds with this government’s own pledge to double the size of the mutuals sector, threatening to shrink mutual lending capacity, limit access to homeownership, and stall the long-term growth of building societies that reinvest in their members and local communities.

“If the government’s intention is to encourage more investment, these changes must go hand in hand with better financial education.”

Over the long term investing your money in a well-diversified portfolio tends to bring about higher returns than if you were to lock your money away in a savings account. Be aware, however, that the value of your investments can go up as well as down.

For more information, read our guides on saving vs. investing and how to start investing.

Premium Bonds

One of the UK’s most popular alternative savings vehicles is NS&I’s Premium Bonds. Unlike conventional savings accounts, money held in Premium Bonds does not earn a guaranteed interest rate.

Instead, for every £1 you have in Premium Bonds, you get one entry into the monthly Premium Bonds prize draw. Prizes range from £25 to £1 million.

Any money you win from Premium Bonds is entirely tax free, meaning if you are one of the lucky two people who wins the £1 million jackpot, you will be able to keep the entire amount.

You can save a maximum of £50,000 in Premium Bonds, but the drawback is that this money is not guaranteed to grow as you may not win every, or indeed any, month.

Laura Suter, director of personal finance at AJ Bell, said: “Currently based on the average chance of winning your average returns [from Premium Bonds] would be 3.6%. It’s less than the best rate you can get on traditional savings accounts, but for some the lure of winning big plus the tax-free prizes will be enough to attract their cash.”

Use fixed-term accounts

When you save money in a fixed-term savings account, you lock your money away to grow at a specific, fixed rate until the end of the specified term.

While you still have to pay tax on interest earned, this is not due until the end of your term. This means that if you time it right, you could defer the tax bill to another tax year.

This can be useful if you expect to drop into a different tax bracket in a future year, allowing you to have a lower tax rate on the interest your money earns.

Suter adds: “Equally it can be a good move if you’ve got lots of taxable savings this year, and so have already hit your tax-free limit, but may have less next year. It’s a good idea to track the savings accounts on a spreadsheet, so you don’t lose track of when they mature, or use a cash savings hub, so they are all in one place.”

Technological improvements have unrecognisably changed much of the global economy in the last 30 years. But one area that remained steadfastly stuck in the past is one of the most fundamental parts of any economy – money. In recent years, however, a financial revolution began. Cryptocurrencies have been with us now for 16 years, but they bring with them a whole host of complexities that only the faithful are willing to overlook. In most cryptocurrencies acolytes lies the spirit of the rebel – somebody who wishes to sit outside the system with their wealth independent of oversight and away from traditional assets. Inevitably, this has roused suspicion that the main benefit of cryptocurrencies is as a cover for nefarious activities.

A different type of cryptocurrency has recently come to light – stablecoins. Where Bitcoin and similar digital currencies aim at tearing down the financial order, stablecoins’ purpose is to improve it. These digital assets, backed by real-world currency, are beginning to act as an important bridge between the traditional financial system and the burgeoning world of decentralised finance. At the forefront of this movement is Circle (NYSE: CRCL), a US-listed financial technology (fintech) business that is positioning itself to be a central player in this new global landscape.

What are cryptocurrencies?

Cryptocurrencies are essentially strings of data that represent value. The key characteristic is that they are fungible, meaning that any one unit is interchangeable with any other, just as a pound coin is equal in value and function to any other pound coin. The magic that makes these digital assets secure lies in the blockchain, a development that became possible with the internet.

A blockchain is a decentralised digital ledger, a record of all transactions, that is maintained across a vast network of computers rather than being held by a single central authority, such as a bank. To understand its power, consider the traditional system of double-entry book-keeping. When you send money to someone, both you and the recipient keep a record of the transaction. A bank acts as a trusted, private third party to ensure that both records match.

The blockchain introduces a different third party outside of the private banking system. The radical idea was that the confirming party in transactions was to be a public record, open to be seen and verified by anyone. Every transaction is recorded in a “block” of data and, once that block is verified by the network, it is added to a permanent, immutable chain of previous blocks – thus creating a blockchain. This open, unchangeable record is what makes the assets on a blockchain truly unique and resistant to fraud, as it removes the need for a single, central authority. Imagine a contract between two parties. Then imagine that this contract only becomes valid once the whole world can see it and it thus only becomes legal if everyone agrees. That is the essence of the blockchain.

The difference is that a contract is a unique, non-fungible asset. Because cryptocurrencies are fungible, they can be used to facilitate secure, peer-to-peer transactions without a middleman such as a bank. That is the fundamental idea behind the original cryptocurrencies such as Bitcoin.

The rise of stablecoins

The older digital currencies grabbed headlines due to their volatile price swings and the vast wealth they created for the mavericks who saw the potential early. Stablecoins may prove a more practical innovation. As the name suggests, they are digital assets specifically designed to maintain a stable value, and their value is typically pegged to a fiat currency such as the US dollar or the euro. There are different types of stablecoins, each with a different mechanism for maintaining their peg.

The most common and trusted type is the fiat-backed stablecoin, such as Circle’s USDC. The mechanism is simple: for every digital token created, an equivalent amount of a real-world asset is held in a reserve account. This backing provides trust and stability, ensuring the stablecoin can always be redeemed for its real-world dollar equivalent. Crypto-collateralised stablecoins, such as MakerDAO’s DAI, are backed by volatile cryptocurrencies and use extra collateral to manage risk. Algorithmic stablecoins, such as the failed TerraUSD, rely on complex programs to maintain their value, but can collapse. The recent public failures of algorithmic coins have highlighted the importance of transparent, asset-backed models such as Circle’s.

Circle, formerly Circle Internet Financial, is a prominent US-listed fintech business that has made this model its core mission. Its flagship product is the USD Coin (USDC), but it has since expanded to include the EUR Coin (EURC). The company was founded in 2013 and initially focused on Bitcoin payments before making a strategic pivot to stablecoins. Circle’s history is defined by its commitment to working within the existing financial and regulatory system. From its early days, it actively pursued regulatory approval around the world. It secured key licences in New York, the UK and Singapore.

This dedication to compliance has set it apart. By actively seeking regulatory clarity from the outset, Circle has positioned itself as a trusted partner for financial institutions and businesses. Unlike many of its competitors, rather than trying to replace the financial world order, it is trying to fix it. This is in stark contrast to its main rival, Tether and its USDT coin. Historically, Tether has operated with less transparency and a more decentralised approach, often drawing intense regulatory scrutiny. Tether remains the larger stablecoin by value of currency in circulation, but Circle’s strong focus on trust and following the rules has helped it grow quickly. Because of this, many large investors and businesses see it as a safe and reliable way to enter the world of digital assets.

Circle's new financial infrastructure

Beyond simply providing a digital dollar or euro, Circle is building a new financial infrastructure. This is where the concepts of the off- and on-ramp become critical. The on-ramp is the process of converting traditional currency into a digital one, such as moving dollars from your bank account to a crypto exchange to buy USDC. The off-ramp is the reverse. Currently, these two steps can be a barrier, often involving fees and delays. But the true power of a stablecoin system could lie in a frictionless future where on-ramping and off-ramping are less frequent. Once an individual or business holds their currency in a stablecoin such as USDC, they can transfer it to anyone else in the system instantly, at nearly no cost, and at any time of day. This “always-on” payment rail will bypass the traditional banking system and its associated fees.

This is already happening – in international remittances, for example, where a USDC transfer can take seconds and cost fractions of a penny. This stands in contrast to the traditional system, which can cost upwards of £20 and take several days. In a world of mass adoption, one could even receive a salary in stablecoins, then use them to pay for groceries or bills, all within the same digital system, unlocking a cheap, frictionless, financial life. Circle has actively pursued partnerships with major financial players such as Visa and Fiserv to turn this vision into a reality. These collaborations will allow traditional finance firms to integrate Circle’s technology, helping to bridge the gap and accelerate the adoption of USDC.

Most of Circle’s income comes from the interest it earns on the money that backs its stablecoins. Each USDC and EURC is supported by cash and short-term government bonds, which together provide a steady source of earnings. How much Circle makes depends mainly on two things: current interest rates and how many of its stablecoins are in use. It’s an attractive model, but not without its risks. In a high-interest-rate environment, the firm’s profitability soars. In a rate-cutting world, however, Circle’s revenue from this source would be directly affected.

Acknowledging this dependency, Circle is diversifying its income by offering a suite of software services and customisable interfaces that help businesses integrate stablecoins into their own operations. This includes its Circle Payments Network (CPN), which provides a transaction-based revenue stream that is less sensitive to interest-rate fluctuations. At present, these are small parts of Circle’s business, but they have the potential to become more important as the firm grows.

What the future holds with Circle

Circle’s strategy of working with regulators positions it to be centrally important to an emerging global financial framework. This is no longer a theoretical possibility, especially given the recent passage of the Guiding and Establishing National Innovation for US Stablecoins, or GENIUS, Act. This new US law is the first to set clear national rules for stablecoins. It says that only approved companies can issue them and that they must follow strict rules to protect users and remain transparent. Every stablecoin must be backed one-for-one with safe assets such as cash or short-term US government bonds. Circle has followed this approach from the start and proves it through public reports. The GENIUS Act is a big deal for a company like Circle. Many other stablecoin makers will find it hard to follow these strict new rules, but Circle’s business model was already set up to meet them. This new law provides the clear rules that banks, tech companies and large businesses need. They can now use stablecoins with confidence because the law removes the legal doubts that stopped widespread use before. Additionally, the Act bans stablecoins that don’t follow the rules and sets clear guidelines for foreign companies. This will probably make Circle’s USDC even stronger as a trusted, regulated choice in the market. It punishes companies that don’t meet this new “gold standard”.

By building a trusted, compliant infrastructure, Circle is not simply creating a new cryptocurrency. It is also helping to lay the groundwork for a stablecoin-powered financial system that could one day become the backbone of global commerce. In the process, it has the potential to make the company enormously profitable. The traditional banking world is on notice: the future of finance is here, and it is built on a foundation of stable, digital money.

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Sherman McCoy, the lead character in the 1987 book The Bonfire of the Vanities by Tom Wolfe, was described as a “master of the universe” due to his role as the highest-earning bond trader at his broker. In the 1980s, bond traders were the stars of Wall Street. Electronic trading was primitive and much trading depended on personal relationships as well as inside information. These inefficiencies allowed traders to extract super-normal profits across trades at a time when demand for credit was surging, driven by the growing mortgage debt and corporate bond markets, as well as the US government’s expanding fiscal deficit.

The growth of the credit markets also gave rise to the emergence of another sector: private equity. In the history of finance, the principle of the private company has been around far longer than stock markets and public companies. However, the world of private equity as we know it today really began to develop in the 1970s and 1980s, as financial markets matured and it became easier to assemble large sums of money to back deals.

The way the market developed through these formative decades illustrates how the industry operates. In the early days, private-equity companies were generally referred to as “leveraged buyout firms”. The label was appropriate. Most private-equity deals involve the buyer providing only a portion of the asking price with the remainder coming in the form of a loan from a single lender or a syndicate of banks. This loan is then refinanced with longer-term debt, secured by the assets of the acquired company and supported with its cash flow. The money on the equity side of the deal usually comes from funds managed by the buyout group.

The private-equity and buyout industry experienced exponential growth throughout the 1980s, driven by the surge in demand for corporate and high-yield bonds, largely facilitated by the high-profile financier Michael Milken. According to the US National Bureau of Economic Research, in 1990, private equity was a little-known niche, with $6.7 billion in investments. Today, according to McKinsey & Company, that number is closer to $5 trillion globally, or $11 trillion including venture capital – although as most assets are held in opaque offshore company structures, it’s impossible to assess the full scale of the industry. Here, we’ll be focusing mainly on the business of private equity in relation to private companies rather than private credit or venture capital, both of which should be considered as entirely different asset classes. Over the past decade, private-equity managers have become the new “masters of the universe” as fees have swelled and the industry’s influence on the wider economy has grown.

Private equity is very private

Over 20 years, private equity has generated a net annualised return of almost 13%, according to MSCI Private Capital Solutions. Alternative data from Preqin suggests the annualised gains from private equity over the past 15 years were 14%. But getting to the bottom of these returns isn’t straightforward. The industry likes to use a metric called the internal rate of return (IRR), which takes into account the cost of the return, cash flows received over the life of the asset, and value realised at the point of sale, all compared with the risk-free rate, usually a US Treasury bond. But as Ludovic Phalippou, a private-equity guru and professor of financial economics at the University of Oxford’s Saïd Business School, explains on the FT Alphaville blog, the IRR is a complex formula that assumes every dollar distributed is reinvested at the same rate it was earned. That’s generally impossible as the rate of return is heavily dependent on returns achieved in the first few years after the initial investment. As Phalippou says, “The complex mathematics mean that early cash flows dominate the calculation, while later ones have almost no impact. You can invest for 40 years, make or lose billions – and your IRR since inception will still reflect that nice exit in 1980 or whenever.” This “IRR stickiness” is “fertile ground for gaming”. Even without this “gaming”, IRR tends to be inflated due to the “survivorship factor” as strong early investment exits tend to outweigh losses by a substantial margin.

Then there’s the issue of fees. Private equity has attracted attention for its high fees over the years, an issue industry insiders have batted away, highlighting the returns investors have been able to achieve. This argument has weight. Buying and operating private businesses does require a lot of extra work, so comparing the fees with, say, a low-cost tracker fund doesn’t make much sense. Neither are these fees particularly demanding. Private-equity funds that were raising money in 2024 had mean management fees of 1.74% for buyouts and 1.93% for growth equity, says Prequin. Data from Callan shows that “secondaries” (funds buying stakes in other funds) typically charge more than diversified funds of funds, with management fees averaging 1.07% during the investment period.

However, according to research from Oxford University and Frankfurt School of Finance & Management, private-equity firms charged $20 billion of “hidden fees” to the almost 600 companies they owned, with a total value of $1.1 trillion. So-called “monitoring fees” and “transaction fees” were agreed by private-equity firms and companies acquired. Further research from Phalippou reveals that private-equity firms earned more than $1 trillion in so-called carried interest (a share of the profit of each investment sold) since the turn of the century.

Getting to the bottom of the total fees charged by private-equity funds and the resulting impact on returns can be tricky, to say the least. Large institutional investors don’t tend to disclose this data and private-equity firms have a vested interest in not revealing more than they have to. Private equity is, by its very nature, very private. One of the most revealing and recent studies was published at the end of 2024 by Cliffwater, a leading provider of proprietary research on private investments. It found that private-equity allocations by state pensions produced an 11.0% annualised return net of fees over the 23-year period ending 30 June 2023, outperforming the US total market index by 3.8 percentage points per annum.

How private-equity funds work

It is tempting to make judgements based on such headline figures, but the reality on the ground is very different. There are more than 30 notable private-equity firms, including well known names such as Blackstone, Carlyle, CVC, KKR, Bain Capital, Warburg Pincus, Lone Star Funds, Fortress, Ares Management, HarbourVest and Cinven. These firms manage separate funds. KKR, for example, currently lists 25 active funds in its 2025 annual report, as well as other core investment vehicles. Of these, the firm had achieved $207 billion in commitments, of which it had invested $160 billion; it had realised $159 billion via sales or IPOs; and had $90 billion remaining and $55 billion uncalled capital (money investors have pledged but KKR has yet to find a home for). KKR calculates it is owed $6.3 billion in carried interest on these investments.

It’s worth briefly looking at how private-equity funds usually work. A management firm, in this case KKR, sets up a fund as the leading or general partner (GP). The GP controls investment and divestment decisions and collects fees. It also has unlimited liability if the investment goes wrong. The GP goes out to investors to raise capital in the form of capital commitments. These are commitments to give the fund capital when called for. The investors, or limited partners (LPs), can retain “uncalled” capital, but must be ready to hand it over when the GP finds an investment opportunity. Generally speaking, these funds have limited lifespans of about five years. That means GPs look to buy, improve and sell businesses within this time frame. Capital is returned at the end of the fund’s life.

Every fund has a different mandate, investors, time frame and fee structure. Fees between funds can vary by as much as 400%, from 0.5% to 2.5%, according to a paper by Juliane Begenau and Emil N. Siriwardane in the Journal of Finance in 2024 (the paper looked at cash flows in LP funds covering $438 billion of investments made by 218 US public pensions in 2,400 private-market funds). Larger investors that had worked with GPs in the past were often handed more lucrative deals at the expense of smaller investors.

Secondaries and continuations

So far, we have looked at “vanilla” private-equity funds – the ones taking companies private and into the world of private equity in the first place. As the industry and the demand for exposure to private funds has grown, companies such as KKR and Blackstone have developed different vehicles and strategies to expand their portfolios. One such is the secondaries market. This refers to the buying and selling of existing stakes in private-equity funds during a fund’s lifetime, which can be handy if an LP wants to unlock cash in a hurry. This market has doubled since 2018, with the number of deals hitting $162 billion in 2024. The market is projected to reach $300 billion by 2030. As secondaries are often conducted as a way to raise cash in a hurry, they can offer access to assets, whether whole portfolios or individual companies, at a significant discount.

LPs can sell their holdings to other parties and so can GPs. However, these sales often take the form of a continuation vehicle. This market is nowhere near as developed as the LP-led secondary market, but it’s growing rapidly. Transaction volumes in the second half of 2024 topped $47 billion, up 44% year on year, according to Jefferies (the figure was $41 billion in the first half of 2025). When a GP sells an asset to a continuation vehicle, it’s essentially selling to a new fund. LPs can either choose to exit the old fund or roll over into the new fund. It’s not uncommon for the new fund to have an entirely different group of investors to the old fund.

Earlier this year private-equity group TDR Capital (owner of Asda) sold its majority stake in gyms group David Lloyd Leisure from its fund TDR Capital III to a new vehicle TDR Capital Titan for £2 billion. As the Financial Times reported at the time, of this total £1.2 billion was debt and most of the remaining investment (£800 million) was new, suggesting “that few investors in the original TDR fund chose to roll over their investments into the new vehicle”. Other large deals this year include Vista’s $5.6 billion fund to sell a large existing stake in IT firm Cloud Software Group to a newer fund it manages, while Inflexion sold stakes in four deals, including industrial company Aspen Pumps and Rosemont Pharmaceuticals, a UK pharma business, for £2.3 billion.

Managers have argued these funds allow them to hold onto assets for longer. If they own a great business, they argue, they shouldn’t have to sell at the end of a fund’s life. That’s a good argument, but there’s also growing concern these managers can’t find anyone else to buy the assets at the right valuation. Traditionally, private-equity funds offloaded assets onto public markets or other private-equity investors for a handsome return. However, as private-equity valuations have skyrocketed (with more money chasing deals) and the IPO market has dried up, it’s become harder and harder to offload assets at the desired price. Setting up continuation vehicles is one way to save face.

Dramatic shift in the private-equity industry

Most of the structures outlined above are designed primarily for large institutional or ultra-high-net-worth investors – billionaires and their family offices. Until recently, private equity was mostly off limits for the average investor, with the exception of a handful of listed vehicles, predominantly investment trusts listed on the London Stock Exchange. However, in the past two or three years there’s been a dramatic shift in the industry with the development of so-called evergreen semi-liquid funds. Unlike the traditional private-equity fund model, where capital is committed and locked up for multiple years, semi-liquid funds are open-ended, meaning investors can subscribe and redeem at regular intervals at the prevailing net asset value (NAV) of the fund, which has no fixed life. Portfolio managers construct the portfolio in such a way that investors can withdraw cash when required. That’s not particularly easy with private assets that are designed to be held for five years or more, but as money is currently flowing in the right direction, the strategy has yet to be tested.

Still, investors are flocking to the opportunity. Private-equity giant Carlyle recently reported in its third-quarter earnings that it had raised $3 billion via evergreen vehicles between July and the end of September, ten times more than the same period in 2023 (inflows into its strategies totalled $16.9 billion overall). Blackstone, one of the world’s largest private-equity firms, reported a 167% rise in fee-related income in the second quarter, primarily due to income from its eight evergreen vehicles. Apollo recorded $9 billion of inflows into its high-net-worth-client arm in the first half of the year, and has recently laid out plans to launch three new vehicles in addition to its 18 other strategies. Blackstone and Blue Owl have even turned to television advertising to get investors to join up; in the US, Bank of America now lets its wealthy clients invest directly in the strategies. Across the UK and Europe (where roughly 40% of flows originate), more than €88 billion had been invested by June this year, more than double the amount in early 2024, according to Novantigo.

However, there are growing questions over the suitability of these funds. Some reports have suggested big private-equity investors are taking advantage of this flood of capital to cash out their holdings at higher prices. Deals have helped prop up values in the secondaries market, which is far more flexible than the primary market and perfectly suited to the semi-liquid nature of evergreen funds. What’s more, fund managers can mark up the value of secondary deals to their NAV value after the purchase. As most secondary deals are stuck at discounts to NAV (often deep discounts in distressed markets), this can generate vast, instant paper gains. That also means evergreen funds can pay more. According to survey data from advisory firm Campbell Lutyens, evergreen vehicles paid on average 4% more last year for fund stakes than traditional buyers.

The potential for conflicts are rife in this market and it’s important to note the strategies haven’t been tested in a down market. The private-equity industry has generated fantastic returns for investors over the past few decades, but past performance should not be used as a guide to future growth. The success of semi-liquid funds depends on the continued outperformance of the industry and continued support of investors.

A different approach

If investors want to add exposure to private equity to a portfolio, consider instead listed investment trusts, the likes of HarbourVest Global Private Equity (LSE: HVPE), ICG Enterprise Trust (LSE: ICGT), Pantheon International (LSE: PIN), HgCapital Trust (LSE: HGT) and Oakley Capital Investments (LSE: OCI). Each of these trusts has its own approach, some of which have been more profitable than others over the past decade. HG Capital has the best record. Over the past decade it has returned 458% for investors, excluding dividends, and the shares are currently trading at an 11% discount to NAV. The trust leans on the expertise of its parent, HG Capital Europe’s largest private-equity software investor. The fund is currently invested in more than 55 small firms in areas such as business-to-business software, tech-enabled services and data providers, says Luke Finch of HG. “These are the kind of software companies that help SMEs and businesses run their operations. So it might be filing your accounts, paying your people… compliance, things like that.”

By sticking with these companies, HG is focusing on a market niche where there’s a strong prospective sales pipeline at the end of its ownership period. “On average, over the last three or four years, we’ve typically had realisation activity, either full sales, part sales, maybe refinancings, on about a third of our portfolio each year,” says Finch, and the average uplift on NAV for each business at the time of sale has been 20%. “What’s a business worth? It’s ultimately worth what someone’s willing to pay you for it. And that’s the acid test at the end of it.” Finch continues, “We take quite a conservative view on valuations within HG… Ultimately, we don’t get paid until we sell businesses. So carrying them at the wrong value isn’t helpful to anybody.” This approach isn’t unique to HG. Still, it’s a valuable insight into how the trust and wider industry should work and operate. If investors want to buy what private equity is selling, they should ensure they understand how the sector works, where any potential conflicts lie, and find a manager who’s transparent.

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Questions about AI’s stock market dominance are being asked louder than ever. On 27 October, Wired published an article contending that “AI may not simply be ‘a bubble’ or even an enormous bubble. It may be the ultimate bubble.” The article included comments from Brent Goldfarb, co-author of Bubbles and Crashes: The Boom and Bust of Technological Innovation. Goldfarb said that the AI boom ticks every box he looks for in a technology-driven bubble: uncertainty over the ultimate end use, a focus on “pure play” companies, novice investor participation and a reliance on narrative.

As Edward Chancellor, financial journalist and former hedge-fund strategist, has pointed out in these pages, the AI bubble is also on shakier ground than many previous technology-driven bubbles, such as the dotcom bubble, the “Roaring Twenties” and the US railroad boom, all of which were followed by major economic depressions. It is also more speculative. Railways, cars and the internet were proven technologies in their bubble periods – the same cannot be said of self-teaching computers. The AI bubble is more “a multi-trillion-dollar experiment” to see if we can arrive at artificial general intelligence (AGI) – technology that successfully matches human levels of intelligence. If that experiment fails, we won’t have canals, railways or fibre-optic cables to show for it, but rather millions of obsolescing computer chips and dormant, debt-funded data centres.

AI as a field of research dates back at least to Alan Turing, and includes established fields such as machine learning and computer vision; generative AI is a newer subdivision that has taken shape over the last 15 years. It leapt to public attention – and brought the wider field along with it – with the launch of ChatGPT in November 2022. But it’s worth emphasising that if you are happy to buy Nvidia shares at current prices, you are effectively betting on the long-term profitability of generative (and its newer subset, “agentic”) AI, not the field as a whole. And even the bulls are nervous about the prospects for that. “AI... is driving trillions in spending over the next few years and thus will keep this tech bull market alive for at least another two years,” says Dan Ives, head of global technology research at Wedbush Securities. That is significant as Ives is one of the great tech bulls. If even he is implicitly conceding that the current bull market could end and suggesting a possible timeframe, it shows that doubt is creeping in.

The nature of the AI bubble

“This time it’s different” is regarded as one of the most dangerous phrases in investing, but it’s a refrain that AI’s proponents turn to increasingly frequently. The companies driving AI today, they say, are highly profitable, unlike the proliferation of profitless internet start-ups in the dotcom era. That holds true of Nvidia as well as the “hyperscalers” (Alphabet, Amazon and Microsoft), but none of these are profitable because of revenue generated by generative AI products. They were already highly profitable (and, for the most part, less capital-intensive) before the arrival of ChatGPT. No one denies there is money to be made selling computer chips or cloud computing. But AI is a different story.

Step back and look at generative AI firms in isolation, and the current set-up looks a lot like the dotcom bubble. Venture capital is flooding into speculative businesses that burn through cash with no credible plans to turn that into profit any time soon. James Mackintosh of The Wall Street Journal observes that the dotcom bubble kept inflating between 1995-2000 despite media references to the bubble increasing every year throughout this period. Bubbles can keep growing, even if everyone knows they’re bubbles.

A bubble usually bursts after encountering some form of pin. No one knows what that will be for AI, but a contender is an energy-driven inflation crisis. AI requires vast amounts of energy. Policymakers can make life as easy as possible for AI developers, but they can’t control energy prices. The more advanced AI models become and the more users they acquire, the more energy they are likely to consume. And there are signs that AI is already making energy more expensive for US consumers. Bank of America deposit data shows that average electricity and gas payments increased 3.6% year-on-year in the third quarter of this year. Whether or not energy-driven inflation reaches a point where it poses headaches for US politicians, it doesn’t take much imagination to see it quickly becoming a problem for AI developers themselves.

OpenAI’s CEO Sam Altman wants his firm to have 250 gigawatts (GW) of data-centre capacity by 2033. According to Bloomberg’s Liam Denning, that’s equivalent to about a third of peak demand on the US grid and more than four times all-time peak electricity demand for the state of California. Nvidia’s CEO Jensen Huang says 1GW of data-centre capacity costs $50 -billion - $60 billion to build (of which $35 billion or so goes on Nvidia’s chips), so building this could cost OpenAI north of $12 trillion. That simply it isn’t going to happen – certainly not in anything like the next eight years, at least – but the numbers show just how much energy AI’s biggest players are planning to consume.

Even with energy prices where they are, the economics are stretched thin for AI developers. OpenAI posted an operating loss of $7.8 billion in the first half of 2025, according to tech news site The Information. Annual recurring revenue is set to exceed $20 billion this year, but OpenAI’s own projections say it will not be cash flow positive until 2029, when it projects revenue of $125 billion. If the economics of scaling its capacity at pace ever start looking negative, then OpenAI’s semiconductor-spending binge could slow dramatically.

If you want an idea of how overblown the stock market’s reaction is to this binge, look no further than AMD (Nasdaq: AMD). On 6 October, OpenAI announced that it would buy up to 6GW of GPUs from AMD, which AMD executives estimated could net $100 billion in additional revenues once the ripple effects are factored in. Within two days of the announcement, AMD’s market capitalisation had increased by around $115 billion – more than the revenue the deal was expected to raise. That’s before getting into the fact that AMD will be paid for the GPUs not with money, but with its own stock.

Where are the benefits of AI?

Generative AI does at appear to be improving professional productivity. What data we currently have available from the US shows a trend of reasonably healthy GDP growth alongside subdued job creation, which Joseph Amato, president and chief investment officer at Neuberger, calls “an unusual combination that points to productivity doing more of the heavy lifting”. AI is expected to lift productivity in the US by 1.5% over the next ten years, and between 0.2%-1.3% across the G7. But Amato cautions that these gains are far from evenly distributed and that they pose risks of their own. “Lower-end white-collar roles – performing routine analysis or administrative tasks often filled by recent college graduates – face significant displacement risk,” he says. That has profound policy implications.

The AI revolution could eat itself. You can’t put an entire generation of the global middle class out of work without expecting substantial economic consequences; perhaps enough to negate all the potential GDP gains. There is evidence that this is already happening. Ron Hetrick, principal economist at workforce consulting firm Lightcast, observes that average real spending on retail goods compared with total employment has been stagnating ever since the housing bubble that led to the 2008 crash. Covid and the consequent stimuli disrupted this trend, but only temporarily: retail spend per employee is now falling again.

Hetrick calls AI “a jobs-destroying, money devouring technology” that threatens to accelerate this decline. As retail spending continues to fall, AI companies’ “large enterprise clients will also see their buyers stagnate”. If the world entered a recession, the core business pillars at Amazon, Google and Meta would take a major hit; advertising and e-commerce revenues are all ultimately reliant on a large crop of middle class consumers happily spending money. None of these companies has an AI division that is remotely profitable in its own right, let alone capable of supporting the wider business.

AI could deliver some genuinely world-changing social benefits, improved medical research being an obvious example. Google DeepMind’s AlphaFold is a program that can predict the structure of a protein based on the sequence of amino acids that comprise it, which has profound implications for the research of diseases and development of treatments.

But two things need to be remembered: firstly, this isn’t particularly new: DeepMind debuted AlphaFold in 2018, so its potential ought to have been priced in before ChatGPT came along. These kinds of techniques are also not generative AI – researchers at the top biotechs are not asking ChatGPT to come up with new amino acid sequences for them, because that’s not how large language models work. More pertinently for investors, it is not a given that the medical applications will be profitable.

How to hedge your bets with AI

How can investors hedge their bets given these trends? Judicious selection of energy stocks is one way to play the increasing demand for power that AI companies will drive over the coming years. But this window may already have passed: Vistra (NYSE: VST), for example, has gained 60% in the past 12 months and now trades at 22 times forward earnings – which is a reasonable price for a tech stock, but looks steep based on traditional valuations for utilities. That said, if it does turn out to be energy inflation that eventually bursts the AI bubble, then the suppliers ought to catch the tailwinds in the process. An investment trust with exposure to companies powering and building data centres, such as Pantheon Infrastructure (LSE: PINT), can offer exposure to data-centre energy suppliers.

Or you could look for undervalued AI plays. Certain semiconductor stocks, such Taiwan Semiconductor Manufacturing Company (NYSE: TSM), stand to continue benefitting from AI infrastructure spending for as long as it takes the bubble to burst, without the overblown valuations of the big US names.

Given TSMC’s effective monopoly on high-end chip manufacturing, it is well-placed to capitalise on whatever technological innovation might follow in AI’s wake if and when the bubble bursts.

Chris Beauchamp, chief market analyst at IG, suggests some traditional defensive plays in order to hedge portfolios, including gold, government bonds, defensive shares in sectors such as consumer staples and healthcare, and multi-asset funds. “Finally, with policy rates still elevated, holding cash-like assets is no longer punitive,” he says. “The key is diversification: no single hedge works in every scenario, but a combination can cushion portfolios if AI euphoria fades.”

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MoneyWeek has, in its quarter-century of existence, built up a pretty good record for calling the major economic trends in the economy and society, and explaining what they mean for savers and investors (see this issue, passim). We are the bestselling financial weekly in the country for a reason, after all. But how do we do it? Ours is an age of scientism, so you could be forgiven for thinking that our procedure must be one that follows the tried-and-tested methods of natural science. If our writers were worried about the likelihood of a financial crisis in late 2007, as they were, while the consensus was saying that such things belonged to the past thanks to The Science, presumably that was because they had pored over the economic data, got themselves dusty in the British Library studying the latest economics and social-science papers, solved complex mathematical equations to show that the line now going up was about to hit a maximum and turn back down – or at least something along those lines.

What would the alternative be? Well, as Ayn Rand always used to insist, if we’re going to have a rational conversation and method at all, we’re going to have to take a look at our premises first. There’s no point looking at the data if we’re not first of all sure it is telling us something meaningful. No point looking at a speedometer if it’s not connected to the wheels or if you’re not interested in how fast you’re going. No point reading the social science if the writers of it are wrong-headed to begin with. There’s no point, in short, pretending that you know something when you don’t.

“The pretence of knowledge” was the title of Friedrich Hayek’s acceptance speech for the economics Nobel Prize in 1974. His message has not lost its relevance. He opens his lecture by admitting that his profession has made a mess of things (sound familiar?). The “serious threat of accelerating inflation” that was current at the time he spoke, in December 1974, had been “brought about by policies which the majority of economists recommended and even urged governments to pursue”. The fundamental source of the error, in Hayek’s view, was economists’ propensity to want to “imitate as closely as possible the procedures of the brilliantly successful physical sciences”.

That may sound reasonable, but actually the method is inappropriate because the study of complex phenomena in the social realm, such as the market, depends “on the action of many individuals” and all the circumstances that will determine the outcome will “hardly ever be fully known or measurable”. In the social sciences, often the factor that is treated as important is the one that is measurable, and the theories deemed admissible only those that refer to what is measurable. In other words, they are like the drunk looking for his keys by the lamp post, not because that’s where he lost them, but because that’s where the light is.

But we can bring light into the darkness using other methods than those of the physical sciences. One might, as Hayek says, build up “fairly good qualitative knowledge” of social phenomena, the conditions under which they appear, and the factors important in bringing them about or that would have to change to bring about an adjustment, that relies on the “facts of everyday experience”. Knowledge would then rely upon whether we can win general assent to what the facts are and on the “logical correctness of the conclusions drawn from them”. Those words will strike anyone who has read him as a pretty good summary of Ludwig von Mises’s approach in his monumental Human Action. Hayek was highly influenced by Mises. Together they are considered, along with a number of other figures, as the leading lights of the Austrian school of economics.

What is the Austrian school of economics?

This school of thought was founded in 1871 with the publication of Principles of Economics by Carl Menger, who, together with William Stanley Jevons and Leon Walras, were the leading figures in the “marginal revolution” in economics, as Peter Boettke explains at the Library of Economics and Liberty. Menger’s book was an attempt to “rescue theory” from the then-dominant German historical school, which argued that economic science cannot generate universal principles and that research should instead be focused on historical examination. Menger restated the view of classical political economy in “asserting economic laws that transcend time and national boundaries”.

The appropriate unit of analysis in this science, said Menger, is “man and his choices”. Those choices are determined by individual subjective preferences and “the margin on which decisions are made” (we would all prefer to do without diamonds rather than without water, but diamonds are usually more valuable than water because we decide what to value more highly not on the basis of total satisfaction, but at “the margin”, that is, on the basis of whether one additional diamond would give us more satisfaction than one more bucket of water). Hence “marginalism”. Those who held to these theories were dismissed as “the Austrian school” due to the positions the economists held at the University of Vienna, and the term stuck. Later economists taking the same basic approach were also dubbed “Austrians”.

Boettke’s essay goes on to list ten main propositions that define the Austrian school, and it’s as good a summary as you’ll find. Picking out just a few of them here should suffice to show why the teachings of the school have been helpful to MoneyWeek writers. The first proposition in Boetkke’s essay, for example, is that “only individuals choose”. “Man, with his purposes and plans, is the beginning of all economic analysis. Only individuals make choices; collective entities do not choose. The primary task of economic analysis is to make economic phenomena intelligible by basing it on individual purposes and plans; the secondary task of economic analysis is to trace out the unintended consequences of individual choices.”

That may or may not seem obvious, but it is a radical departure from the usual methods of social science. The starting point in Austrian economics is the individual and what he or she does with their mind – something opaque to the methods of natural science, but something we all know something about from introspection, and can build into reliable knowledge by tracing out the logical consequences of what is decided and how we act. Social science rather tries to understand how man is propelled to act by a myriad of social, historical and other forces, which the scientist tries to observe and measure as a physicist would in his laboratory with the aim of changing and controlling it where necessary (you can see why such an approach would be attractive to governments and other world-improvers).

The point here, though, is not to get into an intellectual dispute or to make metaphysical or political claims with which you may disagree, but to show the relevance of the Austrian school to investing, where a key plank of success is discriminating between what you as an individual do have some measure of control over (what you choose to pay in charges for fund management, for example) and what you do not really know or understand and have no control over anyway (whether the stock you are buying will rise or fall in price over the long term, or even survive, for example).

Intelligibility, not prediction

One thing that follows from this (proposition three in Boettke’s essay) is that the goal of Austrian economics – and of investing – is “intelligibility, not prediction”. We can achieve this “because we are what we study, or because we possess knowledge from within, whereas the natural sciences cannot pursue a goal of intelligibility because they rely on knowledge from without”. You can see the relevance of this to investing by considering the insights of John Kay and Mervyn King in Radical Uncertainty (reviewed in detail by MoneyWeek in 2021). In that book, the authors consider the phenomenon of “superforecasting”, which was all the rage at the time. But Kay and King point out that the future is not so much forecastable (the world is not a game of dice) as “radically uncertain”. It might, as the superforecasters say, be possible, by being open-minded and diligent, to do better than you might think at predicting whether inflation, say, will or will not be 3.5% by the end of the year, but this is at best a proxy for what we really want to know, which is “what is going on here”? During the Covid pandemic, MoneyWeek did not predict that inflation would hit a certain rate at a certain time. We did not know. But we did find what was happening intelligible, and hence concluded that the most likely consequence would be a period of prolonged and at least higher-than-usual inflation – again, at a time when The Science was assuring us that any effect would be “transitory”.

This leads us to proposition eight in Boettke’s list, and a key theme for MoneyWeek since its inception, which is that “money is non-neutral”. If government policy distorts the monetary unit, exchange will be distorted as well. Any increase in the money supply, for example, which is not offset by an increase in the demand for money, will lead to an increase in prices. But prices do not adjust instantaneously throughout the economy. Some price adjustments occur faster than others, which means that there are changes in relative prices. Each of these changes affects the pattern of exchange and production. Indeed, another key insight of the Austrian school is that it is artificially low interest rates – government meddling with the price of money – that cause boom-and-bust cycles. It was this kind of reasoning and not a crystal ball or the data that led MoneyWeek to warn of an impending crisis in 2007.

MoneyWeek has spent a great deal of its 25 years arguing along these lines – and warning of the economic and social consequences – and not just as an educational service, but to spell out what it means for investors: that positioning your portfolio to ensure your wealth grows at a rate at least to match and hopefully beat inflation is a key financial goal for all savers and investors, for example, and that some financial instruments and assets are more likely to achieve this goal than others.

It’s only fair to point out that adopting this outlook may not be very exciting. Having a tried-and-tested method for anticipating “what’s going on here” and investing sensibly as a result may well mean you miss out on the big boom in the latest thing and the profits that flow from that. Austrian-school investing is not a get-rich-quick scheme. But it might well protect you from some big mistakes – and avoiding the Big Loss, as our regular columnist Bill Bonner often points out, becomes ever more important to private investors as they get older and run out of time to make up the loss.

The Austrian school will not only protect you from mistakes in investing, but from all kinds of other political and intellectual errors, too. Those who have studied their work will know, for example, why socialism has never worked and never will. They will be sceptical about politicians’ promises to solve economic problems. They might get a clue, too, to the continuing success of MoneyWeek. The Austrian concept of the “disutility of labour” teaches that, all else being equal, individuals tend to prefer to economise on labour than not. By labouring to bring you these insights week in, week out, over the past 25 years, we have greatly reduced the amount of labour our readers need to put in to succeed as savers and investors. You’re welcome!

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“The lesson of history,” it is said, “is that the lessons of history are never learned.” Does the same apply to investment? Investors, amateur and professional alike, spend a huge amount of time poring over charts, historical precedents, analogies and past behaviour to find clues to the future.

Regulators warn us that past performance is not indicative of future results but, as Baroness Helena Morrissey reminds us, “we are instinctively drawn to think that the past is a model for the future”. The problem is that history never repeats itself and, even if it did, the outcome would vary as people, perhaps drawing on past precedents, react differently.

Investors are better served by remembering Mark Twain’s observation that “history doesn’t repeat itself, but it often rhymes”, and by accumulating pearls of wisdom from their own experience, as I hope I have in the last 47 years, 42 of them in investment.

Being good at sums, I started out qualifying as a chartered accountant at what is now KPMG, though I impetuously left after qualifying to spend two years in corporate advisory under Victor (aka “Lord”) Blank. Fortunately, I realised before he did that the varied skills and personal characteristics necessary in that career were conspicuously lacking in me and that I was more suited to the world of investment.

Good investment goes beyond the numbers

Still, those early years taught me priceless lessons, especially that, as any good accountant knows, the secret of good investment does not lie solely in the numbers. Many investment companies have a screening system to identify companies that combine good margins, high returns on capital, a solid balance sheet, revenue growth, cash generation and so on as part of their “process”. The problem is that these processes are all more or less the same, so the stocks identified are fully valued. The best opportunities are often in the stocks that the screens reject.

An early quote of Warren Buffett’s that I learned was that “when a management with a reputation for excellence encounters a business with a reputation for bad economics, it is the reputation of the business that survives”. It sounds great but management success is not necessarily transferable from one business to another. Simon Wolfson, CEO of Next, points out that 28 of his top 30 employees were promoted internally and have a combined 500 years of experience at Next.

“Bad economics” is not a given in any business. Companies fail because they prove incapable of adapting to change or just give up, rarely because their business has become obsolete. Woolworths continues to thrive in Australia and South Africa, where Wimpy, not McDonald’s, is the market-leading burger chain. 3i’s hugely successful European retail chain Action mimics Woolworths, as does the UK’s B&M. Tim Waterstone built up his chain of bookshops to market dominance when his competitors despaired of competing with Amazon and downloads.

Professional investors will often tell you that they never invest in a business they don’t understand. I doubt it is possible for any manager to really understand any business they invest in; an investor covering dozens or hundreds of companies cannot compete with a dedicated management team. The advantage investors have is objectivity, the ability to see the broader picture and the ability to walk away.

Investment-management companies boast of the number of analysts they employ globally, the number of company meetings they hold and the depth of their research. This often leads to overanalysis, whereby huge amounts of research improves the investor’s confidence but doesn’t result in a better decision. Many of my best investments were made almost on the spur of the moment from a single insight.

Hope is not an investment strategy

Nathan Rothschild said that the secret of his success was that “I never buy at the low and I always sell too soon”. Yet many investors try to finesse their investment decisions, holding back from an investment decision in the hope that a share price would revisit a high or low. I found it helpful to assume that any share I bought would promptly fall 10% and any I sold rise 10%. I would be pleasantly surprised if it turned out differently.

“Run your profits, cut your losses” has always been a popular dictum but is contradicted by “nobody ever went broke taking a profit”. True; they went broke selling a winner and reinvesting in a loser. It is incredibly hard to know when to sell. Most people sell too soon but selling a share in freefall is mortifying. “Up like a rocket, down like a stick,” the wags say. I sometimes top-slice holdings but am a reluctant seller. However, the market regularly reminds us that great companies and funds don’t outperform forever.

“The stock market can stay irrational for longer than you can stay solvent” is another popular favourite. Any professional investor will tell you that it can be a long, long wait before an investment comes good, so you have to be very patient.

They say this after it has come good, not after three or five years of dud performance when they are wondering if they have made a mistake. Also, remember that markets are irrational much less often than many professionals believe – investment sages are not known for their humility or lack of self-confidence.

“Cheap is not cheerful” is a strapline I picked up along the way. Investors are drawn to lowly valued shares or markets (like the UK) but they are usually cheap for a reason. Cheapness is the easiest excuse for a bad investment. That is not to belittle “value” investing but the best hunting ground for value is recovery – which is contrarian and risky – or undiscovered potential.

Go for growth

The opportunity in “growth” investment is the reluctance of investors to believe that high growth is sustainable. No analyst likes to predict sustainable growth above 15% per annum but, as the leading firms in the technology sector have shown, it does happen. Still, there are many blind alleys: companies whose technology is superseded by others, who fail to monetise the potential, whose big idea turns out to be less revolutionary than expected or just a fad.

An early lesson every investor needs to learn is that they will make mistakes and lose money. The two don’t always go together. A mistake can be profitable and a rational decision can lose money: you played the odds wrongly but got lucky, or the other way round. Learn the lessons of the mistakes and move on.

An early boss, hedge fund manager John Angelo, used to tell me, “opinions are like a**holes; everybody’s got one”. Much later, I learned that it was, broadly, an aphorism of Winston Churchill’s.

John’s point was that he was only interested in what was going to happen and what it meant for markets, not in subjective opinions. Good investors shy away from opinions on politics, economics and current affairs but listen to all the arguments, distrusting the consensus. You learn much more that way.

Bumps in the road

The greatest lesson of all is that markets go up in the long term. Time turns most bear markets and crashes, which seemed so serious at the time, into mere blips in the long upward path. Yet the narrative of the investment gurus, faithfully reported by the media, is always to talk down the outlook for markets, to warn of “bubbles” and predict disaster just around the corner.

It is a standing joke of investment professionals that headlines of “billions wiped off stockmarkets” and lurid magazine covers depicting an absence of hope are a signal to buy rather than sell. But retail investors in the UK are more easily influenced, which helps to explain why the British investment market struggles. Bad news sells and Britons are not known for their optimism.

“The more you know, the more you realise how little you know,” said Bertrand Russell, though the sentiment goes back to Aristotle and Socrates: “Wisdom is knowing how little you know.” Experience makes you come to terms with this more than it teaches you how to invest.

You will not be right all the time. Even Roger Federer won only 54% of the points he played in his tennis career and many of the points he lost were unforced errors, probably regularly repeated. As Baillie Gifford points out, a good investment can multiply your money but a bad one will only lose it once. A missed opportunity may be more painful than a loss.

One of my best investment decisions was back in 1992 when I correctly predicted Britain’s departure from the exchange rate mechanism (ERM) and, against the overwhelming consensus, the economic and market consequences of our exit. This laid the foundations of five years of great performance. All I did was recognise the close parallels with Britain’s departure from the gold standard in 1931, a lesson in economic history I had absorbed at university.

One of my worst decisions was to sell my holding in a gold mining fund two years ago, having held it for about ten years. I despaired of the failure of shares in gold miners to respond to a rising gold price and switched into an energy fund.

The fund I sold performed strongly last year and has doubled in 2025, while the energy fund has remained marooned. I daren’t switch out for fear of being whipsawed. You never learn all the lessons from experience that you should have.

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After World War II, America and its allies put in place a set of alliances, institutions and power structures to rebuild war-ravaged countries, create geopolitical stability and generate global economic growth. This post-war order has endured – with one important change – for much of the following eight decades.

The fall of the Berlin Wall and the dissolution of the Soviet Union seemingly marked the end of any alternative to Western capitalism and liberal democracy as the main global economic system. However, in recent years, it has become increasingly obvious that the ties holding this US-dominated system together are fraying and are likely to break.

We are heading into a new world that is likely to be more unstable. In a symbol of this change, on 5 September this year, US president Donald Trump signed an executive order renaming the Department of Defence as the Department of War. This restores the name that it carried from 1789 until 1947 and points to the rising risks of conflict in the years ahead.

So how should investors position themselves for what comes next? What areas that are currently under-represented in most portfolios should they consider for diversification and protection?

Rivalry and conflict between the US and China

The main question is how the shift from a single superpower to two contending nations – the US and China – will affect global supply, demand and the efficiencies of comparative advantage. Free trade has generated huge gains since the end of the Second World War, and even more so since the end of the Cold War. This is now clearly under threat.

With the end of the post-war order comes the new “Great Game”. This name was originally given to the struggle between Britain and Russia for influence in Central Asia (Afghanistan and Persia). This time, the strategic rivalry and political conflict is between the US and China. Paradoxically, it is America that is now pursuing a more inward-looking strategy under Trump’s Make America Great Again (MAGA) banner, while China aims to build economic and political alliances through its Belt and Road (BRI) and Global Development Initiative (GDI) projects.

While America strives to bring its manufacturing base back onshore, Europe is now having to divert budgets from social welfare to rearmament. Both are now in stiff competition with China to electrify the planet and build digital infrastructures. This will inevitably lead to global competition for resources across energy, metals and critical minerals.

This is leading the two superpowers to weaponise their core strategic advantages. For America, this is the US dollar, still the world’s global reserve currency. For China, it is a stranglehold on rare earth elements and critical minerals.

China needs an alternative to the dollar

Freezing and confiscation of assets and denial of access to global payments systems is forcing non-US aligned countries to look for an alternative store of wealth and means of exchange. Herein lies the potential significance of the Brics+, the informal name for the original group of five key emerging-market powers – Brazil, Russia, India, China, South Africa – plus other countries that have begun joining them for summits and policy coordination. Some see this group as a counterpart to the G7 group of developed economies. Initiatives by the Brics+ members so far include work on a development bank, central-bank cooperation and an international payment messaging system.

Any alternative to the dollar looks increasingly likely to be a form of tokenised, asset-backed digital currency. This explains why many central banks closely aligned with the Brics+ nations have been large buyers of gold and other precious metals.

If the creation of a new currency system seems far-fetched, it is worth a quick review of the genesis of the post-war order: the Bretton Woods Agreement of 1944. China is a great student of history, and this agreement provides an template for how new world orders are created. While World War II was still raging, more than 700 delegates from 44 countries met at Bretton Woods in New Hampshire in the US to work on a new global monetary system. The goal was to create a globally efficient foreign exchange market, prevent competitive currency devaluations and promote global economic growth.

John Maynard Keynes, one of the principal economists at the meeting, proposed creating a new international reserve currency called the “bancor” and setting up a global central bank called the “Clearing Union”. However, these proposals were eventually watered down by the US Treasury in favour of a more prominent role for the US dollar, whereby the dollar would be pegged to the price of gold, and other participating currencies would be pegged to the dollar. The agreement was fully implemented in 1958, pegging the US dollar to gold at $35 per ounce.

This system functioned until the early 1970s when it became evident that US gold reserves were not adequate to sustain the peg. This caused a run on gold, forcing first a temporary suspension of the dollar’s convertibility into gold followed by complete collapse of the agreement in 1973. US president Richard Nixon also imposed a 10% tariff on all dutiable imports to force its major trading partners to adjust their currencies upwards and trade barriers downwards. Does this sound familiar?

China has already taken the strategic initiative to convene the Brics+ group of nations. It has established the Shanghai Gold Exchange – and associated physical storage – and now holds a significant percentage of its reserves in gold. It has shown little desire to replace the dollar with its own currency – internalisation of the renminbi would erode the ability to operate capital controls – but it and its allies need an alternative to the dollar.

Given China’s embrace of technology and advanced domestic digital-currency adoption, it does not feel far-fetched to envisage it launching a Bretton Woods-style gold-backed digital currency for those unable or unwilling to access the US dollar system. Crypto tokenisation is the vehicle, not the asset.

China's control of strategic resources

China’s strongest bargaining chip lies in its control of rare-earth elements (which are used in magnets, electrification, lasers and optical devices, catalysts and emission controls and radar/guidance systems), as well as critical minerals, that have broader energy, industrial and defence applications.

China has this control because, while the West focused on the comparative advantage of outsourcing its production to countries with lowest costs, China focused on building an end-to-end supply chain comprised of exploration, mining, refining and industrial manufacturing. With its looser environmental controls, it has come to dominate the global supply of these critical minerals.

In the tit-for-tat game of tariffs and sanctions, China is able to leverage its position in the one area where the US is completely vulnerable. So just as China and its allies have no alternative but to develop a competitor to the US dollar as a store of wealth and means of exchange, the US and Europe now see they have no choice but to develop alternative sources for mining and processing capacity to break this reliance. Exacerbating the situation, America’s prioritisation of its own MAGA agenda over historical alliances has left Europe and other previously US-aligned countries to build their own rather than collective resources.

If investors believe the post-war order is irretrievably compromised, they should consider investments that give exposure to these themes. Gold and precious metals for hard assets. Tokenisation and chips to enable digitalisation. Energy and power generation, rare earth elements and critical minerals, which will be in demand as both sides try to secure supply chains. And US and European defence stocks as the West joins in the new arms race.

Investors have many ways to access these ideas, including individual stocks, thematic exchange-traded funds (ETFs) or exchange-traded commodities (ETCs) that hold physical metals. Listed commodity futures and options are also becoming increasingly accessible, as major exchanges such as the Chicago Mercantile Exchange (CME) roll out mini and even micro contracts, which are 1/10 or 1/100 of the size of standard contracts and require less up-front capital. Such instruments are only suitable for experienced investors, but they offer a way to quickly add hedges or speculative positions to a portfolio – something that will become more valuable in a fast-changing world.

James Proudlock is managing director of OptionsDesk.

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The balance between the financial benefits of buying a home or renting is swinging back in favour of being a tenant, research suggests.

Homebuyers may have benefited from slower house price growth and falling mortgage rates in recent years to help them buy a property, but the Iran war and high inflation is putting pressure on the cost of borrowing.

Many mortgage lenders have hiked rates in recent weeks, with the average mortgage rate now back above 5%, as of 30 April.

Research by Rightmove suggests this has now made renting in Great Britain a cheaper option compared to paying a mortgage for the first time since June 2025.

The average advertised monthly rent across Great Britain is currently £1,547, Rightmove said.

This compares with an average new monthly mortgage payment of £1,670 – meaning on average renters pay £123 less per month.

The average mortgage payment uses the average asking price for a home of £373,971, the average two-year fixed rate of 5.35% in April, and assumes a 20% deposit and mortgage term of 30 years.Colleen Babcock, Rightmove’s property expert, said: “Mortgage payments have risen quite sharply in a short space of time for new buyers. It will be interesting to see whether more would‑be buyers turn to renting temporarily while rates remain high, particularly when monthly costs can exceed average rents and the timing of rate cuts is still unclear.”

Renting vs mortgage costs by region

With interest rates unlikely to be cut in the near future and mortgage rates remaining high, renting may be the better option for now in most parts of Britain.

Analysis by Rightmove found Scotland and the North East, where asking prices are lowest, are the only parts of Britain where a typical new mortgage is still cheaper than renting despite higher average mortgage rates.

Paying off a mortgage each month was £141 cheaper than renting in Scotland and £45 less in the North East of England.

London and the South East, where house prices are highest, have the largest gap between average mortgage and rental payments. The property website found renting was £362 and £363 cheaper respectively each month.

Looking at the data more locally, renting is cheaper than a mortgage in more than two-thirds of local authorities, Rightmove said.

The biggest gap was in Westminster, where Rightmove said it is £1,290 cheaper each month to rent than to pay a mortgage.

Those costs could come down though if buyers have a larger mortgage deposit and can find a lower rate.

While the monthly cost of renting may be lower than mortgage payments, there may be differences over the long-term, especially as owning a property typically gives you capital growth as well.

Exclusive analysis of mortgage and rental costs by Moneyfactscompare.co.uk for MoneyWeek in late 2025 found homeowners are £6,600 better off on average than renters when it comes to living in a typical UK home over the past 21 years.

Much depends on where you are on the property ladder.

Adam French, head of news at Moneyfactscompare.co.uk, warned there is a growing ‘two-tier’ property market.

One tier is a group of older homeowners who locked in the low rates of the 2010s and are enjoying the stability and growth of home ownership since buying as an asset, and another priced out, forced to rent for longer and missing out on the wealth-building benefits of ownership.

He suggested buyers who purchased early in the 2010s amid cheap credit and rising wages benefitted from both rising property values and low interest costs, a powerful combination for building wealth.

"However, renters saw little benefit," French said, "with rents rising rapidly to a higher level than typical mortgage repayments throughout the decade, meaning would-be buyers were trapped saving for ever-larger deposits and the affordability gap between renting and buying grew".

He added: "The long period of low rates effectively embedded this advantage as property wealth became the main engine of financial security for millions of homeowners.”

Is it better to rent or buy?

Cost is just one factor when deciding between renting and buying a property.

Renting gives you flexibility while owning a home gives you an asset that typically rises in value and can be more stable as you are in control of your own property.

But high inflation may limit the scope for further interest rate cuts, keeping mortgage costs high.

French said: “Many homeowners' monthly mortgage repayments exceed typical rents after average mortgage rates more than tripled following the Bank of England sharply increasing rates to combat inflation.

"This has dramatically reduced how much buyers can borrow, and house prices have softened as a result with the key dynamic remaining the same: the balance between rates and prices may shift, but the underlying strain on households’ budgets will eventually return to a tolerable range."

Little has changed for a growing number of renters though who are competing for a tighter supply of rental properties which is keeping rents at around the same share of income.

French said: "Not only is it as tough as it has ever been to save for a deposit, but now the immediate financial hit of taking out a mortgage has become even harder to justify.”

That may leave renting as the only option but French says this doesn’t have to be the poor choice it is often portrayed to be, adding: “In a high-rate environment, renting can offer flexibility, particularly for younger workers, those unsure of where they want to settle, or anyone stretching their finances to breaking point to buy.

“Without the burden of maintenance costs or exposure to the risk of falling house prices, renters may find that they can focus on saving or investing in other assets that may offer better returns over time.”

I repeatedly come back to this subject because I think it is one of the most important yet overlooked issues in global finance. The geopolitical ramifications are enormous. Something that the Trump administration appears to understand in a way that previous administrations didn’t is this: it doesn’t matter if you issue the global reserve currency; if you don’t make anything, when the tide goes out, you are going to be caught swimming naked.

During Covid, the dangers of excessive dependence on China and its supply chains for critical or strategic products became apparent. It became clear again during the Ukraine war. Russia managed to manufacture munitions much faster than Nato.

Reshoring US industry is not something that can be done overnight. It is going to take years, if not decades – almost as long as it took to unwind in the first place. But the Trump administration is at least trying to kick-start the process with tariffs, a weaker dollar and, more subtly, the managed decline of the US dollar as global reserve currency.

As a result, neutral gold’s role as a global reserve asset is returning to prominence. History’s “golden” rule will soon apply again: he who has the gold makes the rules.

My argument is that China has considerably more than the 2,300 tonnes it says it does. That figure constitutes the world’s fifth-largest reserve of the yellow metal. The central banks of the US, Germany, Italy and France are the top four holders of gold reserves, with respective 8,133, 3,350, 2,451 and 2,437 tonnes.

How much gold does China have?

The People’s Bank of China (PBOC) is China’s main custodian, but other state entities, such as the China Investment Corporation (the sovereign wealth fund), the State Administration of Foreign Exchange and the Army, also own gold. In fact, having other state bodies hold gold is one of the means by which China is able to understate its reserves.

I’m going to use a slightly more conservative methodology, which means I will arrive at a lower estimate. Even so, the numbers will shock you. Remember that China is the world’s largest importer of gold, the largest consumer and the largest producer (in 2008 its output eclipsed South Africa’s). I am going to use round numbers, as they are more digestible, and when there is a spread (between 500 and 1,000 tonnes, say), I will take the middle number: 750.

It is impossible to know just how much gold China has imported, because so many transactions are private ones, particularly those that go through London, Switzerland or Dubai. Gold transactions in Hong Kong are more transparent.

However, most, although not all, of the gold that goes to China goes through the Shanghai Gold Exchange (SGE), which opened in 2007. Withdrawals from the SGE between 2007 and mid-2025 total 29,500-30,000 tonnes, based on aggregated data from the Shanghai Gold Exchange (SGE) and World Gold Council (WGC) reports. I’m going to overlook gold that made its way to China prior to 2007, although it’s quite easy to make the argument that this amounts to several thousand tonnes.

The SGE is just a flow metric, it should be noted. It does not represent total consumption. Some of the gold passing through will have been double-counted, either as a result of reselling and recycling, or because of China’s booming money-laundering business and the circular trade with Hong Kong. Estimates for double-counting range from 10%-30%. Let’s take the middle 20% figure (6,000 tonnes), and that leaves us with 23,250 tonnes of SGE gold.

As for the undisclosed gold, consider that the PBOC likes 400-ounce bars, as traded in London. These do not trade on the SGE, which uses smaller kilogram bars and 3kg and 12.5kg ingots. (400oz is about 11.3kg.)

So London imports will not go through the SGE, unless re-smelted, and are therefore counted in addition to the numbers above. Analysts mostly concur that while reported imports via London, Switzerland and Dubai total between 3,500 and 4,500 tonnes, another 3,000 tonnes (mostly post-2009, accelerating since 2022) have gone unreported. Add the 3,000 tonnes to the 23,250 of SGE gold and our total is now 26,250 tonnes.

Gold mining in China

Around 55% of Chinese gold production is state-owned, and we know from geological records that this century, China has mined roughly 7,500 tonnes.

Between 70% and 80% of Chinese production is sold through the Shanghai Gold Exchange, so we have already counted that. The other 20%-30% goes to the state. Using estimates from the mid-range, 25% of those 7,500 tonnes (1,875 tonnes) has gone to the state. The rest has been sold through the SGE. Add 1,875 tonnes to the total, and we reach a figure of 28,125 tonnes.

By the way, I have not included overseas Chinese gold production, of which there is a lot. Some of this gold is sold on international markets and never actually reaches China. But what does reach China is sold through the SGE and has therefore already been counted. Finally, we have to add in gold held in China, whether as bullion or jewellery, prior to 2000. The WGC estimates a figure of 2,500 tonnes in privately held jewellery. Added to domestic mining and official reserves, you get a figure of around 4,000 tonnes. This brings our grand total to 32,125 tonnes.

Demand for gold

Previously, I have argued that 50% of that gold would go to the state. That would mean roughly 16,000 tonnes – almost twice as much as the US’s reported 8,100 tonnes! Let me propose another methodology.

It stems from my conversation with Konstantin Kisin in the Triggernometry podcast a fortnight ago. Last year, investors and central banks comprised a respective 25% and 23% of overall demand for gold; the figures for jewellery and industry are 47% and 6%.

These figures of course change from year to year, with demand from investors and central banks being the big variables. But if we assume demand from China roughly matches global demand, that would mean that of the 32,125 tonnes, roughly 15,100 tonnes is jewellery; 8,030 is now bullion held by investors; 1,930 tonnes went into manufacturing; and the Chinese government has 7,400 tonnes.

This assumes Chinese gold has been allocated over the last 25 years according to the global habits of last year, which is almost certainly a bogus assumption. China is such a big manufacturer that demand from the Chinese industry may well be higher than 6%.

It’s also easy to argue that because the Chinese people like gold so much, and the state has been encouraging them to invest since 2007, that both Chinese jewellery and investment demand is higher than 47% and 25% respectively.

Similarly, because of dedollarisation, demand from the PBOC could be higher than 23%. In any case, I have been transparent about my methodology.

You can make up your own minds. The upshot is that China’s stated reserves of 2,300 tonnes are a gross underestimate.

In a way, it’s actually better for investors if China has less gold, because it means they have more buying to do, and that should help drive prices higher. Meanwhile, the Middle Kingdom’s stated 2,300 tonnes only account for 7% of its $3.4 trillion of overall reserves. To get above 70% and match the allocation ratios of the US, Germany, France and Italy, at $4,200/oz gold, it would need something like 18,000 tonnes. That’s a lot of buying yet to come, in other words.

If you take my assumption from previous years (that 50% of the gold that has gone to China via imports or production went to the state), then China has 16,000 tonnes of gold. That is twice America’s reported holdings of 8,133 tonnes.

This comes just as gold, at current prices, accounts for 30% of global foreign-exchange holdings, according to Deutsche Bank. The US dollar, meanwhile, makes up 40%. The euro’s proportion lies below 20%. This is quite the move: gold’s share was just 20% at the beginning of the year.

At $5,800 – a 33% rise from today’s price of $4,340 – gold overtakes the US dollar to become central banks’ largest holding. That assumes banks don’t buy any more, of course, when they will. A recent survey by the WGC found that 43% of central banks plan to increase their holdings over the next year, while 95% of reserve managers expected global central-bank holdings to rise over the next 12 months.

I was looking for parity between the dollar and gold in terms of reserve holdings at some stage in the next decade. We could see it within the next six months on current trajectories.

Why is China keeping its gold a secret?

And gold isn’t money, according to former Federal Reserve chairman Ben Bernanke. So why does China understate its reserves? China is still in accumulation mode. While it is buying, it wants the price low.

It certainly doesn’t want to cause it to spike.

If China were suddenly to say that it actually has 7,400 or 16,000 tonnes, rather than 2,300, it would send the gold price rocketing. More significantly, it risks sending the dollar into a plunge. China has $3.4 trillion-worth of dollars. It wants to preserve their value, presumably.

In short, coming clean on gold holdings would create enormous financial upheaval. It has that card, ready to play, should it ever need to, should it ever get into conflict with the US, for example. Money is the first thing that gets weaponised in war.

But for now it doesn’t need to. China is surely happy growing as it is, making things and selling them to the rest of the world, thus ensuring that the rest of the world becomes dependent on it. Why rock the boat? It’s on to a good thing after all.

“We must not shine too brightly,” as Deng Xiaoping is once supposed to have said. I understand that what he actually said amounted to “keep a low profile”, or “don’t draw attention to yourself”. Same difference. China doesn’t want to rock the boat, particularly while it’s still accumulating gold.

This is quite a shift that is taking place, and it is happening quickly. The upshot? You really want to own gold, overbought or not.

Dominic Frisby writes the investment newsletter The Flying Frisby (theflyingfrisby.com). His latest book is The Secret History of Gold: Myth, Money, Politics & Power, published by Penguin Business and available from all good bookshops.

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Nothing can stop silver, it seems. Not even the $50-an-ounce mark. The price of $50/oz is the all-time high for silver. It reached that level in 1980, then again in 2011, but it’s never been able to get past it. It’s hard to think of any price in any market that is as psychologically significant a barrier as $50 silver. And yet this week silver sailed through it.

We might even have a supply squeeze on our hands – you get them in the silver markets every now and then. Demand from investors has shot up with the recent price surge, creating a shortage in London (where supply was already tight). Lease rates – the cost of borrowing the metal – have jumped by up to 30% in recent days.

Bid-offer spreads have risen from a typical three US cents to 20 cents. The spread between the London spot price and the Comex future price typically sits at minus 30 cents/oz. Suddenly, it’s $3/oz and silver has gone into backwardation: the spot price is now higher than the price of the future. That happened in 1980 as well, as silver was rocketing. By the way, if you adjust that $50 silver price for inflation, you get a figure around $200/oz for silver. Just in case you wanted an idea of what’s possible.

The backwardation has prompted traders to fly 1,000oz bars from Comex vaults in New York to London. The price gap justifies the transport costs, and remember: silver is bulky compared with gold. It is not cheap to fly.

Why such a shortage of silver? The market has been in deficit for five years, meaning demand has exceeded supply. The shortfall is around 150 million ounces annually, with London’s stock down by a third since 2021. Annual global silver production from mines peaked in 2016 at 900 million ounces. It’s been in the 830-860 tonne range ever since.

A surge in demand for silver

The major factor affecting demand has been solar panels. Until 2021, demand for silver in photovoltaic cells consistently remained below 100 million ounces per annum. Now it’s close to 250 million ounces. With the world electrifying, this appetite is unlikely to subside.

What’s interesting is that demand from exchange-traded funds is still below 2021 levels. In other words, investors are not fully committed yet. There is room for greater investment demand, and that puts further upward pressure on price.

What adds yet more potential rocket fuel to the price is the absurd levels of paper silver – something I have never fully been able to explain, although I am reluctant to cry manipulation as many do. But there are something like 360 paper contracts for every physical contract, and that has the potential to cause a short squeeze if paper contract holders request physical delivery. It happened in 2011 when silver went to $50. It happened in 1980, too.

Remember, silver tends to move later in bull markets and by more. We are seeing that now. A recent poll I ran on X showed that while gold is widely agreed to be in innings six of nine, silver is perhaps not even in innings three. I put that down to excessive bullishness among silver bugs. The market has been rising since 2022. Just quietly. Still, you can’t be too bullish in a bull market. It’s recognising when it’s over – that is the skill.

Chartists point out that the cup-and-handle pattern is regarded as extremely bullish. Silver has traced one out over 50 years. Typically, you would set a target matching the height of the cup: the distance from the bottom of the cup ($4) to the rim: $46. That gives us a target price of $96. Lord knows what price that means the miners would go to.

Don’t get carried away with silver

But remember, this is silver. If it can find a way of letting you down, it will. I’ve covered this market for 20 years. It is characterised by years of bear market, years of waiting, years of nothing but losses, punctuated by occasional spikes of hope. We are enjoying one such spike now.

Everyone’s saying this time it’s different. I don’t doubt that this bull market has legs. But it’s still silver. Don’t get carried away. There are many reasons to own silver. But be clear why you own it – and don’t own it for the wrong reasons.

Silver is not the same as gold. Yes, it was once a monetary metal, although its main purpose was as a medium of exchange, not as a store of wealth – just as gold’s main purpose was more to be a store of wealth rather than a medium of exchange. Central banks, institutions and individuals still use gold as a store of wealth today. They don’t use silver. Yes, some of us have silver coins and bars; there are the ETFs, but silver has nothing like the significance that gold does in this respect. Meanwhile, silver’s role as a medium of exchange is long gone.

Silver remains a beautiful, captivating, magical metal with a plethora of uses. Demand for silver will only increase as we make more mobile phones, computers, batteries, medical devices and, of course, solar panels (the most rapidly growing source of demand). The market, as I say, has been in deficit for five straight years, causing above-ground stock (mainly from recycling) to run low.

With that extraordinary paper-to-physical ratio of 361 contracts for every physical ounce of silver, bubbling under the surface is always the potential for a huge short squeeze as dealers scramble for physical metal to honour paper contracts. This happens occasionally and seems to be happening now. But it is not a permanent state of affairs.

The gold/silver ratio

There is 15 times as much silver in the ground as there is gold, and this historical monetary ratio between the two was always around 15. This has led many to argue that we will return to that ratio at some point. If gold remains around $4,000/oz, then silver would be $266/oz. But that ratio is not coming back, because silver’s role as money is not coming back. Don’t be under any illusions. The only chance of us ever reaching a ratio of 15 is on a spike, such as we saw in 1980, but things will quickly revert. Currently, the ratio lies at 80.

The price action of silver is unlike any other metal. In the 1970s, it meandered around $5/oz, then suddenly exploded to $50 as the Hunt brothers tried to corner the market. It then collapsed and spent the next 25 years meandering around the $5 mark again. Things picked up after 2004. There were huge spikes and dips as it launched to $50/oz once again in 2011. Then it crashed again. It traded in a range between $15 and $30 for another decade, but then, largely riding on the coat-tails of gold’s bull market – roughly since the US froze Russian dollar assets – silver has been creeping up and up and up.

Silver at $50 is a huge line in the sand. Maybe this is a genuine breakout, maybe not. But we are now at $52. There is no resistance overhead. Typical price action would be for us to rally a bit more, pull back to the breakout level, retest, then off to new highs. That’s when we start heading towards those cup-and-handle highs. I don’t think $100 silver is an impossibility. But I shall be lightening up as we rise.

My favourite silver play, my largest silver position and one I have covered before is Sierra Madre Gold and Silver (Canadian Venture Exchange: SM). Some Flying Frisby and MoneyWeek readers got into this one a couple of years ago below 30 cents. It is now sitting majestically at C$1.45. It can go higher. If silver hits $100, this could become a 10-dollar stock.

Where to invest in silver now

This Canadian-listed company, with a market value of C$270 million, has a producing mine in Mexico, La Fortuna, which it acquired from silver mining giant First Majestic (NYSE: AG). First Majestic had put it under care and maintenance during the bear market.

While the quality of the asset was not in doubt, it was deemed too small for a company of First Majestic’s size to bring back into production; hence the partnership with Sierra Madre. Sierra Madre spent several years putting it back into production, meeting most targets ahead of schedule, although its cost per ounce was higher than anticipated at $30/oz.

Full-scale commercial production began in January 2025. Production currently stands around 700,000 ounces per annum. There are also several potential catalysts for the stock. Firstly, production costs will come down from $30/oz to about $21 over the next two years as the group replaces rented equipment with its own, increasing efficiency and turnover.

The company also processes between 300 and 350 tonnes of rock per day. Recent investment in the business means improved equipment, and processing will rise to 750-800 tonnes by the second quarter of next year. Production will double, in other words. The miner is aiming to double that figure again by late 2027. Remember, this company has a habit of reaching its targets, which is unusual in the sector.

The La Fortuna mine is projected to have at least 15 years of life. But the bulk of this stock’s potential comes from exploration. There are many past producing mines on the property (most closed in the early 20th century), which produced more than a million ounces of silver annually. Geologic mapping has identified 60 kilometres of mineralised veins. The group also has multiple historic resource reports, one showing 200 million ounces in the 1990s, which never materialised due to the bear market. There is plenty of metal there, in other words.

“This is why we bought the property,” CEO Alex Langer tells me. It could be “the largest undeveloped silver district in Mexico”. Exploration begins next year. First Majestic had plans for a mill to process 3,000 tonnes of rock per day at one of the properties. So why didn’t it explore the property itself? Because it owns a huge stake in Sierra Madre (38%), so it can sit back and let Sierra Madre do the work.

The goal is to grow what was a development play, now a junior producer, into a mid-tier silver producer. The expansion plans are coming just as silver is rising. It feels like just the right point in the cycle.

If the company produces silver at $30 and the silver price rises from $40 to $50, profits double. If production costs come down to $20 and the silver price rises to $60, they double again. If production itself doubles, profits double again. If the silver price goes to $100 and this firm makes a major discovery and turns itself into a district-scale producer, then this becomes an asymmetric bet.

Flying Frisby and MoneyWeek readers who got into this one at 30 or 50 US cents may be tempted to take some profit. But there is every reason to carry on holding. Ultimately, this miner sinks or swims with the silver price, but even if silver just stays where it is there is still enormous potential for growth.

Dominic Frisby is the author of The Secret History of Gold: Money, Myth, Politics & Power, available at all good bookshops. He writes the investment newsletter The Flying Frisby: theflyingfrisby.com.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Nvidia has been one of the biggest success stories in the stock market over the past three years.

The company has become a favourite stock among DIY investors as well as institutional ones. Nvidia’s share price gained around 900% since the launch of ChatGPT in November 2022, while the semiconductor giant become almost synonymous with the artificial intelligence (AI) sector and become the world’s first $4 trillion company.

But these explosive gains, while they have been accompanied by similarly explosive earnings growth, have always attracted their share of scepticism. With detractors increasingly willing to vocalise the notion that the AI bubble could be set to burst, the idea that Nvidia might be overvalued is gaining traction.

For context, Nvidia’s market cap as of 3 October is $4.6 trillion.

“That’s more than the whole of UK listed companies,” points out Karim Moussalem, CIO equities at Selwood Asset Management. “[Nvidia] is capable of adding hundreds of billions of dollars in market capitalization in a single trading day on the back of new product announcements or investment headlines.”

Nvidia trades at a price/earnings (P/E) ratio of around 54 times trailing earnings and around 30 times its projected earnings. These aren’t that out of the ordinary for big tech stocks, especially the Magnificent Seven that characterise the AI trade.

“I think it’s hard to argue that [Nvidia’s valuation is] completely crazy,” said Rob Perrone, investment specialist at Orbis Investments. “This company earns returns on capital of 70%, it’s been doubling revenues, Wall Street thinks it’s going to carry on growing at 30% for a long time.”

Where does Nvidia’s revenue come from?

You might ask: who cares if Nvidia is valued at more than the entire UK stock market? It generated nearly a third as much profit as the entire index did last year ($84 billion compared to the FTSE 100’s combined £192.9 billion, approximately $260 billion), and is growing substantially faster.

Nvidia is a huge business, and its revenue and profits have ballooned in recent years. But its revenue increases have come from a fairly clustered set of companies.

Two customers accounted for a combined 33% of Nvidia’s accounts receivable balance in its latest quarterly results.

Two customers (referred to in Nvidia’s reports as Customer A and Customer B) accounted for a combined 39% of Nvidia’s Q2 revenue (23% and 16% of revenues, respectively). In other words, almost a quarter of Nvidia’s revenue comes from a single customer, and two fifths is accounted for by its largest two.

This revenue concentration is increasing: in Q1, Customer A and Customer B accounted for 30% of revenue (16% from Customer A and 14% from Customer B).

Nvidia’s next four largest customers accounted for a combined 44% of revenue, meaning that six customers account for more than four fifths of all Nvidia’s revenue.

These ‘direct’ customers are likely to be original equipment manufacturers (OEMs) who buy up and distribute Nvidia’s chips, and as such might reflect a more diverse end-user base than the figures alone suggest. Even so, Nvidia’s chief financial officer, Colette Kress, said in her Q2 statement that large cloud service providers account for approximately 50% of Nvidia’s Data Center revenue (which itself was 88% of total revenue during the quarter).

As much as Nvidia itself appears to have a strong customer base that is increasing its spend, Perrone says that you have to look downstream in order to assess the long-term sustainability of the growth expectations baked into its valuation.

“Apart from Microsoft, it doesn't really seem like a lot of people have figured out how to make money off of this stuff yet,” he says.

Nvidia’s circular economy

The key question, then, is where Nvidia’s customers (direct or indirect) get their money from.

Moussalem draws attention to what he calls “a strikingly circular flow of capital”.

“Nvidia sells the chips that power OpenAI and other large model developers, helps finance their purchases through equity and structured deals, and then benefits as each new announcement of bigger training runs or data centre projects feeds the perception of limitless growth.”

Nvidia’s recent investment into OpenAI, for example, will see it buy additional equity in the ChatGPT maker for every gigabyte of Nvidia hardware OpenAI deploys.

FT Alphaville arguably summarised the deal best as such:

“How much of the $100bn would be flowing back to Nvidia in revenue from chip sales?

"Dunno.”

Coreweave, which IPOed earlier this year, is another case in point. It buys up Nvidia GPUs, then leases them out to companies (including Nvidia) that want to temporarily boost their computing resource. Nvidia reportedly owns a $2 billion stake in Coreweave. The upshot is that Nvidia is a supplier to, customer of and investor in Coreweave all at the same time.

“Every press release drives the stock higher, which in turn supports additional capital raises and even larger spending commitments,” said Moussalem. This, he said, creates “a powerful feedback loop that looks less like traditional business and more like late-cycle financial engineering. You can also call it vendor financing, or a Ponzi scheme.”

Perrone is more reserved, but even he describes the merry-go-round of capital between AI’s major players as “not the most sustainable source of financing”.

“Ultimately, you need money coming in from customers, from outside the ecosystem,” he told MoneyWeek.

Could Nvidia’s share price fall?

The situation, says Moussalem, is “eerily reminiscent of the late-1990s dotcom boom.”

That boom was underpinned by a widespread belief in endless growth that came abruptly to a halt.

Should one of the big cloud service providers decide that pouring money into AI infrastructure is no longer worthwhile, Nvidia’s revenue risks falling off a cliff. For now, there’s no reason to think they have any intention of doing so imminently.

There are, though, early indicators around that might eventually change that perception. The economics of AI look precarious at present. Bain & Co’s 2025 Technology Report forecasts that by 2030, AI companies will need to generate $2 trillion in revenue in order to fund projected data centre buildout, but that the anticipated productivity gains that AI is expected to yield would still fall $800 billion short of this total.

It should be remembered that while Nvidia and the cloud hyperscalers are (highly) profitable businesses, the AI developers paying them aren’t. OpenAI, Anthropic and most other AI start-ups are still giving most of their hugely cost-intensive products away for free in order to drive adoption.

“OpenAI is burning cash,” says Perrone. “When Meta (then Facebook) had [as many customers as OpenAI currently does] it was printing cash.

“To justify the scale of investment going in, you need gigantic numbers – revenue not in the hundreds of billions, but more like the trillions,” Perrone adds.

Paying customers (that is, enterprises) need to increase rapidly over the next five years or so to make AI viable. But why should they, given that according to a recent MIT report 95% of businesses spending money on AI aren’t seeing a return?

Ultimately, this is a big stack of cards that Nvidia’s present valuation is built on top of. The assumption is that it will keep increasing its profits rapidly into the foreseeable future.

“When expectations are high, so is risk,” said Perrone in an article on the quiet winners of AI competition.

Moussalem believes that “we are in the midst of a bubble, and a total retail-driven frenzy”.

And while Perrone is more circumspect, he believes “there are better opportunities” and better ways for investors to play the AI theme than to buy Nvidia shares. Some of these ideas were highlighted in MoneyWeek magazine here: Buy the ammo-makers: how to find value in the AI wars.

They say health is wealth, but healthcare investors might disagree. The sector has had a tough time over the past few years. Policy noise in the US has been a major headwind recently, but even before that investors’ focus was drawn elsewhere as areas such as technology raced ahead. “For the 30-year period from 1989-2019, the US healthcare sector closely tracked technology returns, and with considerably lower volatility,” notes Michael Cembalest in a research paper for JPMorgan. “Things have changed since then.”

The MSCI World Health Care index has delivered five-year annualised returns of less than 6%, lagging the broader MSCI World index at 13%. The MSCI World Information Technology index has delivered 17% over the same period. Sentiment about the sector has soured further in 2025 – and it is easy to understand why. The US is the world’s largest healthcare market and when Donald Trump was inaugurated in January, he promptly appointed a vaccine-sceptic as his health secretary. This set the tone for what was to follow.

There are three key threats: efforts to control drug pricing, tariffs and possible tax changes. There is little doubt the sector is trading cheaply. The question is whether it offers good value in light of the risks.

Three big, beautiful policy risks

Donald Trump thinks US customers are being ripped off when it comes to drug pricing. He told reporters that a friend in London pays $88 for a weight-loss treatment that costs $1,300 in New York. So earlier this year, he published an executive order demanding “most-favoured nation” prices for US customers – an attempt to bring US prices in line with the lowest costs offered elsewhere. Pharmaceutical companies have been threatened with “every tool in the federal government’s arsenal” if they refuse to step up. The threat is vague, but has nevertheless created nervousness.

The majority of global pharmaceutical profits come from the US market – around 70%, according to the University of Southern California. Rather than cutting prices in the US, companies could simply decide to pull out of less lucrative markets, reducing access to drugs for patients and denting pharmaceuticals’ profits.

The second threat is tariffs. Trump is keen to boost US manufacturing and is using tariffs as a way of doing so. He has announced a 100% levy on imports of branded or patented drugs from 1 October, although manufacturers that are building a site in America will be exempt. Tariffs aren’t the only tax investors need to consider either. The Trump administration also has an eye on corporate income-tax loopholes that pharmaceutical companies have been exploiting. Pfizer paid zero in federal taxes in 2019 despite selling $20 billion of drugs in the US, according to an investigation from the US Senate Finance Committee. This was due to round-tripping – a mechanism whereby income from US sales is treated as foreign for tax purposes. Ways of achieving this can include using offshore manufacturing or shifting intellectual property rights to tax havens. “We’re going to try and fix a whole bunch of these tax scams,” said commerce secretary Howard Lutnick, speaking on a podcast in March.

Is this all as bad as it sounds?

Some of the risks might have been overstated. Look at “most-favoured nation” pricing. There is scepticism about whether Trump will actually be able to implement it on any kind of scale. In his first term, he tried to control the price of a handful of drugs covered by Medicare, but was blocked by a federal judge. Wide-sweeping price controls this time would almost certainly require the support of Congress – something Congress doesn’t seem to have the appetite for.

Meanwhile, pharma companies have been making moves to try and get ahead of tariffs. The measures that kick in from the start of October only affect companies that aren’t building a site in the US. In recent months, scores of companies have been making commitments. In July, Swiss and UK giants Roche and AstraZeneca both pledged $50 billion in investments in the US over the next five years, building and expanding research and development and manufacturing sites. AstraZeneca said its goal is for 50% of revenue to be generated in the US by this date.

US pharma companies have also made big commitments to domestic manufacturing. Earlier this year, Eli Lilly pledged an additional $27 billion for four new plants, and Johnson & Johnson announced a $55 billion investment over the next four years.

While this will help the industry navigate tariffs, it is possible that some companies will lose tax advantages by moving their manufacturing facilities to the US. Karen Andersen, research director at Morningstar, says analysts have been building a ramp up in tax rates into their models over the next few years as the reorganisation goes through.

Healthcare stocks are going cheap

Headwinds in the sector mean valuations look cheap. The MSCI World Health Care index is trading at around 16 times its forecast earnings, compared with 20 times for the MSCI World index. Individual names are trading on lower multiples. “Pharma stalwarts such as Merck, Pfizer and Bristol Myers Squibb trade at forward price/earnings (p/e) ratios of just eight to nine times, and biotech trades at one of the largest valuation discounts in the market,” notes Cembalest. The question is whether it is worth it given the risks.

On the one hand, we are starting to get a better sense of how Trump works. Recent stockmarket reactions have been less pronounced as a result. In July, Trump sent letters to 17 pharmaceutical companies threatening repercussions if they didn’t adopt most-favoured nation pricing. Investors largely shrugged off the news. Markets have also taken the latest tariff announcement in their stride. “Investors see more bark than bite,” says Lale Akoner, global market analyst at investment platform eToro. The objective of tariffs is to force supply chains onshore in the US – not to raise prices at the pharmacy counter. “European pharma gets nudged to localise, while US firms gain a policy tailwind.” That said, valuations are likely to remain suppressed for as long as the policy outlook is uncertain. Consider most-favoured nation pricing. Trump’s plan sounds overly ambitious, but “the problem is that the impact is so big that it’s a difficult risk for the market to ignore, no matter how unlikely it might be,” says Andersen.

Is investing in healthcare stocks worth the risk?

One fund manager who has been investing in the field for 25 years told me that every time there is nervousness around pricing in the US, the sector underperforms. “Before buying more of this stuff, investors need clarity on the earnings forecast,” says Gareth Powell, head of healthcare at Polar Capital. We could get more certainty over the coming months. The deadline given to pharma giants for complying with Trump’s price demands was 29 September. Further detail on tariffs has already emerged, but there are still questions about how regions with pre-existing trade deals will be treated.

“Headlines about the imposition of 100% tariffs on branded drugs appear to contradict the previously discussed 15% cap for European firms,” say Ailsa Craig and Marek Poszepczynski, co-managers of the International Biotechnology Trust. Until these pieces of the puzzle fall into place, bargain-hunting in the sector requires bravery.

On the plus side, there have been some bright spots. Biotech investors point to pro-industry noise from the FDA regulator, including a pilot programme to reduce the review time on new drugs and therapies from 10 to 12 months to just one to two, if they meet certain criteria. This is a marked improvement from earlier this year when investors were worried that mass firings at the FDA would result in a slower approval processes.

Active investors can also adjust their portfolios to manage the risk associated with policy threats. “The way I would look at it is on a case-by-case basis,” says Andersen. Is the company particularly reliant on government reimbursement for one of its key products? Does it have a significant manufacturing footprint outside of the US? One way the International Biotechnology Trust is managing the risk is by tilting into rare diseases, with more than 30% of the portfolio allocated to this theme. “This tends to be much more similar in price in both Europe and the US,” says Craig, meaning therapies should be less exposed to Trump’s interference with drug pricing.

Where to invest

If you are looking for broad exposure to the sector, the Polar Capital Global Healthcare Trust (LSE: PCGH) is one to consider. The trust has large overweight positions in healthcare equipment and biotechnology. It is underweight on pharmaceuticals relative to the benchmark – a position driven by concerns about the impact of Trump’s pricing threats on mega-cap pharma companies. Those who prefer passive exposure could look at the Xtrackers MSCI World Health Care ETF (LSE: XDWH), although today’s volatile policy backdrop could better lend itself to active stockpickers.

The area that looks most interesting in my view is biotech. This is where most of the innovation happens, with big pharmaceutical companies swooping in to acquire biotech firms that are developing a promising drug. We should see more merger and acquisition (M&A) activity over the coming years as a significant patent cliff-edge is looming for big pharma. Drugs worth $180 billion in annual revenue (equivalent to 12% of the global market) will be coming off patent in 2027 and 2028, according to figures cited in the Financial Times. This is putting pressure on pharma companies to shop around for new products in the biotech sector.

The International Biotechnology Trust (LSE: IBT) gives exposure to this part of the market. The managers have had strong success identifying acquisition targets, with 30 portfolio holdings having been snapped up through M&A since 2020. Investing in biotech is a risky business, but the trust is heavily weighted towards companies with drugs in late-stage clinical trials, as well as those that have completed trials already and are waiting for approval from the regulator. This makes it a good pick.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Since World War II, the two landmark events in the evolution of money were Bretton Woods in 1944, when the dollar became the de facto global reserve currency, and then the Nixon Shock of 1971, when the US abandoned the last vestiges of its gold standard. There is a shift currently taking place in the global financial landscape, the ramifications of which might, I suggest, prove equally significant.

You might feel it is unimportant. You might feel it is hugely significant. Either way, before making your mind up, you need to understand what is taking place, so that you can position yourself and your family, if you deem it appropriate. You may even be able to profit handsomely from the transition. Here I explain US dollar policy: what is going on and, more importantly, where it is all heading.

Donald Trump solves Triffin’s Dilemma

The US government, as we know, wants to bring manufacturing back on shore. President Donald Trump has said it repeatedly, his vice-president, J.D. Vance, has said it, and so has his Treasury secretary, Scott Bessent, who keeps reminding us that it is now time to prioritise Main Street over Wall Street.

Part of the reshoring of US manufacturing involves tariffs, as we now know all too well. Part of it involves weakening the US dollar to make US exports more competitive. Again Trump, Vance and Bessent have all said this. However, there is a problem, and that problem has a name: Triffin’s Dilemma, named after Robert Triffin, the Belgian-American economist who first identified the paradox in the 1960s.

You might think it’s an advantage to issue the global reserve currency. You can issue dollars. Everyone else has to work for them. The French called it “America’s exorbitant privilege”. But this was a status the US engineered for itself during the Bretton Woods Agreement that determined the monetary order at the end of World War II. What has happened, however, is that it has made the US fat and lazy, especially since 1971 when the US abandoned the ties of the dollar to gold.

To supply the world with dollars, the US must run trade deficits. That is to say it must buy more than it sells in order that US dollars can make their way out into the world. Persistent trade deficits have, over time, eroded its industrial base. Factories and jobs have gone offshore. Foreign nations have used their profits to invest in US capital markets and its debt. At the same time, financial markets – aka Wall Street – have grown and grown. Part of this process was the financialisation of America.

The Trump administration gets this in a way its predecessors did not. Vance has actually called the dollar’s reserve status a “tax” on American producers. What’s more, as this process has continued, more and more the credibility of the dollar itself is being cast into doubt. This tension forces the US to choose between its own domestic economic needs and the stability of the international monetary system. This is Triffin’s Dilemma. Trump wants to revitalise America’s “rust belt”. But there is more to it than that.

The Covid pandemic pulled back the curtains and revealed the extent to which the US has been operating with its trousers down: an excessive dependence on China and its supply chains for too many strategically essential products, especially those related to health, technology and the military. Then, during the Ukraine conflict, Nato found itself unable to match Russian munitions production. The US, in short, is struggling to produce critical goods. It’s why Trump keeps harping on about rare-earth metals. It is vulnerable.

Moving away from dollar towards gold and bitcoin

The answer is to engineer a “managed decline” of the dollar and reduce its role as a global reserve asset. This was already happening organically. China, for example, has been reducing its holdings of US Treasuries for 10 years now – quite gradually – although its US dollar holdings remain above $3 trillion. Meanwhile, China – and many other countries along the Silk Road besides – have been increasing their gold holdings, and quite dramatically. (In my view China has at least four times as much gold as it says it does. You can read more on this in my book, The Secret History of Gold: Myth, Money, Politics & Power.) The process is known as dedollarisation. Just a few months ago, gold overtook the euro to become the second most-held asset by central banks; the dollar itself fell beneath 50% for the first time this century. In fact, gold has just overtaken US Treasuries as a percentage of central-bank holdings worldwide.

We are not seeing a move towards any other national currency as global reserve. There is not one that could take up the role, despite what the bureaucrats in Brussels might try to tell you about the euro. The move is towards the neutral but universal asset that is gold. That suits all the main players. Gold is neutral and both the US (assuming it has all the 261 million ounces of gold that it says it does) and China have lots of it. (US gold has not been audited in over 60 years, hence the doubts.) Indeed, a gold revaluation would be a “win-win” for both China and the US. A higher gold price would strengthen US fiscal flexibility while boosting Chinese consumers’ wealth, encouraging domestic consumption and reducing trade imbalances. (China has been encouraging its citizens to buy gold since 2007.)

There is the potential to leverage the US’s 261 million ounces (8,133 tonnes) of gold reserves, currently marked to market at just $42/oz. There are two ways this might be done. Economist Judy Shelton has proposed issuing Treasuries that are in part backed by gold to offset the inflation/debasement risk to make them more attractive to buyers. The other possibility (which has gone from, as Bessent put it, “we are not doing this” to “we are not doing this yet”) is to revalue the gold from $42 to the current price of $3,400/oz, which would create more than $850 billion of reserves without having to incur any extra debt. That would help with the US’s current fiscal challenges: true interest expenses (including entitlements and veterans’ affairs) currently exceed 100% of Treasury receipts. In short, the US administration is leaning into a weaker dollar and the neutral reserve asset that is gold to rebalance trade and rebuild domestic industry, even at the cost of short-term economic pain.

A showdown between gold and bitcoin

Bitcoin, as the world’s best neutral digital currency, is going to have a role to play in all of this as well. The US is quite happy with that, too, as evidenced by its pro-Bitcoin rhetoric. At the national, corporate and individual levels the US has a lot of Bitcoin. The US itself has 198,000 coins, the most of any nation; Strategy (NYSE: MSTR) has 630,000 and many other companies besides also hold the asset; and 15%-20% of US citizens are thought to own some Bitcoin. Of the eventual 21 million supply, probably 15% has been lost and another 1.3 million are locked up by Satoshi Nakamoto and will likely never appear (he is almost certainly dead) – a hefty chunk one way or the other.

Which brings us to the recent Genius Act. This effectively nixed central bank digital currencies (CBDCs): the Federal Reserve Bank is now not allowed to issue them just as, irony of ironies, the EU’s Christine Lagarde was planning to phase them in. However, the act supported stablecoins (that is, coins backed by dollars) as a private-sector alternative. The more bitcoin grows, the more the stablecoin market will grow. Today, roughly half the entire US dollar stablecoin market, estimated at $250 billion, is invested in US Treasuries (maybe 2% of the overall Treasuries market). Tether is the world’s seventh-largest buyer. As the stablecoin market grows, so will its demand for Treasuries.

The market is small, but growing rapidly. Projections of its growth range from $500 billion in 2035 (JPMorgan’s guess) to $2 trillion (Standard Chartered) and $4 trillion (Bernstein). “If the stablecoin market meets these growth projections,” says the Kansas City Fed, “it could lead to a substantial redistribution of funds within the financial system.” In other words the stablecoin market is going to help the US fund its debt, just as other nations move away from Treasuries to gold and bitcoin. Gold might suit the US as a neutral currency, but bitcoin suits it better, especially if there are complications surrounding the Fort Knox gold, which it seems there are. Why no audit yet?

It’s likely a few years from now, there is going to be some sort of showdown between gold and bitcoin in the battle for primary reserve asset status. It’s unlikely to be both. Governments will favour gold, as they have lots of it. Tradition is on their side. Eternal gold has a track record that is unrivalled. But it is an analogue asset in a digital world. Bitcoin is much more practical. Which will win out? Practical digital or impractical analogue? This is a contest that is still a way off. For now all roads lead to gold and bitcoin as the world dedollarises. Own both is what I say.

Britain left behind on both gold and bitcoin

Needless to say the UK is absolutely clueless in all of this. The government sold two-thirds of its gold in 1999 and the Financial Conduct Authority regulator has made it near impossible for UK citizens to buy bitcoin. Word is that the chancellor is now planning to sell the country’s bitcoin holdings – though as these are confiscated this is legally problematic. The UK has recently overtaken China to become the largest holder of US Treasuries in the world after Japan, just as everybody else is dumping them. It is making no attempt to buy any gold either. We really have clueless clowns running the show.

Meanwhile, with the threat of AI and automation to America’s jobs – especially in jobs that involve driving, where millions work – there is the risk of mass unemployment coming quite quickly, and with it plentiful defaults on mortgages and loans. This could force the US to print money, driving inflation and providing yet another reason to own gold and bitcoin, which cannot be debased.

In short, the dollar will weaken significantly over the next three years. The pound is a basket case. National currencies are not stores of wealth. Gold and bitcoin are. Own both as the Trump administration addresses Triffin’s Dilemma through a managed dollar decline. They will use gold and potentially bitcoin to restore US industrial and military strength. This is the shift that is taking place.

Dominic Frisby writes the investment newsletter The Flying Frisby.

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Speculation has reached fever pitch about the contents of the government’s forthcoming Autumn Budget. This follows the assessment of the highly respected NIESR (National Institute of Economic and Social Research, Britain’s oldest independent economic research institute) that the government is more than £40 billion adrift of the “fiscal rule” of achieving balance within five years. Allowing for a safety margin of £10 billion, that means a requirement for £51.1 billion, either in extra taxes or lower spending or both, annually by 2029-2030.

Slow growth, unexpectedly high inflation, disappointing tax revenues and overspending have caused the government’s finances to deteriorate rapidly. The promise of chancellor Rachel Reeves, that last year’s swingeing tax increases would be the last of this parliament looks set to be broken.

Most of the speculation has centred on tax increases on the well-off, whether on property, income or overall wealth. This is partly due to the Labour Party’s manifesto pledge not to increase the rates of income tax, national insurance or VAT; partly because there is little that excites the left more than the prospect of raising taxes on the better-off; and partly because the media loves scaring people about taxation.

Labour's unintended consequences

However, there is abundant evidence that last year’s tax increases have been counterproductive, slowing economic growth, reducing compliance and encouraging taxpayers to change their behaviour, even their residency, to reduce tax. These appear to be factors that the government and its Treasury advisers grossly underestimated, if it considered them at all. Or maybe they just didn’t care. The taxes were motivated by revenge on the government’s enemies as much as on raising revenue.

In theory, there are three ways Reeves could address the problem: cut spending, raise taxation or abandon the fiscal rules constraining the government’s room for manoeuvre. Given that even modest reductions in the growth of welfare spending have been defeated by backbench revolts and that increases in spending have been built into the government’s strategy, cutting spending is not an option.

Abolishing the fiscal target and allowing national debt to go on increasing may seem attractive but the cost of borrowing has continued to rise even as the Bank of England, more concerned to help the government than to exercise its theoretical independence, cuts interest rates. The cost of ten-year debt has risen to 4.7%, close to its January peak; that of 20-year debt to over 5.4%.

Some economists have been “crying wolf” about the risk of a spike in gilt yields, as supply continues to increase but demand drops away. So far, the trend has been slowly upwards, but that could change; the point about the parable of the boy who cried wolf is that nobody believes him when the wolf eventually arrives. Scaremongering has proved premature, but crises blow up very quickly. Anatole Kaletsky of Gavekal points out that rigid adherence to the fiscal rule leaves the chancellor unable to respond to an economic downturn. “Rather than benefiting from the Keynesian automatic stabilisers that have underpinned macroeconomic management since the late 1930s,” he writes, “the UK government has embraced a procyclical demand policy that might have been designed to amplify economic instability”. This is true but is the result of successive governments operating too close to the fiscal edge rather than leaving themselves room to respond to unexpected shocks.

Supply-side blunder

Kaletsky is on stronger ground criticising the government’s fiscal policy. “Starmer’s ban on any change to headline tax rates has compounded the demand-side error of pro-cyclical fiscal tightening with a supply-side blunder: imposing high marginal tax rates on a narrow base. This distorts the economy structurally, discourages investment, provokes political resistance, and encourages avoidance – guaranteeing disappointing revenue yields.”

He points out that “90% of British workers have qualified for big tax reductions since 1990” so that “fewer than 10% of taxpayers now bear the entire burden of financing the expansion of Britain’s welfare state, a shift to what may be the world’s most progressive income tax structure [that] occurred almost entirely during the 15 years of Conservative government from 2010 to 2024”.

He shows that “median British workers pay less tax than those in other rich economies”, leaving Britain’s finances dependent on “a very small minority of high earners who would probably prefer to abolish or bankrupt the welfare state rather than to pay ever higher taxes”. He goes on to argue that “the obvious – and, in my view, the only – solution that will ultimately convince the markets is for Britain to increase income tax and reverse the fiscal restructuring of the past 25 years”.

In other words, increase the basic rate of income tax to 22% and then to 25%. This, he argues, would restore bond investors’ faith in the sustainability of government finances, increase confidence and restart growth. More of government services would be funded with revenues contributed by the citizens who benefit from them. The NIESR also says that freezing tax thresholds and raising the standard and higher rates of income tax by 5% would close the fiscal gap, so Kaletsky is not alone.

The problem is that such a policy would drive a coach and horses through Labour’s manifesto commitment. For that reason, Kaletsky doesn’t expect this to be implemented in the Autumn Budget. Instead, “Reeves will likely propose intolerable tax increases that would extinguish any lingering hope of reviving growth – and prove politically unviable. The resulting backlash could spark a financial crisis and force a Black Wednesday-style U-turn in 2026.” Kaletsky believes that such a U-turn, which he thinks is inevitable, combined with a relaxation of the fiscal rule would, as in 1992, be “an economic liberation that could spark an unexpected national revival and growth boom”.

A fresh start?

There are, however, some problems with the 1992 analogy. Then, Britain was in recession with high interest rates and sterling tied to the over-valued deutschmark, providing no hope of escape. Breaking the link enabled interest rates to be cut and sterling to fall, though all the fall was recovered in the subsequent economic recovery. By 1997, the economy was growing strongly, the government’s finances were heading for surplus and taxes were being cut.

It’s very hard to see raising income tax as having the same effect, even if it would stabilise bond yields and interest rates. Moreover, despite the success of the 1992 U-turn, the Conservatives still lost the subsequent 1997 election decisively. Labour backbenchers will be well aware of this. Kaletsky is probably right – there is no alternative – but that does not mean that backbenchers or other members of the government will support it. It is more likely that the government will fall and be replaced either by a national government, as in 1931, or by an election.

That may sound like bad news but it will pave the way for a resolution. Several countries have faced a fiscal and economic crunch but have emerged revitalised. Not just the UK in 1992 (arguably a false dawn) but also Sweden, Greece, Italy and, most recently, Argentina. New governments implemented what was previously politically unthinkable, regained the confidence of the currency markets, deregulated, made government more efficient and revived growth. It just won’t happen under the current government.

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After a couple of decades in the doldrums, UK banks have performed well over the past 18 months. The FTSE 350 Banks index is up by 70% since the start of 2024, outperforming both the Nasdaq (up 35%) and the S&P Regional Banks index in the US (up 12%).

When it comes to investing in banks, common-sense “buy and hold” investing rarely works: HSBC and Standard Chartered – the best performers over the past 20 years – have seen their share prices fail to keep pace with inflation, while diluting shareholders with capital raisings over the years. A counterintuitive approach has produced superior results: wait until the whole sector’s fortune has turned and then buy the lowest-quality banks. We have seen the same outcome this time: it is Metro Bank (up 196%) and NatWest (up 147%) that have been the best performers.

Two headwinds that UK banks have faced ever since the crisis have now reversed: loss-absorbing equity funding has been restored, while interest rates have risen well above post-crisis lows. Low interest rates are normally seen as a positive for banks, but when the cost of money falls too low, the banks’ “free float” from current account deposits – a reliable and cheap source of funding – don’t enjoy any relative advantage versus funding in wholesale debt markets.

Of course, if UK banks had not lent out so much money in the first place that interest rates needed to be cut below 1%, then they wouldn’t have had to spend the last decade and a half managing the problems caused by low interest rates. However, with the interest-rate cycle returning to more normal levels and equity cushions rebuilt, banks have re-rated from trading at 25%-50% discounts to tangible book value (TBV) to roughly 1.1 times TBV currently.

The banking environment is benign enough that we may even have an initial public offering (IPO) from Shawbrook, a small business lender owned by private equity groups BC Partners and Pollen Street Capital. Shawbrook may float later this year and is targeting a £2 billion valuation. However, that valuation looks ambitious given the performance of past IPOs such as Metro Bank, Funding Circle and CAB Payments, which all fell by more than 80%. These investments did very well for early investors who got in before they listed and received a windfall gain at the expense of public-market investors. Anybody buying into the Shawbrook IPO would need to be sure that sellers are not timing their sale to exit just before problems emerge.

UK bank stocks

Still, even as the environment has improved, questions remain about the long-term growth prospects for UK banks. Household debt – mainly mortgages – currently stands at about 80% of GDP in the UK, above the level seen in the USA and the European Union (although the latter shows wide dispersion, with some countries such as the Netherlands and Denmark approaching household debt close to 100% of GDP). We are close to the limit as to how much household and government debt the banking system can support, which limits domestic growth opportunities.

From 2004 to 2024, Lloyds doubled revenue to £18 billion, yet book value per share shrunk by half to 75p. That’s mainly a result of the ill-conceived “rescue” merger with HBOS in 2008, which at the time had a balance sheet twice the size of Lloyds'. Barclays has grown revenue by 40% to £21 billion over the same period, while book value per share doubled to £5 as of December 2024. Yet earnings per share (EPS) are still down by a third to 35p. The only UK clearing bank to grow revenue, book value and EPS over that time is HSBC. Still, an increase in revenue of 21% and NAV per share up by less than 80% equates to compound annual growth rates of less than 1% for revenue and under 3% for NAV.

Bank stocks in small territories

Growth for UK banks could come from overseas expansion, but here the record is mixed. Bankers, being dull and unimaginative people, like to expand their footprint into countries with large populations, but it has been small, fast-growing territories with strong institutions such as Hong Kong and Singapore that have most rewarded investors.

HSBC (formerly the Hong Kong and Shanghai Banking Corporation), market cap £170 billion, and Singapore’s DBS, market cap £83 billion, have long since outgrown their city-state roots. Although less familiar to most UK investors, DBS’s track record is more impressive than HSBC’s. It is three times the size of Bank Rakyat (market cap £27 billion), the largest bank in Indonesia, which has almost 50 times the population of Singapore. It is also around four times the size of Maybank (market cap £20 billion) in neighbouring Malaysia, which has six times the population.

A large amount of credit for the far greater success of DBS and its peers OCBC and UOB relative to regional neighbours goes back to the Singapore’s first prime minister Lee Kuan Yew, who transformed the country from a swamp to a first world economy, with the help of air conditioning and British institutions. The crucial lesson that while banks are intrinsically linked to their domestic economies, it is strong institutions rather than a large population that make for an attractive investment case.

A bank that didn’t learn – and one that did

In recent years, HSBC has been shrinking its global network as it became obvious even to management that the bloated corporation with 9,800 offices in 77 countries and 243,000 staff was suffering from diseconomies of scale. The most recent annual report says it has trimmed that number down to 58 countries and 211,000 staff. Shrinking a global business is much more challenging than growing. HSBC has exited countries such as Canada, Brazil, Argentina and France, often ignominiously.

It was easy for HSBC to expand into France originally, points out Marc Rubinstein, a former hedge fund manager turned financial blogger – the bank simply offered to pay more than rival bidders to acquire Crédit Commercial de France (CCF) in 2000. Twenty years later, HSBC struggled to find anybody to take CCF off its hands. Private-equity firm Cerberus paid HSBC a single euro to assume $2 billion of tangible book capital, together with 244 branches and nearly 4,000 staff. HSBC booked a $2.3 billion pre-tax loss, alongside a $700 million goodwill impairment charge. Now, a new threat has emerged. App-based banking and payments firm Revolut currently has 52.5 million customers – of whom 14.5 million joined over the past year – compared with HSBC’s 41 million. It is licensed in 30 countries, including Brazil and Mexico, and in 2024 submitted 10 new licences to banking regulators as it works towards a target of 100 million customers across 100 countries. UK-based rivals Monzo, Starling and Atom Bank and others such as N26 (Germany) and Nubank (Brazil) are also threatening traditional branch-based banks.

These neobanks operate with structurally lower costs: Revolut has just over 10,000 staff – that’s 5% of HSBC’s total, despite having more customers. Revolut grew customer balances by 66% to £30 billion, while Monzo saw deposits up 48% to £16.6 billion. While HSBC has $1.65 trillion in customer deposits, that amount has shrunk from the 2021 level. These new entrants are now radically upending how we think about the investment case in banks. Yet perhaps DBS is a case study on how incumbents can respond to disruption.

DBS has won awards for “World’s Best Bank” from Global Finance and Euromoney, and been voted “Global Bank of the Year” by The Banker. More concretely, it has increased revenues fivefold over the past 20 years in US dollar terms – far ahead of HSBC. TBV per share is also up five times in US dollars, and the shares now trade on a multiple of almost 2.1 times.

Much of this success can be attributed to Piyush Gupta, the former chief executive who ran DBS for 16 years before retiring this year. After a meeting in 2014 with Jack Ma, the founder of Chinese tech giant Alibaba, DBS began its digitisation strategy. Staff were encouraged to learn from tech companies, asking not “what would Jamie Dimon do?” but “what would Jeff Bezos do?”. The bank has expanded via strategic deals in Asia, buying Citigroup’s Taiwan consumer unit and transforming its small operation in India by buying Lakshmi Vilas Bank when the latter failed in 2020.

DBS now has 18.4 million customers, up from 4.9 million a decade ago. The market cap of £83 billion implies that each customer is now worth just under £4,700, compared with just £1,800 for Lloyds Bank. So it now looks fully valued. Still, investors looking for banks with strong growth prospects could take on board the lesson of looking for well-run banks in small markets that can expand shrewdly.

Bank stocks in Georgia

Take Tbilisi-based Lion Finance (LSE: BGEO) – previously known as Bank of Georgia – which is listed in London and part of the FTSE 350 banks index. It has grown revenue in US dollar terms by 58 times to $1.3 billion over the past 20 years. Book value per share is up 18 times. I last wrote about Lion Finance in April 2022 when the share price was £12. Today, it is £80.

At the start of 2024, the group has bought an Armenian bank for $300 million. That price equates to just 0.65 times historic book value or 2.6 times 2023 earnings. When questioned about this attractive valuation, management pointed out that there simply weren’t many buyers able to write a cheque for $300 million to buy an Armenian bank. At the end of July, Lion Finance confirmed press speculation that it is in talks to buy a 70% stake in HSBC’s Malta operations (Ardshinbank, an Armenian bank owned by billionaire Karen Safaryan, who made his money in Russia in the 1990s, is also in the running for this deal).

Of course, Singapore is one of the wealthiest countries in the world, with GDP per capita of roughly $90,000 in nominal terms, while Georgia and Armenia both have GDP per capita of under $10,000. DBS is 14 times larger than Lion Finance by revenue and 23 times larger by market capitalisation. However, Georgia and Armenia are on the right path, with the IMF forecasting growth of about 5% a year out to 2030. The main risk to the investment case in Georgian banks is not growth, but failing institutions. Russian president Vladimir Putin considers Georgia to fall within his “sphere of influence” and Bidzina Ivanishvili, the former prime minister and still de facto leader of Georgia, could be forced to degrade the rule of law and press freedom to please his bellicose northern neighbour.

This fear explains the “geographic discount” – the low valuations that the Georgian banks trade at relative to their obvious potential. Lion Finance and its competitor TBC Bank trade on around 1.9 times last year’s TBV – a premium to their UK-based peers, but still a substantial discount to pre-credit crisis levels. However, Lion Finance is forecast to grow revenue and earnings at 15% this year. The shares continue to look attractive despite the risks, trading on just five times forecast earnings for 2026 and 1.3 times forecast TBV. I remain invested.

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I wasn’t at MoneyWeek when our portfolio of investment trusts was set up in 2012, but the editor tells a funny anecdote. We are famously contrarian, so all six of the trusts originally chosen were “value” plays. Just before the model portfolio was published, someone got a little twitchy. “Shouldn’t we hedge our bets with a bit of growth?” After some huffing and puffing, growth-orientated Scottish Mortgage was added. In the years that followed, this last-minute addition drove almost all of the portfolio’s performance.

The past 17 years have been a tough time to be a value investor. But value actually has a better long-term record than growth. US value stocks have beaten their growth counterparts by an average of 2.5% a year since 1926, according to figures cited in Breakingviews.

Value fell out of vogue in 2008 when the global financial crisis prompted central banks to cut interest rates to ultra-low levels, where they stayed for more than a decade. When interest rates are low, money is cheap to borrow, and companies can invest in future growth more easily. This benefits rapidly expanding firms. Growth stocks raced ahead, and some started to question whether value was dead.

Following a pandemic, war in Europe and a period of high inflation, the post-2008 era is well and truly over. “It’s difficult to predict exactly where interest rates or inflation are going to be over the next few years, but it does feel sensible to say that on average they will be more of a feature,” says Beth Shard, deputy fund manager at Invesco. “Surely in a world where money isn’t free, the price you pay for something must matter.”

Finding value: what is value investing?

Value investors buy stocks that are trading at a discount to fair value in the hope that the share price will catch up. The idea is to buy a pound of assets at, say, 60 pence. Analysts value companies by looking at data such as earnings, book value and cash flows. Warren Buffett, the world’s most famous value investor, once said: “Price is what you pay; value is what you get.”

There could be many reasons why a stock is trading at a discount. Perhaps the firm is in a sector that has become unfashionable, or investors have overreacted to some bad news. The trick is to identify companies that are unfairly undervalued rather than those that are cheap for a reason, otherwise known as value traps.

Finding the catalyst for a rerating is also important. Perhaps the company’s management team has changed, or a new business strategy is being implemented.

“There’s no point just buying something cheaply and then hoping for the best,” says Joe Bauernfreund, manager of the AVI Global Trust. “Very often, it’s shareholder activism that really is the driver there.”

Going for growth: what is growth investing?

Growth investors buy shares in companies that are rapidly expanding. They are often more expensive than value stocks, as investors are paying for future potential rather than current earnings. Growth companies don’t tend to pay large dividends, as profits are generally reinvested in future projects.

Some of the most famous growth companies are in the technology sector: the likes of Nvidia, Meta and Tesla. All three are investing huge sums today in the hope of emerging as the winner of the AI race tomorrow.

Low interest rates favour growth stocks because of the way companies are valued. Analysts discount future cash flows to account for the time value of money: money today is worth more than the same amount tomorrow. When interest rates are low, so is the discount rate, increasing the value of future cash flows.

Is the pendulum swinging back?

Value investors have been talking about a style rotation for years. Given that interest rates started rising in late 2021, shouldn’t it have happened already? We did see some initial signs in 2022, when the tech boom went into reverse. The Magnificent Seven shed 40% of their collective value that year as central banks hiked rates. Share prices quickly bounced back, though.

Things could be starting to shift again now. Data from investment research company Morningstar, focused on over 800 global large-cap funds, shows that value has outperformed growth so far this year for the first time since 2022. Value funds are up 14%, while growth funds are up around 10% (July 2025).

“The value resurgence has been driven by a couple of key factors,” says Mark Preskett, senior portfolio manager at Morningstar Wealth. “Firstly, global value funds tend to hold a bias towards emerging-market and European companies, which have both handily outperformed the US this year.

“Secondly, value funds tend to overweight stocks in the financial services sector while running an underweight to the technology sector. In 2025, the two sectors have shown a sharp divergence in fortunes, with financial stocks among the best performers year to date.”

Things look different when you examine the US market in isolation. US growth funds are still outperforming value, as US tech stocks have rebounded strongly in recent months. Meanwhile, healthcare – a sector often favoured by value investors – has struggled. Despite this, there is a sense that sentiment is now shifting.

“You’ve got this... tension,” Bauernfreund says. “There is this ‘buy the dip’ mentality, but on the other hand, you’ve got more sophisticated investors worried about valuation. Coupled with what’s going on in the US politically, they have started to look elsewhere.”

One key beneficiary has been Europe, which looks cheaper than the US. Investors pulled £622 million from North American funds in May following the Liberation Day turmoil, according to the Investment Association. Meanwhile, European funds saw inflows accelerate to £435 million.

The latest data shows North American funds returned to modest inflows in June (£52 million), but Europe still outpaced the US with inflows of £198 million. Time will tell whether this develops into a sustained trend, but mounting interest from investors could create a tailwind for value-oriented markets.

The UK offers good value in a global context. The FTSE All-Share is trading at 13 times forecast earnings, compared with 23 times in the US, according to recent data shared by Fidelity International. “Should the US market trade at a premium to the UK?” asks Alex Wright, manager of Fidelity Special Values. “I think it should, because of the much larger technology weight. But I think that gap is too large.”

The UK also looks cheap compared with its own history. Fidelity data shows the FTSE 100 is trading at a 10% discount to the average forward price/earnings ratio since 1998. That discount gets larger as you move down the market-cap spectrum.

It is perhaps unsurprising. The UK has been unloved since Brexit. Even before 2016, there was a problem with institutional investors pulling money from the domestic market. Pension funds and insurers have gone from owning around half of the UK market in the 1990s to just 4% today.

Back to Blighty: do UK equities offer good value?

The outlook now seems to be improving. “I think they’ve pretty much sold all they needed to sell,” says Simon Gergel, manager of the Merchants Trust. Policymakers are also encouraging pension funds and private investors to put more of their money into the UK, which could help over the long run. Gergel says the government and regulator are singing from the same hymn sheet for the first time in his 35-year career.

There are also some big buyers in town. International private-equity firms have been taking the opportunity to shop around in bargain Britain, snapping companies up at a discount. Shard thinks more of this activity could help “shine a light on the value on offer here”. Management teams clearly recognise the value in their own stock too. There has been a record amount of buyback activity in recent years.

Stock market turnarounds are famously difficult to call until they have already happened, but so far this year, UK performance has been strong. The FTSE All-Share is up more than 13%. Wright doesn’t think the UK market as a whole will grow its earnings in 2025, partly because dollar-earners will be hurt by currency effects when converting holdings back to sterling.

However, there are still opportunities to be found. For the companies in his UK equity portfolios, he is forecasting 6% operating profit growth in 2025, 11% in 2026, and 9% in 2027. With this sort of earnings growth and dividends on top, “we don’t actually need there to be a rerating to produce very good returns”.

Where to invest

From a regional perspective, the UK is worth a look. Fidelity Special Values (LSE: FSV) invests in undervalued companies across the market-cap spectrum, with an emphasis on UK small and mid caps. The trust has delivered 26%, 15% and 18% on a one-, three- and five-year basis (annualised share price returns as of 30 June).

The Invesco UK Opportunities Fund (UK) has more of a large-cap bias, and has delivered annualised returns of 13%, 12% and 16% over the same periods. Meanwhile, the Merchants Trust (LSE: MRCH) is a good option for value investors seeking income. It has a yield of 5% and has raised its dividend every year for the past 43 years.

The AVI Global Trust (LSE: AGT) also looks interesting. Many of the companies it contains are conglomerates and holding companies. This gives investors exposure to a diversified pool of firms, often at a discount. One example is the Italian holding company Exor – a significant owner of Ferrari. “Ferrari makes up over half the value of Exor, and Exor itself is trading at a discount of more than 50% compared with the value of its underlying companies,” says Bauernfreund.

A range of geographic exposures to value is available through exchange-traded funds run by Invesco. There is the FTSE RAFI All World 3000 UCITS ETF (LSE: PSRW) for a global value play; the FTSE RAFI US 1000 UCITS ETF (LSE: PRUS) for US value; and its European counterpart the FTSE RAFI Europe UCITS ETF (LSE: PSRE). The British version is the FTSE RAFI UK 100 UCITS ETF (LSE: PSRU). Meanwhile, the FTSE RAFI Emerging Markets UCITS ETF (LSE: PSRM) gives exposure to opportunities in developing economies.

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Most bookshops have a section devoted to business titles, and mostly they fall into two categories. In one you fill find volumes with titles such as Flexagility^TM – The Secret of Delighting Customers and Raking in Enormous Profits. You’ll see them in airport bookstalls next to the self-help section. In the other you’ll find titles such as Fleeced, Poisoned and Spied Upon – How Capitalism is Fuelling Inequality, Damaging our Wellbeing and Destroying the Planet. Books in this category are written for people who welcome confirmation of what they think they already know. These words are lifted from a business book that falls into neither of these categories: The Corporation in the 21st Century: Why (Almost) Everything We Are Told About Business is Wrong, by economist John Kay. It is intended, as Kay says in his introduction, for people who would never normally pick up a business book, but who would welcome an “intellectually serious, even sometimes challenging, approach” to the subject, and who might even be led to conclude that a career in business has something more to offer than just financial reward. Kay succeeds in his aim. The result may be, as Ed Smith says in a review for the New Statesman, a book without a theory. But that is no criticism – “because instead of theory it has wisdom”.

"Medicine is for the people. It is not for the profits"

The history and fate of the modern business corporation has been a strange one. On the one hand corporations have delivered products and a standard of living without which our lives would be economically and culturally impoverished, says Kay. And yet most intelligent and thoughtful people have a negative view of business, especially big business. Strangest of all, business in the 21st century describes and conceives of itself in terms that actually “invite that negativity”. For Marxists and their modern descendants on the left, businesses are the site of class struggle, where ruthless capitalists, through their ownership and control of business assets, sweat their exploited workers to maximise profit and fill their pockets. Economists and thinkers on the right have done little to challenge or alter that view except to add “and a good thing, too”. The details of economists’ vision and theories have varied, but all basically see business as an economically efficient arrangement for minimising inputs in terms of labour and resources, and maximising outputs in terms of goods and profits. Business leaders have accepted the characterisation and acted accordingly – to their own misfortune.

Kay opens his book with a case study from the pharmaceutical industry (and expands on the example with many more from other industries in the course of his 448 pages). In the early 20th century, the rise of scientific medicine was gradually replacing older medical practices that relied on folk wisdom and snake oil. The anti-bacterial properties of penicillin were first observed in 1928, but neither government nor business were especially interested until the outbreak of World War II concentrated minds. Howard Florey and Ernst Chain at Oxford University, who were seeking to synthesise the antibiotic, found a supporter in George Merck, the president of the firm that bears his name to this day. Merck was one of the first companies to recognise the life-changing potential of pharmacology and to benefit from it. Merck’s oldest son, also called George, turned the company into a research-oriented business, and it has been listed on the New York Stock Exchange since 1927. The aim of the business was articulated by Merck in 1950, when he told medical students: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been”. For many years Merck topped Fortune magazine’s list of most-admired companies.

Maximising profits at all costs

The early history of the industry would tend to confirm that this was the guiding credo of all such businesses. But the tide turned when drug companies came under pressure from Wall Street to demonstrate their commitment to securing value for shareholders. Merck’s counterpart at Pfizer had a somewhat different credo: “So far as humanly possible, we aim to get a profit out of everything we do.” Jim Collins’s 1994 business classic Built To Last showed that, judged by stock returns alone, the likes of Merck outperformed their peers. Until, that is, Merck stumbled. It succumbed to the profit-maximising logic, becoming “totally focused on growth” instead – and hence took a starring role in Collins’ 2009 book, How The Mighty Fall. Merck had to withdraw a painkiller amid recrimination and lawsuits in 2004 when it had marketed the drug not just for the minority of patients who would derive benefit, but for the many who might just as well have taken aspirin.

Many more-egregious examples of wrongdoing motivated by profit-seeking will no doubt spring to mind, and not just in the pharma industry. But the point brought out by Kay is that this short history is depressingly typical of modern business. Its products may save millions of lives and improve the quality of life for almost everyone. Its revenues may fund new research and make large profits for investors, including retirement funds. The profits may support philanthropy on a large and global scale. Yet a turn to focus on maximising profits at all costs, and the misbehaviour that predictably follows from that, brings a fall, and explains why the public came to mistrust big business.

It is a “central argument” of Kay’s book that “by excessive emphasis on the transactional nature of business relationships we have undermined not only the relationship between business and society, but also the effectiveness of business, even in transactional terms”. Boeing was a world-leading engineering firm making superlative products that transformed the world until a change in the culture led to a focus on profit. The end result was aeroplanes falling from the sky. General Electric was for much of the 20th century regarded as the best-run company in the US. A ruthless turn to focus on “shareholder value” from the 1980s onward led in the end to the collapse of the firm. Shareholder value disappeared with it. Bear Stearns was once an investment bank that proclaimed, “We make nothing but money”. As Kay drily notes, it “ended up not even making any of that”. The last people to benefit from the pursuit of “shareholder value” are shareholders.

The pursuit of profits vs creating 'rents'

But doesn’t the pursuit of “shareholder value” describe the reality of what businesses are and should be? Are not businesses in fact owned by their shareholders and is it not a corporation’s “social responsibility”, as Milton Friedman put it, to maximise its profits? That view is simply not tenable, says Kay. To start with, figuring out who really “owns” modern corporations, with their complex web of financial, contractual and regulatory obligations, is no easy matter, and even in jurisdictions most friendly to the concept of shareholder ownership (such as the US), actually exercising the rights of ownership and control is far easier said than done. In big modern corporations, it is more likely to be senior management that is in ownership of a business’s general strategy, but even then, the rights and freedom of action associated with that ownership are unlikely to extend as far as might be assumed. The workers themselves, for example, will be bringing not just themselves to work, but knowledge, talents and skills that are not easily ordered about or replaced. Even the things the business actually “owns” may be hard to pin down – Amazon does not own its warehouses or the goods in them; Apple does not make its smartphones.

Success in business today is secured rather by “assembling the collective knowledge of many individuals and by developing collective intelligence – a problem-solving capability which distinguishes the firm from its competitors”. The modern corporation’s essential role is defined, then, not so much by the capital it can amass, the assets it owns, or the numbers of workers it can “exploit”, or by how efficiently it does this or makes tangible things, but by its ability to marshall human capabilities in a unique way that answers to customers’ needs. Success in this endeavour is hard to replicate by competitors, which means the corporate landscape is dominated by monopolies. And what monopolies earn as a reward for achieving that status is not so much a return on capital, or profit, as it is a “rent”. If Lionel Messi were not employed as a footballer, his earnings would be modest, as were the incomes of even the greatest footballers until recent times. The fact that his talents are greatly desired by modern football businesses, which skilfully attract viewers and advertisers in competitive global markets, means he can capture a fortune. The difference is known as economic “rent”.

And that is something to be welcomed. Economic rent – not the same thing as the rightly deplored “rent-seeking” of those who seek to appropriate some of the value created by others, by, for example, political means – is “not an anomaly, but a central and valuable feature of a vibrant economy”. Progress happens when people and businesses create rents by doing things better. The industrial revolution replaced manual labour with machines. Its further development is seeing physical labour replaced with “collective intelligence”. The hallmark of a successful business today is “harnessing collective intelligence that isn’t common property”. Apple, Amazon, Microsoft, Tesla, SpaceX – many modern success stories are based not so much on making something new (mobile phones, shops, computers, electric cars and space rockets were not exactly unknown before the advent of these firms), but on bringing together the right talents to turn what we’re all familiar with into something brilliant we can’t resist. Creating such collective intelligence successfully involves doing many things well, but rarely the things that would be visible to the Marxist or right-wing theories of what a firm is and how it works.

A transactional account of business is hence not just repellent, but mistaken. It does not describe how successful business works – or could work – in modern society. In the modern world successful commercial relationships are not simply instrumental and transactional, they are “social and embedded in a wider framework of communities and teams”, and Kay’s hope is that a “better account of how business and its stakeholders flourish will point the way not just to a better understanding of business, but to the better conduct of business itself”. Just what adopting Kay’s view would mean for business and public policy will be the subject of a successor volume. So those wondering just where Kay’s account differs from the familiar conflict over shareholder and stakeholder visions of capitalism will have to wait for that. In the meantime, readers of all political and ideological persuasions will benefit from reading this clear-eyed account of modern business – of why it should be celebrated, and why it urgently needs reform.

The Corporation in the 21st Century by John Kay (Profile Books, £12.99) is out now in paperback

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If you’ve ever put cash into an exchange-traded fund (ETF), it is likely to have been a passive investment: a fund that tracks a particular stock market index up and down, rather than actively trying to beat it. These vehicles have invested this way for so long that the terms “ETF” and “passive” have become almost synonymous. Now, however, that is changing.

New data from financial-data service Morningstar Direct reveals that fund managers launched 476 actively managed ETFs in Europe and the US during the first half of the year, and only 234 new passive ones. Passive ETFs still account for $13 trillion of assets under management in the US and Europe, with only $1.2 trillion held in active funds. But the latter figure has more than doubled since the end of 2023, against 39% growth of passive ETF assets.

“Active ETFs have generated a lot of attention and launches are becoming more commonplace across Europe,” says Alex Watts, senior investment analyst at the investment platform Interactive Investor. “In the US, where adoption of the wrapper for active strategies has been quicker, there are now a greater number of active ETFs than conventional passive ETFs, although assets under management in the latter still far surpass the former.”

What's driving the active ETF trend?

First things first. It’s important to remember that an ETF is not an investment in its own right. Rather, it’s a structure or wrapper for holding a portfolio of underlying assets. Like alternative structures such as unit trusts, open-ended investment companies (Oeics) and investment trusts, ETFs enable investors to pool their money in a single fund; a professional manager then invests that money according to the fund’s mandate. That might be anything from a directive to invest in mainstream UK or US equities to something more esoteric.

ETFs turn 35 this year and have always been associated with passive investment. That’s partly because the first ETFs were developed in response to the global stock market crash of 1987. Analysts reasoned that market sell-offs might not have been so pronounced if a wider range of investors had owned diversified portfolios of equities; early ETFs, including the very popular S&P 500 SPDR, aimed to enable that broader ownership through funds that tracked the whole of the stock market.

The fact that the ETF industry has developed during a period when many investors have turned their backs on active management has also fuelled the notion that ETFs are purely passive vehicles. Investors who have grown wary of expensive active funds that fail to beat the market have turned to low-cost index trackers instead. ETF managers have responded to that demand.

In practice, however, there is nothing about the structure of an ETF that limits it to passive investment. Active ETFs operate in exactly the same way as any other collective fund that has a goal of beating the market in which it invests. The manager buys and sells holdings according to their views about what will drive outperformance. As Morningstar’s data underlines, this is a fast-growing sub-sector of the ETF market. The biggest names in active ETFs currently include JPMorgan, Amundi, Fidelity and BlackRock, but more managers are joining them. Jupiter and Lazard have both launched their first active ETFs this year. Aviva Investors is not far behind them.

It’s the advantages of the ETF structure that is driving this trend argues Tom Bailey, head of research at HANetf, the specialist ETF business. “The ETF wrapper is what investors want, whether they’re looking for a passive or an active investment strategy,” Bailey says. “Awareness of the benefits of ETFs continues to grow.”

Benefits of active ETFs

In particular, investors buying ETFs get much more transparency on price. The price of a stock market-listed ETF is available in real time, with investors given upfront information about what they’ll need to pay to get into the fund. By contrast, mutual funds such as unit trusts and Oeics are priced at the end of each trading day; investors won’t typically know exactly what they’re paying for the fund until after the transaction has competed. “There aren’t many products where customers are expected to agree to buy without knowing the exact price at the time of purchase,” says Bailey.

With many European ETFs, there’s also a tax benefit. Most of these funds are domiciled in Ireland, enabling them to pay lower withholding tax on dividends from US shares – typically 15% instead of 30% – through a treaty between these two countries. Over time, this tax efficiency can make a real difference to returns, especially for ETFs with a great deal of US equity exposure.

Another argument for active ETFs is a more technical one. The Bank for International Settlements (BIS) notes that the fact that ETFs are listed on a stock exchange makes it easier for investors to hold managers to account. For example, it is possible to sell ETF shares short. That leads to increased discipline compared with mutual funds, the BIS concluded, with ETF managers more likely to be forced out following a period of underperformance. In theory, that should lead to better long-term returns. Naturally, there are no guarantees. “As with other types of active funds, the ultimate success or failure of an ETF is down to the skill of the manager picking the stocks,” says Ben Yearsley, a director of wealth-management firm Fairview Investing.

Do active ETFs have any downsides?

It should also be pointed out that the ETF structure comes with certain downsides. These funds are open-ended – meaning the manager creates new shares or cancels them as investors buy or sell – which can cause problems in the context of their stock market listings. ETFs only function effectively when used to hold very liquid asset classes, such as mainstream equities and bonds. For investors looking for exposure to other asset classes, such as illiquid infrastructure, property or private equity, say, a close-ended investment trust will usually be a better option.

There’s also the question of cost. Passive ETFs are cheap to run and have often competed on the basis of ultra-low charges. Actively managed funds, by contrast, require significant resources, from costly research to the manager themselves. “Active ETFs are typically priced similarly to investment trusts and the cheaper end of the Oeic market,” adds Yearsley.

“This may hinder the long-term growth of active ETFs, because there is a mismatch between perception and reality on costs.” In other words, investors who have always thought of ETFs as cheap may baulk at being asked to pay more, even if they’re actually getting more for their money.

Nevertheless, ETF experts expect more managers to expand their active fund ranges. “For fund houses, it makes sense to offer strategies across multiple wrappers – Oeics, investment trusts and ETFs,” says Bailey. “As the ETF wrapper becomes more familiar, particularly with younger investors, the logic of meeting the investor where they are is clear.”

Regulatory reform is also helping. Traditionally, one factor militating against the use of ETFs for active investment strategies has been the way that stock-market-listed funds are regulated. Until recently, funds listed on public stock exchanges were required to publish full details of their entire portfolios on a daily basis. For active managers seeking to outperform their competitors or to build up positions in new holdings, that was problematic. However, US regulators eased the rules on disclosure in 2019 – with other jurisdictions, including Ireland and Luxembourg, subsequently following suit – which has helped with this issue.

ETFs remain more transparent than other types of collective vehicle, with managers publishing extensive data on their holdings. Indeed, this is another attraction for many investors in these vehicles. However, active managers are no longer required to provide a running commentary on every aspect of their investment strategy, easing their concerns about this type of wrapper.

One key question is what active means at a particular fund. “[A] simple definition is an ETF where a manager is making investment decisions in order to outperform a given benchmark, rather than just replicate the return from it,” points out Watts.

Understanding active ETFs

There are certainly variations on the theme. Some active ETFs are active in the traditional meaning of the word, with managers running unconstrained investment processes. Others are much more limited, relying on computer-driven strategies that move away from benchmark indices to a minimal extent.

Sometimes described as “shy active” or “benchmark-aware” ETFs, these funds tend to be cheaper, but aren’t active in the conventional sense. That’s not a problem, if investors understand the fund’s mandate, but the performance of such an ETF is unlikely to deviate significantly from the benchmark.

The key, as always in investment, is to understand what you’re buying. In large part, the trend towards active ETFs represents a view that active investment strategies can be worth paying for. Assuming you can identify a good manager, you’re accessing the potential to outperform the market – including at times when asset prices are falling, when an active strategy may be able to offer some protection.

If you buy that argument, there is then a decision to make about the best structure for accessing active management, particularly as growing numbers of managers now offer near identical funds under several different wrappers. Watts believes there is a clear case to be made for the ETF structure. “Active ETFs are an exciting development for investors given the ease of trading and live pricing throughout the day versus a generally slower process of purchasing mutual funds with non-continuous pricing.”

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The last 50 years have been kind to investors in real terms. Everything made money: equities, bonds, property and gold. All investors had to remember was not to buy high and sell low. But that hasn’t always been the case. According to Barclays, UK equity prices were flat in inflation-adjusted terms in the 50 years to 1976. They doubled in the US, but that meant an annual gain of just 1.4%. Investors needed to reinvest their highly taxed dividends to grow their capital in real terms, but even so, the total return from UK equities for the 15 years to 1976 was zero.

Gilts fared even worse. An investor starting in 1926 had lost over 90% of their capital in real terms by 1976. Even with gross income reinvested, they had lost 75% of their money – and, of course, the reinvestment of gross income was not available to individuals. Holders of US Treasuries did better in the 50 years to 1976; they lost a mere 75% of their capital.

Anyone who squirrelled away gold started off well. The dollar value rose 70% in 1933 when Roosevelt devalued the dollar, having required all private holders of gold in the US to surrender it at the old price. The price was then fixed at $35 an ounce until 1971.

Property was a better investment. The price of the average house in the UK multiplied nearly 20-fold between 1926 and 1976 to about £12,000. But strict rent controls dating from the First World War ruled out buy-to-let for all but the most unscrupulous landlords. For British residents, investing outside the UK was academic. Strict exchange controls, introduced in 1947, made it legally impossible to buy overseas equities, bonds or property, or to own gold without paying a huge but volatile “dollar premium”.

The last 50 years have been much kinder to investors, but there have been plenty of traps for the unwary. The abolition of exchange controls in 1979, globalisation and the opening up of new markets, and novel strategies have increased the opportunity for UK investors to make fools of themselves. Information is much more readily available, but it doesn’t necessarily lead to better decisions. It’s as easy to be carried along by the herd as ever. Consider the following examples.

Investment #1: gold

The price rose from $35 an ounce to a peak of $850 in 1980, driven ever higher by the prognostications of the Aden sisters, who had relocated to Costa Rica so that their Delphic prophecies would not be interrupted by contact with the real world. The price then fell to $300 in 1999 as high real interest rates and falling inflation rendered “the barbarous relic” unattractive.

At this stage, Gordon Brown, Britain’s chancellor, decided to sell half of Britain’s gold reserves. The 395 tonnes raised $3.5bn against a current value of $46bn. Even at the time, this sale was recognised as a contrarian “buy” signal. Since then, the price has risen at a compound yearly rate of 10%.

Investment #2: Japan

The Nikkei index reached nearly 40,000 in 1989, when it represented more than half of the MSCI World Index. In a parallel property boom, land prices increased 50-fold between 1956 and 1986, reaching $139,000 per square foot in Tokyo. It was calculated that the Imperial Palace in Tokyo was worth as much as the whole of California.

The booming stock market was driven not by earnings but, it was said, by Japanese housewives and gullible foreigners. Japanese companies had very little in the way of earnings and rarely paid dividends, financing investment through the sale of warrants and convertible bonds with derisory yields. Western pundits sought to rationalise this on the basis that Japan’s economic miracle would go on forever.

The market then halved in barely two years but only reached a low in 2009, 80% below the peak. Many investors invested prematurely for a turnaround, but recoveries soon petered out. A sustained recovery started in 2012, and the Nikkei index only passed its old peak in 2024.

Investment #3: the dotcom bubble

Stock markets soared in the late 1990s on the back of the technology sector, but the media, telecoms and biotechnology industries were also caught up in the excitement. Share prices ran way ahead of earnings. As Ed Yardeni of Yardeni Research points out, the technology and communications sector came to comprise 41% of the S&P 500 in early 2000 but only 24% of earnings. Moreover, these earnings proved largely unsustainable, so by 2003 the figures had fallen to 18% and 13% respectively.

Within three years of their 2000 peaks, the S&P 500 and the FTSE 100 indices had nearly halved. The FTSE 100 didn’t reach a new peak until 2017, but the S&P 500 achieved it 10 years earlier in 2007, thanks to the rebound of the technology sector. Technology and communications now account for 43% of the S&P 500 but 38% of prospective earnings, while in the UK, the technology, media and telecommunications (TMT) sectors have never recovered.

In 2003, shares such as Amazon and Microsoft could have been bought at bargain prices, giving rise to a revisionist view that the TMT bubble was the dawn of a new age rather than a blind alley. But many of the shares that drove the market higher then have either disappeared or are a shadow of their former selves.

The list of forgotten firms from that era that were once in the FTSE 100 is long, including Freeserve, Thus, Colt Telecom, Baltimore Technologies, CMG, Psion, Kingston Communications and Bookham. ARM has since re-emerged stronger than ever, while Autonomy was controversially bought by Hewlett Packard. FTSE 100 veterans Cable & Wireless and GEC were destroyed by poor acquisitions.

Lastminute.com was founded in 1998 as an online bucket shop for unsold package holidays and hotel rooms. When it was floated in London in March 2000 by Brent Hoberman and Martha Lane Fox it was valued at £570 million, and the valuation soon peaked at £770 million. It was sold in 2014 for £76 million and lingers on.

Investment #4: Woodford Patient Capital Trust

Neil Woodford built a reputation at Invesco managing unit and investment trusts offering generous income. Investing for income became popular after the collapse of the TMT bubble. Income can either be reinvested for good long-term returns or taken out, but not both. This is not always clear in the marketing.

Chafing at the constraints put on him by Invesco, Woodford left in 2014 to found his own business. He started an equity income fund which, at its peak, managed over £10 billion and, in 2015, launched an investment trust, Patient Capital. Initially, £200 million was targeted but this was soon increased to £800 million. The so-called independent directors were associates of Woodford, and the trust was to invest not just in income-generating larger companies but also in high-risk smaller and unquoted companies, mostly technology or biotechnology related.

This was an area of the market in which he had, in the past, dabbled without success. His investment process was akin to throwing mud at the wall in the hope that some of it would stick. Such investments also made their way into the equity income fund but poor performance led to mass withdrawals and a crisis in the remaining rump of illiquid investments.

Investment #5: Global Absolute Return Strategies

The idea behind GARS, launched in the wake of the 2008 financial crisis, was to offer investors hedge fund-like performance at much lower fees and with better liquidity. The fund, managed by Standard Life, offered the prospect of returns of 5% above cash over rolling three-year periods through a multi-asset portfolio of investment and trading ideas from the supposedly clever people at Standard Life.

Good initial performance led to a flood of inflows from pension funds and other investors seeking a quiet life but with great returns. GARS peaked at £53 billion under management in 2014 but copycat funds at Aviva, Invesco and Investec (now rebranded as Ninety One) made the overall pool much larger.

With too much money chasing too few opportunities, performance soon flagged, then turned negative and investors exited. Even so-called “macro” hedge funds hit hard times. With assets down to just £1.3 billion, GARS was shut down in 2023. The idea that second-rate fund managers could make great risk-adjusted returns on huge pots of money from staring at Bloomberg screens was always idiotic.

Investment #6: bonds

The bull market in government bonds started in the inflation-ravaged late 1970s and early 1980s and lasted more than 40 years. At its peak in 2020, 10-year gilts were yielding just 0.25% and 10-year US Treasuries 0.68%, well below the inflation target rate of 2%. Merrill Lynch had calculated in 2016 that interest rates were at their lowest for 5,000 years, but Covid drove them even lower.

Bond yields followed, with the UK repaying its undated 3½% War Loan in 2015 before yields plunged further. In 2021, the Financial Times calculated that “bonds worth $15 trillion, more than a fifth of all debt issued by governments and companies around the world” were trading at negative yields. This was surely the biggest bubble of all time.

Many of the UK’s defined-benefit pension fund managers, chasing the illusion of “liability-driven investment”, were not only heavily invested in government bonds but had bought on margin (ie, borrowed to buy more) to increase their exposure. When rising inflation started to push bond yields higher, they became forced sellers, forcing yields higher still. The FT, using data from the Pension Regulator, estimated that pension funds lost £425 billion in 2022 while other estimates exceed £500 billion. No wonder they have insufficient money to invest in British businesses or infrastructure.

Normally, the managers responsible would have been fired, never allowed to work in financial services again and possibly jailed. Fortunately for them, blame for the fiasco was deflected by the political and media establishment onto the government of Liz Truss – as if gilts would still be yielding 0.25% without her ill-timed budget.

Investment #7: bitcoin

The cryptocurrency market is estimated at $3 trillion, and many believe this constitutes a massive bubble ready to implode. However, law-abiding people in law-abiding countries without exchange controls will never appreciate the attraction of cryptocurrencies. Legitimate investors are just the tip of the iceberg, accounting for less than 10% of the market.

They have done well by defying responsible advice but should beware any sign of an end to the war in Ukraine, as Russia pays its troops in bitcoin. This can be accessed anywhere in the world by survivors or next of kin, so rising prices keep them fighting. This makes bitcoin the world’s most unethical investment.

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Private markets offer alluring opportunities. From the fastest-growing firms to the infrastructure that will deliver net zero, the assets with the potential to yield the most exciting returns in the years ahead are not to be found in public arenas such as stock exchanges and bond markets. You’ll need to invest privately.

However, that is a problem. It’s tricky to access private markets if you’re an ordinary retail investor. There are plenty of collective funds that offer exposure to these assets, but these private-equity, private-credit and infrastructure funds are largely the preserve of institutional investors, such as pension funds and insurers.

They require big minimum investments, and investors may be expected to lock up their money for years. However, this is beginning to change. The large investment managers active in private markets recognise that demand for these assets is broadening, and they’re keen to raise more funds. BlackRock, for example, has just announced it wants to raise $400 billion to invest.

Enter semi-liquid private markets funds: a growing sector of specialist collective funds targeting a retail-investor base with much lower minimum investments and far easier redemption terms. You can get into these funds for as little as £10,000 and you can typically get your money back quarterly. The vehicles were first launched in the US, where they’ve raised more than $380 billion, but there are now a growing number of semi-liquid funds available in the UK too.

“Semi-liquid funds offer a more flexible way for individual investors to access private equity and other private markets,” explains Alex Davies, the founder and CEO of Wealth Club, which launched a platform last year that facilitates access to around 15 of these vehicles. “The investment is ‘evergreen’, meaning you can invest when you like, and when you invest, your capital is deployed across the full portfolio. You can also ask to redeem your investment on a rolling basis – usually once per quarter.”

Big names and big opportunities

The fund managers offering these evergreen funds include well-known UK managers such as Aberdeen and Schroders, as well as some of the world’s biggest names in private-markets investment – Apollo, Brookfield and Oaktree, for example. Private-market investments can be split into three groups.

Firstly, most investors will be familiar with the concept of private equity – companies without a stock market listing – but this is still a broad asset class. It ranges from very early-stage businesses that may not even have begun to generate revenues (start-ups) to large companies that have opted not to list on a public market. More and more firms have decided that public markets – with all the administration, regulation and scrutiny they bring – are not for them. There are 159,000 businesses globally with revenues of more than $100 million, but only 19,000 of them are listed. Examples include SpaceX and OpenAI.

Private credit is the second area of focus for evergreen funds. This is debt finance provided to firms and other borrowers by non-bank lenders. This huge market has grown rapidly in recent years as banks have retreated from lending due to tougher solvency regulations. That has seen a slew of alternative lenders fill the gap with a wide array of debt products; these lenders raise money from investors in the private credit market so that they can keep making new loans.

Supporting decarbonisation

Thirdly, the infrastructure sector is an ever more important part of private markets. From energy transmission grids to solar and wind farms, it spans a broad range of assets underpinning global efforts to decarbonise. It also includes road and rail transport networks, ports and logistics facilities, and even digital infrastructure, such as data centres.

All of which prompts two questions. Do these asset classes offer return potential that you can’t get from conventional public markets, and are semi-liquid funds a sensible way to access that potential? On the first question, Nalaka De Silva, head of private market solutions at Aberdeen Asset Managers, believes the answer is a resounding yes.

“The traditional 60:40 portfolio is no longer doing the job,” he says, referring to the long-established split of investments between equities and bonds to target growth with some downside protection. Bond markets have become far more volatile, he notes, undermining their ability to provide diversification.

“Meanwhile, a new set of opportunities have emerged, with the potential to generate strong returns – both capital and income – over the long term,” Da Silva argues. The best companies are no longer to be found on public exchanges, he argues, while the private-credit boom gives investors access to portfolios of loans that provide generous income streams.

Infrastructure investment, meanwhile, is critical worldwide, both in the context of net zero and as the global population grows, urbanises and digitalises. “Private markets have consistently delivered superior performance over the past 30 years,” adds Tim Boole, head of product management private equity at Schroders Capital. “I believe these assets can continue to generate a premium.”

Investors in private markets also tend to be focused on risk management, Boole points out. Large parts of these asset classes provide returns that exhibit low levels of correlation with public markets – that is, they can offer an alternative source of positive performance when equities and bonds are struggling. “You do get diversification benefits that have become harder to find elsewhere,” Boole says.

Evergreen funds’ structures do have drawbacks. Most obviously, you can only withdraw your capital once a quarter; even then, most funds reserve the right to limit redemptions or bar them altogether during periods of market stress or high demand for withdrawals from investors.

You’ll also pay big fees for these funds. Managers insist the hands-on work required to manage private-market assets justifies the expense, but higher charges are still a drag on performance. Typical ongoing fees of 3%-4% are far higher than in a traditional fund.

And while evergreen funds are helping to democratise private markets, they’re not aimed at the mass market. Managers will typically ask you – or your adviser – to certify that you’re a high-net-worth or sophisticated investor. That means you have an income of at least £100,000 a year or investable assets of £250,000.

The liquidity problem

Given these concerns, Ben Yearsley, an investment consultant at Fairview Investing, says he’s sceptical. “Do investors really understand the semi-liquid nature of their holdings?” he asks. “When you invest, you may be happy with a three- or six-month notice period, but when you need the cash urgently, you’ll forget about the lock-up and wonder why you haven’t got access to your money.”

Moreover, says Yearsley, retail investors already have an alternative way into private markets through the dozen or so investment trusts with portfolios of such assets. These funds offer far superior liquidity in that you can buy or sell their shares on the stockmarket each day. “The high-quality investment trusts in this [sector] are ideally suited to private investors,” Yearsley says. “Pantheon International (LSE: PIN) and NB Private Equity Partners (LSE: NBPE) are good options.”

On the other hand, the structure of investment trusts – with shares that provide exposure to the fund’s underlying assets – means they can trade at discounts or premiums to the value of their investments. That creates added complexity for investors to deal with. “Investment trusts are unique to the UK, which leaves them vulnerable to the sentiment of UK investors,” adds Schroders’ Boole. “It also makes it difficult for them to build any kind of scale, which limits the type of investments they can make.”

In that context, the new breed of semi-liquid funds offer exposure to a broader set of private-market opportunities, with choices less likely to be fettered by size or geographical constraints. The open-ended nature of the funds means there are no discount issues to worry about, although managers must maintain some cash in their portfolios to meet redemptions.

Davies believes this proposition will attract increasing numbers of investors. “Private markets are not suitable for everyone, but for more experienced investors, there is a strong case for making an allocation,” he argues. “This is a pivotal moment – the US has already seen a big shift into evergreen funds, and the UK is now poised to follow suit.”

There are no guarantees that private markets will outperform. The asset class as a whole underperformed US stocks last year – and lags over several longer-term periods as well. This underlines the importance of accessing private markets through well-managed funds with a strong record.

With that in mind, we asked Wealth Club’s Alex Davies to pick his three favourite semi-liquid funds.

Where to look now

“EQT Nexus started life backing niche Swedish companies... Today it’s Europe’s largest private-equity investor, with €269 billion of assets under management across private equity, property and infrastructure. Underlying investments include UK-based Bloom Fresh International, one of the world’s largest premium fruit-breeding companies, and SHL Medical, a global market leader in advanced disposable and reusable drug-delivery systems. The fund targets an annual return of 12%-15% a year, delivering 20.2% between June 2023 and March 2025.”

Davies also highlights Apollo US Private Credit Fund. “Apollo is one of the world’s largest private-credit investors, with $641 billion in credit assets under management. This massive firepower means Apollo can lend directly to larger businesses that might historically have relied on banks or the bond market. The fund invests in senior-secured loans from large US corporate borrowers; it may also invest up to 20% of assets in non-US deals. Investments have included a £684 million loan to Asda as part of its buyout from Walmart... The fund targets a 7%-9% distribution yield, with a current yield of 7.65% after fees. Its holdings are predominantly floating-rate loans, so the yield will rise and fall with central bank interest rates.”

Finally, consider the Franklin Lexington PE Secondaries Fund. “Traditional private-market investments are long-term and illiquid, with investment timeframes stretching over a decade or more. It’s not unusual for large institutional investors to exit their investment before the fund itself wraps up, often by selling their stake to another investor – usually at a discount. Alternatively, a fund manager may [feel that] an investment [could] deliver further returns even though the current fund is [near] the end of its life.

“It might look to build a coalition of investors... prepared to extend the life of the fund or asset. Secondary transactions such as these have a number of advantages. Buying stakes in existing funds can quickly build a diversified portfolio of mature investments, while sellers often offer a discount to sweeten the deal. The Franklin Lexington PE Secondaries Fund... aims to provide broad exposure to the secondary opportunities that Lexington backs.”

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Many companies in the UK market will be hoping to benefit from the volatility and uncertainty caused by Donald Trump’s trade policies. Fund manager Jupiter says it is seeing evidence of investors rotating away from the US towards other markets, including Europe and the UK. Stockbroker Cavendish suggests this trend will first benefit the largest stocks, before filtering through to smaller ones. Yet if money starts flowing back into Britain – and in particular into small companies – this cannot happen fast enough.

After three consecutive years of monthly outflows, 2025 has again started badly. UK-focused equity funds saw their worst quarter in the first three months of this year. The number of companies listed on Aim has declined for four years in a row, and now stands at just 685, compared with 1,700 before the financial crisis. Less than £600 million was raised in initial public offering (IPO) financing last year – and even that statistic understates the problems for London.

While IPOs generate headlines, the appetite for further fundraising – listed companies that ask investors for more money – is also in a dire state. One of the benefits of being listed on public markets is that management can ask equity investors for more money to grow their business. An example is Invinity, a manufacturer of vanadium-flow batteries, or Cohort, the defence group which raised money last year to make an overseas acquisition. Yet active fund managers – such as Jupiter, which has seen almost £30 billion of retail investor outflows since before the pandemic – are less willing than before to back management of UK-listed companies seeking growth capital to expand their business.

Structurally challenged stockbrokers

All this has affected independent stockbrokers such as Cavendish (LSE: CAV), Peel Hunt (LSE: PEEL) and unlisted Panmure Liberum, who rely on their relationships with professional fund managers to invest in new issues and placings. The malaise in the London market – together with the rise of low-cost passive funds – has challenged their business model. For example, Peel Hunt listed in 2021 and promptly saw revenue more than halve and profits evaporate. The IPO was an excellent result for the selling shareholders (228p), but less so for anyone who bought – the shares trade at 85p at time of writing.

Of course, the same is true of other pandemic-era flotations. In 2021, 87 companies floated on Aim, raising £3.7 billion. Of those new issues, 67 are now down by more than 60% or have delisted. Less than ten of the 2021 vintage are trading above their float price. Therein lies another part of the problem. You might conclude that UK stockbrokers are obvious beneficiaries of a turnaround. Yet investors are wary after so many IPO flops. So even if we see UK markets coming back into favour, the money may well flow into low-cost passive funds. In that case, it is likely neither active fund managers nor stockbrokers peddling overpriced floats will benefit.

Passive investing is a structural headwind for UK stockbrokers – although the brokers also appear to be ineptly managed. Sceptics may wonder why a firm the size of Cavendish, which reported a pre-tax loss of almost £4 million for the year ending March 2024, needs two chief executives. The benefits of consolidation and cost reduction resulting from the merger of Cenkos and Finncap (which formed Cavendish in 2023) appear not to have reached the upper levels of the organisation if there is a need for duplication of management responsibilities at the top.

Riding the wave

There are alternative ways to benefit from the shift away from large-cap US stocks. Passive funds that focus on smaller companies, like the Vanguard Global Small-Cap Index Fund, are well diversified across almost 4,000 stocks. This avoids exposure to the biggest tech stocks that have performed spectacularly well over the last decade, but now face a less certain future. However, US markets have become so dominant that even a small-cap tracker fund has a 60% weighting there. Instead, a Developed Europe or FTSE All-Share passive tracker fund could be a better way to benefit from globalisation going into reverse.

Investors who prefer to buy individual shares, rather than buying a passive index tracker, could look first at the UK-listed global companies, since these often trade on a discount to their US-listed competitors in the same sector. For example, while Unilever (LSE: ULVR) is not a traditional value stock on 18 times next year’s forecast earnings, it trades at a roughly 30% price/earnings (p/e) ratio discount to US peer Procter & Gamble. In the tobacco sector, Philip Morris International, listed in New York, trades on a p/e of 21, compared to less than ten for BATS (LSE: BATS). We see a similar discount in the oil sector, comparing ExxonMobil with Shell (LSE: SHEL), or in banks with JP Morgan versus Barclays (LSE: BARC). It seems unlikely that being listed in the USA justifies such a valuation premium for large corporations that operate across the world.

However, this points to another part of the problem with the UK market. For a long time, regulators have tried to dissuade individuals from investing directly in shares. There’s an implicit assumption in much regulation that professionals with Bloomberg terminals and access to company management have an advantage over the investing amateur. Yet often the amateurs – who are unconstrained by liquidity or fund outflows – can take advantage of opportunities first. Most fund managers will not invest below a £200 million market cap, which is 80% of Aim companies. Yet of the 23 UK-listed stocks that have increased in value 100-fold since 2000, the average size they started at was less than £15 million, reckons Richard Penny, who runs the TM Oberon UK Smaller Companies Fund.

Take Games Workshop (LSE: GAW), which had a vocal retail investor following long before most professional fund managers paid any attention. What attracted me to the company was the highly readable and entertainingly direct communication style of Tom Kirby, the previous chair. In 2007, when the group was in debt and had reported an 11p loss per share, his “Chairman’s preamble” said the company had grown “fat and lazy on the back of easy success”. Such directness can be off-putting to professionals used to language crafted by financial PR firms, but to the amateur, it is a breath of fresh air.

This regulatory bias has diluted animal spirits so much that UK smaller companies are struggling to raise growth capital to compete on a global stage. The government rightly incentivises investment in early-stage businesses through venture capital trusts (VCTs) and the enterprise investment scheme (EIS). Yet when these VCT and EIS businesses succeed, they seem unwilling to list on UK markets (consider fintechs such as ClearScore, Monzo, OakNorth and Revolut).

With active UK funds shrinking, one obvious step towards fixing this is to encourage individual investors to back IPOs directly. However, this will only be a success if good listings are “priced to go” at attractive valuations – unlike previous duff IPOs such as CAB, Funding Circle and Metro Bank. Amateurs will not tolerate shares falling steeply in the years after listing. They are risking their own money – not their clients.

How to find the next Games Workshop

There are a number of sources that make life easier for amateur investors willing to have a go at investing in individual companies. Many small-cap brokers will make their research available online on their own websites portals or aggregated on Research Tree, provided that investors self-certify as eligible. However, be aware that broker research is too often little more than a regurgitation of the investment case that management make in their own investor relations material, plus forecasts made by the analyst on the basis of management guidance.

Indeed, it is not uncommon for management to make vaguely upbeat comments in the outlook section of their regulatory news service (RNS) filings, while guiding their broker to slash forecast earnings. The RNS filings themselves are available on the London Stock Exchange website as well as on company’s own websites. It is surprising how few individual investors read these announcements and decide for themselves whether management is straight-talking – or not.

For detailed data, take a look at Stockopedia and ShareScope. These bring much of the functionality of a professional Bloomberg terminal to your desk, but at a fraction of the cost. For genuinely independent research, there are a number of writers who share their experience and investment process for free using the Substack platform. These include Cockney Rebel (otherwise known as Richard Crow), Jamie Ward at Wonder Stocks, Small Caps Life and Paul Scott. Stephen Clapham, a former hedge-fund analyst, promotes his forensic accounting courses that help identify inconsistencies in companies’ numbers. For a more confrontational style, there’s Tom Winnifrith, the self-appointed “Sheriff of AIM”.

Live presentations on Investor Meet Company give amateurs almost the same access as institutional investors. The difference is that viewers cannot see the list of questions asked by other meeting participants, and so are left in the dark about which questions company management choose to skip over or evade. PI World has just under 1,000 UK company and investor interviews. Paul Hill at Vox Markets also interviews company management while investing his own money.

None of these sources are infallible: Paul Hill lost a substantial amount of money investing in Argentex. Most writers will caveat their analysis and interviews, saying that they are not offering investment advice and are unregulated. DYOR – Do Your Own Research – is a popular acronym that has become a disclaimer. Rather than a conflict of interest, this “skin in the game” reassures amateur investors. Would you rather listen to someone who is investing their own money, and losing cash when they make a mistake, or a regulated advisor who ticks boxes and still earns a fee even when their advice loses you money?

David Stredder, another well-known private investor, organises the Mello conference and regular webinar for like-minded investors to meet companies. Originally, these events were organised in a restaurant called Mello, but the conference has grown to fill a hotel in Chiswick, west London. The physical presentations allow investors to meet company management and fund managers face to face, and to chat with other investors, many of whom have decades of experience and come from all sorts of backgrounds. Most treat investing as a hobby, and enjoy the mental rewards of that as well as the financial gains. In that respect, the amateur investing community is not unlike a Warhammer convention.

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Salary sacrifice is a tax-efficient arrangement where you trade a slice of your take-home pay for a non-cash benefit. It could be anything from a pension contribution to a company car.

The arrangement can benefit both you and your employer, because it cuts your income tax bill and both of your National Insurance (NI) bills.

Nobody likes having less take-home pay, but paying more money into your pension is almost always a good idea, if you can afford to increase your contributions.

Analysis from investment platform Interactive Investor shows someone earning £110,000 could save £6,200 in tax (income tax and National Insurance combined) by sacrificing £10,000 of their salary into their pension.

It wouldn’t feel like a £10,000 income hit either. As this sum is sacrificed before tax is deducted, the difference to your take-home pay would only be £3,800 per year.

This is because a £110,000 salary is worth £72,361 after tax is deducted, based on figures plugged into the government’s PAYE calculator. Meanwhile, a £100,000 salary is worth £68,561 – only £3,800 less.

Salary sacrifice arrangements can be particularly valuable for higher earners, because you start to lose part of your tax-free personal allowance once your salary crosses the £100,000 threshold.

The potential savings aren’t limited to tax either. As Myron Jobson, senior personal finance analyst at Interactive Investor points out, parents start losing valuable childcare perks once their salary hits this level.

Parents are currently entitled to 15 hours of free childcare per week once their child is nine months old, increasing to 30 hours once they turn three. However, you lose this allowance once you or your partner’s salary hits £100,000.

“For a parent earning just over the £100,000 tax cliff edge, sacrificing part of their salary into their pension can be a smart move,” Jobson said.

“It not only reduces their income tax and NI bill but, crucially, can bring their adjusted income below the threshold to preserve valuable childcare perks. That’s a win on several fronts: lower tax, a healthier pension pot, and continued childcare benefits.”

Salary sacrifice could help you keep your Child Benefit

Median earners can benefit from salary sacrifice too. It could help you hang onto valuable perks like Child Benefit.

If you are responsible for bringing up a child who is under 16 (or under 20 but still in approved education or training), you could be entitled to this payment. Child Benefit is worth £26.05 per week for your eldest child, and £17.25 per week for each additional child.

You start to lose this benefit once either you or your partner’s salary exceeds £60,000 – individually, not jointly. You pay back 1% of the Child Benefit for every £200 of income you earn over the threshold. This means you lose the entire sum once your salary hits £80,000. This is called the High Income Child Benefit Charge. You pay it by filing a tax return.

Again, salary sacrifice could help some parents avoid the charge. A parent with two children earning £65,000 would ordinarily have to pay back £562 through the High Income Child Benefit Charge. By sacrificing £5,000 of their salary, they could reduce the charge to zero.

The worker in question would also save £2,100 in income tax and National Insurance as a result of the salary sacrifice arrangement, according to Interactive Investor’s analysis. At the same time, their pension pot would receive a £5,000 boost thanks to the money that was “sacrificed” into the pot.

As with the previous example, the worker would not feel the full effects of this £5,000 drop in their take-home pay. This is because a £65,000 salary is worth £48,261 after tax. Meanwhile, a £60,000 salary is worth £45,361 after tax – a £2,900 difference over the year.

We explain how to boost your child benefit with pension contributions in further detail in a separate guide.

Is salary sacrifice right for everyone?

Salary sacrifice won’t be the right option for everyone. It creates valuable tax savings, but if your salary is already stretched, you might not be able to afford to sacrifice current income.

“For many, especially those with rising household costs, mortgage commitments or other expenses, striking the right balance between saving for tomorrow and affording life today is key,” Jobson says.

It is also worth thinking about your broader financial goals. For example, if you are on the brink of purchasing a house, salary sacrifice arrangements could make your salary appear lower than it actually is from the lender’s perspective. You might qualify for a smaller mortgage as a result.

Also remember that you won’t be able to access your pension savings until you turn 55, even in a financial emergency. As such, it is worth focusing on your emergency savings pot before considering salary sacrifice, particularly if you don’t yet have enough to cover three-to-six months of essential spending.

Will the government reform salary sacrifice?

The bad news for those who like this tax-saving policy is that chancellor Rachel Reeves could set her sights on salary sacrifice as we approach the 2025 Autumn Budget – although any chatter is only speculation at this stage, fuelled by a recent HMRC report.

The report, commissioned by the previous government and published in May last year, delves into the possible outcome of changing the rules.

“It’s not the first time that salary sacrifice has come under the spotlight as a potential area for shoring up the tax take, and given the pressures on the public purse, it would be surprising if no one in government was looking at this report,” said Gary Smith, financial planning partner at wealth manager Evelyn Partners.

“Salary sacrifice is a very efficient and effective way for employees to save into pensions, and it seems inevitable that watering it down – or dismantling it altogether – would hit pension saving, not just because the tax incentive would be diluted but also because faith in the pension system would be dented by more government interference.”

Smith points out that salary sacrifice became more attractive to employers after Reeves hiked employer NI contributions in the 2024 Autumn Budget. This is because, as well as saving employees tax, salary sacrifice arrangements allow businesses to reduce their NI bill.

The Bank of Mum and Dad is typically helping homebuyers almost double their deposits to get on the property ladder.

High house prices and falling stamp duty thresholds have pushed up the cost of buying a home.

Many buyers may also struggle with high mortgage rates.

Wealthy parents have been able to step in and are playing an increasing role in property transactions.

Around 30 per cent of homebuyers received assistance from the so-called Bank of Mum and Dad last year, according to UK Finance data.

This is helping buyers get on the property ladder earlier.

Nationally, first-time buyers who receive assistance are able to buy a home at an average age of just over 30.

In contrast, those purchasing without support tend to be older – over 32 years old.

The assistance also means buyers can purchase higher priced properties.

Here is how much it could cost to help your child onto the property ladder across difference regions.

The cost of being the Bank of Mum and Dad

Research by UK Finance shows the average unassisted first-time buyer deposit to buy a property last year was £60,741.

But the figure almost doubles for those with assistance, at £118,073.

The higher deposit also means parents can help their loved ones purchase more expensive homes.

Assisted first-time buyers were last year able to purchase a property worth £317,846 on average compared with £279,381 for those without support.

There are regional variations but the difference in deposit amounts is most pronounced in London. In 2024, a first-time buyer purchasing in the capital without support typically put down a deposit of almost £150,000. However, for those receiving family assistance, the average deposit was just under £225,000.

This helped them purchase properties in London worth £546,972 compared with £519,880.

London, perhaps unsurprisingly, was the most expensive part of the country to support a first-time buyer with a deposit.

In contrast, parents in the north only had to support deposits worth £66,176 on average.

James Tatch, UK Finance’s head of analytics, said: "First-time buyers are essential to the UK housing market, helping to unlock transactions further up the chain and maintain overall liquidity.

“While the majority of first-time buyers are still managing to purchase without help, the growing reliance on family support risks deepening inequality in the housing market. A balanced approach which addresses both supply and affordability issues is essential to ensure the door to homeownership remains open to all.”

Toby Leek, president of estate agency trade body NAEA Propertymark, said these figures demonstrate that there is still much work to be done to help first-time buyers get onto the property ladder.

He said: “For many people under the age of 30, homeownership is not a realistic aspiration without financial support from parents.

"With interest rates higher than many people are used to and the average deposit needed to purchase a home now sitting around £50,000, it is imperative that further support is available and all governments across the UK fulfil their housing targets to help even out demand and supply levels in the long-term.”

When considering the top stocks, funds and trusts to invest in, are the pharmaceutical and biotech companies behind weight-loss drugs worth a look?

“In 2021, Lisa Chen, a software engineer, started a new weight-loss medication,” says Todd Gagne on his Substack page Wildfire Labs. Six months later, she had stopped buying a daily muffin. Then she cancelled her beer-of-the-month subscription and kicked her late-night takeaway habit. By 2023, her grocery bill had dropped 40%, her alcohol spending 85%, and her Amazon impulse purchases 60%. “Our economy is built on impulses,” Gagne writes. “What happens when a weekly injection regulates those impulses?”

Food and drink firms are already asking themselves this very question in response to the “Ozempic earthquake”. Coca-Cola has reassured investors that two-thirds of its portfolio is made up of low and zero-calorie products. It isn’t bad news for everyone, though. Healthcare companies are investing huge sums in the race for market share. No wonder, when you consider the scale of the opportunity.

More than 50% of over-25s worldwide will be overweight or obese by 2050, according to The Lancet. With obesity-related illnesses filling up hospital beds and keeping people out of work, it is an economic issue as well as a health crisis. The market is vast, and the stakes are high. Furthermore, there is still a long way to go before sales reach their full potential.

Wegovy and Zepbound, the two leading weight-loss drugs, together sold less than $5 billion in 2023, according to pharmaceutical intelligence company Evaluate Pharma. This is just a fraction of the $130 billion Evaluate expects the overall market to be worth by 2030.

While these drugs might appear to be a new discovery, they have actually been around for some time. The hormone they contain – glucagon-like peptide-1 (GLP-1) – was discovered in the 1980s. It helps lower blood-glucose levels and has been used to manage type-2 diabetes since the mid-2000s. Ozempic, now a household name, is a GLP-1 diabetes medication.

In June 2021, Danish pharmaceutical giant Novo Nordisk received approval for Wegovy (a higher-dose version of Ozempic) for use as a weight-loss medication. Between then and its record peak in June 2024, the share price almost quadrupled as investors weighed the long-term financial implications. The surge briefly made Novo the most valuable company in Europe.

Novo’s US rival Eli Lilly developed a rival drug, Zepbound, in 2023, and also saw its valuation soar. For reasons we will delve into, Novo’s stock has since fallen back while Lilly has emerged as the leader.

Behind the weight-loss drugs boom

Many new drugs simply improve on or replace existing ones, limiting the scope for growth as the market remains roughly the same size. But these treatments are different – there has never been an effective treatment for obesity. “Every now and then, you get a genuinely interesting innovation,” says Ailsa Craig, manager of the International Biotechnology Trust. Then, “you are generating sales that weren’t there before”.

The excitement around these drugs is easy to understand – they are incredibly effective. Patients on GLP-1 injections report weight loss of 15%-20% per year with relatively benign side effects. Previous weight-loss drugs only managed 5%-10%, and the side effects were far more worrying. One drug, Fen-phen, was taken off the market after being linked to pulmonary hypertension and heart-valve problems.

The exact scale of the market is difficult to predict. These drugs are expensive, so much will depend on whether public health systems and private insurers are willing to pay for them. Some patients are self-funding, but not everyone is able to afford it. In the US, for example, it will set you back $6,000 a year. Uptake should increase as prices start to come down, but supply bottlenecks are also creating challenges.

The scale of the market will also depend on how widely these drugs can be used in treating other conditions. We already know they are effective in reducing cardiovascular risks. A clinical trial run by Novo Nordisk in 2023 showed that obese patients who went on GLP-1s experienced a 20% reduction in heart attacks and strokes.

Links are starting to emerge in other areas, too. Further research is needed, but the drugs may reduce diabetics’ risk of kidney failure, slow brain shrinkage in Alzheimer’s patients, and improve symptoms among those suffering from addiction, anxiety and depression. Some overweight people who previously struggled with infertility have even reported “Ozempic pregnancies”.

“Our long-term enthusiasm for this class of drugs does not stem from the impressive weight loss of the current offerings… but rather from the positive impact on other metabolic diseases, both in terms of symptom relief [and] prevention of events,” says Trevor Polischuk, manager of the Worldwide Healthcare Trust.

“This includes cardiovascular benefits, improved liver function, improved kidney function, reduction of sleep apnoea, and even pain associated with arthritis. And that is just today. Further innovation… could create super medicines.” In Polischuk’s view, these drugs have the potential to help “hundreds of millions” of patients. He says we are just at the start of this phenomenon.

The race for market share

Today, Novo Nordisk and Eli Lilly are the undisputed market leaders. Of the two, Lilly has the edge with a more effective approved drug and a more diversified development pipeline. Head-to-head data shows that Zepbound delivers an average weight loss of 20% after 72 weeks, versus Wegovy’s 14%. Still, the theme has further to run, and a number of rival firms are hoping to gain market share.

“Although the existing drugs are very effective, they are not perfect,” says Craig. So “the drugs being taken today might not be the ones used in the future”. More than half of patients drop off existing treatments after a year, often citing side effects such as vomiting. To get the cardiovascular benefits, patients need to keep the weight off.

The industry is racing to develop therapies that shift more weight with fewer adverse effects. This could involve combining GLP-1s with other molecules such as amylin, another hormone that plays a role in regulating blood sugar levels. Companies are also racing to make weight-loss pills, which would offer a more convenient alternative to injections. Pills may also be easier to manufacture and distribute globally, helping alleviate bottlenecks in the market.

Eli Lilly’s “promising new tablet” orforglipron could constitute the next phase of the pharma industry’s battle, says Robert Cyran on Breakingviews. Trial results published on 17 April showed patients on 36 milligrams of orforglipron experienced weight loss of 8% over a 40-week trial period. The fact that pills typically result in less dramatic weight loss than injections may not matter.

“Some are afraid of needles and injectable drugs usually require refrigeration, a hassle for users. So providing effective tablets should both increase the number of patients willing to give the treatment a go and actually stick with it.”

High stakes

Lilly says it could launch the pill as soon as 2026, if approved. Investors have responded positively so far, adding $100 billion to the company’s market value after the trial results were published. This highlights what is at stake in the race to develop next-generation drugs. The rewards are potentially significant for those that can develop effective treatments at pace.

By the start of the next decade, a third of the market will be represented by firms other than Novo and Lilly, according to financial data groups Morningstar and Pitchbook. Roche, Amgen, Pfizer and AstraZeneca all want a slice, alongside private companies such as Boehringer Ingelheim. Smaller acquisition targets like Structure and Viking (both listed) are also in the race.

Almost every major pharmaceutical company is looking to bring a weight-loss drug to market, often by acquiring candidates from the biotech sector. Those businesses that are successful in developing the most effective next-generation drugs should be able to grow their market share. But there are risks. Expectations are high, meaning disappointing trial results can lead to big swings in value.

Novo’s share price suffered last year after its next-generation amylin candidate CagriSema performed worse than expected in phase-three tests (the final stage of clinical trials). Although it achieved weight loss of 23% after 68 weeks, this was below the 25% expected. It wasn’t enough to persuade investors that the drug could handily outperform Eli Lilly’s Zepbound.

The market is also incredibly competitive. Paul Major, manager of the Bellevue Healthcare Trust, points out that the number of next-generation candidates is “huge”, with “scores of molecules” in clinical trials. “Sooner or later, GLP-1 drugs will become all about price.”

However, prices coming down could also increase the size of the market. Medicare and Medicaid, US government health insurance programmes, will only reimburse the cost of the drugs if patients have another condition such as cardiovascular disease. They are just too expensive. Patients who aren’t covered through their insurance can self-fund at a 50% discount on what the insurers pay, but that is still about $6,000 per year.

“I think insurers understand there is a very strong case for helping patients lose weight in terms of lowering long-term healthcare costs,” says Karen Andersen, sector director at Morningstar. “As prices come down, it could increase the number of insurers – including government insurers – that are willing to cover it.”

How to invest in weight-loss drugs

Eli Lilly (NYSE: LLY) is currently the market leader with the most effective licensed drug, based on head-to-head data. But investors will need to decide if they are willing to pay up for it. Lilly’s shares are on a forward price/earnings (p/e) ratio of almost 40. Meanwhile, Novo Nordisk (Copenhagen: Novo-B) looks much cheaper than a year ago after recent share-price falls. Its forward p/e ratio is 15.

Polischuk thinks Lilly is more attractive than Novo. It is the largest position the Worldwide Healthcare Trust (LSE: WWH) has ever held, at around 11% of the portfolio. Meanwhile, the trust sold out of Novo earlier this year after seeing a “lack of upward inflection in US prescription trends for both Wegovy and Ozempic”.

Investors could also look at some of the firms vying for a share of the next-generation market. Roche (Zurich: ROG) recently made a deal with Danish biotech company Zealand Pharma, for example, giving it exposure to an amylin candidate. Even prior to this deal, it had a couple of drugs in mid-stage development. Morningstar thinks Roche’s shares are currently undervalued. “I think they are a pretty strong candidate for being a bigger competitor once you get to the 2029 time frame,” says Andersen.

The Polar Capital Global Healthcare Trust (LSE: PCGH) has Roche in its top-ten holdings alongside market leaders Lilly and Novo. The Worldwide Healthcare Trust also has exposure to next-generation names through AstraZeneca and Pfizer, as well as its position in market leader Lilly.

The biotech sector, highly risky but potentially very lucrative, also looks interesting and could merit some diversified exposure. Most of the innovation is in this area. “We have this ecosystem in the pharma industry for therapeutic drugs whereby innovation tends to come from the biotech companies… and especially lately, those companies tend to get acquired by big pharma,” says Craig. “Ten years ago, 70% of the new drugs approved emanated from big pharma’s research and development (R&D). Last year, it was the inverse – 70% of new drugs approved came from biotech.”

Listed biotech companies such as Structure and Viking have been identified as potential acquisition targets. We could see similar moves in the unlisted sector. Given the high risk profile of some of these companies, diversified exposure through a fund or trust is a sensible strategy. Roughly 10% of the International Biotechnology Trust (LSE: IBT) is allocated to next-generation companies.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Few names resonate on the British high street quite like Greggs (LSE: GRG). From its origins as a modest Newcastle bakery to its status as a national institution, Greggs has built a reputation for affordable, reliable fare that has underpinned decades of steady progress.

It stands as a rare success in a retail sector often marked by upheaval. Yet the past year has brought a sharp reversal: the share price has fallen nearly 50%, prompting questions about whether Greggs’ winning streak has faltered. The evidence suggests otherwise.

A brief history of Greggs: a retail success story

Greggs traces its origins to 1939, when John Gregg, a Tyneside entrepreneur, started delivering bread and cakes by bicycle around Newcastle. It was an unassuming venture, born in an era of austerity before World War II, but one that planted the seeds for enduring success. After the war, Gregg opened his first shop in Gosforth in 1951. This small step marked the start of a journey that would see Greggs evolve from being a local baker to becoming a household name. In 1964, John died at just 54, and his then 25-year-old son Ian assumed control, steering the business toward broader horizons.

The pivotal moment came in 1984 when Greggs listed on the London Stock Exchange, which provided the capital to fuel expansion. This wasn’t a leap into the unknown but a calculated move rooted in its practical ethos. What ensued was a textbook case of disciplined growth. While other retailers chased fleeting trends or overstretched their resources, Greggs focused on its core offering: affordable baked goods, delivered swiftly, in locations where footfall was assured.

By the 1990s, it had become a high-street staple across the UK, with the sausage roll emerging as its signature product – simple, satisfying, and budget-friendly. Its rise mirrored Britain’s changing retail landscape, thriving amid the decline of traditional grocers and the rise of convenience culture.

Today, Greggs operates more than 2,500 outlets, outnumbering competitors such as Pret A Manger and even McDonald’s in the UK. It has transcended its roots to become a cultural fixture, serving everyone from workers seeking a quick bite to students in need of comfort food. This reliability has been central to its achievements, reflecting a deep understanding of its customers’ needs. Greggs has tapped into the British psyche, offering not just food but a sense of familiarity and value that resonates across generations and regions.

For investors, consistency is a prized attribute, and Greggs has delivered it in spades. Over the past two decades, revenue has grown steadily, rising from £457 million in 2003 to more than £2 billion in 2024 – a compound annual growth rate of approximately 7%. This is not the stuff of dramatic headlines, but it reflects a robust foundation. This stability has weathered economic storms, from the 2008 financial crisis to more recent inflationary challenges. Operating profits have kept pace, with margins typically ranging between 7% and 10%, a respectable figure for a food retailer navigating supermarket competition and cost pressures.

The dividend history reinforces this stability. Greggs has maintained payouts since the early 2000s, with only a brief interruption during the Covid pandemic when high-street traffic vanished. It swiftly recovered, resuming dividends in 2021 and supplementing them with special payments when cash reserves allowed, including payouts of 40p per share in both 2021 and 2023. For income-focused investors, Greggs has been a dependable performer, often yielding above 3% and currently over 3.5%, supported by a business model that avoids reckless ventures. This prudence has kept it afloat where flashier rivals have floundered.

Greggs has a straightforward, but effective strategy

Greggs has thrived by sticking to its strengths: good-value products tailored to its audience. While competitors experimented with premium offerings, Greggs stuck to its guns. The result? Total shareholder returns over the last 20 years of more than 1,000%. Greggs’ expansion has been deliberate rather than dazzling. It rests on three key elements: increasing its store network, refining operations and adapting to shifting tastes. The outlet count has grown incrementally – 260 when listing on the stock market in 1984, 1,000 in 1999, 1,500 by 2010, 2,000 by 2019 – and each new site has been strategically placed in high-traffic areas such as stations, retail parks and town centres. The strategy is straightforward but effective.

Operationally, Greggs has bolstered its infrastructure. Centralised bakeries and efficient logistics enable it to produce millions of items weekly with precision, a feat honed over decades. In 2023, a new frozen logistics hub in Derby, along with other major investments, enhanced capacity to support an additional 500 stores, signalling a commitment to future growth. This is part of a long-term plan to ensure supply matches demand as the chain grows.

Product evolution has been subtle but effective. The 2019 launch of the vegan sausage roll tapped into the rising demand for plant-based options without alienating its traditional base, driving a surge in sales. The addition of pizza broadened its appeal. Coffee, too, has become a strength, being affordable and competitive with chains such as Costa. These adjustments have sustained growth, with like-for-like sales rising 13.7% in 2023 despite economic headwinds and 5.5% in 2024, proving Greggs can adapt without losing its identity.

Success on this scale requires capable leadership, and Greggs’ management has proved its mettle. Roger Whiteside, CEO from 2013 to 2022, was an important and successful steward of the company, accelerating store openings and championing innovations such as the vegan range while maintaining cost discipline. His successor, Roisin Currie, took over in 2022, having joined the business in 2010 as chief people officer following a 20-year career at Asda. The leadership team’s pragmatic approach is evident in the financials. Return on capital employed (ROCE) has averaged 15%-20% over the past decade, reflecting efficient use of resources. Debt is negligible – net cash was £125 million at the end of 2024 – and cash flow comfortably covers dividends and capital expenditure. This is a management focused on execution, not fanfare.

So why are the shares languishing?

Given this strong record, the near-50% drop in Greggs’ share price over the past year – from nearly 3,200p in March 2024 to a little over half that – demands scrutiny. The decline stems not from internal failings but from a confluence of external pressures and market sentiment. The cost-of-living crisis has intensified, with inflation peaking at 11.1% in late 2022 and lingering at 3%-4% into 2025. For Greggs’ core demographic of working-class consumers, stagnant wages have curbed spending, denting footfall. Like-for-like sales growth slowed to 5% in the first half of 2024, down from double-digit gains in 2023, unsettling investors accustomed to stronger momentum.

Rising costs have compounded the issue. Wheat, energy and labour prices have climbed steeply. Greggs has raised prices modestly but hesitates to push further. Margins slipped in recent years, and although there are signs of improvements, concerns about cost impacts, particularly on wages, persist. Broader market dynamics have also played a role. With interest rates holding at 4.5% and anxiety about recession persisting, consumer stocks have fallen out of favour. The FTSE 250 has declined 10% over the past year, but Greggs’ drop has been steeper, exacerbated by a premium valuation – more than 25 times earnings at its peak, compared with a historical range of 15-20.

Management remains composed. Currie has acknowledged the difficulties, but Greggs continues to press ahead with expansion, achieving a net increase of 145 stores in 2024 – bringing the total to 2,554 – and targeting around 100 net additional openings in 2025. Digital channels have also seen strong growth, with app-based sales rising by 20%. The evening trade, particularly pizza offerings, has emerged as the most significant contributor to recent rises in sales, now accounting for a notable portion of revenue.

Operational excellence remains a priority, too, with ongoing investments in cost-saving initiatives designed to offset inflationary pressures. These efforts include enhancements to supply-chain efficiency and automation. Yet this focus on long-term stability has unsettled a market often fixated on short-term gains. Investments in new stores and efficiency measures are expected to exert modest pressure on margins and reduce return on capital in the near term. Despite this, Greggs’ consistent delivery of its strategic objectives over the years suggests that the current weakness in the share price may not fully reflect the underlying strength and health of the business.

Why patient investors should buy now

Over the years, Greggs has repeatedly demonstrated an ability to find new growth opportunities. This has delivered value to shareholders, with management’s disciplined capital allocation driving consistently high returns on investment. Greggs’ core fundamentals also remain robust. Sales continue to rise, profits have proved resilient, and the balance sheet is in good shape, supported by a healthy net cash position. Recent share price weakness appears to reflect short-term challenges rather than any structural issues with the business model. At current levels, the stock looks cheap, trading on a valuation multiple below both its decade-long average and much of its peer group. The 3.6% yield, backed by strong cash reserves, adds to the appeal.

Looking ahead, economic conditions should ease. Inflation is easing and, while interest rates may remain elevated in the near term, they are expected to soften by late 2025. Greggs’ value-focused offering tends to resonate particularly well in lean times, making it well positioned to benefit from any lingering caution among consumers. Meanwhile, ongoing store expansion, alongside growing digital and delivery channels, should continue to fuel growth. If the economic backdrop improves, profitability could also receive a boost as cost pressures ease. Risks persist, of course. A deeper-than-expected downturn or renewed spike in input costs could hinder the recovery. But Greggs has weathered challenging periods before, including the global financial crisis of 2008 and, more recently, Covid lockdowns in 2020. On each occasion, the company emerged stronger, having demonstrated both operational resilience and an ability to adapt.

For patient investors, the current share-price pullback offers an appealing entry point into a proven performer. With a runway for further growth, robust fundamentals and an attractive valuation, Greggs’ high street success story is far from over. Its ability to balance tradition with innovation, coupled with a relentless focus on value, ensures it remains a formidable presence – one that could reward those willing to look beyond the present gloom.

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With UK interest rates down to 4.5% and likely to fall further, it is becoming increasingly difficult to earn more than 4% from a deposit account. Inside a cash ISA, there is no tax to pay on interest income, but the chancellor is reported to be keen to chip away at the £50 billion locked up in them, ostensibly to encourage investors to shift into risk-taking assets, but more probably to generate extra tax revenue. What are the alternatives?

There are plenty of conventional investment trusts, especially those investing in UK shares, yielding over 4%, but many investors will not want the stock market risk. For them, Stifel, an investment bank and brokerage, has compiled a list of 33 relatively liquid “alternative funds” yielding between 4% and 15%, generated from what should be more predictable streams of income.

“A cynic would argue that these yields indicate the market is expecting many dividends to be cut,” it points out, “but many of these high yields have arisen due to sharp falls in share prices over the past year”, which is not exactly reassuring for those wanting to avoid risk to their capital.

“However, those now trading on wide discounts to net asset value [NAV] should have more upside than downside,” especially as “many of the funds have set modestly increased dividend targets for 2025 and projected dividend covers, based on revenues after deducting expenses, typically ranging from 1.1 times to 1.3 times.”

The leading investment trusts

These include a number of funds investing in fixed interest, including the £300 million CQS New City High Yield Fund (LSE: NCYF), trading on a 6% premium to NAV and yielding 8.7%. It invests in high-yielding corporate bonds, which implies high risk, but the manager, Ian Francis, has delivered strong returns for 17 years by focusing on capital preservation, helped by an experienced team of analysts at Manulife CQS, the management company.

Strong performance (11% over one year, 25% over three and 42% over five), and the consequent premium to NAV, has enabled the fund to grow through share issuance (£13.3 million in the last year), although this has always been conservative to prevent the size of the fund swamping the opportunities.

Dividends have risen every year for 16 years, although the rate of increase has slowed to a snail’s pace in the last five years. Most importantly, the fund succeeded in generating positive returns in the last half of 2024, a difficult time for bonds generally, suggesting that it will continue to do so even if ten-year gilt yields head up to 5%.

TwentyFour Income Fund (LSE: TFIF) and TwentyFour Select Monthly Income (LSE: SMIF) have also performed well. TFIF, with £845 million of assets, has returned 15% over one year, 32% over three and 49% over five, while SMIF (£240 million of assets) has returned 17%, 28% and 40%. Their shares trade on a small discount and small premium to NAV respectively and yield 9.1% and 8.5%.

The key to TwentyFour’s success, says manager George Curtis, is “avoiding the accidents”. The investment-trust structure means that “managers are not forced to sell at times of crisis” and “enables us to take advantage of the premium return from illiquidity by investing in less liquid securities”. But the golden rule is “getting your money back by minimising defaults”.

TFIF doesn’t invest in bonds, but in “a diversified portfolio of predominantly UK and European asset backed securities”. Nearly half of the portfolio is in “mortgage backed securities”, mostly residential. Banks package together a large number of mortgages and then turn the package into tradable securities, injecting bank debt to raise returns. The top tier is prioritised in a return of capital while lower tiers are progressively riskier, but have higher coupons.

TFIF also invests in securities based on car loans, consumer loans and “collaterised loan obligations” (nearly 40% of the portfolio), which uses the same process to turn bank loans to companies into tradable securities. About 20% of the portfolio is “investment grade” (lower risk), 46% sub-investment grade (higher-risk, but above junk) and 33% is not rated, which means there is no independent review of the riskiness of the securities.

Around 36% of SMIF’s portfolio is invested in asset-backed securities, but most of it is in “subordinated” bank and insurance-company debt, meaning that it is a lower priority for repayment than other types of debt, thereby providing banks and insurance companies with an additional buffer to share capital in the event of a crisis. Slightly more of its portfolio (30%) is made up of investment-grade debt; 60% consists of sub-investment grade (but above junk) paper and 10% is “not rated”.

While TFIF invests in floating-rate debt and so has no exposure to changes in interest rates, SMIF invests in fixed-rate securities, but with short lives – nearly 90% repay within five years. This all sounds risky, but Curtis points out that the balance sheets of banks and insurance companies are “very strong”, while yields have tightened, “but are still well above those in 2021”. In the personal sector, “unemployment and divorce are the key factors behind defaults”. He notes that “economies have been resilient to higher rates and defaults have remained low. Interest rates in the UK are expected to flatten out at 4%, so it should be pretty easy to maintain 8% returns”.

Less risk, lower returns

Those who are more risk-averse can still earn 8.9% from the £140 million M&G Credit Income Investment Trust (LSE: MGCI), although a portfolio yield to maturity of 7.8% means that it dips into capital to pay the dividend. Like TwentyFour, it invests in “private, semi-liquid assets, mostly held until maturity”, but at least 70% of its portfolio has to be investment grade (the current proportion is 77%). The trust is seeking to raise another £30 million.

MGCI’s lower risk means that its returns have also been lower; 8% over one year, 20% over three and 28% over five. The returns from the Invesco Bond Income Plus Trust (£350 million of net assets) at 9%, 14% and 24% are lower still, as is the yield of 6.8%, but it invests in a “very liquid” portfolio of listed bonds, which reduces the complexity of the portfolio, if not the risk: 70% of the portfolio comprises sub-investment grade paper.

As with the other funds, investing in a portfolio of seemingly low-quality bonds and credit has turned out not to have been nearly as risky as might have been expected. The global financial crisis of 2008-2009 was a shock to the credit-rating agencies who have learned to be a lot more cautious in their assessment of risk – just as the issuers of bonds and loan securities (and, behind them, people and businesses) have learned to be far more prudent.

The result has been that just as government bonds came to be, and probably still are, systematically overvalued, nominally higher-risk fixed-interest investments have been, and remain, undervalued.

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House prices in the UK, according to Zoopla, have risen just 2.2% in the past year, while the cost of flats rose only 0.5%. Halifax’s estimate of annual house price growth is 2.9%, but Nationwide is more bullish. It records a 3.1% year-on-year increase for the fourth quarter in England, 2.7% in Wales, 4.4% in Scotland and 7.1% in Northern Ireland. The estimate for England hides a significant regional variation: prices were 4.4% higher in the Midlands and the north of England, but just 2% higher in southern England. In East Anglia, prices rose just 0.5%.

Nationwide and Halifax also produce monthly data, but this can be erratic. The numbers provided by different sources always differ as they can come from surveys of estate agents, deals completed, or mortgages arranged. The data from transactions may not be representative of the market as a whole. It will exclude properties that don’t sell, or omit some private transactions. It is, in other words, not very reliable.

Yet the presumption is that house prices rise remorselessly with only occasional interruptions: they always have and they always will. That presumption is built into the behaviour of buyers. If your home will always rise in value, capital gains tax-free, you might as well buy somewhere bigger than you really need in a more expensive location. If buying to rent, you will accept a low rental yield, as it will be topped up by capital appreciation.

Nationwide, however, points out that prices at the end of 2024 “were still just below the all-time high recorded in summer 2022”. Its regional numbers suggest that price increases in the north represented a catch-up with London and the southeast. If so, they will now slow down.

At the top of the market (prime central London) “the market has gone nowhere in the last ten years”, says Charlie Ellingworth of Property Vision. “There have been some spectacular sales, but these are outliers in a market that remains broadly flat.” This end of the market is suffering from the exodus of non-domiciles, accelerated by their being dragged into the inheritance tax (IHT) net in the last budget. Equally important, says Ellingworth, is that potential buyers from overseas have been put off.

A post-Covid collapse of the housing market

The country market, he says, “had a noticeable spike over the Covid years that has unravelled recently, reflecting the retreat from working from home”. However, “the internet and working from home have enabled people to extend their weekend and live further away”, so good properties in good locations remain popular. This is also true in London where major developments that offer “good transport links and a good range of shops, cafes and restaurants” are popular – unlike “so many of the riverside developments that future generations will regard as sad failures”.

In the broader market, affordability is improving as earnings rise, but the house price-to-earnings ratio is still well above the long-term average. Moreover, this does not take account of higher interest rates, which could fall back to 4%, but not to the sub-1% levels of a few years ago. Mortgage borrowers have been protected by the availability a few years ago of low fixed rates, but these deals are rapidly expiring.

The gauge of affordability also omits the relentless rise of stamp duty, soon to be zero on just the first £125,000. A buyer will pay 3% on a property costing £500,000, 4.4% on £1 million and the marginal rate rises from 10% to 12% above £1.5 million. First-time buyers pay a little less if buying a property for under £625,000, but buyers of second homes will pay an extra 5% and non-residents an extra 2%.

With many councils in financial difficulties, council tax is set to rise well above the rate of inflation. Those buying second homes will have to pay double tax, having paid only half ten years ago. For those buying flats, service charges are escalating rapidly, especially if remedial action for cladding is necessary. This probably explains why, as Zoopla reports, price increases for flats are lagging those for houses.

Buy-to-let investors and those letting out holiday homes are facing the cost of achieving the required level of energy-performance certificates; rising management costs; higher taxation on net income, with reduced deductions before net income is calculated; and higher capital gains tax on disposal. In holiday locations, locals have complained about being priced out of the market. But without the tourist trade, they wouldn’t want to live there.

The attraction of buy-to-let investing has always been not just a reasonable level of net income, rising at least in line with inflation, but also the prospect of capital gains. But if costs, taxes and regulations are eating away the net income, the capital gains will disappear, and without them the investor needs a considerably higher level of net income. No wonder so many are selling – but the prospective returns are not attractive to buyers.

The same applies to home buyers. If price rises are no longer expected, the incentive to buy the biggest property you can afford disappears and the inclination to downsize in later life increases. Confidence in higher prices made that confidence self-fulfilling. Now, the reverse could apply. “Housing was the goose that laid the golden egg for successive governments, enabling them to tax, tax and tax again,” says one developer.

But surely the UK is chronically short of housing? The government’s plan to build (or have the private sector build) 300,000 new homes a year for five years has been much criticised, with the industry pointing to shortages of labour, materials and sites.

Taking on the NIMBYs

Still, the intended changes to planning laws will presumably proceed and have some effect in increasing supply. As Ellingworth points out, “Labour is a predominantly urban party with little sympathy for countryside” concerns of NIMBYs.

Recently, The Telegraph reported that “UK golf courses were under siege by Rachel Reeves’s build, build, build mantra”. The article claimed that “at least one in six of the country’s courses are so distressed that they could face imminent closure. Already this year, the courses that have either shut or been earmarked to shut are running into double figures, with at least three making way for new houses”.

“It is easier than ever to construct on the green belt and more straightforward for planning inspectors to wave through projects, even if they have previously been rejected by council planning committees.”

The main thing deterring demand is household formation, which, according to Statista, has averaged growth of 0.6% per annum in the last ten years, but 0.4% in the last year, 2023. This is very similar to population growth, so household sizes are no longer falling. With the fertility rate now well below replacement level, population growth and hence household formation is dependent on immigration. It must be presumed that this government or the next one will significantly restrict immigration, as nearly all other developed countries are now doing.

When this happens, population growth and hence household formation will turn negative, while housing supply will be growing. This is not a recipe for rising prices. Rising building costs, exacerbated by inflation in wages and the price of materials, and the increase in national insurance and regulation should result in a squeeze on housebuilders’ profits and lower land values rather than feed through into the price of new homes and hence the value of existing ones.

Perhaps people will learn that a residential property is a place to live in for a long period of time, rather than an investment. There will always be bargains based on quality, mis-pricings and location. But the days when a rising market would bail you out from overpaying are surely over.

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Inheritance planning is set for an overhaul in the coming years due to changes to how pensions will be treated as part of someone’s estate when they pass away.

Chancellor Rachel Reeves used her Autumn Budget last year to announce that pensions would form part of an estate for inheritance tax purposes from April 2027.

Including pension portfolios in the value of someone one’s estate could push up already rising inheritance tax bills, and while the radical changes are still being consulted on, many experts suggest it will change the way people approach estate planning.

There are already signs that people were taking more from their pension even before the IHT changes were announced.

Analysis of Financial Conduct Authority (FCA) data by AJ Bell showed there was an almost 20% increase in pension pots accessed in 2023/24 compared with the previous tax year.

The investment platform attributed this to the cost of living crisis.

It also found that many were drawing income of 8% or more from a pension pot, which is more than the traditionally recommended 4% rule.

Next month marks 10 years since the introduction of pension freedom rules that let retirees access their hard-earned pots as they wish. But attention may now turn to protecting the pot from the taxman.

Rachel Vahey, head of public policy at AJ Bell, said: “Advisers have already started to have conversations with their clients about how these proposals could impact their retirement and estate planning. There are also widespread concerns over how these proposals will – and indeed are already – changing pension saver behaviour.

“By encouraging a faster withdrawal of pension funds, there is a real danger that more people will leave themselves with insufficient income to last their lifetime, risking falling onto the state for support in their later years. It could also have implications for funding long-term care, as people who deplete their pension earlier will have fewer resources to pay for that care.

“Needless to say, these concerns around changes to pension saver behaviour and the associated impacts risk exacerbating the challenges that already exist in this policy area.”

Here is how you can protect your pension from the inheritance tax trap.

Be tax efficient

Even if you do take money out of your pension to avoid inheritance tax, you still need to make sure it is outside of your estate and you don’t pay unnecessary charges.

You can take 25% of your pension tax-free and the rest is charged at your income tax rate.

Plus, you could also use gifting to reduce your IHT bill.

This ensures that money you spend on or give to your loved ones can be separated from your estate as long as you live for seven years after the payment is made.

There is also a £3,000 annual exemption for gifting.

But Nicholas Hyett, investment manager at Wealth Club, says there are risks to this approach.

He said: “The first is that by withdrawing more than the 25% tax free lump sum you risk pushing yourself into a new tax bracket, and end up paying either higher or additional rate income tax on the money when you didn’t need to.

“The second, perhaps more serious, risk is that you run out of money in retirement. Retirement’s often end up being longer and more expensive than people expect – and you can’t demand money back when you want it. You end up reliant on the generosity of your heirs – and there’s no guarantee they will keep your gifts ready and available for a rainy day.”

Make use of other assets

Ross Lacey, director at Fairview Financial Management adds that while there's no direct way of ringfencing the money in a pension from inheritance tax once the rules change in 2027, there are steps that could be taken now.

He said: “For clients of ours that will be affected by the changes, we're looking at sheltering other assets they have from inheritance tax; for example using trusts, or putting in place strategies to cover the potential tax bill using insurance.

Trusts can also be an effective tool for estate planning.

Rachael Griffin, tax and financial planning expert at Quilter, said: “A pension lump sum or other assets can be placed into a discretionary trust, keeping them outside the estate for IHT purposes.

“While there may be an IHT charge if the amount exceeds any available nil-rate band, trusts provide a way to pass on wealth in a controlled manner, particularly for younger beneficiaries.”

Griffin said spousal planning remains important, as pensions left to a spouse or civil partner will continue to be IHT-free.

She added: “Careful planning around who holds pension assets and the expected order of inheritance can help manage tax liabilities effectively. Charitable giving is another potential strategy, as leaving at least 10% of a net estate to charity can lower the overall IHT rate from 40% to 36%, providing a tax-efficient way to leave a legacy.”

Life insurance can also play a role in managing IHT liabilities.

Griffin said: “A whole-of-life insurance policy written in trust can provide funds to cover IHT, ensuring that beneficiaries are not forced to sell assets to pay the tax bill.”

Another option is putting money into an alternative investment market (AIM) ISA as AIM-listed companies qualify for a reduced rate of inheritance tax – at 20% rather than 40%, which can keep your overall IHT bill down even your pension is part of it.

What to think about before you move your pension

The prospect of pensions being included in inheritance tax calculations may seem scary but the changes are still two years away so it may be risky to start accessing more of your pension now as it could mean running out of funds for your own retirement.

Joshua Gerstler, chartered financial planner for The Orchard Practice, said: “If you are under 75 your pension can currently pass to your children free of inheritance tax and free of income tax and if you are over 75 it can pass free of inheritance tax; unless you know you are not going to die in the next two years, maintaining the status quo is sensible."

Two rumours have been swirling around the gold markets for many years. Some have called them conspiracy theories. Others note that conspiracy theories often prove true. What’s the difference between conspiracy and truth? About 30 years.

The first notion is that China has far more gold than it says it does. We actually now know this to be true. The other is that America has far less than the 8,133 tonnes of gold it says it possesses.

This has been doing the rounds since 1971, when Peter Beter, a lawyer and financial adviser to former president John F. Kennedy, said he had been informed that gold in Fort Knox had been removed. He went on to write a best-selling book about it: The Conspiracy Against the Dollar.

The problem is a total lack of transparency on the part of the US authorities, something that, according to current US president Donald Trump, and the head of the Department of Government Efficiency, Elon Musk, will not be the case for much longer.

Roosevelt triggers a boom

But to understand this situation we need to go back in time, all the way to 1933, when the US left the gold standard in order to bolster growth. US president Franklin D. Roosevelt famously devalued the US dollar in relation to gold, revaluing gold upwards by 70%, from $20 an ounce (oz) to $35/oz. US gold reserves would increase to unprecedented levels in the next 15 years.

Some of the gold came from US citizens. It was now illegal for them to own gold and they had to hand any they owned over to the authorities. Some came from the fact that the government then bought all US mined supply (the upwards revaluation of gold triggered a mining boom) and any gold imported to the US assay office. The US even began buying gold on foreign markets to protect the new higher price at higher levels.

Thus US official holdings in 1939 on the eve of World War II totalled 15,679 tonnes. They would only increase. With Nazi invasions and expansion, European nations sent all the gold they could across the Atlantic, either for safekeeping or to buy essential supplies; 1949 saw the high watermark of US gold holdings – 22,000 tonnes, as much as half of all the gold ever mined.

In July 1944, with it clear that the Allies were going to win the war, representatives from the 44 Allied nations met at the Mount Washington Hotel in Bretton Woods for the United Nations Monetary and Financial Conference to design a new system of money for the new world order.

International accounts would be settled in dollars, and those dollars were convertible to gold at $35/oz. Countries had to maintain exchange rates within 1% of the US dollar. In effect, the US was on a gold standard, and the rest of the world was on a dollar standard.

The system relied on the integrity of the US dollar’s gold-backing to work, and that integrity was in question, even before the end of the war. The June 1945 Federal Reserve Act reduced required gold reserves for notes outstanding from 40% to 25%, and against deposits from 35% to 25%. Between 1944 and 1954, because of increased supply, the dollar lost a third of its purchasing power, though the $35 Bretton Woods price remained.

US government spending was soaring, and it began running balance of payments deficits – made worse by the costs of foreign aid, America’s new welfare systems and maintaining a military presence in Europe and Asia. Gold began leaving the US. By 1965 reserves had fallen by 9,500 tonnes, down 40% from the 1949 peak.

Successive US administrations tried to stop the outflow, without success. Dwight D. Eisenhower banned Americans from buying gold overseas, Kennedy imposed the “equalisation tax” on foreign investments, and Lyndon B. Johnson discouraged Americans from travelling altogether. “We may need to forgo the pleasures of Europe for a while,” he said.

Fears that the dollar would devalue following the election (won by Kennedy) sent the gold price in London to $40/oz. The Bank of England, in collusion with the Federal Reserve, began increasing gold sales to keep the price down.

Thus did the London gold pool begin, with the addition of six major European nations the following year (Belgium, France, the Netherlands, West Germany, Italy and Switzerland), which co-ordinated sales to suppress, or “stabilise”, to use their word, the gold price and defuse unwanted, upward market pressure.

But the pool struggled against growing demand. In 1965, an ounce of gold was still $35, but the purchasing power of the dollar had decreased by 57% from 1945, while gold reserves had also fallen sharply. The culprit was the costs of the US government, in particular the Vietnam War and president Johnson’s enormous welfare spending.

Bretton Woods under pressure

With inflation rising at home and international confidence in the dollar waning, these programmes were not just costly – they undermined Bretton Woods. Non-American nations felt aggrieved that they had to produce $100 worth of goods and services to get a $100 bill, when the US could just print one. French finance minister Valéry Giscard d’Estaing called it “America’s exorbitant privilege”.

President de Gaulle, meanwhile, had had enough. He ignored the pool to turn all French dollars and sterling balances into gold. The French even sent battleships to New York to collect their gold. De Gaulle became the target of several assassination attempts – coincidence, I’m sure. There were rather more US dollars in the world than there was gold to back them, he felt, and he was right.

By 1967, US foreign liabilities were $36 billion, but it only had $12 billion in gold reserves – a third of what was needed to back the dollar. West Germany, Spain and Switzerland began demanding gold for their dollars. Even the British, with sterling going through one of its quadrennial collapses, asked the Americans to prepare $3 billion worth of Fort Knox gold for withdrawal. Private gold demand was overwhelming.

In November 1967, the British government devalued the pound by 14%, from $2.80 to $2.40, in order to “achieve a substantial surplus on the balance of payments consistent with economic growth and full employment”.

In that month, the London market saw greater bullion demand than it would typically see in nine: as much as 100 tonnes per day. To stem demand, they banned forward buying, leverage and the purchase of gold with credit. The pool still lost 1,400 tonnes that year, more than a whole year’s mined supply.

Selling pressure on the US dollar only increased when the Viet Cong and North Vietnamese People’s Army of Vietnam launched the first of a series of surprise attacks on US armed forces in South Vietnam in January 1968.

Desperate to prop up the system, US military aircraft flew tonne after tonne of gold to RAF Lakenheath from where it trucked in military convoys to the back entrance of the Bank of England: at one point the floor of the Bank of England’s weighing room collapsed under the weight of all the gold.

Shoring up the system

In the four days between 11 March and 14 March 1968, some 780 tonnes were sold to market. The effort to protect the price was deemed hopeless. On 15 March, UK chancellor Roy Jenkins declared a bank holiday, and the gold market was closed for a fortnight, “at the request of the United States”.

Zurich also closed. Paris stayed open with gold trading at a 25% premium. All in all, the final 15 months saw over 3,000 tonnes sold to market to protect that $35 price. The pool had lost more than an eighth of its reserves.

Two days later, in the rushed-through Washington Agreement, governors of the central banks in the gold pool declared there would be one fixed gold market for official government transactions at $35/oz and another, free-market, price for private transactions. Not for the last time, central bankers were living in a world of their own.

Gold is one thing. Gold standards are another. They tend not to last, particularly bogus ones such as this one, under which citizens themselves did not handle gold. Keynes called them barbarous – ironic, perhaps, given that he was one of the architects of this one.

In August 1971, president Nixon took the US off the gold standard, a “temporary” measure that remains more than 50 years later. For the first time in history, gold – Switzerland aside – played no part in the global monetary system.

Of course it was the fault of the speculators. It always is. “I have directed the secretary of the Treasury to take the action necessary to defend the dollar against the speculators,” Nixon said, deflecting responsibility, and “to suspend temporarily the convertibility of the dollar into gold”.

High time for a US gold audit

The US keeps its gold in four places: at Fort Knox, Kentucky (roughly 56% of its 8,133 tonnes); at the Federal Reserve Bank of New York (8%); and the remaining 36% at the mints in Denver and West Point. There has not been a proper public audit of this gold since 1953. There have been internal audits, especially between 1974 and 1986, but these were not transparent.

There are many people, among them gold experts, who do not believe the gold is there. The US spent it trying to suppress the gold price in the 1960s, they say. In this new age of American transparency, both Trump and Musk have repeatedly pledged that this gold will be audited.

There is talk of it being done on a livestream. Trump has even suggested the gold has been stolen. “We’re actually going to Fort Knox to see if the gold is there,” he said, “because maybe somebody stole the gold. Tonnes of gold.”

They’ve been making such light of it, one has to assume they know the gold is there. Musk was laughing about the conspiracies on podcasts, and he even posted a picture of a Fort Knox starter kit: a brick and some gold spray. I can’t see how they would be joking if there were any serious doubts.

Secretary of the Treasury, Scott Bessent, has said quite categorically that the gold is there. The last audit was in September 2024, he said in a recent Bloomberg interview, before looking down the camera and assuring the US people that “all the gold is present and accounted for”. But this would only have been an internal audit, and it would not have been a full audit.

According to the US Mint, “the only gold removed has been very small quantities used to test the purity of gold during regularly scheduled audits”. No other gold has been transferred to or from the depository “for many years”. How long is many years, though? As far back as the 1960s.

It’s quite astonishing just how secretive the whole thing is. They opened the vaults for a congressional delegation and certain members of the press to view the gold in 1974. There were rumours swirling about then too. “We’ve never done this before and we’ll probably never do it again,” said the then director of the US Mint Mary Brooks.

Then in 2017, during Trump’s first administration, Treasury secretary Steven Mnuchin and Senate majority leader Mitch McConnell were invited to view the gold. “The gold was there,” Mnuchin said. He is “sure” nobody’s moved it. There are “serious security protocols in place”. But there are more than 4,000 tonnes in Fort Knox. A tonne would be about the size of a medium to large suitcase. Did he see all 4,000 of them?

The other big issue is the purity of the gold. What is there might not all be of good delivery quality, meaning it would not be readily accepted in international bullion markets. If much of the gold is the bullion Roosevelt confiscated in the 1930s, it will be in the form of “coinmelt”: melted down coins.

The commonly confiscated coins, such as the $20 double eagle, were only 90% pure and mixed with copper to make them harder. When melted down, they were not always properly refined to modern standards, while the bars they were melted into weighed 320-330 ounces, not the 400 oz bars of good delivery standard today. In practice, this means Fort Knox gold would not be accepted without additional processing.

But, until a proper audit takes place, this is all speculation, albeit reasoned speculation. We don’t know the full facts. The reasons given for not conducting a full audit are flimsy: we don’t need to, it would be too much of an undertaking. Please!

If the US gold turns out not to be there, then the gold price goes up – potentially a lot. If it is there, it’s business as usual.

For now, I’d say the markets are behaving as though it is business as usual. They are climbing, and every dip is being bought, largely, it seems, by central banks (especially in Asia), who are diversifying their holdings and de-dollarising. But this audit cannot come quickly enough.

Finally, I would just like to debunk one theory doing the rounds. US gold is currently marked to market at $42/oz. After the audit, those 8,133 tonnes – assuming they are there and of good delivery quality – could be marked to market at current prices, meaning a significant uplift in the value of holdings.

The theory doing the rounds is that Treasury secretary Bessent will use some of the upwards revaluation to monetise the balance sheet – not unlike how Roosevelt did in 1933 – to create funds for, among other things, the strategic bitcoin reserve. But Bessent has quite clearly stated that is not his intention.

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ISA investment fees are coming into focus as the tax year ends.

Many investors will choose the best investment platform for their stocks and shares ISA based on asset choice, research tools, functionality and even ISA transfer offers, but charges are also important.

The cost of investing is becoming a bigger factor when choosing the best stocks and shares ISA as many active managers are failing to outperform the markets, causing a flight to passive funds.

Investors are also increasingly favouring exchange traded funds, letting them track currently rising markets such as the S&P 500, which has been boosted by the success of the Magnificent 7.

Share trading can be more expensive on larger and more popular investment platforms, creating an issue for ISA investors relying on the bigger players for their portfolio.

Analysis by new ISA market entrant Lightyear claims stocks and shares ISA holders are paying more than £800 million extra in “unnecessary account fees," when only holding stocks and ETFs, which can eat into their returns.

Stocks and shares ISA costs

The traditional charging model among investment platforms is an annual percentage fee based on the value of your portfolio or flat fees.

But a new cohort of app-based investment platforms such as Lightyear, Freetrade and Trading212 let users build an ISA portfolio on their smartphone and only charge low trading fees.

These providers focus on a range of equities and exchange traded funds rather than mutual funds and other assets.

Analysis suggests investors focusing on shares and ETFs could be better off with the smaller providers compared with better-known brands.

For example, Lightyear charges £1 for UK stock trades compared with investing platform giant Hargreaves Lansdown, which charges between £5.95 and £11.95 depending on the number of trades.

Lightyear doesn’t have a annual fee while Hargreaves Lansdown charges 0.45% per year with a £45 cap when holding shares.

Capital Economics was commissioned by Lightyear to compare its fees based with other ISA platforms.

It looked at investing costs when making the average ISA investment of £7,355, rising by inflation each year, with annual growth of 5% as well three US stock trades and three ETF trades annually.

The analysis suggests Lightyear would be almost £400 cheaper for investors than Hargreaves Lansdown after a year and around £7,000 cheaper over 25 years.

In another example, Moneybox, which offers risk-rated ISA portfolios of shares, ETFs and index funds, for a £1 monthly subscription fee and 0.45% platform fee, works out £250 more expensive after a year and around £27,000 more over 25 years, according to the research.

When compared with other app-based platforms, Trading 212, which only charges a forex fee and is commission-free, actually comes up £581 cheaper over 25 years.

However, Freetrade, which charges £4.99 per month for its stocks and shares ISA, shows as more expensive.

Wander Rutgers, UK chief executive of Lightyear, said: "People across the UK are being marketed to left, right and centre at the moment with ISA offers that look enticing on the surface; of course 1% cash back on transfers sounds good, but that same provider is also taking 1% of portfolio value back every single year in a custody fee, hidden deep within their pricing page. These fees are normally taken from your portfolio, so they’re very easy to miss…

“The stocks & shares ISA market is a complete lottery: most of us follow the herd and sleepwalk into this lottery by opening an ISA with one of the incumbent banks or brokers, accepting whatever fee we’re hit with. This money goes straight into the pockets of the providers, instead of to us. There's a huge inertia to leave, and that inertia is costing people a huge amount of money.”

The importance of shopping around

As with any sort of financial service, it is important to shop around and find the investment platform that best suits your needs.

Lightyear may be low cost but it doesn’t provide the full range of features such as other investing assets including mutual funds and research tools that you get with other providers so investors need to decide if these are worth paying for.

A spokesperson for Hargreaves Lansdown said: “One in three UK investors use Hargreaves Lansdown, making us the UK’s number one platform for private investors.

“Our clients tell us they highly value the full-service offering: the security of a trusted brand, the breadth of proposition and wide range of investment choices, fund discounts, as well as access to our quality and personal client service."

A spokesperson for Moneybox added that its platform fee is in line with industry standards, adding: “Our stocks and shares ISA offers a wide range of investment options—whether customers prefer expertly designed portfolios or want to build their own with tracker funds, exchange traded funds (ETFs), and individual US stocks. We also provide valuable tools and educational content to help our customers improve their financial literacy, become more confident investors over time and make informed financial decisions.

“Our platform fee is in line with industry standards, and we don’t charge trading or commission fees on US stocks. While some providers may currently offer a lower-cost structure, some investors may also want to consider whether that approach is commercially sustainable in the long term. Moneybox is committed to providing a stable, predictable pricing model so that we can continue to support our customers for years to come.”

At noon on midday of 6 January, while most of us were still recovering from New Year parties or seasonal bugs, the chief executives of FTSE 100 companies were quietly cheering the fact that they had already trousered more in a few grey days than the average worker in their firms will make all year, according to the High Pay Centre campaign group. The median pay for CEOs of firms in the blue-chip stock index is £4.22 million, 113 times higher than the median full-time worker’s pay of £37,430. Bosses hit this milestone marginally quicker this year than last, says Jasper Jolly in The Guardian.

Workers’ pay did improve somewhat faster over the year – CEO’s pay rose by 2.5% against 7% for workers – but bosses’ pay is at record levels. AstraZeneca’s Pascal Soriot is the best-paid FTSE 100 CEO, taking home £18.7 million in 2024, despite objections from shareholders. Erik Engstrom, head of data company Relx, and Tufan Erginbilgiç, head of Rolls-Royce, both got £13.6 million. Even those sums pale in comparison with what their US counterparts are getting. Sundar Pichai, CEO of Google’s parent company Alphabet, received $226 million (£177 million) in 2022. Most notoriously, Tesla’s chief Elon Musk has been fighting the courts to get his hands on a $56 billion (£47 billion) award approved by directors and shareholders last year.

Those numbers will seem extraordinarily high to ordinary mortals and the idea naturally arises that it must be the result of an abuse of some kind, or a failure of the market. Who could possibly be worth $56 billion, we sniff. How can such high CEO/worker pay ratios be justified? Aren’t we all rowing the boat? Dirk Jenter, a professor of finance at the London School of Economics, has a different take – one guaranteed to annoy just about everyone, as he laughingly admits on the All Else Equal podcast of October last year. His view? CEOs are actually grossly underpaid.

A trifling share of value added

At least, they are according to one of two essential considerations. The first is that it seems fair that pay for individuals should be proportional in some way to the value they create in the work that they do. No one complains when sports or entertainment stars earn huge amounts. They clearly provide delight, inspiration and enjoyment that millions are willing to pay for, so why shouldn’t the fruits of their labour go into their own pockets? And if that argument is good enough for footballers, why not for chief executives?

Critics might argue that money managers only earn their huge sums because they are ideally placed to capture rents at the expense of their investors. Just as it’s natural to expect a pig farmer to go home with muck on his boots, so we might expect people who wallow every day in huge amounts of other people’s money to go home caked in the stuff. But actually it’s hard to make that argument for the bosses of corporations. Summarising his own research and his reading of the academic literature, Jenter, who has been studying CEOs’ pay and related issues for more than 20 years, finds no evidence that high CEO salaries are a result of malfeasance, nepotism, or bad corporate governance – those theories just don’t fit the data, he says.

CEOs’ pay really exploded over the past 40 years, a period in which corporate governance has generally markedly improved. Musk’s huge pay award at Tesla, for example, was conditional on leaping performance hurdles, all of which he sailed over. To get the full value of his package, Musk had to hit ambitious share-price targets and raise revenue and profits by many multiples. He did it. A court raised its eyebrows and blocked the payment, but when put to a shareholders’ vote, Musk’s pay package was approved. (The court was still not impressed and is insisting on its ruling.) This example applies more broadly – despite the odd revolt, shareholders generally tend to be on board with high remuneration for CEOs and are happy to pay it.

Why? Jenter has surveyed corporate boards in the UK to ask what they think would happen if CEOs’ pay was lowered. The answer? It would be bad for shareholder value. So it’s not that anyone is being coerced or tricked into paying bosses their millions. High pay is offered precisely because firms are trying to maximise value for shareholders and they think the bosses are worth it. This view finds support in the fact that, when star CEOs up sticks and move to other jobs, the move can send the stock of the spurned company down and those of their new fiefdom soaring, for example. And that is the measure of whether a CEO is doing their job and earning their money. CEOs’ pay, though lavish, does not even begin to capture the billions in extra market value created. It is, in fact, often a pretty tiny proportion of the value added. A CEO who raises the value of a $50 billion company by just 1% creates $500 million in value – a huge sum, but a fraction of the salaries CEOs typically pull in. Shareholders are happy to attribute that success largely to the CEO.

And it’s not as if anyone is claiming that CEOs have it easy. The CEO’s job is a weird and demanding one, says Jenter, quite distinct from any other. CEOs have to be a leader, with superlative people skills, inspiring the troops to work hard on the right things, dealing with reports, all the so-called “soft skills” of people management. But they also take on huge responsibilities, not least the duty to make the right call on big strategic decisions. They may only have to step up and make one or two of these in the terms that they serve, but get them wrong, and the company could be finished. Think of Nokia, once the market leader in mobile phones, that failed to adapt to a changing market and paid a heavy price; or the Intel CEO who passed on the opportunity to produce chips for the Apple iPhone as it wasn’t considered a big enough opportunity compared with that in PCs.

Add it all up, says Jenter, and it would seem there is “absolutely no evidence that CEOs are overpaid”, and rather good evidence that what they get is just compensation for a hugely difficult job with heavy responsibilities that is in actuality a very tiny proportion of the value they add.

How is a CEO's pay determined?

But this is not the only consideration, as Jenter goes on to explain. Basic economics makes two points about the factors that determine CEOs’ pay. The first says that no CEO should be paid more than their expected contribution to a firm’s value. That, as discussed above, does not seem to be happening. The second is that you are not going to be able to attract and hire a good CEO if you’re offering less than they could get elsewhere. This argument is often raised in defence of bosses’ high pay – it has to be high, it is said, because if it wasn’t the CEO would take their services elsewhere. Is this true?

For most workers, including perhaps for the money managers mentioned above, this probably generally applies. But the knowledge and skills that CEOs acquire at one company may well not transfer all that well. Plucked from one firm, where they know the culture and the processes and have the connections and the knowledge and all they need to do the job well, and parachuted into another where they don’t have or know these things, the value they can be expected to add will probably be much lower. The surplus that a CEO can bring to one firm, say $1 billion in added market value, might be only £100 million at another, where his pay should be correspondingly less. So there might well be a big gap between the two factors deciding pay – how much value is expected to be added, and what the “outside offer” is.

That this is true can be seen in the fact that when CEOs quit or are fired, they don’t typically go elsewhere and earn the same sums, but sit at home and grieve, says Jenter, and wonder whether they’ll ever work again.

Their earnings certainly go down very significantly. It also explains why more than 80% of new CEO hires are company insiders. The exceptions, where CEOs are brought in from outside, are usually in crisis situations where things have gone very badly wrong and something radical has to be tried, and preferably not by anyone associated with the old, failed strategy. And as the theories outlined here would predict, when this happens firms tend to go for superstar CEOs who have managed such turnaround situations before.

So, in reality CEOs’ pay will be a result of a negotiation over how the potential surplus the CEO can bring to that firm is to be divided out between the CEO and shareholders, bearing in mind what that CEO could earn elsewhere.

Precisely how that negotiation plays out will be very different according to a myriad of intangible factors, such as the psychology of the board and CEO, notions of fairness, and social and cultural norms. How the surplus in fact gets divided is, says Jenter, very different in Japan, Sweden and the US, for example.

In short, CEOs typically get less than the value added, but quite a bit more than the outside offer. Just how much is a matter of negotiation. The fuss about CEOs’ pay is over a problem that doesn’t exist.

There might be a better way

There are, however, problems with this argument. One is that what makes perfect sense to economists often leaves ordinary mortals confused or disgusted, or both. That fact leads economists to wonder why everyone else is so irrational and come up with new theories to explain why that is. It leads the rest of us to wonder if there might not be something wrong with a field of study that finds easy justification for things that turn our stomachs – markets for human kidneys, for example; “surge pricing” for concert tickets as a replacement for the old-fashioned and presumably completely discredited wisdom of “first come, first served”; and multi-million-pound payouts for bosses while many others in their companies are struggling to make ends meet.

It also leaves out of account relations of power, as former High Pay Centre director Stefan Stern argued in The Guardian last year.

“Without an analysis of power, it is hard to understand inequality or much else in modern capitalism,” says Nobel laureate economist Angus Deaton. It ignores the evidence that high pay for CEOs demotivates employees and is bad for companies’ reputations. It also overlooks that it’s hard to see just what contribution the CEO is making, as Stern pointed out in the Financial Times more recently. Football fans can see very clearly how well their team is playing and who is making what contribution to success or failure, he says. With CEOs, it’s much less clear. “Of course leadership matters. But in a large, complex organisation, hundreds and even thousands of people make a crucial contribution. The disproportionately vast reward for one person at the top has more in common with the realm of fairy tales than hard-headed performance management. It also flies in the face of more than three decades of debate over corporate governance.”

There might be a simple solution. If a CEO earns millions and the stock of his company goes up by billions, then the story, as we’ve seen, is that the CEO created those billions and he’s well entitled to the fraction of them he earned, as Ludovic Phalippou, a professor of finance economics at Saïd Business School, pointed out on X. But if sales suddenly take a nosedive and the shares plummet and the CEO walks out, then what? Was he skilled or not; or just very lucky, with a bit of skill? And given the huge losses he’s presided over, doesn’t he owe the company money, now that less value has been created, or maybe even lost? If the CEO is that skilled and confident in his own abilities, then why not accept a more modest wage and buy call options at the market price with his own money? If he makes out like a bandit in that way, who then would complain?

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Investors complain that complex planning rules thwart infrastructure projects. Administrative bloat is blamed for burdening the state budget. Sound like Britain? It’s not.

This is Vietnam, and the government is responding in a decidedly non-Whitehall way.

The one-party communist state is going all-out for growth, announcing sweeping reforms dubbed a “bureaucratic revolution”.

Hanoi plans to slash at least one in five civil service positions, and to abolish a quarter of government agencies. Major ministries are to be merged, says David Hutt in Deutsche Welle. The idea is for there to be more coherent government and less red tape.

How Vietnam is winning the trade war

MoneyWeek has liked Vietnam for a long time, but it has been a “sleeper hit”. While nearby Asian giants hog the headlines, the country’s consistently strong, compounding growth story has flown just below the market radar. In the mid-1980s Vietnam was one of the world’s poorest nations. Then, market-friendly reforms (known as the “Doi Moi”, meaning “renovation”) transformed the war-wrecked economy into a global manufacturing powerhouse. GDP per capita has risen more than fivefold since the mid-2000s.

Today the nation of 100 million is among the workshops of the world. Shoes and clothing produced by the likes of Nike, Crocs and Adidas increasingly bear the label “Made in Vietnam”. Electronics are booming, with Sony, Panasonic, Intel and LG all scrambling to set up factories. Korean giant Samsung alone has invested more than $22 billion building up capacity in Vietnam, says The Wall Street Journal. Today, Apple has 35 suppliers in the country, triple the number it had before Trump’s first-term trade war with China.

Vietnam was one of the major winners of the 2018 US-China trade split. Many multinationals hedged their bets by moving parts of their supply chains the short hop south of the Sino-Vietnamese border. Vietnam’s economy used to be dominated by the entrepreneurial, formerly capitalist south. The investment influx has helped the more statist north catch up. Rice paddies in once-sleepy towns near Hanoi – the seat of government – have given way to billion-dollar factories that assemble smartphones and semiconductors for the world.

Donald Trump is back in the White House, but it’s not clear that Vietnam will be a winner of a trade war re-run. Hanoi hasn’t been targeted in Trump’s first tariff flurry, but investors haven’t forgotten 2019, when he branded Vietnam “almost the single worst abuser” of US trade. The country has become a victim of its own manufacturing success. Its trade surplus with America exceeds $100 billion, the third largest in the world after China and Mexico. Trump, once he’s finished quarrelling with Canada and Mexico, is sure to notice. US unpredictability is a huge source of risk for Vietnam, says Gareth Leather of Capital Economics. A tenth of Vietnamese GDP stems from US consumption of goods produced in the country.

That said, there are reasons for optimism. Trump didn’t directly mention Vietnam on the campaign trail. He has mulled imposing a 10% “universal tariff” on all foreign imports, but that would establish a “level playing field” and wouldn’t stop Vietnam’s exporting momentum. The big risk is that Washington singles out Vietnam for higher tariffs, but there could be scope for leaders to negotiate a deal. For one thing, Hanoi could crack down on the re-routing of Chinese wares through its territory, a common strategy to dodge US tariffs, but one from which Vietnam gains little economically. Officials could also offer to buy more US soybeans, corn and Boeing aircraft to get on Trump’s good side.

Foreign investors in Vietnam are not directly exposed to much of the export economy, which is in the hands of foreign-owned (especially Korean and Japanese) multinationals. Local stocks are dominated by financials (27.5% of the MSCI Vietnam index), real estate (25%) and consumer-facing businesses (17%). But the export sector keeps the rest of the economy running, and a trade downturn would be painful for everyone.

For British investors, there are two main London-listed funds to buy into the Vietnamese growth story: Dragon Capital’s Vietnam Enterprise Investments (LSE: VEIL), which focuses on listed stocks and pre-flotation opportunities, and the VinaCapital’s Vietnam Opportunity Fund (LSE: VOF), which takes in a broader range of assets including private equity. VEIL has gained a third over the past five years, with VOF up 47%.

The local VN equity index has returned 10% over the past year, but sentiment appears shaky. In the Biden years the financial press was full of stories about the genius of Vietnam’s supple “bamboo diplomacy”, which helps it thrive by trading with different geopolitical blocs. Yet recently the tone has darkened, with headlines asking whether Vietnam will be Trump’s next target.

Domestic politics has also unnerved investors, with complex political manoeuvring seeing the country go through four presidents in three years. However, that rocky period now appears to be over, says Alexander Vuving in The Diplomat. The newly consolidated leadership has acted with “dizzying speed”, rolling out plans for new infrastructure and radical administrative reform designed to make government more efficient.

Weak sentiment makes for reasonable entry prices. “Market valuations remain attractive,” says Khanh Vu in the Vietnam Opportunity Fund’s December fact sheet. On 10.3 times forward earnings, valuations are one standard deviation below the ten-year average. Add in forecast 13%-15% earnings growth for listed companies in 2025 and you have a decent set-up for a stock market upswing – just as long as Trump doesn’t spoil the party.

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