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‘Best of British’ stocks and where to find them



“Be fearful when others are greedy, and greedy when others are fearful.” Applying Warren Buffett’s investment adage to the UK, most investors have been firmly lodged in the “fearful” camp for a long time.

The UK market has suffered pariah status for years now, chalking up big outflows since 2016. But 2020 was a particularly brutal year for a deeply cyclical market that was heavily weighted to services and the sectors hardest hit by Covid-19, including airlines, media, oil and aerospace. Nonetheless, the “do not touch with a barge pole” status of the UK looks increasingly hard to justify, for a number of reasons.

There is the obvious attraction of price. The UK is cheaper relative to global shares than it has been for at least 25 years. Since 2016 it has gone from being slightly more expensive versus the MSCI World index to trading at a significant “Brexit discount”. With some of this uncertainty now out of the way, investors can focus on the UK’s advantages: political stability (no election for more than three years), an independent and flexible central bank and relatively manageable government debt.

The investment thesis of 2020 was one of lockdowns tilting the economic playing field in favour of technology-enabled companies. This accelerated a trend that had been in place for several years: the outperformance of “growth” stocks (typically associated with digital business models) over “value” stocks (typically associated with “old economy” companies).

If the deployment of vaccines proves successful, the market backdrop could very quickly change in favour of those companies benefiting from a reopening of the economy, and, in general, support more cyclically sensitive stocks, which tend to be well-represented in value indices. As a market exposed to these value sectors, the UK stands to be one of the biggest beneficiaries of vaccines and the subsequent (and much anticipated) style rotation from growth to value stocks.

However, for value to outperform growth, economic activity will need to come back with a bang. This could happen in theory, but it is worth remembering that value sectors, such as banks and the oil and gas industry, are cheap for a reason given the long-term structural challenges they face.

A balanced approach between the two styles will be the prudent approach. We may be on the return to “normal”, but since nobody really knows what normal will look like, investors will be well-placed to rethink their view of defensive holdings.

“During the pandemic, classic defensives like alcohol and cigarettes, stalwarts of the FTSE 100, have not delivered. However, some of the ‘new utilities’ like cloud-based telephony systems have proved their resilience,” argues Alexandra Jackson, manager of the Rathbone UK Opportunities Fund.

If you want to buy the new “best of British”, where are you likely to find these winners? While the UK is not known for its high-growth, high-return tech darlings, it does shine when it comes to the nuts and bolts behind the world’s most prominent tech companies.

Most retail investors will probably never have heard of these UK-listed companies. They are not big brand names, but they play a big part in enabling their customers’ success.

Last week we heard that Bristol-based chipmaker, Graphcore — a company hoping to power a new era of artificial intelligence — had secured $222m in fresh funding in an investment round that values it at $2.8bn, a good example of the untapped potential of the so-called “supporting actors” in the big tech screenplay.

As an investment theme, digitisation will continue to run, given the changes wrought by the pandemic. Companies that scrambled to service customers or help employees work safely from home have pushed IT requirements up the priority line.

Ms Jackson points to businesses such as Gamma Comms, Softcat and — a recent IPO — Bytes Technology, which help medium-sized businesses with their software and hardware needs. Kainos and FDM provide consultants and contractors to corporations and the government to help them with their IT challenges. Draper Esprit is a listed venture capital company offering investors exposure to some of the most exciting private technology companies before they go public — companies such as UI Path, Trustpilot, Revolut and Cazoo.

The property sector typically benefits when interest rates fall as funding becomes cheaper, but Covid-19 drove a further wedge between different parts of the property market. Office and retail have been hard hit, not least the giant real estate investment trust (Reits) that have supported income funds for many years. Logistics and warehousing are now taking up the baton.

Other sectors dubbed tomorrow’s “Best of British” by UK fund managers include sustainability, IT, engineering, video games, speciality finance and logistics.

Finally, don’t discard Britain’s Aim market. There are the familiar names such as Asos, a clear beneficiary of the move to online shopping, and less well known companies such as Frontier Developments, a video games developer, and Bushveld Minerals, a producer of vanadium — a metal with characteristics that position it strongly in the steel, alloys and chemicals sectors and (playing to the sustainability theme) a key component in flow batteries., another Aim listing, is held by Leigh Himsworth, manager of the Fidelity UK Opportunities Fund, on the grounds that once the boomer generation have had their jabs, they will be back on a plane to Spain.

Many of the growth companies listed on Aim don’t pay a dividend, which might be a bitter pill to swallow for income-hungry UK investors. However, dividend cuts last year demonstrated the benefits of a total return approach. If you invest for the long term, why hold BP or Shell if the yield is in the line of fire and the industry is in structural decline?

Likewise, a position in Lloyds Bank would have chipped away at your capital over the past few years and you would have needed a very handsome yield to plug the gap. Move one tier down and you find asset managers and wealth managers like Liontrust, Mattioli Woods and Brooks Macdonald, which are well priced, offer reasonable yields and should perform well with stimulus and a recovery.

Even the fearful will concede that the best of British do exist. It’s just that they are in some less familiar places.

Maike Currie is an investment director at Fidelity International and former financial journalist. The views expressed are personal. Email:; Twitter: @MaikeCurrie; Instagram: maikecurrie

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Hasty, imperfect ESG is not the path for business




The writer is a global economist. Her book ‘How Boards Work’ will be published in May

Good environmental, social and governance practices take a company from financial shareholder maximisation to multiple stakeholder optimisation: society, community, employees. But if done poorly, not only does ESG miss its sustainability goals, it can make things worse and let down the very stakeholders it should help.

To be sure, the ESG agenda should be pursued with determination. But there are a number of reasons why it threatens to create bad outcomes. The agenda is putting companies on the defensive. From boardrooms, I have seen organisations worry about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital. Yet innovation is the most important tool to address many of the challenges of climate change, inequality and social discord.

Pursued by $45tn of investments, using the broadest classification, ESG is weighed down by inconsistent, blurry metrics. Investors and lobbyists use different evaluation standards and goals, which focus on varied issues such as CO2 emissions and diversity. Metrics also depend on business models.

Without a clear, unified compass, companies that measure themselves against today’s standards risk seeming off base once a more consistent regulator-led direction emerges (for example, from worker audits, the COP26 summit and the Paris Club lender nations).

ESG is not without cost and the best hope for long-term success lies with business leaders’ ability to stay attuned to its impact and unintended consequences. For example, while the case for diversity is incontrovertible, efforts at inclusion should account for the possible casualties of positive discrimination.

Furthermore, despite ESG advocates setting a strong and singular direction for governance, organisations have to maintain their operations and value while managing assets and people in a world where cultural and ethical values are far from universal. While laudable, a heightened focus on ethics (such as human rights, environmental concerns, gender and racial parity, data privacy and worker advocacy) places additional stress on global companies.

It is often asked if advocates appreciate that ESG is largely viewed from the west’s narrow and wealthy economic perspective. To be truly sustainable, ESG demands global solutions to global problems. Proposals need to be scalable, exportable and palatable to emerging countries like India and China, or no effort will truly move the needle.

Much of the agenda is too rigid, requires aggressive timelines and lacks the spirit of innovation to achieve long-term societal progress. Stakeholders’ interests differ, so ESG solutions must be nuanced, balanced and trade off speed of implementation against the breadth and depth of change.

Business leaders are aware of the need for greater focus and prioritisation of ESG. We also understand that deadlines can provide important levers for senior managers to spur their organisations into action. After all, in the face of pressure for a solution to the global pandemic, vaccines were produced in months instead of the usual 10 years.

I live at the crossroads of these tensions every day. Raised in Africa, I have lived in energy poverty, and seen how it continues to impede living standards globally. As a board member of a global energy company, I have seen much investment in the energy transition. Yet from my role with a university endowment, I have also been under pressure to divest from energy corporations. 

Business leaders must solve ESG concerns in ways that do not set corporations on a path to failure in the long term. They must have the boldness to adopt a flexible, measured and experimental agenda for lasting change. In this sense, they must push back against the politically led narrative that wants imperfect ESG changes at any cost.

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UAE’s Taqa seeks to shine with solar energy push




From a distance, the 3.4m panels making up the United Arab Emirates’ largest solar power plant look like a massive lake.

But Noor Abu Dhabi, nestled between camel farms and rolling sand dunes, is no mirage. The 1.2 gigawatt facility — the world’s largest single-site plant — produces enough electricity for around 90,000 homes. Owned by Taqa, an Abu Dhabi state-backed utility, with Japan’s Marubeni and China’s JinkoSolar, it will celebrate its second anniversary of operations this month.

Staff constantly scan for repairs so production can be maximised during daylight hours, while every evening more than 1,400 robotic cleaners wipe the dust from the banks of solar panels to boost efficiency.

Noor and another Taqa project — an even larger 2GW solar plant under construction in Al Dhafra, nearer the capital — are emblematic of the company’s ambitions to recast itself as a force in clean energy.

It has outlined a new sustainable strategy with a goal for renewables to form 30 per cent of its energy mix, compared with 5 per cent now, and plans to boost domestic power capacity from 18GW to 30GW by 2030. It will set itself a carbon emissions target later this year.

“We want to transform Taqa into a power and water low-carbon champion in and outside the United Arab Emirates,” said Jasim Husain Thabet, chief executive of the power provider, which is majority owned by government holding company ADQ and listed on the emirate’s bourse.

Renewable sources account for a small part of the UAE’s energy supply

Taqa’s push into renewables is a key element of the UAE’s ambition to have clean energy form half of its energy mix by 2050, with 44 per cent from sources such as wind and solar and 6 per cent from nuclear power.

Last year, the oil-rich emirate had 2.3GW of renewable energy capacity, or seven per cent of the power production mix, mainly from solar power, according to Rystad Energy, a research firm. It forecasts that the UAE is on track to reach its 44 per cent target by 2050.

Although many Gulf governments have targets to boost solar and wind power, the UAE has been out in front.

The Al Dhafra plant is expected to boast the world’s most competitive solar tariff when complete. The facility, a joint venture with UAE renewable pioneer Masdar, EDF and JinkoPower, plans to power 150,000 homes when it comes online next year, reducing the country’s carbon emissions by the equivalent of taking 720,000 cars off the road.

“This is about being a good citizen,” said Thabet. “But it is also attractive for global investors keen on environmental sustainability, it fits in with our main shareholder’s priorities and brings down financing costs.”

Yet Taqa’s sustainability pitch could fall flat with investors scrutinising environmental concerns.

Taqa has committed to capping production at its overseas oil and gas assets, which span fields in Canada, the North Sea and Iraqi Kurdistan. But although it has not ruled out selling the hydrocarbons assets that it bought during a spending spree in the 2000s, divestment is not imminent.

“If the right opportunity comes we will consider it, but right now our focus is on enhancing operations and reducing emissions,” Thabet said.

The UAE, a leading oil exporter and member of Opec, is also committed to increasing its crude oil capacity in the coming years. The country is working towards reducing greenhouse gas emissions, but still has one of the highest per capita carbon footprints in the world.

But Mohammed Atif, area manager for the Middle East and Africa at DNV, a renewables advisory firm, said the UAE, like other major oil and gas producers such as Norway and the UK, are working for a more sustainable future. 

“Yes, the roots and history of the UAE are grounded in hydrocarbons, but they are aware of the challenge of climate change,” he said. “It is a transition, not a revolution, and that takes time.”

US special presidential envoy for climate John Kerry: ‘There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis’ © WAM/Handout via Reuters

John Kerry, the US special presidential envoy for climate, visited the Noor plant while attending a regional climate change dialogue in Abu Dhabi earlier this month, saying such “incredible energy projects” would “set us on the right path” to achieving the Paris Agreement goals that aim to limit global warming.

“There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis,” he said in a tweet. 

At the same time, Taqa is eyeing opportunities to expand in renewables beyond the UAE. Last year it merged with Abu Dhabi Power Corporation, creating an integrated utility company with ADQ owning 98.6 per cent.

The government is expected to increase the free float via a share offering, Thabet said, declining to provide further details.

With exclusive rights to participate in power projects in Abu Dhabi over the next decade, the company is now mulling how to leverage that guaranteed cash flow abroad.

Thabet said the company would focus on projects and investments that burnish its sustainable credentials. It wants to build 15GW of power capacity outside the UAE. The group currently produces 5GW internationally, including 2GW in Morocco.

“We believe in solar and [photovoltaic] projects, so we will focus on that — but if there is an opportunity outside the UAE, such as onshore or offshore wind, then we will explore that,” he said. Taqa would also consider investing in international renewables platforms to reach its targets, he added.

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Chinese regulators fine Alibaba record $2.8bn




Chinese regulators have fined Alibaba a record Rmb18.2bn after finding that the ecommerce group had abused its market dominance.

The $2.8bn penalty, which was set at 4 per cent of Alibaba’s 2019 revenues, concludes an antitrust investigation into the company founded by Jack Ma. It comes as Chinese authorities have stepped up scrutiny on dealmaking and anti-competitive practices in its once lightly regulated technology sector.

The market regulator said that since 2015 Alibaba had forced merchants to sell exclusively on its Tmall and Taobao online shopping platforms.

Alibaba used its “market position, platform rules and data, and algorithmic methods” to put in place rewards and punishments for its “choose one of two” policy, the regulator said on Saturday.

In November, Chinese authorities suspended the $37bn initial public offering of Ma’s Ant Group, Alibaba’s payments and lending sister company, at the last minute.

Previously, the country’s competition regulators had focused mostly on traditional industries at home and on foreign companies. It imposed a then-record fine of $975m in 2015 on US chip-design group Qualcomm, which equalled 8 per cent of its China revenues. By law, China’s antitrust fines can be set as high as 10 per cent.

But last November, regulators started drawing up the first antitrust measures to cover the online platforms that have become China’s most valuable companies.

The State Administration of Market Regulation ordered Alibaba to “carry out a comprehensive rectification” drive on its platform, to strengthen its legal controls and compliance. It gave Alibaba 15 days to submit a report detailing changes to its “illegal behaviour”.

Alibaba said it “sincerely accepted” the penalty.

“It is an important action to safeguard fair market competition and quality development of internet platform economies,” the company said. “It reflects the regulators’ thoughtful and normative expectations.”

Alibaba added that it would strengthen compliance, improve its systems and ensure an open and equitable operating environment for its merchants.

Analysts said the fine alone would not significantly affect Alibaba’s operations. It had $48bn of cash on its balance sheet at the end of 2020 and earned $24bn in net profit last year.

The more significant part of the penalty, said Li Chengdong, chief executive of Dolphin Think Tank, was the fact that Alibaba had been found guilty of serious abuses, meaning it would be more likely to yield in future regulatory disputes over tax and counterfeit goods.

“Whereas Alibaba used to have a strong, assertive stance with regulators, now it will be on the back foot,” said Li.

Chen Lin, assistant professor of marketing at China-Europe International Business School, noted that the antitrust case had been “settled through money without really changing its monopolistic position”. Much as in the EU and US, there was little consensus over how Chinese regulators would break up huge companies like Alibaba.

Robin Zhu of Bernstein Research said that while the market may read the fine as the “worst is over” moment for Alibaba’s shares, the longer-term and larger issue was growing competition in ecommerce.

Alibaba’s biggest challenge comes from fast growing rivals. Upstart Pinduoduo overtook its annual shopper count last year, with 788m people buying on its platform ahead of Alibaba’s 779m. 

A Chinese antitrust lawyer, who asked to remain anonymous, said the fine “was meant to teach Alibaba ‘don’t think you can do whatever you want’, but [would] not materially harm the business”.

He noted the penalty was not as large as it could have been and was limited to Alibaba’s ecommerce operations, rather than its other industry-spanning operations.

Alibaba has in recent years bought up everything from supermarket chains to home furnishing retailers, giving it a share of about one-fifth of China’s total retail sales.

Food delivery group Meituan has taken market share from Alibaba’s and is pushing into ferrying all types of goods from shops to consumers — another challenge to Alibaba’s ecommerce dominance.

While the penalty marks the end of the government’s antitrust scrutiny of Alibaba, Ma’s other interests remain under pressure. Authorities have yet to announce formally a deal for Ant’s restructuring and have suspended new enrolment at Ma’s elite business school.

The Communist party’s People’s Daily newspaper said the punishment reflected a “normative correction for the company’s development, a clean-up and purification of the industry environment, and a strong defence of fair competition”.

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