The bad news for many private investors is that most of the major listed UK banks are suspending dividend payments, even ones already announced. This is after they received a letter from the Bank of England requesting that they do so. The dividends are unlikely to be resumed before the end of the year. This is surely a prudent measure as the banks will undoubtedly have many requests for loans from companies to tide them over the virus crisis, while other companies will default on loans already made. Bank balance sheets are always on a knife edge which is one reason I don’t hold shares in them.
Another investor who does not invest in banks is Terry Smith of Fundsmith. He has just published a letter to investors about the year to date performance of his Fundsmith Equity Fund. It is down only 7.9% when the fund’s benchmark MSCI World Index is down 15.7% and the FTSE-100 is down 23.8%. See www.tinyURL.com/tfjuzno for more information. As I hold the Fundsmith fund, it’s probably made my portfolio performance better than it otherwise would have been as a number of small cap stocks I hold and investment trusts have fallen further. I have not been selling the Fundsmith Equity Fund so that may be one of the few wise decisions made of late.
Terry Smith’s has another go at “value stocks” in his letter. He says they don’t protect you in a market downturn mainly because they are lowly rated for good reason. They are often cyclical, highly leveraged, have poor returns on capital or face other challenges. He could be referring to banks!
Another wise comment he makes is “What will emerge from the current apocalyptic state? How many of us will become sick or worse? When will we be allowed out again? Will we travel as much as we have in the past? Will the extreme measures taken by governments to maintain the economy lead to inflation? I haven’t a clue.” Comment: I don’t either, but like Terry I believe that investing in good businesses remains the best strategy.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )