Horrific events in the Middle East will have profound and unpredictable effects on global stock markets in the days and weeks ahead. Here and now, bad news shows why investors should always keep a beady eye on our own individual objectives - and why it is never too soon to take a profit.
For example, it is more than 12 years since I first invested in what is now known as Ecofin Global Utilities & Infrastructure (LSE:EGL), so no one can accuse me of short-term speculation. But I am jolly glad I sold some shares in the self-descriptive investment trust this summer before valuations fell victim to violence in Israel and the Gaza Strip - among other adverse factors.
Since you ask, my immediate objective was to repay a fixed-rate mortgage, originally taken out to help buy a cottage on the coast five years ago, before today's much higher interest rates hit homebuyers’ costs in January. So, without taking any view on the short-term outlook for EGL, I sold a five-figure chunk of stock at 186p per share in August.
This was part of a wider, profit-taking exercise, which included selling some of all my top 10 holdings. I then - as now - believed there is never a bad time to turn paper profits into real ones.
As all these shares were held in my self-invested personal pension plan (SIPP), there were no fiscal implications - apart from an eye-watering 45% income tax charge on the funds withdrawn from that SIPP. This made paying off a six-figure mortgage debt an even more sobering experience than it might otherwise have been.
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But, to put it mildly, I do not expect next year’s general election to produce a government that reduces taxes on savers and investors. All politicians seem to think they need our money more than we do. So, I believe it makes sense to consider grasping the nettle now, rather than waiting for the fiscal pain to become even worse.
Most immediately, with EGL trading at 150p this week, I am glad I did not dither or hang on to the shares in the hope they might continue to rise before the mortgage must be repaid next January. To put the above in context, I first invested in what was then called Ecofin Water & Power Opportunities (EWPO) at £1.22 in March, 2011. Then, more heavily, in what had become EGL in September 2019 at £1.52 per share.
Now here's the funny thing. I remain optimistic about EGL and believe the current downturn will prove temporary. Higher interest rates on supposedly “risk-free” deposits have hurt infrastructure valuations but that market trend does not reflect the possibility that rates have peaked or the fact that bank or building society accounts fail to protect the real value or purchasing power of cash against inflation.
Never mind what I think, here’s how the EGL fund manager Jean Hugues De Lamaze regards its recent fall from fashion: “For some investors, EGL may have been a bond or money market proxy while interest rates were meagre. Possibly it will take time to regain those shareholders.
“For many, National Savings & Investments’ 6.2% offering will seem a good place to park cash while markets are tricky and adjusting to a higher rate environment. But 6.2% is barely a positive real rate of return.
“EGL’s shares are offering a 5.4% yield currently, and can be bought at a 19% discount to net asset value (NAV) which has already come down, with the market discounting more difficulty than the reality for our portfolio’s companies. A 19% discount applied to the NAV of a highly liquid portfolio valued daily feels more like a capitulation than a valuation.”
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Cynics may scoff that he would say that, wouldn’t he? But analyst Iain Scouller at stockbroker Stifel tended to agree. He said: “EGL has de-rated in line with the private finance initiative (PFI) infrastructure and renewable projects funds but a key difference is that it invests solely in listed equities and, trading on a 19% discount, we think it offers some value.
“While the jump in interest rates has been painful for this sector, there is scope for some positive re-rating once global interest rates move beyond the peak. We think this trust could perform relatively well in such a scenario, plus portfolio companies are continuing to see good opportunities to invest in the energy transition.”
That last point reminds me why I invested in what was then EWPO a dozen years ago and remain onboard EGL now; a desire to do well by doing good, investing some of my money in making a positive difference.
So, despite all the bad news today, I remain hopeful there might be good opportunities tomorrow or in the immediate future. That includes the possibility of topping up EGL at even lower levels than current prices, depending on events in the Middle East. But we should be careful what we wish for.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
Ian Cowie is a shareholder in Ecofin Global Utilities & Infrastructure (EGL) as part of a globally diversified portfolio of investment trusts and other shares.
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