Advertising Feature Continued Part of our value proposition is to invest in businesses that may not be quite so obvious or wellknown to the world. Philosophically, we believe that is much more likely that we will unearth long-term investment successes that way, rather than investing in businesses that are already well-known and popular. It goes without saying that Google is a fantastic business, as is Facebook and several of these other successful listed technology businesses. These companies are already well-known to most people and engagement with their products and services is extremely high - we interact with them daily. However, our biggest concern with these stocks is their narrow leadership of the market, which is typically associated with elevated prices and bubble-like characteristics in the marketplace. Meanwhile, one of the biggest current risks that we think investors must think very carefully about is the role that regulation may play in changing profit and valuation dynamics going forward. This goes hand in hand with the rather weightier question about who is going to pay for the COVID policy response. The ongoing liquidity stimulus and massive fiscal packages do not come free of charge. How do you think governments will pay for that policy response? Clyde: Broadly speaking, governments have only one primary source and that is taxation. You dont need to be a rocket scientist to know that, at some point in time, tax rates will have to increase. We also know that we are living in a world which is increasingly unequal - the gap between the multi-billionaires and the man on the street is widening, not narrowing. Meanwhile, governments are seemingly wanting to be a little bit more pro-socialist in their policies. There is also an opportunity to raise funds through fines as a form of fiscal equivalent. If I were tasked with raising a few extra billion I know where I would look. There are obvious targets in companies that are very large, have extraordinarily high cash balances and have not been paying their fair share of tax. The large multi-national businesses that have flown below the radar of the tax authorities could be attacked by governments with hefty fines, and I dont think this would be met with a huge amount of resistance. We are living in a world which appears to be increasingly keen to demand this additional pound of flesh. We are mindful of this risk when building our portfolios. When are you anticipating a return to normality for dividends? Abrie: At one stage early last year, an extreme scenario was being discussed in some corners of the market in which dividends were expected to disappear completely. Thankfully, that didnt materialise and what transpired provided a timely reminder about the resilience of dividends and why companies that pay and steadily grow a sustainable dividend will outperform over time. From a global perspective, dividends were down about 13% in 2020, which is a much better outcome than many had feared. There were also some meaningful regional differences in dividend performance. In the US, you could argue that dividends are already back to normal because distributions actually grew last year. Share buybacks have been increasingly popular in the US over the last decade, and businesses tended to manage the crisis by suspending buybacks first, so dividend payments were quite robust. If you contrast that with the other side of the Atlantic, in the UK dividends declined by more than 30% in 2020 and about half of European companies suspended or cut their dividends. So, these regional differences once again highlight the importance of being selective. Looking specifically at our income portfolios, we expect distributions this year to be ahead of 2019 levels. Thats because most of the companies we have invested in are cash rich and they were not dramatically hurt by the pandemic. For example, Procter & Gamble just announced a dividend increase of 10%, on top of the 4.4% dividend growth last year. Are you concerned about the return of inflation? Clyde: Inflation is already evident practically everywhere except in the official consumer price inflation (CPI) data. Financial asset prices are high across the board and there are also lots of signs of inflation in commodity markets. So, we think that inflation is alive and well, but it is not something we are too concerned about. The companies into which we are interested in investing tend to have pricing power, which means they can raise prices in response to inflation. The more advantaged a business is in terms of its business model, the more it can be effective in its ability to raise prices across the board, and therefore, still price its products or services ahead of whatever the broader inflationary forces are. How do you view the cryptocurrency story? Clyde: Blockchain - the fundamental technology behind bitcoin and its peers has enormous potential. But there are more than 5,000 individual cryptocurrencies now and many of them will ultimately be worth zero. The proliferation of cryptocurrencies is not dissimilar to the dotcom bubble of 2000, where we had a whole host of internet businesses come to the market before eventually going bust. Although the end appears clear to us, it is exceedingly difficult to work out how we get there. Partly, that is because nobody appears to know what a Bitcoin is actually worth. This makes a decision easy for us because, philosophically, we cannot invest in things we cant value. For many crypto followers, their currency of choice has value because it is perceived to be limited in supply. But the fact that you can create seemingly endless numbers of different cryptocurrencies suggests that this limited supply argument is false. The fact that cryptocurrencies are not controlled by some central entity is interesting, as is the desire to fly under the radar of financial regulation. The whole space is particularly fascinating but in terms of being able to invest in it with a high degree of integrity, I am not convinced. Just because something has gone up a lot, does not necessarily mean it has intrinsic value. I would encourage people to look at the South Sea bubble and other historic episodes of market mania, to see that sometimes you can make a lot of money but not create value. I fear there are a lot of similarities between these periods of financial history and cryptocurrencies today. Ninety-One is a fund manager for St. Jamess Place. Where the views and opinions of our fund managers have been quoted these are not necessarily held by St. Jamess Place Wealth Management or other investment managers and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forcast, research or advice. Set course for Jamie Lewington & Company Ltd is an Appointed Representative of and represents only St. Jamess Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the groups wealth management products and services, more details of which are set out on the groups website www.sjp.co.uk/products. Jamie Lewington & Company LTD