This column generally takes a sceptical view of financial novelties and gimmicks. So my antennae have twitched in recent days at frequent mentions of Spacs, or ‘Special Purpose Acquisition Companies’, which are the latest plaything of Wall Street and could be about to go large over here. Also known as a ‘blank cheque’ company, a Spac is a stockmarket-listed cash shell that raises money with a view to merging with a real — usually hi-tech, often relatively early-stage — business seeking a fast route to listed status. Hundreds of Spacs have been created in the US since the craze began last year, many with celebrity names — sports stars, astronauts, rappers — attached to win attention.
On the positive side, Spacs have drawn more than $70 billion so far this year towards investment in high-growth companies while offering retail investors the opportunity to back propositions that might previously have been reserved for professional venture capitalists. On the negative, Spacs have also been turned into a fee fountain for investment banks, hedge funds and ‘sponsors’ involved in launching them — and targets for short-sellers who see trouble ahead. Doubters say it’s all just another exploitation of the madness of crowds disguised by high talk about ‘democratisation of finance’ — and that, as so often, it’s the small investors who will get hurt.
So should we welcome Spacs in the City, where they’re currently deterred by the Financial Conduct Authority? I refer you to Lord Hill’s ‘UK Listing Review’, published last week and praised in the Chancellor’s Budget speech, which argues that Spacs look set to become popular for UK and European companies as alternatives to conventional IPOs, and that if London doesn’t offer them a home, Amsterdam will.
Hill’s thrust — with which I’m broadly in sympathy — is that to compete globally from outside the EU, London needs a more dynamic regulatory regime that’s capable of accommodating new evolutions of finance, with appropriate safeguards, whether we like them or not. But in the case of Spacs, I’ll be curious to see if the bubble bursts before the FCA has time to open the door.
Back in 2018 I received so many readers’ complaints about poor service from BT and its Openreach broadband arm that I sent a dossier to the group’s about-to-depart chief executive, Gavin Patterson — whose office responded by trying to solve all the individual problems. When Patterson’s successor Philip Jansen arrived, it would be fair to say the number of anti-BT rants in my inbox subsided but also that the new regime seemed more concerned about shareholder value than customer satisfaction: how and when to sell off a chunk of Openreach, which is worth more than BT itself, and what to do about a steady five-year fall in BT’s share price.
Now, despite major regulatory and capital spending issues plus a large pension deficit in his pending tray, the abrasive Jansen has found time to force the resignation of his well-respected chairman, Jan du Plessis. The truth is that the privatised giant’s central legacy role in UK telecoms is a continuing problem rather than a driver of progress and the company itself looks permanently dysfunctional. A directive from the regulator Ofcom to hasten full separation of Openreach might be a first step to sorting it out.
Hedge your bet
The Scottish Mortgage investment trust run by Baillie Gifford was mentioned here in mid-January as a well-run vehicle for investors seeking ‘global spread plus stakes in the US tech-stock surge’. Its price rose another 15 per cent over the following month as punters continued to pile in, but dropped dramatically last week, back to where it was in the autumn — though that was still double where it stood a year ago. What’s going on?
Underlying the fall is a sell-off of high-growth tech stocks by big investors switching to lower-tech ‘cyclical recovery’ plays and others who are jumpy about inflation prospects, which are also unsettling bond markets. But our trusts expert Jonathan Davis tells me SMT did well to halve its huge holding in Tesla (hottest of tech stock rockets) last month, that its managers’ avowedly long-term approach remains sound, and that its shares now look ‘massively oversold’. So he’s watching for a bounce that may indeed have already begun, but adds: ‘As with any stock that has temporarily run hot on flows of dumb money, prudent investors would be wise to hedge their risk, in this case with a holding in a UK value trust such as Temple Bar or Aberforth Smaller Companies — the yings to SMT’s yang.’
I’ve just buried my lovely old golden retriever Douglas, so I hope you’ll forgive this obituary item. Two strands of thought occur. The first is advice for the hospitality trade when it reopens: attract a new crowd of customers by being as dog-friendly as the French, who welcome even hairy retrievers into their hotels and restaurants while the British sniffily exclude them. Some of my happiest episodes with Douglas were overnight stays in delightful places such as the Croix D’Or at Avranches, the Auberge du Val au Cesne near Étretat and Les Orangeries at Lussac-les-Châteaux, all worth the detour when that’s possible again. But they won’t be the same without him.
Secondly, advice for would-be puppy buyers. During lockdown, prices have almost tripled, particularly for small, decorative breeds; dognapping is rampant and sanctuaries are full of growing pups that new owners couldn’t cope with. Overall, it’s a market that looks as unhealthy as bitcoin and you’d expect me, on normal form, to tell you to avoid it. On the contrary: in terms of well-being, a cheerful canine companion — even at an inflated price — offers a richer long-term return than any comparable lifestyle investment. As we always say here, do your own research; but in this case, buy and hold.
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