Venture Capital Trusts (VCTs) have been instrumental in fostering entrepreneurship across the UK since their inception in 1995. These funds provide tax-efficient investment opportunities for individuals while channelling essential capital to early-stage innovative businesses.

The past few years, however, have tested the resilience of VCTs and their portfolios. Rising inflation, interest rate hikes, and political instability have created a challenging environment for the growing companies backed by VCTs.

Despite these challenges, the most recent Budget underscored VCTs as a means of revitalising the UK economy. This endorsement by the Labour government could prove to be a pivotal moment for the sector.

Reanimating VCT fundraising

The VCT fundraising landscape has evolved significantly, shaped by both macroeconomic pressures and changing investor expectations.

Investors remain drawn to the tax benefits of VCTs, which include up to 30% income tax relief on investments of up to £200,000 per tax year, provided shares are held for at least five years. Dividends are also tax-free, and any capital gains realised upon selling VCT shares are exempt from capital gains tax.

See also: Edison: Saba’s ‘sub-par corporate governance’ is breaching FCA rules

These incentives have made VCTs particularly appealing to IFAs advising clients on tax efficiency. But at the same time, uncertainty brought on by high inflation and interest rates has prompted greater scrutiny, with IFAs and individual investors conducting more rigorous due diligence. 

This translates to heightened interest in fund performance and the resilience of underlying companies. Investors are not only seeking growth but also assurance that their capital is being deployed into businesses capable of navigating economic turbulence.

Over the last couple of years, the higher interest rates and stagnant economic environment have created new challenges for the growth companies that VCTs look to back. These conditions have required fund managers to refine their approach to identifying and assessing potential investments.

See also: ‘Strap in’: Trump returns to questions on tariffs and inflation

In today’s climate, VCT managers place an even greater focus on understanding how companies can weather economic challenges and adapt to evolving market conditions.

Restaurant chain Farmer J, which joined the ProVen VCTs’ portfolio in early 2024, exemplifies this. The brand closed all its restaurants during the first lockdown but quickly adapted by reopening its sites to serve home deliveries and continue trading despite an empty city. Since then, the chain has added three new sites and grown revenues – by backing businesses with proven resilience, managers can build portfolios prepared to thrive in uncertain times.

The cautious optimism in the market is reflected in the £882m raised by VCTs in the 2023/24 tax year – the third-highest figure on record – as well as the significant fundraises already delivered in the latest tax year by the likes of the British Smaller Companies VCTs and Mobeus VCTs.

Encouraging signals from the Budget

The Autumn Budget of 2024 reinforced the government’s support for VCTs, with the Chancellor highlighting their role in supporting entrepreneurship.

This followed the earlier extension of the sunset clause for VCT and EIS schemes to April 2035 – a decision that provided much-needed certainty about the future of VCTs for fund managers and investors alike.

It also reaffirmed the government’s commitment to maintaining the tax benefits of VCTs while introducing tax increases in other areas, such as higher capital gains tax rates. These changes have enhanced the tax appeal of VCTs, sparking renewed interest among high-net-worth investors seeking shelter from rising taxes. 

See also: PA Live A World Of Higher Inflation 2025

Moreover, the government’s commitment to innovation was evident in the £20.4bn allocated to research and development (R&D) for the year. This investment aligns with the mission of VCTs, creating fertile ground for portfolio companies in high-growth sectors such as healthtech, climatetech, and artificial intelligence.

These policy measures reflect the Government’s recognition of growth companies – including those backed by VCTs – as vital drivers of economic growth.

Yet, fund managers must remain vigilant, ensuring investments contribute meaningfully to this broader agenda while still delivering returns for investors.

Resilience and opportunity

The VCT sector’s 30-year history demonstrates an ability to weather economic downturns and emerge stronger.

From the dot-com crash of the early 2000s to the 2008 financial crisis, periods of upheaval have tested VCTs, but also revealed their potential. Businesses that pivot, embrace technology, or address societal challenges can thrive amid downturns, creating opportunities for bold, innovative companies.

See also: RBC’s Justin Jewell resurfaces at Ninety One

Today, we find ourselves at a similar inflection point. Rising interest rates and inflation present undeniable challenges, but they also create opportunities for disruptive technologies and resilient business models.

For VCTs, the alignment between government policy and their mission is encouraging. Potential lies in supporting entrepreneurs who are not just navigating adversity but turning it into opportunity.

The journey ahead for VCTs continues to be one of resilience and innovation. With economic headwinds come challenges, but also a renewed sense of purpose. This could be a moment to drive meaningful growth, both for investors and the broader UK economy.

Siddiq had referred herself to the ministerial standards watchdog last week after allegations that she had lived in properties paid for by the Bangladeshi government.

The properties were alleged to be linked to her aunt, the former Bangladeshi prime minister Sheikh Hasina, who fled the country after her resignation last August.

Siddiq, whose roles include the City and anti-corruption minister, said when she referred herself to the watchdog last week: “I am clear that I have done nothing wrong. However, for the avoidance of doubt, I would like you to independently establish the facts about these matters.”

She is accused of owning multiple properties purchased by people linked to her aunt’s party, the Awami League, including a flat in King’s Cross flat that was bought for £195,000 in 2001, according to the Financial Times.

The global commodity market faces an of challenges that could influence its volatility, such as new Trump presidency in the US, ongoing tensions in the Middle East, and natural disasters across the coasts of Mexico and North America.

However, there is also another factor that is probably the most underestimated one — the evolving economic deterioration of China. So why and how exactly is China influencing the commodities market, and what changes can we expect in the near future?

China’s economy has peaked

China has long been considered one of the biggest world economies, but today’s forecasts are not bright anymore — many analysts think the country’s economic peak already passed in 2021.

The main reasons behind this phenomenon is excess production capacity, a downturn in the housing market, and low consumer activity. All together, they will continue to put pressure on prices.

As a result, China’s consumer prices showed no growth in September, with a year-on-year increase of just 0.4%. Core inflation, excluding volatile energy and food prices, slipped to a modest 0.1%, marking a clear sign of a broader economic slowdown.

See also: Is China at a turning point, or will it disappoint yet again?

This also coincides with China’s cheap labour resources nearing exhaustion, an increase in youth unemployment, an ageing population, and may countries in Europe and the slowing down imports their imports of Chinese goods.

The Chinese government is working to manage these changes, yet the situation remains challenging. And without further stimulus, China risks falling into a prolonged period of deflation similar to Japan’s experience in the 1990s.

These incentives will most likely be further increased in order to avoid the Japanese scenario and provide a gradual slowdown in economic growth to about 3.5 to 4.5% per year over the next three to five years.

China’s economy drives commodity markets

Economic shifts in China have a direct impact on global commodities. The country remains the world’s largest importer of key resources such as oil, and any changes in its purchasing behaviour are reflected in global markets.

The volume of China’s oil imports amounts to 11 million barrels per day, which is only slightly below the level of September last year and corresponds to the average figures for the last months. Overall, import volumes remain stable.

However, the average price of imported oil in September decreased as worries about demand from China pressured market sentiment. The oil price has since surpassed $60 per barrel.

See also: Fairview’s Yearsley: China becomes ‘story of September’

As for energy, it remains one of the key components of the Chinese economy. Despite the aforementioned economic hurdles, China has executed strategic adjustments to its energy sector that may soften its economic landing. From 2022 to 2024, the country managed to cut energy costs per unit of GDP by 5–15%.

The decrease occurred due to a few reasons. The first is linked to cheaper purchased resources since China mainly imports resources from countries in difficult economic conditions and offers them discounts of up to 30% relative to market prices.

Secondly, the country has modernized its own energy system, which has increased its efficiency and lowered prices.

How should investors adjust their strategies?

Faced with the problems within the Chinese economy, investors should pay attention to new opportunities in other regions and sectors.

It is worth looking at American companies, especially in promising areas such as energy, artificial intelligence, robotics, and big data. They are likely to increase their output, which also opens up new investment opportunities.

Indian and Mexican companies that can replace Chinese manufacturers in global consumer markets may also be promising. These two countries are actively developing their production facilities and becoming key alternative production centres.

At the same time, it is important to monitor the large volume of natural resources that China exports and look for alternative suppliers. This will help prepare for possible restrictions on Chinese exports or the introduction of export duties.

Some investors are already moving away from Chinese assets and switching to more reliable instruments such as gold or US bonds, with foreign direct investment in China turning negative for the first time since 1998. 

Reeves raised an extra £40bn in revenue for the government through tax rises and announced a £70bn increase in spending on public services and infrastructure in her first Budget.

But measures as bold as these will not be needed again, she told the Committee yesterday, stating that the government have “drawn a line under the chaos and instability of the last few years”.

See also: Autumn Budget 2024: Ten key takeaways

“We’ve drawn under that now,” Reeves said. “There’s been a reset that means our public finances are now on a firm footing and the trajectory of public spending is much more honest.

“So we’re never going to have to do a Budget like this again. This was a once in a Parliament reset so that we start on the right foot.”

Gilt yields rose in the wake of Reeve’s sizable Budget – although AJ Bell investment director Russ Mould said they have everywhere, suggesting there is “a wider issue at work” globally – so she reassured the Committee that such sizable tax hikes will not be repeated.

See also: Autumn Budget 2024: Capital gains tax hiked to 24% in ‘blow for investors’

“In terms of whether we’ll be doing something similar in the future – no,” Reeves said. “This was a Budget of reset.

“We’re not going to be coming back with more tax increases, or indeed more borrowing. We now need to live within the means we’ve set ourselves in the budget and those allocations of spending totals.”

Could Trump derail Reeve’s growth plan?

Reeve’s also unveiled the Office for Budget Responsibility (OBR) latest forecasts during last week’s Budget, which predict positive economic growth over the next few years, including a 2% increase to GDP in 2025, and another 1.8% in 2026.

But the election of Trump could spoil these figures, according to the National Institute of Economic and Social Research (NIESR), who said his 10% tariff on all US imports could halve UK GDP.

Reeves said she would negotiate with Trump ahead of his inauguration next year and was “confident those trade flows will continue under the new president,” but members of the Committee questioned whether it was “realistic to influence a president who is so set on a course that is so well defined”.

See also: How will Trump’s tariffs impact markets?

Reeves responded: “I think it is too early to start making changes to forecasts for our economy because of the election of a president in the United States, but I would say this – our trading relationship and economic relationship with the United States is absolutely crucial.

“The US are our single biggest trading partner. Trade between our two countries is around £311bn a year, so of course our relationship is crucial and our special relationship obviously goes much beyond trade for our security and defense.”

Industry spokespeople such as IBOSS CIO Chris Metcalfe said Trump’s isolationist levies against the rest of the globe could lead to a trade war that “further dismantles the globalization narrative,” but Reeves said she will do all she can to convince the new president of the importance of free trade.

“We’re not just a passive actor in this. It’s a trade relationship with the United States and we will make strong representations about the importance of free and open trade not just between ourselves and the United States, but globally,” Reeves added.

“I am optimistic about our ability to shape the global economic agenda as we have under successive government.”

See also: Knacke’s money maps: Shine on?

Japanese fertility rates first dropped below the 2.1% threshold – the level required to maintain a stable population (in the absence of immigration) – in the 1960s. In Europe, it fell below this level by the 1980s, and the US reached this point in 2008. Globally, with the exception of Africa, every major region now experiences fertility rates below this replacement level. The result is inevitable – a shrinking labour force, as more people retire or leave the workforce than enter it. This demographic imbalance threatens future demand and economic growth and increases the risk of deflation, as well as exacerbating cyclical dynamics.

Working age population, as % of total, OECD countries

To support demand, governments have been printing money and increasing spending to unsustainable levels. A recent UN report highlights that 3.3 billion people live in countries where interest payments on debt surpass what is spent on essential services such as healthcare and education. This situation is far from inflationary – instead, it reflects unsustainable government spending and the rise of the welfare state.

See also: Knacke’s money maps: Health is wealth

The reality is that the path forward for inflation appears volatile. We can expect secular deflation, as debt levels and economic strain begin to weigh heavily on demand, with temporary bursts of inflation triggered by excessive money printing and debt creation in what we call the ‘fiscal age’. We’ve seen this before in the late 19th and early 20th centuries. This era was defined by extreme inflation volatility, underpinned by demographic shifts, supernormal debt creation, extreme wealth inequality and the rise of a new superpower.

I expect AI and new disruptive technologies that support productivity will continue to do well against this backdrop, as should real assets and stores of value that will withstand fiat devaluation.

But one thing is certain, without meaningful reform it is difficult to imagine reversing the current trends of rising inequality and declining living standards.

This article originally appeared in the October issue of Portfolio Adviser magazine

Those aged between 18 to 20 also saw their minimum hourly rate increase 16.3% from £8.60 to £10.

Reeves also relieved some of the tax burden on employees, increasing the National Insurance that businesses pay for their workers by 1.2 percentage points to 15%.

She also lowered the earnings threshold at which companies pay from £9,100 to £5,000, which could generate an extra £25bn in tax revenue – more than making up for the £22bn ‘black hole’ left by the previous government.

While employees may be pleased with the news, AJ Bell’s investment director Russ Mould said the moves are “a burden on business” that could backfire on working people.

See also: Autumn Budget 2024: Capital gains tax hiked to 24% in ‘blow for investors’

“A higher rate of employer national insurance, a rise in the minimum wage and changes to employment rights will all drive up costs,” he said. “That’s likely to be seen as negative for job creation, wages and consumer prices, and businesses will inevitably pass on extra costs to the customer.”

Others were more positive on the chancellor’s decision, noting that higher wages would boost consumer spending and ultimtely strengthen economic growth.

Emma Mogford, manager of the Premier Miton Monthly Income fund, said: “Today’s ‘decade of renewal’ budget sets the UK on a path to higher investment and growth, which should be good for UK equities.

“While the increase in minimum wages will initially mean a higher wage bill, the boost to low incomes will flow through into consumer spending and ultimately lead to higher retail sales.”

The lower rate will increase from 10% to 18%. However, Reeves said this will still be the lowest rate of CGT in any European G7 country.

Previously, those with gains above the threshold had to pay 20% on profits from assets such as shares, or 24% from selling additional property.

Rates on residential property will remain at 18% and 24%, respectively.

The previous government reduced the annual exemption to £3,000 in April, while the rate on residential property disposals was dropped from 28% to 24% in the Spring Budget.

Meanwhile, capital gains tax for carried interest, a performance-related reward received by private equity fund managers, has increased to 31%.

See also: Autumn Budget 2024: CPI inflation to average 2.5% in 2024

Reacting to the CGT hike, Sarah Coles, Hargreaves Lansdown head of personal finance, said: “The change is a blow for investors. This could have been worse, with suggestions of a doubling of the rate, but it’s scant consolation for anyone hit with a bigger tax bill.

“This doesn’t just affect those who are hit with a far bigger bill, it also makes investment less attractive for newcomers who don’t want to have to get to grips with a new tax risk. Already far fewer people in the UK invest than elsewhere in the world, and this could compound the problem.

“For existing investors, there’s a danger this will drive investor behaviour, and people will focus on tax considerations, rather than the investments that make the most sense for their circumstances. There’s also a danger they may hoard the assets – possibly until their death.”

Tony Hicks, head of sales at Copia Capital, added the CGT increase will have “notable implications” for advisers with clients who are holding assets within managed portfolio services (MPS) outside of tax wrappers.

“The rise in CGT will particularly impact high-net-worth individuals and investors, making it more likely these investors will exceed their allowance and pay tax on their investment gains each year. The Consumer Duty mandates that firms actively work to prevent such an adverse outcome for clients that could have been foreseen and acted on.

“We are one of only a few DFMs offering custom portfolios, allowing advisers to have an input into managing the portfolios they are advising their clients to invest in. This gives them the opportunity to react on behalf of their clients to any rebalancing of portfolios that may negatively impact them.”

See also: Autumn Budget 2024: Income tax threshold freeze to end in 2028

Brian Byrnes, head of personal finance at Moneybox, says it is important not to dissuade savers from investing.

“The chancellor has had a challenging job balancing the Budget, and the anticipated changes to capital gains tax did come to fruition.

“The challenge with the CGT annual allowance is ensuring it remains fair. It has been reduced considerably in recent years, meaning more people than perhaps intended now fall into this bucket.  Thankfully most savers and investors still have the option of saving in tax wrappers such as ISAs an incredible tool for wealth creation and the envy of investors around the world as well as pensions, which become even more attractive after today’s announcement. 

“With the government’s goal to foster a savings and investment culture in the UK and boost wealth creation, it’s important that we aren’t disincentivising those early into their wealth-building journey, and are instead encouraging savers to invest and grow their money.”

Whatever is decided next week could have pivotal impacts on the future of the UK economy.

Here, investors highlight where they’re looking for clarity ahead of chancellor Rachel Reeves’ much-anticipated speech.

Capital gains tax

After being burdened with a £22bn black hole in public finances, revisiting capital gains tax (CGT) is “an obvious place for the government to make changes and generate more tax revenue,” according to Charlene Young, pensions and savings expert at AJ Bell.

There has been talk of equalising CGT rates with income tax, but this would be “the most radical option,” potentially pushing a “huge tax increase” on investors, Young added.

See also: Are UK finances at ‘breaking point’ ahead of the Autumn Budget?

Not only would this actively discourage UK savers from investing, but it could actually cost the government money. Raising the lower and higher CGT rates by 10 percentage points to 20% and 30% for non-property gains could lose the Exchequer £2.1bn by 2027, as investors would naturally mitigate paying the tax, according to Young.

“It may not be the cash cow that many think it is,” she said. “The government’s own figures show that a big increase in CGT rates could backfire and actually lead to lost revenue for the government.”

And some reforms go even further, suggesting the tax not end upon death. This would only hinder market engagement further, according to Alastair Black, head of savings policy at abrdn Adviser.

“Implementing such a change without some kind of indexation for inflation might have a detrimental effect on investing but also on passing on wealth to future generations,” he said.

“The higher rates may make gifting unpalatable for some and assets heavy with gains may end up being stockpiled until death rather than gifted and risk a double tax charge of both CGT and inheritance tax.”

Pensions

Lowering the tax-free lump sum cap on pensions is another rumored announcement that Black would like to see struck from the agenda.

Earlier this year, the Institute for Fiscal Studies (IFS) called for the cap to be lowered from £268,275 to £100,000, leading some savers to make frenzied withdrawals from their pensions.

Black said: “A tax grab on pensions is no way to nurture a culture of saving, least of all when Government is trying to boost pension investment.

“Speculation is causing panic, particularly among those without a financial adviser, with a rush to take advantage of the tax-free lump sum.”

See also: Computershare: UK dividend forecasts downgraded after drop in Q3 payouts

Like CGT, it would dissuade people in the UK from participating in healthy financial decisions, Black added.

“We would urge against this rumored change, which would serve only to undermine consumer confidence in pensions at a time when more people need to take responsibility for their own financial future and that of their loved ones,” he said. “The worst outcome would be people choosing to opt out of pensions and long-term savings altogether.”

Likewise, Killik and Co’s head of planning William Stevens said cutting savers’ tax-free cash allowance from 25% would be “incredibly disruptive”.

“Cutting this would throw many plans into disarray, potentially discouraging pension saving and increasing reliance on an already stretched state pension,” he added. “A more measured approach, focused on encouraging savings, would be far more constructive.”

Taking this a step further and bringing pensions into inheritance tax estate would also cause “significant complexity and confusion,” Stevens warned.

“This would require a fundamental rewrite of current legislation, adding to an already convoluted tax landscape,” he said. “Such a move could disincentivise pension saving and create more administrative headaches for families dealing with estates after a loved one’s passing.”

Support early-stage businesses

Rumors to bring AIM shares under the inheritance tax umbrella have also been met with backlash.

This beleaguered set of sub-market stocks have been battered enough, with the FTSE AIM 100 index falling 41.8% over the past three years, and piling new taxes into the mix would only make a bad situation worse, according to Abby Glennie, manager of the abrdn UK Smaller Companies fund.

“The challenges facing UK smaller companies are troubling, but it is not the companies who are the issue – the quality and growth dynamics remain strong, and very competitive versus listed smaller companies markets globally. The problem is uncertainty,” she explained.

Kier Stamer’s government have already made efforts to support this enterprising part of the UK market through initiatives such as the National Wealth Fund, but Henderson Opportunities Trust manager James Henderson said it is not far reaching enough.

“It can only scratch the surface of what is needed,” he added. “We need a vibrant AIM market to help these businesses with their large and growing capital requirements.”

See also: Small caps: Stamping out Stamp Duty

Stocks listed on the AIM market are somewhat supported already by the fact they are exempt from stamp duty tax, but the wider UK market could be supported by similar immunity.

Glennie said taxing investors on UK companies and not their US counterparts is “unfair and backward,” and encouraged Reeves to extend the exemption to fuel growth across the wider UK stock market.

“Stamp duty on UK share purchases constricts liquidity in the marketplace, leads to lower growth, and incentivises flows to other markets and products,” she added.

“Given the difficulties faced by UK smaller companies specifically, a stamp duty cut on companies outside the FTSE 100 would be a good place to start – followed by an extension of the policy to all listed UK companies.”

Current regulation is too complex and puts lengthy delays on approvals for projects that would otherwise attract investment to the UK, he added.

“We’ve got to break out of that trap,” Starmer said. “We’ve also got to look at regulation across the piece and where it is needlessly holding back the investment, we need to take our country forward.

“Where it’s stopping us building the homes, the data centres, the warehouses, grid connectors or roads, train lines, you name it, then mark my words, we will get rid of it.”

He highlighted the £4bn East Anglia Two wind farm as an example, which after requiring an initial 4,000 documents for application in 2022, was delayed for more than two more years before finally being granted approval last week.

“As an investor, when you see that kind of inertia, you don’t bother, do you? And that, in a nutshell, is the biggest supply-side problem we have in this country,” Starmer added. “So it’s time to upgrade the regulatory regime, make it fit for the modern age, harness every opportunity available to Britain.

“We will rip up the bureaucracy that blocks investment. We will march through the institutions and make sure that every regulator in this country, especially our economic and competition regulators, take growth as seriously as this room does.”

Starmer began scrapping regulation mere days into his government in July, lifting the de facto ban on onshore wind that had been in place since 2015.

“We need to absolutely champion the brilliance that we’ve got to offer, but we need to get rid of some of the inhibitors,” he said. “And most of my determination to get rid of the inhibitors has been through conversations with people in this room around planning. It takes far too long to get decisions on planning, measured in years, not months. And so we’ve got to streamline that.

“I’m not saying all regulation is bad, but the sheer volume that we’ve got here, and the inconsistency with different regulators or bodies pulling in slightly different directions, means it’s not just the volume of regulation, it’s also the fact that there’s not even a clear landing path for investment. That is what we need to strip away.”

‘It’s tough, but it’s doable’

Cutting regulation could fast-track the building of the energy infrastructure needed for the UK to reach its goal of cutting emissions 68% by 2030. So far, the Climate Change Committee has deemed the UK to be “off track” for delivering on this pledge, meaning less regulation could hasten that.

Starmer noted that the undertaking is still “really difficult” but could provide the UK with greater investment opportunities down the road, namely in artificial intelligence, which consumes huge sums of energy.

If implemented correctly, Starmer said the UK energy grid’s eventual independence, cheaper prices, and ability to scale up free of regulatory backlash, could make it a prime location for AI providers and data centres to settle.

“On the face of it, there’s a tension. But I actually think if we’re smart about this, we can turn that apparent tension into a massive advantage,” he added.

“This is going to be a real game changer over the next five to 10 years, and we have to be at the front of this race. If we become spectators, others will run past us. We cannot allow that to happen.”

A partnership with the private sector

Achieving these goals will require the government to work in partnership with the private sector, according to Starmer.

He said it is the government’s job to set a clear, long-term plan that investors can get behind, and the private sector’s role to use its expertise to execute those plans.

“What’s important in a partnership is that both partners don’t try to do the same thing,” Starmer added. “That the government doesn’t try to do what investors in the private sector are doing, because they do it better, but equally, that we are setting the mission of what we want to achieve.

“Investors need to know they’re happy with the end destination, and then what the government’s role is to make sure that the path is cleared for that to succeed. I think there’s a real window of opportunity here in 2024 for this to happen, and we have to seize it.”

A publicity stunt?

Yet Douglas Grant, Group CEO of Manx Financial Group, said that while he welcomes the news and the “shift in mood”, the timing of the summit itself “raises some concerns”.

“It feels like a classic publicity move, coming just two weeks before Labour’s first budget, which is expected to include tax hikes which will take some of the shine off the news,” he warned. “Why bundle all these positive investment deals together in one event, as it feels more contrived than the natural rhythm of investment?

“Furthermore, we cannot overlook the ongoing fiscal uncertainty that has left many SMEs and households hesitant to invest. The commitments from international giants are encouraging but will not offer immediate relief or drive short-term change. Meanwhile, SMEs, which are the backbone of our economy, are still facing significant pressure.”

He added: “With the highly-anticipated Autumn Statement at the end of the month, UK businesses should seize the opportunity to reevaluate their lending strategies and bolster financial stability in preparation for any potential economic and policy shifts. Higher taxes or inadequate support in the Autumn Statement could further undermine growth, particularly for SMEs, which play a crucial role in job creation and innovation.”

The Labour Party’s election victory in June is set to stand the £1.6bn JOHCM UK Equity Income fund in good stead, according to its co-manager James Lowen (pictured below), who explained the government’s housing policy will offer “multi-dimensional benefits” to the portfolio.

As at the end of June 2024, JOHCM UK Equity Income has a 10% exposure to the UK housing market. While it holds housebuilders such as Vistry Group and Bellway, these weightings have been trimmed due to strong performance, meaning both account for a combined 1.75% of the fund.

Instead, Lowen and co-manager Clive Beagles hold a number of building suppliers, such as shower manufacturer Norcros, brick suppliers Ibstock and Forterra, and UPVC window frame manufacturer Eurocell.

“The Labour victory is very good for this fund,” Lowen said. “Its housing policy is to build 300,000 new houses per year. The Conservative quota has been 140,000. Even if Labour gets to 200,000, which is significantly below target, it is still 40% higher than current levels.”

Eurocell, which has a 20% market share of window frame production, also boasts solid environmental credentials that factor into its longevity as a business, according to Lowen.

“It is the biggest recycler in the sector,” the co-manager said. “When windows are taken out, the pieces are collected and taken to a factory. The plastic from these old windows is made into pellets, which are then used to make new windows. Around 28% of [Eurocell’s] windows are made from recycled materials. This really has a positive impact on its oil and carbon footprint.”

Building suppliers account for about 4% of the fund. A further 4.5%, also set to benefit from Labour’s housing policy, is held across retail stocks tied into the housing market. These include Currys, DFS, flooring company Headlam Group and Wickes.

“DFS performed well during lockdown as everyone was ordering sofas,” Lowen reasoned. “Over the past three years it has been sluggish, but now we are starting to come through the other side of that purchasing cycle again.

“The other good thing about DFS is that its competitors have gone bankrupt. It now has a 40% market share, so it’s in a really dominant position.”

The manager said Currys has a similar story to DFS, in that it had a strong year in 2020 followed by a three-year lull. “It’s a market leader in the Nordics as well as the UK. It had a Covid surge because everyone bought new laptops and TVs, then hit a post-Covid low.

“But not only are we coming out of that now, it is being driven by the Labour government, as well as a change in the cost of living. Households are, on average, 10% better off this year than they were last year.

“It has also seen AI Microsoft products come into its stores, making it only one of two players globally for the consumer rollout of Microsoft Copilot laptops.”

Lowen added: “With UK macro improving, we like to call these types of undervalued domestic UK small-caps ‘coiled springs’. They could see 10x normalised earnings per share, which could end up giving us 200-300% upside.”

Mirabaud’s Narula bags a bargain at TK Maxx

While high streets face a battle to keep stores open as shoppers increasingly move online, the appeal of bargain-hunting continues to attract footfall to stores such as TK Maxx.

Parent company TJX is a market leader in off-price retailing, a format based on discount pricing relying on the purchase of excess goods from designer brands.

“It’s a treasure hunt format,” said Anu Narula, Mirabaud Asset Management’s head of global equities and manager of the firm’s Sustainable Global Focus fund.

“Consumers go in there to get the best brands at the lowest prices.”

TJX has over 4,900 stores in nine countries, across brands including TJ Maxx, TK Maxx in Europe and Australia, and HomeGoods and Homesense.

Narula said the firm is the market leader and, as ‘off-price’ makes up only 2% of overall retail, there is still a runway for growth.

TJX made up 4.5% of the £181m Sustainable Global Focus fund at the end of June, making it the strategy’s fifth-largest position.

“The real advantage for TJX is the link-up with the brand companies that are already in place. They’ve had years of building out that and have a rapid turn of inventory compared with traditional retailers.”

“They’re expanding into more areas like beauty, for example, which is going very well for them,” he added. “They’ve also built more of an e-commerce online strategy in recent years. This is a company that offers what we call ‘defensive growth’. It’s a really good compounder, with mid-single-digit same-store sales growth consistently, a little bit of operating margin leverage and very strong returns on investor capital and done with double-digit earnings.

“This is a company we look to put away as it can do a good job for us from a portfolio construction point of view when it’s risk-off, as we’ve seen in recent weeks, but can also then keep up with a growing market as well.”

While the firm has invested in its e-commerce business, Narula circles back to the ‘treasure-hunt’ concept as a key factor in the physical stores bucking the trend as retailers increasingly move online.

“As the high-street brands are scaling back in their physical presence, more of their produce can go through places like TK Maxx. They need different ways of distributing and TK Maxx is an area that benefits disproportionately from that.”

TJX shares were up 21.2% from the beginning of the year to the end of July. Narula manages the Sustainable Global Focus fund alongside co-manager Paul Middleton. The ‘best ideas’ portfolio is made up of 25 to 35 positions in firms it believes are market leaders, which are well placed to benefit from sustainable themes and can grow across cycle.

Brunner Trust takes to the skies

Julian Bishop, portfolio manager of the Brunner Trust, made one thing clear about his position in General Electric: “This is not your grandfather’s GE.”

GE has long been an established name in the US market. In 1999, it had a market cap of $451.7bn (£346.75bn) and until the stockmarket began to collapse in 2008, its market cap remained over $300bn for all but two years. But General Electric’s share price fell from near $200 in September 2007 to about $40 by February 2009.

“It’s now used as a classic business case study of managerial hubris and overstretch. You had Jack Welch and his successor, Jeffrey Immelt,” Bishop said. “Immelt moved from a core industrial business to loads of financial concerns that went wrong after the great financial crisis. It was a real disaster for a long time. The industrial business has slowly been dismantled and broken up into component parts.”

Under CEO Larry Culp, who took up the role in 2018, the company has rid itself of its finance branch, appliance business and partial ownership of NBC. In 2021, GE announced it would separate into a variety of businesses, including GE Healthcare, GE Vernova and GE Aerospace. GE Aerospace has held onto the GE stock name – as well as CEO Culp. Over the past year, the share has price has recovered with a near 90% increase. Now, GE has focused its sprawling enterprise on jet engines.

“If you’ve flown on a plane recently, the overwhelming odds are that it had a GE engine. Three out of every four commercial flights that take off worldwide are powered by a GE engine. It’s an extraordinary market position. There’s a little bit of competition in wide-body long-haul planes from Rolls-Royce in the UK, and from Pratt & Whitney in short-haul planes,” Bishop said, “but GE is the market leader by a by a long stretch. It has a $2bn research and development budget, which is more than everyone else combined. ”

While GE seems to be on the road to becoming a steady business, its main customers have spent the year weathering the storm. Boeing has watched its share price collapse by near 25% this year following a flurry of setbacks after a door broke away from a plane mid-flight in January.

However, Bishop said GE creates some distance from the immediate downfalls and successes of its competitors because it does not rely on the sale of the engines as its profit maker, but rather the upkeep.

“Their customers are constantly short of cash. Airlines are tricky businesses,” Bishop said. “The customers want to pay the smallest upfront payment as possible, and then to pay ‘power by the hour’ contracts. For every hour a plane is in the sky, they will pay GE. It’s like a Netflix subscription. These engines last 30 years, so for as long as that engine is in use, they get paid for spare parts and servicing. So it’s a great steady income stream for every new engine that goes into circulation.”

This article first appeared in the September issue of Portfolio Adviser magazine

According to a policy paper entitled Making people better off, the AIC suggested that government-sponsored investment companies could aid the government in its efforts to significantly increase investment in UK infrastructure and drive economic growth.

The proposal would see the newly-created National Wealth Fund as a cornerstone investor in the funds, which would then invest in the UK economy in a variety of areas, including the net zero transition and supporting tech and innovation.

“With the government’s fiscal constraints, private capital is required and the pensions industry has committed to investing more in unquoted UK assets,” the association said.

See also: Morningstar: Active managed portfolios now make up less than half of offerings

Richard Stone, chief executive of the AIC, said: “Through the National Wealth Fund, the government could act as a cornerstone investor in each new investment company, alongside private and institutional investors, creating a unique combination of public and private capital. The fund could then sell down its holdings as the company became established, should it wish to do so, enabling the capital to be recycled into new projects.

“Investment companies provide a tried-and-tested way of overcoming the practical challenges of investing in infrastructure and new technologies. Their permanent capital structure removes the need to redeem investors’ units when they want to sell and therefore facilitates stable, long-term decision-making.

“As well as offering permanent capital, investment companies have independent governance and offer liquidity through the stockmarket – a combination of features that could be attractive to pension funds, other institutions and the general public, as well as to the government.”

Stamp duty

Among other proposals, the AIC also called for the removal of stamp duty on investment companies, arguing that investors are being penalised by buying British. Currently, investors are taxed 0.5% of the purchase value each time they buy shares in a UK company traded on the stock market.

The AIC also said it expects the Treasury to review how the tax system can best support enterprise, which should include considering options to further support the role of Venture Capital Trusts.

The government recently extended the VCT and Enterprise Investment Scheme until 2035.

Meanwhile, the association has reaffirmed its calls for cost disclosure reform. The Listed Investment Companies Bill, which seeks to address the issue of misleading disclosure on investment trusts, passed its first reading in the House of Lords last week (5 September).

The release of the policy paper comes ahead of the new Labour government’s first Budget on 30 October.

Some 69% of respondents expect Labour to aid economic growth, while 31% believed there would be little impact. None, however, believed the new government would reduce economic growth.

They said political stability and the UK market’s newfound attractiveness to overseas investors was likely to be a main driver for this expected growth, with fund groups upping their forecasts for UK growth to a weighted average predicted growth rate in 2025 of 1.22%, up from 0.98% last quarter.

The survey is carried out on a quarterly basis, with leading fund managers covering forecasts for macroeconomic data and timely indicators.

“The Labour Party and the City have not always been natural partners, but given the economic inheritance received following the general election win, Chancellor Rachel Reeves has done a lot to instil a level of confidence in the new government,” Lindsay James, investment strategist at Quilter Investors, said.

“While things are supposedly worse than expected, fund groups clearly think Labour will help stimulate economic growth, at a time when the UK’s fortunes appear healthier than they have been. Labour was coy with what it had planned, but markets crave stability.

“With such a large majority, investors clearly believe Labour does now offer that assuredness, despite the numerous tax rumours, and can bring back overseas investment.”

See also: Morningstar: Fixed income funds see highest net flows in five years

Interest rate expectations

While there was a consensus that UK interest rates will fall further following on from the Bank of England’s first cut earlier this month, views among fund groups diverged on how much they will fall by the end of next year with predictions ranging from 2.5% to 4.5%.

Meanwhile, 47% expect UK CPI to end the year between 2.51-2.85%, with two thirds expecting inflation to remain well above the 2% target level by the end of 2025.

In the US, almost half of respondents expect interest rates to sit between 3.76% and 4.25% at the end of next year, with a September rate cute the most likely scenario. 80% expect inflation to be more than 2.21% next year, up from 69% at the last survey.

In light of the US election in November, respondents were also asked about the potential impact of increased trade tensions between the US and China.

With potential tariff increases a key talking point in the electoral race, half of the groups surveyed saw increased tariffs as a positive for emerging markets outside of China, with only one in seven (14%) believing them to be negative.

In particular, Mexico was seen as one of the biggest beneficiaries as it would look to bring as much of the supply chain to the US border as possible.

See also: Is it finally time for UK commercial property to shine?

“Despite the Bank of England cutting recently, interest rates remain increasingly difficult to predict, with many investors now pinning hopes on September for the Federal Reserve’s first rate cut in the US,” Quilter’s James added. “With market volatility now hitting and fears of a slowing economy, this appears to be a realistic possibility.

“But what happens afterwards is a source of contention. In the UK, we have a wide range of forecasts, mirrored in the eurozone. In the US, however, it is expected that slowing but still good economic growth will keep a lid on the rate cuts, with inflation likely to remain persistently above the 2% target at the end of next year.

“Finally, the upcoming US election has many fascinating outcomes that investors will be watching closely. Clearly, a Donald Trump presidency, emboldened with J.D. Vance as his deputy, will result in further tariffs on Chinese products, as he seeks to protect American industries. However, this may provide a boost to other emerging markets, suggesting China’s recovery is not quite ready to be played out.”