The Sunday Times - UK (2022-04-10)

F

or more than a decade Faang

stocks — Facebook, Apple,

Amazon, Netflix and Google —

have been the fashionable

place to invest.

If you put £10,000 in these

stocks five years ago, today you

would have £31,344. Over ten

years Facebook (now known as

Meta) is up 506 per cent, Apple

673 per cent, Amazon 1,519 per cent,

Netflix 2,307 per cent and Google (known

as Alphabet) 789 per cent.

But recently their share prices have

started to tumble thanks to fears over rev-

enues, inflation and a crackdown on tech

companies by regulators.

And so analysts at the investment bank

Merrill, part of Bank of America, think we

should think again about the old Faangs

and embrace the stocks that will do well

in this new age of investing. They believe

we should buy into the new Faangs: fuel,

agriculture, aerospace, nuclear (and

renewables), and gold and other metals.

Certainly the investment case for

many of these sectors is strong — but they

do not come without risks.

Fuel

High oil prices due to geopolitical ten-

sions and strong demand have been exac-

erbated by Russia’s war in Ukraine.

Energy companies typically do well

when the oil price rises. Shell’s share

price is up 49 per cent year-on-year while

BP’s is up 26 per cent. They have recently

reported high annual profits too.

“Even if the war comes to a resolution,

it seems unlikely that European coun-

tries will simply forget about their energy

security, so we can expect elevated prices

for some time,” said Laith Khalaf from the

wealth manager AJ Bell.

Some investors also back old energy

giants as a long-term bet because they

believe they will be a vital part of the tran-

sition from carbon to clean energy.

“They have the cash flow, infrastruc-

ture and knowledge to be leaders of the

future while also paying healthy returns

to investors,” said Ben Yearsley from

Shore Financial Planning, an advice firm.

However, you need to be careful with oil

as it is known as a cyclical stock, which

means its price is affected by the wider

Sarasin Food and Agriculture Oppor-

tunities fund invests “from field to fork”

to tap into long-term growth in the sector.

Other funds that have exposure to agri-

culture include LF Montanaro Better

World and Rathbone Strategic Growth

Portfolio.

Aerospace

The aerospace sector includes manufac-

turers of equipment for defence, which is

in higher demand and will have more

investment because of the Ukraine crisis.

“Defence stocks have outperformed

the broader market by 19 per cent this

year as expectations mount that there

will be greater military spending,” Merrill

said. While most investors agree that

there is likely to be a short to medium-

term boost in defence, some are sceptical

about its longevity, given the trend

towards more ethical investing. There

were also concerns that the gains for

defence companies were already priced

in — the share price of BAE Systems, a

security and aerospace company, is up

34 per cent this year.

Defence stocks are slightly more niche,

so you may have to buy individual stocks

or find funds that hold the companies

you like. The Ninety One UK Special

Situations fund owns BAE Systems and

the UK defence firm Rolls-Royce. The

JOHCM Global Opportunities fund

invests in L3Harris Technologies, a

US-based defence contractor, and Tha-

les, a French aerospace company.

Nuclear and renewables

As the world weans itself off carbon-

based energy, nuclear and renewables

will fill the gap. This week Boris Johnson

said he wanted 95 per cent of Britain’s

electricity to come from low-carbon sour-

ces by 2030 as he sought to reduce reli-

ance on gas and oil, with plans to build up

to eight nuclear power stations and boost

offshore wind and solar energy.

“Short-term, we could see more

nuclear power coming through,” McDer-

mott said. “But I expect renewables to

become the dominant form of energy. As

a trend, it is only just beginning.”

The sectors benefit from the fact that

governments are prioritising renewable

energy infrastructure and that more

investors are putting their money behind

companies working to mitigate climate

change. But much of renewable energy

investing is in infrastructure, which is an

illiquid asset. This means it could be diffi-

cult to get your money out quickly.

The other problem is that this is very

much a growing sector and some compa-

How much would you pay

to keep your puppy alive?

James Coney

economy and can be volatile. The price of

US oil turned negative in April 2020 due

to a lack of storage at the start of the pan-

demic. Producers were paying buyers to

take their oil.

If you want a focused energy fund,

Yearsley recommends Schroder Global

Energy, while Darius McDermott from

FundCalibre, a research firm, likes the

Guinness Global Energy fund.

You could also opt for UK equity

income funds such as Rathbone Income

or Schroder Recovery, as they typically

invest in energy companies. Even a

tracker following the FTSE 100 index

would give you energy exposure due to

the dominance of energy firms in the UK.

Agriculture

The war in Ukraine has shown us how

fragile food production is. The WWF

believes that the planet will need to pro-

duce more food in the four decades to

2050 than in the past 8,000 years. The

global population is expected to hit ten

billion by 2050. Growing middle classes

in emerging markets will increase

demand and climate change will affect

supply.

There has already been big investment

in the sector, such as in driverless tractors

and artificial intelligence to differentiate

between cultivated plants and weeds.

Like all commodities, those in the agricul-

tural sector can be volatile. It is subject to

unpredictable cycles and partly at the

mercy of the weather, Khalaf said. The

MONEY

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I WON THE

APPRENTICE

BUT I STILL

DON’T FEEL

WEALTHY

PAGE 16

The rise of the new Faangs

Silicon Valley shares look

fragile as an uncertain

world seeks stability in

fuels, farms and gold,

writes Imogen Tew

nies will soar and others flounder. It can

be hard to know where to invest in renew-

able energy. Hydrogen companies were

the hot growth stocks this time last year

but many have declined since.

There is an array of funds investing in

companies linked to clean energy.

McDermott recommends the VT Gravis

Clean Energy Income fund or the

Ninety One Global Environment fund.

If you are worried about the illiquid

nature of renewable energy infrastruc-

ture you could opt for The Renewables

Infrastructure Group investment trust.

As it is listed on the stock exchange you

can buy and trade shares in the fund.

Golds, metals and minerals

Viewed as a safe haven asset, gold prices

have increased since the start of the year

due to concerns about inflation and war.

Gold often plays a role in a well-diversi-

fied portfolio as an asset that behaves dif-

ferently from your other investments:

gold prices tend to go up if stock markets

fall. Other metals and minerals are also

likely to do well as they are necessary for

the transition from fossil fuels. A typical

electric car requires six times the mineral

input of a conventional car, according to

the International Energy Agency.

Like most other commodities gold can

be volatile. Khalaf recommends that it

should form no more than 5 to 10 per cent

of your overall wealth.

Funds such as the iShares Physical

Gold ETC or Jupiter’s Gold and Silver

fund can give you some exposure to gold,

while BlackRock World Mining or

Amati Strategic Metals can broaden

your investment to include minerals and

speciality metals.

scenario — such as the crushed cat

who needed surgery costing £5,000

to reattach two toes, and a terrier with

a lung disorder, its care costing

£40,000 over a decade. But many

policies have caps on what you can

claim in a year or for a condition, and

recurring health problems are often

excluded.

Make one claim and suddenly your

premium shoots up. All I hear from

pet owners is the staggering cost of

pet insurance and the frustration of

the exclusions.

I told a friend my plan, and she

pointed out what she thought was the

obvious flaw. “Are you really going to

tell your boys that the dog was put down

because you wouldn’t pay £5,000 for

him to get better?”

Yes, in honesty, I think I could.

We have lots of insurance: health,

life, buildings and contents, car and

travel. None of those would I bother to

self-insure, largely because what you are

paying for is the security of knowing

you’re covered in the unlikely event of

a catastrophic claim — such as being

involved in a terrible car accident, your

house flooding, or having a heart attack

while on holiday in the US.

Of course you would not put a value

on your own life, but you can with a pet,

can’t you?

@jimconey

T

his picture is of Huxley. He’s our

new-ish labrador puppy. Today

my wife and our two sons will take

him for his first walk.

What price would you put on

his life? £500 or £5,000? More?

Cost seems to have become a fairly

regular conversation in our household

since we first considered getting a dog.

There is the pet itself, then the cage, the

basket, the collars and leads, the food,

the vaccinations and the oh so many

toys. (Note to self: buy shares in Pets

at Home).

And then there is the pet insurance.

Now, I argue that we should self-insure

Huxley, putting aside money each

month for medical treatment should we

need it. My wife says that we should

just pay the insurance like most other

people do just in case something

serious happens.

My rationale is that pet insurers make

good money on policies. Huxley is a

pedigree pooch from a terrific breeder,

so if we set aside the amount that

insurers would charge us we’ll have a pot

of money when he does need some

kind of treatment. And from what I hear

from other dog owners, he will need

treatment. At the end, though, we

should have saved more than the cost of

the treatments.

So far, so good. But then you have to

consider what happens if there is a

medical emergency and he needs hugely

expensive surgery. How expensive

would that surgery have to be for us to

wave Huxley off to that big kennel in

the sky?

The average cost of pet insurance for

a labrador is £245 a year, according to

Compare the Market. The quote we have

had is for £35 a month. Over ten years

we could build up at least £4,500,

although in reality I would try to

increase the premium every year to

match what an insurer would charge.

The Association of British Insurers

says there are 7.7 million pet policies.

Every year insurers rake in £2 billion

of premiums and pay out about

£800 million in claims.

Insurers, of course, are very good at

warning you about the worst-case

Huxley exploring his new home

Fuel Agriculture Aerospace Nuclear Gold