Investment opportunities in 2014

Editor's Notes

• #3: Brief background on meSecondary modern school in Woking, Manchester University to study computing, trained and then worked as an accountant and then got into private equity nearly 30 years ago. One of the two founders of Lyceum Capital in 1999, we invest in medium sized companies headquartered in the UK, companies like Access and we provide capital and expertise to help them grow faster than they might otherwise. I was Chairman of the UK private equity trade association in 2008, which was an experience and I’ve got five kids which is really what it’s all about of course.
• #4: First then some a few highlights of things happening next year
• #5: Scotland votes ‘no’ to independence (March 2014)
• #6: Britain votes ‘yes’ to UKIP in the European elections (May 2014)
• #7: The Americans open the new world trade centre building in New York – a full 104 stories- 2 stories higher than the empire state building
• #8: But the chinese will top that with the world’s tallest building, the ChangshaTower, is completed representing the power of China (202 floors and 832 metres high)
• #9: And not to be outdone, India’s will launch its first Mars mission (named Mangalyaan)
• #10: Winter olympics in Sochi – Russia in February 2014£20m scandal vs £10b olympics in London
• #11: World Cup – in Rio Brazil June 2014 – Brazil 10/3Argentina 9/2Germany 5/1Spain 11/2Belgium 16/1 (population 11 million)England 22/1
• #12: 2014 commonwealth games in Glasgow (July 2014) costing £0.5 billion
• #13: Now I thought it would be interesting to share a few thoughts on the economy – I promise this won’t get too technical – but its useful to set some context before turning to opportunities
• #14: Now, according to the Bank of England, the UK economy will continue to trend sideways, with growth of around 2%-3%. And, on the balance of probabilities, that is probably what will happen.Though beneath the surface I suspect that will mean the south and London in particular will continue to prosper and will outstrip other parts of the country which will continue to flatline
• #15: But scratch beneath the surface and things look more complicated.And this slide shows something quite remarkable the significance of which I thing is rather overlooked by commentators.BoE Interest rates are now at 0.5%, the lowest level in 300 years. And not a bit lower, MUCH lower.And with low interest rates of course comes support for all sorts of asset prices, houses, the stock market, bonds, gilts, cars and the like.Although in terms of income generation it is rather bad news of course for pensioners who are net savers – on which more later
• #16: So what happens if interest rates start to riseMark Carney / Janet Yelland at the Fed unlikely in 2016Well, does that mean we’re perched on the edge of a precipice ?They will go up – so will there be a sharp increase – disaster – or a gradual increase like a pressure cooker – in which case it will look much more like JapanBut let’s look at this a little more closely
• #17: Look at this chart first. It shows government borrowing in an historical context and frankly, despite what the Tories say, it seems ok doesn’t it. Much lower debt as a % of GDP than after the napoleonic wars. Or after the first or second world wars. And, it is worth noting that our government debt is twice as long dated as most other european countries – and with low interest rates reasonably affordable - which helps explain why our credit rating is good and and the cost of government borrowing remains so low.But note also that it is £1.4 trillion of debt and note that it excludes £1.2 trillion of off balance sheet PFI debt and off balance sheet pension liabilities – not often mentioned in the papers.But I’m afraid to say that’s not even the half of it …..
• #18: UK government debt is £1.4 billion, equivalent to the debt of corporates and individuals but dwarfed by the debts of the UK’s banks. However government debt is twice as long dated so affordable hence our good rating – no immediate crisis. Although note that it does exclude off balance sheet PFI debt and unfunded government pension liabilities which would push this to 600%And borrowing is still going up by some £100m a year, despite best efforts of government to cut expenditure and raise taxes
• #19: When you include household and company borrowing and the debt on bank’s balance sheets the ratio rises from 100% to over 500% and puts us in a poor position compared with other major nations. But two pints to take away from this slide: Firstly that the UK’s debt has grown much more sharply than any of the other countries.And secondly just imagine what on earth would happen if interest rates rose above current low levels.Interest rates are really the biggest long term threat to our economy – and that of all the other major nations.Though personally, I don’t think this will be an issue in 2014, it is certainly something to watch out for if you’re running a business, or building an investment portfolio.
• #20: "Someone asked me the other day if I saw any light at the end of the tunnel. I said, 'I don't see a tunnel'.“ Peter Marks – former CEO Co-OpWell I can see a tunnel and I can see light at the end of the tunnel and we’ll get onto this.But unfortunately, for the UK and Europe in particular, I think it more likely that this here is the view backwards as we head into a pretty long period of continued sluggishness and risk - much like Japan has experienced over the past 20 years.
• #21: So, moving on from that rather gloomy overview, I’d like to cheer us up with a few thoughts on opportunities out there in the market
• #24: This is the view of Shanghai from, I believe, Pudong, taken 20 years ago in 1990
• #25: And this is the view today in 2013.China has grown from 3% or so of global GDP in 1950 to over 15% today – while Europe has shrunk from 30% to around 20%Interestingly, India has grown at a much slower speed, from around 3% in 1950 to around 6% today - while America has declined at a slower rate than Europe from around 27% to 22% today
• #29: commodities
• #30: agriculture
• #31: Energy – and water
• #32: And of course, with scarcer resources and growing consumption, an ever increasing focus on the environment. Cue picture of mad Boris
• #33: UK – 25% to 45%Germany - 30% to 55%Japan – 30% to 70%US – 20% to 35%
• #34: Used to think of pensioners like this – old and rather frail – as I remember my gran
• #35: But in fact most people retiring now are healthier and wealthier than ever before
• #36: Which creates opportunities of course in healthcare
• #37: In financial services and management of wealth
• #38: Inlifestyle activities, travel, leisure, eating out
• #39: And in adult education
• #41: 12 years before I was bornThe Manchester Mark 1 or “baby” was one of the earliest stored-program computers, developed at the Victoria University of ManchesterThe first version was operational by April 1949The Mark 1 very quickly became a prototype on which the design of Ferranti's commercial version could be based and it was replaced in February 1951 by …….
• #42: The Ferranti Mark 1, the world's first commercially available general-purpose electronic computer
• #43: Of course behind the scenes, this was what it really looked like
• #44: When I was 16
• #45: When I was 17PC’s – Commodore PET – 1977
• #46: When I was doing my ‘A’ levels aged 18
• #47: Transformed the shopping experience11% of UK sales are online – and growing at 11% vs traditional store sales at around 2%
• #48: 40% of Americans get their news first online up from 10% a decade ago
• #49: 30% of degree level studies are now online in the US up from 10% a decade ago
• #50: And we can add online gaming – my teenage boys hope to make that their future careerOnline films, music and other sorts of mediaAnd various vices including gambling and the like
• #51: And of course things aren’t just online, they are mobileWhen I was 22Mobiles – Motorola DynaTAC – 1983
• #52: And this was the first commercially available smart-phone – again a bit of a block - When I was 33Smartphones – Simon Personal Communicator - 1994
• #53: Mobile computingWhen I was 49Tablets – Apple iPad - 2010
• #54: Quite an impact in a very short space of time.
• #55: So our lives have been literally transformedAnd that continues
• #57: A typical mobile phone is checked over 150 times a day
• #58: Wearables
• #68: Regulation
• #71: Microsoft team 1978LeadersSmartBoldInnovativeProfessionalFocussed
• #84: vintage 1963 Ferrari 250 GTO