WEEKLY MARKET ROUND-UP – 31/01/19

by | Jan 31, 2019 | Market updates

WEEK ENDING 25 JANUARY 2019

Coining it in

The UK stock market delivered a record £100bn in dividends last year meanwhile the ‘big six’ US banks enjoyed record profits of $120bn.

Credit: mingcreative/iStock

LEGO: Building a new asset class

LEGO could be a new alternative asset class after it outperformed large equities, bonds, gold and other alternative investments across 1987-2015, according to recent research.

Victoria Dobrynskaya, an assistant professor at Russia’s Higher School of Economics, determined LEGO yielded an average return of at least 11% per year (8% in real terms), with 58% of the sets studied earning more than a 10% return. Meanwhile, the top five performers: Star Wars’ Darth Revan; Elves’ Workshop; Seal’s Little Rock; Star Wars’ TC-4 and Ice Skating, earned between 425-613% during one year.

However, the author warned that the LEGO market isn’t as liquid as the stock market and requires relatively high transaction and storage costs.

Credit: jetcityimage/iStock

Ford shares skid on profit warning

Car giants Ford and Volkswagen last week announced a global alliance that would see them team up on the development of vans and pickup trucks to reduce costs.

The joint projects will be overseen by a committee including Ford’s chief executive Jim Hackett and Volkswagen CEO Herbert Diess. Sales from the partnership should start in 2022, boosting profits from 2023. The two manufacturers also said they would look into developing electric and self-driving cars together.

However, Ford’s share price fell more than 6% on Wednesday last week as the news was overshadowed by Ford’s preliminary results statement suggesting it would miss analyst estimates on earnings per share (EPS) for the fourth quarter.

Licenced to print money: US ‘big six’ bank $120bn annual profits

Last week the ‘big six’ US banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – reported their biggest ever combined annual profits ($120bn) lifting shares across the sector.

As Quilter Investors portfolio manager, Hinesh Patel explains, “2018 was like an accumulator bet for the big US banks. Tax cuts and deregulation, rising interest rates, a surge in commercial and industrial lending and a record year for M&A and buybacks all contributed to the haul, while massive profits from volatility trading more than offset weakness from their fixed-income desks.

“However, the exuberance is likely to be short lived; financials benefited from an element of short covering and the market is a forward pricing mechanism.”

Credit: Heiko Küverling/iStock

Primark separates ABF from the bread line

Associated British Foods (ABF) saw its share price gain almost 8% on Thursday last week after it reported better than expected sales by Primark over the Christmas period.

The share price had slumped towards the end of the year after Primark acknowledged it had a “challenging” November and some predicted the decline could continue over the festive period.

Instead, ABF said UK sales in the Christmas period had “exceeded our expectations” with a 4% rise in the 16 weeks to 5 January helping Primark to grow its share of the UK clothing market. As a result, ABF hit its full-year earnings guidance, reporting revenue growth in the Christmas quarter in all its businesses except sugar.

Dividends from UK plc hit all-time high

The latest numbers from Dividend Monitor show that total UK dividends hit a record £99.8bn in 2018, up over 5% on 2017. Strong dividend growth in the mining sector was the chief driver although the move to quarterly dividends from an enlarged British American Tobacco was the single largest contributor.

A bumper fourth quarter from a thawing banking sector helped to push 2018 into record territory. Royal Bank of Scotland paid its first dividend in a decade; Standard Chartered made its first payout since 2015 while both Lloyd’s and Barclays raised dividends.

Meanwhile, 2018 dividends from the Alternative Investment Market (AIM) are expected to pass the £1bn mark for the first time.

2018 was like an accumulator bet for the big US banks. Tax cuts and deregulation, rising interest rates, a surge in commercial and industrial lending and a record year for M&A and buybacks all contributed to the haul…

Hinesh Patel, portfolio manager, Quilter Investors

Chart of the week

Separating the tweet from chaff: Trump’s honeymoon with US consumers comes to an abrupt end. Consumer confidence on the outlook for the coming business year has hit a four-year low.

If any article in this market update has an effect on your finances and you would like professional advice, then please get in touch.

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