Archive for April, 2009

50% Income Tax likely to cost Britain £600m pa

April 22, 2009

“Likely”, the possible cost could be over £1bn.

Loss of Revenue

This chart is from the very recent Institute For Fiscal Studies briefing note that was anticipating a 45% rate (see page 14 for chart):

The most startling aspect when the IFS looked at the sums:

It would appear that the Treasury has not allowed the behavioral response to affect revenues other than income tax receipts.

This is quite extraordinary. A very cheap piece of electioneering by Labour will turn into a very expensive debt for taxpayers.


The Negative Correlation of BATS

April 10, 2009

Since the FTSE-100’s closing low of March 5th 2009 British American Tobacco has been negatively correlated to the index.

The beta of BAT over this time has been -0.2617 [1]. Undoubtedly a short-term phenom but rather startling nevertheless.


What can we take from this snippet of info? Perhaps more evidence of “sector rotation” and a rebuke to the idea that “money on the side” is re-entering the market.

Other big cap “defensives” are showing little correlation to the index. Imperial Tobacco is also showing a negative correlation but far slighter than BATS (a beta of -0.074) while Glaxo is showing a very slight positive correlation of +0.069.


[1] For some reason Google’s dataset is missing 27th March for both the FTSE 100 and All-Share, I’ve simply taken that day out of the calculation for all the above.

“We have not lost wealth, but just the illusion of wealth.”

April 10, 2009

So says Jeremy Grantham in his January 2009 investment letter.

I’d like to add a Battlestar-style “So say we all” and end the post. Unfortunately, politicians are doing their damnedest to recreate the illusion of limitless credit by borrowing even more.

Edinburgh IT and its NAV (feat. Trustnet vs AIC)

April 10, 2009

A recent comment of mine on investment trusts at The Fool, it received a chunky number of recs:

You’re right to be put off [by Edinburgh Investment Trust].

First a point on how Trustnet measures discount/premium to NAV. Trustnet’s figures measure NAV with debt at par (nominal) value whereas others, including the AIC, measure debt at fair (market) value. For investment trusts with little or no debt this makes little difference. Edinburgh IT just so happens to be one of the most indebted investment trusts out there [1]!

The level of debt, via debenture stock, outstanding at Edinburgh leads to a large swing in discount/premium depending on how you value the debt. An idle look at the AIC’s website ([2]) currently shows a premium of nearly 10% while Trustnet shows a small discount. The AIC figure itself is misleading, imho, since it doesn’t take into account accumulated income. Edinburgh IT release NAVs daily based on par and fair value, cum and without income [3]. If this is all rather confusing the AIC have a good explanation of net asset values on their website [4].

Using March 11th as an example the Edinburgh share price finished the day at 297p, the following day Edinburgh released NAV figures that were between 270.71p and 318.39p, quite a difference! Personally I use the debt at fair value and cum income (for income ITs where this is going to skew the figure). For Edinburgh this was 282.06p on March 11th, still a premium of 5.3%.

So why the drastic reduction in discount for Edinburgh recently? Three factors stand out for me:

1. The appointment of Neil Woodford as fund manager.

2. The protection of income, in the short-term at least, that most Investment Trusts offer as they have a revenue reserve.

3. The structural advantage that a discount to NAV offers to the underlying yield – if you buy on a 10% discount you’re effectively buying a 10% higher underlying dividend (excluding charges).

2 & 3 can be applied to all Growth & Income investment trusts and most are now trading at a premium to NAV for these reasons. Personally I think its a little silly buying an Investment Trust on a 5% premium when, once the stockmarket recovers, you’re likely to see that premium become a 10% discount. For those reliant on a steady and increasing income such as retirees the peace of mind may be worthwhile but even then its difficult to justify.

I’d avoid Edinburgh right now. The downside risk is far higher than buying into Woodford’s Invesco Perpetual (High) Income funds which don’t have the leverage and aren’t in danger of reverting back to a high discount to NAV.


[1] See pages 45-47 of the EDIN annual report available at:

[2]AIC’s pricing for EDIN:

[3]EDIN NAV news releases:

[4] The AIC’s explanation of NAV:|Net+asset+value