Where finance and media intersect with reality


Spot Markets Live Transcript (06/03/23)

music royalties
Anjuli Davies10:57

10:59Good morning and welcome to Spot Markets Live, the weekly round-robin of stocks and markets news.

Today I’m excited to be joined by David Kimberley, who works for Kepler Partners. Thanks for joining us today.

and Izzy ! (who I saw lurking in the comments.)


David should be here, or so he tells me?

David Kimberley11:01

I am indeed

needed to refresh

Anjuli Davies11:01

Greetings David

David Kimberley11:01

morning Anjuli

Anjuli Davies11:01

Do you want to tell us a bit about yourself to start with?

David Kimberley11:02

Sure, so I have a bit of a funny role at Kepler, it’s part analyst, part media type

we’re also a bit of a peculiar business as we’re split in two, one half deals with closed-ended funds and the other deals with UCITs

then we also have a fund manager

so we’re a small company and do lots of different things, I sit on the closed-ended fund side

so will be shilling investment trusts today

Anjuli Davies11:03

Sounds exciting

Before we kick off a quick look at the markets

Last week Stocks ended up a six week high

Today they are a little more sombre.

Obviously UK is Budget watching

Fed’s Powell gives testimony before the US congress on Tuesday and Wednesday

and then the Jobs report is out on Friday

it seems everyone has tempered any talk of rate cuts by year-end now

David Kimberley11:05

calm before the storm…

yea, Q1 seems like a bit of a dead cat bounce

Anjuli Davies11:06

Yes, Graham and Citi analysts suggest this is why everyone is headed stateside

David Kimberley11:07

Well I think that’s a longer term trend

Anjuli Davies11:07

UK Stocks Valuation Gap to US Driving Listings Abroad, Citi Says

  • Manthey says MSCI UK trades at record 40% discount to the US
  • Listing outside the UK is becoming an attractive option
David Kimberley11:07

If you look over the past few years, you can get a better valuation in the US

David Kimberley11:07

yea what the headline says

Anjuli Davies11:08

Is this all just doom and gloom for Britain then?

Citi today have said they are building a Paris trading hub

David Kimberley11:08

I don’t know, I think we’re at an interesting juncture

Anjuli Davies11:08

Aston apparently risen on a broker upgrade

David Kimberley11:08

And what must be frustrating for UK listed companies

is that a lot of it seems to be sentiment driven

so just US good valuation, UK bad valuation

I remember the Plus500 CEO talking about it around 18 months ago

Anjuli Davies11:09

Back in London, FTSE 250-listing Aston Martin jumped 24% to 296.60 pence, as Jefferies raised the target price for the stock to 160p from 120p.

David Kimberley11:10

so they were thinking of dual listing on the NASDAQ

and the only reason was they thought their share price would go up

Anjuli Davies11:10

WANdisco, the UK software group is the latest company today to say it will add a US listing

David Kimberley11:10

on the other hand, I think some of the negative sentiment towards the UK is a bit overdone

Anjuli Davies11:11

It trades on the AIM market

David Kimberley11:11

when FTSE 100 was below all time highs, it’s because it’s rubbish

then it goes above the all time high and…it’s irrelevant because it’s still rubbish

Anjuli Davies11:11

Define “rubbish”


David Kimberley11:12

well the main critique is it’s all these old industry businesses

oil, gas, mining, banking etc

which were supposedly all irrelevant, until the past 12 months when we see that they’re actually quite relevant

Anjuli Davies11:12

City Minister Andrew Griffith tried to come out fighting in a piece in The Telegraph over the weekend about post-Brexit deregulation

David Kimberley11:13

but then if you look at other indices, they aren’t so different

eg. that’s MSCI Canada


obviously the big critique here is the lack of tech in the UK and the sense that we’re not particularly hospitable to tech companies – fair points

however, if you look at a company like Deliveroo, one of the big ‘tech’ IPOs of the past few years

no earnings even in the most ideal macro environment possible (covid)

Anjuli Davies11:15

Maybe in this climate that will prove to be a good thing given where tech seems to be headed

David Kimberley11:15

does it make sense that it should have a large valuation?

you look at performance of similar companies in the US over the past 5 years, not exactly great

Anjuli Davies11:16

Has there been some sort of structural institutional shift though? it seems investment managers and pension funds are “shunning” UK equities or reweighting their portfolios

David Kimberley11:17

yes I think this is another interesting point

Schroders has done some good research on this

and here I will shamelessly plug the Kepler Trust Intelligence podcast as we did an episode on this

Anjuli Davies11:18

Thanks David, that should answer my questions !

David Kimberley11:18

Anjuli Davies11:18

Wow, that’s stark isn’t it

David Kimberley11:18

but the basic point is that UK institutions have moved a lot of money out of the market and, although foreign investors have stepped in…

it’s arguably not enough to offset things

and Bruce in the comments is correct IMO, another factor is housing

if you have to spend 40% of your income on housing vs 20% in the past, that means less money to invest

I would note that this is not to say the UK is doing wonderfully, clearly not

but things are more nuanced than saying ‘it’s crap’, which is what a lot of people in the press seem to take great (masochistic) glee in doing

Anjuli Davies11:23

Should we turn to China now David?

David Kimberley11:23


Anjuli Davies11:23

the country’s leadership set a 5% target for economic growth this year, which analysts called conservative and pragmatic, as they kicked off the annual session of the National People’s Congress.

That’s what apparently hit the FTSE this morning and mining stocks

David Kimberley11:24

Anjuli Davies11:24

But you’ve been looking at the bigger picture?

David Kimberley11:24

Morgan Stanley called it in December then

yes, so China has had a strange couple of years

initially the Covid winner, then draconian policies as the rest of the world opened up

housing crisis, bans on random stuff like video games and private tutoring

Anjuli Davies
Headline RedBox Fixed Income
David Kimberley11:26

and I think post-Ukraine, people suddenly became very cognisant of what can happen when investing in a more authoritarian state

Anjuli Davies
Headline RedBox Global
David Kimberley11:26

so as an aside, any fund managers looking to set up an Asia ex-China fund would probably do well…

but for those that stay, an interesting thing is now they’ve got a declining population

the graph that no CCP leader wants to see

does it mean investing in China becomes kind of like investing in Japan or Europe?

Anjuli Davies11:28

I saw that there is talk of encouraging women in China to freeze their eggs as a national drive

David Kimberley11:28

yes, egg freezing, no video games, no tutoring

what a place!

Anjuli Davies11:29

HONG KONG, Feb 28 (Reuters) – A member of China’s top political advisory body said she would propose allowing unmarried women to access egg freezing as a measure to preserve their fertility after the country’s population fell last year for the first time in six decades.

David Kimberley11:29

joking aside though, if you look at what is happening

to wages

Anjuli Davies11:29

Apparently the market in China for nannies is booming too

David Kimberley11:29

basically manufacturing may end moving (more than it already is) to places like Vietnam and India

and so you then wonder will China have to become like Japan

where there is a big focus on robotics and automation

(side note that TOPIX EPS growth has been better than S&P 500 since 2010)

or do you become like Europe where you have ‘high end’ manufacturing

like ASML or LVMH

those types of things

it’s a hard one but it will be interesting to see what happens there moving forward, as it’s plausible the growth of the past 3 – 4 decades will slip away

Anjuli Davies11:33

This is a massive part of the global jigsaw puzzle

We’ve been talking a lot about house prices and mortgages. Wondered if anyone out there was a follower of what’s happening in the car loan market?

this caught my eye



Car payments have hit record highs: Nearly 15% of drivers who financed a new vehicle toward the end of 2022 are paying $1,000+ a month. (via edmunds)



Replying to @GuyDealership

I just financed a car at 7.35 percent. To put that in perspective, i have a 2.9 percent rate on my mortgage. The car loan market is insane.

Is this going to be another time bomb, with rates rising ?

David Kimberley11:36


housing likely to be more of a risk though

I think this is true across the board though, it’s as though people forgot what it’s like to live in a world where you pay meaninful levels of interest on borrowing

Anjuli Davies11:37

That’s the thing, nobody can remember it

and it was actually the norm before the crisis – rates were 5% for a decade

That’s what i was thinking @Peter . PCP is now the staple

David Kimberley11:38

We see it in the closed-ended fund sector (so rather different to cars)

obviously a big benefit of trusts is that the managers can you use gearing

but for about a decade now it was almost an afterthought for investors and managers

recently I saw one fund, it’s borrowing costs went up from roughly 2% to 6%

so if you are running a 10% geared portfolio, with a yield of 4%

Anjuli Davies11:39

How do you manage such a rise ?

David Kimberley11:39

you end up losing money

some managers have been quick to lock in rates

so UKCM is one fund that has been hit really hard as it invests in commercial property

but the managers actually locked in rates until (I think) 2026 and 2027, both <3%

this is an area i find really interesting actually

obviously another feature of trusts is that they can trade at a discount to NAV

so for UKCM it was at one point >40% below its NAV

Anjuli Davies11:41

What are some of the names we should be looking at David?

David Kimberley11:41

as everyone was factoring in interest rate hikes and an increase in discount rates

11:42alternatives are probably the most interesting

just because you have a lot of selling, discounts widening out a lot

so SONG (invests in music rights) has seen its discount widen a lot

Anjuli Davies11:43

Have you seen The Playlist?

David Kimberley11:43

I have not

should I have?

Anjuli Davies11:44

It’s quite interesting, a sort of fictionalised history of the making of Spotify (talking of SONG)

David Kimberley11:45


so there you go, quite a wide discount now!

Anjuli Davies11:45

David Kimberley11:46

well I don’t have a TV alas but I will watch it when I do have one

Anjuli Davies11:46

I thought buying music rights was big business these days

What’s going on?

David Kimberley11:46

it’s basically interest rate hikes

song rights are effectively an income investment

you buy the rights to Vanilla Ice

every time someone streams Ice Ice baby you get some £

so if the yield is 3% and rates are 0

the valuation makes sense

if suddenly rates are 3% then that starts to make less sense

so that is what has happened

another question I have is how viable the sector is

Spotify still isn’t profitable

Anjuli Davies11:48

Or how interest rate hikes are seeping into every corner of the financial world….

What about Apple music and now Amazon music?

David Kimberley11:49

I’d have to check those

but it’s slightly different as they can eat a loss until profitability or just ditch it

Anjuli Davies
Headline RedBox Fixed Income
David Kimberley11:50

Spotify has no other business from which to funnel money and ditching it means the company is done

Anjuli Davies
Headline RedBox Fixed Income
David Kimberley11:50

Hope or cope

Anjuli Davies11:51

So, should one invest in SONG or not?

David Kimberley11:52

I would live in fear of our compliance team for a long time if I answered that

what I would say is that there are many funds in the closed-ended sector at a discount

where investors have priced in rate hikes

and it’s hard to tell if they have overshot things or not

that applies to SONG but I think UK commercial property is also one to look

eg. I spoke to one manager recently who put up rents by 70%

Anjuli Davies11:53

Thanks David and sorry for the awkward line of questioning

David Kimberley11:53

no worries at all

Anjuli Davies11:53

70% !!!!

David Kimberley11:53


I was amazed too

Anjuli Davies11:54

What was the business case for that??

David Kimberley11:54

so 70% rent increase means higher yield, means it can balance out rate hikes

same problem as we have for housing all over the UK

a lot of demand, not enough supply

Anjuli Davies11:54

but who can afford to pay that much of an increase?

David Kimberley11:55

I believe it was a company moving their operations out of London, so it was a net win for both parties

Anjuli Davies11:55

Ah I see

I know you had to shoot off a bit early today David

Thanks so much for joining us !

come back soon !

David Kimberley11:56

Thanks for having me, I certainly will

next time I’ll try to be more concise!

Anjuli Davies11:56

It was very informative

We didn’t even get time to mention Swiss banks….

David Kimberley11:57

What a shame

next time we will I’m sure

Anjuli Davies11:57

The saga continues….

David Kimberley11:57

Ok I do have to jump off now, thanks for hosting, this was great

have a good day everyone

Anjuli Davies11:57

Thanks and goodbye for now

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