Thursday, 25 June 2015

Forget Greek debt woes and buy into the European market recovery

International Business Times UK Video link:

I have to admit it - I am sick of being asked over and over again for my opinion on Greece.

Will it stay in the Eurozone or will it be forced to leave? Is the Greek drachma going to come back? And so on and so on...

Here is what I really think deep down: whether Greece stays in the Eurozone or not, I believe that you should be investing in Eurozone stocks anyway.

I have three reasons for believing this:

1. The European economy is improving and Greece is small

Greece is the 13th-largest economy in the EU (out of 28 member states) and only contributes 1.3% to the EU by Gross Domestic Product (GDP), the classical measure of economic output.

So it frankly hardly moves the needle compared heavyweights such as the UK, Germany, France and Italy.

European economies are improving. Not just the UK's, which we can all see through the lens of the employment and property markets, but also in Continental Europe. In Germany, unemployment rates remain at generational lows. Wage growth is now starting to pick up, giving employees more purchasing power.

At the same time, the cost of living in the UK is staying low, thanks to the fall in oil and petrol prices plus subdued food prices. The cost of eating is being depressed in large part by ongoing price wars between supermarket chains and discounters like Aldi and Lidl.

Finally, the weaker euro has helped boost exports from Germany, Ireland and Spain to the rest of the world (while the strong pound is making the UK's exports relatively more expensive).

All of this has boosted the Euro zone's economic growth rate, as measured by GDP.

Eurozone GDP growth has picked up


2. Reforms are boosting both economies and company profits

Ireland, Spain, Portugal, France and Italy have made varying degrees of progress in lifting regulations and easing job-market rules, changes that can lead to better growth. Ireland and Spain are now the fastest-growing economies in the EU, and even Portugal is improving.

At the company level, investors are seeing a whole host of reforms too. Companies have become much keener on cost-cutting and are targeting their investments on good growth prospects. It has become somewhat easier to hire and fire employees, an essential reform to encourage companies to employ more people to boost sales and profit growth in the long-term.

This corporate strength is reflected in the very high levels of business confidence seen across the European Union today, with companies looking to invest for future growth.

European business confidence is at a high


The result is that the profitability of European companies has surged over the past few years. Even banks, which have been under the regulators' cosh since the 'Great Financial Crisis' are now starting to see growth in profits, which is translating into growth in dividends too.

3. European shares are cheap

At 15 times price/earnings ratio, the European stock market is cheap relative to other large stock markets such as the US. Shares in countries such as Spain and Italy look particularly cheap. And European stock markets are also cheap relative to their own history, if you compare today to the last 30 years.

At the same time, European companies pay out an average dividend yield of well over 3%, which is an income which is not to be sniffed at in these times of near-zero interest rates.

With the improvement in the underlying Euro economy continuing, European companies should continue to produce strong profit growth; thus an attractive combination of growth and value, which is what experienced investors look for.

What to buy? The direct way via an exchange-traded fund

The easy way to buy into European value and profit recovery is through a fund: I would recommend a cheap exchange-traded fund (ETF) such as the db x-trackers MSCI EMU Index UCITS ETF (code: XD5S).

This is an ETF that is:

  • cheap (they only charge investors a management fee of 0.25% per year);
  • priced in pounds sterling (current price £18.09); and
  • currency-hedged so that investors do not suffer from any weakness of the euro currency against the pound sterling.

What to buy? The indirect way via UK stock which is heavily exposed to Europe

The second option is to buy shares in a UK company that has a heavy exposure to Continental Europe, and which should thus benefit from future Euro area growth.

I would look at Sky (code: SKY). We all know and love Sky for providing us with satellite TV (namely sports, movies and of course not-to-be-missed series such as Game of Thrones), but Sky has also recently integrated Sky Deutschland (its German + Austrian equivalent) and also Sky Italia (Sky in Italy).

In all three countries, Sky is the dominant satellite TV provider. Sky is an excellent company which is dominant in a number of the largest countries in Europe. It will thus benefit from higher consumer spending in Continental Europe.

As an additional inducement, remember that the Rupert Murdoch-controlled US-based Fox network still owns 39% of Sky's shares, and have recently rebuffed two offers to buy this Sky stake from Vodafone and from France's Vivendi.

Perhaps Murdoch is thinking of buying out the 61% of Sky's shares he doesn't own in the near future?

All in all, the bottom line is that Greek concerns should not dissuade you from investing in European recovery, whether via an exchange-traded fund or via Sky.

Friday, 19 June 2015

Idle Investor Book Is Out!

Order from the publisher Harriman House: The Idle Investor (2015)

or from The Idle Investor (2015)

Earn high returns and beat the professionals using 3 simple strategies

Are you tired of the paltry interest rates on offer at banks and building societies? Are you are unsure where to begin when investing your own money and concerned about shares given the two sharp drops since 2000? Would you like to use a simple investing system that beats broad market indexes and fund manager performance over time, while limiting the risk taken, and requires only a few minutes each month? You could be an Idle Investor!

In The Idle Investor you will find three simple DIY investing strategies for long-term savings. The methods here are mechanical, so there is no need for you to figure out what to do each month - you simply have to consistently follow the rules of the strategies. Each of the methods requires only a limited amount of your time per month and they all make use of easily accessible, low-cost index funds. The principles behind why the strategies work and everything else you need to know to put them into practice is explained clearly and with worked examples.

The three strategies are:

1.       The Bone Idle Strategy: Part of your portfolio is allocated to shares and part to bonds. Adjustments to the portfolio are only required on two occasions per year. The rest of the time you do nothing.

2.     The Summer Hibernation Strategy: For part of the year your portfolio is allocated to shares and for part of the year it is allocated to bonds. Once again, adjustments to the portfolio are only required twice per year. The rest of the time you do nothing.

3.    Multi-Asset Trending Strategy: A simple trend-following method is employed to determine whether to hold your portfolio in shares or bonds. For this strategy you will need to check your investments and make adjustments once per month.

Each of the three Idle Investor strategies has been tested for the period 1990 to 2012, with the result that they delivered average annual returns ranging from 11% to 28%. By comparison, a buy-and-hold approach of investing in UK shares would have delivered 8.5% per year over the same period. The three strategies also limited the downsides experienced from stock market falls.

If you are looking for a straightforward investing method that will enable you to get on with your life while your investments earn money in the background, become an Idle Investor. 

Tuesday, 16 June 2015

UK goes mad over online shopping - BooHoo and Sports Direct worth an investment look

I admit it – I just love buying stuff on Amazon. I love the simplicity, the speed, the ease; such a contrast to actually having to go out and find a shop on the high street that actually stocks what I want, and at a price I am prepared to pay!

Clearly, I am not alone.

The UK is gripped by online shopping fever

Today, almost £1 in every £8 is now spent online in the UK (Figure 1), by over 42 million digital shoppers. Now that is quite a feat, particularly when you realise that only 4% of all food sales are done online.

Online now represents more than £1 in every £6 spent on non-food sales, according to the British Retail Consortium.

1: Over 12% of total retail sales are done online

Source: ONS

As you might expect, online sales are growing faster than retail sales in "bricks and mortar" shops.

Online shopping grew 13% over the last year (to April 2015; Figure 2), compared with overall retail sales growth of under 5% since April 2014.

2: Online retail sales up 13% in a year

Source: ONS

UK is the European leader of internet shopping

Did you know that we in the UK are in fact the world leaders in internet shopping?

This year, we are predicted to spend nearly £1,200 shopping online, even more than the average American online shopper and around 10% more than in 2014 (Figure 3).

3: UK shoppers spend an average of £1,174 online


Delving into the top 50 ecommerce retailers in the UK, 30 of them are from the retail sector, while another 12 are in travel, transportation and leisure.

Some of the top e-tailers are immediately obvious to anyone who has not been living in a proverbial cave: Amazon, Apple iTunes, and eBay.

Online shopping via mobile phones and tablets is now the fastest-growing area of ecommerce. And the top UK mobile retail category for searches is fashion, in the form of clothing, apparel and accessories. 65% of smartphone users search for fashion items using their device, according to Econsultancy (Figure 4).

4: Fashion is the most popular mobile retail search


Investing in UK online retail

In the UK, BooHoo (code BOO), Asos (ASC) and Sports Direct (SPD) are all direct beneficiaries of this move to buying sports and fashion clothing online, at the cost of more traditional high street clothing chains such as BHS and TopShop.

Out of BooHoo, Asos and Sports Direct, I am particularly keen on BooHoo and Sports Direct as good long-term online retail plays.

A quick check on the Alexa web ranking website gives a very positive first impression (Figure 5). is certainly getting more popular relative to other online retailers.

5. is becoming more popular, relative to other similar websites


What is more, BooHoo's 10 June trading update highlighted a 35% increase in sales for the 3 months to 31 May, with 3.3 million active customers worldwide (32% more than a year ago).

Very strong growth, backed by lots of cash which can be used to make further investments for future growth too.

All in all, this looks a rather attractive proposition to me at BooHoo's current 28p share price.

Sports Direct harness Click and Collect

Sports Direct's website makes great use of their brick-and-mortar chain of stores to offer a "click and collect" service. With Click and Collect, you first order your sports goods on their website, and then collect the parcel from your chosen local Sports Direct store once it has arrived.

Online sales are now over 14% of Sport Direct's total sales, but are growing at an 11% annual clip and are also helping to improve the company's profitability.

While you pay £4.99 for this delivery option with Sports Direct, you get a £5 voucher back to spend in store when you collect your order. So while in principle you pay nothing for delivery, it cleverly entices you to make another purchase from either the store or the website.

Conclusion: BooHoo and Sports Direct are two great ways to invest in the UK online shopping boom.