Russ Mould

In this month's Alma Spotlight, we speak to Russ Mould, Investment Director at AJ Bell. AJ Bell is an investment platform in the UK with close to half a million customers, including DIY and advised investors.

January 2024

The UK stock market has been up and down but overall flat for five years – is 2024 the year that all changes?

It would be lovely to think so. The UK market is unloved and unloved can mean undervalued, which is always a good starting point, since the valuation paid to access a company’s earnings and cashflow streams is the ultimate arbiter of investment return (no matter how good or bad the accompanying narrative may be). Sterling’s abject failure to recapture the ground lost in the immediate wake of the Brexit vote – nearly eight years ago! – is a further potential attraction for overseas buyers, as was shown by the healthy number of bids in 2023, especially for mid-caps, which equated to a couple of percent of the UK’s market cap.

What are the particular sectors or themes which you think will be important this year?

For better or worse, central banks will be centre stage once more in 2024. Markets are pricing in a cooling inflation, a soft economic landing and a pivot to interest rate cuts – up to six, one-quarter point cuts down to 3.75% from the Bank of England by Christmas (even if Governor Bailey continues to push back on this).

If this scenario proves accurate, then we might get an action replay of the 2010s and early 2020s when money was ultra-cheap and central banks were experimenting freely with zero-interest-rate-policies (ZIRP) and Quantitative Easing (QE) – long duration assets, such as growth stocks (tech and biotech), and bonds, among others.

If the Bank of England gets it wrong and goes too early stoking another round of inflation, then value, cyclicals and commodities could have another go at returning to fashion, as they did in 2021-22. And if the MPC errs and squeezes too hard, and the UK tips into recession (it might be there already), then defensives could have their day in the sun. You pay your money, and you take your choice on that one!

What would a Labour Government mean for the UK stock market and investing?

The Labour Party is sensibly saying little, which is what I would do in their position. Their opponents look financially and ideologically exhausted and are fighting with each other like rats in a sack. I had just let them get on with it.

That does mean judging what policies could be implemented in the event of a Labour Government is that bit harder. That said, the lack of available cash in the Government’s kitty, the Conservatives’ occasionally frayed relationship with ‘business’ and the likelihood that Labour took on board Trussonomics’ lesson that unfunded promises could prompt chaos may all mean that investors could be in the mood to take Sir Kier Starmer’s big lead in the polls, and any eventual victory, in their stride, even if the FTSE All-Share’s historic record shows it seems to prefer a Tory Government, on average, in both real and nominal terms.

The prospect of a Government spearheaded by Sir Kier Starmer and Rachel Reeves is unlikely to spark the sort of fear that would have been inspired by an administration whose driving forces were Jeremy Corbyn and John McDonnell. Moreover, the current Conservative Government, whose tenure effectively dates back to 2010 and covers a flurry of five Prime Ministers, could be seen as having taken an increasingly interventionist approach to the economy, given such initiatives as sugar taxes, Help to Buy, energy price caps, windfall taxes on North Sea oil producers, 2021’s National Security and Investment Act and proposals for changes to the 2005 Gambling Act under the recent review.

Increasingly vocal and forceful regulators, such as the Financial Conduct Authority, Ofcom, Ofgem, Ofwat and the Competition and Markets Authority, appear to be responding to public pressure for greater action, and perhaps the hardest part for investors going forward will be spotting which industry or sectors will come under scrutiny next, in the wake of such recent examples as betting, funeral services and veterinary services.

What are the key attributes you look for in a business when making an investment decision?

I have to be careful here, as AJ Bell is not authorised or regulated to give advice and I am not allowed to run my own money, so that customers and clients do not think I am up to anything when I talk about specific companies or industries as part of my print and broadcast duties.

That said, when I was a buy-side analyst at a fund manager and then a sell-side analyst at an investment bank I was taught to look for a well-tended, strong competitive position, a sound balance sheet and a sensible valuation. That would still do for me, and all three should help anyone overcome fear of missing out or over-reaching themselves in terms of risk.

What would be the three pieces of advice you would give to a company to enhance their investor communication?

I started in the markets in 1991 and the quality of financial reporting is the worst I have ever seen it. Adjusted this, underlying that. It is all rhubarb. It means you will not get as much credit as you should when things go well and even bigger brickbats if it does not, because you are making it harder, not easier, to see what is going on. Stop it.

Accept that people have opinions. They are entitled to them, so do not be thin-skinned if there is an outlier or critic out there. So long as they are not using their own facts, it is not a problem especially because they are not guaranteed to be right. Just focus on managing the assets of the company to get the best risk-adjusted returns from those assets and stop managing the share price. Do the former well and the share price will take care of itself.

Transparency and consistency do get their reward over time. Put five (ten?) years of statutory numbers in your accounts – profit and loss account, balance sheet cash flow. And if you cannot resist marking your own homework, put your adjusted, underlying, restated version on the facing page. Let investors judge for themselves then, and whether you want to be measured in such a manner, because any investor worth their salt is doing it anyway.

What is the most interesting thing you’ve read or watched recently?

I tend to read two things at once:

  1. The Giggle, by James Goss. I am a massive Doctor Who fan, and the book is an adaption of the third show produced to mark the sixtieth anniversary and the one that introduced Ncuti Gatwa as the Doctor’s fifteenth incarnation late last year.
  2. I am getting stuck into Frank McDonough’s The Weimar Years: Rise and Fall 1918-1933, not least because our teenagers have this as a topic at school.

Please note: The views and opinions expressed in this interview are those of the individual financial professional(s) and do not necessarily reflect the views or opinions of Alma Strategic. These insights are provided for informational purposes only and may not be relevant at the time of reading, as market conditions can change rapidly. The information provided should not be construed as investment advice or a recommendation to buy, sell, or hold any financial product or security. Individuals should conduct their own research and consult with a qualified financial advisor before making any investment decisions. Alma Strategic disclaims any responsibility for the accuracy or completeness of the information provided in this interview.