The European Union’s big move on energy companies’ excess profits arrived with a big number: €140bn (£121bn) to be raised via a windfall tax, with the lion’s share coming from generators who are the accidental beneficiaries of high gas prices. Does it put the UK’s efforts to shame?
Well, up to a point. The EU has definitely been bolder in making its levy on generators upfront and compulsory: a revenue cap will be set at €180 a megawatt hour, with the excess going to member states. Assuming the proposal is adopted, there will be no wriggle room.
But the obvious drawback is that the EU hasn’t designed its measures on a fuel-by-fuel basis. A cap at €180 squeezes coal plants whose input costs have also risen, but it is still extremely generous towards nuclear plants and windfarms, whose costs are fixed and substantially lower. Member states can set lower thresholds if they wish, but that’s for the future.
The UK’s non-windfall tax approach, remember, is to negotiate with nuclear, wind, solar and biomass generators to secure lower wholesale energy prices quickly – albeit at the risk, as many have pointed out, of giving away too much future value via new contracts for difference.
“If I was sitting in Whitehall preparing to negotiate with the UK companies, I would be pleased that the EU has done it,” says independent energy analyst Peter Atherton. “But I would be worried that they have set the cap so high, and not designed it on a fuel-by-fuel basis.”
In other words, there is now a read-across figure for the UK to aim at. But there is still scope to craft a more finely tuned package that applies different prices to different forms of local generation. We’re not much further on: UK ministers still need to be aggressive – and transparent – in their deal-making.
Why Fundsmith’s emerging markets trust failed to find its feet
Fund manager Terry Smith has a good line in cycling analogies for investors, one of which flows from the observation that the Tour de France has never been won, and never will be, by a rider who wins all 21 stages. Some stages suit sprinters; climbers dominate others, and there are usually a couple of individual time trials.
In the same way, it’s pointless to hunt for a fund manager capable of outperforming under all conditions. Best to look for qualities of endurance. In his £23.5bn Fundsmith Equity fund, that is exactly what Smith has displayed: an average annual return of 16% since launch in 2010, even if a few punctures have been suffered in the past year. (Disclosure: I am an investor.)
Investors in the separate Fundsmith Emerging Equities trust (Feet), on the other hand, have had a very different experience. This is the emerging markets investment trust launched in 2014. It has never produced the goods. An annualised increase in net asset value of 4.5% isn’t appalling, but it is definitely mediocre.
Indeed, it is so mediocre that, highly unusually in the fund management world, Smith is in effect sacking himself. Feet’s portfolio will be liquidated and the cash returned to investors. The move is embarrassing for Smith, but one admires the willingness to concede the lack of an investment edge. With assets worth £340m, the trust is a tiddler versus the main fund, but Smith’s management firm will still say goodbye to about £3m in annual fees.
Why did Feet fall flat? Smith answered the question himself a few years ago when he said every investment decision in an emerging market involves making a macro-judgment on factors such as currencies. Macro is not his specialism; picking winners from a tightly defined pool of large companies with high returns on capital is, as the main fund’s performance shows. At Feet, he was a cyclist trying to play a different sport, as he should probably have realised at the outset.
Upfront communication required at Naked Wines
Naked Wines connects wine drinkers with winemakers, according to the blurb. What the e-commerce outfit doesn’t do, it seems, is connect with its poor old shareholders, who were left to try to decipher two cryptic after-hours announcements on Tuesday.
The first hinted at a new strategy but added an alarming line about “active discussions to address our credit facility to reflect any revised plan”. The second said a non-executive director, representing a 10% shareholder, had resigned with immediate effect after only three weeks in post; no reason was given.
Naked is listed on the Alternative Investment Market, where disclosure obligations sometimes feel like whatever the company chooses to say. Even so, this degree of confusing communication is absurd. The shares plunged by a third. Naked’s chairman, Darryl Rawlings, needs to find his clothes and start explaining.