May ’23: Magic megatech

May has been election month.

In the UK, some (but not all – and not London) local councils had elections. The Tories took a drubbing, as expected.

And overseas the notable election seemed to be Turkey, where autocratic Erdogan won (however fairly) another five year term – taking him into his third decade.

Australia has been transfixed by a war crimes defamation case.

And in the UK, doom and gloom about the UK and its stockmarket continued. Inflation is now clearly falling – the latest figures show 8.1%. However, given that energy prices are now dropping, the fall in UK inflation is less than the Bank of England anticipated, with food in particular showing steep double digit increases continuing. UK interest rates are up to 4.5% but, with this level still far below the rate of inflation, are expected to increase at least a couple more times. It still makes sense to borrow money and invest in inflation-proof assets – though don’t try this at home.

Markets in May

Most markets fell in May. From what I can see, this was for different reasons. In the UK the bad inflation news dented both equities and fixed income.

The exception was the US, where tech stocks have been on quite a run – something I’m not seeing much comment on.

Digging in, the main gains seem to be in the ‘megatech’ bracket – recently joined by Nvidia, in a spectacular fashion. Five of the most valuable firms globally have gained 20-90% in the last three months. That is a story – albeit one not making the front pages at the moment (stop press: monevator just posted a link to exactly this story!).

‘Little’ tech not doing quite so well – as a few selected examples below illustrate (Alphabet/Google shown on both graphs, for a sense of scale).

Overall my markets fell by 1.8%, and 2% including currency movements. UK home bias was hurting me here; by contrast globally neutral VWRL rose by about 1%. However, my portfolio in fact rose by almost 1%, thanks I think to my large positions in a couple of the five magic megatech stocks.

Margin loan update

I wrote last month about trouble on the margin loan front, with IB. In response to that post I had the following comment from Hackney Boy:

I went to see my (British) private bank shortly after seeing that post, and was nervous that I would hear au revoir from it too. Thankfully, while it confirmed changes are afoot, I am not affected.

With all this noise about margin loans, I have taken the trouble to speak to a rival private bank – one with Middle East owners – who offers significantly cheaper margin loans (under 150bps above base). Sadly, when we dig in, the only way I could move would require liquidating some substantial positions with unrealised and unsheltered capital gains, so for now I am going to sit tight.

Cash/loan exposure

In any case, my loan has shrunk as a proportion of value by a further 10bps or so, so my risk profile continues to be manageable. It is becoming increasingly expensive, but touch wood the megacaps will continue to gain (GOOG is at a P/E ratio of less than 20, so there is scope) and I may be able Take Profits a little.

That’s it for this month.

Appendix – Media clippings