Quantcast
Menu
Save, make, understand money

Blog

BLOG: A pasty parable

Lawrence Gosling
Written By:
Lawrence Gosling
Posted:
Updated:
10/12/2014

Lawrence Gosling analyses products which are coming in for growing criticism and asks whether there is such a thing as a bad asset class.

Well, you guessed it – my £2.33 PPI payout did not win me the EuroMillions lottery, so I am back. Part of my winnings went towards a pasty on holiday, but it was a bit of an eye-opener to see how rising commodity prices have affected the price of pasties since last summer.

Well that is how an economist would look at it. I prefer to think of it as local bakeries guessing how much they can get away with charging for the eight weeks of the summer until they go back to competing with Greggs for the rest of the year.

As I regret just how many pasties I consumed over the past few weeks , I feel heartened by a food psychologist who said there is no such thing as bad food, it is all about volume. 

But the whole good/bad food debate set me thinking – is there any such thing as a bad investment or a bad asset? Or is it just a question of how much of it, and when, or by whom, it has been bought?

I pose this question in the context of a few perennial products in the industry. 

Advisers who do not like structured products would say they are bad. I disagree, and Gary Dale from Investec Structured Products has a very good defence on his blog on the subject.

UCIS are another so-called ‘bad product,’ according to some, and the problems currently being experienced by investors in a few of the property-based schemes would support the critics.

The reality is it is not the underlying asset class that is the problem, but often the structure in which it is held, or the management company behind it.

Boutique group Maven Capital, which has an excellent range of VCTs, has just launched what, at first glance, seems to me an excellent ground rents fund. I have seen others in that asset class which have as much appeal as a hole in the ground.

Equally, student accommodation funds seem to vary considerably in quality from the likes of UNITE to other funds which look like grotty bedsits in comparison. This is where advisers can, and should, earn their corn, but some get lazy and buy the first one they come across.

Of course the absolute worst investment – certainly as far as the FSA was concerned – are the ‘toxic’ (its words not mine) life settlements.

So when I came back from holiday I was intrigued to see Warren Buffett’s Berkshire Hathaway had bought a portfolio of $300m of life settlements for $60m.

In classic Buffett style, he bought it at a deep discount to the sum assured, and it is only a small fraction of the overall investments the company holds. EEA might want to give him a call as it tries to unwind its fund.

Suggesting a similar investment to a UK investor looking for income right now would be the equivalent of suggesting they eat pasties three times a day.

Portfolios, like pasties, should be taken in moderation.

Lawrence Gosling is editorial director of Incisive Media


Share: