Week in Review: FTSE 100 up marginally as travel stocks soar
FTSE news
The FTSE 100 index of stocks was up marginally on Thursday (16 September) thanks to soaring travel stocks after Ryanair upgraded its growth target for passengers. The index finished the session up 0.2%, having fallen back from earlier gains, settling at the close at 7027.48.
- On Monday (20 September) Markit releases its latest Household Finance Index, looking at the health of the UK’s household money.
- The OECD releases its latest economic outlook report on Tuesday (21 September) giving insights into how the economies of developed nations are set to progress.
- The US Federal Reserve announces its latest interest rate decision on Wednesday (22 September).
- On Thursday (23 September) the Bank of England gives its latest interest rate decision.
- On Friday (24 September) there is no major economic update to note.
Sector in focus
Tobacco stocks are a very tricky subject thanks to the toxic nature of the products they sell. Making waves in recent weeks is the news that tobacco product manufacturer Philip Morris International (PM) has acquired an inhaler firm, Vectura (VEC).
Shareholders of the asthma inhaler maker approved the £1.1 billion takeover on Thursday (16 September) despite vociferous protests from health campaigners. The takeover has caused a storm because the bought firm is dedicated to creating products that help those with breathing difficulties, and the other is a primary cause of a range of illnesses among which is breathing difficulties.
Ethical considerations for investors are ever-present, but some decide to hold these stocks because they pay very generous dividends. British American Tobacco (BAT), for instance, has a dividend yield at the time of writing of over 8%. Many other investors will be investors in these firms simply by chance of owning index-tracking funds that must hold a certain balance of tobacco shares.
Ultimately, such firms are fighting long-term trends against their products, and the share prices of BAT and PM are both in relative decline. That is why firms such as Philip Morris are acquiring other brands such as Vectura. Whether or not it turns out to be a step away from tobacco and towards ‘healthier’ revenue streams remains to be seen.
Economic update
The UK’s job squeeze shows no sign of slowing, with the Office for National Statistics (ONS) announcing that more than one million job vacancies are now unfilled for the first time ever.
With such a dearth of workers to fill the gaps, wages are rising at an astronomical pace too, over 8% year-on-year. While the ONS warns of base effects distorting the number, there is little doubt that workers are bargaining for higher pay packets as companies desperately try to fill roles.
The ONS has also reported that two in five (41%) of businesses are now facing recruitment difficulties, up from one in three (932%) in August.
The economic impact of this can turn into a vicious cycle. As wages increase across the board, consumers have more disposable income, which in turn creates inflation and supply constraints. This effect is amplified by the fact that there are not enough workers to fulfil demand already, and inflation has this week hit 3.2%.
The Bank of England will be watching proceedings intently. It is due to update with its latest interest rate and quantitative easing (QE) policies on Thursday (23 September). While the expectation is to hold its policies stable, the European Central Bank (ECB) has already announced it will commence some tapering of QE. As inflationary pressures grow, the Bank of England’s inaction may soon become a luxury.
Fund watch
If investing in ethical companies is something that matters to you, then Baillie Gifford Positive Change B Acc (GB00BYVGKV59) is worth considering. While some ethical funds simply screen out ‘bad’ companies, this fund seeks to actively invest in companies making a positive impact on the world. The fund has returns 146% in three years and has an OCF of 0.53%.
ETF watch
If you’d like to invest in a socially responsible way more cheaply via an ETF, then Lyxor MSCI Wld ESG Ld Ext DR ETF Acc (WESG) could be an option. This passively managed fund tracks the performance of the MSCI World ESG Leaders index. The ETF has returned 58% in three years for an OCF of 0.22%.
Company announcements
21 September – Retailer Kingfisher (KGF) announces its latest interim results on Tuesday (21 September). The DIY retailer has been something of a turnaround story in the past two years, reversing what seemed like a prolonged decline. The firm which owns chains such as B&Q has managed to beat long-term high street retail declines. But questions will be asked of the company as the DIY trend – exacerbated by lockdown – could be set to end.
23 September – Royal Mail (RMG) gives a trading update on Thursday (23 September). The national postal service has had a positive story to tell during the pandemic. Parcel revenues have overtaken letters for the first time as parcel volumes have expanded exponentially thanks to the pandemic shutting down the high street. The firm has even announced it will start delivering from certain firms on Sundays – a big change to the national postal carrier’s historic routine. Investors will now be looking at whether it can maintain momentum in parcel delivery growth or whether consumers will revert to old habits.