UNIT TRUSTS AND OVERSEAS INVESTMENT
DAVENPORT By NICHOLAS So many City people have been cocking a snook at the Governor of the Bank that Lam beginning to feel anxious. Twice Mr. Cobbold has expressed his disquiet at the boom in equity shares—first at the bankers' dinner at the Man- sion House last November, then at the Liverpool and District Bankers' Institute dinner on Feb- ruary 12, when he referred to 'too much money chasing too few first-class shares.' It is true that the boom has been tempor- arily checked, but for how long? The week has just opened with another unit trust block issue pouring more money into the 'too few shares.' This time it is an offer of 16 million units at a low enough price-3s. 21c1.—to tempt even an impoverished pensioner. As the dividend yield is only 3.23 per cent. the attraction is once again set out as 'growth giving capital appreciation.' I can see Mr. Cobbold having apoplexy.
The advertising blurb of this issue stated that £200 million had been invested in UK unit trusts so far and that this was tiny compared with the $16,000 million (say, £5,000 million) so invested in the US. To reach, in this country, the American ratio of such investment to total population the issues of British unit trusts would have to increase to over £1,000 million. That is said to be their target for the Sixties—I presume in a never-ending equity share boom. The prospect frightens me as much as the Governor of the Bank. Indeed, the whole approach to the small investor by the unit trust managers—with its emphasis on capital gain and the inflation of equity share values—seems to me so wrong-headed and so harmful to the public interest that I feel this popular investment move- ment will sooner or later have to be directed, if not controlled. If these unit trust managers expect to get tax concessions without any control out of the Chancellor in the April Budget they are likely to receive a rude shock.
The diversion of small savings into equity investment can be an excellent thing. It may dis- please the Treasury if the savings are switched out of government bOnds, especially when the Chancellor is trying to stop any further rise in the rate of interest, but the movement in itself can be turned to the public advantage if it encourages sound productive investment to be made either under public or under private enterprise. If it does not lead to that, if it merely tends to inflate the market values of already inflated equity shares, it would be bad and undesirable. Now the popular demand for ordinary shares certainly makes it easier for companies to finance themselves out of equity 'rights' issues—witness the impending £21 million 'rights' issue of Tube Investments—but there is no certainty that the supply of new shares
will be sufficient to meet the current den 01 (Most companies are averse to watering the equity capital too often.) It seems to me that the Government must take a hand and provide nine of the new supply. There is no logical reason vitt/ the State should not allow the public to haVe participation in a State equity—such as a gee: works like Richard Thomas and Baldwin (v hied' I hope will remain State-owned), or the leased'au hotels and property sidelines of the railwys-' provided the Government remained the majorit shareholder. But what I have particularly in is an equity issue in a government-directed tra51 formed for investment in the sterling area over. Seas.
The Oxford Institute of Statistics has published an excellent bulletin on the futu e the sterling area. It is a collection of the VIC of experts on the various proposals made arie throws much light on the investment needs cl the under-developed countries. Capital moverlent5 between the UK and the rest of the sterling area are unrestricted (except for purchases of 11°11. sterling securities). The bulk consist of direct tO vestments by British companies in their stibstel. iaries overseas, but the British Government is concerned in the provision of export credits (t, ndef the ECGD). of loans through the Colonial Bevel: opment Corporation and of 'Montreal conference loans to the overseas governments (at per cend t' above the Treasury borrowing rate) which are tie to the purchases of British goods. The total net outflow of capital to the sterling area has beell running at about £230 million a year, of v hich £1(K) million is directly or indirectly under govern' ment control, and the Treasury policy is to fin an this by securing a surplus on our balance of PO' ments of not less than 000 to £350 million a year. The current surplus NHS short of this target and as the Radcliffe Committee were told that the Treasury regarded a surplus of £450 million a Year as desirable in the early 1960s, I imagine that Mr' Amory is beginning to look with some disfa One on the present boom in the domestic consumer durable trades which may soon be hitting the export trade. Surely it would not be beyond the wit of the Treasury experts to devise a staling area investment board which would collect savings from the public by the issue of units in the unit trust style for investment in approved overseas undertakings. We certainly need some form of investrnent board to guide overseas investment into cha wets useful for our export trade and for the rag of living standards in the under-developed cow tries which buy our goods. Recently I was shocked tO see money being raised in the London capita market for such overseas investment schemes35 building an office and flats skyscraper over the Grand Central Station in New York, develc ping land and property in the southern States of the US and equipping self-service shopping markets in New England suburbs. All this at a time when India. Burma. Ghana, Nigeria, the Rhodesias and other countries of the sterling area are crying for capital for urgent developments. Surely the time has come to direct overseas investment with greater purpose and determination and in NI' ticular to turn the unit trust movement, now all agency for the crazy inflation of equity share values, into an instrument for the public invest' ment good.
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