As an older Brummie, I remember the faded grandeur of Birmingham city center in the 1970s, with the Victorian and Edwardian buildings looking more than a little shabby.
Already a decade before Britain’s financial Big Bang wiped out the Birmingham Stock Exchange, it was clear that the heyday of the city’s stock exchange community was long over. The paint on the desks around the purse was peeling off and posters were stuck to the venerable facades.
In truth, even in their heyday of the 19th century, Birmingham brokers struggled to compete with London. As early as 1911, a local metal giant – Guest Keen and Nettlefolds (later GKN) – did not appear in the shadow of St Philip’s Cathedral in Birmingham but of St Paul’s.
It helps to remember that the roots of regional inequalities run deep at a time when an enthusiastic government, fresh out of a string of electoral victories, is pursuing a leveling agenda.
But we shouldn’t be too gloomy. After being beaten in the 1980s for its engineering industry, Birmingham has evolved into a service center around the pioneering National Exhibition Center and has a new financial center which includes HSBC’s UK headquarters. United and a Deutsche Bank outpost. They will soon be joined by Goldman Sachs, as the US bank announced last month.
So if Boris Johnson is serious about bridging the gap between the rich South and the economic laggards, investors should also be serious about finding opportunities. Because if the leveling works, it should generate good investment prospects, including for private investors.
The government is pledging money for everything from free ports to job training, broadband networks and railways. Government jobs move north, with the Treasury moving to Teesside.
Johnson’s efforts are likely to be boosted by digitalization, which allows people to work together wherever they are, and by signs that working from home will survive when the lockdown ends. London’s grip on highly skilled services will weaken if workers can live where they want to.
But it won’t be easy. The Institute for Fiscal Studies has emphatically pointed out that “the UK is one of the most geographically unequal countries in the developed world”. Brexit could make matters worse, as it is more likely to hit low-skilled jobs outside the capital than the highly skilled core of London. And, painfully ironically, the government withdrew from Europe’s biggest level-up initiative, the EU’s Regional Development Fund.
For private investors, choosing investments in these circumstances is tricky, especially as the UK stock market has had a strong run over the past year. The domestically-oriented FTSE 250 index is up 63% since the pandemic shock, far ahead of the world-oriented FTSE 100 index with 34%.
Consolidation and globalization have transformed many local businesses into larger players. Some of the largest listed companies in Manchester, for example, include PZ Cussons, the toiletries group, Timpson, the shoe chain, and Manchester United. Their markets are global, national and global respectively. Small businesses are too often national in scope. Gately, a Birmingham-based LSE-listed law firm, is a diverse national group.
Of course, you can still expose yourself to leveling through domestic companies. Alex Wright, a UK-focused Fidelity International fund manager, recommends home builders with far South East portfolios, such as Redrow and Vistry Group. He sees value in the Ibstock and Forterra brickyards, and in Brickability, a distributor.
AJ Bell’s Laith Khalaf favors large construction groups such as Balfour Beatty. Less obvious choices are WHSmith and Baker Greggs, on the grounds that their hub-based stores can benefit from investments in transportation networks.
Dig and you can find some truly local businesses that can invest. There’s Daniel Thwaites, a Lancashire brewer with 250 tenant pubs, listed on the small market AQSE. Sigma Capital Group, a real estate developer listed on the LSE, has a solid business in the North West. Hargreaves, based in Durham, Britain’s largest bulk carrier, is a major property developer in the North and Scotland.
However, it is fair to say that the choice of purely North or Midlands focused listed companies is limited. For the funds it is worse. The Investment Association, which represents over 4,000 funds, tells me that it cannot name any fund with a clear Nordic identity.
Fortunately, real estate offers ways to get in. Investors willing to save money may want to consider buy-lease. As my colleague James Pickford has pointed out, southern homeowners are now looking at residential properties in the Midlands and the North with a fresh eye.
But bricks and mortar require more money and time than the average investor has. Meanwhile, it is difficult to invest in real estate outside of London via the financial markets – there are few residential specialists, while commercial operators are overweighted in large, dated offices and heavily skewed towards the capital.
However, there are options. Wright of Fidelity likes L&G, an institutional investor, with promising real estate projects, for example a £ 4bn partnership with the University of Oxford for housing and other projects.
The investment trust industry offers 20 regionally focused real estate funds, according to the Association of Investment Companies. They include Urban Logistics Reit, a warehouse specialist, which does 66% of its business in the Midlands, and PRS Reit, which offers new family homes for rent, makes 59% of the revenue in the North West.
The choice could be widened if Rishi Sunak, the Chancellor, succeeds with his proposals for long-term asset funds (LTAFs), open vehicles that would allow investors to put money, for example, in infrastructure or venture capital.
The government wants LTAFs to be suitable for at least some private investors – likely wealthier people with advisers. But it will be slow: Officials know that funds holding illiquid assets such as bridges or venture capital holdings can be risky. So the rules, which are due to be announced later this year, will be framed with caution. And rightly so.
Meanwhile, for investors interested in the potential of unlisted companies, the investment trust industry already offers closed-end funds with a regional focus, Lancashire-based Seneca Growth Capital VCT, for example, boasts “a strong investment pipeline. opportunities, especially in the north of England.
The British Smaller Companies VCT has investments in Manchester, Preston and Nottingham. And it’s managed by a company called YFM, formerly known as Yorkshire Fund Managers. What more would you want?
So if you want to save the North and the Midlands you should search and use your imagination. NEC’s story suggests it may be worth it. When Birmingham first funded it, there was widespread skepticism about a group of provincial city councilors getting into the world exhibits business. Their daring paid off.