Norway’s riches

In 1969, Norway discovered one of the world’s largest offshore oilfields. This find boosted the Norwegian economy, leaving the country flush with cash. To protect the economy from oil-price swings — and to preserve wealth for future generations — the government created a fund to invest this windfall.

The Government Pension Fund Global was created in 1990. After 29 years of operation, guess how much the Fund — which supports just 5.6m people — is worth today? The answer is a gigantic $1.9trn, which equates to £1.4trn.

Putting this figure into perspective, it’s worth more than half (55.2%) of the UK’s FTSE All-Share index (at £2.56trn). That equates to about $343,000 (£254,000) for each Norwegian. Wow.

What the Fund owns

Currently, about 70.6% of the Fund is invested in global equities, spread across 8,374 companies in 62 countries. Indeed, it’s estimated that it owns around 1.5% of the entire global stock market.

To generate income and reduce risk, 27.1% of it is invested in fixed-income securities. These IOUs (debts) issued by governments and companies are less risky than shares. The Fund has stakes in 1,583 bonds across 50 countries. The remaining 2.3% is invested directly into property and renewable-energy infrastructure. To me, that’s a great spread of risk.

It loves UK property

The Fund states: “By spreading our investments widely, we reduce the risk of losing money.” That said, it has hefty exposure to UK equities, especially listed property businesses.

Take FTSE 250 firm Shaftesbury Capital (LSE: SHC), a £3bn business that converted into a real estate investment trust (REIT) in December 1999. Formerly known as Capital & Counties Properties, the group has origins dating back to 1933. The company owns £4.9bn of prime property in London’s West End, including famous locations such as Covent Garden, Chinatown and Carnaby Street.

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The Fund owns over a quarter (25.2%) of this REIT, making it Shaftesbury’s largest shareholder. In March 2025, the Fund exchanged contracts on a £570m deal to buy a quarter of the Covent Garden estate from Shaftesbury Capital.

Why have such hefty exposure to this individual stock? My guess would be first, prime London property has been a great long-term investment, as many of our richest nobility would confirm.

Second, following the 2020/21 Covid-19 crisis and 2022/23 interest-rate rises, the UK commercial-property market has struggled. Third, the Fund bought at prices below the current share price of 153p. Fourth, rents provide extra dividend income to the Fund.

In other words, this entity is doing exactly what I aim to do: buy sizeable stakes in good businesses at fair prices, with the aim of owning these holdings over the long term. Therefore, I have added Shaftesbury Capital to my watchlist of UK shares!

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With that in mind, here are the five mid-cap stocks I would acquire for my portfolio today. 

Shares to buy for 2022

The first enterprise on my list is the iron ore producer Ferrexpo (LSE: FXPO). This company operates in the Ukraine and sells iron ore worldwide, so it is not a play on the domestic economy.

However, it is a play on the global economic recovery as the price of iron ore has been rising over the past 12 months.

Demand for the vital steel ingredient has been increasing as countries around the world unleashed massive infrastructure spending plans to try and stimulate their economies after the pandemic. This is generating substantial profits for Ferrexpo and the company’s international peers.

Indeed, group profit before tax increased 165% year-on-year in the six months to the end of June. 

Management is planning to return a significant amount of this capital to investors. In a recent stock exchange announcement, the group said it will pay out 30% of free cash flow to investors as we advance. The report explains that it could also complement this with special dividends in periods of high profitability. 

This cash return policy and the group’s rising profits are the main reasons why I think this FTSE 250 company is one of the best shares to buy now. 

Challenges it could face include commodity price volatility and rising costs, which could hit profit margins. If profits begin to fall, shareholder returns may also decline. 

Real estate investment

Back here in the UK, I like the look of real estate investment trust Capital & Counties Properties (LSE: CAPC). 

This company owns a portfolio of properties in central London. As most of them are commercial, it has suffered a significant decline in income over the past 24 months. But as the UK economy continues to reopen, I expect property values and rental income to rebound. 

What’s more, as the majority of the company’s portfolio is located in the capital, I think its portfolio should outperform the rest of the country, which may struggle if the economic recovery grinds to a halt. 

Additional coronavirus restrictions are the most considerable risk the corporation faces today. Further restrictions could significantly impact levels of rent collection and weigh on property prices. In this scenario, the FTSE 250 company’s recovery would almost certainly slow. 

FTSE 250 recovery play

Speaking of recovery investments, I am also interested in buying the insurance group Beazley (LSE: BEZ). 

Over the past two years, this company has been entangled in a battle with business interruption insurance policyholders. Policyholders have been fighting the firm to pay out on policies due to the disruption from the pandemic. 

After a lengthy legal battle, the Financial Conduct Authority is forcing the corporation to meet these obligations. The subsequent payouts are having a significant financial impact on the company’s balance sheet. 

However, this challenge should only last for so long. At the same time, the international insurer is benefiting from rising insurance rates around the world. Higher rates should translate into higher profits and, as a result, help the company reinforce its balance sheet after the recent disruption.

Considering this recovery potential, I would like to add the FTSE 250 stock to my portfolio in 2022. 

The most considerable risk facing the enterprise is the risk of a significant loss from catastrophes. This is a general risk of doing business in the insurance sector. It is something all firms have to deal with at some point. Beazley’s survival could be at stake if the losses are too big. 

Commuting returns

Even though the latest set of coronavirus restrictions has brought back a work-from-home directive, over the past couple of months, it has become clear that many firms will require staff to return to officers after the pandemic. 

This suggests the outlook for Trainline (LSE: TRN) is looking up. Not only will the company be able to capitalise on this return to offices, but the number of leisure passengers using trains has also returned to pre-pandemic levels.

According to its latest trading update, group sales for the six months to the end of August increased 151% year-on-year. As revenues have recovered, the company has reduced its outstanding debts and overall losses. 

As the economy continues to rebuild in 2022, I think this trend will likely continue. That is why I would acquire Trainline for my FTSE 250 portfolio as a recovery play for next year. Of course, if the government introduces even more stringent restrictions, I will have to re-evaluate my position. This is by far the biggest risk the company faces right now. 

Another FTSE 250 recovery investment

My final recovery play is Restaurant Group (LSE: RTN). The company, which owns a selection of casual dining brands, including Wagamama, is reporting a rapid rebound in consumer spending at its locations. 

It has upgraded profit forecasts several times already this year. However, it has not yet commented on how recent restrictions will impact growth. Consumer confidence is likely to decline following the new rules. That will almost certainly impact growth in the restaurant sector. 

Still, management believes that the company’s robust trading performance will allow it to make a substantial contribution to reducing debt for the year.

If it can make a material dent in debt levels, Restaurant Group will have more financial flexibility heading into the new year. This could help the company capitalise on the economic recovery by freeing up cash to spend on marketing activities. 

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Now, though, changes to the tax treatment of buy-to-lets, as well as uncertainty facing the UK economy, mean that listed property stocks could be better investments. With that in mind, here are two London-focused property stocks which could offer wide margins of safety and growth potential.

Improving outlook

Reporting on Wednesday was London-focused residential and commercial property business Capital & Counties (LSE: CAPC). Its results for 2018 showed that it has been able to deliver an upbeat performance despite the economic risks that have been in place. Its focus on Covent Garden and the West End has meant that its asset base has performed relatively well, with it having greater resilience than other parts of the UK.

The company experienced a record year for openings across its estate, with its net rental growth being 17%. Although there has been a valuation decline in its investments at Earls Court due to an uncertain performance from the residential property market, its overall property value increased by 1.6% to £2.6bn.

Looking ahead, the share price of Capital & Counties could generate improving performance. It trades on a price-to-book (P/B) ratio of just 0.75, which suggests that it offers a wide margin of safety. Given its diverse asset base and its focus on London, which has historically been a robust property market, its risk/reward ratio appears to be considerably more appealing than that of a buy-to-let.

Low valuation

Also offering an impressive long-term outlook is commercial property business Shaftesbury (LSE: SHB). The company has a solid track record of outperformance versus the wider industry, with its focus on London’s West End providing it with high demand for its various locations. Planning restrictions in its local area mean that supply is limited, while London’s rising population could lead to an improving financial outlook for the business.

The opening of Crossrail could lead to higher demand for the company’s properties, since the vast majority of them are located close to a Crossrail station. And while the outlook for the UK economy may be uncertain, London’s status as an international financial hub could mean that it is able to deliver impressive growth over a sustained time period.

Since Shaftesbury trades on a P/B ratio of 0.9, it appears to offer a significant margin of safety. Given the company’s track record of growth over a long time period, now could be the right time to consider its purchase instead of a buy-to-let. Doing so may reduce an investor’s risk, while allowing them to participate in London’s continued growth story.

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That’s MJ Gleeson (LSE: GLE), which builds homes on brownfield land in what it terms “challenging communities” in the North of England.  This means marketing homes with an average selling price of £124,000 to low income buyers who are generally ignored by bigger homebuilders.

This is appealing to investors for several reasons. For one, purchasing former industrial land, reclaiming it and rezoning it into housing stock means the company can buy its properties for very low prices compared to rivals.

Furthermore, selling homes at relatively low prices means the company is insulated from external issues such as the increased stamp duty, strengthening pound or Brexit-related worries that are creating headaches for developers in the south of the country.

This is borne out in the company’s financial results for the half year to December, when an increase in housing plots sold and rising prices buoyed revenue by 34.7% to £73.7m for its homes division, while operating profits jumped 44.7% to £12.3m.

Improved margins boosted the group’s period-end net cash balance to £26.7m and allowed management to increase its interim dividend payout by 38.5% to 9p per share. With its shares trading at just 14.6 times earnings, a 3.6% dividend yield and solid growth prospects, I think MJ Gleeson could be an attractive option for investors wanting exposure to the property sector.

All its eggs in one basket

On the other hand, I’m steering well clear of London developed Capital & Counties (LSE: CAPC). The company has two developments, one in progress in Earl’s Court and another already well established in Covent Garden.

And while the Covent Garden estate continues to perform well, with its value increasing by 4.3% year-on-year on a like-for-like basis, the Earl’s Court development’s value plummeted by 11.8% during the year. Management blamed political and economic uncertainty for the falling value of this development and for the time being it looks like these twin problems will continue to haunt developers as Brexit negotiations drag on.

For now this isn’t a huge issue as the Earl’s Court development is still very much a work in progress and Capital & Counties is a long-term developer with low levels of leverage. However, over the long term, the company’s prospects still rely entirely on continued gains for property prices in London.

And while London property has proved resilient in previous downturns, I’m not entirely convinced the capital’s housing market can continue to appreciate astronomically forever, especially as Brexit begins to bite in a few years’ time. With that in mind, there’s little chance I’ll be investing in Capital & Counties any time soon.

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Improving performance

Reporting on Friday was property developer and manager Capital & Counties (LSE: CAPC). It reported that its two central London estates have enjoyed an active start to the year. Its Covent Garden estate now represents two-thirds of revenue and has recorded positive rental and value growth. It has also seen operational progress, with 43 leasing transactions signed during the first half of the year.

Similarly, at the company’s Earls Court project, enablement works are on track and it continues to progress plans for the enhanced Masterplan in order to maximise the potential of the land holding. At the company’s Lillie Square asset, it has pre-sold over half of the development and the handover of Phase 1 is on schedule to complete by the end of the year.

Capital & Counties remains optimistic about its future prospects. It has a relatively strong balance sheet and low leverage, as well as high liquidity. This should provide a degree of security should the wider sector experience difficulties brought on by an uncertain outlook for the UK economy following Brexit. And with it having a price-to-book (P/B) ratio of just 0.8, it seems to have a sufficiently wide margin of safety to merit investment at the present time.

Income potential

Also offering upside potential in the property sector is real estate investment trust (REIT), Land Securities (LSE: LAND). It has an enviable asset base, with it including prime real estate in London. This could experience a turbulent period because of Brexit, but in the long run it looks likely to appreciate in value as demand for office and retail space in the capital increases.

Land Securities also offers a wide margin of safety. It trades on a P/B ratio of just 0.7. Given the strength of its asset base, this suggests it is dirt cheap at the present time. That’s especially the case since the company is forecast to post a rise in its bottom line of 6% in the current year, followed by 4% next year.

This growth potential could provide the company with the means to raise dividends in order to boost what is already a relatively enticing yield. Land Securities currently has an income return of almost 4% and since dividends represent around 78% of profit, they appear to be at an affordable level. This mix of income, value and growth potential could make the stock a worthwhile investment despite the uncertainty which the wider property sector currently faces.

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Capital & Counties has delivered positive leasing activity at its Covent Garden estate. It remains on course to achieve its estimated rental value (ERV) target of £100m by December 2017. As such, Capital & Counties appears to be weathering the economic and political storms of 2016, with the company seemingly taking an uncertain London property market in its stride. For example, it has introduced new brands, set new rental tones and seen the successful transformation of the Royal Opera House Arcade.

A degree of uncertainty

Similarly, Capital & Counties’ Earls Court estate has also performed as expected. It continues to de-risk the land holdings and has completed the first phase of demolition of the former Earls Court Exhibition Centres to ground level. Capital & Counties expects to welcome its first residents of Phase 1 of the Lillie Square project by the end of the year. Its strong financial position and conservative loan to value (LTV) ratio of 20% indicate that further progress could lie ahead.

However, Capital & Counties faces a tougher 2017 than 2016. Although Brexit has created a degree of uncertainty this year, the reality is that it has not yet begun. There is an increasing chance of political challenges for the government, both with Parliament and the EU, as it seeks to invoke Article 50 of The Lisbon Treaty. This could drag out the process of Brexit and lead to more investors, businesses and individuals seeking to put off investment in London in particular over the course of 2017.

A shrewd move

Despite this, investing in UK property could still be worthwhile. Clearly, the near term outlook for the sector is highly challenging and paper losses could be on the cards for investors in the industry. However, in the long run the likelihood is that demand for property in the south east will continue to increase as population growth and the prospect of a strong UK economy combine to create more favourable operating conditions.

Buying property stocks such as Capital & Counties and Berkeley (LSE: BKG) could be a shrewd move. Capital & Counties has a price-to-book (P/B) ratio of only 0.68, which indicates that it has a sufficiently wide margin of safety to merit investment. Meanwhile, Berkeley trades on a price-to-earnings (P/E) ratio of 6.2 and could benefit from higher foreign investment in UK property as a result of sterling’s weakness. I believe that it has significant upward re-rating potential, and while Berkeley’s profit is due to flat line in 2017, it continues to have a bright long term future.

While UK property is unlikely to soar in 2017, now could be a good time buy cheap stocks such as Berkeley and Capital & Counties ahead of strong long term performance.

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Get real

Two FTSE 250 companies reported today, and met with a very different response from the markets: Capital & Counties Properties (LSE: CAPC) and Jardine Lloyd Thompson Group (LSE: JLT).

Real estate company Capital & Counties Properties boasts two of London’s very best estates: Covent Garden and Earls Court. Yet this hasn’t prevented the company’s share price from performing horribly since Brexit, falling almost 20% over the last month. Commercial property has been one of the hardest hit sectors, witness the run on open-ended funds investing in the sector, as panicky investors rushed for the exits.

Property slump

There were signs of a slowdown in the property sector even before the referendum, but the shock result has magnified uncertainties. Markets were unimpressed by today’s interim results for the six months to 30 June, which showed equity attributable to owners of the parent falling to £2.8bn, down from £2.9bn. EPRA adjusted, diluted net asset value was down 5% to 344p per share, compared with 361p at the end of December. Total property value stood at £3.6bn, down 4% on a like-for-like basis from £3.7bn. The result was a 5% drop in the share price in early trading.

That said, I think there could be an opportunity here, given the share price plunge, and the fact that the group has a strong financial structure, with a low group loan-to-value ratio of 20%, up from 16%, and cash and available facilities of £457m, up from £412m at the start of the period. The business also boasts high liquidity and since I believe London will retain its global allure whatever happens to Brexit negotiations, now could prove a tempting opportunity for long-term investors.

Good enough?

Jardine Lloyd Thompson Group has had a better Brexit, its share price rising almost 10% over the last month, although it has fallen slightly on today’s six-month interim update. The results were hailed as a “good underlying financial performance” with 5% revenue growth to £619.4m.

However, this was overshadowed by a 40% drop in reported profit before tax to £55.2m, which the board blamed on investment in the US and exceptional costs. The 7% drop in underlying profit before tax to £89.2 million reduced to just 2% and £106.4m once that US investment was removed.

Global reach

Jardine Lloyd Thompson provides insurance, reinsurance, employee benefits-related advice and brokerage services, and operates in more than 40 countries around the world, giving it the global exposure that many companies crave in the wake of Brexit uncertainty. With the pound still flailing, the group reported a positive impact from foreign exchange movements. Let’s hope for more to come. Its interim cash dividend rose 4.5% to 11.6p.

Group chief executive Dominic Burke – who openly supported the Leave campaign during the referendum – hailed a high level of new client wins and growing collaboration between its various operations around the world, which is sustaining the momentum despite “challenging” economic and industry conditions. Today’s results still disappointed markets but its future may be clearer once those exceptional costs are out of the way.

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Looking ahead, BBA is forecast to increase its bottom line by just 1% this year and this may lead some investors to avoid the company’s shares at the present time. However, with BBA due to return to much stronger growth next year, its shares could deliver capital gains of 20%-plus. That’s because BBA is due to post a rise in earnings of 18% next year and with its shares having a price-to-earnings-growth (PEG) ratio of just 0.7, there seems to be significant upside potential on offer.

Happy Hastings

Also reporting today was Hastings Group (LSE: HSTG), with the insurance company delivering strong operating performance in the three months to 31 March. Encouragingly, live customer policies increased by 17% to 2.1m, while Hastings’ market share of UK private car insurance policies increased from 5.3% one year ago to 6% at the end of the period. And with net revenue rising by 22%, Hastings seems to be delivering on its targets from the IPO and looks to be well-positioned to improve on its financial performance.

With Hastings trading on a price-to-earnings (P/E) ratio of just 11.9, it seems to offer excellent value for money. That’s especially the case since it’s forecast to increase its bottom line by 17% next year, which could act as a positive catalyst on investor sentiment. And with Hastings having a dividend yield of 4.3% that’s covered around twice by profit, its long-term outlook as an income play remains very sound. As such, 20% gains are on the cards, with Hastings having the potential to be a very strong performer in 2016 and beyond.

Long-term pick

Meanwhile, Capital & Counties (LSE: CAPC) today reported that its strategy to deliver value creation from its two central London estates continues. The development at Covent Garden is on track to achieve an estimated rental value of £100m, while demolition to ground level at Earls Court continues to be on target with completion expected by the end of the year. With Capital & Counties having a balance sheet containing a loan-to-value ratio of just 18%, it appears to be financially sound.

While the outlook for the UK property market is somewhat uncertain, Capital & Counties appears to offer a sufficiently wide margin of safety to merit investment at the current time. It trades on a price-to-book (P/B) ratio of just 0.85 and while its shares could come under pressure in the short run due to political risk, in the long run it could prove to be a sound buy that offers over 20% upside.

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Royal Bank of Scotland

RBS’s results at the end of last week disappointed the market, with the shares falling 7% on the day. The bank said it achieved its 2015 targets. However, the outlook for resolving legacy issues remains as cloudy as ever, and the prospect of a resumption of dividends has been pushed further out.

The market had been hoping RBS would declare a final dividend with its 2016 results in February next year. But the company said the divestment of Williams & Glynn — a precursor to restarting payouts — won’t now be achieved until after that date.

Despite the continuing uncertainties and the dividend receding over the horizon once again, RBS’s key directors splashed out almost £1m buying shares on Monday, as detailed in the table below.

The directors were buying at little more than 10 times forecast 2016 earnings and at a 37% discount to tangible net asset value (TNAV). The shares are a little higher today, but there’s still a wide margin of safety to cover potential earnings downgrades and a reduced TNAV as legacy issues and restructuring play out.

Ashtead

Ashtead is another FTSE 100 company whose shares fell heavily on the release of recent results. The construction and industrial equipment rental firm ended the day down 9% after announcing Q3 results on Tuesday.

The board went in mob-handed to buy shares, the volatility in the day’s trading being reflected in the wide range of prices the individual directors paid, as you can see in the table below.

Ashtead’s shares have recovered to near 900p, but still look cheap. They trade on a modest 11.3 times expected earnings for the financial year ending 31 March, falling to just 9.5 times forecasts for the year ahead. A price-to-earnings growth ratio of 0.5 also suggests the shares remain good value.

Capital & Counties Properties

London-focused property company Capital & Counties also got a thumbs down from the market on the day of its results. The FTSE 250 firm saw its shares marked down 8% when it released its annual numbers last week.

Again, the directors showed confidence in their own company, immediately wading in en masse to buy shares, as detailed below.

The shares of Capital & Counties, whose prime assets include the Covent Garden central plaza, are trading at 326p as I write, which looks reasonably appealing, being a 10% discount to EPRA adjusted net asset value.

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