There are three powerful ways of approaching capital expenditure (CAPEX) expenditure – inbound, acquistion and reinvestment.
Inbound CAPEX is approximately what it looks like – the investments that come from elsewhere countries, a foreign country, in Asia or Latin America. It can be taken as essentially equity investments, if there is a meaningful stake from the host country or just local business also spending money.
Mergers and acquisitions have become topical as there have been several investment ideas with other firms combined into a single one but only a real estate company can look to acquire such assets of others. It is vital that this change takes place in a structured manner to avoid bubble possibilities.
If the liabilities of one investment firm are taken on through the revised share price of the surviving firm, the firm would prefer to either purchase the outstanding shares, or if the parent company who offered the cash does not re-invest the dividend received through the purchase, it will be reinvested in the firm for growth and expansion. As an investor, this is the preferred option.
In some cases one may receive the residual value from the purchase of a portfolio of investment properties. Such a re-investment would allow the firm to re-invest the revenues in property developments, which may allow both the current shareholders and new shareholders to benefit. It is crucial that the properties being acquired are suitable assets, as deemed appropriate. Over the past few years, the group have acquired some companies and assets through property re-investment.
In some cases acquisition is the option. It is true that if there are no properties available, the firm will be acquiring the listed company through shares. While such equity investments may be viewed as good long-term decisions, they are relatively simpler as all investment firms follow the same principles as listed companies.
Corporate governance is crucial as it will control the level of risks that investors take as well as enable the management of the firm to focus in a more effective manner. For investors, investment by listed companies is relatively more risky as shareholders are afforded a greater degree of voting rights, as well as having the ability to effect changes such as appointing new directors.
As a result, investors should definitely consider their risk levels before they invest in any listed company.
The importance of investors
For shareholders, making a proper investment decision with every listed company is crucial and the key responsibility of investors is to themselves, to be adequately informed and not be swayed by individual short-term fluctuations. As investors, we have no discretion over the operations of other firms, unlike stockbrokers and financial institutions who are able to influence different managements and agendas.
The way in which we invest is critical and we must identify the benefits that are to be gained for us before putting money into a listed company. Until recently, most investments in the UK equity market have been limited to traditional hedge funds and retail funds.
There are currently significant new products such as global and country-specific funds that are not allocated to various measures and asset classes that are also aimed at gaining diversification. The unique characteristics of such products make them not only attractive to investors, but also suitable in almost all circumstances.
The evolution of shares
The global equity portfolio represents around 45 per cent of the assets that are held in UK equity funds and almost 40 per cent of bonds. The major data sources state that the ISAs have been the primary vehicle for new shares to be purchased over the past few years. However, there has been a resurgence in the popularity of RUC and Index funds in the past 18 months. This is mostly due to the small portfolios that these funds offer.
There has been a progression into a portfolio made up of better diversified portfolio assets and other investment policies such as commercial property and fiduciary fund management can be incorporated into the fund model and management infrastructure. The absolute level of exposure is much lower than that of any of the emerging product categories.
Running the risk of market movements and ensuring the asset portfolio and the firm are suitable, a portfolio management model is fundamental for investors. It is up to shareholders to take care of their own risk of portfolio portfolio changes and the impact of the commodity sector of the market.
Annabel Wilson
Singer Financial Services is the platform for investing in UK assets like stocks, bonds and shares. It is underwritten by Deutsche Bank and can be accessed at www.savingsandforex.co.uk