Review of 2021: Coming through stronger
When I wrote my review of 2020, I hoped that life would be back to near normal by now. 2021 did offer some glimmers of optimism, including the vaccine rollout and the subsequent opening up of the economy. However, with infection rates rising sharply again, it looks like 2022 will be another year of ups and downs.
Our aim here at Stellar Asset Management is to provide financial security in the face of this uncertainty and upheaval. We enable investors to pass on their hard-earned wealth free from inheritance tax, while delivering consistent returns and allowing them to retain control over their funds in either our asset-backed or AiM quoted portfolios.
The foundation is the diversification of our portfolio across non-correlated asset classes, all tangible and all located in the UK. With investments spread, dips in one asset class can be offset by gains in others. While our hotels were closed at the beginning of 2021, our investments in areas such as forestry, commercial and residential development continued to deliver above target returns.
Diversification also provides a cushion. So even when our hotels could not welcome guests, we were under no pressure to sell these assets at reduced prices like some businesses focusing solely on hospitality. Once our hotels were able to re-open, the staycation boom meant that occupancy and revenues quickly bounced back.
Meanwhile, we continued to invest across our asset-backed portfolio. I will be providing a round-up of investment and performance across all our different asset classes in a separate article. I would like to share some illustrative examples of how investments are selected and returns optimised, while strengthening investment security in line with our prudent approach.
Highlights in our leisure and hospitality portfolio include the acquisition of Bramshaw Golf Club and the adjacent Bell Inn Hotel. Plans in the pipeline include a doubling of room capacity and new indoor spa and leisure facility at our Murrayshall Country House Hotel and Golf Club. These improvements help us to boost revenues. And once we are ready to sell, it should be at a good profit.
Development within our residential property portfolio continued at pace in 2021 and included the construction of 68 apartments on the Barker Building site in Northampton and nine family houses in Nayland in Suffolk. Many of Barker Building apartments have already been sold with the Nayland homes nearing completion ready for sale in 2022. On the commercial side, highlights include the development and sale of all units at Tavis House Business Centre in Haddenham, Buckinghamshire.
With support from specialist partners, we buy off-market to maximise opportunities and get in ahead of the pack. In the case of the Haddenham site, for example, our partner identified unused development land on the edge of an existing industrial estate. While the site had planning permission, it had not been put on the market, so we were able to acquire it privately at a favourable price. Once completed, we were able to sell on-market through agents to maximise the return.
The strength of our investment pipeline means that once an asset is sold, we can reinvest the proceeds to acquire new opportunities, and then develop and enhance them ready to sell on. It is a winning formula. All our asset sales in 2021 delivered profits above our standard 5% internal rate of return (IRR) target.
Made to fit
Diversification in investments is matched by choice of products. We want to make sure that advisers have enough choice of different IHT qualifying services to select the options that best suit the particular circumstances, risk appetite and reward expectations of each individual client.
In 2021, we continued to expand and diversify our product range to help strengthen choice and make the most of investment opportunities. Highlights included the launch of our new Stellar ITS. For more cautious investors, we now offer the Stellar Conservative Growth IHT Service, which excludes assets that hold debt such as hotels and hence targets a more modest 3% IRR.
There are also improvements to custody and administration arrangements in respect of our AiM portfolio which should benefit all clients. 2021 was very much a year of two halves with the FTSE AiM Total Return Index +8.4% in H1 versus -2.1% in H2. This left the full-year outturn at 6.1%. Despite often volatile markets, our fully in-house AiM IHT service delivered a market leading total return of 24.0%, benefiting from its high level of sector, style and stock diversification. Despite strong returns the manager continues to be see compelling value within the portfolio, with UK small-cap assets priced particularly attractively.
For investors who are prepared to take more risk, we also launched the Stellar Nova EIS Fund in 2021. Like other Enterprise Investment Scheme (EIS) funds, this offers tax relief from investing in start-ups. The Stellar Nova EIS Fund is quite unique. First, it gives full transparency over which businesses the fund invests in. Second, our partner Nova offers specialist advice and support to help boost the success rate of the targeted ventures. The benefits include both higher IRR potential for investors alongside the tax relief and improved prospects for innovative businesses needed to drive economic growth.
Eyes on ESG
The pandemic has accelerated the shifts in investor expectations. In particular, we are conscious of the growing focus on sustainability, social responsibility and other environmental, social and governance (ESG) issues.
For us, this is nothing new. We have always preferred to invest in and nurture tangible assets that support communities and employment. This is not just altruism. Supporting the real economy makes sound investment sense. For example, our housing developments are geared towards providing homes for people on middle incomes. This is an area of the market that is woefully undersupplied, so we can help meet demand while being able to sell homes quickly and profitably. Similarly, our investment in AiM companies and EIS start-ups supports innovation and job creation, while delivering favourable returns for investors. Sustainability is just as important. We recognise the need for responsible stewardship in the management of our forestry, farming and other land holdings.
Yet there is always work to do here. In March 2021, we signed up to the UN Principles on Responsible Investment (PRI). ESG is a journey that will take time to embed. We are continuing to evolve our portfolio services with ESG factors in mind. We are committed to continual improvement and I will keep you up to date with progress in future articles.
So what about the state of the estate planning sector as a whole? We believe that this is a sector in need of change and we want to lead it. Looking across the market, it is clear that most of the one-size-fits-all estate planning solutions on offer today fail to meet the increasingly complex and varied demands of today’s modern families. We want to move estate planning forward by offering tailored solutions and a fair deal for clients.
To help build momentum for change, we hosted the Stellar Estate Planning Virtual Summit on money, mortality and the modern family in October 2021, 27 expert speakers and more than 500 financial advisers and private client professionals came together to share ideas and experiences on how to continue developing a customised and effective, client-centric approach to estate planning.
Thank you to a great team
I would like to close by thanking my colleagues within Stellar, our partners and the people who help us manage the our assets for all their dedication and professionalism. Every one of our people has faced exceptional challenges and demonstrated their true worth over the past year. A particular mention should go to the staff in our care homes who have been on the frontline of the pandemic.
Looking ahead to 2022, I hope that our investors will have a chance to enjoy a stay at one of our hotels, or to pay a visit to our golf clubs and other leisure facilities. All investors benefit from preferential friends and family rates as members of our Stellar Club. Even better, I look forward to the pleasure of meeting some of you on the golf course or later in the bar. We love these places and believe they have immense potential. That is why we invest in them. And that is why we want you to see for yourself what makes them special.
So stay safe, keep well and let us hope that the worst will be behind us when I write my next annual message to you at the end of 2022.
Written by Jonathan Gain
Stellar Asset Management Limited does not offer investment or tax advice or make recommendations regarding investments. Prospective investors should ensure that they read the brochure and fully understand the risk factors before making any investment decision. The value of investments and the income from them may fall as well as rise and is not guaranteed. No assurance or guarantee is given that any targeted returns will be achieved. Forecasts of potential future results are not a reliable indicator of actual future results.
Stellar Asset Management Limited of Kendal House, 1 Conduit Street, London W1S 2XA is authorised and regulated by the Financial Conduct Authority.