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Financial pros say these stocks are somewhat insulated from tariff tumult and fallout from an economic slowdown—and they’re relatively cheap now

Key Points

Midcap dividend stocks, which have been out of favor in recent years, are back on the buy lists of many investment strategists.

These are U.S. companies with market capitalizations between $2 billion and $10 billion that return cash to investors via periodic—typically quarterly—payouts.

Why are they back in vogue, after years of lagging behind their larger brethren? For one thing, the midcap dividend stocks provide investors with income to offset share-price declines; the companies also tend to have strong free cash flows to weather economic downturns. In addition, they tend to derive a greater portion of revenue from the domestic market than large-cap companies so they may be better positioned amid disruptions in global trade.

The S&P MidCap 400 Dividend Aristocrats index, a group of 53 midcap stocks that have seen increased dividends for 15 consecutive years or more, is down 1.74% this year through April 30, compared with a decline of 4.92% for the S&P 500 and 9.48% for the Nasdaq composite. The companies in this midcap index derive 82% of their revenues from within the U.S., compared with about 60% for the S&P 500 and 53% for the Nasdaq composite, according to S&P Dow Jones Indices and FactSet data as of April 30.

“These stocks offer some downside protection during this period of market volatility,” says Simeon Hyman, global investment strategist for ProShares, adding that this is especially true for investors whose portfolios have become overly concentrated in megacap growth stocks such as the “Magnificent Seven” tech titans. “In this environment it is important to spread your equity exposure broadly to more asset classes to reduce risk.”

So what should investors look for when hunting for midcap dividend stocks?

Financial advisers recommend that investors first look at a stock’s dividend yield, which is calculated by dividing the annual dividend per share by the share price. The yield measures how much income investors receive for each dollar invested in the stock.

Still, a high yield can be a red flag, particularly when it is the result of a falling stock price. In such cases, investors should be aware of the possibility of dividend cuts—which often come during times of economic distress.

So advisers say it is important to dig deeper and look at a stock’s underlying fundamentals to determine the financial health of the company. “Make sure the company has a strong balance sheet and its prospects for earnings-per-share growth are strong, so the company is well-positioned to maintain dividend payments in the future even if there is a recession,” says Jason Alonzo, managing director at Harbor Capital Advisors.

To that end, he recommends looking at the dividend payout ratio—the percentage of a company’s net income that is paid to shareholders through dividends. A range of 25% to 50% is generally viewed by financial pros as healthy, indicating the company has money left over to reinvest for growth.

Other metrics investment pros use to evaluate these stocks are: free cash flow, which is money available to investors after a company has paid for its operating expenses and capital expenditures; free cash flow payout ratio, or the percentage of free cash flow paid to investors in the form of dividends (with a lower ratio suggesting the company generates enough cash flow to cover continued dividends); and the interest coverage ratio, which indicates the company’s ability to pay interest expenses due on its debt outstanding from operating income or earnings, with a higher ratio more favorable. That’s important since investors want to be sure a company has the financial wherewithal to manage debt and pay dividends.

The most telling metric now may be price-to-earnings ratio, a common measure used to judge whether a stock is overvalued or undervalued. While the P/E ratio of the S&P 500 and Nasdaq composite are about 28 and 32.6, respectively, the P/E ratio of the S&P MidCap 400 Dividend Aristocrat Index is 17.87 as of April 30.

“Now is the time for bargain-hunting since midcap dividend stocks are trading at historically low valuations relative to large-cap stocks,” says Larry Adam, chief investment officer at Raymond James. “They could be the sweet spot for investors when you consider they are more insulated from tariff exposure and are expected to outpace the earnings growth of large-caps this year.”

While you can buy individual midcap dividend stocks, another option is to invest through exchange-traded funds. These funds are tax-efficient and provide diversification across a basket of stocks in different industries. Many have low expense ratios.

The $3.47 billion WisdomTree U.S. MidCap Dividend ETF (DON) has a total return of negative 6.47% for the year through April 30, a 12-month return of 4.72% and a 12-month yield of 2.54%. Its expense ratio is 0.38%. ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL) is a $1.69 billion fund that has a total return of negative 1.88% year to date and one-year return of 6.96%, and a 12-month yield of 2.60%. It has an expense ratio of 0.40%, Morningstar Direct reports.

While these funds are both down for the year, their dividends help mitigate the overall impact. Also, financial advisers suggest reinvesting dividends rather than taking the cash unless an investor needs it—a strategy that could pay off in the long term by adding shares at depressed prices.

“By reinvesting dividends within these midcaps, investors could benefit from both price appreciation and the power of compounding,” says Gabriel Shahin, president and chief executive of Falcon Wealth Planning. “That combination can offer excellent long-term diversification and a solid growth trajectory.”

But high-quality midcap dividend stocks should be just 10% to 15% of a portfolio, financial advisers say. They are long-term value investments with a two- to five-year time horizon or longer, they say. How much an investor allocates depends on risk tolerance, age, income and financial goals.

Cash-strapped Maldives to build $9bn blockchain hub in bid to lure investors

Dubai-based family office plans financial zone for the Indian Ocean archipelago

A Dubai-based family office has announced plans to invest $8.8bn to build a “blockchain and digital assets” financial hub in the Maldives, a scheme the cash-strapped Indian Ocean archipelago hopes will help it through a looming debt crunch.

The planned investment led by family office MBS Global Investments over five years would exceed the Maldives’ annual GDP of around $7bn, but Moosa Zameer, finance minister, said the country needed to “take the leap” to diversify away from tourism and fisheries.

Debt coming due in the next two years was “the biggest challenge that we have”, Zameer told the Financial Times in a video interview, adding that the deal was “something we see as a potential contributor to bring us out of certain difficulties that we are in”.

MBS, which says it manages assets worth approximately $14bn, is the family office of a wealthy Qatari, Sheikh Nayef bin Eid Al Thani. It plans to finance the Maldives investment by tapping its network of family offices and high net worth individuals to form a consortium.

MBS’s chief executive Nadeem Hussain said the phased project could be funded through equity and debt and that firm commitments “north of” $4bn-$5bn had already been secured.

“We appreciated right from the offset what was involved in terms of funding and we’ve made the necessary alliances and brought in the necessary partners to ensure we have that,” said Hussain. “It is a large sum of money.”

MBS and the Maldives government signed a joint venture agreement on the project on Sunday.

According to the project masterplan, the Maldives International Financial Centre will be a 830,000 sq m hub able to host 6,500 people and provide employment for 16,000 in the capital Malé.

A “financial freezone for blockchain and digital assets globally”, it would aim to triple the Maldives’ GDP within four years and generate revenue of “well over $1bn by the fifth year”, the masterplan said.

The announced investment comes only months after India unveiled a $760mn bailout for the Maldives to stave off a possible sovereign default.

In December, rating agency Moody’s noted Maldives’ “external liquidity pressures remain heightened given substantial external debt obligations”, including $600-700mn due this year and around $1bn in 2026, including a $500mn sukuk, a form of debt that follows Islamic strictures against interest.

Zameer acknowledged the role India and China had played as “development partners” to his country, but said the financial centre deal offered a new model.

“With MBS we are getting into business, it’s going to be a business which is totally different from the traditional models of borrowings that we do,” the finance minister said.

The archipelago’s advantages include political stability, good connectivity and proximity to big markets such as India and the Gulf countries. But one senior Indian businessperson said it “won’t be easy” for Malé to become a regional financial centre, particularly given the competition from established hubs such as Dubai and Mauritius.

The hard choice between growth, security and climate

While the green agenda remains critical, it must be balanced with the other fundamental imperatives of our age

Irrational, unrealistic, unworkable: some of the words Tony Blair used last week to describe governments’ approach to climate change. Arguing that the strategy should be more pragmatic, the former UK prime minister called for “solutions that match the scale of the challenge and a new politics to get them done”.

For governments across western Europe, climate change is just one of three existential challenges — the other two being lack of competitiveness and growth, and Vladimir Putin’s threat to peace. But time and money are finite. Governments must prioritise. So which of these is the most important?

Growth must come first. Without it, Europe will not have the resources either to defend itself or to decarbonise its economies — and the sums involved will be huge. The EU’s ReArm Plan aims to mobilise €800bn in spending between now and 2030; other estimates suggest European defence spending might need to rise by €250bn a year. An additional €477bn is required each year, over the same period, to reach the EU’s climate target.

Security must come next, and not just for the obvious reason that the bedrock of growth is peace and stability. A wider European war would destroy innovation and capital, the engines of decarbonisation. So nations need to recalibrate their analysis of risk.

Rapid rearmament and strengthening national security is a whole-economy effort. It requires almost every area of human endeavour — manpower, food, logistics, infrastructure — to play its part. For that to happen, governments in London, Paris, Berlin and right across Europe need to change their mindset and modus operandi.

Officialdom has been shaped by an era of globalisation and peace, in which the EU could shelter under the US’s protective shield. Global institutions forged climate agreements. Regulators were tasked with tackling climate change. Interest rates at record lows — fuelled by quantitative easing — helped finance green projects.

That world has gone. Yet the processes it created live on, spawning climate regulations and policies that jar with today’s fiscal realities and grate with politicians’ talk of the need for “urgent action” on defence.

So to generate growth in order to re-arm quickly, government agendas need to be refocused and trade-offs confronted. Energy is top of the list. The climate and defence agendas are, in one way, aligned here: investing in renewables improves energy security. Increasing energy supply from new sources is necessary not just for rearmament but also to power digitalisation and AI, which is vital for defence.

Yet a tension exists. Building wind and solar farms, not to mention nuclear power stations, takes time. The sun does not always shine, the wind does not always blow. So in the short term, if Europe needs more reliable, affordable energy to power rearmament then gas will remain key. Are governments — and electorates — prepared to see emissions rise as energy-intensive factories ramp up rearmament?

Next, regulatory frameworks must be reviewed to ensure that they do not undermine investment in defence. Politicians should look at regulators’ remits and ask if they strike the right balance between growth, security and climate.

And finally, finance. Should nations prioritise defence over green incentives? Which will do more to deter Putin in the next few years: more electric vehicles, or more drones?

On defence and decarbonisation, Europe is in a race against time. Recognising the need to prioritise security over climate in the near term is not to deny the existential threat. It is to understand that without peace, Europe’s green transition is impossible. Growth and security must come first. Confronting this hard choice is something Europe’s leaders can no longer ignore.

Market Questions is the FT’s guide to the week ahead

The US Federal Reserve is widely expected to keep interest rates at their present level when it meets next week, with chair Jay Powell’s press conference likely to be investors’ main focus following a volatile month for financial markets.

Donald Trump’s erratic tariff announcements have buffeted US stocks, Treasuries and the dollar in recent weeks while fanning concerns about slower growth and higher inflation in the world’s biggest economy. The president has repeatedly signalled that he thinks interest rates should be lowered to stimulate the economy. 

Yet data released on Friday showing the US added 177,000 jobs in April, more than economists had expected, bolstered investors’ conviction that the Fed will remain on hold. Traders in swaps markets are currently pricing in close to a 97 per cent chance that rates will remain between 4.25 and 4.5 per cent.

Wednesday’s central bank meeting “looks like a placeholder: policy rates on hold and no change in Chair Powell’s tone from his recent speeches,” said Bank of America strategists led by Aditya Bhave.

“We think the bar for a June cut is high, but Powell is unlikely to rule it out at this stage,” he added.

Trump last month renewed his criticism of the Fed chair, claiming he has the right to fire Powell, who he has lambasted for being “too slow” to lower rates. Asked whether he would sack the central banker, Trump said: “If I want him out, he’ll be out real fast, believe me.”   

US stocks and the dollar sold off sharply on the comments as investors worried that the central bank’s independence was under threat only to rebound after Trump rowed back. 

Powell is likely to sidestep any questions about his relationship with Trump, but his views on the potential impact of the president’s tariffs on inflation and employment will be scrutinised. George Steer

Will the Bank of England signal more cuts?

Traders are fully expecting the UK’s central bank to reduce its policy rate by a quarter point to 4.25 per cent at its meeting on Thursday, according to levels implied by swaps markets. Most expect three more cuts of the same magnitude to follow before the end of the year.

What the Bank of England signals on the inflationary outlook will be crucial to whether those expectations hold. Analysts at Barclays are expecting the bank to cut its inflation forecast, “signalling that the balance of risks has shifted to a less inflationary outlook”. That will “open the door to a June cut without explicitly referencing it, to retain optionality”, they argue.

Like other major central banks, the BoE is caught between the growth impacts and inflationary effects of Donald Trump’s stop-start trade war, making any decision to adjust monetary policy in response fraught with difficulty. Recent UK economic data has been mixed, with better than expected retail sales in March but weak readings of business activity.

BoE governor Andrew Bailey has warned that the central bank must “take seriously” the risks to growth from the tariff surge. The hawkish rate setter Megan Greene, has said that the effect of global tariffs will probably be disinflationary for the UK.

JPMorgan’s Allan Monks is expecting a “dovish shift” from the BoE on the impact of tariffs. “While potential supply chain impacts remain one consideration, weaker growth and an excess supply of Chinese goods may prove more dominant,” he argues, saying currency moves have not added to the inflationary pressures as would have been expected. But he expects the bank to be “cautious” in putting much weight on this disinflationary view. Ian Smith and Valentina Romei

Have stocks passed peak anxiety over tariffs?

This week’s rally in global stocks saw Wall Street’s blue-chip S&P 500 recoup all of its sharp losses since Donald Trump’s April 2 announcement of so-called “reciprocal” tariffs roiled markets.

After a dramatic 9 per cent drop in the first week of April, US stocks started to regain ground after the president announced a 90-day tariff pause on April 9. David Lefkowitz, Head US Equities at UBS Global Wealth Management said the U-turn “gave us the confidence to re-upgrade equities”.

Last week, investors were further cheered by progress towards US-China trade talks, as well strong earnings reports from US tech giants, and encouraging data on the American economy. But the policy environment remains far from certain, with little tangible progress towards trade deals secured. That leaves many analysts feeling nervous about piling back into a market that saw such dramatic falls so recently. The question for equity investors is: is the worst over, or is it still yet to come?

The rally is “quite astonishing considering the big shake up of global trade that has happened in the span of four weeks,” said Elyas Galou, senior investment strategist at Bank of America, adding that it “shows that investors remain fundamentally bullish on the outlook for US equities, rates and the dollar”.

“The strategy of the Trump administration was to frontload the bad news,” he said “Now the market is frontloading the next 100 days. I think this period will focus on lower taxes, lower tariff rates,” he explained.

Others are more cautious. “We think the rally off the lows is more a function of position capitulation than an ‘all clear’ signal for risk,” read a BNP Paribas analysis note, adding that earnings downgrades “could see equities re-test year-to-date low”.

A crypto company part-owned by the Trump family stands to earn millions of dollars from a business deal involving a state-backed investment fund from the UAE. The arrangement amounts to “foreign policy for sale,” critics claim.

As the leaders of World Liberty Financial, a crypto company part-owned by US president Donald Trump and his family, fan out across the globe to try to win new business, critics have raised the alarm over the collection of alleged conflicts of interest trailing in their wake.

On Thursday, Eric Trump appeared onstage in Dubai at the crypto conference Token2049. Alongside him sat Zachary Witkoff, cofounder of World Liberty Financial and son of the White House envoy to the Middle East, Steve Witkoff.

Together, the pair announced that USD1, a crypto coin unveiled by World Liberty Financial in March, would be used by MGX, an investment firm funded by the United Arab Emirates, to make a $2 billion investment in Binance, the world’s largest crypto exchange.

As a sort-of intermediary in the deal, World Liberty Financial stands to earn tens of millions of dollars. “We thank MGX and Binance for their trust in us,” Witkoff told the crowd at Token2049, The New York Times reported. “It’s only the beginning.”

USD1 is what’s known in industry circles as a stablecoin, a type of crypto coin tied to a $1 valuation by a reserve of cash and other assets. A stablecoin holds a steady valuation by way of the understanding that, if ever somebody wants to redeem a coin for the dollar it represents, the issuer can draw from the reserve.

The model is simple: World Liberty Financial receives US dollars in exchange for coins that customers can trade freely in the crypto market. It keeps some of those dollars in cash and cash-equivalents, and invests the rest into US government bonds—also called Treasuries—which yield interest.

The profits of stablecoin issuers depend partly on the going interest rate—right now, short-term Treasuries yield a little over 4 percent—but otherwise scale in a linear fashion with supply. The larger the amount of a stablecoin in circulation, the heftier the underlying reserve of assets from which the issuer can generate income.

Therefore, the deal between MGX and Binance, which will increase the USD1 supply by up to 2 billion units, stands to be immensely lucrative for World Liberty Financial—and by extension, Trump and his family. If the company were to invest the entire $2 billion in short-term US Treasuries, it would earn approximately $85 million in interest each year at current market rates.

However, the deal has inflamed concerns about the prospect that World Liberty Financial, in which the Trump family holds a 60 percent stake through a separate entity, could become embroiled in a thicket of conflicts and thorny ethical issues. By transacting in USD1, the argument goes, entities affiliated with foreign powers could indirectly transfer wealth to the Trump family and purchase good favor with the sitting US president.

“The transaction reeks of influence peddling,” claims George Selgin, director emeritus for the Center for Monetary and Financial Alternatives at the Cato Institute, a US think tank. It risks “making the US look more and more like a banana republic.”

USD1 is the latest in an expanding line of crypto coins issued by Trump-related entities that critics fear could theoretically be used in this way, including a separate World Liberty Financial coin that promises a say in the company’s business decisions, and a memecoin launched by the president in January.

“It is foreign policy for sale and justice for sale,” claims Robert Weissman, copresident of consumer rights non-profit Public Citizen.

World Liberty Financial did not respond immediately to a request for comment. In a statement, White House deputy press secretary Anna Kelly said, “President Trump’s assets are in a trust managed by his children. There are no conflicts of interest.”

Meanwhile, as World Liberty Financial forges into the stablecoin business, a piece of legislation that will establish the rules by which stablecoin issuers must abide —the GENIUS Act—is being fast tracked in the Senate. A parallel bill—the STABLE act—is being considered by the House.

The incoming stablecoin legislation “will make it easier for the president and his family to line their own pockets,” claimed Democratic senator Elizabeth Warren in a statement.

The conflict of interest allegations have not prevented representatives of World Liberty Financial from setting out on a global business tour. In recent visits to Pakistan, Bulgaria, and the UAE, the Trump family and World Liberty Financial founders have rubbed shoulders with lobbying groups, policymakers, and crypto industry luminaries.

“The stablecoin wars are in full swing, and new entrants are lining up with dotcom-era exuberance,” says Christian Catalini, founder at MIT Cryptoeconomics Lab. “Expect inventive maneuvers. Anyone chasing [the market leaders] will pull every lever the rulebook vaguely permits.”

On April 27, the World Liberty Financial team was pictured alongside Changpeng Zhao, founder of Binance, who recently served a short prison sentence in the US after pleading guilty to failing to maintain an effective anti-money-laundering program. The USD1 stablecoin floats on top of Binance’s crypto network. “We keep building,” Zhao tweeted, responding to the picture.

On Thursday at Token2049, Eric Trump and Witkoff shared the stage with Justin Sun, creator of crypto network TRON, who recently announced he had invested a total of $75 million in World Liberty Financial’s first crypto coin. Soon, USD1 will be available on TRON too.

In 2023, the US Securities and Exchange Commission charged Sun with market manipulation, among other violations. Weeks after Sun announced his latest investment into World Liberty Financial, a federal judge granted a petition by the SEC to pause the lawsuit to consider a potential resolution.

“Never before in American history have foreign governments, as well as people and corporations under investigation, so overtly and directly funneled vast sums to the president of the United States and his family,” claims Weissman. “This is far more than is captured by the term ‘conflict of interest.’”

Lasers in space, ‘rods from God’ and a huge number of satellites are being discussed for proposed missile shield

Key Points

Laser-toting satellites capable of taking out missiles have long been the stuff of science fiction. President Trump is asking defense contractors to make the idea a reality.

Trump is looking to create a defense system that he calls the Golden Dome for America. It is envisioned to be a cutting-edge system of space and ground technology, with the goal of defending the U.S. against high-tech missile threats and potential attacks.

Taking cues from Israel’s Iron Dome, defense officials want the proposed shield to stretch from sea to sea, and from the Earth’s surface to space. Makers of aerospace equipment and weapons are already jockeying to grab a piece of the program.

The Pentagon hasn’t released many details about Golden Dome, including its potential cost. Congressional Republicans proposed allocating $25 billion from this year’s budget for the project. The White House said Friday it wants to make a down payment on Golden Dome in an upcoming spending plan.

Military officials say they want to move quickly to advance the program, and one agency involved has said it wants a first round of technologies for it to be demonstrated or delivered by the end of next year.

Developing Golden Dome will be difficult, requiring companies and defense officials to solve tough engineering and logistics challenges. Some current and former Pentagon officials have likened the missile shield to the Manhattan Project and NASA’s Apollo program, two of the government’s most complex and expensive undertakings.

The high-profile project is prompting everyone from longtime defense contractors like L3Harris Technologies to startups including satellite manufacturer Apex to tout what they can bring to the table.

“We are literally ready to go when the starting gun goes off,” Lockheed Martin Chief Executive James Taiclet told investors in April. Executives at the Maryland-based maker of jet fighters, missiles and other military gear said they pitched more than 100 different technologies in response to one Golden Dome information request.

Current and former government officials have long argued the U.S. needs stronger protection against missile threats, including from adversaries fielding high-speed, maneuverable weapons. Parts of Golden Dome hark back to former President Ronald Reagan’s push to deploy missile-defense lasers in orbit, an effort stymied by technical hurdles.

In 2021, China stunned officials in Washington by testing a hypersonic missile that flew at least 20 times the speed of sound during the demonstration. North Korea’s nuclear-weapons capabilities continue to improve each year, despite repeated U.S. and international attempts to thwart their development.

The current race started after Trump in January signed an executive order calling for the project. In February, representatives from 13 Pentagon divisions and more than 180 companies discussed the project in a classified setting in Huntsville, Ala., at an event hosted by the Missile Defense Agency.

Pentagon officials have been surveying industry capabilities, and looking to accelerate existing programs.

“We’re on a pretty fast timeline,” Gen. B. Chance Saltzman, operations chief at the U.S. Space Force, said of Golden Dome at an industry conference in April. “It’d be great to say, ‘I’ve got the perfect solution and I only need 12 to 17 years to develop it.’ Okay, that’s great. Put that over here. Now what can we do in the next two to four years? Let’s talk about that.”

The U.S. already has multiple missile-defense systems in place that rely on a sprawling array of radars, sensors, vehicles and weapons. They involve everything from mobile systems on the ground and Navy ships to satellites that provide early warnings about adversary missile launches.

Trump’s Golden Dome would stitch together many of those systems and deploy what the executive order calls “space-based interceptors,” or devices able to take out hostile missiles shortly after they are launched.

One option for the interceptors: lasers. Studied by the Pentagon for years, those devices use focused beams of energy to disrupt or destroy targets. Another possibility could be dense, solid projectiles often called “rods from God” that would rip through enemy weapons.

Tory Bruno, CEO of rocket company United Launch Alliance, said Golden Dome could incorporate a swarm of satellites near Earth with directed-energy devices, as well as other interceptors to take down maneuverable missiles. The company could offer its new rocket to lift heavier equipment into space for Golden Dome.

“We want a layered defense, where you get more than one shot,” Bruno, formerly a missile-defense executive at Lockheed Martin, said at the industry event in April.

Fielding space-based interceptors capable of taking out a barrage of hostile missiles shortly after launch promises to be one of the project’s toughest elements to develop, defense officials and executives said. Other technologies that could be used in orbit for Golden Dome, including lasers, remain nascent.

Reliably stopping potential attacks on the continental U.S., Alaska and Hawaii could require an enormous number of satellites, people close to the Pentagon said—an expensive proposition.

Traditional defense contractors could benefit from Golden Dome in the near-term, said Todd Harrison, a senior fellow at the American Enterprise Institute, a conservative think tank. That is because many of the missile interceptors that would form the base of the system could be deployed years ahead of more complex systems in space.

“If you want to move fast, you’ve got to buy stuff that’s already been developed,” he said.

Some contractors are opting to bid on elements of the Golden Dome as a group, instead of individually. One team involves SpaceX, Palantir Technologies and Anduril Industries, The Wall Street Journal previously reported. Government officials have reviewed a proposal from the trio to serve some of the Golden Dome program’s goals.

Military officials want to settle on a director to oversee the program before awarding most major contracts, according to people familiar with the matter.

Roger Teague, a former Air Force general who worked on space programs, said setting up clear organizational structures and reporting lines will be key for making Golden Dome successful.

“It’s going to require a whole of government approach, across all elements of national power,” said Teague, now at consulting firm Elara Nova.

Octopus and Revolut signal UK mobile market disruption

Big brands are piling into the telecoms sector by piggybacking on incumbents’ networks

Fresh from disrupting the energy and banking sectors, Octopus and Revolut have turned their sights to the UK’s mobile telecoms market.

Both groups are looking to break into mobile operations, in a move that could pose a threat to the industry’s incumbents, dominated by four — and soon to be three — players.

Revolut announced plans on Wednesday to launch a comprehensive mobile phone plan in the UK and Germany as part of its “superapp”, where a variety of products can be cross-sold in addition to core banking services. It already offers an eSIM that customers can use for overseas roaming, which Revolut says is its most popular non-banking product.

The move by the fintech continues a significant shake-up in the UK’s mobile telecoms market following the news last week that Octopus — the multibillion-pound fund that owns the eponymous energy company — was exploring the launch of a new mobile operator through its subsidiary, Fern Trading.

“In our view, consumers are suffering with traditional network offerings due to a lack of transparency with hidden fees, painful customer experience and old, difficult to navigate [design]. We’re looking to solve all three,” said Hadi Nasrallah, telecoms general manager at Revolut.

It would not be the first fintech to enter the market: US-listed Nubank, which has a $60bn market capitalisation, launched a telecoms service named NuCel in Brazil last year. Others are also considering it. London-based rival Monzo has not ruled out offering a similar product in the future, according to a person familiar with the fintech’s plans.

Both Revolut and Octopus-backed Fern’s offerings would be mobile virtual network operators, or MVNOs, which serve customers, but do not build their own underlying infrastructure.

Instead, MVNOs cut deals to piggyback on to the networks of the four major players — which include BT-backed EE, Virgin Media 02, and the soon to be merged Vodafone and Three — in an effort to save costs. Other well known MVNOs include VM02-backed Giffgaff and Vodafone subsidiary Voxi.

The set-up poses a two-tiered challenge for the incumbent operators, who battle virtual competitors for customers, while simultaneously trying to entice challengers into signing wholesale deals to use their infrastructure.

“The worst thing the major operators ever did was let the MVNOs get a foothold,” said one industry insider.

MVNOs are by no means new: the world’s first was the UK’s Virgin Mobile in 1999. However, the threat posed by virtual operators to established players boomed in recent years, with research from Enders Analysis showing that in 2024, MVNOs had added 1.6mn customers to their networks. 

By contrast, the UK’s four major mobile operators lost 180,000 subscribers; the first year in history they had seen a decline.

James Robinson, senior analyst at Assembly Research said the trend followed well-known brands such as Tesco and Sky launching successful mobile operations, which targeted existing customers with bundled packages that also included services such as broadband.

Robinson believed over a quarter of all consumers could be using virtual providers by 2028 — up from 16.5 per cent in 2024. 

“If [Octopus and Revolut] do launch operations, those big names could accelerate that growth,” he added. 

Karen Egan, Enders’ head of telecoms, said the trend also owed partly to the cost of living crisis, with consumers more likely to use a cheaper mobile alternative — something that many MVNOs claim to offer.

Egan also noted that in addition to consumer competition, an additional battle was also growing between network operators jostling to sign deals to bring virtual operators on to their networks.

“MVNOs are getting increasingly good wholesale deals from the network operators, who are really struggling for other sources of revenue growth and have decent levels of spare network capacity,” she said. 

Assembly’s Robinson said that competition between networks to host virtual operators was likely to increase after the Vodafone-Three merger completes in the coming weeks, as the new company would have added capacity to host MVNOs.

“Now you’ll have three scaled players in the wholesale market able to host operators — when taken together, no wonder [new entrants] are thinking about mobile options,” he added. 

VM02, which hosts MVNOs including Tesco, is buying extra network capacity from the merged Vodafone-Three entity, according to a person familiar with the situation, which VM02 believes will be an added attraction to challengers.

However, the impact of new players was met by scepticism by James Ratzer, analyst at New Street Research who highlighted the already crowded nature of the UK mobile market.

“New brands will increase competitive intensity, but probably only to a limited degree, as it is already a crowded market with a number of other major success stories,” he said. 

Plays for a “superapp” strategy — such as that plotted by Revolut — have also been questioned by analysts, who felt the move would not work in western markets.

Rupak Ghose, a former research analyst at Credit Suisse said that such apps had worked in China because of a lack of incumbents.

“In the west, in most categories from social media to taxis to food delivery, there are existing [dominant players],” he said.

EE still sees value in partnering with MVNOs but believes that many customers would still prefer to opt for an established service with a trusted brand, according to one person familiar with the company’s thinking.

Kester Mann, analyst at CCS Insight said that Revolut’s entrance in particular could prove a challenge to traditional operators due to its well-known brand recognition and convenient offering. 

Octopus, BT, Vodafone, Three and VM02 declined to comment. 

Mann said: “[Revolut] could bring some of the same disruption to mobile as it has to financial services.”

Sugar prices are guided by a sweet invisible hand

The market for this curious commodity does not play by the rules

Kids and adults alike love it; US health secretary Robert F Kennedy Jr calls it poison. For investors, too, sugar has proved more toxic than sweet: raw sugar prices have broadly drifted lower since a surge in the second half of 2023. But as commodities go, it’s a curious one. Like a toddler who has just demolished a packet of Skittles, this market doesn’t play by the rules.

Decent weather and low oil prices, which discourage Brazilian mills from diverting a bigger share of cane into ethanol, are weighing on the white stuff. In Brazil, cane gets diverted into fermentation for fuel once the price of raw sugar drops below around 15-16 US cents.

Price distortions abound. Governments have meddled in the market ever since the Napoleonic wars, when UK boats blockaded sea routes from the Caribbean to France. Trading dynamics have changed since then: France and the UK are now among 100-plus countries producing sugar. Some 70 per cent of global raw sugar supply comes from Brazil.

Europe curtailed its subsidies-and-dump policies in the mid-noughties, although only jettisoned quotas in 2017. Support continues in the US, where sugar prices are roughly double international levels. India, the biggest consumer and number two producer, limits exports.

The sweet stuff has the appearance of a defensive asset: it takes more than even the US president’s chaotic policies to stunt our taste for sweetmeats. Indeed, research by the Institute for Fiscal Studies, a UK think-tank, found that Britons’ sugar consumption actually increased during the financial crisis.

More broadly, consumption increases along with economic growth and the number of mouths to feed: India, south-east Asia and sub-Saharan Africa are all on the rise. Getting a precise measure on end demand is tricky, given sugar’s propensity to end up anywhere from ketchup to crisps, but CZ Advise estimates British consumption peaked in the 1960s. India, with wealth and population both growing, is the biggest consumer.

Health and science stand to impede future demand. Ultra-processed foods are falling out of favour. GLP-1 weight loss drugs, which suppress appetites, are likely to reduce consumption. The drugs’ short history demands wariness on long-term effects, but safe to say if there is an impact on consumption, it will be widespread. Kennedy would like to see a US where consumption of added sugar is zero, though even he admits this is far fetched.

A survey last year found one in eight American adults had tried GLP-1s. Lower-cost generics, launching as patents expire next year in China, Brazil and India, will increase take-up. But fret not. Governments’ centuries-old addiction to protectionism will surely limit the bitter aftertaste of any future sugary backlash.