How much Life Assurance do I need?

According to research examining the country's protection 'gap', half the UK population would be penniless within a month if their income dried up.

The study, conducted in April 09 by insurance giant AXA, suggests that half of us have very little in savings or investments and would struggle to cope if we were unable to work.

Just 45% of us have any form of protection insurance in place to cover our main income should it be taken away, and only a third of us believe we have enough provision in place to cover our mortgages.

Estimates suggest that the average monthly expenditure per household is around £450 yet 49% of us have less than £1,000 saved up and 72% save less than £100 a month. Despite this, people still expect to have to cover additional expenses in the future such as funeral costs (62%) and children's education (42%) with no extra financial provision over and above this amount.

Insurance products such as income protection and critical illness are designed specifically to provide financial support if illness, injury or, in the case of critical illness, a serious illness stop us from working normally. It comes as no surprise, given the current climate, that people also told the researchers they were reluctant to invest in such products but, as the figures show, not doing so could end up costing far more

What is the absolute return sector?

The thought of a investment fund that might deliver positive returns despite falling markets is very appealing, but is it actually possible? This is the potential being offered by 'absolute return' funds which reckon they can beat cash and smooth out market returns.

They use a variety of different techniques. One, the multi-asset strategy, blends asset classes like equities and bonds with alternatives such as hedge funds or gold. Therefore, when the mainstream asset classes are losing money, these managers have the opportunity to invest in alternatives delivering positive returns. The other main strategy uses 'hedging', ie: invest purely in equities, but 'short' some of those stocks. This involves borrowing them from someone else, selling them and then buying them back at a later date. There is a small price for borrowing but if the market moves down, the manager buys back the stock at a lower price than it was sold, making a profit in the turnover. This acts like an insurance policy, repaying some of the loss made on the fund holdings, which will have fallen with the market over the same period.

Whichever approach is taken, the result should be smoother returns. However, neither should they be seen as a panacea. Diversity is a good thing but a manager still has to make choices - and can make the wrong ones. Shorting stock is a particular skill and could even increases losses. So, despite the label 'Absolute return', always remember that this is an objective only; there are no guarantees.

Our absolute return portfolio uses the top performing and most experienced fund managers, who are truly capable of achieving absolute returns.

What is a SIPP?

The popularity of the Self-Invested Personal Pension (SIPP) has increased dramatically in recent years. Costs have come down, many investment providers have launched SIPP-friendly products, and the UK government has ensured many different types of investments qualify for inclusion in a SIPP wrapper.

A SIPP is a tax-efficient wrapper - a particular type of pension - which sits around your retirement fund, allowing you to select from a wide range of investment choices. It gives you great control and flexibility over the investments, allowing you to tailor your SIPP portfolio to match your investment requirements. If you are employed, your employer can also pay into the plan to help boost its value. All contributions, within preset annual and lifetime limits, receive income tax relief at your highest rate, and all investments within it will not be liable to any further income or capital gains tax (CGT).

A SIPP also allows flexibility once you reach retirement, whether you buy an annuity immdiately or opt for phased or deferred retirement. However, while there are long-term benefits for those interested in the flexibility, they are not for everyone. There are set-up charges, and annual management charges which need to be weighed up against the benefits. You will also need to consider whether you need the full investment flexibility provided by a SIPP or whether the increasing range of fund links offered by more conventional plans would actually be sufficient.

Do I need Life Assurance?

Most of us recognise the need to protect our dependents and understand how investing in life insurance can help in future planning.

The most common reason for investing in life insurance will be to cover a mortgage but it is also part of the review we undertake perhaps after getting married or, more likely, when we have children.

For a single person with no dependents, life insurance may not be necessary. However, if you have debts and no savings, then a small amount might be necessary to pay expenses and prevent someone else being landed with that after you've gone. There is also an argument that you should cover a mortgage but in this case, if you are happy to pass the property back to the bank, or if your beneficiaries are more than able to cover the mortgage payments while the house is sold, then you may not feel the need.

If you have dependents, however, you need to look at the consequences for them if your income were removed suddenly. How much do you earn? Do you have debts? How much is your mortgage or rent? Do you pay school or university fees? How long before your children will be working? Does your partner work? Could they continue to work without your support?

Even if you don't work, there can be a considerable cost involved in getting help with children and around the house whilst your partner continues to work. Life insurance may be a small price to pay to put your mind at rest.

What is best an ISA or a SIPP?

With longer life expectancies many investors are concerned about their retirement income. Some are now looking to boost their pension funds, either by topping up company schemes, or by using alternative vehicles.

One such vehicle is the Individual Savings Account (ISA) which could help to ensure your retirement income is as healthy as possible. ISAs and pension plans are both seen as tax efficient investment vehicles. However, there are big differences between the two. For example, when you put money into your pension plan, the contribution qualifies for a tax rebate at your marginal rate which, for a higher rate taxpayer, can add a significant amount to their investment. However, in exchange for this benefit, you must keep your money invested until at least age 50 (rising to 55 in 2010), and on retirement, the income you receive back is taxable, and counts towards your personal allowances.

With an ISA, the money you invest comes from taxed income and no rebate will be given. However, ISAs have no minimum term - so you can withdraw the proceeds or an income at any time you like. In addition, any income you do withdraw will be tax free and will not count towards any personal allowances. Which approach is best for you depends entirely on your personal situation. Perhaps the healthiest way to approach it is to combine the two.

New ISA limits offer great investment opportunities

In the 2008 Budget, the Chancellor announced increases to the ISA investment limits. This has now been followed in the 2009 Budget by further increases to the limits, initially for the over 50s but eventually for everyone.

Under the new simplified rules, there are now just two types of ISA - the cash ISA and the stocks and shares ISA - and your overall allowance for both in 2009/10 is £7,200 - or, if you are over 50, from October, £10,200.

Within this, the limit for cash ISAs - or for the cash element within a stocks and shares ISA - is £3,600 (or £5,100 for over 50s). But there is also some flexibility. You can, for example, now put the maximum £3,600 (£5,100) in a cash account and £3,600 (£5,100) in a stocks and shares account. Alternatively, if you place just £2,000 in cash, you can use the entire remaining balance - £5,200 (or £8,200) - to invest in stocks and shares. If you don't need cash at all, you can put your full allowance into stocks and shares.

You can also transfer any existing cash ISA holdings to a stocks and shares ISA without affecting your current tax year allowance. So, if you have £10,000 already sitting in existing cash ISA plans then this amount can be moved to a stocks and shares ISA whenever you think the time is right.

On 6 April 2010, the limit for everyone increases to £10,200 and the limit for cash within that goes up to £5,100. It might be time for all of us to start planning where we are going to put it.

Is the housing market stabilising?

The UK housing boom reached its peak in 2007 but since then, house prices have taken a serious knock, ravaged by the credit crisis and the effects of the recession.

However, recent data now suggest the market is showing signs of stabilising. The Nationwide suggests that house prices have now risen for five months in a row, which should come as welcome news for many beleaguered householders - but does it herald the start of a genuine recovery?

The British Bankers' Association (BBA) recently announced that mortgage approvals remained near their highest level for a year during September and October, and rose by 4.6% on an annualised basis. However, this rise is partly a reflection of the very weak figures of last year, rather than simply a fundamental upturn in the housing market. In fact, data from the Bank of England (BoE) show that the number of mortgage approvals is still only half the total granted in the late summer months of 2007.

Nevertheless, lenders remain cautious about the outlook for house prices and their mortgage deals remain expensive and in limited supply as they continue to shore up their balance sheets. The latest Financial Stability report from the Bank of England shows the concentration of lending to only the highest quality clients with little business being done with anyone else.

Indeed, recent rises in house prices are widely believed to be attributable to a lack of supply rather than any fundamental market recovery. Ernst & Young's Item Club expects the UK housing market to get worse before it gets better as tight credit conditions continue to linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply. The Item Club believes prices will dip in the first six months of 2010 and then to stagnate for a further two years, and does not expect prices to regain their 2007 levels for another five years.

For now, lack of supply is the principal driver of house-price rises, while exceptionally low interest rates are attracting some buyers, with growth in demand particularly strong amongst buy-to-let investors and cheaper properties. There maybe early signs that house prices are stabilising, nevertheless, the economic fundamentals are indicating that the housing market is unlikely to recovery rapidly.

Sterlingfs

Scottish Widows Investment Partnership Property Trust

The SWIP Property Trust aims to provide investors with a total return by investing in a balanced portfolio of commercial property. Following the recent correction in the property market, it is apparent that income will be the major contributor to fund returns over the next few years.

The fund will exploit opportunities across a broad spectrum of commercial property in search of profitable occupiers.Gerry Ferguson, Fund Manager at SWIP, joined the company in September 2000 and manages the Investment Property Trust. He believes there are marked signs that the UK commercial property market is starting to stabilise. Capital values fell by just 0.9% in June - the lowest rate of decline since August 2007. In the two years since the downturn began, values have fallen over 44.1% and are now back to levels not seen since August 1988. The current feeling is that the commercial property market has reached the bottom of its downward movement and due to tight credit conditions and lack of supply; prices in certain areas are starting to increase.


The fund currently has £300 million in cash and is using this to capitalise on reduced value, high quality property. The fund recently purchased a retail park in Edinburgh for £66 million. The property is a prime retail warehouse park offering high income and excellent tenants such as Tesco, B&Q, and Halfords. This generates an annual income of approximately £4.7 million and has good prospects for future income growth.

Property decline has been at the forefront of this economic recession and it is unlikely that prices will grow at the pre crisis rate for sometime. However, this fund has a broad-range of property and has sustainable income for tenants to make it suitable for a low risk approach.

Standard life UK Smaller Companies

The Standard Life UK Smaller Companies fund is designed to generate profits by investing predominately in smaller companies, which are based in the UK.

Smaller companies usually have higher volatility than their larger counter parts; therefore, the fund tries to limit risk, by holding a broad range of stocks in a variety of sectors. The fund will tend to hold roughly 50-70 stocks, all with a big enough holding to have a direct impact on the overall fund performance.

Harry Nimmo is the investment director and head of the UK smaller companies desk for Standard Life investment; he successfully manages the Standard Life UK Smaller Companies fund. He has held various investment analyst positions and manager roles, covering US equity funds, larger UK quoted company funds and UK equity smaller company funds. Harry is has won an array of awards including 'Best UK Small Cap' category at the Money Observer Investment Trust Awards 2009, and is triple AAA rated by Citywire. Harry and his team combined both financial, economic analytical methods in an attempt to locate small to medium size companies, which are undervalued by the market. Harry takes a very hand's on approach to investment; he often visits companies' management teams and to have a look around business sites, as part of in depth research process. Harry believes the market has reached the bottom of the downward economic cycle. He is now positioning his fund into companies that can make super-normal profits, during the economic recovery. The fund will also focus on defensive growth, in particular firms, which have robust balance sheets that will make firms able to cope with the rest of the economic fallout.

The fund has outperformed the sector average over the past 5 years by almost 50%, making this an ideal fund for investors; who wish to have some exposure to small company growth. However, due to the nature of small companies and the high amount of risk associated with them; we would strongly recommend only experienced investors to consider them.

Is the housing market stabilising?

The UK housing boom reached its peak in 2007 but since then, house prices have taken a serious knock, ravaged by the credit crisis and the effects of the recession.

However, recent data now suggest the market is showing signs of stabilising. The Nationwide suggests that house prices have now risen for five months in a row, which should come as welcome news for many beleaguered householders - but does it herald the start of a genuine recovery?

The British Bankers' Association (BBA) recently announced that mortgage approvals remained near their highest level for a year during September and October, and rose by 4.6% on an annualised basis. However, this rise is partly a reflection of the very weak figures of last year, rather than simply a fundamental upturn in the housing market. In fact, data from the Bank of England (BoE) show that the number of mortgage approvals is still only half the total granted in the late summer months of 2007.

Nevertheless, lenders remain cautious about the outlook for house prices and their mortgage deals remain expensive and in limited supply as they continue to shore up their balance sheets. The latest Financial Stability report from the Bank of England shows the concentration of lending to only the highest quality clients with little business being done with anyone else.

Indeed, recent rises in house prices are widely believed to be attributable to a lack of supply rather than any fundamental market recovery. Ernst & Young's Item Club expects the UK housing market to get worse before it gets better as tight credit conditions continue to linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply. The Item Club believes prices will dip in the first six months of 2010 and then to stagnate for a further two years, and does not expect prices to regain their 2007 levels for another five years.

For now, lack of supply is the principal driver of house-price rises, while exceptionally low interest rates are attracting some buyers, with growth in demand particularly strong amongst buy-to-let investors and cheaper properties. There maybe early signs that house prices are stabilising, nevertheless, the economic fundamentals are indicating that the housing market is unlikely to recovery rapidly.

Gartmore European Absolute Return Fund.

The Gartmore European Absolute Return Fund was launch in January 2009, when it became apparent long only equity funds were going to struggle in the current economic climate.

The fund aims to achieve positive return over the long term regardless of market conditions. It aims to do this by taking long and short positions on equities and also using related derivative contracts. It will mainly focus on investing in companies in Europeans markets, including the UK. This fund is relatively small at this current time and only has £54 million under management but has provided 6% return since its launch under extremely difficult and volatile circumstances.


Guillaume Rambourg and Rodger Guy manage the Gartmore European Absolute Return Fund; between them they have a combined 35 years experience in European equities and currently Co-Manage a very successful European hedge fund. The hedge fund they operate has returned 250% in the last 10 years, which makes them the excellent managers to run a retail fund of this nature. The fund makes use of a highly skilled analytical team, which, in essence, act as Guy and Rambourg's eyes and ears on the financial world.


They believe that the market will remain extremely fragile in the Euro zone and the markets will continue to be highly volatile. Guy and Rambourg are going to try and utilise this high volatility to locate equities that are perceived to be undervalued or overvalued to generate returns.


Overall this fund is ideal for the cautious investor, who wishes to have some exposure to European equities and generate a steady return. Funds of this nature are ideal for times of economic uncertainty and could be a useful addition to a cautious or balanced portfolio.

Baring Absolute Return Global Bond

The Baring Absolute Return Global Bond is designed as a stepping stone between long only products, such as traditional unit trusts and hedge funds.

This fund is able to take advantage of a variety of financial instruments, with the aim of producing constant returns independent of market conditions. In particular, if the fund is correctly positioned, it should be able to make money when yields are rising, the environment in which bond funds typically suffer capital erosion.

Colin Harte has managed the Baring Absolute Return Global Bond Trust since it was launched on the 12th of March 2004. Colin is currently Head of the Fixed Income Scenario team. Colin is also actively involved with the research into currency markets and foreign exchange mechanism. Colin brings a wealth of experience to the Baring Absolute Return Global Bond team having worked in a large range of different market conditions over the past 28 years. In addition, Colin has a world-class team of analysts in all areas of global markets, giving him instant access to a whole world of information and expertise. Colin and the team use their knowledge and technical skills to build theoretical models of various potential outcomes of the global bonds and currency market fluctuations. These models are then used to position the fund resources in the best combination of relevant bonds, with the aim to take advantage of either upswings or downswings in the markets.

The Baring Absolute Return Global Bond has out-performed the sector average by approximately 11.5% and the FTSE 100 by approximately 25.5% over the last year. The current economic downturn is in the final stages of downward trend, however, it shall be a long time until the conditions are correct for the resurgence of the bull market. For that reason, a fund of this nature is ideal for the current economic climate as it offers returns independent of global equity markets.

Blackrock - European Dynamic Fund

The Blackrock European Dynamic fund is highly flexible fund, with the ability to invest a broad range of companies that operate in the European markets.

Its ultimate aim is to generate profits for the long-term investor, by investing in equities of companies, which the fund manager believes to be undervalued or offer distinct future profitability. The fund has a relatively loose mandate; this makes it possible for the fund manager to quickly switch between various investment strategies, as a result, providing potential to achieve higher rates of growth, than the standard European equity funds.

Alister Hibbert is current the head of European Equity and manages the Blackrock European Dynamic fund. Alister has vast amount experience in European equities and has worked for a variety of other investment firms before coming to Blackrock in 2008 to manage this fund. Alister takes hands on approach to investment and often meets with variety of different business leaders and specialists, in the aim to give him further understanding of the mechanics, which drive individual markets. The fund is invested in broad spectrum of companies across European market place, which makes it possible for the fund to tap into uncorrelated cyclical themes and to reduce risk exposure. Alister remains confident that the European markets have experienced the worse of the recession and that equity markets will continue to improve. He thinks that the direct intervention by global governments will stimulate activity in an assortment of economic sectors; therefore, he is trying to position his fund, in order to capture this upswing.

Gaining exposure to global equities is can be risky and many funds in this sector have seen losses of up 40% in recent time. Nevertheless, over a period of 5 years to 8 years, these funds tend to return profit, which can far exceed more cautious investments. We would recommend that only people with a reasonable amount of investment experience and knowledge should consider such a fund.

GLG Total Return Bond

GLG Partners has established itself as one of the largest independent asset managers in the world.The company offers a diverse range of investment products, with the aim of achieving superior returns using a variety of Asset classes and alterative investments.

In 2009, GLG acquired the UK business of Societe Generale Asset Management, as part of their global expansion program and desire to invest in the lucrative UK markets. In the take over they changed the name of Societe Generale to GLG and began to provide investment solutions for institutions, financial adviser and private investor.

The GLG Total Return Bond is designed to optimise capital escalation and income regardless of market conditions. The fund is broken up into two funds, the main fund and the sub fund. The main fund operates like a normal global bond fund and chooses a variety of fixed interest bonds from around the world with the aim of generate a steady return. However, the Sub-fund in essence acts a global bond hedge fund, with the ability to access more exotic financial instruments; such as fixed interest securities, index-linked securities, and money market instruments. The sub-fund uses a multi strategic approach to exploit potential profits from the across the globe. This makes it possible for the fund to profit from rising and falling markets.

Lorenzo Gallenga and Gareth Isaac are the highly experienced fund managers and have shared joint management of this fund since its inception in May 2005. They have over 20 years experience and held high-ranking positions for other major investment management firms such as AXA and Newton. This experience coupled with the funds wide investment mandate, should make it possible to achieve successful returns independent of equity fluctuations. The fund also has a highly knowledgeable analytical team, which Gallenga and Isaac use to take advantage of the global market. Gallenga and Isaac's current view is that corporate bond spreads remain at historically attractive levels. In the current economic climate, corporate bonds still offer far better return and less volatility than equities, for that reason, they intend to increase exposure to this asset class over the coming months.

The GLG Total Return Bond has lived up to its name over the last year and successfully generated profits of 9.28%, against a declining market. The fund also outperformed the absolute return sector average by approximately 7.3% and looks ideally placed to reap profits in the future. The general management style and steady returns, makes it perfect for cautious investor.

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First State - Global Opportunities

First State Investments is a specialist asset management business, which is focused on developing and managing innovative investment products.

They offer a range of investment strategies across categories including Asia Pacific and global emerging markets, global resources and global equities, property securities and infrastructure.

First State is the UK asset management arm of the Commonwealth Bank of Australia, which has approximately £60 billion under management

The First State Global Opportunities fund is one of the top performing funds in the global equity sector. It has the ability to invest in virtually any size company, across the globe. This gives the fund manage the flexibility he needs to achieve larger returns, than those funds, which are geographically restrained. At least two thirds of the Fund's total assets will be invested in equities or equity type securities, at all times.

Habib Subjally joined first state investments in April 2006 as head of global equities. He has previously held high-ranking positions at other large investment houses, such as Credit Suisse, Invesco Asset Management and Merrill Lynch Investment Managers. Habib Subjally and his team of financial analysts take a global approach to investment, they believe that sectors grow independently of geographical regions. Habib Subjally currently feels that the immediate outlook for markets remains uncertain; however, he thinks there are early signs that the economic downturn is easing. He also believes that the long-term valuations of companies, especially in financial and technology sectors are undervalued, offering variety of high quality companies at a discount.

Investing in global equity funds can be highly profitable in the long run and can often exceed the profits of a standard cautious UK funds. Nevertheless, they encounter high volatility and sometimes devastating downward swings, as a result should only be considered by experienced investors.

Gartmore MultiManager Absolute Return Fund

Gartmore MultiManager Absolute Return Fund
The Gartmore MultiManager Absolute Return Fund aims to deliver a positive absolute return over the long term, regardless of market conditions.

It does so by bringing together around 15 to 20 investment funds, featuring a broad range of asset classes, and aiming for as little correlation between them as possible. In essence, the fund tracks the performance of the "Absolute Return Sector".

Fund Manager Tony Lanning and his experienced team use a number of sophisticated portfolio construction tools, to create a portfolio that is unresponsive to downward movements in the market. The fund will invest typically in equities, fixed interest, hedge strategies, commodities and life settlements. The goal is that, should one asset class go through negative change, the Fund as a whole will be less affected. The team strongly believes that there is no substitute for meeting the key people face to face and developed a personal relationship with them. Tony remains cautious in the short term on UK equities but believes that US equities could hold the key future profits. This is because the US market is less reliance on the financial services industry than the UK and large amount of high quality companies are still cheap relative to historic averages.

The funds performance has been extremely impressive; generating profits in the region 11.5%, in less than 12 months. Funds of this nature are ideal for times of economic uncertainty and could be a useful addition to a cautious or diversified portfolio.

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Ignis Argonaut European Alpha

The Ignis Argonaut European Alpha fund, invests in a concentrate portfolio of approximately 30-55 (maximum 60) equities from the European markets. This is one of the best investment funds, to capture growth in the european market.

The size of each position will range between one and five percent of the total portfolio, but will tend to be around two to two and a half percent of assets. The managers are very risk aware and also benefit from support from Ignis' independent risk monitoring team.

Investment managers Barry Norris and Oliver Russ have a considerable track record in the management of European equity funds, and they are responsible for all aspects of stock selection and portfolio management. Barry and Oliver aim to provide investors with a "fund for all seasons": rather than focusing on one particular investment style, or structuring a portfolio that will only perform in one particular market environment, they aim to construct a portfolio that has the potential to outperform in all market conditions. The managers seek to identify companies with superior earnings potential relative to the market's expectations, that are attractively valued, and that have unrecognised growth potential. They believe that European equity valuations are at multi-decade lows and sentiment toward equities still poor. They currently think that until corporate profitable increases and economic fundamentals recovery, the recent rally will be unable to continue.

Gaining exposure to global equities is can be risky and many funds in this sector have seen losses of up 40% in recent time. Nevertheless, over a period of 5 years to 8 years, these funds tend to return profit, which can far exceed more cautious investments. We would recommend that only people with a reasonable amount of investment experience and knowledge should consider such a fund.

Sterling Financial Services | Best SIPP & ISA: Us Equities Monthly Update.

Sterling Financial Services | Best SIPP & ISA: Us Equities Monthly Update.

Us Equities Monthly Update.

The US equity market started October in relatively strong style. The S&P 500 index reached a new one-year high towards the middle of October, while the Dow Jones Industrial Average index rose above the psychologically important 10,000-point level for the first time in a year during the month. Investors drew encouragement from reassuring economic data and unexpectedly strong third-quarter profits announcements. However, towards the end of October, share prices subsided sharply as investors became uncertain about the strength and sustainability of economic recovery.

The US led the world into recession and is now tipped to lead the world into recovery. The US economy registered growth of 3.5% during the third quarter, having contracted by 0.7% during the second quarter. US retail sales posted a smaller-than-expected decline during September, boosting hopes that US consumers will spearhead economic recovery in the country. Nevertheless, Donald Kohn, vice chairman of the Federal Reserve, warned that short-term growth in consumer spending is “likely to be muted”. Meanwhile, as expected, car sales plummeted following the expiry of the government’s “cash for clunkers” programme.

Minutes of the Federal Open Market Committee’s (FOMC’s) September meeting indicated some policymakers have misgivings about the strength of the recovery and the committee might consider increasing purchases of mortgage-backed bonds in order to support the housing market. The FOMC reiterated its pledge to maintain the current low level of US interest rates “for an extended period”. The rate of unemployment climbed to 9.8% during October while recent data showed the US economy has lost more jobs since December 2007 than at any time since the Great Depression.

Some four-fifths of companies in the S&P 500 index reported better-than-expected results during October. The world’s biggest software manufacturer, Microsoft, announced a smaller-than-expected fall in profits after cutting costs to offset a decline in sales while online retailer Amazon reported net income rose by 69% during the third quarter, compared with a year earlier.

The third-quarter earnings season provided some positive surprises for the banking sector, with Goldman Sachs announcing third-quarter earnings that beat consensus estimates. The company attracted criticism after reporting it had earmarked $16.7bn (£10.1bn) to pay its employees so far this year. Meanwhile, JP Morgan Chase announced a seven-fold rise in third-quarter profits, driven by record revenue streams from fixed income activities. Elsewhere, Citigroup – which is 34%-owned by the US government – surprised many analysts by reporting a profit rather than a loss.

UK Equity Growth - November Update

The UK equity market ended October in negative territory after a relatively healthy start. The end of the month saw UK share prices experience their worst week since the stockmarket rally began during March.

Amid escalating fears that share-price gains might have outstripped realistic expectations for corporate earnings growth.Nevertheless, investors took heart from some strong corporate profits announcements from individual companies. British Sky Broadcastin announced an increase in first-quarter earnings driven by growth in new subscribers and rising demand for high-definition programmes while Halfords, Britain's leading retailer of car parts and bicycles, announced it was "confident" first-half profits would increase following a sharp rise in demand for bicycles and camping equipment. However, the company remains cautious about prospects for the second half, fearing the effects of a higher VAT rate, a stronger US dollar and rising commodity prices.

Meanwhile hospitality company Whitbread announced higher-than-expected first-half profits that were boosted by sales growth in its Costa Coffee outlets. On the other hand, Royal Dutch Shell reported a 62% drop in third-quarter profit as the recession generated a decline in demand for fuel.

UK inflation rose by 1.1% year on year during September and consumer prices registered their slowest growth in five years as the recession continued to put pressure on prices. During the month, the Confederation of British Industry's (CBI's) Distributive Trades Survey reported UK retail sales growth had reached its highest level in almost two years. Overall, British high-street retailers expect stronger sales growth during November.


The CBI also reported encouraging evidence of improving sales in sectors connected with the housing market. However, retailer Tesco announced its slowest growth in first-half earnings for 11 years during October, as acquisition costs put a brake on profits. Elsewhere in the food-retailing sector, Sainsbury reported a slowdown in sales and warned that grocery prices could start to fall, hampering sales momentum. According to figures from research group Taylor Nelson Sofres, Tesco controls almost 31% of UK grocery sales, while Sainsbury enjoys market share of almost 16%.

According to a survey conducted by the CBI and Pricewaterhouse Coopers, a sense of optimism among British financial companies has appeared for the first time since the start of the credit crisis. Nevertheless, many companies within the sector remain concerned about a lack of demand, worries about rising bad loans and the potentially negative effects of new regulation within the financial services industry

UK Equity Income - November Update.

The market rally finally ran out of steam in October, giving higher-yielding stocks some much-needed time in the spotlight. The FTSE 350 Higher Yield index dropped by 1.6%, compared with a fall of 2.14% in its Lower Yield counterpart. The fall in markets also raised the yield on the FTSE 100 from 3.44% to 3.51%.

Shell and BP had been seen as the most vulnerable dividends, so it was a relief to income-seekers when Shell raised its dividend by 5%. GlaxoSmithKline had not been seen as a risk, but there was still comfort in its 7% dividend hike. Elsewhere Carpetright, one of the early victims of the recession, announced it would raise its dividend again next year, having cut it in June.

Ryanair also mooted a change in its dividend policy, saying it would return money to shareholders if it could not agree terms with Boeing over the delivery of new aircraft, although it was not clear whether this was competitive posturing or a genuine possibility.

There was little conspicuous bad news for equity income investors. Helphire, a group providing courtesy vehicles after accidents, was the only major company to announce a cut, announcing it was to scrap its dividend after it reported a loss of nearly £150m.

Analysis by Markit has suggested the cuts that had characterised the first half of 2009 are about to reverse on the back of an improving economy, margin improvements, sterling weakness and cost-cutting. A survey by the group found the proportion of companies in the All-Share reducing dividends would fall from 31% this year to 8% next year. 5% of those companies that had suspended payouts in 2009 would reinstate them in 2010.

By the end of the month, the situation with the banks remained unclear. The UK Government announced it planned to inject a further £37bn into Lloyds Banking Group and Royal Bank of Scotland and an ING-style break-up looks to be on the cards. Either way, it seems unlikely these former dividend stalwarts will resume payouts any time soon.

Despite the reversal in markets, the UK Equity Income sector is still lagging the UK All Companies grouping over the year to date. The average UK All Companies fund is up 24.28% over this period, compared to just 18.04% for the UK Equity Income sector. However, both sectors remain well ahead of the newly created UK Income & Growth sector, which is up just 15.36%. The returns from the UK Equity Income sector remain disparate, however, with the top fund up 52.23% over the year to date and the bottom fund down 8.99%.

Emerging Markets Monthly Update.

While Western governments, particularly the UK's, are wondering if they dare remove the economic stimulus that is supporting their economies, their emerging market counterparts are facing the policy challenge of potential asset price bubbles. The World Bank recently sounded a warning on the inflation pressures building up on the back of a rapid rise in equities and house prices in places such as China, Hong Kong and Singapore.


The trouble is that international money is looking for a safe home and at the moment, Asia offers a tempting combination of relative stability and high growth. The IMF raised its growth forecasts for Asia on the back of improving demand for exports, with its GDP forecast for the region as a whole now up to 2.8% this year and 5.8% next year, a near doubling of previous estimates. Meanwhile its forecast for China rose from 7.5% to 9%, for South Korea from 1.6% to 3.6% and for India from 5.6% to 6.4%.


This strength is not confined to Asia. Another IMF representative suggested this month that Latin America had weathered the credit crunch so well that the resulting strength in the currency and flows of foreign capital could create bubbles in future. According to the Economist Intelligence Unit, fund flows into emerging markets for the year have exceeded those into developed markets for the first time.


However, the news was not universally good as the IMF slashed some of its estimates for Eastern Europe. In the region, only Poland and Albania now look like they will post positive growth for 2009. Of the major economies, Hungary is down 6.7% this year and should continue to contract in 2010, while Latvia and Lithuania, weighed down by debt problems, is expected to contract an eye-watering 18% and 18.5% respectively this year.


Stockmarkets sold off heavily towards the end of last month, but most were in positive territory for the month overall. India was the significant exception, however - the benchmark BSE Sensex index dropped 5.4% in the last week of the month, dragging it 7.2% lower for October. It suffered as Reliance Industries and Bharti Airtel posted weaker-than-expected results.


China continued its strong run. The Shanghai 180 A Share index rose 8.8%, while the FTSE Xinhua rose 8.6%. Elsewhere in Asia, Malaysia and the Philippines also saw good gains. Brazil was largely flat, while Eastern European markets were stronger in spite of the news from the IMF. The MSCI Eastern Europe rose 2.23% overall, while the MSCI Poland and Russia indices rose 6.07% and 4.26% respectively

European Equities Monthly Update.

The Eurozone's stockmarkets and economies pulled in different directions in October. The stockmarkets were the worst-performing of all the developed markets. The FTSE Eurofirst 300 dropped 2.2%, the CAC 40, despite France posting strong economic numbers, dropped 5.4% and the German DAX fell 4.7%. In contrast, the Nikkei fell just 0.38%, while the FTSE 100 dipped 1.73% and the S&P fell 1.8%.


This weakness was more of a reflection of nerves about the global economic recovery rather than the strength or otherwise of the Eurozone. In fact, the Eurozone economies were shown to be surprisingly buoyant last month. The European Commission raised its prediction for Eurozone growth in 2010 to 0.7%, having previously been predicting a 0.1% fall.


The early findings from the Purchasing Managers' index seemed to confirm this optimism. The results showed the third month of growth and predicted a 0.9% expansion in GDP in the third quarter, a significant turnaround from the fall of 0.2% in the second quarter.


France appears to be leading the way with household and business confidence riding high. The country also showed a strong improvement in industrial production, rising 1.9% in August over July. However, this was trumped by the performance from Italy, which saw a rise of 7% over the same period. Industrial production figures were strong across the Eurozone, rising 0.9% in August over July. Eurostat also revised its July figures to show a 0.2% rise rather than a 0.3% fall.


The European Commission said that a 'double dip' was looking increasingly unlikely. The private sector is expanding at the fastest rate in two years, confidence is improving and domestic demand is rising again. The Markit purchasing managers’ index said that the improvement in French output had been largely driven by domestic demand improvements, particularly on the Government’s car scrappage scheme.


The picture was not entirely rosy, however. Eurozone economic success has been achieved on the back of huge borrowing. Not one country in the Eurozone would currently meet the original entry target of a budget deficit below 3% of GDP and the European Commission warned that the debt levels would constrain growth.


European funds still lag the average UK All Companies fund for the year to date. They have gained, on average, 15.38% since the start of the year, compared to 24.31% for the UK All Companies sector. They were hit hard in October and the performance differential widened substantially. The European Smaller Companies sector has done better, returning around 30% on average since the start of the year.

Investment Bond

In UK finance there are two main ways to buy investments: via an asset or fund management house or through a life company. The difference is the product wrapper that surrounds the underlying investment and the tax treatment of that investment as a result. An investment bond can only be offered by a life company and, like an ISA, is basically a wrapper around your investment that gives certain benefits.

Investment bonds are generally available for single premiums - i.e. a one-off, lump sum. You can choose how that money is invested from a range of options - and traditionally, the most popular have been with-profits, managed and distribution funds, combining a variety of asset classes within one fund. However, today, the range of options is much greater, with both diverse and specialist funds being offered through external links to fund management houses.

Funds within an investment bond pay tax equivalent to the basic rate and there is no specific benefit to help investors save tax. However, for higher rate tax payers, it does offer the chance to defer their liability to additional tax. Under the deferral rules, you can withdraw up to 5% of your initial investment each year without becoming immediately liable for tax on it. This amount can be withdrawn every year for up to 20 years - up to a maximum 100% of your initial investment. It is not until you then cash in the entire investment bond that you are assessed for any additional tax on your gains.

This postponement of the tax liability can be particularly advantageous if you are a higher rate taxpayer now but expect to become a basic rate taxpayer in future, perhaps after retirement. The tax charge applies at the rate you are paying when the bond is encashed, not when the income was taken. As the bond has already been paying the equivalent of basic rate tax during its term, in this example, you would end up owing nothing more.

The structure of investment bonds means they can also offer facilities which many mutual funds cannot. Phased switching, to and from cash funds, for example, can help you dip into or out of a more volatile fund. Regular withdrawal facilities let you take a fixed income. And, as life assurance products, they also carry life cover - ranging between 100.1 and 101% of the original capital. As the underlying value can fall as well as rise, this can help secure your investment should the worst happen.

However, investment bonds can be a less tax efficient method of investing. Broadly speaking, your growth and income from the underlying investments is taxed each year, whereas, investing within mutual funds (OEICS and Unit Trusts), your income is taxed but your capital gains are not taxed until they are realised. Bearing in mind that you have a capital gains tax allowance, it is possible to save a significant amount of tax using mutual funds rather than investment bonds.

As a firm we favour unit trust funds, but we also understand exactly when and where an investment bond may well be suitable. Our recommendations will always take account of the full product range available.

Unit Trust Funds

A Unit Trust Fund is a collective investment vehicle that allows investors to pool their resources with others to take advantage of professional investment management at a reasonable cost. The mutual fund and subsequently its management team will offer a set investment mandate and fund objectives - for example UK Equity Income, Fixed Interest or more a specialist approach like Russian Equities or Commodities.

The funds invested are generally spread across a wide number of different holdings, normally well over 75, and participating in a selection of well-managed funds can alleviate risk.

These funds are generally held as Unit Trust, Open Ended Investment Companies (OEIC) or Investment Company with Variable Capital (ICVC) structures. These different structures make little difference to the investor or performance of the fund. It would be fair to say that the difference in these structures should have little or no impact on your selection of the manager, management group or asset allocation.

From a taxation standpoint, holding Investment Funds directly can give cause to both an income tax liability on dividends or 'yields' and also a capital gains tax liability on realised gains. The former is generally unavoidable, but with careful planning capital gains can be reduced by making full use of capital gains tax allowances and spreading encashment over more than one year.

Many mutual funds can be held within Individual Savings Accounts (ISA) to reduce the amount of income tax payable and remove altogether the potential for capital gains tax.

The funds invested are expressed in 'units' that reflect the value of the underlying investments. The unit price is typically published daily.

It is important to bear in mind that the value of Unit Trust Funds can go down as well as up, and that past performance is not a guide to future returns

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Stocks and Shares ISA

If you want to, you can invest your entire ISA allowance - £7,200 - into a Stocks and Shares ISA. You can invest a further £3,000 from October 2009 if you are over age 50. The higher allowance of £10,200 is available to all investors with affect from April 2010. Even if you want to invest only a fraction of your allowance, then there are plenty of choices available from across the world's stock markets.

There are many funds to choose from and, over the long-term, those with higher equity content have offered greater potential than equivalent investments in cash, bonds or commercial property. However, the risks vary and funds are therefore grouped into categories to give you an indication of their aims. For example, 'cautious' will tend to indicate a lower equity exposure; balanced funds might typically be 50% or more and aggressive funds normally invest the largest portion in shares and also overseas. Consequently, a more cautious fund combining UK blue-chip equities with bonds will be lower risk than an aggressive growth fund targeting 100% smaller companies or emerging markets.

More recently, the emergence of Absolute Return Strategies has been a prefered choice amongst investors. An Absolute Return Fund enables the fund manager to benefit from both peaks and troughs in stock markets. As the name suggests these funds are designed to produce results regardless of market conditions. However, please do not take this to mean the funds are not exposed to risk – they can still fall in value. They work within investment structures and can be likened to hedge funds. However, unlike hedge funds these investments are strictly regulated in the UK. The managers employ a number of measures to protect and preserve capital.

The Absolute Return sector and funds of this type are relatively new, but we feel will have significant impact on the cautious investment category as a whole. We have a higher weighting towards more global funds, providing greater investment freedom for the investment manager.

If you need income from your ISA then you may wish to consider a fund that delivers regular payments. A bond fund might be one solution and, relative to equities, is generally considered lower risk. Alternatively, you might choose a fund that mixes equities and bonds, thereby producing income but also offering the potential for capital growth.

Finally, there is the option to split your money across more than one fund and manager. If you don't know which funds are best, you can even opt to have this done for you by a professional - by using a fund of funds, where your investments are actively targeted at a portfolio of funds and investment schemes.

The ISA was introduced to replace PEP and TESSA accounts. Although existing investments within these accounts retain their tax efficient status, they cannot accept new investment. The PEP and TESSA names will become a thing of the past as the new ISA legislation encompasses these investments. You can however, transfer these holdings and retain the valuable tax benefits to alternative plan managers or to Wrap facilities.

Please contact us for further information

Self-Invested Personal Pension (SIPP) - Saving for Retirement

Self Invested Personal Pension Plans are a popular choice for those who want greater investment freedom. Most insurance company pension schemes offer little in the way of choice when it comes to investment and using a SIPP provides significantly greater control.

SIPP's have become more popular for pension transfers, normally from more basic Insurance Company contracts. Rather than selecting from a With Profits or Managed Fund, you can specifically choose exactly where your money is invested - to the exact share if you wish.

With the assistance of our Wealth Management service we can help you select investments that meet with your attitude to risk and investment objectives. Alternatively you can choose from over 2000 funds at discounted charges through our Online Service. Browse the pension funds available section.

You are still restricted to basic pension scheme regulation. Once your money is invested it cannot be accessed until age 55 - at which point you can draw a lump sum equal to 25% of the fund value and the remaining fund will be used to purchase an annuity. You are restricted to a maximum contribution that is the greatest of 100% of your salary or £3,600 in any one tax year. Employers can contribute significantly more. Just like a personal or stakeholder pension your fund cannot exceed a lifetime limit - which started in April 2006 at 1.5 million and will increase to 1.8 million in 2010. For those with pension funds exceeding this limit tax charges will be levied.

The Government intends, from April 2011, to restrict tax relief for individuals with an annual income of £150,000 or more. Relief will be tapered away so that those with an annual income over £180,000 per annum will receive 20% relief.

Preventative measures have been put in place from April 22nd 2009, restricting relief for those earning more than £150,000 to 20% on contributions in excess of £20,000.

The SIPPs we recommend have a built in Drawdown Option, which prevents an additional initial charge being levied should this method of withdrawing benefits be favoured at a later date.

SIPPs are just as flexible as Stakeholder Pensions, but will often be charged at a higher price. The price is determined by the underlying investments some of which may be more expensive than the 1% per year associated to a standard Insurance Company plan.

Are emerging markets forming a new bubble ?

The Economist Intelligence Unit has reported that last month foreign direct investment flows into emerging markets exceeded, for the first time, those into developed markets.

Overall fund flows have slumped by half since their 2007 highs so developed economies are facing a significant drop. Is this yet another cue to steer clear of developed economies? Or else could this point to another bubble in emerging markets?

Asia has been the chief beneficiary of this change in the pattern of fund flows. This is no real surprise - international money looks for a home where it can generate decent returns and Asia has the strongest growth story of all the emerging markets. The IMF has just doubled its forecast for Asian growth, which is driven by improving exports. There seems to be a real possibility that some measure of decoupling is happening after all as Asian domestic demand emerges to fill the hole left by a weakened US.

Just as developed markets are struggling to shore up their property and investment markets, the governments of some Asian countries are worrying about bubbles. The Singapore property market, for example, has risen more than 15% since the start of the year and is seeing a flood of Russian money in search of a stable home. But this is not just confined to Asia - Nicholas Eyzaguirre, western hemisphere director of the IMF, recent warned in an interview with the FT that Latin America had weathered the crisis so well that appreciating currencies and inflows of foreign capital could generate bubbles in future.


This bounce-back has certainly been reflected in stock markets.The FTSE Xinhua is around 65% ahead over the year to date, compared with around 12% for the FTSE 100. The worry for investors now is that all the good news may be in the price of emerging markets. After all, does anyone really expect developed economies to outpace those of emerging markets? Pretty much everyone sees that emerging markets are currently the engine of world growth, which at the very least should be ringing some contrarian alarm bells.

That said, it is likely to be some time before this becomes a real issue. Plenty of fund managers talk about the amount of cash sitting on the sidelines. It has to go somewhere and it's unlikely to find its way into developed markets as a priority. Emerging markets have always been subject to huge waves of optimism and then widespread sell-offs. It's just a question of being aware of when things might have gone too far, so investors should remain alert

www.sterlingfs.co.uk

Is this the start of the Bull Run?

It does not seem that long ago, when the global financial systems was on the brink of collapse of a biblical proportion. It now appears that the joint efforts of central banks and Governments across the world have averted the complete systemic collapse.

This has prompted a generally more optimistic outlook by investors and economist on the future of the global economy. This has helped the FTSE 100, to achieve growth of 15%, in just one month and this begs the question; is this bull market returning or is it just a bear market rally?

Japan, Germany and France have all successfully returned to economic growth, to the surprise of many economists. All three countries have been experiencing abnormally deep recession, since these countries are massive exporters on the global market. When world trade start to decline in late 2008, it became apparent that net exports would take the brunt of the fall in global demand. With these major economies lifting themselves out the current recession, this is adding optimism to investors that world trade can recover and that other developed nations would achieve growth in the 3rd quarter.

The world's biggest economy is starting to show tentative signs of economic recovery, as the big government programs start to take effect. The most notable of these policies is the recent "cash for clunkers" program. In essence consumers are given credits of either $3,500 or $4,500 for turning in certain gas-guzzling, environmentally unfriendly vehicles and buying new, more fuel-efficient ones. This program was so much of success that the US government had to extend the funds available from one billion to three billion, to cover the cost of the rebate. Overall there has been over 700,000 cars sold, which has handed a much-needed lifeline to the American car industry. This combined with the other American stimulus packages should help the economy achieve growth in the 3rd quarter and signal the start of the Bull Run.

Historically bull markets nearly always start a midst a barrage of dire economic news, at the point when investor confidence is rock bottom. An important indicator is the Bloomberg survey of experienced investors, which in essence is a survey of approximately 300 top investors in attempt to gauge investor sentiment. When the market reached its lows in March, the survey illustrated a severe lack of confidence and the average investor was holding approximately 45% of their funds in cash; which is a record high. However, at the start of August the amount of cash held by experience investors was just 25%, which represents a massive increase in optimism.

The general public has also mirrored this optimism, as show with the rise in sales of investment funds. The Investment Management Association says net retail sales in June sky rocketed to £2.5bn, from £128m in the same month last year, while investment ISA's sales hit a six-year high.This private and investor confidence will give the market the additional influx of cash to help stimulate the market and make a Bull Run more sustainable.

On the other-side of the argument, the pessimists are still keen to point out the fundamental problems that still remain in the global economy. One of the main concerns is the unprecedented amount of economic stimulus released by the governments and central banks. This economic stimulus packages is creating two major concerns, first concern being inflationary pressure in the long term. The low interest rates and asset purchasing programs used by the governments is essentially increasing the supply of money and in most cases reducing the value of the currency. Therefore, it is reasonable to assume that all this additional money in the system will cause inflationary pressure.

The global economy is in essence on government life support, the massive monetary and fiscal stimulus is keeping the economies of the world "alive and kicking". However, these emergency measures cannot continue forever and when the government start to remove aid from these economies, this is where problems may occur. Interest rates inevitable will begin to rise again and governments will adjust the fiscal spending to pre-credit crunch levels. The combination of these factors will cause economic drag on company profits and employment. This careful balancing act is one of the most unknown factors facing the current economic climate.

The recent rally in the stock market could be the start of the Bull Run or a bear market rally. Only time will tell; the evidence is there to back either side of the argument. We would recommend a balanced cautious and diversified approach to investing; after all, the tortoise did beat the hare.

Does China hold the key to global recovery?

China has often been described as the sleeping giant of the world economy, but over the last 10 years it is apparent that the giant is awake.

The dynamics of China economic structure is enigma to most westerns, due to its unique balance of a single party communist government and free market capitalism. For all China's strengths, is it able to lift the global economy out its deep recession?

Since the end of the cold war China has been experiencing the most remarkable realisation of its economic potential, this has helped to establish itself as global economic superpower. This was built on the back of cheap labour and natural resources, this has made China the world's production house. China is the second largest net exporter in the world and these exports are directly responsible for a sustained economic growth rate of approximately 8%, over the last 15 years.

China has shown remarkable resistance to the economic downturn and it is believed that the economic growth may accelerate to 8.5 percent, in the 3rd quarter. This is partly down to moderately loose monetary policy position by the Chinese government and a considerable fiscal stimulus package worth in the region of £250 billion. This optimism and growth is leading many investors and economist to believe that China's growth is enough to stimulate the world economy.

The development of the China's domestic consumer is the key, as the standard of living rises for the most populous nation on earth, their demand for raw materials and foreign goods will undoubtedly rise. The 1.4 billion Chinese, are in the process of westernisation and catching the consumer bug quickly. There are many socioeconomic factors behind the shift in spending patterns; most of it is accountable to the new generation of Chinese consumers who are heavily influenced by western media. This generation have migrated from the countryside to the newly built urbanised cities, in search of work and new opportunities. This has generated the fastest growing consumer market on earth; therefore, if China continues to demand foreign goods throughout this economic downturn it will add additional boost to global economies.

However, all the signs for China are not all positive in recent weeks there have a numerous jitters by investors, the largest of which caused a 5.45% drop in the Shanghai Stock Exchange (SSE). This is because there is feeling amongst more cautious or pessimistic economist that the fundamentals problems still remain in the global economies and that China is unable to survive on just domestic demand. This is reverberated by global trade falling by approximately 12%; this directly caused many factories to close and generated a high amount of unemployment.

There is another fundamental issue with the assumption that China is able to lift the world out of the recession, it just isn't large enough. Possible in five to ten years China will have the industrial might, to make up substantial amount of global consumption but as it stands, China only makes 8% of the global economy.

Unquestionable China's influence on the world economy is important, nevertheless a global recovery is impossible without the American and European consumers who make up 45% of global consumption. Without these two super-states in an upward economic cycle, it will be difficult for world economy to recover to pre-recession levels.

Are there "Greens Shoots" of economic recovery?

In recent months it has been hard to escape the media talking about possible "green shoots" of economic recovery.

Ever since the head of the America Federal Reserve Ben Benanke coined the phrase in November last year, every economist has been looking for signs to be optimistic about the financial crisis and subsequently the recession.

Are people being too optimistic about recovery or is the economy going to enter another period of growth soon that expected?

As investors weigh up each piece of economic data, in recent months the optimistic view started to gain some serious ground. The global equity markets have rallied over the past 3 months, with the FTSE 100 gaining roughly 30% or 1000 points on the belief that recovery is insight.

One of the major factors in the recent rally is the general improvement in consumer confidence and retail sales, not only in the UK, but more importantly America. A key indicator is the "Nationwide Consumer Confidence Index", which is designed to paint a broad picture of consumer sentiment in the UK. This measure has improved significantly since the beginning of the year, with 28% of the people in the survey now believing that the economy will be better in 6 months. Moreover, there has been better than expected first quarter sales results for blue chip retail companies such as Tesco, Sainsbury's and Next. For these reasons many investor are starting to move their resources back into the retail sector and actually starting to believe that economic recovery in the UK is possible before the end of the year.

Another reason for the recent rallies is the moderation of job loses in America; over recent months there has been a sharp fall in the pace of job losses in the United States. The improving conditions in the world's largest economy is suggesting to many economist that the worst of the recession is starting to pass and that recovery could be possible by the end of the year.

One more important factor is "The American Recovery and Reinvestment Act" is a stimulus package orchestrated by the Obama administration, which is designed to pump a massive 786 billion dollars into their flagging economy. This Stimulus package has reportedly helped to create or save 150,000 jobs in both the public and private sector so far. This is one of the most proactive and costly pieces of legislation ever written; the Obama administration is hoping this massive investment will be able to jumpstart the economy by creating millions of jobs.

However, there are still plenty of reasons for people to remain sceptical for a quick economic recovery for both the UK and global economies. Due to the truly global nature of trade in the modern world, what happens in one country and can significantly impact other countries in the world. Since the start of the year, world trade has dropped by roughly 12%. This has left many economists to believe that until international trade starts to recover there is little chance of a quick recovery.

Another factor playing on investor's minds is the current debt levels of individuals, businesses and government. The amount of debt that still remains in the economy is going to seriously affect the countries ability to recover. The average British consumer has taken on vast amount of debt over the last 10 years and the repayments on this debt are now affecting possible growth in the future.

This is not just isolated to the individual; this problem is affecting businesses that did not foresee this economic downturn. Companies were often borrowing large amounts of money to fund expansion, with the belief that the economy was going to continue to grow. This debt is now reducing profitability of these companies and consequently forcing them to cut costs; most notably their workforce and production.

The British government has its own debt issues caused by the banking bailouts, the cut in value added tax (VAT) and reduced income tax revenue. This has left the British treasury department with historic levels of debt. This debt will have to eventually be repaid, therefore it would be prudent to expect rises in the general level of taxation over the next few years to try and balance the public purse. This taxation will no doubt reduce the amount of disposable income that British public has in their pocket, consequently reducing the amount of consumption and delaying the economic recovery.

There still remains some very serious problems within the economy however; the positive fast acting steps taken by governments around the world has seriously reduced the risk of a sustain period of economic downturn. The case for a rapid economic recovery could be overly optimist but on the other hand, the risk of a depression very pessimistic

Is the UK in too much debt?

This week chancellor Alistair Darling revealed his budget to the British nation; it was billed as the "most important budget of a generation" due to the continuing recession.

The budget itself had the largest amount of public sector borrowing in history at 175 billion pounds and this does not even include the various amount of aid given to the banking sector. In other news this week 900,000 thousand people are now paying mortgages that are more expensive than the value of their houses and, therefore, in a position called "negative equity". With the public and private debt reaching historic highs this raises some serious questions about the UK ability to steer a safe passage out the recession.

With the chancellor having the problem of raising an additional 175 billion pounds to cover the shortfall between the amount of money raised in tax and the amount of money he has spent in the budget. Essentially, the government borrows money from the public by issuing various government bonds. The standard government bond is called a Gilted Edge Security and is a promise from the government to pay the holder a certain amount of money when redeemed, plus interest payments. There is rising concern in the government bond market since the UK's Debt Management Office will be issuing £220 billion in bonds this year. However, this is not likely to affect the UK's AAA credit rating - there is very little chance that the UK government will be unable to repay this debt or Default on the payments thus, GILTs still remain a safe investment. In addition it is widely felt that bold steps taken by the government are necessary to help bring the country out the recession.

On the other side of the debt issue is private debt with two main issues "negative equity" on property and vast amount of credit card debt (unsecured debt). House prices have dropped nationally, according to the Halifax by £42,474, which is equivalent to 17.5% off their August 2007 highs of £199,700. This has left 900,000 people in the position of negative equity. Nevertheless unlike the last housing crash in Britain (1991-1993) there seems to be less correlation between negative equity and the ability of homeowners to repay their mortgage and for that reason negative equity is only truly affecting those who wish to move.

The amount of unsecured personal debt has sky rocketed over the past 10 years, mainly as a result of easy credit and low interest rates. These unsecured personal debts, mainly consisting of personal loans, store cards and credit cards, has reached roughly 216 billion pounds - approximately £4750 for every UK adult. If you include mortgages, it rises to circa £31,000 each. In spite of this, the recession appears to be having a positive effect on both debt and saving rates. The recession is encouraging people to pay off debt. In 2008 the British public repaid a massive 38.6 billion pounds in unsecured debt. Another important factor is that people are starting to save a higher proportion of their income each month - this is the first increase since 2001. The combinations of these factors are going to strengthen the private credit position of UK, which will help to recapitalise the banking system therefore increasing the flow of credit.

It would be unwise to think that ten years of national exuberance can be fixed overnight, but the rebalancing processing is certainly underway.

Where is the price of oil heading

The price of oil is one of the most important economic factors in the modern global economy. This is largely due to mankind's dependence on the substance to provide cheap energy.

Over the past year the price of oil has been extremely volatile, especially last summer when the price per barrel tripled to $147.50, which, in turn pushed the price of petrol up to £1.20 in the UK. As we enter the summer period is the price likely to spike again?

It is important to understand that there are various factors that affect the demand and supply of oil in global markets; these bring about fluctuations in the price on a daily basis. Over recent months the price of oil has started to rally off its lows of $32.40, this is slightly enigmatic, because there is still a large amount of downside pressure on the price of oil. The global financial crisis has affected the consumption of oil globally; this should add downwards pressure to the market. Combined with the high amount of reserves held by the industrialised nations such as the UK and the US; this should give further downside pressure to oil prices.

Another major factor is the amount of oil in the market and this is determined by the Organisation of Oil Produces Countries (OPEC). OPEC is to all intents and purposes an international cartel that includes such countries as Saudi Arabian, Iran and Venezuela. The purpose of this cartel is to protect the interests of member nations by controlling the production of oil, they do this by setting quotas on how much oil they take out of the ground, this gives them a large amount of control over the price of oil. In recent months they have cut production to try and increase the price of oil, with their target being in the region of $65-80 dollars a barrel.

There has also been an escalation of trouble in the OPEC member Nigeria. There have been countless clashes between the Nigerian government troops and rebel group in the area. The rebel group is fighting for fair redistribution of their natural resources and uses standard guerrilla tactics to strike oil pipelines and pumps. Nigeria is the 5th biggest exporter to the US; with uncertainty in the nation this is adding upward pressure to oil prices.

Last year, when the price of oil was heading towards it peak, there was a lot of talk about speculation within the oil market by international traders and hedge funds. There are initial signs that traders and hedge funds are beginning to speculate again as a simple hedge against potential inflation. Speculation on oil futures creates significantly unpredictable prices and much of OPEC's efforts to manage production may once again be in vein.

Should we see a surge in prices and continued volatility, the oil and commodity investment markets are likely see much tighter regulation from the international community.

With the intervention of the international community and sensible production from OPEC, the price of oil should be relatively stable and it is reasonable to expect the market to remain within the price range targeted.

www.sterlingfs.co.uk

Is Quantitative Easing going to help Britain out the recession?

Essentially quantitative easing is when the central bank of the country creates money out of thin air, so it can be injected into the financial sector. This only occurs when the central bank's base rate approaches zero and is seen as the last weapon in a central bank's arsenal.

Over the past 18 months the Bank of England has made various cuts in the base rate from 5.75% to 0.5% in an attempt to combat falling inflation and to pump liquidity in the market. On the 5th of March the Monetary Policy Committee (MPC) decided to create 75 billion pounds electronically to inject directly into the banking system in an attempt to stimulate the economy out the recession.

A perfect historical example of quantitative easing was demonstrated in Japan. Often referred to as the lost decade (from 1990-2000), Japan had almost no economic growth, deflation and high unemployment. The central bank was forced to lower the base rate to almost zero and faced with no way of creating any more liquidity, the Bank of Japan used quantitative easing to flood the banks with the liquidity. This helped increase commercial and private borrowing which, in turn, increased consumption and brought the economy out of deflation and, ultimately, recession. It would be naive to say that quantitative easing was the main reason that Japan recovered from recession but it certainly contributed.

Fast-forward to the present day and the rest of the world is in quite a similar predicament. The Bank of England is hoping that quantitative easing will be the solution to unclog the current credit markets and allow banks to make credit available to business and individuals. The bank of England also hopes that quantitative easing will help stabilise inflation towards their target of 2%.The Bank Of England desperately wants to prevent inflation turning into deflation as many forecasts predict. Deflation can be extremely destructive - people are reluctant to spend money when they perceive that goods will become cheaper in the future. On the other side of the argument many critics of the Bank of England's policy suggest that it will do nothing to help the recession and instead of helping the economy it will lead to devaluation of the pound as the additional money dilutes the currency value on world markets. Critics also suggest that "quantitative easing" will lead to hyperinflation, since pumping this newly created money into the economy would create upward pressure on prices. It is a quandary and an extremely complex balancing act.

Will quantitative easing help Britain out the recession? Yes, it will help - but quantitative easing is only part of the solution - in our view its main role will serve to help prevent economic conditions deteriorate further.

We take confidence from the speed in which interest rates have been reduced and how quickly the quantitative easing programme has been introduced. It is clear that the Government and Central Bank are prepared to act swiftly to prevent conditions becoming worst.

Only time will tell whether the actions that are being taken will work, but clearly, sitting back and doing nothing is not an option.

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