Late last year, the standard rate of Value Added Tax (VAT) was temporarily cut from 17.5% to 15% in an attempt to support Britain's flagging economy
UK consumers have now become accustomed to the current rate of 15%. However, on 1 January 2010, it is scheduled to return to its former level. The British Retail Consortium (BRC) believes that VAT's planned reversion in the new year will take place at the "worst possible time." The BRC estimates that the temporary cut in VAT cost the struggling retail sector around £90 million to implement at short notice and that the reintroduction will come at an exceptionally busy time for most retailers, ie: when post-Christmas sales are in full swing. But did the cut work?
Just a few months after it was implemented, the Centre for Economics & Business Research (CEBR) estimated the reduction had helped boost retail sales by £2.1 billion in its first three months. However, a poll undertaken by the Federation of Small Businesses in February 09 suggested that 97% of companies believed the VAT reduction had actually had "no impact at all".
Some analysts are now predicting a rise in demand for bigger ticket items as January approaches and consumers seek to beat the deadline. However, whatever the rate, an ongoing lack of credit, combined with the prospect of higher taxes and cuts in public spending, is likely to hold back consumer confidence anyway, longer term.
Tuesday, 15 December 2009
The Importantance of regular savings
In the world of investment, timing is everything. But, despite claims to the contrary, no one can predict what the market will do and when. This makes it difficult to decide, not only when to invest, but also when to pull out. However, by saving regularly, investors can benefit from what is known as 'pound cost averaging'.
Compared with putting a large lump sum in the market at a single price - which may or may not be the top of the market - regular saving mitigates the risk by putting in smaller sums at a variety of prices.
In a rising market, regular savings would underperform the growth of a single lump sum as the later investments would miss out on the early growth. However, in a volatile or falling market, the opposite is true. Later investments buy in at lower or alternating prices and therefore gain more when the market finally rises.
Regular saving can also be a deceptively easy way to build up a lump sum. Putting aside £50 or £100 a month can be achieved with a minimum of sacrifice – and will quickly grow as the months pass without you even noticing what is going on. With only smaller amounts going in each month, the short-term ups and downs of markets will have less impact on your portfolio overall and will have massive benefits, over the long term.
Compared with putting a large lump sum in the market at a single price - which may or may not be the top of the market - regular saving mitigates the risk by putting in smaller sums at a variety of prices.
In a rising market, regular savings would underperform the growth of a single lump sum as the later investments would miss out on the early growth. However, in a volatile or falling market, the opposite is true. Later investments buy in at lower or alternating prices and therefore gain more when the market finally rises.
Regular saving can also be a deceptively easy way to build up a lump sum. Putting aside £50 or £100 a month can be achieved with a minimum of sacrifice – and will quickly grow as the months pass without you even noticing what is going on. With only smaller amounts going in each month, the short-term ups and downs of markets will have less impact on your portfolio overall and will have massive benefits, over the long term.
Friday, 11 December 2009
Can US Equities continue to rally?
US equity markets recorded strong gains in November although share prices wobbled during the month amid concerns that economic recovery is likely to be bumpy. The S&P 500 index rose by 5.7% during the month.
The Organisation for Economic Co-operation & Development now expects the US economy to grow by 2.5% in 2010, up from previous forecasts of 0.9%. 83% of companies in the S&P 500 index that have reported results exceeded consensus estimates for third-quarter earnings, according to data compiled by Bloomberg. Third-quarter profits trebled at Berkshire Hathaway, and the company voiced its belief that "the credit crisis has abated". Nevertheless, Berkshire's chief executive, legendary investor Warren Buffett, called for greater sacrifices from leaders of companies that have been rescued by the US government.
General Motors reported it generated $2bn in cash during the third quarter, and intends to repay government loans earlier than expected. Kraft maintained its hostile bid for UK confectioner Cadbury during the month, without changing the offer that was first made in early September. Meanwhile, Hewlett Packard, the world's largest PC manufacturer, made an offer worth $2.7bn for 2Com Corp.
Third-quarter profits at Wal-Mart, the biggest retailer in the world, rose by 3.2%, boosted by aggressive inventory management, but the company warned its expectations for fourth-quarter sales remained largely unchanged. Home Depot, the US's biggest home-improvement retailer, reported third-quarter profits that were boosted by cost-cutting measures. The company increased its full-year profits forecast.
The US's biggest department-store company, Sears Holdings, reported smaller-than-expected losses following a programme of inventory cuts and discount reductions. More US consumers hit the shops than last year during the post-Thanksgiving weekend; however, shoppers spent less this year than in 2008, according to the National Retail Federation.
The Federal Open Market Committee reiterated its undertaking to maintain US interest rates at their current "exceptionally low" level of zero to 0.25% for an "extended period". The committee warned that the US's return to economic expansion is not sufficient to justify higher interest rates, and an increase in rates will depend on inflation and employment. US consumer prices have fallen year on year for the past seven months, posting their longest continuous decline since 1955.
US unemployment reached a 26-year high of 10.2% during October, according to the Labor Department. Federal Reserve chairman Ben Bernanke warned that "significant economic challenges remain" and that employment remains "an area of great concern."
The Organisation for Economic Co-operation & Development now expects the US economy to grow by 2.5% in 2010, up from previous forecasts of 0.9%. 83% of companies in the S&P 500 index that have reported results exceeded consensus estimates for third-quarter earnings, according to data compiled by Bloomberg. Third-quarter profits trebled at Berkshire Hathaway, and the company voiced its belief that "the credit crisis has abated". Nevertheless, Berkshire's chief executive, legendary investor Warren Buffett, called for greater sacrifices from leaders of companies that have been rescued by the US government.
General Motors reported it generated $2bn in cash during the third quarter, and intends to repay government loans earlier than expected. Kraft maintained its hostile bid for UK confectioner Cadbury during the month, without changing the offer that was first made in early September. Meanwhile, Hewlett Packard, the world's largest PC manufacturer, made an offer worth $2.7bn for 2Com Corp.
Third-quarter profits at Wal-Mart, the biggest retailer in the world, rose by 3.2%, boosted by aggressive inventory management, but the company warned its expectations for fourth-quarter sales remained largely unchanged. Home Depot, the US's biggest home-improvement retailer, reported third-quarter profits that were boosted by cost-cutting measures. The company increased its full-year profits forecast.
The US's biggest department-store company, Sears Holdings, reported smaller-than-expected losses following a programme of inventory cuts and discount reductions. More US consumers hit the shops than last year during the post-Thanksgiving weekend; however, shoppers spent less this year than in 2008, according to the National Retail Federation.
The Federal Open Market Committee reiterated its undertaking to maintain US interest rates at their current "exceptionally low" level of zero to 0.25% for an "extended period". The committee warned that the US's return to economic expansion is not sufficient to justify higher interest rates, and an increase in rates will depend on inflation and employment. US consumer prices have fallen year on year for the past seven months, posting their longest continuous decline since 1955.
US unemployment reached a 26-year high of 10.2% during October, according to the Labor Department. Federal Reserve chairman Ben Bernanke warned that "significant economic challenges remain" and that employment remains "an area of great concern."
Is there still growth potential for UK Equities?
UK share prices reached a 14-month high during November, but investor sentiment was knocked towards the end of the month by the news of Dubai's effort to delay its debt payments.
Overall, the FTSE 100 index rose by 2.9% during November, bringing the UK stockmarket's rally from its 3 March lows to 48%.Merger and acquisition activity continued to court publicity during the month. Kraft maintained its hostile bid for confectioner Cadbury, amid speculation that Nestle, Ferrero and Hershey might enter the fray. Meanwhile, British Airways announced an agreed merger with Spanish airline Iberia. According to a survey conducted by Ernst & Young, more than one-third of global businesses will actively seek merger or acquisition targets over the next 12 months.
UK retailers experienced their strongest sales growth for October since 2002, according to the British Retail Consortium (BRC). Sales were driven by demand for Halloween costumes, clothing and furniture. The BRC hailed the figures, but warned that higher VAT and increasing unemployment could dampen sales growth in 2010.
Nevertheless, amid signs of rising consumer confidence, UK retailers appear less inclined to offer major discounts before Christmas. Marks & Spencer reported a "good start" to the third quarter, while Next increased its forecast for the Christmas trading period. Sainsbury, the UK's third-largest supermarket, announced stronger-than-expected growth in first-half profits, boosted by savings generated from self-service checkouts and a larger range of own-brand food.
Consumer electronics retailer DSG International, which owns PC World and Curry's, announced first-half losses that were less severe than those sustained during the same period in 2008. Sales growth was lifted by improving consumer confidence and refurbished stores. Elsewhere increased first-half profits and sales prompted Carphone Warehouse Group to raise its full-year earnings forecast.
Within the financial sector, hedge-fund manager Man Group announced stronger-than-expected first-half profits, boosted by revenue from performance and management charges. HSBC reported "significantly" higher third-quarter profits compared with the same period a year ago. ICAP, the world's leading broker of deals between banks, reported a drop in first-half net income as investment in new ventures affected profits. Meanwhile, asset manager Gartmore announced plans to raise more than £400m through an IPO.
BT Group raised its target for full-year cashflow and announced plans to increase its dividend by approximately 5%. However, the company's chief financial officer cautioned that the UK economy is not "over the worst" of the recession, warning that "there's still more to come".
Overall, the FTSE 100 index rose by 2.9% during November, bringing the UK stockmarket's rally from its 3 March lows to 48%.Merger and acquisition activity continued to court publicity during the month. Kraft maintained its hostile bid for confectioner Cadbury, amid speculation that Nestle, Ferrero and Hershey might enter the fray. Meanwhile, British Airways announced an agreed merger with Spanish airline Iberia. According to a survey conducted by Ernst & Young, more than one-third of global businesses will actively seek merger or acquisition targets over the next 12 months.
UK retailers experienced their strongest sales growth for October since 2002, according to the British Retail Consortium (BRC). Sales were driven by demand for Halloween costumes, clothing and furniture. The BRC hailed the figures, but warned that higher VAT and increasing unemployment could dampen sales growth in 2010.
Nevertheless, amid signs of rising consumer confidence, UK retailers appear less inclined to offer major discounts before Christmas. Marks & Spencer reported a "good start" to the third quarter, while Next increased its forecast for the Christmas trading period. Sainsbury, the UK's third-largest supermarket, announced stronger-than-expected growth in first-half profits, boosted by savings generated from self-service checkouts and a larger range of own-brand food.
Consumer electronics retailer DSG International, which owns PC World and Curry's, announced first-half losses that were less severe than those sustained during the same period in 2008. Sales growth was lifted by improving consumer confidence and refurbished stores. Elsewhere increased first-half profits and sales prompted Carphone Warehouse Group to raise its full-year earnings forecast.
Within the financial sector, hedge-fund manager Man Group announced stronger-than-expected first-half profits, boosted by revenue from performance and management charges. HSBC reported "significantly" higher third-quarter profits compared with the same period a year ago. ICAP, the world's leading broker of deals between banks, reported a drop in first-half net income as investment in new ventures affected profits. Meanwhile, asset manager Gartmore announced plans to raise more than £400m through an IPO.
BT Group raised its target for full-year cashflow and announced plans to increase its dividend by approximately 5%. However, the company's chief financial officer cautioned that the UK economy is not "over the worst" of the recession, warning that "there's still more to come".
Wednesday, 9 December 2009
Can UK Equities funds provide a suitable income?
Scanning the predictions for next year, plenty of fund managers are forecasting the market will revisit high-yielding stocks in 2010. The theory goes that with the "relief rally" now over, earnings have to catch up with expectations.
Economic growth is likely to remain weak, so the market will favour those companies that can deliver "all-weather" earnings and this type of company is usually at the heart of an equity income portfolio.
However, this was little evidence of this in November with the FTSE 350 Lower Yield returning more than double that of its high yield equivalent. The Lower Yield index delivered 3.6%, while the Higher Yield index could only manage 1.4%. The overall yield on the FTSE 100 slipped slightly from 3.51% to 3.45% over the month.
Even so, the scene is being set for a better performance by high-yielding shares, as fewer and fewer companies are cutting dividends. 2009's series of savage dividend cuts seems to be drawing to a close - in fact, during November, several companies increased their dividends suggesting they are more optimistic about the future. Aberdeen, May Gurney and Sage all increased their payouts while United Utilities and Severn Trent, two "bankers" of the equity income sector both saw rises. Even battered Thomas Cook upped its dividend.
The main threat for the sector is that the UK equity income is increasingly derived from a few companies and sectors - research from Standard & Poor's shows approximately two-thirds of dividends now come from just 15 companies. This situation may ease as companies return to paying dividends over the next couple of years, but asset allocators are, in some cases, beginning to look globally for their dividends. Asia, for example, offers a seductive blend of high growth potential and reasonable dividend payouts.
The UK Equity Income sector is still lagging the UK All Companies grouping over the past 12 months, with the latter up 35.3%, compared with 27.9% for equity income. However, both sectors remain well ahead of the newly created UK Income & Growth sector, which is up just 23.5%.
The returns from the UK Equity Income sector remain disparate, with the top fund up 59.2% and the bottom fund up 14.9%, and this has largely depended on the extent to which the manager has believed in the rally. A number of managers have remained very sceptical over the rally and have stuck to the quality end of the market, which has hurt relative performance in the short term.
Economic growth is likely to remain weak, so the market will favour those companies that can deliver "all-weather" earnings and this type of company is usually at the heart of an equity income portfolio.
However, this was little evidence of this in November with the FTSE 350 Lower Yield returning more than double that of its high yield equivalent. The Lower Yield index delivered 3.6%, while the Higher Yield index could only manage 1.4%. The overall yield on the FTSE 100 slipped slightly from 3.51% to 3.45% over the month.
Even so, the scene is being set for a better performance by high-yielding shares, as fewer and fewer companies are cutting dividends. 2009's series of savage dividend cuts seems to be drawing to a close - in fact, during November, several companies increased their dividends suggesting they are more optimistic about the future. Aberdeen, May Gurney and Sage all increased their payouts while United Utilities and Severn Trent, two "bankers" of the equity income sector both saw rises. Even battered Thomas Cook upped its dividend.
The main threat for the sector is that the UK equity income is increasingly derived from a few companies and sectors - research from Standard & Poor's shows approximately two-thirds of dividends now come from just 15 companies. This situation may ease as companies return to paying dividends over the next couple of years, but asset allocators are, in some cases, beginning to look globally for their dividends. Asia, for example, offers a seductive blend of high growth potential and reasonable dividend payouts.
The UK Equity Income sector is still lagging the UK All Companies grouping over the past 12 months, with the latter up 35.3%, compared with 27.9% for equity income. However, both sectors remain well ahead of the newly created UK Income & Growth sector, which is up just 23.5%.
The returns from the UK Equity Income sector remain disparate, with the top fund up 59.2% and the bottom fund up 14.9%, and this has largely depended on the extent to which the manager has believed in the rally. A number of managers have remained very sceptical over the rally and have stuck to the quality end of the market, which has hurt relative performance in the short term.
Tuesday, 8 December 2009
What is an ISA?
ISA stands for Individual Savings Account, a tax-efficient wrapper offered under Government legislation as a way of encouraging you to save. An ISA sits over your choice of a number of different investments to shelter them from further tax on any income or gains earned.
There are just two types of ISA - the Cash ISA and the Stocks and Shares ISA. The standard allowance for both in 2009/10 is £7,200 or, if you are over 50, higher, at £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 if you are over 50). However, there is flexibility over how these limits can be used - you can, for example, put the maximum £3,600 (£5,100) in a cash account and £3,600 (£5,100) in a stocks and shares account. Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance - £5,200 (or £8,200) in this case - to invest in stocks and shares.
If you don't need cash at all, you can put the full £7,200 (£10,200) into stocks and shares.In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on 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, yet leave your entire current allowance still available for new investment.
We have been extremely disappointed in the way bank and building societies have treated investors within cash ISA's. The tax free status has benefited the provider significantly more than the individual.
There are just two types of ISA - the Cash ISA and the Stocks and Shares ISA. The standard allowance for both in 2009/10 is £7,200 or, if you are over 50, higher, at £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 if you are over 50). However, there is flexibility over how these limits can be used - you can, for example, put the maximum £3,600 (£5,100) in a cash account and £3,600 (£5,100) in a stocks and shares account. Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance - £5,200 (or £8,200) in this case - to invest in stocks and shares.
If you don't need cash at all, you can put the full £7,200 (£10,200) into stocks and shares.In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on 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, yet leave your entire current allowance still available for new investment.
We have been extremely disappointed in the way bank and building societies have treated investors within cash ISA's. The tax free status has benefited the provider significantly more than the individual.
Is the European Market Starting to lag?
With the exception of the German Dax, European indices lagged those of other major markets in November. The Dax rose 3.9% over the month, which put it ahead of the FTSE 100 (2.9%) and the Nikkei (-6.3%), but well behind the S&P (5.7%).
The FTSE Eurofirst index could only manage a lacklustre 0.9%, although the French CAC and the Spanish IBEX both delivered around 2%.The weakness in the indices did not seem to be a reflection of any weakness in the economic data. Industrial production showed an increase for the fifth consecutive month, rising 0.3% in September over August. It remains 12.9% below last year and was slightly below expectations, but still showed the economy was heading in the right direction.
GDP figures for the third quarter showed the eurozone finally out of recession. As a whole, the region rose 0.4% for the three months to the end of September, bringing five quarters of negative growth to a close. The region was carried by Germany, which saw an impressive 0.7% rise in GDP, having also grown in the second quarter. Italy also fared well, rising 0.6%. The German move partly explains the relative outperformance of the Dax over other European markets.
France, having been one of the first to emerge from recession, reported significantly weaker data than expected. Its GDP rose just 0.3% - well below analysts' forecasts. Meanwhile Spain is still suffering from its slumping property market and growing unemployment.
A second lurch down for the region remains a possibility. The European Commission warned that the banking system was still in need of repair - otherwise credit availability will weaken and threaten the nascent economic recovery. The strong euro continues to remain a significant headwind, though data from eurozone manufacturers during the month suggested it might not be having as significant an impact as had first been feared.
There are some signs the recovery may still only be a function of the region's stimulus packages and has yet to generate sustainable economic momentum. Certainly the eurozone has seen little recovery in consumer spending - France saw flat consumer spending in the third quarter, while Germany's spending figures actually fell. The purchasing managers' index rose at its fastest rate in two years, but there was some loss of momentum, which spooked analysts.
Over one year, the Europe excluding UK sector has delivered 31.3% growth, marginally behind the UK All Companies sector, which has returned an average of 35.3% to investors. European Smaller Companies has returned an average of 50%, but it is still just behind the UK Smaller Companies sector.
The FTSE Eurofirst index could only manage a lacklustre 0.9%, although the French CAC and the Spanish IBEX both delivered around 2%.The weakness in the indices did not seem to be a reflection of any weakness in the economic data. Industrial production showed an increase for the fifth consecutive month, rising 0.3% in September over August. It remains 12.9% below last year and was slightly below expectations, but still showed the economy was heading in the right direction.
GDP figures for the third quarter showed the eurozone finally out of recession. As a whole, the region rose 0.4% for the three months to the end of September, bringing five quarters of negative growth to a close. The region was carried by Germany, which saw an impressive 0.7% rise in GDP, having also grown in the second quarter. Italy also fared well, rising 0.6%. The German move partly explains the relative outperformance of the Dax over other European markets.
France, having been one of the first to emerge from recession, reported significantly weaker data than expected. Its GDP rose just 0.3% - well below analysts' forecasts. Meanwhile Spain is still suffering from its slumping property market and growing unemployment.
A second lurch down for the region remains a possibility. The European Commission warned that the banking system was still in need of repair - otherwise credit availability will weaken and threaten the nascent economic recovery. The strong euro continues to remain a significant headwind, though data from eurozone manufacturers during the month suggested it might not be having as significant an impact as had first been feared.
There are some signs the recovery may still only be a function of the region's stimulus packages and has yet to generate sustainable economic momentum. Certainly the eurozone has seen little recovery in consumer spending - France saw flat consumer spending in the third quarter, while Germany's spending figures actually fell. The purchasing managers' index rose at its fastest rate in two years, but there was some loss of momentum, which spooked analysts.
Over one year, the Europe excluding UK sector has delivered 31.3% growth, marginally behind the UK All Companies sector, which has returned an average of 35.3% to investors. European Smaller Companies has returned an average of 50%, but it is still just behind the UK Smaller Companies sector.
Have Corporate Bonds Peaked?
UK and European companies have issued a record amount of bonds during 2009, but issuance has begun to decelerate since October and returns have fallen from their highs amid signs investors are looking for opportunities among other asset classes.
According to a survey by Bank of America-Merrill Lynch, investors reduced their investment-grade bond holdings during October.However, sales of high-yield bonds have soared with demand for riskier assets rising as investors have become more confident borrowers will honour their obligations. According to Moody's Investors Service, the global speculative-grade default rate increased to 12.4% during October, the largest proportion of defaults since the Great Depression.
The ratings agency believes default rates are near their peak and are likely to decline. So far this year, €19bn-worth of high-yield bonds have been sold on a pan-European basis - almost quadruple the amount sold during the same period in 2008.
The rate of UK inflation climbed more quickly than expected during October, rising by 1.5% year on year. The consumer price index increased month on month for the first time in eight months, boosted by rising prices for fuel and airfares. Retail sales reached their highest level for two years during November, fuelling speculation the UK economy has returned to growth.
The Bank of England (BoE) extended its asset-purchasing scheme by £25bn to £200bn, with the smaller-than-expected increase boosting optimism the economy is on the mend. Nevertheless, the BoE remains concerned about the lack of availability of credit.
BoE governor Mervyn King believes the UK economy will have to tread a "hard path" and also warned that he retains an "open mind" over the possibility of further asset purchases. Meanwhile, the deputy governor, Charles Bean, cautioned that credit remains tight and that some companies are being forced to refuse orders because they do not have sufficient capital. According to the BoE, the UK economy is set to grow by 2.2% during 2010 and by 4.1% during 2011.
The UK's budget deficit during October was the worst since records began, fuelled by lower tax revenue and higher social security costs. The Organisation for Economic Co-operation & Development has warned the deficit will continue to deteriorate during 2010. Meanwhile, the Confederation of British Industry urged the UK government to pursue "ambitious" cuts in Britain's budget deficit in order to help interest rates to remain at their current exceptionally low levels.
One of the best funds to capture the corporate bond market is the M&G Strategic Corporate bond. This fund has performed expectionally well and is a corner-stone of our Diversified Portfolios
According to a survey by Bank of America-Merrill Lynch, investors reduced their investment-grade bond holdings during October.However, sales of high-yield bonds have soared with demand for riskier assets rising as investors have become more confident borrowers will honour their obligations. According to Moody's Investors Service, the global speculative-grade default rate increased to 12.4% during October, the largest proportion of defaults since the Great Depression.
The ratings agency believes default rates are near their peak and are likely to decline. So far this year, €19bn-worth of high-yield bonds have been sold on a pan-European basis - almost quadruple the amount sold during the same period in 2008.
The rate of UK inflation climbed more quickly than expected during October, rising by 1.5% year on year. The consumer price index increased month on month for the first time in eight months, boosted by rising prices for fuel and airfares. Retail sales reached their highest level for two years during November, fuelling speculation the UK economy has returned to growth.
The Bank of England (BoE) extended its asset-purchasing scheme by £25bn to £200bn, with the smaller-than-expected increase boosting optimism the economy is on the mend. Nevertheless, the BoE remains concerned about the lack of availability of credit.
BoE governor Mervyn King believes the UK economy will have to tread a "hard path" and also warned that he retains an "open mind" over the possibility of further asset purchases. Meanwhile, the deputy governor, Charles Bean, cautioned that credit remains tight and that some companies are being forced to refuse orders because they do not have sufficient capital. According to the BoE, the UK economy is set to grow by 2.2% during 2010 and by 4.1% during 2011.
The UK's budget deficit during October was the worst since records began, fuelled by lower tax revenue and higher social security costs. The Organisation for Economic Co-operation & Development has warned the deficit will continue to deteriorate during 2010. Meanwhile, the Confederation of British Industry urged the UK government to pursue "ambitious" cuts in Britain's budget deficit in order to help interest rates to remain at their current exceptionally low levels.
One of the best funds to capture the corporate bond market is the M&G Strategic Corporate bond. This fund has performed expectionally well and is a corner-stone of our Diversified Portfolios
Monday, 7 December 2009
Does the US still offer investment Opportunities?
Does the US still offer investment Opportunities?
It is easy to dismiss the US as a busted flush. Much like the UK, the country is indebted, its housing market is weak and its currency is sliding. It is embroiled in expensive wars that it shows little sign of winning. And even its key strength - its propensity to consume -is failing.
Equally, from an investment perspective, active managers have traditionally struggled to beat the index consistently in a super-efficient market. Does the US still merit a significant chunk of an investor's portfolio?
The US saw a return to growth in the third quarter of this year, with GDP rising 3.5%, but the economy is still facing significant structural problems. Government, corporate and consumer debt is huge, which will constrain growth for the foreseeable future. Furthermore, the country is losing its dominant economic position to Asia, which faces few of these problems.
As such, it would be easy to dismiss the US and plough money into the Asian growth story instead. However, the US has a number of things in its favour. First, it has some of the best companies in the world - Microsoft, Apple, Amazon, Coca-Cola and Colgate Palmolive, to name but a few - and, far from these companies being damaged by the growth of Asia, many may be front-line beneficiaries. To date, Asian consumers have shown a propensity for Western brands over domestic ones.
The US still holds a significant amount of global intellectual property too. Asian companies are building proprietary technology, but the US is developing all the time. It is difficult to imagine a rival emerging to lead technology forward in the same way that, say, Apple has done over the past few years.
The US is undoubtedly indebted, but it has paid down debt before and there is no reason to think it cannot do so again. It will just take some time. US citizens are suffering and need to deleverage, but they have shown themselves to be resilient and enthusiastic consumers over the years. A lot is resting on the emergence of the Asian consumer, which is not yet a proven force. Emerging Asia will have to make a success of its welfare plans before this is likely to happen.
The US is still the largest economy in the world. Its business and economic practices are the most sophisticated and, no matter how it may have seemed recently, the world still dances to its tune. It is certainly more vulnerable than it has been, but its economy has proved extremely adaptable in the past and there is no reason to think that it will not prove so again. It is not the time for investors to turn their backs.
It is easy to dismiss the US as a busted flush. Much like the UK, the country is indebted, its housing market is weak and its currency is sliding. It is embroiled in expensive wars that it shows little sign of winning. And even its key strength - its propensity to consume -is failing.
Equally, from an investment perspective, active managers have traditionally struggled to beat the index consistently in a super-efficient market. Does the US still merit a significant chunk of an investor's portfolio?
The US saw a return to growth in the third quarter of this year, with GDP rising 3.5%, but the economy is still facing significant structural problems. Government, corporate and consumer debt is huge, which will constrain growth for the foreseeable future. Furthermore, the country is losing its dominant economic position to Asia, which faces few of these problems.
As such, it would be easy to dismiss the US and plough money into the Asian growth story instead. However, the US has a number of things in its favour. First, it has some of the best companies in the world - Microsoft, Apple, Amazon, Coca-Cola and Colgate Palmolive, to name but a few - and, far from these companies being damaged by the growth of Asia, many may be front-line beneficiaries. To date, Asian consumers have shown a propensity for Western brands over domestic ones.
The US still holds a significant amount of global intellectual property too. Asian companies are building proprietary technology, but the US is developing all the time. It is difficult to imagine a rival emerging to lead technology forward in the same way that, say, Apple has done over the past few years.
The US is undoubtedly indebted, but it has paid down debt before and there is no reason to think it cannot do so again. It will just take some time. US citizens are suffering and need to deleverage, but they have shown themselves to be resilient and enthusiastic consumers over the years. A lot is resting on the emergence of the Asian consumer, which is not yet a proven force. Emerging Asia will have to make a success of its welfare plans before this is likely to happen.
The US is still the largest economy in the world. Its business and economic practices are the most sophisticated and, no matter how it may have seemed recently, the world still dances to its tune. It is certainly more vulnerable than it has been, but its economy has proved extremely adaptable in the past and there is no reason to think that it will not prove so again. It is not the time for investors to turn their backs.
Japanese Market Continues to Underperform
A last minute rally couldn't save Japan from being the worst performing of all the major markets in November as worries over the government's financial position increased, and asset allocators and fund managers across the globe began to wonder whether they should be in Japan at all.
The Nikkei dipped 6.3% to 9,282, compared with monthly rises of 2.9% in the FTSE 100, 5.7% in the S&P 500 and 0.9% in the FTSE Eurofirst index. Much of the fall was based on worries over the strength of the yen, which threatens to derail the country's fragile recovery. Japan's government has said it will extend the country's stimulus package to break the yen's strength, but the coffers are already at breaking point – the government debt to GDP ratio is expected to hit 200% in 2010. The likelihood of default is increasingly being factored into bond markets.
Deflation is expected to persist into 2011 and the central bank is now under significant pressure to do more to combat the problem. This may take the form of quantitative easing, though the government has been publically sceptical about its value in the past. That said, it has already used up many of its chips to fight persistent economic weakness and international investors are now wondering what it has left.
Earlier in the month, the country's economic figures seemed encouraging. Third-quarter GDP growth figures were strong at an annualised 4.8%, with expansion split evenly between private consumption growth, increased inventories and an improvement in net exports. Exports fell 23.2% in October compared with a year ago. This may not sound that impressive but it represented an improvement on September's 30.6% fall, while exports to other Asian countries were particularly strong.
But a raft of poor data followed at the end of the month. In particular, industrial output numbers released at the end of the month were weak. They grew by an anaemic 0.5% in October over November, well below expectations. Analysts are still worried there is little organic growth in the economy and the removal of the stimulus packages next year will see another lurch downwards.
Japanese funds fared little better and look like being crowned the worst-performing equity sector of 2009. They have returned just 5.1% over the past 12 months, ahead of only the UK gilts and money market sectors. North America is the next closest equity sector and that has returned 21.4%
The Nikkei dipped 6.3% to 9,282, compared with monthly rises of 2.9% in the FTSE 100, 5.7% in the S&P 500 and 0.9% in the FTSE Eurofirst index. Much of the fall was based on worries over the strength of the yen, which threatens to derail the country's fragile recovery. Japan's government has said it will extend the country's stimulus package to break the yen's strength, but the coffers are already at breaking point – the government debt to GDP ratio is expected to hit 200% in 2010. The likelihood of default is increasingly being factored into bond markets.
Deflation is expected to persist into 2011 and the central bank is now under significant pressure to do more to combat the problem. This may take the form of quantitative easing, though the government has been publically sceptical about its value in the past. That said, it has already used up many of its chips to fight persistent economic weakness and international investors are now wondering what it has left.
Earlier in the month, the country's economic figures seemed encouraging. Third-quarter GDP growth figures were strong at an annualised 4.8%, with expansion split evenly between private consumption growth, increased inventories and an improvement in net exports. Exports fell 23.2% in October compared with a year ago. This may not sound that impressive but it represented an improvement on September's 30.6% fall, while exports to other Asian countries were particularly strong.
But a raft of poor data followed at the end of the month. In particular, industrial output numbers released at the end of the month were weak. They grew by an anaemic 0.5% in October over November, well below expectations. Analysts are still worried there is little organic growth in the economy and the removal of the stimulus packages next year will see another lurch downwards.
Japanese funds fared little better and look like being crowned the worst-performing equity sector of 2009. They have returned just 5.1% over the past 12 months, ahead of only the UK gilts and money market sectors. North America is the next closest equity sector and that has returned 21.4%
Emerging Markets Contiune To Rally Throughout November
Emerging markets look set to be the top-performing asset class of 2009. Over 12 months, the Global Emerging Markets sector remains the best performer, with an average return of 67.9%. The Asia Pacific ex Japan sector is just behind, having delivered 66.4%.
November was another buoyant month for most emerging markets. Brazil's Bovespa index climbed an impressive 8.9% as President Lula said the country would show "Chinese style" growth in the third quarter and estimated GDP would climb 9%. With international reserves still at $233bn (£142bn), the government has plenty more in its arsenal if the global economy takes another lurch down. Industrial production picked up by 0.75%, which was slightly behind expectations while interest rates remained at 8.75%.
Elsewhere in Latin America, the Mexican market also did well, with the MSCI Mexico up 8.87%, while the MSCI Peru rose 11.97% as buoyant economic news from India looked set to create greater demand for commodities. Chile was the only laggard, in spite of 1.1% GDP growth in the third quarter. The MSCI Chile index dipped 1.51% over the month.
India was also strong. The S&P CNX 500 index rose 7.6%, driven by stronger than expected growth. GDP rose 7.9% in the third quarter, compared to an expected rise of 6.3%. A survey from the Warwick Business School also said India was likely to remain a dominant force in information technology and outsourcing.
The Indian Government said this economic strength had been driven by the fiscal stimulus packages, leading analysts to begin to contemplate a potential interest rate rise. However, the monsoon should affect agricultural growth in the next quarter and bring down the statistics. There are also worries remittances and exports will be affected by the uncertain situation in Dubai.
In China, stockmarket performance was slowed by whisperings about bubbles. The chief executive of Soho China, a leader property developer in China, talked of "rampant wasteful investment" driven by excess capacity in the system. This was one of the causes of the 1997 Asian crisis - too much money being spent on unnecessary investment - and any hint of a repetition understandably set nerves jangling. Nevertheless, the FTSE Xinhua index managed a 6.3% rise over the month.
Russia's GDP grew 13.9% on an annualised basis over the second quarter, though it was still 8.9% down on last year. Equity market performance was dampened by unsupportive comments from the Russian deputy prime minister, who said the equity market was "over-heated". The benchmark RTS index rose just 2.2% over the month.
November was another buoyant month for most emerging markets. Brazil's Bovespa index climbed an impressive 8.9% as President Lula said the country would show "Chinese style" growth in the third quarter and estimated GDP would climb 9%. With international reserves still at $233bn (£142bn), the government has plenty more in its arsenal if the global economy takes another lurch down. Industrial production picked up by 0.75%, which was slightly behind expectations while interest rates remained at 8.75%.
Elsewhere in Latin America, the Mexican market also did well, with the MSCI Mexico up 8.87%, while the MSCI Peru rose 11.97% as buoyant economic news from India looked set to create greater demand for commodities. Chile was the only laggard, in spite of 1.1% GDP growth in the third quarter. The MSCI Chile index dipped 1.51% over the month.
India was also strong. The S&P CNX 500 index rose 7.6%, driven by stronger than expected growth. GDP rose 7.9% in the third quarter, compared to an expected rise of 6.3%. A survey from the Warwick Business School also said India was likely to remain a dominant force in information technology and outsourcing.
The Indian Government said this economic strength had been driven by the fiscal stimulus packages, leading analysts to begin to contemplate a potential interest rate rise. However, the monsoon should affect agricultural growth in the next quarter and bring down the statistics. There are also worries remittances and exports will be affected by the uncertain situation in Dubai.
In China, stockmarket performance was slowed by whisperings about bubbles. The chief executive of Soho China, a leader property developer in China, talked of "rampant wasteful investment" driven by excess capacity in the system. This was one of the causes of the 1997 Asian crisis - too much money being spent on unnecessary investment - and any hint of a repetition understandably set nerves jangling. Nevertheless, the FTSE Xinhua index managed a 6.3% rise over the month.
Russia's GDP grew 13.9% on an annualised basis over the second quarter, though it was still 8.9% down on last year. Equity market performance was dampened by unsupportive comments from the Russian deputy prime minister, who said the equity market was "over-heated". The benchmark RTS index rose just 2.2% over the month.
Wednesday, 2 December 2009
What is a Wrap Solution
A Wrap Solution provides the investor with the opportunity to access a significant range of investment, whilst retaining access to the account through one source, these are normally access through an ISA or a SIPP.
Wraps are a relatively new concept, but have proved extremely popular amongst investors in recent years. The aim of the service is to offer you easy access to the country's leading fund managers and a variety of other investments through one access point. A Wrap allows you to hold you shares, pensions, investment bonds, structured products, ISA's and Unit Trusts all in one place, whilst still allowing the desired spread of investments.
Consolidating and managing investments through one account is efficient and cost effective.
This type of account allows you to switch between different fund managers within the same arrangement at a low cost, which will make it highly unlikely that you will need to transfer to an alternative provider at a later stage.
Broadly speaking, the traditional use of Insurance Company "packaged" products has not served our clients very well. The lack of transparency and the emergence of hidden penalty clauses have often led to our clients being unable to predict or control their financial plans. Insurance companies have often sought to treat clients as a collective group, rather than as individuals, imposing financial penalties to protect their own interests, regardless of their effect on clients. Additionally, the remuneration process for IFAs was determined by the Insurance industry and was biased towards the sales process. IFAs have had little opportunity or incentive to be involved with the progress of clients investments and we felt that it would be very desirable to increase our involvement with our clients achievement of their investment goals.
The introduction of a Wrap Solution has allowed us to address many of these issues and to give clients a clear understanding of the process involved in saving money for a future event such as retirement.
By investing in this manner we are able to select almost any unit trust manager operating in the UK. Using a strict investment selection process we feel confident that using this method of investment will produce superior returns to those associated to both your existing arrangements and those of Stakeholder. The slightly higher charging structure also allows for the underlying investment selection to be reviewed annually ensuring it continues to meet with your risk profile and performance expectations.
I would point out however, that there is no guarantee that this method of investment will produce superior results to those of a conventional insurance based investment or pension product.But historically, the types of investments selected have outperformed those associated to insurance companies.
The additional performance can be significant, the charges are generally a little higher, but I would like to point out that Sterling Financial Services do not receive any additional commission or any other incentive for recommending this course of action. The charges are higher, because they are justified through historically producing higher investment performance.
Wraps are a relatively new concept, but have proved extremely popular amongst investors in recent years. The aim of the service is to offer you easy access to the country's leading fund managers and a variety of other investments through one access point. A Wrap allows you to hold you shares, pensions, investment bonds, structured products, ISA's and Unit Trusts all in one place, whilst still allowing the desired spread of investments.
Consolidating and managing investments through one account is efficient and cost effective.
This type of account allows you to switch between different fund managers within the same arrangement at a low cost, which will make it highly unlikely that you will need to transfer to an alternative provider at a later stage.
Broadly speaking, the traditional use of Insurance Company "packaged" products has not served our clients very well. The lack of transparency and the emergence of hidden penalty clauses have often led to our clients being unable to predict or control their financial plans. Insurance companies have often sought to treat clients as a collective group, rather than as individuals, imposing financial penalties to protect their own interests, regardless of their effect on clients. Additionally, the remuneration process for IFAs was determined by the Insurance industry and was biased towards the sales process. IFAs have had little opportunity or incentive to be involved with the progress of clients investments and we felt that it would be very desirable to increase our involvement with our clients achievement of their investment goals.
The introduction of a Wrap Solution has allowed us to address many of these issues and to give clients a clear understanding of the process involved in saving money for a future event such as retirement.
By investing in this manner we are able to select almost any unit trust manager operating in the UK. Using a strict investment selection process we feel confident that using this method of investment will produce superior returns to those associated to both your existing arrangements and those of Stakeholder. The slightly higher charging structure also allows for the underlying investment selection to be reviewed annually ensuring it continues to meet with your risk profile and performance expectations.
I would point out however, that there is no guarantee that this method of investment will produce superior results to those of a conventional insurance based investment or pension product.But historically, the types of investments selected have outperformed those associated to insurance companies.
The additional performance can be significant, the charges are generally a little higher, but I would like to point out that Sterling Financial Services do not receive any additional commission or any other incentive for recommending this course of action. The charges are higher, because they are justified through historically producing higher investment performance.
Investment Monitoring Service
Investment Management Service
This service follows on from the advisory service and is designed to keep you more informed of the progress of the investments. If you feel that an annual review of your investments is insufficient and that you would like a more proactive approach, you can use our investment monitoring service to alert you to changes as and when we feel they are necessary.
The basis of the service is that we would notify you immediately if any of the investments that you hold are under performing and if we feel a switch to an alternative manager would be in your best interests. Sterling only become concerned about an investment manager following three months of underperformance, at which point we would look to discuss the position with the management group concerned. Usually we would give the manager an opportunity to put things right. However, where we feel a change is necessary we would write to you asking for your express consent to switch investments.
We would also write if we felt that investment results could be improved if the strategy was altered - a reduction in UK Equities in favour of US Equities for example, again asking for your consent to make an alteration. Finally, you would also be notified if the fund manager left the services of the management group and if we were unhappy with the replacement manager.
Investors also enjoy a monthly update, confirming the investment performance, market updates, research and the results of our investment committee meeting.
This service follows on from the advisory service and is designed to keep you more informed of the progress of the investments. If you feel that an annual review of your investments is insufficient and that you would like a more proactive approach, you can use our investment monitoring service to alert you to changes as and when we feel they are necessary.
The basis of the service is that we would notify you immediately if any of the investments that you hold are under performing and if we feel a switch to an alternative manager would be in your best interests. Sterling only become concerned about an investment manager following three months of underperformance, at which point we would look to discuss the position with the management group concerned. Usually we would give the manager an opportunity to put things right. However, where we feel a change is necessary we would write to you asking for your express consent to switch investments.
We would also write if we felt that investment results could be improved if the strategy was altered - a reduction in UK Equities in favour of US Equities for example, again asking for your consent to make an alteration. Finally, you would also be notified if the fund manager left the services of the management group and if we were unhappy with the replacement manager.
Investors also enjoy a monthly update, confirming the investment performance, market updates, research and the results of our investment committee meeting.
What services are provided when using Sterling Financial Services?
When appointing a financial organisation to help with your finances, you need to know exactly what you are getting and at what price. The objective of this section is to give you an idea of what to expect from Sterling Financial Services, but bear in mind that everyone is different and more specific or specialist advice may be charged differently. We will always tell you how much you will be charged before we undertake any work and we will take necessary steps to minimise charges where we can.
Financial organisations operate in a variety of ways and we are paid differently depending on the type of product or service that it is ultimately purchased.
When purchasing an investment or SIPP through us, or using a similar service from an alternative provider, you will find that charges can be broken up into three categories, namely the fund manager, the administrator and the broker (Sterling). The charges associated to the fund manager normally remain the same, but the administrator and the broker will vary their charges to reflect the level of service required of them.
Sometimes additional services will be bought in – these are normally discretionary or pension trustee services. They will increase the cost of the transaction, but can also increase performance or flexibility.
In terms of life assurance products, we are often remunerated by way of a commission, which is fully disclosed to you. The amount paid depends on the premium and the period of assurance (the term). Discounts are available if life assurance is purchased online without advice.
You need to decide what level of service you require, which will depend on how financially aware you are and the level of work that you are prepared to undertake yourself.
Please bear in mind that charges are typical and in broad terms. Sometimes the charges will be slightly higher or lower depending on the exact nature of your requirements. The objective of these pages is to give you a good idea of what to expect. A full and accurate quote will be provided before you proceed.
Services available through Sterling Financial Services, in terms of investments and pensions, are split into three main categories: click on the links to the left for further information.
A1 Web Links -
http://www.feeds4all.nl
Financial organisations operate in a variety of ways and we are paid differently depending on the type of product or service that it is ultimately purchased.
When purchasing an investment or SIPP through us, or using a similar service from an alternative provider, you will find that charges can be broken up into three categories, namely the fund manager, the administrator and the broker (Sterling). The charges associated to the fund manager normally remain the same, but the administrator and the broker will vary their charges to reflect the level of service required of them.
Sometimes additional services will be bought in – these are normally discretionary or pension trustee services. They will increase the cost of the transaction, but can also increase performance or flexibility.
In terms of life assurance products, we are often remunerated by way of a commission, which is fully disclosed to you. The amount paid depends on the premium and the period of assurance (the term). Discounts are available if life assurance is purchased online without advice.
You need to decide what level of service you require, which will depend on how financially aware you are and the level of work that you are prepared to undertake yourself.
Please bear in mind that charges are typical and in broad terms. Sometimes the charges will be slightly higher or lower depending on the exact nature of your requirements. The objective of these pages is to give you a good idea of what to expect. A full and accurate quote will be provided before you proceed.
Services available through Sterling Financial Services, in terms of investments and pensions, are split into three main categories: click on the links to the left for further information.
A1 Web Links -
http://www.feeds4all.nl
Directors and Partnership Share Protection Assurance.
In the event of the death or serious illness of a shareholder within any organisation, the business needs to be prepared. Ideally the business will be in a position to buy back the shares from the retiring shareholder in the event of ill health, or from the deceased's beneficiary in the event of death.
But what if it cannot afford such a transaction? The problem is that the value of the business could be significant and it would be unfair to expect any business to be in a position to buy back shares at a moment's notice.
Quite clearly, no one knows just what is around the corner and putting a simple life assurance scheme in place can help alleviate inevitable problems that would arise in the event of such an event. The objective of the scheme would be to insure each shareholder to the value of their shareholding. In the event of death or illness the scheme would produce a lump sum, which the surviving (or healthy) shareholders would use to buy back the shares. This is organised within a legal agreement to ensure the transaction takes place as was intended.
In the event of a claim the sum assured is normally paid free from tax: however, the arrangement is paid for by the shareholder not the company and is paid from net earnings.
Life assurance is just one method of ensuring the smooth transition of shares in the event of death, and some of our clients have favoured alternative methods, especially for high value organisations, where premiums are expensive. Alternative options involve placing the deceased shares into trust and allowing dividends from the shares to be paid to the deceased's beneficiaries until the company is in a position to buy back the shares, or on the ultimate sale of the business.
We can help you find the most appropriate solution and ensure that the business is well placed to deal with problems arising from the death of a shareholder.
But what if it cannot afford such a transaction? The problem is that the value of the business could be significant and it would be unfair to expect any business to be in a position to buy back shares at a moment's notice.
Quite clearly, no one knows just what is around the corner and putting a simple life assurance scheme in place can help alleviate inevitable problems that would arise in the event of such an event. The objective of the scheme would be to insure each shareholder to the value of their shareholding. In the event of death or illness the scheme would produce a lump sum, which the surviving (or healthy) shareholders would use to buy back the shares. This is organised within a legal agreement to ensure the transaction takes place as was intended.
In the event of a claim the sum assured is normally paid free from tax: however, the arrangement is paid for by the shareholder not the company and is paid from net earnings.
Life assurance is just one method of ensuring the smooth transition of shares in the event of death, and some of our clients have favoured alternative methods, especially for high value organisations, where premiums are expensive. Alternative options involve placing the deceased shares into trust and allowing dividends from the shares to be paid to the deceased's beneficiaries until the company is in a position to buy back the shares, or on the ultimate sale of the business.
We can help you find the most appropriate solution and ensure that the business is well placed to deal with problems arising from the death of a shareholder.
Pension Scheme Property Acquisition - Commercial Premises Only
Purchasing property through a pension scheme has been popular amongst our corporate clients and we are here to ensure that this potentially problematic, but lucrative, option is transacted smoothly.
In principal acquiring property within a pension arrangement is simple. The value of your pension can be combined with a loan to purchase a property. The property is then an asset of the pension scheme and any rent received will be used to repay the loan with any excess rent being retained by the scheme. At retirement, you have the option to retain the property within the pension scheme and use the rent (subject to certain limits) as an income.
With careful planning you would prudently ensure that the loan was repaid prior to drawing an income in retirement and the value of liquid assets being held in the scheme would represent 33% of the property value - which ensures that you can draw the maximum 25% tax free cash associated to all post April 2006 pension arrangements.
The tax advantages associated to this option are vast. Firstly, you have received tax relief on the contributions that you have already contributed or plan to contribute to the pension scheme. Pension contributions are treated as a tax-deductible business expense when a company contributes and you receive tax relief at your highest marginal rate if you contribute personally.
Additionally, if your company were to buy the property for its own occupation, loan repayments would only attract tax relief on the interest element of the loan - not the capital repayment. Using the pension scheme option to purchase the property allows the company to enter into a lease with the pension scheme and the rent that is paid is fully tax deductible. The property, on disposal, is done so within the pension scheme free from capital gains tax but the proceeds of the sale will remain within the pension scheme.
You can draw a payment of 25% of the accumulated vale of the pension arrangement completely free from tax at retirement.
On death prior to drawing benefits the property would be sold and the proceeds paid to your nominated beneficiaries inheritance tax free.
From April 2006 purchasing a property through a pension scheme has been less favourable as the amount that can be borrowed has reduced dramatically. As a broad rule of thumb you are able to borrow 33% of the property value - requiring a deposit of 67%. A benefit of the post April 2006 rules is that you can split the ownership of the property - perhaps purchasing the property jointly between your company and your pension scheme.
All costs associated to the acquisition can be funded from the pension scheme. You should bear in mind that if the property you are considering is VAT elected, you are unable to bridge the VAT. The scheme is able to claim the VAT back, but it would remain within the scheme. This has an effect of reducing the amount that can be borrowed to 28%.
As you would expect there are some disadvantages. The property is an asset of the pension scheme, not the company or you personally. You cannot use the property therefore as security for further borrowing unless it is for an investment within the pension scheme. Additionally, you can only access 25% of your fund as a lump sum and realistically, you would need to dispose of the property by the age of 75, at which point the accumulated fund would be traded for an income for the remainder of your life (and your spouse if desired). The remaining fund on death after
the age of 75 would not be available to pass to your estate.
In principal acquiring property within a pension arrangement is simple. The value of your pension can be combined with a loan to purchase a property. The property is then an asset of the pension scheme and any rent received will be used to repay the loan with any excess rent being retained by the scheme. At retirement, you have the option to retain the property within the pension scheme and use the rent (subject to certain limits) as an income.
With careful planning you would prudently ensure that the loan was repaid prior to drawing an income in retirement and the value of liquid assets being held in the scheme would represent 33% of the property value - which ensures that you can draw the maximum 25% tax free cash associated to all post April 2006 pension arrangements.
The tax advantages associated to this option are vast. Firstly, you have received tax relief on the contributions that you have already contributed or plan to contribute to the pension scheme. Pension contributions are treated as a tax-deductible business expense when a company contributes and you receive tax relief at your highest marginal rate if you contribute personally.
Additionally, if your company were to buy the property for its own occupation, loan repayments would only attract tax relief on the interest element of the loan - not the capital repayment. Using the pension scheme option to purchase the property allows the company to enter into a lease with the pension scheme and the rent that is paid is fully tax deductible. The property, on disposal, is done so within the pension scheme free from capital gains tax but the proceeds of the sale will remain within the pension scheme.
You can draw a payment of 25% of the accumulated vale of the pension arrangement completely free from tax at retirement.
On death prior to drawing benefits the property would be sold and the proceeds paid to your nominated beneficiaries inheritance tax free.
From April 2006 purchasing a property through a pension scheme has been less favourable as the amount that can be borrowed has reduced dramatically. As a broad rule of thumb you are able to borrow 33% of the property value - requiring a deposit of 67%. A benefit of the post April 2006 rules is that you can split the ownership of the property - perhaps purchasing the property jointly between your company and your pension scheme.
All costs associated to the acquisition can be funded from the pension scheme. You should bear in mind that if the property you are considering is VAT elected, you are unable to bridge the VAT. The scheme is able to claim the VAT back, but it would remain within the scheme. This has an effect of reducing the amount that can be borrowed to 28%.
As you would expect there are some disadvantages. The property is an asset of the pension scheme, not the company or you personally. You cannot use the property therefore as security for further borrowing unless it is for an investment within the pension scheme. Additionally, you can only access 25% of your fund as a lump sum and realistically, you would need to dispose of the property by the age of 75, at which point the accumulated fund would be traded for an income for the remainder of your life (and your spouse if desired). The remaining fund on death after
the age of 75 would not be available to pass to your estate.
Whole Life Assurance
Whole Life Insurance
As the name implies, whole of life assurance policies give you protection for life. Unlike level life assurance that only pays out if you die during the term of the policy, a whole of life assurance policy always pays out eventually. For this reason whole of life assurance can be more expensive than term assurance, although this is not always the case during the initial period of insurance.
The main type of whole of life assurance used these days is unit-linked whole of life, which offers a variable mix between investment content and life cover. The initial premium is usually fixed for 10 years and is generally reviewed at that point to see whether the growth of the investment fund is sufficient to maintain the same premium level. It is possible that the premium may have to increase, or sum assured reduce, at that point.
With this type of policy the 'mix' between life cover and investment is decided at the outset. Each monthly premium is used to buy units in an investment selected fund. Then every month the insurance company calculates the cost of the life assurance for the next month only and deducts this charge by 'cancelling' just enough of the policyholder's accumulated units to pay for the cover.
In this way, the policy grows in value as the number of units held in the policy accumulate and (hopefully) the value of each unit also increases.
The investment growth will depend on fund performance, how much is being deducted to pay for the life cover, and any other optional benefits selected (e.g. critical illness cover).
Initial charges are made to recoup the set-up cost of this type of policy. This is either done by a low allocation to investment units, or special initial units are created
As the name implies, whole of life assurance policies give you protection for life. Unlike level life assurance that only pays out if you die during the term of the policy, a whole of life assurance policy always pays out eventually. For this reason whole of life assurance can be more expensive than term assurance, although this is not always the case during the initial period of insurance.
The main type of whole of life assurance used these days is unit-linked whole of life, which offers a variable mix between investment content and life cover. The initial premium is usually fixed for 10 years and is generally reviewed at that point to see whether the growth of the investment fund is sufficient to maintain the same premium level. It is possible that the premium may have to increase, or sum assured reduce, at that point.
With this type of policy the 'mix' between life cover and investment is decided at the outset. Each monthly premium is used to buy units in an investment selected fund. Then every month the insurance company calculates the cost of the life assurance for the next month only and deducts this charge by 'cancelling' just enough of the policyholder's accumulated units to pay for the cover.
In this way, the policy grows in value as the number of units held in the policy accumulate and (hopefully) the value of each unit also increases.
The investment growth will depend on fund performance, how much is being deducted to pay for the life cover, and any other optional benefits selected (e.g. critical illness cover).
Initial charges are made to recoup the set-up cost of this type of policy. This is either done by a low allocation to investment units, or special initial units are created
Saving for retirement is a necessary evil...
At some point you will need to rely on the wealth that you have created in your lifetime to provide an income in retirement. There are no hard and fast rules, but pension accounts do represent one of the most tax efficient methods of saving for retirement.
Pensions can be a useful tool to plan for something prior to retirement as well. New legislation allows you to draw your tax-free lump at age 55 whilst delaying the income (leaving the remaining fund intact and invested) until you need it.
We are all responsible for ensuring that we have enough in retirement. Not everyone has the benefit of an employer sponsored pension scheme, which makes it even more important to ensure that we save enough for ourselves.
Broadly speaking, the traditional use of Insurance Company "packaged" products has not served individuals very well. The lack of transparency and the emergence of hidden penalty clauses have often led to our clients being unable to predict or control their financial plans. Insurance companies have often sought to treat clients as a collective group, rather than as individuals, imposing financial penalties to protect their own interests, regardless of their affect on clients.
Moving forward individuals, in many cases, should consider a new home for their pension savings where they can access a much wider choice of investments. The emergence of low cost SIPP accounts makes it possible to access up to 2000 different investments. Typically the cost in terms of charges is higher, but the like for like performance when compared to an insurance company plan has historically been much higher, more than making up for the additional costs.
Pensions can be a useful tool to plan for something prior to retirement as well. New legislation allows you to draw your tax-free lump at age 55 whilst delaying the income (leaving the remaining fund intact and invested) until you need it.
We are all responsible for ensuring that we have enough in retirement. Not everyone has the benefit of an employer sponsored pension scheme, which makes it even more important to ensure that we save enough for ourselves.
Broadly speaking, the traditional use of Insurance Company "packaged" products has not served individuals very well. The lack of transparency and the emergence of hidden penalty clauses have often led to our clients being unable to predict or control their financial plans. Insurance companies have often sought to treat clients as a collective group, rather than as individuals, imposing financial penalties to protect their own interests, regardless of their affect on clients.
Moving forward individuals, in many cases, should consider a new home for their pension savings where they can access a much wider choice of investments. The emergence of low cost SIPP accounts makes it possible to access up to 2000 different investments. Typically the cost in terms of charges is higher, but the like for like performance when compared to an insurance company plan has historically been much higher, more than making up for the additional costs.
Monday, 30 November 2009
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
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.
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.
Friday, 27 November 2009
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.
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.
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.
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.
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
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
Monday, 23 November 2009
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.
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.
Thursday, 19 November 2009
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.
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.
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.
Wednesday, 18 November 2009
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.
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.
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.
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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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.
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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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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Tuesday, 17 November 2009
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.
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.
Monday, 16 November 2009
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.
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.
Friday, 13 November 2009
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
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%.
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
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.
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.
Tuesday, 10 November 2009
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.
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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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
Blog Weblog Directory
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
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.
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.
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