The UK Consumer Price Index saw a rise in the annual rate for January 2010, from 2.9% to 3.5%. Despite the longest recession since World War II, talk has already turned to the future - and the worry that inflation could take hold if the fiscal stimuli used to try and prompt recovery stay in place too long.
Inflation has been low for a while now. Back in the late 80s and 90s, monthly inflation figures were much higher - peaking at 8.5% in April 1991. But some will remember the economic slump of the 1970s, which was triggered by double-digit inflation - and may be nervous.
As recently as mid 2008, we saw inflation around 5%, driven by energy costs and higher prices for vegetables, furniture, and cigarettes. House prices and housing costs also impacted. This threat passed as the recession extended and the Bank of England and the Government put a lot of new money into the economy to try and encourage some growth. However, they now need to be careful how this works through or inflation could easily take hold again.
At the moment, there is probably less reason for concern than in the 1970s and early 1980s. The economic outlook is still nervous as lower than expected, growth in Q4 2009, despite confirming an end to the recesson for now, could indicate that growth might halt again as consumers consider tightening up on spending after the Christmas spree.
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Thursday, 18 March 2010
UK housing market still struggling
The UK housing boom reached its peak in 2007 but since then, house prices have taken a knock, ravaged by the credit crisis and the effects of the recession. However, data for 2009 suggest the market is now showing signs of recovery. The Nationwide declared that house prices rose by nearly 6% over the year (albeit from a low base) which should come as welcome news for many beleaguered householders – but does it herald the start of a sustainable recovery?
The British Bankers’ Association (BBA) November release announced that the number of mortgage approvals for house purchase was holding up and were back to similar levels of two years ago. However, the average value of those mortgages remained slightly lower than 2007 and remortgages are virtually non-existent as existing borrowers revert to low variable rates when their mortgage deals end. Ernst & Young’s Item Club expects the UK housing market to get worse before it gets better as tight credit conditions linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply.
For now, however, exceptionally low interest rates are attracting some buyers, with the growth in demand particularly strong amongst buy-to-let investors and cheaper properties. However, UK unemployment is still over 2.4 million and, despite a small fall, the outlook for jobs is not all positive. Even if the UK economy maintains its faltering signs of growth in Q1 2010, this can only keep the pressure on a still-fragile market.
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The British Bankers’ Association (BBA) November release announced that the number of mortgage approvals for house purchase was holding up and were back to similar levels of two years ago. However, the average value of those mortgages remained slightly lower than 2007 and remortgages are virtually non-existent as existing borrowers revert to low variable rates when their mortgage deals end. Ernst & Young’s Item Club expects the UK housing market to get worse before it gets better as tight credit conditions linger, warning that current signs of recovery are a "false dawn" caused by a shortage in supply.
For now, however, exceptionally low interest rates are attracting some buyers, with the growth in demand particularly strong amongst buy-to-let investors and cheaper properties. However, UK unemployment is still over 2.4 million and, despite a small fall, the outlook for jobs is not all positive. Even if the UK economy maintains its faltering signs of growth in Q1 2010, this can only keep the pressure on a still-fragile market.
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Wednesday, 17 March 2010
Bond sales fall on growing budget deficits
Pan-European corporate bond sales fell during February, amid escalating worries about soaring budget deficits in continental Europe and the UK. These concerns were concentrated around Greece, which is struggling to contend with the largest budget deficit in the eurozone.
However, every country in the 16-member grouping is set to register a budget deficit for 2009 that falls above the EU’s 3% threshold. Bond issuers developed cold feet, cancelling bond sales during the month amid growing fears these spiralling budget deficits could derail the global economic recovery. Concerns over the outlook for Greece led to a rise in the cost of protecting European corporate bonds from the risk of default. In general, bond investors adopted a wait-and-see approach until the situation stabilises. Looking ahead, once the outlook clears and investor sentiment strengthens, bond supply could be swelled by a backlog of new issues.
The pound reached a nine-month low against the US dollar towards the end of the month. Speculation that ratings agencies are set to downgrade Greece’s debt rating fuelled fears the UK might have difficulty in coping with its own soaring budget deficit. However, Mervyn King, the governor of the Bank of England, said he would be “immensely surprised” if the UK were to lose its top AAA credit rating. The UK registered a £4.3bn budget deficit in January as the recession negatively affected tax receipts – its first January budget deficit since records began in 1993.
UK economic growth for the fourth quarter of 2009 was revised upwards from an initial estimate of 0.1% to 0.3%. Throughout the recent recession – the most severe on record for the UK – the UK economy contracted by 6.2% since the first quarter of 2008. The Bank of England reduced its forecast for UK economic growth in 2010 from 2.2% to 1.4%.
Consumer spending rose by 0.4% and posted its fastest increase since the first three months of 2008. UK consumer confidence reached its highest level for four months during February. Inflation hit 3.5% during January, forcing King to write a letter of explanation to the Chancellor of the Exchequer. UK house prices dropped for the first time in 10 months during February, hampered by unusually wintry weather and the return of stamp duty on purchases below £175,000. Overall, house prices remain 13% below their October 2007 highs.
However, every country in the 16-member grouping is set to register a budget deficit for 2009 that falls above the EU’s 3% threshold. Bond issuers developed cold feet, cancelling bond sales during the month amid growing fears these spiralling budget deficits could derail the global economic recovery. Concerns over the outlook for Greece led to a rise in the cost of protecting European corporate bonds from the risk of default. In general, bond investors adopted a wait-and-see approach until the situation stabilises. Looking ahead, once the outlook clears and investor sentiment strengthens, bond supply could be swelled by a backlog of new issues.
The pound reached a nine-month low against the US dollar towards the end of the month. Speculation that ratings agencies are set to downgrade Greece’s debt rating fuelled fears the UK might have difficulty in coping with its own soaring budget deficit. However, Mervyn King, the governor of the Bank of England, said he would be “immensely surprised” if the UK were to lose its top AAA credit rating. The UK registered a £4.3bn budget deficit in January as the recession negatively affected tax receipts – its first January budget deficit since records began in 1993.
UK economic growth for the fourth quarter of 2009 was revised upwards from an initial estimate of 0.1% to 0.3%. Throughout the recent recession – the most severe on record for the UK – the UK economy contracted by 6.2% since the first quarter of 2008. The Bank of England reduced its forecast for UK economic growth in 2010 from 2.2% to 1.4%.
Consumer spending rose by 0.4% and posted its fastest increase since the first three months of 2008. UK consumer confidence reached its highest level for four months during February. Inflation hit 3.5% during January, forcing King to write a letter of explanation to the Chancellor of the Exchequer. UK house prices dropped for the first time in 10 months during February, hampered by unusually wintry weather and the return of stamp duty on purchases below £175,000. Overall, house prices remain 13% below their October 2007 highs.
Tuesday, 16 March 2010
Eurozone continues to decline
The spectre of a double-dip recession raised its head in parts of Europe last month as fourth-quarter GDP data disappointed. This was particularly evident in Germany, which saw no growth in the last three months of 2009.
While the problems were not entirely unexpected and exports held up, the jobless rate also rose and the figures ignited fears that the recovery would not survive the withdrawal of stimulus measures.
This weakness was evident in much of the remainder of the eurozone as well and indeed the region as a whole only grew by 0.1% in the final quarter. The Italian economy was the first to do a proper double-dip, with GDP falling 0.2% in the final quarter, reversing growth of 0.6% in the third quarter. Spain has still not emerged from recession and saw its economy shrink by 0.1%. France was the only significant bright spot. It saw a 0.6% rise in GDP, which was better than expected.
In general, Germany’s bad news is the eurozone’s bad news – particularly as it is seen as the main source for bail-out funds if Spain, Portugal or Ireland follow in Greece’s unenviable footsteps. Having been studiously vague at the height of the crisis, Germany finally said its support for Greece would be political rather than financial.
The Greek situation may have passed its crisis point but worries rumbled on. That said, the country’s government did managed to get a €5bn (£4.53bn) bond issue away after the month-end, assuaging fears that international investors would turn their backs completely.
European Central Bank president Jean-Claude Trichet continued to insist recovery was on track and pressed ahead with the dismantling of the stimulus packages, though he admitted recovery would remain uneven. The effects of a weaker euro are already starting to be felt by some businesses and could help revive German growth although the eurozone’s purchasing managers’ index remained unchanged from January to February.
The European markets were substantially weaker than those of the UK and US in February. The FTSE Eurofirst index fell 0.23%, compared to rises of 3.2% for the FTSE 100 and 2.85% for the S&P 500. Only the Nikkei did worse, falling 0.85%. Of the individual markets, the French CAC fell 1.54% and the German Dax rose 0.2% but Spain’s Ibex was hit hard, falling 6.7%. The Europe ex UK grouping remains the worst-performing sector for the year to date. It is down 4.13%, compared to a fall of just 0.39% in the UK All Companies sector.
While the problems were not entirely unexpected and exports held up, the jobless rate also rose and the figures ignited fears that the recovery would not survive the withdrawal of stimulus measures.
This weakness was evident in much of the remainder of the eurozone as well and indeed the region as a whole only grew by 0.1% in the final quarter. The Italian economy was the first to do a proper double-dip, with GDP falling 0.2% in the final quarter, reversing growth of 0.6% in the third quarter. Spain has still not emerged from recession and saw its economy shrink by 0.1%. France was the only significant bright spot. It saw a 0.6% rise in GDP, which was better than expected.
In general, Germany’s bad news is the eurozone’s bad news – particularly as it is seen as the main source for bail-out funds if Spain, Portugal or Ireland follow in Greece’s unenviable footsteps. Having been studiously vague at the height of the crisis, Germany finally said its support for Greece would be political rather than financial.
The Greek situation may have passed its crisis point but worries rumbled on. That said, the country’s government did managed to get a €5bn (£4.53bn) bond issue away after the month-end, assuaging fears that international investors would turn their backs completely.
European Central Bank president Jean-Claude Trichet continued to insist recovery was on track and pressed ahead with the dismantling of the stimulus packages, though he admitted recovery would remain uneven. The effects of a weaker euro are already starting to be felt by some businesses and could help revive German growth although the eurozone’s purchasing managers’ index remained unchanged from January to February.
The European markets were substantially weaker than those of the UK and US in February. The FTSE Eurofirst index fell 0.23%, compared to rises of 3.2% for the FTSE 100 and 2.85% for the S&P 500. Only the Nikkei did worse, falling 0.85%. Of the individual markets, the French CAC fell 1.54% and the German Dax rose 0.2% but Spain’s Ibex was hit hard, falling 6.7%. The Europe ex UK grouping remains the worst-performing sector for the year to date. It is down 4.13%, compared to a fall of just 0.39% in the UK All Companies sector.
Emerging Markets Recover from a poor January
The emerging markets sector made up some ground in February as investors once again embraced riskier assets. Having languished at the bottom of the league tables for January and most of February, a last-minute surge has left funds in the sector up 4.1% on average.
The Asia Pacific excluding Japan sector is slightly lower with a 2.93% gain. The weakest area was, predictably, Eastern Europe, which was hit by the fall-out from the Greek sovereign debt crisis. The MSCI Emerging Europe index was down 5.93% over the month with Hungary and the Czech Republic faring only a little better, dropping 3.45% and 3.85% respectively. A number of commentators have suggested Eastern Europe is the region most likely to house ‘the next Greece’.
Russian markets were also weak in spite of a small rise in the oil price, with the MSCI Russia index down 6.33%. Russia’s fourth-quarter GDP rose 0.3% over the previous quarter but weak export activity continues to weigh on the manufacturing sector.
In Asia, China continued to work its magic. It posted growth of 10.7% in the final quarter but said it will continue to target 8% growth in 2010. The government surprised markets by introducing a small level of monetary tightening though this was welcomed by those who see a nascent asset bubble in the region. Inflation dropped to its lowest level in two and a half years with factory gate prices falling 3.3%. A short period of deflation remains a possibility.
China’s neighbours have enjoyed the fruits of its riches. Thailand and Taiwan – both big exporters to China – have seen a speedy rebound in GDP, with the latter seeing a rise of 9.2% in GDP in the final quarter of 2009. Thailand meanwhile saw a rise of 5.8%. South Korea and Indonesia are also doing well, but have seen domestic demand grow as well.
The FTSE Xinhua index rose 2.16% over February, the Hang Seng rose 3.1% and the Shanghai 180 index of Chinese-listed shares rose 2.3%. The Chinese investment community also saw a new champion in the form of veteran investor Anthony Bolton, who launched his Fidelity Chinese Special Situations trust at the end of the month.
Elsewhere, Brazil’s Bovespa index paused after its strong run, rising 1.7% over the month. However, the biggest news in the region was the earthquake disaster in Chile. This appeared to have little impact on markets, which were flat, and the copper price ticked up, though not significantly, and indeed investors look to be hoping the devastating human cost is not matched by an economic nightmare.
The Asia Pacific excluding Japan sector is slightly lower with a 2.93% gain. The weakest area was, predictably, Eastern Europe, which was hit by the fall-out from the Greek sovereign debt crisis. The MSCI Emerging Europe index was down 5.93% over the month with Hungary and the Czech Republic faring only a little better, dropping 3.45% and 3.85% respectively. A number of commentators have suggested Eastern Europe is the region most likely to house ‘the next Greece’.
Russian markets were also weak in spite of a small rise in the oil price, with the MSCI Russia index down 6.33%. Russia’s fourth-quarter GDP rose 0.3% over the previous quarter but weak export activity continues to weigh on the manufacturing sector.
In Asia, China continued to work its magic. It posted growth of 10.7% in the final quarter but said it will continue to target 8% growth in 2010. The government surprised markets by introducing a small level of monetary tightening though this was welcomed by those who see a nascent asset bubble in the region. Inflation dropped to its lowest level in two and a half years with factory gate prices falling 3.3%. A short period of deflation remains a possibility.
China’s neighbours have enjoyed the fruits of its riches. Thailand and Taiwan – both big exporters to China – have seen a speedy rebound in GDP, with the latter seeing a rise of 9.2% in GDP in the final quarter of 2009. Thailand meanwhile saw a rise of 5.8%. South Korea and Indonesia are also doing well, but have seen domestic demand grow as well.
The FTSE Xinhua index rose 2.16% over February, the Hang Seng rose 3.1% and the Shanghai 180 index of Chinese-listed shares rose 2.3%. The Chinese investment community also saw a new champion in the form of veteran investor Anthony Bolton, who launched his Fidelity Chinese Special Situations trust at the end of the month.
Elsewhere, Brazil’s Bovespa index paused after its strong run, rising 1.7% over the month. However, the biggest news in the region was the earthquake disaster in Chile. This appeared to have little impact on markets, which were flat, and the copper price ticked up, though not significantly, and indeed investors look to be hoping the devastating human cost is not matched by an economic nightmare.
Japan still showing signs of weakness
After a strong start to the year, it didn’t take much to knock the Nikkei off course again and the index dropped 0.85% over the month. This was a worse showing even than Europe, where the FTSE Eurofirst only dipped 0.23% in spite of the fallout from the Greek crisis.By comparison, the FTSE 100 rose 3.2% and the S&P 500 was up 2.85%.
The ongoing problems at Toyota contributed to the weakness of Japan’s stock market – the shares fell from Y2,662 (£354) to Y2,335 as the carmaker’s woes continued – but elsewhere the news was surprisingly good. The economy grew faster than expected in the fourth quarter, rising 1.1% though some of this growth was ‘inherited’ from the previous quarter where growth figures were revised down from 1.2% to 0.3%. Exports continued their strength, in spite of Toyota’s problems, and industrial output rose for the 11th consecutive month.
More importantly, domestic demand began to emerge. While it would be premature to suggest the Japanese consumer is going to change the habits of the past 20 years and start spending, there were undoubtedly signs of life in retail spending figures. They rose for the first time in 17 months, up 2.6% year-on-year for January. Some analysts took this as a sign that government family-friendly policies, which have focused on putting money back in the pockets of householders, may be paying off.
However, deflation continues to act as a drag on spending. The GDP deflator – the level of prices for new, domestically produced goods and services – saw a 3% annual fall and consumer prices fell for the 11th month running. The government made tentative steps towards dealing with the problem, setting the Bank of Japan an inflation target for the first time – it was only 1%, but it was at least a statement of intent. The lack of an inflation target has been a long-standing criticism of the Japanese government’s policy and its introduction marks a break with the previous administration.
In spite of the relative weakness of the Nikkei, Japan funds are still ahead of the pack for the year to date, with the average fund in the IMA Japan sector delivering 7.37% while the average Japanese Smaller Companies fund is up 7.33%. The next best performer is the North American Smaller Companies sector, which has delivered 4.55% in comparison. Japan fund managers remain relatively optimistic, arguing valuations of Japanese companies are low relative to history and to their global peers.
The ongoing problems at Toyota contributed to the weakness of Japan’s stock market – the shares fell from Y2,662 (£354) to Y2,335 as the carmaker’s woes continued – but elsewhere the news was surprisingly good. The economy grew faster than expected in the fourth quarter, rising 1.1% though some of this growth was ‘inherited’ from the previous quarter where growth figures were revised down from 1.2% to 0.3%. Exports continued their strength, in spite of Toyota’s problems, and industrial output rose for the 11th consecutive month.
More importantly, domestic demand began to emerge. While it would be premature to suggest the Japanese consumer is going to change the habits of the past 20 years and start spending, there were undoubtedly signs of life in retail spending figures. They rose for the first time in 17 months, up 2.6% year-on-year for January. Some analysts took this as a sign that government family-friendly policies, which have focused on putting money back in the pockets of householders, may be paying off.
However, deflation continues to act as a drag on spending. The GDP deflator – the level of prices for new, domestically produced goods and services – saw a 3% annual fall and consumer prices fell for the 11th month running. The government made tentative steps towards dealing with the problem, setting the Bank of Japan an inflation target for the first time – it was only 1%, but it was at least a statement of intent. The lack of an inflation target has been a long-standing criticism of the Japanese government’s policy and its introduction marks a break with the previous administration.
In spite of the relative weakness of the Nikkei, Japan funds are still ahead of the pack for the year to date, with the average fund in the IMA Japan sector delivering 7.37% while the average Japanese Smaller Companies fund is up 7.33%. The next best performer is the North American Smaller Companies sector, which has delivered 4.55% in comparison. Japan fund managers remain relatively optimistic, arguing valuations of Japanese companies are low relative to history and to their global peers.
UK equities perform well in February
Despite ongoing concern about the size of the UK’s budget deficit, investor sentiment in February was boosted by strong earnings announcements from the banking sector, positive news from the mining sector and an upward revision to UK economic growth for the fourth quarter of 2009.The FTSE 100 index rose by 3.2% over the month.
Royal Bank of Scotland (RBS) announced smaller-than-expected full-year losses. Controversially, the UK’s largest government-controlled bank also announced a 44% rise in pay and bonus deals for its investment bankers, although CEO Stephen Hester decided to forgo his £1.6m bonus. Amid sustained taxpayer resentment against the banking sector, the Government has urged banks to reduce or defer bonuses. Barclays, which avoided a government bailout, announced full-year profits that more than doubled.
Lloyds Banking Group reported a larger-than-expected full-year loss, exacerbated by bad loan losses resulting from its takeover of HBOS. CEO Eric Daniels waived his £2.3m bonus, following the example of his peers at Barclays and RBS. Lloyds remains the UK’s largest mortgage lender, but has lost market share after cutting loans. Meanwhile, Banco Santander’s share of the UK mortgage market has increased by almost five percentage points to 18.6%.
Mining company Rio Tinto reported a profit for the second half of its fiscal year, boosted by higher commodity prices, and reinstated its dividend payment. Xstrata also announced it was reinstating dividend payments, despite reporting a drop in full-year profits. Elsewhere in the sector, Anglo American announced profits for 2009 that were ahead of expectations and also expects to resume dividend payments during 2010.
The world’s largest drinks manufacturer, Diageo, announced first-half earnings that undershot consensus expectations. Profits growth was dampened by fragile consumer demand in Europe and the US. The share price of Rolls-Royce was boosted by the news of higher-than-expected profits and a dividend increase. Shares in fixed-line telecoms provider BT fell sharply following the news the pensions regulator is concerned about its plans to tackle its spiralling pension deficit, which amounted to £8.8bn at the end of December.
January’s unexpectedly wintry weather took its toll on UK retail sales, which fell by more than twice as much as expected. Sales fell by 1.2% according to the Office for National Statistics, compared with consensus estimates of a 0.5% drop. Home-improvement retailer Kingfisher reported disappointing fourth-quarter sales, citing poor weather and the return of VAT at 17.5%.
UK Equities performance
Royal Bank of Scotland (RBS) announced smaller-than-expected full-year losses. Controversially, the UK’s largest government-controlled bank also announced a 44% rise in pay and bonus deals for its investment bankers, although CEO Stephen Hester decided to forgo his £1.6m bonus. Amid sustained taxpayer resentment against the banking sector, the Government has urged banks to reduce or defer bonuses. Barclays, which avoided a government bailout, announced full-year profits that more than doubled.
Lloyds Banking Group reported a larger-than-expected full-year loss, exacerbated by bad loan losses resulting from its takeover of HBOS. CEO Eric Daniels waived his £2.3m bonus, following the example of his peers at Barclays and RBS. Lloyds remains the UK’s largest mortgage lender, but has lost market share after cutting loans. Meanwhile, Banco Santander’s share of the UK mortgage market has increased by almost five percentage points to 18.6%.
Mining company Rio Tinto reported a profit for the second half of its fiscal year, boosted by higher commodity prices, and reinstated its dividend payment. Xstrata also announced it was reinstating dividend payments, despite reporting a drop in full-year profits. Elsewhere in the sector, Anglo American announced profits for 2009 that were ahead of expectations and also expects to resume dividend payments during 2010.
The world’s largest drinks manufacturer, Diageo, announced first-half earnings that undershot consensus expectations. Profits growth was dampened by fragile consumer demand in Europe and the US. The share price of Rolls-Royce was boosted by the news of higher-than-expected profits and a dividend increase. Shares in fixed-line telecoms provider BT fell sharply following the news the pensions regulator is concerned about its plans to tackle its spiralling pension deficit, which amounted to £8.8bn at the end of December.
January’s unexpectedly wintry weather took its toll on UK retail sales, which fell by more than twice as much as expected. Sales fell by 1.2% according to the Office for National Statistics, compared with consensus estimates of a 0.5% drop. Home-improvement retailer Kingfisher reported disappointing fourth-quarter sales, citing poor weather and the return of VAT at 17.5%.
UK Equities performance
The US economy starts to recover
The US economy grew by 5.9% during the fourth quarter of 2009, boosted by increased business investment and restocking as companies rebuilt inventories. Ben Bernanke, chairman of the Federal Reserve, described the US economic recovery as “nascent” and emphasised the ongoing need for low interest rates.
Bernanke believes that high unemployment and low inflation will help the Fed to keep US interest rates low for “an extended period”, but went on to warn that the Fed will have to begin raising rates “at some point”. Unemployment fell unexpectedly to 9.7% during January, its lowest level since August 2009. Job openings increased for the first time in three months last December, boosting hopes that employers are becoming more optimistic about prospects for the US economic recovery. Meanwhile, wholesale prices grew at a faster-than-expected pace, boosted by higher prices for energy, pharmaceuticals and light trucks
.US equity prices rose over February as a whole while the S&P 500 index increased by 2.9%. Investor sentiment was boosted by some encouraging economic data and corporate earnings announcements. Of the 456 companies in the S&P 500 that have reported fourth-quarter earnings since 11 January, three-quarters announced profits that beat consensus forecasts. However, investors’ morale was somewhat dampened by speculation over soaring budget deficits in some European countries and their possible negative effect on the global economic recovery.
US retail sales increased for the third time in four months during January, boosting hopes that consumers will be at the forefront of the economic recovery. Consumer activity makes up 70% of Us GDP. Retail sales grew more quickly than expected, climbing by 0.5%, although consumer confidence posted an unexpected drop.
According to the International Council of Shopping Centers, sales at 31 chains rose more quickly than expected, registering growth of 3%. Retailers avoided excessive discounting activity through the effective control of their inventories. Gap, Saks and Abercrombie & Fitch announced better-than-expected January sales, while department-store operator Macy’s announced stronger-than-forecast sales growth that was boosted by online sales. Overall, online spending rose by 2.6% year-on-year in the fourth quarter of 2009, led by strong performance from Wal Mart and Amazon.
Insurer AIG, the recipient of a controversial and high-profile bailout by the US government in September 2008, reported fourth-quarter losses of $8.87bn (£xxbn) that were magnified by the company’s decision to put aside additional reserves to pay insurance claims and pay back bailout funds.
Bernanke believes that high unemployment and low inflation will help the Fed to keep US interest rates low for “an extended period”, but went on to warn that the Fed will have to begin raising rates “at some point”. Unemployment fell unexpectedly to 9.7% during January, its lowest level since August 2009. Job openings increased for the first time in three months last December, boosting hopes that employers are becoming more optimistic about prospects for the US economic recovery. Meanwhile, wholesale prices grew at a faster-than-expected pace, boosted by higher prices for energy, pharmaceuticals and light trucks
.US equity prices rose over February as a whole while the S&P 500 index increased by 2.9%. Investor sentiment was boosted by some encouraging economic data and corporate earnings announcements. Of the 456 companies in the S&P 500 that have reported fourth-quarter earnings since 11 January, three-quarters announced profits that beat consensus forecasts. However, investors’ morale was somewhat dampened by speculation over soaring budget deficits in some European countries and their possible negative effect on the global economic recovery.
US retail sales increased for the third time in four months during January, boosting hopes that consumers will be at the forefront of the economic recovery. Consumer activity makes up 70% of Us GDP. Retail sales grew more quickly than expected, climbing by 0.5%, although consumer confidence posted an unexpected drop.
According to the International Council of Shopping Centers, sales at 31 chains rose more quickly than expected, registering growth of 3%. Retailers avoided excessive discounting activity through the effective control of their inventories. Gap, Saks and Abercrombie & Fitch announced better-than-expected January sales, while department-store operator Macy’s announced stronger-than-forecast sales growth that was boosted by online sales. Overall, online spending rose by 2.6% year-on-year in the fourth quarter of 2009, led by strong performance from Wal Mart and Amazon.
Insurer AIG, the recipient of a controversial and high-profile bailout by the US government in September 2008, reported fourth-quarter losses of $8.87bn (£xxbn) that were magnified by the company’s decision to put aside additional reserves to pay insurance claims and pay back bailout funds.
Thursday, 25 February 2010
Sterling's Adventure Portfolio
Investing wholly in a portfolio of global stockmarket investments is not for the faint hearted. But for those who are experienced investors quite happy with high volatility our Adventure Portfolio will appeal
The portfolio consists of 8 top-flight equity managers mixing both domestic and overseas investments.
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 6.2%. Its best month was April, where it produced 8.4%. For the 2009 calendar year the portfolio produced a total of 25.3%.
We expect this portfolio to be volatile and to be wholly dependent on economic stability and healthy stockmarket results. Returns are not expected to be consistent, but to change wildly depending on underlying investment conditions.
It would not be uncommon for an adventurous investor to allocate a small amount of their overall wealth to a portfolio of this nature
Click here for more information
The portfolio consists of 8 top-flight equity managers mixing both domestic and overseas investments.
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 6.2%. Its best month was April, where it produced 8.4%. For the 2009 calendar year the portfolio produced a total of 25.3%.
We expect this portfolio to be volatile and to be wholly dependent on economic stability and healthy stockmarket results. Returns are not expected to be consistent, but to change wildly depending on underlying investment conditions.
It would not be uncommon for an adventurous investor to allocate a small amount of their overall wealth to a portfolio of this nature
Click here for more information
Sterling's Balanced portfolio
This investment portfolio tends to be favoured by those investing for the longer term, which are most commonly pension investors. It is diverse in its approach, holding property, hedge fund strategies, equity investments and corporate bonds.
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 2.3%. Its best month was April, where it produced 6.1%. For the 2009 calendar year the portfolio produced a total of 21.4%.
We expect this portfolio to produce positive and consistent growth in normal investment conditions, but equally it will behave less defensively during downward movements in global stockmarkets. We would not generally recommend this portfolio for investors seeking an income. Over a period of five years we would expect the investment to produce significantly more than a bank or building society account in normal market conditions, but investors must be prepared for higher losses during periods of stockmarket decline.
Over the longer term (7-10 years), we would expect this portfolio to produce higher results than the cautious and absolute return portfolios, which is why our balanced approach tends to appeal to pension investors.
Click here for more information
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 2.3%. Its best month was April, where it produced 6.1%. For the 2009 calendar year the portfolio produced a total of 21.4%.
We expect this portfolio to produce positive and consistent growth in normal investment conditions, but equally it will behave less defensively during downward movements in global stockmarkets. We would not generally recommend this portfolio for investors seeking an income. Over a period of five years we would expect the investment to produce significantly more than a bank or building society account in normal market conditions, but investors must be prepared for higher losses during periods of stockmarket decline.
Over the longer term (7-10 years), we would expect this portfolio to produce higher results than the cautious and absolute return portfolios, which is why our balanced approach tends to appeal to pension investors.
Click here for more information
Sterling's Cautious Portfolio
This investment portfolio is by far our most popular. It is diverse in its approach, holding property, hedge fund strategies, stockmarket investments and corporate bonds.
With only 35% of the portfolio relying on worldwide stockmarket’s improving, this portfolio works with caution in mind. The hedge strategies employed by 40% of the funds should cushion any dramatic falls in the equity markets.
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 1.85%. Its best month was April, where it produced 5%. For the 2009 calendar year the portfolio produced a total of 17.5%.
We expect this portfolio to produce positive and consistent growth in normal investment conditions, whilst being defensive during downward swings. Over a period of five years we would expect the investment to produce significantly more than a bank or building society account in normal market conditions.
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With only 35% of the portfolio relying on worldwide stockmarket’s improving, this portfolio works with caution in mind. The hedge strategies employed by 40% of the funds should cushion any dramatic falls in the equity markets.
During 2009, this portfolio produced positive growth in eight out of twelve months. Its worst month was February, where the portfolio was down by 1.85%. Its best month was April, where it produced 5%. For the 2009 calendar year the portfolio produced a total of 17.5%.
We expect this portfolio to produce positive and consistent growth in normal investment conditions, whilst being defensive during downward swings. Over a period of five years we would expect the investment to produce significantly more than a bank or building society account in normal market conditions.
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Sterling's Absolute Return Portfolio
We have designed this portfolio with the risk adverse investor in mind. It employs several funds, which aim to produce returns regardless of market conditions.
This portfolio is suitable for those who do not like risk, but want higher returns than those associated to bank and building societies. We tend to find clients use this style of portfolio for ‘rainy day’ money, which they may need access to, but are likely to leave the investments untouched for a minimum period of three years
During 2009, this portfolio produced positive growth in nine out of twelve months. Its worst month was February, where the portfolio was down by 1.1%. Its best month was April, where it produced 1.9%. For the 2009 calendar year the portfolio produced a total of 8%.
We expect this portfolio to produce positive and consistent growth each year above that associated to a deposit account in all market conditions
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This portfolio is suitable for those who do not like risk, but want higher returns than those associated to bank and building societies. We tend to find clients use this style of portfolio for ‘rainy day’ money, which they may need access to, but are likely to leave the investments untouched for a minimum period of three years
During 2009, this portfolio produced positive growth in nine out of twelve months. Its worst month was February, where the portfolio was down by 1.1%. Its best month was April, where it produced 1.9%. For the 2009 calendar year the portfolio produced a total of 8%.
We expect this portfolio to produce positive and consistent growth each year above that associated to a deposit account in all market conditions
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Is it the right time to invest in property?
When the private property bubble finally burst during 2007 it also burst in the commercial property sector, but far worse. The average price of commercial property fell approximately 40% from its peak and the decline only started to level out during the summer of 2009. However, in the short term it cannot be expected that prices will start to grow at the same rate as before the financial crisis and prices will not recover to pre-crisis levels for some time. We are now living in a different world; where banks are less willing to lend and therefore are not fuelling absurd asset prices.
Nevertheless, opportunities do still exist to invest in direct property funds, which have a diverse portfolio and high profile reliable tenants to generate steady returns.
There are still many issues facing to commercial property sector and it would be naïve to believe the sector is fully out the of woods yet. Conversely, by purchasing commercial property funds at this reduced value, in the long-term (7-10 years), it could generate high rates of capital appreciation and growth in rental profits.
Invest in Property fund
Nevertheless, opportunities do still exist to invest in direct property funds, which have a diverse portfolio and high profile reliable tenants to generate steady returns.
There are still many issues facing to commercial property sector and it would be naïve to believe the sector is fully out the of woods yet. Conversely, by purchasing commercial property funds at this reduced value, in the long-term (7-10 years), it could generate high rates of capital appreciation and growth in rental profits.
Invest in Property fund
Why invest in precious metals
Ever since the dawn of civilisation man has traded precious metals for other goods and services. Even now, gold plays important part of the global economy due to its unique nature of storing wealth as a “safe haven” against inflationary pressure. The global economic uncertainty in 2009 has helped to push gold prices to an all time high of $1,200. With ambiguity still surrounding the future of the Global economy and the dollar, this is leading to above average demand for gold as a store of value. Investing in specialist gold and precious metal funds may generate more returns than a typical equity-based investment.
Investing in gold and other precious metals also directly taps into the emerging market growth story. The biggest and most important consumer of gold in the current climate is India. India presently is undergoing a massive economic transformation and is the second fastest growing economy in the world; it is logical to assume that, as India becomes wealthier, its level of gold consumption will increase. Furthermore, the number of operational mines and levels of production are set to decline in the long-term, adding more support to the price. Investing in precious metals offers more potential of greater profits than a normal fund; however, this comes with an increased amount of risk and should only be considered for a period of (7-10) years
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Investing in gold and other precious metals also directly taps into the emerging market growth story. The biggest and most important consumer of gold in the current climate is India. India presently is undergoing a massive economic transformation and is the second fastest growing economy in the world; it is logical to assume that, as India becomes wealthier, its level of gold consumption will increase. Furthermore, the number of operational mines and levels of production are set to decline in the long-term, adding more support to the price. Investing in precious metals offers more potential of greater profits than a normal fund; however, this comes with an increased amount of risk and should only be considered for a period of (7-10) years
Invest in Precious metals click here
Investing in Russia and Eastern Europe
Before the collapse of the Soviet Union, very few western investors could envisage the transformation of this former empire. In just 8 years, Vladimir Putin and his Administration were able to double the size of the Russian economy and more than double the average person’s wage.
Russia holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. Russia is also the world's largest exporter of natural gas, the second largest oil exporter and the third largest energy consumer. Russia is uniquely placed to capture growth in China and Eastern Europe by supplying raw materials.
Nevertheless, the Russian market is perceived to be riskier than most emerging markets and often shows more volatility than its Chinese and Brazilian counter-parts. An investment of this nature will be vulnerable to larger boom and bust cycles. However, in the long-term, it is expected to generate greater returns than the typical developed economies.
Invest in Russia and Eastern Europe Now
Russia holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. Russia is also the world's largest exporter of natural gas, the second largest oil exporter and the third largest energy consumer. Russia is uniquely placed to capture growth in China and Eastern Europe by supplying raw materials.
Nevertheless, the Russian market is perceived to be riskier than most emerging markets and often shows more volatility than its Chinese and Brazilian counter-parts. An investment of this nature will be vulnerable to larger boom and bust cycles. However, in the long-term, it is expected to generate greater returns than the typical developed economies.
Invest in Russia and Eastern Europe Now
Investing in Commodities
Raw materials are the building blocks of any society; from the food we eat to the fuel we use to keep our houses warm. With the global population expected to rise by approximately 45% to 9 billion by 2040, global demand for raw materials will inevitably expand. Furthermore, this increase in the population will increase scarcity of natural resources. Therefore, the economic fundamentals suggest that investing in commodities could be a worthwhile investment if you are taking a long term view (7-10 years
By investing in commodities you are directly tapping into the economic growth stories of emerging markets such as China, India and Brazil. For example, China is now the largest consumer of all commodities, except for oil. China now accounts for 20-30% of all base metal consumption, as they quickly build infrastructure and cities. Moreover, as the prosperity rises in the world’s two most populous countries, their demand for raw materials will increase even further.
Commodities are very sensitive to price and often experience dramatic swings that can often reduce the value of your investment; however. Over the long-term (7-10 years) profits could far exceed the returns of standard UK-based equity funds.
Invest in Commodities now
By investing in commodities you are directly tapping into the economic growth stories of emerging markets such as China, India and Brazil. For example, China is now the largest consumer of all commodities, except for oil. China now accounts for 20-30% of all base metal consumption, as they quickly build infrastructure and cities. Moreover, as the prosperity rises in the world’s two most populous countries, their demand for raw materials will increase even further.
Commodities are very sensitive to price and often experience dramatic swings that can often reduce the value of your investment; however. Over the long-term (7-10 years) profits could far exceed the returns of standard UK-based equity funds.
Invest in Commodities now
Investing in climate change
Since early industrialisation, there has been a constant struggle between profit and social responsibility; from the early factories polluting the rivers to 1000s of acres of rainforest being chopped down. Moving into the 21st Century, the majority of Scientists are in agreement that the world’s climate is changing and man is directly responsible. As we enter the age of ethical consumerism, the average consumer is more aware of the social and moral implications of their purchases; thus favouring companies with a “green ethos” and carbon neutrality. The climate change funds have identified this social shift towards ethical purchasing and believe that firms that operate a green ethos will have more potential for growth in the future.
Climate change funds have been around for some time but rather than focusing only on renewable energy such as wind farms, solar and nuclear power, they tend to have a bias towards mainstream companies who are environmentally friendly or who will be affected positively by climate change. Climate change funds tend to be wholly invested equities and consequently they experience high levels of volatility, therefore it should only be considered as part of a long-term investment strategy.
Invest in Climate Change now
Climate change funds have been around for some time but rather than focusing only on renewable energy such as wind farms, solar and nuclear power, they tend to have a bias towards mainstream companies who are environmentally friendly or who will be affected positively by climate change. Climate change funds tend to be wholly invested equities and consequently they experience high levels of volatility, therefore it should only be considered as part of a long-term investment strategy.
Invest in Climate Change now
Why invest in China
The China success story began in the late 1970s, after political reforms made it possible for the Chinese people to trade goods on a free market. Three decades later the Chinese economy has grown by over 70 times and if the current economic trends continue, China is in a prime position to overtake Japan as the second biggest economy in the world. By choosing a China based investment theme you will be able to capitalise on one of the most dynamitic marketplaces in the world.
China has shown remarkable resistance to the economic downturn and it is believed that the economic growth is set to accelerate during 2010. It would be naïve to believe that China’s growth is going to be problem-free, with many Economists suggesting bubbles are already forming. However, taking a long-term investment view (7-10 years) it is undeniable that China has the potential of far higher returns than investing in traditional developed economies.
There are many funds that try to capture its remarkable growth but none we feel are as successful as the Jupiter – China Fund. The fund aims to achieve long-term capital growth through investing principally in companies in China (including Hong Kong).
Invest in China Now
China has shown remarkable resistance to the economic downturn and it is believed that the economic growth is set to accelerate during 2010. It would be naïve to believe that China’s growth is going to be problem-free, with many Economists suggesting bubbles are already forming. However, taking a long-term investment view (7-10 years) it is undeniable that China has the potential of far higher returns than investing in traditional developed economies.
There are many funds that try to capture its remarkable growth but none we feel are as successful as the Jupiter – China Fund. The fund aims to achieve long-term capital growth through investing principally in companies in China (including Hong Kong).
Invest in China Now
UK equities struggle in January
After returning more than 22% during 2009, the FTSE 100 index dropped by more than 4% during January as UK share prices, in common with other major equity markets, declined amid concerns over China’s measures to rein in economic growth.
Further worries about the strength of the global economic recovery and fears over Greece’s ability to cope with its budget deficit.
The price of crude oil dropped towards the end of the month amid increasing levels of investor uncertainty. Nevertheless, BP expects the world’s appetite for energy to grow by approximately 40% over the next 20 years, fuelled by demand from developing nations, particularly China. BP ousted Royal Dutch Shell during January from its position as Europe’s biggest oil company by market value through a combination of cost-cutting and output growth.
Luxury retailer Burberry reported better-than-expected sales growth for the third quarter, and the company expects full-year earnings to be “towards the top end” of analysts’ expectations. Pharmaceutical giant AstraZeneca announced disappointing fourth-quarter earnings and the company intends to buy back up to $1bn (£639m) of shares during 2010. UK confectioner Cadbury finally agreed to an improved takeover offer from US food manufacturer Kraft Foods. Meanwhile, the UK banking sector received a knock during the month following a warning from Standard & Poor’s Ratings Services that it does not view the UK as “among the most stable and low-risk banking systems globally”.
The UK economy finally emerged during the fourth quarter of 2009 from its longest recession on record, registering modest growth of 0.1% from the third quarter. However, this expansion was lower than expected and its fragility could provide a headache for the Bank of England’s Monetary Policy Committee and the government. Britain was the last of the G7 nations to come out of recession and the bank’s Governor Mervyn King has warned the UK will have to cope with “a long period of healing. The UK economy contracted by 4.8% during 2009 and expanded by only 0.5% during 2008.
The International Monetary Fund increased its forecast for economic expansion in the UK during 2010 and 2011, predicting growth of 1.3% and 2.7% respectively. In comparison, the organisation expects the US economy to grow by 2.7% in 2010 and 2.4% in 2011, and the eurozone economy to expand by 1% during 2010 and 1.5% during 2011. Overall, it increased its forecast for global growth to 3.9% during 2010
UK equities struggle in January
Further worries about the strength of the global economic recovery and fears over Greece’s ability to cope with its budget deficit.
The price of crude oil dropped towards the end of the month amid increasing levels of investor uncertainty. Nevertheless, BP expects the world’s appetite for energy to grow by approximately 40% over the next 20 years, fuelled by demand from developing nations, particularly China. BP ousted Royal Dutch Shell during January from its position as Europe’s biggest oil company by market value through a combination of cost-cutting and output growth.
Luxury retailer Burberry reported better-than-expected sales growth for the third quarter, and the company expects full-year earnings to be “towards the top end” of analysts’ expectations. Pharmaceutical giant AstraZeneca announced disappointing fourth-quarter earnings and the company intends to buy back up to $1bn (£639m) of shares during 2010. UK confectioner Cadbury finally agreed to an improved takeover offer from US food manufacturer Kraft Foods. Meanwhile, the UK banking sector received a knock during the month following a warning from Standard & Poor’s Ratings Services that it does not view the UK as “among the most stable and low-risk banking systems globally”.
The UK economy finally emerged during the fourth quarter of 2009 from its longest recession on record, registering modest growth of 0.1% from the third quarter. However, this expansion was lower than expected and its fragility could provide a headache for the Bank of England’s Monetary Policy Committee and the government. Britain was the last of the G7 nations to come out of recession and the bank’s Governor Mervyn King has warned the UK will have to cope with “a long period of healing. The UK economy contracted by 4.8% during 2009 and expanded by only 0.5% during 2008.
The International Monetary Fund increased its forecast for economic expansion in the UK during 2010 and 2011, predicting growth of 1.3% and 2.7% respectively. In comparison, the organisation expects the US economy to grow by 2.7% in 2010 and 2.4% in 2011, and the eurozone economy to expand by 1% during 2010 and 1.5% during 2011. Overall, it increased its forecast for global growth to 3.9% during 2010
UK equities struggle in January
Record year for corporate bonds
Sales of pan-European corporate bonds reached a record €1 trillion (£880bn) during 2009 amid surging demand for high-yielding assets as investors sought an alternative to volatile equities and low yields on cash deposits.
The London Stock Exchange’s new corporate bond exchange launched this month and aims to attract individual investors to the corporate bond market.
Sterling-denominated corporate bonds returned a record 15% during 2009, compared with a return of -12% during 2008, according to Bloomberg and Bank of America Merrill Lynch. However, according to data compiled by Bloomberg, sales of corporate bonds have flagged and borrowing costs are rising for the first time in around two months. Global bond sales fell by 52% during the third week of January compared with the previous week.
According to Bloomberg, Virgin Media issued the largest-ever release of sterling-denominated high-yield debt during the month. High-yield debt is graded BBB- by Standard & Poor’s and below Baa3 by Moody’s Investors Service. Demand for higher-risk debt has risen amid an environment of relatively low returns on government bonds and investment-grade bonds. Moody’s Investors Service expects the default rate among speculative-grade companies, currently running at 12.5%, to drop to 3.3% during 2010.
Royal Bank of Scotland issued €2bn of debt due in 2017, while Barclays issued €2bn of seven-year bonds. Rail and bus operator National Express issued £350m of bonds during January, its first-ever bond issuance. Meanwhile, Cambridge University is reported to be contemplating an issue of long-dated bonds in order to take advantage of the rally in credit markets. This move would be highly unusual for a UK university, although some educational establishments in the US and Europe have issued bonds. According to Bloomberg, Lancaster University issued £35m of bonds in 1995.
The pound reached a four-month high against the euro during the month, boosted by the news that US food giant Kraft’s controversial takeover of UK confectioner Cadbury had finally been agreed. The takeover shows that overseas cash is coming into the UK to buy British assets, which have become relatively cheap.
Meanwhile, during December, UK inflation posted its fastest-ever increase compared with the previous month. Inflation is now running at 2.9% compared with 1.9% in November, a rise of one percentage point over the month, and well above the Bank of England’s rolling 2% target. The news fuelled concerns that interest rates might rise sooner than expected.
Record year for corporate bonds
The London Stock Exchange’s new corporate bond exchange launched this month and aims to attract individual investors to the corporate bond market.
Sterling-denominated corporate bonds returned a record 15% during 2009, compared with a return of -12% during 2008, according to Bloomberg and Bank of America Merrill Lynch. However, according to data compiled by Bloomberg, sales of corporate bonds have flagged and borrowing costs are rising for the first time in around two months. Global bond sales fell by 52% during the third week of January compared with the previous week.
According to Bloomberg, Virgin Media issued the largest-ever release of sterling-denominated high-yield debt during the month. High-yield debt is graded BBB- by Standard & Poor’s and below Baa3 by Moody’s Investors Service. Demand for higher-risk debt has risen amid an environment of relatively low returns on government bonds and investment-grade bonds. Moody’s Investors Service expects the default rate among speculative-grade companies, currently running at 12.5%, to drop to 3.3% during 2010.
Royal Bank of Scotland issued €2bn of debt due in 2017, while Barclays issued €2bn of seven-year bonds. Rail and bus operator National Express issued £350m of bonds during January, its first-ever bond issuance. Meanwhile, Cambridge University is reported to be contemplating an issue of long-dated bonds in order to take advantage of the rally in credit markets. This move would be highly unusual for a UK university, although some educational establishments in the US and Europe have issued bonds. According to Bloomberg, Lancaster University issued £35m of bonds in 1995.
The pound reached a four-month high against the euro during the month, boosted by the news that US food giant Kraft’s controversial takeover of UK confectioner Cadbury had finally been agreed. The takeover shows that overseas cash is coming into the UK to buy British assets, which have become relatively cheap.
Meanwhile, during December, UK inflation posted its fastest-ever increase compared with the previous month. Inflation is now running at 2.9% compared with 1.9% in November, a rise of one percentage point over the month, and well above the Bank of England’s rolling 2% target. The news fuelled concerns that interest rates might rise sooner than expected.
Record year for corporate bonds
Emerging Markets suffer a large sell-off
The sell-off in January was not kind to emerging markets. Asia Pacific excluding Japan was the worst-performing sector, dropping 5.68%, but the Global Emerging Market grouping also suffered, falling 3.84%.
Emerging markets, particularly China, sold off savagely as risk aversion took hold of global investors.
In stark contrast to many developed economies, worries centred around too much growth rather than too little. In China, fourth-quarter annualised GDP figures showed a rise of 10.7%, giving a rise for the full year of 8.7%. International investors had initially seen the Chinese government’s prediction of a rise of 8% as optimistic but the country looks set to overtake Japan as the world’s second largest economy within months.
But this growth had its downside. Inflationary pressures are starting to emerge with consumer prices rising 1.9% year-on-year in December, compared to 0.6% for the previous month. The government is making moves to curb excessive lending by banks and may start tightening interest rates sooner rather than later. Retail sales rose 17.5% in December.
The story is similar in India, where the government is also trying to reduce bank lending to cool growth. Rates are likely to rise after industrial output grew by an unexpected 11.7% in November. Inflation data, due out this month, is expected to show consumer prices rising at around 7%.
The Chinese stockmarket was the hardest hit, with the Shanghai SE 180 index falling 11.07%. The Hang Seng also reflected the disaffection with Chinese stocks, falling 7.95%. The Indian S&P CNX 500 index fell 4.3% while the Brazilian iBovespa index dropped 4.6%.
The Russian RTS index was the one exception. It rose 2% over the month – one of the very few global indices to post a gain. This was little to do with Russia’s economic situation, which continues to be weak. There has been rising business activity, but at an unexciting pace, particularly for an emerging market. Traditionally, the market has simply crept up with the oil price, but the oil price dipped by around $9 (£5.80) a barrel in January. The answer may simply be that Russia looked relatively cheap and attracted global investors looking for a bargain in emerging markets.
Eastern Europe as a whole was also stronger, with countries such as Turkey and Israel posting double-digit gains, according to MSCI Barra. The major markets of Hungary and the Czech Republic all saw rises over the month as investors decided that the risks for the region were dissipating.
Emerging Markets suffer a large sell-off
Emerging markets, particularly China, sold off savagely as risk aversion took hold of global investors.
In stark contrast to many developed economies, worries centred around too much growth rather than too little. In China, fourth-quarter annualised GDP figures showed a rise of 10.7%, giving a rise for the full year of 8.7%. International investors had initially seen the Chinese government’s prediction of a rise of 8% as optimistic but the country looks set to overtake Japan as the world’s second largest economy within months.
But this growth had its downside. Inflationary pressures are starting to emerge with consumer prices rising 1.9% year-on-year in December, compared to 0.6% for the previous month. The government is making moves to curb excessive lending by banks and may start tightening interest rates sooner rather than later. Retail sales rose 17.5% in December.
The story is similar in India, where the government is also trying to reduce bank lending to cool growth. Rates are likely to rise after industrial output grew by an unexpected 11.7% in November. Inflation data, due out this month, is expected to show consumer prices rising at around 7%.
The Chinese stockmarket was the hardest hit, with the Shanghai SE 180 index falling 11.07%. The Hang Seng also reflected the disaffection with Chinese stocks, falling 7.95%. The Indian S&P CNX 500 index fell 4.3% while the Brazilian iBovespa index dropped 4.6%.
The Russian RTS index was the one exception. It rose 2% over the month – one of the very few global indices to post a gain. This was little to do with Russia’s economic situation, which continues to be weak. There has been rising business activity, but at an unexciting pace, particularly for an emerging market. Traditionally, the market has simply crept up with the oil price, but the oil price dipped by around $9 (£5.80) a barrel in January. The answer may simply be that Russia looked relatively cheap and attracted global investors looking for a bargain in emerging markets.
Eastern Europe as a whole was also stronger, with countries such as Turkey and Israel posting double-digit gains, according to MSCI Barra. The major markets of Hungary and the Czech Republic all saw rises over the month as investors decided that the risks for the region were dissipating.
Emerging Markets suffer a large sell-off
Cautious Portfolio up 17.5% during 2009
Our proactive approach has produced considerably less volatility, whilst out performing the average manager by almost 3% during 2009. This is how we did it…
There was a very different feeling when we started 2009 compared to now. Our clients had been fortunate enough to hold larger cash balances than normal during the main part of the financial crisis, but by the end of 2008 had established more conventional approaches to this risk category.
Our cautious portfolio started 2009 without property exposure, still relatively defensive against our competitors, but well placed to take part in the general recovery in the investment markets.
Our first change was from the beginning of February, where we recommended more exposure to funds in the Absolute Return Sector. We switched from a UK Equity Fund and a Global Bond Fund (at significant profit) into two Absolute Return Funds. We felt that the Absolute Return Funds would fair better should market conditions deteriorate.
Subsequently the global equity markets dropped significantly, giving this portfolio a massive head start. The Cautious Managed Sector as a whole had fallen by 7.64% from 1st of January to 6th of March, whilst the combined portfolio was only down 3.5% over the same period.
Although, from this point the market rallied strongly, the portfolio remained well placed and ahead of the pack. On the 1st of September, we recommended that the portfolio held more in equities – even with more stockmarket investments the potential downside risk was less than most of the other managers in the sector. We switched from one of the cautious holdings into a US Equity Fund. Investors immediately capitalised on further market gains and benefited from growth in the strength of the dollar against the British pound.
During the first part of 2010, we have asked investors to consider including commercial property, reducing some exposure to both fixed interest and equities. We also switched a manager who we felt should have done better during 2010 for a similar investment.
Our proactive approach is now available for online investors. Remember, our services are purely advisory - we do not make any alterations to your portfolio without your prior consent.
Cautious Portfolio up 17.5% during 2009
There was a very different feeling when we started 2009 compared to now. Our clients had been fortunate enough to hold larger cash balances than normal during the main part of the financial crisis, but by the end of 2008 had established more conventional approaches to this risk category.
Our cautious portfolio started 2009 without property exposure, still relatively defensive against our competitors, but well placed to take part in the general recovery in the investment markets.
Our first change was from the beginning of February, where we recommended more exposure to funds in the Absolute Return Sector. We switched from a UK Equity Fund and a Global Bond Fund (at significant profit) into two Absolute Return Funds. We felt that the Absolute Return Funds would fair better should market conditions deteriorate.
Subsequently the global equity markets dropped significantly, giving this portfolio a massive head start. The Cautious Managed Sector as a whole had fallen by 7.64% from 1st of January to 6th of March, whilst the combined portfolio was only down 3.5% over the same period.
Although, from this point the market rallied strongly, the portfolio remained well placed and ahead of the pack. On the 1st of September, we recommended that the portfolio held more in equities – even with more stockmarket investments the potential downside risk was less than most of the other managers in the sector. We switched from one of the cautious holdings into a US Equity Fund. Investors immediately capitalised on further market gains and benefited from growth in the strength of the dollar against the British pound.
During the first part of 2010, we have asked investors to consider including commercial property, reducing some exposure to both fixed interest and equities. We also switched a manager who we felt should have done better during 2010 for a similar investment.
Our proactive approach is now available for online investors. Remember, our services are purely advisory - we do not make any alterations to your portfolio without your prior consent.
Cautious Portfolio up 17.5% during 2009
Wednesday, 20 January 2010
Japans future still unclear
The Japanese markets ended the year with a flourish. The Nikkei rose 13.62% in December, leaving it 17.3% up on the year and helping it catch up with other developed markets. Its performance is now in line with the FTSE 100, which was up 18.65%, the Dow Jones, up 15.52%, and the FTSE Eurofirst, up 22%.
The last-minute boost came largely on the back of a weakening yen, which relieved the pressure on exporters. After the month end, Japan’s new finance minister said he supported a weaker yen – a significant reversal in policy from his predecessors. He added he would work to ensure the yen remained at around 95 to the dollar, a target set by Japanese business leaders. The yen is currently trading at around 93 to the dollar.
Markets were also given a boost by the success of individual companies. Canon won approval for its takeover of a Dutch rival Oce while brewers Kirin and Suntory also benefited from M&A activity. Technology shares took the lead from their US rivals and moved up substantially last month – US technology groups had reported an improvement in earnings and investors expected similar earnings upgrades in Japan.
December also saw a new stimulus plan from the government. Only in Japan could a plan to deliver average growth of 2% be called ‘ambitious’, but the government said it wanted to create new markets in environmental technology, healthcare and tourism. The initiative, if successful, should create nearly five million new jobs.
However, it costs money Japan simply doesn’t have – ¥77,200bn (£520bn), to be precise – and December also brought bad news on the recovery. This was weaker than expected, with third-quarter growth revised down from 1.2% to 0.3%, and raised the real possibility the economy may begin to slow again in early 2010. Business investment remains the weak spot with private consumption still stable. The economy still has the fog of inflation hanging over it as well as the risk of debt downgrades.
Japan funds achieved the ignominious position of the worst-performing sector of 2009, with the average fund dipping 3.1%. It was the only sector, apart from UK Gilts, which actually lost money for investors during the year. That said, the average fund figure did mask a broad range of underlying fund performance, which varied between -11% and +11% for the full year. In general, Japan managers were simply too cautious, not trusting in the recovery. They may be right in the long run, but the markets did not agree in the short term.
The last-minute boost came largely on the back of a weakening yen, which relieved the pressure on exporters. After the month end, Japan’s new finance minister said he supported a weaker yen – a significant reversal in policy from his predecessors. He added he would work to ensure the yen remained at around 95 to the dollar, a target set by Japanese business leaders. The yen is currently trading at around 93 to the dollar.
Markets were also given a boost by the success of individual companies. Canon won approval for its takeover of a Dutch rival Oce while brewers Kirin and Suntory also benefited from M&A activity. Technology shares took the lead from their US rivals and moved up substantially last month – US technology groups had reported an improvement in earnings and investors expected similar earnings upgrades in Japan.
December also saw a new stimulus plan from the government. Only in Japan could a plan to deliver average growth of 2% be called ‘ambitious’, but the government said it wanted to create new markets in environmental technology, healthcare and tourism. The initiative, if successful, should create nearly five million new jobs.
However, it costs money Japan simply doesn’t have – ¥77,200bn (£520bn), to be precise – and December also brought bad news on the recovery. This was weaker than expected, with third-quarter growth revised down from 1.2% to 0.3%, and raised the real possibility the economy may begin to slow again in early 2010. Business investment remains the weak spot with private consumption still stable. The economy still has the fog of inflation hanging over it as well as the risk of debt downgrades.
Japan funds achieved the ignominious position of the worst-performing sector of 2009, with the average fund dipping 3.1%. It was the only sector, apart from UK Gilts, which actually lost money for investors during the year. That said, the average fund figure did mask a broad range of underlying fund performance, which varied between -11% and +11% for the full year. In general, Japan managers were simply too cautious, not trusting in the recovery. They may be right in the long run, but the markets did not agree in the short term.
Can Emerging Markets continue there top performace
emerging markets maintained their momentum in December, capping a spectacular year for investors. Economic data continues to suggest they will be crucial in leading the world out of recession, with Eastern Europe as the only remaining weak spot.
The Shanghai 180 A Share index rose 2% over the month, giving it an overall gain in 2009 of 88.3% – and indeed China was one of the few countries revising its GDP data higher. It pushed its 2008 GDP figure from 9% to 9.6% and said that growth figures for 2009 were also likely to be higher than originally forecast. This means China should surpass struggling Japan as the world’s second largest economy this year. Growth has been seen across the board and analysts have been particularly encouraged by the growth in the service sector.
The country’s economic success also dragged up the rest of the region, in spite of Singapore’s surprise fall in GDP growth in the fourth quarter. The Purchasing Managers’ Index (PMI) rose in China, South Korea, Taiwan and India, with China’s domestic carmakers seeing particular strength. Inflation returned in December after a year of falling prices with consumer prices up 0.6% over one year. This made some analysts nervous, particularly with house prices shooting up, though others saw it as an inevitable consequence of higher growth.
India’s benchmark index – the S&P CNX 500 – rose 3.7% in December, leaving it with a full year gain of 79.6%. Strong PMI data assuaged concerns that manufacturing might be slowing. In the meantime a report by the London School of Economics suggested India would retain its outsourcing dominance for at least another 15 years.
Eastern Europe had a strong month, in spite of ongoing worries about its economic position. The MSCI Emerging Europe index was up 6.6% in December, leaving it 65.1% up on the year. Russia also had a good month - the RTS index was up 5.3% in December, making it one of the top performing markets of the year with a gain of 130.5%. Russian GDP rose 1.9% in the fourth quarter, with Prime Minister Putin claiming the “active phase of the crisis” was over.
Brazil’s Bovespa index was up 2.3% for the month and 70.43% for the year. That said, the economy is expected to be largely flat in 2009 as third-quarter growth disappointed – the economy grew 1.3%, compared to consensus expectations of 2%. The weakness came from the agricultural sector, but the country saw strength in domestic consumption and investment.
The IMA Global Emerging Markets sector was top of the league tables for the year as the average fund delivered 58.6%. Asia Pacific was next, with the average fund returning 53.4%. Whereas other ‘risk’ trades such as smaller companies seem to have lost momentum going into the new year, emerging markets appear to maintaining their spark.
The Shanghai 180 A Share index rose 2% over the month, giving it an overall gain in 2009 of 88.3% – and indeed China was one of the few countries revising its GDP data higher. It pushed its 2008 GDP figure from 9% to 9.6% and said that growth figures for 2009 were also likely to be higher than originally forecast. This means China should surpass struggling Japan as the world’s second largest economy this year. Growth has been seen across the board and analysts have been particularly encouraged by the growth in the service sector.
The country’s economic success also dragged up the rest of the region, in spite of Singapore’s surprise fall in GDP growth in the fourth quarter. The Purchasing Managers’ Index (PMI) rose in China, South Korea, Taiwan and India, with China’s domestic carmakers seeing particular strength. Inflation returned in December after a year of falling prices with consumer prices up 0.6% over one year. This made some analysts nervous, particularly with house prices shooting up, though others saw it as an inevitable consequence of higher growth.
India’s benchmark index – the S&P CNX 500 – rose 3.7% in December, leaving it with a full year gain of 79.6%. Strong PMI data assuaged concerns that manufacturing might be slowing. In the meantime a report by the London School of Economics suggested India would retain its outsourcing dominance for at least another 15 years.
Eastern Europe had a strong month, in spite of ongoing worries about its economic position. The MSCI Emerging Europe index was up 6.6% in December, leaving it 65.1% up on the year. Russia also had a good month - the RTS index was up 5.3% in December, making it one of the top performing markets of the year with a gain of 130.5%. Russian GDP rose 1.9% in the fourth quarter, with Prime Minister Putin claiming the “active phase of the crisis” was over.
Brazil’s Bovespa index was up 2.3% for the month and 70.43% for the year. That said, the economy is expected to be largely flat in 2009 as third-quarter growth disappointed – the economy grew 1.3%, compared to consensus expectations of 2%. The weakness came from the agricultural sector, but the country saw strength in domestic consumption and investment.
The IMA Global Emerging Markets sector was top of the league tables for the year as the average fund delivered 58.6%. Asia Pacific was next, with the average fund returning 53.4%. Whereas other ‘risk’ trades such as smaller companies seem to have lost momentum going into the new year, emerging markets appear to maintaining their spark.
European Equities look to continue gains in 2010
Positive data towards the end of last month suggested the eurozone may maintain economic momentum, having moved out of recession in the third quarter. Even Ireland, one of the hardest hit of the eurozone economies, managed to drag itself into positive territory, rising 0.3% in the third quarter.
There was plenty of grand talk among Europe’s laggard economies of sharp cuts in spending. The governments of Spain and Ireland both announced wide-reaching cuts to address their deficits, while a team of EU enforcers headed to Greece to check on the credibility of its austerity plans. Delivering on their promises may prove crucial in 2010.
Eurozone inflation began to rise again during the month with consumer prices up 0.5% in the year to November. This had been widely expected and was welcome news for the European Central Bank, suggesting further stimulus may not be necessary to avoid deflation.
Private sector spending in both manufacturing and services rose at its fastest rate for two years, while the Purchasing Managers index reached its highest level since October 2007. The rate of job losses slowed, bringing some welcome respite for policymakers.
But the month was not without its problems. The crisis in Greece looked set to test the credibility of the union to its limits. Fitch downgraded the country’s credit rating, while S&P revised its outlook for Spain from ‘stable’ to ‘negative’. There were also ongoing worries about the exposure of Austrian banks to bad debts in Eastern Europe.
Austerity measures remain a concern for countries whose citizens rely on a strong public sector with predictions of civil unrest as spending cuts hit home. German industrial production figures slowed on weaker consumer demand and the Bundesbank warned the recovery may have lost momentum. Much of this weakness came from the ending of the car subsidy scheme, but it gave analysts pause for thought.
However, the eurozone’s stockmarkets were undeterred and were among the top performers of the developed markets. The FTSE Eurofirst index ticked up 6.1% over the month and rose 22% for the full year, leaving it ahead of the FTSE 100 and S&P 500. The individual markets of France and Germany were weaker, both for the month and for the full year. The CAC 40 rose 5.81%, while the Dax rose 5.3%. The CAC in particular has lagged UK and US markets in spite of France’s relatively strong economic performance.
European funds lagged the UK All Companies sector by 11.5% for the full year, delivering an average return of 19.46%. This was in line with US funds and well ahead of Japanese funds, which dipped 3.1%. That said, European funds have yet to reflect the superior performance of the larger eurozone economies and they will be hoping to catch up in 2010.
EatonWeb Blog Directory
There was plenty of grand talk among Europe’s laggard economies of sharp cuts in spending. The governments of Spain and Ireland both announced wide-reaching cuts to address their deficits, while a team of EU enforcers headed to Greece to check on the credibility of its austerity plans. Delivering on their promises may prove crucial in 2010.
Eurozone inflation began to rise again during the month with consumer prices up 0.5% in the year to November. This had been widely expected and was welcome news for the European Central Bank, suggesting further stimulus may not be necessary to avoid deflation.
Private sector spending in both manufacturing and services rose at its fastest rate for two years, while the Purchasing Managers index reached its highest level since October 2007. The rate of job losses slowed, bringing some welcome respite for policymakers.
But the month was not without its problems. The crisis in Greece looked set to test the credibility of the union to its limits. Fitch downgraded the country’s credit rating, while S&P revised its outlook for Spain from ‘stable’ to ‘negative’. There were also ongoing worries about the exposure of Austrian banks to bad debts in Eastern Europe.
Austerity measures remain a concern for countries whose citizens rely on a strong public sector with predictions of civil unrest as spending cuts hit home. German industrial production figures slowed on weaker consumer demand and the Bundesbank warned the recovery may have lost momentum. Much of this weakness came from the ending of the car subsidy scheme, but it gave analysts pause for thought.
However, the eurozone’s stockmarkets were undeterred and were among the top performers of the developed markets. The FTSE Eurofirst index ticked up 6.1% over the month and rose 22% for the full year, leaving it ahead of the FTSE 100 and S&P 500. The individual markets of France and Germany were weaker, both for the month and for the full year. The CAC 40 rose 5.81%, while the Dax rose 5.3%. The CAC in particular has lagged UK and US markets in spite of France’s relatively strong economic performance.
European funds lagged the UK All Companies sector by 11.5% for the full year, delivering an average return of 19.46%. This was in line with US funds and well ahead of Japanese funds, which dipped 3.1%. That said, European funds have yet to reflect the superior performance of the larger eurozone economies and they will be hoping to catch up in 2010.
EatonWeb Blog Directory
UK Equity funds look forward to 2010
UK equity income fund managers will not be sorry to have put 2009 behind them. The FTSE 350 Higher Yield index underperformed its FTSE 350 Lower Yield counterpart by 26.5% during the year, returning just 12.7%. Dividend cuts for 2009 are expected to come in at around 15%, leaving UK equity income managers with a much depleted pool of stocks.
Markets in December showed signs of a long-awaited change in sentiment. The Higher Yield index was up 3.8%, compared to a rise of just 3.1% for the Lower Yield index. The trusty dividend stocks, such as the oil majors, telecoms and pharmaceuticals, have been out of favour for some time and many are now saying they look undervalued. A number of companies are producing a higher yield on their equity than on their corporate debt – a rare anomaly.
Meanwhile, a recent survey by Deloitte’s has suggested finance directors are the most optimistic they have been for two years. They are increasingly willing to take financial risk while worries on liquidity have faded. As these are the people who hold the purse strings, it suggests the worst might be over for dividend cuts. Market consensus is suggesting dividends will start to rise again in 2010.
Dividend stocks may also benefit from the weakness in sterling. Approximately 40% of dividends come from companies reporting in dollars and these are seeing their earnings flattered by the falling currency.
However, there are still some companies where the dividend is seen as vulnerable, the most notable being United Utilities. Merrill Lynch analysts issued a critical note on the company, forecasting a dividend fall of 20%, which hit the shares during the month. Equally, the Basle Committee on banking supervision threatened to block banks from paying dividends where they didn’t meet certain capital adequacy criteria, making a return to the days of high payouts unlikely.
There are still worries over the concentration of income stocks, with a huge chunk of the available dividends coming from just a few companies. As a result, managers are tending to look down the market capitalisation scale or abroad to diversify their income stream.
The average UK Equity Income fund returned 24.59% in 2009, which was just over 5% behind the UK All Companies sector. It was ahead of the UK Income & Growth sector although this still looks better over three and five years. Ultimately, managers in the sector will be hoping that 2010 brings a change in fortunes.
Markets in December showed signs of a long-awaited change in sentiment. The Higher Yield index was up 3.8%, compared to a rise of just 3.1% for the Lower Yield index. The trusty dividend stocks, such as the oil majors, telecoms and pharmaceuticals, have been out of favour for some time and many are now saying they look undervalued. A number of companies are producing a higher yield on their equity than on their corporate debt – a rare anomaly.
Meanwhile, a recent survey by Deloitte’s has suggested finance directors are the most optimistic they have been for two years. They are increasingly willing to take financial risk while worries on liquidity have faded. As these are the people who hold the purse strings, it suggests the worst might be over for dividend cuts. Market consensus is suggesting dividends will start to rise again in 2010.
Dividend stocks may also benefit from the weakness in sterling. Approximately 40% of dividends come from companies reporting in dollars and these are seeing their earnings flattered by the falling currency.
However, there are still some companies where the dividend is seen as vulnerable, the most notable being United Utilities. Merrill Lynch analysts issued a critical note on the company, forecasting a dividend fall of 20%, which hit the shares during the month. Equally, the Basle Committee on banking supervision threatened to block banks from paying dividends where they didn’t meet certain capital adequacy criteria, making a return to the days of high payouts unlikely.
There are still worries over the concentration of income stocks, with a huge chunk of the available dividends coming from just a few companies. As a result, managers are tending to look down the market capitalisation scale or abroad to diversify their income stream.
The average UK Equity Income fund returned 24.59% in 2009, which was just over 5% behind the UK All Companies sector. It was ahead of the UK Income & Growth sector although this still looks better over three and five years. Ultimately, managers in the sector will be hoping that 2010 brings a change in fortunes.
Tuesday, 15 December 2009
VAT to Increase in the New Year.
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.
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.
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 -
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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.
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