The World In A Week 18 Nov 2019

The World In A Week - Never A Dull Moment

While violent clashes and political rhetoric filled the airwaves last week, markets were considerably more sedate. The Pound Sterling rose against all major global currencies. It appears the markets prefer the possibilities of a Conservative majority government as indicated in the polls to a hung parliament or Corbyn government. This left global equity indices marginally down in Sterling terms, with MSCI ACWI losing -0.44%. Global bonds hedged to Sterling were up marginally, with Barclays Global Aggregate up +0.37%.

Forces driving markets included the stalling of ongoing US-China trade talks, but sentiment remains sanguine that a deal will be reached with some roll back in tariffs forming part of this. Otherwise, the world's attention turned to the various protest movements taking place across the globe. The situation in Hong Kong continues to deteriorate, as stunning footage emerged over the weekend of police being met with a barge of Molotov cocktails as they tried to clear protesting students out of a university. The risk of a Beijing-orchestrated crackdown remains high. Social unrest is also being experienced across South America, particularly in Chile, Bolivia and Ecuador. Venezuela remains dire and there is speculation that unrest could spread to Columbia too.

An inconclusive election result in Spain and dormant political risk in Italy caused peripheral European government bonds to sell off slightly - which had been a popular investment amongst fixed income managers recently. Saudi Arabia are continuing to press on with the IPO of Aramco - the state-owned oil company. It will be interesting to see how the growing focus from investors on ESG factors influence this process.


Thw World In A Week

The World In A Week - Is This The Beginning Of The End?

The election machines for the main political parties rolled into action last week, and with just 31 days until the general election, politicians are keen to get their messages across, while taking carefully worded pot-shots at the opposition.

This meant that Parliament was officially dissolved on Tuesday so electioneering could commence the following day. However, the relief from Brexit and UK politics will be short-lived, as whatever the outcome of the general election, uncertainty will continue to prevail for the UK.

According to YouGov's political tracker, the Conservatives lead in the poll with 39%, while Labour sits second with 26%, up from 21% at the beginning of the month. It should come as no surprise, that with 59% of the poll, the most important issue to voters is Britain leaving the EU.

If the polls are correct, which based on recent experience is wildly optimistic, then we may see a Conservative majority. That could mean Brexit takes place on or before 31st January 2020. The uncertainty here is the original transition period is due to finish at the end of 2020, which does not give much time to complete a comprehensive trade deal with the EU. Anything other than a Conservative majority would bring the uncertainty around Brexit front and centre.

Trade is also in the headlines across the Atlantic, with both the US and China having confirmed that if a phase one trade agreement happens, then it would include some reductions in tariffs. Whether this is a reduction in the actual tax rate or in the number of goods being taxed, was unclear. However, the time being taken around the negotiations does suggest a significant deal is in the pipeline.

It would seem the timing is equally convenient for both Presidents; one needs a good story to tweet about as his impeachment gains momentum, while the other needs to replenish his countries pork reserves. According to UBS China's pork prices have soared 100% over the past 12 months, as the country has had to cull its pigs in the face of African Swine Fever. Pork is the most consumed meat in China and its importance cannot be understated.


The World In A Week

The World In A Week - The New Boss, Same As The Old Boss?

It was a relatively sedate week in financial markets, as Sterling strengthened against most major global currencies. Equities were up slightly in GBP terms, while Fixed Income also rose by +0.25% in GBP hedged terms. Brexit related metrics were largely unchanged, as markets await the results of the forthcoming festive election. Global bonds maintained their gains vs Sterling bonds, as did domestically-focused UK equities vs their more international peers. The Dollar has begun to weaken against its main trading partners, which has given a nice boost to our local currency emerging market debt holdings.

One of the major developments in the world of finance was the changing of the guard at the European Central Bank. Christine Lagarde took over the position of President of the ECB from Mario Draghi. She begins her tenure at a time when storm clouds gather over the Eurozone economy and the monetary policy tools at her disposal are less and less effective at boosting economic growth. In that sense, Mr Draghi may have picked an opportune time to depart, as much of Madame Lagarde's political capital will likely be expended in trying to convince the creditor nations of the Eurozone (namely Germany) to enact a fiscal stimulus to pick up the reins from monetary policy. This is not a task many would envy…


How Cashflow Modelling Helps Clients Plan For The Future

Financial confidence can have a hugely positive impact on lives. We wanted to share with you one of the methods we use to give individuals we work with confidence in their financial future; cashflow planning.

As financial advisers, our goal is to give each client confidence in their financial future. There are many stages in life where financial circumstances and priorities can change, from experiencing divorce to retiring. One of the tools we use to help clients understand how their finances may change over the short, medium and long term is cashflow modelling.

What is cashflow modelling?

Cashflow modelling is a way of showing how finances can change over an extended period of time depending on the decisions made today, as well as how circumstances out of a client's control can have an impact.

It starts by collecting data that represents a client's current situation. This may include how much they hold in pensions, income compared to lifestyle expenditure, and the size of an investment portfolio. By inputting this information, we're able to create a visual representation of wealth over time.

The visual aspect of cashflow modelling is one of the key benefits. It can often be difficult to understand wealth and the impact on lifestyle when you're talking about numbers. A client may know their investment portfolio is targeting growth of 4% per annum, but what will that mean in five- or 20-years' time?

Whilst incredibly useful, cashflow modelling goes beyond this. It allows you to manipulate the data to show how decisions will affect short, medium and long-term wealth. As a result, it can help answer questions like:

  • Will I have enough income to achieve my desired retirement lifestyle if I give up work five years early?
  • Will my partner be able to cope financially if I were to pass away?
  • How much can I expect to leave to my loved ones as an inheritance?
  • What if my investments under-perform?
  • How would taking a lump sum out of my pension at 55 affect future retirement income?

Giving clients confidence in the long term

Cashflow planning helps clients answer 'what if?' questions and allow them to put appropriate measures in place where necessary. For example, a client that is worried about how well their family would cope if something were to happen to them may decide it's appropriate to take out life insurance or income protection policies to act as a safety net.

Understanding how wealth could change over the long term can help give clients the confidence they need to live their life.

The drawbacks of cashflow planning

Cashflow planning can be incredibly useful to a wide range of clients. However, there are drawbacks to the tool that should be kept in mind and balanced with other methods of ensuring financial confidence, including:

  • It's only as good as the information used: Effective cashflow modelling relies on the information that is added. If there are inaccuracies or omissions are made, it can mean the analysis delivered falls short.
  • Unforeseen factors: You can use cashflow modelling to predict the impact of events outside of a client's control. However, you do need to consider these in the first place, sometimes unforeseen events can have an effect that hasn't been calculated.
  • It needs to be regularly reviewed: The unexpected does happen and financial situations can change significantly over even a short period. As a result, to continue being useful to clients, cashflow modelling, and the information used, needs to be reviewed regularly.
  • No guarantees: Finally, it's important to remember that guarantees can't be made. Whilst we can model how wealth would change if investments delivered 5% returns, markets could under-perform and affect the actual returns.

If you would like to learn more about cashflow modelling and whether it could be useful to your clients, please get in touch. One of our team members would be happy to chat with you.


5 Ways Professional Connections Help Your Clients

Creating a network of professional connections can help clients access the joined-up advice they need at different points in their lives. We believe partnerships with other client-facing professionals are essential.

Building up a network of professional connections can be excellent for business and building up our client base. But it's also helpful for your clients too. At different points in their lives, having access to knowledgeable professionals in a range of industries can be valuable.

Relationships are an important part of the service that we deliver as financial planners. Whether you're a solicitor providing support through an emotional divorce or an accountant advising on business matters, relationships play a critical role in your service too. Clients might first contact you with a problem they want solving, but expertise and guidance need to be backed up with excellent relationships.

Of course, there will be times when a client needs expertise that falls outside your remit. As a trusted professional they may come to you directly for advice or be able to offer carefully selected referrals when an issue comes up. This is where professional connections can add value to both you and clients.

Having a bank of go-to professionals you can confidently refer clients to help cement your business as one that operates with clients' best interests in mind. Among the benefits to clients are these five:

1. Accessing a range of services needed

There will inevitably be times in their life when clients can benefit from different types of advice and service. Perhaps you've been working with a small business owner for decades, but as they think about selling their firm, they may need to start considering planning their financial future. This is an area we could help with. Alternatively, clients that receive financial advice may need the knowledge of a solicitor for a variety of reasons, from writing a will to going through a divorce.

Working with other experts in their fields allows you to put clients in touch with a comprehensive range of sources when they're needed.

2. Creating a joined-up approach

Working with multiple professionals can be stressful, not least because clients can be left feeling like the middleman and finding it difficult to keep track of where things are. An efficient, professional network can take some of this burden away from clients. Having solicitors, financial advisers or accountants that you regularly work with can mean processes and handling of information is smoother, as you'll understand how they operate. From a client perspective, it can make potentially challenging or time-consuming issues far easier to deal with.

3. Having confidence in the services offered

When you work with someone new, there may be some apprehension about the services they offer and whether they can be relied upon. Referrals from professionals they are already familiar with and trust can give clients confidence as they seek advice.

Often, recommendations of friends and family are sought after first. But if no one has needed the services they're seeking, it can leave them feeling at a dead end. Of course, the internet offers plenty of review sites but how much can you trust what you find on these? As a result, clients will often seek a personal recommendation to give them confidence in the services being offered.

4. Ease of finding appropriate professionals

This links to the above point. Whilst there are numerous professionals to choose from, understanding whether the service they offer is right for you can be difficult for clients. With a professional connections network that you frequently work with, you're in a position to take this weight from your clients. By referring clients to professionals, you know can provide the necessary support, you can help set them up to make a decision that's right for them.

5. Confidence in the future

When individuals seek the services of a financial adviser, accountant or solicitor, it's often because they have a specific problem or concern. Professional referrals can help clients to take control of their current situation and have confidence in their future, whether they're retiring, getting married or starting a business.

Professional connections as a source of business

Of course, it's not just clients that benefit from professional connections; your business could too.

Prudential's 2018 Adviser Barometer highlights the positive impact it has for financial advisers:

  • Nearly six in ten (57%) financial advice firms expect more business from law firms and accountants
  • Accountants and solicitors are rated as the second-best source of new business behind existing client referrals
  • The relationship between financial advisers and accountants and solicitors has been increasing in recent years, potentially linked to the rise in clients seeking advice on Inheritance Tax and retirement Income Tax which can be complex. Vince Smith-Hughes, Director of Specialist Business Support at Prudential, said: Advisers pride themselves on delivering excellent service and support to existing clients and that is reflected in the fact clients remain the best sources of new business.

However, partnerships are becoming more important to help drive business and working with lawyers and accountants is clearly a good way for advisers to expand their existing clients and attract new business. Growth in demand for Inheritance Tax and retirement income taxation highlight areas where advisers are likely to be working in conjunction with other professionals.

If you would like to learn more about how Professional Connections can help your clients, please get in touch. One of our team members would be happy to chat with you.


The World In A Week

The World In A Week - On, and On, and On...

Brexit shenanigans dominated the headlines last week as the UK's departure from the EU drags on, and on, and on. While Prime Minister Johnson eventually reached a majority agreement, it failed to go to a vote in the House of Commons over the weekend as MPs deemed the narrow window of, 3 days, too narrow. The EU will now decide on allowing a further delay beyond the deadline of 31st October. In the meantime, Johnson has called for elections to be held on 12th December, the last day that community halls and other social spaces are available before the festive period; a two-thirds majority would be required for the vote to go ahead.

Central banks held little surprises; in his last appearance as Chair of the ECB, Mario Draghi remained dovish in his final address. While Draghi will formally hand over the reins to his successor this week, we look back to his famous speech in 2012, where he promised to do whatever it takes to save the Euro and he will leave the ECB having achieved this. In the week ahead, the US Federal Reserve meets on 29th, consensus is that there will be a further cut to interest rates.

Economic data last week was mixed; the Eurozone edged marginally higher from a reading of 50.1 in September to 50.2 in October, hanging on the expansionary territory, however, underlying data showed that France had done better than expected while Germany continues to slow. In the US, PMI preliminary data moved up from 51 to 51.2, despite disappointing durable goods orders.

Results season in the US was more positive; with a third of companies' data now available, over 80% surprised to the upside pushing growth rates cautiously in to positive territory. It was a similar story in Europe, with more positive surprises than negative news, however, growth struggled and was marginally negative.

 


The World In A Week

The World In A Week - Nine Lives

Another week where politics dominated the markets. It started with news that the US and China had reached a 'phase one' trade agreement, which boils down to being a truce. For the time being the US has agreed to suspend the increases in tariffs and China has agreed to increase their agricultural purchases. The key date is the Asia Pacific Economic Cooperation (APEC) summit in mid-November, where the deal is set to be concluded.

It is good news that the trade war is de-escalating, however we do expect further bumps along the way, especially as the US has just passed legislation supporting the pro-democracy protests in Hong Kong. Will this political disagreement complicate the delicate trade negotiations?

When it comes to complicated, the UK is building a monopoly. Having already lost eight commons votes since becoming Prime Minister, Boris Johnson made it nine with defeat on Saturday, a record not seen since Lord Rosebery in 1894.

Without the will of the politicians, any deal is doomed to failure. The addiction to avoid decision has become the modern malaise and with the narrow defeat on Saturday, Boris Johnson was forced to write to the EU to request an extension to Article 50. Even that simple task was laced with confusion and ulterior motives.

What we do know, is that geopolitics is not going to get any clearer any time soon. We know we have a US Presidential election next year, but the outcome is far from clear. While in the UK, we do not know what next year has in store; a referendum, a general election or some clarity over our exit from the EU?

That is why our investments continue to be appropriately diversified in these interesting times.


Ethical Investing On The Rise: 3 Investment Strategies To Consider

More people are considering ethical investing. If you're thinking about incorporating values, there are three key strategies that are used, read on to find out which one might be right for you.

The amount of assets that are invested whilst considering the impact it will have has increased. More investors than ever before are taking ESG (environmental, social and governance) factors into consideration to align their portfolio with their values. But what investment strategies are there that allow you to reflect this?

The 5th - 11th October marked Good Money Week, an awareness week that aims to showcase the sustainable and ethical options when it comes to banking, pension, savings and investments. If ethical investing is something you've been thinking about and you want to incorporate your values into financial decisions, now could be the perfect time to do so.

Choosing investments for reasons other than financial gain has been a trend that's gradually gaining traction. Of course, this doesn't mean that you disregard returns, it's about taking multiple factors into account. As a result, ethical investing is sometimes referred to as having a 'double bottom line'; the return it delivers to you and the positive benefit.

According to research:

  • Just three in ten men with investments only care if they make money, this figure drops to 15% for women
  • However, there is a lack of awareness, just 69% said they had no idea they can request investments that have a 'positive social impact'

So, if you do want to invest with ethics in mind, what are your options? There are three key strategies to be aware of:

  1. Negative screening

When people talk about ethical investing, this is often the first strategy that springs to mind. It involves divesting and avoiding investing in companies that don't align with your values.

For example, if you're seeking to ensure your portfolio has a positive impact on climate change efforts, you may decide to no longer want to invest in companies with activities in fossil fuels. Alternatively, if human rights are a key concern, you may decide to avoid retailers that have exploitative practices within their supply chain.

When you see 'ethical funds' this is usually the top strategy they'll use, although the criteria can vary significantly between funds. One of the issues with this strategy is that large, multinational companies will often derive profits from multiple industries, particularly when you consider subsidiaries. As a result, funds will often allocate some leeway, for instance, avoiding companies that derive more than 5% of their profits for certain activities.

In terms of your investment and returns, negative screening will potentially mean cutting out entire industries. As always, it's important to keep in mind how balanced your portfolio is and how it aligns with your financial goals.

  1. Positive screening

In contrast to the above, you don't avoid investing in certain companies when using a positive screening strategy, but actively seek to invest in certain firms. It means investing in businesses that are championing the values you have.

Going back to the climate change example, with a positive screening strategy, it may mean investing in companies that are operating in renewables or researching new technologies that could help. Often, investors will allocate a portion of their investment portfolio to supporting their values.

This has both pros and cons. One advantage is that it means you don't miss out on potential investment opportunities, as you may with a negative screening process. On the other hand, it may mean investing in companies that don't align with your values.

  1. Engagement

Finally, an engagement strategy is about using shareholder power to encourage change within a company. Due to needing significant shareholder power to influence, this strategy is more commonly used by institutional investors, such as pension funds. However, that doesn't mean it's irrelevant to you. It's still possible to engage with your pension provider, for example, to encourage them to use their influence.

Which strategy is right for you?

It's important to keep in mind that there's no right or wrong answer here.

You may have a preference about which strategy you'd prefer, or maybe you want to blend them. However, it's just as important to look at your wider financial circumstances and how investment decisions will affect your goals. This is an area we can help with. Looking at your existing assets and how these can be adapted to reflect ethical views, can lead to a portfolio that supports both your ethics and aspirations.

Setting out your values

If you're beginning to consider incorporating ethical investing in some way, the first step is to consider your values. What's important to you?

One of the challenges with ethical investing is that it's a highly subjective area. What you may consider unethical, may be acceptable to others. This can make it difficult to find funds that align with your views. Setting out what your priorities are can give you a starting point. According to research from Triodos Bank, the top five industries investors would want to avoid are:

  • Manufacturing or selling of arms and weapons (38%)
  • Worker/supply chain exploitation (37%)
  • Environmental negligence (36%)
  • Tobacco (30%)
  • Gambling (29%)

Do you agree with these? Before investing your money through an ethical fund, take some time to look at the criteria. There may be instances where you need to compromise, so you should also think about how comfortable you'll be with this.

If you'd like to discuss your current investment portfolio, please get in touch. We'll help you understand how it's currently invested and potential changes that could be made, reflecting your views and financial position.

Please note: The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.


7 Things To Review When Looking At Your Pension

Regularly reviewing your pension is important for ensuring you're on the right track. We've got a checklist of seven things you should know or check about your pension.

Research suggests thousands could be missing out on investment returns in their pension because they haven't updated their retirement age. Remaining engaged with your pension can help you create a retirement income that meets expectations. So, what should you review when looking at your pension?

  1. What fund are you invested in?

Typically, a Defined Contribution pension will offer several different fund options for you to choose from. When you first join the scheme, you'll automatically be enrolled into one and this will remain so unless you change it.

There are a few reasons why you may want to change which fund your pension is invested in. Often, they will have varying levels of risk, allowing you to choose one that suits your attitude and goals. In addition, many pension providers also offer an 'ethical' fund if you want your pension to be invested in a way that reflects your values.

It's usually easy to change which fund your pension is invested in, either by updating it through an online portal or contacting the pension provider.

  1. What does it assume your age of retirement is?

Pensions are usually invested. Traditionally, the level of risk these investments take decreases as you approach retirement age automatically. However, if the assumed retirement age doesn't align with your plans, you could miss out on returns.

According to analysis from Aviva, an average earner in an automatic enrolment scheme could miss out on more than £4,000 in their person by sticking with a default retirement age of 65, when they intend to retire at 68. If the default retirement age is set at 60, this rises to almost £10,000. With retirements becoming more flexible, this could be a growing issue.

It's also worth noting that, depending on your assets and retirement plans, de-risking investments as retirement approaches may not be the best option.

  1. Are you receiving the correct level of tax relief?

Tax relief is one of the aspects that makes saving into a pension valuable. It's a helpful way to boost your contributions. The amount of tax relief you receive on pension contributions is linked to the highest rate of Income Tax you pay.

The basic-rate of 20% tax relief is automatically applied. However, if you're a higher or additional-rate taxpayer, you will need to claim the additional tax relief through tax returns. It can seem like a chore, but it's one that's well worth doing. To increase your pension by £100, you'd need to add £80 if you're a basic-rate taxpayer. However, this falls to just £60 and £55 for higher and additional-rate taxpayers respectively.

  1. How much are you contributing?

If you're not sure, it's a good idea to look at how much you're paying into your pension each month. Under auto-enrolment, this will be a minimum of 5% of pensionable earnings. However, you can increase this. Even a small increase can have a big impact over the long term, particularly when you factor in tax relief and investment returns.

  1. What is your employer contributing?

Your employer will also be making contributions to your pension. As a minimum, this will be 3% of pensionable earnings. However, some employers do pay in more or will increase their contributions if you do. It's worth checking what your company policy is on this as employer contributions are essentially 'free money' that could boost your future income.

  1. What returns are investments delivering?

As stated above, pensions are usually invested. The returns these investments deliver can help your contributions grow over your working life. As a result, taking a look at how investments are performing at part of a regular review can help you see whether the investments are right for your goals.

It's important to look at the bigger picture here. Investments are often volatile when looking at just a snapshot of figures. Instead, you should look at how your investments have performed over the long term to gain a more accurate understanding.

In addition to returns, take some time to look at the fees you're paying, as these will eat into the returns.

  1. What is the projected value at retirement?

Finally, how much will your pension be worth when you want to access it? Your pension provider should give you an estimate of this figure, although it's important to keep in mind that this can't be guaranteed.

Understanding what your pension is projected to be worth gives you an opportunity to see if expectations align with reality. If there's a shortfall, the earlier you spot it, the better the position you're in to make necessary changes. Alternatively, you may find you're in a position to retire earlier than expected if you want to.

If you have any questions about your pension or other assets that will be used to fund retirement, please get in touch. Our goal is to help you get the most out of your finances and have confidence in your financial future.

Please note: A pension is a long-term investment. The fund value may fluctuate, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change in the future.

 


Bonds: How Do They Fit Into Your Investment Portfolio?

Bonds are often an integral part of an investment portfolio; here we take a closer look at what they are and what you should consider when creating a balanced investment proposition.

Bonds are a common feature in many investment portfolios, alongside stocks, shares and cash assets. But how do they fit into your investment portfolio and what percentage should be allocated to bonds?

What is a bond?

Before diving into purchasing bonds, it's important to understand exactly what they are and, therefore, how they can be beneficial to you.

A bond is essentially a loan made by an investor to a borrower, which may be a government or business, as a way to raise money. As a result, bonds are sometimes thought of like an IOU. There are two ways that a bond can pay out:

  • Final payment is made when the bond matures
  • Or smaller payments are made during the term

By the end of the maturity date on a bond, the original loan amount must be paid back or risk defaulting. When you purchase a bond think of it as buying the right to future payments, whether this is a lump sum or smaller amounts. The yield on bonds depends on these amounts in comparison to how much you paid. Typically, bonds that have a longer maturity date will pay a higher interest rate.

Bonds are linked to interest rates too. When interest rates are low, bond prices tend to be higher. As a result, the current economic climate of low-interest rates means you can expect to pay more for bonds.

Many corporate and government bonds are traded publicly and give you a chance to sell bonds within your investment portfolio before they reach maturity. However, this isn't always the case and the secondary market will vary depending on the borrower.

How do bonds fit into your investment portfolio?

Investment portfolios should be diversified to spread risk. This includes the types of assets you hold.

Bonds can provide your investment portfolio with a balance in terms of risk. Generally speaking, bonds are considered to pose a lower risk to investors than stocks and shares, though higher than cash assets.

Of course, bonds aren't entirely risk-free. There is a chance that the borrower will default on the payments and you won't receive your initial investment back. Whilst bonds are generally considered lower in risk to stocks and shares, it's important to check the reliability of the borrower when conducting research.

Creating an investment portfolio that suits you

Whilst bonds are often an important building block when creating a suitable investment portfolio, the allocation level should consider your financial situation. For some people, a higher portion of investments in bonds can help create stability and reduce volatility. For others, a high portion of bonds won't offer the potential to create the returns they're looking for. The allocation of your investment portfolio should always be tailored to suit you.

When creating or reviewing your investments in terms of allocations, some of the areas to consider are:

  • What are your investment goals?
  • How long do you intend to remain invested for?
  • What is your capacity for loss and overall attitude to risk?
  • How comfortable are you with investment volatility?
  • What other assets do you hold and what risk level are they?

These types of questions can help you gain an understanding of your current financial circumstances and the level of risk that's right for you. This can be challenging to calculate with so many different factors playing a role. However, it's a critical step towards assessing how bonds will play a role in your portfolio.

If you'd like to discuss your investment portfolio, please contact us. Our goal is to help you build an investment proposition that matches your aspirations and financial situation.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.