NS&I Green Savings Bonds: what are they and will they offer a good return?
The Chancellor’s Spring Budget unveiled a new savings scheme from the Government’s National Savings & Investments (NS&I) arm, focusing on ‘green bonds’.
Green bonds are a new form of investment issued by governments and companies which aim to use the proceeds to improve the environment. This can manifest in a broad range of ways – from investing in clean energy facilities to helping carbon-intensive companies reduce the levels of pollution they create. As with government bonds, if you invest in these you agree to effectively lend the government money for a set period of time, in exchange for an interest payment. At the time of writing, detail is still fairly scant on what kinds of green bonds will be available, how much they would pay in interest, or how long you might have to stow your money away for. But there were hints in the detail of the Treasury’s announcements that suggest these bonds may be more competitive than current dismal rates.
Dire savings market
The savings market has been in decline, in terms of rates on offer, for years. But this dire situation has been accelerated by the coronavirus crisis, seeing many savings accounts now paying as little as 0.1% interest. NS&I’s products are no different. In the second half of 2020 the Government-backed savings provider slashed its own rates to all-time lows. This was ostensibly done to discourage households to hoard their cash and encourage spending to help the economy and is not a new concept during crises.
Sovereign green bonds
The new green bonds are being introduced here, and by other governments, to support what is being called the ‘green recovery’ and includes the recent announcement of green sovereign bonds, also confirmed in the Budget. These bonds will be sold to investors as ethical, environmentally focused investments. But the Government, not content with offering such assets to professional investors, also wants consumers to have an option to put their savings towards meaningful green initiatives. The consumer-focused NS&I bonds will be 100% government guaranteed, but there is little detail as to whether they will offer a meaningfully better rate than normal non-green NS&I accounts. The Treasury has said, however, that these deposits will sit outside the normal remit of NS&I deposits, which could imply a different set of goals in terms of how much it tries to attract.
Alternatives
Speculation is rife over what rates will be offered. That being said, it is highly unlikely the bonds will pay significantly more than the current NS&I savings products, especially when the Government is providing 100% guarantees and the rest of the savings market is so poor.
There is no concrete timeline for these accounts to launch either, with NS&I sticking to a “coming soon” position for now. In the meantime, if you’re keen to invest your savings with the planet’s greater good in mind, there are a range of alternative ways to do so.
Please get in touch with your financial adviser to discuss the options for ethical investing.
The World In A Week - Carry On, Not Carried Away
We ended last week with a strong employment number for the US Non-Farm Payroll, adding 379,000 jobs, against an expectation of only 200,000. The US Non-Farm Payroll is a monthly statistic showing how many people are employed in the US by manufacturing, construction, and goods companies. It is primarily used as an indicator for the number of jobs added or lost in the economy over a one-month period and is a broad indicator of the US economy’s health.
This boost could reflect an increasingly successful vaccine rollout and easing of restrictions in a number of US states. Texas, for example, has lifted all pandemic restrictions on economic activity, to tackle both the effects of the extreme weather and the fall in the fear of the pandemic. This will be an interesting test case for policymakers to monitor.
The imminent round of stimulus from the Biden administration looks to add further fuel to growth expectations, with a significant part of the proposed $1.9 trillion fiscal stimulus plan likely to be passed in the coming days. With substantial pent-up consumer demand ready to be spent once restrictions are lifted, it is no surprise that growth expectations for the US continue to be revised up.
This all sounds positive. However, we have also seen an increase in government bond yields over the past few weeks, as expectations for earlier interest rate hikes are priced. A strengthening economy could mean the accommodative monetary conditions are tightened sooner than expected. It was fortuitous then that the Chair of the Federal Reserve was speaking last week. Jerome Powell’s remarks said very little that was new and gave no indication of easing their monetary policy programme early. Unemployment, although reducing, is far from their full employment target and bond markets are not being disorderly.
It would seem that as we near the end of the COVID-19 tunnel, we must steel ourselves against the conflicting indicators and trust in robust and appropriately diversified investments. The budget delivered by Chancellor Sunak shows that a long-term view is needed to navigate out of this crisis, with his ‘spend now, tax later’ roadmap.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 8th March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - LatAm Shenanigans
February was generally a positive month for equity markets, but last week turned out to be quite a bumpy ride, particularly in the US, and notably within the technology sector. Albeit from low levels, we have seen a pick-up in government bond yields, with the expectation that central bank policy decisions will ultimately lead to inflation. The market has extrapolated that this will need to be countered with interest rate rises. With valuations on many technology darlings having become stressed, the market is now beginning to worry that rates and inflation could damage future growth and start taking flight into other areas of the market.
Outside of technology, stay at home themes have clearly been massive beneficiaries of the pandemic since last March, but last week saw a reversal of their fortunes with Working from Home and Stay at Home themed stocks down -8.5% and -8% respectively (source: Morgan Stanley), while more cyclical parts of the market sat comfortably in positive territory. Are we starting to see the first signs of the market leaving behind COVID-19 winners? If we look at the macro backdrop this is looking fairly robust and supported by fiscal and monetary policy. With the move up in yields, could this potentially be supportive of a shift in market sentiment? Higher rates have always been a risk to contend with but only recently have come to the forefront of investors’ minds, as the speed of the move has been sharp and fast. Investor positioning towards technology and momentum remains high, so it is something to keep a close eye on. As ever, all focus will be on the Fed and the tone of language of how they propose to manage these choppy waters.
As investors, we look for good opportunities at the right price, trying to ascertain what might be the turning point for an asset class that has previously been unloved and out of favour. As an Investment Committee, we have recently increased our allocation to UK equities as the headwinds from Brexit seem to have been removed and appear to be well-positioned in terms of vaccinating against the COVID-19 virus and potentially returning to normal. An asset class that is cheap relative to history and its peers. Sometimes, however, an asset class can be cheap and remain cheap for a reason. If we look at Latin America and Brazil as an example, these are markets that are notoriously volatile and not for the faint- hearted, which has been illustrated again over the last few days. When Bolsonaro took over the Presidency in January 2019, this was viewed as very market-friendly, and the market reacted accordingly, but last week he ousted the CEO of Petrobras and put in charge the head of the military. Truckers have been protesting about the rising cost of fuel and, with elections coming up next year, Bolsonaro does not want anything to upset his chance of re-election. This move is designed to put a control on the company and the oil price. Unsurprisingly, the Petrobras share price took a nosedive. Whilst we do not have any material exposure to the region, it is relevant in the context that politics can play an unfortunately large part on sentiment and impact markets, as witnessed by the fallout of the Brexit vote of June 2016. Watching out for opportunities and threats will always be the name of the game.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 1st March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Dr Copper Makes A House Call
Last week saw the continuation of a reversal of fortunes for major asset classes. Having been totally unloved since 2016; UK Equities were the only equity asset class in positive territory for the week. In addition to this, tech stocks as measured by the NASDAQ index sold off heavily, while global value equities outperformed global growth equities. Furthermore, within Fixed Income, a stark divergence in outcomes has emerged since the start of the year. High Yield bonds are in positive territory, China Bonds are flat, global credit and global treasuries are down and Sterling credit and Gilts are down heavily.
The primary reason for this shift in market dynamics has been the sharp and sustained rise in inflation expectations since their trough in March of last year, and the corresponding rise in global interest rates. While it is critical to bear in mind that inflation and interest rates remain at very low long-term historical levels, the recent trends have broken the market foundation that these variables are always on a persistent downward trend. This trend has been a major factor in allowing growth equities to dominate to the degree in which they have recently.
We are seeing this play out in multiple markets. The copper market (which has been dubbed “Dr Copper” given its alleged clairvoyance for rebounds in economic activity) has hit a 9-year high. WTI Crude Oil Futures are now priced at $60 dollars a barrel, having traded in negative territory last April, and the broader-based Bloomberg Commodity index is up +9.3% for the year to date. As mentioned in previous updates, global shipping costs have also risen sharply.
Global central banks, in particular the Federal Reserve in the US, have committed to leaving base interest rates unchanged to support the economic recovery from COVID-19. The Bank of England has also shown no desire to raise rates, although the prospect of negative rates now seems very far removed, however market interest rates have risen sharply. For the year to date, the yield on a 10 Year US treasury bond is up by +49.7%, while the yield on a 10 Year UK Gilt is up a whopping +261%. Chinese 10 Year rates are up only +3.3% over the same period, which has been beneficial to our positioning.
All of the above reinforces our view that now is the time for nuanced and tactful positioning across asset classes. A relatively higher inflation and interest rate environment would be no bad thing for the Value Equity, China Bond and High Yield components of our portfolios, and would also likely be supportive of our recent decision to overweight UK Equity in lieu of the tech-dominated US market.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of [Date of Publication].
© 2021 Beaufort Investment. All rights reserved.
The World In A Week – Half-Term Home Economics
Last week saw many of the developed nations release their GDP data relating to the final quarter of 2020. The UK economy grew 1.0% in this period, beating market expectations, and meant that the UK avoided a double-dip recession. However, the annual GDP growth figures looked less compelling with the UK economy shrinking by 9.9% in 2020, the largest annual fall on record. The UK has been one of the hardest hit economies globally with the closure of the tourism and travel industries significantly impacting output, which contributes a staggering 11% to GDP.
Elsewhere, the final US GDP estimate will be released next week but the expectation is that the US grew at 4.0% in the final quarter of 2020. Revenues of companies who constitute the S&P 500 grew by 1.3% in the final three months of 2020 with profits accelerating 3.4%, beating analyst expectations. The proposed $1.9 trillion stimulus package would certainly boost consumption and reduce unemployment levels which currently sit at 6.3%. Goldman Sachs has forecasted that the proposed stimulus bill of $1.9 trillion may be reduced to $1.5 trillion, however this still equivalates to 7% of GDP.
The International Monetary Fund (IMF) also released its global outlook projections with world output expected to grow at 5.5% in 2021, with emerging markets such as China and India expected to lead the way. Markets followed this same narrative last week with Morgan Stanley Capital International (MSCI) Emerging markets returning +1.50%, outperforming the S&P 500 and the FTSE All Share in Sterling terms.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th February 2021.
© 2021 Beaufort Investment. All rights reserved.
Reddit, GameStop and the new retail investment army – why chasing ‘trends’ is best avoided
January saw one of the most widely covered stories for years in financial markets after a group of online retail investors clubbed together to, in their own words, “take on the hedge funds”.
The story goes like this: A retail investor and some like-minded fellow traders got chatting on popular internet chat forum Reddit, and noticed that a number of hedge funds were betting on the price of a retail business’ shares falling (a process known as “shorting”).
The retailer in question, GameStop, is a little-known business outside the US. The firm has been suffering the same as many retailers in the pandemic, with a huge reduction in customers in its stores.
The traders, fuelled as much by boredom as anything else, decided to start buying up as many shares as they could in GameStop, in one of the very few incidences ever of co-ordinated retail investor behaviour.
As the shares started to soar, more and more people flocked to join them but, crucially, the vast majority of them held on to their shares rather than sold them as the price started to rocket.
On the other side of the equation - the hedge funds that had bet on the company’s shares falling -started to lose millions of pounds as GameStop’s share price rose more than 800% in a week.
GameStop was not the only company under the microscope, with other businesses, and even commodities shorted by the assortment of hedge funds then targeted by this same army of retail investors, with similar outcomes.
Did the retail investors win?
The saga continues. Following the huge rise in share prices of these businesses, regulators stepped in to monitor the situation. The ability of retail investors to actually trade the shares via popular US platforms such as Robinhood was then curtailed as the firms halted trading of GameStop and its peers for a time.
The outcome of this was swift. From its peak price, GameStop shares crashed back down to earth, losing around 80% of their value.
However, whilst that sounds like the end of the story, a week or more on the situation is not yet resolved. Trading restrictions have been lifted on a number of platforms, and while share prices are back near where they began, there are some renewed signs of activity as traders locked out of the market are allowed back in.
Lessons learned
The big lesson here is about trends and hype. It can be tempting to jump on the bandwagon when it comes to investing, buying something because it is soaring in the hope of making a quick return.
However, the whole event flies in the face of long-term wealth building. The actual true valuations of these businesses have not been contemplated by the retail investor army buying up shares – everyone was simply jumping on the bandwagon to push the price higher.
There are examples of this time and again across markets, and more often than not the end result is the same.
The best way to approach investing is to have a clear plan, make sure your investments are aligned with your end goals, and to avoid making short-term decisions.
Your money is typically invested for the long term, and your investment approach should reflect this. Otherwise, you can end up like those unwitting buyers of GameStop shares just before they collapsed.
Early end to the tax year? Get your skates on to fulfil your allowances
The tax year ends on 5 April, but thanks to the Easter holiday, many won’t be around to process that last minute deposit this year. Therefore, now is the time to be planning this so you don’t miss the deadline.
The last day of the tax year is always 5 April, with the tax year 2021/22 starting on 6 April. But a quirk in the annual public holidays this year means that 5 April is the Easter Monday bank holiday.
On top of that, the Friday before, 2 April, is also a bank holiday. This means realistically if there is anything you need to get sorted; it should be arranged before the last working day – 1 April.
With that in mind, there are several allowances and limits you need to look at to be ready for the unusually early tax year end.
Pension - Make sure you’ve contributed as much as you can to a pension. The annual limit is £40,000 per person. If you’ve maxed yours and have spare cash, consider adding to a spouse’s annual allowance if they have spare.
ISA - Make sure you’ve topped up your ISAs to their maximum potential of £20,000.
JISA - If you have kids under 18, make sure they’ve had their full allowance contribution. The allowance was more than doubled last year from £4,368 to £9,000 – if you’ve missed that it would be easy to not realise you could add more.
CGT – Make sure if you have any investments or assets that are due for disposal that you do it ahead of the new tax year to maximise your £12,300 allowance. This is especially important in light of possible CGT changes from the government
State pension – Less well-known but still important is if you’ve missed any National Insurance contributions in the last five years and would like to make up the difference. You can do so by paying for extra State Pension entitlement. It’s important to note that this has a limit of six years for the end of the tax year for which the contributions are paid.
Marriage allowance – If your spouse earns under the annual allowance of £12,500 you can transfer up to £1,250 to them each year to spread the load. Marriage tax allowance can be claimed back up to five years assuming you qualified in each of those years.
IHT – Every year you have an allowance of £3,000 for cash gifts. If you miss a year you can carry it forward, but only for 12 months. You can also gift £5,000 to a child getting married, or £2,500 to a grandchild.
If you think you need to fulfil any of these allowances before 1 April, get in touch with your adviser right away to discuss your options.
Too late to beat the stamp duty deadline?
If you’re buying a home, time is ticking if you want to take advantage of the Government’s stamp duty holiday and save yourself up to £15,000. The tax break means that anyone buying a home worth up to £500,000 doesn’t have to pay property taxes. However, after 31 March, the threshold reverts back to £125,000, meaning you will have to pay potentially thousands more in taxes.
While anecdotal, there are some indications that the property market is cooling as the deadline looms and people abandon hope of making it across the line. Halifax Bank for instance published its latest house price figures showing asking prices suffered their biggest fall in January since April 2020. There is also a question hanging over the market as to whether Rishi Sunak will extend the holiday. At the time of writing, a chorus of voices is assembling calling on the Chancellor to extend the holiday and avoid a cliff edge.
Ways to beat the deadline
Unfortunately, we won’t know until 3 March what the Chancellor decides (read our full piece on 'what’s in store for the Budget'). With that in mind, and less than two months to go until the deadline, have you missed the boat? And what can you do to ensure that your purchase completes on time? If you haven’t already started the purchase process, then in all honesty the likelihood that you’ll beat the deadline now is slim, unless you’re buying with cash and are not part of a chain. However, if you are part way through the process, here is what you can do to speed things up.
Find a solicitor with capacity - Many property lawyers, or conveyancers, are reporting that they are swamped at the moment because of the wave of buyers looking to beat the deadline. If you don’t have a conveyancer lined up, then call around until you find a reputable one that has the capacity to complete all of the necessary paperwork by the deadline.
Book your survey as soon as possible - A survey is a vital part of the homebuying process and can’t be skipped. Like conveyancers, surveyors are likely to be very busy right now. Take the initiative and line one up as soon as you possibly can.
Stay in regular contact with your estate agent - As time is not on your side, your estate agent will be one of your best friends over the next few weeks. If you’re relying on the stamp duty savings, and are in a chain, tell your estate agent to stress to the others in that chain that it’s vitally important to work as quickly as possible. That’s a little bit out of your control, but it may inspire a bit of urgency to others in the chain.
Get expert mortgage advice - A good mortgage broker will not only find you a good interest rate, but they will also be able to tell you which lenders are suffering delays and which ones can give you an offer quickly. Ask you adviser what documents you need at the very beginning so you can save time further down the road.
Be organised and pushy - Your broker, solicitor, lender and surveyor all have a vital role to play in making sure you beat the deadline, but so do you. It’s your job to make sure that you act quickly and provide the necessary documents as quickly as possible when asked for them. And if things are delayed, don’t be afraid to apply pressure on whichever part is holding things up.
If you’re ultimately unsure at whether it is worth it to try and beat the rush or perhaps wait and see if the Chancellor gives you extra time, get in touch to discuss your options.
Spring Budget 2021: what to expect in Rishi Sunak’s financial address
Rishi Sunak delivers his second Budget on 3 March against the backdrop of record government spending and escalating national debt. There is much speculation that the Chancellor will use the Budget to balance the books and introduce tax hikes. Increases to income tax and VAT seem to be off the table, as it could hinder much-needed economic growth. However, there are a number of other lesser-known rates that he could target that would produce significant windfalls for HM Treasury – so called stealth taxes.
Capital Gains Tax
Capital Gains Tax (CGT) – the levy you have to pay when you make a profit on an asset sale –is one tax thought to be in Sunak’s sights. CGT is currently charged at 10% for basic rate taxpayers and 20% for higher rate payers. This rises to 18% or 28% respectively if you’re selling a second property. It is thought the Treasury is toying with the idea of reforming the tax, bringing it in line with income tax. That would mean raising the rates to 20% for basic rate taxpayers and 40% for higher rate taxpayers. According to a review by the Office for Tax Simplification this could net an extra £14 billion for the Treasury, and bring to an end what it calls various ‘distortions’ caused by differing rates between CGT and income tax.
Pensions tax relief
Pensions tax relief reform is something that has been discussed in political circles for some time. The relief is designed to incentivise people to save for their retirement by diverting some of the money you would have paid in tax into your pension instead. At present, higher rate taxpayers have a better deal, gaining 40% relief on their pension contributions, compared to 20% for basic rate taxpayers. It has been suggested the Treasury could introduce a flat 20% rate of relief, saving it more than £20bn a year.
Property wealth tax
HM Treasury is said to be looking at the idea of an annual property ‘levy’ or wealth tax. This would replace council tax and stamp duty completely and be revenue neutral – meaning that the treasury would not bring in extra cash from the changes. It would, however, hit hardest those people living in areas where house prices are higher, such as London and the South East. A 0.48% annual levy has been proposed. A homeowner in London with a property worth £516,000 – the average for the area – could expect to pay £2477 a year under the new system. Someone with a property worth £140,000 in North East of England would pay just £672.
One-off wealth tax
Another idea recently touted was that of a one-off wealth tax – amounting to 5% of an individual’s wealth, paid in 1% increments over five years. The plans, suggested by the Wealth Tax Commission, would see anyone with wealth over £500,000 impacted. This idea is however less likely to gain traction than others, considering the Conservative Party’s generally reticent attitude to creating new taxes, particularly on older, wealthier voters.
While these ideas have all been either leaked or touted in the press in one way or another, none are guaranteed as of yet. If you would like to discuss the potential implications of any of these changes with your adviser, don’t hesitate to get in touch.
Upcoming Webinar on Mental Health
We're holding a webinar on the subject of 'Investing in our Mental Health - helping you to manage mental security for the future' on Thursday, 11th March 2021 at 2pm.
Topics to be covered in the webinar
- What is mental health - the basic principles
- When, how and why does our mental health change?
- How can we tune in to the challenges others are experiencing
- Widening our understanding of self-care
What you will take away from the webinar
- A better understanding of what mental health looks like today
- How to identify with behaviours of loved ones around you that don't even know they are displaying signs
- A more practical understanding of how you can support yourself and others
Speaker: Matt Holman, Simpila
About Matt:
In 2016 following a personal mental health challenge Matt changed his career and committed to helping others who are struggling with the demands of the world. His company, Simpila is dedicated to making a difference in the world and enhancing the awareness, education and support for mental health across companies and society.
In 2017 working with friends in their company Happiful, Matt was the publisher of Happiful Magazine, the first magazine devoted to promoting positive mental health. The magazine now has in excess of 100,000 subscribers.
In 2020, Matt was recognised by Buying Business Travel Magazine Hotlist 2020 as a Global Influencer, alongside major travel suppliers and Greta Thunberg, focusing his energy to support the impact business travel can have on mental wellbeing. Matt is also the co-founder of the Global Business Travel Wellbeing Community.
Webinar Joining Instructions
To join the webinar all you will need is a web browser and Internet access.
To join the webinar, simply click on the link below:
You’ll then be taken to the registration page where you will need to enter your name and email address and then click the ‘Enter’ button.
You will then be in the webinar waiting room, ready for the meeting to begin. When the meeting begins, you’ll see the presenter on your screen.
Joining by mobile phone
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