Are Investors Gearing Up For A Recession in 2019?

In the midst of a trade war between the the US and China, and with the looming uncertainty over Brexit negotiations, traders and investors have started mentioning the ‘R’ word again.

Data from Debtwire (Sylvia Amaro, CNBC, 15 Feb, 2018) showed that 56% of private equity executives and 57% of distressed debt investors expect a recession before the year 2021. Prominent investors like Ray Dalio and professor Nouriel Roubini (the Guardian, 13 September, 2018) have voiced concerns that the world, and the US in particular, is now due a recession.

The inversion of the US treasury yield curve last week alarmed investors who consider it an important indicator of an oncoming recession. The inversion of the 5-year and 3-year Treasury note has now turned the market’s attention to the 2-year and 10-year notes. The inversion of the latter pair has preceded every US recession since the Second World War (Dion Rabouin, Yahoo Finance, May 24, 2018).

As one of America’s biggest trading partners, the UK should be concerned about these recent developments. A global recession could have an immediate impact on the stock market and a lasting impact on the living standards across the country.

What can investors do to prepare for a financial catastrophe? Some institutional investors believe buying short term government bonds may be the best way to hedge against a downturn in the wider economy. Singapore-based Kamet Capital Partners Pte, a multi-family office with a number of wealthy Chinese investors, bought the 2-year US treasury notes recently as part of a bet that a downturn will hit within the next year (Chanyaporn Chanjaroen  and Ruth Carson, Bloomberg, December 11, 2018).

However, David Kelly, chief global strategist at JP Morgan Asset Management, believes investors shouldn’t ditch stocks even if a recession is due soon (Bernice Napach, Think Advisor, July 06, 2018). Kelly believes investors should focus on a value investing strategy when the economy turns for the worse. Stocks that are already deeply undervalued tend to retain their price when the market sentiment turns from optimistic to pessimistic. He also recommends international diversification, saying the correlation between international stocks is lower and emerging markets could also offer better growth opportunities when UK and US stocks plummet.     

It’s important to note that traders and economists get these predictions wrong all the time. No one indicator or academic can accurately predict a recession. However, staying vigilant, diversifying investments and seeking out value is never a bad idea for investors.  

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


Mince Pies Beat Cardigans As British Retail Gears Up For Another Christmas

Those who’ve either worked or invested in the British retail sector understand the importance of the last quarter of every year. Sales start surging from the end of September, online shoppers splurge during Black Friday, and thrifty shoppers hold on for a Boxing Day bonanza. All this culminates in a critical golden quarter for retailers.

In recent years, this competition during this quarter has intensified. A confluence of rising inflation, stagnant wages, aggressive discounting and a growing number of foreign retailers entering the British market have squeezed profits across the sector (Angela Monaghan, Julia Kollewe and Zoe Wood, The Guardian, 11 Jan 2018).

Last year was particularly bleak, with John Lewis Partners reporting a mediocre rise in sales but lower profits due to its ‘Never Knowingly Undersold’ promise. In the first half of this year, JLP reported a 99% plunge in profits, which makes this upcoming holiday season more critical than ever before (BBC, 13 September 2018).

Forecasts from Global Data Retail (November 8, 2018) suggest this year could be slightly better. Retail sales for the last three months of the year are expected to cross £98.8 billion. That’s 2% higher than last year. However, much of the growth is driven by inflation-adjusted food and groceries. Non-food spending is forecast to grow only 1.6%, driven mostly by beauty and health-related products.

With this in mind, investors have a better chance of picking losers and winners over this holiday season. Tesco (LSE:TSCO), the UK’s largest supermarket chain, beat the competition last year to report 3.4% growth in its food business. Group sales are already up 12.8% to £28.3 billion over the first half of the year,while underlying operating profit is up 24% to £933 million. The company’s "strategic alliance" with French retail giant Carrefour should help it keep costs low as it heads into the holiday season (BBC, 2 July 2018).

Similarly, Sainsbury’s (LON: SBRY) is using mergers and partnerships to survive the retail storm.The company’s merger with Argos managed to deliver a 8.2% surge in sales at the group’s convenience stores and a 7.3% sales boost online last year. A bigger merger with Asda, expected to complete next year, will have even bigger implications, cementing the brand’s position as one of the country’s largest and most successful retailers (Adam Leyland and Ian Quinn, The Grocer, 04 May 2018).

Finally, pure play online retailers like ASOS (LON:ASC) and boohoo (LON:BOO) are likely to be the biggest winners this Christmas given the incredible demand for their mix of discounts, quick service and convenient fulfilment.

With Brexit just months away and consumer confidence at record lows, this upcoming holiday season is especially critical. British retail is working its way through a transition period. Investors need to keep a close eye on the companies striking the right partnerships, cutting costs and modifying their business model to ensure their survival.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


5 Interesting Facts About Inheritances

The transfer of wealth from parents to their children is an age-old tradition across the world. However, few people appreciate how demographic and economic factors will shape their wealth in the coming years. Here are five interesting facts about inheritances across the United Kingdom:

1. The average inheritance is nearly the value of a house

According to data published in The Generation Game (Ollie Smith, New Model Adviser, 19 Jul, 2018), about 5.1 million people expect to receive more than £50,000 in inheritance, with the average value of their inheritance estimated at £233,000. That should come as no surprise to people who expect to inherit the family home, with the value of an average semi-detached house estimated at £227,912 (UK House Price Index for April 2018). The value of the family house is likely to contribute the bulk of the average inheritance for the foreseeable future.

2. Generational wealth is extremely persistent

A study tracking 634 rare surnames to detect patterns in wealth creation and retention across centuries discovered that most families remained relatively wealthy for multiple generations (Gregory Clark and Neil Cummins, the Economic Journal, 3 June 2014). There was a high correlation in the wealth of families across five generations, indicating that inheritances were a lot more persistent than previously expected. The study suggests that despite the higher wealth taxes and meritocratic social mobility policies implemented by successive governments over the past century, the rate of social mobility has changed little since the Victorian era.  

3. Inheritances are more common now

The proportion of elderly households expected to leave an inheritance of £150,000 or more has jumped from 24% to 44% over the past 10 years. At the same time, 75% of people born in the 1970s have either received or expect to receive an inheritance, compared with less than 40% of those born in the 1930s (Andrew Hood and Robert Joyce, the Institute for Fiscal Studies, 5 Jan 2017). This makes generational wealth transfers more common than a few decades ago.

4. Most millenials won’t receive an inheritance till they’re pensioners.

According to a report by the Resolution Foundation (30 December 2017), people between the age of 25 and 35 can expect a larger inheritance than any other generation since the two World Wars. However, the average age for receiving this inheritance is 61, which means nearly half of all young people will experience this wealth transfer only after their own retirement.  

5. The concept of an inheritance could be ending

Estimates from the Office for National Statistics suggest the number of people aged over 75 will double by 2040, reaching 10 million. With people living longer and the government already struggling to fund adult social care, many pensioners may have to spend their savings on taking care of themselves rather than leaving their kids wealthy. Experts suggest this could mean the end of the traditional inheritance in a few decades (Bronwen Maddox DECEMBER 22, 2017).


Ethical, Sustainable or Impact Investing: What’s The Difference?

Should your investments fund a company that supplies military-grade weapons? Is a company in your portfolio directly harming the environment? Should you move your funds to companies trying to make a positive difference? These are the questions investors have been increasingly grappling with in recent years.

According to fund house Schroders, 56 per cent of UK investors having upped their allocations to ethical funds over the past five years (MYRON JOBSON, THIS IS MONEY, 2 October 2018). At the same time, the number and types of these funds have expanded. There’s no doubt that wealthy investors are taking responsibility for the social and environmental impact of their investment decisions. The wealth management industry has started to take notice, giving rise to an industry trend some like to call socially responsible investing.

However, the three most popular subsets of this emerging investment class could be confusing. Here’s an overview of the three key terms the wealth industry uses to differentiate these types of investment strategies:

Environmental, social and governance (ESG)

Accounting for a firm’s environmental, social and governance policies is a basic version of ethical investing. Investors who’ve adopted this strategy tend to seek out companies with great boards, high integrity management, good employee welfare policies, and a small carbon footprint.

The underlying thesis is that strong, socially-conscious policies could have a positive impact on long-term performance. Investors may subscribe to the philosophy that companies driven by ethical policies will be able to better retain talent and brand reputation, which will ultimately trickle down to the bottom line.

Unlike other ethical investment strategies, the focus here is squarely on financial performance.

Socially responsible investing (SRI)

SRI goes one step further than ESG. This form of investing involves actively cutting out opportunities which clash with the investor’s religion, personal values or political beliefs. This means the financial performance could sometimes take a back-seat to ethical considerations.

For example, an investor may decide to avoid alcohol, gambling, and tobacco stocks regardless of how lucrative the opportunity seems. Similarly, Islamic bonds and financing fall under this category of ethical investing for Muslim investors seeking investments that align with their faith.

According to a report by Morgan Stanley, the amount of money invested in SRI crossed $6.5 trillion in 2018.  84% of millennials are interested in responsible investing, which means this trend is likely to continue (Kate Stalter, US News, June 7, 2018).

Impact investing  

Finally, impact investing is the most proactive of them all. This strategy involves seeking out and investing in companies that are trying to have a positive impact on society. This could include investing in a social enterprise that offer microloans to entrepreneurs in the developing world, a sustainable energy producer or a low-cost medical supplies manufacturer.

According to the Global Impact Investing Network (GIIN), investment professionals in this rapidly expanding industry currently manage over $114 billion (GIIN's 2017 ANNUAL IMPACT INVESTOR SURVEY).    

Regardless of the strategy, an increasing number of investors are taking social and environmental factors into consideration before making investment decisions. This trend could have monumental implications not just for the wealth management industry, but for society at large.  

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


How To Protect Your Money From Cyber Attacks

Digital technology is a double-edged sword. On one hand, it’s made it easier than ever to learn and make investment decisions on the go. On the other hand, it’s put your data and privacy at risk.

With the proliferation of digital devices and online platforms your money is more accessible to you no matter where you are,  but it is also exposed to the risk of online fraud and sophisticated cyber attacks. In 2016, hackers managed to infiltrate the international banking system through the SWIFT protocol. They stole tens of millions of dollars (Michelle Fox, MAY 13 2016).

If a global network of the largest banks and sovereign institutions could be hacked, one can only imagine what risks the ordinary saver faces.

According to a study by the Stanford Center on Longevity and the United States Financial Industry Regulatory Authority’s Investor Education Foundation, people over the age of 60 were particularly vulnerable to such attacks (FINRA, 5 May 2016). Not only were these people a prime target, but the amount of money they lost was greater than average.

Banks and financial institutions are well aware of the threat and have spent the past few decades bolstering their security systems and spending billions on countermeasures (Kara Scannell and Gina Chon JULY 29, 2015). Regulators have also done their part to ensure these institutions shoulder the responsibilities of protecting their clients’ assets and savings.

However, savers must also take the time to learn about the threat and take appropriate measures to prepare for an attack. Last year, Santander launched the Scam Avoidance School (SAS) to help savers deal with the most frequent forms of online financial fraud. Dr Paul Seager, Psychology Professor at Lancashire University, is an expert advisor to the bank’s education initiative (Mortgage Finance Gazette, 11th April 2018).

Lessons include tips and tricks for spotting the telltale signs of a fraudulent email, password security training, and basic principles of online data security. SAS isn’t the only way to learn these best practices. Savers can sign up for a range of online courses or local workshops to help them learn how to protect their identity and money online.

While the growing number and sophistication of cyber attacks may seem insurmountable, picking up a few basic data security skills could help you better protect your nest egg.


A Guide to Pensions for the Self-Employed

Nearly 4.8 million citizens are self-employed (Office for National Statistics). It’s a number that’s been rising since the start of this century. While being your own boss is undoubtedly liberating, self employment could add complexity to your taxes and retirement savings.

All Britisher employers provide a workplace pension scheme to employees who meet the eligibility criteria. A few decades ago this meant the company set aside a defined benefit scheme for every full-time employee, however this has been replaced with defined contribution plans where the employers pays in to a pot along with the worker.

As a professional or a business owner, the responsibility of saving for your retirement falls squarely on your shoulders. There’s no large corporation saving for you or contributing to your retirement, so you might have to create your pension the way you created your business - independently.

Unfortunately, this adds to the pressure of being in business. According to a report from IPSE/Demos (24 APR 2018), 46 per cent of self-employed people in the UK are worried about their lack of retirement savings. The report asks regulators to reform the system so that self-employed individuals (who are now nearly as numerous as public sector workers) are treated more fairly.

Among the team’s requests is a call for flexible pensions options. This could make it easier for freelancers and self-employed individuals to set aside money to support themselves later in life.

At the moment, retirement options include either a personal pension or a self-invested personal pension (SIPP). SIPPs are a better option if you’re trying to invest in a broader range of assets. You can also sign up to the government-backed auto-enrolled pension scheme NEST. This will help you put a cap on fees and invest your savings more efficiently.

These considerations may be amplified when you switch from being simply self-employed to running a business that employs others. Employees earning over £10,000 and aged between 22 and the state pension age will need you to set up a pension scheme for them.

Saving and investing money efficiently could be complicated when you’re self-employed. Reaching out to a financial advisor will help you structure your own savings effectively and comply with the state pension requirements for your employees.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Brexit’s Impact on Pensions

With the Brexit just a few months away, it seems the economic and political impact of this exit is still largely unclear. Savers, in particular, are concerned about the impact this exit will have on the value of their pension pots.

Earlier this year, the Aegon Retirement Confidence Survey showed that nearly half of all British savers (42%) believed Brexit would have a negative impact on their pension pot (Aegon, 6th June, 2018). Only 5% of the respondents to that survey said Brexit would help their pension pot grow.

After the turmoil this week and growing chatter about a no-deal Brexit, it seems likely that pensioners have lost some sleep. According to PwC, the ongoing negotiations have already had an impact on financial markets which has increased the deficit for defined benefit schemes and lowered the projected outcomes for defined contribution savers (PwC).

While the government tries to cover all corners before the exit date, proposed rules in the event of a no-deal Brexit are adding to the concerns. The Department for Work and Pensions (DWP) has already proposed draft regulations that would require pension schemes to invest in "UK regulated markets" rather than the current "regulated markets", which could mean a lot of schemes will technically be breaching the law starting from March 29th, 2019 in the event of a no-deal Brexit (James Phillips, Professional Advisor, 12 Nov 2018). That’s just one of the many complex regulatory and economical uncertainties as the UK-EU negotiations enter their end-game over the next few months.

According to a report by the BBC’s personal finance reporter Kevin Peachey (25 August 2018) the 220,000 British citizens living in the EU will continue to receive their state pensions, however the long-term value of these pensions hinges on the nature of the final deal between the two sides. Meanwhile, private pensions will face increased regulatory hurdles and considerable uncertainty over the coming years.

Pensioners and older savers bracing for retirement in the near-term should watch the negotiations closely to see if there’s any clarity over the next few months. However, younger savers have the luxury of time to see how Brexit affects the long-term prospects of the British economy. By the time savers in the 30’s and 40’s are ready for retirement, all these regulatory issues will most likely be ironed out and the size of their pension pot will depend on the performance of UK interest rates, Gilt yields, UK equities and the pound over the next few decades.

Regardless of age, all savers should probably speak to a registered advisor to ease their concerns about the direct impact of this once-in-a-generation political transition.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Beating Inflation - The Hidden Tax On Your Savings

Everyone’s got a different take on personal finances. However, there’s one thing nearly all the experts and savers can agree on - inflation is a hidden tax that gradually erodes value.

The average inflation rate in the United Kingdom has been 2.58 percent between 1989 and 2018. The inflation rate reached a high of 8.5% and a low of -0.10% over that period (Trading Economics). The annual inflation rate was 2.4% according to data published in October 2018. At this steady rate, you can expect all the basic essentials to cost twice as much within three decades. In other words, your children and grandchildren will have to spend twice as much money on buying their first house, commuting to work, or buying groceries every week.

Meanwhile, nearly 99% of all savings products fail to beat this annual inflation rate (Lucy Warwick-Ching and Nikou Asgari, Financial Times, September 21, 2018). UK savers are slowly but surely losing purchasing power over the long-term. Traditional savings accounts and bonds have recently struggled to tackle this invisible tax.

None of the alternatives are perfect hedges for inflation. All investments carry at least some form of risk, costs or uncertainty. Inflation-linked ‘structured’ products are either too rare or too expensive. For example, the National Grid issued inflation-linked bonds in 2011 paying 1.25pc plus inflation (RPI) per year. These bonds, due to mature in 2021, currently trade at a 25.6% premium to par value (NG1Q, LSE).

Gold has been touted as a hedge against inflation, however this comoddit has failed to live up to its reputation. A study from the Fuqua School of Business at Duke University found that gold may retain its value over extremely long periods and may spike along with sudden surprises in inflation, investors cannot count on it as a short or medium-term hedge (Jan Harvey, Reuters, 1 March 2018).

For investors with a higher risk appetite, rental yields from property and dividend yields from blue chip stocks could be a better option. The UK’s largest listed commercial property company, Landsec (LSE:LAND), currently offers a 4.47% dividend yield, while blue chip stocks like Vodafone Group (LSE:VOD) and and SSE (LSE:SSE) offer dividend yields of 7.5% each. Most high-yield dividend stocks and real estate investment trusts offer a dividend rate higher than the long-term average rate of inflation. However, investors are exposed to the risk of capital loss and dividend cuts if the underlying stock underperforms.

Unfortunately, there’s no silver bullet for inflation. The best investors can hope for is to mitigate the effects of this invisible tax by diversifying their assets.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change


Where are our home-grown tech giants?

When it comes to technology, it seems the most recognisable companies are more often than not American. Most investors can name the industries dominated by Facebook, Google, Apple, and Microsoft in an instant. In fact, emerging names like Tesla and Airbnb are also American.

Tech names from other parts of the world are quickly gaining ground. In recent years, Alibaba, Softbank, and Spotify have all managed to establish their brands as global household names. However, investors would be hard-pressed to name a British tech giant on the same scale.

Until 2016, the UK’s biggest technology company was Cambridge-based ARM Holdings. Most smartphone and tablet users still have no idea that the the technology developed by this group of engineers powers more than 85% of all mobile devices (Richard Beddard, Money Observer, February 23, 2016). Unfortunately, Softbank’s acquisition of the company in 2016 took it off the London Stock Exchange, forever depriving retail investors of the chance to bet on the growing market for Internet-of-Things (IoT) devices and robotics.

The technology stocks that remain listed on the LSE are either so niche that most investors haven’t heard of them or so small that they stand little chance against their Chinese or American rivals. However, there are some companies that have the potential to dominate their niche. The fact that British technology remains overlooked and undervalued presents an opportunity for investors willing to take a closer look.

Accesso (AIM: ACSO) is a great example of this. Currently worth half a billion pounds, this AIM-listed stock is far from a global technology giant, but its software tools power the guest experience at some of the most recognizable tourists attractions in the world, including Alton Towers and Legoland (Steven Frazer, Shares Magazine, 19 Feb 2015).  

Other interesting tech stocks include gene therapy research firm Oxford Biomedica (LSE:OXB), ID verification services provider GB Group (LSE:GBG), and robotic process automation solutions provider Blue Prism (AIM:PRSM). Just Eat, the online platform that revolutionised takeaway food delivery, just entered the FTSE 100 for the first time last year. Valued at under £4 billion, JustEat (LSE:JE) is arguably Britain’s most well known tech success story (Josie Cox,Independant, 18 December 2017).

Meanwhile the UK is home to 22 out of a total of 50 European unicorns (startups worth over $1 billion) (Jonathan O’Callaghan, Alphr, 30 Apr 2018).  Many of these startups are focused on emerging technologies like biotech artificial intelligence (BenevolentAI), virtual simulations (Improbable), and online food ordering (Deliveroo).

Investors trying to bet on home-grown technology could either take a closer look at underrated tech stocks or wait for these exciting unicorns to open with investors in the near future.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


Is My Money Manager Being Fair?

Wide-ranging pension reforms in 2015 have put Britons in charge of their retirement savings for the first time ever. Millions of savers are now expected to enter the stock, bonds, exchange traded funds, and real estate markets directly. Many of these investors will eventually reach out to a professional money manager or investment advisor to help them shepard their capital.

But how does an investor know their money manager has their best interests at heart? After all, conflicts of interest and bad actors are far from uncommon in the wealth management industry (William Robins, Citywire, 28 June 2017).

Across the pond, American and Canadian regulators are gradually pushing towards a framework for financial advice based on ‘the fiduciary standard’. According to the American Investment Advisors Act of 1940 (Office of the Legislative Counsel of the U.S. House of Representatives., 2018), a fiduciary is an advisor who commits to putting his or her own interest below that of the client. In other words, the advisor has a duty of care and loyalty to the client which supersedes self-interest.  

Although the UK advice market has largely professionalised over the past few years, British advisors are not bound by any such fiduciary rule. Instead, advisors follow the Financial Conduct Authority’s conduct of business rules.

Nevertheless, some advisors have adopted business policies akin to the fiduciary standard in an effort to set themselves apart from the competition. Investors and savers can identify these advisors based on their level of transparency. Straightforward disclosures about the structure of fees, performance reporting and volatility monitoring could be considered a bare minimum. Preferably, advisors should go the extra mile by disclosing potential conflicts of interest, partnership arrangements, and frameworks for unbiased asset allocation.

Savers have the right to ask if their money manager and professional advisor is acting in good faith. By reassuring clients that their interests come first, advisors can set themselves apart from their peers and cement the working relationship.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.


Should the Inheritance Tax be Scrapped?

It’s one of the most unpopular forms of tax in the country. Inheritance tax or IHT, is considered “unfit for purpose” by policymakers and taxpayers on both sides of the aisle. Considering the latest statistics from the government and the rising level of wealth inequality in Britain, the calls for a thorough overhaul of the system seem justified to some experts (Heather Stewart, the Guardian, 2 May 2018).

The tax is structured as a flat 40 per cent levy on assets worth over £325,000 left as inheritance. That threshold is much higher than the median household wealth across the UK. This means only 4% of estates pay the inheritance tax. In 2017/2018, collections rose to  £5.3 billion for the first time, accounting for 77p in every £100 pounds collected in taxes throughout the fiscal year (Lucy Warwick-Ching, Financial Times, April 27, 2018)

According to the Resolution Foundation, there are numerous reasons this tax is considered unfair and unfit by regular taxpayers. Some view it as double taxation of assets from which HM Treasury has already taken its fair share. Others say there are simply too many loopholes in the current system that allow people to get away with paying less. Coupled with all the exemptions under the current system, an individual can inherit up to £900,000 without paying IHT (Delphine Strauss, Financial Times, MAY 2, 2018).

Instead, the Resolution Foundation (Press release, 2 May 2018) argues for a tax on gifts and bequests given out over a lifetime. According to the foundation’s research, this ‘Lifetime Receipts Tax’ could make the tax system fairer for everyone and raise the government’s tax revenue. A hypothetical 20% tax on gifts worth between £125,000 to £500,000 and 30% on gifts beyond that could help the government raise £11 billion by 2020-21, nearly double the amount under the current system.

Replacing the tax on inheritance to one on gifts given out over a lifetime could move the British system closer to the one implemented in France and Ireland. Whether or not the IHT should be reformed is still under review by the independent Office of Tax Simplification. Their report is due by the end of the year which means taxpayers can expect an overhaul relatively soon.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.


Women Deserve Better Wealth Managers

According to the latest data, the UK is home to over 50,000 high-net worth (HNW) women (GlobalData Plc., Wealth in the UK: HNW Investors 2018). Women represent 14.6% of the total HNW population in the country, proportionatly higher than any other country in Europe. A confluence of social, demographic, economic, and technological trends have empowered women across the region.

Yet it seems the traditional wealth management industry is failing next-gen female business leaders and successful female entrepreneurs. 73% of women who employed the services of a wealth manager in the UK said they felt misunderstood ( “Harnessing the Power of the Purse: Female Investors and Global Opportunities for Growth,” Center for Talent Innovation, 1 December 2016). They used the words “unwelcoming,” “patronizing,” “male-dominated” and “full of jargon” to describe the industry as a whole.

Accenture Consulting (2017) finds that most women have a different investment style and a different set of needs from the advisors they work with. Women demand a higher degree of communication and a broader approach to setting long-term financial goals. They are also more likely than men to be conservative investors.

Women are likely to keep generating wealth at an accelerated pace for the foreseeable future. Their growing financial strength represents an opportunity for the wealth management industry. Increasing diversity at the firm could be one way to better serve this expanding pool of potential clients.

According to the latest industry statistics (James Connington, The Telegrapgh, 9 AUGUST 2017), women manage less than 6% of the total money in funds. In the UK, there are 10 male advisors for every single female financial advisor (Money Marketing, 28th June 2016). Hiring and training more female wealth advisors could prove to be a competitive advantage. Meanwhile, reinventing the organisation’s culture to be less male-dominated and more client-centric is a winning strategy regardless of the industry.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


Making An Impact

The impact investing wave hasn’t hit Britain - yet.

The nature of capitalism is gradually changing across the world. In recent years, wealthy investors have tried to look beyond the basic fundamentals of their investments to uncover the true social impact of their decisions. Making a conscious effort to divest from certain companies and invest in others based on personal beliefs and values has become a multi-billion dollar global trend known as ‘impact investing’.

According to the Global Impact Investing Network (GIIN) annual survey (May 17th 2017), investors have deployed $228 billion in assets to social impact ventures. These ventures include alternative energy projects, affordable housing loans, water treatment solutions, waste management services, wildlife conservation, and early education. With 32% annual growth, Southeast Asia is the fastest growing market for such investments. However, the UK domestic market remains largely untapped.

An industry review (Advisory Group appointed by HM Government, GROWING A CULTURE OF SOCIAL IMPACT INVESTING IN THE UK, 2016) revealed that 56% of survey respondents have considered making social impact investments, but only 9% have actually done it. The report says industry leaders need to do more to improve accessibility to social investment vehicles. It recommends increasing the number of products offered in this sector. The overall UK market is estimated to be worth £150bn and is primarily comprised of green energy bonds, renewable energy infrastructure, social housing, and social impact businesses.

Investors seem to have recently recognized the fact that these investments are not money-losing bets or misguided attempts to signal virtues. Instead, many of them offer attractive returns and significant cash flows. With the rise of exchange traded funds (ETFs) backed by environmental or social goals (ESGs), making such an impact investment is easier than ever. 2018 was a record year for these ETFs, with eight new ones being launched in May alone. There are now a total of 31 ‘ethical ETFs’ with little over £3.9bn in assets under management (Kate Beioley, Financial Times, MAY 24, 2018).   

Industry insiders believe the government needs to step up and support these initiatives to encourage more investments (Sarah Gordon, business, Financial Times, NOVEMBER 14, 2017). By co-investing alongside private investors, offering tax incentives, and relaxing certain regulations, the British government can accelerate growth in social impact investing across the country.

The government has already tried to make a similar move in the past. In 2012, it set up Big Society Capital, an independent investment institution, to invest money from dormant bank accounts into social ventures. The government has also expanded the reach of the social investment tax relief (SITR) to encourage big ticket investments in social impact ventures.

With better products, growing awareness, and government support, ordinary investors can finally participate in an asset class that can deliver not just an enormous social benefit but also a justified return on investment.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


Good governance is the unsung hero of investment returns

Management strategy, successful products, economic growth, and low interest rates are often the core drivers of investment returns. Sometimes, experts will go as far as to commend the corporate culture or CEO’s vision to explain the abnormal returns from a stock. However, investors tend to overlook the importance of good corporate governance.

Robust corporate governance is the antidote to an issue academics like to call ‘the agency problem’ (Sunit Shah, CFA Institute Research Foundation, 1 March, 2014). The agency problem is an inherent conflict of interest between those who run the company (management) and those who own it (shareholders).

The owner-manager relationship is fraught with misaligned incentives and asymmetric information. The responsibility of closing this gap and resolving the conflict lies with the shareholder-appointed board of directors. A healthy dose of oversight from an independent board could check the management’s tendencies to waste resources, cut corners, overpay themselves, or dilute the stock.

The board promises to uphold the rights of shareholders and safeguard their interests. It seems intuitive that stronger oversight and shareholder rights should lead to better performance. Indeed, recent studies have managed to establish this link.

A study of shareholder rights at 1500 large firms during the 1990s found that companies with a better score on the ‘Governance Index’ made fewer corporate acquisitions, had higher profits, lower capital expenditures, and better sales growth (Gompers et al., Quarterly Journal of Economics, February 2003). In other words, the value of the firm was noticeably enhanced by better governance.

Fortunately, measuring corporate governance at publicly-listed companies has become easier with the Institute of Director’s annual publication of the Good Governance Index (GGI). The GGI measures corporations based on 47 different governance indicators ranging from the percentage of CEO pay in stock to the frequency of board meetings every year.  In the latest report, Diageo Plc. came out on top with a score of 837. GlaxoSmithKline Plc. scored the least - 627 (IoD, Good Governance Report, 2017).

The GGI provides a window into the boardroom for retail investors. Leveraging these tools could help investors monitor their company managers more closely, mitigate the risks and moral hazards of owning a piece of a large company, and perhaps enhance their investment performance.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


Measuring Dividend Quality

With fixed income yields at record lows across the developed world, income-seeking investors have had a tough decade. Ever since the financial crisis of 2008, the yield on government 10 year treasury bonds has tumbled from around 5% to 1.68% ( The hunt for income over the past decade has led investors to either buy-to-let properties or dividend stocks.

A number of FTSE 100 companies pay dividends many times greater than the income from fixed income securities. Most of these are household names. Vodafone, for example, pays out nearly 9% of its current stock price in dividends. Similarly, National Grid, Marks & Spencers, and the Royal Mail PLC offer dividend yields of 7.58%, 8.18%, and 9.51% respectively. The overall FTSE 100 pays just over 4% in dividends (David Brenchley, Morningstar, 23 April, 2018).

Such handsome dividends coupled with the opportunity for price appreciation make dividend stocks an ideal asset class for income seekers. However, investors need to take a closer look to ensure the dividends are sustainable. A sudden plunge in the stock price or an unexpected cut in the annual dividend payout could negatively impact the total return from these stocks.  

It is essential to establish a connection between a company’s dividends and its underlying economics. Companies need to have adequate annual earnings to cover their expected dividends. A dividend coverage ratio (net income divided by dividend) of greater than 1 is absolutely essential. Firms also need to have adequate cash, low debt, and healthy growth prospects to sustain the dividend long term.

Another important factor dividend investors must consider is the management’s philosophy. A number of cash-rich and stable businesses do not offer a dividend because the management believes it can generate a higher return for shareholders by reinvesting the free cash flow back into the enterprise. The most prominent example of this is Warren Buffett’s Berkshire Hathaway, which has never paid a dividend in its 54-year history (Aristofanis Papadatos, Seeking Alpha, Feb. 28, 2018). That’s despite the fact that the company’s cash hoard recently reached $116 billion. With this in mind, income-oriented investors need to pay close attention to a change in management or its dividend policy.

A well-diversified, high-yield dividend portfolio can help investors who rely on their investments for income. However, the cash flow from dividends is often unpredictable over a longer time horizon. Investors need to periodically check the financial health of the business to ensure their quarterly payments are sustainable.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.


The Impact Of British FinTech Innovations

It’s easy to underestimate the power of Britain’s tech industry. While startups from Silicon Valley and China suck up all the room from media press briefings, British startups have been developing and innovating very much under the radar. The UK is now home to over 4,799 startups, many of which are in the financial technology (FinTech) sector (Startup Rankings).

In the latest Global Financial Centres Index, London came out on top, beating New York (Z/Yen, March 2018). A combination of financial talent, government support, and a reputation as a financial center built over centuries helped London cement its position. Now, billions are pouring into to ensure the financial hub evolves and stays on the bleeding edge. From 2016 to 2017, the amount of money invested in London-based FinTech startups doubled to nearly £800 million (Tim Focas, Financial Times, November 21, 2017).

Startups like Transferwise (recently moved to Estonia), Yielders, Lending Club, and Monzo have had a tangible impact on the country’s economy and the lives of millions of people. Later this year, peer-to-peer SME lender Lending Club plans to launch an IPO that could value the firm over £2 billion (Mike Knight, Fathom London, April 23, 2018). Yielders has single-handedly catapulted London to the top of Islamic FinTech with its Shariah-compliant property investment crowdfunding platform. Transferwise, London’s most well-known fintech giant, has already claimed over 10% of Britain’s overseas money transfer market. The company became profitable last year (Neil Ainger, CNBC, May 17, 2018).

At the center of the revolution was London’s Silicon Roundabout. Since the term was coined in 2008, thousands of startups have flourished in the area, with some of the biggest names in tech - Softbank, Google, and Facebook - investing there. According to some estimates, the area is still likely to create more than half a million jobs over the next few years, attract billions in investment, and offer tech workers salaries that are more than double the median individual income (The Telegraph, 2018).   

The services and platforms sprouting up in London’s tech hub are streamlining an industry ripe for disruption. Slashing bank fees, increasing access to SME loans, helping entrepreneurs crowdfund their projects, and bringing low-cost digital banking to millions has had a tangible impact. Going forward, there’s little doubt London’s reputation as a FinTech hub will help it retain its position as the global financial linchpin.


London’s Potential Role As A Blockchain Tech Hub

For centuries, London has served as the most vital artery of the global flow of financial assets.The city’s financial industry is so critical that it accounts for 12% of Britain’s GDP, employs 1.1 million people, underlies the value of a vast swathe of commercial and residential real estate, and contributes more to the government treasury through taxes than any other industry (Andrew MacAskill, Insurance Journal, March 28 2018)

Which is why it’s important that the city recognises and embraces the upcoming paradigm shift in the world’s capital markets. According to David Treat, managing director of Accenture Capital Markets (Accenture Perspectives), blockchain technology has the potential to “fundamentally re-architect processes” in the global financial services industry. Smart contracts, distributed ledgers, and digital assets could change the way financial institutions settle contracts, onboard clients, and manage collateral. Some estimates suggest that the technology could add business value worth $176 billion by 2025 and over $3.1 trillion by 2030 (John-David Lovelock, Gartner, March 02, 2017).

Considering the magnitude of this technological shift, it seems reckless for Britain’s financial capital to ignore it. The favourable regulatory environment and thriving startup scene have already encouraged entrepreneurs and investors in the space. The Bank of England (Mark Carney speech, BoE, March 02, 2018) acknowledges the potential of this technology to make transactions cheaper and more secure, while the Financial Conduct Authority's Project Innovate is helping entrepreneurs navigate the regulatory hurdles in this nascent industry. Earlier this year, the UK government also launched the world’s first Cryptoasset Taskforce to encourage innovation in the space (HM Treasury, Gov.UK, May 21, 2018).

London, meanwhile, continues to cement its position as a prime destination for blockchain events and conferences, with at least 11 major blockchain events in 2018 (Josh Levine, Bizzabo, Feb 27, 2018). Networking events like these attract thousands of attendees from across the globe. Amongst the visitors could be talented developers and passionate entrepreneurs who may pick the city as a base for their next venture.

London’s position as the leader in financial services is about to hit a transition point. With Brexit looming, fintech gaining steam, and digital assets proliferating, it seems the city needs to innovate to stay ahead. Fortunately, combining technology with raw talent and an entrepreneurial spirit has been done here before. For now, the city has barely tapped into its true potential as a critical hub for blockchain innovation.


Does a Post Brexit Investment Boom Beckon?

Loose monetary policy and high profit margins for UK investment should translate into significant business investment. Pension auto-enrolment and the National Living Wage have driven the cost of labour up and companies are close to capacity after a 9 year positive run for the economy.

A fear of Brexit uncertainty has caused firms to hoard cash in response, lowering business investment.

Business investment has been 3 to 4 percent lower than it otherwise would have been according to the Bank of England.

According to Pantheon Macroeconomics:

"Business surveys clearly indicate that Brexit is to blame for the decoupling between investment and current economic fundamentals."

A record £57 billion in currencies & deposits was amassed in the first year after the referendum, with the accumulation continuing ever since. 37% of GDP is now held in deposits, an increase of 5% since the referendum.

A decline in investment is not the only reason for the lack of investment, as the cash is also being earmarked for financing.

Once Brexit occurs, the massive backlog of cash could be injected in to the economy.

A soft Brexit is far from certain however, as the latest proposal from the British government is likely to be rejected by the EU. This proposal is also viewed negatively by some of the hard line elements in the Conservative Party.

Pantheon Macroeconomics predicts that investment will increase to 3% in 2019, up from 0.8% this year with GDP growth set to rise to 1.7%.

Your financial adviser can help to make sure you are sufficiently diversified and in the right investments that will help you to achieve your long term goals.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.


Is It Too Late to Invest in Biotech?

It's increasingly difficult to invest in the biotech sector as there was a decent selection of low risk, relatively large companies around.

A higher level of competition means that the amount of time that smaller firms that dominate the space have in order to generate profit has become more limited, complicating things for investors.

A decade ago, large firms were creating drugs with massive potential, which was then followed by a second wave. Now, however, these companies have matured and have become the new establishment and begun to stagnate.

Keeping in mind the fact that it's mainly smaller companies that will provide interesting growth for investors, finding the companies that have new revolutions in the pipeline is a challenge for investors. In addition, the successful company may have as little as a year to enjoy the low competition environment that they had created.

One example of this is Vertex, that launched a Hepatitis C treatment that launched strongly but fell away sharply as Gilead launched a competing drug that improved upon it.

Patients have benefited from the breakneck pace of innovation in the sector driven by the ease of development of new products, however, investors have found it much more difficult to navigate the new environment.

Prioritisation of certain disease areas is one way that investors can keep on top of the sector as it's not possible to talk to every company in the sector. Diabetes for example, is one area of high competition that would produce short profit time frames for the companies involved. Therefore it's best to look at areas with low competition.

A focus on a particular tumour or disease stage will often insulate a company from excessive competition due to barriers to entry caused by the approval process.

Biotech should continue to grow well in the long term, however the sector is more complicated than ever for investors.

Your financial adviser can help to make sure you are sufficiently diversified and in the right investments that will help you to achieve your long term goals.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.


Don't Let Fear Hold You Back From Investing, Your Adviser can Help!

New research from Scottish Friendly indicates that more than half of savers are so concerned about investing that they are seeing their savings eroded by inflation instead.

49% of those surveyed indicated that the fear of potential losses was their main concern. 53% responded that they wouldn't be willing to invest in stocks and shares at all.

By doing this however, inflation eroding savings becomes a real concern, as it's currently running at 2.4%, while the savings rate is only 1.33%.

According to Calum Bennie of Scottish Friendly:

" Every pound you save becomes less valuable when it’s held in an account that pays less than the rate of inflation. Brits are being driven by a nagging fear of losing money, which may be clouding their personal judgment when it comes to important financial decisions."

A gain of only £162 in 2016/2017 would have been earned by investing in a cash ISA in the 1999-2000 tax year, a very small return by any standard.

The exact same investment in the FTSE All Share would have increased by £841 in the same period.

Since 1999, cash accounts have increased by less than stocks and shares ISAs two thirds of the time.

Some of the reasons that are holding investors back are the idea that they can't afford it, the perceived complicated nature of financial products and the lack of comfort with non cash holdings.

Callum Bennie says:

"Investing is not without risk, of course, and ultimately you shouldn’t feel uncomfortable about where you’ve put your money. But interest rates on cash accounts have been rock-bottom for a very long time now, and inflation is consistently eating away at the value of that money."

Your financial adviser can help to make sure you are sufficiently diversified and in the right investments that will help you to achieve your long term goals.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.