Weekend press review: Investment – and the value of trust

by | Mar 26, 2018

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The Financial Times carries a thought-provoking feature from Money Week editor Merryn Somerset Webb, in which she turns the issue of long-term investment somewhat on its head. What do we look for when we buy into a fund for a long-term relationship? (Always bearing in mind that many/most investors aren’t interested in following the markets, but want something that will serve them reliably, perhaps for the rest of their lives.)

Yes, she says, we already know that asset allocation, experience and (especially) fees have an important role to play in the way that the investment will work out. But the factor that we can’t afford to ignore is trust.

Trust that the manager knows how to take the long view, and to invest accordingly. (Which doesn’t necessarily mean buying heavily into bonds, but might mean keeping a tight rein on capital losses) Trust that the fund and its operators are keeping a strict eye on compliance. Trust that a long-established record of keeping long-term investors happy is part of the culture.

But most of all, trust in the transparency and the communicativeness of the manager himself. Terry Smith at Fundsmith is held up as an exemplar of how it’s done – with regular updates, communiqués and meetings. Lindsell Train or Troy are praised for the consistency of their long-term returns, as is L&G. (You’ll need to read the article for the details.)

What, we might ask, are we to make of this modern age where suspicious investors are putting their trust instead in cryptocurrencies instead of “fiat currencies” (boo, hiss)? As a confirmed gold bug, Ms Somerset Webb is not perhaps the best person to talk about trust. But her argument is wide-ranging and interesting. Recommended.

The Telegraph has a story to chill the marrow, about how some investors are getting demands for tax repayments to HMRC because their DC company pension schemes have over-claimed on reliefs in the past. And that those schemes which do not repay their arrears within 90 days of the schemes discovering the error may face penalty charges and tax penalties. (Relax, the onus does not fall on the pensioners themselves.) But can anything be done?

It’s a long story, but the gist of it is that accountancy firm RSM says it’s encountering reports that people who have paid their pension contributions through salary sacrifice are now facing demands from HMRC to make amends. The issue revolves around the fact that salary sacrifice can be made before National Insurance (among other things) has been taken into account. And, while that’s not illegal, it will have been up to the scheme managers to correctly register the (reduced) eligibility for tax relief. Which some, it would seem, have not done.

The upshot of which is that some people’s pensions are larger than they ought to be, by virtue of the over-large tax reliefs they’ve been given by HMRC. The taxman issued guidance on the issue earlier this month, the Telegraph says. And the fund will be required to make up the difference to HMRC. That must, inevitably, mean that the payouts to pensioners will at some point be reassessed and reduced. As will, presumably, the pension pots themselves?

Writing in the Saturday Times Money section, Mark Atherton’s headline is “The political storms should not keep you out of Europe” – he’s talking about ISA investment of course. As he reminds us, economic growth in Europe hit a 10 year high of 2.5% in 2017, eclipsing the UK’s 1.8%. He talks to many fund managers about their views on the region, including concerns around the implications of the Italian election result, questions over the ECB policy and strength of the Euro, particularly for exporters. This is part of a group of articles all focused on investing in ISAs for the end of the tax year. Also covered are “ways you can offset the Trump effect” and setting long term savings goals when using your ISA allowance. We’ll spare you the details!

In a separate article, Atherton reminds readers not to be alarmed by the changes to auto-enrolment which are coming up next month. Sensibly, he advises that if people can afford to make the increased contributions then they should certainly do so. However, there’s a warning that even by fully funding their auto-enrolment scheme, they still will need to save considerably more to avoid struggling financially in retirement.

The Sunday Times Money section leads with a report on concerns that the forthcoming hike in employee contributions to auto-enrolment schemes might just mean that more people will opt out due to pressure on their budgets. Readers will need no reminding that contribution rates are set to increase from 1% to 3% from 6 April – and to 5% next year.  Referring to a report from consultancy Hymans Robinson, the Times says that as many as a third of workers might opt out. It’s a detailed article which  highlights that it’s those who are “just about managing” who will be most affected by the increase, which for most will wipe out the effect of the increase in personal allowance from £11,500 to £11,850.

In his Personal Account column, Ian Cowie reflects on the fact that overseas exposure will have served investors (himself included) very well over the past year or so. However, in an entertaining twist he comments that the Chinese satellite Tiangong-1 is due to re-enter the atmosphere and might cause a bit of a ruckus as it does so. As Cowie reports, the European Space Agency has studied the eight-ton craft’s trajectory and predicted it will fall out of the sky between this Thursday and 9 April. The good news? It probably won’t be over Britain so that’s one thing we don’t have to worry about. Onto matters of investment, Cowie talks readers through his top ten most valuable holdings, his reasons for buying and his thoughts around each of the investments themselves. Interesting reading which shows that diversification really is key. Oh, he also points out that he has recently topped up his holding in Woodford Patient Capital trust, believing that the manager hasn’t lost all his skills in the last three years of bad performance.

Anyone who watched Channel 4’s Dispatches programme last week on the happenings within the FOS cannot fail to have been concerned about the implications that cases have not been handled correctly in many instances. Ali Hussein reflects on the situation, and asks the question whether this opens the door to many people who felt their claim wasn’t handled properly, to complain to FOS in the hope of getting it reversed.

As tax year-end looms, it’s all things ISA on the agenda over at the Sunday Telegraph.  Their article covers a range of elements from cash or stocks and shares, LISA, Innovative Finance, lump sum or drip feed etc. The content is squarely aimed at the DIY investor and unlikely to provoke much by way of questions from clients of professional advisers who will have their ISA plans firmly in place.

It’s the bargain-hunting managers at Artemis Global Emerging Markets fund, Raheel Altaf and Peter Saacke, who are the subject of the Financial Mail on Sunday’s Fund Focus. Sally Hamilton reports that the managers’ approach of looking for undervalued stocks which have strong growth prospects is coming good. They have purchased many ‘fallen angels’ in the almost three years since the fund’s launch and the fund is now outperforming many of its rivals. However, the managers are constantly mindful of the political risk – not least the recent confrontations between the West and Russia and the threat of a US trade war with China. Altaf says: ‘Political risk comes with the territory and is discounted in the prices.’ He reckons the impact of any trade war will be limited because of the low exposure of emerging markets to the targeted sectors.

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