“Traders dump corporate bonds”. This headline of one of the articles on the front page of yesterday’s Sunday Times Business section is certainly enough to make you give it some attention. Ok, we are guessing that you’re probably not that surprised by it but the fact that investors pulled billions of dollars out of corporate bond markets last week in response to concerns about higher US interest rates and that it has now triggered turmoil across financial markets, is meaning that it has real relevance for today’s investors. If we’re honest, there is surprisingly little reporting across the media of the falls in global markets last week so at least, for the time being at least, journalists are keeping their calm. How long will it last though? That’s the question we simply can’t answer.
Flicking through the business pages to find things that we think you might be interested in – another headline jumps out at us. “Merger most foul”. Ouch. That’s the descriptor for the tie up between Standard Life and Aberdeen where there are rumours of what the article calls “an epic culture clash”. It’s a detailed piece, looking at the reasons behind the merger and the outflows of assets over the past year or so. It has input from the so called “gregarious” Martin Gilbert and paints a picture of an organisation undergoing significant change. Clients with any investments of the group who read the article may well have a few questions of their professional advisers – probably seeking reassurance rather than anything more concerning.
Moving onto our more traditional turf – that of the Money pages – the Sunday Times leads with a story that the Treasury plans an assault on property owners who are claiming under the rent-a-room scheme yet don’t live in the property themselves. It says that new occupancy rules are to be included in the Finance Bill to be published after the budget. If you want to know more, then you know where to go.
As usual, Ian Cowie’s Personal Account column is a good read again this week. He’s looking at last week’s market wobbles in a broader context, and stressing the importance of long term trends rather than short term, knee-jerk reactions. He stresses that the month of October can often be a tricky one for investors and confesses that some of his recent top-ups to his holdings could now be bought much more cheaply. However, he reminds us that a paper profit is all very well, but you haven’t made a penny until you sell. Not that that is what he’s suggesting that investors do now, quite the contrary in fact. His advice is that medium to long term investors – like him – should sit tight and ride out stock market storms.
Finally, there is a good article from Kate Palmer on the plight of the Waspi women. She uses a case study of two women in their sixties to highlight the fact that their fortunes have taken a very different path when it comes to their state pension benefits, simply because of their dates of birth. The article reflects on the actions of Backto60, which claims to have more than 700,000 supporters, in seeking a judicial review to reverse the rise from age 60. As all financial planners will know, planning for your financial future requires much preparation over many years. The plight of the so-called “Waspi” women is particularly unfortunate because of the lack of time to readjust their plans to accommodate the shortfall in the state pension which they were expecting. Again, if you want to read more on this topic, you know where to find it!
The team at the Telegraph Money section have been dusting down their crystal ball in anticipation of the Chancellor’s budget on 29th October. They are trying to work out what some of the content might be. In a recent Telegraph article, they suggested that Chancellor Hammond might do an about-turn on a manifesto pledge to increase the tax-free personal allowance (from £11850 to £12,500) and higher rate threshold (from £46351 to £50,000), by 2020.
Other ideas being talked about are, and yes you’ve guessed it – a decrease in tax relief on pension contributions for high earners is being touted once again. Also there is talk about the introduction of a stamp duty surcharge for overseas property buyers in the UK- similar to that levied on landlords and buyers of additional homes. An increase in insurance premium tax could be on the cards. Elsewhere, freelancers could be hit by the extension to the private sector of rules designed to clamp down on so-called “disguised employment”. Only time will tell.
Also in the Sunday Telegraph, ethical investment funds are taking a bit of a slating. The title gives you the full picture – “Woeful ethical funds mean investors lose out on hundreds of thousands”.
Harry Brennan describes performance of ethical funds over the past decade as “woeful” and “falling well short of conventional funds meaning anyone with cash invested could have missed out on hundreds of thousands of pounds in potential gains.” Although it is rather alarmist in nature, it may still make painful reading for any client who has invested in this sector,
Brennan quotes research from Morningstar which shows that around £11.7bn has been invested into the 450 ethical funds available in Britain this year. He concludes that at least on the basis of past performance, the investment case is as yet unproven.
He quotes figures from Fund Expert which indicate that an investment of £100,000 in the past decade’s top performing ethical fund 10 years ago, rather than the top performing conventional fund, would have left the investor £302,650 worse off. Ok – maybe that’s not a very fair comparison. However, the article does at least go on to explain some of the potential reasons for such underperformance, and that the screening process can take out some top performers – such as BAT. Also that those investors in the funds tend to have other investment objectives too, it’s not all about maximising the ultimate returns. Commentators who are quoted in the article make some sensible points about making sure you look at those companies and funds which really do put “ethical” at the heart of everything they do rather than those who can just be seen to pay lip service to this rather popular cause.
Over at the Financial Mail on Sunday, Jeff Prestridge writes quite a detailed article on why savers should consider using NS&I for part of their savings. The four reasons he quotes are as you’d expect, the possibility of a large win on premium bonds ( however remote the chances!), their income bonds beat high street options (1.15% gross paid monthly on up to £1m invested), a cutting edge appeal to younger savers with new apps and other options designed to help younger people to embrace the savings culture, and finally that all of savers money is protected.
Also the subject of detailed writing by Prestridge is the Vanguard “personal investor” service – aimed directly at consumers rather than the clients of professional advisers. The service has now gone through the £1bn barrier and is clearly gaining traction. Prestridge talks at length about the history of Vanguard and Jack Bogle – who invented the idea of passive investments funds way back when. It’s an interesting story and one which is likely to resonate with investors, who are otherwise constantly bombarded with tales of the high costs involved in investment management. As the article points out, the Vanguard service doesn’t yet include the personal pension option although apparently, that option is likely to be added soon.
Baillie Gifford Japan trust is the MoS fund focus this week. As Prestridge reports, since its launch 37 years ago, the £749million trust has only had three managers at the helm and the fund’s focus has always been on finding opportunities with sound long term prospects and holding onto them. The trust has generated attractive returns for shareholders of 17 per cent over the past year, 99 per cent over three years and 135 per cent over five years. Matthew Brett is now the trust’s manager, having taken over in May after the retirement of Sarah Whitley, who had overseen it since 1991. Brett had co-managed sister fund Baillie Gifford Japanese with Whitley for ten years, so was a natural choice to take over and not change the trust’s approach – to buy and hold. Prestridge talks to Brett about his approach and the three themes which excite him most – the internet, robotics and emerging healthcare. If you’re interested in finding out more, then we suggest you read the article.