Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC) also identifies the RDR as a turning point of the last 10 years. She highlights that “Crucially for investment companies it banned open-ended funds paying commission to financial advisers. This meant that finally investment companies could compete with open-ended funds on a level playing field. The impact of this has been clear. Annual purchases of investment companies on adviser platforms have increased fivefold from £200m in 2012, the year before RDR came into force, to over £1bn in 2020. This is good news for investors. They are being offered a wider range of choice and the opportunity to harness investment companies’ benefits, from superior long-term growth to accessing a whole world of alternative assets.”
Brodie-Smith goes further and points out the growth in the use of alternative investments. She comments “With interest rates at rock-bottom levels since the global financial crisis a major theme of the last decade has been investors’ thirst for income. The unique structure of investment companies has enabled them to rise to this challenge admirably and this has been particularly evident in the huge growth of investment companies investing in alternative assets. Investment companies have a long history with alternatives having invested in private equity, venture capital and infrastructure for many years. However, the last ten years has seen this expand significantly to solar parks, wind farms, Amazon-style warehouse properties, song royalties and much else in between. This reflects the changing investment landscape and the evolving needs of investors.
“In the property sectors alone, investment companies now offer exposure to care homes, supermarkets, social housing and accommodation for the homeless. Renewable Energy Infrastructure is a new sector of the last decade but it is now the sixth-largest, with investors attracted to its strong yields and the opportunity to support a lower carbon future.
“However, the growth of alternatives has not just been about income. With businesses staying private for longer, in recent years we have seen several new launches of investment companies targeting fast-growing unquoted companies. This new Growth Capital sector is home to investment companies taking non-controlling stakes in early to maturing companies.”
Concluding her summary, Brodie Smith states “What unites the last decade’s growth is the suitability of investment companies’ closed-ended structure for investing in hard-to-sell assets. Without having to deal with inflows and outflows investment company managers are free to take a long-term view and, as listed companies, investors are free to buy and sell their shares whenever the market is open.”
Andrew Pike, Head of Intermediary Relationships, NS&I reflects on the changes in advisers’ use of cash. In his view, “The biggest change we’ve seen over the last decade is that cash has become an integral part of the financial planning process, rather than the peripheral concern it might have been in the past. This is due to a number of factors including the rise of holistic financial and life planning; the RDR banning commission and thus creating a level playing field; and the market uncertainty that’s existed ever since the financial crisis. This additional focus on cash has naturally led to more interest from advisers in NS&I, as evidenced by the high advocacy scores we consistently receive from advisers. We’ve had to react to this increased level of engagement though by launching a dedicated online service for advice firms, which has been very well received, with nearly 900 advice firms now registered.”
Nigel Smith, Managing Director of the UK client group, Ninety One believes that the past decade has brought more industry change and innovation than anyone could have predicted. He comments “In terms of savings, we have seen the onus shift towards individuals to fund their long-term retirement goals. Coupled with changing demographics and longer retirement periods, there are more choices and decisions for present-day retirees. The need for a long-term investment horizon has become an increasingly prominent theme over the past decade, to navigate a turbulent period that included the financial crisis, EU referendum and ultimately Brexit, and most recently the global pandemic. In contrast to the short-term focus and premium on immediacy we see elsewhere in our daily lives, taking a long-term investment view has perhaps never been more important.”
Taking a macro view, for Andrew Hardy, CFA, Director – Investment at Momentum Global Investment Management the most significant and dramatic change to have occurred over the past ten years is the widespread adoption of extraordinary monetary policy by major central banks around the world. He comments “From successive rounds of quantitative easing and liquidity injections to experiments with negative interest rates, options in the policy toolkit which were rarely if ever used before have become largely normalised. They’re no longer so extraordinary. Central bank balance sheets have ballooned; from $2.8tr to $8.0tr over the last decade in the case of the Federal Reserve, as the QE response to crises and low economic growth has become a policy mainstay. This has already had significant and far-reaching implications for markets and economies, directly and indirectly, but the longer-term consequences in years to come may prove to be even greater.
“We’re perhaps beginning to see this in rising inflation figures and future expectations. Over a decade of ultra-loose monetary policy has laid the foundations for a potential shift to a more inflationary regime, with the pandemic perhaps lighting the touchpaper by ushering in a new era of fiscal largesse. After several decades of low inflation, policymakers and investors have potentially become too complacent about the risks associated with higher inflation. Although there remains a wide range of potential outcomes in the coming years, we see a return of higher inflation as the biggest risk factor in markets; it would erode purchasing power, damage the real value of savings and wealth, and would have far-reaching implications for the construction of portfolios.”
Abdulaziz Alnaim, CFA, Managing Director at Mayar Capital reminds us that “Ten years ago, the idea of being a ‘Responsible’ global equity investor was something of an oddity.” As he explains “The prevailing mainstream belief of the investment community was the Friedman doctrine. Namely, that the goal of any executive is maximise returns to shareholders while conforming to the basic rules of society. If shareholders wanted to do some good in the world, they could do so by using the funds generated by maximising returns to whichever social initiative is close to their heart. The idea of corporate social responsibility was at the periphery of asset managers’ concerns. The narrow range of products that did cater to those who wanted ethical considerations on their investment decisions were invariably a subset of the standard portfolio with a subset of the alpha to match. The use of ethical ‘overlays’ stripping out parts of the ‘main’ portfolio. In those early days, we often found ourselves trying to combat the idea that the price of doing good was lower returns. The Mayar approach has always been to incorporate ethical concerns into the process, building a responsible portfolio from the ground up. This approach is increasingly being adopted as those ethical concerns are now recognised as risk factors that require scrutiny.”
