Market Conditions – 18th May 2021

After a week that has seen escalating violence in the Middle East, concerns about the Indian variant derailing the roadmap, Liverpool’s goalkeeper score a goal (at the right end) for the first time in their 129-year history, Debenham’s stores shut their doors for a final time, whilst pubs and airports finally get to open theirs, markets shook off inflationary concerns and held firm.

A pickup in US inflation has been well telegraphed, but April’s 4.2% year on year increase in the US Consumer Price Index was still striking. The dramatic rise is primarily a reflection of how far prices fell last year, with a strong rebound always likely. That said, we see several factors worth monitoring. Manufacturers have been facing supply bottlenecks causing their input costs to rise, some of which are typically passed onto customers. Consumer spending in the US has surged, after roughly $340 billion in stimulus cheques were handed out in March. Businesses are also reporting that it is hard to hire, creating upward pressure on wages. While policymakers appear confident that many of these factors will prove temporary, markets will be very sensitive to any signs of a change in this stance. As investors we remain vigilant for signs of more persistent price pressures as a result.

This week there was continued strong domestic economic data with UK House prices rising 1.4% in April, according to the Halifax Price Index, taking the annual increase to a five-year high of 8.2%. In addition, the National Institute of Economic Research revised its forecast for this year’s UK Gross Domestic Product growth (GDP) from 3.4%, made in February, to 5.7%.

Official GDP data shows the UK economy shrank by 1.5% in the first quarter of the year, leaving it 8.7% smaller than pre-pandemic numbers. However, data for March was better than expected, showing an increase of 2.1%.

In the US, a cyber-attack put their largest fuel pipeline network out of action for five days, causing supplies to tighten and prices to rise. The hacker group DarkSide reportedly demanded and were paid 75 Bitcoins (roughly $5m) to unlock the hack. The pipeline they targeted carries 2.5 million barrels a day, roughly 45% of the East Coast’s supply of diesel, petrol and jet fuel.

The US Consumer Price Index (CPI) rose 4.2% year-on-year in April, up from 2.6% in March, and above expectations of 3.6%. Used cars and trucks prices made up a substantial proportion of the increase, rising by 10%, the largest one-month increase since the CPI began in 1953. Alongside this US retail sales rose by over 51% in April compared to a year prior.

As is becoming a running theme the difficulty in translating these historically significant numbers and noisy headlines into meaningful trends, is that they are all comparing a snapshot of a more or less current and extremely fluid market situation to that of a year ago, when we were in the depths of the first lockdown.

Just a quick reminder that the latest version of our Limitless magazine is available here, with a number of topical financial planning articles including:

– Will your pension run out early? – Impact on people opting for early retirement as a result of the pandemic .

– Sustainability matters – Plan for a better tomorrow, today

– Funding your child’s future lifestyle – early preparation in life is key to becoming financially independent.

This week we bring you:

– Our latest True or False Quiz

– How to win by not losing

True or False Quiz

As usual which of the following statements are true and which are false? Answers and context at the bottom of this update.

  1. Liam and Olivia are the most popular baby names in the United States.
  2. Despite a series of investigations and scandals labelled as the “return of Tory sleaze”, this month more people approve of the governments record in office than disapprove of it, for the first time since May 2020.
  3. China has more than 10 times as great a distance of high-speed rail track than Japan, the country with the second largest high-speed network.
  4. Not only does China have the longest high-speed rail network, but it also has the quickest trains on any nations network.
  5. Americans managed to clock up a total of 5.2 trillion passenger miles (miles travelled multiplied by number of people in the vehicle) on their roads in 2019, compared to 754 billion by air, 380 billion by bus and just 39 billion by rail.
  6. According to the Un Statistics Division, China now accounts for 28.7% of all global manufacturing output – more than 10% ahead of the US.
  7. This week’s bonus point (not true or false question) – The American president Joe Biden’s policies have been described as “autarkic” and “revanchist” – but what does that mean?

How to win by not losing

The acceleration of the pandemic, and more recently, the flood of day traders into stocks such as GameStop, have reiterated the potential impact of volatility and rash decisions on individual’s wealth. None of us can control the markets, other participants, or volatility itself, but what we can manage is our own behaviour. There are certain things we can do and, more importantly avoid, as we look to ‘win’ over the long term, and a vital part of this lies in not losing, much like a golfer should concentrate on avoiding unforced errors. As Scottish-American golfer Tommy Armour said: ‘It is not solely the capacity to make great shots that makes champions, but the essential quality of making few bad shots.’

Four ways to avoid investment mistakes are: to concentrate on your defences, to keep it simple, to play your own game and to not take it personally; all of these are applicable to the key tenets of our investment process.

Looking at concentrating on your defences first: A central part of winning by not losing is focusing on the potential downside of any investment decision, before considering the upside. Some basic numbers make this point very clearly, with rapidly rising percentage gains required to make back higher losses. Losing 10% of an investment’s value only requires an 11% gain to make up the shortfall, but this number climbs rapidly to a 67% return needed to make good a 40% decline and 100% to get back to par after a 50% drop. For us, this focus on downside protection is critical to meeting long term desired client outcomes and we tend to favour underlying investment managers, with a similar mindset to us in this respect. It is also why we will always ensure a sensible cash reserve is considered, or a 5 year plus timeframe used so investments do not need to be encashed in times of market weakness.

Moving on to keep it simple: This is about following an established investment process and understanding what ultimately drives performance: long-term data show 80% of the variability of portfolio returns come from asset allocation. This is why we spend a long time focusing on the correct level of underlying risk and we like investment managers that have an actively reviewed strategic long-term asset allocation model when selecting portfolios that are suitable for each individual client.

Another part of keeping it simple is avoiding those unforced errors that tend to come when investors try to time the market, which decades of data show even the most experienced professionals cannot do with consistency. Any book on behavioural finance will go into detail on what lies behind these common investing mistakes but, ultimately, they all manifest in certain ways, either trading too much or too little, or taking too much risk or not enough.

This leads on to playing your own game: In an investment context, this is about focusing on your long-term plan and ignoring short-term noise as far as possible. This encompasses several lessons which also centre on patient investing with an ultimate goal in mind. Key to this, we suggest, is remembering that equities tend to drive returns over the long term.  However, diversification across other assets is integral to long-term robust returns and the temptations to exclude or remove short-term underperforming assets must be tempered. While consistency of performance is impossible across all timeframes, consistency of process is vital.

The ongoing active versus passive debate is a good example of the kind of noise that ultimately does little to help long-term wealth generation. Our approach is that both can play a role in portfolios, but selecting active managers is the way to produce higher returns over the long term. For patient investors, there is enough dispersion in returns to identify manager skill, as opposed to luck, and select those who can outperform long term.

A final way to win is don’t take it personally: Once again, this is about avoiding unforced errors and not giving way to the forces of fear and greed that influence so many investment decisions and lose people their hard-earned money. We have seen in recent years the potentially damaging impact of the FOMO (fear of missing out) with various high profile speculative investment flops. It is amazing how often hope and euphoria can turn into denial and panic, or fear becomes greed and vice versa.

A few numbers show the potentially devasting impact of poorly timed decisions and reacting to short-term noise: missing the best 50 days in markets over the 11 years from March 2009 to February 2020 would reduce the return of £100,000 invested in an average Cautious Managed fund from £218,700 to just under £130,000 – which equates to 75% lower returns.

We pursue noise-cancelling investment as far as possible: staying the course in a well-diversified portfolio and ignoring market fluctuations. Over rolling three-month periods in the last 25 years, the FTSE 100 has been down 30% of the time and up 70% of the time; if you extend that period to rolling 10-years, the ratio shifts to 98% of the time being positive periods. Making decisions based on short-term data rarely produces good results.

Winning by not losing may be less spectacular, whether in investment or golf, but it reduces the emotional rollercoaster experience and helps to avoid those unforced errors that can be so damaging in both pursuits. For us, successful long-term investing needs to focus on achieving risk-adjusted returns and meeting your needs, rather than beating peers or markets. In this context, patience, discipline, and consistency of process pay off.

True of False Quiz Answers

  1. True – Liam has now been the most popular boys name for 4 years taking over from Noah, while Olivia has ranked at the top for girls for 2 years, relegating Emma to second place after a 5-year spell at the top –
  2. True – Peak popularity coincided with lockdown #1 where 52% of the population approved of the government’s record in power, this slipped to less than 30% at the start of November and has now steadily risen to 40% just above the 39% who disapprove. The remaining 21% gave no firm answer either way.
  3. True & False – China has a network of 35,388km of high-speed track. Second place on the list is Spain with 3,330km, Japan is third with 3,041km. The US sits between South Korea and Turkey on the list with 735km of high-speed track. The UK is nowhere to be seen even with HS2 probably coming at some point.
  4. True ish – The Chinese loco’s have the highest maximum operating speed of 349km/h (216mph), quicker than the French TGV or the Japanese ‘bullet train’ Shinkansen (both 320km/h). However, the TGV holds the record for the highest speed ever reached, a min-blowing 575km/h (357mph)!
  5. True – miles travelled by each mode of transport has increased steadily over time, but rail travel has stagnated over the past few decades. Joe Biden a former famed user of the Delaware to Washington Amtrak rail service has pledged $80 billion of his recent stimulus packages to Amtrak. Whilst the US Transport secretary calls the increase in US high-speed rail networks a no-brainer, the vast majority of this windfall will be spent repairing and improving existing parts of the network rather than building new high-speed lines.
  6. True – China only overtook the US in 2010. The UK accounts for a grand total 1.8% of all global manufacturing.
  7. Bonus Point Questionautarkic : 1 : self-sufficiency, independence specifically : national economic self-sufficiency and independence. – revanchist : 1 : one who advocates or fights for the recovery of lost territory or status : the political manifestation of the will to reverse territorial losses incurred by a country, often following a war or social movement.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For information purposes only. The views expressed are the author’s own and do not constitute investment advice.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.

Market Conditions – 12th May 2021

Following a week that has seen the British Navy advance on the French, local elections confirm that a government can remain popular with voters, violence erupt in some of the holiest sites on earth and confirmation of our next steps out of lockdown, markets had mixed returns as strong earnings results competed with a renewed rotation out of growth stocks.

The sabre rattling in the channel this week was entirely for show, but it did serve as a timely reminder that our wider interests with our closest neighbours will need to be carefully renegotiated on an ongoing basis for some time to come. Whilst it was clearly a hollow threat to cut the power to Jersey by the French, we can only imagine the fear and regret they felt when they saw Boris move the navy into play….

Moving on, the outlook for the economic recovery continues to remain positive, with further notable US stimulus measures, consumer spending rising in the UK and Europe, and COVID vaccinations continuing apace. Global market sentiment remains bullish, however, it is clear that we are entering a volatile phase of the rally in global equities. Nevertheless, central banks are showing no sign of easing stimulus just yet and Brewin Dolphin believe global equities can continue to push higher over the next 12 months, although the ride could be bumpy.

Despite the relaxation of some restrictions, Covid-19 cases in the UK remain low, with more than half the population vaccinated. Furthermore, with the UK economy’s service-oriented nature and the fast vaccine roll out Brewin Dolphin expect growth here to be stronger than almost any major economy over the remainder of the year.

The Bank of England increased its forecast for UK GDP growth to 7.25% in 2021, up from its previous forecast of 5.0%. This would be the fastest growth rate since 1941’s 8.7% expansion, but it follows a contraction of 9.9% in 2020 – the worst for more than three centuries.  Andrew Bailey, the Bank’s Governor, told an online news conference that the strength of the economic recovery needs to be put into perspective. “Let’s not get carried away,” he said. “It takes us back by the end of this year to the level of output we had essentially at the end of 2019 – pre-Covid. So that is good news in the context of where we’ve been, but it still means that two years of output growth have been lost to date.”

The upgrade to forecasts followed a better-than-expected economic performance during the third national lockdown at the start of the year. The economy shrank by 1.5% in the first three months of 2021, better than the Bank’s forecast of a 4% contraction.

In the US, the continued fear of inflation and future interest rate rises saw the rotation out of growth stocks cause divergence of returns across their markets. After a flurry of data that suggested the US economy was roaring back to life, last week’s jobs figures came as a disappointment with non-farm payrolls increasing by just(?) 266,000 in April, far lower than the anticipated one million new jobs. This meant the unemployment rate rose to 6.1%, which was worse than the expected 5.8%. Although the figures were disappointing, they lend weight to the Federal Reserve’s case for maintaining its accommodative monetary policy and not raising interest rates in the foreseeable future.

The rise in US economic growth and inflation has been well flagged by markets and economists alike, but as with the above data, uncertainty remains as to the persistence of this pickup. A successful vaccine rollout is enabling a reopening of the economy and the combination of excess household savings and fiscal stimulus means there is plenty of fuel for a spectacular rebound in consumption. Indeed, the US economy grew at an annualised rate of 6.4% in the first quarter, and this pace is set to accelerate. The extent to which the strong growth coming out of the pandemic feeds through into persistent price increases remains to be seen, and this is the conundrum markets are having to work through.

There was good news on the eurozone’s economic recovery last week, with the latest retail sales data revealing month-on-month growth of 2.7% in March, beating consensus forecasts. This marked the second monthly increase in a row. Germany and the Netherlands saw particularly strong growth of 7.7% and 8.4%, respectively. Europe’s vaccination programme is also gathering pace. As of 9 May, 27.9% of the European Union’s population had received at least one vaccine dose. In Europe as a whole, the figure was 24.1%, according to Our World in Data

With the continued rise in noise concerning cryptocurrency, we asked John Husselbee, Head of Liontrust’s Multi-Asset investment team, for comment. John believes that there are significant risks for most cryptocurrencies that make them un-investable for most clients and he does not see them forming a meaningful part of Liontrust’s portfolios in their current guises.  Notably they believe the following key risks exist:

– The crowd effect – they see the cryptocurrency markets distorted by the relatively recent surge in amateur investors, particularly in the US through websites like Robin Hood, pushing the most popular names higher. In an environment like this he urges caution and to beware of the crowd, particularly where extreme returns have been seen or are possible – evidence companies like GameStop and the impact on the majority of their investors returns.

– Intrinsic value – Most cryptocurrencies have no intrinsic value, so the crowd factor becomes even more significant and turns them from an investment into a speculation.

– Governments/Central Banks – ultimately cryptocurrencies face massive head-winds as governments seek to retain control of the money supply to protect the stability of national and global economies. This will inevitably mean more regulation and tax.

The cryptocurrency market is likely still in its infancy and at this stage it is extremely unclear who the long-term winners and losers will be. The development of this market will, however, see opportunities arise and Liontrust do see value in companies that will provide the technology to drive digital currencies. As central banks continue to investigate launching their own national digital currencies this could be a huge area for growth over the coming decade.

This week we bring you:

– Our latest True or False Quiz

– Market thoughts

True or False Quiz

As usual which of the following statements are true and which are false? Answers and context at the bottom of this update.

  1. The total global stock of electric passenger cars passed 10 million in 2020.
  2. Due to the rise in Non-Fungible Tokens (NFTs) there is now big money in memes. The digital picture behind the ‘disaster girl’ meme was recently bought for $573,136. Just in case you weren’t sure this is an example of the disaster girl meme genre:

3. Lab grown diamonds now account for 5% of all diamonds produced last year.

4. EU national (non-UK) fishermen caught an average 756,000 tonnes of fish in UK waters between 2012 and 2016. By contrast UK fishermen caught 90,000 tonnes of fish in EU waters.

5. The edible insect market is projected to be worth £3.36bn by 2027.

Market thoughts

Various equity markets continue to reach all-time highs driven by a booming global economy and huge fiscal and monetary stimulus. Companies are beating expectations on their profitability and cash is still freely available at low prices to buy all the asset classes that benefit from this. As it stands now, Royal London anticipate the path of least resistance for markets is most certainly higher.

After a lull in April when growth stocks performed better, the rotation which started last November is back on. The Covid recovery is driving economic recovery and in turn, inflation concerns, meaning sectors such as oil, mining, banks, leisure and retail have been rising rapidly, leaving areas such as healthcare and technology in their wake.

How much longer will this go on for? Until it stops. And it will stop when the fundamentals of ‘value’ sectors become overpriced, and ‘growth’ becomes cheap. Of course, making this judgement is hard. Many value sectors currently performing well have been impaired by Covid, but by how much no one can be certain. Many growth sectors performing poorly have benefited from behaviours driven by Covid, but by how much no one can be sure. Time will tell.

This market has so far followed the path of the financial crisis in 2009/10. After the panic in 2009, intervention by central banks and governments, then the V-shaped economic recovery, 2010 started with a strong rise in inflation for some of the same reasons as today. Inflation faded as time went by, pushed down by technology, demographics, and debt. Will this be the same story this time? As always, no one can say with certainty, but we can note the consensus  (for now) is for inflation coming back.

Markets typically obsess about one thing at a time. Trade wars. Covid. Inflation. When time passes it is more often than not that the issue of today is not the issue of tomorrow. To some extent, this reflects that when the market narrative becomes about one thing only, that thing is largely discounted in prices. It is also because markets are not always right, or that a new issue comes along.

Today’s obsession is inflation. Is this right or wrong? There is no doubt the rebooting of the global economy as lockdowns ease is causing bottlenecks, reflecting the effort it takes to restock supply chains and rehire staff. We can see this in the price of commodities and, to a lesser extent so far, wages. On the other side, the role of the digital (very deflationary) economy in our lives is growing rapidly. Will inflation therefore be temporary or permanent? Central banks say temporary and, judging by recent falls in treasury and gilt yields, so do markets. One thing is for sure: if we can come through this economic reboot without any structural increase in inflation, that will support the idea inflation is dead (the mantra pre pandemic) and be very bullish for equities.

Our view – Whatever the current noise in the markets we continue to take the long-term approach when building our client’s financial plans. Timing market rotations correctly is rarely possible and is certainly not a consistent route to long term gain. We continue to favour a balanced long-term approach having an investment mindset that mirrors our clients needs. It’s important to remember that a single quarter’s earnings from a company or sector is largely an irrelevance and that what is happening in the moment (Covid, inflation, rotation) always feels more important than it actually is, when viewed from the perspective of a 20+ year financial plan, or protecting wealth for future generations.

True of False Quiz Answers

  1. True – While Europe overtook China to become the largest producer of electric vehicles in 2020, China has the largest current stock in use with 4.5 million electric cars on the road.
  2. True – The image shows a house intentionally set ablaze in a controlled fire. This harmless event became a neighbourhood attraction and a 4-year-old Zoe Roth was photographed next to it by her father. Zoe, the accidental star of the image now at college in North Carolina sold the original digital image in an auction – she is clearly a smart cookie having not only monetised the image now, but also retaining a 10% stake in all future sales of the NFT.
  3. True – diamonds are forever? Pandora, the world’s largest jewellery company, recently announced that from now on they would no longer offer mined diamonds. The ability to create a diamond in a lab is not new. In fact, the first synthetic diamond was reportedly created in 1954 — just 7 years after Frances Gerety wrote her famous marketing slogan. So far then, the mined-diamond industry has been doing just fine, with lab-grown alternatives gaining little traction before the last decade. However, recent advances in technology, coupled with increasingly ethically focused consumers, has meant that both the demand and supply of lab-grown diamonds has increased significantly in the last decade. Pandora’s announcement is likely to accelerate that trend.
  4. True.
  5. True – with many European companies investing in this marketplace. Insects are 12 to 25 more efficient at converting their food into protein than animals. Meaning Crickets need six times less feed than cattle, four times less than sheep and two times less than pigs. One of the main reasons behind this efficiency is because insects are cold-blooded and therefore waste less energy maintaining their body heat, although some species need to be reared in a warm environment. Insect farming also produces much less waste. With animals a lot of the meat is wasted. With insects we would eat the whole thing. And as well as producing less waste, insects can also live off food and biomass that would otherwise be thrown away, contributing to the circular economy, where resources are recycled and reused. Insects can be fed agricultural waste, such as the stems and stalks from plants that people don’t eat, or scraps of food waste. To complete the recycling chain, their excrement can be used as fertiliser for crops.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For information purposes only. The views expressed are the author’s own and do not constitute investment advice.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.


Market Conditions – 5th May 2021

After a week that has seen positive news on the domestic easing of pandemic restrictions, more domestic political fighting, more fallout from the failed European Super League, the major tech companies deliver impressive results, diplomatic tensions stir with Iran and a divorce announcement from Bill and Melinda Gates, markets edged upward.

This week pretty much every major tech company in the States released their first quarter net earnings results with all of them reporting impressive numbers.

Apple, the world’s most valuable company carried on its momentum into 2021, with total revenue rising by 54 percent to $89.6 billion in the first 3 months of the year. Sales of iPhone, Mac and iPad all grew by more than 65% year-on-year, with strong demand for iPhones in China on top of the increased demand from the pandemic-induced working-from-home trend. Staggeringly, only six months into their financial year, their net income of $52.4 billion would already make this year the fifth best in Apple’s history.

The trendy kids might think Facebook is dead, but they reported $26bn of revenue in a single quarter. Indeed, Facebook has become so good at targeted advertising that in the first 3 months of this year it has raked in more than $48 per user across the US and Canada. That works out to about $16 a month — more than Netflix charge customers — and let’s not forget that Facebook doesn’t pay for any of the content you see in between those ads.

Never one to be out done, Tesla reported its biggest ever quarterly profit of $594m. Although $101m of that was profit from sales of Bitcoin which the company bought earlier this year. We’re not sure how “operational” or indeed sustainable you can consider trading cryptocurrency is.

Boris Johnson and his non-rom-com-with-Dom break up saga with Dominic Cummings continued this week with us wondering if Boris felt a little like his namesake Lyndon Johnson, former US President, when he was discussing how best to deal with J Edgar Hoover. The quote from Lyndon Johnson when sanitized goes something along the lines of “you’d rather have him inside the tent raining out than outside the tent raining in”. It is important to remember that whilst political shenanigans like these always feel intense and keep the newspaper editors busy, they rarely spill over to directly impact the markets substantively.

Elsewhere gossip pages will no doubt be reporting on what will likely be the largest divorce settlement ever between the Gates’, and it is engrossing stuff, with the family being America’s largest private landowners and having a net worth of over $100bn.

Whilst the Gates’s divorce is mostly for the tabloids it is the effect on the Gates Foundation that could have the biggest impact globally. Amongst its aims are the eradication of Malaria – a disease that kills 400,000 people a year, mostly under the age of 5. In the last two weeks a vaccine, that had been developed over the past 30 years in conjunction with the Gates Foundation amongst others and then modified by the same Oxford team that produced the CoVid vaccine has passed through phase 2 clinical trials with a best ever 77% efficacy against the disease. Phase 3 trials are to follow and if successful 200 million doses of the vaccine will be produced quickly.

Why are we mentioning this here? Well as with military technological advances during World Wars, we seem to be seeing a virtuous circle in the vaccine economy as a result of the pandemic. The technology and infrastructure developed to combat CoVid is allowing more resource to be more quickly and efficiently deployed against other viruses, and vaccine development and production capacity has snowballed.

Returning to more local news, economics signs of a domestic recovery continue. Data from market research group Springboard showed retail footfall in the UK for the week ending 17th April was 75% of its level in the same week in 2019 but the reported sales balance from the Confederation of British Industry Distributive Trades Survey jumped to +20 in April from -45 in March. The measure, which details whether retailers are reporting sales higher or lower than in the same month a year before, had been expected to increase to +10.

In the States first quarter gross domestic product (GDP) marginally missed expectations, growing at an annualised 6.4% compared to estimates of between 6.5% and 6.8. This was, however, a big increase from growth of 4.3% reported in the final three months of 2020.

Across the channel the eurozone, more firmly in the grip of CoVid-19, officially fell into a double-dip recession as GDP shrank by 0.6% in the first quarter of the year, following a 0.7% contraction in the fourth quarter of 2020.

In domestic financial planning news, the Work and Pensions Committee have launched an inquiry into pension scheme climate risk, with new rules expected before November when the UK hosts the COP26 climate summit. This will ensure that all workplace pension schemes consider the risks of climate change within their governance processes.

The inquiry will examine how the government’s regulations compare to other countries as well as how funds within pension schemes are making ‘climate-conscious investment decisions’ further promoting the concepts of sustainable investing, shareholder accountability and investor activism.

As they put it – “Pension schemes will undoubtedly want to consider the impact climate change and the measures to cut emissions will have on their portfolios. Unless they are wise to the risks and the need to adapt investments, there will be a knock-on effect on people’s pension pots.”

This week we bring you:

– Our latest True or False Quiz

– Our Mortgage Roadmap

– Spend and Tax in the US

True or False Quiz

As usual which of the following statements are true and which are false? Answers and context at the bottom of this update.

  1. Asda is owned by the world’s most prolific arms dealer.
  2. China is set to announce its first population drop in 5 decades.
  3. A farmer in Belgium has caused a stir after inadvertently redrawing the country’s border with France.
  4. Microsoft has announced it will change its default font in 2022 with a range of options including one inspired by German road and rail signs.
  5. Google’s official domain in Argentina ( was purchased legally last month for 270 Pesos (around £2.08).

Mortgage Roadmap

With house sales at record levels and significant government incentives to keep the housing market buoyant we are receiving lots of enquiries from and on behalf of first-time buyers.

As a quick guide the following incentives are currently available to house-buyers who meet the relevant criteria:

– Mortgage guarantee scheme – some lenders will now lend up to 95% of the value of the property with the government providing a guarantee protecting the lender (not the borrower) in the event of having to repossess the property. Typically, the loans offered under this scheme have a higher rate of interest and therefore increased monthly payments than those available to buyers with larger deposits. If you can afford it, it may well pay you over the longer term to raise a larger deposit and borrow less.

– Help to Buy – shared ownership – this scheme offers you the chance to buy a share of your home (between 25% and 75% of the value) with the option to buy more in the future as affordability allows. In the meantime, you will pay rent on the portion of the property you don’t own. This is only available to households’ earnings less than £80,000pa (£90,000pa in London) who are first-time buyers.

– Help to Buy – equity loan – first time buyers of new build homes are able to borrow between 5% and 20% (40% in London) of the value of the property from the government interest free for 5 years. After 5 years the loan reverts to an interest rate of 1.75% which will increase with inflation. The maximum value of the property this scheme is available for is capped and varies depending on where you are buying in the country, for example in the West Midlands it is £255,600 and in London it is £600,000.

– Stamp Duty Holiday – until the end of June 2021 no stamp duty is due on the first £500,000 of the purchase price of your home. Between the end of June and October this will change to the first £250,000 of the purchase price. From October it will revert to the following rates:

– £0-£125,000 = 0%,

– £125,001-£250,000 = 2%,

– £250,001-£925,000 = 5%,

– £925,000-£1,500,000 = 10%,

– £1,500,000+ = 12%

When buying a house for the first time the actual process can seem daunting which is why we have produced the following roadmap to help explain it and show how we can support you.

As part of any home move or re-mortgage, our award-winning independent mortgage specialist, Ian Chetwynd, can guide you through the options available to you with a decision in principle usually available within a day or two, allowing you to secure the house of your dreams quickly.

Further information on the government schemes available for home purchase is also available at:

Spend and Tax in the US

This week President Biden continued to work through his spend and tax plans. With many investors up in arms claiming this will crush any potential for economic growth and whilst looking at the chart below this may be a self-serving exaggeration to protect the very wealthy few who make up the largest proportion of total capital gains (and therefore potential tax payers) there is a concern that capital tax increases could have unintended economic impacts.

From an individual point of view taxing savings and investment income can seem like unfair and inefficient double taxation. Those who earn today to spend today must pay only income and consumption taxes; why should someone who prefers to gain by deferring their gratification face extra levies? Discouraging saving and investment hurts the economy in the long run, which is why a review in 2010 by the OECD, a club of mostly rich countries, ranked corporate taxes as the most harmful of four common taxes to economic growth. Which is why in this country ISA and pension tax incentive rules remain generous. Economic models predict that Biden’s business-tax plans would cut the size of America’s economy by around 1% by 2050.

Under these proposals’ taxes on capital stack up. Shareholders in California, for example, face a proposed 28% corporate-tax rate, Biden’s 39.6% federal capital-gains rate, a 13.3% state tax on capital gains, and a 3.8% levy on investment income introduced as part of Obamacare. They could, in theory, keep less than a third of their nominal returns under the Biden plan. We will keep watching this space to wait and see what gets through the Congress and the Senate.

True of False Quiz Answers

  1. False – Walmart, owners of Asda are only the 4th biggest retailer of guns in the US and have around 20% share of the ammunition market. Walmart did remove guns and ammunition temporarily from shop floors during last year when concerns were raised about civil unrest in America.
  2. Probably True – official figures have been unexpectedly delayed causing this as yet unconfirmed rumour. UN forecasts had China’s population beginning to fall in the late 2020s, but the leaked census data — which has not yet been made public and is said to be very sensitive for Chinese officials — suggests that the relaxation of the controversial one-child policy in 2015 has done little to re-invigorate a baby boom. Is this a good thing? Whenever birth rates are unusually high or low, countries end up with really different sized generations. That’s not too bad on the way up (lots of young people), but if things reverse you get a top-heavy demography, with young people having to support a greater number of older people. Taking the super long-term view, fewer people consuming resources obviously puts less stress and strain on our planet, which is a good thing — but that doesn’t make it easy for China (or any other country) to plan for an ageing population. By contrast the US population has risen 7% since 2010 to 331 million.
  3. True – he moved the boundary stone as it was in the way of his tractor. Local Belgian authorities plan to contact the farmer to ask him to return the stone to its original location. In theory if that does not happen the case could end up at the Belgian foreign ministry, which would have to summon a Franco-Belgian border commission, dormant since 1930.
  4. True – Microsoft is starting to gather feedback with one of the following expected to be the default font for MS Office in 2022:

5. True – An opportunistic web developer, while working from home, noticed the site wasn’t working and tried his luck. It turns out unsurprisingly that Google did still own the domain name and normality was quickly restored.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.

Market Conditions – 29th April 2021

After a week that has seen the awful escalation of CoVid cases and deaths in India, domestic political vengeance and allegations of malfeasance, sub postmasters finally getting justice for an IT system that labelled them as criminals and ruined many lives, the rise and spectacular fall of the European Super League, substantial new capital taxes proposed in the US and Boris Johnson reaffirming that climate change is about growth and jobs, not expensive bunny hugging, markets were dragged back on fears that rising Covid-19 infections could hinder economic recovery.

With Europe firmly in the grip of the so-called ‘third wave’, European markets all fell modestly, even with positive economic data failing to lift investors’ spirits. Rising infections also weighed on Japan’s Nikkei Index, which dropped 2.2% after the country reported nationwide daily infections of more than 5,000 for the first time in three months. This led to another state of emergency being declared in several prefectures.

US stock markets posted small declines last week after President Joe Biden announced proposals to nearly double taxes on capital gains for those earning more than $1m a year. This announcement also hit the price of some cryptocurrencies as their intention is to capture some of the speculative gains made by bets on these currencies. In contrast, Chinese stock markets posted solid gains following strong inflows from Hong Kong via the Stock Connect trading programme.

Last week saw the release of several pieces of economic data that suggest the UK economy is starting to rebound from the Covid-19 crisis. The Office for National Statistics (ONS) showed UK retail sales volumes continued to recover in March, increasing by 5.4% from the previous month. This reflected the easing of Covid-19 restrictions on consumer spending. Sales were 1.6% higher than in February 2020 – the month before the pandemic struck. However, the ONS also said retail sales for the quarter were subdued overall. In the three months to March, sales fell by 5.8% when compared with the previous three months because of tighter lockdown restrictions.

Last week’s flurry of US corporate earnings reports suggests the global economy is starting to transition to life after the pandemic. Tesla started a busy week of corporate earnings statements, reporting a 74% surge in quarterly revenues. Apple, Microsoft, Amazon, Alphabet, Boeing, and Ford are all due to release first quarter results this week. Netflix announced it had added just under four million subscribers in the first quarter – missing its forecast of six million. The company said it expected one million paid net additions for the second quarter – versus ten million in the second quarter of 2020, when it benefitted from a surge in demand at the beginning of the crisis.

UK auto manufacturer Jaguar Land Rover has announced it will shut two main factories temporarily in response to a global shortage of computer chips. The firm is the latest to experience disruptions to supply chains caused by manufacturers shutting down production last year due to the pandemic and in anticipation of weaker demand. However, demand has since remained robust, impacting a wide range of industries, including consumer technology firms and auto manufacturers. The widespread use of computer chips in modern goods is fuelling efforts by nations to become more self-sufficient in chip supply. Their singular importance is also a growing source of geo-political tension.

Positive employment data indicated improvements in US and UK labour markets. In the UK, the February unemployment reading declined modestly to 4.9%, though the Coronavirus Jobs Retention Scheme remains an important support for the labour market, suppressing the unemployment rate. HMRC data indicates that 56,000 fewer employees were on company payrolls in March, though vacancy numbers appear to be improving. In the US, where there is no furlough scheme, unemployment continues to decline, as the economy reopens, and social restrictions are withdrawn. The total number of weekly new claims for regular and emergency unemployment benefits fell more than expected. The improvement will offer the US Federal Reserve comfort that the labour market is healing, though longer-term wage dynamics remain uncertain.

To mark Earth Day, US President Joe Biden met virtually with around 40 world leaders to discuss climate change. Biden announced a US target of a 50% reduction in greenhouse gas emissions by 2030 relative to 2005 levels. UK Prime Minister Boris Johnson announced a 78% reduction target by 2035. The meeting precedes the UN Climate Change Conference, COP26, due to take place in Glasgow in November. The US is the world’s largest polluter on a per capita basis, and Biden’s Earth Day summit message showed global leaders that the US is committed to leading by example on climate change. It was also positive that China, the world’s largest polluter in absolute terms, attended. However, China’s target of net zero emissions by a relatively distant 2060 remains a source of frustration and concern for those wanting more urgent action.

For an animated visualisation of how China’s Carbon emissions have grown click here –  Nations Carbon Emission Infographic

The Bank of England and the UK Treasury have announced the formation of a taskforce to consider the use of a central bank digital currency – “Britcoin” anyone? This new digital money could sit alongside cash and bank deposits and be used by households and businesses.

The pandemic has catalysed various nations to consider the adoption of digital currencies, with China using one to distribute payments to households during the pandemic. Digital currencies issued by central banks may pose a challenge to other nascent methods of payment and exchange, including cryptocurrencies: controlling supply and demand, and therefore inflation, and preventing money laundering, may prove easier with tighter regulation and control.

On a lighter note, in UK financial planning news of sorts, Standard Life Aberdeen have announced their much anticipated rebrand with the TikTok generation friendly brand “ABRDN”, pronounced “Aberdeen”. This was met with much derision on social media with comments from “is it pronounced A Burden” to the following meme, “can we have another vowel please?”

Rbbsh you say? Moving on, this week we bring you:

– Our latest true or false quiz

– How we work with investment companies

But before we do, we have 2 free tickets to the Leamington Half Marathon that we are supporting again! We are looking to give away these free entries to the first 2 readers to ask for them. The event is on the 11th of July and is run by Raceways (Marathon Kids UK) who aim to help transform the health of the next generations through the power of sport.

True or False Quiz

As usual which of the following statements are true and which are false? Answers and context at the end of the update.

  1. 23% of the US population bought an e-book last year compared to 45% who bought a printed book.
  2. Football’s ill-fated European Super League lasted longer than the Titanic’s maiden voyage.
  3. Friday marked 30 years since Gerald Ratner gave the speech that brought his company down.
  4. The use of the phrase ‘white elephant’ for a useless or troublesome possession originates in Thailand.
  5. If all the citizens of the world lived like those of the United States, the resources of five full planets would be needed to satisfy the global need for resources every year.
  6. Scientists now estimate that 20,000 Tyrannosaurus Rexs lived at any one time, meaning on average there would usually be one within 15 miles of you.

 How we work with investment companies

This week has been a particularly busy one for our investment committee with several investment manager meetings. These manager meetings are a key part of our behind-the-scenes investment monitoring process, discussing people, policies, practices and performance.

As we regularly report in these updates we use these meetings to share market trends, new themes and ideas that we feel pertinent, whilst also trying to see beyond the wall of information noise. This week for example we were reminded about the inherent risk of buying firms that are new to the market. With recent examples Deliveroo and Coinbase letting initial investors down at their launch, the quote from an experienced fund manager was “IPOs (Initial Public Offerings) are a unique opportunity to buy something from someone who knows a lot more about it than you do”.

We were also signposted to the latest Brewin Dolphin podcast that may be of interest to those of you who enjoyed their interview with Andrew Marr. This latest interview is with fund manager Terry Smith founder and CEO of investment house Fundsmith who manage in excess of £26bn and has been described as the English “Warren Buffett”.

Topics covered include areas where economic growth needs to happen to back up share prices, impacts of increasing regulation in the US, impacts of working from home on the economy and how various big brands are faring. As with the Andrew Marr interview be warned Terry is engaging and does voice his opinions directly. For the full interview click here –

In addition to access to insights and sense checking the investments performance and processes we use these meetings to put pressure on the investment houses to reduce their costs. It was particularly nice to see this week the outcome of this with Brewin Dolphin amongst others reminding us of how they have evolved their solutions in line with our demands to reduce costs. As a result of these changes over the past 3 years we’ve managed to save our clients in total in excess of £200,000 a year in costs.

True of False Answers

  1. True – in the UK 20% of the population have bought an e-book and 49% a printed one in the last year.
  2. False – Other things that lasted longer than the European Super league – The Evergiven blocking the Suez Canal – 6 days, Isner vs Mahut’s tennis match at Wimbledon in 2010 – 3 days (6-4, 3-6, 6-7, 7-6, 70-68!), Alistair Cook’s 263 against Pakistan – 3 days
  3. True – if you can’t remember the speech here are some highlights – Gerald Ratner – we sell total crap
  4. True – it comes from a story that kings of Siam (now Thailand) would give a highly-revered white elephant to anyone they disliked, knowing the animals were considered too sacred to be put to work, and cost a fortune to keep.
  5. True – as highlighted annually by the NGO Global Footprint Network, which also publicizes the date on which all humans on Earth have collectively used up more natural resources than mother nature can reproduce in a year. The so-called Earth Overshoot Day happened later than usual last year – on August 22, 2020 – due to the coronavirus pandemic. In 2019, it had occurred on July 29, having moved up from August 18 since 2009. Industrialized nations have the biggest share in pushing the date forward. Qatar, Luxembourg and the United Arab Emirates are actually even bigger offenders than the U.S. The lifestyle in these countries would use up between 5.5 and 9.1 Earths if the whole world lived it. Other industrialized nations in Europe and Asia would use between four and 2.5 Earths if their lifestyle was universal. Chinese living standards meant 2.3 Earths would be used up. Indonesians, with a local Earth Overshoot Day on Dec 18, 2021, were about on track of using up exactly the resources allotted to Earth citizens. People in several countries also used up less than their allotment of resources, for example in India, where the equivalent of 0.7 Earths were used in 2019. Emissions, but also the use of resources like wood, fish and land for crops are among the things counted in when calculating Earth Overshoot Day.
  6. True – It’s also estimated that there were some 127,000 generations of the dinosaur living and dying in total.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.


Top Rated Advisers 2021!

Congratulations to our Chartered Financial Planners on meeting the qualification criteria for UK’s Top Rated Financial Adviser.

Anthony Baynham, David Stokes, Jason Strain, Thomas Dawe and Tom Driver have all appeared in The Times Guide of top advisers nationally produced by adviser review website VouchedFor: The Times VouchedFor 2021 Guide

We are truly humbled by this recognition and are using the reviews we receive to improve our service further.

Click here to read our reviews:


Market Conditions – 20th April 2021

After a week that has seen the return of “Tory sleaze” to newspaper front pages, the US impose further sanctions on Russia and more rare vaccine side effects come to light, markets have again performed strongly.

The International Monetary Fund (IMF) has said that it expects the global economy to grow by 6% this year, up from the 5.5% it forecast in January. If true it will be the fastest expansion on records going back to 1980, despite large parts of the world still being mired in the pandemic.

Supporting this bullish outlook and market valuations are the trillions in excess savings waiting to be spent around the world, an improving employment picture in the US, and the Federal Reserve’s insistence that it will not be rushed into raising rates until there is solid evidence of a sustained recovery.

Certainly, Brewin Dolphin amongst others believe that this bodes well for further equity gains over the coming 12-18 months as long as central banks and policy makers don’t get a nasty overshoot in inflation, and bond yields remain relatively stable.

With the general picture looking strong, this week saw the listing of Coinbase the leading cryptocurrency trading platform on the US Nasdaq Index with a valuation that raised a few eyebrows of nearly $100bn. This valuation implied that its revenue will be 1.5 times the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Inc., and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange. Whilst this isn’t impossible it comes with a heavy reliance on the values and both the popularity of the two leading cryptocurrencies Bitcoin and Ethereum and the ability of Coinbase to maintain high margins (currently 46 times higher charges than the New York Stock Exchange) that look likely to come under pressure from other exchanges over time. Needless to say, Coinbase closed the week down from its opening valuation.

Looking at financial planning news it has been announced that the government is consulting on changing the earliest age at which pension benefits can be taken, with a proposal that from April 2028 some clients will see the minimum age at which they can take their pension benefits rise from age 55 to age 57 overnight. It is intended that there will be some protection to allow benefits to continue be taken from age 55 for those caught in the transition, but the detail of this will not be known until enshrined in law. For our clients we will continue to monitor developments in this area and will be in touch as appropriate when the details are known, and suitable planning can be put in place.

This week we bring you:

– Active or Passive Investing

– Our true or false quiz

– The timeline to net zero

Active vs Passive Investing

In the age-old simplified competition between active (generally more expensive and human managed) and passive (generally cheaper and computer managed index tracking) investments, the former generally got the upper hand in 2020.

Over the year, actively managed funds in aggregate outperformed passives in all equity markets apart from the US, driven – particularly in the second half – by a strong return of smaller companies and a rotation into cyclicals on the back of positive vaccine news. For the most part, US equity performance was dominated by a few mega-cap tech companies, so passives continued to outperform, but, even there, this trend was starting to reverse in the latter part of the year and into 2021.

Despite a good 12 months for active management, the argument for passives has been gathering pace in recent years, with performance – skewed by that concentrated US mega-cap effect – providing fuel for the tracker lobby to proclaim the superiority of its wares.

We go back to the 2015 ‘great fund debate’ between Vanguard founder Jack Bogle an index tracking titan and stock picking advocate Jim Grant as the culmination of what, for us, has always been an ultimately fruitless battle between active and passive. To recap, Bogle’s case centred on the idea that investment returns are largely determined by cost and it therefore stands to reason that lower-fee trackers will produce superior performance. He also focused on the efficient market hypothesis – that stock prices reflect all relevant information all the time – and expressed surprise the index tracking market is not far bigger given that, for him, active management is a zero-sum game: for every manager that beats the market by 2%, there is one that underperforms by the same amount.

Grant, meanwhile, similarly talked up his own book and said there are plenty of opportunities for professional investors to add value via active management. At the end, the debate was considered a split decision according to a Wall Street Journal report the next day.

We draw a few conclusions from all of this. First is that while the zero-sum game description has looked like a fairly accurate assessment in the US, over recent years at least, the same is not true outside this market and even there, as stated, it looks like the story might be starting to change.

Second, is to reiterate Grant’s point that there are chances for professional fund managers to add value. We suggest the data show that for patient investors like us, there is enough dispersion in returns to identify managers’ skill and select those who can outperform over the long term. A zero-sum across whole markets perhaps, but not if you can avoid the underperformers.

If we look at 10-year annualised returns from UK equity funds in the chart above, for example, the FTSE All-Share has produced an average annual performance of 5.6% over the last decade. While there are plenty of active funds below that level, there are far more above it. What we can also say with certainty is that there are no broad passive funds above that line. Of the two passive funds above the line one is a FTSE 250 tracker (a mid-cap index that has outperformed the main FTSE100 over the period) and the other a specialist SRI (Socially Responsible Investing) offering.

Looking to the rest of 2021 and beyond, we expect volatility to continue, which should provide a good backdrop for active managers, but the key questions to consider are whether the recent value rotation will continue, as well as the possible impact of rising inflation. With economies starting to reopen, or at least preparing to do so, value and cyclical stocks are leading the way so far in 2021, but it is always difficult to call a definitive change in market leadership. We urge against attempts to time the market like this and prefer to maintain diversified portfolios throughout the cycle, albeit with modest tactical tilts.

Liontrust investment managers who manage both active and passive investments in diversified portfolios see the market opportunities as follows:

– Covid-19 and the accompanying lockdowns have helped technology companies, particularly those involved with social media or online shopping, as millions of people have been spending more time online. They are not predicting a huge decline for these tech giants, but it is not too much of a stretch to suggest some pullback for their earnings in 2021 as people are able to return to the high street and even go on holiday abroad.

– Value as an investment style tends to be linked to economic, commodity and consumer recovery and can also be a good option in inflationary environments. To Liontrust, this would suggest markets such as Europe and the UK have better profiles for this year than the US. Both are also relatively cheap, with company profits recovering from a low base, while the US remains expensive in many areas as it continues to soak up speculative money from sources such as venture capital and special purpose acquisition companies (SPACs).

– Beyond Europe, they would also expect Japan, Asia and emerging markets to benefit from global recovery as major exporters, particularly with so much stimulus money still in the system. As evidence of all of this – with a usual warning about not reading too much into short-term trends – the US has been lagging so far in 2021.

Our view – It is an oversimplification to state that one style of investing, be it active or passive, is always best. We recognise that we have a natural bias toward active investing but regularly recommend both active and passive styles of investment as appropriate for individual investors. Crucially though to find the long-term active winners, we look for various characteristics, and a core one is that while we believe consistency of performance is ultimately impossible over every time frame, consistency of process is a must. We tend to favour fund managers who mirror our own patient approach, showing clarity and consistency of process plus courage and conviction in executing it. We need to be confident that if we select a fund or portfolio to fulfil a particular role for our clients, the manager(s) will stick to his or her process whatever the market backdrop.

True or False Quiz

As usual which of the following statements are true and which are false? Answers and context at the end of the update. Before we move on though, we’d like to thank the 94 people who noticed our ‘deliberate’ typo last week… it’s nice to know you are all still reading this!

  1. Animal welfare offices in Krakow, Poland were called out to rescue a croissant that was stuck in a tree.
  2. Three months after a violent mob stormed the US Capitol, roughly half of Republicans say that the deadly event was “non-violent” or engineered by left-wing activists “trying to make Trump look bad,” according to a new Reuters/Ipsos poll.
  3. The world’s 60 biggest banks have provided $3.8 trillion worth of financing for fossil-fuel industries since 2015, when the Paris Climate Accord was signed.
  4. Amazon hired 200,000 new employees last year.
  5. China is trying to promote digitisation of its currency and has been experimenting with digital currency with expiry dates to control spending.
  6. US traffic fatalities rose in 2020.
  7. The US is the world’s number one economy but sits only 5th best in the global rankings of infrastructure quality.
  8. Darren Stevens is older than the Brazilian Ronaldo and has been named a Wisden Cricketer of the Year, 27 years after Ronaldo first won the football World Cup.

Timeline to Net Zero

China’s pledge to produce net-zero carbon emissions by 2060 was one of the most important sustainability events of 2020. Although there are differences in approaches the basic concept behind reaching ‘net-zero’ is to reduce the amount of carbon being released into the atmosphere as far as possible. For example, reducing the reliance on fossil fuels to meet energy demands. Any remaining carbon emissions are then offset through investing in ways to remove the equivalent emissions from the atmosphere, by using, for example, carbon capture technology or energy efficiency projects.

With China’s commitment in place, over half of the world’s GDP is now governed by net-zero pledges at a national level. Although government announcements tend to take the headlines, 2020 also saw a huge increase in the number of companies and organisations that have also committed to transitioning their business models to become net-zero. Despite differences in approach and variation in target dates, this is a hugely positive development.

It is also encouraging to see that companies from all areas of the global economy are making these commitments, including some of the heaviest emitters – such as airlines, energy and real estate. In the timeline below we have highlighted some of the more prominent companies and organisations that committed to becoming net-zero during 2020.

These commitments show a clear trend and engagement by governments and corporations, but from an investors perspective the choices are tricky. As an investor should you ride the end of the carbon wave as society unlocks and potentially profit from the post pandemic ‘normalisation’ trade in the short term, or should you invest in the major energy providers now as they have the existing income and capital to take advantage of a conversion to renewable energy sources, or should you take an exclusively sustainable view and not buy companies that are actively worsening the future of our planet?

The choice can only be made individually.

JPM have recently conducted extensive research into whether sustainability (also known as Environment, Social & Governance based investing – ESG) will increase or decrease long term returns and their conclusions do provide substantial food for thought:

“Further work is required to demonstrate conclusively the extent to which E, S, and G factors have affected past performance. However, even when that analysis is complete, we would be cautious about using historical results as a guide to the future. We expect the shifts in government policy, regulation, and consumer preferences to result in much larger leaps forward that will shift the macro landscape. It is by being ahead of those announcements in the coming years that we see the potential for investors to generate enhanced portfolio returns.”

True of False Answers

  1. True – the caller who alerted the authorities though it might have been an iguana or similar and reported that “People aren’t opening their windows because they’re afraid it will go into their house”
  2. True
  3. True – US-based JPMorgan Chase flushed the most cash into the industry, followed by Citibank. In Europe, British bank Barclays financed fossil fuels more than any other bank.
  4. False – They hired 500,000, taking their global workforce to 1.3 million.
  5. True – The Peoples Bank of China will issue the new electronic money which is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user. Beijing is also positioning the digital yuan for international use and designing it to be untethered from the global financial system. The intention is for the digital yuan to circulate alongside bills and coins for some time. And in a further massive leap the money itself is programmable – with expiration dates tested to encourage users to spend it quickly, for times when the economy needs a jump-start.
  6. True – despite less miles being driven due to the pandemic.
  7. False – it sits 13th.
  8. True – proving there is life in old dogs everywhere!

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.

Market Conditions – 13th April 2021

After a busy couple of weeks, we return with domestic news dominated by the sad passing of HRH the Duke of Edinburgh, vaccine side effects, long anticipated haircuts, and snowy beer gardens. During the past 2 weeks markets have performed well.

Data from the US has provided further evidence of building momentum in the US economy. The increase of 916,000 jobs last month was far ahead of consensus estimates and means that the US labour market has now recovered over 60% of the 22 million jobs lost during the pandemic. The composition of outstanding job losses provides encouragement that further re-hiring will come quickly. The leisure and hospitality industry being the worst hit with employment still down by over three million since February 2020, but the vaccine rollout is rapidly improving the outlook. Barring a significant pandemic setback, strengthening economic data should put further upward pressure on US bond yields over the coming months, which in turn could bode well for the rotation towards more cyclical parts of the stock market to continue.

The US Federal Reserve’s March meeting minutes showed officials were also happy with the direction of the US economy, but wanted to see much clearer evidence of further progress before considering any change in interest rate policy. The US central bank is committed to ‘outcome-based guidance’, meaning it will not react to perceptions of the direction of travel, but will wait until goals of higher inflation and full employment have been achieved. All positive for the US market.

Also in the US, President Joe Biden unveiled plans for a massive infrastructure bill worth $2.25trn. The “American Job Plan” would provide funding to upgrade America’s transport and utilities networks and boost green initiatives, as well as building care and school facilities. To fund the extra spending Biden proposes reversing some Trump era tax cuts, including raising the corporate tax rate to 28%. With the tax hike unpopular with the Republicans, who fear it will cost jobs, Democrats are seeking to pass the infrastructure package without Republican support, using budget reconciliation for a second time. This would require Democrats to revise their budget resolution for the 2021 fiscal year to allow for a new bill. Biden is seeking to pass this bill by summer.

Against a backdrop of rising US taxes, US Treasury Secretary Janet Yellen called for the introduction of a global minimum corporate tax rate that could provide a more level playing field for businesses. Whereas some multinational corporations have benefited from shifting profits to lower tax jurisdictions through complex structures, despite doing relatively little business there, many smaller, domestically focused businesses cannot. Yellen declared that an international agreement could halt the “race to the bottom” of tax rates and allow countries to raise revenues to spend on growth enhancing initiatives. However, such a plan faces hurdles, mainly the need for international cooperation and agreement on what is a fair tax rate and to what size companies it might apply.

For years, big European nations frustrated with American behemoths like Starbucks, Amazon, and Google that flood their markets yet pay nothing back to their governments, have been pushing for a similar global corporate tax rate. France, backed by the UK and Germany, has been leading the way, though the Biden proposal well outpaces the 12.5 percent standardized tax rate the OECD had proposed.

While Washington dragged its feet in the past, it is now desperate to get on board. But there’s a catch: Germany and France say that the plan must include rules on taxing US tech giants that quash competition in their countries, something that the European Union as a bloc has long defended.

Still, some countries vehemently reject the plan outright. Ireland, with one of the lowest corporate tax rates in the OECD, has greatly benefited from operating as a tax haven for multinationals to stash their profits, acting as what one academic described as a “tax-avoiding funnel between nation-states.” Similarly, the Netherlands has attracted the likes of Nike, Google, IKEA, and others by allowing these corporations to negotiate rates with Dutch tax authorities. As such, The Hague is likely quite comfortable with the current arrangement (no matter the pushback from Brussels).

In the UK, just over three years after achieving “unicorn” status (a tech company valued at over $1bn), UK meal delivery platform Deliveroo listed on the London Stock Exchange with a valuation of just over £7.5bn. After the Initial Public Offering (IPO), shares flopped, initially falling c. 30% and ending the day’s trading down 14%. Before the IPO, a number of prominent fund managers had raised concerns over the company’s business model, with higher revenues likely to also bring higher wage costs. A recent ruling by the UK Supreme Court that Uber drivers are workers and not self-employed may also have undermined confidence in Deliveroo’s business model.

Globally, the International Monetary Fund has upgraded global growth forecasts but highlighted the diverging outlook for developed and emerging economies. The expected gap is due to differences in health policy, with developed economies making good progress in administering vaccines, but emerging markets unlikely to make serious headway for some time. The IMF called for policy makers to scale back fiscal and monetary support for the global economy in a gradual fashion, in order to avoid cliff-edges.

This two-speed pandemic recovery is highlighted in the plight of India. As the UK is seeking to withdraw coronavirus restrictions, they are reporting record high numbers of Covid cases. With 12.6m known infections, India now has the world’s third-highest number of cases after the US and Brazil. In its financial capital Mumbai, a weekend lockdown is to be introduced, as well as curfews. The surge is not thought to be connected to a “double mutant” strain of the virus detected across India, but instead to the relaxation of social restrictions and the spread of the UK variant. India has so far vaccinated less than 5% of its large population and concerns over the slower rollout were a catalyst for India’s Serum Institute putting a halt on exports of the AstraZeneca vaccine so as to meet domestic demand.

This week we bring you:

  • Our true or False Quiz
  • Will governments ever repay their CoVid bills?

True or False Quiz

As usual, which of the following are true and which are false? Answers and further context at the end of the update.

  1. If our solar system were the size of a CD, the Milky Way would be the size of the United States.
  2. Tropical forest cover declined by 12 percent globally last year compared to 2019, according to a study by the World Resources Institute.
  3. The bloom of cherry trees in Kyoto reached its peak on Friday, March 26, the earliest date ever seen in almost 200 years of records.
  4. The US is in the middle of a ketchup shortage.
  5. For about an hour last Monday the UK was generating 50% of its electricity from low-carbon energy sources — a record for the country.
  6. Beijing added 33 billionaires to its roster in 2020 and now has 100, beating New York by one to have the most of any city in the world today.
  7. As the rise of Non-Fungible Tokens (NFTs) continues an animated trading card platform (NBA Top Shot) has just raised $300m giving it a market valuation of $2.6bn.

 Will governments ever repay their CoVid bills?

In this year’s budget, the UK Chancellor made clear that the government would be living with the Covid-19 debt for a long time before ultimately paying it back. Long payback periods for government borrowing are nothing new – it was only in 2014 that the UK government finally paid off a 3.5% War Loan bond which had been taken out in 1917. The Chancellor nevertheless made a start at doing so by announcing a deferred 5% increase in the rate of corporation tax.

Paying back the debt may be a noble aspiration, but some leaders believe it would risk undermining the government’s mission of achieving an optimal rate of economic growth and boosting employment. This is a realisation which we expect more finance ministers to embrace as the Covid-19 bills roll in, even if they are reluctant to voice it out loud.

Traditionally, the budget surplus or deficit has been the statistic most monitored by successive chancellors of the exchequer. A government in deficit is spending more each year than it is receiving through tax receipts. The UK deficit was 12% of GDP last year and is expected to be 10% of GDP in 2021, before averaging 4% for the next few years. In short, the UK’s outstanding debt has risen sharply and is likely to stay high. The Office for Budgetary Responsibility estimates that net debt as a share of GDP is expected to peak at nearly 110% over the next three years. It was less than 30% two decades ago. In the US, the figures are very similar, but with the added burden that from 2027 the cost of welfare is set to keep inflating deficits and debt at a continuously accelerating rate. In Japan, gross debt as a share of GDP has already swelled to more than 260%.

Traditionally, there were two options to reduce the level of national debt. Firstly, spend less. Politically, however, the UK government seems to have very little appetite for a return to the unpopular period of austerity.

The second route is through higher inflation – if a government pays a lower rate of interest than the rate of inflation, its income through taxes will rise faster than its expenditure. However, inflation is also a headwind to people’s standards of living, and particularly to the savings industry. It is a force we try to protect our clients from, as it has the natural impact of reducing the spending power of cash savings deposits.

Fortunately, as is often observed, the UK’s debt burden is not a problem for now because the costs of servicing the national debt are so low. As interest rates have fallen, the government can borrow at less than 1% per annum for up to ten years (and for not much more beyond that). However, a lingering concern remains that these costs could increase in the future. Could that mean harsher austerity further down the road? A grim prospect. But what if these costs don’t rise in the future?

In recent years, there has been a gradual realisation that the government, or at least the state, does not suffer the same financial restrictions that private borrowers do. For example: interest rates – the rest of us cannot lower interest rates like the government can.

The ability to affect interest rates isn’t the only special power the state has in relation to finances. The more spectacular one is the ability to print money. This came to fore in the aftermath of the financial crisis when government money was printed to buy government bonds. This, and the current round of pandemic-related quantitative easing, has combined to reduce the government’s net debt. The Bank of England has bought more than £750bn worth of UK government debt and currently owns around a third of all UK government debt – essentially buying its own debt.

Is this a magic money tree? Having this tool at its disposal clearly changes the constraints under which the public finances are managed. Does it mean that the government can spend limitlessly, knowing it can simply print money and buy back any debt the market does not wish to finance? Not without potentially severe consequences. The argument goes that rather than being unconstrained, the public finances are limited. Not by the amount that can be raised in tax, for the government can borrow the remainder; nor even by the amount that can be borrowed, because it can print the rest; but by the amount that can be borrowed and printed without undermining the purchasing power of the currency.

What this means is if profligate government spending becomes inflationary, then the cost will be suffered by citizens (and crucially voters). To put it simply, the price of goods and services could increase, resulting in household finances being stretched even further. So, this is not an approach without risks.

Governments have been curiously reluctant to swear allegiance to this new economic creed. And yet in each successive crisis they step closer into a world of spending that is not capped by deficits. Japan trod this path first, while the UK and US have followed.

Even in the US, where the recent colossal stimulus package and planned infrastructure bill will push the budget deficit wider still, the Biden administration has not openly acknowledged that it is following a new approach to government spending.

This issue is hotly debated among investors and financial commentators, but it is hard to ignore the fact that by design or default attitudes towards government debt are changing. Focusing on inflation rather than deficits could be a more appropriate framework, but equally it is a less precise one and the scope for error is larger.

Our view – Attempting to control inflation is like steering a super-tanker – when policymakers realise they are off course, it can take a long time to correct their path. Typically, policy changes start to have an effect a year or so after taking place. That raises the possibility that we could see episodes where inflation deviates from its target more than we have been used to, and potentially by greater margins. This requires greater care with inflation- or interest rate-sensitive assets such as bonds but can also affect which sectors and stocks perform well. We are already seeing quite a deviation in economic policies and continue to challenge our chosen investment managers on how they manage this risk in their portfolios.

True or False Quiz Answers

  1. True – It is also estimated that there are about 100 billion GALAXIES in the known universe.  Which means that there are more stars in the universe than there are grains of sand on all of the Earth’s beaches. Space is big.
  2. True – The area of lost forest is roughly the size of Switzerland, and added twice as much carbon dioxide to the atmosphere in 2020 as US cars do annually.
  3. True and False – It was the earliest date, but records of the bloom go back nearly 1,200 years. Prior to 2021 the latest date for the bloom ever recorded was in 1409.
  4. True – demand for single-use ketchup packets has jumped 13% in the last year. Looks like supply just can’t ketchup to demand (sorry).
  5. False – It was 80%. That particular hour was unusual, it was a very windy and sunny day (which is ideal), but it does reflect a UK power grid that is increasingly green. Last year, according to data from the UK Department for Business, Energy & Industrial Strategy, the UK generated almost 43% of its electricity from renewable sources — mostly wind, bioenergy, solar and hydro power. A decade ago, that number was just 7%. The UK electricity grid also racked up 5,147 hours without the use of coal power last year, with a 68-day coal-free streak which was the longest stretch of time that the UK hasn’t used coal since the industrial revolution.
  6. True – China’s recent wealth boom has been spurred by its quick containment of COVID, a soaring stock market, and a pandemic fuelled global surge in online shopping for Chinese-made goods.
  7. True

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.

Market Conditions – 31st March 2021

After a week that has seen most of our staff creaking when standing up and generally hobbling around, the Suez Canal blocked and unblocked, the US facing up to domestic race issues again, with Derek Chauvin’s trial and new Georgia voting restriction laws, two new North Korean missile tests presumably to test Joe Biden’s patience and the first Tweet from Jack Dorsey (founder of Twitter) bought in the form of Non-Fungible Token for £2.1m, markets had a mixed week.

Before we turn to markets, a note on Non-Fungible Token’s (NFTs). NFTs are becoming increasingly popular, with various recent high-profile art and media sales conducted this way. Simply, an NFT is a unique digital certificate confirming ownership of a photo, video, or other online media. Mr Estavi who purchased the Tweet (which read “just setting up my twttr”) compared his newly acquired tweet to Leonardo da Vinci’s Mona Lisa. Whilst comparisons of value are hard to make versus the Mona Lisa, it’s easy to see NFTs becoming a more commonplace type of transaction.

Returning to our more normal investment sphere, global equities were mixed last week after further renewed lockdown restrictions in Europe dented hopes of a broad economic reopening. Data released on Sunday revealed the number of new Covid-19 patients in intensive care units in France has risen to 4,872 – close to the November peak, but below the high of 7,000 in April 2020. In Germany, the incidence of the virus per 100,000 rose to 130 on Sunday, from 104 a week ago.

Stock markets in Asia suffered the most, with Japan’s Nikkei index declining 2.1% and Hong Kong’s Hang Seng index falling 2.3%. In Japan, the recent lifting of the state of emergency in Tokyo provided some optimism, but this was outweighed by concerns that Europe’s third wave of Covid-19 infections could delay the global economic recovery.

The UK’s FTSE 100 posted gains of nearly 1% last week, following a rebound on Wall Street and positive UK retail sales data. In the US, the S&P 500 edged up 1.6% following Joe Biden’s pledge to vaccinate 200m Americans in the first 100 days of his administration – double his previous target. However, the technology focused US Nasdaq index declined 0.6% amid ongoing interest rate and inflation concerns.

The speed at which vaccines are being distributed is having a profound effect on the recovery of the global services sector. This is most evident in the Eurozone, where the general Purchasing Managers Index (PMI – a measure of short-term business optimism) has surged to a three-year high, whilst the services sector specific PMI figure is stuck reflecting contractionary expectations.

By contrast, the UK’s services sector is outpacing manufacturing for the first time since the start of the pandemic. In March, the services PMI rose to a seven-month high of 56.8, while the manufacturing PMI stood at a three-month high of 55.6. This rebound in services sector optimism suggests businesses are getting ready for a substantial reopening from mid-April.

News headlines have been dominated by the blockage of the Suez Canal. Around 12% of world trade flows through the canal, more than $1 trillion worth of goods every year, including around 4.8 million barrels of oil per day. On the day after the ship ran aground, there was a 5.8% spike in the price of Brent crude oil boosting energy related stocks. Clearing the backlog of over 350 container vessels, tankers and bulk carriers is expected to take several days.

Markets opened on Monday this week with concern that quickly fizzled out following the collapse of hedge fund Archegos Capital Management. Archegos was forced to sell billions of dollars’ worth of shares to cover it’s positions as specific holdings turned sour and there was concern that this fire sale could cause meaningful market turbulence. However, the impact has been limited to the stocks that were part of Archegos’ portfolio and its banking and brokerage partners.

Away from the world markets, on Saturday we clocked up a combined distance of 472.7 miles (1.2 miles rowed, 26.4 miles ran, 136 miles walked and a whopping 288.8 miles ridden). Well done us and our legs! More importantly, so far with donations still coming in we’ve raised a tremendous £4,026.78 for the Myton Hospices and the National Suicide Prevention Alliance. Thank you all for sponsoring! Click here if you haven’t yet!

Whilst we’re still chasing up final donations for our 410-mile challenge, our attentions now turn to the Leamington Half Marathon in July that we are sponsoring again with money going to Raceways. Raceways aim to provide running and exercise opportunities for primary aged children and are most visible to youngsters under the brand Marathon Kids UK. Wherever children run, Marathon Kids UK is designed to give all children an opportunity to run, move and develop a passion for sport.

Finally, as a quick heads up due to the long Easter weekend there will be no market conditions email next week, but we will return in the week starting the 12th of April.

This week we bring you:

– When investment meets politics – Andrew Marr talks to Brewin Dolphin

– Our no longer in lockdown True or False Quiz

– Inflation or Disinflation?

 When investment meets politics

And now for something completely different… The hyperlink below is to an interview between Guy Foster, Chief Strategist at Brewin Dolphin (someone we know well from our regular investment review meetings) and Andrew Marr, with a focus of looking at politics after the pandemic.

Normally, we try to steer well clear of politics on these weekly updates. However, having watched the interview we thought it worth sharing. Please note though that this is the opinionated Andrew Marr rather than the normal sanitised TV version. So, expect a no holds barred review of political failings from both sides of the house, Brexit, prospects for devolution and the current royal family predicament amongst other topics.

Please click here to watch the interview.

Eggs-tra Special Easter True or False Quiz

With the long bank holiday weekend coming up we thought we’d beef up the weekly quiz a little with a few more questions. As always though, which of the following are true and which are false? Answers and context at the end of the update.

  1. Global CoVid vaccine production is forecast to be 9.49 billion doses in 2021. This is an impressive number, but even more so when compared to the total number of vaccines for all diseases produced pre-CoVid, 5 billion a year.
  2. Hungary is the leading vaccinator in the European Union.
  3. Forget oil and guns, Facebook and Amazon are now the biggest spending political lobbyists in the US.
  4. A French free diver swam 194ft under ice with just one breath.
  5. The Indian Government is considering legislation to ban cryptocurrency trading and ownership much to the chagrin of 10 million Indian speculators.
  6. What do Slough and Wuhan have in common? Spongy roads.
  7. Ipsedixitism means the dogmatic assertion that something is ‘fact’ without any proof to back it up, or because someone, somewhere said it.
  8. The blocking of the Suez Canal cost the global economy an estimated $400 million per hour in lost trade.
  9. The world has become increasingly reliant on maritime trade with the total volume of trade booming from 4 billion tons loaded in 1990 to more than 11 billion in 2019.
  10. There are two European representatives and only one US representative in the top 10 list of biggest container ports in the world.

Bonus Question – How many of the world top 10 container ports (measured by million standard containers shipped in 2019) can you name?

Inflation or Disinflation?

The two primary trends in markets since November 9th, vaccine day, have been CoVid recovery and inflation. The CoVid recovery trend is to buy anything hit hardest during the height of the pandemic, whilst selling anything that benefited from going online and digital last year. The inflation trend is to buy commodities and financials, both of which benefit from inflation, and to sell growth stocks, which as long duration assets are most impacted by rising bond yields, themselves a consequence of higher levels of inflation.

Together, these two trends have resulted in a rapid and significant rotation in equity markets of a size rarely seen in recent times. We are indeed now back to the point where good quality companies that were impacted by CoVid last year have recovered in share price terms to somewhere near where they were pre CoVid. This is an indication that markets expect us to return to something like a normal existence in the coming months and that this trend might have run its course.

The inflation trend is however more perplexing and worthy of more thought. The history of inflation, say the last 100 years, is one of disinflation, or declining levels of inflation, punctuated by events which have created multi-year counter trend rallies. These events are typically associated with oil price shocks and wars, which have enough scale to offset what has otherwise been a long-term downward trend for inflation. This long-term downward trend is a function of technology, which is very deflationary, demographics and a much more stable geopolitical environment than in the past. The important point here is the long-term trend is one of disinflation.

The question then becomes is Covid another event significant enough to create a prolonged period of counter trend inflation, and of a length that should change our investment views? There is no doubt in the short term the answer to that is ‘yes’. Supply chains, and the supply side of the economy more generally, can be shut down rapidly, as they were last year, but they cannot be restarted so quickly. Airline pilots who have been delivering parcels not passengers in recent months cannot simply park their vans and get back into the cockpit. Car manufacturing is already being slowed by a lack of key components such as semiconductors. This combined with the consumer savings rate being at record highs in the last year will in the short term create a supply/demand mismatch which will clearly be inflationary.

In the long-term the outlook for inflation (and indeed everything) is much less clear. It is possible that the pandemic, after accounting for the effect of stimulus packages and central bank liquidity, is more likely to be a long-lasting deflationary force than inflationary.  When we think about what we will be doing less of in the future, commuting for example, we think that will be deflationary for a whole range of industries. Whereas when we think about what we will be doing more of, using increasing amounts of technology for example, that will also be deflationary. It seems to us the use of the inherently inflationary physical world (there is finite ‘stuff’ for money to chase) will fall, and the use of the deflationary digital world (there are unlimited digits) will rise. Were this to happen we would see the return to a more normal market, where industry and business trends define investment outcomes, not ‘value’ vs ‘growth’ investing as it has been for the past year.

Whatever the prevailing inflationary trends going forward we will continue to look for investment managers that offer a diverse approach to managing money and that are able to react to and benefit from changing market conditions.

True or False Quiz Answers

  1. True – Although global demand for the vaccine is expected to be 11.54 billion doses in 2021.
  2. True – With 22% of its population having received at least one dose of a vaccine compared to 12.3% of the wider EU. Hungary has its head start as it bought up millions of doses of the Russian Sputnik vaccine while the EU delayed.
  3. True – together they spent more than $38 million in 2020, to put this into context this was around 1% of the $3.49 billion total spent lobbying US Congress and Federal agencies.
  4. False – it was 394ft!
  5. True.
  6. True – Wuhan, now best known for an entirely different reason, is considered China’s leading sponge road city – the project in Slough sees participating areas turn a proportion of their urban land into sponge features to absorb rain and flood water. It is one of 25 innovative new environmental projects around England to be backed with government cash.
  7. True – we checked and we’d use it more if we could pronounce it.
  8. True
  9. True
  10. False – although back in 2005 Rotterdam, Hamburg and Los Angeles made the top 10.

Bonus question answer, and good luck with these, any more than 3 and you’ve earned another chunk of Easter egg! Numbers are million containers processed a year, Shanghai 43.3, Singapore 37.2, Ningbo-Zhoushan 27.5, Shenzhen 25.8, Guangzhou 23.2, Busan 21.9, Qingdao 21.0, Hong Kong 18.3, Tianjin 17.3, Rotterdam 14.8.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.


Market Conditions – 25th March 2021

After a week that saw the anniversary of the start of UK lockdowns, new lockdowns in France and Poland, the UK pass 50% vaccination for all adults, doubt cast on foreign summer holidays, the EU threaten vaccine supplies, a new defence strategy (more nukes and a ship to protect undersea cables), markets experienced another blip as they wrestled with the challenge of whether inflation will be consistent or transitory.

This week’s market blip was reminiscent of the bond market wobble of 2 weeks ago and allied to the continuation of the market normalisation trades left some market segments artificially exposed and provided opportunities for long term active managers to buy good quality stocks at lower prices.

The debate between consistent and transitory inflation is covered in the market update section below alongside a wider view of the markets. But as a brief introductory guide transitory inflation means inflation occurring through the natural process of economies unlocking post pandemic and having a year or so of growth in demand and therefore prices, before settling down. Consistent inflation means that in addition to the short-term transitory inflation that is likely already baked into the system there will also be an overshoot and higher than normal inflation will linger longer because of the amount of money pumped into the global economy by world banks.

And that has been a lot of money. It’s easy to forget that each of the three pandemic stimulus plans in the US have been bigger than the stimulus provided through the American Recovery and Reinvestment Act needed during the Global Financial Crisis in 2009.

In short, markets are concerned that inflation will become consistent as it means central banks could cut their support of markets sooner. Central banks by contrast have been reassuring markets by stating they believe inflation will be transitory and therefore accommodative policies will stay for longer. As the saying goes “Don’t fight the Fed”, so ultimately while markets may believe one thing only one party gets to actually determine policy so it’s usually worth listening to them…

Outside of the US the Bank of England maintained interest rates at 0.1% this week and maintained its asset purchase program at £895bn. It also reaffirmed that it would not seek to tighten monetary policy until there was clear evidence that significant progress has been made in eliminating spare capacity in the economy and inflation was running at 2% on a consistent basis. The Bank of England also noted the outlook for the economy, particularly the relative movement in demand and supply during the recovery from the pandemic, remains unusually uncertain.

The EU has also recently announced further PEPP (Pandemic Emergency Purchase Program) in its step in a bid to keep financial conditions favourable. PEPP is similar to extended QE and is a response to rising European and global bond yields. However, whilst the outlook for growth looks rosier across the UK, US and rest of the world, in Europe it remains less favourable. European vaccination programmes are progressing more slowly than in the UK or US, fiscal stimulus is less accommodative, and the average unemployment rate is significantly higher. These factors combined make a period of stronger inflation in Europe less likely.

Across our office (and home offices) various athletes have spent the week hobbling around with a selection of new blisters, muscle aches and pains from some frankly remarkable training over the weekend. The only thing that has kept them smiling through the week is the progress towards our charity fundraising target. Again, a massive thank you to all those who have sponsored us and if you’d like to help keep spirits up prior to this weekend’s attempt at 410miles the link is

This week we bring you:

– Market overview

– Our latest Lockdown True or False Quiz

– An investment case for the UK

Market Overview

As already alluded to, markets are heavily dependent on central bank support at present and are reacting quickly to perceived changes in policy or threats to the longevity of support. This heightened volatility is something we can expect to continue as we work through the reopening of many economies this year. As it stands though, investors can take comfort from the fact that should markets become disorderly then the Federal Reserve and other central banks would likely take action to maintain favourable financial conditions and keep economies on the path to full employment.

Looking at economic consumption in the US the Federal Reserve sees muted inflation. It’s famed dot plot, (a chart summarizing the Federal Open Market Committee’s outlook for the federal funds rate with each dot representing the future interest rate forecasted by one of the 12 members of the committee) shows an expectation that there will be no rise in US interest rates until 2025. Markets are currently pricing in rate rises as early as 2023. And it’s this mismatch that is causing current market volatility.

The dot plot forecasts are based on the Federal Reserve’s view that inflation in the US is likely to be more transitory than consistent, they view likely inflation in 2022 to be lower than 2021. The feeling is that whilst the stimulus packages delivered have been huge they simply have filled the holes where demand would have been were it not for the pandemic. In other words, they have not inflated the economy, but maintained it at a broadly consistent level allowing it to reopen smoothly with no longer term overheating. Further US stimulus is likely this year with the Infrastructure Bill expected in the coming month, although this is likely to be far smaller and harder to pass through the US houses as it will need to be bipartisan.

Crucially for the long-term investor whether the Federal Reserve has got this judgement right or not is not too important as they have changed their mid-term policy to allow inflation to run hotter than average for longer than usual before they will intervene with rate rises or other policies. Meaning that they may be slower to react than the market expects, even if inflation returns more quickly and strongly than predicted, which in theory would mean more accommodative growth orientated policies for longer and more market support.

Whilst this promise of continued support provides reassurance to equity markets around the world, bond markets are trying to price in the unknown, and to some extent unknowable future. This is what has triggered current market volatility as money flows back and forth between equities, bonds and other assets based on perceptions of relative values. This can make for a wild ride of an investment journey in overly concentrated portfolios and it’s exactly why we continue to favour diverse investments that spread risk across various asset classes, geographies, and sectors.

Whilst the Federal Reserve’s comments this week were generally positive they did also add that they would love to see more growth in Europe with speedy vaccination progress and a reduced need for lockdowns. This wasn’t entirely altruistic as they recognise that for the US economy to do well they need all global markets to be growing and buying whatever the US is selling.

The OECD (Organisation for Economic Co-operation and Development) support the Federal Reserve’s viewpoint and believe that inflation will be well anchored over the coming years. Their view is that the stimulus is temporary and will be replaced by normal spending in future.

Our View – Current inflation data is certainly muted and whilst there will inevitably be bumps in prices as supply chains reopen, and demand is likely to be lumpy through the general unwinding of the pandemic, the job of central bankers and investors alike is to see through this noise. Ignoring the short-term market distortions caused by the pandemic will be a keen theme to profitable long-term investments.

True or False Quiz

As always which of the following are true and which are false? Answer and context at the end of the update.

  1. More than 70% of the countries of the world apply daylight saving time changes.
  2. Junior Goldman Sachs bankers work an average of 98 hours a week with an average bedtime of 3am.
  3. Tesla is older than Facebook.
  4. The US accounts for 37% of all global arms exports.
  5. 15 of the 20 cities with the worst air pollution in the world are in India.
  6. Forget a baby boom the latest data from Spain indicates we may be heading for a baby bust with monthly births in December and January this year down 20% year on year.

Positive Case for the UK

At a recent review meeting Liontrust investment managers were discussing equity markets that they favour based on current valuations and, amongst others, they described an improving investment case for the UK.

They see the UK as a solid bounce back candidate for the simple reason that if we get a strong global economic recovery, global investors will look for areas that have underperformed in the hope of a bigger rebound. As an exception to the overall equity exuberance seen elsewhere around the globe, the FTSE 100 Index suffered its worst year since 2007 with a 14% decline in 2020.

The UK economic outlook remains weak with the International Monetary Fund predicting activity will likely remain below pre-pandemic levels until 2022. However, a healthy macro backdrop is not a prerequisite for decent equity performance.

Before examining the potential for a rebound, it is important to understand why the UK had such a poor 2020, and there are three core reasons.

  1. First is the structure of the UK market, which remains heavily weighted towards financial services and commodities, although both are proportionally smaller now after energy fell 40% (due to a drop in demand through the pandemic and the oil price spat a year ago) and banks nearly 35% (banks were prohibited from paying dividends last year to provide extra security if more loans than expected defaulted) over the course of last year.

These two worst-performing sectors make up almost 40% of the FTSE 100 versus just 1% in technology. The UK has no large tech stars and our representatives in this sector are more functional: accounting software for smaller business or oil services tech, for example, rather than social media or other ‘stay at home’ leisure stocks.

  1. Second is the dreaded B word, with uncertainty around Brexit and the terms on which the UK would ultimately leave the EU serving to keep a lid on returns since the referendum in 2016. In 2020, investors were conscious we were nearing the end of the process and the risk of leaving without a deal started to crystallise in people’s minds. This led to periods of the UK market selling off, or barely participating in what were effectively ‘better-than-expected CoVid news’ rallies, due to stalled talks, missed deadlines and repeated stalemates.
  2. Third, it is arguable that the UK has suffered more from the pandemic than the rest of the developed world bar the US. The UK is not unique in enduring prohibitive lockdowns but the combination of a service-driven economy and falling levels of spending on, and employment in, travel and leisure has left the country vulnerable to their impact.

Looking forward the positive view of the UK is that many of these factors are already in the rear-view mirror and it feels like most of the negative surprises are known and priced in, bar any lull in vaccine rollouts or further mutations in the virus. The most significant of these is that a Brexit trade agreement was eventually signed and while the full ramifications of leaving the EU will only become clear in the months and years ahead, the deal struck on Christmas Eve was symbolic enough to lift the prevailing cloud of uncertainty. This alone could be enough to spark a rebound as UK equities mean revert.

If Covid-19 cases, mortality and hospitalisations continue to fall, leading to the ending of the lockdown, the UK could look more investable. Once global investors have confidence in a recovery, it is natural to seek more risk and buy beaten-up stocks, of which the UK has many.

Additionally, the UK currently has one of the highest saving rates in the developed world, which could support a rise in spending when non-essential shops open or serve as a cushion through any further downturn. We also have a supportive central bank willing to implement further quantitative easing, a government ready to bring in more targeted fiscal stimulus, and potential enhancements to Brexit trade deals although it may be clutching at straws to hope for the latter in 2021.

Our view – it is encouraging to hear investment managers talk up the prospects of our domestic market even if it is following a period of relative underperformance. However, for most investors having too great a focus on one region or market sector will increase volatility and is unlikely to provide smooth robust long-term returns. We continue to focus on investment managers that seek to benefit from regional variations in valuations but also maintain a globally diverse portfolio for our clients.

True or False Quiz Answers

  1. False – it’s fewer than 40%, and at one point 140 countries changed their clocks twice a year. Only 2 US states don’t change their clocks – Arizona and Hawaii.
  2. True-ish – A leaked Goldman Sachs employee feedback survey highlighted some pretty unsustainable working practises although the sample size was relatively small. Competition for the trainee jobs with a starting salary of $123,500pa is high.
  3. True – Tesla is 18 years old to Facebook’s 17. Other technology firms ages are – Microsoft 46, Apple 45, Amazon 27, Netflix 24, Google 23, Twitter 15, Uber 12 and TikTok 5.
  4. True – the UK accounts for only 3.3% of the global arms trade.
  5. True – although top of the list was the Chinese city of Hotan with a score of 110.2 (and a population of 408,000). In the same study the most polluted UK town was frankly unbelievably Christchurch in Dorset – not something you’ll find in the guidebook! To be fair to Christchurch it’s score was a tenth of Hotan’s and not substantially above most other UK towns.
  6. True.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.

Market Conditions – 15th March 2021

After a week that has seen further steady progress on vaccine rollout and the US finally pass Joe Biden’s $1.9trn economic stimulus bill global markets resumed their steady rise.

Following last week’s budget, where pensions tax saving properties were again highlighted, we thought we’d share 6 tips for maximising your pension effectiveness.

  1. Track down old pension pots. Chances are, you will pay into several workplace pension schemes throughout your career, which can cause an administrative headache. However, your money may be invested in workplace default pension funds, which may not match your specific needs and objectives or have the greatest growth potential over the long term. Many default funds will include a default lifestyle strategy that could be moving your money towards cash from age 50 when your needs might require a longer-term growth strategy.
  2. Reassess your retirement goals. Your retirement plans may have changed following the impact of the pandemic. You may have decided to delay retirement to give your investments the chance to recover in value, or perhaps you have decided on a phased retirement while accessing your pension. Whatever your situation if your plans have changed does your pension strategy still align with them?
  3. Use your allowances and boost your pension tax-efficiently. Could it make sense for you to divert bonuses, income, or dividends to your pension? If you are a member of a workplace pension scheme and your employer will match your contributions are you making the most of these? Could you reduce corporation tax liabilities by contributing to your pension from your business?
  4. Check how your pension is invested. Given the volatility endured by investors during the pandemic, you may want to assess how your pensions are invested and managed. Investments left neglected may not have held up well on the downside or have participated in the market recovery.
  5. Seek advice. Pensions can be a complex area of financial planning and the rules have many nuances, the interaction of tax benefits, the annual allowance and lifetime allowance can cause individual investors significant and unexpected problems. However, when the planning is done well, for many people their pension can be both their largest financial asset and the most rewarding. Getting your pension planning right matters.
  6. Act now. Research from the Prudential shows that the longer you delay your pension planning the more you will need to save to catch up. For example, a 25-year-old wishing to build a fund of £360,000 at retirement (assuming 4% net investment return each year) would need to save £262 per month. If they wait to age 35 before starting they would need to save £437 per month and this rises to £794 if they wait to start until age 45.

This week we bring you:

– Mortgage market update

– Our latest Lockdown True or False Quiz

– Sustainable or impact investing what’s your motivation?

 Mortgage market update

In addition to boosting the effectiveness of pension saving for many, last week’s budget also delivered positive news for the UK housing market. With house prices rising substantially over the past year alongside a high level of transactions the extended tax incentives announced could well see market momentum continue through this year.

The headlines included extension of the stamp duty holiday, meaning no stamp duty to pay on the first £500,000 of any home purchase (as long as it’s your only home) to the end of June 2021. Following this the 0% threshold will reduce to £250,000 for a further 3 months helping the transition to normality.

In addition, the government has announced a 95% mortgage guarantee scheme which will see lenders offering deals with just a 5% deposit, although we have yet to see the full details the Chancellor did state that a number of high street banks are on board which should generate a lot of interest in the next few weeks.

The mortgage market still faces challenges such as furlough and the impact of the pandemic on businesses, however these budget announcements should give confidence to the sector.

As a quick reminder current mortgage deals include 5-year fixed rate offers with interest rates of under 1.3% (although specific deals available will depend on your specific circumstances). With the average standard variable mortgage interest rate sitting at 4.39%, substantial savings may be available to you if you are languishing on one of these (have you checked yours?).

Please do remember that your home is at risk if you fail to keep up repayment on a mortgage or other loan secured on it. And as always seeking independent advice is key to ensuring you find the right mortgage deal for your needs – if you would like to discuss your position our mortgage adviser Ian Chetwynd will be able to guide you through your options.

Lockdown True of False Quiz

As always which of the following are true and which false? Answers and context at the end of the update.

  1. The UK spent £82.4m on the royal family in 2020.
  2. The UK royal family does not feature in the global top wealthiest families list.
  3. 3.2 million UK households have acquired a pet since the start of the pandemic, taking the number of pet owning homes to 17 million.
  4. Mercuria, one of the five biggest oil traders in the world entered an agreement to buy £26 million of copper but received a pile of painted paving slabs.
  5. Office of National Statistics data shows that UK exports of goods to the EU fell by more than 40% in January. Exports to Non-EU nations rose by 1.7% during the same time period.
  6. The US has finally agreed its $1.9 trillion stimulus package with the lion share being stimulus cheques sent to all US households to spend as they please.

Sustainable or Impact investing what’s your motivation?

Over recent years there has been significant evolution in the Sustainable investing world with many different strategies available. Here we look at two of the investment styles – Sustainable Investing and Impact Investing and look to understand how they can fit with investor’s motivations.

Sustainable Investing – Environmental, Social & Governance (ESG) information describes how responsibly a business is managed by showing how its operations affect its most material stakeholders such as its customers and employees or the environment. ESG data is now widely integrated by investment managers because it helps them understand material risks and opportunities that are associated with companies, but which cannot be deduced from financial data alone.

ESG information can also be used as a tool to invest more sustainably. One company’s ESG data can be compared against its peers and scoring systems can be constructed that rank companies from the most responsible (‘ESG leaders’) to the least responsible (‘ESG laggards’). Portfolio managers can use ESG data to construct more sustainable portfolios, for example by focusing on ESG leaders.

 ESG investing can create a variety of portfolios depending on the investment manager’s objectives and how ESG information is used in their decision-making process.

 Impact Investing – Impact investing is not a tool, like ESG, but a more defined investment strategy. Impact investing intends to create a material, additional and measurable positive impact on society. The scope of analysis is larger – while ESG information focuses on a company’s operations (often relative to its peers), impact investing takes a more holistic and absolute approach by evaluating a company’s purpose, as reflected in its core products and services.

Impact investment managers look for companies contributing meaningful solutions to unmet social and environmental needs. In search for a consensus around these needs, impact investors often refer to the 17 UN Sustainable Development Goals as a framework. These Global Goals, adopted by 193 countries, describe specific measures of progress that we must make to tackle our most pressing global problems. The Global Goals guide impact investors’ investment selection and reporting: for example, impact themes might include investments in education (Goal 4), renewable energy (Goal 7) or access to healthcare (Goal 3).

Your Motivation – why is one sustainable portfolio suitable to you and not another? As with all investments the tricky part is finding one that matches your personal needs and will continue to provide you with an appropriate long-term return.

Research from MSCI (Morgan Stanley Capital International) has identified three common motivations for using ESG in one’s portfolio, which have been outlined in the graphic above.

They view the three primary motivations for sustainable investing as ESG integration, incorporating personal values, and making a positive impact. These goals are not mutually exclusive, though, and an investor may relate to more than just one.

  1. ESG Integration – This motivation refers to investors who believe that using ESG can improve their portfolio’s long-term results. One way this can be achieved is by investing in companies that have the strongest environmental, social, and governance practices within their industry.
  2. Incorporating Personal Values – ESG investing is also a powerful tool for investors who wish to align their financial decisions with their personal values. This can be achieved using a negative selection policy, which will identify and exclude companies that have exposure to specific ESG issues for example tobacco or fossil fuels.

 Making a Positive Impact – The third motivation for using ESG is the desire to make a positive impact through one’s investments. Also known as impact investing, this practice enables investors to merge financial gains with environmental or social progress. Green bonds, bonds that are issued to raise money for environmental projects, are another option for investors looking to drive positive change.

Our view – With more varied sustainable investing styles, more noise about sustainable investing emanating from almost every investment manager, and more choice for investors, our role is to help individuals successfully navigate the investment maze. A clear understanding of your motivation is a key part of our investment process, which we then link to knowledge of the investment world to source investments that meet your long-term financial planning needs. In this evolving area of investing regular reviews and investment oversight will pay dividends for the long-term investor.

 True or False Quiz Answers

  1. True – this figure was higher than usual due to the renovations at Buckingham Palace. The size of this donation from the government to the royal family is based on the income from the Crown real estate portfolio.
  2. True – whilst the British monarchy is worth around £72 billion, this is not personally owned, with the Queen’s personal wealth is estimated at around £350 million. Compare this to the wealth of various business owners such as the Walton family’s £154billion wealth (they own Walmart) or the Mars family’s £86 billion. Indeed, the only royals to make the list are the Saudi Arabian Al Saud family with wealth of £68 billion.
  3. True – occasional pet food shortages aside it seems to have been a good thing with 74% saying their pet had helped their mental health while they were coping with coronavirus curbs and only 5% of those who had bought a pet during the pandemic giving it up.
  4. True – the copper was switched with spray painted paving slabs and the switch wasn’t spotted by the Turkish authorities.
  5. True – although this doesn’t include the impact of any pre-Brexit stockpiling that may have taken place. Over the same period imports from the EU were down 28% vs 12% from those from non-EU countries. Time will tell the true impact of our leaving the EU’s trading bloc.
  6. False – less than a quarter of the stimulus will be spent on direct payments to households and only households with income below certain thresholds will qualify for these payments.

As always, please do not hesitate to contact one of our Financial Advisers at our Leamington Spa or Coventry offices if you wish to discuss this in further detail.