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Post General Election Update 13/12/2019

Whilst exit polls bring about a certain degree of clarity, the moment Blyth Valley went blue just after 11:30pm it was obvious this wasn’t going to be any normal election night. As we sit and digest the full implications of the election result, it is impossible not to conclude that this result is extraordinary no matter your political leanings.

Right now, in the aftermath it is important for us to cut through the rhetoric and political posturing to get to the heart of what matters to investment markets.

A strong majority for the government brings with it clarity, something that markets have been longing for. Investors, both at home and abroad, have largely sat on their hands waiting for the day that the country could move forward with some degree of certainty, which had stymied investment and had put the UK at a significant discount to the majority of its developed market peers.

Initial market euphoria on the morning of the result has been refreshing. Sterling has strengthened substantially and the FTSE 100, that all too often finds itself moving in the opposite direction to the currency due to the prevalence of overseas earners it counts as its constituents, rallied over 1% (nearer 2%). Whereas the FTSE 250, a much more domestically focused index, found itself up over 5% in early trading. The removal of the risk of market unfriendly policies also brings good news for specific sectors, with utilities, property and banks all rallying strongly.

It may be difficult for investors not to get dragged along for the ride, assuming that this election result means that everything is now rosy in the UK. We must, however, remember that this is not the end of the Brexit process, it simply means that the starting pistol has been well and truly fired.

 

Summary

Volatility is likely to continue as Brexit is negotiated.  We also need to remember that the UK is only a small proportion of global GDP production and economic activity.  In reality, the US/China trade deal is far bigger and the impact on global markets much more significant from this trade deal.

The top geo political risks include major cyber-attacks, rising authoritarianism and trade wars.

However, lets enjoy today as this was the right outcome for markets and the City of London.

 

Steve Speed

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Investment Update 06/12/2019

I had the benefit of good investment input in a live seminar with Invesco on Tuesday, called ‘Investment Intelligence’ and a couple of webinars from Prudential as they outline their current views for asset class returns in their ‘smoothed’ funds range and celebrate 15 years of investment in PruFund Growth.

Both Fund Managers are substantial in terms of their technical input and capability.  We will take note of their input and views on the markets and consider this alongside other views, JP Morgan for example.

J P Morgan on 05/11/2019 thought that we were finely balanced, and a recession could start in the US and then spread around the world.  It was a 50/50 call.

Thankfully things look like they may have moved on slightly and Invesco have said that the markets have priced in all the good news, we just need to deliver against the good news priced into markets.  Invesco’s view on Monday was the recession risk is decreasing and that we have a 65% chance of not having a recession.

Invesco also stated that an economic downturn is unlikely next year although economic and political uncertainties remain elevated.  However, equities are still more attractive than other investment assets.

Key issues for Invesco are as follows:

Issue Low Risk Medium Risk High Risk
Trade X
Brexit X
Bond Bubble X  
Policy Effectiveness X  
Political Risk X  

 

The top Geo-Political risks according to Invesco are:

  1. Major cyber attack
  2. Rising authoritarianism
  3. Trade wars

Prudential have a slightly different fund management style as they manage their multi asset fund with ‘smoothing’ but they also stated that a lot of the good news is priced in to markets.  Prudential also re-stated that they expect lower returns for longer.  This has been a theme for quite a while now and not surprising given how low yields have been on fixed interest and cash deposits over the last decade.

 

Summary

As long-term investors we need to remember the following:

  • Remain invested, it’s about time in the markets not timing the markets
  • Be well diversified
  • Think long term
  • Try to ignore short term volatility, it’s just a function of markets

There is a lot going on in the world and we get bombarded with negative news flow about Brexit and UK politics but don’t be too concerned.  Whatever has happened over the last c 30 years, (man and boy as an adviser – I’m only 21!), the markets have always recovered.

The investment world is far more global today too.  Our key concern now when you invest globally (as most of us do) is for the US and China to do a trade deal.  This would be good for all of us.

Happy Christmas and have a happy, healthy and prosperous New Year from all of us at People and Business IFA!

 

 

Steve Speed

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Fund Suspension for M & G Property Portfolio & M & G Feeder of Property Portfolio

M & G temporarily suspended the property funds listed above from trading from midday yesterday, 04/12/2019.  This means that you can’t invest any new money or withdraw any current investments from these funds.

Brexit related uncertainty and ongoing structural shifts in the UK retail sector have prompted unusually high outflows from retail investors for M & G.

M & G have temporarily suspended dealing in the interests of protecting their customers (our clients too).

Commercial property and property funds should be bought and held for the long term.  Property is a long-term investment asset and it is not as liquid as other assets, for example shares.

Suspending the funds now will give the fund managers time to restore the cash levels by selling assets in an orderly manner and preserve value for investors.

Whilst suspended M & G are waiving 30% of its annual charge on the two funds.  Hopefully this will help any frustrated customers of the fund.  The funds will still be maintained and managed actively by M & G during the suspension.

 

Perspective

The majority of our clients are in tactically and actively managed portfolios or multi asset funds.  This suspension should not impact on these clients.

If you are invested directly in one of the two property funds named above, don’t be concerned.

You should note the following:

  1. Only a small proportion of your total investment will be in commercial property
  2. Over the medium to long term commercial property is a great asset to invest in
  3. Commercial property has a place in a diversified portfolio, it helps reduce risk overall

 

Summary

Maintain the status quo, think long term.  Investing is about long term returns.  When the suspension is lifted your portfolio can be reviewed.  Over the long-term commercial property is a great asset.

 

Steve Speed 05/12/2019

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Woodford Equity Income Fund Wind-up Blog

You may have seen in the news yesterday (15/10/2019), Neil Woodford’s flagship fund, namely the Woodford Equity Income fund is to be wound up with effect from 17/01/2020.

Background

Neil Woodford has been a star of the investment world for years, a contrarian fund manager. When every fund manager bought into Tech stocks in the late 1990’s, Woodford didn’t. His fund was at the bottom of the pile – 4th quartile. Then the tech bubble burst and Woodford was the best UK Equity Income fund manager – his fund jumped to the top of the league.

It was announced in June 2019 that due to large requests from investors to redeem their capital and underlying liquidity issues within the fund, a decision was made to suspend the fund for future trades. The underlying aim of this action was to allow Mr Woodford some time to generate the capital required in order to meet investors’ demands for their capital back. This was to be achieved by repositioning the underlying investment holdings of the fund into more liquid assets/shares.

It was thought that the fund could be suspended until December 2019 or January 2020. However, following intervention from the fund’s custodian, Link Fund Solutions (who runs the fund on Mr Woodford’s behalf), they have now decided to wind up the fund completely.

What does this mean?

Essentially, the fund custodian (Link Fund Solutions) did not feel the action undertaken by Mr Woodford during the interim period (the fund suspension) was sufficient for investors interests and they have stepped-in, in an attempt to help investors, get their capital back quickly. Subsequently, Neil Woodford has now been removed as investment manager of the fund.

Link Fund Solutions Approach

Link Fund Solutions released a statement, which said: “After careful consideration, the decision has now been taken not to reopen the fund and instead to wind it up as soon as practicable. This is with a view to returning cash to investors at the earliest opportunity”.

 

The Regulator (the Financial Conduct Authority (FCA) View

Following the announcement to wind the fund up, the FCA has welcomed ‘the removal of uncertainty’ that Link’s decision has provided, adding, ‘We recognise that investors have been concerned about the state of their investment since the beginning of June’.

‘Winding up the fund will allow the return of money to investors through a number of distributions, which are likely to begin in January 2020. This means investors should receive some of their money back sooner than had the fund remained suspended’.

What is Mr Woodford’s opinion?

Mr Woodford categorically believes that Link Fund Solutions have made a mistake in their decision to suspend the fund, stating ‘This was Link’s decision and one I cannot accept, nor believe is in the best interest of LF Woodford Equity Income fund investors’.

 

What happens now?

Link have confirmed that during the interim period, the fund will continue with its repositioning, but with the aim of preparing the portfolio to be wound-up, after taking into account any liabilities the fund owes. The proceeds of an orderly realisation of the Fund’s assets will be returned to investors in a series of capital distributions.

The portfolio will be split into two portfolios:

Portfolio A: Which comprises the listed stocks and its winding up period will be overseen by    BlackRock Advisers (UK) Ltd; and

Portfolio B: Which comprises the unlisted assets and be overseen by PJT Partners (UK) Ltd during the winding up process

The assets under this portfolio are less liquid and will be sold over time in an orderly manner in order to attempt to minimise loss of value. It is fair to say that this portion of the portfolio will take longer to sell given the nature of the underlying investments which could ultimately delay the process of you regaining your capital.

Link have stated that they expect the first capital distribution to be made to investors by the end of January 2020, but this will depend on how quickly the value of the Fund’s assets can be realised.

Was this the right decision?

It’s a fine line, with good arguments for both camps, but, ultimately, I believe Link’s decision to wind up the fund to be a good logical outcome. My rationale behind this is as follows:

  • As the FCA have stated, it removes the ongoing uncertainty surrounding the fund i.e. when will the fund be reopened? And, could the fund be suspended again if there were mass outflows, if so, how long would that suspension last?
  • The repositioning of the underlying assets that make up the fund go against Woodford’s normal investment philosophy (a contrarian investment approach)
    • With the fund moving to larger cap (FTSE 100) stocks, it is likely to be more appropriate to invest in a fund that solely focuses on this market sector and has a good track record in this area

A major factor that will ultimately prove if this was the correct decision will be to see how the sale of assets under Portfolio B are handled. It is important that these assets are not just sold at a lower value to raise capital, as this would impact on the amount of capital investors get back. It is important that PJT Partners (UK) Ltd take their time in negotiations in order to attempt to get the true worth of the underlying assets held within the portfolio, which they have indicated they will do.

 

 

Carl Mitchell

16/10/2019

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Investment Update Prudential

Investment Update

We had a meeting in our offices yesterday afternoon with Prudential, one of the biggest multi asset fund managers in the world.  Their Investment Director Andy Brown came to discuss their unique smoothed multi asset investment proposition.

It was useful to get 1 to 1 input on the fund management of this multi asset proposition and their current views on markets and where we are in the market cycle.

In line with the consensus view, Prudential think that 2018 will be a year for growth on invested assets generally but with heightened volatility. They also think that we are in the late phase of a bull market and are carefully watching leading economic indicators for any signs that we are entering a bear market.

The Prudential are looking to reduce volatility in their underlying investments, particularly in PruFund Growth, and deliver investment returns in any part of the market cycle, through the use of alternative investments.

They are focused on long term investing and this is how we should view our investments too, over the long term.  Whether or not we have the benefit of ‘smoothing’ in a volatile market we need to remain focused on the long term.

The outlook and views above are as ever subject to unpredictable or ‘Black Swan’ events.

A key message is to remain invested and avoid any temptation to sell when we see volatility in market prices. You have to be invested to benefit from returns, despite volatility and market cycles.

If you wish to discuss this or any other aspect, of your finances, please contact me.

 

Steve Speed

01/03/2018

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Stocks and Shares ISA

Stocks and Shares ISA

 

The term ISA (Individual Savings Account) is one that has come to the forefront of adverts and articles in recent years but does everyone fully understand the saving options available, particularly the Stocks and Shares ISA Read more

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Best ISA

Best ISA

What is the best ISA?

Defining the best ISA is such a hard task as everything depends on what you’re looking to gain from your savings and how long you wish to invest for. There are many things to consider when choosing the perfect ISA to suit you. Read more

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Lifetime ISA – What It Means to Your Savings

Lifetime ISA – What It Means to Your Savings

What is a Lifetime Savings Account? Who is it for?

From April 2017 the government are introducing a new aspect to the Individual Savings Account, the Lifetime ISA. This new ISA offers individuals under the age of 40 to open an account and save with flexibility for the long term. The LISA makes it possible to save simultaneously for your first home or for your retirement. Read more