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AJ Bell Investcentre – Are Commodities Primed to Shine Again?

Please see article below from AJ Bell Investcentre – received 23/08/2020

Are Commodities Primed to Shine Again?

Copper’s surge from its spring lows to a three-year high at around $6,500 a tonne is an eye-catching development and one that will quicken the pulse of those advisers and clients who are exposed to miners, cyclical stocks or even equities more generally.

The metal is malleable, ductile and a terrific conductor. As such, it has many industrial uses – ranging from construction to automotive production to wiring to integrated circuits – and as a result, the metal is nicknamed ‘Doctor Copper’, because it is often seen as a good guide to the globe’s economic health. Advisers and clients also seem to treat copper as a useful indicator, since surges in copper seem to coincide with periods of strong performance from the FTSE All-World index and periods of weakness in both also seem to tally (although we must accept that the past is no guide at all to what may happen in the future).

A rally in ‘Doctor Copper’ could be an encouraging sign for equity markets

Source: Refinitiv data

After a minor retreat from its July high, advisers and clients who are bullish on the global economy and equities will be looking to copper to make fresh ground, while sceptics will be waiting for a longer, deeper slide in the metal’s price.

On a wider basis, commodity prices more generally have rallied from the lows plumbed in spring, when investors fled pretty much all risk assets thanks to fears about what the pandemic may mean (fears which could yet be borne out). The Bloomberg Commodity index – which tracks the ‘spot’ price of 24 raw materials ranging from copper to aluminium, gold to silver, hogs to crops and oil to gas – is up by almost a third since late March.

“The Bloomberg Commodity index is up by almost a third since late March but that pales next to the 51% surge seen in America’s S&P 500 equity benchmark over the same time period.”

However, that pales next to the 51% surge seen in America’s S&P 500 equity benchmark over the same time period and the chart shows that commodities’ performance badly lags behind that of American stocks for a good decade or more.

This is intriguing, as commodities and commodity-related stocks dominated for much of the first decade of this millennium, to the extent that ExxonMobil (XOM:NYSE), Petrochina (HK:0857), BHP Billiton (BHP) (as it was then), Petrobras (PETR4:BVMF) and Royal Dutch Shell (RDSB) were among the 10 largest stocks in the world by 2010, as ranked by market capitalisation. Investors were clambering over themselves to buy commodity and commodity-related and China-related stocks, in the view that the Middle Kingdom would continue to grow at a rapid clip, driving both global economic activity and raw material demand in the process.

That narrative came unstuck fairly quickly. Oil – for one – has never reclaimed the heights it reached in 2007–08 and the Bloomberg Commodity index now trades close to the all-time relative lows against the rampant S&P 500 benchmark, reached when technology, media and telecoms (TMT) stocks were in very bubbly form in 1999.

“The Bloomberg Commodity index now trades close to the all-time relative lows against the rampant S&P 500 benchmark, reached when technology, media and telecoms (TMT) stocks were in very bubbly form in 1999. Yet sentiment was similarly in favour of tech in 2000 (when commodities, miners and oils promptly beat tech stocks hands down for a decade).”

Commodity prices trade near their lows on relative basis against the S&P 500 index

Source: Refinitiv data

That begs the question of whether we are now seeing another period when tech stocks are getting overheated and commodity stocks are being underappreciated. Investor sentiment is clearly lopsidedly in favour of tech, in the view that growth is scarce and companies that are capable of generating strong increases in earnings on a secular basis are inherently more valuable than raw material producers where price is their only weapon and end demand is uncertain.

Yet sentiment was similarly in favour of tech in 2000 (when commodities, miners and oils promptly beat tech stocks hands down for a decade) and in favour of raw materials in 2010 (when tech stocks promptly got their own back for the next ten years). Could investors be about to be sandbagged by a similar switch in the next decade, restoring faith in commodities as a worthwhile diversifier and a potential provider on uncorrelated returns as part of a diversified portfolio?

It is possible that the foundations for their renaissance are in place, especially as the best cure for low prices is low prices, as they destroy supply and boost demand. Granted, we are seeing demand destruction right now thanks to the recession that followed the pandemic. But we are seeing supply-side destruction too, as miners and oils alike rein in capital expenditure, focus on cash flow and curb production in many areas.

“Cheap assets can get a lot cheaper if nothing happens to change perception and bulls of commodities need a catalyst that will get other investors interested. One possible such catalyst would be the (quite unexpected) return of inflation.

But cheap assets can get a lot cheaper if nothing happens to change perception and bulls of commodities need a catalyst that will get other investors interested – as Jim Grant once wrote, “Successful investing is about having people agree with you… later.” One possible such catalyst would be the return of inflation. This would be all the more powerful as it would be so unexpected at a time when the depth and duration of the recession is the main market topic of discussion today and most investors seem frightened of a downturn and deflation above all else.

A resurgence of inflation could be one trigger for renewed interest in commodities and commodity-related stocks

Source: Refinitiv data

This column noted two weeks ago (Shares, 6 August) how inflation expectations are slowly ticking higher in the US, thanks to massive amounts of fiscal and monetary stimulus. If this trend continues, commodities could benefit, as the final chart suggests, although higher inflation expectations are likely to be needed to prise some investors away from their beloved tech stocks.

These articles are a useful way to get a good insight of the markets from different investment companies, this particular part of AJ Bell is a stock broker.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis

24/08/2020

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AJ Bell Article: What moves a share price?

Please see the below article posted by AJ Bell late yesterday (20/08/2020):

Forecast-beating results, game-changing contract wins and takeovers are just some of the catalysts that shift a stock.

So you have opened a share dealing account, familiarised yourself with the mechanics of buying a share and purchased a few companies for your portfolio. The next step on the novice investor’s journey is to learn about the numerous factors that drive a share price higher, or lower.

From a top down level, these factors include macro-economic events and data points such as gross domestic product (GDP) readings or interest rate movements, which can impact how shares as an asset class are valued relative to bonds and cash, as well as general investor sentiment towards a particular sector.

However, the key determinant of a share price is how well the company in question is performing; when a business is doing well investors want to own it, so demand pushes the share price higher, and vice versa.

Why shares fall on good results

You might notice on occasion a share price will fall after an excellent set of numbers are published. Typically, this happens when results are published after a bullish update, as the market will already have factored in strong performance.

THE POWER OF CATALYSTS

Investors need a reason to buy a share and some of the strongest catalysts to influence trading are announcements by companies to the stock market. These can be contract wins or directors buying or selling shares, though the most obvious catalysts are the publication of half-year (interim) and full-year results.

As a first-time investor, you need to understand that markets are inherently forward looking and financial figures are historic. Their ability to move a share price is determined by the outlook statement and whether the numbers are ahead of or behind market expectations.

Many companies update on trading in between their published results and analysts often respond by upgrading or downgrading their earnings forecasts.

Stockbrokers compile in-depth financial forecasts for companies which they issue to clients; these are then aggregated to arrive at consensus estimates for sales, profits and earnings per share (EPS), which the first-time investor can access via financial information providers including Bloomberg or Refinitiv, or via free-to-use websites such as Shares own site or Sharecast.com.

Forecast-beating financial results typically drive upgrades to earnings estimates, which can often combine with a ‘re-rating’ of the multiple investors are prepared to pay for a stock, providing investors with a double-whammy that sends the shares surging higher.

In contrast, profit warnings trigger downgrades and ‘de-ratings’ of a stock and its earnings multiple. Over-supply of a stock following the issue of new shares, which dilutes equity ownership, can also exert downwards pressure on a share price.

OTHER CATALYSTS TO CONSIDER

Other catalysts that move share prices include fundraisings, earnings enhancing acquisitions or balance sheet strengthening disposals. New contract wins or stake building by activist investors seeking to shake things up are additional events that can drive share price upside.

In the biotech sector, watch out for positive drug trial results, as these can drive dramatic share price appreciation, while drilling and project updates are often catalysts in the resources space.

For example, Touchstone Exploration (TXP:AIM) confirmed its significant Cascadura natural gas discovery in February and has had positive updates on the find since, sending the Trinidad oil firm’s shares gushing higher year to date.

Takeover bids typically drive a share price higher, as the acquirer usually offers a premium to the prevailing share price in order to persuade shareholders to accept cash today in return for foregoing the potential long-term upside from owning the share.

An example is motor insurer Hastings (HSTG), which recently surged higher on the back of a 250p cash bid.

The offer represented a 47.1% premium to the Hastings share price before the company alerted the market that it had received an approach.

Investing solely on the expectation of a takeover is not a sensible approach. You’ll never be able to predict with 100% accuracy which companies in your portfolio will entice a bid.

Recovery funds look for stocks that have fallen in price, yet which have the potential of climbing back or even exceeding previous levels. But an undervalued stock can remain undervalued indefinitely without the catalyst to prompt a re-rating. These might include a change of strategy or the repair of a battered balance sheet, usually accompanied or preceded by a change in senior management.

A maiden or resumed dividend can be a catalyst even if it has already been well flagged as new investors are attracted by the prospect of regular income.

WHY PROFIT WARNINGS ARE PORTFOLIO PUNISHERS

Share prices can go down as well as up and one of the main catalysts for losses is the dreaded ‘profit warning’, a broad term to describe a situation when a company is forced to downgrade its earnings guidance. It might have lost a contract, suffered higher than expected costs or experienced a difficult trading period that has caused sales growth to slow or even a sales slump, to give just a few examples.

Understanding the cause of the profit warning is paramount for deciding whether to keep hold of the shares or to get out quickly in case the shares fall further.

Sadly, lots of investors underestimate how far a share price needs to travel in order for you to get back to the level it traded before.

If a share price halved from 100p to 50p, equal to a 50% decline, then you would need the share to double, or increase by 100%, in order to get back to 100p. So try not to get too carried away when a share price starts to recover, as you may have to wait longer than you think in order to get back on track.

We often post updates and insights on the markets, but articles like this help give you a better understanding into how the markets actually work i.e. what moves a share price?

Whether you invest in direct shares or into funds/ portfolios, it is good to understand what can influence the price of a share (and ultimately your fund value).

Keep checking back for a variety of different blog content to help keep you updated, informed and to give you insights like this which help to build your knowledge of investing.

Andrew Lloyd

21/08/2020

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Global markets push higher despite downbeat end to week

Please see below for Brewin Dolphin’s latest Markets in a Minute article received yesterday 18/08/2020:

Global equity markets pushed higher for most of last week on positive economic data, before an ugly session on Friday erased most of the gains. Markets dropped in the UK and Europe as France was added to the quarantine list, which hit travel stocks hard. Prior to that, the Nasdaq hit a new record high, as did the gold price, while the S&P500 briefly surpassed the record high it set back in February before closing slightly lower.

Last week’s markets performance*

• FTSE100: +0.95%

• S&P500: +0.64%

• Dow: +1.8%

• Nasdaq: +0.07%

• Dax: +1.8%

• Hang Seng: +3.84%

• Shanghai Composite: +0.2%

• Nikkei: +4.3% *

Data for the week to close of business on 14 August 2020

Mixed start to week on US/China tensions and virus concerns

Markets were mixed yesterday after digesting news that the US and China cancelled their weekend talks to assess how Phase 1 of the trade deal was progressing. It was blamed on “scheduling conflicts” but given the recent escalation in tensions, including banning WeChat and Huawei, perhaps a postponement is no bad thing. London equities rose, with the FTSE100 up by 0.6%. In the US they were mixed – the Dow closed down 0.3% at 27,844.91, while the S&P500 rose 0.27% to 3,381.99. The Nasdaq closed 1% higher at 11,129.73. Europe was also mixed, with the pan-European Eurostoxx up by 0.3%, alongside gains in Germany and France, but equities in Italy and Spain lost ground.

There are concerns that economies are reaching their maximum capacity for growth without further easing of restrictions, which could increase the chances of a second wave of coronavirus infections. However, surging cases in some European countries are leading to more containment measures, not less.

Level of UK GDP (February 2020=100)

UK recession

 The standout headline last week was the UK’s record decline into recession in the second quarter. The -20.4% quarterly fall in GDP does look ugly. It is the largest quarterly decline on record, and it was the biggest quarterly fall amongst major economies. As a services-sector driven economy, the UK has been hit harder than other countries – there was a -23.1% drop in consumer spending, while business investment fell by -31.4% in the second quarter.

More encouragingly, GDP rose by 8.7% month-onmonth in June after 2.4% rise in May thanks to the easing in lockdown restrictions and there is good reason to think this will continue in the short term. For instance, wholesale and retail output rose by +27.0% in June compared with May. And with the reopening of pubs and restaurants in July and the “eat out to help out” scheme in August, we believe the unprecedented fall in GDP in quarter two will be followed by a recordbreaking double-digit growth in quarter three.

In addition, more current high-frequency data such as restaurant bookings, retail footfall and travel show normalisation in activity. However, the risk is that unemployment rises sharply once the furlough scheme ends in October. The ONS said last week that 730,000 fewer people were employed in July compared to March, based on data from HMRC, but with an estimated 5 million people still on furlough.

If such headwinds emerge later in the year, we think the Bank of England will expand its asset purchase program and further stimulus maybe announced by the Chancellor.

Japan follows UK into recession

Japan announced on Monday that its economy had contracted by 7.8% in the second quarter, which is less severe than the slowdowns in the UK, US and much of Europe. This is most likely because it had a less stringent lockdown. Still, the annualised rate of contraction of 27.8% for the three months to June is worse than Japan’s decline at the height of the financial crisis.

US retail sales and inflation

 US retail sales rose 1.2% in July compared to June, below expectations for a 1.9% increase. While the sharper than expected slowdown was a disappointment, the good news is that US nominal retail sales have already surpassed their pre-Covid level, so a flattening off is to be expected. Also, there is uncertainty surrounding the unemployment benefits which account for a large part of the income for millions of unemployed Americans, and there is little sign of progress between Republicans and Democrats at the moment. This will be weighing on consumer confidence.

Meanwhile, the US consumer price index jumped 0.6% in July compared to June, which is the biggest monthly increase since June 2009 (vs +0.3% expected), while the core annualised rate rose to 1.6%. These numbers are clearly still very benign compared to the Fed’s inflation target of 2%, but the risk is that inflation could be a problem further down the road.

Chinese data hints at slowing recovery

Overall the China July activity data continued to show improvement but at a slower pace, not surprising given the lingering Covid threat. The talking point was the disappointment in retail sales given China is increasingly a consumption-based economy, retail sales were still down -1.1% on an annualised basis, perhaps due to a spike in cases and people being cautious about going out. However, the Chinese savings rate is over 40%, so consumers would appear to have plenty of spending power for when confidence returns.

We can use these blogs to keep an up to date consensus view of the global markets. Recent recession news may have come as a shock to many, but the background to situations like these can be more easily understood by reading widely on investment issues.

Keep safe and well.

Paul Green

19/08/2020

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J.P. Morgan – Monitoring the global impact of Covid-19

Please see below an article published by J.P. Morgan’s Chief Market Strategist (Karen Ward) and Global Market Strategist (Ambrose Crofton) last Thursday (13/08/2020) and received yesterday afternoon by email outlining the impact Covid-19 has had globally.

As you can see from the above, the stimulus packages introduced by governments globally have really helped protect the markets from big backdrops and the promise of further stimulus input by governments (if needed) is helping provide some investor confidence.

Trying to time the markets is almost impossible and investors need to remain invested and focus on long-term investment returns and their objectives.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner

18/08/2020

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Brooks Macdonald – Weekly Market Commentary

Please see below the weekly market commentary from Brooks Macdonald – received 17/08/2020

Weekly Market Commentary | US focus shifts to presidential race as tensions with China ease

17 August 2020

Read detailed economic and market news from our in-house research team.

  • Weekly Market Commentary
  • COVID-19 updates

By Edward Park

  • US indices stop just short of all-time highs
  • Fiscal stimulus in the US is delayed as Congress’s focus moves to the presidential race
  • US/China Phase One talks postponed, easing fears of an imminent escalation

US indices stop just short of all-time highs

US indices have stubbornly stayed below their all-time high as delays to the US stimulus package dampened a more buoyant mood. Last week saw a steepening of bond curves globally which implies expectations of stronger inflation, and therefore higher rates, down the line.

Fiscal stimulus in the US is delayed as Congress’s focus moves to the presidential race

With the Democratic and Republican nominating conventions taking place over the next two weeks, markets will need to push back their hopes for a US fiscal stimulus package. This delay means unemployed Americans now see a significant fall in the federal support they receive as part of the COVID-19 relief measures. Given this is around 10% of the US workforce1, this may have a sizeable impact on consumer confidence and demand. This delay will likely put even greater focus on monetary policy in the short term. This week we have the publication of The Federal Open Market Committee (FOMC) minutes for July, where markets will be looking for any discussion on average inflation targeting by the US Federal Reserve. If inflation was taken as an average (rather than a single target), this would allow the central bank to let the economy inflate in the short term without immediately needing to curb monetary policy. However, if fiscal policy is delayed, the market will start to expect further proactive monetary stimulus from the US in lieu of targeted fiscal measures such as unemployment relief.

US/China Phase One talks postponed, easing fears of an imminent escalation

Investors were expecting a call between US and Chinese officials to discuss the Phase One trade deal this weekend. This did not transpire which has helped reduce fears of an imminent escalation between the two sides. This week however will focus on the US election, with the Democratic convention starting today. The main event will be Joe Biden’s speech on Thursday which is of major importance given his current lead over President Trump. Any specific comments around minimum wages, fiscal stimulus, healthcare reform and taxation will be closely watched.

With earnings season slowing, this week is likely to be predominantly driven by US politics as the presidential race increases in pace and US/China tensions remain in the background. US viral cases continue to slow but European countries have stepped up restrictions as governments seek to curb the spread across the continent.

The weekly market commentary articles are useful in providing a quick update regarding recent events from around the world.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis

18/08/2020

Team No Comments

Blackfinch – Monday Market Update

Please see below for this week’s market update received from Blackfinch Asset Management earlier today:

UK COMMENTARY

  • UK Gross Domestic Product (GDP) falls by a record 20.4% in the second quarter of the year, the biggest fall of any G7 country, although the timing of lockdown measures being implemented means that fair comparisons are difficult.
  • The number of unemployed people in the UK has risen by 730,000 since lockdown, and increase of 94,400 in July. The Office for National Statistics (ONS) estimates that a further 7.5mln are still temporarily away from offices and factories, presumably as a results of the furlough scheme.
  • Survey data from the ONS shows that 29% of businesses currently trading said their operating costs were exceeding or were equal to their turnover.
  • The British Retail Consortium figures show that year-over-year growth in total retail sales declined only marginally from 3.4% in June to 3.2% in July.
  • Chief Brexit Negotiator, David Frost, states that a deal with the EU could be reached in September.

US COMMENTARY

  • As the next stage of a fiscal deal once again stalls in Congress, Donald Trump takes matters in to his own hands, as he had signalled he would, by passing a number of executive orders.
  • Payroll taxes for workers who earn c.$100,000 or less will be halted between 1st September and 31st December.
  • Emergency federal unemployment benefits are reinstated at $400, down from the $600 payments that lapsed at the end of July and interest on student loans is being waived until the end of the year.
  • Consideration is also being given to halting evictions and a cut to capital gains tax.
  • First-time jobless claims declined to 963,000 from 1.19mln the previous week. This is the first time since March that new claims were below one million.
  • Retail sales rose by 1.2% in July, following an 8.4% increase in June. Whilst this was below expectations of 2%, the June figure was revised upwards from 7.3%.

ASIA COMMENTARY

  • The US imposes sanctions on 11 Beijing and Hong Kong officials after the imposition of new national security laws in Hong Kong
  • Retail sales and industrial production in China suggest that the recovery is still weak. Data shows a seventh straight monthly decline in retail sales, and industrial production increasing by 4.8%, below market expectations.

COVID-19 COMMENTARY

  • Russia declare that they have approved an effective vaccine against COVID-19, with President Putin announcing that his daughter has already been inoculated.
  • Moderna Inc secures a $1.5bn order from the US government for 100mln doses of its COVID-19 vaccine that is currently undergoing phase III clinical trials. Donald Trump announces that the order also provides an option to purchase a further 400mln doses.
  • The US also strikes a purchase deal with Pfizer Inc for its vaccine, at a cost of $2bn.

These weekly updates from Blackfinch (one of the investment managers we use) give you a good bullet point update which provides you with a short summary of events from around the world over the past week.

These quick read updates are a good way of keeping up to speed with developments both politically and in the markets.

Please check back for our regular market updates from a wide range of different providers from across the industry.

Andrew Lloyd

17th August 2020

Team No Comments

A.J. Bell Article – Infrastructure could offer welcome shelter

Please see below an article published by A.J. Bell on last week on 13/08/2020, which outlines why the Infrastructure sector might appeal to investors looking for alternative assets to hold within their portfolios to provide some diversification.

Why the asset class has appeal in the current environment and the risks to consider

Traditional portfolio asset allocation tends to start with equities and bonds, with a bit of a cash buffer thrown in, before thoughts move to areas that are designed to provide some diversification, in the theory (or hope) that their performance does not correlate with (or mirror) that of the other options.

These ‘alternative’ areas can include commodities, commercial property or even private equity funds but one area which may still be flying a little under the radar is infrastructure.

This is surprising in some ways, since infrastructure, as an asset class has performed well for a decade or more. Looking at it from the perspective of only listed firms in this field, infrastructure stocks have outperformed all of the major geographic indices bar the super, soar-away US, which continues to benefit from the barnstorming run generated by Facebook, Alphabet, Amazon, Apple, Netflix and Microsoft.

While we must all accept that past performance is no guarantee for the future, the past 15 years’ data may give investors some confidence that infrastructure is at least no flash in the pan. In addition, the asset class has several other facets which means it may be worthy of consideration as a part of a balanced, diversified portfolio, especially for those investors who have a long-term time horizon and are seeking income.

Four factors

A selection of companies, held directly or via a fund, that own or operate assets which can range from ports to airports, toll roads to pipelines and essential water and electricity utilities may not appeal to everyone – the thought of owning a stake in an airport in particular right now could leave many investors feeling green at the gills.

But, beyond the tempting past performance record, which appears to show strong total returns over the past 15 years and with lower volatility than most equity benchmarks, there are four other reasons why infrastructure may suit the overall strategy, target returns, time horizon and appetite for risk of certain investors.

The rise of environmental, social and governance factors

The COVID-19 outbreak, a global recession and resulting collapse in the oil price that leave investors contemplating this year’s dividend cuts from BP (BP.) and Royal Dutch Shell (RDSB) are all good near-term reasons which explain the poor share price performance of the oil majors.

But on a longer-term basis, many investors are now steering clear of ‘Big Oil’ not just for financial reasons, and concerns over peak demand and the risk of stranded assets, but ethical ones and issues relating to carbon footprint. Infrastructure funds can help here, as there several specialists in the area of renewables and battery or energy storage technology, notably among UK investment trusts.

Fears of inflation

Some investors may not be convinced by talk of inflation, at a time when the pandemic is still weighing on the jobs market and consumer confidence and demand destruction
and a period of weak economic growth remain clear risks.

But central bank money-printing schemes, ballooning government deficits, supply-chain disruption (if production is brought back home from China, for example) and firms jacking up prices to cover extra Covid-related costs could yet combine to create a surprise.

The US five-year forward inflation expectation indicator is ticking higher, for example, especially if you adjust for the five-year US Treasury yield. This would be a game-changer, as the last 30-40 years have all been about disinflation, and would perhaps make investors appreciate the index-linked nature of many infrastructure firms’ revenue streams.

Property woes

Commercial property has long been seen as a useful and welcome source of portfolio diversification. Some investors may now fear, however, that the relentless rise of online shopping and the pandemic’s effect upon office working and gatherings at leisure sites like restaurants, bars and clubs are going to deal rental incomes and asset values a severe blow.

The reach for yield

Several REITs have cut their dividend and over £40 billion of cut, cancelled, suspended or deferred dividends in the UK stock market alone since March leave income-seekers in a bind, especially as government bonds offer little joy either. Infrastructure could again play a role here, as shown by the investment trusts which specialise in this area – though it must be noted that there are open-ended funds which operate here, too, and even a couple of passive, exchange-traded funds (ETFs) which track the performance of a basket of listed infrastructure stocks.

Note the yields on the investment trusts range from 2.1% to 6.6% for renewables specialists and from 3.2% to 6.2% for infrastructure experts.

Risks

As ever, however, there is no free lunch. Infrastructure stocks (and the collectives which own them) need to offer a yield to compensate investors for the risks involved, which can include regulation, political interference and top-line growth that is usually modest at best. In addition, the UK-listed investment trusts come with an annual fee and they also currently trade at lofty premiums to their net asset value.

At least some of their potential is factored into valuations already and, by paying that premium, investors are effectively giving away some of their future returns. Patience will therefore be required if anyone does feel infrastructure is a suitable option for them, once they have done their own research.

Most of our investment propositions (multi-asset funds or managed portfolio services) take infrastructure in to account as we do.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner

17/08/2020

Team No Comments

ESG Matters – The Smarter Investment in Our Future

Please see the below ESG article from Aberdeen Standard Investments written by Jerry Goh, their Asian Equities Investment Manager, received yesterday afternoon (13/08/2020).

These past few months have forced fund managers, like everyone else, to become more flexible while waiting for life to get back to normal.

Luckily, technology allows me to work from home with minimum disruption. I can mirror my office desktop on my home computer to securely access work programmes and files. I can easily talk to company executives via widely-used video conferencing apps.

My job is to analyse corporate governance (G) issues at Asian companies. Governance, along with ‘environmental’ (E) and ‘social’ (S) factors, make up the ESG trinity.

ESG, and responsible investing, have become hot topics in recent years. This will become even more so as the coronavirus pandemic forces us to rethink our priorities when pursuing economic growth.

As governments around the world pledge trillions of dollars to support businesses and save jobs, this presents a one-in-a-million opportunity to make a substantial commitment towards a sustainable future. One thing I have learned during this time is that sustainability and resilience are often synonymous.

Asia’s record on ESG matters is mixed. After decades of rapid growth, the world’s 10 most polluted cities are located within this region1. Labour conditions can be appalling2. Corporate governance standards, while improving, tend to lag global best practice.

Having said this, there are many signs that things are getting better. Here are a few from my travels – in person and online:

In recent years the region’s investors – asset owners and asset managers – have shown more of an interest in responsible investing. This will put more pressure on companies to change bad behaviour.

For example, Japan’s Government Pension Investment Fund, one of the largest pension funds in the world, announced in 2017 its plan to increase allocations in responsible investments to 10% from 3%3. The targeted amount is equivalent to some US$33 billion today.

Fund managers are signing up to internationally recognised agreements, such as the United Nations Principles for Responsible Investment (PRI), to demonstrate their commitment to sustainability tenets. In China and the ‘rest of Asia’, the number of net new PRI signatories grew 64% and 17% during 2018/2019, compared to a year earlier. In Japan and Australasia, gains were 12.5% and 8% respectively. Combined, net new signatories in all these markets rose by 3394.

Regulators are also doing their part. The Singapore Exchange introduced sustainability reporting for listed companies on a ‘comply or explain’ basis in 20165. Hong Kong Exchanges and Clearing is implementing the recommendations from a consultation paper designed to strengthen ESG rules6. Policymakers in Thailand are driving changes that have made Thai companies among the region’s best for sustainability disclosure7.

Regional industry groups, such as the Asian Corporate Governance Association, provide platforms for stakeholder conversations on responsible investing via conferences and other events.

As a result, Asian companies have become more fluent in the language of ESG, demonstrating evidence of ESG considerations within business strategies and adopting more robust governance practices.

There is still room for improvement, of course. For instance, there is insufficient transparency around materiality assessment – identifying the ESG factors that affect business performance. There is confusion over disclosure of relevant ESG-related data. Lack of reliable data remains a problem.

As I write this, Singapore (where I am based) has relaxed some of the restrictions put in place to combat the spread of the coronavirus. A few countries within this region are also taking the first tentative steps towards normality.

Everyone has to think carefully about the sort of future they want. Even when the coronavirus is beaten, the world still faces significant challenges.

But this cannot mean that it’s ‘business as usual’. Everyone has to think carefully about the sort of future they want. Even when the coronavirus is beaten, the world still faces significant challenges.

For example, climate change poses an even greater long-term threat than Covid-19. Many people around the world would have seen, or experienced, the effects of rising temperatures. Societies are already counting the human and financial costs of higher sea levels and extreme weather events.

Social inequality – the growing gap between the world’s haves and have-nots – is another major challenge. Inequality has led to widespread anger that, in some cases, has unleashed social and political upheaval.

The world is also consuming resources at an unprecedented rate. People are depleting the world’s natural resources which cannot be easily replaced, if these resources can be replaced at all.

Investors everywhere have an important role to play in finding answers. We can help direct investments towards companies that are working on sustainable solutions, or engage with companies to help change bad corporate behaviour.

Recalcitrant firms that persist with carbon-heavy activities, that exploit their workers, or damage the environment, can be penalised by having their access to capital revoked.

Even if our work and personal lives won’t feel completely ‘normal’ for some time, we mustn’t allow this sense of suspended reality delay those important decisions that will have profound effects on the world.

Finding solutions will generate new investment opportunities. However, our generation also has a huge responsibility to all those that follow us. We cannot let them down.

1World Economic Forum

2The New York Times, Foxconn Is Under Scrutiny for Worker Conditions. It’s Not the First Time, June 11 2018

3Reuters, Japan’s GPIF to raise ESG allocations, July 2017

4UN PRI, Annual Report 2019

5SGX, Sustainability reporting guide and rule, June 2016

6HKEX, Exchange Publishes ESG Guide Consultation Conclusions And Its ESG Disclosure Review Findings, Dec 18 2019

7CFA Institute, Market Integrity Insights, June 12 2019

Our Comment

This blog highlights Asia’s focus on ESG and ‘responsible investing’, and as we have noted before, the Coronavirus Pandemic has brought ESG matters to the forefront, not just in Asia, but globally.

It seems that this type of governance and investment will become (to use a phrase which now seems to be used daily) ‘the new normal’ with investing.

If you haven’t already, please see the below links which will take you to our 3-part blog series, ‘An Introduction to ESG’ which we posted throughout July for an introduction to what ESG is, how its measured and what we at People and Business are doing to make sure we are moving in the right direction with regards to sustainable investment themes.

We will continue to post regular ESG content, both our own original content and a selection of good quality input from various Fund Managers and investment houses.

Part 1 – https://www.pandbifa.co.uk/what-is-esg-an-introduction-part-1/
Part 2 – https://www.pandbifa.co.uk/what-is-esg-an-introduction-part-2/
Part 3 – https://www.pandbifa.co.uk/what-is-esg-an-introduction-part-3/

Andrew Lloyd

14/08/2020

Team No Comments

Housing market and Rightmove are resilient (for now)

Please see below for the latest update from AJ Bell Regarding the housing market:

Both the property site and the wider space are likely to be tested in the autumn

Thursday 13 Aug 2020 Author: Tom Sieber

The resilience of the UK housing market has been one of the notable features as we moved out of lockdown and into the next phase of the pandemic.

This was reflected in recent first half results from property site Rightmove (RMV) which saw the company reveal that between the beginning of June and end of July demand for sales properties was 50% higher than the same period in 2019.

In lockdown there were predictions that estate agents would act on grumbles over Rightmove’s increasing level of fees and use a period when the market was effectively in hibernation to leave the platform.

However, membership numbers for agency branches and new home developments combined were down just 3.3% since the start of 2020 to 19,158.

It seems rather than driving agents away, a period of housing market volatility may have reinforced the network effect which has helped underpin the company’s impressive growth over the last decade or more.

Because the site has the most listings, it is therefore the one which prospective property buyers will go to when looking for their next home. This reinforces its position as a must-have product for estate agencies and gives it significant pricing power when it comes to securing subscriptions from agencies.

Agents are arguably more reliant than ever on Rightmove’s services and reach as they have to sell properties to stay afloat.

However, it will be interesting to see if this holds true if or when Rightmove looks to return to a pre-Covid pricing structure having offered discounts through the crisis.

Currently discounting has been extended until the end of September – although that month will see a reduction of just 40% compared with 75% when lockdown was at its height.

The foundations of the housing market may also come under pressure this autumn, assuming the furlough scheme comes to an end as planned in October.

This could lead to a material increase in levels of unemployment, which is likely to have a negative impact on demand for homes.

A look at house prices and unemployment over the last 20 years unsurprisingly indicates a significant negative correlation with house prices falling as unemployment rises and vice versa.

Please use these blogs to regularly update your view of the financial markets and remember to take a holistic view of your finances. Although liquid assets tend to take the headlines initially during market drops and grab the public’s attention, other assets, such as property, should not be left in the background of thought, as this article demonstrates.

Take care and keep well.

Paul Green

14/08/2020

Team No Comments

Protecting Mental Health in the post-Covid 19 workplace

Please see article below from Unum’s bWell – wellbeing newsletter received 12/08/2020

Protecting mental health in the post-Covid 19 workplace

Publish Date: 21/07/2020

The events of the past few months have affected everyone. Whether employees have been working from home, furloughed or key workers supporting others and keeping the country going, everyone has faced their own challenges. But as we come to terms with a new way of life, the impact on our mental health is still unclear. So how can employers help prevent mental ill-health in the post-Covid workplace?

Mental_Health_Resource_image_1200X675px_19.06.20 (1)-1

If businesses believe the threat’s been blown out of proportion, it’s not a view shared by the UK’s mental health organisations. In June, 62 agencies, including the Mental Health Foundation and Young Minds, wrote to Matt Hancock, the Secretary of State for Health and Social Care. Believing the effects of the unprecedented crisis are likely to be widespread and long-lasting, they asked him to address the “urgent need” to support our mental health and wellbeing.

As we emerge from lockdown, the mental health pressures on employees will change. After dealing with the challenge of social distancing and being separated from colleagues, the thought of returning to the office, getting back on public transport, or coming off furlough could be overwhelming. They are likely to experience a whole range of emotions from excitement and optimism to anger and anxiety. It’s important that employers recognise this and put plans in place to effectively support the mental health and wellbeing of their employees – both for now and the months to come.

Emerging mental health challenges

An ONS survey at the end of May found more than two-thirds (69%) of UK adults said they were very or somewhat worried about the effect of Covid 191. But whatever an employee’s situation, the challenges of the last months will have had an impact. Dealing with new ways of working or even not working at all, only make up part of the picture. People have also had to cope with their whole lives changing literally overnight. Juggling childcare and work, being separated from loved ones and dealing with financial pressures are just some of the issues they have had to face.

Feeling more isolated

Even before the pandemic, levels of loneliness were already worryingly high. Somewhere between 6% and 18% of the UK population reported often feeling lonely2– something which can have a significant impact on both mental and physical health. Since lockdown, the number of UK adults who say they often or always feel lonely has risen to 25%3.

Men have been particularly impacted. New research has discovered that 79% of men living alone are struggling with feelings of isolation while working from home, while 39% say their mental health has deteriorated. This increased in young men aged 18-30, where 40% said their mental health has been negatively impacted4.

With over 90% of the workforce5 saying they’d like to continue working from home at least some of the time after the restrictions are lifted, employers need to consider what this could mean for their employees’ mental health. While working from home avoids a potentially time-consuming commute and can help improve the work/life balance, it can be easy to feel detached and isolated. Employers should think about what measures they can put in place to prevent this happening.

Increased alcohol consumption

One of the side-effects of lockdown has been an increase in our alcohol intake. According to Action on Addiction, a quarter of adults were drinking more in June than before March6. Regardless whether this was a way of dealing with boredom, or raised levels of anxiety and stress, 15% of those who are drinking more said they were experiencing problems, including having issues with work. Employers need to be aware of these shifts in behaviour and ensure employees know where to turn if they’re struggling with drink.

Fear of meeting people

Since lockdown began, official messaging has emphasised the need to stay at home and avoid contact with people as much as possible. Even as restrictions ease and more places open, we’re told to stay alert against an invisible threat. The consequences of venturing out and leaving the safety of home can feel immense, especially to those either with underlying health issues or who have a vulnerable family member. Many employees may be worried about returning to work and being alongside colleagues again.

Fear of open spaces or being in a situation that feels unsafe – agoraphobia – was already common in the UK pre-lockdown, with an estimated 5 million sufferers, and one that affects approximately twice as many women as men7.

With large numbers of people spending a prolonged period of time at home, this figure is likely to increase. After spending so long in a safe and comfortable environment, many will fear the uncertainty of what their workplace will be like, being surrounded by people again and worry about how they’ll keep themselves safe. It’s vital that employers recognise this understandable anxiety and reassure employees that every precaution is being taken to ensure their safety.

Tips for employers and leaders

  • Encourage employees to be proactive and look after their own wellbeing, while reminding them that your door’s always open if they need support.
  • Look for any changes in their behaviour or signs that they might be struggling – early intervention can prevent a problem from becoming a long-term issue.
  • Consider mental health training to equip line managers with the skills to spot and support an employee who may be having difficulties.
  • Provide employees with access to trusted and reputable resources to keep them informed, but not overloaded with information.
  • Clearly communicate the safety measures that have been introduced to make the workplace Covid-19 safe and ensure employees understand the guidelines in place.
  • Encourage employees to limit how much they talk and share about the virus. The more it dominates the topic of conversation, the more it’s likely to increase fear and anxiety.
  • Keep talking to employees, be honest about your plans and acknowledge the concern that’s likely to exist.
  • Good work is good for mental health – provide employees with clear objectives and directions so they know exactly what is expected of them.
  • Highlight to employees what mental health support is available, such as an Employee Assistance Programme. Clearly communicate how they can access the service and emphasise it will be confidential.
  • Signpost employees to appropriate expertise provided by external organisations, such as Mind.
  • Consider how you can offer extra support to employees who may be struggling more, such as those with caring responsibilities or those that live alone.
  • Recognise employees that are doing a good job and reward their efforts.
  • Those that previously have had mental health problems may suffer a recurrence of their illness – be proactive and offer them support.
  • Encourage and facilitate volunteering opportunities for employees. Helping others is an effective way to boost mental health.
  • Support employees to develop their own skills, providing them with a positive focus and ensuring they look forward, rather than reflect on past difficulties.
  • Promote personal care plans for employees – urge them to take the time to think about what they can do for themselves to build resilience and boost their mental health.
  • Offer practical support and advice to employees around their journey to work, such as allowing employees to work flexibly, so they can avoid rush hour.
  • Encourage the use of video meeting tools like Zoom or Microsoft Teams so people working from home can keep in touch and see colleagues.
  • Keep monitoring the situation. Everyone is moving into unknown territory, so regularly check-in with employees to ensure the mental health support available covers all their needs.

Providing employees with the right support to protect their mental health and build resilience will be crucial for employers in both the short and long term as restrictions relax. There is a very real danger that a mental health crisis of unprecedented proportions could unfold. Employers acting proactively can prevent this happening.

The Coronavirus Pandemic has had a major impact on all of our lives and has affected everyone in different ways. As noted above the impact on our mental health is still unclear.

As we gradually emerge from lockdown and start to get used to a new normal, the challenges of returning to the office could be overwhelming for many people. It is important for employers to recognise this and have plans in place to support their employees.

The above article provides some helpful tips for employers and protecting their employees mental health in the workplace.

Please continue to check back for out latest updates and blog posts.

Charlotte Ennis

13/08/2020