Welcome to our new look Summer edition of 360. We are constantly looking at ways of communicating with you better. We hope you like our new look, eas
Welcome to our new look Summer edition of 360.
We are constantly looking at ways of communicating with you better. We hope you like our new look, easy read publication!! This is our quarterly update on all things financial.
Whilst many are preparing for their summer vacations, probably most of us are hoping for less volatile conditions in the weather as well as in the markets! We hope you find the articles, reports and commentary both useful and informative.
Banking Failures
It’s not a run on the bank this time that has hit headlines, but exactly the opposite. No-one could get their money in or out of the Bank. Natwest/RBS of course is what we are referring to. A computer software failure has been blamed but it has caused untold grief already. At the time of writing, it is unclear whether the RBS group will be paying compensation to those who have been affected. In most cases, compensation is only likely to be due where there has been “financial loss” (rather than just inconvenience) but the bill could potentially be huge, even so.
This whole fiasco does bring into question our huge reliance on the internet. It is increasingly difficult to avoid transactions online, and it should be noted that we use electronic banking and trading every day. We believe it is something to be embraced rather than feared. A word of reassurance firstly about the way we handle your sensitive data. Many IFA businesses hold all of their client data online (in the cloud). I have always questioned the sense in this because if we suffer massive online failure, those businesses have no access whatsoever to your very precious personal data. We use a physical Small Business Server, located in our office which is then subsequently backed-up online. A far better and safer solution – we believe!
And then, we learned of the price fixing scandal at Barclays and today, we have seen the resignation of their Chairman. Much of the call is for a return to integrity and for ethical practices to be re-introduced. Quite right too, we say.
Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. James 4:13 & 14
Global Markets and your portfolio...
As many of you will know, we have been changing and amending our own AWFM model portfolios over the last year or so. Essentially we have moved from 10 straight risk based strategies to 5 risk based strategies although each of the 5 new strategies has 5 time-weighted options. For the table below, we have included all 5 portfolios on both the shortest term and longest term basis.
These portfolios provide a good indication of the levels of return each investor will have received over these terms. You will notice straight away that there are more minuses in red than blue plusses. There has still been a resilience around the perceived safe-haven of Gilts, which has helped to generate the best return from Gilt funds. Strategy 1 over 21 years plus has 38% invested in Gilts and Index Linked Gilts with a further 19% invested in Corporate Bond funds.
These tables provide useful insight into what has happened over the last 12 months but they do not tell you what will happen over the coming 12 months.
In the main, the returns either positive or negative have been in keeping with the risk profile adopted. It is probably the risk strategy 1 over 21 years plus that would give us the greatest cause for concern because of the exceptional return over the last year. In summary however, for almost all investors this has not been a good 3 months, since our last newsletter. Can things only get better?
Understanding Risk
As part of our development of our revised Risk Strategies and the introduction of "Investment Time Horizon's" to our client portfolios, we have introduced a new Fact File entitled "Understanding Risk". this can be found from the downloads section of our website - why not take a look click here to access this informative update!
Investment Returns & Outlook
Turning now to individual sectors, you can see from the chart below that over the last year the range of returns was from minus 17.22% to plus 15.85% - a total range of 33%. Emerging Markets, Asia and Japan have all struggled over the last year, we believe as a knock-on from the troubles in the western economies as demonstrated amply by the sector at the bottom of the pile again – European equities.
Gilts and Corporate Bonds have continued to provide excellent returns over the last year although we continue to be concerned about the outlook for these asset classes over the short term. For longer term model portfolios we have chosen to seek out Strategic Bond funds for the Fixed Interest exposure as these will be able to strategically move between Gilts and Corporate Bond funds as they feel is appropriate.
American Equity funds have performed the best as a sector, which perhaps provides some confidence when looking ahead, as America is still viewed as the leading world economy, despite China’s efforts. UK Equity funds lost some of their value but were much more resilient than Europe or Asian Equities. Property funds took a small dip and Money Market funds also delivered a very small negative return over the last year.
Getting the consensus view of a range of fund managers as to which asset classes they are positive about and those that they are not so positive about, we include an extract from Skandia’s latest publication (we use this table regularly) which we have summarised below:
Spotlight on...Newton Global Higher Income
This fund has achieved Financial Express 4 crown rating and the manager James Harries has, over a long period, outperformed his peer group.Good stocking has had a material impact on results which have tended to be relatively better in a rising market.
James seeks out trends which look set to drive changes in the global economy. Key themes currently include the 'networked world' which reflects the evolution of mobile phones and tablet computers; and 'healthy demand' reflecting opportunities in the healthcare sector as ageing populations in the West, and increasingly wealthy consumers in the East, demand more medicines and greater healthcare.
In contrast some Western economies continue to struggle with debt. He therefore avoids consumer-related business which have benefited from unsustainable spending, and large Western banks, many of which we believe, are still likely to need governmental assistance.
We like this fund because of its flexible thematic approach and also its ability to invest globally, choosing which geographical areas to be underweight and to seek out those which represent the opportunity to take advantage of market conditions. This fund is recommended across many of AWFM portfolios.
Welfare Reforms
We ought to be able to be proud of our welfare state system. Without it, we would not have the system in place to be able to care for those who are vulnerable and disadvantaged through no fault of their own. However, we like many others, feel that there does need to be reform.
In our opinion it is quite reasonable to review and contest a system which currently allows young people to “grab their independence through the benefit system, rather than earn it”....
A brief update for you since our last article on this in October 2011 the 15 year Gilt Yield rate on which Income Drawdown and to some extent annuities are based was at a ridiculously low 2.83%. Well you’ve guessed it, the yield has fallen still further over the last few months and is now seated at 2.31%.
This affects Income Drawdown clients who are either over the age of 75 (because of annual reviews) or those whose funds are being reviewed for income purposes now. If you are an interested party, you need to see the line graph for Gilts (see performance graph earlier in this bulletin) start to fall away in order to see the Gilt Yield improve.
If you have any questions about this newsletter or your existing investments, please contact us to discuss your situation further.
AW Financial Management LLP is an Independent Financial Adviser regulated by the Financial Services Authority. Information given in this document should not be taken as advice as it is intended for guidance only.
