Wobbling markets and avoid the inheritance trap

Market slump graph line
The markets are having a bit of a wobble at the moment
The markets are deciding to have yet another wobble. The tech-based Nasdaq is now down 25% from its high and all those relying upon its major components for their cheap global tracker funds are beginning to realise that that’s not such a good idea after all when ‘all’ the tech stocks unravel so significantly and all at once.

They will have accelerated the ascent, yes but some of the drops have been savage – Baillie Gifford’s lauded Scottish Mortgage Trust for example has dropped almost 50% since its peak last November – suddenly, borrowing new money and using that to buy-in its own expensive shares is not a very good idea at all (it owns 40,730,318 shares in ‘treasury’ which it has bought back at levels far higher than now).

Fundsmith’s Global fund is also hit hard – down 16% since its year-end peak. Its Smithson Investment Trust has hurt even more – down 38% and the shares languishing at a discount to the net asset value after too many were enthusiastically paying a toppy premium to assets since launch – ouch. The Trust is also buying-in its own stock from the market now.

What should you do? Keep calm and invest in some patience again for a while. Don’t encash market investments if you can help it (though if you still have too much of the wrong stuff, like tech, yes, don’t hold-on for a superstitious recovery which may not come).
Sadly, we have one such Fund like that where the manager has done all he can to destroy value – Blue Planet Investment Trust fund’s shares were trading at 30p April 2021 and some sold yesterday for 11p as the manager recklessly ditched the previous balanced investment policy to pursue a spivvy US-based tech portfolio. That is one of the worst destructions of value we have seen for a long time and a reminder as to why a very diverse range of investment components is imperative at all times. The latest net asset value is 15.62p (it will be less again yesterday) and 39.35p on April 9 last year – disgraceful and yet the Regulator takes no action to investigate despite our pressed endeavours.
So the Americans and now us are increasing interest rates to stave-off hyperinflation. We have the highest Bank Base Rate since 2009 – really a very long time ago and you may remember the financial crisis which created the hyper-low rates in the first instance. You may love the thought of having even some coppers of interest on your savings now but remember that the gap between interest rates and inflation (predicted to hit 10%) is the highest it has been in living memory (if not ever) so in real terms, the spending value of your cash is dropping by the most ever if all you do is leave your money on deposit or in things like Premium Bonds, mainstream National Savings or under the bed! Look at it this way, that tenner in your pocket will only buy £9’s worth of goods in one year, so even 20p’s interest (2%) doesn’t cut the mustard.



Well, since the tail-end of last year, most investors in the biggest funds and investment types (elsewhere) won’t have done very well. The pots which have attracted the biggest monies have been hit the hardest and the likes of the FTSE100 is one of the few indices to be comparable to where it started the year but very few investors these days have sensible amounts of money in that. In fact, I have seen numbers suggesting that only 5% of investment managers have kept pace with the main index in 2022.
Why is this? Because the FTSE100 only has roughly 5% in ‘tech’ and still has 21% in energy and materials and the former has been up 34% with chunky dividends on top. Over the last few years, pious ESG investors have of course excluded themselves from the ’energy’ sector amongst others and when you add-in defence and tobacco, which have also gone up as other things have gone down, no wonder 95% have under-performed. Some of the bigger players are showing losses of 20% or more on their mainstream funds which most of their investors have – which is rather serious – especially when the FTSE100 is relatively neutral after income is added.

Where are our clients’ funds? Well, it starts well in that we have only a small amount of the things which have been hit the hardest (tech) but we have smaller company funds which have hurt and several FTSE250 stocks and that index is down albeit not quite as much as the Nasdaq. However, shrewd purchases in other areas leave us looking better positioned and with a good dose of commercial property REITs, miners and staple commodities like uranium, wheat and agricultural products which have risen sharply, we have had useful compensation for the hits afflicting sentiment. Even if we can’t match the mainstream equity index, we are carrying about a quarter of clients’ assets in defensive holdings at the same time.

As ever, the future is what counts and the shake-out has afflicted the good as well as the bad and some sectors and stocks are very attractive now, from financials and insurers, investment managers and brokerages to biotech and generic pharmaceuticals, certain basic engineers and especially smaller companies. Outsourcers will gain handsomely over the next few years too and there is value there and some commercial construction entities have been neglected for too long. Banks are still fair value and also mainstream supermarkets and there remains plenty of value in Real Estate Investment Trusts at discounts to asset values and often all of these things pay us a great income whilst we await a rerating too. I think that’ll do for now.


Saving inheritance tax and care home fees  

It sounds like a good idea but transferring the home to the children does not save either and causes all forms of grief down the line. Unless a fair, open-market rent is paid to them for the property gifted and it is not a clear depravation of assets to qualify for a prospective State benefit (which is fraud) then fine but recognise that the children don’t enjoy your Capital Gains Tax freedoms either and what happens if you fall-out with them or their relationships turn sour…?

Over the last five years, HMRC has secured £608million from 2,000 families who thought they’d save some IHT… and to add insult to injury, the children would have had the property transferred at the tenanted value at the time of the transfer and then selling a vacant property, so plenty of CGT at 28% (which would have been avoided altogether if it had stayed in the parents’ names). And yes, the total IHT bill hit a high of £718billion in 2021/2.
I must ask though – yes, there were extra costs (and Stamp Duty?) but what were the lawyers or conveyancers who dealt with the transfers doing at the time – let alone the vulnerability position to them? They could be in a very precarious position themselves now from disgruntled family and big financial liabilities too.    


Fraudulent calumny  

I was pleased to see the case of Whittle v Whittle in Bristol High Court where the fraudulent daughter had tried her hardest to ensure her brother was disinherited from her Dad’s Will. It took five stressful years but finally a Judge ruled against her and she has had to shoulder the joint £100,000 legal costs’ bill too.   It really is a very sad indictment of human life with some of the situations we see with Wills and Estates. Many are so unbelievable that if we wrote a novel, they would be seen as too far-fetched to perceive such things can happen but yes, they do. With property values being so high, the vultures certainly circle when a death arises and even if ‘they’ have not been around or supportive for years.

Challenges to Wills also arise frequently as well and all the more reason to plan your own Will well and even to do ‘other things’ if you fear problems down the road. And remember, the cost to your life and health of a protracted legal action cannot ever be under-estimated and the lawyers always win – whatever the outcome.



I know I started something wholly unrelated to investments the other month but for those of you interested, this link is fantastic and may help you enjoy what’s flying near you tonight!  
 What’s flying tonight  

However, perhaps at the moment it is a pleasant distraction from what is happening around about us and remember, many of these tiny creatures exist in very localised arenas and have done so for millennia, regardless of what the world has done over that time.    

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth Manager
Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers