Good news in that the Bill about Investment Trust charges’ reporting is very much back on parliamentary agenda. Readers might recall the Election stymied the last attempt. Success would be a very useful outcome for holders of these investment vehicles and see reductions in discounts to asset values as well as open new investment opportunities into the future too.
Dividends from UK shares have also hit a new high in the second quarter, according to Computershare. This is all good news, especially for value investors like ourselves! If the regular income isn’t needed to pay your bills it can be reinvested to buy the latest best opportunity within your strategy here, so a constantly purifying process. It’s reported 16 out of 21 industry sectors recorded increased payments, with a median rise of 5.4% – so beating inflation too. The market here has risen well since last autumn but still offers a dependable yield going forward of c4%pa, with capital gains as an additional prospect.
Deutsche Bank calculated that the US S&P500 benchmark has climbed for 28 of the past 37 weeks, the longest run since 1989. That suggests caution is wise though volatility with erratic and big movements on US indices may point to an overdue correction there being imminent. ‘Expect the unexpected’ said Barton Biggs of Morgan Stanley many years ago – there isn’t any such expectation presently and at these levels it is wise to expect that.
Back to the UK – it remains cheap. The FTSE250, perhaps the best reflection of ‘UK Plc’ is still 11% below its peak on 3/9/21. The FTSE100 is nudging its 10/5/24 peak. Don’t forget these figures exclude income and costs. Indeed, even the ‘dull’ FTSE100 has, with reinvested income, still produced a credible 190% return since the index peaked at the end of 1999 – a simple 8%pa, so don’t complain especially when you consider the meagre interest rates for bank deposits (and that’s where some unwise people keep all their longer-term cash!). However, that is way behind the US of course but rather than reason to ignore it, it is reason to buy the UK in preference, as it is so cheap.
Budget
So the budget will be October and we can begin to anticipate what may be within, with big hits to inheritance and capital gains, I suspect. Despite just before the Election noting there were no plans to hit the Winter Fuel payment it has been scrapped for most people (it would have been easier to maintain it and simply make it taxable really, I guess, though the system does know who is on Universal Credit or Pension top-up). Just imagine what uproar there would have been if the last government had done that but the ‘Left’ has been remarkably silent!
Apparently 7million households (covering 10million pensioners) will lose-out and as many as 2million of those need it desperately, according to Age UK Campaigns. There are always many who lose-out when they would qualify for ‘benefit’ but don’t claim or are too proud to claim who will also be affected by this – making it taxable is a fairer treatment. The DWP suggests this is as many as 850,000 households. What would be interesting is if these eligible people start claiming Pension Credit (which apparently averages at around £3,900pa), the total cost would be bigger to the Exchequer than the amount the Chancellor believes she will save by scrapping the universal Winter Fuel allowance…
Not too happy either about the ethics of suggesting there is a big hole in the public finances when all the figures were open (and the economy growing fast) but it seems the ‘hole’ has been created by the Government’s hefty pledges since the election anyway – such as above inflation increases to certain public sector employees and an award to junior doctors well above that and then calling it a ‘budgetary hole’. That’s not honest reporting! High pay increases in the public sector are likely to lead to both inflation but also rising unemployment as organisational budget cuts will have to lead to smaller workforces. I have never seen Jeremy Hunt so angry and impassioned as he was in attacking the misleading comments from the Chancellor.
Good news/bad news
More good news for clients, I am pleased to report. A ‘fund’ with which we became acquainted after new managers dumped Neil Woodford’s holding some years ago, has jumped 25% today. Crystal Amber, which is in wind-up, has announced good news for its largest asset and so the value has rocketed. We own over 5% of the shares and the move today adds over £3/4million to client assets – a 0.25% return for our total pot of client funds from just one holding on one day.
Patience is continuing to be rewarded but there is still a large discount to the underlying asset value here but as ever – this is not a recommendation to buy and we shall be reviewing our considerations going forwards. Remember, patience is often the most important investment anyone should make and sadly when volatility arises and bubbles form in other assets (eg cryptocurrency, not that it is an ’asset’ and US tech stocks), people can become bored and sell-up just before the good news comes. We try to counsel wisdom to such people but there is often no stopping them doing foolhardy things… we are full of similar such funds just waiting…
No-one talks about the Japanese Yen either which finally has turned against the Dollar, rising 7% since 9 July. This is one of our defensive assets on simple valuation terms – we were in far too soon but stuck with it. We do like making a good return on a very safe asset however (cash at the bank in Tokyo effectively) – safety compounded by the vast diversity of assets we hold overall, I should add.
What has been bad for us of late? Nothing of note really – which is good! Having winners and avoiding losers are the overall objective though usually there is always some unexpected bad news impacting something, especially when we have such a long and diversified list of assets for risk mitigation! However, you must also remember – if you have £100 in an asset, its upside is unlimited but the maximum you can lose is only £100.
Customer vulnerability
Just to confirm that our advisory staff have just completed the latest Just Retirement/SOLLA vulnerability module to ensure we are as up-to-date with the obligations to protect people with vulnerabilities and to recognise and respond to those. It is a great evolution that firms in the financial sector have to take account of their customers’ vulnerabilities but it almost seems now that the majority of people is vulnerable with very few categories which don’t ‘count’ and so a dumbing-down becomes inevitable as opposed to the common sense care which professional firms and their staff gave already, on ethical (professional) considerations which were always cognizant of the special needs in such instances.
Indeed, then there is the cost – applying a whole host of extra provisions for myriad vulnerabilities has to be funded somehow and at the end of the day, the customer will pay – as well, potentially, as customers whose circumstances tick the boxes being treated very patronisingly as being incapable of making their own decisions, as a ‘cloud’ of possible consequences is flagged in the mind of the adviser at that point to celebrate a victim being added to the system.
There is a balance and many of the new requirements are very wise but as ever, these things can go too far. I suspect too that many advisers feel very vulnerable themselves at the moment under the regulatory bombardment but they are never given any special treatment by the system!
REITS
According to the latest BoA global fund manager survey which covered 242 managers holding $632billion of assets, they are underweight commercial property Trusts at the greatest amount since the depths of the financial crisis in January 2009. With balance sheets in far better shape now, even simple narrowing of these historically large discounts to the underlying asset values should give good rewards to investors, let alone the trust that commercial property values have also bottomed and lower interest rates will build the attractions. Income from these assets is typically very high too.
It’s amazing to think that several years ago we had none and now we are awash with them as the tremendous value has revealed itself. Many managers, advisers and their clients have none at all, partly because they can’t on their systems or platforms. That’s ridiculous.
Pension transfers – final salary schemes
Have you missed your chance if you didn’t act? Rather, I am going to congratulate all those who shrewdly considered their options when transfer values were so bloated, as interest rates on ‘bonds’ were so low. We have several rather fortunate clients who were able to take the transfer values offered to them at the right time but from transfer values being offered now, it shows what has happened.
We have just seen perhaps the worst yet – and there is no regulatory protection to ensure the Transfer Value offered is ‘right’ to reflect the benefits which would be foregone. That is morally wrong. So, our enquirer has a deferred fund which will pay him a lump sum of over £60,000 next spring and then £9,000pa for the rest of his life. The transfer value offered is a derisory £115,000 (which includes the lump sum!).
Sadly, he wasn’t in touch with us three years ago but I am going to say that the Transfer Value then would have likely been as much as £350,000 and had he transferred, a sensibly balanced pot would have grown in value now to say £425,000 and all that money available for him and his Family, even to inherit tax free, let alone for pension income.
Advice gap
Perhaps very pertinent to the above but numbers of people who sought financial advice last year dropped to only 9% apparently, a drop of 18% on the year. This is for a number of reasons but a very significant one is the escalated regulatory burden imposed on firms and advisers – all well-intended but having an almost inevitable consequence of less advice available at a financially viable price – and advisers leaving the market as it has all become ‘too much’. Consumer duty contributing to widening advice gap – FTAdviser
Over half of advisers have stopped advising smaller net-worth clients, arguably the ones who would most benefit from wise counsel and an ongoing hand-holding.
It’s great when someone can take their own decisions but we come across so many cases when some advice (even when that is free) would make such a difference! Just imagine if the above highly qualified accountant had sought our advice on the subject of his deferred pension benefits, or the person working in the law firm for whom I have just finished a report knew about the nuances of pensions and 25% tax investment bonuses, tax-free cash, employer’s contributions, transferring Marriage Tax Allowances and the special State Pension top-up opportunities… on top of that, we are finding that more and more investment opportunities are being barred from private investors who ‘do their own thing’ as well, as these assets can be seen as ‘high risk’ to the platform they use (like Crystal Amber and many REITs). For us, they are usually even more compelling as they are cheaper as a result and we can buy anything, without constraint!
Just what is the cost of ‘financial advice’ anyway? Presently we are willing to provide a complimentary overview of someone’s finances, without any obligation whatsoever. On top of that, they can subscribe to our staunchly independent, managed investment strategies without any initial fees. Yes, there are brokerage costs when assets are acquired in their strategies but that is the case everywhere (regardless of what they may say…) and yes, there is a management fee for looking-after the capital too as there is elsewhere but we also offer free financial planning updates, including tax-planning, etc.
We hope too we develop relationships so that our clients feel able to contact us about any financial or related legal issue they may have, within the service. Presently too we do not differentiate so even those with small sums can benefit regardless of what it costs us to look-after them.
Foolish teachers
Last year the number of teachers opting-out of the excruciatingly generous Teachers’ Pension Scheme rose 14% on 2023, to a total of 13,112.
Public sector pension schemes are almost unmatchable in the private sector now. The tax-deductible personal contributions are really a ‘must’ to fund, for all employees fortunate enough to have the State backing their retirement planning. Every day in service, including holidays and weekends, gives a credit for retirement.
Please – if you are thinking of leaving such a scheme… take advice and don’t have that flash holiday instead of contributing to your pension – and before you shout, latest research from American Express suggests that a third of people are planning an overseas’ summer holiday as well as a break in the UK so the money has to come from somewhere! It also suggested that 39% were planning two overseas’ trips before September finishes!
Of course, the selfish person, rather than an adviser of integrity says to all public sector employees, please do opt out of your schemes because then our taxes will be lower as we don’t have to help fund your retirement as happens now…
My best wishes
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
