Ed Read Cutting - Tax, Wealth & Estates, Financial Planning€¦ · Planning. Pauline Curran...
Transcript of Ed Read Cutting - Tax, Wealth & Estates, Financial Planning€¦ · Planning. Pauline Curran...
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Ed Read Cutting
Director
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Opportunities for Investing in
Uncertain Times
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About Us
Wilfred T Fry - Founder
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What We Do
YOU
Executor
& Trustee
Services
Taxation
Services
Wealth &
Pension
Planning
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Pauline Curran
Director
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1987 Black Monday
1990 Iraq War
2000 Dotcom bubble
2007 Credit Crunch
2015 China stock market crash
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Sir Isaac Newton
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‘ I can calculate the movement of the
stars but not the madness of men…’
Sir Isaac Newton
South Sea Bubble 1720
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The Theory
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The Reality
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Optimism
Excitement
ThrillEuphoria
Anxiety
Denial
Fear
Desperation
Panic
Capitulation
Despondency Depression
Hope
Relief
Optimism
The Emotional Curve
Point of maximum financial opportunity
Point of maximum financial risk
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‘Individuals who cannot master their
emotions are ill-suited to profit from the
investment process…’
Benjamin Graham
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Assessing risk profile
Risks are necessary to make money.
If there's a chance of making better long-term returns, I'm prepared to take an investment risk.
I would get a thrill from making risky investments with my money.
The idea that the value of my investments can be variable makes me feel anxious.
I would worry a great deal if I thought I would lose money in an investment.
STRONGLY AGREE / AGREE / NEITHER AGREE OR DISAGREE / DISAGREE / STRONGLY DISAGREE
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Economic and Markets OutlookInvesting in Uncertain Times
May 2016
Chris HillsChief Investment Officer
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• Economic growth acceptable in US/UK, getting a boost in Europe, slowing in emerging markets
• UK and US politics vying with China slowdown fears as significant drags on sentiment
• Debt levels, both sovereign and consumer, remain substantial
• Corporate balance sheets and profitability supportive
• Inflation not currently a problem, deflation still a possibility in investors’ eyes
• US has made the first step along the road towards more normal interest rates…
• ….but Central Banks need reflation so will remain very accommodating
• The search for returns that exceed cash without volatility remains testing
Economic context
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The Big PictureGlobal GDP - History of Revisions To Forecasts
Source: Citi Research
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Global manufacturing economy still not firing on all cylindersPurchasing Managers Surveys point to improving EM growth but UK slowing
Source: JPMorgan
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UK consumer confidence stalling into 2016…
Source: Capital Economics
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…Brexit concerns are causing the economic slowdown
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What might be the path of US interest rates?
Source: JPMorgan
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Parallels with US in the 1930s?Interest rates didn’t return to “normal” for 25 years
Source: Nomura
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US inflation beginning to tick up, not yet echoed elsewhere
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Future inflation expectations are still falling in Europe
Source: Citi Research
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Bond markets need minimal inflation as many sovereign bonds offer no yield
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US economy sees little sign of recessionThis might encourage the Fed to continue tightening
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Europe - stabilising2015 growth responded to ECB actions and 2016 outlook comparatively resilient
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Profits should rebound if the economy grows…
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Source: Goldman Sachs
… and European Banks are much better funded
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Crisis borrowing costs for the periphery have converged
Source: Credit Suisse
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Chinese currency around fair value
Source: Credit Suisse
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Emerging Markets – Extraordinary Value If China Is Not Broken…..
Source: MRB March 2016
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Emerging Markets – will economic growth accelerate again?
Source: Goldman Sachs April 2016
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Long Term PerspectiveRecent Poor Performance of Equities v Bonds is Highly Unusual
10
100
1,000
10,000
D-25 D-35 D-45 D-55 D-65 D-75 D-85 D-95 D-05 D-15
US Equities v US Long Bonds Total Return 1926-2015 (US$ - Log Scale)
Stocks / Bonds
Source: Ibbotson / IW&I March 2016
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Previous bear market indicators are not flashing
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Asset class diversification – nothing scores well consistently
Source: JPMorgan
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Asset class characteristics and current views
Income Income Growth Capital Gains Predictability Stance
European Equit ies XX Overweight
US Equit ies XX Underweight
UK Equit ies XX Underweight
Japanese Equit ies XX Overweight
EM Equit ies XX Overweight
Sovereign Bonds XXX X Underweight
Corporate Bonds XXX Neutral
Commercial Property Overweight
Hedge Funds XXX XXX
probably Underweight
Infrastructure Funds Overweight
Commodity Funds XXX XXX XXX Underweight
Private Equity XX XXX Overweight
Source: Investec Wealth & Investment
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Infrastructure – one theme we have liked in recent years
• Refurbishment of public sector assets and development of renewable energy
• Governments may use this to stimulate economic revival, but with private sector capital
• High initial yield (above bonds) – currently around 5%
• Scope for income to grow over time, linked to inflation
• Low volatility of asset value
• Lowest correlation with equities (less than 25%)
• Low economic sensitivity and high long term visibility
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Contact detailsChris Hills
Chris Hills
Chief Investment Officer
Telephone: 020 7597 1234
Email: [email protected]
Chris splits his time between the internal task of ensuring that the firm plays to its collegiate
strengths in research and portfolio management, together with the external tasks of ensuring
the firm receives the best input from its suppliers amongst the large investment banks and
asset management organisations and presenting the firm‘s thoughts about current markets to
a range of external clients and interested advisers.
In his capacity as Chair of the firm’s coverage of collectives, he has been responsible for
leading its efforts to develop relationships with external sources of business.
With over 40 years investment management and industry experience, Chris assists clients in
developing the appropriate investment benchmarks and policies to meet their requirements.
Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange and the Investec Group.
Please note that the value of investments and the income derived from them may fluctuate and investors may not receive back the amount originally invested. Past performance is not necessarily a guide to the future. Current tax levels and reliefsmay change and the investments and investment services referred to may not be suitable for all investors.
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Portfolio Construction Investing in Uncertain Times
May 2016
Tom Foster
Senior Investment Director
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Strategic and Tactical Asset Allocation
Asset Allocation framework
– Medium Balanced
0% 10%20%30%40%50%60%70%80%90%100%
Cash
AlternativeInvestments
CommercialProperty
Equities
Fixed Interest
Strategic Benchmark
Asset Class Benchmark Weight
Fixed Interest 22.5
Equities 62.5
Property 5
Alternatives 5
Cash 5
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How has our tactical view changed - moderation of our positive view
May 2015
Asset Class Range
Min Target Max
Fixed Interest 2.5 16.5 42.5
Equities 42.5 67 82.5
Property 0 5.5 15
Alternatives 0 8 15
Cash 0 3 25
May 2016
Asset Class Range
Min Target Max
Fixed Interest 2.5 21.5 42.5
Equities 42.5 62 82.5
Property 0 5.5 15
Alternatives 0 8 15
Cash 0 3 25
Medium Balanced Profile
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What have we done and what are we looking at?
• Reduced our overweight position in equities
-Changes within equities
• Added to indexed-linked bond exposure. Also to high yield bonds.
• Looking for opportunities to add value.
• alternatives
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Structured Product Examples
• Enhanced Income Note
• 6 year life
• Coupon of 5.5% (per annum)
• Income accrued daily and paid every 6 months if the EuroStoxx index is above 65% of its starting level.
• Tradeable every day like a share (not locked in).
• Counterparty risk with the issuing bank – only good quality credit ratings. E.g. Credit Suisse, A credit rating.
• On maturity if Eurostoxx is < 65% of the index starting level then one for one with the index.
• Index Supertracker - (EuroStoxx 50)
• 6 year life
• Returns 160% of the positive performance of the index.
• Capital protected up to 60% of the starting level (then 1 for 1 with the index) – observed on maturity.
• Tradeable every day like a share (not locked in).
• Counterparty risk with the issuing bank – only good quality credit ratings. E.g. BNP Paribas A+ credit
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How do we spot an opportunity?
• Access to a leading US fund management group.
• Established in 1976 with a highly commendable record of outperformance.
• US equity fund targeting best ideas of companies with a potential for corporate change, which they believe to trade at a discount to their potential value.
• Listed in the UK a year ago.
• Now trading at a 10% discount to the value of its assets having been at a 9% premium.
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TR Property
• Pan European investment trust investing in real estate equities and direct UK property.
• Balance between UK and Europe.
• Running since 1997.
• Very experienced and reputable management team.
• Large company and quality bias.
• Price has weakened on Brexit concerns and now trades on a discount.
• Dividend yield of 2.8%.
201 1 201 2 201 3 201 4 201 5 201 6
0 .70
0 .80
0 .90
1 .00
1 .10
1 .20
1 .30
0 .80
0 .85
0 .90
0 .95
1 .00
1 .05
P R O P E R T Y S E C T O R R E LA T IV E T O E Q U IT IE ST R P R O P E R T Y D IS C O U N T T O N A V (rhs )
S ource : D A T A S T R E A M
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What do we look for when selecting a fund?
• Experienced portfolio management team and analyst resource.
• Robust process and philosophy.
• Discipline – remaining within the manager’s circle of competence.
• Alignment of interests between managers and end investors - “skin in the game”.
• Ability to deliver strong risk-adjusted returns.
• Performance drivers indicate skill rather than luck i.e. not just being in the right sector or style.
• Fees are competitive and provide a reasonable probability of net-of-fees outperformance for the end investor.
• Diversification of style exposures important – no particular style outperforms all of the time.
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Style Impact – growth or value
200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6
30
40
50
60
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M S C I E U R O P E E X U K G R O W T H IN D E XM S C I E U R O P E E X U K V A L U E IN D E XM S C I E U R O P E E X U K IN D E X S ource : D A T A S T R E A M
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Contact Details
Tom Foster, Senior Investment Director
email: [email protected] tel: 020 7597 1473
Tom manages bespoke multi-currency portfolios including dollar, euro and sterlingstrategies for both onshore and offshore clients, including offshore trusts andinvestment holding companies. He also manages an IFA discretionary service. Beforejoining the International team at Investec Wealth & Investment in 2006, Tom spent fiveyears with Shore Capital managing discretionary UK and international clients. He is achartered member of the Chartered Institute for Securities and Investments.
Bath 01225 341580 Edinburgh 0131 226 5000 Liverpool 0151 227 2030
Belfast 02890 321002 Exeter 01392 204404 London 020 7597 1234
Birmingham 0121 232 0700 Glasgow 0141 333 9323 Manchester 0161 832 6868
Bournemouth 01202 208100 Guildford 01483 304707 Reigate 01737 224223
Cheltenham 01242 514756 Leeds 0113 245 4488 Sheffield 0114 275 5100
Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange and the Investec Group.
Please note that the value of investments and the income derived from them may fluctuate and investors may not
receive back the amount originally invested. Past performance is not necessarily a guide to the future. Current tax
levels and reliefs may change and the investments and investment services referred to may not be suitable for all
investors.
Investec Wealth & Investment Management Limited is registered in England.
Registered No. 2122340. Registered Office: 2 Gresham Street. London. EC2V 7QP
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Thank you !
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The information in this presentation does not constitute advice and no
responsibility can be taken for any decisions made on the basis of its
content.
We stress that the contents cannot be a substitute for professional advice
which allows consideration of all factors surrounding the individual.
Thorough and professional advice should be sought before making
decisions or taking any action.
Past performance is no guarantee of future returns.
The price of units can go down as well as up.
This presentation is based on our understanding of current Belgian law
and taxation, both of which are subject to change.
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The Fry Group of companies comprises of Wilfred T. Fry Ltd – Taxation Consultants,
Wilfred T. Fry (Executor and Trustee) Ltd, The Fry Group (H.K.) Ltd, The Fry Group
(Singapore) Pte Ltd, The Fry Group (Belgium) SA, and Wilfred T. Fry (Personal
Financial Planning) Ltd.
The last company is authorised and regulated in the UK by the Financial Conduct
Authority and is also passported under EU regulations. The Fry Group (H.K.) Ltd is
authorised to conduct investment business by the Securities & Futures Commission
(SFC) in Hong Kong and is a member of the Hong Kong Confederation of Insurance
Brokers. The Fry Group (Singapore) Pte Ltd is authorised to act as a financial
adviser by the Monetary Authority of Singapore-license number FA095023. The Fry
Group (Belgium) SA is regulated in Belgium by the FSMA (Reg. No. 23345 A-B) and
is also passported under IMD EU regulations.
All levels and basis of, and relief from taxation illustrated here are subject to change
without notice.
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Appendix
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- Have we seen most of the rise in the US dollar?
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- Gold and the US dollar?
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57
Current TAASimplified Schematic
1. The “world catches up to America” not the other way round2. Bar-Bell overweight equity risk with relatively “lower than normal” risk Fixed income portfolio
- Insurance Sovereign debt N
Investment Grade Corporate - -
High Yield Bonds & EM N
N
--
++North America -
Europe ex UK ++
Japan ++
Emerging Markets
+
++Hedge Funds Hedge Funds & Abs Return
Other (Infrastructure/Gold...)
=
EQUITIES TOTAL
Bias +/-
++
UK EQUITIES
OVERSEAS EQUITIES
Developed Markets
Credit Risk &
Emerging Market
FIXED INTEREST
PROPERTY
ALTERNATIVE INVESTMENTS
CASH
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58
Balanced Performance Track RecordAnnualised total return performance to 31st December 2015
IW&I Balanced
Index (%)
ARC Balanced
PCI (%)
1 Year 1.5 1.9
3 Years 5.9 5.2
5 Years 4.9 4.0
Since
Jan 20045.5 5.3
Source: Asset Risk Consultants and Investec Wealth & Investment
From June 2011 the data used to calculate the performance figures consists of all of our discretionary managed clients with a portfolio value greater
than £250,000 and where there are no embargoed stocks. Prior to June 2011 data is based on a smaller but still representative sample. Both the ARC
PCI and the IW&I PCI are calculated on simple average basis. Classification of portfolios is carried out by ARC using historic risk relative to the risk of
global equities. ARC’s risk categories may not match the risk and return objectives of all underlying portfolios. All data is net of fees. Average
performance data will not necessarily reflect the returns achieved by individual portfolios.
Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no
guarantee of future returns. You may not recover what you invest.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1 Year 3 Years 5 Years 10 Years Since Jan2004
IW & I Balanced PCI ARC Balanced PCI Average
Annualised