- The absence of a gain is not a loss in capital preservation
- Forecasting which assets will be best for capital preservation is futile
- Currency is a way to manage risk rather than generate returns
Anthony Rayner, manager of Miton’s multi-asset fund range, comments:
“One of the most frequent questions we’re asked at the moment is how we will preserve capital in the event of a market downturn. This is always a relevant question, but especially so given the current cross currents which are, to some degree or another, influenced by the massive and unprecedented global quantitative easing programme. These forces combine to create a unique context for this question.
“We are currently experiencing a very extended bull market, so the question feels particularly front of mind. Despite having spiked of late, yields are still at very compressed levels in major economy government bond markets and so the degree to which bonds can act as a ballast to equities, or indeed financial markets more generally, is limited. Also, major central banks are on the journey to exit QE, and there are a number of data points which point to pockets of rising inflationary pressures.
“Importantly, these last two points are much more recent in nature and add to the complexity of the task facing central banks. In short, central banks are surely much less confident that they can manage financial market stability, specifically to minimise the threat to economic stability, if inflationary pressures start to build more widely.
“Whilst the current environment is indeed unique, so are most situations, whether pre-crisis or not. This soon becomes apparent when you look at how safe havens have behaved in the past in different crises.
“Crises can be broadly grouped into economic, financial and geopolitical, while safe havens conventionally include US Treasuries and gold, and then currencies. The first thing to note about these safe havens is that they are dominated by the US dollar, either directly or by their denomination, and this is particularly relevant for non-US dollar investors.
“Looking back at how asset classes behave has drawbacks, however the behaviour of asset classes, in isolation and in relation to each other, is rarely consistent for extended periods. Applying that to safe havens means that there isn’t a consistently excellent safe haven. Each situation is unique and the journey each asset class has taken is unique too, think of US Treasuries currently.
“So what can we apply to how a portfolio should be positioned now? Firstly, it’s worth stating that whilst we know there will be a crisis, we don’t know when it will occur and we don’t know its nature. That’s not to say it isn’t worth scoping out some scenarios.
“If it’s an economic crisis in the next few months, it will likely be inflation driven rather than recession driven, given the momentum for economic activity is so strong. If that’s reasonable, then it’s likely that US Treasuries won’t be the first port of call, as higher rates, or the anticipation of higher rates, will likely see them struggle.
“Even though US TIPS (Treasury Inflation Protected Securities) can provide some inflation protection if held to maturity, they can be very sensitive to increases in interest rates, remember they are real yields and so any benefit from higher inflation can be overshadowed by the impact of higher rates. Turning to equity, resources might be a relatively better safe haven, counter-intuitively perhaps, than the traditional defensive stocks (the bond-proxies) which tend to move with the bond yield.
“Of course, our base case might be wrong, the next major crises might be geopolitically driven. Our sense is that gold has tended to be a fairly decent geopolitical safe haven, take its response to the numerous North Korean episodes of late, but how useful is that information, even if it is repeated?
“Geopolitical events are notoriously difficult to forecast, both their starting point and how they evolve by their very nature. Think of the Cuban Missile crisis for example. Yes, it was at the height of the cold war but that specific event came out of nowhere, genuinely threatened world peace, and was then resolved in an unpredictable fashion.
“We believe that forecasting is unhelpful. Even assuming you get the timing and the nature of the event right, which are massive assumptions, how do you know how the crisis will evolve and how assets will behave? Take Brexit, not a crisis in the purist sense of the word but a shock to markets nevertheless. Clearly the timing wasn’t difficult but, whilst the minority of forecasters got the result right, an extremely small number of those that got it right forecasted the correct reaction from markets, i.e. that gilts and equities rallied sharply.
“We think it makes sense to be pragmatic rather than pre-emptive. That’s not to say we’re ‘flying blind’ but we’re looking at what’s in front of us now, not into the future. To allow us to be pragmatists, we remain in liquid investments and continue to be as open-minded as possible.
“It might be that once a crisis hits, cash could temporarily be the best way to preserve capital. That then begs the question as to which currency should be used to denominate this cash. We would argue sterling, as we think of currency as a way to manage risk rather than generate returns, and we are sterling based investors. Sterling is unlikely to be the headline safe haven currency but the absence of a gain is not a loss.
“The current situation is unique but that, in itself, is not unique. This means that forecasting which asset classes are going to be the best way to preserve capital is probably as futile as trying to forecast the event itself.”
What is the procedure for proving a missing or lost Will?
By Alexa Payet, Partner at Bolt Burdon and listed specialist in the Certainty
Contentious Probate Hub & Area
When an individual dies it is necessary to search their paperwork to establish whether they made a Will and gather information regarding their estate. This is important because the personal representatives of the estate have a legal duty to distribute the estate correctly and could be held financially responsible for any mistakes made through any breach of duty.
Where a Will cannot be found but is believed to exist there are a number of steps that can be taken to help confirm its existence, including (but not limited to) the following:
- making enquiries of the deceased’s family and friends;
- making enquiries with the deceased’s professional advisors;
- instructing The National Will Register to undertake a Certainty Will Search.
Presumption of revocation
Where the original Will is known to have been in the testator’s possession before their death and cannot be located afterwards, there is a rebuttable presumption that the Will was destroyed by the testator with the intention of revoking it. If an order for the proof of a copy is to be obtained then this presumption must be rebutted.
Procedure for proving a copy Will
The procedure for proving a copy Will is set out in Rule 54 of the Non-Contentious Probate Rules 1987 (‘NCPR’).
The application is made to the Probate Registry at which the application for the grant will be made and the order can be made by a district judge or registrar.
The application must be supported by evidence in the form of an affidavit (although during the global pandemic the rules have been amended by the Non-Contentious Probate (Amendment) Rules 2020, SI 2020/1059, to provide for the use of witness statements as an alternative to affidavits).
The evidence must set out the grounds of the application and any available evidence that the applicant can adduce as to the Will’s existence after the death of the testator or, where there is no such evidence, the facts on which the applicant relies to rebut the presumption that the Will was destroyed by the testator during his/her life.
The applicant must ensure that the Court has the best available evidence of what happened to the testator’s Will in order that effect may be given to his/her testamentary wishes.
It is important to understand that the applicant does not need to demonstrate that the Will has been lost (it is the fact of its loss which gives rise to the presumption of revocation). Instead, the applicant must establish, by evidence, that the Will was not in fact revoked.
What is a Certainty Will Search and why is it necessary?
A Certainty Will Search searches for Wills that have been registered on The National Will Register (circa 8.7 million Will registrations in the system) and for Wills that have not yet been registered in geographically targeted areas where the deceased used to live and/or work. A Certainty Will Search is extremely important as it will be necessary to notify the probate registry of any persons who would be prejudiced by the grant if the copy Will is proved. If no such person exists then the registrar is more likely to grant the application. Alternatively, if such a person does exist then you should seek to obtain their written consent to the application. The written consents can then be lodged with (or following) your application.
Oil prices rise as investors look to higher demand seen in second half
By Shadia Nasralla
LONDON (Reuters) – Oil prices climbed on Tuesday as optimism that government stimulus will eventually lift global economic growth and oil demand trumped concerns that renewed COVID-19 pandemic lockdowns globally are cooling fuel consumption.
Brent crude futures for March rose 72 cents to $55.47 a barrel by 1152 GMT after slipping 35 cents in the previous session.
“The perception that any retracement will be quick as confidence in economic and oil demand recovery is unlikely to fade away,” said PVM analysts in a note.
U.S. West Texas Intermediate crude was at $52.65 a barrel, up 29 cents. There was no settlement on Monday as U.S. markets were closed for a public holiday. Front-month February WTI futures expire on Wednesday.
Investors are upbeat about demand in China, the world’s top crude oil importer, after data released on Monday showed its refinery output rose 3% to a new record in 2020.
China also avoided an economic contraction last year.
Investors are watching out for U.S. oil inventory data from the industry association API, due on Wednesday, the same day U.S. President-elect Biden’s inauguration speech will likely give details on the country’s $1.9 trillion aid package.
The International Energy Agency cut its outlook for oil demand in 2021, but pointed to a recovery in demand in the second half of the year to an annual average of 96.6 million barrels per day.
“Border closures, social distancing measures and shutdowns…will continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year,” it said in its monthly report.
(Additional reporting by Florence Tan, editing by Louise Heavens)
Can Thematic Investing provide investors with growth opportunities in uncertain times?
New whitepaper from CAMRADATA explores
CAMRADATA’s latest whitepaper on Thematic Investing, considers the role this type of investing can play in asset management and explores trends that can permeate society and traverse sectors. The whitepaper includes insights from guests who attended a virtual roundtable on Thematic Investing hosted by CAMRADATA in November, including representatives from CPR Asset Management, Sarasin & Partners, Impact Investing Institute, PwC, Quilter Cheviot, Scottish Widows and Stonehage Fleming.
Sean Thompson, Managing Director, CAMRADATA said, “In these seminal times, thematic investing has the potential to shape how the future unfolds. Yet running a successful thematic fund is no easy feat – it is a bit like navigating unchartered waters trying to identify the trends and the long-term opportunities.
“Trends such as AI and biotechnology are still in their relative early days, for example, and global economies are undergoing dramatic changes. But mapping out certain trends, identifying potential sustainable returns through a unifying thread that spans multiple sectors, could help future-proof investments. “Our roundtable guests considered current key themes, which themes worked well, and which have not and how thematic investors could identify trends with the potential to offer future growth.”
The guests named themes they currently like which included artificial intelligence, China, climate change, clean energy, automation, evolving consumption, ageing, digitalisation, water, waste management, biodiversity, and board diversity.
After discussing themes that have worked or not, the guests looked at total allocation to themed funds, and whether clients might be blinded by themes to the overall risk exposure in their portfolios.
Key takeaway points were:
- Themes have a habit of coming and going. One guest recognised that automation and robotics, for example, were cyclical, which means that investors will have to think carefully about entry-points.
- It was agreed that the commodities ‘super cycle’ of the 2000s came about with the economic development of China. Many commodities-based products found their way into mainstream investing, but this is unlikely to happen again.
- One guest was surprised by some of the themes that interested their customers; with their research showing that Board Diversity was almost the lowest-ranking concern among the ESG choices they listed.
- There was correlation between environmental impact and social benefits to investing. The theme that concerns the Impact Investing Institute, which is less than two years old, is improved measurement of such relationships.
- In terms of successful themes, one clear winner due to COVID had been digitalisation.
- One theme that has not done so well is the Ageing theme focused on older people travelling and enjoying experiences abroad later in life.
- One guest said their firm used themes for ideas generation, not as a shortcut for portfolio construction. They said themes lead to good ideas, but they then spend at least three months researching a stock, so that the best themes are represented by the best investments.
- The final point was that there are sensitivities for any global investor in allocating to themes, even the biggest one of all, Climate Change.
- But on a positive note, one guest added if all stakeholders can resolve their differences on definitions such as impact and ethical investing, then more capital will be readily transferred into opportunities.
The whitepaper also features two articles from the sponsors offering valuable additional insight. These are:
- CPR Asset Management: ‘Central Banks: leading the path towards Impact Investing’
- Sarasin & Partners: ‘Theme or fad? How to invest for the long term’
To download the Thematic Investing whitepaper, click here
For more information on CAMRADATA visit www.camradata.com
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