By Michelle McGrade, chief investment officer at TD Direct Investing
With two weeks left before tax year end, many investors are wondering what to do with the remainder of their ISA allowances. In addition to poor returns from cash, after the Bank of England kept interest rates at 0.25% last week, inflation – which has risen to 2.3% in February, above the Bank of England’s 2% target – is continuing to eat into real returns and eroding purchasing power.
The UK stock market (FTSE All-Share) was up 16.8% in 2016, which may make investors wonder if now is the right time to invest. It’s important to remember that the global outlook is reasonably rosy and if Brexit is executed cleverly, then the UK in particular has a bright future to look forward to. So, the outlook for the investor is that there may be some short-term wobbles but over the long term, sensible investing should help you prosper.
With current market conditions in mind, where should investors look for inspiration? Below, I’ve included a varied selection of opportunities and related funds that investors might want to consider:
There are plenty of ways you can invest in the rapidly expanding area of disruptive growth. Whether you decide to go down the active or passive route, the long-term story for investing in technology remains intact. Despite some potential near-term headwinds, such as protectionist policies in the US, Henderson believes the technology sector could outperform global equities over the medium term. As tech gets cheaper and faster, it will continue to grow market share in the global economy.
This year we crowned Mark Slater as the best performing fund manager in our Best of British list. With an exceptional track record over more than a decade, Mark has topped the list two years in a row. He tends to focus on small and mid-sized companies, gets to know the ones in his portfolio very well before he buys them, and typically holds them for a long time. The portfolio was hampered last year by the EU referendum result, but Mark stands by it and he is excited for the prospects of the companies within it.
If you had invested £20 each month in the fund, your total returns over 10 years would have ballooned to £5,497 from your original contribution of £2,500 – net of fees – which amounts to an increase of 120%.
Policy shifts in the both the US and the UK towards a more growth-friendly environment – albeit tempered by higher input prices in the shape of oil, higher inflation, and modestly higher interest rates – could see pro-growth funds do well. Managed by Charles Plowden, Malcolm MacColl and Spencer Adair, the Baillie Gifford International fund aims to produce attractive returns, primarily through capital growth, over the long-term. The fund invests in an actively managed portfolio of stocks from around the world (excluding the UK).
Over 80% of the world’s population live in emerging market countries. In considering this statistic, JP Morgan notes that these countries arguably “…house the consumers of the future” and represent an asset class that is growing considerably faster than developed markets. At M&G, fund manager Matthew Vaight likes investing in cheaper companies and is encouraged by their improving capital management trend. Emerging markets are a good portfolio diversifier.
Last year, OPEC and non-OPEC oil producing countries announced that they would stem the supply of oil so that oil prices would rise to acceptable levels. We believe that there is the will to do this and at $70-75 a barrel, companies will again have the ability to become profitable. The portfolio is concentrated, with only 30 names in it and is managed by a highly experienced and dedicated team of three: Will Riley, Jonathan Waghorn and Tim Guinness.
Mike Fox, the fund’s manager, believes the commitment to limit the rise in global temperatures at the Conference of the Parties (COP) Paris climate change convention in December 2015, could be a catalyst to making sustainable investing even more mainstream. This is despite Donald Trump’s recent rhetoric on the subject. China and the rest of the world are committed to improving the planet, but there is more to it than just the environment – it’s the way we live and work too. Mike and his team identify companies that are run by savvy business people, with the aim of making improvements one way or another for our world.
Henry Dixon buys companies that are cheap, have been forgotten by the markets and have a promising upside. He has a disciplined approach and conducts thorough analysis of company balance sheets to understand the company’s assets and liabilities. With more government spending promised, Henry’s portfolio of mainly UK domestic mid-sized companies, which have been held back in the last few years, have the ability to stage a comeback.
For those perhaps a little short on time or who prefer a passive fund solution, take a look at our Quick Start Funds which will help you get set up and investing quickly. Comprising a range of Vanguard LifeStrategy portfolios which offer global exposure to a mix of assets, these funds are split into three levels of risk and return, with the Vanguard LifeStrategy 80% equity fund in particular being one of our most popular funds.
Companies which own and operate infrastructure assets typically have contracted or regulated earnings streams. This is the case with many of the holdings in this fund, which enables manager Peter Meany to pay a reliable, attractive dividend yield. Its holding in Australian toll road operator Transurban, for example, allows it to link directly to the inflation rate, which we view as a positive.
A focus on high-quality companies has benefited performance as government bond yields declined. Ian Spreadbury has been diversifying into high yield bonds (now around 25%), which we think is a sensible move in the quest for income, although the fund’s core exposure remains in corporate bonds.
What should I invest and How do I invest
By Imogen Clarke, The Fry Group
With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.
For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.
If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.
There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?
With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:
Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.
So, how do you decide where to invest?
According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.
The main areas of ESG investing include:
- Environmental challenges (climate change, pollution, etc)
- Social issues (human rights, labour standards, child labour, etc)
- Governance considerations relating to company management
According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”
ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.
As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”
So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?
There are four areas of ESG investing:
- Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
- Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
- Positive screening strategies:when companies meet the ESG goals and are approved for investments.
- Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.
You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?
Investment Roundtable: Live with Jim Bianco
With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.
- Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
- Identify important intermarket relationships he is watching with respect to Global Equities
- Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.
Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.
Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.
At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.
The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March. As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.
These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.
The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term. A rise in the unemployment rate to 8% or so later this year still looks quite likely.
Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.
Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.
Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.
It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.
All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.
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