ed read cutting - tax, wealth & estates, financial planning€¦ · planning. pauline curran...

Ed Read Cutting

Director

Opportunities for Investing in

Uncertain Times

About Us

Wilfred T Fry - Founder

What We Do

YOU

Executor

& Trustee

Services

Taxation

Services

Wealth &

Pension

Planning

Pauline Curran

Director

1987 Black Monday

1990 Iraq War

2000 Dotcom bubble

2007 Credit Crunch

2015 China stock market crash

Sir Isaac Newton

‘ I can calculate the movement of the

stars but not the madness of men…’

Sir Isaac Newton

South Sea Bubble 1720

The Theory

The Reality

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

‘Individuals who cannot master their

emotions are ill-suited to profit from the

investment process…’

Benjamin Graham

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

Economic and Markets OutlookInvesting in Uncertain Times

May 2016

Chris HillsChief Investment Officer

• 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

17

The Big PictureGlobal GDP - History of Revisions To Forecasts

Source: Citi Research

18

Global manufacturing economy still not firing on all cylindersPurchasing Managers Surveys point to improving EM growth but UK slowing

Source: JPMorgan

19

UK consumer confidence stalling into 2016…

Source: Capital Economics

20

…Brexit concerns are causing the economic slowdown

What might be the path of US interest rates?

Source: JPMorgan

Parallels with US in the 1930s?Interest rates didn’t return to “normal” for 25 years

Source: Nomura

US inflation beginning to tick up, not yet echoed elsewhere

24

Future inflation expectations are still falling in Europe

Source: Citi Research

Bond markets need minimal inflation as many sovereign bonds offer no yield

US economy sees little sign of recessionThis might encourage the Fed to continue tightening

27

Europe - stabilising2015 growth responded to ECB actions and 2016 outlook comparatively resilient

Profits should rebound if the economy grows…

Source: Goldman Sachs

… and European Banks are much better funded

30

Crisis borrowing costs for the periphery have converged

Source: Credit Suisse

Chinese currency around fair value

Source: Credit Suisse

32

Emerging Markets – Extraordinary Value If China Is Not Broken…..

Source: MRB March 2016

33

Emerging Markets – will economic growth accelerate again?

Source: Goldman Sachs April 2016

34

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

Previous bear market indicators are not flashing

Asset class diversification – nothing scores well consistently

Source: JPMorgan

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

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

Contact detailsChris Hills

Chris Hills

Chief Investment Officer

Telephone: 020 7597 1234

Email: chris.hills@investecwin.co.uk

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.

Portfolio Construction Investing in Uncertain Times

May 2016

Tom Foster

Senior Investment Director

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

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

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

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

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.

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

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1 .20

1 .30

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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

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.

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

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50

60

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90

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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

Contact Details

Tom Foster, Senior Investment Director

email: tom.foster@investecwin.co.uk 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

Thank you !

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.

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.

Appendix

- Have we seen most of the rise in the US dollar?

- Gold and the US dollar?

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

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