Author Archives: IFA Shops

Can I be the first to say that 2017 was actually pretty good? – Harvey Jones

2017

2017 was yet another great year for stock markets, not that most investors seem to have noticed.

The mood has been downbeat, as it has been throughout the post-financial crisis recovery, which I have previously called the bull run nobody loved.

The euphoria that marked the 1980s and 1990s has been markedly absent, as if investors have been so traumatised by the events of 2008 they no longer dare enjoy themselves.

Stimulating times
Investors are no fools, they know asset prices have been propped up by central banker stimulus, and fear what will happen when they turn off the fiscal and monetary life support.

The process is now underway, at least in the US, where the Federal Reserve has hiked interest rates three times this year, while even the Bank of England hiked in November and found that the world did not end after all.

Up, up, up
If you find it hard to believe 2017 was such a good year, take a look at the figures.

At time of writing, Europe has posted supremely healthy stock market growth of 19.72% year-to-date, according to MSCI.

It was closely followed by the US at 18.52%, while even the Brexit-plagued UK rose 12.85%.

Emerging markets came storming back into form, rising 30.3% according to MSCI, with China blazing a trail at 48.13% and Argentina the global winner up 73.1%.

Worst performer was crisis-stricken Venezuela, its market plunging more than 95%, but your clients are unlikely to have money there.

Markets up, sentiment down
2017 was the year global markets faced down President Donald Trump, North Korean, Middle East tensions, populist movements in Europe and interminable Brexit wrangling, yet private investors cannot bring themselves to celebrate.

Incredibly, investor confidence actually sank to a record low in 2017, according to Hargreaves Lansdown, below even 2008, when the banking crisis knocked 40% off share prices.

This was despite the FTSE 100 repeatedly hitting record highs in 2017, while investment funds saw record inflows. Doesn’t anybody know how to enjoy themselves anymore?

Roll on 2018
Stock markets are a great way of building personal wealth and in 2017 they delivered the goods once again, whether people noticed it or not.

Individual investors may not be aware of that fact, but IFAs will be keen to enlighten them at their annual portfolio review.

Clients will need to be positive as we head into what will be a tortuous 2018, with Brexit, Trump, North Korea, Iran, Putin and the rest of the rogues gallery to deal with all over again.

The new year will bring new threats – resurgent inflation is one to watch – but as 2017 showed, markets are tougher than they look. If only investors noticed.

Would you recommend bitcoin to a client? – Harvey Jones

Bitcoin

It is the most exciting investment of the decade far, but few IFAs would recommend it.

It has thrashed every rival investment and turned early investors into billionaires, but advisers turn their noses up at it.

I am talking about bitcoin, the world’s best-known crypto-currency, whose value has risen fivefold this year alone amid massive volatility.

Bitcoin was launched by anonymous hackers in 2009 and has soared from just a few US cents to thousands of dollars.

Seven years ago, an early bitcoin user spent 10,000 bitcoin buying two pizzas. Today, those same coins would buy an incredible $66 million worth of pizza.

Welcome to the world’s biggest bubble.

Bit of fun
I should declare an interest here: I am the proud owner of two whole bitcoins.

I bought them earlier this year (after plenty of online faffing) for around £2,000. Last week, their value peaked at around £11,450. Two days later, they were worth £9,750.

Dramatic swings like these are par for the course, as bitcoin can move 20% in a single day.

Coining it in
Plenty of your clients are dreaming about bitcoin, and no doubt kicking themselves for failing to put money into it. They could be millionaires, if they had acted fast enough.

That is why bubbles are so dangerous. They exaggerate the two strongest investor emotions: fear and greed.

Personally, I bought bitcoin mostly out of fear that it would fly even higher, and I would kick myself for missing out. It was a kind of mental health insurance policy.

Bubble trouble
Many in the financial services industry are reassuring themselves that this is the South Sea bubble, tulip mania and the dot.com frenzy rolled into one. This is a sign of how uncomfortable it is making them feel.

JP Morgan chief executive officer Jamie Dimon reflected this unease when he labelled bitcoin a ‘fraud’ and said he would fire any trader who invested in it.

Which is a thoroughly respectable position, except that so far it is a losing position.

At the time, in mid-September, one coin was valued at £3,000. Within a month it topped £5,500. Any JP Morgan Chase raider at risk of being fired could plead superlative outperformance in their defence.

They will have trashed every benchmark in the world.

Chain of fools
For those advisers who are interested, there are now ways to invest in bitcoin without the palaver of setting up an online wallet.

Hargreaves Lansdown allows clients to invest in a Swedish-based bitcoin tracker. There is also a bitcoin investment trust, although be doubly warned, this typically trades at a whopping 100% premium to net asset value.

The only reason to buy bitcoin today is as a purely speculative investment. There is space for speculation but only as a tiny part of a well-balanced portfolio, and only for those prepared to lose every penny if something goes wrong.

Most advisers still would not touch it. Most advisers are absolutely right.

There’s no need to feel blue about Black Monday- Harvey Jones

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It happens every September and October, when analysts and investors start talking nervously about a stock market crash.

This is understandable, given that historically September is the worst month for stock market performance.

As US investor Paul Hickey at Bespoke recently calculated, if you had invested $100 in the US market 50 years ago and only held it there during the month of September, today it would be worth just $71. September is a bad month.

After September, comes equally notorious October. It is particularly notorious this year, because it marks the 30th anniversary of the biggest one-day market crash of all time, Black Monday on 19 October 1987.

The original Black Monday was also in the same month, 28 October 1929. October is also a bad month.

 

Paint it black
Three decades ago this very week the Dow Jones fell 22.6 per cent with $500 billion wiped off share values in a single day.

This was far worse than on Black Monday during the Wall Street crash of 1929, when the market dropped a relatively modest 12.8 per cent.

The FTSE 100 also fell 10.8 per cent and “lost” £50 billion, with new computer systems crashing as panic-stricken investors rushed to dump stock.

Many feared the entire financial system would shut down, and were bracing themselves for a repeat of the 1930s depression, but it didn’t happen.

 

Bull market crash
Nobody can say for sure what caused Black Monday. Likely culprits include the widening US trade deficit, rumours that the US House of Representatives would scrap tax breaks on company managers, and algorithmic trading systems.

There is one uneasy parallel with today. Black Monday followed a bumper spell for stock markets, with the Dow up a dizzying 27.66 per cent in 1985, then another 22.58 per cent in 1986.

By August 1987 the US market was up 40 per cent and investors started to worry that share prices were overvalued.

Investors have the same worry today.

 

Flying high
As I write the FTSE 100 has just hit a record high and analysts are clogging my Inbox with emails claiming it will all end in tears.

They have been warning about the overvalued the S&P 500 for months, which has hit levels of overvaluation only seen during the dot-com bubble and in 1929, around 31 on the Shiller PE ratio.

After eight years of bull market, we could be due a global crash. Who knows? I don’t, although it is fun to speculate.

If it happens, the true lesson of Black Monday is this. It will pass. Despite the chaos, stock markets actually ended 1987 higher than they started, then went on a tear throughout the 1990s.

Investors who kept their nerve during the meltdown, and were even brave enough to buy shares, were amply rewarded.

The great crash of 2017 may never happen. Over the last 20 years, the fourth quarter has easily been the strongest of the year. Either way, the only thing advisers can do is keep calm and carry on.

November is coming. That’s usually a good month.

How ETFs could kill the stock market and crush global capitalism – Harvey Jones

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The investment world has fallen in love with exchange traded funds (ETFs), including a growing number of IFAs.

In April, the total invested in ETFs topped $4 trillion and a further $40 billion pours into the sector every single month.

Nothing grows forever but right now ETFs are giving it all they have got. Some claim the market could hit $10 trillion by 2020, as new fiduciary rules force US advisers to favour low charging investment funds.

The ETF love affair is making some people very worried indeed.

 

ETF world
There is plenty to like about ETFs, which can be traded quickly like stocks and shares with no upfront fees and annual charges from as low as 0.07%.

A DIY investor could create a low-cost portfolio by parking their money in a massive global tracker such as Vanguard FTSE All-World ETF, which invests in around 3,000 companies worldwide for 0.25% a year, and pretty much forget about it. Well, it’s an option.

 

Fallen star
The success of ETFs appears to have settled the debate over active and passive management, if only by sheer weight of numbers.

Neil Woodford picked a bad time to suffer his annus horribilis, as active management advocates could have done with his star quality today. Still, at least they have Terry Smith for now.

More IFAs are now accepting the inevitable by charging a fee for their advice, then allocating client money into a balanced portfolio of ETFs.

There are plenty of positives about ETFs but some negatives too.

 

Storm warnings
Analysts are warning that ETFs could be in the eye of the next global stock market storm.

They fear the rush into passive strategies is fuelling a massive overvaluation as share prices detach from fundamentals, inflating bubbles such as the one we may be seeing in the technology sector today.

ETFs then risk turning a downturn into a cascade of selling as the herd heads for the exits, with too few active investors able to stabilise the market by hunting down buying opportunities.

Another concern that if passive funds are all buying the same big companies regardless of performance, they will stifle competition, destroy economic growth and kill capitalism for good.

 

Active love
Let’s not be apocalyptic about this. You only have to see the share price swings on company results day to realise plenty of traders are still buying individual stocks.

Active fund management isn’t dead. There may be 2,500 ETFs in the US but there are six times as many mutual funds.

The current ETF frenzy will not last forever and the pendulum will swing back to active management, especially when market volatility returns.

Low-cost ETFs should be applauded for shifting wealth from the fund management industry to individual investors but that revolution is almost complete and some day soon, investors may be ready to fall in love with active management ag

The University-Let League Table

university

This week A-level pupils get their results and University places – and many new and existing students will be go into private rented accommodation for the start of the new semester.

University league tables normally list institutions by academic performance and/or popularity. In Simple Landlords Insurance’s new league table, universities are rated by yield. St Andrews has come out on top with the opportunity to earn up to a 12%p.a. return.

Lancaster comes in second place, with Loughborough and Birmingham taking third and fourth. All have the potential to achieve a yield of more than 10%. Exeter, Durham, Sussex and Nottingham are also good options, with yields in excess of 9.5%.

The full league table can be accessed by clicking here.

UK COMMERCIAL PROPERTY CAPITAL VALUES INCREASE 0.4% IN JULY

london-property

At the national level, commercial property capital values increased 0.4% in July 2017 according to the latest CBRE Monthly Index, slowing from 0.6% in June. Following the trend of 2017 so far, the Industrial sector provided a boost to the national average. Rental values increased 0.1% across All UK Property over the month.

Capital value growth in the Retail sector was 0.2% in July, pulled up by steady performances from South East High Street Shops (0.4%) and Shopping Centres (0.3%). Shopping Centres recorded their highest capital value growth of 2017. Retail rental values increased by 0.1% over the month. While Retail Warehouse outperformed the other retail subsectors, no subsector reported falling rental values.

Capital values in the Office sector increased 0.3% on average in July, down slightly from 0.4% in June. City of London and Rest of UK offices pulled up the sector average, recording 0.4% and 0.3% respectively. For the second consecutive month, Central London office rental values decreased, although at a slower rate of -0.1% compared with June’s -0.3%. Central London office have not recorded rising rental values since March.

Industrial capital value growth again outperformed other main real estate sectors with an increase of 0.8% in July following June’s strong performance of 1.5%. South East Industrials again outperformed Rest of UK, reporting a rise of 1.0% over the month compared with 0.4%. Rental value growth was also greater in the Industrial sector than the other main sectors, with rental values increasing 0.4%. Again, South East Industrials pulled up the sector average with a 0.5% rise in July.

 

Source

Tech bubble: this time it’s different – Harvey Jones

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Few IFAs who were advising clients during the dot.com boom will forget the extremes of euphoria and despair it generated.

Many will have been besieged by investors begging them to put their money into runaway funds such as Aberdeen Technology, then cursing them when the bubble burst.

The question many investors are asking now is whether we are about to go through the whole thing all over again.

Doom and dust
The technology boom saw companies that had never made a profit suddenly valued at hundreds of millions of dollars.

Their share prices doubled, tripled or quadrupled in weeks or even days, driving up the NASDAQ index from around 1,000 points in 1995 to a peak 5,132 in March 2000.

UK fund manager Tony Dye was a rare lone voice of dissension, shunning tech stocks as overvalued, and was labelled “Dr Doom” for his trouble.

He was proven correct when the bubble burst in March 2000. Unfortunately, he had been sacked in February. Who said timing was everything?

Down in flames
The crash wiped more than $1 trillion off global stock markets after investors lost their nerve and venture capital dried up.

Companies worth billions at their initial public offering (IPO) were suddenly worth zilch. In the US, Pets.com lost $300 million, while online UK fashion retailer Boo.com burned through $135 million in 18 months.

Amazon’s stock plunged from $107 to just $7, but it survived, as did eBay. Within a year, the world was in recession.

Boom and gloom
Now technology is booming again, with the S&P 500 tech sector this year’s top performer growing almost 25%.

Facebook, Apple, Netflix, Google and Microsoft have added more than $600 billion of market capitalisation this year, the equivalent GDP of Hong Kong and South Africa combined.

This tech surge even has its own Dr Doom, Marc Faber, editor of The Gloom, Boom & Doom Report, who has warned that the eight-year bull market is being driven by a few tech stocks and share prices could fall 40 per cent.

However, I don’t see a repeat of March 2000.

Big money
First, the big US-based global internet companies now generate massive revenues, with Apple recently posting second-quarter revenues of $52.9 billion, beating Amazon’s first quarter revenues of $35.7 billion.

Before, super-revenues like these were only projections, now they are money in the bank.

There is also a wall of buyers looking to take advantage of any slippage, as we saw in June, after tech stocks briefly fell back on overvaluation warnings by Goldman Sachs chief investment officer Robert Bouroujerdi. They recovered all their losses were rising within days.

In a low growth world, tech stocks are one of the few reliable sources of excitement. They will no doubt slip at some point, but don’t panic, this time it really is different, very different.

IFGL to acquire Friends Provident International Limited (FPIL)

International Financial Group Ltd (“IFGL”) – previously known as RL360 Group, the owner of the RL360°, RL360° Services and Ardan brands – has today announced it has reached an agreement with the Aviva Group to acquire Friends Provident International Limited, subject to regulatory approval.

FPIL, which employs around 500 staff worldwide and services in the region of 180,000 policies, has its head office in the Isle of Man, where IFGL is also headquartered. FPIL has more than 35 years of international experience providing savings, investment and protection products to customers across the globe, with a particular expertise in Asia and the Middle East.

There are no changes to FPIL customers’ policies as a result of today’s announcement.

IFGL was formed in October 2013 to support the management led buyout of RL360 Insurance Company Limited (RL360°) from the Royal London Group, with the support of its financial backers Vitruvian Partners. IFGL has a consistent record of growth in recent years having acquired CMI Insurance Company Ltd (now branded RL360° Services) in 2015 and wealth platform Ardan International the following year.

The acquisition of FPIL further demonstrates the Group’s strategy to become the pre-eminent institution in the offshore savings market.

FPIL has £7.6bn in funds under management and its addition to IFGL will take the Group’s combined assets to £15.9bn and policies to 250,000.

David Kneeshaw, IFGL’s Chief Executive, said: “Welcoming FPIL to the IFGL Group’s already impressive stable fits with our stated long-term goal of high-quality acquisitions to complement our existing international business. FPIL’s strong franchise and its branch structure make the business an ideal fit with IFGL and we see significant opportunities for the businesses to work together and grow.

“The acquisition is an important milestone in our history and will create a combined Embedded Value* of over £1bn, leaving no doubt as to IFGL’s position as an important, key player in the life industry, as well as the offshore consolidation market.

“Our immediate aim, once we have received regulatory approval for the deal, will be to look at how best we can integrate FPIL into the Group.”

 

*Embedded Value (EV) is the present value of future profits plus adjusted net asset value.

Stock markets are flying, so why all the gloom? – Harvey Jones

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It seems that nobody knows how to enjoy themselves anymore. The stock market bull run has now lasted more than eight years but are investors celebrating? Absolutely not. Most are anxiously waiting for the whole thing to come crashing around our ears.

The FTSE 100 has been breaking all-time highs, so where’s the exuberance? Investors are having none of it. Instead they moodily pin it on central banker stimulus and the Brexit-induced collapse in the pound.

If the FTSE 100 hit 10,000 by the end of this year most people would probably see this as sign of imminent national collapse.

Tech crash
This isn’t just a UK phenomenon. The US stock market is flying, either despite or because of President Donald Trump. So are the naturally upbeat Americans walking tall?

Once again, no. They are fretting about a technology crash, noting that 40 per cent of this year’s gains on the S&P 500 have been generated by just five stocks: Amazon, Google, Facebook, Netflix and Microsoft. They reckon it is the dot.com crash all over again.

Electoral hell
We live in strange times when good news is being seen as bad, and bad news as disastrous.

The general election may have been ended in disarray but it may also deliver some surprisingly positive consequences, such as a consensus-driven transitional path out of the EU, which could limit the impact of a cliff-edge Brexit.

Is anybody happy about that? Apparently not, although I am hoping that will change, as negotiations progress.

Global meltdown
Analysts and experts routinely talk about today’s challenging conditions and the slowing global economy.

They forget that in April the IMF forecast that global growth would increase to a healthy 3.5 per cent this year, then climb again to 3.6 per cent in 2018. That doesn’t sound like the end of the world to me.

Bearish times
There are reasons for all the gloom. First, this is the bull run nobody has ever really believed in, because we know it has been fuelled by QE and near-zero interest rates.

We also accept that the West has failed to solve its structural problems, primarily debt and demographics. In fact, they have only got worse, and China and other emerging markets seem destined to follow us down the same path.

Stagnating wages, particularly in the UK, have added to the sense of misery, while social media has given everyone a forum for division, rage and sudden political enthusiasms.

Taking stock
Against this backdrop, stock market buoyancy is an anomaly. Share prices have been whipped ever higher because the alternatives have dropped by the wayside, notably cash and bonds, and now house prices.

Investors continue to put their faith in stocks and shares, and rightly so. They don’t always like it, and that is understandable as well. Either way, you have to admire stock market resilience.

 

 

Keep calm and carry on investing – Harvey Jones

keep calm and carry on

Markets have just been handed the worst possible electoral outcome, the one they dreaded most, a hung parliament.

At time of writing Prime Minister Theresa May can possibly hang onto power, but only with the full support of the Democratic Unionist Party (DUP) in Northern Ireland, who, I hate to say, most Britons had barely even heard of yesterday.

Labour leader Jeremy Corbyn’s triumphant campaign wasn’t enough to bring him to power – yet. These days, anything can happen.

So how have stock markets reacted? The knee-jerk response after last night’s shock exit polls was that Friday would see collapsing share prices, a bond market meltdown and all sorts of horrors inflicted on the pound.

Yet it hasn’t happened. At time of writing the FTSE 100 is actually up around 0.5%. The domestic-focused FTSE 250 is down around 0.9%, which is hardly the end of the world.

Sterling weakened, but far less than expected. In fact, the pound is defiantly climbing comfortably above $1.27 and hovering around the €1.14 mark. Down, but far from out.

What is happening?

Soft power
We all know that markets hate uncertainty and there is nothing to celebrate in the fact that no party has a majority. We do not even know will be heading Brexit talks, or even if they will be held at all.

Yet at the same time, the UK is a mature democracy, and nobody is expecting riots, revolution and social breakdown.

Also, many are nursing hopes that the UK can avoid a hard Brexit that would have been punishing for business and the economy.

Theresa May – if she survives – is in no position to drive a hard bargain, even if the DUP is apparently pro-Brexit (I’m quickly getting up to speed on their policy positions). The rules of the Brexit game have just changed.

House shock
That said, if the uncertainty drags on, it might also drag down the stock market. Most private investors will be understandably reluctant to part with their money at this point, so fund managers may see a drop in net inflows.

Consumer spending and wages are already being squeezed, and if the pound does slip lower, a spike in inflation could make many people’s lives harder. At least the oil price is falling.

The housing market has just dropped for three successive months, according to Nationwide, and looks set to slide lower with people reluctant to make big financial decisions amid such uncertainty.

Cool and collected
The only sensible response is a very British one: keep calm and carry on.

We faced a hung parliament as recently as May 2010, and the FTSE 100 fell 2.6% on the Friday the news broke. It then rallied 5.2% on the following Monday after Prime Minister Gordon Brown resigned.

One year later, the index was trading 13.6% higher.

The underlying economic fundamentals assert themselves in the longer run, regardless of the mess made by politicians, and let’s be grateful for that.