What a Year!
Markets started horribly in 2016 as the energy crisis eventually rolled into a potential banking crisis, then we had the vote to Brexit in the UK, followed by the Trump victory and then to cap it all, Renzi lost his referendum on Italian constitutional reforms!
Unchartered Territory for Investors
No member of the EU has ever left, so the UK’s decision leaves investors in unchartered territory. The market had priced in a different result and Bookmakers odds suggested only a 16% chance of a successful vote to leave the EU and the market got caught off-guard. The market’s first reaction was to panic and go into risk-off mode. Immediately after BREXIT US investors dramatically reduced exposure to European equities. But those investors who avoid ‘emotional trading’ saw a buying opportunity in the UK and European stock markets.
The Devil is in the Detail
It’s the less obvious things regarding BREXIT that make a difference to our clients. We have reached a momentous moment, which could mark the end of the 35-year bull market in bonds. Bonds are not offering the low risk investment that clients might think, with Gilt yields reducing further following BREXIT, which pushes Company pension schemes further into deficit, resulting in higher transfer values.
To put this into perspective, of the 5,945 Company pension schemes in the Pension Protection fund (PPF), the deficit in funding levels increased over the month to £383.6bn at the end of June 2016, from a deficit of £294.6bn at the end of May 2016. An increase of £89bn as a direct result of BREXIT.
There are 4,995 company schemes in deficit and 950 company schemes in surplus. For people invested in so-called gold-plated defined benefit (DB) pension schemes, this will come as a significant blow. UK company schemes, the PPF says, have 48 per cent invested in gilts and fixed interest. Brexit has benefited those holding defined benefit pensions who wish to transfer as the cost of providing a guaranteed income for life increases for the schemes as Gilt yields decline, which results in higher transfer values. I recommend checking the funding levels of any deferred company pension schemes you hold and reviewing your options.
Winners and Losers in 2016
For interest on cash the outlook is poor … with Santander offering just 0.1% for ISA accounts. With the best rate being offered by Coventry Building Society at 1.4% for ‘in branch’ ISAs.
In respect of stock market investments one trend stood out; passive funds fared best. Lets take a look at some of 2016’s winners and losers:
Among this year’s losers were:
Chinese equities
US Treasuries
Turkish and Mexican equities
Italian equities
Property funds
By contrast, at Speed Financial Solutions our active approach means we are well positioned to take advantage of new trends.
Research demonstrates that diversification is key in order to reduce risk and increase potential for growth as much as possible. Our investment philosophy reflects this. Among the vast array of investment funds we use to target growth and income for our clients, some of the winners are:
Fidelity UK Special Situations – net return 10.2% (Nov 2015 to Nov 2016)
Neptune European Opportunities – net return 23.05% (Oct 2015 to Oct 2016)
First State Asia Pacific – net return 28% (Nov 2015 to Nov 2016)
HSBC American Index (passive index tracker) – net return 29.1% (Oct 2015 to Oct 2016)
We are extremely positive on the prospects for value equities. Trump’s presidency means that active management, including stock picking, will come into its own. The key is to maintain liquidity to ensure tactical moves can be made.
How do you know your investments are positioned well to deal with the current uncertainty?
Always consider your investments as a whole. When markets are fluctuating wildly it can be tempting to put all your investments in the relative safety of cash. However, low risk usually leads to lower long term returns, interest rates on savings accounts have been at an all-time low for some years and this trend is likely to continue to worsen. Of course, everyone should have some cash for emergencies and unexpected events, but for those with a longer term investment outlook (5 years or more) this should be supplemented with investments in other asset classes and geographical spread that offer better potential for real capital growth and/or income.
Any investment is like a car, in order to continue to work well for you it needs regular servicing. If you review your investments regularly and ensure that your investment adviser has the experience and expertise necessary in the investment field, for ‘this time next year Rodney’ the outlook is very positive!
Speed Financial Solutions are a highly qualified financial services provider on the Costa del Sol looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, our service is tailored to your needs. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to our clients’ advantage. Our relationship with clients is built on trust and mutual respect. We are accessible and approachable, and ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a Fellow of the Personal Finance Society (PFS) which is the professional body for the financial planning community. The PFS is part of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner specialising in Taxation and Trusts.
Please take a look at our website – www.speedfinancialsolutions.com for further information and contact us (Tel 951 315 271 or 951 318 529) – we are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Meetings with us are free and without obligation.
Andrea J Speed FPFS(DM), M.A.
Principal, Discretionary Inv Manager, Fellow and Chartered Financial Planner
Speed Financial Solutions
22 December 2016