What Investment | Our guide to investing for retirement
What Investment is a niche investment service for the active investor who holds a portfolio of different investments.What Investment is the magazine that helps investors search out such opportunities with in-depth features explaining a wide range of investment options, regular monitoring of the factors influencing global asset classes markets and sectors. Follow to seek out the best funds,..
More than 10,000 grandparents and other family members received help with their state pension in 2017/18 for looking after grandchildren, a sevenfold increase on two years ago but lack of awareness of the scheme that allows this means that many hundreds of thousands more family carers are still missing out on getting the full state pension, according to insurer Royal London.
Under a government scheme called the ‘specified adult childcare credit’ a family member who is looking after a child under 12 while the child’s parents are out at work (it could be aunts and uncles not just grandparents) can benefit from a National Insurance credit. The parent (who has gone back to work) is likely to be paying NI in their own right and so no longer needs the NI credit that comes with receipt of child benefit. They can sign this over to the family member who is looking after their child, at no cost to themselves. There is no minimum hours requirement, and claims can be backdated to when the scheme was first introduced in 2011;
These credits can be of considerable value to someone who would not otherwise build up a full state pension. One year of credits can be worth 1/35 of a full pension (because 35 years of contributions are needed for the full rate). The full state pension is currently £8,767 per year, and 1/35 of this is around £250. This means that someone who claims these credits for a year could get an extra £250 on their pension, or around £5,000 in total over the course of a typical twenty-year retirement.
Such credits are added to the National Insurance record of the grandparent (if they are still under state pension age) and help them to build up a full state pension.
In 2015/16 just 1,298 grandparents and other family members were benefiting from the scheme; the number claiming rose to 10,084 by 2017/18, according to a new FOI response initiated by Royal London.
The insurer says the numbers who are missing out are not known precisely, but according to research by charity Grandparents Plus, around two thirds of all grandparents report that they spend time looking after grandchildren. Given that there are more than 7 million grandparents in Britain (of all ages) with grandchildren under 16, it is hard to believe that the 10,084 who claim NI credits is more than a small fraction of those who are entitled.
Steve Webb, Director of Policy at Royal London, who tabled the FOI, said:“Whilst it is great news that thousands more grandparents are now benefiting from this scheme, the numbers are still a drop in the ocean out of all those who could benefit. It is increasingly common for grandparents to spend some time each week looking after their grandchildren, often to enable a parent to go out to work. It would be quite wrong if these grandparents suffered financially in terms of their own state pension as a result. This scheme needs to be much better publicised and I would encourage any family with a grandparent under pension age who helps out with the childcare to find out more”.
To its critics, gold does nothing for investors as it does not pay any form of income in terms of interest or a dividend. But if you had put a small amount of money into gold at the beginning of 2018 you would have seen a price rise of over $100 an ounce on your investment and a healthy return. Contrast this with the challenging year major equity and bond markets had, with most finishing the calendar year lower than they started. Indeed the only major equity markets which made a positive return in the last calendar year were in Brazil and India – which for private investors may be too high risk.
So what is the ‘truth’ about gold?
Two sides of the story
Just before Christmas I asked two people on different sides of the equation for their views.
One was Ross Norman, the chief executive of gold dealer Sharps Pixley, which has a shop in London’s St. James where investor can literally walk in off the street and buy gold.
This can be in the form of coins, small ingots of gold, or more sizeable investments. He has been involved in the gold dealing markets for 30 years and has seen the highs and lows of the commodity.
The other was James Bateman, who is the chief investment officer of Fidelity’s Multi Asset range of funds, based in London, whose job is to safe guard investor’s long-term capital.
Norman is the first to admit that ‘predicting’ moves in the gold price is very difficult even for people close to the gold market. His argument for holding a proportion of gold long term as part of a private investor’s portfolio is that it becomes a store of wealth and outperforms on a total return basis the FTSE. The data supports his arguments.
He also says that when the political and economic environment is uncertain gold comes to the fore.
With the UK going through Brexit, the US economy slowing down and the global economy still facing uncertainty we are arguably in that environment, indeed some would call it Armageddon.
I asked Norman to answer some key questions about gold and his replies come on the following pages along with some investment funds that you can use to access the gold markets if owning direct gold is not for you.
And here is what Bateman is currently thinking: “Given the increased volatility in markets and heightened geopolitical uncertainty, markets are paying closer attention to gold than they have in recent years.
“At Fidelity Multi Asset, we use gold in portfolios both as a diversifying asset and more tactically when we are concerned that risk assets may underperform,” he said.
Since he has managed the Open Range, McQuaker has used gold as a component of his Hedging assets. In the Open Strategic Fund for example, he moved from a 4.8% position to a 9.6% allocation in gold across the final quarter of 2018, split roughly evenly between physical gold and goldminers.
“We typically rotate between gold and gold mining stocks based on valuations of the latter – i.e. whether they implicitly priced in a higher or lower gold price than today’s spot price,” he said.
McQuaker and other portfolio managers also sometimes ‘barbell’ higher risk exposure, such as emerging market equities, with gold as a ballast to offset riskier positioning.
In Eugene Philalithis’ Income Range, which is managed by allocating across Growth, Hybrid, and Income assets, gold is not typically used given the requirement for yield in the strategy. Nevertheless, the gold price is relevant in forming a view on overall market sentiment.
“While we do recognise the gold’s traditional status as a safe haven in times of market stress, we use our portfolio’s objectives as a starting point when deciding whether, and to what extent, we allocate to gold.”
The debate will rage on but it would seem to me that even a small percentage of a private investor’s wealth could be allocated if only for defensive reasons, and with many readers planning IHT issues then holding the commodity in physical terms helps on that basis.
It is a fact of investing that as we all get older, we get more cautious and conservative. It is natural – we have all worked and saved long and hard and we do not want to see the that wealth disappear.
Do you have to agree with an Armageddon view of the world to hold gold as part of your savings?
You do not, and your view of the world may be closer to something else someone in the gold market said to me: “Things do not feel great at the moment.”
Even that view may not lead you to invest in gold. For the last 30 years a defensive’ approach has suggested bonds, and if you had done that your return would have been very healthy.
But the capital preservation of bonds has gone, with the exception of index-linked, so if you are looking for a safe haven asset where do you go? For many, property can deliver that, but that is harder to access without switching a large amount of money and this then creates more risk.
The newer wave of peer-to-peer lending opportunities from companies such as Goji, or the Blend Network for example, or more established companies such as Downing Crowd, can give access to property and give a regular income.
But what about gold?
For the last 30 years – I have to be honest – I have struggled to see the investment value of gold. It produces no income in the form of an interest or dividends and it has limited uses other than jewellery and a small number of industrial uses.
In the last three decades the most regular reason to hold gold has been the appetite of Asian countries for gold jewellery, which in itself has not, for me, been a very robust argument.
I have to admit my opinion has changed, largely as a result of spending time with the chief executive of gold bullion dealer Sharps Pixley, Ross Norman. He is the first to admit predicting gold prices is difficult – and he has over 30 years of experience in the sector.
His argument, that gold is a store of wealth and if held for the very long term can outperform major equity markets such as the FTSE, makes sense. He makes the point that many of us have an amount of cash as part of our savings and the value of this is eroded over time by inflation. Gold has outperformed inflation.
From a macro perspective it has been interesting to see China becoming a major buyer of gold in the last few years, as well as having been the largest producer of gold
having overtaken South Africa a decade ago.
India’s Central Bank is also a big buyer, and Germany’s Bundesbank has long held the asset. Norman does not put these facts forward as reasons for private investors to
buy the metal, he cites it as examples of reputable long term investors.
You might sum it up as this: if it is good enough for some of the world’s most important countries, then maybe it is good enough for us as private investors.
What I have learned looking at the gold market properly is that it is worth having an open mind about all areas of investment.
NAIT may also invest in Canadian stocks and US mid and small cap companies as a way of accessing diversified sources of income. Up to 20% of NAIT’s gross assets may be invested in fixed income investments, which may include non-investment grade debt.
The company maintains a diversified portfolio of investments, typically comprising around 40-45 equity holdings and around eight to 10 fixed interest investments (which tend to be much smaller positions) but without restricting the company from holding a more or less concentrated portfolio from time to time.
NAIT benchmarks itself against the Russell 1000 Value Index but the MSCI USA Value, MSCI USA and S&P 500 indices have been used as comparators for the purposes of this report.
The board has appointed Aberdeen Fund Managers Limited to act as NAIT’s alternative investment fund manager. The portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Inc. (AAMI) and the lead manager is Fran Radano.
Radano is a senior investment manager within the AAMI team, which is led by Ralph Bassett, who is a named co-manager of NAIT.
NAIT’s history goes back to 1902 but the trust has only been in its current form since 2012. Before then its portfolio tracked the S&P 500 Index. Fran has been working on the trust since 2012 and took over as lead manager in 2015. The equities team is based in Philadelphia and Boston.
NAIT has outperformed the MSCI USA Value Index over the long-term. A narrowing of the discount over the past three years has allowed NAIT’s share price returns to shine. The longterm outperformance of growth sectors such as technology is evident in the disparity of returns between the MSCI USA Value Index and the S&P 500/MSCI USA indices.
NAIT’s performance has also been compared to that of its AIC North American sector peer group. This may not be a perfect comparison, given that it includes two trusts focused largely on Canadian stocks and only one other trust, BlackRock North American Income, with a similar remit to NAIT.
While it offers a lower dividend yield, on a total return basis NAIT has outperformed the BlackRock fund over most time periods and remains the larger, more liquid trust.
NAIT grew its dividend by 9.9% per annum compound over the five years to 31 January 2018. Its interim dividends for the current accounting year are 6.7% higher than the previous year. NAIT’s dividends have been covered by earnings, allowing it to build up substantial revenue reserves. At the end of January 2018, NAIT had revenue reserves of £13.8m, equivalent to 24.6p per share.
The North American Income Trust plc
As at 26 October 2018.
The manager does not expect that option income would represent more than about 20% of total income in a typical accounting year. NAIT’s revenue from writing options was around 15% of total income in the financial year that ended in January 2018 and will be higher (possibly 25%) this year – at the half-year mark (31 July), NAIT had already earned £2.5m in option income against £2.4m for the full year to the end of January 2018. This reflects, in part, a timing issue around the mark-to-market of the option portfolio at the end of NAIT’s accounting year. Given that the manager has indicated that companies in the portfolio are delivering a positive step change in their dividend payments, the 2019 financial year may be a bumper period for NAIT’s income account.
While NAIT’s discount looks anomalously wide relative to BlackRock North American Income, it has been on a narrowing trend over the past couple of years. At 24 October 2018, NAIT’s discount was 7.3%. Over the past 12 months it had traded within a range of a 9.9% discount to a 2.5% discount and an average discount of 6.2%.
The board says that it continues to work with the manager in both promoting NAIT’s benefits to a wider audience and through the use of selective share buybacks, providing liquidity and importantly, attempting to limit share price volatility. During the financial year ended 31 January 2018, 214,500 shares were repurchased at a cost of £2.6m. No shares have been bought back in the current financial year.
While, to date, all shares repurchased have been cancelled, repurchased shares may be held in treasury for reissue at a later date. There are no shares held in treasury currently. Shares would only be reissued from treasury at a premium to asset value.
Source: Quoted Data.
Most stocks in the portfolio yield between 2% and 4%.
The merger between Aberdeen Asset Management and Standard Life required that the investment teams of the two businesses be amalgamated. This process was completed in April 2018 and the new combined team is sharing research duties. In the wake of the merger, there is an increased emphasis on individual team members having responsibility for researching a specific sector. Buy and sell ideas are presented to the team and the analyst’s goal is to build consensus around their investment theses. Individual portfolio managers have responsibility for the content of their portfolios but all investment decisions are peer reviewed and any stance that differs from the consensus view must be justified. An ESG (environmental, social and governance) analyst is embedded within the team and ESG factors are incorporated into the research process.
NAIT’s portfolio comprises approximately 40 equity positions, drawn largely but not exclusively from the constituents of the S&P 500 Index. It also has about 10 fixed income positions, which help increase the diversification of NAIT’s portfolio as well as providing a useful source of income. The split of the portfolio was 85% equities and 15% bonds when the fund was repositioned in 2012. The bond weighting has fallen as yields have declined. The fixed income portion of the fund is managed by the Boston office. The portfolio is usually close to fully invested but the manager has the option to increase the exposure to cash (or other liquid securities) if he believes it is warranted.
The equities are selected on a ‘best ideas’ basis. Candidates for the portfolio must satisfy both quality and valuation criteria. Aspects of quality include the strength of a company’s business model, where it compares with its competitors, and the quality and experience of its management. Meeting management and visiting companies is a core part of the investment process and the manager will not invest in a stock if the management has not met the AAMI team. The manager believes that the emphasis on quality should help NAIT avoid ‘value traps’ (stocks that are cheap for a good reason). He looks for stocks that are on an improving trend in terms of revenues and profits but does not invest in ‘recovery’ situations (companies that are trying to achieve a dramatic improvement in their fortunes after a setback).
The approach is a long-term one and portfolio constituents change relatively rarely but the manager top slices stocks that are looking expensive and tops up stocks that are attractively valued, in response to short-term valuation shifts.
While there is no outright prohibition on buying stocks for NAIT’s portfolio that do not pay a dividend, the manager has never done so. NAIT’s portfolio is not a barbell one (some income managers adopt an approach of holding some high yielding securities together with much lower of zero yielding stocks – producing a dispersion of yield that looks like a barbell), instead it has a concentration of stocks yielding between 2% and 4%.
Predictability of income is a key consideration when selecting stocks but the overall emphasis is on choosing stocks that look attractive on a total return basis, not just on yield alone. Their ability to generate dividend growth is an important factor. At 31 July 2018, the manager said that, since the inauguration of the strategy in 2012, investments had grown their dividends by 10% per annum compound and 93% of investments had increased their dividend.
Position sizes are determined by conviction and the manager places no emphasis on the weightings of stock within the benchmark when building the portfolio. New positions typically enter the portfolio with a 1%-1.5% weighting. Fran chooses to operate with a soft cap (rather than a rigid cut-off) on position sizes of 4% and tends to trim positions when they exceed this level.
A range of metrics is used to analyse the portfolio, to ensure that, wherever practical, there is no excessive bias towards or against any sector, geography or theme. Given the lack of income available, the portfolio has a natural underweight exposure to the technology sector (and, in recent years, this has weighed on the fund’s performance relative to the US market as a whole). At the same time, the portfolio does not have much exposure to some sectors that might typically be seen as the preserve of income fund managers such as telecoms, utilities and REITs (real estate investment trusts). This is because the manager is looking for stocks with decent earnings and dividend growth potential. He is also avoiding companies that distribute capital.
Young people are relying on inheritance to buy their first home, with 22% expecting a windfall to finance a property purchase, according to wealth managers Charles Stanley.
The biggest financial priority and goal for young people is to get on the property ladder with 55% wanting to buy a property but only 28% believe they will be able to buy a property without an inheritance and only 23% believe they can pay off their mortgage without one.
Research carried out by the wealth managers shows that the young expect to receive an average inheritance of £129,380 which it says contrasts with Office of National Statistics data that shows that the actual average inheritance received was £48,000 and the median inheritance was £11,000.
This has a significant impact on their ability to get on the housing ladder; a deposit of £129,380, coupled with an average monthly mortgage payment £617 would mean that first time buyers could buy a property in 87% of the country. With a deposit of £48,000, first time buyers could afford to buy in 70% of the country; with just £11,000, first time buyers could buy a property in 43% of the country.
It may come as much of a shock to young people as to their elders in that while one in seven millennials expect to inherit before they are 35 years old and the average age they think they will inherit is 50, ONS data shows the peak inheritance age is between 55-64 and Laura Gardiner, senior research and policy analyst at the Resolution Foundation, in her report The Million Dollar Question suggests that the average age of inheritance for today’s millennials is likely to be 61.
John Porteous, group head of distribution at wealth managers Charles Stanley said, “People are living longer than ever, so relying on an inheritance to get on the housing ladder is a risky strategy as you may get less, and much later than planned. In reality, most people save and invest to get on the housing ladder – starting early and planning ahead is essential to achieving the deposit you need.
“With rising property prices, more families than ever are seeking to preserve and share wealth across generations; if helping children get on the property ladder is a goal, there may be other ways of helping them achieve it earlier and robust inheritance tax planning is essential – the earlier you plan the more options you have.”
The spotlight continues to focus on high-emitting industries such as oil and gas production. Investors concerned about climate change may have traditionally viewed the sector as just part of the problem but as pressure grows on oil majors to play their part in a low-carbon transition, the industry is changing. Investors should take note.
Stocks at risk
The UK stock market is heavily exposed to energy production. The Oil & Gas sector accounts for 17% of the FTSE-100 by market cap, of which Royal Dutch Shell and BP constitute the vast majority.
This low-carbon transition is already having significant economic impacts. In Germany, for example, E.ON and RWE have struggled in the face of government policies to reduce emissions. Those policies have promoted renewable energy, depressed wholesale power prices and helped to wipe some 80% from the two utilities’ share prices since the end of 2007.
A global shift away from fossil fuels will take time, but under most low-carbon scenarios oil demand is seen to peak as demand is eroded by improvements in fuel economy and the uptake of electric vehicles and intelligent mobility. Indeed, Shell recently stated that oil demand could peak as early as the late 2020s.
Oil & Gas majors begin to adapt
The Oil & Gas sector is beginning to respond. According to the CDP, latest research on the sector, some companies are shifting portfolios towards natural gas and away from higher cost and higher carbon resources such as oil sands.
Some are beginning to invest in renewable energy generation, striving to become diversified energy companies rather than dedicated hydrocarbon producers.
Across the 24 companies analysed, European majors accounted for 70% of current renewable capacity and nearly all capacity under development – BP boasts the most alternative energy capacity at present and Total leads on low-carbon spend since 2010. Statoil even changed its name to Equinor, demonstrating its commitment to being a broader energy company as opposed to just in Oil & Gas.
The last few years have also seen a wave of new energy investments. Since the start of 2016, 148 deals have been made in alternative energy and carbon capture, utilisation, and storage (CCUS) by these companies, and US$22bn invested in alternative energies since 2010.
In fact, ten of the companies in the report are involved in CCUS projects and collectively account for 68% of current global capacity. Their expertise in this technology may form part of the industry’s social license to operate in coming years.
What investors should look for
For investors adopting a long-term perspective, it is vital to factor climate change considerations into any investment decision, particularly when it comes to high-emitting sectors such as Oil & Gas.
CDP’s report is a good place to start when looking into this – it ranks 24 of the largest publicly listed Oil & Gas companies around the world in terms of their readiness for the expected low-carbon transition (see table below). It looks at their carbon footprints, emissions reduction targets, exposure to climate risks, investment plans and their ability to shift capital deployment in response to a changing market. The companies positioned at the top of the table are expected to fare better in low-carbon scenarios than those at the bottom.
Companies Readiness for low-carbon transition
Ave. market cap Q3 2018 ($bn)
Production 2017 (million boe/d)
2017 emissions (S1 +2 Mt CO2)
The largest publicly listed Oil & Gas companies around the world ranked in terms of their preparedness for a low carbon economy.
* The weighted rank combines an assessment of transition risks and opportunities, physical risks and climate and governance strategy.
CDP league table summary
Going deeper into the analysis, one specific metric to look at is how much value a company is creating for each tonne of carbon emitted. As well as encapsulating relative carbon intensity, this metric also highlights the ability of a company’s underlying assets to absorb additional cost from carbon pricing.
There is a wide range among the companies analysed, with Wood Mackenzie forecasting some companies to generate nearly five times the value per tonne of carbon emitted than others over the remaining life of their assets. Investors should also look at which companies are controlling costs and improving margins as this will help ensure future
resilience to lower hydrocarbon prices.
Through the looking glass
Long-term investors keen to identify which companies will thrive as part of the low-carbon transition should be looking at the climate targets these companies are setting. We are already seeing most Oil & Gas companies taking responsibility for Scope 1 and 2 emissions and improving operational efficiency. However, some of these companies are going further than this and setting much more ambitious targets.
Repsol, Shell and Total have all set long-term ambitions to reduce their carbon footprints, which include emissions from the downstream use of their products (Scope 3 emissions).
Shell has set the ambition to reduce its net carbon footprint in line with society by 2050, potentially halving its current footprint. Meanwhile, Total is looking to reduce its carbon intensity between 25-35% by 2040, and Repsol plans to reduce its carbon intensity by 40% by 2040.
Given 90% of the sectors’ emissions are in Scope 3, the fact that these companies are setting targets which include the downstream use of their products is very significant and these ambitions should be factored into investors’ decision making.
While climate change might seem like a long-term issue that lies beyond some investment horizons, it is important to remember that the risks of not addressing climate change are already visible. Indeed, the recent wave of climate-related litigation against oil & gas companies highlights the importance of companies getting their strategy right and communicating this effectively.
Oil & Gas companies are coming under increasing to demonstrate portfolio resilience and adapt business models to a low-carbon energy transition. Going forward, engagement, collaboration and innovation will be more crucial than ever.
Luke Fletcher, is a senior analyst at CDP.
About the CDP
CDP, formerly the Carbon Disclosure Project, runs the global disclosure system that enables companies, cities, states and regions to measure and manage their environmental impacts. A network of investors and purchasers, representing over $100trn, along with policy makers around the globe, uses its data to inform decision-making. Since 2002 over 6,000 companies have publicly disclosed environmental information through CDP.
I think I have one of the best jobs in the world: essentially, to predict the future – the future course of, for example, inflation and thus of, say, bond yields, or the success of individual companies.
Making good predictions is about first identifying patterns – there is no pattern in a series of coin tosses, only randomness. Thus, only a fool – or a cricket captain – would seek to predict how a coin may land.
Perhaps counterintuitively, it is often easier to make predictions about the longer term than the shorter term. Take bond or equity markets. Over periods of a few months, say, it is hard if not impossible to predict the movement of gilt prices or the FTSE All Share index. Their motion ostensibly follows a random walk.
Over longer periods however, bonds and equities are driven by factors that may themselves be predictable. For example, the percentage of workers who are employed fluctuates in a recognisable cycle over time. This cycle is known as the business cycle, and it defines how economies recover from recessions, subsequently overheat, then fall into recession before recovering again.
Employment patterns will mirror this cycle, with unemployment rates peaking during a recession and falling to their lowest point when an economy is at its hottest.
The unemployment rate in the UK is currently 4.1%. This is close to being as low as it has been in nearly half a century so there is a very good chance that it will be higher, perhaps considerably so, in the years ahead. (Note that there is nothing particularly scientific about this observation; it is simply common sense.)
The reason an analysis of employment patterns is important is that the tightness of the labour market at a particular point in time has a major bearing on wage growth. Wage growth in turn influences inflation – a major determinant of monetary policy. Ultimately, it is monetary policy and the level of interest rates that have the most impact on bond and equity prices.
This mechanism works in two ways. First, interest rates either stimulate or restrain consumer spending. If my mortgage payment goes up because of higher mortgage rates, I have less to spend on other things.
Lower consumer spending ripples through the corporate sector, causing profits to fall which in turn lowers the value of companies. Lower corporate profits also force companies to cut their workforces, leading to falling wage growth and lower inflation. Such trends, while negative for equities, are positive for gilts.
In other words, high interest rates alter the cashflows of equities and bonds. In the case of equities, profits fall; in the case of bonds, falling inflation increases the real value of bonds’ coupons and principal.
The other way in which the mechanism works relates not to the underlying cashflows but to the demand for said financial assets. Equities and bonds compete for investors’ attention with cash. Rising interest rates means that cash becomes more attractive in relation to bonds and equities.
What complicates matters is that the two mechanisms will at times be out of sync. For equities, falling profits at first tend to outweigh the benefits of lower
interest rates and their enhanced attractiveness in relation to cash. Bonds, on the other hand, will tend to respond immediately and positively to falling inflation.
Asset allocation lessons
Advice for the amateur asset allocator? Focus on the tightness of the labour market, making use of either anecdotes or the data that is publicly available on the Bank of England’s website. Then make a judgment as to whether monetary policy is likely to be at its tightest or loosest at some point in the next two-to-three years. If you deem that it is, you may have an edge in relation to predicting where equities and bonds are heading in the medium term.
As I look ahead, I do not see a recession looming – monetary policy is still very loose and thus supportive of demand. However, I know I could be wrong, which is why we at Seneca Investment Managers have been gradually cutting our funds’ equity weights in recent months and will continue to do so.
Peter Elston is the chief investment officer of Seneca Investment Managers
N.B. The views expressed are those of Peter Elston at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers Limited and do not constitute investment advice. Whilst Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment. Seneca Investment Managers Limited (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. FP18 158
1. Make the most of your workplace pension scheme. It makes sense for most employees to join their company pension scheme. These schemes are usually good value and all employers have to pay into their eligible employees’ pensions through auto enrolment.
You should find out how much your employer will pay into your pension and if they will increase this amount if you pay more yourself. If they will, this should be a very strong incentive for you to invest more.
2. Start saving as soon as possible. Although it may seem like a long way off, the sooner you start saving the easier it will be to give yourself a more comfortable lifestyle in retirement. Even if you cannot afford to save much initially it is better to do something than nothing at all.
The money you invest first will be invested for the longest and so has the best chance to grow.
For example, if you invest £100 and it grows at 6% each year, after 10 years it is worth £179, after 20 years it is worth £321, after 30 years it is £574 and after 40 years it has grown to £1,029.
3. Increase your pension contribution when you get a pay rise. While you might only be able to invest a smaller amount initially you need to actively increase this as you get older, otherwise the effects of inflation mean that in real terms you will be investing less and less over time.
Look to pay in more as your salary goes up and also as you get older and you might have lower living expenses, for example when children leave home or mortgages are paid off.
4. Take more investment risk when you are younger. When you are younger and have a long period until your retirement date you can afford to take more risk with your investments especially if you are investing monthly amounts, which most people will be.
Investing in shares is likely to give you the best long-term returns, although as your pension fund gets bigger and as you get closer to retirement you should hold more money in other assets such as cash, fixed interest and property, as capital protection will become as important as capital growth.
5. Pensions and ISAs. For most people the best approach for long-term savings is a combination of pensions and ISAs. Pensions provide initial tax relief which give your savings an immediate uplift, whereas ISAs can still be tax efficient and you are able to access your money whenever you like.
6. Keep an eye on under performing funds and high fees. It is important that you review your pensions, ISAs and other assets you will be relying upon in retirement on a regular basis. You should get a statement from your provider either annually or every six months, which will give you an up-to-date valuation, it is also possible to check the performance of many plans online.
Make sure you know how your investments are performing and if they are underperforming understand why and if it is likely to change.
If you lack expert investment knowledge, then stick with diversified investment funds such as multi asset funds. Also make sure you are not paying too much in charges. You need to understand how much you are paying your product providers and how much you are paying on any underlying investment funds.
Tracker funds are low cost investment options which can provide broad exposure to stock markets.
7. Understand your entitlement to the state pension. Find out what state pension you could be entitled to and when you are likely to receive it.
If you are not going to receive the full state pension then see if there is anything you can do to boost this, such as making extra contributions.
8. How will you take an income from your pension? As you get older, you need to give some thought to how you are going to generate an income in retirement. Pension freedom rules mean that many people will not simply buy an annuity with their pension pot.
If you are planning to remain invested while taking an income from your pension this will affect your investment strategy.
You could, for example, retire at age 65 but then live for another 30 years or more. This means that if you take too much investment risk or make high levels of withdrawals you could run out of money, whereas if you take too little risk the value of your pension is likely to be reduced by the effects of inflation.
9. Ignore Brexit. There is lots of noise about the possible implications of Brexit. However, this should not be used as an excuse to delay your retirement planning. Nobody knows how Brexit will play out, although that is just about the same with everything else in life.
Historically, times of uncertainty have often proven to be good times to invest, when prices are depressed and people are sitting on the sidelines.
10. Take independent financial advice. Many people should take independent financial advice. Retirement planning can be complex, and getting it wrong could have a huge impact on your standard of living, so it is important to make sure you are on track to achieve your retirement goals.
It is particularly important to take independent financial advice when you are taking pension benefits, if you remain invested while taking an income or if you have a larger fund which you are relying on
I can’t remember a time before I was an accountant! It’s part of my genetics. In my teens I would spend school holidays in my father’s office, a sole practitioner accounting firm, filing and preparing analysis schedules. A degree in Accounting and Finance, and then moving straight into the role of audit trainee upon graduation doesn’t leave much room for a ‘before’!
I qualified as an audit trainee but realised audit really wasn’t my cup of tea, so I became a tutor at Kaplan Financial and stayed there almost ten years. It’s in that time that I found my passion for all things tax. I focused on teaching the three tax papers of the ACA qualification, interspersed with teaching accounting and business strategy as well as later on, financial management and strategic business management. But tax was the stuff that really got me going in the mornings. I thrived on seeing the lightbulb moment when students finally understood how the capital goods scheme operated or helping them embrace a 40 mark case study style question rather than fear it. My teaching career really ended on a high with one of the last exams sittings I taught, the prize-winners in two separate tax papers had both been my students. But the teaching game had changed, and I needed a new challenge. Back to practice I went.
I trained at MHA MacIntyre Hudson as an audit trainee and returned ten years later as tax development manager. This role involved technical support, training, business development and marketing, all from the tax perspective. As time progressed, I was brought into client meetings, because talking tax to those directly affected is where I really thrived.
Business or Personal tax or both?
Because of my teaching and tax development manager role, I’ve always been able to talk about all areas of tax, whether business or personal.
More specialised projects I’ve been involved with include our firm’s Making Tax Digital strategy, both our internal strategy and advising clients how to make their filings. I followed the Criminal Finances Act when it was passed and have advised clients and smaller accountancy practices on prevention procedures for corporate criminal offences.
But my time focuses on tax due diligence projects, research and development tax relief and tax issues that affect property & construction and tech businesses, two sectors in which I have particular interests.
Advice to a client seeking an accountant
As with all tax questions, the answer is: it depends. The problem with buying a service versus buying a product is that with a product you can touch, see, sometimes try before you buy, so you’re rarely disappointed later. When you’re seeking a service, there’s no testing out you can do beforehand, quality can vary hugely and there’s very little transparency over pricing.
I would however offer three frames of reference. Go on recommendation; be wary of advisers promising to save you huge swathes of tax…if it sounds too good to be true, it’s probably a scheme; and finally, if you’re a business owner, finding someone who really understands your sector is a huge advantage.
Top tax tip
If you’re planning to set up a business, it’s better to use an adviser from the beginning rather attempting the set up alone and only bringing a professional in once things need to be filed. Mistakes in early set up can affect things like eligibility for Seed Enterprise Investment Scheme / Enterprise Investment Scheme relief, entrepreneurs’ relief or investors’ relief when the business is eventually sold, ability to capture costs for R&D claims and many many more.
The tax I would abolish and why
The tax system in this country is too complex for any tax to be scrapped. Nothing could be abolished without something else coming in to replace it. It’s an ecosystem. If someone hates spiders and decides to abolish them, other insects would flourish. These could be insects that destroy crops which then impacts our food chain.
My favourite tax
I don’t think I can be the person to go down in history as having a favourite tax, so I’m going to answer the question slightly differently. In my teaching days, the tax I most enjoyed teaching about was inheritance tax. I enjoyed the evolution from explaining the concept of inheritance tax to a set of disgusted faces, through to the methodology of computing an IHT computation which was really quite formulaic, and how it ended up being the tax that students liked the most.
How do you relax
As a single mother to an energetic seven year old, I’m not sure I know what relaxation is, however spending time with him is a giggle a minute and this is relaxation in itself. Having said that, I’m an avid reader, non-fiction mainly, I enjoy hot yoga, cooking relaxes me as does painting, acrylic on canvas that is.
The FirstHomeCoach platform was launched in response to home ownership rates in the UK continuing to fall: the average first-time buyer now 30 years old, while the chances of owning a home in the UK have more than halved over the past 20 years.
FirstHomeCoach offers offers bespoke, data-driven guidance and services for prospective homeowners – it has partnered with leading mortgage brokers, insurance providers and legal firms to offer first time buyers an integrated marketplace of trusted and transparent products and services. Ben Leonard answers some questions below to give users and investors some background to what he is looking to achieve.
What problem are you trying to solve?
The home buying process is broken. The chances of owning a home in the UK have more than halved over the past 20 years, and the average age of a first-time buyer is now 30. In the last ten years, there has been a massive fall in home ownership amongst 25-35 year olds. Only 30% of social tenants believe they will ever be able to buy their own home. Furthermore, with 45% of first-time buyers being made ill by the process, this is becoming more than just an economic issue. As a society we need to address this.
What was the inspiration for your business?
Prior to launching the FirstHomeCoach platform, I spent 18 years in investment banking at HSBC, most recently, as Co-Head of the UK Financial Services. My business partner Paul Carse was previously CTO of newspaper and media company, Racing Post.
We met back in October 2017 via a LinkedIn introduction from a mutual friend, realised we lived a few streets away from each other and had both spent the last 10+ years travelling from Wimbledon into the City. It is our passionate belief that industry can both make money and help create a better society, something that is not done enough in the finance and betting worlds. You could say that we are the Banker and the Bookie who grew a conscience; however, fundamentally, this just makes sense. We decided to use our knowledge of ‘the system’ to help others to navigate it, bringing together industry and charity to create better consumer propositions.
Central to this is how we create a fairer society by empowering people with their data, helping them navigate their key life moments. We set about exploring where this could have most impact and this led us to helping people get on the housing ladder. Doing anything for the first time is always really hard, and you end up making lots of mistakes, however the breadth and depth of complexity of house buying today really struck us. Having gone through this ourselves, we felt there was an opportunity to make it better for others. What you really need is someone to help guide you who has done it before.
What are you doing now to fix the problem?
We are on a mission to make it faster, cheaper and less stressful to buy a home, from saving up to moving in. Our app, FirstHomeCoach is a digital coach that enables first time buyers to make smarter decisions, powering their journey using their data and connecting them with relevant products and services. Essentially, we are taking all the lessons from people who have done it before and translating this into a coach who can support others.
Data is at the heart of the business vision, blending intentions, personal information and open data sets to deliver micro-education, nudges, scenario planning and product onboarding to deliver a better user journey. It is really important to stress that this is your data being used for you; we are not selling your data or randomly advertising to you based on your data; rather we want your data to help you make smarter decisions and create a smooth experience into other relevant products & services.
We wanted the FirstHomeCoach platform to be available to everyone so made it a free to use app and we make money from commissions when people take a product or service via the platform. The services we facilitate include mortgages, insurance, credit ratings and solicitors. We choose partners carefully, and work with organisations who share alignment with our core values of inclusivity, empowerment, transparency, curiosity and wellbeing.
What’s next for the FirstHomeCoach platform business?
The FirstHomeCoach platform is a commercially viable, socially responsible proposition which solves a clear consumer need: the lack of help in navigating a key life moment. We have gained traction over the last 12 months, including backing from HM Treasury for Rent Recognition; being selected by investor Allia for its Serious Impact accelerator and closing a £250k angel round. We have a live product, with growing customer numbers and are actively engaged with a range of organisations regarding distribution most recently announcing a partnership with retail service provider Timpson for its 5,600 staff. We are now seeking investment for a £1m seed round to drive growth, develop the coach further and reach our first 75,000 users which will take us to break-even.
Moving forward, our vision for resetting how people use their data through digital coaching is scalable and can be applied to a range of situations. Life moments will form the basis for how we will build the business, focusing on problems and people then building technology to create better outcomes.
I can speak for both Paul and myself in saying that building a profit and purpose-driven business solving societal issues and changing lives is worth getting up for in the morning.
Ben has also setup-up META (ME-Think-Act) Finance which convenes people and organisations to re-imagine how data can be used to help people help themselves. Their sessions include breakfasts on privacy vs personalisation, workshops with industry thought-leaders and advising the government on the role of data & innovation in Social Impact Investing.
Who knows whether we are headed for recession or a continuation of the growth patterns that have prevailed for some time? There has certainly been a tricky background in some sectors like new car sales and the South East housing market. But whether that’s Brexit uncertainty or just a natural dip after a very strong period is not clear. Brexit certainly provides a ready excuse for management to hide behind.
However with interest rates at still very low historic levels, this recent attack of the vapours is throwing up some good value.
AIM has been led by the high-p/e growth-stock theme and this has remained under the cosh. Many of the market’s shooting stars have suffered a dramatic de-rating.
Growth stocks that were selling for earnings multiples of 30 or more now find themselves on more comfortable p/e’s closer to the 20 mark, which feels much healthier.
However it is rare that the leaders from one phase of the market remain the right place to be following a correction like this. They may well have to do more work to find a solid valuation base. Less highly-rated stocks with sound balance sheets and decent yields feel like a better place to be for now.
Wincanton plc (LON:WIN)
Logistics provider Wincanton is stuck in the middle of the trading range that has been in place for a couple of years. There is support just below 220p but resistance around the 280p level, though the stock did have a brief trip over the £3 barrier 21 months ago.
Given their modest valuation the shares are well worth a look. A current year p/e of 7.9 and yield of 4.2% leave plenty of room for upside if the company can put together a string of consistent results.
The latest interims reflected the benefits of some restructuring last year. Margins have also gained from better pricing discipline; so if the contract pipeline converts into top-line growth next year there should be scope for upgrades.
Consumer revenues were helped by wins from Ikea and Wilko and the sales contraction in Industrial was offset by improved profit margins.
A 10% dividend hike was a nice positive signal.
Kin and Carta plc (LON:KCT)
Kin + Carta is the new name for St Ives which has re-branded following the disposal of its books and print-based marketing services business.
The new strategy focuses on the ‘digital transformation’ sector: helping companies adapt to compete in, and benefit from, the digital world.
There are three service ‘pillars’: strategy is akin to management consulting; innovation helps clients build new digital products or services; and communication deals with digital marketing strategies.
Management’s challenge is to offer a single ‘holistic’ service while also being a specialist in its areas of focus. That way it can compete effectively against the major consultancy firms; but it also means getting its seven specialist brands to cross-sell and deliver services collectively.
Management is targeting double-digit revenue growth in the July 2020 year, which should see the p/e ratio fall to a modest 8.9 times.