In a week when most press sources have their eyes firmly set on the spring Budget and its messy aftermath, FT Personal Finance opts for a foreign market. Moneyweek editor Merryn Somerset Webb explains why she is still backing Japan as an investment option, despite all the travails that have come its way from a strong currency in 2016 and then, in 2017, from Donald Trump’s rejection of the Pacific trade pact.
Prime Minister Shinzo Abe is doing better than most people realise, she says. His three-stage economic renewal programme (commonly described as “Abenomics”) is progressing well, and his forward thinking is creating political stability of a kind which Japan has rarely seen in recent decades. The yen has softened under Abe’s leadership, the Nikkei 225 has regained the 15,000 level for the first time in five years, and capital spending in business is improving. A 1% rise in wages doesn’t sound like much of a driver for consumer growth, she agrees, but it’s better than the patterns of the last decade.
The oddity, in fact, she says, is that Japan isn’t more expensive. The average price/earnings ratio is still much where it was six years ago, which sets Tokyo in contrast to the experience in the United States, where p/es have been rising aggressively. Why, she asks, should US profits be worth so much more than Japanese profits to international investors? There’s an anomaly here that merits investigation, she feels.
On the principle that it never hurts an IFA to know what the other side of the desk is thinking, the Telegraph presents a consumer-sided run-down on the options available to investors who’ve concluded that their own picking skills are poor, but who still balk at the cost of paid advice. Although the “plain vanilla” trackers chosen by the T’s quoted investor had performed well enough, it says, her attempts at more adventurous investments had shown up her inexperience.
Her response, not unusually, had been to choose a robo-adviser – in this case Nutmeg, at 0.75% per annum for the first £100,000 invested, and then 0.35%. But, as the Telegraph makes plain, there is still considerable confusion as to the varying levels of support and advice offered by the various providers. The article quotes Mark Polson from investment consultancy the lang cat as saying that the choice lies essentially between what he calls “do it with you” (I.e. help with providing buy-lists of funds but nothing more) and “do it for you” services which make investment decisions but which employ more technology and more sophisticated robo-advisers in an effort to reduce costs. And so, eventually, to wealth managers and financial advisers who are there to match the client to a portfolio and maintain his or her investment strategy going forwards.
Is there anything new here? Hardly, apart from the mention of Vanguard’s Target Retirement funds, or Blackrock’s Lifepath, or Axa’s Birthstar, all of which offer a third way for stressed individuals to achieve ‘all-in-one’ objectives. As we’ve said, it never hurts to know what the papers are saying to your clients.
Death and Taxes – as Benjamin Franklin famously wrote back in 1789 – take the lead in the Sunday Times this week in an article covering what it calls the triple stealth tax on bereaved families. Again they highlight changes to probate fees which are due to take effect in May. They also warn of changes to the Widowed Parent’s Allowance. From April 6, this will only be payable for a maximum of 18 months. At present, payments are available for up to 20 years as long as children remain in full time education. The third element is the freezing of the IHT allowance at £325,000 until 2020/21.
In his regular Personal Account column, Ian Cowie suggests that investment into European markets looks cheap, especially in comparison to the US market. In particular, he highlights European investment trusts which are currently trading at a larger discount than the average IT , reflecting caution over the current political and economic situation on the continent.
It’s no surprise to see that this week’s how to invest £10,000 column looks at tips for investing in a stocks and shares ISA. Justin Modray of Candid Financial Advice gives his recommendations to combine active and passive approaches as follows: £3,000 into Vanguard FTSE UK All Share Index Tracker, £2500 into Vanguard FTSE Developed World ex-UK Equity Index fund, £1,500 in the Vanguard Emerging Markets Stock Index Fund, £750 in IShares S&P Smallcap 600 ETF Index Tracker. The remainder is split between actively managed funds: £750 Marlborough Special Situations, £750 in Franklin UK Equity Income and £750 into Fundsmith Equity.
With the ISA limit rising to £20,000 from April, the Sunday Times runs an 8 page ISA special. In it, the Times reminds readers of the value of making regular contributions and the benefits of compound interest as well as the benefits of sheltering future income from potential tax changes into an ISA. First time equity ISA investors are talked through some of the key considerations they will face, although with so many decisions involved – choice of platform, fund, ISA or pension etc, the novice DIY investor might well heed the Times’ reminder of the option to consult an independent adviser. We do hope so! There’s also a positive endorsement for the benefits of holding equity income funds within an ISA, to generate a tax efficient income. The ongoing debate between active or passive funds also features, with the traditional arguments voiced for both sides. When it comes to the new Lifetime ISA – or LISA – the Times compares this new offering with the existing help to buy ISA. It also looks at the Junior ISA and the benefits of investing regularly into equity based funds to build up a nest egg for children.
The Mail on Sunday’s Midas column gives a rating of “long term buy” to the Fidelity Asian Values Investment Trust, managed by Nitin Bajaj since April 2015. Also in the Financial Mail on Sunday, Jeff Prestridge welcomes the U turn from Chancellor Hammond on self-employed NI contributions but fears that his attention will now turn to an assault on pension contribution tax relief later this year to try and plug the funding gap left by this change of mind. We fear he might well be right. He then goes on to describe the new NS&I bond as a “sop to beleaguered cash savers” and bemoans the fact that it does not pay a regular income as well as the question about real returns with inflation on the rise. In his regular Fund Focus column, Prestridge looks at the Jupiter Emerging European Opportunities Fund, managed by Colin Croft since early 2014. According to Croft, the immediate future looks rosier than it has done for a long time, and he highlights the fund as a useful diversification asset for UK investors.
Like the Sunday Times, the Mail on Sunday also runs an 8-page pull-out called “Find your way through the ISA maze”. In it, the MOS compares rates on cash ISAs, and uses lots of case studies to highlight examples of equity-based ISA portfolios – including a two page spread asking five industry experts where they are investing their own ISA funds. As you can imagine, there are far too many funds mentioned for us to name here. Choices range from the more traditional asset classes such as UK equity income, Japan to the more unusual such as the Innovative Finance ISA which invests in peer-to-peer borrowing. Finally, there’s a quirky piece from Lord Lee, who became the UK’s first ISA millionaire in 2003. His ISA funds have now accumulated to several millions – he won’t be more specific! His approach has been to invest directly into shares with a preference for firms listed on the junior AIM market. He typically runs a portfolio built around ten core firms. He then gives his top 12 tips on how to build a million pound ISA which include sensible suggestions like holding each investment for a minimum of five years, avoiding the big gambles and avoiding chopping and changing too much.
The Sunday Telegraph also gives its 25 dos and don’ts for investing in an ISA. Again, some sensible suggestions such as making regular contributions to gain benefits of pound/cost averaging, not to forget to look at investment trusts and passive funds, buy on weakness and to ensure that the portfolio is regularly rebalanced are amongst many others. Also there’s a feature which argues why Brexit won’t have a significant effect on long term investments from Richard Dyson. We only hope he is right!
Adverts: In case you’re interested, here are the investment groups advertising this weekend: Jupiter, Artemis, Fidelity, Aberdeen, Old Mutual Global Investors, Fundsmith, Innovative Finance – Crowdstacker, Santander.