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Weekend press review: “…of a return to normality in markets that are still climbing a wall of worry about valuations…”

Weekend press review

With Trump finally due to return from Asia, and with some of the tensions around Saudi ARABIA/Iran now abating, there seems to have been some measure of a return to normality in markets that are still climbing a wall of worry about valuations. So the Financial Times is not alone in applauding the news that net UK retail fund sales hit £5.6 billion in September – more than five times the amount invested in the same month of 2016.

The Investment Association adds that sales for 2017 are massively ahead of any other year on record. A sign of confidence, perhaps, or does it denote desperation for returns in a market where so many sectors are moving in slo-mo lockstep?

Either way, net fund sales in the UK stood at £33.7 billion for the first nine months of 2017, compared to just £6.9bn for the whole of 2016. But, the FT warns, investors have been pulling money out of UK equity funds in every single month since the Brexit vote of June 2016. Some £103 million was taken out in September, the FT says – admittedly less than the £167 million recorded in August and the £290 million removed in July.

The FT quotes Laith Khalaf, senior analyst at Hargreaves Lansdown, as saying that “abysmal” sales of UK equity funds in 2017 suggest “a high level of pessimism towards the domestic stock market.” But, it adds, huge amounts are moving into global equity funds.

The fundamentals aren’t that bad, according to the inimitable Terry Smith:  “While the Brexit negotiations continue to go from pillar to post, the UK economy has actually held up rather well, to such an extent the Bank of England has seen fit to raise interest rates for the first time in over a decade.”

September, of course, is not the cruellest month. October’s generally when the bad news tends to hit. Let’s see where the next updates take up.

The Telegraph asks a question which will evoke a sigh from many readers. Have we seen the end of the peer-to-peer lending boom? Last year’s record £3.2 billion lending total – of which two thirds went to Zopa, Funding Circle or RateSetter – has been impacted by a succession of unrelated bad news stories.

First there’s been the falling rate of returns, which run at barely 3.7% for Zopa Core 4.5% at Zopa Plus – down by a good 1.5% since the good times. Not to mention a deteriorating risk situation: nowadays, the Telegraph says, fully 20% of applicants get Zopa approval compared with barely 0.5% in the old days. That puts Zopa’s approval rate on a par with the mainstream banks.

And then there’s the fact that P2P lenders are regulated by the FCA, which wasn’t the case three years ago, and that £50,000 capital buffers need to be in place these days. Even though full FSCS protection doesn’t apply. And that RateSetter, it says,withdrew its membership of the Peer to Peer Finance Association after breaching strict transparency rules . Leaving just Zopa, Funding Circle and Folk2Folk in the Association. And that advisers’ view of P2P remains, in the words of one quote, “all a bit misty and murky”. There are upsides, but you’ll need to read the article for more details.

How can we help young people to learn important money management skills? It’s a crucial question. The Guardian reports on a study from Young Money (those of you like us who have been around a while might have known it as PFEG) entitled The Ticking Time Bomb of Generation Debt, found that education about money has stalled, with many secondary schools side-stepping changes introduced to the national curriculum in 2014. The charity findings indicate that many young people are under pressure to rack up debt and take out store cards so they might appear rich. It is a sad fact that financial literacy amongst our young people is so dangerously low. Initiatives which aim to help alleviate this problem are needed more than ever. Thankfully, it seems that this weekend at least, the situation seems to be hitting the headlines for the right reasons – as organisations look for ways to help young people obtain the all-important knowledge and skills to avoid a financial hangover later in life.

Now we can probably agree that there’s nothing wrong with being prepared for whatever life throws at us along the way, but the headline on the lead story in The Sunday Telegraph Money section is certainly not holding back.  Entitled, “buy these six shares when the stock market crashes” the Telegraph suggests six individual companies which readers might line up for purchase at marked down prices after the next apocalypse comes along. What are they? You’ll have to read the article to find out.

For richer, for poorer? Perhaps not: the rise of the post-nuptial agreement. It’s a great headline but according to the Sunday Telegraph, lawyers are reporting that more and more couples are drawing up “post-nup” agreements, sometimes long after their marriage – triggered by a financial event such as receiving a windfall.

Much like a pre-nuptial agreement – which takes place before the wedding – post-nups lay out how assets will be split on divorce. According to the Telegraph, the most popular reason for having one is where one half of the couple unexpectedly comes into money and wants to protect it. This can be money gained from an investment or from an inheritance that they want to ring fence. Second marriages and more complicated family structures also make the need for post-nups greater. Also, with more mums and dads helping out their offspring financially so they can buy a home, post-nups are also being used to try and protect their gift in the case of a divorce.

However, the Telegraph reminds readers that this is not a straightforward matter. Like a pre-nup, post-nup agreements are not legally binding. There are ongoing legal discussions about whether the law should be changed, but as things currently stand, the court has the final decision. However, such has been the rise in the use of the agreements that they are now seriously considered by divorce courts.

As reported earlier from The Guardian’s feature on Saturday, efforts to help young people to get to grips with how to manage money are usually worthy of plaudits. The Sunday Times Money section leads with a feature highlighting how the charity Young Money is set to announce that it is distributing free copies of the first personal finance textbook for schools which is aimed at 14 and 15 year olds. The charity is sending 500,000 copies out and every school in the UK will receive some. The initiative is being supported financially by Martin Lewis, well known as the MoneySavingExpert. The aim is to help educate young people about how to handle money and about the dangers of getting into the debt trap that engulfs a growing cross-section of people across Britain today. It is a laudable effort which we at IFA Magazine certainly hope can help to build some positive engagement and help our young people to lead more fulfilling lives through learning how to develop better relationships with money – including the dangers of debt.

Equity release might solve a cash crisis – but upset the children. That’s the message from the Sunday Times as they try to reflect on the pros and cons of reverting to equity release as a means of releasing cash from the value of a property, whilst retaining the right to live there. They evaluate the more traditional lifetime mortgage, as well as the new product on the horizon, retirement interest only mortgages. The main difference here is that interest is paid each month throughout the life of the loan, rather than accumulating on top of the capital sum and paid at redemption as is the case with lifetime mortgages. The Times reports that the FCA is likely to publish feedback on these proposed mortgages next year.

With further rate hikes on the horizon, some experts are predicting this will stimulate the profits and share prices of banks – and reward patient investors.  Ben Whitmore, fund manager of Jupiter UK Special Situations Fund holds about a quarter of his fund’s portfolio in banks and other financial groups. So says the Financial Mail on Sunday as they review this fund in their fund focus column. Whilst its performance over the past year hasn’t exactly sparkled, it reminds investors that special situations are all about finding value which might take time to be realised in the share prices of the individual stocks selected.

Whitmore and his team use two screening measures: the Graham & Dodd matrix to find low valued stocks based on their average earnings over a period of ten years; and the Greenblatt, which pinpoints companies that combine low valuation and a high return on their revenue generating assets. He says: ‘The screening systems iron out biases by forcing us to look at lowly valued companies. Humans do not like going against the crowd – the screens force us to.’ Although he does not favour particular sectors as such, the screening systems inevitably allow sector groupings to emerge. As well as banks, they have thrown up food retailing, mining and energy as bargain sectors.  Whitmore adds: ‘Whilst these offer the lowest valuation at sector level, portfolio diversification is critical.’