The Financial Times runs a piece about a new investment trust that aims to counter the trend toward short-termism in the investment industry. Established by Daniel Godfrey, the former chief executive of the Investment Association, the new fund has launched a £125 million fundraising effort for a trust which he says will target an ambitious 7% a year over a seven-year period – assuming that inflation runs at 2% during that period.
The difficult part is that the (London-listed) People’s Trust will be charging a hefty ongoing annual charge of 1.07% – significantly more expensive than many other actively managed funds. The difference is that Mr Godfrey says his managers will be allowed a seven-year contract, rather than the usual three-year period – and that this will enable them to take a longer-term approach.
The new fund is to have no benchmark. Mr Godfrey says, however, that about 20% of his new fund’s portfolio will be allocated to what the FT calls “a clean energy investment strategy run by the London-based hedge fund Lansdowne Partners”; the remainder, it says, will be diversified among smaller UK companies, with an equal weighting of European, Asia-Pacific and global equity funds.
Just when you thought that interest-only mortgages had been banished forever, The Telegraph reports that the FCA is giving serious consideration to allowing them back into the fold. But not for every borrower, it seems. Rather, the new mortgages would be marketed to older people who already have such interest-only mortgages but who cannot afford to cash them in because they have no immediate way of repaying capital unless they downsize.
They do, of course, have the expensive option of releasing equity on their homes, which would effectively allow them to stay put at a lower annual cost; but, says the Telegraph, interest-only loans have the additional advantage of being available at very low rates. Yes, it’s true that these mortgages mean that the householder is effectively “paying rent” rather than owning, but they also allow the householder to continue benefiting from capital appreciation.
Two further refinements also seem possible, says the Telegraph. Firstly, it should be possible to offset the outstanding debt at death against inheritance tax liabilities. And secondly, the new mortgages could provide a way of allowing householders to share their wealth with their children or grandchildren – by making it possible for them to find enough capital to beef up their descendants’ deposits on a new house to a level where a lower rate of interest may become available to the younger buyers.
Bitcoin makes it to the front page of The Sunday Times money section. Mostly, it’s a warning to readers to be cautious given the huge rise in recent years in the value of bitcoin, a cryptocurrency which was once seen as the preserve of computer geeks, drug dealers and arms traders. They make it clear that investing in bitcoin can be an extremely bumpy ride and is not for the faint hearted.
Regular ST columnist Ian Cowie is back from his holiday, and is considering the recent problems which have beset certain active fund managers – Woodford and Invesco Perpetual – who had relatively large holdings in the doorstep lender Provident Financial, as well as problems with tobacco stocks and investments in Astra Zeneca. Cowie voices the opinion that “one mistake might be bad luck, twice could be a co-incidence but three times begins to look like a trend”. He asks if these shocks might lead individual investors to shun the services of professional managers and opt for individual stock selection themselves instead. Only time will tell of course.
The ST headline of “It’s daylight robbery” looks at the situation of those who invested in managed investment funds or pensions before 2013 and are still paying fees for “advice” which they aren’t getting, through the ongoing trail commissions. Whilst explanations about share classes are attempted in the report, we’re guessing that it might lead to a few questions for advisers from clients at their next review meetings just to clarify the position on their existing holdings.
In the final part of the ST series on how to build a balanced portfolio with £10,000 Holly Mackay of Boring Money suggests 50% into Vanguard LifeStrategy 100% equity, 25% into Lindsell Train Global Equity, 15% into Scottish Mortgage IT and 10% into Jupiter India.
In his regular fund focus column in the Financial Mail on Sunday, Jeff Prestridge look at the JP Morgan Global Growth and Income IT.
He explains that a growing number of investment trusts are using different strategies to generate yield. Rather than depend just on income reserves, some are also using some capital reserves to enhance income. Among those doing so are Baring Emerging Europe, Invesco Perpetual UK Smaller Companies, Securities Trust of Scotland and Lazard World Trust. JP Morgan Global Growth & Income has been running such a policy since the end of last year. This summer, the trust’s board announced its intention to pay a quarterly dividend over its financial year ending June 30, 2018, equivalent to 3.04p a share – 12.16p for the year.
This will result in more than £15 million of ‘income’ being paid to shareholders, funded by a mix of dividends from shareholdings and distributions from both income and capital reserves. If the strategy is maintained for the full year it will result in a dividend boost of 24 per cent on the year before.
Crucially, it has not inhibited the long-standing investment approach adopted by manager Jeroen Huysinga and assistant Frances Gerhold. Their remit remains one of searching for global stocks that will provide the best total returns – not paying the most attractive dividends. The trust’s underlying yield is 1.5% compared to the 4% yield being paid to shareholders. The portfolio comprises 87 stocks with the biggest concentration of holdings in the US and Europe.
Prestridge also mentions that in a recent research paper, broker Numis Securities forecast that more trusts like JP Morgan Global Growth & Income would look to boost dividends from capital ‘to differentiate themselves from peers and broaden investor demand’.
But it also warned that such a policy would accentuate capital losses when markets fall. It concluded: ‘We believe that boards need to consider whether an enhanced yield is sustainable over the long term.’ Here at IFA Magazine – we’d agree with that.
The MoS also reports that pressure is mounting on the Government to cut the ‘outrageous’ interest charged on student loans. As MoS explains, graduates now face an eye-watering rate of 6.1% on their student loan— 3% plus March’s Retail Prices Index of 3.1% — while they are still studying. This is 24 times the 0.25 per cent Bank of England base rate, and students start incurring interest the moment they step through the lecture room door. To make it worse, interest is compounded monthly. It is a very worrying problem and good to see the MoS airing it in public.