The Financial Times has an embarrassment of riches for its readers this weekend. The weekend edition carries two features on the investor impact of Donald Trump’s steel import tariffs (essentially, bad news for Asian steelmakers and hence for the large-cap investment trusts that back them). And the indefatigable Merryn Somerset Webb, editor of Money Week, asks whether the President’s action might deliver the final fatal push for a global equity scene where so many indicators are looking overbought.
There is, of course, also the small matter of the approaching tax year end, and of the need to maximise tax breaks while also securing income. But our pick for this week is a piece by Vanessa Houder on what the FT is calling a Budget crackdown on EIS investment and on inheritance tax shelters.
Yes, we know that there isn’t actually a Budget this week, just a 15 minute “spring statement”. But, that quibble aside, the author makes a good job of dissecting the implications of last year’s Patient Capital Review – which, as you’ll recall, resulted in a call for new EIS and VCT investment to be directed away from the “safe” capital-preservation options that have made up two thirds of all EIS-type investments in the last few years.
From 6th April, as you’ll know, the annual investment allowance has been doubled for investments in “knowledge-intensive” companies – the “safe options”, by comparison, have been left in a sort of limbo while the Treasury tries to determine which investments pass the (as yet un-detailed) acceptability test. And although the inference so far is that the safe options won’t lose their eligibility, nor will they qualify for the expanded allowances.
Ms Houder is particularly concerned with the question of specialist products that aim to take advantage of IHT relief through Business Property Relief (BPR) schemes, largely through the purchase of AIM shares which presently become exempt from IHT after only two years of ownership. A nicely balanced argument follows, in which the voices urging a BPR crackdown are set against the acknowledgement that too many changes might spook the alternative investment market and do more harm than good. Recommended reading.
The Telegraph encourages us to lash ourselves to the mast during the coming stormy seas, and to hold our course during whatever the year throws at us. That would be a fair summary of James Connington’s argument that we should resist the urge to chop and change our strategy during the difficult days. Panicking and jumping at the wrong moment into a strategy that appears to be performing better can, in fact, severely damage a portfolio, he says
Connington’s interviewees, he says, say that strategies fall into two distinct camps. On the one hand are the types who put up to 85% into shares, with a bit of property and a few bonds, and who insist that market timing is for losers.
The other kind will put anything between 30% and 70% into stocks and the rest into an ever-shifting mix of bonds, cash and other investments – and who will always be open to the idea that a broad strategy can cope with developing trends – or, indeed, that managers can time markets. (It’s worth noting Connington’s comment that most of these market-timers are defensives, not aggressives.)
But either way, he says, a protective strategy would have got you nowhere during the turmoil of 2007/2008. If you’d switched out of growth in 2008 you’d have suffered much slower growth. ““The worst returns are likely to be achieved by those who don’t really know what they have bought, who as a result, chop and change between styles based solely on recent investment performance,” says one of his quotes. Hallelujah to that.
The Daily Mail highlights what may yet turn out to be a mere flash in the pan – or maybe not. During the last quarter of 2017, it says, no less than 7.2% of US consumers’ credit card debts with minor lenders were written off. That was up from 4.5% earlier in the year, and it’s not what you’d really have expected from a resurgent America that was revelling in the Trump bonanza. (High employment, high levels of new credit, and promised tax cuts.)
That worries the US Federal Reserve, which is planning to raise bank rates this year and which is fretting that default rates may increase. But should it worry us on this side of the Pond? The Mail says that there are no signs yet of any such trends over here. But that the Bank of England’s widely touted base rate rise from 0.5% to 0.75% in May should give us cause for concern. Anybody got a crystal ball?
Writing in the Financial Mail on Sunday, Jeff Prestridge comments on the recent Office for National Statistics (ONS) report into the UK’s pension commitments – pension rights already accrued but yet to be paid. Between 2010 and 2015, the article states, these rose from £6.6trillion to £7.6trillion. This total comprises a mix of pension promises made by the State, public sector and company pension schemes and private plans. Of this, some £2.7trillion is backed by assets sitting in pension schemes, but £4.9trillion (64 per cent) is unfunded – therefore will need to be met by taxpayers in due course. Prestridge rightly asks how the workers of tomorrow are going to be able to pay for it. A further pushing back of the State Pension age? An end to unfunded public sector pension schemes? Or higher taxes? It’s a worrying scenario indeed.
Moving on to more positive news, the MoS fund in focus this week is Alliance Trust – the Dundee-based investment trust which, over the past five years, has seen a pretty major shake-up in how it is managed. Its latest results were out last week and revealed yet another increase to the annual dividend – an unbroken record going back 52 years. MoS reports that the structural changes to the management of the trust are now complete. The transformation from internal to external management meant that eight fund managers chosen by Willis Towers now run Alliance’s investments. These include Jupiter and River Mercantile and less well-known names such as Black Creek (based in Toronto, Canada), New York-based Lyrical Asset Management and Sustainable Growth Advisers (Connecticut, United States). That really is quite a difference!
The Sunday Times Money section leads with a story entitled “the march of the silver strivers”. We’re guessing that many advisers will have clients in this position – i.e. still doing some work well into retirement, mostly because they want to and find it fulfilling. The Sunday Times reports that there are now around 1.3m silver strivers, up by around 720,000 since 2000 and therefore one in eight people who reach State Pension age keep on working. There are some famous names mentioned – including The Who front-man Roger Daltrey – age 74 and still playing concerts. And good on them too.
Also in the Sunday Times, Ruth Emery has been to meet Anthony Arter, who has been the pensions ombudsman for almost three years. He runs a free service with more than 50 staff. As Emery reports, from next Friday his role is about to get bigger as the 350 strong complaints team at the Pensions Advisory Service (TPAS) will begin to come under the control of the ombudsman. They will cover problems connected to workplace pensions, personal pensions and the Pension Protection Fund but not the State Pension (covered by the Pension Service) or issues about sales and marketing of a pension (covered by FOS). In the article even Arter himself confesses that he “finds pensions difficult…it’s a really complicated world.” He continues to be worried about scams but is also concerned that more complaints about auto-enrolment might be coming down the line, especially with contributions set to increase next month. In 2016/17, the pensions ombudsman took on 1404 investigations, but Arter expects that to double following the merger with TPAS which completes on 1 April.
Finally, in his Personal Account column this week, Ian Cowie is warning about the dangers of investing in the latest “hot” companies or sectors. He highlights new academic research conducted on both sides of the Atlantic which found that investors can be manipulated by digital media to overpay for promoted shares – and also last weekend’s news that US investigators had accused the UK stockbroker Beaufort Securities of a “pump and dump” fraud. Cowie’s reminder to use common sense when it comes to investing is sensible.