With Theresa May’s big Brexit vote scheduled to take place in Parliament tomorrow, markets are bracing themselves for more volatility whatever way the vote goes. Financial journalists have ( perhaps understandably) played it safe again this week, preferring to avoid the ‘B’ word as things can happen far too quickly – and there is still so much uncertainty – to allow any balanced analysis to be undertaken. So, instead, cash accounts seem to be flavour of the week – plus a scattering of other investment matters as we highlight below.
‘Premium bonds: record payouts but here’s why you should save elsewhere’. This is the headline of the Sunday Telegraph Money section article which no doubt, every reader holding premium bonds (probably a lot of them we’d hazard a guess) will have read. But what’s the gist of it? Basically, the article is looking at the maths behind the prize fund, how it is calculated and roughly how much it equates to in terms of payouts for savers. Overall, they conclude that unless they scoop a jackpot, savers are probably better off by having funds on deposit elsewhere earning a tad more. And yes, it is just a tad. Of course, they talk about the tax-free nature of premium bond winnings, and how many savers will not even be using their personal savings allowance. All in all, with savers struggling to get any real return whatsoever on deposits, advisers will be well up to date with all the arguments here so we’ll spare you the details. It does give a pretty good summary of how the prize fund is managed though, so for general interest purposes the article is worth a read, although the underlying security of NS&I investments being effectively the Government’s savings arm, are not exactly given full airing as a benefit. Whether it will translate into any potential saver in premium bonds changing their approach we think is rather doubtful.
Meanwhile, over at the Sunday Times, in a similar vein, cash accounts are the subject of the lead article the Money section – but this time it’s current and deposit accounts at the banks – and in particular, how the over sixties seem to be generating considerable profits for the banks due to their reluctance to switch. As we all know, these days loyalty simply doesn’t pay. There’s a full page article on the subject, which again we’re guessing you’ll know all too well what the issues involved actually are.
Perhaps of more interest to advisers are the questions that the Sunday Times is again asking about the criteria which Hargreaves Lansdown may or may not use to establish which funds make it to their influential Wealth 50 list ( formerly the Wealth 150 in case you’re a bit behind the times!). The headline gives you the idea: ‘Woeful Woodford is no best buy – so how did he make the cut?’ Cut to the chase and it’s all about why Woodford Equity Income makes the list whilst Fundsmith Equity doesn’t. The article raises a rather mirky question, and that is whether the discounts which fund management groups are prepared to offer HL customers are significant factors behind the funds which make it onto the list. There’s a strong rebuttal from HL head of comms Danny Cox, who stresses that the list is compiled by taking into account a range of factors including the long term performance of the fund manager rather than focussing on short term considerations. Whatever the case, advisers are likely to be interested to know which funds are on the list as their inclusion there does contribute to flows of money into and out of funds and therefore is relevant to the broader asset allocation and fund selection decisions made by advisers for their clients’ portfolios.
Ian Cowie has got his ‘sage and wise’ hat on again this week, reminding readers of his Personal Account column, of the value of dividend income when investing in equities. He stresses that periods of volatility can mean the dividends are boosted as a result of share price falls, and that shares in Britain’s 10 biggest businesses currently offer an average yield of 5%. He also highlights a number of investment trusts ( the AIC’s so-called dividend heroes) which have managed to establish a hugely impressive track record of increasing dividends every year for two decades or more, and some for over fifty years. For those investors looking for an income stream, he suggests that there are opportunities with the current market turbulence to gain an attractive yield – although of course he stresses that dividends can be cut and that diversification is key.
Also gaining the ‘sage and wise’ tag this weekend is Jeff Prestridge, writing in the Financial Mail on Sunday. He is encouraging his readers to make sure that their investment portfolio is properly diversified – in particular he looks at cash holdings, gold and structured plans and goes into quite some detail on how investors can approach these particular areas.
On a different tack, with this year expected to be another bumper year for sales of VCTs, Prestridge is reminding readers of the risks of investing in start-ups and early stage investing in general. He gives a good overall summary of the risks of investing in VCTs – as well as the considerable advantages- of using them, but is encouraging readers to make sure they do their homework properly when it comes to fund selection, rather than just being attracted by the tax advantages which they come with.
Finally, the MoS fund focus column this weekend looks at Newton Global Income. Managed by Nick Clay the article reports that he believes the ‘goldilocks’ period for stock markets is over and that further market volatility will be the order of the day as the world’s central banks (led by the United States) wean economies off the stimulating impact of ‘quantitative easing’ and higher interest rates prevail. As the MoS explains, Clay attempts to mitigate some of the market risk by adopting a prescriptive investment approach. He manages the fund with a very specific principle, that he will only buy companies that are yielding 25% more than the FTSE World Index (currently with a yield of 2.8%) and then will sell them as soon as the yield dips below that of the index. The article reports that over the past five years, the fund has comfortably outperformed the FTSE All-Share Index with a return of 72%(compared to 26% for the All-Share) – although as a fund which invests internationally this is a factor which isn’t exactly made prominent.