I hadn’t appreciated that it had been a month since writing my last News Letter and I have to say, that time has gone so quickly, but then we’ve had Easter and another bank holiday weekend as well. There is quite a lot to include this time, so my apologies for a longer than usual message.
I am delighted to be able to confirm that this will be the last News Letter drafted from RAFP because at the tail end of last week, we did finalise all of the documentation to merge RAFP with Bates Campbell and during the course of the next few days, Companies House and the FCA will be informed of the Company name changes as we launch the Alexander Bates Campbell brand.
As I mentioned in an earlier News Letter, I have known Martyn Bates and Lynne Campbell for many years and in fact, they used to work for me in my previous business before establishing their own firm in 2010.
They have two main strands to their business, one of which is providing corporate services to overseas Companies, particularly those based in North America, who have employees in the UK. The services provided are to look after those employees, provide them with their benefits, manage the payroll and human resource support services. In developing this area of business, they have evolved a business model that I was running in my previous Company, and I have been pleased to see how successful they have been.
In addition, they have a private client portfolio as well, where they are looking after personal investments and associated tax advice, very similar to the services provided by RAFP.
As you may recall, one of my concerns has been continuity and by creating the combined business, we now have a stronger platform to be able to evolve our client services further, whilst being able to ensure continuity for clients, staff and indeed, the stakeholders in the business.
The combined business will now comprise 17 people, with 5 advisers and 12 support staff. The actual structure and individual responsibilities are as detailed below.
|Richard Alexander has over 46 years financial services industry experience providing specialist financial planning services to clients with accumulated capital who prefer the personal touch of a dedicated and trusted financial adviser.|
|Martyn Bates had many successful years in the computer software world before turning his attention to financial planning 20+ years ago. Martyn is renowned for his experience and patience and providing customer care to individual and corporate clients.||Lynne Campbell has built her experience advising with industry leading independent specialists for 25+ years. Her professional approach, combined with considerable capability are the foundation of her acknowledged success.|
|Nigel King has worked in financial services for over 25 years, during which time he has built up a wealth of experience and knowledge that he uses to help friends, clients, and colleagues. As well as studying hard to become a Chartered Fellow of the Institute, he says “I find work genuinely enjoyable, which is a rare comment, as I genuinely enjoy meeting and helping people achieve what they want financially.”
His spare time is at a premium, having 4 young active children, running a local football team and being involved in a local charity tends to fill most weekends!
|Ian Collier has built up considerable financial knowledge and experience during his 34 years within the industry.
His time with HSBC in particular, as both Relationship Manager and Financial Adviser, helped cultivate his passion for helping client’s achieve their life goals.
When not working Ian loves visiting his family and friends, going on holidays with his partner, running, gardening, and watching Cricket.
|Private Clients Lesley Alexander – Administration Manager Chantelle Bennett – Paraplanner Sarah Donno – Administrator Charlotte Penfold – Administrator||Corporate Clients Jeanette Owen – Head of Administration Eva Bodan – Administrator Rebecca James – Administrator Holly Whitaker – Administrator|
|Chris Alexander – Director Jess Greenslade – Payroll Manager Gaby Reading – Accounts Manager Katrina Stonestreet – Operations Manager|
Continuing Market Turbulence
We are continuing to see turbulence in investment markets globally, with the on-going influence of concerns over the conflict in Ukraine and supply chain issues, both of which are contributing to the inflationary pressures, which are in turn, seeing central Banks raising interest rates.
Over the last 40 years in business, there have been a number of occasions when we’ve experienced similar periods of volatility in markets, each of which at the time have been very concerning, but on each occasion, the markets do eventually bottom out and then we are likely to see a period of sustained recovery.
We work with a number of Investment Managers, and I thought it might be useful to invite them to summarise things as they see them at present and the remainder of this News Letter therefore comprises two contributions, one from Hugo Pring, who is a Partner at Lunesdale Investment Management and the other from James Penny, who is the Chief Investment Officer at TAM Asset Management.
Hugo will be known to some of our clients, as he manages a range of bespoke investment portfolios for clients. The approach from TAM is somewhat different, inasmuch that they run a series of model portfolios, which are risk graded and designed to meet specific client needs and you will see that they have different styles in their presentation, but I hope that you might find their comments to be of interest.
In future News Letters, I intend to include comments from other Fund Managers, so if you don’t recognise either of these, don’t worry, we should see further comments from others in due course.
Hugo Pring – Partner at Lunesdale Investment Management
The value of long term income streams are being undermined by high and rising inflation all around the world.
Supply chain cost increases have been a feature of the global economy for the past year since the height of the disruptions caused by the Covid pandemic.
Energy price rises were also rising even before Russia’s ill-advised invasion of Ukraine but with so much of the EU having become reliant on Russian gas, these increases have also accelerated.
Central banks are now using the only policy tool that they have at their disposal to bear down on inflation and so around the world, interest rates are rising. The stock of cheap borrowing available to businesses everywhere is therefore contracting fast and at the same time, wage inflation is also beginning to affect profitability.
Whilst each of these trends was to some extent predictable (excluding perhaps the invasion of Ukraine) the combination of them all in such a short time has dramatically undermined confidence in equity investments. Initially this undermined the elevated valuations of the high-growth companies in the USA (normally quoted in the NASDAQ index) in the last few months of 2021 but by now, more prosaic traditional businesses (which make up older indices such as the Dow Jones, the FT100 and others) are also being marked down consistently.
Most of our portfolios have now given up all the growth of 2021 and some are approaching values closer to the lows of 2020 when the Covid pandemic first struck.
To use an over-common phrase, “we are where we are – not where we would perhaps like to be!”. Clients portfolios have fallen despite our having done our best to diversify them between industries, markets, currencies and time durations. Gold has fallen, as have index-linked gilts – perhaps the two most common “hedges” against investment risk - which demonstrates how hard it is to find a calm port in the storm. Even cash is of course being undermined by renewed inflation and will lose 6% of its purchasing-value in 2022 unless something changes fast. In other words, cash is a guaranteed loser whereas losses are NOT guaranteed with other investments!
So what should the investor do? Given all the above, the following (in my opinion, which is what you asked me for!)
James Penny – Chief Investment Officer at Tam Asset Management
Markets over the last month have become noticeably more volatile than in Q1 which is hard to believe. The reasoning for this step up in fear and selling seems to be based around the idea that central banks are now actually raising rates rather than just talking about it as they were for most of the first quarter of this year. The war in Ukraine has helped to exacerbate this volatility and supercharge inflation expectations (no oil in Europe, no corn for core food production and no wiring looms for cars, to name a few) which is, in turn, feeding the flames of fear around investing into this market.
This scenario is obviously most negative for bonds as interest rises erode the value of owning bonds and likewise growth stocks come under serious pressure in a rate hiking market. We can see this with the Nasdaq down over 20% whilst the normal S&P500 only down 8.5%. It really does seem that anything which has done well prior to 2019 is now firmly at the bottom of the pile. Whilst this is regrettable it is well known that what goes up, must, at some juncture come back down again.
As growth stocks come down, one might have expected investors to now be switching to value investing (a move which TAM did long ago).
It would appear, from chatting to our competitors that invest in funds, many of whom have been so heavily invested into high growth funds for the last decade (Fundsmith and Ballie Gifford) these peers have been somewhat reluctant to sell these holdings and are thus down over 10% at the end of the first quarter and some much more than that.
Conversely, TAM’s portfolios were down in the region of 2-5% over the first quarter which is significantly better than many competitors. This is not because we saw the writing on the wall but more that TAM has, and always will be a cautious manager and a safe pair of hands in a crisis.
To my earlier comment about when TAM started buying value stocks which are so in demand now. TAM has been investing into value funds since the first vaccine came out in November 2020.
The fund we have been buying is mainly the Pzena Global Value fund and this year it’s up 1.5% when the wider market is down nearly 9%. Likewise, TAM made a switch into an S&P500 Value ETF and put it, along with Pzena, as the largest part of clients’ portfolios.
This very cheap and highly effective ETF is down just 3.4% when the actual S&P500 is down 8.5%, that’s a relative performance over 150% better than the S&P500 which so many passive investors own.
Further to this, a move was taken to decrease equity exposure and increase precious metals exposure a week before the invasion of Ukraine which proved a very defensive move. Finally, a move to insulate the clients’ portfolios with healthy levels of commodities and alternative hedge fund style investments have all returned handsomely for the clients. These moves in aggregate helped to secure TAM’s position as one of the best performing DFM’s in the wider IA mixed investment sector over Q1.
Of course, this commentary is not intended to detract from the negative performance seen in clients’ portfolios this year and no one takes these negative markets more seriously than TAM.
We do however think it’s worth framing this small level of underperformance against competitors offering a similar balanced investment option suffering larger losses because of their focus on returns rather than protecting clients.
To conclude, in markets like this it doesn’t do to start throwing the baby out with the bath water and panicking about every stock and bond owned and selling everything hand over fist.
The focus points for clients worrying about their invested wealth is to remain calm, remain sanguine about the fact that markets do move in fits and starts and what does go down can come back up.
TAM’s investments are geared to invest clients’ money simply, clearly and importantly invest it into the very best and highest quality companies we can find.
If we can do this whilst trying to protect clients’ assets in times of volatility then we believe this delivers the best of both worlds and I hope from my previous comments we have demonstrated that we have delivered exactly that in these trying times.
I often feel successful investing is often less about correctly predicting the outcome of every risky scenario which plagues this market and more about owning what you know to be a great investment, holding it for the longer term and getting rewarded for doing so.
And to that end, things are becoming volatile and whilst we are cognisant of this fact, we are also hugely positive for the future of this market and over the longer term this short term shock to markets is just a great opportunity to own more high quality companies which we believe will become the winners of tomorrows market.
As always, do let us know if we can help in any way and in the meantime, stay safe and we will keep in touch.
Best wishes.Best wishes from all at RAFP
As always, time seems to travel at varying speeds, depending on what it is you are relating it to and for Ukrainians and others impacted by the Russian invasion, the last month must have seemed like a lifetime. What a courageous fight they have put up and I just hope that some of the stories that are starting to circulate have some gravitas in that the war in Ukraine, could in fact lead to the downfall of President Putin. Whatever and whenever the outcome, the possible complacency that had been allowed to creep in to Western thinking in the post-Cold War era has been challenged and lessons need to be learnt if we are to see stability return to Europe.
Consider also the last 2 years, it has been that long that we have been dealing with the severe impact of Covid and markets have largely come to terms with the post Covid implications and market recovery and economic growth were well on the way. Whilst the Ukrainian concerns have caused markets to stutter once more, they are again showing signs of stabilising as they evolve with sea changes that are taking place. As I have often commented, markets are cyclical by nature and time and timing are important features.
My last comment about timing is that it was August last year when we put our request to the Regulator in the UK to restructure our business, and 7 months later, (it seemed so much longer!) I am pleased to be able to say that their consent has now been given and so I will dedicate the rest of this newsletter to the upcoming changes that this will bring. (I appreciate I will be covering ground that some will be familiar with so please forgive any repetition.)
Our business year end is 31st March and we are trying to conclude the restructuring to take place at the start of next month – New Year = New Structure.
In broad terms, we are merging with Bates Campbell Ltd into a new group structure. Martyn Bates and Lynne Campbell used to work for me in in my previous business and when I moved on from that structure, they took the opportunity to set up their own business which has traded very successfully for the last 12+ years. To offer some background, a brief bio from our new website for each is as follows:
MARTYN BATES had many successful years in the computer software world before turning his attention to financial planning 20+ years ago. Martyn is renowned for his experience and patience and providing customer care to individual and corporate clients.
LYNNE CAMPBELL has built her experience advising with industry leading independent specialists for 25+ years. Her professional approach, combined with considerable capability are the foundation of her acknowledged success.
With them comes a team of 9 support and administration staff and they are in the final stages of recruiting another adviser who we hope will be joining in April. Add this to the RAFP team of 4 and we will have a combined force of 16, including 5 advisers. Most staff will be working from the offices in Forest Row, which are on the edge of the Ashdown Forest in East Sussex, but some staff will continue to work remotely as they do at present.
The increase in numbers and the diversity of skills and experience that they bring, will enable us to offer a broader service and to ensure continuity for clients and staff in the longer term.
We will win no prizes for imagination when I tell you that the name of the new group will be Alexander Bates Campbell and although in due course we will issue everyone with new Terms of Business, these are not immediately needed as our service levels and standards will continue.
We have a new logo, which will form the basis of our branding going forwards. I would just hasten to reassure you that none of these changes will impact on charges to you, they will remain at their current level.
I am also taking the opportunity of formalising the on-going services for our clients, who are resident in the European Union countries and with them in mind, I personally have become an Appointed Representative of a firm called Beacon Global Wealth Management (BGWM), who have regulatory permissions throughout all EU countries, which enables me to maintain those relationships and I have already been in contact with everyone who is affected by this.
I can also confirm that Lesley will be continuing to provide support services for clients via BGWM going forwards.
One consequence will see me reduce the number of hours that I work with UK and other overseas clients outside the EU, and once the merger has settled, I plan to work 3 days per week, in all probability, Tuesday, Wednesday and Thursday and with this in mind, I will be introducing Nigel to those clients who haven’t yet met him. Once again, this will ensure continuity, but rest assured, I remain available to you for the foreseeable future.
Business restructuring can be disruptive, but our aim is to ensure that any disruption is minimal and will not affect clients, but please bear with us while we come to grips with our new structure. Hopefully, you will not notice any change in service standards, it will simply be the logo on the e-mail that changes.
If you have any questions at this stage, please do let me know and in any event, we will be in touch again shortly.
Above all else, take care and stay safe.
Best wishes from all at RAFP
In another 2 weeks it will be 2 years since I issued my first News & Views and that was at a time when the UK had just gone into the first lock down with Covid and I felt then, that with an uncertain future, that it was important to keep communications open on a regular basis. How much has happened and changed in that time?
As always, time is an illusion, inasmuch that you look forward to something that is 2 years away and it seems a lifetime and yet, you look back 2 years and the time seems to have gone in a flash!
Although I am not issuing my newsletter quite as frequently, I have received very good feedback, which makes it all the more worthwhile and I am always pleased to hear your comments and thoughts. (If however, it is not of interest to you and you would prefer not to be included, do let me know and I can easily remove you from the mailing list.)
Just at the moment, the main global headlines are all about the conflict in Ukraine and the humanitarian catastrophe that is unfolding there. I never thought that we would see this type of conflict in Europe again and I sincerely hope that a diplomatic solution can be found to stop the bloodshed, although I fear the reality is that this will be dragging on for the foreseeable future. I cannot begin to imagine how those poor people must feel and one line I read the other day that has stuck with more than any other is a simple question – if you had to leave your home now and could only take with you what you could carry, how on earth do you address that?
Sadly, I feel there is little we can do individually that will make a difference but hopefully, with the collective efforts of our respective Governments and diplomats, they will be able to find a way though this and perhaps our part to play is not to be too upset at the price of fuel at the pumps or the increased cost of groceries, which is a direct knock on effect of the rising oil price.
Where I can perhaps add some value, is in regard to the impact on markets and what we might expect to see from here in the short, medium and longer term.
At the end of last week, we had the news that the Chernobyl nuclear site had been attacked by the Russians and that sent significant jitters through the markets all of which closed the week in negative territory. I had thought that we would see a bounce back on Monday but over the weekend, the oil price spiked and markets were further down when they opened this week.
Since then, the oil price has eased a little and today, we are seeing that bounce back I had been expecting. With markets swinging by plus or minus up to 5% in a day, this is the bare face of volatility that we often talk about in markets. With those levels of movement, making the right investment decisions is of paramount importance and that is where the research and analysis is so important with the Fund Managers we work with.
I talked about time being elusive earlier, and another example is to think that 2022 is only 9 weeks old and yet it seems so much longer since we were looking at the 2021 year end positions which had shown remarkable recovery since March 2020, when Covid first took hold!
Reading today the investment commentary from LGT Vestra, one of the fund management groups we work with, they talk about the markets in 2022 having 3 distinct phases of 3 weeks apiece. Their commentary reads:
The first three weeks of the year were about rising inflation and interest rate expectations. The next three weeks of the year were much more characterised by the financial results being released from companies in the US, sometimes leading to 20% or more share price movements in either direction. Latterly, the evolving Ukrainian crisis and the resulting economic sanctions on Russia have impacted markets. Year-to-date, value remains the global leader versus quality and growth, but at various stages of the year, leadership has changed hands.
In their last sentence, there are 3 words that are used in the investment world which deserve clarification. These are Value, Quality and Growth. These are general descriptive given to different types of stocks.
Value is referring to Companies which are trading at a lower price than their performance may indicate.
Growth is referring to Companies that tend to increase in capital value, rather than yielding high dividend income.
Quality is defining Companies with higher and more reliable profits, low debts and sustainable earnings.
In the first phase this year, Value stocks held up well but the events in Ukraine have led to a significant reduction in most value stocks, with Banks and airlines in particular. The exceptions are energy and commodities with higher oil and gold prices for example.
This year, we have actually seen some of the largest falls in Growth stocks, particularly in some technology companies, which for the last ten+ years have been the main drivers in terms of market values overall.
Although Quality stocks have been impacted by the higher volatility this year so far, this is the area where many Fund Managers are focusing their attention, as they believe this is where the “winners” will be found which will help to drive future portfolio values.
As always, my observations are at a very high level and do not dig into the detail, but I hope you will find this to be a useful summary of some of the factors that are affecting investment values. How this plays out in terms of future fund performance will all take time to be seen.
In the short term, volatility may well see reduced values but in the medium and longer term, I am confident that we will see portfolio values recovering. As always, we will maintain close contact with the managers we work with to ensure that clients objectives remain in focus.
Without a doubt, these are challenging times and in the short term, let’s hope we see the situation in Ukraine take a positive turn and we will keep in touch.
Above all else, take care and stay safe.
Best wishes from all at RAFP
It seems just at the moment that whichever direction you look, there’s yet another storm to be dealt with.
Last weekend, the south of England in particular, was hit hard by the second of three storms, but the whole of the UK suffered generally. For a couple of days, we were certainly without power and indeed, the mobile phone service failed as well and therefore, for about 36 hours, we were cut off from the outside world, which I have to say, seemed a little strange!
Thankfully, we only had to drive about 10 miles into the local town to find some mobile service and Internet connection, so we weren’t quite marooned with no options.
Although I appreciate there were a few lives lost and quite a bit of property and tree damage done, thankfully, it was nowhere near as extensive as the great storm of 1987. That of course was the hurricane that never was!
Hopefully, as the Met office has commented, that was indeed a one in 30 year’s experience and we won’t see the like of further storms this winter. That having been said, I understand that the north of England and Scotland may be in line for some more bad weather over the weekend.
It’s not just storms of the weather variety that we are witnessing at the moment, but also on the geopolitical scene and knock on effect in oil prices and equity markets that are currently quite prevalent.
As you know, I don’t like to get drawn on political comments, but it does seem a tragedy that lessons from history may not have been learned and it is so difficult to try to work out what the ultimate objectives of Russia might be with regard to their intentions towards Ukraine.
It would seem that western Governments are fairly united in their approach in condemning the position being taken by Russia and although sanctions are being rolled out as we speak, one does wonder what teeth these really have and indeed, you would expect President Putin to have played quite a number of ‘what if scenarios’ and therefore, I doubt that any of the sanctions come as a surprise to him.
The one exception to that could be the stance that the German Chancellor, Olaf Scholz, has taken in halting approval of the Nord Stream 2 gas pipeline, which is due to supply gas from Russia to Germany.
How all this will play out and be resolved we will just have to wait and see, but let’s just hope it’s not too late for diplomacy to prevail, although just now, that is looking unlikely.
Just before moving away from that subject, I was absolutely amazed to see comments from ex-President Donald Trump yesterday, where he described Vladimir Putin’s actions as genius and in referring to the suggestion that Russia would be sending a peace keeping force – Trump said, ‘how smart is that – that’s the strongest peace force and we could use that on our southern border’.
I suppose in reality, we should not be surprised by anything we hear from Mr Trump!
Turning our thoughts to investments and the markets, as I have often commented, markets don’t like uncertainty and will often react negatively to uncertain times. That having been said, the market reactions so far to the Russia/Ukraine situation this week has been largely benign. It’s true that on Monday markets opened a bit jittery, but they soon recovered and at the time of writing, are largely in positive territory.
That doesn’t mean to say however that there won’t be market reaction to the unfolding situation and in particular, with the oil price being pushed higher, this is likely to add to market volatility in the short term.
Just recently, I’ve had a number of conversations with clients about market performance and people often look to the FTSE 100 Index as a benchmark for comparison and yet in reality, this is a poor guide to use, because most people are largely not invested in the Companies contained in that Index.
In reality, investment portfolios are more likely to incorporate shares from FTSE 250 Index Companies and in the US, Companies appearing in the Dow Jones Index or the NASDAQ . The following table summarises the performance of each of these Indices on a year-to-date basis and looks at their relative performance for 2021.
As you can see from the table, if you look at year to date, the FTSE 100 Index shows a much more positive picture that any of the other Indices. This is because the Companies in the 100 Share Index have particularly benefitted from short term market influences, whereas the wider Stock Market has had the opposite impact.
However, when you look at the performance for 2021, you get a rather different picture.
When you further consider the NASDAQ, which is made up of many technology Companies, and look at the performance of that over the last 5 years, this has actually increased 128% over that period.
The conclusion to draw from all of this is that it is actually a strong lesson in why one should not look at short term performance and draw conclusions, but rather to consider the bigger picture and the longer term.
Clearly looking in the rear-view mirror is a perfect science, whereas looking out the front to the future, is less certain, but in this regard, the fund management groups that we are working with, all have their analysts and research departments that are continually monitoring all of these aspects and a comment that we often hear from them is that whilst nobody likes short term volatility, it is volatility that creates opportunity and is one of the key criteria in helping their medium to longer term results.
I hope therefore that these thoughts might be of use and some comfort, particularly if you are feeling a little concerned about all that is presently going on.
As is often quoted, a comment from Warren Buffet, who is a significant figure in the global investment arena, who says ‘it is better to have time in the market than to try to time the market’ and by this he means that you should not take knee jerk reactions to short term movements, but rather let markets do what they do, the cycle will roll on and let them ride the storm.
As ever, we keep close contact with the fund management groups we are working with and we’re happy to answer any questions that you may have.
Above all else, take care and stay safe and we will keep in touch.
Best wishes from all at RAFP
As we come towards the end of the first month of 2022, the question that’s being raised more than anything is simply; what’s going on?!
What’s going on with Russia and Ukraine and how NATO are responding, what’s going on between China and Taiwan and how the US are responding, what’s happening in the markets globally, what is the interest rate policy going to be, how much is inflation going to impact, what impact will there be on exchange rates for currencies, what has been going on in Number 10 Downing Street, and where are we with Covid, are some of the question that are unanswerable at the present time.
With so many “what’s going on” questions outstanding, it’s no surprise that this gives rise to uncertainty and that is the very thing that markets don’t like.
At the end of 2021, yes, less than a month ago, markets were at a very strong position and when one looks back historically, it was fully expected that early in the New Year, we would see some reduction in values as profit taking and market corrections unfold, all of which is part of the natural cycle of Stock Markets globally. Nothing unusual there.
At any point in time, there are always uncertainties, but just at the moment, the list seems to be almost endless. My list above is simply grabbing some of the headlines, but there are many more aspects that you could add to that list.
A great demonstration of how this manifests as volatility in markets could be given from earlier this week when the Dow Jones Index in the US dropped by over 1,000 points one day, but at the end of that same day, managed to close 92 points up. That in itself, is a huge swing of sentiment.
The big question therefore, is with all of this uncertainty and with the current market volatility, is there major cause for concern from an investment management point of view?
With this in mind, I’ve been speaking in detail to the various Fund Managers that we work with, both to gain their individual views and also the house views that their organisations have, which are based on the research and data that they have available to them.
The message coming back from all of them is very similar, inasmuch that whilst there are a whole host of factors that are unsettling markets at the moment, the alarm bells are not ringing overall and that the medium and long term prospects for economic growth and continued recovery, and containment of inflation are all looking positive and that the short term volatility being experienced in markets today, should not detract from the longer term objectives and strategy for the investment portfolios.
Hindsight wisdom is a wonderful thing, but actually, history does prove that these periods of volatility inevitably create opportunities, from which there will be winners and losers, but overall, the long term trends are largely unaffected.
Having said all of that, there are some aspects of market reaction that even I don’t understand, and in particular, reverting to interest rates for a moment, it has been fully expected that the Federal Reserve in the US will increase interest rates during 2022 and in fact, it was believed that the markets had already factored in 4 rate rises during the year as their expectation. Why then did markets react so badly overnight to the news from the Fed that they are expecting a 0.25% interest rate rise without specifying exactly when? Surely this is not new news, but rather clarification of expected news.
Far Eastern markets however got spooked and have fallen overnight and at the time of starting this News Letter, (prior to UK and European markets opening on Thursday morning) it was anticipated that UK and Europe will open lower and that a similar trend will follow in the US. However, now that I am finishing, it is afternoon and the expected downturn has not materialised and the UK, EU and US are all showing increases! The answer for now is not to look too closely or too often!
Although inflation is much talked about, and it’s been widely acknowledged that it will be with us for slightly longer than had been anticipated last year, nonetheless, there are a number of factors that should see this fall naturally in 12 months or so and it should not therefore be a showstopper in the interim. Those of us who are old enough to remember back to the inflation of the 1970’s, always have that fear in the back of the mind, but nobody is suggesting that we’re going to revert to those levels of hyperinflation and all the associated damage that can be done.
Probably the biggest unknown is the situation between Russia and Ukraine, but one can only hope that the political sabre rattling will end with some kind of face-saving political agreement that the parties can live with, and we will all be able to breathe a sigh of relief.
Only time will tell!
And Now For One More What’s Going On?
On this subject, I can be a little more specific in terms of what is going on with RAFP, which I thought would be appropriate as I have had a few questions arising from my last News Letter when I made some passing references to Bates Campbell and our future plans.
Martyn Bates and Lynne Campbell, used to work for me in my old Company, and when we moved on from there, they took the opportunity to set up in business on their own and Bates Campbell was formed. They took one of my earlier corporate business ideas and a few of the clients and evolved this by providing services to US parented businesses that wanted to set up in the UK.
This part of their business has grown significantly and in addition to these corporate clients, they have a number of private clients who they look after as well in a very similar way to RAFP.
With effect from April 2021, we started the process of bringing our businesses together, with our first step being RAFP providing a “regulatory umbrella” for BC, to replace their previous network arrangements. This was a positive move for them as it gives them full regulatory independence and now we are in the process of merging the two businesses into one new (small) group.
This will bring some economies of scale but more importantly, it will give us a broader base from a staffing point of view. This in turn will ensure continuity for clients, staff and the stakeholders as we respond to all of the changes that we will continue to experience in the financial world.
As some of you have been kind enough to point out, I am not getting any younger and you have questioned whether I will be “pensioned off” at some stage as part of this process! Whilst that will happen one day, I am sure, it is not on the agenda any time soon, but I will be taking the opportunity to introduce you to other members of the team as we move forward, so that we can ensure you have more people to call on should the need arise.
You may well also observe that I cut down my working hours, but I am still around for the foreseeable future.
We now simply await the FCA to give their approval to our proposals and we will be able to complete the task.
Do let me know if you have any questions and we will be sure to keep you informed of progress.
Best wishes from all at RAFP.
As we start a new year, it is often a time to reflect on the last 12 months, to ask what we may have learnt and to speculate whether the coming year will have any major differences and it would be easy to fall into the trap of thinking nothing much has changed. After all, we still have the shadow of Covid hanging over us and with Omicron spiking both at home and abroad, there are some similarities with where we were this time last year but all we need to do is ‘to look under the bonnet’ and we will quickly see that things are actually very different.
It is worth remembering that the first vaccination was given in the UK on December 8th 2020, whereas now, there have been in excess of 133 Million doses administered, with the percentage of the population for each dose being demonstrated in the graph below.
Ignoring the political hyperbole, and the distortion of statistics not being reported consistently over the Christmas and New Year period, it would seem that Omicron is indeed spreading faster than Delta, but is less severe for most people and although hospitalisations are increasing, they are not soaring to anywhere near the degree they did a year ago and the mortality rates are also much lower – all of which is potentially good news, if indeed Covid is weakening through the mutation process as predicted.
Whilst we need more time to be certain, the investment markets certainly seem to be reassured that this is the case and that the major concerns are over staff absenteeism due to the self-isolation rules that remain in place, rather than the threat of further lockdowns or other restrictions.
This is part of the reason I believe, why markets ended 2021 in such a strong fashion, with the US and some European markets closing the year at record high levels. So, are we out of the woods? Not just yet I am sorry to say. As we know from history, markets are cyclical and periods of peak value are often followed but what the markets call ‘profit taking’ or ‘corrections’ – in plain English, that means values are likely to drop and we will in all likelihood, experience on-going volatility with some bumps in the road ahead.
That having been said, the longer-term picture remains a positive one with plenty of optimism being expressed by commentators who share this view. From an investment management perspective, we have also seen the Fund Managers we work with, taking a more defensive approach over recent weeks and so they should be well positioned to deal with the short term influences as they unfold.
And What About New Year Resolutions?
It is always dangerous to make firm resolutions as they can so often be easily broken and for this reason, I resist the temptation. However, a close-run thing to a resolution is my determination to see the evolution of our business, with the incorporation of Bates Campbell, into a new group structure to be completed in the early part of this year.
At the present time, we are in the hands of the FCA as our Regulator, who have to give their consent to our proposed changes, and in that regard, having submitted our application and answered their follow up questions, we are now playing a waiting game as their wheels tend to turn fairly slowly.
Once we receive their approval, we will then be able to launch the new branding which will include a new trading style and a revamped website, so we will have our work cut out to complete this task.
For our clients, apart from a new livery, there will be no changes to service levels or costs, although we are planning a number of improvements to systems and processes which we will keep you informed about as we move forwards.
Although predictions are dangerous, I am hoping that we will hear from the FCA soon enough to complete the process to coincide with our year end which falls on 31st March – we shall see!
Above all else, our priorities remain to provide an efficient and friendly service and to remain totally accessible and to help wherever we can.
Let me close by wishing you a Happy & Healthy New Year and let’s just hope 2022 shapes up to be a better year all round.
With best wishes from all at RAFP
As we are now only 9 days away from Christmas itself, I’m sure many thoughts are turning to family arrangements and celebrations over the Christmas holiday period and in many ways, although this year will be far from normal, it will certainly be a far cry from last year’s restrictions.
You can’t go anywhere without bumping into the latest statistics about Omicron and I certainly don’t intend to add to that subject here in any direct detail, because there’s already too much conflicting information out there as to how serious the spread of this latest variant will in fact be in terms of degree of illness and hospitalisations etc.
Rather, I would like to turn my attention firstly to the impact that we are seeing on markets, both directly from the concerns over Omicron, but also the potential implications that this could have for the supply chains and indeed, inflation, which we are seeing spiking around the world.
It’s interesting to see that with UK inflation figures up at 5.2%, the Bank of England has today decided to increase interest rates from their historically low level of 0.1% to 0.25% Bank base rate.
By comparison, with inflation around 6.8% in the US, the Federal Reserve decided to leave rates where they were.
Traditionally, interest rate manipulation by central Banks has been seen as an effective way to control inflation and clearly, with an inflation target of 2.5%, an actual inflation at more than double that is something the Banks need to take very seriously.
However, when we flip back to the implications of Omicron and the wider investment markets, we’re really not seeing major concerns being interpreted into the markets themselves.
In fact, over the last 2 weeks, we’ve pretty much seen that the losses that were in evidence at the end of November when Omicron first surfaced, have been reversed and despite daily volatility, markets are trading relatively strongly.
As we know, markets are always trying to anticipate the next moves and last month it was widely expected that the Bank of England would increase interest rates and of course, they didn’t. This time around, markets were anticipating rates would remain unchanged, but we now know they have been increased.
I think however, the following graph helps to put it in perspective when you look at interest rates over the last 16 years and from this, I think you can see that it is rather more a symbolic upwards movement rather than a major rattling of the financial sabre!
There are schools of thought that say with the increased rates of taxation that are coming through in the UK, Europe and the US, that these will all have an impact on people’s spending ability and thus, will be a negative influence on inflation rates and therefore, it begs the questions whether interest rate hikes now are appropriate or not.
In fact, comments from Suren Thiru, Head of Economics at the British Chamber of Commerce, suggests that today’s rate increase will have little effect on most firms, although many may view this as the first step in a longer term policy movement – however, he added as the current inflationary spike is mostly being driven by global factors, higher interest rates now will do little to curb further increases in inflation.
Talking this week to one of the Fund Managers that we work closely with, he was of the view that certainly in the EU and UK, inflation may well peak in the middle of 2022, because as he said, inflation cannot continue to rise or remain at its higher levels whilst we have a backdrop of the continued slowdown in China. As always, people have differing opinions.
We also know that some inflationary pressures have been caused by supply chain issues and yet last week, General Motors in the US announced that their supply of chips for their car components were now back on track and that they were no longer suffering a shortage. This in itself helps to endorse the view that industry is progressively finding ways to adjust its productivity by learning to live with the constraints of Covid.
Bringing all of this together, it does rather suggest that whilst we might see short term lumps and bumps in market movements, this is likely to largely be sideways until we get a clearer picture as to what the medium and longer term impact of Omicron might be, in particular in regard to supply chains and whether the inflationary pressures this could bring could extend the inflationary period.
Getting in the Christmas Spirit
Returning now to thoughts about Christmas, I thought I would look for some Christmas comments from others and I hope the following might be of interest:
‘My idea of Christmas, whether old fashioned or modern, is very simply; loving others. Come to think of it, why do we have to wait for Christmas to do that?‘ – Bob Hope.
Another one I saw that is anonymous reads ‘May you never be too grown up to search the skies on Christmas Eve’ – I quite like that thought!
And finally, ‘The thing about Christmas is it almost doesn’t matter what mood you’re in, or what kind of year you’ve had – it’s a fresh start.’ – Kelly Clarkson (American Idol winner in 2002 – no, I didn’t remember who she was either!)
Thinking about a fresh start in the New Year is perhaps a positive note to end the last newsletter of 2021 and so I would like to thank everyone for your comments and messages of support over the last year and in a couple of weeks’ time, we can start to do it all over again.
Christmas Office Hours
As a reminder, we are planning to close the office at noon on 23rd December and reopen on 4th January 2022. We will, however, be monitoring e-mails over the Christmas period, so will be able to respond to any urgent situations that may arise.
Let me close by wishing you and your families a very Merry Christmas and let’s hope that we can look froward to a better 2022.
Please see attached our Christmas greeting.
With best wishes from all at RAFP
I am pleased to say we returned to the UK safely from our travels on Friday of last week and what a welcome the markets gave me when I had a quick look at my “trusty app” just after we landed at Heathrow. Clearly something had spooked all markets and it took very little time to realise that the latest Covid 19 variant in the form of Omicron was the main culprit!
We have often been told that all viruses will mutate many times and as they do so, they will typically weaken along the way. There have been a number of new variants since Delta which have pretty much gone unnoticed by markets and then all of a sudden, they get spooked by the latest manifestation.
I know that we often speak about volatility in the markets and sometimes it almost seems that a convenient excuse for a “correction” (selling off and profit taking) is all that is needed and I personally think there is an element of that at work here. After all, the experts tell us that the Delta variant is the dominant one at present and despite a recent spike in the number of cases in the UK, we are seeing the statistics relating to hospitalisations and Covid related deaths on the decline.
The main fear of markets is that further lockdowns and other restrictions will have a negative impact on the global economy and this was the key reason for the market falls. However, we are seeing strong and improving economic recovery in the UK and other western areas and that is allowing for the effects of Delta. It amused me the other day to read that he UK economy is now forecast to grow at a faster rate that China next year for the first time since the 1970’s! (UK 5.3% compared to China 5.2% - a small amount but it made a good headline!) Mind you, it does depend on who’s figures you look at!
It is all too easy to get swept along with days like last Friday, but we need to keep a wider focus and that is ably demonstrated by the bounce in major markets this side of the weekend with much of the downturn being reversed already.
As I have often said, volatility creates opportunity, and this is just another “blip” on the graph.
COP26 was the name given to the 26th United Nations Climate Change Conference held in Glasgow. I must say the cynic in me asks the question as to what achievements have there been from the previous 25 attempts and will we simply see lots of political commitments but what about the follow through. I suppose one should concede that the last major achievement was the Paris Agreement at COP21.
I think the major outcomes from 26 can be summarised as follows:
Unfortunately, there were some shortcomings too, the major one being a failure to meet the 1.5 degrees target C and a dilution in the wording for the use of coal to be “phased down” rather than “phased out” as had be originally proposed.
As always, only time will tell as to whether Governments follow through and at what pace, but clearly, we all have a vested interest on behalf of future generations to do our bit.
As the Advent Season has now started, we are seeing the Christmas lights and other decorations starting to go up and I dare say that this coming weekend will see a lot more activity in that department.
Last year, we took the decision to send Christmas greetings via email and the money that we would previously have spent on sending cards was donated to charity. Having received positive feedback from many people, we have decided to do the same again this year. The charities we are supporting this year at the Kent Surrey and Sussex Air Ambulance and MacMillan Cancer Support.
As always, stay safe.
From all at RAFP
In recent News & Views, I have been looking at how investment portfolios are structured and how they both manage and vary risk to meet individual objectives. The Fund Manager has a specific task to deliver the anticipated returns within an agreed risk profile and timeline but how do we get to the point where those instructions can be given? To answer that, I need to consider the role that we play as Financial Advisers.
Although the Financial Conduct Authority (FCA) are there as our Regulator with a large focus on delivering good outcomes for clients in a fair and professional way, they also emphasise to us that we need to treat ourselves fairly as well as our clients. Historically, Financial Advisers have tended to undervalue themselves and the services they provide - the FCA consider this to be a potential problem and part of the reporting we must undertake to them looks at our fee levels, margins, mix of business and sources of income. There is also a regular review of our capital adequacy, as there are minimum requirements to be maintained which are determined both by the levels of business we undertake and the different types of advice we provide.
They are also concerned that we avoid “cross subsidising” any services so that we ensure that we fulfil the Regulator’s “Treating Customers Fairly” requirements. All of this is background to how we have to operate, before we begin the process of providing financial advice.
The whole process begins with being able to demonstrate that we fulfil the KYC standards – Know Your Client, to a sufficient degree to be able to provide relevant advice. We are categorised as Independent Financial Advisers, which from the FCA’s perspective, means we have access to and must consider whole of market solutions for our clients. This differs from other types of Advisers who are restricted to a narrow range of product providers and /or solutions. Being fully independent brings with it higher levels of operation inasmuch that we cannot simply pay lip service to having access to the whole market, but must have systems in place to be able to demonstrate how we undertake our research and maintain an ongoing review of the advice we give, to ensure that it remains relevant and that it is the best solution for clients.
In addition to having the financial resources and systems in place, each individual Adviser has an obligation to maintain minimum levels of CPD – Continuing Professional Development. This has a base level of 35 hours per year plus an additional 15 hours relevant to the Defined Benefit pension advice we provide. We also must have an ongoing process to fulfil our obligations to ensure our standards are maintained. This is achieved by a monthly ”competent Adviser” review which is undertaken by an independent third party firm with us demonstrating that we meet our KPIs – Key Performance Indicators.
Gathering relevant information (KYC) I liken to painting a picture. We often start with an outline sketch and then need to “add the colour” to get a complete and clear picture to enable the advice process to begin.
The colouring in, includes understanding aims and objectives, preferences and sensitivities, the resources available and considering all the potential “what if” scenarios that might impact the advice. This could include changes in circumstance or family matters or could be outside influences such as tax or legislation changes and future investment performance.
Understanding the complete picture then enables us to provide relevant advice and our ongoing reviews enable us to ensure the advice remains relevant and fit for purpose. This in turn enables us to determine what instructions should be given to the Fund Managers for them to complete their role.
As we know, we live in an ever changing world, and that is very true when it comes to investments and financial planning. We make assumptions at outset, knowing for certain that things will change and not work out exactly as anticipated – hence the need for review.
When we structure our advice, we also need to take into account tax considerations, to make sure no more tax than is necessary is incurred, whilst remining safely within the bounds of legitimate tax planning. We also need to consider legal aspects and on occasions, it will be necessary to work alongside other professionals, particularly when it comes to Estate or Succession planning, looking at appropriate Wills and sometimes the use of Trusts to fulfil objectives.
Behind the scenes, we are monitoring all these factors, including regular review meetings with the Fund Managers who have been appointed, not to try to tell them how to do their job, but to ensure they stay on track with the stated objectives, to understand their approach and views on markets and opportunities as they arise, with the overall objective of ensuring that their solution remains relevant for individual clients. These are all the responsibilities we take onboard and often forget to tell our clients that we are doing this for them.
Industry research demonstrates that the services of an Independent Financial Adviser, can and often do make a difference of as much as 2% - 3% per year in net value terms. This is not an additional investment return, but rather the combined effects of maximising tax efficiency, appropriate investment structures and suitability.
As you are probably aware, the US opened their borders to overseas travellers from the UK and Schengen area countries with effect from 8th November, which has resulted in a huge increase in passenger numbers. On Monday, we saw video footage of two planes taking off from Heathrow, both bound for JFK in New York – one was a BA flight and the other Virgin Atlantic. They used both runways and took off at exactly the same time, with allegedly “friendly competition” between the pilots as to who would make it to JFK first – I don’t actually know who made it first, but the sense of normality that this generated was a relief to many with pent up travel hunger.
As you know, I am currently in the US, having first spent 2 weeks in Canada, and the difference between the 2 countries, when it comes to Covid management are huge. In Canada, we had to show proof of vaccination at every café or restaurant we wanted to use and inside everywhere, face masks are a requirement. In the US by contrast, not once have we been asked to prove our vaccination status and the wearing of face masks, is an individual choice and whilst some establishments have a recommendation to social distance and wear masks, many people here in Florida do not seem to do so!
I know we have to learn to live with Covid rather than in fear of it, but the almost total disregard for caution is just a bit concerning.
We are now down to the last few days of our trip, and I am pleased that we went ahead. More paperwork along the way has been the main experience, but I am pleased to say that Chris has not lost her appetite for retail therapy – I just hope we can get it all in the suitcases for our return!
As always, stay safe.
Best wishes. From all at RAFP
Managing Risk Within A Portfolio
In my last newsletter, we were looking at how a managed portfolio is typically structured in terms of asset allocation, geography and currency and having determined what proportions are appropriate, it then comes down to selecting the funds or direct holdings that should be included in the portfolio.
If, for example, it has been determined that 50% should be held in Equity funds (Stock Market linked investments) and that some of that should be UK funds invested in GBP, then it is quite likely that more than one fund will be selected in that sector. It really depends on the size of the portfolio as to how many funds will be included in the portfolio.
It is part of the work of the Portfolio Manager to research the most appropriate funds to be included and to keep all funds under review.
As market trends unfold, it may well be appropriate to vary the proportions that are held in each sector and this leads us on to managing investment risk.
Broadly speaking, it is the Equity content of the portfolio which will determine the level of risk that is associated with it.
A balanced portfolio for example, will typically have a “normal” balance of 50% Equity and 50% other sectors. This proportion could be considered the neutral position if markets are settled and volatility is not an immediate concern.
The graph below, is extracted from an investment report prepared by TAM Asset Management, one of the portfolio managers we work with, and this demonstrates how increasing the Equity content, affects the risk level of the portfolio.
Although the neutral position for a balanced fund is 50:50 between Equity and Non-Equity investments, this does not take into account the current trends and volatility in the markets at any given point in time. One of the “tools” available to the Fund Manager, is to adjust the proportion held in Equities and the chart below demonstrates the degree of flexibility, TAM will allow within their Balance portfolio. The Equity content can go as low as 15% or as high as 65%.
During periods of anticipated volatility or concerns that Equity markets are over-valued, TAM will seek to reduce the Equity content as a “downside” protection and then when they judge that markets are under-valued, they may well increase the Equity content beyond the 50% level to take advantage of the upturn when it comes.
Different approaches are taken by Portfolio Managers, some will regularly adjust the proportions of holdings if they are taking shorter term views, whereas some will look to the longer term with a view to allowing the funds to “ride the markets” and settle naturally over the longer term.
Where Are We On Our Travels?
I am pleased to say that we arrived in the US on Saturday, having spent 16 nights in Canada. The requirements of the US are that we had not been in the UK or any Schengen zone countries, for the previous 14 days and whilst we could prove where we had been (a whole bundle of receipts saved during our time in Canada, just in case proof was needed) we were still a little anxious to know we would be allowed in to the US - past experience has shown that the border staff can be very officious on a good day and that any type of banter should be avoided.
Our departure airport from Canada was Vancouver and we were able to clear US immigration in Vancouver. The staff were very friendly, were happy to have a joke with us and the whole process was much quicker and easier than normal. Having completed that in Canada, it meant that on arrival in Los Angeles, we were treated as a domestic flight and had no further formalities to go through. All round brilliant!
The anxiety over, we were able to enjoy a day in LA, (including a small earthquake at 08.00 on the Sunday morning) and it was really nice to have traded the rain in Vancouver for some warm LA sunshine.
We are now in New Orleans, having taken a 48 hour train ride from LA. The changing scenery across nearly 2000 miles was fascinating and the staff and catering onboard were all exemplary. The accommodation though left quite a bit to be desired - It was very cramped in our bedroom compartment, and yours truly was assigned the top bunk! Negotiating that ladder in the dark, in the middle of the night to answer a call of nature was a sight to behold and a bit of a challenge - I am just glad Chris was asleep and did not have her camera rolling at the time!
We were glad to get off the train as the last few hours seemed to drag but I am pleased we experienced that trip.
New Orleans welcomed us with tornado warnings on Wednesday afternoon and this morning, there was an emergency in our building and we were evacuated, while the fire department made sure the building was safe.
I am pleased to say all was well and that “normal service” was quickly resumed.
I hope all is well with you and we will keep in touch.
As always, stay safe.
Best wishes. From all at RAFP