Getting Ready For Round 2

It was almost inevitable, but we are now dealing with ‘lockdown’ round 2. Just as things were beginning to return to some vague kind of normality, the virus has staged its resurgence and more restrictive measures are being introduced.

The timing of Boris’s announcement was almost comical for the Buckingham Gate team – our builders signed off the first phase of our office building project on Tuesday morning and ‘handed back’ the office to us and then the ‘work from home’ message came on Tuesday evening.

I would like to reassure clients that our commitment to getting back to the office (and to face-to-face meetings for those who want them) is unwavering. We have spent considerable time, money and effort re-designing the Buckingham Gate office and client experience and we can’t wait to show you the fruits of our labour – we will just have to wait a little longer until the government guidance and health crisis allows.

We have started doing a small number of home visits with clients where this is necessary (the signing and witnessing of wills and trusts for example) and will continue to offer this service, with all the gloves, masks and other mitigation’s in place, for as long as we are permitted to do so.

As we enter the colder, darker months I think this is the point where the economic pain might start to become more visible. Up until now, although both people and businesses have undoubtedly been struggling, there has been a very significant element of government support with the furlough scheme, grants, loans and handouts galore.

All of that is about to change. While the announcements from Rishi Sunak last week will be welcome, the schemes being introduced to take us through the winter are nowhere near as generous as the ones that they are replacing.

The Furlough scheme paid up to 80% of a workers whole wage, the new scheme will pay only around 20%. The same is true for the self-employed scheme, with the grant available now only £1,500 for a 3-month period – Just £500 a month to survive on!

The sectors most impacted by the new restrictions (hospitality, travel etc) make up a reasonably small portion of the stock market in relative terms, but they do account for a large percentage of the workforce. As such, I think any impact on markets will be due more to waning consumer confidence, rather than down to the fortunes of the companies themselves.

The companies that have accounted for much of the stock market growth and recovery we have seen this year (mainly the large technology giants) will most likely continue to perform well in this environment as our demand for their devices and subscriptions grows ever larger.

We will, of course, be monitoring developments carefully, not just with Covid-19, but also with the Brexit process and the US Elections (two events that would nearly account for all of the headlines in any normal year, but that we are hearing relatively little about vs Covid).

Most importantly, I want to reassure clients that we are here for you. Our mission is to create financial peace of mind for each and every one of you and if there is anything more we can do to help you achieve that, even in these most unusual of times, please don’t hesitate to ask.

The Importance of Data

It can’t be underestimated how important good data is. In the age of fake news, social media feeds and media speculation, it can be hard to know what to believe, but good, accurate data, can make it easier to see through the noise.

You will have to excuse the rather tenuous link here, but two things this week have made me reflect on the importance of data.

The first is to do with my personal health. I was scrolling through the Apple health app the other day when I had a few moments as my computer was doing an update. What I discovered was a very interesting chart on my average resting heart rate, not just recently, but over the past few years.

Now, I have always been fairly into my fitness and generally (in the pre-lockdown era) managed around 4/5 workouts a week. If I look at my resting heart rate average from the beginning of the data I have available (coinciding with my first Apple Watch purchase in January 2018), it has always been in the reasonably respectable range of 58-61 – not too bad.

However, what really surprised me was the change since March (the start of lockdown). As lockdown began, I had a little more time for exercise, so I have been doing longer sessions and more of them. Since the middle of March, there has been a very significant and notable trend downwards and now, as of the end of July, my resting heart rate is consistently in the range of 50-54.

Now that may not sound like much, but it is a significant change in the right direction and is a noticeable sign of the impact that greater exercise duration and intensity has had on my physical wellbeing. I wonder what other insights could be gleaned if we all looked at our fitness trackers and the data they produce in more detail.

The other surprise that I gleaned from good data this week was during our investment committee meeting with Square Mile. A lot has been said and written about the market crash and then recovery over the course of the Covid-19 pandemic and many people have been shocked by the speed of the recovery, especially in the US market.

When you interrogate the data, however, things start to make more sense.

If we look at the global stockmarket (as measured by the MSCI World Index), we see that it has produced a circa 43.9% return over the past 5 years – not too shabby.

However, it is the way that this return is attributed which is shocking.

For a start, the US market has produced 83.7% of those total returns – this means that the US has been responsible for more than 4/5ths of the total global returns.

That in itself is quite stark, but the data goes deeper. If we interrogate the return of the US index, we can see that the top 10 stocks within the US market make up around 56% of the total US return.

Putting it another way, the top 10 companies in the US have accounted for around a third of total global returns.

Taking it one step further still, we can see that just 3 companies – Apple, Microsoft and Amazon make up over 23% of that total US return.

So in summary, the US makes up 83% of the total return in the world over the past 5 years, the top 10 companies account for around half of that return and the top 3 companies account for nearly a quarter of it.

Apple alone accounted for 8% of the total global stock market returns over that 5 year period.

This just goes to show how reliant we are becoming on these major tech giants.

Another very interesting fact is that, despite the US markets being back at (or very close to) record highs, the growth has been more concentrated than ever. If we look at the S&P 500 (the top 500 companies in the US market) year to date, only 10 of them have grown in value, meaning that the other 490 have fallen. However, the growth in those top 10 (again, mostly the big technology companies) has been enough to offset (and then some) the falls in the other 490 – quite amazing!

When you look at data like this, it gives you an interesting new perspective into the shape of the global economic recovery and this just goes to show just how concentrated it has been.

Read into it what you will, but it certainly gives a different perspective on things and perhaps it explains the seemingly irrational growth in the US market especially.

You see, although the market is growing, the vast majority of companies aren’t. It is just that the growth on those top 10 (only 2% of the total) is outweighing the losses on the other 490 (the other 98%).

A Message From Matt – 12th June 2020

I had planned to write a somewhat jubilant update today as stock markets around the world have recovered, in many cases to now show positive gains during 2020. Some markets have set new all time highs in the past few days! When you consider what the world has been through over the past few months, that really is quite extraordinary.

As hard as it is to believe, the ‘crash’ only really lasted 3 weeks – most markets started falling on around the 20th of February and hit their low points in the middle of March. Since then, the general trend has been one of recovery and I was all set to write about the old investment rules (time in the market, not timing the market) proving their worth once again.

I was even tempted to add in a sprinkle of ‘told you so’ pointed towards the media who were prophesising Armageddon during that 3 week period of market crashes, but who have barely mentioned a word about the spectacular recovery since then. Even in the height of the crisis, our advice to investment clients was to ‘keep calm and carry on’ and I am delighted that in every single case where I have had one of those conversations with clients, they have heeded our advice and remained invested.

Sadly, my bubble was burst yesterday as the US market took a circa 6% hit due to concerns about a second spike in cases and a less-than-positive update from the Federal Reserve. This morning, we have had some sobering news a little closer to home, with the ONS reporting that the UK economy shrank a record 20.4%.

However, I still have reasons to be cheerful. First of all, despite yesterday’s events, most global markets are still substantially better off than they were just 3 short months ago. If you had told me on 20th March (around when most markets hit their low point) that we would be in a position where the FTSE 100 and the S&P had recovered 22% and our own Balanced Portfolios would be up around 13-14%, I would have taken that!

Second, the fall in GDP was “only” 20.4% (Please note – despite my well-known love of inverted commas, I don’t think I have ever used them so seriously – I know that 20% is a huge number). While this is a big blow, it could have been much worse given the extent to which the economy has been shut down over the month of April. The fact that we managed to maintain 80% of economic activity is a big achievement, I think. The fact that the FTSE 100 rose this morning on the back of the news suggests that the market was expecting worse.

Finally, the recovery has been one driven very much by certain sectors – technology and pharmaceuticals in particular. This means that there are other sectors (airlines, travel, hospitality, car sales etc) where there is still room for a significant recovery to take place, potentially taking markets higher as economies are re-opened.

Please don’t get me wrong – I know there is a still a long way to go before anything gets back to anywhere approaching normal, however I still believe that this crisis is nowhere near as bad as other events that the human race has lived through and ultimately prospered after.

We have better science, better technology and more information and knowledge today than at any point in human history and surely all of this combined progress will get us through this crisis (second spike or not).

When markets are in free-fall, our emotions can sometimes get the better of us and lead us to take irrational investment decisions. However, there is also a second point where our emotions can lead us astray – that time is now – that time is when previous losses have been recovered. I would strongly encourage you to read this article by 7IM to learn more:

 

This post shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity and is not a recommendation to buy or sell any funds of individual stocks that are mentioned in this post. Past performance is not a guide to future returns and the value of capital invested and any income generated from it may fluctuate in value.

A Message From Matt – 7th May 2020

So, it seems that this weekend will see at least some, subtle relaxation of the current lockdown measures and Boris Johnson’s announcement on Sunday will signal the start of the slow and gradual return to our ‘new normal’ – whatever that means.

I wanted to share some thoughts about what that might mean for markets and for us as a business.

Markets seem to have been fairly resilient thus far given the scale of the crisis we are dealing with. Investors who held their nerve early on in the crisis have now been rewarded with a significant recovery in investment values, although markets clearly still have a way to go to reach their previous highs.

The markets seem to be buoyed by the gradual lifting of restrictions across the world and let’s hope that this process can continue without causing a ‘second spike’ in cases.

I imagine this recovery will be one of winners and losers as different sectors of the economy get back to normal at a different pace. Of course some businesses are thriving in this environment and these companies generally won’t receive the same level of press attention compared to those who are sadly struggling, but just remember that they are out there, quietly working away, getting the economy back on its feet.

On the business front, negotiations are ongoing on our new office space and we have every intention of returning to the central London hub we love so much, as soon as it is safe and viable to do so.

With this said, we will be in no immediate rush given how well our current operation is working and so we will most likely adopt a ‘wait and see’ approach once restrictions are lifted and we will take client feedback into account to determine the timing of the full reopening of the office.

What the last few months have shown us is how generally successful online meetings can be and we will certainly retain this as an option for people who are not comfortable travelling into London in the first instance or for those who simply wish to save themselves a trip. We have also found that video conferencing is a great way to connect with clients to discuss those ‘ad hoc’ issues where there is some benefit in a face-to-face meeting, but perhaps which don’t justify a trip into London.

In the interim, we may also offer home visits as an alternative to a meeting in the office for a limited period where this is the preferred option.

I am delighted to report that Buckingham Gate has enjoyed a very good start to the year and I consider myself extremely lucky to be running a business that can operate relatively normally under these circumstances. I am incredibly proud of how the team have adapted to their new working environment and I am pleased to report that everyone is safe and well.

Finally, I am grateful for the way that you, our clients have responded to the current situation. We have received many messages of thanks for the support that the team have been providing to clients during this challenging time and these are gratefully received and appreciated.

As always, if you need any support, please do not hesitate to contact us.

A Message From Matt Smith – 9th April 2020

As we head into the long Easter weekend, I wanted to provide you with a further update on the markets and provide some more of my views on the future.

Many articles I have been reading recently have been talking about the ‘new normal’. Despite how quickly us human beings adapt to new situations, I am a little concerned that we are referring to this current state of affairs as ‘normal’.

I do believe that there will be a ‘new normal’ after the worst of the virus is behind us, but I certainly hope that this is not it.

However it is interesting to note just how comfortable we have become with our new way of living after just a few weeks. After the initial panic and pandemonium, we tend to calm down very quickly, rationalise what’s going on and then deal with the problem and begin implementing solutions. It is easy to see this phenomenon in action across all sorts of different business sectors and industries.

In our own business, we have transitioned the entire team to a home working environment, pivoted our usual monthly seminar programme online, presented to over 600 people and implemented new estate planning solutions via video link and phone calls, all in the last 3 weeks. I never could have imagined how quickly all of this could have been achieved, but necessity is a powerful thing.

I take great comfort from this. The fact that we can build a 500-bed hospital in the Excel Centre in 9 days, the fact that the Mercedes Formula 1 Team can build 1000 assisted breathing devices in a day and the fact that we can come together and applaud our NHS heroes at 8pm on a weekly basis just shows what is really possible when we strip away our self-imposed bureaucracy and red tape and just focus on the task at hand.

I am also pleased to report that we do seem to be seeing some tentative signs that the market is calming down slightly. I’m sure there will be some more surprises to come, but the markets have been a little bit less choppy this week and let’s hope that continues.

I wanted to end on a positive note and share a video with you that touched me a few days back. These times are undoubtedly tough, but there are positives to be taken out of all of this as well. I will leave you with this short clip to hopefully lift your spirits as we go into the long weekend: #WeRemember

Comfort Reading For Uncomfortable Times

We are currently living through some interesting and unprecedented times and it can be difficult to gain perspective when we are in the middle of a crisis.

We have curated some articles and resources below that should allow for a more rational view of current events and this content will hopefully provide some reassurance for those of us who are struggling with the daily news feed at the moment.

Curated Resources

1. S&P 500 Crash Recovery Timings

This document shows the performance of the S&P 500 since 1926 and, most importantly, the relative length of ‘bull’ (positive) and ‘bear’ (negative) markets. The good news is that bull markets tend to last much longer and generate much greater returns when compared to the relatively short-lived bear markets. To support this, you can also download our very own ‘How The Market Works’ document here.

2. FTSE All Share Crash Recovery Timings

The theme here is the same as above. The key thing to note here is the shaded areas, which show the times of crisis or recession. Note how the stock market recovery often starts while the crisis is in full swing. For example, the 2nd World War lasted from 1939 to 1945, but the stock market recovery began in the middle of 1940 – almost 5 years before the end of the war. This same pattern can also be observed during the financial crisis in 2008/09.

3. Fidelity document on missing the best days in the market.

We have shared this document many times before, but the message holds true. If you miss the best few days in the market, even over a long period, you significantly damage your total returns. If we look back 15 years from now, it’s not hard to imagine many of the best days being in 2020 given the volatility of the market.

In fact, yesterday (24th March 2020) is now on record as the 2nd best day in the history of the FTSE 100. This just goes to show that the best days often come on the back of the worst.

Curated Articles

We have summarised some of the best new (and old) articles about investing in times of crisis.

Stock Market performance in previous outbreaks

50 Previous ‘Crash’ Events that the market has ignored

We Will Get Through This

The Market Always Goes Up

Recommended Reading

If you are looking for something more substantial to fill a day at home, we would strongly recommend the following book:

Factfulness – By Hans Rosling

We have suggested this before, but this has to be our number one recommendation for those wanting to gain perspective on seemingly extreme events and the way that the media report on them. An essential read for every human being on the planet.

The Financial Conduct Authority does not regulate Estate Planning, Tax Planning, Will Writing, Trust Advice, or some elements of Automatic Enrolment.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of Law and HM Revenue & Customs’ practice. You are recommended to seek competent professional advice before taking any action.

Please note that investments can fall as well as rise and any income generated by an investment can fluctuate over time.

Coronavirus – how we are dealing with things

Like many companies across the UK, we are heeding the governments advice and implementing various changes to the way we do business with immediate effect and until further notice.

We are doing everything we can to maintain our usual service to clients and to that end we are implementing many of our well rehearsed business continuity procedures.

Video Meetings
In line with government advice, we will be conducting the majority of client meetings via video call or telephone where possible and minimising face-to-face contact.
If you have a face-to-face meeting booked at the current time, we will be in touch very soon to make alternative arrangements.

Home Working
As of 5pm Tuesday 17th March, we have taken the difficult but necessary decision to close the office and all staff will now be working from home.
We have robust home working policies and procedures in place and all staff have remote access to our telephone system and software packages.
Therefore all of your inquiries will be handled in the usual manner.

Post
Post will be collected less frequently than usual from the office so where at all possible we would encourage clients to communicate with us via email or telephone.

Documents
Along the same vein, we will be minimising our use of paper during this time and will send all communications using digital means where possible.

Protecting our Quality of Service
We appreciate that this is a concerning time for everyone and it seems clear that the impact of the Coronavirus will be felt for many months to come. During this time we will be doing all in our power to support, reassure and advise our clients and their families. We will be using this time as an opportunity to improve and expand on the service that we provide to clients and we will continue to keep you updated on any further developments.

Coronavirus Update – 13th March 2020

It is refreshing to open an update with at least a paragraph or two not on Coronavirus (but more on that in a moment). We are pleased to report that we have completed our analysis of the Spring 2020 Budget document and the impact on personal financial planning is incredibly minimal. Except for some increases to National Insurance thresholds and some tweaks to fringe tax benefits such as Entrepreneurs Relief, there is little in the budget that will have any effect on current planning.

Perhaps if there is one good thing to come from the present situation, it is that we have yet another fairly benign budget from a personal financial planning point of view and this means that the current fairly generous personal tax regime will be maintained.

Back to the virus now and it is fair to say that the market is searching for direction. Headlines from yesterday reported some of the worst stock market falls since 1987. It is interesting to observe that at the time of writing this (which I will quote as 12:28pm on Friday 13th March given the minute-by-minute changes we are seeing) the FTSE 100 is up around 8.7%, effectively re-gaining much of yesterday’s loss.

Assuming it closes at this level (and there is a whole 4 hours for things to change before then!), don’t be surprised if this barely gets a mention in the media, despite the huge reports on falls of a similar magnitude yesterday. This only goes to show just how volatile things are at the moment and how rash decisions can have an impact on your wealth over the long term. The current volatility is almost entirely driven by emotion and not logic. There is almost no conceivable way that the long-term intrinsic value (over the next 30 years) of all of the worlds great companies (think Apple, Unilever, HSBC, General Motors etc) fell by 10% yesterday only to grow by 10% today!

Having consulted with our partners at Square Mile again, the view is now that most markets are starting to offer very good value and there are some real opportunities to purchase the worlds great companies at a significant discount versus where we were just 3 short weeks ago.

Coronavirus Update – 5th March 2020

We wanted to provide a further update on the Coronavirus and how this is impacting on portfolios.

The global stock markets have been incredibly volatile over the past few weeks as investors digest the minute-by-minute updates on the virus and how it is impacting on companies.

In the past 5 working days, we have seen some of the largest ever falls on some stock markets, followed almost immediately by some record breaking gains – volatility reins supreme.

At times like these it is important to remind ourselves of two of the timeless lessons of stock-market investing.

1. You can’t predict the market – trying to do so in the current climate seems even more futile than usual. The virus presents a new and uncharted challenge and it’s path is near impossible to predict. Markets are moving strongly in reaction to each new data point released.

2. If you miss the best few days in the markets, you often permanently damage your long-term returns. Fidelity wrote last year about the impact of missing just the best 10 days in the market out of the past 15 years. You can download and read their previous article on this here.

Given the extreme moves we have seen over the past week, there is a very high chance that at least one (perhaps two or three) day(s) will feature in the ‘best days’ table when we look back 10 years from now and thus, despite the media storm, this period could be one of the most important for your long-term financial success.

We took the opportunity on Monday to re balance portfolios given the significant divergence we have seen between bond and equity markets. Although an over-simplification, in essence this means that we sold bonds which had increased in price (and thus were making up a larger than desired part of the portfolio) and bought equities which had fallen in price.

Given the fairly sizeable recovery in equity markets over the past few days, this move seems to have been well timed and has assisted in the recovery of the portfolios this week.

We will of course continue to monitor the situation carefully over the coming weeks and months and we will write again with any significant updates to the portfolios.

As always, if you have any questions, please do not hesitate to contact a member of the Buckingham Gate team.

 

Coronavirus Update – 28th February 2020

We write again following our update on Wednesday. You will no doubt have seen in the media reports of further stock market falls over the past few days and many markets are now in so called ‘correction’ territory (usually defined as a fall of 10% from a recent high point).

To say that we are delighted with how the portfolios have been coping in this environment would be an understatement. We have been very conservatively positioned for some time now in readiness for just this kind of event and our cautious stance is now proving to be well placed. As of the close of play yesterday, the FTSE 100 was down around 7.8% for the week with the S&P 500 down around 10%. By contrast, the Buckingham Gate Balanced Active Portfolio was down by around 3.6%, demonstrating the benefits of diversification.

It is worth mentioning that the media attention will focus almost exclusively on the stock market and tends not to cover the bond markets. In the past week while stock markets have been falling, many bond markets have seen record low yields, which means record high capital values in many cases. As this process has unfolded, the fixed interest portion of our portfolios have been seeing healthy gains.

Although periods like these are unsettling, they are an inevitable part of investing. Although we can’t say when the Coronavirus threat will subside, when markets recover they tend to do so quite quickly.

Jason Broome, the Investment Director at Square Mile has also provided the below update to give some context on events:


The expansion of the coronavirus outbreak is frightening but needs to be placed into perspective. So far, there have been 3,000 cases out of a population of 6,000,000,000 if we exclude China. There will be further cases, but the disease appears to be containable.  Some nations, including poor ones, have been quick to isolate those infected and nip their outbreak in the bud. Even China, with nearly 80,000 recorded cases, appears to be winning its battle as the number of new infections fall. For the moment, we have confidence that other nations such as South Korea and Italy will take the steps necessary to isolate the disease. Sadly, we are less sure about Iran where the authorities have been in denial. The country’s links to Afghanistan and Syria seem to leave a high probability that the virus will find a base in the Middle East (though the arrival of summer could stem the rate of infection). If established in the Middle East, outbreaks will continue to pop up around the world as a consequence.
 
The human tragedy aside, the economic implications of controlling the outbreak are severe. Supply chains will be disrupted as factories close, popular events are being cancelled and health services will come under increasing strain. Markets are falling and approaching a level that we believe provide a reasonable reflection of the economic costs of the outbreak. We have been running a cautious positioning in portfolios for some time and last year we took steps to add positions that should act as insurance policies if markets fell as they have now done. Our portfolios are suffering as the market falls, but our earlier action has helped moderate the damage.
 
Today, we formally convened to discuss whether we should take further action to protect the portfolios. Sadly, we lack a crystal ball to tell us exactly what will occur. We considered various options and concluded that markets will remain volatile but broadly reflect the economic costs of the outbreak as it now stands. The situation is very fluid. We agreed to make changes to some portfolios, but these are minor in impact and we will advise clients as normal once the details are worked out. We also need to be very alert to the possibility that markets will panic and overreact to the outbreak. This may present opportunities for us to redeploy some safe assets into higher yielding opportunities.

As always, we continue to monitor the situation constantly and will look to act in your best financial interests.


The Financial Conduct Authority does not regulate Estate Planning, Tax Planning, Will Writing, Trust Advice, or some elements of Automatic Enrolment.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of Law and HM Revenue & Customs’ practice. You are recommended to seek competent professional advice before taking any action.

Please note that investments can fall as well as rise and any income generated by an investment can fluctuate over time.