A Message From Matt – 11th December 2020

So how is it that we have already arrived at the end of 2020?

I think this year has been the ‘fastest, slowest’ year I have ever experienced. In some senses 2020 really seems to have dragged on. It seems forever since I saw my family or friends properly and I am sure we are all looking forward to hopefully getting back to this kind of thing as we move into the Spring next year and beyond!

In other ways, 2020 has flown by.

I know we say it every year, but the last 12 months seem to have gone by in the blink of an eye. Perhaps it is the fact that much of this year has felt like a bit of a groundhog day? The big ticket events that punctuate our years and photo albums (birthday celebrations, weddings, overseas holidays) have largely been absent and so the months have seemed to blur into one a little bit.

I think it is fair to say that 2020 will not go down as one of most people’s favourite years, but, being the eternal optimist, I do like to look at the positive in all of this.

First of all, we have learned a lot, both individually and collectively. The ingenuity of the human race never ceases to amaze me and 2020 is testament to the power of our collective minds. Not only have we developed and rolled out the vaccine in record time, we have also celebrated several other scientific and technological achievements which have pushed us forward, despite the challenges of the pandemic.

Although crisis sometimes brings out the worst in us, it can also bring out the best of us. I am sure we have all seen acts of incredible kindness and selflessness in 2020 – let’s hope we can carry some of that sentiment forward with us.

Finally, on a more local level, I could not be more pleased with how we have adapted and thrived as a business and as a team during the past 12 months. Have there been challenges and failures and frustrations – of course there have, but I feel that we have far more to celebrate than commiserate as a team this year.

This will be my last blog post of 2020 as I am taking an extended Christmas break, having taken relatively little holiday all year to help guide the business through what has been the most tumultuous of years.

I would like to close by thanking each and every one of you, our clients, from the bottom of my heart. I am always grateful for every client that chooses to join us on this journey, but I cannot express how incredible it has been to have your support during this year above all others.

You are the reason that I get to do what I love each and every day and I am not sure that many people get to say that in this world.

Wishing you all a very merry festive season and a happy, healthy and prosperous 2021!

Yours sincerely,
Matt Smith, Director, Buckingham Gate Chartered Financial Planners

A Message From Matt – 27th November 2020

I have mixed emotions as we approach December. On the one hand, as I mentioned during our client event last week, I feel that there is a lot to be optimistic about as we head into 2021. On the other hand though, it does feel like we have a fair few hurdles to jump over before we get there. Before we look at those though, let’s focus on the positive…
 
First of all, we have not one, not two, but now three viable vaccine candidates in the pipeline and although none of them has thus far received regulatory approval, it seems almost inevitable that at least one or two of them will in due course.
 
The arrival of the vaccine hopefully signals the beginning of the end of the pandemic which has caused so much pain and disruption on both a financial and emotional level. 
 
Furthermore, we now have a clear result in the US election and hopefully we will see an outcome (not necessarily a deal, but an outcome – I have always maintained that certainty, even bad certainty, is better than uncertainty) of the Brexit process before the year is out. 
 
All of the above has removed a lot of uncertainty from the world, hopefully creating a more stable foundation for us as individuals and for stock markets as we head towards the new year.
 
So far so good. But it is not all sunshine and rainbows.

First of all, although the vaccine seems to be on the way now, it is clearly going to take some time for the rollout. In a way this makes things harder to bear as rather than waiting for an unknown, we now know we have the vaccine, and it is ‘out there’ and so we are simply waiting for it to arrive. Knowing something exists, but not being able to benefit from it yet, I personally find quite frustrating – perhaps it is just the entrepreneur in me wanting to make things move faster!
 
Then, we had the announcement yesterday of the new tier system. On the basis that the vast majority of us seem to have ended up in tier 2 or 3, it feels to me very much like we are heading out of lockdown on the 2nd December and going straight into …… wait for it …..lockdown.
 
Finally, we have the issues surrounding Christmas. Christmas is an incredibly important time of the year for me for all sorts of reasons, not least because of the chance to see extended family and friends. It will come as no surprise to those who know me that I was disappointed to learn that we can only have 3 households in our bubble over the festive season. Although this was not at all unexpected, it is nonetheless disappointing.
 
Please don’t get me wrong, I understand the reasons behind the decisions and of course I wish to protect my vulnerable family members as much as the next person, but it is still a disappointment for me not to have the usual mass meet up over the holidays.
 
So, perhaps rather unusually, it seems to me as if the longer term is somewhat clearer and easier to predict, with more uncertainty existing in the shorter term.
 
-In the longer term we now know with a fair degree of certainty:
-That we will have a vaccine
-That we can begin to return to some normality at some point
-That we can hope to return to our offices and workplaces at some point
-That we have a more stable political environment moving into 2021
-That the economy can hopefully recover
 
I think if I could summarise the final quarter of 2020, it would be that we have moved from wondering ‘IF’ things will happen and it is now just a matter of ‘WHEN’.
 
However, in the short term we have to deal with:
 
-What tier is my area in now and where will we be in the coming weeks?
-How on earth am I going to negotiate the social minefield of picking just 2 other households to spend the festive season with?
-What will the Brexit deal look like?
-When will the vaccine deployment begin?
-Will we actually have ‘significant normality’ by Easter, having already been promised ‘significant normality’ by the government on at least 2 or 3 previous occasions that have now come and gone.
 
So … an interesting dichotomy and a feeling that I am not sure I have experienced before where the medium / longer-term looks very clear in my mind, whereas the next 3 months are very hazy indeed!
 
Unfortunately, I don’t have the answers to any of this uncertainty, but I do know that it will pass, and probably faster than we imagine. Just remember that the darkest hour is before the dawn and this too shall pass!

Yours sincerely,
Matt Smith, Director

Portfolio Update – Post Election December 2019

Following last week’s General Election result, we have taken the decision to increase exposure to the UK equity market for the majority of our portfolios. For the first time in over a decade, we have a government that has a free hand politically and provides much greater certainty that the UK’s exit from the EU will happen sooner rather than later.
Stock markets and sterling both rose at the end of last week following the election results, but the last couple of days have shown that there is still a long way to go before Brexit is delivered. The introduction of a legal provision by the Government barring an extension to trade deal negotiations has increased the prospect of a no-deal Brexit, and this has seen the FTSE 250 and sterling lose momentum from their gains last week.
The increase in the allocation to UK equities comes at the expense of US equity holdings which appear quite expensive when compared to other markets, and with an impeachment trial and Presidential election due in 2020, the US will be entering its own period of political uncertainty.

Buckingham Gate Portfolio Review – December 2019

Lindsell Train UK Equity : The importance of liquidity

The demise of the Woodford Equity Income fund has shown just how important it is for a fund to be able to manage it’s outflows. For those who need reminding, the fund had suffered from a run of redemption’s over a period of time and was suspended in early June when it was unable to meet the request from Kent County Council to withdraw its investment of circa £250 million in the fund.

The reputational damage incurred has since led to the decision to remove Neil Woodford as manager of the fund in October and an announcement that the process of winding up the fund would begin in January 2020. This leaves the reputation of Neil Woodford, once considered as one of the most successful fund managers during his tenure with Invesco Perpetual, in tatters and seems very unlikely that he will ever recover from this and return to a position where he is trusted to manage other people’s money.

The fallout from the implosion of this fund has seen analysts much more focused on liquidity risk than ever before, and one of the casualties of this enhanced inspection has been the Lindsell Train UK Equity fund. Following our latest portfolio review in early November, Square Mile have taken the decision to downgrade the fund over liquidity concerns and it was removed from all of the Buckingham Gate portfolios on the 18th November 2019 and replaced with the Liontrust Special Situations fund.

The Lindell Train UK Equity fund has long been considered one of the most successful UK Equity funds, and under the management of Nick Train since it’s inception in July 2006, has generated a return of 377% compared to 119% from the FTSE All Share over the same period. However, performance over the last six months has been poor, and the fund has seen significant withdrawals over recent months with September seeing its largest ever monthly outflow of £374 million. While these withdrawals can be explained by a lack of appetite of investors for UK equity markets as a whole due to Brexit etc, the level of withdrawals and the structure of the Lindsell Train fund are causes of concern.

While there are a great deal of differences in the investment approaches adopted by Neil Woodford and Nick Train, there are similarities in that they both have the courage of their convictions in choosing the companies that they invest in. Nick Train’s investment process has been characterised by a low turnover approach and the ability to invest heavily in companies that he believes in. This highly concentrated portfolio approach has been one of the main reasons for his success, but also has the potential to be his downfall.

Square Mile’s analysts are very concerned that the large concentration of assets in the fund’s top 10 holdings could see the fund struggle to sell these at a cost effective price should significant outflows persist.

It is important to reiterate that Square Mile have no immediate concerns about the ongoing viability of the fund, and it has consistently met its performance objectives and redemption requests. However, the fall from grace of the Woodford Equity Income fund has made analysts very mindful of history repeating itself and are keen to look at other investment strategies that may work better in current market conditions.

There is absolutely no way of telling if this will be a good or bad decision for the portfolios in the future, but it is clear that Square Mile are very conscious of avoiding the trap that what has worked in the past will continue to work in the future.

If you have any questions on the above, please do not hesitate to get in touch with us by calling 020 3478 2160 or emailing [email protected]

Investment Portfolio Update – October 2019

I am writing today to keep you up to date on how we are positioning portfolios in the run up to the potential Brexit deadline of 31st October (although keeping in mind this is not the first Brexit deadline we have seen, and may not be the last) and in light of some weakening economic data.

The slowdown in the global economy continues and the chances of a recession developing are increasing. Some countries such as Germany are probably already in recession, that is have a shrinking economy. However, even if recessionary conditions spread to other nations, we expect the extent of the economic contraction to be shallow and well short of what occurred in 2008/9. Nonetheless, the knock to companies’ profits would be felt by the stock market and equity prices would fall. 

Against this backdrop, equity yields are generous when compared to virtually every other financial asset. We are by no means certain that a recession will develop in the US and if that pivotal economy can continue to grow, equity markets have the potential to make further modest gains over the next couple of years. Therefore, rather than reducing equity exposure, we are making changes to the portfolio to limit the damage that a recession might bring.

Yields on government bonds around the world are at tiny levels. UK gilt yields are now virtually non-existent and the government is able to borrow at long term interest rates of well below 1%. 

On such yields, any capital gain potential if a recession does strike will be small. US bonds yields are more generous at a little below 2%. This means that if the US falls into recession, US Treasury bonds can potentially deliver a worthwhile capital gain. Thus, US government bonds appear to be a better option for the portfolio. 

As we have no wish to take any currency risk on this position, we are buying the sterling hedged Vanguard US Government Bond Index fund. If global growth rebounds, the price of this fund is likely to fall, however, the equity positions held in the portfolio should gain to a far greater extent.

We will of course be watching events closely over the coming weeks and I shall write again if we feel that any further changes are required in the portfolios.

If you have any questions on the above, please do not hesitate to get in touch with us.

Kind regards
The Buckingham Gate Investment Committee

Office Of Tax Simplification IHT Review – Some Interesting Insights

There were a few interesting insights to be gleaned from the OTS Inheritance Tax Review, in addition to the much-covered suggestions for changes to the IHT regime.

First is the seemingly profound under-use of the ‘gifts from regular income exemption’. We have often made the point that this is the most underutilised and misunderstood IHT exemption and figures from the OTS seem to confirm this point.

In the 15/16 tax year, there were only 579 claims in total for the gifts from income exemption with well over half of these claims being for less than £25,000.

As such, it could be argued that there is a huge missed opportunity out there for additional IHT savings, without the hassle of the 7-year rule. Of course, the OTS has made some suggestions to abolish the gifts from income exemption, but for now it lives on and it might be wise to make hay while the sun shines.

Another notable point raised in the review is the fact that of the estates that paid IHT in the 15/16 year, only 20% had any form of lifetime gifting within the 7-year cycle.

Now of course in some cases, this would simply have been unaffordable, however surely there are a host of missed opportunities for IHT savings in the 80% of estates which had engaged in no gifting at all.

2016 – A Year in Review

As 2016 draws to a close, I always take the opportunity to review what has happened in both my business and personal life, but also to consider what has happened in the wider world around me. In this latter category, 2016 has been eventful to say the least.

The year started typically enough, we had an oil price scare and fears over growth in China, however none of that is unexpected across the course of a typical year ‘in the markets’.

What came as more of a surprise, was the Brexit vote in June. I don’t think I will ever forget that morning, turning on the TV to see that what no one thought could happen, had happened. That day was also memorable for me on the basis that I was stuck in London that night searching for a hotel at short notice because of issues with the trains (another item that has made headlines far too often in 2016).

What I found even more surprising however, was how the markets reacted with relative calm to the events unfolding. Yes, there was a few days of volatility (which is only to be expected after any major event like Brexit, especially when no one really expected it), however the markets soon recovered and went on to set record highs in many places.

As if Brexit wasn’t enough, we then had the unexpected election of Donald Trump. Again, the markets seemed to react positively and many market have continued to set new highs in December.

The million dollar question is ‘what happens next?’. I think if 2016 has shown us anything, it is that no one really knows. ‘The markets’ had predicted doom and gloom of epic proportions if Brexit OR Trump happened, let alone both of them, yet 2016 has been one of the more positive years for some time now.

My other often cited bug bear of 2016 has been the increasing intensity of panic inducing headlines in the media for increasingly small events. ‘Billions wiped off the UK stock market’ was a recent news headline, on a day when the FTSE 100 fell by less than 0.5%!

While 0.5% of the FTSE does happen to total billions of pounds, a rise or fall of 0.5% each day is so commonplace on the FTSE 100, that this is not really news at all. As such, my advice remains to take what you read, watch and listen to with at least a small pinch of salt.

As 2016 draws to a close, I also reflect on how lucky I am to do the work I love each and every day. I would like to take this opportunity to thank all of our clients, contacts, professional connections and suppliers for working with us in 2016 and beyond. I would like to wish you all seasons greetings and a happy and prosperous 2017, whatever the year has to offer us!

Woodford Joins the Team

In the recent meeting of the Buckingham Gate Investment Committee, we deliberated long and hard about adding the Woodford Equity Income fund to the Buckingham Gate Portfolios.

While Neil Woodford’s experience and performance in this sector is almost undeniable, the reason we had pause for thought is that the track record of the fund is only 18 months. We usually like a fund to have a 3 year track record before we would consider adding it to the portfolios.

In this case however, we have made an exception to this rule for what we feel are a number of very good reasons:

  1. The performance of the fund during it’s 18 month history is outstanding by almost every measure. We have considered no less than 12 different fund performance metrics and the Woodford fund tops the tables in all of them. The case for including the fund was compelling based on these factors alone.
  2. While Woodford Investment Management is a new venture, Neil Woodford has been managing a UK Equity Income fund with a very similar mandate for more than 20 years at Invesco Perpetual with similar success. If we combine Neil Woodford’s track record across the two funds, it makes for some very impressive viewing.
  3. Given the ‘brand name’ of Neil Woodford, he has been very successful in gathering new monies to invest in his fund, with the Woodford Equity Income Fund having over £8bn of funds under management at the time of writing. As such, the fund does not have the same characteristics as many other ‘start up’ funds. In fact, the fund is considerably larger than many other more established players.

With all of the above taken into account, we have decided to include the fund within our portfolios.

When we combine Neil Woodford’s experience in the UK Equity Income space, with that of Nick Train (Lindsell Train UK Equity Fund) in the UK Equity growth sector, we are left with a duo of the most experienced and successful managers in the UK equity sector.

It is important to remember that past performance is no guide to the future, however we do feel that there is significant value to be added by experienced managers in the UK equity space. This is in an unusual contrast with the US equity sector, where there are very few, if any, ‘active’ managers who consistently add value.

For this reason we continue to adopt our hybrid approach to fund selection, choosing more expensive active managers where we feel they can add value, and using low cost ‘tracker’ funds where they may not.

Our 2014 Investment Action Plan – Part 3 – Rebalance Investments

While the media painted a somewhat gloomy picture of the economy in 2013, on the whole, financial markets had a bumper year. Given the significant differences in performance across market sectors, it is likely that many portfolios will now be out of line with the intended asset allocation.

A priority for 2014 should be to ensure that portfolios are re-balanced back into line with the intended asset allocation and that a thorough review is conducted to ensure that the investments are still suitable for your needs and objectives.

Our 7 Step Investment Action Plan – Part 1 – Diversification

2013 was quite a year in investment terms – many clients will have portfolios in need of some serious spring cleaning in 2014. We have put together a 7 step action plan for 2014 – part one is below. Stay tuned for more over the next week or two.

The old saying goes, “don’t put all your eggs in one basket” and it has long been the case that when considering an investment portfolio, diversification across different asset classes is of the upmost importance in order to manage risk and return.

While diversification across asset classes is as important now as it always has been, given the increasing speed of change in both the political and regulatory environment, it makes sense to diversify across product types as well.

For example, pension plans offer highly generous tax reliefs to investors as well as tax efficient fund growth, however they also have restrictions in terms of the amount that you can save and the age at which you can gain access to the funds.

Pensions are especially prone to legislative change and recently seem to have become a politically easy target for the government to extract further taxation from more wealthy savers. As such, while a pension plan will form the bedrock of most retirement plans, it makes sense to include some other “product types” to lessen the impact of an adverse change in pension planning rules. An increase in the minimum pension age (from 55 to 60) for example would throw many retirement plans off course. Holding a suitable range of other “product wrappers” such as ISA’s and investment bonds will mitigate this risk.

The tax treatment of product types is also prone to change. There has been talk in the media of government plans to reduce the level of tax relief available or further limit the total allowable lifetime savings within a pension plan. Conversely, there is pressure to increase the amount of tax-advantaged savings allowed in an ISA each year to encourage the public to save and invest.

Given that the time horizon for some investments is 30 years or more, it seems almost inevitable that some form of taxation or legislative change will impact on the plan before it completes. It is vital to review your plans on a regular basis to ensure that they remain suitable for your circumstances over time.