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 – 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.

Market Update – February 2020

You may have seen in the news that the stock market has suffered some fairly notable falls over the course of Monday and Tuesday. This is mainly in response to the increase in the number of Coronavirus cases across the world and in several new countries over the past week or so.

First and foremost, it is important to put things into perspective. Although the major stock market indices have fallen over the past couple of days, they have fallen from near record highs and so some element of correction is understandable in this kind of situation.

The second thing to bear in mind is the cause of the markets concern – mainly that consumers will be spending less in economies that are impacted by the virus and this is broadly true. However, the kind of spending that gets impacted tends to be consumer discretionary spending (new cars, holidays etc). Typically, this kind of expenditure gets deferred and not cancelled in situations like these, so most economists agree that the markets should get a boost later in the year when the virus has passed and people then make some of these deferred purchases.

Finally, we can look to history for some guidance in these situations (although keeping in mind the old adage that the past is not always a useful guide to the future). The graph below shows how markets have reacted to several previous epidemics. As you can see, the impact tends to be felt only in the short term, often with strong recovery only a few months later.


We are pleased to report that the Buckingham Gate Portfolios have held up very well in this environment. Over the course of Monday and Tuesday, the FTSE 100 fell by around 5.2% and the S&P 500 fell by nearly 6.7%. In contrast, the Buckingham Gate Balanced Active Portfolio fell by only 2.2%. This is as a result of the diverse nature of the portfolios, but is also a reflection of the fact that we have been very conservatively positioned for some time now in readiness for just this type of event.

We will continue to keep portfolios under review and may even use this period as an opportunity to take advantage of falling prices if valuations look attractive.

 

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.

Top Rated Adviser’s 2020

This month two Buckingham Gate Chartered Financial Planners have made it into VouchedFor’s Top Rated Adviser Guide for 2020.

The guide is distributed nationally in The Times and digitally through the Telegraph’s website and so this is a great achievement that Buckingham Gate are tremendously proud of.

Congratulations Matthew Smith and Peter Ditchburn for receiving such well-deserved recognition for the fantastic advice you provide to your clients.

What makes their inclusion in the guide so much more special, is knowing that it was thanks to their lovely clients for leaving such powerful reviews on VouchedFor.

VouchedFor is a leading review site for Financial Advisers and helps those looking for advice, find the right adviser for them.

Our unique combination of expertise, makes us a one stop shop for your retirement, investment and estate planning needs.

Matthew and Peter would like to say a huge thank you to their clients for taking the time to leave a review, it really means a lot to them.

If you’re looking for financial advice, you would definitely be in good hands with these two!

The 4 Ps of Retirement Planning

I was having a conversation with my father over the weekend about his retirement and it occurred to me that there are 4 things that you must have to live a successful and happy retirement. All of them beginning with the letter P:

Purpose

People

Places

Projects

The first is arguably the most important and drives the other 3, so what better place to begin than:

Purpose

Those clients that go onto live happy retirements often enter retirement with a sense of purpose. They don’t feel that this is ‘it’, there is usually ‘something more’, ‘something next’ that is driving them forward.

There is no right or wrong answer here. Your purpose is just that – yours. It could be that you wish to write a book to change how people view the roman empire, perhaps you wish to play in a band and perform in front of 50,000 people. Maybe you want to visit each country on the planet, or it could be that you wish to provide the best support to your children and grandchildren.

It doesn’t matter what your purpose is, more that you have one.

Mitch Anthony, a US retirement expert says, “To have a wonderful retirement you only need two things: enough purpose to get up in the morning and enough money to sleep at night”.

I think this is quite true. Although it can be tricky, it is important that you figure out your purpose before you go into retirement to give yourself a sense of direction and meaning. Once this is clear, the other 3 p’s then fall into place.

People

The next thing most people will think about is people. Who do you want to spend more time with now that you have more of it?

It could be children and grandchildren. Perhaps you wish to spend more time with friends and family. It can also help to think about what you wish to do with those people. Is it simply spending more time with them that counts or is there something specific you need to work on or achieve together?

We have clients who have had slightly rocky relationships with their loved ones that have been repaired as they have gone into retirement. Perhaps it is simply the addition of more time that makes the difference.

Places

Where you do wish to go and see? What do you wish to do while you are there? For some people there will be grand plans to see the world (perhaps the whole of it), for others, their travel plans will be more modest.

However, it is important to decide in which places you wish to spend your retirement as this will very much drive the cost of your desired lifestyle.

Projects

Finally, it is useful to think about projects. Some projects could be short term and arise because you simply haven’t had the time to tackle them before. Clean the garage out, tidy that draw full of papers – that type of thing.

Other projects are far wider reaching and could transcend years or even decades. Learn to play the guitar, influence government policy, save the rain forest. All examples of projects that clients have wanted to undertake which could very well be works in progress forever!

Summing Up

From my own experience (and there is now a lot of research and science backing this up as well), the people who enjoy their retirement the most, are the ones that have really thought about the 4 P’s before they retire. In doing so, some people realise that they don’t really want to retire at all. Others will decide that their retirement might not really be ‘retirement’, more a new chapter in life.

If you would like any help on your own retirement journey, we would be delighted to assist. Please contact us now for your discovery meeting, provided at our own expense.

Educating The Next Generation Of Clients

Perhaps it is because my children are coming to the end of their primary school education, but I’ve become increasing aware of my responsibility as a parent to provide them with responsible attitudes towards money to help them through life. While they are beginning to understand the concept that things cost money, they are gradually realising that there isn’t a bottomless pit of cash buried in the back garden to pay for everything! Getting them to understand that saving the weekly pocket money to buy something that they really want is much better than blowing it all on a comic and sweets each week, is an important first step in encouraging them to adopt a lifelong saving mentality.

The Personal Finance Society is the professional body for the financial planning profession in the UK and they have recognised the importance of educating tomorrows savers, with the launch of the My Personal Finance Skills – a pro bono initiative to deliver financial education workshops to secondary schools and colleges across the UK. These workshops include topics such as helping students understand the value of everyday expenses, staying safe from financial scams and understanding the concepts of income tax and National Insurance once they leave school.

I volunteered to be an Education Champion, and despite a little bit of trepidation (there’s a reason why I decided to become a financial adviser rather than a teacher!) I took the plunge to deliver a workshop at a local secondary school just before Christmas. I have to say that it was a really enjoyable experience and was fascinating to see how fourteen and fifteen year old’s think about money – more than one were shocked about the cost of things such as household expenses and rent, especially when they were also informed about the difference between net and gross salary!!

This generation of children are fully immersed in social media and there is no doubt that they are heavily influenced by the lavish lifestyles portrayed by some celebrities. One of the objectives of the workshop was to make the participants aware of the income needed to maintain such as lifestyle, and the dangers of using easy borrowing in an attempt to live the “Instagram lifestyle”.

A number of clients have expressed their concerns over the years about the ability of their children to manage large amounts of inherited wealth, and last year we sought to set up a next generation workshop to provide financial education for young adults. While we didn’t have the level of response that we had hoped for, I’m sure that this will be a topic that we will revisit in the future.

Because We Needed Something To Worry About

As I sat down to my Christmas Dinner this year, I recall being quite surprised at how settled things seemed to be. Not just in my own little home on Christmas day, but across the country.

The decisive Conservative victory in the election gives us a more certain path for the future and regardless of your views on Brexit or politics in general, I have always argued that uncertainty is almost always worse than the outcome, even if you disagree with the outcome.

As we went into the Christmas holidays, it seemed nearly certain that we would officially leave the EU on 31st January 2020. Of course, this is merely the beginning, and the end of January will signal the beginning of (supposedly) 11 months of trade talks which are designed to culminate in a trade deal by the end of the year.

So, despite the slight uncertainty hanging over the future trade relationship between the UK and the EU, all seemed to be sorted. We had a stable government, Brexit was going to happen and even the US and China seemed to be getting to the bottom of their trade dispute.

It was as if the world knew we didn’t have anything to worry about…

Of course, what followed is the US strike on Iran and the subsequent retaliation, giving us a whole new geo-political issue to ponder over.

Now, my feelings about this issue are just the same as with any issue (from an investment standpoint anyway) – keep calm and carry on will always be the motto.

What this just goes to show though is that there will never, ever be a ‘good time’ to invest. All those people who were waiting until Brexit and the election sorted themselves out will still be waiting to see how the US / Iran situation pans out, all the while missing out on what has been one of the best periods in market history.

The old adage that time in the market is more important than timing the market could not be more important, especially given that this uncertain world seems to be the ‘new normal’ as I wrote about a few weeks ago.

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.

Some Brief Thoughts On The Election Result

Well it finally seems to have happened. People have voted to end the Brexit uncertainty and have delivered a clear Conservative majority government.

The early reaction from the markets is incredibly positive, with sterling up around 3 cents on the dollar since the results were announced last night and both the domestically focused FTSE 250 and the internationally focused FTSE 100 have posted impressive gains, the former breaking a new record today. In the case of the FTSE 100, this is especially impressive considering the significant strengthening of sterling – a factor which is usually negative for stock prices.

I have said for a long time that uncertainty is almost always worse than the outcome, even if the outcome is bad. No matter your views on Brexit, I do believe that having a conclusion to the whole issue will allow individuals, businesses and government to ‘get on’ and move things forward.

I know of many individuals and companies who have been delaying decisions around investing and hopefully this clear result will now unleash some of these held back investment funds.

Now of course things are rarely simple. The deal to take us out of the EU (which now looks very likely to be implemented on 31st January) is only the beginning and there will need to be future trade negotiations with the EU to hopefully secure a sensible, post divorce trading relationship.

Additionally, the SNP’s surge in Scotland will inevitably bring up the issue of a second referendum on independence. Although this will probably have a smaller impact on markets than Brexit, if the previous attempt is anything to go by, it could cause volatility in sterling and some short term uncertainty on the markets. I did mention at the client event a few weeks ago – I believe that political uncertainty is now the new normal.

I also feel that the Conservative victory is a victory for personal finance. Despite the Conservative manifesto essentially maintaining the status quo when it comes to personal tax and finance, that status quo, I believe, is incredibly generous. I don’t think that there is any doubt that last nights result is positive for wealth creation.

Finally, in all the election noise it was easy to miss some positive news out of the US last night with tentative signs that we might also get the start of a resolution to the US / China trade war.

All in all, Friday 13th has been lucky for markets, lucky for sterling and, lucky for the Conservatives.

The Buckingham Gate Investment Committee will be convening early next week to discuss the election results and consider if any changes need to be made to the portfolios in response. We will, as always, keep you updated on our latest thinking.

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]