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Gibbs Denley Preferred Review 4pp Issue 4 2017 As we entered Autumn, investment markets took some serious international threats in their stride. September proved the least positive month of the quarter as worries mounted, but economic data remained solid in most places, with the exception of the UK where cracks are beginning to appear. 
 
Tax reform, or other stimulative policy, from the US has yet to appear but stocks are holding up well despite this. Earnings are solid across most sectors, but valuations provide very little margin for disappointment.

Investors’ appetite for risk seems to have held firm and they have increased their inputs into riskier investments, such as emerging markets where growth is very strong and inflation is under control.  Interest rates rises are back on the horizon as far as developed markets are concerned but we remain cautious on how far these will go in the short term.
  

Gibbs Denley Investment Market Review & Outlook Q4 2017

Gibbs Denley Investment Model Portfolios Q4 2017

Gibbs Denley Investment Model Portfolio Performance Q4 2017Tom Sparke, Investment ManagerTom Sparke IMC, CertPFS (DM)
Investment Manager
Gibbs Denley

Email Tom

 

Understanding Investment Risk

Pyramid of investment riskIn the context of finance and investing, most individuals have an overly simplistic view of the concept of risk, whereby it relates solely to the notion that an investment may fall in value. A common first step in identifying the right risk profile for any investor is therefore often a discussion regarding the different types of risk to which they might be exposed. Another key aspect of this is the timeframe over which they are investing. 

Types of risk

Most people are aware of the basic idea that some assets are inherently more risky than others: for example, cash and gilts are typically low-risk, while commodities and market equities are generally high-risk. You can see more about this in the diagram above.

However, it is not always as straight forward as this. For example, an individual holding entirely cash-based investments might be of the opinion that through this strategy he or she would not be exposing their savings to any risk. Such an approach would leave the investor subject to both inflation and interest rate risk; the risk that inflation will erode the value of their savings in real terms over the long term, and the risk that interest rates will fall or remain low for an extended period.

We have seen both of these factors have a significant impact on investor’s savings over the last few years with interest rates and inflation both very low following the financial crash, and the pound losing value following the Brexit vote. Those investors who have been fortunate enough to have been diversified into other assets such as property and equities over this period have seen positive returns which have more often than not offset the poor returns they might have received on cash.  

Having had a prolonged period of strong returns from equity markets over the last eight years, it is easy for investors to become somewhat blasé about the risks involved with equity investment, and to forget that markets do suffer periods of (sometimes considerable) negative returns.

Investment Timeframes

While an investor’s own sentiment towards risk will be key in agreeing an appropriate risk profile, other factors – such as the timeframe for the investment, and the investor’s capacity to accept a given level of risk – will also be important in coming to a decision.

In broad terms, the longer the timeframe available for an investment, the higher the level of risk an investor may be willing to accept. In some circumstances, even relatively cautious investors might need to be encouraged to accept some risk where an investment will be held for the very long term (for example an individual in their 20’s or 30’s investing into a pension arrangement). For an individual investing into a diversified portfolio of assets; the longer the investments are held, the greater the chance of a positive return.

Alternatively, an otherwise aggressive investor might be encouraged to invest in a low-risk portfolio if the monies are going to be required in the shorter term, as this is not going to be appropriate for them given the risk to their capital.

Key questions to ask before investing

  • When are you likely to need the money you are investing?
  • What are your investment goals (i.e. is it a pension fund, are you looking for on-going income, or is your goal to increase the value of your investments?)
  • What is your personal attitude toward taking risks?
  • What is your capacity for loss (i.e. how much will it affect you if the value of your investment falls and you make a loss?)

The answers to these quotes will help your adviser to explain the different types of risk which might apply, identify potential pitfalls, and take into account the investment timeframe and your capacity for risk. With this information a Chartered Financial Planner can provide valuable assistance in setting an appropriate risk profile for any portfolio, ultimately maximising the returns for any given level of risk.

It is important to remember that returns from investments are not guaranteed as capital may fall as well as rise, and you may not get back the full amount invested. This article is for information only and does not constitute specific advice. We recommend that you consult a qualified adviser before investing any money.

Michael Bretherick, Associate DirectorMichael Bretherick 
Chartered Financial Planner
Associate Director
Gibbs Denley
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Investing in IndiaWith the UK’s most recent economic figures showing a likely slowdown in expansion and the US potentially moving toward the same, investors might be forgiven for looking elsewhere for returns.  Even China, the current ‘powerhouse’ of global growth in recent years, has lower growth targets now as the country has matured enormously over the last decade.  Against this backdrop,

The Power of People

Possibly the most potent force behind the Indian surge is demographics.  Boasting a population size second only to China, India will have 900 million people of working age by 2020, and should reduce an already impressive unemployment rate of just 4.9%. Assuming Prime Minister Narendra Modi continues his current popularity, his reformist and business-friendly government will preside over projected growth of 6-8% per annum.  For an economy whose stock market has historically outperformed its economic growth, the case for investing into Indian equities is compelling.

Governmental Reforms

India has undergone enormous change in recent times and, as with any major national evolution, some necessary reforms have had to be implemented to enhance the country’s tax infrastructure and to combat counterfeiting. 

A one-off demonetisation occurred last year in which 500 and 1000 rupee notes were withdrawn from circulation and replaced with new, more secure notes to nullify the stock of counterfeit notes in circulation.  The effect of removing these commonly used denominations was expected to impact the economy much more than it eventually did, but consumer stocks were curtailed temporarily.

The Goods and Services Tax (GST) was implemented on the 1st of July 2017 and is a tax at the point of sale, similar to VAT.  Nicknamed the ‘Good and Simple Tax’ by Modi himself, its introduction meant the end of multiple taxes at various stages of manufacture.  This is seen as a major advance toward a unified national market, though the rate is not a universal one, but has four different levels with advantageous rates for precious stones and gold and a higher band for carbonated drinks, luxury cars and tobacco.  While this has certainly impacted some activity – much buying was brought forward to avoid the levy – the effects are likely to be transitory and growth should be maintained.   Ultimately, it is estimated that the move will add 1% to GDP by 2022. 

Other reforms implemented by Modi’s government include ‘Make in India’, which set out to encourage domestic and international companies to manufacture products within the country, and ‘Skill India’, which aims to train 400 million people in various different skills.

The upshot of huge progress and an ambitious leader are that corporate profits are expected to rise significantly over the next few years, so how can we benefit from this? 

Intelligent Investing

Investing in Indian equities has been very fruitful in recent years and its stock market index, if invested in directly, would have made around 90% return over the last 5 years.  However, most actively-managed Indian equity funds have achieved much higher returns over this period, some over 150%.  This shows that the Indian market is a good example of an ‘inefficient market’ which is one that is better served by expert managers, who can identify successful companies rather than gaining exposure by simply buying the entire index (via a passive Exchange Traded Fund). 

Our Gibbs Denley Investment Model Portfolios started investing directly in Indian funds in early 2015 and this exposure has grown substantially as our optimism for the country’s development has intensified.  We now have significant exposure to India across our Balanced and more adventurous models and remain excited about this unique opportunity.

Tom Sparke, Investment ManagerTom Sparke IMC, CertPFS (DM)
Investment Manager
Gibbs Denley

Email Tom

Meeting with a Financial AdviserIt is easy for Financial Advisers to tell people that they will be better off if they take our advice, but it is not often that we can back it up with figures, as every case is different and we can’t make any guarantees. However, a new study from International Longevity Centre (ILC) has looked at data from the Wealth and Assets survey (the largest representative survey of individual and household assets in Great Britain), showing that those who took advice were, on average, £40,000 better off than their peers.

 ‘The Value of Financial Advice’ was produced by ILC, with the support of Royal London, and looked at two groups within the data: the ‘affluent’ (a wealthier subset also more likely to have degrees; be part of a couple; and be homeowners) and the ‘just getting by’ (who were less wealthy; more likely to have lower levels of education; be single, divorced or widowed; and be renting).

Their analysis showed that These increases were also split across liquid assets and pension wealth, as you can see in the table below:

Liquid Assets
(average increase)

Pension Wealth
(average increase)

Total
(average increase)

Affluent but advised group

£12,363 (17%)

£30,882 (16%)

£43,245 (16.5%)

Just getting by but advised group

£14,036 (39%)

£25,859 (21%)

£39,895 (30%)

The report also shows that people who took financial advice during the period of research were also earning more in pension income – an additional £880 (16%) for the ‘affluent but advised’ group and £713 (19%) more for the ‘just getting by but advised’ group.

While this report gives a clear demonstration of the value of financial advice for the average person, it is worth noting that in financial planning there is no such thing as an ‘average’ customer. When putting together a financial plan, a good adviser will consider your unique circumstances and goals, and put together a recommendation that suits your needs. While they can’t make any promises (particularly with investments), they can help you to understand what you are likely to achieve in both the long-term and short-term.

Craig Hilton, Associate Director and Financial AdviserCraig began his career in financial services straight after completing his A-levels, beginning at Axa Equity & Law. He joined Gibbs Denley in 2010, after 9 years at a small Independent Financial Adviser’s firm in Warwickshire. During the 7 years he has been with Gibbs Denley, Craig has been made an Associate Director, and is working toward gaining Chartered Financial Planners status.

The main focus of Craig’s role is in providing tailored advice to a wide range of clients, with his expertise being in tax planning and helping individuals of High Net Worth realise their goals, for example with complex areas such as Inheritance Tax and Trusts. Many of his clients are currently business owners looking to extract profits in an efficient way, or are retired or former business owners.

Craig is also responsible for writing and updating all of the technical brochures that Gibbs Denley produce, doing his best to explain complex issues in a way that is accessible to everyone. Recently, he +has also been developing Gibbs Denley’s Business Protection offering. 

“People often underestimate what tax-free allowances are available to them,” says Craig. “When it comes to High Net Worth households, this can get complex quite quickly, and it’s our job to make it as simple and as efficient for them as possible.”

Outside of work, Craig is an avid motorsport enthusiast, and has a keen interest in cars.