News on the financial markets and current affairs to help you get the most from your assets.
Brexit – The Outlook for UK Investors
- Brinksmanship certainly appears to be part of Boris Johnson and Dominic Cummings’ negotiating strategy. Just eight months after
signing the terms of the UK’s withdrawal from the EU, this week saw the prime minister risk breaching international law to renege
on that agreement. Though the true motive for this latest twist in the Brexit saga is debatable, one line of thought is that the UK
government is aiming to increase the stakes to force some last minute concessions from the EU.
Indeed, a similar strategy was deployed in October, resulting in some small compromises from the EU and enabling Johnson to
claim a victory and sign the withdrawal treaty. This week’s events could be part of an attempt to repeat the trick. If so, success
would likely be a continuation of trade arrangements that look broadly similar to current arrrangements.
However, the UK government’s overhaul of an agreement it signed only eight months ago has not been well-received in Europe. It
is possible that it could cause negotiations – which were already strained – to break down completely. This would point to a
“hard” Brexit, with existing trading arrangements between the UK and Europe effectively abandoned. As trade with Europe
accounts for c.12% of the UK’s annual economic output, this would undoubtedly be a significant shock to the system.
While there can be little certainty over how the negotiations will end, it appears to us that recent events have increased the
chances of a hard Brexit. Indeed, this view seems to have shaped moves in currency markets. The sterling-euro exchange rate has
been a reliable barometer of expectations throughout this saga and, at the end of last week, the pound bought as few euros as it
has done at any time since the 2016 referendum.
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Please find attached update entitled Summer Statement. This includes information from Rishi Sunak and the four key measures which will be put in place following his recent announcement:
▪ A payment of £1,000 per furloughed employee that is brought back to work and retained until January 2021;
▪ A “kick-starter” initiative designed to encourage the creation of jobs for workers aged between 16 and 25;
▪ The elimination of stamp duty on house purchases under £500,000 until the end of March 2021;
▪ A reduction in VAT for the hospitality and entertainment industries and an innovative government funded discount to encourage people to visit newly re-opened restaurants.
From an economic perspective, there is much to like in the Chancellor’s plans. The focus on the creation and preservation of jobs is welcome at a time when the labour market faces its greatest challenge in decades. As ‘entry level’ jobs are highly concentrated in the hospitality and construction industries, efforts to support these areas appears sensible. And, while the bonus for rehiring furloughed workers may only delay a wave of redundancies, it is possible that the economic recovery may be sufficiently advanced by January to ensure these jobs are permanent.
Against these positives, a number of challenges are identifiable. There is little the government can do to discern between furloughed workers rehired because of the £1,000 bonus and those that would have been rehired without it: a portion of the bonus scheme is therefore likely to be a gift from the government to the corporate sector. It is also unclear whether the prospect of £1,000 in January is sufficient to convince companies to accept the cashflow implications of rehiring workers in the interim.
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Understandably, individuals, companies, governments and investors have, for several weeks, been focused almost entirely on the Covid-19 pandemic and its implications. Having seen the introduction of unprecedented social restrictions in an attempt to contain the virus’ spread, large parts of the world have recently begun to take tentative steps towards easing these restrictions and building back towards more ‘normal’ social and economic conditions beyond covid-19.
Each country’s experience of the pandemic has been unique. The steps necessary to return to normality are therefore different for each nation. Similarly, the pace and success of the recovery will differ. While New Zealand, for example, appears well-placed to continue easing restrictions, evidence that infection rates in South Korea are increasing once more reminds us that the threat
posed by the coronavirus has not yet passed. Nonetheless, where safe to do so, the relaxation of social distancing measures has been welcomed by all, including investors. International stock markets have, in recent weeks, continued their relatively serene progress from the lows of late March.
Lockdown in the UK has, for many people, been made more bearable by unseasonably beautiful weather. With the guidelines set to permit small, socially distanced gatherings in gardens from next week, the temptation is to dust down the barbecue and enjoy some hard-won rest and recuperation.
Alas – for investors at least – it seldom pays to take your eye of the ball entirely. As illustrated by South Korea, the threat of a second wave of infection remains real. And, as if that were not enough, there are myriad other issues that will undoubtedly influence financial markets over the coming months and years. As ever, whether this influence is positive or negative is not predetermined: the impact on asset prices will depend on whether the outcomes are perceived to be better or worse than currently
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You can also find this and other useful articles on the Omnis Website
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Investment Update – Disappearing Dividends Should Return:
The Prime Minister recently announced the gradual easing of lockdown restrictions nearly two months after they were imposed. The restrictions have been largely successful in containing the spread of the coronavirus new cases have steadily declined since early April and the number of deaths is falling too.
However, the slowdown of economic activity has taken a heavy toll on growth. The Bank of England thinks the economy could shrink by 14% this year, although it also forecasts a strong recovery in 2021.
The impact on the global stock markets has been well documented, both by the Omnis investment team and the media. After a sharp fall in February, shares have recovered, mainly thanks to the unprecedented support and measures launched by governments and central banks.
The markets remain sensitive to new developments, as demonstrated by last week’s pause, and should continue to fluctuate as we gradually return to normality.
Periods of market turbulence like we have recently experienced are to be expected when you invest in shares. As long as you avoid any knee jerk reactions, then you should be rewarded for holding your investment over the long term. However, another consequence of the coronavirus crisis that may cause concern, particularly for those who rely on their portfolio to generate an income, is the number of companies that have stopped paying dividends.
When you invest in a share, you buy a small piece of the underlying company. Generally, you hope to receive a return if the price of the share has risen once you sell. In some cases, your ownership stake also entitles you to a portion of the profits earned by the company. It distributes these profits by issuing a payment known as a dividend.
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Omnis May Investor Update – A fortnight ago we noted that, in spite of continuing lockdown measures and a raft of dire economic data, global
stock markets had made a welcome – if partial – recovery from their late-March lows.
Happily, this recovery has since continued almost uninterrupted. Having suffered a fall of historic scale and speed, the US stock market (as measured by the Russell 1000 index) ended April down ‘only’ 10% for the year to date. Remarkably, had you invested in the US stock market at the start of October
2019, the value of that investment would be almost unchanged.
Source: Financial Express Analytics, 1st October 2019 to 30th April 2020, total returns in local currencies.
As the chart makes clear, the UK stock market has been a laggard throughout this period. This serves as a reminder
that, while Covid-19 is at the forefront of all our minds, it is not the only thing we need to keep an eye on. Firstly,
though negotiations have been understandably delayed as politicians focus on the matter at hand, Boris Johnson’s
government has thus far refused to countenance a delay to the UK’s withdrawal from the EU. This increases the risk
of a hard Brexit at the end of the year – an outcome investors have long viewed as negative for UK assets. Secondly,
the UK stock market has a relatively large exposure to the energy sector which has struggled as oil prices have fallen
to multi-year lows.
Please be sure to read the remainder of the Omnis Investor Update which you can do by clicking on the link or photo below.
If you do have any questions surrounding the content of this update or for any other area of your financial planning needs.
Please do not hesitate to contact us – https://vincentthrop.co.uk/contact-us/
MARKET TURBULENCE KEEPS THE OMNIS FUND MANAGERS BUSY
As we explained in this recent article, the Omnis Investment Team strongly believes active investing is more effective than passive investing because active managers can add and remove holdings in response to opportunities or threats they spot in the markets. Today’s article is ‘market turbulence keeps the Omnis fund managers busy’.
This is especially the case during periods of market turbulence, and the managers of the Omnis equity range of funds have been busy over the last few weeks, ensuring their portfolios can withstand the current market conditions and benefit from the expected economic recovery once it starts.
Before we dive into how each manager has positioned their portfolio, it is worth highlighting several recurring
themes which came up in our recent conversations:
• All managers emphasised the importance of holding financially strong, high quality companies that should still be around when the crisis fades;
• Recognising that the pace and scale of the crisis has fundamentally changed the outlook for a number of industries, our managers have shown nimbleness and humility in cutting their losses where necessary;
• The consensus among managers is the market turbulence has presented compelling investment
opportunities for long-term investors across different styles and sectors
UK All Companies Fund
The manager focused on making sure the portfolio holds financially strong companies. They bought cruise line Carnival at the start of the year as it looked set to benefit from the robust global economy, but they sold it as the travel industry came to a practical standstill due to the lockdown. They took this opportunity to invest in companies which the team has been monitoring for a while, but which had previously been considered too expensive. An example is bakery chain Greggs, a well-managed company in a good position to prosper when growth starts again.
The manager believes the crisis has unearthed some attractive long-term investment opportunities in various sectors.
To read the full update and how each manager has positioned their portfolio please click the link below:
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Why have stockmarkets risen when the news seems so dire? As confirmed by the UK government’s decision to extend the lockdown for a further three weeks, the coronavirus crisis is far from over. The virus continues to claim lives all around the globe, and measures designed to limit its spread continue to exert a powerful downward force on economic activity. Nonetheless, global stock markets are significantly higher than they were just three weeks ago.
Investors may be justified in asking whether this makes sense, and whether markets can possibly hold onto their recent gains. Though some have dissented, the majority of governments around the world have decided to prioritise containment of the virus above all other considerations. Closing non-essential workplaces and forcing citizens to stay at home has had a clear and significant impact on economic activity. In the US, some 22m people have filed for unemployment benefits in the past four weeks while the Chinese economy contracted 6.8% in the first three months of the year, the first decline in more than40 years. As signalled by the International Monetary Fund (IMF), many economies – including the US, Europe and the UK –may well suffer even sharper declines in economic activity.
Investors may be surprised to see that, against this bleak background, equity markets have nonetheless been making gains in recent weeks. The US stock market is some 25% higher in just three weeks, while the UK is up 14% and emerging markets have gained 16%. However, context is everything: as material as these gains have been, they have only partially reversed the losses accumulated earlier in March
Still, the question remains: why have stock markets have risen in the face of dire economic news? The answer lies in the forward-looking nature of financial markets. Equities (stocks and shares) entitle the owner to a share of the company’s profits. To assess the value of this share, investors look not just at this year’s profits, but at the company’s potential profits over a number of years to come. Signs that the crisis will prove temporary – for example, a return to more normal levels of economic activity in China and initial efforts to soften lockdown measures in parts of Europe – have reduced fears over the longer-term outlook for company profits, and stock markets have risen as a result.
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Omnis Investment Update – Quarter 1: By a number of measures, the first quarter of 2020 was the worst for equity investors since the aftermath of the Black Monday stock market crash in 1987. As coronavirus spread around the globe, and as the economic implications of efforts to contain its spread became clear, the eleven-year bull market in global equities came to a halt. Stock market indices across Asia, Europe and the US fell in unison, with the UK’s FTSE All Share index falling close to 35% from its peak.
Some – including us (see ‘Shades of 2008’) – have compared recent weeks to the financial crisis of 2008. In early March, these comparisons were justified by signs that the very structure of the global financial system was once more under threat. However, decisive action from central banks, led by the US Federal Reserve, appear to have mitigated this risk, ultimately paving the way for a partial recovery in stock markets towards the end of the quarter.
The current crisis is differentiated from 2008 not just by the reaction it has elicited from policymakers, but also by its cause. Whereas the financial crisis was precipitated by the bursting of a bubble in the market for US real estate, the coronavirus is a truly exogenous shock – one delivered from outside the realm of the global economy or its financial system. As a result, it’s arrival was all but impossible to forecast.
A further difference to 2008 – and to the vast majority of other periods of major market turbulence – is the pace at which recent events have unfolded. We now know that, at the onset of the financial crisis, the US economy entered recession in December 2007. However, this was not confirmed until December 2008, by which time Lehman Brothers had gone bust and the US stock market had fallen some 45% from its peak. Fast forward to 2020 and there can be little doubt that the global economy entered recession in March, an event few were
predicting as recently as February.
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Coming to terms with market turbulence
As a direct consequence of the COVID-19 outbreak, global stock markets are suffering a period of turbulence. When markets move significantly it can prove very challenging to hear through the noise and focus on the bigger picture.
Lessons from history
Over recent years many investors have become used to a variety of political, financial and economic factors impacting markets, from the Brexit Referendum and subsequent prolonged uncertainty, to the global financial crisis and even further back to the dotcom bust in the early noughties. Although markets do not respond well to periods of uncertainty, fluctuations go hand in hand with stock market investment; and while market movements can be concerning, experience has taught us to expect the unexpected.
It is important to remember that some market turbulence is inevitable; markets will always move up and down. As an investor, putting any short-term fluctuations into historical context is useful. Investors with diversified portfolios, who stay in the market, have typically been rewarded over time.
Plan and focus, be strategic
Instead of being too worried by turbulence, the best strategy is to be prepared. It is best to stick to your well-defined plan and diversify your holdings, as well as expecting and accepting market movements. Your plan will be tailored to your objectives, in line with your attitude to risk and will take into account your financial situation, which will stand you in good stead to weather short-term market fluctuations.
In it for the long haul
Even though it can be difficult to ignore daily market movements, it is vital to focus on the long term, and remember that turbulence also presents investment opportunities. Investment requires a disciplined approach and a degree of holding your nerve if markets descend. Investment professionals know that markets can fluctuate and will inevitably go down as well as up from time to time. The worst investment strategy you can adopt is to jump in and out of the stock market, panic when prices fall and sell investments at the bottom of the market.
Keep calm and carry on
On the day of the Budget, the outgoing Chairman of the Bank of England, Mark Carney and the Chancellor, Rishi Sunak, were keen to highlight the temporary nature of the downturn, that is worth bearing in mind. Both the BoE and the Chancellor have taken steps to support the UK economy, which should also help to calm the markets. The BoE has cut interest rates on two occasions and expanded its bond buying programme, known as quantitative easing. Meanwhile, Mr Sunak announced a package of emergency measures for UK businesses worth £350 billion.
As Rudyard Kipling wrote, it is important to “keep your head when all about you are losing theirs” – a clear head will certainly stand you in good stead through these challenging times.
Coming to terms with Market turbulence is a timely reminder to keep your investments under regular review – that is what we do best. Please rest assured we are working hard to manage the fluctuations, so your money has the best chance of growing for the future.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
Please contact us using the link below if you would like to discuss this or any other area of your financial planning needs
Openwork Investment Committee – Investor Update March 2020. In this difficult time, we hope that you and your family are all well and managing through this extraordinary and tough period.
The Openwork Investment Committee met on Tuesday 24 March and we would like to reassure you that while your investment values are likely to have fallen in the short-term, we are confident that all processes are being followed correctly.
We discussed all the following investments, some of which you may hold:
• Omnis Funds
• Openwork Graphene Model Portfolios
• Omnis Managed Portfolio Service
• Openwork Portfolio of Funds
• Openwork Recommended Funds
• Prudential PruFund
• VCT and EIS Products
There are a number of points that we wanted to highlight to you.
As you have seen, global equity markets fall and the value of your own investments fall as well. It is natural that some of you will be wondering whether you should sell your investments and move to cash or some other “safe haven”. Our strong message to you is stay invested.
Focus on the investment objective that you set with your Financial Adviser at the outset and trust the process.
History shows that as night follows day, global equity market recoveries follow global equity market falls and it is damaging to miss out on the recovery days. We even saw this yesterday when the FTSE 100 Index had its second best day ever rising by 9.1%. It was similar in the United States where the Dow Jones 30 rose by 11.4%. If you had moved to cash 24 hours earlier, you would have missed out on these gains.
Understand Your Attitude to Risk
We know that you will have discussed your Attitude to Risk and your capacity for loss comprehensively with your Financial Adviser. We are delighted that this process appears to have really worked during this extremely short-term volatile period.
If you are a Cautious investor, you have been protected from the extreme falls of global equity markets. In fact, if you are invested in the Openwork Graphene C1 Cautious Model Portfolio, your
investment will have fallen by less than 1% over the last 12 months, compared to the FTSE 100 which has fallen by over 20% (Source: FE Analytics).
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