Monthly Archives

December 2023

Reflections on 2023

By | Financial Planning

As 2023 draws to a close, we can reflect on a year when relative calm returned to investment markets after an extended period of market turbulence due to the pandemic, war in Ukraine and global inflationary spike. The level of volatility – that is to say the amount markets move up and down over time – has fallen as the year progressed and has recently touched record low levels not seen since 2020.

There have, however, been moments when market volatility has spiked. The failure of Credit Suisse and Silicon Valley Bank in March briefly threatened another banking crisis, although regulators stepped in and took appropriate action to avoid contagion spreading. The start of hostilities between Gaza and Israel also temporarily put markets on the back foot. Market direction has, however, largely been dictated by expectations that central banks would look to change tack, and begin to cut rates after a rapid series of hikes. Economic data – particularly in the US – has been stronger than expected throughout the year, which has led to the Federal Reserve and others raising rates further than many market participants had expected.

Recent comments by central bankers, particularly in the US, have suggested that the long awaited “pivot” is finally here. Investors have been eagerly anticipating the point at which central banks call time on the hiking cycle which has dominated sentiment since early 2022. This has led to a strong return over recent weeks as markets end the year in an optimistic mood, with the expectation that rates will be cut next year.

Technology dominates returns

The so-called “Magnificent Seven” technology stocks have been responsible for a good proportion of the gains achieved by markets during 2023. The performance of Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla have not only driven US market returns, but also global markets, due to their combined market capitalisation. Our portfolio strategies have continued to hold good exposure to these tech giants, despite challenging valuations in one or two cases.

Inflation back under control

Inflation, which was the major cause of the market gyrations last year, appears to be back under control. As we entered 2023, inflation stood at 10.5% in the UK and 6.5% in the US. Partly due to actions taken by central banks, inflation has more than halved in both the US and UK. Whilst the current rates of inflation continue to run at elevated levels when compared to the target rate of 2%, the trend is firmly lower, and we feel that central bankers run the risk of inflation undershooting medium term targets if they maintain restrictive monetary policies for too long.

Bonds fight back

2022 will be recorded as being one of the worst performing years for fixed interest investors since records began. The rapid series of rate hikes and inflationary spike led to yields rising substantially over the course of the year. Whilst the early stages of this year saw Bonds move sideways, recent performance has been more encouraging, as markets look to a change in direction from the Federal Reserve, Bank of England and European Central Bank in 2024.

London loses its’ lustre

The London stock exchange appears to be losing its’ appeal for companies who wish to list on public exchanges. Chip designer ARM holdings made the decision to list on the New York Stock Exchange earlier this year and other significant moves overseas have included Irish building materials company CRH. In our opinion, this only reinforces the importance of taking a global approach to investment and to avoid investment strategies that are too concentrated in domestic Equity funds.

Geopolitical tensions

Geopolitical events have continued to have an influence on markets over the course of the year. The conflict in Israel and Gaza, which commenced in October has, to date, had a limited impact on market sentiment. Naturally, any escalation in the conflict could have a significant impact on oil prices, which in turn would increase volatility in global markets.

The Russia-Ukraine conflict continues, although it is becoming more evident that the economic damage was caused last year, and investment markets have paid less attention to events in central Europe over the course of the year. Another possible area of concern is the potential for China to invade Taiwan. This threat should not be ignored, and again, this would have a significant impact on market sentiment in the event of increased tensions between China and the US.

Whilst external events have had less of an impact this year than say in 2020 or 2022, investors always need to be mindful that events beyond the control of markets can influence sentiment and momentum. For this reason, we recommend that investment strategies are reviewed regularly so that they remain appropriately invested in response to global events.

What is in store for 2024?

Unless we see a significant turnaround over the remaining trading days this year, global markets will end the year higher and investors will be able to reflect on a more representative market performance, after a difficult period of volatility in recent years. Compared to the tentative mood twelve months ago, markets are showing a degree of confidence that the worst may be behind us.

We will take a look at our thoughts for the year ahead in the first edition of Wealth Matters in 2024. We take this opportunity of wishing all of our readers a pleasant Christmas break and good health and happiness in 2024.

12 quick ways to review your financial plans this Christmas

By | Financial Planning

The run up to the festive period is traditionally a busy time for many; however you may find time over the Christmas holiday period to sit down and review your financial position.

Data from H M Revenue and Customs suggests that this is precisely how some individuals use their down time over the Christmas period. Last Christmas saw 22,060 individuals file their Self Assessment Tax Returns between Christmas Eve and Boxing Day last year, with 3,275 filed on Christmas Day itself.

With the festive season looming, we thought it would be a good opportunity to take a brief look at 12 ways you can bolster your financial plans over the Christmas period and into the New Year.

Think about this year’s Individual Savings Account (ISA) allowance

In the current Tax Year, each UK resident is entitled to save £20,000 into an ISA, where those savings or investments are exempt from tax on interest and capital growth. The increase in cash interest rates over the last year could lead to many more individuals paying tax on interest from savings held outside of an ISA. Using the ISA allowance will shelter cash from both Income Tax and Capital Gains Tax.

Consider your protection policies

It is a sad fact that many people have insufficient financial protection in place to safeguard their loved ones. Research undertaken by Direct Line Insurance in 2022 found that only 35% of those questioned hold life assurance. Separate research from Charles Stanley suggested only 7% of individuals have either a Critical Illness or Income Protection policy in place.

The end of the year can be a good time to take stock and ask yourself some honest questions about the robustness of your financial plan. Would your spouse and children cope financially if you suddenly died or became seriously ill and could no longer earn? Are your current protection policies still up-to-date and appropriate for your needs?

Review your CGT allowance

The Capital Gains Tax (CGT) allowance has already more than halved this Tax Year and is expected to halve again from 6th April 2024. Making best use of the allowance is now more important than ever, and it would be sensible to undertake a review of an existing investment portfolio to consider whether any action is needed.

Make use of annual gift exemptions

You are allowed to gift up to £3,000 in each Tax Year, without considering the Inheritance Tax (IHT) implications. There are additional exemptions that may be available, depending on your circumstances. If you are looking to reduce the potential impact of IHT on your Estate, making regular gifts can be a useful way of mitigating an IHT liability, in conjunction with other tax planning strategies.

Review your pensions

Assuming you are not affected by rules such as the Money Purchase Annual Allowance (MPAA) or Tapered Annual Allowance, you can contribute up to £60,000 into your pension (or up to 100% of your salary – whichever is lower) in the current Tax Year. It may also be possible to carry forward unused allowances from previous tax years.

Pension contributions can be a great way to save towards your retirement in a tax-efficient manner, and as pensions are usually exempt from IHT,  a pension can also shelter funds for loved ones on death outside of your Estate.

Take stock of your mortgage

For many people, their mortgage is their biggest liability and monthly outgoing. The hike in interest rates over the last year has led to increased payments for those on a Standard Variable Rate mortgage. For those currently on a fixed rate deal, it would be sensible to start to consider your position when the current deal expires.

Consider joint tax allowances

If you are married or in a civil partnership, then it is possible to transfer assets to your partner to make use of their allowances if available, as well as your own, or to be taxed at lower rates, if applicable. For instance, CGT can be avoided or reduced by using both allowances to share a capital gain.

Check emergency funds

Whilst everyone has a different view about the balance that would ideally be kept in a current account, we feel it is sensible to keep at least three to six months of outgoings accessible to cover any emergencies that could arise. Take time over Christmas to consider the level of cash you are holding to see if you feel comfortable. If the balances you hold are higher than you need, could you move some of the surplus cash to another home where it could be more productive?

Review your credit rating

Checking your credit score at various points throughout the year can be a good idea, as it can affect important areas of your life such as mortgage applications. There are a number of useful online resources that allow you to check your credit score.

Make sure you have completed an Expression of Wish

If you have a workplace or private pension, completing an Expression of Wish form with your provider will let them know who you’d like your pensions savings to go to if you die. It is worthwhile reviewing the nomination regularly to make sure that it continues to reflect your wishes.

Check your State Pension forecast

By using the Government Gateway service you can receive a State Pension forecast, which will indicate your likely State Pension and the date at which it is payable. It will enable you to identify any gaps in your National Insurance record, and check whether any action is needed.

Speak to one of our advisers

Make it a New Year resolution to undertake a comprehensive review of your financial circumstances. Speaking to an independent financial planner can help identify areas that you may have missed, and undertake a comprehensive and holistic review of your current position and whether you are on target to meet your needs and objectives. As a Chartered Firm, our advisers are highly experienced and can take an impartial review of your finances. Speak to one of our advisers to arrange a review.

Reviewing trust investments

By | Trusts

We come across many instances where trustees of an existing trust have carefully considered an appropriate investment strategy when the trust commences, giving due consideration to the terms of the trust, and the requirements of the Trustee Act. So far, so good; however, we equally come across trusts where funds have remained in the same investment strategy for many years, without any detailed scrutiny of the investment process or investment performance.

Investment management is an evolving process. Looking back over decades, the composition of a modern investment portfolio is very different to a portfolio that would have been seen as being appropriate years ago. In recent years, investment trends have increased the focus on passive investment funds, which offer a low-cost way of accessing a particular market index. Active fund managers now pay greater attention to environmental, social and corporate governance factors when constructing portfolios. These, and other factors, can influence portfolio performance, and with an increased focus on value for money, the costs of investment funds and fund management.

Reviewing investments

Keeping the provisions of the Trustee Act in mind, trustees should seek professional advice when carrying out a review of trust investments, unless they feel competent to carry out the review themselves. Our view is that reviews should be carried out at least once a year, and possibly more frequently, depending on the trust situation. The review should, of course, consider the portfolio performance, and adopting an appropriate benchmark can help trustees measure the performance of the portfolio against wider markets.

When investments are managed on an advisory basis, trustees should seek advice as to whether the current portfolio remains suitable given the prevailing and expected market conditions, and if any of the investments should be switched. If the portfolio is managed under discretion, it would be good practice to carefully analyse the decisions reached by the discretionary manager over the review period, and to ensure that the portfolio investments remain consistent with the original investment brief agreed at the outset.

The importance of diversification

Over recent years, our experienced advisers at FAS have reviewed the trust investment strategies of a large number of trusts, which are managed by some of the biggest providers of discretionary managed services to professional and lay trustees. We have noted that many of these solutions tend to employ strategies that are focused on UK equities, and carry an underweight exposure to global equities, which may introduce additional risk, given the dominance of overseas Equities. To demonstrate, 70% of the MSCI World Index (which covers the largest 1511 global quoted companies) is weighted towards US equities, with just over 4% allocated to the UK. Whilst carrying such a small allocation to the UK is, in our opinion, a little extreme, it does underline the importance of global diversification in modern portfolio construction.

We have also noted that some discretionary managed strategies tend to offer unattractive income yields, which may not be appropriate where trustees are not only seeking capital growth, but need to produce a strong level of natural income which is paid to a life tenant. As the circumstances of a trust can differ widely depending on the position of beneficiaries, the time horizon and objectives, trust investment strategies need to be able to adapt to meet the precise requirements of the trust.

Review the trust and tax position

Other than considering the investment strategy, trustees need to regularly consider whether there is any change to a beneficiary’s requirements. For example, are minor beneficiaries close to reaching the age when they receive capital from the trust, and if so, should the trustees consider reducing investment risk. Or perhaps a life tenant’s circumstances have changed, which may mean a switch of portfolio strategy is needed.

Tax rules are also subject to frequent change, and trustees need to keep abreast of how any changes could affect their decisions. A good example of this is the reduction in the Capital Gains Tax allowance, which has more than halved in this Tax Year and will halve again from 6th April 2024. This will undoubtedly lead to more trusts being liable to Capital Gains Tax on a regular basis. Relevant Property Trusts are subject to a punitive tax regime, and by careful review of the various investment wrappers that are available, it may be possible to reduce the burden of tax on the trust. One such example is the use of an investment bond as a way of avoiding Capital Gains Tax considerations.

FAS Trustee Service

As you would expect, we regularly undertake detailed analysis of our portfolio performance and as part of this review, we consider the performance of some of the more common managed portfolio services offered by the largest providers of trust investment management services, and compare these to the performance of our CDI Discretionary Managed portfolios. We carefully monitor not only the raw performance data, but also other factors such as volatility and risk, which are important factors that trustees need to consider, together with fund charges and the management fee structure.

This regular review allows us to make comparisons of our performance against our peer group, and our analysis shows the performance of our CDI portfolios has been favourable when compared to some of the more popular discretionary managers who provide services to trustees. We have a well-defined investment process, which makes best use of our independent status. This allows us to select funds and solutions from the widest range of UK fund managers, allowing us to select the most appropriate investments without restriction.

If you are a trustee, it may be a good time to consider how your investment reviews are carried out. Speak to one of our experienced advisers, who would be pleased to carry out an independent and impartial review of the existing trust investments.