Red and yellow paint being mixed with a paintbrush

Passive funds or active funds? Here’s why you need a blend of both

By | Investments

Active fund managers outshone passive equivalents during 2020. Here, we look at the pros and cons of active and passive investing and explain why a well-diversified investment portfolio should contain elements of both.


The reputation of the active fund management industry has taken a bit of a pasting in recent years, although active fund managers fought back strongly in 2020. According to research carried out by Quilter, active funds outperformed their respective markets in seven out of the ten major investment sectors, including the UK Smaller Companies and UK All Companies sectors, as well as the indices for Japan, Emerging Market Equities and Global Equities.


What are ‘active funds’?

As a quick reminder, ‘active fund management’ is when a fund manager, or a fund management team, is in control over the investment and takes responsibility for the performance of the portfolio overall. Active funds usually aim to outperform a benchmark such as the FTSE All Share Index and will build a portfolio comprising those companies it thinks are worth holding.

Active fund management is all about decision-making. We are talking about real human beings, making real-time investment assessments, and changing their portfolios accordingly. Active fund management, as the name suggests, is a full-time, 24-7 job. And it is expensive, with all those costs reflected in the charges that investors can expect to pay in management fees. Therefore, it comes as no surprise that active fund managers face heavy criticism when they fail to outperform their benchmarks. Because even with the best available fund managers, there is no guarantee that the fund itself will deliver a better return.


And what about ‘passive funds’?

As the name also suggests, a passive fund does not have a decision-maker at the helm. Instead, passive funds usually aim to match the performance of an index or a particular sector of the market. The most common types of passive funds are index trackers or exchange traded funds (ETFs). In the case of a FTSE All Share tracker, for example, the fund will hold shares in every single company listed in that index, and its performance will fall or rise in line with the entire market.

Because there are no fund manager salaries to pay, and no research or trading expenses, it means that passives are much cheaper to invest in over the long term. Furthermore, you are achieving the same level of performance as the index, which is great news when markets are in positive territory, but less welcome when markets are experiencing periods of heavy volatility.


Active managers responded well to coronavirus

That is precisely what happened in 2020. In the early weeks of the coronavirus pandemic, stock markets across the world fell dramatically, as the potential implications of extended lockdown started to be felt. But over the course of the year, it soon became clear that the pandemic would lead to some companies emerging as ‘winners’ and other less-fortunate companies would be ‘losers’. This resulted in a sharp recovery in equity markets, with tech companies doing particularly well.

Successful active managers were able to react to the stock market falls and move their portfolios away from owning those stocks less likely to do well during lockdown, and at the same time increase their investments in those companies capable of making big profits – in some instances buying them up at bargain prices. Passive funds, on the other hand, had no such opportunity. In a market sell-off, passive funds will simply follow the market lower, unable to get rid of those unfortunate ‘losers’ that are dragging overall returns down.


So, which is better?

Of course, one poor year doesn’t make passive funds a bad investment, just as one good year doesn’t necessarily mean you should only own active funds from now on. At FAS, we believe well-diversified investment portfolios should feature a blend of both active and passive funds. But it’s important to look for those funds that offer value for money.

For example, passive investments offer the potential for better returns when shares are generally moving together in the same direction. So, they can be used as a cost-effective way to gain broad investment exposure to particular markets, acting as essential long-term building blocks in a portfolio.

However, sometimes the stock-picking skills of an experienced and well-researched fund manager can give the fund a definite edge over its competitors – helping to generate valuable risk-adjusted returns. Plus, the ability for these fund managers to adapt to changing events and swiftly ‘change course’ can prove invaluable during periods of market turbulence. In these instances, additional returns achieved by the best fund managers can more than justify the fees they charge.



Low-cost investments might seem like a sensible choice, but good investments are usually worth paying that bit extra for. The good news is that you do not need to make a choice between active or passive funds, and we can help you to decide on the best way to capture the benefits of both within your portfolio.

If you think now might be a good time to review your investment holdings, and to take a more ‘blended’ approach, please get in touch with one of our advisers who’d be happy to discuss some investment options with you.


If you are interested in discussing your investment portfolio with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Man and woman in hard hats pointing towards wind turbines

Building back better: why everyone’s talking about infrastructure investing

By | Investments

With countries all over the world determined to recover from the pandemic, infrastructure looks likely to be a prominent investment theme over the next few years. We look at some of the biggest areas of infrastructure investing and assess the positives and negatives for investors.


The building of bridges, railways, and motorways are all examples of high-profile infrastructure developments, while schools, prisons, and hospitals are all just as essential to a functioning society, and the demand for infrastructure spending may well increase as a result of Coronavirus. Governments in developed markets, including the UK and the US, have promised to “build back better”, and see infrastructure projects as a way to create more jobs and boost long-term economic growth. As a result of this, we can expect more announcements of projects that move away from ‘traditional’ concepts of infrastructure, and towards next-generation projects, such as smart motorways and intercity transit, 5G base stations and renewable energy installations, and electric vehicle charging points.


Infrastructure as an investment

It’s no surprise then, that there has been growing interest from investors who see infrastructure as an excellent long-term investment opportunity. But there are other benefits too. Just like property, infrastructure is a tangible asset to hold, which makes it altogether easier to understand, and therefore easier to invest in.

It is also worth noting that the infrastructure sector has also proven to be a reliable source of investment returns. Again, the tangible nature of infrastructure means it can provide investors with a predictable and regular stream of cashflows over several years – often linked to inflation. And, because infrastructure projects are backed by government public sector spending, the project risk is usually shared.

Investments that offer a reliable repeatable cashflow are very appealing, but many investors are only starting to recognise the role that infrastructure investments could play as part of a diversified mix of portfolio investments.

Within the investment universe, infrastructure is considered as part of the ‘alternatives’ sector, sitting alongside property investment, renewable energy, bonds, debt, and specialist finance, as well as the less accessible but well-established areas of private equity and hedge funds. All of these are considered ‘alternative’, as they are expected to produce returns with very little in common with the returns available from equity investments. Because of this, a ‘diversified’ portfolio is likely to feature an allocation towards alternatives that aim to achieve returns in periods when equity markets perform less strongly.


A move away from traditional investments

Alternatives have surged in popularity as more investors (of all shapes and sizes) have grown frustrated with the old-fashioned ‘balanced’ model of investing, where the belief is that holding both higher return/higher-risk equities and lower return/lower-risk investments in bonds effectively gives investors lower volatility and smoother returns throughout the investment journey – regardless of any stock market ups and downs.

The biggest problem with that approach is that with government bond yields stuck at historic lows, bonds are offering little or no return for investors, and are therefore not really justifying their place within portfolios. So, at a time when we are all questioning the old ways of doing things, it might be time to rethink those traditional labels of ‘mainstream’ and ‘alternatives’. Infrastructure could then be viewed as overtaking bonds as an asset class capable of providing useful portfolio diversification – with little correlation to riskier equities, but capable of providing inflation-linked returns and a steady stream of positive income.


Infrastructure trends to think about

So, if you are considering investing in infrastructure, are there any specific areas worth focusing on? You might want to start with infrastructure investments that focus on renewable energy. Back in 2015, 193 countries signed up to the United Nations General Assembly’s Sustainable Development Goals (SDGs). If governments across the globe are serious about achieving some or all of these goals, they will need to implement infrastructure spending covering areas such as solar and wind projects designed to help accelerate the transition towards a low-carbon future.


Digital infrastructure

Another fast-growing area involves digital infrastructure. If 2020 has taught us anything, it is that people have become increasingly dependent on digital access. Working remotely, shopping through e-commerce, and spending more of our leisure time at home (and in front of our computer or TV screens) has accelerated the global demand for fibre-optic networks, telecommunication towers, and data centres.

You may think that internet activity – whether that means using emails or streaming films on Netflix – is these days mostly carried out ‘in the cloud’. But data centres are the buildings used to house computer systems, servers, and storage. These data centres and exchanges rely on a largely unseen network that requires millions of miles of fibreoptic cable, cellular base stations, towers, and countless signal transmitters. Demand for data centres and associated components has increased dramatically over the last 12 months, and this demand only looks like increasing in the future.


How to invest in infrastructure

As an asset class, infrastructure used to be the preserve of big money institutional investors. But today there is a range of different investment vehicles that offer infrastructure exposure to individual UK investors, either in the form of open-ended funds or investment trusts. Investment trusts tend to own the physical assets (such as wind turbines, data centres, or toll roads), whereas open-ended funds invest in the equities of the companies that operate in these sectors. These include the major engineering and construction firms that are contracted to plan and deliver on large infrastructure projects, as well as companies that supply the tools and equipment.

As a result, we expect the number of funds – focusing on all different aspects of infrastructure – to increase from here. But as with any type of investment, it is important to understand the structure of the investment (particularly whether it is an investment trust or an open-ended investment), where it expects returns to come from, and to determine whether the risk is appropriate for the available reward. We would also argue that now infrastructure investing is becoming more fashionable, it is even more important to choose those investments managed by companies with a good track record, who manage risks appropriately, and who do not promise returns that are too good to be true.



The coronavirus pandemic may well present an opportunity to “build back better”, and to replace old ways of living with new ones. As a result, infrastructure looks like becoming an important investment trend for years to come, and we expect it to play an increasingly prominent role within investment portfolios.


If you are interested in discussing your financial plan or investment strategy with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Man jumping on trampoline

A (brief) history lesson on the resilience of stock markets

By | Investments

We’ve grown accustomed to a regular diet of bad news in recent years, and how negative headlines have wreaked havoc on stock markets. But investors should feel encouraged that stock markets often bounce back far sooner than you might expect.

Anyone who expected 2021 to begin in a more positive and optimistic fashion has probably been brought crashing back down to earth after the events of the year so far. But while the world is full of worries at the moment, it’s important to remember that the investment world approaches things very differently. In fact, stock markets have a long history of recovering strongly after big shocks, which makes it even more important for investors to hold their nerve during tough times.


‘Climbing the wall of worry’

Climbing the wall of worry was an investment phrase that originated in the 1950s. It means that during periods of economic or financial shock or stress, investors will continue to trade, and stock markets will keep rising as a result. The history books tell us that global stock markets have not only managed to survive negative events but have ultimately thrived.

However, what’s noticeably different now compared to previous periods of crisis is the shorter timeframe it takes for stock markets to absorb shocks and regain their composure again. This is due, in a large part, to the determination of governments and central bankers to take significant steps to prevent a crisis from turning into a depression.


The Wall Street Crash

The ‘Great Depression’ that took place during the 1930s began with the Wall Street Crash in October 1929. Throughout the 1920s, US stock markets enjoyed rapid expansion, but this started to slow down markedly towards the end of the decade. As production began to fall back, unemployment started to rise, and prices began falling. On 29 October 1929, the Dow Jones stock market fell 12%. But the aftershocks of ‘Black Tuesday’ continued to be felt for years after. By 1933, unemployment in the US had risen to 25% of the total workforce.

The lessons learned from the Wall Street Crash – and the Great Depression that followed – remain applicable today: the best way to stave off years of economic depression and hardship for millions is to provide emergency measures designed to stimulate the economy, prevent mass unemployment, and keep things moving. Even so, despite US President Franklin Roosevelt launching the historic ‘New Deal’ stimulus measures, it took stock markets a full 25 years before they returned to their pre-crash peak.


Black Monday

The experience gained after the Wall Street Crash managed to help stock markets to recover from the ‘Black Monday’ crash that took place in October 1987. This time, a number of events – such as the slowdown of the US economy, oil price fears, and automatic selling from newly computerised trading systems – converged to create an overwhelming sense of panic among investors. Back then, using computers to conduct large scale stock market trades was a relatively new concept, and the rules that meant systems would sell stocks when they fell to specified levels created a “death spiral” of selling. By the end of the day, 22% had been wiped off the value of the Dow Jones, and stock markets across the world were also badly affected.

Even so, this time the stock market recovered very quickly, boosted by the decision taken by central banks to reduce interest rates to help keep money circulating in the financial system. Investors soon regained their appetite, and just five years later (and after some measures were introduced to prevent a repeat of the computerised selling) stock markets were rising again by around 15% per year.


The tech bubble

The next big test for investors came with the commercialisation of the Internet in the 1990s, which led to the dramatic ‘dotcom’ boom and bust at the turn of the century. Back then, investors were almost euphoric about the possibilities of internet-based companies, and the value of shares in vastly-hyped companies – most of which had never made a profit – reached ridiculous levels.

This time, central bankers had tried to intervene and rein-in excessive speculation in tech companies by raising interest rates – the US Federal Reserve raised rates three times in 1999 and twice more early in 2000. But there was little they could do to prevent the dotcom mania. In March 2000, the bubble began to burst. The Nasdaq index that lists US tech companies fell by more than 20%, and by October 2002, the Nasdaq was down 80% from its March 2000 peak. This meant that trillions of dollars in paper wealth disappeared almost overnight. It took another 13 years before the Nasdaq fully recovered to surpass its previous high point.


Global Financial Crisis

But the biggest test for investment markets, the broader impacts of which are still being felt many years later, came with the ‘Global Financial Crisis’ of 2007/2008. This time, stock market crashes became a full-blown economic crisis after the collapse (and subsequent rescue) of banks that had invested in bad loans and toxic assets – it created shockwaves throughout the world. According to the International Monetary Fund, large US and European banks lost more than one trillion dollars, forcing bailouts that would lead to economic austerity for a decade.

In the UK, the FTSE 100 fell 31% in 2008. In the following year, UK gross domestic product (GDP) shrunk to -4.2%, and the unemployment rate rose to 7.9%, before reaching an all-time high of 8.1% in 2011. Perhaps you may recall this difficult period. But while the negative effects of the Global Financial Crisis lived on for many years, investment markets recovered quickly. The Bank of England acted decisively to lower interest rates to record levels and offered previously unheard-of levels of financial support. The measures worked, and in 2009, the FTSE 100 recovered by 22%.


The COVID pandemic

A similar pattern – crisis followed by rapid recovery – has taken place since the coronavirus pandemic caused economies across the world to enter hibernation in the early months of 2020. The initial shock prompted panic selling among investors. Global equity markets fell more than 35% in March 2020 and falls continued throughout April. But investors regained their composure when it became clear that governments and central banks would act to do whatever it took to prevent another Great Depression.

Another important factor was also noticeable during the early months of the pandemic. The reality is that companies are adept at adapting and evolving, and entrepreneurship is about thriving in testing times. Investors were, therefore, able to identify those companies that would do well during lockdown, tech companies for example, and these companies performed well throughout 2020.


What should investors do?

Let’s be clear – we’re still in the middle of the global pandemic, so it’s too early to chalk this one up to experience. And while it’s important to recognise that investment markets have shown great resilience in recovering so quickly, there’s clearly a disconnect between the performance of companies and the economic hardship that so many people faced during 2020 and are still likely to face in the months – perhaps years – ahead.

But from an investment perspective, it’s encouraging for our investors to feel reassured that negative economic and life circumstances don’t necessarily lead to negative returns. As history tells us, equities have always been a volatile investment, but that definitely does not mean they are a bad investment. People often make the mistake of selling when markets fall heavily, and only start investing again when markets have rebounded. But even during times of crisis, when people have experienced dramatic falls in the value of their investments, we’ve seen time and again that those losses can be recovered within a few years, provided you stay the course. Because the longer you remain invested, the more likely you are to make a gain.

There’s no doubt that the current climate remains a difficult one for investors. But decade after decade, the market has demonstrated its ability to climb the ‘wall of worry’ and to focus on finding investments with a good chance of future success. That’s as true now as it has always been.


If you are interested in discussing your financial plan or investment strategy with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Businessman using laptop to look at dividends

What are the prospects for dividend income in 2021?

By | Investments

After a traumatic 2020 for dividend-paying companies, when a number of traditional stalwarts were forced to cut or suspend their dividends, we look at whether we can expect a return to dividend payments in the year ahead.


Why are dividends important?

UK investors have always had a love-affair with dividend-paying companies. For example, many retirees invest in companies known for their dividend payments because they can be relied on to pay a consistent and strong level of income, year in, year out.

But it is not just the man in the street who is attracted to income-paying companies. Most pension funds own large quantities of dividend payers for the same reasons. One of the reasons the FTSE 100 index has been historically popular with investors is that its average dividend yield is usually between 4% and 4.5%. During an extended period of low interest rates, this makes dividend-paying companies very attractive within any investment portfolio.

What’s more, earning a regular income through dividend-paying companies can help you to grow the value of your investment pot significantly over the years, especially if you use the income payments to purchase additional shares – which in turn also pay out future dividends.

So, it is no surprise that investing for dividends is important to UK investors, and no coincidence that the UK has long stood out as offering a higher dividend yield (how much a company pays out compared to its stock price) than most other countries.


A difficult period for companies

Dividends are usually considered to be a good sign that a company is doing well, and has plenty of spare cash in the bank. But the UK’s reputation for dividend payments took a battering during 2020.

The coronavirus pandemic caused a global shutdown during the first few months of last year, forcing companies to take widespread, and often drastic, measures to keep operating during a period of uncertainty.

Dividends were an obvious place to start, and according to research carried out by GraniteShares, almost 500 companies listed on the FTSE 100, FTSE 250, and AIM stock markets either cut, cancelled, or suspended their dividend payments during 2020. As a result, the FTSE 100 average dividend yield for 2020 overall ended up at a significantly lower 2.98%.


Which companies were affected?

Some of the biggest dividend payers come from the oil, banking, and property sectors. Within the oil sector, after a year when travel became a non-starter for millions of people, BP cut its dividend by half after reporting a $6.7 billion loss in the second quarter of 2020, while Shell reduced its dividend by two-thirds – the first time it cut its dividend since World War Two. After the shock of 2020, and the increased pressure on oil producers to invest in the transition towards renewable energy, the prospects for a return to past dividend highs looks uncertain for now.

However, a return to normality looks more promising in those two other sectors. Companies operating within the UK banking sector – including HSBC, NatWest, Lloyds, and Barclays – stopped paying dividends in March, following recommendations from their regulator. The concern was that banks needed to keep more capital on hand in order to absorb financial losses from non-payment of loans. This concern appears to have been overstated, and following upbeat reports in the third quarter of 2020, the Bank of England has said banks are cleared to announce dividends as part of their next financial results in 2021.

Within the property sector, companies such as Land Securities and British Land cancelled their dividend pay-outs to conserve cash early during the pandemic, after heightened fears that their tenants would fail to keep up with rent repayments. But both have announced they intend to restart dividend payments in 2021.


What’s likely to happen now?

A return of companies paying dividends would be an important and positive development in 2021, and with banks and property companies expected to return to making payments soon, the signs are encouraging.

That said, expecting a return to previous levels of dividend payments seems optimistic. The coronavirus has made life difficult and even accelerated the decline of companies in certain industries – which is likely to reduce the average dividend yield in the UK market for some time to come. Most companies are likely to start paying dividends at more sensible levels to protect their business in the long run, which is no bad thing.


What should investors be thinking about?

Stocks with a good history of paying consistent and growing dividends will always be appealing to investors. But you should avoid investing for the promise of a dividend alone – it is just one of many factors to bear in mind, and companies can change their dividend policies at short notice, as seen during 2020.

If you hold some UK shares that are there solely for their dividend-paying prospects, now might be a good time to reassess their place in your portfolio, and consider some of the other investment options available to you. For example, the UK is no longer the only place to find great dividend-paying companies. You might be better off switching your investment into a fund that looks at other countries, such as the US, Japan, and the Asia-Pacific region. There are other income-generating investment options available too, so this might be a good time to refresh and refocus your portfolio.


If you are interested in discussing your investment strategy with us, please get in touch with one of our experienced financial planners here.


The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

clouds shaped in numbers reading '2021' in the sky

Five positives for 2021

By | Investments

Now that 2020 is behind us, everyone is ready for a fresh start. We wanted to share five reasons why 2021 may well be positive for investment markets, and why now’s a good time to get your finances in the best working order.


One: The economic recovery is in sight

Repeated lockdowns during 2020 led to a sharp slowdown in economic activity and as we move into the third national lockdown, the economic uncertainty may well continue in the short term. However, with vaccines being introduced globally in 2021, we expect to see a sharp rebound in economic activity later in the year. But even if activity comes back strongly, that does not necessarily mean companies and markets will benefit. As markets tend to be forward-looking, current equity valuations already now include expectations of the ‘2021 rebound’.

Markets did surprisingly well during 2020, but much of this was due to the support offered by governments and central banks to prevent companies from going under. To make headway from here, investors will want to see that already-expected economic growth clearly translate into company profits. For us, the biggest factor that makes the equity outlook positive is central bank policy. Since government bonds should remain at historically low levels for the foreseeable future, equities have the yield advantage, which means investors will continue to favour buying stocks over bonds. Provided central bankers keep their nerve and continue to offer support (instead of withdrawing it too soon), equity markets should make forward progress, although at a slower rate than in 2020 overall.


Two: Brexit means UK businesses can finally look forward

Regardless of how you voted during the referendum back in June 2016, Brexit has become an unhealthy preoccupation over the past five years, casting a shadow over the economy and UK equity markets. Now we have finally said our goodbyes, at last, there is an end to the constant state of uncertainty that was causing so much damage to British businesses. Clarity on transition conditions will finally allow businesses to plan for the future.

Many investment analysts believe that this uncertainty has been holding British companies back and that from here, things can only get better. UK equities have been so unloved by investors in recent years that it looks hard to justify their lowly relative valuations. Even if UK growth lags behind the rest of the world, there are many good British businesses that will continue to prosper after Brexit, which could see UK stock markets do surprisingly well in 2021. That said, much will depend on the economic policies that the UK decides to pursue. The Bank of England certainly played its part during the worst of the coronavirus pandemic, by lowering interest rates and providing liquidity for markets. But Brexit means more expansionary policies will now be needed.


Three: The US election result has been well received by investors

US investors took heart that a decisive result was determined in the election and that a smooth transition of power is now likely. Whilst some would question policy decisions made by the White House of late, action taken by the US Federal Reserve has been more decisive. As well as setting short-term interest rates at zero and keeping long-term bond rates low through extensive asset purchases, the Fed also used the tools at its disposal to offer emergency funding for companies that saw most of them through the economic shutdown. Even so, the US is by no means out of the woods, so we expect the Fed will stick with a ‘lower for longer’ policy on interest rates, and continue to commit to supportive economic policies, even as growth begins to return. We consider this to be a positive for long term US economic growth, and for investment markets on the whole.

Incoming President Joe Biden will have his work cut out, especially during the early months of his presidency. But environmental policy is one area where Biden could make a real difference, repairing international relationships and accelerating some of the investment trends (around technology, commodities, and energy) that ‘green’ policies demand.


Four: China and the rest of Asia can set the pace

Asian countries in general have suffered less economic damage due to the pandemic, as highlighted by China’s early and substantial return to growth. South Korea and Taiwan also handled the spread of the virus well and have been able to keep economic activity at a level considerably above the US and Europe. It was also helpful for them that both their stock markets are heavy on technology companies that did well on a global basis during lockdown. As a result, the Asia-Pacific region looks well placed to grow strongly in 2021.

Economically speaking, the ingredients are all there for continued Chinese growth. The real difficulty lies in its political relationships with the West. China faced heavy international criticism in 2020 over alleged human rights abuses in Xinjiang and the effective crushing of any democratic rule in Hong Kong. Further acts of aggression could result in sanctions from other nations, which would lead to investors being forced to pull their money out of Chinese companies. A lot will therefore depend on whether Joe Biden can form a stable working relationship with his Chinese counterpart Xi Jinping.

Elsewhere within emerging markets, Latin America, the Middle East, Africa, and the Indian sub-continent face a more complicated picture. In general, a global cyclical rebound with a weaker dollar should be viewed as positive conditions. But much depends on how well governments can continue to contain the spread of the virus, and whether they are able to provide fiscal support without drastically increasing their debt costs.


Five: ESG is now firmly centre stage

One of the biggest positives during 2020 has been the increase in popularity of environmental, social, and governance (ESG) investing. According to the Investment Association, investments made into ESG and sustainable funds quadrupled in 2020, with £7.1 billion invested in the first three quarters of the year compared with £1.9 billion last year.

As well as mounting fears around climate change, the coronavirus has also played a major role in raising awareness among investors, as well as creating a major change in corporate behaviour. Companies have had to re-assess the relationships with their customers, employees, suppliers, and the wider community, instead of just addressing the short-term needs of shareholders. Research by Bank of America Merrill Lynch shows that companies that performed well during the height of the COVID crisis demonstrated superior product, health and safety scores, as well as better workforce policy scores.

After 2020, there’s now an even stronger case to suggest sustainable investment funds offer enormous potential, not solely for the sake of ethical or environmental issues, but because of their ability to invest in companies that manage risks more effectively during times of crisis and do so while delivering more resilient returns. Doing the right thing can be (and should be) a profitable way to do business.


Now is a great time to get your finances in order

It’s understandable to feel apprehensive about what the year ahead might bring. Whatever happens over the coming months, the pandemic is likely to have a lasting impact on our lives and finances. So, now is a good time to reassess and make changes, such as ensuring your savings work harder and protecting the things that matter. One of our qualified financial planners will be able to talk through the options available to you, assess your attitude towards investment risk, and come up with a plan to help you achieve the best possible outcome. There’s really no better time to start than right now.


If you are interested in discussing your financial plan or investment strategy with us, please get in touch with one of our experienced financial planners here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Jar of money fallen over with green shoot growing out of pile of money

Why 2020 hasn’t been such a nightmare year for investors

By | Investments

Although 2020 has had more twists than a Stephen King novel, many of our clients have been pleasantly surprised by the performance of their investment portfolios. We look at the reasons behind such a strong year in investment terms.

In stark contrast to the negative headlines we have all grown accustomed to during 2020, it’s been very pleasing for us to be able to tell our clients that the performance of their investment portfolios has been so resilient over the last few months. The fact is that global investment portfolios – particularly cautious managed – have continued to deliver strong returns.

Of course, this good performance has not been the case throughout all of this year. Back in March, sharp stock market falls were causing widespread panic. After COVID-19 was officially recognised as a pandemic, and the impact of strict lockdowns on global trade became clear, investment markets responded by falling heavily. The suspension of all but essential activities across Asia, Europe and the US has caused investment analysts to change their outlook on the global economy from positive to extremely negative. As a result, global stock markets in March fell by more than 35% from their February highs. Even traditional ‘safe haven’ assets, like government bonds and gold, fell heavily in value. The sell-off in investment markets was then worsened by a dramatic fall in the oil price, when Saudi Arabia and Russia disagreed about oil production volumes, adding more pressure to an already nervous environment.

But the anxiety demonstrated in investment markets caused governments across the world to respond and make superlative efforts to restore confidence. They did this by introducing extremely large measures designed to inject money into economies and support business continuity. These monetary support measures gave investors the belief that widespread business bankruptcies could be avoided, and that the global economy was not really in freefall, but in temporary hibernation.


Global investment portfolios recovered well

As the year continued, although the outlook for people coping with the coronavirus lockdown was bleak, global investment markets – particularly equities – continued to climb. While large proportions of the population were worrying about their jobs, about a deepening global recession, and with no indication on when a coronavirus vaccine would be discovered, investment markets were looking almost rosy. By August, global equities had recovered all of the losses from earlier in the year and were back to a positive return for the year to date. From an investment perspective, perhaps the word that best sums it up would be ‘disconnect’.

Looking in from the outside, with a second wave of the virus looming, and with no sign of a vaccine anytime soon, that disconnect may have looked puzzling. But there was a clear logic behind it. Ultimately it was always felt that the crisis would eventually pass without totally destroying the global economy and that governments and central banks worldwide were fully committed to plugging the gap with capital in the meantime. As a result, global investors stopped being fearful and instead started to focus on identifying those companies and regions that would benefit in the short-term and once the global recovery was underway.

Technology stocks, particularly in the US, did extremely well from this renewed optimism, as investors recognised that lockdown and ‘stay at home’ orders would prove beneficial to companies with a big digital or online presence. Elsewhere, investors were looking at Emerging Markets and the Far East as the two regions where the recovery was most likely to accelerate. China in particular benefited from being the first country hit by coronavirus and the first to start opening up – backed by extensive government and central bank support.


Even the chaotic US election didn’t upset stock markets

Over the last four years, investors have largely managed to set aside concerns over the Twitter rants of President Trump and focus instead on the positive benefits of a Republican-led administration. Conventional wisdom is that markets prefer the low-tax, business-friendly policies of the Republican Party, and would prefer this over the higher taxation and tougher regulation stance of the Democrats. But even so, as the US Presidential election approached, markets were warming to the prospect of a Joe Biden victory. And, even after the chaos caused by the time it took to announce the winner, global investment markets managed to take this uncertainty in their stride. Part of this relaxed stance could be due to the belief that a Democrat President could have the impact of his taxation policies blocked by a Republican-controlled Senate, which in investors’ eyes would be the best possible outcome. Two Senate seats are still up for grabs and will be decided in January, but it is already clear that investors have – for now at least – ruled out political upheaval in the US as one of their biggest fears or likely causes of instability.


But the UK has been a disappointment

While global investment portfolios performed well, UK-focused investments found the going much tougher. There are several reasons for this. First, the UK is a service-based economy, which means that lockdown has had a particularly negative impact. Second, the UK has not led the way in terms of dealing with the coronavirus or supporting its economy – and this has meant its economic activity levels have remained lower than other major economies. And of course, the prolonged uncertainty over a Brexit deal between the UK and the European Union continued to dampen down the prospects of UK companies, and the UK as a whole.

The key question is whether businesses and consumers can survive ‘Lockdown Part 2’ long enough to rebound strongly on the back of their pent-up demand when restrictions are lifted. That relies on employment levels and incomes being maintained. On that front, Chancellor Rishi Sunak’s extension of the furlough scheme through to next year comes as much-needed relief. Some sectors – such as travel, retail and leisure companies – will feel the pain well into next year, not helped by the tightening of restrictions in the lead up to Christmas. This extension is recognition that continued support is needed to see the UK through a difficult winter, and hopefully towards growth in early 2021.


So, what can we expect in 2021?

It is impossible to predict what is going to happen but with the approval and administration of both the Pfizer and Oxford-AstraZeneca vaccines, there is finally light at the end of the tunnel. This, combined with the welcome EU-UK Brexit trade deal, means that governments can turn their attention to economic recovery with a degree of optimism and strive for a better future.

But overall, if 2020 has taught investors anything, it is that global investment markets are increasingly resilient and that negative headlines and market volatility does not necessarily mean long-term damage to investment portfolios. That is why we believe it’s so important to resist the temptation to sell your investments during volatile times because markets have a way of bouncing back quicker than expected.


If you are interested in discussing your financial plan or investment strategy with us, please get in touch with one of our experienced financial planners here.

This content is for information purposes only. It does not constitute investment advice or financial advice.

Buy to let market

Buy to let is now looking much less attractive for investors

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Is buy to let past its sell-by date? With the Stamp Duty holiday due to expire in April 2021, some tough questions are being asked about the longer-term outlook for the buy to let market.


Back in July 2020, the UK’s buy to let market was handed a surprise boost by the Chancellor after he announced that the newly-introduced stamp duty holiday would also apply to buy to let investors. The tax holiday meant that buy to let investors buying a £500,000 property would have the rate of stamp duty halved from £30,000 to £15,000.

In recent years, the government has been focused on first-time buyers and encouraging homeownership, and measures affecting the private rental market such as mortgage interest tax reform or changes to private residence relief and tenancy regulations have been put in place to make buy to let – and being a landlord – much more difficult and significantly less profitable. The ‘surprise’ therefore was that the stamp duty move treated first-time buyers and experienced landlords alike.  The decision to create a level playing field has proven largely successful, in terms of stabilising house prices and boosting transactions during the pandemic.


The post-COVID landscape

The buy to let sector was already facing challenges before COVID hit, particularly due to the new regulations being implemented during the current tax year. The coronavirus has simply added to the uncertainty. But as the government has continued to exert pressure on landlords down the years, many have started questioning whether the negatives of owning buy to let properties now outweigh the benefits.

It’s worth noting that the economic outlook for 2021 remains uncertain, and although the pandemic itself might begin to dissipate, the economic impacts are likely to be around for much longer. It’s no surprise that confidence among landlords is low. According to research published in October by the National Residential Landlords Association, almost two-thirds of private landlords in England and Wales expect rentals to continue to be negatively impacted by COVID-19. Despite efforts by the government to protect homeowners, landlords have been forced to confront a sudden drop in demand for rental property or to have difficult conversations with tenants who may not be in a position to make rental payments, due to redundancies and other challenges.

The supply/demand characteristics of the UK property market are also shifting, thanks to COVID-19. So many people have learned to adapt to working from home, and London, which was once considered a prime buy to let location – thanks to its high rental income and stellar capital growth – has seen a rapid exodus of business professionals who are willing to give up city life and instead find larger properties outside of the capital. Since June, the number of monthly London lettings has been down by a quarter compared to last year, according to LonRes, and London landlords have been slashing rental prices by 20% to secure new tenants.


So, what are the alternatives?

Setting aside the incentive of owning property, it’s a good idea to think about the investment returns that a buy to let traditionally offers – a reliable stream of income that should rise slowly over time, combined with long-term capital growth. The downside includes increased costs and higher taxes, lower returns as rental yields fall, an increased likelihood of renter defaults or the property being empty for longer periods, and the added hassle of managing the property.

You might want to consider whether it would be better to find alternative investments that offer reliable income and capital growth, without the other burdens. For example, you could want to steer clear of volatility, bond funds can offer a steady income with a much lower likelihood of default. If you’re after growth, you might want to think about investing in funds that focus on dividend growth, which offer a combination of rising income and capital appreciation over time. On a global basis, dividend-paying companies have done surprisingly well this year.


Has buy to let had its day?

The impending demise of the UK buy to let market has been signalled countless times before – and yet has managed to carry on regardless. After all, for most Britons, bricks and mortar will always be viewed as a ‘safe as houses’ long-term investment. But COVID-19 has created new challenges that may be the final nail in the coffin for landlords already unhappy with the obstacles they have to face.

Until it expires on March 31st 2021, the stamp duty holiday will continue to control the direction of the UK’s property market and bolster house price growth. The question is whether buy to let still looks like a solid investment thereafter. It’s just possible that 2020 may well prove to be the peak of our fascination with buy to let.


If you would like to discuss your investment opportunities please get in touch with one of our experienced financial planners here.


The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Big tech companies icons on phone

Taking a closer look at tech stocks

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Tech stocks have led the global equity market recovery since the spring. Some argue that valuations are becoming stretched, but this doesn’t look like a repeat of the dotcom bubble in 2000.


It has been a colossal, if uneven, year for the world’s largest technology companies. The NASDAQ index, home to America’s most prominent tech names, has increased by more than 30% since the beginning of 2020, consolidating a rise of more than 400% over the past decade. And, in what’s been an extremely turbulent year for most companies, the continued strong performance of tech giants such as Apple and Microsoft have been a major reason why the headline US S&P 500 index remains in positive territory over the year to date. Apple’s share price has doubled in value in the past six months, and with the valuation of the company passing $2tn USD in August, the company is worth more than the UK’s 100 biggest companies combined.

It is not hard to see why tech stocks have done so well this year. Lockdown has caused significant changes to people’s lifestyles, and accelerated trends that were already well underway. As well as spending large amounts of time in front of their phones, computers and tv screens, people are shopping online more, storing their personal and business information remotely in the cloud, and companies are increasingly relying on data to make their business decisions. These areas were already expanding rapidly before the coronavirus lockdowns forced people to stay at home, and businesses to rapidly alter their working practices.

In a period when a large number of sectors of the economy have seen profits shrink and businesses come under pressure, tech stocks, along with pharmaceuticals and household goods, are sectors that have continued to see growth.


The rally heats up during the summer

During the summer, tech stocks enjoyed a renewed surge, with a number of additional factors contributing to the outperformance. One reason appears to be the actions of Softbank, a tech-driven investment company in Japan which took large derivative positions in seven of the most high-profile tech stocks (Facebook, Microsoft, Salesforce, Netflix, Alphabet, Adobe and Amazon). Softbank apparently carried out a series of enormous, aggressive trades, costing an estimated $50 billion, that drove up valuations during August and whipped up investor appetite.

Another reason for the rise of tech stocks during the summer, although this one is more open to speculation, is that they were due in part to the numbers of ‘day traders’ in the US. These were people who had considerably more time on their hands to play the stock markets during the summer – the high number of coronavirus cases in the US caused a number of strict lockdowns across most states – and opted to make short-term bets on tech stocks.

After the strong gains seen this year, it was, therefore, not unexpected to see some consolidation in the tech sector over recent weeks, with some profit taking in companies such as Tesla, which have enjoyed a stellar performance this year. That said, US software stock Snowflake attracted significant demand at its initial public offering in September, rising substantially above the expected offer price amidst interest from Warren Buffett’s Berkshire Hathaway. This can be viewed as a positive sign that momentum in the sector remains intact.


Are we seeing a replay of the dotcom bubble?

Some people have drawn unfavourable comparisons of the performance of tech stocks over the last year to the dotcom ‘boom and bust’ that took place in the late 1990s and early 2000s. Back then, excessive speculation and wild valuations for internet-based start-ups such as, and helped to cause a huge market crash that cost investors more than $5 trillion.

But one of the biggest differences between then and now is that today’s tech companies are established names, not ambitious start-ups. Even if valuations appear stretched, their popularity is based on their widespread adoption globally, and they are already making huge profits, and should these profits continue to increase over future years, current valuations may be justified.


Political headwinds ahead for ‘Big Tech’

One of the biggest issues facing tech companies is that some of them are now just too big. In the US and Europe, politicians have expressed concerns that companies such as Facebook and Amazon are too dominant in their sectors, and may have to have their activities curbed and their monopolies broken up in the interests of fair competition and stronger rights for consumers and smaller businesses. These concerns have been overtaken by COVID-19 this year, but could return and have an impact on the value of affected tech stocks now that the US presidential election has passed.


What should investors think or do?

No one can predict with any certainty what is going to happen to tech stocks in the next five years. But if you believe in the long-term case for technology companies, one of the better ways to invest is to spread the investment risk by choosing a dedicated technology fund that offers a blend of established names and future potential winners. That way, even if some of the larger tech names underperform, newer entrants could still do well. Active fund managers are well aware of the speculation over the future of tech stocks and will be positioning their portfolios to ensure they don’t rely too heavily on a concentrated pool of companies. As always, our experienced financial planners can help to find the right fund to help you take advantage of the investment opportunities out there.


If you are interested in discussing your financial plan or investment strategy with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Commercial property fund_FAS

The lowdown on UK commercial property funds

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Commercial property funds have been the subject of dealing restrictions since March, with investors unable to make withdrawals or redeem their investment. But as more commercial property funds start to reopen, are they still a good long-term investment?


When did commercial property funds get popular?

For individual investors, the concept of investing in commercial property as an asset class of its own first became popular in the late 1990s. They have grown in popularity over the next couple of decades, as investors welcomed the prospect of gaining exposure to an ‘alternative’ asset class that behaved differently to equities, bonds, and cash, offering an attractive income yield and relative capital stability.


Why do commercial property funds behave differently?

Commercial property funds, that invest primarily in ‘bricks and mortar’ property assets (as opposed to equities or investment trusts that hold property) behave differently to other quoted assets for a number of reasons. Firstly, the valuation method of commercial properties is different. Whereas traded securities (such as shares) are priced at a mid-point between the price at which buyers are willing to pay, and sellers willing to sell at, commercial property is valued by specialist valuers, who factor in demand, yield, location, and economic viability of the potential tenant, to derive a value. This valuation clearly cannot take place daily, and there is therefore a lag between the price of a commercial property fund and the underlying value of the portfolio. This can lead to ‘material uncertainty’ that the value placed on each asset held in the portfolio is fair.

The other significant difference that sets commercial property funds apart is that they are often far less ‘liquid’ than other investments available to other investors. Depending on the composition of the portfolio, a period of high redemption requests may force property funds to sell assets rapidly, potentially at a sub-optimal price, and these transactions can take time. For this reason, most property funds carry a balance in cash, but sometimes these cash reserves become depleted, which can lead to a suspension of dealing whilst property fund managers realise assets to replenish the cash reserves.

These suspensions, which have been in place since March 2020, have also occurred on a number of occasions over recent years. The first time it happened was in 2008, when the global financial crisis prompted an exodus from investors. The second time that the UK commercial property sector shut up shop came shortly after the Brexit referendum. The same thing happened again in December 2019, when a small number of managers suspended their commercial property funds by invoking material uncertainty clauses that said it was impossible to get fair valuations for their property portfolios. This time, the reasons given included continued Brexit uncertainty, as well as significant weaknesses for the UK retail sector, caused by the collapse of the UK high street and the continued boom of online retailers.


What has happened this year?

The coronavirus outbreak has had a significant impact on the UK commercial property sector. Back in March, many commercial property owners were forced to give their business tenants rent payment holidays. Some premises have been empty, and a number of businesses have become insolvent or downsized their operations significantly. With the UK on the brink of a possible second ‘winter’ lockdown, and with office workers being encouraged to work from home again, the sector continues to face several headwinds and a heightened state of uncertainty about the future.

In September, valuers cleared the way for commercial property funds to begin to reopen after recommending a ‘general lifting’ of material uncertainty clauses on the valuation of most UK real estate assets. In other words, valuers now believe it is now possible to ascertain an accurate valuation of the properties held within these funds, thus allowing some commercial property funds to lift suspensions and recommence dealing.

That said, there is no regulatory requirement to reopen funds that are currently suspended and many fund managers are wary of reopening their commercial property funds too early. If investors are still determined to sell their holdings, many funds could find themselves without enough liquidity to satisfy the demand and could be forced to suspend redemptions yet again.


What could the future look like?

Aware of the growing frustration among investors who cannot access their money, and fund managers who worry that large-scale redemptions could damage the long term strategy within their portfolios, the Financial Conduct Authority is looking at proposals that would establish a ‘notice period’ of several months between the investor requesting a fund redemption and having their investment returned to them.

The premise is that this would hopefully give fund managers enough time to ensure they had enough cash available to meet the redemption, and would also discourage short-term investors from investing in an asset class that doesn’t offer them daily liquidity. Pension funds and financial institutions are most likely to remain investors, for now at least.


But are commercial property funds still a sound investment?

It is clear that the commercial property landscape has changed as a result of Covid-19. For example, City centre office space may well see decreased demand due to changes in working patterns and similarly, in the short term, hotels may continue to struggle without the traditional influx of business passengers arriving from overseas to attend meetings.

At the same time, commercial property is a broad and varied sector. There is likely to be increased demand for industrial buildings and warehouses that can accommodate a greater reliance on online shopping for groceries and other goods. So, there will be some winners as well as losers within the UK commercial property funds universe.

But at the end of the day, individual investors need to think about whether they really want to hold an investment that they may not be able to access for months on end. Whatever your view, commercial property investments are certainly becoming a more complex proposition for individual investors.


This content is for information purposes only. It does not constitute investment advice or financial advice. If you are interested in discussing your financial plans or investment strategy with one of our experienced financial planners at FAS, please get in touch here.

Signing a will

Trustees’ duties and powers when making investment decisions

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The role of a trustee is one that should not be entered into lightly, as it carries risks and responsibilities. Whether appointed as a trustee under a will or standing as a trustee of a trust established during an individual’s lifetime, there are specific duties that trustees must comply with.

In this article, we will consider those duties and responsibilities in more detail and specific requirements in respect of trust investments.


How is a trustee appointed?

In the case of will trusts, unless otherwise stated in the will, the executors of the will also act as trustee of any trusts that are established by the will. In other trust matters, such as where funds are set aside for a child under the age of 18 via a trust investment or insurance policy, then parents, close family or trusted friends are often invited to stand as a trustee. It is recommended that there are at least two trustees appointed, although in the case of land, a maximum of four trustees can stand. All trustees need to act unanimously in their decision making, and therefore the greater the number of trustees, the greater the possibility of disagreement.


What are the duties of a trustee?

The primary responsibility of a trustee is that he or she owes duties of honesty, integrity, loyalty, and good faith to the beneficiaries of the trust.

To comply with legislation, trustees must understand and observe the terms of the trust. These are set out in the trust deed, which is often a will, or other trust instrument, such as an insurance company deed, and establish who the beneficiaries are, what assets are to be held within the trust, and any other instructions that the trustees need to follow. The trust deed may confer powers on the trustees to carry out actions, which are also defined by law.

Whilst following the terms of the trust, trustees need to show impartiality towards beneficiaries and cannot allow a beneficiary to suffer at the expense of another. This is particularly relevant where an individual beneficiary receives income from trust assets, and other beneficiaries receive capital.

It is important that trustees keep good records of decisions made and accurate and up to date accounts, so that beneficiaries can be provided with relevant information when it is requested.


Dealing with trust investments

The Trustee Act 2000 introduced updated default rules for investments made by trustees. Unless the powers conferred by the Act are over-ridden within the trust deed, the Act provides significantly wider investment powers than were previously in place, and gives trustees the power to invest the trust capital as if they were the absolute owners themselves.

A statutory duty of care applies to all trustees, whereby he or she must exercise such care and skill as ‘is reasonable in the circumstances’. A trustee acting in a professional capacity, or having special knowledge and experience, would be subject to a higher duty of care. This statutory duty applies to decisions taken when investments are made or reviewed, property or land is purchased, managed or insured, or a decision taken to appoint a third party to assist in the investment process.

The standard investment criteria set out in the Trustee Act 2000 stipulate three key elements that must be adhered to. Firstly, trustees need to ensure that the investments selected are suitable for the trust in question. Factors that trustees need to consider here is the objective of the trust and requirements of beneficiaries, the time horizon for investment, and the level of risk to which trust investments are exposed.

Secondly, investments need to show sufficient diversification, as appropriate to the trust in question. For the majority of cases, this means that the investment strategy needs to allocate funds across different assets (such as equities, fixed interest securities, property and cash) geographies and sectors. The precise level of diversification will need to pay due consideration to the terms of the trust. For example, in the case of a trust holding £5,000 for the benefit of a child who will be 18 in a year’s time, it is highly likely that a cash deposit would be appropriate and the need for diversification would be low. Conversely, a large trust fund providing income to a beneficiary and capital to residual beneficiaries in the future, would be expected to invest in an adequately diversified portfolio.

Thirdly, trustees need to keep investments under regular review. This is often overlooked by trustees, and the importance of this requirement cannot be overstated. In today’s rapidly changing investment landscape, arranging an investment portfolio and not reviewing the suitability and performance on a regular basis could lead to significant underperformance, and invite criticism from beneficiaries.


The need to obtain advice

The Trustee Act requires trustees obtain qualified investment advice when considering exercising the power of investment or reviewing existing trust investments. The only exclusion to this requirement is where trustees reasonably consider obtaining advice to be an unnecessary step, for example, where a trustee possesses the relevant skills to reach a decision. Given the potential risk of criticism or litigation from beneficiaries, we wouldn’t expect to see many trustees make decisions themselves without seeking appropriate advice.

To assist with the regular review of trust investments, trustees are able to delegate certain functions, for example, ongoing management of trust investments, to an agent, who acts on the trustees’ behalf. When delegating this responsibility to a professional, there needs to be firm agreement in place as to the objectives of the trust investments, the level of risk and any other guidance, such as the need to produce income, that is relevant.

Many trustees look to appoint an adviser who can manage funds on a discretionary basis, so that the trust portfolio is kept under close review and changes are made to the investment portfolio as appropriate. Our FAS Concepts discretionary managed service is an ideal solution for trustees to consider.


If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.


This content is for information purposes only. It does not constitute investment advice or financial advice.