Category: Financial Adviser Blog

OMNIS have released their market update. It covers Brexit updates, tech company earnings and the recent decision by the Federal Reserve to pause interest rates.

We have seen an improvement in share values over the course of january and early February as a result.

Please click here to see the full document.

The House of Commons inflicted a heavy defeat on Theresa May’s government on Tuesday as it comprehensively rejected the prime minister’s deal for the UK’s withdrawal from the EU. The defeat prompted Labour leader Jeremy Corbyn to immediately call a vote of no confidence in the government. Having secured the support of hard-line conservative Brexiteers, Theresa May survived the vote. 

It is tempting to believe that, in spite of the drama, little has changed in the outlook for Brexit. However, developments below the surface give us reason to believe the likelihood of a hard, no deal Brexit has receded. While a great deal of uncertainty remains, it seems probable that Theresa May will eventually secure support for her compromise deal or, failing that, seek and extension to the 29^th March deadline. 

Market reactions to events in Westminster have been relatively muted. Having initially weakened once the scale of Mrs May’s defeat was confirmed, sterling rallied on the news of Mr Corbyn’s vote of no confidence. Our interpretation of these movements is that the market shares our belief that a softer Brexit has become more likely.

 The message from the Omnis investment team is to remain calm. We may witness further volatility in  sterling over the coming days and weeks, and UK equities could be affected, but the Graphene and OMPS portfolios are designed to weather short-term market fluctuations. 

This update reflects Omnis’ view at the time of writing and is subject to change. 

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given

A glance at the performance of the major stock indices in 2018 shows that volatility was a common theme. US equities followed an upward – although somewhat choppy – trajectory from early March, but they had a turbulent start to the year. Meanwhile, UK, European and Japanese equity markets experienced fluctuations of various magnitudes as they drifted sideways or downwards over the same timeframe.

Geopolitical events drove most of this volatility. On a global scale, trade tensions rattled the markets. US President Donald Trump made some progress with his immediate neighbours but reaching an agreement with China proved more challenging. Closer to home, the protracted and confrontational nature of Brexit negotiations led to a high degree of economic uncertainty. Later in the year, the Italian coalition government’s plans to increase fiscal spending in its first budget raised concerns that it would breach EU rules.

Navigating volatile markets is difficult, but it is under these conditions that active fund managers can add the greatest value. As the name suggests, they buy and sell investments in an effort to outperform a benchmark such as the FTSE 100 or S&P 500. This flexibility allows active managers to respond to what is happening in the markets, so they buy a share when they identify an opportunity, and sell one if they spot a threat.

Active vs passive

Compared to actively-managed funds, passive investments, such as exchange traded funds (ETFs) or index trackers, tend to underperform in volatile markets. They attempt to mirror the performance of a benchmark by buying and holding similar assets, and they only sell when a company drops off the index. As their asset allocation is static, passive investments cannot react to changing economic conditions, making them less effective in fluctuating markets.

The Omnis range consists of actively managed funds because the investment team believes they can identify fund managers who add enough value in both smooth and volatile markets to outperform in the long run.

If you’d like more details about the Omnis funds and fund managers, or for wealth management advice, please speak to us.

Regardless of whether you invest in active or passive investments, the value of your investments and any income from them can fall as well as rise. You may get back less than you invest. This update reflects Omnis’ view at the time of writing and is subject to change.

Thanks to there being no major changes announced to pensions in the October 2018 Budget you can continue to pay into your pension over the next 12 months without any surprises to knock you off track.

This does, however, present a great time for you to review your pension savings. Are you confident you’re saving enough to support the lifestyle you want in retirement? Put simply, a pension is a long-term savings plan which grows over time and provides you with an income to see you through your retirement. There are many benefits to paying into a pension plan:

Tax Relief

Did you know that if you’re saving towards a pension between the ages of 18 and 75, you can receive significant contributions from the government on top of the amount you save?

This is because you receive tax relief on the contributions you are paying in: 20% for basic-rate taxpayers, 40% for higher-rate taxpayers and 45% for additional-rate taxpayers.

As an example, for a basic-rate taxpayer, for every £100 you pay into your pension, the government will top it up by £25 giving you a total contribution of £125. You can get even more if you’re a higher-rate or additional-rate taxpayer.

A top up on your salary

If your employer has a pension plan set up as an employee benefit, they will also pay contributions to your pension plan (up to a certain level). Think of it as a top-up on your salary.

 Compound interest

When you save money into your pension you’ll hopefully make a return on the investment, subject to performance of course. The following year you’ll hopefully get a return, not only on your initial investment but also on the return from the previous year, and so on. You’re effectively earning money on previous gains which are all added into your pension pot.

If you want to discuss your pension planning in more detail then speak to us and we’ll make a recommendation based on your individual circumstances.

There are rules regarding how much you can contribute to a pension and how much the government will add to your contributions through tax relief. The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

To strike the right balance between risk and reward in your investment portfolio, it’s important to carefully consider how you divide your capital among the various asset classes. In the investment industry, this process is known as asset allocation.

Some assets carry greater risk than others, so well-defined goals are crucial. Say you’re saving for retirement and you plan to stop working over the next few years. That means you will need to start drawing an income from your investments within a relatively short timeframe. In this scenario, you would typically start rebalancing your portfolio into less volatile assets like bonds. Bonds – especially those issued by governments of developed countries like the UK and US – are considered among the least risky investments because the danger of a government defaulting on its debt is low.

If you are younger and retirement is twenty or thirty years in the future, you could afford to take greater risk with your capital. Your portfolio could be overweight in equities, which are more volatile than bonds but also potentially generate superior gains. As your investment horizon is longer, your portfolio has more time to recover from short-term market fluctuations. It’s also worth bearing in mind that some equities are more volatile than others, for instance, emerging markets may offer better growth prospects due to demographic trends, but their economies tend to be less stable than developed countries.

Of course, cash is the safest asset class. It also generates the lowest returns, and your spending power falls if inflation exceeds the rate of interest your money is earning. Nevertheless, most investment portfolios hold a certain amount of cash.

While this list is not exhaustive, it should help you understand the risk profile for each of the main asset classes. Working out the optimal mix of assets is difficult and time-consuming though. Fortunately, because we are part of Openwork, the Omnis investment team can take care of these decisions, and the ongoing oversight of your portfolio, on your behalf.

Asset allocation within the Omnis range

Through Omnis, you can either invest in the Graphene model portfolios or the Omnis Managed Portfolio Service (OMPS). Graphene portfolios automatically rebalance back to their original asset allocation every six months. OMPS, on the other hand, are actively managed by the investment team, and they adjust the allocation within a clearly-defined range in response to opportunities or risks they identify in the markets.

Both sets of portfolios offer a choice of risk profiles: Adventurous, Balanced and Cautious, the main difference being the asset allocation. The Adventurous portfolios invest mostly in the Omnis range of equity funds, while the Cautious portfolios hold a higher proportion of Omnis bond funds. The Balanced portfolios fall roughly in the middle.

If you have any questions about which portfolio your money is invested in, or you’d like to know more about the Omnis funds and range of model portfolios, please get in touch.

The value of your investments and any income from them can fall as well as rise, and you may get back less than you invest.

With more UK employees saving for their retirement than ever you could argue that Automatic Enrolment has been a success since its launch six years ago. However, research from the Office for National Statistics (ONS) has revealed that many people contributing to their workplace scheme don’t even realise they’re saving for retirement.

Auto enrolment emerged from the Pensions Commission back in 2005. It took effect in 2012, when it was made compulsory for employers to enrol their staff into a workplace pension scheme, and rolled out in phases. Figures suggest that just over nine million individuals are now newly saving or saving more for their retirement.

This is clearly a positive outcome of auto enrolment, but the ONS research has raised concerns that the 37% of those surveyed who didn’t realise they were contributing to their workplace pension scheme could opt out – a risk which might be greater when the minimum contribution level for employees increases from 3%to 5% in April 2019.

So, do you know if you are saving in to a workplace pension? Even if you are, are you saving enough? Industry estimates for a comfortable retirement tend to range between £23,000 and £27,000 a year. A 25-year-old employee earning £30,000 a year would need to save just under £300 a month to achieve the lower figure and you can see what effect age has on the amount you need to save in the graph below.

The simple fact is that the more you save and the earlier you start saving the better position you are likely to be in, subject to investment performance of course. The first thing to do if you’re concerned about your pension planning is get advice.

According to the ONS

• 27% don’t think they can afford to save for retirement
• 13% are put off because they think they don’t know enough about pensions
• 7% think it’s too early to start saving for retirement and 3% think it’s too late
• Those aged between 16 and 24 feel the least equipped when it comes to making decisions about their pension.

Please give us a call and we’ll help you get a clear picture and straightforward plan to put you on track.

The average homeowner moving from a specific mortgage deal onto their mortgage provider’s Standard Variable Rate (SVR) could save more than £2,500 a year in interest payments simply by remortgaging.

SVR is the type of mortgage you’re most likely to revert to at the end of an introductory, fixed rate, discount or tracker deal. The rate you pay on SVR is set by your mortgage lender and doesn’t track the Bank of England Base Rate, which means you might not benefit from interest rate cuts and you could be exposed to interest rate rises. SVRs don’t come with the security of a fixed rate deal and your mortgage lender could choose to increase your rate at any time.

SVRs can also be quite expensive; on average those on SVRs pay an extra £211 a month compared to homeowners on a mortgage deal. This rises to as much as £727 a month in London, where house prices are significantly higher than the average.

On the plus side, SVRs can represent good value when interest rates are low and there are no exit fees. Even so, with a potentially sizeable saving to be made by remortgaging, it’s a wonder that around two million borrowers seem happy to stick with their SVR. Why?

Time to remortgage?

It’s important to regularly review your mortgage, as it can often make sense to transfer to a new deal – or even a different lender. Your decision to transfer will of course depend on your individual circumstances and the current rate you are paying. If your lender plans to increase its SVR, moving onto a new mortgage deal could save you money.

“I can’t be bothered with the hassle of looking for a new deal” Fair enough, but that’s the point of a mortgage adviser. We’re here to help take the effort out of finding the right deal that could free up money for you to spend on more pleasurable things.

“I hadn’t realised my mortgage deal was ending” OK… but your lender should have notified you. If we arrange your mortgage that’s something you could rely on us to do. Alternatively, remember to add the end date into your calendar when you’ve taken a new mortgage deal.

“I did get a letter but didn’t really understand what the lender was telling me” We know that not all lenders go in for Plain English but it pays to pick up the phone if they’re writing to you with something as important as your mortgage.

To discuss your remortgaging options, please get in touch.

Writing a policy in Trust could be perceived as something that only the wealthy require, but the reality is Trusts can play an important part in financial planning for people from all walks of life.

When it comes to planning your family’s financial future it makes sense to take all steps possible to help protect their current, and future, standard of living. As part of this, it’s important to make sure any policies you have in place will pay out to those they are intended to benefit, and this could mean writing the policy in trust. 

Put simply, a trust is a legal arrangement that assets such as cash, investments and property can be transferred into, and a trustee or trustees appointed to look after on the policyholder’s behalf. Trusts are usually straightforward to set up but it’s important to select the right type of Trust and complete the documentation carefully. 

The three most common types of Trust are: 

Bare Trusts

Typically set up to pass assets to young people. When the beneficiary turns 18 (16 in Scotland), they can use the capital and income held in the trust in any way they choose. Bare Trusts are treated as Potentially Exempt Transfers (PETs) which means inheritance tax would be payable if the trust settlor dies within seven years of setting up the trust. 

Discretionary Trust

Here, trustees can make certain decisions about how the beneficiary uses the assets held in the trust. For instance, what gets paid out and to whom and how often payments are made. They can also impose certain conditions if, perhaps, they deem the beneficiary is not responsible or capable of dealing with the money themselves. 

Interest in possession (IIP) Trust

Under this type of trust, a beneficiary is entitled to the income generated by the trust as it arises, which will be subject to income tax. They are unlikely to have any rights to the capital, which will pass to another beneficiary in the future. A common use of an IIP trust is for it to form part of the will of someone who remarries after divorce and wants their children from their first marriage to continue to receive financial support.

Despite the positive impact setting up a policy in trust can have on your financial planning, only 6% of life insurance policies in the UK are set up in trust, according to insurer Aegon.

If you’re thinking of putting a life policy in trust, please talk to us first. We can tell you which type of trust is most appropriate for your circumstances and help you put the trust in place. 

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. The Financial Conduct Authority does not regulate Trust Advice.

Warren Buffet, sometimes known as the sage of Omaha, once claimed he preferred to “to buy a wonderful company at a fair price”. What he meant by this is when it comes to picking investments, he looks for quality businesses that, for some reason or another, are undervalued by the rest of the market.

Buffet learnt his trade as a student and later an employee of Benjamin Graham, widely considered the godfather of this style of ‘value investing’ and author of one of the most authoritative books on security analysis.

Value investors take a bottom-up approach to evaluating an investment opportunity. They look at a company’s fundamentals, such as its revenue streams or balance sheet, and use metrics like the price-earnings (PE) ratio or price-to-book (PB) ratio to figure out if its shares are available at a discount. Once value investors identify a company that appears undervalued, they buy and hold, hoping the rest of the market will take notice and the share price will rise.

Buffet has successfully applied this approach throughout his 60-year career and the share price of Berkshire Hathaway, the publicly-listed vehicle through which he invests, has grown steadily but surely since he took control in 1965.

Going for growth

Some investors prefer to target companies that are growing fast and therefore offer the prospect of considerable returns. These types of companies tend to have developed new and innovative products and services which catch the imagination of consumers.

The tech sector has traditionally provided these ‘growth investors’ with a steady stream of opportunities. Jeff Bezos only launched Amazon in 1994, but its valuation surpassed one trillion dollars at the start of September 2018. Apple was the first company to reach a trillion-dollar valuation earlier in 2018, although it was founded 18 years before Amazon. More recently, the share prices of Facebook, Alphabet (parent of Google) and Netflix have raced ahead since listing on the stock exchange.

Of course, not all growth shares shoot the lights out. Just ask investors in social media platforms Twitter and Snapchat.

A blend of styles

Some fund managers identify as either value or growth investors. Within the Omnis range of funds, Cédric de Fonclare of Jupiter Asset Management, who runs the Omnis European Equity Fund, leans slightly in favour of growth. Similarly, Andrew Rose and Masaki Taketsume of Schroders, co-managers of our recently launched Omnis Japanese Equity Fund, have a minor bias towards value.

Each of the Omnis fund managers has developed their own approach to researching investment opportunities and building portfolios based on years of experience.

By offering a range of funds with a blend of styles, we believe that we can provide you with great potential for returns across all market conditions. Please get in touch to find out more.

The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

For all my clients who have some exposure to the Graphene Model Portfolios, there is a newsletter update from the Investment Committee.

Please click here to see the full newsletter.

Happy reading!