Income investors may rue strong sterling

cash smallEquity income investors with a large UK element to their portfolios have been watching the rise of sterling carefully.

In early July sterling hit a rate of $1.72 against the US Dollar, which was its highest level seen since 2008. Compare this to the rate of $1.68 seen in June and the $1.52 recorded a year earlier.

Several factors have influenced sterling’s ascendancy; including the fact that the US Federal Reserve reduced its economic growth forecasts for 2014, after experiencing exceptionally bad winter weather, to 2.1 – 2.3%, from a previous higher estimate of 2.8 – 3%. Added to this fact, the Fed has continued to reduce its monthly stimulus measures (or quantitative easing) by $10 billion. This is the fifth reduction since the turn of the year.

Whilst reflecting overall good news for the UK economy, this exchange rate level may well impact the sterling based dividend growth from such portfolios.

Nearly 20% of companies in the FTSE100 report in US Dollars, whilst out of the top 20 dividend payers, nine of them base their payment in US Dollars. These companies include AstraZeneca, HSBC, and Shell.

At the turn of this year many fund managers were predicting dividend yield from the FTSE at 6% for 2014, however, given the inexorable rise in sterling against the US Dollar these predictions have been pared back to 4%.

Exchange rates are notoriously volatile, however, and there are several scenarios in the near future which could reverse the trend. In September we will see the Scottish independence referendum (with the adoption of sterling for an independent Scotland a major issue) and then in 2015 the UK’s general election.

All is not bad news though for equity income investors as companies heavily engaged in the domestic market, and thus sterling based income streams, will not be so adversely affected.

To discuss strategies to address these issues in more detail, please do not hesitate to contact us for advice.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Is market volatility at a cross roads?

Fotolia_52262383_XThe Market Risk Index (MRI); the measure commonly used to evaluate the implied volatility across multiple asset classes, including currencies, interest rates, and commodities was sitting at -1.17 in June. This is very close to the lows seen prior to the economic crash in 2007.

Back then the market spiked dramatically to 3.5 in 2008. This begs the question, with market volatility now again at these low levels, is the market ripe for another dramatic adjustment?

Given this uncertainty, maybe trading in volatility itself is the answer? This is a very high-risk strategy that could result in capital loss, but may also show strong returns. This asset class can be accessed through derivatives, exchange traded funds (ETFs) or exchange traded notes (ETNs).

One of the blames for this lull in volatility may be laid at the door of central banks that have, since the economic crisis, been engaging in massive quantitative easing (QE). As direct result of this the Bank of England (BoE), The US Federal Reserve and now the Bank of Japan hold large tranches of long-dated paper on their books. This has a dramatic volatility-dampening effect on the bond markets, which in turn translates to the equity markets.

When will this situation change? This is the $64,000 question. The US Fed has already announced its tapering of their QE programme, trimming $10 billion a month from their current programme, and they expect to end this action entirely by October of this year. Meanwhile, the BoE has put its QE programme on hold over the last few months.

All eyes will then be on the MRI to see if the withdrawal of the central banks’ stimulus packages will result in an increase in market volatility.

If you would like to discuss any of the issues raised here, please do not hesitate to call us.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Where’s my pension pot?

??????????????Given today’s transient nature of employment, 25% of people under the age of 35 will have already had 5 different jobs with various employers.  That is the same total number of employers that someone now aged 65 will have had.

The charity Age UK, surveyed 2,300 people to ask if they could trace all of their pension arrangements.  Surprisingly, 25% of those canvassed admitted that they did not know the state of at least one scheme.

Blaming ‘lost paperwork’ for this omission, this group of employees thus faced a pensions ‘black hole’ in later life.

Lucy Harmer, the Head of Services at Age UK said: “It is really important we all set aside time to keep on top of personal admin, such as organising paperwork and keeping details of any financial products safe and secure.

“This is especially crucial for pensions, as it may be many years down the line until they need to be accessed.”

As more and more employees will now be automatically enrolled into company pension schemes this problem will only increase over time. It is estimated that over 10 million extra employees will be enrolled in such schemes.

To address this problem, The Department for Work and Pensions runs a free pensions tracing service (Tel: 0845 6002 537), designed to locate lost pension schemes and reunite them with the beneficiary. All they have to do is enter their details online and answer a short confidential questionnaire.  The service will then locate details of all relevant schemes relating to that person and having traced such schemes contact details will be forwarded to the individual for further action.

Most pension advisers believe that workers should then consider bringing these disparate schemes together to eventually purchase a single annuity to provide retirement income, rather than utilise numerous smaller pension pots.  When researching annuities it is important for the retiree to shop-around providers to get the best deal to suit their requirements and at the same time consider their entitlement to enhanced annuities to maximise their income.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

A new era of financial regulation

To update our clients, April 1 2013 heralded the introduction of the new regulatory regime for the financial services industry.

The Financial Services Authority (FSA), created in 1997 under the direction of then Chancellor of the Exchequer Gordon Brown, has been dismantled after a number of prominent failures under its watch, including Northern Rock, The Royal Bank of Scotland and Bank of Scotland Halifax, LIBOR fixing, and PPI misspelling.

It will be replaced with two new regulators: The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

The former will supervise approximately 30,000 firms offering financial services and advice.

The aims of the FCA will include:

  • Ensuring a suitable degree of consumer protection
  • Encouraging and promoting competition within the industry to benefit the consumer
  • Enhance and protect the overall integrity of the UK financial sector

Commenting on the introduction of these new regimes, Martin Wheatley, Chief Executive of the FCA said that the new watchdog would: “make financial markets work well, and ensure a fair deal in financial services.”

The latter PRA will operate under the auspice of the Bank of England.

In a parallel change in regulation, the Financial Policy Committee (FPC) has been created as a consequence of Lord Turner’s speech in October last year at the Mansion House. Its main brief is to ensure that the Bank of England reaches and maintains its financial stability objectives and also to support the Government in its own objectives of employment and growth in the UK economy.

Whilst the FPC will have no direct contact with the regulated firms of the FCA and PRA its actions and day-to-day activities may well impact on the behaviour and governance of Independent Financial Advisers (IFAs) and other firms in the financial services sector. As an example the FPC will issue directions to both firms covered by the FCA and PRA in relation to specific tools prescribed by HM Treasury.

We are fully compliant with all these changes.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Where there’s a ‘Will’ there’s a way

?????????????????????When many people come to consider their retirement planning, they neglect the wider implications of estate planning. This should be an integral part of their retirement planning process.

For many, the mere thought of actually dying causes a mental block in this regard, but the realisation that, as they grow older, they may lose some (or all) of their mental capacity, this should spur them into action on this front at an early stage.

It is always advisable to review your estate planning as early as possible to ensure that your wishes are clearly understood and complied with after your demise and that these are clearly laid out whilst you and your spouse are still of sound mind.

For others, the thought of dispersing their wealth and chattels is too morbid and some just do not fully understand the perils of dying intestate – that is without them or their spouse having a valid will.

Ramifications may include a prolonged hiatus before executors can be appointed, with a subsequent  delay in probate being given, and the tying up of assets that the deceased would have wanted to pass on to their spouse, family and/or friends.  This delay could well involve those intended beneficiaries suffering unintended financial hardship at a time when they are at their most vulnerable and still in grieving.

With larger estates, particularly where family businesses may form part of the estate, many Capital Gains Tax and Inheritance Tax issues could well have a major detrimental impact on the value of the deceased assets being passed on.

Also with the rise in residential property prices over the past few decades, those approaching retirement age can find their – once thought of as modest – estates ensnared in these considerations.

Good, timely advice is paramount in estate planning and the earlier this is undertaken and effective mitigation policies undertaken the better.

If you would like to discuss any of these issues in greater detail, please do not hesitate to contact us.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Equity markets shine in 2013

????????We have been seeing greatly improved sentiment across the pond, with both the Dow Jones Industrial Average and the S&P 500 reaching record highs this month in the USA.

The Dow Jones closed March at 14,578 – itself a new all-time high – and powered on to 14,662.01 in early April and has now touched an intra-day high of 14,684.49.  Meanwhile, the S&P 500 closed at a record high of 1,570 and is testing its all-time intra-day high of 1,576.09, last seen in October 2007.

The USA markets have enjoyed a buoyant 2013 so far, with the Dow seeing gains of nearly 12% and the S&P rising by over 10%, since the New Year.

Reasons for this bullish sentiment include a long-awaited and better than expected improvement in the US housing market and US factory orders rising by 3% in February.  This represents the largest rise in over 5 months and signals the US economic recovery is continuing to gain pace.  This should, hopefully, migrate to the wider global economy.

Elsewhere, equity markets globally finished the quarter on a firm note with the UK’s FTSE100 closing at 6,411.7, up 1.4% on the previous month and the wider FTSE250 up 1.6% at 13,923.04.

In Japan, riding on the back of the Bank of Japan’s growth stimulus package, the Nikkei index closed March at 12,397.91 up 7.25% on the previous month; its eighth straight month of gains.

Now may be the time to have a detailed look at your investment portfolio, to see if your exposure to these markets is well balanced in the wider context.

We are happy to help you in this regard, so do contact us to discuss your specific investment criteria.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.