Chapters Financial Market View

The autumn of 2014 has kicked off with additional market turbulence due to many factors, each affecting sentiment in different ways. With market values falling at the time of writing this blog (10th October), I wanted to provide our blog readers with some views on the current conditions. 

Chapters Financial continues to advocate diversification of investment assets, with clients maintaining cash positions with other assets to cover unforeseen circumstances. Investors should hold risky assets only in the proportions they would be comfortable to maintain for the duration of a downturn, if this was to occur. 

Two issues that are causing the markets to focus in unison with each other are as follows.  

• The first is that, the Federal Reserve (Fed) will make its last purchase of treasuries and mortgage-backed bonds in October. When the first phase of Quantitative Easing (QE1) was paused in America, US equities fell, the same happened when the second phase was paused (QE2). With this current third phase now ending (QE3), we have seen US equities markets reacting with new falls. 
• The second factor is what some perceive to be relatively high equity market valuations. A possible correction of values to draw in line with historic norms (these are obviously not guides to future performance). 

Other factors, such as the various current geo-political situations, have a bearing on market sentiment and I cannot see this changing in the very short term. Europe remains an economic problem and we have advocated a small/limited allocation to this investment area for some time. Other areas, such as Japan, continue to weigh on investment returns and are actively avoided where possible. 

With investment diversification, the risk of exposure to volatility can be reduced, but not extinguished. We still see yields (dividends as an example) remaining high in coming months. The Chapters Financial view is to remain invested and to allow these issues to move through the system. This may mean that we see further volatility ahead; however, any overreaction may well cause detriment. 

If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

 

Independent Scotland. The (close) result is in!

I have watched the debate about the possible divide of our United Kingdom union with interest over the last few weeks. Let's face it, media coverage has made it unavoidable, but from a fiscal perspective with good reason. I remain surprised by the panicked 'surprise' of our senior politicians of all denominations that around 10 or so days before the crucial Referendum vote they realised that this was going to happen and was not just an idle threat.

Having now worked in the UK financial services world for 29 years, I started in the mid-80's with the introduction of 'Yuppies' and excess before experiencing my first economic recession at the end of that decade. What was instilled in me from this tender age was the strength (and at the time power) of Sterling as a global currency. I maintain that sadly we as a nation underestimate the real value of Sterling (or GBP) in the new digital-by-default era that we live in. This is especially relevant when we view the slow if not stopped progress of the Euro as a currency example.

Economies run in cycles. As I suggested in my book, The Recession is Over, Time to Grow, produced in the late spring of last year, an economy is like carrying a bucket of water. When it sloshes one way (prosperity), it will surely slosh the other way on the rebound (recession). The cycle is usually (not guaranteed) 10-12 years and this might point to a prosperous decade ahead with economic turbulence in the early years of the 2020's.

The arguments and convictions proffered by the 'Yes' campaign were strong and cannot now be ignored by Westminster. With Scotland now secure (for the time being) in our union, I have no doubt that this has whetted the appetite of other regions to request additional and new autonomy. The physical landscape of the UK will not change, but the economic outlook for us all may look very different.

Yours Aye

Summary

If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Coming! Ready or not! Base rate rise in 2014?

It was great to speak to Danny Pike on BBC Surrey and BBC Sussex last week about the Governor of the Bank of England, Mark Carney's, speech at Mansion House in London on the significant possibility that the Base Rate will rise from its current historic level of 0.5% pa. You can hear this radio slot here:

The issue is not that rates will rise, but that we may not see the old 'norm' of 5.00% pa -the Monetary Policy Committee believe 2.5% to 3.00% pa in around 2/3 years’ time is more likely. There is no guarantee where they will settle in the future and at what rate. The only certainty is the uncertainty, but the trend is certainly pointing up. The strength of Sterling as a currency jumped in the aftermath of the speech. I think rates will now rise this year.

It was also good to discuss the positive economic data available which has moved faster than anticipated to put pressure on the Bank of England to delve into its tool box of instruments to keep the UK economy from overheating.

Data recently available provides the following examples:

• Unemployment falling to 6.6% (2.16M, Source: BBC 11 June 2014)
• House price indices rising quickly
• Positive and upgraded GDP figures (Gross Domestic Product/ effectively what we produce as a nation in a period)
• Sterling strong
• Manufacturing increasing well
• Stock markets at near highs
• Inflation falling

These are only examples and individually may not have significant impact. However, as a group together, they have all moved positively and at a pace unexpected by some. Obviously, past performance is not an indication that these will continue or improve further.

The impact of this possible change is likely to be felt by individuals and businesses alike. For companies, they might find their product costs for export increase, along with any borrowing costs they may have.

For individuals, the impact will have different effects on borrowers and savers.

For borrowers, the cost of their finance is likely to increase if not on a fixed rate arrangement. They should prepare and interrogate their household budget, adjusting costs now to tuck away a buffer against these increased costs where possible.

For savers, their deposit rate 'drought ' may be coming to an end. This may be dependent on banks and building societies passing these future rate rises on to customers, although I am sure they will not hesitate for borrowers. As I noted in my radio interview, the currently attractive Pensioner Bond offering at the beginning of 2015 looks good now. This view may change in time as rates rise steadily.

The message from this blog is be ready, however you could be affected. Reviewing your financial planning now, over the summer of 2014, could well be a wise use of time to prepare for the changes ahead.

The Chapters teams in Guildford and Woking are well placed to advise you on savings and financial planning for your finances. No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Keith Churchouse, FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Chapters Financial Investment Committee / The US Economy

Each client and enquirer has a different view and approach to investment. They are all different and this is only natural.

Many retail advisory propositions also have different views on the way funds in whatever format (Pensions, Investments, ISA’s as examples) should be invested, some preferring passive investment over more actively managed planning.

Over the last 9+ years, Chapters Financial has always preferred an actively managed approach to investment. We believe this adds greater value to our client proposition. Past performance is not a guarantee of future performance.

To further this active investment strategy approach to investments, Chapters Financial Limited maintains and updates a regular view of the investment markets. We obviously have our own opinions (if you know the team at Chapters Financial you will know that they are not a shy group!), and add to our robust procedures by consulting with an independent specialist, Steven Williams, Director at Cormorant Capital Strategies Limited on a quarterly basis.

More detail on the work of Cormorant Capital Strategies Limited can be found here: http://www.cormorantcapitalstrategies.com/
Chapters Financial Limited is not responsible for the content of external webpages.

At our last Investment Committee Meeting in January 2014, we considered many investment areas. As an example, we looked at the US sector and I have received additional feedback and comment from Steven Williams, which is detailed below:

There is a good chance that 2014 will be the year that the US economy escapes the mire that has characterised the last five years or so. Certainly the conditions for continued progress are in place.

The US job market is strengthening. The unemployment rate stands at 7.0%, nowhere near the sub-5% pre-crisis levels but much improved on the 10% rate in 2009. With non-farm payrolls increasing at a rate close to 200,000 per month, further improvements in the employment situation ought to follow. In addition, the necessary process of deleveraging is maturing. US banks can boast of greater than average rates of tier-1 capital, non-financial corporate profit margins have seldom been wider and, according to Moody’s economy.com, the ‘average share of after-tax income that households must devote to servicing debt is as low as it has been since 1980’. Furthermore, consumer confidence – which suffered a knock during the government shut-down - has rebounded. It seems consumers are cognisant of improving conditions now and expectant of continued improvement to come. Of course, the outlook is not without risks to the downside.

I count three major risks to the outlook for the US economy. The first, and most dangerous, is that of exogenous shock – a genuine surprise. The only insight I can offer into such an event is that they occur more frequently than most investors expect and that at this time the US, in common with other regional economies, is remarkably vulnerable. On the other hand, most investors are wearily familiar with the second and third risks on my list. 2014, just like 2013, will be characterised by the political battle for control of the budget, including more wrangling over the debt ceiling. Finally, the Federal Reserve will be keen to continue to taper its present stimulus package and a disorderly exit has the potential to upset financial markets across the globe (investors in emerging market economies beware).

But, for all of this analysis, investors ought to be aware that asset prices and the wider economy do not move in lock-step. Whilst there is, I think, an absence of compelling evidence to suggest that equity markets are significantly over-priced there is equally a lack of evidence to suggest the counter.

Steven Williams, Director at Cormorant Capital Strategies Limited

No individual advice has been given in the course of this blog. Past performance is no guarantee of future performance. Investment values can fall as well as rise and are not guaranteed.

If you would like to discuss the investment opportunities with regards to your own individual situation and circumstances or any aspects of financial planning, both personal and business (SME), then please contact the team, either in Guildford or Woking.

Keith Churchouse FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899