How did convertible securities come about? Back in the 1800s railroad companies in the US needed to raise capital and so convertible bonds were issued to attract potential investors to the railway industry. Convertible bonds offered investors the potential to earn interest alongside the option to convert bonds into equity. In essence, an opportunity to benefit from any equity appreciation but with the security of interest and principal payments on their investment should the equity price fail to rise. In short, investors were able to partake in upside returns while enjoying some protection on the downside.
Spring weather in London has been mixed but I was able to grab a roof garden photo opportunity after a meeting at Goldman Sachs in London. I caught up on the Goldman view on prospects for India which, unlike many economies in the world, is seeing an improving macro environment and is likely to record economic growth this year of close to 6%.
What exactly is robo-advice? A robo-adviser is a type of financial adviser that uses algorithms to provide automated investment advice and manage portfolios. Online platforms such as Moneyfarm, Nutmeg and InvestEngine use complex mathematical models and historical data to analyse market trends and make investment recommendations based on the client's risk tolerance and investment goals.
The UK isn’t alone when it comes to the battle with high inflation and slowing economic growth, but it looks like we’ve been harder hit than most as, according to the International Monetary Fund (IMF), we’re set to be one of the worst performing major economies in the world this year. The IMF predicts that the UK economy's performance in 2023 will limp over the line in last place out of the G20 - the 20 largest economies - and this includes Russia, a country weakened by sanctions. With the IMF suggesting that the UK economy will shrink by 0.3% during 2023 and then grow by 1% next year, the outlook is far from rosy, but at least the latest prediction is slightly more upbeat than its previous expectation of a 0.6% contraction.
Visiting Edinburgh in the spring has its benefits as it’s still relatively quiet on the tourist front but light in an evening, with the Princes Street gardens coming into bloom. The gardens were created in 1820 following the draining of the North Loch and to separate the Old Town seen in the distance from the new. It remains one of the most important urban parks in the heart of Edinburgh with over 37 acres and houses the National Gallery of Scotland which opened in 1859 - an elegant neo-classical building designed by William Henry Playfair. It is situated on The Mound, an artificial slope just off Princes Street. The park also features several famous statues, including that of Edinburgh poet and publisher Allan Ramsay dating back to 1862.
For many years the dominant secular themes were disinflationary. Investors always need to contend with the interplay and overlap between secular and cyclical forces. Arguably these have now changed, and investors should be thinking about a 7D world if looking for longer term secular trends (perhaps the move from 3 to 7 is an indicator in itself of higher inflation!). The 7 are Deglobalisation, Decarbonisation, Digital revolution, Defence, Disease, Debt and Demographics. Within this there are forces that are both inflationary and disinflationary, so there may be periods of inflationary waves, depending which has the most influence on the macro factors driving the global economy. However, on balance, the demand and supply side effects which imparted secular disinflationary forces on the global economy for much of the post GFC period have dissipated to a significant degree.
What’s going on in the global banking sector? With Credit Suisse and First Republic Bank needing bailing out of a seriously sticky situation and Silicon Valley Bank (SVB) completely collapsed, it’s been a tough start to 2023. The most common cause of bank failure is when the value of the bank's assets falls to below the market value of the bank's liabilities - the bank's obligations to creditors and depositors - and this scenario can occur if the bank loses too much on its investments.
As a financial adviser in tempestuous times, have you considered the impact that investment management outsourcing could have on your business? What exactly is outsourcing? It’s the practice of an adviser delegating part or all of their investment management activities to a professional money manager or outsource provider for a fee. In return, the outsource provider offers a range of investment solutions, off the shelf or bespoke, that are thoroughly researched and monitored by a team of investment professionals.
During my latest trip to London, I had the opportunity to catch up with Nick Clay who manages the Redwheel Global Equity Income Fund, having moved across from BNY Mellon with his entire team. The objective of the fund remains the same - to deliver low volatility returns driven by a compounding dividend stream which starts at a higher level than the market. The fund takes a value orientated approach and aims to allow its investors to grow wealthy slowly. Nick believes that markets will be more volatile than in the post GFC period, as inflation is likely to fluctuate rather than be completely crushed and that sort of market should suit the investment style which is contrarian in nature due to the fact that it only buys stocks at a yield premium to the market. For stocks to yield significantly more than the market at time of purchase, they must be both out of favour and controversial.
We are clearly now in a new macroeconomic regime. The era of low inflation, low interest rates and low macroeconomic volatility is over, for now at least. Recent comments including likely upgrades to economic forecasts by the IMF only reinforce this view. In this new regime, interest rates will naturally fluctuate, but they will not return to zero or ultra-low levels. Tighter monetary policy (higher short-term interest rates) is not temporary, and the easy monetary era is over. All risk assets valuations will need to adjust to account for structurally higher cash rates. In other words, they will need to offer sufficiently high-risk premia over short-term interest rates to be attractive. Listed (stock market quoted) asset classes have adjusted to a significant extent, but many unlisted valuations have yet to reflect this new reality.
January saw the New Year start with investors hoping for less febrile markets than 2022 produced and after a year of multiple unexpected events, investors will be hoping for a return to some level of normality for the global economy with supply chain pressures continuing to ease on the manufacturing side and bottle necks dissipating. While no one knows exactly what lies ahead over any 12-month period, history does tell us that since 1928 there have only been four periods when the US stock market has fallen for two consecutive years, so hopefully history will be on the side of investors in 2023.
When deliberating investment in Japan, there are some key themes for consideration: the ageing population, complicated demographics and low levels of immigration. The combination of these factors creates a tricky environment with a tight labour market and a problematic healthcare system at its core.
Despite having a very difficult 2022, China remains the dominant economy in Asia and influential across all emerging markets, as outside Asia many of these countries are commodity exporters.
With Christmas looming, most of us are looking back at the last 12 months with a strong sense of ‘good riddance’. Let’s face it – it’s been a challenging year that’s reminded us just how volatile life and markets can be. This year has presented us with a set of extraordinary challenges in the form of war on the European mainland, post-pandemic supply chain disruption, soaring energy prices, rising inflation and interest rates and in the UK, political turmoil, and industrial action. Surely, 2023 won’t be quite so turbulent?
We’ve been hosting conferences since 2014 and take great pride in creating the most remarkable and informative day possible for our attendees. Our flagship conference takes place in Harrogate in November, and this is where we present the R Awards to winning fund groups.
Entrepreneur Elon Musk has achieved a lot in his 51 years. He’s CEO of Tesla, Inc. and the private space company SpaceX, he co-founded PayPal, was an early investor in several tech companies, and in October this year he completed a deal to take Twitter, Inc. private.
