Six reasons why investment trusts are a good place to save

By

-

24/05/2021

Earlier this year, I was invited to a soiree at the trendy Malmaison Hotel in London, a sniff away from Smithfield meat market.

The occasion was the 150th anniversary of Foreign & Colonial, an investment trust that through thick and thin (the 2008 financial crisis, two world wars, depressions and recessions) has made money for its shareholders.

In keeping with the trust’s modesty, it was a rather subdued evening as manager Paul Niven, an intelligent but somewhat dour Scot, outlined his thoughts on the fund’s longevity and the outlook for equities.

37 trusts have cut charges this year, including stalwarts such as Fidelity Special Values

Trusts outperform other funds

The average investment trust has outperformed its unit trust counterpart over one, three, five, ten and 15 years. For example, over five years, the average investment trust has delivered a return of 74 per cent, against 46 per cent for unit trusts, according to financial research firm Morningstar. Yet such a comparison is rather crude.

What investors should be doing when looking to buy a particular fund from an investment house is to see whether it offers both an investment trust and fund – and then choose the best based on a mix of past performance and charges.

For example, Scottish investment house Baillie Gifford runs investment fund Baillie Gifford Japanese and investment trust Baillie Gifford Japan. Both are managed by Matthew Brett and Praveen Kumar and the two portfolios are similar.

On charges, the fund is slightly cheaper – an annual ongoing charge of 0.63 per cent compared with 0.73 per cent for the trust. But in terms of performance, the trust wins hands down. Over the past five years, shareholders saw a return of 113 per cent, while fund holders received 85 per cent. The difference is largely a result of the trust’s astute use of cheap borrowing to buy equities in a rising market.

Other trusts that have outperformed their fund counterparts over the past five years include Fidelity Euro Values, Henderson European Focus, Henderson Smaller Companies, Invesco Asia, JPM Indian, JPM US Smaller Companies, JPM Euro Smaller Companies, Schroder Japan Growth and Schroder UK Mid Cap.

You can bank on their history

Finally, many investment trusts have existed for more than a century. Not just Foreign & Colonial (founded 1868), but globally invested Alliance (1888), Bankers (1888), Scottish Mortgage (1909) and Witan (1909). Yes, they may be old-fashioned and lack sex appeal. But if you want to build long-term wealth, I cannot think of better foundations.

The easy route to passive investing and some funds to pick

By

ERIC

-

24/05/2021

0

A lot has been written about passive investing, its simplicity and its merits but just how simple can you make it?

At its purest level, passive investing involves investing with the market rather than trying to beat it – as by trying to pick winners you run the risk of choosing losers instead and build up extra costs.

There is a powerfully persuasive body of research showing that the average fund manager doesn’t beat the market, it’s very difficult to identify genuine outperformance, and even harder to predict it in the future.

The Dalbar study in the US also shows that many investors manage to buy and sell at the wrong time and thus even underperform their own investments.

What’s in your index: Global stock market indices can differ slightly in their make-up. This table from MSCI shows its MSCI ACWI index which includes some emerging markets

Global stock market funds

There are a couple of global stock market indices and while broadly similar they do differ slightly. Unfortunately, they tend to have names full of acronyms rather than describing what they do.

These index funds will follow their named index. Visit the fund provider’s page and look for the breakdown of the index, which should explain exactly where it invests.

iShares Core MSCI World UCITS ETF

This iShares ETF invests in developed country companies around the globe and is based on the MSCI World index, of which the biggest holdings are 59% in the US, 8.8% in Japan and 6.4% in the UK. It has ongoing charges of 0.2% and is listed with the code SWDA.

iShares MSCI ACWI ETF

The key difference between this ETF and the MSCI World one is that it invests in companies in both developed and emerging markets. So with this ETF you also get exposure to countries such as Brazil, Mexico, Poland, China and India. The biggest holdings are still the US (53%), Japan (7.8%) and UK (5.6%), but China slots in fourth place with 3.44%. It has ongoing charges of 0.6% and is listed as SSAC.

HSBC FTSE All-World Index Fund C

This is an index fund that follows the FTSE All-World Index, which includes an emerging markets element and has low ongoing charges of 0.2%. Biggest holdings are 50% in the US, 17% in developed Europe excluding the UK, 8.5% in Japan, 6.1% in the UK and 5.4% in emerging Asia.

L&G International Index Trust

This is an index fund that tracks the FTSE World excluding UK index. It has 55% in the US, 18.5% in developed Europe, 9.4% in Japan and 4.2% in emerging Asia. Bear in mind it does not include the UK, so is better for those who already hold UK-focussed funds or shares elsewhere. It has ongoing charges of 0.08%.

Vanguard FTSE Global All-Cap Index Fund

This is an index fund that tracks the FTSE Global All-Cap index made up of large, medium and smaller company shares in developed and emerging markets, whereas other indices may only include the world’s biggest companies. It has ongoing charges of 0.24%. The biggest holdings are North America at 49%, Developed Europe excluding the UK at 16%, Japan at 8%, Emerging Asia at 6.3% and the UK at 5.8%.

UK bond funds

Bond index funds and ETFs should be relatively simple and hold a decent selection of UK government bonds of different durations. Bond prices and yields move in opposite directions, when the price is high, the yield is low.

Rising interest rates and the reversal of quantitative easing are forecast to pull bond prices down from their high levels, confusingly however, a market crash would probably see investors rush into bonds – sustaining prices.

One thing to bear in mind is that bonds that mature further into the future tend to offer higher yields, but those that have shorter lifespans are less likely to fall in value due to rising interest rates.

Vanguard UK Gilt ETF

This is an ETF that seeks to provide returns consistent with the performance of the Bloomberg Barclays Sterling Gilt index. It holds 66 different UK government bonds and has ongoing charges of 0.12%.

Vanguard UK Government Bond Index Fund

This index fund invests in 60 different UK government bonds, with a benchmark of the Bloomberg Barclays UK. Government Float Adjusted Bond Index. It has ongoing charges of 0.15%.

How to put these two elements together

Fund or ETF?

Index funds are traded like normal investment funds and priced daily, whereas ETFs are listed on the stock exchange and priced throughout the day.

For the ordinary long-term investor this makes little difference, as through the day pricing is more important for trading in and out of positions.

Bear in mind your holding and transaction costs on your chosen platform when picking between funds and ETFs.

Some platforms offer free fund dealing, while many charge share dealing rates to buy and sell ETFs (these can often be cut by regular investing).

On the flipside, on some platforms it can be cheaper to hold ETFs.

DIY investors who want to build a simple passive portfolio need to pick their global stock market tracker fund and their bond fund (a UK gilt one if they live in Britain and their medium to long-term incomings and outgoings are in pounds).

Then they need to blend the two together, according to their appetite for risk. The more risk they can take, the greater proportion of shares they can hold.

This is called asset allocation and can seem a tricky thing to judge, but there are various methods to work it out – ranging from rules of thumb to online tools, which many robo-advisers now provide a free version of and are worth trying a few out.

Once you have made your decision on asset allocation between bonds and shares, you need to find the best place to hold your investments.

Our guide to the best and cheapest DIY investing platforms can help. You need to check that a platform offers the investments that you want to hold and its charges for having an account and buying and selling investments suit you depending on whether you will buy funds, ETFs or both.

Open an account, choose your investments, set up regular monthly investing if you want to (and that is often a good move for long-term investing) and then sit back, relax and let your investments do their work.

How to invest in Britain: From shares to bonds and property funds

By

ERIC

-

23/05/2021

0

On the stock market, it can sometimes pay to be ‘greedy when others are fearful’ – so go the famous words of Warren Buffett, the octogenarian chairman of US conglomerate Berkshire Hathaway and one of the world’s most famous investors.

Fearful is exactly what many investors and business executives are about Brexit and its supposed impact on the UK. Almost every day brings a grim warning about the possible consequences of ‘no deal’.

Could it be that investors are currently too fearful and that there are opportunities for those brave enough to take a different view?

ALLURE: The Government is eager to attract investment into fledgling British businesses to help boost their contribution to the UK economy

Venture capital brings tax breaks

The Government is eager to attract investment into fledgling British businesses to help boost their contribution to the UK economy.

As a carrot they allow big tax breaks to those who invest in Venture Capital Trusts, including an immediate 30 per cent reduction in your income tax bill – so long as you hang on to the shares for five years.

Investors also receive any capital gains tax free – if there are any gains – plus tax-free dividends. The maximum investment is £200,000 in a tax year – though the minimum is usually £2,000 to £10,000.

Managers of venture capital trusts typically use the money to help 20 or 30 young companies grow their businesses.

If all goes to plan, the managers will either sell or float each business and hand over any profit made as a tax-free dividend.

But since the underlying firms are mostly unlisted or trade on London’s junior Aim stock exchange, they are best suited to sophisticated investors. There is no guarantee they will be successful.

Ben Yearsley, director of Shore Financial Planning, says: ‘Venture capital trusts can be attractive for those who want to access a dynamic part of the market that you can’t get elsewhere.’

Costs are steep, including upfront charges of up to 2 per cent and annual charges as high as 4 per cent. Yearsley likes Maven Income & Growth and Pembroke B shares VCTs.

Your pension questions answered

Are you trying to save for retirement, make the most of your income in old age, navigate the state pension maze, or just feel baffled by some bit of pension jargon?

In the This is Money podcast this week, former Pensions Minister and our regular columnist, Steve Webb, is on hand to help you out.

Editor Simon Lambert and host Georgie Frost are also joined by The Pensions Advisory Service boss Michelle Cracknell to answer reader questions.

Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.

Property brings solid gains

Physical buildings such as shops, offices, warehouses and factories with their foundations in UK soil could not be more British. Investors usually buy through funds or real estate investment trusts.

Commercial property can provide consistent income and long-term returns – and is an important ingredient in diversifying investments providing some protection from stock market falls.

Although no guarantee of what lies ahead, the average property fund has returned 40 per cent over five years and 65per cent over ten years.

Patrick Connolly, of financial adviser Chase de Vere, says: ‘We’ve seen how effective this can be in recent weeks when commercial property investments have held up while stock markets have fallen.’

But a fund which holds bricks and mortar is not easy to sell quickly – the managers will have to offload the properties to release cash.

This was seen when property funds such as those run by Standard Life and Aviva were suspended from trading in the upheaval after the EU referendum.

Connolly adds: ‘We only recommend funds that invest in physical property as they have far less correlation to the stock market and are less volatile than those that invest in property shares.’

He likes funds that invest widely across the UK and are not too fixated on London – such as M&G Property Portfolio, L&G UK Property and Janus Henderson UK Property.

Peer-to-peer loans beat cash deposits

Britain’s small businesses often turn to peer-to-peer loans as key means to growing their sales.

These let ordinary people stump up their own money for firms to borrow and in return receive interest that aims to beat cash deposits.

The deals are arranged through an online ‘peer-to-peer’ lender – a kind of dating agency for businesses and consumers.

One of the biggest is Funding Circle where investors can earn rates of up to 7 per cent. Using its automated option lets investors spread their risk across many businesses.

For example, lending £2,000 allows investors to spread money across at least 200 businesses – but the interest rate they earn will be lower, perhaps 4 per cent. P2P investments can be held in a tax-free Isa.

Minnow British businesses that lenders have supported via Funding Circle include The Great Yorkshire Gift Shop in Leeds.

Why ‘simple’ investment fees are anything but

By

ERIC

-

21/05/2021

0

The investment industry is littered with jargon: the use of numerous acronyms when we describe fees is particularly irritating to many – OCF, TER, AMC.

No wonder investors are confused and the Financial Conduct Authority – the investment industry ‘watchdog’ – has spent the past five years or so looking into charges and how to make them easier for people to understand and compare.

Before 2013, fees were generally shown in two ways: an annual management charge (AMC) and a total expense ratio (TER).

The problem many investors face is getting their head round confusing fund fee jargon

Mifid 2 will require investors to see all these costs upfront before they invest – they will receive a pre-sale illustration, with all the fees added up.

Is it just me or are we coming full-circle?

In our experience of dealing with do-it-yourself investors over the past 30 years, fees are an important consideration and investors want to be able to see clearly what they are paying for.

However, fees are not the be all and end all. Consistency of performance after fees is what counts most, and investors are willing to pay a bit more for a good fund.

Our research also shows that there is absolutely no correlation between the cost of a fund and its performance.

Could fees be reduced? Yes.

Especially on some of the larger funds. But does cheap mean best? Absolutely not.

What investors don’t want is a mountain of paperwork to get through each time they make an investment, which is a real risk at the moment.

Regulation is great but it shouldn’t get in the way of people investing.

At a time when we are living longer and need to finance our own later life, the industry needs to be encouraging people to invest, not putting barriers in their way.

We need to keep it simple.

To me, the easiest way of doing this would be to make the industry be consistent in which fee we all show and how we show it.

Then comparison would be easy, not onorous.

Darius McDermott is managing director of Chelsea Financial Services

50 of the best funds and investment trusts

By

ERIC

-

21/05/2021

0

We asked trusted experts to recommend the best funds and investment trusts that cover different investment sectors – and included This is Money’s selection of active and passive options too.

Investors are spoilt for choice when it comes to deciding on funds and investment trusts that can put their money to work.

Funds, trusts and trackers deliver the chance to invest in almost anything you can think of, almost anywhere you want to, at a low cost and with minimal effort.

Yet, with all that choice comes a tricky task. An encounter with the list of almost 3,000 UK-based fund options on offer can be very confusing, even for an experienced investor.

The Brexit wobble is a reminder that over short periods the fund dealing might be suspended for sensible reasons

Property

F&C Real Estate Securities

Ongoing charges: 1.45%

‘F&C Real Estate Securities invests in both residential and commercial real estate companies, listed in the UK and Europe’, says FundCalibre’s Darius McDermott. ‘F&C has one of the best resourced and most experienced property teams in the business and also runs the TR Property Investment Trust, which I also rate highly. The unique way the managers use the full range of tools available to them, including by shorting unfavoured stocks, enables them to express a wider range of views and better manage risk. This is a big positive given the small size of their investment universe.’

Kames Property Income

Ongoing charges: 0.96%

‘The Brexit wobble is a reminder that over short periods the fund dealing might be suspended for sensible reasons – this is a given, and always was’, says Fund Expert’s Brian Dennehy. ‘Kames Property Income continues to have attractions in a low interest rate environment, with a yield of 4.4%. Its greatest emphasis is outside London and the South East, where decent value remains.’

Legal & General UK Property

Ongoing charges: 0.75%

‘This is a core property fund and investors benefit from access to Legal & General’s expertise’, says Architas’ Adrian Lowcock. ‘Legal & General UK Property only invests in quality assets with strong tenant covenants and leases in areas with strong underlying economies. The fund’s investment process considers both the economic outlook and property selection. The manager, Matt Jarvis, may make use of property derivatives, property securities and cash to manage liquidity within the fund.’

TR Property

Ongoing charges: 0.76%

‘TR Property trust offers a diversified exposure to UK REITS at an attractive discount with a reasonable yield’, says Canaccord Genuity Wealth Management’s Patrick Thomas. ‘Post-Brexit there is still real value with some of their holdings themselves trading at substantial discounts.’

Trump hasn’t dented enthusiasm for Chinese IPOs in the US

By

ERIC

-

20/05/2021

0

Trump hasn't dented enthusiasm for Chinese IPOs in the US

Getty Images

Yu Gong (center), Founder and CEO of China-based iQiyi (IQ), rings the Opening Bell at Nasdaq MarketSite in Times Square with employees and investors in celebration of its initial public offering (IPO) on March 29, 2018 in New York City.

The political sparring between Washington and Beijing hasn’t dampened the interest of Chinese companies wanting to list shares in the U.S.

Chinese initial public offerings in the U.S. accounted for about a fifth of U.S. IPO proceeds in the last three months, their best quarter by proceeds in three years, according to Renaissance Capital. The firms, mostly lesser-known, smaller Chinese companies, are often drawn to the prestige associated with the New York stock exchanges.

“As a U.S.-listed company it’ll be easier to attract top talent from Chinese internet companies,” Yipeng Li, chief financial officer of Sunlands Online Education, told CNBC on the day of its IPO, March 23.

Half of investors expect UK stock market to fall over next six months

By

ERIC

-

19/05/2021

0

The recent sharp sell-off in shares worldwide has unnerved many UK investors – and half expect the market downturn to persist until the end of the tax year.

This is according to new research by financial services firm Willis Owen, which also found that 17 per cent of UK investors expect the UK stock market to fall by a tenth between now and then.

Some 6 per cent of the 1,000 UK investors surveyed gave a more gloomy outlook, anticipating a correction of more than 15 per cent.

Of those expecting the UK stock market to fall, 71 per cent believe that Brexit will continue to drive UK share prices lower

UK shares have been and remain fragile amid Brexit turmoil. The UK stock market has slipped lower amid the political fall-out from the struggle to get a Brexit plan sorted before the UK leaves the EU on 29 March 2019.

Of those expecting the UK stock market to fall, 71 per cent believe that Brexit will continue to drive UK share prices lower, and two-fifths (42 per cent) intend to reduce their exposure to UK shares and and bonds over the next six months as a result.

Share this article

Share

HOW THIS IS MONEY CAN HELP

How to choose the best (and cheapest) DIY investing Isa – and our pick of the platforms

Meanwhile, 41 per cent and 37 per cent of respondents believe increased political risk – the danger that the actions of governments might reduce the cash-flows that investors expect from their investments – will be the key reasons behind future falls.

Adrian Lowcock, of Willis Owen said: ‘Even after the sell-off in markets in October investors remain nervous of the UK market.

‘Our research reveals Brexit is putting off investors, and this is a dominant trend across both professional and retail investors and is reflected in industry wide data.

‘However, investors should think longer-term when considering their portfolios. The UK looks good value for long-term investors.’

Projected falls in the UK stock market
Percentage fall in UK stock market over the next six months (%)	Percentage of UK retail investors who think it will fall by this much between now and April 2019 (%)
Up to 5	11
Between 5.1 and 10	22
Between 10.1 and 15	11
Between 15.1 and 20	4
Over 20	2
Dont know	4

Another interesting statistic from the study is 46 per cent of investors believe that any correction in the UK stock market over the next six months could be an attractive long-term investment opportunity.

But following the famous buy low, sell high investment maxim is easier said than done, as market timing is a hard art to master.

Seasoned investors can testify that selling when markets are falling does not usually pay off, but it can also be hard to find the confidence to buy when markets are down substantially

History shows that steep falls are often followed by a bigger rebound over the long term, however.

A separate study by investment management firm Quilter Cheviot found a person who invested £10,000 in the stock market through the average UK equity fund in March 1993 would now have £58,755 if they were brave enough to leave it untouched.

This figure takes into account loss that would have occurred during the global financial crisis of a decade ago.

Two UK funds tipped to prosper

For investors looking to invest more in the UK, Lowcock favours Merian UK Smaller Companies and Man GLG Undervalued Assets funds which levy ongoing charges of 1.03 per cent and 0.9 per cent respectively.

He said: The Merian fund has one of the most highly regarded small and mid-cap teams, headed by Dan Nickols who is the manager of this fund.

‘Companies must demonstrate one or more of the following characteristics: the ability to grow earnings faster than the market average for an extended period of time; the scope to generate a positive surprise; or the potential to be re-rated relative to the market.

‘A pragmatic approach is taken to valuation, with various ratios and timescales used depending upon the situation. This flexible approach allows growth, value, and recovery names to be held, but the portfolio has tended to show a growth bias.’

When it comes to the Man GLG Undervalued Assets, Lowcock says fund manager Henry Dixon and co-manager Jack Barrat believe they can add value through thorough analysis of company balance sheets to understand a company’s true, ‘real-world’ assets and liabilities.

He adds: ‘They seek to identify two types of stock: those trading below their estimate of the company’s asset value and those where the company’s profit stream is being undervalued relative to the cost of capital, in their opinion.

‘The portfolio has a value bias relative to peers, but it does steer the managers towards elements of quality and positive earnings momentum. Dixon has demonstrated his ability to consistently execute the investment process with discipline.’

Check & Update your Android version

By

ERIC

-

18/05/2021

0

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Aliquam eros ante, placerat ac pulvinar at, iaculis a quam. Duis ut risus lobortis diam molestie vehicula. Nunc aliquet lectus at egestas tristique. Orci varius natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus. Ut commodo vel quam sit amet aliquam. Nulla facilisi. Sed enim libero, pellentesque euismod hendrerit sed, vestibulum nec mi. Integer aliquam purus blandit eleifend auctor. Maecenas porttitor eros at pulvinar lobortis. Donec arcu ante, fringilla id orci id, dignissim mollis sapien. Aenean vehicula justo mauris, eget interdum turpis dapibus a.

Quisque massa mauris, imperdiet in nisl vitae, mollis faucibus enim. Suspendisse mollis tempus enim, id tincidunt velit lacinia eget. Nam tincidunt lorem sit amet malesuada aliquet. Morbi pellentesque pharetra turpis vel mattis. Proin vulputate aliquet tincidunt. Nulla sed urna consequat, aliquam diam in, congue metus. Nullam sit amet aliquam orci.

Donec lorem metus, pulvinar sit amet augue ut, tristique euismod neque. Nullam vitae hendrerit tellus, sit amet maximus lorem. Praesent commodo orci ut venenatis dictum. Pellentesque odio quam, rutrum a mi sed, aliquet ullamcorper ipsum. Phasellus bibendum elit ligula, sed placerat diam hendrerit non. Suspendisse commodo tempus leo at congue. Curabitur aliquet efficitur nisi, eu dignissim dui consectetur vitae. Aenean eget magna quis est tincidunt maximus. Nunc non metus vitae sem imperdiet scelerisque. Aenean egestas euismod ante, id congue ligula egestas sed. Quisque eros enim, dignissim non efficitur posuere, viverra in velit. Aliquam ac pretium sem. Suspendisse fringilla mattis orci in consequat. Mauris quis nulla sed dui volutpat semper eget at neque.

Save £2,880 a year for 18 years and give your child a £1.5million pension

By

ERIC

-

17/05/2021

0

Starting early can make all the difference when building wealth on behalf of children.

According to Gemma Godfrey, of online investment service Moola, ‘the hardest step is the first, but it is also the most powerful’.

A lot of the benefit from saving or investing early is down to plain and simple compounding, hailed by Einstein as the ‘most powerful force in the universe’.

Valuable lessons: Cash savings are crucial, providing children with hands-on experience of managing their own finances as they grow up

OPEN AN INDIVIDUAL SAVINGS ACCOUNT

The first port of call for most parents is a Junior Individual Savings Account (Jisa).

This is a tax-free ‘wrapper’ that protects cash savings or investments from income and capital gains tax. It cannot be accessed until a child reaches age 18. It is attractive because any savings held outside a tax-free wrapper on behalf of a child that earn annual income in excess of £100 in interest (or dividends) will be taxed as if it belongs to the parents.

The annual Jisa allowance is £4,260 in the current tax year. For more flexibility, a parent might prefer to open their own adult Isa and simply earmark the proceeds for their children. Isas for adults have a more generous annual limit of £20,000 and withdrawals can be made at any time.

TEACH THEM HOW TO SAVE CASH

Cash savings are crucial, providing children with hands-on experience of managing their own finances as they grow up. The best-buy rates on standard savings accounts for children are available from HSBC (2.96 per cent), Nationwide Building Society (2.5 per cent) and Skipton Building Society (2.25 per cent). They can usually be opened from birth and operated by a child from age seven.

Cash Jisas offer higher interest rates than children’s savings accounts – but the drawback is that they cannot be touched until age 18. Financial scrutineer Moneyfacts says best rates are from Coventry Building Society (3.6 per cent), Danske Bank (3.45 per cent) and Darlington Building Society (3.25 per cent).

BUILD UP A STOCKS AND SHARES FUND

Since money in Jisas is locked away for up to 18 years, they are an ideal home for equity investments with their greater potential for inflation beating long-term growth.

Jonathan Raymond, of wealth manager Quilter Cheviot, is just about to open a Jisa for son George who is four weeks old. He says: ‘I am using cash gifts from grandparents to set up a stocks and shares Junior Isa for him.’ He will be choosing a suitable equity investment. He says: ‘Although cash is important, paltry interest rates mean you really need to engage in the financial markets to build wealth.’

Like many experts, Raymond favours investment funds and investment trusts for Jisas as they spread the risk for investors across a range of shares.

Most parents naturally gravitate towards the UK stock market as their starting point. But looking further afield to global markets may be more profitable.

Raymond says: ‘The FTSE All- Share Index is up 175 per cent over the last ten years but the FTSE World Index is up 280 per cent.’

More adventurous parents might tiptoe into even riskier territory, such as smaller companies which often perform better than larger counterparts over the long term.

Raymond likes Monks Investment Trust, a listed company that invests in international shares including Prudential and Google. For smaller companies exposure, he suggests investment trust River and Mercantile UK Microcap. For the UK, he likes Liontrust UK Growth which buys British-listed companies with a strong global presence, such as Diageo, Compass and Rolex.

He also recommends Smithson, a new smaller companies global investment trust launched by City legend Terry Smith.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

We’re separated but not divorced, so will my estranged husband’s death increase or cut my pension and benefits?

My pension scheme will cut my wife’s payouts if I die, because she’s 17 years younger: Isn’t this ageist and illegal?

I have incomplete years in my NI record that it’s too late to fill – can I get a refund on wasted contributions?

My sister-in-law will get no extra state pension after her husband died – is it because she was his second wife?

What bereavement payments are widows entitled to? I only received small sums when my husband died

Can couples inherit state pension from each other, and how much might they get? Steve Webb replies

My employer runs a ‘salary sacrifice’ scheme, but would signing up boost my pension?

Sarah Coles, of broker Hargreaves Lansdown, suggests parents can pique their children’s interest by selecting funds that include the shares of companies they are familiar with.

She says: ‘Scottish Mortgage Investment Trust holds familiar brands such as Amazon, Alibaba, Airbnb and Ferrari. Rathbone Global Opportunities invests in Activision Blizzards, the makers of Candy Crush Saga and Skylanders. Lindsell Train Global Equity holds Pepsico – owner of Pepsi and Doritos – as well as Disney.’

SET UP A TRUST FOR REGULAR SAVINGS

Many investment trusts offer regular savings schemes aimed at children. Minimum contributions are as low as £25. For parents, the best strategy is to set up a simple ‘bare trust’. This means the child becomes the legal owner and receives the proceeds at age 18. It can be done when setting up the investment and is usually free.

TAKE A GAMBLE ON PREMIUM BONDS

With Christmas around the corner it could be tempting to buy a child a fun financial gift in the form of National Savings & Investments Premium Bonds. More than 800,000 under-16s currently hold them and this month alone 45,000 prizes were paid out to lucky youngsters.

As many as ten under-16s have even won the jackpot since 1994 when the first £1 million prize was introduced. But there is no guarantee holders will win anything.

The odds of any £1 bond winning the jackpot is a distant one in 39 billion. The chance of a smaller windfall (at least £25) is a more appealing 1 in 24,500.

Currently only parents and grandparents can buy the bonds for kids with the minimum initial purchase set at £100 – or £50 by electronic transfer.

US subprime mortgage bonds back in fashion

By

ERIC

-

15/05/2021

0

US subprime mortgage bonds back in fashion

Adam Jeffery | CNBC

Issuance of securities backed by riskier US mortgages roughly doubled in the first quarter from a year earlier, as investors lapped up assets blamed for bringing the global financial system to the brink of collapse a decade ago.

Home loans to people with scratches and dents in their credit histories dwindled to almost nothing in the aftermath of the crisis, as litigation-weary lenders retreated to patch up their balance sheets. But over the past couple of years a group of specialist firms has begun to bring the loans back, navigating a dense web of new rules drawn up to protect borrowers and investors in the $9.3tn US home-loan market.

Last year saw issuance of $4.1bn of securities backed by loans that would have been called “subprime” before the last financial crisis, according to figures from Inside Mortgage Finance, with the pace picking up in the latter half of the year. The momentum has continued into 2018, with deals worth $1.3bn in the first quarter — twice the $666m issued in the same period a year earlier.

Don’t just invest for income – it’s total return that matters

By

ERIC

-

13/05/2021

0

In this series we are looking at the issues surrounding investing for income and how it can be used to increase the money you have to spend or grow your wealth.

In the first part James Norton, senior investment planner at Vanguard, looked at the basics of dividends, bonds and interest.

In this instalment, he explores the different sources of income you may have, the distinction between investment income that helps to build your savings, and the income you receive in retirement.

Gains made from investment portfolios serve as an integral part of your income at retirement

Why it’s not just about income – growth matters too

The traditional route many investors have taken when managing a portfolio for income has been to buy a number of UK equity income funds and balance this with some fixed interest bonds funds to reduce the risk and top the income up.

The idea being that the income from these combined investments could then be spent and the investments would be left to grow.

However, this is the wrong approach for most people. In fact, despite the title of this series, the whole concept of investing for income is flawed. Here’s why.

Assume Bob has a portfolio of £250,000 and he needs income of £12,500 a year, which works out at 5 per cent of his portfolio value.

Should he care about how he gets that? Does it matter if all of it comes from income, capital growth or a combination of the two?

Provided the portfolio generates the required return of 5 per cent he should be happy. In fact, given that capital gains receive a more favourable tax treatment than income, there’s an even stronger argument not to focus on income.

The crucial thing is that the portfolio generates a sufficient total return, the combination of income and capital growth, so that Bob does not run out of money.

Why are we so fixed on income?

Why are so many of us fixated on income?

The reason is simple. When we come to retire, most people find it very hard to contemplate spending capital.

When we retire, we are faced with the fact that we’re not earning money any more, just spending it. And that causes a capital-preservation instinct to kick in. We can no longer make the losses back through earned income.

The result is an unhealthy fixation on making sure the portfolio generates a high income so we don’t have to touch the capital.

So, while income is an important part of the overall return a portfolio generates, we should not be fixated on income.

We all need money to spend in retirement, but our primary concern should be the total return our portfolio produces, not the income it generates.

In the earlier example, what use would an income of 5 per cent have been to Bob, if the portfolio’s value fell by 6 per cent?

Next time: In part 3 we are going to look more at the risks of chasing yield and some common traps that investors fall into.

Krawcheck’s Ellevest rolls out funds to invest in women

By

ERIC

-

11/05/2021

0

Krawcheck's Ellevest rolls out funds to invest in women

Adam Jeffery | CNBC

Sally Krawcheck, CEO and Co-Founder of Ellevest.

Sallie Krawcheck’s Ellevest is rolling out new funds that will invest in women, specifically in a way that helps get more money directly into the hands of women and organizations that support their advancement.

Cboe encourages SEC to allow bitcoin ETFs

By

ERIC

-

11/05/2021

0

Cboe encourages SEC to allow bitcoin ETFs

Chesnot | Getty Images

A man walks past a Bitcoin symbol on a window of the offices of the bank ‘La Maison du Bitcoin’ on December 05, 2017 in Paris.

Cboe Global Markets, the first to launch bitcoin futures, would like the Securities and Exchange Commission to allow cryptocurrency exchange-traded funds.

“Cboe encourages the Commission to approach Cryptocurrency ETPs [exchange-traded products] holistically and from the same perspective that it has historically approached commodity-related ETPs,” the derivatives exchange said Friday in a letter to the SEC, published online Monday.

“The Commission should not stand in the way of such ETPs coming to market” given Cboe’s arguments for addressing the SEC’s concerns, the letter said.