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August Market Commentary

Archive for the ‘Investments’ Category

August Market Commentary

Wednesday, August 7th, 2019

Gold hit a six-year high as nervous investors looked for alternatives to stock markets. The IMF cut global growth forecasts amid continuing trade tensions.

In any normal month these would have been perfectly normal introduction, but July was not a normal month. With Boris Johnson becoming UK Prime Minister and sweeping into 10 Downing Street on a wave of promises to deliver Brexit ‘do or die’ by 31st October – only a handful of months away. 

How you feel about that commitment will almost certainly depend on how you voted in the 2016 Referendum. If you voted Leave then Boris is showing real leadership, we finally have a Prime Minister who is negotiating from a position of strength and he has achieved more in a week than Theresa May achieved in three years.

If you voted Remain then Johnson is threatening the union of the UK, driving the pound to dangerously low levels and risking – if not actively seeking – a catastrophic ‘no deal’ exit on 31st October. 

The one thing we think you can now say is that the UK will leave the European Union on 31st October. The public commitments to that date have been so clear that any backtracking is unthinkable. But there remain any number of imponderables, as we discuss in the Brexit section below. 

And so to the other world news that made the headlines in July. And yes, gold did hit a six year high of $1,450 (£1,190) an ounce as jittery investors looked for a safe haven. Gold is up by 6% over the last month and 12% in the last year as the US/China trade dispute, lower growth prospects for world trade and worries about inflation if the US Federal Reserve cut interest rates all added to investors’ uncertainties. 

Meanwhile, the International Monetary Fund (IMF) has trimmed its growth forecasts for the global economy for both this year and next year. Growth for this year is now forecast to be 3.2% – down from the 3.3% forecast in April – with growth for 2020 forecast to be 3.5%. Growth “remains subdued” said the IMF, with an “urgent need” to reduce trade and technology tensions. However, the IMF did raise its forecast for UK growth, from 1.2% to 1.3%. 

July was a generally uninspiring month for world stock markets. Of the major markets we cover in this Commentary only four made gains, and none of those gains were significant. Let’s look at what happened in more detail.

UK 

June was a wet month and UK high street retailers duly reported a ‘wash out.’ Total sales decreased by 1.3% in the month, taking the yearly average down to a 20-year low according to research from the British Retail Consortium. 

Bookmaker William Hill added to the gloom with plans to close 700 shops – putting 4,500 jobs at risk – and there are suggestions that up to 3,000 betting shops could close up and down the UK as gamblers increasingly move online and the reduction in stakes on fixed odds betting terminals starts to bite. 

And it is not just betting shops. A report from Retail Economics predicted that internet shopping will overtake physical stores by 2028 as deliveries become faster, cheaper and more convenient. The trend will be driven by millennials and Generation Z, who will form 50% of the adult population in the next decade. Ten years from now our high streets will be very different places – if they exist at all. 

Away from the high street there was good news in July though, as Amazon (who else?) announced plans to create up to 2,000 new jobs, taking its UK workforce up to nearly 30,000. 

Japanese telecoms company NTT announced that it would be opening a global HQ in London for one of its subsidiaries and at the end of the month Hitachi Rail announced a £400m investment at its plant in Newton Aycliffe, County Durham.

Jaguar Land Rover also unveiled an investment of ‘hundreds of millions’ to build a range of electric vehicles as its Castle Bromwich plant, which will secure the jobs of 2,700 workers at the plant. But – as there was across Europe – there was also bad news for the UK car industry, with Nissan threatening to cut 10,000 jobs worldwide and the Society of Motor Manufacturers and Traders saying that overall investment in the industry has ‘plummeted.’

From the roads to the rail. Boris Johnson has long been sceptical of HS2 and the chairman of the project has now written to the Department of Transport saying that it ‘cannot be delivered within its £56bn budget and the cost could rise by £30bn. There is bound to be a review of the project but meanwhile the Prime Minister used a speech in Manchester to commit to a faster trans-Pennine rail link – something the North of England has long needed. 

Let’s end the new Prime Minister’s first UK section with some more good news. ‘Fintech’ (financial technology) investment is booming in the UK and 2019 is set to be a record year, as funding reached £2.3bn in the first six months of the year. And household finances are looking up – June saw consumers saying they were optimistic about their personal finances for the first time this year. 

Also looking up was the FTSE 100 index of leading shares, which closed July up 2% at 7,587. But if the stock market was going up, the pound was definitely going in the other direction with the financial markets anticipating a ‘no deal’ Brexit. The pound closed the month down 4% against the dollar at $1.2218. 

Brexit 

To no-one’s surprise, it was Boris. The result was, perhaps, closer than many had predicted but Boris Johnson comfortably beat Jeremy Hunt in the vote by Conservative members, kissed the Queen’s hand and took over from Theresa May as Prime Minister. He duly appointed Sajid Javid as Chancellor, and we can expect a radical Budget when the new man in 11 Downing Street presents it. Whether that will be before or after 31st October remains to be seen, but one suspects that the speech – and the measures proposed – will be in stark contrast to anything Philip Hammond might have had in mind. 

Boris Johnson has had meetings in Northern Ireland, having already visited Scotland and Wales. He has demanded that the Irish backstop – the most contentious part of Theresa May’s Withdrawal Agreement – be scrapped and he’s been met with the predictable response from Europe. 

Are we now headed for a ‘no deal’ Brexit? Boris Johnson says he doesn’t want that, but has ramped up preparations just in case, with Sajid Javid committing an extra £2.1bn and meetings of the relevant Cabinet committee taking place every day. 

There remains, however, a significant number of MPs vehemently opposed to ‘no deal’ and the Government’s majority is wafer-thin. It’s unlikely, but you cannot rule out a General Election before 31st October and there will certainly be further attempts in parliament to thwart a ‘no deal’ Brexit. Meanwhile the Brexit Party and the hard-line Eurosceptics will be holding the Prime Minister’s feet to the fire.

‘May you live in interesting times’ is supposedly a Chinese curse. If nothing else the next 90 days in UK politics will certainly be interesting.

Europe 

There was plenty of economic news in Europe in July, but we should perhaps start in the corridors of power where, after much talking, negotiating and deal-making, German Defence Minister Ursula von der Leyen emerged as the only name on the ballot paper to replace Jean-Claude Juncker as European Commission chief. 

Von der Leyen makes no secret of her wish to move to closer European integration and – while the headlines were all about how her appointment will impact Brexit – she could, in the long run, be very bad news for a country like Ireland, which has benefitted from a lower corporation tax rate. 

It was all change in the top jobs as Christine Lagarde left the IMF to take over as head of the European Central Bank. 

Lower down the bankers’ food chain it was very much all change at the beleaguered Deutsche Bank as it announced plans for 18,000 job losses. There are rumours that the bank’s customers are pulling out $1bn (£800m) a day amid worries about the bank’s continuing solvency. 

There was also more gloom for the European car industry as car sales dropped by 7.9% in the European Union in June, the biggest fall since December and 130,000 registrations down on the same period last year. 

More generally the German manufacturing recession worsened as the Purchasing Managers’ Index for the sector dropped to 43.1 from 45.0, with any figure above 50 reflecting ‘optimism.’ This was the lowest level since 2012 as export orders showed their sharpest decline for a decade. 

How did all this translate onto the European stock markets? The German DAX index was down 2% in July to 12,189 while the French stock market fell just 20 points – unchanged in percentage terms – to 5,519. In Greece the market rose 4% to 900 as the centre-right under Kyriakos Mitsotakis won the snap general election. 

US

It was a good start to the month in the US, as figures for June confirmed that 224,000 jobs had been created against the expected 160,000. Normally this would have persuaded the Federal Reserve to keep interest rates on hold 

However, revised figures at the end of the month showed that the US economy had grown by less than expected in 2018, increasing by 2.5% and missing the President’s target of 3%. 

With Donald Trump continuing to describe the Fed’s decision to keep interest rates on hold as a ‘faulty thought process’ something clearly had to give and it duly gave on the last day of the month, as the Fed reduced US interest rates for the first time since 2008. The rate was cut by 0.25% to a target range of 2-2.25% but this wasn’t enough for the President. He scorned Federal Reserve chairman Jerome Powell on Twitter: ‘As usual, Powell let us down.’ 

In company news, there was the now seemingly-monthly bad news for Facebook, which faced a $5bn (£4.1bn) fine over privacy breaches, while US Treasury Secretary Steve Mnuchin criticised its plans for a crypto-currency, telling a press conference that it could be used by money launderers and terrorist financiers and was a national security issue. 

Apple posted a small rise in sales for the third quarter of its year – although iPhone sales and profits both dipped. Alphabet (Google’s parent company) and Amazon posted more impressive figures, with both firms reporting sales increases of close to 20% for the latest quarter. 

Meanwhile Elon Musk – of Tesla, SpaceX, the Boring Company and other future fame – brought us what may be his most revolutionary project yet. His company Neuralink revealed a brown and white rat with thousands of tiny electrodes implanted in its brain. It is, apparently, the first step towards linking the human brain to artificial intelligence, with the company betting that millions of people will eventually pay to become cybernetically enhanced. 

If Wall Street was cybernetically enhanced in July it wasn’t by much. The Dow Jones Index rose by just 1% in the month, closing at 26,864. 

Far East 

There was plenty of news in the Far East in July, but one story dominated all the others. The month began with Hong Kong leader Carrie Lam condemning the extreme use of violence as pro-democracy protesters stormed the parliament building. 

The protests continued throughout the month, and it seems inevitable that they will go on into August, quite possibly with ever increasing violence. Beijing – through the Hong Kong legislature – is determined to stamp down on any show of dissent and when then-Foreign Secretary Jeremy Hunt tried to intervene he was told in no uncertain terms to show some respect.

Away from the protests figures confirmed that China’s economy had grown at just 6.2% in the second quarter of the year. Obviously ‘just’ is a relative term, but this is the slowest rate of growth in China since the 1990s. 

Unsurprisingly the continuing trade tensions with the US meant that both China’s exports and imports were down when figures for June were reported, with exports down by 1.3% and imports down by 7.3% as domestic demand slowed. With China’s economy now driving so much growth around the world – not just in the Far East – it was hardly surprising that the IMF reduced its projection for global growth this year. 

In South Korea, Samsung announced that it was finally ready to sell its long-awaited folding phone after the April launch was delayed due to problems with the screen. The phone will go on sale in September in selected markets but – with the phone costing nearly $2,000 (£1,630).

A week later, Samsung faced rather bigger problems than fixing the screen on a folding phone, as the world’s biggest smartphone and memory chip manufacturer saw profits fall 56% in the three months to June. Samsung said results were in line with expectations as it blamed the continuing China/US trade war and a trade dispute between the South Korean and Japanese governments. 

It was – perhaps unsurprisingly – a disappointing month on Far Eastern stock markets as three of the four major markets fell.  China’s Shanghai Composite Index was down 2% to 2,933 while the Hong Kong market was down by 3% to 27,778. South Korea suffered a sharper fall as the market dropped by 5% to end July at 2,025. The one bright spot was Japan’s Nikkei Dow index, which was up 1% in the month to 21,522. 

Emerging Markets 

It was a relatively quiet month for our Emerging Markets section. Of the three markets we cover, Brazil was the only one to make any gains in the month with the stock market rising just 1% to 101,812. The Russian market slipped back by a similar amount, closing down 1% at 2,739. However, India suffered a sharper fall, sharing the month’s wooden spoon with South Korea as it fell 5% to end July ay 37,481. 

And finally…

News from the French Civil Service: Auditors for the Provence-Alps-Riviera region published a report in July showing 30 ‘ghost’ civil servants had been paid more than £22m to do nothing for the last three decades. Their jobs were phased out in 1989 but they continued to be paid, much to the embarrassment of the French President.

But, of course, we now know that the real way to riches is through your teenage son’s bedroom. Worried that he’s spending far too long in there playing video games? Nonsense, he’s working on his future career. July saw 16 year old US teenager Kyle Giersdorf win $3m (£2.46m) as he became world champion of the computer game Fortnite. 

With two British teenagers also picking up major prizes, it’s becoming an even bigger challenge for parents trying to convince their kids to wash the dishes. 

Ethical investments: what shade of green are you?

Wednesday, July 31st, 2019

Light green, dark green – there’s a whole range of shades when it comes to ethical investment opportunities. If you want to invest your money in line with your moral compass, then ethical investment funds or ‘green funds’ are suited to you. There are a few types to choose from; let’s check them out… 

Dark green

Dark green funds refer to funds that hold international ethical values at the heart of their investment strategy. Funds such as Kames Ethical Equity excludes certain areas completely. Tobacco and alcohol, oil & gas, munitions manufacturers and companies that utilise animal testing will not be found in such a portfolio. Another fund by Kames is their Ethical Cautious Managed fund which excludes energy stocks, tobacco and banks with investment banking operations. It also excludes government gilts on the bond side. 

Focused green

This is how we refer to ethical funds that only focus on a couple of particular areas for investment. Investing Ethically’s WHEB Sustainability fund has three focuses: health and population, climate change and resource efficiency. Legal & General’s Gender in Leadership fund is about investing purposefully without compromising returns – they believe that responsibly run, diverse companies will benefit both society and the investor. 

Light green

Funds within the lighter shade of green have ethical focus; they may invest in companies that are responsible in their practices, but might still be part of an industry deemed to be less than ethical. Such a fund would invest in an oil company aiming to move over to greener sources of energy. One such fund is Vanguard’s SRI Global Stock Fund which only invests in companies that meet the UN’s Global Compact Standards on environmental protection, labour standards, human rights and controversial weapons (it also excludes tobacco companies). 

Ethical investing offers the possibility of growing your wealth whilst benefiting society and is becoming more popular with investors of all ages. The ethical value of a particular fund, however, lies solely with the individual’s own personal values, as what is seen as ethical to one person may be deemed not so by another. That’s why it’s best to make sure each fund’s investment portfolio is consistent with your personal views before you invest. 

With all investment opportunities, there can be no guarantee of returns regardless of the fund’s ethical objectives. There will always be a degree of risk involved. It’s clear that investing ethically is becoming an increasingly important consideration for investors. Reflecting this, the sector has developed to offer a much wider range of funds and opportunities to meet a broad range of investor needs. The growth of the sector can only be seen as a positive step for investors and the broader society. 

If you’re interested in finding out more about investing ethically, do drop us a line.

July Market Commentary

Thursday, July 4th, 2019

Introduction

Many of you will know the old stock market adage: ‘Sell in May and go away, and come on back on St. Leger’s Day.’ 

The theory was that with everyone out of London for the summer season there was little business to be done and the stock market drifted lower. These days, of course, we live in a very different, very connected world where the London stock market is affected far more by relations between the US and China than it is by deals done at Royal Ascot and Henley. And if you had ‘sold in May and gone away’ then you’d have missed out on an excellent month: with just one exception, all the world’s leading stock markets rose in June, some of them by significant amounts. 

This was despite June being another month where the US/China trade tensions continued to simmer, where Chinese industrial output fell to a 17-year low and where India also faced tariffs from the US President – and inevitably responded in kind. Although there was a glimmer of light at the G20 summit at the end of the month, as the US and China agreed to a pause in hostilities, with talks on solving the trade dispute set to resume.

Stock markets also overcame gloomy news from the World Bank, which had opened the month by suggesting that the global economy was weakening. It was now predicting global growth of just 2.6% in 2019, and a very slight increase to 2.7% in 2020. Inevitably ‘international trade tensions’ were to blame. 

There was also a bleak long term forecast on jobs. Oxford Economics forecast that up to 20m manufacturing jobs around the world could be lost to robots and automation by 2030, with the people replaced by the robots finding that comparable roles in the service sector had also been squeezed by AI. 

One job up for grabs is, of course, that of the UK Prime Minister. The battle to succeed Theresa May has been fought down to two – Boris Johnson and Jeremy Hunt. We will have a decision by the end of July: whether the winner will be able to command a working majority in Parliament will be a different matter.

UK

For a change, the UK section of these notes is not awash with ‘retail gloom.’ No doubt that will return, for now let’s start with the good news…

Despite all the uncertainty, UK consumer confidence hit an eight month high in May, with unemployment continuing at a record low level and wages growing faster than expected in the three months from February to April. 

Wage growth for the period was 3.4% with official figures confirming wage growth of 1.4% after inflation had been taken into account. Despite this, though, many people continue to need more than one job to make ends meet, with estimates from the TUC released at the end of the month suggesting 1-in-3 people are now working in the ‘gig economy.’ 

…And if you like your glass half-empty, the rest of the month’s news would have been just what you were looking for. 

UK house prices slipped in May in a subdued market and – not helped by car plant shutdowns – figures showed that the UK economy had contracted by 0.4% in April. Car manufacturing fell by 24% in that month, with the Society of Motor Manufacturers and Traders saying that production is now 45% down on a year ago. 

With the continued uncertainty over Brexit and the ongoing global trade tensions, audit firm KPMG forecast that UK GDP growth will be 1.4% in 2019, falling to 1.3% in 2020, with both figures 0.2% down on the firm’s forecasts in March. 

Hand in hand with the race to succeed Theresa May – covered below – went the ongoing debate on the future of HS2. Boris Johnson has admitted to ‘serious doubts’ but leading business groups (including the CBI and the IoD) have urged the Government to commit to the project, arguing it is vital for the UK’s infrastructure. 

By the end of the month the gloom-mongers had won the battle, with the consumer confidence that had been so high in May turning a complete 180 degrees. By the end of June consumers were feeling negative about both their personal finances and the general outlook for the UK. 

Fortunately this view was not shared by the FTSE 100 index of leading shares, which rose 4% in the month to close June at 7,426. The pound survived the buffeting of bad news to end the month unchanged in percentage terms, trading at $1.2696. 

Brexit 

As we mentioned in the introduction, the race to succeed Theresa May is now down to two – former Foreign Secretary and ex-Mayor of London, Boris Johnson, and the current Foreign Secretary, Jeremy Hunt. The final decision will be taken by Conservative Party members, with the result announced on Tuesday 23rd July. 

All the indications at the moment are that Boris Johnson will win – he is an overwhelming favourite with the bookmakers – so what does he have to say about Brexit?  

Part of the reason he is such a firm favourite is that he has given a commitment that the UK will – deal or no deal – leave the EU on 31st. With so many top positions in the EU currently changing, and with many heads of government – Ireland’s Leo Varadkar is the latest – resolutely trumpeting the ‘no re-negotiation’ line, leaving without a deal is becoming a real possibility. Whether you see this as ‘crashing out’ or very sensibly moving to World Trade Organisation terms probably depends on whether you voted Remain or Leave. 

What a Johnson victory may well mean is an early Budget. At the moment the Budget is scheduled for November. However, Boris Johnson is reported to want to give the economy a real shot in the arm before the UK leaves the EU, so there could well be a tax cutting Budget in September, with cuts to both higher rate tax and stamp duty. 

Europe 

Among a media storm questioning her health after being seen shaking, German Chancellor Angela Merkel vowed that her coalition government will continue. This despite the surprise resignation of Andrea Nahles, leader of the coalition’s junior partner, the Social Democratic Party. 

If the political clouds are gathering over Mrs Merkel, the economic ones may be gathering over Germany as a whole following the release of more gloomy financial news. 

Industrial production in April was down by 1.9% compared to the previous month, with exports 0.5% lower than the same period in 2018. The Bundesbank – Germany’s central bank – is now predicting growth of just 0.6% this year, compared to a forecast of 1.6% growth it made in December. 

Clearly this is bad news not just for Germany but for the whole of Europe, as the slowdown in China and the US/China trade dispute continue to impact the German economy. 

There was more bad news in the car industry as Volkswagen announced plans to cut ‘thousands’ of jobs as part of a modernisation drive. Meanwhile BMW joined forces with Jaguar Land Rover to co-operate on electric cars as the traditional car makers continued to battle against new entrants to the market. 

There was more bad news on jobs as Deutsche Bank revealed plans to cut 15-20,000 jobs – although those would be worldwide cuts, not just in Germany. Meanwhile in the wider European economy the ECB said that it would keep interest rates on hold at the current record low levels until at least the middle of 2020, as it continues to try and spark some life into the Eurozone economy. 

And, as they say, all good things come to those who wait. After 20 years of negotiation it was finally announced that the EU had agreed a trade deal with Mercosur – the South American trade bloc which includes Brazil, Argentina, Uruguay and Paraguay. Brazil’s President Jair Bolsonaro called it “one of the most important trade deals of all time.” Whether Irish beef farmers, suddenly facing competition from South American imports, will agree is another matter…

There was plenty of ‘beef’ in European stock markets in June, as both the German and French indices rose by 6% in the month, to close at 12,399 and 5,539 respectively. 

US 

The month did not get off to a good start in the US, as figures showed that the economy had only added 75,000 jobs in May, far fewer than the 180,000 analysts had been predicting. It is possible that another month of poor figures could see a cut in interest rates from the Federal Reserve – something the President has long called for. 

The figures showed that wage growth was also sluggish, although US unemployment remains at a 50 year low of 3.6%. 

Something that wasn’t sluggish – and hasn’t been sluggish through much of 2019 – was the performance of the virtual currency Bitcoin, which has risen from £3,133 at the end of March to £9,335 by the end of June. Bitcoin is, of course, a virtual (or crypto) currency and in June, Facebook announced that it would be launching a virtual currency of its own – the Libra – in 2020. 

This virtual currency already has the apparent backing of Uber, Spotify and Visa and with bank JP Morgan also creating its own currency – the JPM Coin – June 2019 may turn out to be the month when virtual currencies took a major step forward. 

Staying in cyberspace there was bad news for two US cities as Lake City in Florida followed Riviera Beach in paying a ransom (in Bitcoin, inevitably) to hackers after their computers had been offline for two weeks. According to reports, workers in Lake City disconnected computers within minutes of the attack but it was too late: they were locked out of email accounts and residents were unable to make payments and access online services. The ransom was reported as $500,000 (£394,000) and it is surely only a matter of time before the same thing happens to a local council in the UK. 

Fortunately Wall Street was not held to ransom and, in line with virtually every other major world stock market, the Dow Jones index enjoyed a good month, rising by 7% to close June at 26,600. 

Far East 

We have covered the US/China trade row above – at least the month ended with a commitment to restart the talks aimed at ending the dispute. But in June it was the China/Hong Kong row that really made the headlines, as the Hong Kong legislature sought to allow extraditions to mainland China, arguing that it “would keep Hong Kong a safe city for residents and business.” 

This sparked huge protests and some of the worst violence seen in decades, with protesters worried ‘keeping the city safe’ will inevitably come to mean ‘not criticising the Chinese government.’ 

There are also worries that the proposed legislation might damage Hong Kong’s status as a global financial centre. “The proposed legislation would undermine Hong Kong as a hub for multinational firms [and] as a global financial centre,” said a Washington-based think tank. Despite the protests, the legislation is likely to go ahead at some point. 

Another long term worry for China is the spread of its deserts, apparently caused by global warming, deforestation and overgrazing. At least in June it took comfort in the arms of Japan as Shinzo Abe and Xi Jinping had what appeared to be a friendly meeting ahead of the G20 summit, with the US/China trade wars and tensions about North Korea seemingly bringing the two countries closer together. 

All the leading Far Eastern stock markets were up in the month. Despite the protests Hong Kong led the way, rising 6% to 28,543. The South Korean market was up by 4% to 2,131 while China’s Shanghai Composite Index and Japan’s Nikkei Dow were both up by 3%, to end the month at 2,979 and 21,276 respectively. 

Emerging Markets 

If the US economy got off to a bad start with the jobs figures, the Indian economy got off to an even worse start in June as it lost the ‘fastest growing economy’ title to China. 

Figures for the first quarter showed the economy growing at 5.8% – mightily impressive compared to economies in Western Europe, but below the 6.6% recorded in the previous quarter and below the 6.4% posted by China. 

Worse was to follow a few days later as the US imposed a 10% tariff on a series of Indian imports including imitation jewellery, building materials, solar cells and processed food. Inevitably this led to fears of job losses and – equally inevitably – India was quick to retaliate as it imposed tariffs on 28 US products, some as high as 70%. 

Will this mean a US/India trade dispute to mirror the US/China dispute? While it looks unlikely, India was the only one to fall in June, dropping 1% to end the month at 39,395. 

Meanwhile the markets in both Russia and Brazil moved up in the month: both markets were up by 4% in June, with the Russian market closing at 2,766 and the Brazilian market going through the 100,000 barrier to reach 100,967. 

There was clearly good news for the South American economy with the trade deal agreed with the EU which we have mentioned above. There was less good news for Argentina and Uruguay in the middle of the month. A massive power outage left both countries completely in the dark, wiping out power to tens of millions of people. Argentine President Mauricio Marci has promised a “full investigation.” As soon as he can find the light switch…

And finally…

We have mentioned cyber-attacks above and one company particularly badly hit was Norwegian aluminium producer Norsk Hydro, who saw 22,000 computers go offline in 170 locations around the world. The company refused to pay the ransom demanded and instead fought back against the hackers using the latest cutting edge technology: the pencil and paper. 

…And June really was nostalgia month as 1990s toys are apparently making a comeback on a wave of millennial nostalgia. If you were in a school playground in the 1990s – or your children were – you may remember Tamagotchi (digital pets) and they’re being re-joined on shelves by Teenage Mutant Ninja Turtles, Power Rangers and Polly Pocket. There is also, according to analysts, an increasing market for the films of the same era as grown-up millennials feel nostalgic for their childhood.

If you haven’t made your fortune from your own version of Cash in the Attic, perhaps the answer is to get serious about Crazy Golf. You may have thought Crazy Golf was just a game to play at the seaside, but now the ‘sport’ is dreaming of Olympic recognition and hosting a series of championships up and down the UK. 

While Tiger Woods was pocketing $2m (£1.6m) for winning the US Masters, near-namesake Mark Wood, a local council finance manager, won £50 as he was crowned UK Crazy Gold champion. The secret? According to the sport’s insiders, it is to keep your ball safely tucked inside a sock. That way, it keeps an even temperature and rolls consistently. 

Get out there! With that vital piece of inside information there’s nothing to stop you…

Neil Woodford and the lessons it tells us

Wednesday, June 12th, 2019

If you read the financial press, this is big news. ‘Star fund manager’, Neil Woodford, stopped investors withdrawing money out of his Woodford Equity Income Fund on 4th June, after the sum total of investment withdrawn from the fund reached a staggering £560m in less than four weeks. Kent County Council wanted to withdraw a further £263m, but was unable to do so before trading halted.

Investment analysts have attributed this action to the significant poor performance of the fund over recent months. Neil Woodford was once the darling fund manager who could do no wrong. A few years ago he was riding high when he left his employer, Invesco Perpetual, to set up his own company, Woodford Funds. With a reputation for having the midas touch, he’d built a large following amongst both retail and institutional investors, many of whom followed him to his new venture.

Once the blue-eyed boy, his public apology probably hasn’t gone far enough in the minds of some investors who are unable to withdraw their funds and are now nursing significant losses.

There are a number of issues at play here which, as advisers, we seek to address when managing client portfolios.  

Don’t put all your eggs in one basket

Investing is about managing risk and diversification is a key part of this. Committing all your money to one investment manager is never a great idea. By selecting a range of funds, we spread the risk within portfolios.

Good governance is essential

A robust governance process is important when managing client portfolios. When selecting funds as part of a portfolio, our established investment governance process ensures that these are regularly reviewed and action is taken where and when appropriate. This framework ensures that we act early on managing any potential risks that may impact portfolio performance.

Asset allocation is a key driver to performance

It is not just about selecting the right funds. When constructing client portfolios, we take into account the importance of asset allocation. This is the split between different types of investments such as UK and overseas equities, fixed interest and cash.  Asset allocation is as important as fund selection.

Follow the fund, not the manager

Fund managers are human, they don’t get it right all the time. The most sensible approach is to consider the fundamentals governing the fund itself, not the individual investment manager. We want to understand the answers to questions such as what process and approach does the fund take to manage risk and the stock selection process? What governance process and framework is in place to ensure a fund delivers against its stated objectives. Fund managers can be flavour of the month, it’s the fundamentals of the fund itself that provide better insight.

If you have any queries regarding your portfolio or would just like to find out more about our investment approach, do not hesitate to get in touch.

May markets in brief

Wednesday, June 12th, 2019

The calm of the previous month ended sharply as May began, with Brexit arguments rolling on, the UK Prime Minister resigning, the European elections crushing the main parties, and Donald Trump imposing tariffs on Mexico and China. There was some positive light, however, from the emerging markets, with India, Russia and Brazil seeing economic gains.

UK

The British high street took a hit this month with the loss of Jamie Oliver’s chain of Italian restaurants, Boots’ decision to review the future of 200 stores and Marks and Spencer’s decision to close an as yet unspecified number of stores. Thomas Cook also revealed a loss of £1.45bn, seeing its shares fall 40%. Overall, retail shop vacancies are at a four year high.

There was better news away from the high street with the UK economy growing 0.5% in the first quarter and the Bank of England raising its growth forecast for the year from 1.2% to 1.5%. However, it also warned that interest rate rises might become more frequent.

The FTSE 100 Index closed down 3% at 7,162 while the pound was down against the dollar, closing the month at $1.2633.

Europe

Much of the continent’s news in May covered the European elections which saw the ‘Grand Coalition’ – the Centre-Right and Centre-Left groupings – lose significant numbers to more radical parties. In France, Marine Le Pen’s National Rally party defeated Emmanuel Macron by 24% to 22.5%. While in Italy, Matteo Salvini is reportedly preparing a new ‘parallel currency’, announcing ‘I do not govern a country on its knees’. Could this be the first step in taking Italy out of the EU?

Overall, the Eurozone economy grew in the first three quarters by 0.4%, though business confidence was said to have ‘crumbled’ according to a survey of more than 1,400 chief financial officers by Deloittes. Across the Eurozone, 65% reported the level of uncertainty as ‘high’ or ‘very high,’ with the US/China trade dispute and Brexit cited as the main reasons. Both major European markets fell in May. The German DAX index was down 5% to 11,727 while the French index fell by 7% to close the month at 5,208.

US

Strong labour data convinced the Fed to keep rates on hold as the US economy added 263,000 more jobs in April, with the unemployment rate now at its lowest since 1969. In company news, Facebook announced plans to launch a cryptocurrency to rival Bitcoin, and Ford said that it would need to shed 7,000 jobs as it looked to cut costs. On Wall Street, the Dow Jones index fell in the month, ending May down 7% at 24,815.

Far East

The trade war between the US and China intensified as the US re-imposed tariffs on $200bn of Chinese goods. China retaliated on 1st June by imposing tariffs of up to 25% on $60bn of US goods.

To add to the worries of a slowdown, analysts have started to ask if ‘winter is coming’ to the booming Chinese tech sector, with electric vehicles, industrial robots and microchip production all slowing down recently. In addition, big companies like Alibaba, Tencent and Baidu have all cut jobs, with one in five Chinese tech companies now planning staff cuts.

All the major stock markets in the region were down due to the trade war. Hong Kong was the worst affected, falling 9% to 26,901. The Japanese and South Korean markets were both down by 7% to 20,601 and 2,042 respectively, while China’s Shanghai Composite Index was down by 6% to end May at 2,899.

Emerging Markets

India saw the world’s largest democratic vote with 600m voting for a new Prime Minister – the victory went to the incumbent Narenda Modi by a landslide. One of the big questions is how Modi will handle the Indian economy. In his first term, India became the world’s fastest growing economy as he cut red tape and reformed the bankruptcy laws. But his biggest gamble, banning more than three-quarters of the notes in circulation in a bid to tackle corruption, backfired badly and delivered a significant blow to economic growth.

Brazil’s economy fell by 0.2% in the first three months of the year, the first decline since 2016. Despite this bad news, the Brazilian market still managed a gain of 1% in the month, closing May at 97,030. The Indian stock market rose 2% to 39,714 but the star performer this month was the Russian market, which rose 4% to finish the month at 2,665.

We hope you have great June and are preparing for a warm summer. If you have any questions about the latest stock market news, please don’t hesitate to get in touch.

6 bad habits to avoid during retirement

Wednesday, May 8th, 2019

Planning for retirement can be complicated, as anyone approaching the end of their working life will tell you. However, navigating the myriad of choices, both financially and socially, doesn’t have to be such an enigma. Here are a few tips to help you avoid common bad habits that retirees often fall into:

1. Spending your pension fund money

Yes, that’s right. If you delay spending your pension and spend other available cash and investments first, you could keep your money safe from the taxman. Not spending your pension fund money until you have to may also help the beneficiaries of your estate avoid a large inheritance tax bill.

2. Taking the full brunt of inheritance tax

Inheritance tax can cost your loved ones vast sums if you were to pass away. There are plenty of ways to protect them from losing a large portion of your estate. Strategies such as making gifts or leaving assets to your spouse are an effective way to avoid the tax, among other valuable strategies.

3. Failing to have a plan

Many retirees have multiple avenues of income to provide for them during retirement. Making the most out of those streams of revenue is key to a stress free retirement, as unwise investment or poor planning can lead to unnecessary worries. We recommend contacting a financial adviser in order to set out a plan that’ll let you focus less on worrying about income and more on enjoying your well-earned retirement.

4. Not taking advantage of the discounts

There is an absolute boatload of price slashes available to retirees over a certain age. This ranges from discounts on train fares to reduced prices of cinema tickets. We recommend that all pensioners takes full advantage of these discounts as every penny saved provides more financial security for yourself and your loved ones.

5. Thinking property is the only asset worth having

Property can be a valuable source of retirement revenue, but it’s not the only way to create more income. Property can often incur maintenance expenses for landlords and take up time to resolve that could be spent making the most out of your retirement (though there are many pros and cons to the pension vs property discussion).

6. Buying into scams

When you retire, it seems that all kinds of people come crawling out of the woodwork to give you a “great” investment opportunity or insurance policy. Tactics can include contact out of the blue with promises of high / guaranteed returns and pressure to act quickly. The pensions regulator has a comprehensive pensions scam guide that’s definitely worth a read.

April markets in brief

Wednesday, May 8th, 2019

April was, on the whole, a positive month for global stock markets. All major stock markets gained over the month, with the notable exception of China. The thawing of Chinese-American trade relations and the expectation of a recovery of growth in China has meant that global markets saw a largely buoyant month overall.

UK

Despite the political turmoil at the beginning of the month, there was plenty of good news. The EU agreed to a flexible Brexit extension until 31st October, taking some of the pressure off firms who would be hit hard by a ‘no deal’ scenario. The manufacturing PMI jumped to 55.1, its highest reading in a year and Britain’s labour market remained in fine form, with unemployment staying at 3.9% and basic wages rising 3.4% year on year. The FTSE rose by a buoyant 2%, up at 7,418.

Europe

The continental markets enjoyed a strong month. However, there were some worrying signs for the French and German economies. French President Macron finally agreed to cut taxes following the Yellow Jacket protest which have caused widespread disruption across the country. Worryingly, French public debt is soaring – the country is on course to overtake Italy as the world’s fourth most indebted country.

The news was also concerning in France’s eastern neighbour. Germany’s growth forecast has been slashed to 0.5% and the country’s usually robust car industry looks like it could suffer over the coming years. Worrying news indeed for Europe’s strongest economy.

These dark clouds on the horizon did little to hinder the countries’ stock markets. The German DAX was up 7% in April to end at 12,344 and the French stock market was up 4% to 5,586.

US

The first two months of the year showed some worrying signs in the American economy, prompting many to fear a coming recession as the government shutdown and cold weather hit economic data. However, the March labour report helped to calm these fears somewhat. 196,000 jobs were added in March and year on year wage growth stands at 3.3%. On Wall Street, the Dow Jones index enjoyed a healthy month, rising by 3% to close the month at 26,593.

The Far East

After being hit hard by heightening trade tensions with America, the Chinese economy appears to be en route to recovery. Official manufacturing figures indicated a boost in activity and overall production rose from 5.3% to 8.5% in March, compared to a year previously. The Chinese economy grew by 6.4% in the first three months of the year, slightly higher than predictions.

As we previously mentioned, China’s Shanghai Composite Index didn’t gain over the month, and dropped 13 points back to 3,078. The other major Far Eastern stock markets enjoyed a strong month. The market in South Korea was up 3% to 2,204 and the Hong Kong index rose 2% to 29,699.

Whatever you’re doing in May, we hope you have a pleasant month and enjoy the (hopefully!) warmer weather. If you have any questions about the latest stock market news, please get in touch.

The UK is struggling to save; what are the implications?

Wednesday, May 8th, 2019

study found in 2018 that one in four adults have no savings. Many residents in the UK wish that they had cash to save, however high monthly outgoings and debt clearance seem to take priority. Saving for the little curveballs that life throws your way is a good way to maintain a sound mind, but poor money management and large monthly payments can get in the way. So is this issue localised to the UK, or is the struggle to save an international issue?

Across the pond

Households in the US are currently able to save 6.5% of their disposable income, down from the previous figure of 7.3% after estimates were made by Trading Economics. However, earlier in 2018 a report was made, finding that 40% of US adults don’t have enough savings to cover a $400 (est £307) emergency.

The current UK savings figure sits at 4.8%, one of the lowest since records began in 1963. The Office for National Statistics has come up with an even lower figure of 3.9%, which actually is the lowest recorded. Further to this, a report was also made by the Financial Conduct Authority in 2017 that millions of UK residents would find it difficult to pay an unexpected bill of £50 at the end of the month, and little has changed since then.

Closer to home

In France and Germany, the savings ratio sits at 15.25% and 10.9% respectively, that’s triple the UK’s value for France and over double for Germany! The Managing Director of Sparkasse bank points to cultural idealsas the main influencers for the high German saving rate, saying that: “Saving is seen as the morally right thing to do. It is more than simple financial strategy.” This stance seems typical for the country that’s home to the first ever savings bank, opening in Hamburg in 1778.

Why do we not save as much as we used to?

The idea of saving for a rainy day in the UK may not be totally lost but for many, the rainy days are happening as we speak. Another reason relates to the tendency of UK households to borrow more money in order to maintain lifestyle choices. For all quarters in 2018, households were net borrowers, drawing on loans and savings to fund spending and investment decisions.

Comments have been made referring to current Brexit uncertainty as a reason for the change, alongside rising rental prices and increased costs of living. Whether this new change in spending and saving is wholly due to current cultural or economic factors is yet to be confirmed. Another case has been made for poor interest rates making it a less lucrative option for savers to save.

Be it cultural or economic, it is undeniable that the country has lost faith in the ethos of saving their pennies. In the end, as more and more studies come to light, it seems that only time will tell.

April Market Commentary

Wednesday, April 3rd, 2019

Introduction

We have commented before on the difficulty of ‘hitting a moving target.’ Sometimes in writing this commentary you run the risk of what you write being overtaken by events, and that has never been more true than this month. In the short time between us publishing notes and you reading them it is possible that the Brexit section will be different.

Given the fact that Brexit continues to dominate the news headlines it’s tempting to think it is the only important story. Nothing could be further from the truth. There were clear signs that the US/China trade dispute might be moving to an end, and it was an interesting month in the US with clear pointers to a sea-change in the car industry – something that has worldwide implications.

In the UK we had Chancellor Philip Hammond’s Spring Statement, the usual gloom from the high street and continuing good news on employment.

World stock markets had a reasonably good month, buoyed by hopes of an agreement between the US and China. We have also taken a look at the performance of all the major markets in the first quarter of 2019. Let’s look at all the detail…

UK

There was, of course, the usual round of gloom from the UK retail sector. Debenhams issued a profit warning – failing to meet forecasts it made just two months ago – and Sports Direct boss Mike Ashley duly contemplated a £61m bid for the company. As of April 1st, the Debenhams board appears to have secured refinancing to fend off Mr Ashley’s amorous advances, but you suspect it is only a matter of time…

More widely the high street suffered its worst February for ten years with sales down 3.7% and John Lewis paid its lowest bonus to staff since the 1950s. What was once Staples and is now Office Outlet went into administration. There was also a very clear sign of things to come from the traditional high street travel agent as Thomas Cook announced plans to close 21 shops and cut 300 jobs.

Elsewhere in the UK there was the usual mixture of good and bad news…

Chancellor Philip Hammond delivered his Spring Statement: he made his opposition to a ‘no deal’ Brexit very clear, promising a £26bn ‘deal dividend’ if agreement was reached with the EU.

But despite the undeniable uncertainty, the UK economy continued to turn in some impressive figures as unemployment fell to its lowest level for 45 years and 32.7m people were in work. Figures from the Office for National Statistics showed that the economy had grown by 0.5% during January – more than double economists’ predictions of 0.2% – with the important services sector up by 0.3%.

Toyota announced that it would build its new hybrid car in Derbyshire – a welcome shot-in-the-arm for the UK car industry which saw manufacturing fall for the 9th month in a row. The BBC also reported that UK manufacturers were cutting jobs at a ‘record pace thanks to Brexit uncertainty’ as companies stockpiled raw materials ‘at a record pace’.

There was also bad news in the housing market, with prices in England falling by 0.7% in the first three months of the year, compared to the same period last year. This was the first fall since 2012, but Nationwide’s survey showed that rises in Northern Ireland, Wales and Scotland meant that the average price of a house across the whole UK was still increasing. UK inflation in February inched backed up to 1.9%, with increases in the cost of food and wine contributing.

What did the UK’s FTSE 100 index of leading shares make of all this confusion? It had a good month, rising by 3% to 7,279 where it is up by 8% for the first quarter of 2019. The pound fell slightly, ending March 2% down at $1.3036 – however, it is up by 2% for the first quarter of the year.

Brexit

Yet again, all the really important news regarding Brexit came at the end of the month as Theresa May brought her Withdrawal Agreement back to Parliament for a third time on 29th March – the day on which the UK should have left the EU – only to see it defeated yet again. The margin this time was 58 votes, with the DUP once again refusing to support it.

There were plenty of high profile Brexit supporters, such as Boris Johnson and Jacob Rees-Mogg, who did support the WA. They feared the only option left was to accept a bad deal or risk losing Brexit altogether – but in truth the Prime Minister never looked likely to do enough to convince either the DUP or 25 die-hard Brexit MPs.

So where does that leave us now? On Monday 1st April there will be another series of indicative votes as MPs look for something they can agree on. The Prime Minister has no control over this and – having promised to stand down if her deal passed – she will face plenty more calls for her immediate resignation as her deal lies in ruins.

If nothing is agreed – such as a further extension to Brexit – then the UK will leave the EU on 12th April. Depending on your point of view we will ‘crash out’ with no deal, or we will move to trading on World Trade Organisation terms. The situation is further complicated by European elections, due to be held in late May: if the UK is still in the EU then it must send MEPs to Brussels.

Europe

The news in Europe was not good. March began with the revelation that EU manufacturing was facing its worst downturn for six years. The European Central Bank was once again forced to act, offering banks cheap loans to try and revive the Eurozone economy.

But will it get any better? For decades there have been three basic facts of life about cars: cars were driven by people, they were owned by people (or the companies that employed those people) and they were powered by internal combustion engines. Now all of those are under threat and the implications are serious and wide-ranging. The German economy has been the engine powering Europe for the last 10 to 20 years. As countries like Italy have had a decade of virtually no growth, Germany has produced a remorseless balance of payments surplus.

The German car industry employs more than 800,000 people: it accounts for around 20% of the country’s exports. If car production switches to driverless cars made in the Far East and/or California, then the implications for Europe are severe.

So, given their less than cordial relationship with the EU of late, it was no surprise to see Italy roll out the red carpet for Chinese Premier Xi Jinping. We have written previously about China’s ‘Belt and Road’ initiative and – with worries about the German car industry and the French economy stagnating – why wouldn’t the populist government in Italy look to closer ties with China? Despite the concerns of her European neighbours the upside for Italy is clear – a flood of Chinese investment and greater access to Chinese markets and raw materials.

Meanwhile in the Netherlands a new populist, anti-immigration party led by Thierry Baudet – inevitably dubbed the ‘Dutch Donald Trump’ – became the largest party in the Dutch Senate. With European elections due in May we can certainly expect to see far more Eurosceptic MEPs returned – which perhaps explains why the EU would prefer the UK not to take part in those elections…

On European stock markets the German DAX index had a very quiet month, rising just 10 points to 11,526. The French market did better, rising 2% in March to 5,351 where it is up by an impressive 13% for the year to date. The German index is up by 9% for the first three months of 2019.

US

It’s interesting to note that as the German car industry faces its biggest-ever threat, most of my notes for the US section of the Bulletin also concern their car industry. But it is not the traditional players like Ford and Chrysler – rather it’s the new kids on the block: Tesla, Uber and Lyft.

March got off to a bad start in the US as figures showed that the US had created just 20,000 jobs in February, well below expectations of 180,000 and the lowest figure since September 2017 when employment was impacted by Hurricanes Harvey and Irma. It was therefore little surprise later in the month when the Federal Reserve announced that it does not expect to raise interest rates for the rest of this year, voting unanimously to keep the US interest rate range between 2.25% and 2.5%.

Facebook suffered its longest ‘down’ time for more than ten years as the company’s main social network plus Instagram and message-sharing were all down for 14 hours. Meanwhile Levi’s – a company that has been around for rather longer than Facebook – returned to the US stock market and saw its shares leap by 32% on the first day of trading.

But the really interesting news was in the car industry as ride-sharing app Lyft made its stock market debut valued at $24bn (£18.5bn), making it the biggest IPO since China’s Alibaba. However, that figure will be dwarfed when Uber comes to the market, with early indications that the ride-sharing company – which is still losing billions of dollars – will be valued at around $120bn (£92bn). With the news that Tesla is also on course to outsell BMW and Mercedes in the US, there are very clear warning signs for the traditional car industry – and for the places it is based and the people it employs.

On Wall Street the Dow Jones index had a quiet month: it finished March up just 13 points at 25,929. It is, though, another market which has done really well in the first three months of the year, rising by 11% since 1st January.

Far East

March ended with real optimism about the US/China trade talks, so it was no surprise to see China’s stock market up by 5% in the month.

At the beginning of March there was much less optimism, and some continuing tension as China temporarily stopped customs clearance for Tesla’s new M3 car.

The trade dispute had certainly taken its toll as figures revealed that Chinese exports in February suffered their biggest fall for three years – down nearly 21% on the previous year.

Unsurprisingly, the Chinese government looked to domestic demand to counter this, unveiling a raft of tax cuts. China’s de facto number two, Li Keqiang, warned that the country faced “a tough struggle” as he laid out plans to bolster the economy. Opening the annual session of China’s parliament, he forecast slower growth of 6% to 6.5% this year, down from the 2018 target of 6.5%. He duly unveiled plans to boost spending with tax cuts totally $298bn (£229bn).

Meanwhile the soap opera around Chinese telecoms company Huawei rumbled on as the US told Germany to drop the company, warning that any deal to let Huawei participate in the German 5G network could ‘harm intelligence sharing.’ Huawei continued to deny that their products posed any security threat, and had the last laugh as figures for 2018 showed that their sales had passed $100bn. Total revenues were 720bn yuan ($107bn £82bn) with profits up by 25%.

The Shanghai Composite Index’s 5% rise meant that it closed March at 3,091 where it is up by an impressive 24% for the year to date. The Hong Kong Market was only up 1% in the month to 29,051 but is up by 12% for the first quarter of the year. The Japanese and South Korean markets turned in much more subdued performances, falling by 1% and 2% to end the month at 21,206 and 2,141 respectively. For the first three months of the year Japan is up by 6% and South Korea by 5%.

Emerging Markets

March was a relatively quiet month for the Emerging Markets section of the Bulletin with two of the major markets we cover unchanged in percentage terms. The Brazilian stock market closed the month down just 169 points at 95,415 while the Russian market managed a gain of just 12 points to 2,497. However both markets have done well in the first quarter of the year, with the Brazilian market up by 9% and Russia up by 5%.

It was a much better month for the Indian stock market, which rose 8% to close March at 38,673. It is up by 7% for the first quarter of the year.

And finally…

Gloucestershire pensioner Stephen Mckears was baffled. Every night he left a few things out on his workbench (in his garden shed, where else) and every morning they were neatly back in their plastic tub.

It wasn’t Mrs Mckears doing some late night cleaning and neither was it a friendly neighbourhood ghost. So what was it? Questioning his own sanity, Stephen set up a camera in his garden shed with the help of a neighbour.

He discovered that a mouse was tidying his workbench. Whatever Stephen left out, the mouse duly tidied away in the plastic tub. “I’ve started calling him Brexit Mouse,” quipped Stephen, “As he’s stockpiling things for Brexit!”

Sadly, all too many of us are addicted to the occasional McDonald’s and, to help us with our choice, the chain has just spent $300m (£227m) on an Israeli technology company that specialises in artificial intelligence. According to McDonald’s CEO Steve Easterbrook “It [the AI] can know the time of day and it can know the weather” thereby helping the chain serve the right food for both the time of day and the weather.

Now call us old-fashioned but we wonder whether you really need to spend over £200m to know that you should take the breakfast menu off at three in the afternoon.

Maybe we’re wrong…

The perks of saving into a Junior ISA

Wednesday, March 20th, 2019

There are so many factors for a parent to consider in doing their best to make sure their children are prepared for the world when they reach adulthood. A lot of those things will be out of your control, but one thing you can consider that could make a real difference is investing into a Junior ISA. If you start early you could accumulate a pot of over £40,000; that’s a birthday present that no 18 year old would be disappointed with.

Entering adulthood with that level of finances comes with life changing opportunities and great freedom of choice. Depending on their priorities, your child could put down a deposit on a property, start a business, pay for training or tuition fees, or even travel the world to their heart’s content.

On April 6th 2019, the amount that can be saved annually into a Junior ISA or Child Trust Fund account will increase from £4,260 to £4,368. Just like an adult ISA, your contributions are free from both income and capital gains tax and often come with relatively high interest rates. For example, Coventry Building Society offer an adult ISA with an interest rate of 2.3% per annum, whereas their equivalent Junior Cash ISA comes with a 3.6% per annum interest rate. Junior ISAs are easy to set up and easy to manage: as long as the child lives in the UK and is under the age of 18, their parent or legal guardian can open the ISA on their behalf. On their 18th birthday, the account will become an adult ISA and the child will gain access to the funds.

Both Junior Cash ISAs and Junior Stocks and Shares ISAs are available, and you can even opt for both, but your annual limit will remain the same across both ISAs. When making that decision there are a few considerations to make; cash investments over a long period of time are unlikely to overtake the cost of inflation but come at a lower risk than their stocks and shares equivalent. With a Junior ISA, however, you can benefit from a long term investment horizon. Although the stock market comes with a level of volatility, you can ride out some of the dips and peaks over a long period. Combined with good diversification, it’s possible to mitigate a fair amount of risk.

Taking a look at potential gains, had you invested £100 a month into the stock market for the last 18 years, figures from investment platform Charles Stanley suggests that a basic UK tracker fund would have built you a pot worth £39,313. In comparison, had you saved the same amount into cash accounts, you’d be closer to £24,000, a considerable difference of nearly £16,000.

With this latest hike in the saving allowance, it’s time to make the most of Junior ISAs and prepare to swap bedtime reading from Peter Rabbit and Hungry Caterpillar to stories of how a stocks and shares portfolio can secure your child’s future.