Contact us: 01799 543222

A guide to ethical funds

Archive for July, 2016

A guide to ethical funds

Wednesday, July 27th, 2016

Ethical funds are also known as green funds or socially responsible investment (SRI) funds, and are categorised as funds where the investment choices are shaped by criteria linked to social, environmental and other ethical issues. This is usually done through one or more of three approaches: screening, best in class and engagement.

Screening involves the exclusion of certain companies due to their involvement in ‘negative’ activities such as high levels of pollution, animal testing or dealing in arms. Companies can also be ‘screened in’ for making positive environmental and social contributions. These can include organic agriculture, providing recycling and waste services, or involvement with renewable energy.

Best in class is used to create preferences in selecting companies which share a number of other equal factors. Social, environmental and ethical criteria are applied to ensure the best companies of their type are selected for the ethical fund. An example might be a fund which enables investment in the oil and gas industry, but which offers investment in those companies with the best environmental and human rights records.

Engagement is different to the previous two methods, as it is not a method of exclusion, inclusion or preference. Instead, either the fund manager or the investor themselves offers active encouragement to the companies included in the fund to use social and environmental best practices. This is usually achieved through participating in votes at annual general meetings, or attending senior management meetings.

As mentioned earlier, many ethical funds opt for a combination of two or more of these methods to maximise their social and environmental impact. There are some trends, however: retail funds usually utilise all three methods in some way, whilst larger ethical pension funds are more likely to focus entirely on engagement.

Despite the positive outward impression ethical funds give off, they have come under some sharp criticism in recent years. Problems with some funds have included secrecy surrounding holdings, stock selection using outdated methods, and failure to publish ethical criteria. A few have even been found to be purchasing ‘sin stocks’, which includes the buying of companies such as pub chains and gambling businesses.

These issues have led to a number of market experts suggesting that some funds calling themselves ethical or green are simply engaging in emotive marketing. This, coupled with ethical funds gaining a reputation for sluggishness in terms of their performance, means that any investment in such a fund should be thoroughly researched and discussed with an independent financial adviser, before any money is invested.

Brexit update

Wednesday, July 27th, 2016

Since the result of the EU referendum was announced in the early hours of 24th June and the country discovered that Brexit was to become a reality, it’s been hard to keep up with the multitude of changes that have occurred in the weeks that have followed. But what about the financial impact of Brexit? After the sharp drop in the value of the pound the day after the referendum took place, the economic movements that have occurred since then have largely taken a back seat in the media to the political and personal machinations of the key players in both the Leave and Remain camps.

One area that has felt the financial impact of Brexit already is pensions. The black hole, which final salary pension schemes in the UK will potentially face, has grown by 30% in just one month. The combined deficits of all the schemes eligible to join the ‘pensions lifeboat’, should a company become bankrupt, increased from £294.6 billion in May this year to £384 billion in June, an increase of almost £89 billion.

The rise has come from the impact of Brexit upon the investments by these pension schemes in Government bonds, which have suffered through the uncertainty the result has created. There are currently 5,945 private sector pension schemes eligible for protection from bankruptcy, of which 4,995 are in deficit. The total liabilities stand at £1,747 billion, which is the highest amount since March 2006, when the Pension Protection Fund’s records began.

The mood has also changed elsewhere in the business world. Recent research carried out amongst 132 CFOs of large companies in the UK, including those on the FTSE 350, found that almost three quarters said they were “less optimistic” about the financial prospects of their companies than they were three months earlier. Almost two thirds also said they were expecting a fall in revenues during the next twelve months, and over two thirds said they believed leaving the EU will worsen the long-term business environment for the UK.

Whilst the post-Brexit financial fallout hasn’t looked particularly positive so far, the best plan for the coming weeks and months is to keep a close eye on how matters continue to develop. If you have any concerns over your financial future, speak to a financial adviser to get sound guidance.

The London bubble: capital pays a third of UK tax

Wednesday, July 20th, 2016

The latest findings of Centre for Cities, a think tank focused upon understanding and improving UK city economies, suggest that London now pays almost a third of all UK taxes. The capital increased its share of “economy taxes” by five percentage points to 30% since the 2004-05 financial year, and now generates nearly as much as all the tax combined paid by the next 37 largest cities.

In contrast, the growth in tax income for other major cities over the past ten years has been negligible, with some seeing no growth at all. Whilst London generated around 25% more tax after an inflation adjustment, Manchester saw growth of only 1%. Birmingham, Glasgow and Leeds meanwhile saw their tax growth drop. Locations in the south east of the UK occupied eight out of the top ten fastest rising tax bases, with only Derby and Aberdeen sneaking in from elsewhere. Out of the 62 cities within the think tank’s report, Northampton saw the biggest drop of 11.7% in the ten year period covered.

“In the face of political and economic uncertainty and potential shocks to the economy, the growing reliance on fewer places – and London in particular – to generate more revenues is a risky situation for the exchequer to be in compared to one where more cities are making a positive contribution to the national tax pot”, says Centre for Cities in its report, entitled ‘Ten Years of Tax: How Cities Contribute to the National Exchequer’.

Following these findings, the debate around plans by the government for the devolution of powers and public spending to regional centres throughout the UK is expected to become more intense. The former chancellor, George Osborne, had been promoting a “supermayor” scheme covering extended urban areas in the north, to help regeneration in those areas that have struggled to recover from the recession since 2009. Since the departure of Osborne from the cabinet after the accession of Theresa May as Prime Minister, the future of such a scheme is currently up in the air.

“This report is further evidence of how London has become the main tax generator for the whole country and highlights the importance of more balanced growth across the entire UK as well as ensuring the capital’s continuing success”, said London mayor Sadiq Khan in response to the findings. “Further devolution, so that London and all our cities and neighbourhoods can take back control, is vital to unleash the energy and dynamism that this country needs in the light of its decision to leave the EU”.

A stark warning for pensioners

Wednesday, July 20th, 2016

The thought of not having enough money to live on during your retirement is not something that those with sizeable pension pots, nearing the end of their working lives, have had to worry about until recently. However, this is now an issue causing more and more sleepless nights, as reported in a recent article in The Telegraph looking into the financial situation of those who had apparently saved well but were now facing potential hardship.

Both crumbling annuity rates and final salary pensions becoming scarcer and scarcer have been cited as reasons for this. Recent figures suggest that the workplace pensions for those in younger generations are receiving only 5% of the funding experienced by those still set to benefit from a final salary scheme when they retire.

Other contributing factors include the introduction of pension freedoms in 2015, allowing funds to be withdrawn from pension pots in a manner similar to a savings account. The problem with this is that, even with financial advice to ensure a “safe” amount is being withdrawn before retirement, if the financial conditions at the start of your retirement are unfavourable, this could still cause a gap in your savings that is impossible to repair.

The Telegraph looked at a similar situation experienced by Richard Seymour and his wife, both in their late eighties, who felt they had planned for their retirement carefully. Former business owner Richard had saved around $200,000 (approximately £135,000) as well as paying off the mortgage on their home, hoping that this would “guarantee that we’d have a roof over our heads no matter what”.

Whilst Richard saw this plan as “fail-safe”, the couple’s retirement funds were severely affected by both stock market reversals, the unexpected departure of a number of Richard’s business clients, and poor returns on their investments. Another factor, however, is that the couple “never expected to live this long”, highlighting the growing importance in financial planning of the ever-increasing life expectancy numbers.

So what is the best way to ensure you don’t find yourself in a similar situation when you retire? As always, formal, individual and independent financial advice is the best route to ensure you can retire, but there are a few general approaches that might help to make your pension last.

Firstly, and perhaps most obviously, don’t withdraw too much from your savings every year. Secondly, if you are withdrawing a fixed amount but the markets fall, realise that this amount may need to change, or other sources of funding may need to come into play. In this situation it’s often better to be flexible about the amount you withdraw, reducing when necessary to avoid damaging your overall pension pot. Thirdly, and perhaps most importantly, the more you can save initially, the less likely it is that your funds will run out. Whilst we encourage clients to spend as well, when it fits in with their plans, there’s generally no such thing as having too much money in your pension!

The importance of having a Will

Wednesday, July 20th, 2016

Despite the fact that having a Will in place is commonly accepted as the most effective way to leave details about your inheritance, the number of people who don’t have one is remarkably high. Charity will-writing scheme, Will Aid, has found that 53% of people in the UK don’t have a Will in place. The reasons for this are varied: some view making a Will as something to do when they get older, others simply don’t understand why having a Will in place is so essential.

Even if you have discussed with your family how you would like your estate to be administered following your death, putting it down in writing ensures clarity and reassurance for your loved ones both whilst you are still living and after your death. Not only does a will allow you to say what you would like to go to whom, as well as any charities or other causes to which you would like to make donations, but it is also your chance to make it clear who you want to act as the executors of your estate after you’re gone. Making this clear can minimise confusion and ensure the people who you trust are those in control following your death.

If you don’t have a Will in place when you die, it can cause a number of problems. The estates of those who die without a will are administered following the Law of Intestate Succession. In these circumstances, spouses and civil partners have specific rights but do not automatically inherit the entire estate of their other half. Any children have inheritance rights, but more distant family members, friends and cohabitants do not. Without a will, you cannot choose who your executors will be either, losing control over how things are handled.

Simply having a Will is also not enough: you need to ensure it’s both a legal document and kept up to date. Writing your own will might seem like a good way to ensure matters unfold exactly as you wish after you die, but can actually trigger legal disputes that go on for months or even years following your death. A Will that hasn’t been updated for some time can also cause similar problems if it doesn’t reflect the position of both you and your family at the time of your passing. The best way to ensure this doesn’t happen is to hire a solicitor with the expertise in this field to ensure your will is both up to date and completely legal.

Inheritance tax: the changes you need to know about

Wednesday, July 20th, 2016

The changes to inheritance tax that were introduced in the 2015 Budget will soon come into effect, with some becoming the law as early as April 2017. With less than a year to prepare for these changes, it’s important to ensure you know what to expect and that you’re doing everything you need to in order to ensure you aren’t caught out.

The biggest shift is an increase in the value of estates that can be passed on before any inheritance tax is paid. At the moment, the limit is £325,000 per person, but from April next year that figure is set to go up thanks to a new “family home allowance”. This will be worth £100,000 for the first year, £125,000 in the 2018-19 financial year, £150,000 in 2019-20, before finally reaching £175,000 in 2020-21. Any further increases from 2021 onwards will be in line with the Consumer Price Index.

From April 2020, up to £500,000 of assets can therefore be passed on without any inheritance tax levied upon them. As the limit is applied to individuals, married couples and civil partners will be able to pass on up to £1 million of assets including property tax-free. Extra peace of mind comes from the fact that this combined amount will be upheld even if one partner dies before the new limit is introduced in 2017.

In addition to these changes, from July last year those downsizing their property are eligible for an “inheritance tax credit”. This means that you will still qualify for the increased threshold even if you sell an expensive property, as long as the majority of your estate is being left to your direct descendants.

It’s also worth remembering that the new total must include a property which is deemed a “family home” – the main property in which the owner or owners and their family live. Any additional properties, including buy-to-let, will still be added to the total size of the estate. Whilst the changes will bring down the cost of inheritance tax for anyone owning a family home, it has also been confirmed that the allowance will be gradually withdrawn for properties worth £2 million or more.

All of these changes mean that your financial planning should also change to keep up with the developments coming down the pipeline. If you’re unsure of how you need to alter your plans, or when you need to do so, the best course of action is to speak with us.

July market commentary

Wednesday, July 6th, 2016

This time last month David Cameron was firmly in place as UK Prime Minister, facing the equally secure Jeremy Corbyn across the despatch box. Both of them were backing Remain in the forthcoming EU Referendum and – despite the occasional flurry of support for Leave – the UK looked set to stay a member of the European Community.

So what happened? Was it fear of immigration? Worries about sovereignty? Or a desire, not for the UK to ‘take back control’ but for ordinary people to take back control from a political class seen as increasingly distant and out-of-touch?

Whatever the reason, the UK woke up on the morning of Friday 24th June with 17,410,742 people having voted Leave – a majority of just under 1.3m. And with that, chaos broke out. Cameron swiftly offered his resignation, Corbyn is currently fighting for his political life and no-one has the slightest idea who will invoke Article 50 – the first formality for leaving the EU – or when it will be invoked.

As we’ll see below, the initial reaction of the markets to ‘Brexit’ was wholly negative: with the UK stock market, the pound sterling and markets around the world all falling sharply. However the stock market recovered quickly and at the time of writing (Friday July 1st) has recovered all the lost ground and more. The pound – although down since Brexit – has, for now, also avoided the more pessimistic predictions.

Did anything happen in the rest of the world? Surprisingly, yes. First quarter growth in the US was revised upwards but – more worryingly – there was a sharp fall in May’s job creation figures. Meanwhile, Microsoft put its hand down the back of the corporate sofa and found $26bn to buy LinkedIn.

Japan continued with attempts to expand its economy while Brazil battled to stop its economy contracting any further. Meanwhile, New Zealand was rocked by a serious crime wave…


Clearly the Referendum dominated all other UK news in June and, as I write, the ramifications are still unfolding. However, it would be a mistake to think that the Referendum was the only thing to happen in June.

We’ve written many times in this Bulletin about the plight of the UK’s High Street. June saw Amazon launch a full grocery service to customers in East and Central London. The company said it will ultimately roll out deliveries across the UK. Coincidentally, My Local went into administration in the last few days of June, possibly with the loss of thousands of jobs.

Another sector worrying about job losses was the UK’s oil industry. A report by Experian predicted that job losses for this year could reach 40,000 – on top of the 84,000 jobs the sector lost in 2015. The report said that the UK’s offshore industry supported 453,000 jobs – either directly or indirectly – at its peak in 2014.

Fortunately 4,000 jobs were saved as Tata sold its steelworks at Scunthorpe to Greybull Capital, with the workers agreeing to accept pay cuts and reductions to their pensions.

What of the numbers? Figures released for May showed that UK inflation was unchanged at 0.3% in May, whilst the ONS revealed that the house price had risen 8.2% in the last 12 months. ‘Average’ was very much the word though: prices in London were up by 14.5% whilst those in the North East rose by just 0.1%.

The ONS also released the unemployment figures, showing that the rate in the UK was down to 5% – the lowest since 2005. The number of people in work rose by another 55,000 with the employment rate at a record high of 74.2%.

How did the FT-SE100 index of leading shares react to all the excitement? In the run up to the Referendum both the stock market and the pound rose and fell with Remain’s standing in the opinion polls. Both fell sharply when the result was known – and the gloom deepened when credit ratings agency S&P removed the UK’s AAA rating. Brexit, it said, could lead to ‘a deterioration of the UK’s economic performance.’ Rival agency Fitch also lowered the UK’s rating from AA+ to AA, forecasting an ‘abrupt slowdown’ in growth in the short term.

However, Bank of England Governor, Mark Carney, then made a speech hinting at both lower interest rates and further stimulus measures. The FTSE picked up on this and made impressive gains in the last three days of the month to finish June at 6,504 – up 4% on the month as a whole, and also up 4% for the first half of the year.


Much of Europe’s attention in June was focused on the UK, as its politicians constantly warned of the dangers of Brexit. German business leaders clearly weren’t distracted, as the figures for April confirmed a trade surplus of €25.6bn for the month, up from €21.8bn a year earlier, with exports rising by 3.8%.

Unemployment in Germany is now down to 4.2% whilst the inflation rate crept up slightly in June to 0.3%.

The French balance of payments went in the opposite direction, with a trade deficit of €5.21bn in April. Inflation in June was up to 0.2%, but unemployment remains worryingly high at 10.2%.

There was concern about the European steel industry, with campaigners warning that it ‘will not survive’ if the EU grants China a special international trading status. The European Steel Association urged the EU to reject the idea, saying that China would flood the market.

Meanwhile, beleaguered car maker VW is planning a major ‘drive’ (sorry…) into electronic cars. It plans to launch 30 all-electric models and reposition itself as the leader in ‘green’ transport. High levels of investment will be needed as the firm moves on from ‘dieselgate’ but Chief Executive Matthias Mueller hopes that by 2025 electric cars will account for 20-25% of the company’s sales.

Understandably, June wasn’t a good month for the German and French stock markets, clearly unsettled by the prospect of Brexit leading to more uncertainty in Europe. Both markets fell by 6% in June, the German market to 9,680 and the French index to 4,237. Spare a thought, though, for investors in the Greek stock market: it fell 17% in the month from 651 to 542.


In this commentary we’ve regularly reported on the US job creation figures – with 200,000 new jobs frequently being added in a month. There was a startling slowdown in May, with the Labor Department confirming that only 38,000 jobs were created in the month, the fewest since September 2010. The unemployment rate did fall from 5% to 4.7% – the lowest since November 2007 – but this was largely due to people dropping out of the labour force and no longer being counted as unemployed. These were worrying figures for the US economy, and may well hamper the Federal Reserve’s ability to raise interest rates later in the year.

In the short term, the Fed was citing the uncertainties caused by Brexit as a reason for keeping rates on hold at between 0.25% and 0.5%. The US Central bank also said it expected a ‘slower path’ to future rate rises.

Microsoft certainly didn’t seem to anticipating a ‘slower path’ as they cheerfully shelled out $26bn to buy professional networking site LinkedIn. Microsoft will pay $196 a share – a premium of 50% on LinkedIn’s share price. Why so much? The deal will give Microsoft access to LinkedIn’s network of 430m users worldwide, and presumably the chance to boost sales of its business and e-mail software.

In other company news, Saudi Arabia’s Public Investment Fund pumped $3.5bn into the ride-hailing app Uber, valuing the company at $62.5bn. Uber will use the money to expand in the Middle East, where 80% of the company’s users are women.

The month ended with US economic growth for the first quarter of the year being revised upwards from 0.8% to 1.1%, helped by stronger export sales. However, growth in consumer spending went the other way: it was revised downwards to 1.5%, the slowest pace for two years.

What did they make of all this on Wall Street? ‘Just enough’ was the answer. Having opened the month at 17,787 the Dow Jones closed at 17,930 for a rise of 1%. On a ‘year to date’ basis the Dow is up by 3%, having started the year at 17,425.

Far East

The month started with Japan delaying the planned increase in its sales tax – from 8% to 10% – until 2019. Prime Minister Shinzo Abe is still trying to stimulate the Japanese economy and reverse more than a decade of deflation. ‘I want to fulfil my responsibility by accelerating Abenomics more and more,’ he told the ruling Liberal Democratic Party.

Good news swiftly followed, as Japan’s economic growth for the first quarter was revised upwards to 1.9%. Conversely, the Japanese stock market fell on the news, with some analysts predicting that Mr Abe might not press the accelerator quite as hard as he’d originally planned.

Figures for May showed that Japan had posted its first trade deficit for four months, with exports falling by 11%. Unemployment was steady at 3.2%.

Obviously there was no messing about with a trade deficit in China: just the surplus of $50bn for May, although this was down from the $58.8bn reported a year earlier. Growth for the first quarter was confirmed at 6.7%, with inflation falling to 2% in May, down from the 2.3% recorded in April.

…And China continued to protect its own manufacturers. Beijing’s Intellectual Property Office ruled against Apple in a patent dispute, saying that the iPhone 6 and 6S models were similar to Shenzhen Baili’s little-known 100C phone. In theory, this could halt sales of the new iPhone in Beijing. For now, Apple has appealed to a higher court.

By and large, June was a quiet month on the Far Eastern stock markets – with the notable exception of Japan. The Chinese and Hong Kong indices were virtually unchanged in June, ending the month at 2,930 and 20,794 respectively. The South Korean market fell back by 1% to 1,970 – despite a record trade surplus of $11.6bn. However, there were significant falls in Japan. The Nikkei Dow was down by 10% to 15,576 and is now down by 18% in the last three months.

Emerging Markets

As we mentioned in the introduction, Brazil’s economy continues to contract. It shrank by 0.3% for the first quarter of 2016, the fifth consecutive quarter in which the economy has contracted. The country also continues to battle with the negative impact of the Zika virus and the uncertainty caused by President Dilma Rousseff’s pending impeachment trial.

The problems were highlighted when the state of Rio de Janeiro declared a state of financial emergency – less than 50 days before the Olympics.

Despite all this, the Brazilian stock market performed well – possibly because the 0.3% contraction wasn’t as bad as the 0.8% that had been predicted. So the market cheerfully ignored the bad news and bounced up 6% to 51,527. On a year to date basis, it is up by 19% – the best performance of any of the markets we cover in this Bulletin.

The other major emerging markets we cover had rather more sober months. The Indian market was up 1% in June to 27,000 and is now up by 4% for the year to date. The Russian stock market was virtually unchanged in June at 1,891, but remains 7% ahead for the first six months of the year.

And finally

Sadly this month, we must finish with reports of a major crime wave in New Zealand, where high prices and spiralling demand are impacting… the avocado economy. Hundreds have been stolen from orchards, with thieves using rakes to drag the fruit straight off the trees. New Zealand doesn’t import avocados, so clearly an entrepreneurial thief has decided to meet the growing demand from local restaurants. If you happen to be a ‘Kiwi’ and are approached by someone peddling avocados from a bag marked ‘swag’, please do alert your local authorities…

How will Brexit affect your finances?

Wednesday, July 6th, 2016

At this very early stage, the full impact of Brexit on our personal finances remains unclear, but we can already observe the following points.

The Pound and Prices

If the pound continues to fall then importing goods from other countries will be more expensive. This will push prices up and lead to a rise in inflation: but it’s good news for exporters as their goods become cheaper to buy.


An early example of prices going up will be seen on the petrol forecourts. Wholesale petrol prices are quoted in dollars, so as the pound falls against the dollar, petrol prices will rise. The Petrol Retailers Association are already talking of a rise of 2-3p per litre.

Savings and Investments

Without question, the biggest threat to the stock market and your savings and investments is a prolonged period of uncertainty – the one thing markets hate above everything else. Assuming everything is worked out relatively quickly then the stock market should return to a normal pattern of trading – and as George Osborne has said at several points over the last week or so, the fundamentals of the UK economy are relatively strong. We certainly cannot assume that Brexit would be bad for shares: in the long run the stock market will be affected by events around the world – China’s economy, growth in the Eurozone, the outlook for the US – as much as it will be affected by Brexit.

Clearly any rise in interest rates (see below) would be good news for savers.

Interest rates and Mortgages

Before the Referendum vote, Remain were saying that a vote to Leave would push up borrowing costs, leading to higher mortgage payments and increasing renting costs. But if Brexit were to lead to a period of low growth then interest rates could be cut in a bid to stimulate the economy. David Tinsley, UK economist at UBS, has said that he expects two interest rate cuts from the Bank of England over the next six months, taking rates from the current 0.5% to zero.

House Prices

There appears to be some consensus that Brexit could lead to a fall in house prices, especially in London and the South East. The Treasury has spoken of a fall of 10-18% over the next two years. Clearly not good news for existing homeowners, but anyone with children struggling to get a foot on the housing ladder may take a different view.


During the campaign, George Osborne gave dire warnings of tax rises in the event of a victory for Leave. This would be directly contrary to the Conservative’s election pledge and would be difficult to implement. On the face of it, you could have said that an extension of ‘austerity’ for a further two years beyond 2020 was much more likely, but the Chancellor and Theresa May appear to be uniting behind an approach which abandons the fiscal charter and effectively loosens austerity. A further cut in corporation tax, to encourage businesses to remain in the City, has already been announced by Mr Osborne.

The Leave campaign did give a pledge to remove the 5% VAT on domestic fuel required by EU law – but there were so many pledges flying about that it is perhaps best to not build this into your household budget just yet.


David Cameron did claim that a vote to Leave would threaten the ‘triple lock’ on pensions, but this presumes a poorer economy and a lower national income. If economic performance did deteriorate after Brexit, then the Bank of England might opt for a return to Quantitative Easing (QE) and/or lower interest rates. More QE would push down bond yields and with them annuity rates – so anyone buying a pension annuity would get less income for their money.