Newsletter August 2019

NEWSLETTER August 2019 THE RIGHT ADVICE AT THE RIGHT TIME DID YOU KNOW? Our new Prime Minister As Boris was born in New York and holds a US as well as a British passport, he had a tiff with the US government over a £100,000 bill in unsettled capital gains tax. The new Chancellor Javid was a banker in a previous life. He became a vice president at Chase Manhattan Bank at age 25. He later joined Deutsche Bank in London. When he left Deutsche Bank in 2009, he was a senior Managing Director. At school it was recommended that he should be a TV repairman. A Multi-Culturally Diverse Nation Prime Minister Boris Johnson is the grandson of Osman Ali Kemal (Turkish) First Minister and Foreign Secretary Dominic Raab is the son of Peter Raab (Czech Jewish) Chancellor of the Exchequer Sajid Javid is the son of Abdul Ghani-Javid (Pakistani) Home Secretary Priti Patel is the daughter of Sushil Patel (Indian) Record Temperatures! A mix of sizzling sun and storms to follow (a bit like the stock markets at times!) The Met Office has officially said on Thursday that a new record temperature was set for July as the mercury hit 98.42F (36.9C) on July 25th, 2019. Forecasters have said that the new record outstrips the previous record set in July 2015 at Heathrow of 98.06F (36.7C). “City killer asteroid” had a near miss with earth An asteroid dubbed the “city killer” narrowly missed colliding with earth on Thursday 25th July according to scientists. The asteroid called ‘2019 OK’ was travelling from the direction of the sun, so astronomers had no idea the rock was heading towards earth.

The asteroid was around 100 meters in diameter or the size of a Giza Pyramid, and was travelling at 24 kilometres per second, NASA said. Associate Professor Michael Brown, from Monash University said, “It’s impressively close. I don’t think it’s quite sunk in yet. It’s a pretty big deal”. “[If it hit Earth] it makes the bang of a very large nuclear weapon – a very large one.” Swinburne University astronomer Associate Professor Alan Duffy said, “It would have hit with over 30 times the energy of the atomic blast at Hiroshima. “It’s a city-killer asteroid. But because it’s so small, it’s incredibly hard to see until right at the last minute. It’s threading tightly between the lunar orbit. Definitely too close for comfort.” Many of you will know most of the above as these days the sources of information are endless. However, there is a lot we don’t know, and to this end as always, I try and meet fund managers and have heard some interesting views of late. Automation Technology & Finance There are so many areas which could be covered and here I look to the future. We are told that 50% of babies born in 2007 will live to see 102. Future generations will need to structure their lives quite differently to those of today. Earlier this year I was fortunate to be able to attend a two-day event packed with information. Two packed days left me exhausted but elated, as it was a real opportunity to explore the current geopolitical and macroeconomic environment and the impact it could have on us, all our lives, our investments, our futures. Jamie Susskind, author and practising barrister was one of the speakers and he considered how technology will be used to transform politics and society, and what new codes of morality this future will demand from us. By the age of 21 Jamie had already written speeches for members of Parliament in the United Kingdom House of Commons and for United States Senators. Not only was he only the second commoner in history to speak at the opposition dispatch box in the British House of Lords, whilst qualifying as a Barrister he was awarded the Honourable Society of Grays Inn most prestigious advocacy prize. An amazingly persuasive and powerful speaker stating well researched facts with a lot of personal knowledge which I thought I would share. He explained in some detail the advances in artificial intelligence, big data and a host of digital technologies and how this will affect our democracy, our freedoms, and our sense of right and wrong. Things can and do go wrong - and as an example, Jamie told us about a very large and well- known company which relied on automation when recruiting in the past.

Now, the autobots are only as good as the input. This company instructed the autobots to find common themes of successful people in Silicon Valley and use those themes in a recruiting drive. When you consider that most of Silicon Valley is young, white and male, the outcome was very discriminatory. This was because the data input meant that recruiting autobots saw white, male and young as being the ideal candidate. It took the company 5 years to find this out! Autobots and their software engineers do not have to be social engineers, so where do ethics and morality enter into this process? And should it? Information technology: The Ethics - An example at present is China, you will all have heard on the news about Huawei / 5G / China and the USA / UK dilemma. Some Governments like Germany are taking a different stance to the US and the UK – who is right / wrong? Or will we only know several years from now but in the meantime, are we out of the fast lane and is it worth it to protect ourselves. An extremely difficult problem to solve! Could there be common ground or is that pie in the sky only some would adhere to? Should Governments and Tech firms require mandatory ethics and morality qualifications before their automated systems are released in the general marketplace? I don’t see why not, as after all, most professionals adhere to a code of conduct at the very least. Many of us have specific ethical considerations to adhere to. Penalties are imposed on those found not doing so. Why should this be any different since it permeates every part of life already from medical care, money, life assurance, mortgages – in fact my list would be better served trying to think of where it doesn’t already affect us, and this is set to increase. Where Governments do not consider democracy a right and forge on with progress such as that with China’s electric busses, trains, electric everything in fact - what if this technology is used to spy, used for military purposes or other nefarious reasons? How can we harness technology without lagging behind the superpowers? It seems impossible to have the good without the bad. Do we the consumer have any choice? Will the next generations suffer due to discriminatory autobots? Will they lose choice and freedom, and the human touch? Its our generation which has to ensure technology is used wisely…. Where does this lead to in terms of finance and financial matters? Well, the role of technology in economic progress is unquestionable and much rests on our collective ability to turn innovations into productivity gains. Food for thought

Another area robots have been tested is in the financial services arena The latest news is that Investec has decided to close its robo-arm after just two years and the clients are currently being informed. This follows UBS who closed in August 2018 just 18 months after launch. Much has been invested by these companies but so far anyway, take up was too slow. Could this be because the proposition should start with customer need rather than just copy what others are doing? I read an adviser’s comments recently on the subject and I use his words, “whilst I am a passionate believer in digital advice, I remain sceptical of the current robo1.0 model”, which he described as “a narrow, linear journey into a pre-baked portfolio based on answering a few questions”. I could add to these comments that in my experience back office technology is wonderful to simplify and expedite tasks, but people still want human contact for the important things in life. We all know how frustrating it is when one needs an urgent answer to a problem, but the call made needs you to enter passwords (that I forget), or “press 1 for this and 2 for that and 3 for another…. “ What happens when nothing fits your issue – you go back to the beginning (and sometimes they just cut you off!). There are some hybrid models which seem to work for some customers and the providers concerned - though this has needed a long-term view on return on investment for the provider. When all is said and done progress won’t be stopped. From Ford using robots to build cars for some years now, albeit with humans guiding, some operations on humans also follow suit these days. The BBC featured a programme on driverless cars and what’s happening so far, but it led me to thinking – there could be so may possibilities yet with inherent pros and cons. I first wrote about driver less cars many years ago when they were just an idea not yet tested. In 2019 they are used on the road by Uber to carry people, by Caterpillar Inc for mining, by the US Postal service and indeed it seems Amazon will go one step further with drones dropping in our shopping! The pros and cons are huge – autonomous cars (once reliable) could mean independence for many who can’t or shouldn’t drive, saves man hours for many businesses - the flip side will be job loss, but hopefully new jobs are created.

It’s scary though to think that we are told one day we will not be able to tell the difference as the robots are now being built to look like us and also mimic our feelings and recognise our thoughts amongst other things. Keeping with the Technology theme The Office of Public Guardian (OPG), who amongst other things, deals with the registration of Lasting Powers of Attorney, are working on improving and implementing new online services. As with the implementation of any new system there are often teething problems and we are seeing evidence of this with the OPG. Technological and staffing issues at the turn of the year have led to extensive delays in the registration processing times of new LPA applications and, as they further integrate their new systems, it may be some time before we really see the benefits of these new services. Incapacity can come to anyone at any time – don’t delay! The sooner an LPA application is submitted for registration the better. If you are an existing client, the likelihood is we have or are in the process of taking care of this for you but what about friends, family or work colleagues? People often think the worst cannot happen to them, but incapacity comes in many forms, from sudden illness to an unforeseeable accident. A bit like home contents insurance, we all have it but why? To protect our cherished belongings in case of an unexpected event such as accident, flood damage, fire damage or burglary to name the main reasons. For Your Interest… The chances of experiencing a house fire significant enough to require the fire services is 1 in 4. Similarly, mind.org reports that the number of people (adults over 20) each year that will suffer from mental incapacity, either inherited or due to illness or accident is also 1 in 4. AIB Insurance says that 75% of UK households have Home Contents Insurance, yet as of the end of 2016, of the estimated 50,300,000 adults residing in the UK, only 2,173,187 Lasting or Enduring Powers of Attorney had been registered with the Office of Public Guardian – that’s just 4% of the UK’s adult population who have protected their decision making abilities against the effects of incapacity, which as you can see from the above data, is just as likely to happen as a fire threatening the contents of your home. It comes down to the old adage: It’s better to have it and not need it, than need it and not have it!

Funds, markets & views…. Aviva “An unconstrained approach to global equities” Both Mikhail Zverev, Head of Global Equities and Alistair Way, Head of Emerging Market Equities examined some of the fundamental changes underway in a variety of sectors such as healthcare, autos, technology and financials. They explored ways of how-to best benefit when = investing in Global and GEM equities. Invesco Perpetual “Active return potential with passive like risk: How factors can generate stable excess returns” The uncertainties of the recent past can mean a dilemma for some investors. Whilst the low return environment urges them to take risk in order to generate higher outcomes, uncertainty results in meaningful reluctance to do so. Michael Fraikin, Global head of Research, Invesco Quantitative Strategies discussed how their range can provide a potential solution, while limiting active risk, well-diversified factors provide an explicit outperformance expectation. Various factors explain the return and risk characteristics of a portfolio, and as many times as I have heard risk / reward explained over the years the definition is always being expanded upon and new ways found to explain this. The saying “Poor return at an inconvenient time” is still one of the ways I find it best to relay the fact that portfolios can drop and do, and usually at a time when its most inconvenient. Added to this, investor behaviours are not necessarily rational and as such, capacity for risk is also one of the factors when considering the overall portfolio. Invesco’s presentation incorporated some of their expected sources of reward, and how they diversify their portfolios to obtain active return potential with passive like risk. Carmignac “Are we there yet?” With capital held entirely by its fund managers and staff, Carmignac are one of Europe’s leading asset managers. Obe Ejikeme revealed his outlook for 2019/2020 and why this could be a good time to seek opportunities in areas of the markets where sentiment is overly pessimistic.

It’s interesting to hear the view that 2019 will be a good year according to Obe Ejikeme, Carmignacs quantitative equity analyst - indeed the next “12-18 months should be very good and a third Bull market”. When posed with the question “where are we in the Cycle?” the view was the recovery phase is 2019, specifically the S&P and Nasdaq for the long term, with the medium term expecting a cyclical rebound i.e. Emerging Markets, Europe, Financials. He warned against mass sell offs and added that sell offs were often due to psychology, rather than legitimate concerns for underlying companies. Jupiter “How sustainability solutions are shaping asset markets” Jupiter’s Global Environment & Sustainable Strategy is now in its 31st year, it was one of the first and longest running environmentally focused investment strategies. The mandate has not changed since I first knew it all those years ago. They make long term investments in leading companies providing solutions to global sustainable challenges. Charlie Thomas, Head of Strategy, Environment and Sustainability and manager of the Jupiter Ecology Fund. He is also manager of the Jupiter Responsible Income Fund (Unit Trusts) as well as institutional assets, the Jupiter Green Investment Trust PLC, and the Jupiter Global Ecology Growth Fund. In addition, he co manages the Jupiter Global Ecology Diversified Fund (SICAV). As his responsibilities indicate, he is passionate about the environment and it shows. They define their key investment themes in resource efficiency, infrastructure and demographics.

The need to have investments addressing the UN sustainable development goals and companies providing solutions. Charlie argues this is an overlooked sector, but markets will be influenced in future through disruptive change and this has only just commenced and will be long lasting. Source: jupiteram.com Baillie Gifford “High income investment: a flexible long-term approach” Torgail Stewart, investment manager, confirmed the objective of this fund is to produce monthly income. Potential capital growth is also sought depending on prevailing market conditions. He discussed how Baillie Gifford avoids shortermism and concentrates on a long-term approach with low turnover. Source: bailliegifford.com

This session related to their Strategic Bond Fund and how they target areas of inefficiency. These included Unrated Bonds (where there are neglected opportunities in their view) as well as rating upgrade potential. Thematic areas such as out of favour sectors and M&A targets were also discussed. The discussion was interesting especially as they invest with conviction rather than index inclusion. Their holdings include well-known names like Netflix, EDF, BUPA, Sainsburys Bank, Dell, National grid MetLife and so on. Schroders “Casting your net wide: Capturing the best opportunities in sterling and global credit” Jonathan Golan, Fund Manager at Schroders gave us a good understanding of how best to use flexibility and diversification with the key being in-depth credit research. He discussed how their fund profile has a high-grade credit portfolio, with bottom up investment style, and emphasis on disciplined and rigorous credit research. Their excellence reflected in the fund manager Jonathan Golan having a 5-crown rating with FE and the same with Morning Star. He feels that UK growth will rebound assuming a smooth Brexit. Stewart Investors “Identifying high quality stewards in emerging markets” Stewart Investors investment philosophy is founded on the principal of responsible stewardship. They believe investments should have a social purpose - the efficient allocation of assets to high quality companies at sensible prices. Tom Allen, investment analyst Asia Pacific Equities and Michael Summers, Investment analyst Asia Pacific Equities, shared some case studies showing how they identified quality in Emerging Equity Markets. These included companies in Taiwan, India (Tata Group), and Hong Kong amongst others. The detail into how they chose their investments was insightful. Octopus “The long- term case for UK smaller companies” Octopus are well known for their tax solutions and efficient IHT investment. They also run funds and this session concentrated on the UK Micro-cap Growth Fund. Dominic Weller Fund Manager, co manages some £1.6 billion funds under management. He covered the investment process, their investment universe, portfolio construction and case studies of how smaller companies create value and how this translates to return for shareholders. He demonstrated how smaller companies can be a real diversifier and shouldn’t be overlooked. The track record is impressive with an FE Crown fund rating with 4 crowns.

The smaller companies team includes Citywire AAA rated Richard Power who has been with Octopus for 14 years. Source: octopusinvestments.com The UK smaller companies’ market is a stock pickers market and companies such as Restore (consolidators), Blueprism (new technologies), Fever Tree (exceptional growth / earnings upgrades), RWS (global leaders) were discussed as examples. Other companies held as core holdings, Everman, NEXT 15, Iomart and many more were explained including MaxCyte (unique healthcare technology - cells based) Octopus holds leading positions in the markets in which it operates. BNY Mellon “Why in equities, quality matters” Global equities are the speciality, with a team of 20 investment decision makers. Murdo MacLean, Mile Ferguson and Adam Long in their differing capacities presented the case for investment in high quality globally diversified companies. They felt this was particularly relevant as we move from an environment of monetary easing to one of tightening. I noted they have the approach that once a business is identified as one they require, there is a unanimous agreement before the stock is purchased. Therefore, this 20 strong team has to be very convinced before making an investment. This is a prudent approach however, it does not stop them from seeing innovation. For example, they have invested in FANUC Robotics. Robotics are being employed everywhere these days and the trend appears to be increasing. FANUC have penetrated the Japanese markets already. Starbucks, the largest premium coffee chain in the world, is another stock held. A highly cash generative business with ongoing scope for growth. TJX Companies – the largest off-price retail chain globally, and its business model is resilient during economic downturns appealing to a broad customer base. One of the retail organisations proving to be highly resilient against the threat of ecommerce.

T. Rowe Price “Japan Equity – end of the cycle or beginning of the journey?” Laurence Taylor Portfolio Specialist, represents the firm’s global equity portfolio and is Vice President of T. Rowe Price International Ltd. Volatility returned to Japan with full force in 2018, repricing many stocks for a pessimistic outlook both domestically and internationally. Laurence discussed the outlook for Japanese stocks and explored where the volatility has created opportunity and his views as to positive change and transformation. The theme of this discussion was “Japans quiet recovery” and the facts are the return on MSCI Japans yield has more than doubled from 4.4% in 2012 to 10% at the end of 2018. Japan’s female participation rate is above that of the US and the OECD average, foreign workers stand at 1.3m (up from 0.7 million in 2012, labour productivity growth is exceeding all G8 peers). Amongst other facts which I don’t refer to here, it’s also notable that Shinzo Abe is the longest serving Prime Minister in a century and is the second longest serving G8 leader. (Source MSCI, FactSet research systems INC) Laurence pointed out how the “winds of change” have enabled and continue to enable powerful new alignment between co-parties and shareholders. Source: troweprice.com There is certainly a case to be made for Japan since secular growth is being achieved with the aging population creating demand, the monetization of the Internet age, domestic consumption trends, export champions and much more.

And finally – just as a reminder… Do tell your friends, family and colleagues about our Will Review Service. It is important to review your Will on a regular basis in case of changes to circumstances, but also important due to legislation changes. The most recent change (one of the biggest in recent memory) bringing about the introduction of the Residential Nil Rate Band, is something everyone should be considering. Introducers and Referral Rewards We will be launching a Referrals and Introducers scheme. Please contact us if you are interested in hearing more, or if you know anyone who may be interested in more information. If you have any queries regarding the topics covered within this newsletter, please do not hesitate to contact us and do pass our contact details on to anyone we may be able to assist: [email protected] [email protected] Specific stocks mentioned throughout this document are not be construed as advice and are not recommendations to buy or sell shares or invest in funds or managers. This report is for information only and advice should be sought before any action or inaction is taken.