vision
August 2016 | No. 12
THE WEALTH MANAGEMENT MAGAZINE FROM THOMAS HEALD
Brave
New
World
A closer look at the macro-trends
shaping the future of the global economy
ALSO INSIDE THIS ISSUE
Back to the Future of British Trade: What can history tell us?
Damage Control: Can diversification cushion market blows?
Newton Global Income: Why limit your universe?
British Summer Time: Wines to try from a vineyard near you
Nick’s
Economic
Outlook
Momentous Times:
What next in the
aftermath of Brexit?
thomasheald
CHARTERED FINANCIAL PLANNERS
Contents
CONTENTS
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CHARTERED FINANCIAL PLANNERS
13
Vision Magazine | August 2016 | No. 12
03. Vision Intro
Introducing the Summer 2016
edition of Vision Magazine
04. The Great Trading
Nation
What can history tell us about the
future of British trade?
06. Focus On... BNY
Mellon - Newton
Global income
Why Global exposure is a nobrainer for income-seekers
08
08. Brave New World
An antidote to the misery and the
myopia of the media regarding
our future prospects post-Brexit
11. Robotics
06
Pictet Asset Management report
on he next frontier of the digital
world
12. Damage Control
Just how much can a welldiversified portfolio cushion stock
market blows?
12
13. British Summer
Time
Home-grown favourites from a
vineyard near you
14
14. Nick’s Economic
Outlook
Momentous times: What next in
the aftermath of Brexit?
16. The Chancellor
with a Thousand
Faces
Shining a light on Osborne’s
inscrutable successor
2
Vision Magazine is designed, edited and published by Thomas Heald Ltd (© Copyright 2016). No
part of this publication may be reproduced without the permission of Thomas Heald Ltd.
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Intro
Vision
Intro
At a time of
monumental change,
sometimes it pays to
stop and reflect...
Welcome to the Summer 2016
edition of Vision magazine.
This issue presented a particular
challenge given the scope of the
economic and political madness
we have witnessed in recent
months. How could we convey the
most pertinent data and economic
analysis to our clients, when
every few days (or sometimes
hours), new developments come
cascading in and adding new
layers of complexity to the story?
Our solution was to step back
- right back. Because ultimately,
as Bill Bryson wryly observed,
Great Britain is little more than
‘a small island’ in the grand
scheme of things - and there’s
a whole world out there. So we
unplugged ourselves from the
24 hour newsfeeds and centred
our research and reflection on
the overall trajectory of the global
economy.
In brief: Chris Holland looks at
our history as a trading nation and
the associated implications for our
post-EU prospects (page 4).
Our ‘Focus On…’ piece this
month (page 6) comes from
the Newton Global Income fund
at BNY Mellon – where fund
manager Nick Clay explains the
benefits of an internationally diverse
investment strategy.
In ‘Brave New World’ (page 8), I
examine the nine trends identified by
KPMG as key drivers of change over
the next 30 years. This is followed
by a brief report from Pictet Asset
Management on a hot new topic for the
digital age that looks set to redefine
the way we live in years to come:
Robotics (page 11).
We also provide a snapshot of our
overall portfolio performance in the
wake of Brexit (page 12) along with
Nick’s usual Economic outlook (page
14) and wine article (page 13), which
delves into the delights of British wine.
Finally, we assess the credentials of
our new chancellor, and speculate on
his plans for the UK economy (page 16).
We hope you enjoy this issue of Vision
Magazine, and as ever we encourage
you to get in touch if you have any
comments or suggestions via chloe.
[email protected].
Chloe Timperley
Vision Editor
This publication is intended for general interest and entertainment purposes only. No part of this publication should be taken to constitute
financial, legal or any other kind of professional advice. If you would like to speak to an adviser regarding your financial situation, please do
not hesitate to call us on 01246 570078. Please note that the value of an investment can fall as well as rise, and you may not get back
the full amount originally invested. Past performance is no guarantee of future performance.
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3
Economics
The Great
TRADING NATION
So, we have voted for Brexit, and whether we like it or not it looks like our ties with
Europe will be loosened. To what extent and what version of Brexit we eventually end
up with will depend on many factors, not least the skills of our negotiating teams and
the direction our new PM feels will re-unite the remainers and brexiteers alike...
T
he one thing both sides of the
argument seem to be agreed on is
the need to continue to build our trade
with Europe and the rest of the world in order
to fund our NHS and social welfare, as well as
ensuring our long term security.
This country has always been a great
trading nation. The British Empire wasn’t so
much about conquest; it was about money,
profit and trade.
Former Glory
The British navy ruled the world’s oceans and
allowed British traders to make fortunes from
ships filled with opium from China and textiles
from India. New crops in the expanding
colonies, like rubber in Malaysia and the
demand for sugar from the Indies drove and
fuelled our colonial ambitions.
“
In joining the EU,
Britain surrendered
its independent trade
policy and ability
to strike deals with
other commonwealth
countries
4
Britain became the world
capital of money. On London’s
trading floors, speculators
bought and sold commodities
from all corners of the Empire.
By the end of the 19th century,
more than half the world’s
trade was financed with British
pounds.
Over time our power and
influence diminished and other
countries such as the USA
and China have come to the
fore. Britain sought to regain
some of its former influence by
partnering with its European
allies in order to prevent
America’s domination of trade
agreements.
Enter: The EEC
Britain applied for membership
of the EEC in 1961. This was
vetoed by French President
Charles de Gaulle, who
was concerned that British
membership would weaken the
French voice within Europe.
He also feared that close
Anglo-American relations
would lead to the United States
increasing its influence in
thomasheald.co.uk
Europe. He then went on to
veto a second application from
Britain in 1969. We eventually
joined in 1973 and were given
a referendum on continuing our
membership in 1975 (which
was an overwhelming yes vote
of 67.2% at that time.)
In joining the EU, Britain
surrendered its independent
trade policy and ability to strike
deals with other commonwealth
countries, which have
continued to grow and expand
at a much faster pace than
Europe in recent years.
When the Euro came into
force in 1999 we ‘opted out’,
and that decision is now
widely regarded as having
safeguarded our recent
economic performance.
Along with the single
currency came the objective of
ever-closer political union, and
that has always been at odds
with a large proportion of the
UK electorate.
And thus, these fault lines
have eventually created the rift
that is pulling us away from this
increasingly close-knit union.
Economics
Trade Deficit
Now we have the task of
remaining on good terms with
our European cousins whilst
keeping free movement of
goods, and at the same time
agreeing a different style of
relationship to the one we have
presently. In addition, we will
be free to re-build and increase
our trade outside of Europe in
the way our colonial forefathers
did.
The UK was the world’s 6th
largest trading nation in 2015,
exporting 465 billion US$ and
importing 629 billion US$. The
country is therefore running
a significant current account
deficit.
This has been a persistent
issue since the early 1980’s,
which saw a decline in
our manufacturing base.
Whilst we still manufacture
significant amounts of goods,
the spending patterns of our
citizens outstrips supply. This
unbalance in goods is partly
offset by our exports of services
(e.g. insurance and financial
services) at which we excel.
The proportion of our trade
with the EU has declined in
recent years. In part this may
be down to slower growth in
Europe compared to other
parts of the world, which could
of course change again in the
future.
Global Ties
However, as it stands, 53%
of our trade goes to non EU
countries, and our biggest
single export market is the USA,
accounting for as much as
Germany and France combined.
Given the drop in the £/$,
“
The proportion
of our trade
with the EU has
declined in recent
years
this position can only be strengthened as our
goods become relatively cheaper in America.
We will also now be able to seek out and
develop new markets with emerging
economies and negotiate our own
trade deals, rather than being reliant
on EU negotiations. The flip side
of this of course is that being a
far smaller economy than the
EU means we therefore have
a much weaker bargaining
position.
Final Thoughts
So here we are in post-Brexit
no man’s land, not yet divorced
but definitely separated. Maybe
an island race such as ours
never had quite the same
outlook as our continental
cousins. One way or the other
we will eventually establish a
new relationship with the EU
and begin a new chapter in our
history.
Whether this will be deemed
a monumental mistake or
great defining moment in our
history may not be known for
many years to come, but our
capacity as a nation to adapt
and innovate should stand us in
good stead for the challenges
ahead.
Chris Holland
Commercial Director
thomasheald.co.uk
5
Investment
FOCUS ON...
Newton Global Income
Why go global? For Nick Clay, Newton Global Income
manager at BNY Mellon, the more sensible question
would be: “Why not?”
A Restricted View
Limiting your universe makes no sense when
one can remove the constraints. It’s like darts.
If you could only throw at the top of the board
(5, 20 and 1) you may hit 20 or even triple 20,
but statistically your score is likely to be low
given the 5 and 1 you may hit instead.
Investing globally is like having the whole
board to throw at. You’re able to aim at the
statistically most attractive areas, wherever
they may be. It is basically about increasing
one’s odds of being successful.
The environment for income is not too
different. Yes, there are plenty of opportunities
in a single market such as the UK, especially
as it has a long-standing equity dividend
culture. But the wider global market offers
broad opportunity with greater diversification.
6
In fact 92% of the companies
that yield 3% or greater are
located outside of the UK.
In our view, a focus solely
on UK companies – or indeed
to any single geography – is
potentially detrimental when
viewed through the prism of
long-term returns.
We can see this if we take
into account the issue of
“concentration” in the UK stockmarket. Just 10 companies
account for 50% of income from
the FTSE. While companies
like BP and AstraZeneca may
be established, well-respected
and global companies, it’s hard
thomasheald.co.uk
to escape from the fact the
UK’s largest dividend payers
are mostly concentrated in
just three industry sectors: oil,
banks and pharmaceuticals.
That means a downturn in
any one of these areas (like
the oil sector over the past
couple of years, for example)
could have a disproportionate
effect on how such companies
perform. It also means they
could suspend or lower their
dividends. And investors tend to
vote with their feet when faced
with the prospect of reduced
income.
Investment
Beyond borders
So an investor can be
pressured into investing
in a small number of large
companies of one market in
order to obtain the income they
seek.
One solution to the
“concentration” conundrum is to
look beyond the UK’s borders to
the wider ocean of international
investing. Last year some 33%
of the constituents in the FTSE
World index (which includes
more than 800 companies)
yielded 3% or greater. So
should all of this lure UK equity
income investors further afield?
Certainly there are reasons to
consider it.
By the same token, a
global approach can provide
opportunities beyond just
a small number of industry
sectors.
This isn’t to say international
income investing is trouble-free
or altogether straightforward.
Each country has its own
challenges and not all
markets are alike. But for
us, a disciplined approach to
investing on the global stage is
one of the best ways of finding
businesses that can not only
generate surplus cash and
return it to shareholders but can
do so sustainably over the long
term.
“
Market
gyrations
of this kind
speak to the
importance of
having a global
outlook
Geographical split of the number of FTSE World Index
stocks yielding greater than 3% (2015)
For illustrative purposes only. Source: FactSet, Datastream, December 2015
Calmer waters
So far in 2016 the economic
backdrop for markets has been
turbulent to say the least: stock
markets started the year with
a dramatic China-led sell-off
only to rebound from midFebruary, with some of the
sectors and regions that were
most aggressively ditched
rallying the most. Now, with the
EU referendum result we’re
seeing turmoil in everything
from currencies to shares and
through to bonds.
In the wake of June’s vote,
UK stocks were especially hard
hit as the FTSE100, the UK’s
leading stock index, dropped
more than 8% on 24 June - its
biggest fall since the global
financial crisis of 2008. The
pound also plunged on the day
after the vote, losing close to 10% against the
US dollar, to a level not seen since 1985.
Personally, I believe recent market gyrations
of this kind speak to the importance of having
a global outlook when it comes to investing,
especially for those seeking a steady income.
We can see this in the long-term track
record of Newton’s Global Income Fund
since inception where a global approach
has enabled exposure across a broad and
diversified range of industries over the past 10
years.
For investors who wish to read the
Prospectus and KIID documents for this fund,
please visit www.bnymellonim.co.uk.
thomasheald.co.uk
Thomas Heald clients invested in
VisionWealth Income portfolios will benefit
from the global exposure provided by the
Newton Global Income Fund.
Please note that the value of an investment can
fall as well as rise, and you may not get back the
amount originally invested.
7
Economic Trends
BRAVE NEW
WORLD
With the economic, social and political
fallout from Brexit gobbling up column
inches and air-time across the media,
barely any attention has been paid to the
bigger picture. What challenges do we
now face? Chloe Timperley takes stock...
N
ecessity may be the
mother of invention,
but no-one in their
right mind would espouse her
approach to parenting.
She can be a formidable
motivator; the proverbial ‘kick
up the backside’ we need to
spur us into action. But she is
also a lousy caregiver, and a
cruel disciplinarian. Food on the
table, a roof overhead, safety
and security – none of these
things are guaranteed in the
household of necessity.
This reality is often
overlooked when the virtues of
creativity, problem-solving and
innovation are being touted
as the cure-all for a lacklustre
economy. The quote (attributed
to Orson Welles) from the 1949
film noir The Third Man comes
to mind:
“In Italy, for thirty years
under the Borgias, they had
warfare, terror, murder and
bloodshed, but they produced
Michelangelo, Leonardo da
8
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Vinci and the Renaissance. In
Switzerland, they had brotherly
love, they had five hundred
years of democracy and peace
– and what did that produce?
The cuckoo clock.”
Fear of the Unknown
Now, this is not to suggest that
World War Three is about to
erupt (although, reading the
headlines in recent months, one
could be forgiven for thinking
so).
But it does give pause for
thought when the prevailing
voice in the face of the
unknown is the voice of doom
and gloom.
It provokes the question: are
we grossly underestimating
ourselves here? Do we really
have that low an opinion of our
resilience, resourcefulness and
ability to adapt in a changing
environment, that we regard
any departure from the status
quo as a tragic loss?
Economic Trends
This, as you may have
guessed, is in reference to
the position in which we now
find ourselves as a nation
(Brelimbo? Brexurgatory?
Brexistential Crisis?
Suggestions on a postcard
please).
There has been much
speculation over the legal and
political implications of Brexit;
whether or not misinformation
could have influenced the
result, and whether some
semblance of what we had
before could be salvaged from
the wreckage.
However, while necessary,
these conversations do nothing
to address the fundamental
questions we now face: where
are we headed? What might the
future hold? In what ways will
we need to adapt if we are to
thrive in a post-EU world?
to see how gigantic, byzantine
and expensive governing
bodies might start to lose favour
with the general public. If the
banks were too big to fail, then
our governments are too big to
keep up. And thus, the popular
desire for lighter, speedier and
more tailored governance starts
to make sense.
It’s a trend we’re seeing not
only in our own nation (which,
alongside Brexit, includes the
Scottish Independence bid,
as well as increasing demand
at county level for devolution
of powers from central
government); but across the
globe as well.
“
Atomisation of power
Interestingly, in a briefing
published nearly two years
ago1, Pictet Asset Management
identified that one of the key
drivers of change in the coming
years would be what it called
the ‘Atomisation of power’. It
forecasts a world in which:
“People power can block
change, but no one can
impose change – decisions
are not taken, taken too late
or watered down. Budget cuts
in the social safety net are
leading to instability, and trust
in government has dipped
dramatically as democracy is
seen as ineffective.”
The briefing goes on to
attribute this development to
“governments and markets
fail[ing] to adapt to change.”
Taken in this light, it’s easy
Separatism has its myriad
causes and circumstances,
but the number of separatist
movements currently active
worldwide stands at around
two dozen – over a third of
the total number of separatist
movements ever to be
recorded. Furthermore, there
are currently 192 recognised
countries (as of 2008), which is
a massive increase on the 51
that were in existence in 19452.
Do these figures suggest
that Brexit (not a separatist
movement per se, but similar
in nature), rather than a
bizarre refusal to embrace
globalisation, actually conforms
to a macroscopic tendency
People
power
can block
change, but noone can impose
change
towards self-governance and
the de-centralisation of power
among nations?
If so, this could be good news
for Brexiteers. In the grand
scheme of things, Brexit may
be a necessary step towards
building an economy that meets
the demands of the modern
age.
The New Economy
So what are these new
demands? While the answer
to this question would provide
enough material for several
volumes of books, a report
recently published by KPMG3
identifies 9 key areas of change
to which governments and
economies worldwide will need
to adapt over the next 30 years.
These areas are:
>> Demographics
The challenges posed by an
aging population as birth rates
fall in the developed world, and
the burden on state healthcare
and social security increases.
>> Rise of the individual
The widening of access to
technology, healthcare and
education is fostering a more
demanding, more politicallyminded population. It is
estimated that, by 2022, more
people will be middle class than
poor for the first time in human
history.
>> Enabling technology
Technological change is moving
at a rate that will test the limits
of governments’ ability to
legislate for the digital age, and
to capitalise on opportunities
opened up by ever advancing
digital technologies.
thomasheald.co.uk
9
Economic Trends
it will be incumbent upon
governments to manage these
transitions smoothly and fairly.
>> Climate change
Now established scientific
reality, the pressure to reduce
emissions and develop
adaptive technologies will
continue to rise.
>> Resource stress
A premium will be placed on
essential resources like energy,
water and arable land as the
population grows and climate
change makes sustainability an
increasingly pertinent issue.
>> Economic
interconnectedness
As goods and capital flow freely
between nations, regulation,
competition and co-operation
must be kept at the top of the
agenda so as to ensure a fair
and beneficial outcome for
everyone.
>> Public debt
As the developed world
funds large portions of its
state provision through
steadily mounting towers of
debt, a major challenge for
governments over the coming
decades will be balancing the
need to reduce budget deficits
and sustaining economic
growth and quality of life for
individuals.
>> Economic power shift
As more established economies
make room for newcomers, and
emerging countries transition
from manufacturing-based
to service-based economies,
>> Urbanization
Under the law of the
‘economics of agglomeration’,
more and more people are
flocking to cities and away from
rural areas, creating extra strain
on resources and infrastructure.
From an investment
perspective, an awareness
of these trends will be critical
to identifying areas of longterm growth. Brexit may be
the number one concern in
the minds of investors right
now, but in the wider scheme
of things, these large-scale
trends give us a much clearer
picture of what the future could
look like – and thus, where the
opportunities may lie.
What Next?
There has been much talk of
the various ‘models’ (Norway,
Canada, Switzerland) we might
choose to adopt when it comes
to redefining our relationship
with Europe – as if the task
ahead is akin to lining up a
series of differently-dressed
mannequins and selecting
the one we most like the look
of. While precedent will no
doubt inform the forthcoming
negotiations, the reality is that
we are in a completely unique
situation.
The makeup of the British
economy, what we have to offer
in terms of trade, the demands
of our workforce, the support
we require to uphold national
and cross-border security – all
of these things will feed into
the kind of deal we eventually
strike. And as much as Europe
will not want to be seen to be
giving us too favourable a deal,
it is in everyone’s interests
to arrive at a solution that
is bespoke, forward-looking
(and not merely a husk of our
previous arrangement) and
suited to the demands of the
global economy.
“
The reality
is that we
are in a
completely
unique situation
Unchartered Territory
We cannot know – and indeed
we may not know for many
years – whether Brexit will turn
out to have been a boon or a
blunder for the British economy.
But since the British public has
delivered its verdict, the focus
now should be on the wider
world, and on the part that we,
a small island on the edge of
the Atlantic, will have to play
in it.
Citations:
1. Pictet Briefing: The Family Consilium, Event Report, September 2014.
2. Beary, B. Separatist Movements: Should Nations have a Right to Self Determination? CQ Researcher, April 2008, Vol. 2, Issue 4.
3. KPMG International, Future State 2030: The Global Megatrends Shaping Governments, 2013.
10
thomasheald.co.uk
Chloe Timperley
Vision Editor
On average, industrial
automation capacity
will increase by over
frontier of technological
achievement
90%
Economic Trends
across some of the world's
largest economies**
between 2012 to 2017
ROBOTICS
THE NEXT
FRONTIER OF THE
DIGITAL WORLD
Reference: International
Federation of Robotics,
Pictet Asset Management
NEW ERA, NEW CHALLENGES
INNOVATION IS KEY
MORE OPPORTUNITIES
From the industrial revolution of the
18th century, powered by water and
steam, to the internal combustion engine
in the 19th century and the information
age of the 20th, improvements in
productivity and wealth have always been
driven by innovative technologies. Today,
we are on the cusp of a new technological
revolution: a transformation that is being
led by robotics and artificial intelligence.
The depletion of natural resources,
coupled with increasing pollution,
means the world must find new ways
to use resources more efficiently and
to increase productivity.
Modern robotic devices are now
equipped with a remarkable capacity to
gather, process and act on information.
In the healthcare industry, for example,
robots are already working alongside
surgeons, helping with delicate
and complex procedures such as
laparoscopic keyhole surgery.
One of the biggest challenges to resolve
over the coming decades is how the
world’s shrinking workforce will support its
growing ageing and dependent population.
With falling birth rates and increasing
life expectancy, the number of people
aged 65 and over is predicted to double
between 2015 and 20501. Against this kind
of demographic shift, robots will play an
important role in helping to counteract lost
productivity and assisting elderly people in
need of long-term support.
Technological development is providing
many of the solutions to these issues.
Businesses in several industries are
using robots to help boost their output,
improve the quality of their goods and
services, and reduce their impact
on the environment. What’s more,
consumers' increased expectations of
customised products can be met through
the flexibility and responsiveness of
new automated technologies, such as
3D-printing, as well as smart factories
and efficient logistics.
Fig. 1 – Mind the demographic gap
Meanwhile, improvements in facial
and voice recognition are creating
opportunities in the services and
security industries. Their increased
capabilities, coupled with their
diversification away from their
traditional base in manufacturing,
are indicative of the wider role that
robots will play throughout the
economy in the near future.
Fig. 2 – How robotics helps sustainability
1950
Decreasing global workforce relative to elderly population
12
working people per person aged 65+
Industry
efficiency
Automated, high-precision
manufacturing uses less energy
and raw materials, thereby
reducing waste and pollution
Early hazard
detection
Advance sensors enable action
to be taken quickly in the event
of water contamination,
impaired air quality or
other environmental threats
2050
Waste
management
4
working people per person aged 65+
Reference: United Nations World Population Ageing
Think globally,
act locally
Machines can greatly increase
the speed and efficiency of waste
sorting and processing;
for example, using spectroscopy
to identify recyclable plastic
Cheaper and more effective
robots mean goods can now be
produced nearer to consumers,
saving on transport costs and
reducing CO2 emissions
Reference: Pictet Asset Management
Note: *We apply an exclusion filter that is independently monitored by InRate, a sustainability rating agency based in Switzerland.**The National Robot Associations of North
America, Brazil, UK, Germany, Taiwan, Korea, China.
Reference:
(1) United Nations, World Population Prospects, 2015
thomasheald.co.uk
11
Investment
DAMAGE CONTROL
JUST HOW MUCH CAN A WELL-DIVERSIFIED
PORTFOLIO CUSHION MARKET BLOWS?
W
e often extol the virtues of
diversification when it comes to
investing. We understand if it makes
you glaze over. While we try to cater
to those of you who genuinely find
investment principles interesting, we
appreciate that most clients are happy
to let the professionals handle the
jargon, so long as those little numbers
on the end of year statement are
shown in green.
Asset allocation, risk-rated
positioning, fixed-interest versus
equities – while straightforward enough
theoretically, these concepts can be
12
hard to relate to if you can’t see how
they work in practice.
However, with the upheaval caused
by the unexpected vote to leave the
EU in June, we got to put our theories
to the test, as our portfolios withstood
the ultimate shockwave: a stock market
crash. With the benefit of hindsight, we
now know that this ‘crash’ was swiftly
followed by a rally, leaving us in largely
the same position as – if not a little bit
better off than – the one we started in.
But in the interim, what
happened?
The FTSE 100 plummeted by over
8% when it opened on the 24th June,
clawing back some of its losses by the
end of the day to arrive at a net loss of
199 points (or 3.1%). This may seem
trivial, but it was a plunge that led to the
erasure of just over 2 trillion in value
across global markets.
When a tremor of this magnitude
hits, it’s to be expected to see the aftereffects reflected in your investment
portfolio. The measure of a highquality portfolio is the extent of the
‘cushioning effect’ you see when the
going gets tough. In other words, when
the markets take a plunge, does your
portfolio manage to stay afloat?
So, to give you an idea of how some
of our portfolios fared, we gathered
data on the cumulative performance
of the FTSE 100 and the FTSE 250
over a 6 month period up until the end
of June, and then compared it with the
cumulative performance of our most
commonly used portfolios over the
same time period.
Between the 28th January 2016 and
the 28th June 2016, the FTSE 100 fell
by 2.15%. The FTSE 250 - regarded by
thomasheald.co.uk
many as a more accurate barometer
for the health of the UK markets - fell
by 12.81%. By contrast, the holdings
change in our 6 key VisionWealth
portfolios was as follows:
TH Cautious Growth
TH Cautious Growth
TH Moderate Growth
TH
Moderate Growth
THHigh
High
Moderate
Growth
TH
Moderate
Growth
THCautious
CautiousIncome
Income
TH
TH
THModerate
ModerateIncome
Income
TH
High
Moderate Income
TH High Moderate Income
+1.52%
+3.93%
+0.59%
+1.30%
-0.09%
+0.80%
Data Source: FE Analytics
Now, this is only a snapshot of the
full variety of investment portfolios
held by Thomas Heald clients. But the
same principles underpin all of our
recommendations, which is why, across
the board, we are seeing the same
pattern showing up time and again when the wider market was suffering
heavy losses, our clients were making
a small profit. Where we did see minor
reductions in portfolio holdings, the falls
were nowhere near as dramatic as the
falls happening in the major indices and
in the value of sterling - again a sign of
a robust portfolio.
It’s not often we tend to blow our own
trumpet, but when all of the theories,
formulae and future projections
translate into a real-world positive
result for our clients - that’s how
we know we’re doing a good job. It
motivates us to keep striving to deliver
you the best returns, while keeping
costs low and risks to a minimum.
As ever, we are at pains to stress that
past performance is no guarantee of
future performance. For more information
on investment risk, please visit http://
www.thomasheald.co.uk/investmentrisks-2/
Wine
BRITISH
Summer
Time
With Brexit resulting in
a slide (for now) in the
value of sterling against
major world currencies,
the increased cost
of importing our favourite wines will
doubtless result in an increase in prices
at the shops at some time in the future.
What better reason then than to focus
today on home grown British wines, and
to taste the wonderful produce made here
in good old blighty!
A
s all of you who are avid readers of ‘Decanter’
will know, English wines collected a fantastic
120 medals at this year’s International Wine and
Spirits Challenge (IWSC), and just as many at
Decanter’s World Wine Awards just out this month,
where many of our sparkling wines gave Champagne
a serious run for their money. We are also producing
some great home-grown white and rosé still wines –
and with the advent of global warming, some of our
reds are now good and especially suited to summer
time.
The best high street stocks are found at Waitrose,
where today’s wines are available, and M&S and
Sainsbury’s, where sales of English wines have risen
sharply. Meanwhile, applications for new vineyards
have increased by 40 per cent in the past year alone
and we now have over 500 vineyards covering some
4,500 acres of sparkling and still wines.
Even the French are muscling in (Brexit or no
Brexit!) as I wrote in our Spring edition, with Tattinger
having become the first French label to invest in
Kent, where the chalky south facing slopes create the
ideal terrain to produce top quality sparkling wine.
1
With so much focus on politics at the
moment and as an introduction to the style, why
not try the official fizz supplier for Downing Street,
Chapel Down? Their Vintage Reserve Brut NV
is a great price at the moment at £15.59, and is a
wonderful aperitif. All their wines spend three years
maturing in the bottle, creating a wine that has traces
of red apple and that classic brioche aroma with
fresh citrus and strawberry on
the palate – perfect for a hot
summer’s day.
2
For a step up, Denbies
Greenfields has just won
double silver and is terrific
value at the offer price of
£17.99. It is a stunningly
elegant sparkling wine with a
fine bead, a lovely biscuity nose
and a broad complex palate
of stone fruit. At under £20 it’s
a bargain and a double medal
winner to boot.
3
It’s not just sparkling
wines that have improved
dramatically in recent years –
still wines have as well, and in
particular rosé. I was introduced
to the still wines of Bolney
Estate at a wine festival in
York, where I was lucky enough
to try their range of sparkling
and still wines. They were
highly impressive, so I am
delighted to see Waitrose now
stocking the delicious Bolney
Estate Foxhole Rosé (£12.99)
which is terrific. It is summer in
a glass with its bold fragrance
and palate of red fruits with a
summer pudding finish.
4
An ideal white to
partner with seafood or to
have as an aperitif is Chapel
Down Flint Dry (£9.99),
reminiscent of a rich Chablis
thomasheald.co.uk
in style with its distinct mineral
core, yet with overtones of ripe
apple and citrus, providing a
wonderfully aromatic wine to
enjoy this summer.
5
For something
completely different
or a special occasion, try
Stopham Estate Pinot Blanc
(£14.99), a recent Bronze
medal winner, whose wines
were chosen for the party on
the Royal Barge during the
Queen’s diamond jubilee. This
medal winner is fuller in style
with a refreshing acidity, stone
fruit and pear palate and a juicy
finish. A wine fit for the Queen!
6
Finally, the reds have
improved dramatically,
with better vinification and a
warmer climate enabling my
favourite grape variety Pinot
Noir to be grown successfully. A
must try is Denbies Redlands
(£12.99), a recent silver award
winner in the Decanter World
Wine Awards. As all good pinot
does, it exudes a palate of red
and black fruits with a hint of
vanilla to go with the velvety
mouthfeel.
I do hope you enjoy my
recommendations and try some
of our local wines!
Nick Thomas
Managing Director
13
Economic Outlook
Nick’s
Economic
Outlook
Momentous Times:
What next in the
aftermath of Brexit?
Prime Minister Harold Macmillan,
when asked what a premier most
feared, famously responded,
“Events, dear boy, events”. Events
since the referendum of Thursday
23rd June have certainly been
momentous, with a daily flurry
of political and economic news of
significance to digest.
N
ow is a good time to take stock and
discuss the impact of the referendum
on UK plc in the immediate aftermath,
although there are clearly no close historical
parallels on which to base reliable predictions.
What is likely to happen over the rest of 2016 to
inflation and economic growth?
The key players now are the central banks,
who are better equipped with policy measures
today to resolve financial distress than they were
a decade ago. They have certainly had a lot of
practice in recent years, fine tuning policies and
acting decisively in a crisis. This was evident in the
Governor of the Bank of England, Mark Carney’s
public statement early on June 24th, in which he
set out the contingency planning that the Bank has
prepared over the past few months, and articulated
the willingness to do whatever is necessary to
stabilise the financial system, a textbook central
bank reaction which settled markets that day. Six
days later, in a speech at Threadneedle St, he
pledged to ‘support growth, jobs and wages’ during
14
this time of uncertainty. The US Federal Reserve,
European Central Bank and Bank of Japan also
released statements in support.
Most economists took these comments as a hint
that rates would be cut by 0.25% at the Monetary
Policy Committee (MPC) meeting on 13th July. In
fact, surprisingly, the MPC voted by 8-1 to leave
rates on hold, in the absence of any worsening
fiscal data on growth and the MPC’s desire to
target inflation at 2%. In other words, the Bank is
delaying further monetary easing policies in order
to keep inflation in check, since weaker Sterling
makes all imported goods more expensive, there
is only one direction inflation will now go and that
is up.
The MPC position though is likely to be
temporary, as most members expect there to be
a loosening of policy in August should there be a
worsening of data, even though the latest gross
domestic product (GDP) figures released indicates
a growing economy of 0.6% in Quarter 2 (Apr
to June) 2016 compared with growth of 0.4% in
Quarter 1 (Jan to Mar) 2016. This is essentially
looking in the rear view mirror rather than looking
ahead.
You can get an early feel for what’s actually
happening in the future by looking at the recent
purchasing managers’ survey, the Markit Flash
UK Composite Output Index, the data for which
was collected between July 12 and 21. This fell
to 47.7 for July, its lowest reading since April
2009 and both output and new orders fell in the
manufacturing and services sector during the
thomasheald.co.uk
Economic Outlook
month. This reading below the neutral mark of 50
suggests a contraction in economic activity and
business confidence, a sharp fall from previous
readings and an indication that Brexit may be
biting.
The slump in the PMI data will likely be sufficient
to convince the MPC to begin monetary policy
easing in August, however, some caution is
needed as the data released is ‘preliminary’ data
that Markit does not normally provide for the UK
and thus they may be subject to revision.
Chris Williamson, chief economist at Markit,
said: “At this level, the survey is signalling a 0.4%
contraction of the economy in the third quarter,
though much of course depends on whether
we see a further deterioration in August or if
July represents a shock-induced nadir. Given
the record slump in service sector business
expectations, the suggestion is that there is further
pain to come in the short-term at least.”
However, with retail sales suffering their worst
monthly fall of 0.9% for six months in June,
as wet weather drove shoppers from the high
street, many economists are wondering if this
demonstrates a drop in consumer spending and
an indication of things to come.
What is clear is all this recent data will be
enough for the MPC to respond aggressively,
so expect a cut in rates in August to 0.25% and
further monetary easing to boot.
Crystal ball gazing
The words of one of Harold Macmillan’s
successors, Harold Wilson, were immortalised in
the political lexicon with his pithy observation that
“a week is a long time in politics”. His observation
could have been designed for what we have
recently seen in Westminster and the magnitude
and pace of recent events demonstrate that
definitive predictions can quickly be found wanting.
Nonetheless, most observers would agree that
the implications of Brexit will be complex and
long lasting, with markets only just beginning to
address the likely nature of Brexit negotiations
under Theresa May’s new government, while
the impact on European domestic politics will be
interesting to say the least.
Recently, Mario Draghi, the president of the
European Central Bank, has played down fears
about a wider impact of Brexit on the Eurozone,
pointing out that a month after Brexit, markets
have been resilient, and that recovery in the EU
is proceeding at a steady pace. However, there
are significant challenges ahead, the first of which
being the European Banking Authority’s report,
which will lay bare Europe’s banking system and
might trigger an Italian bank bailout.
Throughout all this is the here and now, and it is
important to remember that the UK equity market
is not exclusively domestic in terms of its earnings
base and this explains why its performance has
confounded many observers’ worst fears. Indeed,
Citigroup has calculated the market’s aggregate
revenue exposure to the UK as being just 30%.
UK Market Revenue Exposure
Australia/NZ
30%
Japan
2%
UK
30%
LatAm
3%
CEEMA
7%
Source: Worldscope and Citi Equity Strategy Research
The May premiership has got off to a decisive start
with the chancellor Philip Hammond indicating
that he will use the Autumn Statement to ‘reset’
economic policy. This, together with Theresa May’s
announcement that the Government is to drop
the 2020 target to eliminate the deficit, indicates a
radical new approach, should the economy need a
boost in Q3.
Meanwhile, although investors have welcomed
the relative resilience of UK equities, we do expect
further volatility in due course, as economists are
downgrading economic growth and increasing
their forecasts for inflation. However, where there
is volatility there is opportunity for skillful and
talented fund managers to generate returns for the
long term future of us all.
Nick Thomas
Investment Committee Chair
Data Sources: Office for National Statistics / Bank of England / Markit Flash UK PMI®
thomasheald.co.uk
15
News & Current Affairs
THE CHANCELLOR
WITH A THOUSAND FACES
Never an issue of Vision magazine goes by it seems
without the need for some comment to be passed on the
latest antics of the Chancellor of the Exchequer. And so,
true to form, we turn our attention to the question: just
who is Philip Hammond, George Osborne’s inscrutable
successor?
A
s an unusually long-standing member
of the cabinet, George Osborne
and his approach to managing the
public purse had become very much a known
quantity by the end of his tenure. All guns
blazing on pensions reform, olive branches
galore extended to disgruntled UK business
owners, frequent appearances of that
infamous axe for paring back (to put it mildly)
the social welfare system, and a multitude of
softly-softly stealth taxes on higher earners
that went largely under the radar: these are
the things we have come to expect from the
government’s fiscal agenda.
All bets are off
But with the unceremonious sacking of
Mr. Osborne after the appointment of new
prime minister Theresa May, all of this has
been thrown into the air. The incumbent
Philip Hammond is, on first assessment,
as tory (or, more broadly, as upstanding a
citizen) as they come: Oxbridge educated,
committed husband and father of three, and
a staunch man of business. He can boast
an impressive pre-parliament track record
as a director and consultant in industries
as diverse as healthcare, oil and gas,
manufacturing and property. His political CV
is equally dazzling. Since he was first elected
to the seat for Runnymede and Weybridge
in 1997, Mr. Hammond has deftly turned his
hand to a string of high-ranking governing
roles – Secretary of State for Transport, then
Defence, then Foreign and Commonwealth
Affairs – and managed to attract relatively little
public comment in the process.
The newcomer’s competence therefore
16
is beyond question. And yet,
his ideological motivations
remain somehow elusive.
As Janan Ganesh points out
in The Financial Times, Mr.
Hammond’s voting record
indicates a right-of-centre
inclination. He had reservations
(but no outright objections) over
the legalisation of gay marriage.
His attitude on immigration
falls broadly in line with that
of his new boss – a particular
concern of his being the large
influx of migrants coming from
the Eastern bloc. He also
ostensibly favours a laid-back
approach to financial regulation,
having controversially remarked
that ‘families must accept a
share of the blame’ for the 2008
crisis, as reported by The Daily
Telegraph in 2012.
The real question however
lies with whether or not the new
Chancellor will simply pick up
where his predecessor left off,
or whether, to adopt the nautical
symbolism deployed by David
Cameron in his resignation
speech, Mr. Hammond will
take this opportunity to steer
the ship away from aggressive
deficit reduction and towards…
something else. John
McDonnell, Labour’s Shadow
Chancellor, has already taken
to the pages of The Guardian
thomasheald.co.uk
to implore his opponent to call
an end to austerity, a programme
of measures taken to eliminate
the deficit, which he – and
not without fair reason, when
considering the evidence –
regards as having failed.
Time will tell. Given the
Conservative party’s strong
line on shrinking the state and
promoting private enterprise, the
new Chancellor may turn out to
be something of a Doctor Who
figure: new face, new personality,
same fundamental agenda. This
may be a good thing – not least
because the British public likes to
know where it stands.
Either way, being promoted to
his most high-profile role to date
means that Mr. Hammond will no
longer be able to play his cards
so close to his chest. Sooner or
later, the man behind the many
masks will be visible for all to
see.
Chloe Timperley
Vision Editor