How to Make Money from Your Vices Emerging Markets? EDITOR’S LETTER

Issue 23 / November 2016

ALTERED STATE Understanding changes to the state pension

THE LONG AND SHORT OF IT Using derivatives to hedge risk in your portfolio

WHAT A DIFFERENCE A WEEK MAKES Has Trump’s victory derailed How to make money from your vices emerging markets? EDITOR’S LETTER

Issue 23 / November 2016

ALTERED STATE Understanding changes to the state pension

THE LONG AND SHORT OF IT Using derivatives to hedge risk in your portfolio

WHAT A DIFFERENCE A WEEK MAKES Has Trump’s victory derailed How to make money from your vices emerging markets? ONALD TRUMP’S SURPRISE VICTORY IN THE US ELECTION didn’t come at a great D time in this magazine’s publishing cycle. His bombastic rhetoric while on the campaign trail meant his victory necessitated last-minute re-writes to Adam Lewis’s sector profile on IA Global Emerging Markets and Cherry Reynard’s piece on where investors are being compensated for taking risk. While the hope is that, as with Brexit, most of the fears about the impact on markets – and much else besides – prove to be unfounded, I can’t help thinking that having to do a couple of ISSUE 23 hours’ unpaid overtime won’t be the biggest downside to Trump’s presidency. Now on to a much cheerier subject – booze and fags. In this month’s tongue-in-cheek cover story, I find out how much money Liam Gallagher would have made if he invested all the money he would CREDITS have spent on smoking and drinking since the release of the song Cigarettes and Alcohol into tobacco and beverage stocks. Elsewhere, Daniel Lanyon weighs up the benefits of using long/short TRUSTNET MAGAZINE (FORMERLY strategies to hedge risk, while in our regular columns, John Blowers INVESTAZINE) IS PUBLISHED BY makes sense of changes to the state pension, Threadneedle’s Richard THE TEAM BEHIND FE TRUSTNET IN SOHO, LONDON. Colwell highlights three stocks that are back on track after appearing to lose their way and Sarasin & Partners’ Jamie Fletcher reveals how he WEBSITE: WWW.TRUSTNETDIRECT.COM is delivering returns that are uncorrelated to equity markets. EMAIL: [email protected]

CONTACTS: Enjoy reading,

Anthony Luzio Editor T: 0207 534 7652

Art direction & design Javier Otero W: www.feedingcrows.co.uk Anthony Luzio Editorial Editor Gary Jackson Trustnet Magazine Editor (FE Trustnet) T: 0207 534 7680 Lauren Mason Senior reporter T: 0207 534 7625 Jonathan Jones Reporter T: 0207 534 7640

Sales Richard Fletcher Head of publishing sales T: 0207 534 7662 Richard Casemore Account manager T: 0207 534 7669

Photos supplied by Thinkstock and Photoshot Cover illustration: Javier Otero In association with: IN THIS ISSUE

THE LONG AND THE SHORT OF IT Daniel Lanyon weighs up the benefits of using derivatives to hedge risk in your portfolio P. 2-5 / MAKING THE MOST OF TECHNOLOGY Seilern’s Raphaël Pitoun is looking for companies that utilise technology to give them a competitive advantage P. 6-7 / CIGARETTES & ALCOHOL Anthony Luzio finds out how you can profit from your vices P. 8-11 / A FALSE SENSE OF SECURITY With traditional safe haven assets such as bonds looking overvalued, Cherry Reynard weighs up the options for cautious investors P. 12-15 / FUND, PENSION, TRUST Premier Multi-Asset Global Growth, JPM Emerging Markets Income and Henderson Opportunities find themselves under the spotlight this month P. 16-19 / WHAT A DIFFERENCE A WEEK MAKES Adam Lewis looks at the prospects for emerging markets in the wake of Donald Trump’s election victory P. 20-25 / ALTERED STATE John Blowers makes sense of changes to the state pension P. 26-29 / LOST AND FOUND Threadneedle’s Richard Colwell highlights three stocks that are now back on track after appearing to lose their way P. 30 / WHAT I BOUGHT LAST Sarasin & Partners’ Jamie Fletcher is using KLS Zebra Global Equity Beta Neutral for returns that are uncorrelated to equity markets P. 31 YOUR PORTFOLIO

2 trustnetdirect.com / LONG/SHORT /

THE LONG AND THE SHORT OF IT You can access long/short strategies through absolute return funds, but are they worth the risk? Daniel Lanyon finds out

HE HIT 2015 FILM “short” positions – a bet against example, contains many funds THE BIG SHORT laid appreciation in an asset – as well that use long/short positions. T bare the benefits of as “long” positions – the more “The main benefit [of these short-selling to a normal type of investment that funds] is you are not a hostage to mainstream audience will appreciate when the price of fortune of market performance, of millions. However, while it a security goes up. as long/short fund managers aim shows eccentric fund manager Dr These portfolios usually aim for a positive return irrespective of Michael Burry, played by to make modest yet consistent market direction,” said Haynes. Christian Bale, using short gains with smoother performance “These funds are the epitome of positions to clock up a return of than traditional funds and tend active management and good fund close to 500 per cent in the to be uncorrelated to the broader managers can add value. But each financial crisis, the everyday market. fund must be treated on its own reality of these products isn’t merits as the returns achieved will quite so spectacular. NO GUARANTEE – in theory – largely be driven by Shorting is an investment They are also designed to be more that manager’s ability, rather than strategy in which you bet against robust during market turmoil. by underlying economic or market a security rising in value. It can However, there is no guarantee performance.” result in a positive return when these funds will meet their aims others are seeing their portfolios and losses from short positions can DIFFERENT STROKES plummet, a welcome hedge for be massive and may even exceed Despite sharing a similar other investments when markets the value of the original investment. objective, funds of this type are in full-blown chaos. Whereas these strategies vary considerably in terms of It is usually carried out using were once the preserve of investment approach and asset derivative instruments, where hedge funds used by high type, warns Rob Morgan, pensions the investor effectively borrows net worth individuals, Gavin and investment analyst at Charles a stock to sell with the objective Haynes, managing director of Stanley Direct. They also differ in of returning it when the price Whitechurch Securities, says terms of the amount of risk taken, has fallen and profiting from they can now be accessed by with some aiming to eke out the difference in value. Long/ retail investors. The IA Targeted modest returns, while others are short funds invest in both Absolute Return sector, for prepared to be more aggressive. trustnetdirect.com 3 Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are 3AE) EC2M London Bishopsgate, 201 at office registered with Wales and England in registered and Equity incorporated authorised and regulatedbytheFinancial ConductAuthority toprovideinvestment productsandservices. Telephone(eachHenderson 1508030), calls mayberecordedand monitored. 962757), no. no. (reg. (reg. Limited Limited Investment Advisor Gartmore Investment no.2606646), Alternative 1795354),(reg. Henderson no. Limited (reg. Partners Limited Management Investment 2678531),Henderson no. (reg. Limited Funds Investment Henderson 2607112),no. Fund(reg. Henderson Limited Management 906355), no. (reg. Limited whichInvestors under Global name Henderson the is Investors Global Henderson Investors. Global Henderson by UK the in Issued marketplace It’s aglobal

ARE YOU A GLOBAL INVESTOR? amount originallyinvested. fluctuations, andyoumaynotgetback the well asrisearesultofmarketandcurrency investment andtheincomefromitcanfallas a guidetofutureperformance.The valueofan Please rememberthatpastperformanceisnot meet yourinvestmentneeds. Investors hasarangeofsolutionswhich aimsto growth oramixtureofboth,HendersonGlobal If yourpriorityishighincome,longtermcapital experts. strategies professionallymanagedbyregional offer awiderangeofinvestmentobjectivesand investment approach, ourmanagedcompanies of dynamicglobalmarketsorwantacautious advantage for yourchildren, lookingtotake Whether youareretirementplanning,investing Henderson hasaglobalviewofthemarket. investment trustsandcompanies, rangeofmanaged diverse andestablished innovation anddevelopment.Now, witha has beenattheforefrontofinvestmenttrust years,Henderson GlobalInvestors For over80 managed byHenderson investment trusts,expertly Take aglobalviewof 0800 856 5656 856 0800 www.hendersoninvestmenttrusts.com For moreinformation visit by Henderson Investment Trusts, managed Find usonFacebook @HGiTrusts H021717/0316ad Investment Trusts, managed by Henderson / LONG/SHORT /

It’s a global Take a global view of marketplace investment trusts, expertly managed by Henderson

For over 80 years, Henderson Global Investors Richard Scott, a fund manager at named, said it was apparent that has been at the forefront of investment trust Hawksmoor, is a fan of the £572m “The short many clients didn’t realise the level Jupiter Absolute Return fund. The of risk they had been exposing innovation and development. Now, with a portfolio is headed up by James position loses themselves to. diverse and established range of managed Clunie, who Scott says “has a “I had one guy ring me up investment trusts and investment companies, particular expertise” in shorting. when the share and tell me he was going to lose Henderson has a global view of the market. “He has even done ground- his house and that his wife was breaking academic research into price rises and going to leave him, all because Whether you are retirement planning, investing the subject,” he added. there is no one of his friends told him to for your children, looking to take advantage Jupiter Absolute Return has take a position in a stock he had returned 19.86 per cent since made a bit of money on,” he said. of dynamic global markets or want a cautious limit on how Clunie became manager just over “But I used to get stuff like that investment approach, our managed companies three years ago, compared with high a share all the time.” offer a wide range of investment objectives and 23.85 per cent from the FTSE So, as with most areas of strategies professionally managed by regional All Share. While the fund has can go” investing, short positions can experts. underperformed the broader equity work in your favour, but only if market, it has done so with a low “Losses can be amplified when you put the research in and really If your priority is high income, long term capital correlation to the index and the short selling does not work know what you are doing. growth or a mixture of both, Henderson Global fact this period has been a broadly because when you short a stock, Or, as Scott puts it: “It’s best left bullish one for the stock market the losses can be infinite. The in the hands of the experts.” Investors has a range of solutions which aims to suggests the manager has been short position loses when the meet your investment needs. able to add some value from his share price rises and in theory short positions. there is no limit on how high a Please remember that past performance is not share price can go,” he said. a guide to future performance. The value of an TESTING TIME investment and the income from it can fall as Jason Hollands, managing director HIGHLY RISKY well as rise as a result of market and currency of Tilney BestInvest, also likes Investors can also gain direct long/short funds. He recommends short exposure to individual fluctuations, and you may not get back the Clunie’s portfolio as well as Ben stocks or other securities via amount originally invested. Wallace and Luke Newman’s a number of online brokers. ARE YOU A Henderson UK Absolute Return However, experts agree this can For more information visit fund, which also sits in the IA be a highly risky activity. www.hendersoninvestmenttrusts.com Targeted Absolute Return sector. One former trader for a spread- While the duo have betting firm, who asked not to be underperformed the broader

GLOBAL INVESTOR? 0800 856 5656 equity market over the past five years, they have done so with considerably less volatility. PERFORMANCE OF FUND VS INDEX @HGiTrusts Hollands notes that 2016 has UNDER MANAGER TENURE also been a testing time for long/ Find us on Facebook 25% FTSE All Share (23.85%) short funds. Jupiter Absolute Return (19.86%) “This year in particular has 20% caught many such funds out, with negative bets on China and 15% commodities backfiring and leading to steep losses in the short 10% books,” he said. 5% As you are essentially putting your faith in the skill-set of a 0% manager rather than taking a view on a market or asset class, the -5% performance of a fund can be hit Jun Jun Jun Sep Sep Sep Dec Dec Dec Sep13 hard if they make a wrong step, Mar14 Mar15 Mar16

adds Haynes. Source: FE Analytics Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. H021717/0316ad trustnetdirect.com 5 MAKING THE MOST OF TECHNOLOGY Seilern’s Raphaël Pitoun says companies with competitive advantages that create high barriers to entry will be the real winners of the tech boom

ECHNOLOGY HAS after year and deliver consistent industry could cut the production NEVER BEEN SO profits in a fast-changing time or cost by half? Would that T IMPORTANT. The environment. be disruptive? Yes! We need to go impact is obvious and For businesses, the spread towards that direction, otherwise the rate of change is of technology has accelerated somebody else will.” accelerating. The time it took for 50 thanks to the globalisation of Even the most established million callers to adopt the use of trade in goods and services. businesses need to continuously the telephone was 74 years; this was Clearly it would be difficult to evolve and embrace new reduced to 13 years for television work with outdated production technologies and those that and only two years for the internet. tools in an environment of do not may find their modus If investors are to capitalise on the globalised competition, as was operandi challenged. Companies opportunities these trends throw up, recently acknowledged by Tom dependent on people, patents it is vital that they assess what Enders, the chief executive of and corporate culture are fragile makes a business successful year Airbus: “What if somebody in the by nature.

6 trustnetdirect.com / SEILERN /

For those who consider the their distribution channels technology sector to be a world Identifying the for products or services. For of boom and bust where start-ups example, a company dependent endlessly and frenetically chase right platform on e-commerce may find the incumbents, it is worth noting is a tedious and pricing power of Amazon makes that technology companies the business more fragile. On the themselves have outperformed demanding other hand, a company that uses the market as a whole. Over the the configuration of the market last 10 years, the technology part exercise and to its advantage may sometimes of the NASDAQ (represented by contribute to its strength. the Nasdaq Technology 100) has few of the tech Patents and engineers are outperformed the S&P 500 Total definitely not enough to make a Return index by a significant 1.6 companies technology company sustainable. per cent per annum. Moreover, To us, a specific market the turnover of the index is listed in the configuration, unique services, actually comparable to the world meet this the right positioning in the value turnover of other sectors and the chain and a critical size are the broad index. Hence, it is possible challenge ingredients that make it work. to find sustainable and long- Identifying the right platform is a lasting business models in the tedious and demanding exercise technology arena. Services have the advantage and very few of the thousands The question is, how to identify that they cannot be traded off of tech companies listed in the the best technology companies as easily as products. But their world meet this challenge. for investment? At Seilern, we proposition must be based on None of the technology believe you need to look beyond sector expertise and consulting companies we invest in rely on the traditional skillset of a tech rather than pure cost of labour. a specific technological wave. company and find those with For example, the real attraction of Actually, most of them, such as strong platforms. Gemalto, sometimes considered Accenture, Cognizant or Dassault A platform is a combination of to be a SIM card manufacturer, Systèmes, take advantage of the different competitive advantages is the management of the secure chain of technological advances that makes a company difficult element behind the company’s without relying on a single one. to compete with and enables it to mobile division. On the contrary, all of them rely maintain high barriers to entry. The network effects can be on a set of skills which transform Ideal candidates are companies very powerful and are mostly them into successful platforms. In with long product life-cycles or associated with business-to- this world of accelerated business sustainable service offerings, consumer products such as disruption, the opportunity as well as those that leverage social networks or the ecosystem relies on the creation of new networks. that Apple aims to create with profitable oligopolies whose A long product life-cycle its IOS software. But network accelerated growth dynamics will delivers consistent recurring effects are also relevant in be significantly positive for our revenue and is key when business-to-business companies. investors. assessing the predictability of Accenture and Cognizant are Most of the companies we future sales. The longer a client among the best examples, invest in have the balance sticks with the product, the better creating sector or industry- sheet, the size and the vision, it is. centric expertise with one or two meaning they are more likely For example, the life-cycle of clients and capitalising on them to take advantage of the digital the PLM software of Dassault by attracting further prospects. revolution than to suffer from Systèmes could last 15 years with It helps to create high barriers to it. It would increase their some industries, notably aircraft entry as well as pricing power. competitive advantage to the and automobile manufacturers. Seventy-five per cent of the detriment of the weaker players Dassault’s software is so companies in the US healthcare and reinforce the growth integrated into the client payer market are clients of potential of the leaders over time. design and production chain Cognizant. This is another element that that switching provider would It is wise to be cautious of makes us increasingly confident produce substantial hurdles. companies that do not control about the Seilern Stryx funds. trustnetdirect.com 7 YOUR PORTFOLIO

CIGARETTES & ALCOHOL A spectacular financial incentive to quit drinking and smoking awaits anyone willing to invest the money they would have spent on these vices into the companies that profit from them, writes Anthony Luzio

8 trustnetdirect.com / VICES /

hen a 22-year-old Liam CUTTING BACK Gallagher sang “all I Assuming he If Gallagher did want to cut back W need is cigarettes and smoked 20 on his cost of living, a good place alcohol” in Oasis’s to start would be two of the vices 1994 single of the that made him successful in the same name, he was articulating an a day, Liam first place: cigarettes and alcohol. outlook on life common among Gallagher would Take cigarettes to start with. Data people of this age – living for the from the Tobacco Manufacturers’ day. After all, talking to someone have spent Association shows that the average who is barely out of their teens price of a pack of cigarettes has about the importance of making £43,422.15 almost quadrupled in the 22 years regular contributions to fund their since Oasis released the single retirement is likely to elicit a look on cigarettes Cigarettes and Alcohol, from £2.52 of contempt before they return to a in 1994 to £9.60 today. Assuming more pressing concern – making since 1994 Gallagher smoked 20 a day, he the most of their youth. would have spent £43,422.15 on However, time has a habit of estimated the younger of the two cigarettes from the start of 1994 up catching up with you much brothers had made £50m over until the present day. faster than you expect and the the course of his career, when In terms of alcohol, data from feeling of immortality you may he divorced Nicole Appleton the Office for National Statistics have had in your early 20s can last year, the judge in the case shows the average price of a give way to a feeling of despair estimated he had just £11m to be pint of lager has increased from when you wake up one day split with his ex-wife. £1.58 in 1994 to £3.47 in 2016, and realise you are now closer to Of course, rock stars have an increase of 120 per cent. retirement age than to your a hedonistic reputation to Assuming Gallagher drank an teenage years, with the gap maintain and Gallagher admits average of five pints every day widening all the time. his cost of living has taken its from 1994 – admittedly this You can at least cross off one toll, particularly when touring. is more than three times the item from your list of worries if As he put it in a 2013 interview recommended amount for adult you have been sensible with your with NME: “I don’t go on the road males, but rock stars aren’t exactly finances and put a small amount to come back with a big pot of famed for moderation – he would away each month for a rainy day. money. I go on the road to have have spent £103,312.5 on beer. Unfortunately, this is not a a good time, do great gigs and situation Liam Gallagher finds enjoy being in a band. And that WHERE BETTER TO INVEST? himself in. While Oasis have means staying in good hotels and Added together, the amount been one of the most successful flying business class.” Gallagher would have saved from UK rock bands of the past 20 “I don’t want a f*****g Mini abstaining from these two vices years, selling more than 70 picking me up at the airport, I over the past 22 years stands at million records, it is Gallagher’s want a nice f*****g car picking £146,734.65. However, sitting on a brother Noel as the songwriter me up, and if I come back and large amount of money over such who receives the lion’s share of I’ve made no money on that tour a lengthy period of time is never the royalties. And while in 2011, because it’s all been spent, then a good idea when you can put website Celebrity Net Worth I’m happy with that.” it to work in markets, and what trustnetdirect.com 9 better place to invest it than in the stocks that would have profited from his continued indulgence? Data from FE Analytics shows this would have been a very lucrative strategy over the period in question. The FTSE 350 Tobacco index has made 3,372.28 per cent since the start of 1994, with annualised returns of 18.77 per cent. Assuming Gallagher invested the annual cost of smoking one pack of cigarettes a day into the FTSE 350 Tobacco index at the mid-point of every year from 1994 onwards, the £43,422.15 he would have saved by not smoking would have increased to £334,347.36. The returns on alcohol haven’t been quite so spectacular over this period: the FTSE 350 Beverages index (which also includes some exposure to soft- drink manufacturers) has made 1045.52 per cent since the start of 1994, with annualised returns of 12.27 per cent. However, the larger amount of money invested means it would have created a much higher sum in terms of monetary value. Again, assuming Gallagher invested the annual cost of drinking five pints of lager a day into the FTSE 350 Beverages index at the mid-point of every year from gains they have seen over the past so tobacco continues to make a lot 1994, the £103,312.5 he would 20-odd years. of headway.” have saved by not drinking would However, two financial advisers “It is a similar situation for have increased to £453,583.67. say investing in these sectors isn’t alcohol brands – they are seen as Combined with the money the worst tactic. ‘cool’ and are making headway made from investing into tobacco “While cigarettes are being taxed with the growing middle class in stocks, this would have made to the hilt in the West, tobacco emerging markets.” Gallagher £787,931.03 better off. companies have established In an age where not enough markets in the developing world people are putting money away NO GUARANTEE in countries where they don’t have for their retirement, Chris Wise, It is worth remembering that past the anti-smoking culture like they investment director at Gemmells, performance should not be used as have over here,” said Ben Willis, says the option of profiting from a guide to future returns, however, head of research at Whitechurch your vices also helps to get people and there is no guarantee that Securities. interested in investing. tobacco and beverage stocks can “Smoking is seen as more “It’s good because many people continue to generate the sort of aspirational in these countries invest in what is emotionally

10 trustnetdirect.com / VICES /

Willis also points out one of “Cigarettes the main reasons why tobacco stocks were able to generate such are being taxed spectacular returns over the period in question was because to the hilt they rose from such a low base. in the West, Numerous court cases in the late 1990s ended with many but tobacco of these companies forced to pay out billions of dollars in companies have compensation, which hammered share prices. established He adds that rather than hoping to see the same returns from markets in the tobacco, investors may wish to look at other battered sectors that developing are hoping to rebound. world” “You want to have some money in the banks if you are investing over 20 or so years because at “You shouldn’t limit yourself to some point, they will have to these sectors, you’ve got to invest recover and when they do they in others as well,” Willis added. are really going to take off,” he “For example, more smoking finished. in emerging markets will lead to While hoping to see the banks greater demand for healthcare do well in the post-financial while the growth in the middle crisis world comes with its own classes will require greater unique stigma, for someone infrastructure spending and you who has made a career out wouldn’t want to deny yourself of antagonising others, Liam the opportunities generated from Gallagher may have found the these trends.” perfect place for his money.

relevant to them,” he added. PERFORMANCE OF INDICES SINCE 1994 “It starts conversations about 4,000% investing and when people see FTSE 350 Tobacco (3372.28%) numbers like those, it makes them 3,500% FTSE 350 Beverages (1045.52%) sit up and say ‘wow’. It reminds 3,000% me of spin-offs – I’m from Hull so 2,500% when Kingston Communications 2,000% was spun-off, we all bought 1,500% shares in it – not because we 1,000% thought it was a particularly good 500% investment, but because we had that emotional attachment.” 0% However, both advisers say that -500% anyone planning to invest in these areas should only do so as part of a Jan94 Jan96 Jan98 Jan00 Jan02 Jan04 Jan06 Jan08 Jan10 Jan12 Jan14 Jan16 more diversified strategy. Source: FE Analytics trustnetdirect.com 11 YOUR PORTFOLIO

FALSE SENSE OF SECURITY

With traditional safe-haven assets such as bonds looking overvalued, Cherry Reynard weighs up the options for cautious investors

F MARKETS ARE ANY progressively up the risk scale on to consumers. With this in GUIDE, INVESTORS seeking higher returns. mind, investors may need to pay I CURRENTLY FALL The first group may find closer attention to generating a INTO TWO CAMPS: themselves squeezed in a climate high enough return, as well as a there are those who of higher inflation. Think-tank the low enough risk: but where are seek safety at any price, willing to National Institute for Economic investors being paid the most to invest in stable but highly priced and Social Research (NIESR) roll the dice? stocks or government bonds simply predicts that UK inflation will With so many investors for the reassurance of getting their quadruple to about 4 per cent chasing income, opportunities money back at the end; alternatively, in the second half of next year are inevitably idiosyncratic there are those who are moving as the fall in sterling is passed and likely to be related to a key

12 trustnetdirect.com / RISK/REWARD /

external factor. For example, George Efstathopoulos, co-portfolio PERFORMANCE OF INDICES YEAR TO DATE manager on the Fidelity Multi 50% The BofA ML Pimco Emerging Markets Advantage Bond (40.70%) Asset range, points out the high Bloomberg Barclays Global High Yield (37.77%) yield market became very cheap 40% in the first quarter in spite of quantitative easing: “There had 30% been a contraction in oil prices 20% and almost a fifth of US high yield debt has been lent to the oil and gas 10% industry. The energy market sold off and everything else went with 0% it. It proved to be a good time to add risk. The market was pricing in -10% Jul Oct Apr Feb Jun Sep Aug Mar a double-digit default rate, which May was higher than the equity risk Jan16 premium.” Source: FE Analytics trustnetdirect.com 13 SCOTTISH MORTGAGE INVESTMENT TRUST

SCOTTISH MORTGAGE WAS ORIGINALLY LAUNCHED TO PROVIDE LOANS TO RUBBER GROWERS IN MALAYSIA IN THE EARLY 20TH CENTURY.

TIME JUST MAKES IT TASTIER. Scottish Mortgage Investment Trust believes in investment not speculation. We painstakingly identify those companies that we believe will deliver long-term growth and then we stick with them through thick and thin, providing our investment case remains valid. In fact we like to think of ourselves as ‘owners not renters’, which is why we don’t get side-tracked by short-term share price movements.

But don’t just take our word for it. Over the last five yearsScottish Mortgage, managed by Baillie Gifford, has delivered a total return of 182.7%* compared to 104.7%* for the index. And Scottish Mortgage is low-cost with an ongoing charges figure of just 0.45%.†

Standardised past performance to 30 September each year*: 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Scottish Mortgage 14.2% 35.9% 27.6% 4.2% 37.0% FTSE All-World Index 17.3% 18.2% 11.8% 0.6% 31.3%

Past performance is not a guide to future returns.

Please remember that changing stock market conditions and currency exchange rates will affect the value of your investment in the fund and any income from it. You may not get back the amount invested.

For a free-thinking investment approach call 0800 917 2112 or visit www.scottishmortgageit.com Long-term investment partners

*Source: Morningstar, share price, total return as at 30.09.16. †Ongoing charges as at 31.03.16. Your call may be recorded for training or monitoring purposes. Scottish Mortgage Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA, which are managed by Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager and secretary of ScottishMortgage Investment Trust PLC. / RISK/REWARD /

However, since then the high bonds and aircraft leasing. He adds: yield market has risen by about 15 The risk in many “These have a different set of risks to 20 per cent and no longer looks as to equity and bonds. We don’t want compelling. Nevertheless, Sheldon of the traditional just one or two and believe you MacDonald, manager of the need to take a basket approach. Architas multi-asset blended fund yield options is We tend to take exposure through range, believes that there are still they will move in investment trusts.” selected opportunities: “The default Jane, for the most part, is risk is being over-egged. There are unison should sticking with equities, focusing his more opportunities at the higher attentions away from the “bond yield end, including some emerging the environment proxies” and towards areas that have market debt – despite the consensus better prospects for growth and view Donald Trump’s election change are less vulnerable to a change in reduces the attraction of emerging interest rate expectations. He says: market assets.” an established dividend culture. “Bank stocks have good yields at the Emerging market debt is another He also holds some individual moment, particularly in Europe. area that has run a long way this emerging market government and They should be beneficiaries of a year after some considerable time corporate bonds. steepening yield curve.” Jane points out of the spotlight. Efstathopoulos There are also opportunities out the yield curve has already is focusing his attentions on the among more niche asset classes. started to move higher at the longer- emerging market local debt sector, Efstathopoulos says leveraged dated end. where yields are attractive. He adds: loans offer a similar opportunity He also gives a warning to those “It is one of the only asset classes today to that offered by high yield investors who believe longer-dated with positive real yields. Central bonds at the start of the year: government bonds and similar banks are now just starting to ease “Loans are floating rate in nature assets are inherently “safer” than policy and Purchasing Managers’ and sit higher in the corporate other areas. “Investors need to think Index [PMI] data is becoming more capital structure. Spread levels about the risk and reward. If long- attractive. We are entering an don’t look expensive. They are dated government bonds are paying expansionary phase.” particularly useful for investors 0.5 per cent per year over 10 years, Emerging markets is an area also who are concerned about but the price has moved 30 per favoured by David Jane, manager inflation rising.” cent in six months, does it feel right of Miton’s multi-asset fund range, MacDonald is turning in terms of the compensation for although he has a greater weighting to alternative asset classes, volatility?” in equities rather than bonds. prioritising those with an inflation- Jane adds the pro-growth, pro- In particular, he has holdings beating return and backed by “real” inflation movement in his portfolios in Hong Kong, Singapore and assets. These include investments over the past few months is even Malaysia – countries, he says, with such as infrastructure, catastrophe more timely given Trump’s victory, including purchases in the natural resources and materials areas. The risk inherent in many traditional yield options is they will move in unison should the environment change. This may not even be prompted by a rise in interest rates, it could simply be inflation picks up and therefore long-term expectations for interest rates rise. This would see “priced for perfection” valuations of government bonds and bond- proxy equities shift. Either way, in a climate of high inflation, investors may have to pay greater attention to reward, rather than focusing narrowly on the risk. trustnetdirect.com 15 IN FOCUS / FUND, PENSION, TRUST /

Fund PREMIER MULTI-ASSET GLOBAL GROWTH The current managers have led this fund to third in the sector since taking charge, but are warning investors not to expect a repeat performance

HE PREMIER MULTI-ASSET The fund also has exposure to “Valuations of most asset classes GLOBAL GROWTH FUND is more niche markets. For example, range from fair to expensive,” their the highest risk offering in it has 3.7 per cent in Polar most recent update said. “Naturally TPremier’s multi-manager range, Capital Global Insurance, which we are buying the fair and selling with the team of David Hambidge, concentrates on the international the expensive, but even so, we Ian Rees, Simon Evan-Cook and insurance sector, and 3.5 per cent continue to caution investors against David Thornton taking a long-term in Polar Capital Global Convertible, expecting blockbuster returns from view of around 10 years when which focuses on the often- financial assets going forward, as making investments. overlooked convertible bond market. much of the juice has been squeezed The £91.6m fund mainly holds Premier Multi-Asset Global Growth out over the last seven years.” regional equity and single-sector has the aim of outperforming the The portfolio is managed with a equity funds but has some exposure FTSE All World index while posting risk-conscious approach and with to bonds, property and alternatives. lower volatility. FE Analytics data the aim of limiting the overall level of Premier’s multi-asset team has shows the fund has made 91.51 per drawdown. a strong bias towards value and cent since the current team took It has largely delivered on this much prefers to make contrarian over in July 2012, making it the IA target and compares well against investments over paying for Flexible Investment sector’s third its sector average on a number expensive assets that everyone else best performer. of metrics. The fund sits in the IA holds. The team will also make sell While the fund has achieved Flexible Investment sector’s top decisions relatively quickly. strong returns in recent years, its quartile, for example, when it comes At the moment, 17.2 per cent of managers are keen to point out that to alpha generation, maximum the portfolio is in emerging market investors should not expect gains gain and risk-adjusted returns as equities (positions include HMG from many parts of the market to be indicated by the Sharpe, Sortino and Global Emerging Markets Equity as high in future. Treynor ratios. and Charlemagne Emerging Market Dividend), 15.1 per cent is in Japan (through the likes of Eastspring Japan Smaller Companies and PERFORMANCE OF FUND VS SECTOR Lindsell Train Japanese Equity) AND INDEX UNDER CURRENT MANAGERS and 11.5 per cent is in European 100% equities (holdings include Baillie Premier Multi-Asset Global Growth (91.51%) Gifford European and Polar Capital 80% IA Flexible Investment (48.77%) European (ex UK) Income). FTSE All World (90.81%) 60% FILE 40% MANAGERS: David Hambidge, Ian Rees, Simon Evan-Cook & David 20% Thornton LAUNCH DATE: 21/12/2010 0% FUND SIZE: £91.6m -20% OCF: 1.91% Jul Jul Jul Jul Oct Oct Oct Oct Oct Apr Apr Apr Apr Jul12 Jan13 Jan14 Jan15 Jan16

Source: FE Analytics

16 trustnetdirect.com The Fundsmith Emerging Equities Trust (FEET) Fundsmith LLP (“Fundsmith”) is authorised and regulated by the Financial Conduct Authority and only acts for the funds research team searches the world to find companies to whom it provides regulated investment management and that make their money from a large number of transaction arrangement services. Fundsmith does not act for or advise potential investors in connection with acquiring everyday, repeat, predictable transactions and will shares in Fundsmith Emerging Equities Trust plc and will not benefit from the rise of the consumer in developing be responsible to potential investors for providing them with protections afforded to clients of Fundsmith. economies. You may never have heard of them, Prospective investors are strongly advised to take their own despite their scale. legal, investment and tax advice from independent and suitably qualified advisers. The value of investments may For example, Indofood sold 9 billion packets of Indomie go up as well as down. Past performance is not a guide to noodles last year, Magnit welcomed 11 million shoppers a future performance. day, Brazilians bought 78 million bottles of Ambev’s beer FEET Performance, % Total Return and Dabur’s Hajmola tablets were taken 26 million times Year ending 30th Sept 2016 2015 Since inception a day in India. FEET Share Price +16.4 -11.8 +11.8 FEET NAV +20.0 -7.8 +9.8 All can be found in the FEET portfolio. Source: Financial Express Analytics. Inception: 25th June 2014

www.feetplc.co.uk Available through AJ Bell Youinvest.

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C0014 Trusnet Direct Luggage Tags Ad 300x210mm.indd 1 02/11/2016 11:43 Pension JPM EMERGING MARKETS INCOME This fund offers pension investors the much sought-after combination of strong growth potential and a high level of income MERGING MARKETS HAVE That’s not to say the fund is as well as significant growth BEEN A HOTSPOT FOR some sort of proxy for the MSCI potential, which they believe are E INVESTORS RECENTLY Emerging Markets index, however; indicative of strong corporate given the recovery in commodity for example, it is 11.2 per cent governance. In turn they say prices and a slowdown in the overweight Taiwan, 7.6 per cent this means the company will be dollar rally. overweight South Africa and 10.9 favoured by investors, employees However, the sector can be per cent underweight China. and their respective communities, susceptible to drastic fluctuations In terms of sector positions, it making it more likely to do well in sentiment over the medium has an 8.3 per cent overweight over the long term. term and as such, it is generally in consumer staples and a 6.4 The 69-stock portfolio is £317m recommended that funds focused per cent overweight in telecoms in size and has a clean ongoing on this area of the market are relative to its benchmark, with charges figure of 0.93 per cent. only held by investors with a long- stocks such as China Mobile and term outlook. Brazilian brewing company AmBev FILE JPM Emerging Markets Income featuring in its list of top-10 MANAGERS: Omar Negyal, Amit is no exception. The fund has an holdings. Mehta & Jeffrey Roskell FE Risk Score of 124, meaning it Omar Negyal runs this fund FUND SIZE: £317m has been 24 per cent riskier than alongside Jeffrey Roskell and LAUNCHED: 24/07/2012 the FTSE 100 index. It also has FE Alpha Manager Amit Mehta. OCF: 0.93% a maximum drawdown – which Together they aim to find stocks measures the amount of money that offer attractive dividend yields investors would have lost if they bought and sold at the worst possible moments – of 22.16 per cent since its launch in 2012. PERFORMANCE OF FUND VS SECTOR SINCE LAUNCH As such, it may be a good fund to hold alongside lower-risk products 40% IA Global Emerging Markets (32.93%) as part of a SIPP, making day-to- JPM Emerging Markets Income (34.46%) 30% day volatility less of an issue. Another factor that could 20% make it an appealing option in a pension portfolio is its yield, which 10% currently stands at 4.59 per cent. 0% An investor who put £1,000 into the fund at its inception in July -10% 2012 would have received £170.56 in income. The fund has also made -20% 34.46 per cent in terms of total Nov Nov Nov Nov Aug Aug Aug Aug return over this time, which is May May May May Feb13 Feb14 Feb15 Feb16 Aug12 broadly in line with its benchmark and sector average. Source: FE Analytics

18 trustnetdirect.com / FUND, PENSION, TRUST /

Trust HENDERSON OPPORTUNITIES James Henderson’s trust is one option for investors happy to go against the grain and raise their exposure to the UK economy T IS DIFFICULT TO WORK While this makes the trust a good and some won’t and it’s a good time OUT HOW MUCH TRUST TO option for investors looking to keep to be thinking about companies.” I PUT IN THE UK MARKET at the a UK bias in their portfolios, it has Numis views this as the most moment, with much uncertainty also caused it to struggle so far this volatile and riskiest of the trusts surrounding the departure from the year, losing 5.79 per cent after mid managed by Henderson. European Union making it a testing caps were hit particularly hard by the “It is reserved for his highest time to be investing in domestically UK’s decision to leave the EU and the conviction stock picks, as shown by focused companies. associated drop in sentiment. the portfolio composition by index A recent announcement by the “It was a challenging time after versus the benchmark FTSE All National Institute of Economic and Brexit. There was shock, horror and Share index,” the group said. Social Research did little to help the a sell-off,” said Henderson. “A key feature is the exposure to mood, forecasting the consumer “Domestic companies sold off early stage companies spun out of prices index (CPI) to reach 4 per cent the worst, unsurprisingly, while the university research. It is an attractive by the second half of 2017. international earners with currency investment, provided you are “UK investors must prepare for depreciation were very strong.” comfortable with the risk profile.” much higher levels of inflation next “Now we’ll see how things pan out Despite the recent blip, the fund’s year as the pound’s sharp decline over the next period and learn about performance has been excellent impacts the cost for consumers what the new government will be over the last five years. Its return of of everything from well-known doing, how it will negotiate and what 128.86 per cent over this time is the household brands to petrol prices,” sort of deals the UK will have.” third-highest figure in the IT UK All said James Lynch of Kames Capital. “As that uncertainty comes along, Companies sector, 65.01 percentage One trust that continues to back we expect some stocks will benefit points more than the average fund.  the UK market in spite of these headwinds, however, is Henderson Opportunities, run by FE Alpha Manager James Henderson. PERFORMANCE OF FUND VS SECTOR The £92m trust is 99.4 per cent AND INDEX OVER 5YRS invested in the UK, with the majority 200% Henderson Opportunities Trust (128.86%) of this exposure in small and mid 175% IT UK All Companies (63.85%) caps. These include largest holding 150% FTSE All Share (57.39%) 4D Pharma, as well as other top-10 125% names Conviviality, e2v Technologies 100% and Micro Focus International. 75% FILE 50% 25% MANAGER: James Henderson LAUNCHED: 19/01/2007 0% DISCOUNT/PREMIUM: -17.6% -25% OCF: 1.13% Nov Nov Nov Nov Nov11 May12 May13 May14 May15 May16

Source: FE Analytics trustnetdirect.com 19 IN FOCUS

WHAT A DIFFERENCE A WEEK MAKES Adam Lewis examines the prospects for IA Global Emerging Markets after Donald Trump’s election victory brought the sector crashing back to earth

HAT A DIFFERENCE Trump’s protectionist pledges 35 per cent on those from Mexico. A WEEK CAN MAKE. while on the campaign trail had Other proposals that would have W Whereas just a few fund managers from all sectors hit its southern neighbour included days ago IA Global competing to offer the most renegotiating the North American Emerging Markets was pessimistic forecasts about the Free Trade Agreement, blocking a rebounding sector that had made impact on their investments if he American companies from moving close to 40 per cent over the past 12 were to be voted in. One thing they factories south of the border and months and was being tipped to all appeared to agree on, however, limiting the amount of money continue gathering momentum, the was that emerging markets would Mexicans working in the US can shock victory of Republican be the biggest victim if their worst send home. candidate Donald Trump in the US fears were realised. Speaking ahead of the election, presidential election has led many Among the president-elect’s Gary Greenberg, manager of the experts to warn of a return to the campaign policies were a 45 per Hermes Global Emerging Markets doldrums. cent tariff on Chinese imports and fund, warned that such proposals

20 trustnetdirect.com IN FOCUS / SECTOR PROFILE /

had the potential to spark a trade MUTED REACTION war with countries such as China, “A US-China However, the initial reaction to which would have far-reaching Trump’s election has been muted consequences. trade war would and while the MSCI Emerging “Unemployment in China Markets index fell immediately after could rise to levels that threaten likely drive Asian his victory was announced, one- social stability and in response day losses of 2 per cent are hardly the authorities could then impose exporters into a indicative of impending doom. capital controls, change the Jim Cielinski, global head of fixed composition of its foreign-exchange steep downturn” income at Columbia Threadneedle reserves to include fewer US Treasuries, and restrict access for US firms,” he said. “US import prices could rocket, PERFORMANCE OF SECTOR IN DOLLARS OVER 1YR causing inflation and a housing market relapse. US stocks would 10% IA Global Emerging Markets (8.05%) move lower to discount this difficult 5% scenario.” “China’s central bank has enough 0% firepower to manage the pressure caused by a protectionist US, but the -5% rest of Asia would find it difficult to adjust to lower trade surpluses and -10% possibly weaker security. A US- -15% China trade war would likely have global consequences, driving Asian -20%

exporters into a steep downturn and Jul Oct Apr Feb Jun Sep Dec Aug Mar May Jan16 potentially causing a worldwide Nov15 recession.” Source: FE Analytics

trustnetdirect.com 21

/ SECTOR PROFILE /

Investments, says this may be due to hopes that much of what Trump Top of the charts said on the campaign trail can be JUPITER GLOBAL EMERGING MARKETS put down to electioneering. “Trump ‘the president’ will not ROSS TEVERSON’S FIVE CROWN-RATED JUPITER GLOBAL EMERGING MARKETS FUND sits top of the IA Global Emerging Markets sector over the past 12 months, be the same thing as Trump ‘the with a return of 48.89 per cent – 11.74 percentage points more than its average candidate’,” he said. peer. Lowcock says Teverson runs an unconstrained high conviction fund where “Donald Trump shifted and stock selection is critical. “The manager runs the portfolio on a philosophy of flip-flopped on several key issues change-based investing and looks for companies that have an industrial, structural in recent months, and often or management change that has yet to be fully recognised by the market,” he tailored his message to fit the explained. circumstances.” PERFORMANCE OF FUNDS VS SECTOR “As president, his ability to define himself as a ‘winner’ will require Name 1yr (%) 3yr (%) 5yr (%) a different approach, and most of his pre-election proposals will be Newton Global Emerging Markets 38.19 40.37 72.54 modified.” Jupiter Global Emerging Markets 48.89 41.97 57.96 Fidelity Emerging Markets 30.6 2.15 57.76 SELF-INTEREST IA Global Emerging Markets 37.15 22.1 33.19

This is a view echoed by Olga Source: FE Analytics Fedotova, head of emerging market credit research at AXA Investment Management. “Gridlock, The pundits’ choice pragmatism and self-interest are FIDELITY EMERGING MARKETS likely to prevent the market’s worst fears from materialising,” she said. LOWCOCK AND RUSH HIGHLIGHT NICK PRICE’S FIVE CROWN-RATED FIDELITY “Headline risk and volatility may EMERGING MARKETS FUND as a worthy inclusion. “It remains the backbone of increase, but close trade linkages our emerging markets weighting,” said Rush. “The manager has achieved stellar returns since the fund launched a little over six years ago and is an expert in EMEA – 50 per cent of US exports are [Europe, the Middle East and Africa].” Lowcock adds: “Price has a well-established destined for emerging markets – process and is focused on investing in companies with superior growth potential, would make a fundamental shift in sustainable profitability and a consistent track record over time.” trade policy a case of beggaring thy self, rather than thy neighbour.” She also says analysts may have Going off-benchmark overestimated the importance of the NEWTON GLOBAL EMERGING MARKETS US market to this sector. RUSH SAYS THIS FUND, MANAGED BY ROB MARSHALL-LEE AND HIS TEAM, “The direct impact of US trade on has an off-benchmark geographical allocation which offers some diversification emerging markets is modest, with benefits. “Not only does this give our portfolios something a little different, but it emerging market countries sending provides us increased exposure to those areas where their conviction is highest,” just 16 per cent of their exports to he said. The fund, which also has the maximum five crown-rating from FE, has the US,” Fedotova added. outperformed its peer group composite over one, three and five years. trustnetdirect.com 23 SCOTTISH MORTGAGE INVESTMENT TRUST

SCOTTISH MORTGAGE WAS ORIGINALLY LAUNCHED TO PROVIDE LOANS TO RUBBER GROWERS IN MALAYSIA IN THE EARLY 20TH CENTURY.

Past performance is not a guide to future returns.

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Chris Rush, senior investment analyst at IBOSS, says that the demographics and outlook for emerging markets were strong before the election and the case remains the same irrespective of the result. However, he warns that much of the “easy” asset allocation/ beta had already been made before this month, which presents its own set of challenges. “As a portfolio manager, if you had a decent weighting towards emerging markets in the past years you would have done very well and if you kept away you would have missed out,” he said. “This is because the individual funds used within the sector have mattered much less than the overall allocation to it in what has essentially been a beta- driven market.” Rush also points out that while the IA Global Emerging Markets sector has rocketed for UK investors over the past 12 months, much of this return has been “supercharged” by the impact of weak sterling. In US dollar terms, the sector is up by just over 8 per cent in the same “Emerging currencies in Mexico and other time period. vulnerable markets fall as investors “For this reason we emphasise the markets are take a cautious defensive stance and importance of selecting a diverse avoid the high risk areas. However, range of the best possible managers likely to suffer emerging markets do benefit from in the sector with possibly the low valuations and any delays to widest opportunity set,” he added. for longer than interest-rate rises in the US will be well received.” NOT GOOD NEWS the developed The investment director says However, Adrian Lowcock, that he expects greater uncertainty investment director at Architas, says West” to dominate emerging market that despite the warnings to remain significant US-dollar denominated equities and currencies for the next calm and hopes that Trump will fail debt, the biggest concern will be few months. “Emerging markets to follow through with his pledges, over Trump’s protectionist views,” are likely to suffer for longer than the truth is that the election result he said. the developed West as it will take was overwhelmingly negative for “If Trump does move ahead time until we know how much of the sector. with anti-free trade policies then Trump’s campaigning commentary “Although a weaker dollar does this isn’t good news for emerging survives now he is president elect,” help those emerging markets with markets. As such we have seen the he finished. trustnetdirect.com 25 IN THE BACK

ALTERED STATE Changes to the state pension will make you better off – so long as you can work out what they mean, writes John Blowers

HE STATE PENSION The amount you will receive each state pension. If you were born HAS CHANGED week has risen from £119.30 to before these dates, you will receive T RECENTLY from a £155.65. Annualised, that is the old state pension. relatively £8,093.80, more than £1,890 Simple. Well hold on. This is straightforward extra per year. the government we’re talking proposition to something that is a So, if you are a woman born after about, so it has managed to weave little more complex. On the 6 April 1953, or a man born after considerable complexity into the surface, there is good news. 6 April 1951, you will get the new new rules.

26 trustnetdirect.com IN THE BACK / PLATFORMS /

state pension. The additional state pension was based on your earnings as well as the National Insurance contributions you had made or been credited with. Under the old state pension rules, workers were able to build up the additional state pension – a top-up to the former basic state pension. Although the new rules have now scrapped this top-up, the government has allowed many workers in their 40s, 50s and early 60s to keep any of the extra cash already amassed. If you had built up a substantial entitlement to an additional state pension, this may mean that you have already earned a pension under the old system that is worth more than £155.65 a week. The following links come You have to qualify for the new recommended if you want to know state pension and your National It is estimated more. Insurance (NI) record is taken into account. only around • Government website To receive the full £155.65, you • Money Advice Service will need to have 35 years’ worth half of the • Pensions Advisory Service of NI contributions or “credits” population will (referred to as qualifying years) You may be like me: I’m not during your working life. These receive the full really sure if I have – or will don’t have to be consecutive years. have made – 35 years of NI If you have less than 35 years of £155.65 state contributions over my working NI contributions, you will receive life during my chequered career: an amount based on the number pension sometimes employed, sometimes of years you have paid or been self-employed and a couple of credited with NI. were employed (rather than short spells of “gardening leave”. If you have less than 10 years of self-employed) you will have And I do remember contracting contributions, you probably won’t paid Class 1 National Insurance, out of SERPS (the State Earnings receive a state pension at all. which entitled you to the basic Related Pension Scheme – or the Under the old system, if you state pension and an additional additional state pension) at one

trustnetdirect.com 27 These are the growth f igures you don’t want to see in your next ISA

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£1,000 0.45% £900 0.40% £800 0.35% £700

£600 0.25% £500

£400

£300 Trustnet Direct £200

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0 1yr 2yrs 3yrs 4yrs 5yrs 6yrs 7yrs 8yrs 9yrs 10yrs

*The graph displays platform fees plus the cost of 5 transactions per annum with Trustnet Direct compared with platforms charging 0.45%, 0.40%, 0.35% and 0.25% per annum in platform fees. Assumes £15,000 new ISA limit invested each year for 10 years and assumes 5% growth net of charges.

The good news is that if you invest the new ISA limit of £15,000 per annum over the next 10 years and it grows at 5% per annum net of charges, you’ll have built a nest egg of over £198,000 tax-free.

The bad news is that platform fees can seriously damage your wealth, as the chart above shows.

At Trustnet Direct, we charge 0.25% in platform fees but cap it at just £250 max per annum (£200 + 5 trades at £10 per trade).

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Trustnet Direct does not provide advice on the suitability of investments. It is an execution-only service. If you are unsure about the suitability of investments, seek independent financial advice.

The price and value of investments and their income fluctuates: you may get back less than the amount you invested. Past performance is no guarantee of future performance.

Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

Set your account up now at: www.trustnetdirect.com

Trustnet Direct is a trading style of Trustnet Limited, Authorised and Regulated by the Financial Conduct Authority. / PLATFORMS /

point in my life at the hands of an your pension pot invested and it unscrupulous insurance salesman. I remember grows at an average of 5 per cent a Remember, it is estimated that year, net of charges, and that your only around half of the population contracting money runs out at age 90. The state will receive the full £155.65 state pension is paid until you die. We pension. out of the have not included any inflationary Therefore, it is worth visiting additional state rises in the value of your pension, the government website or calling although these are built in to the the NI helpline (0300 200 3500) to pension at the state pension. check if there are gaps in your NI The point is that many people just history, as you may be able to fill hands of an don’t know how much they actually these prior to retiring. need to save in retirement and often Yet here you are reading this unscrupulous don’t factor in the state pension – an article and by implication, you’ve important foundation to any plan. probably embarked on your own insurance The key points to take away are plan to supplement your income that you must ensure you are up to in retirement. salesman speed with what you are going to The point of this article is get from the state, have an idea of to identify the base amount of “care-free” and “luxury” we can how much income you will need pension income you should suggest pension pot sizes to to support your chosen lifestyle receive from the state and build supplement the state pension. and work out how big your on that foundation to create the Assuming the state pension retirement pot will need to be to lifestyle you want. covers a hand-to-mouth existence, generate this income. So what is it like to live on the you would need a retirement pot Model your own retirement state pension alone? of an amount specified in the plan at Trustnet Direct, using our We estimate that living on £155.65 box below to achieve one of the interactive planners: https://www. per week is going to be pretty tough, aforementioned lifestyles. trustnetdirect.com/retirement/ but it does cover what is termed a We also assume that you keep retirement-homepage. “hand-to-mouth” existence. This means it will cover basic food, bills, simple clothing, insurance and so on, but not much else. COST OF LIFESTYLES IN RETIREMENT Meals out, holidays and travel are out and there is the real risk that LIFESTYLE TARGET PENSION POT ADDITIONAL MONTHLY TOTAL MONTHLY you could end up as a prisoner in AT RETIREMENT INCOME FROM SAVINGS INCOME INCLUDING your own home. STATE PENSION However, you can use the state Quiet and pension as a good base to save for a £125,000 £714 £1,336.60 more comfortable retirement. This comfortable means that even if your pension pot is likely to be fairly modest, Care-free £220,000 £1,250 £1,872.60 you can use your savings to improve your quality of life. So how can you improve your Luxury £420,000 £2,416 £3,038.60 lifestyle in retirement? Using our lifestyle bands of “hand- to-mouth”, “quiet and comfortable”, Source: Trustnet Direct trustnetdirect.com 29 STOCKPICKER

LOST AND FOUND Threadneedle’s Richard Colwell highlights three stocks that are back on the right track after appearing to lose their way

ACRO UNCERTAINTIES ARE on the bottom-up investment case for individual stocks. RECEIVING A LOT OF ATTENTION at the Below are three good examples of contrarian picks M moment, with the US election, slowing where the companies had lost their way, but we growth in China and the UK’s unexpected thought they had decent underlying businesses. As a decision to leave the EU all creating a great result, we built up significant positions in each one over deal of noise in markets. However, we remain focused the past few years and they are now starting to perform.

AFTER SEVEN YEARS OF ELECTRONICS DISTRIBUTOR RSA IS A VALUABLE NEGATIVE VOLUME GROWTH ELECTROCOMPONENTS is a STANDALONE INSURANCE and four years of negative cash strong turnaround story driven by BUSINESS. The company went sales, we are pleased with the a chief executive who is stemming through a torrid time, which finally work done at WM Morrison over long-running losses in Asia and required a rights issue. Over the the past 18 months following a ensuring key business in the UK no last two years, however, it has management change. It is still in longer loses share. The business can been rehabilitated into a reliable, the foothills of recovery, but is continue to outperform by further cash generative business. It is now generating good cash-flow, allowing cutting costs, improving sales benchmarked to the best-in-class it to quickly pay down debt. The effectiveness and upgrading its IT companies in the sector. We are stock is heavily shorted, yet has infrastructure. A review of existing pleased it is now focused on its the strongest balance sheet in the assets and locations should also let three key international franchises. sector and has shown strategic it work towards a more capital-light We bought more of it after Zurich thinking with the Amazon deal and business model. The levers it can stepped away from a deal last vertical integration. While it is in a pull for self-improvement mean year as we were supportive of the competitive industry, there is still it is capable of performing despite operational improvement; it is still a scope to regain lost customers. uncertainty in the UK and Europe. “morsel” in a consolidating industry.

30 trustnetdirect.com

WHAT I BOUGHT LAST

KLS ZEBRA GLOBAL EQUITY BETA NEUTRAL

Sarasin & Partners’ Jamie Fletcher is using this fund to deliver returns that are uncorrelated to equity markets

N AN ENVIRONMENT OF LOW trading activity to try to identify stocks that GROWTH, falling corporate are currently “popular” and those that are I profits, stretched valuations and “unpopular”. They have stressed that this political risk, it’s more doesn’t necessarily mean bullish or bearish important than ever to consider sentiment towards a stock: a popular stock how effective a portfolio is at protecting is one that everyone is talking about and clients’ capital. has an opinion on. An unpopular stock is In theory, alternative investments offer a one where investors are barely aware of its return while being exposed to risks unrelated existence – in the team’s words “viral versus to those of traditional asset classes (such as unknown”. Its research has shown that over equities and bonds). However, expecting all time, “unpopular” stocks have consistently alternative investments to remain unscathed outperformed their “popular” counterparts. during a market selloff can be a dangerous When you couple this with strong underlying assumption to make. Once you drill into the company fundamentals, the outperformance underlying strategies and securities held by is enhanced further. an alternative investment, it is often possible Putting this into practice, the fund invests to identify risk exposures that are related to in a global portfolio of long unpopular stocks traditional asset classes. with strong fundamentals; it then couples An example could be as simple as a macro this with a portfolio of short popular stocks hedge fund with a bet that equities will rise, with weak fundamentals. The exposure of the meaning it has a correlation to stockmarkets. two books is adjusted so that the fund’s net A less obvious example could be a fund that beta exposure is zero – therefore removing uses a valuation method linked to bond yields market risk and correlation to general equity when assessing its private/unlisted assets. As market moves. a result, rising bond yields would decrease the The strategy was initially launched in value of the fund’s assets alongside bonds. the US in June 2010 and since then has an However, one area where we are able to find annualised uncorrelated return of 5.9 per cent uncorrelated returns is in long/short market- (as of 30 September 2016). We have accessed neutral funds, an example of which is KLS the strategy through the recent launch of the Zebra Global Equity Beta Neutral. UCITS fund which is part of the Kepler Liquid Zebra is the brainchild of well-known Strategies UCITS platform. academic, investor and Yale professor Roger Ibbotson, and is based on his theory of “stock popularity”. Professor Ibbotson believes that investors get too caught up in stories and do not place enough emphasis on the facts – a belief shared by Nobel Prize winner Robert Shiller. The tech bubble makes a good case study: investors’ exuberance regarding the internet “story” led stock prices to become completely removed from the fundamentals of the underlying companies. Jamie Fletcher is a deputy fund manager at The team at Zebra uses data related to Sarasin & Partners trustnetdirect.com 31 DECEMBER PREVIEW That was the year that was The December issue of Trustnet Magazine will take the opportunity to look back over the past year in the world of investment – and what a year it has been! The rebound in oil and commodities, Brexit and, to top it all, Donald Trump becoming the most powerful man on the planet.

More important than looking back, however, is looking forward and we will weigh up the prospects for every region and sector in 2017 and ask the experts what they will be doing with their money.