Wealth Management Summer 2019 Summer 2019
Welcome /02 Investec Private /24 Eddie Clarke Client Lending Ciarán Leddy The Perils /04 of Procrastination Does a Bigger /28 Ian Quigley Salary Make a Better Package? Brian Kingston 20x20: /08 Looking Back and Looking Forward Stephanie Meadow. /32 Lisa Curtin Making Her Way on the LPGA Tour Philip Ahearne The Impulse to Act /12 Daniel Moroney Approved Minimum /36 Retirement Funds. Irish Economy: /16 Is the End Nigh? Taking Stock Joe Hanrahan Philip O’Sullivan
The Indicator /40 The Approved /20 That Cries Wolf: Retirement Fund: How accurate are A Cornerstone market predictions of of Family Wealth monetary policy? Andrew Fahy Gearóid Keegan
Investec Events /44 “In terms of the general market backdrop, at the time of writing the global equity market continues to make new all-time highs in euro terms.”
Welcome to the latest edition of Wealth Management for Summer 2019
Welcome
Eddie Clarke Head of Wealth & Investment
This is the first edition since the central banks back in ‘easing’ importance of the Approved announcement that, subject mode, we see good reason to Retirement Fund (ARF) in terms to regulatory approval, Brewin expect further strength over the of inter-generational family Dolphin will acquire Investec’s coming months. wealth planning. On page 36 our Wealth & Investment business Head of Retirement Planning Joe in Ireland. We believe that the On page 4 our Head of Hanrahan talks about the ARF’s deal represents an excellent Investment Strategy Ian Quigley ‘little brother’, the AMRF, and cultural fit, where our ‘client-first’ addresses our approach to how it may not be long for this focus will remain as strong as asset allocation during an era world. Also from our Financial ever. Importantly for our clients, of all-time highs in equity markets Planning team, on page 28 Brian our impartiality and resources and all-time low sovereign bond Kingston gives an important will not be impacted by the yields in Europe. On page 12 overview of the reasons why proposed deal. Ian’s colleague on the Strategy someone changing job should desk Daniel Moroney discusses pay very close attention to the Given the ongoing evolution the challenge faced by all overall benefits package. and change within the wealth investors in trying to avoid being management industry, we distracted by negative headlines. On page 16 Investec Ireland’s believe that there is a clear Chief Economist Philip O’Sullivan strategic rationale for us to On page 8, Investec’s Lisa Curtin gives one of his typically- come together at this time. looks back on the first half of rigorous updates on the Irish The additional scale, combined the 20x20 campaign and notes a economy. Investec Private Client with a singular focus on wealth number of remarkable successes lending’s Ciarán Leddy gives us management, will allow us for the campaign and for the an overview of the many ways to continue to invest in visibility of women’s sport in in which his team can assist delivering world class wealth general. Staying on the subject our clients on page 24. Investec and investment solutions to of sport, on page 32 Investec Treasury’s Gearóid Keegan gives our clients. Treasury’s Philip Ahearne gives us the benefit of his expertise in us an update on professional assessing the predictive powers In terms of the general market golfer (and Investec ambassador) (or otherwise) of interest rate backdrop, at the time of writing Stephanie Meadow’s progress on futures on page 40. the global equity market the LPGA Tour in the US. continues to make new all- I hope you find this edition an time highs in euro terms. After On page 20 our Head of Tax engaging read; as always, please around four years of sideways & Financial Planning Andrew get in touch with your questions, movement, and with global Fahy once again highlights the opinions and feedback.
2 Wealth Management Summer 2019 Summer 2019 Wealth Management 3 “The financial crisis still weighs heavy and it has impacted our psyche, with many investors living in fear of the next crisis.”
The Perils of Procrastination
Ian Quigley Investec Wealth & Investment
“Our long-held At the time of writing, Indeed, I have to admit that if Essentially they are too weighted I was told in advance that the to cash and cash-like assets, the world equity market German government bond yield which will lose value over time. view has been is trading at new record had fallen to minus 0.40%, at a time of growing trade tensions, To be clear, we believe highs - yes, new record I would have assumed that the highs. To a lot of people world economy was facing a investors should hold that interest rates major crisis and that equity some cash - we are this seems incongruous in markets would have been a world of Donald Trump, under significant pressure. not advocating 100% Trade Wars and Brexit. perpetual investment. We will stay below One response to this incongruity is to say it’s all an just consistently find that illusion or a bubble about to the balance is ‘wrong’ for inflation for a burst. This is a common and well-versed response, which many people. appeals intuitively to many people. The financial crisis As the famous fund manager very long time...” still weighs heavy and it has Peter Lynch once remarked: impacted our psyche, with “far more money has been many investors living in fear lost by investors preparing for of the next crisis. corrections, or trying to anticipate corrections, than has been lost in In our opinion this response corrections themselves.” has been very costly in a way many fail to truly realise. Another very fair response to In preparing for the next crisis, the unusual environment we find whether consciously or not, it ourselves in, is to question the is our experience that many sustainability of record low bond investors in Ireland have the yields and record high stock wrong asset allocation for the prices. Surely something has prevailing environment to give?
4 Wealth Management Summer 2019 Summer 2019 Wealth Management 5 “We focus on constructing portfolios we “Those companies that can grow in this can stand over and strongly warn against the environment should be worth a lot more perils of procrastination.” than those that cannot.”
The Perils of Procrastination The Perils of Procrastination Continued... Continued...
This is a challenging question, So quite simply, lower bond which will lead us to the promised effectively balance the economy we recognise the need to take for which it is temptingly easy yields, all things being equal, land of better-than-expected is materially lower than what it into account varying scenarios. to give a simplistic answer. The should result in higher growth and low inflation. has been historically. In such an At the core of our approach most obvious answer is that the equity prices. environment, lower interest rates remains our central tenet: our discount rate has fallen such that This would be fantastic for may be a positive for valuation, clients will be best-served the present value of future cash The problem with this argument certain parts of the market, but growth is likely to disappoint, by being invested over the flows has increased. though is that we need to which would benefit from higher- and we need to be very wary long-term. question why bond yields are than-average earnings growth about the threat of deflation. The correct way to value lower. If lower bond yields reflect and low discount rates. The This is clearly a ‘lower for longer’ We have no influence on equities is not P/E ratios an expectation of weaker future great innovators and disruptors environment for interest rates and or dividend yields, it is to growth then, logically, future would be the obvious winners a real challenge for savers. world events and we can’t calculate the present value equity cash flows should be here, whilst many old world predict what is going to of all future cash flows. This is lower. You can’t have your cake industries and companies would As regular readers know, our an imperfect exercise, as we and eat it! The nuance to this struggle. This is something we long-held view has been that happen or how markets can’t predict the future, and it point is that those companies have discussed before in this interest rates will stay below will react. So we focus explains why many investors that can grow in this environment publication and it has been the inflation for a very long time. default to ratio analysis on should be worth a lot more than subject matter of our annual on constructing portfolios near term expected earnings those that cannot. Indeed, we conference for a number of years. This contention has only been we can stand over and or dividends. Nevertheless are already seeing this manifest emboldened through the it is clear that with a lower in the market, with today’s We strongly believe that investors years, supporting the strongly warn against the discount rate, the value of ‘growth champions’ significantly need to think deeply about how investment case for stable perils of procrastination. sources of income. Our an asset should increase. outperforming the market. they avoid being caught in the Anything else would be a ‘losers’ and capture the ‘winners’ preferred infrastructure What discount rate to apply is At our Investment Committee of the technological change we strategies look relatively dereliction of duty. a whole other ball game and we continue to debate these see today. cheap through this lens. is subject to much debate. cross-currents, in an attempt to This perhaps gives you a window However, the substantive point understand what is happening. A more negative perspective, is into our internal debate and the is that lower government bond The most optimistic perspective that we are simply in a world of process we go through when yields, on average, result in lower is that we are living in a unique lower growth, with a significant constructing portfolios. At heart discount rates. time of innovation and disruption, debt overhang, which means we are our optimists, because we that the interest rate ‘needed’ to believe optimism is rational, but
6 Wealth Management Summer 2019 Summer 2019 Wealth Management 7 “International Women’s Day on March 8th saw thousands of people across the nation make a pledge to support women in sport.”
20x20: Looking Back and Looking Forward
Lisa Curtin Investec Wealth & Investment
The first chapter of the Chapter Two went live in •• 20x20 won the ‘Sporting May 2019, and it looks at how 20x20 initiative (launched Innovation of the Year’ award we can champion women and in April at the Irish Sport in October 2018) focused girls in sport via ‘seeing’ and Industry Awards ‘being’ role models. As we are on calling out our cultural now approaching the halfway •• At a conference in Switzerland, perception of female point in the campaign, with two The European Broadcasting chapters remaining, it’s worth Union (EBU) presented 20x20 sport; in particular, the taking a look back at some of as a best practice case study subliminal bias in the Irish the campaign success stories in the influence of media for women’s sport psyche that exists around so far. The response has been simply overwhelming! •• Sport Ireland announced new boys and girls, or men funding specifically for women and women, when it 20x20 Campaign Milestones: in sport, for which the National Governing Sporting Bodies •• The President of Ireland, comes to sport. may apply Michael D. Higgins announced his support of 20x20 •• Sport Ireland launched a new ‘Women in Sport’ policy, and •• International Women’s Day appointed former Ireland rugby on March 8th saw thousands player Nora Stapleton as the of people across the nation first Sport Ireland Women in make a pledge to support Sport Lead women in sport •• 20x20 featured heavily in the •• The whole RTÉ Sports new BBC NI and TG4 series Desk (in addition to RTÉ’s ‘Mná Spóirt: Croí is Anam’ Director General) made a (Women in Sport: Heart #ShowYourStripes pledge and Soul)
Megan Rapinoe (May 2019) (cropped).jpg / Photography: Jamie Smed / https://creativecommons.org/licenses/by/2.0/
8 Wealth Management Summer 2019 Summer 2019 Wealth Management 9 “TV viewership records for the 2019 World Cup “The more women’s sport is featured on television, have been broken across the globe.” the more it becomes the norm, and something we can expect to see on our TV screens, rather than it being an exception.”
20x20 Looking Back and Looking Forward 20x20 Looking Back and Looking Forward Continued... Continued...
•• The 20x20 logo will feature public to engage with women’s and Ukraine later this year. Investec Media Awards Mary O’ Connor, CEO of the the sacrifices that accompany prominently on Dublin football in a way they haven’t The appetite to watch female Federation of Irish Sport noted the pursuit of success in GAA jerseys across all four done before. The more women’s sport is undoubtedly there. Investec continues to promote that Anne’s career, the feature circuit racing. codes (hurling, camogie, sport is featured on television, Irish media coverage of female of the first Investec Media football & ladies football) for the more it becomes the norm, Anna Kessel, Chair of the sport with the award of a Award, was “a fantastic female Finally, our most recent winning championship games and something we can expect Investec Media Awards judging monthly prize for journalists and success story, and very thought- piece for June discussed the new in July 2019 to see on our TV screens, rather panel and Women’s Sport Editor broadcasters and the number of provoking – celebrating a female Leaving Certificate PE curriculum than it being an exception. at The Telegraph, is one woman entries received to date has been sports star that was recognised and questioned if it could be one •• Unprecedented organic social who knows her football. Anna co- very encouraging. Five winners internationally but not nationally.” solution to the high dropout rate media engagement on Twitter, founded the Women in Football have been announced since of teenage girls from sport. Facebook and Instagram TV viewership records network in 2007 and was in the the launch of the Awards, with From uncelebrated sport stars to And that’s not all… for the 2019 World Cup Stade de Lyon to witness USA the judging panel selecting well-recognised athletes, March’s The standard of entries received winning pieces from a colourful have been broken across lift the 2019 World Cup trophy. award granted us an insight must be commended. Not only FIFA Women’s World Cup 2019 Commenting on the World Cup and diverse collection of into the life of World Champion do these awards enhance the the globe, including in coverage and its impact for the submissions, ranging from boxer and 2018 Sport Ireland profile of female sports, they One of the main ‘wins’ of the France, the United States, future of women’s sport, Anna print articles to podcasts. Irish Times ‘Sportswoman of also reward and acknowledge campaign so far has been 20x20 notes; The Year’, Kellie Harrington. We excellence in Irish journalism. Media Partners RTÉ and TG4 Germany and China. The awards have learned that Kellie’s story is one partnering to show all matches in Clare Balding dubbed 2015 that could have turned out so We look forward to discovering the FIFA Women’s World Cup for 62 countries held TV rights to ‘the year that things would uncovered stories of very differently if it wasn’t for her more emerging sports talent, the first time (and Ireland weren’t broadcast the 2019 tournament change for women’s sport’. unsung sporting heroes, love of the sport. further in-depth discussion even competing). compared with just 37 in 2015. An incredible 11.7million such as Anne O’Brien – of topical issues in the In Ireland, an average audience people in the UK watched In April, the winning article was a world of female sports and, The coverage of the entire of 224,400 tuned in to RTÉ 2 for England v USA in the World Ireland’s first ever female feature on Irish football’s up and importantly, celebrating our the final as defending champions tournament demonstrated Cup semi-final on BBC1. professional footballer coming starlet, Isibeal Atkinson, female athletes’ achievements both broadcasters’ continued USA defeated Netherlands to That’s the biggest TV an article which also highlighted and efforts – which is the very commitment as Official 20x20 claim the crown for a fourth time. audience of the year... who moved to France many of the barriers experienced least they deserve. On the same day, RTÉ Sport Partners, aiming to achieve a It’s unprecedented, and in the 1970s. by female footballers. genuine and positive shift for announced live RTÉ 2 coverage unthinkable. The retort that girls and women in sport in of the Republic of Ireland’s “no-one cares about women’s May’s winning piece introduced Ireland. Such coverage provided UEFA Women’s Euro 2021 home sport” is suddenly looking very us to Nicole Drought, an exciting a great opportunity for the Irish qualifiers against Montenegro out of touch indeed.” talent in Irish motorsport, and all
10 Wealth Management Summer 2019 Summer 2019 Wealth Management 11 “It is arguably harder than ever for investors to drown out the noise and resist the impulse to ‘do something’.”
“An honest appraisal of your risk tolerance is always a worthwhile exercise.” The Impulse to Act
Daniel Moroney Investec Wealth & Investment
Over recent years we have There is no doubt that humans The sharp market drop in late- found ourselves returning are hard-wired to act in the face 2018 was just the most recent Quote of a perceived danger. Call it example of how difficult it can time and again to the ‘fight or flight’ or just plain ‘panic’, be for investors to stick to a same broad theme, which but biological evolution hasn’t long-term investment plan. changed all that much since our The headlines at the time were we can loosely categorise ancestors were hunter-gatherers. anything but balanced. as: ‘Investors are their own While the impulse to act first To pick just one example worst enemy’. and ask questions later is very valuable to a hunter worried from many, the New York about being attacked by a wild Times had a piece in beast, for the most part, this impulse is highly detrimental mid-December with the to the long-term prospects of following lede: “Are you the 21 century investor! ready for the financial With the relentless flood of up-to- crisis of 2019? The stock the-second market information showing no signs of abating, market has already had it is arguably harder than ever a terrible year, and the for investors to drown out the noise and resist the impulse to doomsayers see plenty of ‘do something’. The prominent reasons things might get ‘Business TV’ channels have real-time market shows which are worse.” I think it’s worth sometimes indistinguishable from unpicking those few lines! Jeff Stelling and Chris Kamara screaming at each other about Firstly, the implication is that Premier League football on a the “financial crisis of 2019” Saturday afternoon. is inevitable.
12 Wealth Management Summer 2019 Summer 2019 Wealth Management 13 “Thankfully, in our experience, “The only sensible thing to do during periods of the doomsayers rarely manage real money.” short-term volatility is to admit our inability to predict the future and stick to our plan.”
The Impulse to Act The Impulse to Act Continued... Continued...
Not that it’s a possibility, or a to get booked on TV and periods of weakness will arrive realise it. For example, a 60 year For investors with a sufficiently subject for debate… no, this is radio; their careers as pundits at some point, and these periods old today can reasonably expect diversified portfolio of high- going to happen! demand dramatic viewpoints. will represent a truer test of an to live well into their eighties. quality assets, the only sensible Thankfully, in our experience, investor’s mettle. Not only that, as my colleague thing to do during periods of Secondly, the assertion that “the the doomsayers rarely manage Andrew Fahy discusses in his short-term volatility is to admit stock market has already had real money. As Ian Quigley writes The best way to protect piece, many investors have our inability to predict the future a terrible year” is an interesting elsewhere in this publication, against your emotions funds which are intended to be and stick to our plan. one. Without getting into the our default position is optimism, interfering with your passed on to their children and semantics of defining ‘terrible’, because that is the rational investment plan is to grandchildren, in which case the This is all easier said than on the day of publication on a stance to take. recognise that, more time horizon extends far beyond done, which is why an total return basis, the S&P 500 likely than not, you have a their own life-expectancy. honest appraisal of your was down less than 1% for the Even those investors long-term time horizon. risk tolerance is always a year in USD terms! As usual, While an individual’s worthwhile exercise. the market strength of the first who managed to If we can pull back from the half of the year had passed ignore the hysteria and daily noise and look at investing appetite for investment without banner headlines and from a broader perspective, risk will ordinarily decrease was long-forgotten, whereas the suppress their urge to ‘do we can avoid the unnecessary recent drops were top of mind. something’ in December stress of trying to react to with age, it doesn’t mean In fairness to the NYT, the global the ever-changing tsunami of that they have to narrow market was weaker, but to the shouldn’t be too information. By changing to a average American investor “the self-congratulatory. long-term approach we take a their horizons entirely, market” is the S&P 500 and/or major step away from making especially when the the typical errors that, time and the Dow Jones. The rally from the December returns available from so- lows has been very swift; as again, have caused investors to Thirdly, “the doomsayers sharp as the drop was (global experience painful, permanent called ‘safe’ investments losses of capital. see plenty of reasons things markets falling ~20%), the speed are historically low. might get worse.” At the risk of the rally meant that investors of sounding flippant, the didn’t have very long to ponder You may be reading this thinking doomsayers never see anything the drop in their portfolios. that a long-term approach isn’t other than “reasons things As such, maybe some people an option for you. The fact is that might get worse”! Calling the just didn’t have time to panic. most investors have a long-term apocalypse is a good way Undoubtedly more sustained time horizon, even if they don’t
14 Wealth Management Summer 2019 Summer 2019 Wealth Management 15 “The 7.8% growth in income tax and 8.5% rise in combined VAT and excise duty receipts point to buoyant domestic economic dynamics.”
“Cork has won the same number of Brexit relocations as each of Barcelona and Munich.” Irish Economy: Taking Stock
Philip O’Sullivan Chief economist – Investec Wealth & Investment
While there are a number High frequency indicators are The unemployment rate is at its throwing off some mixed signals, lowest level since February 2005. of storm clouds on the with May’s Manufacturing PMI Given the limited slack, it is no horizon, there is still very dipping to its weakest (50.4) surprise to see that wage inflation good momentum behind since the immediate aftermath has accelerated in recent times of the UK’s vote for Brexit. The (it was +3.4% y/y in Q119). With many segments of the Services (57.0) and Construction the CPI at just +1.0% y/y in May, economy at this time. (54.9) PMIs are showing much this implies a strong lift to real stronger growth, however. While household disposable incomes, Exchequer tax receipts have although the implications for slightly undershot forecasts in competitiveness are less helpful. the year-to-date, they are still +5.7% y/y. As mentioned above, monthly merchandise trade data point to Within that, the 7.8% growth a very strong performance on in income tax and 8.5% the goods side so far this year. rise in combined VAT and The January – April trade surplus excise duty receipts point to was a remarkable €23bn, +27% buoyant domestic economic y/y, although some of this is likely dynamics (even allowing for to be down to precautionary the VAT hike in the hospitality stock-building by UK customers sector). While we await news ahead of the original Brexit date of services exports, the of end-March along with the goods performance has been usual multinational ‘noise’ within extraordinary, with growth of the trade data. Nonetheless, +13% y/y in the year to date. given the backdrop of a slowing global economy this is still a very A key highlight at the current commendable performance. time is the labour market. Total employment is at a post- Turning to property, while independence high of 2.3m housing completions of 18,828 and growing by c.1,600 a week. in the 12 months to end-Q119
16 Wealth Management Summer 2019 Summer 2019 Wealth Management 17 Housing Output Remains Abnormally Low Encouraging Labour Market Trends
100,000
90,000 2,400 18 80,000 2,300 16 70,000 2,200 14 60,000 2,100 12 50,000 2,000 10 40,000 1,900 8 30,000 1,800 6 20,000 1,700 4 10,000 1,600 1,500 2 0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Q198 Q101 Q104 Q107 Q110 Q113 Q116 Q119
Completions Average since 1970 = 30,209 Total Employment ‘000 Unemployment Rate % (RHS)
Irish Economy: Taking Stock Irish Economy: Taking Stock Continued... Continued...
were +25% y/y they are still well Elsewhere, the prospects Monitor from the Department In terms of the risks to the A more dovish ECB is helpful for adrift of the range of estimates for the non-residential property of Finance shows that while economy, these are mostly Ireland’s indebted households (30,000 – 50,000) of annual market here remain positive. tax receipts have marginally external. Ireland is a hyper- and the Sovereign (for the new household formation. The In the Dublin office market, undershot expectations in the globalised economy, with reasons set out above). housebuilding sector’s ability take-up was 1.4m sq ft in Q119, year to date, this has been more exports and imports summing to scale up to a level at which a strong-outturn that follows last than offset by lower spending, to a remarkable 210% of GDP. Domestic risks generally fall output meets the flow of new year’s record annual take-up of producing an underlying general Brexit, trade wars and shifting into three headings: (i) Housing; demand is hampered by issues 3.9m sq ft. government balance that is monetary policies all pose risks. (ii) Competitiveness slippages; around labour (total construction €0.2bn better than profile (target) and (iii) Legacy issues arising employment is lower than it The Dublin office vacancy for the opening five months of The evidence thus far suggests from the credit bubble. was at the end of 2000), capital rate is at an all-time low of 2019. When this is set against that Ireland is navigating them as (the stock of bank credit for just 5.0%, after adjusting for the Budget Day projection of a well as (if not better than) might To conclude with our residential development and reserved space. general government deficit of have been hoped for. investment has fallen 91% since €75m for FY19, it gives comfort headline forecasts, we This is likely to be a factor 2010) and planning restrictions. to our view that the State is Data from Knight Frank show that behind an uptick in activity in the see GDP advancing by on course to run a second Dublin has secured more Brexit regions. Per Lisney’s data, office successive surplus this year. relocations than any other city in 4.3% this year and by Therefore the mismatch take-up in Cork in the 12 months Europe. Cork has won the same to end-Q119 was 444,011 sq ft, 3.4% in 2020, maintaining between supply and The recent slide in Eurozone number of relocations as each of +230% y/y. demand in the housing Sovereign yields provides a very Barcelona and Munich (if only it Ireland’s position as one helpful tailwind for the Exchequer. had a soccer team to match…). of the best-performing market is likely to be with Activity in the industrial and The NTMA recently raised 10 logistics segment has been us for another few years at year funding at just 0.3%, which While global trade flows are developed economies. helped by Brexit-influenced compares to the blended rate under pressure, the evidence least, so the path of least supply chain recalibrations. on the stock of government debt shows that Ireland’s seaports While the retail sector in Ireland resistance for both capital of 2.4%, raising the prospect of have never been busier. is not immune to the structural material savings arising from the values and rents remains challenges that are present NTMA’s debt refinancing moves. to the upside. elsewhere, consumer spending is strong, with the cash value of core retail sales +4.2% y/y in Q119. The latest Fiscal
18 Wealth Management Summer 2019 Summer 2019 Wealth Management 19 “The landscape has changed dramatically with the advent of the Approved Retirement Fund.”
“The ARF can also serve a secondary purpose of The Approved Retirement Fund building family wealth A Cornerstone for the next generation.” of Family Wealth
Andrew Fahy Investec Wealth & Investment
In the past, one’s pension A retiree who received a cheque ceased on his or her death. assets existed solely to from the President on reaching Now, the employee has the 100 was a clear winner, a retiree option of retaining his or her provide an income in who was hit by the proverbial pension fund as a family asset. retirement. An annuity- bus was a clear loser, and This has obvious attractions, everyone else fell somewhere but also obvious risks in style pension or defined in between. The landscape the absence of high quality benefit arrangement was, has changed dramatically with investment and financial planning the advent of the Approved advice. In essence, the mortality in essence, a bet with Retirement Fund (ARF). risk of the annuity or defined an insurer. benefit arrangement has been The broadening of the ARF replaced with the investment market by virtue of Finance risk of the ARF. Act 2011, and the decline of defined benefit schemes However, we believe that this generally, have made the investment risk is manageable, procurement of quality particularly when clients are wealth management and cognisant of their actual time- retirement planning advice horizon, avoid conflating risk vital for a much wider cohort and volatility, and understand of individuals. their own investor behaviour, a topic which my colleague Previously, employees were Daniel Moroney deals with in generally compelled to buy greater detail elsewhere in an annuity (i.e. guaranteed this publication. pension for life) at retirement. The employee’s pension did not The broadening of the ARF sit directly on his or her family’s market has also created a balance sheet, and when he or degree of democratisation in the she passed away, the pension context of wealth management; income typically ceased, or it is worth highlighting that an reduced for a spouse and then individual with an annual salary
20 Wealth Management Summer 2019 Summer 2019 Wealth Management 21 “Our role in respect of ARFs, in simple terms, is “It is through the power of tax-free to make our clients’ financial lives easier and their compounding that a pension truly becomes families’ balance sheets stronger.” a powerful wealth planning tool.”
The Approved Retirement Fund – A Cornerstone of Family Wealth The Approved Retirement Fund – A Cornerstone of Family Wealth Continued... Continued...
of circa €50k, and whose crucial. It is through the power coherent investment strategy. Tax Treatment of an (i.e. parent to child) threshold is their families’ balance sheets pension fund receives a typical of tax-free compounding that We frequently meet prospective ARF on Death €320,000. If the child is aged stronger through the delivery level of employee and employer a pension truly becomes a clients whose experience 21 or over, income tax at a of robust and high quality contributions, should end up powerful wealth planning tool. with pensions has been poor, The tax treatment of the ARF on special rate of 30% arises in investment and financial with a substantial ARF. Such an In order for the compounding but this is typically a result of the death of the ARF-holder is respect of the value of the ARF. planning solutions. individual would clearly benefit to have a material effect, the malinvestment, suboptimal dependent on the relationship Significantly, in this latter between the individual who from the services of a high- planning (both structural and advice, or excessive charges. scenario, the child’s Group A If you would like to discuss quality wealth manager. investment) must be long-term inherits the ARF and the ARF- threshold is not impacted. in nature. The “loan” referred to holder. If the ARF passes to a our approach in greater Our team’s job is to spouse, he or she effectively Retirement Planning is above is repayable in the form of Conclusion detail and explore how Wealth Planning taxation when the pension fund ensure that the pension ‘steps into the shoes’ of the ARF-holder, and the ARF remains Historically, the role of a pension our team could be of is drawn-down, but the salient structure and retirement As outlined above, pensions and point is that the investor has had intact. This point is hugely was simple; it existed to provide assistance to you and to ARFs are not merely retirement the use of the underlying monies strategy are optimised for significant from an investment an income for the retiree and his planning tools; they can be the perspective. The investment or her spouse. However, people your family, please do not for a prolonged period of time the client in a manner cornerstone of a family’s wealth with a view to generating a larger time-horizon is not merely the are now viewing the role of the hesitate to contact us. planning strategy. However, their retirement fund. that is transparent, lifetime of the ARF-holder; ARF as two-fold. Yes, it exists biggest competitive advantage with a view to then rather, it is the longer of the to provide income in retirement, requires time in order to manifest It is also vital to note that the ARF-holder’s life and his or her but it can also serve a secondary itself. Considering pensions and tax-free compounding referred leveraging our significant spouse’s life. purpose of building family wealth ARFs in simple terms demystifies to above continues within the investment resources to for the next generation. the structures and illustrates that ARF structure. The pension/ARF In circumstances where the competitive advantage relative to structure therefore represents an manage the underlying ARF is inherited by a child of As a Qualifying Fund Manager other forms of investment. opportunity to invest and build monies prudently. the deceased ARF-holder, the for ARFs, we can manage all wealth for one’s family, potentially ARF is effectively dissolved and aspects of the ARF for our If an investor is willing to put €60 over a 50+ year time horizon, For prospective investors (who the tax treatment is dependent clients, including investment aside, the State will effectively given the favourable inter-spousal typically suffer from what we on the age of the child. If the management, drawdown, and lend him or her €40 on an inheritance tax rules. refer to as ‘time-poverty’), this is child is aged under 21, Capital payroll taxes. interest-free basis, allowing an approach which is far more Acquisitions Tax (CAT) arises €100 to be invested on a tax- However, the power of likely to lead to the desired result, in respect of the value of the Our role in respect of ARFs, in free basis for a prolonged period compounding is a moot point a larger retirement fund, and ARF. The current rate of CAT is simple terms, is to make our of time. This latter point is unless the individual has a enhanced family wealth. 33% and the current Group A clients’ financial lives easier and
22 Wealth Management Summer 2019 Summer 2019 Wealth Management 23 “Over the last number of years we have refined our offering to ensure that we are best-placed to service the needs of our clients.”
Investec Private Client Lending
Ciarán Leddy Investec Private Client Lending
Private Client Lending We also receive referrals from We do have general criteria in “We can offer finance (PCL) has been working our own client base as they relation to potential clients have been happy with the closely with Investec high level of service received. •• Combined income levels of €175,000 per annum Wealth & Investment Furthermore, enquiries have to IW&I clients, secured increased from individuals who •• Proven affordability & own (IW&I) for a number of are not clients but have heard equity to put into transaction years, providing lending about our offering. on their investment •• Reasonable net asset solutions to clients and, The one common theme that value levels in some instances, family comes out of these referrals •• Minimum mortgage and enquires is that clients are members of clients. amount €500,000 portfolios managed looking for a superior level of service; one where their lender is •• Minimum portfolio loan willing to take the time to get to amount of €350,000 know them and work with them •• Properties in prime locations by IW&I.” to help provide the lending facility that works for both the •• Strong rental profile if client and the bank. Buy-to-Let (BTL) We are also open to supporting Irish expats abroad who would like to establish a new Irish banking relationship, and who have a funding requirement for residential or investment property with which we could assist
24 Wealth Management Summer 2019 Summer 2019 Wealth Management 25 “We are comfortable structuring bespoke “We have supported clients to acquire solutions that can provide clients with flexibility and refinance investment property directly to match their individual cash-flow profiles.” for a number of years.”
Investec Private Client Lending Investec Private Client Lending Continued... Continued...
Over the last number of Bespoke We have supported clients in •• Avoids crystallising capital of years. We have closed In summary, we specialise in Residential Mortgages the purchase of new homes, gains & creating potential transactions to assist clients in taking a wider view of the client’s years we have refined our including the provision of tax liabilities acquiring well-located residential financial situation and working A distinct benefit Investec can bridging facilities to assist a property in Dublin for rental around potential issues to agree offering to ensure that we •• Speed of completion, which offer is the ability to be flexible property move and are always purposes and re-financing a mutually-acceptable facility, has significant advantages are best-placed to service in understanding a client’s entire happy to discuss a client’s clients’ facilities from Private that allows the client achieve their over the timeframe required to the needs of our clients. financial universe, which can be individual requirements. Equity Funds. objective while working within our secure a property or a working difficult when engaged with a agreed lending parameters. PCL now operates in four capital facility ‘high street’ bank, especially Portfolio Lending Specialised Lending main areas: where income is received in •• Portfolio loan interest rates If you feel you may wish non-standard ways. Somewhat uniquely in the Irish are lower than for other Specialised Lending transactions 1 Bespoke Residential market, we can offer finance to lending facilities arise through complex client to avail of one of the Mortgages to fund the We are comfortable structuring IW&I clients, secured on their financial needs. Examples where previous above or have a bespoke acquisition of a Principal bespoke solutions that can investment portfolios managed clients have used a Portfolio Private Residence provide clients with flexibility by IW&I. We have recently requirement, please do to match their individual cash- Lending facility include: to acquire a property for children not hesitate to contact 2 Portfolio Lending to allow flow profiles. Investec Portfolio Lending provided a number of or investment; to provide short- clients with assets managed by removes the need for clients to myself or another member term liquidity to a company via a specialised services to Investec Wealth & Investment We also offer a high-touch sell assets from their long-term shareholder loan; the refinance of the Private Client access liquidity personal service to clients, investment portfolio in order clients, including: with dedicated team members to meet short-to-medium term of existing property facilities; or Lending team to discuss other short-term requirements 3 Investment Property Finance dealing with an individual from liquidity needs, offering •• Assisted a client in (maximum term three years) your options. to assist with the acquisition initial meeting, through the credit an uncomplicated and cost- repayment of a director’s where a client requires funding, of residential & commercial application process and signing efficient solution. loan to a business but would prefer not to withdraw investment properties of documentation, through to funds from their portfolio. •• Provided bridging finance to a funds drawdown. Our staff are Other benefits include: client who had sold a business 4 Specialised Lending readily available to assist our •• Convenience of accessing Investment Property Finance to fund more complex clients with any issues that may •• Funded the payment of an arise and aim to make the entire capital without the need to sell annual tax liability client requirements We have supported clients to process as smooth as possible. income-producing assets acquire and refinance investment •• Assisted a client in •• No disruption to the balance property directly for a number providing shareholder of a portfolio support to a business
26 Wealth Management Summer 2019 Summer 2019 Wealth Management 27 “When leaving a job don’t just look at the salary, take into account the overall package”
Does a Bigger Salary Make a Better Package?
Brian Kingston Investec Wealth & Investment
With the economic With near full employment, Salary recovery well under way employees are in a much “Good, prudent financial stronger position when This is the main catalyst people and an unemployment negotiating a contract of have for moving in an economy with full employment, and why rate of circa 5.4%, Ireland employment benefits with a current employer or prospective not? Who doesn’t want to get advice does not have to is heading towards full employers. Always bear in an increase in salary, especially if employment. This article is mind that the total employment potential employers are offering compensation is not strictly them! However salary alone, be complicated.” not a human resource or limited to salary. We must even in your current role, is not recruitment advice article, consider and ask about the normally the sum total of your other benefits available to benefits package. but more of a financial enhance the whole package. planning piece in relation Pension Good, prudent financial If you are leaving a job where you to employment benefits advice does not have to be have a Defined Benefit pension, it based on our experience. complicated. Sometimes is crucial to take sound financial a suitable advisor can see advice about this. This type of simple things that you may not pension is very valuable and see. In most cases, people do extremely difficult to replicate in not know or value the benefits the private market. With a defined they have in their current benefit plan, your plan benefits contract of employment. are not affected by market Let us take a sample of benefits performance. Instead, investment to look out for, or be aware of, risks are borne by your employer. when looking at switching jobs The decision to move this or if moving from employment to pension or leave it is one not self-employment. to be taken lightly. In fact, the decision needs to be made with an independent financial advisor.
28 Wealth Management Summer 2019 Summer 2019 Wealth Management 29 “Pension contributions from an employer are “In most cases, people do not know or very valuable even if they are in a defined value the benefits they have in their current contribution scheme.” contract of employment...”
Does a Bigger Salary Make a Better Package? Does a Bigger Salary Make a Better Package? Continued... Continued...
Pension contributions from there is no benefit-in-kind liability €30k pa. In her old job, Amy had 1 Pension. Her employer was 4 Health Insurance. Although pension or even redundancy it’s an employer are very valuable on the employee. This is usually a pension contribution of 10% contributing 10% of her Amy had this cover paid for clear to see that having a meeting even if they are in a defined the most expensive type of pa from her employer. Amy had old salary. To reinstate the by her old employer, she was with your financial advisor will be contribution scheme. If your assurance so again you need to death-in-service cover for 4x equivalent level of pension liable to benefit-in-kind on worth the time. current employer pays them account for the value of this as a her salary and she had income funding it would cost Amy the cost. Her new employer is and your new employer does lost benefit. protection of the maximum €1,416 per month. Tax relief not providing this benefit, so At Investec Wealth & not intend to pay them then you allowed, 75% of salary less would be available so the net Amy has to pay the full cost of Investment our job is to make certainly need to account for Health Cover state benefit. Amy was also a cost would be €850pm the cover now. Let’s say the complete sense of your personal them as a lost benefit. member of the company health equivalent plan was €1,500pa needs and to provide solutions More and more employers insurance plan. 2 Death-in-service to cover then the cost of that is now to ensure all eventualities Death-in-service are providing access to €500k worth of cover. Based €125pm in Amy’s hands. are covered: whether it be health insurance schemes € However, as is generally on Amy’s age this would cost (BIK was 65 previously so retirement planning, tax This is a valuable benefit paid for for employees and are Amy approx. €960pa or €48 an increase of €60 pm to Amy) planning, succession planning or by your employer that pays out increasingly paying for these the case, Amy did not per month protection for all eventualities. up to four times your salary on in an effort to retain employees. know the value of these So leaving a job on a salary of death as a tax-free cash lump However, unlike the benefits € 3 Income protection. Again, 140k with all the benefits above If you would like to sum to your family. When paid by mentioned above, benefit-in-kind benefits that her previous another benefit paid for in to take up a job and a salary of an employer it is not taxable as a is payable on the cost of health employer was paying for. whole by Amy’s previous €170k pa with none of these discuss our approach in benefit-in-kind. This is obviously insurance cover. employer. Replicating this benefits means an increase in a valuable benefit to your family € greater detail and explore Her new job had an increase of cover based on her new monthly salary of approx. 1,200. should anything happen to you Example: € salary €30k pa or approx. or salary would cost 3,348pa To replicate all the benefits the how Investec Wealth & in service. € €1,200 net of tax per month. or 167pm net increase in real salary is more like Investment could be of The best way to see what we € There were no other benefits 75 per month. Income protection are talking about is to give an assistance to you and to example. Recently we had a contained in her new contract. To summarise, when leaving a Income protection covers up client who, for the purposes of your family, please do not job don’t just look at the salary, to 75% of your salary (less this example, we will call Amy. So, if Amy was to replicate these take into account the overall hesitate to contact us on one times the state benefit) if benefits how much would they package as you could find that +353 1 4210300. you are unable to work due to Amy is aged 40, and recently cost her and therefore what the value of the benefits you accident, illness or injury. Again, moved jobs, resulting in her affect would they have on her leave behind were worth more an employer would normally salary going from €140k pa to new increased salary? than the new salary on offer. provide for these benefits and €170k pa, a nice increase of Throw in the complexities or your
30 Wealth Management Summer 2019 Summer 2019 Wealth Management 31 “Stephanie enjoyed a stellar amateur career, capped off with success in the 2012 British Open Amateur and burst onto the Pro scene with an incredible 3rd place finish in her debut at the US Open in 2014.”
Stephanie Meadow Making Her Way on the LPGA Tour
Philip Ahearne Investec Wealth & Investment
As a Northern Irish In 2006, the Meadow family She looked destined for a bright professional golfer, took the ambitious decision future on the tour but the tragic of moving to the USA when death of her father, Robert, Stephanie Meadow will Stephanie was just 14. Stephanie followed by some injury issues no doubt have had one had already represented Ireland saw Stephanie go through a lean a number of times at that stage period for the next three years. eye on the happenings in and the family felt that facilities While she enjoyed the honour Portrush in mid-July as in America would help Stephanie of representing Ireland at the achieve her goals of professional 2016 Olympics in Brazil (where The Open Championship success. She went to college her team Captain was Investec returned to these shores at the University of Alabama Ambassador Paul McGinley), where she enjoyed academic 2018 saw her play her trade on for the first time since success as well as success on the second tier Symetra Tour. 1951. However, her main the golf course, achieving both first team All-American and first By all measures, 2018 was a focus would undoubtedly team Academic All-American in successful year for Stephanie. have been on the successive years. She won both She set out with the goal of Dow Great Lakes Bay team and individual honours achieving a top 10 position on with Alabama. the Symetra Tour money list. Invitational in Midland, The reward for achieving this Michigan where she teed Stephanie enjoyed a stellar goal was a card to play on the amateur career, capped off 2019 LPGA Tour and avoidance it up for the third week in a with success in the 2012 British of the dreaded ‘Q School’. row on the LPGA Tour. Amateur Open and burst onto the Pro scene with an incredible 3rd place finish in her debut at the US Open in 2014.
32 Wealth Management Summer 2019 Summer 2019 Wealth Management 33 “While there is no question that a nice living “Stephanie was named Professional Player of the can be earned on both tours, it is certainly Year for 2018, the first woman to receive this award.” more difficult for those on the lower end of the LPGA Tour to make ends meet.”
Stephanie Meadow - Making Her Way on the LPGA Tour Stephanie Meadow - Making Her Way on the LPGA Tour Continued... Continued...
An early season win at the At the Thornberry Creek LPGA We have been fortunate In 2018, Stephanie also became The equivalent player on the >>https://20x20.ie/ IOA Championship in California Classic, her two under par for an ambassador for the 20x20 men’s tour, Chris Stroud has >>https://www.investec.com/ set a solid foundation for the the first two rounds was not low enough to have had her initiative, which is seeking to earned $1,016,052. While there en_ie/welcome-to-investec/ year. A series of consistent enough to make the weekend! shift the cultural perception of is no question that a nice living speak at a number of press/2019-investec-media- performances, nine top ten It did however, instil confidence women’s sport by the year 2020. can be earned on both tours, it is awards.html finishes, consolidated her that her game was in good client events over the Stephanie is a strong advocate certainly more difficult for those standing on the tour, shape and the hard work past two years and to for encouraging young girls into on the lower end of the LPGA cemented her top ten was paying off. have her represent us golf and into sport in general. Tour to make ends meet. position on the money list and secured her full LPGA Last week at the Marathon both on and off the Stephanie now makes her home As anyone who plays golf Tour Card for 2019. Classic in Ohio, Stephanie course. She is highly in Phoenix, Arizona where she knows, you always strive had her best finish of the year, finds the climate conducive to to be a little better and This success was finishing 9 under par for an articulate and gives a practice and where the facilities Stephanie is no different. acknowledged by the Irish 11th place finish. Of note in this, great insight into the life are excellent. It is also a good Golf is still her passion and Golf Writers’ Association was her eagle-birdie finish on the base to travel from and makes her desire to continually score when she was named last day, highlighting the courage of a professional sports commuting on the tour a little lower is what drives her on! Professional Player of the and resolve of this young person and into the easier. The LPGA Tour is very We continue to wish her Year for 2018, the first professional. This finish helped much the poor relation of the success on her journey. woman to receive this award. Stephanie jump over 20 places challenging life of an PGA Tour in terms of prize on the official money list and LPGA Tour pro. money. Currently, the 100th 2019 has been challenging for brings her closer to the placed woman on the LPGA Tour, Stephanie on tour. The early top 80 who automatically With a first class honours degree Alison Lee, has earned $80,788 season saw some bright retain their cards for 2020. in Accounting, Stephanie not for the year to date. spots with five out of the first (She is currently 111th). only has a backup plan but she eight cuts made. However, a also appreciates that golf is a poor month in June was a Stephanie has been business and that she is a young setback and despite some entrepreneur trying to find her reasonable scores, cuts were an Investec Brand way in the business world. hard to come by, highlighting the competiveness of the Ambassador since 2017. LPGA tour.
34 Wealth Management Summer 2019 Summer 2019 Wealth Management 35 “In the event of imprudent investment decisions, an AMRF could easily evaporate and fail to act as the ‘buffer’ it was originally meant to be.”
“The AMRF probably has a very limited life span remaining.” Approved Minimum Retirement Funds Is the End Nigh?
Joe Hanrahan Investec Wealth & Investment
I’ve always been slightly Prior to the transfer to the ARF, So why have the AMRF? the incoming ARF provider intrigued as to the must be satisfied that a client My understanding is that the rationale for an Approved can demonstrate the he or she AMRF was originally meant as a buffer in the event that all ARF Minimum Retirement has or hasn’t what is termed ‘Guaranteed Specified Income’ funds were exhausted over time Fund (AMRF). An AMRF for life of at least €12,700 pa. through drawdowns or poor investment performance or both. may be required at the Guaranteed income would point where an individual’s include for instance the state The original rules provided that pension is being pension or some other payment if you didn’t have the required from an occupational pension ‘specified income’ at the date of crystallised and where, scheme or annuity but it would crystallisation and you had to set after the payment of exclude employment income or aside €63,500 in an AMRF, that rent or dividends. The key is you had to maintain the AMRF their lump sum (usually), that it must be payable for life, until you attained age 75 or until they elect to transfer the no matter what! you died, whichever came first. Ironically, in the event of your balance of their pension In the event that the client death and where the AMRF/ARF pot into an Approved doesn’t have the required passes to a surviving spouse, the AMRF automatically becomes an Retirement Fund (ARF). €12,700 pa of ‘specified income’ they must invest €63,500 in ARF. Even if the surviving spouse an AMRF before they transfer is many years younger! any residual sum to their ARF. Those of you familiar with annuity The AMRF, unlike its big brother rates will clearly recognise that the ARF, is not subject to annual €63,500 wouldn’t come close mandatory taxable drawdowns to buying the required pension so that would clearly assist in income to satisfy the ‘specified preserving the fund. (Drawdowns income’ test. of up to 4% per annum can be taken voluntarily).
36 Wealth Management Summer 2019 Summer 2019 Wealth Management 37 “The consequence for many AMRF holders is that they are now obliged to convert their AMRFs to ARFs long before age 75.” “The AMRF was originally meant as a buffer in the event that all ARF funds were ex hausted.”
Approved Minimum Retirement Funds - Is the end nigh? Continued...
But here’s the thing: an AMRF The consequence for many Throw in the other factors (e.g. can be invested in exactly the AMRF holders is that they are no prudent investing parameters, same way as an ARF and, in the now obliged to convert their additional tax revenue for the event of imprudent investment AMRFs to ARFs long before age State, the hike in the full state decisions, an AMRF could easily 75. This, by the way should be pension, the relatively modest evaporate and fail to act as great news for the State because amount required to be invested in the ‘buffer’ it was originally formerly untaxed funds will now an AMRF which couldn’t possibly meant to be. become taxable and will be a sustain an individual) and it very welcome addition to the becomes very clear to me that Recently, the rules have state’s coffers. the AMRF probably has a very also changed. limited life span remaining.
In the event that you set up an So, having to wait to AMRF and subsequently acquire age 75 is now less the €12,700 pa (before 75), your AMRF converts to an ARF relevant and for many, and becomes subject to the the age at which they mandatory taxable drawdowns get the full state pension associated with the ARF. is likely to dictate when For years, the full state pension the requirement for an has been marginally below the €12,700 threshold but with effect AMRF dissolves. from this year, it now exceeds the €12,700 pa figure.
38 Wealth Management Summer 2019 Summer 2019 Wealth Management 39 “Since the Federal Reserve last hiked rates in December, market expectations around the timing and direction of the next policy action have shifted significantly .”
“The impact of Federal Reserve policy rates is felt around the globe, not just The Indicator That Cries Wolf: in mainland USA.” How accurate are market predictions of monetary policy?
Gearóid Keegan Investec Wealth & Investment
Federal fund futures are As they are freely-traded, the Much has been made of the price of these contracts for a change in market expectations tradeable contracts which particular date is seen to be the of the timing and direction of allow traders to take a ‘market’s’ view on where the central bank policy actions in Federal Reserve policy rate recent weeks. position on where they will be at that time. think the Federal Reserve’s Rate markets have aggressively (the central bank of the Along with economists’ shifted from pricing in rate hikes forecasts, and the Federal in the main policy rate of US United States) main policy Reserve’s own forecasts of Federal Reserve over the next rate will be at a certain where they think the rate will two years to forecasting multiple be (known as the ‘dot plot’), rate cuts by the end of 2019. period of time. they make up a useful tool Nevertheless, it is important to for forecasters attempting to note that, regardless of the Fed’s gauge the future outlook for rate decisions over the coming rates and monetary policy. months, Fed Funds futures contracts, while a useful Since the Federal Reserve last gauge of market sentiment, hiked rates in December, market have a particularly poor track expectations around the timing record of predicting how the and direction of the next policy Federal Reserve will act in action have shifted significantly; future rate decisions. from one 25 basis point (bp) hike by the end of 2019, to two 25bp cuts.
40 Wealth Management Summer 2019 Summer 2019 Wealth Management 41 Fed Fund Base Rate vs Market Expectations Why might the Fed hold rates steady? Why might the Fed cut?
5.50 5.00 Inflation running just under, but close to Significant political pressure from the Fed’s 2% target. President Trump to cut rates and maintain 4.50 a low rate environment. 4.00 3.50 Stock market at all-time highs. Concerns over the global growth outlook. 3.00 2.50 Rate (%) 2.00 Unemployment at record lows. Ongoing concerns over trade policy (US China trade talks). 1.50 1.00 0.50 US enjoying the longest period of continued Change in policy to make 2% inflation 0.00 expansion on record. target asymmetric (i.e. after a prolonged period of below target inflation, Fed would pursue above target inflation to make up Jun ‘02 Jun ‘03 Jun ‘04 Jun ‘05 Jun ‘06 Jun ‘07 Jun ‘08 Jun ‘09 Jun ‘10 Jun ‘11 Jun ‘12 Jun ‘13 Jun ‘14 Jun ‘15 Jun ‘16 Jun ‘17 Jun ‘18 Jun ‘19 Jun ‘20 Dec ‘02 Dec ‘03 Dec ‘04 Dec ‘05 Dec ‘06 Dec ‘07 Dec ‘08 Dec ‘09 Dec ‘10 Dec ‘11 Dec ‘12 Dec ‘13 Dec ‘14 Dec ‘15 Dec ‘16 Dec ‘17 Dec ‘18 Dec ‘19 the shortfall).
Fed Rate Lower Bound Dovish Policy Shift Latest Policy Normalisation To keep in line with their own guidance and “Lower for Longer” Phase Financial Crisis Rate Cuts avoid further shocks to market. Tech Crash Rate Cuts 2004 - 2006 Rate Hike Cycle
The Indicator That Cries Wolf: How accurate are market predictions of monetary policy? The Indicator That Cries Wolf: How accurate are market predictions of monetary policy? Continued... Continued...
Fed Funds futures At first, markets forecast a As we have highlighted, As the chart above shows The Fed’s own dot plot As the US dollar is used across as a predictor slower pace of rate hikes. (green line), market sentiment the globe to price assets, borrow In fact, the market called a Fed Funds futures have has now reversed, and is pricing is currently pointing to a money, and as a reserve currency •• In the aftermath of the tech bottom to cuts in June 2008, a poor track record in in a series of rate cuts over the single 25bp rate cut by by other governments, the impact crash in 2001, markets and expected four 25bps hikes medium term (two or three 25bp of Federal Reserve policy rates is consistently underestimated within a year. A year later, consistently forecasting rate cuts over the coming 12 the end of 2020, while felt around the globe, not just in how aggressively the rates were a full 2% lower and the policy decisions of the month period). In light of the economists’ consensus mainland USA. Fed would cut rates, and destined not to rise again until Federal Reserve. While evidence above, we would urge predictions fall somewhere persistently predicted hikes December 2015 (blue lines) anyone to take the change in Central bank policy rates are while the Fed cut rates from they do occasionally get it sentiment with a pinch of salt, or in between the market also a major driver of currencies, •• Fed rates hit zero at the end of over 6% to 1% over a three at least review it in line with some and the recent series of rate 2008, a level which persisted right, their accuracy could and the Fed, calling for year period (grey lines) of the other indicators, such as hikes by the Fed have been one for seven years. Markets politely be described as economists’ forecasts and the one rate cut by the end of of the main drivers of the US •• During the 2004 – 2006 took almost three years to Fed’s own outlook, which, while dollar’s strength over the past rate hiking cycle, the Fed adjust to the new lower rate being similar to that of 2019, with a 50/50 chance dovish, haven’t reversed course three years. consistently underestimated environment, consistently a stopped clock, rather as aggressively. of a further cut in 2020. the FED commitment to policy pricing in aggressive rate hikes normalisation (yellow lines) for at least the first three years than a highly-calibrated (Source: Bloomberg The period of rate hikes •• During the Global Financial until the Fed finally introduced forecasting tool. 30th June 2019) from 2015 to 2018 raised Crisis, markets were again more aggressive forward caught underestimating how guidance (orange lines) Why do we care? USD borrowing costs aggressively the Federal •• Even during the most recent sufficiently to cause a Central bank rates dictate Reserve would cut rates. period of normalisation, when the level at which banks can widespread panic in the Fed has been at its most borrow and lend to and from the communicative, and at pains emerging markets, one Federal Reserve, and therefore not to catch markets off guard, provide a base for how almost all from which a number markets have consistently USD-denominated assets and underestimated the rate at of countries, particularly liabilities are ultimately priced. which normalisation has taken Argentina and Turkey, place (red lines) are still recovering.
42 Wealth Management Summer 2019 Summer 2019 Wealth Management 43 Investec Events 2019 2019
Nick Train of Lindsell Train speaking about his long-term Nick Train of Lindsell Train with IW&I’s Ian Quigley at the IW&I investment philosophy at the IW&I event at the Westbury event at the Westbury on March 26th on March 26th
Investec Wealth & Investment – Local presence backed by global resource, dedicated to you and your families’ financial well being.
•• Bespoke and individualised approach to the management, preservation and growth of wealth •• Significant and independent research resource, dedicated to identifying investments suitable for managing clients’ “irreplaceable capital” •• In-house tax and financial planning expertise, providing innovative solutions to meet our clients needs (L-R): Niall Treston (IW&I), RTÉ’s Joanne Cantwell, (L-R): Eddie Clarke, Head of Investec Wealth & Investment (Ireland); and former Irish international Gordon D’Arcy Liam Booth, Head of Investec Corporate Finance (Ireland); Joe Schmidt; •• Review and advice on life and business protection take questions from the audience at the ‘In Conversation Niall Treston (IW&I). At ‘A lunch with Joe Schmidt’ on May 3rd with Gordon D’Arcy’ event on February 1st needs of our clients •• Private client lending facilities including portfolio backed lending, mortgages and investment property financing – offered by Investec Bank plc (Irish Branch) •• Listed property and infrastructure solutions, providing liquidity and yield through specialist mandates •• Non Irish domiciled portfolio management services, with offshore custody and execution capabilities.
(L-R) Marion Nugent, President Muskerry Golf Club; Peter O’Keeffe CEO of Investec Ireland Michael Cullen with (Winner), Douglas Golf Club; Michael O’Connor (IW&I); Diarmuid Johnny Watterson of The Irish Times, winner of the Linehan, Captain Muskerry Golf Club. At the Muskerry Investec 20x20 Media Award for March Senior Scratch Cup Disclaimer Investec Capital & Investments (Ireland) Limited (trading as “Investec Wealth & Investment”) has issued and is responsible for production of this publication. Investec Capital & Investments (Ireland) Limited is authorised and regulated by the Central Bank of Ireland. Investec Capital & Investments (Ireland) Limited is a member of Euronext Dublin and the London Stock Exchange.
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