Issue 47 / January 2019 FE Trustnet magazine

How to teach your children about investing

SELFIE DEFENCE BREXIT WOUNDS RINGING THE CHANGES Protecting your portfolio How our departure The best investment against youth trends could hit your pension strategy for every decade

Fund, Pension, Trust / Sector Profile / Stockpicker / What I Bought Last Issue 47 / January 2019 Editor’s letter FE Trustnet magazine ust like with “the with them for years. ignore how changing underperformance has which fund he is using birds and the Cherry Reynard finds consumption patterns made it cheap, John to gain exposure to one

How to teach your bees”, talking to out how to approach among the young are Blowers worries about of the defining trends of children about investing J your children about the subject in this disrupting established the impact of Brexit the 21st century. investment and finance month’s cover story. businesses. Meanwhile, on his pension and Enjoy reading, may not be the easiest Learning shouldn’t be I find out what has been LGIM’s Gavin Launder conversation you ever a one-way street for the best investment names three stocks SELFIE DEFENCE BREXIT WOUNDS RINGING THE CHANGES Protecting your portfolio How our departure The best investment against youth trends could hit your pension strategy for every decade have, but leaving them experienced investors, strategy in every decade. using digitalisation and Fund, Pension, Trust / Sector Profile / Stockpicker / What I Bought Last to their own devices however, and as Daniel In our regular automation to add value. ISSUE 47 can have unintended Lanyon discovers, columns, Adam Lewis Finally, Brewin Dolphin’s Anthony Luzio CREDITS consequences that stay they can’t afford to asks if Europe’s recent Rob Burgeman reveals Editor

FE TRUSTNET MAGAZINE (FORMERLY INVESTAZINE) Contents IS PUBLISHED BY THE TEAM BEHIND FE TRUSTNET IN Data hub What I bought last SOHO, LONDON 12 Crunching the biggest trends Brewin Dolphin’s Rob Burgeman says Schroder WEBSITE: www.trustnet.com down into figures EMAIL: editorial@financialex- P. 40-41 Global Cities Real Estate press.net Securities offers exposure to one of the defining trends of CONTACTS: Brexit wounds With just 10 years to the 21st century Anthony Luzio retirement age, John Blowers P. 50-51 Editor 34 T: 0207 534 7652 can’t help worrying about the impact of Brexit on his pension Javier Otero 48 Art direction & design P. 42-47 W: www.feedingcrows.co.uk “The talk” Ringing the changes Cherry Reynard finds out how Anthony Luzio looks at the most The automation game Editorial Gary Jackson to teach your children about effective investment strategy in L&G Growth Trust’s Gavin Editor (FE Trustnet) investing – without turning each of the past five decades Launder names three stocks T: 0207 534 7680 them off the subject for life P. 20-27 using digitalisation to add Rob Langston News editor P. 4-11 value T: 0207 534 7696 Fund, pension, trust P. 48-49 Janus Henderson Multi-Asset Sales A question of culture Richard Fletcher Baillie Gifford US Growth Absolute Return, Lindsell Train Head of publishing sales Trust’s Gary Robinson tells IT and Royal London UK Equity T: 0207 534 7662 Richard Casemore Colin Donald why a strong Income find themselves under Account manager company culture is often a the spotlight this month T: 0207 534 7669 competitive advantage P. 28-33 Constance Candler Account manager P. 12-15 T: 0207 534 7668 Every cloud… Photos supplied by iStock Selfie defence The factors that have Cover illustration: Javier Otero Daniel Lanyon finds out how to contributed to Europe’s recent protect your portfolio against underperformance could soon changing consumption begin to work in its favour, patterns driven by the young writes Adam Lewis P. 16-19 P. 34-39 20 Cover story 4 / 5 [ FINANCIAL EDUCATION ]

Cherry Reynard finds out how to teach your children about investing – without turning them Until November of last off the subject for life DO’S year, there wasn’t even & DON’TS a financial education “The talk” FOR YOUR textbook to help teachers CHILDREN and pupils get to grips with the subject · Do teach them about saving and debt first young people were poor at handling money, didn’t always understand · Don’t focus too the consequences of debt and were much on making generally bad at saving for the future. money; it’s about Yet the education charity Young education Money estimates more than half of schools are not delivering this here seems little question · Do invest in products education, partly because teachers that a good grasp of money that interest them lack confidence. Until November of is more useful as a life skill last year, there wasn’t even a financial than understanding, say, · Do encourage them education textbook to help pupils T to work towards the Jacobite rebellions. That may not get to grips with the subject. This be true for a wannabe student of 18th a goal was remedied by the launch of Your century history, but it’s not a stretch Money Matters, funded by Money to say it is accurate for pretty much · Don’t let their Saving Expert’s Martin Lewis. everyone else. Yet the two take equal mistakes be too The problems associated with this priority on the national curriculum. costly (no one lack of education are obvious. Young Financial education in schools under 18 needs Money, which is financed by a number remains inadequate. In September to be shorting or of the major investment groups, states 2014, it was made a component of spread-betting) that people who don’t save enough the “citizenship” part of the national for retirement cost the government curriculum, designed “to enable · Do make sure £6.2bn in income subsidies. students to manage their money on a they get the “Financial education, especially in the day-to-day basis, and plan for future basics: regular time of pension auto-enrolment, could financial needs”. This was introduced in savings and cut this cost by £1.8bn a year,” it adds. the face of overwhelming evidence that diversification

FE TRUSTNET trustnet.com Cover story 6 / 7 SCOTTISH MORTGAGE INVESTMENT TRUST “Financial education,

There are less obvious, but equally especially in the time of insidious, consequences of this pension auto-enrolment, problem. A poor understanding could cut this cost by of investment is evident from the swathes of long-term savings left in £1.8bn a year” cash. Almost three-quarters of all ISA subscriptions in the 2017 to 2018 Do me a favour tax year were left in the cash version, With this in mind, teaching your and the figure has been far higher in children about investing does them a previous years. Because most cash ISA real favour. Many people are afraid of accounts don’t beat inflation, this pot the volatility associated with financial SCOTTISH MORTGAGE of capital is diminishing all the markets, but getting them used to this ENTERED THE FTSE 100 INDEX IN time, gradually reducing from an early age can help them MARCH 2017. already anaemic long- conquer this fear. There’s no point term savings. teaching them about the joys of compound interest before they can add up, but Maike WANTED. DREAMERS, VISIONARIES Currie at Fidelity AND REVOLUTIONARIES. points to research Visionary entrepreneurs offer opportunities for great wealth creation. TheScottish Mortgage Investment Trust suggesting that actively seeks them out.

children start Our portfolio consists of around 80 of what we believe are the most exciting companies in the world today. Our vision recognising the is long term and we invest with no limits on geographical or sector exposure. Our track record as long-term, supportive shareholders makes us attractive to a new breed of capital-light businesses. value of money And our committed approach means we can enjoy a better quality of dialogue with management teams at transformational organisations. Over the last five years theScottish Mortgage Investment Trust has delivered a total return of 206.2% and its basic compared to 110.2% for the sector*. And Scottish Mortgage is low-cost with an ongoing charges figure of just 0.37%†.

purposes by the Standardised past performance to 30 September*

age of seven: “The 2014 2015 2016 2017 2018

earlier you can Scottish Mortgage 27.6% 4.2% 37.0% 30.4% 29.0%

teach them about AIC Global Sector Average 11.2% 7.1% 24.4% 22.7% 15.1% money, the better. Past performance is not a guide to future returns. Of course, each Please remember that changing stock market conditions and currency exchange rates will affect the value of the investment in the fund and child is unique any income from it. Investors may not get back the amount invested. and will develop For a farsighted approach call 0800 917 2112 at their own pace. or visit us at www.scottishmortgageit.com A Key Information Document is available by contacting us. Long-term investment partners

*Source: Morningstar, share price, total return as at 30.09.18. †Ongoing charges as at 31.03.18. 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 Scottish Mortgage Investment Trust PLC. FE TRUSTNET Cover story 8 / 9

BUILDING A PORTFOLIO WITH MY 10 YEAR OLD

My daughter is quite Sweets were more keen on the concept difficult because Haribo of growing her wealth, is a private company, so although I’m suspicious of we eventually settled on her motives. It is almost Mondelez International, certainly to either buy her owner of Cadbury. While own bodyweight in sweets she believes that four or pay a hitman to bump companies are definitely off her little sister. She enough for diversification, likes the idea of owning I made her pick another part of a company that one. Disney, maker of Star makes cool stuff that Wars and The Incredibles, she would like to buy, gets the nod. An equally- such as Apple. She’s also weighted portfolio of quite keen on television, these stocks would have so Netflix and Comcast made around 9.7 per cent (owner of Sky) are part over the past year – not of her initial portfolio. bad in a tough market.

up pocket money to buy something substantial rather than just spending But as a general rule of thumb, as it immediately on sweets or something soon as your child understands that a small – this way they get to recognise visit to the supermarket entails going that it takes time and patience, but there to buy something with money, there is a reward at the end.” they are ready to learn about it.” If they are saving towards something Darius McDermott, managing big, you can offer to match their director of Chelsea Financial Services, contributions, which helps them says some children are natural learn that money is something that savers while others are natural can be used to create more wealth, spenders and parents need to work rather than just spent immediately. with each personality type: “Start simply by encouraging them to save

FE TRUSTNET Cover story 10 / 11 [ FINANCIAL EDUCATION ] children by setting up a portfolio and “It’s all about making them which sees teams of sixth-formers helping them with stockpicking and given £2,000 of real money to invest. Fun & games other basics. understand that anyone It begins in October, calculates profits Once they have grasped these basic Here, McDermott suggests picking can invest, markets go up in May, and the school that makes the financial concepts, introducing them to a fund that invests in something they and down and you have to most money wins. stock markets becomes easier. Previous can relate to: “AXA Framlington Global It is worth ensuring any investments generations were encouraged into Technology is a great example as it be patient” are made in tax-efficient structures. investing by the privatisation of public has holdings in companies such as JISAs are one option, with parents utilities, but there is no natural catalyst Apple and Netflix.Rathbone Global Crush. Even bond funds hold things allowed to invest £4,260 per child in for post-millennials. McDermott Opportunities invests in Amazon and like Aston Martin bonds!” these tax wrappers each year. Currie says: “The bigger challenge is getting Activision Blizzard – the maker of Alternatively, you can pick some of says you should get your children them to understand the difference games such as Call of Duty and Candy their favourite activities and invest in involved with their stocks and shares between saving and investing without single stocks. That might be toy-maker JISA, “whether that’s showing them sending them to sleep. A simple but Character, which owns the rights to how their money has grown or getting effective way to do this is to tell them Doctor Who; Disney, which makes them to help pick the investments”. they could own a little piece of Apple, Frozen and Star Wars; or Bloomsbury “While they won’t assume control of Nike or Coca Cola. To really get them Publishing, which owns the Harry Potter their JISA until they turn 18, getting interested, you franchise. It is not necessarily about them involved at an early age should could ‘gamify’ the making the best investment decision, help them understand how investing education process but about getting them interested. and compounding work.” by running a family “It’s all about making them Some are understandably reluctant to stockpicking understand that anyone can invest, give children access to that amount of challenge.” markets go up and down and you money at 18 and may want to use part The US has online have to be patient,” adds McDermott. of their own ISA allowance instead. resources designed Admittedly, that’s not children’s James Norton, senior investment for young investors strong suit. The question of whether planner at Vanguard, suggests such as The Stock losses should be underwritten is one emphasising the importance of targets: Market Game, where only a parent can decide. It is worth “Probably the most critical factor for players compete for encouraging children to apply the adults when investing is to have a clear rewards. UK trading usual rules of saving regularly and goal – make it achievable or it will apps offer simulated diversification. be demotivating. It’s no different for portfolios, but these children. Understand what they want aren’t appropriate Healthy competition money for and help them plan to save for under-16s who There’s nothing like real-life or invest for that goal. This will also are just starting out. competition to get children interested, help with discipline, another key for Parents may have as anyone with siblings can attest. success. If they stop saving, the goal to do some hand- As a result, The Share Centre runs an will be missed – simple! It’s a great way holding for their annual Shares4Schools competition, to teach children the value of money.

FE TRUSTNET trustnet.com Advertorial feature 12 / 13 [ BAILLIE GIFFORD ]

Gary Robinson, manager of the Baillie Gifford US Growth Trust, tells Colin Donald why a strong company culture is often a source of competitive advantage A question of culture

The value of your investment and any income from it can go down as well as up and as a result your capital may be at risk. hat quality allows a Hastings,” explains Robinson. “He The quest for “true management teams incentivised for company not just to had the moral authority necessary to the short and medium term. They survive the destruction allocate capital away from the larger, outliers” is largely down would rather buy back stock, boost W of its bread and butter cash-generative DVD-hire business and to understanding an their earnings-per-share, beat their business model but to disrupt itself to towards what at the time was a much “intangible” cultural bonus targets and collect their pay become the market leader? According smaller business, online streaming. cheques than invest in projects with to Gary Robinson the answer is to “In order to do that you have quality in companies long-term timeframes and uncertain be found in a company’s culture. to battle a lot of vested interests outcomes. This separates exceptional growth internally, because the weight of As Robinson describes it, the quest “We are looking for companies that companies from average ones. the organisation is still in the old for “true outliers” is largely down behave in a different way, companies For Robinson, cultural strength business, along with the human and to understanding an “intangible” that think long term, that are willing explains why Netflix, which started physical capital. It is vanishingly cultural quality in companies. to embrace risk, and willing to invest out as a DVD mail subscription rare for chief executives to pull off Components include readiness to for the future. We then hold on to service, is now the world’s largest something like that, and it’s entirely innovate and to engage employees them for long periods of time to content streaming provider. due to a founder-created culture.” at all levels of the company with a capture the potential upside inherent Conversely, cultural weakness Netflix is currently a top five holding shared mission. in their business models.” explains why Kodak filed for in the Baillie Gifford US Growth “At the risk of oversimplifying, Candidate companies for inclusion bankruptcy in 2012 having fumbled Trust. Robinson regards spotting companies with distinctive cultures in his portfolios are, he says, screened for a decade to deal with the rise of such rarities and backing them over are generally those that are in it for for the distinctiveness of their digital photography. five-to-ten years as one of the core the long term,” says Robinson. “Most cultural attributes. The checklist of “The critical cultural determinant in strengths of Baillie Gifford’s low companies in America aren’t run Netflix’s case was the founder, Reed turnover style. that way. They are run by corporate

FE TRUSTNET trustnet.com Advertorial feature 13 / 15 [ BAILLIE GIFFORD ]

is hard to measure doesn’t mean that coming unlisted companies. you shouldn’t try. In fact, we would “The easier information is to find, argue the opposite. When something the less valuable that information is,” is hard it presents an opportunity Robinson says. for us to add significant value by Over the decades, Baillie Gifford’s analysing it and spending time on it.” quest for outperformance has “Ambition, vision, Robinson emphasises that a firm’s sharpened its antennae for growth- culture cannot be determined from oriented corporate cultures capable of questions starts with: “What is the determination, risk- presentations at broker-sponsored defying Wall Street noise for long-term point of this company and what seeking… the outputs of a conferences, any more than it can reward. The characteristics that the are its long-term ambitions? And strong culture are difficult to from a balance sheet or a set of results. Baillie Gifford US Growth Trust shares secondly, does the company possess It takes shoe leather and air miles with culturally compatible companies a significant culture and is this a measure precisely” to distinguish good cultures from is a willingness to look very different source of competitive advantage?” good spin. In the past, Robinson has from its peers, to challenge itself, to Robinson expresses surprise that invest in the future at the expense spent months in the US, burrowing embrace uncertainty and to ride out so few investors seem to care about of short-term profits,” Robinson into culturally compelling company cyclical volatility. culture, a reflection, he suggests, adds. “They are able to navigate stories in hot spots such as the Boston It is, as Robinson phrases it, “really of the market’s bias to shorter changing circumstances and unlock or San Francisco healthcare clusters. simple, but difficult to do”. This timeframes. He recalls one chief new growth opportunities that aren’t In addition, Baillie Gifford’s explains why companies with the executive, Katrina Lake of Stitch always apparent at the time of our retained network of US researchers right culture – and the investors who Fix, telling him that he was the initial investment.” are well briefed on what cultural understand them best – tend to stand only person who raised the issue Robinson notes that many managers attributes to look for in up-and- out from the crowd. when she met investors before the seem ignorant of what corporate company’s Nasdaq listing. culture even means, confusing it with IMPORTANT INFORMATION It is no coincidence that founder-led gimmicks or PR spin. “It’s not perks or Investments with exposure to overseas securities can be affected by changing businesses such as Netflix, Amazon, crazy offices with slides from one floor stock market conditions and currency exchange rates. The trust’s risk could Stitch Fix and Grubhub typically to the next,” he says. “It’s about the be increased by its investment in unlisted investments. These assets may be comprise around 70 per cent of the shared values of the company and how more difficult to buy or sell, so changes in their prices may be greater. Baillie Gifford US Growth Trust’s it behaves. It’s about what the founders holdings, while our research suggests and the management teams say they For more details on the Baillie Gifford US Growth Trust, including the Key Information Document, please see our website at www.bailliegifford.com they only account for around 25 per want to do and how that relates to what This article does not constitute, and is not subject to the protections afforded to, independent cent of the total US stock market. they actually do over time. research. Baillie Gifford and its staff may have dealt in the investments concerned. The views “Founders embrace risk, and “Ambition, vision, determination, expressed are those of Gary Robinson, are not statements of fact, and should not be considered as as with Reed Hastings at Netflix, risk-seeking… the outputs of a strong advice or a recommendation to buy, sell or hold a particular investment. If you are unsure whether an investment is right for you, please contact an authorised intermediary for advice. Baillie Gifford & Co Katrina Lake at Stitch Fix or Jeff culture are difficult to measure Limited is authorised and regulated by the Financial Conduct Authority (FCA). The trust is listed on Bezos at Amazon, are willing to precisely. But just because something the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority.

FE TRUSTNET trustnet.com Your portfolio 16 / 17 [ YOUTH TRENDS ]

Older people may have all the money, but they can’t ignore how changing consumption patterns among the young are transforming established investment trends, writes Daniel Lanyon Selfie defence

ne of the biggest tragedies when it comes to the subject of millennial O finance is that Bitcoin was the first investment – if you and in both instances changing Changing consumer needs But what does this mean for your can call it that – that many young consumer behaviour and digital are disrupting markets investment strategy? Should you back people ever made. But don’t write this disruption were strong drivers behind the companies benefiting from these generation off completely, as they may the share-price moves. Millennials, and the younger shifts regardless of valuations, avoiding know a thing or two about where to those born somewhere between generation are driving the those stuck in the past whose share find tomorrow’s returns – changing the early 1980s and mid 1990s, like transformation prices appear to be in a death spiral? consumer needs are disrupting online shopping and are increasingly Merian UK Alpha’s Richard Buxton markets and the younger generation eschewing tobacco in favour of says while emerging millennial are driving the transformation. vaping as well as feeding a host of 2017, has been valued at $38bn, showing behaviours are important, with tobacco Here’s an example. If you held an other emerging consumer patterns. how rapid consumer changes led by a pertinent example, this doesn’t equally weighted portfolio of the Smoking alternative Juul, a big- early millennial adopters are no joke for necessarily make value stocks more best and worst performing FTSE tobacco disrupting start-up founded in blue-chip income stalwarts. vulnerable. He notes that in the tech 100 stocks last year – Ocado and A report from Kepler Cheuvreux found bubble of 1999 to 2000, there was a British American Tobacco (BATS) – shifting behaviours among millennials “facile distinction between ‘old/new you would have made a 25 per cent pose a significant challenge, with this economy’ stocks”, adding: “Ironically return. Not bad for one of the worst age group expected to account for half there was no perceived disruption to years for investors since 2008. Under $38bn the global workforce by 2020 and three- tobacco at the time – it was just dull, the bonnet of your strategy, however, – valuation of vaping quarters by 2025. Research from the with no tech angle.” a more volatile situation was brewing. company JUUL, founded Pew Research Center found millennials “Next generation products are the During 2018, online supermarket in 2017 passed Generation X as the largest new disruptive force here – and Ocado doubled in value, BATS halved population in the US workforce in 2015.

FE TRUSTNET trustnet.com Your portfolio 18 / 19 [ YOUTH TRENDS ]

PERFORMANCE OF STOCKS IN 2018 Schroders’ Simon Adler co-manages about £4bn across numerous value- DO’S Ocado Group (98.94%) British Am Tobacco (-47.17%) oriented portfolios, but warns many • Be open minded about changing industries are facing structural consumer patterns and company growth 200% disruption owing to generational stories. Amazon started out selling changes, notably tobacco and retail. books! 150% “It’s a value trap. We are happy to • Listen to young consumers about what 100% invest where we see structural change they like and don’t like. Legend has it but we want to be compensated for analysts first realised HMV was in trouble 50% that risk,” he says. “It’s hard to know at a meeting with the company when an when the structural threat is priced intern asked “what’s a CD?” 0% into markets. People always think • Watch out for falling knives: stocks that there are more threats when things go have fallen hard but have more pain to -50% badly and change their mind but two come Jul areas where you are compensated for Feb Mar Apr May Jun Aug Sep Oct Nov Dec Jan18 • Acquaint yourself with the Gartner hype the risk are banks and mining.” cycle – the initial surge and subsequent Source: FE Analytics Stephen Bailey and Jamie Clark, crash associated with a new trend or co-managers of the Liontrust technology can pale into insignificance “No one can be certain Macro Equity Income fund, invest compared with the long-term value which new products thematically but with a value focus. created appeal to millennials. No one can be They say blue chip miners represent certain which new products may win may win or lose, nor the one way to invest in electric vehicles, or lose, nor the regulatory approach regulatory approach to another disruptive trend, without DON’TS Avoid following the crowd. Think to these products going forward.” these products going making a bet on a single company. • Buxton says this doesn’t mean “It’s disruptive-proof. Without these “contrarian” you should avoid value in favour of forward” guys, there is no carbon-free future.” • Don’t concentrate an investment idea the Next Big Thing, although he is Investec’s Alastair Mundy, into a single holding. Spread the risk steering clear of BATS for now. monetary policy has had in growth’s meanwhile, adds disruption is now across a fund Mark Barnett disagrees, with BATS outperformance of value over the market-wide: “We have to worry • Refrain from rushing in to new the second largest position in his past decade: “We are in a different about structural decline but it is not positions. Themes can take a while to Invesco Perpetual High Income fund. world now, having moved from peak just value stocks, it is all stocks. It’s play out, so it may be better to drip-feed He believes it is “attractively valued” stimulus to quantitative tightening in just as relevant to quality as to value. into a holding in a market “driven by short-termism little more than a year and a half.” At least we’re buying stocks cheap.” • Don’t ignore valuations without being and an emphasis on new disruptive In this environment, he says, This brings to mind Oscar Wilde’s prepared to suffer the consequences. A business models”. investors tend to recalibrate around quote that “the young know the price of disruptive start-up burning through cash Jason Hollands, managing director solid, cash-generative businesses everything and the value of nothing”. is more likely to go bust than become of Tilney, says another consideration and are less inclined to back future Today, young and old investors need to the Next Big Thing is the role accommodative growth projections. know both.

FE TRUSTNET trustnet.com Your portfolio 20 / 21 [ HISTORICAL THEMES ]

Anthony Luzio looks back at the dominant investment themes in every decade since the 1970s Ringing the changes

ost articles looking at in markets before then. As a result, The 1970s was a period investment performance and with the help of a couple of of turmoil for investors, – including those veteran investors, we look back at both in the UK and across M published by FE the dominant investment themes in the globe. The collapse of Trustnet – tend to focus on the past every decade since the 1970s – and the the Bretton Woods system – 10 years at most, failing to take into strategies that would have served you under which currencies were account the wildly different conditions best in each one. pegged to the price of gold – with the “Some companies went bust. associated Nixon Shock and US dollar Some still survived and then the devaluation under the Smithsonian market recovered substantially, Agreement led to the 1973 to 1974 but investment returns related to stock market crash. inflation weren’t that good because “It was further compounded by inflation was such a dominant part the outbreak of the 1973 oil crisis of the return. The companies that in October of that year,” says Tracy outperformed were the ones that were Zhao, investment research analyst at resilient, the ones that continued to The Share Centre. generate cash when a lot of corporates “As most other nations set their were really short of cash to invest. It currencies free of a golden anchor in was a really difficult decade.” response to Nixon’s move, the price However, for John Ricciardi, of gold surged to nearly $500 per chief executive officer of Kestrel ounce by the end of the 1970s, after Investment Partners, the key theme consistently trading in the $35 per for the 1970s was the survival of ounce range under the Bretton Woods capitalism itself. “Remember, Europe system. This made gold the best was divided in two, with the Soviet investment in this decade.” empire versus NATO and the decision Zhao added that the UK was the was whether capitalism, back then in worst affected by the crash on the the form of Keynesianism, was going backdrop of the dramatic rise in oil to be the correct economic system as prices and the miners’ strike. opposed to collectivism.” Gervais Williams, manager of the Diverse Income Trust, adds:

FE TRUSTNET trustnet.com Your portfolio 22 / 23

“But the effect of that recession was to beat inflation,” he says. Williams recalls the pound shot up early on in the decade, “which trashed our manufacturing businesses because they were struggling to compete overseas”. “There was political distress, but there was a restructuring and towards the second half of that period the UK recovered strongly,” he adds. James Henderson, co-portfolio Growing optimism in the UK manager of Lowland Investment reflected what was happening in the Company, says the election of rest of the world. Zhao said that as Margaret Thatcher in 1979 led Reaganomics began to work in late to a revolution for UK investors. 1982, “the stock market took off like The privatisation of state-run a sky rocket”, before adding: “As the organisations gave the public a taste appetite for risk grew, the market for stock market investing, while became creative with exotic yet the Big Bang saw the deregulation of untested instruments. Wall Street London’s financial markets. suffered a great crash in 1987.” “It was beneficial, reducing Another important policy was commission charges and bringing a the abolition of exchange controls, lot of new capital to the City,” he says. allowing investors to take money Henderson adds the arrival of out of the UK and gain exposure to Thatcher also ended union power, the boom in Japan – the Topix made which along with “some tough more than 1,500 per cent in the 1980s. monetary policies” pushed the country into recession.

trustnet.com Your portfolio 24 / 25 [ HISTORICAL THEMES ]

The 1990s started The period 2000 to 2010 was – collapsed, while the defensive with what Henderson a disastrous decade for UK qualities of tobacco made it the describes as “a very investors, with two market crashes – best performer, with the FTSE 350 nasty recession”. On Black caused by the bursting of the dotcom Tobacco index up 742.82 per cent. Wednesday in 1992, the UK raised bubble and the financial crisis – Emerging markets stood out from interest rates from 10 to 12 per meaning the FTSE All Share made a regional point of view thanks to cent, then 15 per cent, in a bid to just 17.71 per cent over the 10-year China’s emergence as a global super remain in the European Exchange period, failing to match the modest power and Asia’s recovery from its Rate Mechanism (ERM) before rates of inflation. own financial crisis of the late 1990s, finally crashing out. “That is in total return, which is while Japan’s decline continued. However, Williams says this amazing when you look at it,” says Fixed income proved an attractive eventually turned out to be “a Williams. asset class, as did cash until central wonderful thing”, adding: “We Ricciardi adds that just like the banks slashed interest rates in had the devaluation and suddenly dotcom bubble, the financial crisis response to the financial crisis. interest rates were cut. The rest of the had its roots in the late 1990s. decade was sensational. Asset prices inflation under control,” he adds. “All the usual suspects were started to perform much better.” “This led to the growth of the Asian involved and they decided they Henderson says leaving the ERM Tigers – China, Taiwan, Hong Kong didn’t need the 1931 bank limits on benefited businesses that suffered and Thailand. They grew so fast they what commercial banks could from high interest rates, including started to make up a major chunk of do,” he explains. “There was a retail, infrastructure and “what was global growth.” convergence in left of” engineering. Rathbones’ “But they were borrowing in dollars 2008 when chief investment officer Julian to finance their current account deficit, we had the Chillingworth notes banks also went leveraging against future exports. housing through a purple patch, aided by new Then the deficits got too big for global boom and technology and takeover speculation, capital markets and it all blew up.” bust, when with RBS bidding for NatWest and Data from FE Analytics shows the IA banking HSBC taking over Midland. Asia Pacific ex Japan sector lost more leverage was 30 In terms of regions, the failure of the than 50 per cent between the start of to 40 times and they Soviet Union led to interest in eastern 1997 and August 1998. accounted for 22 per Europe and the reunified Germany, By that point, however, all the cent of world capital.” although Ricciardi says the real story hot money had begun to flow into These two crises was taking place much further east. another surging market – tech, with meant the big winners “Globalisation led to an acceleration the dotcom bubble peaking in the UK of the 1990s – technology, of productivity, helping to keep at the end of December 1999. telecoms and banking stocks

FE TRUSTNET trustnet.com SCOTTISH MORTGAGE INVESTMENT TRUST Your portfolio 26 / 27

This brings us on to the current about it? Cut interest rates? Even if it decade. While you probably don’t need is a mild recession, we might find we to hear again what has driven markets are stuck with it for some time.” over the past eight or so years, you may However, the manager says it is be more interested in what the experts not all bad as a lot of quoted stocks have to say about the next decade. generated good returns in the crash From a regional point of view, year of 1974: “A lot of companies went Chillingworth says that if you believe bust and quoted companies were able in capitalism and long-term global to take advantage of this by acquiring

SCOTTISH MORTGAGE growth, “you’ve got to believe that the assets and moving into the sectors ENTERED THE US will continue to do well”. they vacated,” explains Williams. FTSE 100 INDEX IN MARCH 2017. “China is more difficult because it “If they had access to capital, they depends on how the relationship with could fund expansion and invest in the rest of the world goes,” he adds. their business in a way you didn’t get “But I still think that developing so much in the private sector, and economies are going to play an that’s in fact what we anticipate may WANTED. DREAMERS, VISIONARIES important part in your portfolio.” happen in the next 10 years or so.” AND REVOLUTIONARIES. When asked which decade the next 10 years will most Visionary entrepreneurs offer opportunities for great wealth creation. TheScottish Mortgage Investment Trust actively seeks them out. closely resemble,

Our portfolio consists of around 80 of what we believe are the most exciting companies in the world today. Our vision Williams went for is long term and we invest with no limits on geographical or sector exposure. the 1970s, pointing Our track record as long-term, supportive shareholders makes us attractive to a new breed of capital-light businesses. And our committed approach means we can enjoy a better quality of dialogue with management teams at transformational to the amount of organisations. Over the last five years theScottish Mortgage Investment Trust has delivered a total return of 206.2% compared to 110.2% for the sector*. And Scottish Mortgage is low-cost with an ongoing charges figure of just 0.37%†. debt in the system.

Standardised past performance to 30 September* “We are skewing

2014 2015 2016 2017 2018 to companies with

Scottish Mortgage 27.6% 4.2% 37.0% 30.4% 29.0% stronger balance

AIC Global Sector Average 11.2% 7.1% 24.4% 22.7% 15.1% sheets, that pay good dividends and can Past performance is not a guide to future returns. Please remember that changing stock market conditions and currency grow them nicely, exchange rates will affect the value of the investment in the fund and any income from it. Investors may not get back the amount invested. because soon that For a farsighted approach call 0800 917 2112 is going to be a big or visit us at www.scottishmortgageit.com driver,” he says. “If we A Key Information Document is available by contacting us. Long-term investment partners do get a recession in *Source: Morningstar, share price, total return as at 30.09.18. †Ongoing charges as at 31.03.18. 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 the UK, what do we do 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 Scottish Mortgage Investment Trust PLC. trustnet.com In focus 28 / 29 [ FUND ]

Absolute return has underperformed in the rally of the past decade, but James de Bunsen says it could come to the fore in 2019 He has recently taken equity exposure emerging market debt and a royalty- down to around 10 per cent, “about as backed credit strategy. low as it ever has been”, and adding to Other returns have come from its Janus Henderson uncorrelated strategies and alternative long/short equity strategies, which funds, where he believes decent returns are more market neutral given the Multi-Asset Absolute can still be made. managers’ focus on capital protection. The fund still has significant fixed Janus Henderson Multi-Asset income exposure, at 23 per cent Absolute Return has made 5.95 Return of the portfolio, although it also per cent over the past three years holds alternative assets, such as compared with 1.54 per cent from the short-duration government bonds, IA Targeted Absolute Return sector. bsolute return funds have As such, De Bunsen said traditional developed a somewhat mixed portfolio construction is unlikely to FACT BOX A reputation due to their claim save investors in the event of a sell-off. MANAGERS: James de Bunsen & Peter Webster / LAUNCHED: 01/09/2004 / FUND SIZE: of being able to deliver in all market However, noting that some strategies £130.4m / OCF: 0.96% conditions – a claim that has been have let investors down, he said it may FE CROWN RATING found wanting during the market rally be a good idea to consider diversifying of the past decade. absolute return exposure. Yet Janus Henderson’s James de “People understand that if you buy PERFORMANCE OF FUND VS SECTOR OVER 3YRS Bunsen said absolute return may come equities, you need to diversify your to the fore in 2019 as the investment portfolio, but in absolute return funds Janus Henderson Multi-Asset IA Targeted Absolute backdrop becomes more challenging. – which have a high dispersion of Absolute Return (5.95%) Return (1.54%) De Bunsen, who runs the £130.4m returns between them – people buy 10% Janus Henderson Multi-Asset Absolute one or two and end up disappointed if Return fund along with Peter Webster, one or both don’t do well.” 8% added that investors may need to lower “A lot of the category killers which 6% their expectations for this year as the have raised all the assets have quite 4% uniform positive data of the post-global punchy targets, cash plus 5 per cent, financial crisis period begins to reverse. that type of thing,” he said. “That’s 2% “When people are thoroughly what equities have done over the long 0% relaxed because the economy is term, so it’s quite a big ask to get those -2% growing in a synchronised way across kinds of returns [from absolute return].” the globe and equities are marching The manager said that instead he -4% higher, they don’t really think about tries to allow investors to “sleep easy Apr Jul Oct Apr Jul Oct Apr Jul Oct Jan17 downside risk,” he said. “But I think at night” by generating a positive Jan16 Jan18 everybody has to now.” return while minimising drawdown. Source: FE Analytics

FE TRUSTNET trustnet.com In focus 30 / 31 [ PENSION ]

Martin Cholwill’s fund has beaten its IA UK Equity Income sector average in nine of the past 10 calendar years

In his outlook for this year, Cholwill its focus on strong market positions, said there are many possible outcomes cashflow-backed dividends and Royal London UK for Brexit, so he has not tried to robust balance sheets should provide position the fund for any one of these resilience in a whole range of possible Equity Income in particular. economic outcomes.” “Markets hate uncertainty and Data from FE Analytics shows Royal we could well see further bouts of London UK Equity Income has made volatility, driven by Brexit worries 204.34 per cent over the past 10 years, and fears over trade wars,” he added. compared with 138.35 per cent from its “The fund is underpinned by cautious FTSE All Share benchmark and 131.72 ne thing that people who Manager Martin Cholwill aims to economic growth assumptions and per cent from its sector. rely on income from their identify good companies with strong FACT BOX O investments value above all business models and sound finances else is consistency, and funds don’t that are able to deliver sustainable MANAGER: Martin Cholwill / LAUNCHED: 11/04/1984 / FUND SIZE: £1.8bn / OCF: 0.67% get much more consistent than dividend growth. He focuses on FE CROWN RATING Royal London UK Equity Income – it those firms with attractive cashflow has beaten its IA UK Equity Income characteristics as he said it is more sector in nine of the past 10 calendar difficult to manipulate these figures PERFORMANCE OF FUND VS SECTOR AND INDEX OVER 10YRS years, more than any of its peers. than other types of earnings data. Aside from consistency of returns, The analysts at Square Mile FTSE All Share IA UK Equity Income Royal London UK Equity it has also managed to deliver Investment Consulting & Research (138.35%) (131.72%) Income (204.34%) consistent income growth. Open- described Cholwill as a patient 250% ended funds cannot squirrel investor who is prepared to wait for money away in the same way as short-term share price weakness 200% their closed-ended counterparts, before establishing positions. 150% but analysts at FE Invest said that “He is also conscious of the fact that aside from 2016, the fund’s dividend the bulk of the income generated by 100% payment has tended to increase in UK-listed companies comes from a 50% every year since 2012. reasonably small number of mega-cap, Royal London UK Equity Income blue-chip companies,” they added. 0% is currently yielding 4.53 per cent; “As such, he is eager to avoid -50% someone who invested £10,000 in concentrating on those names Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul this fund at the start of 2009 would and looks to build a diversified but Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18 have received £6,953.13 in income conviction-led portfolio across a alone since then. sensible range of businesses.” Source: FE Analytics

FE TRUSTNET trustnet.com In focus 32 / 33 [ TRUST ]

This trust has returned more than 900 per cent over the past decade – but its chairman warns new investors against buying in now Lindsell Train IT Michael Lindsell recently summed acknowledged by other investors or the up the core hypothesis behind market, which allows us to build our Lindsell Train’s investment approach portfolios around the best businesses at and how it has led to outperformance: what we believe to be often significantly “Durable business franchises undervalued prices. Exploiting this can sustain higher than average anomaly then gives us the opportunity valuations. This is not generally to earn excess returns over time.” n a year when returns were hard Yet the difference between the FACT BOX to come by, the top-performing outstanding share price return from I trust in the Association of last year and a more modest NAV gain MANAGERS: Michael Lindsell & Nick Train / LAUNCHED: 01/01/2001 / DISCOUNT/PREMIUM: Investment Companies universe – of 13 per cent suggests this warning +44.8% / OCF: 0.85% (rising to 2.90% with performance fee) Lindsell Train IT – stood out in 2018 appears to have fallen on deaf ears. FE CROWN RATING with its 46.6 per cent total return. One reason for the trust’s popularity This result is no flash in the pan and is the impressive track record of TOTAL RETURN AND NAV RETURN OVER 10YRS merely cements its place at the top of managers Michael Lindsell and Nick the sector rankings. FE Analytics data Train, who run a number of other Lindsell Train IT TR Lindsell Train IT NAV shows the £245m trust has made the equally successful open- and close- (903.87%) (416.11%) highest total return in its IT Global ended funds. 1000% peer group over three, five and 10 Lindsell Train IT has 47 per cent of years; over the past decade it is up its portfolio in Lindsell Train Limited, 800% 903.87 per cent compared with 221.93 the unlisted asset management per cent from the average trust. house founded by the two managers, 600% However, it is worth bearing in mind giving investors an opportunity to that the bulk of this gain has been from gain exposure to this well-respected 400% share price appreciation. Over the past boutique. 200% 10 years, the NAV has risen by 416.11 The rest of the portfolio is held in the per cent, with the remainder of that cash-generative business franchises 0% total return coming from a surging found in the other Lindsell Train premium – this figure now stands at 45 funds, typically in areas such as -200% per cent, which has led Lindsell Train financial services, consumer goods and Jul Jul Jul Jul Jul Jul Jul Jul Jul Jul IT chairman Julian Cazalet to warn media. Top holdings include Diageo, Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18 new investors against buying the trust. London Stock Exchange and Nintendo. Source: FE Analytics

FE TRUSTNET trustnet.com In focus 34 / 35 [ SECTOR PROFILE ]

The factors that have contributed to Europe’s underperformance over the past few years could soon begin to work in its favour, writes Adam Lewis Every cloud…

ast year was a bad one picture for 2019 for European equities. looks set to While all major developed become more L stock markets struggled challenging, performance wise, the 11.07 per cent Rory Bateman, loss from the Euro STOXX Index head of UK meant it finished bottom of the pile. and European Active managers fared even worse, equities at with the IA Europe ex UK sector Schroders, down 12.16 per cent, and IA European maintains Europe should because of how “While European companies have Smaller Companies fared worse still, enjoy above-trend growth in far Europe’s economic recovery not benefited from the share-buyback with losses of 15.46 per cent capping the year ahead. This, he argues, is lags behind the rest of the world, bonanza experienced in the US, the a fairly miserable year for investors in as well as its continuing domestic dividend yield on European equities the continent. consumer expansion. is 3.7 per cent and overall corporate Beset with sluggish “Investors can access European balance sheets are in rude health.” Worth the hassle? economic growth and equities at a five-year valuation For Ben Yearsley, director at Shore Beset with sluggish economic growth low following the market decline Financial Planning, investors should and continued political uncertainty, continued political experienced during 2018,” he adds. never write off any region and he this has raised the question of whether uncertainty, this has raised “We often discuss the valuation believes Europe is an interesting area investing in Europe is worth the hassle the question of whether differential between the US and at present. However, while he concedes – and is it an area of the market where Europe and at this particular markets are cheap, he adds that there active managers can add value? investing in Europe is moment the European price-to- Despite the fact the global economic worth the hassle earnings discount appears extreme.”

FE TRUSTNET trustnet.com In focus 36 / 37 [ SECTOR PROFILE ]

economies and Brexit, and Yearsley PERFORMANCE OF INDEX VS SECTORS IN 2018 are concerns about what will happen admits the picture for Europe does Euro STOXX (-11.07%) IA European Smaller Companies (-15.46%) now the European Central Bank has appear gloomy. IA Europe ex UK (-12.16%) finally ended quantitative easing. However, with the DAX index 10% trading on just over 11-times earnings, A messy outcome according to Bloomberg, and the 5% “There are many issues to consider Euro STOXX on 13 times, Yearsley 0% when looking at European equities,” says this pessimism is priced into he says. “Italy is one of the major valuations, especially compared with -5% ones, however France also has a rising a P/E ratio of 16 times for the FTSE All -10% deficit and an unpopular president.” Share and 17 for the S&P 500. “Brexit is also a serious problem “You always need to divorce -15% affecting European markets, with the economic performance from -20% UK not the only country which could corporate results and Europe is home Jul Feb Mar Apr May Jun Aug Sep Oct Nov Dec be hit hard by a messy outcome. to many world-leading companies Jan18 Ireland would really suffer as well, as which are leaders in their field and would Belgium and the Netherlands less dependent on the vagaries of Source: FE Analytics as they export the most to the UK as politics and Brexit,” he says. a percentage of their GDP.” “While it is true that the Back down to earth performance of Baidu, Alibaba and When it comes to GDP, with third- entrepreneurial spirit doesn’t seem to It is true investors all over the globe Tencent (BAT) has pushed Asian quarter growth registering at just 0.2 be as evident in Europe as it is in the have seen the growth trajectory of markets to dizzying new heights. per cent and an annual rate of 1.6 US, this doesn’t mean there aren’t good the so-called FAANG (Facebook, However, Chris Metcalfe, per cent, the European economy is companies. It is simply that certain Amazon, Apple, Netflix and investment director at IBOSS, notes definitely slowing. sectors are probably under-represented Alphabet’s Google) stocks in recent these kinds of companies are largely Add to this the end of QE, political compared with the US, with technology years. Not only have tech stocks missing from European indices, as problems in one of its largest being the obvious one.” propelled US market growth, the are the oil and mining stocks that dominate the FTSE in the UK. “This may give Europe an advantage “While it is true that the in an equity market pullback,” entrepreneurial spirit Metcalfe notes. “It is often the stocks doesn’t seem to be as that take markets to new heights which eventually bring them back down to evident in Europe as it earth. This looked especially possible is in the US, this doesn’t for the FAANG and BAT stocks, of mean there aren’t good which the valuations were priced to companies”

FE TRUSTNET trustnet.com In focus 38 / 39 [ SECTOR PROFILE ]

Looking forward, the PERFORMANCE OF FUNDS VS SECTOR AND INDEX perfection, and we saw something of a headwinds which faced Name 1yr (%) 3yr (%) 5yr (%) 10yr (%) sell-off at the end of the year.” Europe in 2018, such as Jupiter European -0.34 33.89 74.31 293.16 “We feel Europe can offer not Brexit and the US-Chinese only diversification but increased Baillie Gifford European -12.36 33.79 46.62 207.96 defensive characteristics, as some of trade war, could fade LF Miton European Opportunities -4.22 50.32 N/A N/A the tech names have poor risk/return IA Europe ex UK -12.16 19.94 29.83 113.39 traits for investors entering the pains to tell you this is not the case markets at these levels. All over the over the ‘very’ long term.” Euro STOXX -11.07 27.55 31.8 95.08 globe, sectoral dispersion of returns While it is important to be aware Source: FE Analytics has been increasing.” of European growth and value as a concept, Metcalfe says it is more Looking forward across different Value added important to understand the biases Looking forward, Adrian Lowcock, countries,” Lowcock Another debate when it comes to of the underlying European manager head of personal investing at Willis says. “This makes it investing in Europe is whether to and how flexible they are likely to be Owen, notes the headwinds that faced hard to analyse and opt for a growth or value strategy. if there is a change in drivers behind Europe in 2018, such as Brexit and the research, which in turn Metcalfe says: “If you look at the the outperformance of growth. US-Chinese trade war – which has had means there are opportunities that top-performing funds within the “The last three discrete years have an impact on European exporters – are likely to have gone unrecognised IA Europe ex UK sector, the given us an opportunity to do that and could fade. by the wider market.” more growth orientated those funds that have outperformed Additionally, he says that the “While the US is more business- funds have outperformed in all three years could be the most current global growth slowdown focused, you are paying a significant their value peers flexible,” Metcalfe says. “Baillie Gifford could stabilise, providing a further premium for it compared with over a lengthy period, European and LF Miton European boost to the region. Europe. Investors should consider the although value Opportunities are those we currently “Europe is also a very broad market region but accept that the political managers will be at favour, offering the best of both worlds.” with many companies operating situation is part of the landscape.”

The top-performer: not on Europe, it is about the The all-rounder: despite falling 4.22 per cent The steady eddy: turnover close to 20 per Jupiter European businesses within it,” says LF Miton European last year, the fund still had Baillie Gifford European cent, which he points out Top of the IA Europe ex Paul Standerwick, an IFA at Opportunities among the highest alpha For consistency of is less than its peer group. UK sector last year was MLP Wealth Management. Chris Metcalfe says IBOSS and Sharpe ratios in the performance, Metcalfe “Like all Baillie Gifford funds, Alexander Darwall’s £5.3bn “More than 50 per cent has held Carlos Moreno and sector. Metcalfe says he argues few funds can beat it has a bottom-up process Jupiter European fund. While of the revenues of those Thomas Brown’s LF Miton was an early adopter of the Baillie Gifford European, and remains competitively it finished the year down companies it holds come European Opportunities fund – it only launched at which has top quartile alpha, priced, with an OCF of 0.59 0.34 per cent, it comfortably from outside of Europe, fund since January 2017, the end of 2015 – due to Sharpe and information per cent,” Metcalfe adds. beat the sector average fall meaning they are not reliant when it was just £70m in Moreno’s strong track record ratios over five years. The Stephen Paice has headed of 12.16 per cent. “Despite on the fortunes of their size. Assets have grown in managerial roles at JO portfolio has a mid-cap up the £453m fund since the fund’s name, the focus is underlying local economies.” to £375m since then and Hambro and Thames River. quality bias with annual April 2011.

FE TRUSTNET trustnet.com Data hub 40x // x41 Crunching the biggest trends down into figures 1.7 Through the ages: – birth rate in the How changing demographics UK. It fell below the replacement could affect your investments From 1994 to 2014, Home ownership in rate in 1993 the number of 17 to the UK for middle Millennials 20 year olds in the UK income adults has should make up with a driving licence fallen from 65% in fell 40% 1996 to 27% today 50% of the global UK public In 1991, 15.8% of the workforce by spending, UK population were 43% 2020, and excluding interest aged 65 years or over. payments, is This will rise to of millennials expect expected to to leave their jobs 75% increase from within two years by 2025 33.6% to 26% 27% by 2066 Just of Japan’s population 37.8% of millennials in the US is aged 65 or over expect to make their next compared with of GDP by 2064/65, 11% purchase in a physical shop due mainly to the 6% ageing population 50% in India of global employers found it hard to fill positions in 2018, up from 31% in 2008. This rises to 67% for large companies Source: LGIM, World Bank, IMF, Taiwan National Statistics, Focus Taiwan, CIA World Factbook, IFS, UPS, Department for Transport, ONS FE TRUSTNET trustnet.com In the back 42 / 43 [ PLATFORMS & PENSIONS ]

Fund managers may appear unconcerned about Brexit, but with just 10 years to retirement age, AltRetire’s John Blowers can’t help worrying about the impact on his pension Brexit wounds

must admit this is not a year I’m looking forward to. Although there has been a pause in Brexit I rhetoric over Christmas, the country will no doubt be embroiled in more political discord over the next few months that could take the UK into a “no-deal” scenario and major economic uncertainty. I’m no Project Fear subscriber, but I do listen to some of our brightest economists and business people and what they have to say about a no-deal scenario is not encouraging. The single thing that concerns me the most is my pension fund. It’s funny, because in most of the conversations I have had with friends and colleagues on both sides – remainers and leavers

FE TRUSTNET trustnet.com In the back 44 / 45 [ PLATFORMS & PENSIONS ]

“In the most pessimistic SIPP in my early 40s, effectively losing What can you do? took three or four years to recover. me half of my pension. Economists are discussing timeframes scenario, we could find our Now I’m piling as much as I can into Make a plan. If you don’t already of a decade-plus for the UK to get back have one, it’s a good idea to create pension values falling by 40 my SIPP, but time is no longer on on its feet if a no-deal Brexit occurs, so a spreadsheet of your assets and my side. Recently, the balance of my in the most pessimistic scenario, we per cent and not recovering try to describe and cost your target pension hasn’t gone anywhere apart could find our pension values falling retirement lifestyle. In my plan, I have to today’s levels until 2029” from down, even though I’m putting by 40 per cent and not recovering to a series of scenarios that consider the in four-figure sums every month. I’m following: today’s levels until 2029. not sure how long I will be able to That’ll put the mockers on a decent – no one mentions their pensions. maintain contributions at this level if · My retirement date options (I have plans retirement. Like me, many of my friends are of a we enter a full-blown recession. for retiring at 58, 62, 65 and 67) However, we’re not here to get certain age – mid-50s – and 10 years of Global fund-manager sentiment · How much have I saved in my pension? miserable (or worse still, cash in all economic uncertainty ahead of us will towards the UK has never been lower our investments). We’re here to find bring us to the retirement zone. and while the FTSE 100 has lost 1,000 · What state pension will I get (and when)? out how to hedge against the potential The next 10 years of growth in my points since last summer, nobody · How much will I continue to put in until downsides of one of the biggest pension are make or break. I failed to knows how much further it could fall retirement? challenges this country has faced. make meaningful contributions earlier in the event of no deal. · Where I want to live (the UK, France, Spain in my working life, plus I made a If you take a look at the two most recent or Italy – if I am allowed!) Sick of it stupid unquoted investment using my crashes, of 2000 and 2008, the markets I know you’re sick of the subject, · A roughly costed-out lifestyle: bills, clothes, but I wanted to look at Brexit from a holidays, food, maintenance, car and so on PERFORMANCE OF INDEX IN 2018 retirement perspective. The lack of · How long will my retirement last? I’ve confidence in UK companies led to net FTSE 100 (-8.73%) decided I’m dying at 90 – actuarially fund withdrawals of £6.8bn from the accurate, but probably optimistic UK equity sector between April 2017 6% and September 2018. 4% · Three growth scenarios for my pension portfolio: 3, 5 and 8 per cent On a positive note, we may not leave 2% the EU without a deal and the Brits are 0% · Other assets net of costs: houses – less ingenious enough to find ways to grow any outstanding mortgage and property -2% their businesses – and the economy as downsize – car, other savings -4% a whole – in the toughest of conditions. -6% · Any outstanding liabilities: loans, debts, UK fund managers believe FTSE mortgages, children -8% companies are cheap at the moment, so there is hope the index will bounce -10% · Potential windfalls such as inheritance and back once there is more certainty on -12% so on what path the UK is heading down. Jul Feb Mar Apr May Jun Aug Sep Oct Nov Dec · Partner’s pension Jan18 Source: FE Analytics

FE TRUSTNET trustnet.com In the back 46 / 47 [ PLATFORMS & PENSIONS ]

“There are also fears that Taking back control You’ll have your own dreams for There are a few things we can do for retirement, but it’s important to have a Most importantly, perhaps, is we may never reach a true our pension funds as we approach 29 strategy even when you’re young. that with the FTSE getting the end point on Brexit, with March, but it’s hard to argue against If you’re in your 40s or 50s, a plan is majority of profits from overseas, a politicians continuing to some of the standard advice of holding essential – on paper and not in your domestic recession could be far from tight and diversifying your risk by head. Too many people don’t give catastrophic for UK investors – quite kick the can down the road sector and geography. any thought to the life they want in the opposite, in fact, if the index to avoid risking the wrath of I preach vehemently against trying retirement or how much it will cost. follows a similar route to the one it took one half of the electorate” to time the market and while you may No doubt, 2019 is going to be an in the aftermath of 2016’s referendum be tempted to go into cash, this is interesting year and has the potential result, when the falling pound pushed probably a bad idea. to mess with your plans, but we have up the value of foreign earnings. and industries. They simply don’t want Once you’ve acknowledged this, you to keep faith with the principles of to lose us Brits as customers. can mess around with a number of investing. Nobody likes to see their Basket case “what ifs?”, such as can I sell up and portfolio plummet, but it’s happened However, while the FTSE is diversified The never-ending story retire earlier, can I live more frugally, to us all before. To get the ups, you by geography, it is less diversified by There are also fears that we may never or do I work longer and stay in my need the downs, and this might just be sectors, with a heavy weighting to oil reach a true end point on Brexit, with house? the start of a brave new world. & gas and tobacco, but little in the way politicians continuing to kick the can of tech exposure. Some of the money down the road to avoid risking the that has left the UK has found its way wrath of one half of the electorate, into sectors such as the US and Far denying the market the certainty it so East and, while global markets are not desperately craves. With so little clarity doing particularly well at present, it’s achieved in more than two years since a lesson in asset allocation and not the referendum result was announced, having all your eggs in one basket. who can bet against a never-ending Make sure you are diversified rather Brexit story? than bailing out of the UK, as there Many analysts say markets are already is likely to be a spring-back when the pricing in the negative impact of Brexit dust settles. and these will rebound along with the Brexit also affects Europe as we FTSE once we have left the EU. I’m not are one of the continent’s biggest so sure, especially with the myriad of customers. I’m always astonished just other threats they are currently facing how much German metal there is on – whether that is rising interest rates our roads and it could be extremely in the US, the slowdown in China, damaging to its economy if we lose our heightened political risk, global debt- appetite for its cars. The same principle to-GDP surpassing pre-financial crisis applies to many European countries levels… do you want me to go on?

FE TRUSTNET trustnet.com In the back 48 / 49 [ STOCKPICKER ]

L&G Growth Trust’s Gavin Launder Many asset-intensive is keeping a close eye on three industries are being stocks that are using digitalisation transformed by new and automation to add value technologies that can improve productivity, The maximise efficiency and deliver significant cost automation savings game productivity, maximise efficiency and deliver significant cost savings. Bringing together data and devices t a time when markets enables automation and heralds a are beginning to fret over new dawn of asset optimisation. A future growth prospects, As this trend unfolds, increasingly we believe the secular trend of capable software and services look digital transformation has only set to redefine industries as growth just started. Many asset-intensive and value drive adoption. These new industries are being transformed by technologies are prevalent in a number new technologies that can improve of stocks we hold and follow closely.

together design, visualisa- temperature production of partnership deals in the tion and simulation. De- steel, glass and nonferrous past year, we believe more AVEVA is one of the com- livering predictive main- metal materials. Cost com- are on the horizon. As Oca- panies most exposed to tenance and digital twin Another example of petitiveness is important, Ocado is a structural do aims to expand its solu- the digitalisation of the capabilities can minimise digital transformation while higher demand for winner and operational tion offering, the business process world. A reverse machinery downtime and comes from RHI Magne- customisation and greater leader in the online gro- is well positioned to bring merger with industrial soft- reduce costs, while indus- sita, a leader in the global technical performance are cery channel. It has lever- new capacity online to ware assets from Schneider try focus on optimisation refractory industry. The integral to blue-chip cli- aged its best-in-class intel- match demand. Ocado can put AVEVA in a unique po- increases demand for data merger of Austrian and ents. A high level of inte- lectual property to create take advantage of growth sition to provide engineer- collection and asset per- Brazilian assets last year gration is allowing RHI a platform for the most ef- opportunities and deliver ing and industrial software formance management, means the company has a Magnesita to accelerate ficient automated solution long-term value creation for the oil & gas and power which are both key drivers global presence and prod- digitalisation across the in its sector. While it has for the world’s most inno- markets that brings of digitalisation. uct portfolio for the high- value chain. struck many international vative retailers.

FE TRUSTNET trustnet.com In the back 50 / 51 [ WHAT I BOUGHT LAST ]

Brewin Dolphin’s Rob Burgeman says this fund offers exposure to Not all cities are created equal. Just one of the defining trends of the 21st century – urbanisation because $1m would buy you 157m2 in Cape Town compared with 28m2 in Schroder Global Cities London, this does not make the South Real Estate Securities African city cheap

e have factors will allow these Database identifies the equal. Just because Swimming naked a target of optimising recently cities to thrive and most valuable underlying $1m would buy you As we reach the peak long-term returns for W started adding draw in resources from property assets based on 157m2 in Cape Town of this economic cycle, shareholders. I suspect as to our position in the the surrounding areas, their location. compared with 28m2 differentiation will be global headwinds pick up Schroder Global Cities enabling the property The next stage involves in London, this does key. As Warren Buffett speed towards the back Real Estate Securities companies based there to examining areas such not make the South says, “you only find out end of 2019, this is the fund, which has been continue to outperform. as the companies’ ESG African city cheap. “In who is swimming naked kind of fund that should run by Tom Walker and policies, balance sheet the knowledge economy, when the tide goes out”. add some stability to Hugo Machin since In the numbers strength and valuation to being in the right Net asset values are portfolios. August 2014. The team has built a produce a portfolio. place has never been all very well, but they Data lies at the heart number of proprietary These three databases more important, even are not necessarily a of the managers’ databases to help guide it contain some six million if that means putting good indicator of what a investment process. through this process. For data points which help off buying a home,” property is worth in cold, The fund’s exposure example, the Global to create an “intellectual the managers say, and hard cash. Secondary is focused on truly Cities Index ranks moat” around the fund. this ultimately, is the shopping centres in global cities – those each city by factoring rationale behind the peripheral areas may that have strong in population, GDP, The defining trend fund: good properties look optically cheap on infrastructure, large household income, retail While the fund offers in good locations run a discount to NAV basis, pools of talent, world- sales and universities; exposure to the defining by good management but what is their value in leading universities the Transport Index rates trend of the 21st teams are not immune the real world and where and high levels of the assets of each holding century – urbanisation to market movements, are the drivers to that Rob Burgeman is an economic activity. As on their proximity to – the managers say it is but tend to preserve NAV rising? investment manager urbanisation continues key transport hubs; and important to remember value while participating This is a clearly at Brewin Dolphin its rapid growth, such the Individual Asset not all cities are created fully in any boom. differentiated fund, with

FE TRUSTNET trustnet.com February preview Not EU again!

You’re sick of reading about it, we’re definitely sick of writing about it, but we can’t just ignore Brexit and hope it goes away. The next issue of FE Trustnet Magazine will consider every possible outcome of our departure from the EU and the potential impact on your finances.

Our sector focus will fall on AIC UK Equity Income as we ask if it is wise for investors to rely on a market dominated by tobacco and oil for their income going forward.