ISSUE 65

INVESTMENT NEWS FOR CLIENTS OF ST. JAMES’S PLACE WEALTH MANAGEMENT

SPRING 2010

SEEMA SHARMA THE SLUMDOG SECRET MILLIONAIRE 02 | The Investor TheThe Investor Investor | |07 03

CONTENTS

Welcome

Welcome to the latest edition of The Investor. With a general election bearing down on us, this issue has a more political theme than usual. ‘All politics is economics’, someone once said, 10 06 and we asked David Smith, economics editor of The Sunday Times, for his views on the public finances following each of the three most likely electoral outcomes – a Conservative victory, a Labour victory and a hung parliament. You can read his response in our Analysis section. Whatever the result, all are agreed that we are heading into an era of higher taxation. Indeed, there are a number of new taxes announced over the past 12 months that came into effect on 6 April. Given this, it is important that you plan carefully if you want to minimise the tax you pay. In Looking Ahead, we outline some of the ways in which you can plan your financial life with greater tax-efficiency. Forecasting electoral winners and losers is meat and drink to Stephan Shakespeare. His polling organisation, YouGov, has a reputation for judging the public mood with pinpoint accuracy and, in The Interview, he explains how they do it. Finally, a word about some new investment opportunities that we are launching on 6 April ourselves. We will cover these in more detail in the next edition of The Investor, but in the meantime if you’d like more information, please speak to your St. James’s Place Partner. I do hope there will be lots here to interest you. 08 12 14 i STOCKPHOTO/GETTY/MARTYN GODDARD/DAVID HARRISON/TIM O’SULLIVAN 08

04 It’s in the Diary... 12 The Interview A day in the life of a fund manager Stephan Shakespeare explains why 05 Investor News political polling is good for business Corporate strength; technology stocks 14 My Money 06 Analysis Seema Sharma on funding her charity Sir Mark Weinberg How would the general election work and dentistry companies Chairman, Investment Committee, winners tackle Britain’s budget deficit? 15 Back to Basics St. James’s Place Wealth Management 08 Profile Absolute return funds Meet the new recruit to the St. James’s 16 Looking Ahead Place Investment Committee How to be more tax-efficient 10 Why Should I Care About… amid rising tax rates ...Japan? 17 Fund Update 11 The Issue Your guide to the performance The rise of retail fund sales of St. James’s Place Funds 15 For further information on any of the articles in this issue of The Investor, please contact your St. James’s Place Partner 04 | The Investor The Investor | 05

IT’S IN THE DIARY... A TYPICAL WORKING DAY IN THE LIFE OF A ST. JAMES’S PLACE FUND MANAGER INVESTOR NEWS

George Luckraft AXA Framlington

The CEO and finance director of a Meeting with CEO of Colliers CRE, 08h30 Malaysian web hosting company arrive 14h30 commercial property consultants, and The dividend cuts were for a meeting, together with their stockbroker. a representative of their new 29.9% shareholder, deeper than in previous recessions because of the nature of the The company is listing in London and wants us to buy the Firstservice Real Estate Advisors, the Canadian affiliate crisis. Credit had dried up and companies worried about access shares, so this is a sales pitch. I had looked through the of the company’s international network. They talk to capital – and one easy way to get more capital is to cut the prospectus earlier and they have a good growth story, but generally about how they will work together and about dividend. But the same companies also cut costs and capital I always wonder why these companies don’t float in their commercial property, which has had a torrid time. expenditure aggressively, which is now paying off. In the latest home market first. I choose not to participate. Interestingly, while banks held off repossessions during reporting season, 2009 profits showed a broad return to health. the worst of the recession, they are now starting to act on There is research suggesting that free cash flow levels – cash Spend a couple of hours looking at what’s covenant breaches. Commercial values have bounced flow after capital expenditure but pre-dividend payment – 09h30 happening in the market, and reading and sharply, particularly in London, and rentals in the City are now as high as they have ever been. A modest revival in responding to emails (I get 250 to 300 on an average day). are rising once again. Every emerging market bank wants ‘corporate activity’ – mergers and acquisitions, in other words – There are quite a few company results today. I need to see a London location, apparently. suggests that balance sheet repair is complete in some areas. which shares are moving and why, and whether they will Economic conditions are somewhat better than most would have any effect on our portfolios. Visit from a team of stockbrokers’ analysts Corporate comeback have expected 18 months ago, though risks to the economy 15h30 to hear their latest stockpicking ideas. remain. Any government failure to deal with the national debt Meeting with the outgoing CEO and the One possibility is Provident Financial. It specialises in It’s not all bad news for Britain’s economy – and repair its own balance sheet could unsettle the gilts 11h30 CEO-elect of London Capital Group, a mezzanine capital for private equity, which is now showing companies are starting to show healthy profits market. It also needs to exit its economic stimulus programme spread betting and foreign exchange group. We hold the more signs of life. The shares offer good yields and I like the without tipping the economy back into recession. Inflation stock in our St. James’s Place portfolios. The company management, but there may yet be more downside. I will orporate Britain is emerging from the credit could become more of a menace. had a tough year in 2009 and its shares suffered after two keep it on my radar. crunch and recession in surprisingly good shape. ‘But it’s wrong just to look at the negatives,’ says Nick Purves profit warnings. One of these announced the discovery of There are those who believe that the trend of of Schroder Investment Management. ‘Even if the economy accounting errors and the other warned that the lack of Session with the CEO and finance director improving corporate profitability can continue, did fall back into recession, the long-term valuations of many market volatility would adversely affect their profitability 16h30 of Devro, the world’s largest maker of Ceven if GDP growth remains subdued. companies are unlikely to be badly affected.’ – when markets are trading in a steady range it’s easier to sausage casings. They are enjoying growth as emerging Since the credit crunch began in the summer of 2007, Purves believes that worries about the strength of consumer make winning bets on where it will go. The company markets consume more protein and as nations that have UK corporate profits have suffered miserably, falling by an demand underestimate the degree to which companies have White gold and didn’t pay a final dividend. This year has started better, preferred natural gut casings, such as Japan and estimated average of 50%. That’s the largest decline that cut costs and restored their balance sheets. ‘It’s possible that diamond salamander with a burst of volatility and promising new customer Germany, start switching to collagen, which is easier to most can remember. Dividend payments in 2009 reflected corporate profitability will continue to improve, even if GDP brooch from jewellers sign-ups, and the CEO says the dividend will be restored run at speed through sausage-making machines. The the gloom and were some 30% down on the year before. growth is sluggish,’ he says. Theo Fennell this year. On that basis, I add to our holdings. company raised its dividend last year for the first time in four years and it still looks well set for 2010. Sandwich and a glass of wine at a 13h00 presentation in a City wine bar, hosted by Tie up loose ends and prepare for SECTOR SPOTLIGHT basis of once-bitten, the Nasdaq index still Software companies are a likely bet. Unlike Theo Fennell, the jewellers. They were badly hit by the 17h30 tomorrow. Receive daily email from stands at less than half of its former peak. hardware, which is more cyclical, software is recession and the retired founder, Theo Fennell himself, St. James’s Place, detailing the latest cashflow into Technology One beneficial result of the collapse was focused on improving productivity. So when recently returned as creative director. Lots of expensive their funds. I always look at it very closely, as it that it washed away those poor quality times are rough and businesses need to jewellery is sitting on the wine bar table, underlining the tells me how much money I will have to invest the companies that had floated on the promise sharpen up, they are more likely to spend fact that the company’s net asset value is backed by the following day. I shall be looking for growth rather of making money in the remote future. Those on software than on capital equipment. value of its jewellery stocks. The business is back on track than cyclical companies, with strong balance sheets It’s ten years since the dot.com bubble finally that have survived are, for the most part, Micro Focus, a stock held by Andrew now and is raising funds which qualify for Venture and strong management, who under-promise and gave us the dot.com bust. A frenzied fashion decent businesses. What’s more, many ‘had Green of GAM, who manages funds for Capital Trust tax treatment. I take a small holding. over-achieve. for technology stocks gave way to the a good crisis’, as one observer puts it, riding St. James’s Place, has been profiting from realisation that many were virtually out the recent turbulence in financial markets that trend. It updates old computer worthless, and the good suffered along with with robust sales and strong balance sheets. languages like Cobol so that they can deal “The jewellers Theo Fennell were badly hit by the recession. the bad. After a tough decade, however, the Hi-tech and IT companies, perhaps more with more modern applications. Another sector is again looking attractive to investors. than any other, have the potential to grow holding, IT services company Logica, designs, But the business is back on track now and is raising funds The bust was savage. Between 2000 and faster than the economy as a whole, giving installs and runs systems for its clients. It has which qualify for Venture Capital Trust tax treatment. 2002, Nasdaq – the US market that specialises their shares the ability to outperform the benefited from productivity concerns and in technology stocks – fell by nearly 80%. The market. That’s why investor appetite for a renewed corporate enthusiasm for STOCKPHOTO I take a small holding” i pain felt by investors was such that, on the the sector is growing again. outsourcing non-core activities. i STOCKPHOTO GETTY/ 06 | The Investor The Investor | 07

ANALYSIS

Who will save the economy?

As the general election approaches, David Smith LABOUR from 2011. Crucially, however, the party would aim for ‘in-year’ explores the possible outcomes and how the Markets would like a clear outcome and would prefer a reductions in spending; in other words, some cuts would take effect winners would tackle Britain’s budget deficit Conservative victory to a Labour one. If it comes to an inconclusive immediately. The Tories would likely lean towards cutting the deficit result, they would prefer the Conservatives to Labour as the largest through spending cuts rather than tax increases. party. Why is this? After all, Labour is committed to halving the budget Either of the outcomes in which one party has an overall majority deficit in four years and has enshrined that commitment in law in its would probably see enough action taken to satisfy international t has become the central question for financial markets: who the more will fall on taxpayers. We already know about the new 50% Fiscal Responsibility Act. The government has already announced markets and preserve Britain’s AAA rating. No government would will win the general election and how will the victor tackle tax rate, restrictions on income tax allowances and pension tax relief, future tax increases, something that parties normally steer clear of in want to preside over the loss of Britain’s international reputation, Britain’s economic crisis? as well as higher National Insurance contributions. There could be the run-up to an election. which might take years to recover. The Treasury expects borrowing to be close to an eighth – much more to come. If re-elected, the government would hold a comprehensive spending 12.5% – of Britain’s gross domestic product this year, half as So how will the deficit be tackled and how can the election review immediately, with the aim of establishing a tough spending I much again as the previous peacetime record. In the past, we assessed outcome affect it? What will happen in the event of Labour or regime from 2011 onwards. Most departments would face cuts and the HUNG PARLIAMENT the budget by how close to balance – zero borrowing – it was. This year, Conservative victories or, perhaps more pertinently, a hung Treasury has been sharpening its axe in readiness. It would be in the event of a hung parliament that problems the issue has been how close it would be to £200 billion. parliament? Fear of the last, in which no party has an outright So why are the markets sceptical? After nearly three years in the job, would arise. Britain has little recent experience of inconclusive elections. For investors, so much hangs on the budget deficit and how quickly majority, is what has spooked the markets. So what would Alistair Darling has earned the City’s grudging respect. Most think that The last was in February 1974 when Harold Wilson won 301 seats (versus it can be reduced. Britain’s AAA rating is on notice from the rating these various outcomes mean for investors? left to his own devices he would cut, and cut hard. The trouble is that, 297 for Sir Edward Heath’s Conservatives), in a 635-seat parliament. agencies. Of all the big economies, the UK is attracting the most With all due respect to Britain’s smaller parties, including the even if Labour were re-elected, he might not survive as Chancellor of Labour formed a government but there was little governing for the international concern. Uncertainties over the deficit have undermined Liberal Democrats (though they could play a pivotal role), there the Exchequer. The suspicion is that a re-elected Labour government following eight months, until a second election in October 1974. sterling and have the capacity to unsettle financial markets. are four realistic outcomes to the election: a Conservative victory, would draw on the support of those economists who have urged that This saw Labour increase its Commons seats to 319, a majority of just For taxpayers, too, the deficit is fundamental. The less the burden a Labour victory or a hung parliament with either the Conservatives any cuts be delayed until an economic recovery is well established. three, which was nevertheless enough for it to soldier on for nearly five

GETTY/REX of reducing it is met by public spending cuts and economic recovery, or Labour as the largest party. years, a period which included a pact with the Liberals in 1977-78, until was elected with an overall majority in 1979. CONSERVATIVES History need not repeat itself. All three main parties are committed “The Conservatives, if elected, would The Conservatives, if elected, would hold a budget within to cutting the budget deficit. A Con-Lib or Lib-Lab coalition could be hold a budget within 50 days, which 50 days, which would almost certainly include some further tax rise effective at reassuring investors that the right actions will be taken. announcements (increasing VAT is a hot favourite) though not Britain, however, has not had a functioning coalition government would almost certainly include some necessarily with immediate effect. Corporation tax would be cut, in the post-war era. The fear in the markets would be that a minority further tax rise announcements, though though this would be financed by withdrawing company tax reliefs. government would seek to govern for a few months, ineffectually, not necessarily with immediate effect” They have already announced their intention to cancel Labour’s plans and that this would soon be followed by a second election. to increase National Insurance Contributions by 1%. The Conservatives, like Labour, would also conduct a tough spending round to take effect David Smith is economics editor of The Sunday Times The Investor | 09

PROFILE

Vivian Bazalgette’s years in the City make him a perfect addition to the St. James’s Place Investment Committee, as Paul Irving discovers

he most successful fund managers are those with a talent for spotting opportunities, an ability to manage risk within their portfolios and, above all, Ta consistent approach to what they do. Vivian Bazalgette knows this because he was once a fund manager himself. He now advises pension funds and charities on their investments and serves on the boards of various investment trusts. Since the beginning of this year he has also been a member of the St. James’s Place Investment Committee. Bazalgette has City blood in his veins. His father was senior partner at Phillips & Drew, a leading stockbroker, later bought by UBS during London’s 1986 Big Bang. The firm maintained a strict policy of not employing relatives so, after a brief stint in the civil service in Victoria, Bazalgette headed for “Investment involves looking for sources of the City to join another prominent stock- growth and income, and finding whatever broking firm, James Capel. ‘It was a case of represents good value in that context is the “go East, young man”,’ he says with a smile. There he worked as an equity salesman, job of the investment manager” dealing with institutional clients. One of the shrewdest of them, it seemed to him, was Warburg Investment Management and the Dulwich Estate, and an advisory of growth and income, and finding whatever (later renamed Mercury) and he joined board member of Greenwich Hospital. He is represents good value in that context is the them as a pension fund manager. also vice chairman of governors at Dulwich job of the investment manager. Today, Bazalgette subsequently moved to College, where he went to school. however, there is rather more choice Gartmore where he became managing ‘It’s a very fruitful combination,’ he says. than there used to be.’ director of the pension fund subsidiary. In ‘And while it has given me a sense of On the outlook for the economy as a 1996 he was asked to join M&G, where he fulfilment, my fascination for investment whole, Bazalgette is cautiously optimistic. was chief investment officer both before and markets remains. So it has been a fantastic ‘Given the large amounts of debt in the after that firm’s takeover by Prudential. It opportunity for me to join the St. James’s personal and household sector, people will became Prudential M&G, eventually running Place Investment Committee and to see the almost certainly feel the need to save more – some £160bn worth of assets. leading lights of the investment community in fact, that trend is already becoming He opted for a change of pace in 2002. as we select, monitor and, if necessary, evident,’ he says. ‘I had always wanted to do something replace investment managers.’ ‘I hope that we don’t suffer any shocks – different in my fifties and I was interested The Investment Committee has recently higher interest rates, perhaps – that will in getting involved in a few charities,’ been busy interviewing managers for what cause consumers to draw in their horns any he explains. ‘My use to them was in terms Bazalgette describes as some ‘interesting further. The central bank understands that The of my investment experience and, to keep new opportunities’ – including an absolute and should allow the economy the chance to that knowledge fresh, I have retained my return fund – that will broaden the range of recuperate, and start to grow again on the involvement in the City.’ funds available to clients. As he says, basis of external demand. Today, Bazalgette is an adviser to the BAE investment orthodoxy is embracing areas ‘The global economy is buoyant – the Systems pension fund and an investment that weren’t previously considered suitable further east you look, the more buoyant it adviser to the Nuffield Foundation. He sits on for private investors. gets,’ he observes. ‘It’s important that we voice the boards of three investment trusts and is a ‘Some things don’t change,’ he adds. get our fair share of world trade to help of experience trustee of the King’s College Hospital Charity ‘All investment involves looking for sources kick-start our own economy.’

PHOTOGRAPHY: MARTYN GODDARD iSTOCKPHOTO Looking upinJapan F Democratic Party (LDP) was thrown out of party was founded inthe1950s,Liberal all but monopolised government since the things areabouttochange. represents anopportunity,if–and only if– they are worth more dead than alive. Which some putitratherunsympathetically, that below their net asset value. That means, as overlooked, withmany companiestradingat down fromitspeak. around 8,000 to 11,000), it is still some 70% than 35% in the 12 months to March (from economic malaiseanddeflation. heralded two decades of financial crisis, index tumbled fromits1989high.Thatfall many falsemarket dawns sincetheNikkei 225 rising sun as its symbol should have had so market finally abouttoget back onitsfeet? attracting investorinterest,says Evidence ofchangeintheJapaneseeconomyis | 10 One big thing has already changed. Having The result is that the market has long been Though the index has risen by more It’s ironic that a country which boasts the The Investor WHY SHOULD ICARE ABOUT... Japanese stocks.IstheTokyo stock ahead of the game are once again buying und managerswho like tostay onestep

JAPAN? increasingly visible” and aweaker yen –are a recovery – new policies “The potentialcatalysts for stimulus package and Oldfield sees of thebureaucracy. pork-barrel politics and to trim the power government’s determination to eradicate political dispensation.He likes thenew is oneofthosewho seeshopeinthenew the LDP. Richard Oldfield of Oldfield Partners reflected in any revival of popular appetite for Yet the decline in his popularity has not been and hiscriticsaccusehimofbeingindecisive. social spending,includingchildbenefits. sweeping administrative reform and more Hatoyama. TheDPJ manifesto promised (DPJ), led by new prime minister Yukio replaced by the Democratic Party of Japan office in last August’s general election. It was The DPJ has introduced an economic Hatoyama hasnotgotoff to abrilliantstart Bernard Dooley 15% to20%.It’sestimated thatfor every Japanese exportingcompanieswent upby fell by five yen to the US dollar and shares in in December,’Oldfieldsays. ‘Thecurrency recently declared thattheyen was toostrong. stock market. Indeed, Hatoyama himself will weaken, with positive results for the believes thisstrengthisunsustainable and currency thatisn’ttheUSdollar. Oldfield have looked totheyen astheonly decent euro’s attractions start to dim, some investors inexplicably so, to some observers. As the The currency has recently been strong, the likelihood thattheyen willweaken. apartment, you needtobuy things toputinit.’ to buy apartments. And once you have an money to their children, it could help them older generation are incentivised to give says. ‘Japan has heaps of savings and if the exempt amountthatpeople cangift,’Oldfield new socialpolicies. additional demand potential in some of its ‘We hadaglimpse of what canhappenback Oldfield hasanotherreasonfor optimism– ‘They areproposingtoincreasethetax- making it more likely the yen will fall.’ government is likely to take further steps, ‘With worsening unemployment, the yen –areincreasingly visible,’ Oldfieldsays. for a recovery – new policies and a weaker infusing the market. ‘The potential catalysts There is now a growing sense of anticipation moved sharply upwards, sometimesby 50%. has improved in the past, bank shares have Japan’s largestbank.Whenmarket sentiment strong salesgainsinthesecondhalfof2009. doubts over poorsaleswere swept away by Nintendo is another Oldfield pick. Earlier market isshowing signsofcyclical recovery. cameras appear overstated and the printer would puncture demand for single-purpose digital cameras. Fears that camera-phones is Canon,world leadersinlaserprintersand increasingly importanttomanufacturing. growth prospects are sound - robotics are Fanuc is very strongly financed and its industry, with70%world market share. the undisputed leader in the robotics portfolio in Japan. One of his stocks is Fanuc, corresponding 3%to5%move inshareprices.’ one-yen fall in the exchange rate, there is a Oldfield also has shares in Mitsubishi UFJ, Another company in the Oldfield portfolio Oldfield now hasonequarterofhisglobal Januaries, withequitiesmorepopular than bonds–unlike January2009. year dampen the retail investor mood. Net retail salesthough of still £1.8bn not set a patcha record on 2000,for all when net sales werewas theirbestyearsince2001, over £7bn. Nor did January this record net sales of £2.8bn. That years of net withdrawals to impressive too,reversingfive before –£481bn.ISAsaleswere under management than ever the year with more assets Association.) the Investment Management and the following ones, are from year, 2000.(Allofthesefigures, 45% ahead of the previous best more impressively, it was also an appalling year) but, perhaps figure for 2008 (which had been £25.8bn. That wassixtimesthe funds to private investors, at highest-ever annualnetsalesof save more.Italladdeduptothe inclined to consume less and renaissance as people felt against a backdrop of a savings tax-efficient vehicles. harder andseekoutappropriate sweat their investments a bit investors that they need to is agrowingfeelingamong more peoplerecognisedthatweweremovingintoahigher-taxenvironment.There phenomenon thatoftenaccompaniesmarket recoveries. attracted more investors and so on, in the chicken-and-egg,lows, some causemade theand decisioneffect to buy back in. That yieldspropelled and thethere market wasn’t higher, anywhere which else to go. When the 17thcentury.The bondmarkethadbeenmobbed,forcingdownfixedincome market began to lift itself off its income andwaituntilconditionsimproved. could simplysititout.They could keeptheircashinthebank, earnsomekindof rates have typically been high and those who felt morethe marketsso, this were was toonot dangerousthe same as previous recessions.in the Before air as now, the recessionalyear wore on, interest though no one could be sure. Just as importantly, if not and simplystayedaway,helpingthemarkettoreachitslowinMarch. half of2009.The samewastrueofinstitutionalinvestors.Bothwereutterlyrisk-averse year forretailfundsales?Butitwas,and2010hasstartedoffinmuchthesamespirit. What a difference a year makes. Who would have thought 2009 could be a record Fund sales Financial writerandeditor BY EDWARD RUSSELL WALLING UK fund managers ended This, of course, was all The increase in ISA allowances to £10,200 for the over-50s helped, particularly as That optionwasn’tavailablethistimearound,withinterestratesattheirlowestsince What changed? There were the faintest whispers of some kind of economic recovery Retail interest in the London equity market was at rock bottom for much of the first The Investor| THE ISSUE 11 12 | The Investor The Investor | 13

THE INTERVIEW A matter of opinion

Stephan Shakespeare’s polling company, old-fashioned way, is to ensure that the people you’re asking mirror the population in terms of age, wealth and other demographics. YouGov, is renowned for its accuracy, so all YouGov found ways to create what they believe is the almost eyes are on him to predict the general election perfectly representative sample and it shows in their results. result, as Edward Russell-Walling reports For most types of commercial market research, getting it more or less right is good enough. But political polling is the acid test. ‘It needs to be absolutely precise,’ Stephan explains. ‘You can’t say Labour will win by 2% and have the Conservatives win by 2%. It’s tephan Shakespeare has lived through two political failures of a difference of only 4% but the result is a different government.’ his own, and says they did him a huge favour. Had they been YouGov correctly called the 2001 and 2005 general elections, and triumphs, he wouldn’t have invented the polling organisation was spot on with Boris Johnson’s 2008 London mayoral victory. Most with a solid reputation for getting it right – YouGov. of its business, however, is commercial market research for names SToday, political opinion polls make up only a fraction of YouGov’s such as Google, Vodafone, Ford and Virgin Atlantic. Its BrandIndex, revenues, but they were the foundations of the business and remain for example, tracks brand perceptions on a daily basis. The company its most persuasive calling card. All of which piles on the pressure for floated on the Alternative Investment Market in 2005 (valued at them to call the coming election as closely as possible. £18m). It has since bought operations in Europe, the Middle East His surname and demeanor may suggest he is as English as they and the US, and last year achieved sales of £44m. come, but Shakespeare is in fact German by birth and by descent. He In fact, the company expanded too fast, just as recession was was born Stephan Kukowski in Mönchengladbach, where his father kicking in, and 2009 saw profits more than halved. ‘But the business was a press officer with the British Army of the Rhine. Dad was then has now steadied,’ Stephan says. ‘Things are under tighter control recruited by media mogul Axel Springer to start up a London office and our technology is robust across the group. We now have very and young Stephan found himself in Britain at the age of five. big plans for the next phase.’ After a thoroughly English education at Christ’s Hospital and These include reversing the standard procedure, where pollsters St. Peter’s College, Oxford, he headed to Los Angeles. ‘I was and their clients specify subjects for research. Using leader board intending to get into the movies, but ended up as a teacher of technology, a new Tygga (“Tell YouGov...”) programme lets the Hollywood dyslexics,’ he says. public tell YouGov which topics preoccupy them most. He married his long-time love, Rosamund Shakespeare, and took Election time has swung the spotlight back to political polling. her name. Rosamund didn’t fancy bringing up children in America YouGov used to run a monthly poll for the Telegraph newspapers and so, in 1988, they returned to Britain, where Stephan became head but now does daily polling for News International (including The Sun of special needs at a school in Lambeth, the early political stamping and The Sunday Times). The Conservative lead over Labour has been ground of John Major. It was here that his own attention turned to narrowing for over a year. ‘Usually, when voters hate one party they politics, fired up as he was by Conservative proposals for education start to love the other one, but that’s not happening,’ Stephan points reforms such as the publication of test results. out. ‘Is it going to be 1997 [opposition landslide] or 1992 [surprise In 1997 he stood as Conservative parliamentary candidate in the government victory]? It doesn’t look like a landslide. three-way marginal seat of Colchester. That was a bad year for Tories ‘It’s going to be a very close race. For me, as a pollster, that’s in marginal constituencies and, though Stephan lost only narrowly, exactly what I want. The tighter the race and the more exact the he lost. ‘At the time, it was terrible,’ he recalls. ‘But everything is so numbers, the more attention we get. And when there’s the prospect much better for my having lost. Imagine spending the last 13 years of a change of government, it’s always exciting.’ as an MP, with everything that they have been through. Instead, I’ve got all this – it’s a joy!’ A couple of years later he campaigned for Jeffrey Archer in his bid STEPHAN SHAKESPEARE’S CV to become Mayor of London – another flop. ‘And another example of “You can’t say Labour will win by things that went wrong being better for me.’ This is because Stephan 1957 Born, Mönchengladbach, 1997 Conservative candidate, 2% and have the Conservatives had now come to know the media establishment very well and was Germany parliamentary seat of 1968-1975 Christ’s Hospital School, Colchester taking a serious interest in how the could change polling. Horsham 1997-2000 Political campaigner win by 2%. It’s a difference of In 2000, he and fellow Archer campaigner set up 1976-1979 St. Peter’s College, 2000-2005 Co-founder and joint CEO, YouGov with £300,000 seed capital from a friendly investor. Zahawi Oxford University YouGov only 4% but the result is a recently stood down as CEO to stand as Conservative candidate for 1984-1988 Teacher, then principal, 2005-2010 Chief innovation officer, Stratford-on-Avon. Landmark West Prep School, YouGov different government” Los Angeles, USA 2010- CEO, YouGov Traditional polling is done face to face or on the phone. Internet 1990-1996 Head of special needs, polling is faster, cheaper and more flexible, allowing you to ask Charles Edward Brooke more in-depth and difficult questions. But the key, as with the School, Lambeth

PHOTOGRAPHY: DAVID HARRISON 14 | The Investor The Investor | 15

MY MONEY BACK TO BASICS

she still found time and energy to pursue her other enthusiasm - property. Absolute return funds She saw an opportunity to buy a rundown period house in south east London and renovate it. The property doubled in value and she enjoyed BY WILLIAM TREVOR the process so much that in 1996 she bought another one. At the same time, she took a chance and bought her Docklands dental premises when it came up for auction. It was an investment that paid off The most recognisable style of investment for many years has handsomely in 2006, when she sold it on to a property developer and been ‘relative return’ investing, where managers aim to In the became a millionaire on the proceeds. These property gains enabled her to outperform a benchmark index such as the FTSE 100. If the index expand the core dental business further. With a new business partner she falls by 10% and the fund falls by only 5%, that’s considered put in a successful bid for a practice in Surrey. Shortly afterwards they had a favourable result. More recently, however, we have seen another go and won a fiercely competitive tender for a new type of holistic the re-emergence of ‘absolute return’ investment, where the practice in Bow, catering for underprivileged communities in east intention is to generate positive returns even in falling markets. London. By this time the original practice had become a small group, I say ‘re-emergence’ because this is by no means a new idea. chaır and Seema no longer had time to practise clinical dentistry. Instead The world’s first absolute return fund was actually set up as far With a dentistry empire and charity work as the back as 1949 by an extraordinary individual called Alfred Winslow she devoted her energies to running the business, and on management Jones. Born in Australia, Jones moved to the US with his parents Slumdog Secret Millionaire, St. James’s Place client training. The process of building the business was not, she insists, as a small boy and grew up to be a sociologist and financial Seema Sharma ensures she keeps on top of her the result of a thought-out plan. journalist – he worked for Fortune magazine in the 1940s. ‘I just followed my inclination to sort things out, to improve things, and finances, writes David Peers This prompted him to try investing for himself and in 1949 he gradually evolved into being a manager,’ she explains. ‘There was never launched the first absolute return fund. He did two things that an expansion plan. It was more of an organic development, investing in had generally not been done before. One was to borrow money people. That way I could build up teams of people who could free me up – he used leverage, in the jargon – to buy more shares. The other to develop new activities.’ was to sell stocks short. By delegating day-to-day management to her team, Seema was able Jones’s idea was to neutralise the effect of overall market to turn her attention to new business opportunities. She is operations movements on his portfolio by selling stocks he did not own director of a medical teaching course for junior doctors, designed and run but expected to fall, while at the same time buying those he by her cardiologist husband Sanjay, and from this she has built a practice expected to rise. In this way, the direction of the market became management consultancy that supports dentists preparing for new NHS less important than the selection of the stocks themselves. It was contracting and Care this ‘shorting’ that potentially enabled his fund to benefit from Quality Commission falling markets. Jones was hedging his bets and that’s why he is registration. remembered as the father of the hedge fund industry. The capital gains she These days, hedge funds are often seen as aggressive plays, made from her well- but Jones’s instinct was the very opposite. He was trying to avoid timed forays into the market risk, not expose himself to it. His investors lost money in property market have only three of the 34 years he was in business. The Standard & now enabled Seema to Poor’s index was in negative territory in nine of those years. safeguard the financial While these techniques have been used to greater or lesser future for her family as effect ever since, until the new millennium they were beyond the well as expand her reach of most investors. Unit trusts were not allowed to sell short, and the only access to absolute return strategies was through dental business. Four hedge funds that demanded very high minimum investments. years ago she became a That changed in 2002, when the European Union introduced client of St. James’s Place new laws for collective investments (the UCITS III directives). and, with the help of These allow retail funds to hold a wider range of assets and her St. James’s Place financial instruments than before. They still can’t sell stocks they or someone who describes herself as a ‘bit of a dabbler’, opportunity. I had also become much more interested in my own Senior Partner Lydia McBride, established trust funds for her daughters do not own but, importantly, they can now create the same Seema Sharma boasts an impressive list of achievements. cultural background and I thought this might be a way to give and other family members. Seema invests in equity markets, as well as the effect by using derivatives. She owns a string of successful dental practices across something back.’ bricks and mortar that have served her so well, though she recognises that The absolute return strategy is conservative and is unlikely to London, where she also runs a training business Seema qualified as a dentist 18 years ago, feeling it was a job she the trust funds are investments for the long term. outperform other strategies in bull markets. Over a full investment and a management consultancy, and looks after could combine with having a family. Although she enjoyed the clinical She has also bought a new building for the Docklands premises, and is cycle, however, taking into account the market’s ups and downs, Fa property portfolio. She has also launched her own charity, work and was able to set up her own practice at the age of 24, it was looking for new partners so she can take a step back and put more effort Jones showed it was possible to outperform by sharing in at least The Sharma Foundation. the actual running of the business that gave her the most pleasure. into her charitable activities. some of the upside and protecting on the downside. Last year she added a new title when she became Channel 4’s Inefficiencies in the practice frustrated her and she discovered Seema says donations are beginning to roll into The Sharma Foundation For that reason, it can be a mistake to use absolute return Slumdog Secret Millionaire, distributing largesse in the slums of Mumbai. she was good at finding solutions. Under her guidance the business as she builds on the publicity from the TV programme. Education was the funds merely as a bolt-hole when market conditions are negative It is not a description she enjoys, but Seema says she has no regrets began to flourish. key to her own success, and the aim of her charity is to open up or volatile. They can be a stable source of non-correlated about taking part in the popular television series. ‘I believe if the bus Soon she was spending more time as a manager than as a dentist educational opportunities to street children in India. This, she believes, returns through different phases of the market cycle, as part

will be the best way of helping these communities to help themselves. of a balanced portfolio. i STOCKPHOTO comes past you should get on it,’ she says, ‘and this was a one-off and, even though she had become the mother of two daughters, GETTYgetyy

PHOTOGRAPHY: TIM O’SULLIVAN 16 | The Investor The Investor | 17

LOOKING AHEAD

Fund Manager updates St. James’s Place fund managers report on the last quarter and discuss the future for financial markets around the world

Takingshelter As income tax rates rise, Tony Mudd looks at ways to minimise your exposure

ritish taxpayers – and particularly thresholds. While you cannot do anything riskier, companies, and it would be best to higher rate taxpayers – can expect to about earned income from your employer, discuss them with your St. James’s Place Bpay more to HM Revenue & Customs you can address the question of where other Partner. Do they conform to levels of risk with (HMRC). But there is still no reason to pay more sources of income – for example, investments which you feel comfortable? tax than you have to, so it is worth revisiting the and savings - sit for tax purposes. On the other hand, VCTs and EISs are the only basic principles to ensure you have used all tax For couples, an obvious remedy is keeping investment vehicles apart from pensions that reliefs and allowances to the fullest extent. more of these income-generating savings with are afforded income tax relief on contributions. Whoever forms the next government, they the spouse or civil partner with the lower VCTs deliver upfront income tax relief at 30% will have to deal with a growing budget deficit income, thereby in effect doubling up to on initial contributions up to £200,000, subject and greatly increased public debt. Boosting tax £200,000 the threshold at which personal to being held for the five year qualification revenues is one of the few tools at their disposal, allowances begin to be lost and £300,000 where period. They also provide ongoing tax-free which makes efficient tax planning all the the new higher rate of income tax kicks in. dividends and tax-free capital gains on the more important for individuals. That includes Another route is to maximise your tax- investment. taking steps to manage your income within efficient investments. Top up your pension to In contrast, an EIS provides upfront income key thresholds. the new - and more restrictive – limits, and tax relief of 20% on initial contributions up to As of 6 April this year, income above make full use of your ISA allowance, which £500,000 (provided it is held for three years), £150,000 is now taxed at a rate of 50%. There from this tax year offers all couples the deferred CGT, loss relief and the potential for is also a new top rate of 42.5% for dividends. possibility of sheltering up to £20,400 from any inheritance tax relief after two years. Those with an income in excess of £100,000 further income and capital gains tax (CGT). Another way of reducing your taxable need to take notice too, given the new stepped It is also worth considering tax-advantaged income to below key thresholds is charitable reduction of the standard personal allowance investments such as Venture Capital Trusts giving through a Gift Aid donation, which by £1 for every £2 earned above that limit. (VCTs) and Enterprise Investment Schemes allows UK charities to claim back related basic As the standard personal allowance remains (EISs). As their names suggest, these vehicles rate tax on cash donations directly from HMRC. unchanged at £6,475, it will be eaten up invest in smaller, and therefore potentially Alternatively, donors gifting assets such as completely when gross income reaches property or qualifying shares can claim income £112,950. This means that the next £12,950 of tax relief at the top rate as well as CGT relief. income after passing the £100,000 threshold “Ensure you make full use Tax-efficient planning depends on each (which would otherwise have been taxed at of your ISA allowance and individual’s circumstances. It does not need to 40%) will in effect be taxed at 60%. consider Venture Capital be too complex an operation, but it can result The most effective strategy to avoid paying in significant tax savings and form part of a these higher tax rates is to take all measures Trusts and Enterprise sustainable savings plan to cope with The views expressed in these updates are the fund managers’ own and GETTY possible to keep your income within the key Investment Schemes” unknowns that lie ahead. St. James’s Place accepts no responsibility or liability for the information they contain 30 | The Investor

Market Background

Mar 09 Mar 08 Mar 07 Mar 06 Mar 05 Cumulative performance Mar 10 Mar 09 Mar 08 Mar 07 Mar 06 YTD 3 Yr 5 Yr 10 Yr AGR* UK INDICES % change % change FTSE 100 50.4 -28.2 -6.3 9.3 26.0 6.0 1.3 39.5 21.5 2.0 FTSE All Share 52.3 -29.3 -7.7 11.1 28.0 6.4 -0.7 41.3 29.7 2.6 FTSE All Stocks (UK Gilt) 0.8 10.3 7.6 0.6 7.4 1.1 19.6 29.1 68.4 5.3 IPD Commerical Property 13.9 -25.5 -10.7 15.6 20.9 3.5 -24.3 5.9 82.2 6.2 Average Savings Account ** 2.9 3.7 4.1 3.9 3.8 0.7 11.1 19.9 46.1 3.8

US INDICES FTSE Act Wld N. America 43.2 -14.0 -4.8 -0.9 24.3 12.5 17.3 44.5 4.8 0.5 Dow Jones Industrials 34.8 -14.0 -2.0 -1.7 15.2 10.8 13.6 28.8 4.5 0.4

EUROPEAN INDICES FTSE Act Wld Europe 50.5 -31.0 0.4 11.4 33.8 4.9 4.2 55.4 40.0 3.4 DAX 30 45.1 -27.4 11.0 12.7 39.3 3.7 16.9 83.5 20.4 1.9 CAC 40 42.1 -27.9 0.9 8.0 33.6 1.4 3.5 49.3 26.3 2.4 FTSE MIB 44.8 -38.3 -7.5 11.7 22.9 -1.3 -17.4 13.3 5.6 0.5

FAR EAST & PACIFIC INDICES 47.3 -16.9 -3.9 -1.5 44.0 11.8 17.6 66.9 21.3 1.9 Hang Seng 47.6 -17.3 14.3 10.0 28.0 3.2 39.6 96.6 28.7 2.6 Nikkei 225 36.6 -9.5 -15.2 -10.4 44.4 11.5 4.8 35.5 -37.1 -4.5

WORLD INDICES FTSE Act World Index 47.1 -20.0 -2.3 2.9 30.9 9.9 15.0 55.0 20.3 1.9 MSCI World Index 44.0 -20.4 -4.5 2.1 28.6 9.9 9.4 43.7 4.9 0.5 Preserving your assets for future generations Exchange Rates Leading Indicators St. James’s Place Bank Rates † STERLING US$ 1.52 UK Base Rate 0.50% iSAVER ACCOUNT There are many areas you need to consider when looking to Euro 1.12 US Base Rate 0.00% - 0.25% 2.49% AER/Gross P.A. SFr 1.60 Euroland Base Rate 1.00% preserve your wealth for future generations. These include Yen 141.74 Average Savings Rate ** 1.14% CASH ISA the effects of taxation and an unexpected change in your £ Index 78.00 Average Mortgage Rate 5.68% 2.50% AER/Gross P.A. US DOLLAR personal circumstances such as poor health, as well as Euro 0.74 DIRECT ACCESS SAVINGS taking practical steps to ensure your assets will reach your SFr 1.05 House Prices Index 6.05% 0.05% AER/Gross P.A. Yen 93.44 Retail Prices Index 3.74% intended beneficiaries. Arranging innovative and flexible EURO Average Earnings Index 6.23% For further information please contact your St. James’s £ 0.89 Place Partner or go to www.sjpbank.co.uk estate planning solutions lies at the heart of what we do US$ 1.35 at St. James’s Place Wealth Management. Yen 126.43

For more information on efficient estate and inheritance tax planning, speak to your St. James’s Place Partner.

Notes: Please be aware that past performance is not indicative of future performance. The value of an investment may fall as well as rise. Returns on equities cannot be guaranteed. Equities do not include the security of capital characteristic of a deposit with a bank or building society.

* Annualised Growth Rates are calculated over a ten year period, or since fund launch if the fund is less than ten years old. ** Average 90 Day Savings Account, £25,000+, gross income reinvested. rd October 2009. Fund Manager Historical Changes from pages 28 and 29: 1. Prior to 1.10.01 these funds were managed by Cazenove Fund Management Ltd. 2. Prior to 1.10.01 these funds were managed by Newton Investment Management Ltd. 3. Prior to 1.4.00 these funds were managed by M&G Investment Management. 4. Prior to 1.7.02 these funds were managed by Henderson Global Investors Ltd. 5. Prior to 6.4.03 these funds were managed by Deutsche Asset Management. 6. Prior to 6.4.03 these funds were managed by GAM Ltd. 7. Prior to 17.9.07 these funds were managed by Bank of Ireland Asset Management and listed as Greater European. 8. Prior to 2.2.04 these funds were managed Re-open to new business with e ect from 6.4.10. St. James’s Place Wealth Management is pleased to announce the launch of three new funds managed by these expert fund managers.

For more information, contact your St. James’s Place Partner.

International Corporate Bond

UK Absolute Return

Global Emerging Markets

Members of the St. James’s Place Wealth Management Group are authorised and regulated by the Financial Services Authority. The St. James’s Place Partnership and the title ‘Partner’ are the marketing terms used to describe St. James’s Place representatives.

St. James’s Place UK plc – Registered Office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, . Registered in England: Number 2628062.

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