Lawson Equity HQ, Rocomar Shops, 6 Portruman Street, Qawra, Malta
+356 2157 6666

    Month: June 2020

    Managing Market Volatility

    Diversification is key in uncertain times

    The outbreak of coronavirus (COVID-19) has understandably been dominating the news headlines. Market fear over the escalating global spread of coronavirus has seen a sell-off across many asset classes. This period of market stress further emphasises the importance of diversification within portfolios. Investorsobjectives can rarely be met by investing in a single asset class.

    If you would like any further information please do not hesitate to book a meeting with Lawsons Equity to discuss how we can help.

    Diversification means making sure your portfolio has varied investments: investing in bonds and stocks, in different industries, and in small and large companies. Whilst dont put all your eggs in one basketis a well-used phrase, it is still relevant today and means: dont have all your money in one place, as you could lose it all in one go.

    Range of assets

    During the early weeks of the coronavirus outbreak, the response from financial markets was somewhat muted. However, as the virus has continued to spread, markets have reacted in a more pronounced way to the impact on global demand, supply chains and tourism

    This further strengthens the case to invest across several asset classes to provide greater diversification potential. Therefore, if one asset class performs less favourably, it can potentially offset another that is performing favourably, providing more balance to your portfolio when market shifts occur. Investment returns vary significantly between different asset classes or investment basketsyear-to-year.

    Return profile

    By holding well-diversified assets at both asset-class and geographical level, our portfolios experience a relatively smoother return profile because risk exposure is less concentrated.

    Investment options span every sector of the property, stock and bond markets, but allocating your assets based on performance alone is often ill-advised because the market is a moving target. One year, a particular type of security can be a star performer, only to severely underperform the very next year.

    Life stages

    Different investors are at different stages in their lives. Older investors may have a shorter time horizon for their investing than younger investors. Risk tolerance is a personal choice, but its good to keep perspective on personal time horizons and manage risk according to when access to funds from different assets is needed. If cash is needed in the near term, it is better to sell an asset when you want to sell it rather than when you have to sell it.

    Under normal market conditions, diversification is an effective way to reduce risk. If you hold a diversified portfolio with a variety of different investments, its much less likely that all of your investments will perform badly at the same time.If you hold just one investment and it performs badly, you could lose all of your money. The profits you earn on the investments that perform well offset the losses on those that perform poorly.

    Reducing risk

    While it cannot guarantee against losses, diversifying your portfolio effectively and holding a blend of assets to help you navigate the volatility of markets is vital to achieving your long-term financial goals while reducing risk.

    As well as investing across asset classes, you can further diversify by spreading your investments within asset classes. For instance, government bonds and corporate bonds can offer very different propositions, with the latter tending to offer higher possible returns but with a higher risk of defaults, or bond repayments not being met by the issuer.

    However, although you can diversify within one asset class for instance, by holding equities in several companies that operate in different sectors this will fail to protect you from systemic risks, such as international stock market volatility.

    Timing the market

    Resist the temptation to change your portfolio in response to short-term market movement. Timingthe markets rarely works in practice and can make it too easy to miss out on any gains.

    Over the long term, investors will experience market falls which happen periodically. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market – this just means you have taken the loss. Its important to remember why youre invested in the first place and make sure that rationale hasnt changed.

    Optimal balance of risk and return

    Whatever your approach, diversification can help to manage your investment risk. If you would like further information or to discuss your requirements, please contact Lawsons Equity on +44 (0) 2033 935 920 or email info@lawsonsequity.com

    Lawsons Equity is licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

    Information is based on out current understanding of taxation legislation and regulations. Ant levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable
    indicator of future performance

    Market Update 29th May – 7th June 2020

    Stocks climbed higher for the third week in a row, oil jumped, and Treasury yields rose to an 11-week high following a surprising gain in payrolls last month. The U.S. economy added 2.5 million jobs in May, while the unemployment rate declined to 13.3% from April’s record level, suggesting that an economic recovery is under way faster than previously thought.

    Even though economic activity will likely take a while to return to pre-crisis levels, last week’s employment data may be laying the foundation for a long-term recovery. Following last week’s rally, the S&P 500 has now erased its losses for the year. Some uncertainties that could trigger higher volatility remain, but the recent market advance highlights the importance of staying invested, even through the most difficult times.

    Further evidence of economies beginning to open up, combined with the announcement by the European Central Bank of a bigger than expected boost to its stimulus package, helped to broaden out equity market performance this week, with Europe and the Emerging Markets performing strongly.

    US equities had risen 2.2% over the week, whilst European stocks, which have markedly lagged the US since the market trough, rose 5.6%, whilst UK equities were up 5.5%. Japanese equities climbed 3.1%, Australian equities rose 4.2% and the emerging markets were up 6.3%. At a sector level, those areas that have been left behind in the market rally, were the best performing sectors with travel and leisure, financials and energy stocks all outperforming.

    Conversely, government bonds gave up some of their gains this week, as investors rotated out of safe assets into more risky areas.  10-year US Treasuries yields, which move inversely to price, rose over the week, now yielding 0.91%.  Similarly, German Bund yields rose, currently yielding minus 0.27%, and UK 10-year gilts are yielding 0.35%.  Gold also gave up some gains, falling by 2.65%, trading at $1,685 an ounce.

    Industrial commodities performed well, with copper, long considered a good indicator of economic activity, rising by 4.2%.  Brent crude oil, spurred on by news that OPEC had agreed to meet up over the weekend to discuss an extension of production cuts, increased by over 16% and is now trading at $42.30 a barrel. WTI is trading at $32.44.

    The dollar also gave up some of its strength, falling by just over 2% versus the Euro and Sterling, a further sign that investors are rotating into more risky assets across the globe.

    The Chinese Caixin services sector PMI (Purchasing Managers Index) rose above 50 in May, the first indication that services are no longer contracting in China, with 50 being the dividing line between contraction and expansion.  The index came in at 55, against expectations of 47.3, with new orders jumping by the fastest pace in a decade.  Manufacturing came in at 50.7, nudging into expansion territory for the first time since January.

    Travel and tourism stocks, unsurprisingly a laggard in the stock market recovery, had a good week as more countries agreed bilateral travel agreements between them, opening up the possibility of travelling abroad being relaxed in the coming weeks.

    Market Update 22nd – 29th May 2020

    Stocks ended the week higher, with the month of May marking the start of the gradual reopening of the domestic and global economy. A steady but slow decline in new infections has allowed the partial lifting of restrictions, boosting investor confidence. The more cyclical sectors, like financials and industrials, outperformed last week, while European equities reacted positively to a proposed €750 billion recovery fund by the European Commission. The proposal requires approval by all EU members and includes €500 billion of grants to member countries.

    The Euro is currently trading at $1.1115, a two month high in response to the proposal. Despite the brief pullback on Thursday evening, the US market still finished in positive territory, 3.76 % higher and this was followed by strong performance in Europe, with the Eurozone market up by 4.49%, and the UK up 1.38%. In Asia, the Hong Kong index lagged given the geopolitical tensions, up just by 0.14%, however, Japanese equities were the stand out performer in the region rising 7.30%

    The news that lockdown is easing across the globe also led to a rally in equity sectors leveraged to the reopening of the economy, including an outperformance in airlines, hotels, and leisure, versus sectors that have gained from the “stay-at-home theme”, including online retailers and consumer staples. In particular, travel companies rallied, with TUI up 50% and airlines including easyJet and British Airways-owner IAG 20% higher after Germany announced a vote this week on whether to relax travel restrictions by mid-June. This was followed by Spain saying on Saturday it would be open for foreign holidaymakers from July.

    The rally lost steam by the end of the week, however, over fears of worsening US-China relations after Beijing, this week announced proposals to implement a controversial national security bill over Hong Kong, raising fears over the future of its freedoms and its function as a finance hub. US Secretary of State Mike Pompeo reported to Congress on Wednesday that the Trump administration no longer considers Hong Kong to be autonomous from China, potentially jeopardising bilateral trade arrangements that apply to Hong Kong.

    In what was broadly a risk on week, demand for safe-haven faltered, although there was some appetite for core Government bonds late in the week as investors braced for the US to retaliate over the Hong Kong security bill. Overall for the week, 10-year US treasury yields (which move inversely to their bond price) were largely unchanged up just 1 basis point, whilst the yields for 10-year equivalent German Bunds and UK gilts rose by 5 and 1 basis points respectively. Gold also gave up some ground, down 0.71% for the period now trading at $1,730 per ounce.

    Brent Crude oil prices rose by 5.02% over the week to trade at $37.84 per barrel and WTI also rose 5.28% currently trading at $35.32. The Energy Information Administration showed that US crude oil and distillate inventories rose sharply last week, gaining 7.9 million barrels in the main due to imports, whereas analysts had, in fact, predicted a drop of 1.9 million barrels.

    Income Protection Insurance

    There is a growing unease about the economic fallout of coronavirus (COVID-19), with many businesses laying off contractors and putting staff on extended leave, as well as natural worries about contacting the disease.

    What this crisis has shown is that being unable to work can quickly turn our world upside down. No one likes to think that something bad will happen to them, but if you can’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and income protection insurance is an option to consider.

    You might think this may not happen to you, and of course we hope it doesn’t, but it’s important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so forgoing income protection insurance could be tempting fate.

    Cover monthly payments

    Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.

    Keep your finances healthy as you recover from illness or injury:

    Income protection insurance replaces part of your income if you become ill or disabled
    It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner
    There’s a waiting period before the payments start, so you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments
    It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity)
    You can claim as many times as you need to while the policy is in force

    Generous sickness benefits

    Some people receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could find themselves having to rely on the state, which is likely to prove hard.

    Tax-free monthly income

    We’re already seeing, as a consequence of COVID-19, how many people are finding it a struggle financially without a regular income. Even if you were ill for only a short period, you could end up using your savings to pay the bills, but how long would they last? In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work. Few of us could cope financially if we were off work for more than six months. Income protection insurance provides a tax-free monthly income for as long as required, up to your nominated retirement age, should you be unable to work due to long-term sickness or injury.

    Profiting from misfortune

    Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim. This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover.

    Self-employment

    If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. Self-employed people can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out. A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.

    Cost of cover

    The cost of your cover will depend on your occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account.

    You can also usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover):

     Level cover – with this cover, if you made a claim, the monthly income would be fixed at the start of your plan and does not change in the future. You should remember that this means if inflation eventually starts to rise, the buying power of your monthly income payments may be reduced over time

     Inflation-linked cover – with this cover, if you made a claim, the monthly income would go up in line with the Retail Prices Index (RPI)

    When you take out cover, you usually have the choice of:

     Guaranteed premiums – the premiums remain the same all the way throughout the term of your plan. If you have chosen inflation-linked cover, your premiums and cover will automatically go up each year in line with RPI

     Reviewable premiums – this means the premiums you pay can increase or decrease in the future. The premiums will not typically increase or decrease for the first five years of your plan, but they may do so at any time after that. If your premiums do go up or down, they will not change again for the next 12 months

    Making a claim

    How long you have to wait after making a claim will depend on the waiting period. You can typically choose from between 1, 2, 3, 6, 12 or 24 months. The longer the waiting period you choose, the lower the premium for your cover will be, but you’ll have to wait longer after you become unable to work before the payments from the policy are paid to you. Premiums must be paid for the entire term of the plan, including the waiting period.

    Innovative new products

    Depending on your circumstances, it is possible that the payments from the plan may affect any state benefits due to you. This will depend on your individual situation and what state benefits you are claiming or intending to claim. This market is subject to constant change in terms of the innovative new products that are being launched. If you would like further information or to discuss your requirements, please contact Lawsons Equity on ++356 2157 6666 or email info@lawssonsequity.com

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