March 2022 - Lawsons Equity

Conscientious Investor

Investing Today to Help Make a Better Tomorrow

In a fast-changing world, sustainability is a growing concern for investors. Sustainable investing funds position investors to manage the risks associated with environmental, social and governance (ESG) factors, capture the opportunities and contribute to positive change.

The tremendous toll of the coronavirus (COVID-19) pandemic crisis – on health, economic wellbeing and everyday activity – has precipitated a widespread reassessment of the way we live our lives. For governments, businesses and investors, an essential question has been to understand the sources of resilience during this past year and how to build on them to prepare for any future crises.

Influencing Positive Changes

If you’re someone who wants to make a positive difference, you might be interested to know how you, your money and the things you care about could all benefit from sustainable investing. At its core, ESG investing is about influencing positive changes in society by being a better investor. Investment into ESG funds has been growing at an accelerating pace over the last five years. Recent research suggests that 9% of investors currently hold ESG investments™, with 12% of investors saying they don’t currently hold ESG investments but plan to in the next year. 17% say they are likely to make their first ESG investments in 2022 or later. These numbers suggest a snowballing rate of ESG investing adoption over the next few years.

Resistance To Future Crises

As the nation emerges from the COVID-19 pandemic and begins to rebuild the economy, there is the opportunity to rebuild based on new principles. ESG concerns can be embedded in the recovery, to create an economy with more resistance to future crises. Companies are also under growing pressure to report transparently on their ESG-related practices.

More people today understand the increasing importance of responsible investing in investment decisions and it’s arguably the most important investment trend of recent decades. ESG strategies factor environmental, social and governance considerations into the investment process, with the goal of generating long-term, sustainable returns for investors.

Responsible investing is about ‘doing the right thing’, encouraging sustainability and contributing to positive, lasting change.

Environmental – Renewable energy, lower carbon emissions, water management, pollution control.

Social – Labour practices, human rights, data protection, selling practices, corporate supply chains.

Governance – Board makeup, corruption policies, auditing structure.

Approach Responsible Investing

There’s no single, universal way to be a responsible investor, but these factors will enable the growth of ESG funds by giving investment managers more options to invest in, and improved ways to assess and monitor, the ESG rating of an investment.

While ESG investing is an opportunity you might be eager to explore, there are some considerations. Your investments must align not only with your values but also with your growth expectations and risk appetite. As with any approach to investing, you should choose the funds that are right for you and obtain professional financial advice to understand the market you want to invest in.

Looking To Boost Portfolio Performance

It’s a common misconception that investing responsibly means accepting lower returns but, increasingly, evidence says otherwise. Adding an ESG criteria could help boost portfolio performance. This investment ethos also delivers benefits beyond the bottom line and recognizes that modern-day investment should be a matter of long-term ownership and sound stewardship. Speak to us for more information or to discuss your requirements.

Market Update March Monday 28th 2022

Attention turns back to the US Federal Reserve

Whilst investors remain acutely aware of the situation in Ukraine, movements particularly in the bond market this week were dominated by US Federal Reserve (Fed) comments. Fed Chair, Jay Powell, at a conference on Monday, insisted that the Fed should move quickly to raise interest rates to combat higher inflation. Further comments from Chicago Fed President, Charles Evans, were also hawkish, saying on Thursday the Fed needs to raise interest rates “in a timely fashion” this year and in 2023 to curb high inflation before it is embedded in US psychology and becomes harder to get rid of.

These comments caused US government bonds to sell off with the US government bond market now on track to post its worst month since Donald Trump was elected in 2016, as fixed-income paying securities becoming less attractive due to the prospect of higher interest rates and inflation.

10-year US treasury yields, which move inversely to price, rose a significant 22 basis points to trade at 2.37% as of market close on Thursday. To put these rises into context, at the end of February the 10-year US Treasury yield was trading at just below 2%. Shorter duration government bonds which are more sensitive to Fed action and comments also sold off. The 2-year US Treasury yield rose by 20 basis points over the week to trade at 2.13%. Yields in core government bonds in the UK and Europe followed suit, with the 10-year UK gilt and 10-year bund yield trading at 1.6% and 0.53% respectively.

Equity markets stabilise

Most equity markets are set to finish higher for the week. As of market close on Thursday, the US market is up 1.28%, whilst the UK market rose by 0.5%. Europe drifted slightly lower by -0.34%.

Elsewhere, in Asia the Hong Kong index continued its rally, up another 2.49% after last week’s comments from the Chinese government to pledge support to financial markets. The Japanese stock market also had a strong week rising 3.79% whilst the Australian market was up 1.27%, helped by energy and miners in the index which continue to benefit from elevated commodity prices.

Despite heavy fighting continuing between Ukraine and Russia, a range of factors have been attributed to the overall rise in equities this week, ranging from investors closing out bets on short positions on stocks, to short term asset allocation moves as investors position away from bonds into equities.

Commodity prices remain elevated

The price of gold rose, as it emerged G7 leaders had agreed to crack down on Russia’s ability to sell its gold reserves. As of market close on Thursday, the gold price had risen by a further 1.75% to trade at $1,967 per troy ounce. Elsewhere oil prices climbed sharply again on further supply concerns and the threat of further sanctions on Russia. US president Joe Biden will meet the EU Commission as they are set to further increase pressure on Russia. Reduced crude oil supply in the US also contributed to higher prices, as this week the Energy Information Administration reported US domestic crude inventories fell by 2.5 million barrels over the week. Brent crude oil rallied as high as $123 per barrel before settling at $118 per barrel.

Market Update March Monday 21st 2022

Equity markets rally on tentative suggestions of ceasefire in Ukraine, leading to a fall in oil prices

Despite the US Federal Reserve (Fed) raising interest rates for the first time since 2018 and indicating that rates could rise at every further Fed meeting this year, equities staged a rally over the week as there were suggestions that Ukraine and Russia had made tentative steps towards a ceasefire proposal.

This helped the oil price to tumble, which in recent weeks had worried markets as to its ability to choke off economic demand on the back of its sharp increase. The oil price was also influenced by news that an additional seventeen million people in the Chinese city of Shenzhen were being put under lockdown to contain a surge in Omicron cases.

This is on top of the nine million already under lockdown in Changchun, with rising case numbers in Shanghai and other large cities, painting a picture of falling economic demand in China as it battles its largest outbreak of Covid19 since the pandemic began two years ago. However, a senior official in the Chinese communist party, Liu He, said Beijing would introduce economic stimulus measures in due course. All of these factors helped global equities stage a recovery, rising 4.8% over the week as of 12pm on Friday, London time. This took global markets above the level they were prior to Russia invading Ukraine on the 24th of February.

US equities rose 4.9% over the week, with the US technology sector posting an increase of 6.0%.
European stocks climbed 4.0%, with the UK market rising 2.7%, suffering from weakness in the commodity sectors, with only energy and mining stocks registering a fall over the week. The Japanese market increased by 6.1%, although from an overseas investor’s perspective, some of the gloss was taken off by Yen weakness, which had up until now benefitted from being a haven currency.

The Yen weakened by 2.2% versus Sterling and 1.5% versus the US dollar. Australian stocks rose by 3.3%. Emerging markets increased by 3.3%, with Asia Pacific rising by 3.7%, whilst Latin America, more correlated to commodity prices, rose by 1.7%. Chinese domestic equities fell 1.8% over the week, suffering from an increase in Covid related lockdowns and concerns that China could face secondary sanctions should it choose to support Russia in its war with the Ukraine. However, although it recorded a loss for the week, the market rallied by over 7% midweek on suggestions of forthcoming economic stimulus.

US interest rates rise for the first time since 2018

Jay Powell, chair of the Fed, said on Wednesday, as US rates were raised by 0.25% to within a range of 0.25% to 0.50%, that the US economy was in strong shape and he did not see the risk of recession as being particularly elevated. The yield on 10-year US Treasuries, which moves inversely to price, momentarily rose to 2.23%, before setting down to 2.16% by midday on Friday.

Similarly, German bund yields rose over the week, now trading at 0.37%, whilst UK gilts yields having touched 1.64% intraweek, are trading back down at 1.52%, only slightly up on last week. On Thursday the Bank of England increased rates by 0.25% to 0.75% and predicted that inflation would hit 8% by the end of June. However, unlike the hawkish response from the Fed, the Bank of England was much more measured in its inflation outlook citing falling consumer confidence and a squeeze on household incomes that is set to become much larger, weakening the outlook for growth.

Brent crude falls to $97 a barrel having hit $132 last week

Brent crude, having touched $132 a barrel last week, traded as low as $97.4 a barrel this week, although it has since rallied to $106.1 as the International Energy Agency said a fall in Russian oil supply threatened to become the “biggest supply crisis in decades”.

Gold also fell over the week, dropping by 2.3% to trade at $1,943 an ounce.

Steps Towards A Better Financial Future

Grow, Protect And Transfer Your Wealth

Financial planning is a step-by-step approach to ensure you meet your life goals. Your financial plan should act as a guide as you move through life’s journey. Essentially, it should help you remain in control of your income, expenses and investments so you can manage your money and achieve your goals.

Life rarely stands still. Priorities shift, circumstances change, opportunities come and go and plans need to adapt. But regular discussion and reviews are the key to keeping on top of things. This means adapting your plans when things change, to keep you on course.

What Are My Financial Goals?

Generally, people’s financial goals change as they progress through different life stages. Here are some themes which might help you consider your own goals:

• In your twenties, you may want to focus on saving for large purchases, such as a car, wedding or your first home
• In your thirties, you may be planning for your family, perhaps school fees or your children’s future
• In your forties, your focus may move to retirement planning and growing your wealth
• In your fifties, paying off your mortgage and feeling financially free is likely to be a priority
• In your sixties, it is usually about making sure you have enough money to retire successfully
• In your seventies, your attention may turn to inheritance planning and later-life care

Other plans may also include starting your own business, buying a second home or travelling the world. Of course, everyone is different, so you might have a goal in mind we haven’t mentioned.

Are My Goals Short, Medium Or Long Term?

You are likely to have a mixture of short-term (less than three years), medium-term (three to ten years) and long-term (more than ten years) goals. Moving to a larger property might be a short-term goal, while saving for your children’s university fees might be a medium-term goal and retirement planning a long-term goal (depending on your life stage). You’ll need different strategies, and different saving and investment risk levels, for each of these goals.

The Golden Years?

Be Better Off In Retirement

Imagine you’re retiring today. Have you thought about how you’re going to financially support yourself, and potentially your family too, with your current pension savings? The run-up to your retirement may feel overwhelming, but this is an important time for you and your savings.

Following the pensions reforms, there are now more options available than ever and this has removed the compulsion to purchase an annuity. It also means that you can use your pension fund to benefit your named beneficiaries, whoever they may be.

Basic Retirement Lifestyle

If you are approaching retirement it’s time to think about what you’re going to do with the money you’ve been working hard to save all these years. The average UK pension pot after a lifetime of saving stands at £61,897. With current annuity rates, this would buy you an income of only around £3,000 extra per year from age 67, which, added to the maximum State Pension, makes just over £12,000 a year – just enough for a basic retirement lifestyle.

In more recent years, when it’s time to take a retirement income, some people are choosing to do so through pension drawdown. Pension drawdown provides a way to establish a flexible income, set at whatever level you choose, which can be increased or decreased over time to match your needs.

Flexibility And Control

For many, this may seem a more fitting solution to their retirement needs than purchasing an annuity, which is a more established option that typically offers a set monthly income for life. However, although pension drawdown offers flexibility and control, there are differences to consider.

While annuity income is fixed for life, pension drawdown can only continue for as long as you have savings remaining – and once they’re gone, you’ll receive nothing. So, it’s important to receive professional financial advice to ensure that you withdraw your money at a rate that will last your expected lifetime.

Will Your Savings Last A Lifetime?

It’s important to consider that your retirement could last for 30 years or more, depending on when you retire and how long you live. This is why some people use pension drawdown as the option to provide their retirement income. Your savings remain invested even after you retire, which means they have the opportunity to continue growing through investment returns.

But it’s impossible to predict exactly how much they will grow each year. Some years they will grow more than others, and some years they may fall in value. If your rate of withdrawal exactly matched your growth rate, your savings could last indefinitely. But, because growth is so hard to predict, this is near impossible to do.

How Much Can You Safely Withdraw?

A 4% withdrawal rate is typically stated as a guide for how much you can withdraw each year from your retirement savings. This figure is estimated based on the history of the financial markets and how much investments have tended to grow over periods of around 35 years (the expected duration of retirement for someone who retires in their sixties).

So, if you have £500,000 in savings when you retire, 4% would initially equate to £20,000 a year. However, there are a few additional details that mean this figure can’t be used totally reliably:

• Past performance of the stock markets cannot reliably predict future growth

• The performance of investments in your portfolio may be better or worse than average

• It’s impossible to know for sure how long your retirement will last

• Your financial needs are likely to change over time, typically peaking in early retirement and then in later life

Changing Pensions Landscape

So, a 4% rate of withdrawal could be either overly cautious, resulting in the accumulation of wealth that could create an Inheritance Tax liability, or overly reckless, resulting in complete depletion of your savings when you still have years left to live. In this world of ours, very little stands still. The same can be said for the pensions landscape. As high earners are faced with even more restrictions and potential pitfalls, it is vital to understand the rules and seek specialist advice. Start talking to us today about your future retirement plans and we can help you make sure it’s a resilient one.

Its important to consider that your retirement could last for 30 years or more depending on when you retire and how long you live. This is why some people use pension drawdown as the option to provide their retirement income.

Market Update March Monday 14th 2022

Markets dominated by whipsawing commodity prices

Energy prices have dominated markets this week together with the potential knock-on impact they could have on economic growth. Brent crude oil spiked to $139 a barrel as the US banned the import of Russian oil and the UK agreed to phase it out by the end of the year. Russian oil accounts for about 3% of US oil and 8% for the UK. On the news of the US corralling western allies to follow their lead, European natural gas futures touched €335 a megawatt-hour, a 35% increase on last Friday’s price. One year ago, the contract was trading close to €18. However, by midweek energy prices started to subside as the European Union abstained from the ban, where Russian oil accounts for a massive 27% of their total imports. It was also reported that the United Arab Emirates moved to encourage other OPEC members to increase production. On Wednesday, Brent crude fell to $110 at its lowest point and European natural gas futures dropped beneath €150. This set off a strong relief rally in European equities, with the Eurostoxx 50 rising by over 7% on Wednesday, having previously fallen by 20% year to date, pricing in a mild recession.

As of 12pm on Friday, London time, European equities rose 3.2% over the week, whilst UK stocks increased by 3.5%. The US market also rallied midweek but was still recording a loss of 1.6% at the close on Thursday, whilst US technology stocks were down 1.4%. Despite the advent of the Ukraine war, expectations remain high that the US Federal Reserve (Fed) will stick to its interest rate hiking cycle whilst inflation continues to rise, and US growth remains robust. Japanese equities were down by 2.5%, Australian equities fell 0.7%, whilst the emerging markets dropped 3.7%, with China losing 4% and, offshore, Hong Kong stocks dropping 6.2%.

Nickel trading on the London Metal Exchange closed as the price exceeds $100,000 on Tuesday

It was not only energy prices that saw massive swings, as any commodity where Russia is a key player experienced extreme price volatility. The price of nickel, of which Russia represents 10% of the globe’s supply, surged on Monday, closing 66% higher at $48,033 a tonne as short-sellers looked to unwind their positions. When the market reopened on Tuesday, the price went above $100,000, meaning that several of the trading companies on the London Metal Exchange (LME) would not have been able to meet their margin calls. To the disgust of many, the LME subsequently closed all trading in Nickel for the week and cancelled all contracts from the end of Monday. A Chinese businessman linked to the world’s largest nickel producer, Tsingshan Holding Group, is thought to have been behind the short selling.

US inflation hits 7.9%, the highest level in forty years

The latest US inflation data was released on Thursday, with headline consumer price inflation coming in at 7.9%, the highest level in forty years. This reinforced the view that the Fed will continue to raise rates despite the Ukrainian war. On Friday, Goldman Sachs downgraded US economic growth to 1.75% from 2%. Whilst the European Central Bank (ECB) is still forecasting economic growth of 3.7% for 2022 in the EU due to reopening from the covid pandemic. The ECB on Thursday said that it would accelerate its exit from quantitative easing, lowering its monthly bond purchases to €20billion a month by June, brought forward from October, catching investors off guard.

German bunds sell-off despite war on their doorstep

US Treasuries resumed their sell-off, with the yield on the 10-year, which moves inversely to price, rising to 2.02%. Similarly, despite the massive uncertainty of war on their doorstep, German bond yields rose to 0.31%, and UK gilts to 1.55%. Although Gold, a haven asset often associated with crises, increased in value by 0.6% to $1, 978 an ounce despite rising bond yields which would ordinarily take the shine off the precious metal.

Issues under discussion

Concern with an escalation of the war & energy prices

The market is chiefly concerned with an escalation of the war outside of Ukraine itself, or a substantial increase in energy prices that turns energy from an inflationary force into a deflationary force as demand falls away and recessionary risks increase. Back in 2008 this occurred at a price level of around $150 a barrel for oil, and today it is estimated anywhere between $150 to $180.

However, despite all the uncertainties created by the war, that is not where we are, or at least, not yet. Global growth is expected to continue as the world exits the covid pandemic. Even the ECB continues to forecast very robust growth.

With inflation running at record levels, that means, contrary to previous years, central banks are unlikely to come to the rescue of markets in the near term. As the market increasingly becomes accustomed to the war, and as long as it does not escalate, cheaper, more economically sensitive stocks are likely to resume their recent dominance over more expensive growth stocks, whose earnings potential are priced further into the future.

However, we cannot discount an escalation in the war, at least economically, especially whilst it looks difficult for President Putin to extricate himself from a much weaker position than he undoubtedly thought he would be in. The threat of Russia weaponising the natural gas supply to Europe looks real.

Time To Look At The ‘Big Picture’

Discovering Emotional Benefits Of Financial Advice

No two individuals share the same goals or ambitions. Each person is unique, with their own needs, targets and budgets. So when it comes to managing your money, building wealth, securing your future and, above all else, drawing up an effective plan for fulfilling your investment objectives, professional financial advice should be tailored to your unique specific needs.

A recent survey has identified that around 17 million™ UK adults have sought financial advice and, as a result, many reports experiencing emotional, as well as financial, benefits.

With many people currently coping from rapid changes to their financial circumstances due to the coronavirus (COVID19) pandemic leading to reduced income or redundancy, let’s look at how financial advice can improve your financial situation and your wellbeing.

Feeling Less Anxious

Having access to financial advice is strongly linked to feeling more secure and less anxious about money. According to the survey, around 3175 people who have received financial advice report that they feel financially more secure and stable, compared with under half of those who have not received any advice.

Only 1 in 3 people who have received financial advice report feeling anxious about their household finances, compared with over 40% of those who haven’t.

Feeling More Confident

One of the key practical benefits of financial advice is that it gives you access to expertise on topics that are complex. This provides you with more confidence and increased peace of mind. People who have received financial advice report feeling three times more confident about their understanding of financial matters and products than those who haven’t.

For example, areas that some people find confusing concern retirement planning and understanding their life insurance and critical illness options. Among those who have not received advice, around 1 in 4 people say they would not know where to start when it comes to the different options available to them. Among those who received advice, that number is fewer than 1 in 12.

Feeling Able To Cope In A Crisis

The COVID-19 pandemic has left many people feeling less stable in their financial situation. 35% of those who have not received financial advice report feeling anxious about their finances, while 65% see the value in being more prepared for unpredictable events in life.

Financial advice helps you prepare, plan and navigate any future shocks or crisis. And while you can experience the benefits of advice after just one meeting, it’s essential to receive ongoing advice over the long term as your situation and life goals change.

This means your adviser gets to know you and your background and can help you adjust to whatever life has in store. Those people who have an ongoing relationship and receive regular financial advice are twice as likely to report feeling in control of their finances as people who do not.

Time To Discover More About Your Finances?

If you’d like to feel more confident, able to cope and less anxious when it comes to your finances, start that journey today by speaking to us. We look forward to hearing from you.

Market Update March Monday 7th 2022

Market volatility ensues as Ukraine war escalates

It was another volatile week, dominated by the ongoing conflict in Ukraine. As Russian forces slowly advanced and the bombarding of Ukrainian cities continued, markets continued to sell off, especially with Western nations imposing further sanctions on Russia. Commodity prices also soared, amidst disruption to vital commodity exports.

Financial sanctions against Russian individuals, organisations and banks were ratcheted up over the previous weekend and this week from the US, UK, and European Union. Even Switzerland has made an unprecedented move to abandon its historically neutral position in foreign affairs and agreed to sanctions against Russia. Selected Russian banks have also been removed from the international SWIFT messaging system, which enables the smooth transfer of money across borders. In addition, Western leaders have frozen the assets of Russia’s central bank, limiting its ability to access its $630bn of dollar reserves.

In response, Russian assets collapsed. The Russian Rouble plunged as much as 29% against the US dollar at the start of the week, forcing the Russian central bank to double interest rates to 20% in a bid to support the currency. Meanwhile, the main Russian index in Moscow remains shut in an attempt to halt further selling. Russian companies listed on foreign exchanges, particularly in London, had their values essentially wiped out. For example, Sberbank, Russia’s largest bank, plunged 95% on Wednesday on the London market to trade as low as a penny, with other major Russian companies such as Gazprom, Lukoil and Rosneft facing similar declines. Yesterday 27 companies with strong ties to Russia had their trading suspended on the London market.

As of 12pm on Friday, London time, US equities over the week have fallen 0.5%, whilst US technology stocks dropped 1.14%. Closer to the conflict, European stocks dropped 8.92% and UK stocks fell 6.54%. Further out in Asia, the Japanese market fell 1.67%. In Hong Kong, where Coronavirus cases and lockdowns continue, the market fell 3.8%. Australia was an outlier, rising by 1.6%, as the index is dominated by energy and commodity producers which have benefitted from the rise in oil and metals.

US Federal Reserve to push ahead with interest rate increases

Despite the economic uncertainty created by Russia’s invasion of Ukraine, Federal Reserve (Fed) Chair Jay Powell, in his testimony to Congress, insisted the central bank would raise interest rates later this month by 0.25%. Whilst commenting that the Fed would proceed with caution given the potential impact of the conflict, Powell justified his proposal citing continued employment gains over the past six months in what has been an “extremely tight” labour market. He also highlighted that consumer price inflation increases were “spreading to a broader range of goods and services”.

Safe-haven bonds rally

Bond yields, which move inversely to their bond prices, all fell significantly as investors sought the safety of core government bonds as equities declined. As of 12pm on Friday, London time, the US 10-year Treasury yield which was trading close to 2%, declined by 17 basis points to 1.78%. Equivalent 10-year German bunds are now trading with yields back in negative territory. The bond yield fell 26 basis points to trade at -0.03%. UK equivalent gilt yields also fell by a similar amount with the 10-year yield falling 18 basis points to trade at 1.28%.

Commodity prices soar to their highest level since 2008.

With the potential for further disruption to commodity supply chains from the conflict, US oil prices hit the highest level since 2008 on Thursday. West Texas Intermediate, the US oil benchmark, rose as much above $116 a barrel, before settling to $111 as of 12pm, London Time. Brent crude oil prices also rallied sharply, by 15.76% to $113 per barrel. In Europe, wholesale natural gas prices reached almost €200 per megawatt-hour while thermal coal surged beyond $400 a tonne. Although Western sanctions on Russia have directly avoided natural resources, trading partners and shipping companies have effectively boycotted Russian commodities to reduce legal and reputational risk. Gold, which investors have bought in a flight to safety, has risen 3.1% over the week.

Month: March 2022