Market Update and Phoebe Stone's Presentation

Friday 2nd October 2020

We hope our clients enjoyed Phoebe Stone's presentation last week. Below is a link to a recording for you to review, at your leisure, and for those unable to attend to listen to Phoebe's market update and more information on Sustainable investing. To access the presentation please click here.

Phoebe highlights the current issues for stock markets well so we won't dwell on this today. However, one aspect that we briefly mentioned was the dramatic reduction in the National Savings Interest Rates. Premium Bonds reduced the prize pot to 1%, so not so severe although the odds of winning increase from 24,500 to 1 to 34,500 to 1. The Income Bond rate is to be savagely cut from 1.16% to 0.01% from 24th November.

National Savings are a way for the Treasury to raise money that the Government can use, which as we know they really need. From the Treasury view why pay over 1% to borrow money when the current 10 Year Gilt (Bond) yield is only 0.22% and talk of actually going negative next year. Bonds are issued by the Treasury to raise money and currently there seems to be a lot of demand to buy them. It's ironic that in the financial crisis there was panic in Europe where an article in the Telegraph on 14th May 2012 quoted yields of 6.3% in Spain, Portugal at 10.5% and Greece above 26% so exceptionally high rates for their governments to raise money, such was the fear of lending to Governments at the time. It highlights that the Banking System was broken and quite severely which isn't the issue today, as we look at a virus with an end in sight when we have the vaccine. On this point we remain positive, and such has been the Government and Central Banks' intervention interest rates will stay at a near zero low for a few years yet.

The UK Autumn Budget, where tax rises were expected, has been postponed as a second lockdown threatens, and new measures to help were announced by Rishi Sunak, the Chancellor, last week. The tax raising threat hasn't gone though and indeed Capital Gains Tax (CGT), which we wrote about previously, is still being reviewed by the Office for Tax Simplification (OTS) with commentators favouring alignment of CGT to Income Tax. The good news is that the threat of higher rate tax relief being withdrawn for pension contributions seems to have gone as the government has said it will not review pension tax relief in the next 12 months.

We finish on the Sustainable theme and listened to a presentation on the subject yesterday by fund manager Janus Henderson. They showed an interesting slide of how quickly we use the Earth's natural resources. In 1970 we had done so by December, so just about sustainable. That timescale has been reducing, so by 2019 we did so by 29th July. In the same slide they showed that five planet Earth's are needed if the world used resources at the same rate as the USA. If it was the same as the UK it would be 2.7 Earths. (Sources via Janus Henderson The Global Footprint Network 2020). As we try to correct this there is more innovation as companies move to being more sustainable and reusing resources rather than what seems to have been a throw away culture. Sustainable investing is about those companies that will have a positive impact on society and the environment, and we think will ultimately benefit by providing attractive investment returns in the future. The speed of this has no doubt been increased due to Covid-19 and may be the one bright spot of this devastating virus.



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