Investments Archives - HBFS


Brexit News

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Unless you have been holidaying somewhere remote or hiding away from the world, you will have heard the news that June 24th Britain has voted to leave the European Union. The lead up to the vote provided compelling arguments from both sides with both campaigns making a case for a better Britain and the result couldn’t have been closer, but ultimately the balance tilted in favour of leaving, 51.8% to 48.2%. The speculation around what would happen to the financial markets and the Pound was a concern and on the eve of the vote the markets believed that we would remain, with the FTSE 100 trading above 6300 and the Pound buying $1.49 and €1.31. Contrast that to the following day and the FTSE 100 is trading at 6000, having tested 5800 and the Pound will only buy you $1.37 and €1.23.

This tells us that there is concern and uncertainty about where Britain, and Europe for that matter, might be headed and we are only in the embryonic stage of this process, which means we will have a front row seat as events unfold for much of this year and beyond. One can be forgiven for wondering if the volatile nature of the markets will ever see calmer waters, in the past two years the equity markets have risen and fallen in equal measure due to the uncertainty of Greece, heightened geopolitical tensions in Russia/Ukraine, the horror that is ISIS, the fall in the price of oil and the slowdown in China’s economic output. All these events have increased volatility across the financial markets and we still have the US election to come later this year, which could see one of the most charismatic yet controversial characters become the most powerful man in the world.

I don’t say these things to scare you, but to highlight that even with the unrelenting and unpredictable tide of events that are stifling the progression of the financial markets, we are still going on holiday, buying a new mobile phone, tablet, car, handbag and we will all certainly keep using toothpaste, soap, detergent and filling our cars up with petrol. The message I would like you to take here is that there are always going to be events which over the short term will inevitably cause uncertainty and this will result in volatile market trading conditions effecting the value of your investment portfolios, but over the medium to longer term, which is how your investment portfolios are set up and fund managers position themselves to invest, history has shown us that markets are resilient and these types of events are part of the journey to a more profitable place and provided we have done our job properly, which I believe we have, by ensuring your risk profile matches your investment, there should be no shocks at your next review.

I would like to also provide you with some insightful commentary from the leading fund managers we use, industry commentators and of course, if anyone would like to discuss BREXIT further, please do get in contact and we would welcome the chance to meet with you.


Response to Brexit
Over the next few days and months, even years, we will undoubtedly be reading of today’s simply momentous decision by the people of the UK to leave the EU.

We will not dwell on this political event, but are very focused on the investment implications of this move. It would be fair to say that levels of complacency were elevated in financial markets going into this vote. As we have communicated to our investors recently, we have for some months been concerned by the growing risks evident in the global economy, one of them being a Brexit event.

As a result the asset allocation in our Asset Management and Multi Asset Funds has been defensive so far this year, particularly in regard to our exposure to global equities. We have been holding higher levels of cash in our Funds, as well as increased exposure to the government bond and less vulnerable credit markets.

Our high cash levels have given us the ability to react to dislocated markets. Obviously we are and will be reviewing positioning, and will communicate any significant changes.

Orchard Wealth

As you are well aware, overnight the UK has voted to leave the European Union and the British Prime Minister, David Cameron has resigned. This was not a base case scenario for us and as late as yesterday bookmakers odds suggested only a 16% chance of this happening. However, it has. We always try to position the Orchard Fund to make money out of the majority of market conditions. Tipping our hat in the direction of this possibility, we entered this referendum with over 20% of the Fund in cash and a delta of around 40% of the market. That will make little difference today. Volatility, that vital measure of uncertainty, will spike. The UK market opened down nearly 9% while the US markets are currently indicating down 3%.

Today the good will get marked down with the bad and it will be exceptionally unpleasant, but it will pass. Unfortunately, this is not a 24 hour flu. The invocation of article 50 of the Lisbon Treaty opens up two years of negotiations after which the treaties that govern the UK’s membership of the EU no longer exist. Interestingly, and adding further uncertainty, the terms of any negotiated exit agreement are subject to ratification by each member country’s parliament. We are not overly exposed to the UK economy with only 7.6% of the Fund being invested there, and even those companies where we have exposure, are largely internationally focussed but again, today, that will count for naught. Equally many of our international holdings have only limited exposure to the UK. The markets have now opened and are behaving irrationally.

We have seen holdings move from 30% down to only 5% down in the first hour. We have seen pharmaceutical holdings, the sales of which will be largely unaffected by this decision, open 10% down before rallying back to more sensible levels. It is difficult to know which prices can be trusted but at the time of writing, the Orchard Fund is performing wholly in line with expectations, having fallen less than half of the market so far today.

The markets will in all probability over-react on the downside and I would not be surprised to see the UK market fall further over the next few days. This chaos will throw out opportunities and we are placed to take advantage, but today is a time for cool heads rather than hasty action. We are, as ever, available should you wish to speak to us.

Old Mutual Wealth – Spectrum

AN ALL-WEATHER APPROACH We devote considerable thought to constructing all-weather portfolios that are robust and well able to withstand short-term buffeting. For some time, for a number of reasons, we have been fairly cautiously positioned. After months of sometimes acrimonious campaigning by politicians, the UK electorate has decided: the result of yesterday’s referendum is to Leave the EU. UK equity markets opened lower on the news, much as we had anticipated in the event of a vote to Leave. While we made no forecast as to the outcome of the vote, we ensured that in the event of a vote to Leave we would be well covered.

For some time we have been underweight UK equities across our multi-asset funds, which means that they will be less affected by UK market volatility. Sterling has also fallen sharply against a basket of currencies, on the news of the vote to Leave. Well before the referendum we put into US dollars about 3% of all our portfolios that would normally be converted to sterling, to guard against a fall in the pound. We also moved underweight property, again well before the referendum, mindful of the risks to this asset class.


Can we save you money … ?

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Can we save you money on your current life assurance?

Can we help with your investments?

Can we help you plan for your retirement?

Can we help you set up a regular savings plan?
Without Doubt.

Can we help get you a competitive mortgage?

Please call us if you have an existing policy or would like to discuss life or critical illness cover for yourself, your family, your business or to cover a loan or mortgage.

t: 01534 754444


Is it time to invest?

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The FTSE 100 index of leading shares, hit a new record high of 7037.70 on the 23rd March.

The previous peak, 6,930, had been reached on the last trading day of the 1999. This has taken 15 years to reappear. But what is the meaning for investors?

Is beating the previous record important, it’s doubtful? Firstly, the FTSE 100 is a very different animal from the one that set 1999’s record. At that point, telecoms and technology firms accounted for 23.4% of the index; the percentage of telecoms and tech firms has now fallen to just 6.7%.

The percentage of market capitalisation of the banks has also slipped during the 2008 debacle, from 16.6% in 1999 to 12.9% now. The index is now dominated by raw materials: between them, the oil & gas and mining sectors account for 22% of the FTSE, compared with 15.1% at the turn of the century. The recent takeover agreement by BG shareholders will make the new entity (set to combine in 2016) will mean that this company alone will be circa 9% of the FTSE100 and 5% bigger than the second largest company HSBC Corporation.

This change in index is reflected in the names in its top five. In 1999 they included two telecoms firms, BT and Vodafone, but both have gone, to be replaced by British American Tobacco (LSE: BATS.L – news) and Shell (LSE: RDSB.L – news) . BP, HSBC, and Glaxo remain, although in different positions.

Is this a bad time to buy? How expensive are British shares, now that the market has crossed this psychologically critical hurdle? The fact is, but not that we necessarily knew it at the time (hindsight’s a wonderful thing) the market was wildly overpriced in 1999, does the same apply now? Well, the companies in the index earn far more money now than their counterparts back then – about twice as much, in fact. The price to earnings (p/e) ratio of the FTSE 100 stood at more than 30 in 1999, whereas today it is closer to 16. The long-term average is about 15, looking good so far. Then there’s inflation. In real terms, the index has fallen by about a third since 1999.

Taking all the above into account, it’s difficult to mount an argument that British shares are significantly overvalued. However, considering the index fell to 3926 in 2009 and has raised extensively, any progress from here probably will be slower.

There are a number of other factors that could blow things off course, from the on-going crisis in the Ukraine to the Greek debt stand-off.

But, the level of the index is only half the story. Many investors, especially those who are retired, are more concerned about income. Even at its new record high, the FTSE 100 yields 3.4%. This is comfortably more than you can get in any savings account. Even the NS&I “pensioner bonds” pay 2.8% one year and 4% for three years (not available to Jersey Residents).

Buying Government 10-year gilts will net you a measly 1.8%, although riskier types of bond pay more, corporate non-investment grade, etc.

With inflation and interest rates persistently low the yield on shares looks attractive now and into the future. And with a bit of luck, anyone who buys now will see their income rise as companies improve their profits in the coming years, aided in many cases by low oil prices giving a boost to consumers’ spending power.

A starting income of 3.4% net with the chance of future rises and the potential of capital growth also means that equity investment sounds an attractive alternative to annuities.


Solar Eclipse Don’t Get Left In The Dark

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This Friday will see a solar eclipse visible in many parts of the UK and Western Europe. Although scientifically interesting there is another side to the story – don’t get left in the dark. Book a financial review with HBFS to get a clearer picture of your finances.

Enjoy the eclipse this Friday!

Below is an extract from an interesting article by Jamil Hussein, Digital News Editor of The Weather Network.

Solar eclipses have been observed throughout history. And they were often seen as omens, both good and bad, for many cultures and civilisations. Ancient folk believed the Sun was being devoured by various monsters – demons in India, Dragons in China, frogs in Vietnam or even a vampire in Siberia! Here we look at some of those myths, legends and stories.


Eclipses were believed to be a bad omen for kings. Babylonians put “stand-in” kings during solar eclipses so the real kings would avoid the bad luck. In the UK, the eclipse in 1133 AD was known as King Henry’s Eclipse. Henry I died shortly after the eclipse reaffirming the belief amongst many people that it was a bad sign for rulers. In ancient China eclipses were bad news for emperors, therefore predicting when they occurred was of high importance. So when two Chinese astrologers failed to predict the solar eclipse on 22 October 2134 BC the very predictable happened – they got their heads chopped off. It was one of the earliest eclipses recorded in history.


Gospels say the skies darkened during Jesus’ crucifixion and Christian historians saw it as a miracle and a sign of dark times to come. Historians are unsure which eclipse it refers to – either 29 AD or 33 AD. In Hindu mythology, it was believed the serpent demons Rahu and Ketu caused eclipses by swallowing the sun. They were thought to suck away the light that gives life and poison the waters. The eclipse of 27 January 632 AD coincided with the death of Prophet Muhammad’s son Ibrahim. Islamic scholars say people started to speculate that it was a Godly miracle to mark the death but Muhammad clarified that eclipses were not omens that signal the birth or death of anyone.

Modern superstitions

Solar eclipse superstitions are still prominent in many cultures. A popular one is that it is dangerous to pregnant women or will result in babies being born deformed. Pregnant women are advised not to watch, stay indoors or even touch their bellies during an eclipse. Abstaining from food and drink is another superstition that holds traction in certain quarters. People fast during eclipses while others fear food could become poisonous.

In some Asian countries people still greet eclipses with a throng of noise. Banging of pots and pans or lighting firework is common practice to scare evil spirits away.

And the moral of the story – don’t be in the dark, book a financial review with HBFS – contact us NOW

Fireworks 20


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Fixed Interest has a place in every portfolio, but like many we have concerns with the sector that has done so well since 2009. All it will take is a sudden interest rate hike in the USA to start the rolling thunder of fixed income prices falling.
Saying that, within our portfolios we have some excellent active managers who are preparing for these eventualities, so please do not worry unduly.
There should be some good returns from equities this year, but we believe a need to be careful and take profit when we can and reduce overall risk in case the world markets run into further problems.

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A further rough year for commodities, with many a negative figure for year end. However, during the year we did see at times pleasant rebounds from which we were able to secure some profit and also during reviews we looked to buy the discounted value of these funds.
In some ways rather than discounted value the commodities sector looks like it is flat on its face.

The oil price has had a rather shocking and drastic cut, although strangely pump prices (retail petrol and diesel) have reduced they certainly have not halved in cost?
The price has fallen from its height in June of $115 per barrel to less than half and at the time I am writing this even further to less than $50 per barrel. This in turn is wreaking havoc on oil producing countries such as Russia and Venezuela.

For much of this decade oil prices have been high, bouncing around the $100 per barrel since 2010, due to soaring oil consumption in countries such as China and conflicts in oil nations such as Iraq. Oil production just couldn’t keep up with demand.
The higher price per barrel spurred many companies to start drilling for new, hard and expensive to extract crude in shale (horizontal drilling) and fracking. At the same time demand for oil particularly in Asia was tapering off due to economy slowdown across the globe. On top of that countries like Iraq started producing more oil!
Towards the end of 2014 world oil supply was on track to rise higher than demand. As the price started to fall investors watched to see if OPEC (the world’s largest oil cartel) would cut back on its production to prop up prices (many OPEC states need high oil prices to balance their budgets). However, OPEC did nothing at its meeting in November.
So now the oil price crash is affecting the global economy, with ramifications for every country in the world. Great news for oil consumers in Japan and USA, but a differing story for nations reliant on oil sales, like Russia and Venezuela.
Will the oil price rise?
Yes, but when? There are many variables here, demand, production and conflict! I could provide more detail but I think you get the picture. It will happen and I think if you have a reasonable medium term time horizon buying now will reap rewards later. So once again notwithstanding losses I believe this is a buy sector.
As political and financial issues turn up the heat, Nick Price discusses the strategy for the Fidelity Emerging Markets fund.

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Commercial Property

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Both the UK and World commercial property markets continued to provide our investors with solid positive returns over 2014 and we can see this continuing for 2015. We have been taking profit relatively aggressively from the share class or REITS form of commercial property funds but left the bricks and mortar well alone for the time being.


Fourth Quarter 2014

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Well the final 3 months of the year proved to be very trying times indeed, causing a few sleepless nights, the FTSE 100 was bouncing around like nobody’s business, with huge drops one day and dramatic climbs back up a day or two later. Immediately we launched into this third quarter the FTSE 100 went into a downward spiral, dropping -5.51% in the first 16 days, rising +5.66% by the end of October. November, thankfully was somewhat flatter and calmer rising steadily by 1.68%. December however, started off aggressively falling by -7.12% by the 15th December, regaining +6.2% before year end.

What did World Markets do in 2014?


A mixed bag as you can see above, the real surprise, Japan! This positive return was only copied by a very few of the sectors fund managers.
With regard to India, this huge return was mainly due to the election of the new Prime Minister Narendra Modi. You may remember we commented on the potential for super returns in our post early May. These returns came through for our investors in this volatile region.
After many years of steering clear of the USA our choice of a few years ago to reinvest in the USA really paid off, with investors reaping the benefits.
Thankfully the UK equity funds that we were positioned in for 2014 fared very well and produced solid positive returns, busting the argument for passive index trackers and ETFS. So we were delighted with this result.
Latin America, however, became our thorn in the side, with continuing negative returns, I did read an excellent article to look at Latin America as a contrarian view and invest. I’m afraid that at this point I am not totally convinced.

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Manage the Headlines

Manage the headlines

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The temptation for many when confronted by negative sentiment is simply to exit the market. Recent events in Russia highlight how swiftly an indiscriminate sell-off can take place. However, acting on sentiment would be doing our clients a disservice. Every position we hold in our portfolios is there for a reason and is subjected to ongoing reassessment. Unless macroeconomic or political shocks severely impact the long-term operating environment of a company, we will stay true to the conviction that made us invest in the company in the first place.

So continuing with Russia as an example, we have held a residual overweight position for a long time in the Fidelity Emerging Markets Fund. The country is renowned for a plethora of cheap companies, but many of them are cheap for a reason – there are political and corporate governance risks that you assume when investing in Russia. Most of our Russian holdings are supported by a very attractive dividend yield which delivers a significant proportion of our total shareholder return to us in cold, hard cash. Indeed, compelling dividend yields, coupled with recent valuation compression, can provide a sound footing for generating future shareholder returns.


A slightly different slant on investing, lest we all forget!

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We all tend to focus on how our savings are doing whether they are in a bank account or direct equity, property etc. What we do forget is investing in ourselves?

So you’re a happy couple, family doing well for yourselves, good income stream, pension planning coming on well, mortgage rapidly dropping (in this low rate environment) and cash in the bank. What have we forgotten?

You and your spouse the most valuable assets you possess!

Most of us recognise the importance of taking out insurance to cover valuable possessions such as our homes and cars, even pets. Less of us have the protection in place to cover ourselves and families should something prevent us from working. This is how all of a sudden all the hard work mentioned above goes to pot and instead of retiring comfortably your situation alters greatly to one of worry.

How many of you have thought about how valuable you are to your children, and spouses and what would happen, if you fell seriously ill or pass away? According to the latest figures from the Office of National Statistics, less than 20% of British men and 10% of British women die before their 60th birthdays. However, millions of Britons under the age of 60 are diagnosed with critical illnesses every year.

Whilst, unfortunately most major life events can’t be foreseen, they can be planned for; we explain some of the different types of cover available that could help support you or your family in times of crisis.

Contact HBFS now for more information on protecting your most valuable asset.