Investment & Retirement Focus - autumn

Investment & Retirement Focus - autumn

INVESTMENT & RETIREMENT F CUS

A Tenet Group Publication Issue 11 | Autumn 2020

Structural change, durable opportunities Seeking companies that deliver on tomorrow’s needs, not yesterday’s.

The future for open-ended property funds Where now for the global economy?

Retirement advice unplugged

ALSO IN THIS ISSUE:

Pensions and the everchanging landscape Advising your clients by need, not wealth Economic recovery - three scenarios... UK Equities - Operation Dynamo to the rescue?

Capital at risk.

Structural change, durable opportunities The world around us is always changing, in ways large and small. Our Global Equities team believes the key to success is to find the significant changes, and then identify the stocks that benefit most from them. The pandemic of 2020 has been hugely disruptive, but it has not fundamentally changed the direction of progress in the world. In many cases, it has only served to accelerate this progress.

Here are a few examples of structural change where the team see opportunity:

E-commerce This trend isn’t sneaking up on anyone. It represents a structural shift in consumer behaviour dating back to 1997, when the first book was purchased on Amazon. Since then, market share gains for e-commerce companies have gone from strength to strength, and with the penetration rate still surprisingly low across most of the world, the team believes the runway for growth is long.

Medical devices and technology A post-coronavirus world is one that pays much closer attention to the importance of fast and accurate medical diagnostics. In addition, populations the world over are rapidly aging, suggesting the consumption of healthcare will be robust for decades to come.

The move to cloud computing The shift to cloud delivery of software is one of the most powerful, and underappreciated, changes occurring in the world today. Cloud companies are gaining market share from legacy providers at an accelerating rate, and the economics of their business models means their margins improve even as they grow.

To find out more about our Invesco Global Focus Equity Strategy and the investment process behind it, visit invesco.co.uk/globalfocus

The products within this investment strategy are not on panel for Tenet members. Should you deem it suitable for your clients, please contact Tenet’s Technical Services & Research department to follow the off-panel process.

Investment risks: Capital at risk. The strategy invests in a limited number of holdings and is less diversified which may result in large fluctuations in value. The strategy may use derivatives and this may result in greater fluctuations in value. The strategy can invest in emerging and developing markets, where there is potential for a decrease in market liquidity, difficulties in dealing and settlement, and custody problems could arise. The strategy may access shares traded in mainland China, this may result in additional liquidity risk, operational risks including settlement risk, default risk, regulatory risk and system failure risk.

This ad is for Professional Clients only and is not for consumer use. Invesco Asset Management Limited is authorised and regulated by the Financial Conduct Authority. EMEA6748/2020.

INVESTMENT & RETIREMENT F CUS

A Tenet Group Publication Issue 11 | Autumn 2020

A focus on… Resilient Investments

The future for open-ended property funds Where now for the global economy?

Retirement advice unplugged

ALSO IN THIS ISSUE:

Pensions and the everchanging landscape Advising your clients by need, not wealth Economic recovery - three scenarios... UK Equities - Operation Dynamo to the rescue?

Discover the latest insights from our investment experts

columbiathreadneedle.co.uk/insights

Past performance is not a guide to future performance. Your capital is at risk. The value of investments and any income is not guaranteed, can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. 04.20 | J30507 | 3012421

INVESTMENT & RETIREMENT FOCUS | 3

Foreword From the Editor

CONTENTS

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Welcome to the autumn issue of Investment & Retirement Focus. Our dedicated magazine highlighting the latest developments and products in this market from our specialist provider partners. We open this edition with an article from Tenet’s Mike Dowsett, Senior Technical Services & Research Consultant, Mike provides a precis of the recent FCA consultation paper on open-ended property fund liquidity. The potential implications of the proposals on the future inclusion of these funds in client portfolios are also examined. In the summer Prudential were delighted to be joined by Rory Percival on a webinar to discuss the recent FCA policy statement and guidance consultation on DB transfers. Importantly a key theme of this session was to look at the impacts on other areas of retirement planning, and how advisers can futureproof their centralised retirement proposition. Mark Devlin, Senior Technical Manager at Prudential has compiled the top ten questions (and more importantly the answers) that were asked by advisers on this subject. Jon Arthur, Senior Product Specialist at Architas, discusses the reasons behind a darkening retirement outlook and ways to try and help mitigate the risks. The new ‘Just For You Lifetime Mortgage’ green feature is a UK first. Your clients with energy efficient EPC rated B or above homes can get a reduction to the standard J2.5 interest rate. On page 21, Invesco’s Chief Economist John Greenwood shares the three different paths to economic recovery he expects to see as lockdown measures are slowly lifted across the globe. The HubwiseConnect development team have focused on perfecting the relationship between the platform and pension provider Hartley enabling you to provide a seamless, end-to- end service for clients. I hope you find the enclosed articles helpful and supportive, keeping you up to date with the Investment & Retirement markets. Best Wishes

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T echnical Services & Research department The future for open-ended property funds

10-11 Prudential

Retirement advice unplugged

15

Fidelity The new economic order

10

19

Premier Miton Investing: Childs Play?

23

A berdeen Standard Investments ESG matters - the smarter investment in our future

26-27 HubwiseConnect Available through the

15

HubwiseConnect Platform - the Hubwise Hartley SIPP

23

Cristina Marketing Consultant

EDITOR Cristina Giovanelli

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 239 5322

This publication is for internal purposes only and is not intended as an advertisement. As a result this should not be issued in any form to clients. Not all the products in this feature are the responsibility of the Tenet Group Limited. Terms and Conditions. Although every effort has been made to ensure the accuracy of the information contained in this publication, The Tenet Group cannot accept responsibility for any errors it may contain. The Tenet Group cannot be held responsible for the loss or damage of any material, solicited or unsolicited. No reproduction of any part of this publication, in any form or by any means, without prior written consent from The Tenet Group. The views ex- pressed in this publication do not necessarily reflect those of the advertisers or the publishers.

4 | INVESTMENT & RETIREMENT FOCUS

Mike Dowsett Senior Technical Services & Research Consultant

Technical Services & Research

The future for open-ended property funds

The proposed redemption notice period is likely to make open-ended property funds non-qualifying for ISAs. The FCA is in discussion with the Treasury on this point as part of the consultation. The outcome of this discussion will be taken into account in the introduction of any new rules. Whilst the introduction of the proposed notice period should allow open ended property fund managers to better control liquidity, the measure will by no means guarantee that future property fund suspensions will not happen. Existing FCA rules require a fund to suspend if there is material uncertainly surrounding the value of more than 20% of the fund’s assets. It was the material uncertainly clauses widely placed on valuations at the start of the pandemic that triggered many of the current suspensions. These clauses are now gradually being lifted in many sectors of the property market, including supermarkets and healthcare. However, some fund suspensions are still likely to remain in place for a while yet until the market fully stabilises. The uncertainly clauses placed on offices in several regions, including London, have now also been lifted. However, with many office workers yet to return to their place of work and home working becoming much more of a norm it remains to be seen how attractive this sector will be to property fund managers over the long-term. We are likely to see some continued portfolio repositioning in this regard.

a fund intended for retail investors. If the proposals go ahead then this will impact on the use of open-ended property funds in retail client portfolios. It will potentially become harder to assess the suitability of a property fund recommendation with the redemption process perhaps more suited to experienced investors able to take a longer-term view on the holding. For those who may require the ability to take ad-hoc withdrawals from their portfolios a redemption notice period will become problematic. The redemption price that the investor receives will be the price at the end of the notice period and not the price at the time the investor makes the request. This proposed mechanism is designed to be fair to those investors remaining in the fund but the investors making redemptions will then be exposed to market risk for what will be a fairly lengthy notice period. Furthermore, the unknown future redemption price at the end of the notice period will make it tricky to calculate the correct number of units to redeem in order to meet a specific goal. Where property funds are used within model portfolios or indeed within multi-manager funds then the presence of a redemption notice period will make rebalancing back to a target asset allocation more awkward. It will again be difficult to calculate the correct number of units to sell in order to meet the required portfolio weighting and during the notice period the value of all of the portfolio holdings will fluctuate.

With the fund suspensions affecting many well-known property funds since the start of the Coronavirus pandemic still in force, the outlook for these investments faces renewed uncertainty. There now seems to be a greater level of acceptance within the industry that the provision of daily dealing on a fund is at odds with investing in an asset type which can take a lengthy period to sell and is dependent on a sufficient number of completed sales transactions to provide an accurate market valuation. On 3rd August, the FCA published a new consultation paper (CP20/15) titled Liquidity mismatch in authorised open- ended property funds. The consultation is proposing the introduction of a notice period of between 90 and 180 days for investors wishing to redeem units in a property fund. The proposed notice period will better protect the interests of all investors in the fund by giving the fund manager sufficient time to conduct orderly disposals of property assets in order to meet redemption requests. It is also envisaged that a redemption notice period approach will allow fund managers to reduce the level of cash balances that they currently hold to meet redemption requests. In theory, this will allow funds to be more fully invested boosting long-term returns. There are of course some significant drawbacks in removing daily dealing on

INVESTMENT & RETIREMENT FOCUS | 5

If the proposed redemption notice period for open-ended property funds goes ahead then it is likely that some investors will start to look for alternative holdings. Closed-ended funds can offer exposure to the property sector but do come with equity market volatility and potentially dramatic price swings at times of market stress. Such vehicles are unlikely be the answer for lower risk investors. There is still a case to be made for holding property within a portfolio as a long-term investment. As an asset it provides some additional diversification and a regular income stream. However, where redemption notice periods become at odds with objectives and efficient portfolio management then other alternatives with improved market liquidity may need to be considered. Longer-term, asset allocation providers may need to review how they include this asset class within strategic asset allocations models designed for retail investor use. The FCA consultation closes on 3rd November with any new rules expected to be introduced in early 2021. Therefore, as we move into the next year and the current suspensions hopefully start to be lifted we should start to get more clarity on what the future holds for open-ended property funds.

“Whilst the introduction of the proposed notice period should allow open ended property fund managers to better control liquidity, the measure will by no means guarantee that future property fund suspensions will not happen.”

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