Investment and Retirement Focus Issue 8

Investment and Retirement Focus Issue 8

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 8 | Winter 2019

A focus on… Creating long term wealth

AMODERN DISCRETIONARY PARTNERSHIP

ESG Investing – Who Cares Wins What are your plans to ensure clients don’t run out of money in retirement? Unlocking the the UK’s investment potential via EIS

ALSO IN THIS ISSUE: The case for hedging currency in global bonds Building portfolio ballast with bonds The rise of China’s local leaders Powerful Multi-Asset Income funds

Investment Evolved

• IFA only • Platform only • No direct clients

£7 bn

AUM as at 30 Sep 19

Largest on-platform MPS provider in the UK

(Source – Platforum, 2019)

SAVE 0.31 % * onaverage portfoliocost

Market leading charge flow to client – clear benefits for Adviser and Investor Tatton Managed Balanced

CLIENT COST OF INVESTING: 1.10% *

Portfolio costs: 0.59%

Platform charge: 0.36%

Tatton fee 0.15%

Industry average medium risk actively managed portfolio

CLIENT COST OF INVESTING: 1.41%

Industry average portfolio costs: 0.68%

Platform charge: 0.36%

Industry average fee 0.37%

* The diagram demonstrates the combined benefit of controlling portfolio costs and lowering discretionary fees to the client’s cost of investing. Currently, Tatton saves clients 0.31% per annum in investment fees and charges than the industry average for medium risk actively managed portfolios and 0.14% for medium risk passive portfolios (Source: Platforum. UK Fund Distribution: Model Portfolios on Platform, July 2019) Fees quoted are inclusive of VAT.

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 8 | Winter 2019

A focus on… Creating long term wealth

ESG Investing – Who Cares Wins What are your plans to ensure clients don’t run out of money in retirement? Unlocking the the UK’s investment potential via EIS

ALSO IN THIS ISSUE: The case for hedging currency in global bonds Building portfolio ballast with bonds The rise of China’s local leaders Powerful Multi-Asset Income funds

Times change.

In a world that’s ever-changing, we shouldn’t lose sight of what got us here. We believe success lies in marrying trusted techniques with the latest advances in tech. Let’s define the future of investing together. Join us at invesco.com/change

Issued by Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority. EMEA7319/2019

INVESTMENT & RETIREMENT FOCUS | 3

Foreword From the Editor

CONTENTS

6

Welcome to the winter edition of Investment & Retirement Focus. We open this issue of Investment & Retirement Focus with Tenet’s Technical Services & Research department, (TS&R); ESG investing is becoming more prevalent, so in their article TS&R are taking a look into what ESG is, where to start, fund performance and the upcoming regulation changes that will affect you. Decumulation strategies are becoming a hotly debated theme across the adviser community and a key focus of the regulator. Mark Stopard, Director of Proposition Development at Just asks, 'What are your plans to ensure clients don’t run out of money in retirement?' Sustainable investing can mean different things to different people. M&G fund manager John William Olsen, shares his views on sustainability and how to identify sustainable companies. When Prudential first launched the original, onshore bond, version of PruFund Growth in November 2004; one of the key challenges would have been "can it stand the test of time?" This is actually one of the most difficult questions to answer for anyone developing something new, purely because you don’t know precisely what the future holds. Well, 15 years on, Prudential can now answer that question in respect of PruFund Growth; armed with the marvellous gift of hindsight…read this article on pages 14 & 15. Global bonds offer many diversification benefits but they also add currency risk to a portfolio. Vanguard research explores the role of currency hedging when investing in global bonds. I hope you enjoy reading this issue as you wind down for the coming festive period. I’d like to take this opportunity to wish you all a Merry Christmas and a Happy New Year! Kind Regards Cristina Marketing Consultant

6-7

The Outsourced Marketing Department - Global economy hindered by trade traumas - Is there light at the end of the tunnel?

14-15 Prudential -

Standing the test of time

14

17

Schroders - Intergenerational wealth transfer – Opportunity or challenge? Aberdeen Standard - Europe – Out of complexity comes opportunity

23

26-27 Fidelity -

The rise of China’s local leaders

23

30

VitalityInvest - A proven fund strategy

26

EDITOR Cristina Giovanelli

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 258 6959

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

You don’t have to be a climate change warrior or a human rights activist to notice that there are many problems in the world, but it seems in recent times that environmental and social issues are becoming more and more prevalent in the media, and the average consumer is starting to take note ESG Investing – Who Cares Wins Bryony Morris Technical Services & Research Consultant

Studies show that consumers are becoming more aware of the influence they have on the world and about the impacts of the day-to-day choices they make, such as the manufacturing processes of products they purchase and the treatment of the employees who make them, but why you may ask is this relevant to an adviser? This increasing awareness of the world around us means that clients are now becoming very conscious of Environmental, Social and Governance (ESG) issues and this is trickling down into their investment decisions. You may think that millennials are the ones driving socially responsible investing but older generations are also interested, especially those thinking about investing for their children’s or grandchildren’s future for example. It is therefore apparent that ESG investing is not just a fashionable fad for the younger generations and that this topic is not going to go away overnight. Clients across the

board are becoming more likely to want to invest in an ethical way and advisers need to start taking notice. So what exactly is ESG and how does it differ from the standard negative screening you are likely to be used to? Looking at ethical investments originally meant using negative screening to filter out investments associated with ‘sin stocks’, but ESG screening delves a lot deeper by pinpointing ways to actually invest responsibly and sustainably. At a basic level, the key parts of ESG are Environmental, Social and Governance factors, but if we break down each of these areas further (when looking at the UN’s 2030 Sustainable Development Goals below for example) it becomes obvious how each of these matters could be impacted positively or negatively through investing:

INVESTMENT & RETIREMENT FOCUS | 5

How does ESG affect performance? Contrary to popular belief, ESG investing does not have to involve sacrificing returns and going without, and is about better investing overall. A study by the University of Hamburg which looked at the relationship between ESG and financial performance revealed that around 90% of studies showed a non-negative relationship between the two (source: https://papers. ssrn.com/sol3/papers.cfm?abstract_ id=2699610). ESG advocates state that using this approach to investing can flag problems that could damage a company’s performance down the line. For example, if a firms processes damage the environment or they are evasive about their practices, it is likely to eventually catch up with them and affect the share price. There is no longer a trade-off between clients’ wallets and their conscience as there is evidence to show that including ESG factors when investing can help boost long-term returns. So where do you start? It is not always clear where to start or how to even get started when it comes to ESG investing, especially when industry language can over-complicate things. A major issue for advisers and investors looking to find their way around this constantly evolving space is that it isn’t very clearly defined, with words such as ‘impact investing’, ‘sustainable’ and ‘green’ frequently used to mean completely different things. The Investment Association is currently looking to create a standard for ESG investing which will certainly help to mitigate this issue and set a framework for terminology. Research has also been made easier with index providers such as the FTSE creating relevant indices such as the FTSE4Good, which is specifically designed to help measure the performance of companies that demonstrate strong ESG practices. When considering ESG investing with clients, there are many resources that can be found online such as screening questionnaires that can be completed by clients in order to gain a better understanding of their own individual stance on these issues. There are also numerous different products that focus on ESG such as funds, sustainable model portfolios and Exchange Traded Funds. How can you tell the difference between a fund that is committed to this area and one that is merely ‘greenwashing’? Greenwashing is “a form of spin, in which green marketing is used to promote the perception that an organization’s products, aims or policies are environmentally friendly.’’

Advisers need to be wary of taking a funds’ label at face value and need to delve deeper into what the fund managers are doing in regards to company research. Key questions could be asked of fund managers for each ESG factor and consideration of the way the fund is run should be taken into account. For example, is there a well-resourced and dedicated team of responsible analysts? Is the portfolio manager on board with implementing this research into their decisions? Advisers need to look at whether funds are built on a solid foundation of ESG expertise. ENVIRONMENTAL n Do you consider a company’s stance on climate change, energy and water usage? n Do you determine the ecological impact of their products and their carbon footprint? n Are considerations given to the approach to waste disposal and resource management? SOCIAL n Do you consider whether a company is conscious about human rights, social diversity and consumer protection? n Do you determine if the company GOVERNANCE n Have you concluded how the company builds and reviews its management structure? n Do you contemplate whether there are sufficient levels of honesty, transparency and integrity at board level? n Do you research if a company’s ethos is shared across the company and integrated in its culture? At first glance this might seem like a lot of work but due to legislation coming into force next year, it is inevitable that ESG needs to be integrated into the advice process. Tenet are exploring how we can support our advisers with this transition and the Technical Services & Research team are on hand to help you with any ESG questions that you may have. helps to promote a healthier and higher quality of life for its staff and stakeholders? Further Key Questions to Consider

Whilst there are clear differences between each area they are often

interconnected and all three components are integral parts of sustainable economic development and finance. But why does it matter? Ethical investing is by no means a fad, some investment houses have had these types of funds since the eighties, and from 2004-2008 the International Finance Corporation and UN Global Compact begun holding yearly conferences with institutional asset owners, companies and investment professionals. These conferences provided a platform for engagement and discussion on ESG issues and aimed to increase the industry’s understanding of ESG opportunities and risks, and to improve integration of ESG into investment decision making. ESG investment is now more prevalent than ever and this can be clearly seen when taking a look at figures from the Global Sustainable Investment Alliance, which showed that global sustainable investing reached over £23trn in 2018 and net retail sales in this area have doubled since 2016 (source: http://www.gsi- alliance.org/wp-content/uploads/2019/03/ GSIR_Review2018.3.28.pdf). This is likely to be one of the contributing factors in the European Commission’s recent decision to introduce mandatory requirements for advisers to ask clients about their ESG preferences, and it is aiming to do this by amending MiFID II and the IDD to ensure ESG preferences are taken into account in suitability assessments (source: https:// ec.europa.eu/finance/docs/level-2- measures/mifid-delegated-act-2018_ en.pdf). These proposals are part of the EU’s efforts to align European policy framework and investing with the UN’s 2030 Sustainable Development Goals and will officially come into play next year (2020). The European Commission also proposes that firms should be able to demonstrate how they include ESG when assessing suitability: “Investment firms shall have in place, and be able to demonstrate, that they have in place adequate policies and procedures to ensure that they understand the nature, features, including costs, risks of investment services, and financial instruments selected for their clients, including ESG consideration where relevant , and that they shall assess, while taking into account cost and complexity, whether equivalent investment services or financial instruments can meet their client’s profile.’’ This upcoming integration of ESG into legislation is clearly a long time coming, and the financial industry is sadly one of the last to take action in this area.

If you have any queries about ESG investing, please contact Technical Services & Research at [email protected].

6 | INVESTMENT & RETIREMENT FOCUS

Global economy hindered by trade traumas -

Growth downgrades were widespread, their reach even adversely affecting countries removed from the trade war. The IMF’s Chief Economist, Gita Gopinath, commented: “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot. As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list, such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing and raise world growth.” 2020 vision Growth downgrades also extend to 2020, although a modest improvement is expected, with estimated growth of 3.4%, a downward revision of 0.2% on April estimates. This forecast is heavily dependent on recoveries in stressed economies and advancements in global weak spots including Russia, Brazil and Mexico. Growth in several Emerging Markets is also being supressed by country-specific factors, such as low productivity growth. Again, the IMF caution ‘unlike the synchronised slowdown, this recovery is not broad-based and remains precarious’ . Alarming estimates highlight trade tensions will cumulatively reduce the level of global GDP by 0.8% in 2020, entirely avoidable had more internationalist policies been followed. Eurozone growth just above expectation Without wishing to sound like a broken record, trade was one of the central elements of weak third quarter growth across Europe. Eurozone quarterly economic growth was 0.2% in Q3 2019, matching the previous quarter, and slightly above expectations of 0.1%. Among the 19-country bloc’s largest economies, Germany narrowly avoided recession in the third quarter, while GDP growth rates were unchanged in France (0.3%), Spain (0.4%) and Italy (0.1%). The German economy grew just 0.1% in the third quarter of 2019, after contracting in the previous three months, a recession is generally defined as two consecutive quarters of declining economic activity, so avoidance was

Further downgrades to global growth estimates for this year and next, were unsurprising headline statistics when the International Monetary Fund (IMF) released their most recent World Economic Outlook in mid-October. The bi-annual Outlook cautioned that the self-inflicted wounds of the US-China trade war had created a ‘precarious’ economic situation. The IMF predict that in 2019, global growth will drop to its slowest rate since the financial crisis, forecast at 3%, a 0.3% downgrade from April 2019 estimates. Troublesome trade barriers and increasing geopolitical tensions combine to weigh heavily on growth expectations. Is there light at the end of the tunnel?

INVESTMENT & RETIREMENT FOCUS | 7

Would you like a Monthly Economic Review or a range of other literature - customised with your logo and contact details, ready to send to your clients in a variety of formats? Why not consider subscribing to the Tenet Client Communication Package for £650 plus VAT per year? The Package gives you unlimited access to a range of professionally-written and professionally-designed materials - pre-approved by Tenet Compliance and available as PDF, HTML or print (extra cost applies to print). It is a very cost- effective subscription service, enabling you to enhance your ongoing service proposition and have regular contact with your clients. Please contact us if you would like to see samples of the following items: Monthly Economic Review, Monthly Business Review, Monthly Property Market Reviews, Quarterly Newsletters and Magazine, Budget Updates, Tax Guides and various Topic Guides, including Equity Release and IHT. If you would like an online demo, have any questions or would like to order the Communication Package, please call 01279 657555 or email

narrow. This growth figure is still very weak, automotive sector woes persist. With inflation falling and domestic confidence sapped by trade concerns, the European Central Bank (ECB) pledged support to the economy by way of a rate cut in September and approval of a fresh stimulus package as anticipated. The ECB cut its deposit rate to a record low of -0.5% and restarted bond purchases in November. The ECB stated: ‘The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.’ The Eurozone is expected to expand 1.2% in 2019, rising slightly to 1.4% in 2020. The UK’s ‘slow puncture’ economy The UK economy also avoided recession by growing 0.3% in the third quarter of 2019, recovering from a 0.2% contraction in the previous quarter, but missed expectations of a 0.4% expansion. The service and construction sectors provided positive contributions to growth. >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36

www.tenetgroup.co.uk

Made with FlippingBook - professional solution for displaying marketing and sales documents online