Spotlight on VCTs – Part 2 of risky tax relief

May 10, 2013

spotlight

of small, higher-risk trading companies not listed on any stock exchange. Fund managers of VCTs must buy predominantly the shares of unlisted companies and the investment risk is spread over a number of them.

VCTs themselves are listed and can be traded with other investors.

Income tax relief is 30% at present and the annual investment limit is £200,000. This relief is withdrawn if the shares are disposed of within 5 years. However, it may be difficult to dispose of shares even though they are listed, because tax relief is only offered on the subscriptions of new shares, not those bought in the market.

Unlike EISs, VCTs cannot be used for Capital Gains Tax deferral.

Overall, a VCT should be a lower risk investment than an EIS (featured here https://www.oliverassetmgmt.co.uk/spotlight-on-eis-risky-tax-relief/ ) because it is a pooled investment, whereas an EIS is an investment in a single company.

Approach with caution, but, if you are interested in how either VCTs or EISs could work for you please get in touch using the Make An Enquiry tab above.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

Share:

“All that glitters is unfortunately sometimes only gold…”

May 7, 2013

Gold30+ years in financial services is certainly enough time to have seen a thing or two in the investment markets.

A hardy perennial, as they might say on Gardener’s Question Time, is the subject of investing in gold.

I might even to confess to dabbling a bit in (I think) Mercury’s Gold & General fund back in the day.

Having met with a potential new client and presented our Dimensional driven passive investment strategy which seemed to make sense on lots of levels, I’ll leave it to Weston J Wellington, Vice President of DFA to make the case for not investing with your eyes and heart in the case of gold and stick to a more considered approach.

“Although the year is far from over, it’s off to a rough start for gold enthusiasts. A sharp selloff in mid-April sent bullion prices to $1,395 on April 15, down 15.7% for the year to date and 26.4% below the peak of $1,895 reached in early September 2011. (Prices are based on the London afternoon fix.) For the 10-year period ending March 31, 2013, gold enthusiasts have a more positive story to tell: The annualized return for gold spot prices was 16.83%, compared to annualized total returns of 8.53% for the S&P 500 Index, 10.19% for the MSCI EAFE Index, 17.41% for the MSCI Emerging Markets Index, and 2.34% for the S&P Goldman Sachs Commodity Index.

Taking a somewhat longer view, for the 40-year period ending March 31, 2013, gold performed in line with many widely followed fixed income benchmarks, while lagging behind most equity indices. We find it ironic that the return on gold over the past four decades is essentially indistinguishable from five-year US Treasury notes, often scorned by gold advocates as “certificates of confiscation.”

Gold vs. Benchmarks, 1973–2013*

Index

Annualized Return (%)

Growth of $1
Dimensional Large Cap Value Index

12.89

$127.75
Dimensional US Small Cap Index

12.67

$117.96
S&P 500 Index

10.18

$48.30
MSCI EAFE Index (gross div.)

9.05

$31.96
Barclays US Credit Index

8.31

$24.33
S&P Goldman Sachs Commodity Index

8.21

$23.51
Barclays US Government Bond Index

7.85

$20.53
Five-Year US Treasury Notes

7.69

$19.40
Gold Spot Price

7.63

$18.95
One-Month US Treasury Bills

5.29

$7.86
Consumer Price Index

4.30

$5.39

*40-year period ending March 31, 2013.

Considering the volatility of gold prices, even a 40-year period is too short to provide conclusive evidence regarding gold’s expected return. And the issue is further clouded by shifts through time in the legality of gold ownership and its changing role in various monetary systems worldwide. In his book The Golden Constant, published in 1977, University of California, Berkeley Professor Roy Jastram examined the behaviour of gold in England and America over a 400-year-plus period—and suggested that the long-run real return of gold was close to zero. Even with centuries of data to study, however, he couched his conclusions in cautious language.”

I can understand the allure but the evidence seems clear enough to me that gold just might be another get rich quick scheme that might not live up to its billing.

Roland Oliver

Share:

Why you shouldn’t read the news

April 29, 2013

A client said to me very recently that financial planning must be much easier right now as the performance of the World’s stock markets were in positive territory and values of holdings would be up.

He wanted to know what I was going to be saying to my clients in the coming months after several years of telling them to maintain discipline, stay invested and keep asset allocation true.

Well, pretty much the exact same story as he’s heard over the last few years is the answer!

He was also interested in my view of a particular story in the finance section of that morning’s paper ErnestHareReadingNewspaperwhich was suggesting triple-dip recession was a heartbeat away and what steps should we take to avoid it…

The headline writers are paid to try and get our attention and shouldn’t be used as a basis for making investment decisions.

For the everyday investor, the lesson is that the closer you are to media and market noise, the harder it is for you to pay attention to the bigger picture.

Markets are moving constantly as news and information is built into prices. Sentiment is buffeted one way, then the other. Millions of participants make buy and sell decisions based on news or their own individual requirements.

The job of media and market analysts frequently boils down to creating plausible narratives around often disconnected events so that it all appears seamless. Then the next day, you start all over again.

As a broker or a journalist, whose horizons are in minutes, this approach to markets makes sense. But for investors with long-term horizons, second and third guessing money decisions based on the news of the day is unlikely to deliver sound results.

A better approach is to work with a trusted advisor in building a diversified portfolio of assets tailored for your needs and risk appetite. The portfolio is rebalanced regularly to match your requirements, not according to what is happening in the markets. Tactical asset allocation can sound tempting, but there is always a risk that the news overtakes you. Then you are left having to change everything all over again.

As a wise man once said, running inside a moving bus won’t get you to your destination any quicker.

Roland Oliver

Share:

Spotlight on EISs – Is risky tax relief for you?

April 26, 2013

spotlightAt a time when many in the city may have just received their bonus and will be paying a healthy dose of tax with it, I thought it would be a good time to mention a couple of investment vehicles that come with tax relief.

Tax relief doesn’t come for free of course, and to obtain it you must be prepared to put up with higher levels of risk.

The first of these vehicles to be discussed is Enterprise Investment Schemes (EISs).

EISs are intended to help certain types of small, higher-risk, unquoted trading companies raise capital by providing tax relief for investors. They took over from Business Expansion Schemes in 1994.

Income tax relief on EISs at present is 30% for qualifying investments and the maximum annual amount an individual can contribute at is £1million. Interestingly, income tax relief is given in the year of assessment in which the shares are issued, rather than the year of investment. So as an investor, it might be possible to carry back income tax relief to the previous tax year.

The shares must be held on to for 3 years minimum or the relief will be withdrawn.

Capital gains can also be deferred for tax reasons by investing the gain into an EIS. There are various caveats to this and I would urge you to contact us to find out more if you think this could be useful in your circumstances.

No mention of EISs should come without a big fat risk warning. Investing in unlisted trading companies is a very high risk activity and the possibility of a company failing is very real. There is also a high liquidity risk as, even after the minimum three year period, it may be difficult to dispose of the shares.

Approach with caution, but, if you are interested in how this could work for you please get in touch.

Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.

Come back in a fortnight for a look at Venture Capital Trusts (VCTs).

Malcolm Stewart

Share:

The Price of Advice

April 12, 2013

In the build-up to – and in the aftermath of – the Retail Distribution Review advisers up and down the country have been scrambling to find a charging mechanism that works.

For many the end of commission has been a death knell; bond pushers that used to take up to 7% initial and advisers that offer no ongoing service have found themselves suddenly having to become transparent and losing client interest as a result.

There is no doubting that this is a very positive thing; for a long time the smoke and mirrors in financial services have served to cloud the clear picture to consumers.

In terms of pure economics, the worst thing about lack of transparency in a marketplace is the fact that the market cannot operate efficiently and competition is hindered. And the moment competition is hindered consumers get a bad deal.

For a charging structure to ‘work’ it must be fair, not daunting, actually cover the work being done and cover costs the clients don’t see – regulation, compliance, software etc.

The charging structure must also be manageable. We have seen difficulties with some investment platforms as to the logistics of how the product fees to the adviser are actually generated. Some say nothing has changed, some require a wet signature on a fee statement for each and every piece of business, and some require us to manage a time consuming and complex method of moving money around within a client’s investment to cover charges.

As a business trying to do the best by our clients and get paid properly for the valuable work we do, without any hidden agenda, it can be challenging.Edinburgh_Castle_-_geograph.org.uk_-_28

We have discussed every way we can structure our fees so that they are attractive, fair, workable, easy to implement and simple.

Each time we reach this undeniable fact: a simple initial and ongoing fee, not linked to the value of the assets managed and paid externally from any platform, is the only way forward.

It will take time to implement fully, but we shall be extracting ourselves from any overly complicated or confusing charging and shouting the virtues of this from the ramparts of Edinburgh Castle.

Share:

It’s financial planning, stupid!

April 8, 2013

As I write there have been a few tweets this morning about managers of active funds using index or passive structures for their own investments.

Not earth-shattering news probably, but does make you really question the real worth of active management at those prices if those who do it, won’t pay!

The thread of the tweets led on to question further where the current CEO’s of investment platforms invest their own money.

Do they put their own money where their mouths are?

We await the answer to that particularly thorny question…

All this idle speculation did lead me to consider whether or not these CEO’s (or fund managers for that matter) had actually submitted themselves for some financial planning in the first place.

One question begets another as they say. What would these CEO’s or fund managers actually consider as financial planning?

Would they approach their local bank manager, accountant, solicitor or would they seek out advice from within their own industry?

Would a plain ordinary IFA be the port of call or do they require something a bit more in keeping with their status?

Wealth Management (our current transatlantic term of choice) sounds so much more sexy and enticing than plain-jane Financial Planning and might be sufficiently high brow enough to attract the CEO, but what is it?

Well…its Financial Planning I think.

Which is what we do here. I had a discussion with Malcolm our Client Project Manager today about what Wealth Management actually means and we’ve agreed it’s Financial Planning.

It’s the heart of providing elegant, efficient solutions to making sure you get the best from your money, making sure it goes to the right people when you’ve gone, and that your family won’t be compromised if you die early.

Tax efficiency and legal structures that avoid challenge are provided too.

In other words, a Financial Planning service that takes care of all your current needs and will adapt as your circumstances change in time.

We won’t be getting to carried away with changing our terminology on the website but for all you CEO’s and fund managers out there, before you get concerned about active v passive or if you should put your own money onto your own platform, please see us for some Wealth Management or our particular version which we like to call Financial Planning.

Oliver Asset Management. We do Financial Planning.

Roland Oliver

Share:

Don’t Panic! Investing in the bad times and the good

January 28, 2013

There was a very interesting picture published in a Scottish paper recently of a queue of people at an ATM somewhere in Glasgow that was giving out “free” money.

How this came about I don’t know or what the ultimate outcome was I’m not sure. Also I will refrain from commenting on the morality issues, but it demonstrates a type of human nature or response when a financial advantage seems on offer.

We like nothing better than a bargain or even more so to be on a sure thing with a nice wedge to be had.

Part of the upside of any monetary gain seems to me in telling others of our good fortune, astuteness at recognising the opportunity and how much we scored!

There is an equivalent response from clients in current market conditions.

The continued go-forward of global equity markets has induced a kind of group response to making sure we get the most from this ourselves even if it can’t/won’t be sustained and if it exposes us to greater risk then we’d normally want.

I’m not blaming our clients for wanting more returns as they’ve typically endured a pretty rough ride over the last few years, but as we have told them in difficult times, don’t panic, then we must say the same in an upturn.

Not making rash investment decisions in volatile times and sticking to your risk profile, asset allocation and maintaining discipline and remaining invested have been the key messages to clients of late.

I’m still saying the same thing to clients today.

Naturally, we are having conversations around increasing risk to get more of the pie but a quick reminder of how quickly things can change and to reinforce the long term nature of investing usually bring sense to proceedings.

If there has been a genuine change of circumstances that would shift risk appetite, then fine we can deal with that but only within our investment framework and definitely no chasing wild ideals or abandoning the underlying investment philosophy.

The Informed Investor brochure we produced few years ago set out our approach to investing for our clients and I believe nothing has changed just because we’ve got some positive numbers to talk about.

Never has a popular catchphrase seemed so apt;

Don’t panic Mr Mainwaring!

Roland Oliver

Share:

2012: The year it didn’t happen

January 9, 2013

Judging by the headlines in the financial press, investors spent much of the past year anxiously awaiting one calamity after another that failed to occur. The plunge off the so-called fiscal cliff was averted. The euro zone did not fall apart. China’s economy and stock market did not crash. The bond market did not implode. The re-election of President Barack Obama did not derail the US market. Doomsday did not arrive on December 21, as some interpreters of the Mayan calendar suggested it would.

Instead, the belief that owning a share of the world’s businesses is a sensible idea appears to be alive and well, despite suggestions from some observers that the “cult of equity” is dead. For the year, total return was 16.42% for the MSCI World Index in local currency, and 16.00% for the S&P 500 Index. Among forty-five global stock markets tracked by MSCI, only three posted negative results in local currency (Chile, Israel, and Morocco), and twelve markets had total returns in excess of 25%, with Turkey leading the pack at 55.8%. Although much of the financial news over the past year highlighted Europe’s fragile financial health, most of the region’s equity markets outperformed the US, including Austria, Belgium, Denmark, France, Germany, the Netherlands, Sweden, and Switzerland. For US dollar-based investors, results were further enhanced by a modest decline in the US dollar relative to the euro, the Danish krone, and the Swiss franc.

As is so often the case, earning the rewards offered by the world’s capital markets may have required a combination of discipline and detachment that eluded many investors.

We always advocate this kind of investment approach and encourage clients to rise above the noise of day to day fluctuations and ignore the temptations of market timing and speculation.

2012 Index and Country Performance

Total return (gross dividends) for 12-month period ending December 31, 2012.

MSCI Index

Local Currency

USD
WORLD 16.42% 16.54%
WORLD ex USA 16.73 17.02
EAFE 17.89 17.90
EMERGING MARKETS 17.39 18.63
EMERGING + FRONTIER MARKETS 17.15 18.35
TURKEY 55.80 64.87
EGYPT 54.66 47.10
BELGIUM 38.56 40.72
PHILIPPINES 38.16 47.56
THAILAND 30.84 34.94
DENMARK 30.37 31.89
GERMANY 30.07 32.10
INDIA 29.96 25.97
HONG KONG 28.01 28.27
POLAND 27.05 40.97
AUSTRIA 25.07 27.02
SOUTH AFRICA 25.07 19.01
COLOMBIA 23.87 35.89
SINGAPORE 23.54 30.99
NEW ZEALAND 23.28 30.38
CHINA 22.85 23.10
JAPAN 21.78 8.36
FRANCE 20.93 22.82
AUSTRALIA 20.77 22.30
MEXICO 20.09 29.06
PERU 19.73 20.24
THE NETHERLANDS 19.35 21.21
SWITZERLAND 18.91 21.47
SWEDEN 17.11 23.41
USA 16.13 16.13
FINLAND 14.71 16.50
KOREA 12.89 21.48
TAIWAN 12.84 17.66
HUNGARY 11.86 22.79
INDONESIA 11.83 5.22
ITALY 11.72 13.46
NORWAY 11.63 19.70
UNITED KINGDOM 10.24 15.30
MALAYSIA 10.23 14.27
BRAZIL 10.14 0.34
RUSSIA 9.73 14.39
CANADA 7.46 9.90
IRELAND 4.66 6.29
GREECE 4.11 5.73
PORTUGAL 3.36 4.98
SPAIN 3.12 4.73
CZECH REPUBLIC 0.26 3.48
CHILE –0.14 8.34
ISRAEL –6.24 –3.91
MOROCCO –12.63 –11.48

 

To speak to us about how our investment philosophy could help you contact us on 0131 273 5202 or use the form on the website.

Malcolm Stewart

 

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

MSCI data copyright MSCI 2013, all rights reserved. S&P data are provided by Standard & Poor’s Index Services Group.

 

Share: