As the first December election in almost a century begins, we reflect on a busy year for investors.
The end of the year means a time for reflection for many – and what a year it has been.
Liquidity (or lack of) has been a major theme, with the Woodford debacle shining an uncomfortable spotlight on the issue of open-ended funds and liquidity.
It showed to devastating effect that liquidity is not necessarily an issue exclusive to property funds, while the suspension of the M&G Property Portfolio proved another massive wake-up call (for those who forgot what happened to several property funds in 2016).
Moira O’Neill, Head of Personal Finance, interactive investor, says: “The cat was well and truly let out of the bag this year – whilst it’s been convenient for many to argue otherwise, investment trusts are not inherently less liquid than open ended funds, despite their different construction. In fact, when it comes to the crunch, investment trusts have often proven to be more liquid than their open-ended counterparts – during H2 2016, it was several open-ended funds which that had to shut up shop to investor redemptions. This year suggested it won’t be so easy to forget this time.
“Unlike many other investment platforms which do not include investment trusts, our rated list, Super 60, was launched in January and included investment trusts from the start – the world didn’t end! And it is noteworthy that the only two property options on the list, right from the start, were investment trusts – TR Property (LSE:TRY) and BMO Commercial Property (LSE:BCPT). Whatever your views on property right now, it’s a major asset class which long term, many investors will not want to ignore. So, if your provider is ignoring property altogether, ask them why.”
interactive investor, the UK’s second largest direct to consumer investment platform, lists 12 significant events relating to investments, pensions and personal finance in 2019 – one for each month.
Goodbye to Vanguard’s Jack Bogle (but hello to more UK disruption from Vanguard in 2020)
Myron Jobson, Personal Finance Campaigner, interactive investor says: “While it was a good start to the year for markets, with many recovering from hefty Q4 losses, the investment industry mourned the loss of John Clifton Bogle, the man who popularised low-cost index investing as the founder of fund management firm Vanguard.
“Commonly referred to as Jack, Mr Bogle was a crusader for low-cost index investing and backing the market rather than trying to beat it. Under his stewardship, the US fund house launched the first ever index mutual fund, called First Index Investment Trust, in 1975. While he had no shortage of critics, with many in the industry describing it as ‘un-American’, the strategy ultimately caught on and revolutionised the world of investing. And Q1’s much anticipated UK SIPP from Vanguard shows they are very much continuing what Bogle started – 2020 looks set to be a year of disruption in the UK SIPP space.”
Sainsbury's-Asda merger dealt major blow
Keith Bowman, Analyst, interactive investor, says: “The proposed Sainsbury's (LSE:SBRY)-Asda merger was dealt a major blow from the UK’s competition watchdog that may prove difficult to recover from in February. In its provisional report on the proposed merger, the Competition and Markets Authority (CMA) said customers could see higher prices and less choice if the two grocers combined, adding it could block the deal or force the sale of a large number of stores or even one of the brand names.
“Ultimately, the CMA blocked the move and the failure of the merger significantly contributed to the underperformance of Sainsbury’s shares this year – down 16% to 11 December 2019.”
Boeing grounds entire 737 MAX crash aircraft fleet
Keith Bowman continues: “Aircraft manufacturers Boeing (NYSE:BA) grounded its entire global fleet of 737 MAX aircraft following two high-profile crashes.
“In its Q3 earnings report, Boeing reported that it has added another $900 million in costs for the continued grounding of the 737 MAX fleet, bringing the total to $9.2 billion since the two fatal crashes which killed nearly 350 people between them. This could be further compounded by The Federal Aviation Administration who has proposed a $3.9 million fine for Boeing for alleged safety lapses in the production of several of its 737 NG airplanes.
“The wider aviation industry has felt the reverberations of Boeing’s plight. In October, The Southwest Airlines Pilots Association announced it is suing the Boeing for $100 million in loss income as a result of the grounding of the fleet.”
ISA 20th birthday
ISAs turned 20 this year. The accounts were launched in 1999 as an enhanced, more generous version of tax-free Personal Equity Plans.
For the first nine years of ISA existence, the overall subscription limit was a relatively modest £7,000. The limit has been boosted on numerous occasions over the years up to the present £20,000 limit.
Myron Jobson says:
“Many people are quick to dismiss the benefits of an ISA, and it is true over a single year the tax savings are limited, but it is the cumulative effect over time that is highly beneficial, and helps to protect against future income and capital gains tax.”
Theresa May steps down as PM
On 24 May 2019, Theresa May announced her resignation as prime minister after failing to get her contentious Brexit deal approved by Parliament despite repeated attempts. In her resignation speech, Ms May said that it was a matter of “deep regret” that she has been unable to deliver Brexit.
Ms May’s resignation did not move stocks much but fuelled further uncertainty over Brexit for months to come. She officially stepped down as Prime Minister on 24 July and was succeeded by Boris Johnson.
Woodford Equity Income suspended
June 2019 marked the beginning of the end of Neil Woodford’s eponymous investment management firm, and great uncertainty for investors in Woodford Equity Income. Woodford Investment Management’s flagship equity income fund was originally suspended for 28 days in June after an influx of withdraws compounded by an attempt by Kent County Council to redeem its £238 million stake from the fund.
The suspension was then extended and expected to end in December to give Mr Woodford, it’s manager, time to reposition the portfolio. However, Link Fund Solutions, the fund’s authorised corporate director, decided against reopening the fund and instead wound it up, concluding that it was in the best interest of investors.
Woodford later walked away from his other two investment vehicles and announced plans to wind up his investment company. With his reputation in tatters, who knows what’s next for Mr Woodford.
Global debt hits record high of over $250 trillion
Keith Bowman says: “Global debt hit a record high of over $250 trillion after surging by $7.5 trillion in the first six months of the year, according to a report by the International Institute of Finance (IIF).
“The surge in borrowings was led by the US and China, spurred by falling interest rates in Q1, which made it easy for sovereigns and corporates to borrow money. Global debt is on course to end 2019 at a record high of more than $255 trillion, according to IIF estimations.”
Yield curve inverts triggering economic recession concerns
Dzmitry Lipski, Investment Analyst, interactive investor says: “Historically, an inverted yield curve on Treasury notes, when the yields on bonds with a shorter duration are higher than yield on bond that have a longer duration, has been a reliable predictor of economic recessions. In August, the 2-year Treasury yield exceeded the 10-year yield, widening concerns about the health of the global economy.
“However, there is a sentiment that a series of quantitative easing by central banks have distorted the signal and could prolong the time between the inversion of the yield curve and the subsequent recession this time around.”
The collapse of 178-year-old UK business Thomas Cook
September saw the dramatic collapse of Thomas Cook (LSE:TCG), after 178 years in business and triggered the biggest peacetime repatriation of civilians.
Lee Wild, Head of Equity Strategy, interactive investor says: “Failure to secure a £200 million pound lifeline from its lenders, which included the government-owned Royal Bank of Scotland (LSE:RBS), spelled the end for the travel operator. But in truth, Thomas Cook’s woes go back much further - the rise of online-only operators, terrorism in popular holiday spots and a weak pound have did not help matters. Ultimately, Cook's massive debt pile made the situation impossible to resolve.”
WASPI women lose landmark court case
WASPI campaigners lost a landmark case at the High Court against the Government’s handling of the rise in women’s state pension.
The retirement age for women rose from 60 to 65, in line with men, and will go up to 66 by 2020, and to 67 by 2028.
Women born in the 1950s have taken a financial hit as a result of delays to when they can start drawing from the State pension, and many claim the rise is unfair because they were not given enough time to make the necessary adjustments to cope with the change.
Rebecca O’Keeffe, Head of Investment, interactive investor, says: “Pension planning takes decades and most investors have targets and plans, but this case shows that anything can change.
“Changes to life expectancy are already pushing state pension ages up – and changes to government finances may mean that our reliance on the state pension may need to alter too. What the case does make clear is that individuals need to take steps to manage their own finances, as early as possible, in order to try and make sure that any future changes can be managed effectively.
“There is no doubt that the state pension is a huge cost to current taxpayers and that a retirement age of 60 is a tough one for the public finances – but there is also no real doubt that the lack of formal personal notices to the 3.8 million women affected meant that many women suffered financial hardship as a result.”
The IA publish findings of ethical consultation
The Investment Association published the hotly anticipated findings of its consultation for an industry-wide framework of terms and categories. Highlights include a new ‘Responsible investment’ label encompassing the full suite of approaches covered and a distinction between “firm-level components” – the way an investment group as a whole approaches responsible investment – and “fund-level components” that distinguish individual funds.
Rebecca O’Keeffe said: “While the initiative is welcome, it doesn’t solve the inherent tension within the industry as to what makes an ethical stock and it does not address the problem of the huge subjectivity that surrounds ethical investing. We also don’t think the industry should self-identify what investment category it fits into – we think this should be independent.
“Finally, jargon desperately needs to be ditched, not least when it comes to ethical investing – and the IA’s proposals don’t help here. Interactive investor worked hard this year to try to address this issue, and lift the lid on ethical investing, by creating three ethical investment styles – Avoids, Considers, Embraces, and working with independent experts to help identify which categories all of the relevant funds and trusts on our platform fit in to.”
Suspension of M&G Property Portfolio fund
Fund house M&G Investments suspended withdrawals from the £2.5 billion M&G Property Portfolio fund, one of the UK's biggest commercial property funds, after an influx in investor redemptions. The firm blamed ‘Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector’ for the situation.
Moira O’Neill, says: “The cat was well and truly let out of the bag this year – whilst it’s been convenient for many to argue otherwise, investment trusts are not inherently less liquid than open ended funds, despite their different construction. In fact when it comes to the crunch, investment trusts have often proven to be more liquid than their open-ended counterparts – during H2 2016, it was several open ended funds which that had to shut up shop to investor redemptions. This year suggested it won’t be so easy to forget this time.
“Unlike many other investment platforms which do not include investment trusts, our rated list, Super 60, was launched in January and included investment trusts from the start – the world didn’t end! And it is noteworthy that the only two property options on the list, right from the start, were investment trusts – TR Property (LSE:TRY) and BMO Commercial Property Trust (LSE:BCPT). Whatever your views on property right now, it’s a major asset class which long term, many investors will not want to ignore. So if your provider is ignoring property altogether, ask them why.”
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.