INVESTMENT REPORT 2016
INVESTMENT REPORT 2016
Timothy James & Partners have been successfully looking after individuals and businesses since 1995. We have steadily grown assets under advice to over £600 million*. We build long-term relationships and work on a personal referral basis only. *Figures as at October 2015.
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timothy james & partners
INVESTMENT REPORT 2016
Introduction and Background Throughout the year, Timothy James & Partners meet many of the best fund management groups in the industry. These meetings may have a number of objectives such as reviewing an existing recommended fund manager’s performance, as well as identifying new themes and ideas that may help future performance. This may also include meeting a manager for the first time to initiate the due diligence process, which may ultimately result in us placing a fund on our recommended list.
obtained. Clarity of vision and ability to express it, as well as passion for what they are doing, are also very important.
The fund management business is an everchanging landscape with new funds being launched and older ones being merged, as well as managers moving to competitors. We need to be on top of these changes and ready to act where necessary.
This mid-year investment report adopts the approach of previous reports, including offering a comprehensive range of top-performing collective funds across various asset classes and geographical locations. We continue to offer investment solutions to match a range of risk profiles. When doing this, we take into consideration appetite for risk, capacity for loss, investment time horizon, investment objectives and past experience.
As one of the largest truly independent financial advisory firms in the UK, with over £600 million of investments under advice, many fund management houses see us as important to their businesses. This results in lengthy meetings, where we are able to ask detailed questions and get the most out of fund managers and economists. What exactly are we looking for from a top fund manager? In reality, it is a blend of quantitative and qualitative points such as fund size, relative peer and index performance over the good times and the bad, and the overall costs involved with investing, as well as the strength and depth of the investment team and the level of risk taken for the return
Interviewing fund managers and economists during the course of each year provides us with awareness of the key threats and opportunities that may occur over time. We strive to choose the best fund managers to encapsulate this and to help us grow as a truly independent business with you at the heart of it.
Contents The Year to Date
4
How the UK Economy Has Developed Since 2000
7
Investment Outlook
8
The Power of Compounding
12
Timothy James & Partners’ Preferred Funds for 2015/16 and Why We Are Recommending Them
13
Multi-Asset Funds 2015/16
14
Timothy James & Partners’ Preferred Higher-Risk Funds
19
Timothy James & Partners’ Preferred Medium-Risk Funds
22
Timothy James & Partners’ Preferred Lower-Risk Funds
26
A Brief Summary of Asset Classes
28
Investing via a New Individual Savings Account (NISA)
30
Risk Warnings and Points You Should Be Aware of Before Investing
33
Glossary of Terms
34
This report reviews how markets have performed over the first half of the year and compares this with the predictions we made at the start of the year. We also share our thoughts on how we think markets will perform going forward. The first six months’ performance figures for our recommended funds, including our range of multi-asset funds, have been reviewed and updated. Key events and new evolving themes and trends have also been explored.
All market data included in this report is provided by FE Analytics unless stated otherwise.
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timothy james & partners
INVESTMENT REPORT 2016
The Year to Date There appears to have been a marked divergence between economic growth expectations and stock market performance this year. With global growth generally expected to be in the region of 3.2% for 2015, stock markets would appear to have failed to join in with the same degree of positivity. In the US, the S&P 500 has been broadly flat to the end of June, although fresh all-time highs were reached in May. US growth suffered a setback at the beginning of the year, due to the harsh winter, port strikes, the impact of lower oil prices on investment, and a stronger Dollar and its consequent effect on exports. Things appear to have stabilised, although stock market valuations continue to be above the longterm average. In our January report, we mentioned that corporate earnings would have to continue to surprise on the upside to maintain upward momentum in US equity prices. The first quarter earnings failed to show this, which was the main reason for the generally flat performance in US stock markets in the first half. However, after the second quarter of corporate results (which saw the US economy grow by 2.7% to the end of June), many US companies announced better than forecast figures, which helped support valuations. Unemployment remains at very low levels (5.5%1) without much evidence of wage inflation. Savings rates have continued to rise hand in hand with increases in retail sales. This scenario is unlikely to last forever, as the two are usually negatively correlated. The devaluation of the Chinese Yuan has helped push back the long-expected first rise in interest rates in the States from the fourth quarter of 2015 to early 2016. This could be the main factor holding markets back as investors wait to see what happens once this occurs.
1 Source: US Bureau of Labor Statistics July 2015 2 Source: Bloomberg
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Global oil prices made a modest recovery from lows earlier in the year, which assuaged fears of disinflation in the first half of 2015. However, following the Iranian nuclear nonproliferation agreement, global oil production has increased further, with resultant declines in oil prices to a low of $42.23 on 24th August. However, we saw a sharp recovery in just six trading days to $54.15 a barrel for Brent Oil2. Geopolitical risk remains ever present, although the focus on Ukraine has subsided somewhat despite the war continuing in the background. It may resurface on the international stage, with the Second Cold War unofficially underway. Western international relations have generally improved with Iran, although it could be said the reverse is true with regard to Iran’s relationship with most Sunni majority Middle Eastern countries, and Israel has made it very clear what it thinks of the latest nuclear nonproliferation agreement. From a western point of view, it would be fair to say that ISIS remain the biggest perceived threat. As ever, unforeseen events are often triggers for sharp stock market and bond movements. European and Japanese stock markets produced the best total returns in the first six months of this year, as both areas engaged in quantitative easing, which has resulted in their respective currencies weakening. This has benefitted exports and pumped money into capital markets. Japan’s current account is enjoying a multi-year high and tourism has seen a surge as a direct result of a weak Yen. The Nikkei Index has produced an 11.93% total return in the first six months and the MSCI Europe Index was up by over 3% despite the Greek troubles. This was one of the key concerns we voiced in our last investment report.
Greece has agreed to the latest and final ultimatum that the ‘Troika’ of The European Commission, The European Central Bank and The International Monetary Fund demanded. The proof will be if the country is able to keep to its promises and the populace able to withstand the forthcoming cuts in services and increases in VAT and Pension age. The saga appears to have opened up divisions within the rest of the European Union and it would be fair to say that in the history of the Union, relations have not been more disharmonious than they are now.
The FTSE 100 index, hindered by resource and commodity stocks, posted a total return of 1.36% over the first six months of 2015. However, following setbacks related to events in China during August, total returns have slipped into negative territory. Valuations remain a little below the long-term average on both a forward Price-Earnings ratio and Price-toBook basis, although they remain behind the United States. Historically low interest rates and bond yields have led investors to take on more perceived risk and refocus on equities in the hunt for a higher yield.
Despite all this, Eurozone economic growth is broadly on track. Estimates at the beginning of the year of 1.5%, higher than 2014 and forecast to reach 1.9% in 20163. Quantitative easing and the Greek crisis have collectively weakened the Euro, which will continue to help exports from the Eurozone.
In Asia, most of the headlines have been focused on China. Overspend on infrastructure and house building has produced a hangover that is proving hard to shake off. The refocus on the Chinese domestic consumer to drive forward economic growth has yet to gain real traction. Doubts remain over the veracity of some of the economic numbers the country produces. GDP grew by 7%5 in the first six months but is expected to fall.
As predicted, the UK has seen new all-time highs with the psychologically important 7,000 barrier on the FTSE 100 index being breached a number of times. The UK general election produced a wholly unexpected result with an outright working majority for the Tories. Base rates remain at all-time historic lows of 0.5%, as we briefly went into official deflation. As expected, this was short-lived and the Bank of England Governor, Mark Carney, has indicated the next interest rate rise may not be too far away. Labour shortages, despite historically high levels of immigration and one of the highest birth rates per capita in Europe, have put wage inflation on the radar. This is likely to be the main reason behind the rise when it happens, as general consumer price inflation remains at the 0-1% mark4. Unemployment data to the end of June indicated possible signs that the employment recovery is finally levelling off, although it is early days.
Producer Price Inflation has been negative for the last four years, with no sign of moving into positive territory, and most Chinese prefer to save than spend. Electricity consumption is flat, rail cargo volumes have turned negative and bank lending is not increasing, despite heavy stimulus. In spite of an interest rate cut, changes to banks’ reserve requirement ratio and significant Government buying, the market dropped by over 40% from higher levels seen in early 2015. China accounts for less than 10% of global consumption, whereas the US accounts for 27% and the Eurozone 17%6, so once again the world is looking towards the American consumer to drive global economic growth with a stronger Dollar in their pockets.
3 Source: Goldman Sachs 4 Source: Office of National Statistics 5 Source: The People’s Bank of China 6 Source: Goldman Sachs
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India’s situation looks more optimistic compared to China. Many analysts now expect economic growth to be higher than China’s, with macroeconomic data supporting this. The lower oil price has helped reduce inflation, which in turn has allowed authorities to begin lowering interest rates. Despite this, the stock market was broadly flat over the first six months of 2015 after strong performance in 2014. Some of the expectations from Prime Minister Modi’s reforms may already be fully priced into shares, leaving investors awaiting more concrete evidence of these changes being reflected in improving corporate earnings.
The rest of Asia fared better with a 4.56% increase in the MSCI Asia Ex Japan Index (in Sterling terms) to the end of June 2015. Since then, with the demise of the Chinese stock market, it has proven impossible for other Asian countries not to be dragged down in its wake. The index was 13.3% lower to the end of August 2015.
Commodities have continued to slide, with the MSCI World Metals and Mining Index declining by 8.58% in the first six months of 2015. China’s domestic restructuring is partly to blame, although appetite for gold remains light as well. To the end of August, the index has declined further, with the year-to-date return now standing at -25.8%.
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The long-expected declines in bond prices are upon us, after a golden era for bond investment where total returns outpaced equities. The Citi/Salomon World Government Bond Index posted a total decline of 4.84% in the first six months of 2015 due to expectations of the first interest rate increases in the West. We believe this sector offers limited attractions at this stage, with further downside potential once interest rates commence their gradual upward trajectory.
6,222
Closing levels of FTSE 100
279.10
Average gold price per fine ounce ($)
FTSE UK Conventional Gilt up to 20 Years
6.00
Interest rates at year end (%)
2.90
FTSE UK Conventional Gilt Over 25 Years
0.80 RPI Inflation (%)
CPI Inflation (%)
5.40
Saving ratio (%)
Unemployment rate (%)
5,184
Average Household debt (£) (ex. mortgage)
Company Insolvencies
16,599
Average Income (£) (2012 prices)
59,096
UK Population (thousands)
Individual Bankruptcies
33.60
UK Government debt as % of GDP
-
4.24
GDP Growth (%) Total annual tax taken by UK govt (£bn)
69.2
174,129
Average house price in London (£) Home ownership rate (%)
83,348
Average house price in UK (£)
5,217
272.67
4.00
0.70
1.10
5.08
5.90
5,727
17,416
59,321
32.20
-
2.89
69.5
194,106
91,837
153,131
140,761
Number of residential housing transactions (London)
3,900
309.66
4.00
2.90
1.70
5.19
4.40
6,325
17,968
59,565
32.20
321.06
2.43
69.7
226,138
108,435
164,933
1,295,538
12,000
18,200 1,193,170
22,900
Mortgage repossession
4.96
1,420,927
2002
5.49
1,258,238
2001
Number of residential housing transactions 1,086,322 (UK)
6.36
1,121,247
2000
Average mortgage rate (%)
Number of mortgages approved
4,476
362.91
3.75
2.80
1.30
5.03
14,184
35,604
4.60
7,292
18,543
59,830
33.80
323.71
3.81
68.9
252,754
129,000
143,627
1,185,322
8,500
4.37
1,372,298
2003
4,814
409.17
4.75
3.50
1.70
4.76
12,192
46,652
3.20
7,558
19,409
60,119
35.60
343.63
2.91
69.4
269,407
148,540
150,906
1,183,373
8,200
5.19
1,251,377
2004
6.90
5,618
444.47
4.50
2.20
1.90
4.82
12,893
67,584
3.10
7,622
20,251
60,431
37.10
371.04
2.77
69.3
274,638
157,092
133,282
1,026,402
14,500
4.82
1,198,766
2005
0.88
0.41
6,220
603.95
5.00
4.40
3.00
5.40
13,137
107,288
2.20
7,559
21,209
60,768
37.80
397.93
2.60
68.5
292,133
164,735
164,822
1,278,478
21,000
4.95
1,427,706
2006
6.55
1.65
6,456
695.39
5.50
4.00
2.10
5.38
12,507
106,645
1.00
7,685
22,234
61,128
38.00
423.67
3.63
68.2
335,160
178,401
159,338
1,225,363
25,900
5.84
1,250,677
2007
12.31
15.21
4,392
871.65
2.00
0.90
3.10
5.59
15,535
106,544
4.30
7,923
23,093
61,504
45.80
451.06
-0.97
67.3
333,268
172,062
77,810
621,042
40,000
5.88
522,507
2008
0.70
-7.04
5,397
972.90
0.50
2.40
2.90
7.53
19,077
134,142
7.20
6,951
23,024
61,887
60.60
439.10
-3.97
66.4
304,850
155,041
75,114
616,117
48,300
4.24
592,488
2009
6.83
8.24
5,899
1,224.52
0.50
4.80
3.70
7.83
16,045
135,045
6.20
6,633
23,550
62,272
71.00
408.51
1.80
65.6
335,028
164,072
91,814
656,116
37,100
3.76
571,191
2010
11.47
27.78
5,572
1,571.00
0.50
4.80
4.20
8.40
16,886
119,941
7.20
6,111
24,139
62,655
76.60
447.16
0.92
64.7
341,577
160,909
89,629
653,788
36,200
3.34
592,540
2011
2.92
1.49
5,898
1,669.02
0.50
3.10
2.70
7.80
16,138
109,477
7.70
5,968
24,473
63,036
83.70
466.63
-0.03
64.6
357,580
161,464
91,224
642,305
34,357
3.86
613,591
2012
-3.44
-5.08
6,749
1,530.88
0.50
2.70
2.10
7.20
14,982
101,049
5.30
6,013
24,678
63,182
88.70
469.77
2.80
66.7
380,645
163,416
105,036
737,768
28,900
3.49
734,969
2013
8.77
29.04
6,566
1,264.99
0.50
1.94
0.50
5.80
17,118
99,196
7.00
6,322
25,081
63,489
80.90
492.59
2.60
65.2
502,000
177,227
109,270
775,774
21,000
4.56
676,900
2014
UK tangible commercial property funds have continued to show steady progress with the IPD UK All Property Index returning 6.76% in the first six months of 2015. However, global property shares and real estate investment trusts produced negative returns, with the MSCI World Real Estate Index dropping by 3.11% over the same period.
How the UK Economy Has Developed Since 2000
timothy james & partners INVESTMENT REPORT 2016
The Year to Date
CONTINUED
7
timothy james & partners
INVESTMENT REPORT 2016
Investment Outlook Stock markets performed well for the first four months of this year before handing back most of the gains in the next two months. Following the China setback, a large degree of catchup is required throughout the rest of 2015 in order to match the long-term average annual returns investors have enjoyed over the last few decades of approximately 6% above inflation. With a number of headwinds in play, maintaining this average will be challenging. The anticipated increase in interest rates in the US will impede progress until it happens. Although rises will be small and gradual, ultimately we expect to see rates peak at around 2.5% in the medium term. Wage inflation and rising commodity prices, including oil, could be could be drivers of increasing interest rates. UK The government has already laid out its stall with regard to getting the country’s finances back in the black. Austerity is here, as far as the civil service is concerned, with some of the non-ring-fenced departments being asked to draw up plans for up to 40% cuts in expenditure. It may be that this ‘Armageddon scenario’ is being considered in order to make the actual cuts, when they happen, appear more benign. Some benefits are being reduced as well, which, when combined with the above factors, is likely to hinder economic growth. The housing market is cooling, especially in London and the South East, and an increase in new housing stock coming to the market
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should partially alleviate the severe shortage in accommodation in the UK and help increase turnover. Interest rates should not need to rise until 2016 and, even then, the increase will likely be in small increments. It will be interesting to observe what proportion of future interest rate increases banks will pass on to deposit holders. If there is a widening of the margin between the interest banks pay deposit holders and what they charge borrowers, we may see significant improvements in net interest income and this being reflected in much healthier profits for banks. Since the most recent correction, the UK stock market looks fair value, with the British economy enjoying relatively healthy growth, although Sterling’s strength could impair exports. The 7,000 barrier could be broken again, with the possibility of a new all-time high being reached within the next 12 months. Europe With quantitative easing ongoing and a much cheaper Euro as a result, economic recovery should continue. Greece is by no means out of the woods and we could easily see further turbulence from this region. Inflation looks likely to remain non-existent for the rest of year, with a return to positive numbers by 2016. It is encouraging to note that the 28 EU economies as a whole are recording their strongest growth for four years.
Japan Japan offers further potential upside if growth continues, thanks to a much weaker Yen and lower oil prices. The corporate cultural changes should help improve competitiveness on the international stage, too, as they continue to percolate through the corporate system. China China faces the biggest challenges where it is hard to know what is fair value in the market. As mentioned earlier, the Chinese consumer is not as powerful as the American or indeed the European consumer and, therefore, unlikely to be a driver for global economic growth. Volatility is likely to continue for some time, along with additional interest rate cuts and further currency devaluations. Asia and Emerging Markets Most other Asian and emerging economies should benefit from any upswing in consumer demand from the West, but tighter US monetary policy resulting in a firmer Dollar and continued weak commodity prices will, on balance, hamper growth in the commodityexporting economies whilst supporting growth in the commodity-importing economies. The outlook continues to differ significantly from region to region. UK Commercial Property Tangible UK commercial property should stay in positive territory as investor demand remains, and as a non-equity ‘inflation hedge’. Once interest rates commence their slow upward climb, this may hinder further progress, although such an increase should be accompanied by economic growth, which tends to have a stimulatory effect on property demand.
Bonds Bond markets are unlikely to reverse the losses made thus far this year, with the macroeconomic picture as it is. Further declines seem probable if inflation takes off to a greater extent than currently expected. Strategic bond funds may offer the only relative attraction in these conditions. As touched upon earlier, there remain everpresent risks and headwinds. Europe could enter a more sustained deflationary spiral. China may experience a harder landing and stagnate as a result. A take-off in inflation in the US, coupled with interest rates rising too quickly, could also stop any upward momentum in equity markets and send bond markets into decline. However, Central Banks are aware of economic and social sensitivity regarding raising interest rates. We have seen many examples of expectations being managed to avoid unpleasant shocks. On balance, equities would still appear to be the favoured investable asset in a gradual interest rate-increasing inflationary environment, but we need the global growth engine to continue in robust shape if we are to maintain long-term total returns. Recently, Morgan Stanley announced that ‘equities remain very cheap relative to government bonds and there remains a lot of liquidity around that is looking for a home’. We agree with that view.
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Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
10 3.63%
5.75%
2.34%
28.09%
29.75%
30.03%
1.07%
4.10%
–19.51% –15.66% 14.51%
–5.59% –15.52% 23.93%
–2.53%
–18.82% –5.08% –13.96% –20.42% –17.80%
–0.82%
4.27%
–4.98%
1.70%
–3.39% –27.03% –6.48% –22.42% –21.21% –27.88%
1.40%
0.38%
4.74%
5.23%
–0.79%
5.22%
38.47%
1.24%
4.34%
6.30%
9.15%
10.10%
14.64%
16.49%
18.29%
20.70%
–6.53%
2.43%
3.00%
5.26%
7.05%
7.69%
8.11%
8.29%
14.02%
21.36%
2.07%
4.33%
4.76%
5.94%
9.07%
15.00%
16.17%
22.25%
26.86%
34.35%
2006
1.80%
5.24%
12.00%
2008
15.03 15.90 16.66 17.42 18.41 19.31
Equal allocations of all segments disclosed above, excluding cash Russell 1000 Value Index Bloomberg Commodity Index MSCI EAFE Index Russell 1000 Growth Index Russell 2500 Index FTSE NAREIT All REITs Total Return Index
Large Cap Value stocks Commodities International Large Cap Growth Small/Mid Cap REITs
–37.34%
–17.83% –43.06%
Source: SPAR, FactSet Research Systems Inc.
0.13%
6.42%
6.54%
8.21%
15.51%
15.93%
16.71%
16.83%
26.71%
27.58%
2010
0.07%
1.30%
4.21%
11.70%
15.26%
17.51%
17.88%
17.90%
20.14%
2012
–13.32% –1.06%
–11.73%
–2.51%
0.08%
0.13%
0.39%
2.64%
7.22%
7.28%
7.84%
2011
–4.48%
0.03%
0.67%
5.39%
5.97%
7.07%
13.05%
13.45%
27.15%
2014
–9.52% –17.01%
–4.50%
–2.02%
0.05%
3.21%
13.21%
23.29%
32.53%
33.48%
36.80%
2013
2.72%
3.16%
5.43%
5.54%
6.20%
8.55%
9.04%
10.51%
11.13%
11.21%
Average
The historical performance of each index cited is provided to illustrate market trends; it does not represent the performance of a particular MFS® investment product. It is not possible to invest directly in an index. Index performance does not take into account fees and expenses. Past performance is no guarantee of future results. The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, consult an investment professional.
0.16%
1.90%
5.93%
–36.85% 18.91%
–36.79% 19.69%
–35.65% 23.08%
–0.17% –38.44%
1.38%
4.74%
4.92%
6.97%
Standard deviation reflects a portfolio’s total return volatility, which is based on a minimum of 36 monthly returns. The larger the portfolio’s standard deviation, the greater the portfolio’s volatility.
Note that the diversified portfolio’s assets were rebalanced at the end of every quarter to maintain the equal allocations throughout the period.
*20 years ended 31 December 2014
6.53 10.58
JPMorgan Global Government Bond Index (Unhedged)
32.46%
34.39%
37.21%
2009
10.81% –26.72% 27.45%
11.63%
11.81%
16.23%
2007
3.56
4.40%
11.55%
2.06%
5.06%
7.35%
5.96%
1.22%
10.25%
39.17%
30.41%
2005
Barclays U.S. Aggregate Bond Index
5.25%
15.21%
5.25%
6.19%
13.07%
7.01%
4.09%
19.37%
45.51%
2004
Global Bonds
6.36%
18.31%
9.65%
8.69%
24.14%
11.63%
8.44%
25.91%
2003
Bonds
16.89%
18.47%
14.55%
15.31%
24.35%
25.89%
15.50%
2002
STANDARD DEVIATION*
19.03%
19.32%
18.86%
15.63%
27.30%
31.84%
2001
0.64
21.64%
23.60%
24.36%
20.33%
33.16%
2000
REPRESENTED BY
23.12%
31.70%
30.49%
38.71%
1999
Citigroup 3-month T-bill Index
23.16%
37.18%
35.18%
1998
Cash
35.75%
38.36%
1997
Worst
Best
Long-Term Market Returns to 30 June 2015
MARKET SEGMENT
1996
Total return bid-bid line chart since start of data (31/12/1985) of FTSE 100, FTSE 250 and MSCI World Index rebased in Pounds Sterling.
1995
20 YEARS OF THE BEST AND WORST – A CASE FOR ASSET ALLOCATION DIVERSIFICATION
MARKET MARKET INSIGHTS. INSIGHTS.WORLD WORLD STOCK STOCK MARKET MARKET RETURNS RETURNS (LOCAL (LOCAL CURRENCY) CURRENCY)
timothy james & partners INVESTMENT REPORT 2016
11
timothy james & partners
INVESTMENT REPORT 2016
The Power of Compounding
Timothy JAMes & Partners’ Preferred Funds for 2015/16 and Why We Are Recommending Them
Einstein once said compounding is the eighth wonder of the world. What exactly did he mean when he said this and why is it relevant in the world of investment?
Investment business is fundamental to Timothy James & Partners; pensions, savings and investment portfolios are at the core of our advice. As independent financial advisers, we are able to use any fund manager and it is our responsibility to source those managers we believe, over a period of time, will provide you with the best potential for capital and income growth with the appropriate level of risk. We consider it important to carry out our own independent research, which we hope we have demonstrated in this report.
If you have no immediate requirement for income from your investments and are able to reinvest both the growth and the dividends each year, the difference in the income and capital growth each year is significant compared to paying out the interest, as evidenced below:
Dividends and Capital Growth Paid Out End Year
Investment Amount
6% Return Paid Out
Dividends and Capital Growth Compounded Investment Amount
6% Return Reinvested
1
£100,000
£ 6,000
£100,000
£ 6,000
2
£100,000
£ 6,000
£106,000
£ 6,360
3
£100,000
£ 6,000
£112,360
£ 6,741
4
£100,000
£ 6,000
£119,101
£7,146
5
£100,000
£ 6,000
£126,247
£7,574
6
£100,000
£ 6,000
£133,821
£8,029
7
£100,000
£ 6,000
£141,850
£8,511
8
£100,000
£ 6,000
£150,361
£9,021
9
£100,000
£ 6,000
£159,382
£9,562
10
£100,000
£ 6,000
£168,944
£10,136
Total Interest Earned
£ 60,000
Over the years, we have seen that too much diversity of funds can dilute our best ideas and, ultimately, your end return. It is for this reason that we split our funds into two specific categories – core and peripheral. Our core funds are those we have identified as presenting opportunities in light of the current global economic outlook. The peripheral funds are also important and allow greater diversification, but include funds from our core range in previous reports. A move from core to peripheral does not mean we no longer support a fund, but that we also see opportunities in other areas.
From a risk perspective, we rate every fund out of 10 (1 being the lowest-risk and 10 being the highest). This is based upon the effects on capital values during times of stock market volatility. The lower-risk funds are designed either to hold capital value or to provide income over the medium to long term, whereas with the higher-risk funds we would expect capital values to increase significantly over time but be subject to greater capital swings in times of volatility. The lists of funds within the core and peripheral ranges are not exhaustive, but will form a central part of our portfolio planning.
£79,080
If we turn now to the effect of compounding both the capital and dividends, coupled with regular monthly contributions of, say, £500 (as you may pay into a pension), the growth is even more pronounced over time: Initial Investment
Total Value after 10 Years @ 6% pa
Total Value after 20 Years @ 6% pa
£100,000
£ 260,716
£548,536
£ 250,000
£ 529,344
£1,029,606
£ 500,000
£977,055
£1,831,390
As you can see, the longer you can compound investment returns, particularly in a tax-free environment, the greater the long-term benefits.
12
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timothy james & partners
INVESTMENT REPORT 2016
Core Funds for 2015/16
Multi-Asset Funds 2015/16
Active and Passive Investment Strategies With our core and peripheral range, we usually recommend active management where the manager is responsible for the day-to-day decisions in respect of asset allocation and stock selection, rather than passive funds, which simply track an index. We believe that if you select the right managers, you can achieve greater returns over the longer term from active management. However, this comes at a cost and we appreciate that, for some, charges are a more important consideration.
14
Higher
Provider
JP Morgan
Emerging Markets
9
Standard Life
UK Equity Unconstrained
8
Schroder
Tokyo
8
Multi-Asset Categories We have chosen three categories for our multi-asset funds: absolute return/cautious, balanced and growth.
Invesco Perpetual
Pacific
8
Stewart Investors
Asia Pacific Leaders
8
Newton
Asian Income
8
Rathbone
Global Opportunities
8
Old Mutual
North American Equity
8
Henderson
Global Growth
8
Fundsmith
Equity
8
MFM Slater
Growth
8
Jupiter
European
8
Jupiter
North American Income
7
Schroder
European Alpha Income
7
Invesco Perpetual
Global Equity Income
7
Standard Life
UK Equity Income Unconstrained
7
Fidelity
MoneyBuilder Dividend
7
Old Mutual
UK Alpha
7
Schroder
Income/Income Maximiser
7
Troy
Trojan
6
Newton
Real Return
5/6
Invesco Perpetual
Global Targeted Returns
5
Standard Life
Global Absolute Return Strategies
5
Legal & General
UK Property
5
Henderson
UK Property
5
Invesco Perpetual
Tactical Bond
4/5
The absolute return/cautious funds should exhibit lower volatility than equity-based investments and provide a return greater than cash. The balanced category includes medium-risk funds, which aim to generate returns through a diversified portfolio. These funds will have a higher equity content than the absolute return and cautious funds and therefore greater volatility. The growth funds are the higher-risk option, targeting capital growth over the longer term. These will be largely equity-based, but may have flexible mandates that allow investment into any asset class in any proportion.
Lower
Fund
TJP Risk Rating
Higher
(1 to 10)
Volatility
Multi-asset funds offer diversification by combining equities, bonds, property, cash, hedge funds, gold and other commodities in one fund. They also offer a capital gains taxefficient way to manage these various assets actively without triggering a potential tax liability each time an underlying investment is sold as capital gains crystallised within the fund are tax-exempt. The only time a potential capital gain is crystallised is when units in the actual fund are sold. This means we retain control over the capital gains tax position. Multi-asset funds can thus offer a cost-effective way to gain global exposure to the different asset classes.
We have therefore included some multi-asset funds that offer an active asset allocation but use passive investments to achieve exposure to their chosen asset classes. We believe this offers the ‘best of both worlds’ with some active input but lower ongoing costs.
Risk
Multi-asset is a generic term that covers a wide variety of potential client solutions. Historically, ‘managed’, ‘distribution’ or ‘balanced’ funds have tended to invest in more than one major investment asset class, at the manager’s discretion. However, there are now many different types of multi-asset funds including multi-manager, mixed, absolute return and unconstrained multi-asset funds, as well as model and bespoke discretionary portfolios, which all offer actively managed multi-asset solutions.
Lower
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timothy james & partners
INVESTMENT REPORT 2016
TIMOTHY JAMES & PARTNERS’ CORE AND PERIPHERAL FUNDS FOR 2015/16 UK
Europe
Emerging Markets
Absolute Return / Cautious Multi-Asset
– Standard Life UK Equity Unconstrained – Standard Life UK Equity Income Unconstrained – Schroder Income / Maximiser – Old Mutual UK Alpha – Fidelity MoneyBuilder Dividend – MFM Slater Growth – Standard Life UK Smaller Companies – BlackRock UK Income – BlackRock UK Absolute Alpha – Schroder UK Mid 250 – Invesco Perpetual Income – Schroder UK Alpha Plus – Schroder Recovery – Woodford Equity Income
– Schroder European Alpha Income – Jupiter European – Fidelity European – Jupiter European Special Situations – Henderson European – BlackRock Continental European Income
– JP Morgan Emerging Markets – Invesco Perpetual Latin America – Aberdeen Emerging Markets* – Stewart Investors Global Emerging Markets*
– Standard Life Global Absolute Return Strategies – Invesco Perpetual Global Targeted Return – Newton Real Return – Troy Trojan – Newton Multi-Asset Diversified Return – Legal & General Multi-Index 3 – Legal & General Multi-Index 4
Japan Property – L&G UK Property – Henderson UK Property – Aberdeen (Formerly SWIP) Property Trust – Schroder Global Property Securities / Income Maximiser – Aberdeen Property Share – BlackRock Global Property Securities Equity Tracker
America – Jupiter North American Income – Old Mutual North America – Schroder US Mid Cap – Fidelity American – Threadneedle American Select – Vanguard US Equity Index
Bonds – Invesco Perpetual Tactical Bond – Old Mutual Monthly Income Bond – M&G Optimal Income – Invesco Perpetual Monthly Income Plus – Schroder Absolute Return Bond – Investec Emerging Markets Local Currency Debt
Global – Invesco Perpetual Global Equity Income – Rathbone Global Opportunities – Fundsmith Equity – Henderson Global Growth – Standard Life Global Smaller Companies – Newton Global Income – Neptune Global Equity – JP Morgan Global Equity – Artemis Global Income
– Schroder Tokyo – Legg Mason Japan
Asia – Newton Asian Income – Stewart Investors Asia Pacific Leaders – Invesco Perpetual Pacific – Schroder Asian / Income Maximiser – Fidelity South East Asia
Thematic
Balanced Multi-Asset – Baillie Gifford Managed – Invesco Perpetual Distribution – Legal & General Multi-Index 5 – Legal & General Multi-Index 6
Growth Multi-Asset – Jupiter Merlin Growth – Newton Multi-Asset Growth – Odey Odyssey – Legal & General Multi-Index 7
– Henderson Global Technology – Jupiter Financial Opportunities
Commodities – Investec Enhanced Natural Resources – BlackRock Gold and General – JP Morgan Natural Resources
16
*These funds are soft closed and have an initial charge.
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timothy james & partners
INVESTMENT REPORT 2016
Timothy James & Partners’ Preferred HIGHER-Risk Funds JP Morgan Emerging Markets The aim of this fund is to provide long-term capital growth by investing primarily in equity and equity-linked securities of emerging markets companies. The fund can also invest into fixed interest securities, cash and cash equivalents. Standard Life UK Equity Unconstrained The aim of this fund is to provide long-term growth by investing in UK equities. The fund will typically hold a concentrated portfolio of stocks and is actively managed without reference to index weight or size. Due to the unconstrained nature of the fund, there is a relatively high degree of stock-specific risk. The fund may use derivatives for the purposes of efficient portfolio management, reduction of risk or to meet its investment objective. Schroder Tokyo The aim of this fund is to achieve capital growth through investment into companies that benefit from the growth of the Japanese economy. Investment will be based primarily on Japan’s economic strengths, such as its manufacturing industry (in particular on those parts that are demonstrating an ability to exploit newly emerging technology), and on sectors benefiting from structural change in the economy. In addition to company shares, the fund may invest in collective investment schemes, warrants and money market instruments. Invesco Perpetual Pacific The aim of this fund is to achieve capital growth by investment into companies in the Far East, including Australasia and Japan. The fund aims to invest primarily in shares of companies in the Far East, although it may include other Far Eastern-related investments, which include transferable securities, money market instruments, warrants, collective investment schemes and deposits. Stewart Investors Asia Pacific Leaders Formerly First State, the aim of this fund is to
18
achieve long-term capital growth through investment into shares of companies either based in or having significant operations in the Asia Pacific region excluding Japan. The fund has a bias towards large and mid-sized companies and will generally hold companies with a total stock market value of least US$1 billion. Newton Asian Income The aim of this fund is to achieve income and capital growth over the long term by investing in shares and similar investments of companies listed or located in the Asia Pacific region excluding Japan. Rathbone Global Opportunities The aim of this fund is to provide above-average long-term capital growth from a global portfolio. The fund will be able to invest in any transferable security in all recognised world financial markets. Old Mutual North American Equity The aim of this fund is to achieve long-term capital growth through the active management of a diversified portfolio invested primarily in North American stock markets. The fund primarily invests into UK shares but may also use related investments, which include transferable securities, money market instruments, warrants, collective investment schemes, deposits and derivatives.
MFM Slater Growth Lower-risk Funds - PerFormance The aim of this fund is to seek long-term capital Fund Nameprincipally / Index 2008 2009 growth, through investment in UK 2010 Companies. The manager looks for attractively FTSE 100 Index -28.33% 27.33% 12.62% priced companies that, in his view, will exhibit Troy Trojan 1.11% 11.68% 14.40% superior, sustainable growth potential. Newton Real Return
Fundsmith Equity The aim of this fund is to generate capital growth through investment into equities on a global basis. The fund approach is to hold stocks for the long term, which means it will not adopt short-term trading strategies.
11.55%
10.67%
9.82% 8.67% 10.38%
Jupiter Merlin medium-risk Funds - Growth PerFormance The primary objective of the fund is to Fund Name / Index 2008 2009 2010 achieve long-term capital growth through investment funds. These 12.62% FTSE 100 Index into a variety of other -28.33% 27.33% underlying funds invest mainly in shares of MSCI World Index -17.92% 15.73% 15.28% companies, corporate and government bonds, Jupiter North American Income -7.04% 15.40% commodities and raw materials on a global 16.34% Schroderalthough European Alpha Income basis, the core of the investments are inInvesco the Perpetual UK. TheGlobal fund manager is able to make 15.59% Equity Income their own investment decisions, and is42.53% not Standard Life UK Equity Income Unconstrained -44.79% 23.53% constrained by any sector limits or guided by Fidelity Moneybuilder Dividend -24.62% 15.02% 10.05% any particular benchmark.
-2.80%
9.97%
18.66%
0.74%
1.36%
-4.84%
10.74%
24.32%
11.46%
1.78%
2.94%
9.30%
25.80%
18.59%
0.06%
40.14%
0.57%
12.37%
4.88%
10.80%
27.35%
6.51%
4.00%
9.85%
23.56%
37.28%
6.70%
8.14%
7.53%
10.92%
22.39%
6.61%
3.44%
Old Mutual UK Alpha
-27.53%
40.87%
16.49%
-6.29%
8.43%
14.71%
-9.14%
2.49%
Schroder Income
-23.28%
35.87%
8.17%
-8.33%
25.27%
32.53%
4.13%
2.16%
8.80%
-9.30%
25.85%
25.32%
3.23%
2.08%
higher risk funds – Performance Schroder Income Maximiser -22.27% 29.85%
The table below shows the discrete (year-on-year) performance of the higher-risk funds since 2008, where available. HigHer-risk Funds - PerFormance Fund Name / Index
Henderson Global Growth The aim of this fund is to achieve aboveaverage long-term capital growth. The fund will invest principally in a concentrated portfolio of global securities, with a bias to those companies where innovation drives competitive advantage and where the fund manager considers them to be underappreciated.
5.28%
Jupiter European Invesco Perpetual Global Targeted Returns The aim of this fund is to achieve long-term Standard Life Global Absolute Return 18.47% capital growth through companies invested Henderson UK Property -22.38% 7.14% on European stock exchanges, in excess of L&G Property Trust -17.64% 5.81% its nominal benchmark, the MCSI Europe Invesco PerpetualUK). Tactical Bond (excluding
Newton Multi-Asset Growth The objective of the fund is to achieve capital 2011 and 2012 2015of to 30th growth income2013 from a 2014 portfolio UK June and international securities. The fund will -2.80% 9.97% 18.66% 0.74% 1.36% invest anywhere in the world and follow a fully 8.52% 2.11% -3.13% 9.44% -0.53% flexible asset allocation approach, investing 0.52% 4.29% 3.97%investments, 1.17% in company shares 6.22% and similar holding bonds (issued by governments and 8.60% 0.32% companies, with high and low credit ratings) 2.14% 7.18% 6.80% 5.55% 3.00% and gaining exposure to commodities, -0.11% 6.04% 6.26% 11.55% 4.14% property and other alternative investments 3.34% 2.21% 7.92% 13.57% 3.99% through stock exchange-listed investments -7.44% collective 25.75% 4.18% 5.22% 0.86% and/or investment schemes. The fund will limit investment into other collective investment schemes to 10%. The fund may also invest in emerging markets, cash instruments 2011 2012 2013 2014 2015 to 30th June and derivatives.
2008
2009
2010
2011
2012
2013
2014
2015 to 30th June
FTSE 100 Index
-28.33%
27.33%
12.62%
-2.80%
9.97%
18.66%
0.74%
1.36%
MSCI World Index
-17.92%
15.73%
15.28%
-4.84%
10.74%
24.32%
11.46%
1.78%
JPM Emerging Markets
-33.13%
55.58%
23.79%
-17.26%
13.07%
-5.91%
5.04%
-2.47%
Standard Life UK Equity Unconstrained
-41.05%
99.17%
38.50%
20.47%
44.14%
43.33%
0.30%
13.00%
Schroder Tokyo
2.42%
-2.62%
21.17%
-7.35%
4.25%
24.39%
3.99%
15.63%
Invesco Perpetual Pacific
-17.90%
41.57%
21.02%
-18.30%
13.24%
23.72%
6.14%
6.08%
Stewart Investors Asia Pacific Leaders
-15.76%
35.57%
27.52%
-7.37%
19.24%
1.04%
19.85%
2.83%
Newton Asian Income
-25.23%
49.81%
31.98%
-1.45%
21.62%
-0.74%
10.90%
-5.90%
Rathbone Global Opportunities
-38.93%
39.00%
27.55%
-3.96%
10.41%
27.04%
9.56%
5.22%
Old Mutual North American Equity
-22.39%
12.72%
21.52%
5.38%
6.29%
40.29%
23.89%
1.22%
Henderson Global Growth
-26.64%
40.76%
27.54%
-9.38%
11.14%
34.71%
14.55%
5.29%
8.36%
12.52%
25.31%
23.33%
0.66%
MFM Slater Growth
-32.65%
42.05%
77.95%
1.04%
11.31%
31.31%
1.24%
7.75%
Jupiter European
-19.78%
31.17%
26.31%
-12.73%
24.15%
25.66%
5.93%
9.67%
Fundsmith Equity
19
Fund Name / Index FTSE 100 Index
timothy james & partners
2008 2009 2010
2011 2012 2013 2014 2015 to 30th June
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74%
1.36%
INVESTMENT 7.94% 10.78% REPORT 4.87% 2016 2.90%
IMA Mixed 40-85% Equity
-21.47% 15.23% 10.69% -4.90%
ARC Sterling Balanced Index
-12.38% 12.78% 9.81% -29.40% 7.73% 9.24% 4.78%
1.78%
Baillie Gifford Managed
-18.35% 23.20% 19.60% -4.20% 13.65% 16.58% 3.92%
2.88%
Invesco Perpetual Distribution
-20.78% 30.58% 10.02% 0.10% 18.21% 12.90% 3.81%
2.74%
Legal & General Multi-Index 5 (Passive)
8.12% 1.27%
Legal & General Multi-Index 6 (Passive)
7.32% 3.72%
Multi-Asset Growth Funds
The table below shows the discrete (year-on-year) performance of the Multi-Asset Growth funds since 2008, where available. Multi-Asset GRowth Funds
Fund Name / Index
2008 2009 2010
FTSE 100 Index
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74%
1.36%
IMA Flexible
-26.11% 24.00% 14.60% -8.70% 10.10% 14.50% 4.89%
3.22%
ARC Sterling Steady Growth Index
-17.95% 17.22% 11.92% -4.23% 8.87% 12.50% 4.98%
1.77%
CF Odey Odyssey
13.05% 24.35% 5.19%
10.98%
Jupiter Merlin Growth
-15.92% 19.82% 19.51% -5.63% 6.54% 17.39% 6.60%
3.75%
Newton Multi-Asset Growth
-26.47% 17.09% 13.37% -8.77% 11.38% 20.72% 9.69%
2.61%
Legal & General Multi-Index 7 (Passive)
Price bid-bid line chart (from 1st Jul 2010 to 30th June 2015), rebased in Pounds Sterling. The Fundsmith Equity fund has not been included, as it was launched after 1st July 2010. Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
20
2011 2012 2013 2014 2015 to 30th June
6.56% 3.88%
Price bid-bid line chart (from 1st Jul 2010 to 30th June 2015), rebased in Pounds Sterling. The Odey Odyssey and Legal & General Multi-Index 7 funds have not been included, as they were launched after 1st July 2010. Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
21
timothy james & partners
INVESTMENT REPORT 2016
Timothy James & Partners’ Preferred MEDIUM-Risk Funds Jupiter North American income The aim of this fund is to achieve long-term capital growth and income by investing primarily in North American securities, with a bias towards North American blue-chip companies. Schroder European Alpha Income The aim of this fund is to provide high income with some long-term capital growth through investment in equity and equity-related securities of European companies. At least 80% of the fund will be invested in a concentrated portfolio (typically between 30 and 50 holdings) of large or mid-sized companies listed, incorporated or headquartered in European countries, or companies that derive a significant proportion of their revenues from their European business. Invesco Perpetual Global Equity Income The aim of this fund is to generate a rising level of income, together with long-term capital growth, primarily through investment in global equities. In pursuing this objective, the fund managers may include investments they consider appropriate, which include transferable securities, money market instruments, warrants, collective investment schemes, deposits and other permitted investments and transactions.
Standard Life UK Equity Income Unconstrained The aim of this fund is to produce income and some capital growth over the longer term by investing in UK equities. The fund will typically hold a concentrated portfolio of stocks, but may also hold a proportion in bonds to supplement the income of the fund. The fund is actively managed without reference to index weight or size. Due to the unconstrained nature of the fund, there is a relatively high degree of stock-specific risk. Fidelity MoneyBuilder Dividend The aim of this fund is to provide income and long-term capital growth, primarily through investments in the UK, including ordinary shares, preference shares, convertibles and bonds. The portfolio is likely to have a bias towards larger companies and has the freedom to invest outside the fund’s principal geographies, market sectors, industries or asset classes. It can also use derivatives with the aim of risk or cost reduction, or to generate additional capital or income in line with the fund’s risk profile. Old Mutual UK Alpha The aim of this fund is to maximise capital growth through investment in a portfolio of predominantly UK equities. This fund is managed by Richard Buxton, who previously ran the Schroder UK Alpha Plus fund before moving to Old Mutual in 2013.
Schroder Income The aim of this fund is to provide a growing income, predominantly from investment in UK equities. In seeking a yield higher than that offered by the major UK equity indices, the fund will invest primarily in above-average yielding equities, rather than fixed interest securities. The fund may also invest in collective investment schemes, warrants and money market instruments. Schroder Income Maximiser The aim of this fund is to provide a greater level of income than the underlying Schroder Income fund via an overlay strategy. The fund will use derivative instruments to generate additional income. The manager may selectively sell short-dated call options over securities or portfolios of securities held by the Lower-risk Funds - PerFormance fund or indices, in order to generate additional Fund Name by / Index 2009which 2010 income setting target ‘strike’2008 prices at those securities may be sold in the future. The FTSE 100 Index -28.33% 27.33% 12.62% manager is also permitted to sell put options Troy Trojan 1.11% 11.68% on securities or portfolios of securities not held14.40% Newton Returnor indices, at target 5.28% 10.67% by theReal fund, prices11.55% that are pre-set below the current market level. Invesco Perpetual Global Targeted Returns Standard Life Global Absolute Return
Baillie Gifford Managed The fund targets long-term growth by investment into any economic sector worldwide, either directly or indirectly. Investment will mainly be in shares of companies, bonds and other funds. Derivatives may also be used to protect or increase the value of the fund. Invesco Perpetual Distribution The objective of the fund is to achieve a combination of income and capital growth over the medium to long term. The fund invests primarily in corporate and government fixed interest and other debt securities (which may be sub-investment grade or have no credit rating) and shares of companies globally. The fund may use derivatives and other financially linked instruments in order to meet the fund’s investment objective and to reduce 2011 2012 2013 2014 2015 to 30th June risk, minimise costs and/or generate additional capital or income. The fund is actively -2.80% 9.97% 18.66% 0.74% 1.36% managed within its objectives and is not 8.52% 2.11% -3.13% 9.44% -0.53% constrained by a benchmark. 0.52%
4.29%
6.22%
3.97%
1.17%
8.60%
0.32%
18.47%
9.82%
2.14%
7.18%
6.80%
5.55%
3.00%
-0.11%
6.04%
6.26%
11.55%
4.14%
Henderson UK Property
-22.38%
7.14%
8.67%
L&G Property Trust
-17.64%
5.81%
10.38%
medium risk funds – Performance Invesco Perpetual Tactical Bond
3.34%
2.21%
7.92%
13.57%
3.99%
-7.44%
25.75%
4.18%
5.22%
0.86%
The table below shows the discrete (year-on-year) performance of the medium-risk funds since 2008, where available. medium-risk Funds - PerFormance Fund Name / Index
2008
2009
2010
2011
2012
2013
2014
2015 to 30th June
FTSE 100 Index
-28.33%
27.33%
12.62%
-2.80%
9.97%
18.66%
0.74%
1.36%
MSCI World Index
-17.92%
15.73%
15.28%
-4.84%
10.74%
24.32%
11.46%
1.78%
Jupiter North American Income
-7.04%
15.40%
16.34%
2.94%
9.30%
25.80%
18.59%
0.06%
40.14%
0.57%
12.37%
Schroder European Alpha Income 15.59%
4.88%
10.80%
27.35%
6.51%
4.00%
Standard Life UK Equity Income Unconstrained -44.79%
Invesco Perpetual Global Equity Income 42.53%
23.53%
9.85%
23.56%
37.28%
6.70%
8.14%
Fidelity Moneybuilder Dividend
-24.62%
15.02%
10.05%
7.53%
10.92%
22.39%
6.61%
3.44%
Old Mutual UK Alpha
-27.53%
40.87%
16.49%
-6.29%
8.43%
14.71%
-9.14%
2.49%
Schroder Income
-23.28%
35.87%
8.17%
-8.33%
25.27%
32.53%
4.13%
2.16%
Schroder Income Maximiser
-22.27%
29.85%
8.80%
-9.30%
25.85%
25.32%
3.23%
2.08%
2008
2009
2010
2011
2012
2013
2014
2015 to 30th June
-28.33%
27.33%
12.62%
-2.80%
9.97%
18.66%
0.74%
1.36%
HigHer-risk Funds - PerFormance Fund Name / Index
22
FTSE 100 Index MSCI World Index
-17.92%
15.73%
15.28%
-4.84%
10.74%
24.32%
11.46%
1.78%
JPM Emerging Markets
-33.13%
55.58%
23.79%
-17.26%
13.07%
-5.91%
5.04%
-2.47%
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INVESTMENT REPORT 2016 Multi-Asset Absolute RetuRn / CAutious Funds Fund Name / Index FTSE 100 Index 3 Month LIBOR + 4% Standard Life Global Absolute Return
2008 2009 2010
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74% 9.75% 5.26% 4.73% 4.89% 4.88% 4.53% 4.56%
Invesco Perpetual Global Targeted Returns
The graph below shows the performance of our medium-risk funds versus the FTSE 100 and MSCI World Index over 5 years.
2011 2012 2013 2014 2015 to 30th June
18.47% 9.82% 2.14% 7.18% 6.80% 5.55%
1.36% 2.25% 3.00%
8.60% 0.32%
Newton Real Return
5.28% 11.55% 10.67% 0.52% 4.29% 6.22% 3.97%
1.17%
Troy Trojan
1.11% 11.68% 14.40% 8.52% 2.11% -3.13% 9.44%
-0.53%
Legal & General Multi-Index 3 (Passive)
8.28% 1.79%
Legal & General Multi-Index 4 (Passive)
8.94% 2.72%
Multi-Asset Balanced Funds
The table below shows the discrete (year-on-year) performance of the Multi-Asset Balanced funds since 2008, where available. Multi-Asset bAlAnCed Funds Fund Name / Index
2008 2009 2010
2011 2012 2013 2014 2015 to 30th June
FTSE 100 Index
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74%
1.36%
IMA Mixed 40-85% Equity
-21.47% 15.23% 10.69% -4.90% 7.94% 10.78% 4.87%
2.90%
ARC Sterling Balanced Index
-12.38% 12.78% 9.81% -29.40% 7.73% 9.24% 4.78%
1.78%
Baillie Gifford Managed
-18.35% 23.20% 19.60% -4.20% 13.65% 16.58% 3.92%
2.88%
Invesco Perpetual Distribution
-20.78% 30.58% 10.02% 0.10% 18.21% 12.90% 3.81%
2.74%
Legal & General Multi-Index 5 (Passive)
8.12% 1.27%
Legal & General Multi-Index 6 (Passive)
7.32% 3.72%
Multi-Asset GRowth Funds Fund Name / Index 2008 2009 2010 2011 2012 The graph below shows the performance of our Balanced funds versus2013 the FTSE2014 2015 to 30th June 100 and the Mixed 20%-60% and Mixed 40% to 85% Share sectors over 5 years. FTSE 100 Index
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74%
1.36%
IMA Flexible
-26.11% 24.00% 14.60% -8.70% 10.10% 14.50% 4.89%
3.22%
ARC Sterling Steady Growth Index
-17.95% 17.22% 11.92% -4.23% 8.87% 12.50% 4.98%
1.77%
CF Odey Odyssey
Price bid-bid line chart (from 1st Jul 2010 to 30th June 2015), rebased in Pounds Sterling. The Schroder European Alpha Income fund has not been included, as it was launched after 1st July 2010.
13.05% 24.35% 5.19%
10.98%
Jupiter Merlin Growth
-15.92% 19.82% 19.51% -5.63% 6.54% 17.39% 6.60%
3.75%
Newton Multi-Asset Growth
-26.47% 17.09% 13.37% -8.77% 11.38% 20.72% 9.69%
2.61%
Legal & General Multi-Index 7 (Passive)
6.56% 3.88%
Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
Price bid-bid line chart (from 1st Jul 2010 to 30th June 2015), rebased in Pounds Sterling. The Legal & General Multi-Index 5 and 6 funds have not been included, as they were launched after 1st July 2010. Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
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Timothy James & Partners’ Preferred Lower-Risk Funds Newton Real Return The aim of this fund is to achieve a return comprised of long-term capital growth and income by investing in a broad multi-asset portfolio.
Troy Trojan The aim of this fund is to achieve growth of capital and income in real terms over the longer term. The fund’s policy is to invest substantially in UK and overseas equities and fixed interest securities, but it may also invest in collective investment schemes and money market instruments. Invesco Perpetual Global Targeted Returns The aim of this fund is to achieve a positive total return in all market conditions over a rolling 3-year period. The fund targets a gross return of 5% per annum above UK 3-month LIBOR (or an equivalent reference rate) and aims to achieve this with less than half the volatility of global equities, over the same rolling 3-year period. Standard Life Global Absolute Return Strategies The aim of this fund is to achieve a positive total return in all market conditions over a rolling 3-year period. The fund targets a gross return of 5% per annum above cash over the 3-year rolling period. The fund is actively managed, with a wide investment remit utilising traditional assets (such as equities and bonds) and investment strategies based on advanced derivative techniques.
Legal & General UK Property The aim of this fund is to achieve long-term capital growth and income by investing in a diverse portfolio of UK commercial properties. Invesco Perpetual Tactical Bond The aim of this fund is to achieve a high level of return through a combination of income and capital growth over the medium to long term. Henderson UK Property The aim of this fund is to achieve a high level of income, together with some growth of both income and capital, through investment primarily in commercial property and propertyrelated assets. Other investments may include money market instruments, derivatives and forward foreign exchange contracts.
Price bid-bid line chart (from 1st Jul 2010 to 30th June 2015), rebased in Pounds Sterling. The Invesco Perpetual Global Targeted Returns fund has not been included, as it was launched after 1st July 2010. Data provided by Financial Express Analytics. Care has been taken to ensure that the information is correct, but it neither warrants, represents nor guarantees the contents of the information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Financial Express Limited registration number: 2405213. Registered office: 3rd Floor, Hollywood House, Church Street East, Woking, GU21 6HJ. Telephone 01483 783 900. Website: www.financialexpress.net
LOWER-risk funds – Performance
Multi-Asset Absolute Return / Cautious Funds
The table below shows the discrete (year-on-year) performance of the lower-risk funds since 2008, where available. Lower-risk Funds - PerFormance Fund Name / Index FTSE 100 Index
2008
2009
2010
2011
2012
2013
2014
2015 to 30th June
-28.33%
27.33%
12.62%
-2.80%
9.97%
18.66%
0.74%
1.36%
Troy Trojan
1.11%
11.68%
14.40%
8.52%
2.11%
-3.13%
9.44%
-0.53%
Newton Real Return
5.28%
11.55%
10.67%
0.52%
4.29%
6.22%
3.97%
1.17%
8.60%
0.32%
Invesco Perpetual Global Targeted Returns Standard Life Global Absolute Return
18.47%
9.82%
2.14%
7.18%
6.80%
5.55%
3.00%
Henderson UK Property
-22.38%
7.14%
8.67%
-0.11%
6.04%
6.26%
11.55%
4.14%
L&G Property Trust
-17.64%
5.81%
10.38%
3.34%
2.21%
7.92%
13.57%
3.99%
-7.44%
25.75%
4.18%
5.22%
0.86%
Invesco Perpetual Tactical Bond
medium-risk Funds - PerFormance
26Fund Name / Index
The following graph shows the performance of our lower-risk funds versus the FTSE 100 and MSCI World Index over 5 years:
2008
2009
2010
2011
2012
2013
2014
2015 to 30th June
FTSE 100 Index
-28.33%
27.33%
12.62%
-2.80%
9.97%
18.66%
0.74%
1.36%
MSCI World Index
-17.92%
15.73%
15.28%
-4.84%
10.74%
24.32%
11.46%
1.78%
The table below shows the discrete (year-on-year) performance of the Multi-Asset Absolute Return /Multi-Asset Cautious FundsRetuRn since/ CAutious 2008, where available. Absolute Funds Fund Name / Index FTSE 100 Index 3 Month LIBOR + 4% Standard Life Global Absolute Return
2008 2009 2010
2011 2012 2013 2014 2015 to 30th June
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74% 9.75% 5.26% 4.73% 4.89% 4.88% 4.53% 4.56%
Invesco Perpetual Global Targeted Returns
18.47% 9.82% 2.14% 7.18% 6.80% 5.55%
1.36% 2.25% 3.00%
8.60% 0.32%
Newton Real Return
5.28% 11.55% 10.67% 0.52% 4.29% 6.22% 3.97%
1.17%
Troy Trojan
1.11% 11.68% 14.40% 8.52% 2.11% -3.13% 9.44%
-0.53%
Legal & General Multi-Index 3 (Passive)
8.28% 1.79%
Legal & General Multi-Index 4 (Passive)
8.94% 2.72%
The performance of the funds, where available, is shown on the graph above. The Legal & Multi-Asset bAlAnCed Funds General funds are not included as they were launched after 1st July 2010. Fund Name / Index
2008 2009 2010
2011 2012 2013 2014 2015 to 30th June
FTSE 100 Index
-28.33% 27.33% 12.62% -2.80% 9.97% 18.66% 0.74%
1.36%
IMA Mixed 40-85% Equity
-21.47% 15.23% 10.69% -4.90% 7.94% 10.78% 4.87%
2.90%
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INVESTMENT REPORT 2016
A Brief Summary of Asset Classes When we advise a client to invest their money, we give careful consideration to the underlying investment and fund manager. Cash Traditionally, cash is a low-risk investment class that generates its return by reference to an interest rate, either fixed or variable, typically from a building society or bank. The interest rate is predetermined, although it may fluctuate in line with the Bank of England base rate. The financial strength of the organisation is key when choosing where to deposit cash. Fixed Interest Securities Just as a bank or building society pays you interest for lending them money, companies and governments do much the same thing. Rather than a large company borrowing money from a bank, as an alternative they may choose to raise money by issuing a bond. Debts issued by companies are referred to as corporate bonds, whereas UK government bonds are known as gilts. Fixed interest securities belong to the debt class of investment and are therefore deemed less risky than equities. Unlike a bank or building society account, the capital value will be subject to some fluctuation. Corporate bonds and gilts are traded daily and the capital value may vary depending upon, amongst other factors, movements in interest rates, inflation and the changing financial fortunes of the company who originally issued the bond. A bond is only as secure as the strength of the company issuing it. Typically there are three main features of a bond: a start date, an end date and a predetermined interest rate, known as a coupon. The financial strength of the company and perceived risk of it repaying the debt in the future will determine the rate of coupon it needs to pay. Government gilts, for example, will pay a lower coupon than corporate bonds due to the lower risk of the issuer.
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Stocks and Shares/Equities The most common form of higher-risk investing is made by an investment in a company. Most individuals pass on the skill of selecting the most appropriate company to a fund manager who works for a fund management company. In the context of ISAs, they typically manage a ‘holding’ of 30–100 companies’ shares in a collective vehicle called a ‘unit trust’ or OpenEnded Investment Company (OEIC). Each trust document dictates where and in what the manager is investing and the objective, e.g. large or small companies, different geographical markets for capital growth or those that pay high dividends. The capital value is determined by the performance of the company, with reference to its increase or decrease in profits, turnover and direction. The share price will also fluctuate up and down, based on market sentiment and general performance. As a shareholder, you benefit from the company’s success, as your share price and capital value may increase, but your capital value may fall in line with its share price if its performance does not meet the market’s expectation. In conclusion, the share value can rise and fall for many reasons, over long periods of time or within minutes. In a majority of cases, traditional businesses quoted on a stock market generate a profit. As a shareholder, you are entitled to part of this profit income, known as a dividend, usually distributed semi-annually. Some companies use their profits to reinvest in their business to develop new products, buy other companies or perhaps repay debts.
Commercial Property Typically these funds invest into different sectors of the commercial property market, including retail shops, warehouses, office buildings and industrial units. The weightings and types of property the fund will hold at any one time will depend upon the prevailing market and economic conditions. Broadly, a fund manager will look to achieve a total return through a combination of strong rental income, known as the yield, along with longer-term rising capital value of the property itself. The value of the property unit is typically a function of the length of the lease and the financial strength of the tenant. Real Estate Investment Trusts (REITS) Real Estate Investment Trusts (or REITS, as they are commonly known) are collective investments that allow individuals to participate in a diverse range of property investment via liquid tradable securities. Unlike commercial property funds, they are totally unrestricted as to the type of property and geographical locations into which they may invest. From a risk perspective, they behave similarly to stocks and shares. Therefore, the volatility is much greater. Commodities Commodities fall into three general categories: precious metals (largely gold and silver), hard commodities (those for industrial use, such as copper and aluminium) and soft commodities (which are mainly agricultural, such as wheat and corn). They tend to be uncorrelated with security markets, although both hard and soft have behaved in a similar fashion of late. Gold is used as a store of value during times of exceptional economic volatility. The asset class can be accessed via investment into equities (of those companies that produce the commodities) and specialised products, and by direct investment. The growth in global economies relies on the supply of commodities, making it an important alternative asset class to hold.
Absolute Return An absolute return fund aims to provide a return in all market conditions, rather than to outperform a certain sector, the idea being that this reduces volatility. These funds will often target a specific return above cash, using an asset class or geographical region. The fund will be actively managed and can use various investment techniques including traditional equities and fixed interest, along with less traditional short-selling, futures, options, derivatives, leverage and unconventional assets. These funds usually have a diversified strategy in order to smooth out volatility. They are less risky than equities, as your portfolio will only have some exposure to this asset class. Multi-Asset Multi-asset class investments increase the diversification of an overall portfolio by distributing investments throughout several classes. This reduces risk (volatility) compared to holding one class of assets, but it might also hinder potential returns. For example, a multi-asset class investor might hold bonds, stocks, cash and real property, whereas a single-class investor might only hold stocks. One asset class might outperform during a particular period of time, but historically no asset class will outperform during every period. Index Trackers An index tracker aims to replicate the performance of a given index or indices. This style of investment is largely an automated investment process and therefore offers lowcost access to an asset class; it is often referred to as passive investment. Traditional index trackers will simply adjust their holdings in line with the changes in the index. There are now more sophisticated trackers that aim to beat the index by applying additional filters such as volatility or market cap; these are often referred to as smart Beta.
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INVESTMENT REPORT 2016
Investing via a New Individual Savings Account (NISA) What are NISAs and how do they work? New Individual Savings Accounts are taxefficient savings vehicles that enable you to save up to £15,240 (in the current tax year), which can be made up of an investment into cash or stocks and shares. From 1st July 2014 all ISAs became NISAs (New Individual Savings Account). This applied to all existing ISAs and new accounts opened after 1st July. The Government changed the name to reflect the significantly increased limits and flexibility available to account holders. The NISA is more generous and enables you to save your NISA annual allowance of £15,240 in cash, stocks and shares or a combination of the two. You can also transfer previous years’ ISA savings freely between stocks and shares and cash, if you wish. • Since 1st July 2014, you may split the amount you pay into a NISA between a cash NISA and a stocks and shares NISA as you choose – up to the current overall annual NISA limit of £15,240. Previously, it was only possible to save up to half of the overall ISA subscription limit in a cash ISA. • Since 1st July 2014, you may transfer amounts you hold in a stocks and shares NISA to a cash NISA. This applies to amounts you have paid in since 6th April 2014, as well as amounts paid in during previous tax years. • Your cash NISA and stocks and shares NISA can be held either with the same or with different providers.
You can only subscribe to an NISA if you are resident and ordinarily resident in the UK for tax purposes. If you cease to be a UK resident while you already have a NISA open, you will no longer be able to put money into it. However, you may keep your NISA open and you will still be entitled to the tax benefits on investments held in the NISA. If you then return to be UK resident and ordinarily resident, you can start putting in money again. Typical reasons you may wish to invest in a New Individual Savings Account are the following: • As you have access to the funds at any time, it is a useful way of building up capital by investing on a monthly basis. • It is a way of building up a tax-free fund that can be used to repay a mortgage. • Many of our clients have used it as a method of long-term savings to build up a tax-free fund to complement their retirement provision. • Many couples will utilise a New Individual Savings Account as a method of building up a tax-free fund that will give them the option of private education for their children. • The income payable may benefit from reduced tax. • Corporate bonds (fixed interest distributions) in NISAs are able to reclaim 20% income tax. • The benefits of starting a stocks and shares NISA can be summarised as follows:
• Tax-free growth – Your investment will purchase units in funds that will reflect the value of the shares in the respective geographical regions, sectors of industry and asset classes. You will hopefully benefit from capital and dividend growth. All of the capital growth is tax-free under the NISA umbrella. Whilst the income tax advantages of dividends within NISAs have diminished for basic-rate taxpayers, income from fixed interest securities remains tax-free. • Flexibility – The valuation of your investment is the number of units that you purchase multiplied by the price at the day of valuation. Should you wish to encash all or part of the investment at any time, there is no penalty, although investments in assets with short-term volatility should be considered for the medium to long term. • Professional management – Fund managers are judged on their historic and future investment performance. The respective fund managers will buy and sell shares, corporate bonds, commercial property and other assets on a daily basis, taking advantage of any potential opportunities. If you are investing into assets other than cash, always consider the reasons you are investing money and be comfortable it is an affordable amount to be put away for a minimum of five years. If you are unsure whether an investment is suitable for your circumstances, contact your usual Consultant at Timothy James & Partners.
How can you purchase your stocks and shares NISA? The NISA funds can be purchased directly from the investment house or via an investment supermarket or platform. The benefits of the latter are that you are not restricted to one provider’s funds and you are easily able to switch your investment choice in future, should you wish. Costs and charges These will vary depending upon your chosen provider. What can children invest into? Junior ISAs (JISAs) are available to those under 18; the 2015/16 allowance is £4,080. JISAs work in the same way as NISAs for adults, but they must be managed by a parent or guardian until the child is 16; the child cannot access the funds until 18. As well as having a JISA, those aged 16-18 can hold a standard cash NISA, effectively providing them with an overall allowance of £19,320. The JISA element can be held either in cash or stocks and shares, but the NISA can only be held in cash. However, at 18 it is possible for the cash NISA to be transferred to a stocks and shares NISA.
Tax position of NISAs
• You can transfer your cash NISA to another NISA manager, either into another cash NISA or into a stocks and shares NISA.
• No tax payable on the income you receive from your NISA (although the 10% tax credit on dividend income is not reclaimable).
• You are able to transfer some or all of the money saved in previous tax years without affecting your annual NISA allowance.
• No tax payable on capital gains arising on your investments. • You do not have to tell HMRC about income and capital gains generated by NISAs.
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• Any cash held within the stocks and shares NISA is subject to basic savings-rate tax at source.
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Investing via a New Individual Savings Account (NISA) CONTINUED Help to Buy ISA A new Help to Buy ISA will be available from 1st December 2015 for first-time homebuyers. Savers will receive help from the Government in the form of a bonus applied to the investment. This new scheme is only available as a cash ISA. The scheme will pay a bonus of 25% of the amount saved, subject to a maximum of £3,000. The ISA will also attract interest during the period it is held. Savings are limited to £200 per month, plus an initial contribution of £1,000 that can only be made when the account is opened. The Help to Buy ISA will be available to anyone over the age of 16 who has never owned a property. The bonus will only be applied once the investor is actually purchasing a home and is subject to a maximum property purchase of £450,000 in London and £250,000 elsewhere. It is not possible to subscribe to two separate cash ISAs (cash NISA & Help to Buy ISA) in the same tax year. Therefore, if you have already invested in a cash NISA this tax year, you will not be able to open a Help to Buy ISA. However, it will be possible to transfer a current year cash NISA, subject to the contributions being no higher than those permitted under the Help to Buy rules. Those aged 18 and above are able to invest into a stocks and shares NISA and a Help to Buy ISA in the same tax year, but the combination of the two ISAs must not exceed the maximum allowance (currently £15,240). Inheriting spouses’ NISA allowances NISA savers who are married or in a civil partnership can now inherit the value of their deceased partners’ NISA allowances upon death. Previously the tax-free status of a NISA was immediately lost on death, but the new rule allows the survivor to inherit a NISA allowance, equal to the value of the deceased’s NISA pot at the date of death.
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This means the survivor’s NISA allowance will be increased to enable them to save an amount equal to the value of the deceased’s NISA savings as at their date of death, in addition to their annual allowance (£15,240 for 2015/16). As the rules are that the allowance passes to the survivor, rather than the NISA investment itself, the deceased’s NISA portfolio does not need to be earmarked for the surviving spouse; they can simply top up their own NISA or open a new one. Replacing withdrawals From 6th April 2016, NISA investors will be able to dip into their savings and replace them without affecting their annual subscription limits. The new contributions will need to be paid within the same tax year as the withdrawal for it not to be counted. This only applies to cash NISAs and any cash element within a stocks and shares NISA. However, as it is possible to move NISA holdings between cash and stocks and shares without restriction, clients in stocks and shares will be able to benefit, provided they move into cash first.
Risk Warnings and Points You Should Be Aware of Before Investing • It is important to remember that the value of your investment and any dividends may go down as well as up. The original amount invested may be eroded due to negative investment returns and charges. • There is no guarantee that funds which aim for an absolute or total return will achieve this. These funds can go down as well as up and are not without risk. • The higher-risk and more adventurous funds may be more volatile than the average fund. Your investment may be subject to sudden and large falls in value; you could get back less than the amount you originally invested. • Some of the lower- to medium-risk funds include corporate debt. The income and capital is not guaranteed and can fluctuate. In extreme market conditions, the fund manager reserves the right to suspend dealing, making these investments illiquid for that time period.
• You can only have one NISA provider in any one tax year. Should you invest on a monthly basis with a NISA fund manager and wish to change, you will need to cancel the direct debit mandate immediately. If a payment to a NISA fund manager is made after 5th April, you will need to stay with this provider for the whole tax year. • Our investment recommendations are based on our understanding of the current tax laws applying to NISAs, which could be subject to change in the future. • Levels and bases of relief from taxation are subject to change. Any tax reliefs are those currently applying. • The value of the tax-efficiency of NISAs depends upon the circumstances of the investor. • When viewing past performance data, please remember this is not an indication of future performance.
• As the NISAs recommended by Timothy James & Partners are not cash-based and are 100% invested into asset classes such as worldwide equities, corporate bonds and commercial property, you should consider such investments as medium- to long-term, i.e. a minimum of five years. There can be better times to sell your holdings than others, hence the minimum time horizon. • The initial charge of the investment includes fees payable to Timothy James & Partners in respect of the advice provided. Although this amount is payable from the provider, you are in effect making this payment. Most of the charges are taken in the early years of the investment. This means that, if you withdraw during this time, you may lose money or get back less than you invested. We will also receive 0.85% of the value of your investments per annum on an ongoing basis.
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GLOSSARY OF TERMS Advisory: One of Timothy James & Partners’ investment propositions, where we advise you, based on your needs and objectives, on the most suitable investment, the best deposit interest rates and opportunities for growth and/or tax saving, but only with your express consent. Alternative Investment Market (AIM): The London Stock Exchange’s International Market for smaller growing companies. A wide range of businesses including early stage venture capital-backed, as well as established companies, join the AIM seeking access to growth capital. Asset: Anything having commercial or exchange value that is owned by a business, institution or individual. Asset class: Classification of assets, e.g. cash, company shares, fixed income securities (bonds), and tangible assets such as property. Bond: A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Capacity for loss: The investor’s ability to absorb falls in the value of their investment, assessing if any loss of capital would have a materially detrimental effect on their standard of living. Capital: Refers to the financial assets, cash or resources owned by an individual or company. Capital growth: Occurs when the current value of an investment is greater than the initial amount invested. Cash equivalents: Deposits or investments with similar characteristics to cash. Commodity: A marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services. Correlation: A statistical measure that indicates the extent to which two securities move in relation to each other. Credit: The borrowing capacity of an individual, company or government. More narrowly, the term is often used as a synonym for fixed income securities issued by companies. Credit rating: An independent assessment of a borrower’s ability to repay their debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor’s, Fitch and Moody’s are the three most prominent credit rating agencies. Credit spread: The difference between the yield of a corporate bond, a fixed income security issued by a company and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value.
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Default: When a borrower (a company, Government or individual) does not maintain interest payments or repay the amount borrowed, when due. Derivatives: Financial instruments, the price and value of which are dependent upon one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments, such as a commodity, currency or security. Developed economy/markets: Wellestablished economies with a high level of economic growth, security and standard of living. Discretionary Fund Manager (DFM): Another Timothy James & Partners investment proposition, which allows you to hand over the day-to-day management of your investments to a dedicated portfolio manager at one of our recommended discretionary private client fund management companies. This is a personalised service, whereby the manager constructs a bespoke portfolio individually tailored to your specific requirements. Dividend: Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year. Earnings per share: An indicator of a company’s profitability – calculated as the net profit of a company divided by the number of shares in issue. Enterprise Investment Scheme (EIS): A scheme designed by the UK government to help smaller higher-risk trading companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Emerging economy or market: An economy that is progressing towards being advanced, as shown by equity markets and the existence of some form of market exchange and regulatory body. Investments in emerging markets are generally considered to be riskier than those in developed markets. Equities: Shares of ownership in a company. Ex-dividend date: The date on which declared distributions officially belong to underlying investors, rather than the fund; usually the first business day of the month. Exposure: The proportion of a fund invested in a particular share/fixed income security or sector/region, usually expressed as a percentage of the overall portfolio. FinaMetrica: The risk profiling tool used by Timothy James & Partners to help evaluate an investor’s willingness to take risks. Financial Conduct Authority (FCA): The current regulatory body in the UK, working independently of the UK government, which focuses on the conduct of firms providing financial services to consumers.
Financial Services Authority (FSA): Financial regulatory body, now superseded by the FCA (see above). Fiscal policy: Government policy on taxation, spending and borrowing. Fixed income security: A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Futures: A futures contract is a contract between two parties to buy or sell a particular commodity or financial instrument at a predetermined price at a future date. Futures are traded on a regulated exchange. Gilts: Fixed income securities issued by the UK government for a stated coupon and maturity date; generally considered to be low-risk. Government bonds: Fixed income securities issued by governments, which normally pay a fixed rate of interest over a given time period, at the end of which the initial investment is repaid. High-yield bonds: Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered to be at higher risk of default than better quality (higher-rated) fixed income securities, but they have the potential for higher rewards. Default means that a company or government is unable to meet interest payments or repay the initial investment amount, when due. Income yield: Refers to the income received from an investment and is usually expressed annually as a percentage based on the investment’s cost, its current market value or face value. Index: An index represents a particular market or a portion of it, serving as a statistical measure of change from a base value. Index-linked bonds: Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security; also referred to as inflation-linked bonds. Index-tracking funds: Funds that do not attempt to beat the performance of an index or market but merely track it, to mitigate the risk involved in fund managers picking stocks in companies when trying to outperform an index. Inflation: The sustained increase in the general price level of goods and services in an economy over a period of time; the UK headline rate uses increases in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.
Investment-grade bonds: Fixed income securities issued by a company with a medium or high credit rating from a recognised credit rating agency. They are considered to be at lower risk from default than those issued by companies with lower credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount, when due. Investment risk: The probability of occurrence of losses relative to the expected return on any particular investment, or a measure of the level of uncertainty of achieving returns as per the expectations of the investor. Issuer: An entity that sells securities, such as fixed income securities and company shares. Leverage: When referring to a company, leverage is the level of a company’s debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to a fund that borrows money to increase the potential return of an investment. Liability: Anything of commercial value that one business, institute or individual owes to another. Liquidity: A company is considered highly liquid if it has plenty of cash at its disposal. A company’s shares are considered highly liquid if they can be easily bought or sold, since large amounts are regularly traded.
Net Asset Value (NAV): A fund’s Net Asset Value is calculated by taking the current value of the fund’s assets and subtracting its liabilities. Open-Ended Investment Company (OEIC): A type of managed fund, the value of which is directly linked to the value of the fund’s underlying investments; a collective investment. Options: Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a given date in the future. Payment date: The date on which distributions will be paid by the fund to investors; usually the last business day of the month. Retail Distribution Review (RDR): (Effective from 1st January 2013) An FCA-led programme designed to ensure retail customers are given transparent information on the services and fees they can expect to receive. It is broken down into five main areas: Independent advice that considers a solution from the whole of the market and reflects investors’ needs. Allowing people to identify clearly and understand the service they are being offered. Commission-bias is removed from the system and recommendations made by advisers are not influenced by product providers.
Long position: Refers to ownership of a security held in the expectation that the security will rise in value.
Investors are informed upfront about how much advice is going to cost and how they will pay for it.
Managed Portfolio Service (MPS): Another Timothy James & Partners investment proposition, which allows for as many as 25 individual funds across different asset types and geographical markets, managed by a single discretionary manager. Investments can be moved without your prior agreement, but the underlying investments will always mirror your risk profile and personal objectives.
All investment advisers are to be qualified to a new, higher level, regarded as equivalent to the first year of a degree.
Macroeconomic: Refers to the performance and behaviour of an economy at a regional or national level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance; sometimes abbreviated to ‘macro’. Maturity: The length of time until the initial investment amount of a fixed income security is due to be repaid to the holder of the security. Monetary policy: A Central Bank’s regulation of money in circulation and interest rates; how an economy may control and monitor its money.
Retail Prices Index (RPI): A UK inflation index that measures the rate of change of prices for a basket of goods and services in the UK, including mortgage payments and council tax. Risk profiler: A tool to help evaluate an investor’s willingness to take risks. Security: A financial term for a paper or tangible asset, usually a share in a company, property or a fixed income security (also known as a bond). Short position: A way for a fund manager to express his or her view that the market might fall in value. Short-dated corporate bonds: Fixed income securities issued by companies and repaid over relatively short periods. Short-dated government bonds: Fixed income securities issued by governments and repaid over relatively short periods.
Tolerance for loss: The degree of variability in investment returns that an investor is willing to withstand. Total Expense Ratio (TER): A measure of the total costs associated with investment, consisting of management, trading, legal fees and operating expenses. Unit trust: A type of managed fund, the value of which is directly linked to the value of the fund’s underlying investments; a collective investment. Unquoted shares: Also known as unlisted shares, these are shares in companies (often smaller ones) that are not traded on regular stock markets. They can be volatile in price and, as such, are a higher-risk investment. They are very difficult to value. Valuation: The worth of an asset or company, based on current price. Venture Capital Trusts (VCTs): Tax-advantaged investments in the UK that tend to focus investment on small unlisted firms to try to achieve higher than average returns, albeit at higher risk; typically illiquid. Volatility: The degree to which a given security, fund or index rapidly changes. It is calculated as the degree of deviation from the norm for that type of investment, over a given time period. The higher the volatility, the riskier the security tends to be. It typically affects value. Warrant: A company-issued security that gives the holder the right to buy shares in that company at a specified price and within a certain timeframe in the future. Wrapper: A financial package that may give tax advantages such as reduced tax, and which allows efficient investment and disinvestment of funds. Yield (bonds): Refers to the interest received from a fixed income security and is usually expressed annually as a percentage, based on the investment’s cost, its current market value or its face value. Yield (equity): Refers to the dividends received by a holder of company shares and is usually expressed annually as a percentage, based on the investment’s cost, its current market value or face value. Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year. Yield (income): Refers to the income received from an investment and is usually expressed annually as a percentage, based on the investment’s cost, its current market value or face value.
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timothy james & partners
Timothy James & Partners Ltd 4th Floor 247 Tottenham Court Road London W1T 7QX T: 0207 436 6446 F: 0203 597 6050
