Q4 2019 Market Update

Q4 2019 Market Update

2019 turned out to be a very profitable year for most investors. The prospect of interest rates remaining at very low levels has lifted valuations of all financial assets, despite the disappointing progress of the global economy. The growth in the global economy is still weak but has at least shown signs of stabilisation following several quarters of deterioration. 

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A Spotlight On: Corporate Bonds

A Spotlight On: Corporate Bonds

The IA Sterling Corporate Bond sector is possibly one of the more straightforward sectors which the IA have put together. Funds must invest at least 80% of their assets in investment grade corporate bonds denominated in, or hedged back to, sterling. Nonetheless there is a range of funds in the sector, with more or less flexibility around duration and credit quality. This is a relatively large sector, encompassing close to 100 funds and some £85bn of assets, and therefore gives investors plenty of choice whether they wish to invest in a tracker fund or something more active.

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A Spotlight On: UK Smaller Companies

A Spotlight On: UK Smaller Companies

At the end of June 2019, the IA UK Smaller Companies sector comprised of 52 funds with a combined level of assets totalling over £16bn. To meet the IA's sector requirements, funds must invest at least 80% of their assets in the bottom 10% of the UK equity market, by market capitalisation. Owing to the very nature of investing in smaller sized UK companies, funds within the sector tend to have a larger bias to domestic earnings and therefore the UK economy, versus those residing in the IA UK All Companies sector.

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A Spotlight On: IA Global Bonds

A Spotlight On: IA Global Bonds

At first sight the IA Global Bond sector can leave most potential investors feeling bewildered. The sector is made up of 180 funds investing in a variety of geographies across both companies and governments of varying credit quality. And that’s before consideration of the plethora of currency hedging options available.

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A Spotlight On: Property

A Spotlight On: Property

According to the Investment Association's (IA) latest data, the UK Direct Property sector has assets under management of £18.4 billion as at March 2019. The sector is home to those funds that invest predominantly in real estate located in the UK and to qualify, at least 70% of a fund must be invested in the asset class over rolling 5-year periods. The sector itself was launched in September 2018 to help improve the comparability of direct property funds.

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A Spotlight On: Emerging Market Debt

A Spotlight On: Emerging Market Debt

The funds in this sector may invest in the debt of emerging market governments and corporates issued in both hard (developed market) currencies, and local (domestic market) currencies. The yield on these bonds tends to offer a significant premium to the yields available on equivalent debt issued in developed markets, although it brings with it commensurate risks.

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A Spotlight On: IA Volatility

A Spotlight On: IA Volatility

The sector consists of funds that, instead of having a specific return objective, look to target a specific volatility target or range over the long term. Therefore it is perfectly feasible for a fund to have performed poorly but will still be meeting its primary objective by remaining within its specified volatility parameters.

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A Spotlight On: Global Equity Income

A Spotlight On: Global Equity Income

The IA Global Equity Income sector comprised of 56 funds with combined assets in excess of £19bn. To meet the IA's sector requirements, funds must achieve a yield premium to that of the MSCI World index and allocate at least 80% of their assets to global equities.

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Review of SAA tools

Review of SAA tools

The primary value of the strategic asset allocation (SAA) models appears to be as an objective tool that can be used within a suite of financial planning products. Such a financial planning suite may include tools to determine:

  • attitude to risk assessment
  • risk mapping
  • strategic asset allocation
  • savings programme assessment
  • risk illustration tools

In our opinion the SAA models that we have reviewed will perform a satisfactory role in meeting the needs of investors though advisers should be aware of the possible limitations of the approach.

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A guide to PROD

A guide to PROD

Through PROD the future relationship between advisers and manufacturers is set to change, with the purpose of ensuring that the regulator’s objectives are met. It is very likely that regulatory visits in the future will focus on matching the target market information of manufacturers with that of advisers. Alarm bells will inevitably ring where this is not the case…

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