Whilst it is always good to get away for a break during the summer, it’s always nice to be back home, particularly when home is a city like London. As a born and bred Londoner who still lives in this city this goes double for me.
News this week from Bloomberg announced that US retirement account balances have again hit all-time highs for the third consecutive quarter in 401(k) and IRA accounts, according to data from Fidelity Investments. Whilst this is partly due to the US equity markets continuing to hit all-time highs it also reflects increased employee and employer contributions to these retirement accounts. https://www.bloomberg.com/news/articles/2017-08-03/americans-keep-crushing-it-with-their-401-k-s
Two weeks ago Theresa May’s call for a snap election in the UK may have stunned Westminster but it also caught currency markets on the hop. The pound enjoyed one of its best days in a decade rallying to a six month high against the dollar. It has certainly been noticeable for US taxpayers in the UK with an interest in “Cable” – foreign exchange market jargon for the sterling: dollar exchange rate (GBPUSD). Ahead of the election announcement the market was trading round 1.25 and since then GBPUSD has been as high as c. 1.2950 and is still just above 1.29 at the time of writing. Back in the middle of March it was just above 1.21.
It feels like a lot has happened after 23rd June’s Brexit vote and since then the news flow has been persistently miserable – national footballing humiliation courtesy of Iceland, currency turmoil courtesy of the pound, political turmoil courtesy of the government and opposition parties and even the weather applying the coup de grace with the wettest June on record – as if anything else was needed to cheer up a despondent nation.
The latest financial disclosure forms filed by the two leading presidential candidates – Donald Trump and Hillary Clinton – make for interesting reading after their release on Tuesday.
Hillary’s biggest investment between $5million and $25 million was in the Vanguard 500 index fund – a low cost tracker fund with a TER of 0.16% per annum – according to Bloomberg http://www.bloomberg.com/politics/articles/2016-05-18/trump-invested-in-outsourcing-companies-he-denounced-in-campaign
On the other hand Bloomberg notes that Donald Trump holds investments in a number of companies he had denounced on the campaign trail including Apple – even though in February he called for a boycott of the company for refusing to help the FBI unlock an iPhone used by a terrorist in California. Who knew that the Donald could be so magnanimous!
Commentators such as Fortune have previously noted the similarity of Clinton’s portfolio to the low cost investment strategy espoused by her supporter Warren Buffet whereas Trump has historically favoured hedge funds for some of his largest personal holdings – http://fortune.com/2016/05/10/hillary-trump-investing/
Like the election we’ll have to wait to see how their different approaches work out for the two of them…….
By Cormac Naughten
At times of market volatility when bad news is pervasive investors are often left wondering where to turn. Sometimes it can seem tempting to seek out commentators or other “gurus” with decided opinions and seemingly stellar credentials for having identified and called market crises in advance correctly in the past.
We at MASECO believe that making market predictions over the short term and trying to time financial markets is a futile exercise as it is all too often purely conjecture. An example of this can be seen in the following recent Bloomberg story whereby Goldman Sachs abandoned five of their six recommended top trades for 2016 – just six weeks into the year. http://www.bloomberg.com/news/articles/2016-02-09/goldman-sachs-abandons-five-of-six-top-trade-calls-for-2016
Replacing a well thought out financial plan, underpinned by decades of empirical and academic evidence, with one “informed” by predictions can be a dangerous business. Why is it then that we can be drawn in by them when we feel vulnerable?
Professor Steven Levitt of Freakonomics fame offers the following explanation for why bad predictions abound:
“So, most predictions we remember are ones which were fabulously, wildly unexpected and then came true. Now, the person who makes that prediction has a strong incentive to remind everyone that they made that crazy prediction which came true. If you look at all the people, the economists, who talked about the financial crisis ahead of time, those guys harp on it constantly. “I was right, I was right, I was right.” But if you’re wrong, there’s no person on the other side of the transaction who draws any real benefit from embarrassing you by bring up the bad prediction over and over. So there’s nobody who has a strong incentive, usually, to go back and say, Here’s the list of the 118 predictions that were false. … And without any sort of market mechanism or incentive for keeping the prediction makers honest, there’s lots of incentive to go out and to make these wild predictions.”
If you are interested in exploring this further the Freakonomics Radio podcast, “The Folly of Prediction”, can be accessed with the following link – http://freakonomics.com/podcast/new-freakonomics-radio-podcast-the-folly-of-prediction/
According to an FT article on 29th December 2015 Warren Buffett was heading into the New Year facing his worst year relative to the wider US stock market since 2009.
For the man known as the Oracle of Omaha this under-performance came in his Golden Anniversary year at the helm of his conglomerate Berkshire Hathaway with its share price down 11% with two trading days left before year end versus the S&P 500 total return including dividends at c. 3% up on 29th December.
Buffett is known for his long-term take on the stock market, echoing his mentor Benjamin Graham’s view that in the short term the stock market is a “voting machine” whereas in the long run it is a “weighing machine”. This approach stood him in good stead in the era of “irrational exuberance “ that was the dot com boom and bust from which he emerged with an ever stronger reputation and likewise in the recent Financial Crisis Here at MASECO we also include tilts in our portfolio to the type of value companies favoured by Graham and Buffett.
For those who wonder why Buffet is regularly touted as the most successful investor of all time, a clue may be gleaned from his annual letter to shareholders this year in which he estimated the increase in Berkshire Hathaway’s per-share intrinsic value over the last 50 years as roughly equal to the 1,826,163% gain in the market price of the company’s shares!
In 2014 the IRS rewrote the rules on rollovers between individual retirement accounts (IRAs). In November last year they clarified this and issued guidance as to how and when a new once-per-year limit on these would be applied.1
Whilst this was well reported in the US, both online and in publications such as the Wall Street Journal2, it is fair to say that it has received scant coverage in the UK and Europe. For US expats or those with a number of IRA accounts it now means they need to be careful how they go about consolidating such accounts.
Reading a Financial Times article about emerging markets over the weekend by John Redwood (the former Conservative government minister and Chairman of the Investment Committee at Pan Evercore) reminded me of a few recent conversations with clients on the same subject. These conversations tend to have been prompted by media coverage of the recent geopolitical tensions in the Ukraine – which have rarely been out of the news since the shooting down of flight MH-17 – or the saga over the recent Argentinian debt default.
As my job as Head of MASECO Institutional involves working with financial advisers, wealth managers, private banks and Trust companies I have been in the right place to observe a growing phenomenon which has caused a great deal of inconvenience and concern to US taxpayers in the UK – that is the trend amongst financial service providers, banks and investment managers to close accounts for US taxpayers and to ask them to take their business elsewhere.