The US stock market has been on a bull run since its trough post-crash in March 2009. The S&P 500 index almost reached 3,000 at its peak at the end of September, an increase of over 300%. This is despite the anti-free-trade rhetoric that caused a jitter in February this year and punctuated the phenomenal performance of 2017 and January.
Every year well known industry commentator Larry Swedroe, Principal at US wealth management firm Buckingham Strategic Wealth, assesses the hits and misses of market pundits who predict the year’s “sure things”. He scores +1 for a true forecast, -1 for a wrong prediction and 0 for a draw. Below are the “sure things” that were heard from investors and stock market experts in 2017. We use the US, the world’s largest economy and stock market, as the measure of successful predictions.
This is a good question to ask oneself either in a sustained bull run or during a market correction. MASECO is not suggesting there is a market downturn on the horizon but this question is at the forefront of a lot of investors’ minds.
Since the American Civil War onwards, and without interruption from 1913 up until the present day, Americans have been taxed on their worldwide income and gains regardless of where they live or where the income or gain arises. This is called Citizen Based Taxation (CBT) and the United States is one of only two countries that tax in this manner, the other being Eritrea. The original intention of this system was to catch out individuals who dodged the draft by moving away and did not contribute to the Treasury and thus the Union. In 2017 approximately 9 million Americans live overseas and they clamour for a “normal” Residency Based Taxation (RBT) that is familiar to the rest of the world. Such a transition in the US tax system would not be overly complex to implement but is there a political will and can the US actually afford to adopt RBT?
Responsible investing is a topic of increasing interest, particularly among certain profiles of investors. Yet, proposed legislative rollbacks on corporate governance and climate change, particularly in the United States, have roused concerns about the impact on environmental, social and governance (ESG) investing.
POTUS Donald Trump wants to over haul the current US tax system. Today US tax is a curate’s egg – partly good and partly bad. You have a mixture of high rates and generous exemptions which arguably can offset one another.
The development and evolution of a social investment market is predicated on the belief that there are organisations which can produce social outcomes and, for some investors, these outcomes may also result in a financial return. Nevertheless before one broaches quantifying the impact or return from a social investment, a primary challenge for an investor is to qualify the organisational capabilities of the charity or institution that will be in receipt of the investment.
Organisational capacity and quality is crucial to producing the maximum social return. In the first instance securing investment is no easy feat and the growth of a social investment market with consistent funding should not be the only consideration when looking to resolve the world’s most pressing social issues. One must find organisations that are designed and able to tackle the issues in a coherent and efficient manner. The ultimate outcome should be a positive social impact and the production of a financial return.
The photograph above this blog article is of my Springer Spaniel, Bear. This shot was taken last weekend at “dog boarding school” where he is spending 6 weeks in training. Here he will be fashioned into a dog capable of working in the field. What he is really being taught is discipline – without discipline he becomes a liability and his positive impact on a day’s hunting would swiftly become a negative.
It is not just dogs that need discipline, investors need it in spades too. Benjamin Graham wrote in The Intelligent Investor that “the investor’s chief problem – and even his worst enemy – is likely to be himself.” When people follow their natural instincts they often apply faulty reasoning to investing. Some struggle to separate emotion from their investment decisions, falling foul of excessive optimism or becoming unnecessarily fearful. By giving in to such emotions and not having discipline may lead to making poor investment decisions at the worst times.
Having a disciplined investment philosophy and strategy differentiates a sophisticated investor from the average investor. Your strategy and philosophy does not have to be complicated. Warren Buffet’s investment approach could be described as “buy a good business at a good price and hold it forever.” A disciplined strategy helps keep our behavioural biases in check, provides focus and may be more likely to deliver a successful investment experience.
Unfortunately there is no training camp for investors! Nevertheless by finding the right wealth manager you too can create a disciplined plan and focus on actions and outcomes that add value.
By Henry Findlater
Thanks to David Cameron’s pledge to hold a referendum on a Brexit, the news agenda looks set to be dominated by talk about whether the UK will end up inside or outside the European Union – and the potential ramifications of either result. It is hard not to get caught up in the forecasting and supposition in the media from “experts” and commentators on this hot topic.
Given the bombardment of information and conflicting views and whatever your personal stance on “In or Out” it is natural to believe one of the losers from such a campaign is likely to be your investment portfolio. Stock markets do not like uncertainty, and with business leaders already highlighting the potential risks of an exit from the EU, sterling has weakened and the risk to UK bonds and equities seems high. The ejection of the pound from the European Exchange Rate Mechanism in 1992 had a short-term impact on UK domestic fixed income, and this may happen again. For equity investors the impact may be less obvious, as approximately 60% of FTSE All share company earnings come from overseas. Any weakness in sterling would therefore compensate for share price weakness. On conclusion of this referendum uncertainty will be removed and this is likely to offer an improved environment for financial assets in the UK.
“……Financial assets in the UK” is a key point – in a global investment context Brexit or otherwise is likely to be just another touch point in world news. Diversification by geography and asset class aims to reduce such specific risks and it is one way to help insulate investment portfolios from these events.
 According to Royal London Asset Management
The development and evolution of a social investment market is predicated on the belief that there are organisations which can produce social outcomes and, for some investors, these outcomes may also result in a financial return. Nevertheless before one broaches quantifying the impact or return from a social investment a primary challenge for an investor is to qualify the organisational capabilities of the charity or institution that will be in receipt of the investment. Organisational capacity and quality is crucial to producing the maximum social return. In the first instance securing investment is no easy feat and the growth of a social investment market with consistent funding should not be the only consideration when looking to resolve the world’s most pressing social issues. One must find organisations that are designed and able to tackle the issues in a coherent and efficient manner. The ultimate outcome should be a positive social impact and the production of a financial return.
Those social enterprises looking for non-erratic cashflow should aim to be both “investment ready” and “impact ready”. As the social investment market evolves there are more and more organisations that can put themselves forward as candidates for investment. While many of these organisations will generate benefits for society, not all of them will have the ability to deliver the same level of outcome for an investor. This is the case whether one is measuring outcome as a financial return or as a social impact. At present the focus for the market has been on selecting those organisations that are investment ready, those that know where to find finance and the amount they require. Impetus – The Private Equity Foundation proposed a new term that could be considered alongside investment capacity – “impact readiness”. Impact readiness aims to assess and understand the organisations ability not to simply absorb and administer funding but also its scalable capacity to produce outcomes over the long-term. This means closely defined short, medium and long term goals that are desired. Secondly, the organisations must identify who will be the target beneficiaries of their social investment. Finally, one should outline a set programme designed to produce the desired outcome for the target population. This may require new skills and techniques for the social organisation and at this point social investors can help guide the organisation as they adopt these new practice principles. Via such partnership and stewardship the social investor may even assist in producing their desired outcome from their investment. In this way the social investment market should achieve its principle objective – to use social investment and financial products to encourage the growth and development of organisations whose aim is to provide a beneficial social impact to the pressing issues that society faces.
While the market for social investment is no longer embryonic, it is still nascent. This means it is hard to identify specific traits or characteristics in social organisations that will result in a successful investment, in other words an investment that delivers the desired outcome. For the development of the social investment market and for the good of its participants it is vital that the capacities required for success are identified and refined. Once identified and established this outcome producing capability will assist social investors to measure the impact of their investment. It would seem natural that those organisations which have integrated investment readiness, impact readiness and performance management will be more likely to secure funding as this will become a pre-requisite for new finance from investors who are now better placed to analyse and interrogate their social and financial impact.
Impact measurement is the process of trying to find out what effect an intervention (such as a funding programme) is having on people, organisations or their external physical, economic, political or social environment. Impact measurement refers to all activities involved in managing and assessing impact – from ‘light touch’ routine monitoring of outcomes data to ‘high level’ and resource-intensive evaluation. At present there may be investment opportunities where an organisation could be rewarded without clear evidence of impact. But this should change if the social investment market dictates that social return and financial return are clearly evidenced. If investors understood and demanded proven social outcomes and valued them as highly as they may value measurable financial return organisations seeking investment would need to pay greater attention to the production of both returns.
There is an interest across the social investment market sector in improving co-ordination and best practice in impact measurement. This is a dynamic and evolving area and there is a daunting amount of information in circulation. There is a proliferation of tools and providers in the field of impact measurement and an acknowledged lack of coordination among providers of impact measurement support. The expectation is that this will change as the social investment market grows. But before investors concern themselves with measuring impact the social sector must concentrate on building strong and resilient organisations so the investment market place can move from its present nascent state to a mature mainstream proposition. The social organisations will then be future proofed for delivery of meaningful social impacts and financial returns over a long term time horizon. Both of these elements are vital to a blossoming social investment market.
“You should remember that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested”
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority. You should be aware that the investments may not be regulated by the Financial Conduct Authority.