What Didn’t Happen

• Tax-free pension lump sums remain unchanged. This is a rumour that has circulated for many years and once again proved unfounded.

• Income Tax rates were not increased—although changes elsewhere will still affect how much tax you pay.

• Cash ISAs have not been abolished, though the allowance for under‑65s will reduce in future years.

• Many changes will be phased in over several years, giving time to plan.

Stealth Tax Rises – What You Need to Know

The most significant announcement was the further extension of the freeze on Income Tax and National Insurance thresholds—first frozen in 2021 and now scheduled to remain unchanged until 2031.

This continues a trend where other allowances have not increased for many years some of these are:

• Inheritance Tax: Nil Rate Band (£325,000 since 2009), Annual Gift Exemption (£3,000 since 1981), Small Gift Exemption (£250 since 1981)

• Maximum Pension Tax-Free Lump Sum: £268,275 (since 2024)

• Personal Allowance taper applying once income exceeds £100,000 (unchanged since 2010)

These freezes appear to be the preferred method of increasing tax revenue and mean more people will gradually pay higher levels of tax. Our role is to help ensure your finances remain as tax‑efficient as possible while still aligning with your long-term objectives.

Other Key Announcements Affecting Financial Planning

(Effective from 6 April in the year stated)

• State Pension to increase by 4.8% in 2026

• Dividend tax rates to rise by 2p from 2026

• Property and savings income tax rates to increase by 2p from 2027

• Cash ISA allowance for under‑65s to reduce to £12,000 per year from 2027

• “Mansion Tax” for homes valued above £2 million from 2027

• Consultation on a Lifetime ISA replacement – details to follow

• Salary sacrifice arrangements to attract National Insurance from 2029

• Venture Capital Trust (VCT) income tax relief to reduce from 30% to 20% from 2026

Opportunities and Next Steps

While several measures will gradually increase tax liabilities, early planning can help minimise the impact. Areas we will continue to focus on include:

• Optimising pension contributions

• Making full use of allowances while they remain available both when saving and taking income.

• Reviewing investment wrappers (ISAs, pensions, bonds, etc.)

• Considering intergenerational planning opportunities

• Evaluating the impact of property‑related changes

We expect to pick up these themes with you at your annual review, but if you wish to discuss at an earlier point please contact your adviser.

Kind Regards
Paul Richardson BA (Hons), FPFS, Cert SMP
Chartered Financial Planner
Financial Planning Director
​

​​Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 28th November 2025. You are recommended to seek competent professional advice before taking any action.

In the budget last October, Rachel Reeves announced plans to include pensions in estates for the purposes of Inheritance Tax (IHT). This is a change and will impact many families.

The changes are not until April 2027 so the current rules still apply, later in this email we will cover the changes, but first we must not overreact. Pensions remain an excellent savings vehicle.
This email is an overview, please speak to your adviser if you wish to discuss further.

Why Pensions remain attractive

• Inheritance Tax – Unused pensions can usually still be passed to a spouse or civil partner free of IHT
• Tax relief on personal contributions – HMRC tops up at your marginal rate, with some individuals able to achieve effective relief of up to 60%
• Salary sacrifice – saves Income Tax and National Insurance.
• Employer contributions – additional contributions on top of your own contributions.
• Business owner advantage – company pension contributions can be treated as an allowable business expense, reducing Corporation Tax.
• Tax-free investment growth – no Capital Gains Tax or Income Tax within the wrapper.
• 25% of the fund available tax-free – when you access the pension there is a potential for a lump sum or income stream tax free. This is subject to limits.
• Flexible access – draw income in a way that suits your tax position.
• Maximising Inheritance – Your beneficiaries may still pay less income tax than you especially if you die before age 75.

What are the draft rules? 

• From 6th April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate for inheritance tax purposes.
• For any pension death benefits passing to a surviving spouse, civil partner, registered charity or political party, the existing exemptions will remain.
• Personal Representatives will be responsible for reporting and paying any inheritance tax due on unused pension funds..
• Pension Scheme administrators will have new duties to support Personal Representatives in paying inheritance tax including a new Pension Inheritance Tax Payment Scheme.

Are there any pensions that are exempt from the rules? 

• Joint Life Annuities
• Death in Service schemes
• State pensions
• Dependent’s scheme pensions from money purchase schemes and Defined Benefit Schemes

What will we be reviewing with you.

Marriage/Civil Partnership! 
If you’re not married to your partner then get it done. Not for romance, for tax reasons – this includes civil partnerships.
Spending
The easiest way to pay no Inheritance Tax is to spend the money, however this is only if you have enough money to support your lifestyle for the rest of your life.
Gifting
There are many ways to gift excess money, both directly and indirectly.
Using Inheritance Tax exemptions 
Are you using the full potential of exemptions available?
Investments outside of Pensions
There are still investment solutions outside of pensions that can qualify for Inheritance Tax exemptions. If suitable, we will discuss how they fit your objectives.
Life Assurance
If you can’t afford to give money away, you may be able to insure the liability.
Review Expression of Wish forms
Who gets the money when you die and what is the most tax effective way.
Annuities
The balance between guaranteed income and passing an inheritance is changed by these rules.
Review your Wills
Do the new rules change the balance of your wishes?

Kind Regards
Paul Richardson BA (Hons), FPFS, Cert SMP
Chartered Financial Planner
Financial Planning Director
​

​​Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 15th September 2025. You are recommended to seek competent professional advice before taking any action.

US equities fell in the first quarter of 2025 with Information Technology and Consumer Discretionary sectors posting the steepest declines. China’s Deepseek caused investors to reassess growth expectations around AI and the US leadership in the field and as the AI theme has powered stock market returns in recent years, this news put pressure on some of the largest stocks of the index.

We can’t ignore that Trade tariffs were another significant theme in the first half of 2025. On 2nd April or “Liberation Day”, the Trump administration announced a broader swathe of tariffs in addition to those already announced on Mexico and Canada and certain goods. The markets reacted with fear and further losses were seen across a broad spectrum of equities. Gold became a temporary safe haven amid the market volatility.  No sooner had the Trump administration announced the new global tariff regime that was due to start one week later, a 90-day pause was announced for all but China which saw duties increase to 125%. On 12th May 2025 a 90-day tariff reduction between the US and China was announced which saw US markets surge with many of the losses from April recouped.

The Eurozone market did well with investors looking to European equities in the wake of the Deepseek sell off.  Some of these early gains were wound back following the global tariff announcements with the automobile sector being the first to feel the effects of investor concern but following the announcement of the 90 days pause, markets regained some lost ground.

In the UK, large cap companies saw growth in the first quarter although sentiment towards UK Small and Mid sized companies remained cautious due to the economic outlook. The pledge from the UK’s largest pension funds in May to invest at least 10% of their assets in unlisted markets by 2030 is expected to help bolster the AIM market and smaller company sector.

In mid May, the UK and EU announced a new agreement which included fewer restrictions on British food exports, improving energy security and a defence and security pact that could pave the way for British companies to take part in a €150 billion programme to rearm Europe.  Although this announcement, along with a new trade deal with the US and India will unlikely lead to an immediate economic boost, it could lift business confidence and attract more investment. 

Michelle Gardner FPFS, on behalf of the Fairey Associates Investment Committee
Chartered Financial Planner
Senior Paraplanner 

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 9th June 2025. You are recommended to seek competent professional advice before taking any action.

The sun has been out, the temperature is rising and April’s sporting occasions have started. We have a new tax year, upcoming new rules and I have been spending time plodding the streets in preparation for the London Marathon. But we can’t talk about any of those until we talk Trump, Tariffs & the Stock Market.

TRUMP, TARIFFS & TRADE WARS

Our simple message here is hold tight, throughout history events happen that send markets tumbling, they also were then followed by recovery. At the end of the email you will see a graph of the US market over the long term, whilst drops can seem large at the time they are mere blips over the longer term.

When we boil down any market drop, the key is normally “uncertainty”. By that I mean that the new events mean that what was previously expected is not going to happen and that the market needs to reassess. The problem at this point is that nobody knows how, in this case, the tariffs and potential trade wars will develop, whether this will force economies into recession or whether we will just look back at a “storm in a teacup”. When you don’t know this you cannot reassess how you expect individual companies and assets to perform.

To use a completed scenario we can cast our minds back 5 years to March 2020. At this point, markets were in turmoil as the spread of Covid, potential lockdowns & other worse case speculation worried everybody. Key questions such as “what does a lockdown look like?”, “will companies go bust?”, “what will government do to support?” were all yet to be answered. Once they were answered, which in the UK was at the point Boris Johnson announced the first lockdown and as the furlough scheme was announced, the markets were able to settle, reassess and realise the panic had been for a scenario worse than the reality. The market recovered from there.

As always we review our positions and are currently starting to complete our full annual review. The Trump unpredictability factor is likely to be a theme for the next 4 years, but investors will still be invested after he is gone and companies will find ways to adapt to the environment.

OPPORTUNITIES

For those of you who have investments with potentially taxable gains, this may be an excellent time to move to more tax efficient investments as the potential tax has reduced. If you make lump sum contributions to pensions or ISAs, it is now a lot cheaper to get into the market.

TAKING MONEY OUT

On the flip side it is a less ideal time to take money out of investments, if possible, it is one of the reasons we always encourage you to have a good cash buffer. If you need money out then please speak to your adviser about options.

PENSION CHANGES

You may already be aware of the headline changes announced in the October budget, however we are still awaiting the policy detail that will form the basis of our advice in this area. Expectations are this will be published as late as July, of course, once we know more we will speak to you about the individual impact.

Pension funding remains the most tax efficient way to save for retirement and even with the prospective changes, for most people, it is the best way to invest available.

LONDON MARATHON TRAINING

Firstly, many thanks to those of you have supported me & my charity the NSPCC. I really appreciate it. My race number will be 61191 and can be tracked online.

As I plodded around over the last week it occurred to me that running a marathon is a good analogy for what we are going through with Trump. If you take each mile as a year and equate that to your investing journey. The current situation is the first 100 metres, you might still be behind the person who sprinted off in front of you after the first mile or two, but it is highly unlikely they will still be ahead at the finish. Do not worry too much, the current situation will not last forever.

Paul Richardson BA (Hons), FPFS, Cert SMP
Chartered Financial Planner
​Head of Financial Planning

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 9th April 2025. You are recommended to seek competent professional advice before taking any action.

This year has been characterised with positive outcomes for the equity markets. Inflation has largely reduced to near target levels and companies demonstrated resilient growth and improving corporate profits.** That said, this year hasn’t been without its pockets of volatility and spooked markets.

These positive outcomes helped central banks to initiate a global interest rate cutting cycle in the latter half of the year. The European Central Bank was the first to start the cycle with two 0.5% interest rate reductions. The Bank of England remained more cautious with a cut – pause – cut approach with high wage growth remaining a concern.  In the US, the Federal Reserve started later than Europe and the UK but did so with a more aggressive initial 0.50% cut followed with a further 0.25% cut in November. The Bank of Japan has been an outlier, having raised rates by 0.25% in July.

Artificial Intelligence (AI) has also been an incredible driver of returns for the US markets with NVIDIA achieving such capital size it now represents nearly 5% of the MSCI World Index alone! It is expected by many fund houses that AI will continue to fuel growth but instead of just concentrating on the main players now, there will be a ripple effect as companies incorporate AI into their businesses which will spark new opportunities and improvements in productivity and efficiencies.++

Economies outside of the US haven’t been able to achieve the combination of strong growth alongside reduced inflation. Low levels of productivity growth and a weak manufacturing sector have dampened a rebound for Europe where economies largely remain “in the slow lane” **. This does mean that valuations for European equities are cheaper which could offer attractive opportunities for investors who are willing to remain in the markets for the longer term.

The UK has managed subdued GDP growth and the UK Consumer Price Index has moved closer to the Bank of England target of 2% but, as mentioned above, high wage growth has meant the BoE have been more cautious overall.

This, with mixed messages from the newly formed Labour Government about the state of the UK balance sheet,  has stifled consumer and corporate demand which resulted in a stuttering UK stock market with corporate earnings struggling to gain any positive momentum.++ 

Fixed Interest

Bond markets have been turbulent as rate expectations have swung violently over the course of the last 12 months. At the end of 2023, markets were optimistically predicting an avalanche of rate cuts but this quickly swung to maximum pessimism in early 2024.

As we’ve approached the end of this year, markets have priced out a number of rate cuts believing that higher deficits and government spending are more inflationary – leading to central banks being more cautious to cut rates. ++

There are two sides to bonds however and current yields still look appealing for the asset class.  The broad view is that this will continue to be the case going forward – for both government and corporate bonds.

Geopolitics and risk

We have to continue to recognize the ongoing war between Russia and Ukraine as well as the humanitarian crisis which is spreading through the Middle East with no obvious end in sight. Investors are still concerned over the secondary issues of commodity prices and how these may effect inflation going forward but first and foremost recognize the devasting impact the conflicts have on those societies both now and for future generations.  

Politics can create another source of concern for markets. Much of the world went to the polls this year and the majority of those elections saw the incumbents lose. This can be seen as an indicator that the electorate aren’t as buoyant or resilient as the markets and tried to change governments to do something about it.

The US was by far the most prominent election with the re-election of Donald Trump. We at Fairey Associates recognise has been a concern for some of you since the election result in November so lets address the elephant in the room as best we can.

What could Donald Trump’s re-election mean for global markets?

The US elections in November have given the Republican party a clean sweep of the Presidency and both houses of congress.  The initial reaction was a surge in stock prices with expectations of a higher growth economy, lower corporation taxes and deregulation. ++

The truth is, we are very much in a period of wait and see as to how many of the promises made on the campaign trail end up being implemented – either in full or scaled down versions. Realistically the Trump administration won’t be able to implement everything promised on day one (or even one year) and it will take some time to work through congress – even with both houses under republican control.

That said, many fund houses are expecting for some tariffs to be implemented (mainly against those regions where US has a high trade deficit such as China and Mexico). Add in the other themes of onshoring of manufacturing, reducing immigration (which will increase the labour costs in the newly created onshore manufacturing plants) and increasing debt ceilings this means that renewed inflation is seen as a very real risk – but to what degree is still speculative.

What does this mean for our portfolios? 

The Fairey Associates Investment Committee are confident that our portfolios are in a strong position to capture the upside in the markets where growth is still forecast by using diversification across a range of regions globally both via equities and fixed interest holdings.

Fund houses are forecasting overall growth globally although some regions are thought to have greater growth prospects than others. As has now become the new normal, continued volatility in the markets is inevitable as new governments implement their policies and markets react – with or without favour.


References
** HSBC 2025 Outlook
++ Royal London Asset Management 2025 Outlook

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 2nd January 2024. You are recommended to seek competent professional advice before taking any action.

So after months of speculation the much anticipated and dreaded first budget of the new Labour government has been delivered.

There is much to discuss, but our initial thoughts:

• The pain was overstated, it could have been much worse
• There is little that needs immediate urgent attention and therefore we will pick up these new rules at review.
• The devil is often in the detail, we will take our time to digest this information when available.

Below are the particular areas that directly affect where we advise. Changes to Income Tax, National Insurance & beer duty are sure to be covered elsewhere.

Pensions

After all the speculation the only announcement was that Inherited Pensions will come into the estate for Inheritance Tax purposes. This is from 2027 and the detail will be eagerly awaited by the industry. We will communicate further when this is known and agreed.

There is no change to Pension Commencement Lump Sum (Tax Free Cash).

Tax relief has not been changed.

Capital Gains Tax

Capital Gains Tax had been speculated to be going up significantly. However in the end the lower rate will be raised from 10% to 18%, and the higher rate from 20% to 24%. This will match the level on selling second properties.

The £3,000 annual exempt allowance remains the same.

Inheritance Tax

Apart from the pensions above, the main changes were around Business & Agricultural relief, this effects those of you owning business assets & holding AIM shares. The changes are from 2026 so we will pick this up at your reviews.

The standard allowances (£325,000 Nil Rate Band & £175,000 Residential Nil Rate Band) remain unchanged.

Stamp Duty on Second Properties

If you own a second property, whether as a holiday home, buy to let or a share in a family property, you already have to pay additional stamp duty when purchasing a new property. This will go up to 5% overnight.

We often get asked about adding children to the ownership of the parental home. It is important to understand that this will have a significant impact upon the child when they buy their own property as the part-ownership will expose them to the additional stamp duty.

As I have said above, we will cover any issues that impact you directly at your Annual Review, however if you have any questions please contact your adviser via the normal channels.

Kind Regards

Paul Richardson
Head of Financial Planning

​
Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 16th September 2024. You are recommended to seek competent professional advice before taking any action.

Consumer Duty – prioritising your needs and providing the best outcomes for you. 31st July 2024 marked one year since the Financial Conduct Authority introduced the Consumer Duty regulations – a set of rules for financial firms to ensure they deliver good outcomes for their clients.

We’ve just completed our first annual assessment, looking back at everything that we do and making sure we’re doing the best we can.  As part of this annual assessment, we reviewed our original implementation plan, considered all the actions we took and documented our successes whilst reflecting on the four consumer outcomes highlighted by the FCA.

As part of our ongoing obligations under the regulation, every year we must review our processes and services in relation to four consumer outcomes:

• Products and services
• Price and fair value
• Consumer understanding
• Consumer support.

The impact across the industry already is extremely positive. You may have seen articles in the press regarding an FCA intervention and subsequent clamp down on GAP insurance products, ensuring they are fit for purpose and offering good value to insurance customers. The Consumer Duty has also forced providers who deal in cash savings to look at their response times to base rate increases and has even encouraged a turnaround on the historical business model of a large financial advice firm with regards to their bundled charging structure and exit penalties. It’s not only about cost saving for customers and clients but also about transparency and offering consumers value in the products and services available. As the FCA say ‘This is just the beginning of the journey, not the end’.

At Fairey Associates Ltd, we have welcomed this new regulation and are optimistic about the learning opportunities it will bring in its early years of development across the industry. We pride ourselves on always keeping our clients’ best interests at the very core of all we do, as we always have, and look forward to learning new ways to improve on our services.

Your feedback is of great value to us, after all – nobody can tell us how well we treat our clients like our clients can! Feedback from our annual engagement survey and client satisfaction questionnaires help us ensure our focus is on the right areas. We echo the statement made by the FCA and understand that this is an ongoing obligation to you, to continue to offer you excellent services providing excellent value.

A year on from our acquisition of TRIP, and taking all of the Consumer Duty needs on board, we have decided that now is the time to close TRIP as a standalone business, which involves de-authorising TRIP with the FCA. This deal brought all clients and staff of TRIP over to Fairey Associates Ltd and we have all been working hard together over the last year to ensure the transition is as seamless as possible for all involved. If you were a TRIP client, you’ve probably by now been introduced to your new adviser at Fairey Associates, but if you are yet to meet your new IFA, rest assured this will be happening very soon and we look forward to meeting with you in person. The familiar faces, voices and names from TRIP are very much a part of the Fairey Associates Ltd team now, strengthening our business both in expertise and location.

If you have any questions at all regarding all of this, please do contact us, where either your IFA or one of the support team will be happy to talk to you.

We look forward to seeing you soon! 

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 16th September 2024. You are recommended to seek competent professional advice before taking any action.

Introduction 

No news is good news was the mantra of Q1, without a pandemic or a new war there was nothing to set a negative tone in the first three months of the year. Quite a contrast to the rest of the decade so far.

Therefore it feels like a fairly quiet first quarter for markets in comparison, this summary takes a look at how markets have responded to recent global inflation data, central bank policy and corporate earnings data. The big question for most spectators is when interest rates will start to be cut and which central bank will make that first move.

Macro economic view

Inflation remained a central concern for markets. Despite indications that inflationary pressures were diminishing, unexpected high inflation readings and alarms being raised about service sector inflation in the Developed markets have muted market enthusiasm for imminent rate cuts.

The Federal Bank, European Central Bank and Bank of England all kept interest rates on hold in March and a cautious tone was still very much order of the day. The good news has been that narrative has fully turned towards when they go down rather than if they go up again.  

Markets so far haven’t been significantly impacted by the increasing tensions in the Middle East however Crude Oil prices have risen and this could impact short term inflation.

UK Equities 

Overall UK Equities rose over the quarter with financials, industrials and the energy sector outperforming along with other economically sensitive areas of the market. Large and mid cap companies posted positive returns at  the end of the quarter after a rocky start in January (source: FE Analytics based on bid to bid values from 1st January 2024 to 31st March 2024).

Global Equities 

US Equities had a robust quarter thanks to some strong corporate earnings data and ongoing market sentiment about rate cuts later in the year. The S&P 500 was boosted by the “Magnificent Seven” companies where ongoing enthusiasm around AI continues to bolster the Index.

Like the US, Eurozone equities also posted a strong gain in the first quarter of 2024. The IT sector ‘led the charge’ amid ongoing optimism over demand for AI related technologies however utilities, consumer staples and real estate dragged on overall performance.

The Japanese equity market had an exceptionally strong rally in this quarter, marking a historic moment as the Nikkei reached its all-time high. The market’s performance was driven by large-cap ‘value’ stocks as well as the global boom in AI and semi conductor related companies also enjoying strong growth.  Additionally,  foreign investors, buoyed by increasing optimism over Japan’s positive economic cycle, played a leading role in driving returns.

Asian (ex Japan) equities saw modest gains with prices bouncing back from recent lows. Taiwan, India and the Philippines were the strongest markets with the ongoing theme of investor enthusiasm in AI helping drive strong growth. In comparison Hong Kong, Thailand and China ended the quarter in negative territory.

Emerging Market equities gained over the first quarter but underperformed in comparison to the developed markets. China continued to drag on returns despite some policy stimulus measures. Interest rate sensitive markets like Brazil were negatively impacted by the change in forecasted Federal Reserve Rate cuts.

Bonds 

There was a shift in the view of inflation and interest rate expectations. Initially the market believed that Central Banks would act quickly to lower interest rate but these expectations have been scaled back. Some fund houses believe the Federal Reserve will now start to introduce rate cuts in the second half of 2024 whereas others have revised their forecasts to early 2025. 

As the quarter progressed, government bond yields adjusted in response to the shift in market sentiment and economic indicators.  Global and UK Government bond yields increased across the board (which means that prices fell) .

Corporate Bonds outperformed government bonds with UK High Yield noted as a strong performer.

Source (4th April 2024 Schroders Quarterly Markets Review Q1 2024)

What did this mean for our portfolios? 

Our portfolios have benefitted from the strong rally in US equities as we allocate a larger proportion of our global equity exposure to this region alone.  Our exposure to Japan and the Pacific region will have also helped show positive returns within our Global Equity proportion.

The use of diversification across geographical regions, use of smaller, mid, and large cap companies as well as holding both government and Investment Grade Corporate Bonds has helped capture positive market movements and soften the effect of any negative asset classes over the period.

The portfolios still remain well placed to  benefit from the continuing investor enthusiasm with AI – which is having a positive effect for multiple holdings globally. Our bond holdings will also be well positioned when Central Banks do start to reduce interest rates.  

Investment Committee discussions in the last quarter 

The investment committee have recently met and are reviewing market information in the lead up to the launch of our new portfolios in June. Discussions have included our position on UK equities and whether now is the time to trim more from this asset class in favour for global stocks which have more growth momentum behind them, partly due to the ongoing AI story.

Due to a change in the investment strategy of our main Property allocation, we will be reviewing whether this will still offer the diversification we require for our portfolios.  

We will also be reviewing our Fixed Interest allocations and looking further to see if any ‘tweaks’ will help our portfolios take advantage of future interest rate increases.

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 2nd January 2024. You are recommended to seek competent professional advice before taking any action.

The graph below shows surprisingly robust equity performance in the back drop of a high inflation, high interest rate environment via the S&P 500 and the FTSE Developed Europe ex UK index. For the S&P 500, significant positive contributions have come from ‘The Magnificent Seven’ stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) which collectively make up more than 25% of the entire index.

In March, we saw the US Silicon Valley and Signature Banks collapse with Credit Suisse following suit in Europe which can be seen by the sharp dip in valuations for both the S&P and European indices. The impact was short lived and the fears of wider contagion were limited with the financial sector stabilizing shortly after.

When seeking to explain 2023’s buoyant economy, the long and variable lags of monetary tightening (the time it takes for interest rate hikes to take effect) are often referenced. So far in this cycle, these lags are proving to be longer and more variable than ever. An explanation partly lies in the resilience of the US consumer who built up a buffer of savings from fiscal support during the pandemic.  These consumers have long been a growth engine for the global economy. There is a fear that this can’t last, especially with the pandemic-era stimulus reserves exhausted and recent consumption increasingly fueled by debt. [1]

Energy prices also fell from their highs in 2022 which helped reduce household bills for those across Europe and supply chain issues dating back from the pandemic were resolved so pent up consumer demand was freed up.  

After a torrid 24 months there are shoots of recovery for UK government gilts with both Index Linked and Conventional Gilt indices showing movement in the right direction since mid-October. There will still be a long way to go to make up for the heavy losses in 2022 but as interest rates stabilise and inflation reduces further we expect to see continuing improvements in capital value for this asset class.

What’s in store for 2024?

Inflation and Interest Rates 

With hopes that interest rates have now peaked in the major economies the next question is when are they going to start coming down again?

On 14th December 2023 Andrew Bailey re-iterated that although we’ve come a long way this year in the fight against inflation, there is still some way to go. The minutes from the Bank’s rate setters’ meeting also said that rates would need to stay higher “for sufficiently long” to return inflation to 2%. Indeed a number of fund houses have shared that they believe that the final push towards target inflation will be much more difficult. One reason is that services inflation has continued to be particularly sticky and both US and UK economies may have to see an increase in unemployment and reduced consumer and corporate spending before this starts to improve.

The European Central Bank also held rates at 4% in their last meeting and are holding firm that the rate needs to stay higher for longer. Inflation in the euro area is expected to decline gradually over the course of the year, before reaching the 2% target in 2025. It should be noted that signs of a mild economic slowdown have already appeared in the Eurozone area.

In the US, the Federal Reserve bucked the trend suggesting that interest rates could start to be cut next year if inflation continues to fall. This announcement saw a surge in markets with the Dow Jones closing a new record high (13th December 2023).

There is a spectrum of opinions by the fund houses as to when these cuts are going to happen, and by how much.  The majority believe that the markets have priced in interest rate cuts in the second half of 2024 for the US Federal Bank and the Bank of England.

Geopolitical Risk 

We look forward to the year when our outlooks don’t have to reference geopolitical uncertainty as a risk to the global economy and market behaviour. Alas this still has to be mentioned as 2/5ths of the world population will go to the polls over the next 12 – 18 months (with the US being the most noticeable for the markets). This isn’t traditionally the time for politicians to turn scrooge-like so in terms of macroeconomic framework, a combination of fiscal policy to fuel growth, coupled with monetary policy to act as a brake seems a distinct possibility. This could lead to market volatility as mixed signals between politicians and central banks affect sentiment.

It would also be remiss to mention the ongoing conflict between Russia and Ukraine which highlights how decades-old US led world order is fragmenting. The new, tragic conflict between Israel and Hamas further highlights the perilous nature of an increasing multipolar world. The ongoing troubles in the Middle East could affect global supply chains for fuel and goods which could create spikes in inflation.  We also need to note the ongoing US-China tensions and the rise of political populism which could cause ongoing turbulence for economies and investors.[2]

What could this mean for the asset classes we invest in? 

Many of the fund houses we use within our portfolios forecast an economic slowdown for 2024 – this could be a mild recession or just flat-lining growth. The economy has been resilient to this point but many investors expect the monetary policy tightening of the past two year to start to show up more in the real economy.

This would normally be bad news for Corporations with debt but many have used the last few years sensibly, taking advantage of ultra-low rates to issue debt at advantageous levels.  This will mean that many companies will have more breathing space when it comes to needing to go back to the market for refinancing and the risk of default potentially lessened. [3]

A weaker economy and disinflation should be a supportive environment for government bonds. Fund managers see good opportunities for global fixed income including the UK. Income Yields are higher now than over the last decade and are starting to look attractive to investors who feel now is the time to become more defensive in their investment strategies as the concerns over economy resilience rise. [4]

This could prove a challenging environment for equities however there are still pockets of geographical regions and sectors where valuations currently look attractively priced (due to investor sentiment) but company fundamentals still look strong. This is where selecting quality companies can really help portfolios protect against a change in economic environment.  [4]

The same can be said for Real Estate, where the outlook for the property sector appears gloomy to many commentators however, upon acknowledging that there are several factors posing significant challenges to real estate investors, there is also a belief that there are attractive opportunities to generate long term value.

Summary

In contrast to last year, there is much more of a consensus from the fund house economists as to their predictions for 2024, and although there are expectations for the global economies to see some downturn, more believe this will be ‘mild’ which is in a way more positive than in previous years.

We continue to expect pockets of volatility in markets, but also positivity in some sectors which is why we continue to use diversification as a tool in our portfolio construction. The more asset classes we hold, the better the chance we’ll see some upside in our portfolios.

But, perhaps the only certainty for 2024 is that it will turn out differently to how the fund houses expect. If the 2020’s have taught us anything it is to be ready for the unexpected!

References
[1]Janus Henderson Investors Investment Outlook 2024
[2]L&G CIO 2024 Outlook – Skirting risks, harvesting yields
[3]Royal London Outlook 2024
[4]HSBC 2024 Global Investment Outlook “A problem of interest – How rates affect investment strategy in 2024“

Risk Warnings

• The value of an investment and the income from it could go down as well as up.
• All investing is subject to risk, including the possible loss of the money you invest.
• Past performance is not a reliable indicator of future results.
• Diversification does not ensure a profit or protect against a loss.
• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income
• This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at 2nd January 2024. You are recommended to seek competent professional advice before taking any action.