Comment and opinion for retail investors in the UK
I don’t personally have any option for investing in UK bank or building society deposit accounts these days, as a ‘foreigner’, post Brexit. I am told by subscribers that with a bit of work you can get well over 2% on average on a range of instant access deposits. That is an improvement on the virually zero rates we had got used to, but not much relative to an inflation rate of 10%
Do you know that HSBC will give you 8%? You must be kidding, I know you will be thinking.
I am pausing my mini-series of posts on selecting bond funds for specific objectives to write about some high level issues, because what has been happening in the fixed income markets recently has been so remarkable that it is being described as a ‘first’ by specialist managers with over 30 years experience.
I will pose and answer some questions but would welcome others from readers with a view to publishing the answers in another post. Please use the comments option or email me if you prefer.
This post is early because I am away for a few days birdwatching the mass migrations on the edge of the Baltic Sea for the rest of this week. My monthly briefing will conversely be late, but given the political events in the UK, waiting a few days to see what further fallout there is from the special fiscal operation may be wise anyway.
In the post called ‘Getting your Fix, part two’, I proposed 3 possible motives for considering fixed income investments now the market has inflected and all the factors I outlined in part one, plus the recent Chancellor’s proposals in the UK, are in play. This week, I want to see how you would approach research into the market if your objective was the first one I suggested: earning a return on money that would otherwise be in cash.
I started this series of educational posts by outlining current factors that make fixed income assets a very different proposition to what they were a year or so ago. Since I did that, some factors have been amplified.
The UK markets had been waiting to see what a new leader would do to help people with energy bills and was nervous about the likely impact on the public finances but almost everyone was astonished (even those who approve of the return to Reagonomics) by the special fiscal operation (or Watership Down as some have called it) announced at the end of last week. The impact on fixed income markets has been instant and dramatic with yields rising to levels not since before 2008.
Since I started writing this, the Bank of England has announced that it is reversing its plan to start quantative tightening and going back to money printing. I assume this means that that want to clamp down on inflation by printing money – a novel new economic theory, not exactly as imagined by Milton Friedman and associates!
A decline in the value of Sterling may still turn into a currency crisis and such crises tend to run out of control until they hit the buffers. All this is happening as I write so I have no intention of offering guidance on what to buy and when, or even to say if the fixed income asset class is yet attractively priced (it certainly will be before too long, I guess).
What this week’s post will do is explain how the fixed income market is divided up for access by retail investors. This information can then be matched up with your objective to see what funds universe might meet your needs.
I have mentioned in blog posts and rather more specifically in conversations over recent months the concerns I have had about the ‘merger’ of Aberdeen Investments (a business whose past record was not one I admired in ethical terms) and Standard Life, a former Victorian era Scottish mutual life office that had a very good track record in running smaller company and UK/European ethical funds, back from the time when ESG was rather less of a greenwashing oppportunity and ethical meant what you would naturally think.
The latest news, that Abrdn is merging its UK and European equity teams, however it gets spun in the press releases, is clearly a cost cutting measure, although it is said that the smaller companies team remains separate (I guess that is really only a semantic concession to the marketing team).
A departure that I think some subscribers will want to think about is that Lesley Duncan, the well thought of investment director and manager of the UK Ethical fund (I own that one myself) is leaving.
The merger of 2 big investment businesses is always going to be about shareholder interests and never those of investors. A change of fund managers in such a situation is a disruption, likely to cause loss of focus and a good reason to put any funds you own that are impacted on watch, or even, subject to tax and financial planning considerations, look for a switch to a more settled alternative.