One of the most common questions that is currently asked by clients is what the prospects are for commercial property in the future. We have all by now – in our new normal world - got used to meeting our dearest friends, family, and work colleagues on Zoom or Skype, working from home, and shopping online.  High streets and shopping malls were struggling even before the events of 2020 with Debenhams and several middle-market food chains in trouble.

That has led some investors to beg the question as to what the future holds for commercial property. Will everyone work from home? Will companies reduce their office space needs, providing workers with a hot desk each morning, if they are in? Will retail companies go into administration to put pressure on landlords to reduce rents?  Will more people shop online? The answer to all of these questions is probably ‘yes’. Does that mean that we should abandon a well-diversified, liquid exposure to global commercial property accessed via real estate investment trusts (REITs), which are listed property companies, focused almost exclusively on generating rental income? We think not.

First, let us look at the flipside of the changes that are occurring. To be sure, some sectors may struggle.  But for every Debenhams, there will be a company moving into, or even starting up, online, which will require logistics centers and warehousing. In our digital age, there is increasing demand for secure and up-to-date data centers, improved and more numerous healthcare facilities for example. You can see from the chart below that the global commercial property REITs cover many things.

In a globally diversified REIT index fund, there are over 350 individual REITs (listed property companies) each of which is comparable to a property fund in its own right. It is estimated that such a fund contains around 90,000 properties[1] spread across property types, global markets, and strategies.

Second, let us spend a moment thinking about markets. These worries about the retail sector, for example, have been around for some time and you will not be the only person thinking about these issues. In fact, thousands - or even millions – of people will already have done so and acted on their view of the future of property, by buying and selling these REITs in the market. The aggregate view will be reflected in today’s REIT prices: all the doom, gloom and uncertainty is priced into the process of REITs already;  all the likelihood that the way we work changes is priced in already; and all the good news about data centers and warehousing is priced in already. So, the future prospects for commercial property will depend on what happens relative to this expectation.  It may be better or worse, depending on information we do not yet know. The release of that information is random. What we do know is that commercial property will continue to be needed and that companies will have to pay rent. We would not abandon owning a diversified equity portfolio because some sectors are struggling (airlines and energy) or concentrate our portfolio in sectors that are booming (technology). It is already in the price. Companies and sectors wax and wane.

Third, let us think about why we hold it in portfolios in the first place. Property tends to have a different return experience to equities (even though property companies are listed on stock markets). At specific times, and across time, this can provide diversification to a portfolio. In addition, over time property has provided protection from inflation; after all, a property is a property and many rental agreements are linked to some measure of inflation. With the rapid increase in the money supply, on account of all the government support packages around the world, higher inflation - not something most feel the need to worry about currently – is one future scenario. Cover the bases - but all things in moderation - is a sensible approach. An allocation to global commercial property still makes sense for long-term investors, as part of their diversified growth assets.

[1] Source: Prologis is the largest REIT at 5% of the index and owns ~4,500 properties.  Scaling this up implies around 90,000 properties across the index, as a rough proxy.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Investors love good stories. In recent years, many of these stories have centred around innovations that have fundamentally changed the way we live our lives. Some examples might include the release of the original Apple iPhone in 2007, the delivery of Tesla’s first electric cars in 2012 and the launch of Amazon Prime’s same-day delivery service in 2015 . No doubt, many of you will have had conversations with friends and family around the successes, failures, and prospects of some of the world’s largest firms and the goods and services they offer. In this note, we take a deeper look at the ‘Big Five’ tech companies – Amazon, Apple, Alphabet (Google), Facebook and Microsoft – through the lens of the long-term investor.

In what has been a turbulent year thus far, some larger firms have come through the first - and hopefully last - wave of the ongoing pandemic relatively unscathed. Those investors putting their nest eggs entirely in any combination of the ‘Big Five’ would appear to have done astonishingly well relative to something sensible like the MSCI All-Country World Index, which constitutes 3,000 of the world’s largest firms . At time of writing, Amazon’s share price has fared best, increasing 75% since the beginning of the year.

 Figure 1: The 'Big Five' have held up well so far this year

Data source: Morningstar Direct © All rights reserved. Returns in GBP from 01/01/2020 to 22/07/2020.

These types of firms tend to struggle to stay out of the headlines for one reason or another. Perhaps as a result, many of the investment funds found in ‘top buy’ lists - such as the one on AJ Bell’s Youinvest platform - have overweight positions in one or more of these stocks. The final column in the table below shows the weight of each ‘Big Five’ stock as it stands in the MSCI All-Country World Index.

If an investor were to adopt a purely passive investment strategy that owned each company as its proportional share of the world market, the final column would be that investor’s top 5 portfolio holdings at time of writing. Many of today’s most popular funds are making big bets on one or more of these companies, anticipating that the past will repeat itself moving forwards.

Table 1: AJ Bell's top traded funds in the past week

Data source: Morningstar Direct © All rights reserved. AJ Bell for top traded funds between 15/07/20 – 22/07/20.

Sticking to the long-term view

The challenge for these managers, and others making similarly large bets, is that these are portfolios that will be needed to meet the needs of individuals over lifelong investment horizons, which for the vast majority of people means decades, not years. With the benefit of hindsight, managers who have placed their faith in these firms have stellar track records since Facebook’s IPO in 2012, as the table below highlights.

Table 2: ‘Big Five’ performance since Facebook’s IPO

Data source: Morningstar Direct © All rights reserved. Returns from Jun-12 to Jun-20.

An interesting exercise would be to investigate the outcomes of these firms over a longer period of time, for example 30-years seems more prudent. This is somewhat difficult given that 30-years ago, 3 of these firms did not exist, Mark Zuckerberg was 6-years old, Apple came in at 96th on Fortune’s 500 list of America’s largest firms and Microsoft had just launched Microsoft Office .

A partial solution to this problem is to perform the exercise from the perspective of an investor in 1996, which is the start of Financial Times’ public market capitalisation record . The ‘Class of 96 Big Five’ consisted of General Electric, Royal Dutch Shell, Coca-Cola, Nippon Telegraph and Telephone and Exxon Mobil. The chart below shows the outcomes of each firm over the past 26-years. A hypothetical investor with their assets invested in either Coca-Cola or Exxon would have just about beaten the market over this period, those in Royal Dutch Shell, Nippon Telegraph and Telephone and General Electric were not so lucky.

This experiment is illustrative only, one look at the chart below is enough to see that almost no investor would want to stomach the roller coaster ride they would have been on in any one of these single-stock portfolios.

Figure 2: The winners do not necessarily keep winning

Data source: Morningstar Direct © All rights reserved

Summary

The beauty of the approach you have adopted is that judgemental calls such as these are left to the aggregate view of all investors in the marketplace. No firm is immune to the risks and rewards of capitalism; be it competition from Costco or Walmart taking some of Amazon’s market share, publishing laws causing Facebook to apply heavy restrictions on its users or some breakthrough smartphone entering the marketplace that is years ahead of Apple – remember Nokia?

Rather than supposing that firms who have done well recently will continue to do well, systematic investors can rest easy knowing that they will participate in the upside of the next ‘Big Five’, the ‘Big Five’ after that and each subsequent ‘Big Five’. Those who can block out the noise of good stories and jumping on bandwagons are usually rewarded in this game.

Figure 3: Your eggs are in many baskets

Source: Albion Strategic Consulting. For demonstrative purposes only.

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

One of the hardest concepts to grasp in investing is that a ‘good’ company is not always a better investment opportunity than a ‘bad’ company. If we believe that markets work pretty well – not unreasonable given that few investment professionals beat the market over time - and that they incorporate all public information into prices pretty quickly and efficiently, all of the ‘good’ and ‘bad’ news should already be reflected in these prices.  A ‘good’ company will have to do better than the aggregate expectation set by the market for its share price to rise and vice versa.  If a ‘bad’ company is in fact a less healthy company, it may have a higher expected long-term return, as risk and return are related.  

It is perhaps evident that if the market incorporates the aggregate forward-looking views of all investors, it becomes very difficult to choose which companies, sectors, and geographic markets are likely to do best, going forward.  In an uncertain world, where stock prices could move rapidly, and with magnitude, on the release of new information - which is itself a random process – then it makes good sense to ensure that an investment portfolio remains well diversified across companies, sectors and geographies.  Take a look at the chart below that illustrates how deeply diversified a globally equity portfolio can be.

 Figure 1: If you do not know which stocks are going to outperform well, own them all

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

The concentration risk in the US’s S&P500, is quite different.  

Figure 2: The US’s S&P500 is increasingly concentrated in a few names. 

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

Given that all the future promise of a company is already reflected in its price today, it is quite a risk betting a large part of your assets on just a few names, concentrated, for example, in the technology sector.  The top 8 technology stocks in the US now have a larger market capitalisation than every other non-US market except for Japan.  Dominance of companies, sectors and markets ebb and flow over time.  Who is the next Amazon?  What regulatory pressures could these dominant companies face?  Is Donald Trump’s recent rage against Twitter the start?  No-one knows.  By remaining diversified, you will own the next wave of market leaders as they emerge and dilute the impact of ebbing companies.  Whilst it is always tempting to look back with the benefit of our hindsight goggles and wish we had owned more (take your pick), US tech stocks, other growth stocks, gold etc., what matters is what is in front of us, not what is behind us.  

‘The safest port in a sea of uncertainty is diversification.’

Larry E. Swedroe, Investment Author

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

In my time as a financial professional, I have seen many downturns, some more significant than others. I started work in this world of finance in May 1988 and since then these are the ones that have stuck in my head:

1990 Recession (Personally very painful - anyone with a mortgage at that time will never forget it!)

1997 Asian Banking Crisis (Debt, too much of it)

1998 Collapse of Long-Term Capital Management (Overconfidence)

2000 Dot-com Crash (Some stuff way too expensive)

2008 Banking Crisis (These happen periodically and will again)

2012 Grexit (Should have happened, but didn’t)

2016 Brexit (Should not have happened. Mostly felt in currency so far)

2020 Covid-19 (We could add oil to this and a recession - possibly)

Problems, obstacles, disasters, however we want to call them, they always happen and always will do. They are so difficult to predict in advance. As an investor, you should always expect a significant event every three or four years. Is this Covid-19 significant yet? Will it become more significant? I don’t know.

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So, from an investment perspective, what should we do now?

Nothing. For now, we say you should do nothing. Why? We cannot predict the future. We can only tell you what we know today and what happened yesterday. We cannot tell you much about tomorrow, other than it will come. We don’t know tomorrow’s price for anything!

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Are you retired, or about to retire?

What we will have done already, is to make sure that if you need an income in retirement, either now or soon, don’t worry. Our portfolios hold short-dated bonds (this is typically money lent to high quality governments). These are the defensive assets and they will now be appreciating in value. While ‘investors look for a safe haven’ as the media likes to describe it, you’ve already got it built in.

During the banking crisis of 08-09 (the biggest event of those listed above, so far), these short-dated bonds enabled our clients to:

1. Draw money in retirement without touching any real assets (shares and property).

2. And when stock markets got very cheap (March 2009), we were able to sell some of these bonds and buy more shares at bargain prices.

Put simply, if you are due to retire in the next few years, or you are already retired; by holding an investment portfolio that contains these short-dated bonds within it as defensive asset; you should be fine. But if you are not sure please give us a call, we welcome it. 

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Are you saving for the long term?

I think the answer is in the question. Long term, equity markets have delivered great returns. If your investment time horizon is 10, 20, 30 years or more. Don’t worry. All the events I mentioned before end up looking like mere blips when you look backwards. I am 54 now (ouch) and the 1990 recession was horrible at the time, but looking at it now:

If I invested £1,000 in the FTSE All Share in 1988 (when I started work in finance), by the end of 2018 it would be worth £11,882 (30 years on).

If I waited until the 1991 to make the same investment, and thus avoid the market downturn on news of a recession that will occur in the future (market fell 17% in 1990), I would now be sitting on £9,049

Source: Dimensional Fund Advisers Matrix Book 2019

So, keep investing regularly and ignore the short-term noise. Don’t turn yourself into a short-term investor if you have a long-term investment horizon.

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But there is one big difference!

All the other falls had nothing to do with your health, or the wellbeing of your family, friends and other loved ones. Follow the Government advice and we hope everyone stays safe and well.

One of the reasons why people find investing harder than they should is that human beings are hard-wired to focus on the here and now. We’re much more concerned about immediate threats than longer-term dangers such as failing to save enough money for retirement.

In this video, Professor Arman Eshraghi, an expert in behavioural finance at Cardiff Business School, explains how to develop a more disciplined approach to investing for the future.

You will find plenty of helpful videos like this one in our Video Gallery. Why not have a browse?

Video transcript:

Human beings are hard-wired to focus on the present.

We’re finely attuned to the immediate threats around us. What we’re not quite so good at is dealing with long-term dangers, like not saving enough money for retirement. Professor Arman Eshraghi is an expert in behavioural finance.

He says: “When it comes to events that happen in the long-term, whether it’s going into retirement, etc. we don’t plan for them sufficiently because we don’t see them as sufficiently close.”

Thankfully, help is at hand in the form of financial technology, sometimes called fintech for short. The technology enables us to automate our retirement saving, so we put aside a set amount each and every month without even thinking about it.

Arman Eshraghi says: “Fintech applications basically can allow you to automate your decision to invest in the markets without much thinking, so you really make a decision once, you make a commitment once, and then effectively, the process of investment gets automated — let’s say, every 20th of the month.”

Starting to save early for retirement is very important. But we should also increase the amount we put away each month as our income goes up.

Committing to increasing our pension contributions as time goes by is another very valuable discipline.

Arman Eshraghi says: “Research by some economists in the US shows that there are techniques like “save more tomorrow”, so this is Richard Thaler, for example, who has talked about “saving more tomorrow”, which effectively means that you make the decision to invest a base level and then, effectively, you add to it a little bit every month. And without noticing the pain, let’s say. And then over time, this grows into a significant amount of investment which would then hopefully be a source of income for the long-term and for retirement.”

So, don’t give yourself an excuse to spend money that you should be saving for retirement. If you haven’t done it yet, automate your investing now.

It’s easy to do, and in the years ahead, you’ll be very glad you did it.

Picture: Aaron Burden (via Unsplash)

Sustainable & responsible jewellery

March newsletter 2020

Ifamax's view on Sustainability

Could you give us a little introduction to yourself?

“I am a self-employed designer/maker of Fiona Lewis Jewellery. I live in Chipping Sodbury, a pretty Cotswold market town that has independent shops, cafes, pubs and bars. It is well worth a visit for an afternoon out. I love the countryside in all winds and weathers, the peace and space provide my inspiration… my mind is constantly forming shapes and movement into designs, and probably a source for a lifetime of jewellery and some more!

When I am not working, I am walking, travelling abroad, sewing, gardening, socialising, and spending time with my fabulous partner David, who encourages me in everything I do. My son and daughter are both creative so family conversation is often about our next projects. I keep chickens, and Prudence the cat who has decided the feral lifestyle is not for her, she prefers my sofa and a warm lap. ”

Tell me about how you came to be a jeweller?

“I attended a senior school where the pupils were all taught metalwork. I found my niche and was in my element during those lessons; forging, using the lathe, soldering and cutting, and unusually for me was top of the class. However, to my great disappointment, when the time came to select my options, I was informed Engineering and Metalwork was the ‘boys only’ option. I was disappointed to say the least but I stored in my mind some idea that one day I would revisit metalworking. In 2010 after quite a few decades of waiting for the right time, I booked an evening class in silversmithing. I learned to design and make jewellery and my passion for metalwork was reignited. Within 18 months, and due to popular demand from friends wanting to buy from me, I was selling my creations. I have continued to refine my skills, design, make and sell my jewellery in my online Etsy shop and through my Facebook page.”

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How do you define yourself?

“I am a magpie for shiny metal, and beautiful stones but also have a passion for a sustainable, responsible approach to my business. The gold and silver I use is either recycled by my suppliers, or I reuse my customers’ gold to create bespoke pieces for them. I source diamonds and precious stones from ethical suppliers and use recycled materials in packaging.”

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Tell me about the evolution and range of your styles of jewellery.

“I began by making jewellery that was inspired by nature and my love of the outdoors. Over time, I have concentrated on pure form, and more contemporary abstract shapes. Learning to set my own stones is a challenge, but also a delight, those are my hands that have touched each piece from start to finish. I make everything using traditional methods of silversmithing, using hand tools. I love the forged shaped look, and adding droplets of gold, the technical term for ‘droplets’ is an unromantic ‘granulation’. Adding the sparkle of my favourite diamonds and sapphires creates a unique, contemporary look in a piece.”

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What is the greatest recognition of your work so far?

“I talk to my customers and like to have a feel for who I am making for… so my recognition is from them, their reviews and feedback. I think this review is one of my favourites so far:”

“From the very moment I saw her work, I knew Fiona was the person I wanted to make a very special gift for my daughter. The communication between Fiona and myself was brilliant as she responded positively and instantly knew what I envisaged. Her patience and eagerness to supply me with a pendant that would match my idea was amazing; nothing was too much trouble. Once Fiona had confirmed all the details, she gave me a time frame and the pendant was made and dispatched within the time. It arrived securely packaged and beautifully presented in a gift box. The pendant is exquisite and has surpassed my hopes and wishes. It is a piece of art and will be treasured for years to come. If the reader needs someone with skill and vision, Fiona is this person”.

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What can we expect next from you?

“I will soon be learning to carve wax to create shapes to be cast. In my imagination I have a variety of beautiful, tiny birds that will become gold and silver jewellery, I am sourcing tiny black diamonds for little beady eyes, and peacock sapphires to flush set on wings.

My dream is to create a collection of kinetic jewellery and boxes with meaning; to celebrate life, a lost love, a friendship, special moment or emotion etc. I would incorporate a series of cogs or perhaps a chain to provide movement. Doors would open, hearts would spin and birds fly around the sun. Yes, there I go again…. Another lifetime and more of ideas!”

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Best of luck with your endeavours Fiona and thank you for being this months client in the spotlight.

If any other clients would like to feature in a future newsletter with a story, profile, charitable fundraising or discussion on a topic you would like to share please do get in touch.

All asset classes are important to us, and cash is just one of them. To enhance our service model, Ifamax has partnered with Insignis.  Insignis Cash Solutions is an innovative cash management solution that complements your asset portfolio by looking after your cash. 

Cash is different to your other assets due to its liquidity and return potential. This service allows you to get a better return than you would at a traditional high street bank, while still allowing you to determine what liquidity requirements suit you.

The great benefit of using this service is that it is done with a single sign in procedure, making it as easy for you as possible.

Insignis use a number of secure UK-based financial banks to invest your cash. All the banks used have FSCS protection, which is currently £85,000 per bank, per individual.   This gives our clients a variety of options, depending on the capital amount and term requirements.

The service is aimed towards those that typically hold high cash balances as the minimum account size is £50,000.

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How clients will benefit:

• Client remains the beneficial owner at all times

• A single sign-up procedure, giving you access to multiple bank accounts

• Interest rate monitoring and cash account management

• The ability for Ifamax to manage the service on your behalf (if required)

• View your live cash portfolio online

• Their assets being safe and secure

• Individuals, Companies, Trusts or Charities

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Andy, his wife Sally and their son Jack, have been Ifamax clients since early 2018. After qualifying as an accountant following university, Andy then worked his way through the financial services industry as a sales and commercial director.

After becoming disillusioned and bored with corporate life Andy, Sally and a couple of friends set up their own financial claims business from their bedroom in 2004.

By 2008 they had 45 staff, a turnover of £7m and an average customer satisfaction score of 9.5 out of 10. It was this great feedback from customers that Andy notes as one of the most enjoyable parts of being in business.

When the time came to exit the business, they did consider selling but;

“thought the purchaser were unlikely to have the same customer focus that we did. We decided it better to bring in a couple of directors to allow us to take a step back and eventually wind the company down.”

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So how has all this led to Andy running around in a 10kg Rhino suit?

“One thing that defined me was that I was hugely overweight as a child and reached 18 stone at 17. I then lost 6 stone over a few months when I was 18. This was my biggest achievement in life (bigger than the business and running achievements).

Not only did it change my life completely and gave me confidence but also taught me that I had the determination to do the things I wanted to.”

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For this reason Andy sees running as massively important for both keeping off the weight he lost when he was young and as a continuing challenge for himself. After clocking up over 60 marathons and ultras all over the world for the last 30 years, he has now decided that it makes sense to challenge himself even further!

“I am getting slower but still like to look for a new challenge. I’ve never run a marathon in costume and the rhino costume is iconic so it seemed an obvious step. I contacted the charity in August last year to apply to run for them. Since then I have learned a lot more about the plight of the rhino. It staggers me that in this day and age we are still cruel to and slaughtering animals for totally unnecessary reasons and monetary gain.

Rhino horns are used in traditional medicine and as a sign of wealth. We have eliminated 95% of rhinos and 3 of the rhino species are on the endangered list. By running in the marathon and doing talks in schools I hope I can do a little bit to raise awareness of the rhino and what’s being done to stop rhinos, and other animals facing a similar plight, becoming extinct”

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When Andy first sent over pictures of him wearing the suit itself we were all surprised at how big, heavy and uncomfortable it looked and it appears that after taking it out for a practice trot last week he has confirmed it is all three.

“It moves around a lot, has limited visibility and is big and hot. It changes your running style and you have to hold the head when you to keep it still which quickly makes your arms ache!! I really hope that it’s not too warm on marathon day. Little wonder the charity said not to run too much in it before London because it might put me off doing the marathon itself.”

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Andy hopes to raise an impressive £5,000 for Save the Rhino International and all at Ifamax wish him well in trying to reach that target, the many training runs to come and indeed the big day itself on Sunday 26th April.

If you would like to read more information on Andy’s fund raising and ongoing training efforts please feel free to visit his Just Giving page by clicking the button below:

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Good luck Andy and thank you for being our first client in the spotlight.

If any other clients would like to feature in a future newsletter with a story, profile, event or indeed some charitable fundraising of your own please get in touch.