Market Update January 2018
Given the choice between focusing on the negatives (Trump, Korea, China trade war prospects) or taking a ‘reasons to be cheerful’ approach (corporate profitability, improving global growth scenario), financial markets clearly decided on the latter in 2017, making it a good year all round for investors. Funds on Harvest’s Recommended List rose by more than 9% on average (in euro terms) over the year as a whole.
Asset valuations, particularly equities, now look quite stretched and the prospect of 2018 being a repeat of 2017 must be viewed as quite slim. While the traditional enemy of investment markets, inflation, looks to be in long term abeyance, there are plenty of other reasons for concern and we would expect bouts of volatility in financial markets to be a feature this year. And we certainly cannot rule out a major correction although we are attaching a lowish probability to such an event for the moment.
All of the major equity markets performed strongly in 2017 and most produced double digit returns over the year. Once again, China led the way with a massive 43% return and the US was no slouch either returning more than 21% in 2017. Europe at 11% looked relatively pedestrian by comparison. However, currency moves were a very significant factor over the course of the year. As the euro gained against most other currencies, euro based investors suffered a considerable degree of dilution when returns were translated back to euro (see table below). In euro terms, the US returned just 6% while the returns from Japan more than halved from 19% to 8%. Performance data for the major markets is shown below:
2017 2017 (in euro terms)
US +21.1%* +6.4%*
UK +11.9%* +7.7%*
Europe +11.4%* +11.4%*
Japan +19.1%* +8.3%*
Ireland +9.9%* +9.9%*
China +42.9%* +24.6%*
* Source: Financial Express Analytics
Looking out into 2018, we are maintaining our cautious, but not necessarily bearish, view on equities. In terms of new investment in equities, we continue to advise clients to take a phased approach and to lean towards funds with a focus on income. Longer term, we remain most positive on continental Europe and emerging markets. We also added some specialist ETFs and investment trusts to our Recommended List in areas where we see strong long term growth potential such as robotics and biotech.
All investors are aware of the low to zero return from cash deposits, a situation which is unlikely to change for quite a long time to come. In 2017, Harvest launched its Cash Alternative Strategy, an approach which incorporates a range of very low volatility funds offering a return significantly better than cash without involving a high degree of risk. Over 2017, the Cash Alternative Strategy returned 5.1% (at a volatility level of less than 2%). We are strongly of the view that cash rich clients should be looking to switch at least part of their cash holdings into such a strategy.
An upturn in the interest rate cycle is unlikely to be good news for bonds. However, while the US did begin to increase interest rates in 2017, a general round of interest rate increases looks a long way off. That said, we continue to see little value for retail investors in mainstream bond markets. We are continuing to promote exposure to some specialist areas of the bond and credit markets where we still see higher yielding opportunities such as in emerging market bonds and mortgage backed securities.
Property remains one of our favoured asset classes and it is one to which all clients should have a long term exposure in their portfolios. Yields on commercial property are still attractive across most of the developed markets. We favour ungeared or lowly geared pooled investments, particularly those with a visible income stream. Irish residential property is a particular hotspot at the moment, and looks to remain so for at least a couple of years. Harvest plans to bring bespoke opportunities to our clients over the short term offering exposure to this sector.
As mentioned above, euro-based investors did not fully enjoy some of the stellar returns delivered by world equity markets in 2017 as a consequence of the strong euro. Currencies have probably found their level over the very short term although looking into 2018 a recovery in the dollar looks quite likely. Brexit will probably ensure that a sustained recovery in Sterling does not happen for quite some time yet.
Gold and Oil
For the twelve months of 2017 gold prices rose by double digits in dollar terms but again suffered from currency moves and was down 2% when converted to euros. Further uncertainty this year is likely to be good news for gold and we may even see a partial reversal in the recent dollar/euro trend in 2018. We would reiterate our view that a small exposure to gold in your portfolio is worth considering. Oil markets have recovered over recent months and a barrel of oil is now trading at $66, up by more than 15% since the beginning of 2017. We see little prospect of a sustained recovery in the near future although rising tensions in the Middle East could certainly counter that.
* Source: Financial Express Analytics
Inflation has not been a factor in markets for quite some time and 2018 is shaping up to be no different. However, experience has taught us that when inflation does reemerge it could do so with surprising strength.
As always, you should only consider the investment views contained in this update in the context of your own attitude to risk and how such choices might impact your Asset Allocation model. Should you wish to discuss your investment portfolio, please contact us on 01 2375500 or email email@example.com.
|Warning: Past performance is not a reliable guide to future performance.
|This material is not intended to provide advice and is provided for general information purposes only.
Your Financial New Year Resolutions: 6 things to consider in 2018
- Review your Finances / Make a Financial Plan
There is arguably no better time than the New Year to give yourself a financial health check to allow you to gain or in some cases re-gain greater control over your finances over the next twelve months and beyond.
- Make a Will
This is one of the most important aspects of financial planning that often gets overlooked. It is imperative that you take control over your assets whilst this ability is still available to you and is especially critical where young children are involved.
- Retirement Planning
There are a myriad of options with varying degrees of complexity available to plan for your retirement, so therefore it is essential that you seek the advice of a financial professional so that you choose the correct option.
Key points to consider for Retirement Planning
- Set a Retirement Goal – How much income will you to need in retirement?
- Is there a Funding Gap? – What is the gap between the income you will have and what you would like in retirement? Include State Contributory Pension, rental income, income from private pensions.
- Tax relief – Maximise the tax relief available to you on pension contributions – the older you are the more tax relief available!
- Investment Strategy – The lower your investment growth, the more you will need to contribute to your pension. Develop an appropriate investment strategy suitable to your risk profile and your age to deliver the results you want.
- Post Retirement Options – If you are planning to invest in an ARF after you have taken your retirement lump sum our investment horizon is 20+ years so your investment strategy should be different than if you are going to purchase an annuity in retirement. This should be planned well in advance of your retirement date.
To see more on Retirement Planning click here.
- Protecting your Family in the event of death and illness
- Term Life Insurance – Life Insurance provides the opportunity to leave a cash lump sum for your family in the event of your death over the term of the policy.
- Income Protection – The function of income protection is to provide a regular (replacement) income in the event of being unable to work after a certain period of time due to injury or illness. Cover continues until age 65 or you return to work. The payments on your plan are eligible for income tax relief at your marginal rate of tax. It should be noted that Incapacity benefit is treated as normal income and so is assessed for income tax, PRSI and the Universal Social Charge. To find out more about Income Protection click here.
- Specified / Serious Illness Cover – Specified Illness Cover provides a lump sum in the event of contracting a specified illness that is covered under the terms of the plan that is taken out.
- Long Term Investments and Understanding Investment Risk
Currently, deposit interest rates are struggling to match inflation rates, however it is a worthwhile exercise to speak to a financial advisor as to how long term investment (5 -10 years+) can potentially provide a greater return for your lump sum investment.
Unfortunately, risk is inseparable from return as most investments involve some degree of risk, which can be very low in some cases but higher in others. It is therefore essential to ascertain each individual’s appetite for the amount of risk that an individual is willing to take. This is measured by conducting a risk questionnaire to establish the individuals risk profile. Investing over longer periods of time in a diversified portfolio can help control the levels of volatility and risk that are associated with investing in funds and markets. To view more on Investment Advisory Service click here.
- Create a Contingency Fund
It is always prudent to create a contingency fund for emergencies; we suggest a contingency pot worth at least six months’ of expenditure.
If you have any queries or would like to discuss how you can put in place a financial plan to protect you and your family, please contact us on 01 2375500 or email firstname.lastname@example.org.
On the 3rd of January 2018 new legislation, designed to offer greater protection and transparency to clients, comes into effect.
We have updated our Terms of Business to reflect the changes in legislation which can be found here. One change that you will notice immediately is that we are now obliged to record certain telephone conversations.
If you have any queries please contact your Client Manager on 01 2375500.
We would like to take this opportunity to wish all our clients the best for 2018.
Harvest Wins Independent Pension Broker of the Year for 3rd Consecutive Year
Harvest Financial Services Limited is delighted to be awarded the prestigious title of ‘Independent Retail Pension Broker of the Year’ for the 3rd consecutive year at the Irish Pensions Awards 2017. Having won this award in 2015 & 2016, we are delighted the continued innovations and improvements we have made in 2017 were recognised at last night’s awards.
The Irish Pension Awards honour excellence within the pension industry, and our continued success in this category is testament to our advice led approach to working with our clients to meet their retirment and investment planning needs.
Having won this award for the last two years, the pressure was on us to keep our standards high to retain it. We’re delighted that this hard work and dedication has been rewarded.
Why Harvest won the Independent Pension Broker Award –
Our aim has always been to put our client’s interests first in everything we do. We focus on the creation and maintenance of long-term relationships with our pension clients, during the accumulation phase through to drawdown and succession planning.
Over the last number of years, the challenges facing our clients who are funding privately for retirement have become increasingly more complex and we have adapted our service offering, developing innovative solutions to deal with these issues.
These challenges have included:
- Seeking investment returns in a low risk, low interest rate environment
- Understanding risk to deliver an income in retirement
- Managing investment costs to maximise investor return
- Technical pension issues around retirement planning.
Seeking investment returns in a low risk, low interest rate environment
As deposit interest rates have plummeted across the world, the wisdom of holding long term cash deposits for retirement planning purposes has come in to serious question. We have effectively reached a point now in the developed world where inflation is running ahead of deposit interest rates.
Understanding risk to deliver an income in retirement
As part of the solution to help clients understand the risks of holding cash deposits as a long term investment strategy we produced a brochure ‘Harvest Financial Services Guide to Retirement Income’. This document sets out the options available to clients at retirement and helps them to understand the main risks to securing their income in retirement, i.e. inflation, longevity and investment returns.
Managing investment costs to maximise investor return
All quoted investments on our recommended list are accessible through a low cost online stockbroker. This allows us access the institutional share class (‘clean share class’) for investors which can result in a significant discount on the retail price. When advising our clients we quote the Total Expense Ration (TER) as the cost of the investment. We believe that this gives greater transparency to our clients and the savings will result in a better outcome in retirement.
Technical pension issues around retirement planning
From dealing with Excess Fund Tax liabilities, to structuring pensions to avoid the annuity trap on death in service, we have been working with our clients to put in place structures and plans to ensure that they, and their dependants, get the maximum benefit from their pension schemes.
Published November 2017
Cash Alternative Strategy Update – Solution to low deposit interest rates
‘Interest rates lower for even longer…’
As a response to low and falling deposit rates, we launched our Cash Alternative Strategy in June of this year. This strategy is comprised of three low volatility funds which fulfil the criteria of being highly liquid (they can be traded daily) and distributing an income of 3.5% annually or higher.
Over the first 10 months of 2017, the Cash Alternative Strategy has returned 4.7% to investors, substantially ahead of both inflation and deposit rates.
Recent commentary from international bank economists suggest that European interest rates will not be rising any time soon and, when they do start to rise, it is likely to be at a slow pace. As a result it remains our view that clients need to seriously consider alternatives to cash in the bank. At current very low interest rates, the value of cash is being eroded in real terms and while we all need to retain a certain amount of cash liquidity, bank deposits are not a proper home for long term savings.
If you would like to pursue this strategy or if you would like to explore it further, please contact your us on 01 2375500 or email email@example.com
More information on this strategy available –