Tag

Financial Management

Jul 24
0

Feeling Positive About Money Despite the Pandemic

By | News & Views | No Comments

Are you feeling positive about the state of your finances right now? Especially amidst the pandemic?

One trend emerging from the Covid-19 pandemic and the associated lockdown was a typical cut in spending.

According to new research, nearly half of us are staying positive about our money matters after lowering our spending levels.

But, as the shops reopen for business, the fashion sector could suffer as more than two-thirds of shoppers say they will consciously spend less on clothing.

Cashback website, Top Cashback, spoke to people about their money sentiments.

When they asked the question before the lockdown, they found that 80% of us felt optimistic.

Turning to today, the same question prompted only 60% of people to claim they are feeling optimistic when it comes to their finances.

12% said they are feeling pessimistic.

Of those who are feeling optimistic about their financial future, nearly half said they were spending less money during the lockdown.

Half of the respondents said their financial circumstances look different following the pandemic, although not necessarily worse.

Some people are spending more money since the onset of the lockdown, with 20% experiencing higher food bills, or splashing out more cash on home improvements.

Thinking about steps we could have taken to be better financially prepared before the Covid-19 pandemic hit, nearly a fifth said they would have saved more money each month.

However, 455 said there was nothing more they could have done to better prepare their finances.

Adam Bullock, UK Director of TopCashback.co.uk, said:

“It’s encouraging to see a percentage of people feeling optimistic about their finances, despite the current climate. However, it’s also important to remember that we, as an entire population, may be feeling the effects of the pandemic for years to come.

“Whilst every financial situation is particular to the individual, as a money-saving platform, we would always encourage people to save money where and when they can. Now is a great time to be analysing your finances so that when normal returns (if ever that happens) you will hopefully be feeling some of the benefits of learned behaviours.”

At times like this, it is possible to be prepared – this can be achieved by having a wealth plan. It is important to plan your financial future to accommodate for many potential scenarios, especially if you’re a business owners or practice owner professional.

If you would like to speak with a wealth planner, you can contact us via email, scheduling your Exploration Call or by our online contact form on our website.

We provide lifetime wealth planning tailored to you and your personal situation and circumstance and would love to hear from you.

May 25
0

Why Owning a Broadly Diversified Portfolio Makes Perfect Sense

By | Investments, News & Views | No Comments

At times like this when there is great uncertainty, wouldn’t it be great if we had the means to look into the future? Perhaps not some might argue. Unfortunately, we don’t know the future – no one does.

When it comes to investing, it can be tempting to run ‘what if’ scenarios in our heads, such as ‘perhaps I should move into technology and pharmaceutical companies – as surely these will do well’ or to pick out specific companies that appear likely to thrive in the future.

However, two challenges exist.  The first is that you won’t be the first person to have thought this and the combined views are already reflected in market prices. The second is that in making such focused bets you have a high chance of being wrong and missing out on the companies that actually end up driving future returns. Remember, 30 years ago Amazon and Google did not exist.

To get a feel for what these focused risks look like, academics are able to explore a vast amount of equity market data in the US, known as the Centre for Research in Security Prices (CRSP) database.

One such study[1] reveals some surprising and useful findings between 1926 and 2015.  Whilst investment wisdom and empirical evidence support the case that equities, in aggregate, outperform cash over longer periods of time, a closer look at individual equity returns tells a very different story. Here are some of the insights that the paper provides:

The median time that an equity/share is listed on the CRSP database is only seven years, during the period 1926 to 2015. That’s not long.

Just over 40% of all equities/shares have a holding period return that exceeds the return of cash (in this case one-month US Treasury bills) over the period that the equity/share was in the database. More than 50% deliver returns that are negative. The median lifetime return on any single equity/share was -3.7% p.a. That’s not good.

26,000 equities/shares have appeared in the CRSP database since 1926, yet only 36 survived the entire 90-year period. That’s not many.

US $32 trillion of wealth was created between 1926 and 2015, which has been generated entirely by the top 1,000 companies, representing less than 4% of the total number of companies listed over time. The top thirty companies (0.1% of all companies) accounted for around 30% of the total stock market’s wealth creation. That’s pretty concentrated.

This is why, at times like this, and in fact across all time periods, we believe it makes enormous sense to remain highly diversified, so as not to miss out on the next Exxon (the firm that has added most value to the US market ever), Apple or Amazon.

Now, let’s look at how the top ten US firms by revenue changed between 2000 and 2010 and again between, 2010 and 2020.  The results are so revealing.  Just look at the new companies making it into the top 10 in 2010 and then in 2020.  Look at the names which disappeared from the top 10 in 2010 and again in 2020.

Top 10 US companies by revenue over time (2000, 2010, 2020)

Source: Fortune 500

Correctly picking which few companies are going to be driving market returns over the next decade or two will not be easy, or likely. Even if you could, remember the majority of us are investing for more than 20 years.

At Wells Gibson, we believe it makes perfect sense to own the top companies by owning a broadly diversified portfolio which invests in thousands of companies.  Missing out on these companies, perhaps that don’t even yet exist, could make all the difference between a good investment outcome and a very poor one.

Please keep safe and don’t hesitate to get in contact if you have any questions.

[1] Bessembinder, H., (2017) Do Stocks Outperform Treasury Bills? WP Carey School of Business, Arizona State University.
Photo by Colin Horn on Unsplash
May 01
0

Responsible, Sustainable and Impact Investing

By | Investments, News & Views | No Comments

Wells Gibson remains a strong advocate of systematic, evidence-based investing as this continues to stand the test of time and remains a robust, well thought through proposition which investors can understand and stick with, even in challenging market conditions.

For some time now, we have been eager to complement our standard investment proposition with the development of an ESG investment proposition and an Impact investment proposition. These are described as follows:

ESG investing has an increased focus on environmental risks (E); social sustainability (S); and good governance (G); and

Impact investing helps drive solutions to global problems and provides a material effect on important positive outcomes with regards to social sustainability and environmental risks.

The focus of this article is the development of our ESG investment proposition, and a further article will follow with regards to the development of our Impact investment proposition.

The Spectrum of Capital is a helpful diagram which summarises the financial goals and impact goals of different investment approaches, and you will notice this places a broad-based, traditional investment approach at the left-hand side, and, philanthropy at the other side. Wells Gibson’s standard investment proposition would fall into the traditional column i.e. the left-hand side.

Thanks to, UK National Advisory Board On Impact Investing, 2017 & Impact Management Project, 2017

Our ESG Proposition

Wells Gibson has now created an investment proposition which has an increased focus on ESG factors and includes funds whereby the investment approach is deemed to fall into the Responsible & Sustainable columns within The Spectrum of Capital.

We have sought to address the issues that are most important to environmentally focused investors, without compromising on sound investment principles, or requiring investors to accept lower expected returns.

Although this proposition has an increased focus on ESG factors, we will not compromise on the structural integrity of our portfolios because this can expose an investor’s capital to unwanted and unnecessary risks.  In other words, we are determined to apply our systematic, evidence-based philosophy to our ESG proposition.

We recognise there is no ideal single approach to ESG investing.  A number of offerings are continuing to develop such as negative screening; positive screening; a focus on the environment only; and a combination of E, S and G etc.

Our ESG Portfolios

In order to create portfolios with an increased focus on ESG factors, we consulted with Albion Strategic Consulting which provides Wells Gibson with ongoing governance oversight and is a member of our investment committee.

Using Wells Gibson’s standard, traditional portfolios as a sound template, our approach initially is to replace the existing funds used to obtain global, developed market equity exposure, with two new funds which stand out as being worthy of inclusion and are from investment firms we are very familiar with and trust, Dimensional and Vanguard.

We believe the rules based ESG approach of these funds is a step in the right direction, without materially sacrificing capital market returns:

The Dimensional fund [1] claims to reduce greenhouse gas emissions intensity by over 60%, and nearly 99% of emissions from reserves due to the systematic ESG weighting methodology; and

The Vanguard fund [2] excludes companies that do not align with the UN’s Global Compact principles.

As with our standard, traditional portfolios, the ESG portfolios will also invest in global short-dated bonds; global commercial property; and global emerging markets, however as new products emerge, these will be scrutinised before any decision is made to include them in our ESG portfolios.

We asked Albion to run an analysis comparing Wells Gibson’s standard, traditional portfolios to Wells Gibson’s ESG portfolios and this revealed:

A minor increase in cost;

A minor increase in share concentration; and

A minor reduction in the expected return (attributable to the reduction in allocation to small and value companies).

Our conclusion is that Wells Gibson’s initial ESG investment offering provides a meaningful and worthwhile progression towards a full ESG portfolio and will be used when requested by clients.

We continue to develop our Impact investment proposition and as soon as we have a viable solution, we will let you know.

Please don’t hesitate to contact Wells Gibson if you have any questions and if this is an area you would like to discuss please get in touch.

[1] https://eu.dimensional.com/en/-/funds/emea/kiids/kiid-global-sustainability-core-equity-fund-gbp-dis.pdf
[2] https://www.vanguard.co.uk/adviser/adv/loadPDF?country=UK&docId=1270
Photo by Chris Barbalis on Unsplash
Apr 30
0

Financial Guides for the Employed, Self-Employed and Small Businesses

By | News & Views | No Comments

Wells Gibson is delighted to announce that the global community of financial planning, in conjunction with the Chartered Institute for Securities and Investment (CISI),  has produced two financial guides, one for the employed and one for the self-employed and small businesses.

These short, easy to read, financial guides are designed to help you think about your finances by highlighting the important factors and steps that leading Certified Financial PlannersTM professionals recommend you should look at during this uncertain and challenging time.

We hope you find the guides useful and as a CFP professional, our very own Jonathan Gibson is ready to help you manage your finances and look to the future.

Should you have any questions at all, please don’t hesitate to get in contact with Wells Gibson.

Financial Guidance for the Employed

Financial Guidance for the Self-Employed and Small Businesses
Apr 15
0

A ‘set-and-forget’ investment approach? Absolutely not!

By | News & Views | No Comments

Wells Gibson’s systematic, evidence-based approach to investing often results in very little activity in our clients’ portfolios.  However, it would be wrong to think that this is the result of a ‘set-and-forget’strategy and the Wells Gibson Investment Committee would refute such a suggestion.  Considerable effort goes on behind the scenes to allow this state of calm consistency to exist.  The fortitude and discipline to deliver ‘not much needs to be done to your portfolio except for rebalancing’advice, comes from a rigorous process of ongoing challenge to the status quo.

The broad terms of reference of the Wells Gibson Investment Committee are set out below:

Manage risks over time

  • The Wells Gibson Investment Committee is responsible for the oversight of the risk in portfolios and the wider investment process.Meetings are regular and minutes are taken, which include all action points to be followed up on. Third-party inputs and guest members – such as Albion Strategic Consulting – provide independent insight and challenge.

 Challenge the process

  • The investment process at Wells Gibson is driven by the latest empirical evidence and theory available. It is always open to challenge.  If new evidence suggests that doing things differently would be in our clients’ best interests, then we will revise our approach.  The investment process is evolutionary, but change is most likely to be slow and incremental.

Review the portfolio structure

  • The underlying characteristics of Wells Gibson’s client portfolios are reviewed, including performance and risk level attributes. Risks (asset class exposures) and their allocations within a portfolio are evaluated. Any issues are raised and resolved. Existing asset classes are reviewed alongside asset classes and risk factors that currently sit outside the portfolios.  Areas of interest are placed on a longer-term ‘watch’ list.

Review the current ‘best-in-class’ investment funds

  • The current funds are ‘best-in-class’ choices seeking to deliver the returns due to investors for taking specific market risks.Each fund has a role to play in a portfolio and its ability to deliver against this objective is regularly reviewed. Any fund-related issues are raised and resolved.

Screen for new funds and undertake appropriate due diligence

  • Although the current funds were recommended as ‘best-in-class’, new funds are regularly being launched. Tough screening criteria are in place against which new funds are judged.  New, potential ‘best-in-class’ funds face detailed due diligence and approval. They are included only when they make the grade.  Given the quality of the funds already in portfolios, the threshold for replacement is high, but not impossible for newer funds.

Reaffirm or revise the investment process

  • The Wells Gibson Investment Committee is accountable for reaffirming or revising the structure of client portfolios. Risk (asset) allocations and fund changes are approved by the Investment Committee.Any actions arising from portfolio revisions will be undertaken, after discussion with and agreement by clients.

The next time you open your latest valuation report, remember that despite the lack of activity on the surface, the Wells Gibson Investment Committee continues to paddle furiously behind the scenes to allow this be the case.

In the immortal words of the investment legend and author Charles Ellis, “In investing, activity is almost always in surplus.”  However, perhaps we should amend this slightly to, “In investing, activity is – except for the Investment Committee – almost always in surplus.’