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Autumn 2016 | No. 13
THE FINANCE AND INVESTMENT MAGAZINE FROM THOMAS HEALD
Clinton
Vs.
Trump
Two candidates; two radically different
visions of the future
ALSO INSIDE THIS ISSUE
Cybersecurity: Greater threats mean greater demand for solutions
Generation Now: What happened to the savings culture?
Retirement Revisited: Is there such a thing as too much freedom?
Mellow Fruitfulness: The perfect wines for the season of mists
Nick’s
Economic
Outlook
Marmite wars and the
return of inflation
thomasheald
CHARTERED FINANCIAL PLANNERS
Contents
CONTENTS
thomasheald
CHARTERED FINANCIAL PLANNERS
Vision Magazine | Autumn 2016 | No. 13
03. Vision Intro
Introducing the Autumn 2016
edition of Vision Magazine
04. Clinton Vs. Trump
Two candidates; two radically
different visions of the future.
What do we know so far?
16
07. Generation Now
Rock-bottom interest rates and
a borrowing frenzy: Just how
indebted are we as a nation?
10. Retirement
Revisited
The promised land of universal
unfettered access to pension
pots may not be all that rosy
04
12. Cybersecurity:
Fixing the leaks
12
As the threats escalate, so too
does the need for innovative
solutions. This is good news for
investors
10
14. Nick’s Economic
Outlook
Could a jar of Marmite hold the
key to deciphering the mixed
messages coming from the
FTSE and from Sterling prices?
07
16. Mists & Mellow
Fruitfulness
The perfect wines for winding
down in the Autumn months
2
Vision Magazine is designed, edited and published by Thomas Heald Ltd (© Copyright 2016). No
part of this publication may be reproduced without the permission of Thomas Heald Ltd.
thomasheald.co.uk
Intro
Vision
Intro
No matter how long it is since you
left school, the advent of Autumn
means only one thing: back to
reality. And what a reality that
currently is: the most controversial
candidate to ever run for president
in the US still commands a vast
amount of popular support,
despite revelations of his past
misdemeanours surfacing almost
daily. His beleaguered opponent
meanwhile struggles to secure
what ought to be a landslide
victory in and amongst the
ongoing embarrassment of having
her confidential emails leaked by
so-called ‘hacktivists’.
As all of this unfolds across
the pond, the UK is still reeling
from the shock of ‘Brexit’, and the
economic uncertainty provoked
by the inconclusive bickering
amongst our political leaders over
what that ought to mean.
An economic sea change looks
to be on the horizon, with pressure
mounting on the government
to stage a fiscal intervention.
Whatever your opinions are on
the status quo, it doesn’t look to
remain in place for very long.
So what does all of this mean
for investors?
To provide an antidote to the
mudslinging of today’s ‘posttruth politics’, we asked the US
Team at Schroders Investment
Management to weigh in on the
hard facts of each candidate’s
policies and the likely economic
ramifications of a Trump or a Clinton
victory (page 4).
I examine the long-term
consequences of ‘lower for (even)
longer’ interest rates on page 7, and
our commercial director Chris surveys
the post-pension-freedoms landscape
(and some of its more worrying
features) on page 10.
On page 12 we look into the
burgeoning growth of the online
security sector using research from
Pictet Asset Management, and on page
14 Nick weighs in on ‘Marmitegate’ and
the implications of the return of inflation.
Finally, on page 16, Nick delivers
his latest wine recommendations for
brightening up those misty Autumn
evenings.
We hope you enjoy this issue of Vision
Magazine, and as ever we encourage
you to get in touch if you have any
comments or suggestions via chloe.
[email protected].
Chloe Timperley
Vision Editor
This publication is intended for general interest and entertainment purposes only. No part of this publication should be taken to constitute
financial, legal or any other kind of professional advice. If you would like to speak to an adviser regarding your financial situation, please do
not hesitate to call us on 01246 570078. Please note that the value of an investment and any income received can fall as well as rise,
and you may not get back the full amount originally invested. Past performance is no guarantee of future performance. Thomas Heald Ltd
is not being paid to promote any company mentioned in this publication.
thomasheald.co.uk
3
Politics
CLINTON VS. TRUMP
THE FACTS BEHIND THE FIREWORKS
With the debates becoming increasingly acrimonious, and with a fresh
controversy gracing our screens and airwaves every week (or so it seems),
this year’s US presidential election looks set to be one of the most hostile
on record. Impassioned speeches and slogans aside however, what would a
Trump or a Clinton presidency actually look like? The US team at Schroders
Investment Management take a look at the facts…
I
t seems as if the whole world is
watching as this extraordinary
election unfolds in the U.S. Many
remain in disbelief that the two most
unpopular candidates in US history
have won their respective parties’
nominations.
Nate Silver, the much-lauded political analyst
and ‘super-predictor’ currently has Clinton as
favourite with a 60% likelihood of victory. We
are not, in contrast, political pundits and do not
predict elections – our role running the Schroder
US Small and US Midcap portfolios is to find the
best bottom-up stock opportunities in the world’s
most dynamic and innovative economy. However
we do have some thoughts on several sectors
and the way in which they will be impacted if each
respective party wins on November 8th.
There is no doubt with political dissent rising in
“
THERE IS NO
DOUBT WITH
POLITICAL
DISSENT RISING
IN THE US, AS
ELSEWHERE IN
THE WORLD, THAT
THE STATUS QUO
IS LIKELY TO BE
UNSUSTAINABLE.
4
the US, as elsewhere in the world,
that the status quo is likely to be
unsustainable.
which has performed strongly in
recent years. We remain cautious
around opportunities here.
>> Health Care
>> Energy
Hillary Clinton has been a strident
critic of drug pricing and has
advocated the tightening of federal
regulation. Second, she has been
a supporter of the Affordable Care
Act (ACA or “Obamacare”). We
would anticipate a solidification of
the laws around the expansion of
health care access in the US. It
has become apparent that changes
need to be made to make the law
more effective for all participants
(providers as well as patients) but
evolution and expansion, rather
than revolution would be the way
forward as Clinton continues the
Obama project.
A Trump victory would in all
likelihood result in a concerted
attempt to dismantle or at least
significantly diminish the ACA.
While Mr. Trump himself has
been vague on health care, key
Republican leaders (for example,
Paul Ryan, Speaker of the House)
have been hostile to it historically
and could be expected to take
leadership roles in crafting a new
or at least modified set of laws.
Neither outcome seems likely
to provide a tailwind for a sector
Mr. Trump has shown a generally
laissez faire attitude towards
drilling and pipelines, which
is consistent with the basic
Republican stance over the past
decade or so. We would anticipate
approval for the completion of the
controversial XL Pipeline project
which had been stalled due to
environmental concerns.
Mrs. Clinton favors a focus on
alternative sources of energy (solar,
wind) and is likely to be supportive
of clean energy sectors. She has
also expressed concerns about
the XL pipeline and the impact of
fracking on health and safety. Her
administration would be more
difficult for energy exploration
companies. We have a strong
focus on company debt levels, and
the reliability of their earnings, and
have therefore avoided the US
shale energy sector in recent years.
We remain alive to opportunities
but again, challenging times may
continue in a volatile and heavily
regulated industry.
thomasheald.co.uk
>> Foreign Policy
Hillary has stated her support for
Politics
global trade and global partnerships with other nations. She
is not opposed to US involvement in what are euphemistically
called “foreign entanglements”. Trump states an opposition but
at the same time, and true to his contradictory style, declares
that he will defeat ISIS ‘very quickly.’ America’s role in the world
is of unparalleled geopolitical importance, and market
sentiment will be impacted by the White House. The
underlying fundamentals of the businesses we buy
may be seemingly unaffected by foreign policy,
but the market as a whole will be susceptible to
unpredictable foreign policy.
>> Domestic Policy
It is worth noting that for all the policy
proposals from Clinton, and the detaillight blue-sky promises of Mr Trump, the
constrained reality of the Presidential
position may result in watered-down or
simply blocked legislation.
Trump’s
pro-infrastructure,
growth
agenda is difficult to square with the
Republican party’s objections to an increase
in government debt for starters. For Clinton,
the likelihood that the House will remain in
Republican hands means that, much like it
has been for the current President, it will be
difficult for her to pass legislation when the
dust settles on the election and it is time to
get work done.
Clear daylight exists between the parties’
positions on gun control (market neutral),
minimum wage (difficult for low margin
industries such as care, retail and food
retail) and we remain mindful that in the
case of the latter, we must factor in potential
increases in cost to businesses, at the same
time as recognizing that poorer citizens in
these jobs will have more disposable income,
and that the less wealthy have a higher
propensity to spend an increase in wages than
those at the top of the income pyramid.
>> Economic Issues
The two candidates diverge on global trade issues, in which
the president, in much the same way as the role of Commander
in Chief, can act independently. Mr. Trump has threatened to
“tear up” and renegotiate existing trade treaties, notably with
Mexico and Canada. The winners of these deals (businesses,
professionals within multi-nationals, and everyday citizens
experiencing lower inflation) are less aware of their fortune
>> Continued on p.6
thomasheald.co.uk
5
Politics
than the losers are aware of what totality. It certainly would introduce
they have lost (blue collar jobs in a large measure of uncertainty over
middle-America) and it is here that the global economy which could be
Trump is resonating with lower- expected to rattle the markets for a
educated, white working class men. period of time.
Ms. Clinton historically has
been supportive of global trade >> Summary
in general, although during This is an election with a clear
this campaign has argued for a difference between the two
renegotiation of the Trans Pacific candidates. This is not the norm for
Partnership treaty which expands American Presidential elections –
to Asia and includes emerging candidates tend to converge on the
economies such as Vietnam.
center during their post-nomination
campaigns. Trump is a conservative
disruptor campaigning against the
establishment status quo offered by
Mrs. Clinton. We are cognizant of
the risks involved, and the difficulty
in making predictions – especially
about the long-term future.
Our team of 16 in New York
therefore spends its time analyzing
the 2500 companies listed in the
worlds premier engine of innovation
and capitalist spirit. Markets have
thrived in testing environments
again and again, and the economy,
political environment and market
returns do not always go hand
in hand. From our perspective,
and without ignoring many of our
Economists generally agree that challenges, America doesn’t seem
abandonment of global trade to need to be made Great Again,
partnerships would be negative for and we continue to find plenty of
the US economy. That said, the great companies to support as
distribution of the wealth created long term investors.
since the financial crisis has
US Small and
been disproportionately towards
Mid Cap Team
higher earners, and so there will
Schroders Investment
be growing calls to increase trade
Management
tariffs, however destructive in
“
MR.
TRUMP HAS
THREATENED
TO “TEAR
UP” AND
RENEGOTIATE
EXISTING
TRADE
TREATIES,
NOTABLY
WITH MEXICO
AND CANADA
Note: This was written the day of the first Presidential debate between Hillary Clinton and Donald Trump.
6
thomasheald.co.uk
Demographic Trends
GENERATION
NOW
8 years on from the financial crisis,
rock-bottom interest rates have become
the norm. What effect is this having
on the British public? Recent data has
emerged to suggest that a worrying
trend is taking shape. In short: credit
is the new piggy bank. In other news,
this year, the word ‘YOLO’ was added
to the Oxord English Dictionary. It’s an
acronym for ‘You Only Live Once’, and
is used to justify spontaneous, often
extravagant behaviour, with little regard
for the long-term consequences. Coincidence? You be the judge...
T
here’s a simple
formula for becoming
wealthy (or at least,
wealthier). But before we get
into that… what does ‘being
wealthy’ actually mean?
A lot of people, when they
think of wealth, think of multimillion-pound homes, flash
cars, foreign holidays in luxury
villas on the Italian Riviera…
And they aren’t a hundred
percent wrong. If these are
your tastes, and you can afford
to indulge them, then you can
indeed count yourself amongst
the ranks of the wealthy.
But hang on a moment: How
long can you afford them for? A
year? Five years? A decade?
thomasheald.co.uk
What if you lost your job? Or if
your company went under? Or
if the main breadwinner in your
household became critically
ill?
The illusion of wealth
Ostentation is commonplace
nowadays.
Cheap
credit
means that Britain’s average
salary – £26,500, or £53,000
for two people in full-time
employment – can be made
to stretch to the dizzying
heights of German-engineered
cars, £700 smartphones and
quarter-of-a-million-pound
mortgages (assuming, in the
>> Continued on p.8
7
Demographic Trends
“
50% OF UK
ADULTS DON’T HAVE
ANY SAVINGS OR
INVESTMENTS...
AND TWO IN FIVE
ARE WITHOUT LONGTERM ASSESTS, SUCH
AS PROPERTY OR A
PENSION, TO FALL
BACK ON
case of the latter, you can
fund the deposit).
Why is this a problem?
Let’s look at some statistics:
According to a recent
study by homelessness
charity Shelter, one in three
families in the UK would
be unable to pay their rent
or mortgage for more than
a month if they lost their
job(s).
In January this year, Aviva
published research showing
that the UK average
household debt – excluding
mortgages – stands at
£13,520. That same study
shows that the average savings pot is
less than two months of the average
salary, at £3,150.
To top it off, a new ‘Financial
Wellness Index’ for 2016 compiled
by researchers at the University
of Bristol found that 50% of UK
adults don’t have any savings or
investments... at all. And two in five
are without any long-term assets,
such as property or a pension, to fall
back on in the future.
While alarming enough on their
own, these figures become all the
more concerning when considering
that the Bank of England base rate
has been at historic ‘temporary’ lows
for nearly eight years now. Thus,
people have had the best part of
a decade to get used to stagnant
savings
accounts
and
easily
accessible cheap credit. Add postfinancial-crisis wage stagnation into
the mix – the like of which has not
been seen since the 1920s – and you
start to see why cheap credit has for
many become a handy ‘get out of jail
card’ when there’s too much month
left at the end of the money.
In short: while it has never
been easier to access
the trappings of wealth –
consumer goods, fine dining,
luxury travel – true wealth
is becoming increasingly
difficult to attain.
And how do
we define ‘true
wealth’?
In a word: security. Security
in the knowledge that, if
you were to lose your main
source of income, you have
a robust Plan B. That your
earnings are more than
enough to cover your bills,
expenses and debts, with
money to spare for both short and
long-term savings. That you’re on
track for – or are currently having – a
comfortable retirement. Essentially:
having the means to prioritise what’s
most important to you in life.
True wealth can look very modest
from the outside – charity shop
bought clothes; an unimpressive car
that goes from A to B; a two-bedroom
apartment that’s just the right size. Or
it can look exactly as you’d expect –
palatial home; fine art collection; livein chef. But from the inside, the effect
is the same: the individuals in both
of these scenarios are secure in the
knowledge that, whatever happens
(barring the declaration of world war
three), they have the material and
financial resources to maintain their
chosen lifestyle.
So, about that ‘simple’
formula...
How does one attain this zen-like
state of ‘security’, of which most
people can only dream?
Browse through the ‘personal
development’ section of your local
Waterstones and you’ll find a host of
books by ‘wealth gurus’ containing all
manner of stratagems and formulae
8
thomasheald.co.uk
Demographic Trends
for becoming financially independent.
However, much like in the dieting
industry, all of these complex systems
boil down to one basic principle. For
weight loss, the principle is: burn
more calories than you consume. For
wealth building, it’s: burn less than
you earn.
This is where most people will
protest: “I can’t afford to save or
invest”.
Now, this is a legitimate claim
for those whose income is around
or below the ‘Minimum Income
Standard’ as set by the Centre for
Research in Social Policy (currently
£17,311 for a single person, £11,703
each for a couple, and £17,681
each for a couple with two children
in primary school). This roughly
determines the minimum level of
income required to meet day-today expenses while maintaining a
reasonable (albeit basic) standard of
living.
As income rises above ‘getting by’
and into the realm of ‘comfortable’
however, this argument may not
stand up to scrutiny.
For example, the latest Family
Spending report released by the
ONS reveals that households in
the UK spend, on average, 17%
more a week on ‘recreation and
culture’ than they do on ‘food and
non-alcoholic drinks’ (£68.80 vs.
£58.80). The former doesn’t include
the £42.50 a week spent on ‘hotels
and restaurants’ and the £12.30 a
week spent on ‘alcohol, tobacco and
narcotics’.
While wanting to enjoy life is a
perfectly valid reason to spend your
hard-earned cash, these surveys
indicate that a deeper problem
is taking root. They suggest that
consumption, credit and living in the
‘now’ are a higher priority for most
Brits than building a lifestyle that’s
sustainable in the long-term.
Changing perceptions
This is not to cast judgement
on anyone in particular, more to
highlight a shift that has taken place
in the collective consciousness of the
British public. High levels of debt –
once stigmatised – are regarded as
not only acceptable, but essential.
Items once considered ‘luxury’ –
meals out, foreign holidays, the latest
thomasheald.co.uk
technology – are now perceived as
necessities.
And as for saving up, making
sacrifices and ‘paying yourself first’?
Perhaps now is the time for these
‘unfashionable’ ideas to make a
comeback.
Chloe Timperley
Vision Editor
9
Pensions
RETIREMENT
REVISITED
IS THERE SUCH A
THING AS TOO MUCH
FREEDOM?
While pension freedoms
were welcomed as a muchneeded reform when they
were introduced in April
2015, the promised land of
everyone having unfettered
access to their retirement
savings may not be all it’s
cracked up to be...
B
y and large, it appears that the majority
of retirees are taking a sensible
approach to managing their income, with
57% of drawdown pots having 1% or less
withdrawn in the most recent quarter. Smaller
pots are generally being taken as lump
sums, with an average payout of £14,500.
Larger pots are still being used to access
a regular retirement income. From the
latest quarter, £950m was invested in
annuities, and £1.48bn went into
drawdown products.
This change in investor
behavior means that the
average pot being used to
buy a drawdown product
(£52,700) is now less than
the average pot used
to purchase an annuity
(£52,900), which shows
that drawdown is available
to a wider market following
the reforms.
The data also shows that
the number of lump sum
10
withdrawals has been decreasing since the
beginning of the reforms as the pent-up
demand settles, and over half (55%) of cash
withdrawals have been less than £10,000.
But has the overall effect been
a positive one?
Of course, the upside of extending pension
freedoms is that people now have a much
wider range of retirement options available
to them. The downside is that most people
significantly underestimate how long their
pension will need to last.
On average people aged 55 today will
live into their mid-80s, with around 1 in 10
men and 1 in 5 women reaching 100.The
implication being of course that the
pension pot of a 60-year-old may
well need to last for 30 or 40
years.
How do other
countries fare?
Research using
modelling to assess
the implications for UK
retirees indicated that
they were likely to follow
similar paths to those
exhibited by individuals
in Australia and the
United States of America,
thomasheald.co.uk
Pensions
countries where they have similar
pension freedoms.
The report finds that in Australia
and the United States, there were
three types of behaviour that was
common among retirees:
1. ‘Cautious Australians’ who
preserve their capital by reducing it
by less than 1 per cent a year.
2. ‘Quick-spending Australians’
who consume pension funds
quickly with 4 in 10 running out by
age 75.
3. ‘Typical Americans’ who on
average consume pension savings
quite quickly with an average
withdrawal rate of 8% per year.
New modelling from the Pensions
Policy
Institute
reveals
the
implications for UK retirees with
Defined
Contribution
pension
savings were they to copy these
behaviours. Headline findings from
the modelling include:
Retirees emulating the ‘Typical
American’ or ‘Quick-spending
Australian’ would exhaust their
pensions by year 17 and year 10
“
MOST PEOPLE SIGNIFICANTLY
UNDERESTIMATE HOW LONG THEIR
PENSION WILL NEED TO LAST
respectively – long before they
reached average life expectancy.
Those who use the new rules
to access pension cash early in
retirement may maintain their
working-life standard of living for
a while, but risk it falling sharply
in later life compared to those who
choose sustainable income and
more even consumption.
Retirees following the path
of ‘Cautious Australian’ underonsumption face a very low risk of
running out of savings, even if they
live longer than average.
The report argues that the
Government should create a twotier ‘Early Warning System’ to
understand what retirees are doing
with their pension savings and to
identify emerging long-term risks.
It recommends a ‘Retirement
Risk Dashboard’ to help the
Government monitor retirement
decisions and provide a view on
long-term outcomes, as well as
‘Personal Pension Alerts’ – to help
policymakers intervene (where
*As always we would recommend that you seek advice before embarking on a course of
action that may have long term consequences.
thomasheald.co.uk
appropriate) with the groups it has
identified as at particularly high
risk.
Where next from here?
With the government’s recent
U-turn on ex-Chancellor George
Osborne’s plan to give people the
option to sell their annuities back
to a pension provider for a cash
sum, we might glean that they
have started taking the problem of
people being at risk of running out
of money seriously.
Whether or not any more of
Osborne’s pension reforms will
be unpicked is still unknown,
and will be at least until the new
Chancellor’s Autumn Statement in
November.
Either way however, as we
have seen, too much freedom can
indeed be a problem, and so we
mustn’t be too quick to dismiss the
value of secured pension options
(such as annuities) when planning
for retirement*.
Chris Holland
Commercial Director
11
Investment
CYBERSECURITY:
FIXING THE LEAKS
CAPITALISING ON A FAST-GROWING MARKET
I
n the early days of online security, the
main threat posed by internet hackers
was that of fraudsters out to get their
virtual hands on strangers’ credit card
details.
Sure, you’d sometimes hear the odd story of some 15-yearold savant hacking into the FBI’s databases, or a crooked
employee using a security glitch to embezzle funds from the
company bank account. But, for the most part, a malicious
hacker tended to be little more than a glorified pickpocket.
Fast forward to 2016, and cybersecurity has been thrust
to the forefront of the geopolitical agenda. Only last week,
notorious government and corporate hacking organisation
Wikileaks released a further spate of confidential emails
shared between senior members of the US democratic party,
including those of the presidential nominee herself, Hilary
Clinton.
Its motives – other than to smear Ms. Clinton in the name
of some abstract notion of ‘transparency’ – are unclear, but
the leaked files will no doubt deal a blow to the Democrats’
campaign, and the wider implications for the US and global
12
political landscape could be profound.
The leaks have already necessitated some political damage
control on the part of the Ecuadorian government, who this
week (at the time of writing) announced that it has cut the
internet access of Wikileaks founder Julian Assange. Mr.
Assange is currently taking refuge in the Ecuadorian Embassy
in London, in a bid to shield himself against an extradition
order issued by the Swedish authorities.
The decision to deprive Mr. Assange of internet access
within the embassy can be seen as a move to fend off
potential accusations that the Ecuadorian government is
somehow complicit in (or even orchestrating) the hacking of
US government officials’ email accounts.
Meanwhile, in the corporate sphere, the number of largescale data breaches, where customers’ personal details –
including email addresses, passwords and bank account
details – are made available to fraudsters on the so-called
‘dark web’ is on the increase. TalkTalk, MySpace, LinkedIn,
British Airways, Experian/T-Mobile, Carphone Warehouse
and Uber are just some of the big-name companies that have
fallen victim to massive data leaks in the past two years.
thomasheald.co.uk
ETS &
ECTIVE
ES
Investment
PROTECTING
TOMORROW’S CITIES
10
8
Pictet Asset Management
47
6
New technology in IT security products
such as0biometrics, surveillance systems
as well as secured electronic payment
will help fight crime and terrorism through
Reference: G4S, Freedonia, 2013
large-scale data mining, which can detect
anomalies and provide advance warning
of threats.
Western Europe
North America
IT security products2
South America
4
Africa / Middle East
3
(Annual growth rate between 2016–21)
Asia-Pacific
“
Fig. 1 – Global security –
a fast-growing market1
Eastern Europe
The
increasingly
connected,
Urbanisation
continuessolutions
apace, – in
In world
short,isthe
need for robust
yet continually
evolving security
and
this is of
bringing
new
security Analysts
particularly
less-developed
nations,
all realms
public about
life – is
paramount.
for theinsecurity
component
of
challenges. Societies around the world
where the number of people living in cities
the Pictet Global Megatrends fund report that:
will need to do much more in the future
is predicted to almost double by 2050 2 ,
which will require huge investments to
to safeguard the well-being of their citizens
and take actionBy
against
security
risks,
2020
the number
of safeguard
devices growing cities’ infrastructure.
New mass transit networks, power stations
both physical and virtual.
connected to the internet will double from
and utilities will all require means of
25 billion
in 2015
to 50 billion.
But the
protection,
as will the personal security
Technological
innovation
is providing
greater
the
number
of
connected
devices,
of citizens.
This focus on security will not
a raft of new opportunities for criminal
theconsequently
more dataforbreaches
there
likely
only are
benefit
those living and working in the
activity, and
those
world’s
urban centres, but will also provide
providing to
security
solutions
to counter
be. The
number
of detected
cyberattractive
for investors.
them. Cloud
computing,
storage, steadily
attacks
has data
increased
overopportunities
the
biometric systems to identify people
years, such that there are currently up to
and online payment systems all require
GREATER
HEALTH & SAFETY
118,000that
attacks
per day. New
technology
security measures
will need
in
IT
security
products
such
as
biometrics,
The
growing
focus on safety across many
constant updating.
aspects
of life, such as transportation,
surveillance systems as well
as secured
construction,
electronic payment will helpappliances,
fight crime
and food sourcing
and occupational health, will create
terrorism through large-scale
data mining,
increased demand for testing and
which can detect anomaliesinspecting
and provide
equipment and services. In
advance warning of threats.particular, globalisation, developments
in technology and a dramatic shift
By 2020
the number
of led
devices
in living
standards
have
to much
connected
to the
willsecurity
double
Pictet also cites research from G4S, which
shows
that
theinternet
global
greater
expenditure
on
food
safety
3
fromthroughout
25 billion in the
2015world,
to 50 billion
testing
and .
market (which encompasses physical security
products
and security
services
But the greater the number of connected
especially
intheAsia.
as well as IT security products) is estimated
to
be worth
around
280bn
devices,
more
data USD
breaches
there
Compound Annual Growth Rate %
NEW THREATS,
NEW OPPORTUNITIES
are likely to be. The number of detected
by 2021.
cyber-attacks has increased steadily over
From an investment standpoint, this represents
a massive opportunity for
the years, such that there are currently
generating long-term capital growth. Particularly
that,attacks
with the
of
up given
to 118,000
per advent
day 4 .
‘The Internet of Things’, self-driving cars and wearable technologies, the lines
between
the– physical
worldsthe
willday
become increasingly blurred.
Security
impactingand
ourthe
livesvirtual
throughout
As new vistas of possibility open up, so
In the US alone, the 5 largest
publicly disclosed data breaches
too will
a
whole
host
of
risks,
threats
and
Heating
Baby
Active
and
Tablet
Safer
Shopping
Scanners
Secure
Home
BIOMETRY
since 2009 have resulted in
and hotobstacles
bottle
passive
connects
food from
via secure
and
downloads protected
operational
– and these
will be
water
from
tested
for the
carmarket
safety
over Fig. 2 – The
tracing
from the
by alarm
frequency ande-payment
size of cyber- biometric
ripe for
exploitation.
As such,
SECURE
securedELECTRONIC
harmful
features
secure
passports
Cloud
system
attacks areand
on the increase across sectors
demand for an
ever-expanding array of
PAYMENT
utilities
chemicals
network
testing
security solutions willINTERNET
only intensify as
SECURIT Y
Healthcare &
time goes on.
Government
compromised records
For this reason, the Pictet Global
201
SURVEILLin
ANCEa number
Megatrends fund features
4
& ACCESS
of Thomas Heald growth
portfolios,
CONTROL
SYSTEMS
2 01
so that clients seeking sustainable
2
capital growth can benefit from the
Finance &
Technology
Insurance
technological advances that look set to
201
Reference:
redefine the way we live.
(1) G4S, Freedonia, 2013. (Includes guarding, & monitoring. Market excludes facility management, immigration, and other outsourcing) (2) United Nations, World Urbanization
630m
0
Prospects, 2014
Chloe Timperley
Vision Editor
Please be aware that, as with any
investment, your capital is at risk. For
more information on investment risk,
please visit http://www.thomasheald.
co.uk/investment-risks-2/
Retail &
Merchant
Military
Reference: Bloomberg, Data Breaches, 2014
MENT
thomasheald.co.uk
Help safeguard the health, privacy and
well-being of people everywhere
The security sector is essential to modern life, helping
13
Economic Outlook
Nick’s
Economic Outlook
For those following the progress of the FTSE 100, it would appear that the
UK economy is taking Brexit in its stride. However, the buoyancy of the
FTSE doesn’t tell the full story. What are the wider ramifications of the fall
in sterling for investors and the wider economy?
T
he devaluation of sterling is directly
correlated to the increase in the value
of the FTSE 100, as international
companies’ overseas earnings denominated in
euros and dollars are converted back into their
sterling denominated share price.
And these international conglomerates will no
doubt want to protect the value of their earnings
in sterling terms, with the first sign of this being
the very public spat between Unilever and Tesco,
dubbed “Marmitegate”. Whilst this has been
resolved and Marmite is now back on the shelves,
it is a sign of what is to come, as most UK factories
and consumers of imported goods will soon be
facing higher costs as a result of the falling pound;
the car industry having already paved the way with
average price rises of 2% added to their list prices
already.
As over half of the goods sold in UK shops are
imported, it is likely that the current 15% devaluation
of sterling will lead to an average price rise of
7.5%. As some of this increase will be absorbed by
suppliers and retailers, a net increase of 5% might
be passed onto shoppers across the board. There
may be profiteering going on at the margins, but
the impact of Brexit may well be a sharp rise in
14
inflation, as demonstrated by the recent rise of the
Consumer Price Index (CPI) from 0.6% in the year
to August, up to 1.0% in the year to September, its
highest for two years.
Is the devaluation of sterling beneficial?
The devaluation of sterling can be seen as both a
positive and a negative, depending on your point
of view. Economists, such as the former Bank of
England governor Lord King, have stated that it
is a ‘welcome change’ where British goods and
investments become cheaper for international
buyers, with the result being our exports flourish,
investment is attracted to the UK, resulting in a
boost to our persistent current account deficit
which at 5.4% of nominal GDP is the highest in the
developed world.
This was supported by Bank of England Governor
Mark Carney, who commented that inflation will
likely rise on products such as food, due to the fall
in the value of the pound amid Brexit worries. He
said the sterling’s fall “helps the economy adjust”
but admitted it would be harder on consumers. He
also said that the Bank of England was willing to
“tolerate a bit of an overshoot” on the 2% inflation
target to avoid unnecessary unemployment and
thomasheald.co.uk
Economic Outlook
support economic growth,
a sure sign that inflation is
building.
The negative impact of
this will be a squeeze on
household income making
people feel poorer. Wages
are currently rising at 2%
and are unlikely to rise
further, as business looks
to save labour costs to
offset the cost of sterling’s
devaluation on import
prices. As inflation spikes,
then households will be
poorer as retail price rises
outstrip earnings; the real
world consequence of
sterling’s fall.
Figure 1: Output
prices Index Summary: The Latest Figures on Inflation
Producer
Price
UK, September 2012 to September 2016
Source: Office for National Statistics
Why else would prices rise?
doubt, will be the central theme of the Chancellor’s
5 . Supplementary
analysis:
output
prices
Other global signals are pointing
to a sharp uptick
Autumn statement,
due
in November.
in inflation; oil has rebounded over 50% since the
Table 2of
shows
annualfall
percentage
change in
price across
product groups
and Figure 2 shows their
beginning of 2016 and the impact
the the
recent
What
does
this allmean
for investors?
contribution to the annual factory gate inflation rate.
in the price of oil will pass out of the calculation
We have been through an unprecedented period of
period for CPI (consumers price index) in the first
loose monetary policy, leading to a ‘lower for longer’
Table 2: Output prices, 12 months change, September 2016, UK
quarter of 2017. There are increasing signs that
interest rates and inflationary cycle. This is now
global inflationary pressures are
starting
to
build
beginning
to look overstretched and increasingly
Product group
Percentage
change
with commodity prices rising, US interest rates
ineffective. Policy makers have now begun to look
Food products
-1.1
towards expansionary fiscal policy to simulate
Tobacco and alcohol (incl. duty)
2.2
economies. The UK government has already
WE HAVE BEEN Clothing,
THROUGH
textile and leather
0.6
signalled this,
and any large scale fiscal expansion
AN UNPRECEDENTED
PERIOD
Paper and printing
would likely0.2
entail higher government spending or
OF LOOSE MONETARY
POLICY,
Petroleum
products (incl. duty)
1.6 would increase demand by directly
tax breaks that
LEADING TO A ‘LOWER
FOR
stimulating
the
Chemical and pharmaceutical
0.8 economy through the development
of
infrastructure
LONGER’ INTEREST
RATES
Metal, machinery and
1.9 resources and / or reducing tax.
equipment
Such
measures
are likely to be inflationary and
AND INFLATIONARY CYCLE.
Computer, electrical and optical could be a0.7boon to inflation-linked bonds, with
THIS IS NOW BEGINNING TO
demand for2.7
inflation-linked securities being driven
Transport equipment
LOOK OVERSTRETCHED
AND
by
expectations
of future inflation.
Other manufactured products
2.6
INCREASINGLY INEFFECTIVE.
Currently, financial markets are pricing in inflation
All manufacturing
1.2
rising up to 3% over the medium term, but if inflation
Office
for National
signalling a December rate riseSource:
and the
tightening
ofStatistics
expectations increase further, and we believe
labour markets all contributing to growing concerns
that they could, then a move to include inflation
regarding potential future inflation.
linked asset classes to a portfolio could well be
The recent Brexit shock, with its predicted spike
beneficial.
in UK inflation, has led to a less austere response
Nick Thomas
from the UK government, which is now openly
Investment Committee Chair
discussing the prospect of direct government
intervention to stimulate the economy. This, no
Sources: Office for National Statistics and Office for Budget Responsibility
“
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Page 4 of 21
15
Wine
MISTS &
MELLOW
Fruitfulness
Selecting a wine to drink is as much about mood as it is about taste, and the biggest
driver of mood is the weather. As we see less and less of the sun and more of those
chilly, misty mornings, we cannot deny that Autumn is well and truly here...
A
s we say goodbye to those
long hot days of summer,
the bright, zingy summer
whites and crisp light reds of the
warmer months can be replaced by the
mellow wines more suited the palate of
Autumn.
Personally, I have banished the crisp
Sauvignon Blancs and Albarhinos
and replaced them with the golden,
mellow, broader and richer styles
typified by Chenin Blanc, Chardonnay
and Viognier. Gone are the chilled
Beaujolais, young Loire Cabernet
Francs and Pinot Noirs and in are
the middleweights of the wine world,
varieties such as Syrah, Tempranillo
and Grenache of Spain and the Rhone
valley, as well as Pinot Noir from the
New World.
1
A terrific place to start is the
2015 Swartland Limited Release Viognier
from South Africa (Majestic £9.99).
Most of you know I am a huge fan of
South African wine and this does not
disappoint, with rich layers of stone
fruit complemented by a spicy zesty
finish, perfect for the Autumn weather.
This would be excellent with spicy
chicken kebabs.
2
My go-to white grape
variety for the time of year has
got to be Chenin Blanc, with favourites
coming from the Loire valley and South
Africa. Try merchant Stone Vine & Sun
(www.stonevine.co.uk) who recently
won the prestigious International
Wine Challenge (IWC) South African
specialist award for 2016. For an
introduction to the style, try Cederberg
Chenin Blanc 2015 (£11.25), with its
pineapple and citrus palate, it’s a great
non-food wine for early evening. For
something weightier, the Fledge & Co
Klipspringer is from old bush vines and
given plenty of ageing on its lees. This
produces a more mature, broader and
richer style imbued with grapefruit and
stone fruits; more expensive but worth
it.
3
Now is the season to remind
ourselves of an old style of wine
that has sadly been maligned over
recent years, and that is oak aged
chardonnay. It used to be the ‘go to’
bottle before the ABC (anything but
chardonnay) brigade arrived. The
greatest white wine on earth is made
from the style: white burgundy from
the Cotes de Beaune, so here goes!
Try the Decanter silver medal winner
Rustenberg Chardonnay from Waitrose,
which at £13.49 offers beautifully
integrated and moreish notes of
apricot and pears, underpinned by
luscious and well-judged oak. For
similar but better value, Majestic have
Edna Valley Chardonnay on a mix any
six deal for £8.99. It’s a bargain and
offers refined stone fruit of peach and
apricot, fermented in French oak and
given nine months to age on its lees. A
terrific wine and reminiscent of an old
style, sorely missed! Try it with pork or
chicken dishes.
4
For the reds, I would start with
a new world pinot noir and for
value, there is no better place to look
than Chile. Try Errazuiriz Coastal Pinot
Noir from Waitrose which at £10.99
offers heaps of deep gamey notes with
enough weight of plums and strawberry
on the palate to bridge the gap before
winter. Whilst you are there, for even
better value why not try the multi
award winning Paul Mas Grenache/Syrah
which at £6.74 gives oodles of warm
Languedoc fruit; great with or without
food.
5
For a step up, try Villa Antinori
from Waitrose, which is on offer
at £10.99. The blend is a mix of
cabernet sauvignon, merlot and syrah,
together with sangiovese, the classic
ingredients of the so called ‘Super
Tuscan’ wines. The heady mix of black
fruits, chocolate and spice together
with Morello cherries makes this wine
a terrific partner for the Sunday roast
and a real show-stopper for the cost.
That’s all for this season - I do hope
you enjoy my recommendations!
Nick Thomas
Managing Director
16
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