Archive | March, 2012

Structured Products – Why Are The Results Not Published?

30 Mar

Structured Product Providers have been called to publish the maturity values of products and make the data more widely accessible. This information of performance and investment returns are NOT published in any accessible way. I have asked time and again, Why is this the case? I believe Structured Products’ maturity values should be published and be available. If it were ETFs, Investment Trusts, Collectives, Interest Rates on Savings Accounts or pretty much any other investment – results are available.

I can only question the performance and the results achieved. I can’t believe if the results were good that these details would not be shouted from the roof-tops by the product provider. I personally have grave doubts, especially when you factor in the use of financial instruments, such as, derivatives; counter-party risks and the varying terms offered by each product provider on an ongoing basis.

Maybe I’m just a bit cynical and these product providers are not hiding poor results but rather just don’t published their returns. Possibly this is to avoid the ability or need for either professional advisors (such as myself) or investors to better compare their past results and so create an opinion of the possible returns in the future. 

Possibly, the view of these product providers is that an adviser, if not a direct and typically employed, sales force, will not sell the product after suffering the initial results, so it’s academic what that product returned – but I am now just speculating. I suspect that the details I require are not readily available because they are market-driven products – they are sold and my approach of professional reviews, assessments, advise and guidance, is not their market place.

The investment return is not the whole story with Structured Products, we must also consider the guarantee (if exists) and/or the level of protection. But, how much are investors paying for that guarantee?

The lack of product clarity means the costs are hidden in the returns, where past performance and results are not readily available. Although, I would say I am not anti structured products if these questions were answered. I am anti products where there is insufficient data to assess if they are effective, well structured and there is a realistic expectation for profit. What I need is much greater openness about what they deliver can, have and could deliver in terms of results.

The IMA released a study in 2011, which found almost all the tracker funds outperformed the structured products. It found the main reason the trackers did better was they reinvested their dividends, whereas the structured products did not.


Is The IMA Study Contentious?

The IMA study did not take into consideration of the risk profiles of the two investments.


There is a Need for Progress

There is a need for better dissemination of data on structured products. The lack visibility on maturity means that the results are almost product provider’s best kept secret. I cannot comment on why this is but uintil this data is available one must question the reasons for this secrecy.

I believe a central repository for values of maturing structured products would help transparency and enhance this investment class.

This could lead this investment product out of the gutter of sales pushed product into advice related planning.

Any questions, email me at

It’s Official The UK Is Back In Recession

29 Mar

We have now had two consecutive quarters of economic contraction – the UK economy is therefore officially back in recession. This is according to The Organisation for Economic Co-operation and Development (OECD) but official figures for GDP in the current quarter will not be available until 25 April.

Chancellor George Osborne, the government and many economists have announced their hope that the UK will avoid a double-dip recession. The OECD’s outlook is gloomier.


The UK Economy

Britain’s recovery has left us in what could be the longest economic slump for possibly 100 years (excluding World Wars). The drop in the markets towards the end of 2011, has meant that this recessionary cycle has lasted three years and nine months since the recession started.

There are a number of more positive surveys, which support the argument of a return to weak growth this quarter. Some more recent indications suggest the UK’s economy will have expanded in the first quarter. The economy has generally been alternating between growth and contraction in successive quarters since the middle of 2010. Bank of England governor Sir Mervyn King this week said the economy will shrink again in the second quarter of 2012 due to the extra bank holiday for the Diamond Jubilee before bouncing back. ‘This zig-zag pattern is likely to continue for another couple of quarters, if not longer.

A positive from the change in consumer behaviour is the increase in savings. This has raised hopes that households will end up being in better financial shape. The Office of National Statistics showed figures detailing the savings ratio of 7.7% in the fourth quarter. This is significantly above approx. 3% as seen before the financial crisis.


VIX – What The Fear Index Is Telling Me

29 Mar

In the last month or two, I have been concerned that index values seemed over stretched across most equity markets in the UK and Internationally. This was coupled with the VIX being at the lowest level we had seen in general terms since June 2007. 

What was interesting was not only were investors being complacent over risk but the media had also followed a similar track. Was risk a past fear? Were we in a low risk low volatility phase where the markets would only enjoy a bullish (optimistic) ever-increasing cycle? Or was risk about to become a concern and the recent equity gains were at risk of being wiped away? – I clearly sit in the second group as I do not believe the economic data, the global and severe woes, financial problems and robustness of investor sentiment could or would sustain.

I believe such a low VIX reading is likely to be troublesome and expect that the next bout of fiscal problems and re-emergence of existing problems will lead the VIX Index and fear to spike, resulting in a drop in equity markets globally. I think a more prudent question is how far will the markets drop?

While not an absolute short-term indicator, lack of publicity of balancing information i.e. both the good and the bad news, I expect will increase the severity when bad news arrives.

I don’t believe the stock rally is over but rather believe volatility will be part of the equation will large market movements both up and down. I think we are currently poised for a drop but how short- or long-term this may be is dependent on sentiment, fundamentals and further economic data.

There are no absolutes in investing, but a low VIX reading has historically been a good equity sell sign. If we consider, April 2011’s VIX lows led to a swift drop of almost 20% across most equity markets (some slightly better and some significantly worse).

The graphs below show two indices – the S&P 500 & the VIX. I think it is clear to see that there is a strong negative relationship. In addition to the VIX’s negative correlation to stocks, the VIX gives a strong indicator to buy/sell signals.


My opinion is we could be at the bottom of the short-term cycle and the market has pulled-back a little recently. I believe there is further to go before markets normalise as the data and fears in the Eurozone, Asia, China, and possibly returns leading to more fear entering the market.

Investing is not a perfect science and so opinions are exactly that so diving from one strategy to another is not wise, sensible or typically profitable. Rather, the strategy should look at type of asset exposure and the expected risk/reward ratio and a suitable portfolio needs to be structured. Yes, over time the portfolio will be biased towards a higher exposure to equities, Gilts & bonds, Property, Commodities and Cash. This will be dependant on market forces, risk profile and investor perspective.

If you want an answer as to when the perfect time to invest this week, ask me next month; and if you want an answer when was the best month to invest this year, ask me next year.

No one has the answer, no one can effectively time the market. The key with investment planning, when one market is over-priced and ripe for a sell-off; another is under-priced and ripe to rocket up. The art is combining assets to minimise the potential to loss making markets with exposure to those with the potential to outperform.

Good Luck with your investment decisions – any questions or further information, email me at

Are Spain’s Financials a Problem ?

28 Mar

European equity markets saw a drop on Wednesday as optimism over a further Federal Reserve monetary injection faded and investors became more fearful over Spain’s finances. This could fuel more profit-taking in european markets.

Spain is set to unveil a budget including savings of circa 20 Billion Euros. This will have to be achieved without raising income tax or value added tax (as agreed by Spanish officials). Without a QE3 in the US, the markets are  expected to be volatile.

The outcome is unclear and the potential drop in markets may be short-lived but will be dependent on sentiment, momentum and further news throughout the Eurozone and broader markets.

Any thoughts, email me at

Market Outlook – 28th March 2012

28 Mar

Okay, its fair to say the market looks rather contrived and there are many indicators to the good and bad, so where now?

Last week saw an overall loss following Friday’s rebound but the mid-week losses were too severe. This pullback may not mean the rally is over, since the markets didn’t drop below any key support levels.  All the dip did was give back some of the gains from the previous week.

So what next? A correction is overdue but that doesn’t mean the market, at least in the short-term, may see further gains. Although the pricing and decline in fear in the market could mean that any significant negative news could be the catalyst for this market correction.


Economic Data

The big news last week mostly came from the property sector and principally about real estate – and the news was good.  This, shows the potential of improvement, rather than any realistic comment on the sustainability of this sector or comment about the buoyancy of the market and definitely not to suggest figures from 2007 are plausible or expected (the top of the market).

Unemployment data continues to improve but there is a long way to go on this before we see a benefit that has significant economic implications. This coupled with worsening figures in areas of the Eurozone and an increase in the number of countries falling back into recession could have serious implications – and this could be bad news.

The continuing tensions in the Middle East are again concerning and until the issue over nuclear development is cleared up, it is not possible to evaluate the situation.

Growth, inflation, hard/soft landings in economic data in emerging markets is unclear and this may lead to better than expected data – I think it’s fair to say we need good news in these areas. Their success is paramount for the global economic recovery – conversely, if this does not happen it would have a dire impact.

On Wednesday we will see released the durable orders number for February – expected to be up 1.0% excluding autos, and up 2.5% including autos. This is followed on Friday with the personal income and personal spending updates – expected to be up 0.4% and 0.6% on last month, respectively.

Consumer confidence measures will also be releasing their results :- 

  • The Conference Board’s consumer confidence reading for March is expected to drop slightly, from 70.8 to 70.0
  • The Michigan Sentiment Index is expected to see a drop for March to 74.3

Both could see further rises before reaching what I would call excessive levels. Although sentiment is a strange beast and so we could see the opposite happen very quickly with significant declines. I am a strong believer that when pressures are significant in a single direction and marginal in the opposite, I take the prudent strategy.


The Markets

Currently, the pullback from last week doesn’t disrupt the overall up-trend the market’s been in since the beginning of the year. Some would argue, we must remain bullish (optimistic) based on the present momentum.  Yet, we also have to acknowledge this rally has now reached historical limits. 

A point to consider – the current rally has already exceeded most time and distance norms. That’s not to say it can’t keep going. It is to say, however, we’re getting into unusual territory where it would be wise to be skeptical. Although, the problem with any bearish (pessimistic) theory is we haven’t seen any real clues or catalysts to drive the market to fear and panic. So far, we’ve seen a couple of blips but the blips have only materialized after exceedingly bullish weeks, so is it just a bit of a pullback as expected. The problem with panic, it happens and is unexpected.

So where next? My view is be prudent and consider the risk return ratio and do not rely on a single strategy. Look to asset correlation and diversify to protect the risk of losses combined with access to potential profit centres.

Any questions contact me –

FSA Fined Coutts & Co for Control Failings

26 Mar

There are clearly fundamental flaws within many banking institutions and Coutts is the latest to suffer a reprimand for their tardy and less than suitable attitude.

The FSA has fined Coutts & Co £8.75 Million for anti-money laundering control failings. These failings included taking reasonable care to maintain effective anti-money laundering systems and controls. The Financial Services Authority (FSA) said the failings at Coutts were ‘serious, systemic’, and led to an ‘unacceptable risk’. Tracey McDermott (acting director of enforcement and financial crime) at the FSA, said: ‘Coutts’ failings were significant, widespread and unacceptable. Its conduct fell well below the standards we expect and the size of the financial penalty demonstrates how seriously we view its failures.’

In October 2010, the FSA started an investigation following a routine visit and found a lack of robust controls and consistent monitoring. A sample of 103 files of politically exposed persons were examined and 71% had deficiencies (i.e. in 73 or the 103 files examined).

Why Do Investors Put Up With Lousy Returns or Worse?

23 Mar

I am an Independent Financial Adviser, specialising in investments, wealth management and tax planning.


I find it so unacceptable where investors have been left to fester in failing funds, either told not to worry and it will be okay, or just left to suffer their losses.So why do we allow this to happen? 

For example, if we look at the IMA Absolute Returns’ Sector. Let’s start by stating absolute return has a different definition depending, manager, mandate or investment house. If we consider that Barings and Threadneedle are among the fund houses with the worst-performing absolute return funds over the past three years, with their offerings in the sector only hitting their target approximately half of the time.
But now for some of those I perceive to be the dogs of the sector…

Octopus Absolute UK Equity
The only equity fund to be in the five worst performing absolute return funds, this is a long/short fund run by David Crawford, who previously worked for Hermes and M&G. He only achieved positive returns 61% of the time, or 22 out of 36 of the 12-month rolling periods.


Threadneedle Absolute Return Bond Fund
Run by Quentin Fitzsimmons since 2005, Matthew Cobon joined as co-manager in February 2012. It invests at least two-thirds of assets in the bond sector. The fund achieved positive returns only 53% of the time, or 19 out of 36 of the 12-month rolling periods.


EFA Absolute Return Portfolio
Nigel Winter and Nigel Brekall manage this fund at Way Fund Managers as a third-party fund for discretionary firm Spixworth Asset Management. It has a mixed asset mandate. The fund achieved positive returns half of the time, or 18 out of 36 of the 12-month rolling periods.


RWC Cautious Absolute Rate & Currency Fund
Another fixed income offering, managed by two former Threadneedle absolute return managers Peter Allwright and Stuart Frost since October 2010. This fund has achieved positive returns 50%, or 18 of the past 36  of the 12-month rolling periods. 


Baring Absolute Return Global Bond Fund
Barings announced at the start of the year this fund will be merged into Andrew Cole’s Multi-Asset Fund. It was previously managed by Colin Harte. This fund has achieved positive returns 44%, or 16 of the past 36  of the 12-month rolling periods.


Why Do We Believe That It Will Get Better?

 I personally believe investors are looking for someone to believe, so we hope that if the fund manager has performed poorly maybe next year they will do better.

 The truth of the matter is if they have made bad decisions on a regular basis, this will continue – so just waiting for better results could well be the worst decision.

 Always remember that perceived poor performance is not a simple subject – asset allocation, asset mix, selling out too soon or buying early may mean that future results would have justified more confidence. The point being look at your results and ask the question.

 I know, personally I appreciate the input from clients and by constantly trying to pick the best and putting any wrong decision right at the earliest opportunity has been, and I believe is, a recipe for success.


Any questions email me at

The Eurozone, Austerity Measures and Economic Growth

23 Mar
OK, so the question now has to be asked – Was the Eurozone Austerity Measures in the face of the Debt Crisis the right move? I don’t believe we can answer this question yet. Yes, I am concerned as we haven’t solved the problem but rather just pushed it on a little while into the future. Could these measures deepen the recession in southern Europe? There are signs that following the initial euphoria the effect is more detrimental than beneficial – my question is still – did we have a choice?
The actions taken have had the effect of putting a safety net around the European financial system and hopefully by deferring the need to deal with the actual problems, may be they will sort themselves – or will they? So what for the economic outlook?
Europe Excluding UK (IMA Sector Profile)          

Source: Trustnet
So what for the European Markets? Investing is different to economic forecasting, the markets typically see a wide divide from the economic data. I believe this is due to the markets, their values and their future values are barometers of investor’s sentiment, future corporate profitability and perspective. This is not in actual terms but rather relative to current opinion.
So if the markets are optimistic and become less optimistic, we could see a fall in value – if markets are pessimistic and become less pessemistic, we could see a growth in value. The market has become significantly optimistic in recent times – so where will the market lead – more optimistic or more pessimistic?
Personally, looking at the indicators, the market is overstretched and indicators point to a correction of at least 5% but will it be a blip or a more serious move, only time will tell. I have taken a more defensive position and this has warded off the recent negative volatility and we are prime to reposition with a higher equity position following this mini-cycle.

Ireland Is Back In Recession – It’s Official

22 Mar
According to the preliminary figures released by the CSO (Central Statistics Office), Ireland has fallen back into recession.
The country’s GDP declined by 0.2% over the fourth quarter of 2011, the fourth consecutive quarterly decline and technically is two consecutive quarterly declines in GDP. The figures are subject to revision but if they remain unaltered it means Ireland joins Belgium, Greece, Italy, the Netherlands, Portugal and Slovenia in recession.
The concern being that this could ignite fears over the Eurozone and the fragile state of global growth, leading to negative sentiment, a decline in markets and global prosperity. Let’s hope for some further good news which could offset the growing negative sentiment.
In relation to investing, consider carefully both exposure to risk assets and defensive assets.
Any questions, email me at

Eurozone Debt Worries Return Over Spain

22 Mar

Eurozone debt worries return with concerns over Spain as its’ bond yields rose sharply, prompting fears that the debt crisis plaguing the Eurozone could return. This could potentially have a detrimental effect on share values and the recent optimism in the markets.

In Portugal, the country is expecting a 24-hour general strike. This is in outcry over the government’s recent austerity measures enforced following the country’s 78 billion euro bailout.

There are growing concerns over China’s slowdown and I fear the economy may be heading for a “hard landing”. This is the fifth consecutive month where we have seen factory activity slow.

If these concerns and fears grow the effect on the more optimistic market could have a significant effect.

Any questions, email me at