The next Morningstar Adviser Forum will be taking place on 2 March, 2011 in Bournemouth at the Best Western Connaught Hotel. The half-day agenda will include a presentation covering online communications to benefit your business. For full event details or to register please click here.
I was always led to believe that the word ‘the’ was the most commonly used in the English language. In fact I used it 4 times in the previous sentence. Well having spent the last 2 weeks on the road with fund managers whose raison d’etre is the deliverance of “alpha”, or in English delivering returns to investors ahead of the market, the words “emerging”, “markets” and “China” have become worthy adversaries for the word ‘the’. Indeed each of these was mentioned scores of times, by my reckoning once a minute over the course of 125 minutes, by Messrs McLeod-Clarke, Bulkai, McDowell & Turnbull, Forsyth and Meany of BlackRock, Thames River Capital, Neptune, Martin Currie and First State Investments respectively. What was more instructive was that they manage a variety of funds covering UK (equity) Income, Global Emerging Markets Absolute Return (who would have thought it?), Global Equites (and China), US Equities and Global Listed Infrastructure.
Emerging Markets, and let’s use the phrase to include China, are readily accepted to be one of the drivers of growth in today’s global economy, certainly the fastest growing compared to the stodgy growth supposedly on offer from developed markets. They also appear to be well established in the psyche of both fund managers, witness the reference to them above, and investors. Amazingly, UK retail investors managed to shoot the IMA Global Emerging Markets sector to the top of the sales table for October and November. That is some rebound from the previous dominance of Cautious Managed, Absolute Return and various bond sectors since the financial crisis.
What was clear from the fund managers was that they are all pursuing the emerging markets growth story either by investing directly in those markets, in the case of Neptune and Thames River Capital, or via companies that are doing business there. Neptune cited Tencent as an example, a Chinese business which operates the dominant online messaging programme and which is used by 70% of China’s internet users every day (they already represent 20% of the world’s internet users and it is forecasted that there will be 770m Chinese online by 2015). Kristof Bulkai believes that emerging markets are no longer undiscovered and that as valuations have converged, it is appropriate to devote a whole absolute return strategy to them. David Forsyth invests in Crown Holdings, a US-based canner that has grown its emerging markets business to 26% of its whole; Nick McLeod-Clarke has several investments in the growth part of his fund seeking to benefit from emerging markets, for example Burberry, the supposedly quintessential English brand that derives in excess of 85% of its revenue from outside of the UK (the Japanese, Chinese and Russians love it!).
So is this gravy train a one way ticket to financial nirvana? Listening to the persuasive rationales proffered by the professionals, there certainly appears much to gain. The main risks discussed at the questions and answers sessions were those of policy errors and political risk. The latter is the main reason why Mr Meany only invests in infrastructure assets in developed markets. He believes returns of over 10% per annum over the next five years are achievable. Without taking the risk in emerging markets. Caveat emptor!
By Richard Romer-Lee
Join Peter Toogood, Investment Services Director for OBSR, for a look back on what worked for investors in 2010 and whether the current trends will continue in 2011. He questions whether the relentless bullishness of the majority of commentators on the prospects of 2011 is justified.
To register for this webcast, click here.
Mark Loosmore, e-commerce and technology consultant, discusses technology solutions for IFAs with Dennis Hall, Managing director at Yellowtail Financial Planning and Anastasia Georgiou, Product Manager for Adviser Workstation at Morningstar. To view the full interview click on the thumbnail.
In the past 6 months or so I’ve had several conversations with advisers in search of more research and analysis on income producing investments. Dividend rates, dividend consistency, annual yield, projected yield, the list goes on. More and more people are looking for income producing investments and ways of showing the effects of income on a portfolio. These needs have sparked a discussion at Morningstar about how we can help advisers find the best income producing investments and determine the effects of that income on a client’s financial situation. We currently collect distribution payment data for open end funds, investment trusts, ETFs and of course equities. This data is usually not very hard to come by. But there seems to be a need to interpret this data as income that a client has received or might receive should they invest in those investments or in a particular portfolio of investments.
Will the income be enough to cover living costs once a client retires? How reliable is the income stream from an investment? How has the income taken from a portfolio affected the performance of a portfolio of investments over time?
There is also a rapidly growing need for advisers to be able to find the best income producing investments for clients who are approaching retirement or who are already in their golden years. Income consistency, yield rate and underlying stock picks are all important factors when searching for income producers. We see a need for better data and better tools to help advisers identify good quality funds that can be the engines of production at the core of a retirement portfolio.
This discussion is still in it’s early days so if you have any requests or suggestions on what Morningstar can do to improve income analysis please let us know in the comments below.
In the end, 2010 was a positive year for investors as most fixed income and equity indices ended the year in positive territory. Our expectation of a positive but volatile year for equities proved well founded as the asset class ultimately delivered healthy returns as the global economic recovery stayed on track, led by emerging market growth.
It was not all plain sailing, however, as markets were buffeted by periods of weakness triggered by concerns about high government debt levels, particularly in Europe, and by fragile global investor sentiment as we continue to recover psychologically as well as economically from the blight of 2008. Moreover, government bonds were much stronger than many investors anticipated, delivering an attractive positive return as central banks’ exit strategies from accommodative monetary policies were deferred into 2011 or even 2012.
Our attention now turns to 2011. Many commentators are relentlessly positive on the outlook for riskier assets such as equities and commodities. We are perhaps more considered as the level of uncertainty created by overhanging issues such as European sovereign debt levels and rising emerging market inflation (probably more a 2012 problem in reality) is much higher than at comparable stages of past economic cycles. At the very least, they should engender ongoing volatility. But despite the sharp price movements in the final months of 2010, with strength from equities and notable weakness from government bonds likely to reduce the return differential between the two over 2011, starting valuations still suggest that equities should be the asset class of choice over the year as long as investors can stomach savage short-term price swings.
This view is supported by demanding valuations for other mainstream asset classes. There is currently a record gap between economic indicators and government bond yields in the US. Whilst core inflation looks likely remain subdued and the Federal Reserve’s quantitative easing should set a cap on yields, it is difficult to see much progress from the asset class in 2011 and there remains the risk of a significant sell-off if investors start to speculate on interest rate hikes in late 2011 or 2012. With the US economy apparently picking up in the short term, such speculation could pick up over the course of the first half of the year.
Corporate bonds and property remain very hot, bifurcated asset classes which appear to offer little value and should be held for income and the potential for some capital gains in higher-risk areas. On the other hand, the reacceleration of global growth and likely positive earnings revisions are very supportive for equities. Margins should remain high given the lack of wage pressures and M&A should also be helpful. It is quite conceivable that equities and other riskier assets endure a difficult patch early in the year as the markets again test the Eurozone governments’ ability to pay their debts, with Spain and Portugal likely to be in the firing line and force further supportive action from the ECB. The medium-term prospects for equities nevertheless appear strong, at least until interest rate hikes start in earnest in the developed world.
-Peter Toogood, OBSR
For many investors, the road to retirement is longer and more fraught with obstacles than ever before. Are your clients saving enough? Are there expectations realistic?
Almost every day I find myself ‘banging on’ about the impact that improved longevity has had (or should have had) on how we go about saving and investing for retirement. Given that relatively few start
actively investing for this stage of their lives much before the age of 30 (I suspect that most who join their first employer’s company pension schemes do so passively, i.e. take years to switch out of the default fund), many of us face the prospect of spending just as long in retirement as we did saving for it. It’s this stark reality that has leant itself to the creation of aggressive portfolios for retirees, with high stakes in equities and aided by the boom of ETF choices, among others. But the retirement phase of your investing career is so fraught with complexities that it seems paramount that investors seek professional advice—long before they reach this life stage.
Among some of these afore-mentioned complexities is the erosion of purchasing power over time, difficult-to-forecast healthcare costs, the nuances of inheritance tax, and so on. And among the pitfalls we have overzealous withdrawal rates, unrealistic returns expectations, unrealistic expectations of income needs in retirement, and inefficient sequence of withdrawals from retirement accounts.
I have no doubt that I’m preaching to the converted here so I’d be interested to hear your own thoughts on what constitute some of the main barriers to effective retiree investment plans, as well as what you see as the most lethal—or least recognised—pitfalls.
In a weeks time, we will be on the road again with the Alpha Generators roadshow. Richard and I will be at most of them and some Morningstar colleagues will be with us at a few of the venues. Peter Toogood and Nigel Whittingham will also be bring their distinctive styles to chairing London and Harrogate.
Interested to see how the questioning from the floor goes this year. When we did this in Jan / Feb 2010 we were still in the shadow of the bear market and there was plenty of double dip talk in the media. The managers did a pretty good job of predicting positive returns from markets with a general global business theme coming through.
I’d imagine this year there will be more on managers investing in quality companies generating income from around the world and I would also have thought there will be a general theme of where intermediaries see active management in their overall investment proposition.
To register or find out more please follow the link: http://www.alphagenerators.co.uk/
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Phil
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Phil Lindsay
Sales & Marketing Director
OBSR, a Morningstar company
The next Morningstar adviser forum will take place in Chelmsford, Essex on February 9th, 2011 at the County Hotel, CM1 2PZ.
Our adviser forums have become a great opportunity to gain a better understanding of the Adviser Workstation system and to gain investment insights from Morningstar’s and OBSR’s independent analysts. New to the Chelmsford forum will be a 1 hour gap filling session covering the “Impact of Risk on Investment Performance” presented by Morningstar ETF analyst Hortense Bioy.
If you are not familiar with the gap-fill process and how it can replace the need to take some exams, click here for more explanation.
In addition to focusing on ways Morningstar can add value to an advice business, streamline processes and mitigate regulatory risk, attendees will also receive 5 CPD points. For further information please visit our events page, or to register please click here.
It’s been nearly a month since my last post and I’m just about settled into 2011, ready for another year of evolution. I think new year’s resolutions are a joke but if I had to have one it would be for our Friday afternoon 5-a-side team to break the .500 barrier this year! Not setting my sights very high I know but you haven’t seen us play…
I spoke with many of you in 2010 and I hope to get the chance to meet even more advisers this year at conferences, user forums and training meetings. We had our first user forum yesterday at our London offices so here’s a few thoughts on yesterday’s event and the year ahead of us.
- Yesterday’s user forum kicked off with a discussion of active vs. passive management philosophies. Peter Toogood, Director of Investment Services for OBSR, and Ben Johnson, Director of European ETF Research for Morningstar discussed the merits of both approaches and the fact the there is a place for both. Look for the presentations at Morningstar user forums this year to continue to provide expert analysis on investments and ways to improve your business.
- Income has become a hot topic and the need to find income producing investment products for clients is increasing. We are going to be looking at ways to address these needs and help advisers provide more research and analysis for income seeking investors.
- I conducted a small group training session at the user yesterday. Most of those in attendance were already Adviser Workstation users, a few were not. We covered the basic functionality – finding investment products, building searches, setting up models, producing client reports and some light asset allocation planning. Every single person in the room came away with more knowledge of how the system works but also of they can use it more effectively in their businesses. If you use Adviser Workstation and you want to get more from it, call me! 0203 107 0017.
- Integration with wraps and platforms was a huge priority for Morningstar in 2010 and 2011 will see this continued. The fact remains that software needs to be easy to use and it needs to work together with other technology solutions. Look for further integration this year to make it easier for you to provide top quality advice to clients.
If you have any feedback or questions concerning the above please comment below.