November 2016 - Newsletter
US Presidential Election – Initial Reaction
…Several themes arose from the election that are notable:
There was a low turnout from millennials that was consistent with the Brexit vote and this was a negative for Clinton. A lack of engagement with some of her key voting demographics had been an initial criticism of her campaign. Women, Hispanic and African American voters voted in greater numbers for the Republican Party than expected, at the expense of the Democrats. This was most notable with degree educated women, the Cuban immigrant population and African American voters in key states such as Florida. Trump was supported decisively by the non-college educated, white voters and by traditional working class voters. Trump was also supported strongly by those on higher incomes and middle class voters, who were squeezed under the Democrats over the last 8 years The Republican vote benefited from undecided voters, with an increase in “voters on the day”
As with Brexit we saw a surprise election outcome being announced in thin trading volume and expect this to extend through the European trading session into the US market open. The election didn’t particularly focus on economic policies, so in the shorter term we need to be able to absorb market volatility as we look out for opportunities and aim to control risk that will arise in the coming months. In his first speech, Trump talked about infrastructure spending, building trains, roads, schools and hospitals and an America for Americans to be proud of.
It is our view that we are entering a new era for global politics and that we are seeing a loss of confidence in traditional political parties. Along with Brexit, this represents a move towards more populist policies and wealth redistribution rather than wealth creation from globalisation. We are likely to see an increase in fiscal spending rather over central bank monetary policy that has dominated the recent past. Trump has talked about reducing corporate taxes and may introduce trade tariffs so we will see some market volatility and favour an active over passive approach due to expected increased currency and interest rate volatility. We see these policies as potentially positive for the US economy, but less favourable for other markets.
Our approach is to focus on downside risk management. We have been aware of the political risk that could result in market volatility, which may have been ignored by the general market and investors, and our positioning reflects our concerns. Our longer term approach means we have looked to avoid exposure to politically sensitive markets and have reduced exposure to Emerging Markets, Credit markets and directional interest rate exposure. We will be watching markets in the coming days to look for opportunities and to continue to identify risks when we have greater clarity of how this result will affect markets going forward.
Independent Strategic Research
Pensioners could lose one third of their pension pot
The findings come just days after the Government controversially scrapped plans to permit pensioners to sell their annuities for a cash lump sum.
The Which? Study found that out of 17,000 pension funds, over 1,000 have annual charges of 2% or more, while approximately 2,300 charge between 1.5% & 1.99%.
These figures obviously leave consumers in the dark about the best way to plan for their retirement. People could potentially end up with far less than if they put their capital into regular retail funds.
For example, one of Axa Wealth’s pension versions of the Invesco Perpetual High Income costs 1.8% per year, whereas the retail version costs 0.92%.
Investors potentially face a staggering 300 different charges being taken from their pension pots, the research found. These include sales fees, fund supermarket fees, set-up costs, contribution fees, fund manager expenses, transaction costs, withdrawal charges and many more. Some are clearly visible, but others are not as obvious to assess.
“A two percent charge may not seem like much, but the true significance of even the smallest fees over time can make a startling difference to the size of your retirement pot”, said Harry Rose, Which? Money editor. “Some of the charges cannot be avoided, but there may be cheaper versions of the same fund available or a different investment strategy that suits your needs. “
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