This article was written in early November for the December 2018 print edition of Money Observer. Market data and share prices are likely to have since changed.
The Investment Association’s global emerging market bond fund sector – which was split off as a separate category in 2015 for funds investing at least 80 per cent in emerging market bonds – has become a very mixed bag of funds specialising variously in hard currency, local currency and corporate bonds.
The big news this month has been the climb in US 10-year Treasury bond yields to 3.2%, their highest level since July 2011. Bond yields had been rising gently (and their prices falling), reflecting confidence that the US economy was robust enough to weather trade wars and other setbacks. However, the rise has spooked markets, forcing a reassessment of risk-free assets compared with equities.
For most of us, the idea of a secure, regular income in retirement is a highly attractive one. However, buying an annuity, which is the only way to achieve a guaranteed income if you don’t have a final salary scheme, has had a bad press.
The pension freedoms introduced in 2015 have been well received, particularly by people in their 50s looking to take tax-free cash. But it is early days, and both consumer bodies and the financial services industry are concerned that many self-invested personal pensions (Sipps) are being managed by people without much investment expertise, who are making poor decisions that could have dire consequences for them.
US equities defied logic in August by climbing 3 per cent, despite the rise in the federal funds rate. The S&P 500 index has now risen by 230 per cent since 2009 – the longest bull run in history – and has a price/earnings ratio more than 50 per cent higher than its historic average.
Investing in a discretionary trust is often seen as a dodge for the very wealthy, to reduce the inheritance tax due on their estates when they die and protect family businesses where succession planning may be an issue. However, discretionary trusts can also be beneficial for those with ordinary estates.
Far from a quiet summer lull, volatility and risk-aversion intensified over the holiday season. At various times the FTSE 100 index tumbled over 100 points in a day, as markets became nervous about the Turkey crisis and deepening trade wars. US Treasury Secretary Stephen Mnuchin is warning of further sanctions to hamper Turkish competitiveness, unless pastor Andrew Brunson is released from house arrest on espionage charges. It is a row that could easily escalate.
Trade war is the talking point this month, particularly after 51 US trade groups got together to warn US president Donald Trump of the ‘serious negative impacts’ of his tariffs. Some of the US’s most influential trade bodies – many focused on retail, car manufacture and agriculture – want a bill to curb the president’s powers by requiring the US Congress to approve any new tariff s.
The calm of May has given way to a big spike in stock market volatility. June kicked off with a crisis in Italy, further Brexit setbacks and sinister political antics from Donald Trump. Markets on both sides of the Atlantic are swinging sharply day by day, sometimes on the flimsiest of rationales.