close
Get Started Today

Please fill out the form below and a member of our
team will be in touch with you soon.

    UK Equities – where are we at?

    2023 has seen UK equities fall behind again in terms of returns and it continues to be widely publicised that the UK equity market has become a global backwater, with companies and investors lacking vibrancy. However, if you look more closely, there remain important features of durability which should continue to keep capital flowing in.

    In terms of positives for the UK, it looks to be in a good place in terms of property rights and rule of law, the political system allows governments and leaders to operate relatively well, the Treasury has a solid track record of collecting taxes, and there are also time-zone and location benefits.

    Why is it important?

    The long-term health of the UK is key when it comes to investment portfolios. When considering the blend of an investment portfolio for UK-based investors and those likely to have liabilities in sterling, investing in the domestic market can often help to reduce currency risk, cost and tax.

    Many assume that companies listed in the UK are priced in pound sterling and therefore are excluded from currency risk, however this is not necessarily the case. Revenues and cost bases are often global in nature and profitability can be dictated by the performance of the pound. Any weakness could be down to a tailwind for those generating revenues in another currency, and the other way round. This could potentially have a serious impact on those with large cost bases in the UK.

    Measuring and managing the translation effect is virtually impossible given the huge number of factors impacting company accounts, and the fact that accounts are only ever a ‘point-in-time’ snapshot of activity provides an extra complication. At least by having a home bias, it provides a degree of reduced currency risk and diversification.

    When it comes to tax, this is essentially about the treaty status between the UK and the country of domicile, where the dividends or interest payments originate. In relation to withholding tax, this is taken at source and dividends coming from US-listed investments, for example, would be levied at 30% for UK investors. This could be reduced by a series of forms and reclaims but can act as a drag on performance for both active and passive investments. Although relatively small given some markets are not focused on dividends, this barrier to return can give the UK market an advantage for UK investors.

    Summary

    The nooks of the matter are that we continue to believe in a well-diversified portfolio which helps us manage volatility and medium-long term performance. If we exit from certain equity markets, we miss out on the upturns too. This is depicted in the below graph which highlights the value as at 31/12/21 of a £10,000 investment being placed in 1981, in various scenarios.

    Inflation is high and interest rates have been ascending, but this isn’t just a story for the UK, this is happening all around Europe.

    Get in touch

    As always, every individual situation is different, and it is vital to get advice based on your exact circumstances when considering any type of investment.

    If you would like to discuss your investments in more detail, or need some tailored advice specific to your situation, please get in touch by emailing financialplanning@pmm.co.uk or by calling 01254 679131.

    The value of investments can fall as well as rise. You may not get back what you invest.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

    Is the new year a good time to consider your investments?

    With a fresh year underway, it could be the perfect time to review your investments and consider if there are any adjustments you should be making given the current challenging financial market.

    With huge amounts of uncertainty due to various reasons including the cost-of-living crisis, recession and the ongoing crisis in Ukraine, it can be tempting to make changes to your investments or look to withdraw them out of fear. However, as the well-known golden rule of investment states, “time in the market beats timing the market!”.

    What should I do?

    Although often difficult, it is important to ride out a negative market cycle where possible. There may be circumstances where access is unavoidably required, but investors must generally hold their nerve and remain focused on the long-term objectives.

    If an investor finds themselves in a phase of accumulation, ongoing investment contributions benefit from market volatility as, when markets fall, investors can often buy more units for their money. Regular investors can benefit from pound cost averaging to potentially smooth out market volatility. Fewer units are purchased when prices are high, but more units when prices are low.

    Investors who find themselves in a decumulation phase (i.e. those who are accessing their portfolio) must be ready to play the waiting game as it is typically better to ride out market cycles rather than try to time them. Those who exit the markets temporarily could find themselves buying back in after markets recover, which can be risky.

    If you are close to, or have reached your de-cumulation phase, you should hold a contingency fund to ensure any capital requirements can be satisfied from cash, rather than risk selling down part of an investment portfolio at a bad time. It is also important to consider retaining cash to provide the liquidity to fuel ongoing income requirements for a set period, reducing the risk of having to sell down for liquidity purposes during periods of volatility.

    Summary

    Investors should remind themselves why they are investing, have a plan in place and bravely ‘ride out’ a difficult market cycle – holding cash for contingency and shorter-term liquidity can help with this.

    Meanwhile, diversification across assets is also important to ensure you have a portfolio capable of withstanding a negative market cycle. This means including assets which are likely to do well during economic growth, but also some that are likely to do better in difficult times. It is usually a good idea to include a broad mix of equities, bonds and some alternatives. It may also be wise to consider a variety of sectors and themes too.

    Get in touch

    As always, every individual situation is different, and it is vital to get advice based on your exact circumstances when considering any type of investment. PM+M’s Managed Portfolio Service, is a bespoke investment portfolio produced by us, and managed in collaboration with AJ Bell, to make your life easier. At PM+M, we are currently having a rethink of our house asset allocation (blend of investments) and will shortly be implementing these changes for our clients as we plan forwards for them.

    If you would like to discuss your investments in more detail, or need some tailored advice specific to your situation, please get in touch by emailing financialplanning@pmm.co.uk or by calling 01254 679131.

    The value of investments can fall as well as rise. You may not get back what you invest.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

    Investments gone bad? All may not be lost…

    Ordinarily when a loss is realised in relation to a shareholding, this gives rise to a “capital loss” in the year that the loss arises or is claimed. The capital loss can generally be used against gains of the same tax year or carried forward indefinitely to use against future capital gains.

    However, where the loss relates to shares that have been “subscribed for” in a trading company (i.e. brand new shares issued by the company in exchange for payment to the company for those shares – rather than “second hand” shares which have been purchased on the market), it may be possible to set this loss against income – which is often taxed at higher rates – so this relief can be more valuable. Typically, this loss relief can apply to shares acquired under the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS).

    Many income tax loss reliefs are restricted to a maximum of £50k per year or 25% of your income, whichever is higher. However, where the losses relate to EIS/SEIS share subscriptions, this cap does not apply. Therefore, if you have invested in EIS/SEIS products which have not gone so well, you might be due some additional income tax relief to that which you received upfront.

    The relief can be due where the shares have been sold at a loss, where the company has been dissolved, or where the shares continue to be held, but where they have become of “negligible value” – this requires a specific claim to be made to HMRC.

    For example, if you are an additional rate taxpayer and you subscribed £40k into an EIS investment, assuming you received income tax relief at 30% on subscription (£12k), you would have realised a net “economic” loss of £28k that you may then be able to offset against your income. This could result in a further reduction in your tax liability of £12,600 if the shares are now worthless. Therefore, on an investment of £40k, you would have realised an overall net loss after income tax relief upfront and income tax loss relief of £15,400. Your loss would therefore be 38.5% of the original investment.

    The loss relief may be available for the year that the loss arises, or the previous tax year – or both (it’s an all or nothing claim so you can’t choose to offset some against one year and some against the other) therefore care needs to be taken to ensure optimum relief is obtained. Of course, you also need to have the income to make use of the loss, and therefore timing is critical in terms of when the claim for loss relief is made.

    If you have invested via an EIS portfolio, you look at each of the underlying investments in that portfolio to determine whether relief is available – i.e. loss relief may still be available even if the overall portfolio value may not be down. Also – bear in mind that if you have claimed EIS deferral relief on an old capital gain and rolled this into the EIS shares, selling those shares would trigger that old gain to be revived – so that is something else to consider when thinking about this.

    Get in touch

    If you would like further advice or have questions, please don’t hesitate to get in touch using the button below.