The poor old pound is at a 5 week high because the prospect of a no deal Brexit is now unlikely – most economists think no deal would seriously hurt the British economy. So, marginal short-term cheer about the UK in the scores coming from the public financial reality TV show (i.e. the judgemental currency markets).
Let’s not get too carried away though. Sterling has fallen by about 16% since Referendum Day (back in what feels like about 1894, but was in fact June 2016). Put in real terms, this means the price of a €100 meal has risen from circa £70 to £90. Ouch.
The weaker pound has of course not been all bad news. Take one FTSE100 company as an example – Burberry. China and the US are key markets for this group, and a weaker pound inflates their earnings – their last annual report refers to a “£29 million headwind from currency.” So the weaker pound has been largely beneficial for the largely global members of the FTSE100 Club.
Nonetheless, people are obviously rattled and UK share funds have been unpopular. Investors pulled £1.2 billion out of UK share funds in July alone, and private investors have taken more than £13 billion out of UK share funds since the referendum. Asian and global share fund options are picking up the slack and bond funds are popular.
The perceived safety blanket of bonds feels a bit odd to me. Interest rates are so low across the world that many bonds are actually paying negative rates. For example, the German government has recently issued 30 year bonds yielding a whopping 0%. Woo hoo.
People have traditionally sought out bonds for income and safety. But here’s an observation to chuck into the mix: plenty of large companies pay decent dividends. The unloved Marks & Spencer, set to be cruelly thrown from the battlements of the FTSE100 as tastes change and retail is massacred, pays a dividend of 7%. Now I’m not suggesting you all pile in – the share price has fallen by over 50% in 5 years. But the point I make, is that the traditional assumptions about bonds being ‘safe’ income producing assets are – I think – up for challenge, and we need to think carefully about old-fashioned received wisdoms.
Veering off on a pension-y tangent, tomorrow I’m talking at the FT Weekend Festival in London. Lucky punters will get to hear moi – amongst others – say my piece on how to set up and pick a ‘drawdown’ pension. In other words, a pension account in which you choose how to invest, and progressively sell down and withdraw chunks of money from it, once retired or old enough.
It would help me massively for any of you who have been through what is frankly the rather torturous process of choosing a provider, or setting up a drawdown pension, to tell me who you chose and why? What were you looking for? And if you could give any pearls of wisdom to those in their early 50s+ who are about to try this... what would your tips be? Will also distil into an article and share more broadly next week.
If you can email me any views or experiences before tomorrow morning I’d be very grateful – any experiences shared will be hugely useful and, as always, anonymised.
And so I leave you with the prospect of General Election looming. Which is much like going to a barbeque, all geared up for a nice hot dog, and bring offered liver or tripe. Bleeeurgh. Non merci. What’s option three please?
Have a lovely weekend!
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