By GRAHAM FROST 21/12/2006
After several remarkably successful years for investors, 2006 has proved something of a turning point. Although returns over the year have been reasonable across most asset classes, the going is certainly getting tougher. Stockmarkets took a big dip over the summer and although the Indices have since climbed back, the recovery has mostly been driven by defensive stocks rather than the more exciting stocks favoured by many ‘star’ fund managers. The UK commercial property sector finally appears to be running out of steam, a victim of its own success, and rising inflation and interest rates have subdued fixed interest investments such as corporate bonds.
| "On the bright side, equities still look reasonable value versus other asset classes..." |
On the bright side, equities still look reasonable value versus other asset classes and companies are generally in healthy shape, so while 2007 is not shaping up to be a vintage year, it’s unlikely to be all that bad.
Looking back, 2006 has been something of a whirlwind year in the financial world. Venture Capital Trust (VCT) sales for the 2005/06 tax year hit around £750 million, the most popular year yet, before Gordon Brown’s Budget changes (reduced tax perks, more risk and longer holding period) all but killed their appeal for new investors. We also experienced what will probably be the biggest upheaval to pensions in our lifetime, Pensions Simplification, generally a good thing. However, Mr Brown’s subsequent tinkering has ensured things are not so simple after all. After his U-turn on allowing residential property to be held in pensions, he has recently removed the attraction of Alternatively Secured Pensions (i.e. not having to buy an annuity by age 75) and created confusion over whether pension term assurance will continue to benefit from tax relief. To cap off Brown’s year of calamity capers, he has announced a number of changes to Individual Savings Accounts (ISAs) which will leave them looking suspiciously similar to Personal Equity Plans (PEPs), the very plans he was so eager to change on taking his post as Chancellor of the Exchequer.
| "In recognition of Mr Brown’s achievements we recently awarded him the accolade of ‘Dog of the Year’..." |
In recognition of Mr Brown’s achievements we recently awarded him the accolade of ‘Dog of the Year’, an award usually reserved for dire investment funds, at our annual awards ceremony.
2006 also saw the Government announce its plans to solve the pension crisis, which, while a credible attempt, are unlikely to significantly improve matters.
Elsewhere, the Gold price broke the $700 barrier on 10 May, its highest level for 25 years, shortly followed by £45 billion being wiped off UK shares as the FTSE suffered its biggest fall for almost four years on 17 May. Alarm bells started ringing at the end of June when it was announced that UK personal debt hit £1.22 trillion, a 10% increase on the previous year. Fears of soaring bad debts were confirmed when Barclays announced that its bad debts over the first half of the year had jumped by 50% to over £1 billion.
Standard Life’s flotation dominated the financial headlines in early July, with the company issuing shares at 230p. Those who held onto their windfall shares have reason for some festive cheer, as they’re now trading around the £3 mark, although Standard Life’s medium term prospects are still far from certain. Fund management giant Fidelity also hit the headlines as veteran manager Anthony Bolton entered the first phase of his retirement plan, by splitting his legendary Special Situations fund in two and handing over half to relative newcomer Jorma Korhonen. Korhonen is running his half on a global basis while Bolton has retained his UK fund with a view to passing this over to an as yet unnamed manager next year.
Finally, it’s not been a great year if you have a mortgage (unless fixed rate), as the Bank of England has raised the Base Rate twice, taking it from 4.5% at the beginning of the year to its current 5%. On the flipside, this has been good news for savers and there are currently some especially attractive rates on offer.
Wishing you an enjoyable Christmas and let’s hope for a prosperous New Year!