Fund Managers Optimism

Fund managers' optimism about the global economy is at its highest level in nearly six years, according to the Merrill Lynch Survey of Fund Managers for August. Now I know you would expect them to be optimistic but this time I think they might actually believe it.

Seventy-five per cent of respondents said they believed the world economy would become stronger over the next 12 months, up from the 63 per cent recorded in July and the highest figure since November 2003. Further, 70 per cent of respondents expected global corporate profits to increase in the coming year, up from 51 per cent last month.

The survey showed managers were also putting their cash back into equities. Equity allocations have risen sharply, with 34 per cent of respondents now overweight in the asset class compared with 7 per cent in July.

Michael Hartnett, chief global equities strategist at Banc of America Securities-Merrill Lynch Research, said: "Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March. But with four out of five investors predicting below-trend growth for the year ahead, a nagging lack of conviction about the durability of the recovery remains. "We have yet to see investors fully embrace cyclical regions such as Japan or Europe, or Western bank stocks."

Within Europe, 66 per cent of respondents expected the European economy to improve in the next 12 months compared with 34 per cent in July. Investors in Europe took overweight positions in basic resources and radically reduced their overweight in pharmaceuticals. The survey also found that European managers had increased their cash positions, while their overall sector conviction esd near record lows.

Separately, global equity fund managers are waiting for fundamentals to catch up with the recent market rises before making any substantial policy changes, according to the latest annual review of global equity funds from Standard & Poor's Fund Services. The firm said the market upheaval led to a general move toward developed markets, defensive sectors and larger companies.

Flash Floods Insurance Risk

Householders face higher building insurance premiums after a sharp increase in property damage blamed on climate change. A rise in insurance claims has been caused by flash floods and storms in areas of Britain previously immune to severe weather events.

The AA, which produces an insurance premium index monitoring costs, reports a 15% rise in claims in the first six months of 2009 over the same period in 2008 "in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims."

It cited one village, Carbrooke in Norfolk, where homes were damaged by giant hailstones during an ice storm in late spring. The storm also caused the roof of a supermarket to partially collapse, and when the hailstones melted, a local school was flooded. "It happened in an area with no previous record of severe weather events," said the AA.

Insurers are now demanding higher premiums to meet the cost of such freak weather, linked to climate change. The AA found that, in the 12 months to June 2009, the average quote for buildings insurance had risen by 10% — though customers who shopped around were able to limit the increase to 5%.

Insurers are beginning to reflect concerns about climate change in their premiums. The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.
Meanwhile, tighter building regulations mean repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim — particularly for older properties — has been rising steadily.

At the same time households are benefiting from a fall in the cost of home contents insurance to a 15-year low. The AA said that despite reports of a recession-related rise in the number of burglaries, there is little evidence of this from the industry.

One reason is that insurers are making more specific calculations of premiums based on local crime rates. So although the average cost of home contents cover is falling, the figure masks a growing disparity between high and low crime areas.

Fraudulent claims are also contributing to a steep rise in car insurance costs, which are growing at their fastest rate for nearly a decade, said the AA. Drivers are typically being charged £526.42 for fully comprehensive cover, up 10% over the past year — the fastest increase since 2000.
The industry continues to suffer underwriting losses, which are predicted to be in excess of £240m this year," said Douglas. "Although the number of accidents on Britain's roads is thankfully falling, the cost of claims continues to rise — particularly personal injury claims and legal expenses. During the current downturn, fraudulent claims are also putting pressure on premiums, leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6m.

The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy.

Worst hit are drivers under the age of 21. The average premium for third party, fire and theft cover, typically bought by young drivers, rose 4.6% in the second quarter of 2009 over the first to £968.22.

With rising insurance costs contact us today for an independent quote backed up with a full locally based service.

Pensions: Worrying signs

Some 16% of workers paying into a pension have reduced or completely halted contributions to their scheme in the last five years, Prudential research reveals.

The study said the decision to stop contributions could lead to an increase in future pensioner poverty.

The research showed the number of people planning to rely mainly on the state pension to fund their retirement is set to rise over the next 10 years to 27% - compared with 22% of those retiring this year.

Prudential director of defined contribution solutions Martyn Bogira said: "It's worrying that many people who have been working for years and saving for retirement seem to have given up hope and stopped paying into their pension. This is the last thing they should be doing. "It's also really worrying that many people either planning to retire imminently or within the next decade still believe the state will support them when we know that, for many people, this just won't be the case."

The research also found 42% who said they planned to retire this year will have the majority of their pension savings in a final salary scheme, while the figure falls to 35% for those due to retire over the next 10 years.

In addition, Prudential said a worker who puts off paying into a pension until they are 35 could end up with a pension pot at age 65 worth nearly £40,000 less than if they had started paying in when they were 30.

It added delaying 10 years could double the amount needed to save, which means these people may have to save more later in their working lives, if affordable, or get much less to live on when they retire

Investors return to equity funds

Retail investors are starting to pile back into equity funds at the end of a record quarter for sales, according to the latest IMA monthly figures.

The retail sales total for June of £2.5bn is almost equally split between bonds and equity funds with £990m going into equity funds and £897m into bond funds.

However, Corporate Bonds is still the most popular UK domiciled net retail sector with an inflow of £533.3m. It is the eight consecutive month that corporate bonds have topped the chart. Investors continue to pull out of money market funds with the sector recording the highest net outflow in June of £13.4m.

IMA chief executive Richard Saunders, comments: "Investors have been coming back to the market in recent months and June saw a continuation of this trend. "Retail investors have begun over the last two months to put money into equity funds, particularly international equities, as well as bond funds. As a result net retail sales in the second quarter were the highest on record and net ISA sales the highest for six years."

However, on a monthly basis ISAs' popularity fell with a net inflow of £246.9m, down from the previous month's total of £310.7m. The most popular ISA sector was Cautious Managed, which accounted for 22% of gross ISA sales.

Funds under management also dropped slightly in June to £389.3bn from May’s total of £391.6bn. Demand for overseas funds rose over the month with net retail sales reaching £44.2m compared to outflows of £183.2m during the same month last year.

Are the UK Banks Safe Again ?

With the UK domestic banks shares up between two and five-fold from their spring lows, how safe is it investing in the sector again?

That is a question we have been regularly asked as investors start to stock pick as risk appetitite returns.

Here is a helpful article prepared by Richard Buxton, Head of Equities at Schroders: -

http://talkingpoint.brighttalk.com/files/banks%20quickview.pdf

Product of The Week

With interest rates so incredibly low and markets starting to show the first signs of settling down a cautious confidence has started returning to investor’s thoughts.

Over the past months we have received numerous requests from investors seeking an investment offering high returns with low risk and a short investment term. So far it has proven very difficult to find such a product but through perseverance I am pleased to say we believe we have tracked down a very credible solution worthy of consideration.

What is the AVIVA Defined Returns Fund?

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The Aviva Investors Defined Returns Fund 1 has a maximum 3 year term with the potential to mature early on its first or second anniversaries, subject to certain conditions.

The return is dependent on the FTSE 100TM Index being equal to or higher than it was on 7 August 2009 at either one of the anniversaries, or at maturity.

• If at the first anniversary the FTSE 100TM Index is higher than it was on 7 August 2009, the Fund aims to return your initial investment plus 8% and the Fund will mature early.
  


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More Green Shoots.......

Upbeat manufacturing data has helped push UK equities higher again as commentators increasingly suggest the economy may be growing by the autumn and even the long-term bears are running out of reasons to be miserable.

Coming in at 45.4 in May, the seasonally adjusted CIPS/Markit Purchasing Managers’ Index remained below the no-change mark of 50.0 for the thirteenth successive month. But it also posted it third consecutively monthly rise - from an upwardly revised figure of 43.1 in April - and is now at its highest level for 12 months.

'At this rate we would hit the no-change 50.0 PMI benchmark by autumn – significantly earlier than economists initially predicted,' said Roy Ayliffe, director at the Chartered Institute of Purchasing & Supply. Production and new orders continued to decline in May, but at the slowest rates for twelve and fourteen months respectively and the orders-to-inventory ratio rose to a thirty-two month high - which is why Ayliffe and others are suggesting their could be economic growth within three months.

The news comes on the back of an upbeat report from the Engineering Employers Federation.
James Knightly, economist at ING, a long time bear on the UK economy, says even he might have to review his forecasts. 'Despite our worries concerning the impact of the bursting of the house price bubble and the implosion of the banks on a household sector that is the most indebted in the world, it appears that the slashing of interest rates and support from quantitative easing is generating a tangible improvement in the economy,' he says. He still sees a number of reasons to be cautious and thinks the leap in PMI may in part be down to re-stocking that could soon run out of steam. Nonetheless, he thinks today's data is another strong argument to start being less pessimistic about the UK.

Howard Archer, UK economist at IHG Global Insight agrees today's data is clearly good news and boosts hopes that the economy could start growing before the end of the year. Earlier, better than expected Chinese PMI data helped lift the mood on global markets. All eyes are now on the US ISM figures.

If - as expected - they come in with a positive number, an increasing number of market watchers might be arguing the recession is over in the US and that will boost hopes we'll be back in growth mode by the end of the summer.

Source: Citywire

Held To Ransom: Borrowers Beware

It’s a clear case of buyer beware as four out of ten people 42 per cent will come off a fixed rate mortgage this year and risk falling prey to inflated Standard Variable Rates SVR being offered by the majority of mortgage lenders. The exclusive research and analysis carried out by leading comparison site, Moneyextra.com shows that the current average SVR is a staggering 4.19 per cent above base rate, compared to only 1.9 per cent in Q2 2008, representing a colossal 120 per cent rise in income.

However the majority of people surveyed are oblivious to the meaning of SVR and its impact on their finances, with a whopping 85 per cent ignorant to the actual definition of the term. Amusingly, one cited the meaning of SVR as ‘Saving for Retirement’.

Once explained, over a third of people 32 per cent whose fixed mortgages are ending soon, are unaware that the current average SVR is more than 8 times higher than the base rate 0.5 per cent. The research indicates that customers possess a misguided sense of loyalty towards their lender and trust them to adjust SVR’s inline with the base rate; however in reality banks have intentionally held their SVR’s proportionally high.

On average, people think their lenders SVR is 1.77 per cent which is in stark contrast to reality. Only 5 per cent of people surveyed had any idea that the average SVR is currently between 4 and 4.5 per cent. Compared to this time last year, the average SVR was 6.9 per cent or 1.9 per cent above the base rate.

Six out of ten 64 per cent mortgage holders are concerned what will happen to them and their finances once their fixed deal comes to an end. A third 33.5 per cent has suffered a recent drop in income or is unemployed and are consequently worried about being saddled with their lenders high SVR. One in ten believe their poor credit rating will put them at risk of securing a new mortgage deal, another 17 per cent cite high personal debt on credit cards and loans as creating an additional pressure, and ten per cent are struggling with negative equity.

Typically, SVR’s from prime lenders are never normally higher than 1 or 2 percentage points above bank base rate, however some SVR’s are currently as high as 5.99 per cent. In the last twelve months, lenders have increased the differentiation between the base rate and their SVR’s by an average 120 per cent. Such a high-margin is unheard of and it’s scandalous that lenders are allowed to continue fleecing their customers.

It’s not unreasonable for mortgage holders to expect that if the base rate drops, so too will their lender’s rates decrease – however current SVR’s are entirely out of proportion and we implore the banks to bring down their extortionate lending rates to a level that is fair and just to the consumer.

Top tips to unsuspecting homeowners:

Make sure you are aware what your mortgage rate is and when it ends so that you can move onto another discounted rate as soon as possible.

Clean up your credit record – currently there are only 27 mortgage deals available to buyers who have less than 10% deposit; however you’ll need a good credit history to take advantage of one of them.

If you are struggling to get credit why not consider getting a guarantor or sharing with siblings or friends. Pooling your money will enable you to get a better mortgage deal.
Always shop around – if you have a reasonably sized deposit, lenders are typically more flexible and can offer great incentives.

There are still some good deals to be had, Alliance and Leicester, for example, are offering a fixed rate mortgage at 3.49 per cent for a 25 per cent deposit.

Some good news (maybe)

For those of us looking for some good news out of all the gloom and doom around in the news these days I would refer you to the graph which shows what has been going on in the FTSE-100 and the FTSE-250 indices over the past month.

Maybe, just maybe all the recent speculation that the markets have bottomed out might have some justification. Then again it might be too early to make any formal predicition but what is the harm in getting some good news now and again.

We will continue to monitor the situation and keep you informed as the picture becomes that bit clearer.

Bolton calls the start of the bull market

Source: Citywire 30/04/09

In his latest prognosis on the market Anthony Bolton believes the equity bull market has begun.

Speaking in an interview on Bloomberg television, Bolton said: 'Things are in place for the bear market to have ended. When there’s a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I’d like to bet against that.' See interview here

Bolton highlighted financials, technology, consumer cyclicals and value plays such as retailers, automakers and construction-related shares as some his most favoured areas of the market.
His views come after HSBC Private Bank turned positive on equities on a 12 month view.
With concerns over the lack of liquidity and bubbles developing the corporate bond market and gilts sliding on the UK's spiralling debt position, is it time to make a fundamental shift back towards equities?