Mind the Gap
Earlier this week saw the UK June inflation release from the Office for National Statistics (ONS) showing Consumer Price Inflation (CPI) for the twelve months to the end of June 2017 at 2.6%, down from 2.9% for the 12 months to the end of May 2017. A surprising drop by all accounts but still above the Bank of England’s (BofE) 2% target and possibly likely to continue its fall as sterling’s post Brexit referendum depreciation effect dilutes.
However, even at 2%, any money held in cash is likely to be earning a decent margin below inflation. As BlackRock pointed out after the latest inflation report, UK savers are holding £60 billion in cash for long-term savings which stands to be eroded by £1.5 billion as a result of higher inflation. BlackRock’s Investor Pulse Survey polled 4,000 people in the UK and found savers typically have £8,700 in cash, of which a quarter is set aside for long-term savings and investments.
The problem with inflation is that it has the potential to deflate investors’ savings as referenced above. Maybe investors struggle to find investment solutions they can trust, understand or feel are relevant to them for their long-term savings.
What BlackRock’s Investor Pulse survey demonstrates is the key factor to consider when saving is inflation and to match it or better still, beat it over time.
First or Second?
At the end of June 2017, our industry regulator, the Financial Conduct Authority (FCA) produced its Asset Management Market Study Report. You don’t have to read too much between the lines to see that it essentially accuses the major investment firms of putting profits before the needs and wants of individual investors. To put it another way, shareholders before investors.
Investors and savers are not too pleased when they realise they come second in the queue. For T. Bailey Asset Management as a private company, all investors come first whether they be the founding family, staff or individual investors – large or small.
Many investment firms’ adverts proclaim their rankings versus their peers as testament to their achievements. This is often expressed in terms of quartile rankings where first quartile is best. You might not be surprised to see that the T. Bailey Dynamic Fund is first quartile over the past one, three and five years as shown below.
It’s also good to have third-party experts rate the T. Bailey Dynamic Fund highly.
More relevant though is that the Dynamic Fund has delivered positive returns over those periods and met or exceeded its stated objective of UK inflation plus 3%; what investors and savers bought it for. In other words, meeting clients’ expectations is the first and most important reference.
Investors within all age groups are keen to save. Whether it be for university fees, a house, retirement or perhaps, long-term care, the biggest threat to those savings is inflation not an index.
Many investors look to the investment industry for an answer but are confronted by thousands of products.
However, you will find most investment products sold by most investment houses, not least the larger public companies, are components of a solution and measured against an index that is referenced to identify the size of opportunity in that market. Unfortunately, as the industry regulator has pointed out, the index morphs into a portfolio construction tool which is of little consequence to the investor.
It is fine to have components as long as there is someone with the asset allocation skills to build the solution – we also manage a global equity fund (T. Bailey Growth Fund) to facilitate investors demand for global equities within a solution.
But, it is surprising that the investment industry doesn’t offer more inflation-referenced solutions for individual savers. As the FCA notes in its executive summary of their asset management review published on 28 June 2017, under the sub-heading ‘Clarity of objectives and charges’. ‘We have concerns about how asset managers communicate their objectives to clients, in particular how useful they are for retail investors.’ So do we and are deliberately explicit and transparent in delivering what the FCA quite rightly expects from investment providers in acting in the best interest of investors.
We believe that saving should be a transparent process, accessible, understandable and cost effective for all. The FCA think so too.