Bulletin – January/February 2017
Happy New Year!
Health and well-being
We are embracing our New Year resolutions in a bid to work on our health and fitness and give something back to the community.
As you all know, Patrick is something of a guru on all things clean living and on how exercise and diet can enhance your lifestyle and health and so a KMG team has been created to tackle an Endurance Hike across the South Downs Way.
We do like to embrace a challenge and with a start time of midnight on 15th July 2017, we will be navigating our way from Devil’s Dyke to Lewes Castle in the dark. This is all in aid of raising money for Action Medical Research for Children, an inspirational charity that has been around since 1952 founded by Duncan Guthrie in a quest to find a cure for polio. Action Medical Research has spent some £115m funding amazing breakthroughs such as developing the use of ultrasound technology in pregnancy and testing the Rubella vaccine.
Surprisingly medical research to help children is poorly funded in the UK. Action Medical Research has a critical job to do in helping fill this gap to protect children. If you would like to find out more about this please do visit the KMG Foundation site at http://kmgfoundation.co.uk for more information.
New Year overhaul
The New Year is always a good time to have a life overhaul and not just focus on the usual hit list. Society reminds us in January to cut down on unwise dietary choices and increase those visits to the gym, but January is also a good opportunity to review your financial choices to ensure that you are best placed for year ahead. Taking some time to reflect on the past 12 months and seeing how your investments have worked for you can pay huge dividends in the long run. Often life can seem to pass at a rate of knots, particularly when there is family and work involved and some matters can simply get overtaken in the business of everyday. Life can change in many ways and it pays to be aware of your overall financial situation, considering all your financial goals.
As you know, we are always here to discuss any changes you would like to make to your lifestyle, be it phasing retirement, adding more to your investment portfolio or simply revisiting your Will planning to ensure that your hard-earned assets can be passed down through the generations in the most efficient way possible. As you will see from Jenna’s article in this bulletin, we are embracing all things technology this year and would be more than happy to run through scenario planning with you should you wish to investigate how much money you need to accumulate to provide for the future you desire.
Running an efficient business
Many of you will be aware that KMG has always pushed the boundaries of technology within our business.
It is 10 years’ ago that we moved to our beautiful barn in Smallfield and very soon realised that the space was spoiled by the ugly filing cabinets! In a regulated business, we are required to store vast amounts of historical data and documents about you and all of this for many years had lived in dusty filing cabinets. Not wishing to spoil the look of our office, and also thinking forward to the ability of our team to work remotely, we scanned huge numbers of files to electronic storage. Since then we have not looked back and not only created a much more efficient means of filing, but a much better space within which we could work.
In 2014 we took the opportunity to develop technology that allowed us to review these electronic files remotely when we worked away from the office, and finally in 2015 all the electronic files transferred to cloud storage bringing more secure storage than provided by our server in the office.
We have continued to follow this theme of cloud storage and access into our future strategy. This January we are completing the transition of all our Word, Excel documentation to Microsoft Cloud. Again, this will provide far greater security than we have here at the office despite us spending lots of IT security!
Next month we will make the final transition away from our serer by embracing a cloud-based database from which the team will then be able to fully operate whether in the office or away from the office.
This efficient use of technology allows KMG to employ a highly skilled geographically dispersed team who truly add value for you whilst keeping our business costs down and thus maintaining lower charges for you.
We believe that continued investment in technology for us and all businesses will be key to survival in the digitalised world that we now live in. There will no doubt be more upgrades and changes to come, but we very much look forward to the opportunities that technology will bring to us all!
Seven Investment Management: log-in facility on KMG website
You may well be aware that we have installed a link on our website enabling you to log in to your Seven Investment Management (7IM) account(s).
To ensure you are logging into the correct site, you will find the link on the Resources page of our website and the link is on the left-hand side.
When you click the link, you will be directed to 7IM’s site where it will ask you for your username and characters from your password. You will then be able to log in and view your accounts.
We hope this facility is useful. We have installed this as it provides a secure connection to 7IM’s site in which you can be sure of accessing the right company website.
Predictions for 2017
The KMG Investment Committee met on 10th January to review a tumultuous 2016 and consider the opportunities for 2017.
KMG’s portfolios have performed extremely well through 2016. We predicted the markets well in positioning your funds to ensure that we achieved substantial positive growth for you, that we did not suffer the effects of either BREXIT or Trump’s election; indeed, as a consequence of our positioning, you have gains in both cases.
The future is both challenging and possibly extremely benign and therefore the following 12 key points, we think, are relevant to our strategies through 2017. We will be tweaking your investment strategy in line with these thoughts, albeit in line with the old saying “if it’s not broken, don’t try and fix it”. The current strategy has, and we think will, continue to work relatively well so long as we adjust the margins to maximise stability, retain low volatility and positive growth.
The key points are as follows:
Dollar strength will wax and wane through the year but probably remain relatively positive against sterling. The US market will also be very volatile through the year, but in general will end the year no dissimilar to the current values that we see now.
Asia and Emerging Markets, we believe, in general, will gently expand despite dollar strength and Trumpism (whatever that is and no-one knows). We do not see a significant sell-off in Emerging Markets, but simply a consolidation of gains that have accumulated during the last year or so.
Relatively cheap energy throughout the world will continue to help global growth and offset decumulation by digitisation and the effects of potential deflation.
The consequence of cheap energy, will support infrastructure spending as will quantitative easing and political interference. (Quite what happens when the gravy train of monetisation stops is anybody’s guess but we do not think this will happen in the next year).
Global bond yields will be flat over the year, they will not rise to support the banks enough and thus banking will remain very suspect if not toxic through the course of the year. We do not see a dramatic change in global interest rates even if there is some marginally positive direction in respect of US interest rates.
Merger and acquisition and listing on a globalised basis will continue and we will see some significant listings such as “Snapchat”. However, as we saw at the millennium, this will be in a continuing revolving door syndrome, i.e. what the value is when the door stops spinning is anybody’s guess and we are not at all sure that some of the values being placed upon companies at this time will stand up to protectionist policies and the unravelling over-optimistic expectations.
We will continue to see a rotation from bonds to equity. This means that slowly fixed interest funds and debt will be unwound and the money will then move towards equity investment. We all know that this will happen, we just do not know the time line and whether it will be this year, next year or in ten years before this rotation completes its cycle. The bond markets will be volatile as the yield curve waves and wanes especially as the market tries to digest Twitter feeds from Trump and convoluted BREXIT negotiations.
Printing of money or quantitative easing, and all the other factors around monetisation (including the denial of unsustainable debt) will continue for the foreseeable future including low interest rates and other nefarious means of creating denial in the global community. This will be particularly focused around disruption which is occurring as a consequence of digitisation. Eventually, the cycle will end because of one or more of the following:
- A lack of confidence in the system
- EU collapse
- Evolution of algorithmic formulae – be it block chains or some other re-evaluation of assets and reality.
The point of our strategy, however, is that if we get it right, you should not be harmed by whatever, or however, human denial and behaviour finally manifests itself as we move through from fantasy-land back to reality.
Protectionism will be allowed to flourish and then fail. Market gains will be unsustained but this may take four or more years to unravel and in the meantime, we have to sit through the European elections which may enhance protectionism in France, Italy, Germany and Holland. Ultimately, along with Trumpism, this will be bad for global economic evolution and therefore could damage equity values but in the short-term, this will manifest itself in unreasonable increases in equity values.
Sterling will wax and wane on BREXIT perceptions and negotiation but the reality is nothing much can happen until Angela Merkel is re-elected, or not! Between now and then, anything could happen and therefore trying to predict the value of sterling in the foreseeable future is a fool’s game.
Whatever the outcome of EU elections, and unless the establishment really do remain totally disconnected from the voting mandates of Europe, change in the EU will slowly enable the future leaders who we believe to be Angela Merkel, Theresa May and Monsieur Fillon in France to hatch a plan to reform the EU such that it can be sold to the whole community including the UK. Again, this trajectory may take 3-5 years to evolve and in that time, an awful lot of other issues will need to be dealt with and accommodated within our investment strategies.
The conclusion that we come to is that we will gently adjust our strategies over the year to cope with these fundamental points. In general, however, we see this being a relatively benign year without much significant change. There will be some extreme periods of volatility as a new way of thinking about the future reveals itself in consequence of Trump’s tweeting machine and the European realisation that the model has to change if it is not to collapse. We believe that the Japanese will continue to print money and get away with it for the foreseeable future and that in general, Putin will keep some reasonable control on both his country and the ghastly events unfolding in Syria and beyond. Demographics, technology and poor education will continue to be the greatest drivers of change.
We are pleased to announce that we have booked the first venue for our autumn seminar. We will be holding the event at the National Liberal Club in London on Wednesday,4th October 2017.
We will be holding a further seminar again at Denbies Wine Estate and the date to be announced shortly. Keep an eye on our website for details.