Topical economic update. 2013 in a nutshell. The economy: will it, won’t it....grow? US politicians: will they, won’t they....shut down? Ben Bernanke: will he, won’t he....taper?. Our concerns for 2014 – similar to those held at the start of 2013:
A stuck record?
2013 rewarded investors for taking risk: WM Total Charity Index returned 15.5%
Investors have to take on a higher degree of risk to achieve similar results
But not so bad … or is it?
To generate a 4% income:
2008: 100% in government bonds
2014: 75% allocation to equities with an income bias
To achieve the same expected return:
2007: 50% equities / 50% bonds
2014: 80% equities / 20% bonds
Source: Kleinwort Benson, Bloomberg
May 2013 versus May 2014 Index returned 15.5%
22 May 2013: Ben Bernanke tapering announcement that the Fed reserve may start reducing asset purchases over the next two meetings. Result of +1% onto bond yields
Risks of holding fixed income increase: move into other assets – RISK ON
Tales of the unexpected Index returned 15.5%
Tapering and praying
Deflation becomes the key risk to the US economy and tapering is reversed
Abenomics succeeds in generating inflation, and even growth. However higher bond yields cause Japanese banks’ balance sheets to implode causing the next financial Armageddon
Roaring tiger, flying dragon
The Chinese government removes the country’s biggest tail risk by preemptively insuring all bank balance sheets against real estate toxicity
London no longer calling
The London housing bubble bursts. Everyone wonders why they didn’t see it coming…
~ not priced into markets and may cause volatility in 2014
Asset class preferences Index returned 15.5%
Positive on equities …
reasonable valuations and good momentum, but mindful of increasingly bullish investor sentiment
Positive on corporate bonds …
prefer high quality, cash generative corporate bonds
Negative on government bonds …
expensive by most measures BUT we invest in them to reduce volatility in multi-asset portfolios
Q1 2014 Index returned 15.5%
Index returns Q1 2014 (%)
Lower risk assets out-performed
FTSE Govt. All Stocks 2.1%
ARC Cautious Charity Index 1.0%
FTSE World ex UK 0.7%
ARC Balanced Asset Charity Index 0.6%
ARC Steady Growth Charity Index 0.4%
FTSE All Share -0.6%
Political intervention: FTSE hit in March with budget changes
Source: Kleinwort Benson, ARC
Source: Barclays Equity Gilt Study (2014)
The challenge ahead Index returned 15.5%
No one asset class has consistently outperformed inflation
Sources: Kleinwort Benson, Bloomberg
Data from March 1988 to December 2013
Getting the big decisions right Index returned 15.5%
Asset class cumulative returns every five years
What does this mean? Index returned 15.5%
investment policy to your strategic plans
BUT there is no one magic answer
And finally … Index returned 15.5%
Consider how your charity would stand up to questioning over its ethical policy:
Comic Relief invests millions in controversial tobacco, chemical and arms firms
Wonga row: Archbishop of Canterbury ‘embarrassed’ over Church funds
No laughing matter: Comic Relief invested in tobacco, alcohol and arms firms
Church has yet to shed its Wonga investment
Important regulatory information Index returned 15.5%
The information in this publication is provided for information purposes only and does not take into account the investment objective, the financial situation or the individual needs of any particular person. It is not an offer to buy or sell any particular security or investment. This publication does not constitute advice. All potential investors should seek and obtain advice specific to their circumstances from a qualified financial adviser before making investment decisions. The value of investments, and the income from them, may fall as well as rise and the investor may not get back the amount initially invested. Past performance does not guarantee future performance. Fluctuations in exchange rates may cause the value of investments denominated in currencies other than sterling to fall or rise. The effects of charges and an investor’s personal tax circumstances may reduce any returns. Tax treatment depends on an investor’s individual circumstances and may be subject to change.
Kleinwort Benson does not provide tax advice. Investors should seek and obtain tax advice specific to their circumstances from a qualified tax professional.
This publication is a financial promotion. It has been approved and issued in the United Kingdom by Kleinwort Benson Bank Limited. Kleinwort Benson is the brand name of Kleinwort Benson Bank Limited. Kleinwort Benson is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, reference number 119269 and is a member of the London Stock Exchange. Kleinwort Benson is a company incorporated in England and Wales with company number 2056420.
Kleinwort Benson is the brand name of Kleinwort Benson (Channel Islands) Investment Management Limited which is a company incorporated in Jersey with company number 13270. Registered Office Kleinwort Benson House Wests Centre St Helier Jersey JE4 8PQ. It is regulated by the Jersey Financial Services Commission, the Guernsey Financial Services Commission for the conduct of investment business and is also regulated by the South African Financial Services Board as a licensed Financial Service Provider. Telephone calls may be recorded.
Kleinwort Benson is the brand name for Kleinwort Benson (Channel Islands) Limited which is a company incorporated in Guernsey with company number 52103. It is regulated by the Guernsey Financial Services Commission for Banking and Investment Services. Kleinwort Benson places all client deposits with a spread of approved counterparties and other parts of the Kleinwort Benson Group. As such their financial standing is linked to that of the Kleinwort Benson Group. Depositors should form their own view of the financial standing of the Bank and the Group based upon publicly available information. Kleinwort Benson is a participant in the Guernsey Banking Deposit Compensation Scheme. The Scheme offers protection for ‘qualifying deposits’ up to £50,000.00 subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000.00 in any 5 year period. Full details are available on the Scheme’s website www.dcs.gg or on request. Kleinwort Benson is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in respect of UK regulated mortgage activities and its firm reference number is 310344. Registered Office Dorey Court Admiral Park St Peter Port Guernsey GY1 2HT. Telephone number +44 (0) 1481 727111. Telephone calls may be recorded.
Kleinwort Benson is the registered trading name of Kleinwort Benson Bank (Isle of Man) Limited company number 07856C. Registered Office St George’s Court Upper Church Street Douglas Isle of Man IM1 1EE. It is licensed by the Isle of Man Financial Supervision Commission and is a participant in the Isle of Man Depositors’ Compensation Scheme as set out in the Depositors’ Compensation Regulations 2010. Kleinwort Benson places all client deposits with a spread of approved counterparties and other parts of the Kleinwort Benson Group. As such their financial standing is linked to that of the Kleinwort Benson Group. Depositors’ should form their own view of the financial standing of the Bank and the Group based upon publicly available information. Latest Report and Accounts are available at www.kleinwortbenson.com. Kleinwort Benson Bank (Isle of Man) Limited is a subsidiary of Kleinwort Benson Channel Islands Holdings Limited, incorporated in Guernsey, the ultimate parent of which is RHJ International SA which is listed on the Brussels Stock Exchange. Telephone calls may be recorded.