CHARLES STANLEY Issue 13 INVESTMENT CHOICES NEWS · Charles Stanley Investment Choices News Autumn 2019 Whether you are an individual looking to start a business or a government seeking

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CHARLES STANLEYINVESTMENT CHOICESNEWS

Issue 13 Autumn 2019

brought to you by

Hebden Bridge, West Yorkshire.

Interest RatesWhat impact do changes have?

Investing in JapanA potential value play? Charles Stanley

Financial PlanningFocusing on youGet a regular income

Our monthly income portfolio

Our Investment PlatformAll your investments under one roof

Long Term InvestingHow have markets fared over 30 years?

From ‘Field to Fork’Investing in Agriculture

Inheritance TaxReduce the tax on assets you

leave to loved ones

02 | www.csinvestmentchoices.co.uk

Need help? 01482 861455

5/7 Landress Lane, Beverley, East Yorkshire, HU17 8HA

[email protected]

www.csinvestmentchoices.co.ukIf you would like to discuss the investments described in this magazine, or need help completing the application forms, please get in touch - we’re here to help!

What’s inside?

Charles Stanley Investment Choices News Autumn 2019

04

12

24

06 10

16

26

20

Long Term InvestingWhat is the case for a long-term approach to investing?

From ‘Field to Fork’Investment opportunities in the Agriculture sector

Inheritance TaxWe could help you to reduce your inheritance tax liability.

Interest Rates!What impact do changes have on investments?

Our Monthly Income PortfolioA regular monthly income

Investing in JapanIs Japan emerging as a potential value investment?

Charles Stanley Financial PlanningFocusing on you

Charles Stanley Investment PlatformAll your investments under one roof

www.csinvestmentchoices.co.uk | 03

A note from your co-editor...

Welcome to the latest edition of the Investment Choices magazine which I

hope you will find interesting and informative.

In the last magazine (summer edition) we looked at the prospects for

emerging markets following a very strong start to 2019 and the likely impact

of the ongoing trade war. We also considered the merits of investing in

the healthcare sector in the face of ongoing political interference. We also

conducted our annual review of our three portfolios following an eventful

twelve months to 30th June 2019.

In this edition, we consider the ramifications of the impending rate cuts

following a raft of indicators showing a slow down in the global economy.

In the month of August 2019, in the US bond market, it became more

expensive to borrow for two years than ten or thirty years - a sign that short

term rates are going to be heading down. We also consider the merits of

investing in agriculture as emerging market countries increasingly adapt to

western diets.

Our featured monthly income portfolio is proving a popular destination

due its low volatility, attractive dividends and resilience in uncertain times.

‘My Charles Stanley’, our platform of choice has received encouraging

feedback. Those who have migrated so far have started to benefit from

a superior client experience. Lastly we touch on our financial planning

offering and the portfolio inheritance tax service.

We always appreciate feedback from our clients (both positive and

negative) so if you have any suggestions in connection with the content

or ideas on how we could improve what we provide to you, please let us

know. If you have received our newsletter for the very first time and would

like to know more about our services and products –please call us on 01482

861455 or visit our website www.csinvestmentchoices.co.uk.

Good luck with your investing!

Stephen.

Stephen Luwero ACSI

Client Relations & Business

Development Manager

£10,000

£50,000

£20,000

£30,000

£60,000

£70,000

£80,000

£100,000

£120,000

£140,000

2018 201920172016201520142013201220112010200920082007200620052004200320022001200019991998199719961995199419931992199119901989

Equities £135,539

Bonds£89,305

Cash£40,972

£10,000

£110,000

BREXIT Leave Result 2016

FED pauses interest rate rises

Spike in CBOE Volatility Index

US Election

Europeansovereigndebt crisis

2010

US losesits ‘AAA’

credit rating2011

Subprimeloan problems

emerge2007

L ehman Brotherscollapses

2008

Hurricane Katrina makes landfall

2005

European M&A

surpasses US

2007

September 1 1th2001

Invasionof Iraq2003

Asiancurrency

crisis1997

Establishmentof the ECB1998

eLT CMfailur1998

Dot Compeak 2000

4,00 0

3,00 0

Federal Reserve doubles rates from

3% to 6% in 12 months

Nelson Mandela becomes South

African president1995

TheGulf War

1990



Long TermInvesting for the

Despite volatility, markets have appreciated over time

£10,000

£50,000

£20,000

£30,000

£60,000

£70,000

£80,000

£100,000

£120,000

£140,000

2018 201920172016201520142013201220112010200920082007200620052004200320022001200019991998199719961995199419931992199119901989

Equities £135,539

Bonds£89,305

Cash£40,972

£10,000

£110,000

BREXIT Leave Result 2016

FED pauses interest rate rises

Spike in CBOE Volatility Index

US Election

Europeansovereigndebt crisis

2010

US losesits ‘AAA’

credit rating2011

Subprimeloan problems

emerge2007

L ehman Brotherscollapses

2008

Hurricane Katrina makes landfall

2005

European M&A

surpasses US

2007

September 1 1th2001

Invasionof Iraq2003

Asiancurrency

crisis1997

Establishmentof the ECB1998

eLT CMfailur1998

Dot Compeak 2000

4,00 0

3,00 0

Federal Reserve doubles rates from

3% to 6% in 12 months

Nelson Mandela becomes South

African president1995

TheGulf War

1990

Financial markets can be volatile and downturns as well as upturns are part of equity investing. But short-term declines should not detract from the potential of the stock market to help investors meet their goals. In fact, short-term market declines underline the case for a long-term approach to investing.

Of course, the investment choices depend on an investor’s specific circumstances, goals, attitude to risk and investing time horizon. This will influence how much money is allocated and, if appropriate, how much of this is invested in growth-oriented equities. All financial investments involve an element of risk, so the value of your initial investment cannot be guaranteed and the historical performance of markets is not a guide to future returns.

Past performance is not a guide to future returns.

Source: Thomson Reuters Datastream. All data from 31 December 1988 to 31 July 2019. The information provided is for illustrative purposes only and is not meant to represent the past or future performance of any particular investment. It is not possible to invest directly in an index. Equities are represented by the FTSE All-Share Index (total return). Bonds are represented by the FTSE Actuaries UK Gilts All Stocks Index (total return). Cash is represented by three-month LIBOR rates. All returns are in sterling terms and are based on monthly closing prices of the respective indices.

The chart shows that even with market volatility, an investment in the FTSE All-Share Index 30 years ago would have grown to over thirteen times its original value by July 2019.


Investing for the long term



Whether you are an individual looking to start a business or a government seeking to fund a new social program, you need access to capital. Occasionally this can be from existing family wealth or in the case of governments from surplus tax receipts - but more often than not capital is obtained by taking out a loan.

Today’s global economy could not function without loans. They make things possible from individuals purchasing big ticket items such as houses to funding long term growth initiatives for businesses. Extending a loan is a risk for the lender and has to be priced appropriately. The cost (interest rate) is one of a number of things that influences how likely people and businesses are to borrow money. If the rate of interest is favourable, the borrowed money will ripple through the rest of the economy and help to boost employment and wages. But interest rates also have other functions and can be used as a lever to forcibly direct the economy on to a different path.

Inflation and recession

Economies routinely go through inflationary and recessionary phases. Inflation is generally a result of a strong and healthy economy. However, if left unchecked, it can lead to loss of purchasing power and higher borrowing costs. To manage inflation, central banks have been known to raise rates to keep prices under control. Because higher interest rates lead to higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop causing inflation to fall. Conversely, a cut in interest rates can be used to check the threat of a recession by enabling people to spend more and in the process boost demand in an economy – this is good news for shares in general.

The role of banks

Interest rate policy is set by central banks and is passed on to the end customers by

lenders such as retail banks. As such, a discussion on lending and interest rates is not complete without touching on the role of banks. Banks are very diverse organisations today and are involved in many things. But lending is their core business and changes in interest rates have a huge impact on their prospects. In periods of ultra-low interest rates the volumes of business will be high but not as profitable as the Net Interest Margin (difference between the interest generated and paid out by a lender) is squeezed.

How rates impact markets

If increased gradually, markets take rises in their stride but in an effort to counter a sudden threat of inflation or recession, central banks have tended to act quickly and aggressively resulting in unintended consequences. In the early 2000s, the US had managed to withstand a number of extreme events including the dot-com bust, terrorist attacks and corporate accounting scandals. A fear of recession concerned central banks and to keep it at bay, the Federal Reserve lowered rates 11 times - from 6.5% in May 2000 to 1.75% in December 2001. The cuts, made possible by a long period of low inflation created a flood of liquidity in the economy. Asset prices such as houses went up in value on the back of the easy money which drove income yields down. A search for higher income yields led to the creation of the sub-prime mortgage market (lending to people with no income, job or assets). Demand for these mortgages was very high and banks made the most of the opportunity and took on unprecedented risk in the process. To deal with the problem, from June 2004, the FED started raising rates so much that by June 2006, they had reached 5.25% (which remained unchanged until August 2007) – a clear negative for shares. By any measure, the change in rate policy was quick and aggressive and signs of distress begun to emerge with falling house prices and home owners defaulting on their loans. The increase in rates had started a

Interest Rates!What impact do changes have on investments?

“Economies routinely

go through inflationary

and recessionary phases.

Inflation is generally a

result of a strong and

healthy economy.”

By Stephen Luwero


Interest Rates

chain reaction which ended up engulfing the entire financial system.

Post credit crisis recovery

In a truly free market economy companies including banks are allowed to fail but this crisis was different. The US & UK understood the severity of the situation and led the way in fixing bank balance sheets. The banks under pressure were bailed out and to further help the economy Quantitative Easing (QE) and the slashing of interest rates to all-time lows were introduced to boost confidence. Europe also eventually came to the party – but it was not helped by the fact that the ECB serves many national governments with varying levels of economic strength. Adding to the difficulties

was evidence that some countries had not been living within their means. Measures of a sort were introduced to resolve the crisis but large parts of the EU’s banking sector still need bailing out to this day.

Are banks investable?

A closer look at the winners over the last ten years (the US banks) shows price to earnings (PE) multiples of between 9 and 11 times compared to the broader market of 18. Dividends are increasing from a very low base but growth prospects are a concern and the market is keeping an eye on net interest margin. After a prolonged period of low rates banks were holding out for increases to boost net interest margin but action in 2018 by the FED has resulted

in a near collapse in loan demand. The expected fall in rates should help the wider economy but the effect could be muted for banks – share prices may bounce in the short term but the underlying issues will remain. Liquidity and loan demand through refinancing are certain to increase but will not solve the net interest margin issue. A long period of easy money and the explosion of digitisation has introduced stiff competition from challenger banks, non-bank organisations such as grocers, other retail giants and peer to peer lenders. Even investment banks such as Goldman Sachs and Morgan Stanley have diversified into retail banking (for different reasons) to add to an already competitive environment. Rate rises in 2018 were supposed to be a saviour for banks but the results have been rather different and the rises could be about to be reversed.

Where are managers finding pockets of value in the sector?

Diversifying revenue streams is very high on the agenda for many banks and a particular area of interest is wealth management which boasts far healthier margins. A number of banks see this as a growth area due to opportunities from changing demographics (people are living longer and need advice to manage their finances). Resources are increasingly being redirected from other areas to this sub-sector.

For adventurous investors the wider financial sector still offers growth opportunities. The industry is diverse and value can be found in areas such as insurance, credit card issuers, financial software and financial data security and there are funds which prefer to concentrate just on these. Additionally, Emerging markets especially Asia, offer great potential for the insurance industry. Changing behaviours continue to support credit card spending and the use of financial software such as PayPal is fully established and growing.

We have chosen to feature the Jupiter International Financials fund which has shunned banks in general and concentrated on the areas of growth mentioned above. We have also featured the Janus Henderson Global Financials fund which has chosen a mixture of the same areas discussed along with emerging market banks and diversified financial companies with significant wealth management businesses.

“The expected fall in [interest] rates should help

the wider economy but the effect could be muted

for banks – share prices may bounce in the short

term but the underlying issues will remain.”


DISCRETE ANNUAL PERFORMANCEAS AT 25/08/2019 0-12m 12-24m 24-36m 36-48m 48-60m

Jupiter International Financials I Acc +7.7 +10.6 +30.2 +15.2 +6.9

IA Specialist +4.9 +1.0 +12.9 +23.6 -11.6

25/08/2014 – 23/08/2019 Source: FE Analytics

Jupiter International Financials Fund – Income of 0.30% per annum payable annually (variable as at 25.08.2019).

The proliferation of digital channels and devices has given consumers greater access to information and the means for communication and collaboration. The physical world is increasingly being replicated in the digital world through digital communities and businesses. This is fundamentally changing the way consumers engage with businesses and each other and its forcing established businesses to change. The impact of Amazon on the retail sector is still fresh in the minds of many and with Google and Apple looking to exploit their online dominance, many successful businesses will need to adapt to remain relevant and competitive especially in the financial sector.

The investment management industry too has had to react to the changing dynamics and some funds have started to reposition themselves to continue to meet their objectives and provide growth. Jupiter

Asset Management, founded in 1985, was an early mover to take advantage of the digital transformation in a number of its funds - a structural shift the business views as an unprecedented long-term opportunity. Its Jupiter International Financials fund, managed by Guy De Blonay has performed well and adapted to the times better than most. Guy, a member of the successful financials team, combines a top-down and bottom-up approach to stock selection. His style involves looking for companies which are exposed to cutting edge technological innovation in financial services, without paying unreasonable prices. He considers dividend income to be important as it helps him to assess a company’s downside potential.

The funds’ investment objective and policy seeks to invest in companies that will shape and dominate the future of finance. Guy believes a company’s willingness and ability to

invest in and adapt to new technologies is not only advantageous, it is essential for the long-term competitiveness of their business models. In his view, investing in technology is no longer an option, it is essential to thrive. The fund focusses on both traditional financial services firms that are embracing digital change and disruptive innovators working on financial tech such as mobile finance, data analytics, payment, security and financial infrastructure to the sector. Unsurprisingly, banks which have been slower movers to embrace digitisation make up a far smaller percentage of the fund of 3.9%. In contrast, support services, financial services like insurance, software and computer services combined account for more than 90% of the fund.

Guy sees a challenging outlook for the global banking sector based on the prospect of a weakening global economy but the picture looks better for the other sub-sectors which make up a majority of the fund. As a result he is underweight banks but overweight in areas such as support services and software and computer services which have performed well for him. He feels a fall in rates will enhance their prospects rather than hinder them. One of the key drivers of the fund’s strong performance year-to-date has been consolidation in the transaction processing industry in the US.

Fund Focus

IA Specialist

Jupiter International Financials I AccPERFORMANCE

Investing in Financials

FUND FACTS

Fund Size £60m

Fund Type Unit Trust

Classification Accumulation

Launch Date 14/12/2009

Yield 0.30%

Dividend Date Annually

CHARGES

*The Total Ongoing Charges include all the costs associated

with owning the fund such as transaction costs and incidental

costs such as performance related fees. Whilst we endeavour to

show all charges associated with specific funds, sometimes this

is not possible due to the information not being made available

by the fund provider. In such cases transaction or incidental

cost information may be missing.

Total Ongoing Charges (TOC)* 2.17%

Initial Charge 0%

Charles Stanley Investment Choices Platform Fee 0.55%

Total Fees 2.72%

ASSET ALLOCATION

Support Services 37%

Financial Services 32%

Software 25%

Life Insurance 5%

Banks 4%

Source: Funds Library

Retailers - General 4%

Real Estate 2%

Property Shares 1%

Building & Construction 0%

Others 10%


100%

50%

0%

-50%

2015 2016 2017 2018 2019

Performance %

% Net Assets


Investing in Financials

The popularity of the financial services sector suffered in the wake of the crisis in 2008 and profitability plummeted following the intense scrutiny from politicians and regulators. The sector, despite its trials and tribulations still represents a substantial portion of the global economy and at the beginning of 2018 signs had begun to emerge that it could be one to watch. Balance sheets for many banks had been repaired and the prospects for profit acceleration as economic growth reduced the need for loan-loss provisions, and higher interest rates were starting to boost margins on loans. A recent change in economic sentiment has put on hold interest rises and this has clouded the picture somewhat.

The financial sector as a whole is experiencing significant change and disruption, driven by factors such as technology, changes in markets and

regulations, and continuing business model evolution. Technology is also driving the potential to reduce expenses and expand client solutions. This has amplified the need for a more diversified investment style to ensure that problems arising in one sub-sector will have less of an overall impact on returns.

This change and evolution of the sector has provided a timely opportunity for fund managers to reposition their portfolios to continue to meet the funds stated objectives. The opportunities on offer now include areas such as challenger banks, private equity, property and electronic payments.

The Janus Henderson Global Financials, is run by the vastly experienced Barrington Pitt Miller who invests across various financial sectors with a focus on emerging market banks, insurers and asset managers.

Barrington, assisted by an experienced team of analysts, selects companies according to their individual merits, taking a valuation-based approach. He analyses their profitability, balance sheets and prospects, and then models and compares them with consensus expectations. He is overweight in those focused on electronic payments and has expressed a confidence in banks in India and Indonesia (two countries with innovative banks taking advantage of rapidly increasing penetration of consumer financial services) versus a 0% weighting in the benchmark.

Barrington’s asset allocation across all areas of the financial sector has ensured that his fund has performed well as it does not wholly rely on economic or market trends. The global economic picture has been forecast to worsen due to the ongoing trade war between US and China and this could present a challenge but he feels this fund is positioned to weather the storm.

Janus Henderson Global Financials Fund – Income of 1.00% per annum payable annually (variable as at 30.08.2019).

PERFORMANCE


Janus Henderson Global Financials I Acc +8.4 +10.6 +21.8 +11.5 +3.1

IA Specialist +6.5 +0.8 +12.1 +22.3 -9.8


ASSET ALLOCATION

Fund Focus

CHARGES









Initial Charge 0%


Total Fees 1.81%

FUND FACTS

Fund Size £65m

Fund Type OEIC



Yield 1.00%


Financial Services 38%

Banks 32%

Insurance 11%

Life Insurance 8%

Support Services 4%


Property Shares 4%

Real Estate 3%

Money Market 1%

Software 0%

Janus Henderson Global Financials I Acc

IA Specialist


% Net Assets

75%

50%

25%

0%

-25%

2015 2016 2017 2018 2019

Performance %



One of the main reasons that clients approach us is because they are disappointed with the interest payable on their Cash ISAs. As at the 6th September 2019, the best instant access Cash ISA interest rate available was 1.4% (source: Moneysupermarket.com). Interest rates have been increased only twice by the Bank of England since the financial crisis of 2007 and currently stand at 0.75% per annum. Interest payable on Cash ISAs has also remained stubbornly low.

It is unlikely that we will see increases until the Brexit negotiations have reached a satisfactory conclusion. UK inflation is currently running at its target of 2%pa as at 31st July 2019. Unless we see significant wage growth, increased money supply or full effects of the higher oil prices coming through, we believe interest rates will remain at these historically low levels for the foreseeable future.

Mind the Gap

Many investors that previously relied on the interest payable from their Cash ISAs now have to draw on the Cash ISA balances to cover the gap between the interest available and day to day living expenses – bills still have to be paid. However, there are other options that can help to plug this gap, one of which is income paying funds available through a Stocks & Shares ISA.

Many investors prefer to receive a monthly income which prompted us to launch our monthly Income Portfolio.

How is the portfolio put together?

We recognise that changing from investing in a Cash ISA to a Stocks & Shares ISA is a big step for many. Knowing your savings

are held as cash provides some reassurance and an investment in a Stocks & Shares ISA will mean exposing your capital to the stock market and its fluctuations. To help we have selected funds for the portfolio where the focus is mainly to provide an income.

Investment risk: we would describe this as a Medium Low Risk portfolio with investors being comfortable with taking a modest degree of risk with greater exposure to the more volatile asset classes, particularly equities, in search of potentially improved returns from investments. Overall risk would be deemed moderately low.

As with our other portfolios, we have not constructed it with a particular geographical split in mind. Neither is it designed for a particular type of client other than it may be an option for those that require a higher monthly income than they are currently receiving and who are prepared to accept some risk to achieve it.

Use the Portfolio as an inspiration for your income investment strategy

If you are unsure where to begin when making an investment, the portfolio is a good starting point but you can select any number of funds to build your own portfolio if you wish. The portfolio is simply a suggestion from us to assist with fund selection.

What do I do next?

If the potential for an annual income of 4.56% paid monthly (variable and not guaranteed) appeals to you, take a look at the funds we have included. If you need any extra information about them please give us a call. To invest, contact us with a debit

card or complete an application form. We have constructed the portfolio very simply by dividing it equally between the 5 funds selected. If you want to vary that percentage split please let us know. Equally, it is not necessary to include all the funds we have suggested. Please advise us of your selection when you contact us.

Investment Limits

The minimum initial lump sum investment is £500 or £10 per month per fund (minimum £20 in total). The minimum for the portfolio is therefore £2,500 or £50 per month. Apart from the limits on ISA contributions there are no upper limits to the amount you can invest unless it relates to a pension – please contact us for more details regarding this.

By Mark Feely

Investment Choices

PortfolioMonthly Income


Monthly Income Portfolio

Investec Diversified Income Fund

The fund invests in a mixture of global bonds and equities with the aim of providing a consistent monthly income together with some capital growth. It has been managed by John Stopford for the last 6 years who is also co-head of Multi Asset at Investec, responsible for all multi-strategy income. The fund will typically have an equity allocation of up to 35%, a defensive fixed income allocation of between 25-70% and 0-20% in emerging market debt. The yield as at 6th September 2019 was 4.09%pa. Total Fees were 0.58%pa.

Premier Multi-Asset Monthly Income Fund

Launched in Jan 2009, the fund is managed by David Hambidge – Director of Multi Asset Funds. The fund sits in the IA Mixed Investments 20-60% Shares sector which allows the fund manager to hold between 20% to 60% of the assets of the fund in shares with the balance in other assets such as property and corporate bonds. There is a stated aim however to hold at least 30% in fixed income and cash. The yields as at 6th September 2019 was 4.82%pa. Total Fees were 1.55%pa.

Schroder Monthly Income Z Fund

The fund provides worldwide exposure by investing in shares, bonds and money markets and has a target income of 5%pa. It is internally focused, investing in Schroder’s own funds covering a broad spectrum of assets but equity exposure is limited to between 20% and 60%. The fund is managed by Mike Hodgson who joined the group in 2016 and who has 25 years

experience in financial markets. The yield as at 6th September 2019 was 5.35%pa. Total Fees were 0.88%pa.(Please note this fund was previously called the Schroder Mixed Distribution Fund.)

Jupiter Monthly Alternative Income Fund

Fund Manager, Richard Curling joined Jupiter in 2006 and has been managing both this fund and the Jupiter Fund of investment Trusts since 2012. He also took over responsibility for the Jupiter UK Alpha fund in 2016. Launched in 2000 the fund’s stated objective is to achieve a high level of sustainable income with prospects of some capital growth. It achieves this by investing in various classes of investment trusts with the option to hold back 15% of dividend income received to supplement distributions during leaner years. The yield as at 6th September 2019 was 4.4%pa. Total Fees were 1.06%pa.

Newton Multi-Asset Income Fund

The fund was launched in 2015 and is still comparatively new but it has performed well in an economic environment where generating an attractive income is not straight forward. Managed by Paul Flood the funds’ investment mandate allows him the freedom to seek out assets around the world which helps to achieve the stated aim of the fund of generating a sustainable income. Paul believes that having the option to invest in a wide range of sectors such as infrastructure where companies can increase prices and dividends in line with inflation even during difficult economic conditions. The yield as at 6th September 2019 was 4.13%pa. Total Fees were 0.85%pa.

Investec Diversified Income (20%)

Premier Multi-Asset Monthly Income (20%)

Schroder Monthly Income Z (20%)

Jupiter Monthly Income (20%)

Newton Multi-Asset Income (20%)

*The Total Ongoing Charges include the cost of investment

management and administration, plus other costs of running

the fund, such as fees for custodians (organisations that hold

the assets safely for the investment managers), regulators

and auditors. It will not include stamp duty, which is payable

when buying shares in investment trusts, nor any performance

fees. However, these fees will be published separately on the

respective Key Investor Information Documents.

Initial Charge 0%



Total Fees 1.55%

Historic Yield 4.56%

MONTHLY INCOME PORTFOLIO

PORTFOLIO ALLOCATION

MONTHLY INCOME PORTFOLIO

COMPOSITION



Agriculture has been at that the heart of the development of human civilisation for the last 12,000 years. From archaeological records, we know that around 10,500 years ago, humans in the “Fertile Crescent” (an area that stretches through modern-day Egypt, Israel, Turkey and Iraq) started to plant grains, instead of gathering them in the wild. 9,000 years ago, they also began to domesticate animals such as sheep, pigs and goats and 8,000 years ago started to include cattle.

Before agriculture, humans were nomadic and travelled constantly in search of food. Having a predictable food source encouraged communities to form and cities to develop. Agriculture, not only changed the human diet but also human civilisation as well. However, development in farming techniques were slow after this point and relatively little changed. It remained extremely labour intensive involving nearly 80% of the world’s population until the advent of the agricultural revolution of the 18th and 19th centuries.

Perhaps one of the biggest leaps forward was in plough design when Jethro Tull invested the world’s first seed drill which allowed seeds to be planted quickly in straight rows. This was followed by horse-drawn mechanised harvesting equipment allowing farmers to plant and harvest in a fraction of the time taken previously.

Industrialisation in the 20th century combined with advancements in fertiliser and pesticide technology allowed agricultural productivity to be further improved. The new efficiencies allowed farmers to manage more land and in developed economies this also led to a shift in the labour force – in the US for example the percentage of the workforce engaged in

farming dropped from 40% in 1900 to 2% in 2000).

Between 1900 and 2012 the world’s population grew from 1.6 billion to more than 7 billion. In 1700 only 7% of the earth’s surface was used for agriculture – today this has reached 40% with only a portion of the land that is left suitable for growing crops. The consensus is that the human population will reach 10 billion by 2050 (source: United Nations) – simply clearing more land to plant additional crops to meet demand is unsustainable and new farming techniques are needed to make better use of the resources available.

How do you feed an extra 67 million people a year?

According to the UN, in order to meet demand food production will need to increase by over 70% by 2050. Environmental issues such as soil quality and climate change coupled with land and water scarcity make this objective tougher to fulfil but there are several ways to improve efficiency across the food chain – one of which is to utilise technology to increase output.

Agricultural Technology (or ‘Ag Tech’ as it is more commonly known as) encompasses a wide variety of innovations linking life sciences, robotics and data analysis with existing farming methods. Agricultural output is affected by a number of variables ranging from controllable ones (i.e. the amount of seed planted or the volume of pesticide used) to uncontrollable ones (including weather conditions and equipment reliability). Today’s farmer has the ability to measure and capture data on a wide range of these variables through the technological tools at their disposal.

From

– Investing in Agriculture

‘Field to Fork’

By Mark Feely

“According to the

UN, in order to

meet demand food

production will need

to increase by over

70% by 2050.”


Investing in Agriculture

How farming is changing

Farms that extend over hundreds of square miles are now common place especially in the more developed countries. Ensuring that output is consistent and production maximised would have been challenging 20 years ago but Ag Tech developments such as soil datapoints which collect information on soil moisture levels or temperature have benefited farmers. In recent years there has been a rise in the use of sensors attached to drones to measure weather, understand field soil patterns better or monitor crop disease. Sensors can be attached to tractors and sprayers to collect yet more data on the performance of the machines to identify when maintenance is required preventing costly and untimely breakdowns.

With sensors cheaper and more reliable collating and analysing the data has led to the development of farming Apps and tools that help interpret the information to allow farmers to make improvements to their own farming techniques. The Farmers Business Network (FBN) is an independent data analytics platform and allows agronomists to anonymously share information on crop metrics such as yield, fertiliser usage and the effectiveness of specific seeds. This

helps farmers to benchmark performance of certain farming techniques or products and then identify discounted deals in the market-place via bulk-buying in conjunction with other FBN members. Although in its early stages, FBN has already signed up over 5,000 farms in North America which collectively manage over 25 million acres.

Connecting with the farming community in this way helps farmers manage inputs, labour, and equipment more efficiently, improving output amongst the large scale intensive farms.

Trade Wars and opportunities

The ongoing rhetoric between the US and China on tariffs has led to concerns amongst the farming community but to purely focus on these difficulties ignores the long terms trends that affect the global food chain.

1. Income Improvement – second only to the growing population is the gradual improvement in incomes and standard of living. As a result we are seeing the biggest ever increase in consumer demand for food. In 2012, consumers in developing countries (i.e. India, China and Nigeria) spent $12 trillion; by 2025 this figure is expected to reach $30 trillion.

2. Diet Change – an increase in wealth allows an improvement in diet – meat and fish are consumed more regularly, new fruits and vegetables are introduced,

demand for processed and branded food rises, and eating out at restaurants becomes more popular. These in turn lead to higher returns for food processors and retailers and also increased demand for those companies involved in food production.

Other industries affected include farm inputs such as seed and fertiliser, equipment, traders, producers, processors and retailers. This very diverse range of industries allows fund managers to identify attractive opportunities that will benefit from the growth in the food economy over the long term.

How to take advantage of the investment opportunities available

This is a specialist area and as a result options are limited for investors who wish to invest via an open-ended fund. We have identified two funds that investors may wish to consider:

• The Sarasin Food & Agriculture Opportunities Fund which invests in food and agriculture companies across the world. A long established fund which has outperformed over the last 5 years.

• The Barings Global Agricultural Fund which also has a global remit investing in the agricultural sector but with a bias towards companies based in the United States – a fund which has also outperformed its benchmark.



Sarasin Food & Agriculture Opp. P Acc +6.8 +13.8 +17.2 +32.7 -4.7

IA Specialist +7.4 -0.3 +14.3 +22.3 -11.3

Sarasin Food & Agriculture Opportunities Fund – Income of 1.08% per annum payable half-yearly (variable as at 02.09.2019)

Fund Focus


Launched in 2008 the fund is managed by Henry Boucher and Jeneiv Shah. Henry was the lead manager for the fund until 2017 when he was joined by Jeneiv who previously worked as an International Equity Analyst at T Rowe Price. Henry is also the Deputy Chief Investment Officer at Sarasin focused on global equities with expertise in sustainable investment.

The number of companies that are invested in tends to be in the range of between 35 and 45 (37 as at the end of August 2019) and are selected utilising the experience of the two fund managers in conjunction with the research carried out by the thematic team at Sarasin. Because of the long term trends that drive stock selection (diet changes, food consumption & agricultural technology) turnover is relatively low (19% over the course of the last 3 years) which has a positive effect on the volatility of the fund.

This does not mean that John and Jeneiv are not open to investment opportunities however and they are constantly monitoring the sector for any “sub themes” that are emerging. For example, there has been a rise in the demand for indulgence foods over the course of the last few years as incomes rise – in South America, demand for chocolate has been growing in double digit percentage terms which has prompted them to consider opportunities in this area.

Investment allocation is unrestricted to any one sector ranging from companies that provide seeds and feeds, those that provide equipment to farms and those that produce and sell to the consumer. Geographically, the fund’s largest allocations are in North America (34%), United Kingdom (23%) and Europe (21%) providing a broad range of investment opportunities for investors.

PERFORMANCESarasin Food & Agriculture Opportunies P Acc

IA Specialist


ASSET ALLOCATION

Source: FE Analytics

Consumer Staples 39%

Materials 26%

Consumer Discretionary 16%

Industrials 14%

Health Care 5%

FUND FACTS

Fund Size £412m

Fund Type OEIC



Yield 1.08%

Dividend Dates 25th February & 24th August

CHARGES









Initial Charge 0%


Total Fees 1.63%


% Net Assets

140%

120%

100%

80%

60%

40%

20%

0%

-20%

-40%

Jul 2008 Sep 20a09 Mar 2011 Sep 2012 Mar 2014 Sep 2015 Mar 2017 Sep 2018

Performance %


DISCRETE ANNUAL PERFORMANCEAS AT 03/09/2019

ASSET ALLOCATION

0-12m 12-24m 24-36m 36-48m 48-60m

Barings Global Agriculture I Acc GBP +8.5 +9.0 +10.2 +23.4 -7.1

IA Specialist +6.8 +0.1 +14.3 +21.6 -11.5

Barings Global Agriculture Fund

Source: FE Analytics

Foods 35%

Chemicals 30%

Machinery 16%

Distributors 9%

Cash & Cash Eqv. 1%

Others 11%

PERFORMANCE

Launched in 2010, the fund is managed jointly by James Govan and Duncan Goodwin. With a global remit, James and Duncan take a long-term view (5 years) when considering companies into which to invest with a focus on their long-term growth potential. Companies under consideration for inclusion are selected from the following sectors:-

• Agrochemicals• Fertiliser manufacturers• Logistics companies• Food retailers• Seed manufacturers• Farming and related activities• Food wholesalers• Fishing and related activities

Once identified the prospects are screened taking into account:-

• Growth – is there a potential for unexpected growth

• Liquidity – can the company finance expansion plans

• Currency – will profits be affected by currency movements

• Management – is there evidence of a commitment to a growth strategy

• Valuation – is the outlook for the company already reflected in the share price

Should the company under consideration pass the screening tests it will then be considered for inclusion in the fund. At least 70% of the assets of the fund will be invested in these global businesses with an option for the remainder to be invested in shares outside of the agricultural sector, bonds and cash.

Due to the often volatile nature of companies active in the agricultural sector the managers recommend that investors consider investing in the fund for no less than five years. On the risk reward scale the fund is considered higher risk due to its historic volatility and therefore may be appropriate for those who wish to invest on a monthly basis.

James and Duncan firmly believe that the rising global population will lead to increasing demand in grains and edible oils. Also, as the global middle class is forecast to double in size by 2030 this will lead to a shift in diet resulting in a higher consumption of meat, fish and dairy which are reliant on grain to produce. Investing across the whole of the agricultural sector will allow them to take advantage of these growth opportunities.

Barings Global Agriculture I Acc GBP

IA Specialist



Fund Focus

FUND FACTS

Fund Size £46m

Fund Type OEIC



Yield 0.80%

Dividend Dates N/A - dividends automatically re-invested

CHARGES









Initial Charge 0%


Total Fees 2.06%


% Net Assets

80%

70%

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

Performance %

Mar 2010 Apr 2011 Oct 2012 Apr 2014 Oct 2015 Oct 2017 Oct 2018



The country opened itself to western commerce and influence in 1854 and by 1890 it had gone through its own version of the industrial revolution. An economy which was dominated by agriculture was gradually replaced with modern industry. In more recent times it has been assisted by world events – during the First World War Japan used the absence of the war-torn European competitors on the world market to advance its economy, generating a significant trade surplus. The Second World War played out rather differently for Japan – many of the gains which it had made since 1868 were wiped out at a stroke. About 40% of the nation’s industrial plants and infrastructure were destroyed but the shock swung people into action. New factories equipped with the best modern machines were built which gave Japan an initial competitive advantage over the victor states including the US and UK.

As such, it quickly became the world’s second largest economy behind the US and the first non-western great power thanks to the strong recovery from the war. Decades

later, during the cold-war era it again had a unique economic position when against all odds it somehow managed to still export to both US and Soviet Union. This helped cement its place in the pecking order of the Worlds richest economies. With all this history, and the fact it has not participated in the current equity bull market – could now be the turn for the Japanese stock market? The long fight against deflation

Japan is the world’s 3rd largest economy behind the US and China which is rather impressive when you consider it has spent most of the last 20 years fighting deflation. After the longest bull run in developed markets, some analysts now consider it as one of the most attractive value plays around. While most major stock markets trade at or near their all-time highs, the best-known index of equities listed in the third largest economy on earth languishes 40% below its peak. In 1990, the Nikkei 225 Index of Japanese shares briefly exceeded 38,700. Today, after a series of false dawns the Nikkei trades around 20,500.

A potential value play?

Investing in Japan

By Stephen Luwero

“While most major

stock markets trade at

or near their all-time

highs, the best-known

benchmark of equities

listed in the third largest

economy on earth

languishes 40% below

its peak.”


Investing in Japan

It is very difficult to identify the reason why Japan has been left behind in this bull market when you consider it has a thriving domestic economy, valuations at historic relative lows, rising yields and sweeping corporate reforms resulting in more shareholder-friendly boardrooms. International investors have experienced false dawns before where Japan promised but ultimately failed to climb out of economic stagnation. Looking at all the indicators now, we can safely say Japan has finally emerged from the spiral of deflation. Economic conditions are improving; Japan’s real GDP grew by 2.1% in the first quarter of 2019, recording growth in positive territory for the second consecutive quarter. Meanwhile, jobless numbers are at a 40-year low.

The outlook

Company estimates for the upcoming financial year have been modest – with a forecast of 2% growth and flat operating profits - but this owes more to the conservative nature of Japanese companies.

All the evidence shows that company fundamentals have vastly improved. The other major Japanese Index, the Topix is at the same level it was four years ago, company margins and cash holdings are much higher, shareholder equity has increased by 20%, and cash deposits by 25%.

Technology Leadership

Japan has always been known as a leader in robotics and technology, but this is often through medium-sized firms rather than multinational giants. While big companies like Sharp, Sony, and Panasonic are more diversified, they have been losing market

share to overseas firms in some of their most profitable lines of business, whilst the smaller companies continue to dominate their niches.

Many of the small companies also have much higher barriers to entry compared to larger companies. For instance, many medium sized Japanese companies manufacture high-end components in their own factories and own their own supply chains. Often, the strength of these companies lies in their loyal employees.

Important Considerations

The escalation of trade tensions has real world implications but fears may be overdone. As for car manufacturers, they are far more international than their European peers especially in emerging markets. Additionally, many Japanese brands, which control a significant share of the US car market, are mainly serviced by US-based manufacturing plants.

Investors should also bear in mind that Japan still faces other challenges in the future. With an ageing population, the country faces a significant demographic problem that will only be solved through immigration reform – a tough sell politically. The country also has high levels of debt compared to its gross domestic product (GDP), which could put the country at risk over the long run if credit analysts decide it could have difficulty repaying debt.

Where are the opportunities?

The weaker yen helps Japanese exporters become more competitive in international markets including the United States which helps bolster corporate profits. Japan will always take measures to weaken its currency and as such a currency hedged share class is always preferable if available. We have chosen to feature the Baillie Gifford Japanese Smaller Companies fund for its strong track record of outperforming its benchmark and the MAN GLG Japan Core Alpha for its established process and a stable experienced team.

“Looking at all the

indicators now, we can

safely say Japan has

finally emerged from the

spiral of deflation.”



MAN GLG Japan Core Alpha C Pro Acc -8.6 +6.0 +22.6 +17.5 +13.8

IA Japan -3.0 +8.1 +19.5 +21.9 +9.1

MAN GLG Japan Core Alpha Fund – Income of 2.24% per annum payable annually (variable as at 27.08.2019).

Fund Focus

Investing in Japan

Equity exposure over the long term should be a core feature of a growth portfolio and Japanese equities could provide diversification as well as growth. Japan is the third-largest economy in the world and at the moment offers attractive valuations, strong earnings growth and improved corporate governance. It is also home to some of the world’s best-known businesses, including Toyota, Sony and Mitsubishi and one way to tap into this is via Man GLG Japan Core Alpha Fund.

The fund’s management team is led by Stephen Harker, and includes Neil Edwards, Jeff Atherton and Adrian Edwards. The managers primary aim is for the fund to provide a high total return over the long term via a combination of strategic and contrarian investing. Stephen and his team have a preference to large-caps than small-caps on the grounds that the outperformance of smaller companies is unsustainable. They

try to pick quality companies that have fallen out of favour in the short term where a change in management or reorganisation can make the required difference. Such companies will have lower prices but also the potential to recover.

Once the depressed share potential has been realised through significant price appreciation, a stock is promptly sold and the profits are used to buy the next out-of-

favour company. Their investment philosophy is based on the principle that every sector of the Japanese market acts cyclically, so by exploiting the extremes in valuation they can achieve outperformance for the fund. They employ a thorough investment screening process and at times may have relatively limited number of holdings. If they do well, they will have a bigger positive impact on the fund’s performance. But if they do badly, the reverse is true, so this fund has a higher-risk approach.

The fund’s performance can be volatile and vary from the Topix index because of its focus on value stocks long-term growth horizon in order to make positive returns. Because of its country focus, if there are any economy-wide problems that cause stock price fluctuations it cannot allocate away from Japan. To mitigate risks, the managers use a rigorous stock selection approach. This is further helped by the team’s extensive local knowledge after decades covering Japanese equities.

As it can take a long time for the potential of the types of companies this fund holds to reach fair value, this fund is not for short-term investors. However, if you are looking to diversify a growth portfolio, and have a long-term investment horizon the fund should be a consideration.

PERFORMANCEMAN GLG Japan Core Alpha C Professional Acc

IA Japan


FUND FACTS

Fund Size £2112m

Fund Type OEIC



Yield 2.24%

Dividend Dates Annually

CHARGES









Initial Charge 0%


Total Fees 1.66%


100%

75%

50%

25%

0%

-25%

2015 2016 2017 2018 2019

Performance %

ASSET ALLOCATION

Financials 35%


Industrials 10%

Materials 10%

Information Technology 7%


Real Estate 6%

Energy 3%

Utilities 3%

Health Care 2%

Others 3%

% Net Assets



Baillie Gifford Japanese Smaller Co. B Acc -6.1 +27.5 +28.8 +36.4 +15.3

IA Japanese Smaller Companies -6.4 +11.1 +27.5 +32.3 +8.0

Baillie Gifford Japanese Smaller Companies Fund– Income of 0.29% per annum payable annually (variable as at 28.08.2019).

PERFORMANCE

At a company level Japan has a growing pool of quality companies and because of the sheer numbers, many will be overlooked. Those with the greatest potential, and most overlooked, will inevitably sit amongst the smaller companies. Baillie Gifford Japanese Smaller Companies has exploited this rich seam consistently.

The fund is now run by Praveen Kumar following John MacDougall’s internal move to manage global equities. Its strong historic record was largely achieved under the tenure of John who managed the fund for eight years. To ensure a smooth transition of portfolio management responsibilities he worked closely with Praveen in the handover period and the successful and proven investment process has continued. Praveen, a Finance MBA holder from Cambridge University and computer science graduate, is a very

capable manager who joined Baillie Gifford in 2008 and became an investment manager on the Japanese Equities team in 2011 under the tutelage of the now retired Sarah Whitely.

The fund’s objective is to produce attractive capital growth over the long term by investing directly or indirectly in Japan with particular emphasis on smaller companies. To achieve this, the team targets what it considers to be attractively valued smaller companies that offer good growth opportunities. These companies may derive their growth from innovative business models that disrupt traditional Japanese business practices, or market opportunities such as growth outside Japan.

Since the change in management, the fund has continued to perform well and currently ranks second quartile over one year and first quartile over three and five years. Baillie

Gifford operates a team-based approach to stock picking and as such Praveen is supported by the company’s Japanese equities team which ensures a continuation of style and process.

As a firm Baillie Gifford manages over 11.6 billion pounds of Japanese equity assets of which over 1.3 billion sits in the Japanese small cap sector. It has a strong long-term track record in the region based on a team oriented approach to stock-picking.

If you are adventurous with a long-term time investment horizon, Japan might be a good area to find growth as it has a good outlook and offers ample investment opportunities among its smaller listed companies. Baillie Gifford Japanese Smaller Companies Fund could be a reasonably priced way to exploit this opportunity for portfolios holding a large-cap Japanese fund or no exposure at all.

Baillie Gifford Japanese Smaller Companies B Acc

IA Japanese Smaller Companies


Investing in Japan

Fund Focus

FUND FACTS

Fund Size £865m

Fund Type OEIC



Yield 0.29%


CHARGES









Initial Charge 0%


Total Fees 1.47%


ASSET ALLOCATION

Industrials 29%

Information Technology 20%


Health Care 13%

Communications 7%


Consumer Staples 6%

Financials 6%

Real Estate 2%

Materials 1%

Money Market 1%

% Net Assets

200%

150%

100%

50%

0%

-50%

2015 2016 2017 2018 2019

Performance %




“Many of you have

already transferred

accounts and I am

delighted to say that

feedback has been

extremely positive.”

Following our decision to move away from AEGON (previously Cofunds) we launched a replacement platform with Charles Stanley in May 2019. Many of you have already transferred accounts and I am delighted to say the feedback has been very positive and we continue to see transfers being completed in good time. If we have not contacted you already inviting you to transfer your investments we will do as soon as we can. If you want to begin the transfer process sooner please do not hesitate to get in touch to request a transfer pack.

For those who are not aware, our platform is based on tried and tested technology developed and maintained by Charles Stanley (who acquired us in 2007). As an investor you will benefit from the following:-

• A competitive platform charge of 0.55% per annum (no charge for Junior ISA accounts)

• A wide selection of over 3,500 funds to choose from

• Buying and selling funds are free of charge

• Quarterly Statements and Annual Tax Certificates delivered via email or post dependent upon your preference

• Online access to view and manage your account

• One company to deal with, simplifying administration – particularly important for Executors

• Dividends can either be distributed or left to accumulate to pay for charges

• Pay money into your account(s) by cheque or debit card

CS Platform

Our Investment Platform All your investments under one roof

By Mark Feely



Questions and Answers

“If you opt to access

your account online via

the secure portal on our

website you will receive

an invitation to register

shortly after your

account is set up.”

If you opt to access your account online via the secure portal on our website (www.csinvestmentchoices.co.uk) you will receive an invitation to register shortly after your account is set up. Registration is simple to follow and only takes a few minutes. You will also benefit from the following:-

• Gain access to detailed individual portfolio holdings with near-real time values and transaction information

• Buy and sell funds• A Mobile App to view your investments on

the move• Access to all your statements, tax

certificates and contract notes in one place – never lose a document again!

• A secure two-way messaging facility which provides the means to send confidential documents to us electronically

• A simple and accessible website to view your investments when you want

• Pay money into your account via debit card or BACS transfer

There is a short video highlighting the main features of website which you can access at https://www.csinvestmentchoices.co.uk/my-account.

Q If I opt for online access will I still be able to speak to you

about my investments?

A We provide the option for clients free of charge which they can use

at their discretion. Our availability to you will continue if you decide against this and we will continue to discuss any investment related matter with you in the same way that we always have. If you do not feel comfortable in opting for online access simply tick the box on the application form highlighting your preference.

Q I do not have an account with AEGON – does this matter if

I want to set up an account with you?

A No – the platform’s main purpose is to facilitate the consolidation of all

of your ISAs and Investment Accounts no matter where they are held. For example, clients frequently hold investments with a number of different investment platforms and are transferring each of these to us to make viewing their investments easier by holding everything in one place.

Q I have investments that are not on an investment platform

– can I transfer these to Charles Stanley?

A Yes – when we speak to clients about transferring their assets we often find

that they also hold investments directly with fund management groups (i.e. Invesco or Jupiter) and these are also being transferred to simplify administration and to access information about them more easily. Send us the latest statement that you have and we will prepare the transfer application for you for signature and return.


CS Platform

Q Can I hold shares and investment trusts on the

investment platform?

A Yes – investors are finding this particularly useful if they want to view

these in one place. Call us to discuss the options available.

Q How do I withdraw my money – are there any penalties?

A There are no penalties for withdrawing cash from your account.

This can be arranged by calling us or by sending us a secure message if you have online access. Payment will be made via BACS directly to your registered bank account usually within three working days.

Q What other benefits are there?

• A zero charge Junior ISA – Making the changes that we have has also allowed us to review the products that we offer. Before, we were restricted to products provided by a third party (AEGON) – this is no longer the case. Junior ISAs are key to ensuring that our children and grandchildren are provided with as good a start in life as possible. Recognising this, we can now offer a Junior ISA free of any platform charges which will provide a boost to investment returns.

• Self Invested Person Pension (SIPP) – we are currently working on providing access to a SIPP which will be accessible in the same way that your ISAs and Investment Accounts are. More news on this to follow.

“There are no penalties for withdrawing cash

from your account. This can be arranged by

calling us or by sending us a secure message if

you have online access.”

The process is quite simple. There are no costs to you if you are transferring from AEGON although there may be costs if transferring from another investment platform. The best option is to contact us on 01482 861455 to discuss your existing AEGON account. You will be issued with a “transfer pack” which will include details of on-going charges and Business Terms for our platform. Complete the forms and return them to us and we will arrange the rest. Alternatively complete the response slip enclosed and we will contact you.

How do I transfer my accounts to your investment platform?



Inheritance TaxDespite the recent introduction of the new residence nil-rate band in 2017, Inheritance Tax revenue exceeded £5 billion for the first time in the UK, in the tax year 2017/2018. This highlighted that without putting appropriate arrangements in place, you are risking not passing on a large portion of your assets to your loved ones.

Inheritance Tax is often known as a “voluntary tax” as it is largely avoidable with suitable planning. One of the many options that can be used to mitigate Inheritance Tax is investing in shares listed on the Alternative Investment Market (AIM) that qualify for Business Relief. Once Business Relief qualifying assets are held for a minimum of two years, they are exempt from Inheritance Tax providing they are still held at the time of death. If the two-year holding period is not met, a surviving spouse or civil partner can inherit the portfolio without restarting the required holding period.

AIM is an interesting option, when Inheritance Tax (IHT) planning, for investors who are willing to take on the risk. Unlike many other IHT solutions, an investor can

maintain control of their assets as the holdings remain in their name. AIM portfolios are also straightforward and do not involve some of the legal complexities of trusts. In addition, it can be an effective solution for an ISA. An AIM ISA is free from Capital Gains Tax, Income Tax on your dividends and has the potential to be free from Inheritance Tax. Investing in Business Relief qualifying assets is the only way to mitigate Inheritance Tax for your ISA.

The Alternative Investment Market

AIM was established in 1995 and is the London Stock Exchange’s market for smaller, growing companies. AIM’s regulatory structure is based around balancing the flexibility a growing company needs while offering appropriate investor protection.

“One of the many

options that can be used

to mitigate Inheritance

Tax is investing in shares

listed on the Alternative

Investment Market

(AIM) that qualify for

Business Relief.”

By James Rae

Reducing your


Charles Stanley Inheritance Tax Service

AIM has become attractive to a wide range of companies at different stages of development and covers a broad range of sectors, including a number of long-established companies.

Historically, AIM has been regarded as a market full of high risk, loss-making technology and resource companies that were caught out in the dotcom bubble and the financial crisis. However, over the course of the past decade the number of stocks listed on AIM has reduced dramatically, while the total market capitalisation of the index is now almost £100bn. The average company on AIM is now capitalised at more than £100m.

Despite the rise in quality and size of the constituents listed on AIM, many of these companies still qualify for Business Relief and therefore gain exemption from Inheritance Tax (IHT). This is provided that the company is not listed on a Recognised Investment Exchange (RIE) and it is a trading entity. The result is that investors can invest in a number of companies of reasonable size and still save IHT for their beneficiaries as long as their AIM shares have been held for two years and are held at the date of death. For example, an investor could hold a company such as Fever-Tree, which currently has a market capitalisation of around £3 Billion, and after two years, benefit from 100

percent relief from any IHT due on that holding.

Who would typically invest in an AIM portfolio?

There are a wide range of clients who open AIM portfolios at Charles Stanley, but the one common theme is that they all have estates that are large enough to be affected by Inheritance Tax. It is recommended that clients speak to a professional to establish if this applies to them.

Often clients join the Charles Stanley AIM service when they have left their IHT planning to the last minute. Using AIM shares, that qualify for business relief and therefore can be outside the taxable estate in two years, can help as it is the fastest way to reduce a potential IHT liability. This means that many elderly clients come to us when they are not sure if they are going to live for seven years; which is the required period between a gift, to a beneficiary, and the donor’s death for it to be out of the taxable estate.

However, some investors open an AIM portfolio hoping that the holdings will rise in value over the long term, while also sheltering some assets from Inheritance Tax. These clients typically come to us in their early seventies and add to their portfolios as they age. Often these clients invest in AIM shares through their ISAs, which have remained relatively untouched for a number of years.

The Charles Stanley AIM Service

The Charles Stanley AIM service has maintained a strong performance track record by investing in cash generative, established businesses. These companies need to have experienced and committed management teams who have a proven track record of successfully growing businesses. To find these potential holdings the team screen companies, looking for strong balance sheets, profitability and cash generation. The team then meet company management several times and often conduct site visits to fully understand the opportunities and risks in these businesses, before investing. This approach leads to the construction of portfolios that are diversified across multiple industry sectors, with strong companies that would hopefully survive in another economic downturn.

Want to find out more?To find out more about the Charles Stanley AIM Service and how it could help you reduce your Inheritance Tax liability, return the response slip enclosed with details of how we can best contact you. As with any tax planning, people should consider taking financial advice.

The information contained within this article is based on our understanding of current UK Legislation, Taxation and HMRC guidance, all of which may be subject to change. Nothing contained within this article should be construed as personal advice based on individual circumstances.

Financial Planning Charles Stanley

Services for You...

Charles Stanley has been providing financial peace of mind for generations and is one of the leading wealth managers in the United Kingdom, with assets under management and administration of some £23.8 billion (as at 31 March 2018).

We would like to make you aware of the range of financial planning services that we provide and to offer you a free, no obligation, initial consultation with one of our professional financial planners.

Taking financial advice can save you time and effort; it can also give you the peace of mind that you are making the right financial decisions now, and for the future. There are times when advice can be essential rather than simply useful. In particularly complex situations, expert knowledge may be required to structure your affairs appropriately and maximise the opportunities available.

Investing a lump sum

As well as making sure your money is working as hard as possible, a financial planner can help you make the most of tax allowances

and reliefs. This is particularly relevant today given the changes to the taxation of dividends, buy to-let property and savings.

Large or complicated pensions

From 6 April 2016, the lifetime allowance changed; the amount you can build up in your pensions without paying tax of up to 55%, was reduced from £1.25 million to £1 million, potentially affecting many unsuspecting investors. It can be easy to overlook how much of the lifetime allowance you have used, or will use up, particularly with regard to Defined Benefit pensions; for example a final salary pension of £25,000 a year uses £500,000 of a lifetime allowance.

Your financial planner can help you check the values of your pensions against the lifetime allowance and potentially help apply for protection against the drop. They could also help with analysing whether it is appropriate to consolidate your pension pots. The taxation of pensions and investments depends on individual circumstances and is subject to change in the future.

“As well as making sure

your money is working

as hard as possible,

a financial planner

can help you make the

most of tax allowances

and reliefs.”

By Tim Venner



Retirement planning

With life expectancy rising, many more of us will be living into our 80s and 90s, potentially increasing the number of years we will spend in retirement. A financial planner can assist you in working out how much you need to retire comfortably, and assess your existing finances to see whether you are on track to meet your goals. If you are approaching retirement age, they can also tailor a retirement plan using cash flow modelling to generate a sustainable level of income from pensions and other sources.

Inheritance Tax planning

There are a number of ways you can reduce a potential Inheritance Tax liability including making annual gifts. However, as your estate gets larger and more complex, advice from a professional can help guide you through the options for passing on your wealth. If you own multiple properties or have significant business interests, this could be especially important.

Charles Stanley – Focusing on You

At Charles Stanley we provide a personal service and pride ourselves on our commitment to our clients. Our financial planners have a wealth of knowledge and experience and can help you with a wide range of services.

We tailor our advice to suit our clients’ needs whether it is for one off piece of advice or ongoing service advice, we tailor it to suit the clients needs.

Our financial planning team offer a free, initial consultation which is designed to help you find the right service for you. There is no obligation for you to use our services, however, if after your initial consultation you wish to proceed with financial advice, your financial planner will advise you of the next steps and fees involved.

The information contained within this article is based on our understanding of current UK Legislation, Taxation and HMRC guidance, all of which may be subject to change. Nothing contained within this article should be construed as a personal advise based on individual circumstances.

Financial Planning

To arrange your initial consultation please complete and return the enclosed response form.

“Our financial planning team offer

a free, initial consultation which is

designed to help you find the right

service for you.”

Charles Stanley Financial Planning - a world of differenceThe scope of our financial planning services:

• Pension and Retirement planning

• Inheritance Tax planning

• Tax efficient savings

• Long-term care planning

• Wealth protection

• Life events

• Personal and family protection


Charles Stanley Financial Planning

Important Information

Past performance is not a reliable guide to future returns. The value of investments, and the income derived from them, can fall as well as rise. Investors may get back less than invested.

This document is a marketing communication. Our research is for our clients only. It is not an offer, or the solicitation of an offer, to buy or sell any security in any jurisdiction where such an offer or solicitation would be illegal. Investment recommendations are given in good faith but without legal responsibility and are subject to change without notice. They have not been prepared in accordance with regulatory requirements designed to promote the independence of investment research. Investors should be aware that the Charles Stanley & Co. Limited may have a conflict of interest that could affect the objectivity, independence and impartiality of this newsletter. Charles Stanley & Co. Limited and its connected companies, their directors, members, employees and members of their families may have positions in some or all of the securities referred to in this research. Our policy on research production, including how we manage actual or potential conflicts of interest, can be found on the main Charles Stanley website: www.charles-stanley.co.uk.

Other than disclosures relating to Charles Stanley & Co. Limited, this research is based on current public information that we consider reliable, but we do not represent it as accurate or complete and it should not be relied on as such. Investors should consider the contents of this publication as only a single factor in making their investment decisions.

Before you invest and for your own protection, please ensure you have read carefully the documents enclosed with this publication and other documents.

It is strongly recommended that you also review the available literature associated with any investment that you may wish to make. On receipt of your application, where relevant, a Key Investors Information Document (KIID) will be sent to you containing further specific information on each of the funds in which you wish to invest. If you are investing online, the Funds Key Features/KIID will be available at the point of purchase.

The information in this document does not constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. If you are unsure as to whether an investment is suitable for you, it is strongly suggested that you seek professional investment advice.

Charles Stanley & Co. Limited and/or its investment

advisers may provide oral or written market commentary or trading strategies to its clients, or make investment decisions on behalf of clients, that are inconsistent with or reflect views that are contrary to the opinions expressed in this publication.

For funds that invest overseas, exchange rate variations may cause the value of your investments to rise or fall. Investments in certain funds, including emerging markets, specialist geographical areas, smaller companies and specialist sectors (such as technology and ethical stocks) tend to be more volatile. Where a fund’s objective is to provide income and the income is paid out, there can be a reduced potential for capital growth, especially over the medium to long term. The level of income payments can vary and where a bond fund’s running yield is greater than the redemption yield, this may erode capital.

Some funds invest in higher risk fixed interest securities, known as sub-investment grade bonds. These bonds have a low credit rating and higher risk of default than investment grade bonds. This means that there is an increased risk that the value of your investment could fall. The tax treatment of investments and pensions depends on individual circumstances and may be subject to change in the future. Fund switches outside of an ISA wrapper constitute a realisation for capital gains tax purposes.

Get in touch 01482 861455

5/7 Landress Lane, Beverley, East Yorkshire, HU17 8HA

[email protected]

www.csinvestmentchoices.co.uk

If you would like to discuss the

investments described in this

magazine, or need help completing

the application forms, please get in

touch - we’re here to help!


Hebden Bridge, West Yorkshire.

Charles Stanley Investment Choices is a trading name of Charles Stanley and Co. Limited, which is authorised and regulated by the Financial Conduct Authority.

A member of the London Stock Exchange and a wholly owned subsidiary of Charles Stanley Group PLC. Charles Stanley & Co. Limited is registered in England No. 1903304.

Registered Office: 55 Bishopsgate, London, EC2N 3AS.

Writers: Stephen Luwero, Mark Feely, James Rae, Tim Venner | Design: Thinqmedia Limited.

How to invest Identify the fund(s) you wish to invest into - feel free to call us to discuss these

funds in more detail.

Complete the application forms enclosed and return them to us in the pre-paid

envelope provided. Alternatively, logon to your account online or call us with

your debit card details. If you want to invest monthly please inform us so that we

can send you a direct debit mandate to complete.