Apart from the customary cheering and jeering within the House of Commons, the main changes for investors and savers were the planned flexible and Help to Buy ISAs, as well as the lowering of lifetime pension allowances – a policy that has been slammed in many parts of the fund management community.
Elsewhere, US Federal Reserve chief Janet Yellen told the market that an interest rate rise wasn’t imminent, which caused bond yields to fall and the dollar to strengthen; in addition, the FTSE 100 came tantalisingly close to breaking through 7,000.
It didn’t unfortunately, but there was a solar eclipse.
Given the amount of news-flow and our access to FE Analytics’ data, we have had plenty to write about over the past seven days. Here is a selection of our favourite stories. Have a great weekend.
Osborne “radically” overhauls ISAs in a Budget for savers
News editor Gary Jackson highlighted the major changes in the Budget and the differing reactions from leading experts within the fund management industry.
The chancellor promised a “radically more flexible” ISA system by announcing that savers will be able to take money out of their cash ISA and then replace it later without being hit by any tax penalties.
Help to Buy ISAs will be made available from the autumn, offering a maximum bonus size of £3,000 per person, and can be used towards home purchases of up to £450,000 in London and up to £250,000 outside London.
Osborne’s changes to ISAs were welcomed by many experts, with one stating the new Help to Buy wrappers would “provide a significant boost to the ability of a first-time buyer to save speedily and effectively”.
However, Osborne’s decision to lower the pension lifetime allowance wasn’t so well received.
“This system discourages sensible, regular investing over a long time period. It penalises good investors who have started early and regularly invested well over their lifetime, building up a big retirement pot,” said Nick Hungerford, chief executive at Nutmeg.
Woodford tells Osborne: “Get a reality check”
Sticking with the Budget, and in an article on Thursday, Jackson reported that star manager Neil Woodford disagreed with the chancellor’s assertion that the UK will return to a surplus by 2018-19. The FE Alpha Manager believes there is “no room” for complacency when it comes to the economy.
Woodford has said for some time that central banks’ growth and inflation assumptions are “consistently too optimistic”, adding that this sentiment also applies to the OBR’s forecasts – which suggest real GDP growth of 2.3 to 2.4 per cent per annum over the next five years and inflation returning to the Bank of England’s target of 2 per cent by the end of the period.
“The forecasts released by the OBR, and the views expressed by chancellor George Osborne in the Budget, are not consistent with our views at all,” Woodford (pictured) said.
“So although the claims of a return to a budget surplus by 2018/19 for the first time in 18 years will make great headlines – and may sound attractive to potential voters – we believe a dose of reality is required.”
Woodford or Barnett: Should you buy one, both or neither?
The star manager was the focus of another article this week when reporter Daniel Lanyon compared CF Woodford Equity Income to his old Invesco Perpetual income funds, which have been under the stewardship of FE Alpha Manager Mark Barnett since March last year.
Lanyon noted how the two FE Alpha Managers have similar styles, which is understandable considering their career paths as fund managers, but they have shown some divergence since the split – such as Barnett’s decision to diversify the portfolios he has inherited and his preference for underlying dividend growth over headline yield.
Within the article, various fund buyers gave the reasons for either holding Woodford or Barnett separately, or in John Chatfeild-Roberts’ case, both together.
Performance of managers since June 2014
Source: FE Analytics
Both managers have comfortably outperformed their peers since Woodford launched his new fund in June last year, but, as the graph above shows, Barnett is narrowly underperforming against his old boss.
Is now the time to buy FE’s best high-conviction manager?
Talking of star managers, in this article we looked at whether investors should buy Mark Martin’s new Neptune UK Opportunities fund.
Martin – who recently won the Best for High Conviction FE Alpha Manager award at our inaugural event – has built up a very impressive track record as manager of the five crown-rated Neptune UK Mid Cap fund as a result of his three-silo approach to the FTSE 250.
Performance of fund versus sector and index since Dec 2008
Source: FE Analytics
However, while the fund has performed phenomenally well, it may have gone under the radar of most investors due to the niche area of the market it focuses on and the manager’s defensive approach.
We therefore took a closer look at his new fund, which has a multi-cap remit, and the experts are confident Martin will be able to adapt his investment process to other areas of the UK equity market.
Why you could be better off if your fund charged a performance fee
Performance fees are a highly debated topic on FE Trustnet, with some commentators defending them as a way of aligning the interests of the manager and their unit holders, while others slam them as indicative of the investment management industry’s greed.
Surely it’s a manager’s job to ensure that the fund performs well, so why should they essentially be paid twice for it?
Well, Orbis’s Dan Brocklebank believes that, with a re-vamp of the old structure, performance fees could actually hold a lot of appeal.
The analyst said that in time, they could well become something that investors won’t do without – so long as managers bear the burden of underperformance as well as being rewarded for outperformance.
“It’s one of the biggest biases that distorts human behaviour and at its absolute core tends to be a human impulse towards greed,” Brocklebank said. “People typically want more money than less. But when that becomes overwhelming, they tend to make irrational decisions. Incentives in any business will determine how people react.”
Nick Train: There is no reason not to hold Unilever
Over on Trustnet Direct, production editor Anthony Luzio looked at why Nick Train believes “there is no reason not to hold Unilever”.
The manager of the Finsbury Growth & Income Trust says that not only is Unilever’s dividend high and growing – it currently stands at 3.5 per cent and was raised by 6 per cent earlier this year – but it is one of the most secure in Europe.
He also said he couldn’t think of another sector that would benefit more from the falling oil price than consumer branded goods.
Not everyone is as positive on the stock as he is, though – Neil Woodford said that despite the company’s obvious qualities, it is far too expensive, while Job Curtis of the City of London Investment Trust thinks it could be entering bubble territory.