FTSE 100: 7389.46 ▲ 8.78 (0.12%)
As a convinced and wounded (not mortally) ‘remainer’, I have enjoyed (so far) the honeymoon period of calm and gently rising markets with the fall in sterling considerably helping our exporters.
In the FTSE 100, 80% of revenue comes from overseas earnings, 50% in the FTSE 250, the more useful measure of the economy.
The UK has yet to invoke Article 50 of the Lisbon Treaty and Theresa May has pledged not to trigger this until 2017 at the earliest, but faces increasing pressure from the European Union to bring this forward.
We hear unofficially that Whitehall bureaucracy is currently unprepared for these negotiations, whilst the European Commission still has unhelpful divisions among the remaining 27 member states.
Whilst all this goes on, we’re not doing too badly with unemployment staying low and even ‘my’ recruitment company in 10 northern industrial towns enjoying strongly improving weekly figures amid increasing confidence.
The Bank of England forecasts the economy to reach its nadir in 2017 and maybe this is already built in, although mortgage approvals, a key leading confidence indicator, were down 10% in July year-on-year whilst in Europe, German exports fell at their fastest pace for over a year in July and 10-year bund yields have gone above zero as bonds fall globally.
UK trade to the EU has fallen from 60% in the 90s, to about 45% now, forecast to be below 30% by 2050, driven by weak long-term growth in the EU, with overseas demand for British goods and services growing strongly. There is clearly enthusiasm in Australia, New Zealand, China and particularly India where the UK is the biggest G20 investor. India meanwhile invest more in the UK than in the rest of Europe combined, all of which augurs well, but could, alarmingly, take 10 years to ratify.
Both Credit Suisse and Morgan Stanley have cancelled predictions of a post-Brexit recession and revised economic forecasts upwards.
Then there is chancellor Philip Hammond’s first Autumn Statement on 23 November to cheer us with hints of further infrastructure spend. We know now that political expediency has probably swung the Hinckley Point C decision, which, as an engineer and international contractor of 30 years, I always opposed.
A negotiated project with no realistic competition is a contractor’s dream. We can only hope that government is tough enough and suitably organised to monitor extra cost claims from the French and Chinese operators.
Hopefully we might soon get the desperately-needed London airport decision and more spending on the great northern powerhouse, where an improved rail link between Manchester and Leeds is surely more urgent than HS2.
I’m even feeling slightly more confident about stability in the City, persuaded that our financial services have the indisputable benefits of language, time zone, expertise, infrastructure and history, located in London’s wonderful cultural mecca which will continue to hold many of the world’s financial elite.
Whoops, I’m starting to sound like a Brexiter – better watch that. Humble pie – certainly not, Brexit hasn’t even happened yet, so far nothing has changed and there’s a long haul ahead.
Remember that the EU is negotiating from a position with 16% of their exports reaching us (the same as the US), while 45% of our exports are to the EU. Who needs each other the most then? We start those negotiations rather on the back foot, as they well know.
However, the Brexit result did not cause anything like the market disturbances that most of us feared. Sterling took the brunt, down 17% against the euro since Christmas, which actually helps exporters.
By late July I was feeling more confident so decided to put some ISA money into an Alternative Investment Market inheritance tax planning service, to enjoy the significant tax concessions.
As with any ISA investments, you can invest a maximum of £15,240 in tax year 2016/17 and pay no capital gains tax on shares nor income tax on dividends.
If the shares are in AIM companies and qualifying (nearly all do but not property companies, nor business that exist for investments, plus some other miscellaneous exclusions, including cash not used for a business purpose) they are eligible for business property relief, and so are not subject to inheritance tax if held for a minimum of two years.
Hence invest your ISA funds into qualifying AIM stocks and you pay no capital gains tax, no income tax on dividends and the shares may be free of inheritance tax after two years.
I gave a third of my AIM ISA money each to two fund managers. One was Hargreave Hale, where the renowned Giles Hargreave has been running several of UK’s most successful growth funds for some years. His team's stock picking abilities are well established and very highly regarded.
The other was Hawksmoor Investment Management, where I am a director. Chief investment officer Jim Wood-Smith has assembled an able team to run a portfolio of AIM stocks specifically designed to give inheritance tax protection; performance is also impressive.
I used the remaining third to invest myself. Many of the companies I invested in I have mentioned before, but others I haven’t, and will comment on them another time. My portfolio consists of:
Do bear in mind that AIM stocks are more risky than fully listed shares, but then if they weren’t you wouldn’t be able to benefit from these favourable tax concessions.
Spread the risk to at least 10 stocks, run the 20% stop loss rule and don’t panic during the bumpy markets which surely lie ahead.
If you worry about what effect a president Trump would have on global markets, the dollar, policing the world and NATO, then it seems sensible to me to have a very competent team watching your money 24/7, something most of us find hard to do. Invest your core money with a respected, proven fund manager – not just one which hits the highs in bull markets but actually stands out when the going gets tougher.
I hold my cautiously managed core money in Hawksmoor’s Vanbrugh and Distribution funds, which are up an impressive 11% and 12% this year, with very low volatility, but there are many other excellent similar funds.
David Kempton is non-executive chairman of Hawksmoor Investment Management. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.