Investment Update: Equity Portfolios Suffer Worst Year For Cash Outflows Since 2014.
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5 January: Investors Abandon UK And Passives In Favour Of Global Funds.
Investors in funds exposed to stocks and shares dumped holdings worth more than _6 billion last year, according to the latest buying and selling data from global funds network Calastone, Andrew Michael writes .
The company’s Fund Flow Index showed that, overall, equity funds leaked _6.29 billion during 2022, the worst figure in eight years. Three-quarters of the money that flowed out from the sector did so during the third quarter, a period that coincided with extreme market turbulence.
Calastone reported that investors took particularly evasive action in relation to UK-focused funds. Net sales of holdings – that is, outflows of money – were recorded in the sector during every month of 2022, with the overall amount, including non-equity funds, totalling nearly _8.4 billion for the year.
Elsewhere, investors also sold out of European funds to the tune of _2.6 billion during 2022, the fourth consecutive year of net sales in this sphere. Other sectors experiencing net losses over the period included North America (_1.2 billion) and Asia-Pacific (_1 billion).
The Fund Flow Index showed that last year was also a bad one for so-called ‘passive’ index tracker funds, with the sector experiencing net sales of _4.5 billion.
In contrast, global funds – whose portfolios are invested across a range of geographical regions – continued to attract money.
Calastone said investors added nearly _5 billion to the sector last year, thanks mainly to the appeal of global funds that incorporated an environmental, social and governance – or ESG – investment mandate.
Emerging market funds also enjoyed net inflows of cash worth _650 million.
Despite a seismic year on the bond markets, the fixed income sector was another to experience net inflows of cash worth _2.9 billion, well under half the _7 billion in investors’ cash that found its way into bond funds during 2021.
Edward Glyn, head of global markets at Calastone, said: "2022 was momentous. The sudden flip by central banks from floods of liquidity and cheap money to a barrage of rate hikes aimed at taming rampant inflation turned asset markets upside down.
"Such large outflows from equity funds in 2022 without a corresponding increase in other asset classes is a very large vote of no-confidence. Fund management groups were hit with a double whammy. The supply of capital shrank as bond and equity markets fell, and the replenishment rate either reduced or went into reverse as investors either slowed their buying or fled for the safety of cash."
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4 January: Forbes Advisor Analysis Reveals Preferred Fund Choices.
Investors went far and wide in their quest to make money in 2022, according to the most-bought funds data from three leading investment platforms, writes Jo Groves .
Topping the buy lists were global funds, funds of funds and precious metal funds. Cautious funds were also a popular option as investors sought a safe harbour from falling stock markets.
We’ve compiled a list of the top 10 funds bought in 2022 by customers of investment platforms AJ Bell, Bestinvest and Hargreaves Lansdown below:
AJ Bell Bestinvest Hargreaves Lansdown Scottish Mortgage Investment Trust Fundsmith Equity Artemis Global Income VT AJ Bell Adventurous* Evelyn Growth Portfolio* BlackRock Consensus 85 VT AJ Bell Global Growth* Evelyn Adventurous Portfolio* Fidelity Index World VT AJ Bell Mod Adventurous* Scottish Mortgage Investment Trust Legal & General Future World ESG Developed Index Fundsmith Equity IFSL Marlborough US Multi-Cap Income Legal & General International Index Trust VT AJ Bell Balanced* SVS Sanlam Global Gold & Resources Legal & General US Index iShares Core FTSE 100 ETF Evelyn Maximum Growth Portfolio* Troy Trojan Vanguard LifeStrategy (100% Equity) HSBC American Index Fund UBS S&P 500 Index VT AJ Bell Responsible Growth* Jupiter Gold & Silver Fund Vanguard FTSE Global All Cap Index Vanguard S&P 500 ETF Charteris Gold & Precious Metals Vanguard LifeStrategy 100% Equity *Ready-made portfolios/funds of funds offered to customers.
What were the investing themes of 2022?
So where are investors putting their money amid economic uncertainty and stock market volatility? Let’s look at some of the key investing themes from 2022.
First up are funds of funds which offer ready-made portfolios for investors wanting a more hands-off approach. These funds are split by risk (from cautious to adventurous) and are typically invested in a mix of funds across different asset classes such as equities, bonds and commodities.
After delivering some impressive gains over the previous three years, the global fund sector hit the buffers last year, falling by 11% (according to Trustnet). As a result, investors were able to buy global funds at depressed prices in 2022, hoping for longer-term upside when stock markets recover.
Precious metal funds were also a popular option. Gold, in particular, is seen as a hedge against high inflation and a potential sanctuary in a stock market downturn. Gold investors have enjoyed a 15% increase in its price over the last year, while the price of silver is up by 17%.
The battle between active and passive funds also looks set to continue. Investors are backing US stock markets to recover, with S&P 500 tracker funds a popular choice. But there’s also a number of actively-managed funds in the top 10, which may offer the potential to limit losses in falling markets, which tracker funds are not set up to do.
Most popular funds of 2022.
Finally, which funds were the most-bought across the platforms?
Top of the list was Scottish Mortgage Investment Trust , which made the top four on two of the investing platforms. Managed by Baillie Gifford, it focuses on entrepreneurial growth companies and over 50% of the fund is invested in the US.
The fund is likely to appeal to investors willing to tolerate volatility in pursuit of higher returns.
The fund had a stellar 2020, achieving a 110% return, before losing over 45% of its value in 2022.
Fundsmith Equity , managed by veteran manager Terry Smith, was also popular with investors. It invests in a fairly concentrated portfolio of global equities, with a bias towards the US and the consumer, healthcare and technology sectors.
However, its performance has also been a mixed bag, delivering a top-quartile return of 62% over five years, but a third-quartile loss of 14% in 2022, according to Trustnet.
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3 January: Home REIT Misses Regulatory Deadline.
Home REIT, the _1.2 billion real estate investment trust, has been forced to suspend its shares temporarily having missed a deadline to publish its annual report in accordance with UK financial rules, Andrew Michael writes .
The investment trust, which funds the acquisition and creation of properties aimed at providing accommodation to homeless people, has been in dispute for the past two months with short seller Viceroy Research, which published a report last November that included a number of claims against the company.
These included allegations, which Home REIT denies, of inflated property values and conflicts of interest with developers. But the report prompted a share price slide – from over 80 pence in November 2022 to approaching 37 pence now – that has seen the trust drop out of the FTSE 250 index.
In addition, the claims have led to BDO, Home REIT’s auditor, redoing its work on the company’s accounts and subsequently delaying the publication of its annual report.
This put the investment trust in breach of the Financial Conduct Authority’s disclosure and transparency rules, requiring trading in its shares to be suspended.
The rules say that a company has to publish its annual report within four months from the end of its financial year. Home REIT’s financial year ended on 31 August, giving it a deadline of new year’s eve to complete the task, or fall foul of the regulations.
In a statement to the London Stock Exchange, Home REIT said: "The company intends to request a restoration of the listing of its ordinary shares upon publication of the 2022 results, which the company expects to be published by as soon as is practicable.
"While the company awaits the completion of BDO’s enhanced audit procedures, the company will continue with the previously announced steps to maintain and enhance shareholder confidence, while maintaining its ordinary course operations to provide high-quality housing for some of the most vulnerable people in society."
Oli Creasey, equity research analyst at Quilter Cheviot, said: "In principle, this is a technical breach of rules, and one that should be able to be remedied fairly quickly. We would expect that the results will be published in January 2023, and trading in the shares to resume promptly after that.
"The reaction to the full year results, when it comes, is going to be highly dependent on the auditor’s statement, as well as the REIT management’s response to the allegations. For once, analysts will not be focusing on the financial data. Home REIT has already offered a rebuttal to the report but will likely need to provide investors with further detail to shore up confidence in the company."
19 December: Move Would Free Up Owner’s Time For Tesla, SpaceX.
Twitter users have decreed that Elon Musk, the company’s chief executive, should step down from his role after he held a vote to decide his corporate fate at the social microblogging platform, writes Andrew Michael .
The billionaire entrepreneur, who also heads up the electric car maker, Tesla, and space transportation and aerospace manufacturer, SpaceX, bought Twitter for _36 billion ($44 billion) in October, taking the company private.
Yesterday (Sunday), shortly after attending the World Cup final in Qatar, Mr Musk set up a ‘yes’ or ‘no’ Twitter poll asking his 122 million followers whether he should step down as head of the company.
"I will abide by the results of the poll," he tweeted.
Out of the 17.5 Twitter million accounts that cast votes, over half (57.5%) called for Mr Musk to step down, while the balance (42.5%) said he should remain.
It remains unclear whether Mr Musk will honour his decision. An hour after the result of the poll appeared on Twitter, he tweeted: "As the saying goes, be careful what you wish for".
Either way, he would remain as the company’s owner.
Responding to the poll, Changpeng Zhao, boss of cryptocurrency platform Binance (who has eight million Twitter followers), tweeted Mr Musk not to step down, urging him to "stay the course".
Last month, Mr Musk told a Delaware judge that he planned to reduce his time at Twitter and, over time, find somebody else to run the business.
There has been a string of controversial decisions since Mr Musk took over the company in October. About half the company’s staff have been fired, while an attempted roll-out of Twitter’s paid-for verification feature was paused before being kickstarted again last week.
Mr Musk has also come under fire for his business’s approach to content moderation and has been condemned by both the United Nations and the European Union over suspensions that the company has imposed on journalists about the way they cover the company.
Tesla’s share price has fallen sharply in value over the course of 2022 – down 60% year-to-date to trade at just over $148 currently – with critics of Mr Musk saying his pre-occupation with Twitter is damaging the electric car maker’s brand.
Russ Mould, investment director at AJ Bell, said: "Given how much of a distraction Mr Musk’s tenure at Twitter has become, shareholders in the electric vehicle manufacturer will be breathing a big sigh of relief if he steps back from Twitter and gets back to the day job at Tesla.
"For someone who sets so much store by work ethic, Mr Musk sure seems to spend a lot of time on social media. With Tesla shares having more than halved year-to-date, he needs to roll up his sleeves and get his main business back on the road."
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8 December: Energy, IT And Healthcare Tipped As Sectors To Watch In 2023.
Private investors believe that the threat of recession both at home and overseas will be the most significant threat to stock markets in 2023, according to the investment trading platform interactive investor (ii), Andrew Michael writes .
The view is shared by professional investment company managers, many of whom believe both a slowing down of corporate earnings and recessionary threats are greater concerns than inflation over the coming year.
The past 12 months have been turbulent for stocks and shares investors, with markets stuttering against a backdrop of stiff economic headwinds compounded by soaring inflation, rising interest rates and gathering recessionary clouds.
Stock market performance has also been affected by global supply chain bottlenecks and Russia’s invasion of Ukraine.
The majority of private investors (54%) told ii that uncertainty over the economic outlook meant they would stay on the investing sidelines in the coming months, either because they were unsure how best to re-jig their portfolios, or because they weren’t planning on making any changes.
Investors also said they were torn between the need to achieve investment growth or focusing on strategies that preserved existing capital over the coming year.
One-in-10 investors said they were pre-occupied with the issue of investing tax-efficiently. A likely factor for this were the decisions, revealed in last month’s Autumn Statement, to slash capital gains tax and dividend allowances from the new tax year in April.
According to ii, of those investors who are currently taking the plunge, half (50%) are choosing to invest in the UK followed by the US (20%). The company says domestic stocks are typically favoured by investors thanks to a concept known as ‘home bias’ which makes companies closer to home easier to research and understand.
From a professional investing perspective, a poll carried out by the Association of Investment Companies (AIC) found that over half (61%) of its member investment company managers thought that inflation has already peaked. A quarter (25%) told the AIC they believed there was still scope for prices to rise further.
Managers told the AIC that their greatest fears going forward involve a slowdown in corporate earnings and the prospect of recession.
Over a quarter (28%) of managers tipped energy to be the top-performing sector in 2023, followed by IT (21%) and healthcare (11%).
Lee Wild, head of equity strategy at ii, said: "While we don’t know exactly what will happen next year, we do know that the UK economy will likely spend at least some of it in recession. And that’s by far the biggest worry.
"A fifth of investors are investing more money in the US where exposure is primarily to growth stocks like the technology sector. Tech has had a torrid time in 2022 but has reacted positively to any hint that the US rate hike cycle is slowing. If rates peak soon or even begin to ease later in the year, growth stocks are back in play."
Evy Hambro, co-manager of BlackRock World Mining Trust, said: "This year, we have seen a growing acceptance that the low carbon transition simply can’t happen without mining companies supplying the materials required for technologies such as wind turbines, solar panels and electric vehicles.
"The need to build out these technologies has only increased over the past 12 months, with governments, particularly in Europe, committed to reducing their dependence on energy imports from Russia."
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7 December: Investors Should Seek Managers With Proven Track Records – AJ Bell.
Fund managers that actively invest in UK equities have had "a real stinker of a year" in 2022, according to research from AJ Bell, writes Andrew Michael .
The investing platform’s Manager versus Machine report calls this year an "annus horribilis" for so-called ‘actively-managed’ funds – those made up of shares that are chosen by investment managers according to region, asset class or sector, with the aim of outperforming a specific benchmark such as a stock market index.
In contrast to active funds, so-called ‘passive’ investments such as index tracker or exchange-traded funds – are only designed to copy the performance of stock market indices and other benchmarks, not outperform them.
AJ Bell said that only a quarter (27%) of active funds were able to beat a passive alternative this year. Almost a third of active funds achieved the feat in 2021.
The company added that active fund performance improved over the longer term, with well over a third of portfolios (39%) outperforming passives over a 10-year period, although it said: "That’s still considerably less than half and this figure will be flattered by ‘survivorship bias’, as underperforming funds tend to be closed down or merged into others over time."
The report looked at active funds in seven equity sectors and compared their performance to the average passive fund in the same sector. The company said this approach provided a "real world comparison, reflecting the choice that retail investors face between active and passive funds".
The proportion of active funds outperforming the average passive fund was as follows:
Sector Year-to-date 2022/% 5 years/% 10 years/% 2021/% Asia Pacific Ex-Japan 12 19 47 26 Europe Ex-UK 43 40 51 53 Global 30 21 20 25 Global Emerging Markets 21 36 44 50 Japan 36 37 49 47 North America 40 17 17 19 UK All Companies 13 27 60 41 Total 27 26 39 34 Source: AJ Bell, Morningstar, total return _ to 30/11/22. 2021 data to 1/12/21.
Laith Khalaf, AJ Bell’s head of investment analysis, said: "2022 has been a terrible year for active equity funds, especially those plying their trade in UK shares.
"In a year when stock markets have faltered, active managers might have expected to nudge ahead of the tracker funds that simply passively follow the index. But our latest report shows any such hopes have been dashed.
"Where they do select active managers, investors need to tilt the performance odds in their favour, by conducting research to pick out managers with a proven track record of outperformance. That’s no guarantee going forward, but if an individual active manager has delivered outperformance over a long period, that suggests they are skilful and not just lucky."
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6 December: Tech Firms Figure Highly On Investing Map Of UK.
From London to Aberdeen and Cardiff to Manchester, the electric car maker Tesla has topped the table of most popular share purchases among UK’s retail investors, according to the latest figures from Freetrade, Jo Groves writes .
The trading platform’s Retail Investing Map of Britain crunched over six million ‘buy’ orders worth nearly _2 billion to see which shares its investors were buying.
Top 10 lists of share purchases from traders based in 10 UK cities showed that the electric car giant, whose boss Elon Musk recently paid $44 billion for the social media network Twitter, was the most popular trade in eight locations and second in the other pair.
Freetrade’s analysis showed that Londoners, Mancunians, Liverpudlians and Glaswegians were the most avid investors in technology companies, with Alphabet , Apple , Amazon and Meta accounting for half of their share purchases.
Elsewhere, the results showed that inhabitants of Cardiff, Brighton, and Northern Ireland were keen to add AMC and Gamestop to their buy-lists.
AMC and Gamestop made the news in 2021 when, as part of the so-called ‘meme stock’ revolution, private investors on social trading platforms coordinated their buying activity to push up the share price of companies heavily-shorted by institutional investors.
Other findings included:
Investors in Bath showing their support for fast-food delivery services, with Just Eat taking number two spot in the city’s top 10 Brightonians revealing their hip and healthy side by piling into Swedish oat-milk producer Oatly Aberdonians confirming their city’s heritage for natural resources by buying into oil and gas producer BP , and metals miners Ferrexpo and Lithium Americas .
Despite their nationwide affection for Tesla, investors tended to be more regional in their biases towards other companies.
Dan Lane, senior analyst at Freetrade, said: " Greggs cracked the top 50 in Newcastle, but didn’t even make the top 300 in London. "Dispelling the popular footballing myth that there are more Manchester United fans in London than in Manchester, shares in the club were four times as popular in Manchester than they were in the capital. The company also accounted for a whopping 1% of all cash invested in shares by Mancunians in 2022."
30 November: FCA Wants To Open Investment Doors To Heavy Cash Savers.
Major reforms aimed at reducing the cost of financial advice for millions of people with "straightforward needs" have been proposed by the UK regulator.
The Financial Conduct Authority (FCA) says its proposals would create a separate, simplified advice regime, making it easier and cheaper for firms to advise consumers about investments within stocks and shares individual savings accounts (ISAs).
According to FCA research, 4.2 million people in the UK have over _10,000 in cash and say they are open to investing some of their savings.
Analysis by Paragon Bank shows that deposits in savings accounts hit _1 trillion for the first time in September, up _25 billion compared with the same month in 2021.
Paragon said that more than _428 billion is held in ‘easy access’ savings accounts paying less than 0.5% interest, with _142 billion held in accounts paying 0.25% or less.
The FCA says: "While keeping a cash buffer is a sensible way of dealing with unexpected expenses, consumers who hold significant amounts of excess cash may be damaging their financial position, as inflation reduces the value of their savings.
"Altering the current framework could help the advice market support mass-market customers with simpler needs".
The FCA wants to prevent in-person financial advice from being too costly for potential investors "as this can stop them from investing when it may be in their interest to do so".
Its plans include reducing the level of qualifications required for firms to advise on products such as stocks and shares ISAs. It also wants fees to be payable in instalments so that customers do not face large upfront bills.
Chris Hill, head of investing platform Hargreaves Lansdown, said: "We support the FCA’s move to make investing simpler and it’s great that the FCA recognises that today’s all-or-nothing approach to advice doesn’t suit everyone, especially those with sufficient savings who are started out on their investment journey. The proposal should help narrow down options for those who want to invest but aren’t sure where to start."
Richard Wilson at interactive investor said: "This is a watershed moment in the UK. It will determine whether we can begin to change the narrative around long-term financial wellbeing."
22 November: Twice As Many Men Hold Stocks & Shares ISAs As Women.
Men are far likelier than women to invest in stocks and shares but are more prone to bailing out earlier from their investments when market turbulence strikes, according to Alliance Trust, writes Andrew Michael .
Research carried out for the investment company showed that nearly one-in-three UK men (30%) have a stocks and shares individual savings account (ISA) compared with one-in-six women (16%).
The trend continues into other investment products, with one-in-six men (17%) saying they have a general investment account compared with one-in-10 (10%) women.
A stocks and shares ISA is a tax-efficient savings plan that allows the holder to invest up to _20,000 in shares each tax year, while shielding them from income tax, capital gains tax (CGT) and dividend tax.
A general investment account is a product that allows the holder to make investments outside of tax wrappers such as ISAs.
According to the research, women are far more likely than men to hold their nerve amid market volatility.
Alliance Trust found that nearly half of male investors (48%) said they had sold investments when they went down in value in a bid to avoid losing more money. This compared with just over a third of women (38%) who were less likely to have ‘crystallised’ a loss during a market dip.
Mark Atkinson, head of marketing at Alliance Trust, said: "Despite being less likely to invest, women are proving to be better investors. Their behaviour implies a steady long-term investment strategy, without knee-jerk reactions or impatient decisions. This is likely to result in much better financial performance.
"The last few weeks have seen even more chaos in the markets, and dramatic headlines may well prompt a crisis of confidence for investors. Holding your nerve is key. The best investment is one which is left alone for as long as possible. Patience will pay-off."
21 November: Regulator Issues Trading App Warning.
The Financial Conduct Authority (FCA) is warning providers of share trading apps to review "game-like" elements within their offerings because of fears they might mislead investors or encourage them to take risks and lose money, Andrew Michael writes .
Such apps – available via both smartphone and tablet – have become increasingly popular, especially among those aged under 40.
In the first four months of 2021, the FCA said 1.15 million accounts were opened with four trading apps, around double the number opened with all other retail investment services combined.
The regulator says the ‘gamification’ of trading apps – such as peppering users with frequent notifications and sending celebratory messages on the completion of a trade – can lead to poor consumer outcomes.
It said that "consumers using apps with these kinds of features were more likely to invest in products beyond their risk appetite".
The FCA has produced research raising concerns that customers using trading apps are exposed to high-risk investments, with some demonstrating behaviour more commonly found with problem gamblers.
To ensure customers are being treated fairly, the regulator says all firms should be reviewing their products to ensure they are fit for purpose.
Next year will see the introduction by the FCA of the Consumer Duty, which tells firms to design services enabling consumers to make "effective, timely and properly informed decisions about financial products and services".
Sarah Pritchard, the FCA’s executive director of markets, said: "Some product design features could be contributing to problematic, even gambling-like, investor behaviour. We expect all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products.
"They should also ensure they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour."
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17 November: Chancellor Unveils Hefty Cuts To Allowances.
Jeremy Hunt, Chancellor of the Exchequer, has announced significant changes to both capital gains tax (CGT) and dividend tax as part of today’s Autumn Statement, writes Andrew Michael.
The move is likely to increase interest in individual savings accounts, which can be used to shelter savings and investments from tax.
CGT is applied on the sale of shares, second homes and other assets. For basic rate taxpayers, the CGT rate is determined by the size of the gain, taxable income levels and whether the gain is from residential property or other assets.
Higher and additional rate income tax payers are charged CGT at a rate of 28% on gains made from the disposal of a residential property and 20% on gains made from other chargeable assets.
Mr Hunt said that the current CGT annual tax-free allowance of _12,300 will be cut to _6,000 from the start of the new tax year in April 2023. The amount will be halved again, to _3,000, in April 2024.
The majority of CGT that is paid to the government comes from a small number of tax payers who make large gains.
However, Chris Springett, tax partner at Evelyn Partners, said: "The halving of the allowance increases the burden on investors and property owners at the other end of the CGT spectrum – those who have made relatively modest gains but are nevertheless drawn across a much-reduced threshold.
"These taxpayers may need to file tax returns for the first time to report capital gains, causing a new admin headache."
Today’s announcement by Mr Hunt strengthens the case for holding investments in wrappers such as individual savings accounts (ISAs) that are exempt from CGT.
Mr Springett said it was also a reminder to use allowances as effectively as possible: "In terms of reducing CGT exposure, married couples and those in civil partnerships can transfer assets to each other – known as an interspousal transfer – to make use of both sets of allowances, as well as shift a potential gain to whichever partner might be exposed to a lower tax band."
Dividend tax.
Dividend tax is a tax paid by shareholders on dividends they receive from companies. Dividends are payments made by companies, usually yearly or half-yearly, that come from profits they have generated.
The current annual dividend tax allowance, the amount a recipient can receive from dividends each year before paying tax, is _2,000. Mr Hunt said he would be halving this amount to _1,000 from the new tax year next April and then halving the allowance again, to _500, from April 2024.
The amount a shareholder pays in dividend tax depends on his or her income tax band. Basic rate tax payers are charged at a rate of 8.75%. The figure jumps to 33.75% for higher rate taxpayers and 39.35% for additional rate tax payers.
Evelyn Partners’ Chris Springett said: "The annual tax-free dividend allowance was slashed from _5,000 in 2017/18 to just _2,000 currently – and will from April be reduced to a quite limited _1,000, and then to a very restrictive _500 in 2023/24. Together with the 1.25% increase in dividend tax rates, which was introduced in April 2022, this constitutes a real crackdown on dividends.
"This is a blow to investors who hold assets outside of ISAs and to retirees who rely on dividend income to supplement their pensions. It’s yet another reminder to make use of ISAs allowances as a tax-free umbrella for owning investments.
"Business owners, many of whom pay themselves partially or primarily through dividends rather than salaries, will also be hit."
15 November: Retail Investors Gain Voting Rights.
Share trading platform eToro has struck a deal allowing millions of retail investors to have their say on how the companies they invest in are run, Andrew Michael writes .
The self-styled "social investing network" has partnered with Broadridge Financial Solutions to bring proxy voting to its 30 million customers worldwide. In the UK, eToro has more than three million registered users.
Proxy voting allows shareholders to have their say at a company’s annual general meeting (AGM) on key aspects of a business’s strategy or how an organisation is run.
eToro says that its customers will be able to participate in AGMs by casting proxy votes for free that are administered and supported by Broadridge, a specialist provider of services in this sphere.
eToro adds that the option will extend to its investors who hold fractions of shares, enabling all its customers to vote "on issues such as mergers, executive pay and environmental, social and governance [ESG] proposals".
Rival sharedealing platforms, including Hargreaves Lansdown, AJ Bell and interactive investor, already offer similar voting services for their users.
Once dismissed as a virtuous concept that potentially compromised portfolio returns, ESG investing has moved centre-stage within the global investing arena in recent years.
For younger investors in particular investing with a conscience has become an important consideration, often driven by major issues of the day – from climate change to general corporate behaviour.
eToro says that votes submitted by its investors will be aggregated and shared with the company concerned.
A global survey of 10,000 retail investors carried out by the platform found that nearly three-quarters (73%) wanted to vote in AGMs. According to the research, younger investors were the keenest to have their say with 80% of 18-34-year-olds saying they would vote in AGMs given the chance compared with 65% of over-55s.
When asked about the corporate issues they would most like to vote on, dividends – the annual distributions made by some companies to shareholders out of their profits – came out on top, followed by executive pay then climate strategy.
Proxy voting for stocks listed on US exchanges will go live on the eToro platform later this month, followed by voting for shares on other global exchanges.
Yoni Assia, ceo and co-founder of eToro, said: "Retail investors have not always been given the platform, the voice and the support that they deserve but this is rapidly changing. Retail investor access to proxy voting is a crucial step in this journey.
"There is clearly a huge appetite among retail investors to participate in AGMs and we look forward to seeing how clients engage with this new feature."
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8 November: Ethical Investing Receives Thumbs Up Despite Doubts Over Performance And Risk.
The vast majority of financial professionals are unwilling to back completely the sustainability claims made by investment funds, according to research from the Association of Investment Companies (AIC), writes Andrew Michael .
Sustainable investing, also known as socially responsible investing, is a process that incorporates environmental, social and governance (ESG) factors into investment decisions.
Once dismissed as a virtuous concept that potentially compromised portfolio returns, ESG investing has moved centre-stage within the global investment arena in recent years. As a theme, it is especially popular among younger investors.
In theory, companies that actively support positive change via various ESG measures – such as how they run their business or treat their workers – will find themselves nearer to the top of a fund manager’s ‘buy’ list than their rivals.
The AIC asked wealth management firms and financial advisor businesses to rank, on a scale of 1 to 5, how much they trusted the sustainability of ESG claims made by various investment funds.
From a universe of 91 wealth managers and 109 financial advisors, just 1% responded by scoring a ‘5’ indicating they had complete trust in providers’ claims. The majority (56%) rated claims with a ‘3’ suggesting they had "limited trust" in the promises being made.
The findings coincide with the news that the UK’s financial watchdog, the Financial Conduct Authority, is proposing a new set of rules to prevent consumers from being misled by exaggerated claims from supposedly environmentally friendly investments (see story from 25 October below).
In a bid to clamp down on greenwashing – where unsubstantiated claims are made to trick consumers into thinking a company’s products are more environmentally sound than they really are – the FCA recently proposed a package of measures and restrictions.
These include investment product-sustainability labels and restrictions on how terms such as ‘ESG’, ‘sustainable’ and ‘green’ are used.
Despite scepticism around ESG claims, financial professionals told the AIC that they remain supportive of ESG investing in general. More than three-quarters of the businesses polled (79%) acknowledged that "investments should make a positive difference as well as financial return".
Nick Britton, head of intermediary communications at the AIC, said: "Advisers and wealth managers are overwhelmingly on board with ESG and sustainable investing, but they’re also keenly aware of the risks of greenwashing with only 1 in 100 completely trusting ESG claims from funds."
"ESG investing has faced a perfect storm this year and this has clearly affected expectations about performance and risk. Market falls, higher inflation and the war in Ukraine have made many advisers and wealth managers more wary of investing in sustainable funds in the short term, though they still expect demand for ESG investing in general to increase over the next 12 months."
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28 October: Completes Twitter Takeover, Begins Platform Overhaul.
The months-long and acrimonious takeover of Twitter by Elon Musk is now complete, with the Tesla chief paying just over _38 billion ($44 billion) to acquire the micro-blogging social media site, writes Kevin Pratt .
Mr Musk posted a tweet simply saying "the bird is freed", indicating that he now owns the platform.
Reports indicate that he has dismissed a number of senior executives, including Parag Agrawal, CEO. He is also expected to dismiss a significant proportion of Twitter’s 9,000 staff.
Mr Musk is also expected to change the way Twitter functions in his pursuit of what he has termed "absolute free speech". This may include updating the site’s algorithm, reducing moderation activity, allowing users to edit their tweets, and lifting bans on controversial figures such as former US president, Donald Trump, who was banned from the site last year.
Further developments could see Twitter’s scope expanded so that the app could become a multi-purpose life management tool, enabling a range of administrative functions.
In a message to Twitter advertisers yesterday, Mr Musk said his pursuit of free speech would not mean the site became a "free-for-all hellscape where anything can be said with no consequences."
Analysts believe Mr Musk will need ongoing support from advertisers because the price he paid for Twitter represents a significant premium over its true market value.
At the close of trading on Thursday, Twitter shares were priced at just over _46 ($53). The New York Stock Exchange, where the shares are listed, has issued a notice saying the suspension of trading in the shares is "Pending before the Open" of the market later today at 9.30am in the US (2.30pm in the UK).
What does this mean for Twitter shareholders?
According to financial commentators, it’s likely to be many days – and possibly weeks – before investors are credited once Mr Musk’s acquisition of Twitter has officially gone through.
What we do know is that shareholders will receive _46.70 ($54.20) for each share they held up to the time of acquisition.
Hargreaves Lansdown’s Susannah Streeter said: "For UK investors, the cash proceeds will be converted from US dollars into sterling, subject to the prevailing exchange rate at the time and any standard currency conversion fees. We have not yet heard from Twitter indicating the takeover has gone through, so we don’t yet know what the prevailing exchange rate will be."
The decision by Mr Musk to take Twitter private, means that the company will now de-list from the stock market leaving a gap for a new company to fill its place.
"The insurer, Arch Capital Group Ltd, is set to replace Twitter Inc. in the S&P 500 effective prior to the opening of trading on Tuesday, November 1," says Ms Streeter.
The news means that index funds that formerly held Twitter stock will also need to adjust their portfolios to take account of the move. Index, or tracker funds, are computer-driven investments that hold baskets of shares aiming to copy the performance of a particular stock index.
27 October: ‘Chief Twit’ Ready To Bring Takeover Saga To Close.
Billionaire business magnate Elon Musk appears to have finalised his deal to buy social media giant Twitter, changing his profile on the platform to read ‘Chief Twit’, ahead of tomorrow’s (Friday 28 October) buyout deadline, writes Mark Hooson.
Negotiations between Mr Musk and Twitter over the _38 billion purchase have been drawn out since April, mired in litigation over the number of fake and spam user profiles Twitter might have had.
The Tesla chief threatened to pull out of the _46.72-a-share deal in July and was sued by Twitter. The two parties were due to face off in court this month, with Musk potentially on the hook for an _860 million break clause for pulling out.
Earlier this month, however, the new ‘Chief Twit’ agreed to proceed with the deal. He is widely believed to want to prioritise eradicating spam and promoting free speech on the platform.
Posting on Twitter yesterday, Mr Musk shared a video of himself visiting Twitter headquarters carrying a kitchen sink. The post caption read: "Entering Twitter HQ – let that sink in!"
He has also talked in general terms about transforming Twitter into an ‘everything app’ in the mould of China’s WeChat – an application for completing a wide range of tasks including booking taxis and medical appointments.
It is expected Mr Musk will reinstate former US President Donald Trump on the platform. Mr Trump was ‘permanently’ banned by Twitter over the ‘risk of further incitement of violence’ in January 2021, following a riot at the Capitol building in Washington DC involving his supporters.
Analysts say Twitter’s new owner is likely to cut jobs at the firm. Mr Musk is expected to address workers at Twitter tomorrow, Friday 28 October.
26 October: Shareholders In UK Companies Stand To Benefit From Sterling’s Slide.
Investors could receive an extra _5.7 billion in dividend payments from UK companies this year because of the pound’s fall against the value of the US dollar, writes Andrew Michael .
The boost is a reminder of how sterling weakness benefits many British companies because they earn a large share of their income in US dollars and gain from the exchange rate when repatriating their profits.
The findings were part of the latest Dividend Monitor from Link Group.
Dividends are payouts made by companies to shareholders from annual profits and are regarded by some investors, especially pension funds, as a vital source of income, especially for those approaching or in retirement.
According to Link, dividends dropped by 8.4% year-on-year to _31.4 billion for the third quarter of 2022.
The company said the figure was "impacted heavily" by the de-listing of mining company BHP from the London Stock Exchange.
Over the past year, mining and energy companies have rewarded their investors with bumper payouts following the end of the pandemic which had forced businesses to hold on to their cash in the face of unprecedented economic conditions.
Excluding BHP’s departure, dividends were 1% higher over the third quarter compared with a year earlier.
Link said: "Sharply lower special dividends and falling mining payouts, even after adjusting for BHP, were offset by strength among banks and other financials as well as oil companies."
The company added that "the exceptional weakness of the pound also enormously flattered quarter three figures to the tune of _1.9 billion as many dividends are declared in dollars".
Without this boost caused by fluctuations in the exchange-rate, Link said that payouts were slightly weaker than anticipated.
For the full year, Link forecasted that the "extraordinary surge in the US dollar will add a record _5.7 billion to UK dividends and is the driver of an upgrade to our expectations for the fourth quarter of 2022".
Headline dividends are expected to reach _97.4 billion for the whole of 2022, up 5.5% year-on-year. But Link said it expected reductions to both mining dividends as well as one-off payments.
Link Group managing director, Ian Stokes, said: "For 2023, we expect a further reduction in mining dividends and likely lower one-off special dividends, but outside the mining sector there is still room for payouts to rise, even with a weakening economy."
"Our provisional 2023 forecast suggests a slight drop in headline dividends to _96 billion. This implies no change in our expectation that UK pay outs will only regain their pre-pandemic highs some time in 2025."
25 October: Ethical Investments Urged To Drop ‘Lazy Labels’
The Financial Conduct Authority (FCA), the UK’s financial regulator, has proposed rules to prevent consumers from being misled by exaggerated claims from supposedly environmentally friendly investments, writes Andrew Michael .
Environmental, or ethical, investing covers a range of issues, from concerns about corporate behaviour to anxiety about climate change.
Within this sphere, the growth enjoyed in recent years by environmental, social and governance (ESG) investing means it has become a mainstay of the global financial landscape, with hundreds of billions of pounds invested worldwide in funds that purport to do good.
But according to the FCA, "exaggerated, misleading or unsubstantiated claims about ESG credentials damage confidence in these products."
In a bid to clamp down on greenwashing – where unsubstantiated claims are made to trick consumers into thinking a company’s products are more environmentally sound than they really are – the FCA is proposing a package of measures and restrictions.
These include investment product-sustainability labels and restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ are used.
Sacha Sadan, FCA ESG director, said: "Consumers must be confident when products claim to be more sustainable than they actually are. Our proposed rules will help consumers and firms build trust in this sector."
Beth Lloyd, head of responsible wealth management strategy at Quilter, said: "This is an important step forward to helping provide consumers with the necessary protections and boundaries when it comes to responsible investment. The lazy labelling of investment products as ‘ESG’ has not been helpful of late and has caused increasing confusion both to consumers and across the industry.
"Having clear definitions to adhere to and refer back to will not only help facilitate better understanding, but also result in better outcomes as expectations and reality are more likely to be aligned."
Interactive Investor’s Becky O’Connor said: "Investors who want to make their money make a difference need to be able to trust that the investment they are buying actually does what it says on the tin.
"With so many different and often conflicting rating systems and definitions currently floating around, it can be hard to know what investments are truly helping the planet and easy to lose faith in the whole idea of sustainable investment."
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18 October: Watchdog Blocks One-In-Five Investment Firms From Market.
The Financial Conduct Authority (FCA) curbed the activities of twice as many investment firms in the past year compared with the previous 12 months as part of a crackdown on poor financial advice and scams, Andrew Michael writes.
The FCA said that the overall number of restrictions it had placed on firms rose from 31 in the financial year 2020/21 to 61 in 2021/22.
The regulator added it had prevented firms from promoting and selling specific services such as advice on final salary (defined benefit) company pension schemes.
Ill-informed or ill-advised decisions can prove financially costly to members of such schemes if they are taken close to, or at, retirement.
In addition, the regulator said it had stopped 17 firms and seven individuals from trying to obtain FCA authorisation in the investment market in the past year where ‘phoenixing’ or ‘lifeboating’ were suspected.
These terms apply where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to, or setting up, a new firm.
The FCA said it had also stopped the UK operations of 16 Contracts for Difference (CFD) providers, that had entered the UK’s temporary permissions regime in 2021, where suspected scam activity had been detected, or where consumers were encouraged to trade excessively to generate revenue.
CFDs are a financial product used to speculate on the direction of a market’s price. The FCA’s temporary permissions regime is aimed at firms that are looking to operate in the UK long-term and are readying themselves for full UK authorisation.
In recent years, the FCA has come under fire for its handling of several high-profile scandals. These include the collapse of the former star fund manager Neil Woodford’s eponymous investment firm and the London Capital & Finance mini-bond saga that cost 12,500 investors _236 million.
The latter has been described as "one of the largest conduct regulatory failures in decades".
Sarah Pritchard, FCA executive director of markets, said: "We want to see a consumer investment market where consumers can invest with confidence, understanding the level of risk they are taking, and where assertive action is taken when harm is identified.
"In the last year we have maintained our focus on acting assertively and innovatively to tackle harm. We prevented 1 in 5 firms from entering the consumer investments market and we have taken action against unauthorised firms, with a 40% increase in the number of consumer alerts issued."
Tom Selby, head of retirement policy at AJ Bell, said: "Recent events have exposed some pretty fundamental and dangerous misunderstandings about the risks associated with different kinds of pensions. Problems with a specific type of investment held in defined benefit pensions have sparked fear and panic about entirely unrelated financial issues.
"Savers and investors are clearly crying out for help but, at the moment, lack of clarity over the advice/guidance boundary is holding firms back when communicating with customers."
12 October: ‘Patience Pays’ For Long-Term Investors.
Stocks and shares investors who cash in investments during a market downturn can end up paying a high price for their decisions over the long term, according to Alliance Trust, Andrew Michael writes .
The investment company carried out research and data modelling which showed an ‘impatience tax’ would have cost UK investors _1.3 billion over the past year.
Alliance Trust defines an ‘impatient investor’ as someone who sells a losing share – thereby fixing in or ‘crystalising’ a loss – when the market dips, only to buy back the investment at a higher rate when the market recovers.
According to the company, almost half (45%) of UK investors admitted to crystalising a loss in the past. More than one in 10 (12%) said they had done so in the past year.
Of those who have ever crystalised an investment loss, only two in five investors (41%) did so because they were confident it was the right decision.
Just under a quarter (23%) admitted that they had panicked and cut their losses. One in six investors (16%) said they fell foul to peer pressure when they saw other people selling up.
Alliance Trust also found that the majority of investors who ditched a stock that had fallen in price (52%) regretted doing so.
‘Buying the dip’ provides investors with the opportunity to gain exposure to an asset they perhaps already like, only at a cheaper price.
To back up its findings, the company used the example of two hypothetical market investors who both invested _10,000 in 1992 and also made monthly contributions equal to 10% of the national average salary for the next 30 years.
The patient investor was assumed to hold his/her nerve through any market dips, while the impatient investor sold a quarter of his/her shares if the market dipped by 5% or more in a single day. When the market recovered by 10% in a single day, the impatient investor was assumed to buy back in.
According to Alliance Trust, by 2022 the impatient investor would have accumulated _217,884, while the patient investor would have performed considerably better accruing _410,757. Neither calculation took into account capital gains or income tax, nor the fees associated with offloading investments.
Mark Atkinson, head of investor relations at Alliance Trust, said: "Investing is rarely turbulence free. As the cost-of-living crisis spirals, it is understandable that people want to avoid taking risks with their money.
"But for those in the market, selling at a loss to move into cash is not risk-free. With inflation nearing double digits, the real value of cash savings is falling by 7 or 8%. Even despite market dips, long-term investment in equities is proven to outperform cash over any 20-year period."
12 October: UK Shareholder Payouts On Surest Footing In 14 Years.
Dividends – payments made by companies out of their profits to shareholders – will reach a record _1.25 trillion worldwide this year, according to Henderson International Income Trust (HIIT), Andrew Michael writes.
The investment trust found that dividends from UK businesses will be on their most robust footing since 2008 after rising oil prices boosted revenues among certain FTSE 100 companies.
Dividends are a key component of the investing landscape, especially for investors looking to obtain a steady and reliable income stream, such as those in retirement.
HIIT said UK dividend cover – the ratio of a company’s income to its dividend payment and a key indicator of the sustainability of its dividend – will improve "markedly" this year, thanks mainly to profits generated by oil sector businesses.
Companies with a strong track record of paying dividends tend to be found in specific stock market sectors such as energy and commodities, where businesses have benefited from soaring oil and gas prices.
Unlike several of its rival stock market indices worldwide, the UK FTSE 100 is replete with so-called ‘old economy’ shares, including several energy and commodities companies.
HIIT said UK companies made significant cuts to their dividends during the pandemic, dragging down their average dividend cover figure to just 1.0 for the period between 2015 and 2020, less than half the global average.
However, UK dividend cover rebounded to 2.0 in 2021. This was still below the rest of the world but HIIT forecasts that the figure is on course to exceed the global average this year thanks to the rise in oil profits.
Ben Lofthouse, portfolio manager of HIIT, said: "During inflationary periods it is important to find companies with good dividend cover, pricing power, cash flow, and modest borrowing.
"If inflation and recession come at the same time, profits may fall, but history shows that dividend income is much less volatile than profits over time as companies flex the proportion of their profits they pay to shareholders. With dividend cover so high at this point in the cycle, we can have some significant confidence for 2023 that overall dividend payouts will prove resilient."
10 October: Concerns Raised About Delay To Twitter Deal.
In another twist to Elon Musk’s long-running saga over his deal for Twitter, court proceedings between the Tesla chief and the social media giant have been suspended until 28 October to allow Mr Musk time to complete the deal, Jo Groves writes.
However, Twitter has voiced its opposition to this delay, with continued concerns over Mr Musk’s ability to raise the debt financing given the deterioration in the value of technology stocks and wider economic conditions since the deal was announced in April.
While the Twitter share price rose from $43 to $52 on Mr Musk’s announcement last week, it has subsequently fallen back to around $49 per share, indicating the level of uncertainty around the deal finally managing to get over the finish line.
5 October: Funds Suffer Worst Month For Cash Outflow.
Worldwide market turbulence was responsible for a record-breaking outflow of cash from funds that invest in stocks and shares last month, according to Calastone, Andrew Michael writes .
The global funds network said equity funds leaked _2.4 billion in September, the 16 th consecutive month investment portfolios experienced net outflows of money. The latest figure beat the previous record, set a month earlier, by more than a fifth.
Calastone’s Fund Flow Index showed that a net figure of just over _6.6 billion has been removed from equity funds since the beginning of 2022. The amount of money that exited the sector in the third quarter of this year, _4.7 billion, was greater than the whole of 2016, previously the worst year for outflows in Calastone’s eight-year reporting history.
It said: "Investors continued to pummel funds focused on UK equities".
Portfolios investing in UK equities were hit the hardest, but every other geography saw significant outflows.
According to the index, US equity funds shed a net _497 million in capital during September. During the same month, Calastone blamed the strength of the US dollar and the economic slowdown in China for record net outflows experienced by emerging market and Asia-Pacific funds, at _116 million and _223 million respectively.
The company also reported a "sharp reversal in appetite" for so-called environmental, social and governance (ESG) funds, which shed _126 million during September. This was the first net outflow from this sector in nearly four years.
Edward Glyn, head of global markets at Calastone said: "The surge in global bond yields is driving a dramatic repricing of assets of all kinds. UK investors are voting with their feet and heading for the exits. The sensitivity to market interest rates of the big growth stocks that characterise the US market explains the record outflows there.
"For emerging markets, the support provided earlier in the year by high metals prices has been kicked away by the prospect of a global recession. The negative effects of the strong dollar for many emerging market economies are coming to the fore in its place."
5 October: Elon Musk Reinstates Bid To Buy Twitter.
After months of legal battles, Elon Musk has agreed to reinstate his original offer of $44 billion for social media giant Twitter, Jo Groves writes .
Yesterday’s filing with the Securities and Exchange Commission (SEC) revealed that Mr Musk sent a letter to Twitter on Monday night offering to go ahead with the original deal, pending receipt of funds from the debt financing package.
However, Mr Musk’s offer was on the condition that there was an immediate stay of action and closure of the current legal proceedings in the Delaware Chancery Court.
The two parties were due in court later this month, with Twitter attempting to hold Mr Musk to his original offer to buy the company. The agreed $1 billion ‘break fee’ was also likely to have been a contentious issue had Mr Musk walked away from the deal.
Mr Musk offered $54.20 per share to buy Twitter in April, however, the deal foundered when he raised concerns over the number of fake and spam accounts. He claimed that Twitter had failed to provide sufficient information to prove that these accounts represented less than 5% of users.
The proposal may put an end