Monthly Archives: January 2014

Points of View for Week Ending 24/01/2014

Points of View: Inflation and interest rates

This week has seen plenty of positive news for the UK economy; the International Monetary Fund (IMF) sharply increased its growth forecast for the UK economy (it now expects the economy to grow 2.4% this year – faster than any other major European economy), unemployment has fallen to 7.1% and inflation has hit the Bank of England’s target of 2% for the first time since 2009.

This better-than-expected recovery has caused the Bank’s new Governor, Mark Carney, to back-track somewhat on his forward guidance last August that the intent is to resist raising interest rates, which have remained at their record low level of 0.5% since 2009, until unemployment falls below 7%.  With this level looking likely to be breached soon and much quicker than expected, Mr Carney clarified at the World Economic Forum in Davos last Thursday that there will no longer be one single indicator that guides monetary policy.  Rather, he indicated a broader approach will be taken, with overall conditions in the labour market determining when the British economy will be strong enough to cope with higher borrowing costs. One such factor includes average wage growth which remains at 0.9%, below the level of inflation.

The Bank’s Monetary Policy Committee, which holds the responsibility for setting interest rates, is due to meet again next month and rate watchers will no doubt be keen to pore over the minutes of the meeting, which are due to be published on 19 February. 


Tenant’s Insurance – who benefits?

Your tenant has saved the deposit, signed the tenancy agreement, and they are ready to move in. The deposit remains their money and is protected by one of the Government’s approved schemes.

Accidents happen; they can usually be avoided but it only takes a second to knock a bottle of red wine over onto a cream carpet. Sometimes cleaning can work, but often the carpet needs replacing. The tenant is responsible for any damage they cause during the tenancy and the first solution can be to withhold some or all of the deposit. Landlords may wish to claim on their own insurance, however that could affect the renewal premium and there is normally an excess to pay.

There is another solution that can protect all parties – tenant insurance. Our policy covers tenants for accidental damage they cause to their landlord’s contents, fixtures and fittings of up to £3,000.*  We also include personal liability of £2,000,00 that has proved invaluable to many of our policyholders. Tenants have used this policy to cover their liability when damaging cars whilst cycling.

This policy will help protect the tenant’s deposit in the event of accidental damage they cause (over and above the excess of £100 for each claim). Landlords are also protected. The limit of cover* is usually more than the deposit paid, so if the damage is higher this helps remove issues of recovering compensation for damage. We also provide cover on a new for old basis, which means no deductions are made for wear and tear, which in the eyes of the dispute service would be betterment. This helps eliminate many disputes, and speed up the process to get everyone back to normal.  

We have a dedicated in-house claims team who are there to help the tenant through the claims process and work with their managing agent or landlord where necessary, who usually use local trusted contractors who will get the property back to normal, keeping everyone happy.

The tenant, if moving on, will receive their deposit back. The policy excess may be deducted, but that still leaves the tenant in a much better position than losing the entire cost of the claim. This also helps to avoid the need to go to the dispute service should there be disagreement. The DPS reported last year that since deposit protection had become law, disputes over damage and decoration had risen by ten percent.

Cover starts from £66 or a year with an option to increase the cover to include the tenants own belongings including furniture, laptops, and mobile phones.

It is always best to avoid claims, and to help you we post tips on Twitter every week, such as prevent burns to carpets – always use an ironing board.  

For more information or to get a quote, please go to your letting agent from the list.

Points of View for Week Ending 17/01/2014

This week Oliver Phillips focuses on Pennon…

Stocks in focus: Pennon

This week I am taking a look at Pennon, a utilities company in the FTSE 250. Pennon has two principal businesses; South West Water, which provides water and sewerage services in Devon, Cornwall and parts of Dorset and Somerset, and Viridor, which is one of the UK’s leading recycling, renewable energy and waste management businesses.

When considering investment in a regulated utility business such as South West Water, shifts in the regulatory landscape are a key risk.  Presently, the degree of regulatory risk in the UK water utilities seems to be rising with Ofwat (the UK water regulator) recently bringing forward its pricing review timetable by announcing that it will now publish key financial parameters on 27th January 2013 rather than 31st March 2015 as previously planned.  Ofwat explained this by stating that “companies’ views on risk and reward…are not in alignment with market evidence” and the risk to the sector is that harsher regulatory requirements will have a negative impact on returns.

Pennon is different from the other listed UK water companies, though, in that it has diversified into waste management through Viridor, which has grown to be one of the UK’s leading recycling businesses and recently announced a 25-year residual waste treatment contract with Cardiff Council. Expenditure for a project such as this is high, with estimates totalling £223m. The rewards, however, are also high with earnings enhancements expected to show in the first full year of operation.

Overall, Pennon’s unique business mix looks interesting, but it remains to be seen whether the regulatory risk for the water sector will get worse before it gets better.

The NW Brown Investment Portfolio Service

New to our range of publications is a brochure describing the NW Brown Investment Portfolio Service. For anyone interested in investing in the Stock Market through a risk rated portfolio, this is likely to prove interesting reading.

Investment Portfolio Service Brochure

For further information on our investment management services please visit our investment management homepage. 

Points of View for Week Ending 10/01/2014

This week Oliver Phillips focuses on Debenhams and Sports Direct…

Stocks in focus: Debenhams and Sports Direct

The start of the year usually sees a focus on the retail sector as stores report on the all-important Christmas period.  This year there has been a clear disparity between winners and losers, the former broadly being those with the strongest online offering.  Debenhams was one of the retailers in the latter camp, blaming poor figures on rivals launching early discounts and a predicted late surge of shoppers which failed to materialise.  The retailer had already suffered a poor end to the year with finance director Simon Herrick being forced to resign on the back of a profit warning.  The recent share price weakness, though, has seen an interesting development; on Monday, Sports Direct announced that it had acquired a 4.6% stake in Debenhams’ shares, causing the share price to rise more than 5% in early trading.  Sports Direct, which is owned by Mike Ashley, the billionaire owner of Newcastle United, has been one of the winners on the high street and recently entered the FTSE 100 index.  This is not the first time Mike Ashley has bought a stake in another company.  Previously he has bought a stake in Blacks Leisure and former rival JJB, and last year threatened to buy a 5% stake in Adidas after they refused to allow Sports Direct to sell Chelsea kits.

Naturally, there is speculation as to Mr Ashley’s motives; one element that Sports Direct are missing is a clear click & collect strategy as its stores do not have the space required to offer this, so one motivation could be to give them greater access to a UK shopper that is clearly embracing the internet.  The official line from Sports Direct is that it is looking to work with Debenhams to “create value in the interests of both Sports Direct’s and Debenhams’ shareholders”.

Points of View for Week Ending 03/01/2014

This week Oliver Phillips focuses on Tapering…

Points of View: Tapering

A dominant theme in the final weeks of 2013 was Ben Bernanke’s announcement that the US Federal Reserve will start scaling back its massive quantitative easing programme (the process of buying government bonds and other securities in order to lower interest rates and increase the money supply), which was originally put in place to help boost the US recovery in the wake of the financial crisis.

It has of course long been anticipated that the Fed would have to start weaning the recovering US economy off quantitative easing (QE).  Indeed, the timing and nature of stimulus tapering has been the source of much speculation for some time and readers may remember that concerns over QE’s eventual withdrawal (and the drag this might have on economic recovery and asset prices) led to particularly volatile equity markets in June last year.  Only now, though, has the Fed adjudged that the US economic recovery is robust enough to begin the tapering process.  Specifically, in light of strong data (in the third quarter of 2013, the US economy grew at a faster-than-expected rate of 2.8% and unemployment fell to a five-year low of 7%), it has decided to reduce its $85bn-a-month bond buying scheme back to $75bn this month, and to continue ratcheting it down in “measured steps” if the US economic recovery remains on course.

Global stock markets have thus far reacted positively to this guidance, which is is likely to put pressure on other central banks around the world, including the UK, to start reducing their own QE programmes. 

Why Value Investing?

If you read the financial press and reports from asset management firms you will see that active investment managers make reference to the fact that they subscribe to one (or more) key ‘styles’ or ‘philosophies’ of investing on behalf of clients. Two of the most widely used fundamental investing styles are value and growth. At NW Brown we are firm believers in the value style of investing. Statistical studies provide strong evidence that, over the long term (i.e. in excess of 10 years), value based strategies tend to outperform. There are of course times in the market when the short term performance may not be what the investment manager hopes to achieve for his clients but by being consistent during these times and sticking to the value style of investing, there is every chance that the long term performance record will compare well to those of other styles.  

The concept of value investing was first taught by Benjamin Graham at New York’s Columbia Business School in 1928 and is  set out  in two notable books: Graham and Dodd’s ‘Security Analysis’ published in 1934 and Benjamin Graham’s ‘The Intelligent Investor’ published in 1949 – both are must read books for any aspiring investment manager even today. Value investing is defined as trying to buy shares when the market price is less than their intrinsic value. The approach is based on the concept of analysing the fundamentals of a company, including financial statements, management and markets as well as wider economies in order to value companies and then seeking a ‘margin of safety’. It has become one of the most widely respected and effective investment styles and is the foundation for some of the world’s most successful investors:  Warren Buffett is probably the best known value investor but others include Peter Lynch, Anthony Bolton and Neil Woodford.   

While value investing is broadly defined as a fundamental long – term approach, and one that seeks to invest in undervalued companies, in practice a more narrow definition is often used. This categorises it as an investment style that concentrates on investing in shares with certain specific characteristics, such as low price-earnings ratios and high dividend yields. However, in principle, we along with fellow value investors aim to exploit valuation anomalies. As anomalies get bigger due to price falls, our response is the one of a typical value manager which is to increase our positions for clients. The approach does depend on inefficiencies in market pricing, including fund managers and investors overreacting to bad news such as poor results. It is not about buying obscure or ailing companies but does often involve trying to buy blue-chip companies at reasonable prices.  Value investors often take a contrarian approach, buying against the crowd when a share is out of favour but will always look at the fundamentals

There are times when being a value manager is not the most comfortable place to be but we recognise that being consistent and rigorous in our approach and remaining true to our value style is the best way to ensure we do our best for our clients over the longer term. 

For more information on our investment management service please visit our investment management page. 

Written by Trina Yates, Investment Management Director, NW Brown & Company Ltd.