Market update

Read the latest update from Royal London

Here we share the latest market update to help you understand how stock markets may be having an impact on your retirement savings.

A watering can

December 2019

General Election Outcome

December’s General Election led to a landslide victory for the Conservative party. UK stocks have performed extremely well since the result was announced and the value of Sterling has increased. This is down to the reduction in uncertainty surrounding the outcome of Brexit, with the Prime Minister’s Withdrawal Agreement expected to pass through Parliament at the next attempt and for the UK to leave the EU at the end of January 2020. However this is just the beginning of the process, we can expect further uncertainty and market fluctuations throughout the year during the trade negotiations which will take place throughout 2020.

Trump Impeachment

At the time of writing, President Trump has just become the third President of the United States to be impeached and hearings are expected to take place in the US Senate over the coming months. However as Trump’s Republican Party currently have a majority in the Senate, a guilty verdict is highly unlikely. US markets have been largely undisturbed by these developments, but we can expect some movement once the hearings commence and markets react.

Trade Wars

The US and China have finally come to an initial trade agreement. This may only be phase one of the deal, but the US has agreed to either cancel or reduce tariffs on over $280 billion of Chinese goods, and in return China has committed to a $200 billion spending spree on everything from airplanes to pork chops from the US. US markets reacted positively to this news as the prospect of an all-out trade war reduced. However the next phase of talks – which will include discussions around intellectual property and access to China for US companies – is expected to be much more protracted and could lead to large fluctuations in Global markets.

Our view

The market is predicting a low level of growth, but we do believe there are some reasons for positivity. We continue to be supportive of stocks but remain mindful of the potential risks in the current market and we have reduced our overweight position. The main risks still come from Brexit and US-China trade tensions.

Investing with us

Our key goal is to deliver good outcomes for our customers. We do this by following our core beliefs:

  • Pensions are long term investments

While it can be hard to watch large market drops, especially if the value of your savings is falling, it’s important to remember that investing for retirement is a long term game. It’s very normal for an economy to go through phases of expansion and contraction.

In fact, over the long run there is a recession every five to ten years. We think of these cycles in terms of waves of growth and inflation, and consider which investments do best when growth is strong or weak, and when inflation is falling or rising. Our investment experts analyse and understand where we are in that cycle and which types of investments we should be investing in within the portfolio mix. This is called the short term view and we do this on a day to day basis so that we can try to maximise returns and avoid some of the losses.

Falling markets can be buying opportunities, particularly when you are planning to invest for a long time period. We see the current market falls as potential buying opportunities for equities.  The multi asset portfolios are currently holding slightly more equities than average, having bought on the recent dips. We’re also holding more corporate and high yield bonds.

  • Greater diversification

We believe that investing in a wide range of asset classes will result in more consistent performance across a wide range of economic conditions. This spread of different investments helps to reduce the risk of having all your eggs in one basket.

The Governed Portfolios are designed for investors who are saving into a pension and aim to maximise returns above inflation within a defined risk framework and term to retirement.

The Governed Retirement Income Portfolios (GRIPs) are designed for customers who are taking money out of their pension on a regular basis and aim to maximise returns above inflation to support sustainable, regular income withdrawals for a range of risk profiles. The portfolios hold a wide range of investments, including company shares, property, bonds, commodities and cash in order to help them meet their objectives.

  • Governance

We believe that all investment options should be monitored on a regular basis, and this is a core part of what we do for our customers. All the portfolios are monitored on an ongoing basis by our experts to ensure they deliver in line with their objectives. You can keep an eye on how your investments are performing using our online service.

If you are in any doubt about the suitability of any particular type of investment, you should seek professional financial advice. Advisers may charge for providing such advice and should confirm any costs beforehand.

View the latest market update

You should consult with an adviser before you make any changes to your investment, and remember that the value of your plan can go up as well as down, and you may get back less than you originally paid in.

Investment Podcast December 2019

[Katie]

Hello I’m Katie, and this is Kirsty [Hello] and we are part of the investment team at Royal London. Welcome to our Investment podcast, broadcasting from Thistle Street in Edinburgh. We’re all about bringing the real world into pensions, and bringing pensions into the real world. We’ll take the headlines you’ve seen recently and break them down, to help you understand how they’ve impacted your investments.

Kirsty, it’s a Christmas special this time. Does that mean you’re going to be able to sprinkle lots of festive cheer over the recent headlines?

[Kirsty]

Well, remember that last time we talked about Brexit, Climate Change, and trade wars between US and China. We need to recruit whoever the person is who can make those topics sound festive! But to be fair, although nothing is resolved as of yet there has certainly been movement over the last few months which might give us reason to be cheerful, so I’ll do my best.

[Katie]

Good luck! OK so let’s take the most recent events first – the topic which is still hot on everyone’s lips – the general election. It might not come as a huge surprise to everyone that the conservatives managed to remain in power, but I think it did come as a shock to many, including Boris himself, that they now have such a strong majority. We’re recording this on the Tuesday after the vote. What has the market reaction been so far?

[Kirsty]

Actually from an investment point of view the reaction has been fairly positive. Things like the value of the £ and the FTSE 100 and the FTSE 250 are all indicators of how markets are feeling about particular pieces of news. They all went up slightly. Not massively, but it’s still good news. So the two things we know now that we didn’t know last month are that firstly, we’re not going to have a Jeremy Corbyn government.  Secondly, we are likely to be leaving the EU with Boris’ deal at the end of January. People will still be worried about Boris’ deal though, and the impact this might have on the economy which is why the reaction has been slightly muted.

The other thing to bear in mind is that uncertainy hasn’t gone completely. Yes it’s unlikely that we’ll be going through a chaotic hard brexit, but the next stage of negotiations about the future relationship with the EU are just getting started and this will be the next source of uncertainty.

[Katie]

And so the story continues… 2019 has been a twitchy year in the investment markets and Brexit has been one of the drivers for that. It sounds like the election result means we’ve got a little more clarity, at least in the short term, which could be a positive thing. But what about over the other side of the Atlantic?  As what goes on over there also has a big impact on our pensions.

[Kirsty]

The trade wars we were talking about last time aren’t fully resolved yet, but it is getting closer. So they were getting close to an agreement, but then the unrest in Hong Kong kicked off and Trump inevitably got involved which annoyed China. So this has delayed things on that front. The other thing going on with the US president at the moment is his potential impeachment. Actually, whether or not Trump remains president either through impeachment or the outcome of next years’ election could be very influential on US markets and so very influential on all of our pensions. At the moment, the US economy is still strong and so really at this stage all we can do is take a watching brief.

[Katie]

Who knows what the next drama will be with him! OK, so bringing it back closer to home, and back to a festive theme, sort of. Last month we had Black Friday which brought UK retailers a ‘welcome boost’ – more spending than the same period last year. It’s been another tough year in the retail industry- with more than twelve hundred stores including big brands like Mothercare disappearing from our high streets.

[Kirsty]

Yes! And that was at a very interesting time – just before the Christmas sales kicked off. This is unusual as most retailers would try to hang on in there until Christmas to get the boost of revenue that comes with it. The fact that they couldn’t do that just shows how tough it was for them to sustain their business.

[Katie]

By why does that matter in the context of pensions?

[Kirsty]

As well as the potential that you might actually own part of these companies or have lent money to these companies through your pension, another risk is that some people might be invested in property in their pension. If you’re a customer of Royal London and you’ve not chosen your own investments then it’s likely you will be invested in property. The potential problem here is that while some of the return comes from the value of the buildings increasing, a lot of the return also comes from renting the buildings out. If you take the mothercare example – they will be paying rent on the stores they occupy at the moment however they won’t be paying that rent once they close down. This can have a detrimental impact on returns.

[Katie]

OK that doesn’t sound like a great reason to be invested in property. What’s the attraction?

[Kirsty]

There are lots of other types of buildings that don’t necessarily rely on income from the retail sector in its traditional sense. So for example, Amazon type distribution centres are thriving as are other industrial buildings and some alternative use properties such as student accommodation. There’s definitely a lot of opportunity out there – you’ve just got to be smart in where and how you invest.

 

[Katie]

How do you know whether the people looking after your money are being smart or not?

[Kirsty]

Very good question. It’s really important to feel like you can trust whoever is managing your money. Advisers and employers should be helping with investment selection based on a robust due diligence process so they will have dug into the detail of how an investment manager chooses and managed investments. If you’re not sure, then it is definitely worth speaking to a financial adviser because they will have almost certainly thought about this and will be able to discuss the detail with you.

[Katie]

It’s amazing to think that while you might be thinking about whether you can get a bargain baby shower gift in the mothercare closing down sale, there is so much more going on in the background that could affect us. OK so let’s try to end the podcast, and the year on a high by looking forward to 2020. We’ve definitely got the Olympics to look forward to; we might all be vegan; we might have driverless cars. What’s there to expect in the pensions world?

[Kirsty]

I don’t think there’s going to be too much revolutionary change next year. We’ll have more Brexit uncertainty, but in a different form. We’ll have the US elections towards the end of next year and, to your vegan point, responsible investing will be a much bigger focus. That will be driven particularly from a regulatory point of view and advisers and employers will  be thinking and talking about it a lot more. Generally, investment markets are supporting themselves and that’s not predicted to change so I think, it’s really more of the same cautious optimism that we’ve seen throughout this year.

[Katie]

So really, overall, our customers just need to try and save as much as they can for retirement; speak to an adviser if they feel unsure; and of course tune in to these podcasts to hear about what’s going on with their pension. And most importantly, try to enjoy a nice relaxing break over the festive period!

Thank you for that Kirsty, and thanks for listening to Episode Two of the Investment podcast from the Royal London investment team.

[Kirsty]

Thanks Katie