Matt Morris, Partner at Carr Consulting & Communications, highlights some of the investment industry stories that caught his eye in the last few weeks.
Pot withdrawal symptoms
Two-thirds of prospective retirees over 50 have made either no firm plans or no plans at all for their retirement finances. A survey by Legal & General Investment Management (LGIM) and NMG Consulting says the 25% tax-free lump sum remains the most well-known and appealing feature of DC pensions. 42% of existing drawdown users have already accessed their pot to take advantage of this, whilst 39% of those who have not yet retired expect to withdraw their tax-free cash and leave the rest of their pot invested.
“Ensuring this benefit stays will be crucial for future retirees. And for squeezed savers, phasing these withdrawals could ensure they don’t take out too much, too soon,” according to LGIM. “Meanwhile, a low risk tolerance and reluctance to engage informed the desire of 56% of those who had used a default fund during the accumulation journey to stay in the same product during decumulation. Therefore, defaults need to be suitable – and flexible for members’ needs.”
It will also be interesting to see if pension transfer clients are worried about buying at the top of the market and whether more adviser-client conversations about phasing are taking place.
Bitcoin on a roll
Bitcoin reached all-time highs in December, breaking the £30,000 barrier in January as institutional money entered the cryptocurrency sector throughout 2020. The question now is whether Bitcoin will continue with its wild swings in price or if the asset has stabilised. The difference now from 2017 when Bitcoin experienced another spectacular rise followed by a sharp fall is that there is more institutional money in the asset compared to 2017. According to Coinshares, total market volume traded (in US$ terms) peaked at US$25bn on January 4, 2021, far surpassing the historical highs of US$15.6bn seen in March 2020.
Bitcoin is still influenced by wild speculation but it is also increasingly influenced by more rational players searching for both hard money in the era of QE and another tool for asset allocation. I expect a sharp pullback in price at some point but don’t expect Bitcoin to go away. It will rally again, especially while the world struggles with national debt woes and low interest rates. Aside from Bitcoin and Ethereum, the ‘big two’ in the crypto world, I’m also keeping a close eye on EOS and Hedera Hashgraph for reasons too lengthy to go into here, but feel free to email if you want more details.
On the up?
The CEBR WELT 2020 report predicts that in 2021 world GDP will grow 3.4% but it will be 2022 before world GDP overtakes the 2019 level. Of the major countries the biggest winners are expected to be China and India with Italy, Brazil, Germany and Spain expected to fare worst. China and India are expected to be the first and third largest economies by GDP inside 10 years.
The report says: “We do see some economic ‘scarring’ but since the vaccines have been approved it seems more likely that these will show up in inflation rather than holding back the recovery. We see an economic cycle with rising interest rates in the mid-2020s.”
Of the UK, it predicts a rate of growth of 4.0% annually from 2021-25 — the country currently sits fifth in the GDP table ahead of India and France.
Yields of Gold?
We have another entrant into the increasingly popular high yield sector. Janus Henderson Investors last month announced the launch of a global high yield bond fund for UK investors seeking global exposure to the credit market. Domiciled in the UK, the Janus Henderson Global High Yield Bond OEIC is being launched to meet the needs of wholesale and institutional clients in the UK, and builds on the Luxembourg SICAV version of the fund, launched in November 2013. As at the end of September, the existing fund had more than £1 billion under management.
Janus Henderson says it believes that high yield strategies provide “an attractive income opportunity in a yield-starved world” as well as a great opportunity for alpha given the high levels of dispersion within the High Yield market.
The fund aims to provide an income with potential for capital growth over the long term and to outperform the index by 1.75% per annum, before the deduction of charges, over any five-year period. It has returned 7.96% over five years annualised versus the benchmark return of 6.40%, and 64.96% since inception in 2013.