Thursday, 14 February 2013
David Miliband is apparently about to pledge that Labour would re-introduce the 10p starting rate of income tax, first introduced and later abolished by Gordon Brown before he toddled off into obscurity. In Miliband’s case he says that the withdrawal of the starting rate was a grave mistake that he would correct as soon as he was able, probably funding the action by some sort of ‘Mansion Tax’.
The Mansion Tax has been ruled out by the coalition for the time being, despite being one of the Lib Dem’s great loves, so it might be that we have two parties campaigning the next election on that ticket.
It seems that U-Turns abound in politics at present. Michael Gove famously was about to axe GSCE’s and then decided that he wasn’t and one wonders from where the next surprise change of heart will come.
For my part, I am actually quite positive toward the 10p rate as I feel that it promotes working and contributing, both of which have to be a good thing. It does, however complicate the tax system once more and one also wonders how much it costs to administer a further rate band, both to HMRC and to industry.
What is interesting is that the next election may be a way off yet, but the jostling for policy high ground has very much begun and it is that which has thrown up some of these radical proposals. We should give credit where it is due – after all, if ditching a piece of dogma results in a positive and progressive policy then it has to be a good thing – U-Turn or not.
Saturday, 9 February 2013
Noteworthy this week is the 25th anniversary of a fund that I use in many of my client portfolios. This is of course the High Income Fund, from Invesco Perpetual, managed by veteran Neil Woodford. I use the fund because of Woodford’s pragmatic and grounded approach to investing and because he has delivered solid returns through some truly dreadful periods.
This fund has produced a total (growth plus dividend) return of 1906% over that period, compared to a mere 823% shown by the FTSE-100 over the same period and on the same basis. This is a fair comparison, as Woodford’s fund invests in UK Blue Chip firms and it shows clearly how his approach would have trounced a ‘Tracker’ fund, most of which don’t even return the dividend income they receive to you, the investor.
It is also worth looking, graphically at how the fund has weathered the various storms it has encountered during this extraordinary time if the graph doesn't show in your browser then please click on the empty box) :
I remain in awe of the work that Neil Woodford does with this fund and the effect it has on client returns.
As a result of this expertise, a £10,000 investment into the fund in 1988 would now be worth £107,291, truly an astounding gain against the backdrop of the UK during that time.
Please be aware that investments in funds such as this one and the returns achieved by them can fall as well as rise. This does not constitute an investment recommendation and any such decision should only be made as a result of a detailed discussion of objectives, attitude to risk and tolerance for loss. These are the kind of discussions that a decent IFA would have with his clients prior to any recommendation.
Tuesday, 29 January 2013
The Bank of Japan last week doubled its inflation target (from 1% to 2% before you get too excited) in the hope that this might finally lift their economy from the deflationary spiral that has gripped it for the past two decades. This process is going to involve the Bank buying swathes of Japanese Government Bonds, which in turn should weaken the Yen against Japan’s target export markets’ own currencies.
This process will be very much a repeat of what has been done and is still in wholesale progress both in the US and here in the UK.
All of this raises uncomfortable questions. Often dressed up by a desire to ‘increase liquidity’ or cause relief to some other symptom of the current malaise felt in all of these economies, this policy can also be seen as a deliberate and aggressive way to weaken one’s own currency in order to gain a competitive edge. It seems to me that it is another form of trade war, similar to protectionist tariffs applied on imports and the like and should be regarded with great scepticism.
This kind of contest is not a pretty one and the outcome most uncertain.