Edition 4 2020 | Wealth into words
China versus healthcare Looking at two big picture trends influencing our portfolios
Building a business that makes a difference The benefits of a sustainable business with Annee de Mamiel
Investing in art as a tangible asset Diversifying your investment portfolio with Shea Goli
Does it pay to go green?
30 years of growth in Environmental, Social and Governance
Money, mindset or magic? What to live for and what to live on‌
We run workshops for executive teams, management teams and everything in between, helping people plan for their future. Get in touch today for more information on how we could help shape your financial future. Call us on 020 3823 8678 or email nick.heath@7im.co.uk
Welcome Welcome to the first edition of inBrief 2020. After approaching a year in my role as CEO and as I reflect on the past 12 months, it’s apparent that the last year has been one of change and transformation – be it in the economic and political environment, or here at 7IM. As we enter the next decade, change, particularly from a technological perspective, is highly likely to remain a prevalent theme both at 7IM and in the wider world. One of the ongoing changes we’re likely to see over the coming years is increased diversity in financial services and especially in the asset management industry. This is something I’ve championed throughout my career in both UK and International markets. It is also hugely important that women are represented at all levels in a business including at an executive level. This is why over the last twelve months we’ve transformed the 7IM Executive team, which now has four women to six men, ensuring a more representative and diverse group of leaders. As an industry, we are making progress but there is still much more to do. At 7IM we will continue to drive towards more diversity in the workplace. Another key change that we will see is the continued pace at which technology is being integrated into every aspect of our lives. At 7IM, we are committed to combining and further integrating our digital and human capabilities to improve the interaction you have with us. As such, we are prioritising our investment in technology so that we can provide you with a seamless client experience. Finally, while the introduction of robo-advice and artificial intelligence is becoming ever more commonplace across financial services, we believe that there are some things that will be difficult for robots to get right, such as service. We believe the service we offer is our differentiator; that service centres on human relationships. This is why we’re strengthening our financial planning team, as we believe that when it comes to providing quality financial planning and helping you, our clients, make the most of your wealth, it is real people with real understanding that makes the biggest difference. We are always here to help so please get in touch if there’s anything you need – whether that’s reassurance about our long-term investment approach and how the 7IM Investment Management team are currently viewing the short-term impact of coronavirus or you wish to discuss the service you receive from us.
Contents 04
China versus healthcare
Terence Moll, Head of Investment Strategy, 7IM, looks at two big picture trends influencing our portfolios.
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Steal a March on April
Daniel Wood, Financial Planner, 7IM, talks about the countdown to tax year end, and the checklist you can put in place.
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Does it pay to go green?
Camilla Ritchie, Senior Investment Manager, 7IM and Clare Reid, Business Developement Manager, 7IM share their views on Environmental, Social and Governance (ESG) investments.
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Investing in art as a tangible asset
Shea Goli, Contemporary Art Specialist, Gurr Johns, gives you a personal insight into art as an investment.
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Building a business that makes a difference
Annee de Mamiel, founder of de Mamiel explains the benefits of creating a sustainable business.
Dean Proctor, Chief Executive Officer
Get in touch with your Private Client Manager or call us on 020 3823 8678 & we’ll be happy to answer any of your queries.
Edition 4
www.7im.co.uk
Thank you for being a 7IM private client and I hope that you enjoy reading our 4th edition of inBrief.
@7IM_Private
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China versus healthcare by Terence Moll, 7IM
Every December, hordes of financial pundits churn out ‘Year Ahead’ pieces that provide their best guesses about economies and markets in the coming year. ›
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It’s stunningly hard to get this right. In the short run the world is highly uncertain; politics, viruses or market crashes often mess up the story. This is why, as long-term investors, we do not pay too much attention to them and are not overly concerned by short-term market swings caused by factors like the Coronavirus.
inflation in the developed markets to remain low for as long as the eye can see – politicians spend heavily on the old, and would not dare alienating them. With inflation subdued, a big spike in interest rates is unlikely. Bond yields are so low, though, that we regard them as poor investments right now.
It can be easier to forecast for the long run. Sometimes it’s possible to identify big picture trends that are highly likely – say with an 80% probability – to materialise in the next decade or so, even if we don’t know exactly when. That’s the beauty of being a long-term investor! Let’s look at two of the big picture trends that are influencing our portfolios.
As people age, they spend more and more on healthcare. This makes sense – every extra month of good health is more important to you when you have only a limited number left. This healthcare spending trend is clear in the rich countries, and will increasingly spread through the emerging markets. The middle classes in countries like China, India and Indonesia are also ageing and they also want the best drugs, nursing homes and health insurance in the world.
China Over the two decades ending in 2013, China grew at about 10% per year, which makes it the most remarkable outlier in economic history. No other big economy has ever grown so fast for so long. But China is slowing… the authorities claim growth is running at 6% per year, but private commentators say the true number is lower than this. Its labour force has begun contracting. Productivity growth is drifting down, as its technological advances and educational improvements slow. And authoritarianism and corruption don’t help. We expect China’s growth to fall to 2% p.a. or less by 2030. So what? China is a huge consumer of many commodities – and its demand for them isn’t growing much, if at all. This is one reason why we are pessimistic about commodity prices over the next decade. China remains a wonderful story for consumer demand, brands and luxuries. But it’s likely to be a wet blanket for the other emerging markets in years to come. While China is in relative decline, many of its neighbours are in fine shape. Growth in India and Vietnam has been over 7% per year recently, and both are trying to benefit from the trade tensions between the US and China. Asia will go on rising for decades yet, even as new winning economies emerge within the region. We have large holdings of Asian equities and debt across all portfolios.
Ageing Another trend we are taking seriously is ageing. In 1950, the average person worldwide could expect to live until the age of 46. By 2019, this had risen to 73. In Italy, which has the lowest birth rate in Europe, one in five people is above the age of 65.
The global demand for healthcare is set to rise and rise, and most of the major companies in the sector look reasonably valued. We expect them to perform well for decades to come, and have a healthcare position in most of our portfolios.
Major Portfolio Themes US Healthcare: We hold a chunk of our US equity exposure in Healthcare, across most of our portfolios. Healthcare companies should do well out of ageing in the developed markets, and growth and ageing in emerging markets. Prices might be choppy, though, as the US election cycle gets going.
Emerging Market Bonds: Emerging market economies are more stable financially than ever before, led by East and Southeast Asia. Their ability to pay their debts rivals investment grade companies in the developed markets, yet yields are around 3% higher.
US Inflation Protection: The US bond market is pricing in about 1.7% p.a. inflation for the next 30 years. We believe this is too pessimistic, and hold a position that should benefit if US inflation picks up once again.
Alternatives: We hold a diversified basket of alternative strategies that should provide inflation-beating returns over time.
Terence Moll is our Head of Investment Strategy.
Elderly voters loathe inflation, and they turn out at the polls. This is one of the reasons we expect 05
Steal a March on April by Daniel Wood, 7IM
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t’s a new year. It’s a new me. Or so I tell myself at the start of every year. As soon as Christmas is over and done with, I set out my new year’s resolutions. These, like most people, are fairly generic – take more exercise, visit a new country, spend more time with family and friends. Oh, and have more financial discipline. Taking care of your finances can be as divisive as Marmite – most people hate financial admin and paperwork and only a handful absolutely relish it. But there’s no doubt that those all-important tasks usually become the things we put off and kick down the road. However, one of things you should avoid putting off is the opportunity to take advantage of the many tax reliefs, allowances and exemptions that are available before the end of the tax year which falls on 5 April.
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This is certainly not a comprehensive list of all the considerations you should be looking into. But if you’ve covered all these areas, you’ll certainly be well ahead of the curve. And hopefully somewhat better off, too. Individual Savings Account (ISA) Any savings growth or investment return made within an ISA wrapper is free of both income tax and capital gains tax (CGT). Every adult has a £20,000 ISA allowance for the 2019/20 tax year, but any unused allowance unfortunately cannot be rolled over to the 2020/21 tax year. An ISA is an effective solution if you are looking for a taxefficient savings vehicle for the short, medium or longer term. ISAs can help to build a tax-free income in later life, or for gifting to those you want to benefit. If you’ve used up your ISA allowance, you could consider funding your spouse’s ISA, or putting money into your children or grandchildren’s ISAs. The Junior ISA (JISA) can be used to save up to £4,368 during the 2019/20 tax year.
Investing via a stocks and shares variant of the ISA could provide an opportunity to benefit from growth that outpaces inflation and allows your savings to grow in real terms. Pensions Pensions are a wonderfully tax-efficient means of saving for retirement, as tax relief is added to the money you pay in every year (up to a limit of £40,000 per year before tax). In addition, contributions to a pension benefit from income tax relief at an individual’s highest marginal rate. Under current legislation*, pensions also provide a means of inheritance tax (IHT) planning, as they can be handed onto your beneficiaries inheritance tax free. Any growth or investment return made within a pension is one that is free of both income tax and CGT. Current rules allow pensions to be accessed any time from age 55 with 25% of the value, up to an individual’s lifetime allowance, paid out tax free. There is also a ‘carry forward’ allowance with pensions that allows you to use any unused allowance from the three previous years. This allows you to pay in more than the annual allowance and still claim tax relief. To avoid triggering a tax charge, speak to your Financial Planner or Private Client Manager, as we can help with this. Contributing to a pension personally, or on behalf of an individual, can lower an income tax bill, restore a lost personal allowance and even avoid a child benefit tax charge. It is possible at present to pay £3,600 (before tax) into a pension scheme for a non-earning spouse, civil partner or your children. Capital Gains Tax (CGT) This tax year, every individual has a CGT allowance of £12,000. This is the amount of growth or investment return that can be realised in a taxable portfolio, or by selling an asset that has appreciated, before tax is due. Like the ISA allowance, this allowance cannot be carried into the new tax year. It may be worth gifting assets to a spouse to make use of their CGT allowance also. Inheritance Tax (IHT) Even if your beneficiaries are still, hopefully, many years away from coming into their inheritance, it is still worth giving the subject of IHT careful thought. There are IHT protections around couples and family homes, but as soon as thresholds are breached, IHT is a substantial 40%. The most straightforward way for an individual to reduce the size of their estate, and a potential liability to
“Any growth or investment return made within a pension is one that is free of both income tax and CGT.” IHT, is to gift money to others, such as children or grandchildren. Not only can this reduce an estate’s liability to IHT, but it can also assist beneficiaries financially. There are a number of annual exemptions and allowances available to individuals. The most common is the annual lump sum of £3,000, which can be given by one person to one individual or divided up among many. In addition, you can give £250 to as many people as you like. Expert advice Planning ahead for your financial future can be complex. We would always recommend you seek professional advice when undertaking a review to ensure all aspects of your financial plan are considered. * Please note, legislation, particularly pension legislation, is subject to change. Tax rules are subject to change and taxation will vary depending on individual circumstances.
Daniel Wood, APFS, is one of our Chartered Financial Planners.
End of tax year checklist: Use your annual CGT exemption and any registered allowable losses. Use your full annual ISA allowance (and JISA allowance where appropriate). Maximise your annual pension allowance (spouses and children’s pension allowance where appropriate) for this tax year. Maximise any available pension carry forward allowance for the 2016/17, 2017/18 and 2018/19 tax years. Use your annual IHT exemptions and allowances.
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Does it pay to go green? by Camilla Ritchie, 7IM and Clare Reid, 7IM
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ith the overnight popularity of Greta Thunberg, the devastating wildfires in Australia and Boris Johnson recently setting out his climate change vision, there has perhaps never been more interest and awareness around the impact our actions have on the environment. Indeed, investors are increasingly looking to align their personal values with their investment decisions. And it’s not just millennials who are leading the charge as even the Church of England, which is rarely acknowledged for being ahead of the curve, has an ethical investment advisory group in place to ensure that all its £8.3 billion in assets is invested sustainably. As a result, in just ten years, the number of Environmental, Social and Governance (ESG) investments has more than doubled (see infographic). What exactly is ESG investing? Despite the momentum behind ESG funds, what’s still not immediately clear to many is what is exactly meant by sustainable or ESG investing. At the heart of it, ESG investing involves assessing environmental, social and governance factors in determining what assets to invest in. This means not just looking at investment returns, but assessing how these returns are made. For example, does the investment or the company have a detrimental effect on the environment, on its employees and other stakeholders, and is it governed well? Does it operate in areas generally viewed to be unethical? Or do they present a reputational risk for an investor, such as adult entertainment, gambling or tobacco?
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However, defining ESG investing is not that straightforward as there are different approaches to building a sustainable or ESG portfolio. At one end of the spectrum there is so called ‘dark green ethics’ based investing. This approach ranks companies on their environmental, social and governance scores and invests in those which perform better. Then there’s ‘thematic sustainable investing’ which looks to invest in areas expected to grow faster than the global average and have sustainable characteristics. Finally, there is ‘impact investing’, where the outputs of companies are assessed against the UN Sustainable Development Goals.
139 1995 66 1990
30 years of growth in ESG
1960
Source: Bloomberg, 7IM
1080 768
2020
470 2015
248 2005
2010
2000
Not all ESG funds are green as they may seem To compound and complicate matters, not all ESG investments are as green as you may think and there are cases of ‘greenwashing’ – a process whereby companies make statements or policies that make an investment appear more aligned to ESG objectives. Most notably, the ‘greenness’ of many green bonds has been questioned. The EU published guidance on green bond standards in June, but there is no legally binding definition – i.e. a bond is deemed green pretty much because the company says so. There have also been cases of high-profile index trackers not excluding attributes they claim to have removed, due to definitional ambiguity. For example, an Exchange-Traded Fund (ETF) might exclude companies that ‘own fossil fuel reserves’, but keep investing in oil services or refiners – not exactly in the spirit of ESG. It therefore pays to look under the bonnet of your ESG investments. Will I sacrifice returns to invest sustainably? There has been lots of debate on the merits of ESG as an investment strategy. Excluding certain companies (such as tobacco or oil producers) makes your potential investment universe smaller, and theoretically lowers the chance to outperform. However, a number of academic studies suggest that incorporating ESG factors makes little difference to returns, while some argue that ESG actually improves returns (simply put, ‘good’ companies are well run and so outperform peers). It has also been found that sustainable funds – those that have an ESG focus – have lower downside risk, a conclusion which is supported by research from Morgan Stanley, looking at the data on nearly 11,000 mutual funds and ETFs from 2004 to 2018*. This does make some sense: when
you incorporate a focus on company practices (especially governance) into your investment process, you are more likely to avoid the worst blow-ups. How do I incorporate ESG objectives into my portfolio? Most fund managers already make use of ESG factors, to some extent. No good manager is going to ignore the governance of a company when choosing whether or not to invest, or buy an energy company without looking at potential future regulation that might impact its revenues. But a focus on ESG – to have a portfolio with the objective of investing in companies that benefit society – is a personal investor decision. The good news is that the scope to do so is constantly expanding, and the advice around it is becoming more readily available. If you think you’d like to incorporate an ESG focus into your investment portfolio, get in touch with your Private Client Manager, or call 020 3823 8678. * Source: Morgan Stanley, Sustainable Reality, 2019
Camilla Ritchie is one of our Senior Investment Managers.
Clare Reid is one of our Business Development Managers.
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Investing in art as a tangible asset Shea Goli, Contemporary Art Specialist, Gurr Johns
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ow to diversify your investment portfolio with something tangible, aesthetically pleasing and that could increase in value over time. The art market has a casual relationship with the stock market; paintings can go up in value even when the market crashes, making it an attractive option for a diversified investment portfolio. Any potential return from art is based largely on supply, demand and specific market trends which can be very volatile and are based on multiple factors, so it is important to consult with a trusted adviser with an ear to the ground in the marketplace. What can start as simple curiosity can also become a true passion and hobby that can last a lifetime with the right tools and advice. It is important to educate oneself by looking at art. Visit galleries and museums, and seek professional advice from an art adviser. Once you can pinpoint your tastes and interests, it is always best to collect with a view that it could be hanging in your home for a long time because no matter what happens to the value of the art you then have something you love and that you can live with. Generally speaking, there are three tiers of investing: 1. Lower priced objects by emerging or relatively undiscovered artists. Although higher risk and speculative, they have the potential to provide higher returns in the long term 2. Higher value objects by mid-career and established artists, which have shown stability in the marketplace over a period of 5-10 years 3. Extremely high priced objects for blue-chip trophy pieces, which often reflect the rarity of the objects or the egos of potential buyers. Often established artists make prints and editions, which offer the opportunity to enter into their markets at a lower price point. These usually hold their value, sometimes even making attractive returns (for rare prints or limited edition runs resold at the right time) It is important to establish an objective and a strategy when entering the marketplace, whereby you are first and foremost collecting works that you are drawn to aesthetically, and that they are also vetted to ensure the greatest potential to hold their value.
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Collecting for passion vs investment Collecting should always be primarily driven by passion; if collecting has yet to become something you are passionate about, you should, at the very least, collect what you like. While value as an investment is an important factor, ultimately like any investment there is no guarantee there will be a return. The beauty about investing in art is it is inherently never a loss, because you still have an object you ostensibly like and can live with. Ironically, collecting with this in mind usually proves to build the most valuable collections! What should investors be wary of? Investors should seek the advice of a professional adviser to vet the authenticity of work, the fair market value, price, seller, and provenance. These are important aspects that help determine how much to spend on a work of art. There are two main marketplaces from which to buy art: 1. The primary market, meaning bought directly through a gallery or an artist’s studio 2. The secondary market, meaning bought through auction or from a private collection. Both have their pros and cons and serve different purposes in the art world. Having as much information as possible about the work of art is paramount, especially when investing in emerging art or buying on the secondary market, where it is even more important to seek the advice of an adviser who can guide on quality and value. Art is not a regulated investment, so there can be a lot of misleading information out there. How much do you need to start a collection and where would you begin? A case study in how to go about investing in the art world. A common approach is for a client to enlist the services of an adviser to help educate them about contemporary art. The adviser should show them exhibitions and images of what type of art is available on the marketplace. They may walk them through an art fair or a museum to help the client get a clearer idea of what they like.
Roy Lichtenstein (1923-1997) Crying Girl Executed in 1964 Sold at auction on behalf of an American collection
Once there is an understanding of taste, a client sets some clear objectives with their adviser i.e. ‘I’d like to invest 10% a year in art divided between mostly emerging artists with a few established pieces on which to hedge the majority of the collection’. The adviser helps the client get access to available works, negotiates on their behalf and filters material to make sure they are getting the best examples available. In time, the more art one sees, it is almost inevitable that tastes and preferences change, and the collection might develop in a different direction. This is where the adviser can help, to deaccession pieces privately or at auction to make room for new acquisitions. Emerging markets in the art world vs emerging markets in the financial world The art world is growing rapidly with emerging markets in Africa and South Asia in particular. Major art fairs and biennales are becoming important calendar fixtures, such as the KochiMuzirs Biennale, Art X Lagos, 1-54 Contemporary African Art Fair, and the Indian Art Fair to name a few that are bridging the gap between international collectors and artists. They have widened access to new artworks, and to an extent, nurtured new collectors. Compared to other emerging markets in the finance world, these markets remain rather slow in gaining market share. This is due to less exposure of material by international artists in marquee auctions, museums, and galleries in the United States and UK. An exception to this is African art, which has gained more popularity as a result of growing support for art made by African-Americans. For the most part thought, we are seeing a growing demand for Western artists in these emerging markets from a new generation of collectors.
Where in the world should an investor look for new emerging talent? There are galleries across the world that specifically showcase the work of emerging art. MFA thesis shows are also a good source to discover new artists. Their annual thesis exhibitions are usually open to the public. For example, every summer the Royal Academy exhibits new work by the students finishing their postgraduate study at the Royal Academy School in London, as does Goldsmiths. In the United States, Yale hosts an annual MFA thesis exhibition featuring work from candidates across painting, sculpture, photography and graphic design. There are many other universities that specialise in fine arts that does the same.
Shea Goli Contemporary Art Specialist Shea is a contemporary art specialist at Gurr Johns. She advises private and trade clients on acquisitions and sales, valuations and collection management. She is based in London and is also a patron of the Serpentine. Gurr Johns, founded in 1914, is the leading independent firm specialising in art advisory and valuations. The company acts as a discreet and trusted advisor to private collectors, family offices, attorneys and art institutions, navigating the art market to ensure that clients achieve best value.
To discuss building, selling or valuing your art collection, please contact Sgoli@gurrjohns.com
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Building a business that makes a difference Annee de Mamiel, founder of de Mamiel
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ustainability has always been part of the business from the beginning. Although it’s become a very topical and talked about issue, it’s always been in our DNA and so is something that’s very authentic to us and who we are. When we built the brand six years ago, being organic was, if you like, very on trend and to be honest it would have been quite easy for us to get that stamp and use it to help tell our story. Being organic doesn’t necessarily mean you’re sustainable though and that was always the important issue for us. Being sustainable goes above and beyond just a label or a tick in a box. It impacts every part of the business, from how the ingredients are harvested and how we offset our carbon use to the conscious packaging we offer our customers. We also spend a lot of time working with other brands and organisations and sharing our knowledge; in fact, right now we’re involved in a project with the UN which helps farmers understand the process of intercropping to ensure they’re making the best use of their land and using their resources in a way that works better for the environment and themselves. It’s so much a part of who we are as a brand that if we come across challenges that have the potential to compromise our ethos, we will do everything we can to work around them. It happened recently with the Cape Chamomile we use in our products. We couldn’t find a supplier whose production methods we were sustainable enough for us so we went to a farmer we trusted and asked him to work with us on it. In doing that we funded the farm in the way that benefited everybody involved and got the right quality of crop that we needed.
It’s a constant challenge working in this way – it’s timely, restrictive and costly for us, but it’s one we were always prepared to take on. The brand is rooted in scientific fact, research and my expertise as a skincare practitioner, and in order for us to create products that genuinely work, I believe in maintaining the very highest standards in everything we do. Not just from a formulation and skin benefit approach, but across every touch point including how our products are made and manufactured. In terms of how we will continue to maintain our sustainability standards in the future, we’re investigating bio technology and looking at creating high quality actives and ingredients from sources including yeast, bacteria and sugar, things that that won’t deplete huge natural resources. We need to get to a position with this where we ensure we’re getting the efficacy, quality and performance that our customers are used to and deserve. My main aim for the business is to make a difference, whether it’s to the people that use the products or the women that help harvest some of the crops in South Africa. To know I’ve helped make a change, that’s my drive. If what I do doesn’t make a difference then there’s just no point in doing it.
By Ines Uwiteto, 7IM Ines is one of our Private Client Managers. It was fascinating to meet skincare guru Annee de Mamiel recently, and we very much enjoyed the evening with her as she talked about her journey to build a successful business in such a short space of time. It was inspiring to hear about her mission to make a difference. Annee’s passion for making an impact and a difference is one that every business can learn from. At a time when every product seems to get cheaper and cheaper, her loyal customers pay for a high quality and worthwhile product that drives change and is beneficial both for them and for the planet. In a world focused on lowering cost, here in wealth management the quality of service and whether it represents value for money over the long term is increasingly at the forefront. Ultimately, while we believe that costs are important, the service that is delivered and the difference it can make in helping you realise your financial aspirations is even more important. If you’d like to hear more, get in touch with your Private Client Manager, or one of our Financial Planners on 020 3823 8678.
You should address any questions to your financial adviser. The value of investments can vary and you may get back less than you invested. Tax rules are subject to change and taxation will vary depending on individual circumstances. Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority, the Jersey Financial Services Commission and the Guernsey Financial Services Commission. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740.
