Diyinvestormagazine 022015 by DIY Investor

2015 JOIN THE

06_ SHOULD WE IGNORE INFLATION AND THINK DEFLATION?

016_ DO YOU TRUST TIPSTERS OR BROKER NOTES?

032_ DIARY OF A DIY INVESTOR

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DIY Investor Magazine / 2015 Issue

2 DIY Investor Magazine / 2015 Issue

INSIDE 016_

STRONGER

DO YOU TRUST TIPSTERS OR BROKER NOTES?

TOGETHER DIY INVESTOR MAGAZINE’S INTRODUCTION TO SETTING OBJECTIVES AND SELECTING INVESTMENT FUNDS

018_ BOOST YOUR POTENTIAL RETURNS WHILST LIMITING YOUR RISK

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SHOULD WE IGNORE INFLATION AND THINK DEFLATION?

JUPITER AM FUND MANAGERS GIVE THEIR OUTLOOK FOR 2015

07_ RUSH TO PENSIONER BONDS SHOWS DEMAND FOR INCOME

WILL THIS BE THE YEAR OF VOLATILITY?

028_ FROM A SMALL CORNER OF THE MARKET: INVESTMENT TRUSTS

030_ Q&A FROM DIY INVESTOR

031_ SHOULD WE WORRY ABOUT CHINA IN 2015?

032_ DIARY OF A DIY INVESTOR

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DIY Investor Magazine delivers education and information, it does not offer advice.

DIY Investor Magazine / 2015 Issue

MEET THE TEAM DR STEPHEN BARBER Editor 07500 084 566 stephen.barber@diyinvestormagazine.com

STEVE HAYSOM Publisher 07973 483 687 steve.haysom@muckle.com

GRAEME FOSTER Head of Sales & Marketing 07881 502 705 graeme.foster@muckle.com

TERRY KELLEHER Head of Advertising 07432 150 183 terry.kelleher@muckle.com

DESIGN - D2 INTERACTIVE DAN DROGMAN Managing Director – D2i 07712 824 370 dan@d2i.co.uk

MICHELLE LAWRENCE Creative Director – D2i 07891 134 853 michelle@d2i.co.uk

DIY Investor Magazine delivers education and information, it does not offer advice.

Welcome to the first DIY Investor Magazine of 2015 which looks ahead to the coming year and as always draws on expert views and commentary. There has been some extraordinary volatility in global markets fuelled by a major collapse in the oil price to half that of its recent peak. The Eurozone faces deflation and political instability in the shape of Greece. Even the recent €1.1 trillion injection bond buying stimulus announced by the European Central Bank is unlikely to be enough to see the troubled project clear. What it needs is growth and unfortunately that is in short supply. The International Monetary Fund has even slashed its forecasts for global expansion in 2015 by 0.3% to 3.5% and 3.7% for 2016. Part of this is reflected by the slowdown in Chinese output as well as developed economy weakness. The lower oil price might well counter-balance this but the fear is that reduced demand for oil also suggests weaker overall economic demand. That said the IMF chief Chistine Lagarde has had to eat her words over the economic situation in Britain. A year ago she warned that the UK was heading in the wrong economic direction, spending cuts were ‘playing with fire’ and her organisation duly cut growth projections. With recovery firmly underway at home, her view now is that in election year ‘the UK is leading in a very eloquent and convincing way in the European Union.’ However, growth across the world is far from even let alone stable. While there seems little evidence that the boom in the United States is close to running out of steam any time soon, uncertainty persists not only in Europe and China but also from Russia to South America. And it is this potent mix which faces investors in 2015. It represents opportunities as well as risks and DIY Investor Magazine will be there each month through the year to help guide decisions, shape portfolio strategies and generate ideas. If there’s anything you’d like to see featured in future editions, do let us know. You can contact us at: feedback@diyinvestormag.com Dr Stephen Barber, Editor

JOIN THE 2015 REVOLUTION

DIY Investor Magazine / 2015 Issue

PUBLISHING

Price rises in Britain have fallen to just 0.5% as measured by the Consumer Prices Index. While this is welcome for consumers and many businesses, the Bank of England is tasked to maintain inflation at around 2% and will treat this 14 year low with caution. Why? Well the answer can be found close by.

In the first two days of going on sale this January, £1.15 billion worth of Pensioner Bonds were sold to 110,000 Britons over the age of 65. It’s not hard to see why they are so attractive.

Across the channel, Eurozone policymakers are coming to terms with deflation as prices in December actually fell by 0.2%. Of course a lot of this has to do with the falling oil price and if energy is excluded, other Eurozone prices rose by a modest 0.6%. But the effects of the 2011 interest rate rise and painful austerity are really being felt in the weakest parts of that extended economy. In China, there is also a fear that the economy could slip into deflationary territory. There is plenty that governments can do to reflate an economy as the recent quantitative easing experiment indicates. But the fact is that investors who perhaps in the past defended themselves against inflation are now considering the spectre of falling prices. Inflation is a danger because it erodes the purchasing power of money and the worth of fixed income products such as bonds. Equities have often been employed by investors to counteract inflation (particularly if they offer a mix of income and growth) but can also mean that portfolios end up accepting more risk. The great threat of prices falling is that because this increases the purchasing power of money, a ‘deflationary spiral’ can follow where we are all reluctant to spend since goods will be cheaper tomorrow. This is especially true of major capital spending such as property. An economy can simply slow down.

INVESTORS WHO PERHAPS IN THE PAST DEFENDED THEMSELVES AGAINST INFLATION ARE NOW CONSIDERING THE SPECTRE OF FALLING PRICES.

A bit of deflation is unlikely to have this effect as consumers actually take advantage of cheaper goods but policymakers clearly worry that the problem could become more embedded. Quality bonds can be rather attractive to investors in deflationary times since the value of the income they produce can increase in real terms while monetary conditions in the economy can be expected to be loose meaning low interest rates. Defensive sectors producing consumables that we use irrespective of the state of the economy can also find a prominent place in portfolios. Indeed many of these tend to offer a good mix of income and growth. And of course global diversification can ensure exposure to economies and sectors unaffected by the plight. Given the tools at the disposal of policymakers, it seems unlikely that Britain will suffer from serious deflation, even if the problem is much harder to fix across Europe. If truth be told, a dose of mild deflation driven by falling oil and food prices should not worry investors and could be welcome for business and consumers. Nonetheless, there are adjustments that investors can make to portfolios to protect wealth from rising and falling prices alike.

This government backed product with a maximum investment of £20,000 per person, pays 4% on the three year bond and 2.8% on the one year. Compare that to rates available in savings accounts or even that paid on the safest of government debt, and they really are market beating. Operated by National Savings & Investment, the intention is to help older savers achieve a better rate of income at a time when there has been a prolonged squeeze on interest rates. Retired investors tend to be more reliant on fixed incomes than at other life stages. Pensioner bonds are proving popular to many older investors already but they are limited in the

THE INTENTION IS TO HELP OLDER SAVERS ACHIEVE A BETTER RATE OF INCOME AT A TIME WHEN THERE HAS BEEN A PROLONGED SQUEEZE ON INTEREST RATES.

amount that can be subscribed and the amount on offer: government has authorised the issue of £10 billion Pensioner Bonds. Not only that, but these are incompatible with traditional tax efficient wraps such as Individual Savings Accounts (ISAs) which means for basic rate taxpayers the effective interest on the three year bond is 3.2%. Welcome as this initiative is, it cannot be a complete answer to older savers’ needs. DIY investors will place it in the armoury besides other innovative ways of achieving an income, managing risk and protecting capital.

RUSH TO PENSIONER BONDS SHOWS DEMAND FOR INCOME

DIY Investor Magazine / 2015 Issue

6 DIY Investor Magazine / 2015 Issue

SHOULD WE IGNORE INFLATION AND THINK DEFLATION?

DIY Investor will be producing a guide to these alternative fund structures later in the year so look out for it.

You’ve joined the gym, been on the wagon for (some of) January and it’s now time to deliver on that resolution to take control of your financial affairs. Steve Haysom looks at some of the options available to those considering investment funds. An important first step for the DIY investor is to construct your own financial plan. Before you start selecting funds, that means deciding just what your investment goals are, deciding on your investment horizon, and perhaps most importantly making a judgement on the level of risk are you able to accept. As rule of thumb, the further away your objective, whether that be retirement, buying a home or paying for children’s university, the more risk you can accept in your portfolio. After all, you have longer to smooth out returns and make up for losses. But it’s always important you can sleep at night - never take on more risk than you are comfortable with. However wedded you are to self-directed investing, this may be the point at which you consider taking some professional advice. Alternatively, you could try one of the online platforms that will assess your risk tolerance and suggest suitable product types. Allocating different asset types to help meet you objectives and risk and diversifying your portfolio are key tasks for DIY Investors. Asset classes behave differently as conditions change. By building a diversified portfolio you can protect against market volatility and ensure you benefit from growth stories wherever they occur. Consequently, a well constructed portfolio will offer exposure to different shares, bonds, markets and sectors.That can sometimes be difficult for investors to achieve – especially when they are starting out and beginning to build that portfolio.

PICK A FUND OR PICK A FUND MANAGER?

Fortunately funds offer a solution since each one represents a diversified portfolio in themselves. If you decide that investment funds are going to form at least part of your portfolio construction, there’s a wide choice available that can help you to achieve your goals. TYPES OF INVESTMENT FUNDS Funds are sometimes known as ‘collectives’ which pool funds to invest in a range of underlying assets. That wide choice available ranges from funds actively managed by professionals, backed up by teams of analysts, to those that simply track an index or market.

One of the great things about the internet is that it is relatively easy to compare the past performance of different funds and the past performance of fund managers. It’s why many fund managers become ‘stars’ to their companies and investors. As Head of UK Equities at Invesco Perpetual, Neil Woodford became one of the most notable. He managed almost £25 billion of assets and was afforded City rock-star status due to the marketbeating returns he achieved. Past performance is no guarantee of future returns and investors should look beyond this, particularly to the risk of the asset. But it remains important to review manager and fund performance against their benchmark.

These trackers follow popular markets such as the FTSE 100 or Dow, emerging markets and even commodities, currency and property. Look out for the different types of active or passive management available. These might be

You should do this before you invest and continue to monitor once you hold the fund. Fortunately, there are companies such as Morningstar and Financial Express who use historic data to rank funds and DIY investors can use these.

Active Management where the fund manager builds and adjusts a portfolio in order to meet a fund’s stated objectives.

When it comes to the most abundant funds – Unit Trusts and OEICS - many DIY platforms have fund selector tools to allow you to screen the thousands of products that are available and most will allow you to avoid the Initial Charge of up to 5% you could incur by going direct to the fund manager.

Absolute Return which tend not to be asset class restricted but aim to achieve positive returns irrespective of market conditions. Multi-Asset which offer exposure to different asset classes. Fund of Funds which invest in other collective funds in order to benefit from the best investment management out there. Trackers which passively match the performance of a given market or index.

Some will offer a range of ‘Best Buy’ or ‘Selected’ funds that may come with specially negotiated terms and you will have the option to invest a lump sum or set up a regular investment. Make sure that you take full advantage of the new ‘NISA’ accounts that allow you to invest up to £15,000 p.a. free from Capital Gains Tax.

FUNDS ARE SOMETIMES KNOWN AS ‘COLLECTIVES’ WHICH POOL FUNDS TO INVEST IN A RANGE OF UNDERLYING ASSETS.

‘CLEAN FUNDS’ Most Unit Trusts and OEICs will require a minimum investment - typically £500 to £1,000 - and there are often two versions of each fund- an accumulation class (acc) which rolls all dividend income back into the fund to boost growth, or an income class (inc) which pays out dividends to those who wish to have them as income. Historically funds levied a 1.5% Annual Management Charge (AMC) which paid for the running of the fund and returned half of that to financial advisers and platforms that sold the fund. However the government’s Retail Distribution Review (RDR) in December 2012 prohibited these payments for new investments and new ‘clean’ funds were introduced, which typically charge 0.75% to 1% and pay no commission back to advisers or platforms. The arrival of so called ‘clean funds’ has meant a baffling array of types of the same funds with little consistency in terms of their naming convention or charging structure. As such, the new ‘clean’ class can sometimes be ‘unbundled’ (there’s also ‘super-clean’) and those with higher management fees ‘inclusive’; AMC is a drag on your investment, so it is important to understand the charging structure of the funds you select. To make an apples-and-apples comparison look at the Total Expense Ratio (TER) of the fund to see the total cost of ownership or its replacement, ‘Ongoing Charges’. That’s it for now – you’re on your way to being a DIY investor and taking control of your financial future. Make this a New Year’s resolution that you stick to in the years ahead and all of those financial goals can be within your grasp. And there’s more good news – by the time you read this you will be able to raise a glass to your own rectitude without breaking any of your other resolutions!

While these are the objectives of the funds, you will find a variety of structures from Unit Trusts and OEICS to (quoted) Investment Companies, to index tracking Exchange Traded Funds.

DIY Investor Magazine / 2015 Issue

STRONGER TOGETHER DIY INVESTOR MAGAZINE’S INTRODUCTION TO SETTING OBJECTIVES AND SELECTING INVESTMENT FUNDS

UK - ALASTAIR GUNN AND RHYS PETHERAM, MANAGERS OF THE JUPITER DISTRIBUTION FUND:

MULTI-ASSET – JOHN CHATFEILD-ROBERTS, CIO AND HEAD OF THE JUPITER INDEPENDENT FUNDS TEAM

“We have long been more optimistic than most about the prospects for the domestic UK economy and expect Britain’s growth to surprise further in 2015. In 2014, British companies (excluding oil stocks) were at their most profitable in almost 16 years according to the ONS (Office for National Statistics).

“Regional divergence has been a key theme in 2014 and we would expect central bank policy to continue to reflect local economic conditions. The US has withdrawn quantitative easing (QE), but Japan is doing more QE and the European Central Bank (ECB) is likely to follow suit in the first quarter of next year.

Better economic prospects are set to be supported by continued low inflation, signs of a long awaited pick-up in real take-home pay with the possibility of a further lift thanks to a lower oil price and lower food prices.

Equally we would expect the recent strengthening of the dollar to continue, especially if growth elsewhere in the world remains relatively muted and investors believe there could be interest rate rises in the US.

A pre-election rise in personal tax allowances at the basic and higher rates, alongside reforms to stamp duty should also help consumers. The main uncertainties to this outlook are the UK’s heavy debt burden and the likely knockon effects of slower growth in the eurozone and some emerging markets. The former is affected by weak tax revenues (because of weak average earnings and a reduction in the tax burden at the low end of the income scale) while anticipated ‘money printing’ in the eurozone is unlikely to boost growth there.

This is likely to have an impact on emerging markets, and could be positive for exporters in Europe and Japan as their currencies weaken relative to the dollar.

THE SHARP DROP IN OIL PRICE IN 2014 WILL ALMOST CERTAINLY ALSO HAVE AN IMPACT IN 2015. IT IS ALREADY TRANSLATING INTO A DELAYED ACTION “TAX CUT” FOR CONSUMERS ACROSS THE WORLD

If recovery in the US continues, then a stronger dollar is likely to put pressure on some emerging markets. Our equity positions retain a focus on the UK and remain in companies we believe have potential to deliver rising dividends. Capacity discipline (the process of managing supply and demand to keep the market in balance), then creates pricing power and this is one of our investment themes that in our view has the potential to serve us well in a low growth environment. Consequently we have continued to build positions in various airlines, motor underwriters, house builders and certain other companies which have increased returns to shareholders in the absence of better alternative investment opportunities. We continue to see value in our domestic plays.”

WHAT DOES SEEM CLEAR TO US, HOWEVER, IS THAT IT SHOULD BE SUPPORTIVE FOR EQUITY MARKETS AND SHOULD WEAKEN THE EURO.

China may now have the largest economy in the world but growth there is currently slowing and its composition is changing as the country seeks to rebalance towards domestic consumption and away from a reliance on exports. The sharp drop in oil price in 2014 will almost certainly also have an impact in 2015. It is already translating into a delayed action “tax cut” for consumers across the world as drivers are now discovering, but could cause some oil producers around the globe to go out of business if prices remain low for an extended period. If the US and UK economies continue to grow, we would expect to see interest rates begin to normalise in 2015 and beyond, though this is likely to be a very gradual process. Given the factors likely to affect markets, equities are currently our asset class of choice for the patient long-term investor.”

DIY Investor Magazine / 2015 Issue

10 DIY Investor Magazine / 2015 Issue

JUPITER AM FUND MANAGERS GIVE THEIR OUTLOOK FOR 2015

EUROPE - CEDRIC DE FONCLARE, MANAGER OF THE JUPITER EUROPEAN SPECIAL SITUATIONS FUND: “In an environment of low economic growth in Europe, we are seeing increased speculation that quantitative easing will be employed in the fight against deflation and Euro strength.

In 2013, the stock market rallied without an associated rise in earnings. As a result, in 2014, share prices have depended mostly on earnings growth.

Nobody knows how much stimulus there will be, precisely when the central bank will act, or even if it will have the desired effect on the European economy.

We continue to seek companies with pricing power and the ability to outgrow the underlying economy. We do, however, remain mindful of valuations, deploying our cash gradually and only where we can identify attractive entry points. We continue to believe that this is the best approach we can take to seeking to generate out performance for our clients.”

What does seem clear to us, however, is that it should be supportive for equity markets and should weaken the Euro. With this in mind, we continue to weight our portfolio toward companies with international sales and diversified end-markets.

“Emerging market equities appear to have lost some of their shine in recent years. A number of concerns have weighed on the asset class, from the impact of less easy US monetary policy and a stronger dollar to slowing Chinese growth and heightened geopolitical risk in a number of markets. However, I believe a lot of caution has already been priced in. As a result of recent volatility, most emerging market equities currently appear to be significantly below their long-term average valuation, and I think that their current level represents a buying opportunity for us. There are reasons beyond valuations to be optimistic. Most emerging markets now exhibit a combination of lower indebtedness, supportive demographics and rising consumption, which are likely to combine to provide a backdrop of strong long-term demand. For example, reforms in India, I believe, should have long lasting positive impacts on the economy and the investment climate in the country. One exception may be China where the economic development might be hindered by rapid growth of debt in recent years and a less supportive demographic profile

(an ageing population). While a slowdown in Chinese economic growth brings with it risks, in my view we are at the beginning of a shift away from economic growth driven by fixed-asset investment towards a more consumer-orientated economy. This rebalancing is, in my view, essential to the long-term sustainability of the economy and should present many compelling investment opportunities along the way. In emerging markets, there are many companies that are evolving more rapidly than their developed market counterparts but which are less extensively researched. This combination means that there is even more value which can potentially be added through the kind of bottom up, fundamentally-driven, analysis we conduct. Moreover, by investing in emerging market equities I believe we are able to get exposure to many of tomorrow’s global industry leaders. Over the last two decades, some South Korean and Taiwanese electronics companies, for example, have grown from relatively small low value-added businesses into global leaders in their respective fields.”

EMERGING MARKETS - ROSS TEVERSON, HEAD OF STRATEGY, GLOBAL EMERGING MARKETS A LOT OF CAUTION ALREADY IN THE PRICE

DIY Investor Magazine / 2015 Issue

JUPITER AM FUND MANAGERS GIVE THEIR OUTLOOK FOR 2015

US – ROBERT SIDDLES, MANAGER OF THE JUPITER SMALL AND MIDCAP COMPANIES FUND

“In my view, the key drivers to the market going into 2015 are profits growth, easy money and investor scepticism. A favourable backdrop for the US economy should support profits growth for more domestically-oriented small and mid-sized companies; although interest rates should rise at some point (we hope) the Fed is likely to lean towards raising rates more slowly than expected because of still rampant deflationary forces as well as political pressure to help workers; and finally notwithstanding a bounce in equities towards the end of 2014, there is a long list of investor concerns about stocks that may weigh on markets in 2015, potentially creating some good opportunities for us to pick up stocks at lower prices. I am particularly optimistic on the long term prospects for the US compared to many major economies. America is blessed with favourable demographics and a wealth of resources but it is easy to overlook the enormous improvement in America’s competitive position in manufacturing in the last decade.

America’s flexible work practices have helped it achieve a significant cost advantage versus European competitors and wage inflation in China’s coastal cities has eroded China’s relative advantage. Although the benefits to growth from exploration of oil sales are likely to be less than previously expected in 2015 as a result of the sharp fall in oil prices, the US consumer should receive a short-term benefit from lower gasoline prices – a significant benefit in a country that relies heavily on the car and where gasoline taxes are low. In summary the relatively bright long term outlook for the US economy should benefit US small and mid-sized companies, given their mostly domestic exposure.” THERE IS A LONG LIST OF INVESTOR CONCERNS ABOUT STOCKS THAT MAY WEIGH ON MARKETS IN 2015, POTENTIALLY CREATING SOME GOOD OPPORTUNITIES FOR US TO PICK UP STOCKS AT LOWER PRICES.

JAPAN - SIMON SOMERVILLE, MANAGER OF THE JUPITER JAPAN INCOME FUND

“The final months of 2014 delivered many surprises to investors in Japan. The Bank of Japan stepped up its monetary stimulus at the end of October, the massive Government Pension Investment Fund (GPIF) increased its allocation to domestic equities and Prime Minister Abe postponed the next scheduled consumption tax rise from 8% to 10% to April 2017 from October 2015. The postponement came as a result of significantly weaker economic data, with GDP unexpectedly contracting by an annualised 1.9% in the third quarter. At the same time, Abe called a snap election, held on 14 December, which the ruling LDP and their coalition party safely won with a two thirds majority of the Lower House. Looking into 2015, the political focus is expected to shift towards reforms, especially domestic and structural reform. Having achieved a strong result in the election, Abe now looks to be in a robust position to push through significant and possibly controversial reform early in the New Year. There is as yet little indication as to the key policies the Abe administration is looking to pursue. However, we would expect news on areas such as acceleration of Trans Pacific Partnership, social security reform, labour market reform and corporation tax cuts.

Corporate earnings in Japan are likely to continue to improve. Interim results were much better than was generally forecasted and with the weak yen, we expect to see companies continue to grow in the first half of 2015. The weak currency should also bring many tourists into Japan, especially from neighbouring countries such as China, Taiwan and South Korea. Continuing growth in tourism should benefit domestic companies such as retailers and travel companies. “In addition, Japanese companies continue to improve shareholder returns. Interim dividends were at record levels and by the end of November 2014, the number of companies buying back their own shares had already exceeded the total level for the whole of the previous fiscal year (to March). Japan has also decided to implement the new “Corporate Governance Code” in June 2015, which will require all listed companies to have at least two external board directors. With the GPIF and the Bank of Japan buying domestic equities on a large scale and also companies buying back approximately ¥3 trillion of their own shares annually, the dynamics for the Japanese equity market look attractive for 2015.”

The above commentary represents the views of the Fund Managers at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. The value of investments and the income from them can fall as well as rise and may be affected by exchange rate variations. You may get back less than originally invested. ;

DIY Investor Magazine / 2015 Issue

JUPITER AM FUND MANAGERS GIVE THEIR OUTLOOK FOR 2015

PAUL ROBERTS, CEO STOCKOMENDATION LET ME EXPLAIN WHAT LED ME TO SET UP THE UK’S ONLY STOCK TIPS AGGREGATION AND COMPARISON SITE It starts with a question: Who do you trust with your money and why do you trust them? Do you hand over a portion of your hard earned salary every month to a fund manager hoping they will work hard to protect and grow your investment, maybe you trust those cold calls saying, ‘Hi, have I got a great investment opportunity for you!’; perhaps you do your own research based on hours looking for investment ideas in newspapers, magazines, websites etc. trusting yourself and the tipsters or maybe you just listen to your friends or your wise granddad? Who knows? But the reality is that someone somewhere is giving someone else advice about which stock to buy and why they should buy it. Many investment decisions made by retail investors start with a tip whether it be research, a chat over a glass of wine or an article in a national publication or website. For me it is about drawing on the views of experts but doing a bit of research myself. What follows is the story of what led me to that conclusion. A few years ago I had a call from the local branch of a well known advisory stockbrokers. ‘I have a great stock for you to invest in’ said the broker and then explained what it was and told me that the buy note had come from their highly rated research team. The net result for me was a £40k loss and a very, very painful lesson in investing. A short while after I bought the first £20k of the stock it rose by 25% so I bought a further £20k. A week later the stock went into administration citing cash flow due to loss of a major contract.

Bang all gone. While many investors no doubt receive very good advice, I’am sure I not alone in this story. I was always told to invest, but invest wisely! Well what does that mean when I haven’t even got time to go to the gym let alone sit at home researching how to invest what’s left of my hard earned salary? I had a few choices: either invest myself and do my research thoroughly or give my hard earned cash to someone who knows what they are doing or do a bit of both. So for me now it is about doing a bit of both. Acknowledging the risk warning that part performance is not always an indicator of future success, I have made my personal investing more controlled and fun as I only invest in funds or equities that I know the tipsters or fund manager has a quantifiable track record they can show me and that this record is totally transparent including the dogs they have picked too. I don’t invest on the basis of calls from brokers selling me the next big stock tip unless they can demonstrate to me the track record of the researcher. Brokers rarely publish the FULL unedited track record of their in-house researchers. I believe that they should, as the cream rises to the top! Investing should be exciting and therefore fun, so how can investors level the odds of success? Well what I do is invest with people with a track record of success. In response to my first experience, I kept looking for the right people making recommendations, with the right track record to invest in.

They are meant to be the experts after all. I can’t make head nor tail of a corporate balance sheet but the experts can. Great, so who to follow? The information I was looking for was not available, so I built a platform that does have that information. The result is www.stockomendation.com A few years later and we are the UK’s only stock tips aggregation and comparison site that compares and performance monitors stock tips from over 160 financial journalists and tipsters, thus creating a ranking of success and failure. We track over 9000 stock tips and members can see which tipsters perform badly and which offer a chance of success. We are trying to change the industry by creating trust through accountability and transparency of experts’ tips and recommendations. The results are incredible and surprising.

It seems we are doing the right sort of things as we have just been shortlisted by FINTECH CITY in London as one of 60 of the most innovative financial disruptive technology platforms in Europe. DIY Investor has negotiated a discount for its readers to join the site to view the UK’s leading tipsters all in one place. See how they perform and take a view on which advice you trust to invest in. So please join up and get a discount from the normal RRP from £9.95 per month to only £4.95 per month. This offer is only valid for 3 months so when you sign up go to www.stockomendation.com/diyinvestor to get your DIY discount. One last thing. Sometimes not getting what you want is a wonderful stroke of luck… If I hadn’t had such bad advice, Stockomendation would not have been born so maybe it all evens out in the end.

DIY Investor Magazine / 2015 Issue

16 DIY Investor Magazine / 2015 Issue

DO YOU TRUST TIPSTERS OR BROKER NOTES?

INCREASES BY £30K House

£300,000

price

DECREASES BY £30K

£330,000

£270,000

(+10%)

(-10%)

mance of the

the rise or

or fall of the

Underlying

fall of the

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markets

Market

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falling

Leverage

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Up to 50 times

Current

FTSE 100 TR

range

Variety of

All asset

Indices

classes

Typical

Short / One

Up to 6

Up to 12

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months.

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Losses can

exceed a

Mortgage

£250,000

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Invested

£50,000

£80,000

£20,000

ment in the

(+60%)

(-60%)

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but not initial

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BEWARE OF UNLIMITED RISK

The good news is that leveraged returns do not have to be at the expense of unlimited risk. Leveraged Exchange Traded Products (ETPs) enable you to boost your potential returns in rising or falling markets without ever risking more than you invest. There are three main types to choose from. The right one for you will depend on how long you

TR A

LI Q

LEVERAGE ETPs IT

IL B

NEVER GET A MARGIN CALL AGAIN WITH LEVERAGE ETPS

You might argue that a stop loss will protect you from this situation, and in most cases you would be right. However, a violent market move, or an overnight crash in the market can mean that the market gaps down and the next recorded price is below your stop loss automatic closing level. If this happens your loss will be greater than you planned.

Our mortgage example can also be used to demonstrate a bigger danger. What if your house fell in value to £225,000? If you sold now you would not only lose all your invested capital, but you would have to find an extra £25,000 to pay back your £250,000 mortgage. In the world of spread betting and CFDs this is a very real scenario, and your losses can far exceed your initial investment.

Trading on exchange Leveraged ETPs are fully regulated investment products created by an investment bank such as Societe Generale, and listed on the London Stock Exchange.

They are easy to trade with live buy and sell prices published on exchange throughout market hours, delivering absolute transparency over your investment. Everyone sees the same price whether they are a professional trader, or private investor.

There is no need to open an additional account, Leveraged ETPs can be traded in an existing stock broking account, just like a share (subject to an appropriateness test, much the same as you would with a CFD or spread bet). LOOKING AT AN EXAMPLE; INFINITE TURBOS Infinite Turbos are the latest edition to Societe Generale’s range of Leveraged ETPs. They can be linked to a single stock, an index, a commodity or a currency pair. However, instead of paying the full cost of buying it outright, an Infinite Turbo allows you to benefit from its full price movement with only a fraction of the capital invested - much like our mortgage example earlier. This creates a powerful leverage effect that can be used to enhance returns, reduce your capital at risk, or hedge an existing share holding. There are two types of Infinite Turbos. If your view is bullish, and you expect the market to rise, you could amplify your potential returns with an Infinite Long. If your outlook is bearish, and you expect markets to fall, you could look to the range of Infinite Shorts. A key feature of all Infinite Turbos is the Knock Out Level which works as a built in stop loss mechanism, and ensures that you can never lose more than you invest.

RISE IN VALUE AS MARKETS FALL

INFINITE SHORT INFINITE LONG

PERHAPS MOST IMPORTANTLY, WE WILL ALSO DEMONSTRATE THAT WITH THESE ‘LEVERAGED ETPS’ YOU WILL NEVER LOSE MORE THAN YOU INVEST.

RISE IN VALUE AS MARKETS RISE

from the rise

Furthermore, Leveraged ETPs are not only governed by the rules of the Financial Conduct Authority, but the rules of the LSE, which are designed to ensure that prices are continuously available and fair.

DIY Investor Magazine / 2015 Issue

from

daily perfor-

SI M

In investment terms we call this 6 times gearing as your profit is 6 times greater than the move in

VALUE

2: HOUSE

Boost returns

Theoretically, if your house increases in value by 10% to £330,000 you could sell it, pay back the bank and pocket the remaining £80,000. That’s £30,000 more than you invested, and a 60% profit from a 10% rise in the house price.

VALUE

1: HOUSE

WARRANTS

Boost returns

Leveraged trading means getting exposure to an underlying asset without paying the full cost. Anyone who has bought a house with a mortgage has done it. Consider an example where you buy a house worth £300,000 with a deposit of £50,000 and a mortgage of £250,000. For £50,000 you have exposure to an asset worth £300,000.

SCENARIO

TURBOS

Multiply the

WHAT IS LEVERAGED TRADING?

PURCHASE

SCENARIO

LEVERAGE Objective

In this article Ben Thompson – Business Development Director Societe Generale Listed Products and Lyxor ETF -looks at what leverage is, and how you can harness it using regulated investment products that are listed on the London Stock Exchange and trade like a share in a regular stock broking account. Perhaps most importantly, we will also demonstrate that with these ‘Leveraged ETPs’ you will never lose more than you invest.

INITIAL

COVERED

However, trading on leverage does not have to be at the expense of unlimited losses, as it may be with CFDs or Spread Bets. It doesn’t even have to be used in pursuit of bumper returns. It can in fact be used defensively to reduce capital at risk, or to provide a degree of protection to a portfolio.

the underlying asset. Importantly, there is another lesson to learn. Gearing works against you too. If the house falls in value to £270,000, your equity would be slashed to £20,000 as you still owe the bank £250,000.

INFINITE

BEN THOMPSON

It’s hard to deny the attraction of boosting your returns, but couple it with the threat of unlimited losses, and many investors will quickly turn the other way.

DAILY

DIY Investor Magazine / 2015 Issue

BOOST YOUR POTENTIAL RETURNS WHILST LIMITING YOUR RISK

want to invest, what you want to trade and how much risk you want to take.

EPIC Type Underlying Asset Underlying Asset price Ask price Finance level Knock out level Parity Gearing

IT10 Infinite long FTSE 100 Index 6,500.00 £0.8000 5,700.00 5,800.00 1,000 8.13

To demonstrate how Infinite Turbos work, suppose that the FTSE 100 Index is trading at 6,500.00, and you believe it is set to rise by at least 5%. Having looked at the range, you select IT10, an Infinite Long on the FTSE 100 Index with a Finance Level of 5,700, a Knock Out Level of 5,800.00 and gearing of 8.13 times. What this all means is that the price of IT10 will rise or fall based on how far above 5,700 the FTSE 100 Index is trading. 8.13 times gearing means IT10 will move 8.13 times faster than the FTSE 100 Index before costs. Plus, the Knock Out level of 5,700.00 means that IT10 will expire if this level is ever touched. The cost of IT10 is £0.8000 per unit, which is calculated by subtracting the Finance Level (5,700.00) from the FTSE 100 level (6,500.00). In this case we also have to apply a scaling factor of 1,000 to reduce the trading size. We call this Parity and without it IT10 would cost £800 per unit. But dividing everything by 1000 makes IT more palatable at £0.8000 per unit. WHAT HAPPENS NEXT? As the table below shows, there are three things that could happen next. If we’re right and the FTSE 100 Index rises 5% we would make a profit of £0.3250 per unit, a 40.63% return on the initial price of £0.8000. If we’re wrong, and the FTSE 100 Index fell 5%, IT10 would fall 40.63% to £0.4750 per unit.

The worst case scenario however is that the FTSE 100 Index hits the Knock Out Level of 5,800.00. If this was to occur IT10 would expire immediately and some or all of your capital would be lost. The amount repaid would depend on the level of the FTSE 100 Index over the next three trading hours. Performance of the FTSE 100 Index New Index Level

RISES 5%

FALLS 5%

6,825.00 (+5%)

6,175.00 (-5%)

Lowest level in the next 3 hours of trading

New price for £1.1250 IT10 (6,825 – 5,700)/1,000

£0.4750 (6,175 – 5,700)/1,000

Dependent on recorded index level.

Profit per unit £0.3250 (+40.63%)

-£0.3250 (-40.63%)

Up to 100% loss

INFINITE TURBOS ACCELERATE YOUR POTENTIAL exchange traded products Infinite Turbos allow you to capture the full performance of an index, stock, currency pair or commodity, at a fraction of the cost of buying the underlying asset directly. This creates a powerful leverage effect that can be used to enhance returns, or reduce your capital at risk without ever risking more than you invested. And because they are listed on the London Stock Exchange, they trade with the same simplicity and transparency of buying a share from your stock broker.

An example trade: Infinite Long on the FTSE 100 Index

DIY Investor Magazine / 2015 Issue

CONTINUE... BOOST YOUR POTENTIAL RETURNS WHILST LIMITING YOUR RISK

www.sgetp.co.uk

Taking a more conservative approach Leverage doesn’t have to be used aggressively; it can in fact be a tool for reducing risk. Assume you have £2,000 to invest, the FTSE 100 Index is trading at 6,500 and you think it will rise. If you wanted to simply track the FTSE 100 Index you may invest your money in an Exchange Traded Fund, which will rise or fall in line with the index. If you wanted to ‘Gear up’ and boost your potential returns you could buy 2,500 units of our Infinite Turbo from earlier - IT10. At £0.8000 per unit it would cost a total of £2,000. With 8.13 times gearing, this would be the equivalent of investing £16,260 (£2,000 x 8.13 = £16,260) in the FTSE 100 Index ETF. If however you are happy to replicate the same performance as the FTSE 100 Index (before costs), but want less capital at risk, you could ‘gear down’ your investment. This time you are trying to buy £2,000.00 worth of exposure with 8.13 times less capital (£2,000 / 8.13 = £246). We can’t buy £246 of IT10 precisely as £246 does not divide perfectly by £0.8000 (£246 / £0.8000 = 307.5). The closest we can get is to buy 308 units at £0.8000 for a total cost of £246.40. This gives us a FTSE 100 Exposure of £2,003.23 (£246.40 x 8.13), but we have £1,753.60 left.

Losses can exceed a direct investment in the underlying asset. The value of the product can go down as well as up and can be subject to volatility due to factors such as price changes in the underlying asset, which may be volatile. Investors may be exposed to Counterparty Risk. Please read supporting documents prior to investing.

THIS COMMUNICATION IS FOR PROFESSIONAL CLIENTS AND SOPHISTICATED RETAIL CLIENTS IN THE UK. This advert is issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority) and the Prudential Regulation Authority and subject to limited regulation in the UK by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.

Comparing our three investments

£812.50

£1,000.00 £500.00

IT10 GEARED UP

IT10 GEARED DOWN

£100.00

£-£500.00

-£100.10

-£100.00 -£215.38

-£215.60

-£1,000.00

-£812.50

HERE OUR ETF IS DOWN £215.38 BUT YOU STILL OWN IT, AND IT COULD RECOVER,

-£1,500.00 -£1,750.00

-£2,000.00 RISES 5% (6,825)

FALLS 5% (6,175)

The chart above shows what would happen to our 3 investments under the same conditions that we tested IT10 earlier from a starting index level of 6,500. We can see that if the Index rose 5% to 6,825 our FTSE 100 Index and our Geared Down investment return approximately the same. Our Geared up position however rises more than 8 times further. However, look at the situation where the FTSE 100 Index falls 5% to 6,175.00. Again, the Geared Down exposure all but matches the ETF. The Geared up position though multiplies the loss more than 8 times. The big difference happens if the FTSE 100 hits 5,800.00. Here our ETF is down £215.38 but you still own it, and it could recover, whereas both IT10 positions are knocked out, the Geared Up position losing £1,750 of our initial £2,000.

HITS KNOCK OUT (5,800)

But, for each underlying asset there will be a number of different products with different Finance Levels, different Knock Out Levels and therefore different levels of gearing, typically between 3 and 15 times. This means that you can find a product to suit your view.

WHEREAS BOTH IT10 POSITIONS ARE KNOCKED OUT, THE GEARED UP POSITION LOSING £1,750 OF OUR INITIAL £2,000. WHAT RISKS SHOULD I BE AWARE OF? The key thing to understand is that your losses can exceed a direct investment in the underlying asset, and as we have seen, the value of the product can go down as well as up.

Importantly, the underlying assets can be volatile which can lead to large movements in price; either for you, or against you. The Knock Out Level will protect you from unlimited losses, but if it is touched the product will expire, and you could lose all of your investment. The last important point is that Infinite Turbos are issued by a Societe Generale company, as such any failure by Societe Generale to make payments due may result in the loss of all or part of your investment.

WHAT COSTS AND FEES ARE INVOLVED? Like our mortgage example at the start, an interest rate equivalent to approximately 1.5% to 2.6% per year is pro-rated and deducted from the price of an Infinite Turbo each day. September 2014

InfInIte turbos

InfInIte turbos AccelerAte your potentiAl

CHOOSING AN INFINITE TURBO In this article we have kept it simple and only used one example product, IT10. In reality there would be a lot more choice. Firstly you can trade more than just the FTSE 100 Index, and you can go short in expectation of a fall, as well as the long examples we have seen.

tHiS communicAtion iS DirecteD At proFeSSionAl clientS AnD SopHiSticAteD retAil clientS in tHe uK

This communication issued in the U.K. by the London Branch of Societe Generale. Societe Generale is a French credit

CHECK OUT IT GUIDE

institution (bank) authorised by the Autorite de Contrôle Prudentiel et de Resolution (the French Prudential Control Authority) and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential

Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.

DIY Investor Magazine / 2015 Issue

FTSE 100 ETF

For over 80 years, Henderson Global Investors has been at the forefront of investment trust innovation and development. Now, with a diverse and established range of managed investment trusts and investment companies, Henderson has a global view of the market. Whether you are retirement planning, investing for your children, looking to take advantage of dynamic global markets or want a cautious investment approach, our managed companies offer a wide range of investment objectives and strategies professionally managed by regional experts. If your priority is high income, long term capital growth or a mixture of both, Henderson Global Investors has a range of solutions which aims to meet your investment needs. Please remember that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations, and you may not get back the amount originally invested.

www.hendersoninvestmenttrusts.com

@HGiTrusts

There are reasons to believe that the equity price swings experienced in early trading of 2015 could well be a feature of the year ahead. The oil price, Eurozone woes and shaky news from China have all conspired to deliver a rollercoaster ride across the major stock exchanges. It is uncertainty that drives volatility and whether it is in the shape of the General Election in May, a potential Russian default or the deflationary risk posed in Europe and possibly China, there’s plenty more of that on the horizon. For those with a strong stomach, time and acumen, volatility can be a welcome phenomenon. For the rest of us it is about adjusting investment strategies to cope with the changing environment. The FTSE 100, which has put in its worst start to a year since 2008 (the year of the global financial crisis) has seen dramatic sell-off and rebound already. On closing figures alone it has travelled from trough to peak of more than 200 points during just two days 6-8 January. One can also illustrate the change in market conditions by looking across the Atlantic at the US S&P 500 index which hit an all-time high last year. Throughout 2013 and 2014 the average trading range was in the region of 15 points. In the weeks which took us from 2014 into this year, that jumped to some 25 points.

For active traders, spikes in volatility present opportunity as well as risk. Taking advantage of more sophisticated products such as Covered Warrants or Turbos means that it is possible to profit from both strengthening and declining markets. For those with successful strategies, profits can be magnified. But while these are limited liability products, they are higher risk and traders can lose all they have invested. Another multifarious group who sometimes welcome volatility are the so-called ‘contrarians’. These are not, as is sometimes thought, investors who simply do the opposite of the market but rather make up their minds on the fundamental merits of an investment irrespective of the crowd. FOR LONGER-TERM INVESTORS WHO HAVE THE LUXURY OF TIME TO WAIT FOR VOLATILITY TO WORK ITSELF OUT, THE OLD ADAGE OF BUYING QUALITY INTO A FALLING MARKET SURELY APPLIES. As such, volatility means that there could be opportunities to buy specific sectors on general weakness. For longer-term investors who have the luxury of time to wait for volatility to work itself out, the old adage of buying quality into a falling market surely applies. In conditions like this, investment timing can present an unwelcome risk and one way of addressing it is to drip-feed funds into a chosen market or product by way of a regular investment scheme.

Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. H004652/1113ad

Take a global view of investment trusts, expertly managed by Henderson

WILL THIS BE THE YEAR OF VOLATILITY?

DIY Investor Magazine / 2015 Issue

ARE YOU A GLOBAL INVESTOR?

24 DIY Investor Magazine / 2015 Issue

It’s a global marketplace

Investment Trusts, managed by Henderson

This means pound-cost averaging where sometimes you will buy in peaks but also in periods of price weakness and the latter conditions will mean buying disproportionately more â&#x20AC;&#x2DC;stockâ&#x20AC;&#x2122;. Elsewhere, diversification is the watchword to managing risk but also adjusting allocations to both protect against risk and take opportunity of any upsides. The United States, for instance, is a staple in many portfolios and has had a decent run over the last few years. Growth forecasts remain steady but some commentators believe the markets are looking expensive so it might be a moment to take some profits by reducing exposure. The threat of deflation could be hedged by ensuring global diversification and a decent mix of growth and income orientated investments. Gold could represent the ultimate refuge in times of uncertainty and has already started to show signs of life. It is accessible to investors by way of tracking Exchange Traded Commodities.

THE THREAT OF DEFLATION COULD BE HEDGED BY ENSURING GLOBAL DIVERSIFICATION AND A DECENT MIX OF GROWTH AND INCOME ORIENTATED INVESTMENTS. But remember, while a defensive store of wealth, funds can flow out of the metal as quickly as sentiment returns. Its high of $2000 an ounce in the long shadow of the credit crunch during September 2011 had slipped back to under $1200 at the end of 2014. Despite the uncertainty, there are still reasons to think that 2015 can be a decent year for equities. Many analysts expect the US led bull market, with us since 2009, to continue while the weak oil price could be an unplanned boon for some business and consumers despite what it might say about global demand. But investors need to be braced for a bumpy ride and adjust portfolios to cope with conditions.

27 DIY Investor Magazine / 2015 Issue

26 DIY Investor Magazine / 2015 Issue

WILL THIS BE THE YEAR OF VOLATILITY?

Investors are likely aware there are two main ‘types’ of collective investment vehicles: openor closed-ended. Open-ended vehicles in the UK are either called open-ended investment companies (OEICs) or unit trusts, and otherwise referred to as ‘funds’; closed-ended vehicles are known as investment trusts. ‘Open-ended’ refers to the fact that when new investors come along with money to invest, new units in the fund are created and the fund grows; similarly when investors want their money back, the fund shrinks as the units are cancelled. ‘Closed-ended’ refers to the fact there are a fixed number of shares in issue for an investment trust, so in order for an investor to buy shares another investor must be willing to sell. These are transacted through an exchange. Not needing to worry about potential redemptions in investment trusts means fund managers are able to buy more esoteric or illiquid stocks because they don’t need to worry about selling them to raise cash. This can be very beneficial for investors, as John Bennett, Fund Manager of the Henderson European Focus Trust, writes: These are not, as is sometimes thought, investors who simply do the opposite of the market but rather make up their minds on the fundamental merits of an investment irrespective of the crowd. JOHN BENNETT ON SPECIAL SITUATIONS: THE TRUST’S POWERFUL DIFFERENTIATOR Over the years I have frequently discussed the advantages investors enjoy when owning investment trusts. Recently, I have been reminded of these again. I am not overly confident in the markets presently. US equities, the forerunner for global risk assets, are too highly valued. Political paralysis in the Eurozone coupled with drag from financial

JOHN BENNETT, DIRECTOR OF EUROPEAN EQUITIES AT HENDERSON GLOBAL INVESTORS MAKES THE CASE FOR INVESTMENT TRUSTS

repression and excessive debt means relatively low valued European equities are, in my opinion, not actually that cheap. At times like these there are unique positions in the Trust that give me some confidence: the special situations.

DIY Investor Magazine / 2015 Issue

FROM A SMALL CORNER OF THE MARKET: INVESTMENT TRUSTS

For my large open-ended funds these stocks are often inappropriate on account of being too small and too illiquid; we simply couldn’t trade them into meaningful portfolio positions nor use them to raise cash quickly enough to fund any necessary redemptions. WHAT OTHER ADVANTAGES DO INVESTMENT TRUSTS BRING INVESTORS? 1) More reliable income - The income you receive may be more reliable than open-ended funds because investment trusts are able to reserve up to 15% of the dividends received from underlying holdings, usually in times of economic prosperity, and use this to help continue paying-out income if times get harder and dividends become less fruitful. 2) Independent board - Investment trusts have an independent board whose job it is to keep an eye on the fund manager’s performance and ensure they’re keeping in-line with the investment mandate, supporting or challenging them where necessary. 3) Gearing – Investment trusts can gear – or borrow extra money – which can significantly add to performance if skilfully deployed in rising markets, although being a double-edged sword it can enhance loses in falling markets.

In the closed-ended structure the absence of capital flows means we do not have to worry about these issues; there’s plenty of time to trade the stocks and aim to get the best price for our investors. While special situations are not a large part of the portfolio’s strategy I do believe they set the Trust apart from its open-ended counterparts. I point to two representative positions.

Tessenderlo Chemie is the first, a Brussels-based chemicals manufacturer operating in markets from agriculture, construction, food to health & hygiene. We have been invested in the company for some time although its share price returns have been lacklustre over the years. The reason for our continued investment has been a subsidiary business known as Kerley, a manufacturer of agricultural sulphur-based liquid fertilisers. In North America it is the leading supplier in this area, aided by cheap raw materials from a highly integrated upstream business model. It places the company in a powerful competitive position due to the difficulty in replicating this model, leading to high growth, high margins and high returns. Successive management teams have been somewhat underwhelming, however in 2013 a successful Belgium entrepreneur, Luc Tack, bought into the company and started to enact promising change. Following decisive cost cutting the company recently came to shareholders

for a €200m rights issue, gladly partaken by ourselves. We believe it is now well positioned for growth. Veidekke is the second, the largest building and construction firm in Norway. With over 6000 employees and footholds in Denmark and Sweden, it builds new homes, commercial property, public buildings, roads and railways. It has never lost money since its founding in 1936. During the financial downturn their margins came under pressure, but with the subsequent clear-out of lower-margin business the recovery has lent to improving profitability. We find particularly attractive the high level of employee ownership, a clear home-markets leading position and an extremely strong balance sheet. Indeed as we perpetually nag management to distribute more of the cash from its balance sheet, we have confidence in a continuing high and rising dividend.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.

HOW LONG HAVE YOU BEEN A DIY INVESTOR?

ISA OR PENSION?

20+ Years(15 Years As An Online Share Trader)

Both, as the ISA will allow instant access in case of that ‘rainy day’ and recent changes in ISA rules (allowing bonds with less than 5 years to maturity, allowing AIM listed stocks and an increase in the annual subscription to £15000) make it a better vehicle to invest in. As with most investments, I think it is important to have a spread of products/ risk etc.

WHAT TYPE OF INVESTOR ARE YOU? Mostly long term buy and hold on decently yielding stocks (most of my investments are via my SIPP), I would say that I have become a more cautious investor, but I am still prepared to take reasonable risks. In the last few years I have looked to get a far better balance to my portfolio, so not just straight equities, but also Exchange Traded Funds (ETF) and Exchange Traded Commodities (ETC) and bonds. In particular, I have looked to invest in new issues of retail bonds, with yields between 5 and 6% typically and found it easy to do so (at nil commission) via my broker, Selftrade. I tend to pick up information on retail bonds via Selftrade, the LSE website and also Retail Bond Expert. Similarly, ETFs/ETCs are simple to trade online and provide greater diversity and balance in my portfolio. Over the years I have purchased various ETFs/ ETCs including tracking of a basket of Australian stocks, index trackers of the FTSE250 (which I still do via a monthly regular investment), DJIA and Nikkei. I have also invested in ETCs for Gold, a combination of Gold/Silver/Platinum, Copper and even Water Companies. WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT? Good yield, sound investment with (hopefully) a potential of decent capital uplift. I will generally not look outside the FTSE 350 for equities with my SIPP, but do occasionally invest in AIM listed stocks in my ISA. Within my SIPP, my employer pays in a set amount each month and I have 8 regular investments that, after 4 or 5 years, are now a significant value and pay an good dividend.

WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS? Equities have generally figured in my highs and lows: Marconi, RBS (all FTSE100 that had a massive fall from grace) as well as a couple of stupid AIM plays. I console myself with the bad decisions hoping that I have learnt my lesson and will make a better decision in the future (which I believe I generally do). Some of my better investments include ITV and the original Orange listing. WHAT ADVICE WOULD YOU GIVE TO SOMEONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME? Have a balanced portfolio which includes a combination of equities, bonds and ETFs/ETCs and be very clear on your goals (i.e. retire at 55, save for school fees etc.), concentrate on keeping your costs to a minimum and don’t be too greedy!

In many ways, China has been the economic success story of the past decade or two. It has provided some of the great growth opportunities of recent years and investors were glad of that when this mighty economy dragged the world out of the credit crunch. But the numbers do not look so strong as we head into 2015 and that is worrying many who have bought into this mighty economy in the past. Perhaps the biggest change in portfolios since the turn of this century is that today most investors consider there is a need for global exposure to be truly diversified. Those who have ignored the world outside these shores will have missed out on some of the big growth stories of our time. Allied with this demand has been the opportunity for DIY investors to achieve that exposure, simply and cheaply, using managed collective funds or index tracking Exchange Traded Products (ETPs). And so exposure to China is now a staple in a large number of portfolios. Investors have benefited from three decades of double digit growth which peaked at a staggering 14% in 2007. It means that today China is the second biggest national economy in the world, worth some $12 trillion. It is recognized as the world’s manufacturing workshop and has a burgeoning middle class demanding luxury products from the West. But has the shine started to wear off mighty China? After all, growth has slowed, car sales growth has halved, producer price inflation has fallen, exacerbated by the weak oil price posing deflationary risks, there is scepticism over official figures and this has all been reflected in some equity weakness. Investors do need to be wary of signs of economic weakness. Perhaps, though, we need to put these numbers into perspective. Yes, growth has fallen but it remains around 6-7% per year. That is not only the envy of developed nations closer to home but remember, today, the Chinese economy is double the size that it was when growth peaked eight years ago; in cash terms GDP growth is comparable. Similarly while the slide in car sales growth will concern high end European and Japanese manufacturers, it has fallen from a

IT IS RECOGNIZED AS THE WORLD’S

RICHARD/AGE 43/RESIDES SOUTH EAST/MARRIED TWO CHILDREN

SHOULD WE WORRY ABOUT CHINA IN 2015?

MANUFACTURING WORKSHOP AND HAS A BURGEONING MIDDLE CLASS DEMANDING LUXURY PRODUCTS FROM THEWEST. BUT HAS THE SHINE STARTED TO WEAR OFF MIGHTY CHINA

staggering 13.9% per year to a still considerable 6.9%. And while deflation should always concern investors, Chinese authorities can comfortably draw on a huge $4 trillion in foreign currency reserves to address the problem. This is something to keep an eye on. It is some of the longer-term structural changes that invite questioning. One such trend is towards de-industrialisation; a fate known well to the developed economies of Europe and the United States. That is the shift in the economy from manufacturing to services. Here the decline in Chinese manufacturing employment actually got underway in the mid-1990s when it peaked at (a not very high) 15%. And China has turned to services while income levels are less than a third, in relative terms, of those experienced when Western economies de-industrialised. As most Chinese workers moving from rural areas to the cities are today finding work in services rather than making things, there are reasons to believe the slowdown in output could be a permanent feature. After all, rapid growth where it has been found around the world and throughout history has usually been associated with the industrialisation stage of economic development. Something else to watch. The Chinese story does not look quite so compelling for investors as 2015 gets underway. The economy is set to endure a challenging year with questions on the longer-term horizon which present risks to the health of portfolios. That said, China continues to produce some attractive growth stories and it is difficult to ignore, let alone write-off, the world’s second biggest national economy.

DIY Investor Magazine / 2015 Issue

Q&A FROM DIY INVESTOR

BUT IT’S NOT AS EASY AS I THOUGHT TRYING TO

In April 2014 Humbug set out with £50,000 to invest in predominantly small cap stocks and the target to make a 20% return without taking undue risk.

INVEST/TRADE AS I DO AND RUN A SEMI NORMAL

December proved a decent month with crystalised net losses of £239 set against un-banked profits of £1840. But overall, the situation remained dire at the turn of the year with a net loss (taking those running profits into account) of almost exactly £3000. That is down 6%. Early January brought little cheer causing Humbug to revisit his trading philosophy and strategy.

OPERANDI.”

However, Humbug believes that over time his determination to take losses quickly will serve him well stoically stating that ‘a loss of 6% can easily be made up; a loss of 60% would be another matter’. His frequent trading may not appeal to those looking to build a long-term diversified investment portfolio but Humbug’s diary is real, rarely dull and frequently brutally honest. MONDAY 1ST DECEMBER A doctor friend of mine always says the first you know about a stroke is when you’ve had one. I’ve found the same to be true about shares that suddenly tank – you first you know that your money’s gone when it’s gone. I started to worry about Northbridge Industrial Services (NBI) after it rose after I bought it but is now suddenly on the way back down for no reason I can identify. I sold out just above break even for a profit of £16.70. Motive: capital preservation. WEDNESDAY 3RD DECEMBER Staying with my daughter and little granddaughter and as a result watching a lot of CBeebies TV. Notice that Entertainment One (ETO) (the people behind the world wide hit Peppa Pig) are moving up nicely. Buy a thousand pounds worth at 305.5p and a little later another thousand at 308.2p. Stop 284p targets 340p and then 360p. THURSDAY 4TH DECEMBER ETO continues upward; bought two thousand pounds worth at 311.61p to complete my line.

TUESDAY 9TH DECEMBER ETO had risen to 329p but fell very sharply with the general market; my rules dictate that I sell as well. All gone at 303.43p for a loss of £110, but if it look like turning round I’ll buy in again. WEDNESDAY 10TH DECEMBER Oh for crying out loud! ETO has turned upward again. Purchased one thousand pounds worth at 305.3p. THURSDAY 11TH DECEMBER Back into another old friend Tristel (TSTL), manufacturer of specialist wound control stuff. One thousand pounds worth at 81.99p with a Stop further away than I really like at 68p - the nearest sensible support point - Target 110p. MONDAY 15TH DECEMBER Scapa Group (SCPA) rose after I bought in November, but hit a brick wall at around 135p. Today my stop loss kicked in, selling at 126.05p for a loss of £122. TUESDAY 16TH DECEMBER Cello Group (CLL) looks set to rise nicely; bought one thousand pounds worth to test the market at 88p. Stop nice and tight at 83p, targets 98p and 110p. THURSDAY 18TH DECEMBER Most of the time I suppress the ‘gambler’ in me, but hey it’s Christmas! Going for a quick in and out on Game Digital (GAME) - got to be out before they report Christmas trading in January (just in case). One thousand pounds down on the table at 347.75p, looking for a quick run up to 380p, stop 338p. I’ll watch this one like a hawk.

BUSY LIFE… I NEED TO HAVE A LONG THINK OVER THE NEXT FEW WEEKS ABOUT MY MODUS

FRIDAY 19TH DECEMBER Short-term the market looks okay so I revisit Renew Holdings (RNWH) which punished me for £470 last time I tried my luck and buy Tungsten Corporation (TUNG) a B2B payment provider that I believe has great potential. One thousand pounds of each - RNWH at 305p, stop 277p, target 380p. TUNG 241.47p, stop 218p, target also 380p. MONDAY 22ND DECEMBER Interesting - TUNG announces a several billion pound deal that will enable it to factor the invoices it processes - a total game changer. Wish I’d bought more last week, but did what I don’t like doing and chased a price. £2,000 top up at 282.8p. Did the same with ETO at 309.8p. TUESDAY 30TH DECEMBER GAME didn’t work and I’m all but out of time on it; price hit 360p but today is back down at break even. Out at 347.31p for a loss of £24. That’s my gambling urge purged for a while. MONDAY 5TH JANUARY One of my trading chums Teresa came up with a gem of a company this morning - Bond International Software (BDI) which provides support for companies in the staffing industry. I really liked what I saw both on the metrics and the chart and tried to buy some this morning but the price got away from me. Late in the day the level two price screen looked all together better so I bought two and a half thousand pounds worth at 94.9850p - Stop 83p, targets 115p and then 145p.

I don’t want to whinge because I just love the challenge of the markets, but it’s not as easy as I thought trying to invest/trade as I do and run a semi normal busy life. Prices taking a run with me like this must not happen again, I need to look at having live prices with me all the time and check them constantly no matter where I am or what I’m doing, or I need to have a long think over the next few weeks about my modus operandi. Currently I have a more pressing matter on my mind, namely do I take the quite chunky hit on ETO and TUNG? I’ll brood over night and decide tomorrow morning. THURSDAY 15TH JANUARY The Swiss have certainly stirred things up this morning as the peg on the Euro comes off. A 30% rise of the Franc. Glad I don’t touch the FX markets. Me thinks there will be some bankruptcies as a result of this. However I’ve got problems of my own, what to do about ETO and TUNG. I’ve decided to lower the stops and keep them for the time being. This breaks all my rules and frankly isn’t that clever, but if I’m lucky it may be a way of managing things. You may know the old gag, question, what’s a long term hold? Answer, a short term trade that went wrong. Ain’t that the truth? WEDNESDAY 21ST JANUARY Trifast (TRI) makes industrial fasteners and also lots of money. Their last set of figures were very good indeed and they are due to update the market again in a week or so. I’m taking a flyer on the news being good and have bought in ahead of what I hope will be an upward rerating of the shares. Two thousand five hundred pounds worth at 96.5762, stop 86, target 128.

“I JUST LOVE THE CHALLENGE OF THE MARKETS,

DIY Investor Magazine / 2015 Issue

DIARY OF A DIY INVESTOR

WEDNESDAY 14TH JANUARY Disaster. Big disaster. I’ve been away from my computer all day and ETO and TUNG have both fallen sharply coming down past my stop loss point in both cases. I like to have fairly tight stop losses in place and act on them without a second thought, but these two have got away from me. What a total bummer.

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