The MAM Blog – Smartphone sales as economic indicator


Stuart Ralph – Investment Manager

The stockmarket recently wiped $50bn off Apple’s stockmarket valuation following its news of slowing iPhone sales in China. The US tech giant now anticipates revenues of around $84bn for the latest financial quarter, a decrease of approximately 8% from earlier guidance. Since China accounts for 20% of all company revenues, and as weakness was specifically seen within iPhone sales, the decline indicates quite a sharp fall in demand. In the aftermath, commentators have also suggested that given the iPhone’s symbolism of affluence within China, declining sales is a worrying sign for Chinese consumer confidence and the wider global economic outlook.

While I agree that weaker sales in China is of concern to Apple (and its suppliers), I am reluctant to see this as a more widespread and worrying sign. It’s obvious that US – Sino relations are increasingly challenging, and incrementally damaged by the arrest of Huawei’s CFO in Canada on the request of US authorities in relation to Iranian Trade embargo matters. The fact that President Trump suggests a more widespread deal between the two countries could remedy the situation clearly masks the wider political intent.

However, the real problem is that companies such as Apple, Samsung and Huawei are victims of their own success. They have over recent years produced increasingly complex, technologically sophisticated and ultimately increasingly “must-have” devices that the populations of the world have embraced. However at the same time, their high-end devices have become ever more expensive.

As I look at my 4 year old iPhone 6 Plus and the images it can take, I can’t see a clear imperative to buy a new phone with an ever better camera or faster processor. It can do all the surfing, emailing, texting, video conferencing, ticket purchasing, music listening and media consuming activities that I could possibly need. I can even login into my work desktop should I wish and it’s a great sat-nav system at the weekends. While it doesn’t have some of the operating bells and whistles that newer devices have, the underlying functionality remains virtually identical.

My belief is that for the vast majority of people, once devices reached a certain point in technological evolutionary terms, the applications that can be run on them is key – new operating system updates / compatibility issues / and dare I say it, intentional obsolescence are the critical factors.

So the question is – if Consumers are happy with their amazing devices and not cajoled into upgrading, then the additional disposable income required to purchase a new device can be used to purchase a range of different products. In economic parlance, the marginal utility per unit of cost associated with a new device is less than the marginal utility per unit cost gained consuming a range or basket of alternative goods.

There will of course be new consumers that underpin future sales, but a combination of enhanced functionality and cost increases have resulted in the replacement cycle being pushed out. The higher the technological bar and cost, the further this cycle will be pushed out.

Growth in China is almost certainly slowing and a deeper economic downturn may yet be seen, but the truth is that no single data point should be regarded as a proxy for the overall performance of the Chinese economy.

The MAM Blog – National Savings & Investments


Charles Roberston – Senior Investment Manager

From 1 May 2019, existing holders of Index-linked Savings Certificates will only be able to re-invest the maturity proceeds in Index-Linked Certificates where the return is based on the Consumer Price Index (CPI) measure of inflation, instead of the currently used Retail Price Index (RPI). The change is due to the reduced use of RPI by successive governments to measure inflation and is in line with NS&I’s requirement to balance the interests of its savers and the cost to the taxpayer.

CPI has historically yielded a lower rate of inflation than RPI (currently 0.9% lower). This can largely be attributed to the way the two indexes are calculated and the fact that RPI incorporates the housing market (which has historically been a volatile asset class); taking into account rises in mortgage payments, rents and council tax while CPI does not. Therefore, existing holders of Index-Linked certificates (they are currently not available for new purchases) which mature prior to the 1st May 2019 deadline should consider re-investing the proceeds for the maximum period of 5 years if they are able do so. The new measure of inflation will only be applied when a re-investment is made because existing holdings will continue to be based on RPI.

The MAM Blog – Budget 2018


Richard Johnston – Financial Planning Director

On Monday 29th October, Philip Hammond delivered his third Budget as Chancellor and, similar to the previous two, there were few standout policy changes.

It has been commented that it was an agreeable Budget and one typical of a party running for re-election, but Mr Hammond did highlight that a more severe ‘emergency’ Budget may be required in the event of a ‘no deal’ Brexit.

Focusing on one giveaway, the personal income tax allowance will be increased from £11,850 to £12,500 for 2019/20, with the higher rate income tax threshold for residents in England/Wales/NI increased from £46,350 to £50,000. This lofty, round number was originally promised for 2020/21, but will now be enjoyed a year earlier – assuming, of course, that a Brexit deal can be agreed.

For residents in Scotland, this should prove to be interesting with the SNP’s Derek Mackay due to deliver his own Budget on 12 December.

The Scottish Government cannot control the personal allowance (as it is reserved for Westminster), although it might not be inclined to use a lower figure, in any event.

It can, however, determine the higher rate threshold in Scotland, with it already lower than that of the rest of the UK, at £43,430. It would be surprising if Mr Mackay introduces a similarly large increase and, therefore, the gap between the two parts of the UK is expected to widen from April 2019.

I previously wrote about how the gap causes some undesirable results, as certain taxes remain reserved for Westminster. If the gap widens further, it may lead mobile, high earners to move south – something which the Scottish Government should be keen to monitor before it is too late.

The MAM Blog – Additional Permitted Subscription for an ISA


Charles Robertson – Senior Investment Manager

For most investors a Stocks and Shares ISAs is an excellent long-term savings vehicle given the associated exemptions from Income Tax and Capital Gains Tax.

Until recently, the ISA tax benefits were lost on the death of the account holder, but this changed in the 2014 Autumn Budget when the Chancellor announced a new measure called an Additional Permitted Subscription (APS). An APS allows the spouse or civil partner of the deceased ISA account holder to effectively ‘inherit’ the ISA.

The rules relating to an APS contribution are complicated and time limits are applied, but the benefits may be considerable given the potential capital sum involved. Therefore, it is worth seeking advice whenever an ISA is held in a deceased’s Estate. The number of people taking advantage of these new rules has fallen well below initial forecasts and we consider that this is very surprising given the potential tax benefits associated in making an APS.

The MAM Blog – Scottish Income Tax Rates


Richard Johnston – Financial Planning Director

The Scottish Parliament now has much greater power to adjust income tax rates for Scottish residents and has taken the opportunity to do so for 2018/19.

  • Firstly, the higher rate of tax has been increased from 40% to 41%, with the threshold restricted to £43,430. The corresponding level in the rest of the UK is £46,350.
  • Secondly, the basic rate of income tax has been split into three bands – the first £2,000 being taxed at 19% (the ‘starter’ rate), the next £10,150, being taxed at 20% (the new ‘basic’ rate) and the remaining £19,430 taxable at 21% (the ‘intermediate’ rate).
  • Finally, the additional tax rate, applying to income above £150,000, has been increased to from 45% to 46%.
  • This divergence creates some complexities because the Scottish Parliament’s powers do not extend to savings interest, dividends or Capital Gains Tax – all of which work by being added to the individual’s other taxable income to determine the rate at which they are payable.

    In addition, National Insurance (NI) rates and thresholds are not controlled by the Scottish Parliament. For example, as NI rates are 12% for basic rate taxpayers and 2% for higher rate taxpayers, Scottish taxpayers’ earnings between £43,430 and £46,350 will therefore now be taxed at 53% (i.e. 41% + 12%), before falling back to 43% beyond this.

    Personal pension and charitable contributions are also affected, as the default rate of relief applied remains at 20%, but a Scottish taxpayer will have the right to claim the additional 1%.

    It is therefore clear that the changes introduced will not only lead to additional tax for Scottish taxpayers, but potentially some confusion and administrative burden.

    The MAM Blog – Bitcoin


    Charles Robertson – Senior Investment Manager

    Having returned recently from the USA there was one topic of conversation that frequently occurred and it wasn’t what you would have thought. It was ‘should I invest in Bitcoin’?

    Bitcoin is a virtual or cryptocurrency that was created in 2009. Created/’mined’ by computer code they exist within an interlinked computer system and the maximum number in circulation will be limited to 21 million. A ledger, Blockchain, can store, monitor and be used to exchange the Bitcoin in the ‘real world’ or on-line economies. It is perceived to be attractive because of the limited supply, the lack of regulation and anonymity it affords and the lack of government control. The last two features means that it has also been associated with on-line criminal activity. Bitcoin has displayed a staggering increase in value from 6 cents in August 2010 to more recently when the price has exceeded $8000. The number of exchanges where Bitcoin can be traded and the number of retailers prepared to accept Bitcoin has also increased exponentially. The price has displayed a staggering level of volatility, but after each dramatic fall it has so far recovered and pushed higher.

    Perhaps it is the rise in value that has prompted so much discussion and persuaded so many investors to become involved. People are prepared to trade and accept Bitcoin because other people are prepared to accept Bitcoin. If this source of demand is materially reduced for whatever reason (and my best guess would be some form of synchronised interference by governments) then recent investor behaviour does start to look a lot like ‘a mania’, the epitome of the so-called ‘greed trade’.

    This week saw the launch of Glint Pay Services which has the aim of ‘re-introducing gold as money’. Based on a debit card and supported by mobile technology, it will allow people to store rights to gold i.e. a very different type of currency to Bitcoin. Gold as a currency has been in existence for nearly 3000 years, but over the past few years the performance has fallen well short of the price rise seen in Bitcoin. However, I can say with a degree of certainty that gold will have a value in 10 years’ time, but I am far less confident about making the same statement about Bitcoin, particularly if we are in a period of investor mania. So would I invest in Bitcoin right now? The answer would be no, but the development of cryptocurrencies is a phenomenon that is likely to last and so should be monitored carefully.

    On my trip the ‘Trump effect’ was also discussed a fair amount, but I will save that for another time – perhaps it should be in the form of a Tweet!