The MAM Blog – A Bad Day for Likes


Alan Brown – Trainee Investment Manager

Facebook enjoyed years as the king of social media. A website that has grown from the dorm room of its creator Mark Zuckerberg to a multi-billion dollar Nasdaq listed company. To this day, the site can boast of around 2 billion daily active users; just under a quarter of the entire world’s population. In the UK alone, 66% of the population are active Facebook users. Given how successful Facebook has been in permeating so many facets of modern life, you could be forgiven for assuming the company would continue to excel. This isn’t quite the case. Recently, shares of Meta, the owner of Facebook, plummeted 26% on a single day of trading, erasing over $200 billion from Meta’s market capitalisation, in what was a record one day market cap loss for a US company. This fall came on the back of disappointing fourth-quarter results, announcing the first drop in daily active users in its 18 year history and slower revenue growth. This downgrade in earnings outlook took the market by surprise but was by no means unique to Facebook alone. A number of US technology companies came under pressure, as investors anticipated policy tightening by the U.S. Federal Reserve.

Facebook is a very widely held company by investors in the UK, whether directly through ownership of individual shares or indirectly through exposure in collective investment vehicles. It would be reasonable to assume that a large portion of UK investors have some form of exposure to the company. Such a fall in a share price can have a significant impact on a portfolio, particularly those with high concentration to a single company. Just ask Mark Zuckerberg, whose net worth is estimated to have fallen by around $29 billion following the recent events at Facebook. This is of course an extreme situation, where such a large holding in a single company is expected given the aforementioned position as Chief Executive Officer of the business. It does however offer a helpful reminder to investors of the importance of maintaining a well diversified portfolio.

Diversification is the risk management strategy that mixes a wide variety of investments within a portfolio. By including a mix of distinct asset types, investment vehicles and global investments, a portfolio can attempt to limit exposure to any single asset. The rationale behind this is that a portfolio constructed of a variety of different kinds of assets will, on average, produce higher long-term returns and lower the risk of any individual asset. Through diversification, investors can remove unsystematic risk, this being the risk associated with a single company or industry. By maintaining well diversified portfolios, investors can shield their wealth from significant losses as a result of poor performance by a single company. Of course, systemic risk cannot be diversified away, as global events will always spark major collapses in the wider economy or specific industry; think of the Financial Crisis and Covid-19 Pandemic. There is no such thing as entirely riskless returns. However, investors should always endeavour to hold well diversified portfolios that will offer a reasonable level of protection for their wealth.

The MAM Blog – Is the 60/40 Dead?


Lewis Roxburgh – Trainee Investment Manager

The 60/40 portfolio, a portfolio consisting of 60% in stocks and 40% in bonds, has been a central principle of investing for decades.  A mix in this way is claimed to lead to stock-market-like returns at a lower amount of risk.  Yet with the prospect of lasting inflation and higher interest rates, this raises big questions as to the future of bonds and their place in a diversified portfolio.  This has led me to investigate the past successes of the 60/40 portfolio and its viability as an allocation strategy for the future.

Figure 1: Real Return on £100 Invested from 1980-2021, using the MSCI Total Return Index (rebased) and UK 10 Yr Government Total Return Index (rebased).  Inflation-adjusted using UK CPI. Source: DataStream, Calculations

I modelled a 60/40 portfolio going back to 1980. The portfolio returned 7.22% annually (assuming a perfect world of no taxes or costs), consistent with its objective of achieving a number higher than bonds but slightly lower than stocks.  Over the last decade, the 60/40 portfolio actually outperformed an all-stock portfolio.

Modern Portfolio Theory, the investment equivalent of not putting all your eggs in one basket, tells us diversification is a great way to enhance the risk-reward trade-off.  However, bonds were especially successful over the period for two reasons:

  • Investors were rewarded for holding bonds as interest rates fell over the last 40 years (due to the inverse relationship between bond prices and yields).
  • Bonds acted as a reliable counterweight to stock market crashes, as interest-rate cuts were associated with times of recession.

Both of these benefits no longer exist in the current climate.  Interest rates in most major economies are either beginning to or are expected to rise, causing bond prices to fall.

Figure 2: Interest Rate history of the UK and US from 1980-2021. Source: ONS, DataStream

The diversification benefit from holding bonds is also less clear, as persistently low interest rates have complicated the relationship between stocks and bonds. Since the Great Financial Crisis of 2008, correlations have been slightly positive, meaning that bonds and stocks go up and down together instead of protecting each other.

It is not all bad for bonds.  The asset class still offers a lower risk investment that pays a fixed stream of income.  As interest rates begin to normalise, investors should be able to earn a higher yield along with stronger diversification benefits, yet this is unlikely to happen soon.

In the meantime, investors may need to look to other asset classes for providing additional sources of diversification and yield in their portfolios.  The 60/40 is not dead, but it can definitely be improved.

The MAM Blog – UK Government Policy updates and what this means to investors


Callum Hunter – Trainee Investment Manager

It is no secret that government debt has significantly increased from various support measures implemented to combat the Covid-19 pandemic over the last 18 months. Gross debt now exceeds UK GDP 1 and the UK government faces a difficult decision of controlling the deficit and meeting public sector requirements while avoiding dampening economic growth. 

Following on from the UK budget announcement in March, where it was revealed that a significant increase in corporation tax to 25% would occur in 2023, the UK government released guidance on further polices in September. 

Tax hikes 

On the 7th of September the UK government published “Building back better:  Our plan for Health and Social Care” which included two tax raises designed to raise money that is ringfenced to fund health and social care for the UK’s ever aging population. 

The first tax raise is a 1.25% increase in National Insurance which will be implemented in April 2022 and converted to a separate levy on earned income from 2023 onwards. This increase equates to an additional tax liability of approx. £255 for those earning £30,000 per annum and £1,130 for those earning £100,000 pa.2 

In addition to the Levy on National Insurance, starting in April 2022, the rate of tax paid on dividend income will also increase by 1.25% across all marginal rates. The purpose of this increase is to target income that does not stem from employment and which is therefore not subject to National Insurance Tax. 

The policy change has no impact on the dividend allowance which will continue to allow individuals to earn up to £2,000 per annum tax free. Investments which are held in ISAs will continue to be tax free, highlighting the benefits, now more than ever, in ensuring that investments are held in these tax efficient wrappers and that annual subscription allowances are met if there are funds available to do so. 

The triple lock has been picked 

In an address to the house of Common, Thérèse Coffey (the Work and Pensions Secretary), announced that earnings growth would be temporarily ignored when adjusting State Pensions due to artificially high wage growth from government intervention during the pandemic. The State Pension will therefore increase by the higher of 2.5% or inflation and it was announced in October that this increase will be 3.1% to match the inflation rate. Although the break is deemed by most to be fair and sensible given the artificially inflated figure for wage growth, it does raise some interesting questions – how reliable is the triple lock if the government can deviate from it in stress scenarios and can the government continue to fund the State Pension? 

The UK government has a compounding annual liability which is only going to create an ever-growing burden for the Treasury to pay. The ‘National Insurance Fund’ which is made up of the revenue produced by National Insurance payments covers Maternity allowances, Job Seekers allowance and more, with the largest benefit being the State Pension. The Government Actuary Department has already highlighted the pressure that the existing framework is under, stating in 2018 that without intervention, the fund will fall to zero by 2032. With the recent tax raises being ringfenced for health and social care the pressure on the State Pension continues to increase and will need addressing in the future. 

It is impossible to predict how the government will intervene, which could range from; increasing National Insurance further, restricting expenditure by relaxing the triple lock or increasing the State Pension Age, none of which are policies that will be warmly received by the general public. It is likely that it will be a combination of these factors in the end but the uncertainty around the matter should be considered by individuals. 

As a result, it is important for individuals to make their own provisions through the private sector (whether that be company pensions, personal pensions or savings) to minimise their reliance on state income given the uncertainty. This will ensure that they have sufficient resources available to meet their requirements throughout retirement and of course, is something Murray Asset Management would be happy to assist with. 

1UK government debt and deficit – Office for National Statistics (ons.gov.uk)
2Boris Johnson outlines new 1.25% health and social care tax to pay for reforms – BBC News

The MAM Blog – Greenwashing


Alan Brown – Trainee Investment Manager

Environmental, social and governance (ESG) themed funds have emerged to a point of real prominence following the Covid-19 pandemic, as a plethora of retail investors have looked to add many of the heavily marketed funds to their portfolios. Funds saturated with buzz words like: responsible, organic, renewable, sustainable, green this and green that, have appeared from just about every investment management company in the UK. Significant questions remain surrounding the actual environmental impact of such funds as was recently admitted by Tariq Fancy, former head of Blackrock’s sustainable finance arm.

Responsible investing is nothing new and there are a number of long-standing funds with respectable performance track records within the field. This focus on the impact that investments have on the wider world is also not necessarily unique to ESG funds, with a large proportion of fund managers incorporating ESG considerations into their investment methodologies. However, the majority of the reporting of the environmental impact of investments is not standardized and is often not independently verified; leading to the risks of so called ‘green washing’.

The term ‘green washing’ was first devised by the American environmentalist Jay Westerveld, in his 1986 essay reviewing the practices of the hotel industry. His research into the hotel sector lead him to discover the industry was falsely promoting the re-use of towels as an environmental strategy, when in fact this approach was adopted as a cost saving exercise. Within the context of investment, ‘green washing’ is the practice of a company whereby misleading environmental claims are made for marketing purposes. The intention is to improve the reputation of the company, in order to attract environmentally and socially aware consumers and investors, and, ultimately to boost profits. Often there will be no material positive environmental impact.

This issue was highlighted recently by the allegations that the German asset management firm, DWS Group, exaggerated claims over sustainability focused investment. This followed on the back of claims from the company’s former global head of sustainability that the firm had made misleading statements in its 2020 annual report; stating that more than half of its $900bn assets under management were invested using ESG criteria. As news of the allegations emerged, DWS’s share price suffered a greater than 13% fall in the share price reflecting significant question about the company’s operations.

This is of course, not endemic of the market at large, as many organisations have capitalised on the growing demand for ESG products by improving their environmental and social performances. It does however pose a risk to investors, one which ESG fund managers argue their expertise in the field can mitigate, to an extent. Therein lies the challenge; to accurately assess a company’s actions and impact on the environment and society as a whole. Being able to do this will allow investors to make informed decisions when investing in both companies and funds. An essential component to progress on this front will be the standardisation of a form of ESG reporting for companies and the funds holding these companies. Such a standard, if independently reviewed, would allow for like-for-like comparisons, the means to assess improvements/deteriorations and a greater level of transparency within the market. There is no doubt that the establishment of an arbiter of industry standards, perhaps in a similar vein to the bond rating agencies, is a significant challenge with a multitude of barriers to overcome. Projects such as the United Nation Principles of Responsible Investment, for one, have shown that many organisations are willing to publicly demonstrate their commitments to investing responsibly. With over 3,800 signatories representing over $121 trillion dollars of assets under management, this is definitely a step in the right direction.

The MAM Blog – Bitcoin


Simon Lloyd – Chief Investment Officer

These days, you would be hard-pressed to find anyone who had not heard of Bitcoin. Given it is one of the most controversial investments in the market today, I would like to offer some brief thoughts on the matter.

Bitcoin is an example of a ‘cryptocurrency’ which is used and exchanged digitally as a decentralized form of money. Cryptocurrencies use ‘blockchain’ technology, which forms secure public ledgers that allow for the safe transfer and ownership of assets. Bitcoin is widely considered to be the first and most-refined user of blockchain technology, and may be called the ‘market-leader’ in its field.

Since its launch in 2009, Bitcoin’s price has skyrocketed from a fraction of a penny to over £24,110 at the time of writing, making it one of the most remarkable investments in the last decade.

The main thesis for Bitcoin advocates is that it provides a secure, non-paper currency that protects against the unprecedented levels of money printing initiated by centralized governments. The opposing view is that Bitcoin is a highly speculative investment fueled by irrational behaviors driven by the fear of missing out, explained by the ‘Greater Fools Theory’ – investors buy only with the expectation that the price will rise further and the investment can be sold on. In this theory, the price inevitably crashes as its true value comes to light.

The difficulty in estimating Bitcoin’s true value is that it essentially has no intrinsic worth, that is to say its value is solely determined by what people think it should be. It could be argued that fiat (ie paper) currencies face the same dilemma, however they tend to be on slightly better footing – by the very essence of being backed by a government which can collect tax revenues.

It is important to note that Bitcoin is, objectively, extremely volatile. It is not uncommon to see price movements in excess of 10% in any given day, and even drawdowns up to 80% of its value over a longer period. Even if one is comfortable with this level of risk, investors need to be conscious that this threatens its main thesis, which is to provide a de-centralised store of value and act as a currency.

Investors also need to be conscious that due to its anonymous-nature, Bitcoin is subject to fraud and theft, and is not recognised in the UK as legal tender (although capital gains are taxed). Individuals who invest in Bitcoin risk not being able to transfer the value back into money and have no legal recourse for theft.

One final point is bitcoin’s lack of ‘green’ credentials. The incredibly complex calculations used to maintain the distributed ledgers require immense computing power, the energy usage of which is said to be the equivalent of a small country. Much of this activity takes place in China and Russia with electricity sourced from coal-fired power stations making Bitcoin a ‘dirty’ currency.

Bitcoin is undoubtedly a complex investment with many other factors not considered in this article. As with any investment, but especially so for Bitcoin, you must carefully assess the risks before committing capital, and you should understand that the value of your investment can go down as well as up.

The MAM Blog – Tax Rates Frozen until 2026


Jamie McLaren – Financial Planning Director

Chancellor, Rishi Sunak, confirmed a number of tax freezes in his Spring Budget on 3 March 2021 in combination with the continued spending to assist with the impact of Covid-19.

There were a number of tax changes noted in the budget, but this article focuses on the following personal taxes that will be frozen from 6 April 2021 until 5 April 2026:

    • The Personal Allowance and Income Tax bands.

For Scottish taxpayers, it should be noted that whilst the Scottish Parliament has the power to set Income Tax rates and bands for the non-savings non-dividend income of Scottish taxpayers the Income Tax base, which includes the setting or changing of Income Tax reliefs and exemptions, and the tax-free Personal Allowance, remains reserved to the UK Parliament.

    • Inheritance Tax (IHT) nil rate bands.
    • Capital Gains Tax (CGT) annual exemption.
    • Pension Lifetime Allowance (LTA).

The UK Government has accumulated significant additional debt in its measures to deal with the Covid-19 pandemic and it is expected to take many years to recover this expenditure. Whilst freezing tax rates may on the face-of-things seem a relatively innocuous gesture, the impact will gradually increase overall tax paid without the UK Government appearing to be overly harsh or expressly increasing taxes. This approach is often referred to as ‘stealth tax’ as there have been no express or direct increases to taxation.

For example, any inflationary increases in individuals’ salaries over this five-year period will result in more of their salaries being taxed at higher income tax rates.

It is estimated that some 1.3 million people can expect to begin paying some income tax where they did not before. A further 1 million individuals are expected to become Higher Rate taxpayers by 2026.

The freezing of the pensions LTA, CGT exemption and IHT nil rate bands will not impact as many individuals as with freezing Income Tax, but the impact of the freeze is similar to that above, determined by the growth of the underlying assets subject to assessment for these taxes.

For example, if the value of pensions, investments and property do not grow significantly over the next five years, then the freezing of these taxes/exemptions will have a minimal impact on our pockets or the Treasury. Conversely, if invested funds and house prices do well over the next five years, we may see many more people being subject to these taxes as the thresholds have been frozen. Individuals already dealing with the potential of LTA, CGT and IHT taxation may find that these freezes have increased the likelihood and degree of such taxation even further.

You can find out more about the Spring Budget 2021 by clicking here.

The MAM Blog – The Covid Vaccine Landscape


Simon Lloyd – Chief Investment Officer

At present UK investors are focussing on the outcome of the UK/EU negotiations but globally the success, or otherwise, of the Covid vaccines is likely to determine the future direction of equity markets.

The Covid vaccine landscape consists of six main candidates spread across three vaccine technologies. The two front runners are MRNA vaccines developed by Pfizer and Moderna where trials have shown high efficacy rates around 94-95% and, crucially, high effectiveness in over 65s and across ethnic backgrounds. The primary issue with the MRNA vaccines is the very low storage temperatures (Pfizer at -70OC and Moderna at -20OC) which makes distribution difficult, especially in less developed economies. The Pfizer vaccine has been approved in the UK and mass vaccinations have now started.

AstraZeneca and Johnson & Johnson are both developing Viral Vector Vaccines. AstraZeneca has published interim results with Johnson & Johnson expected to release their results early in 2021. The true efficacy rate of AstraZeneca’s double full dose vaccine trial sits at 62% and the accidental half dose trial has an efficacy rate of 90%. AstraZeneca has added a new arm to its US trials to further explore the half dose method. However, efficacy rates will likely come down from 90% as the people in the half dose group were, on average, younger than other manufacturers’ trials. Although it has a lower efficacy rate of 62%, this vaccine has the advantage that it can be stored for 6 months at 2-8O’C along with the ability to be manufactured in larger quantities compared to competition. Therefore, the AstraZeneca vaccine looks particularly promising for use in emerging and less developed markets, and because of this it remains a key contender in the vaccine race despite the lower efficacy rate.

The remaining two vaccines use an immune boosting compound called an Adjuvant to assist the body in producing neutralising antibodies. These are being developed by Novavax and the Sanofi and GSK partnership and are using already proven technologies. Both of these trials are further behind the other companies and results are likely to be released in the first quarter of 2021.

With the two Pfizer and Moderna vaccines showing no serious side effects (body aches and fatigue being the most common issues), US and EU regulators should soon follow the UK with approval for emergency use of these vaccines. This is the start of a programme of vaccination that should spread across the globe in the first six months of the coming year.

So, what does this mean for global stock markets? Despite recent lockdowns in the US and Europe over the last month markets have remained resilient overall, primarily based on optimism that widespread vaccinations will happen across the world throughout 2021. So far vaccine news has resulted in a significant bounce back from ‘value’ stocks and a slowdown in ‘growth’ stocks however, ‘growth’ remains the clear winner of the year and ‘value’ stocks are still below pre-Covid levels across most sectors. It is likely that continued positive news regarding regulatory approval and the distribution of vaccines across the world, coupled with new results from other Phase 3 trials will support markets going forward. In contrast to this optimism, the Chancellor of the Exchequer’s recent statement that the UK will not return to pre-Covid levels of activity until the end of 2022 provides a stark reminder that there are still many headwinds for global economies to navigate.

The MAM Blog – Don’t Overlook The UK State Pension


Jamie McLaren – Financial Planning Director

Don’t Overlook The UK State Pension

The UK State Pension is paid by the UK Government once an individual has reached their State Pension age. It is a regular income usually paid every four weeks and once in payment, will continue for life. This article focuses on those individuals who have not yet reached their State Pension age.

The value of the ‘full’ entitlement is set at £9,141 p.a. for 2020/21 but before and once in payment, the entitlement increases by the higher of price inflation (Consumer Price Index), average earnings inflation or 2.5% p.a. (these measures are collectively known as the ‘Triple Lock’). While you can defer drawing the State Pension, you are unable to draw it before reaching the State Pension age (SPA).

The Triple Lock has helped increase the ‘real’ value of the State Pension over recent years. However, it has been acknowledged that the generous increase has been at considerable cost to the UK taxpayer and so the Triple Lock is not expected to last indefinitely.

The UK Government has confirmed an increase of 2.5% as of 6 April 2021 (for the 2021/22 tax year), increasing the sum payable to £9,370 p.a. (approximately £180 a week).

However, the State Pension age has also increased over the years, to the point where individuals currently under the age of 60 years will need to wait until they are at least 67 years before it becomes payable.

Even though it may not be payable until individuals reach 67 years, the UK State Pension is still a very valuable source of funds in retirement. It is intended to form a foundation of retirement income which can take the pressure off withdrawals from other pension/non-pension arrangements and, as it is a defined income, is guaranteed for life.

You are not automatically entitled to the full State Pension. An individual’s entitlement depends on their National Insurance (NI) record. The State Pension was changed on 6 April 2016 to a new ‘single-tier’ system and accrual after this date would require 35 years of qualifying NI contributions or credits. NI is paid naturally via employment (so long as earnings are above £6,240 in 2020/21) and via self-employment (so long as Class 2 NI contributions are paid). You can also increase your State Pension entitlement via NI credits when not working (e.g. via certain State benefits). If still short of the full entitlement, individuals can choose to pay voluntary NI contributions to top up their entitlement.

There was a conversion of State Pension benefits accrued before 6 April 2016 and so some individuals may require more than the 35 years (with others requiring less).

State Pension entitlement is assessed as part of the Murray Asset Management annual Financial Planning review.

You can find out your State Pension age using the gov.uk calculator.

The MAM Blog – US Presidential Election Results


Simon Lloyd – Chief Investment Officer

The year 2020 has been as unprecedented as it has been unusual. As the world continues to grapple with the Covid-19 Pandemic. Governments, companies and individuals have been forced to come to terms with the so called, new normal. With the backdrop of a global pandemic, this year’s US Presidential Election has been no less tumultuous. With the sitting Republican President, Donald Trump looking to secure a second term, in the face of the Democratic nominee, former Vice President Joe Biden. The last few weeks of the campaign saw pollsters forecasting a convincing Democratic win; with some going as far to predict a “Blue Wave”, whereby the Democrats win the White House and both houses of Congress.

This prediction has proven to be inaccurate. As Biden’s hopes of an early, decisive victory were shattered late Tuesday, November third, as President Trump won the key battlegrounds states of Florida, Ohio and Texas. Neither candidate has been able to secure an absolute majority of electoral votes, 270 or more, required to win the Presidency. The election results hang on a knife edge, as millions of postal votes- continue to be counted and President Trump makes claims of foul play.

The preliminary Congressional results indicate the Republican party may marginally win both the Senate and the House elections, resulting in relatively conservative fiscal policies, regardless of who occupies the White House. In the case of a Biden win, he would face significant Congressional opposition to any significant budgetary or regulatory changes. This would pose headwinds to his ambitious agenda, including; doubling the tax rate on capital gains for high earners, investing trillions in green infrastructure and expanding a government-backed alternative to private health insurance. Were Trump to retain the presidency, it is difficult to say what impact a marginal hold on Congress will have, given the lack of clarity surrounding his polices for his second term. The President has failed to set clear policies, instead favouring vague of rhetoric such as “Create 10 Million New Jobs in 10 Months”.

From the perspective of a UK investor, this uncertainty will result in higher volatility in not only US holdings but across a wide range of related markets. Prospects of a streamlined US/UK trade deal under the Trump Administration, may not materialise with the more European focused, Biden. Where there is uncertainty there is volatility, and the market will continue to react to the evolving picture.

Ultimately, regardless of the final outcome of the Presidential Election, the winner will face significant barriers to implementing meaningful change. So, business as usual in the US.