Month: June 2020

saving pounds
ArticlesFinance

Britons are Set to Accumulate £75.5bn in Savings as Lockdown Sparks a ‘Money Revolution’

  • UK adults with discretionary income set to save on average a record £1,434 in the three months to June 
  • More than double the previous quarterly record for household saving of £37.2bn set in Q1 2010
  • Surge in people investing and using digital banking services for the first time

Britons with unspent discretionary income are set to accumulate £75.5bn in savings in just three months as lockdown sparks a ‘money revolution’, eToro can reveal.

Joint research by the multi-asset investment platform and the Centre for Economics and Business Research (CEBR) shows those fortunate enough to have more discretionary income during lockdown are on course to save an average of £1,434 each in the three months to June.

The restrictions on movement have meant that, despite many workers being furloughed and the financial hardships associated with that, a significant number of people have been able to make regular savings on travel costs and other daily expenses.

In fact, the staggering £75.5bn of savings these Brits are forecast to make in the second quarter of 2020 will be more than double the previous quarterly record of £37.2bn set in Q1 2010.

Bank of England data reveals households saved a record amount in April alone and paid off a record £7.4bn of debt, more than two-thirds of which was on credit cards.

Further, eToro’s research can reveal that lockdown has sparked a widespread revolution in the way people use and think about money.

More than two-fifths (42%) of Brits – or 22 million people – plan to keep up their new savings habits even after lockdown is lifted, which would turn Britain from a nation of spenders into a nation of savers almost overnight.

It can also be revealed that an estimated 3.8 million UK adults have invested in the stock market for the first time since February this year. This suggests the market volatility caused by Covid-19 has awoken in many the idea of investing in shares as a means of wealth accumulation.

eToro’s research also reveals how coronavirus is speeding up the UK’s transformation into a largely cashless society.  

During lockdown, more than a third (37%) of UK adults stopped using cash altogether, the research shows, while an estimated 2.2 million say they won’t use cash again even after the threat of Covid-19 diminishes. This is on top of the 5.5 million people who stopped using cash prior to the crisis.

Lockdown has also led to an explosion in the use of digital banking platforms, the research shows.

An estimated 9.4 million Brits have adopted new apps and websites to manage their cash during lockdown.

Further, more than a quarter (27%) of Brits – or 14.4 million people – expect to increase their use of digital banking apps post-lockdown. 

Iqbal V. Gandham, UK Managing Director of eToro, says“Our research shows that lockdown has ushered in a revolution in terms of the way we manage, view and treat money. 

“For many of course there have been significant challenges with debt and loss of income. However, in just a few short months, a significant proportion of the UK households that are in a position to set money aside have moved away from spending and cheap credit and turned to saving.

“At the same time, this pandemic has awoken in millions the idea that the stock market can be used as a potent means of generating wealth and prosperity, while many of us have also embraced new, digital ways of managing that wealth.

“The period of lockdown has severely impacted the economy and household finances, but one of the positives is that it has transformed how we engage with money, which will hopefully make many of us better equipped to manage our finances in the future.”

Pablo Shah, an economist at CEBR, says: “Brits are on course to save a staggering £75 billion between April and June – more than triple the quarterly levels recorded prior to the coronavirus crisis. 

“The period of lockdown has narrowed spending opportunities and encouraged precautionary saving activity, which will bring the household saving ratio to an all-time record high of 23%.

“The survey results also reveal the longstanding behavioural shifts that will be brought about by the period of lockdown. Consumers use of digital platforms to manage their finances is expected to increase significantly, while the shift away from cash to digital payments is set to accelerate.”

Issues

Q2 2020

Welcome to the Q2 edition of Wealth & Finance International Magazine. As always, every issue we endeavour to provide fund managers, institutional and private investors with the very latest industry news in the traditional and alternative investment spheres.

Though the economic impact of COVID-19 cannot be overestimated, there are signs of optimism to be found on the financial landscape. After the rather swift baptism of fire we all experienced in March – as we rushed to strengthen digital infrastructure – we’ve settled a bit into this new socially distanced world we find ourselves in. Shocks to the stock market have levelled out somewhat, and indeed strengthened, across a plethora of industries. Of course, we’re not out of the woods yet, but we can once again see dappling sunlight in the canopy (if you can excuse the rather tortured metaphor).

The finance industry is more robust than most, with early adoption to digital services and an ability to be agile and dynamic when required. That holds true for all of the companies we have featured in this issue. From best in class artificial intelligence technologies to leading fund management firms, we’ve spotlighted just a few of the companies who are seeing success despite significant challenges.

In the meantime, I hope you all stay safe and well.

cryptocurrency
Finance

The Emerging World of Cryptocurrency

As the name suggests, cryptocurrencies
are an emerging currency based on cryptography. Bitcoin is the most famous
example, but new ones are being launched all the time. But with so much
information out there about cryptocurrencies, it can all get a bit bemusing.

“As it happens, cryptocurrencies have
been in existence for quite some time, and many believe they are the future of
currency, so it’s important to invest in your understanding,” shares James
Turner, Director at company formation specialists, Turner Little.

So, here’s our simple cryptocurrency
explainer – how they work, why they matter, and where to start if you’re
considering investing in them.

How
do they work?

There are a limited number of digital
‘coins’ available, and powerful computers ‘mine’ these coins by solving highly
complex equations. People are then able to buy and sell these ‘coins’ via
cryptocurrency exchanges. Cryptocurrencies are stored in digital wallets and
can be exchanged for certain goods and services, although it’s important to
note that not everyone accepts them. To reduce the risk of fraud, every
transaction is recorded in a blockchain.

What
is a blockchain?

A blockchain is a distributed ledger.
In other words, every transaction is recorded as a new block of information in
an encrypted chain of data. With traditional currencies, banks oversee the
ledger, whereas with blockchain, it is shared and synced across multiple
places. This means if anyone attempts to alter the blockchain, it will no
longer match the other copies that exist.

Why
do cryptocurrencies matter?

Cryptocurrency is transforming the financial landscape because it de-centralises financial transactions. Essentially, people no longer need to use banks to transfer money. Its fans say that this democratises money and respects people’s privacy. Its detractors say that this relative lack of oversight and regulation can make it unreliable.

Cryptocurrency also has periods where
it has risen sharply in value in a short period of time, which has attracted
investors. That said, its price has generally been quite volatile compared to
traditional currencies.

Should
I invest in cryptocurrency?

“There is no simple answer to this
question, nor can we give direct financial advice. As with any potential
investment, it’s worth considering the risks and rewards and consulting a
financial advisor,” adds James.

To discuss your personal situation and
find out more about the options available with cryptocurrency, get in touch
with us today.

Bas NieuweWeme
FinanceWealth Management

Lockdown has crystallised what the S stands for in ESG

The coronavirus crisis and subsequent lockdown have finally given real clarity on how to evaluate companies’ ability to tackle social issues, “crystallising” what the S in ESG really means, according to Bas NieuweWeme CEO of Aegon Asset Management.

Historically the social element of ESG has always been more challenging to evaluate as it typically relies on qualitative measures with limited means to assess actual performance.

However, the severe impact from coronavirus and the changes to the way people have had to both work and live means this has very much now come to the fore.

“The lockdown has allowed a crystallisation of the real performance on social issues versus mere policies and positioning,” NieuweWeme said.

“We can now look at how companies have behaved during this crisis. For example, are they providing employees sufficient equipment and appropriate facilities to do their jobs, have they shared the burden of the crisis when it comes future board remuneration, and have they abandoned their employees or customers in these difficult times?”

The importance of employees’ health and safety in terms of both mental and physical wellbeing has risen in prominence during the lockdown and is at the forefront of our emergence from it.

NieuweWeme said the role for investors now was to assess how businesses have actually adapted practices and working environments to ensure employee wellbeing.

“Previously we have usually relied on discussions with executive boards, while assessing policies on areas such as diversity & inclusion, childcare and flexible working among others, while using sites such as Glassdoor to get a feel for corporate culture. Key events sometimes highlight poor performance on social issues and provide us with an opportunity to engage with the worst performers, but coverage is limited to what is reported publicly.” he said.

“Going forward, we will be keeping a close eye on how companies implement new rules and regulations around employees’ safety and wellbeing, and on the executive and shareholder remuneration of those companies accepting public bailout funds.”

More broadly in terms of markets and the economy, NieuweWeme said the current crisis was a clear catalyst for change.

“From an investment perspective, if there is any good to come from this episode, it is the fact it has created greater awareness about Environmental, Social and Governance issues,” he said.

“In respect to the environment, I think many of us have enjoyed that during lockdown there has been less pollution and consequently fresher air, while nature has seemingly started to reclaim some of our urban environment.  There is also some preliminary scientific research pointing to links between air pollution and Covid-19 mortality.  These, as well as other factors mean environmental standards will come under increasing scrutiny post pandemic.”

Aegon Asset Management runs €206m* in responsible investment solutions on behalf of its clients. Its responsible investment team, led by Brunno Maradei, comprises 13 investment professionals.

For more information about Aegon Asset Management, visit www.aegonassetmanagement.com

value stocks
ArticlesFinanceMarkets

These 5 stocks prove that value investing isn’t dead

Investors who ignore so-called “value stocks” are at risk of missing out on good long-term gains, RWC Partner’s Ian Lance warns.

While the valuation gap between growth and value stocks has been exceptionally wide for some time, that gap will not grow continuously, Lance believes.

In fact, Lance believes some of the most interesting investment opportunities throughout the coronavirus have been value stocks.

Some of them, he explains, have highly profitable subsidiaries that are actually worth more than the entire group, meaning you get, in essence, two investments for the price of one.

Lance says: “Some of our most successful investments have been ones in which sentiment towards a company becomes so negative, that the valuation ends up making no sense versus the worth of its various parts.

“Valuations have become very irrational and have reached the point where they are excessively punished for a temporary earnings decline. Therefore, we believe that the current market throws up the opportunity to buy great companies with long-term returns and earning potential.”

Below, Lance sets out five unloved companies that he thinks have decent long-term potential or that have highly-profitable subsidiaries that make them worth investing in.

Royal Mail

RMG owns a European parcels business, GLS, which makes a 6-7% margin in a normal market environment and which has grown at mid to high single digit (benefitting from structural growth of online retail). In 2019, GLS made an operating profit of £180m and is therefore worth c.£2b if we put it on a multiple of 11x. The current market cap of the entire group is £1.7b and therefore the UK business is not just in for free but actually valued at around £300m.

BT

BT’s Openreach division generates £2.6b of Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) which we have valued at £22b. This represents a multiple of just over 8x historic EBITDA which compares favourably with other utilities and therefore ought to be achievable. The enterprise value[1] of the entire group is currently £31b meaning that all the other businesses are being valued at £9b, which is only 3x their historic cash EBIT of £2.8b. Rumours surfaced in the a recent Financial Times piece that BT might be about to monetise a stake in Openreach.

Marks and Spencer

Marks and Spencer have a food retail business which makes £237m of Earnings Before Interest and Tax. If we value this at 12x historical EBIT, add their £750m investment Ocado at cost (less the future performance payments), take away net debt and give no benefit for the company’s freehold property, the total is around £2.0b, which is in line with today’s market cap. The entire clothing and home business, which is still the largest clothes retailer in the UK and which last year made a profit of £224m, is therefore in for free.

ITV

ITV is, in effect two business; broadcasting which is very reliant on advertising revenue and content production. In 2019, the content production business made EBIT of £267m and we might value this at around £3.5b (13x EBIT). The enterprise value of the entire group is £3.8b meaning that the broadcast business which last year made c.£500m of EBIT is being valued at around £300m in the stock market. Another way to think about this is that companies like Netflix spend around $15b a year on content production; for a fraction of this, they could have ITV’s entire back catalogue and all future content.

Capita

Capita has a software business which made just over £100m of EBIT in 2019. As these businesses are high margin (28% in this case) they tend to be valued quite highly. Using a multiple of 15x(which would be the low end of their peers) would value this division at £1.5b which is not far short of the enterprise value of the entire group of less than £2b. The rest of the businesses, which in 2019 made around £200m are thus only being valued at around 2x EBIT.

Each of these companies has a strong franchise within them that is being undervalued by a market that is fixated on short-term earnings momentum and hence creating some genuine bargains in the market today.

managing finances
FinanceRisk Management

How can tech help people manage finances during isolation?

Yiannis Faf, CEO, What We Want

The spread of coronavirus has caused an incredible amount of disruption to lives and economies worldwide. The British Government has taken far-reaching steps in an effort to minimise the impact on the UK in both regards, by encouraging the population to practise isolating.

Such a massive overhaul of day-to-day life will come as a shock to many. However, for non-key workers who are staying at home, there are many things that can be done to allow life to still feel normal. Spending time on Facetime, Zoom on in WhatsApp groups, for example, can allow you to stay connected.

In terms of finance, self-isolation provides its own host of challenges and opportunities. With the help of tech, those staying at home should be able to successfully combat or maximise on these.

Here are five ways we can use tech to overcome financial challenges during self-isolation:

  1. Management

First and foremost, COVID-19 is affecting people’s finances and the way they manage them. With consumers unable to visit their local bank branch or speak to an advisor in person, many will be concerned about financial management. However, technology is on hand to offer a bit of reassurance throughout this testing time. 

Money management applications can be useful throughout this process. Mint, for example, is an application that collates all your income, expenditure and other any other important finance information, helping to outline your overall financial position.

For some, self-isolation might inspire a large financial overhaul, and prompt an investigation into digitally-oriented ‘challenger banks’ like Monzo or Revolut. Whilst these banks might seem targeted at younger people, they offer an incredibly streamlined way of managing your money, thanks to their well-designed and easy to use mobile apps and online platforms. For example, every time a purchase is made, an account holder will receive a notification and their app will be updated, ensuring they are able to easily track their expenditure. In a period of economic uncertainty, that’s certainly a major upside.

  • Switching providers

With more time on our hands, many consumers will consider reviewing the costs of their major outgoing. This includes switching providers.

There are many comparison websites that provide a clear breakdown of the options available. Here, the various products, benefits and charges of different firms will usually be clearly laid out, allowing consumers to find the best option to suit their needs and make an informed financial decision.

  • Bargain hunting

At a time when we are unable to visit bricks and mortar stores, we are forced to shop online. With these changes comes an added benefit – it is easier to find the best deal.

Whether it is toiletries, groceries or clothing, online shopping enables consumers to quickly scan multiple retailers to find the desired product at the best price. This could result is further cut-backs in ones expenditure.

  • Small acts of kindness

Here’s another, more heart-warming idea. Technology can go a step beyond aiding an individual’s personal finance and can be used to help others within the community.

In the midst of the COVID-19 pandemic, crowdfunding apps are being used by local communities to raise money for worthy local causes. These causes can be of any size; from raising money to help a local retailer stay in business, to a supermarket shop for a vulnerable neighbour. Demonstrating small acts of kindness has never been more important to boosting the morale of communities, and it certainly is encouraging to seeing technology facilitating this.

At WhatWeWant we have seen use of our crowdfunding app increase notably over recent weeks for this very reason. Even though we are separated physically, using crowdfunding technology – and social media to share funding campaigns – can help direct cash to great causes.

To that end, during the Coronavirus pandemic WhatWeWant is donating all fees, including payment provider fees, to the National Emergencies Trust. We do not want to profit from people using our app for such worthwhile reasons. What’s more, we can also use this money to support a vital charity that is doing great work to help people through this crisis.

  • Safety

Finally, technology can do more than simply help improve your finances when in self-isolation; it can also protect you. When going to the shop, for example, using a contactless card saves you from touching the receiver, thereby minimising the spread of the virus.

Moreover, cybersecurity and fraud detection measures are stronger than ever – with people managing their finances and shopping online more than ever during this period, this is an important point. We can rest easier knowing the banks and retailers are putting more robust measures in place to protect our finances.

There is no doubt that we are currently living in unprecedented times. However, for those looking to improve personal finances, or indeed help vulnerable people within the community, technology undoubtedly offers some much-welcome comfort throughout this difficult time. We must embrace this during this difficult time.

Yiannis Faf is co-founder of the crowdfunding app, WhatWeWant. The app, which allows users to upload what they want for an upcoming event for themselves, or someone else. Users can contribute to what their friends and family want as well as notifying them to contribute to whatever you have uploaded. Once enough has been raised, users simply use the money. During the Coronavirus pandemic, WhatWeWant is donating all fees, including payment provider fees, to the National Emergencies Trust.