Category: Finance/Wealth Management

ArticlesFinance/Wealth Management

Is It Time For Retailer Investors to Move Away From Tech Giants?


Facebook, Amazon, Apple, Microsoft, and Google (FAAMG) represent the most publicly traded technology stocks by market capitalisation. Collectively, FAAMG stocks are worth several trillion dollars and are widely considered market movers due to their value relative to the S&P 500’s total holdings. 

According to Maxim Manturov, Head of Investment Advice at Freedom Finance Europe, technology giants suffer from high-interest rates due to their stocks trading on an expectation of higher returns in the future, which are risks investors are usually unwilling to take in a turbulent economic environment. This includes FAAMG stocks. 

However, in times of heightened volatility, solid opportunities for long-term investors arise as these companies continue to lead the market with steady growth prospects. Crucially, investors must examine how these tech giants fare during soaring inflation and macroeconomic instability.


Meta a bet on Mark Zuckerberg 

Meta is undergoing significant business transformation during a challenging macroeconomic period and within a highly competitive market. Mark Zuckerberg’s bet on the Metaverse is one the market does not yet fully understand, leaving Meta as the most rapidly declining stock among big techs. 

Meta reported better-than-expected revenue of $27.7 billion (£22.93bn) in Q3. However, rising operating costs and fluctuations in the currency market led to a significant drop in net profit. While the outlook for Q4 fell short of expectations, the outlook on 2023 costs shocked the market.

Despite the drop in revenue, Meta forecasts 2023 expenses to be $96-101 billion (£79-84bn), a 15% year-on-year increase. Although rising costs are frightening, aggressive investment during the recession could yield solid returns for Meta in 2024 and beyond, should the Metaverse venture prove viable. Meta’s liquidity position looks impeccable – enough to survive an economic downturn – with a net cash balance of around $31 billion (£26bn).


Amazon’s quarterly wasn’t terrible

Amazon’s revenue has fallen short of expectations with the cloud business gradually slowing in line with the decrease in the cloud at Alphabet and Microsoft, meaning Amazon Web Services is not losing its share. However, even with this slowdown, the cloud business is still growing at an annualised rate of 28%. 

Meanwhile, growth in the advertising sector accelerated to 30% during the quarter, which is impressive against the backdrop of both Meta and Alphabet YouTube divisions reporting negative growth in advertising revenue. This is an area where Amazon is clearly gaining significant market share. 

The online retail business has returned to growth after three consecutive quarters of contraction due to fierce competition, while the physical shop segment continues to grow steadily. Of course, profit margins are under pressure, and overall revenue growth is slowing. But this is almost entirely dependent on headwinds in the foreign exchange market, which will likely subside in the coming quarters. 

Amazon is still the leader in the cloud industry with consistent growth. It is a share gainer in the ever-growing digital advertising industry, and the giant is still successfully defending its throne in the ever-growing e-commerce business. Despite weak forecasts for the next quarter, there are reasons to remain optimistic about the company’s long-term prospects. Since Amazon’s e-Commerce margins can be boosted by continued revenue growth from its cloud and advertising businesses, the company will benefit from increased market share and lower costs going forward. 


Apple remains the king of cash flow

Apple’s report was the brightest in the big-ticket segment and supported the market, given its large capitalisation, proving once again the strength of the business in a challenging macroeconomic environment with record revenue over the past quarter.

The company achieved solid financial results for Q3 of 2022, with revenue of $90.1 billion (£75bn), beating analysts’ forecasts by $1.37 billion (£1.13bn). Product revenue was $71 billion (£59bn), up 9% year-on-year and a record for Q3. This was assisted by the steady increase in iPhone, Mac and services revenue. 

Apple has maintained its status of ‘cash flow king’ with a result of $20.182 billion (£17bn) in September 2022, up 51% year-on-year. Apple also has a strong balance sheet with $48.304 billion (£40bn) in cash. Despite tough economic conditions, the company continues to post good sales, allowing Apple to still be considered a solid long-term investment. 


Modest predictions from Microsoft were its downfall

Microsoft’s revenue and profit results surpassed analyst expectations. However, investors were frustrated by the giant’s modest financial forecast which triggered the stock price to fall. Wall Street had expected Microsoft’s revenue forecast for the end of Q4 to be $56.1 billion (£46bn), with the company itself forecasting a deficit across the board and revenue in the range of $52.4-$53.4 billion (£43-44bn) at the end of Q4. 

Nevertheless, Microsoft has a positive future. Its prospects aren’t particularly worrying in the face of short-term headwinds. 

While average estimates now assume revenue growth of around 7% in the 2023 financial year, the market average expects an increase of 14% over the next three years. On the revenue side, average estimates assume growth of just 5% this year, followed by growth and recovery of 17% in fiscal 2024. This is a result of Microsoft creating barriers to entry and its competitive advantage in PC software, enterprise software, social media (LinkedIn), gaming and the cloud. 


Hints of advertising market recovery will drive Alphabet stock higher 

Profits at Alphabet, the parent company of Google and YouTube, came in well below expectations in Q3. However, it’s important to remember that Alphabet remains one of the market leaders in advertising, even as the economy weakens. Revenue seems to be falling across its core businesses. For example, Alphabet’s advertising revenue came in at $54.48 billion (£45bn), well below the expected $56.9 billion (£47bn). YouTube advertising revenue fell short of the $7.5 billion (£6.2bn) forecast with a result of $7.07 billion (£6bn). 

Google Cloud’s segment revenue delivered above what was anticipated, with $170 million (£141m) above the expectation of $6.7 billion (£6bn). In any case, Alphabet is primarily an advertising firm and weak results overall could present some headwinds for the stock as it is anticipated that spending on advertising will deteriorate with the economy. 

However, businesses are most likely to advertise on the search engine network than other avenues, providing Alphabet with a strong competitive advantage. Markets are focused on the future, Q3 earnings are already in the past, and any hints of a recovery in the advertising market have the potential to trigger a rebound for Alphabet shares.

Credit Card
ArticlesFinance/Wealth Management

Payments Expert Argues Credit Card Challengers Add to Payments Industry Growth & Maturity

Credit Card

Although Visa and Mastercard have lost the unequivocal leader status as far as payments industry market share is concerned — they are still perceived as ones to beat. Payments industry expert argues that consumers and merchants stand to benefit if payment providers continue to challenge each other to deliver new solutions to market, but only if new offers offer substance

Payment service providers Visa and Mastercard are one of the biggest brands in the payments industry. Merchants and consumers associate them both with high fees, especially in the US market, where both legislative and market challengers are hoping to curtail their duopoly, since the payments processing fees are uncapped like in the EU. However the payments industry is more complex than just the transactions at the check-out counter. It is often overlooked that as a result of influence and pressure from the two card giants, a lot of payments industry innovation was initiated across the globe, especially in cross-border payments and e-commerce.

Frank Breuss, whose local payment Fintech company Nikulipe operates in fast-growing and emerging markets, argues that “killing” credit cards should not be the focus of market challengers and that the presence of diverse industry players in the payments industry is necessary for the payment technology to advance.


An environment that fosters competition

Visa and Mastercard’s payments industry popularity has pushed Fintechs and even governments across the globe to look for alternative payment infrastructures and methods. Most payments solutions, including A2A payments, Online Banking, Pay by Bank and Local Payment Methods were initially introduced as challengers to dominant market players. Since local payment methods are becoming the dominant choice around the world — the narrative is changing slightly, but the sense of challenge is not going away. The good news being that as in any free-market, the competition will always benefit the consumer.


A2A payment innovation

Account-to-Account (A2A) payments move money directly from one account to another without the need for additional intermediaries like in card payments. Even though this technology has been around for many years, mainstream adoption was not possible due to a lack of infrastructure. That’s why for the past 10 years around 80% of Central Banks around the world have invested in building the infrastructure that enables A2A payments. The simple reason being elimination of transactional fees or extra costs. The money travels directly from the account of the customer to the account of the merchant.

“With the goal of eliminating payment processing, assessment, and interchange fees — that only benefit the transaction operator such as Visa or Mastercard, many Fintechs started developing payment solutions with the A2A technology,” explains Mr. Breuss. “Aside from the reduction of transaction fees, such payments offer a more flexible infrastructure as well as accepting and collecting payments faster which benefits both the consumer and the merchant.”


Major ‘pay-by-bank’ and LPM adoption

Close to 59% of Europeans use online banking and ​​this share is constantly increasing and has more than doubled since 2007 when it stood at 25%. Aside from a diversified and competitive market, online banking adoption allows Fintechs to develop innovative Local Payment Method (LPM) solutions for particular countries or regions using Open Banking technology. Solutions such as banklinq, LPM for the Baltic region, benefit the merchants and consumers alike, offering an integrated payment solution that allows consumers to pay via their favourite bank if integrated by a global merchant.

“Open Banking solutions in the form of LPMs benefit both the customer and the merchant. For both parties the fees are significantly reduced, transactions are faster and chargebacks are virtually eliminated for the merchant which is a big issue in e-commerce,” says Frank Breuss. “Furthermore, Fintechs are able to offer a more convenient shopping experience for merchants with enhanced user experience and region-specific aspects such as language or payment options.”

Most recently, banks like JP Morgan have made a strong push for ‘pay-by-bank’ alternative payments processing system, hoping to push out credit card market dominance and escape the threat of “non-banking competitors beating JPMorgan to the punch.”


Credit cards as innovation enablers

Aside from local payment methods gaining adoption over credit and debit cards, the two credit card giants themselves are acknowledging the need for innovation in the payment industry. Both Visa and Mastercard work with fintechs, digital banks, and Fintech enablers across the globe. Both companies run partner accelerator programs and provide Fintech startups guidance and investment to grow their companies. Although the innovation is consolidated as companies who choose to enlist in these programs have to work within the frames and guidelines of Visa & Mastercard. Visa has even launched an initiative to act as a mediator between banks and Fintechs and thus increase their efficiency in cooperation.

“Legacy institutions can also drive innovation. They support startups that create solutions involving money 3.0, quantum computing, and artificial intelligence,” adds Mr. Breuss. “The downside is that innovation is often kept within a controlled environment that is convenient for both Visa and Mastercard. Perhaps Fintech-driven disruption can change this dynamic.”


Levelling the playing field

The discussion on how to balance the dependence between consumers, merchants and the card giants is still developing. Mr. Breuss suggests we don’t try to punish a party who has ushered payment infrastructure stability and facilitates global commerce. “Rather than penalising Visa & Mastercard, we should embrace the free market and all the new technologies or players that are entering it. Whether it’s government subsidies or new legislation, it should be targeted towards fostering more innovation and not limiting one’s activity.” He adds, “I hope credit cards don’t die for the simple reason of ensuring that consumers get the best of both worlds until the best solution within the payments industry will be found and adopted.”

Inheritance Tax
ArticlesFinance/Wealth ManagementFunds

Inheritance Tax Receipts Reach £4.1Billion in the Months from April to October 2022

Inheritance Tax

Figures out from HMRC this morning show that the Treasury raked in another £4.1billion in inheritance tax receipts in the months between April and October 2022. This is £500 million more than in the same period a year earlier, continuing the upward trend. These figures are revealed just days after the Autumn Statement in which it was announced that the inheritance tax threshold of £325,000 will be frozen until April 2028.

These new figures demonstrate just how much the government’s inheritance tax take seems to be increasing without the need for any more freezes, thanks largely to the steady increases in house prices which are pushing more regular hardworking families above the threshold who are relying on money being passed down through the generations.

While the average bill is currently £216,000, research conducted by Wealth Club shows just that with this extended freeze combined with rampant inflation, average inheritance tax bills are conservatively estimated to reach £297,793 by 2025-26 and £336,605 by 2027-28.

Alex Davies, CEO and Founder of Wealth Club said: “There has been a total U-turn on inheritance tax over the last few months. From Liz Truss raising the hopes of the nation with a cut back in September, and now Jeremy Hunt announcing the extension of the freeze until 2028. This is another stealth tax and the case of the boiling frog is apt. The treasury hopes by leaving rates and allowances unchanged, inflation can do the hard work of turning the temperature up on tax payers without them noticing.

Contrary to what many think, inheritance tax doesn’t just affect the super-rich. It will be the thousands of hardworking families that will bear the brunt. Rampant inflation, soaring house prices and years of frozen allowances will magnify the tax take in the years ahead. More and more families are going to find themselves hit by death duties they might not expected or planned for.”


How inheritance tax is calculated

  • Inheritance tax (IHT) of 40% is usually chargeable if one’s assets exceed a certain threshold, after deducting any liabilities, exemptions and reliefs.
  • The threshold (nil rate band) has been £325,000 per single person since 6 April 2009 – and will stay frozen at this level up to and including 2028-29.
  • There is an additional transferrable main residence nil rate band of £175,000 available when passing the family home down to children or other direct descendants.
  • Any unused threshold may be transferred to a surviving spouse or civil partner. So, a couple could currently potentially pass on up to £1 million before IHT might apply.

“The good news is that with some careful planning there are lots of perfectly legitimate ways you can eliminate or keep IHT bills to the minimum, so more of your wealth is passed on to your loved ones rather than being syphoned off by the taxman.”


1. Make a will

Making a will is the first step you should take. Without it, your estate will be shared according to a set of pre-determined rules. That means the taxman might end up with more than its fair share.


2. Use your gift allowances

Every year you can give up to £3,000 away tax free. This is known as the annual exemption. If you didn’t use it last year, you can combine it and pass on £6,000. You can also give up to £250 each year to however many people you wish (but only one gift per recipient per year) or make a wedding gift of up to £5,000 to your child; up to £2,500 to your grandchild; up to £2,500 to your spouse or civil partner to be and £1,000 to anyone else. Beyond these allowances, you can pass on as much as you like IHT free. So long as you live for at least seven years after giving money away, there will be no IHT to pay.  


3. Make regular gifts

You can make regular gifts from your income. These gifts are immediately IHT free (no need to wait for seven years) and there’s no cap on how much you can give away, provided you can demonstrate your standard of living is not affected.


4. Leave a legacy – give to charity

If you leave at least 10% of your net estate to a charity or a few other organisations, you may be able to get a discount on the IHT rate – 36% instead of 40% ­– on the rest of your estate.


5. Use your pension allowance

Pensions are not usually subject to IHT for those under 75 years old – they can be passed on tax efficiently and, in some cases, even tax free. If you have any pension allowance left, make use of it.


6. Set up a trust

Trusts have traditionally been a staple of IHT planning. They can mean money falls outside an estate if you live for at least seven years after establishing the trust. The related taxes and laws are complicated – you should seek specialist advice if you’re considering this.


7. Invest in companies qualifying for Business Property Relief (BPR)

If you own or invest in a business that qualifies for Business Property Relief – the majority of private companies and some AIM-quoted companies do – you can benefit from full IHT relief. You must be a shareholder for at least two years and still be on death though.


8. Invest in an AIM IHT ISA

ISAs are tax free during your lifetime but when you die, or when your spouse dies if later, they could be subject to 40% IHT. An increasingly popular way of mitigating IHT on an ISA is to invest in certain AIM quoted companies which qualify for BPR. You must hold the shares for at least two years and if you still hold them on death you could potentially pass them on without a penny due in inheritance tax.


9. Back smaller British businesses

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) offer a generous set of tax reliefs. For instance, SEIS offers up to 50% income tax and capital gains tax reliefs, plus loss relief if the investment doesn’t work out. But EIS and SEIS investments also qualify for BPR, so could be passed on free of IHT. 


10. Invest in commercial forestry

This is an underused option for experienced investors. Pension funds and institutions have long ploughed money into forestry. The Church Commissioners has a forestry portfolio worth £400 million. Commercial forest investments should be free of IHT if held for at least two years and on death.

You should also benefit from capital appreciation in the value of the trees (and the land they are on) and from any income produced by harvesting the trees and selling the timber (this income may also be tax free).  


11. Spend it

One sure-fire way to keep your wealth away from the taxman’s hands is to spend it.


Key IHT stats

  • One in every 25 estates pay inheritance tax, but the freeze on inheritance tax thresholds, paired with inflation and decades of house price increases is bringing more and more into the taxman’s sights. 
  • While you can pass on money IHT free to your spouse or civil partner, the estate could still be subject to IHT on their death though they may be able to make use of your pass-on allowance.  
  • The main threshold is the nil-rate band, enabling up to £325,000 of an estate to be passed on without having to pay any IHT. This has been unchanged since April 2009.
  • There is also a Residence Nil Rate band worth £175,000 which allows most people to pass on a family home more tax efficiently to direct descendants, although this tapers for estates over £2 million and is not available at all for estates worth over £2.35 million.
  • Wealth Club calculations suggest the average inheritance tax bill could increase to just over £266,000 in the current tax year. This is a 27% increase from the £209,000 average paid just three years ago. 
Global Recession
ArticlesFinance/Wealth ManagementMarkets & Assets

Businesses Aren’t Ready For a Global Recession – It’s Time to Act Now

Global Recession

Richard Jeffery, Chief Executive Officer at ActiveOps explores the need for businesses across the UK, US and Australia to take action in the face of impending recession.

The world has never been more globalised than it is today. International reach and connections across borders power change and success through hardship, and the links forged between nations and their economies can result in a domino effect when catastrophe strikes.

From America to Europe, Asia to Africa, there are widespread and volatile challenges facing every economy – and every business. In particular, the threat of a global recession is hanging heavy over the heads of business leaders. On top of the pandemic, the war in Ukraine has slowed economic recovery, disrupted global supply chains, and drastically increased the cost of living.

The World Bank is therefore warning that a recession is on the horizon, and that means that organisations need to start considering how they will prepare for that eventuality – now.


The need to look ahead

2008 was the last time the UK and US experienced a recession, whereas Australia has remained mostly unscathed by the outside world, staving off sharp economic downturn since the early 90s.

2008 holds lessons for today’s leaders, but the world is now a very different place. For Australian businesses, the last recession is a distant memory that doesn’t serve much use in today’s climate. So, dusting off previous response plans – such as outsourcing, redundancies and headcount freezes – is likely to fail. What’s needed to ensure success is a deep understanding of your operation and an accurate read of the current markets on a global scale.

According to our recent report, ‘Are you recession ready? How to do more with less’, recession is likely but 89% of organisations are yet to begin preparations. This is according to 1,000 operations professionals in finance and banking across the UK, US and Australia.

88% of UK respondents felt that a recession is likely in the next 12 months, in contrast to 77% of US respondents and 77% of Australian respondents. Despite many expecting a recession, the number of businesses that have started preparations is shockingly low. Just 5% of Australian businesses have started to ready themselves, while just 11% of UK and 9% of US organisations have preparations underway.

In fact, the majority of businesses across the three markets intend to start preparing in two to six months – by which time we may be facing a deep recession already, with difficult decisions needing to be made immediately in order to weather the storm. When in fact, by preparing now, businesses can significantly improve their outlook.


Expecting the expected

Rough seas ahead are anticipated, and it’s no surprise. Recession veterans are no stranger to economic downturn and its consequences, and most senior leaders will have experienced a global or national financial crisis in their time. This has often resulted in redundancies, budget cuts and an increased workload.

This time, senior leaders are expecting to absorb an increased workload with fixed staffing levels. Juniors, in contrast, are expecting that their organisation will review processes to find efficiencies. Experience is no doubt the reason for this difference, and perhaps a belief from recession veterans that the costs associated with process improvements wouldn’t be approved. Time will tell whether the same is true this time around.

There are also concerns from operations employees that if their teams need to reduce costs, they wouldn’t have enough performance improvement opportunities. While cost cutting is almost a certainty during a recession, this may mean that leaders who plan on finding process improvement opportunities may struggle – unless they can find a way to save and budget.

Flexibility is also an essential during economic difficulty, and while no business wants to make fundamental changes to their strategies, there are some tactics that can prove useful. Particularly, retraining and cross-training staff can be implemented to create a more versatile and agile workforce.

According to our report, while more than half of UK, US and Australian operations teams believe that cross-training and retraining will be required to balance the workload during a recession, they also felt that their organisations aren’t prioritising this. Not only does this indicate that employees don’t feel that their workplace is focusing on the right strategies in the face of recession, it also highlights the disconnect between what people think their organisations will do compared with what their organisation needs.


The time to act is now

While there’s no guarantee significant changes won’t need to be made to adapt to a recession, operations teams within the finance and banking sector have an opportunity to avoid disaster and avert the worst-case scenarios that they are expecting.

Organisations need to focus on building resilience and agility, enhancing customer experience, retaining top talent, and making critical technology investments or using the existing tech stack effectively. Visibility into operations needs to be optimised as soon as possible in order to understand work patterns and control capacity. Without this knowledge, it’s impossible to know if your operations can withstand the pressure of a recession. Businesses need to have a true picture of weak spots to see spikes in demand, understand changing workloads and find efficiencies to meet SLAs, enable flexibility to adapt to uncertain workloads and understand what ‘fat’ to trim.

Customer service and employee satisfaction are at risk if your business isn’t prepared. 58% of respondents agreed that if headcount is reduced, then customer service will be sacrificed. When defining strategies, customers must be at the heart of decision making and similarly, must be shared with employees along with a rationale that everyone can buy into, to avoid customer experience and employee engagement suffering.

Take the time to understand your workforce data and empower managers with this knowledge to prioritise the right tasks and cross-team collaboration; so they can lead teams in a way that keeps them engaged and happy, while bolstering morale during difficult times. It’s also important to check in with your employees to ensure their health is cared for and they feel supported.

Your top performers should also be identified as part of recession preparation as retention may be difficult and losing their skills can have a significant impact. Bring the leaders into the fold and share the challenge with them – not only will they be engaged, but you’ll have the benefit of their expertise and ability to lead to support on the road towards recession. Lastly, investing in technology that creates more efficient and effective operations might cost, but it will pay for itself many times over when implemented correctly. From visibility to forecasting, technology has a significant role to play to help businesses become recession ready.

Engaging with employees at all levels, analysing the current position of your business and assessing whether you have the tools, resources and people power to meet organisational objectives in the face of difficulty will be key. It’s also crucial that senior staff communicate with their employees as soon as possible to ensure everyone is aligned on the operation’s response to a recession.

Then, if the worst does happen and international markets are hit with a global recession, your business will be in a strong position to not just survive economic downturn – but thrive.