Cryptocurrency hedge funds have made significant gains through 2020, vastly outperforming non-crypto funds.
Crypto Hedge Fund Vision Hill Composite Index, launched in 2018 to track the performance of actively managed cryptocurrency hedge funds, showed a 126% return in 2020. At the same time, BarclayHedge – which tracks over 7,1000 hedge funds – reported that non-crypto hedge fund sectors were also in positive territory, but posted comparatively modest gains of 1.70% through September.
One of the reasons behind crypto funds’ strong performance during 2020 stems from the emergence of decentralised finance, or DeFi, according to Vision Hill CEO Scott Army. “DeFi” refers to crypto platforms that facilitate lending outside of traditional banking institutions. These sites run on open infrastructure and make use of algorithms that track supply and demand to set rates in real time.
Data from industry site DeFi Pulse showed a total of $11.1 billion worth of loans on DeFi platforms as of Thursday, an increase of 180% from the roughly $4 billion recorded in August.
Michael Anderson, co-founder of $100-million venture capital fund and DeFi investor Framework Ventures, said that he believes DeFi will soon break into the mainstream. “Users are trying to vote with their dollars in terms of how they view the capabilities of DeFi,” he said, noting that some DeFi platforms have gained more volume than the far larger digital asset exchanges.
Hedge funds were also boosted by the strength of bitcoin. After a record market slide in March, the currency bounced back quickly, jumping more than 10% in April and going on to rise 80% above its 2019 price. The surge drove rallies in the crypto market, with a knock-on effect on hedge funds.
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Adding to crypto’s attraction, large-scale organisations have entered the market this year, accelerating the progress of crypto’s adoption into the mainstream. Earlier this month, PayPal announced plans to allow the trading and holding of cryptocurrencies on its platform. This triggered a new surge in the value of bitcoin, which jumped above $13,000 following the news.
Shane Neagle explores the results of a study into attitudes towards Bitcoin and what it could mean for the future of crypto.
You may have noticed that the stock market seems to retain remarkable resilience despite the cascading economic recessions affecting all developed nations whose economies have been impacted by the COVID-19 pandemic and resulting lockdown measures. This year has seen mass unemployment claims, obliteration of small businesses, and entire industries scrapped.
Amidst such a calamity, governments had little choice but to enter emergency salvage mode. In doing so, the Federal Reserve and the Treasury broke many people's conceptions of what it means to have money and incur debt. With trillions upon trillions of dollars pumped into the economy, and more on the way, it is easy to lose confidence in fiat currency.
For the time being, the Fed’s strategy rallied the stock market — but uncertain times lie ahead. Bitcoin (BTC) is emerging as the bulwarking choice against such uncertainty. More and more people view Bitcoin as an insurance policy against inflation. After all, BTC remains a unique alternative as it resides outside the ecosystem of governments, central banks and fiat currencies.
Updated BTC Adoption Survey Shows Increased Confidence
The Tokenist conducted an important comparative survey in April 2020, covering nearly 5,000 respondents across 17 nations. Surveying at the pandemic’s peak gives us an insight into people’s attitudes compared to three years ago, when BTC achieved its highest performance.
Speaking to Bitcoin’s increased credibility compared to traditional financial institutions, almost a third of respondents view Bitcoin with greater trust than in 2017:
Male and female millennials are tightly clustered together in the “more trustworthy” group. Covering all age groups, a solid majority of respondents, over 59% consider Bitcoin as a “positive innovation” in the realm of digital technology and finance. This represents a significant increase of about 27% compared to those surveyed three years ago.
Predictably, male millennials, with female millennials behind, report the most positive attitudes toward Bitcoin. Equally predictably, the age cohort over 65 shows little enthusiasm for Bitcoin. They are most likely to never use Bitcoin, no matter the degree of familiarity.
As far as millennials go, it bears noting that 44% of them would be interested in acquiring BTC in the next 5 years. Those older than 65 make for a stark contrast when expressing the same desire – merely 3% show interest in acquiring BTC in the next 5 years.
Incidentally, we can see the same elderly reticence when it comes to cashless and contactless systems as a whole, with security concerns popping up as the main obstacle for adoption. Still, even when taking into account highly publicised crypto exchange hacks over the years, significantly fewer people across all age groups consider BTC to be some kind of “bubble” ready to pop.
Millennials appear to be far more confident in the fundamentals of BTC, with just 24% viewing it as a bubble. However, twice that many in the over-65 age group would agree with the sentiment that BTC represents a risky fad. Notably, BTC has a long road ahead to assuage people of its worthiness to replace fiat currency, as one-third of survey participants, spanning all age groups, report doubt.
Perception of BTC In Terms of Usage
Although Bitcoin has been integrated into major online stores as a payment method, among them Microsoft’s Xbox Store, Whole Foods, Starbucks, Overstock, and even some invoicing software making it a means of payment for small businesses, Bitcoin’s utility resides in the form of digital gold. Meaning, BTC serves as a store of value first and foremost. The recently popularized term “HODL’er” testifies to this trend, as it describes people who hold cryptocurrencies instead of selling them, no matter the weekly fluctuations.
As you can see from the graph below, over half of millennials show interest in holding onto Bitcoin, with 27% interested in selling it. The over-65 age group holds no such confidence, with only 13% showing interest in holding BTC and 44% suggesting they would sell it immediately.
The HODL trend has remained implacable recently, as both the KuCoin crypto exchange hack and CFTC coming after BitMEX resulted in no substantial BTC price drop. In previous years, each of those events separately would likely have caused a significant price disruption.
One could interpret such results to suggest that the perception of Bitcoin as an insurance policy against the ventures of central banks has become even stronger since this survey was conducted in April.
Conclusion
Having been conducted prior to June, when decentralised finance (DeFi) really took off from $1 billion to an over $10 billion valuation, this comparative BTC adoption survey is quite conservative. That is to say, the significant gains in BTC adoption from three years ago have likely jumped higher since.
When people witness trillions of dollars injected into the cracked economy, it brings a shock to the system. While some portion of the cryptocurrency sector may be manipulated by big crypto whales, BTC stands out as a haven for many in the upcoming financial storm.
Nobody is in a position to tell if the stock market can be kept afloat with further Fed interventions, or how the turbulent presidential elections ahead may impact it. What we can see is an indication that Bitcoin is seeing increased adoption. One would rationally think the current political and economic climate would only accelerate its adoption even more.
Jamie Johnson, CEO of FJP Investment, explores the new property landscape that the COVID-19 pandemic has created and offers his advice to prospective BTL investors.
Almost no investment strategy could’ve prepared one adequately for the sudden onset of COVID-19. With financial markets exhibiting unprecedented uncertainty, and no end of the pandemic in sight, investors are no doubt treading lightly to minimise their risk exposure.
Here in the UK, we have seen a significant number of investors turning to the real estate market. Based on recent statistics, we can observe that demand for residential property has been rising at a significant rate, resulting in growing house prices and increased transactional activity.
Much of this activity can be attributed to the implementation of the stamp duty land tax (SDLT) holiday in July, ensuring that all homebuyers were exempt from paying the tax on the first £500,000 on all properties in England and Northern Ireland. This exemption also applied to buy-to-let (BTL) purchases.
The subsequent jump in demand triggered a surge in market activity, itself resulting in an uptick in property price growth. Halifax’s September house price index showed that, even in the midst of a pandemic, house prices had increased by over 7% year-on-year; and a recently released survey by the Royal Institute of Charted Surveyors revealed that we’re now experiencing an 18-year-high in the rate of UK house price growth.
So, with the UK property market booming, it follows that buy-to-let investments would be in vogue. As the SDLT holiday deadline beckons closer, those seeking a BTL investment would do well to quickly decide whether or not they wish to add to their property portfolio.
But where’s the ideal place to purchase such a property? And where, over the next decade, is likely to emerge as the UK’s next BTL hotspot?
Halifax’s September house price index showed that, even in the midst of a pandemic, house prices had increased by over 7% year-on-year
Changing preferences for rental properties
There’s one thing we know for certain about the UK’s next BTL hotspots: they will not be confined to central London. Figures from Rightmove recently demonstrated the extent in which newly-home-bound professionals are seeking larger, cheaper properties outside of central London; as companies adopt working-from-home en masse and, subsequently, move to smaller commercial real estate spaces.
Buyer enquiries regarding cities like Cambridge are up 76%, whereas locales like Earls Court and Euston are down -40% and -10% respectively. This shows that buyers are clearly looking beyond the capital to consider potentially cheaper properties that also offer additional lifestyle benefits. No doubt this type of behaviour is also being adopted by renters seeking cheaper accommodation in order to reduce rental payments and save enough money for a deposit.
Looking to the different cities and regions attracting significant attention from BTL investors, I have detailed below some of the hotspots that should be on the radars of these buyers.
Leeds life
When comparing cities for BTL investment, Leeds has the advantage of being recently deemed the ‘most profitable city to become a landlord in the north of England’; according to CIA Landlord.
Although not offering the highest rental yields, the combination of low average property values and a bustling student population means this Yorkshire city is primed and ready to offer considerable long-term gains for property investors over the coming 12 months.
And not only does the student population offer an endless stream of tenants, but Leeds’ exclusive status as a ‘brain gain’ city, shared with only Manchester and London, means that more of these students remain in the city after graduation than those that move away. One consequence of this is that the city hosts the nation’s largest financial services sector outside London, potentially attracting investment from companies eager to move out of their expensive London offices following COVID-19.
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Liverpool
Those aware of the UK’s BTL market will already know that Liverpool has ranked #1 in numerous rankings of UK cities in terms of potential BTL rental yields. As a key beneficiary of the UK Government’s ‘Northern Powerhouse’ initiative and with six universities and colleges in total, Liverpool is ideally situated to be a willing recipient of those leaving London for larger, cheaper accommodation.
For BTL investors, there are thankfully multiple developments to choose from. Five entire neighbourhoods are soon to be completed as part of the Liverpool Waters development, and the Wirral Waters plan will bring both residential and commercial developments alongside 25 miles of the River Mersey.
And, thankfully, these developments are being matched with an adequate level of infrastructure. High-speed rail connections between Leeds, Manchester and Liverpool are due to be finished within half a decade, likely increasing the average property value in these cities immediately upon completion.
Shining beacon of property
Coronavirus has demonstrated to investors, consumers, and homeowners the attractiveness of real estate during uncertain times. Buy-to-let investments allow for investors to take advantage of property’s unique survivability; ensuring rental dividends and the potential for long-term capital growth. And with the UK’s housing crisis still very much unsolved, there continues to be a real market need for rental accommodation.
I’m confident that the cities I’ve described above will enjoy an influx of BTL investment before the end of the SDLT holiday in March next year. I anticipate new communities of renters to emerge across the country over the coming months, with more people looking to locations that offer affordable living accommodation and significant lifestyle benefits. While I still think London will remain a leading global city, BTL investors would do well to consider rising rental hotspots.
HSBC has committed to making all of its operations carbon neutral by 2030 and to reaching net zero carbon emissions across its entire customer base by 2050 at the latest, the bank announced on Friday.
HSBC said that it would align its lending and financing activities with the goals outlined by the 2015 UN Paris Climate Agreement by 2050. It also said that it would assist its clients through the transition with a pledge of $750 billion to $1 trillion in financing for the initiative over the next ten years.
“As we enter a pivotal decade of change, we have a landmark opportunity to accelerate our efforts to build a healthier, more resilient and more sustainable future,” said HSBC chief executive Noel Quinn in a statement. “Our net zero ambition represents a material step up in our support for customers as we collectively work towards building a thriving low carbon economy.”
HSBC will also plans to create a $100 fund to provide loans to startups in the “clean tech” field and donate an additional $100 million towards renewable energy sources and the development of climate innovation ventures.
With the impact of global climate change growing more apparent, banks have come under increasing pressure to stop financing environmentally damaging activities such as coal power projects. Barclays made a similar commitment to carbon neutrality in March this year, and JPMorgan has recently expanded its investment in clean energy.
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Critics have noted that HSBC fell behind its peers in responding to the threat of climate change, and slammed its new announcement for making no mention of restricting loans for the coal industry.
“We urge HSBC to commit to a global coal phase out and take immediate steps to curb its fossil fuel financing,” said Jeanne Martin, a senior campaign manager at responsible investment charity ShareAction. Martin also noted that HSBC’s pledge, while welcome, was “quickly becoming the baseline in the banking industry”.
HSBC said that it would use the Paris Agreement Capital Transition Assessment tool (PACTA) to help stakeholders track its progress towards carbon neutrality and would make regular reports on its progress.
Why is financial planning important?
Financial planning is a process that sets you on a course towards understanding and achieving your life goals through the proper management of your financial affairs. Financial planning is more than budgeting and cutting back, the right financial plan balances what you need and want today with the personal goals you have for the future. Comprehensive or holistic financial planning looks at the big picture to consider all relevant aspects of your life including budgeting, investing, tax, retirement, estate planning, debt or risk management
Working with a financial planner is about more than the short-term goals, it's about integrating all the financial needs of your life into one cohesive plan. Many people believe that you don’t need a financial plan until you are ready to retire, I argue that any life event that requires significant planning, a future date and significant funds requires a financial plan. Many of us have done aspects of financial planning on our own, think of planning for a wedding, or a new child, both of those things require a plan.
A Certified Financial Planner helps to integrate those plans into your larger financial picture to keep you on track for your short- and long-term goals. Canadians that work with a financial planner have told us they feel significantly more at ease with their day-to-day finances, they have more positive feelings towards handling any uncertainty that comes their way, they are better equipped to manage personal economic shocks such as job loss, divorce, illness or injury or any major family life event that can disrupt your finances.
A survey done by Financial Planning Canada indicates that again in 2020, finances are the number one cause of stress, by a big margin, outranking personal health, work, and relationships. This is particularly significant because we expected personal stress to exceed financial stress due to the pandemic. Canadians that work with financial planners say they are significantly more likely to be shielded from financial stress and 53% of them say it doesn't impact their lives at all.
Canadians that work with financial planners say they are significantly more likely to be shielded from financial stress and 53% of them say it doesn't impact their lives at all.
How should people structure their portfolios during a crisis in the market?
During times of great market volatility, like we continue to see in 2020, it is important to look at your portfolio and asses if the current market swings of 5%, 10%, 15% etc. are causing you anxiety. It's one thing to not like what's going on in the news and the stock market and it's another for it to be causing you anxiety to the point where it's disrupting your sleep and your life. During a time of market volatility, it is key for me, as an adviser, to work with my clients to truly understand what their risk tolerance is. All of us, at some point or another, have overreached on our comfort level with risk and unfortunately, it is usually a market event that brings the overreach to light.
If you find that the current market rollercoaster is causing you significant worry, it is time to address what options you have to reduce the volatility in your portfolio. There are a few important things to remember:
- Will the changes to the investments change the long-term viability of your plan?
- Will you need to make some changes to your cash flow? (if the investments are supporting your lifestyle)
- Will the changes impact your taxes for the year?
- Will the changes support your medium- and long-term goals? Or do you need to re-address the goals?
In a financial planning context, the amount of risk that is taken on in a portfolio is generally less because the rate of return that we are trying to achieve is based on what is required to make your goals a reality; it is no longer about trying to beat an index. Portfolio construction and management are still key components and prudent management is still very important but the context of what investments are being chosen are different when the conversation is about what these funds need to do for you as an individual and a family to achieve the lifestyle you want to have.
What should people address in their plan for 2020 and 2021?
For many of the families I work with, the pandemic of 2020 has created a material shift in their priorities and goals. I recently had a meeting with a couple that were 3 years from retirement. Their goals were to travel extensively for 5 years and then settle into a routine of spending the winters in a warmer climate and the summers in Central Alberta. They planned on downsizing their home and moving into a condo so they could just lock up and drive to the airport on a whim. They were so excited about 2023. When we recently had a review meeting, they have had a significant change of heart - they really enjoyed the slower pace that the pandemic has forced on many of us. They started a garden in their back yard, they spent time working on their home and realised how much they missed seeing the grandkids. The pandemic changed their plan - now they want to retire earlier, keep their home and garden, and spend more time with family. They still plan to travel (when they can) but they plan on doing shorter trips and spending some of the funds they had set aside for travel to upgrade the home they love into a place they plan to stay in for another 20 years.
Many times, our goals and plans change and that is what causes the investments and planning goals to change. Our meeting meant starting from scratch on the retirement plan and cash flow analysis but that is why those documents are never set in stone. Financial planning is an ongoing process that changes as life changes - goals change, investments change, life happens.
The COVID-19 pandemic, which is still ongoing, will no doubt have a profound impact on the world's economy for several months at minimum. Additionally, 2020 is an election year in the US, an event whose outcome could also have a powerful effect on a whole host of financial situations, like the unemployment rate, inflation, gross domestic growth, and more. How can you take all these factors into account to create a realistic, accurate personal budget? For starters, it makes sense to build as detailed a budget as possible, make saving a habit, file tax returns as soon as possible, and take defensive investment positions to protect against what will likely be a volatile year for the stock market. Here are four realistic ways to get your financial life in order before 2021 arrives.
Set a Savings Percentage, Not an Amount
Consider selecting a one-digit number as your regular savings percentage each payday. Too many people focus on amounts, which can be misleading and lock you into an outsize amount when your paycheck size varies. Instead, decide to put aside 5%, for example, out of each cheque you receive and you'll be better able to stick with the plan for the long run.
Get Your Budget in Order
Know what lies ahead, especially if you plan to make any changes to your monthly expenses like purchasing a home, renting an apartment, buying a car, or taking out a student loan. The point of budgeting is not always to minimise expenses; it's simply to identify where money comes from and where it goes. After doing that, and only after doing it, will you be able to manipulate various elements of the income and outflow.
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Step one is to know what you have and what you spend each month. For example, an excellent way to plan for education borrowing is to use a student loan repayment calculator for estimating monthly payments. That way, there's no guesswork about what your obligation will be, and you'll be fully able to place the item student loan payment onto its proper line in the budget. Go through each of the ways you spend money and make sure there's an entry for each one. Many people fail at budgeting not because they spend too much but simply because they don't know how much they spend and lose track of their overall finances.
Get Your Tax Refund as Quickly as Possible
If you have money coming to you after you file your tax return, send the forms in via an e-file program as early as possible. That way, you could have the cash by February. If you plan to owe money to the government, wait until the official filing deadline, or a few days before, to file and pay.
Use Metals to Hedge for a Volatile Year
For numerous reasons, 2021 could be a roller-coaster year for the stock market. That's a good reason to purchase silver and gold as a hedge against market uncertainty and potential inflation. Be careful not to put your entire portfolio into metals, but only about 10%.
Trading on the forex market is undoubtedly winsome, especially if we consider the daily profit the forex exchange market makes. The six trillion figure that daily forex trading makes is far more than the stock market with its 23 billion per day. Besides this fact, currency trading can be as profitable as thrilling, especially when you achieve a decent skill level. If you are new to the currency market and aiming to become a seasoned forex broker smartly and securely, here are some critical steps to take.
1. Understand forex language
Forex can seem too complex at first sight. It's because there are many new terms related to trading operations and strategies. Before opening an account and choosing the broker, it is highly advisable to learn the forex language and all the terms you will have to deal with. That way, you will be able to correctly read the market and lead informed discussions with more experienced traders.
It will also help you understand forex brokers' reviews when checking them to choose the most reliable one. Don't worry! You will not have to buy a dictionary and learn all by heart. As you start reading educational content related to forex exchange, you will naturally acquire these terms. Let's just mention the most used and most important ones: currency, pairs, exotic currency pairs, trading margin, long term and short term position, a spread, a bid, and ask price.
2. Decide on currency pairs you want to trade
As a forex trader, you are going to trade in a currency pair. For instance, you want to sell the euro, but the only way to do it is in pair with some other currency. The most common currency pair is the euro/dollar but there are plenty of other pairs. Some are called exotic pairs since they are less traded but still attractive and exciting for investment for different financial or political reasons. In a nutshell, one pair represents the base currency and the second one is the quote currency. Supposing that you trade EUR/USD 1.11151 means that one unit of the base currency corresponds to $1.11151.
As a forex trader, you are going to trade in a currency pair.
3. Learn how to use the forex calculator
You are bad at maths but want to start trading forex. No worries! Forex is quite mathematical but be reassured that the gods of forex have already thought about that. So they made a forex calculator, which allows the traders to calculate the risks of their positions. This type of calculator does not have much in common with ordinary school calculators. There are dozens of them all over the internet and on many trading platforms. Their difference consists of different evaluations you want to make. Let's mention some of them: the forex profit calculator, the pip calculator, the stop-loss calculator, profit-loss calculator.
All in all, this useful software helps you to shape your trading strategy better and manage your trading risks. So, don't matter if you don't have a clue about Forex or you are an experienced trader, there is a forex calculator to assist you.
4. Research forex brokers
The forex broker you choose is at the core of your trading success. You can select a reliable and honest forex broker, but there are several things to be aware of first. First of all, go for the regulated brokers who have clearly put their contact details on their websites, such as their phone number, email address, and headquarters address.
Then, be sure they have customer service available, such as email support or live chat. There must also be a way to communicate in your native language, so multilingual customer support is necessary. Lookup for the trading platforms they offer, such as mobile platforms, web-based platforms, or both. Check what the range of their trading instruments is. If it includes stocks, securities, cryptos, all the better. It proves they have a larger number of different clients.
Regarding trading conditions, also checks what is the minimum deposit and also if they are offering the possibility to trade on demo accounts. It's crucial, assuming that you come into this as a newbie trader.
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5. Personal or managed account?
When opening an account, you will have a choice to trade personally or to delegate your trading to the account manager. It may be better to start with an account manager before you are sure enough in your trading skills. It's also the best option if you haven't enough time to dedicate to forex. But stay away from those brokers who are offering unrealistic returns in profits. That implies that they are taking a considerable risk to achieve a high investment return.
6. Practice with a demo account
Just like in sports, half of success is achieved on the practice field. After analysing the market with charts of historical data of the currencies you want to trade, start practicing with a demo account. That way you will acquire the trading reflex and be able to manage funds on your own when you decide to invest the real money. Using the perks of demo trading will allow you to feel the real market and hone your trading skills.
Final Thoughts
The huge profit and sometimes the idea of becoming instantly rich entices many people to start trading forex. Forex trading is a thrilling activity. On the other hand, you must be aware that it takes risks, just like any trading. Emotions, as such, shouldn't be your drawback. Knowing yourself and how to handle your emotions is necessary for successful trading. The point is to move towards your feelings, recognise them, change them, and adopt our trading strategy. Also, don't forget to manage your budget rationally so you can avoid running your budget before making any profits.
Being a newbie in any field can be daunting and stressful, but only at the beginning. That's why we gave you these steps to follow to feel more comfortable making your first investments in forex. Be patient, learn, and practice on a demo account, and the success will come naturally.
Jamie Johnson, CEO of FJP Investment, analyses the state of the property market and how it is likely to change in the near future.
On 6 July, chancellor Rishi Sunak delivered the so-called ‘mini-budget’. As part of his announcement, a series of reforms were introduced as part of the government’s strategy to boost economic activity. The real estate market is key driver of national productivity and growth. Recognising this, the chancellor announced the immediate introduction of a Stamp Duty Land Tax (SDLT) holiday.
What this means is that all buyers of property less than £500,000 in England and Northern Ireland are exempt from paying the tax until 31 March 2021. However, additional surcharges for second home purchases still apply.
The government backs property investment
The impact of this new initiative was felt almost immediately. Papers reported a ‘mini-boom’ in UK property as asking prices rose and buyers returned to the market in droves. Property listing site Rightmove recorded a 2.4% increase in the average asking price of properties being listed during the month of June. What’s more, the number of inquiries from potential homebuyers increased 75% year-on-year.
While it is still early days, all this indicates that the government’s policy has so far has proven to be a success. Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market. After months of property price decline and housing market inactivity, such impetus should be heartily welcomed.
The announcement of the SDLT holiday also followed Prime Minster Boris Johnson’s ‘build, build, build’ speech, pledging £5 billion to invest in housing and infrastructure. Collectively, these measures are part of the government’s broader vision to meet both the future property needs of the country while at the same time instigating a post-pandemic economic recovery.
Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market.
Priorities are shifting but demand remains the same
Of course, the pandemic will have lasting effects on society at large; and the property market is no different. As working from home becomes the new norm for many, the need to live within commutable distance from your company is being brought into question. The aforementioned statistics provided by Rightmove showed interest in London properties had only risen by 0.5%, implying that many homebuyers are now seeking properties away from London in light of the COVID-19 pandemic.
Other factors may disincentivise buyers away from London as well. Back in March, Rishi Suank announced a very different type of SDLT adjustment, an additional 2% surcharge for overseas buyers – due to come into effect in April 2021. Given just how integral foreign buyers are to the Prime Central London (PCL) property market, accounting for 55% of PCL transactions in H2 2019, the additional surcharge risks discouraging foreign investment into the capital.
With the lucrative PCL property market becoming less and less attractive for high-end developers for the reasons outlined above, house price growth outside the London commuter belt may begin to grow exponentially in the coming years.
But regardless of where your property portfolio is located, UK property is still proving itself to be a resilient asset class in the face of global crisis. Global property experts Savills confidently stuck by their prediction of 15% growth of UK house prices by 2024, even as the UK experienced the worst of COVID-19’s economic impact.
Their reasoning, which I fully agree with, is based on the idea that the strong buyer demand we saw in January 2020 – which facilitated the highest level of property price growth since 2017 - did not simply vanish when COVID-19 arrived. Instead, this demand was suppressed due to pandemic uncertainty, ready to return once coronavirus was in retreat. Now, bolstered by the SDLT holiday, the UK property market is set to enjoy this influx of previously suppressed demand; and house price growth is sure to follow as a result.
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FJP Investment recently carried out a survey of 850 investors to confirm this, and our findings supported this idea. 43% of those whom we spoke to stated they weren’t making any large financial decisions until they believed the coronavirus pandemic to be entirely contained. It follows that as COVID-19 cases in the UK decrease, these investors will gradually return to the market – increasing general activity and facilitating a prosperous property sector once again.
When this demand returns, I look forward to witnessing the changes that COVID-19 has inflicted upon the UK’s property sector. Will this surge in interest of non-London property continue, and where will the new house-price-hot-spots of the UK be? I, for one, am excited about finding out. As COVID-19 case numbers decrease, and investor confidence rises, we’ll all be enjoying the benefits of a resurgence of UK property sooner, rather than later.
Now we know that certain businesses can be seen as nonessential, and in such a large-scale health crisis such as the one we are in now, some are practically deemed obsolete. Those that suffered the worst are the travel, retail, restaurant, and events industries.
The anxiety that this has caused individuals the world over is unprecedented. Those who had enough emergency money stored up could pull through the uncertainty of the months ahead without a hitch. Now, the money garnered from employment is as unreliable as rain in a drought – as most companies from affected industries have enacted pay cuts, forced leaves – some have even declared themselves bankrupt.
It’s high time that you take a look at your finances too, and assess if you have been efficient in your investment decisions in the recent years. Now, more than ever, saving up for a rainy day is vital to tide you over and even keep your sanity in the middle of the large-scale ambiguity we are all living through now.
Here are some reminders on how to be wise about your investment decisions, no matter if you’re only beginning or have been in the business for quite a while:
1. Make sure to have an emergency fund stored up
Common wisdom is to have at least six months' worth of your income stored up as liquid in case any immediate spending is necessary. This should be the first thing you have in your portfolio in order to help you pull through when economic uncertainties inevitably hit.
2. Educate yourself on options that you can afford
There are many different ways you can invest – such as time deposits, government bonds, stocks, dividend-paying stocks, real estate, and money market accounts, among myriad others. Create a goal to build your portfolio, take into account all the risks and returns of each instrument, and diversify your mix. This will ensure more security for you in case of fluctuations in value.
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3. Do your due diligence on whichever kind of instrument you choose
It is best to consult with an experienced broker of any of the instruments you wish to put your money on, so that you can get a better feel of which one is best for you. Do not be fooled by market insights, payout ratios, and other seemingly promising percentages that can blind your decisions. These numbers may mean something different from what they connote.
One route people choose to ensure high returns even with low initial investment is going for stock investing with accompanying dividend payouts. A dividend stock screener can help you understand the payout ratios, a company’s stability over time, growth rate, and other things that are important in making your decision.
4. Diversify across industries
As we can all see, industries that were soaring in profits for decades have now gone down. No matter how tempted you are to get into a fad that seems promising, make sure to keep a diverse mix across industries. This will help protect you from any unpredictable downturns that may come your way.
Keep these tips in mind as you move forward with your investment decisions. They may be conservative, but they will help you have a solid fallback that you can rely on when the salary or income you may have relied on each month becomes compromised.
The REIT sector tends to be one of the more defensive segments of the market and has consistently outperformed the S&P 500 in recessions and early recoveries, according to a paper by Cohen and Steers. The main thing that makes REITs a really strong defensive sector is predictability. While that varies a bit from company to company, largely, REITs’ revenues come from long-term lease contracts. That means that even in times of big uncertainty, those contracts are still in place and are delivering cash flow.
So, in theory, REITs should have outperformed the broader market once again, but clearly, that’s not the case. What’s different this time around?
Decreasing cash flows
Investors are already pricing in the second wave of COVID-19. With cases rapidly increasing around the world and especially in the US, concerns are largely weighing in on market prices.
Undoubtedly, the pandemic is a big problem for all sectors alike, with consumer demand going down and unemployment skyrocketing. But why has it been particularly bad for REITs?
The answer is that it all comes down to systemic risk. With mounting defaults and companies facing increasing financial difficulties, especially in the hotel and retail sector, this has led directly to huge stress in the real estate market - with rent collections going down by 50–60% for some industries. No one could have expected that half of their clients will stop paying rent. Things are looking even more bleak in the mortgage REITs space, where we’ve seen an unprecedented 12% forbearance in jumbo loans. However, decreasing cash flow tells only half the story.
The REIT sector tends to be one of the more defensive segments of the market and has consistently outperformed the S&P 500 in recessions and early recoveries.
Debt
A big part of the stress the sector’s experiencing right now is caused by the debt levels in the space. REITs are known to be some of the biggest users of leverage, which has helped them deliver superior returns in crisis-free times, but in the current environment, investors seem to be increasingly avoiding companies loaded with debt.
The average debt to equity ratio of the 174 biggest US REITs stands at 1.96, which is a very large number compared to the average for the S&P 500, which currently stands at a conservative 0.53. Looking at the debt to assets ratio, we see a similar scenario, although the difference there isn’t as large. The average for the S&P 500 is 0.32 for the last quarter, compared to the 0.45 for the REIT index - a sizable difference of more than 35%.
These solvency ratios have been one of the main concerns for investors in the past months, but the reason for that may be a bit unexpected. Everyone knows that in a vacuum, high leverage ratios are not good because they signal that the company will have trouble meeting their financial obligations in the future. However, we’ve recently seen a trend that’s even more concerning. Solvency problems can turn to liquidity problems really quickly, especially in the current environment. We’ve seen this happen to quite a few companies, the most recent example being EPR Properties which failed to uphold a few of the requirements set by the negative bond covenants, specifically the solvency and coverage ratios. This then led to some difficult talks with the creditors, but eventually, the company managed to avoid a technical default and some of the requirements were amended. However, this comes at a cost. With the increasing risk for the creditors, the cost of borrowing for the company also rises, which in turn can cause a liquidity crisis in the coming months.
REITs have always used a lot of debt and up until now, they’ve managed to correctly estimate their risk and exposure and avoid disasters. Their capital structure allows for some leeway during a significant economic downturn and considering the long-term structure of leases, a sudden drop in revenues has always looked almost impossible. What no one could have predicted however is this year’s Black Swan event, which led to a sudden stop in the economy, and not a downturn. The REIT sector was somewhat prepared for it with a considerable amount of cash reserves and undrawn credit lines, so the first wave didn’t lead to any major defaults in the market. The shock, however, significantly deteriorated the liquidity of most companies and in the case of a second wave, some companies will inevitably go under
How to mitigate some of the risks
One way investors can reduce their risk is by consistently averaging down and accumulating their position through many purchases. Lump-sum investing can prove really dangerous for the more risk-averse investors, especially in times of increased volatility. We can’t be certain of the direction of the market in the short term, but over the long term, REITs have proven their tendency to recover from crises and deliver superior risk-adjusted returns.
Rolls-Royce’s senior unsecured bonds are now rated as Ba2, down from their previous grading at Baa3. The company as a whole has also been rated at Ba2.
Moody’s reported the change in a statement on Monday, citing the impact of the COVID-19 pandemic on the aviation industry and warning that conditions could worsen.
“As a result of higher than previously expected cash outflows, Moody’s expects material increases in leverage, and considers that the company faces significant challenges to recover its metrics over the next two to three years,” the statement continued.
The announcement had an immediate impact on Rolls-Royce’s share prices, which had already lost two thirds of their value since the beginning of the COVID-19 pandemic. Following the release of the statement from Moody’s, prices fell a further 5.7% to trade at 253 pence as of 08:27 GMT.
Rolls-Royce CEO Warren East said on Thursday that the company was exploring options to strengthen its balance sheet but had not yet come to any decisions.
During the weekend, reports emerged that Rolls-Royce was planning to raise additional funds by selling off its ITP Aero division, which makes parts for the Typhoon fighter jet. In response to these reports, a Rolls-Royce spokesperson said that the company was reviewing a range of options. “Our current financial position and liquidity remain strong,” they added.
Earlier this month, Rolls-Royce claimed to have £8.1 billion on hand following the first-half outflow.
Giles Coghlan, chief currency analyst at HYCM, analyses the surge in gold prices and how the COVID-19 pandemic may continue to influence its fortunes.
In the future, investors and traders will regularly look to 2020 to understand just how different stocks, bonds, currencies, commodities and investment securities react in times of prolonged market volatility. What makes this year stand out from other volatile periods (the 2008 global recession immediately comes to mind) is twofold.
The first has to do with the COVID-19 pandemic being a health crisis shrouded in uncertainty. We simply do not know when or how the virus will cease to dominate government agendas, business activities and consumer behaviours. As a result, traders and investors cannot predict with any certainty what the coming months, weeks, or even days will bring. This makes managing an investment portfolio particularly difficult, forcing investors to contend with something beyond their control.
The second has to do with the long-term implications of COVID-19 on the global economy. There are concerns that the coronavirus will trigger a reverse in globalisation; for example, new popularity for protectionist policies to safeguard the future of national industries and a contraction in global supply chains. It is too early to tell whether this is likely to be the case, but either way, we must acknowledge the enduring influence COVID-19 will have on businesses, government and investor actions for many years to come.
A critical crossroads
At the moment, we have reached what I consider to be a critical juncture. We have weathered the initial outbreak of cases, and countries are now relaxing social distancing measures as a result. In reaction to this, the financial markets have been posting positive figures. On 20 July, the Euro hit its highest level against the US dollar since March – a consequence of EU leaders negotiating a €750 billion recovery plan. In response to this plan, the Dow Jones Industrial Average rose 1.03% and the S&P 500 regained positive territory for the first time since 8 June.
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While this is welcoming news, such market movements only reveal part of a bigger story. The stock markets may be making gains, but so has the price of gold. What makes this particularly interesting is the fact that investors tend to rally to this so-called safe-haven asset in times of uncertainty. Gold prices are currently trading at over $1,800 per ounce – a major milestone that has not occurred since 2011. What’s more, the gold price has gone up by around 19% in 2020 alone, and commentators are hopeful that gold will surpass $2,000 per ounce by the end of the year – a record breaking achievement.
Such projections have left many investors scratching their heads. Have we really entered a period of market recovery or are we witnessing the calm before the storm – a second outbreak of cases or significant economic downturn that will send shockwaves across the major indices?
The gold rush is here
Put simply, gold prices are ideally positioned to increase over the coming months. This is not due to an increase in consumer demand for the precious metal, but rather a reflection of investors using gold to hedge against market uncertainty by improving their risk-adjusted returns and also having access to a liquid asset able to hold its value in times of volatility.
It seems reasonable to assume gold will surpass its all-time high of $1,920 recorded in September 2011 in the coming months. This will be a defining movement, and could spur on the buyer demand needed to break the $2,000 per ounce barrier by the end of the year. Of course, such growth will by no means be a straight-line trajectory.
The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic. However, signs at the moment seem to suggest that underlying market uncertainty is encouraging investors to flock to safe haven assets, with gold featuring at the top of their lists.
The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic.
When is the right time to buy gold?
For those looking to buy gold, a useful reference tool is the Volatility Index, or VIX. By analysing future risk and investor behaviour, the VIX provides a 30-day projection of the expected volatility likely to be experienced by the major markets – a vital instrument in today’s climate.
Based on performances in the past, a drop in the VIX should be followed by a rise in gold prices. Conversely, a rise in the VIX will normally occur prior to gold prices dropping. That’s why investors looking to buy gold need to watch the performance of the VIX carefully to ensure they enter the market at the right moment.
Overall, investors should not rush to gold simply because it is rising in price. Any trade or investment decision needs to be influenced by a bigger strategy and lead to an ultimate goal. A common mistake is investors acting hastily and making rash decisions, instead of taking a step back and thinking how they can best take advantage of the market while at the same time not losing sight of their ultimate financial objectives. By understanding this simple point, investors and traders will be best positioned to make effective use of future gold price movements.
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