Investing through the uncertainties

Investing through the uncertainties

In light of the EU referendum vote, and some scepticism towards the Northern Powerhouse concept and the HS2 project, BQ asks two experts - Aidan Dunstan, regional head North East at UBS Wealth Management and Dean Turner, economist at UBS Wealth Management – to view investment from a North East standpoint.

Some critics of the Northern Powerhouse concept suggest it’s a tactical wrapping of routine North of England developments into a political PR parcel of fantasy or, at best, a benefit to the Liverpool-Manchester-Sheffield-Leeds axis. What’s your view?

Aidan Dunstan (AD): “The Government’s intention to build a more balanced economy makes economic sense, and there’s plenty of potential behind the Northern Powerhouse project. We feel main benefits from a UK regional policy are likely to be felt long term. If measures proposed are pursued, they largely lay foundations for significant change. It
remains to be seen whether the vote to leave the EU will refocus efforts elsewhere, but it could equally spotlight the need to improve the productive potential of the whole economy as the size and shape of UK trade refocuses beyond Europe.”

Would North East business - and business nationally - better benefit if some of the billions proposed for an HS2 rail development were diverted to faster broadband service throughout the country, taking Britain to the fore worldwide in the fourth utility, and further stimulating private investment in the vital growth sector of telecoms and IT? Many business people who ‘hot desk’ on East Coast Main Line trains expect little benefit from a half hour or so saving envisaged for HS2.

AD: “There’s no ‘silver-bullet’ answer to supporting the economy’s development outside the South East. A broad package of measures is needed. Improved transport infrastructure and improved technology are both important, but should also come alongside other measures such as investment in training and skills to make Northern Powerhouse a success.”

Does UBS feel UK wealth investors could and should be amenable towards investing more in British manufacturing and services, given Britain’s industrial supremacy of Victorian times was funded by moneyed individuals? Does UK enterprise deserve investors’ confidence more, or should caution continue for the foreseeable future?

Dean Turner (DT): “We always recommend our clients invest across a number of global regions. Investors in the UK tend to have a home country bias, invested in UK equities. We watch the PMI index closely for an indication of the performance by UK manufacturing. The most recent figures showed a rise from 50.4 in May to 52.1 in June. We expect the index will fall in coming months as uncertainty generated by the EU Referendum result and the current political vacuum weigh on demand. Some investors may view UK investments with caution until clarity emerges on the UK’s future relationship with the EU. But the weaker currency may also present opportunities.

UBS 02Given low interest rates prevailing, should private investors take a punt down avenues giving faster and greater (albeit perhaps riskier) returns?
DT: “There’s always temptation in a low interest rate environment to take greater risks, especially since it currently looks like we may see interest rates cut this year. UBS Wealth Management currently expects the Bank of England to cut rates to zero, or thereabouts, by or before year-end. But this is no reason to take excessive risks in pursuit of returns. In a world of low returns, remaining invested on a diversified basis long term is the most appropriate way to protect, preserve and growth one’s wealth.

“However, those who hold off investing altogether on account of low interest rates and current uncertainty may be negatively impacted long term. Historically, if your market timing was poor and you missed the best five trading days on the S&P 500 between 1989 and 2013 you would have on average generated 34% less in your portfolio as a result, at the end of the period. There can be a high cost for holding cash, especially if inflation rises.”

Anything you’d recommend for a fast buck punt?
DT: “We take a long term view to investing, recommending clients are globally diversified to minimise their exposure to risk. We believe impact of Brexit to the global economy will be limited, and continue to believe that within a diversified portfolio US equities will still do well, as should European High Yield Credit.”
 
How are you advising clients on their investments following the vote to leave
the EU?
DT: “It has left the UK facing a significant period of uncertainty. Markets don’t like uncertainty. We’re focusing on ensuring investors don’t let short-term market moves in the wake of the EU distract them from their long term investment horizons. We’re advising clients to ensure their portfolios are globally diversified.”

What have private investors in the North East to look forward to, and what should they be concerned about, now?
AD: “Reaction to the Referendum leave vote from investors locally has been mixed. Many are business owners. Those reliant on imports have been hurt by sterling’s recent weakness, whereas the exporters should benefit as their goods and services become cheaper. There are also businesses which will not be impacted by the currency movement as they operate purely in the UK. In all cases, there’s acceptance that we’re in a period of heightened political and economic uncertainty, and that could delay certain investment decisions until there’s some clarity about the impact on the UK economy. During uncertain times like this, our clients seek guidance on how to manage their investments. We’ve been able to reassure that our portfolios are well diversified both by asset class and geography. This has helped cushion the shock.”

UBS 03Robo-advice now taking effect in the USA, with algorithms making investment decisions rather than humans, might take root here. Do you fear for your jobs?
AD: “Human insight and interaction with client advisers will always be important. Online platforms like robo-advisers could complement the adviser’s relationship with their client, rather than replacing this.”

What are your plans in the North East, and where do you see the business in five years’ time?
AD: “We’re proud to be the only global wealth manager with such a strong regional footprint across the UK and are committed to continue bringing our global expertise and insight to clients in the North East. History tells us that in uncertain times UBS is a ‘go to’ wealth manager, given our global reach and thought leadership. We have in Newcastle a well established team of highly experienced client advisors and support, but are constantly looking to add top quality recruits to the team. We look forward to continuing to look after our existing clients but also to growing our business and playing our part in growing wealth in the North East.”