Who I am
When I started working in the private client investment management industry back in 1994, a typical balanced portfolio comprised circa 60% in equities or equity-based funds, 30% in Gilts or other fixed income securities and 10% in cash. UK interest rates were between 5% and 6%.
What followed saw a downward trend in UK interest rates that lasted for 22 years. Investing in UK Government Gilts, and other fixed interest rate securities, was generally a profitable thing to do over this period, because, when interest rates fall, the value of the income stream from such bonds becomes more valuable. Interest rates began to rise during 2017 and continued their upward trend the following year. As a result the capital value of most existing fixed interest rate securities fell. Since then, and particularly this year, interest rates have once again fallen in order to try and stimulate economic growth. In many countries they are now at all time lows, with UK Bank Rate at 0.1% pa and even negative interest rates in some countries. This poses significant challenges for investment managers if they are to invest in good quality bonds and still produce positive Net returns for clients i.e. after the deduction of all their fees and charges.
This is just one of the issues managers need to address today. An important part of our ongoing investment performance analysis and monitoring service is to proactively raise issues such as this with them.
DAVID BIDDLE, FOUNDER IIC
Mike Walker,
Private Client Tax Partner,
KPMG 2002 – 2017
John MacKay,
Tax Partner,
EY 1998 – June 2018