Ellen Kelleher

John Maynard Keynes once compared the exercise of picking stocks to a beauty contest. The relative attractions of both stocks and catwalk models are subjective, he argued, but to a degree, their value is determined by their popularity with the audience.

Here, Andrew Bell, chief executive of the investment trust Witan, offers an analysis of how Keynsian theories apply to today’s markets. Here’s an extract from his blog.

The process of abstraction can go on and on, as the selection moves further away from making your own judgments of beauty towards an assessment of popular fashion or psychology. In the process, your face would lose its sun tan.

Ellen Kelleher

This will “hit the rich quite hard” is how Andrew Tailby-Faulkes, partner with Ernst & Young, put it when he called to offer his thoughts on Mr Darling’s address.

But those who are not wealthy also have cause for concern. The combined effects of the government’s move to encourage home ownership and keep the inheritance tax threshold at £325,000 for a further four years means that more of us are likely to draw inheritance tax charges.

As John Richardson, head of Advice Policy at Towry Law explains:

“Freezing the inheritance tax threshold for 4 years will mean more families will be caught by this tax and will therefore need to consider estate planning opportunities by maximising reliefs and exemptions.

“Trustees of discretionary trusts will need to consider more tax efficient investment structures to minimise 10 year anniversary charges,” he adds.

Taulby-Faulkes had predicted that Mr Darling might introduce a higher IHT rate for large estates. But this prophecy has not come to pass.

The rules are the same. After the first £325,000 “nil-rate” band is reached, the remainder of an estate is taxed at 40 per cent. Married couples and civil partners are able to use any unused portion of their partners’ nil-rate band upon their death.

Ellen Kelleher

 
Take a look. TD Waterhouse has released the ranking of the most popular funds held in its investment ISAs:

* Blackrock AM UK Blackrock Gold & General Acc
* Invesco Perpetual Fund Mgrs Invesco Perp High Income Acc Nav
* Gartmore Fund Managers Gartmore China Opportunities Ret Acc
* Jupiter Unit Trust Mgrs Ltd Jupiter Emerging European Opportunities Acc
* JP Morgan AM UK Ltd JP Morgan Natural Resources A Acc Nav
* Aberdeen Unit Trust Managers Aberdeen Emerging Markets A Acc Nav
* Fidelity (FIL Investment Intl) Fidelity Special Situations
* Jupiter Unit Trust Mgrs Ltd Jupiter Financial Opportunities Inc
* Invesco Perpetual Fund Mgrs Invesco Perp Corporate Bond Acc Nav
* Invesco Perpetual Fund Mgrs Invesco Perp High Income

Here are the performance figures for these funds over 1, 3 and 5 years, according to Morningstar.

 Lump,  % Chg, Init £100.00,  Bid-Bid,  GBP,  Basic Rt Tx,  Unadj        
  12/03/2009   12/03/2007   11/03/2005  
  12/03/2010   12/03/2010   12/03/2010  
   % Chg    % Chg    % Chg  
             
Aberdeen Emerging Markets A Acc 91.05   72.12   194.9  
BlackRock Gold and General A Acc 41.41   72.28   187.12  
Fidelity Special Situations 60.58   4.85   50.08  
Gartmore China Opportunities R 66.44   61.98   178.81  
IP High Income Acc 31.81   -2.93   52.47  
IP High Income Inc 31.55   -3.08   52.26  
JPMorgan Natural Resources A Acc 105.09   37.87   136.71  
Jupiter Emerging European Opps 103.33   2.85   84.65  
Jupiter Financial Opportunities 27.67   27.61   84.57  
             

Ellen Kelleher

In last week’s column,  FT Money’s Merryn Somerset-Webb fired a shot at Anthony Bolton’s China fund, which floats next month. The fund’s 1.5 per cent management fee looks steep, Somerset-Webb argues, and investors also face a 15 per cent performance fee on returns higher than 2 per cent over the returns made by the fund’s benchmark index – the MSCI China.

Somerset-Webb is not the lone skeptic. In spite of Mr Bolton’s distinguished record, other financial advisers also warn that you should take a look at the fine print before dumping the sum total of your savings account into the fund.

Ellen Kelleher

Even a god cannot change the past,  Agathon said (in 445b.c.).  Hopefully, the Athenian poet’s musings on the future would have been more optimistic.

But since Agathon is no longer around and not up for fielding questions about his country’s problems, we turn to market strategists.

This afternoon, a note crossed our desks from David Karsbol, Saxo Bank’s chief economist. Is all the panic in the Greek markets creating opportunities?

Karsbol’s thoughts:

The Greek stock market has dropped 36% from the peak in October 2009, while MSCI World is only down by around 5%. In other words, it looks like a country-specific slow-motion panic that might threaten to evolve into a full-blown panic. And where there is panic, there are usually lots of opportunities. We have therefore screened the Greek stock market for long-term value stocks that might be getting even cheaper if more rumors or even real political action appear.

Ellen Kelleher

Frustrated by the new 50 per cent income tax rate slapped on high-earners, accountants are encouraging clients to avoid paying it.

Here are two suggestions for ways to duck it from advisers at Baker Tilly:

Make full use of non-pension reliefs
In the last Weekly Tax Brief, we looked at pensions. Investing in other tax-efficient vehicles such as Enterprise Investment Scheme or Venture Capital Trust shares or Individual Savings Accounts should also be considered.
 
Each year, up to £200,000 could be invested into a VCT gaining tax relief at 30%.  EIS investment of up to £500,000 gives relief at 20% and, additionally, with capital gains tax deferral there is the prospect of 38% relief or 60% relief where the gain arose before 6 April 2008.
 
Remember that while those investments may bring tax advantages, they also carry inherent investment risks and independent financial advice is always needed.

Consider when to claim losses
Losses on subscriber shares in EIS-qualified companies can be claimed against income tax but qualifying shareholders should not always rush to claim their losses. If a loss has arisen but not been claimed yet, there is no requirement that the loss must be claimed now: the claim may be made in 2010/11, so providing relief at the top rate of tax, including the 50% additional rate where that applies.

Ellen Kelleher

Finally -  we here on FT Money have received proof that our crusade to encourage you (the great unwashed) to take command of your finances is just and necessary. We will celebrate by downing a glass or two of  chianti.

This morning, the Insolvency Service revealed to the FT’s Norma Cohen that the number of people becoming insolvent in this country rose by an eye-watering 25 per cent in the last three months of 2009. This means that the number of bankrupt individuals in England and Wales is now 134,142 or one in every 320 adults. And in the fourth-quarter of last year alone, there were 35,574 individual insolvencies, up 24.9 per cent from the last three months of 2008.

Ellen Kelleher

St Valentine’s day approaches. And to prepare, tax advisers are reminding clients who are in relationships, but not married, of their rights.

Anita Monteith, technical manager with the ICAEW Tax Faculty, points out that the taxes ”most likely to affect” those in civil partnerships on the 14th of February and beyond are inheritance tax (IHT) and capital gains tax (CGT). 

Ellen Kelleher

  
This afternoon, Tom McPhail, head of pensions research with Hargreaves Lansdown, sent a list of how-to-web sites for those seeking advice on pensions. Here are three suggestions:

Direct Gov www.direct.gov.uk
 
This is a government site with information on a host of subjects, from battery recycling to blue badges for disabled motorists. The pension section has a series of sub-sections including a Beginners Guide to Pensions, State Pensions, Pension Credit, Company and Personal Pensions, National Insurance etc.

Hargreaves Lansdown www.h-l.co.uk
 
The Hargreaves Lansdown site has a library of free consumer guides on pension and tax planning and investing, as well as fund manager interviews, calculators and stock analysis, telephone helpdesks with real people who know what they are talking about and access to advisers if needed. Unlike the other two listed here, Hargreaves Lansdown is a commercial organisation but all the information is free; no jargon, no gurus, just helpful.

TPAS www.pensionsadvisoryservice.org.uk
 
Independent voluntary service grant-aided by the DWP, the TPAS website has news, calculators, guidance, telephone advice and links to other government sites. Straightforward. User friendly. No jargon here.
 

Ellen Kelleher

Analysts from the Pension Protection fund are offering a belated Christmas gift to those of us who have lost sleep over the erosion in the value of our pension schemes. They say that the financial position of the UK’s 7,400 private final salary pension schemes improved in December, falling from £93bn to just £33bn during the course of the month.

But the news is not cause for celebration in all social circles.   Pensions adviser Fraser Smart, a director at Buck Consultants, is skeptical about the PPF’s research and claim the exposure of a number of pension portfolios’ to risky assets remains too high. Here are some of his concerns:

“These numbers belie the seriousness of the national pension fund deficit.   The improvement in the deficit level indicated by the PPF results from a combination of  high equity market returns and a simultaneous increase in gilt yields, following on the heels of technical changes to the calculations in October which had already reduced the liabilities by £70 bn.  It means we’re now seeing some of the most favourable opportunities for funds to secure their liabilities and de-risk affordably for the best part of two years.  But a very large number of private schemes are avoiding de-risking because, we believe, of the fear of locking in deficits.  Funds must ask themselves where the greater risk lies -  crystallising the value of liabilities in relatively favourable conditions or to continue to expose funds and their members to the mercy of volatile markets. 



The FT’s Money blog is a forum for the latest news and insights from the UK’s personal finance scene. Matthew Vincent, the editor of FT Money and his team of reporters will upload their views and insights on what’s happening in the industry and how this affects people’s finances.

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Lucy Warwick-Ching is the FT’s new Money Online Editor and has been a UK Companies reporter covering tobacco, pubs and leisure companies as well as the deputy editor on House and Home.

Matthew Vincent is the FT’s Personal Finance Editor and was previously the editor of Investors Chronicle, where he also devised the award-winning online video The Market Programme, and produced the BBC-FT standalone magazine ‘How to be Better Off’. He presents the weekly FT Money Show audio podcast, and previously worked on the BBC TV programmes Short Change and Pound for Pound.

Alice Ross is deputy personal finance editor of FT Money. She specialises in pensions, investments and investment trusts. Alice joined FT Money in April 2008 - prior to that she was deputy editor at Money Management magazine.

Ellen Kelleher has been a personal finance reporter in the UK for close to four years. Before arriving in London, she worked in the FT's New York bureau where she covered the insurance sector.

Steve Lodge is a personal finance reporter on FT Money specialising in savings.


Josephine Cumbo has written about all aspects of personal finance but currently specialises in insurance. She also covered company news for FT.com. Prior to working at the FT she was a news reporter for the ABC.

Tanya Powley is a personal finance reporter on FT Money specialising in mortgages and the housing market. Tanya joined FT Money in November 2009 after working in Australia covering personal finance for the Australian Financial Review and its sister magazine Asset. Prior to that, Tanya wrote about mortgages for UK trade newspaper Money Marketing.

Jonathan Eley is editor of Investors Chronicle, and has been with the title for ten years. Before that he worked for newswires and trade journals in London, New York and Hong Kong.

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