International Commercial Investment

How investing can be like looking after an allotment

by International Commercial Investment on May 5, 2021

Source: Money Marketing

Summer is drawing closer, and spring is the time for all those avid gardeners to prepare their allotment plot for the growth season ahead. Having just completed our six-monthly review of the fixed income sector we found that there are some analogies between an allotment plot management and investing.

You get out of investing what you put in

It is a busy period preparing an allotment plot for summer, but once June comes around you can sit back and let the magic happen. The same could be said for the fixed income sector, being active managers that invest in active fund managers the more effort put in now, the potential for rewards in future.

Like an allotment plot, having a range of bulbs, seeds, and plants, it is crucial to have fixed exposure in most mandates. With investing the range of needs differ, with some having a greater focus on the income component of fixed income assets to those that are more focused on absolute return and a complement to more volatile assets, such as equities.

Last year was volatile for all asset classes and fixed income was no exception. When the Covid-19 crisis struck, there was a rush for the door in March which brought with it a window of opportunity. This was exacerbated by forced selling from the price insensitive areas of the market. Ironically, it was often higher quality debt that was sold as people scrabbled to raise cash in such an uncertain environment. We also saw a lot of opportunistic raising of cash by companies who looked to ensure their survival by replacing cashflow with debt.

In such a volatile market, active managers stepped in where they saw mispriced securities, buying the debt of quality companies at cheap prices, or higher yield or lower quality companies at even cheaper prices, if they thought they would survive longer term.

Removing the weaker plants

When it comes to planting beetroot in an allotment plot, this must be done in stages for two harvests. For successful growth you need to be disciplined with weeding out the weaker plants. Failure to do this will result in an inferior crop. That’s what active fund managers are mandated to do.

The low interest rates have meant that credit has now retraced much of the ground  it lost in 2020 and is in many cases back to pre-Covid levels.

The headline risks that had been worrying the market, such as the US presidential election and Brexit, has quietened down and good news, such as the vaccine roll out, has been factored into the price. Allocating credit and structuring to give the best risk-adjusted return for the desired outcomes in the depths of the crisis bought opportunity for each mandate. Those that had been more aggressive in their positioning through the volatility have started rotating into lower risk opportunities and taking a more defensive stance.

Growth is on the horizon

In more recent months we have started to see a change in the view of the market, with the potential for a rise in longer term interest rates as we see economic recovery as the globe awakens after mass vaccination. Initially this was reflected in the inflation-linked market but there has been a marked shift in the compensation which the bond market has been demanding to lend to governments, signalling a change in expectations.

We have seen a steepening in yield curve. This is just one of the many areas where active managers can also add value as we see the various factions try to establish the right level of yield further out in time. Central banks have been explicit in expressing the need for a little inflation; however, they will be keeping an eye on the cost of servicing the extraordinary debt pile that is held across government and corporate balance sheets.

Like the rotating seasons, changes in market environment means it is essential to adapt, time each seed planting and be disciplined in weed management to ensure maximum growth.

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International Commercial InvestmentHow investing can be like looking after an allotment

UK property remains attractive investment for overseas investors

by International Commercial Investment on April 13, 2021

Source: Buy Association

Despite economic uncertainty, overseas investors continue to flock to UK property for investment. In recent years, the property market has performed particularly strongly.

The number of overseas landlords owning property in the UK has reached a five-year high. There are currently 184,000 overseas landlords. This is a 19% rise over the past five years, according to data from estate agent ludlowthompson.

Despite tax changes in the buy-to-let sector, the COVID-19 pandemic and Brexit, UK property has remained an appealing long-term investment for many overseas investors. And this is expected to continue to be the case in the coming years.

A rise in demand from Hong Kong investors

There has been a particular increase in the number of property investors from Hong Kong. This is expected to increase further with the launch of the new visa for BNO passport holders, which opened for application on 31st January.

London has long been the traditional location for Hong Kong investors. There has continued to be strong demand in the capital. And there has also been a rise in Hong Kong investors and buyers looking to the north-west of England, especially Liverpool and Manchester. Cheaper house prices and strong demand are big draws for this region of the UK.

Favourable exchange rates

The value of the pound dropped since the EU referendum. Some overseas investors took the opportunity to add to their property investment portfolio. The Brexit uncertainty, which was followed by the COVID-19 pandemic, has kept the value of the sterling low.

With recent favourable exchange rates, foreign buyers could get more for their money. This opened up the sector to a wider pool of investors. At the beginning of the year, overseas investors even ranked the UK as the best residential property investment hotspot for 2021.

Stephen Ludlow, chairman at ludlowthompson, says: “Fears that Brexit might dampen the appeal of UK property amongst overseas investors have been unfounded, with the number of overseas landlords reaching a record high.

“Many canny investors took advantage of the temporary drop in Sterling’s value to purchase properties in the UK and benefited from both an increase in property prices and a recovery in sterling.”

Stamp duty changes

Overseas investors have also been benefiting from the stamp duty holiday. The tax holiday has allowed buyers to save up to £15,000 on properties worth up to £500,000. The holiday is in place until 30th June. After that, the nil-rate band will be in place for properties worth up to £250,000 until 30th September.

Second homes and property investment still incur a 3% stamp duty rate. And an additional 2% stamp duty surcharge came into place for overseas buyers and investors on 1st April 2021. While many overseas landlords looked to complete on property investment purchases prior to this date, the additional surcharge is unlikely to be a deterrent as there are numerous factors making UK property investment appealing.

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International Commercial InvestmentUK property remains attractive investment for overseas investors

Landlords in the UK collected 21% of commercial rents this quarter

by International Commercial Investment on March 29, 2021

Source: Property Wire

Cloud-based commercial property management platform Re-Leased has revealed that 21% of commercial rents in the UK were collected by landlords on 25 March, this quarters’ rent date.

This marks a decline on the previous two quarters, suggesting the third national lockdown has caused the rate of rent collection to soften after seeing some positive growth at the end of last year when restrictions were lighter. 

Re-Leased’s analysis is based on live rental collection data from over 10,000 commercial properties and 35,000 leases on its UK platform.

 Tom Wallace, chief executive at Re-Leased, said: “The past year has tested the resilience of the commercial real estate industry like no other. It is clear from our latest figures that one year on, we are far from ‘back to normal’, with rent collection still below pre-pandemic levels.

“The burden of three national lockdowns and other social restrictions has placed substantial pressure on occupiers and landlords, many of who are now navigating dire financial circumstances. The debt pile continues to grow into the billions and the compound effect of five quarters of rent shortfall must not be underestimated.”  

Caleb Dunn, commercial analyst at Re-Leased, said: “Rent collection performance continues to be a valuable barometer for business and occupier performance in the UK.

The level of rent collected on this quarter day is a direct response to the third lockdown, which once again has seen businesses respond to the harshest of restrictions. The last time the UK faced these levels of restrictions was during the first national lockdown, prompting record low rent collection for the June quarter.

“It is therefore promising to see that, while figures for this quarter are indeed lower than the last, they are up by +3% when compared to June. This shows resilience has improved – and demonstrates that landlords and occupiers are better prepared to deal with the implications of a lockdown compared to a year ago.

“As we continue to open up the economy in the coming months, there is every reason to expect a rebound for the June quarter. However, despite some cause for optimism, looking ahead to the end of the year, we expect there will be more pressure to come with vacancy rates, rental values and lease terms all set to see noticeable shifts.”

Behind the overall UK picture, each sector is responding differently to the crisis. Retail continues to be hardest hit; the sector has recorded the lowest rate of collection this quarter at 15%. Offices recorded the strongest rate of rent collection at 28%, however this sector has slowed compared to the previous two quarters. Industrial has emerged the most resilient sector and is the only one to see an increase on levels recorded a year ago, at +3%.

Behind the overall UK picture, there are also significant variations in rent collection across the country. A breakdown of the UK’s 10 regions revealed that the East Midlands is the most resilient region this quarter, while the South West is the least resilient.

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International Commercial InvestmentLandlords in the UK collected 21% of commercial rents this quarter

How could the property market unfold in 2021?

by International Commercial Investment on February 5, 2021

Source: Property Reporter

It goes without saying that 2020 was a volatile year full of twists and turns that caught businesses and investors alike off guard.

For all the challenges faced, the biggest concern had to do with the uncertainty the wider community faced. At the height of the first lockdown, there was no telling when or how the COVID-19 pandemic would come to an end. Naturally, this had plenty of people worried.

Now one month into 2021, it looks as though we could soon be entering a period of recovery. While we may be in a lockdown, the rollout of a vaccine suggests we could be witnessing the beginning of the end of the pandemic. In light of this, it makes sense to consider just what UK society will look once the pandemic subsides.

Of particular interest to many is the property market.

For example, the average price of a residential property experienced its highest level of growth witnessed since 2015 – finally putting an end to the four years of price stagnation as a result of Brexit uncertainty. In fact, during the opening three months of 2020, Rightmove recorded the greatest surge in Q1 house price growth since 2003. This is all the more impressive given such growth occurred amidst the pandemic.

As we look to the coming 12 months, the questions beckon – can the property market maintain the same levels of transaction activity and price growth witnessed? Or will new developments rock the figurative boat – potentially leading to a reversal of the gains seen last year?

A rocky start to the year

With the UK in its third lockdown following another wave of COVID-19 infections, it’s unlikely that January will see particularly impressive transactional activity figures. However, unlike the previous UK lockdowns, the British government is combating the virus with a complete roll-out of the Pfizer and AstraZeneca COVID-19 vaccines. what’s more, with people still able to move homes during this current lockdown, the market has by no means comes to a standstill.

Taking a long-term perspective, there’re plenty of good reasons to be optimistic about the property sector. In its 2021 property price forecast, Rightmove predicts positive house price growth of 4% over the course of the year.

The estate agents expect that any negative developments that would normally hinder property price growth will be outweighed by an increase in buyer demand from those who’ve been homebound for the majority of 2020. This is a perspective I also share.

Of course, there are still some issues that lie on the horizon. Mainstream lenders, throughout 2020, have struggled to reconcile their internal processes with the market uncertainty imbued by COVID-19. As a result, many have removed a large number of their mortgage products from their shelves, as well as tightening the criteria for successful loan applications.

This has led to numerous reports of increased mortgage application rejections; particularly for those purchasing their first property or who are only able to produce small deposits.

Here at Market Financial Solutions (MFS) we’ve experienced increased demand for our alternative loans from brokers and buyers needing fast and tailored finance solutions to complete on property transactions. Unless traditional lenders are able to adjust their practices to better fit the “new normal”, I can only expect this trend to continue.

Changes to SDLT

Most commentators are in agreement that the property market’s impressive performance last year was mainly due to the stamp duty land tax (SDLT) holiday, which allowed homebuyers to shave up to £15,000 off the stamp duty tax bill on any new property acquisition under £500,000.

Now that this holiday is due to end soon, specifically on 31 March 2021, property professionals are expecting a surge in demand in the run-up to this key date. For overseas buyers this is especially prescient as on 1 April, the 2% SDLT overseas-buyer surcharge will come into force. Prospective buyers will understandably be eager to ensure any property transaction is completed before these changes are made.

As we look to the coming year, I don’t expect that COVID-19 will deter investment into UK property. 2020 has shown us that investors, both domestically and abroad, are confident that British real estate can hold its value, and even post impressive gains, during times of severe market instability.

For alternative finance providers, it’s our responsibility to guarantee that our clients can access the funds needed to easily complete on their housing transactions. There is an opportunity here to play an integral part in the upcoming wave of investment into British real estate, one which MFS will be welcoming with open arms.

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International Commercial InvestmentHow could the property market unfold in 2021?

UK named top hotspot for property investment by overseas investors

by International Commercial Investment on January 14, 2021

Source: Buy Association

Overseas investors ranked the UK as the best residential property investment hotspot for 2021. What makes investing in UK property so appealing?

For a number of years, the UK property market has been a prime target for overseas investors, and this has continued at strong levels. Property investors from Asia, Europe and the US have particularly seen UK property as a solid investment choice in the past few years.

Recently, the UK was even named the top global property investment hotspot in a survey by international law firm DLA Piper. Of the 500 high-net-worth investors and asset managers surveyed, 33% said they wish to invest in UK property during 2021.

Investors headquartered in China and the US ranked the UK as the best for residential property investment. And investors in the UK, Germany, France, Spain and Italy named the UK the third best place for property investment.

Olaf Schmidt from DLA Piper comments: “The UK remains an attractive market for investment also post-Brexit which should provide confirmation and reassurance that the UK is a vital hub for activity and growth.”

Investors continue to be optimistic

Despite uncertainty still surrounding the global COVID-19 pandemic, investors remain optimistic about property investment. DLA Piper’s survey revealed more than half of respondents feel positive about the outlook of the European property investment market. Additionally, only 11% feel negative.

Investors also shared why they remain so optimistic. The most common reasons stated were because of high demand and a shortfall in supply, strong yields and attractive prices.

Additionally, another recent study revealed nearly half of buy-to-let investors in the UK are remaining positive about the year ahead. According to Property Master, only 10% plan to exit the sector in 2021. And nearly 70% said they are not planning to sell their properties.

UK property market remains appealing

Foreign buyers and investors have been snapping up property across the UK before the additional 2% stamp duty surcharge comes into effect for overseas-based investors in April. However, many feel the stamp duty surcharge will unlikely deter overseas buyers in the future.

The fall in sterling, low mortgage rates and the UK’s strong property market will more than make up for this additional tax. The sector has strong long-term prospects for capital appreciation and increasing rental demand. And many overseas investors view the UK property market as a safe haven.

Additionally, interest from Hong Kong buyers and investors is set to surge with a new special visa opening  to British National Overseas passport holders in Hong Kong on 31st January. This will likely lead to a significant number of Hong Kong residents emigrating to the UK and investing in property.

Throughout 2021, overseas and foreign investors are expected to continue investing in UK property at strong levels. In recent years, the UK property market has remained robust even during political and economic unease. Because of the sector’s resilience, overseas investors will continue snapping up UK property, even with the continued uncertainty of COVID-19.

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International Commercial InvestmentUK named top hotspot for property investment by overseas investors

Could investors end 2020 on a high?

by International Commercial Investment on December 9, 2020

Source: Money Marketing

In a year of bad news and extreme volatility, 2020 looks like it might end on something of a relative high.

News of successful vaccine trials at Pfizer/BioNTech, Moderna and AstraZeneca/Oxford university in the fight against Covid-19 has seen some lagging markets soar and unfavoured asset classes regain investor attention.

Since the news of a potential vaccine broke, the markets have seen a few noticeable trends. Throughout 2020 for instance, the UK has lagged other equity markets, in large part because of political problems such as on-going Brexit uncertainty and a perception that the government has not handled the Coronavirus fallout particularly well. In some quarters, the UK has even been said to have been behaving like an emerging market with all the volatility that that entails, rather than a more established one.

Nonetheless, in November, the UK saw the first signs of a reversal in this trend, where it has become one of the best performing regions among the larger global economies. Part of the reason for the UK’s outperformance is the role played by two cyclical sectors which are heavily weighted in the FTSE indices – financial services and energy.

The news of vaccine development has had the immediate effect of seeing the oil price rise sharply on expectation that demand will come back quickly in 2021, as people start travelling again and economies get back to full production.

There is also a general market assumption that inflation will become a factor at some point in the near future and as inflation begins to push up towards target, central banks will begin to raise interest rates. This outlook is good for banks as they become more profitable when interest rates are increasing – a fast recovery also boosts banks as they are likely to face lower levels of bad loans.

At fund level, the impact of these reversing trends has seen value stocks reverse some of their long-term underperformance. As we can see from the chart below, Schroder’s Income fund, which is a UK-focused value fund, and growth fund Royal London Sustainable Leaders (which has been awarded the highest 5-Crown rating by FE Investments) have produced positive returns throughout November. But the Schroder fund has seen particularly strong returns, outperforming the growth fund by around 20%. The fund has a concentrated approach and its 37 holdings include positions in NatWest, Barclays, Lloyds and Aviva, as well as Royal Dutch Shell and BP.

Conversely, other trends that investors will have become familiar with over the past 11 or so months are now seemingly in reverse. As Covid-19 spread across the world in February and March and economies ground to a halt throughout April and May, the price of gold (whose main use is a hedge against inflation or an equity market correction) soared as investors poured their money into traditional safe havens. If we are to take another look at the funds listed above over a longer timeframe and add in BlackRock’s popular Gold & General fund (which invests in companies deriving a significant proportion of their income from gold mining or commodities such as precious metals), we can see from the following chart that after the initial sell-off in mid-March it recovered quickly and was back to generating positive returns in a matter of weeks.

Now, if we concentrate on the relative performance of these funds from November onwards, we see that excluding an initial spike at the beginning of the month, the BlackRock fund has seen a very sharp correction as the price of gold has dropped.

Nobody expects the remaining weeks of 2020, or indeed the early months of 2021 to be plain sailing. Politicians of all persuasions and nationalities have been quick to play down talk of the vaccines as being a ‘miracle cure’.

However, and perhaps for the first time this year, there appears to be a sense of optimism at the prospect of a returning normality. Already the markets are realigning themselves in anticipation of who the economic winners and losers will be when things tentatively return to normal. By the end of December at least, we should be able to see whether November’s gains for the traditional stocks are a temporary tailwind, or something more longer term.

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International Commercial InvestmentCould investors end 2020 on a high?

Sustainable investing: Reasons to be positive

by International Commercial Investment on November 11, 2020

Source: Money Marketing

We should feel emboldened by our collective efforts in trying to find a cure for Covid-19

Interest in sustainable investing and environmental, social and governance issues has never been greater, with the Covid-19 pandemic adding to existing concerns, such as the climate crisis and the dumping of plastic in the sea.

Whether it is Sir David Attenborough’s TV documentaries, protests by Extinction Rebellion or policy recommendations from learned bodies such as the UK Committee on Climate Change, it is impossible not to be aware of the urgency of action we need to take to tackle the crises. This includes reaching targets such as the reduction of greenhouse gas emissions to net zero by 2050.

Everyone’s investment decisions can play a key role achieving such objectives and, therefore, an increasing number of people care about how they make their money, and how much they make.

We expect the rise in demand for sustainable investing to continue and, in turn, lead to a further proliferation of ESG funds. Research shows that 73 per cent of consumers say sustainability is a important part of their everyday life, but just 43 per cent of these people invest sustainably. And of those who do not invest sustainably, 63 per cent are aware of sustainable investment, showing the potential for growth.

This is supported by research we carried out with wealth managers and financial advisers. This reveals that 78 per cent of them expect their clients to invest more in sustainable investments over the next 12 months.

The top reason for consumers not investing sustainably is the belief that it could hinder performance (cited by 32 per cent). The next most popular reasons are lack of knowledge/need to do research (12 per cent) and an intention to look into it in the future (9 per cent).

To counter the most frequently given reason, the performance of sustainable and ESG funds has in fact shown that this approach can deliver superior returns compared to conventional funds over different time periods and through different market environments. This is not a short-term phenomenon and the superior performance is one of the key drivers behind the increased demand for sustainable funds.

We are sometimes asked whether sustainable investment is currently experiencing a bubble because of the increased money flowing into these funds and the strong performance. Is there a risk that with ESG becoming more prevalent, it is propping up the share prices of some companies?

The first thing to say in response is that sustainable investment is still a small part of the overall investment market. Secondly, as a fund manager, it is important to have discipline around valuations and to make sure we are investing in stocks that will adequately reward us over the next few years and benefit from the long-term trends we have identified through our investment process.

The Covid-19 crisis will support and accelerate many trends and themes integral to sustainability. Our sustainable investment process begins with 20 themes, all focused on the shift towards a more sustainable economy. We focus on areas of structural growth and investing in companies on the right side of this transition.

Our ‘Connecting people’ theme, for example, looks at how we can be better connected through the infrastructure that helps us communicate and the service providers we use to do this. Increased communication is important for the development of a sustainable economy and global cohesion, but the challenge is to decouple this exponential growth from its environmental impacts and this will largely be through more efficient data centres.

Digital technology’s share of greenhouse gas emissions is clearly set to rise, given the millions of people stuck indoors over the past six months, either working or streaming data. We therefore see considerable resource benefits coming from the trend towards outsourced storage and processing.

Moving to themes focused on improving quality of life — ‘Enabling innovation in healthcare’ and ‘Providing affordable healthcare’ — these have benefited from the broad focus on who can come up with an effective treatment for Covid-19.

We continue to believe sustainable companies have better growth prospects and are more resilient than businesses not prioritising ESG, and these advantages remain underappreciated by the wider market. We cannot afford to go back to ‘normal’ when this crisis is over.

The world should feel emboldened by our collective efforts in response to the virus and go further to make our economy cleaner, healthier, safer and fairer.

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International Commercial InvestmentSustainable investing: Reasons to be positive

More than half of UK business angels have continued to invest post Covid-19 reveals new UK Business Angels 2020 report by the British Business Bank

by International Commercial Investment on October 8, 2020
  • 57% of business angels made an investment between April and July 2020
  • 46% of business angels plan to build their portfolio in the current financial year
  • 72% of angel investors are confident about the future growth in value of their portfolio
  • Healthcare; biotech, life sciences and pharmaceuticals; and software as a service remain the most favoured sectors

Published today, the British Business Bank’s UK Business Angels Market report 2020 reveals that angel investors across the UK are continuing to invest in early stage businesses and are optimistic about the future despite current economic uncertainty.

Despite almost half of angels reporting a negative impact on their investment activity from Covid-19, overall the business angel population remains supportive of UK businesses and have a positive outlook for future investment.

More than half (57%) angel investors surveyed had made an investment between April and July 2020, with 46% expecting to make new investments to add to their portfolio during the remainder of the financial year.

Since the onset of Covid-19, more than half (54%) of business angels have increased their engagement with their investee businesses. Of these, 56% have prioritised support of their investee businesses to help achieve their growth milestones. 77% of angels reporting greater involvement with portfolio businesses did so via strategic advice while 69% provided a sounding board and 43% operational advice.

Values of initial and follow-on investments are however lower than last year, sitting at an average of £69k (down 31% from £100k) and £46k (down 34% from £70k) respectively. This greater caution related to current economic uncertainty which was ranked as the number one barrier to investment by 45% of angels. Despite this, the data revealed that 72% of angel investors are confident about future growth in the value of their portfolio over the next 12 months.

The top three sectors that continue to be most favoured by business angels are healthcare (31%), biotech, life sciences and pharmaceuticals (26%) and software as a service (24%). Distribution of angel investment across the UK remains broadly in line with earlier Bank surveys, with the ‘Golden Triangle’ (London, Oxford and Cambridge) remaining the most popular area for investment.

Positive investment performance despite the pandemic

Data from the survey reveals that 41% of business angels have not been negatively impacted by Covid-19 while 9% are seeing a positive outcome, with the most popular reason given that sectors they have invested in have performed strongly despite the impact of Covid-19.

Catherine Lewis La Torre, CEO, British Business Bank, said: “Angel investors play a vital role in the economy, particularly in the scale up journey of smaller businesses. They provide ‘smart capital’; funding combined with business experience, strategic advice and networking opportunities, to support the growth of the businesses they back. Their investment, mentoring and expertise can be the key to unlocking rapid growth for companies wanting to expand, diversify, or enter new markets. It is therefore encouraging that they remain optimistic and continue to invest in and support companies in their portfolios.”

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International Commercial InvestmentMore than half of UK business angels have continued to invest post Covid-19 reveals new UK Business Angels 2020 report by the British Business Bank