Wednesday, 3 February 2010

QROPS Advice: Investment News: Spotlight on India funds

A vast majority of investors are aware of the phenomenal economic growth that India has achieved over recent years, with most benefitting from this via an exposure in a traditional 'BRIC' fund. However, whilst the majority of BRIC funds have posted excellent returns, a growing number of investors have instead recently chosen to invest directly into Indian-focussed equity funds.
The outlook for the Indian economy is very positive, uncommon amidst a global recession. This is confirmed by the recent revision of the IMF's economic growth forecasts for 2010, adjusting that of India to 7.7 percent from an original forecast of 6.4 percent (the same forecasts predict an average of approximately 3.9 percent, at a global level).
One of the reasons behind the excitement around India lies in its current economic state, unlike other most other economies labelled 'emerging', India is truly in its economic infancy. It is the country's place towards the bottom of the development ladder that makes it compelling for investors, representing relative immaturity and therefore greater growth potential.
Each of the four BRIC constituent countries owes its growth to different roots; the phenomenal rise of China can be greatly attributed to a thriving export and manufacturing industry, whereas Brazil and Russia's boom relied on a natural abundance of much-needed commodities.
In comparison, India's story is very much a domestic one. Private domestic consumption accounts for 57% of GDP in India compared with only 35% in China. Additionally, India's population is soaring: by 2025, it's projected to surpass China's. The demographic changes will provide a well educated, English speaking, young and vibrant workforce to India, in contrast to the ageing population problem that China currently faces.
Whilst a loyal and expanding domestic economy are essential to the growth of any country (the Chinese government is actively looking to create such conditions, such is the domestic demand for western products), India recognises that it has to look outside of its own boundaries to enact long-term economic development. Plans are afoot with much-needed significant development in India's infrastructure, which would stimulate the development of a manufacturing sector that lends itself to a vast resource of young workers.
Foreign investment (also known as 'speculative' or 'hot' money) inevitably follows any success story, more so against an economic backdrop such as the current one. Following similar steps to China, it is thought that the Indian government is likely to introduce measures to control unprecedented foreign investment ($17 billion of funds flowed into Indian equities last year, appreciating the Indian Rupee over 10% since Q1-end 2009); a higher reserve ratio requirement to its banks or a curb on interest payments to non-resident investors are just two of the ways that this could be achieved. Whilst this may have a short term negative effect on stock markets, it demonstrates a responsibility that puts India in a much better place, long term.
Sanjiv Duggal, manager of the Hansard HSBC Indian Equity fund (MC101, available in HIL & HEL) commented "The consumer discretionary and real-estate sectors have underperformed recently on concerns of measures by the central bank. But we expect interest rates to normalise following the sharp easing by the central bank in 2008. We think consumption should remain robust in 2010. GDP growth forecasts for the current fiscal year ending March has been steadily revised up from around 5% to around 7%. This upward revision has come despite the poor monsoon affecting farm output as industrial production has been strong."
Hansard has a variety of fund links across a diverse range of asset classes, whether your clients have a conservative, balanced or adventurous outlook. To find out more about any of our fund links please contact your Hansard Account executive who will be able to assist you further.

QROPS Advice: Investment News: America economic recovery taking hold

The dollar declined as stocks rose amid signs that the economic recovery is taking hold, fanning demand for higher-yielding currencies such as the South Korean won and the South African rand. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, dropped for a third day before a report due to be published that is thought to show U.S. service industries expanded at the fastest pace in more than a year. The pound rose versus the euro and the dollar after data showed U.K. consumer confidence jumped. The euro extended two days of gains against the dollar on Wednesday as European Commission President Jose Barroso said the body will back Greece's plans to cut its budget deficit.

QROPS Advice: Investment News: Gold Gains

Gold gained for a third day on Wednesday as the dollar extended a decline, fuelling investor appetite for the metal as an alternative asset. Silver also climbed. "Price levels below the $1,100 an ounce level apparently attract buyers who consider this level as a lucrative entry point," said Eugen Weinberg, a senior analyst with Commerzbank AG.

QROPS Advice: Investment News: Sales up in Germany

Retail sales in Germany, Europe's largest economy, increased in December as the improving economic outlook bolstered Christmas spending. Sales, adjusted for inflation and seasonal swings, rose 0.8 percent from November, when they dropped a revised 1.7 percent, the Federal Statistics Office in Wiesbaden said on Wednesday.

QROPS Advice: Investment News: Brazil Up

Brazilian stocks gained on Tuesday, completing the biggest two-day rise for the Bovespa index since November, as commodities rallied and industrial production increased more than analysts' forecast. Brazil's industrial production jumped to a greater than expected 18.9 percent in December, after having contracted 14.7 percent a year ago, the national statistic agency said on Wednesday.

QROPS Advice: CHINA "Speed bump"

The tumble in China's stocks is a "speed bump" and won't last for more than three months before rallying, said Christopher Wood, chief strategist at CLSA Ltd. The benchmark Shanghai Composite Index has declined 8.3 percent this year, the second-worst performer among 94 global stock gauges, on concern government measures to curb credit growth and control inflation will hurt growth. "The reason China is down the most is because the Chinese government is the first to make tightening moves," Wood said. "This correction, which may run for two to three months, is the opportunity to invest in banks, property, consumer stocks in China."

QROPS Advice: Finance News: World Recovering Faster Than Expected

The world economy is recovering at a faster-than-expected pace but still needs government stimulus efforts to keep it going, the International Monetary Fund said on Tuesday. The IMF raised its forecast for world economic growth in 2010 to nearly 4 percent, up from an estimate of 3.1 percent last October. It expects the U.S. economy to grow by 2.7 percent this year, significantly higher than its previous forecast of 1.5 percent.

QROPS Advice: Investment News: Big Ideas for 2010

This month I thought I'd share with you with my hit list of individual shares for 2010 – these are companies or funds that have been promoted on to my watch list and are likely to find their way into my portfolio at some point during the year.

Three themes dominate - the first and most important is emerging markets, but with a very selective twist. I want really interesting growth stories that have a great long term story. I'm also keen to keep building up my existing heavy utility/infrastructure holdings and my oil equipment, mining and oil company investments. Lastly I'd like to slowly build up a stronger value tilt but around special situations as I like the idea of a larger margin of safety in what I think will be very dangerous markets.

In the emerging markets space I'm interested in

VinaCapital Vietnam Opportunities (VOF) which is a closed-end fund last seen trading at around $1.50 compared to an NAV of close to $2.40 a share. Everyone I talk to in the fund management world really rates the fund management firm Vinacapital as the best in the sector and I'm a long term bull on Vietnam. I'm waiting for an entry point below $1.35

• I've been carefully watching Agriterra for some time now and I think the point may soon come where I take a punt. This is run by a bunch of CAMEC veterans and is probably the purest London listed play on African agriculture and food processing. I've held back from taking the plunge up until now because of worries about the company's low profile in London, but at two recent fund conferences I talked to professionals who said they had recently built stakes in Agriterra.

Ocean Wilsons is a brilliant way of buying into the Brazilian story at a reasonable price. This London listed vehicle has two major assets, the first is a dominant shareholding in the highly regarded local Brazilian infrastructure and marine services firm Wilson & Sons plus there's also a massive wad of cash and market investments sitting on the balance sheet as an added extra. Wilsons could be a big beneficiary - via its tugs division - of the massive investment by Petrobras in its deep-water fields.

The Indonesia Fund is a US-listed, Aberdeen-managed closed-end fund. It's not especially cheap and Indonesia has had a good run, but again I'm very interested in the big, long term picture here. Indonesia has a large range of quantity of blue chips with strong financials and a great growth story. I'd like a small investment in this but I'll probably wait until emerging markets pull back a little more.

Over in the infrastructure and resource and resource equipment space I have four potentials…

• I like the look of an US-listed infrastructure fund called Brookfield Infrastructure Partners. This closely resembles British listed peers such as 3i Infrastructure and HICL (HSBC's infrastructure vehicle) but it boasts a more diversified portfolio, a better yield and a greater discount to NAV.

International Power is likely to find its way very soon into my portfolio. The whole shennanigans about its abortive takeover doesn't faze me - either it does get taken over for north of 400p or it will continue to produce some very solid results, and a great dividend yield. I also like it's very diversified mix of utility assets

Avanti Communications is not your usual infrastructure play in that it's expensive and loss making, but a number of the UK brokers have been featuring this as one of their big bets for 2010 based on the firm's HYLAS satellite roll out plans over the next few years. This is my best UK growth punt

• Last but no means least I like the look of Pressure Technologies which is a relatively cheap, UK based manufacturer of high pressure, seamless steel gas cylinder. This is a play on a number of themes including biogas, the government's new-for-old boiler initiative and the oil equipment industry. All for a PE of well under 9, a decent balance sheet and a growing order book.

My last big theme is that value bias. I have my sights set on two ideas, both US based (I have a growing US bias because I believe the American economy will recover very strongly over the next year).

• Hedge fund Third Point Offshore has shares listed on the UK market at a chunky 20 per cent dividend to NAV. I've been watching Dan Loeb's idiosyncratic but successful fund management style for some time and I strongly recommend that investors have a look at his quarterly letters. Mr Loeb is famous in the US for his outspoken shareholder activism but I'm more attracted by his unconstrained contrarian take on a range of asset classes including beat-up corporate bonds and mortgage-backed securities.

• Mr Loeb's also put me onto a US firm called TransDigm, which is an aerospace aftermarket supplier and a classic value stock with strong margins and great recurring revenues.
Written by:David Stevenson

QROPS Advice: Use your allowances to cut IHT

Following a change in the law in 2008, when a widow or a widower dies their estate can benefit from any unused inheritance tax (IHT) allowance their partner had - as well as their own. Estates up to the value of £325,000 do not incur IHT, but those above this will incur a 40 per cent tax.

Therefore if neither partner had used any of their allowance - and the first of the couple to pass away left everything to their spouse (assets passed between spouses do not incur IHT) the remaining partner would have a nil-rate band of £650,000. If the one partner had used some of their IHT allowance, their spouse would get however much of their £325,000 they had not used in addition to their own £325,000.

But the ability to transfer the nil-rate band between married couples does not apply to individuals whose spouse died before March 1972.

"Essentially, before March 1972, when a modest spouse exemption was brought in, someone who died and left their property entirely to their surviving spouse was always chargeable to estate duty, the forerunner of modern day IHT," says John Whiting, tax policy director at the Chartered Institute of Taxation. "They used up all of what we today call the nil-rate band, which means that under today's rules the surviving spouse has no additional nil-rate band available on their death."

Although this only affects a small number of elderly widows and widowers, the Low Incomes Tax Reform Group has been campaigning for the rule to be changed. It says those affected are mainly long-widowed elderly women who had to cope as single parents for many years and feel unfairly treated.

The Low Incomes Tax Reform Group drafted amendments to the Finance Bill 2008 which it discussed with HM Revenue & Customs (HMRC) and the responsible minister, Stephen Timms, but this was rejected at the end of 2009. HMRC's main objection is that opening up and sorting out old estates would be difficult and could create inconsistencies with estates on which tax was paid at the time.

The Low Incomes Tax Reform Group in turn argues that it does not want to reopen estates but to treat the cases as other deaths of spouses after March 1972. The group argues that the change would be very simple, and as so few people are affected the government would lose a negligible amount of money.

The campaign is backed by Rob Marris, Labour MP for Wolverhampton South West, one of whose constituents is affected. She is a widow whose husband died in 1969 whose only asset is her house. As this is worth more than £325,000 she cannot leave it IHT free to her children.

I HT mitigation strategies

Whatever your situation, you have a number of allowances that can lower your IHT bill.

Everyone can give away £3,000 a year IHT-free, and if you have not used your allowance in the previous year you can carry this forward and give £6,000 in that year. "Many people do not use this - there are low levels of awareness," says Julie Hutchison, head of estate planning at Standard Life. "Another hugely under-used allowance is gifts from surplus income."

If you have excess retirement income you can make gifts from it that are immediately tax exempt. This is in addition to your annual £3,000 gift allowance.

You can do this by looking at your income for the year and giving away what you don't need for your spending requirements. It can be declared via the IHT 403 form which you can download from the website. The website also provides advice on the detailed paperwork required to support this claim.

"You do not need to give away the same amount to the same person every year," says David Kilshaw, head of private client advisory at accountants, KPMG. "But it is advisable in the first year you do it to write a letter to the person you are giving it to saying you may not always give it to them and it may not be the same amount each year."

You can also make a potentially exempt transfer. This allows you to make a gift of any amount without incurring IHT, as long as you live for seven years after you make the gift.

Another alternative, is to put the assets you wish to pass on into a trust. This incurs a chargeable transfer of 20 per cent IHT on gifts to most types of trust over £325,000, rather than 40 per cent. Trusts can be beneficial in that they protect the assets for the person to whom they are being gifted to.

For example, if the person to whom the money in trust is being given is undergoing divorce proceedings, their divorcing spouse could not claim the money in a trust in a settlement. Or if the person to whom the trust is being gifted has a business that goes bankrupt, this cannot be clawed back by debtors as it is not counted as part of their estate.

If your only asset is your house it is more difficult to mitigate IHT, but you could sell the house, move to a smaller property, and pass on the cash you make using one of the above methods.
Written by:Leonora Walters