Based in Liechtenstein, Incrementum AG offers wealth management services for private clients, as well as a range of investment funds and investment solutions.
To hear about Incrementum’s wealth management offerings and services, Finance Monthly caught up with the company’s CEO and Co-founder Stefan M. Kremeth.
What inspired you to found Incrementum?
Our objective when founding Incrementum AG was to offer first-class services to private clients and investment fund investors at fully transparent and competitive prices and to work with an inspiring team, in a fun environment.
What would you say are the key issues that you assist clients with regarding asset management?
Our investment team is very interested in and has a profound understanding of monetary history, combined with out-of-the-box reasoning and prudent, fundamental financial research, purposely avoiding daily chatter and noise. This offers a distinct skillset that has proven to be utterly valuable for our private clients and investment fund investors alike.
What strategies do you implement to ensure that your clients’ goals and objectives are achieved?
We only offer cashflow generation and capital preservation strategies. Participation in listed companies is very tangible to us and equities therefore belong to our core investments. We are building truly customised client portfolios according to our clients’ requirements, needs and willingness to accept risk. We are long-term investors and we invest solely in equities of listed companies with a proven track record of producing net-free cashflows over years, happy to share those cashflows, at least partially, with investors in the form of dividends and/or capital reductions. On the other hand, and after many years of extraordinary money supply and ultra-low interest rates, we do not invest in government bonds, as we do not feel comfortable with the current risk reward profile offered by them. Large-scale monetary policies are difficult to judge and while we are not entirely certain that the increase in global debt will be sustainable, we are humble enough to recognise that so far, the leading central banks seem to have dealt with the 2007/2008 financial crisis rather well. Either way, at Incrementum, we see money only as a means for facilitating global trade, consumption, potentially storing short-term value and thus - as a lubricant for the global economy.
How important is a maintenance strategy for optimising asset value?
At Incrementum, we very much believe in an active portfolio management approach. We cut back positions that have reached our price targets and we are interested in buying into companies that have sound underlying business models, but have missed their targets for a quarter or two. We are very patient investors.
What are your hopes for the future of Incrementum?
We are happy with what we have achieved so far but are constantly striving for innovative growth. Last year, we entered a new business field by setting up our Crypto Research report, which swiftly became the most read research report in the crypto currency field.
Website: https://www.incrementum.li/
Investors are voting with their feet and abandoning cash ISAs, according to the Q2 Investor Barometer from Assetz Capital.
The peer-to-peer lending platform canvasses the views of its investors every quarter, and while 52% of investors responding to the Investor Barometer had put money into cash ISAs in Q1, only 37% still do following the end of this year’s ‘ISA season’.
Q2’s data shows that 61% are making use of a Stocks and Shares ISA, 60% had an Innovative Finance ISA, while a small minority were invested in Lifetime or Help to Buy ISAs (4% and 3% respectively).
According to Defaqto, in March 2018 the average interest rate offered by a cash ISA was 0.70%. This is consistent with Bank of England interest data** on bank and building society general deposit accounts to March 2018, with sight deposits offering an average of 0.46% and time deposits an average of 0.90%. With inflation at 2.4% in April 2018, the rates currently offered by banks see consumers effectively losing money in real terms.
Stuart Law, CEO at Assetz Capital said: “Given our investors are familiar with peer-to-peer lending we’d expect to see more opt for an Innovative Finance ISA than the general public, but it is still notable to see this significant drop in cash ISA users.
“Our IFISA has grown steadily in popularity since launch. As of the end of May, almost £50m has been invested in our ISAs – over £12.5m of which has come from transfers. Around 75% of all investment in our ISA is new money on the platform and the average size of an ISA account is approaching £15,000, which is a lot higher than the industry average of £4,400.
“We believe much of this is driven by a movement away from cash ISAs and we expect this to continue as consumers look to make their money work harder for them. We also put this down to the secured nature of our peer-to-peer loans and our credible levels of net returns when compared to many of our competitors, according to AltFi Data market analysis, as well as our long track record in the industry.”
(Source: Assetz Capital)
Investors need to avoid complacency as Trump potentially marches off to a multiple front trade war, warns deVere Group’s boss.
The warning from Nigel Green, founder and CEO of deVere Group come as worries of a trade war between the US and China have further increased, causing markets to slide around the world. The fears intensified after it emerged that President Trump is preparing a new crackdown on Chinese investments in America.
Mr Green comments: “Up until now the markets have been remarkably nonchalant regarding the escalating tensions between the world’s two biggest economies over the last couple of months.
“However, as the Trump administration sets out increasingly aggressive restrictions on what they see as China’s unfair trade practices, and because Trump is on the trade offensive on many fronts, including against traditional U.S. allies, the worries are now becoming much more focused.”
He continues: “There really hasn’t been any major asset class or any part of the world Trump hasn’t spoken out against in recent weeks. As such, if investors are serious about growing and safeguarding their wealth, complacency should no longer be an option. Vigilance is crucial.
“Now is the time for investors to ensure that their portfolios are properly diversified.
“As history teaches us, diversification is the best way an investor can position themselves to mitigate risks - and also, importantly, to benefit from the buying opportunities that all bouts of market volatility present.”
Mr Green goes on to add: “It is likely that Mr Trump’s bombastic tactics are just negotiating strategies and he will not totally overhaul and/or disrupt trade patterns.
“However, due to the scope and depth of the potential fall out of a U.S.-led trade war on international trade and global growth, investors should be actively looking to review and, if necessary, rebalance their portfolios.”
The deVere CEO concludes: “Investors need to brace themselves for months of heightened posturing from the different parties, which is likely to increase market turbulence.
“And as Trump potentially marches off to a trade war, a good fund manager will help investors sidestep the risks and embrace potential opportunities.”
(Source: deVere Group)
Sometimes investing isn’t as straightforward as some make it out to be, and knowing the tricks behind stronger investment strategies can go a long way. This week Finance Monthly benefits from expert advice from Hannah Goldsmith DipPFS, Founder of Goldsmiths Financial Solutions and author of ‘Retire Faster’.
If you’d like your money to work harder, perhaps with a view to retiring sooner, here are five rules you need to follow. And they are probably not what you’re thinking:
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Trust the markets
The global market is an effective information processing machine. Millions of participants worldwide buy and sell securities in the world markets every day. The real time information they bring to the market helps set the market price. With more than 98 million trades a day, the probability is miniscule that a committee, sitting in a board room and discussing where to invest your money, will spot a favourable discrepancy in a stock price. It is possible, but it is also highly improbable.
Instead, of buying retail funds selected by a fund manager, buy a diversified basket of global index tracker funds and let the markets work for you. A wide basket of stocks from around the world linked directly to market returns can reduce the risk of trying to outguess the markets or worse, paying somebody else to outguess the markets.
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Diversification is key
Investment returns are random; they cannot be predicted with any certainty. Therefore, don’t limit your investments to a handful of stocks or one stock market. This is a concentrated strategy with high risk implications.
You cannot be certain which parts of the world will outperform others, if bonds will outperform equities, or if large stocks will outperform small stocks. So, don’t let your financial adviser visit you each year moving and changing your funds to justify their existence and their fees. They are wasting your money.
Instead, buy the global market using a diversified basket of index tracker funds and leave the speculation to the gamblers.
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The Financial Services Industry does not have your best interest at heart
Conventional wealth management institutions are far happier when the status quo prevails; it’s more profitable for them and their shareholders. Why would they provide you with an opportunity to move your money to a competitor at their expense, even if it was in your best financial interest? These corporates are in business to maximise shareholder value – not your investment returns.
It is therefore essential to take back control of your money and ensure that the ‘hidden’ ongoing portfolio costs are kept to the bare minimum. Aim to keep the costs of managing your portfolio at under 1%. The industry average is in the region of 2.3%, so if you save yourself even 1% a year you will have made a substantial amount of money using compounding interest over the life of your portfolio.
For example; if you invested £100,000 with a traditional financial services company paying a total fee of 2.3%, and you received a 7% return on your money for 25 years, you will have a projected future value of £329,332. As £100,000 was yours to start with you will have made a £229,332 profit. The overall cost to you, to make that profit, will have been £109,912.
If you invested £100,000 in a low fee portfolio, paying a total fee of 1.11% and received a 7% return on your money for 25 years you will have a projected future value of £441,601. As £100,000 was yours to start with you will have made a £341,601 profit. The overall cost to you would be £63,718.
This additional £112,269 can be used by you and your family, rather than just giving it away to an industry that feeds the ‘fat cats’. Remember it’s your money … don’t give it away.
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Think long term, not just about today
When there is a long slow decline in markets, investors want to jump ship and wait for the markets to recover before jumping back in. However, market timing cannot be predicted. Taking your money out in falling markets means you lose real money – thanks to fear. Most people don’t reinvest until they get their optimism back, which is often too late; by then the stocks have risen, you’ve missed out on the gains, and you still have your losses to make up.
Manage your emotions by investing in a risk portfolio that is correlated to your capacity for loss. Not one that is based purely on your search for the highest returns. Remember, investing is for the longer term. History shows that you will be rewarded for your bravery – and your patience.
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Don’t lose money with the banks
Although the banks’ advertising agencies tell us how wonderful these institutions, I am still reminded of the chaos and misery they caused when they needed bailing out by the tax payer. This was due to what was described by the Financial Crisis Inquiry Commission, as a ‘systematic breakdown in accountability and ethics’.
Your capital deposited in a Bank is being eaten by inflation at 2-3% every year. Over the last 10 years, whilst the stock markets have gone up, the buying power of your bank deposited savings has decreased dramatically and will continue to do so for the immediate future.
My advice is to look at investing, rather than ‘saving’ with a bank; diversify your portfolio; let the markets work for you; and ensure you keep your management fees to around 1%. By following these rules you’ll increase your fund faster and the day you can retire (or splash the money on your dream) will arrive much sooner.
More and more institutional investors are starting to invest in cryptocurrencies. As they do, the issue of crypto custody and how it fits within their existing workflows and regulatory requirements becomes a bigger and bigger issue. While a range of approaches are currently being used, everyone wants a better solution. Below David Wills, Co-Founder and COO of Caspian , reveals more.
Since the beginning of last year, cryptocurrencies have surged in popularity, usability, and, most importantly, value. While crypto markets have historically been dominated by individual investors, institutional investors have only recently joined the fray. However, with two Chicago-based commodity exchanges, Cboe and CME, launching the first regulated Bitcoin futures contracts at the end of last year, this new wave of involvement is growing.
As it does, the issue of crypto custody, which is essentially how an investor’s digital assets are stored and ‘kept safe’, gains more attention. In traditional markets, years of regulation have meant that organisations and mature systems, such as the broker/dealer relationship or future commission merchants, have developed for this purpose. In the world of cryptocurrencies, such institutions are only just being imagined or established and they are doing so against the grey area of crypto regulation.
Which begs the question, what solutions are institutional investors using now and are any of them good enough to survive for the long term?
Crypto custody as it exists today
While specific solutions for institutional investors are appearing with greater frequency by the day, they are normally a combination of established crypto storage practices. After all, much of the risk associated with holding and trading cryptocurrencies come from the fact that they are digital assets, which are as vulnerable as an individual’s personal online security measures.
This means that individual institutions are dealing with the same issues of hot storage on exchanges, which enables speed of trading, and cold storage offline, which means increased security of the digital assets held. One option that combines the benefits of both approaches for institutional investors is vault storage. In this scenario, the risk of hot storage is reduced because an exchange creates a private key offline, making it easy to send purchased cryptocurrency to the public address but much less easy to move it from the account using the private key.
Such solutions are being utilised in order to find the right combination of security and efficiency that institutional investors need. For the most part, they are using a diversified combination of hot and cold storage in combination with multi signature wallets and monitored concentration limits to mitigate risk.
As one can imagine though, this is still not the ideal solution for experienced investors used to a mature toolkit that has been optimised to make regulatory compliant trading as quick and easy as possible within a regulated fiat environment.
Solutions for the future
Innovation and consolidation in the area of crypto custody are occurring in parallel, signalling what the future direction of the solution might look like.
As mentioned, crypto funds are already providing a variety of custody solutions for institutional investors, including insurance, and this consultative approach will continue.
In addition, established crypto players are developing their own custody offers to attract the more security conscious players entering the market, either through internal innovation or acquisition. BitGo’s recent acquisition of digital asset custodian Kingdom Trust, which holds more than $12 billion in assets, is a recent example of the latter and it would not be surprising to see crypto exchanges making similar purchases to boost their offer.
On the technological side, recent innovations like the Glacier Protocol suggest that the development of blockchain-focused solutions will also play their part. Although designed for personal, long-term storage itself, the development of similar protocols to solve the problems of institutional investors would not be a surprise.
FInally, the role of the regulator cannot be ignored here. Institutional investors utilise custody solutions in the traditional fiat world that have been designed around the frameworks laid out by regulators. We already know that the SEC has kicked off a consultation with over 100 crypto funds, during which custodianship will undoubtedly be covered.
While a single solution has not yet revealed itself, as more and more regulated institutions enter the crypto space, more regulatory frameworks will be established, more solutions to fit this need will appear and the picture will become much clearer.
Starting a small business is the ultimate working dream for many. When you take the plunge to finally make it happen you’ll have lots to think about. One of the major considerations will be securing funds.
If you’re starting off a new business you may need a hand to get your vision off the ground. An organisation like SCORE could provide the support you need; it’s a Small Business Administration that has helped thousands of small businesses launch and grow.
Bear the following tips in mind as you start the process of securing investment for your small business:
1. Start early
If you have savings that you can put towards launching your business or expanding it, make it one of the first things you do. If you’re looking to secure investment and raise funds for your business, you’ll be impressing potential investors by showing them that you’re committed to your idea and backing it with your own money.
2. Have a plan
If you want to be taken seriously by investors, you need to make sure you have a growth plan in place so that you’re able to demonstrate a realistic outlook for further expansion.
This will give investors the confidence that you are serious about your plans. Investors will expect a long-term plan for development, with detail and forecast revenue; a good idea in isolation isn’t enough.
3. Recruit well
If your start-up is larger than a one-person operation it’s essential you have a solid team of people behind you. An experienced, enthusiastic and knowledgeable team around you provides potential investors with confidence. Choose wisely!
4. Approach experienced investors
Background research will prove whether or not a potential investor has experience when it comes to companies similar to you. You should ideally approach those who have a good track record when it comes to helping businesses comparable to you. They may offer more than just money - their knowledge and previous experience could be extremely valuable for you.
5. Point of Sale System
A Point of Sale System is where your customers make payments for items that they buy from your company. Such a system allows you to have much better control over your business operations as you know exactly what’s been sold on a daily or monthly basis, how many products you have in the warehouse and how much money you’ve made. You can keep track of your inventory through analyzing sales processes, sales reports and other data.
6. Be patient
Raising funds is never going to be straightforward and it most certainly won’t happen overnight. It takes time and patience so stick with it and don’t give up - honestly, it will be worth it in the end.
7. Be flexible
Investors want to see a return after offering you funding, so make sure that you’re flexible with the level of control that you are giving them when it comes to the decision making process. If they’re able to see that you can easily be a success without too much legislation and paperwork, they might be likely to invest.
8. Showcase your best pitching skills
If you’re looking to gain investment, you really need to possess strong pitching skills. Investors need to see a clear and concise plan of the future direction of your business, exactly how their money is going to help, and when they might see a return on their investment. Practice makes perfect so make sure that you don’t neglect the preparation stage.
Securing investments can be a daunting process, but it can be done. Prepare thoroughly, do your homework, be confident, explain your vision clearly, and you’ll have a great chance of succeeding.
Investors should expect an increase in market volatility and ensure that they are properly diversified, warns the senior analyst at deVere Group.
The warning from Tom Elliott, International Investment Strategist at deVere Group, comes as US President Donald Trump announced Tuesday that the United States will exit the Iran nuclear deal and impose “powerful” sanctions.
Mr Elliott comments: “Investors should expect an increase in market volatility following Trump’s announcement that he is quitting the Iran nuclear deal.
“There will be global stock market sell-offs as the world adjusts to the news.”
He continues: “Due to the severity of the US President’s approach, in the shorter term at least it is likely gold and the US dollar may rally on growing fears of further conflicts in the Middle East breaking out; and risk assets, namely stocks and credit markets, may weaken. Oil may rally strongly.
“We will need to wait for the full Iranian response. However, I expect that they will try to continue to appear the reasonable partner and work with Russia and the Europeans, playing them off against the US If they take a more aggressive stance, oil, gold and the dollar will go considerably higher.”
Mr Elliott concludes: “Geopolitical events such as these underscore how essential it is for investors to always ensure that they are properly diversified - this includes across asset classes, sectors and geographical regions – to mitigate potential risks to their investment returns.”
Investors on the Assetz Capital platform are expecting to feel a negative impact from the UK’s economic situation in the next three months, despite the government lauding growth of 0.8% in Q4 2017.
The peer-to-peer lending platform canvassed the views of its investors in the Q1 Assetz Capital Investor Barometer. Asked how the economic situation would impact their lives in the next three months, only 13% said it would have a positive impact. 51% expected no impact, but 36% thought it would have a negative impact.
When asked how the economy had affected them in the three months prior, investors were again gloomy, with only 15% saying they have felt a positive impact. 60% said it had no impact, while 25% reported a negative impact.
Stuart Law, CEO at Assetz Capital said: “In contrast to the positive outlook which is expected to be announced in the Spring Statement, there doesn’t appear to be a great deal of optimism about the economy at the moment, with a growing number of our investors anticipating a negative impact in the next quarter. As Brexit creeps closer and the reality of a no-deal outcome seems more likely, uncertainty about the future of the economy seems to have taken its toll.
“Interest rates remain low while inflation remains relatively high, so many people are effectively losing money each day. It is no surprise, therefore, that alternative financial investments are continuing to gain traction, as people become willing to take on a little more risk – as with any investment – in order to see potentially fairer returns.”
(Source: Assetz Capital Investor Barometer)
Stock market investors should not be spooked by the return of volatility on US and global stock markets, they should instead use it to their advantage.
This is the message from deVere Group as US stocks fell into correction territory on the first day of the new quarter, triggering a ripple effect to other financial markets around the world.
The turbulence is largely due to investors becoming rattled over rising trade tensions between the US and China – the world’s first and second largest economies – and major tech firms’ recent declines.
Tom Elliott, deVere Group’s International Investment Strategist, comments: “Stock market investors should not be spooked by the return of volatility on US and global stock markets.
“We are emerging from an unusually long period of low volatility, and this makes recent sharp moves in stock prices feel like an important signal when, in all likelihood, it will prove largely irrelevant for long term investors.
“Several themes are being used to describe Monday’s fall on Wall Street: fear that Trump will announce another set of tariffs on Chinese imports, Trump’s attack on Amazon’s low - but legal - corporate tax bill, and consumer and regulatory backlash against those tech companies who harvest and re-sell personal data to advertisers. None of these are sufficient triggers for a major correction outside of certain sectors, with tech looking the most vulnerable.”
He continues: “Indeed, the current correction feels like a continuation of March’s de-rating of tech stocks, as investors revaluate future earnings potential in the sector. Tech makes up about a quarter of the market cap of the S&P500, so it is important. But its problems shouldn’t be bringing down other sectors. Therefore stock price falls elsewhere on Monday – for example discretionary goods and energy - are perhaps best described as ‘collateral damage’.”
Mr Elliott goes on to add: “The sell-off in late January and early February felt more convincing, as a sharp rise in Treasury yields amid some buoyant wage and inflation data combined to convince investors that the days of cheap money are coming to an end. Risk assets, such as stocks, fell in response.
“A trade war with China certainly has the potential to be a trigger for a major sell-off, but we are not there yet. Otherwise Treasury yields would have risen in recent weeks, in response to a likely rise in inflation coming from tariffs and import quotas. Instead, 10-year Treasury yields have remained in the 2.7% to 2.8% range.”
Nigel Green, the founder and CEO of deVere Group, says many investors will welcome this bout of volatility: “Some of the most successful investors embrace some volatility as major buying opportunities are always found where there are fluctuations.
“Fluctuations can cause panic-selling and mis-pricing. High quality equities can then, for example, become cheaper, meaning investors can top up their portfolios and/or take advantage of lower entry points. This all, in turn, means greater potential returns.”
He concludes: “A professional fund manager will help investors take advantage of the opportunities that volatility presents and mitigate potential risks as and when they are presented.
“Many serious investors will be using this turbulence to create, maximise and protect their wealth.”
(Source: deVere Group)
There comes a time in the life of many businesses when owners cast around for ways to borrow money for growth. But those intending to use venture capital and private equity should plan particularly carefully before committing. Many don’t, and the result can be catastrophic.
Whilst the challenge is simple enough: to get the best deal whilst surrendering the least amount of control and equity. How to achieve that is less straightforward.
What goes wrong is poor attention put into the three basics: business plan, motivation, and due diligence.
Usually, the fractures start to appear because the borrowing enterprise has just not prepared itself. Unfortunately, the thought of ‘free’ cash in return for a slice of equity can tempt owners to make growth predictions that overreach reality. But the wise tread carefully and take advice. Without careful execution, the deals turn sour, with original management teams seduced into arrangements that end up with them losing both money and control.
There are horror stores out there. One UK business originally worth £5 million saw a £7.5 million private equity investment turn rapidly from a lifeline to a millstone, as it failed to meet challenging targets to which its owner had originally agreed. The software company now owes its backers £22.5 million in unpaid interest and redemption charges. Only one of the original management team is still in place and their stakes are now worth little.
This particular nightmare is neither the rule, nor the exception, but illustrates what can go wrong.
Private equity and venture capital can positively transform the fortunes of a business, injecting expertise as well as cash to help it grow. When it works, everyone benefits from a deal between risk and reward. But when it fails, the biggest loser often turns out to be the original management team.
In the end, the siren call of ceding absolute control for someone else’s financial support is not for everyone. Clients of mine stepped back from the brink, despite a willing lender. The reason was unease that the lender’s need for a return on their cash over a fixed term was at odds with the more relaxed instincts of the management team to let things in their restaurant chain grow organically.
The business plan is crucial and more than just a calling card. It is the basis on which the institutional equity investor decides how much to lend and what to demand in return. Firms that overstate likely growth to get investment are doing themselves no favours.
This is because valuations, upon which the entire deal will be based, are dependent on cash flow forecasts. Get them right, or better still, set them lower than they subsequently turn out, and everyone is happy.
But if the business has to keep going back to the investor, the lender will gradually wrest away control in exchange for their cash. They will insist, for example, on new agreements that may keep notional share ownership intact, but take control of decisions over fund raising and board membership.
In simple terms, the more a business falls short of an agreed business plan, the more it ends up giving away.
Which brings us to the next important area: motivation. A management team must ask itself what kind of life it wants. Once private equity is on board, a roller coaster ride starts. Demands are made, targets need to be met. The lender’s need to recover cost and secure a return requires growth at an agreed rate. This can be incompatible with watching your children play sports on a Wednesday afternoon, say. Do the soul-searching.
Nothing will be a problem if your business is growing, of course. But if it isn’t, expect a tough life. The management team must be wholly committed or problems start, particularly when targets in the all-important business plan fail to be met.
The final key component to borrowing money is to carry out due diligence on any lender. Examine the portfolio that every equity house lists. Speak to the firms involved and find out their experience.
Borrowing money from a bank is a far more removed, transactional experience than taking it from a venture capitalist or private equity lender. Their loans come with an expectation of involvement, so personal and professional chemistry is important. The process is effectively inviting a new member on to your key team.
Sometimes organic growth is best - not only because it allows more control to be kept by the original owners, but it can also be better as a fit. The culture of a business can be rudely disrupted by the keenly focused financial demands of an agreement with venture capital and private equity funders.
And choose wisely. The ideal lender will treat your enterprise as more than just a risk to be shared amongst many other. But remember: Private equity wants to have your cake. The trick is to avoid being eaten entirely.
If there's one thing that makes the process of investing decidedly complex, it's the constantly changing macroeconomic climate. This includes a number of individual aspects such as inflation and interest rates, and when combined they can have a cumulative impact on numerous assets and investment types.
Inflation is a particularly interesting macroeconomic factor, and one that tends to move independently to the value of the pound and the base interest rate.
Below Finance Monthly looks at the value of the pound against inflation during the course of the last 20 years or so, and ask how this should influence your investment choices in the near-term.
The Pound vs. Inflation – An Unbalanced Relationship
In simple terms, inflation has increased at a disproportionate rate to the pound over the course of the last two decades or more. More specifically, last years' prices were an estimated 303.3% higher than those recorded in 1980, meaning that 37 years ago £100 would have had the equivalent purchasing power of £403.34 in 2017.
Conversely, the pound itself has moved within a far narrower range during since the late 1980s and early 1990s, against a host of other major currencies. The GBP: USD has reached a peak 2.04 during this time, for example, while slumping to a low of 1.24 in January of last year. This trend is replicated across both the Australian Dollar and the Japanese Yen, while the pound has traded within an even more restricted range against the Euro since the 1990s.
From this, we can see that inflation and the cost of living has fluctuated far more noticeably than the underlying value of the pound, making it a particularly influence and volatile macroeconomic factor. This is an important point for investors to consider, as they must factor in the prevailing rate
of inflation and future forecasts to ensure that they build a viable trading portfolio.
Stocks vs. Bonds in the Current Macroeconomic Climate
To understand this further, let's compare the viability to stocks and bonds in the current, macroeconomic climate. In general terms, bonds are considered as more stable investment vehicles that are ideal for risk-averse investors, while stocks carry the burden of ownership for traders and are capable of delivering higher returns.
With inflation remaining high at around 3% in February (well beyond the Bank of England's target of 2%), however, bonds would appear to represent a better option in the current climate. This is because higher inflation can squeeze household incomes, lowering consumer confidence and spending in the process. As a result of this, both the economy and individual shares in the UK have the potential to be adversely affected in the short-term, while it's difficult to determine when inflation will return to a more manageable level.
Additionally, high inflation can also impact corporate profits through higher input cost, which can in turn lower share values and create negative sentiment within the stock market.
If this does happen, investors could well flock to defensive assets that are relatively risk-averse, particularly if inflation is expected to remain well above the BoE's 2% target throughout 2018. While further interest rate increases could reverse this trend, it's unlikely that the BoE will implement more than one hike this year if the current climate of uncertainty remains unchanged.
The Last Word
Of course, the economy and macroeconomic climate is a fluid entity, and one that could change considerably over the next few months.
Still, the spectre of high inflation is sure to be impacting on the decisions of investors and wealth management firms, as they look to diversify and optimise the returns of their clients in a challenging climate. This includes firms like W H Ireland, who are looking to build on recent growth and continue to thrive amid slower stock market activity and increasingly stained economic conditions.
So, while bonds may not be the most glamorous of asset classes, they offer genuine stability in the current marketplace.
Today’s trading days are the middleman’s realm, where platform-based business rule exchanges and trade, removing much control from businesses and investors; but it hasn’t always been like this. Below Finance Monthly benefits from expert analysis from Sascha Ragtschaa, CEO and Co-Founder of Chainium, on the matter of trading control.
Pulling the Trigger
Sourcing information on a global business takes seconds. In fact, the ubiquitous Google now processes over 40,000 search queries every second. This equates to over 3.5 billion searches a day and an almost inconceivable 1.2 trillion searches per year worldwide[1]. However, pulling the trigger to invest in a global business is a whole different ball game.
Expensive, intricate and restricting, buying and selling shares between businesses and investors has significantly fallen behind advancing developments within the wider financial sector. Especially when you compare it to the latest cryptocurrencies, with the famed Bitcoin hitting a high of close to $20,000 in December last year, prior to its recent readjustment.
Disruption of the Status Quo
As one of the most vital areas of the market economy, it is essential the equity market drags itself into the 21st century and puts its businesses and investors in complete control. The simple truth is that when the global equity market was created two hundred years ago with the founding of the London and New York Stock Exchanges, the world was a very different place. Whilst middlemen can help investors identify the most cost-effective option, they can severely lengthen the exchange process and be expensive.
To become relevant for the modern investor, a certain amount of disruption of the status quo is required. The sector needs to ensure that trading becomes a more seamless experience and is put back into the hands of businesses and investors for full control.
Regaining control
The solution for this could well be the blockchain. The technology that underpins the main cryptocurrencies such as Bitcoin and Ethereum has the advantage of being transparent enough to ensure democracy and visibility, whilst being secure enough to protect businesses and investors alike. The technology is an enabling force for removing the middle layers, administration and reconciliation steps required in today’s global equity market solutions. This means that businesses and investors can be connected directly, leading to a rise in empowerment and the eliminating the need for middlemen.
To become truly transformative in 2018, any new equity market solution needs to be built with business and investor control at its core. The recent string of high profile data breaches – coupled with the impending Global Data Protection Regulation (GDPR) which comes into force on 25th May – have heightened the awareness among consumers regarding information security; especially when payments of any kind are involved. Blockchain can not only protect the individual, but also allow for enough transparency to ensure equity decisions, voting and resolutions are fully transparent in the process.
Removing the shackles
In order to be fully accessible, a modern equity network must be well tailored to suit the needs and interests of both investors and business owners. By democratising equity, it can bring influence and power back to the individual investor through de-centralisation, blockchain technology and crypto payments. Meaning the network becomes entirely distanced from traditional stock exchanges, government regulation and the institutional and corporate stranglehold.
Back to basics
This back-to-basics approach to raising capital reduces bureaucracy; with blockchain technology removing duplication and eliminating errors. This allow investors and businesses to exchange digital share certificates for fiat or cryptocurrency in a transparent, tamper proof and immutable distributed ledger. No intermediary or other reconciliation steps are involved in transactions, cutting through hundreds of legacy systems and solutions from the old world.
Business owners, of private and public businesses, can now sell shares directly to investors. Cutting out the middlemen in issuing and trading shares helps to give complete control back to the businesses and investors alike and help them become indelibly linked.
A transformation is needed
Giving trading control back in the hands of the companies and investors utilising the equity market is essential when it comes to promoting innovation and reinventing the processes involved in trading shares. No more trading through banks, brokers and intermediaries. No more share registrars, transfer agents or middlemen.
We have seen AirBNB, Ethereum and Uber all become the pinnacle of digital transformation in their very own industries and with the help of new technologies, we are now seeing the same beginning to happen in the global equity market too. By removing the multiple barriers to investment means that the next Apple, Google or Microsoft won’t be left on the scrapheap, but receive the investments they need to thrive.
