2013 highlights: The stories which influenced your returns
Abenomics jump-starts Japanese stocks
2013 kicked off with big news from Japan. New prime minister Shinzo Abe took office on 28 December and weeks later announced a massive stimulus programme to wake the sleeping giant from a decade of deflation.
The plan consisted of three arrows – loose monetary policy, fiscal stimulus and structural reform – to get the economy moving. Although debate raged over whether ‘Abenomics’ could work, investors began buying Japanese equities in droves.
UK loses AAA status
The UK lost its prized AAA credit rating as Moody’s cautioned on the “challenges [of] subdued medium-term growth”. However, with the US and France already members of the AA club, markets had widely expected the move and the loss was mostly priced in.
The Investment Management Association (IMA) renamed and redefined the Absolute Return sector after lengthy debate over the suitability of the term. Instead of asking funds to target positive returns over a 12-month period – a benchmark most failed to achieve – groups must define their own target period.
Buxton jumps ship, Schroders acquires Cazenove
The wind of change began blowing through the fund management industry as news broke that Schroders’ star manager Richard Buxton was to leave for rival Old Mutual Global Investors.
The manager handed over the reins on his £3.4bn Schroder UK Alpha Plus fund after 12 years, and also left behind his £301m Schroder UK Growth trust.
A week later, investors heard the first news of Schroders’ plans to acquire Cazenove Capital. Schroders said the £424m deal would bring economies of scale, as it significantly expanded its presence in the private banking and intermediary space.
Total assets under management for the combined entity were estimated at around £229.2bn at the time of acquisition.
Gold’s bull run, which saw the metal reach record highs of $1,883 an ounce in July 2011 finally came to end. Following a series of sharp falls – including an $100 fall in a single day – the metal officially moved in to bear market territory.
Meanwhile, the Financial Conduct Authority’s eagerly-awaited platform paper finally arrived in April after several delays, setting out the regulation of platforms in the post-RDR world.
The FCA set a final date of April 2014 for a ban on cash rebates from platforms to product providers, although it has given platforms a further two years to move existing clients on to an explicit charging structure.
The regulator also warned groups not to raise TER fund charges as they move to ‘clean’ pricing structures, and conceded it would allow marketing payments from product providers to platforms.
Japan’s Nikkei 225 soared to a five-year high of 15,627 as the expansionary policies of Abenomics filtered through to the stock market. The index was led by domestic exporters which were expected to be beneficiaries of a weakening yen.
In the UK, chancellor George Osborne announced plans to sell off the government’s stakes in rescued banks RBS and Lloyds.
Veteran Fidelity fund manager Anthony Bolton retired from the industry after three years of woe on his Fidelity China Special Situations trust.
Bolton had first retired from Fidelity in 2007 after a 27-year career where he sealed his reputation as a brilliant UK fund manager. He then announced a return to the industry in 2010, and moved to Hong Kong with hopes of replicating his strong UK performance in China through a new trust.
Investors flocked to the vehicle but Bolton lost 5% in the first year and 26% in the second. Although the fund recovered some losses in year three, he still left investors down 14%.
The US dropped a bombshell on markets when Federal Reserve chairman Ben Bernanke announced quantitative easing measures would not be ‘tapered’. “Highly accommodative monetary policy for the foreseeable future is what is needed in the US economy,” he said.
Investors had widely anticipated a curtailment of the measures and many had moved to protect portfolios from a slowing of liquidity. The decision not to taper was described as “verging on the incredible” by one investor.
“[Bernanke] seemed to be making policy on the fly,” said another.
Following the announcement there were major moves in global markets and a sharp drop in the dollar.
Barclays’ rights issue, great rotation
Although the banking sector has recovered in leaps and bounds since the crisis, the scale of challenge still ahead became clear as Barclays made a landmark £5.8bn rights issue in a bid to shore up its capital position.
The announcement came as the group reported a 17% drop in first half pre-tax profit, following a £2bn rise in costs for mis-selling of payment protection insurance and interest rate swaps.
In markets, industry talk of a ‘great rotation’ out of bonds and in to equities reached fever pitch as it was revealed that a record £624m was moved out of bond funds during June. The figures, from the IMA, were the largest since records began in 1992. By contrast, equity funds took the lion’s share of retail fund sales as £884m of a total £1.1bn flowed in to equities.
HMRC rebate tax challenged
September marked five years since Lehman Brothers’ bankruptcy and the onset of the worst financial crisis since the 1920s. However, the UK is still grappling with the best way to regulate the industry post-crisis. In September, Hargreaves Lansdown launched a legal battle against a HMRC tax on rebates paid from platforms to clients.
Investment Week revealed HMRC was planning to tax rebates, on the grounds they are annual payments and thus subject to the Income Tax Act 2005.
But Ian Gorham, chief executive of Hargreaves Lansdown, described the tax as “extremely disappointing news and an attack on the small investor”.
Woodford resigns from Invesco
On a quiet Tuesday afternoon in October, the UK’s most well-known investor Neil Woodford announced he would be leaving Invesco Perpetual, and his £25bn in UK retail funds behind.
Woodford said his resignation was down to personal views about “long-term opportunities in the fund management sector”. Instead, he will set up his own fund house serving retail and institutional clients after he leaves Invesco in April 2013.
Meanwhile, Aberdeen confirmed it was in talks to buy Scottish Widows Investment Partnership (Swip) from Lloyds bank.
ECB rate cut, Aberdeen buys Swip
Investors were surprised by monetary policy again as the European Central Bank cut interest rates to a new record low of 0.25%. The bank acted to prevent deflation after a string of consumer price inflation (CPI) releases from around the eurozone showed worryingly low inflation.
Spain’s CPI rate came in at 0.1% for October and with Greece already in deflation the figure for the eurozone as a whole was just 0.7%.
Aberdeen won a £500m battle to buy Swip, reportedly fighting off competition from Australia’s Macquarie Group. Through the deal, Aberdeen diversified away from its core offering of emerging market funds and pushed past Schroders to become Europe’s largest publicly traded investment house with £350bn in AUM.
Elsewhere, Invesco Perpetual moved to cap outflows from Woodford’s Income and High Income funds by moving to ‘bid pricing’ on the vehicle after a surge in redemptions. Although this dilution adjustment mechanism is in place on all funds, the move irked investors as those with holdings in the fund would effectively pay a higher charge to exit the fund.
Another major fund manager move came in November as M&G’s Graham French announced plans to retire. The renowned manager handed over his £4.3bn M&G Global Basics fund to deputy Randeep Somel, ending his 25-year career at the firm with immediate effect.