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Listen to our latest podcast

[Katie]

Hello I’m Katie, and this is Kirsty [Hello] and we are part of the investment team at Royal London. Welcome to our Investment podcast, broadcasting from Thistle Street in Edinburgh. We’re all about bringing the real world into pensions, and bringing pensions into the real world. We’ll take the headlines you’ve seen recently and break them down, to help you understand how they’ve impacted your investments.

Kirsty, it’s a Christmas special this time. Does that mean you’re going to be able to sprinkle lots of festive cheer over the recent headlines?

[Kirsty]

Well, remember that last time we talked about Brexit, Climate Change, and trade wars between US and China. We need to recruit whoever the person is who can make those topics sound festive! But to be fair, although nothing is resolved as of yet there has certainly been movement over the last few months which might give us reason to be cheerful, so I’ll do my best.

[Katie]

Good luck! OK so let’s take the most recent events first – the topic which is still hot on everyone’s lips – the general election. It might not come as a huge surprise to everyone that the conservatives managed to remain in power, but I think it did come as a shock to many, including Boris himself, that they now have such a strong majority. We’re recording this on the Tuesday after the vote. What has the market reaction been so far?

[Kirsty]

Actually from an investment point of view the reaction has been fairly positive. Things like the value of the £ and the FTSE 100 and the FTSE 250 are all indicators of how markets are feeling about particular pieces of news. They all went up slightly. Not massively, but it’s still good news. So the two things we know now that we didn’t know last month are that firstly, we’re not going to have a Jeremy Corbyn government.  Secondly, we are likely to be leaving the EU with Boris’ deal at the end of January. People will still be worried about Boris’ deal though, and the impact this might have on the economy which is why the reaction has been slightly muted.

The other thing to bear in mind is that uncertainy hasn’t gone completely. Yes it’s unlikely that we’ll be going through a chaotic hard brexit, but the next stage of negotiations about the future relationship with the EU are just getting started and this will be the next source of uncertainty.

[Katie]

And so the story continues… 2019 has been a twitchy year in the investment markets and Brexit has been one of the drivers for that. It sounds like the election result means we’ve got a little more clarity, at least in the short term, which could be a positive thing. But what about over the other side of the Atlantic?  As what goes on over there also has a big impact on our pensions.

[Kirsty]

The trade wars we were talking about last time aren’t fully resolved yet, but it is getting closer. So they were getting close to an agreement, but then the unrest in Hong Kong kicked off and Trump inevitably got involved which annoyed China. So this has delayed things on that front. The other thing going on with the US president at the moment is his potential impeachment. Actually, whether or not Trump remains president either through impeachment or the outcome of next years’ election could be very influential on US markets and so very influential on all of our pensions. At the moment, the US economy is still strong and so really at this stage all we can do is take a watching brief.

[Katie]

Who knows what the next drama will be with him! OK, so bringing it back closer to home, and back to a festive theme, sort of. Last month we had Black Friday which brought UK retailers a ‘welcome boost’ – more spending than the same period last year. It’s been another tough year in the retail industry- with more than twelve hundred stores including big brands like Mothercare disappearing from our high streets.

[Kirsty]

Yes! And that was at a very interesting time – just before the Christmas sales kicked off. This is unusual as most retailers would try to hang on in there until Christmas to get the boost of revenue that comes with it. The fact that they couldn’t do that just shows how tough it was for them to sustain their business.

[Katie]

By why does that matter in the context of pensions?

[Kirsty]

As well as the potential that you might actually own part of these companies or have lent money to these companies through your pension, another risk is that some people might be invested in property in their pension. If you’re a customer of Royal London and you’ve not chosen your own investments then it’s likely you will be invested in property. The potential problem here is that while some of the return comes from the value of the buildings increasing, a lot of the return also comes from renting the buildings out. If you take the mothercare example – they will be paying rent on the stores they occupy at the moment however they won’t be paying that rent once they close down. This can have a detrimental impact on returns.

[Katie]

OK that doesn’t sound like a great reason to be invested in property. What’s the attraction?

[Kirsty]

There are lots of other types of buildings that don’t necessarily rely on income from the retail sector in its traditional sense. So for example, Amazon type distribution centres are thriving as are other industrial buildings and some alternative use properties such as student accommodation. There’s definitely a lot of opportunity out there – you’ve just got to be smart in where and how you invest.

 

[Katie]

How do you know whether the people looking after your money are being smart or not?

[Kirsty]

Very good question. It’s really important to feel like you can trust whoever is managing your money. Advisers and employers should be helping with investment selection based on a robust due diligence process so they will have dug into the detail of how an investment manager chooses and managed investments. If you’re not sure, then it is definitely worth speaking to a financial adviser because they will have almost certainly thought about this and will be able to discuss the detail with you.

[Katie]

It’s amazing to think that while you might be thinking about whether you can get a bargain baby shower gift in the mothercare closing down sale, there is so much more going on in the background that could affect us. OK so let’s try to end the podcast, and the year on a high by looking forward to 2020. We’ve definitely got the Olympics to look forward to; we might all be vegan; we might have driverless cars. What’s there to expect in the pensions world?

[Kirsty]

I don’t think there’s going to be too much revolutionary change next year. We’ll have more Brexit uncertainty, but in a different form. We’ll have the US elections towards the end of next year and, to your vegan point, responsible investing will be a much bigger focus. That will be driven particularly from a regulatory point of view and advisers and employers will  be thinking and talking about it a lot more. Generally, investment markets are supporting themselves and that’s not predicted to change so I think, it’s really more of the same cautious optimism that we’ve seen throughout this year.

[Katie]

So really, overall, our customers just need to try and save as much as they can for retirement; speak to an adviser if they feel unsure; and of course tune in to these podcasts to hear about what’s going on with their pension. And most importantly, try to enjoy a nice relaxing break over the festive period!

Thank you for that Kirsty, and thanks for listening to Episode Two of the Investment podcast from the Royal London investment team.

[Kirsty]

Thanks Katie

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.