A general election special podcast

17 December 2019

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A podcast with Senior Investment Proposition Manager, Kirsty Ross

Katie Eagles and Kirsty Ross from our investment solutions team discuss how the general election and the global headlines affect our customers’ pension investments.

[ Katie ]

Hi, I'm Katie and this is Kirsty.

[ Kirsty ]

Hi there

[ Katie ]

And we're 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 that you're going to be able to sprinkle lots of festive cheer over the recent headlines?

[ Kirsty ]

Well, remember that in the last podcast we talked about Brexit. We talked about climate change. We talked about the US China trade wars. So, we really need to recruit whoever the person is that can make those topics sound festive.

Although these issues are not resolved there has definitely been some positive movement over the past couple of months. So, definitely reasons to be cheerful I'll do my best.

[ Katie ]

Good luck. Right now let's take the most recent events first the topic which is still hot on everyone's lips. The general election. It might not have 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. Now we're recording this on the Tuesday after the vote and what has the market reaction been so far?

[ Kirsty ]

From an investment perspective the reactions actually been fairly positive. So, you've got things like the pound the Footsie 100 the FTSE 250. These are all indicators of how a market feels about a particular piece of news and they are up slightly not massively but it's still good news nevertheless.

With regard to the result there's probably two things that we know now for sure. So, number one we're not going to have Jeremy Corbyn as a prime minister which could be good news for some people. And the other thing is that it's very likely that we're going to be leaving the EU with Boris Johnson's deal at the end of January next year. And so that really removes some of the uncertainty that we've been facing with regard to sort of hard Brexit risk, whether we're going to have to go through a referendum - all those sort of questions have kind of been taken off the table now. But there is still worry about Boris Johnson's deal and the impact that that's going to have on the economy. So, the reaction has been positive if a bit muted. And the other thing to bear in mind is that the uncertainty hasn't gone completely. So, although we don't have that risk of a hard Brexit anymore. The next thing that we're going to have to focus on is our future relationship with the EU. So, things like the trade deal negotiations that will be really the next source of uncertainty and that's where most of the commentary I think will be focused in 2020.

[ Katie ]

Yes indeed. And so the story continues. And 2019 has been a twitchy year in the investment markets and Brexit has obviously been one of the drivers for that. Now 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 I guess what goes on over there also has a big impact on our pensions.

[ Kirsty ]

Yes. So, we were talking about in the last podcast the trade wars. So, this is the US and China basically making it more and more expensive to do deals with each other. So those trade wars are not fully resolved yet but they're definitely getting closer. And so, we were expecting some sort of agreement this year but unrest in Hong Kong which Trump inevitably got involved in and ended up annoying China has slowed things down a little bit. So, I'm still expecting an agreement and sort of start of next year on that. The other thing that's going on with Trump at the moment is the impeachment hearings. Now, Trump's a very influential character and as president of the US he has obviously a huge influence on the US economy and in turn the US economy has a huge impact on the global economy. So, one of the things that we're definitely watching for is whether he actually remains in presidency and that could be impacted by obviously the impeachment hearings. But there's also their presidential election coming up at the end of next year. So, we'll be watching that with interest. The US economy at the moment is still strong. So, we're really just taking a watching brief.

[ Katie ]

And I guess who knows where the next drama will be with him right. 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. There was more spending than the same period last year apparently, but it has been another tough year in the retail industry with more than 1,200 stores including big brands like Mothercare completely disappearing from our high streets.

[ Kirsty ]

Yeah and it was actually really interesting timing with mother care so they announced their administration just before the Christmas sales hit which is really unusual so you'd expect that they would have tried  to last as long as possible to try and get that boosted revenue that that they see at the Christmas period. The fact that they couldn't do that just goes to show how tough it was for them to run a sustainable business and that is a sign of the retail market as a whole.

[ Katie ]

Yeah absolutely. And why does that matter in the context of pensions?

[ Kirsty ]

Okay so. Well I suppose the obvious sort of risk is that when you're invested in a pension you invest in companies, either you own part of those companies or you may have lent money to those companies so that that's one risk. The less obvious risk is that some people are invested in property in their pensions. So, for example if you're a customer of Royal London and you've not kind of decided to choose your own investments it's quite likely that you'll be invested in property. Why is property a risk? Well there's two sources of return in terms of property investment. The first one is kind of the one that everyone thinks of which is you own a building and the value of that building goes up. So that's one source of return. The other source of return is through rental income and it's quite a big part of property investments is rental income. So if you think about Mothercare and they will be paying rent for the stores that they occupy at the moment they won't be occupying those stores much longer so they will no longer be paying that rent and which may have a detrimental impact on some of the returns.

[ Katie ]

Okay so that doesn't sound like a great reason to be invested in property. So, what is the attraction?

[ Kirsty ]

Well property doesn't rely on the retail market as a whole. There's lots of other types of buildings that you can invest in. So, some examples of things that are thriving at the moment. You've got Amazon and their distribution centres that are scattered around which we refer to in the industry as last mile distribution. They are doing really well, other industrial buildings and also alternative use properties such as student accommodation is doing really well. So, really it's a good place to invest if you're looking for diversification, so investment in a wide range of different investments, and that's something that we talked about in the last podcast as being very important. So, there's definitely a lot of opportunity out there in the property market.

You've just got to be smart in terms of where and how you invest.

[ Katie ]

But how do you know whether the people looking after your money whether they're being smart or not?

[ Kirsty ]

Yeah it's a really good question and obviously it's really important to feel that you can trust whoever is managing your money. So, the thing here is advisors and employers should have helped select investments based on a very robust due diligence process so they will have really dug into the details of what an investment firms are investing in and how they're managing those investments. If you're invested in property or if you're thinking about it my advice would be it's definitely worth speaking to a financial advisor. They will have almost certainly thought about this and they'll be able to discuss all the detail with you.

[ Katie ]

Yeah I mean 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's so much more going on in the background that could affect us right. 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 ]

So never say never but I don't think there's going to be too much revolutionary change next year. So kinda top of the things that we're watching out for Brexit so we've already discussed how there's going to be more uncertainty with that but that uncertainty might take a different form to that that we're used to. We have the US elections coming up at the end of the year and obviously whether Trump gets re-elected or not will have a big impact on the world in general and also that the economy and investments.  And then the other thing is responsible investing so this is where you invest your money in a responsible way. Either to help with climate change action or ethical more moral decision making. So that's going to be driven quite a lot in financial services through regulation. So it's something that employers and advisers are going to be thinking and talking about a lot more. So to end the year probably we're in a state of cautious optimism.

[ Katie ]

Great, okay so really overall our customers just need to try and I guess 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 your 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 our investment podcast.

[ Kirsty ]

Thanks Katie.

 

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