Money To The Masses http://moneytothemasses.com Putting you in control Mon, 06 Jun 2016 15:04:01 +0000 en-GB hourly 1 MTTM podcast 89: Has the property market turned? Car refinancing and Cold call blocking http://moneytothemasses.com/news/podcast/has-the-property-market-finally-turned-downwards http://moneytothemasses.com/news/podcast/has-the-property-market-finally-turned-downwards#comments Mon, 06 Jun 2016 13:40:01 +0000 http://moneytothemasses.com/?p=22333 Listen to Episode 89 Click on the media player below to listen to Episode 89 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes Show notes coming soon...

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Listen to Episode 89

Click on the media player below to listen to Episode 89 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

Subscribe to the podcast

You can also subscribe to the show via iTunes

Show notes coming soon...

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Best of the Sunday papers’ MONEY sections http://moneytothemasses.com/news/best-sunday-papers-money-sections http://moneytothemasses.com/news/best-sunday-papers-money-sections#comments Sun, 05 Jun 2016 05:30:48 +0000 http://moneytothemasses.com/?p=16650 5th June 2016 Sunday Express Working till you drop: Five-minute guide to the changing face of retirement Want to leave an inheritance to your loved ones? You may be out of luck Extra Energy most complained about, according to Citizens Advice table The Telegraph Five ways to tap into a 'secure' 6pc income With EHIC,...

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5th June 2016

Sunday Express

Working till you drop: Five-minute guide to the changing face of retirement

Want to leave an inheritance to your loved ones? You may be out of luck

Extra Energy most complained about, according to Citizens Advice table

The Telegraph

Five ways to tap into a 'secure' 6pc income

With EHIC, do we really need travel insurance for European trips?

Treasury chair: Peer-to-peer investors need more protection

The Sunday Times (subscription)

What Brexit will mean for your summer holidays

Probate sets a test for families

Tax reforms have put our retirement at risk

Mail on Sunday

How it costs £329 to change name on a £160 plane ticket

See through the dazzle of sunglass sales deals

Credit card protection law under threat

The Observer

Travellers fall victim to fake Airbnb site

Student loans ‘really were’ mis-sold

A last hurrah for banknotes as UK switches to mobile and card payment

 

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Best of the Sunday papers’ PROPERTY sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections#comments Sun, 05 Jun 2016 05:15:36 +0000 http://moneytothemasses.com/?p=16656 5th June 2016 Sunday Express Mansion to RENT: Heath Hall could be YOURS for £110k per MONTH From parking space to castle pad: What £100,000 buys you across Britain Windowless two bedroom flat will cost you a WHOPPING £1,625 a month to rent The Telegraph Investors turn to semi-commercial property to cut stamp duty bills...

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5th June 2016

Sunday Express

Mansion to RENT: Heath Hall could be YOURS for £110k per MONTH

From parking space to castle pad: What £100,000 buys you across Britain

Windowless two bedroom flat will cost you a WHOPPING £1,625 a month to rent

The Telegraph

Investors turn to semi-commercial property to cut stamp duty bills

We bought a crumbling French château - but restoring it was no fairytale

Savills squares up to Purplebricks by backing estate agent rival Yopa

Sunday Times (subscription)

How to live like a hi-tech silver surfer

Hottest properties for sale

15 properties — and just £1,000 a year in rent

Mail on Sunday

Brexit could hit UK property market 'for years to come' as impending vote holds back house prices

From a barbecue to a tree house - how your garden can save or make money this summer

Two new tax breaks fuel a surge in homeowners renting out space

The Observer

Let’s move to Shrewsbury, Shropshire: ‘These days, it’s a bit left behind’

Riverside townhouses – in pictures

Three up, tattoo down: a 15th-century home in Essex – in pictures

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80-20 Investor Best of the Best Selection – June 2016 Update http://moneytothemasses.com/8020-articles/80-20-investor-best-of-the-best-selection-june-2016-update http://moneytothemasses.com/8020-articles/80-20-investor-best-of-the-best-selection-june-2016-update#comments Fri, 03 Jun 2016 23:11:03 +0000 http://moneytothemasses.com/?p=22308 Commentary As two-thirds of this month's 80-20 Investor Best of the Best Selection retained their place from last month's shortlist the portfolio keeps its reduced equity exposure. Global bonds still account for the largest component of the portfolio and although the portfolio has a low direct exposure to equities the 'alternatives' listed will include exposure to equities but via...

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Commentary

As two-thirds of this month's 80-20 Investor Best of the Best Selection retained their place from last month's shortlist the portfolio keeps its reduced equity exposure. Global bonds still account for the largest component of the portfolio and although the portfolio has a low direct exposure to equities the 'alternatives' listed will include exposure to equities but via derivatives etc.

The breakdown of the portfolio's equity exposure has changed from last month with European equities creeping back in at the expense of Asian equities. The key equity theme within the portfolio remains diversification with European, US and Japanese equities seeing a broadly equal weighting. Interestingly the UK equity exposure remains very low at around 5%. This is perhaps reflective of the market nervousness surrounding the impending EU referendum.

At the foot of this article you can see how the 80-20 Investor Portfolio has continued to outperform the professional fund managers as well as the market.

A total of 20 funds from May's 30 funds make it into June's selection. This is one of the largest retentions for some time. Below I list this month's selection in full with the 20 funds that regained their place in black while the new additions are in green. You will notice some familiar names among the new additions.

Just as last time, I have included the full list sorted alphabetically by name and then by risk category.

June's Best of the Best Selection - (A-Z by fund name)

(funds unchanged from last month are in black while new additions are in green)

Fund Name Sector ISIN Code Risk Level
AXA - Framlington Japan Japan GB0003500179 High risk
AXA - Sterling Strategic Bond Sterling Strategic Bond GB00B0LLCW73 Low risk
Barclays - Sterling Bond Sterling Strategic Bond GB00B72Y6K08 Low risk
BlackRock - Global Property Securities Equity Tracker  Property GB00B5BFJG71 High risk
CF - Prudential Dynamic Focused 0-30 Portfolio Mixed Investment 0%-35% Shares GB00B5BNX690 Low risk
CF Canlife - North American North America GB00B73N3278 High risk
Fidelity - Asia Pacific Opportunities Asia Pacific Excluding Japan GB00BQ1SWL90 High risk
Fidelity - Global Enhanced Income Global Equity Income GB00BD1NLL62 Medium risk
Fidelity - Strategic Bond Sterling Strategic Bond GB00B469J896 Low risk
First State - Global Listed Infrastructure Global GB00B24HJC53 High risk
Fundsmith - Equity Global GB00B4Q5X527 High risk
Invesco Perpetual - Global Targeted Returns  Targeted Absolute Return GB00B8CHD613 Low risk
JPM - Japan Japan GB0030879471 High risk
Jupiter - Absolute Return  Targeted Absolute Return GB00B5129B32 Medium risk
Jupiter - UK Smaller Companies  UK Smaller Companies GB0004911870 Medium risk
L&G - Emerging Markets Government Bond (US$) Index Global Emerging Market Bond GB00B7MJV331 Medium risk
L&G - Managed Monthly Income Trust Sterling Corporate Bond GB00B0CNHQ18 Low risk
L&G - Sterling Corporate Bond Index Sterling Corporate Bond GB00B4M01C47 Low risk
Man GLG - Continental European Growth  Europe Excluding UK GB00B0119370 Medium risk
Marlborough - European Multi-Cap  Europe Excluding UK GB0001719730 High risk
McInroy & Wood - Balanced Mixed Investment 40%-85% Shares GB00B7RRJ163 Medium risk
Schroder - Global Real Estate Securities Income Property GB00BDD2DJ32 High risk
Standard Life Investments - AAA Income  Sterling Corporate Bond GB00B4LQY248 Low risk
Stewart Investors - Worldwide Sustainability  Global  GB00B845Y045 High risk
Threadneedle - Emerging Market Bond Global Emerging Market Bond GB00B817DW83 Medium risk
Threadneedle - European Corporate Bond Global Bonds GB00B7MJ0253 Medium risk
Threadneedle - European High Yield Bond  Global Bonds GB00B6RRFW23 Medium risk
Threadneedle - UK Social Bond Sterling Corporate Bond GB00BF233790 Low risk
Vanguard - LifeStrategy 20% Equity Mixed Investment 0%-35% Shares GB00B4NXY349 Low risk

 

June's Best of the Best Selection - (grouped by risk)

Here is June's shortlist grouped by their risk category (funds unchanged from last month are in black while new additions are in green):

Fund Name Sector ISIN Code Risk Level
Barclays - Sterling Bond Sterling Strategic Bond GB00B72Y6K08 Low risk
AXA - Sterling Strategic Bond Sterling Strategic Bond GB00B0LLCW73 Low risk
Invesco Perpetual - Global Targeted Returns  Targeted Absolute Return GB00B8CHD613 Low risk
Threadneedle - UK Social Bond Sterling Corporate Bond GB00BF233790 Low risk
CF - Prudential Dynamic Focused 0-30 Portfolio Mixed Investment 0%-35% Shares GB00B5BNX690 Low risk
Standard Life Investments - AAA Income  Sterling Corporate Bond GB00B4LQY248 Low risk
L&G - Sterling Corporate Bond Index Sterling Corporate Bond GB00B4M01C47 Low risk
Vanguard - LifeStrategy 20% Equity Mixed Investment 0%-35% Shares GB00B4NXY349 Low risk
L&G - Managed Monthly Income Trust Sterling Corporate Bond GB00B0CNHQ18 Low risk
Fidelity - Strategic Bond Sterling Strategic Bond GB00B469J896 Low risk
Threadneedle - European Corporate Bond Global Bonds GB00B7MJ0253 Medium risk
Threadneedle - European High Yield Bond  Global Bonds GB00B6RRFW23 Medium risk
McInroy & Wood - Balanced Mixed Investment 40%-85% Shares GB00B7RRJ163 Medium risk
L&G - Emerging Markets Government Bond (US$) Index Global Emerging Market Bond GB00B7MJV331 Medium risk
Fidelity - Global Enhanced Income Global Equity Income GB00BD1NLL62 Medium risk
Jupiter - UK Smaller Companies  UK Smaller Companies GB0004911870 Medium risk
Threadneedle - Emerging Market Bond Global Emerging Market Bond GB00B817DW83 Medium risk
Man GLG - Continental European Growth  Europe Excluding UK GB00B0119370 Medium risk
Jupiter - Absolute Return  Targeted Absolute Return GB00B5129B32 Medium risk
Fidelity - Asia Pacific Opportunities Asia Pacific Excluding Japan GB00BQ1SWL90 High risk
AXA - Framlington Japan Japan GB0003500179 High risk
CF Canlife - North American North America GB00B73N3278 High risk
First State - Global Listed Infrastructure Global GB00B24HJC53 High risk
Schroder - Global Real Estate Securities Income Property GB00BDD2DJ32 High risk
Marlborough - European Multi-Cap  Europe Excluding UK GB0001719730 High risk
Fundsmith - Equity Global GB00B4Q5X527 High risk
Stewart Investors - Worldwide Sustainability  Global  GB00B845Y045 High risk
JPM - Japan Japan GB0030879471 High risk
BlackRock - Global Property Securities Equity Tracker  Property GB00B5BFJG71 High risk

 

 

The funds that dropped out of the Best of the Best Selection

For reference the funds from last month that dropped out of the 80-20 Best of the Best list are listed below. Many of them remain in the Best funds by Sector selection:

 

Fund Name Sector ISIN Code Risk Level
Aberdeen - European High Yield Bond Sterling High Yield GB00B5968F40 Low risk
Baillie Gifford - Emerging Markets Bond Global Emerging Market Bond GB00B39RMP13 Medium risk
BlackRock - NURS II Consensus 35 Mixed Investment 0%-35% Shares GB00B7W6H253 Medium risk
Fidelity - Index Pacific ex Japan Asia Pacific Excluding Japan GB00BLT1YS69 High risk
Henderson Inst - Overseas Bond Global Bonds GB0007673055 Medium risk
L&G - All Stocks Gilt Index Trust UK Gilts GB00B8344798 Low risk
Legg Mason - IF Japan Equity Japan GB0033507467 High risk
MI - Chelverton UK Equity Growth UK All Companies GB00BP855B75 Medium risk
Threadneedle - Global Bond Global Bonds GB00B8C2M701 Medium risk
VT - De Lisle America North America GB00B3QF3G69 High risk

 

The Asset mix

The current asset mix of the new Best of the Best Selection is shown below with last month's figures in brackets:

  • Global Fixed Interest  21% (25%)
  • Alternatives/Other 19% (18%)
  • UK Corporate Fixed Interest (i.e UK bonds) 12% (12%)
  • North American Equities 11%  (12%)
  • European Equities 11% (0%)
  • Japanese Equities 9% (10%)
  • Property 7% (4%)
  • UK Equities 5% (5%)
  • Cash 5%  (4%)
  • Asian equities 0% (6%)
  • UK Gilts 0% (4%)
  • Other international equities 0% (0%)
  • Emerging markets 0% (0%)

80-20 Investor's outperformance continues

As you know the Best of the Best Selection is the shortlist of the best funds highlighted by our 80-20 Investor algorithm split into high, medium and low risk categories. This shortlist is updated at the start of every month.

The green line in the chart below (click to enlarge) shows how a portfolio would have performed since inception (in August 2014) if it had been split equally between the Best of the Best Selection funds and then switched each month when each new shortlist was published. I have also charted the performance against that of the FTSE 100 (the black line) and the average cautious managed fund (blue line) and the average managed fund with up to 85% equity exposure (red line). In reality the 80-20 Investor's asset allocation typically lies between these two as it usually has 60-85% exposure to equities at any one time. So they provide a good comparison of how fund managers with a similar remit have fared over the same period.

 

80-20 Investor outperformance June 2016

As you can see, since launch in August 2014 the 80-20 Investor portfolio has HUGELY outperformed the average managed fund and the market.

All performance figures are net of fund charges. The material in any email, the MonetotheMasses.com website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy
Neither MoneytotheMasses.com/80-20 Investor nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
The tables and graphs are derived from data supplied by Trustnet. All rights Reserved.

 

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The cost of financial advice – a con or a storm in a tea cup? http://moneytothemasses.com/news/blog/the-cost-of-financial-advice-a-con-or-a-storm-in-a-tea-cup http://moneytothemasses.com/news/blog/the-cost-of-financial-advice-a-con-or-a-storm-in-a-tea-cup#comments Thu, 02 Jun 2016 10:00:00 +0000 http://moneytothemasses.com/?p=22291 I was sat having a coffee with a friend trying to explain the tangled web that is the cost of financial advice and how people end up being charged for it without realising. The trouble is that to fully understand the problem and the level of deceit you need to understand how the hustle works....

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I was sat having a coffee with a friend trying to explain the tangled web that is the cost of financial advice and how people end up being charged for it without realising.

The trouble is that to fully understand the problem and the level of deceit you need to understand how the hustle works. So to emphasise the ridiculousness and greed of the financial services industry I used the coffee shop we were sat in as an example. Below I've summarised the conversation.

Imagine if you wanted to buy a cup of coffee. You'd go to a coffee shop. In this story the coffee is a metaphor for an investment fund. So when you go into the coffee shop there is a menu as long as your arm and you are a bit bewildered.

However, just outside the coffee shop is a man with a stall (he is the equivalent of a financial adviser). He can not only tell you which coffee of all those on the menu you'll like he'll even go and get it for you. You like the sound of that and he tells you it will cost you £1.50. So you hand over your money and receive a cup of coffee. What he didn't tell you was that you could have walked in the shop and bought the coffee yourself for £1. But by asking him he charged you an extra 50p. So when he buys the coffee he keeps 50p while the coffee shop keeps £1.

Everyday on the way to work he says hello and suggests a cup of coffee you might like. In fact, most of the time he gives you the same type of coffee as the one you had yesterday. He's very friendly and you like the service. Everyday you pay him £1.50 for the coffee.

That is how financial advice worked before 2013, the price of advice was bundled (hidden) in the cost of the investment. However, the rules changed and the adviser had to explicitly charge you for his service rather than it being bundled into the cost of your investment.

So in the coffee story that meant that from 2013 the man with the stall had to tell all his new customers that if he helped them he would charge them £1 for the coffee and 50p for his advice. Understandably this put a lot of people off. In fact only the wealthy used him as they didn't want to queue. However, as you were an existing client he didn't have to disclose to you that he was charging you an extra 50p. So he was allowed to charge you £1.50 still.

In fact, even if you decided to go straight into the coffee shop without talking to the man at the stall he had an arrangement with the coffee shop that you would be charged £1.50 and he'd still get 50p every time you ordered coffee.

This is exactly what financial advisers have been doing for the last few years. Despite the rules banning commissions they could still take money from existing customers even if they didn't provide any ongoing service.

The chances are that many of you have been paying more for your investments than you needed to. The good news is that from April this year advisers can no longer just take the old commission. However there is a catch. While he/she might not get paid anymore you are still charged the same but the fund house keeps it.

So in the coffee shop example, you'd still be being charged £1.50 a coffee but the man with the stall outside won't get 50p. Instead the coffee shop keeps the whole £1.50! So you are still paying over the odds for your coffee (investment) because you once took advice. It is estimated that 250,000 people are unknowingly in this position

The good news is that you can now stop this overcharging and in this week's podcast (you can listen to below) I tell you:

  • how to check whether you are being overcharged
  • how to stop it

You can also subscribe to the show via iTunes

 

Photo by amenic181. via freedigitalphotos.net

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The pension exit charge cap – putting votes ahead of consumers’ needs? http://moneytothemasses.com/news/blog/the-pension-exit-charge-cap-putting-votes-ahead-of-consumers http://moneytothemasses.com/news/blog/the-pension-exit-charge-cap-putting-votes-ahead-of-consumers#comments Thu, 02 Jun 2016 05:05:10 +0000 http://moneytothemasses.com/?p=22285 Last week saw the announcement that savers withdrawing money from their pension pots could face a maximum exit charge of just 1%, under plans released by the Financial Conduct Authority (FCA). Those joining a pension scheme after March 2017 stand to be even better off with the FCA stating that they should be able to...

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Last week saw the announcement that savers withdrawing money from their pension pots could face a maximum exit charge of just 1%, under plans released by the Financial Conduct Authority (FCA). Those joining a pension scheme after March 2017 stand to be even better off with the FCA stating that they should be able to withdraw their cash for free.

This is of course good news and a step in the right direction. Although a little too late for some of the 670,000 savers who have faced charges of up to 10% when trying to access their money under the new pension freedom rules.

However, I have to admit to feeling a little underwhelmed by the news given that the FCA has previously acknowledged that many customers no longer have to pay early exit charges on their pensions. Most disappointing of all is that these announcements do little to help those facing other high charges, particularly on income drawdown products. There is no joined up thinking behind any of the plans.

The cynic in me questions the motivations behind focusing on pension exit charges when consumers face a host of unjustifiable fees across a range of financial products. The truth is that George Osborne's vote winning pension freedom reforms are being hampered by exit charges. So pushing changes to pension exit fees to the front of the queue smacks of trying to win votes for the Government, rather than simply trying to benefit consumers.

Wouldn't it be great if the Government, the FCA and other organisations like them actually tackled the many real frustrations that impact us all? It's also laughable that the same old industry experts wheeled out on to the TV to give their two-penneth worth, while pretending to be on the consumers' side, work for companies that sell other investment products with unfairly high charges.

It's all a game and inevitably the consumer loses.

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Chatterbox – June 2016 http://moneytothemasses.com/chatterbox/chatterbox-june-2016 http://moneytothemasses.com/chatterbox/chatterbox-june-2016#comments Wed, 01 Jun 2016 00:00:11 +0000 http://moneytothemasses.com/?p=22304 The place to talk about investing, what’s in your portfolio or ask questions via the comments section below.      

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The place to talk about investing, what’s in your portfolio or ask questions via the comments section below.

 

Screen Shot 2016-06-03 at 11.40.54

 

 

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MTTM Podcast 88: Why you should wait to cash in your pension, Credit Card Small print & Equity Release alternative http://moneytothemasses.com/news/podcast/mttm-podcast-88-why-you-should-wait-to-cash-in-your-pension-credit-card-small-print-equity-release-alternative http://moneytothemasses.com/news/podcast/mttm-podcast-88-why-you-should-wait-to-cash-in-your-pension-credit-card-small-print-equity-release-alternative#comments Tue, 31 May 2016 11:52:08 +0000 http://moneytothemasses.com/?p=22257 Listen to Episode 88 Click on the media player below to listen to Episode 88 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes Show transcript coming soon...

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Listen to Episode 88

Click on the media player below to listen to Episode 88 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

Subscribe to the podcast

You can also subscribe to the show via iTunes

Show transcript coming soon...

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The sectors with the best value opportunities & the funds to buy http://moneytothemasses.com/8020-articles/the-sectors-with-the-best-value-opportunities-the-funds-to-buy http://moneytothemasses.com/8020-articles/the-sectors-with-the-best-value-opportunities-the-funds-to-buy#comments Thu, 26 May 2016 13:16:22 +0000 http://moneytothemasses.com/?p=22243 Last week The Sunday Times asked for my opinion on the sectors with the best value opportunities at the moment and the best funds to give exposure to them. If you have a subscription to the Sunday Times here is a link so you can view the full article The reasons to love a stock that...

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Last week The Sunday Times asked for my opinion on the sectors with the best value opportunities at the moment and the best funds to give exposure to them. If you have a subscription to the Sunday Times here is a link so you can view the full article The reasons to love a stock that has fallen out of favour.

However, below I provide my full commentary, analysis and fund suggestions exclusively for 80-20 Investor members.

The sectors offering the best value opportunities

With the market still down more than 10% from last year’s high a number of sectors now look cheaper on a price to earnings (p/e) basis and will have shown up on value investors' radars. But value investing is not easy. The skill lies in trying to differentiate between something that is cheap in the short term for a reason, known as a ‘value trap’, and something which offers long term value.

Since the Autumn of 2014 value investing has lagged a growth style of investing but that's starting to change in recent months. In fact there are now some sectors now looking attractive from a value perspective.

Banking

This unloved sector is now offering value having taken a battering since the credit crisis. Since 2008 the sector has shrunk balance sheets and there's been some much needed market consolidation, although maybe not enough. The sector is offering some attractive p/e measures as well as yields with some banks beginning to pay decent dividends.

Having said that the sector is not without its headwinds. A world of low (or even negative) interest rates puts pressure on banks' margins, while some banks are having to postpone dividends (RBS) or even cut dividends. Also anyone holding bank stocks earlier this year would have been uncomfortable when concerns over another banking crisis caused markets to wobble. Like all value plays it’s about stock selection.

Those looking to gain exposure to this sector should look at Majedie UK Income (a regular in the 80-20 Investor Best of the Best Selection) which has around a 14% weighting to the banking sector including over a 5% exposure to Lloyds banking Group.

Oil

Another out of favour sector is the oil industry. The plummeting price of oil has had a negative impact not just on oil companies but equities generally. Yet while the shares of oil companies have suffered a number of analysts have now called a bottom to the oil price.

With capital expenditure being cut within the industry the hope is that this should start to impact production levels, reducing the oversupply that's hindered the sector. For those looking to start dipping their toe back into the market then buy a fund with a strategic exposure to the sector such as Fidelity Special Situations run by star manager Alex Wright.

Alex Wright has an excellent track record of finding value for investors and is a proven stock picker. His fund has around 10% exposure to oil companies.

Housebuilders

Housebuilders’ shares have largely underperformed the wider market this year and on a pure p/e ratio of around 8.5 they offer value not seen since 2011. The sector offers attractive yields (between 5% and 6%) and based on the p/e ratio alone offers greater value vs the overall market (FTSE 100 has a p/e ratio of around 17).

Yet this sector is a perfect example of how 'value' can be subjective. On other price measures such as the cyclically adjusted p/e (or CAPE) which smooths out the p/e ratio by looking at the earnings over 10 years, housebuilders are looking expensive versus history.

In fact some analysts are claiming the sector has the hallmarks of a value trap with future earnings coming under pressure from cost pressures and a house price correction. Throw in the likely fall in demand from buy-to-let landlords (after recent stamp duty and tax relief changes) and foreign investors (if there is a Brexit next month) then it is no surprise that there’s been some profit taking among investors, which is why the sector has now hit value investors screens.

If you want to gain exposure to the sector it’s not easy. The problem with property funds is that they are focussed on commercial property with limited exposure to the retail market. One way to get some exposure is through a broad fund - look at UK all companies funds with a mid cap focus. The shares of a number of house builders are in FTSE 250. Schroder UK Mid 250 has Bovis Homes and Redrow as two of it’s top 5 holdings totalling over 10% of the fund’s assets.

Other sectors

I also looked at a number of other sectors such as supermarkets and energy but remain unconvinced that the value is there. Supermarkets face headwinds from competition from heavy discount stores (Aldi etc) while energy stocks are prone to a macro based correction despite a recent bounce.

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MTTM Podcast 87: Which emotion is driving the stock market, Mortgage calculator sham & The fund charge ruse http://moneytothemasses.com/news/podcast/mttm-podcast-87-which-emotion-is-driving-the-stock-market-mortgage-calculator-sham-the-fund-charge-ruse http://moneytothemasses.com/news/podcast/mttm-podcast-87-which-emotion-is-driving-the-stock-market-mortgage-calculator-sham-the-fund-charge-ruse#comments Mon, 23 May 2016 08:32:40 +0000 http://moneytothemasses.com/?p=22186 Listen to Episode 87 Click on the media player below to listen to Episode 87 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'. Subscribe to the podcast You can also subscribe to the show via iTunes Episode 87 shownotes The Market Fear and Greed Index This is a great...

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Listen to Episode 87

Click on the media player below to listen to Episode 87 of the MoneytotheMasses.com podcast. You can listen to other episodes by clicking on 'More Episodes'.

Subscribe to the podcast

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Episode 87 shownotes

The Market Fear and Greed Index

This is a great tool and anybody can use it for free. This indicator judges which emotion is driving the market, fear or greed. It shows a scale between zero and 100 where zero means investors are running scared and 100 means investors are being driven by greed.

The tool is called the Fear and Greed Index and it is run by CNN. The Fear and Greed Index is actually seven indicators rolled into one and it gives you a snapshot of what emotion is driving the market.

The theory is that if the markets are being driven by fear, then too much fear in the market will mean that stock markets will fall. Just think about after the 2008 financial crisis where everybody was running for the hills and scared. Of course, if it's driven by greed, everyone's being very bullish and therefore they are buying up stocks and this will drive the market up. It's the simple economics of supply and demand. More people wanting to buy, the price goes up.

Interestingly, there's a nice angle for people who are trying to be contrarian investors. Contrarian investors will take the opposite view to most of the market. If everyone is being bullish, they might decide to be fearful and vice versa. There's a famous quote by Warren Buffett, to paraphrase it, it is "When others are being greedy, you be fearful." And the other way around, "If people are fearful, you should be greedy."

So the idea being that when everybody is running for the hills, that's a brilliant time to buy, because you have to be pretty brave to do it. But if you go in, you're going to invest in things at rock bottom prices. Then when the market reverts to mean and it rallies again you're going to make a killing. Given that Warren Buffet is probably the most successful investor in the history of investing it's not a bad piece of advice to adhere.

If any investor can catch the bottom of the market they are going to make a hell of a lot of money and that's what contrarian investors are trying to do. They are trying to take the opposite view with the aim of catching the market turn.

Let me now go through the seven indicators that make up the Fear and Greed Index. The first one is something called stock price momentum, where, very simply, they take the S&P 500, which is one of the American equity indices, and they look at it versus the 125-day moving average. They look at the trend over the short-term versus the slightly longer term, so they can see where the momentum is; is it going up or down?

Another indicator is known as stock price strength, which is, quite interesting, as they look at the number of stocks that are hitting 52-week highs versus those that are hitting 52-week lows. The idea being that if more stocks are hitting highs than there are stocks hitting lows it's a better indicator of where the market is going and what the sentiment is, as opposed to just looking at the index price movements. This is because the market index could just be going up because of its market capitilisation bias. As many indices are market cap weighted the biggest companies have a disproportionate impact on the value of the index.

Another indicator is called stock price breadth, which looks at the number of shares trading and the number going up versus those that decline. So you actually see what people are buying.

There's another indicator called put and call options which looks at the trading volumes. Basically, put and call options are used by traders to lock into future prices. They might buy something now and then agree a deal with somebody else that they can actually sell it at a higher price or a lower price in the future. We talked about it once before on a previous podcast where there were loads and loads of people who, effectively, were betting that they thought the market was going to fall and it didn't. Of course, then they had to all unravel their bets and this actually drove the market up. It's called a short squeeze.

I'll just rattle through the rest of the indicators. There's one that looks at the activity in the bond market particularly junk bonds. If a company wants to raise money, they can do this in a number of ways. It could be by issuing shares, or they could actually take loans out by issuing bonds that can be traded much in the same way as buying shares. What happens is that when markets become greedy and a bit complacent, they'll just buy any bonds. It’s not unlike a sale on the high street where people are buying up goods just because they are cheap and it’s the same with investing.

The next indicator, we talked about it before, is the VIX which measures spikiness in the market and there is another index that measures the volumes traded in safe haven assets.

So what they've done is look at each of them, give them a mark out of 100 which overall will indicate what emotion is driving the stock market. It's just a broad indicator that you can look at any time.

At present the Fear and Greed Index is about 46 but out of those seven indicators, two of them are flashing on fear. Two more of them are flashing on extreme fear. Another two are saying that it's actually on the greed side, and one of them is showing extreme greed. So if you take that all together it comes out that the market is being driven equally by fear and greed at the moment.

Fund Charge Ruse

This section is for those who have a financial adviser or have used one in the past, or going forward, might use one. The world of financial services is so archaic and the way it's worked has been so deceitful. It's just been one of those things that's always been done this way and people never questioned it.

So the thing I want to talk about today is the cost of advice, and particularly in relation to funds. Now, when you used to get advice a few years ago, before 2013, you'll get why 2013 was a key date later.

Let's just say you were going to buy an ISA or a pension that was invested in funds you would go to your friendly IFA and he would probably spin you a few lines and then give you a recommendation. He'd recommend a list of funds. So I'll use a company name just so we can reference it. Lets use Invesco Perpetual as an example because it's one that people may know. It's one of the biggest and it just helps with the story telling.

What would happen, is the financial adviser would recommend a whole list of funds, which some possibly being Invesco Perpetual funds. Now, the adviser used to say at that point that, "Oh, yeah, the cost of my fees are all wrapped up into this. I actually get paid at the back end." He didn't really disclose it that much, and he didn't legally have to. But as time went on and the rules changed and the adviser had to be a bit more explicit about these charges.

What would happen is each year, a certain percentage would be taken out of your portfolio by the fund manager. The fund manager would keep a big chunk of it, and then he'd give a portion to the IFA. So if we just use round numbers...

Let's say they take 1.5%, the fund manager at Invesco would deduct the money from their fund. They would then, around the back door, give the financial adviser 0.5% of the amount you have invested in their fund each year. Now that doesn't sound a lot, but when you actually work it out, over time, it has a huge impact on your portfolio.  So you're losing money every year. Don't forget, even years when your portfolio goes down, they're still going to take their 0.5%.

Fast-forward to 2013, a new set of rules came in after the Retail Distribution Review (RDR). RDR basically outlawed the old way of working in terms of taking backhanders in commission. So they had to charge upfront fees instead. They also had to approach their existing clients and say, "Do you know what? In a few years' time, the fund managers aren't going to be allowed to pay me this way. But because I'm so wonderful and I'll give you this great service, can you sign this letter? And we'll move you into this different version of the same fund, they call it a "clean version. What happens is that, the fund manager will only take 1% a year, rather than the 1.5% and give me 0.5% as they used to. We'll instead deduct 0.5% for me directly from your portfolio, is that okay?" And the client would hopefully say, "Yeah, you're so wonderful at what you do. No problem." They'll sign a form and then all the admin in the background would happen smoothly.

The investments would be the same, but they'd put you into different versions of the funds you were in, just because the charges are different. Very archaic. It's not as simple as being able to flick a switch, you have to be physically moved into new investments and that takes a bit of time.

That admin exercise is performed just so that the financial advisers could be in the same net position as before. I used to work in the industry and you can imagine the reaction of financial advisers when the new rules were announced. They were running around thinking the sky was falling in, cursing the regulator because they'd built up their businesses and then they're being destroyed overnight. But there was no point in kicking and screaming. They had to go and approach their customers and try and get them to give them fees another way as described

But of course, a lot of IFAs have lots of clients. They could have 800 or 900 clients. But they actually don't service most of them. So what they did was bury their heads in the sand as the rules said that if they didn't bother to say anything to a client, they could still keep taking old style commission until April 2016. So it became a case of "Let sleeping dogs lie." As long as the financial adviser didn't say anything, didn't alter their clients' investments, they could just keep creaming that money off the fund managers.

What happened from April 2016 is that they weren't allowed to do this anymore. That commission got turned off. So the financial advisers no longer get that 0.5% if they haven't done anything for it. But this is where the problem comes in. Because in the old style funds, where Invesco Perpetual, for example, were charging 1.5% and then giving the financial adviser part of that 1.5% (say 0.5%), they're no longer paying the financial adviser anything via the back door. Yet it doesn't mean that investors are keeping it, the fund managers are still taking the 1.5% because that's what the charging structure of that particular class of fund allows. The difference is that the fund house just keeps the lot!.

To stop this the fund house needs to move you to the new clean version of the fund you are invested in. But to do that, they have to get your permission. This is the problem, because the IFAs weren't contacting clients, the fund houses in the background don't have their contact details either. What this means is that there's about a quarter of a million people who are still paying for advice needlessly. Although the adviser is not getting the money, they're still paying the fee and the fund manager is keeping it.

These people could be doing this for the next 20 or 30 years and the fund house will keep an extra 0.5% of pure profit every year. So this is a wake-up call. To people out there if you've ever had financial advice, pre-2013, in particular, and your adviser never contacted you to say, "Look, the rules have changed can you sign this piece of paper so I can now get paid in a slightly different way, but the same amount? We're just going to shift you into this new version of the fund that's a bit cheaper." then the chances are, you're still being charged in the old way. You're basically, like I say, to use an analogy, driving around in a very inefficient car. You can get a free upgrade form the manufacturer, and it's much more cost-effective and cheaper to run.

So, what you need to do, if this could be you, contact the fund manager, not your financial adviser, because they probably just ditched you, to be honest, and they probably won't even take your call because they're not making any money out of you anymore since April 2016. Contact the likes of Invesco Perpetual or Fidelity, or whoever the fund manager is, and ask them what charges you're paying, and which version of the fund you're in. So when we talk about clean or bundled versions of a fund it means that the adviser's former charge is bundled into the fund's annual charge. The clean ones, like I say, will probably be charging you around 1%. And therefore, it's actually quite a bit cheaper. So you want to be in those clean funds, but do check before you do it that overall, your costs are going to be cheaper. Because some people might decide, "You know what? I don't need advice. I'm going to go and directly and run my money on my own." "Execution-only," they call that. So you go with a platform like Hargreaves because you don't want any advisers attached to your portfolio and siphoning money from it. Yet it can be that because all these other platforms have their own charges, in total, you could end up paying a bit more than you were before. So just double-check that.

The tip is, if you've ever had advice, contact your fund house and ask them what you're paying, and if that is the cheapest that you can pay.

Mortgage Calculators

If you want to take out a mortgage, particularly first-time buyers, you may go and check on a mortgage calculator to see how much you could borrow.

You would go onto their website and think, "How much could I borrow from..." let's say Nationwide or whatever and you would go on and complete the calculator, and it would throw up a particular figure, which would be, typically, some multiple of your salary. Where the issue comes in is that people don't realise that different lenders use different criteria, and even those criteria to arrive at the amount they're willing to lend can be different. So the maximum they will lend to you will be different depending on which calculator you use.

So you might go to Nationwide, you might go to First Direct, or whoever the lender might be, and use their calculators. You will find, if you go across the market, you will get a range of different answers. Now, that might not be news to some people but I think a lot of people might have thought it would be the same figure. Yet it's the scale of some of the differences that is quite alarming.

An article I read recently did a scenario where they got a case study and inputted it in a number of different calculators. The difference in the amount of the potential mortgage was a staggering £200,000 across these calculators. So you can see that for somebody who's a first time buyer, a £200,000 difference is significant.

The tip is that you should try a number of calculators not just one. The interesting point is why are they different? The reason is that each underwriting department use the criteria in different ways, and some of them don't ask the same questions. Some of them, for example, might ask about your credit card debts, while others won't be so bothered. So even if you're having to input different things, you can't really expect the answers to be the same. Some of them will use different multiples because they use different rules.

One word of warning, even if you do have a calculator and it goes, "Woo hoo, you can get four and a half times your salary," it doesn't mean you will actually get four and a half times your salary. At the end of the day, it's just a calculator. It's just a tool. It could be used a million times over, and it could keep telling a million people they're going to get four and a half times their salary. But if a million people applied for a mortgage, you can pretty sure they're not going to get that amount.

One of the biggest differences that they found concerned childcare costs. If you have a child, then the way they look at childcare costs varies and could massively reduce how much lenders would be prepared to lend. Yet some lenders aren't so bothered about childcare costs.

So the tip here is to shop around and use different calculators. Don't just base your research on what those mortgage calculators say, as they're not guaranteeing that you're going to get that size loan anyway. I suppose one of the biggest things to do is to seek independent mortgage advice. If you don't have a mortgage broker, you can find one here.

A mortgage broker can save you hassle and time as they will know who's going to lend you the most before you've even started applying, and your likelihood of actually getting it. They can look at your specific circumstances and say, "Based on what you've told me, these guys will probably mark you down a bit so we will try this lender instead."

On thing to bear in mind with these calculators is that the company will have in mind the type of people they want to attract. They've got a type of client they're trying to acquire because they know they can make more money by selling them other products over time. They will tweak the calculators to influence the flow of inquiries they get from the right type of person. What that means is the calculator isn't particularly genuine because it's actually being used as a marketing tool.

So just be careful of mortgage calculators, they're great tools and good general indicators. Great for a beginning bit of research to see what you can get and how much you need to save. Do realise, however that they are actually marketing tools for the companies, so you should take anything they produce with a big pinch of salt.

Don't forget to claim your free copy of Damien's bestselling book, "The 30-Day Money Plan: Sort Your Finances in Just 5 Minutes a Day," worth £4.99. Just go to moneytothemasses.com/podcast to find out how

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