Lowes Magazine Issue 121

Issue 121

“Without deviance from normality, there can be no progress.” Frank Zappa

INSIDE TRACK

Winner of the Client Competition 2021

LAST JANUARY, WE ASKED YOU TO PREDICT, TO TWO DECIMAL PLACES, the value of the FTSE 100 at close of the last day of trading in 2021. To help, we provided the numbers for the last days of trading for the previous five years. The FTSE 100 has risen steadily throughout the year, reaching a high of 7384.2 in November before news of the Omicron strain of Covid-19 had some impact. After a brief decline the index subsequently recovered to finish the year fractionally above the November high at 7384.54. Congratulations to Mr Heaton from Darlington, County Durham, who was closest to the figure. A voucher for £250 is on its way to you. See page 15 for our 2022 competition.

FTSE 100 closing figure last trading day 2016-2021

2021 2020 2019 2018 2017 2016

7,384.54 6,460.52 7,542.44 6,728.13 7,687.77 7,142.83

Source: London Stock Exchange

Registering trusts

accounts and tax returns, and meeting tax reporting requirements. Trustees are also expected to conduct regular investment reviews, with a suitably qualified and certificated investment adviser. Increasingly, this expanding set of rules is an onerous burden on amateur trustees and in most cases is best handled by professional trustees.

CLIENTS WITH TRUSTS SHOULD BE AWARE THAT new rules and deadlines for registering trusts with HMRC are now in force. These new rules extended the scope of the Trust Registration Service to many UK and some non-UK trusts, regardless of whether the trust has to pay any tax (there are some specific exclusions). The deadline for registrations for non-taxable trusts is 1 September 2022. Trustees can register trusts via the GOV.UK website. Trustees’ list of responsibilities has been getting longer since the Trustee Act 2000 and include dealing with all payments to settlors and beneficiaries, trust expenses,

If you require a professional trustee service, please call 0191 281 8811.

The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Covershot: Blue crystal ice cave entrance and an

underground river beneath the glacier located in the Highlands in Iceland Photo: Shutterstock

2 LOWES Issue 121 · Published Jan 2022

INSIDE TRACK

Make your money work. Best bank & building society rates Type Amount Provider Money matters ‘MONEY BEGETS MONEY’ IS A MAXIM that resonates with those who understand the power of returns on savings and investments over the long term. Recently, the Institute for Fiscal Studies (IFS) conducted a study which found that young adults with wealthy parents were likely to be six times better off than their peers when handling their own money. The research showed that people with wealthier parents tend to earn more and therefore save more as a portion of their earnings for later life. Having an Independent Financial Adviser to guide can also play a large part in creating and sustaining family wealth for all generations.

If you intend to take money out of a pension but keep on working, be sure to first speak to us first by calling 0191 281 8811. For those looking towards retirement but who would prefer to wind down slowly, rather than overnight, or who may want to keep an income stream to boost their retirement funds, virtual working could make it easier to continue to contribute on a part-time basis. Also, working for a few extra years gives added time to sort out your financial plan and have the correct investments approaching full retirement. One area to be aware of here is the restrictions placed on pension saving once an individual accesses their pension. Retirees could benefit from flexible working FLEXIBLE WORKING PRACTICES, WHICH HAVE BECOME more prevalent during the pandemic, may have opened up the opportunity for older workers to keep earning into their retirement years.

Account

Gross Rate

Contact

Unrestricted instant access accounts Online via App £1 - £85,000

CHIP

Easy Access

0.70%

www.getchip.uk

Fixed rate bonds Online Online via App

1.41%* 1.60% 1.85%*

www.gatehousebank.com www.atombank.co.uk

£1,000 - £1,000,000 £50 - £100,000 £1,000 - £85,000

Gatehouse Bank

1 Year Fixed Term Woodland Saver 1

Atom

2 Year Fixed Saver

www.raisin.co.uk

Online

QIB (UK) (Raisin UK)

3 years Fixed Term Deposit 2

1 Gatehouse will plant a tree in a UK woodland on your behalf for opening and funding your account. 2 A welcome bonus of £50 will be paid to customers opening their first account with Raisin UK. * This is the Expected Profit Rate (EPR). You may also wish to consider Premium bonds offered by National Savings and Investments (NS&I), maximum £50,000. Whilst no guaranteed interest is earned, they do offer the opportunity for tax free winnings. The prize fund is currently 1%. Measures of inflation - The average change in prices of goods and services over a 12 month period to December 2021 Retail Prices Index (RPI) 7.5% Consumer Prices Index (CPI) 5.4% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 17.01.2022. All accounts subject to terms and conditions.

1 2 3 4 5 6 7 8 9 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 2 6 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 3 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 9 8 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 2 5 3 6 8 1 2 3 4 5 6 7 8 9 2 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 4 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 6 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 2 1 2 3 4 5 6 7 8 9 4 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 9 6 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 5 1 2 3 4 5 6 7 8 9 3 1 2 3 4 5 6 7 8 9 2 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 4 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 8 1 2 3 4 5 6 7 8 9 Grid n°2147454542 hard A number may not appear twice in the same row or in the same column or in any of the nine 3x3 subregions.

Sudoku We hope you enjoy our first mind teasing Sudoku puzzle of 2022. To complete the puzzle fill the grid so that each row, column and 3x3 block contains the numbers 1 to 9. The solution to the puzzle can be found on page 16.

Follow us for company updates

@LowesFinancial

@LowesFinancial

Lowes Financial Management

Source: www.printmysudoku.com

If you would like to receive further information on any of the subjects featured in this issue please call: 0191 281 8811 , fax: 0191 281 8365 , e-mail: client@Lowes.co.uk , or write to us at: Freepost LOWES FINANCIAL MANAGEMENT . Lowes ® Financial Management Limited. Registered in England No: 1115681. Authorised and Regulated by the Financial Conduct Authority.

We have all the free sudokus you need! 400 new sudokus every week. Make your own free printable sudoku at www.PrintMySudoku.com

3 Lowes.co.uk

INSIDE TRACK

A RECENT FREEDOM OF INFORMATION REQUEST BY CANADA LIFE HAS revealed that the number of Lasting Power of Attorney (LPA) registrations fell by more than a quarter in the past year. While this comes off the back of a leap of 84% in new registrations in previous five years, with the process becoming digital and easier to do and an awareness campaign, it is of concern as more people need to have them in place. Why Lasting Power of Attorney matters

LPAs can be registered for someone to make decisions on your behalf around property and financial needs if you are unable to do so yourself. They can also be registered for health and welfare needs, when you might need someone to make decisions on your behalf around medical issues, daily routines or even decisions on moving into care. We would urge everyone to consider putting one or more LPAs in place as they can apply both to later life situations and where accidents occur. At very little cost they can provide peace of mind that, if needed, your affairs and welfare will be looked after by the person(s) you nominate to do so. Lowes can assist by introducing you to an LPA specialist – please call us on 0191 281 8811.

COMMENT

Learning from experience IN HIS OPENING SPEECH AT COP 26, THE RECENT

individual to look ahead and prepare financially, and not everyone is able to benefit from Independent Financial Advice. The danger for investors with this terminology, however, is that investing is seen as a ‘game’, where chasing of short- term gains is hyped-up and promoted over long-term wealth building. Get-rich-quick-schemes rarely benefit anyone but the people promoting them. A big part of our role as Independent Financial Advisers is to help our clients to view their bigger picture when it comes to their finances, over a focus on the short-term. It’s a professional approach that comes from many years of experience and utilising the skills of the experts in their individual fields – fund managers, analysts and financial services technicians amongst others. 2022 is predicted to be a year of market and economic volatility as we move out of the pandemic, central banks start to unwind the support they have been providing over the past decade and more, and we see inflation, interest rates and market sentiment affect our investments, savings and spending power. Keeping a calm head will be essential. History has shown us that stock markets will fluctuate but over the long term, they tend to gain. While past performance does not guarantee what will happen in the year(s) ahead, as the world moves to a post-pandemic footing, our experience tells us that portfolios which are suitably diversified and actively managed are going to be best set for the future.

international climate change Summit held in Glasgow, Sir David Attenborough said: “Is this how our story is due to end? A tale of the smartest species doomed by that all too human characteristic of failing to see the bigger picture in pursuit of short-term goals.” This, I thought, neatly summed up what the Summit was about, highlighting the macro problem and the potential solution in one short sentence. There is nothing more edifying than to hear from someone who has been in the thick of it for so many years – a professional and an expert in his field telling it how it is. To me, it makes sense that we listen to his views (and those of other experts in their fields) and act upon them. On a different level, Sir David’s words struck me as pertinent to financial planning and the work Lowes does on a day-to-day basis. Our financial futures can be largely determined by whether we take a short-term or a long-term view of our finances. We have a need for education, to listen to the experts and to be helped into taking action that is going to benefit us (and our inheritors) in the future. Lowes has been in the thick of the investment market for over 50 years now. We have seen numerous market crashes, as well as market recoveries – bubbles, financial crises and bull markets among them – and we use that experience to position our clients’ portfolios to optimise them for long-term wealth gain and maintenance. Taking a short-term view has caught out many an investor over the years. There is talk at the moment around the ‘gamification’ of investment. By this, people mean making investment easier to understand and to participate in. In the broadest of terms, this can be viewed positively; there is no doubt that many more people need to be investing for their futures – responsibility is now firmly with the

If you know of anyone who might benefit from the services we offer, please give them our number 0191 281 8811 and we will arrange an initial consultation to see how we may help them. Ian H Lowes, Managing Director

4 Lowes.co.uk

FINANCIAL WELLBEING

Value of advice in the pandemic

TWO RECENT RESEARCH DOCUMENTS, PUBLISHED by abrdn and Aviva, have highlighted the negative effect of the pandemic on people’s views on investment risk and their retirement prospects. The research data from abrdn found that a third of investors now wanted to take less risk with their investments, having had a change in their investment or financial priorities, as well as feeling they couldn’t absorb as much loss as they felt they could pre-pandemic. The research from Aviva looked at individuals’ retirement plans and found that many people had pushed back their intended retirement dates due to the uncertainty created by the period of lockdown; also people were feeling less secure that they could live comfortably in retirement. Aviva said its research had shown a trend towards people re-evaluating their priorities in the wake of the pandemic with nearly three in five people feeling the pandemic has made them question what’s important in life. Many felt they had less control over those priorities than they did before, in particular coping with unforeseen events, with anxiety about the future still weighing heavily on their minds. While juggling their personal priorities against a backdrop of uncertainty, people were looking also for steps that could help them take control of their circumstances as best they could. Encouragingly, the research also showed how invaluable financial advice has been during the recent turbulent financial period. The abrdn research, for example, found that those with financial advisers were the most confident about sustaining or taking on more risk, saying their level of confidence in their finances was because of the advice they were receiving. Having in place a carefully thought-through investment strategy that looks long term, not at the short-term state of the markets and the media hype, is fundamental to a structured financial plan and will help investors stay calm and focussed on their goals. Every financial plan that we put together for our clients is based on their individual financial circumstances, what they want to achieve and the level of risk they are willing to accept. Sometimes a higher level of risk is necessary to achieve certain goals, other times we can reduce the level of risk below what clients think they need and still meet their goals. What’s important to remember is that markets and circumstances do change and regularly reviewing a strategy will help keep a financial plan on track. Lowes Consultants have many years of experience and a great support team to help our clients build and maintain their wealth over the years and give the peace of mind that comes with finances being dealt with by professionals. Lowes Consultant Chris Milsom says: “Seismic events such as the pandemic will undoubtedly cause fear and uncertainty, particularly amongst savers and investors trying to make decisions about their financial future on their own.

Financial planning linked to improved mental health A new study by HSBC Life has found an intrinsic link between financial planning and improved mental health. The study, which surveyed over 3,000 UK adults, found that nearly three quarters of people who seek financial advice were more likely to feel they have average or above average mental health. These effects were found amongst people who review their financial plan at least once a year and amongst people with a comprehensive retirement plan and insurance protection. In contrast, nearly half of those without a plan said they felt they have below average mental health. Lowes Consultant Adam McLachlan says: wellbeing. Putting your financial affairs in order and keeping track of them, as well as importantly, having the reassurance of Independent Financial Advice, can take people from a state of confusion to having control of their finances and knowing that they are on target to achieve their goals and life ambitions. “The study confirms what we see on a daily basis, that financial fitness is intrinsically linked with health and

5 Lowes.co.uk

ESTATE PLANNING

Estate planning as property prices rise

PROPERTY PRICES IN THE UK HAVE CONTINUED TO rise over the pandemic period, reaching a 15 year high in November 2021. This has been fuelled by the stamp duty holiday which ended in September 2021. Combined with the continued freezing of the inheritance tax (IHT) nil rate band, now held at £325,000 until 2026, this means more people are at risk of paying IHT on their estate in the years to come. If someone dies and their estate is worth more than the basic Inheritance Tax threshold, their beneficiaries would be liable to pay 40% tax on the value of the estate above that figure. However, their estate may qualify for the residence nil rate band (RNRB), extending the sum allowed before any Inheritance Tax is due. But the rules are far from simple. The RNRB is an additional IHT allowance, launched in 2017, designed to counter the fact that the nil rate band had not increased in line with property prices over the years. It can be claimed only when an individual dies and a direct descendant inherits the ‘home’ in accordance with a will, or under intestacy rules. Direct descendant refers to a child or grandchild of the deceased, but also includes stepchildren, adopted children and anyone married to – or in civil partnership with – this group. The full RNRB each individual can claim is £175,000. However, where a spouse or civil partner may have died earlier, any unused part of their residence nil rate band can also be used, irrespective of the date they passed, even if this was before the RNRB was introduced in April 2017. The spouse or civil partner also doesn’t need to have owned any

part of the qualifying property to claim the RNRB. The rules aren’t the same for unmarried couples, however. The unused part from a deceased unmarried partner cannot be transferred, even if the couple had children together. Also, anyone with an estate of more than £2million could lose some or all their RNRB. When this £2million threshold is exceeded, the RNRB is reduced by £1 for every £2 of value by which an estate exceeds the taper threshold. Tapering can reduce the RNRB to zero. The RNRB applies to the entire estate on death, not just the value of the home itself, so can help reduce the total IHT charge on death. When calculating IHT due on a person’s estate, the RNRB is deducted from the value of the estate on death before deducting the general nil rate band. But it cannot be applied to money given away within seven years of death. For people who may sell the family home and move into a smaller property when they retire, or who may may gift their home or sell up completely and either move in with family or into care, provided the sale or gift of the house was completed after 7 July 2015, a ‘downsizing addition’ may be available to make up for the lost RNRB. As can be seen from just this brief description of the RNRB, it is a complex area, which needs careful consideration and planning. If you would like to know more, please contact us by calling 0191 281 8811.

6 Lowes.co.uk

INVESTMENT SPECIAL

Saving and investing in 2022

LOWES CONSULTANT JOHN WALTON looks at the potential savings and investment landscape in the year ahead and what we should bear in mind in terms of the financial decisions we make. Uncertainty has been the

Cash holdings Let’s start with an issue that we have seen increasing over the past couple of years, which is use of cash as an asset. When the markets fell dramatically in March 2020 as Covid took hold, it was understandable that investors took fright as they saw the value of their holdings drop – the FTSE fell around 30% in March 2020. This short-sharp drop, plus the economic uncertainties people have been facing, have caused some to hold money in cash rather than invest in the markets. In addition, there have been concerning reports of people withdrawing money from their pensions and holding it instead in deposit accounts, immediately impacting its capability to grow. The UK financial services regulator, the FCA, considers that 8.6 million consumers hold £10k or more of investable assets in cash. With the low level of interest rate return on cash accounts, people are not only depriving themselves of investment returns – generally markets have returned to around pre-pandemic levels in the intervening months – but the buying power of their money is being continually eroded through the effect of inflation. As the economy has recovered post the 2020-21 lockdowns, there has been a sharp rise in the cost of living. Currently, inflation has been predicted to average over 4% in the coming year; it has already reached 5.4% in December 2021. This has seen the Bank of England take action to dampen the effects of rising prices by increasing the interest ‘base rate’ from the historic low of 0.1% to 0.25%, with expectations it will increase rates further in 2022.

predominant word through 2020 and 2021 and with the Omicron variant of the Covid 19 virus now spreading around the inhabited world, it is likely to remain so in the year ahead. It affects not just human health but economies including monetary policy and, of course, investment markets, which are largely driven by sentiment. For the UK, the impact of the pandemic has been compounded by the final stages of Brexit and the effect on the domestic economy of leaving the EU. It seems strange to think that for four years up to 31 January 2020 Brexit had dominated the news streams only to be completely overshadowed by the omnipresent threat of Covid. The UK now has a debt mountain equivalent to our GDP, businesses failing as pandemic-induced restrictions have cut their customer supply, supply chain issues derived from the impact of Covid across the globe, and rising inflation. This, in brief, is the backdrop for 2022. So, what does it mean for us as individual investors? What might the investment landscape look like going forward and how should we respond to it?

Cash Savings in today’s money terms (4% inflation)

Investment Value (4.25% growth after charges)

Investment in today’s money terms (4% inflation)

Cash Savings Value (0.50% interest)

Year

0 1 2 3 4 5

10,000 10,050 10,100 10,151 10,202 10,253

10,000 9,663 9,338 9,024 8,720 8,427

10,000 10,425 10,868 11,330 11,811 12,313

10,000 10,024 10,048 10,072 10,097 10,121

Aegon analysis 2021, £10,000 at 4% inflation growth

7 Lowes.co.uk

INVESTMENT SPECIAL

You can see how this can lead to the danger of investors becoming too exposed to one style of investment in their holdings – maybe not even noticing as they build their portfolio. Which is why at Lowes we recommend and practice diversification of holdings in our clients’ portfolios. By holding a range of sectors and investment within those sectors, depending on the goal of the portfolio, we can balance the investment performance as one sector rises and another falls behind, spreading the risk to the portfolio and looking to benefit from the markets as a whole. What also is important is to look beyond the short term, particularly when markets are volatile, as it is in their nature to be, and instead look long term, and to building wealth over time. With our 50 year history of investing for clients, this is where we have found most success for clients. Active fund management This also is why primarily we use collective investments, rather than individual stocks and shares, run by professional investors who actively manage their portfolios of holdings. The current batch of trading Apps in the market may like it to seem easy to ‘play’ the markets, but in fact, to successfully invest across sectors and companies’ year-in year-out takes considerable time and resource. Fund managers are backed by teams of analysts and reams of data and spend much of their time both studying the markets and interviewing companies’ senior management, to find the best holdings for their portfolio’s strategy. As a result, they will have holdings they consider can weather the vagaries of the markets and deliver over the long term. Protecting capital At Lowes we see our task as not just to grow our clients’ wealth but to maintain it too. This is one of the reasons we have developed our expertise in structured products, including launching our own fund of structured investments, the Lowes UK Defined Strategy Fund. One thing we like about structured products, and why we believe they work well in client portfolios, is the diversification of investment type and therefore, the risk. Structured products can protect the capital invested against the usual volatilities of the markets, barring a severe market event, and pre-define what the return will be and when it is received, depending on where the market stands at a set point in time. When blended with an actively managed portfolio of funds, they can be useful instruments when financial planning, both in terms of growing and maintaining wealth. Looking ahead If there is one maxim that applies to all investment it is that all we can know is that we don’t know what is going to happen. The pandemic has proven that with devastating effect on our communities, economies and the investment markets. Hence, when wealth planning there are three pillars we stand by, which are to apply a strategy of diversification, to utilise investment professionals and to have a long-term view. Whatever happens in 2022, holding to those principles will help see us and our clients through whatever the world of savings and investments has in store.

While this will normally push up the interest rates offered by banks and building societies on their deposit accounts, savers should not be lulled into a false sense of security as a result. With the average easy access savings account currently offering just 0.19%, any upward change is expected to be small, doing little to counter the damaging effects of high and rising inflation on the value of cash savings. The financial giant Aegon conducted analysis which shows that £10,000 saved in a cash savings account with an uplift to 0.5% interest, would increase to £10,050 over the course of the year. However, with inflation at 4%, this would be worth £9,663 in today’s money terms, reducing purchasing power by £337. They further calculated that if the money were instead invested and achieved a moderate growth rate of 4.25% after charges, £10,000 could grow to £10,425 over a year. This would be worth £10,024 in today’s money terms with 4% inflation, just maintaining purchasing power. We’ve included their table on the opposite page, showing the impact of 4% inflation on cash savings and modest investments for up to five years. It is clear to see that holding money in cash at the present time is working against the accumulation of wealth. In fact, the FCA, has said it wants to explore new ways of supporting those people who are holding more than £10,000 of investable assets in cash, to help them consider the benefits of moving some of this money into investments. This is to help make their money work harder, with the potential for growth to outstrip the rising prices of goods and services. This is where an Independent Financial Adviser can help. We maintain that aside from a small pot of emergency cash, from three to six months of living expenses, currently, savers are likely to be better off investing in the stockmarkets, through professionally managed investments, as these have the potential to keep wealth growing with returns above inflation. There are no guarantees, of course, but this is where a long-term horizon is important. Spreading risk Long term investors in the markets will know that they can be cyclical in nature, with one ‘style’ of investing or particularly sector taking precedence for a period of time, but then markets change to favour a different style or sector. This has been evident over the past two years. Growth sectors, like technology and online businesses experienced significant growth during 2020 when lockdowns were imposed around the globe and people had to work, shop and seek their entertainment at home – with the valuations of some of the major technology companies rising to new heights. But this made them expensive to buy. Consequently, as approval of vaccines began coming through in November 2020, global investors started looking for companies that were undervalued and hard hit by the pandemic, which were likely to benefit from the anticipated economic recovery. This saw a rise in what is termed ‘value’ investing.

FTSE 100 1 Jan - 31 Dec 2021: FTSE 100 (Total Return) grew by over 18% in 2021

20 15 10

5 0

Source: London Stock Exchange

31/12/2020

28/02/2021

30/04/2021

30/06/2021

31/08/2021

31/10/2021

31/12/2021

8 Lowes.co.uk

INVESTMENT SPECIAL

Managed Investment Portfolios An Overview

About Lowes Investment Management Lowes Investment Management forms part of Lowes Group alongside Lowes Financial Management and was established in 2020 as a dedicated investment management arm of the business. The team within Lowes Investment Management are responsible for managing the Lowes’ Open Ended Investment Companies (OEICs) and the managed investment portfolios. The award-winning investment team have many years’ experience with a particular focus on analysing collective investment vehicles. The team has developed and refined its own investment process over time, which is fundamental in helping them shortlist funds worthy of further investigation. From there, the funds are subject to a thorough, qualitative analysis through the use of independent research and meeting with the management teams to truly get under the bonnet and fully understand their respective investment philosophies. This knowledge lets the managers create portfolios which fully align with intended objectives and risk tolerances whilst being diverse in terms of investment style, assets, and geographical regions where appropriate. What are the Managed Investment Portfolios? Our Managed Investment Portfolios cover a variety of long-term objectives and have differing risk profiles. Unlike our traditional range of portfolios however, the Managed Investment Portfolios are much more agile, meaning the managers can take advantage of new opportunities as they arise, but more importantly can switch out of under-performing funds without delay. The portfolios allow the efficient consolidation of assets to maximise the potential for returns within agreed risk tolerances and the method of operation overcomes the potential delays and hurdles that can inhibit traditional, advisory portfolio management. They are managed by our award-winning team, who will also regularly re-balance portfolios to ensure asset and individual fund allocations do not drift too far from the original, intended parameters. Whilst your adviser will identify the portfolio, or combination of portfolios, which best suits your appetite for risk, capacity for loss and which most closely match your investment objectives, once in place the management, including any fund switching, will all happen promptly and seamlessly behind the scenes. Key Benefits • A range of portfolios designed to deliver specific investment objectives and reflect differing attitudes to risk. • Agile investment management ensuring that portfolios are active in responding to market conditions, whilst providing consistent risk management. • Timely informed decisions by Lowes extensive investment resources, including Lowes’ investment managers and in-house research department. • Allows you, as the client, to be less involved in the onerous, administrative elements of investment management.

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INVESTMENT SPECIAL

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Investment Portfolios Lowes Investment Management offers eight investment portfolios which allocate to collective investment schemes, such as open-ended investment schemes (OEICs) and unit trusts, run by experienced fund managers. No investment is risk free and even the lowest risk investment carries the potential of significant loss in the most extreme circumstances and so diversification is key. Risk tolerance and capacity for loss will be discussed with your adviser before any investment is recommended. To get specific information about these eight investment portfolios, please get in touch by calling 0191 281 8811 or by emailing LIM@Lowes.co.uk What can you expect? Once agreed, your portfolio will be managed on a discretionary basis, with management having been delegated to us. We understand that first-rate service is as important as investment excellence. The managed portfolios will give you: • A faster execution of investment changes and the confidence that your portfolios are continuously invested optimally and in line with agreed risk profiles, whilst also being managed on a cost-effective basis. • Regular investment updates. • Clear and efficient communication where we provide information that is always detailed and transparent. I n c r e a s i n g R i s k > > > > Defensive Growth Portfolio Risk Level 2 Mixed Investment 0%-35% Shares Portfolio Risk Level 2+ Mixed Investment 20%-60% Shares Portfolio Risk Level 2+ Mixed Investment 40%-85% Shares Portfolio Risk Level 3- Global Select Portfolio Risk Level 3+ Cautious Managed Portfolio Risk Level 2+ Ethical Portfolio Risk Level 2 or 3 Changing World Portfolio Risk Level 4 > > > > S p e c i a l i s t P o r t f o

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Lowes Investment Management Portfolios

Points of Difference

Traditional advisory portfolio

Responsibility for action

Lowes Investment Management

Client express authority

Additional fee of £1 (Inc. VAT) per annum per £1k invested

Lowes fees

Part of ongoing fee

Time to switch funds

1 day

Weeks - months

Rebalancing to asset allocation and risk tolerance

A least annually - when managers deem appropriate

None without full advice process

Client paperwork and involvement

Information only

Information plus every transaction

Risk Management

Optimal alignment

Can experience portfolio drift

Managed Investment Portfolios Who should consider the Lowes Investment Portfolios? The Lowes Investment Portfolios cover a variety of risk tolerances and objectives making them suitable for most retail investors, looking for income, growth or a combination of the two from their investments. Before investing, you should be comfortable with these investments not being guaranteed and therefore subject to the possibility of a capital loss. Consequently, you should also be prepared to invest for the medium to long term. They are especially suitable for those who want to have the final say regarding the investment objective and risk tolerance, in conjunction with the advice of their financial adviser, but don’t want to be involved with the day-to-day monitoring, management and switching administration of the portfolio once implemented.

Get in touch…

To find out more about Lowes Investment Management and the Managed Investment Portfolios: Call: 0191 281 8811

Email: LIM@Lowes.co.uk Visit: www.LowesIM.co.uk

10 Lowes.co.uk

INVESTMENT SPECIAL

Three-year anniversary of the Lowes UK Defined Strategy Fund (the “UKDSF”)

is currently capped at a maximum of 1% per annum (full details of all fees and expenses associated with the Fund can be found in the Fund documentation available at UKDSF.com). Performance As a Fund which offers daily dealing, it is subject to market forces just like any other and, as with other UK equity funds, it suffered in the run up to the first lockdown, especially against its stated aim to exceed cash (as measured by the Bank of England’s Sterling Overnight Interest Rate, (“SONIA”)) plus 5% over the medium to long term (net of fees). The Fund is actively managed with reference to this Target Benchmark. Of course, since the bottom of the correction in March 2020 the Fund has performed better. In fact, an investment made on any day since the end of February 2020 up until the end December 2021 would have exceeded the Fund’s Target Benchmark to date. With the current trajectory we hope that all investors will see their holding grow in excess of the Target Benchmark this year, which is pleasing given what happened in 2020. This has also been achieved with around three quarters of the volatility of the FTSE 100 index over the last year (8.85% compared to 11.68%). Given that the strategies utilised within the Fund all have defined outcomes in defined market circumstances, it is possible to project how the Fund, as its stands at any point, will perform in differing market conditions over the coming years. Of course any such projection relies upon a set of assumptions and as such can not be relied upon as an indicator of what the Fund will actually return but as can be seen from the table below, the portfolio as at the end of December 2021 was very well positioned to meet the Fund’s objective of providing capital growth in rising, directionless or moderately falling UK equity markets. Lowes UK Defined Strategy Fund is a sub fund of Skyline Umbrella Fund ICAV which is authorised and regulated by the Central Bank of Ireland. Full details of the Fund and relevant Documentation can be found at – www.UKDSF.com – or talk to your Lowes Adviser. Please note that a future performance indicator is not a reliable indicator of future results. We still very much believe in using individual structured products, but we think the UKDSF offers clients and investors another interesting and useful option to tap into our expertise in this investment field. 4.31% 9.39% 13.12% 15.85% 17.52% An estimate of the performance over specific time periods for given market movements. For example, if the FTSE 100 index is 5% up in 3 years, we expect the value of the Fund to rise by 15.85%. Please note that a future performance indicator is not a reliable indicator of future results. FTSE 100 movement -10% -5% 0% 5% 10% 1 year 3 years -1.02% 2.67% 5.42% 7.45% 8.69%

LOWES HAS A WELL-EARNED REPUTATION FOR ITS expertise in structured products. We have been using them with clients for almost thirty years and every year we publish our analysis of every new product brought to the retail investor market. In our analysis we have identified those which were worthy of consideration for client portfolios whilst calling out those that we felt were poor value or too risky. By publicly identifying our ‘Preferred’ plans in our industry facing comparison service, used by thousands of advisers, we believe we have helped shape the sector to be more competitive and offer better investor outcomes. Nowadays we are often able to achieve better terms than the general market has to offer, exclusively for Lowes clients. The success rate of our ‘Preferred Plans’ speaks to our capabilities and knowledge in finding the right products for our clients. Structured product fund With this level of expertise, in 2018 we decided to launch our own fund of structured products – Lowes UK Defined Strategy Fund (the “Fund”) – which has just reached its three-year anniversary and passed £20 million in assets under management. The Fund is designed to give Lowes’ clients and other investors a diversified portfolio of structured products, many of which are not otherwise available to retail investors. The Fund offers a diverse portfolio with a broad spread of structures with a range of observation dates and reduced counterparty bank risk, which for most of the portfolio is mitigated altogether as explained shortly. As a daily dealing UCITS Fund it is priced daily and may be bought and sold just like any other collective investment fund. Currently, there are 21 structured investment strategies in the fund, all of which are based on UK indices, with one strategy potentially maturing nearly every month. With most of the strategies in the fund we have been able to take away the counterparty bank risk because instead of using a bank bond within the structure we effectively replace such with short- dated government bonds (gilts). This has led to most of the Fund being protected from any bank failing. So, the Fund provides both greater diversification of structures and a reduction in counterparty risk. When financial planning, the Fund offers another advantage over individual structured products in that Capital Gains Tax (“CGT”) is applied only when the units in the Fund are sold by the investor, rather than when a structure within the fund matures and pays out. This means investors can withdraw or redeem from the Fund at their discretion, to make best use of their CGT exemption – currently £12,300 per tax year. There are no entry, exit, or performance fees applied to investment into the Fund, and the Ongoing Charge Figure (“OCF”) for the Fund

Lowes UK Defined Strategy Fund C GBP in GB 15 10

5 0 -5

-10 -15 -20 -25 Percentage Growth 31/12/2018

Source: FE Analytics. Bid-Bid. Total return.

30/06/2019

31/12/2019

30/06/2020

31/12/2020

30/06/2021

31/12/2021

11 Lowes.co.uk

INVESTMENT SPECIAL

Annual Structured Products Performance Review

LOWES CONTINUALLY MONITORS THE STRUCTURED PRODUCTS market and every year produces the sector’s only Annual Performance Review, showing how the products maturing in the previous calendar year have delivered for investors. While individual products can be seen to have done very well for investors, we feel it is important to show the full picture for all products available to the financial advice market. Full transparency helps to highlighting the value of structured products, and their potential for use within investment portfolios. In 2021, a significant 529 products matured, which was a 125% increase on the previous year. The increase was in large part due to the fall in the stockmarkets in March 2020, which meant that many of the autocall products that under normal circumstances were due to mature were rolled on to this year. Three quarters of all plans maturing in 2021 were autocalls. Of the 529 maturities, 82 were Lowes ‘Preferred’ Plans – the products which we believed at time of their launch offered the best proposition for our investors. As can be seen from the tables on this page, structured products once again have produced sterling returns for investors, doing what they say on the tin. Despite the turbulence and uncertainty caused by the coronavirus pandemic, 91.3% (483) delivered positive returns for investors, 40 returned capital only and just 6 lost capital. The latter were all plans linked to individual shares which we had identified as being potentially loss-making maturities for several years. Average annualised performance across all products (capital-at-risk and deposit plans) was 6.20%, with an upper quartile average return of 9.34% and lower quartile of 2.56%. Capital-at-risk plans protect investment capital to a set point, for example, unless the underlying is down more than 35% from launch at the investment’s final maturity date. As a result of the greater risk involved, they can offer higher levels of return than deposit plans, which guarantee return of capital. Overall, the average annualised return for capital-at-risk plans was 6.82%, with a top quartile average of 9.57% and lower quartile, 4.23%. For deposit plans, the quartile returns were respectively 4.87% and nil (solely returning capital). Consistent with recent years, the FTSE 100 Index in isolation was the most prevalent underlying measurement utilised, accounting for 62% of all maturities. The Lowes advantage As a recognised authority in structured products, we are delighted to be able to report that in all but one sub-category, the Lowes ‘Preferred’ Plans outshone the market again over the past year. 76 of the plans delivered a positive return, 6 returned capital only and none lost money for investors. Overall, the average annualised return for Lowes ‘Preferred’ Plans which were capital-at-risk was 7.57%. The thirteen ‘Preferred’ structured deposits returned an average annualised interest return of 3.89%. In most cases the ‘Preferred’ plan maturities not only outperformed their peers but significantly outperformed the underlying to which they were linked (eg. The FTSE 100 Index). The table allows for an easy comparison of how Lowes ‘Preferred’ Plans have performed against the market average. You can obtain a copy of this year’s Performance Review at: www.Lowes.co.uk/SPReview2022

All Products

Structured Product Maturities 2021 Number of product maturities Number that generated positive returns Number that returned capital only

Lowes 'Preferred' Plans

529

82

483

76

40

6

6 Number that lost capital

0

3.39 Average duration / term (years)

4.04

Average annualised returns

All Capital-at-Risk Products

6.82%

7.57%

9.57% Upper quartile 4.23% Lower quartile

11.30% 4.22% 3.89% 5.53% 0.94% 6.99% 10.77% 3.26%

All Deposit Products

2.13%

4.87% Upper quartile 0.00% Lower quartile

All Products

6.20%

9.34% Upper quartile 2.56% Lower quartile

12 Lowes.co.uk

LATER LIFE

Update on Later Life Care planning

reach the cap. It has set a notional amount for that of £200 per week. A calculated example of how this might affect an individual in care shows that an individual paying a total of £700 per week to a care home will have £200 of that amount deemed as daily living costs while the remaining £500 will count towards the £86,000 care cap. If an individual has a pension of £200 per week or more, including their state pension, this could be used to finance the ongoing room and board costs. Making sure they have other assets of £86,000, potentially by putting money aside and ring-fencing it for the potential need for later life care, could then cover the care element and give comfort that any remaining savings can be passed on as an inheritance. In December, Public Health England released its latest Healthy Ageing Profile data. This showed that healthy life expectancy for the UK is approximately 20 years less than actual life expectancy 1 . These announcements reinforce the need for effective Later Life Care planning. People tend to shy away from talking about death as well as the possibility that they might become ill when they are older. We should be financial planning for both scenarios.

THE GOVERNMENT HAS ANNOUNCED MORE DETAILS of the social care reforms planned for October 2023, revealing what people in residential care will be expected to pay per week for daily living costs to cover food, accommodation and utility bills. In September 2021, the Government unveiled new plans for adult social care reform in England, including a £86,000 lifetime cap on the amount anyone in England will need to spend on their personal care from October 2023, alongside a more generous means-test for local authority financial support. In November, the government published further details on the new reforms, including the standard level at which ‘daily living costs’ will be set. The Department of Health and Social Care said that for individuals who receive financial support for their care costs from their local authority, it is the amount that the individual personally contributes that will count towards the cap, i.e., not any welfare support. It has also said the upper limit at which people become eligible to receive some financial support will rise to £100,000 from the current £23,250. The new threshold means people with less than £100,000 chargeable assets will not contribute more than 20% of these assets per year. Meanwhile, the lower capital limit – the threshold below which people will not have to pay anything from their assets – will increase to £20,000 from £14,250. The Government said the new £86,000 lifetime cap will not cover daily living costs for people in care homes and people will remain responsible for their living costs including after they

If you’re concerned about potential long term care costs, speak to Lowes today, please call us on 0191 281 8811 and we can arrange an initial consultation.

1 Source: https://fingertips.phe.org.uk/profile/healthy-ageing

13 Lowes.co.uk