Wednesday, 26 April 2017

What is an Exchange Traded Fund or ETF?

An exchange traded fund, or ETF, is an investment fund managed by a professional money manager and traded on domestic or international stock exchanges.

Much like traditional stocks, an exchange traded fund - often referred to as an ETF - is an investment fund managed by a professional money manager and traded on domestic and international stock exchanges. An exchange traded fund is an investment fund that owns underlying assets, such as shares of stock, bonds, oil futures, hard assets, foreign currency, etc., and divides ownership of those assets into shares. The fund's shareholders do not directly own or have any direct claim to the investments in the fund; rather they indirectly own these assets.

An exchange traded fund seeks to track the performance of a particular index by holding in its portfolio, either the contents of the index or a representative sample of the securities in the index. The first and most popular exchange traded funds track stocks. ETFs can also be sector funds which invest in broad sectors, like finance, container shipping, and technology, or specific niche areas, like green power. Most exchange traded funds are index funds, but some ETFs do have active management.

Exchange traded funds have been available in the United States since 1993 and in Europe since 1999. By 2013, ETFs emerged as the most popular type of exchange-traded product.  Between 1993 and 2015, more than US$2 trillion was invested in exchange traded funds in the United States.

ETF shareholders are entitled to an investment income from the profits, such as earned interest, dividends or capital gains. Unlike many mutual funds, exchange traded funds do not reinvest an investor’s cash distributions in more units or shares. That said, investors can expect to pay commissions and management fees to invest in exchange traded funds. As well, there may be costs associated with setting up an ETF investment account.

Exchange traded funds typically have higher daily liquidity and lower costs, as well as tax efficiency and stock-like features, which make them a great investment alternative for individual investors. By owning an exchange-traded fund, investors get the diversification of an index fund, with the ability to sell short, buy on margin, and purchase as little as one share. Because ETFs can be economically acquired, held, and sold, some investors invest in exchange traded fund shares as part of their long-term investment strategy.

Wednesday, 19 April 2017

UK Election Will Bring Much Needed Support For Brexit Talks

Through the election in the UK the government will earn the support of the population and determine a concrete Brexit position before EU discussions begin.

The recent decision by Prime Minister May to call an election in the UK has caused the British Pound to rise sharply alongside domestic and international investor sentiment. Both the markets and investors have displayed their confidence in a stronger, possibly even more cooperative Britain. It is believed that an undivided United Kingdom will be in a better position to negotiate a favorable exit from the European Union.

The move by the British government to call an election, forces the nation's other political parties to establish and articulate their position on Brexit. This will help the country work through points of contention and craft a deal that benefits the people of the UK, Britain's economy, and worldwide investors who have invested (or plan to invest) in the country. Determining a concrete position before EU discussions begin will earn the support of the population, and thus make establishing policy much easier going into the Brexit negotiations.

From the viewpoint of investors, a clearly unified Great Britain - going into and coming out of talks with the European Union - will make a great destination for investment dollars. In particular, the UK's shipping and finance industries are two well-established sectors that already appeal to the investment community, and stand to lose the most from a hard Brexit. If the British government is to continue to profit from these key areas, a deal with the EU will have to ensure that UK trade and investment are able to continue to make valuable economic contributions.

The most important thing that the United Kingdom needs in its divorce from the European Union is support. Prime Minister May, or whoever wins the election, will need the support of constituents and members of parliament to navigate a course through the dangerous waters ahead. Only with all hands on deck will Britain's government keep its ship from sinking, and bringing down the UK's economy with it.

Monday, 3 April 2017

For Investors Brexit More of an Inconvenience Than a Barrier

While the biggest impact of Brexit will be felt in the UK, it is more likely to be an inconvenience for investors, rather than a barrier to investment or trade.

As Article 50 is triggered, what will be the consequences for your investments? Most analysts expect the triggering of Article 50 will have little immediate effect on the UK investment market and exchange rate. As well, it is probable that the impact of Brexit on trade will be relatively small too.

Although the UK's economic performance since the June 2016 vote has been described as "incredible", the negotiation portion of Brexit is expected to be "troublesome." Many are attributing this to the tight two-year time frame for the negotiations. Analysts forecast that markets could suffer if Brexit discussions prove difficult. While the biggest impact of a hard Brexit will be felt in the UK, there can be little doubt that there will also be a significant impact on the rest of the European Union.

It is highly probable that a favorable trade agreement will be reached after Brexit, as there are clear advantages for both the UK and the EU in continuing a close commercial relationship. But the worst-case scenario, in which Britain faces tariffs under ‘most-favored nation’ rules, would still not prove to be a disaster for the UK. These factors are more likely to be an inconvenience for UK exports, rather than a major barrier to trade. After all, post-Brexit outcomes which reduce trade or increase the cost of trade between the UK and the rest of Europe will be damaging for both sides.

With the Brexit vote comes much political, economic, and financial uncertainty, both for the UK and Europe. Although the impact of Brexit on the British economy is uncertain, Britain’s long-term economic outlook is not solely dependent upon the outcome of negotiations. This is in part because Britain has pulled ahead of the European Union in recent years, and economists expect the gap to widen.

Because of the depreciation of the British pound, and the fact that fundamentally the UK is still a large market with 65 million affluent consumers, many investors are seeing more opportunities to invest in the UK after Brexit. Regardless of what happens though, maintaining a diversified investment portfolio is an essential strategy for investors.

Monday, 27 March 2017

An Income-Producing Investment to Supplement Retirement

Choosing the right income-producing investments can help retirees generate money to pay bills, and continue living the life they've grown accustomed to.

Supporting your lifestyle during retirement may be more of a financial challenge than you realize. The cost of things like rent, taxes, utilities, and groceries can quickly eat through a pension check. Retired people need more money to match inflation and the rising costs of daily living.

Choosing the right income-generating investments can help retirees generate more money to pay their monthly expenses, and continue living the life they have grown accustomed to. Ideally the choice of income-producing investment will pay retirees regularly, be a hard, tangible asset, and carry very little risk. I discovered that an investment in shipping containers closely matches this criteria.

Shipping containers are the large, steel cargo boxes you see on ships, trains, and trucks. For more than 50 years they have made shipping more efficient and affordable, and made enormous contributions to globalization. Currently, 90+ percent of world trade is shipped in containers. For manufacturers and retailers, they are an intricate part of the global supply chain.

With the help of a container leasing company like Davenport Laroche, investors can purchase their own fleet of shipping containers and begin earning an income to supplement their retirement. Similar to owning an income-producing property, shipping container investors - like landlords - earn rent money each month. Unlike rental properties though, shipping containers need very little upkeep and maintenance.

The containers invested in are leased to logistics and shipping companies, and generate a monthly income for transporting cargo. The revenues from the lease of the containers are shared with the investor as a return on investment. Over the lifetime of a container, which is a decade or more, this can add up to a significant amount of income.

As the world economy continues to grow, the demand for shipping containers will increase as well. With each country in the world working toward increasing their GDP, more and more containers are needed to support imports and exports. From highways to railways and seaways, these income-producing assets are generating wealth for countries and investors alike.

Monday, 13 March 2017

Gold Still Plays an Important Role in Investor's Portfolio

Despite the fact that gold no longer backs the U.S. dollar, or other currencies for that matter, it still plays an important place in an investor's portfolio.

Historically gold has influenced several powerful empires, such as those of the Greeks and Romans for example. Eventually, there came a time when gold symbolized wealth throughout Europe, Asia, Africa, and the Americas. Nowadays however, there is a school of thought that argues gold is simply a barbaric relic that no longer holds the monitory qualities it once did. In a modern economic environment, where paper currency is the money of choice, some say gold's only benefit is that it's a material commonly used in jewelry.

Gold As a Hedge Against Uncertainty.

Despite the fact that gold no longer backs the U.S. dollar, or other worldwide currencies for that matter, it still plays an important place in an investor's portfolio. The reason for this is that gold has successfully preserved wealth for thousands of years. This is particularly important in an economic environment where investors are faced with a powerful U.S. dollar, a risk of rising inflation, austerity measures, and/or slowing developed market growth. In the past, gold has successfully served as a hedge against all of these pressures.

Buying gold bullion is not a proactive method of obtaining wealth as much as it acts as a safety net against inflation. - Jim Armiento, Financial Adviser

Gold's Relationship With Interest Rates

It is widely accepted that the price of gold has a close relationship with interest rates. As interest rates rise the general tendency is for the gold price to fall. Conversely, as interest rates dip, gold prices will rise. Because of this, gold price can be closely correlated to central banks via the monetary policy decisions made by them; particularly related to interest rates.

Many investors and market analysts believe that as interest rates rise they make bonds and other fixed income investments more attractive. When this happens, money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold; which offers no yield at all. Therefore, before buying or selling gold, investors should look to the reason for the interest rate hike first, to determine if it occurred to contain inflation or if it is a genuine normalisation of monetary policy.

A Final Thought on Gold.

Whether it is the tensions in the Middle East, Brexit or the policies of President Trump, it is becoming increasingly obvious that political and economic uncertainty is prevalent our global economic environment. For this reason, investors typically turn to gold as a safe haven during times of political and economic upheaval. Looking back to the 2008-2009 recession, and in 2016 after the stunning Brexit victory, you might remember that gold became increasingly appealing because of uncertainty in the political and economic future.

Wednesday, 22 February 2017

Fine Wine One of The Best Performing Assets in Last 20 Years

From what I've seen during my research, fine wine boasts one of the best performing asset classes of the last 20 years. This is partly thanks to the rise in demand from Asia; more specifically China. In fact, the interest in fine wine is go great that China's consumption has moved France into second place as the world's market leader.

Given fine wines’ traditional insulation from risky stock and bond markets, investing in wine has the benefit of being a hedge from traditional investments. Since 1998, fine wine investments have outperformed Global equities 98% of the time and have produced a positive absolute return in every single 5-year holding period.

The best investment-grade wines are produced in small quantities - up to a maximum of 20,000 cases - and it is the demand-supply imbalance brought about through their consumption that drives prices higher over time. As the wines mature and improve, they also become rarer and more desirable. This drives prices ever higher. As a word of caution from the articles I've read, a smaller quantity of the finest wines will serve you better than cheaper cases. This is because you could see annual insurance costs and storage charges eat through your profit.

Most experts agree that in order to encourage the best results from your fine wine investment you will need to set aside upwards of £10,000, and purchase the very best bottles that you can afford. That said, provenance and quality will determine and prove the value of your investment, so do your homework and ask questions before investing.

Keeping your wine in optimal salable and flavor condition for long time periods requires careful storage. To ensure the future value of your wine when you are ready to sell, it is of paramount importance to ensure your bottles are stored professionally and correctly. Typically, you can expect to pay a minimum of £15 per case, per annum for storage and insurance. That totals £75 over a 5-year investment.

Another characteristic of wine investing that appeals to investors is the tax benefits. Due to it being exempt from capital gains tax in the UK, because it is deemed a wasting asset ‘whose predictable life does not exceed more than 50 years’ (Section 44[1] Taxation of Chargeable Gains Act 1992), fine wine can be considered more tax-efficient than other alternative investments.

Friday, 27 January 2017

The Trade Trouble With Trump's Protectionist Views

Albeit Trump shares the protectionist economic view of some of America's Founding Fathers, the trouble is that his trade proposals are much more extreme.

Trump wants to protect American manufacturers by taxing products that are made overseas and then sold in the United States. Many economists fear that this antagonistic approach will start trade wars that would ultimately harm the American economy. Withdrawing from NAFTA and the TPP, or imposing a 35 percent tariff as Trump has threatened, would have a negative effect on the USA.

Raising tariffs on imported goods, such as shoes and clothing made in China, will drastically increase prices for American consumers. Moreover, the countries that Trump's administration singles out will be more than likely to retaliate with higher tariffs on American imports. These protectionist actions by the U.S. would trigger a trade war, which would drive up prices and hurt American consumers by reducing their purchasing power. Demand would fall, and companies would need fewer workers. It's "a lose-lose scenario."

Early moves by President Trump highlighting a protectionist stance on world trade have given investors reason to rethink their asset allocations. Many are worried that Trump’s anti-globalisation mantra will spread protectionism around the world, erect trade barriers, and curb global economic growth.

Trump has said his protectionist policies will keep "jobs and wealth inside the United States" . He has promised to increase employment, saying his plans for lower taxes, trade barriers and tighter immigration rules would lead to stronger economic growth. As with the deficit, many economists warn his plans could make things worse not better. Much of what he is suggesting would hinder economic growth and in turn employers’ ability to create new jobs.

It’s clear that Trump hopes to return the United States to its protectionist past. The trouble is that in those days - 200 years ago, the American economy was still small enough that it could grow by focusing inward. Today, the United States' economy is a global one. U.S. companies have had to expand production, as well as their consumer base, across the world to keep growing. Albeit Trump shares the protectionist economic view of some of America's Founding Fathers, his proposals are much more extreme.