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By Guy Monson, Chief Market Strategist, Sarasin & Partners

After nearly a decade of super-easy money, a return to normality won’t be easy. Last year was anything but plain sailing for investors, with all major asset classes declining – the first time we have seen anything on this scale for the last 30 years.

However, whilst we are a long way from erasing 2022’s market losses, the decline in volatility in bonds and equities, and a retreat in the US dollar together suggest a more stable backdrop for 2023.

In some positive signs we are seeing US core consumer prices falling, which indicates that central bank policy is gaining traction. Elsewhere German and French inflation rates are also falling alongside sharp declines in oil and gas prices compared to the beginning of the Russia-Ukraine war. Whilst we may be past the peak of the great inflation shock, rising labour costs suggest that getting back to central bank target levels will not be easy.

Reasons to be cheerful

There are three factors that may help central banks contain global prices.

  1. Firstly, Europe’s gas reservoirs are now 28% fuller than they were a year ago. In fact, Europe may be able to secure much of next winter’s energy supplies with minimal inflows. And whilst gas prices are still three times higher than two years ago – six months ago they were nearly ten times.
  2. Secondly, global supply chains are returning to normal with the Federal Reserve Bank of New York’s global supply chain index close to its five-year average. For China the journey is just beginning, but the speed of reopening suggests the transformation in Chinese manufacturing output could be very significant.
  3. Finally, US and EU trade restrictions forced China to focus on intra-Asian trade with ten of its neighbours now showing staggering growth of 71% since US tariffs were applied in 2018. This surge in Asian trade will only accelerate as China reopens.

Is it too soon to sound the all-clear?

As we enter 2023 there is some light at the end of the tunnel. Global markets are full of long-term opportunity, equity valuations are close to fair value (but not yet cheap), and corporate bond yields offer returns well above two-year inflation forecasts. (Source: Bloomberg, Dec 2022). However, patience will be required before Central bankers sound the all clear.

Investors have a delicate balancing act to face in 2023, navigating between the global recession and the potential for renewed inflation on the other side. There is also the possible escalation in the Ukraine conflict and the challenges surrounding the reopening of the Chinese economy to consider. Against this backdrop, it will take strong nerves, stamina and the ability to act quickly when opportunities arise.

Most importantly, investors should keep a clear eye on the longer-term goal. That of the growth in equities, at the right price. Whether it’s renewing the worlds energy and transport infrastructure, automating factories and farms, or capturing a new wave of emerging market growth – we believe it’s an extraordinary time to accumulate long-term thematic exposure.

At Sarasin & Partners, we have been running model portfolios since 2013 which benefit from our distinct global thematic investment process. The core range of portfolios are risk rated by Dynamic Planner and have been awarded Dynamic Planner ‘Premium’ fund status, demonstrating the high, risk-adjusted returns generated over the last five years.

Important information

This article is for investment professionals only and should not be relied upon by private investors.

This article has been issued by Sarasin & Partners LLP which is a limited liability partnership registered in England and Wales with registered number OC329859 and is authorised and regulated by the UK Financial Conduct Authority. It has been prepared solely for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and we make no representation or warranty, express or implied, as to their accuracy. All expressions of opinion are subject to change without notice.

Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and also of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated.

Neither Sarasin & Partners LLP nor any other member of the Bank J. Safra Sarasin group accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The use of this document should not be regarded as a substitute for the exercise by the recipient of his or her own judgment. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document. If you are a private investor you should not rely on this document but should contact your professional adviser.

© 2023 Sarasin & Partners LLP – all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP.

By Mitesh Sheth, Chief Investment Officer of Multi-Asset, Newton Investment Management

The gains of globalisation are behind us and its’ effects are crumbling all around us. We have become so used to a ‘Goldilocks’ backdrop in which a rising tide of central bank liquidity has lifted all boats, with equities, bonds, credit, property, private equity and pretty much all other assets benefitting.

What if that isn’t how things will be in the future? What if inflation remains elevated at a level much higher than 2% (even if it comes down from where it is now, which it likely will)? After decades of lower for longer, what if interest rates remain higher for longer?

We believe we are in the middle of a regime change. So much so that a lot of what we learnt over the past few decades is no longer helpful for managing money today and in the future. Conditions that had underpinned the disinflationary period of 1980-2020, such as low inflation, excessive liquidity and the global geopolitical balance of power are over. Certainly, today’s macro environment poses risks for investors that have not been seen for the last 40 years. It requires re-examining existing models, assumptions and received wisdom. We are clearly entering a new regime.

We are all aware of how the global pandemic has disrupted critical supply chains, creating vulnerability for western consumers. This may continue to correct over the coming months, but we need to recognise a fragmented system of global trade that restricts its supply chains, is increasingly protectionist and deploys sanctions, and is likely to experience more frequent and profound supply-driven inflation shocks and shortages. We seem to be entering a war-time global economy.

Regime changes are rare, but they do happen. When they do, they tend to have profound implications for financial markets. Many of the maxims, norms and models of the investment management industry were conceived during the aforementioned disinflationary period.

Advisers may want to place less emphasis on cost and a greater focus on value going forward. We are clearly entering a new regime characterised not only by higher interest rates and inflation than many of us have seen in our working lifetimes, but also by greater volatility, given the uncertainties created by government intervention, supply chain problems, climate boundary conditions, growing inter-generational inequalities and the reversing of globalisation.

Strategies upon which success is predicated on low nominal interest rates are likely to struggle in this environment. We believe that many specialised, narrow and restricted mandates that lack flexibility could miss out on the potential benefits of broader asset allocation and exposure to selective alternatives.

Adapting to the new regime

With the benefit of hindsight, it made a lot of sense for advisers to recommend their clients invest in low-cost passive balanced funds when everything was going up. However, it could be much more difficult to achieve positive returns in the next few decades, with passive management at risk of disappointing, particularly in real terms, and it becomes harder to rely on bonds to protect capital, given the rising correlation between them and equities.

Advisers may want to place less emphasis on cost and a greater focus on value going forward. More active strategies, for example, could be better placed to take advantage of the growing divergence between companies, sectors, styles, strategies and countries.

Advisers have an important role in reassuring clients and giving them the courage to stay invested. There are already plenty of large, liquid and scalable markets the industry should be willing to offer at a lower fee for clients, whether that be through actively investing in global large-cap equities, global government bonds, global currencies or global commodities, especially if done quantitatively.

Good quality multi-asset funds that don’t try to forecast a single outlook for the future, but instead build resilience to weather different uncertain market environments could be a valuable long-term investment. There is also an important role for risk-rated funds, which could help clients remain invested with sufficient level of risk on, without attempting to time the market.

It’s natural for clients to feel like a rabbit caught in the headlights in the face of change and this can lead to paralysis. Advisers have an even more important role in reassuring clients and giving them the courage to stay invested, make contributions, take risk and focus on the longer term.

The value of investments can fall. Investors may not get back the amount invested.

For Professional Clients only. This is a financial promotion and is not investment advice. For a full list of risks applicable to these funds, please refer to the Prospectus or other offering documents. Please refer to the fund documents. Go to www.bnymellonim.com. Any views and opinions are those of the author, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes. For further information visit the BNY Mellon Investment Management website.

With 46% of team members at Dynamic Planner being women, we are truly embracing equity. For International Women’s Day 2023, we asked four women what embracing equity means to them. This is what they said.

Steph Willcox, Head of Actuarial Implementation

With three in four mothers with dependent children in work, the highest level over the last 20 years, it seems only reasonable that we should be embracing equity in the workplace. Working mothers are in a much better position post-pandemic, with the rise and expectation of flexible working, but we are starting to see a shift back to demands of being in the office placing pressure on primary caregivers.

Childcare costs in the UK are among the highest in the world, with 62% of parents saying they work fewer hours as a result. I would like to see workplaces acknowledge the balancing act that working parents, and in particular women, try to achieve, and look to their flexible working policies, to ensure they are supporting their employees for the relatively small period of time for which this is a major issue. I am grateful to work for a company which fully embraces hybrid working and supports me to be able to maintain a full-time career and a hectic family life.

Yasmina Siadatan, Sales & Marketing Director

Equity, diversity and inclusion should be looked at through every lens. Both within the business and externally, I believe we should be forging change. Businesses should hire individuals who share their values and strive to ensure there is a representation of all people. Where there are gaps, steps should be taken to correct this.

Our commitment to diversity and equity is not only limited to what we do internally, but we also care about it deeply when it comes to our product. We try to ensure a continuous impact to bring more women into our industry, as well as ensuring what we do and how we communicate appeals to more female advisers and end clients to also address the bias that exists when it comes to investing.

This is how we do things at Dynamic Planner and our success and culture demonstrate the value of operating a diverse and inclusive business. The promotion of equity, diversity and inclusion has to come from the very top table. The CEO and their immediate leadership team must take an active role in driving the agenda forward. They set the tone for the company and help to create a culture that values everyone.

Elly Gallagher, Head of People & Values

What it means to me is having a company culture where everyone can be their true selves. Where each person has a voice and is respected, and listened to, and their views are valued. This requires us to have deep connections to team members and building of trust so everyone feels safe and that sense of belonging.

I’m proud of the diversity at Dynamic Planner and of our focus on people and inclusivity within our culture. On International Women’s Day, we celebrate the achievements of our talented and strong women, recognise that women are increasingly represented within our technology teams, management and leadership, as well as more broadly the financial services industry. We are making progress, but there is always more to do and we really do have the power to make a difference!

Melinda Lovell, Enterprise Development Director

#EmbraceEquity springboards into Gloria Steinem’s definition of feminism as, ‘Anyone who recognizes the equality and full humanity of women and men’. To emphasise the word ‘humanity’, that, to me, is the essence of equity. Understanding and embracing our humanity allows us all to find the shoe that fits, find the firm that supports and the team that emboldens us to become our best selves.

#EmbraceEquity is also the fastest way to overcome the common corporate pitfall of ‘strategic shrink’, by bringing diversity of experience, thought, and approach to an organisation, and indeed to an industry.

Should we focus on Equality or Equity?

The theme for International Women’s Day 2023 is Embrace Equity, which aligns firmly with our mission “Let’s build an equitable future”. But what do we mean by that? We have worked for more than 15 years with young people across London and beyond to help educate them, remove barriers and empower them to be the best they can be and we have done this by focusing on equity rather than equality.

What is the difference between Equality and Equity? To break it down, equality is when each person is given the same thing, or a rule is applied in the same way to everyone. But that doesn’t allow for people being individuals and having different needs. It also doesn’t consider their starting point.

Equity is when each person is given what they need to enable them to be successful. Or when rules consider the circumstances and are adapted to enable progression. The image below clearly shows if you give each person the same bike, then it only really allows one person to ride comfortably or at all. But when you consider the equitable solution in the image at the bottom, it enables everyone to able be ride comfortably.

 

How does Equity Work in practice?

At Urban Synergy, we understand that every young person, their circumstance, and their dreams are unique. We tailor our school programmes, mentoring and work experience opportunities to help them reach their individual potential.

We understand that our community faces many challenges, and that there is often intersectionality between the different protected characteristics of diversity, as well as the socio economic factors that we need to consider.

This year we are Embracing Equity on International Women’s Day and raising awareness of the challenges that young people face when entering the workforce.
By working with Dynamic Planner and our other partners we are removing the barriers faced by young people. We open students’ eyes through career seminars, with a network of relatable role models, showing the variety of possible job roles available, and sharing their own career journeys and providing a pathway to follow.

We guide them with 1-2-1 mentoring, teaching them business and soft skills, as well as helping them with the tools they need like a CV and an effective LinkedIn presence. And finally we connect them to opportunities that would not be accessible through their own limited networks, giving them real world experience to learn from.

Ryan who attended the Dynamic Planner internship said: “Getting to meet the senior leadership was inspiring, especially hearing from the CEO and how he built the company. During the internship, not only did I meet a great team of people, I saw that the company’s mission was very clear: support clients and make portfolio management easier for them. Everyone I met was focused on that goal. It was a privilege to be trusted to support wherever I could.”

Opportunities like this are essential to enabling the next generation to succeed.

So, what can you do to help?

The latest global gender gap report from the World Economic Forum (WEF), summarised here, shares that between 2021 and 2022 the overall global gender gap slightly narrowed. It uses four key areas to assess gender gaps, health and survival, educational attainment, economic participation & opportunity and political empowerment.

You can consider these and ‘Embrace Equity’ too. By ensuring that you consider people’s individual needs, their starting point and any intersectionality they may have, you can put in place what is needed to support the women in your teams.

Can you help young people too?

Yes! Urban Synergy can also help you to ‘Embrace Equity’ too. We’d love to help even more young people to access opportunities, so if you can open your doors to a young person, get in touch. We’d love to partner with many more companies to offer even more diverse opportunities to the talented young people we work with.

With the collaboration of our valued partners like Dynamic Planner, we are building an equitable world where everyone, regardless of their background, is empowered to write their own future.

In support of International Women’s Day, Dynamic Planner, the UK’s leading risk based financial planning system, has conducted further analysis of findings from its Spotlight Report to paint a picture of women today in the advice industry.

Age Breakdown of Respondents of Spotlight Report

While the number of men increases with age it is the opposite for women, as the number of women, as a trend, decreases with every subsequent age group with the highest share of women (just over one in five) stating that they were under 30. The median ages for men is between 50-54 while median age for women is much lower at 40-44 showing a skew towards women being much younger with more than half being under the age of 44. Even though the number of female respondents was only 112 (30%), nearly an identical number of men and women indicated that they were under the age of 30, which equated to just over one in ten of male respondents and just over a fifth of female respondents.

Business Success

Female respondents are increasingly successful. In 2021, almost 1 in 2 said they serviced less than 100 clients on an ongoing basis, however in 2022, that decreased dramatically to just under 1 in 5. In 2022, just over half of women increased the number of advisers in their firm versus 42% of men. Women are also pushing the efficiencies of their roles – in 2021, 16% of female respondents said they serviced over 200 clients, whereas in 2022 that number more than doubled to 35%.

Roles

When it comes to roles within a firm, just three in 10 women work in an advising capacity versus a majority (77%) of men. A large proportion of women (58%) work as paraplanners or admin staff. For men this number is less than a fifth. On the whole, women are incredibly happy within their role as either an adviser, paraplanner or support staff, with 88% saying they would recommend their profession as a career.

Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said: “We are proud to support International Women’s Day and its theme for this year #EmbraceEquity. While the industry is moving in the right direction, this annual event gives everyone time to pause and reflect. Around the world women are forging change and this is borne out in our own research of the advice community – women are buoyant, bullish and paint a picture of their own success. More importantly they love their job and their clients will only benefit from such positive feeling.

“What’s really fascinating is the number of women across all age groups, with the largest number aged under 30 and how this will play out with the contrasting population of older males. Time will tell if there will be a levelling out of adviser numbers across the two groups, which could also be driven by more female investors seeking financial advice. As a company which inherently believes in equity and continually demonstrates this to our own team, we are also committed to helping the financial advice community to appeal to more women whether as potential employees or clients. If the industry can pave the way to a more equal working world, then we must level the playing field for investing too.”

Dynamic Planner supports #EmbraceEquity for International Women’s Day and beyond.

The Investment Committee (IC) met on Monday 23 January and reflected on the downstream impact of the dramatic escalation in geopolitical risks, due to the Russian invasion of Ukraine, now almost 12 months ago, and the associated commodity price shocks.

The macro environment is radically different to the optimistic one prevailing at the start of last year. Global growth has slowed much more than anticipated, whilst the expected ‘temporary’ spike in inflation, rather than easing, further increased and has become embedded. As core measures of inflation remained far above central bank targets and headline rates reached double digits in most economies, this prompted global central banks to embark on the most rapid pace of policy tightening in 40 years.

The current macro perspective can perhaps be best described as a fiscal and monetary ‘hangover’. The previous 10-year plus regime, where a 2% inflation target was made possible due to secular disinflationary forces, is not normal by historical standards. The supply chain problems that emerged in 2021, following the initial economic recovery from Covid, extended into 2022 as labour shortage issues and the ensuing commodity price shock embedded a higher level of inflation and lowered growth expectations.

Now the elephant in the room is high inflation, requiring rising global interest rates and a reduction in the bloated balance sheets of the central banks. This implies steeper yield curves, more quantitative tightening and ongoing high budget deficits. Alongside extended levels of bond market leverage (mainly due to widespread use within LDI strategies) and persistently high inflation, the risk of a liquidity driven global government debt crisis and ongoing bond volatility increases.

The impact of both the energy supply shock and the rapid tightening in monetary policy will slow global real growth, but also risks some economies flirting with moderate or intermittent recession in 2023. This is particularly pertinent to the UK economy, forecasted by the IMF to be the only G7 country to contract this year. It continues to grapple with supply chain issues following the Covid bounce back and has a higher dependence on expensive liquid natural gas, which has been driving up the cost of living even further. This is alongside rising taxes, labour shortages, widespread public sector worker unrest and the persistent lack of productivity growth in the economy.

However, whilst there are significant short-term headwinds in the UK, markets always look forward and signs of inflation easing will help slow the pace and quantum of further rate rises. The IC discussed the latest proposed Capital Markets Assumptions (CMA’s) to be applied in Dynamic Planner. The impact of the sharp rise in bond yields across the board over the previous quarter and the observed uptick in their volatility, has been reflected in the calibration process when setting the CMA’s this quarter.

Given the considerable economic headwinds, the key unknowns are how close we are to reaching the peak in the interest rate cycle this year and the extent of potential corporate defaults, which are still running at low levels by historical standards. For equities, the focus is now on the extent of earnings downgrades and how much of the recession risk is already priced into current valuations.

Dynamic Planner’s asset and risk model provides volatility, covariance, correlation and expected return assumptions, which are updated each quarter. They cover a wide range of bond maturities, equity market capitalisations and alternative assets, thereby equipping users with the flexibility to tilt portfolios relative to the risk-adjusted benchmarks as they see fit. Since the CMA’s are updated each quarter, these remain sensitive to long-term secular trends and reflect the average expected outcomes for investors buying and selling at different times over the cycle.

You can read the full Investment Committee update here

Speaking at its 11th Annual Conference in the year which sees Dynamic Planner, the UK’s leading risk based financial planning system, mark its 20th anniversary, CEO Ben Goss said:

“We founded Dynamic Planner almost 20 years ago today, and I am as excited now as I have ever been about the prospects for this industry and the customers we all ultimately serve. The pandemic and ensuing uncertainty in the world around us are driving growing demand and need for financial advice. These factors have also driven technology adoption at an unprecedented rate. The industry is in the foothills of something really quite special when you combine great advice with the right technology and aligned asset management.

“We believe that as the industry embraces personal financial planning at scale, the era of product sales is over. But 10 years on from the banning of commission, why has it taken so long? Historically the industry was wired back to front, from the product systems and their needs to the customer, not from the customer and their needs to the product. And while RDR was undoubtedly the catalyst for change, financial planning technology with the client at the centre, allied with their adviser is now enabling real change.

“Like RDR before it, the advent of Consumer Duty comes with many questions of its own, not least how do firms demonstrably ensure clients get the outcomes and value they are looking for, while at the same time growing value in their own business?

“Productively servicing clients in a way that delivers the outcomes they are looking for, in an era of increasing price transparency and on the eve of regulation which scrutinises not just outcomes but value received, crystalises the challenge now. I am confident that as an industry we can get to grips with the productivity challenge, in part because of how we all responded to RDR, but more than that, the industry now is arguably in the best shape it has ever been with clients getting consistent ongoing services and firms benefiting from a profitable ongoing fee model.

“The industry has come far. It is technology that has underpinned this transformation and it is technology that is integral in enabling the productivity we are seeing now. Dynamic Planner is firmly at the heart of this transformation, with our purpose the same as it was in 2003 but today stronger than ever – to help firms match people with suitable portfolios though engaging financial planning. ‘The Power of Now’, the title of our 11th Conference encapsulates this. We see there is a moment to be grasped and that’s exciting for all of us.”

Key Innovations and Developments from Dynamic Planner in 2023:

Dynamic Planner, the UK’s leading risk based financial planning system, has refreshed and relaunched its website to better serve adviser needs.

Mirroring how its one system technology works, the revitalised website now follows the ‘advise, research, tailor’ adviser and client journey within Dynamic Planner.

Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said: “The revitalised website has been designed to help advice firms get the very best out of using our one system technology. Mirroring the Dynamic Planner journey of advise, research and tailor, advice firms will enjoy a raft of enhancements including simplified navigation and our new Support Hub. We constantly take on board what advisers tell us they need and are excited to see their feedback and suggestions go live.”

17 January 2023: Dynamic Planner, the UK’s leading financial planning system and Quilter Financial Planning, a leading financial advice network, have entered into a long-term partnership agreement which will see Dynamic Planner provided to advisers within the Quilter group.

Quilter advisers will be able to fully access everything in Dynamic Planner’s one system including: industry leading psychometric risk and sustainability profiling; investment progress reviews; cash flow modelling; digital client access, recommendations, and research. Quilter will benefit from Dynamic Planner’s product governance target market and panelling functionality, which along with a shared consumer focused culture, will support them in meeting the new Consumer Duty. Dynamic Planner already works closely with Quilter Investors, Quilter Cheviot and the customer proposition team.

Dynamic Planner will fully integrate into technology already used by Quilter Financial Planning to ensure ease of data flow for users and maximise operational efficiency centrally. Roll out of Dynamic Planner to Quilter advisers has begun and is expected to be completed by Spring 2023.

In an early adoption programme, Quilter advisers using Dynamic Planner have already seen significant improvement in productivity, with feedback indicating that advisers can move from servicing 80 clients to over 300, an increase of 275%, whilst at the same time deepening relationships and spending less time on paperwork.

Ben Goss, CEO, Dynamic Planner said: “We are delighted to partner with Quilter Financial Planning to support their thousands of financial advisers in the delivery of outcome focused financial planning in an age of Consumer Duty. We have invested heavily in our one system technology in recent years and look forward to working closely with Quilter as a partner to help power their financial planning process with Dynamic Planner at scale.”

Steve Gazard, CEO, Quilter Financial Planning said: “We have been piloting the Dynamic Planner system with a number of key firms and advisers across our business for the last 18 months and have been delighted with the efficiency gains those firms have seen and the improvement in client experience. I am pleased that we have been able to further strengthen our offering by working closely with Dynamic Planner, and as such have a close relationship that will now allow us to rapidly deliver this to our wider adviser base.”

12 January 2023: Dynamic Planner, the UK’s leading risk-based financial planning system has appointed Michael Whitfield as its new Chair following FPE’s investment last year. Michael’s career in financial services spans four decades working in a variety of roles focusing on people and creating the technology to best serve their needs.

Michael founded Thomson Online Benefits in 2000, which he led for 17 years as CEO. He built the organisation from start-up to 500 people serving clients in over 90 countries, cementing its place as a market leader in global benefits software. Since 2018, Michael has focused on injecting his world-class expertise into guiding companies that inspire him, many of which are technology providers directly used by the end client.

Ben Goss, CEO at Dynamic Planner said: “We warmly welcome Michael as our new Chair. He has world-class experience of scaling a UK FinTech business internationally and understands the importance of culture and client focus in a successful business. I and the team look forward to working with him.

“I would like to thank Neil Brown, our previous Chair for his chairmanship, advice and support over the years.”